<PAGE>


       AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON March 20, 2001
================================================================================


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                           COMMISSION FILE NO. 0-28550

                              VISIBLE GENETICS INC.
--------------------------------------------------------------------------------
    (Exact name of Registrant as specified in its charter and translation of
                         Registrant's name into English)

                                 ONTARIO, CANADA
--------------------------------------------------------------------------------
                 (Jurisdiction of incorporation or organization)

                700 BAY STREET, TORONTO, ONTARIO, CANADA M5G 1Z6
--------------------------------------------------------------------------------
                    (Address of principal executive offices)

 SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                      NONE


 SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                           COMMON SHARES, NO PAR VALUE
--------------------------------------------------------------------------------
                                (Title of Class)

 Securities for which there is a reporting obligation pursuant to Section 15(d)
                                  of the Act:
                                      None

      Indicate the number of outstanding shares of each of the Registrant's
classes of capital or common stock as of the close of the period covered by the
annual report:

As of December 31, 2000, the Registrant had outstanding 16,244,619 Common Shares
and 26,153 Series A Preferred Shares.

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 /X/   No / /

    Indicate by check mark which financial statement item the Registrant has
                               elected to follow:

                           Item 17 / /   Item 18 /X/

================================================================================
      Visible Genetics Inc. Annual Report on Form 20-F For the Fiscal Year
                            Ended December 31, 2000

<PAGE>



                           FORWARD-LOOKING STATEMENTS

      This annual report includes forward-looking statements. You can identify
these forward-looking statements when you see us using words such as "expect,"
"anticipate," "estimate," "believe," "intend," "may," "predict," and other
similar expressions. These forward looking statements cover, among other items:

   o     FDA and other regulatory approval for certain of our products;

   o     acceptance of our products in the clinical diagnostic market;

   o     acceptance of genotyping in the clinical diagnostic market;

   o     our marketing and sales plans;

   o     our expectations about the markets for our products;

   o     the performance of our products;

   o     our intention to introduce new products;

   o     our future capital needs;

   o     our clinical trials;

   o     reimbursement of our products by insurance companies and other
         third-party payors;

   o     our ability to compete in the clinical diagnostic, clinical research
         and research markets;

   o     our patent applications;

   o     our ability to bring our Atlanta manufacturing facility fully
         operational in a timely manner; and

   o     our ability to modify our information systems to accommodate euro
         transactions.

      We have based these forward-looking statements largely on our current
expectations. However, forward-looking statements are subject to a number of
risks and uncertainties, certain of which are beyond our control. Actual results
could differ materially from those anticipated as a result of the factors
described under "Risk Factors" including, among others:

   o     delays in obtaining, or our inability to obtain, approval by the FDA
         and other regulatory authorities for our HIV OpenGene System and, in
         the future, certain of our other products for the clinical diagnostic
         market;

   o     refusal of insurance companies and other third-party payors to
         reimburse patients and clinicians for our products;

   o     uncertainty of acceptance of genotyping, in general, and of our
         products, in particular, in the clinical diagnostic market;

   o     problems, delays and expenses we may face with future clinical trials;

   o     problems that we may face in manufacturing, marketing and distributing
         our products;

   o     problems and delays we may face in completing our Atlanta manufacturing
         facility in a timely manner.

   o     delays in the issuance of, or the failure to obtain, patents or
         licenses for certain of our products and technologies;

   o     problems with important suppliers and business partners;

<PAGE>

   o     delays in developing, or the failure to develop, new products and
         enhanced versions of existing products; and

   o     the timing of our future capital needs or our inability to raise
         additional capital when needed.

      We do not undertake any obligation to publicly update or revise any
forward-looking statements contained in this annual report, whether as a result
of new information, future events or otherwise. Because of these risks and
uncertainties, the forward-looking statements and circumstances discussed in
this annual report might not transpire.

      Trademarks or trade names of Visible Genetics Inc. used in this annual
report include: CLIP(TM), CLIPPER(TM), GEL TOASTER(TM), GENEKIT(TM),
GENEOBJECTS(R), LONG-READ TOWER(TM), MICROCEL(TM), MICROGENE CLIPPER(R), OPEN
GENE(R), SUREFILL(TM), TRUGENE(TM), AND VISIBLE GENETICS(R). Each trademark,
trade name or service MARK of any other company appearing in this annual report
belongs to its holder.



<PAGE>


                                TABLE OF CONTENTS

                                                                           PAGE

PART I

      Item 1.  Identity of Directors, Senior Management and Advisers.........3

      Item 2.  Offer Statistics and Expected Timetable.......................3

      Item 3.  Key Information...............................................3

               Selected Financial Data.......................................3

               Risk Factors..................................................4

      Item 4.  Information on the Company...................................18

               Overview.....................................................18

               Property, Plants and Equipment...............................37

               History and Development of the Company.......................38

               Organizational Structure.....................................38

      Item 5.  Operating and Financial Review and Prospects.................40

               Operating Results............................................40

               Liquidity and Capital Resources..............................44

      Item 6.  Directors, Senior Management and Employees...................48

               Directors and Senior Management..............................48

               Compensation.................................................50

               Board Committees.............................................51

               Employees....................................................52

               Share Ownership..............................................52

      Item 7.  Major Shareholders and Related Party Transactions............54

               Major Shareholders...........................................54

               Related Party Transactions...................................55

      Item 8.  Financial Information........................................56

               Consolidated Statements and Other Financial Information......56

      Item 9.  The Offer and Listing........................................56

               Nature of Trading Market.....................................56

      Item 10. Additional Information.......................................57

               By-Laws and Articles of Incorporation........................57

               Material Contracts...........................................62

               Exchange Controls............................................63

               Taxation.....................................................64

               Documents on Display.........................................72

                                      -i-
<PAGE>

                                TABLE OF CONTENTS
                                   (continued)
                                                                           PAGE

      Item 11.  Quantitative and Qualitative Disclosures About Market
            Risk............................................................73

      Item 12.  Description of Securities Other than Equity Securities......73

PART II.....................................................................73

      Item 13.  Defaults, Dividend Arrearages and Delinquencies.............73

      Item 14.  Material Modifications to the Rights of Security
            Holders.........................................................73

PART III....................................................................73

      Item 17.  Financial Statements........................................73

      Item 18.  Financial Statements........................................73

      Item 19.  Exhibits....................................................74


                                      -ii-
<PAGE>

                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.

Not Applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.

Not Applicable.

ITEM 3.  KEY INFORMATION.

SELECTED FINANCIAL DATA

      The selected consolidated financial data set forth below should be read in
conjunction with "Operating and Financial Review and Prospects" and our
Consolidated Financial Statements and the Notes thereto. The Consolidated
Statements of Operations data for fiscal years 2000, 1999 and 1998, and the
Consolidated Balance Sheet data as of December 31, 2000 and 1999, as set forth
below, have been derived from our consolidated financial statements which have
been audited by PricewaterhouseCoopers LLP, Chartered Accountants in Canada,
whose report with respect to such financial statements is included herein. The
Consolidated Statements of Operations data for fiscal years 1997 and 1996, and
the Consolidated Balance Sheet data as of December 31, 1998, 1997 and 1996, as
set forth below, have been derived from audited consolidated financial
statements not included in this annual report. Historical results are not
necessarily indicative of results to be expected for any future period.

                   SUMMARY CONSOLIDATED FINANCIAL INFORMATION
                  (dollars in thousands, except per share data)


<TABLE>
<CAPTION>

                                                                             YEARS ENDED DECEMBER 31,
                                               ------------------------------------------------------------------------------------
                                                    2000             1999              1998              1997              1996
                                               ------------      ------------      ------------      ------------      ------------
<S>                                            <C>               <C>               <C>               <C>               <C>
STATEMENT OF OPERATIONS DATA:
Sales ....................................     $     13,073      $     13,627      $     10,875      $      3,033      $        978
Cost of sales ............................           10,134             9,273             6,673             1,995               561
                                               ------------      ------------      ------------      ------------      ------------
Gross margin .............................            2,939             4,354             4,202             1,038               417
Sales, general and administrative expense            28,571            19,074            11,516             7,448             3,377
Research and development expense .........           10,606             7,935             6,289             4,123             2,745
Other expense ............................               --             1,329               420               654                --
                                               ------------      ------------      ------------      ------------      ------------
Loss from operations before interest .....          (36,238)          (23,984)          (14,023)          (11,187)           (5,705)
Interest income ..........................            4,481               695               264               774               609
Interest and financing expense ...........              (17)           (1,998)           (1,132)               (3)              (69)
                                               ------------      ------------      ------------      ------------      ------------
Net loss .................................          (31,774)          (25,287)          (14,891)          (10,416)           (5,165)
Cumulative preferred dividends and
    accretion of discount attributable to
    preferred shares .....................           (3,656)           (1,770)               --                --                --
                                               ------------      ------------      ------------      ------------      ------------
Net loss attributable to common
    shareholders .........................     ($    35,430)     ($    27,057)     ($    14,891)     ($    10,416)     ($     5,165)
                                               ============      ============      ============      ============      ============
Net loss per common share ................     ($      2.42)     ($      2.73)     ($      1.91)     ($      1.48)     ($      0.89)
Weighted average number of common shares
    outstanding ..........................       14,612,172         9,916,954         7,782,094         7,059,578         5,791,367
</TABLE>

<TABLE>
<CAPTION>

                                                                             YEARS ENDED DECEMBER 31,
                                               ------------------------------------------------------------------------------------
                                                    2000             1999              1998              1997              1996
                                               ------------      ------------      ------------      ------------      ------------
<S>                                            <C>               <C>               <C>               <C>               <C>
BALANCE SHEET DATA:
Cash and short-term investments ..........     $     80,399      $     42,688      $     11,274      $      7,588      $     18,928
Working capital ..........................           78,107            45,319             8,432             9,561            20,061
Total assets .............................          110,356            58,640            27,783            13,936            22,606
Indebtedness .............................               --                --             7,495                --                --
Mandatorily redeemable convertible
    preferred shares .....................           24,397            27,556                --                --                --
Accumulated deficit ......................          (91,212)          (59,438)          (34,151)          (19,260)           (8,845)
Shareholders' equity .....................           76,845            24,351            14,579            12,610            21,795
</TABLE>


                                       3
<PAGE>

RISK FACTORS

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR FUTURE
PROSPECTS AND OUR PROSPECTS MUST BE CONSIDERED IN LIGHT OF THE DIFFICULTIES
FREQUENTLY ENCOUNTERED BY COMPANIES IN THE EARLY STAGES OF COMMERCIAL
MANUFACTURING AND MARKETING.

      Although we began operations in 1993, we are only in the early stages of
commercially manufacturing and marketing our products. In late 1996, we began
manufacturing and selling to the research and clinical research markets, the
initial versions of our automated DNA sequencers and related products. We plan
to sell our TRUGENE HIV-1 Genotyping Kit and related DNA sequencing equipment
and products, which we call our HIV OpenGene System, and other products to
the clinical diagnostic market in the United States and elsewhere if we
receive approval of the U.S. Food and Drug Administration, or FDA, and other
applicable foreign regulatory authorizations. Our limited operating history
makes it difficult to evaluate our business and our prospects for future
profitability. Our prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in the early
stages of commercial manufacturing and marketing. Sales for our fiscal years
ended December 31, 2000 and December 31, 1999 were $13.1 million and $13.6
million, respectively. In the future, sales may not increase or they may
decrease.

WE HAVE A HISTORY OF LOSSES, WE ANTICIPATE ADDITIONAL LOSSES AND WE MAY NEVER
BECOME PROFITABLE.

      We incurred a net loss of $31. 8 million in the year ended December 31,
2000. As of December 31, 2000, our accumulated deficit was $91.2 million. Our
losses have resulted principally from expenses incurred in research and
development of our technology and products, and from expenses that we have
incurred while building our business infrastructure. We expect to continue to
incur significant operating losses in the future as we continue our research and
development efforts and clinical trials and expand our sales and marketing force
and business infrastructure, in an effort to achieve greater sales and expand
our business. It is uncertain when, if ever, we will become profitable. Our
ability to become profitable will depend on many factors including, among
others:

  o   whether we obtain regulatory approval to sell our HIV OpenGene System and,
      in the future, other GeneKits and related DNA sequencing equipment and
      products, which we call OpenGene Systems, for other diseases, to the
      clinical diagnostic market in the United States and abroad;

  o   the decision of third-party payors to reimburse clinicians and patients
      for use of our TRUGENE HIV-1 Genotyping Kit and, in the future, our
      other products;

  o   our ability to successfully market and sell our HIV OpenGene System and,
      in the future, OpenGene Systems for other diseases, to the clinical
      diagnostic market;

  o   our ability to increase sales of our products to the clinical research
      and research markets;

  o   our ability to effectively manage the growth of our business;

  o   our ability to continue to develop advanced versions of our products
      and technologies and new products and technologies in a timely manner;
      and

  o   our ability to manufacture our products according to schedule and
      within budget.

OUR OPERATING RESULTS MAY FLUCTUATE FROM QUARTER TO QUARTER DUE TO MANY FACTORS
AND, THEREFORE, YOU SHOULD NOT RELY ON PERIOD TO PERIOD COMPARISONS OF OUR
OPERATING RESULTS AS AN INDICATION OF FUTURE PERFORMANCE.

      Our operating results have varied on a quarterly basis in the past and may
fluctuate significantly in the future as a result of a variety of factors, many
of which are outside our control. Factors that may affect our quarterly
operating results include, among others:


                                       4
<PAGE>

  o   unanticipated costs or delays in carrying out our clinical trials;

  o   the amount and timing of operating costs and capital expenditures
      relating to research and development, and the expansion of our
      business, operations and infrastructure;

  o   our decision to increase or decrease sales of equipment, GeneKits and
      other consumables at reduced prices;

  o   our decision to reduce prices of our products in response to price
      reductions by competitors;

  o   general economic conditions, as well as economic conditions specific to
      the biotechnology industry; and

  o   unanticipated costs or delays in manufacturing our products.

      We believe that period to period comparisons of our operating results may
not be meaningful and you should not rely on any such comparisons as an
indication of our future performance. In addition, it is likely that in one or
more future quarters our operating results will fall below the expectations of
securities analysts and investors. In such event, the market price of our common
shares is likely to fall.

WE MAY NOT RECEIVE APPROVAL OF THE FDA OR FOREIGN REGULATORY AUTHORITIES FOR
OUR HIV OPENGENE SYSTEM OR FOR OTHER HIV PRODUCTS WE MAY DEVELOP, AND,
THEREFORE, WE MAY NOT BE ABLE TO SELL OUR HIV PRODUCTS TO THE CLINICAL
DIAGNOSTIC MARKET IN THE UNITED STATES OR ABROAD.

      We currently are seeking approval of the FDA to sell our HIV OpenGene
System for clinical diagnostic purposes in the United States. In the future, we
may seek FDA approval to sell other HIV products for clinical diagnostic
purposes in the United States.

      In order to obtain FDA approval for our HIV OpenGene system we have
submitted an application supported by extensive human test data demonstrating
the utility, reliability and performance of our HIV OpenGene system. We must
also show the FDA that we maintain good laboratory, clinical and manufacturing
practices. The FDA approval process is lengthy and expensive. You should be
aware of the following possibilities:

  o   We may never obtain approval from the FDA to sell our HIV products to
      the clinical diagnostic market;

  o   The FDA may disagree with us that the data are adequate, and we may
      therefore have to do additional testing;

  o   The additional testing, if any, may show that our HIV products are not
      reliable enough, and therefore cannot be authorized by the FDA, or the
      additional testing may show that our HIV products do not work as well as
      they need to for successful marketing, even if marketing is authorized by
      the FDA;

  o   The additional, if any, testing may be too costly to carry out, either
      because we lack adequate funds or because the market potential for our HIV
      products does not justify the costs;

  o   There may be significant delays in the FDA review process;

  o   The FDA may approve the sale of our HIV products with conditions that
      could limit the market for these products or make them more difficult or
      expensive to sell than we anticipate; and

  o   The FDA can revoke marketing authorization for our products for a variety
      of reasons, such as our failure to comply with the FDA's device
      requirements or poor product performance in terms of safety and
      effectiveness.

      If we fail to receive FDA approval, if FDA approval is delayed or if the
FDA imposes conditions that make it difficult to sell or market our products, we
will be unable to carry out our business plan to sell


                                       5
<PAGE>

our HIV OpenGene System for clinical diagnostic use in the United States and our
business, financial condition and results of operations will be materially
harmed.

      We have obtained approval of regulatory authorities in France and
Argentina to sell our HIV OpenGene System to the clinical diagnostic market in
those countries. We may be required to obtain approval from other foreign
regulatory authorities to sell our HIV OpenGene System and other HIV products
to the clinical diagnostic market in other countries outside of the United
States. In some cases, we will face an approval process similar to that
required by the FDA. We cannot be certain that we will obtain the necessary
approvals to sell our HIV products to the clinical diagnostic market in these
countries. In some cases, the failure to obtain approval could materially
harm our business, financial condition and results of operations.

WE ARE SEEKING FDA APPROVAL TO MARKET OUR HIV OPENGENE SYSTEM TO THE CLINICAL
DIAGNOSTIC MARKET THROUGH AN APPLICATION PROCESS THAT IS NEW AND INFREQUENTLY
USED, AND IF THE FDA DOES NOT GRANT OUR REQUEST, OUR ABILITY TO SELL OUR HIV
OPENGENE SYSTEM TO THE CLINICAL DIAGNOSTIC MARKET COULD BE DELAYED
SIGNIFICANTLY.

      Our HIV OpenGene System is currently regulated as a Class III medical
device. To sell a Class III medical device a company must first get specific
approval of the FDA for the device by submitting a premarket approval
application, commonly known as a PMA. However, an FDA advisory committee
recommended that the FDA reclassify HIV genotyping tests from Class III medical
devices to Class II medical devices. To sell a Class II medical device, a
company must first obtain permission of the FDA by submitting a 510(k) premarket
notification, commonly known as a 510(k), showing that the device is similar to
a device already on the market. Generally, a 510(k) notification to the FDA that
a new device is similar to an existing device requires less data and takes less
time for the FDA to process than a PMA. The FDA is supposed to act on a 510(k)
notification within 90 days. By contrast, a PMA application must be supported by
more extensive data to prove the safety and efficacy of the device, and a review
of a PMA application involves a lengthier process which may take one year or
more from filing.

      The FDA usually follows the advice of its advisory committees. However, to
reclassify a device from Class III to Class II, the FDA's administrative process
could take several years. Therefore, it is unlikely that reclassification of HIV
genotyping tests by the FDA would be effected for several years.

      We are attempting to accelerate the reclassification process by using an
alternative provision of the 1997 Food and Drug Administration Modernization
Act. Under this alternative, we have submitted a 510(k) notification to the FDA,
which the FDA will reject because our HIV OpenGene System is still a Class III
device. After receipt of the rejection, we will have 30 days to seek
reclassification of our HIV OpenGene System, and the FDA will have 60 days to
rule on this request. If the FDA grants our request, we will be able to
immediately market our HIV OpenGene System to the clinical diagnostic market. On
September 5, 2000, we submitted our 510(k) notification to the FDA. In December
2000, we received comments from the FDA regarding our application, to which we
responded to in January 2001. As of the date of this Annual Report, the FDA has
not yet completed its review of our application.

      We cannot guarantee that this alternative procedure will be successful in
shortening the time for FDA approval of our HIV OpenGene System. This process is
new and is used infrequently, and, therefore, there is no assurance that the FDA
will grant our request for reclassification. If the FDA does not grant our
request to reclassify our HIV OpenGene System under this new reclassification
procedure, we either will have to submit a PMA application or wait until the FDA
acts to reclassify HIV genotyping tests as recommended by its advisory
committee. In either event, our ability to sell our HIV OpenGene System for
clinical diagnostic use will be delayed, and our business, financial condition,
and results of operations could be materially harmed.


                                       6
<PAGE>

WE MAY NOT RECEIVE REGULATORY APPROVAL FOR OUR OTHER PRODUCTS AND THEREFORE MAY
NOT BE ABLE TO SELL THESE PRODUCTS FOR CLINICAL DIAGNOSTIC PURPOSES IN THE
UNITED STATES OR ABROAD.

      In addition to our HIV OpenGene System, we have also developed and are
continuing to develop GeneKits for other clinical diagnostic applications. In
order to sell these GeneKits and related DNA sequencing equipment and products
to the clinical diagnostic market, we may be required to obtain the approval of
the FDA and of foreign regulatory authorities through approval procedures that
are the same or similar to those required for our HIV OpenGene System. Our
failure to obtain necessary approvals to sell our products for clinical
diagnostic use in one or more significant markets could cause material harm to
our business, financial condition and results of operations.

EACH TIME WE MAKE ALTERATIONS TO ANY FDA APPROVED PRODUCTS, WE MAY NEED TO SEEK
ADDITIONAL FDA APPROVAL, WHICH WILL LENGTHEN THE TIME AND INCREASE THE COST OF
BRINGING UPGRADED OR NEW PRODUCTS TO MARKET.

      We may need to seek additional FDA approval if we make changes to a
product specifically approved by the FDA. Our HIV OpenGene System, as submitted
to the FDA, contains specific reagents, dyes, enzymes, chemicals, software and
other materials. If we obtain approval through the 510(k) process, we will be
required to obtain prior clearance from the FDA for those product changes that
could significantly affect safety or effectiveness. If our HIV OpenGene System
is approved through the PMA process, the FDA would require that we obtain
additional approval for any change to the kit's components that could alter the
performance of the kit, such as changing certain enzymes or reagents. We also
may be required to obtain similar foreign regulatory approval. To obtain
additional approval, we may have to conduct additional human clinical trials to
demonstrate that the altered GeneKit will produce at least the same results as
the approved GeneKit or will be as safe and effective as the approved product.
Obtaining additional FDA or foreign regulatory approval is likely to be time
consuming and costly and, as a result, we may experience delays in bringing
these upgraded or new products to market.

OUR BUSINESS IS, AND IN THE FUTURE MAY BECOME, SUBJECT TO ADDITIONAL REGULATIONS
AND IF WE ARE UNABLE TO COMPLY WITH THEM OUR BUSINESS MAY BE MATERIALLY HARMED.

      Our reference laboratory in Atlanta, Georgia, is subject to stringent
regulation under the Clinical Laboratory Improvement Amendments of 1988, known
as CLIA. Under CLIA, laboratories must meet various requirements, including
requirements relating to the validation of tests, training of personnel, and
quality assurance procedures. The laboratory must also be certified by a
government agency. Our Atlanta laboratory is certified under CLIA and licensed
by the State of Georgia. Our failure to comply with state or CLIA requirements
can result in various penalties, including loss of certification. The imposition
of such penalties could have an adverse impact on us. In addition, some states
regulate out-of-state laboratories. The failure to comply with these state
requirements could also adversely affect us.

      We are or may become subject to various other federal, state, provincial
and local laws, regulations and recommendations. We are subject to various laws
and regulations in Canada, the United States and Europe, relating to product
emissions, use and disposal of hazardous or toxic chemicals or potentially
hazardous substances, infectious disease agents and other materials, and
laboratory and manufacturing practices used in connection with our research and
development activities. If we fail to comply with these regulations, we could be
fined, we may not be able to operate certain of our facilities or certain
portions of our business, and we may suffer other consequences that could
materially harm our business, financial condition or results of operations.

      We are unable to predict the extent of future government regulations or
industry standards. You should assume that in the future there may be more
government regulations or standards. New regulations or standards may result in
increased costs, including costs for obtaining permits, delays or fines
resulting from loss of permits or failure to comply with regulations.


                                       7
<PAGE>

THE MARKET FOR GENOTYPING PRODUCTS IS NEW AND GENOTYPING MAY NOT BECOME AN
ACCEPTED METHOD OF MANAGING DRUG TREATMENT.

      An important part of our business strategy is our plan to sell our
products to the clinical diagnostic market. Our ability to do so will depend on
the widespread acceptance and use by doctors and clinicians of genotyping to
manage drug treatment of certain diseases or other medical conditions. The use
of genotyping by doctors and clinicians for this purpose is relatively new.
Existing DNA sequencing systems have been designed primarily for research
purposes and we are not aware of any DNA sequencing products that have been
approved by the FDA for clinical diagnostic purposes. We cannot be certain that
doctors and clinicians will want to use DNA sequencing systems designed for
these purposes. If genotyping is not accepted by this market, we will not be
able to carry out our business plan and our business, financial condition and
results of operations will be materially harmed.

IF GENOTYPING IS ACCEPTED AS A METHOD TO MANAGE DRUG TREATMENT, WE CANNOT BE
CERTAIN THAT OUR PRODUCTS WILL BE ACCEPTED IN THE CLINICAL DIAGNOSTIC MARKET.

      If genotyping becomes widely accepted in the clinical diagnostic market,
we cannot predict the extent to which doctors and clinicians may be willing to
utilize our OpenGene System to manage drug treatment of selected diseases or
other medical conditions. Doctors and clinicians may prefer competing
technologies and products that can be used for the same purposes as our products
such as DNA probe-based diagnostic systems, chip-based and assay-based
technologies, or homebrew genetic tests and other DNA sequencers. If our
products are not accepted by the clinical diagnostic market, our business,
financial condition and results of operations will be materially harmed.

IF INSURANCE COMPANIES AND OTHER THIRD-PARTY PAYORS DO NOT REIMBURSE DOCTORS AND
PATIENTS FOR OUR PRODUCTS, OUR ABILITY TO SELL OUR PRODUCTS TO THE CLINICAL
DIAGNOSTIC MARKET WILL BE IMPAIRED.

      Our ability to successfully sell our TRUGENE HIV-1 Genotyping Kit and
other GeneKits to the clinical diagnostic market will depend partly on the
willingness of insurance companies and other third-party payors to reimburse
doctors and patients for use of our products. Physicians' recommendations to use
genotyping, as well as decisions by patients to pursue genotyping, are likely to
be influenced by the availability of reimbursement for genotyping by insurance
companies or other third-party payors. Government and private third-party payors
are increasingly attempting to contain health care costs by limiting both the
extent of coverage and the reimbursement rate for testing and treatment products
and services. In particular, services that are determined to be investigational
in nature or that are not considered "reasonable and necessary" for diagnosis or
treatment may be denied reimbursement coverage. If adequate reimbursement
coverage is not available from insurers or other third-party payors, we expect
that few, if any, patients would be willing to pay for genotyping. In this case,
our anticipated revenues will be substantially reduced, our ability to achieve
profitability will be significantly impaired and our business, financial
condition and results of operations will be materially harmed.

WE DO NOT HAVE MARKETING EXPERIENCE IN THE CLINICAL DIAGNOSTIC MARKET, WE CANNOT
BE CERTAIN WE WILL SUCCESSFULLY DEVELOP THE MARKETING CAPABILITIES REQUIRED TO
SELL OUR PRODUCTS TO THIS MARKET AND IN SOME MARKETS WE WILL BE DEPENDENT ON THE
EFFORTS OF DISTRIBUTORS TO SELL OUR PRODUCTS.

      We have no experience marketing products to the clinical diagnostic
market. If the FDA approves the sale of our HIV OpenGene System to the
clinical diagnostic market in the United States, we intend to expand our
internal sales force to sell products to these markets in North America and
selected other countries. It will take significant time, money and resources
to expand our sales force. We cannot be certain that we will develop the
marketing capabilities necessary to successfully market and sell our products
to the clinical diagnostic market.


                                       8
<PAGE>

      We have granted rights to distribute our GeneKits and OpenGene Systems to
distributors in the clinical diagnostic, clinical research, and research markets
in over 40 countries outside of the United States and Canada, including
Mexico and certain countries in Central America, South America, Europe, Asia,
and Africa. These agreements expire at various times from April 2001 through
March 2003, and in many cases, are subject to automatic renewal. Certain of
the agreements may also be terminated by either party upon specified notice
periods and may require us to make termination payments under certain
circumstances. Certain of the agreements also provide for minimum annual
purchases for specified periods. Our ability to successfully sell products in
countries in which we rely on distribution agreements will depend to a great
extent on the efforts of the distributors.

      If we fail to successfully market our products, we will impede our ability
to generate significant revenues and become profitable and our business,
financial condition and results of operations may be materially harmed.

IF WE ARE UNABLE TO CONTINUE DEVELOPING ADVANCED TECHNOLOGY, ADVANCED VERSIONS
OF OUR EXISTING PRODUCTS AND NEW PRODUCTS IN A TIMELY AND COST-EFFECTIVE MANNER,
OUR ABILITY TO GENERATE REVENUE AND BECOME PROFITABLE WILL BE IMPAIRED.

      We believe that if we are to generate additional revenue and become
profitable, we must continue to develop advanced technology, advanced versions
of our existing products and new products. These technology and products must be
developed and introduced to the market in a timely and cost-effective manner to
meet both changing customer needs and technological developments. We cannot
assure you that we will be able to successfully or timely develop any new
technology, products or advanced versions of existing products, or that any new
technology, products or advanced versions of existing products will achieve
acceptance in the market. If we are unable to successfully develop new
technology, products or advanced versions of existing products in the future or
if those technologies or products are not accepted in the market, our ability to
generate significant revenues will be significantly impaired, we could
experience additional significant losses and our business, financial condition
and results of operations will be materially harmed.

MANUFACTURING PROBLEMS COULD HAMPER OR DELAY OUR ABILITY TO INTRODUCE OUR
PRODUCTS TO THE MARKETPLACE.

      We have limited experience in large-scale assembly and manufacturing of
our products. Since we started assembling and manufacturing operations in 1996,
we have experienced delays, quality control problems and capacity constraints
from time to time. Our plant in Pittsburgh, Pennsylvania which manufactures our
TRUGENE HIV-1 Genotyping Kit , currently has a limited production capacity. Our
new facility in Atlanta, Georgia is in the process of being designed, built and
equipped in accordance with our specifications. Construction may take longer
than expected, and the planned and actual construction costs of building and
qualifying the facility for regulatory compliance may be higher than expected.

      Any significant delay in making the Atlanta facility operational will
limit our ability to increase production. When we are in a position to increase
production and begin manufacturing and assembling new products, additional
problems may arise. These may include technological, engineering, quality
control and other production difficulties. We may also have difficulty complying
with FDA quality system regulations at each of our facilities. If we experience
these problems, we could be delayed in filling orders, shipping existing
products and introducing new products to the marketplace. These problems could
also adversely affect customer satisfaction and the market acceptance of our
products.


                                       9
<PAGE>

IF WE ARE UNABLE TO SUCCESSFULLY PROTECT OUR INTELLECTUAL PROPERTY OR OBTAIN
CERTAIN LICENSES, OUR COMPETITIVE POSITION WILL BE HARMED.

      Our success will partly depend on our ability to obtain patents and
licenses from third parties and protect our trade secrets. We own or jointly own
42 U.S. patents. We own or jointly own an additional 20 U.S. patent applications
pending, of which 5 have been allowed. We own 18 foreign patents. We own or
jointly own foreign applications presently pending as PCT applications, or as
national phase PCT applications, designating intergovernmental agencies and
multiple countries including the European Patent Office, Australia, Canada and
Japan. We cannot assure you that our patent applications will result in patents
being issued in the United States or foreign countries. In addition, the U.S.
Patent and Trademark Office may reverse its decision or delay the issuance of
patents that have been allowed. We also cannot assure you that any technologies
or products that we may develop in the future will be patentable. In addition,
competitors may develop products similar to ours that do not conflict with our
patents. Others may challenge our patents and, as a result, our patents could be
narrowed or invalidated. From time to time, we may be required to obtain
licenses from third parties for some of the technology or components used or
included in certain of our GeneKits or other products. We cannot be certain that
we will be able to obtain these licenses on acceptable terms or at all. In
certain instances, if we are unable to obtain a required license, our ability to
sell or use certain products may be impaired.

      To help protect our proprietary rights in unpatented trade secrets, we
generally require our employees, consultants and advisors to sign
confidentiality agreements. However, we cannot guarantee that these agreements
will provide us with adequate protection if confidential information is used or
disclosed improperly. In addition, in some situations, these agreements may
conflict with, or be limited by, the rights of third parties with whom our
employees, consultants or advisors have prior employment or consulting
relationships. Further, others may independently develop similar proprietary
information and techniques, or otherwise gain access to our trade secrets.

OTHERS COULD CLAIM THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS, WHICH
MAY RESULT IN COSTLY AND TIME CONSUMING LITIGATION.

      Our success will also depend partly on our ability to operate without
infringing upon the proprietary rights of others, as well as our ability to
prevent others from infringing on our proprietary rights. We may be required at
times to take legal action in order to protect our proprietary rights. Also,
from time to time, we receive notices from third parties claiming that we may
infringe their patent or other proprietary rights. Despite our best efforts, we
may be sued for infringing on the patent or other proprietary rights of others.
Such litigation is costly, and, even if we prevail, the cost of such litigation
could harm us. If we do not prevail, in addition to any damages we might have to
pay, we could be required to stop the infringing activity or obtain a license.
We cannot be certain that any required license would be available to us on
acceptable terms, or at all. In certain instances, if we are unable to obtain a
required license, our ability to sell or use certain products may be impaired.
In addition, if we fail to obtain a license, or if the terms of a license are
burdensome to us, our business, financial condition and results of operations
could be materially harmed.

CERTAIN SUPPLIES AND PARTS THAT WE NEED ARE AVAILABLE ONLY FROM LIMITED SOURCES
AND OUR BUSINESS WILL SUFFER IF WE CANNOT OBTAIN THESE SPECIALIZED ITEMS USED IN
OUR GENEKITS.

      Our GeneKits include dyes, reagents and other chemicals supplied by third
parties. We believe that some dyes supplied by Amersham International Public
Limited Company under our exclusive worldwide license to use and sell Amersham
dyes within our GeneKits, may not be available from other suppliers. However,
our customers might be able to purchase some, but not all, of these dyes
directly from Amersham. In addition, certain reagents and other chemicals that
we use and include in our GeneKits are available only under license from their
manufacturers. We cannot be certain that we will be able to renew these licenses
upon expiration on favorable terms or at all. While we believe that


                                       10
<PAGE>

alternative dyes, chemicals and reagents are available, alternate products may
not be as effective as certain of the products that we presently use. If we
switched to an alternative dye, chemical or reagent, we may also have to adapt
the GeneKit's analysis software and/or our DNA sequencing equipment to the new
product, which could take time. If the GeneKit is FDA approved, we may also be
required to seek FDA approval for the altered GeneKit if the alternative product
were to substantially alter the performance of the GeneKit or if the changes
could significantly affect safety or effectiveness. This could cause delays in
production and in bringing the changed GeneKit to market.

      We currently purchase acrylamide, an important chemical used in our
MicroCel cassettes, from one supplier. This supplier has informed us that it is
experiencing financial hardship. Should this supplier go out of business, we
will need to find an alternative source of acrylamide. We cannot be certain that
we will be able to find a satisfactory alternate supplier. If we are unable to
find an alternate reliable supplier, we may elect to manufacture acrylamide in
our own facilities. We have no experience in this area and we cannot be certain
that we will be able to do so successfully. If we are unable to locate reliable
alternate supplies or make acrylamide on our own, our business could be
materially and adversely harmed.

      We also use certain custom-designed components supplied by third parties
in our DNA sequencers and other equipment. We believe that there are alternate
suppliers for these custom-designed parts. However, we will incur costs in
switching to alternate suppliers and will likely experience delays in production
of the products that use any of these parts until such time as we are able to
locate alternate suppliers or parts on acceptable terms.

WE ARE DEPENDENT ON OUR LICENSE FOR THE POLYMERASE CHAIN REACTION TECHNOLOGY WE
USE IN OUR GENEKITS AND OUR BUSINESS WOULD SUFFER IF THE LICENSE IS TERMINATED
OR NOT RENEWED.

      We license the polymerase chain reaction technology that we use in our
GeneKits from Roche Molecular Systems, Inc. and F. Hoffmann-La Roche Ltd. This
license is not exclusive, and, therefore, may be granted by the Roche companies
to our competitors and others. We are required to pay royalties to the Roche
companies for this license. The license is for the life of the patents included
within the licensing agreement, which expire at various times commencing July
2004. The license may be terminated by Roche Molecular Systems and F.
Hoffmann-La Roche prior to expiration under certain limited circumstances.
The termination of this license would have a material adverse effect on our
ability to produce or sell GeneKits. Consequently, we could experience a
deterioration of anticipated future sales of our GeneKits and further losses.

WE ARE DEPENDENT ON OUR LICENSE FOR CERTAIN TECHNOLOGY WE USE IN OUR DNA
SEQUENCING INSTRUMENTS AND OUR BUSINESS WOULD SUFFER IF THE LICENSE IS
TERMINATED.

      We license certain intellectual property owned or exclusively licensed by
Applera Corporation, Applied Biosystems Group (formerly known as PE Biosystems),
which we refer to in this report as Applera. The license enables us to utilize
certain Applera technology to manufacture and sell our DNA sequencing
instruments, as well as manufacture and sell clinical sequencing kits to run on
DNA sequencing instruments manufactured by us, Applera and certain other third
parties. We are required to pay royalties to Applera for this license. The
license is for the life of the patents included within the licensing agreement,
which expire at various times commencing in 2005. Either party may terminate the
agreement under certain other limited circumstances. The termination of this
license would have a material adverse effect on our ability to produce or sell
our DNA sequencing instruments and GeneKits. Consequently, we could experience a
deterioration of anticipated future sales of our GeneKits and further losses.


                                       11
<PAGE>

WE FACE SUBSTANTIAL COMPETITION FROM MANY COMPANIES, AND WE MAY NOT BE ABLE TO
EFFECTIVELY COMPETE.

      The biotechnology industry is highly competitive. We compete with entities
in the United States and abroad that are engaged in the development and
production of products that analyze genetic information. They include:

  o   manufacturers of phenotyping assays, including ViroLogic, Inc. and
      VIRCO;

  o   manufacturers of genotyping test kits , including Applera;

  o   purveyors of homebrew genetic tests, which typically have not undergone
      clinical validation and have not been approved by the FDA or other
      regulatory agencies, including Laboratory Corporation of America
      Holdings, Quest Diagnotistics Inc. and Specialty Laboratories, Inc.

  o   manufacturers and distributors of DNA probe-based diagnostic systems
      such as Abbott Laboratories, Chiron Corp., Roche Diagnostics, Gene
      Probe Inc., Innogenetics NV, Digene Corporation and Johnson & Johnson;

  o   manufacturers of alternate technologies used to analyze genetic
      information, such as chip-based and assay-based technologies,
      including, Hyseq Inc., Affymetrix Inc., ChemCore Inc., CuraGen Corp.,
      Nanogen, Inc.; and

  o   manufacturers and distributors of DNA sequencers such as Applera,
      Amersham Pharmacia Biotech, Inc., LI-COR, Inc., Hitachi, Ltd. and
      Molecular and Genetic BioSystems, Inc.;

      Many of our competitors have much greater financial, technical research
and development resources and production and marketing capabilities than we do.
Smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large pharmaceutical and biotechnology
companies. If any of our competitors were to devote significant resources to
developing an integrated solution for genotyping, we would experience
significantly more competitive pressure. We cannot predict whether we could
successfully compete with these pressures and, if we are unable to do so, our
business, financial condition and results of operations could suffer.

WE MAY NOT BE ABLE TO HIRE OR RETAIN THE QUALIFIED SCIENTIFIC, TECHNICAL,
MANAGEMENT AND SALES AND MARKETING PERSONNEL WE REQUIRE.

      Because of the specialized scientific nature of our business, we are
highly dependent upon our ability to attract and retain qualified scientific and
technical personnel. We also must hire additional qualified management and sales
and marketing personnel as our business expands. Competition in our industry for
scientific, technical, management, and sales and marketing personnel is intense
and we cannot assure you that we will be able to hire a sufficient number of
qualified personnel. Loss of the services of our key personnel in these areas
could adversely affect our research and development and sales and marketing
programs and could impede the achievement of our goals. We do not maintain key
man life insurance on any of our personnel.

IF WE ARE UNABLE TO MANAGE OUR ANTICIPATED FUTURE GROWTH WE MAY NOT BE ABLE TO
IMPLEMENT OUR BUSINESS PLAN.

      If we are successful in increasing sales and expanding our markets, there
will be additional demands on our management, marketing, distribution, customer
support and other operational and administrative resources and systems. To
accommodate future growth, we may add staff and information and other systems.
We cannot guarantee that we will be able to do so or that, if we do so, we will
be able to effectively integrate them into our existing staff and systems. In
addition, our current and future expense levels are based largely on our
investment plans and estimates of future revenues and are, to a large extent,
fixed. We may be unable to adjust spending in a timely manner to compensate for
any


                                       12
<PAGE>

unexpected revenue shortfall. Therefore, any significant shortfall in revenues
as compared to our planned expenditures will materially harm our business,
financial condition, and results of operations. If we are unable to manage our
growth, we may not be able to implement our business plan and our business,
financial condition and results of operations will be materially harmed.

IF WE ARE UNABLE TO EFFECTIVELY INTEGRATE FUTURE ACQUISITIONS OF NEW OR
COMPLEMENTARY BUSINESSES, PRODUCTS OR TECHNOLOGY, OUR BUSINESS MAY BE HARMED.

      We have made and in the future may make acquisitions of complementary
businesses, products, services or technologies. We have limited experience in
integrating newly acquired organizations into our operations. Acquisitions
expose us to many risks, including:

  o   difficulty in assimilating technologies, products, personnel and
      operations;

  o   diversion of management's attention from other business concerns;

  o   large write-offs and amortization expenses related to goodwill and
      other intangible assets;

  o   entering markets in which we have no or limited experience; and

  o   incurrence of debt or assumption of other liabilities.

      The occurrence of one or more of these factors could materially harm our
business, financial condition and results of operations.

In addition, if we issue additional securities in connection with an
acquisition, the ownership interests of our existing security holders will
be diluted.

A SIGNIFICANT PORTION OF OUR SALES DURING 2000 HAVE BEEN TO ONE DISTRIBUTOR AND
WE MAY CONTINUE IN THE FUTURE TO RELY HEAVILY ON THAT DISTRIBUTOR FOR SALES TO
THE RESEARCH AND CLINICAL RESEARCH MARKETS.

      In February 1996, we granted Amersham an exclusive worldwide license to
use and sell the Seq4x4(TM) DNA sequencer and related products used and sold
with the sequencer, which is designed for the research market. During 2000
approximately 11% of our revenues resulted from sales of sequencers and other
products to Amersham. Our agreement with Amersham expires in February 2002, and
is automatically renewed each year, unless either party notifies the other at
least six months in advance of renewal that it wishes to terminate the
agreement. We cannot be certain that Amersham will be successful in selling
these products. In addition, we cannot be certain that the agreement will not be
terminated before expiration or that, upon expiration, it will be renewed on
favorable terms or at all.

WE MAY BE SUED BY CLINICIANS, PATIENTS OR THIRD-PARTY PAYORS AND OUR INSURANCE
MAY NOT SUFFICIENTLY COVER ALL CLAIMS BROUGHT AGAINST US.

      The testing, manufacturing, sale and marketing of our products exposes us
to the risk of product liability claims. In addition, clinicians, patients,
third-party payors and others may at times seek damages based on testing or
analysis errors based on a technician's misreading of the sequencing results,
mishandling of the patient samples or similar claims. Although we have obtained
liability insurance coverage, we cannot guarantee that liability insurance will
continue to be available to us on acceptable terms or that our coverage will be
sufficient to protect us against all claims that may be brought against us. A
liability claim, even one without merit or for which we have substantial
coverage, could result in significant legal defense costs, thereby increasing
our expenses, lowering our earnings and, depending on revenues, potentially
resulting in additional losses.

OUR INTERNATIONAL OPERATIONS MAY BE ADVERSELY AFFECTED BY RISKS ASSOCIATED WITH
INTERNATIONAL BUSINESS.

      We sell our products in many countries and operate offices in North
America and Europe. Therefore, we are subject to certain risks that are inherent
in an international business. These include:


                                       13
<PAGE>

  o   varying regulatory restrictions on sales of our products to certain
      markets and unexpected changes in regulatory requirements;

  o   tariffs, customs, duties and other trade barriers;

  o   difficulties in managing foreign operations and foreign distribution
      partners;

  o   longer payment cycles and problems in collecting accounts receivable;

  o   fluctuations in currency exchange rates;

  o   political risks;

  o   foreign exchange controls that may restrict or prohibit repatriation of
      funds;

  o   varying laws relating to, among other things, employment and employment
      termination;

  o   export and import restrictions or prohibitions, and delays from customs
      brokers or government agencies;

  o   seasonal reductions in business activity in certain parts of the world;
      and

  o   potentially adverse tax consequences.

      Depending on the countries involved, any or all of the foregoing factors
could materially harm our business, financial condition and results of
operations.

WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE AND WE CANNOT BE CERTAIN
THAT WE WILL BE ABLE TO RAISE CAPITAL WHEN NECESSARY ON ACCEPTABLE TERMS.

      At this time, our sales are not sufficient to meet our anticipated
financing requirements. Based on our current plans and assuming that we receive
FDA approval for our HIV OpenGene System during 2001, we believe that current
cash balances and anticipated funds from operations will be sufficient to
enable us to meet our operating needs for the next 24 months. In addition,
the actual amount of funds that we will need during the next 24 months will
be determined by many factors, some of which are beyond our control. These
factors include:

  o   the length of time it takes the FDA to complete its review;

  o   the cost and length of time required to complete any additional clinical
      trials which may be required for FDA approval to sell our HIV OpenGene
      System to the clinical diagnostic market;

  o   our success in introducing new products during the period;

  o   our success in selling our products in the clinical research market
      during this period;

  o   our incurring significant fixed overhead and other expenses prior to
      increasing our revenues; and

  o   the costs of acquiring and integrating any new business or technologies
      during the period.

      We may need to obtain additional funds sooner or in greater amounts than
we currently anticipate and we may need to obtain additional funds at the end of
this 24 month period. If we do not obtain FDA approval for our HIV OpenGene
System during 2001 we will need to obtain additional funding within 18 to 24
months, unless we significantly curtail our operations. If we need to obtain
funds, potential sources of financing include strategic relationships, public
or private sales of our shares or debt or other arrangements. Because of our
potential long-term capital requirements, we may seek to access the public or
private equity markets whenever conditions are favorable, even if we do not
have an immediate need for additional capital at that time. We do not have
any committed sources of financing at this time and it is uncertain whether
additional funding will be available when we need it on terms that will be
acceptable to us or at all. If we raise funds by selling additional common
shares or other securities convertible into common shares, the ownership
interest of our existing shareholders will be diluted. If we are not able to
obtain financing

                                       14
<PAGE>

when needed, we would be unable to carry out our business plan, we would have to
significantly limit our operations and our business, financial condition and
results of operations would be materially harmed.

WE MAY REQUIRE APPROVAL OF THE HOLDERS OF OUR SERIES A PREFERRED SHARES IN ORDER
TO OBTAIN CERTAIN TYPES OF FINANCING AND WE MAY BE PREVENTED FROM OBTAINING
THESE TYPES OF FINANCING BY THE HOLDERS OF OUR SERIES A PREFERRED SHARES.

      We will be required to obtain the consent of the holders of a majority of
our then outstanding Series A preferred shares prior to issuing any equity
security that has rights as to dividends and liquidation that are senior or
equal to those of the Series A preferred shares. Also, under certain
circumstances, if we propose to sell equity securities, including debt
securities convertible into equity securities, certain holders of our Series A
preferred shares will be entitled to preemptive rights which allow them to
purchase a proportional amount of the securities being offered. We will also be
required to obtain the consent of the holders of a majority of our then
outstanding Series A preferred shares if we wish to borrow money and at such
time or as a result of such loans, the total principal amount of our
indebtedness and capitalized lease obligations exceeds $15.0 million. In
addition, if we were to enter into a credit facility with a financial
institution, we may be subject to additional limitations on our ability to incur
additional indebtedness. As a result, we may be delayed in, or prohibited from,
obtaining certain types of financing.

OUR U.S. INVESTORS COULD SUFFER ADVERSE TAX CONSEQUENCES IF WE ARE CHARACTERIZED
AS A PASSIVE FOREIGN INVESTMENT COMPANY.

      Although we do not believe that we were a passive foreign investment
company (or PFIC) for United States federal income tax purposes during 2000
there can be no assurance that we will not be treated as a PFIC in 2001 or
thereafter. We would be a PFIC if 75% or more of our gross income in a taxable
year is passive income. We also would be a PFIC if at least 50% of the value of
our assets averaged over the taxable year produce, or are held for the
production of, passive income. For these purposes, the value of our assets is
calculated based on our market capitalization. Passive income includes, among
other items, interest, dividends, royalties, rents and annuities.

      For the 2000 taxable year approximately 12% of our assets averaged over
the taxable year produced, or were held for the production of, passive income,
and approximately 26% of our gross income was passive income.

      If we become a PFIC, many of our U.S. shareholders will, in absence of
certain elections as discussed below, be subject to the following adverse tax
consequences:

  o   They will be taxed at the highest ordinary income tax rates in effect
      during their holding period on certain distributions on our common shares,
      and gain from the sale or other disposition of our common shares;

  o   They will be required to pay interest on taxes allocable to prior
      periods; and

  o   The tax basis of our common shares will not be increased to fair market
      value at the date of their deaths.

      If we become a PFIC, our U.S. shareholders could avoid these tax
consequences by making a qualified electing fund election or a mark-to-market
election. These elections would need to be in effect for all taxable years
during which we were a PFIC and during which our U.S. shareholders held our
common shares. A U.S. shareholder who makes a qualified electing fund election,
will be taxed currently on our ordinary income and net capital gain (unless a
deferral election is in effect). A U.S. shareholder who makes a mark-to-market
election, will include as ordinary income each year an amount equal to the


                                       15
<PAGE>

excess of the fair market value of our common shares over the adjusted tax basis
as of the close of each year (with certain adjustments for prior years).

      If we become a PFIC, our U.S. shareholders will generally be unable to
exchange our common shares for shares of an acquiring corporation on a
tax-deferred basis under the reorganization rules of the Internal Revenue Code,
and the benefits of many other nonrecognition provisions of the Internal Revenue
Code will not apply to transfers of our common shares. In addition, if we become
a PFIC, pledges of our common shares will be treated as sales for U.S. federal
income tax purposes. Our U.S. shareholders should note that state and local
taxes may also apply if amounts are included in U.S. federal taxable income
under the PFIC rules of the Internal Revenue Code. The PFIC rules are very
complex. Our U.S. shareholders are strongly encouraged to consult with their tax
advisors concerning all of the tax consequences of investing in our common
shares and the possible benefits of making a tax election given their
circumstances. Additionally, our U.S. shareholders should review "Item 10.
Additional Information - Taxation- U.S. Federal Income Tax Considerations-Tax
Status of the Company-PASSIVE FOREIGN INVESTMENTS COMPANIES" for a more detailed
description of the PFIC rules and how they may affect their ownership of our
common shares.

OUR AMENDED ARTICLES OF INCORPORATION AND BY-LAWS CONTAIN CERTAIN PROVISIONS
THAT MAKE IT DIFFICULT FOR A THIRD-PARTY TO ACQUIRE OUR COMPANY EVEN IF DOING SO
WOULD BE BENEFICIAL TO OUR SHAREHOLDERS AND, THEREFORE, OUR SHAREHOLDERS MAY NOT
BE ABLE TO MAXIMIZE THE RETURN ON THEIR INVESTMENT.

      Our authorized capital consists of an unlimited number of preferred
shares. The Board of Directors, without any further vote by the common
shareholders, has the authority to issue preferred shares and to determine the
price, preferences, rights and restrictions, including voting and dividend
rights, of these shares. The rights of the holders of common shares are subject
to the rights of holders of any preferred shares that the Board of Directors may
issue in the future. That means, for example, that we can issue preferred shares
with more voting rights, higher dividend payments or more favorable rights upon
dissolution, than the common shares. If we issued certain types of preferred
shares in the future, it may also be more difficult for a third-party to acquire
a majority of our outstanding voting shares.

      In addition, we have a "classified" Board of Directors, which means that
only approximately one-third of our directors are eligible for election each
year. Therefore, if shareholders wish to change the composition of the Board of
Directors, it would take at least two years to remove a majority of the existing
directors, and three years to change all directors. Also, the holders of our
Series A preferred shares are entitled to vote as a class for one director. The
Series A Director serves for a one year term and any vacancy may be filled only
by a vote of the holders of Series A preferred shares. If we do not redeem our
Series A preferred shares as required during 2006, 2007, and 2008, then our
Series A shareholders will be entitled to special voting rights enabling them to
elect a majority of our Board of Directors, who will continue to serve as
directors until we have redeemed our Series A preferred shares as required.

      Having a classified Board of Directors and these special rights of the
Series A preferred shareholders may, in some circumstances, deter or delay
mergers, tender offers or other possible transactions which may be favored by
some or a majority of our shareholders.

BECAUSE OUR PREFERRED SHAREHOLDERS ARE ENTITLED TO CERTAIN PREFERENCES OVER OUR
COMMON SHAREHOLDERS, UNDER CERTAIN CIRCUMSTANCES, OUR COMMON SHAREHOLDERS MAY
NOT RECEIVE A RETURN OF THE FULL AMOUNT THEY HAVE INVESTED IN OUR COMPANY.

      In July 1999, we issued 33,948 Series A preferred shares and as of
February 28, 2001, 26,153 remained outstanding. Our Series A preferred shares
entitle the holders to certain preferences over our common shares, including the
following:


                                       16
<PAGE>

  o   we may not issue any securities that rank senior to, or in parity with,
      the Series A preferred shares without obtaining the approval of the
      holders of a majority of the Series A preferred shares;

  o   we may not issue dividends to holders of common shares until all
      accrued and unpaid dividends on the Series A preferred shares are paid
      in full; and

  o   if we liquidate or wind-up our company or if we sell our company or in
      certain other circumstances, holders of Series A preferred shares are
      entitled to receive an amount equal to $1,000 per Series A preferred
      share, or approximately $26.0 million in the aggregate, plus accrued
      and unpaid dividends, before holders of common shares would be entitled
      to receive any distribution.

THE VOLATILITY OF THE STOCK MARKET COULD DRIVE DOWN THE PRICE OF OUR COMMON
SHARES WHICH COULD RESULT IN LOSSES TO OUR SHAREHOLDERS.

      The market prices for securities of life sciences companies, particularly
those that are not profitable, have been highly volatile, especially recently.
Publicized events and announcements may have a significant impact on the market
price of our common shares.

      In addition, the stock market from time to time experiences extreme price
and volume fluctuations which particularly affect the market prices for emerging
and life sciences companies, such as ours, and which are often unrelated to the
operating performance of the affected companies. These broad market fluctuations
may make it difficult for a shareholder to sell shares at a price equal to or
above the price at which the shares were purchased.

FUTURE SALES BY EXISTING SHAREHOLDERS MAY LOWER THE PRICE OF OUR COMMON SHARES
WHICH COULD RESULT IN LOSSES TO OUR SHAREHOLDERS.

      As of February 28, 2001, we had outstanding 19,017,035 voting shares,
including 2,737,298 shares issuable upon conversion of our Series A preferred
shares. All of these shares (including the common shares to be issued upon
conversion of the Series A preferred shares) are eligible for sale under Rule
144, pursuant to currently effective registration statements, or are otherwise
freely tradable. In addition:

  o   Our officers and directors own options to acquire an additional 962,362
      shares. The shares to be issued upon exercise of these options have been
      registered and may be freely sold when issued. Our officers and directors
      also own 110,622 shares that may be sold subject to volume restrictions
      imposed by Rule 144.

  o   Our employees and consultants who are not deemed affiliates hold options
      to buy a total of 890,233 shares. The shares to be issued upon exercise of
      these options have been registered and may be freely sold when issued.

  o   We may issue options to purchase up to an additional 604,146 shares under
      our share option plans. The shares to be issued upon exercise of these
      options have been registered and may be freely sold when issued.

      Sales of substantial amounts of common shares into the public market could
lower the market price of our common shares.

      In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has owned shares for at least
one year would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the number of our common
shares then outstanding (which equals approximately 162,797 common shares as of
February 28, 2001 or (ii) the average weekly trading volume of our common shares
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about our company. Under Rule 144(k), a person who is not deemed to
have been our affiliate at any time during


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<PAGE>

the three months preceding a sale, and who has owned the shares proposed to be
sold for at least two years, is entitled to sell his shares without complying
with the manner of sale, public information, volume limitation or notice
provisions of Rule 144.

ITEM 4.  INFORMATION ON THE COMPANY.

OVERVIEW

      We develop, manufacture and sell integrated DNA sequencing systems that
analyze genetic information to improve the treatment of selected diseases. Our
strategy is to become a leader in the emerging field of pharmacogenomics.
Pharmacogenomics is the science of individualizing therapy based on genetic
differences across patients. Our genotyping technology, which employs DNA
sequencing, enables the analysis in the clinical diagnostic laboratory of
individual genetic variations. DNA sequencing is generally considered the most
thorough and accurate method for genotyping diseases. We believe that
individualizing therapy through pharmacogenomics will improve the treatment of
many diseases, such as those caused by Human Immunodeficiency Virus, or HIV,
hepatitis B, hepatitis C, tuberculosis and eventually some cancers.

      Our OpenGene System consists of automated DNA sequencers, disposable gel
cassettes, related equipment and software and disease-specific GeneKits. Our
GeneKits contain the necessary chemicals, reagents, third-party licenses and
other consumables and materials required for sequencing specific
disease-associated genes. We have developed GeneKits for HIV, hepatitis B and
hepatitis C. We are developing a GeneKit for tuberculosis, the next generation
of our TRUGENE HIV-1 Genotyping Kit, and GeneKits for other species of HIV not
tested for in our TRUGENE HIV-1 Genotyping Kit. We began selling our DNA
sequencers and related equipment and consumables to the research and clinical
research markets in the third quarter of 1996 and began selling GeneKits into
the same markets in the third quarter of 1997.

      The first clinical diagnostic application we are targeting is HIV. We have
developed our TRUGENE HIV-1 Genotyping Kit to enable clinicians to genotype the
major HIV species infecting patients in order to improve the management of
patient treatment. HIV is a highly variable virus with high rates of mutations,
which may lead to drug resistance. One of the central challenges in maintaining
HIV patients on long-term drug therapy is to adjust each patient's medication as
drug-resistant strains of the virus emerge.

      Several clinical trials, including one that we conducted, have shown that
patients whose drug therapy is managed using HIV genotyping had greater
reductions in viral load than HIV patients who were not genotyped. In June 1999,
we completed a European trial, which is called VIRADAPT, which showed, among
other things, that after six months patients who received standard of care
treatment and underwent periodic genotyping had a mean decrease in viral load of
approximately 93% as compared to a mean decrease in viral load of approximately
79% in the non-genotyping group. In addition, after six months, 32% of the
patients in the genotyping group had undetectable viral loads as compared to 14%
of patients in the non-genotyping group. These differences were found to be
statistically significant.

      Three other trials conducted by others also have demonstrated the benefits
of drug resistance genotyping over standard of care treatment.

  o   A trial called GART, was funded by the National Institutes of Health, or
      NIH, and was completed in the United States in December 1998. It showed
      that, at the end of 8 weeks, patients who received standard of care
      treatment and underwent periodic genotyping had a mean decrease in viral
      load of approximately 93%, as compared to 76% to patients in the
      non-genotyping group. This difference was found to be statistically
      significant.


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<PAGE>

  o   A trial called NARVAL was conducted during 1999 and 2000 by l'Agence
      Nationale de Recherche sur le SIDA.  The study showed that, after six
      months, 36% of the patients who received genotyping resistance testing
      using our HIV OpenGene System achieved viral suppression (meaning a
      viral load of less than 200 copies per ml) as compared to 27% of the
      patients in the standard of care group and 26% of those patients who
      received resistance testing using phenotyping tests.  These differences
      were found to be statistically significant.

  o   A trial called HAVANA was conducted during 1999 and 2000 in Europe by a
      consortium of medical centers known as the HAVANA study group. The study
      showed that, after six months, patients who received genotyping using our
      HIV OpenGene System, had a 50% greater reduction in their viral load than
      those who received standard of care treatment without genotyping. This
      difference was found to be statistically significant.

      In June 1999, we also initiated a trial called SEARCH to test the clinical
utility of our HIV OpenGene System in genotyping HIV infected patients. Based on
the results from the VIRADAPT and GART clinical trials, the FDA has advised us
that we are not required to complete the SEARCH trial and has also indicated
that we will not be required to demonstrate further the clinical utility of our
HIV OpenGene System in the treatment of HIV infected individuals.

      On September 5, 2000, we submitted our application to the FDA for approval
to sell our HIV OpenGene System to the clinical diagnostic market. In December
2000, we received comments from the FDA regarding our application, to which we
responded in January 2001. As of the date of this Annual Report, the FDA has not
yet completed its review of our application.

      In December 2000, we received approval from French regulatory authorities
to market our HIV OpenGene System to the clinical diagnostic market in France,
and in February 2001, we received approval from Argentine regulatory authorities
to market our HIV OpenGene System to the Chnical diagnostic market in Argentina.

SCIENTIFIC BACKGROUND

      DNA. All cells contain DNA, a complex material that stores the genetic
blueprint, or makeup, of an organism. DNA is composed of four chemical building
blocks called nucleotides. Each nucleotide consists of, among other things, one
of four chemical bases: adenine (A), thymine (T), guanine (G) and cytosine (C).
These four bases are the genetic alphabet that is used to write messages and
instructions which direct the synthesis or expression of the proteins inside the
cell, required to make the cell function. A sequence is the particular order of
the nucleotides in the DNA. Changes in the DNA sequence, also called mutations,
may occur from time to time. These mutations may alter the function of the cell
proteins and affect cell functions.

      PHARMACOGENOMICS. Different people often respond in different ways to the
same drug. A drug that is safe and effective in one patient may be toxic or
ineffective in another. We believe that some of these differences in response
may reflect underlying genetic differences between the individuals concerned.
Pharmacogenomics seeks to establish correlations between specific genetic
variations and specific responses to drugs. By establishing such correlations,
pharmacogenomics may permit both new and existing drugs to be targeted to those
patients in whom they are most likely to be both effective and safe.

      GENOTYPING. Genotyping is the act of selecting and reading the sequence of
nucleotides in a specific strand of DNA in order to understand how changes in
the DNA may influence the onset and treatment of some diseases and medical
conditions.

      Genotyping is used by scientists, researchers and clinicians to identify:

  o   genes as potential targets for therapeutic intervention;


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<PAGE>

  o   mutations in a gene that may predispose an individual to a particular
      disease;

  o   genetic variation among individuals that may cause different reactions
      to drug treatment; and

  o   mutations in the genes of infectious organisms (such as viruses and
      bacteria) and tumors that may result in drug resistance, thereby
      influencing treatment methods.

      Genotyping is performed using tests that rely on either DNA probe or DNA
sequencing technologies.

      DNA PROBES. A DNA probe is a single-stranded piece of DNA made to be
complementary to the unique base sequence of the target gene. The DNA probe
operates on the principle that single strands of DNA seek out complementary
strands to form a chemical bond. The DNA probe is placed into prepared samples
which may include the target gene. If the target gene is present, the probe will
bind to the target, indicating its presence.

      DNA probes are highly specific, target single mutations, and require
advance knowledge of the target mutation. Probes are susceptible to producing
erroneous results because they are affected by variations in the sequence
immediately surrounding their targeted mutation. As a result, DNA probes are
effective in detecting diseases only when the disease-associated mutation is at
a fixed, known location within a gene or when the sequence within a particular
gene is stable. However, in diseases where the mutation causing the disease is
not known, probe-based technology is not as effective. Probes also may not
effectively provide genotypes for infectious pathogens, such as viruses, in
which the DNA sequence is highly variable or where mutations occur to evade
immune responses or to develop drug resistance.

      DNA SEQUENCING. DNA sequencing identifies all the chemical bases of the
DNA strand to be examined, one-by-one, readily detecting variations or new
mutations within the DNA sequence. Unlike DNA probes, sequencing reads long
segments of DNA and can therefore detect new mutations, multiple mutations and
insertions and deletions of DNA within a sequence. DNA sequencing is also less
sensitive than probes to surrounding variations in the sequence being examined.
As a result, sequencing is generally considered the most thorough and accurate
method for genotyping diseases, such as cancer, and certain viruses, including
HIV, which have high rates of mutation or numerous strains. DNA sequencing is
also used to assess predisposition to many diseases and for tissue typing.

      The DNA sequencing process involves several steps, some of which must be
performed manually and are labor intensive. DNA first must be extracted from the
sample, which usually is blood, other body fluid or tissue. After the DNA is
extracted, it is amplified, or copied, in order to provide enough DNA so that
the DNA sequence can be easily detected. This process of extraction and
amplification typically requires the use of various reagents, primers and other
chemicals, as well as proprietary processes and technologies, some of which must
be licensed from third parties. Some laboratories prepare and use their own
homebrew reagents and chemicals which usually are not subject to standardized
procedures or quality control processes necessary to ensure reliable results.

      Once the DNA is extracted and amplified, a process called gel
electrophoresis is performed. This process involves placing the DNA on a gel
substance and running an electrical current through it. This separates the DNA
so that the DNA sequence can be read. While historically many scientists
performed the entire DNA sequencing process manually, automated DNA sequencers
using a number of disposable products have been developed which simplify and
expedite parts of this process.

DNA SEQUENCING MARKETS

      DNA sequencing is an important tool for the clinical diagnostic, clinical
research and research markets.


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<PAGE>

      THE CLINICAL DIAGNOSTIC MARKET. The clinical diagnostic market consists of
life science companies, hospitals, reference laboratories, medical clinics and
doctors offices which use clinical molecular genetic tests for the diagnosis and
management of diseases and for tissue typing. Current tests typically rely on
DNA probe-based and other technology including homebrew DNA sequencing tests.
Unlike the research market, genotyping for clinical diagnostic purposes
generally relies on the sequencing of relatively short DNA strands with high
degrees of accuracy. DNA sequencers and related instrumentation used for
diagnostic purposes should enable clinicians to rapidly and accurately sequence
and analyze a high volume of patient samples at relatively low costs, and fit
within the space constraints of a typical clinical laboratory.

      THE CLINICAL RESEARCH MARKET. The clinical research market includes
hospitals, life science companies, pharmaceutical companies, academic
institutions and clinical reference laboratories engaged in developing new
diagnostic tests, conducting clinical trials, developing drugs and researching
targeted therapeutics. Researchers in this sector often work both with DNA
probes and DNA sequencing. Researchers typically rely on repetitive sequencing
of relatively short DNA strands of targeted gene segments, for which sequencing
systems that are smaller in scale than those used in the research market are
generally considered most efficient.

      THE RESEARCH MARKET. The research market includes academic institutions,
hospitals, governmental agencies, life science companies and pharmaceutical
companies performing molecular genetics and molecular biology research.
Researchers generally use DNA sequencing equipment for gene discovery and other
large scale research projects which typically must analyze large numbers of
samples and sequence long DNA segments.

LIMITATIONS OF EXISTING DNA SEQUENCING PRODUCTS

      Historically, automated DNA sequencers and related products used for
genotyping have been developed primarily to meet the needs of the research and
clinical research markets. We are not aware of any FDA approved DNA sequencing
tests for the clinical diagnostic market. Existing DNA sequencing products
typically do not address the needs of the clinical diagnostic market due to one
or more of the following:

  o   they cannot sequence DNA strands quickly enough to satisfy diagnostic
      turnaround times;

  o   they are designed to sequence long DNA segments and therefore may not be
      efficient for sequencing shorter DNA segments typical in clinical
      diagnostic testing;

  o   they are expensive;

  o   they are too large for most clinical laboratories;

  o   they use gels usually prepared manually in a process that is time
      consuming and may result in exposure of laboratory technicians to
      dangerous chemicals; and

  o   they use homebrew tests, reagents, chemicals and protocols that are not
      typically subject to the standardized procedures or quality control
      processes necessary for reliable results.

OUR SOLUTION

      Our OpenGene System consists of automated DNA sequencers, disposable gel
cassettes, related equipment and software and disease-specific GeneKits. Our
OpenGene System has been designed expressly to meet the needs of the clinical
diagnostic market. We believe that our integrated OpenGene System provides a
cost effective and efficient clinical diagnostic solution that will make DNA
sequencing a viable diagnostic tool for the management of selected diseases and
medical conditions because:

  o   it reads DNA strands faster than existing sequencers designed for the
      research market;


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<PAGE>

  o   it is designed to efficiently read and analyze the shorter DNA strands
      typically used for clinical diagnosis;

  o   it is significantly less expensive than comparable sequencers designed
      for the research market;

  o   it is small and lightweight;

  o   it utilizes easy to use disposable gel cassettes;

  o   it includes our proprietary software package designed for DNA analysis
      and patient data management;

  o   our GeneKits include the reagents, primers and other chemicals,
      third-party licenses, software and other materials required to conduct
      tests for specific disease-associated genes; and

  o   our GeneKits are standardized, validated and undergo quality control
      testing to provide reliable, reproducible results.

We must obtain approval from the FDA and comparable foreign regulatory
authorities prior to selling our products for clinical diagnostic use.

OUR BUSINESS STRATEGY

      Our objective is to be a leader in the emerging field of pharmacogenomics.
Our goal is to enable clinicians to use genetic information to monitor and
customize treatment of diseases, initially for HIV and later for other diseases.
Key elements of our business strategy are to:

      o     PROVIDE AN INTEGRATED GENOTYPING SOLUTION FOR THE CLINICAL
DIAGNOSTIC MARKET. We intend to meet the needs of the clinical diagnostic market
by providing an efficient, inexpensive, easy-to-use genotyping solution. Our
integrated OpenGene System, which we believe incorporates these features,
includes automated DNA sequencers, disposable gel cassettes, related equipment
and software, and disease-specific GeneKits. We designed this system for the
clinical diagnostic market.

      o     TARGET THE HIV GENOTYPING MARKET. We are focusing initially on the
HIV market because there is clinical evidence to suggest that genotyping may be
effective in managing the treatment of diseases associated with HIV. By
identifying mutations in HIV through genotyping and consistently countering
these mutations with appropriate drug therapy, we believe drug treatment can be
administered and monitored more effectively. We are in the process of seeking
approval from the FDA to sell our HIV OpenGene System for clinical diagnostic
use in the United States. We have already received regulatory approval to sell
our HIV OpenGene System for clinical diagnostic use in France and Argentina, and
we intend to seek approval from regulatory authorities in other countries.

      o     LEVERAGE OUR OPENGENE SYSTEM FOR ADDITIONAL APPLICATIONS. We are
developing other disease-specific GeneKits that we believe have the potential to
eliminate or reduce more time consuming and/or expensive tests and that may
enable clinicians to better monitor and manage patient treatment. In addition to
our HIV GeneKit, we have developed GeneKits for hepatitis B and hepatitis C, and
are developing GeneKits for tuberculosis, the next generation of our TRUGENE
HIV-1 Genotyping Kit and GeneKits for other species of HIV not tested for in our
TRUGENE HIV-1 Genotyping Kit.

      o     OFFER A WIDE RANGE OF TESTING AND SEQUENCING SERVICES. We maintain
an accredited reference testing laboratory that provides genotyping and other
testing services for HIV, hepatitis B, hepatitis C, other infectious diseases
and various genes associated with cancer. We believe that the data which we
obtain in providing these services will also assist us in our efforts to develop
new GeneKits and other technologies.


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<PAGE>

      o     PROVIDE SOPHISTICATED SOFTWARE FOR THE CLINICAL RESEARCH AND
DIAGNOSTIC MARKETS. Our GeneObjects Software operates our OpenGene System,
analyzes the results, and prints out a report that shows the drugs to which a
patient has become resistant. This software was designed to meet the needs of
clinical research and clinical diagnostic markets. We also have developed an
enhanced version of this software, called TRUGENE Software, which is
specifically targeted to the clinical diagnostic market and simplifies the work
flow and report generation for disease specific applications.

      o     TAILOR OUR MARKETING EFFORTS TO LOCAL MARKETS. We have established
and are expanding our sales and marketing force in the United States, Canada,
selected European countries and in other areas where we believe that the size of
the market and our familiarity with regulatory and other local conditions
justify the development of our own sales force. In selected geographic and
product markets where we believe that regulatory and other market factors make
it more prudent to rely on a third-party local sales and marketing effort, we
seek to enter into distribution and marketing arrangements with leading
distributors.

      o     MAINTAIN OUR TECHNOLOGICAL LEADERSHIP IN GENOTYPING. We plan to
continue to invest significant resources in research and development so that we
may continue to provide customers with advanced genotyping technologies and
products. Where we believe it is cost effective or otherwise appropriate, we
will continue to license and acquire technologies and products to include in our
OpenGene System and GeneKits. We will also seek to continue to collaborate with
hospitals, academic institutions, pharmaceutical companies and life science
companies to develop additional GeneKits and other products.

OUR INTEGRATED OPENGENE SYSTEM

      Our integrated OpenGene System includes the following components:

      SEQUENCING SYSTEMS Sequencing systems consist of automated DNA sequencers
and related equipment.

      SOFTWARE SYSTEMS. Software systems consist of our proprietary GeneObjects
and TRUGENE Software DNA analysis and data management software.

      GENEKITS AND OTHER CONSUMABLES. GeneKits consist of various reagents,
enzymes, primers and other chemicals, and other consumables consist of
disposable gel cassettes, acrylamide and other materials.

SEQUENCING SYSTEMS

      LONG-READ TOWER AUTOMATED DNA SEQUENCER. The Long-Read Tower is a two-dye
automated sequencer that can read 400 bases in approximately 40 minutes with
high accuracy, suitable for clinical diagnostic applications, and can also read
longer DNA sequences used in some research applications. Using our proprietary
Long-Read MicroCel cassettes, the Long-Read Tower can read 700 bases in under 3
hours with high accuracy. The Long-Read Tower can read 16 lanes and test up to 8
patient samples per gel cassette, and can be networked with other Long-Read
Towers or Clippers so that multiple units can run from a single workstation,
thereby allowing for a significantly greater number of patient samples to be
tested simultaneously. The Long-Read Tower is small (47cm x 39cm x 26cm) and
lightweight relative to competitive instruments, and sells at retail prices
significantly below comparable automated DNA sequencers. The Long-Read Tower can
be connected to almost any computer network, has no moving parts and consumes
only 300 watts of power.

      CLIPPER. The MicroGene Clipper automated DNA sequencer is a smaller
version of our Long-Read Tower which, using our proprietary MicroCel cassettes,
can read 300 bases in approximately


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<PAGE>

30 minutes with high accuracy, and is suitable for clinical diagnostic
applications. The Clipper can read 16 lanes and test up to 8 patient samples per
gel cassette, and can be networked so that multiple units can run from a single
workstation, thereby allowing for a significantly greater number of patient
samples to be tested simultaneously. The Clipper is small (35 cm x 40 cm x 26
cm) and lightweight. The Clipper sells at retail prices significantly below
comparable automated DNA sequencers. The Clipper can be connected to almost any
computer network, has no moving parts and consumes only 300 watts of power.

      SEQ4X4. The Seq4x4 automated DNA sequencer is marketed by Amersham as the
Amersham Pharmacia Biotech Seq4x4(TM) built to Amersham's specifications to work
with Amersham's one color Cy 5.5 terminator chemistry and ThermoSequenase(TM)
Kits. The Seq4x4 is a less expensive version of the Clipper that includes many
of the features of the Clipper; however, it is a 16 lane one-dye sequencer, and
cannot be networked with other sequencers. The Seq4x4 is sold to the research
market where it can be used to complement or replace significantly slower manual
DNA sequencing methods and to complement currently available, more expensive
automated DNA sequencers.

      GEL TOASTER. The Gel Toaster is a compact (47 cm x 39 cm x 26 cm),
lightweight device that uses ultraviolet light to polymerize, or cure, liquid
acrylamide that has been injected into the Long-Read MicroCel. The acrylamide
gel is the medium through which the DNA is separated for sequencing. We also
sell a toaster for use with the Seq4x4. This toaster's dimensions are 33 cm x
11.4 cm x 30.5 cm.

SOFTWARE SYSTEMS

      GENEOBJECTS. GeneObjects is our DNA analysis and data management software
package which we have designed for use with our sequencing systems. It automates
portions of the test process and facilitates analysis and diagnosis. It also
automates certain laboratory management tasks. GeneObjects software is able to
sort, analyze and store data by patient (regardless of the test or gel source
from which the data is derived) or by the test performed. GeneObjects can also
be used to control multiple sequencers over the network from a single
workstation. It can use existing microcomputers and sequencers, or be installed
as a turnkey system with state-of-the-art hardware.

      TRUGENE. TRUGENE Software, an enhanced version of our GeneObjects
software, is a software system we have developed for genotypic analysis of large
quantities of patient samples in a clinical diagnostic setting. The first
application is for HIV. The software aligns and reads a DNA sequence and further
interprets detected mutations that are associated with drug resistance.

GENEKITS AND OTHER CONSUMABLES

      GENEKITS. We sell to the research and clinical research markets a series
of GeneKits which assist in identifying disease-associated genetic mutations and
gene sequences. Our TRUGENE HIV-1 Genotyping Kit and other GeneKits are
described in the section of this annual report entitled "-Applications For Our
OpenGene System."

      GENEKIT TECHNOLOGIES. We developed and are developing GeneKits with
features designed to make our GeneKits suitable for the clinical diagnostic
market. We use certain technologies proprietary to us, and other technologies
licensed to us, to ensure that our GeneKits will meet the needs of this market.
These technologies include our stratified matrix testing method, CLIP and CAS
technology, polymerase chain reaction technology, or PCR,
Uracil-DNA-glycosylase, or UDG, technology, fluorescent DNA sequencing
technology, and an extraction technology referred to as Boom technology. We have
U.S. patents covering our stratified matrix testing method and CLIP technology.
We license the PCR technology from Roche Molecular Systems, Inc. and F.
Hoffmann-La Roche Ltd., the UDG technology from Invitrogen Corporation, the
fluorescent DNA sequencing technology from Applera Corporation, the CAS
technology from Genassiance Pharmaceuticals, Inc. and the Boom technology from
Organon Teknika.


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<PAGE>

      Our proprietary CLIP technology enables DNA samples to be prepared in a
single test-tube, single-step process that replaces the multiple individual
steps currently required to prepare a sample for DNA sequencing. This technology
saves time and reduces the cost of DNA sequence-based diagnostic testing, which
is important to the clinical diagnostic market. Our CLIP technology is also more
sensitive than traditional techniques, which is especially useful for managing
viral diseases because it permits the genotyping of patients with very low viral
loads that other methods cannot detect. As a result, using CLIP, HIV patients
with low viral loads can be genotyped and treated at the earliest indication of
drug resistance. Our exclusive license from Genassiance Pharmaceuticals permits
us to use CAS technology solely for diagnostic applications. CAS technology
performs similar functions to CLIP technology, using different enzyme chemistry
on DNA.

      PCR is a powerful laboratory technique that can detect, copy and amplify
specific DNA sequences. Amplifying the DNA is an essential part of DNA
sequencing because it allows the technician to start with minute amounts of DNA
and finish with at least a million-fold increase in the number of DNA molecules,
ensuring that a sufficient amount of DNA is available to obtain the sequence.
UDG is a method of incorporating deoxyuracil into a PCR product to control PCR
carry-over contamination. We are not currently using UDG in our products.

      The fluorescent DNA sequencing technology licensed from Applera relates to
methods and machines for automated sequencing of DNA. The technology enables the
DNA fragments to be labeled with a fluorescent dye, so that the fragments can be
detected when they are separated by electrophoresis.

      Boom technology enables sensitive, reproducible and accurate extractions
of RNA and DNA from blood plasma samples, and from body fluids such as semen and
cerebral spinal fluid. The Boom method is especially valuable in HIV genotyping
for patients with low viral load. In connection with obtaining the Boom
technology license, we granted Organon Teknika a right of first refusal to
certain improvements we may develop to DNA sequencing and extraction technology
and to some of our reagents and uses of our CLIP technology.

      MICROCEL CASSETTE. The MicroCel cassette is a disposable, polyacrylamide
electrophoretic gel cassette which acts as the detection medium for the
Long-Read Tower, Clipper and the Seq4x4. The gel is injected into the cassette.
After the cassette is cured, it is placed into the sequencer for DNA sequencing
and other tests. The cassette is comprised of two small glass plates, has a 50
micron gap and can be filled with acrylamide and cured in three minutes through
a semi-automated process which uses our Gel Toaster and SureFill products.
Competitive sequencers typically use significantly thicker (200-500 micron gap)
gel systems which are assembled manually by technicians and must be disassembled
and cleaned after use. We manufacture the MicroCel cassette in three sizes for
use with our different DNA sequencers.

      SUREFILL CARTRIDGE. The acrylamide injected into the MicroCel cassettes is
supplied in a 10 cm long disposable syringe-based SureFill cartridge that
contains necessary ingredients to fill 10 MicroCels. SureFill protects the
technician from directly handling potentially dangerous chemicals and simplifies
the gel preparation process.

TESTING, SEQUENCING AND OTHER SERVICES

      We provide DNA testing, sequencing and other services for HIV, hepatitis
B, hepatitis C, and other infectious diseases as well as for certain cancers.

      We operate an accredited reference testing laboratory in Atlanta, Georgia,
that specializes in high resolution genotyping of HIV and other viruses
associated with secondary opportunistic infections of patients with AIDS. This
facility also provides high resolution DNA sequencing of hepatitis B,
cytomegalovirus and other viruses that commonly infect AIDS patients.


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<PAGE>

      We also maintain a library of cultures of HIV strains with known drug
resistant mutations and a patient database on viral drug resistance and high
resolution DNA sequencing data. This data may be used to screen new drugs for
possible viral resistance and to identify patterns of cross resistance to new
drugs as well as for the development of new AIDS treatment strategies.

APPLICATIONS FOR OUR OPENGENE SYSTEM

HIV

      Our HIV OpenGene System will enable physicians to genotype the major HIV
species infecting patients and to diagnose and treat HIV based upon the
mutations present in the virus. Our TRUGENE HIV-1 Genotyping Kit contains all of
the reagents, chemicals, third-party licenses and other materials required to
sequence the DNA from the protease and reverse transcriptase regions of the
virus, which are known to develop mutations that make the virus resistant to
drugs. We initiated the sale of our TRUGENE HIV-1 Genotyping Kit, for use in the
clinical research market in the fourth quarter of 1998. We have a patent
application pending in the United States and in some foreign countries covering
various aspects of our TRUGENE HIV-1 Genotyping Kit.

      HIV OVERVIEW. HIV is a virus that attacks the cells in the human immune
system. Without effective treatment, HIV significantly weakens the immune
system, which results in opportunistic infections, neurological dysfunctions,
malignant tumors and eventually death. HIV infected patients may develop
Acquired Immune Deficiency Syndrome, or AIDS, which is a syndrome of infections,
diseases and medical conditions resulting from a weakened immune system. Since
the early 1980's, when the HIV epidemic was first identified, it is estimated
that more than 21 million people worldwide have died as a result of
complications from AIDS. Approximately 900,000 people in North America, 550,000
in Europe and Central Asia and a total of 36 million people worldwide are
infected with HIV. In 2000 alone, there were approximately 5.3 million new HIV
infections, including 45,000 in North America and 2.8 million in Europe and
Central Asia, and 3 million deaths as a result of complications from AIDS.

      HIV is a highly variable virus with a high rate of mutations. Because of
HIV's high mutation rate, drugs used to treat the virus, while generally
effective for a period of time, often result in the survival of a virus with
mutations that confer resistance to those drugs. Today, there are more than 140
known HIV mutations associated with drug resistance.

      Currently, there are 15 FDA approved anti-HIV drugs. These drugs
specifically target the protease and reverse transcriptase enzymes to interfere
with and reduce HIV replication. Mutations in the genetic information of the
virus that codes for these two enzymes can result in the development of drug
resistance. Current drug therapy usually relies on the use of drug cocktails of
two or more antiviral drugs, targeting different stages of the HIV life cycle. A
number of studies have shown that drugs given in various combinations reduce the
viral load in most patients and can significantly improve these patients'
overall health. Viral load is a generally used measurement of the concentration
of virus in a patient's blood. HIV patients fail drug therapy in many cases
either because the virus mutates and develops resistance to drugs, or because
the side effects of drugs or the strict dosing regimens are intolerable, leading
patients to skip doses or discontinue using the drugs.

      One of the central challenges in maintaining HIV patients on long-term
drug therapy is to adjust each patient's medication as drug-resistant strains of
the virus emerge. Because they rely only on viral load, current disease
management methods usually provide a warning that the drugs are no longer
working only after the drug-resistant virus has asserted itself and viral load
has increased. These methods usually do not tell clinicians which drugs are
failing due to emerging resistance or to which drugs the patient should be
switched. As a result, there is a need to provide doctors and clinicians with
information about HIV drug resistance to enable better management of HIV drug
therapy.


                                       26
<PAGE>

      GENOTYPING AND HIV. Genotyping HIV enables clinicians to identify
mutations in the genetic material in the virus. Several clinical trials, one of
which we conducted, suggest that by sequencing the patient's HIV, clinicians may
be able to detect early in the process that a resistant mutant has emerged and
make appropriate changes in medication to manage viral load. Sustaining a low
viral load is believed to be a key factor in prolonging the life of an HIV
patient. Achieving and maintaining low viral loads may also significantly reduce
medical costs because patients with low or undetectable viral loads have fewer
opportunistic infections and other symptoms and, therefore, require fewer and
shorter hospital stays and fewer other medical services.

      To test the clinical usefulness of genotyping HIV to manage a patient's
drug therapy, the Community Programs for Clinical Research on AIDS, in
conjunction with several universities and funded by the NIH, conducted a 16-week
prospective trial in the United States of 153 HIV positive patients. This trial,
completed in December 1998, is known as GART, which stands for Genotypic
Antiretroviral Resistance Testing. To be eligible, each patient had to have a
minimum viral load of 10,000 copies per milliliter. The patients were randomly
split into two groups. One group received accepted standard of care treatment,
but did not undergo HIV genotyping. The other group received accepted standard
of care treatment plus HIV genotyping. Physicians of patients in the genotyping
group were able, at their discretion, to adjust medication in response to the
genotyping results. The study results showed that the patients treated in the
genotyping group had a mean decrease in viral load of approximately 93% at the
end of eight weeks, compared to an approximately 76% decrease in patients in the
non-genotyping group. This difference was found to be statistically significant.

      In 1999 and 2000, l'Agence Nationale de Recherche sur le SIDA conducted a
study in France, known as NARVAL, to look at the value of drug resistance
testing in HIV treatment and patient management. The study included a total of
541 patients enrolled into 3 groups: standard of care, phenotyping and
genotyping. Patients in the study consisted of heavily pre-treated patients who
had received a median of seven prior drugs and had an average viral load of 4.3
log copies per milliliter and an average CD4+ count (a commonly used measurement
of the presence of the HIV virus) of 300 cells per microliter. The standard of
care group was treated without any resistance test information provided to the
physician. In the other two groups, resistance testing was performed either by
genotyping or phenotyping and the results were used to assist the physician in
the choice of treatment. Our TRUGENE HIV-1 Genotyping Kit was used in the
genotyping group. After six months, 36% of the patients in the genotyping group
achieved viral suppression, meaning a viral load of less than 200 copies per
milliliter, as compared to 27% of the patients in the standard of care group and
26% of the patients in the phenotyping group. These differences were found to be
statistically significant.

      During 1999 and 2000, a consortium of European medical centers conducted
another study to examine the benefits of genotypic testing. The study, known as
HAVANA, was a six month, randomized, prospective, multi-center study conducted
in Europe. In the HAVANA study, 274 HIV-positive patients on antiretroviral
therapy for more than six months with viral loads of greater than 1,000 copies
per milliliter and a mean CD4+ count of 388 cells per microliter, were
randomized to receive genotyping or no genotyping, and were randomized again to
receive expert advice or no expert advice from an experienced committee of
clinicians and virologists. The study showed that, after six months, patients
who received genotyping, regardless of expert advice, had a 50% greater
reduction in their viral load than those patients in the standard of care group.
Further, 15% more patients in the genotyping group than in the standard of care
group, achieved viral loads of less than 400 copies per milliliter. These
differences were found to be statistically significant. All viral resistance
tests were performed using our TRUGENE HIV-1 Genotyping Kit.

      OUR CLINICAL TRIALS. In December 1998, the FDA allowed us to initiate
human clinical trials of our HIV OpenGene System under our Investigational
Device Exemption, or IDE, application. In June 1999, we completed a clinical
trial in Europe called VIRADAPT, which demonstrated that patients who received
standard of care treatment and whose drug treatments were selected using
periodic genotyping


                                       27
<PAGE>

had lower viral loads than patients who received standard of care treatment but
whose drug treatments were selected without the use of genotyping. This trial
was not part of our IDE, but results from this trial were submitted to support
our market approval application. In June 1999, we initiated a trial under our
IDE called SEARCH to test the clinical utility of our HIV OpenGene System in
genotyping HIV infected patients. Based on positive clinical trial results to
date, the FDA has advised us that we are not required to complete the SEARCH
trial. We began our proficiency trials, under our IDE, in the third quarter of
1999 and completed them in July 2000. In January 2000, we also began a
large-scale trial called Vigilance II which is an open label, cost recovery HIV
genotyping study conducted under our IDE.

      The following is a summary of each of these trials:

      o     VIRADAPT. In March 1997, prior to our IDE allowance, we sponsored a
prospective trial in Europe called VIRADAPT to determine the usefulness of
genotyping in managing the treatment of HIV infected patients. The VIRADAPT
trial involved 108 HIV infected patients and was scheduled to last 12 months. To
be eligible, each patient had to have a minimum viral load of 10,000 copies per
milliliter. The patients were randomly split into two groups. The control group
received standard of care treatment, but did not undergo periodic genotyping.
The genotyping group received standard of care treatment and underwent periodic
genotyping allowing the physicians, at their discretion, to adjust medication in
response to the genotyping results. Genotypes were done using either homebrew
DNA testing methods or an early version of our TRUGENE HIV-1 Genotyping Kit. At
the end of six months, interim results showed that patients treated in the
genotyping group of the study had a mean decrease in their viral loads of
approximately 93% (32% of patients in the genotyping group had undetectable
viral loads), as compared to an approximately 79% decrease in viral loads in the
non-genotyping group (14% of patients in the non-genotyping group had
undetectable viral loads). This difference was found to be statistically
significant. In January 1999, on the recommendation of the data safety
management committee for the VIRADAPT trial, the control group was stopped on
ethical grounds. The committee decision was based in part on the interim results
of the VIRADAPT trial and in part on the release of the results of the GART
trial in December 1998, which showed decreases in viral loads for the genotyping
patients consistent with the VIRADAPT trial. As a result, beginning in January
1999, all patients received standard of care treatment and underwent periodic
genotyping. At the end of 12 months, results showed that 28% of patients in the
original genotyping arm had undetectable viral loads. The mean viral loads for
this group were maintained at substantially the same level that existed after
six months. The data also showed that of those patients who were switched from
standard of care treatment only to standard of care treatment and genotyping,
26% had undetectable viral loans as compared to 14% of patients in this group at
the end of six months before the treatment was switched. This difference was
found to be statistically significant. We have reanalyzed the samples collected
in the GART and the VIRADAPT trials using our HIV OpenGene System and have
included those results in support of our market approval application to the FDA.

      o     SEARCH. The SEARCH trial was intended to test whether patients whose
doctors rely on genotyping using our HIV OpenGene System would experience
greater reductions in viral load than those patients whose doctors rely only on
standard of care treatment. This trial was intended to demonstrate the clinical
utility of our system. We began the SEARCH trial in June 1999 and terminated it
in December 2000. To be eligible, each patient must have had a minimum viral
load of 1,000 copies per milliliter. Like GART and VIRADAPT, the patients were
randomly split into two groups. The control group received standard of care
treatment without genotyping, and the genotyping arm received standard of care
treatment plus genotyping. In November 1999, the FDA advised us that we are not
required to complete the SEARCH trial. The FDA has indicated that it will not
require us to demonstrate further the clinical utility of our HIV OpenGene
System in the treatment of HIV infected individuals. Based on the FDA's
position, we continued to provide genotyping to all 128 patients enrolled in the
SEARCH trial up to that time.


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<PAGE>

      o     PROFICIENCY TRIAL. The proficiency trial was intended to demonstrate
the reliability and performance characteristics of our TRUGENE HIV-1 Genotyping
Kit and OpenGene System, which is required by the FDA. As part of the test, we
genotyped approximately 500 plasma samples, using our HIV OpenGene System at our
subsidiary, Applied Sciences, and at six other U.S. sites with certified
technicians. To demonstrate the reproducibility of results produced using our
TRUGENE HIV-1 Genotyping Kit, samples from the same patients were tested at
multiple sites. Multiple technicians tested the same samples and multiple
batches of our TRUGENE HIV-1 Genotyping Kit were used to test the same samples.
In addition, various interfering drugs or chemical agents were introduced to a
series of samples to test the effect of those drugs and agents on the results
produced with our GeneKits. We began this trial in the third quarter of 1999 and
completed it in July 2000.

      o     VIGILANCE II. Vigilance II is a prospective, open label trial. We
began this trial in January 2000. Testing is being performed at approximately 20
sites throughout the United States. All patients enrolled in the study undergo
HIV genotyping and the genotyping results are provided to their physicians.
Doctors who choose not to change drug treatment based on the genotyping results
are required to so inform us, and results on these patients are separately
recorded. We plan to use the data collected in Vigilance II in two ways. First,
we hope to compile data showing the prevalence of certain mutations in patients
from different areas of the country. We believe that this data may be useful in
directing doctors in a particular region to use certain drugs because of the
prevalence of certain mutations identified in that region. Second, we intend to
create a database of the clinical outcome from changes made in drug therapy.
Under our IDE, we intend to charge patients for the use of our HIV OpenGene
System to recover the costs of conducting this trial. We did not submit the
results of this clinical trial as part of our FDA application.

      MARKETING OF THE HIV OPENGENE SYSTEM. Our marketing strategy for the HIV
OpenGene System consists of several components. In the United States, should we
obtain FDA approval, we intend to establish relationships with leading doctors,
laboratories and healthcare providers in the HIV diagnostics market and train
them to use our products. We believe that the use of our products by these
industry leaders will facilitate our marketing efforts in the rest of the HIV
clinical diagnostic market. In addition, we believe that these industry leaders
will help shape reimbursement policies of insurance companies and other
third-party payors for HIV genotyping.

      We have begun to establish a dedicated team to work closely with insurance
companies and other third-party payors who will determine whether to reimburse
users of HIV GeneKits and related products in the management of their drug
therapies. We are also forming a dedicated sales force to sell our HIV OpenGene
System to major pharmaceutical companies engaged in research and development of
HIV drugs and treatments.

      Outside North America, some European countries and other selected areas,
we seek to enter into distribution arrangements with leading distributors of HIV
products to sell our HIV OpenGene System for clinical diagnostic purposes. If
government approval is required for sales in those markets, we intend to rely on
our local partners to obtain the required authorizations.

      We intend to continue to market and sell our HIV OpenGene System to
hospitals, pharmaceutical companies, academic institutions and clinical
reference laboratories for research and clinical research purposes. We expect to
continue to service this market regardless of whether the FDA authorizes us to
sell our HIV products for clinical diagnostic purposes.

      HEPATITIS C

      We have developed a GeneKit for hepatitis C. Hepatitis is an inflammation
of the liver. Hepatitis C is one type of virus that causes this inflammation.
There are approximately 175 million people worldwide who are chronically
infected with hepatitis C, of whom approximately 3.9 million are


                                       29
<PAGE>

in the United States. Unlike hepatitis B, interferon drugs work with only
certain hepatitis C genotypes. We have developed and are currently testing a
Hepatitis C GeneKit that can be used to identify the genotypes of the virus, so
that the appropriate drug treatment may be prescribed. Protease inhibitors are
also being used experimentally to treat hepatitis C. Our Hepatitis C GeneKit can
also be used to detect mutations that may confer resistance to these anti-viral
drugs.

      HEPATITIS B

      We have developed and are currently testing a GeneKit for hepatitis B.
Hepatitis B is a second type of virus that causes inflammation of the liver.
There are more than 350 million people worldwide who are chronically infected
with hepatitis B, of whom approximately one million are located in the United
States. Hepatitis B is treated with interferon drugs or certain reverse
transcriptase inhibitors. Genotyping may be used to identify the subtype of
hepatitis virus present and to detect mutations in the virus that cause the
disease to become resistant to anti-viral drugs.

      TUBERCULOSIS

      We are currently developing a GeneKit for tuberculosis. Tuberculosis,
commonly known as TB, is a highly contagious bacterial disease of the
respiratory system. There are approximately two million deaths per year
worldwide caused by TB and eight million new infections per year worldwide. In
addition, there is an increase in the number of TB infections which are
multi-drug resistant. In order to be infected with TB, a patient must carry a
certain mycobacterium. People who test positive for non-TB mycobacterium can be
treated at home with certain drugs. Due to the highly contagious nature of TB,
people who test positive for TB mycobacterium must be kept in isolation during
the early stage of treatment. Current testing methods can take from several days
to several weeks to identify whether a patient's mycobacterium is TB or non-TB,
forcing hospitals to quarantine both TB and non-TB patients during this period.
Quarantining patients for any prolonged period uses significant medical
resources. We are developing and currently testing a TB GeneKit designed to
genotype the genetic material in the mycobacterium within approximately one day
to identify the presence of TB or non-TB mycobacterium. Our TB GeneKit can also
be used to detect mutations that confer resistance to drugs used to treat TB. We
intend to market and sell our TB GeneKit in those geographic areas where TB
poses significant health threats, including Asia, Central Europe, parts of the
former Soviet Union and Africa.

      OTHER HIV

      We are developing the next generation of our TRUGENE HIV-1 Genotyping Kit
and additional GeneKits for HIV species not covered by our existing HIV GeneKit.

REGULATION BY THE FDA AND OTHER GOVERNMENT AGENCIES

      We currently sell our products for research and clinical research purposes
and, in some countries outside of North America, for clinical diagnostic
purposes. If we receive required regulatory approval, we intend to sell products
for clinical diagnostic purposes in the United States and in other countries. We
do not believe we need authorization from the FDA or regulatory authorities in
foreign countries to sell our products for research purposes, as long as they
are properly labeled. We do, however, require authorization in the United States
and many other countries to sell our products for clinical diagnostic purposes.

      FDA APPROVAL PROCESS. Products that are used to diagnose diseases in
people are considered medical devices, which are regulated by the FDA. To obtain
FDA authorization for a new medical device, a company may have to submit data
relating to safety and efficacy based on extensive testing. This testing, and
the preparation of necessary applications and the processing of those
applications by the


                                       30
<PAGE>

FDA, are expensive and may take several years to complete. The following
describes several important aspects of the FDA authorization process.

      The FDA has three classes for medical devices: Class I devices (for
example, bandages, manual wheelchairs and ice bags) are the least regulated, but
they must still comply with the FDA's labeling, manufacturing, recordkeeping,
and other basic requirements. Most Class I devices do not require premarket
authorization from the FDA. Class II devices (for example, portable oxygen
generators and hypodermic needles and many other medical devices may be subject
to additional regulatory controls, such as performance standards and postmarket
surveillance. Class III devices (for example, cardiac pacemakers) require
specific FDA approval prior to marketing and distribution, and are, as well,
subject to the FDA's basic requirements.

      To sell a Class II medical device, a company must first obtain permission
of the FDA by submitting a 510(k) premarket notification, commonly known as a
510(k), showing that the device is similar to a device already on the market. To
sell a Class III medical device, a company must first get specific approval of
the FDA for the device by submitting a premarket approval application, commonly
known as a PMA application. A company may have to include test data in a 510(k),
including human test data. It will almost always have to include such test data
in a PMA application.

      If human test data are required for either a 510(k) or a PMA application,
and if the device presents a significant risk, the manufacturer must first file
an Investigational Device Exemption submission, or IDE, with the FDA. The IDE
must contain data, such as animal and laboratory testing, showing that the
device is safe for human testing. If the IDE is granted, human testing may
begin.

      Generally, a 510(k) notification to the FDA that a new device is similar
to an existing device requires less data and takes less time for the FDA to
process than a PMA. The FDA is supposed to act on a 510(k) notification within
90 days. According to the most recent FDA data available, the average time for
FDA clearance of a 510(k) is 102 days. By contrast, a PMA application must be
supported by more extensive data to prove the safety and efficacy of the device,
and review of a PMA application involves a lengthier FDA process. The FDA
conducts a preliminary review of the PMA application. If complete, the PMA
application is filed by the FDA. Officially, the FDA then has 180 days to review
the PMA application, however, as a practical matter, PMA reviews usually take
much longer. The average approval time is approximately one year. The FDA may
grant expedited (fast-track) review of a PMA application if certain criteria
relating to public health importance are met, but that decision is within the
FDA's discretion and affects only the timing of the review process, not the
outcome.

      NEED FOR FDA APPROVAL OF SOME OF OUR PRODUCTS. We intend to market some of
our products in the U.S. for clinical diagnostic purposes, and therefore we will
have to obtain prior FDA authorization, as described above. We believe our HIV
OpenGene System is currently considered by the FDA as a Class III medical
device. However, in September 1999, the FDA asked an advisory committee of
experts whether HIV genotyping tests should be reclassified from Class III to
Class II. The advisory committee recommended reclassification subject to certain
controls including post-market surveillance of the performance of these
products. If the FDA reclassifies HIV genotyping tests from Class III to Class
II, we will be able to obtain FDA permission to market our HIV OpenGene System
by submitting a 510(k), rather than a PMA. A 510(k) generally contains less data
than a PMA and is usually reviewed and approved by the FDA more quickly than a
PMA. Although it is likely that the FDA will follow the recommendation of its
advisory committee, to do so the FDA is required to issue a proposed regulation,
allow the opportunity for public comment and then publish a final regulation
reclassifying HIV genotyping tests. This process could take several years to
complete.

      Under the Food and Drug Administration Modernization Act of 1997, there is
an alternative option for us to obtain faster reclassification of our HIV
OpenGene System. We have elected to use this alternative process. Under this new
procedure we will ask the FDA to classify our HIV OpenGene


                                       31
<PAGE>

System based upon an evaluation of the risks presented by the device to
patients. However, in order for us to use this new procedure, we first submitted
a 510(k) to the FDA. Once the FDA completes its review of our application, it
will reject the 510(k) because the device is still in Class III. However, once
the FDA rejects our 510(k), we will then immediately submit our request for
classification of our HIV OpenGene System in Class II. The FDA will than have 60
days to make a decision on this request. This option is likely to be faster than
waiting for the FDA to go through its normal reclassification procedures.

      On September 5, 2000, we submitted our 510(k) application to the FDA for
approval to sell our HIV OpenGene System to the clinical diagnostic market. In
December 2000, we received comments from the FDA regarding our application, to
which we responded to in January 2001. As of the date of this Annual Report, the
FDA has not yet completed its review of our application.

      Since this process is new and is used very infrequently, there is no
assurance that the FDA will grant our request for reclassification. If the FDA
does not grant our request to reclassify our HIV OpenGene System under this
procedure, we will either have to submit a PMA Application or wait until the FDA
acts to reclassify HIV genotyping tests as recommended by its advisory
committee.

      We believe that some of our other products will be regulated as Class II
or Class III medical devices.

      OTHER FDA REQUIREMENTS. In addition to government requirements relating to
marketing authorization for medical device products, we will also be subject to
other FDA requirements. We will have to be registered as a medical device
manufacturer with the FDA. We will be inspected on a routine basis by the FDA
for compliance with the FDA's quality system regulations, which prescribe
standards for manufacturing, testing, distribution, storage, design control and
service activities. In addition, because we will manufacture some of our
products in Canada, the FDA, in conjunction with the U.S. Customs Service, could
impose a ban on our products if the FDA were to conclude that the products
appeared to be in violation of the FDA's regulatory requirements, including
restrictions that apply to the sale of research-use only products. Also, the
FDA's medical device reporting regulation will require us to provide information
to the FDA on deaths or serious injuries associated with the use of our devices,
as well as product malfunctions that are likely to cause or contribute to death
or serious injury if the malfunction were to recur.

      Finally, the FDA prohibits promoting a device for unauthorized uses and
reviews company labeling for accuracy. The FDA has become aware that certain
products being sold by other companies for research purposes only, were in fact
being used by some customers for clinical diagnostic purposes. In January 1998,
the FDA issued a policy statement describing the conditions under which
companies may sell research-use only products. These conditions may restrict our
ability to sell research-use only products in the United States. We do not
believe these conditions will have any negative effect on our sale of GeneKits
for legitimate scientific research.

      REGULATORY APPROVAL OUTSIDE THE UNITED STATES. We plan to market our
products outside the United States, initially in Canada, Japan, and in various
countries in Europe and South America. Government authorization requirements
similar to the FDA's exist in some of these and many other foreign countries.
Therefore, authorization to sell our products for clinical diagnostic purposes
in Canada, Japan, and the other countries in Europe and South America may also
require lengthy and costly testing procedures. In addition, the regulatory
bodies in other countries may be affected or influenced by significantly
different criteria than those used by the FDA. Sale of our products in these
areas may be materially affected by the policies of these regulatory bodies or
the domestic politics of the countries involved.

      In December 2000, we received approval from French regulatory authorities
to market our HIV OpenGene System for clinical diagnostic purposes in France,
and in February 2001, we received approval from Argentine regulatory


                                       32
<PAGE>

authorities to market our HIV OpenGene System for clinical diagnostic
purposes in Argentina. We believe that we are currently able to launch our
HIV OpenGene System for clinical diagnostic purposes in some of the European
Union (EU) member states. We expect that further product approvals will not
be required in these EU member states until new EU wide regulations go into
effect. We anticipate being in compliance with the new regulations as they
become effective.

      OTHER GOVERNMENT REGULATIONS. We are or may become subject to various
federal, state, provincial and local laws, regulations and recommendations,
including those relating to workers compensation, safe working conditions, and
laboratory and manufacturing practices used in connection with our research and
development activities.

      In addition, our reference laboratory in Atlanta, Georgia, is subject to
stringent regulation under the Clinical Laboratory Improvement Amendments of
1988, known as CLIA. Under CLIA, laboratories must meet various requirements,
including requirements relating to the validation of tests, training of
personnel, and quality assurance procedures. The laboratory must also be
certified by an applicable state government agency. Our Atlanta laboratory
performs high complexity tests, and is therefore subject to the most stringent
level of regulation under CLIA. This laboratory is certified under CLIA and by
the state of Georgia.

      We are also subject to various laws and regulations in Canada, the United
States and Europe, including those relating to product emissions use and
disposal of hazardous or toxic chemicals or potentially hazardous substances,
infectious disease agents and other materials, workers compensation, safe
working conditions, and laboratory and manufacturing practices used in
connection with our research and development activities.

SALES AND MARKETING

      We market our OpenGene System in North America and in many European
countries to the research and clinical research markets through our direct sales
force. We have a sales and marketing force of 68 people. Many members of our
sales force have scientific backgrounds. Our marketing force includes a team of
trained application specialists who provide intensive on-site training,
after-sales support and site-by-site trouble shooting. We offer service
contracts to our customers on our sequencers, certain equipment and software. We
have established a toll-free telephone number in North America for customer
service. The members of our internal sales force are compensated on a commission
and salary basis.

      For other areas of the world and in selected product markets, our strategy
is to establish relationships with leading distributors to market and sell our
products. We granted Amersham the exclusive worldwide license to use and sell
the Seq4x4 and related products used and sold with the sequencer, which is
designed for the research market. In November 1999, we granted
Amersham-Pharmacia Biotech K.K. the exclusive right to distribute our products
to the research market in Japan. During 2000 approximately 11% of our revenues
were derived from sales of sequencers and other products to Amersham.

      In addition, we have granted rights to distribute our GeneKits and
OpenGene Systems to distributors in the clinical diagnostic, clinical research,
and research markets in over 40 countries outside the United States and Canada,
including Mexico and certain countries in Central America, South America,
Europe, Asia, and Africa. These agreements expire at various times from April
2001 through March 2003, and in many cases, are subject to automatic renewal.
Certain of the agreements may also be terminated by either party upon
specified notice periods and may require us to make termination payments
under certain circumstances. Certain of the agreements also provide for
minimum annual purchases for specified periods. Our ability to successfully
sell products in countries in which we rely on distribution agreements will
depend to a great extent on the efforts of the distributors.

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<PAGE>

      Our marketing strategy for the HIV OpenGene System consists of several
components. In the United States, should we obtain FDA approval, we intend to
establish relationships with leading doctors, laboratories and healthcare
providers in the HIV diagnostics market and train them to use our products. We
believe that the use of our products by these industry leaders will facilitate
our marketing efforts in the rest of the HIV clinical diagnostic market. In
addition, we believe that these industry leaders will help shape reimbursement
policies of insurance companies and other third-party payors for HIV genotyping.

      We have begun to establish a dedicated team to work closely with insurance
companies and other third-party payors who will determine whether to reimburse
users of HIV GeneKits and related products in the management of their drug
therapies. We are also forming a dedicated sales force to sell our HIV OpenGene
System to major pharmaceutical companies engaged in research and development of
HIV drugs and treatments.

      Our marketing efforts also include product advertisement and participation
in trade shows and product seminars.

RESEARCH AND DEVELOPMENT

      We currently conduct research and development through our own staff and
through collaborations with researchers at scientific and academic institutions
and hospitals. Our current research and development activities are focused on:

  o   developing additional GeneKits, including the next generation of our
      TRUGENE HIV-1 Genotyping Kit and additional HIV GeneKits for different HIV
      species, and a GeneKit for tuberculosis and testing our GeneKit for
      hepatitis B;

  o   developing new technology for our sequencers and related equipment and
      software;

  o   refining existing proprietary, disposable gel cassette technology in
      order to improve performance of our sequencers; and

  o   exploring new technologies for future commercial products.

      As of February 28, 2001, our research and development staff consisted of
96 people. This includes a team of software developers who have developed our
GeneObjects software and are developing our TRUGENE Software. Our software
developers are working on an advanced version of our GeneObjects software as
well as additional software applications for the clinical diagnostic market.

      We incurred $10.6 million of research and development expenses in 2000,
$7.9 million in 1999 and $6.3 million in 1998. We have four facilities in the
United States and Canada where we conduct research and development.

MANUFACTURING

      We assemble our DNA sequencers and related equipment at a manufacturing
facility in Toronto, Canada. Component parts are manufactured by third
parties in accordance with our design specifications. We manufacture our
disposable gel cassettes at our second manufacturing facility in Toronto. We
make GeneKits in our Pittsburgh, Pennsylvania facility. We plan to make
GeneKits at our new facility in Atlanta, Georgia, which is in the process of
being built. We plan to close our Pittsburgh facility once our new Atlanta
facility is completed and fully operational. We manufacture certain chemicals
and other components included in the GeneKits. Other GeneKit components are
manufactured by, or licensed from, third parties.

      Our new facility in Atlanta is being designed to enable us to increase
significantly our production of GeneKits. Based upon our experience with our
Pittsburgh facility, we believe that we will be in a


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<PAGE>

position to qualify our Atlanta facility under applicable FDA standards. We
expect that this new approximately 50,000 square foot manufacturing facility
will become available to us in stages and that we will be in a position to
commence commercial production at this facility at some time during the second
half of 2001.

      We have documented and installed design and production practices in our
Toronto and Pittsburgh facilities to comply with the FDA's quality system
regulations. We have implemented a quality management system at these
manufacturing facilities in order to ensure product performance, reliability and
quality. We intend to take the same actions at our new Atlanta facility. We
intend to seek certification of compliance to ISO 9001 for our Toronto and
Atlanta facilities. In addition to adhering to ISO goals and FDA quality
standards, we have implemented our own quality control and quality assurance
standards and programs.

      We provide one year warranty coverage for product defects on the
instrument component of our sequencers. All product repairs are performed by our
employees at one of our manufacturing facilities.

      In connection with our GeneKits, sequencers and related equipment, we use
certain dyes and custom-designed component parts supplied by third parties. We
believe that some dyes supplied by Amersham under our exclusive worldwide
license to use and sell Amersham dyes within our GeneKits, may not be available
from other suppliers, although our customers might be able to purchase some, but
not all, dyes directly from Amersham. In addition, certain reagents and other
chemicals that we use and include in our GeneKits are available only under
license from their manufacturers. While we believe that alternative reagents and
chemicals are available, alternate supplies may not be as effective as certain
of the products that we presently use. In addition, we believe that there are
alternative suppliers for our custom-designed DNA sequencer parts, but that we
would incur costs in switching to alternative suppliers and would likely
experience delays in production of the products that use any of these parts
until such time as we were able to locate alternate suppliers or parts.

PROPRIETARY RIGHTS

      We rely on patents, licenses from third parties, trade secrets,
trademarks, copyright registrations and non-disclosure agreements to establish
and protect our proprietary rights in our technologies and products.

      We own or jointly own 42 U.S. patents. We own or jointly own additional 20
U.S. patent applications pending, of which 5 have been allowed. We own 18
foreign patents. We own or jointly own foreign applications presently pending as
PCT applications, or as national phase PCT applications, designating
intergovernmental agencies and multiple countries including the European Patent
Office, Australia, Canada and Japan. Our issued and allowed patents and patent
applications cover various aspects of our products and technologies, including
viral load testing, several of our GeneKits and various DNA sequencing and
GeneKit technologies, including the stratified matrix testing technology, the
MicroCel technology, basecalling technology, and the CLIP technology.

      Our competitive position is also dependent upon unpatented trade secrets.
We are developing a substantial database of information concerning our research
and development and have taken security measures to protect our data. However,
trade secrets are difficult to protect. In an effort to protect our trade
secrets, we have a policy of requiring our employees, consultants and advisors
to execute non-disclosure agreements. These agreements provide that confidential
information developed or made known to an individual during the course of their
relationship with us must be kept confidential, and may not be used, except in
specified circumstances.

      In April 2000, we entered into a worldwide licensing and collaboration
agreement with Applera whereby we gained access to certain patents and
intellectual property owned or exclusively licensed by


                                       35
<PAGE>

Applera. The agreement enables us to utilize certain Applera technology to
manufacture and sell DNA sequencing instruments, as well as manufacture and sell
clinical sequencing kits to run on DNA sequencing instruments manufactured by
us, Applera and other third parties. In addition, Applera may collaborate with
us to provide access to technology to facilitate our development and
commercialization of new diagnostic tests using the licensed technology. In
addition, we gained access to certain other Applera chemistry patents, which are
enabling for the manufacture of certain reagent products to be used on Applera
manufactured instruments, as well as third party sequencing instruments.

      We will pay Applera a total licensing fee of $25.0 million over a period
of four years, and will also make royalty payments to Applera based on sales in
return for access to the Applera technology and installed instrument customer
base. We may terminate the agreement upon 60 days written notice to Applera and
either party may terminate the agreement under certain other limited
circumstances.

      From time to time, we receive notice from third parties claiming that we
may infringe their patents.

COMPETITION

      The biotechnology industry is highly competitive. We compete with entities
in the United States and abroad that are engaged in the development and
production of products that analyze genetic information. They include:
biotechnology, pharmaceutical, chemical and other companies; academic and
scientific institutions; governmental agencies; and public and private research
organizations.

      Some of our major competitors include:

  o   manufacturers of phenotyping assays, including ViroLogic, Inc. and
      VIRCO;

  o   manufacturers of genotyping test kits , including Applera;

  o   purveyors of homebrew genetic tests, which typically have not undergone
      clinical validation and have not been approved by the FDA or other
      regulatory agencies, including Laboratory Corporation of America
      Holdings, Quest Diagnotistics Inc. and Specialty Laboratories, Inc.

  o   manufacturers and distributors of DNA probe-based diagnostic systems
      such as Abbott Laboratories, Chiron Corp., Roche Diagnostics, Gene
      Probe Inc., Innogenetics NV, Digene Corporation and Johnson & Johnson;

  o   manufacturers of alternate technologies used to analyze genetic
      information, such as chip-based and assay-based technologies,
      including, Hyseq Inc., Affymetrix Inc., ChemCore Inc., CuraGen Corp.,
      Nanogen, Inc.;

  o   manufacturers and distributors of DNA sequencers such as Applera,
      Amersham Pharmacia Biotech, Inc., LI-COR, Inc., Hitachi, Ltd. and
      Molecular and Genetic BioSystems, Inc.;


      Many of these companies and many of our other competitors have much
greater financial, technical and research and development resources and
production and marketing capabilities than we do.

      Our GeneKits also compete with homebrew genetic tests for HIV and other
diseases designed by laboratories and some of the companies listed above.
Homebrew tests include a variety of small-scale genotyping tests which typically
have not undergone clinical validation and have not been approved by the FDA or
other regulatory agencies.

      We believe that we are able to compete primarily on the basis of the
following:

  o   our ability to provide an integrated DNA sequencing system;


                                       36
<PAGE>

  o   ease of use;

  o   speed of sequencing;

  o   cost-effectiveness;

  o   clinical data with respect to the HIV market; and

  o   with respect to the HIV market, FDA approval of our HIV OpenGene System,
      if and when we obtain it.

PROPERTY, PLANTS AND EQUIPMENT

      The table below lists the locations of our facilities and summarizes
certain information about each location.

<TABLE>
<CAPTION>

                                                         SQUARE
                                                          FEET
         LOCATION                    USE               (APPROXIMATE)   TERM OF LEASE
         --------                    ---               -------------   --------------
<S>                   <C>                                   <C>        <C>
1.   Bay Street       Research, sales and principal           20,628   June 2000 -
     Toronto, Canada  executive offices                                May 2005

2.   Bay Street       Administrative offices                   6,876   June 2000 -
     Toronto, Canada                                                   November 2001

3.   Bay Street*      Research offices                         6,876   November 2000 -
     Toronto, Canada                                                   May 2005

4.   Etobicoke        MicroCel manufacturing                   8,482   June 1996 -
     Ontario, Canada                                                   May 2001

5.   Etobicoke        Sequencer manufacturing                 10,500   September 1998 -
     Ontario, Canada                                                   August 2003

6.   Oakville**       Not in use                               7,996   September 1998 -
     Ontario, Canada                                                   August 2003

7.   University of    Kit manufacturing and research           9,621   September 2000 -
     Pittsburgh       and                                              August 2002
     Applied          development
     Research
     Center,
     Pittsburgh,
     Pennsylvania

8.   Technology Park  Research and development                 7,313   March 1998 -
     Atlanta, Georgia                                                  February 2003

9.   Atlanta, Georgia *GeneKit manufacturing, research        99,822   February 2000 -
                      and development, and laboratory                  March 2010
                      and sales and administrative offices

10.  High Wycombe,    European head office                     5,118   October 2000 -
     United Kingdom                                                    October 2009

11.  Epinay, France   French sales office                      2,421   November 2000 -
                                                                       October 2009

12.  Madrid, Spain    Iberian sales office                       193   January 2001 -
                                                                       June 2001
</TABLE>


                                       37
<PAGE>

<TABLE>
<CAPTION>

                                                         SQUARE
                                                          FEET
         LOCATION                    USE               (APPROXIMATE)   TERM OF LEASE
         --------                    ---               -------------   --------------
<S>                   <C>                                   <C>        <C>
13.  Genoa, Italy     Italian sales office                       193   January 2000 -
                                                                       December 2001

14.  Technology       Not in use                              21,032   November 1999 -
     Park,**                                                           October 2004
     Atlanta, Georgia
</TABLE>

-----------

*     This facility is not yet fully operational.

**    We have sub-leased these facilities.

We believe that additional facilities will be available at reasonable market
rates to meet any future needs we may have for additional space.

HISTORY AND DEVELOPMENT OF THE COMPANY

      Our company was incorporated in April 1993 pursuant to the laws of the
province of Ontario, Canada under the name Gene-Reader Inc. In May 1994,
Gene-Reader amalgamated with its wholly-owned subsidiary, Visible Genetics Inc.,
and continued operations. Pursuant to the articles of amalgamation, our company
retained the articles of incorporation of Gene-Reader and changed its name to
Visible Genetics Inc. Our registered office is located at 700 Bay Street, Suite
1000, Toronto, Ontario, Canada M5G 1Z6 and our telephone number is (416)
813-3240.

ORGANIZATIONAL STRUCTURE

      The table below lists our subsidiaries. Unless otherwise indicated, we, or
one of our subsidiaries, owns 100% of the outstanding capital stock of the
subsidiary.

<TABLE>
<CAPTION>

      Name of Subsidiary                       Country of Incorporation
      ------------------                       ------------------------
<S>                                            <C>
      Applied Sciences, Inc.                   United States

      Gene Foundry, Inc.                       United States

      Visible Genetics B.V.                    Holland

      Visible Genetics Corp.                   United States

      Visible Genetics Europe, S.A.*           France

      Visible Genetics Iberia SL               Spain

      Visible Genetics Israel, Ltd.            Israel

      Visible Genetics Srl.                    Italy

      Visible Genetics UK Ltd                  United Kingdom
</TABLE>

----------
*     In order to comply with applicable law, Dr. Arthur W.G. Cole, an Executive
Vice President of our company and the President of Visible Genetics Europe,
S.A., owns one share of common stock of Visible Genetics Europe, S.A.

                                       38
<PAGE>

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

      YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH
ITEM 3 -"SELECTED FINANCIAL DATA" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. IN ADDITION TO
HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. SEE " FORWARD-LOOKING STATEMENTS."

OPERATING RESULTS

OVERVIEW

      We began operations in 1993. Until 1996, we devoted substantially all of
our resources to the research and development of our technology and products. In
late 1996, we began manufacturing and selling our products to the research and
clinical research markets.

      Our products and services include:

  o   GENEKITS AND OTHER CONSUMABLES. GeneKits consist of various reagents,
      enzymes, primers and other chemicals, and other consumables consist of
      disposable gel cassettes, acrylamide and other materials.

  o   SEQUENCING SYSTEMS. Sequencing systems consist of automated DNA sequencers
      and related equipment, and our proprietary DNA analysis and data
      management software.

  o   TESTING, SEQUENCING AND OTHER SERVICES. We provide services, such as viral
      load testing, genotyping and other molecular services in the United
      States. During the third quarter of 2000 we began to phase-out our
      testing, sequencing and services business in Europe and we do not intend
      to provide these services in Europe in the future.

      During 1996 and 1997, we generated revenues primarily by selling
sequencing systems. During this period, our business strategy focused on
installing our DNA sequencers and related equipment in research and clinical
research facilities. During 1998, we began to shift our strategy to target the
clinical diagnostic market and to place greater emphasis on generating recurring
revenues from sales of GeneKits and other consumables initially to the research
and clinical research markets and, subject to FDA and foreign approval, as
applicable, to the clinical diagnostic market. As part of this strategy, we may
sell our DNA sequencers at reduced prices, or at no cost, to customers who
commit, or to customers who we anticipate will commit, to purchase significant
quantities of GeneKits and other consumables. This strategy may result,
initially, in reduced gross margins and additional losses as we attempt to
expand our installed base of DNA sequencers. However, we believe that this
strategy, over the long term, will help us maximize recurring sales of our HIV
GeneKit and other GeneKits to the clinical diagnostic market, should we receive
FDA and foreign regulatory approval. In addition, in 1998 and 1999, we sometimes
bundled our DNA sequencers and GeneKits for sale at reduced prices. We
discontinued the practice of bundled sales in the second half of 1999.

      In September 2000 we submitted an application to the FDA for approval to
sell our HIV Open Gene System to the clinical diagnostic market. The FDA has not
yet completed its review of our submission. In December 2000 we received
approval from French regulatory authorities to sell our HIV OpenGene System
to the clinical diagnostic market in France and, in February 2001 we received
regulatory approval to sell our HIV OpenGene System to the clinical
diagnostic market in Argentina.

      During 2000, in anticipation of our receiving regulatory approval of our
HIV GeneKit, we began to de-emphasize marketing and sales of equipment to the
research market and sales of testing, sequencing and other services. We have
continued to market and sell equipment and GeneKits to the clinical research


                                       39
<PAGE>

market for research and investigational purposes. If we receive FDA approval, we
anticipate that, within six to 12 months after approval, substantially all of
our revenue will be generated by sales of GeneKits and other consumables to the
clinical diagnostic market.

OUR OPERATIONS

      SALES. Sales consist of revenues from the sale of sequencing systems,
GeneKits and other consumables as well as from the sale of testing services.
Sales include shipping charges, but exclude sales and excise taxes. Revenues
from the sale of our products are recognized when evidence of an arrangement
exists, shipment occurs and title passes to the customer or distributor, sales
price is fixed or determinable and there is a reasonable assurance of
collectibility. Revenue from the sale of testing and other services are
recognized when evidence of an arrangement exists, the services are provided,
sales price is fixed or determinable and there is a reasonable assurance of
collectibility. Sales of bundled sequencing systems and GeneKits are recognized
proportionately as the components of the bundle are shipped to customers. The
total sales price of the bundle is allocated to the components proportionately
based on the retail prices typically charged for such components if they were
sold individually rather than as part of the bundle.

      We sell our products in North America, Europe, Asia, Australia, Africa and
South America. In the United States, Canada and many countries in Europe, we
sell our products directly through our own sales force. In selected geographic
and product markets, we seek to sell our products through distribution,
marketing or agency agreements with leading distributors. Currently, we have
entered into agreements with distributors or agents in approximately 40
countries throughout the world.

      For an analysis of sales by product segment and geographic market, see
Note 14 to our Consolidated Financial Statements.

      COST OF SALES. Cost of sales consists of manufacturing costs including
materials, labor and overhead chargeable to inventory, royalties paid on product
sales and amortization of instruments placed with customers. The gross margin
from sales of our products and services varies depending on product category,
sales volumes, distribution channel and geographic market. Gross margin is
calculated by subtracting cost of sales from sales.

      SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses consist primarily of salaries and related expenses,
advertising and trade shows, occupancy costs, utilities, professional fees,
consulting fees, travel costs, capital taxes, depreciation of fixed assets,
amortization of license fees and amortization of costs related to patent
acquisition.

      RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of salaries and related expenses for employees engaged in
research and development, occupancy costs, consulting fees, travel costs,
depreciation and amortization of fixed assets and costs related to FDA clinical
trials for our HIV OpenGene System.

      INTEREST INCOME. Interest income consists of income earned on cash, cash
equivalents and marketable securities.

      INTEREST AND FINANCING EXPENSE. Interest and finance expense consists of
interest paid or accrued, and amortization of warrant costs and other financing
expenses.

      Our financial statements are presented in U.S. dollars and are prepared in
accordance with generally accepted accounting principles in the United States.


                                       40
<PAGE>

RESULTS OF OPERATIONS

COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 2000 TO FISCAL YEAR ENDED
DECEMBER 31, 1999

      SALES. Sales declined 4% to $13.1 million in 2000, from $13.6 million in
1999. The decline resulted from a decrease in sequencing systems sales and
services revenue offset, in part, by an increase in sales of our GeneKits and
other consumables. In 2000, sales of sequencing systems decreased to $4.5
million from $7.7 million in 1999. The decrease in sales of sequencing systems
in 2000 reflects our decision to de-emphasize the sale of sequencing systems to
the research market. Services sales decreased from $1.2 million in 1999 to $0.4
million in 2000. The decline in services sales is due primarily to the phase-out
of testing services in Europe beginning in the third quarter of 2000, and to our
decision to temporarily re-deploy many of our testing services personnel in
North America to assist in completing our FDA submission. During 2000 sales of
GeneKits and other consumables increased to $8.2 million from $4.7 million in
1999. In 2000, sequencing systems accounted for 35% of total sales, compared to
57% of total sales in 1999. In 2000, GeneKits and other consumables accounted
for 62% of total sales, compared to 35% of sales in 1999. Testing services
accounted for 3% of total sales, compared to 8% of total sales in 1999.

      Sales in North America, Europe, Japan and the rest of the world were $6.6
million, $5.0 million, $0.9 million and $0.6 million, respectively, for 2000, as
compared to $5.2 million, $5.5 million, $1.6 million and $1.3 million,
respectively, during 1999. During 2000, Amersham International PLC accounted for
approximately 11% of sales, of which 10% comprised sequencing systems and 1%
comprised GeneKits and other consumables. During 1999, the sales to Amersham
accounted for approximately 21% of sales, of which 19% comprised sequencing
systems and 2% comprised GeneKits and other consumables. The sales to Amersham
were made on the same general terms and conditions as the majority of other
sales during the respective periods.

      COST OF SALES. Cost of sales increased 9% to $10.1 million in 2000, from
$9.3 million in 1999. In 2000, cost of sales aggregated 78% of sales, compared
to 68% of sales in 1999. The increase in cost of sales as a percentage of sales
was primarily related to amortization of DNA sequencing systems placed, at no
cost, with clinical customers and an increase in discarded materials and other
costs attributable to the manufacturing scale up associated with the anticipated
US launch of the HIV GeneKit, if FDA approval is received.

      SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses increased 50% to $28.6 million in 2000, from $19.1
million in 1999. The increase resulted primarily from;

o  Increased payroll and personnel costs due to continued growth of our
   business;

o  Costs associated with opening a North American sales and administrative
   facility in Atlanta;

o  Amortization of license fees for license agreements entered into in
   2000;

o  Continued growth of our quality control and regulatory departments; and

o  Continued expansion of our sales force and our marketing activities in North
   America and Europe.

      Sales and marketing expenses included in sales, general and administrative
expenses increased 21% to $13.4 in 2000, from $11.1 million in 1999.

      RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 34% to $10.6 million in 2000, from $7.9 million in 1999. This increase
resulted primarily from increased costs for consultants and increased purchases
of laboratory supplies related to preparing our FDA submission.


                                       41
<PAGE>

      EXIT AND TERMINATION COSTS. There were no exit and termination costs in
2000. During 1999, we incurred exit and termination costs of $1.3 million. Of
this amount, $0.8 million related to the relocation of certain of our activities
to the new facility in Atlanta, and $0.5 million was for termination benefits
payable to two senior officers in connection with the termination of their
employment with our company.

      INTEREST INCOME. Interest income increased to $4.5 million in 2000, from
$0.7 million in 1999. This increase reflects interest earned on higher average
cash balances as a result of the approximately $30.0 million of cash proceeds
received from our July 1999 issuance of Series A preferred shares, approximately
$26.7 million of cash proceeds received from our December 1999 private placement
of common shares and approximately $75.4 million of cash proceeds received from
our April 2000 follow-on public offering of common shares.

      INTEREST AND FINANCING EXPENSE. Interest and financing expense decreased
to approximately nil in 2000, from $2.0 million in 1999. The decrease is due to
the repayment in July 1999, concurrent with the issuance of the Series A
preferred shares, of our outstanding loans.

      CUMULATIVE PREFERRED DIVIDENDS AND ACCRETION OF DISCOUNT ATTRIBUTABLE TO
PREFERRED SHARES. Cumulative preferred dividends and accretion of discount
attributable to preferred shares increased to $3.7 million in 2000, from $1.8
million in 1999. The increase reflects a full year's dividends and amortization
of discount on the Series A preferred shares issued in July 1999.

COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1999 TO FISCAL YEAR ENDED
DECEMBER 31, 1998

      SALES. Sales increased 25% to $13.6 million in 1999, from $10.9 million in
1998. This increase resulted from increased sales of our GeneKits and other
consumables. In 1999, 340 sequencing systems were sold, as compared to 412
sequencing systems sold in 1998. The decrease in sequencing systems sold in 1999
as compared to 1998 is due to a decline in Seq4x4 sales to Amersham, which
decreased from 273 units in 1998 to 85 units in 1999. In 1998 Amersham began to
actively market the Seq4x4 and initial sales were high as Amersham filled their
distribution pipeline. Subsequently, Amersham's marketing effort has been
transferred to the Long-Read Tower at a higher unit price but lower anticipated
volume. In 1999, sequencing systems accounted for 57% of total sales, compared
to 74% of total sales in 1998. In 1999, GeneKits and other consumables accounted
for 35% of total sales, compared to 13% of total sales in 1998. Testing services
accounted for 8% of sales in 1999, compared to 13% of sales in 1998.

      Sales in North America, Europe, Japan and the rest of the world were $5.2
million, $5.5 million, $1.6 million and $1.3 million, respectively, for 1999, as
compared to $4.4 million, $4.6 million, $1.6 million and $0.3 million,
respectively, during 1998. During 1999, Amersham accounted for approximately 21%
of sales, of which 19% comprised sequencing systems and 2% comprised GeneKits
and other consumables. During 1998, Amersham accounted for 30% of sales, of
which 29% comprised sequencing systems and 1% comprised GeneKits and other
consumables. The sales to Amersham were made on the same general terms and
conditions as the majority of other sales during the respective periods.

      COST OF SALES. Cost of sales increased 39% to $9.3 million in 1999, from
$6.7 million in 1998. In 1999, cost of sales aggregated 68% of sales, compared
to 61% of sales in 1998. This increase in cost of sales as a percentage of sales
was primarily related to a write-off of obsolete and discontinued instruments
and related parts totaling $0.6 million recorded in the second quarter of 1999.

      SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses increased 66% to $19.1 million in 1999, from $11.5
million in 1998. This increase resulted primarily from increased payroll and
personnel costs due to the continued growth of our business, costs of quality
control and regulatory departments established in 1998 and the continued
expansion of our sales force in North


                                       42
<PAGE>

America and Europe. Sales and marketing expenses included in sales, general and
administrative expenses increased 79% to $11.1 million in 1999, from $6.2
million in 1998.

      RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 26% to $7.9 million in 1999, from $6.3 million in 1998. This increase
resulted from increased payroll and personnel costs, along with increased
purchases of laboratory supplies, as we developed additional GeneKits and
continued our research programs. Additionally, we incurred costs for
pre-clinical and clinical trials related to our FDA submission for our HIV
OpenGene System.

      EXIT AND TERMINATION COSTS. During 1999, we incurred exit and termination
costs of $1.3 million. There were no such costs in 1998. Of this amount, $0.8
million related to the planned relocation of certain of our activities to a new
location in Atlanta, and $0.5 million was for termination benefits payable to
two senior officers in connection with the termination of their employment with
our company.

      INTEREST INCOME. Interest income increased to $0.7 million in 1999, from
$0.3 million in 1998. The increase reflects interest earned on higher average
cash balances as a result of the proceeds received from financings completed
during the third and fourth quarters of 1999.

      INTEREST AND FINANCING EXPENSE. Interest and financing expense increased
to $2.0 million in 1999, from $1.1 million in 1998. This increase was due to
interest and financing costs on our term loan agreements entered into in April
and September 1998 and the Warburg Pincus financing (discussed below) in July
1999. Of the total interest and financing expense, $1.5 million was a non-cash
charge due to the amortization of costs attributable to warrants issued in
connection with our term loans and the Warburg Pincus financing, compared to
$0.6 million during 1998.

LIQUIDITY AND CAPITAL RESOURCES

      Since inception, we have financed our operations primarily through private
placements of equity and public offerings. We have also borrowed funds from
institutional lenders.

      APRIL 2000 PUBLIC OFFERING. In April 2000, we completed an underwritten
follow-on public offering of 2,090,000 common shares at $38 per share. All of
the shares were sold by us. After underwriting discounts, but before related
fees and expenses, we received proceeds of $75.4 million.

      DECEMBER 1999 PRIVATE PLACEMENT. In December 1999, various institutional
investors purchased 1,916,000 common shares of our company in a private
placement. The investors paid $15 per share and we received net proceeds of
$26.7 million from the private placement. The institutional investors included
the Warburg Pincus Funds and the Hilal Funds (described below), along with
certain investors who had purchased our common shares in a November 1998 private
placement and certain new institutional investors.

      WARBURG PINCUS FINANCING. On July 15, 1999, certain affiliated funds
managed by E.M. Warburg, Pincus & Co., LLC, who we refer to as the Warburg
Pincus Funds, invested $30.0 million in our company. In consideration for this
investment, we issued to the Warburg Pincus Funds 30,000 Series A preferred
shares convertible at the holders' option into common shares at $11.00 per
share, and warrants to purchase 1,100,000 common shares exercisable for four
years at a purchase price of $12.60 per share. The warrants were valued using
the Black-Scholes option valuation model. The value of the net proceeds was
allocated between convertible preferred shares and warrants based on the
relative fair value of each instrument. The total amount allocated to warrants
and preferred shares was $6.4 million and $22.8 million, respectively. The value
of the warrants is treated as a discount to the preferred shares and will be
charged directly to retained earnings or, in the absence of retained earnings,
against other equity over seven years, the time period when redemption of the
preferred shares first becomes mandatory. The


                                       43
<PAGE>

increase in value of the preferred shares to their mandatory redemption price as
well as the accrual of dividends on the preferred shares will reduce earnings
attributable to common shareholders.

      In February 2000, the Warburg Pincus Funds exercised all of their warrants
at an exercise price of $12.60 per share. Under the terms of our warrant
agreement, the Warburg Pincus Funds elected to pay the exercise price for the
warrants through a cashless exercise. As a result, the Warburg Pincus Funds
received 847,749 of our common shares rather than 1,100,000 common shares they
otherwise would have received upon exercise in cash of all of their warrants.
The Warburg Pincus Funds subsequently distributed 847,586 of these common shares
to their limited partners.

      In September, 2000, the Warburg Pincus Funds, converted a total of 7,795
of our Series A preferred shares, plus a total of $701,550 of dividends that had
accrued on those shares, into our common shares at a conversion price of $11.00
per share. As a result of the conversion, the Warburg Pincus Funds received
772,411 of our common shares and continue to hold a total of 22,205 Series A
preferred shares. The Warburg Pincus Funds subsequently distributed to their
limited partners, 772,411 common shares issued in connection with the Series A
preferred shares.

      NOVEMBER 1998 PRIVATE PLACEMENT. In November 1998, various institutional
investors and certain individual investors affiliated with the Hilal Funds
purchased 1,528,989 common shares of our company in a private placement. The
investors paid $9.875 per share and we received total proceeds of $15.1 million.

      INSTITUTIONAL LOANS. On April 30, 1998, our subsidiary, Visible Genetics
Corp., or VGC, borrowed $7.0 million from various funds, which we refer to as
the Hilal Funds, for which Hilal Capital Management LLC serves as general
partner, investment advisor or management company. In September 1998, VGC
borrowed an additional $1.0 million from these lenders. The interest rate of the
loans was 10% per year. Interest and principal on the $7.0 million loan were
payable on or about April 29, 1999, and, on the $1.0 million loan, were payable
on December 28, 1999.

      On April 30, 1999, we and the Hilal Funds agreed to delay the payment date
of the $7.0 million loan to December 31, 1999, and to move up the payment date
of the $1.0 million loan to July 1, 1999. The Hilal Funds later extended the
payment date to the earlier of July 22, 1999, or the completion of the Warburg
Pincus financing. In addition, the Hilal Funds agreed to permit us to borrow up
to an additional $5.0 million of loans from other lenders which would be senior
to the $7.0 million loan and junior to the $1.0 million loan.

      We guaranteed VGC's obligations under both loans. We gave the Hilal Funds
a security interest in most of our assets to secure our obligations under the
guaranty, including a pledge of the outstanding stock of VGC. Both the loan
agreements and the guaranty imposed certain restrictions on us and our
subsidiaries, including limitations on loans and other obligations that we may
incur.

      As part of the loan arrangements, we granted the Hilal Funds warrants to
purchase our common shares. Initially, we granted the Hilal Funds warrants to
purchase 420,000 common shares which may be exercised until April 2003, at a
price of $10.00 per share. When we borrowed an additional $1.0 million from the
Hilal funds in September 1998, we granted them warrants for an additional
120,000 common shares which may be exercised until September 2003, at a price of
$10.00 per share. The warrants were valued using the Black-Scholes option
valuation model. The total proceeds received from the Hilal Funds were allocated
between the warrants and term loans based on the relative fair value of each
component, resulting in $0.9 million and $0.2 million of the total proceeds from
the April 1998 and September 1998 term loans, respectively, being allocated to
warrants. The value of the term loans were to be increased to their face value
at their respective maturity dates, resulting in a charge to financing expense
and warrants, by their pro rata share, over the remaining term of the loans. As
a result, non-cash charges of $0.6 million


                                       44
<PAGE>

were recorded as financing expenses in 1998. The remaining $0.6 million was
recorded as non-cash financing expenses in 1999.

      On April 30, 1999, we granted the Hilal Funds warrants to purchase an
additional 140,000 common shares which may be exercised until April 30, 2006, at
a price of $17.00 per share. The warrants were valued using the Black-Scholes
option valuation model, resulting in a value being attributed to these warrants
of $0.9 million. This amount was recorded as a deferred charge on the balance
sheet and was to be amortized to financing expense over the remaining term of
the loan maturing on December 31, 1999. As a result, the entire amount was
recorded as a non-cash charge to financing expense in 1999.

      On July 15, 1999, we repaid or satisfied all of the loans made to us by
the Hilal Funds. Of the $8.0 million principal amount of the loans, we paid $4.1
million of principal plus accrued interest on the loan in cash. The Hilal Funds
converted the remaining $3.9 million principal amount plus accrued interest into
3,948 Series A preferred shares and 147,098 warrants to purchase our common
shares. The warrants were valued using the Black-Scholes option valuation model.
The value of the net proceeds was allocated between convertible preferred shares
and warrants based on the relative fair value of each instrument. The total
amount allocated to warrants and preferred shares, was $0.9 million and $3.0
million, respectively. The value of the warrants is treated as a discount to the
preferred shares and will be charged directly to retained earnings or, in the
absence of retained earnings, against other equity over seven years, the time
period when redemption of the preferred shares first becomes mandatory. The
increase in value of the preferred shares to their mandatory redemption price as
well as the accrual of dividends on the preferred shares will reduce earnings
attributable to common shareholders. The Series A preferred shares and warrants
have the same terms as those granted to the Warburg Pincus Funds.

      CAPITAL AND CERTAIN OTHER EXPENDITURES. Additions to fixed assets were
approximately $9.3 million, $1.9 million and $3.3 million for the years ended
December 31, 2000, 1999 and 1998, respectively. The additions to fixed assets in
2000 include $6.2 million in expenditures related to our Atlanta facility, of
which $3.0 million was for leasehold improvements, $1.3 million was for
laboratory and scientific equipment, $1.5 million was computer equipment and
software and $0.4 million was for office furniture and equipment. In addition,
during 2000 additions to fixed assets for our Canadian facilities were $1.2
million, consisting primarily of additions to computer equipment and software,
laboratory and scientific equipment and leasehold improvements. During 2000, we
also placed $1.4 million of equipment with certain customers at no charge to
those customers. We reflect this on our balance sheet as a component of "Fixed
assets." Additions to fixed assets in 1999 consisted of $0.9 million for
laboratory and scientific equipment, $0.6 million for computer equipment and
software and $0.3 million for office furniture, equipment and leasehold
improvements primarily to our Canadian facilities. Additions to fixed assets in
1998 consisted of $1.4 million for laboratory and scientific equipment, $0.9
million for leasehold improvements and $0.9 million for computer equipment and
software, of which $1.9 million was for our Canadian facilities, $1.0 million
was for our United States facilities and $0.3 million was for our European
facilities. Capital expenditures over the last three years were funded from
proceeds of private equity placements, public offerings and funds borrowed from
institutional lenders.

      We currently anticipate additional expenditures of approximately $8.5
million during 2001 to complete our Atlanta facility, in addition to
approximately $3.0 million of regularly planned capital expenditures.

      In April 2000 we entered into a worldwide licensing and collaboration
agreement with Applera. Under the terms of the agreement, we paid an initial
licensing fee to Applera of $10.0 million in June 2000. We will pay future
licensing fees of $5.0 million in each of June 2001, June 2002 and June 2003,
unless the agreement is terminated before those dates. We are not obligated to
make any further payments upon the termination of the agreement. In addition, we
will pay royalties to Applera based on sales in return for access to the Applera
technology and installed instrument customer base. We may


                                       45
<PAGE>

terminate the agreement upon 60 days written notice to Applera and either party
may terminate the agreement under certain other limited circumstances.

      CURRENT AND FUTURE FINANCING NEEDS. We have incurred negative cash flow
from operations since we started our business. We have spent, and expect to
continue to spend, substantial amounts to complete our planned product
development efforts, expand our sales and marketing activities, expand our
manufacturing capabilities, conduct our clinical trials, conduct research and
build our business infrastructure. At this time, funds from operations are not
sufficient to meet our operating needs and other anticipated financial
requirements.

      Based on our current plans and assuming that we receive FDA approval
for our HIV GeneKit during 2001, we believe that our cash on hand and
anticipated funds from operations will be sufficient to enable us to meet our
operating needs for the next 24 months. However, the actual amount of funds
we will need to operate for the next 24 months is subject to many factors,
some of which are beyond our control. We may need to obtain additional funds
sooner or in greater amounts than we currently anticipate and we may need to
obtain additional funds at the end of the 24 month period. If we do not
obtain FDA approval for our HIV GeneKit during 2001, we will need to obtain
additional funding within 18 to 24 months, unless we significantly curtail
operations.

      If we need to obtain funds, potential sources of financing include
strategic relationships, public or private sales of our shares or debt or other
arrangements. Because of our potential long-term capital requirements, we may
seek to access the public or private equity markets whenever conditions are
favorable, even if we do not have an immediate need for additional capital at
that time. We do not have any committed sources of financing at this time and it
is uncertain whether additional funding will be available when we need it on
terms that will be acceptable to us or at all. If we raise funds by selling
additional common shares or other securities convertible into common shares, the
ownership interest of our existing shareholders will be diluted. If we are not
able to obtain financing when needed, we would be unable to carry out our
business plan, we would have to significantly limit our operations and our
business, financial condition and results of operations would be materially
harmed.

      If we wish to issue equity securities or obtain additional financing, we
will need, under certain circumstances, the consent of the Series A preferred
shareholders. We will be required to obtain the consent of the holders of a
majority of the then outstanding Series A preferred shares prior to issuing any
equity security that has rights as to dividends and liquidation that are senior
or equal to those of the Series A preferred shares. We will also be required to
obtain the consent of the holders of a majority of the then outstanding Series A
preferred shares if we wish to borrow money and at such time or as a result of
such loans, the total principal amount of our indebtedness and capitalized lease
obligations exceeds $15.0 million. As a result, we may be delayed in, or
prohibited from, obtaining certain types of financing.

EURO CONVERSION

      Effective January 1, 1999, 11 of the 15 member countries of the European
Union adopted the euro as their common legal currency and each participant
established fixed conversion rates between their sovereign, or legacy,
currencies and the common euro currency. The legacy currencies of the individual
countries are scheduled to remain legal tender as denominations of the euro
until January 1, 2002, when euro-denominated bills and coins will be introduced.
During this transition period, public and private parties may choose to pay for
goods and services using either the euro or the participating country's legacy
currency. By July 1, 2002, the legacy currencies will be phased out entirely as
legal tender.

      We currently conduct business operations in U.S. and Canadian dollars and
several other currencies. Since our information systems and processes generally
accommodate multiple currencies, we anticipate that any necessary modification
to our information systems, equipment and processes to


                                       46
<PAGE>

accommodate euro transactions will be made on a timely basis and do not expect
any failures that would have a material adverse effect on our financial position
or results of operations.

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

DIRECTORS AND SENIOR MANAGEMENT

      The following table sets forth certain information with respect to our
executive officers and directors. This information is supplied based upon our
records and information furnished by our executive officers and directors.

<TABLE>
<CAPTION>

                                                                                 DIRECTOR'S
                                                                        YEAR       TERM
NAME                            AGE              POSITION             APPOINTED   EXPIRES
----                            ---              --------             ---------   -------
<S>                              <C> <C>                                  <C>     <C>
Richard T. Daly...............    51 President, Chief Executive            1998    2001
                                     Officer and Director
Thomas J. Clarke..............    52 Chief Financial Officer               2000
Timothy W. Ellis..............    53 Chief Operating Officer               1999
Dr. Arthur W.G. Cole..........    50 Executive Vice President;             1996
                                     President, Visible Genetics
                                     Europe S.A.
Dr. James M. Dunn.............    46 Vice President, Technology            1994
Marguerite Ethier.............    37 Vice President, General Counsel       2000
Michael A. Cardiff(2).........    42 Director                              1999    2003
Sheldon Inwentash(1)..........    45 Director                              1994    2002
J. Spencer Lanthier(1)........    60 Director                              2000    2003
Jacques R. Lapointe...........    53 Director                              2000    2002
Jonathan S. Leff(1)(2)........    32 Director                              1999    2001
Prof. J. Robert S. Prichard(2)    51 Director                              1999    2002
Dr. Lloyd M. Smith............    46 Director                              1995    2001
Dr. Konrad M. Weis............    72 Director                              1997    2001
</TABLE>

----------
(1)   Member of Audit Committee
(2)   Member of Compensation Committee

      The following is the business experience for at least the last five years
of each of our executive officers and directors:

      RICHARD T. DALY has been a Director of our company since June 1998, and
President and Chief Executive Officer since July 1999. Mr. Daly served as
Executive Vice President from March 1999 until July 1999. Prior to joining
Visible Genetics, Mr. Daly founded, and, from March 1989 through July 1998,
served as Chairman and Chief Executive Officer of Clinical Partners, Inc., a San
Francisco-based company providing comprehensive, therapy-specific management of
HIV and AIDS patients for employers and managed health-care organizations. Prior
to founding Clinical Partners, Mr. Daly spent over 15 years in the healthcare
industry with several companies in a variety of executive positions in sales,
marketing and general management, including serving as the President of Baxter
Canada for a period of four years, and President of the Health Data Institute.

      THOMAS J. CLARKE has been Chief Financial Officer of our company since
January 2000. From July 1997 to January 2000, Mr. Clarke was Chief Operating
Officer of CCS TrexCom, Inc., a telecommunications software company. From 1991
to July 1997, Mr. Clarke was Chief Financial Officer of CCS TrexCom. From 1989
to 1990, Mr. Clarke was Chief Financial Officer of Medaphis Corporation, a
medical transaction-processing company. From 1986 to 1989, Mr. Clarke was Senior
Vice President and Chief Financial Officer of Days Inn Corporation. From 1985 to
1986, Mr. Clarke was Controller of


                                       47
<PAGE>

Quadram Corporation. From 1980 to 1985, Mr. Clarke held various financial
positions at Contel Corporation. Mr. Clarke is a Certified Public Accountant.

      TIMOTHY W. ELLIS has been Chief Operating Officer of our company since
November 1999. From January 1998 to November 1999, Mr. Ellis operated his own
management consultant practice. From 1991 to 1997, Mr. Ellis was President of
Dynex Technologies, a manufacture of instruments and consumables for the
clinical research industry. From 1988 to 1991, Mr. Ellis was President of
Genetic Systems Corporation. From 1985 to 1988, Mr. Ellis was General Manager of
Abbott Laboratories' Clinical Chemistry Business Unit.

      DR. ARTHUR W. G. COLE has been Executive Vice President of our company
since May 1996 and the President of our Visible Genetics Europe S.A. subsidiary
since September 1999. From May 1996 to September 1999, Dr. Cole also served as
Chief Business Officer of our company. From 1995 to May 1996, Dr. Cole was a
business consultant to companies in the biotechnology industry through AC
Consulting. From 1981 to 1995, Dr. Cole worked at Pharmacia Biotech, AB, a
Swedish biotechnology supply company in a range of positions, including five
years as Vice President. During his time with Pharmacia, Dr. Cole ran the
division responsible for worldwide sales of DNA sequencing equipment and
supplies.

      DR. JAMES M. DUNN has been Vice President, Technology of our company since
June 1998 and was our Director of Molecular Test Development from January 1994
to June 1998. Prior to joining our company, Dr. Dunn was a research consultant
to the Hospital for Sick Children from August 1993 to January 1994 and a
National Cancer Institute of Canada research fellow at the Division of Biology,
California Institute of Technology from 1990 to 1993. Dr. Dunn received a B.Sc.
in chemistry from the University of British Columbia and a Ph.D. from the
University of Toronto.

      MARGUERITE ETHIER has been Vice President, General Counsel of our company
since January 2000. From 1998 to 1999, Ms. Ethier was a partner in the law firm
of McCarthy Tetrault, and from 1995 to 1997 and 1992 to 1993, Ms. Ethier was an
associate with McCarthy Tetrault. From 1993 to 1995, Ms. Ethier was an associate
with the law firms of Townsend & Townsend Khourie & Crew and Howard Rice
Nemerovski Canady Falk & Rabkin. Ms. Ethier holds a B.Sc. degree from the
University of Alberta, an M.Sc. degree from the University of Toronto, and an
LL.B. degree from Osgoode Hall Law School. Ms. Ethier is a member of the Ontario
and California bars, and is qualified as both a registered Canadian Patent Agent
and a United States Patent Attorney.

      MICHAEL A. CARDIFF has been a director of our company since June 1999.
Since September 1999, Mr. Cardiff has been President and Chief Executive Officer
of Prologic Corporation, a developer of software solutions for the financial
services industry. From October 1996 to September 1999, Mr. Cardiff was
Executive Vice President, Financial Services of EDS Canada. From November 1994
to September 1996, Mr. Cardiff was Senior Vice President of Sales and Marketing
of EDS Canada and from 1989 to 1994, he held several positions with Stratus
Computer Corp. Mr. Cardiff presently is a member of the boards of directors of
Visual Insights Canada, Inc., SOLCORP Insurance Software Solutions Corp. and
Spectra Securities Software Inc.

      SHELDON INWENTASH has been a director of our company since April 1994.
Since November 1993, Mr. Inwentash has been the Chairman and Chief Executive
Officer of GeneVest Inc., a Canadian company which is a principal shareholder of
our company. Since February 1992, Mr. Inwentash has been the Chairman and Chief
Executive Officer of Pinetree Capital Corp., a venture capital firm.

      J. SPENCER LANTHIER has been a director of our company since April
2000.  From 1993 until his retirement in 1999, Mr. Lanthier was Chairman and
Chief Executive Officer of KPMG Canada LLP. Mr. Lanthier is presently a
member of the board of directors of KPMG Canada.


                                       48
<PAGE>

      JACQUES R. LAPOINTE has been a director of our company since April 2000.
Since June 1998, Mr. Lapointe has been President and Chief Operating Officer of
BioChem Pharma Inc. From April 1994 to June 1998, Mr. Lapointe was Managing
Director and Business Development Director of Glaxo Wellcome Plc. Mr. Lapointe
is presently a member of the board of directors of BioChem Pharma Inc. and
ConjuChem Inc., a biotechnology company.

      JONATHAN S. LEFF has been a director of our company since July 1999,
serving as the nominee of the Series A preferred shareholders. Mr. Leff joined
E.M. Warburg, Pincus & Co., LLC in July 1996 as an Associate. In January 1999,
he became a Vice President, and in January 2000, he became a Managing Director.
Mr. Leff is also a director of Intermune Pharmaceuticals Inc., Transkaryotic
Therapies, Inc. and a number of private health care companies.

      PROF. J. ROBERT S. PRICHARD has been a director of our company since May
1999. Since July 2000, Prof. Prichard has been a Professor of Law at Harvard
University and President Emeritas of the University of Toronto. From 1990
until July 2000, Prof. Prichard was the President of the University of Toronto.
From 1984 to 1990, Prof. Prichard was Dean of the Faculty of Law at the
University of Toronto. Prof. Prichard is a past Chairman of the Council of
Ontario Universities, a director of the Association of American Universities
and a director of the Association of Universities and Colleges of Canada and
the International Association of Universities. Prof. Prichard presently
serves as a director of the University Health Network, Onex Corporation,
BioChem Pharmaceuticals, Moore Corporation Limited, Four Seasons Hotels Inc.,
Tesma International Inc., Bank of Montreal, Brascan Corp. and Charles River
Associates.

      DR. LLOYD M. SMITH has been a director of our company since March 1995.
Since June 1994, Dr. Smith has been Professor of Chemistry at the University of
Wisconsin-Madison. Dr. Smith has been involved in the development of
fluorescence-based automated DNA sequencers for over 15 years, has written
numerous scientific papers and is a named inventor on a number of U.S. patents.
Dr. Smith is a past member of the National Institutes of Health National Human
Genome Research Institute Study Section. Dr. Smith is a member of the Scientific
Advisory Board of CuraGen Corp. He also serves, or has served, on the editorial
boards of GENOME RESEARCH, DNA SEQUENCE GENETIC ANALYSIS: TECHNIQUES AND
APPLICATIONS and JOURNAL OF CAPILLARY Electrophoresis and was a member of the
scientific advisory boards of Fotodyne Incorporated and Boehringer Mannheim
Corp. Dr. Smith is currently a member of the Board of Directors of Third Wave.

      DR. KONRAD M. WEIS has been a director of our company since 1997. Dr. Weis
has been the honorary Chairman of Bayer Corporation since 1991. He was President
and Chief Executive Officer of the company that later became Bayer Corporation
from 1974 until his retirement in 1991. He presently is a member of the boards
of directors of Demegen Inc. and Titan Pharmaceuticals, Inc.

COMPENSATION

      The following table sets forth information concerning total compensation
earned or paid to our executive officers for services rendered to our company
during the fiscal year ended December 31, 2000.


                                       49
<PAGE>

                  EXECUTIVE OFFICER COMPENSATION SUMMARY TABLE

<TABLE>
<CAPTION>

 -------------------------------------------------------------------------------------------------------------------
                                                                                      LONG-TERM
                                                   ANNUAL COMPENSATION               COMPENSATION
 -------------------------------------------------------------------------------------------------------------------
                                                                                      SECURITIES
                                                                                      UNDERLYING
                                                                        OTHER ANNUAL   OPTIONS        ALL OTHER
                                            SALARY          BONUS       COMPENSATION   GRANTED       COMPENSATION
      NAME                      YEAR          ($)            ($)            ($)          (#)             ($)
 -------------------------------------------------------------------------------------------------------------------
<S>                             <C>          <C>           <C>              <C>        <C>                    <C>
   Richard T. Daly              2000         248,667       100,000          1,908      120,000                 -
 -------------------------------------------------------------------------------------------------------------------
   Thomas J. Clarke             2000         159,385             -              -       40,000                 -
 -------------------------------------------------------------------------------------------------------------------
   Timothy W. Ellis             2000         180,000             -              -              -               -
 -------------------------------------------------------------------------------------------------------------------
   Dr. Arthur W.G. Cole         2000         164,285        37,711          5,977       30,000                 -
 -------------------------------------------------------------------------------------------------------------------
   Dr. James M. Dunn            2000         130,460             -          8,293       30,000                 -
 -------------------------------------------------------------------------------------------------------------------
   Marguerite Ethier            2000         125,207        16,654              -       25,000                 -
 -------------------------------------------------------------------------------------------------------------------
</TABLE>

      All of our directors who are not employees receive a $2,500 fee for each
Board of Directors or committee meeting they attend, up to $10,000 per year.
Directors who are not employees are also eligible to participate in our Director
Option Plan. All directors are reimbursed for reasonable out-of-pocket travel
expenses incurred by them in attending meetings of the Board of Directors or
committee meetings. Our directors receive no other compensation for serving in
their capacity as directors of our company.

      The following table sets forth information concerning options granted to
our executive officers and directors during the fiscal year ended December 31,
2000.

<TABLE>
<CAPTION>

                            OPTION GRANTS DURING 2000

                         NUMBER OF     EXERCISE PRICE   EXPIRATION
 NAME                 OPTIONS GRANTED     ($/SHARE)        DATE
--------------------- ---------------  --------------   -----------
<S>                       <C>              <C>             <C>
 Richard T. Daly          120,000          $32.63          2010
 Thomas J. Clarke          40,000          $15.00          2009
 Dr. Arthur W.G. Cole      30,000          $48.88          2010
 Dr. James M. Dunn         30,000          $48.88          2010
 Marguerite Ethier         25,000          $15.00          2010
 Michael A. Cardiff        15,000          $43.13          2010
 J. Spencer Lanthier       15,000          $32.75          2010
                           15,000          $43.13          2010
 Jacques R. Lapointe       15,000          $32.75          2010
                           15,000          $43.13          2010
</TABLE>

BOARD COMMITTEES

      AUDIT COMMITTEE. The Audit Committee recommends to the Board of Directors
the firm to be appointed each year as independent auditors of the company's
financial statements and to perform services related to the completion of such
audit. The Audit Committee also has responsibility for:

  o   reviewing the scope and results of the audit with the independent
      auditors;

  o   reviewing with management and the independent auditors the company's
      interim and year-end financial condition and results of operations;


                                       50
<PAGE>

  o   considering the adequacy of the internal accounting, bookkeeping and
      control procedures of the company; and

  o   reviewing any non-audit services and special engagements to be performed
      by the independent auditors and considering the effect of such performance
      on the auditors' independence.

      The Audit Committee also reviews at least once each year the terms of all
material transactions and arrangements between the company and its affiliates.
The members of the Audit Committee are Messrs. Inwentash, Leff and Lanthier.

      COMPENSATION COMMITTEE. The Compensation Committee establishes and reviews
overall policy and structure with respect to compensation matters, including the
determination of compensation arrangements for directors, executive officers and
key employees of the company. The Compensation Committee is also responsible for
the administration and award of options to purchase shares pursuant to the
company's option and share purchase plans. The members of the Compensation
Committee are Messrs. Cardiff, Leff and Prichard.

EMPLOYEES

      As of February 28, 2001, we employed 341 full-time employees (including
executive officers) and 3 independent contractors, of whom:

  o   96 are engaged in research and development;

  o   68 are involved in sales and marketing activities;

  o   124 in manufacturing and operations; and

  o   53 are involved in finance, legal and administrative functions.

      We have 168 employees in Canada, 132 in the United States, and 41 in
Europe

      Our employees are not represented by a union or other collective
bargaining unit and we have never experienced a work stoppage. We believe that
our employee relations are good.

SHARE OWNERSHIP

      The following table sets forth certain information concerning the share
ownership of our directors and executive officers as of February 28, 2001:

<TABLE>
<CAPTION>

================================= ============= ==================== =============== =============== ===============
                                   Number of     Number of Common       Range of        Range of     Percentage of
                                     Common      Shares Which May       Exercise       Expiration    Common Shares
                                     Shares      be Acquired Under     Prices of        Dates of      Beneficially
Name                                Owned(1)      Option Plans(2)       Options         Options         Owned(3)
--------------------------------- ------------- -------------------- --------------- --------------- ---------------
<S>                                    <C>             <C>           <C>             <C>              <C>
Richard T. Daly                        77,564          445,001       $9.10 - 32.63   2009-2010                *
--------------------------------- ------------- -------------------- --------------- --------------- ---------------
Thomas J. Clarke                           --           35,000           $15.00      2009                     *
--------------------------------- ------------- -------------------- --------------- --------------- ---------------
Timothy W. Ellis                           --          100,000           $16.00      2009                     *
--------------------------------- ------------- -------------------- --------------- --------------- ---------------
Dr. Arthur W.G. Cole                       --          134,620       $3.50 - 48.88   2006-2010                *
--------------------------------- ------------- -------------------- --------------- --------------- ---------------
Dr. James M. Dunn                      32,814           44,616       $2.74 - 48.88   2004-2010                *
--------------------------------- ------------- -------------------- --------------- --------------- ---------------
Marguerite Ethier                          --           23,125           $15.00      2010                     *
--------------------------------- ------------- -------------------- --------------- --------------- ---------------
Michael A. Cardiff                         --           30,000       $17.68 - 43.13  2009-2010                *
================================= ============= ==================== =============== =============== ===============
</TABLE>

                                       51
<PAGE>

<TABLE>
<CAPTION>

================================= ============= ==================== =============== =============== ===============
                                   Number of     Number of Common       Range of        Range of     Percentage of
                                     Common      Shares Which May       Exercise       Expiration    Common Shares
                                     Shares      be Acquired Under     Prices of        Dates of      Beneficially
Name                                Owned(1)      Option Plans(2)       Options         Options         Owned(3)
--------------------------------- ------------- -------------------- --------------- --------------- ---------------
<S>                                    <C>             <C>           <C>             <C>              <C>
Sheldon Inwentash(4)                       --           30,000       $8.00 - 11.50   2006-2008                *
--------------------------------- ------------- -------------------- --------------- --------------- ---------------
J. Spencer Lanthier                        --           30,000       $32.75 - 43.13  2010                     *
--------------------------------- ------------- -------------------- --------------- --------------- ---------------
Jacques R. Lapointe                        --           30,000       $32.75 - 43.13  2010                     *
--------------------------------- ------------- -------------------- --------------- --------------- ---------------
Jonathan Leff(5)                          244               --                --              --              *
--------------------------------- ------------- -------------------- --------------- --------------- ---------------
Dr. J. Robert S. Prichard                  --           30,000           $17.68      2009                     *
--------------------------------- ------------- -------------------- --------------- --------------- ---------------
Dr. Lloyd M. Smith                         --           15,000           $32.38      2011                     *
--------------------------------- ------------- -------------------- --------------- --------------- ---------------
Dr. Konrad Weis                            --           15,000            $8.00      2008                     *
================================= ============= ==================== =============== =============== ===============
</TABLE>

----------

      *     Represents less than 1%.

      (1)   Represents shares owned beneficially by the named individual other
            than those shares which may be acquired under our company's option
            plans. Unless otherwise noted, all persons referred to above have
            sole voting and sole investment power.

      (2)   Includes all shares which the named individual has the right to
            acquire under all vested and unvested options and warrants granted
            to such individual under our company's option plans.

      (3)   This information is based on 19,017,035 voting shares outstanding as
            of February 28, 2001, which includes 2,737,298 common shares
            issuable upon conversion of our Series A preferred shares as of
            February 28, 2001. Common shares subject to options exercisable
            within 60 days are deemed outstanding for computing the percentage
            ownership of the person holding the options but are not deemed
            outstanding for computing the percentage ownership of any other
            person.

      (4)   Mr. Inwentash is a director of our company. This table does not
            include 1,682,034 common shares that are owned of record by GeneVest
            Inc. ("GeneVest"). Mr. Inwentash is the President and Chief
            Executive Officer of GeneVest and together with his affiliates,
            beneficially owns 45% of its issued and outstanding common shares.
            Pursuant to rule 10b5-1 of the Securities Exchange Act of 1934, as
            amended, Mr. Inwentash has adopted a plan to sell certain shares
            during 2001 which he beneficially owns or which he may be deemed to
            beneficially own, including certain shares owned by GeneVest.

      (5)   Mr. Leff is a director of our company.  The number of common
            shares which he owns excludes 165 common shares and 2,324,081
            common shares issuable upon conversion of Series A preferred
            shares, as of February 28, 2001, owned by certain affiliated
            funds managed by E.M. Warburg, Pincus & Co., LLC.  Mr. Leff, who
            is a Managing Director at E.M. Warburg, Pincus & Co., disclaims
            beneficial ownership of those shares.


                                       52
<PAGE>

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

MAJOR SHAREHOLDERS

      The following table sets forth certain information regarding the
beneficial ownership of our outstanding common shares, as of February 28, 2001,
for all shareholders known to beneficially own or exercise control or direction
over more than 5% of our common shares:

<TABLE>
<CAPTION>

                                                                                      NUMBER OF COMMON SHARES
                                                                                       BENEFICIALLY OWNED OR
                                                                                       OVER WHICH CONTROL OR    PERCENTAGE OF
           NAME                                                    TITLE OF CLASS      DIRECTION IS EXERCISED      CLASS(1)
           ----                                                    --------------      ----------------------      --------
<S>                                                                <C>                       <C>                    <C>
           Peter K. Hilal, M.D. for Hilal Capital Management
              LLC and Hilal Capital Partners LLC(2)............    Common Shares             2,452,773              12.5%
           Warburg, Pincus Funds(3)............................    Common Shares             2,324,554              12.2%
           GeneVest Inc. (4)...................................    Common Shares             1,682,034               8.8%
           Franklin Resource, Inc.(5)..........................    Common Shares             2,414,290              12.7%
</TABLE>

----------
(1)    The information in this table is based on our records, information
       provided to us by directors and executive officers and a review of any
       Schedules 13D and 13G filed in 2000 and 2001 by our shareholders with the
       Securities and Exchange Commission. Beneficial ownership is determined in
       accordance with rules of the Securities and Exchange Commission and
       includes shares over which the indicated beneficial owner exercises
       voting and/or investment power. Our common shares subject to options
       and/or warrants currently exercisable or exercisable within 60 days are
       deemed outstanding for computing the percentage ownership of the person
       holding the options and/or warrants but are not deemed outstanding for
       computing the percentage ownership of any other person. This information
       is based on 19,017,035 voting shares outstanding as of February 28, 2001,
       which includes 2,737,298 common shares issuable upon conversion of our
       Series A preferred shares as of February 28, 2001. The number of common
       shares issuable upon conversion of our Series A preferred shares will
       increase as the dividends payable thereon accrue.

(2)    Consists of (i) 1,496,458 common shares, (ii) 413,217 common shares
       issuable upon conversion of 3,948 Series A preferred shares and (iii)
       543,098 common shares issuable upon exercise of warrants held by Hilal
       Capital International, Ltd., Hilal Capital, LP and Hilal Capital QP, LP.
       Hilal Capital Management LLC is the investment manager of Hilal Capital
       International, Ltd., and has investment and dispositive power over the
       securities held by Hilal Capital International, Ltd. Hilal Capital
       Partners LLC is general partner of Hilal Capital, LP and Hilal Capital
       QP, LP, and has investment and dispositive power over the securities held
       by those funds. Peter K. Hilal, M.D. manages and has sole discretion over
       Hilal Capital Management LLC and Hilal Capital Partners LLC, and, in that
       capacity, has ultimate investment and dispositive power over securities
       held by all of those funds.

       For a description of the changes in ownership of our Company by these
       shareholders, please see "Item 5 - Operating and Financial Review and
       Prospects - Liquidity and Capital Resources - INSTITUTIONAL LOANS."

(3)    Consists of (i) 1,098,210 common shares held by Warburg, Pincus Equity
       Partners, L.P., which includes 1,098,142 common shares issuable upon
       conversion of Series A preferred shares which it owns; (ii) 1,162,124
       common shares held by Warburg, Pincus Ventures International, L.P., which
       includes 1,162,092 common shares issuable upon conversion of Series
       A preferred shares which it owns; (iii) 34,863 common shares held by
       Warburg, Pincus Netherlands Equity Partners, I, C.V., which includes
       34,854 common shares issuable upon conversion of Series A preferred
       shares which it owns; (iv) 23,242 common shares held by Warburg, Pincus
       Netherlands Equity Partners, II, C.V., which


                                       53
<PAGE>

       includes 23,236 common shares issuable upon conversion of Series A
       preferred shares which it owns; (v) 5,807 common shares held by Warburg,
       Pincus Netherlands Equity Partners III, C.V., which includes 5,757 common
       shares issuable upon conversion of Series A preferred shares which
       it owns; and (vi) 308 common shares held by Warburg Pincus & Co. Warburg,
       Pincus & Co. ("WP") is the sole general partner of each of these funds.
       Each of these funds is managed by E.M. Warburg, Pincus & Co., LLC
       ("EMW LLC"). Lionel I. Pincus is the managing partner of WP and the
       managing member of EMW LLC, and may be deemed to control both entities.
       Jonathan S. Leff, a director of our company, is a general partner of WP
       and a managing director and member of EMW LLC. Mr. Leff may be deemed to
       have an indirect pecuniary interest (within the meaning of Rule 16a-1
       under the Securities Exchange Act of 1934, as amended) in an
       indeterminate portion of the shares beneficially owned by these
       shareholders. Mr. Leff disclaims beneficial ownership of all such shares.

       For a description of the changes in ownership of our Company by the
       Warburg Pincus Funds since 1999, please see "Item 5 - Operating and
       Financial Review and Prospects - Liquidity and Capital Resources -
       WARBURG PINCUS FINANCING ."

(4)    GeneVest Inc. is a Canadian company incorporated pursuant to the laws of
       Alberta, Canada. Mr. Sheldon Inwentash, one of our directors, is the
       President and Chief Executive Officer of GeneVest and, together with his
       affiliates, beneficially owns approximately 45% of GeneVest's issued and
       outstanding common shares.

       In June 2000, we filed a registration statement with the Securities
       and Exchange Commission covering 1,927,134 common shares owed by
       GeneVest Inc. (see "Related Party Transactions" below). Since June 30,
       2000, Genevest has sold 245,100 common shares in open market
       transactions. In February 2000, pursuant to rule 10b5-1 of the
       Securities Exchange Act of 1934, as amended, Mr. Inwentash adopted a
       plan to sell certain shares during 2001 which he beneficially owns or
       which he may be deemed to beneficially own, including certain shares
       owned by GeneVest.

(5)    Franklin Adviser, Inc., as investment advisor to Franklin Resources,
       Inc., has sole investment and dispositive power over these securities.
       Charles B. Johnson and Robert H. Johnson, Jr. each own in excess of
       10% of the outstanding common stock of Franklin Resources, Inc.,
       and may be deemed (for purposes of Rule 13d-3 under the Securities
       Exchange Act of 1934, as amended) to be the beneficial owners of
       these securities.

       As of February 28, 2001, there were 26,153 Series A preferred shares
issued and outstanding.  Of those shares, 22,205 (84.9%) are owned by certain
affiliated funds managed by E.M. Warburg, Pincus & Co., LLC, and the other
3,948 (15.1%) are owned by the Hilal Funds. For more information regarding our
Series A preferred shares and the Warburg Pincus and Hilal funds, see "Item
5. Operating and Financial Review and Prospects -Liquidity and Capital
Resources."

       The holders of Series A preferred shares are entitled to vote as a group
with the holders of common shares on all matters, except that holders of Series
A preferred shares are entitled to vote separately for one director and are not
entitled to participate in the vote for any other directors of our company. On
all other matters, each holder of Series A preferred shares is entitled to the
number of votes corresponding to the number of common shares the holder is
entitled to receive upon conversion of his Series A preferred shares.

       On February 28, 2001, 14,395,830 of our common shares were held by 49
U.S. record holders and 26,153 of our Series A preferred shares were held by
8 U.S. record holders.

RELATED PARTY TRANSACTIONS

       Dr. John K. Stevens, served as the President and Chief Executive Officer
of our company until his retirement in July 1999. In accordance with the terms
of his employment agreement, Dr. Stevens received a severance package of two
years salary plus benefits. We extended the termination date of Dr. Stevens'
options until 2003. In November 1999, Dr. Stevens retired as Chairman of the
Board of


                                       54
<PAGE>

Directors. In 2000, we paid Dr. Stevens $210,400. Under the terms of our
agreement with Dr. Stevens, he is entitled to receive an additional $105,200
during 2001, subject to certain conditions.

      In November 1999, Dr. Chalom Sayada's employment as our Vice President for
European Business Development was terminated. In connection with his termination
of employment, we paid him $262,500. In addition, we retained him as a
consultant to provide marketing and strategy services to us for 18 months. In
consideration of such services, he earned $151,248 in 2000 and will earn
approximately $44,000 for the remaining 4 months of service.

      In June 2000 we filed a registration statement with the Securities and
Exchange Commission covering 1,927,134 common shares owed by GeneVest Inc. Mr.
Sheldon Inwentash, one of our directors, is the President and Chief Executive
Officer of GeneVest and, together with his affiliates, beneficially owns
approximately 45% of GeneVest's issued and outstanding common shares.

      During 2000, we paid an aggregate of $64,487 in consulting fees to
Clinical Partners, Inc. in connection with clinical studies performed by
Clinical Partners for us. Richard T. Daly, our President and Chief Executive
Officer, is the founder and was previously the Chairman and President of
Clinical Partners.

      For a description of transactions between the company, and the Hilal Funds
and the Warburg Pincus Funds, see "Item 5. Operating and Financial Review and
Prospects -Liquidity and Capital Resources."

ITEM 8.  FINANCIAL INFORMATION.

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

      See Item 19(a) for audited consolidated financial statements.

      LEGAL PROCEEDINGS

      We are not a party to any material legal proceedings.

      On December 27, 1999, Applera filed a lawsuit against our company in the
United States District Court for the Northern District of California claiming
that our DNA sequencing equipment and products infringe certain patents licensed
to Applera by the California Institute of Technology. On April 25, 2000, we
entered into a worldwide licensing and collaboration agreement with Applera
whereby we gained access to certain patents and intellectual property owned or
exclusively licensed by Applera including the patents that were the subject of
the lawsuit. In connection with the agreement, the lawsuit was withdrawn. For
more information on our licensing and collaboration agreement with Applera, see
"Item 4. Information about the Company-Business Overview-Proprietary Rights."

      DIVIDEND POLICY

      COMMON SHARES. We have not declared or paid any cash dividends on our
common shares. We currently intend to retain any future earnings for use in the
operation and expansion of our business. We do not anticipate paying any cash
dividends on our common shares in the foreseeable future.

      SERIES A PREFERRED SHARES. Dividends on our Series A preferred shares
accrue at the rate of 9% per year until July 2002, and 4% per year thereafter.
Dividends may not be paid until July 2002. Beginning in August 2000, at our
option, we may pay dividends in cash. If dividends are not paid in cash, they
will continue to accrue.


                                       55
<PAGE>

SIGNIFICANT CHANGES

None.

ITEM 9.  THE OFFER AND LISTING.

NATURE OF TRADING MARKET

      Our common shares are traded on the Nasdaq National Market under the
symbol "VGIN". Our common shares are not listed or quoted for trading on
securities markets outside of the United States. The following table sets forth,
for the periods indicated, high and low sale prices of our common shares as
reported on the Nasdaq National Market. Our Series A preferred shares are not
listed or quoted for trading on any securities market.

<TABLE>
<CAPTION>

                                                   HIGH         LOW
                                                   ----         ----
<S>                                            <C>         <C>
ANNUAL MARKET PRICES
    Fiscal Year ended December 31, 1996 ..     $    11.50  $    7.75
    Fiscal Year ended December 31, 1997 ..     $    14.25  $    2.38
    Fiscal Year ended December 31, 1998 ..     $    14.00  $    6.00
    Fiscal Year ended December 31, 1999 ..     $    34.63  $    8.88
    Fiscal Year ended December 31, 2000 ..     $   119.13  $   19.38

QUARTERLY MARKET PRICES
    FISCAL YEAR ENDED DECEMBER 31, 1999
    First Quarter ........................     $    21.75  $   10.00
    Second Quarter .......................     $    21.81  $   15.31
    Third Quarter ........................     $    22.81  $    8.88
    Fourth Quarter .......................     $    34.63  $   15.00
    FISCAL YEAR ENDED DECEMBER 31, 2000
    First Quarter ........................     $   119.13  $   29.00
    Second Quarter .......................     $    50.44  $   19.38
    Third Quarter ........................     $    49.38  $   28.00
    Fourth Quarter .......................     $    44.25  $   21.75
    FISCAL YEAR ENDED DECEMBER 31, 2001
    First Quarter (through March 15, 2001)     $    37.45  $   20.50

MONTHLY MARKET PRICES
    September 2000 .......................     $    48.75  $   39.00
    October 2000 .........................     $    44.25  $   21.75
    November 2000 ........................     $    36.00  $   25.38
    December 2000 ........................     $    39.00  $   24.00
    January 2001 .........................     $    37.45  $   28.00
    February 2001 ........................     $    35.13  $   25.25
    March 2001 (through March 15, 2001) ..     $    30.50  $   20.50
</TABLE>

ITEM 10.  ADDITIONAL INFORMATION.

BY-LAWS AND ARTICLES OF INCORPORATION

      The company's Restated Articles of Incorporation, which we refer to as
our articles of incorporation, are on file with the Ministry of Consumer and
Commercial Relations under Ontario Corporation Number 1079808. Our articles
of incorporation do not include a stated purpose.

                                       56
<PAGE>

      DIRECTORS

      A director of our company need not be a shareholder. In accordance with
our by-laws and the Ontario Business Corporations Act, a majority of our
directors must be residents of Canada. The Ontario Business Corporations Act
requires that a person must be at least 18 years of age, be of sound mind and
not be bankrupt in order to serve as a director. Neither our articles of
incorporation or by-laws, nor the Ontario Business Corporations Act, impose any
mandatory retirement requirements for directors.

      A director who is a party to, or who is a director or officer of or has a
material interest in any person who is a party to, a material contract or
transaction or proposed material contract or transaction with our company shall
disclose to the company the nature and extent of his interest at the time and in
the manner provided by the Ontario Business Corporations Act. The Ontario
Business Corporations Act prohibits such a director from voting on any
resolution to approve the contract or transaction unless the contract or
transaction:

  o   is an arrangement by way of security for money lent to or obligations
      undertaken by the director for the benefit of the company or an
      affiliate;

  o   relates primarily to his or her remuneration as a director, officer,
      employee or agent of the company or an affiliate;

  o   is for indemnity or insurance; or

  o   is with an affiliate.

      Our board of directors may, on behalf of the company and without
authorization of our shareholders:

  o   borrow money upon the credit of the company;

  o   issue, reissue, sell or pledge bonds, debentures, notes or other
      evidences or indebtedness or guarantees of our company, either secured
      or unsecured;

  o   subject to certain disclosure requirements of the Ontario Business
      Corporations Act, give, directly or indirectly, financial assistance to
      any person by means of a loan, a guarantee or otherwise on behalf of our
      company to secure performance or any present or future indebtedness,
      liability or obligation of any person; and

  o   mortgage, hypothecate, pledge or otherwise create a security interest in
      all or any currently owned or subsequently acquired real or personal
      property of our company, including book debts, rights, powers, franchises
      and undertakings, to secure any bonds, debentures, notes or other
      evidences of indebtedness or guarantee or any other obligation of the
      company.

      COMMON SHARES

      Our articles of incorporation authorize the issuance of an unlimited
number of common shares. The holders of the common shares of our company are
entitled to receive notice of and to attend all meetings of the shareholders of
our company and have one vote for each common share held at all meetings of the
shareholders of our company, except for meetings at which only holders of
another specified class or series of shares of the company are entitled to vote
separately as a class or series.

      Subject to the prior rights of the holders of preferred shares of our
company and to any other shares ranking senior to the common shares with respect
to priority in the payment of dividends, the holders of common shares are
entitled to receive dividends and our company will pay dividends, as and when
declared by our Board of Directors, out of moneys properly applicable to the
payment of dividends, in such amount and in such form as our Board of Directors
may from time to time determine, and all


                                       57
<PAGE>

dividends which our Board of Directors may declare on the common shares shall be
declared and paid in equal amounts per share on all common shares at the time
outstanding.

      In the event of the dissolution, liquidation or winding-up of the company,
whether voluntary or involuntary, or any other distribution of assets of the
company among its shareholders for the purpose of winding up its affairs,
subject to the prior rights of the holders of preferred shares and to any other
shares ranking senior to the common shares with respect to priority in the
distribution of assets upon dissolution, liquidation or winding-up, the holders
of the common shares will be entitled to receive the remaining property and
assets of the company.

      PREFERRED SHARES

      Our articles of incorporation authorize the issuance of an unlimited
number of preferred shares, in one or more series. The Ontario Business
Corporations Act does not impose restrictions upon our Board of Directors
issuing preferred shares of the type authorized by our articles of
incorporation. Our Board of Directors may fix, before issuing, the number of
preferred shares of each series, the designation, rights, privileges,
restrictions and conditions attaching to the preferred shares of each series,
including, any voting rights, any right to receive dividends (which may be
cumulative or non-cumulative and variable or fixed) or the means of determining
the dividends, the dates of payment, any terms and conditions of redemption or
purchase, any conversion rights, and any rights on the liquidation, dissolution
or winding-up of the company, any sinking fund or other provisions, the whole to
be subject to the issue of a Certificate of Amendment setting forth the
designation, rights, privileges, restrictions and conditions attaching to the
preferred shares of the series.

      Our articles of incorporation require that preferred shares of each series
must, with respect to the payment of dividends and the distribution of assets in
the event of the liquidation, dissolution or winding-up of the company, whether
voluntary or involuntary, rank on a parity with the preferred shares of every
other series. However, we are prohibited from issuing any equity securities that
have rights as to dividends and upon liquidation that are senior or equal in
rank to the Series A preferred shares without the approval of the holders of a
majority of the Series A preferred shares. Therefore, if we wish to issue a
series of preferred shares with rights equal or superior to those of our Series
A preferred shares we must obtain the approval of the holders of our Series A
preferred shares. If we wish to issue a series of preferred shares with rights
superior or inferior to those of our Series A preferred shares, we must obtain
the approval of our Series A preferred shareholders and our common shareholders
to amend our articles of incorporation. If any amount of cumulative dividends
(whether or not declared) or declared non-cumulative dividends or any amount
payable on any such distribution of assets constituting a return of capital in
respect of the preferred shares of such series shall participate ratably with
the preferred shares of every other series in respect of all such dividends and
amounts.

      SERIES A PREFERRED SHARES

      On July 15, 1999, our Board of Directors authorized the issuance of 33,950
shares of Series A Convertible Preferred Shares. We have issued 33,948 Series A
preferred shares, of which, as of February 28, 2001, 7,795 have been
converted and 26,153 remain outstanding. The Series A preferred shares are
convertible at the holders' option into common shares at $11.00 per share.
Upon conversion, the holders will also receive common shares, at the
conversion price of $11.00 per share, equal to the amount of all accrued and
unpaid dividends. The Series A preferred shares contain provisions under
which the conversion price would be reduced on a weighted average basis if we
issue shares, options or certain other securities at prices lower than the
conversion price (subject to certain exceptions), and will also be adjusted
upon the issuance of certain other securities, certain recapitalization
events and in certain other circumstances to protect the holders against the
dilutive effect of those events.

                                       58
<PAGE>

      Dividends on the Series A preferred shares accrue quarterly at the rate of
9% per year during the first three years after issuance, and 4% per year
thereafter and are compounded annually. Dividends are not payable for the first
three years. After three years, at our option, we may pay dividends in cash. If
dividends are not paid in cash, they will continue to accrue.

      After the third anniversary and prior to the seventh anniversary of the
date of issuance of the Series A preferred shares, we have the right to redeem
the outstanding Series A preferred shares at a price, which we call the
redemption price, equal to $1,000 per share, plus accrued but unpaid dividends,
provided that the price of our common shares on the Nasdaq National Market
equals or exceeds 150% of the conversion price for 20 trading days during a
consecutive 30-day period ending within 10 days before we notify shareholders of
the redemption. We will be required to redeem one-third of any remaining
outstanding Series A preferred shares on each of the seventh, eighth and ninth
anniversaries of the date of issuance at the redemption price, and we will be
permitted to redeem the Series A preferred shares at any time beginning on the
seventh anniversary after issuance. If we fail to redeem the Series A preferred
shares as required, the holders may appoint a majority of our Board of
Directors, who will continue to serve until we have redeemed the Series A
preferred shares as required.

      The holders of Series A preferred shares are entitled to vote as a group
with the holders of common shares on all matters except that holders of Series A
preferred shares are entitled to vote separately for one director and are not
entitled to participate in the vote for any other directors of our company. On
all other matters, each holder of a Series A preferred share is entitled to the
number of votes equal to the number of common shares the holder is entitled to
receive upon conversion of his Series A preferred shares. Our agreements with
the holders of, and the terms of, the Series A preferred shares provide that we
are prohibited from declaring or issuing any dividends to holders of our common
shares before paying all unpaid dividends on the Series A preferred shares. We
also are prohibited from issuing any equity securities that have rights as to
dividends and liquidation that are senior or equal in rank to the Series A
preferred shares without approval of the holders of a majority of the Series A
preferred shares. If our company were to be liquidated or sold or under certain
other circumstances, holders of Series A preferred shares would be entitled to
receive an amount equal to $1,000 per share, plus accrued dividends, before
holders of our common shares would be entitled to any distributions.

      Certain holders of our Series A preferred shares are also entitled to
certain other rights, including the right to participate, on a pro rata basis,
in future company financings, subject to certain exceptions. If we propose to
sell equity securities of any kind, including debt securities convertible into
equity securities, certain holders of our Series A preferred shares are entitled
to purchase a proportional amount of the securities being offered based on the
number of common shares they own assuming conversion of all convertible
securities. These holders are not entitled to exercise this right in connection
with securities issued: (i) to the public in a firm commitment underwriting;
(ii) upon exercise of any of our options or warrants outstanding on July 15,
1999; (iii) pursuant to the acquisition of another entity by us or one of our
subsidiaries by merger, purchase of substantially all of the assets or other
form of reorganization; (iv) in connection with our acquisition or license of
technology rights or other assets; (v) pursuant to our stock option plans, stock
bonus plans, stock purchase plans or other compensation equity agreements or
programs; or (vi) upon conversion or exercise of any equity securities, such as
warrants, options, or other rights to acquire equity securities and debt
securities convertible into equity securities. The right of these holders to
participate in future offerings in this manner provides those holders with the
opportunity to avoid having their ownership interest in our company diluted
under certain circumstances when the interest of our common shareholders would
be diluted.

      We are required to obtain the consent of the holders of a majority of our
then outstanding Series A preferred shares if we wish to borrow money and at
such time or as a result of such loans, the total principal amount of our
indebtedness and capitalized lease obligations exceeds $15.0 million. In
addition, if we were to enter into a credit facility with a financial
institution, we may be subject to additional limitations on our ability to incur
additional indebtedness.


                                       59
<PAGE>

      ACTION NECESSARY TO CHANGE RIGHTS OF SHAREHOLDERS

      In order to change the rights of our shareholders, we would need to amend
our articles of incorporation to effect the change. Such an amendment would
require the approval of holders of two-thirds of the shares cast at a duly
called special meeting. If we wish to amend the rights of holders of a specific
class of shares, such approval would also be required from the holders of that
class. A shareholder is entitled to dissent in respect of such a resolution and,
if the resolution is adopted and the company implements such changes, demand
payment of the fair value of its shares.

      MEETINGS OF SHAREHOLDERS

      An annual meeting of shareholders is held each year for the purpose of
considering the financial statements and reports, electing directors, appointing
auditors and for the transaction of other business as may be brought before the
meeting. The President or the Board of Directors has the power to call a special
meeting of shareholders at any time.

      Notice of the time and place of each meeting of shareholders must be given
not less than 21 days, nor more than 50 days, before the date of each meeting to
each director, to the auditor and to each shareholder who at the close of
business on the record date for notice is entered in the securities register as
the holder of one or more shares carrying the right to vote at the meeting.
Notice of meeting of shareholders called for any other purpose other than
consideration of the minutes of an earlier meeting, financial statements and
auditor's report, election of directors and reappointment of the incumbent
auditor, must state the nature of the business in sufficient detail to permit
the shareholder to form a reasoned judgment on and must state the text of any
special resolution or by-law to be submitted to the meeting.

      The only persons entitled to be present at a meeting of shareholders are
those entitled to vote, the directors of the company and the auditor of the
company. Any other person may be admitted only on the invitation of the chairman
of the meeting or with the consent of the meeting. If a corporation is
winding-up, the Ontario Business Corporations Act permits a liquidator appointed
by the shareholders, during the continuance of a voluntary winding-up, to call
and attend meetings of the shareholders. In circumstances where a court orders a
meeting of shareholders, the court may direct how the meeting may be held,
including the parties entitled, or required, to attend the meeting.

      LIMITATIONS ON RIGHT TO OWN SECURITIES

      There is no limitation imposed by Canadian law or by our articles or other
charter documents on the right of a nonresident to hold or vote common shares or
preference shares with voting rights (collectively, "Voting Shares"), other than
as provided in the Investment Canada Act (the "Investment Act"), as amended by
the World Trade Organization Agreement Implementation Act. The Investment Act
generally prohibits implementation of a direct reviewable investment by an
individual, government or agency thereof, corporation, partnership, trust or
joint venture that is not a "Canadian," as defined in the Investment Act (a
"non-Canadian"), unless, after review, the minister responsible for the
Investment Act is satisfied that the investment is likely to be of net benefit
to Canada. An investment in Voting Shares by a non-Canadian (other than a "WTO
Investor," as defined below) would be reviewable under the Investment Act if it
were an investment to acquire direct control of our company, and the value of
the assets of our company were Cdn$5.0 million or more (provided that
immediately prior to the implementation of the investment our company was not
controlled by WTO Investors). An investment in Voting Shares by a WTO Investor
(or by a non-Canadian other than a WTO Investor if, immediately prior to the
implementation of the investment our company was controlled by WTO Investors)
would be reviewable under the Investment Act if it were an investment to acquire
direct control of our company (in 2001) and the value of the assets of our
company equaled or exceeded Cdn$209.0 million. A non-Canadian, whether a WTO
Investor or otherwise, would be deemed to acquire control of our


                                       60
<PAGE>

company for purposes of the Investment Act if he or she acquired a majority of
the Voting Shares. The acquisition of less than a majority, but at least
one-third of our Voting Shares, would be presumed to be an acquisition of
control of our company, unless it could be established that we were not
controlled in fact by the acquirer through the ownership of Voting Shares. In
general, an individual is a WTO Investor if he or she is a "national" of a
country (other than Canada) that is a member of the World Trade Organization
("WTO Member") or has a right of permanent residence in a WTO Member. A
corporation or other entity will be a "WTO Investor" if it is a "WTO
investor-controlled entity," pursuant to detailed rules set out in the
Investment Act. The United States is a WTO Member.

      Certain transactions involving Voting Shares would be exempt from the
Investment Act, including: (a) an acquisition of Voting Shares if the
acquisition were made in the ordinary course of that person's business as a
trader or dealer in securities; (b) an acquisition of control of our company in
connection with the realization of a security interest granted for a loan or
other financial assistance and not for any purpose related to the provisions of
the Investment Act; and (c) an acquisition of control of our company by reason
of an amalgamation, merger, consolidation or corporate reorganization, following
which the ultimate direct or indirect control in fact of our company, through
the ownership of voting interests, remains unchanged.

      CHANGE OF CONTROL

      Our authorized capital consists of an unlimited number of preferred
shares. The Board of Directors, without any further vote by the common
shareholders, has the authority to issue preferred shares and to determine the
price, preferences, rights and restrictions, including voting and dividend
rights, of these shares. The rights of the holders of common shares are subject
to the rights of holders of any preferred shares that the Board of Directors may
issue in the future. That means, for example, that we can issue preferred shares
with more voting rights, higher dividend payments or more favorable rights upon
dissolution, than the common shares. If we issued certain types of preferred
shares in the future, it may also be more difficult for a third-party to acquire
a majority of our outstanding voting shares.

      In addition, we have a "classified" Board of Directors, which means that
only approximately one-third of our directors are eligible for election each
year. Therefore, if shareholders wish to change the composition of the Board of
Directors, it would take at least two years to remove a majority of the existing
directors, and three years to change all directors.

      Also, the holders of our Series A preferred shares are entitled to vote as
a class for one director. The Series A Director serves for a one year term and
any vacancy may be filled only by a vote of the holders of Series A preferred
shares. If we do not redeem our Series A preferred shares as required during
2006, 2007, and 2008, then our Series A shareholders will be entitled to special
voting rights enabling them to elect a majority of our Board of Directors, who
will continue to serve as directors until we have redeemed our Series A
preferred shares as required.

MATERIAL CONTRACTS

      The following is a summary of our company's material contracts,
entered into since January 1, 1999.

      1.    Employment Agreement, dated July 7, 1999, by and among Visible
Genetics Corporation, Visible Genetics Inc. and Richard Daly.  Pursuant to
the terms and conditions of this agreement, Mr. Daly agreed to act as the
President and Chief Executive Officer of our company in consideration of a
salary and benefits commensurate with that position.

      2.    Amendment No. 2 to Term Loan Agreement, dated as of April 30,
1999 to the Guarantee dated as of April 30, 1998, by and among Visible
genetics Inc., Hilal Capital, L.P., Hilal Capital Q.P.,


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L.P., Hilal Capital International, Ltd., Highbridge International LLC, C.J.
Partners L.P. and Hilal Capital Management LLC, as adviser for Leo Holdings,
Inc. Pursuant to the terms and conditions of this agreement, we and the Hilal
Funds agreed to delay the payment date of a $7.0 million loan, which was
originally due on April 29, 1999, to December 31, 1999, and to move up the
payment date of a $1.0 million loan, which was originally payable on December
28, 1999, to July 1, 1999. In addition, we granted the Hilal Funds warrants to
purchase an additional 140,000 common shares which may be exercised until April
30, 2006, at a price of $17.00 per share.

      3.    Securities Purchase Agreement, dated as of July 15, 1999 by and
among Visible Genetics Inc., Warburg, Pincus Equity Partners, L.P., Warburg,
Pincus Ventures International, L.P., Warburg, Pincus Netherlands Equity
Partners I, C.V., Warburg, Pincus Netherlands Equity Partners II, C.V. and
Warburg, Pincus Netherlands Equity Partners III, C.V.  Pursuant to the terms
and conditions of this agreement, certain affiliated funds managed by E.M.
Warburg, Pincus & Co., LLC, who we refer to as the Warburg Pincus Funds,
invested $30.0 million in our company.  In consideration for this investment,
we issued to the Warburg Pincus Funds 30,000 Series A preferred shares
convertible at the holders' option into common shares at $11.00 per share,
and warrants to purchase 1,100,000 common shares exercisable for four years
at a purchase price of $12.60 per share.

      4.    Registration Rights Agreement, dated as of July 15, 1999, by and
among Visible Genetics Inc., Warburg, Pincus Equity Partners, L.P., Warburg,
Pincus Ventures International, L.P., Warburg, Pincus Netherlands Equity
Partners I, C.V., Warburg, Pincus Netherlands Equity Partners II, C.V. and
Warburg, Pincus Netherlands Equity Partners III, C.V.  Pursuant to the terms
and conditions of this agreement, the Warburg Pincus Funds received
registration rights for the common shares issuable upon the conversion of
their 30,000 Series A preferred shares and the exercise of  their warrants to
purchase 1.1 million common shares.

      5.    Common Shares Purchase Agreement, dated December 14, 1999, by and
among Visible Genetics Inc. and the Investors who are signatories thereto.
Pursuant to the terms and conditions of this agreement, various institutional
investors purchased 1,916,000 common shares of our company in a private
placement. The investors paid $15 per share and we received net proceeds of
$26.7 million from the private placement. The institutional investors included
the Warburg Pincus Funds, the Hilal Funds, certain investors who had purchased
our common shares in a November 1998 private placement and certain new
institutional investors. In addition, the investors were granted registration
rights for these shares.

      6.    Registration Rights Agreement, dated December 14, 1999, by and
among Visible Genetics Inc. and the Investors who are signatories thereto.
Pursuant to the terms and conditions of this agreement, various institutional
investors received registration rights for the 1,916,000 common shares
purchased by them in a private placement.

      7.    Lease between Visible Genetics Corp. and Dukes-Weeks Realty
Limited Partnership, dated December 22, 1999.  Lease of approximately 99,822
square feet in Suwanee Georgia, for a term of 10 years, commencing on
February 15, 2000.

      8.    Lease, dated March 27, 2000, by and between Visible Genetics Inc.,
as Tenant and LuCliff Company Limited, as Landlord. Pursuant to the terms and
conditions of this agreement, we will lease approximately 20,628 square feet of
property located at 700 Bay Street, Toronto, Canada, for a term from June 2000
to May 2005.

      9.    Underwriting Agreement, dated March 30, 2000, by and among,
FleetBoston Robertson Stephens Inc., PaineWebber Incorporated, Warburg Dillon
Read LLC, Roth Capital Partners, Inc., as representatives of the several
underwriters, and Visible Genetics Inc. Pursuant to the terms and conditions of
this agreement, we completed an underwritten follow-on public offering of
2,090,000


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common shares at $38 per share. All of the shares were sold by us. After
underwriting discounts, but before related fees and expenses, we received
proceeds of $75.4 million.

      10.   Licensing and Collaboration Agreement, dated April 25, 2000, by and
between Visible Genetics Inc. and Applera Corporation, Applied Biosytems Group
(formerly PE Biosystems). Pursuant to the terms and conditions of this
agreement, we gained access to certain patents and intellectual property owned
or exclusively licensed by Applera. We will pay Applera a total licensing fee of
$25.0 million over a period of four years, and will also make royalty payments
to Applera based on sales in return for access to the Applera technology and
installed instrument customer base. We may terminate the agreement upon 60 days
written notice to Applera and either party may terminate the agreement under
certain other limited circumstances.

      11.   Lease, dated October 1, 2000, by and between Visible Genetics Inc.,
as Tenant and LuCliff Company Limited, as Landlord. Pursuant to the terms and
conditions of this agreement, we will lease approximately 6,876 square feet of
property located at 700 Bay Street, Toronto, Canada, for a term from November
2000 to May 2005.

      12.   Lease, dated November 30, 2000, by and between Visible Genetics
Inc., as Tenant and LuCliff Company Limited, as Landlord. Pursuant to the terms
and conditions of this agreement, we will lease approximately 6,876 square feet
of property located at 700 Bay Street, Toronto, Canada, for a term from June
2001 to November 2001.

EXCHANGE CONTROLS

      There is no law, government decree or regulation in Canada restricting the
export or import of capital or affecting the remittance of dividends, interest
or other payments to a nonresident holder of common shares, other than
withholding tax requirements.

TAXATION

CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

      The following summary describes certain material Canadian federal income
tax consequences generally applicable to a holder of common shares and a holder
of Series A preferred shares each of whom at all relevant times, for purposes of
the Income Tax Act (Canada) (the "ITA"), (i) acquires and holds such shares as
capital property (including common shares acquired on a conversion of Series A
preferred shares) and (ii) deals at arm's length with our company and, in case
of a holder of Series A preferred shares, is a resident of the United States and
not a resident of Canada for purposes of the Canada-United States Income Tax
Convention, 1980 (a "Holder" and a "Series A Holder", with reference to a holder
of common shares and a holder of Series A preferred shares, respectively).
Generally, common shares and Series A preferred shares will be considered to be
capital property to a Holder or a Series A Holder provided that such Holder or
Series A Holder does not use or hold such shares in the course of carrying on a
business, has not acquired such shares in a transaction or transactions
considered to be an adventure in the nature of trade, and is not a financial
institution subject to the rules whereby gains and losses on certain securities
are recorded on a mark-to-market basis. Some Holders may be entitled to have
their common shares treated as capital property by making the irrevocable
election in subsection 39(4) of the ITA.

      This summary is based upon the current provisions of the Canada-United
States Income Tax Convention, 1980 (the "U.S. Treaty"), the ITA and the
regulations thereunder and on an understanding of the published administrative
practices of the Canada Customs and Revenue Agency (the "CCRA"). This summary
does not take into account or anticipate any possible changes in law, or in the
administration thereof, whether by legislative, governmental or judicial action,
except proposals for specific amendment


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thereto which have been publicly announced by the Minister of Finance (Canada)
prior to the date hereof (the "Proposed Amendments").

      This summary does not address all aspects of Canadian federal income tax
law that may be relevant to Holders or Series A Holders based upon their
particular circumstances, and does not deal with provincial, territorial or
foreign income tax legislation or considerations, which might differ
significantly from the Canadian federal income tax considerations summarized
herein.

      This summary is of a general nature only and is not intended to be, nor
should it be construed as, advice to any particular Holder or Series A Holder.
Holders and Series A Holders are advised to consult their tax advisors regarding
the application of the Canadian federal income tax law to their particular
circumstances, as well as any provincial, territorial and other tax consequences
of the acquisition, ownership and disposition of their common shares or Series A
preferred shares, as the case may be.

      All amounts relevant in computing the liability of a Holder or Series A
Holder under the ITA are to be computed in Canadian currency at the rate of
exchange prevailing at the relevant time.

COMMON SHARES

NONRESIDENTS OF CANADA

      TAXATION OF DIVIDENDS. A Holder who, at all relevant times, is not
resident in Canada for purposes of the ITA (a "NonResident Holder") will be
subject to Canadian non-resident withholding tax on dividends paid or credited,
or deemed under the ITA to be paid or credited, to the NonResident Holder on the
common shares. The rate of withholding tax under the ITA on dividends is 25% of
the gross amount of the dividend. Such rate may be reduced under the provisions
of an applicable international tax treaty. Pursuant to the U.S. Treaty, the rate
of Canadian withholding tax applicable in respect of dividends paid or credited
by our company to a NonResident Holder resident in the United States is
generally reduced to 15%, or 5% in the case of a corporate NonResident Holder
that owns beneficially 10% or more of the voting stock of our company. Moreover,
pursuant to Article XXI of the U.S. Treaty, an exemption from Canadian
withholding tax generally is available in respect of dividends received by
certain trusts, companies and other organizations whose income is exempt from
tax under the laws of the United States.

      DISPOSITION OF COMMON SHARES. A NonResident Holder will not be subject to
tax under the ITA in respect of a capital gain realized on the disposition of a
common share unless the common share constitutes or is deemed to constitute
"taxable Canadian property" (as defined in the ITA) and the capital gain is not
exempt from tax under the ITA pursuant to an applicable international tax
treaty. Shares of a Canadian corporation that are listed on a prescribed stock
exchange (which includes the National Association of Securities Dealers
Automated Quotation System) will generally not be considered to be taxable
Canadian property to a NonResident Holder, unless, at any time during the five
year period immediately preceding the disposition or deemed disposition of the
common share, the NonResident Holder, persons with whom the NonResident Holder
did not deal at arm's length or any combination thereof owned or had an option
to acquire not less than 25% of the issued shares of any class or series of
shares of our company.

      For the purposes of determining whether a property is a taxable Canadian
property, a person holding an option to acquire shares or other securities
convertible into or exchangeable for shares, or otherwise having an interest in
shares, will be considered to own the shares that could be acquired upon the
exercise of the option, the conversion or exchange rights or in which there is
such interest. The aforementioned rules can apply to any class of shares.

      A common share acquired by a NonResident holder on the conversion of a
Series A preferred share will be considered to be taxable Canadian property.


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<PAGE>

      A NonResident Holder whose common shares constitute or are deemed to
constitute taxable Canadian property and who would not be eligible for an
exemption from tax under the ITA in respect of any gains realized on the
disposition of such shares pursuant to an applicable international tax treaty is
referred to the discussion below under "Canadian Residents - DISPOSITION OF
COMMON SHARES" for information regarding the treatment of the disposition under
the ITA.

      Even if the common shares constitute or are deemed to constitute taxable
Canadian property to a NonResident Holder and their disposition would give rise
to a capital gain, an exemption from tax under the ITA may be available under
the terms of an applicable international tax treaty. A NonResident Holder
resident in the United States for purposes of the U.S. Treaty will generally be
exempt from tax under the ITA in respect of a gain on the disposition of common
shares provided that the value of the common shares is not derived principally
from real property situated in Canada. Paragraph 5 of Article XIII of the U.S.
Treaty provides that paragraph 4 of Article XIII, which normally provides such
an exemption for U.S. residents from Canadian tax on the disposition of property
such as shares, generally does not apply where the U.S. resident was a Canadian
resident for 120 months during any period of twenty consecutive years preceding
the time of the disposition of the property and the individual was resident in
Canada at any time during the ten years immediately preceding the disposition of
the property.

      As discussed below under "Canadian Residents - DISPOSITION OF COMMON
SHARES", a purchase of common shares by our company (other than a purchase of
common shares by our company on the open market in a manner in which shares
would normally be purchased by any member of the public in the open market) will
give rise to a deemed dividend under the ITA. Any such dividend deemed to have
been received by a NonResident Holder will be subject to non-resident
withholding tax as described above. The amount of any such deemed dividend will
reduce the proceeds of disposition of the common share to the NonResident Holder
for the purpose of computing the amount of the NonResident Holder's capital gain
or loss under the ITA.

CANADIAN RESIDENTS

      TAXATION OF DIVIDENDS. Dividends received on a common share held by a
Holder who at all relevant times, is a resident of Canada for purposes of the
ITA (a "Resident Holder"), will be required to be included in the Resident
Holder's income as computed under the ITA. Under Part I of the ITA, gross-up and
dividend tax credit rules normally applicable to taxable dividends received from
taxable Canadian corporations by individuals will apply to dividends received by
the a Resident Holder who is an individual. Dividends received by a Resident
Holder that is a corporation normally will be deductible in computing the
taxable income of the Resident Holder. Certain corporations may be liable to pay
a 331/3% refundable tax under Part IV of the ITA on such dividends.

      DISPOSITION OF COMMON SHARES. Upon the disposition or deemed disposition
of a common share, a Resident Holder will realize a capital gain (or a capital
loss) to the extent that the proceeds of disposition are greater than (or less
than) the aggregate of the adjusted cost base to the Resident Holder of the
common share and any reasonable costs of disposition.

      Pursuant to the Proposed Amendments, subject to certain transitional rules
which apply in certain circumstances, one-half of any capital gain, referred to
as a taxable capital gain, realized by a Resident Holder will be included in the
Resident Holder's income for the year of disposition and one-half of any capital
loss, referred to as an allowable capital loss, realized by a Resident Holder
may be deducted from the Resident Holder's taxable capital gains for the year of
disposition. Subject to the detailed rules in the ITA and the Proposed
Amendments, any excess of allowable capital losses over taxable capital gains of
the Resident Holder may be carried back up to three years and forward
indefinitely and deducted against net taxable capital gains in those other
years. Where capital losses net of capital gains realized in one taxation year
are applied to capital gains net of capital losses realized in another taxation
year for which there is a different inclusion rate, the amount of such net
capital losses will be adjusted to match the


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<PAGE>

inclusion rate applicable to such net capital gains. In certain cases, a capital
loss otherwise determined from the disposition of a common share may be reduced
by the amount of dividends previously received.

      A purchase of common shares by our company (other than a purchase of
common shares by our company on the open market in a manner in which shares
would normally be purchased by any member of the public in the open market) will
give rise to a deemed dividend (except to the extent that such dividend may be
regarded under the ITA as proceeds of disposition or a capital gain and not as a
dividend for Resident Holders that are corporations) under the ITA. The amount
of any such deemed dividend will reduce the proceeds of disposition of the
common shares to the Resident Holder for the purpose of computing the amount of
the Resident Holder's capital gain or loss under the ITA.

SERIES A PREFERRED SHARES

      TAXATION OF DIVIDENDS. A Series A Holder will be subject to Canadian
non-resident withholding tax on dividends paid or credited, or deemed to be paid
or credited, to the Series A Holder on the Series A preferred shares. The rate
of non-resident withholding tax under the ITA on dividends is 25% of the gross
amount of the dividend. Pursuant to the U.S. Treaty, the rate of Canadian
non-resident withholding tax applicable in respect of dividends paid or credited
to a Series A Holder is generally reduced to 15%, or 5% in the case of a
corporate Series A Holder that owns beneficially 10% or more of our voting
shares. Moreover, pursuant to Article XXI of the U.S. Treaty, an exemption from
Canadian non-resident withholding tax is generally available in respect of
dividends received by certain trusts, companies and other organizations whose
income is exempt from tax under the laws of the United States.

      Where our company pays or is deemed to pay a dividend on the Series A
preferred shares we will generally be subject to a tax under Part VI.1 of the
ITA equal to 25% of the amount of the dividend. We will generally be entitled to
deduct nine-fourths of the amount of such tax in computing our taxable income
for purposes of Part I of the ITA.

      REDEMPTION OF THE SERIES A PREFERRED SHARES. A redemption of a Series A
preferred share will give rise to a deemed dividend equal to the difference
between the amount we paid on the redemption of the Series A preferred share and
the paid-up capital of such share as determined in accordance with the ITA. The
paid-up capital of such share may be less than the Series A Holder's cost of
such share. The amount of any such deemed dividend will reduce the proceeds of
disposition to the Series A Holder for purposes of computing the amount of the
Series A Holder's capital gain (or capital loss) under the ITA. A redemption of
a Series A preferred share will be considered to be disposition under the ITA
and will give rise to a capital gain (or capital loss) to the extent that the
Series A Holder's proceeds of disposition (excluding any deemed dividend on
redemption) exceed the total of the Series A Holder's adjusted cost base of such
share and any reasonable costs of disposition. A redemption of a Series A
preferred share will trigger certain filing requirements under section 116 of
the ITA. For information regarding the treatment of the deemed dividend, see
TAXATION OF DIVIDENDS, above. For information regarding the treatment of the
capital gain or capital loss, see DISPOSITION OF SERIES A PREFERRED SHARES,
below.

      CONVERSION OF THE SERIES A PREFERRED SHARES. The conversion of a Series A
preferred share into common shares will be deemed by the ITA not to be a
disposition of the Series A preferred share and, accordingly, a Series A Holder
will not be considered to have realized a capital gain or capital loss on such
conversion. If, and to the extent that, a dividend is deemed to be paid or
credited on the conversion, such dividend will be subject to withholding tax,
see TAXATION OF DIVIDENDS, above. Although the matter is not free from doubt, no
dividend should be deemed to be paid or credited on the conversion.

      For purposes of the conversion, the cost of the common shares acquired on
conversion will be equal to the adjusted cost base of the Series A preferred
shares to the Series A Holder that have been converted. The adjusted cost base
to the Series A Holder of the common shares acquired on the conversion will be
determined by averaging the cost of the common shares acquired on the conversion


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with the adjusted cost base to the Series A Holder of all other common shares
held as capital property at that time by the Series A Holder.

      A common share acquired on a conversion will constitute taxable Canadian
property under the ITA. Therefore a Series A Holder that disposes of a common
share acquired on a conversion will be subject to tax under the ITA in respect
of a capital gain realized on the disposition, unless relief under an applicable
international tax treaty is available. For more information regarding the
treatment of the disposition under the ITA and the U.S. Treaty, see DISPOSITION
OF SERIES A PREFERRED SHARES, below.

      Under the current administrative practice of the CCRA, a Series A holder
who, upon conversion of a Series A preferred share, receives cash not in excess
of C$200 in lieu of a fraction of a common share may either treat this amount as
proceeds of disposition of a portion of the Series A preferred share or,
alternatively, reduce the adjusted cost base of the common share received on the
conversion by the amount of case received. In the event that the Series A Holder
chooses to recognize a disposition of a portion of the Series A preferred share,
a capital gain or loss may be realized. For information regarding the treatment
of the capital gain or capital loss, see DISPOSITION OF SERIES A PREFERRED
SHARES, below.

      DISPOSITION OF THE SERIES A PREFERRED SHARES. A Series A Holder will be
subject to tax under the ITA in respect of a capital gain realized on the
disposition of a share if the share constitutes or is deemed to constitute
"taxable Canadian property" (as defined in the ITA) and the disposition is not
exempt from tax under the ITA due to the application of the U.S. treaty.

      A Series A preferred share will constitute taxable Canadian property for
purposes of the ITA. However, a Series A Holder resident in the United States
for purposes of the U.S. Treaty will generally be exempt from Canadian tax in
respect of a gain on the disposition of a Series A preferred share provided that
the value of the Series A preferred share is not derived principally from real
property situated in Canada.

      Paragraph 5 of Article XIII of the U.S. Treaty provides that paragraph 4
of Article XIII, which normally provides such an exemption for U.S. residents
from Canadian tax on the disposition of property such as shares, generally does
not apply where the U.S. resident was a Canadian resident for 120 months during
any period of twenty consecutive years preceding the time of the disposition of
the property and the individual was resident in Canada at any time during the
ten years immediately preceding the disposition of the property.

      A disposition of a Series A preferred share will trigger certain filing
requirements under section 116 of the ITA, regardless of whether relief from
taxation under an applicable international tax treaty is available.

U.S. FEDERAL INCOME TAX CONSIDERATIONS

      The following summary describes material United States federal income tax
consequences arising from the purchase, ownership and sale of common shares.
This summary is based on the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), final, temporary and proposed United States Treasury
Regulations promulgated thereunder, and the administrative and judicial
interpretations thereof, all as in effect as of the date of this annual report
and all of which are subject to change, possibly on a retroactive basis. The
consequences to any particular investor may differ from those described below by
reason of that investor's particular circumstances. This summary does not
address the considerations that may be applicable to any particular taxpayer
based on such taxpayer's particular circumstances (including potential
application of the alternative minimum tax), to particular classes of taxpayers
(including financial institutions, broker-dealers, insurance companies,
taxpayers who have elected mark-to-market accounting, tax-exempt organizations,
taxpayers who hold ordinary shares as part of a straddle, "hedge" or "conversion
transaction" with other investments, investors who own (directly, indirectly or
through


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attribution) 10% or more of our company's outstanding voting stock, taxpayers
whose functional currency is not the U.S. dollar, persons who are not citizens
or residents of the United States, or persons which are foreign corporations,
foreign partnerships or foreign estates or trusts as to the United States) or
any aspect of state, local or non-United States tax laws. Additionally, the
discussion does not consider the tax treatment of persons who hold common shares
through a partnership or other pass-through entity or the possible application
of United States federal gift or estate tax. This summary is addressed only to a
holder of common shares who is (i) a citizen or resident of the United States
who owns less than 10% of our company's outstanding voting stock, (ii) a
corporation organized in the United States or under the laws of the United
States or any state thereof, (iii) an estate, the income of which is includable
in gross income for United States federal income tax purposes regardless of
source, or (iv) a trust, if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the trust (a
"U.S. Holder"). This summary is for general information purposes only and does
not purport to be a comprehensive description of all of the tax considerations
that may be relevant to a decision to purchase common shares. This summary
generally considers only U.S. Holders that will own their common shares as
capital assets.

      Each shareholder should consult with such shareholder's own tax advisor as
to the particular tax consequences to such shareholder of the purchase,
ownership and sale of their common shares including the effects of applicable
state, local, foreign or other tax laws and possible changes in the tax laws.

TREATMENT OF DIVIDEND DISTRIBUTIONS

      Subject to the discussion below under "Tax Status Of The Company - Passive
Foreign Investment Companies," a distribution by our company to a U.S. Holder in
respect of the common shares (including the amount of any Canadian taxes
withheld thereon) will generally be treated for United States federal income tax
purposes as a dividend to the extent of our company's current and accumulated
earnings and profits, as determined under United States federal income tax
principles. To the extent, if any, that the amount of any such distribution
exceeds our company's current and accumulated earnings and profits, as so
computed, it will first reduce the U.S. Holder's tax basis in the common shares
owned by him, and to the extent it exceeds such tax basis, it will be treated as
capital gain from the sale of common shares.

      While it is not anticipated that our company will pay dividends in the
foreseeable future, the gross amount of any distribution from our company
received by a U.S. Holder which is treated as a dividend for United States
federal income tax purposes (before reduction for any Canadian tax withheld at
source) will be included in such U.S. Holder's gross income, will be subject to
tax at the rates applicable to ordinary income and generally will not qualify
for the dividends received deduction applicable in certain cases to United
States corporations. For United States federal income tax purposes, the amount
of any dividend paid in Canadian dollars by our company to a U.S. Holder will
equal the U.S. dollar value of the amount of the dividend paid in Canadian
dollars, at the exchange rate in effect on the date of the distribution,
regardless of whether the Canadian dollars are actually converted into United
States dollars at that time. Canadian dollars received by a U.S. Holder will
have a tax basis equal to the U.S. dollar value thereof determined at the
exchange rate on the date of the distribution. Currency exchange gain or loss,
if any, recognized by a U.S. Holder on the conversion of Canadian dollars into
U.S. dollars will generally be treated as U.S. source ordinary income or loss to
such holder. U.S. Holders should consult their own tax advisors concerning the
treatment of foreign currency gain or loss, if any, on any Canadian dollars
received which are converted into dollars subsequent to distribution.

      A U.S. Holder generally will be entitled to deduct any Canadian taxes
withheld from dividends in computing United States taxable income, or to credit
such withheld taxes against the United States federal income tax imposed on such
U.S. Holder's dividend income. No deduction for Canadian taxes may be claimed,
however, by a noncorporate U.S. Holder that does not itemize deductions. The
amount of foreign taxes for which a U.S. Holder may claim a credit in any year
is subject to complex limitations and


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restrictions, which must be determined on an individual basis by each
shareholder. Distributions with respect to common shares that are taxable as
dividends will generally constitute foreign source income for purposes of the
foreign tax credit limitation. The limitation on foreign taxes eligible for
credit is calculated separately with respect to specific classes of income. For
this purpose, dividends distributed by our company with respect to the common
shares will generally constitute "passive income." Foreign income taxes
exceeding a shareholder's credit limitation for the year of payment or accrual
of such tax can be carried back for two taxable years and forward for five
taxable years, subject to the credit limitation applicable in each of such
years. Additionally, the foreign tax credit in any taxable year may not offset
more than 90% of a shareholder's liability for United States individual or
corporate alternative minimum tax. The total amount of allowable foreign tax
credits in any year generally cannot exceed regular U.S. tax liability for the
year attributable to foreign source taxable income. A U.S. Holder will be denied
a foreign tax credit with respect to Canadian income tax withheld from dividends
received on the common shares to the extent such U.S. Holder has not held the
ordinary shares for at least 16 days of the 30-day period beginning on the date
which is 15 days before the ex-dividend date or to the extent such U.S. Holder
is under an obligation to make certain related payments with respect to
substantially similar or related property. Any days during which a U.S. Holder
has substantially diminished its risk of loss on the common shares are not
counted toward meeting the 16 day holding period required by the statute.

SALE OR EXCHANGE OF A COMMON SHARE

      Subject to the discussion below under "Tax Status Of The Company - Passive
Foreign Investment Companies," the sale or exchange by a U.S. Holder of a common
share generally will result in the recognition of gain or loss by the U.S.
Holder in an amount equal to the difference between the amount realized and the
U.S. Holder's basis in the common share sold. Such gain or loss will be capital
gain or loss provided that the common share is a capital asset in the hands of
the holder. The gain or loss realized by a noncorporate U.S. Holder on the sale
or exchange of a common share will be long-term capital gain or loss subject to
tax at a maximum tax rate of 20% if the common share had been held for more than
one year. If the common share had been held by such noncorporate U.S. Holder for
not more than one year, such gain will be short-term capital gain subject to tax
at a maximum rate of 39.6%. Finally, gain realized by a noncorporate U.S. Holder
with respect to common shares acquired after December 31, 2000 and held for more
than five years, shall be taxed at a maximum rate of 18%. Gain realized by a
corporate U.S. Holder will be subject to tax at a maximum rate of 35%. Gains
recognized by a U.S. Holder on a sale, exchange or other disposition of common
shares generally will be treated as United States source income for United
States foreign tax credit purposes. A loss recognized by a U.S. Holder on the
sale, exchange or other disposition of common shares generally is allocated to
U.S. source income under recently finalized regulations. However, those
regulations require such loss to be allocated to foreign source income to the
extent certain dividends were received by the taxpayer within the 24-month
period preceding the date on which the taxpayer recognized the loss. The
deductibility of a capital loss recognized on the sale, exchange or other
disposition of common shares is subject to limitations. A U.S. Holder that
receives foreign currency upon disposition of common shares and subsequently
converts the foreign currency into U.S. dollars generally will have foreign
exchange gain r loss based on any appreciation or depreciation in the value of
the foreign currency against the U.S. dollar. U.S. Holders should consult their
own tax advisors regarding treatment of any foreign currency gain or loss on any
Canadian dollars received in respect of the sale, exchange or other disposition
of common shares.

TAX STATUS OF THE COMPANY

      PERSONAL HOLDING COMPANIES. A non-U.S. corporation may be classified as a
personal holding company (a "PHC") for United States federal income tax purposes
if both of the following two tests are satisfied: (i) if at any time during the
last half of the company's taxable year, five or fewer individuals (without
regard to their citizenship or residency) own or are deemed to own (under
certain attribution rules) more than 50% of the stock of the corporation by
value and (ii) 60% or more of such non-U.S.


                                       69
<PAGE>

corporation's gross income derived from U.S. sources or effectively connected
with a U.S. trade or business, as specifically adjusted, is from certain passive
sources such as dividends and royalty payments. Such a corporation generally is
taxed (currently at a rate of 39.6% of "undistributed personal holding company
income") on the amounts of such passive source income, after making adjustments
such as deducting dividends paid and income taxes, that are not distributed to
shareholders. We believe that our company was not a PHC in 2000 and is not
currently a PHC. However, no assurance can be given that either test will not be
satisfied in the future.

      FOREIGN PERSONAL HOLDING COMPANIES. A non-U.S. corporation will be
classified as a foreign personal holding company (an "FPHC") for United States
federal income tax purposes if both of the two following tests are satisfied:
(i) five or fewer individuals who are United States citizens or residents own or
are deemed to own (under certain attribution rules) more than 50% of all classes
of the corporation's stock measured by voting power or value and (ii) the
corporation receives at least 60% (50% if previously an FPHC) of its gross
income (regardless of source), as specifically adjusted, from certain passive
sources. If such a corporation is classified as a FPHC, a portion of its
"undistributed foreign personal holding company income" (as defined for United
States federal income tax purposes) would be imputed to all of its shareholders
who are U.S. Holders on the last taxable day of the corporation's taxable year,
or, if earlier, the last day on which it is classifiable as a FPHC. Such income
would be taxable as a dividend, even if no cash dividend is actually paid. U.S.
Holders who dispose of their shares prior to such date would not be subject to
tax under these rules. We believe that our company is not currently a FPHC.
However, no assurance can be given that our company will not qualify as a FPHC
in the future.

      PASSIVE FOREIGN INVESTMENT COMPANIES. A company will be a passive foreign
investment company ("PFIC") if 75% or more of its gross income (including the
pro rata share of the gross income of any company (United States or foreign) in
which the company is considered to own 25% or more of the shares (determined by
market value)) in a taxable year is passive income. Alternatively, the company
will be considered to be a PFIC if at least 50% of the value of the company's
assets (averaged over the year) (including the pro rata share of the value of
the assets of any company in which the company is considered to own 25% or more
of the shares (determined by market value)) in a taxable year are held for the
production of, or produce, passive income. For these purposes, the value of our
assets is calculated based on our market capitalization. Passive income
generally includes, among others, interest, dividends, royalties, rents and
annuities.

      If our company is a PFIC for any taxable year, a U.S. Holders, in the
absence of an election by such U.S. Holder to treat our company as a "qualified
electing fund" (a "QEF election"), as discussed below, would, upon certain
distributions by our company and upon disposition of the common shares at a
gain, be liable to pay tax at the highest tax rate on ordinary income in effect
for each period to which the income is allocated, plus interest on the tax, as
if the distribution or gain had been recognized ratably over the days in the
U.S. Holder's holding period for the common shares during which our company was
a PFIC. Additionally, were our company a PFIC, U.S. Holders who acquire ordinary
shares from decedents would be denied the normally available step-up of the
income tax basis for such common shares to fair market value at the date of
death and instead would have a tax basis equal to the decedent's basis, if
lower.

      If our company is treated as a PFIC for any taxable year, U.S. Holders
should consider whether to make a QEF Election for United States federal income
tax purposes. If a U.S. Holder has a QEF Election in effect for all taxable
years that such U.S. Holder has held the common shares and our company was a
PFIC, distributions and gain will not be recognized ratably over the U.S.
Holder's holding period or subject to an interest charge, gain on the sale of
common shares will be characterized as capital gain and the denial of basis
step-up at death described above would not apply. Instead, each such U.S. Holder
is required for each taxable year that our company is a qualified electing fund
to include in income a pro rata share of the ordinary earnings of our company as
ordinary income and a pro rata share of the net capital gain of our company as
long-term capital gain, subject to a separate election to defer payment of


                                       70
<PAGE>

taxes, which deferral is subject to an interest charge. Consequently, in order
to comply with the requirements of a QEF Election, a U.S. Holder must receive
from our company certain information. We intend to supply U.S. Holders with the
information needed to report income and gain pursuant to a QEF Election in the
event our company is classified as a PFIC. The QEF Election is made on a
shareholder-by-shareholder basis and can be revoked only with the consent of the
Internal Revenue Service (the "IRS"). A shareholder makes a QEF Election by
attaching a completed IRS Form 8621 (including the PFIC annual information
statement) to a timely filed United States federal income tax return and by
filing such form with the IRS Service Center in Philadelphia, Pennsylvania. Even
if a QEF Election is not made, a shareholder in a PFIC who is a U.S. Holder must
file a completed IRS Form 8621 every year.

      As an alternative to making a QEF Election, a U.S. Holder may elect to
make a mark-to-market election (the "Mark-to-Market Election") with respect to
the common shares owned by him. If the Mark-to-Market Election were made, then
the rules set forth above would not apply for periods covered by the election.
Under such election, a U.S. Holder includes in income each year an amount equal
to fair market value of the common shares owned by such U.S. Holder as of the
close of the taxable year over the U.S. Holder's adjusted basis in such shares.
The U.S. Holder would be entitled to a deduction for the excess, if any, of such
U.S. Holder's adjusted basis in his common shares over the fair market value of
such shares as of the close of the taxable year; provided however, that such
deduction would be limited to the extent of any net mark-to-market gains with
respect to the common shares included by the U.S. Holder under the election for
prior taxable years. The U.S. Holder's basis in his common shares is adjusted to
reflect the amounts included or deducted pursuant to this election. Amounts
included in income pursuant to the Mark-to-Market Election, as well as gain on
the sale or exchange of the common shares, will be treated as ordinary income.
Ordinary loss treatment applies to the deductible portion of any mark-to-market
loss, as well as to any loss realized on the actual sale or exchange of the
common shares to the extent that the amount of such loss does not exceed the net
mark-to-market gains previously included with respect to such common shares.

      The Mark-to-Market election applies to the tax year for which the election
is made and all later tax years, unless the common shares cease to be marketable
or the IRS consents to the revocation of the election.

      We do not believe our company was a PFIC during 2000. However, there can
be no assurance that our company will not be classified as a PFIC in 2001 or
thereafter because the tests for determining PFIC status are applied annually
and it is difficult to make accurate predictions of future income and assets,
which are relevant to this determination. U.S. Holders who hold common shares
during a period when our company is a PFIC will be subject to the foregoing
rules, even if our company ceases to be a PFIC, subject to certain exceptions
for U.S. Holders who made a QEF election. U.S. Holders are urged to consult with
their own tax advisors about making a QEF Election or Mark-to-Market Election
and other aspects of the PFIC rules.

BACK-UP WITHHOLDING AND INFORMATION REPORTING

      U.S. Holders generally are subject to information reporting requirements
with respect to dividends paid in the United States on common shares. Under
existing regulations, such dividends are not subject to back-up withholding.
U.S. Holders generally are subject to information reporting and back-up
withholding at a rate of 31% on proceeds paid from the disposition of common
shares unless the U.S. Holder provides IRS Form W-9 or otherwise establishes an
exemption.

      Treasury regulations generally effective January 1, 2001 may alter the
rules regarding information reporting and back-up withholding. In particular,
those regulations generally would impose back-up withholding on dividends paid
in the United States on common shares unless the U.S. Holder provides IRS Form
W-9 or otherwise establishes an exemption. Prospective investors should consult
their


                                       71
<PAGE>

tax advisors concerning the effect, if any, of these Treasury regulations on an
investment in common shares. The amount of any back-up withholding will be
allowed as a credit against a U.S. or Non-U.S. Holder's United States federal
income tax liability and may entitle such Holder to a refund, provided that
certain required information is furnished to the IRS.

DOCUMENTS ON DISPLAY

      We have filed this Annual Report on Form 20-F with the Securities and
Exchange Commission under the Securities Exchange Act of 1934. Statements made
in this annual report as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to this annual report,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.

      We are subject to the informational requirements of the Exchange Act and
file reports and other information with the Securities and Exchange Commission.
Reports and other information which we file with the Securities and Exchange
Commission, including this Annual Report on Form 20-F, may be inspected and
copied at the public reference facilities of the Securities and Exchange
Commission at:

<TABLE>
<S>                             <C>                          <C>
      450 Fifth Street N.W.     7 World Trade Center         500 West Madison Street
      Room 1024                 New York, New York 10048     Suite 1400
      Washington D.C.  20549                                 Chicago, Illinois 60661
</TABLE>


      You can also obtain copies of this material by mail from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Additionally, copies of this
material may also be obtained from the Securities and Exchange Commission's
Internet site at http://www.sec.gov. The Commission's telephone number is
1-800-SEC-0330.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      INTEREST RATE RISK. The primary objective of our investment activities is
to preserve principal while at the same time maximizing the income we receive
from our investments without significantly increasing risk. Some of the
securities that we invest in may have market risk. This means that a change in
prevailing interest rates may cause the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the principal amount of our investment will probably decline. We
currently maintain an investment portfolio primarily of United States Treasury
obligations. The average duration of all of our investments in 2000 was less
than one year. Due to the short-term nature of these investments, we believe we
have no material exposure to interest rate risk arising from our investments.
Therefore, no quantitative tabular disclosure is required.

      FOREIGN CURRENCY RATE FLUCTUATIONS. Our financial statements are prepared
in U.S. dollars and much of our business is conducted in U.S. dollars. However,
we incur expenses in Canadian dollars and in other foreign currencies. We also
sell products to customers in foreign countries and bill those customers in
local currencies at predetermined exchange rates. As our business expands, we
anticipate that we will increasingly incur expenses and bill and receive
payments in local currencies at prevailing exchange rates. As a result, we may
suffer losses due to fluctuations in the exchange rates between the U.S. dollar
and the Canadian dollar and the U.S. dollar and the currencies of other
countries. We currently engage in limited foreign exchange hedging activities by
sometimes purchasing Canadian funds before they are actually required to protect
ourselves against the risk of losses due to fluctuations in exchange rates. We
do not currently engage in hedging activities for any other foreign currencies.


                                       72
<PAGE>

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

      Not Applicable.

                                     PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

      None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS.

      There were no material modifications effecting the rights of securities
holders made during the fiscal year ended December 31, 2000.

                                    PART III

ITEM 17. FINANCIAL STATEMENTS.

      Not applicable.

ITEM 18. FINANCIAL STATEMENTS.

      See the Index to Consolidated Financial Statements accompanying this
report on page F-1.

ITEM 19. EXHIBITS.

  3.1    Certificate and Restated Articles of Incorporation of the Company.(1)

  3.2    Certificate and Articles of Amendment of the Company.(2)

  3.3    Amended and Restated Bylaws of the Company.(3)

  4.1    Specimen of Certificate for Common Shares.(4)

  4.2    Certificate of Designations, Number, Voting Powers, Preference and
         Rights of Series A Convertible Preferred Shares of Visible Genetics
         Inc.(5)

 10.1    Visible Genetics Inc. Employee Pool Stock Option Plan.(6)

 10.2    Visible Genetics Inc. 1997 Director Option Plan.(7)

 10.3    Visible Genetics Inc. Employee Share Option Plan, Amended through May
         19, 1999.(8)

 10.4    Visible Genetics Inc. Employee Share Ownership Plan.(9)

 10.5    Visible Genetics Inc. 2000 Employee Share Option Plan.(10)

 10.6    PCR Diagnostic License Agreement, dated August 18, 1997, by and between
         Roche Molecular Systems, Inc., F. Hoffmann-La Roche Ltd. and Visible
         Genetics Inc. (THIS AGREEMENT IS FILED IN REDACTED FORM BASED UPON A
         GRANT OF CONFIDENTIAL TREATMENT BY THE SEC.)(11)


                                       73
<PAGE>

 10.7    Securities Purchase Agreement, dated as of July 15, 1999, by and among
         Visible Genetics Inc., Warburg, Pincus Equity Partners, L.P., Warburg,
         Pincus Ventures International, L.P., Warburg, Pincus Netherlands Equity
         Partners I, C.V., Warburg, Pincus Netherlands Equity Partners II, C.V.
         and Warburg, Pincus Netherlands Equity Partners III, C.V.(12)

 10.8    Registration Rights Agreement, dated as of July 15, 1999, by and among
         Visible Genetics Inc. and the Investors listed on Schedule I
         thereto.(13)

 10.9    Common Shares Purchase Agreement, dated December 14, 1999, by and among
         Visible Genetics Inc. and the Investors who are signatories hereto.(14)

 10.10   Registration Rights Agreement, dated as December 14, 1999, by and among
         Visible Genetics Inc. and each of the Investors to that certain Common
         Shares Purchase Agreement.(15)

 10.11   Lease between Visible Genetics Corp. and Duke-Weeks Realty Limited
         Partnership, dated December 22, 1999.(16)

 10.12   Lease between Visible Genetics Inc. and LuCliff Company Limited, dated
         March 31, 1992.(17)

 10.13   Lease between Visible Genetics Inc. and Royal Trust Corporation of
         Canada, as trustee and RT Pensior Properties Limited dated June 1,
         1996.(18)

 10.14   Lease between Visible Genetics Inc. and Comwest Properties Limited
         dated July 20, 1998.(19)

 10.15   Lease between Visible Genetics Corp. and the University of Pittsburgh
         of the Commonwealth System of Higher Education dated Dec 1, 1996.(20)

 10.16   Master Agreement, dated as of February 22, 1996 and executed on April
         1, 1996, between Amersham International plc., Amersham Canada Limited
         and the Company. (THIS AGREEMENT IS FILED IN REDACTED FORM BASED UPON A
         GRANT OF CONFIDENTIAL TREATMENT BY THE SEC.)(21)

 10.17   Amersham Supply Agreement, dated as of February 22, 1996 and executed
         on April 1, 1996, between Amersham International plc, Amersham Canada
         Limited and the Company. (THIS AGREEMENT IS FILED IN REDACTED FORM
         BASED UPON A GRANT OF CONFIDENTIAL TREATMENT BY THE SEC.)(22)

 10.18   VGI Supply Agreement, dated as of February 22, 1996 and executed on
         April 1, 1996 between Amersham International plc, Amersham Canada
         Limited and the Company. (THIS AGREEMENT IS FILED IN REDACTED FORM
         BASED UPON A GRANT OF CONFIDENTIAL TREATMENT BY THE SEC.)(23)

 10.19   Amendment No. 1 to Guarantee, dated as of April 30, 1999 to the
         Guarantee dated as of April 30, 1998, by and among Visible Genetics
         Inc., Hilal Capital, L.P., Hilal Capital QP, LP, Hilal Capital
         International, Ltd., Highbridge International LLC, C.J. Partners L.P.
         and Hilal Capital Management LLC, as adviser for Leo Holdings, Inc.(24)

 10.20   Amendment No. 2 to Term Loan Agreement, dated as of April 30, 1999, to
         the Term Loan Agreement, dated as of April 30, 1999 as amended by
         Amendment No. 1 to the Term Loan Agreement dated as of September 29,
         1998, by and among Visible Genetics Corp., Hilal Capital, L.P., Hilal
         Capital QP, LP, Hilal Capital International, Ltd., Highbridge
         International LLC, C.J. Partners L.P. and Hilal Capital Management LLC,
         as adviser for Leo Holdings, Inc.(25)

 10.21   Letter Agreement between Visible Genetics Inc. and Hilal Capital
         Management dated July 15, 1999.(26)


                                       74
<PAGE>

 10.22   Underwriting Agreement, dated March 30, 2000, by and among, FleetBoston
         Robertson Stephens Inc., PaineWebber Incorporated, Warburg Dillon Read
         LLC, Roth Capital Partners, Inc., as representatives of the several
         underwriters, and Visible Genetics Inc.(27)

 10.23   Licensing and Collaboration Agreement, dated April 25, 2000, by and
         among Visible Genetics and Applera Corporation, Applied Biosytems Group
         (formerly PE Biosystems). (This Agreement is filed in redacted form
         as it is subject to a request for confidentiality submitted to
         the SEC).

 10.24   Lease, dated March 27, 2000, by and between Visible Genetics Inc., as
         Tenant and LuCliff Company Limited, as Landlord.

 10.25   Lease, dated November 30, 2000, by and between Visible Genetics Inc.,
         as Tenant and LuCliff Company Limited, as Landlord.

 10.26   Lease, dated October 1, 2000, by and between Visible Genetics Inc., as
         Tenant and LuCliff Company Limited, as Landlord.

 10.27   Employment Agreement, dated July 7, 1999, by and among Visible Genetics
         Corporation, Visible Genetics Inc. and Richard Daly.

----------
(1)    Incorporated by reference from Exhibit 3.1 to Amendment No. 1 to the
       Company's Registration Statement on Form F-1, File No. 333-3118 filed
       with the Securities and Exchange Commission on May 16, 1996

(2)    Incorporated  by  reference  from  Exhibit 3.2  to the  Company's  Annual
       Report on  Form 20-F,  File No.  0-28550  filed with the  Securities  and
       Exchange Commission on March 13, 2000.

(3)    Incorporated by reference from Exhibit 3.2 to Amendment No. 1 to the
       Company's Registration Statement on Form F-1, File No. 333-3118 filed
       with the Securities and Exchange Commission on May 16, 1996

(4)    Incorporated by reference from Exhibit 4.1 to Amendment No. 1 to the
       Company's Registration Statement on Form F-1, File No. 333-3118 filed
       with the Securities and Exchange Commission on May 16, 1996.

(5)    Incorporated by reference from Exhibit 4.2 to the Company's Registration
       Statement on Form F-3, File No.333-91155 filed with the Securities and
       Exchange Commission on November 17, 1999

(6)    Incorporated by reference from Exhibit 4.4 to the Company's Registration
       Statement on Form S-8, File No. 333-06454 filed with the Securities and
       Exchange Commission on February 18, 1997.

(7)    Incorporated by reference from Exhibit 2.1 to the Company's Annual Report
       on Form 20-F, File No. 0-28550 filed with the Securities and Exchange
       Commission on April 28, 1997.

(8)    Incorporated by reference from Exhibit 10.3 to the Company's Annual
       Report on Form 20-F, File No. 0-28550 filed with the Securities and
       Exchange Commission on March 13, 2000.

(9)    Incorporated by reference from Exhibit 2.2 to the Company's Annual Report
       on Form 20-F, File No. 0-28550 filed with the Securities and Exchange
       Commission on April 28, 1997.

(10)   Incorporated by reference from Exhibit B to the Company's Report on Form
       6-K, Filing No. 2 for the Month of April 2000, dated April 19, 2000.

(11)   Incorporated by reference from Exhibit 3.11 to the Company's Annual
       Report on Form 20-F, File No. 0-28550 filed with the Securities and
       Exchange Commission on July 19, 1999.


                                       75
<PAGE>

(12)   Incorporated by reference from Exhibit 10.10 to the Company's Annual
       Report on Form 20-F, File No. 0-28550 filed with the Securities and
       Exchange Commission on March 13, 2000.

(13)   Incorporated by reference from Exhibit 10.11 to the Company's Annual
       Report on Form 20-F, File No. 0-28550 filed with the Securities and
       Exchange Commission on March 13, 2000.

(14)   Incorporated by reference from Exhibit 10.12 to the Company's Annual
       Report on Form 20-F, File No. 0-28550 filed with the Securities and
       Exchange Commission on March 13, 2000.

(15)   Incorporated by reference from Exhibit 10.13 to the Company's Annual
       Report on Form 20-F, File No. 0-28550 filed with the Securities and
       Exchange Commission on March 13, 2000.

(16)   Incorporated by reference from Exhibit 10.14 to the Company's Annual
       Report on Form 20-F, File No. 0-28550 filed with the Securities and
       Exchange Commission on March 13, 2000.

(17)   Incorporated by reference from Exhibit 10.15 to the Company's Annual
       Report on Form 20-F, File No. 0-28550 filed with the Securities and
       Exchange Commission on March 13, 2000.

(18)   Incorporated by reference from Exhibit 10.16 to the Company's Annual
       Report on Form 20-F, File No. 0-28550 filed with the Securities and
       Exchange Commission on March 13, 2000.

(19)   Incorporated by reference from Exhibit 10.17 to the Company's Annual
       Report on Form 20-F, File No. 0-28550 filed with the Securities and
       Exchange Commission on March 13, 2000.

(20)   Incorporated by reference from Exhibit 10.18 to the Company's Annual
       Report on Form 20-F, File No. 0-28550 filed with the Securities and
       Exchange Commission on March 13, 2000.

(21)   Incorporated by reference from Exhibit 10.8 to Amendment No. 1 to the
       Company's Registration Statement on Form F-1, File No. 333-3118 filed
       with the Securities and Exchange Commission on May 16, 1996.

(22)   Incorporated by reference from Exhibit 10.9 to Amendment No. 1 to the
       Company's Registration Statement on Form F-1, File No. 333-3118 filed
       with the Securities and Exchange Commission on May 16, 1996.

(23)   Incorporated by reference from Exhibit 10.10 to Amendment No. 1 to the
       Company's Registration Statement on Form F-1, File No. 333-3118 filed
       with the Securities and Exchange Commission on May 16, 1996.

(24)   Incorporated by reference from Exhibit 10.22 to the Company's Annual
       Report on Form 20-F, File No. 0-28550 filed with the Securities and
       Exchange Commission on March 13, 2000.

(25)   Incorporated by reference from Exhibit 10.23 to the Company's Annual
       Report on Form 20-F, File No. 0-28550 filed with the Securities and
       Exchange Commission on March 13, 2000.

(26)   Incorporated by reference from Exhibit 10.24 to the Company's Annual
       Report on Form 20-F, File No. 0-28550 filed with the Securities and
       Exchange Commission on March 13, 2000.

(27)   Incorporated by reference from Exhibit 1.1 to Amendment No. 1 to the
       Company's Registration Statement on Form F-3, File No. 333-32258 filed
       with the Securities and Exchange Commission on March 29, 2000.


                                       76

<PAGE>


                                   SIGNATURES


      The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused and authorized the undersigned to sign
this annual report its behalf.

                                     VISIBLE GENETICS INC.



                                       By: /s/ Richard T. Daly
                                          --------------------------------------
                                          Richard T. Daly
                                          President and Chief Executive Officer


  Date: March 20, 2001


                                       77
<PAGE>

                              VISIBLE GENETICS INC.
                        CONSOLIDATED FINANCIAL STATEMENTS

                     INDEX CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                                                        PAGE

<S>                                                                                                     <C>
Audited Consolidated Financial Statements for the years ended December 31, 2000, 1999 and 1998
Independent Auditors' Report..........................................................................   F-2
Consolidated Balance Sheets as at December 31, 2000 and 1999..........................................   F-3
Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998............   F-4
Consolidated Statements of Deficit for the years ended December 31, 2000, 1999 and 1998...............   F-5
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2000, 1999 and 1998....   F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998............   F-6
Notes to Consolidated Financial Statements............................................................   F-7
</TABLE>


                                      F-1
<PAGE>


                     VISIBLE GENETICS INC. AND SUBSIDIARIES



                          INDEPENDENT AUDITORS' REPORT

TO THE SHAREHOLDERS OF VISIBLE GENETICS INC.

     We have audited the consolidated balance sheets of Visible Genetics Inc. as
at December 31, 2000 and 1999 and the consolidated statements of operations,
deficit, comprehensive loss, and cash flows for the years ended December 31,
2000, 1999 and 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America and Canada. Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.

     In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2000 and 1999
and the results of its operations and its cash flows for the years ended
December 31, 2000, 1999 and 1998 in accordance with generally accepted
accounting principles in the United States of America.

/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Canada
February 16, 2001


                                      F-2

<PAGE>

                     VISIBLE GENETICS INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                             DECEMBER 31

ASSETS                                                                 2000                  1999
                                                                       ----                  ----
<S>                                                                <C>              <C>
Current assets
       Cash and cash equivalents ...............................   $  18,476,303    $   2,792,985
       Short-term investments ..................................      61,922,687       39,894,978
       Trade receivables (net of allowance for doubtful accounts
            of $1,311,530; 1999 - $1,180,801) ..................       3,214,934        5,657,822
       Other receivables (Note 4) ..............................         884,995          668,748
       Prepaid and deposits ....................................         452,124          436,903
       Inventory (Note 5) ......................................       2,268,877        2,600,007
                                                                   -------------    -------------

Total current assets ...........................................      87,219,920       52,051,443
                                                                   -------------    -------------

Fixed assets (Note 6) ..........................................      10,292,282        4,173,335
Patents and licenses (Note 7) ..................................      12,182,112        2,122,367
Other long term assets .........................................         661,591          292,404
                                                                   -------------    -------------

                                                                   $ 110,355,905    $  58,639,549
                                                                   =============    =============
LIABILITIES

Current liabilities
       Accounts payable ........................................   $   3,847,364    $   3,110,442
       Accrued liabilities (Note 8) ............................       5,265,864        3,622,110
                                                                   -------------    -------------
Total current liabilities ......................................       9,113,228        6,732,552
                                                                   -------------    -------------


MANDATORILY REDEEMABLE CONVERTIBLE
     PREFERRED STOCK  (Note 9) .................................      24,397,398       27,555,652
                                                                   -------------    -------------

SHAREHOLDERS' EQUITY

Share capital (Note 10) ........................................     169,717,379       75,422,070
Other equity (Note 10) .........................................        (646,363)       8,987,328
Cumulative translation adjustment ..............................      (1,013,459)        (619,911)
Deficit ........................................................     (91,212,278)     (59,438,142)
                                                                   -------------    -------------
                                                                      76,845,279       24,351,345
                                                                   -------------    -------------
                                                                   $ 110,355,905    $  58,639,549
                                                                   =============    =============
</TABLE>


COMMITMENTS AND CONTINGENCIES (Note 15)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                      F-3
<PAGE>

                     VISIBLE GENETICS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

                                                                    YEARS ENDED DECEMBER 31
                                                        --------------------------------------------
                                                            2000            1999            1998
                                                            ----            ----            ----
<S>                                                     <C>             <C>             <C>
Sales
  Products ..........................................   $ 12,659,783    $ 12,455,775    $  9,421,933
  Services ..........................................        412,780       1,171,145       1,453,415
                                                        ------------    ------------    ------------
                                                          13,072,563      13,626,920      10,875,348
                                                        ------------    ------------    ------------

Costs of sales
  Products ..........................................      9,815,741       8,593,774       5,995,869
  Services ..........................................        317,748         679,112         677,712
                                                        ------------    ------------    ------------
                                                          10,133,489       9,272,886       6,673,581
                                                        ------------    ------------    ------------

Gross margin ........................................      2,939,074       4,354,034       4,201,767
                                                        ------------    ------------    ------------

Expenses:
      Sales, general and administrative (Note 7) ....     28,570,747      19,073,546      11,515,757
      Research and development ......................     10,606,516       7,935,327       6,289,032
      Acquired research and development (Note 11) ...           --              --           420,043
      Exit and termination costs (Note 12) ..........           --         1,329,083            --
                                                        ------------    ------------    ------------
                                                          39,177,263      28,337,956      18,224,832
                                                        ------------    ------------    ------------

Loss from operations before interest ................    (36,238,189)    (23,983,922)    (14,023,065)
Interest income .....................................      4,480,589         694,549         264,195
Interest and financing expense ......................        (16,536)     (1,997,512)     (1,132,091)
                                                        ------------    ------------    ------------
Net loss for the year ...............................    (31,774,136)    (25,286,885)    (14,890,961)

Cumulative preferred dividends and
      accretion of discount attributable to preferred
      stock (Note 9) ................................     (3,656,355)     (1,770,069)           --
                                                        ------------    ------------    ------------

Net loss attributable to common shareholders ........   $(35,430,491)   $(27,056,954)   $(14,890,961)
                                                        ============    ============    ============

Weighted average number of common shares outstanding      14,612,172       9,916,954       7,782,094

Basic and diluted loss per common share .............   $      (2.42)   $      (2.73)   $      (1.91)
</TABLE>


   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                      F-4
<PAGE>

                     VISIBLE GENETICS INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF DEFICIT

<TABLE>
<CAPTION>

                                                                YEARS ENDED DECEMBER 31
                                                     ---------------------------------------------
                                                         2000             1999            1998
                                                         ----             ----            ----
<S>                                                  <C>             <C>             <C>
Deficit, beginning of year .......................   $(59,438,142)   $(34,151,257)   $(19,260,296)
Net loss for the year ............................    (31,774,136)    (25,286,885)    (14,890,961)
                                                     ------------    ------------    ------------
Deficit, end of year .............................   $(91,212,278)   $(59,438,142)   $(34,151,257)
                                                     ============    ============    ============

<CAPTION>

                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


                                                                YEARS ENDED DECEMBER 31
                                                     ---------------------------------------------
                                                         2000             1999            1998
                                                         ----             ----            ----
<S>                                                  <C>             <C>             <C>
Net loss for the year ............................   $(31,774,136)   $(25,286,885)   $(14,890,961)
Other comprehensive income:
      Foreign currency translation adjustments ...       (393,548)       (704,733)        112,477
                                                     ------------    ------------    ------------
Comprehensive loss for the year ..................   $(32,167,684)   $(25,991,618)   $(14,778,484)
                                                     ============    ============    ============
</TABLE>


   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                      F-5
<PAGE>

                     VISIBLE GENETICS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                    YEARS ENDED DECEMBER 31
                                                                      ------------------------------------------------
                                                                           2000              1999            1998
                                                                           ----              ----            ----
<S>                                                                   <C>              <C>              <C>
Cash provided by (used in ) operating activities
       Net loss for the year ......................................   $ (31,774,136)   $ (25,286,885)   $ (14,890,961)
       Add: Items not involving cash -
             Depreciation .........................................       3,078,551        1,722,886        1,090,086
             Amortization .........................................       2,211,253          393,979          206,640
             Patents and licenses written off .....................         142,165          451,085             --
             Deferred compensation cost related to options granted             --               --             77,469
             Non cash financing expense related to warrants granted            --          1,466,691          580,981
             Amortization of discount on accounts receivable ......            --            (48,158)            --
             Foreign exchange .....................................        (163,252)          26,789           28,453
             In-process research and development acquired .........            --               --            420,043
       Increase (decrease) from changes in -
             Trade receivables ....................................       2,436,001       (1,804,006)      (2,327,121)
             Other receivables ....................................        (267,177)         719,519         (850,270)
             Prepaids and deposits ................................         (19,863)        (209,338)          28,913
             Inventory ............................................         219,221        1,290,997       (3,149,740)
             Other long term assets ...............................        (369,187)        (292,404)            --
             Accounts payable .....................................         789,233         (734,230)       2,490,594
             Accrued liabilities ..................................       1,783,467        1,956,660        1,159,952
                                                                      -------------    -------------    -------------
                                                                        (21,933,724)     (20,346,415)     (15,134,961)
                                                                      -------------    -------------    -------------
Investing activities
       Purchase of fixed assets ...................................      (9,269,045)      (1,919,092)      (3,348,261)
       Licenses and patents acquired ..............................     (12,413,163)        (698,261)        (877,796)
       Purchase of short-term investments .........................    (356,812,514)     (50,503,643)     (13,705,737)
       Redemption of short-term investments .......................     334,784,805       15,716,919       14,616,777
       Acquisition of ACT Gene S.A ................................            --               --           (536,929)
                                                                      -------------    -------------    -------------
                                                                        (43,709,917)     (37,404,077)      (3,851,946)
                                                                      -------------    -------------    -------------
Financing activities
       Preferred stock issued, net of expenses ....................            --         22,719,748             --
       Warrants issued in connection with preferred stock .........            --          6,397,448             --
       Common shares issued, net of expenses ......................      81,109,816       29,009,385       14,640,188
       Warrants issued in connection with private placement .......            --               --            444,572
       Issuance of notes payable ..................................            --               --          6,817,559
       Warrants issued in connection with notes payable ...........            --               --          1,182,441
       Repayment of notes payable .................................            --         (4,100,000)            --
       Other equity ...............................................            --             29,851            8,259
       Repayment of loan from an officer ..........................            --            323,405             --
                                                                      -------------    -------------    -------------
                                                                         81,109,816       54,379,837       23,093,019
                                                                      -------------    -------------    -------------

Effect of exchange rate fluctuations on cash balances .............         217,143           (2,284)         193,133
                                                                      -------------    -------------    -------------

Increase (decrease) in cash during the year .......................      15,683,318       (3,372,939)       4,299,245
       Cash beginning of year .....................................       2,792,985        6,165,924        1,866,679
                                                                      -------------    -------------    -------------
       Cash, end of year ..........................................   $  18,476,303    $   2,792,985    $   6,165,924
                                                                      =============    =============    =============

Supplemental information
       Interest paid ..............................................   $      16,536    $     786,585    $      48,073
       Income taxes paid ..........................................   $        --      $        --      $        --
</TABLE>


   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                      F-6
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - NATURE OF OPERATIONS

     Visible Genetics Inc. (the "Company") develops, manufactures and sells
integrated DNA sequencing systems and genotyping kits that analyze genetic
information. Such systems and genotyping kits are designed to identify mutations
in the DNA of genes associated with certain diseases. The Company's products are
intended for research and clinical diagnostic purposes. Prior to marketing any
products for use in the clinical diagnostic market, the Company will require
appropriate regulatory approval. In September 2000, the Company filed an
application with the United States Food and Drug Administration ("FDA") to
market our TRUGENE(TM) HIV-I genotyping kit and OpenGene(TM) system. Such
application is currently under review by the FDA.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     These financial statements have been prepared in United States dollars, in
accordance with the accounting principles generally accepted in the United
States. The principal accounting policies of the Company, which have been
consistently applied, are summarized as follows:

PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements of the Company include
the following wholly owned subsidiaries: Visible Genetics Corp., Visible
Genetics B.V., Applied Sciences, Inc., Gene Foundry Inc., Visible Genetics
Europe S.A., Visible Genetics Israel Ltd, Visible Genetics Iberia SL, Visible
Genetics UK Ltd. and Visible Genetics Srl. All intercompany accounts and
transactions have been eliminated upon consolidation.

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

REVENUE RECOGNITION AND WARRANTY

     Revenue from the sale of the Company's products is recognized when evidence
of an arrangement exists, shipment occurs and title passes to the customer or
distributor, sales price is fixed or determinable and there is reasonable
assurance of collectibility. There are no significant customer acceptance
requirements or post shipment obligations on the part of the Company. Revenue
from the sale of services is recognized when evidence of an arrangement exists,
the services are provided, sales price is fixed or determinable and there is
reasonable assurance of collectibility. A provision is made for estimated
warranty costs at the time of the sale. Revenue from extended warranty contracts
is recognized over the life of the contract. Sales of bundled sequencing systems
and testing kits are recognized pro rata as the components of the bundle are
shipped to customers.

                                      F-7
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

     As required under Statement of Financial Accounting Standards (SFAS) No.
95, cash equivalents consist of short-term investments that are highly liquid,
are readily convertible to cash and have initial terms to maturity of three
months or less. Short-term investments consist of United States treasury bills
and corporate debt securities. They are classified as held-to-maturity and are
recorded at amortized cost. Contractual maturities of short-term investments at
December 31, 2000 and December 31, 1999 range from one to six months.

FINANCIAL INSTRUMENTS

     The carrying values of the Company's financial instruments consisting of
cash and cash equivalents, short-term investments, trade and other receivables,
accounts payable, and notes payable, approximate their fair values due to their
short-term nature.

CONCENTRATION OF CREDIT RISK

     The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and cash equivalents, short-term
investments and receivables. The Company maintains its accounts for cash and
cash equivalents and short-term investments with the United States treasury and
a number of large low-credit-risk financial institutions and corporations in
Canada and the United States in order to reduce its exposure. In addition, the
Company limits its maximum investment to any one counterparty to limit its
credit exposure. At December 31, 2000 and December 31, 1999 no customers
accounted for greater than 10% of gross trade receivables.

INVENTORY

     Inventory is stated at the lower of cost and estimated realizable value.
Cost is determined by the first-in first-out method, and includes material,
labor, and an allocation of overhead.

FIXED ASSETS

     Fixed assets are recorded at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, as follows:

       Laboratory and computer equipment                2 to 5 years
       Equipment on loan to customers                   2 years
       Leasehold improvements                           term of the lease

PATENTS AND LICENSES

     External costs of patents and licenses are recorded at cost and amortized
over their estimated useful lives, which are generally up to ten years. If the
carrying amount of a patent or license is no longer recoverable, the related
unamortized cost is written down to fair value.

                                      F-8
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


IMPAIRMENT OF LONG-LIVED ASSETS

     In accordance with the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
the Company reviews long-lived assets, including fixed assets, patents and
licenses, for impairment whenever events or changes in business circumstances
indicate that the carrying amount of the asset may not be fully recoverable.
Under SFAS No. 121, an impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposition are less than its carrying amount. Impairment, if any,
is measured using discounted cash flows.

FOREIGN CURRENCY TRANSLATION

     Monetary assets and liabilities denominated in foreign currencies are
translated into United States dollars at the exchange rate prevailing at the
balance sheet date. Other assets, liabilities and operating items are translated
at exchange rates prevailing at the respective transaction dates. Resulting
translation adjustments are included in the consolidated statement of
operations. Assets and liabilities of subsidiaries with functional currencies
other than United States dollars are translated at the exchange rate prevailing
at the balance sheet date, and the results of their operations are translated at
average exchange rates for the year. The resulting translation adjustments are
reflected in a separate component of shareholders' equity. Other exchange gains
or losses are included in the consolidated statement of operations.

INCOME TAXES

     The Company provides for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which prescribes an asset and liability approach
that results in the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
consolidated financial statements or tax returns.

RESEARCH AND DEVELOPMENT EXPENSES

     Research and development costs are expensed in the period incurred. The
Company is entitled to certain Canadian federal and provincial tax incentives
for qualified research and development. They are accounted for as a reduction of
the related expenditure for current expenses and a reduction of the related
asset for capital assets when it is more likely than not that the credit will be
realized. The Company is entitled to Canadian federal investment tax credits at
a rate of 20% on eligible current and capital expenditures, claimable against
income taxes otherwise payable.

ADVERTISING COSTS

     The Company expenses the cost of advertising as incurred. The Company
incurred advertising costs of approximately $811,000, $560,000 and $271,000 for
2000, 1999 and 1998, respectively.

STOCK OPTIONS

     The Company follows SFAS No. 123, "Accounting for Stock-Based Compensation"
which permits the use of APB No. 25, "Accounting for Stock Issued to Employees"
to account for stock options issued to employees and directors. Under that
method, the Company uses the intrinsic value method to measure the cost
associated with the granting of stock options to employees and directors. The
amount by which the market price of the underlying shares exceeds the exercise
price of the options at the date of grant, if any, is accounted for as
compensation expense over the periods in which services are rendered.

                                      F-9
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Options issued to consultants are recorded at their fair market value at the
date of the grant. This amount is charged to operations over the periods in
which services are rendered.

EARNINGS (LOSS) PER SHARE

     The Company follows SFAS No. 128 "Earnings Per Share" to calculate basic
and diluted earnings (loss) per share. Basic earnings (loss) per share is
calculated using the weighted average number of common shares outstanding during
the year. Diluted earnings (loss) per share is calculated using the weighted
average number of common and potential common shares outstanding during the
year. Potential common shares consist of the incremental common shares issuable
upon conversion of outstanding convertible preferred stock (using the if
converted method) and shares issuable upon the exercise of stock options and
warrants (using the treasury stock method). Potential common shares are excluded
from the calculation if their effect is anti-dilutive, as was the case for the
years ended December 31, 2000, 1999 and 1998.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     The Company follows SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities and is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000. The
Company does not hold derivative instruments or participate in hedging
activities, therefore SFAS No. 133 does not have a significant impact on its
financial position or results of operations.

NOTE 3 - COLLABORATIVE AND DISTRIBUTION AGREEMENTS

COLLABORATIVE AGREEMENTS

     The Company has agreements with several parties for the use of certain
intellectual property in the manufacture of the Company's products, the most
significant of which are as follows:

     Certain technology used in the manufacture of the DNA sequencing
instruments and reagents is licensed from Applera Corporation, Applied Biosytems
Group (formerly PE Biosystems) (see Note 7). The Polymerase Chain Reaction (PCR)
is used in most of the kits made by the Company and is produced and sold under
license from Roche Molecular Systems, Inc. and F. Hoffmann-La Roche, Ltd. The
reverse transcriptase enzyme used in the TRUGENE(TM) HIV-1 genotyping kit is
Superscript II TM licensed from Invitrogen Corporation (formerly Life
Technologies, Inc.). A portion of the method of CLIP(TM) sequencing which is
used in most of the kits made by the Company is licensed from Genaissance
Pharmaceuticals, Inc. UDG (uracil-DNA-glycosylase) is a method of incorporating
deoxyuracil into a PCR product, to control PCR carry-over contamination. At
present, none of the Company's products incorporate this technology, however, it
is possible that future kits may do so. This method is licensed from Invitrogen
Corporation (formerly Life Technologies, Inc.).

     Under these agreements, the Company is required to make certain up-front
payments and certain royalty payments on specified product sales ranging from
0.5% to 25% of covered products. Included in accounts payable is an amount of
approximately $642,000 and $461,000, relating to royalties payable, at December
31, 2000 and 1999, respectively.

                                      F-10
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


DISTRIBUTION AGREEMENTS

     Commencing in 1999, the Company entered into various distribution and
marketing arrangements with distributors to sell the Company's products to the
research and clinical diagnostic markets in selected geographic markets outside
North America and certain European countries. These agreements expire at various
times from April 2001 to March 2003, and in each case, are subject to renewal.
Certain of the agreements may also be terminated by either party upon specified
notice periods and may require us to make termination payments under certain
circumstances. Certain of the Company's agreements also provide for minimum
annual purchases for specified periods.

NOTE 4 - OTHER RECEIVABLES

<TABLE>
<CAPTION>

                                                           DECEMBER 31
                                                     -------------------------
                                                        2000           1999
                                                     ----------    -----------
<S>                                                  <C>           <C>
Refundable taxes .................................   $   753,521   $   105,007
Other ............................................       131,474       563,741
                                                     -----------   -----------
                                                     $   884,995   $   668,748
                                                     ===========   ===========

<CAPTION>

NOTE 5 - INVENTORY

                                                           DECEMBER 31
                                                     -------------------------
                                                        2000           1999
                                                     ----------    -----------
<S>                                                  <C>           <C>
Raw materials ....................................   $   988,927   $ 1,346,951
Work in process ..................................       149,078       221,771
Finished goods ...................................     1,130,872     1,031,285
                                                     -----------   -----------
                                                     $ 2,268,877   $ 2,600,007
                                                     ===========   ===========

<CAPTION>

NOTE 6 - FIXED ASSETS

                                                           DECEMBER 31
                                                     -------------------------
                                                        2000           1999
                                                     ----------    -----------
<S>                                                  <C>           <C>
COST
       Laboratory and computer equipment .........   $10,638,719   $ 6,310,768
       Equipment on loan to customers ............     1,632,286       214,220
       Leasehold improvements ....................     4,673,064     1,264,022
                                                     -----------   -----------
                                                      16,944,069     7,789,010
                                                     -----------   -----------
ACCUMULATED DEPRECIATION AND AMORTIZATION

       Laboratory and computer equipment .........     5,303,454     3,118,913
       Equipment on loan to customers ............       492,592        13,963
       Leasehold improvements ....................       855,741       482,799
                                                     -----------   -----------
                                                       6,651,787     3,615,675
                                                     -----------   -----------
                                                     $10,292,282   $ 4,173,335
                                                     ===========   ===========
</TABLE>

                                      F-11
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7 - PATENTS AND LICENSES

     In April 2000, the Company entered into a worldwide licensing and
collaboration agreement with Applera Corporation, Applied Biosystems Group
(formerly PE Biosystems) ("Applera"), whereby the Company gained access to
certain patents and intellectual property owned by or licensed to Applera. The
agreement enables the Company to utilize certain Applera technology to
manufacture and sell DNA sequencing instruments, as well as manufacture and sell
sequencing kits to run on DNA sequencing instruments manufactured by the
Company, Applera and certain other third parties. In addition, Applera may
collaborate with us to provide access to technology to facilitate the Company's
development and commercialization of new diagnostic tests using the licensed
technology.

     The intellectual property includes two United States patents licensed to
Applera from the California Institute of Technology. These were the patents at
issue in a patent infringement lawsuit filed by Applera, in December 1999,
against the Company. Such lawsuit has been withdrawn by Applera.

     In June 2000, the Company paid Applera a $10 million licensing fee and will
pay additional licensing fees totaling $15 million over the next three years.
The Company is amortizing the cost of the license fee on a straight-line basis
over a ten-year period. In 2000, amortization expense related to this agreement
was $1,743,054 and is included in "sales, general and administrative" expenses
in the statement of operations. The Company also makes royalty payments to
Applera based on sales in return for access to the Applera technology and
installed customer base. The Company may terminate the agreement upon 60 days
written notice to Applera and either party may terminate the agreement under
certain other limited circumstances.

     In March 2000, the Company amended a license agreement with Genaissance
Pharmaceuticals, Inc. whereby in exchange for a one-time, up front payment of
$2,050,000, the license field was broadened and the royalty paid by the Company
to Genaissance on certain sales in the United States was reduced. Such up front
payment is being amortized on a straight-line basis over a ten-year period. In
2000, the Company recorded $162,565 in amortization expense related to this
agreement and such amount is included in "sales, general and administrative"
expenses in the statement of operations.

     The Company's investment in patents and licenses is as follows:

<TABLE>
<CAPTION>

                                                             DECEMBER 31
                                                     -------------------------
                                                         2000          1999
                                                     -----------   -----------
<S>                                                  <C>           <C>
COST
        Patents ................................     $ 1,280,479   $ 1,078,173
        Licenses ...............................      13,665,283     1,596,591
                                                     -----------   -----------
                                                      14,945,762     2,674,764
                                                     -----------   -----------

ACCUMULATED AMORTIZATION
        Patents ................................         400,391       207,197
        Licenses ...............................       2,363,259       345,200
                                                     -----------   -----------
                                                       2,763,650       552,397
                                                     -----------   -----------
                                                     $12,182,112   $ 2,122,367
                                                     ===========   ===========
</TABLE>


                                      F-12
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The net book value of patents and licenses at December 31, 2000 reflects an
impairment loss of $100,045 and $42,120, respectively, recorded during the year.
The net book value of patents and licenses at December 31, 1999 reflects an
impairment loss of $401,085 and $50,000, respectively, recorded during 1999.
These impairment losses were recorded as a result of the Company abandoning
certain patents and licensed technologies and such losses are included in
"sales, general and administrative" expenses in the statements of operations.

NOTE 8 - ACCRUED LIABILITIES

<TABLE>
<CAPTION>

                                                       DECEMBER 31
                                                -----------------------
                                                   2000         1999
                                                   ----         ----
<S>                                             <C>          <C>
Warranty provision                              $  378,593   $  387,103
Salaries and benefits                            1,849,879    1,149,279
Professional fees                                  425,995      393,196
Value added taxes                                  796,705      565,782
Provision for exit costs                           309,100      789,849
Grant payable                                      357,132         --
Inventory and supplies                             473,448       57,035
Other                                              675,012      279,866
                                                ----------   ----------
                                                $5,265,864   $3,622,110
                                                ==========   ==========
</TABLE>

NOTE 9- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

(A)   AUTHORIZED AND ISSUED

     Authorized share capital consists of an unlimited number of preferred
shares which may be issued in one or more series.

     On July 15, 1999, the Board of Directors authorized the issuance of 33,950
Series A Mandatorily Redeemable Convertible Preferred Shares (Series A Shares),
of which 33,948 were issued during 1999.

     On July 15, 1999, the Company issued 30,000 Series A Shares and warrants to
purchase 1,100,000 common shares to certain affiliated funds managed by E.M.
Warburg, Pincus & Co., LLC (Warburg Pincus) for net proceeds of $29,219,854. In
addition, on July 15, 1999 in connection with the repayment of certain loans
with institutional lenders, the Company issued 3,948 Series A Shares and
warrants to purchase 147,098 common shares for net proceeds of $3,845,008.

     The fair market value of the warrants was estimated at the date of grant
using the Black-Scholes option valuation model based upon the following
assumptions: dividend yield - nil, risk-free interest rate - 5.61%, average
expected volatility - 70%, expected term - 4 years.

     The value of the net proceeds was allocated between warrants and Series A
Shares based on the relative fair value of each instrument. The total amount
relating to Warburg Pincus, net of issue costs of $780,146 allocated to warrants
and Series A Shares was $6,420,672 and $22,799,182, respectively. The total
amount relating to the institutional investors, net of issue costs of $102,992
allocated to warrants and Series A Shares was $858,607 and $2,986,401,
respectively.

     The value of the warrants is treated as a discount to the Series A Shares
and will be charged directly to retained earnings or, in the absence of retained
earnings, against other equity, over seven years, the time period when
redemption of the Series A Shares first becomes mandatory.

                                      F-13
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(B)   RIGHTS and conditions of Series A shareholders

CONVERSION

     The Series A Shares are convertible at any time, at the option of the
holders, into common shares of the Company at a conversion price of $11.00,
subject to certain adjustments. Upon conversion, the holders will also receive
common shares at a conversion price of $11.00 per share, equal to the amount of
all accrued and unpaid dividends. On September 14, 2000, the Warburg Pincus
funds converted a total of 7,795 Series A Shares, plus a total of $701,550 of
dividends that accrued on those shares, into 772,411 of the Company's common
shares. Upon conversion of the 7,795 Series A Shares, $6,814,550, attributable
to such Series A Shares was transferred to share capital on the balance sheet.
As of December 31, 2000, a total of 26,153 Series A Shares remain outstanding
and such shares, including dividends accrued on such shares through December 31,
2000, are convertible into 2,698,425 shares of the Company's common stock.

     The Series A Shares contain provisions under which the conversion price
would be reduced on a weighted average basis if the Company issues shares,
options or certain other securities at prices lower than the conversion price
(subject to certain exceptions), and will also be adjusted upon the issuance of
certain other securities, certain recapitalization events and in certain other
circumstances to protect the holders against the dilutive effect of those
events.

     The conversion right will terminate on any redemption of the Series A
Shares or any liquidation of the Company. Each Series A Share will automatically
convert into common shares at its then effective conversion price, if at least a
majority of the Series A Shares are either voted to be converted or have already
been converted into common shares.

DIVIDENDS

     Dividends on the Series A Shares accrue quarterly at the rate of 9% per
year during the first three years after issuance, and 4% per year thereafter and
are compounded annually. Dividends are not payable for the first three years.
After three years, at the Company's option, dividends are payable in cash. If
dividends are not paid in cash, they will continue to accrue. The Company is
prohibited from declaring or issuing any dividends to holders of common shares
before paying all unpaid dividends on Series A Shares. The Company is also
prohibited from issuing any equity securities that are senior or equal in rank
to the Series A Shares without approval of the holders of a majority of such
shares. If the Company were to be liquidated or sold or under certain other
circumstances, holders of Series A Shares would be entitled to receive an amount
equal to $1,000 per share, plus accrued dividends, before holders of common
shares would be entitled to any distributions.

REDEMPTION

     After the third anniversary and prior to the seventh anniversary of the
date of issuance of the Series A Shares, the Company has the right to redeem the
outstanding Series A Shares at the redemption price, equal to $1,000 per share,
plus accrued but unpaid dividends, subject to certain conditions. The Company
will be required to redeem one-third of any remaining outstanding Series A
Shares on each of the seventh, eighth and ninth anniversaries of the date of
issuance at the redemption price. If the Company fails to redeem the shares as
required, holders may appoint a majority of our Board of Directors, who will
continue to serve until the Company has redeemed the Series A Shares as
required.

                                      F-14
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


VOTING

     The holders of the Series A Shares are entitled to vote as a group with the
holders of common shares on all matters, except that holders of the Series A
Shares are entitled to vote separately for one director and are not entitled to
participate in the vote for any other directors of the Company. On all other
matters, each holder of Series A Shares is entitled to the number of votes equal
to the number of common shares the holder is entitled to receive upon conversion
of the preferred shares.

OTHER

     Certain holders of Series A Shares are also entitled to certain other
rights, including the right to participate, on a pro rata basis, in future
Company financings, subject to certain exceptions. The right of certain holders
of Series A Shares to participate in future offerings in this manner provides
those shareholders with the opportunity to avoid having their ownership interest
in the Company diluted under certain circumstances when the interest of common
shareholders would be diluted.

     The Company is also prohibited from incurring indebtedness for borrowed
money and capital lease obligations in excess of $15,000,000 outstanding at any
one time, without first obtaining approval of the holders of a majority of the
then outstanding Series A Shares.

NOTE 10 - SHARE CAPITAL

(A)    AUTHORIZED AND ISSUED SHARE CAPITAL

     Authorized share capital consists of an unlimited number of common shares,
without par value.

                                      F-15
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                      NUMBER OF        AVERAGE
                                                    COMMON SHARES    ISSUE PRICE       AMOUNT
                                                    -------------    -----------       ------
<S>                                                 <C>            <C>               <C>
BALANCE, DECEMBER 31, 1997 ......................      7,248,696                     $ 31,281,622
                                                    ============                     ============
    Issued for cash under stock option
      arrangements ..............................        385,548   $        2.39          921,395
    Issued for acquisition of ACT Gene S.A ......         85,000   $        5.78          490,875
    Issued for private placement offering, net of
      issue costs (I) ...........................      1,528,989   $        9.88       13,718,793
                                                    ------------                     ------------
BALANCE, DECEMBER 31, 1998 ......................      9,248,233                       46,412,685
                                                    ============                     ============
    Issued for cash under stock option
      arrangements ..............................        384,217   $        4.68        1,798,266
    Issued upon exercise of warrants ............         73,665   $        7.40          545,337
    Issued for private placement offering, net of
      issue costs ...............................      1,916,000   $       13.92       26,665,782
                                                    ------------                     ------------
BALANCE, DECEMBER 31, 1999 ......................     11,622,115                       75,422,070
                                                    ============                     ============
    Issued for cash under stock option
      arrangements ..............................        905,307   $        7.34        6,646,945
    Issued upon exercise of warrants ............        854,786   $        7.37        6,299,348
    Issued upon conversion of Series A
      preferred shares ..........................        772,411   $        8.82        6,814,550
    Issued for secondary public offering,
      net of issue costs ........................      2,090,000   $       35.66       74,534,466
                                                    ------------                     ------------
BALANCE, DECEMBER 31, 2000 ......................     16,244,619                     $169,717,379
                                                    ============                     ============
</TABLE>


     (I) The value of the warrants issued in 1998 in connection with the private
     placement (Note 10(e)) in the amount of $444,572 has been recorded as a
     reduction of the proceeds of issue and an increase to warrants included in
     Other equity (Note 10(b)). The fair market value of the warrants is
     estimated at the date of grant using the Black-Scholes option valuation
     model based upon the following assumptions: dividend yield - nil, risk-free
     interest rate - 4.0%, average expected volatility - 65%, expected term -
     2.5 years

     On April 5, 2000 the Company completed an underwritten public offering of
2,000,000 common shares at $38.00 per common share, before underwriter's
discount, and on May 3, 2000, pursuant to the terms of the underwriting
agreement, the Company sold an additional 90,000 common shares, also at a price
of $38.00 per common share, to cover the underwriter's over-allotment.


                                      F-16
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(B)      OTHER EQUITY

<TABLE>
<CAPTION>

                                                            2000           1999            1998
                                                            ----           ----            ----
<S>                                                      <C>            <C>                <C>
Options ..............................................   $   922,714    $   922,714        922,714
Warrants .............................................     3,796,098      9,782,470      1,610,791
Contributed surplus ..................................        61,250         61,250         61,250
Cumulative preferred dividends attributable to
   Series A preferred shares .........................    (4,231,179)    (1,400,344)          --
Cumulative accretion of discount attributable to
   Series A preferred shares .........................    (1,195,246)      (369,728)          --
Loan to an officer to purchase shares ................          --             --         (323,405)
Employee share purchase loans                                   --           (9,034)       (38,885)
                                                         -----------    -----------    -----------
                                                         $  (646,363)   $ 8,987,328      2,232,465
                                                         ===========    ===========    ===========
</TABLE>


     Employee share purchase loans are non-recourse and secured only by the
shares themselves. The loan to an officer was made in July 1996 to purchase
shares of the Company. The loan was interest free and was originally repayable
in 2006. In November 1999, the loan was repaid.

(C)    DEFERRED COMPENSATION COSTS

<TABLE>
<CAPTION>

                                       2000       1999       1998
                                       ----       ----       ----
<S>                                  <C>        <C>        <C>
BALANCE, BEGINNING OF YEAR .......   $   --     $   --     $(77,469)
Charged to expense during the year       --         --       77,469
                                     --------   --------   --------
BALANCE, END OF YEAR .............   $   --     $   --     $   --
                                     ========   ========   ========
</TABLE>


(D)    OPTIONS

     The Company has incentive plans under which options to purchase common
shares may be granted to its employees, consultants or directors at the
discretion of the Board of Directors. In addition to the options outstanding, at
December 31, 2000 an additional 700,746 options can be granted under the various
option plans. Under the plans, each option is for the purchase of one common
share, expires up to ten years from the date of issue, and is generally earned
over a three to four year period. There are no repurchase features. Certain
options issued to employees may be cancelled if employment is terminated within
three to four years. The number of options that may be cancelled is reduced in
stages over that period. Options issued to employees after May, 1996 must be
exercised within 90 days of the termination of employment.


                                      F-17
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                   WEIGHTED AVERAGE
                                                          NUMBER    EXERCISE PRICE
                                                          ------    --------------

<S>                                                      <C>          <C>
BALANCE, DECEMBER 31, 1997 ...........................   1,551,470    $    4.32
                                                        ==========    =========

     Granted at $7.70 to $10.98 ......................     580,364    $    8.26
     Exercised .......................................    (387,881)   $    2.41
     Cancelled .......................................     (45,902)   $    4.01
                                                        ----------    ---------
BALANCE, DECEMBER 31, 1998 ...........................   1,698,051    $    6.11
                                                        ==========    =========

     Granted at $3.50 to $19.08 ......................   1,001,545    $   11.69
     Exercised .......................................    (383,749)   $    4.82
     Cancelled .......................................    (170,294)   $    7.51
                                                        ----------    ---------
BALANCE, DECEMBER 31, 1999 ...........................   2,145,553    $    8.82
                                                        ==========    =========

      Granted at $3.00 to $53.00 .....................     609,054    $   31.67
      Exercised ......................................    (904,441)   $    7.50
      Cancelled ......................................     (86,770)   $    5.17
                                                        ----------    ---------
BALANCE, DECEMBER 31, 2000 ...........................   1,763,396    $   17.57
                                                        ==========    =========
</TABLE>


     The fair market value of options granted to directors and employees in 2000
was approximately $13,058,000 (1999 - $6,689,000; 1998 - $2,397,000). If
directors and employee options granted had been recorded at their fair market
value, the pro forma net loss attributable to common shareholders in 2000 would
have been $(41,723,000) or $(2.86) per share (1999 - $(30,533,000) or $(3.08)
per share; 1998 - $(16,753,000) or $(2.15) per share).

     The fair market value of each option is estimated at the date of grant
using the Black-Scholes option valuation model based upon the following
assumptions: dividend yield - nil, risk-free interest rate (for four-year zero
coupon bond) - 5.5% (1998 - 5.0%), average expected volatility - 85% (1999 - 70%
and 1998 - 65%), expected average option term - 4.5 years. The weighted average
fair value for options granted in 2000 was $21.44 (1999 - $6.68; 1998 - $4.13).

     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock option plans have characteristics
significantly different from those of traded options, and because change in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.


                                      F-18
<PAGE>


                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                           NUMBER        WEIGHTED AVERAGE                            NUMBER          WEIGHTED AVERAGE
                       OUTSTANDING AT     EXERCISE PRICE                         EXERCISABLE AT     EXERCISE PRICE OF
    RANGE OF            DECEMBER 31,      OF OUTSTANDING    WEIGHTED AVERAGE      DECEMBER 31,         EXERCISABLE
EXERCISE PRICES             2000              OPTIONS        REMAINING LIFE           2000                OPTIONS
---------------        --------------    ---------------    ----------------     --------------     -----------------

<S>                     <C>              <C>                <C>                  <C>                 <C>
 $0.92 - $2.30               88,307               $1.62          4.28 years            88,307               $1.62
         $3.50              153,508               $3.50          5.40 years           153,508               $3.50
   $4.45-$6.07                1,200               $6.07          6.64 years             1,003               $6.07
   $7.12-$7.84               72,274               $7.72          6.94 years            65,965               $7.72
   $7.87-$9.35              224,567               $8.89          7.68 years           145,244               $8.89
 $10.00-$11.50              405,523              $10.83          7.99 years            51,094              $10.82
 $11.76-$16.45              193,280              $14.76          7.17 years            38,653              $14.76
 $17.00-$19.08              127,658              $18.03          8.45 years            76,880              $18.03
 $21.75-$29.94               81,000              $26.62          9.52 years             9,216              $22.80
 $30.00-$39.13              279,579              $31.64          9.46 years            53,001              $31.35
 $41.00-$44.88               57,250              $43.39          9.58 years               648              $42.99
 $45.88-$53.00               79,250              $48.35          9.16 years             9,878              $48.60
                          ---------                                                   -------
                          1,763,396                                                   693,397
                          =========                                                   =======

<CAPTION>


(E)    WARRANTS


                                                                                             EXERCISE
                                                                                NUMBER         PRICE         EXPIRY DATE
                                                                                ------         -----         -----------

<S>                                                                         <C>               <C>           <C>
BALANCE, DECEMBER 31, 1997........................                              79,803
                                                                            ==========

     Granted in connection with loans  ...........                             540,000          $10.00         April, 2003 -
                                                                                                             September, 2003
     Granted in connection with private placement (Note 10(a))                 121,951          $12.81        November, 2003
                                                                            ----------
BALANCE, DECEMBER 31, 1998........................                             741,754
                                                                            ==========

     Granted in connection with loans ............                             140,000          $17.00         April, 2006
     Granted in connection with preferred shares (Note 9)                    1,247,098          $12.60          July, 2003
     Exercised....................................                             (76,734)          $6.90
                                                                            ----------
BALANCE, DECEMBER 31, 1999........................                           2,052,118
                                                                            ==========

     Granted in connection with real estate lease.                              10,000          $31.88        January , 2010
     Exercised....................................                          (1,113,069)         $12.47
                                                                            ----------
BALANCE, DECEMBER 31, 2000........................                             949,049
                                                                            ==========
</TABLE>


                                      F-19
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     On February 17, 2000, warrants to purchase 1,100,000 common shares were
exercised at a price of $12.60 per common share. Under terms of the warrant
agreement, the warrant holders elected to pay the exercise price for the
warrants through a non-cash exercise. As a result the warrant holders received
847,749 common shares rather than 1,100,000 common shares they would otherwise
have received upon exercise in cash of all of their warrants.

NOTE 11 - ACQUISITIONS

     Effective April, 1998, the Company acquired 100% of the shares of ACT Gene
S.A., a DNA diagnostic testing company, for 85,000 common shares of the Company,
and cash payable of $650,000. The acquisition was accounted for as a purchase,
and resulted in the recording of an excess of purchase price over tangible net
assets of $488,000, of which $420,043 was recorded as in-process research and
development, and reflected as an expense in 1998. The nature of the acquired
research and development relates to the cost and time pertaining to the
development of a test kit and research clinical samples necessary for the
development of several kits designed for use with DNA sequencing systems. As of
April, 1998 the kit was approximately 80% completed and was expected to be
completed during 1999. As a result of development delays the kit was not
completed until 2000. The projected incremental cash flows of these projects
were discounted using discount rates ranging from 60% to 70%. The primary risk
factor affecting the commercialization of each of these products is the receipt
of FDA and foreign regulatory agency approvals for use in the clinical
diagnostic market.

NOTE 12 - EXIT AND TERMINATION COSTS

EXIT COSTS

     During 1999, the Company approved a plan to move the sales, marketing and
various other functions from Canada to a United States facility in Atlanta and
in 2000 these functions were moved to the United States facility. Such facility
also houses Applied Sciences, Inc. (a wholly owned subsidiary of the Company)
and construction of kit manufacturing production lines is currently underway in
this same facility.

     As a result of the decision to centralize United States operations in
Atlanta, certain premises leased by the Company were vacated. In December 1999,
the Company commenced efforts to sublease the premises to be vacated.
Accordingly, the Company recorded a charge of approximately $790,000 in the
statement of operations in 1999, which is included in accrued liabilities at
December 31, 1999. This amount represents the remaining future lease
commitments, net of estimated sub-lease income, the unamortized balance of
leasehold improvements, and other estimated costs of sub-leasing the vacated
facilities. All of the vacated facilities were sub-leased during 2000.

TERMINATION COSTS

     During 1999, two senior officers of the Company received special
termination benefits in connection with their departure from the Company. The
termination benefits included lump-sum payments and periodic future payments, as
specified in the related termination agreements, offered by the Company and
accepted by the officers. The present value of the obligations for special
termination benefits approximated $539,000, which was included in the statement
of operations in 1999. As of December 31, 2000, approximately $434,000 (1999-
$162,000) of these costs were paid and the balance is included in accrued
salaries and benefits.

                                      F-20
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13 - INCOME TAXES

     The Company's income tax provision has been determined as follows:

<TABLE>
<CAPTION>

                                                                     YEARS ENDED DECEMBER 31
                                                          --------------------------------------------
                                                             2000             1999            1998
                                                             ----             ----            ----
<S>                                                       <C>             <C>             <C>
Net loss for the period comprised of:
  Domestic ............................................   $(10,170,354)   $ (8,081,807)   $ (6,195,350)
  Foreign .............................................    (21,603,782)    (17,205,078)     (8,695,611)
                                                          ------------    ------------    ------------
                                                          $(31,774,136)   $(25,286,885)   $(14,890,961)
                                                          ============    ============    ============

Income taxes at 44.0% (44.6% in 1999 & 1998) ..........   $(13,964,733)   $(11,283,008)   $ (6,641,369)
Decrease resulting from permanent non-
    tax deductible expense ............................      1,486,785         736,478          52,182
Decrease resulting from foreign rate
    differences .......................................        649,188         835,867         114,856
Net operating loss and temporary
    differences for which no benefit
    has been recognized ...............................     11,828,760       9,710,663       6,474,331
                                                          ------------    ------------    ------------
                                                          $         --    $         --    $         --
                                                          ============    ============    ============
</TABLE>

     As at December 31, 2000, the Company has available losses in various
countries that may be used to reduce taxable income in future years, and expire
as follows:

<TABLE>
<CAPTION>

                                                                  OTHER
                        CANADA(1)  UNITED STATES  NETHERLANDS  JURISDICTIONS
                        ---------  -------------  -----------  -------------

<S>                   <C>           <C>           <C>          <C>
   2001               $   463,000   $     --      $    --      $     --
   2002                 1,425,000         --           --            --
   2003                 2,739,000         --           --            --
   2004                 6,008,000         --           --          95,000
   2005                 3,679,000         --           --         469,000
   2006                 2,991,000         --           --            --
   2007                   621,000         --           --            --
   2010                     --            --           --         163,000
   2012                     --        1,238,000        --           --
   2018                     --        3,962,000        --           --
   2019                     --        6,514,000        --           --
   2020                     --       11,946,000        --           --
Subsequent to 2020          --            --       7,213,000      642,000
                      -----------   -----------   ----------   ----------
TOTAL                 $17,926,000   $23,660,000   $7,213,000   $1,369,000
                      ===========   ===========   ==========   ==========
</TABLE>


----------

(1) IN ADDITION TO THE CANADIAN LOSSES ABOVE, THE COMPANY HAS CERTAIN SCIENTIFIC
RESEARCH AND DEVELOPMENT EXPENDITURES ELIGIBLE FOR TAX PURPOSES INCURRED BY THE
COMPANY THAT MAY ALSO BE DEFERRED AND DEDUCTED IN FUTURE YEARS. THESE UNCLAIMED
DEDUCTIONS, WHICH CAN BE CARRIED FORWARD INDEFINITELY, AMOUNTED TO APPROXIMATELY
$16,210,000 AT DECEMBER 31, 2000. IN ADDITION, THE COMPANY HAS EARNED
NON-REFUNDABLE INVESTMENT TAX CREDITS AMOUNTING TO APPROXIMATELY $2,996,000 THAT
CAN BE USED TO REDUCE FUTURE FEDERAL INCOME TAXES PAYABLE. THESE EXPIRE AS
FOLLOWS:

<TABLE>

<S>                                                     <C>
                  2006                                  $484,000
                  2007                                   407,000
                  2008                                   485,000
                  2009                                   802,000
                  2010                                   818,000
                                                      ----------
                                                      $2,996,000
                                                      ==========
</TABLE>


                                      F-21
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The benefit of these losses, unclaimed deductions and non-refundable
investment tax credits has not been reflected in these financial statements. The
deferred tax balances are summarized as follows:

<TABLE>
<CAPTION>

                                         2000             1999
                                         ----             ----
<S>                                  <C>             <C>
DEFERRED TAX ASSETS

Research expenses ................   $  6,989,800    $  5,776,300
Non-capital losses ...............     20,903,500      15,555,300
Investment tax credits ...........      1,704,300       1,597,600
Fixed assets .....................      2,414,800       1,048,100
Share issue costs ................      2,662,900       1,221,400
Warranty and other provisions ....        537,300         810,000
                                     ------------    ------------
                                       35,212,600      26,008,700
Valuation allowance ..............    (35,212,600)    (26,008,700)
                                     ------------    ------------
Net deferred tax asset (liability)   $       --      $       --
                                     ============    ============
</TABLE>

     The valuation allowance increased by $9,203,900 during 2000 (1999 -
$10,802,900). Realization of the future tax benefits related to the deferred tax
assets is dependent upon many factors, including the Company's ability to
generate taxable income within the loss carryforward periods.

NOTE 14 - SEGMENTED INFORMATION

     The Company follows SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." with disclosure based upon the internal
organization used by management for making operating decisions and assessing
performance. SFAS No. 131 also requires disclosures as to products and services,
geographic areas and major customers. The Company's reportable segments are
Sequencing Systems, GeneKits and other Consumables, and Testing services. The
accounting policies of the segments are the same as those described above in
Note 2, "Summary of significant accounting policies."


                                      F-22
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2000

<TABLE>
<CAPTION>

                         SEQUENCING   GENEKITS AND OTHER   TESTING        RECONCILING
                          SYSTEMS         CONSUMABLES      SERVICES           ITEMS              TOTAL
                          -------         -----------      --------           -----              -----

<S>                    <C>              <C>              <C>              <C>                <C>
Revenues               $   4,522,661    $   8,137,122    $     412,780    $        --        $  13,072,563
Depreciation and
   amortization           (1,512,839)      (3,507,732)        (411,398)            --           (5,431,969)
Profit (loss) from
   operations before
   interest              (12,023,931)     (24,089,606)        (124,652)            --          (36,238,189)
Additions to
   fixed assets            2,079,845        5,543,748        1,645,452             --            9,269,045
Total assets               3,308,159       24,482,409        2,166,347       80,398,990(1)     110,355,905

Reconciling items consist of:       1  Cash, cash equivalents and short-term investments

<CAPTION>

1999

                         SEQUENCING   GENEKITS AND OTHER   TESTING        RECONCILING
                          SYSTEMS         CONSUMABLES      SERVICES           ITEMS       TOTAL
                          -------         -----------      --------           -----       -----

<S>                    <C>             <C>             <C>             <C>            <C>

Revenues               $  7,725,910    $  4,729,865    $  1,171,145    $       --     $ 13,626,920
Depreciation and
   amortization          (1,184,981)       (999,571)       (383,398)           --       (2,567,950)
Profit (loss) from
   operations before
   interest             (13,889,277)    (10,099,584)          4,939            --      (23,983,922)
Additions to
   fixed assets             697,030         849,144         372,918            --        1,919,092
Total assets              7,466,062       6,724,730       1,760,794    42,687,9632      58,639,549

Reconciling items consist of:        (2)Cash, cash equivalents and short-term investments

<CAPTION>

1998

                                SEQUENCING   GENEKITS AND OTHER   TESTING        RECONCILING
                                 SYSTEMS         CONSUMABLES      SERVICES          ITEMS           TOTAL
                                 -------         -----------      --------          -----           -----

<S>                             <C>             <C>             <C>             <C>             <C>

Revenues                        $  8,042,421    $  1,379,512    $  1,453,415    $        --       $ 10,875,348
Depreciation and
   amortization                     (396,837)       (666,061)       (233,828)            --       (1,296,726)
Profit (loss) from
   operations before interest    (10,879,023)     (3,023,804)        299,805    (420,043)3       (14,023,065)
Additions to
   fixed assets                    1,199,316       1,137,904       1,011,041             --        3,348,261
Total assets                       8,859,003       5,281,294       2,368,060    11,274,178 4      27,782,535


Reconciling items consist of:       (3)Acquired research and development (Note 11)
                                    (4) Cash, cash equivalents and short-term investments
</TABLE>



                                      F-23
<PAGE>

                              VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>

GEOGRAPHIC INFORMATION - YEARS ENDED DECEMBER 31
REVENUES, BY CUSTOMER LOCATION                     2000           1999          1998
                                                   ----           ----          ----
<S>                                            <C>           <C>           <C>
Canada                                         $   822,568   $   468,535   $   844,863
United States                                    5,798,864     4,686,868     3,513,150
                                               -----------   -----------   -----------
         North America                           6,621,432     5,155,403     4,358,013
                                               -----------   -----------   -----------

France                                             760,742     1,252,222     1,616,788
Other Europe                                     4,210,259     4,298,745     2,949,288
                                               -----------   -----------   -----------
         Europe                                  4,971,001     5,550,967     4,566,076
                                               -----------   -----------   -----------

Japan                                              927,644     1,609,799     1,640,123
Other Asia and Latin America                       552,486     1,310,751       311,136
                                               -----------   -----------   -----------
         Asia and Latin America                  1,480,130     2,920,550     1,951,259
                                               -----------   -----------   -----------

                                               $13,072,563   $13,626,920   $10,875,348
                                               ===========   ===========   ===========

<CAPTION>

GEOGRAPHIC INFORMATION -DECEMBER 31
FIXED ASSETS                                          2000          1999          1998
                                               -----------   -----------   -----------
<S>                                            <C>           <C>           <C>
Canada                                         $ 2,614,017   $ 2,530,222   $ 2,346,394
United States                                    6,486,653       955,161     1,083,788
Europe                                           1,191,612       687,952       446,981
                                               -----------   -----------   -----------
                                               $10,292,282   $ 4,173,335   $ 3,877,163
                                               ===========   ===========   ===========
</TABLE>


     In 2000, one customer accounted for 11% of sales, of which 10% comprised
Sequencing Systems and 1% comprised GeneKits and Other Consumables. (1999 - one
customer accounted for 21% of sales, of which 19% comprised Sequencing Systems
and 2% comprised GeneKits and Other Consumables; 1998 - one customer accounted
for 30% of sales, of which 29% comprised Sequencing Systems and 1% comprised
GeneKits and Other Consumables).


                                      F-24
<PAGE>


                             VISIBLE GENETICS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - COMMITMENTS AND CONTINGENCIES

COMMITMENTS

     The Company is committed to make payments under a license agreement of
$5,000,000 per year in each of the years 2001, 2002 and 2003. The Company has
collaborative arrangements with certain third parties that provide for royalty
payments (see Note 3).

     The Company has entered into operating leases for premises and equipment as
follows:

        2001                         $  1,392,336
        2002                            1,225,965
        2003                            1,064,529
        2004                              956,741
        2005 and thereafter             3,556,030
                                     ------------
                                     $  8,195,601
                                     ============

     Rent expense was $1,768,346 in 2000 (1999 - $851,876; 1998 - $554,497).

CONTINGENCIES

     During 2000 the Company sub-leased certain facilities that it had vacated
(see Note 12). In the event of default by the subleasees the Company remains
contingently liable for remaining future lease commitments of approximately
$1,079,000 related to these sub-leases.

     The Company is subject to claims in the normal course of business. Based on
a current assessment of such claims, management believes that as of December 31,
2000, there are no unasserted, asserted or pending material claims against the
Company.

NOTE 16- RELATED PARTY TRANSACTIONS

     During 2000, the Company incurred legal fees to a law firm, in which a
partner was a former director of the Company, of $10,939 (1999 - $246,210; 1998
- $164,624). During 2000, the Company incurred consulting fees to a firm, of
which the president was a director of the Company, of $64,487 (1999 - $291,115;
1998 - $280,000). During 2000, the Company also incurred consulting fees to a
former director of the Company, of $28,250 (1999 - $58,269; 1998 - nil).

NOTE 17 - COMPARATIVE FIGURES

     Certain comparative figures have been reclassified to conform to the
financial statement presentation adopted in the current year.



                                      F-25


<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

 EXHIBITS
 NUMBER                              DESCRIPTION OF DOCUMENT                          PAGE
 ------                              -----------------------                          ----
<S>         <C>                                                                        <C>
        8   See Item 4.  Information on the Company-Organizational Structure
    10.23   Licensing and Collaboration Agreement, dated April 25, 2000, by and
            between Visible Genetics and Applera Corporation, Applied Biosytems
            Group (formerly PE Biosystems).  (THIS AGREEMENT IS FILED IN REDACTED
            FORM AS IT IS SUBJECT TO A REQUEST FOR CONFIDENTIALITY SUBMITTED TO THE
            SEC.)
    10.24   Lease, dated March 27, 2000, by and between Visible Genetics Inc., as
            Tenant and LuCliff Company Limited, as Landlord.
    10.25   Lease, dated November 30, 2000, by and between Visible Genetics Inc.,
            as Tenant and LuCliff Company Limited, as Landlord.
    10.26   Lease, dated October 1, 2000, by and between Visible Genetics Inc., as
            Tenant and LuCliff Company Limited, as Landlord.
    10.27   Employment Agreement, dated July 7, 1999, by and among Visible Genetics
            Corporation, Visible Genetics Inc. and Richard Daly.
</TABLE>



                                      A-1