<PAGE>
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 2000
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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                 FORM 20-F/A-1
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999


                          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
                (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, 1999, the Registrant had outstanding 11,622,115 Common
                                    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/

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<PAGE>
                             VISIBLE GENETICS INC.

                           ANNUAL REPORT ON FORM 20-F

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>

<S>       <C>       <C>                                                           <C>
PART I
          Item 1.   Description of Business.....................................      2
          Item 2.   Description of Property.....................................     36
          Item 3.   Legal Proceedings...........................................     37
          Item 4.   Control of Registrant.......................................     38
          Item 5.   Nature of Trading Market....................................     39
          Item 6.   Exchange Controls and Other Limitations Affecting Security
                    Holders.....................................................     39
          Item 7.   Taxation....................................................     40
          Item 8.   Selected Financial Data.....................................     49
          Item 9.   Management's Discussion and Analysis of Financial Condition
                    and Results of Operations...................................     50
          Item 9A.  Quantitative and Qualitative Disclosures About Market
                    Risk........................................................     56
          Item 10.  Directors and Officers of Registrant........................     57
          Item 11.  Compensation of Directors and Officers......................     59
          Item 12.  Options to Purchase Securities from Registrant or
                    Subsidiaries................................................     60
          Item 13.  Interest of Management in Certain Transactions..............     60
PART II
          Item 14.  Description of Securities to Be Registered..................     61
PART III
          Item 15.  Defaults Upon Senior Securities.............................     61
          Item 16.  Changes in Securities and Changes in Security for Registered
                    Securities..................................................     61
PART IV
          Item 17.  Financial Statements........................................     62
          Item 18.  Financial Statements........................................     62
          Item 19.  Financial Statements and Exhibits...........................     62
</TABLE>

<PAGE>
                                     PART I

    THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN
AND UNKNOWN RISKS AND UNCERTAINTIES. THESE STATEMENTS RELATE TO OUR PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THESE STATEMENTS. FACTORS THAT COULD
CONTRIBUTE TO THESE DIFFERENCES INCLUDE THOSE DISCUSSED IN "DESCRIPTION OF
BUSINESS--RISK FACTORS" AND ELSEWHERE IN THIS ANNUAL REPORT.

ITEM 1. DESCRIPTION OF BUSINESS.

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 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 and HLA (used for
tissue typing, for example, in organ transplants). We are developing GeneKits
for hepatitis B, hepatitis C and tuberculosis. 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 HIV GeneKit 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.

    Two initial 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 we call 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 6 months, 32% of the
patients in the genotyping group had undetectable viral loads as compared to 14%
of patients in the non-genotyping group. The other 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.

    Also in June 1999, we 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 indicated that we
will not be required to demonstrate further the clinical utility of our HIV
OpenGene

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<PAGE>
System in the treatment of HIV infected individuals. We plan to apply to the FDA
during 2000 for approval to sell our HIV OpenGene System to the clinical
diagnostic market.

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:

    - genes as potential targets for therapeutic intervention;

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

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

    - 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. These probes are
based on the principle that single strands of DNA seek out complementary strands
to form a chemical bond. The DNA probes are 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

                                       3
<PAGE>
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, such as 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 research, clinical research and
clinical diagnostic markets.

    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.

    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 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.

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

                                       4
<PAGE>
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 because:

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

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

    - they are expensive;

    - they are too large for most clinical laboratories;

    - 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

    - 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:

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

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

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

    - it is small and lightweight;

    - it utilizes easy to use disposable gel cassettes;

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

    - 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

    - 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.

    While our OpenGene System and GeneKits are designed to serve the clinical
diagnostic market, they also fulfill many important requirements within the
research and clinical research markets. Researchers in the clinical research
market also work with short DNA strands, rely on a repetitive sequencing of gene
segments and need quick and efficient sequencing systems. In the research
market, our products complement existing instruments by performing tasks such as
primer labeling, chemistry verification, short sample sequencing and other
preparatory and supportive functions for which speed, cost and efficiency are a
premium. We also have developed a sequencer that is able to read longer segments
required for some research applications.

    To date, a substantial portion of our revenues have been generated from
sales to the research and clinical research markets. We expect to continue to
sell to both of these markets even if we receive FDA approval for clinical
diagnostic use of our HIV OpenGene System and other products.

                                       5
<PAGE>
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:

    - 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.

    - 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 this disease. 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 intend to seek approval
      from the FDA and other regulatory authorities to sell our HIV OpenGene
      System for clinical diagnostic use in the United States and elsewhere.

    - 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
      HLA (used for tissue typing, for example, in organ transplants), and are
      developing GeneKits for hepatitis B, hepatitis C, tuberculosis and other
      species of HIV not tested for in our current HIV GeneKit.

    - OFFER A WIDE RANGE OF TESTING AND SEQUENCING SERVICES. We maintain
      accredited reference testing laboratories that provide 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.

    - 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 are also
      developing an enhanced version of this software, called TRUGENE CMS, which
      is specifically targeted to the clinical diagnostic market and will
      simplify the work flow and report generation for disease specific
      applications.

    - 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.

    - 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.

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<PAGE>
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 CMS 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 1,000 bases in under
4 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 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

                                       7
<PAGE>
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 CMS.  TRUGENE CMS, an enhanced version of our GeneObjects software,
is a software system we are developing for genotypic analysis of large
quantities of patient samples in a clinical diagnostic setting. The first
application will be for HIV. The software design is based on the assembly line
concept. A sample, once received by a laboratory for processing, will be
registered with TRUGENE CMS. The new sample will be placed on the assembly
line's conveyer so that it can be passed along from stage to stage in a specific
order. The final product of this assembly line is a report for the registered
sample. TRUGENE CMS is being designed to work with various protocols, each of
which defines how many stages are on the assembly line, what each stage should
do, and what information the final report should contain.

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 HIV GeneKit, is described in the section of this prospectus
entitled "--Applications For Our OpenGene System--HIV." Other GeneKits which we
sell or are developing 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, 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-LaRoche Ltd., the
CAS technology from Genassiance Pharmaceuticals, Inc. and the Boom technology
from Organon Teknika.

    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 before drug resistance
develops and their viral loads increase. 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.

    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.

                                       8
<PAGE>
    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 MicroGel 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 Norcross, 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. Our
facility in Evry, France, carries out DNA diagnostic testing and sequencing
services in Europe, including genotyping tests for HIV, hepatitis C and other
tests.

    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 GeneKit 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 HIV GeneKit, which we call the 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 HIV GeneKit.

    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 14 million people worldwide have died as a result of
complications from AIDS. Approximately 900,000 people in North America, 750,000
in Europe and Central Asia and a total of 33 million people worldwide are
infected with HIV. In 1998 alone, there were approximately 5.8 million new HIV
infections, including 44,000 in North America, and 2.5 million deaths as a
result of complications from AIDS.

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    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 14 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 clinicians to better manage HIV drug therapy.

    GENOTYPING AND HIV.  Genotyping HIV enables clinicians to identify mutations
in the genetic material in the virus. Two initial 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 12-week prospective
trial in the United States of 100 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.

    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 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 will be
submitted to support our market approval application. In June 1999, we initiated
a trial called under our

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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. In January 2000, we also began a large-scale trial called Vigilance II
which will be an open label, cost recovery HIV genotyping study conducted under
our IDE.

    The following is a summary of each of these trials:

    - 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 HIV GeneKit. 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 28.4% 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. We are reanalyzing the samples collected in the GART and the
      VIRADAPT trials using our HIV GeneKit and OpenGene System and plan to
      include those results in support of our market approval application.

    - 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. 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 will continue to
      provide genotyping to all 128 patients currently enrolled in the SEARCH
      trial. However, enrollment of new patients into SEARCH has been closed.

    - PROFICIENCY TRIAL. The proficiency trial is intended to demonstrate the
      reliability and performance characteristics of our HIV GeneKits and
      OpenGene System, which is required by the FDA. We are genotyping
      approximately 500 plasma samples. We are genotyping the samples using our
      HIV

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      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 GeneKits, samples from the same patients are
      tested at multiple sites. Multiple technicians test the same samples and
      multiple batches of our GeneKits are used to test the same samples. In
      addition, various interfering drugs or chemical agents are 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 expect this trial to be completed during the second
      quarter of 2000.

    - VIGILANCE II. Vigilance II is a prospective, open label, trial with an
      enrollment of up to 30,000 patients located throughout the United States.
      We began this trial in January 2000. Testing will be performed at
      approximately 50 to 100 sites. All patients will undergo HIV genotyping
      and the genotyping results will be provided to their physicians. Doctors
      who choose not to change drug treatment based on the genotyping results
      will be required to so inform us, and results on these patients will be
      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 do not intend to 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.

HLA

    Successful transplants of bone marrow, tissue and organs generally require
that the human leukocyte antigens, known as HLA, of the donor and the recipient
be matched as precisely as possible. HLAs are proteins that exist on the surface
of the cell and are vital for determining whether a transplant will be accepted
or rejected. In 1998, there were approximately 21,000 organ transplants in the
United States and approximately 1,300 bone marrow transplants. DNA sequencing of
HLA is increasingly being recognized as the most reliable method of HLA
matching. For example, recent statistics show approximately 500,000

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potential bone marrow donors are genotyped every month worldwide. By sequencing
the particular genes in the multi-gene HLA complex, a clinician can determine
whether the donor's and recipient's HLA match. It is widely believed that
matching significantly increases the chances of success of the transplant. We
have developed four GeneKits for research use only for the A, B and C loci for
Class I and for DRB1 for Class II genes. We began selling this GeneKit for
research purposes in October 1997. We have two U.S. patents covering various
aspects of this GeneKit. This GeneKit is currently being sold only to the
research and clinical research markets.

HEPATITIS B

    We have developed and are currently testing a GeneKit for Hepatitis B.
Hepatitis is an inflammation of the liver. Hepatitis B is one type of virus that
causes this inflammation. There are more than 350 million people worldwide that
are chronically infected with hepatitis B, of which 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 type of hepatitis virus present (e.g., B or C) and to detect mutations in
the virus that cause the disease to become resistant to anti-viral drugs.

HEPATITIS C

    We are currently developing a GeneKit for hepatitis C. Hepatitis C is a
second type of virus that causes inflammation of the liver. There are
approximately 175 million people worldwide that are chronically infected with
hepatitis C, of which approximately 3.2 million are 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.

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 three 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 additional HIV GeneKits for HIV species not covered by our
existing HIV GeneKit.

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REGULATION BY THE FDA AND OTHER GOVERNMENT AGENCIES

    We currently sell our products for research and clinical research purposes.
In the future, we intend to sell products for clinical diagnostic purposes. We
do not believe we need authorization from the FDA or health authorities in
foreign countries to sell our products for research purposes, as long as they
are properly labeled. We will, however, require authorization 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 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) 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)
the notification, 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 FDA completes its review of
more than 66% of 510(k)s 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 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, up to one-and-a-half years or more from filing. 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
GeneKit is currently considered by the FDA as a Class III medical

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<PAGE>
device. However, the FDA recently 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. Under this new procedure we can ask the FDA to classify our HIV
OpenGene System based upon an evaluation of the risks presented by the device to
patients. The FDA has 60 days to make a decision on this request. However, in
order for us to use this new procedure, we would first have to submit a 510(k)
to the FDA and have the FDA reject the 510(k), which would occur because the
device is still in Class III. Once the FDA rejects our 510(k), we would then
immediately submit our request for classification of our HIV OpenGene System in
Class II. This option is likely to be faster than waiting for the FDA to go
through its normal reclassification procedures.

    We currently plan to follow this alternate option. However, since this
process is new and is used very infrequently, there is no assurance that the FDA
would grant our request for reclassification. If the FDA does not grant our
request to reclassify our HIV GeneKit 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. The FDA recently
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, 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, Europe and South

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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.

    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 Norcross, 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 Norcross 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 58 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 1999 approximately 21% of our revenues
were derived from sales of sequencers and other products to Amersham.

    In 1999, we granted exclusive rights to distribute our GeneKits and OpenGene
System to Werfen Medical S.A. in Argentina and Diagnostic Technology Pty Ltd. in
Australia and New Zealand. We also entered into an agreement in 1999 with Roche
Diagnostics, S.L. to act as our exclusive agent in Spain and Portugal in the
clinical diagnostic market. These agreements expire at various times from
April 2000 through April 2002, and in certain 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 marketing efforts also include product advertisement and participation
in trade shows and product seminars.

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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:

    - developing additional GeneKits, including additional HIV GeneKits for
      different HIV species, and GeneKits for hepatitis B, hepatitis C and
      tuberculosis;

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

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

    - exploring new technologies for future commercial products.

    As of February 29, 2000, our research and development staff consisted of 60
people. This includes a team of software developers who have developed our
GeneObjects software and are developing our TRUGENE CMS 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. Our
research and development staff is also working to prepare our planned
application to the FDA to sell our HIV OpenGene System to the clinical
diagnostic market.

    We incurred $7.9 million of research and development expenses in 1999, $6.3
million in 1998 and $4.1 million in 1997. 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 also plan to make GeneKits at a new
facility in Atlanta, Georgia, which is in the process of being built. We
manufacture certain chemicals and other components included in the GeneKits.
Other GeneKits 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 position to qualify our
Atlanta facility under applicable FDA standards. We expect that this new
approximately 100,000 square foot facility will become available to us in stages
and that we will be in a position to commence commercial production at this
facility in the first quarter of 2001.

    We have documented and installed design and production practices in our
Toronto facilities to comply with the FDA's quality system regulations. We are
in the process of documenting and installing design and production practices in
our Pittsburgh facility 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 also are seeking
certification of compliance to ISO 9001 for our Toronto 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

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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 33 U.S. patents. We own or jointly own additional 31
U.S. patent applications pending, of which seven have been allowed. We own 12
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.

    On December 27, 1999, Perkin-Elmer Corporation, PE Biosystems Group 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 patents licensed to Perkin-Elmer by the California Institute of
Technology. The complaint offers no details to support the allegation of
infringement. The suit requests among other remedies that the court enjoin us
from continuing to infringe these patents and an unspecified amount of damages.
We have previously studied these patents and have received legal advice that we
are not liable for any claims of infringement. We believe that Perkin-Elmer's
claim is without merit and we plan to vigorously defend the suit. Dr. Lloyd M.
Smith, one of our directors, is a named inventor on the patents that we are
alleged to have infringed. Dr. Smith indirectly receives royalty payments for
those patents from Perkin-Elmer through the California Institute of Technology.
Dr. Smith is a co-founder of Third-Wave Technologies Inc., which has announced
that it will be acquired by PE Biosystems in a stock-for-stock transaction.
After the closing of that transaction, Dr. Smith expects to be a consultant to
PE Biosystems.

    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.

                                       18
<PAGE>
    Some of our major competitors include:

    - manufacturers and distributors of DNA sequencers such as the PE Biosystems
      Group, Amersham and its Molecular Dynamics subsidiary, LI-COR, Inc.,
      Hitachi, Ltd. and Molecular and Genetic BioSystems, Inc.;

    - 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;

    - manufacturers of new 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

    - manufacturers of cell cultured assays, including ViroLogic, Inc. and
      VIRCO.

    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:

    - our ability to provide an integrated DNA sequencing system;

    - ease of use;

    - speed of sequencing;

    - cost-effectiveness;

    - clinical data with respect to the HIV market; and

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

EMPLOYEES

    As of February 29, 2000, we employed 248 full-time employees (including
executive officers) and 21 independent contractors, of whom:

    - 60 are engaged in research and development;

    - 58 are involved in sales and marketing activities;

    - 84 in manufacturing and operations; and

    - 67 are involved in finance, legal and administrative functions.

    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.

                                       19
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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. 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
year ended December 31, 1999 were $13.6 million. 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 $25.3 million in the year ended December 31, 1999.
As of December 31, 1999, our accumulated deficit was $59.4 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:

    - whether we obtain regulatory approval to sell our HIV OpenGene System and,
      in the future, OpenGene Systems for other diseases, to the clinical
      diagnostic market in the United States and abroad;

    - the decision of third-party payors to reimburse clinicians and patients
      for use of our HIV GeneKit and, in the future, our other products;

    - 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;

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

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

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

    - 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:

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

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

                                       20
<PAGE>
    - our decision to increase or decrease sales of equipment, GeneKits and
      other consumables at reduced prices;

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

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

    - 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 AND, IN THE FUTURE, OTHER HIV PRODUCTS, AND, THEREFORE, WE
MAY NOT BE ABLE TO SELL OUR HIV PRODUCTS TO THE CLINICAL DIAGNOSTIC MARKET IN
THE UNITED STATES OR ABROAD.

    We intend to seek FDA approval 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 must submit
an application supported by extensive human test data demonstrating the utility,
reliability and performance of our HIV GeneKit and OpenGene System. The FDA must
also confirm 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:

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

    - it may be more expensive and time consuming than we anticipate to develop
      the test data needed for the FDA;

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

    - the testing may show that our HIV products do not work at all or are not
      reliable enough, and therefore cannot be authorized by the FDA, or the
      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;

    - the 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;

    - we may choose or be required to discontinue our clinical trials for a
      number of reasons, including unanticipated interim trial reports, changes
      in regulations or the adoption of new regulations, unexpected
      technological developments by our competitors or problems or delays with
      patient enrollment in our trials;

    - there may be significant delays in the FDA review process;

    - 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

    - 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.

                                       21
<PAGE>
    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 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 also may be required to obtain approval from some foreign regulatory
authorities to sell our HIV products to the clinical diagnostic market in
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 PLAN TO SEEK 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
recently 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 and one-half years 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
that could take several years. Therefore, it is unlikely that reclassification
of HIV genotyping tests by the FDA would be effected for several years.

    We currently plan to attempt to accelerate the reclassification process by
using an alternative provision of the 1997 Food and Drug Administration
Modernization Act. Under this alternative, we will submit 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.

    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 very 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.

                                       22
<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 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, will contain specific reagents, dyes, enzymes, chemicals, software and
other materials. If we obtain approval through the premarket notification or
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 Norcross, 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 Norcross 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.

                                       23
<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 other DNA sequencers, DNA probe-based diagnostic systems, chip-based and
assay-based technologies, or homebrew genetic tests. 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 HIV GeneKit 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 and, in the future,
other products, 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.

                                       24
<PAGE>
    In selected geographic markets outside North America and certain European
countries, beginning in 1999, we entered into distribution and marketing
arrangements with leading distributors to sell our products to the research and
clinical diagnostic markets. These agreements expire at various times from
April 2000 through April 2002, and, in certain 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. Our ability to successfully sell products to the research
and clinical diagnostic markets in countries in which we rely on distribution
agreements will depend to a great extent on the efforts of the distributors.

    Failure to successfully market our products will impede our ability to
generate significant revenues and become profitable.

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 which manufactures our HIV GeneKit
currently has a limited production capacity. Our new facility in Atlanta,
Georgia is in the process of being 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.

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 33 U.S.
patents. We own an additional 31 U.S. patent applications pending, of which
seven have been allowed. We own or jointly own 12 foreign patents. We

                                       25
<PAGE>
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 notice 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. 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.

    Perkin-Elmer Corporation, PE Biosystems Group filed a lawsuit against us in
the United States District Court for the Northern District of California
claiming that our DNA sequencing equipment and products infringe patents
licensed to Perkin-Elmer by the California Institute of Technology. The suit
requests among other remedies that the court enjoin us from continuing to
infringe these patents and an unspecified amount of damages. If Perkin-Elmer is
successful in this suit, we may be unable to manufacture our DNA sequencing
equipment and products without a license from Perkin-Elmer. There can be no
assurance that we would be able to obtain a license for these patents on terms
acceptable to us, or at all. 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. In addition, monetary damages awarded to
Perkin-Elmer could be substantial, and if so, our business, financial condition
and results of operations could be materially harmed. Dr. Lloyd M. Smith, one of
our directors, is a named inventor on the patents that we are alleged to have
infringed. Dr. Smith indirectly receives royalty payments for those patents from
Perkin-Elmer through the California Institute of Technology. Dr. Smith is a
co-founder of Third-Wave Technologies Inc., which has announced that it will be
acquired by PE Biosystems in a stock-for-stock transaction. After the closing of
that transaction, Dr. Smith expects to be a consultant to PE Biosystems.

                                       26
<PAGE>
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 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 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 also use certain custom-designed components supplied by third parties in
our DNA sequencers and other equipment. We believe that there are alternative
suppliers for these custom-designed parts. However, we will incur costs in
switching to alternative 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 WAS 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. These
licenses are 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 these licenses. One license is for the life of the patents
included within the licensing agreement, which expire at various times
commencing July 2004. The second license expires in February 2003 but will be
automatically extended until July 2004, unless the Roche companies elect not to
renew the license. After the expiration of the initial term of this license, the
Roche companies may terminate the license at any time by giving us a one-year
notice. The termination of either of these licenses 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 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:

    - manufacturers and distributors of DNA sequencers such as the PE Biosystems
      Group of the Perkin-Elmer Corporation, Amersham and its Molecular Dynamics
      subsidiary, LI-COR, Inc., Hitachi, Ltd. and Molecular and Genetic
      BioSystems, Inc.;

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

    - manufacturers of new 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.;

                                       27
<PAGE>
    - manufacturers of cell cultured assays, including ViroLogic, Inc. and
      VIRCO; and

    - manufacturers homebrew genetic tests, which typically have not undergone
      clinical validation and have not been approved by the FDA or other
      regulatory agencies.

    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 to 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 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.

                                       28
<PAGE>
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:

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

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

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

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

    - 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.

A SIGNIFICANT PORTION OF OUR SALES DURING 1998 AND 1999 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 1998 and 1999,
approximately 30% and 21%, respectively, of our revenues resulted from sales of
sequencers and other products to Amersham. Our agreement with Amersham expires
in February 2001 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:

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

    - tariffs, customs, duties and other trade barriers;

    - difficulties in managing foreign operations and foreign distribution
      partners;

    - longer payment cycles and problems in collecting accounts receivable;

                                       29
<PAGE>
    - fluctuations in currency exchange rates;

    - political risks;

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

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

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

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

    - 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, we believe that current cash balances,
including proceeds from our recently completed financings, and anticipated funds
from operations will be sufficient to enable us to meet our operating needs for
the next 24 months. In addition, we have filed a registration statement with the
Securities and Exchange Commission covering our proposed sale of up to an
additional 2,300,000 common shares in a public offering. If we complete the
public offering, the proceeds of the offering would be available for general
corporate and working capital purposes, including, among other things, to
acquire complementary businesses, products, services or technologies. Currently,
we have no definitive agreements to make any acquisition and we cannot be
certain that the proceeds we would receive from the public offering would be
sufficient to complete any acquisition we might make in the future. 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:

    - our success in selling our products in the research and clinical research
      markets during this period;

    - the cost and length of time required to complete the clinical trials
      needed for our application to the FDA for approval to sell our HIV
      OpenGene System to the clinical diagnostic market;

    - the timing of our submission of an application to the FDA for approval to
      sell our HIV OpenGene System and the length of time it takes the FDA to
      complete its review;

    - our success in introducing new products during the period;

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

    - 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 need to obtain funds at the end of 24 months, or
earlier, 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.

                                       30
<PAGE>
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 1999 there can be
no assurance that we will not be treated as a PFIC in 2000 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 1999 taxable year, approximately 8%, of our assets averaged over the
taxable year produced, or were held for the production of, passive income, and
approximately 5% of our gross income was passive income. During the third and
fourth quarter of 1999, we raised a total of approximately $52 million in
private financings, after repayment of outstanding indebtedness and offering
expenses, to be used for general working capital purposes. Since a significant
portion of these funds and the funds that we will receive from this offering
will be invested until needed, the percentage of our assets that are likely to
produce passive income during 2000 will increase.

    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:

    - 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;

    - they will be required to pay interest on taxes allocable to prior periods;
      and

    - 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 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).

                                       31
<PAGE>
    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 the section
entitled "Taxation--U.S. Federal Income Tax Considerations--Tax Status of the
Company--Passive Foreign Investment 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. Our Series A
preferred shares entitle the holders to certain preferences over our common
shares (described elsewhere in this annual report), including the following:

    - 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;

    - 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

                                       32
<PAGE>
    - 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 $34.0 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 29, 2000, we had outstanding 16,045,167 voting shares, which
includes 3,259,768 shares issuable upon conversion of our Series A preferred
shares. All of these shares are eligible for sale under Rule 144, pursuant to
currently effective registration statements, or are otherwise freely tradable.
Directors, executive officers and certain shareholders who in the aggregate own
4,879,759 voting shares have agreed to a 90-day lock-up with respect to their
shares. FleetBoston Robertson Stephens Inc. may release shareholders from the
lockup agreement at any time and without notice. Following the expiration of
this lock-up period, 4,879,759 common shares subject to the lock-up agreements
will become available for immediate resale in the public market subject, in some
instances, to the volume and other limitations of Rule 144.

    Subject to the lock-up agreements described above, our common shares are
eligible for sale into the public market as follows:


    - Our affiliates own 1,971,325 shares that may be sold subject to volume
      restrictions imposed by Rule 144. We have agreed to file a registration
      statement with the Securities and Exchange Commission covering 1,927,134
      of these shares, which will be filed no earlier than 90 days and no later
      than 180 days after the completion of our public offering of common shares
      covered by Registration Statement which we first filed with the Securities
      and Exchange Commission on March 13, 2000. Our affiliates also own options
      to acquire an additional 950,776 shares. The shares to be issued upon
      exercise of these options have been registered and may be freely sold when
      issued.


    - Our employees and consultants who are not deemed affiliates hold options
      to buy a total of 995,698 shares. The shares to be issued upon exercise of
      these options have been registered and may be freely sold when issued.

    - 3,069 shares issuable upon exercise of outstanding warrants, are
      registered for sale pursuant to a registration statement filed with the
      Securities and Exchange Commission, and may be freely sold.

    - We may issue options to purchase up to an additional 501,412 shares under
      our stock option plans. The shares to be issued upon exercise of these
      options have been registered and may be freely sold when issued.

    - We have filed registration statements covering 1,916,000 common shares,
      and an additional 5,283,758 common shares issuable upon conversion of our
      Series A preferred shares and issued or

                                       33
<PAGE>
      issuable upon exercise of certain warrants issued on July 15, 1999. These
      shares may be freely sold so long as the registration statements covering
      them remain effective.

    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 127,854 common shares as of
February 29, 2000, without giving effect to our proposed offering) 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 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.

WE MAY SUFFER LOSSES AS RESULT OF FLUCTUATIONS IN EXCHANGE RATES BETWEEN THE
U.S. DOLLAR AND FOREIGN CURRENCIES.

    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.

                                       34
<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:

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

    - acceptance of our products in the clinical diagnostic market;

    - acceptance of genotyping in the clinical diagnostic market;

    - our marketing and sales plans;

    - our expectations about the markets for our products;

    - the performance of our products;

    - our intention to introduce new products;

    - our future capital needs;

    - our clinical trials;

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

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

    - our patent applications;

    - our ability to bring our Atlanta manufacturing facility fully operational;

    - our ability to modify our information systems to accommodate euro
      transactions; and

    - the status of year 2000 compliance efforts of our company, and our
      material customers and suppliers.

    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:

    - 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;

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

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

    - problems, delays and expenses we may face with our proposed clinical
      trials;

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

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

    - problems with important suppliers and business partners;

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

    - 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 prospectus or incorporated by
reference, 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.

                                       35
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY.

    The table below lists the locations of our facilities and summarizes certain
information about each location.
<TABLE>
<CAPTION>
                                                                                                      SQUARE
                                                                                                       FEET
                                LOCATION                              USE                          (APPROXIMATE)
                                --------                              ---                          -------------
<S>                        <C>                     <C>                                             <C>
1.                         Bay Street              Research, sales and principal executive            20,643
                           Toronto, Canada         offices

2.                         Etobicoke               MicroCel manufacturing                              8,482
                           Ontario, Canada

3.                         Etobicoke               Sequencer manufacturing                            10,500
                           Ontario, Canada

4.                         Oakville                Research and development                            8,000
                           Ontario, Canada

5.                         University of           Kit manufacturing and research and                  8,171
                           Pittsburgh              development
                           Applied Research
                           Center,
                           Pittsburgh,
                           Pennsylvania

6.                         Technology Park         Research and development and laboratory             7,313
                           Norcross, Georgia

7.                         Suwanee, Georgia*       GeneKit manufacturing, research and                99,822
                                                   development, and laboratory and
                                                   sales and administrative offices

8.                         Evry,                   European head office                                6,000
                           France

9.                         Meyerside Drive**       Kit development                                     3,100
                           Mississauga,
                           Canada

10.                        Kestrel Road**          Kit manufacturing                                  22,600
                           Mississauga,
                           Canada

11.                        Technology Park,**      Research and development and laboratory            21,032
                           Norcross, Georgia

<CAPTION>

                        TERM OF LEASE
                        -------------
<S>                    <C>
1.                     June 1995 -
                       May 2000
2.                     June 1996 -
                       May 2001
3.                     September 1998 -
                       August 2003
4.                     September 1998 -
                       August 2003
5.                     September 1997 -
                       August 2000

6.                     March 1998 -
                       February 2003
7.                     February 2000 -
                       March 2010

8.                     March 1999 -
                       February 2001
9.                     May 1999 -
                       April 2004

10.                    May 1999 -
                       April 2004

11.                    November 1999 -
                       October 2004
</TABLE>

------------------------

*   This facility is not yet operating.

**  We do not intend to use these facilities and are currently attempting to
    sublease them.

    In addition, to the foregoing we have entered into a short term lease in
Norcross, Georgia for temporary office space until our new facility in Suwanee,
Georgia is complete.

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

                                       36
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.

    We are not a party to any material legal proceedings other than the suit
described under "Description of Business--Proprietary Rights".

SERVICE AND ENFORCEMENT OF LEGAL PROCESS

    Our company is incorporated under the laws of the Province of Ontario,
Canada and a substantial portion of our assets are located in Canada. Certain of
our directors and officers and certain of the experts named in this annual
report are residents of Canada, and all or a substantial portion of their assets
are located outside the United States. As a result, if any of our shareholders
were to bring a lawsuit against our officers, directors or experts in the United
States it may be difficult for them to effect service of legal process within
the United States upon those people who are not residents of the United States
or to realize in the United States upon judgments of courts of the United States
based upon civil liability under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended (including the rules promulgated
thereunder by the Securities and Exchange Commission). In addition, our
attorneys in Canada, Osler, Hoskin & Harcourt LLP, have advised us that there is
doubt as to the enforceability in Canada against our company, our directors and
officers, or the experts named in this annual report, in each case if not a
resident of the United States, of liabilities predicated solely upon U.S.
federal securities laws.

                                       37
<PAGE>
ITEM 4. CONTROL OF REGISTRANT.

    The following table sets forth certain information regarding the beneficial
ownership of our outstanding voting shares, as of February 29, 2000, for
(i) all shareholders known to beneficially own or exercise control or direction
over more than 10% of our common shares, and (ii) all directors and executive
officers as a group (13 persons):

<TABLE>
<CAPTION>
                                                                  NUMBER OF SHARES
                                                              BENEFICIALLY OWNED(1) OR
                                                               OVER WHICH CONTROL OR     PERCENTAGE OF
NAME                                                           DIRECTION IS EXERCISED      CLASS(1)
----                                                          ------------------------   -------------
<S>                                                           <C>                        <C>
Warburg, Pincus Funds(2)....................................         2,908,434               16.1%
GeneVest Inc. (3)...........................................         1,927,134               12.0%
All directors and executive officers as a group (13
  persons)(4)...............................................           409,134                2.5%
</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 1999 and 2000 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 currently exercisable or
    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. This
    information is based on 16,045,167 voting shares outstanding as of
    February 29, 2000, which includes 3,259,748 common shares issuable upon
    conversion of our Series A preferred shares as of February 29, 2000. 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) 1,374,236 common shares held by Warburg, Pincus Equity
    Partners, L.P., which includes 1,361,122 common shares issuable upon
    conversion of their Series A preferred shares; (ii) 1,454,217 common shares
    held by Warburg, Pincus Ventures International, L.P., which includes
    1,440,341 common shares issuable upon conversion of their Series A preferred
    shares; (iii) 43,626 common shares held by Warburg, Pincus Netherlands
    Equity Partners, I, C.V., which includes 43,210 common shares issuable upon
    conversion of their Series A preferred shares; (iv) 29,084 common shares
    held by Warburg, Pincus Netherlands Equity Partners, II, C.V., which
    includes 28,807 common shares issuable upon conversion of their Series A
    preferred shares; and (v) 7,271 common shares held by Warburg, Pincus
    Netherlands Equity Partners III, C.V., which includes 7,202 common shares
    issuable upon conversion of their Series A preferred shares. Warburg, Pincus
    & Co. ("WP") is the sole general partner of each of these shareholders. Each
    of these shareholders 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.

(3) 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.

(4) Includes an aggregate of 364,943 shares subject to options, exercisable
    within 60 days from February 29, 2000, held by our directors and executive
    officers, but excludes the shares held by GeneVest Inc. and Warburg Pincus
    Funds.

                                       38
<PAGE>
ITEM 5. 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.

<TABLE>
<CAPTION>
                                                                HIGH           LOW
                                                              --------       --------
<S>                                                           <C>            <C>
FISCAL YEAR ENDED DECEMBER 31, 1998
    First Quarter...........................................  $  9.75         $ 6.00
    Second Quarter..........................................  $ 11.38         $ 7.50
    Third Quarter...........................................  $ 13.06         $ 7.00
    Fourth Quarter..........................................  $ 14.00         $ 9.25

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 (through March 9, 2000)...................  $119.13         $29.00
</TABLE>

    On March 9, 2000 the last reported sale price of our common shares on the
Nasdaq National Market was $93.00. As of February 29, 2000, there were 111
holders of record of our common shares. This number does not include an
indeterminable number of beneficial holders of these securities whose common
shares are held by financial institutions in "street name."

ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS.

    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. See "Taxation--Canadian Federal Income Tax
Considerations-Nonresidents of Canada."

    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 "WTOA 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 2000) and the value of the assets
of our company equalled or exceeded Cdn$192.0 million. A non-Canadian, whether a
WTO Investor or otherwise, would be deemed to acquire control of our 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

                                       39
<PAGE>
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.

ITEM 7. 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 in 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 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.

                                       40
<PAGE>
    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.

    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
depreciation of such shares pursuant to an applicable international tax treaty
is referred to in 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

                                       41
<PAGE>
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 33 1/3% 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.

    Three-quarters (or, under the Proposed Amendments, two-thirds) of any
capital gain realized by a Holder (a taxable capital gain) will be included in
computing the Resident Holder's income and three-quarters (or, under the
proposed Amendments, two-thirds) of any capital loss realized by a Resident
Holder may normally be deducted from the Resident Holder's taxable capital gains
realized in the year of disposition, the three preceding taxation years or any
subsequent taxation years, subject to detailed rules contained in the ITA. 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

                                       42
<PAGE>
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
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.

                                       43
<PAGE>
    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 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.

                                       44
<PAGE>
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 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.

                                       45
<PAGE>
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 or 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. 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 1999 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

                                       46
<PAGE>
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
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

                                       47
<PAGE>
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 1999. However, there can be
no assurance that our company will not be classified as a PFIC in 2000 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
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.

                                       48
<PAGE>
ITEM 8. SELECTED FINANCIAL DATA.

    The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our Consolidated Financial Statements and the
Notes thereto. The Consolidated Statements of Operations data for fiscal years
1997, 1998, 1999 and the Consolidated Balance Sheet data as of December 31, 1998
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
1995 and 1996 and the Consolidated Balance Sheet data as of December 31, 1995,
1996 and 1997, 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.

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31
                                           --------------------------------------------------------------
                                              1995         1996         1997         1998         1999
                                           ----------   ----------   ----------   ----------   ----------
                                                      ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                        <C>          <C>          <C>          <C>          <C>
STATEMENTS OF OPERATIONS DATA:
  Sales..................................  $       --   $      978   $    3,033   $   10,875   $   13,627
  Cost of sales..........................          --          561        1,995        6,673        9,273
                                           ----------   ----------   ----------   ----------   ----------
  Gross margin...........................          --          417        1,038        4,202        4,354
  Sales, general and administrative
    expense..............................       1,476        3,377        7,448       11,516       19,074
  Research and development expense.......       1,241        2,745        4,123        6,289        7,935
  Other expense..........................          --           --          654          420        1,329
                                           ----------   ----------   ----------   ----------   ----------
  Loss from operations before interest...      (2,717)      (5,705)     (11,187)     (14,023)     (23,984)
  Interest income........................          12          609          774          264          695
  Interest and financing expense.........         (19)         (69)          (3)      (1,132)      (1,998)
                                           ----------   ----------   ----------   ----------   ----------
  Net loss...............................      (2,724)      (5,165)     (10,416)     (14,891)     (25,287)
  Cumulative preferred dividends and
    accretion of discount attributable to
    preferred shares.....................          --           --           --           --       (1,770)
                                           ----------   ----------   ----------   ----------   ----------
  Net loss attributable to common
    shareholders.........................  $   (2,724)  $   (5,165)  $  (10,416)  $  (14,891)  $  (27,057)
                                           ==========   ==========   ==========   ==========   ==========
  Net loss per common share..............  $    (0.65)  $    (0.89)  $    (1.48)  $    (1.91)  $    (2.73)
  Weighted average number of common
    shares outstanding...................   4,181,599    5,791,367    7,059,578    7,782,094    9,916,954
</TABLE>

<TABLE>
<CAPTION>
                                                                      DECEMBER 31
                                                  ----------------------------------------------------
                                                    1995       1996       1997       1998       1999
                                                  --------   --------   --------   --------   --------
                                                                     (IN THOUSANDS)
<S>                                               <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
  Cash and short-term investments...............   $  403    $18,928    $ 7,588    $11,274    $42,688
  Working capital...............................      418     20,061      9,561      8,432     45,611
  Total assets..................................    1,791     22,606     13,936     27,783     58,640
  Indebtedness..................................      500         --         --      7,495         --
  Mandatorily redeemable convertible preferred
    shares......................................       --         --         --         --     27,556
  Accumulated deficit...........................   (3,680)    (8,845)   (19,260)   (34,151)   (59,438)
  Shareholders' equity..........................      841     21,795     12,610     14,579     24,351
</TABLE>

                                       49
<PAGE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS.

    YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH
ITEM 8 --"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 "DESCRIPTION OF BUSINESS--FORWARD-LOOKING STATEMENTS."

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:

    - SEQUENCING SYSTEMS. Sequencing systems consist of automated DNA sequencers
      and related equipment, and our proprietary 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.

    - TESTING, SEQUENCING AND OTHER SERVICES. We provide services, such as viral
      load testing, genotyping and other molecular services, through our
      wholly-owned subsidiaries, Applied Sciences, Inc., which we acquired in
      1997, and Visible Genetics Europe S.A. (formerly known as ACT Gene S.A.),
      which we acquired in 1998.

    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 approval, to the clinical diagnostic
market. As part of this strategy, we may sell our DNA sequencers at reduced
prices to customers who commit to purchase significant quantities of GeneKits
and other consumables. In addition, in 1998 and 1999, we bundled our DNA
sequencers and GeneKits for sale at reduced prices. We discontinued the practice
of bundled sales in the second half of 1999. 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 approval.

OUR OPERATIONS

    SALES.  Sales consist of revenues from the sale of sequencing systems and
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 shipment occurs, title passes
to the customer or distributor and there is a reasonable assurance of
collectibility. Revenues from the sale of testing and other services are
recognized when the service is provided 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.

                                       50
<PAGE>
    We sell our products in North America, Europe, Asia, Australia 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 Spain, Portugal, Japan, Australia, New
Zealand and Argentina.

    For an analysis of sales by product segment and geographic market, see
Note 15 to our Consolidated Financial Statements.

    COST OF SALES.  Cost of sales consists of manufacturing costs including
materials, labor and overhead chargeable to inventory. The gross margin from
sales of our products and services varies depending on product category,
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,
occupancy costs, utilities, professional fees, consulting fees, travel costs,
capital taxes, depreciation of fixed assets and amortization of costs paid to
patent counsel.

    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 financing 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.

RESULTS OF OPERATIONS

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 primarily 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.

                                       51
<PAGE>
    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 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 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 Warbug Pincus financing, compared to $0.6 million during
1998.

COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1998 TO FISCAL YEAR ENDED
  DECEMBER 31, 1997

    SALES.  Sales increased 259% to $10.9 million in 1998 from $3.0 million in
1997. This increase resulted from increased sales of our sequencing systems,
GeneKits and other consumables and testing, sequencing and other services. In
1998, 412 sequencing systems were sold, an increase of 353% from the 91 systems
sold in 1997. In 1998, sequencing systems accounted for 74% of sales, compared
to 90% of sales in 1997. GeneKits and other consumables accounted for 13% of
sales in 1998, compared to 8% in 1997. Testing services accounted for 13% of
sales in 1998 compared to 2% of sales in 1997 as a result of our acquisitions in
1997 and 1998 of a DNA diagnostic testing companies. Sales during 1998 in North
America, Europe, Japan and the rest of the world were $4.4 million,
$4.6 million, $1.6 million and $0.3 million, respectively, as compared to
$2.8 million, $0.2 million, nil and $0.05 million, respectively, during 1997.
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 year. During 1997, no customer accounted for more than
10% of sales.

    COST OF SALES.  Cost of sales increased 235% to $6.7 million in 1998 from
$2.0 million in 1997. In 1998, cost of sales aggregated 61% of sales, a decrease
from 66% of sales in 1997. Cost of sales decreased in 1998 as a percentage of
sales due to improvements in our manufacturing processes, as well as

                                       52
<PAGE>
economies of scale as production of sequencing systems, GeneKits and other
consumables increased compared to the previous year.

    SALES, GENERAL AND ADMINISTRATIVE EXPENSES.  Sales, general and
administrative expenses increased 55% to $11.5 million in 1998 from
$7.4 million in 1997. This increase resulted primarily from increased payroll
and personnel costs due to the growth of our business, establishment of quality
control and regulatory departments and development of a sales force in North
America and in certain countries in Europe. Sales and marketing expenses
included in sales, general and administrative expenses increased 72% to
$6.2 million in 1998 from $3.6 million in 1997.

    RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses
increased 53% to $6.3 million in 1998 from $4.1 million in 1997. This increase
in research and development expenses resulted from increased payroll and
personnel costs along with increased purchases of laboratory supplies as we
continued to develop GeneKits and expanded our research programs.

    In April 1998, we acquired 100% of the shares of ACT Gene S.A., a DNA
diagnostic testing company, for 85,000 common shares and cash payable of
$0.7 million. This acquisition was accounted for as a purchase, and resulted in
the recording of an excess of purchase price over tangible net assets of
$0.5 million, of which $0.4 million was determined to be in-process research and
development, and reflected as an expense in 1998. The in-process research and
development related 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 sequencing systems. As of April 1998, the test kit was
approximately 80% completed, with an estimated cost to complete the kit of
approximately $650,000. At that time we expected to complete the kit during
1999. We currently estimate the cost to date plus additional cost to complete
the kit will total approximately $900,000. We currently expect development of
the kit to be completed during 2000. At the date of acquisition, the test kit
had not yet reached technological feasibility and had no alternative future uses
in the clinical diagnostic market.

    INTEREST INCOME.  Interest income declined to $0.3 million in 1998 from
$0.8 million in 1997.

    INTEREST AND FINANCING EXPENSE.  Interest and financing expense increased to
$1.1 million in 1998 from approximately nil in 1997 due to interest paid or
accrued and the amortization of costs attributable to warrants issued in
connection with term loans entered into in April and September 1998.

LIQUIDITY AND CAPITAL RESOURCES

    Since inception, we have financed our operations primarily through private
placements of equity and an initial public offering in June 1996. We have also
borrowed funds from institutional lenders.

    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 described below. 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

                                       53
<PAGE>
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 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 Warburg
Pincus as described in "Interest of Management in Certain Transactions."

    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 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. Under the terms of our warrant agreement, the Warburg Pincus

                                       54
<PAGE>
Funds elected to pay the exercise price for the warrants through a non-cash
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.

    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, the Hilal Funds, certain investors who had purchased
our common shares in a November 1998 private placement and certain new
institutional investors.

    CAPITAL EXPENDITURES.  Additions to fixed assets were approximately
$1.9 million, $3.3 million and $1.3 million for the years ended December 31,
1999, 1998 and 1997, respectively. We expect capital expenditures to increase
over the next several years as we expand our facilities and acquire additional
manufacturing and scientific equipment.

    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, conduct our
clinical trials, conduct research, build our business infrastructure and expand
our manufacturing capabilities. At this time, funds from operations are not
sufficient to meet our operating needs and other anticipated financial
requirements.

    Based on our current plans, we believe that our cash on hand, anticipated
funds from operations and net proceeds from this offering, will be sufficient to
enable us to meet our operating needs for the next 24 months. In addition, we
have filed a registration statement with the Securities and Exchange Commission
covering our proposed sale of up to an additional 2,300,000 common shares in a
public offering. If we complete the public offering, the proceeds of the
offering would be available for general corporate and working capital purposes,
including, among other things, to acquire complementary businesses, products,
services or technologies. Currently, we have no definitive agreements to make
any acquisition and we cannot be certain that the proceeds we would receive from
the public offering would be sufficient to complete any acquisition we might
make in the future. 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 are 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 need to obtain funds at the end of 24 months, or
earlier, 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.

                                       55
<PAGE>
YEAR 2000

    We have conducted a comprehensive examination of our information technology
systems and the software applications sold with our products to determine year
2000 compliance. Based on our examination, we believe that these systems and
software are year 2000 compliant and to date none of these systems or
applications have experienced year 2000 problems.

    We have spent approximately $470,000 on our year 2000 compliance efforts, of
which $454,000 was for a new enterprise system purchased in 1998. While we did
not purchase the new system specifically in response to year 2000 issues, our
efforts at compliance accelerated the timetable for purchasing the system.

    We have contacted our material customers, suppliers and third-party service
providers to identify year 2000 problems and provide solutions to prevent any
disruption of business activities. We completed a review of the compliance
efforts by these parties in the third quarter of 1999. Based on the information
we have received, our most significant year 2000 risk would involve disruption
of our material supply and distribution channels, and in particular the supply
of certain instrument parts and supplies from single-source suppliers. This
would likely lead to material interruption in product development and sales of
our products. In addition, we could encounter significant expenses in remedying
any problems or switching to year 2000 compliant vendors and suppliers. As of
the date of this prospectus, we are not aware of any year 2000 problems
affecting any of our material customers, suppliers or third-party service
providers that might materially disrupt our business.

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 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 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

    We do not own and have not issued any market risk sensitive instruments
about which disclosure is required to be provided pursuant to this Item.

                                       56
<PAGE>
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT.

EXECUTIVE OFFICERS AND DIRECTORS

    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(3)........      50      President, Chief Executive Officer and Director         1998         2001
Thomas J. Clarke..........      51      Chief Financial Officer                                 2000
Timothy W. Ellis..........      52      Chief Operating Officer                                 1999
Dr. Arthur W.G. Cole......      49      Executive Vice President; President, Visible            1996
                                        Genetics Europe S.A.
Dr. James M. Dunn.........      45      Vice President, Technology                              1994
Marguerite Ethier.........      36      Vice President, General Counsel and Director            2000
Michael A. Cardiff(2).....      40      Director                                                1999         2000
Sheldon Inwentash(1)......      44      Director                                                1994         2002
Jonathan S. Leff(1)(2)....      31      Director                                                1999         2000
Robert M. MacIntosh.......      77      Director                                                2000         2000
Prof. J. Robert S.
  Prichard(1)(2)(3).......      50      Director                                                1999         2002
Dr. Lloyd M. Smith........      44      Director                                                1995         2001
Dr. Konrad M. Weis........      71      Director                                                1997         2001
</TABLE>

------------------------

(1) Member of Audit Committee

(2) Member of Compensation Committee

(3) Corporate Governance 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,
Executive Vice President since March 1999 and President and Chief Executive
Officer since 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 Quadram Corporation. From 1980 to 1985, Mr.
Clarke held various financial positions at Contel Corporation. Mr. Clarke is a
Certified Public Accountant.

                                       57
<PAGE>
    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. 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 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 and has been a Director of our company since February 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. 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
Visible Decisions Inc. (which company is not related to our company), 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. (formerly known as Gene Screen 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.

    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., VitalCom Inc.,
and a number of private health care companies.

    ROBERT M. MACINTOSH has been a Director of our company since March 2000.
From 1980 until his retirement in 1989, Mr. MacIntosh was President of the
Canadian Bankers Association. Mr. MacIntosh presently is a member of the board
of directors of Chase Manhattan Bank of Canada.

                                       58
<PAGE>
    PROF. J. ROBERT S. PRICHARD has been a Director of our company in May 1999.
Prof. Prichard has been President of the University of Toronto since 1990. 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, Four Seasons Hotels Inc. and Tesma
International Inc.

    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 co-founder of Third-Wave Technologies, Inc., a biotechnology
company, which has agreed to be acquired by PE Biosystems in a stock-for-stock
transaction.

    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., Michael Baker Corporation and Titan
Pharmaceuticals, Inc.

ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.

    All of our directors who are not employees or officers 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 our 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.

    The aggregate amount of compensation paid by us to all of our directors and
executive officers as a group (16 persons) in 1999 was $1,249,408 for services
in such capacities, of which $40,476 was paid as bonuses and $519,063 was paid
as severance payments. These amounts do not include compensation we paid to
firms with which a director and a former director, respectively, are associated.

                                       59
<PAGE>
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.

    As of February 29, 2000 there were options and warrants outstanding to
purchase an aggregate of 2,898,592 common shares, including options to purchase
1,104,776 common shares held by directors and executive officers as a group. The
options held by directors and executive officers as a group have exercise prices
ranging from $1.32 to $24.89 per share and expire at various times between 2004
and 2009. The other options and warrants have exercise prices ranging from $1.37
to $30.00 per share, and expire at various times between 2002 and 2009.

ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.

    Dr. John K. Stevens, our founder, served as the President and Chief
Executive Officer of our company until his retirement in July 1999. In
July 1996, we loaned Dr. Stevens $323,405. Interest accrued on the outstanding
principal amount of the loan at the annual rate of 6% and was payable annually
on December 31. The principal amount was payable $17,967 on or before
December 31, 1997 and the balance in nine equal annual installments ending on
December 31, 2007. In 1998, we amended the loan arrangement to eliminate all
required interest payments and to provide that the princpal was payable in full
on or before December 31, 2006. In addition, during 1997, we loaned Dr. Stevens
$50,000 which was payable, together with accrued interest at the rate of 6% per
year, on December 31, 1999. The largest aggregate amount of indebtedness owed by
Dr. Stevens was $379,769 during 1999. Upon retirement, Dr. Stevens paid all
amounts owed to our company.

    In accordance with the terms of his employment agreement, in July 1999,
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 Directors.

    In connection with the termination of employment of our former chief
financial officer, Mr. Jeffrey K. Sherman, from our Company in November 1999, we
paid $89,388 to Mr. Sherman.

    In November 1999, Dr. Chalom Sayada ceased employment with us as our Vice
President for European Business Development. 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 will earn a minimum of $125,000 for the first
twelve months of service and $63,000 for the remaining six months of service.

    In June 1998, Richard Daly was appointed as one of our directors. Mr. Daly
was appointed President and Chief Executive Officer of our company in July 1999.
During 1999, we paid an aggregate $291,115 in consulting fees to Clinical
Partners, Inc. in connection with clinical studies performed by Clinical
Partners, Inc. for us. Mr. Daly is the founder and was previously the Chairman
and President of Clinical Partners.

    Mr. Samuel Schwartz, one of our former directors and executive officers, is
a senior partner of a law firm to which we paid $246,210 legal fees in 1999.


    We have agreed to file a registration statement with the Securities and
Exchange Commission covering 1,927,134 common shares owed by GeneVest Inc.,
which will be filed no earlier than 90 days and no later than 180 days after the
completion of our public offering of common shares covered by the Registration
Statement which we first filed with the Securities and Exchange Commission on
March 13, 2000. 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.


    For a description of transactions between the company, and each of the Hilal
Funds and the Warburg Pincus Funds, respectively, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

                                       60
<PAGE>
                                    PART II

ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.

    Not Applicable.

                                    PART III

ITEM 15. DEFAULTS UPON SENIOR SECURITIES.

    None.

ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
  SECURITIES.

    Our Board of Directors is authorized to issue an unlimited number of
preferred shares in one or more series, to fix the number of preferred shares
and determine the designations, rights (including voting and dividend rights),
privileges, restrictions and conditions attaching to the shares of each such
series, without further vote or action by the shareholders. Because the terms of
the preferred shares may be fixed by our Board of Directors without shareholder
action, the preferred shares could, subject to regulatory policies, be issued
quickly, with terms calculated to defeat a takeover of our company or to make
the removal of our directors and executive officers more difficult. Under
certain circumstances, this could have the effect of decreasing the market value
of our common shares. The preferred shares may have voting rights superior to
our common shares and may rank senior to the common shares as to dividends and
as to the distribution of assets in the event our company were liquidated or
dissolved.

    On July 15, 1999, our Board of Directors authorized the issuance of 33,950
shares of Series A mandatorily redeemable convertible preferred shares. We have
issued 33,948 Series A preferred shares. The Series A preferred shares are
convertible at the holders' option into common shares at $11.00 per share. 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.

    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, holders may appoint a majority of our Board of Directors, who will
continue to serve until we have redeemed the 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 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. Our
agreements with the holders of, and the terms of the, Series A preferred shares
provide that

                                       61
<PAGE>
we are prohibited from declaring or issuing any dividends to holders of our
common shares before paying all accrued and 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 and unpaid
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 of our Series A holders 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 of Series A preferred shares 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 of Series A preferred shares to participate in future offerings in
this manner provides those shareholders 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 also are prohibited from incurring indebtedness for borrowed money and
capital lease obligations in excess of $15.0 million outstanding at any one
time, without first obtaining approval of the holders of a majority of the
Series A preferred shares.

    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.

                                    PART IV

ITEM 17. FINANCIAL STATEMENTS.

    Not applicable.

ITEM 18. FINANCIAL STATEMENTS.

    Attached. See Item 19(a).

ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS.

    (a) Financial Statements:

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

                                       62
<PAGE>
    (b) Exhibits:

<TABLE>
<C>                     <S>
         3.1            Certificate and Restated Articles of Incorporation of the
                          Company.(1)
        *3.2            Certificate and Articles of Amendment of the Company.
         3.3            Amended and Restated Bylaws of the Company.(2)
         4.1            Specimen of Certificate for Common Shares.(3)
         4.2            Certificate of Designations, Number, Voting Powers,
                          Preference and Rights of Series A Convertible Preferred
                          Shares of Visible Genetics Inc.(4)
        10.1            Visible Genetics Inc. Employee Pool Stock Option Plan.(5)
        10.2            Visible Genetics Inc. 1997 Director Option Plan.(6)
       *10.3            Visible Genetics Inc. Employee Share Option Plan, Amended
                          through May 19, 1999.
        10.4            Visible Genetics Inc. Employee Share Ownership Plan.(7)
        10.5            Common Shares Purchase Agreement, dated November 20, 1998,
                          between Visible Genetics Inc. and each of the Investors
                          who are signatories thereto.(8)
        10.6            Registration Rights Agreement, dated November 20, 1998, by
                          and among Visible Genetics Inc. and the Investors to that
                          certain Common Shares Purchase Agreement.(9)
        10.7            Stock Purchase Agreement, dated April 7, 1998, between
                          Visible Genetics Inc., Mr. Chalom Sayada, Mr. Jean Marc
                          Feryn and Mr. Philippe Halfon. (THIS AGREEMENT IS IN
                          FRENCH, THEREFORE AN ENGLISH VERSION OF THE AGREEMENT HAS
                          ALSO BEEN FILED.)(10)
        10.8            Agreement and Plan of Merger, dated as of September 10,
                          1997, by and among Visible Genetics Inc., VGI Acquisition,
                          Inc., Applied Sciences, Inc. and the Shareholders of
                          Applied Sciences, Inc.(11)
        10.9            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.)(12)
       *10.10           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.
       *10.11           Registration Rights Agreement, dated as of July 15, 1999, by
                          and among Visible Genetics Inc. and the Investors listed
                          on Schedule I thereto.
       *10.12           Common Shares Purchase Agreement, dated December 14, 1999,
                          by and among Visible Genetics Inc. and the Investors who
                          are signatories hereto.
       *10.13           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.
       *10.14           Lease between Visible Genetics Corp. and Duke-Weeks Realty
                          Limited Partnership, dated February 15, 2000.
       *10.15           Lease between Visible Genetics Inc. and LuCliff Company
                          Limited, dated March 31, 1992.
       *10.16           Lease between Visible Genetics Inc. and Royal Trust
                          Corporation of Canada, as trustee and RT Pensior
                          Properties Limited dated June 1, 1996
       *10.17           Lease between Visible Genetics Inc. and Comwest Properties
                          Limited dated July 20, 1998.
       *10.18           Lease between Visible Genetics Corp. and the University of
                          Pittsburgh of the Commonwealth System of Higher Education
                          dated Dec 1, 1996.
        10.19           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.)(13)
        10.20           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.)(14)
</TABLE>

                                       63
<PAGE>
<TABLE>
<C>                     <S>
        10.21           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.)(15)
       *10.22           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.
       *10.23           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.
       *10.24           Letter Agreement between Visible Genetics Inc. and Hilal
                          Capital Management dated July 15, 1999.
</TABLE>

------------------------

(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 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

(3) 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.

(4) 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

(5) 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.

(6) 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.

(7) 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.

(8) Incorporated by reference from Exhibit 3.7 to the Company's Annual Report on
    Form 20-F, File No. 333-03118 filed with the Securities and Exchange
    Commission on July 19, 1999.

(9) Incorporated by reference from Exhibit 3.8 to the Company's Annual Report on
    Form 20-F, File No. 333-03118 filed with the Securities and Exchange
    Commission on July 19, 1999.

(10) Incorporated by reference from Exhibit 3.9 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.

(11) Incorporated by reference from Exhibit 3.10 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.

(12) 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.

(13) 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.

(14) 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.

(15) 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.


*   Previously filed.


                                       64
<PAGE>
                                   SIGNATURES


    Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F/A-1 and has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.


<TABLE>
<S>                                                    <C>  <C>
                                                       VISIBLE GENETICS INC.

                                                       By:  /s/ RICHARD T. DALY
                                                            -----------------------------------------
                                                            Richard T. Daly
                                                            President and Chief Executive Officer
</TABLE>


Date: March 13, 2000


                                       65
<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
Audited Consolidated Financial Statements for the years
  ended December 31, 1999, 1998 and 1997

Auditors' Report............................................    F-2

Consolidated Balance Sheets as at December 31, 1999 and
  1998......................................................    F-3

Consolidated Statements of Operations for the years ended
  December 31, 1999, 1998 and 1997..........................    F-4

Consolidated Statements of Deficit for the years ended
  December 31, 1999, 1998 and 1997..........................    F-5

Consolidated Statements of Comprehensive Loss for the years
  ended December 31, 1999, 1998 and 1997....................    F-5

Consolidated Statements of Cash Flows for the years ended
  December 31, 1999, 1998 and 1997..........................    F-6

Notes to Consolidated Financial Statements..................    F-7
</TABLE>

                                      F-1
<PAGE>
                                AUDITORS' REPORT

TO THE SHAREHOLDERS OF VISIBLE GENETICS INC.

    We have audited the consolidated balance sheets of Visible Genetics Inc. as
at December 31, 1999 and 1998 and the consolidated statements of operations,
deficit, comprehensive loss, and cash flows for the years ended December 31,
1999, 1998 and 1997. 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 Canadian generally accepted
auditing standards. 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, 1999 and 1998
and the results of its operations and its cash flows for the years ended
December 31, 1999, 1998 and 1997 in accordance with generally accepted
accounting principles in the United States of America.

PricewaterhouseCoopers LLP

Chartered Accountants
Toronto, Canada
February 18, 2000

                                      F-2
<PAGE>
                             VISIBLE GENETICS INC.

                       CONSOLIDATED FINANCIAL STATEMENTS

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      DECEMBER 31
                                                              ---------------------------
                                                                  1999           1998
                                                              ------------   ------------
<S>                                                           <C>            <C>
ASSETS
Current assets
  Cash and cash equivalents.................................  $  2,792,985   $  6,165,924
  Short-term investments....................................    39,894,978      5,108,254
  Trade receivables (net of allowance for doubtful accounts
    of $1,180,801; 1998--$470,926)..........................     5,657,822      4,770,796
  Other receivables (Note 4)................................       668,748      1,445,820
  Prepaid and deposits......................................       729,307        233,072
  Inventory (Note 5)........................................     2,600,007      3,912,336
                                                              ------------   ------------
Total current assets........................................    52,343,847     21,636,202
                                                              ------------   ------------
Fixed assets (Note 6).......................................     4,173,335      3,877,163
Patents and licenses (Note 7)...............................     2,122,367      2,269,170
                                                              ------------   ------------
                                                              $ 58,639,549   $ 27,782,535
                                                              ============   ============

LIABILITIES
Current liabilities
  Notes payable (Note 8)....................................  $         --   $  7,494,877
  Accounts payable..........................................     3,110,442      3,985,103
  Accrued liabilities (Note 9)..............................     3,622,110      1,723,840
                                                              ------------   ------------
Total current liabilities...................................     6,732,552     13,203,820
                                                              ------------   ------------
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SHARES
  (Note 10).................................................    27,555,652             --
                                                              ------------   ------------
SHAREHOLDERS' EQUITY
Share capital (Note 11).....................................    75,422,070     46,412,685
Other equity (Note 11)......................................     8,987,328      2,232,465
Cumulative translation adjustment...........................      (619,911)        84,822
Deficit.....................................................   (59,438,142)   (34,151,257)
                                                              ------------   ------------
                                                                24,351,345     14,578,715
                                                              ------------   ------------
                                                              $ 58,639,549   $ 27,782,535
                                                              ============   ============
COMMITMENTS AND CONTINGENCY (Note 16)
</TABLE>

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

Approved by the Board.

<TABLE>
<C>                                                    <S>                          <C>

                 /s/ RICHARD T. DALY
     -------------------------------------------
              Richard T. Daly, Director

                /s/ SHELDON INWENTASH
     -------------------------------------------
             Sheldon Inwentash, Director
</TABLE>

                                      F-3
<PAGE>
                             VISIBLE GENETICS INC.

                       CONSOLIDATED FINANCIAL STATEMENTS

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31
                                                       ------------------------------------------
                                                           1999           1998           1997
                                                       ------------   ------------   ------------
<S>                                                    <C>            <C>            <C>
Sales
  Products...........................................  $ 12,455,775   $  9,421,933   $  2,967,695
  Services...........................................     1,171,145      1,453,415         65,041
                                                       ------------   ------------   ------------
                                                         13,626,920     10,875,348      3,032,736
                                                       ------------   ------------   ------------
Costs of sales
  Products...........................................     8,593,774      5,995,869      1,963,312
  Services...........................................       679,112        677,712         31,520
                                                       ------------   ------------   ------------
                                                          9,272,886      6,673,581      1,994,832
                                                       ------------   ------------   ------------
Gross margin.........................................     4,354,034      4,201,767      1,037,904
                                                       ------------   ------------   ------------
Expenses:
  Sales, general and administrative (Note 7).........    19,073,546     11,515,757      7,447,861
  Research and development...........................     7,935,327      6,289,032      4,122,916
  Acquired research and development (Note 12)........            --        420,043        654,621
  Exit and termination costs (Note 13)...............     1,329,083             --             --
                                                       ------------   ------------   ------------
                                                         28,337,956     18,224,832     12,225,398
                                                       ------------   ------------   ------------
Loss from operations before interest.................   (23,983,922)   (14,023,065)   (11,187,494)
Interest income......................................       694,549        264,195        774,462
Interest and financing expense (Note 8)..............    (1,997,512)    (1,132,091)        (2,714)
                                                       ------------   ------------   ------------
Net loss for the year................................   (25,286,885)   (14,890,961)   (10,415,746)
Cumulative preferred dividends and accretion of
  discount attributable to preferred shares
  (Note 10)..........................................    (1,770,069)            --             --
                                                       ------------   ------------   ------------
Net loss attributable to common shareholders.........  $(27,056,954)  $(14,890,961)  $(10,415,746)
                                                       ============   ============   ============
Weighted average number of common shares
  outstanding........................................     9,916,954      7,782,094      7,059,578
Basic and diluted loss per common share..............  $      (2.73)  $      (1.91)  $      (1.48)
</TABLE>

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

                                      F-4
<PAGE>
                             VISIBLE GENETICS INC.

                       CONSOLIDATED FINANCIAL STATEMENTS

                       CONSOLIDATED STATEMENTS OF DEFICIT

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31
                                                       ------------------------------------------
                                                           1999           1998           1997
                                                       ------------   ------------   ------------
<S>                                                    <C>            <C>            <C>
Deficit, beginning of year...........................  $(34,151,257)  $(19,260,296)  $ (8,844,550)
Net loss for the year................................   (25,286,885)   (14,890,961)   (10,415,746)
                                                       ------------   ------------   ------------
Deficit, end of year.................................  $(59,438,142)  $(34,151,257)  $(19,260,296)
                                                       ============   ============   ============
</TABLE>

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31
                                                       ------------------------------------------
                                                           1999           1998           1997
                                                       ------------   ------------   ------------
<S>                                                    <C>            <C>            <C>
Net loss for the year................................  $(25,286,885)  $(14,890,961)  $(10,415,746)
Other comprehensive income:
  Foreign currency translation adjustments...........      (704,733)       112,477             --
                                                       ------------   ------------   ------------
Comprehensive loss for the year......................  $(25,991,618)  $(14,778,484)  $(10,415,746)
                                                       ============   ============   ============
</TABLE>

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

                                      F-5
<PAGE>
                             VISIBLE GENETICS INC.

                       CONSOLIDATED FINANCIAL STATEMENTS

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31
                                                            ------------------------------------------
                                                                1999           1998           1997
                                                            ------------   ------------   ------------
<S>                                                         <C>            <C>            <C>
Cash provided by (used in) operating activities
  Net loss for the year...................................  $(25,286,885)  $(14,890,961)  $(10,415,746)
  Add: Items not involving cash
    Depreciation..........................................     1,708,923      1,090,086        495,388
    Amortization..........................................       393,979        206,640        130,593
    Patents and licenses written off......................       451,085             --             --
    Deferred compensation cost related to options
      granted.............................................            --         77,469        250,067
    Non cash financing expense related to warrants
      granted.............................................     1,466,691        580,981             --
    Amortization of discount on accounts receivable.......       (48,158)            --             --
    Foreign exchange loss.................................        26,789         28,453         37,067
    In-process research and development acquired..........            --        420,043        654,621
  Increase (decrease) from changes in
    Trade receivables.....................................    (1,804,006)    (2,327,121)    (1,193,858)
    Other receivables.....................................       719,519       (850,270)      (142,757)
    Prepaids and deposits.................................      (501,742)        28,913        (92,247)
    Inventory.............................................     1,290,997     (3,149,740)      (441,957)
    Refundable investment tax credits.....................            --             --        476,393
    Accounts Payable......................................      (734,230)     2,490,594        624,278
    Accrued liabilities...................................     1,956,660      1,159,952        (80,460)
                                                            ------------   ------------   ------------
                                                             (20,360,378)   (15,134,961)    (9,698,618)
                                                            ------------   ------------   ------------
Investing activities
  Purchase of fixed assets................................    (1,905,129)    (3,348,261)    (1,265,825)
  Licenses and patents acquired...........................      (698,261)      (877,796)      (815,925)
  Purchase of short-term investments......................   (50,503,643)   (13,705,737)    (3,221,329)
  Redemption of short-term investments....................    15,716,919     14,616,777      7,432,233
  Acquisition of ACT Gene S.A.............................            --       (536,929)            --
                                                            ------------   ------------   ------------
                                                             (37,390,114)    (3,851,946)     2,129,154
                                                            ------------   ------------   ------------
Financing activities
  Preferred shares issued, net of expenses................    22,719,748             --             --
  Warrants issued in connection with preferred shares.....     6,397,448             --             --
  Common shares issued, net of expenses...................    29,009,385     14,640,188        419,167
  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 note payable...............................    (4,100,000)            --             --
  Other equity............................................        29,851          8,259         38,392
  Repayment of loan from an officer.......................       323,405             --             --
                                                            ------------   ------------   ------------
                                                              54,379,837     23,093,019        457,559
                                                            ------------   ------------   ------------
Effect of exchange rate fluctuations on cash..............        (2,284)       193,133        151,982
                                                            ------------   ------------   ------------
Increase (decrease) in cash during the year...............    (3,372,939)     4,299,245     (6,959,923)
  Cash, beginning of year.................................     6,165,924      1,866,679      8,826,602
                                                            ------------   ------------   ------------
  Cash, end of year.......................................  $  2,792,985   $  6,165,924   $  1,866,679
                                                            ============   ============   ============
Supplemental information
  Interest paid...........................................  $    786,585   $     48,073   $      2,714
  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 that analyze genetic information. Such systems
are designed to identify mutations in the DNA of genes associated with certain
diseases. The Company's products are intended for research and clinical
purposes. Prior to marketing any products for use in the clinical diagnostic
market, the Company will require appropriate regulatory approval.

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. (formerly ACT Gene S.A.), Visible Genetics Israel 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

    Revenues from the sale of the Company's products are recognized when
shipment occurs and title passes to the customer or distributor and there is
reasonable assurance of collectibility. There are no significant customer
acceptance requirements or post shipment obligations on the part of the Company.
Revenues from the sale of services are recognized when the services are provided
and there is reasonable assurance of collectibility. A provision is made for
estimated warranty costs at the time of the sale. Revenues from extended
warranty contracts are 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.

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, 1999 and December 31, 1998 range from one to eight months.

                                      F-7
<PAGE>
                             VISIBLE GENETICS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1999 and December 31, 1998 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:

<TABLE>
<S>                                        <C>
Laboratory and computer equipment          2 to 5 years

Leasehold improvements                     term of the lease
</TABLE>

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.

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 assessed using discounted cash flows.

                                      F-8
<PAGE>
                             VISIBLE GENETICS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $560,000, $271,000 and $408,000 for
1999, 1998 and 1997, respectively.

STOCK OPTIONS

    The Company follows SFAS No. 123 which permits the use of APB No. 25 to
account for stock options issued to employees. Under that method, the Company
uses the intrinsic value method to measure the cost associated with the granting
of stock options to employees. The amount by which the market price of the
underlying shares exceeds the exercise price of the options is accounted for as
compensation expense over the periods in which services are rendered. 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

                                      F-9
<PAGE>
                             VISIBLE GENETICS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
common shares consist of the incremental common shares issuable upon conversion
of outstanding convertible preferred shares (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, 1999, 1998 and 1997.

RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1998, the FASB issued 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 anticipate that SFAS No. 133 will 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:

    The Polymerase Chain Reaction (PCR) is used in most of the GeneKits made by
the Company and is produced and sold under license from Roche Molecular Systems,
Inc. and F. Hoffman-La Roche, Ltd. The reverse transcriptase enzyme used in the
TRUGENE HIV-1 Genotyping Kit is the Superscript II-TM- licensed from Life
Technologies. A portion of the method of CLIP sequencing which is used by most
of the GeneKits made by the Company is licensed from Genaissance
Pharmaceuticals, Inc. UNG (Uracin N-Glycosylase) is a method of incorporating
Uracil into a PCR product, which can be subsequently destroyed enzymatically.
This method is used to control carry-over contamination between sequential
samples under going PCR. At present, none of the Company's products uses this
method, however, it is expected that future GeneKit production may incorporate
this technology. This method is licensed from Life Technologies.

    Under these agreements, the Company is required to make certain up-front
payments and certain royalty payments on specified sales to customers ranging
from 0.5% to 15%, and up to 25% on specified product sales to certain
distributors. Included in accounts payable is an amount of approximately
$461,000 and $148,000, relating to royalties payable, at December 31, 1999 and
1998, respectively.

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 2000 through April 2002, and in certain 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.

                                      F-10
<PAGE>
                             VISIBLE GENETICS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4--OTHER RECEIVABLES

<TABLE>
<CAPTION>
                                                                   DECEMBER 31
                                                              ---------------------
                                                                1999        1998
                                                              --------   ----------
<S>                                                           <C>        <C>
Refundable taxes............................................  $105,007   $  616,214
Other.......................................................   563,741      829,606
                                                              --------   ----------
                                                              $668,748   $1,445,820
                                                              ========   ==========
</TABLE>

NOTE 5--INVENTORY

<TABLE>
<CAPTION>
                                                                    DECEMBER 31
                                                              -----------------------
                                                                 1999         1998
                                                              ----------   ----------
<S>                                                           <C>          <C>
Raw materials...............................................  $1,346,951   $2,231,994
Work in process.............................................     221,771      339,109
Finished goods..............................................   1,031,285    1,341,233
                                                              ----------   ----------
                                                              $2,600,007   $3,912,336
                                                              ==========   ==========
</TABLE>

NOTE 6--FIXED ASSETS

<TABLE>
<CAPTION>
                                                                    DECEMBER 31
                                                              -----------------------
                                                                 1999         1998
                                                              ----------   ----------
<S>                                                           <C>          <C>
COST
    Laboratory and computer equipment.......................  $6,511,025   $4,581,794
    Leasehold improvements..................................   1,264,022    1,198,488
                                                              ----------   ----------
                                                               7,775,047    5,780,282
                                                              ----------   ----------
ACCUMULATED DEPRECIATION AND AMORTIZATION
    Laboratory and computer equipment.......................   3,118,913    1,650,840
    Leasehold improvements..................................     482,799      252,279
                                                              ----------   ----------
                                                               3,601,712    1,903,119
                                                              ----------   ----------
                                                              $4,173,335   $3,877,163
                                                              ==========   ==========
</TABLE>

                                      F-11
<PAGE>
                             VISIBLE GENETICS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--PATENTS AND LICENSES

<TABLE>
<CAPTION>
                                                                    DECEMBER 31
                                                              -----------------------
                                                                 1999         1998
                                                              ----------   ----------
<S>                                                           <C>          <C>
COST
    Patents.................................................  $1,078,173   $1,050,276
    Licenses................................................   1,596,591    1,616,032
                                                              ----------   ----------
                                                               2,674,764    2,666,308
                                                              ----------   ----------
ACCUMULATED AMORTIZATION
    Patents.................................................     207,197      166,548
    Licenses................................................     345,200      230,590
                                                              ----------   ----------
                                                                 552,397      397,138
                                                              ----------   ----------
                                                              $2,122,367   $2,269,170
                                                              ==========   ==========
</TABLE>

    The net book value of patents and licenses at December 31, 1999 is after
reflecting an impairment loss of $401,085 and $50,000, respectively, recorded
during the year and included in "Sales, general and administrative" expenses in
the statement of operations. The impairment loss was recorded as a result of the
Company abandoning certain patents and licensed technologies.

NOTE 8--NOTES PAYABLE

    On April 30, 1998, the Company, through its subsidiary, Visible Genetics
Corp., borrowed $7,000,000 under a term loan agreement with certain
institutional lenders. The loan bore interest at 10% per annum, and interest and
principal were payable in full on or about April 29, 1999. The loan was secured
by a security interest in substantially all of the assets of the Company, and it
imposed certain restrictive covenants, including a limit on the total
indebtedness the Company could incur. In connection with the loan, the Company
granted warrants to the lenders to purchase an aggregate of 420,000 common
shares at an exercise price of $10.00 per share. On September 28, 1998, the term
loan facility was extended under similar terms and the Company borrowed an
additional $1,000,000 under the expanded loan facility. The additional loan was
due on December 28, 1999. In connection with the additional loan, the Company
granted warrants to the lenders to acquire 120,000 common shares at an exercise
price of $10.00 per share. The fair market value of the warrants granted in
connection with both loans 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--5.0%, average expected
volatility--65%, expected term--2 years.

    The total proceeds received from the institutional lenders were allocated
between the warrants and term loans based on the relative fair value of each
component, resulting in $944,836 and $237,805 of the total proceeds from the
April 1998 and September 1998 term loans, respectively, being allocated to
warrants. The value of the term loans was accreted to their face value,
resulting in a charge to financing expense over the term of the loans. As a
result, $601,660 and $580,981 were recorded as financing expense in 1999 and
1998, respectively.

                                      F-12
<PAGE>
                             VISIBLE GENETICS INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8--NOTES PAYABLE (CONTINUED)

    On April 30, 1999, the Company and the institutional lenders agreed to delay
the payment date of the $7,000,000 loan to December 31, 1999, and to move up the
payment date of the $1,000,000 loan to July 1, 1999. The institutional lenders
later extended the payment date of the $1,000,000 loan to the earlier of
July 22, 1999, or the completion of the Warburg Pincus financing (see Note 10).
In addition, the institutional lenders agreed to permit the Company to borrow up
to an additional $5,000,000 of loans from other lenders which would be senior to
the $7,000,000 loan and junior to the $1,000,000 loan. The amended terms of the
loans did not result in the loans being considered substantially different, as
the cash flow effect on a present value basis was less than 10%. Accordingly, no
debt extinguishment gain or loss was recognized in the statement of operations.

    In connection with the modification of the term loans, on April 30, 1999,
the Company granted the institutional lenders warrants to purchase an additional
140,000 common shares at an exercise price of $17.00 per share. 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--5.0%, average expected volatility--65%,
expected term--2.5 years, resulting in a value attributed to these warrants of
$865,031. This amount was recorded as a deferred charge and was to be amortized
to financing expense over the term of the loan maturing on December 31, 1999.

    On July 15, 1999, the Company repaid all of the loans made to the
institutional lenders. Of the $8,000,000 principal amount of loans, the Company
paid $4,100,000 of principal plus accrued interest on the loans in cash with the
balance of principal plus accrued interest being converted into 3,948 Series A
preferred shares (see Note 10) and 147,098 warrants to purchase common shares.
As a result, the unamortized balance of the deferred charge was recorded as
financing expense at that time.

NOTE 9--ACCRUED LIABILITIES

<TABLE>
<CAPTION>
                                                                    DECEMBER 31
                                                              -----------------------
                                                                 1999         1998
                                                              ----------   ----------
<S>                                                           <C>          <C>
Warranty provision..........................................  $  387,103   $   90,107
Salaries and benefits.......................................   1,149,279       79,640
Professional fees...........................................     393,196      161,251
Interest....................................................      13,000      503,037
Value added taxes...........................................     492,711      335,944
Provision for exit costs....................................     789,849           --
Other.......................................................     396,972      553,861
                                                              ----------   ----------
                                                              $3,622,110   $1,723,840
                                                              ==========   ==========
</TABLE>

NOTE 10--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SHARES

(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 Convertible Preferred Shares, of which 33,948 were issued during 1999.

                                      F-13
<PAGE>
                             VISIBLE GENETICS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SHARES (CONTINUED)
    On July 15, 1999, the Company issued 30,000 preferred 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 specified in note 8, the Company issued 3,948
preferred 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 mandatorily
redeemable convertible preferred 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 mandatorily redeemable convertible preferred
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 mandatorily redeemable convertible preferred shares, was $858,607
and $2,986,401, respectively.

    The value of the warrants is treated as a discount to the mandatorily
redeemable convertible 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 mandatorily redeemable
convertible preferred shares first becomes mandatory.

(B) RIGHTS AND CONDITIONS OF MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
  SHAREHOLDERS

CONVERSION


    The mandatorily redeemable convertible preferred 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 the conversion price of $11.00 per
share, equal to the amount of all accrued and unpaid dividends. The mandatorily
redeemable convertible preferred 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.


    This conversion right will terminate on any redemption of the mandatorily
redeemable convertible preferred shares or any liquidation of the Company. Each
mandatorily redeemable convertible preferred share will automatically convert
into common shares at its then effective conversion price, if at least a
majority of the mandatorily redeemable convertible preferred shares are either
voted to be converted or have already been converted into common shares.

DIVIDENDS


    Dividends on the mandatorily redeemable convertible 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 the Company's
option, dividends are payable in cash. If dividends are not paid in cash, they
will continue to accrue. The


                                      F-14
<PAGE>
                             VISIBLE GENETICS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SHARES (CONTINUED)
Company is prohibited from declaring or issuing any dividends to holders of
common shares before paying all unpaid dividends on the mandatorily redeemable
convertible preferred shares. The Company is also prohibited from issuing any
equity securities that are senior or equal in rank to the mandatorily redeemable
convertible preferred 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 mandatorily redeemable convertible preferred shares
would be entitled to receive an amount equal to $1,000 per share, plus accrued
and unpaid 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 mandatorily redeemable convertible preferred shares, the
Company has the right to redeem the outstanding mandatorily redeemable
convertible preferred 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 mandatorily
redeemable convertible preferred 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 mandatorily redeemable convertible preferred shares as required.

VOTING

    The holders of the mandatorily redeemable convertible preferred shares are
entitled to vote as a group with the holders of common shares on all matters
except that holders of the mandatorily redeemable convertible preferred 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 mandatorily redeemable convertible preferred 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 holder's mandatorily redeemable
convertible preferred shares.

OTHER

    Certain holders of mandatorily redeemable convertible 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. The
right of holders of mandatorily redeemable convertible preferred 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
mandatorily redeemable convertible preferred shares.

                                      F-15
<PAGE>
                             VISIBLE GENETICS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--SHARE CAPITAL

(A) AUTHORIZED AND ISSUED SHARE CAPITAL

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

<TABLE>
<CAPTION>
                                                              NUMBER OF    AVERAGE
                                                                COMMON      ISSUE
                                                                SHARES      PRICE       AMOUNT
                                                              ----------   --------   -----------
<S>                                                           <C>          <C>        <C>
BALANCE, DECEMBER 31, 1996..................................   6,962,198              $30,339,955
                                                              ==========              ===========
  Issued for cash under stock option arrangements...........     191,498    $ 2.19        419,167
  Issued for acquisition of Applied Sciences, Inc...........      95,000    $ 5.50        522,500
                                                              ----------    ------    -----------

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          1,528,989
    costs (i)...............................................                $ 9.88     13,718,793
                                                              ----------    ------    -----------

BALANCE, DECEMBER 31, 1998..................................   9,248,233               46,412,685
                                                              ==========              ===========
  Issued for cash under stock option arrangements...........     457,882    $ 5.12      2,343,603
  Issued for private placement offering, net of issue          1,916,000
    costs...................................................                $13.92     26,665,782
                                                              ----------    ------    -----------

BALANCE, DECEMBER 31, 1999..................................  11,622,115              $75,422,070
                                                              ==========              ===========
</TABLE>

------------------------

(i)  The value of the warrants issued in connection with the private placement
    (Note 11(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 11(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.

(B) OTHER EQUITY

<TABLE>
<CAPTION>
                                                               1999          1998        1997
                                                            -----------   ----------   ---------
<S>                                                         <C>           <C>          <C>
Deferred compensation costs...............................  $        --   $       --   $ (77,469)
Options...................................................      922,714      922,714     922,714
Warrants..................................................    9,782,470    1,610,791      80,115
Contributed surplus.......................................       61,250       61,250      61,250
Cumulative preferred dividends attributable to mandatorily
  redeemable convertible preferred shares.................   (1,400,344)          --          --
Cumulative accretion of discount attributable to
  mandatorily redeemable convertible preferred shares.....     (369,728)          --          --
Loan to an officer to purchase shares.....................           --     (323,405)   (323,405)
Employee share purchase loans.............................       (9,034)     (38,885)    (47,144)
                                                            -----------   ----------   ---------
                                                            $ 8,987,328   $2,232,465   $ 616,061
                                                            ===========   ==========   =========
</TABLE>

                                      F-16
<PAGE>
                             VISIBLE GENETICS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--SHARE CAPITAL (CONTINUED)
    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>
                                                                1999       1998       1997
                                                              --------   --------   ---------
<S>                                                           <C>        <C>        <C>
BALANCE, BEGINNING OF YEAR..................................    $ --     $(77,469)  $(354,786)
Options granted less cancellation...........................      --           --      27,250
Charged to expense during the year..........................      --       77,469     250,067
                                                                ----     --------   ---------
BALANCE, END OF YEAR........................................    $ --     $     --   $ (77,469)
                                                                ====     ========   =========
</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. Options for an aggregate of 3,750,901
shares may be granted, subject to shareholder ratification. 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. Options issued to employees may be
cancelled if employment is terminated within three 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.

<TABLE>
<CAPTION>
                                                                          WEIGHTED AVERAGE
                                                               NUMBER      EXERCISE PRICE
                                                              ---------   ----------------
<S>                                                           <C>         <C>
BALANCE, DECEMBER 31, 1996..................................  1,235,625        $ 3.56
                                                              =========        ======
  Granted at $3.50 to $11.50................................    527,580        $ 5.25
  Exercised.................................................   (191,498)       $ 2.19
  Cancelled.................................................    (20,237)       $ 3.50
                                                              ---------        ------

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
                                                              =========        ======
</TABLE>

                                      F-17
<PAGE>
                             VISIBLE GENETICS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--SHARE CAPITAL (CONTINUED)
    The fair market value of employee options granted in 1999 was approximately
$6,689,000 (1998--$2,397,000; 1997--$1,342,000). If employee options granted had
been recorded at their fair market value, the pro forma net loss in 1999 would
have been $(28,763,000) or $(3.08) per common share (1998--$(16,753,000) or
$(2.15) per common share; 1997--$(11,443,000) or $(1.62) per common 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 and 1997--5.0%), average expected volatility--70% (1998 and
1997--65%), expected average option term--4 years. The weighted average fair
value for options granted in 1999 was $6.68 (1998--$4.13; 1997--$2.63).

    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.

<TABLE>
<CAPTION>
                                             WEIGHTED
                            NUMBER       AVERAGE EXERCISE                        NUMBER       WEIGHTED AVERAGE
                        OUTSTANDING AT       PRICE OF          WEIGHTED      EXERCISABLE AT   EXERCISE PRICE OF
      RANGE OF           DECEMBER 31,      OUTSTANDING         AVERAGE        DECEMBER 31,       EXERCISABLE
   EXERCISE PRICES           1999            OPTIONS        REMAINING LIFE        1999             OPTIONS
---------------------   --------------   ----------------   --------------   --------------   -----------------
<S>                     <C>              <C>                <C>              <C>              <C>
    Cdn$1.37-Cdn$3.42        182,541         Cdn$2.49          5.3 years          182,541         Cdn$2.49
              US$3.50        340,998          US$3.50          6.7 years          317,826          US$3.50
          $4.45-$6.07         23,250            $5.72          7.5 years           15,117            $5.62
          $7.12-$7.84        230,757            $7.76          7.8 years          141,499            $7.76
          $8.00-$9.35        506,182            $8.60          8.5 years          275,879            $8.39
        $10.00-$11.50        608,625           $11.01          9.4 years          125,043           $11.33
        $12.74-$16.45        119,200           $15.83          9.8 years              667           $12.74
        $17.00-$19.08        134,000           $18.11          9.5 years           65,333           $18.18
                           ---------         --------                           ---------
                           2,145,553            $8.82                           1,123,905
                           =========         ========                           =========
</TABLE>

                                      F-18
<PAGE>
                             VISIBLE GENETICS INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11--SHARE CAPITAL (CONTINUED)

(E) WARRANTS

<TABLE>
<CAPTION>
                                                        NUMBER     EXERCISE PRICE     EXPIRY DATE
                                                       ---------   --------------   ---------------
<S>                                                    <C>         <C>              <C>
BALANCE, DECEMBER 31, 1996 AND 1997..................     79,803
                                                       =========
  Granted in connection with loans (Note 8)..........    540,000       $10.00        April, 2003--
                                                                                    September, 2003
  Granted in connection with private placement (Note
    11(a))...........................................    121,951       $12.81       November, 2003
                                                       ---------

BALANCE, DECEMBER 31, 1998...........................    741,754
                                                       =========
  Granted in connection with loans (Note 8)..........    140,000       $17.00         April, 2006
  Granted in connection with mandatorily redeemable
    convertible preferred shares (Note 10)...........  1,247,098       $12.60         July, 2003
  Exercised..........................................    (76,734)      $ 6.90
                                                       ---------

BALANCE, DECEMBER 31, 1999...........................  2,052,118
                                                       =========
</TABLE>

    On February 17, 2000, warrants to purchase 1,100,000 common shares were
exercised at a price of $12.60 per common share. Under the 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 12--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 delays related to the development of the
kit, the estimated completion date has been revised to the year 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.

    Effective October, 1997, the Company acquired 100% of the shares of Applied
Sciences, Inc., a DNA diagnostic testing company, for 95,000 common shares of
the Company, and the assumption of all liabilities (including $90,000 which was
repaid to the former shareholders of Applied Sciences, Inc.), as well as a
deficit of $132,000. The acquisition was accounted for as a purchase, and
resulted in the recording of an excess of purchase price over tangible net
assets of $654,621 which was recorded as in-process research and development,
and reflected as an expense in 1997. The nature of the acquired research and
development relates to the cost and time pertaining to the development of
certain test kits designed for

                                      F-19
<PAGE>
                             VISIBLE GENETICS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--ACQUISITIONS (CONTINUED)
use with DNA sequencing systems. As of October 1997, these kits were
approximately 20% to 50% completed. Development of one kit was completed in the
fourth quarter of 1998, and the remaining kits are expected to be completed
during 2000. 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 13--EXIT AND TERMINATION COSTS

EXIT COSTS

    During 1999, the Company approved a plan to move the sales, marketing and
various other corporate functions from Canada to a U.S. facility being
established in Atlanta. The U.S. facility will also house Applied Sciences Inc.
(a wholly owned subsidiary of the Company) as well as being used for kit
manufacturing. The exit plan is expected to be completed in 2000.

    As a result of the decision to centralize U.S. operations in Atlanta,
certain premises currently leased by the Company will be vacated. In
December 1999, the Company committed to a new facility and 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. If the Company is unsuccessful in its
subleasing efforts, the remaining future lease commitments on premises to be
vacated, in excess of amounts accrued, approximates $2,100,000.

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 at December 31, 1999, approximately $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 (CONTINUED)

NOTE 14--INCOME TAXES

    The Company's income tax provision has been determined as follows:

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                       ------------------------------------------
                                                           1999           1998           1997
                                                       ------------   ------------   ------------
<S>                                                    <C>            <C>            <C>
Net loss for the year comprised of:
  Domestic...........................................  $ (8,081,807)  $ (6,195,350)  $ (8,472,572)
  Foreign............................................   (17,205,078)    (8,695,611)    (1,943,174)
                                                       ------------   ------------   ------------
                                                       $(25,286,885)  $(14,890,961)  $(10,415,746)
                                                       ============   ============   ============
Income taxes at 44.6%................................  $(11,283,008)  $ (6,641,369)  $ (4,645,423)
Decrease resulting from permanent non-tax deductible
  expense............................................       736,478         52,182        412,842
Decrease resulting from foreign rate differences.....       835,867        114,856             --
Increase in valuation allowance......................     9,710,663      6,474,331      4,232,581
                                                       ------------   ------------   ------------
                                                       $         --   $         --   $         --
                                                       ============   ============   ============
</TABLE>

    As at December 31, 1999, 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>
                                CANADA(1)    UNITED STATES     FRANCE      ITALY     NETHERLANDS      ISRAEL
                               -----------   -------------   ----------   --------   -----------     --------
<S>                            <C>           <C>             <C>          <C>        <C>             <C>
2001.........................  $   481,000    $        --    $       --   $    --    $       --      $     --

2002.........................    1,480,000             --            --        --            --            --

2003.........................    2,846,000             --       439,000        --            --            --

2004.........................    4,805,000             --     3,037,000    95,000            --            --

2005.........................    1,567,000             --            --        --            --            --

2006.........................    2,819,000             --            --        --            --            --

2012.........................           --      1,238,000            --        --            --            --

2018.........................           --      3,962,000            --        --            --            --

2019.........................           --      6,671,000            --        --            --            --

No Expiry Date...............           --             --            --        --     5,908,000       156,000
                               -----------    -----------    ----------   -------    ----------      --------

Total........................  $13,998,000    $11,871,000    $3,476,000   $95,000    $5,908,000      $156,000
                               ===========    ===========    ==========   =======    ==========      ========
</TABLE>

------------------------

(1) In addition to the Canadian losses above, certain scientific research and
    development expenditures eligible for tax purposes incurred by the Company
    may be deferred and deducted in future years. These unclaimed deductions,
    which can be carried forward indefinitely, amounted to approximately
    $12,946,000 at December 31, 1999. In addition, the Company has earned
    non-refundable investment tax credits amounting to approximately $3,028,000
    that can be applied to reduce future income taxes payable. These expire
    $504,000 in 2006, $744,000 in 2007, $1,034,000 in 2008 and $746,000 in 2009.

                                      F-21
<PAGE>
                             VISIBLE GENETICS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--INCOME TAXES (CONTINUED)
    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>
                                                                 1999          1998
                                                              -----------   -----------
<S>                                                           <C>           <C>
DEFERRED TAX ASSETS
Research expenses...........................................  $ 5,776,300   $ 4,122,100
Non-capital losses..........................................   15,555,300     8,483,100
Investment tax credits......................................    1,597,600     1,114,700
Fixed assets................................................    1,048,100       239,000
Warranty and other provisions...............................      810,100        25,600
                                                              -----------   -----------
                                                               24,787,400    13,984,500
Valuation allowance.........................................  (24,787,400)  (13,984,500)
                                                              -----------   -----------
Net deferred tax asset (liability)..........................  $        --   $        --
                                                              ===========   ===========
</TABLE>

    The valuation allowance increased by $10,802,900 during 1999
(1998--$4,903,000). 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 15--SEGMENTED INFORMATION

    In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This replaced the previous industry segment
approach 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 adoption of SFAS No. 131 did not affect results of operations or
financial position, but did affect the disclosure of segment information. The
Company's reportable segments are Sequencing Systems, GeneKits and other
Consumables, and Testing, Sequencing and Other services. The accounting policies
of the segments are the same as those described above in Note 2, "Summary of
significant accounting policies."

1999

<TABLE>
<CAPTION>
                             SEQUENCING    GENEKITS AND OTHER   TESTING, SEQUENCING   RECONCILING
                               SYSTEMS        CONSUMABLES       AND OTHER 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)         (985,608)            (383,398)               --      (2,553,987)
Profit (loss) from
  operations before
  interest.................  (13,889,277)      (10,099,584)               4,939                --     (23,983,922)
Additions to Fixed
  assets...................      697,030           835,181              372,918                --       1,905,129
Total assets...............    7,466,062         6,724,730            1,760,794       $42,687,963(1)   58,639,549
</TABLE>

RECONCILING ITEM CONSISTS OF: (1) CASH, CASH EQUIVALENTS AND SHORT-TERM
  INVESTMENTS

                                      F-22
<PAGE>
                             VISIBLE GENETICS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15--SEGMENTED INFORMATION (CONTINUED)
1998

<TABLE>
<CAPTION>
                            SEQUENCING    GENEKITS AND OTHER   TESTING, SEQUENCING   RECONCILING
                              SYSTEMS        CONSUMABLES       AND OTHER 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)(2)  (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(3)    27,782,535
</TABLE>

RECONCILING ITEMS CONSIST OF: (2) ACQUIRED RESEARCH AND DEVELOPMENT (NOTE 12)

                         (3) CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

1997

<TABLE>
<CAPTION>
                             SEQUENCING    GENEKITS AND OTHER   TESTING, SEQUENCING   RECONCILING
                               SYSTEMS        CONSUMABLES       AND OTHER SERVICES       ITEMS           TOTAL
                             -----------   ------------------   -------------------   -----------     ------------
<S>                          <C>           <C>                  <C>                   <C>             <C>
Revenues...................  $ 2,720,844       $  246,851             $ 65,041                --      $  3,032,736
Depreciation and
  Amortization.............     (231,694)        (362,688)             (31,599)               --          (625,981)
Profit (loss) from
  operations before
  interest.................   (9,592,047)        (874,149)             (66,677)       $ (654,621)(4)   (11,187,494)
Additions to Fixed
  assets...................      557,427          504,142              204,256                --         1,265,825
Total assets...............    4,126,088        2,002,571              199,812         7,607,901(5)     13,936,372
</TABLE>

RECONCILING ITEMS CONSIST OF: (4) ACQUIRED RESEARCH AND DEVELOPMENT (NOTE 12)

                         (5) CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

                                      F-23
<PAGE>
                             VISIBLE GENETICS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15--SEGMENTED INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
GEOGRAPHIC INFORMATION--YEARS ENDED DECEMBER 31
-----------------------------------------------
SALES, BY CUSTOMER LOCATION                                  1999          1998          1997
---------------------------                               -----------   -----------   ----------
<S>                                                       <C>           <C>           <C>
NORTH AMERICA
Canada..................................................  $   468,535   $   844,863   $  542,716
United States...........................................    4,686,868     3,513,150    2,278,246
                                                          -----------   -----------   ----------
                                                            5,155,403     4,358,013    2,820,962
                                                          -----------   -----------   ----------
EUROPE
France..................................................    1,252,222     1,616,788           --
Other Europe............................................    4,298,745     2,949,288      161,837
                                                          -----------   -----------   ----------
                                                            5,550,967     4,566,076      161,837
                                                          -----------   -----------   ----------
ASIA AND LATIN AMERICA..................................
Japan...................................................    1,609,799     1,640,123           --
Other Asia and Latin America............................    1,310,751       311,136       49,937
                                                          -----------   -----------   ----------

                                                            2,920,550     1,951,259       49,937
                                                          -----------   -----------   ----------
                                                          $13,626,920   $10,875,348   $3,032,736
                                                          ===========   ===========   ==========
</TABLE>

<TABLE>
<CAPTION>
GEOGRAPHIC INFORMATION--YEARS ENDED DECEMBER 31
-----------------------------------------------
FIXED ASSETS                                                 1999          1998          1997
------------                                              -----------   -----------   ----------
<S>                                                       <C>           <C>           <C>
Canada..................................................  $ 2,530,222   $ 2,346,394   $  928,350
United States...........................................      955,161     1,083,788      459,983
France..................................................      687,952       446,981       62,647
                                                          -----------   -----------   ----------
                                                          $ 4,173,335   $ 3,877,163   $1,450,980
                                                          ===========   ===========   ==========
</TABLE>

    In 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; 1997--no customer accounted for
more than 10% of sales).

NOTE 16--COMMITMENTS AND CONTINGENCY

COMMITMENTS

    The Company is committed to make a payment under a license agreement of
$300,000 in 2000. The Company has collaborative arrangements with certain third
parties that provide for royalty payments (see Note 3).

                                      F-24
<PAGE>
                             VISIBLE GENETICS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16--COMMITMENTS AND CONTINGENCY (CONTINUED)
    The Company has entered into operating leases for premises and equipment as
follows:

<TABLE>
<S>                                                            <C>
2000........................................................    $1,584,020

2001........................................................     1,292,084

2002........................................................     1,116,517

2003........................................................     1,078,102

2004 and thereafter.........................................     3,513,877
                                                                ----------

                                                                $8,584,600
                                                                ==========
</TABLE>

    Rent expense was $851,876 in 1999 (1998--$554,497; 1997--$284,396).

CONTINGENCY

    In December 1999, a lawsuit was filed against the Company alleging
unspecified damages resulting from the Company's alleged infringement of certain
patents. The Company has previously studied these patents and has received legal
advice that it is not liable for any claims of infringement. Management believes
that these allegations are without merit and intends to vigorously defend
against these allegations. No amount has been provided in these financial
statements in respect of these allegations, as the amount of the loss, if any,
cannot be determined and the results of such allegations cannot be predicted
with certainty.

NOTE 17--RELATED PARTY TRANSACTIONS

    During 1999, the Company incurred legal fees to a law firm, in which a
partner was a former director of the Company, of $246,210 (1998--$164,624;
1997--$183,627). During 1999, the Company incurred consulting fees to a firm, of
which the president was a director of the Company, of $291,115 (1998--$280,000;
1997--nil). During 1999, the Company also incurred consulting fees to a former
director of the Company, of $58,269 (1998--nil; 1997--nil). Other receivables
include a loan and unpaid interest due from a Company officer and director
aggregating $55,614 in 1998 and $72,018 in 1997. The loan was repaid during
1999.

NOTE 18--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
---------------------   ------------------------------------------------------------  --------
<C>                     <S>                                                           <C>
        *3.2            Certificate and Articles of Amendment of the Company.
       *10.3            Visible Genetics Inc. Employee Share Option Plan, Amended
                          through May 19, 1999.
       *10.10           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.
       *10.11           Registration Rights Agreement, dated as of July 15, 1999, by
                          and among Visible Genetics Inc. and the Investors listed
                          on Schedule I thereto.
       *10.12           Common Shares Purchase Agreement, dated December 14, 1999,
                          by and among Visible Genetics Inc. and the Investors who
                          are signatories hereto.
       *10.13           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.
       *10.14           Lease between Visible Genetics Corp. and Duke-Weeks Realty
                          Limited Partnership, dated February 15, 2000.
       *10.15           Lease between Visible Genetics Inc. and LuCliff Company
                          Limited, dated March 31, 1992.
       *10.16           Lease between Visible Genetics Inc. and Royal Trust
                          Corporation of Canada, as trustee and RT Pensior
                          Properties Limited dated June 1, 1996
       *10.17           Lease between Visible Genetics Inc. and Comwest Properties
                          Limited dated July 20, 1998.
       *10.18           Lease between Visible Genetics Corp. and the University of
                          Pittsburgh of the Commonwealth System of Higher Education
                          dated Dec 1, 1996.
       *10.22           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.
       *10.23           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.
       *10.24           Letter Agreement between Visible Genetics Inc. and Hilal
                          Capital Management dated July 15, 1999.
</TABLE>


*   Previously filed.