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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-Q

(Mark One)

QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the
transition period from ___________to ___________

Commission file number: 000-30267

ORCHID BIOSCIENCES, INC.(Exact name of registrant as specified in its charter)

|DELAWARE                                 | 22-3392819                          
|---------------------------------------- | ------------------------------------
|(State or other jurisdiction             | (I.R.S. Employer Identification No.)
|of incorporation or organization)        |                                     
|                                         |                                     
|4390 US ROUTE ONE, PRINCETON, NJ         | 08540                               
|(Address of principal executive offices) | (Zip Code)                          

Registrant's telephone number, including area code:(609) 750-2200

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes No

The number of shares outstanding of the registrant's Common Stock, $.001 par value, as of August 1, 2003 was63,637,071.

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ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

|                                  |                                                                                                                       | PAGE
|--------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ----
|PART
    I  FINANCIAL INFORMATION
|                                  |                                                                                                                       |     
|Item 1.                           | Financial
    Statements                                                                                              | 1   
|                                  |                                                                                                                       |     
|                                  | Condensed Consolidated Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002                           | 1   
|                                  |                                                                                                                       |     
|                                  | Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002 (unaudited) | 2   
|                                  |                                                                                                                       |     
|                                  | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002 (unaudited)           | 3   
|                                  |                                                                                                                       |     
|                                  | Condensed
    Consolidated Statement of Stockholders Equity for the six months ended June 30, 2003 (unaudited)       | 4   
|                                  |                                                                                                                       |     
|                                  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                      | 5   
|                                  |                                                                                                                       |     
|Item 2.                           | Management's
    Discussion and Analysis of Financial Condition and Results Of Operations                             | 17  
|                                  |                                                                                                                       |     
|Item 3.                           | Quantitative and Qualitative Disclosures about Market Risk                                                            | 31  
|                                  |                                                                                                                       |     
|Item 4.                           | Controls and Procedures                                                                                               | 32  
|                                  |                                                                                                                       |     
|PART
    II  OTHER INFORMATION   
|                                  |                                                                                                                       |     
|Item 1.                           | Legal Proceedings                                                                                                     | 32  
|                                  |                                                                                                                       |     
|Item 2.                           | Changes in Securities and Use of Proceeds                                                                             | 34  
|                                  |                                                                                                                       |     
|Item 3.                           | Defaults upon Senior Securities                                                                                       | 34  
|                                  |                                                                                                                       |     
|Item 4.                           | Submission of Matters to a Vote of Security Holders                                                                   | 34  
|                                  |                                                                                                                       |     
|Item 5.                           | Other Information                                                                                                     | 35  
|                                  |                                                                                                                       |     
|Item 6.                           | Exhibits and Reports on Form 8-K                                                                                      | 35  



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PART I.   FINANCIAL
INFORMATION

ITEM I.   FINANCIAL
STATEMENTS

ORCHID
BIOSCIENCES, INC.AND SUBSIDIARIES

Condensed Consolidated Balance Sheets(In thousands, except
  share and per share data)

|                                                                                                                                                                                                                                                   | June 30,
        2003 |          |   | December 31, 2002 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | -------- | - | ----------------- | -
|                                                                                                                                                                                                                                                   |                       |          |   |                  
|                                                                                                                                                                                                                                                   | (unaudited)           |          |   |                   |  
|Assets                                                                                                                                                                                                                                             |                       |          |   |                   |  
|Current
    assets:                                                                                                                                                                                                                                |                       |          |   |                   |  
|Cash
      and cash equivalents                                                                                                                                                                                                                    | $                     | 15,686   |   |                   | $
|Restricted
      cash                                                                                                                                                                                                                              |                       | 1,900    |   |                   |  
|Accounts
      receivable, net                                                                                                                                                                                                                     |                       | 10,655   |   |                   |  
|Inventory                                                                                                                                                                                                                                          |                       | 1,560    |   |                   |  
|Prepaids
      and other current assets                                                                                                                                                                                                            |                       | 1,837    |   |                   |  
|Assets
      of a business component held for sale                                                                                                                                                                                                 |                       | 7,061    |   |                   |  
|                                                                                                                                                                                                                                                   |                       |          |   |                   |  
|Total
    current assets                                                                                                                                                                                                                           |                       | 38,699   |   |                   |  
|Fixed
    assets, net                                                                                                                                                                                                                              |                       | 11,088   |   |                   |  
|Goodwill,
    net                                                                                                                                                                                                                                  |                       | 2,584    |   |                   |  
|Other
    intangibles, net                                                                                                                                                                                                                         |                       | 15,723   |   |                   |  
|Restricted
    cash                                                                                                                                                                                                                                |                       | 1,485    |   |                   |  
|Other
    assets                                                                                                                                                                                                                                   |                       | 628      |   |                   |  
|                                                                                                                                                                                                                                                   |                       |          |   |                   |  
|Total
    assets                                                                                                                                                                                                                                   | $                     | 70,207   |   |                   | $
|                                                                                                                                                                                                                                                   |                       |          |   |                   |  
|Liabilities and Stockholders Equity                                                                                                                                                                                                               |                       |          |   |                   |  
|Current
    liabilities:                                                                                                                                                                                                                           |                       |          |   |                   |  
|Current
      portion of long-term debt                                                                                                                                                                                                            | $                     | 2,667    |   |                   | $
|Accounts
      payable                                                                                                                                                                                                                             |                       | 3,320    |   |                   |  
|Accrued
      expenses                                                                                                                                                                                                                             |                       | 12,075   |   |                   |  
|Deferred
      revenue                                                                                                                                                                                                                             |                       | 2,923    |   |                   |  
|Liabilities
      of a business component held for sale                                                                                                                                                                                            |                       | 2,380    |   |                   |  
|                                                                                                                                                                                                                                                   |                       |          |   |                   |  
|Total
    current liabilities                                                                                                                                                                                                                      |                       | 23,365   |   |                   |  
|Long-term
    debt, less current portion                                                                                                                                                                                                           |                       | 1,096    |   |                   |  
|Accrued
    restructuring, less current portion                                                                                                                                                                                                    |                       | 1,027    |   |                   |  
|Other
    liabilities                                                                                                                                                                                                                              |                       | 1,636    |   |                   |  
|                                                                                                                                                                                                                                                   |                       |          |   |                   |  
|Redeemable
    Convertible Series A preferred stock;                                                                                                                                                                                               |                       |          |   |                   |  
|Designated
         1,680 shares; $.001 per share par value; 1,675 shares issued; 1,466
         and 0 shares outstanding as of June 30, 2003 and December 31, 2002,
    respectively; stated, minimum redemption and liquidation value of $14,660 |                       | 11,358   |   |                   |  
|                                                                                                                                                                                                                                                   |                       |          |   |                   |  
|                                                                                                                                                                                                                                                   |                       |          |   |                   |  
|                                                                                                                                                                                                                                                   |                       |          |   |                   |  
|Commitments
    and contingencies                                                                                                                                                                                                                  |                       |          |   |                   |  
|                                                                                                                                                                                                                                                   |                       |          |   |                   |  
|Stockholders equity:                                                                                                                                                                                                                              |                       |          |   |                   |  
|Preferred
      stock, $.001 par value. Authorized 5,000,000 shares;
1,675 shares issued and 1,466 shares outstanding as of June 30, 2003 and 0 shares issued
    and oustanding at December 31, 2002 (reported above)                             |                       |         |   |                   |  
|Series
         A junior participating preferred stock, $.001 par value.
  Designated 1,000,000 shares; no shares issued or outstanding                                                                                                            |                       |          |   |                   |  
|Common
         stock, $.001 par value. Authorized 150,000,000 shares;
  issued and outstanding 61,412,937 and 55,738,781 at June 30, 2003 and December
  31, 2002, respectively                                                                   |                       | 61       |   |                   |  
|Common
    Stock to be issued                                                                                                                                                                                                                      |                       | 209      |   |                   |  
|Additional
    paid-in capital                                                                                                                                                                                                                     |                       | 308,741  |   |                   |  
|Deferred
    compensation                                                                                                                                                                                                                          |                       | (812     | ) |                   |  
|Accumulated
    other comprehensive income                                                                                                                                                                                                         |                       | 918      |   |                   |  
|Accumulated
    deficit                                                                                                                                                                                                                            |                       | (277,392 | ) |                   |  
|                                                                                                                                                                                                                                                   |                       |          |   |                   |  
|Total
    stockholders equity                                                                                                                                                                                                                     |                       | 31,725   |   |                   |  
|                                                                                                                                                                                                                                                   |                       |          |   |                   |  
|Total
    liabilities and stockholders equity                                                                                                                                                                                                     | $                     | 70,207   |   |                   | $
|                                                                                                                                                                                                                                                   |                       |          |   |                   |  

See accompanying notes to condensed consolidated financial statements.

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ORCHID BIOSCIENCES, INC.AND SUBSIDIARIES

Condensed
    Consolidated Statements of OperationsThree and six months ended June 30,
    2003 and 2002
  (in
  thousands, except share and per share data)
  (unaudited)

|                                                                                                            |  | Three months ended June, 30 |            | Six months ended June 30, |  
|----------------------------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | ------------------------- | -
|                                                                                                            |  |                             |            |                           |  
|                                                                                                            |  | 2003                        |            | 2002                      |  
|                                                                                                            |  |                             |            |                           |  
|Revenues:                                                                                                   |  |                             |            |                           |  
|Product
    revenues                                                                                        |  | $                           |           |                           | $
|Service
    revenues                                                                                        |  |                             | 12,244     |                           |  
|Other
    revenues                                                                                          |  |                             | 120        |                           |  
|                                                                                                            |  |                             |            |                           |  
|Total
    revenues                                                                                          |  |                             | 12,364     |                           |  
|                                                                                                            |  |                             |            |                           |  
|Operating
    expenses:                                                                                     |  |                             |            |                           |  
|Cost
    of product revenues                                                                                |  |                             |           |                           |  
|Cost
    of service revenues                                                                                |  |                             | 6,653      |                           |  
|Research
    and development                                                                                |  |                             | 1,159      |                           |  
|Marketing
    and sales                                                                                     |  |                             | 1,701      |                           |  
|General
    and administrative                                                                              |  |                             | 6,456      |                           |  
|Impairment
    of assets                                                                                    |  |                             | 837        |                           |  
|Restructuring                                                                                               |  |                             | (83        | )                         |  
|Amortization
    of intangible assets                                                                       |  |                             | 453        |                           |  
|                                                                                                            |  |                             |            |                           |  
|Total
    operating expenses                                                                                |  |                             | 17,176     |                           |  
|                                                                                                            |  |                             |            |                           |  
|Operating
    loss                                                                                          |  |                             | (4,812     | )                         |  
|                                                                                                            |  |                             |            |                           |  
|Other
    income (expense):                                                                                 |  |                             |            |                           |  
|Interest
    income                                                                                         |  |                             | 49         |                           |  
|Interest
    expense                                                                                        |  |                             | (147       | )                         |  
|Other
    income (expense), net                                                                             |  |                             | 141        |                           |  
|                                                                                                            |  |                             |            |                           |  
|Total
    other income, net                                                                                 |  |                             | 43         |                           |  
|                                                                                                            |  |                             |            |                           |  
|Loss
    from continuing operations before income taxes                                                     |  |                             | (4,769     | )                         |  
|Income
    tax (expense)/benefit                                                                            |  |                             | (716       | )                         |  
|                                                                                                            |  |                             |            |                           |  
|Loss
    from continuing operations                                                                         |  |                             | (5,485     | )                         |  
|Discontinued
    operations:                                                                                |  |                             |            |                           |  
|Income/(loss)
    from operations of a business held for sale                                               |  |                             | (3,983     | )                         |  
|                                                                                                            |  |                             |            |                           |  
|Net
    loss                                                                                                |  |                             | (9,468     | )                         |  
|Dividends
    to Series A Preferred Shareholders                                                            |  |                             | (244       | )                         |  
|Accretion
    of Series A Preferred Stock discount resulting from conversions                               |  |                             | (471       | )                         |  
|Beneficial
    conversion feature of redeemable preferred stock                                             |  |                             |           |                           |  
|                                                                                                            |  |                             |            |                           |  
|Net
    loss allocable to common stockholders                                                               |  | $                           | (10,183    | )                         | $
|                                                                                                            |  |                             |            |                           |  
|Basic
         and diluted loss from continuing operations per share allocable to common
    stockholders   |  | $                           | (0.11      | )                         | $
|Basic
    and diluted income/(loss) from discontinued operations per share                                  |  | $                           | (0.07      | )                         | $
|Basic
    and diluted net loss per share allocable to common stockholders                                   |  | $                           | (0.18      | )                         | $
|Shares
         used in computing basic and diluted net loss per share allocable to
    common stockholders |  |                             | 56,868,123 |                           |  

See accompanying notes to condensed consolidated financial statements.

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ORCHID BIOSCIENCES, INC.AND
SUBSIDIARIES

Condensed Consolidated
Statements of Cash Flows
Six months ended June 30, 2003 and 2002
(In thousands)
(unaudited)

|                                                                                                              |  | 2003 |        | 2002 |  
|------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | -
|                                                                                                              |  |      |        |      |  
|Cash
    flows from operating activities:                                                                     |  |      |        |      |  
|Loss
    from continuing operations                                                                           |  | $    | (9,566 | )    | $
|Income/(loss)
    from discontinued operations                                                                |  |      | (4,182 | )    |  
|Adjustments
    to reconcile net loss to net cash provided by/(used in) operating activities:                 |  |      |        |      |  
|Cash
    used in discontinued operations                                                                      |  |      | (586   | )    |  
|Noncash
    compensation expense                                                                              |  |      | 981    |      |  
|Depreciation
    and amortization                                                                             |  |      | 3,130  |      |  
|Warrants
    issued to third party as a financing fee                                                         |  |      | 133    |      |  
|Impairment
    of discontinued assets                                                                         |  |      | 3,905  |      |  
|Impairment
    of assets                                                                                      |  |      | 837    |      |  
|Changes
    in assets and liabilities:                                                                        |  |      |        |      |  
|Accounts
    receivable                                                                                       |  |      | 61     |      |  
|Inventory                                                                                                     |  |      | (616   | )    |  
|Prepaids
    and other current assets                                                                         |  |      | (214   | )    |  
|Other
    assets                                                                                              |  |      | 19     |      |  
|Accounts
    payable                                                                                          |  |      | (85    | )    |  
|Accrued
    expenses, including restructuring                                                                 |  |      | 1,949  |      |  
|Deferred
    revenue                                                                                          |  |      | 1,281  |      |  
|Other
    liabilities                                                                                         |  |      | (75    | )    |  
|                                                                                                              |  |      |        |      |  
|Net
    cash used in operating activities                                                                     |  |      | (3,028 | )    |  
|                                                                                                              |  |      |        |      |  
|Cash
    flows from investing activities:                                                                     |  |      |        |      |  
|Capital
    expenditures                                                                                      |  |      | (804   | )    |  
|Increase
    in restricted cash                                                                               |  |      |       |      |  
|Cash
    paid for intangible assets                                                                           |  |      |       |      |  
|Purchases
    of short-term investments                                                                       |  |      |       |      |  
|Maturities
    of short-term investments                                                                      |  |      |       |      |  
|                                                                                                              |  |      |        |      |  
|Net
    cash provided by/(used in) investing activities                                                       |  |      | (804   | )    |  
|                                                                                                              |  |      |        |      |  
|Cash
    flows from financing activities:                                                                     |  |      |        |      |  
|Net
    proceeds from issuance of common stock                                                                |  |      | 495    |      |  
|Net
    proceeds from issuance of redeemable convertible preferred stock                                      |  |      | 16,000 |      |  
|Repayment
    of debt from line of credit                                                                     |  |      | (7,046 | )    |  
|Payments
    of patent obligation                                                                             |  |      |       |      |  
|                                                                                                              |  |      |        |      |  
|Net
    cash provided by financing activities                                                                 |  |      | 9,449  |      |  
|                                                                                                              |  |      |        |      |  
|Effect
    of foreign currency translation on cash and cash equivalents                                       |  |      | 84     |      |  
|                                                                                                              |  |      |        |      |  
|Net
    increase in cash and cash equivalents                                                                 |  |      | 5,701  |      |  
|Cash
    and cash equivalents at beginning of period                                                          |  |      | 9,985  |      |  
|                                                                                                              |  |      |        |      |  
|Cash
    and cash equivalents at end of period                                                                |  | $    | 15,686 |      | $
|                                                                                                              |  |      |        |      |  
|Supplemental
    disclosure of noncash financing and investing activities:                                    |  |      |        |      |  
|                                                                                                              |  |      |        |      |  
|Reversal
    of deferred compensation from forfeiture of common stock options                                 |  | $    | 512    |      | $
|Issuance
    of common stock warrants to investors of the redeemable preferred stock                          |  |      | 2,903  |      |  
|Issuance
         of units of redeemable preferred stock to placement agent as a financing
    fee            |  |      | 750    |      |  
|Issuance
         of common stock warrants to placement agent of the redeemable preferred
    stock           |  |      | 120    |      |  
|Issuance
         of common stock  from conversion of redeemable preferred stock                              |  |      | 2,090  |      |  
|Beneficial
    settlements of purchase accounting obligations                                                 |  |      | 524    |      |  
|Beneficial
    conversion feature of redeemable preferred stock                                               |  |      | 744    |      |  
|Dividends
    to Series A Preferred Shareholders                                                              |  |      | 244    |      |  
|Accretion
    of Series A Preferred Stock discount resulting from conversions                                 |  |      | 471    |      |  
|Changes
         in deferred compensation for grant, forfeiture and remeasurement of
    common stock options |  |      |       |      |  
|                                                                                                              |  |      |        |      |  
|Supplemental
    disclosure of cash flow information:                                                         |  |      |        |      |  
|Cash
    paid during the period for interest                                                                  |  | $    | 296    |      | $

See accompanying notes to condensed consolidated financial statements.

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ORCHID BIOSCIENCES, INC.AND
SUBSIDIARIES

Condensed Consolidated
Statement of Stockholders' Equity
Six months ended June 30, 2003
(In thousands)
(Unaudited)

|                                                                                      |  |                                  |  |   |        |  |   |                                     |  |   |                                      |   |   |                              |   |   |                                                  |  |   |                               |  
|------------------------------------------------------------------------------------- |  | -------------------------------- |  | - | ------ |  | - | ----------------------------------- |  | - | ------------------------------------ | - | - | ---------------------------- | - | - | ------------------------------------------------ |  | - | ----------------------------- | -
|                                                                                      |  | Common
          Stock           |  |   |        |  |   |                                     |  |   |                                      |   |   |                              |   |   |                                                  |  |   |                               |  
|                                                                                      |  |                                  |  |   |        |  |   |                                     |  |   |                                      |   |   |                              |   |   |                                                  |  |   |                               |  
|                                                                                      |  | Number
          of
      Shares |  |   | Amount |  |   | Common
          Stock to be issued |  |   | Additional
          Paid-in Capital |   |   | Deferrred
      Compensation |   |   | Accumulated
          Other Comprehensive Income |  |   | Accumulated
          Deficit |  
|                                                                                      |  |                                  |  |   |        |  |   |                                     |  |   |                                      |   |   |                              |   |   |                                                 
|Balance,
    December 31, 2002                                                        |  | 55,738,781                       |  | $ | 56     |  | $ |                                    |  | $ | 303,953                              |   | $ | (2,305                       | ) | $ | 389                                              |  | $ | (263,400                      | )
|Warrants
    issued to placement agent as a financing fee                             |  |                                 |  |   |       |  |   |                                    |  |   | 120                                  |   |   |                             |   |   |                                                 |  |   |                              |  
|Warrannts
    issued to third party broker as financing fee                           |  |                                 |  |   |       |  |   |                                    |  |   | 133                                  |   |   |                              |   |   |                                                 |  |   |                              |  
|Warrants
    issued to Series A Preferred shareholders                                |  |                                 |  |   |       |  |   |                                    |  |   | 2,903                                |   |   |                             |   |   |                                                 |  |   |                              |  
|Issuance
    of common stock for conversion of Series A preferred stock               |  | 4,644,444                        |  |   | 5      |  |   |                                    |  |   | 1,614                                |   |   |                             |   |   |                                                 |  |   |                              |  
|Issuance
    of common stock from exercise of warrants                                |  | 425,000                          |  |   |       |  |   |                                    |  |   | 206                                  |   |   |                             |   |   |                                                 |  |   |                              |  
|Issuance
    of common stock from exercise of stock options                           |  | 586,945                          |  |   |       |  |   |                                    |  |   | 289                                  |   |   |                             |   |   |                                                 |  |   |                              |  
|Issuance
    of common stock as dividends to Series A Preferred holders who converted |  | 17,767                           |  |   |       |  |   |                                    |  |   | 35                                   |   |   |                             |   |   |                                                 |  |   | (35                           | )
|Dividends
    payable in common stock to Series A Preferred shareholders              |  |                                 |  |   |       |  |   | 209                                 |  |   |                                     |   |   |                             |   |   |                                                 |  |   | (209                          | )
|Amortization
    of deferred compensation                                             |  |                                 |  |   |       |  |   |                                    |  |   |                                      |   |   | 981                          |   |   |                                                 |  |   |                              |  
|Reversal
    of deferred compensation for forfietures                                 |  |                                 |  |   |       |  |   |                                    |  |   | (512                                 | ) |   | 512                          |   |   |                                                 |  |   |                              |  
|Other
    comprehensive income                                                        |  |                                 |  |   |       |  |   |                                    |  |   |                                      |   |   |                             |   |   | 529                                              |  |   |                              |  
|                                                                                      |  |                                  |  |   |        |  |   |                                     |  |   |                                      |   |   |                              |   |   |                                                  |  |   |                               |  
|Net
    loss                                                                          |  |                                 |  |   |       |  |   |                                    |  |   |                                     |   |   |                             |   |   |                                                 |  |   | (13,748                       | )
|                                                                                      |  |                                  |  |   |        |  |   |                                     |  |   |                                      |   |   |                              |   |   |                                                 
|Balance
    at June 30, 2003                                                          |  | 61,412,937                       |  | $ | 61     |  | $ | 209                                 |  | $ | 308,741                              |   | $ | (812                         | ) | $ | 918                                              |  | $ | (277,392                      | )
|                                                                                      |  |                                  |  |   |        |  |   |                                     |  |   |                                      |   |   |                              |   |   |                                                  |  |   |                               |  

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ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2003 and 2002(In thousands except share and per share
data)(unaudited)

|(1) | Basis of Presentation,
    Organization and Liquidity
|--- | -----------------------------------------------------

The accompanying unaudited condensed consolidated financial statements of Orchid
BioSciences, Inc. and its subsidiaries (the Company) have been prepared in accordance
with accounting principles generally accepted in the United States of America
(US) for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the US for complete annual financial statements. In the opinion of management,
all adjustments, consisting of normal recurring adjustments, considered necessary
for a fair presentation have been included. Interim results are not necessarily
indicative of results that may be expected for a full year.


The accompanying unaudited condensed consolidated financial statements include
the results of the Company and its subsidiaries. All intercompany accounts and
transactions have been eliminated.


The accompanying unaudited condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial statements and
footnotes thereto included
in the Companys Annual Report on Form 10-K for the year ended December
31, 2002, as filed with the Securities and Exchange Commission.


Certain reclassifications were made to prior year amounts to conform to the current
year presentation.


On December 30, 1999, the Company acquired GeneScreen, Inc. (GeneScreen), which
operates genetic diversity testing laboratories in Dallas, Texas and Dayton,
Ohio. GeneScreen performs DNA laboratory analyses for paternity, transplantation
and forensic testing. GeneScreens primary source of revenue is paternity
testing under contracts with various state
and county government agencies.


During 2001, the Company consummated two acquisitions. On February 12, 2001,
the Company acquired Cellmark Diagnostics (Cellmark), a division of AstraZeneca.
Cellmark is a leading provider of genetic testing services in the United Kingdom
(UK) which also sells kits and conducts testing for genetic diseases, including
cystic fibrosis. On December 5, 2001, the Company acquired Lifecodes Corporation
(Lifecodes). Lifecodes is a leading provider of genetic testing for forensics
and paternity in the US, as well as donor transplantation matching.


The Company has not achieved

profitable operations or positive cash flow from
operations. There is no assurance that profitable operations and positive cash
flows can be achieved or, if ever achieved, could be sustained on a continuing
basis. The Companys accumulated deficit aggregated $277,392 at June 30,
2003. During the first quarter of 2003, the Company consummated a financing transaction
that it expects to be sufficient, coupled with existing cash on hand, the
availability to the Companys bank line of credit, and the cash proceeds
expected from the sale of our Diagnostics business to
fund
the
Companys
operations at least through December 31, 2003. The Company expects that the sale
of its Diagnostics business will occur by the end of 2003. The Company
may be
unable to raise additional funds or raise funds on terms that are acceptable
to the Company. If future financing is not available to the Company, or is not
available on terms acceptable to the Company, it may not be able to fund its
future needs. If the Company raises funds through equity or convertible securities,
the Companys stockholders may experience dilution and the Companys
stock price may decline.


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The Company received a notice from the Nasdaq National Stock Market indicating
that the Company had failed to comply with the $1.00 minimum bid price required
for continued listing by Marketplace Rule 4450(a)(5) and that its common stock
was subject to delisting from the Nasdaq. The Company filed a request for a hearing
before the Nasdaq Qualifications Panel (the Panel) to appeal the staff determination
which occurred on February 19, 2003. On March 26, 2003, the Panel determined
to continue listing
of the Companys common stock on the Nasdaq National Market through June
24, 2003. On April 15, 2003, the Company held a special shareholders meeting
at which the shareholders approved implementation of a reverse stock split in
an attempt to comply with the minimum bid price above $1.00 before June 24, 2003.
The Companys Board of Directors had discretion to implement the approved
reverse stock split at any time before June 12, 2003. On June 9, 2003, the Board
of Directors of the Company elected not to proceed with the reverse stock split
because the Company had regained compliance with the $1.00 minimum bid price
required for continued
listing by Marketplace Rule 4450(a)(5).


|(2) | Inventory
|--- | ---------

Inventory is comprised of the following at June 30, 2003 and December 31, 2002:


|                     | June
         30,
2003 |       | December
         31,
2002 |  
|-------------------- | ---------------------- | ----- | -------------------------- | -
|                     |                        |       |                            |  
|Raw
    materials    | $                      | 915   |                            | $
|Work
    in progress |                        | 638   |                            |  
|Finished
    goods   |                        | 7     |                            |  
|                     |                        |       |                            |  
|                     | $                      | 1,560 |                            | $
|                     |                        |       |                            |  

Raw materials consist mainly of reagents, enzymes, chemicals and plates used
in SNP scoring, genotyping and to manufacture consumables. Work in progress consists
mainly of case work not yet completed and kits that are in the production process.
Finished goods consist mainly of kits that have been produced, but have not been
shipped.


|(3) | Goodwill and Other
          Intangible Assets
|--- | ----------------------------------------------

The following table sets
forth the Companys other intangible assets at June 30, 2003 and December
31, 2002:


|                         | June
    30, 2003 |        | December
    31, 2002    |  
|------------------------ | ----------------- | ------ | ------------------------ | -
|                         |                   |        |                          |  
|                         | Cost              |        | Accumulated
Amortization |  
|                         |                   |        |                          |  
|Base
    technology      | $                 | 5,980  |                          | $
|Customer
    list        |                   | 5,040  |                          |  
|Trademark/tradename      |                   | 3,946  |                          |  
|Patents
    and know-how |                   | 4,895  |                          |  
|Other                    |                   | 625    |                          |  
|                         |                   |        |                          |  
|Totals                   | $                 | 20,486 |                          | $
|                         |                   |        |                          |  

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The Companys expected future amortization expense related to intangible
assets over the next five years
is as follows:


|Six
         months ending December 31, 2003 | $ | 936   | 
|-------------------------------------------- | - | ----- | 
|2004                                         |   | 1,798 | 
|2005                                         |   | 1,699 | 
|2006                                         |   | 1,699 | 
|2007                                         |   | 1,699 | 

During the quarter ended
    June 30, 2003, the Company settled certain accruals established at the time
    of the Lifecodes acquisition. The Company settled these
matters for $524 less than the outstanding accruals and therefore
recorded a reduction of goodwill, accordingly. The effects of foreign currency
translation on goodwill was an increase of $36 during the six months ended June 30, 2003.


|(4) | Debt
|--- | ----

On December 23, 2002, the Company consummated a line of credit with a commercial
bank for a maximum of $10,000. Any amounts outstanding pursuant to this line
of credit are secured
by substantially all of the Companys assets. The borrowing base is based
on 80% of eligible accounts receivable (as defined in the agreement). Borrowings
pursuant to the line of credit bear interest at a range of prime plus 0.5% to
2.5% based on the liquidity ratio of the Company (as defined in the agreement).
The line of credit agreement contains certain financial and non-financial covenants
with which the Company was in compliance as of June 30, 2003. The agreement also
contains a material adverse changes clause which, if triggered, would constitute
an event of default. Pursuant to the terms of the line of credit, the Company
also issued 215,000 warrants to purchase common stock of the Company at an exercise
price of $0.64 per share. The warrants are immediately exercisable and have a
five-year term. The Company calculated the $88 fair value of the warrants using
the Black Scholes option pricing model. This value was recorded as debt issuance
costs and is being amortized over the term of the debt. The line of credit expires
in one year but contains automatic renewal provisions at the banks option.
As of June 30, 2003, the Company had no amounts outstanding under the line of
credit.


The Company also maintains
    amounts outstanding pursuant to another line of credit with another commercial
    bank which was entered into in December 1998 and amended
in December 2000. The availability under this line of credit has expired. As
of June 30, 2003, the Company had $3,623 outstanding under this line of credit.
Pursuant to this line of credit, if the Company does not maintain minimum unrestricted
cash, as defined in the agreement, equal to the greater of $35,000 or twelve
months cash needs (calculated by taking the trailing three months net cash
used in operations multiplied by four), the Company is required to provide a
cash security deposit or letter of credit equal to an amount defined in the agreement,
not to exceed 50% of outstanding amounts on draws made in or subsequent to December
2000. The Company was also required to provide a cash security deposit or obtain
a letter of credit equal to $2,150 plus 50% of any future draw amount no later
than June 30, 2001, unless the Company completed a follow-on equity offering
of at least $50,000 in net unrestricted proceeds. During 2001, the Company did
complete a follow-on offering, however, the net unrestricted proceeds from the
offering were less than the minimum amount required under the loan line. The
Company received written notice from the lender stating that the lender waived
the requirement of a pledge of cash security deposit or letter of credit under
this agreement. In addition, subsequent to March 31, 2002, the Company did not
maintain the minimum unrestricted cash as defined in the Agreement. The Company
also received written notice from the lender stating that the lender waived the
financial covenant violation as a result of not maintaining a pledge of cash
security deposit or letter of credit under this agreement for the period of non-compliance
through June 19, 2002. On June 19, 2002, the Company obtained a letter of credit
in the amount of $2,682 as required by the amended line of credit, which was
supported by a cash restriction on certain securities held by the Company.
In June 2003, the letter of credit expired and the cash was converted to a security
    deposit held by the lender. As
such, this cash restriction, in addition to cash restricted under two of the
Companys operating leases is reflected as restricted cash in the condensed
consolidated balance sheets as of June 30, 2003 and December 31, 2002 of $3,385,
of which
$1,485 and $1,863, respectively, is classified as a long term asset.


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|(5) | Issuance
    and Sale of Series A Redeemable Convertible Preferred Stock and Warrants
|--- | -------------------------------------------------------------------------------------

On March 31,
  2003, the Company completed the issuance and sale of 1,600 units (Units) to
  certain investors (each an Investor and collectively, the Investors). Each
  Unit consists of (i) one share of the Companys newly created
  Series A Redeemable Convertible Preferred Stock, $.001 par value per
  share (the Series A Preferred Stock), convertible into approximately
  22,222.22 shares of common stock, and (ii) a warrant (Warrant) to purchase
  approximately 6,666.67 shares of common stock. Each Unit had a purchase
  price of $10, providing the Company with $16,000 in net proceeds after
  $750 was allocated to bankers fees. The Company also
  issued an additional 75 Units to a banker as a fee for this transaction.
  The $750 which relates to the bankers fee which was taken in 75 Units was
  recorded as a reduction to the carrying value of the Series A Preferred Stock
  as of the transaction date. The Warrants associated with the 75 units issued to
  the banker in this transaction were valued at $120, based on the Black-Scholes
  option pricing model, and were also recorded as a reduction to the carrying
  value of the Series A Preferred Stock as of the transaction date. The Warrants
  associated with the Units sold to the Investors were valued at $2,903, based on
  the Black-Scholes option pricing model, and recorded as a reduction in the carrying
  amount of the Series A Preferred Stock that was issued and an increase to additional
  paid-in capital. As a result of the financing transaction, the Company recorded a
  beneficial conversion feature of $744 in the net loss allocable to common stockholders
  for the six months ended June 30, 2003. The beneficial conversion feature was calculated
  as the difference between the Companys per share value as of the commitment date and
  the per share value of the Series A Preferred Stock transaction after giving effect to the
  value associated with the Investors Warrants.


The Series A Preferred Stock
    is convertible into common stock, at the Investors discretion, at a
    per share conversion price of $0.45, provided, however, that no Investor
    is allowed to convert Series A Preferred Stock if the conversion would result
    in such Investor beneficially owning more than 4.99% of the Companys
    outstanding common stock (the Cap Amount), and it is entitled to vote on
    all matters submitted to a vote of the Companys stockholders on an
    as-converted basis, subject again to the Cap Amount. The Series A Preferred
    Stock bears cumulative dividends, payable quarterly, at an initial annual
    rate of 6% for the first nine quarters. After the ninth quarter, the dividend
    rate will increase by 2% for each quarter thereafter, to a maximum of 12%
    per year. If, however, the common stock ceases to be listed on either the
    Nasdaq (the National Market or SmallCap) (collectively, the NASDAQ), the
    New York Stock Exchange (the NYSE) or the American Stock Exchange (the AMEX),
    the dividend rate will automatically increase to 14% per year until the common
    stock is subsequently listed on one of the aforementioned markets or exchanges.
    Dividends are payable, at the Companys option, in cash or shares of
    common stock, valued at the average closing sales price of the common stock
    for the five trading day period prior to the dividend date. The proceeds
    from this financing can be used for general and corporate purposes and working
    capital, but is restricted as to certain other uses.


The holders of the Series A Preferred Stock have the right to require the Company to repurchase for cash the then outstanding shares of Series A Preferred Stock upon the occurrence of certain events, including:


| |  | if the
        common stock is not listed on either the NYSE, AMEX, NASDAQ, the OTCBB
        or the Bulletin Board Exchange for a total of ten days in any nine month
    period;                                                                        
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                           
| |  | the institution
        of bankruptcy, insolvency, reorganization or liquidation proceedings
        by or against the Company, an assignment for the benefit of creditors
    by the Company or the appointment of a receiver or trustee for the Company;

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| |  | a change
    of control of the Company as defined in the certificate of designations;                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | the Companys
        failure to pay in full dividends on the Series A Preferred Stock on any
    two consecutive dividend dates;                                                                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | a registration
        statement required to be filed by the Company to register common shares
        underlying the Series A Preferred Stock and Warrants is not declared
        effective within a certified period, as defined in the certificate of
        designations or after being declared effective, cannot be utilized by
        the holders of the Series A Preferred Stock for resale of all of their
    shares for more than a total of 45 days; or
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | failure
        by the Company to convert the Series A Preferred Stock when requested
    by the holders.                                                                                                                                                                                                                                                                                                                                                             

The redemption amount that the Company is required to pay equals 125% of the purchase price of the Series A Preferred Stock and the accrued and unpaid dividends, except that in the case of a change of control, the redemption equals 150% of such amount. The Series A Preferred Stock is also entitled to a liquidation preference equal to the purchase price plus all accrued and unpaid dividends. Due to the redemption characteristics of the Series A Preferred Stock, the Company has classified the carrying value of the Series A Preferred outside of stockholders equity in the accompanying condensed consolidated balance sheet as of June 30, 2003. The Company will not accrete the carrying value of the Series A Preferred Stock to the redemption value until an event that would require redemption becomes probable. As of June 30, 2003, the redemption of the Series A Preferred Stock is not probable and the outstanding Series A Preferred Stock has been recorded at its

 original carrying value in the accompanying condensed consolidated balance sheet as of June 30, 2003, accordingly.


If certain requirements as defined in the agreement are met
after the second anniversary of the financing, the Company may at its option redeem the Series A Preferred Stock
in whole or in part for 125% of the original purchase price. If the Company stock price exceeds certain levels
for certain periods of time, as defined in the agreement, or the Company consummates an underwritten public
offering of its common stock at certain levels, as defined in the agreement, the Company may at its option
redeem the Series A Preferred Stock in an amount equal to the original purchase price.
During the three months ended June 30, 2003, the Companys stock price exceeded the level and time
period that was required, as defined in the agreement, to give the Company the ability and right to redeem
the Series A Preferred Stock at its option. However, there can be no assurances that the Companys stock
price will maintain this level and therefore the Company may not
 have the ability to redeem the Series A Preferred Stock at its option in the future.


The Warrants are exercisable at any time after the first anniversary of the issuance date through the fifth anniversary of the issuance date at an exercise price equal to $0.45 per share. In addition, the Warrants are exercisable via a cashless exercise from the second anniversary of the issuance date through the fifth anniversary of the issuance date.


During the quarter ended June 30, 2003,
209 shares of Series A Preferred Stock were converted into 4,644,444 shares of common stock.
The Company also issued 17,767 shares of common stock for dividends on those shares of Series A Preferred
Stock converted during the three months ended June 30, 2003. During
the three months ended June 30, 2003, the Company also accrued dividends related to the Series A
Preferred Stock in the amount of $244 and accreted the discount of the carrying amount of
the Series A Preferred Stock by $471 as a result of the conversion of 209 shares of
Series A Preferred Stock into common stock during the three months ended June 30, 2003.
Both the dividends and the accretion have been included in net loss allocable to common stockholders
for the three and six months ended June 30, 2003. The dividends are payable quarterly pursuant to the
terms of the agreement and the Company has classified the amount of shares
issuable of $209 as common stock to be issued in the accompanying
condensed consolidated balance sheet as of June 30, 2003 accordingly.


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|(6) | Restructuring
|--- | -------------

During the three
months ended June 30, 2003, the Company settled its leasehold obligation for
one of its Princeton based facilities for an amount less than its original estimate.
The Company recorded a credit to the restructuring expense of approximately $305
as a result of this better than expected settlement. In addition, as a result
of the realignment of the Companys GeneShield business unit (see note 7),
the Company recorded approximately $222 of severance and facility related charges
in the restructuring. As of June 30, 2003 and December 31, 2002, the Company
has $3,182 and $4,285, respectively in restructuring accruals outstanding of
which $1,027 and $1,919, respectively, is classified as a long term liability.


|(7) | Impairment
|--- | ----------

During the quarter ended June 30, 2003, the Company decided to strategically realign its GeneShield business unit. The realignment is expected to enable GeneShield to launch and pilot test a variety of targeted programs to assess the potential of different market segments and models while also reducing operating costs. In connection with this decision, the Company terminated several of its GeneShield employees, most of which were located in the Companys Arlington, Virginia facility. As a result of this decision, the Company impaired various fixed assets including office and computer equipment, furniture and fixtures and software for approximately $837.


|(8) | Discontinued Operations
|--- | -----------------------

During the year ended December 31, 2002, management with the appropriate authority made the decision to sell the Diagnostics business unit. This decision was made after an internal evaluation of the strategic direction of the Company was performed. The Company decided to focus its efforts on the services businesses where it offers paternity, forensics and public health testing. The Company expects this sale to occur in 2003. In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets,the Company has not included the results of operations of its Diagnostics business held for sale in the results from continuing operations. The results of operations for this business unit held for sale have been reflected in discontinued operations.

 The results of operations for discontinued operations for the three and six months ended June 30, 2003 and 2002, respectively, consists of the following:


|                                                    | Three
    months ended June 30, |        | Six months ended June 30, |  
|--------------------------------------------------- | ------------------------------- | ------ | ------------------------- | -
|                                                    |                                 |        |                           |  
|                                                    | 2003                            |        | 2002                      |  
|                                                    |                                 |        |                           |  
|Revenues                                            | $                               | 2,941  |                           | $
|Costs
         of products andservices
    revenues |                                 | 1,880  |                           |  
|                                                    |                                 |        |                           |  
|Gross
    margin                                    |                                 | 1,061  |                           |  
|Research
    and development                        |                                 | 366    |                           |  
|Selling
    and marketing                           |                                 | 538    |                           |  
|General
    and administrative                      |                                 | 235    |                           |  
|Amortization
    of intangibleassets                |                                 |       |                           |  
|Impairment
    of assets                            |                                 | 3,905  |                           |  
|                                                    |                                 |        |                           |  
|Operating
    income/(loss)                         |                                 | (3,983 | )                         |  
|Other
    income/(expenses)                         |                                 |       |                           |  
|                                                    |                                 |        |                           |  
|Net
    income/(loss)                               | $                               | (3,983 | )                         | $

During the quarter ended June 30, 2003, the Company obtained
additional information with respect to the value of its business which is currently held for sale. Based on this
additional information, the Company determined an evaluation of
the long lived assets of the discontinued business was required. Based on this evaluation, the Company recorded
an impairment charge of $3,905 related to predominantly intangible assets of that business and has
been reflected as part of the operations of the discontinued business.


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The assets and liabilities
    of the business held for sale has been reflected as such in the condensed
    consolidated balance sheet as of June 30, 2003 and December 31, 2002. As
    the Company expects to sell this business by the end of 2003, all of the
    assets and liabilities for both periods presented have been reflected as
    current.
    The
    components
  of these assets and liabilities are as follows:


|                                          | June 30,
2003 |       | December 31,
2002 |  
|----------------------------------------- | ------------- | ----- | ----------------- | -
|                                          |               |       |                   |  
|Accounts
    receivable                   | $             | 1,345 |                   | $
|Inventory                                 |               | 2,665 |                   |  
|Other
    current assets                  |               | 123   |                   |  
|                                          |               |       |                   |  
|Current
    assets                        |               | 4,133 |                   |  
|Fixed
    assets                          |               | 2,928 |                   |  
|Intangible
    assets                     |               |      |                   |  
|                                          |               |       |                   |  
|Total
    assets                          |               | 7,061 |                   |  
|Accounts
    payable and accrued expenses |               | 2,374 |                   |  
|Other
    liabilities                     |               | 6     |                   |  
|                                          |               |       |                   |  
|Total
    liabilities                     |               | 2,380 |                   |  
|                                          |               |       |                   |  
|Net
    assets                            | $             | 4,681 |                   | $

|(9) | Stock-Based
    Compensation
|--- | ----------------------------

The Company accounts for its stock-based compensation to employees and members of the board of directors in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. As such, compensation is recorded on the date of issuance or grant as the excess of the current market price (estimated fair value prior to the initial public offering in May 2000 (IPO)) of the underlying
stock over the purchase or exercise price. Any deferred compensation is amortized over the respective vesting periods of the equity instruments, if any. The Company has adopted the disclosure provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, (SFAS 123) which permits entities to provide pro forma net loss and net loss per share disclosures for stock-based compensation as if the fair value method defined in SFAS 123 had been applied. Had the Company determined compensation cost for options
based on the fair value method at the measurement date for its stock options under SFAS 123, the Companys net loss allocable to common stockholders and net loss per share allocable to common stockholders would have been increased to the pro forma amounts indicated below:


|                                                                                                                           |  | Three
    Months ended June 30, |         | Six
    Months ended June 30, |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | ----------------------------- | -
|                                                                                                                           |  |                                 |         |                               |  
|                                                                                                                           |  | 2003                            |         | 2002                          |  
|                                                                                                                           |  |                                 |         |                               |  
|Net
    loss allocable to common stockholders:                                                                             |  |                                 |         |                               |  
|As
    reported                                                                                                            |  | $                               | (10,183 | )                             | $
|Add:
         Stock-based employee compensation expense included in reported net loss
    allocable to common stockholders |  |                                 | 500     |                               |  
|Deduct:
         Total stock-based employee compensation expense determined under the
    fair value method for all awards |  |                                 | (989    | )                             |  
|                                                                                                                           |  |                                 |         |                               |  
|Pro
    forma under SFAS 123                                                                                               |  | $                               | (10,672 | )                             | $
|Basic
    and diluted net loss per share allocable to common stockholders:                                                 |  |                                 |         |                               |  
|As
    reported                                                                                                            |  | $                               | (0.18   | )                             | $
|Pro
    forma under SFAS 123                                                                                               |  | $                               | (0.19   | )                             | $

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In determining
    the fair value for grants of common stock options, the Company used the following
assumptions:


|                            | Three
    and Six Months ended June 30, |  
|--------------------------- | --------------------------------------- | -
|                            |                                         |  
|                            | 2003                                    |  
|                            |                                         |  
|Risk-free
    interest rate | 4.85                                    | %
|Volatility                  | 90                                      | %
|Expected
    option life    | 5.5 years                               |  
|Expected
    dividend yield | 0                                       | %

|(10) | Comprehensive
    Loss
|---- | ----------------------

SFAS No. 130, Reporting Comprehensive Income(SFAS
  130) requires reporting and displaying comprehensive income (loss) and its
  components which, for the Company, includes net loss and unrealized gains and
  losses on available-for-sale securities and foreign currency translation gains
  and losses. In accordance with SFAS 130, the accumulated balance of other comprehensive
  income (loss) is displayed as a separate component of stockholders equity.
  The following table reconciles net loss to comprehensive loss for the three
  and six months ended June 30, 2003 and 2002:


|                                                                    |  | Three
         months ended
    June 30, |        | Six
         months ended
    June 30, |     
|------------------------------------------------------------------- |  | ---------------------------------------- | ------ | -------------------------------------- | ----
|                                                                    |  |                                          |        |                                        |     
|                                                                    |  | 2003                                     |        |                                        | 2002
|                                                                    |  |                                          |        |                                        |     
|Net
    loss                                                        |  | $                                        | (9,468 | )                                      | $   
|Other
    comprehensive loss:                                       |  |                                          |        |                                        |     
|Unrealized
    holding loss arising during the period               |  |                                          | 246    |                                        |     
|Less
    reclassification adjustment for gains included in net loss |  |                                          |       |                                        |     
|                                                                    |  |                                          |        |                                        |     
|Unrealized
    holding loss on available-for-sale
    securities    |  |                                          | 246    |                                        |     
|Foreign
    currency translation                                    |  |                                          | 394    |                                        |     
|                                                                    |  |                                          |        |                                        |     
|Other
    comprehensive loss                                        |  |                                          | 640    |                                        |     
|                                                                    |  |                                          |        |                                        |     
|Comprehensive
    loss                                              |  | $                                        | (8,828 | )                                      | $   

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|(11) | Segment Information
|---- | -------------------

In early 2002, the Company completed an internal process of realigning its business into four business units. These business units consisted of Orchid Identity Genomics, Orchid GeneShield, Orchid Diagnostics and Orchid Life Sciences. A brief description of all of the business units which were determined to be reportable segments is as follows:


| |  | Orchid
        Identity Genomics provides DNA testing for paternity and forensics determinations
        to state and local governmental authorities as well as to individuals
    and organizations, through Orchid GeneScreen and Orchid Cellmark;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Orchid
        GeneShield is developing programs designed to accelerate the adoption
    and use of personalized medicine by patients and physicians;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Orchid
        Diagnostics provides products and services for genetic testing, including
        HLA genotyping, disease susceptibility testing and immunogenetics, or
        the study of the relationship between an individuals immune response
    and their genetic makeup, to individuals; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Orchid
        Life Sciences developed and marketed products, services and technologies
        for SNP genotyping, or scoring, and genetic diversity analyses to life
        sciences and biomedical researchers as well as pharmaceutical, agricultural,
        diagnostic and biotechnology companies. Orchid Life Sciences also performs
        scrapie susceptibility testing primarily for the UK government through
        Orchid Europe with the goal of breeding sheep genetically resistant to
        the disease scrapie. The product portion of this business unit was divested
        in 2002 and the SNP genotyping service business has been considered a
        non-core business for the Company. The scrapie susceptibility testing
        business is still considered to be part of the core focus of the Company
        on an ongoing basis and the Company has accordingly renamed the Orchid
    Life Sciences business unit to Orchid Public Health.

The Board of Directors of the Company committed to sell the Companys Diagnostic business unit during 2002 and expects to complete the sale in 2003. As a result of this decision, the segment information for the Diagnostics business unit has been excluded below. Note 8 depicts the operations of that business which is reflected as discontinued operations and the assets and liabilities of that business unit are considered as held for sale. The chief operating decision maker of the Company measures segment profit/(loss) using operating income/(loss), which excludes other income (expense) and allocation of corporate expenditures. These corporate costs which include treasury, human resources, finance, restructuring costs and certain other corporate functions, are included in corporate and all other. All other also reflects the operations of Orchid GeneShield during the three and six months ended June 30, 2003 and 2002 which the Company

 considers to be insignificant from a segment reporting perspective. Goodwill has been allocated to each reportable segment as shown below. Prior period information presented below has been restated to conform to the current segment presentation. 13


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|                                                      | Orchid
Identity
Genomics |        | Orchid
Public
    Health |   | Corporate
      &
    all
    other |   | Total |        
|----------------------------------------------------- | ------------------------ | ------ | ------------------------ | - | ----------------------------------- | - | ----- | -------
|                                                      |                          |        |                          |   |                                     |   |       |        
|For
    the three months ended June 30, 2003:         |                          |        |                          |   |                                     |   |       |        
|Revenues
    from external customers                  | $                        | 10,231 |                          | $ | 1,992                               |   | $     | 141    
|                                                      |                          |        |                          |   |                                     |   |       |        
|Segment
    operating income/(loss)                   |                          | 1,509  |                          |   | 1,075                               |   |       | (7,396 
|                                                      |                          |        |                          |   |                                     |   |       |        
|As
    of and for the six months ended June 30, 2003: |                          |        |                          |   |                                     |   |       |        
|Revenues
    from external customers                  | $                        | 20,902 |                          | $ | 3,768                               |   | $     | 432    
|Segment
    operating income/(loss)                   |                          | 3,443  |                          |   | 1,796                               |   |       | (13,798
|Goodwill                                              |                          | 2,584  |                          |   |                                    |   |       |       
|Total
    assets from continuing operations           | $                        | 35,959 |                          | $ | 2,785                               |   | $     | 24,402 
|Total
    assets from discontinued operations         |                          |        |                          |   |                                     |   |       |        
|                                                      |                          |        |                          |   |                                     |   |       |        
|Total
    assets                                      |                          |        |                          |   |                                     |   |       |        
|                                                      |                          |        |                          |   |                                     |   |       |        
|For
    the three months ended June 30, 2002:         |                          |        |                          |   |                                     |   |       |        
|Revenues
    from external customers                  | $                        | 10,058 |                          | $ | 2,326                               |   | $     |       
|Segment
    operating income/(loss)                   |                          | 891    |                          |   | (3,557                              | ) |       | (9,943 
|                                                      |                          |        |                          |   |                                     |   |       |        
|As
    of and for the six months ended June 30, 2002: |                          |        |                          |   |                                     |   |       |        
|Revenues
    from external customers                  | $                        | 19,242 |                          | $ | 4,843                               |   | $     |       
|Segment
    operating income/(loss)                   |                          | 625    |                          |   | (7,781                              | ) |       | (17,381
|Goodwill                                              |                          | 2,091  |                          |   |                                    |   |       |       
|Total
    assets from continuing operations           | $                        | 44,185 |                          | $ | 14,102                              |   | $     | 42,268 
|Total
    assets from discontinued operations         |                          |        |                          |   |                                     |   |       |        
|                                                      |                          |        |                          |   |                                     |   |       |        
|Total
    assets                                      |                          |        |                          |   |                                     |   |       |        

|(1) | The three
      and six months ended June 30, 2003, as depicted above, reflects the Public
      Health testing business related to scrapie susceptibility testing, which
      is what the Company refers to as Public Health testing. Included in the
      amounts reflected for the three and six months ended June 30, 2002 includes
      the results of operations of the public health business in addition to the
      products, services and technologies for SNP genotyping, or scoring, and
      genetic diversity analyses (SNP Genotyping). The SNP Genotyping business
      had historically incurred significant losses due to its research and development
      activities. The product related assets of SNP Genotyping were sold to a
      third party in 2002 and therefore these activities are not included in the
      three and six months ended June 30, 2003. Revenues and operating income
      for public health on a standalone basis for the three and six months ended
      June 30, 2002 were $960 and $327, respectively, for the three months ended
      June 30, 2002 and $1,545 and $401, respectively, for the six months ended
      June 30, 2002.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|(12) | Commitments and
      Contingencies
|---- | -----------------------------------

In connection
  with the Companys acquisition of certain patents in 2002 and 2001, the
  Company assumed obligations to pay future amounts over the next two to three
  years. The obligations have been recorded in the accompanying consolidated balance
  sheet as of June 30, 2003, at the net present value of the future obligations.
  The payments which are to be made to the original patent holders are as follows:


|2003                                                          | $ | 1,618 |  
|------------------------------------------------------------- | - | ----- | -
|2004                                                          |   | 1,593 |  
|2005                                                          |   | 310   |  
|                                                              |   |       |  
|Total                                                         |   | 3,521 |  
|Less
    amount that represents interest                      |   | (267  | )
|                                                              |   |       |  
|Present
    value of future obligations                       |   | 3,254 |  
|Less
    current portion                                      |   | 1,618 |  
|                                                              |   |       |  
|Present
    value of future obligations, less current portion | $ | 1,636 |  

The Company is also obligated to pay minimum royalties related to these patents of $1,200 in 2005, $1,600 in 2006, and $1,900 in 2007 until the expiration of the agreement.


In connection with sale of the Life Sciences product related assets, the Company is committed to purchase materials and supplies in the amount of $1,300 in 2003 and $1,300 in 2004.


On July 16,
    2003, the Company entered into an amended agreement with two of the original
    patent holders to which the Company is obligated. Pursuant to the amended
    agreement, the Company is obligated to pay approximately $375 at the signing
    of the agreement and $600 over the next four years in ratable installments
    of $150 per year. As of June 30, 2003, the Company has recorded an obligation
    pursuant to the original agreement in an amount of $2,350, net of the amount
    related to interest. Based on the amended agreement, the Company anticipates
    recording a credit to its statement of operations associated with the amended
    agreement during its third quarter ending September 30, 2003. On February 13,
    2002 the Company received a Notice of Lawsuit and Request for Waiver of Service
    of Summons and a copy of the complaint filed in the United States District
    Court for the Southern District of New York in connection with a class action
    lawsuit. The complaint purportedly was filed on behalf of persons purchasing
    the Companys stock between May 4, 2000 and December 6, 2000, and alleged
    violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933,
    as amended, and Section 10(b) of the Securities Exchange Act of 1934, as amended,
    and Rule 10b-5 promulgated thereunder. The complaint alleged that, in connection
    with the Companys May 5, 2000 initial public offering, the defendants
    failed to disclose additional and excessive commissions purportedly solicited
    by and paid to the underwriter defendants in exchange for allocating shares
    of the Companys stock to preferred customers and alleged agreements
    among the underwriter defendants and preferred customers tying the allocation
    of IPO shares to agreements to make additional aftermarket purchases at pre-determined
    prices. Plaintiffs claim that the failure to disclose these alleged arrangements
    made the Companys registration statement on Form S-1 filed with the
    SEC in May 2000 and the prospectus, a part of the registration statement,
    materially false and misleading. Plaintiffs seek unspecified damages. On February
    19, 2003, the Company received notice of the courts decision to dismiss
    the Section 10(b) claims against the Company. The claims against individuals
    officers named as defendants were earlier dismissed without prejudice, subject
    to a tolling agreement. The plaintiffs and defendant issuers have agreed in
    principal on a settlement, which, upon a one-time payment by defendant issuers
    insurers, would release the defendant issuers from claims and any future payments
    or out of pocket costs.
 The Company
  had been in litigation with St. Louis University of St. Louis, Missouri regarding
     its belief that the Companys SNP scoring technology infringes certain
  claims under US patent 5,846,710, which was controlled by the University. On
  August 7, 2002, the parties dismissed the litigation and the Company acquired
  the subject patent. St. Louis University conditionally assigned both the patent
  and all license agreements related thereto to the Company. On March 13, 2003,
     St. Louis University notified the Company that it was unable to obtain a
     required
     consent
  to assign the patent to the Company. Pursuant to the terms of the Companys
   settlement agreement with St. Louis University, the failure to obtain such
  consent
  results in the automatic grant to the Company of an exclusive license under
   the patent. The Company is in discussions with St. Louis University regarding
  the terms
  of such license and the restructuring of the Companys obligation to St.
   Louis University.
 The Company
  is a defendant in litigation commenced by Enzo Biochem, Inc, and Enzo Life Sciences,
  Inc.. The complaint asserts that the Company purchased materials from plaintiffs
  authorized distributor and resold those materials in a manner not authorized
  by the related distribution agreements. The complaint, therefore, seeks money
  damages based primarily on alleged patent infringement by the Company. The litigation
  currently is in fact discovery and no expert discovery has occurred. As a result,
  it is not possible for the Company to provide an opinion on the likely outcome
  of the various claims, but the Company intends to vigorously defend against
  plaintiffs claims and believes that the claims are without merit.
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Prior to the
  Companys acquisition of Lifecodes, which occurred on December 5, 2001,
  Lifecodes sold Medical Molecular Diagnostics GmbH, (MMD), a wholly owned subsidiary
  of Lifecodes based in Dresden, Germany to Duetsche Knochenmarkspenderdatei gemeinnutzige
  Gesellschaft mbH, (DKMS), pursuant to a Stock Purchase Agreement dated November
  15, 2002 (SPA). Upon the acquisition of Lifecodes, the Company assumed Lifecodes
  obligations to DKMS under the SPA.


The Company
    is in a dispute with and anticipates receiving notification in the near future
    that DKMS has filed a suit against it for damages under the SPA for the full
    amount of their cost to acquire MMD. DKMS is anticipated to claim defects
    in the MMD lab. The Company has not reserved any amount related to this case
    and believes that the allegations are without merit and intends to vigorously
    defend against these anticipated claims. Legal proceedings are likely to occur
    no earlier than the fall 2003. In addition, in December 2002, the Company
    filed a claim in Germany against DKMS for significant unpaid accounts receivable
    that accrued during the year ended December 31, 2002. The accounts receivable
    amounts were for HLA typing conducted by the Diagnostics business unit, which
    the Company currently plans to sell. The services performed by the Companys
    Diagnostics business unit were exclusively upon DKMS request. Legal
    proceedings for the Companys outstanding accounts receivable are expected
    to take place in Germany during the third quarter of 2003.


On July 21,
    2003 the Company was served with a First Amended Complaint filed July 18,
     2003 in United States District Court for the Eastern District of Virginia,

    Alexandria Division. The complaint was filed against the Company, as well
     the Companys majority owned subsidiary, GeneShield, Inc. by M. Lee
     Morse  and Aida A. LeRoy alleging violations of Sections 10(b) and 20(a)
     of the Securities
    and Exchange Act of 1934, as well as breach of contract. Both M. Lee Morse
     and Aida A. Leroy are existing employees of the Company and are associated
     with the GeneShield business
	unit. Plaintiffs seek,
    among other things, injunctive relief as well as performance by the Company
      under a Contribution and License Agreement dated May 23, 2001. The Company

    intends to vigorously defend against plaintiffs claims and believes
     that the claims are without merit.


Additionally,
    the Company has other certain claims against it arising from the normal course
    of its business. The ultimate resolution of such matters, including those
    cases disclosed above, in the opinion of management, will not have a material
    effect on the Companys financial position or results of operations.


|(13) | Income Tax (Expense)/Benefit
|---- | ----------------------------

During the three
  and six months ended June 30, 2003, the Company recorded $716 and $1,060 in foreign
  income tax expense associated with the Companys operations in Europe which
  is currently generating taxable income.


The Company
  participates in the State of New Jersey's corporation business tax benefit certificate
  transfer program (the Program), which allows certain high technology and biotechnology
  companies to sell unused net operating loss carryovers to other New Jersey corporation
  business taxpayers. During 2000, the Company submitted an application to the
  New Jersey Economic Development Authority (the EDA) to participate in the Program,
  and the application was approved. The EDA then issued a certificate certifying
  the Company's ability to participate in the Program and the amount of New Jersey
  net operating loss carryovers the Company has available to transfer. Since New
  Jersey law provides that net operating losses can be carried over for up to
  seven years, the Company may be able to transfer its New Jersey net operating
  losses from the last seven years. The Program requires that the purchaser pay
  at least 75% of the amount of the surrendered tax benefit.


During January
    2002, the Company completed the sale of approximately $11,000 of its New Jersey
    tax loss carryforwards and received $894, which was recorded as an income
    tax benefit.


(14) Newly Issued Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board issued
SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities
and Equity (SFAS 150). SFAS 150 establishes standards for how an issuer classifies and measures in
its statement of financial position certain financial instruments with characteristics of both liabilities
and equity. SFAS 150 requires that an issuer classify a financial instrument that is within SFAS 150's scope
as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation
of the issuer. Many of those instruments were previously classified as equity. SFAS 150 requires an issuer
to classify the following instruments as liabilities (or assets in some circumstances): mandatorily redeemable
financial instruments; obligations to repurchase the issuer's equity shares by transferring assets; and certain
obligations to issue a variable number of its equity shares. SFAS 150 is effective for all financial instruments
entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first
interim period beginning after June 15, 2003. The Company does not expect SFAS 150 to have a material effect
on its consolidated financial statements.


(15) Adoption of Employee Stock
      Purchase Plan

During the three months ended June
  30, 2003, the Companys stockholders approved the 2003 Employee Stock
  Purchase Plan (the Plan). Employees who own more than 5%
of our stock may not participate in the Plan. At the beginning of an offering
  period, as defined  in the Plan document, each participant receives an option
  to purchase shares of common stock at the end
of each accumulation period, at an exercise price equal to the lesser of 85%
    of (i) the fair market value of the common stock on the last trading day
    before the start of the applicable offering period (however, in the case
    of the first offering period the fair market value of the common stock on
    August 1, 2003), or (ii) the fair market value of the common stock on the
    last trading day of the accumulation period. The maximum number of shares
    that may be purchased by any participant in the Plan in an accumulation period
    is 25,000 shares. No participant may purchase shares having an aggregate
    fair market value greater than $25 in any calendar year. A total of 2,500,000
    shares of the Companys common stock is reserved for issuance under
    the Plan. The number shares authorized under the Plan is subject to adjustment
    for
    stock splits and other similar events. In addition, as of January 1 each
    year, beginning January 1, 2005 and ending January 1, 2007, the number of
    shares of common stock reserved for issuance under the Plan will be increased
    automatically by the lesser of: (i) 2% of the total number of shares of common
    stock then outstanding; or (ii) 250,000 shares. The Plan may be amended,
    suspended or terminated at any time by the Board of Directors. Amendments
    affecting any increase in the number of shares available under the Plan and
    any other amendment to the extent required by applicable law or regulation
    shall be subject to the approval of the Company's stockholders.


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Item 2.   MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

This Management's Discussion and Analysis of Financial Condition as of June 30, 2003 and the Results of Operations for the three and six months ended June 30, 2003 and 2002 should be read in conjunction with our Condensed Consolidated Financial Statements and related Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.


OVERVIEW

We are engaged in the provision of services and products for profiling genetic uniqueness. Since we began operations in March 1995, we have devoted substantially all of our resources to the provision of DNA testing and the development and application of a portfolio of products and services using our proprietary biochemistry for scoring single nucleotide polymorphisms, or SNPs, as well as microfluidics technologies for applications, principally in the field of high volume SNP scoring and pharmacogenetics analysis.


In 2001, our business focused on our SNP scoring products and services that used our proprietary primer extension technology, and on our identity genomics services in paternity and forensics. Since late 1999, following our acquisition of GeneScreen, Inc. (GeneScreen) and our subsequent acquisitions of Cellmark and Lifecodes, both in 2001, we have been a leading provider of DNA testing services in the paternity, forensics and human leukocyte antigen, or HLA, transplantation typing fields.


During 2002, we conducted
    a strategic review of our business and, as a result, we are focusing on our
    high growth services businesses where we are a market leader in profiling
    genetic uniqueness, including forensics, paternity and public health testing
    as well as personalized medicine. In December 2002, we disposed of our SNP
    genotyping instruments and related consumables assets offered by our Orchid
    Life Sciences business unit. The only remaining portion of the Orchid Life
    Sciences business unit is the scrapie susceptibility testing primarily performed
    for the UK government with the goal of breeding sheep genetically resistant
    to the disease scrapie. This business unit has been renamed to Orchid Public
    Health. We intend to continue to leverage our leading SNP technology in providing
    genoprofiling services offered by our other business units. During 2002 we
    also decided to sell our Diagnostics business unit. This business unit offers
    diagnostic testing consumables for laboratories throughout the US and Europe
    as well as HLA testing for organ transplantation and cystic fibrosis testing.
    Our Diagnostic business unit is considered to be a non-core asset that we
    expect to sell and, therefore, has been reflected as a discontinued operation
    in our consolidated results of operations.


Our ability to achieve profitability
    will depend largely on our ability to continue to grow revenues and increase
    gross margins in genoprofiling services for the forensics, paternity and
    public health. Our provision of genoprofiling
    services depends, in part, on our ability to leverage our leading SNP technology
    where it provides us a competitive advantage.


We have incurred losses since inception, and, as of June 30, 2003, we had total stockholders equity of approximately $31.7 million, including an accumulated deficit of approximately $277.4 million. We anticipate incurring additional losses at least through the third quarter of 2003. During 2002, we secured a $10 million line of credit with a commercial lender which expires in December 2003 but contains automatic renewal provisions at the commercial lenders option. In 2003, we issued and sold an aggregate of 1,600 units, each unit consisting of one share of our Series A convertible preferred stock and one warrant to purchase our common stock for aggregate net proceeds of $16.0 million (see Liquidity and Capital Resources below). In addition, we are also evaluating other sources of cash including our commitment to sell and divest non-core assets such as the Diagnostics business unit. We cannot make any assurance that any of these prospe

ctive arrangements to secure cash to fund future operations will be successful.


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Acquisition,
Divestitures and Establishment of New Businesses

On December 30, 1999, we acquired GeneScreen, Inc., which operates DNA testing laboratories in Dallas, Texas and Dayton, Ohio. Orchid GeneScreen performs DNA laboratory analyses for paternity and forensic testing. Orchid GeneScreens primary source of revenue is paternity testing under contracts with various state and county government agencies.


On February 12, 2001, we acquired Cellmark Diagnostics, a division of AstraZeneca, in an asset acquisition. Cellmark is a leading provider of genetic testing services in the UK and sells kits and conducts testing for genetic diseases, including cystic fibrosis.


On December 5, 2001, we acquired all of the outstanding equity securities of Lifecodes Corporation. Lifecodes is a leading provider of DNA testing for forensics and paternity in the US as well as transplantation testing. We acquired Lifecodes in order to strengthen our position in the clinical grade testing market. Lifecodes also maintains a diagnostic kit business which, subsequent to our sale of the Orchid Life Sciences product related assets, comprises our only products business and which is currently held for sale as part of Orchid Diagnostics. We believe that this acquisition, in addition to the two previous acquisitions of GeneScreen and Cellmark, are significant steps in providing cost efficient, high throughput clinical testing businesses which form the core focus of our company.


The GeneScreen, Cellmark, and Lifecodes businesses in paternity and forensics testing support our goal of extending our genoprofiling business. We intend to apply our SNP technology to the paternity and forensics businesses of GeneScreen, Cellmark, and Lifecodes where it enables us to reduce the cost of providing genotyping services. Our DNA testing business is dependent upon our ability to successfully and competitively bid and qualify for contracts with various governmental entities to provide paternity and forensics testing services. We expect revenues from our respective forensics businesses of GeneScreen, Cellmark, and Lifecodes to increase as DNA analyses are increasingly being used by the authorities within the criminal justice system to identify perpetrators and exonerate the innocent.


Our GeneShield business, established
    in 2001, was in the process of developing a number of innovative pharmacogenetic-based
    programs designed to accelerate the adoption of personalized medicine. These
    programs are focused on health outcomes, specifically how a persons
    individual genetic makeup can affect responses to many prescription and over-the-counter
    medicines. During the second quarter of 2003, we realigned Orchid GeneShield
    and we are currently in the process of evaluating potential future market
    segments and commercialization strategies for this business.


In December 2002, as part of our strategic restructuring, we sold the products related assets of the Orchid Life Sciences business to Beckman Coulter, Inc. for a combination of cash payments and Beckman Coulters assumption of certain debt. In addition, we have committed to sell the Orchid Diagnostics business unit. We believe that our acquisitions, establishment of our business focus and selected divestitures will allow us to focus on key portions of our business and allow us to move closer to achieving profitability.


Compensation Charges

In prior years, we recorded deferred compensation resulting from the granting of stock options to employees, directors, or consultants with exercise prices below the fair market value of the underlying common stock at the date of their grant. During 2001 and 2002, all stock options were granted with grant prices equal to the fair value of our common stock at the grant date. The portion of these deferred compensation amounts which resulted from grants to consultants is subject to re-measurement at the end of each reporting period based upon the changes in the fair value of our common stock until the consultant completes performance under his or her respective option agreement.


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Critical Accounting Policies

Our critical accounting policies are as follows:


| |  | revenue
    recognition; and                                   
| | - | ---------------------------------------------------------------
| |   |                                                                
| |  | valuation
    of long-lived and intangible assets and goodwill.

Revenue Recognition

We have several sources of revenues. Prior to our acquisitions of GeneScreen, Cellmark, and Lifecodes, we derived substantially all of our revenues from research and development collaborations, technology grants and awards from several governmental agencies. In 1999, we derived our first revenues from the placement of our first commercial SNPstream hardware system, and through 2002, we derived revenues from the sale of SNP-IT-based consumables. As a result of the sale of assets to Beckman Coulter, we will no longer have revenues from placements of SNPstream systems or SNPware-based consumables in the future. We also derived license revenues beginning in 2000. In 2000, we derived our first revenues from the performance of laboratory DNA testing services by GeneScreen, our wholly owned subsidiary, in the US. In 2001, we derived our first revenues from the sale of testing kits and laboratory DNA testing services from our Cellmark division in the UK.


In connection with the research and development collaborations that provided the majority of our revenues in the early years of our corporate history, we recognized revenues when related research expenses were incurred and when we satisfied specific performance obligations under the terms of the respective research contracts. We deferred up-front licensing fees obtained in connection with such agreements and amortized them over the estimated performance period of the respective research contract. We recognized milestone payments as revenues upon the completion of the milestone event or requirement, if it represented the achievement of a significant step in research and development or performance process.


We recognized DNA laboratory and SNP scoring services revenues on a completed contract basis at the time test results were completed and reported. Deferred revenues represent the unearned portion of payments received in advance of tests being completed and reported.


We offered our SNPstream system hardware in two basic types of transactions, either a purchase and sale transaction or an arrangement in which the customer takes possession of the system and pays an access fee for its use. We recorded revenues on the sale of the hardware upon transfer of title and after we had met all of our significant performance obligations. We deferred access fee payments that we received when a system was initially placed with a customer, and recognized revenues on a straight-line basis over the term of the agreement.


Revenues from the sale of consumables were recognized upon the transfer of title, generally when our products were shipped to our customers from our facilities.


Revenues from license arrangements, including license fees creditable against future royalty obligations of the licensee, were recognized when an arrangement was entered into if we had no significant continuing involvement under the terms of the arrangement. If we had significant continuing involvement under such an arrangement, license fees were deferred and recognized over the estimated performance period. Management had made estimates and assumptions relating to the performance period which were subject to change. Changes in these estimates and assumptions could have affected the amount of revenues from licenses reported in any given period.


Valuation of Long-Lived and Intangible Assets and Goodwill

We assess the impairment of amortizable identifiable intangibles, including goodwill, and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following: 19


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| |  | significant
        underperformance relative to expected historical or projected future
    operating results;          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                          
| |  | significant
        changes in the manner of our use of the acquired assets or the strategy
    for our overall business;
| |   |                                                                                                                          
| |  | significant
    negative industry or economic trends; and                                                                
| |   |                                                                                                                          
| |  | significant
    decrease in market value of assets.                                                                      

When we
determine that the carrying value of amortizable intangibles and other long-lived
assets may not be recoverable based upon the existence of one or more
of the above indicators of impairment, we measure any impairment based on a projected
discounted cash flow method using a discount rate determined by our management
to be commensurate with the risk inherent in our current business. Net amortizable
intangible assets and long-lived assets, excluding goodwill, amounted to $15.7
million as of June 30, 2003. Goodwill is subject to at least an annual recoverability
assessment pursuant to the provisions of Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets.


The Nasdaq National Marketing Listing

We received a notice from the Nasdaq National Stock Market indicating that we
had failed to comply with the $1.00 minimum bid price required for continued
listing by Marketplace Rule 4450(a)(5) and that our common stock was subject
to delisting from the Nasdaq. We filed a request for a hearing before the Nasdaq
Qualifications Panel (the Panel) to appeal the staff determination, which occurred
on February 19, 2003. On March 26, 2003, the Panel determined to continue listing
of our common stock on the Nasdaq National Market through June 24, 2003. We implemented
a number of actions during the past several months designed to enhance our overall
business, reduce our operating losses and strengthen our cash position. We also
sought and obtained stockholder approval to implement a reverse stock split in
an attempt to comply with the minimum bid price requirement. On June 9, 2003,
our Board of Directors elected not to proceed with the reverse stock split because
the Company regained compliance with the $1.00 minimum bid price required for
continued listing by Marketplace Rule 4450(a)(5).


RESULTS OF OPERATIONS

The Diagnostic business unit is considered to be a non-core asset which we expect
to and have committed to sell and, therefore, has been reflected as a discontinued
operation. Accordingly, we have not included the results of operations of the
Diagnostics business held for sale in the results of continuing operations in
any period presented. The results of operations for this business unit have been
reflected in discontinued operations for all periods presented. The assets and
liabilities of the Diagnostics business held for sale have been reflected as
such in the condensed consolidated balance sheets as of June 30, 2003 and December
31, 2002. As we expect to sell this business within the next year, all of the
assets and liabilities have been reflected as current.


Three months ended June 30, 2003 and 2002

Revenues

Revenues for the three months ended June 30, 2003 of approximately $12.4 million
are consistent with the revenues of approximately $12.4 million for the comparable
period of 2002. Revenues during the three months ended June 30, 2003 versus 2002
have remained consistent because our revenues in 2002 included the results of
our Life Sciences products and services business which are not included in the
revenues for the three months ended June 30, 2003. Service revenues for the three
months ended June 30, 2003 were approximately $12.2 million, an increase of approximately
$0.5 million, from approximately $11.7 million during the comparable period in
2002. Revenues from our core service businesses of paternity, forensics and
public health DNA testing for the quarter ended June 30, 2002 (excluding the
service revenues of the US Life Sciences Group) were $11.0 million, or an increase
of 11% in our core businesses from 2002 to 2003. This increase in our core service
revenues of $1.2 million is primarily attributable to an increase in our UK based
service business which grew to approximately $4.8 million during the three months
ended June 30, 2003 compared to approximately $2.9 million during the comparable
period of the prior year. Our UK business performs paternity and forensics testing
as well as public health SNP genotyping services.


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During the
    three months ended June 30, 2003, we did not recognize any product revenues
    which is directly related to the our decision to sell the Diagnostics
business unit and the sale of our Life Sciences product related assets in 2002.
We also recognized approximately $0.1 million in other revenues, specifically
license and grant revenues, during the three months ended June 30, 2003, compared
to approximately $0.5 million during the comparable period of the prior year.
This decline relates to various technology licensing arrangements entered into
in 2002 which did not occur in 2003. As a result of the strategic refocusing
of our business, we anticipate entering into fewer licensing arrangements than
in prior years as we focus on the services businesses.


Cost of Product Revenues

There were no cost of product revenues for the three months ended June 30, 2003
compared to approximately $0.1 million of cost of product revenues for the comparable
period of the prior year. This is directly related to our decision to sell our
Diagnostics business unit and the sale of our Life Sciences product related assets
in 2002.


Cost of Service Revenues

Cost of service revenues was approximately $6.7 million, or 54% of services revenues,
for the three months ended June 30, 2003 compared to approximately $6.5 million,
or 55% of service revenues for the comparable period of the prior year. The increase
in cost of service revenues, in dollars, relates to the significant increase
in service revenues during the three months ended June 30, 2003. The decrease
in cost of service revenues as a percent of service revenues is attributed to
better utilization of our domestic and UK laboratories as testing volumes increased
during 2003 versus 2002.


Research and Development Expenses

Research and development expenses consist primarily of salaries and related personnel
costs, fees paid to consultants and outside service providers for development,
laboratory supplies, and other expenses related to the design, development, testing,
and enhancement of our products and services. Research and development expenses
for the three months ended June 30, 2003 were approximately $1.2 million, a decrease
of approximately $3.9 million, as compared to approximately $5.1 million for
the comparable period of the prior year. The decrease in research and development
expenses for the three months ended June 30, 2003 as compared to the comparable
period of the previous year was primarily attributable to a reduction in the
research and development efforts undertaken by our Life Sciences business unit
in 2002. The Life Sciences business unit was active in developing and commercializing
the Ultra High Throughput (UHT) genotyping platform which was commercialized
during the third quarter of 2002. During the three months ended June 30, 2003
as compared to the three months ended June 30, 2002 there was a reduction in
lab supplies, salaries and related personnel benefits, depreciation and consulting
which all relate to the various restructuring efforts taken by us during 2002.


Marketing and Sales Expenses

Marketing and sales expenses consist of salaries and benefits for salespeople
within our company and all related costs of selling and marketing our products
and services. These costs include travel, advertising, market research costs,
and certain professional fees. Marketing and sales expense for the three months
ended June 30, 2003 was approximately $1.7 million as compared to approximately
$2.4 million during thecomparable
period of the prior year. The decrease in these costs of approximately $0.7 million
was substantially related to marketing initiatives in 2002 related to the commercialization
of the UHT. During 2003, we also implemented more stringent controls to reduce
discretionary spending as it relates to marketing our services. During the prior
year quarter ended June 30, 2002, we had also been accruing for bonuses related
to sales and marketing personnel, which is not being accrued
for in 2003.


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General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related
expenses for executive, finance and administrative personnel, professional fees,
general legal and intellectual property and other corporate expenses. General
and administrative expenses for the three months ended June 30, 2003 were approximately
$6.5 million, a decrease of approximately $1.6 million, as compared to approximately
$8.1 million for the comparable period of the prior year. We attribute the decrease
in overall general and administrative expenses to the restructuring efforts taken
in 2002. General and administrative costs, specifically personnel related, have
decreased by approximately $1.6 million during the three months ended June 30,
2003 as compared with the comparable period of 2002. Facility costs, which mainly
includes rent, utilities and depreciation have also decreased by approximately
$1.1 million for the three months ended June 30, 2003 as compared with the comparable
period of 2002. Also, we incurred approximately $0.9 million in the general and
administrative expenses for the three months ended June 30, 2003, which we do
not expect to continue during the remainder of 2003, consisting of approximately
$0.7 million associated with a third party banker and $0.2 million in related
legal costs in connection with strategic corporate activities.


Impairment of Assets

During the three months ended June 30, 2003, we decided to strategically realign
our GeneShield business unit. The realignment is expected to enable GeneShield
to launch and pilot test a variety of targeted programs to assess the potential
of different market segments and models while also reducing operating costs.
In connection with this decision, we terminated several of our GeneShield employees,
most of which were located in our Arlington, Virginia facility. As a result of
this decision, we impaired various types of fixed assets including office and
computer equipment, furniture and fixtures and software for approximately $0.8
million.


Restructuring

During the three months ended June 30, 2003, we settled a leasehold obligation
for one of our Princeton based facilities for an amount less than our original
estimate. We recorded a credit to the restructuring of approximately $0.3 million
as a result of this better than expected settlement. In addition, as a result
of the realignment of our GeneShield business unit, we recorded approximately
$0.2 million of severance and facility related charges in the restructuring.
During the second quarter of 2002, we formalized and announced a plan to restructure
certain operations in order to cut costs. As a result, over 80 positions which
cover all areas of our operations were terminated. Most of these terminations
were from our Princeton, New Jersey facility. As a result of this plan, we recorded
approximately $1.9 million as a restructuring charge which consisted of employee
related charges such as severance, benefits and outplacement services of approximately
$1.0 million, facility charges of approximately $0.7 million and equipment impairment
charges of approximately $0.2 million.


Amortization of Intangible Assets

During the three months ended June 30, 2003, we recorded approximately $0.5 million
of amortization of intangible assets as compared to approximately $0.8 million
during 2002. During the three months ended June 30, 2003 we had a lower amount
of amortization due to the impairment charge related to intangible assets of
our Life Sciences business unit which we recorded in the fourth quarter of 2002.
We expect that our amortization
  of intangible assets will continue to be approximately $0.5 million on a quarterly
  basis for the remaining six months of 2003.


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Interest
  Income

Interest income
  for the three months ended June 30, 2003 was less than $0.1 million, compared
  to approximately $0.2 million during the comparable period of the prior year.
  This decrease was primarily due to interest received on less cash, cash equivalent,
  and short-term investment balances than we had held during the second quarter
  of 2002.


Interest
  Expense

Interest expense
  for the three months ended June 30, 2003 was approximately $0.1 million compared
  to approximately $0.2 million during the comparable period of the prior period.
  Interest expense during the three months ended June 30, 2003 has decreased as
  a result of reduced levels of long term debt.


Income
  Tax (Expense)/Benefit

During the three
  months ended June 30, 2003, we recorded income tax expense of approximately
  $0.7 million which was directly related our UK business which is generating
  taxable income from operations. During the three months ended June 30, 2002,
  we did not record any income tax expense.


Discontinued
  Operations

We consider our Diagnostic business unit to be a
non-core asset which we expect to and have committed to sell and therefore, has been reflected as a
discontinued operation. The results of operations for this business unit have been reflected in
discontinued operations. We recorded approximately $4.0 million of losses during the three months
ended June 30, 2003 (includes a $3.9 million impairment of assets) and $0.4 million of income from
the discontinuance of the Diagnostic business during the three months ended June 30, 2002. During
the quarter ended June 30, 2003, we obtained additional information with respect to the value of
our Diagnostic businesses which are currently held for sale. Based on this additional information,
we determined that an evaluation of the long lived assets of the discontinued business was required.
Based on this evaluation, we recorded an impairment charge of $3.9 million related to predominantly
intangible assets of that business and has been reflected as part of the operations of the
discontinued business. Without giving effect to the impairment charge, a contributing factor for the
loss during the second quarter of 2003 compared to the income from discontinued operations during the
second quarter of 2002 is the loss of a German customer for which our Diagnostic business had historically
performed a significant amount of service work. Revenues associated with this customer have been reduced
dramatically due to the current litigation with this customer.


Net
  Loss and Net Loss Allocable to Common Stockholders

Due to the factors described
    above, which includes restructurings in 2003 and in 2002 and an impairment
    of asset charge in 2003,
during the three months ended June 30, 2003, we reported
a net loss of approximately $9.5 million compared to a net loss of approximately
    $12.2 million for the  comparable period of the prior year. We also recorded
    a dividends and accretion related to our Series A
convertible preferred stock for approximately $0.7 million which was included
    in our net loss allocable  to common stockholders of approximately $10.2
    million for the thee months ending June 30, 2003.


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Six
  months ended June 30, 2003 and 2002

Revenues

Revenues for the six months
    ended June 30, 2003 of approximately $25.1 million represents an increase
    of approximately $1.0 million as compared to revenues of approximately $24.1
    million for the comparable period of 2002. Revenues during the six months
    ended June 30, 2003 versus 2002 have only increased by $1.0 million because
    our revenues in 2002 included the results of our Life Sciences products and
    services business which are not included in the revenues for the six months
    ended June 30, 2003. Service revenues for the six months ended June 30, 2003
    were approximately $24.8 million, an increase of approximately $2.9 million,
    or 13%, from approximately $21.9 million during the comparable period in
    2002. Revenues from our core service businesses of paternity, forensics and
    public health DNA testing for the six months ended June 30, 2002 (excluding
    the service revenues of the US Life Sciences Group) were $20.9 million, or
    a 19% overall increase, in our core businesses from 2002 to 2003. The increase
    in revenues from our core service businesses of approximately $3.9 million
    is primarily attributable to an increase in our UK based service business
    which grew to approximately $9.4 million during the six months ended June
    30, 2003 compared to approximately $4.3 million during the comparable period
    of prior year. Our UK business performs paternity and forensics testing as
    well as public health SNP genotyping services.


During the six
  months ended June 30, 2003, we did not recognize any product revenues which
  is directly related to the our decision to sell the Diagnostics business unit
  and the sale of our Life Sciences product related assets in 2002. We also recognized
  approximately $0.3 million in other revenues, specifically license and grant
  revenues, during the six months ended June 30, 2003, compared to approximately
  $1.3 million during the comparable period of the prior year. This decline relates
  to various technology licensing arrangements entered into in 2002 which did
  not occur in 2003. As a result of the strategic refocusing of our business,
  we anticipate entering into fewer licensing arrangements than in prior years
  as we focus on the services businesses.


Cost
  of Product Revenues

There were no
  cost of product revenues for the six months ended June 30, 2003 compared to
  approximately $0.3 million of cost of product revenues for the comparable period
  of the prior year. This is directly related to our decision to sell our Diagnostics
  business unit and the sale of our Life Sciences product related assets in 2002.


Cost
  of Service Revenues

Cost of service
  revenues was approximately $13.7 million, or 55% of services revenues, for the
  six months ended June 30, 2003 compared to approximately $13.0 million, or 59%
  of service revenues for the comparable period of the prior year. The increase
  in cost of service revenues, in dollars, relates to the increase in service
  revenues during the six months ended June 30, 2003. The decrease in cost of
  service revenues as a percent of service revenues is attributed to better utilization
  of our domestic and UK laboratories as testing volumes increased during 2003
  versus 2002.


Research
  and Development Expenses

Research and
    development expenses consist primarily of salaries and related personnel costs,
    fees paid to consultants and outside service providers for development, laboratory
    supplies, and other expenses related to the design, development, testing,
    and enhancement of our products and services. Research and development expenses
    for the six months ended June 30, 2003 were approximately $2.4 million, a
    decrease of approximately $8.4 million, as compared to approximately $10.8
    million for the comparable period of the prior year. The significant decrease
    in research and development expenses for the six months ended June 30, 2003
    as compared to the comparable period of the previous year was primarily attributable
    to a reduction in the research and development efforts undertaken by our Life
    Sciences business unit in 2002. Life Sciences incurred significant research
    and development cost in completing its collaboration with the SNP Consortium,
    which was completed in the first quarter of 2002. The Life Sciences business
    unit was also active in developing and commercializing the Ultra High Throughput
    (UHT) genotyping platform. During the six months ended June 30, 2003 as compared
    to the six months ended June 30, 2002 there was a reduction in lab supplies,
    salaries and related personnel benefits, depreciation and consulting which
    all relate to the various restructuring efforts taken by us during 2002.


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Marketing
  and Sales Expenses

Marketing and
  sales expenses consist of salaries and benefits for salespeople within our company
  and all related costs of selling and marketing our products and services. These
  costs include travel, advertising, market research costs, and certain professional
  fees. Marketing and sales expense for the six months ended June 30, 2003 was
  approximately $3.6 million as compared to approximately $4.6 million during
  the comparable period of the prior year. The decrease in these costs of approximately
  $1.0 million was substantially related to reduced marketing initiatives while
  we completed the financing at the end of the first quarter of 2003, costs incurred
  in 2002 for marketing efforts as it relates to the commercialization of the
  UHT which were not incurred in 2003 and our efforts to reduce discretionary
  spending as it relates to marketing our services. During the prior year six
  months ended June 30, 2002, we had also been accruing for bonuses related to
  sales and marketing personnel which is not being accrued for in 2003.


General
  and Administrative Expenses

General and
  administrative expenses consist primarily of salaries and related expenses for
  executive, finance and administrative personnel, professional fees, general
  legal and intellectual property and other corporate expenses. General and administrative
  expenses for the six months ended June 30, 2003 were approximately $12.4 million,
  a decrease of approximately $4.1 million, as compared to approximately $16.5
  million for the comparable period of the prior year. We attribute the decrease
  in overall general and administrative expenses to the restructuring efforts
  taken in 2002. General and administrative costs, specifically personnel related,
  have decreased by approximately $3.7 million during the six months ended June
  30, 2003 as compared with the comparable period of 2002. Facility costs, which
  mainly includes rent, utilities and depreciation has also decreased by approximately
  $2.3 million for the six months ended June 30, 2003 as compared with the comparable
  period of 2002. Also, we incurred approximately $1.7 million in general and
  administrative expenses for the six months ended June 30, 2003, which we do
  not expect to continue during the remainder of 2003, consisting of approximately
  $1.2 million associated with a third party bankers and an additional $0.5 million
  in legal costs. The bankers and related legal costs were incurred by us in our
  preparation to obtain the financing which was consummated in March 2003 as well
  as for assistance with strategic corporate activities as requested by our Board
  of Directors.


Impairment
  of Assets

During the six months ended June 30, 2003, we recorded approximately $0.8 million of impairment of assets. There was not an impairment of assets during the six months ended June 30, 2002. During the quarter ended June 30, 2003, we decided to strategically realign our GeneShield business unit. The realignment is expected to enable GeneShield to launch and pilot test a variety of targeted programs to assess the potential of different market segments and models while also reducing operating costs. In connection with this decision, we terminated several of our GeneShield employees, most of which were located in our Arlington, Virginia facility. As a result of this decision, we impaired various types of fixed assets including office and computer equipment, furniture and fixtures and software for approximately $0.8 million.


Restructuring

During the
    six months ended June 30, 2003, we settled a leasehold obligation for one
    of our Princeton based facilities for an amount less than our original estimate.
    We recorded a credit to the restructuring of approximately $0.3 million as
    a result of this better than expected settlement. In addition, as a result
    of the realignment of our GeneShield business unit, we recorded approximately
    $0.2 million of severance and facility related charges in the restructuring.
    During the six months ended June 30, 2002, we formalized and announced a plan
    to restructure certain operations in order to cut costs. As a result, over
    80 positions which cover
    all areas of our operations were terminated. Most of these terminations were
    from our Princeton, New Jersey facility. As a result of this plan, we recorded
    approximately $1.9 million as a restructuring charge which consisted of employee
    related charges such as severance, benefits and outplacement services of approximately
    $1.0 million, facility charges of approximately $0.7 million and equipment
    impairment charges of approximately $0.2 million.


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Amortization of Intangible Assets

During the six months ended June 30, 2003, we recorded approximately $0.9 million of amortization of intangible assets as compared to approximately $1.5 million during 2002. During the six months ended June 30, 2003 we had a lower amount of amortization due to the impairment charge related to intangible assets of our Life Sciences business unit which we recorded in the forth quarter of 2002. We expect that our amortization of intangible assets will continue to be approximately $0.5 million on a quarterly basis for the remaining six months of 2003.


Interest Income

Interest income for the six months ended June 30, 2003 was less than $0.1 million, compared to approximately $0.5 million during the comparable period of the prior year. This decrease was primarily due to interest received on less cash, cash equivalent, and short-term investment balances than we had held during the first six months of 2002.


Interest Expense

Interest expense for the six months ended June 30, 2003 was approximately $0.3 million compared to approximately $0.4 million during the comparable period of the prior period. Interest expense during the six months ended June 30, 2003 has decreased as a result of reduced levels of long term debt.


Income
  Tax (Expense)/Benefit

During the six months ended June 30, 2003, we recorded income tax expense of approximately $1.1 million which was directly related our UK business which is generating taxable income from operations. During the six months ended June 30, 2002, we recorded an income tax benefit of approximately $0.9 million. This was related to the sale of some of our state net operating loss carryforwards to another company, which was authorized by the New Jersey Economic Development Authority.


Discontinued Operations

We consider our Diagnostic business unit to be a non-core asset which we expect to and have
committed to sell and therefore, has been reflected as a discontinued operation. The results of operations for this
business unit have been reflected in discontinued operations. We recorded approximately $4.2 million of
losses during the six months ended June 30, 2003 (includes a $3.9 million impairment of assets) and $0.9 million
of income from the discontinuance of the Diagnostic business during the six months ended June 30, 2002. During
the six months ended June 30, 2003, we obtained additional information with respect to the value of our
Diagnostic business which is currently held for sale. Based on this additional information, we determined
that an evaluation of the long lived assets of the discontinued business was required. Based on this
evaluation, we recorded an impairment charge of $3.9 million related to predominantly intangible
assets of that business and has been reflected as part of the operations of the discontinued business.


Without giving
effect to the impairment charge discussed above, a contributing factor for the
loss during the six months ending June 30, 2003 compared to income from discontinued
operations during 2002 is a direct result of the loss of a German customer for
which our Diagnostic business had historically performed a significant amount
of service work. Revenues associated with this customer have been reduced dramatically
due to the current litigation with this customer.


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Net Loss and Net Loss Allocable to Common Stockholders

Due to the factors described
    above, which includes a restructuring charge and impairment of asset charges,
    during the six months ended June 30, 2003, we reported a net loss of approximately
    $13.7 million compared to a net loss of approximately $22.7 million for the
    comparable period of the prior year. We also recorded a beneficial conversion
    feature, dividends and accretion of approximately $1.5 million which was
    included in our net loss allocable to common stockholders of approximately
    $15.2 million. The beneficial conversion feature of $0.7 million related
    to our March 2003 financing was calculated as the difference between the
    per share value as of the commitment date and the per share value of the
    transaction after giving effect to the value associated with the investors
    warrants to purchase common stock. The $0.2 million in dividends relate to
    the 6% dividend payable to the holders of our Series A convertible preferred
    stock. In addition, we accreted approximately $0.5 million for the conversion
    of shares of our Series A convertible preferred stock into shares of our
    common stock during the six months ended June 30, 2003. (See Liquidity
    and Capital Resources below for a further discussion of the financing).


LIQUIDITY AND CAPITAL RESOURCES

On March 31, 2003, we completed the issuance and sale of 1,600 units (Units) to certain investors (each an Investor and collectively, the Investors). Each Unit consists of (i) one share of our newly created Series A Convertible Preferred Stock, $.001 par value per share (the Series A Preferred Stock), convertible into approximately 22,222.22 shares of our common stock, and (ii) a warrant (Warrant) to purchase approximately 6,666.67 shares of our common stock. Each Unit had a purchase price of $10,000, providing us with $16.0 million in gross proceeds. We also issued an additional 75 Units to our banker as a fee for this transaction.


The Series A Preferred Stock is convertible into our common stock, at the Investors discretion, at a per share conversion price of $0.45, provided, however, that no Investor is allowed to convert Series A Preferred Stock if the conversion would result in such Investor beneficially owning more than 4.99% of our outstanding common stock (the Cap Amount), and it is entitled to vote on all matters submitted to a vote of our stockholders on an as-converted basis, subject again to the Cap Amount. The Series A Preferred Stock bears cumulative dividends, payable quarterly, at an initial annual rate of 6% for the first nine quarters. After the ninth quarter, the dividend rate will increase by 2% for each quarter thereafter, to a maximum of 12% per year. If, however, our common stock ceases to be listed on either the Nasdaq (the National Market or SmallCap) (collectively, the NASDAQ), the New York Stock Exchange (the NYSE) or the American Stock Exchange (the AME

X), the dividend rate will automatically increase to 14% per year until our common stock is subsequently listed on one of the aforementioned markets or exchanges. Dividends are payable, at our option, in cash or shares of our common stock, valued at the average closing sales price of our common stock for the five trading day period prior to the dividend date. The proceeds of this financing can be used for general and corporate purposes and working capital, but is restricted as to certain other uses.


The holders of the Series A Preferred Stock have the right to require us to repurchase for cash the then outstanding shares of Series A Preferred Stock upon the occurrence of certain events, including:


| |  | if our
          common stock is not listed on either the NYSE, AMEX, NASDAQ, the OTCBB
          or the Bulletin Board Exchange for a total of ten days in any nine
      month period;                                             
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                      
| |  | the institution
          of bankruptcy, insolvency, reorganization or liquidation proceedings
          by or against us, an assignment for the benefit of creditors by us
      or the appointment of a receiver or trustee for us;
| |   |                                                                                                                                                                                                                                      

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| |  | a change
      of control of our company, as defined in the certificate of designations;                                                                                                                                                                                                                                                                                                                                                                                        
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | our failure
          to pay in full dividends on the Series A Preferred Stock on any two
      consecutive dividend dates;                                                                                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | a registration
          statement required to be filed by the Company to register common shares
          underlying the Series A Preferred Stock and Warrants is not declared
          effective within a certain period, as defined in the certificate of
          designations or after being declared effective, cannot be utilized
          by the holders of the Series A Preferred Stock for resale of all of
      their shares for more than a total of 45 days; or
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | our failure
          to convert the Series A Preferred Stock when requested by the holders,
      as defined in the agreement.                                                                                                                                                                                                                                                                                                                                                 

The redemption amount that we are required to pay equals 125% of the purchase price of the Series A Preferred Stock and the accrued and unpaid dividends, except that in the case of a change of control, the redemption equals 150% of such amount. The Series A Preferred Stock is also entitled to a liquidation preference equal to the purchase price plus all accrued and unpaid dividends. Due to the redemption characteristics of the Series A Preferred Stock, we have classified the carrying value of the Series A Preferred outside of stockholders equity in the accompanying condensed consolidated balance sheet as of March 31, 2003. We will not accrete the carrying value of the Series A Preferred Stock to the redemption value until an event that would require redemption becomes probable. As of June 30, 2003, the redemption of the Series A Preferred Stock is not probable and the outstanding Series A Preferred Stock has been recorded at its original carrying value

 in the accompanying condensed consolidated balance sheet as of June 30, 2003, accordingly.


If certain requirements as
    defined in the agreement are met after the second anniversary of the financing,
    we at our option may redeem the Series A Preferred Stock in whole or in part
    for 125% of the original purchase price. If our stock price exceeds certain
    levels for certain periods of time, as defined in the agreement, or we consummate
    an underwritten offering at certain levels as defined in the agreement, we
    may at our option redeem the Series A Preferred Stock in an amount equal
    to the original purchase price. During the three months ended June 30, 2003,
    our stock price exceeded the level and time period that was required, as
    defined in the agreement, to give us the ability and right to redeem the
    Series A Preferred Stock at our option. However, there can be no assurances
    that our stock price will maintain this level and therefore we may not have
  the ability to redeem the Series A Preferred Stock at our option in the future.


Stockholder approval is normally required for financings similar to the one described above. However, we sought and obtained a financial viability exception from the National Association of Securities Dealers (NASD) stockholder approval requirement pursuant to NASD Marketplace Rule 4350(i)(2). On March 20, 2003, in accordance with NASD Marketplace Rule 4350(i)(2), we mailed to our stockholders a notice (the Notice) that we had requested and received from Nasdaq a financial viability exception to the stockholder approval requirements of NASD Marketplace Rule 4350(i)(1)(D). In accordance with the terms of NASD Marketplace Rule 4350(i)(2), we closed the financing at least ten days after the mailing of the Notice.


On December 23, 2002, we consummated a line of credit with a commercial bank for a maximum of $10 million. The borrowing base is based on 80% of eligible accounts receivable (as defined in the agreement). Borrowings pursuant to the line of credit bear interest at a range of prime plus 0.5% to 2.5% based on our liquidity ratio as defined in the agreement). The line of credit contains certain financial and non-financial covenants with which we were in compliance as of June 30, 2003. This agreement also contains a material adverse change clause which, if triggered, would constitute an event of default. The line of credit expires in one year but contains automatic renewal provisions at the banks option.


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In March 2002, we completed a follow-on offering of our
common stock for approximately $21.3 million. At June 30, 2003, we had borrowings of approximately $3.6 million
outstanding related to a loan which was entered into primarily for equipment financing. If we do not maintain
minimum unrestricted cash, as defined in the loan agreement, equal to the greater of $35.0 million or twelve
months cash needs (calculated by taking the trailing three months net cash used in operations multiplied
by four), we are required to provide a cash security deposit or letter of credit equal to an amount defined in
the loan agreement, not to exceed 50% of outstanding amounts on draws made in or subsequent to December 2000.
As of December 31, 2001, and just prior to our March 2002 equity offering we did not maintain the minimum
unrestricted cash defined in the loan agreement. We received a waiver from our lender regarding our
noncompliance with this covenant for this period. Subsequent to March 31, 2002, we did not maintain the
minimum cash defined in the loan agreement. We have also received written notice from the lender stating
that the lender waived the financial covenant violation as a result of not maintaining a pledge of cash
security deposit or letter or credit under this loan agreement for the period of noncompliance through
June 19, 2002. On June 19, 2002, we obtained a letter of credit in the amount of approximately $2.7 million
as required by the loan agreement, which was supported by a cash restriction on certain securities held by us.
In June 2003, our letter of credit expired and the cash was converted to a security deposit held by the lender.
As such, this cash restriction, in addition to cash restricted under two of our operating leases is reflected
as restricted cash in the condensed consolidated balance sheet as of June 30, 2003 of $3.4 million, of which
approximately $1.5 million is classified as a long term asset. On May 10, 2001, we filed a Registration Statement on Form S-3
with the Securities and Exchange Commission. Subject to our ongoing obligations under the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as amended, the Registration Statement permits us to offer
and sell various types of securities, up to an aggregate value of approximately $75.0 million, of which
approximately $16.8 million remains available for future use. The sale of common stock in June 2001 for
gross proceeds of approximately $35.7 million was registered under this Registration Statement. The
subsequent sale of common stock in February and March 2002 for gross proceeds of approximately $22.5 million
was also registered under a Prospectus Supplement to this Registration Statement. The availability to offer
and sell various types of securities under the shelf registration statement expired in May 2003. As
of June 30, 2003, we had approximately $15.7 million in cash and cash equivalents as compared to
approximately $10.0 million as of December 31, 2002. Working capital increased to approximately $14.0 million
at June 30, 2003 from approximately $9.5 million at December 31, 2002. This increase in working capital is due
to the $16 million in financing which was completed on March 31, 2003. Net cash used in operations
    for the six months ended  June 30, 2003 was approximately $3.0 million compared
    with cash used in operations of approximately $20.8 million
for the comparable period of the prior year. This significant decline in cash
    used in operations demonstrates the  magnitude of cost savings we have achieved
    over the past year resulting from our divestitures and cost cutting
efforts. Investing activities during the six months ended June 30, 2003 included
    capital expenditures of  approximately $0.8 million. Financing activities
    during the six months ended June 30, 2003
primarily consisted of approximately $16.0 million of net proceeds from our offering
    of redeemable convertible  preferred stock in March of 2003 and repayment
    of debt of approximately $7.0 million, which includes $5.2 million
which was repaid on our $10 million credit facility. We expect our restructuring
    efforts taken in 2002 and 2003 will continue to reduce future cash expenditures.
    We believe that the result of these efforts coupled with anticipated divestitures
    of certain non-core assets, expected increases in both revenues and gross
    margins in our remaining core business units and our financing in 2003 will
    enable us to operate our ongoing business activities until we reach operating
    profitability and positive cashflows, expected by the end of 2003. We believe that our existing
    cash on hand, with the inclusion of the 2003 financing, the availability
    of our line of credit as described above, and proceeds from the expected
    sale of our Diagnostics business will be sufficient to fund our operations
    through at least December 31, 2003. We
    may need to
    access
    the
    capital markets for additional financing to operate our ongoing business
    activities after that time if our future results of operations fall below
    our expectations. We may be unable to raise additional funds or raise funds
    on terms that are acceptable to us. If future financing is not available
    to us, or is not available on terms acceptable to us, we may not be able
    to fund our future needs. If we raise funds through equity or convertible
    securities, our stockholders may experience dilution and our stock price
    may decline.


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We cannot assure you that our business or operations will not change in a manner that would consume available resources more rapidly than anticipated. We also cannot assure you that we will not require substantial additional funding before we can achieve profitable operations. Our capital requirements depend on numerous factors, including the following:


| |  | our ability
    to enter into strategic alliances or make acquisitions;                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                        
| |  | our ability
    to divest non-core assets;                                                                                                                                                                             
| |   |                                                                                                                                                                                                                        
| |  | regulatory
    changes and competing technological and market developments;                                                                                                                                            
| |   |                                                                                                                                                                                                                        
| |  | changes
    in our existing collaborative relationships;                                                                                                                                                               
| |   |                                                                                                                                                                                                                        
| |  | the cost
        of filing, prosecuting, defending and enforcing patent claims and other
    intellectual property rights;                                                                                             
| |   |                                                                                                                                                                                                                        
| |  | the
        application of our SNP technologies to our core businesses in paternity,
    forensics and public health testing;                                                                                          
| |   |                                                                                                                                                                                                                        
| |  | the
        success rate of establishing new contracts, and renewal rate of existing
        contracts,
        for identity genomics services in the areas of paternity, forensics,
    and public health DNA testing;
| |   |                                                                                                                                                                                                                        
| |  | the progress
        of our existing and future milestone and royalty producing activities;
    and                                                                                                                    
| |   |                                                                                                                                                                                                                        
| |  | the availability
    of additional funding at favorable terms, if necessary.                                                                                                                                           

As of December 31, 2002, our net operating loss carry forwards were approximately $178.0 million and approximately $161.5 million for Federal and state income tax purposes, respectively. If not utilized, our Federal and state tax loss carry forwards will begin to expire in 2005. Utilization of our net operating losses to offset future taxable income, if any, may be substantially limited due to change of ownership provisions in the Internal Revenue Code of 1986. We have not yet determined the extent to which limitations were triggered as a result of past financings or may be triggered as a result of future financings. This annual limitation is likely to result in the expiration of certain net operating losses prior to their use.


CONTRACTUAL COMMITMENTS

We maintain multiple contractual commitments as of June 30, 2003, which will support our future business operations. We also maintain contractual commitments for facilities which we no longer utilize. All of such commitments relate to noncancelable operating lease arrangements, long-term debt, minimum supply purchases, and future patent and minimum royalty obligations. We have identified and quantified the significant commitments in the following table.


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Payments due by period
(In thousands)

|                                                   |  | Year
          ending December 31 (six months for 2003) |       |      |       |      |      
|-------------------------------------------------- |  | ------------------------------------------------------- | ----- | ---- | ----- | ---- | -----
|                                                   |  |                                                         |       |      |       |      |      
|                                                   |  | 2003                                                    |       | 2004 |       | 2005 |      
|                                                   |  |                                                         |       |      |       |      |      
|Contractual
    obligations:                       |  |                                                         |       |      |       |      |      
|Noncancelable
    operating lease arrangements (1) |  | $                                                       | 2,001 |      | 3,433 |      | 3,072
|Long-term
    debt(2)                              |  |                                                         | 1,464 |      | 1,702 |      | 597  
|Future
    patent obligations (3)                  |  |                                                         | 1,618 |      | 1,593 |      | 310  
|Minimum
    purchase commitments (4)               |  |                                                         | 1,300 |      | 1,300 |      |     
|Future
         minimumroyalties
    (5)           |  |                                                         |      |      |      |      | 1,240
|                                                   |  |                                                         |       |      |       |      |      
|Total
    contractual obligations                  |  | $                                                       | 6,383 |      | 8,028 |      | 5,219
|                                                   |  |                                                         |       |      |       |      |      
|                                                   |  |                                                         |       |      |       |      |      

|   
|---
|(1)
|   
|(2)
|   
|(3)
|   
|(4)
|   
|(5)

ITEM 3.   QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk is principally confined to our cash equivalents, which are conservative in nature, with a focus on preservation of capital. Market risk refers to the risk of loss arising from adverse changes in foreign currency exchange rates. As a result of the acquisition of Cellmark, in February 2001, the acquisition of Lifecodes in December 2001, and a limited number of agreements with foreign companies, we may be affected by fluctuations in currency exchange rates. We have a certain amount of long-term debt recorded on our books. The interest rates applicable to such debt are not variable with respect to market conditions.


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ITEM
        4.   CONTROLS AND PROCEDURES

(a)   Evaluation
      of Disclosure Controls and Procedures. The Companys principal executive
      officer and principal financial officer, after evaluating the effectiveness
      of the Companys disclosure controls and procedures (as defined in
      Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period
      covered by
      this Quarterly Report on Form 10-Q, have concluded that, based on such
      evaluation, the Companys disclosure controls and procedures were
      adequate and effective to ensure that material information relating to
      the Company,
      including its
      consolidated subsidiaries, was made known to them by others within those
      entities, particularly during the period in which this Quarterly Report
      on Form 10-Q was being prepared.


(b)   Changes
    in Internal
Controls. There were no changes in the Companys internal control over financial
reporting, identified in connection with the evaluation of such internal control
that occurred during our last fiscal quarter, that have materially affected,
or are reasonably likely to materially affect, the Companys internal control
over financial reporting.


FORWARD-LOOKING
  STATEMENTS

This report may contain forward-looking
    statements.
Such statements are based on managements current expectations and are subject
to a number of  factors and uncertainties that could cause actual results or
outcomes to differ materially from those
described in such forward-looking statements. These statements address or may
address the following  subjects; the expectation that the realignment of GeneShield
will enable us to launch and pilot test
a variety of targeted programs to assess the potential of different market segments
and models while  also reducing operating costs; the expectation that amortization
of intangibles will continue to be
approximately $0.5 million on a quarterly basis for the remaining six months
of 2003; the expectation  that our forensics business will generate increasing
revenues and that revenues generally will
increase; the anticipation of incurring additional losses at least through the
third quarter of  2003; the expected timing and outcome of litigation; the expectation
of selling the Diagnostics
business unit in 2003 and the expectation of generating incremental cash resources
from the sale  in 2003; the belief that the results of the restructuring efforts
coupled with anticipated
divestitures of certain non-core assets, expected increases in both revenues
and gross margins  in our remaining core business units and our financing in
2003 will enable us to operate our
ongoing business activities until we reach operating profitability and positive
cashflows; the expectation of reaching operating profitability and positive cash
flows in late 2003; the
expectation that restructuring
efforts in 2002 and 2003 will reduce cash expenditures; the expected amounts
of future expenses;  the planned uses of our laboratories; the intention of continuing
to leverage our SNP technologies
in our paternity, forensics, public health and pharmacogentic businesses; the
intention to vigorously  defend lawsuits; the belief that our acquisitions, establishment
of new businesses,
selected divestitures and increases in revenues and gross margins will allow
us to
focus on key portions of our business and allow us to move closer to achieving
 profitability; the anticipation of entering into fewer licensing arrangements;
the expected amortization
of intangible assets; and the belief that our existing cash reserves with the
inclusion of the 2003 financing, our line of credit and proceeds from our expected
sale of our Diagnostics business will
be
sufficient
to
fund our operations through at least December 31, 2003. For
further information, refer to the more specific factors and uncertainties discussed
throughout our
Annual Report or Form 10-K and in the Risk Factors section thereof.
Except as required by law,  we undertake no obligations to update any forward-looking
statements. You should also carefully consider the
factors set forth in other reports or documents that we file from time to time
with the Securities and
Exchange Commission.


PART II   OTHER INFORMATION

ITEM 1.
   LEGAL
PROCEEDINGS

On February 13, 2002 the Company received a Notice of Lawsuit and Request for Waiver of Service of Summons and a copy of the complaint filed in the United States District Court for the Southern District of New York in connection with a class action lawsuit. The complaint purportedly was filed on behalf of persons purchasing the Companys stock between May 4, 2000 and December 6, 2000, and alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, and Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint alleged that, in connection with the Companys May 5, 2000 initial public offering, the defendants failed to disclose additional and excessive commissions purportedly solicited by and paid to the underwriter defendants in exchange for allocating shares of the Companys stock to preferred customers and alleged agreements among the underwriter defe

ndants and preferred customers tying the allocation of IPO shares to agreements to make additional aftermarket purchases at pre-determined prices. Plaintiffs claim that the failure to disclose these alleged arrangements made the Companys registration statement on Form S-1 filed with the SEC in May 2000 and the prospectus, a part of the registration statement, materially false and misleading. Plaintiffs seek unspecified damages. On February 19, 2003, the Company received notice of the courts decision to dismiss the Section 10(b) claims against the Company. The claims against individuals officers named as defendants were earlier dismissed without prejudice, subject to a tolling agreement. The plaintiffs and defendant issuers have agreed in principal on a settlement, which, upon a
one-time payment
by defendant issuers insurers, would release the defendant issuers from claims
and any future payments or out of pocket costs.


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The Company had been in litigation with St. Louis University
of St. Louis, Missouri regarding its belief that our SNP scoring technology infringes certain claims under
US patent 5,846,710, which was controlled by the University. On August 7, 2002, the parties dismissed the
litigation and the Company acquired the subject patent. St. Louis University conditionally assigned both
the patent and all license agreements related thereto to us. On March 13, 2003, St. Louis University
notified the Company that it was unable to obtain a required consent to assign the patent to the
Company. Pursuant to the terms of the Companys settlement agreement with St. Louis University,
the failure to obtain such consent results in the automatic grant to the Company of an exclusive license
under the patent. The Company is in discussions with St. Louis University regarding the terms of such license and the
restructuring of the Companys obligation to St. Louis University.


The Company is a defendant in litigation commenced by
Enzo Biochem, Inc, and Enzo Life Sciences, Inc.. The complaint asserts that the Company purchased materials
from plaintiffs authorized distributor and resold those materials in a manner not authorized by the
related distribution agreements. The complaint, therefore, seeks money damages based primarily on alleged
patent infringement by the Company. The litigation currently is in fact discovery and no expert discovery
has occurred. As a result, it is not possible for the Company to provide an opinion on the likely outcome
of the various claims, but the Company intends to vigorously defend against plaintiffs claims and
believes that the claims are without merit.


Prior to the Companys acquisition of Lifecodes,
which occurred on December 5, 2001, Lifecodes sold Medical Molecular Diagnostics GmbH, (MMD), a wholly
owned subsidiary of Lifecodes based in Dresden, Germany to Duetsche Knochenmarkspenderdatei gemeinnutzige
Gesellschaft mbH, (DKMS), pursuant to a Stock Purchase Agreement dated November 15, 2002 (SPA). Upon the
acquisition of Lifecodes, the Company assumed Lifecodes obligations to DKMS under the SPA.


The Company is in a dispute with and anticipates receiving
notification in the near future that DKMS has filed a suit against it for damages under the SPA for the full
amount of their cost to acquire MMD. DKMS is anticipated to claim defects in the MMD lab. The Company has not
reserved any amount related to this case and believes that the allegations are without merit and intends to
vigorously defend against these anticipated claims. Legal proceedings are likely to occur no earlier than
the fall 2003. In addition, in December 2002, the Company filed a claim in Germany against DKMS for
significant unpaid accounts receivable that accrued during the year ended December 31, 2002. The
accounts receivable amounts were for HLA typing conducted by the Diagnostics business unit, which
the Company currently plans to sell. The services performed by the Diagnostics business unit were
exclusively upon DKMS request. Legal proceedings for the Companys outstanding accounts
receivable are expected to take place in Germany during the third quarter of 2003.


On July 21, 2003 the Company
    was served with a First Amended  Complaint filed July 18, 2003 in United
    States District Court for the Eastern District of Virginia, Alexandria
Division. The complaint was filed against the Company, as well the Companys
majority owned subsidiary,  GeneShield, Inc. by M. Lee Morse and Aida A. LeRoy
alleging violations of Sections 10(b) and 20(a) of the
Securities and Exchange Act of 1934, as well as breach of contract. Both M. Lee
Morse and Aida A. Leroy are  existing employees of the Company and are associated
with the GeneShield business unit.
Plaintiffs seek, among other things,
injunctive relief as well as performance by the Company under a Contribution
and License Agreement dated  May 23, 2001. The Company intends to vigorously
defend against plaintiffs claims and believes that
the claims are without merit.


Additionally, the Company has other certain claims against it arising from the normal course of its business. The ultimate resolution of such matters, including those cases discussed above, in the opinion of management, will not have a material effect on the Companys financial position or results of operations.


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ITEM
2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

On May 16, 2003, the Company issued two warrants to purchase
350,000 and 75,000 shares of its common stock, respectively, to one of the Company’s bankers.  The
warrant to purchase 350,000 shares was exercisable any time after the issuance thereof through the fifth
anniversary of the issuance date at an exercise price of $0.45 per share.  The warrant to purchase
75,000 shares is exercisable any time after the issuance thereof through the fifth anniversary of the
issuance date at an exercise price of $0.65 per share.  On June 10, 2003, June 13, 2003 and June 27, 2003,
the Company issued 125,000, 100,000 and 125,000 shares of its common stock, respectively, resulting in
proceeds to the Company of $56,250, $45,000 and $56,250, respectively, in connection with the exercise
of the warrant to purchase 350,000 shares. On June 12, 2003, the Company issued an aggregate of 4,644,444
shares of its common stock in connection with the conversion of 209 shares of its Series A convertible
preferred stock.  In connection with the conversion of the shares of Series A convertible preferred
stock, the Company issued an additional 17,767 shares of its common stock as payment of accrued dividends
on the shares of Series A convertible preferred stock converted into common stock. No underwriters were involved in the foregoing offers and
sales of securities. The issuance of the warrants and the shares of common stock issued upon exercise
of the warrant and as a dividend on the shares of Series A convertible preferred stock were made in
reliance upon an exemption from the registration provisions of the Securities Act of 1933, as amended
(the Securities Act), set forth in Section 4(2) thereof relative to sales by an issuer not involving
any public offering and the rules and regulations thereunder.  The issuance the shares of common stock
issued upon conversion of the shares of Series A convertible preferred stock were made in reliance upon
an exemption from the registration provisions of the Securities Act, set forth in Section 3(a)(9) thereof
relative to the exchange of securities with no additional consideration and the rules and regulations
thereunder.  All of the foregoing securities are deemed restricted securities for purposes of the
Securities Act.


ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

Not applicable.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The following matters were put to a vote of security holders at our Annual Meeting of Stockholders held on June 12, 2003: (i) the election of Nicole S. Williams and George F. Poste, DVM, PhD as Class III directors to serve until 2006; (ii) the approval of the 2003 Orchid BioSciences, Inc. Employee Stock Purchase Plan (Stock Purchase Plan); and (iii) the ratification of the appointment of KPMG LLP as our independent public accounts for the current fiscal year.


The following tables set forth information regarding the number of votes cast for, against or withheld, abstentions and broker non-votes, with respect to each matter presented at the meeting. Under the rules of the Nasdaq Stock Market, brokers who hold shares in street name for customers who are beneficial owners of those shares may be prohibited from giving a proxy to vote shares held for such customers on certain matters without specific instructions from such customers (broker non-votes). Under Delaware law, abstentions and broker non-votes are counted as shares represented at the meeting for purposes of determining the presence or absence of a quorum at a stockholders meeting. The election of directors is decided by plurality of the votes cast; withholding authority to vote for a nominee for director had no effect on the outcome of the vote. For the proposals to approve the Stock Purchase Plan and to ratify the appointment of KPMG LLP as our independent

public accountants for the fiscal year ending December 31, 2003, the affirmative vote of a majority of shares of common stock voted affirmatively or negatively at the meeting on the matter were necessary for approval. Abstentions with respect to each of the three proposals had no effect on the outcome of the vote.


|Proposals:                                                                                                                                 |  | For        |  | Against or Withheld |  | Abstentions    | 
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------- |  | ------------------- |  | -------------- | 
|                                                                                                                                           |  |            |  |                     |  |                | 
|(i)
    election of directors                                                                                                              |  | 40,768,060 |  | 1,121,134           |  | Not Applicable | 
|                                                                                                                                           |  |            |  |                     |  |                | 
|(ii)
         proposal to approve the 2003 OrchidBioSciences,
         Inc. Employee StockPurchase
    Plan                                |  | 39,762,082 |  | 1,884,266           |  | 242,846        | 
|                                                                                                                                           |  |            |  |                     |  |                | 
|(iii)
         proposal to ratify the appointment ofKPMG
         LLP as our independent publicaccountants
    for the current fiscal year |  | 41,381,234 |  | 485,477             |  | 22,483         | 
|                                                                                                                                           |  |            |  |                     |  |                | 

At the meeting the following directors were approved by the shareholders to serve on the board of directors: Nicole S. Williams and George F. Poste, DVM, PhD as Class III directors to serve until 2006. In addition to these directors, the following directors continue to serve on the board of directors: Sidney M. Hecht, PhD, Kenneth D. Noonan, PhD, Jeremy M. Levin, DPhil, MB BChir and Robert D. Tien, MD, MPH.


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ITEM 5.   OTHER INFORMATION

Not Applicable.


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

The following documents are filed as part of this Quarterly Report on Form 10-Q.


|Exhibit
    Number |  | Description                                                                                                                                 
|------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------
|                   |  |                                                                                                                                             
|31.1               |  | Certification
        of the Chief Executive Officer under Rule 13a-14(a) under the Securities
        Exchange
Act of 1934, as amended     
|31.2               |  | Certification
        of the Chief Financial Officer under Rule 13a-14(a) under the Securities
        ExchangeAct
    of 1934, as amended  
|32.1               |  | Certification of the
        Chief Executive Officer and Chief Financial Officer under Section 906
        of the Sarbanes-Oxley
Act of 2002

(b)   Reports
      on Form 8-K

The Company filed the following reports on form 8-K with the Securities and Exchange
Commission during the quarter ended June 30, 2003:




| |  | Form
            8-K filed on April 2, 2003 announcing the Companys completion
            of a $16 million private placement.                                        
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                        
| |  | Form
        8-K filed on May
29, 2003 announcing the Companys appointment of Paul J. Kelly M.D. as the
Company new chief executive officer effective on June 2, 2003.
| |  |                                                                                                                                                                        
| |  | Form
        8-K filed on May
30, 2003 announcing the Companys realignment of its Geneshield business
unit.                                                           

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.


|                          | ORCHID BIOSCIENCES,
    INC.                      
|------------------------- | --------------------------------------------------
|                          |                                                   
|Date: August
    14, 2003 | By: /s/ Michael
    E. Spicer                     
|                          | Michael E. Spicer                                 
|                          | Vice President and
        Chief
Financial Officer

Exhibits

The following is a list of exhibits filed as part of this Quarterly Report on
Form 10-Q.


|Exhibit
    Number |  | Description                                                                                                                                 
|------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------
|                   |  |                                                                                                                                             
|31.1               |  | Certification of the
        Chief Executive Officer under Rule 13a-14(a) under the Securities Exchange
    Act of 1934, as amended         
|31.2               |  | Certification of the
        Chief Financial Officer under Rule 13a-14(a) under the Securities Exchange
    Act of 1934, as amended         
|32.1               |  | Certification of the
        Chief Executive Officer and Chief Financial Officer under Section 906
        of the
Sarbanes-Oxley Act of 2002

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