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

                                    FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2001

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
    For the transition period from _____________ to _______________

                        Commission file number: 000-30267

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

                  Delaware                               22-3392819
        (State or other jurisdiction        (I.R.S. Employer Identification No.)
      of incorporation or organization)

                4390 US Route One                            08540
                  Princeton, NJ                           (Zip Code)
    (Address of principal executive offices)

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

      Securities registered pursuant to Section 12(b) of the Exchange Act:

                                      None

      Securities registered pursuant to Section 12(g) of the Exchange Act:

                     Common Stock, $.001 Par Value Per Share
                     ---------------------------------------
                                (Title of Class)

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant (without admitting that any person whose shares
are not included in such calculation is an affiliate) on March 1, 2002, was
$125,031,443, based on the last sale price as reported by The Nasdaq Stock
Market.

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     As of March 1, 2002, the registrant had 54,200,537 shares of common stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     The following documents (or parts thereof) are incorporated by reference
into the following parts of this Form 10-K: Certain information required in Part
III of this Annual Report on Form 10-K is incorporated from the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on June 14,
2002.

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                            ORCHID BIOSCIENCES, INC.
                                    FORM 10-K
                                      INDEX

                                                                          Page

                                     PART I

ITEM 1.   BUSINESS.........................................................  4
ITEM 2.   PROPERTIES....................................................... 31
ITEM 3.   LEGAL PROCEEDINGS................................................ 31
ITEM 4.   SUBMISSION OF MATTERS TO HAVE A VOTE OF SECURITY HOLDERS......... 32


                                    PART II

ITEM 5.   MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS.............................................. 33
ITEM 6.   SELECTED FINANCIAL DATA.......................................... 34
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION...... 36
ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....... 47
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 48
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURES............................. 80


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 80
ITEM 11.  EXECUTIVE COMPENSATION........................................... 80
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT....................................................... 80
ITEM 13.  CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS.................... 80


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON.......... 80
          FORM 8-K

SIGNATURES

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                                     PART I

Item 1.      BUSINESS

     We are engaged in the development and commercialization of technologies,
products and services designed to measure and analyze information related to
genetic diversity, or the genetic variability that distinguishes one organism
from another. We have established a portfolio of business units that provide
products and services focusing on the analysis of genetic variability through
genotyping, the measurement of genetic variability in a person, plant or animal
individual.

     Genetic diversity data is used in the field of identity genomics for
paternity and forensics identification testing. Health care providers also use
genetic diversity information in organ transplantation compatibility testing.
Additionally, genetic diversity data is also being used for genetic disease
susceptibility testing and to help physicians manage treatment regimens.
Pharmaceutical companies are now using genetic diversity data to facilitate the
development of more specific and efficacious drugs and to enable the adoption of
personalized medicine which involves prescribing the right drug for the right
person at the optimal dose based on the individual's genetic profile.
Furthermore, genetic diversity data has other commercial applications, such as
the improvement of crop development and for livestock breeding programs. Our
products, services and technologies are already being used in each of these
applications and we expect their uses to increase.

History

     For the first three years of our existence after beginning operations in
1995, we were primarily focused on developing our microfluidics technologies for
applications in high throughput synthesis of small molecules under collaborative
research programs with SmithKline Beecham and Sarnoff Corporation. In the first
half of 1998, we made a fundamental shift in our focus to apply our technology
to the fields of genetic diversity applications, including single nucleotide
polymorphism, or SNP, genotyping and pharmacogenetics, and subsequently acquired
substantially all of the assets of Molecular Tool, Inc. ("Molecular Tool"), a
wholly owned subsidiary of GeneScreen, Inc. ("GeneScreen"), in September 1998.
Molecular Tool's proprietary SNP-IT primer extension technology for genotyping
SNPs matched very well with our existing microfluidics technologies, which are
being selectively incorporated into our SNP genotyping products and services in
the US. In December 1999, we acquired GeneScreen, Inc., a recognized leader in
identity genomics services. In 2001, we acquired two new businesses: Cellmark
Diagnostics ("Cellmark"), a business division of AstraZeneca, a provider of DNA
laboratory testing in the UK; and Lifecodes Corporation ("Lifecodes"), one of
the largest providers of identity genomics testing for forensics and paternity
in the US, and a major provider of human leukocyte antigens, or HLA, genotyping
products and services for transplantation compatibility testing. During 2002, we
began the process of re-aligning our business into four business units for
marketing purposes. These business units will consist of Orchid Life Sciences,
Orchid Identity Genomics, Orchid Diagnostics and Orchid GeneShield. These
business units may or may not constitute reportable segments in 2002.

     .    Orchid Life Sciences develops and markets products, services and
          technologies for SNP genotyping, or scoring, and genetic diversity
          analyses to life sciences and biomedical researchers as well as
          pharmaceutical, agricultural, diagnostic and biotechnology companies;

     .    Orchid Identity Genomics provides DNA testing for paternity and
          forensics determinations to state and local governmental authorities
          as well as to individuals and organizations, through Orchid GeneScreen
          and Orchid Cellmark;

     .    Orchid Diagnostics provides products and services for genetic testing,
          including HLA genotyping, disease susceptibility testing and
          immunogenetics, or the study of the relationship between an
          individuals immune response and their genetic makeup, to individuals;
          and

     .    Orchid GeneShield is developing programs designed to accelerate the
          adoption and use of personalized medicine by patients and physicians.

Background

     Genetic information provides a basis for understanding biological and
medical functions in organisms. In recent years, scientists have analyzed large
portions of deoxyribonucleic acid, or DNA, to determine the sequence of
nucleotide bases in the DNA within the human genome and within the genomes of
plant and animal species, with the objective of understanding and using this
molecular level knowledge to transform traditional approaches to medicine,
agriculture and

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other fields. With the first phase of the human genome sequence completed in
2000, attention has turned from mapping the sequence to identifying genetic
differences between individuals and to applying this knowledge in healthcare and
other related fields where genetic variability is of use. The increasing
availability of genomic data derived from species other than humans is driving
the use of genetic variability information in such fields as agriculture and
public health, to produce improved characteristics in livestock or crops, and to
protect against animal-borne diseases. Newer genetic analysis techniques are now
being applied to long-established DNA testing applications like identity
determination for forensics and paternity. The most common form of genetic
variation, single nucleotide polymorphisms, or SNPs, have become a primary focus
of genetic variability studies, and we expect them to become more important as
their impact is better understood. We have designed our products and services to
enable the performance of SNP and related genetic variability analyses by a wide
variety of researchers. We are also using these technologies ourselves to build
value from commercial uses of SNPs and other genetic markers.

SNPs: A Key Element of Genetic Variation

     DNA sequences contain a variety of known polymorphisms, or differences, in
the genetic code. The most common form of polymorphism involves a change in a
single nucleotide base and is called a single nucleotide polymorphism, or SNP.
SNPs are the most common type of genetic variation and can impact an
individual's disease susceptibility and treatment response. The importance of
SNPs was highlighted in 1999, when a group of leading pharmaceutical companies
and others formed The SNP Consortium for the primary purpose of discovering
human SNPs and making them publicly available. The SNP Consortium successfully
mapped more than 1.2 million SNPs, which are now publicly available and are
being used in genetic diversity research. As one of the few commercial firms
chosen to collaborate with The SNP Consortium, we conducted work that has
provided us with early access to potentially valuable SNPs, and has enabled us
to begin to incorporate these SNPs into a variety of panels for use in
pharmacogenetic research and for pilot programs that use SNPs in paternity and
forensic testing.

     Researchers now estimate that each human has between three and 10 million
SNPs. Only some of these will be of medical relevance, and the effort to
identify these valuable SNPs is already underway. As the SNP discovery phase
winds down over the next few years, we expect the attention and activity will
continue to shift to identifying those informative SNPs that will be of
continuing utility and value. As a result, we expect that the demand for SNP
genotyping, determining the presence or absence of a specific SNP in a sample,
will continue to rapidly increase as more SNPs are known and their importance
and utility are sought. Researchers require highly accurate, high throughput SNP
genotyping technologies that can be implemented at a competitive cost to
characterize these potentially valuable SNPs. With our highly flexible and
accurate SNP genotyping technology, we believe that we are positioned to be a
leader in providing SNP scoring to the thousands of researchers who are already
performing or are interested in performing SNP analyses, as well as to the
growing number of industries and service providers using SNPs in their ongoing
operations. In addition, we have research and development programs in place to
help us identify and obtain intellectual property related to medical and other
valuable uses of SNPs.

     The characteristics of the emerging SNP genotyping market are illustrated
by examining differing customer needs over the course of "the lifecycle of a
SNP", as described below.

     Stage 1: SNP Discovery. Discovery of a SNP, typically through high
     ----------------------
throughput DNA sequencing.

     Stage 2: SNP Confirmation. Confirmation that the suspected SNP is indeed a
     -------------------------
SNP rather than a sequencing mistake or rare mutation. This is accomplished by
scoring the SNP on hundreds of samples to determine its frequency of occurrence
(allele frequency) in the population of interest.

     Stage 3: Association. Initial determination of the potential role of the
     --------------------
SNP in affecting disease susceptibility, variations in drug response, or an
attribute of interest in a crop or livestock species. Relatively small-scale
studies (as few as 200 subjects) are conducted to assess whether the specific
SNP is statistically associated with the characteristic under investigation. If
the association is demonstrated, larger scale clinical studies may then be
conducted to confirm and extend the findings.

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     Stage 4: Clinical Trials. Successful association studies may be followed by
     ------------------------
larger scale clinical trials to extend the initial findings and as a basis for
filings with the regulatory authorities like the Food and Drug Administration,
or FDA, to support use of the SNP as a diagnostic or in conjunction with a
therapeutic.

     Stage 5: Diagnostic Testing and Industrial Application. Once association
     ------------------------------------------------------
and larger scale clinical studies are successfully completed, the SNP may be
routinely used in healthcare as a diagnostic tool or for use in optimizing
treatment regimens for personalized medicine, as well as in agricultural
applications for selective breeding programs.

     We believe that each of these stages of the SNP lifecycle represents a
separate business opportunity with its own market dynamics and product or
service requirements. As a SNP progresses through this lifecycle, the throughput
requirements at any given laboratory for scoring a SNP may decrease, as those
relatively few informative SNPs with utility are identified and assembled into
panels for ongoing use. We expect research laboratories will run an increasing
number of samples as SNPs move from research applications into routine use. Our
portfolio of products and services enables customers to select the right
price-performance combination to serve their needs, at whatever point in the
lifecycle their SNP of interest may be. Thus, as the field of genetic diversity
matures over the coming years, we expect that a growing number of researchers
and practitioners will score an increasing total number of SNPs in an increasing
number of laboratories, using high, medium and low throughput SNP scoring
platforms as appropriate. We believe that the robust performance qualities and
flexibility of our SNP-IT technology will enable us to develop and market
products and services with the potential to be product leaders in these evolving
markets.

SNP-IT, Our SNP Identification Technology

     At the center of our products and services for SNP scoring, or genotyping,
is our core proprietary SNP-IT primer extension technology. SNP-IT primer
extension is a method of isolating the precise location of the site of a
suspected SNP and utilizing the inherent accuracy of DNA polymerase to determine
the presence or absence of the SNP. In order to conduct SNP-IT primer extension,
a specially synthesized DNA primer is first bound to the sample DNA to expose
the DNA site of interest where a SNP may be present. DNA polymerase, a naturally
occurring molecule that accurately and reliably inserts the appropriate
complementary base to a chain of DNA, is then added to extend the DNA chain by
one base at the suspected SNP location. One of several conventional methods,
including fluorescence, optical density, electrophoresis and mass spectroscopy,
is then used to detect this single base extension. The result is a direct
read-out method of detecting SNPs that creates a simple binary "bit" of genetic
information representing the presence of a SNP in a DNA sample. With more than a
decade of use, our SNP-IT technology is among the most validated genotyping
methods available today. We believe our SNP-IT technology offers an exceptional
combination of attributes, including:

     .    Accuracy
     .    Flexibility
     .    Cost-effectiveness
     .    Robustness
     .    Scalability

     The capabilities of our SNP-IT technology have been greatly enhanced by the
commercial introduction in 2001 of our SNP-IT tag array "next generation"
technology. SNP-IT tag array is a significant "next-generation" improvement in
our core SNP-IT technology. SNP-IT tag array is based on multiplexing, or the
ability to perform multiple SNP analyses in a single test. Multiplexing is
important in SNP genotyping because as researchers undertake increasingly
complex and large-scale genetic analyses, the need for technologies with
improved cost and time efficiencies and design and performance flexibility
increases. This is especially true for the whole genome and chromosome mapping
studies that are used to analyze entire portions of the genome. It is similarly
essential for genotyping specific SNPs in a very large number of samples, as
occurs in pharmaceutical research. We expect that rapid and cost-effective
analysis of SNP panels for high volumes of samples will become increasingly
important as SNP genotyping becomes more established in routine applications
such as healthcare and identity genomics. Through multiplexing, our SNP-IT tag
array technology enables a dramatic increase in the amount of information per
analysis while simultaneously improving the overall quality of that information
and reducing the time and cost requirements. SNP-IT tag array can be easily
customized for any set of SNPs that a researcher wants to analyze. Since
multiplexing allows many reactions to be performed on a single sample, it can
also generate very large savings in consumables. We currently use SNP-IT tag
array in three of our products: the microarray-based SNPcode, the medium
throughput SNPstream MT (formerly referred to as our SNPstream 5K), and the
ultra high throughput SNPstream UHT.

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     We have started to commercialize three significant new products based SNP
genotyping products based on the SNP-IT tag array, namely: (i) the SNPstream MT
for medium throughput genotyping based on a Luminex platform; (ii) SNPcode
consumables for use in high density, high throughput whole genome mapping
studies on Affymetrix GeneChip(R) systems; and (iii) the beta test version of
the SNPstream UHT (formerly referred to as our SNPstream 100K), our ultra high
throughput system which is capable of performing more than 140,000 SNP genotypes
from multiple samples in a single shift. We have achieved industry-leading
levels of multiplexing on our SNPcode platform and our SNPstream UHT system.

Microfluidics

     Microfluidics is a set of technologies designed to control the flow,
reactions and measurements of minute amounts of chemicals and biochemicals in
miniaturized systems. Our microfluidics chips are multi-layered devices
consisting of arrayed networks of liquid reagent flow paths in channels or
conduits. These chips allow the processing of sequential and/or parallel
reactions. The reagents conveyed in the conduits and delivered to the location
of the reactions can range in volume from nanoliters to milliliters with a
typical reactor volume being from 100 to 800 nanoliters.

     Proprietary rights and patents cover our pumping and valving techniques
that control the timing, location and amount of desired reagent delivery. In
late 2001, we were awarded a three-year grant from the US Department of Defense
agency, DARPA, to apply our microfluidics technologies to the synthesis of long
oligonucleotides. The total amount expected over the three-year term, from
September 2001 through September 2004, is $4.8 million. However, no obligation
exists for the agency to provide any of the funding amounts after the first year
of the contract unless certain options, as defined in the agreement, are
exercised.

Platform Propagation:  A Core Concept

     Through our Platform Propagation strategy, we develop and license our
SNP-IT technology for use on the installed instruments of other manufacturers.
To date, we have completed 19 licensing or marketing agreements with customers
such as Affymetrix, Amersham Biosciences, Applied Biosystems, Beckman Coulter,
Hitachi MiraiBio, Invitrogen, Luminex, PerkinElmer, Quest Diagnostics, Thermo
Biostar, and Asper Biotech. Five of these agreements involve the use of SNP-IT
technology for diagnostic applications. We expect that diagnostic applications
will become increasingly important as genetic assays progress from research
laboratories to routine clinical use. These agreements are helping to establish
our SNP-IT technology as a leading technology available to thousands of
laboratories worldwide, which we believe will provide us with a significant
competitive advantage as an ever-increasing number of researchers and
practitioners begin to use genotyping routinely in their work.

Products and Services to Serve Multiple Genetic Diversity Markets

     We continue to provide products and services to a variety of genetic
diversity markets, including genetic variability analyses for pharmaceutical,
biotechnology, academic and agricultural applications, as well as identity
genomics, DNA diagnostics, and the emerging market of pharmacogenetics and
personalized medicine. We analyze a number of sources of genetic variability in
addition to SNPs for our varied client base, including short tandem repeats for
identity genomics, mitochondrial DNA for forensics, HLA genotypes for
transplantation compatibility matching and haplotypes for pharmacogenetic
studies. As a result of the growth of the company following several acquisitions
beginning in 1998 and continuing through 2001, we now market these products and
services to our customers through the organization of four strategic business
units as described above.

     For the year 2001, we attributed 17.1% of our total revenues to the
products segment of our business and 82.9% of our total revenues to the services
segment of our business.

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Products-Systems

SNPstream 25K System

     We introduced our SNPstream 25K system in September 1999. This high
throughput system is based on an OEM robotic system optimized for use with our
proprietary SNP-IT primer extension SNP scoring assays. Each assay is formatted
in 384-well plates and uses our dedicated consumables and software to provide
the user with turnkey SNP scoring capabilities of more than 20,000 SNPs per day.
The equipment manufacturer, Beckman Coulter, installs and services this system,
and we support the SNP scoring applications.

SNPstream MT System

     Our medium throughput SNPstream MT SNP genotyping system was launched in
September 2001. Our SNPstream MT system includes instrumentation, reagents and
software developed for optimal integrated performance, providing researchers
with all of the necessary components to generate up to 4,000 SNP genotypes per
day. Our SNPstream MT system, which runs on the Luminex xMap platform, was
developed under a May 2000 agreement with Luminex. Current owners of Luminex
xMap systems can also purchase from us SNPware 96B reagents kits and an
Accessory Kit from us containing our SNP scoring software that enables users to
conduct genotyping studies.

SNPstream UHT System

     Our ultra high throughput SNPstream UHT genotyping platform is capable of
performing more than 140,000 SNP genotypes from multiple samples during an
eight-hour shift. Some of our customers are currently beta testing our SNPstream
UHT system, and we expect to formally launch the system as part of our service
facility in early 2002 and as a product in the first half of 2002.

LifeMatch System

     Our LifeMatch(TM) platform is a system developed by our researchers for
automated HLA genotyping and antibody detection. The LifeMatch system runs on
the Luminex xMap platform using our proprietary reagents. It includes
instrumentation, reagents and software developed for optimal integrated
performance, providing laboratories with all of the necessary components to test
more than 350 samples in an eight-hour shift. We recently launched the LifeMatch
platform in Europe and intend to formally launch the system in the US in the
first half of 2002.

Products-Consumables

SNPware Kits

     Each of our SNPware genotyping biochemistry kits includes a set of
optimized and validated reagents. These reagents can be pre-dispensed in the
necessary amounts to run a specific number of SNP scores. We assemble each set
of reagents along with the labware and instructions in a kit for the convenience
of our customers. We sell these kits under our SNPware brand name for use on our
own SNPstream systems, as well as on the systems of other companies. We also
intend to market SNPware using the Internet where customers can order custom
panels of SNPs to fit their needs. Our SNPware consumable product line is
assembled and marketed by our Life Sciences business unit and includes the
following:

SNPware 96 Kit

     Launched in 2001, SNPware 96 kits are low-volume SNP genotyping consumables
for use with 96-well plates and simple readers. SNPware 96 kits enable
researchers to perform up to 1,000 SNP genotypes per day using standard 96-well
plate reader systems. We sell SNPware 96 kits to both our high throughput
customers and collaborators. Invitrogen markets our 96-well kit, a product based
on our SNP-IT technology, to the research market pursuant to an exclusive
worldwide marketing agreement that we signed in November 2001. Also, as part of
the agreement, Invitrogen will refer customers to us who express an interest in
the use of our SNP scoring technology in applications requiring high throughput
genotyping systems.

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SNPware 384 Kit

         SNPware 384 kits are designed for use with the SNPstream 25K, and
contain optimized reagents and software for performing accurate, robust SNP
genotyping. They are offered in custom and generic formats. The custom kits are
formatted for scoring of specific sets of SNPs at the request of our customers.
SNPware 384 generic kits allow customers of the SNPstream 25K system to format
their own plates for their SNP analyses, and provide greater flexibility to
customers. We expect to launch the generic kits in early 2002. We plan to sell
these kits to researchers who want to conduct high volume genotyping studies
with their existing 384-well plate readers and fluid-handling robotic systems.

SNPcode Kit

         We designed our SNPcode kit for use with the Affymetrix GeneChip(R)
system, which enables users to genotype SNPs using the Affymetrix GenFlex(TM)
Tag Array. SNPcode enables the multiplexing of 2,000 SNPs, making it ideal for
high density, high throughput whole genome mapping studies. We also currently
use SNPcode in the services we provide at our MegaSNPatron service facility, and
we expect to launch SNPcode as a stand-alone product in 2002.

Products-Other Kits

         Orchid sells reagents and kits for diagnostic uses. Our ELUCIGENE and
LifeMatch consumable kits are marketed by our Diagnostics business unit.

ELUCIGENE Kits and Tests

         The ELUCIGENE line of kits and tests are for cystic fibrosis, or CF,
genetic testing. ELUCIGENE kits are sold throughout Europe and in the US. In
2001, we registered the ELUCIGENE CF20 kit with the regulatory authorities in
France for human in-vitro diagnostic use. The ELUCIGENE CF20 kit uses patented
ARMS(TM) detection technology to simultaneously detect 20 common mutations of
the CFTR gene that are associated with cystic fibrosis. In 2001, we also
launched the ELUCIGENE CF29 panel of Analyte Specific Reagents, or ASRs, that
detects all 25 mutations recommended by the American College of Medical Genetics
for cystic fibrosis screening. We are developing specific panels for cystic
fibrosis screening of targeted populations in various other countries, and
expect to expand the distribution of our ELUCIGENE CF kits in 2002.

LifeMatch Consumables

         We sell assays to measure the A and B antigens for transplantation
typing that impact the ability of a transplant recipient to accept a transplant
organ, and intend to expand the number of assays we offer in 2002.

Services

         We have established an identity genomics testing business as a result
of our acquisitions of GeneScreen, Cellmark and Lifecodes, leaders in the
provision of paternity and forensics testing. These services, offered by our
Identity Genomics business unit, are conducted in accredited facilities that
also provide us with the infrastructure to conduct clinical SNP genotyping and
pharmacogenetic testing. We expect that our testing services will generate
increasing revenues as SNP genotyping moves from the laboratory to the clinic.
Currently, our Life Sciences business unit provides a variety of SNP genotyping
services through our MegaSNPatron facility, which offers one of the highest
throughput and most cost-effective SNP scoring services available in the
industry. We introduced the first phase of our MegaSNPatron facility in March
1999. We began offering SNP scoring services to clients in 2000, and expect to
increase the number of pharmaceutical, biotechnology, agricultural and academic
clients we currently serve. We also offer organ transplant compatibility testing
services through our Diagnostics business unit.

Paternity Testing Services

         We offer a variety of paternity tests for publicly mandated and private
testing. Customers include state child welfare agencies and individuals.

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Forensic Testing Services

         We test a variety of forensic samples found at crime scenes and conduct
large-scale screening and matching studies for criminal justice agencies.

Transplant Testing Services

         We provide testing services for screening and confirmation of HLA
genotyping for prospective bone marrow transplant donors participating in public
and private programs, using both DNA and serological testing. Our customers
include agencies and individuals in the US and Europe.

MegaSNPatron SNP Genotyping Services

         We currently offer low, medium and high volume SNP scoring services on
multiple platforms, including the SNPstream 25K, the SNPstream MT, and SNPcode
platforms, and expect to add the SNPstream UHT in early 2002. Our multiple
offerings enable us to match our customers' needs to the platform best suited to
conduct their work.

Orchid Overall Business Plan

         We aim to be the leading provider of SNP scoring and genetic diversity
products and services.

Providing Genotyping Services Through Our Mega SNPatron Services Facility

         We believe that the market for genetic variability analysis among
pharmaceutical, biotechnology, academic and agricultural customers is increasing
as data from the efforts of The SNP Consortium and others are met in the
marketplace with growing access to faster, more cost-effective and more accurate
genotyping technologies. We believe an important driver of this growth includes
the ongoing efforts to identify the role of SNPs in health and disease,
including pharmacogenetics, or pharmacogenomics, the study of the impact of
genetic variation on the efficacy, pharmacology and toxicity of a drug.
Researchers have long known that genetic differences can affect individual drug
response, causing adverse reactions in some patients that are not seen in the
majority of users, or resulting in reduced efficacy in a subset of users. For
example, a drug is likely only to be effective in individuals who carry the
specific protein or receptor for which the drug was designed. Individuals who,
because of genetic variation, have a slightly modified version of these proteins
or receptors or those involved in the metabolism of the drug, may not respond to
the drug or may experience adverse side effects.

         Currently, the pharmaceutical industry is attempting to find ways to
develop safer and more effective new drugs and to improve existing drugs by
using genetic variation information to select the best drug for a particular
patient. Researchers have begun to use genetic variability information in the
drug discovery process by identifying SNPs and their products as the targets for
new drugs. Genetic variation information is also being used in agriculture
programs, where researchers are seeking alternatives to genetic modification to
develop improved crops and livestock breeding. We believe SNP analysis can
enable acceleration of traditional breeding methods to obtain the desired
attributes thereby avoiding the need to insert foreign genetic material.

         The pharmaceutical markets for SNP scoring are in an early stage of
development, but we expect them to develop rapidly over the next few years. We
have sold our products into these emerging markets through our commercial
agreements in 2000 and 2001 and we intend to continue to seek to enter into
additional agreements with pharmaceutical firms. We also plan to seek new
biotechnology, academic research and agricultural customers.

         We believe that we now have one of the broadest product lines of SNP
genotyping products and services. In 2001, our affordable, medium throughput
SNPstream MT product and the new low volume 96-well genotyping kit were added to
our system product line. In 2002, we plan to launch our ultra high throughput
tag array-based SNPstream UHT platform and our SNPcode product for direct
customer use. Our SNPstream UHT and SNPcode platforms are among the few in the
industry capable of performing high-density genotyping for whole genome and
whole chromosome mapping studies. Our MegaSNPatron genotyping service facility
provides high quality, cost effective SNP

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genotyping services using our multiple platforms. Our mix of leading SNP scoring
products and services and the availability of our technology on the platforms of
our strategic partners has a number of advantages, including the following:

          .    Enables us to uniquely provide varied, optimized SNP scoring
               solutions to a diverse customer base.

          .    Enables our customers to seamlessly migrate their studies and
               specific assays from platform to platform, a feature that we
               believe to be a significant advantage as SNP analyses become more
               common and varied.

          .    Enables us and our collaborators to develop higher value content
               in the form of assays, panels and mapping analyses that can
               easily be transferred to other genotyping systems, thereby
               significantly increasing their utility.

         We believe that whole genome and chromosome mapping studies will be
especially important for deriving valuable content, and our SNP-IT tag array
technology is particularly well suited for these types of studies.

Orchid's Identity Genomics Testing Business

         With the acquisition of Lifecodes, we have become the market leader in
identity genomics in the US, which represents one of the largest existing
markets for genetic analysis today. We operate our identity genomics business
through: (i) Orchid GeneScreen, which conducts paternity genotyping
determinations for government agencies and private individuals; and (ii) Orchid
Cellmark, which is a leading provider of forensic testing. We expect that the
strength of our position in identity genomics will enable us to realize
efficiencies, and, in the case of paternity testing, to apply our advanced SNP
technologies to significantly reduce cost structure of what has traditionally
been a labor-intensive process. We intend to accomplish this by applying the
same ultra high throughput SNP scoring systems that we have developed for
advanced pharmaceutical, biotech and agricultural applications to paternity
testing, thereby taking advantage of our substantial investments in new
genotyping technologies across a broad range of both existing and new
businesses. We are developing SNP panels to replace older technologies currently
used for paternity testing, which we expect to begin implementing during 2002.
We also expect SNPs to have utility in forensics applications, especially in
analyzing degraded DNA that is not amenable to other methods of analysis.

         During 2001, we had four accredited laboratories for paternity and
forensic testing in the US and UK. Subsequent to the acquisition of Lifecodes,
we now have eight accredited laboratories in the US, UK, and Canada providing
high quality genotyping services whose lab accreditations include those from
Clinical Laboratory Improvement Act (CLIA) for clinical genotyping, from the
American Association of Blood Banks (AABB) for paternity testing, and from the
American Society of Crime Lab Directors (ASCLD) for forensics testing. A large
portion of paternity and forensic testing is government sponsored and involves
contracts that are generally bid upon by respective state agencies every one to
three years. The contract bidding process is highly competitive and the criteria
used to determine the awards varies. In some cases contracts are awarded solely
on the basis of price, while others use a scoring matrix to achieve the desired
mix of price, quality and service. As we integrate our SNP scoring technologies
into our identity genomics business, we intend to continue to seek more
attractively priced contracts based on our ability to provide high quality
services that we expect will provide advantages in terms of accuracy and
turn-around time compared to most other competitors.

Orchid's Diagnostic Testing Business

         Upon the acquisition of Lifecodes, we also established our diagnostic
business unit focusing on clinical genotyping for diagnostics. Orchid's
Diagnostics unit now offers our existing ELUCIGENE product line for disease
susceptibility testing for cystic fibrosis and our HLA services business for
transplant compatibility matching with the HLA products and services of
Lifecodes.

         We believe we have now established the necessary manufacturing and
marketing channels in the US and Europe and have introduced an important new
product, the LifeMatch system, that offers HLA genotyping customers significant
time and cost advantages over current products and technologies. The LifeMatch
instrument system is based on the Luminex xMap platform and uses our proprietary
consumables. It is targeted at the large number of hospital and independent
laboratories who perform their own HLA genotyping. We expect to have dozens of
these systems sold by the end of 2002. Through Orchid Diagnostics, we are
currently developing additional consumables and marker sets to expand the menu
of HLA genotyping alternatives available on LifeMatch and to increase our
consumables revenues from sales of the growing base of installed instruments
that use our consumables.

                                       11

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         We expect our Diagnostics business to serve as the foundation for a
significantly expanded product line of molecular diagnostic genotyping assays
over the next few years, by accessing new markers from a variety of academic and
commercial sources, and by focusing on the potentially high growth area of
immunogenetics.

Creating Value Through Personalized Medicine

         GeneShield, our wholly owned subsidiary and fourth business unit, is
developing services designed to accelerate the adoption of personalized medicine
into routine medical care. In 2001, we hired a highly experienced team to
develop programs at GeneShield that would, among other things, incorporate
pharmacogenetics data in a form familiar to physicians and that would be readily
acceptable to patients, tangible in value to health care providers and payers,
and capable of producing recurring revenues for us.

         We plan to utilize our existing clinical genotyping technology and
facilities necessary for the resulting high-sample throughput demands for
genotyping panels of SNPs to help physicians and patients improve the selection
of medicine through GeneShield. We plan to conduct alpha tests of our first
service in collaboration with a number of leading managed care organizations
over the remainder of the year and expect to announce our first beta test
program in the last quarter of 2002.

Sustained Competitive Advantage

         In order to build and sustain our competitive advantage in the field of
genetic diversity, we plan to continue to form strategic alliances and
scientific collaborations and make strategic acquisitions as appropriate. Our
eight accredited genotyping facilities provide us with the foundation for
providing clinical quality SNP scoring and pharmacogenetic testing to a variety
of customers and for our own use. Through collaborations and selective
acquisitions, we plan to seek access to distribution channels and opportunities
to improve operational efficiencies. Our Platform Propagation strategy is
enabling us to accelerate adoption of our SNP-IT technology by a wide variety of
researchers. We expect the potential breadth of our early market penetration to
be an important competitive advantage in the future.

         We intend to continue selected investment in our proprietary
technologies through internal development and by licensing third-party
technologies. We are pursuing research projects aimed at identifying and
developing new technologies to improve and expand our genetic diversity products
and services. These projects involve research conducted by us, collaborations
with other researchers and the acquisition of technologies developed by
universities and other academic institutions. We will also seek to improve the
cost-effectiveness and utility of our existing products and services through
improved performance and development of improved information technologies,
including improvements to our systems such as the SNPstream UHT, our
bioinformatics efforts and our new website that allows customers to design their
own primers for use with our SNP genotyping products.

Collaborations and Licenses

         A significant element of our business strategy is to enter into
collaborative research programs and licenses with major pharmaceutical,
biotechnology and agricultural companies that have proven capabilities in
gene-based product discovery and commercialization. We believe this strategy
will allow us to apply our technologies to a broader range of product
development efforts, thereby generating a growing base of intellectual property
rights and revenues.

         We currently have collaboration and license agreements with, Asper
Biotech, AstraZeneca, Beckman Coulter, DNALink, Hitachi MiraiBio, Luminex, Quest
Diagnostics, Invitrogen and Affymetrix. In the first quarter of 2002, we
announced a collaboration agreement with First Genetic Trust.

         We concluded our 1999 collaboration agreement with Affymetrix in 2001
and simultaneously entered into a series of agreements with respect to
multiplexed primer extension technology.

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PerkinElmer

         In February 2000, we entered into an agreement with PerkinElmer
(formerly known as NEN Life Sciences, Inc.), under which PerkinElmer has agreed
to supply us with all of our required terminators for use in our SNPware kits.
Terminators are nucleotides that stop the extension of a DNA chain. In
consideration of PerkinElmer's agreement to supply us with terminators at
preferential prices, we sold to PerkinElmer 125,000 shares of our common stock
for a purchase price of $750,000 and paid PerkinElmer an up-front fee of
$750,000. Under the supply agreement we will pay PerkinElmer a royalty fee based
on our revenues for SNPware kits we sell above a specified sales price. We are
required to purchase quantities of terminators with an approximate minimum value
during each annual period from the effective date of the agreement as follows:
$333,000 in the first year, $700,000 in the second year, $990,000 in the third
year, and $1,320,000 in the fourth year. Since the products being supplied are
used in our current product and may be used in future products, we will defer
and amortize the $750,000 up front fee plus the difference between the fair
value of the stock issued to PerkinElmer (approximately $1.5 million) over the
purchase price for the stock, or a total of $1.5 million over the estimated four
year term of the agreement on a straight-line basis. We measured the fair value
of the common stock on the date of the agreement as these shares were fully paid
and nonforfeitable on that date. Either party can terminate the agreement any
time after four years from the commencement date, without cause, upon 90 days'
prior written notice. Either party can also terminate the agreement for cause,
such as a failure to make payments or for any breach that remains uncured 60
days from the receipt of notice of the breach.

         In December 2000, we also granted an exclusive license to the Life
Sciences business of PerkinElmer to use our patented SNP-IT technology for SNP
scoring applications using fluorescence polarization and energy transfer
read-out methods. Under the terms of the agreement, PerkinElmer Life Sciences
has agreed to produce and sell reagent kits, software and instruments
incorporating our SNP-IT single base primer extension technology to enable its
customers to perform fluorescence-based SNP analyses. This license grants
PerkinElmer exclusive rights to use our SNP-IT technology with fluorescence
polarization, a laboratory read-out methodology that is expected to achieve
rapid growth as a result of such attributes as simplicity, accuracy and cost
effectiveness. In addition to licensing fees, we are entitled to receive

<PAGE>

royalties (including yearly minimum payments) from product sales, if any, under
the license agreement. This agreement, under which we have also granted
PerkinElmer an option to expand the field of use to include diagnostic assays
based on fluorescence methodologies and time resolved energy transfer,
terminates on the date upon which the last of the patents we license to
PerkinElmer expires. In the event of a breach of this agreement, the
non-breaching party may terminate the agreement upon 14 days' written notice for
uncured breaches relating to non-payment, except for non-payment of license
fees, and upon 60 days' written notice for all other uncured breaches.

         In December 2000, we further granted a non-exclusive license to the
Life Sciences business of PerkinElmer to use our SNP-IT technology for scoring
applications on DNA sequencers. Under the agreement, PerkinElmer will produce
and sell reagent kits, software and instruments incorporating our technology for
performing SNP analyses on capillary and slab gel DNA sequencers. In addition to
licensing fees, we are entitled to receive royalties from product sales, if any,
under the license agreement. This will enable PerkinElmer to develop and sell
reagent kits so that researchers can perform high quality SNP analyses using the
DNA sequencers they already own. This agreement terminates on the date upon
which the last of the patents we license to PerkinElmer expires. In the event of
a breach of this agreement, the non-breaching party may terminate the agreement
upon 14 days' written notice for uncured breaches relating to non-payment,
except for non-payment of license fees, and upon 60 days' written notice for all
other uncured breaches.

Amersham Biosciences

         In June 2000, we entered into a license agreement with Amersham
Pharmacia Biotech (now known as Amersham Biosciences), the life sciences
division of Nycomed Amersham Plc, pursuant to which we granted a royalty
bearing, non-exclusive license to Amersham Biosciences to use our SNP-IT single
base primer extension technology. Under the terms of the agreement, Amersham
Biosciences will produce and sell reagent kits and software incorporating our
technology to allow researchers to perform SNP analyses on Amersham Biosciences
capillary and slab gel DNA sequencers. In addition to licensing fees, we are
entitled to receive royalties for the duration of the license agreement. Our
agreement with Amersham Biosciences does not provide for minimum annual sales
requirements, and therefore we cannot determine at this time the materiality or
the value of this agreement to our business or us. This agreement terminates on
the date upon which the last of the patents we license to Amersham Biosciences
expires. In the event of a breach of this agreement, the non-breaching party may
terminate the agreement upon 14 days' written notice for uncured breaches
relating to non-payment, except for non-payment of license fees, and upon 60
days' written notice for all other uncured breaches.

Applied Biosystems, Inc.

         In July 2000, we entered into a license agreement with PE Biosystems,
now known as Applied Biosystems, a division of PE Corporation, under which we
granted a royalty bearing, non-exclusive license to Applied Biosystems to use
our SNP-IT single base primer extension technology. Under the terms of the
agreement, Applied Biosystems will produce and sell reagent kits and software
incorporating our technology to allow researchers to perform SNP analyses on
Applied Biosystems' ABI PRISM(R) DNA sequencers. In addition to licensing fees,
we are entitled to receive royalties for the duration of the license agreement.
Our agreement with Applied Biosystems does not provide for minimum annual sales
requirements, and therefore we cannot determine at this time the materiality or
the value of this agreement to our business or us. This agreement terminates on
the last day upon which the last of the patents we licensed to Applied
Biosystems expires. In the event of a breach of this agreement, the
non-breaching party may terminate the agreement upon 14 days' written notice for
uncured breaches relating to non-payment, except non-payment of license fees,
and upon 60 days' written notice for all other uncured breaches.

The SNP Consortium Ltd.

         In July 2000, we expanded our collaboration with The SNP Consortium
Ltd. under which we performed certain SNP scoring services for determining the
allelic frequency of 60,000 SNP genomic markers in diverse populations. We bore
a substantial portion of the costs to perform these services. To fulfill our
commitment under this collaboration, we accelerated the hiring of personnel for,
and use of SNPware consumables in our MegaSNPatron facility, resulting in
additional research and development expenses in 2001 of approximately $3.0
million. In exchange, we obtained the right to commercialize certain technology
developed as a result of performing these services and also received milestone
payments. Work under this collaboration was completed during 2002.

<PAGE>

Other Agreements

         In addition, we have entered into various, license, service and
collaboration agreements with respect to our technology, product and services
with various third parties that are not material to our business. We will
continue to seek to enter into similar agreements to enable us to develop
technologies and earn revenues from our products and services in the future.

Customers

         We have entered into licensing arrangements with certain Platform
Propagation strategy collaborators with respect to our SNP-IT primer extension
technology. We typically structure these arrangements so that we receive
licensing fees and royalty payments for the use of our SNP-IT primer extension
technology in our customers' products. We intend to continue to enter into
similar arrangements in the future. We have also offered our SNPstream system
hardware in two basic transactions, either a purchase and sale transaction or an
arrangement in which the customer takes possession of the system and pays an
access fee for its use. SNPware consumables are sold to these customers for use
with the systems. We have also targeted biotechnology and pharmaceutical
companies that perform SNP scoring and have established marketing and
distribution channels for our SNPware consumables. We also perform SNP scoring
services on a fee-for-service basis. Our customers include Eli Lilly, The SNP
Consortium, GlaxoSmithKline, Ellipsis, Pig Improvement Corporation, the UK
Department of Environment, Food, and Rural Affairs, Ellipsis Biotherapeutics and
AstraZeneca. Our current SNPstream customers include DNA Link, Bristol-Myers
Squibb, DNAPrint genomics and Tepnel Life Sciences. Our SNPstream MT system was
launched in late 2001. Some of our customers are currently beta testing our
SNPstream UHT system, and we expect to formally launch the system for use by our
customers as a product and as part of our service facility in early 2002.
Customers for our identity genomics business include a large number of state and
local government agencies in New York, Ohio, Mississippi and California, as well
as individual customers for our private paternity services. Customers for our
diagnostic products and services include hospital and clinical laboratories and
individuals and groups organizing transplantation testing drives. We also
provide HLA testing services to a major customer in Germany, Deutsche
Knochenmarkspenderdatei Gemeinnutzige GmbH.

Manufacturing and Suppliers

         We manufacture SNPware consumables at our Princeton, New Jersey
facility, products and consumables for HLA testing at our Stamford, Connecticut
facility, and reagents for disease susceptibility testing at our facility in
Abingdon, UK. If we are unable to meet commercial demand for our products, we
may need to enter into supply arrangements with third parties to produce
commercial quantities of our products. However, we believe we currently have
sufficient manufacturing capacity to meet commercial demand for our products
through 2003. Subsequent to our acquisition of Lifecodes in December 2001, we
are working to maximize efficiencies through the possible combination of
manufacturing facilities.

         Our manufacturing facilities are designed to optimize material flow and
personnel movement with centrally located manufacturing and quality control
operations. We produce critical components in environmentally controlled clean
rooms that are isolated from the rest of the facility.

         The Stamford, CT and Abingdon, UK facilities have ISO9001 accreditation
and we plan to comply with quality system requirements, or QSRs, and FDA
guidelines for analyte-specific reagents, or ASRs, over the next two years.
Access and safety features are designed to meet federal, state and local health
ordinances.

         We rely on outside vendors to manufacture a number of central
components of our SNPstream system and reagents that we provide in our SNPware
kits. We have agreements with Tecan and Beckman Coulter for the components of
our SNPstream systems and PerkinElmer, Inc. for some of the key reagents in our
SNPware kits.

         We are establishing a company-wide enterprise resource planning system
to manage and control our material and product inventories. This system will
encompass product costing, materials procurement, production planning and
scheduling, inventory tracking and control and batch records, with links to
document control for all manufacturing, quality control, quality assurance and
regulatory compliance procedures.

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         We also perform service testing at all of our facilities. All of our
Identity Genomics facilities have the CLIA accreditations necessary to be in
compliance with the required regulations, and two of our Cellmark laboratories
have American Society for Criminal Laboratory Directors (ASCLD) certification.

Distribution

         We are expanding our business internationally, using the facilities
acquired in early 2001 as a headquarters for the operations of our European
subsidiary, Orchid BioSciences Europe, Ltd., in Abingdon, UK. We intend to use
our international operations to expand our identity genomics and clinical
genetic testing services, to provide service locations and redistribution
centers for our SNPstream systems and SNPware consumables, to expand the
marketing and distribution of our DNA diagnostic products, and to serve as the
base for the eventual introduction of our personalized medicine products and
services into Europe. In 2001, we strengthened our distribution capabilities
through our agreements with leading marketing partners, including Hitachi
MiraiBio for the SNPstream MT and Invitrogen for the 96-well genotyping kit that
we expect to be made available to thousands of laboratories.

Intellectual Property

         We have implemented and continue to implement an aggressive patent
strategy designed to provide us with a unique proprietary position in the fields
of genotyping technologies, pharmacogenetics, microfluidics and other areas of
genetic diversity. This strategy will continue to focus on protecting and
commercializing our current and future products. Our patent portfolio reflects
our international scope and includes pursuing patent protection in many of the
industrialized nations of the world. We currently own, or have exclusive
licenses to, 70 US patents and 78 foreign patents, and have received notices of
allowance for 2 additional Australian patent applications. Additionally, we have
195 pending patent applications of which 50 are US applications and 145 are
foreign patent applications.

         Our commercial success will also depend, in part, on our ability to
obtain patent protection on the SNPs for which we discover utility and on the
products, methods and services for which we base such discoveries. We have
sought and intend to continue to seek patent protection for novel uses of SNPs,
which may have initially been patented by third parties. In such cases, we may
need to license these SNPs from the patent holders to make use of or sell
products using these SNPs.

         We own or exclusively license key patents covering these fundamental
areas of our business: primer extension technologies (patent numbers 5,888,819,
6,004,744, 6,013,431, 5,856,092, and 5,302,509) and surface biochemistry and
arrays (patent numbers 6,322,968, 6,337,188, 5,919,626, 6,294,336 and
6,225,109). We also own or exclusively license patents covering other areas of
our business including pharmacogenomics, paternity and forensic genetic markers.
As of December 31, 2001, these subject patents have approximately ten or more
years before they expire.

         We also rely on both patent and trade secret protection of our
intellectual property. Complex legal and factual determinations and evolving
laws make patent protection uncertain. As a result, we cannot be certain that
patents will be issued from any of our patent applications or from applications
licensed to us or that any issued patents will have sufficient breadth to offer
meaningful protection. In addition, our issued patents or patents licensed to us
may be successfully challenged, invalidated, circumvented or unenforceable so
that our patent rights would not create an effective competitive barrier.
Moreover, the laws of some foreign countries may not protect our proprietary
rights to the same extent as US law does.

         We attempt to protect our trade secrets by entering into
confidentiality agreements with third parties, employees and consultants. Most
of our employees and consultants also sign agreements requiring that they assign
to us their interests in discoveries, inventions, patents and copyrights arising
from their work for us, maintain the confidentiality of our intellectual
property, and refrain from unfair competition with us during their employment
and for a period of time after their employment with us, which includes
solicitation of our employees and customers. We cannot assure you that these
agreements will not be breached or invalidated. In addition, we cannot assure
you that third parties will not independently discover or invent competing
technologies or reverse engineer our trade secrets or other technologies.

         In the future, third parties may file claims asserting that our
technologies or products infringe on their intellectual property. We cannot
predict whether third parties will assert such claims against us or against the
licensors of technologies licensed to us, or whether those claims will harm our
business. If we are forced to defend against such claims, whether they are with
or without any merit or whether they are resolved in favor of or against us or
our licensors, we may face costly

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litigation and diversion of management's attention and resources. As a result of
such disputes, we may have to develop costly non-infringing technologies, or
enter into licensing agreements. These agreements, if necessary, may be
unavailable on terms acceptable to us, or at all, which could seriously harm our
business and financial condition.

         We have 94 pending trademark applications in the US and elsewhere. We
have received registrations or notices of allowance for the following
trademarks: GeneScreen(R), GenoPak(R), SNPstream(R), SNPware, and the Orchid
logo. We have also received registration for SNP-IT(R) in Australia.

Government Regulation

         While most of our initial research products will not be subject to
government regulation, we anticipate the manufacturing, labeling, distribution
and marketing of some or all of our future diagnostic products and services
developed or performed using our SNP-related technologies or microfluidics will
be subject to government regulation in the US and in certain other countries.

         In the US, the FDA regulates, as medical devices, most diagnostic tests
and in vitro reagents that companies market as finished test kits or equipment.
Some clinical laboratories, however, purchase individual reagents intended for
specific analyses, and, using those reagents, develop and prepare their own
finished diagnostic tests. The FDA has not generally exercised regulatory
authority over these individual reagents or the finished tests prepared from
them by the clinical laboratories. The FDA has recently proposed a rule that, if
adopted, would regulate reagents sold to clinical laboratories as medical
devices. The proposed rule would also restrict sales of these reagents to
clinical laboratories certified under CLIA as high complexity laboratories. We
intend to market some diagnostic products as finished test kits or equipment and
others as individual reagents. Consequently, some or all of these products will
be regulated as medical devices. The AABB has accredited our CLIA laboratories
in Dallas, Texas, Dayton, Ohio, East Lansing, Michigan, Nashville, Tennessee and
Sacramento, California. The American Society of Histocompatibility and
Immunology, or ASHI, has accredited our Dayton, Ohio and Stamford, Connecticut
laboratories for transplantation typing of prospective bone marrow donors. The
National Forensic Science Testing Center and the ASCLD have accredited our
Germantown, Maryland and Dallas, Texas laboratories for DNA typing for criminal
forensic purposes. Only eight private forensics labs in the US have earned the
respected ASCLD accreditation.

         The FDA has also adopted a set of regulations that govern laboratories
that use Analyte Specific Reagents, or ASRs, which cover the production of
assays and their components consistent with Good Manufacturing Practices for use
in clinical research and by clinical reference laboratories producing their own
assays. We are planning to satisfy these ASR guidelines within two years in
connection with our manufacture of any research or diagnostic product that these
guidelines may affect.

         The Food, Drug, and Cosmetic Act requires that medical devices
introduced to the US market, unless exempted by regulation, be the subject of
either a pre-market notification clearance, also known as a 510(k) or an
approved pre-market approval application, or PMA. Some of our products may
require a PMA and others may require a 510(k). With respect to devices reviewed
through the 510(k) process, we may not market a device until the FDA agrees that
the product is substantially equivalent to a legally marketed device known as a
"predicate device." A 510(k) submission may involve the presentation of a
substantial volume of data, including clinical data, and may require a
substantial FDA review. The FDA may agree that the product is substantially
equivalent to a predicate device and allow the product to be marketed in the US.
The FDA, however, may (i) determine that the device is not substantially
equivalent and require a PMA, or (ii) require further information, such as
additional test data, including data from clinical studies, before it is able to
make a determination regarding substantial equivalence. By requesting additional
information, the FDA can further delay market introduction of our products. If
the FDA indicates that a PMA is required for any of our products, the
application may require extensive clinical studies, manufacturing information
and likely review by a panel of experts outside the FDA. The FDA could also
require us to conduct clinical studies to support either a 510(k) submission or
a PMA application in accordance with FDA requirements. Failure to comply with
FDA requirements could result in the FDA's refusal to accept the data or the
imposition of regulatory sanctions. FDA approval of a PMA application could take
significantly longer than a 510(k) approval.

         Medical device laws and regulations are also in effect in many
countries in which we may do business outside the US. These range from
comprehensive device approval requirements for some or all of our medical device
products to requests for product data or certifications. The number and scope of
these requirements are increasing. We cannot assure

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you that we will obtain regulatory approvals in such countries or that we will
not be required to incur significant costs to obtain or maintain any such
foreign regulatory approvals. In addition, the export by us of certain of our
products which have not yet been cleared for domestic commercial distribution
may be subject to FDA export restrictions. Medical laws and regulations are also
in effect in some states in which we do business. The failure to obtain product
approvals in a timely fashion or to comply with state or foreign medical device
laws and regulations may have a material adverse impact on our business and
results of operations.

         Our current DNA testing laboratories in the US and our services that
Orchid Cellmark in the UK provides to US citizens are regulated under CLIA. The
intent of CLIA is to ensure the quality and reliability of clinical laboratories
by mandating specific standards in the areas of personnel qualifications,
administration, participation in proficiency testing, patient test management,
quality control, quality assurance and inspections. The regulations promulgated
under CLIA establish three levels of diagnostic tests, waived, moderately
complex and highly complex, and the standards applicable to a clinical
laboratory depend on the level of the tests it performs. Therefore we cannot
assure you that the CLIA regulations and future administrative interpretations
of CLIA will not have a material adverse impact on us by limiting the potential
market for our DNA testing services.

         Our gene diagnostic kits sold by our Orchid Cellmark unit in Europe are
classified as IVD medical devices and are covered by the European Directive,
98/79/EC, or the Directive. The Directive was implemented into UK legislation
through the In Vitro Diagnostic Medical Devices Regulations, SI 2000/1315, or
the IVD Regulations, which came into force on June 7, 2000. There is a
transition period until December 7, 2003 during which manufacturers must either
comply with the existing national laws or comply with the IVD Regulations and
"CE" (the mark of conformity) mark their devices. After the transition period,
it will be mandatory for us to comply with the IVD Regulations. IVDs are
classified into four categories so that the level of regulatory control applied
to an IVD will be proportionate to the degree of perceived risk based on whom
the device user may be or the effect if it fails to perform as intended. These
categories are in order of increasing perceived risk, and our products fall into
the lowest risk category, or general IVDs. In order to "CE" mark our IVD
products, we will need to demonstrate compliance with the essential requirements
and use the appropriate conformity assessment route that are both detailed in
the IVD Regulations and the relevant Annexes of the Directive. In connection
with this demonstration of compliance, we must compile a technical dossier for
each IVD we market. The requirement to comply with the IVD Regulations will
increase the cost of regulatory compliance for our Cellmark division.

         Prior to the Directive becoming mandatory, manufacturers are subject to
other legislation and obligations relating to quality control and safety, such
as the General Product Safety Regulations 1994 (SI 1994/2328). Manufacturers
must also comply with the Products of Animal Origin (Import and Export)
Regulations 1996 (SI 1996/3124) if it is applicable to their devices. Under
these regulations we are required to (and have) obtained registration from the
Ministry of Agriculture, Fisheries & Food of our manufacturing units in relation
to the export of genetic testing kits containing Purified Bovine Serum and
Purified Gelatin.

         We currently sell a number of IVD products in the UK and have
accreditation certificates for our quality systems from a Notified Body (SGS
Yarsley ICS), thereby meeting the requirements of ISO9001, EN46001 and ISO13485.
We have also received an accreditation certificate from the United Kingdom
Accreditation Service, or UKAS, in relation to our testing laboratory. UKAS is
the national body for the accreditation of testing and calibration laboratories,
certification and inspection bodies.

         As a result of obtaining the above-mentioned accreditations, we expect
that we will be able to demonstrate compliance of our IVD products with some of
the essential requirements provided for in Annex I of the Directive. However, we
must also prepare technical dossiers in accordance with Annex III of the
Directive before affixing a CE marking on each IVD. We cannot assure you that we
will be able to demonstrate compliance of our IVD products with the relevant
Annexes of the Directive.

         In the US and UK, we are also subject to numerous environmental and
safety laws and regulations, including those governing the use and disposal of
hazardous materials. Any violation of, and the cost of compliance with, these
regulations could have a material adverse effect on our business and results of
operations.

Employees

         As of February 15, 2002, we employed 595 persons, of whom 62 hold Ph.D.
or M.D. degrees and 81 hold other advanced degrees. Approximately 78 employees
are engaged in research and development, 46 employees are engaged in business
development, sales and marketing, 362 employees are engaged in manufacturing and
genotyping testing services,

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and 109 employees are engaged in intellectual property, finance and other
administrative functions. None of our employees are represented by a collective
bargaining agreement, nor have we experienced any work stoppage. We believe we
maintain good relations with our employees.

Competition

         The markets for our products are competitive, and we expect the
intensity of competition may increase. Currently, we compete primarily with
other companies that are pursuing technologies and products that are similar to
our technologies and products. Some of our competitors have greater financial,
operational, sales and marketing resources, and more experience in research and
development and commercialization than we have. Moreover, some competitors may
have greater name recognition than we do, and may offer discounts as a
competitive tactic. These competitors and other companies may have developed or
could in the future develop new technologies that compete with our products or
which could render our products obsolete. We cannot assure you that we will be
able to make the enhancements to our technologies necessary to compete
successfully with newly emerging techniques.

         In the SNP genotyping field, we compete with several companies offering
alternative technology concepts. These companies include: Affymetrix, Sequenom,
Applied Biosystems, Illumina, Nanogen, Qiagen Genomics, Pyrosequencing and Third
Wave Technologies.

         Our principal competitors in the field of pharmacogenetics research and
development for personalized medicine include: Celera Genomics, CuraGen,
Genaissance Pharmaceuticals, Millenium Predictive Medicine, DNA Sciences and
Variagenics.

         Competitors in the DNA diagnostics field include: Myriad Genetics,
diaDexus, Celera Diagnostics, Third Wave Technologies, Nanogen, Specialty Labs,
Quest Diagnostics and Laboratory Corporation of America. Competitors in the
field of HLA testing include: One Lambda, Biotest, and PelFreeze.

         Our Competitors in the field of identity genomics testing include: DNA
Diagnostics, Identigene, Laboratory Corporation of America and Bode Labs in the
US, along with Forensic Science Service and Laboratory of the Government Chemist
in the UK.

         This report contains references to our trademarks SNP-IT and
GeneScreen(R), SNPstream(R), SNPware, GeneShield, Cellmark, MegaSNPatron,
SNPcode, ELUCIGENE, LifeMatch, Platform Propagation and the Orchid logo. These
are our trademarks for which we have filed registration applications with the
United States Patent and Trademark Office. All other trademarks or trade names
referred to in this annual report are the property of their respective owners.

                                       19

<PAGE>

Risks Related to Our Business

We are at an early stage of development and may never become profitable.

     We organized our company as a Delaware corporation on March 8, 1995 and
have a short operating history. The market for the products and services that we
develop, manufacture and market, all of which are derived from genomics and
microfluidics technologies, is uncertain. We face risks related to our ability
to:

          .    develop, market and maintain competitive technologies, products
               and services;

          .    anticipate and adapt to changes in our rapidly evolving markets;

          .    retain current collaborators and customers and attract new
               collaborators and customers for our genotyping products and
               services as well as our diagnostic kits and services in paternity
               and forensics;

          .    implement and successfully execute our business strategy and
               sales and marketing initiatives in order to increase our brand
               recognition for our SNPware consumables and SNPstream
               instruments;

          .    attract, retain and motivate qualified management, technical and
               scientific personnel;

          .    obtain additional capital to support the expenses of developing
               our technologies and commercializing our products and services;
               and

          .    transition successfully from a company with a research focus to a
               company capable of supporting commercial activities.

     If we fail to adequately manage these risks, we may never become profitable
and our financial condition would suffer.

We had an accumulated deficit of $183.3 million as of December 31, 2001 and
expect to continue to incur substantial operating losses for the foreseeable
future.

     We have had substantial operating losses since our inception, and we expect
our operating losses to continue for the foreseeable future. For example, we
experienced net losses of $84.7 million in 2001, $47.9 million in 2000, and
$28.2 million in 1999. In order to further develop our SNP scoring, identity
genomics and microfluidics technologies as well as our genetic diversity
services, including services provided by GeneShield, Inc., our wholly-owned
subsidiary, we will need to incur significant expenses in connection with our
internal research and development and commercialization programs. As a result,
we expect to incur operating losses for the foreseeable future.

Fluctuations in our quarterly revenues and operating results may negatively
impact our stock price.

     Revenues and results of operations have fluctuated significantly in the
past and significant fluctuations are likely to continue in the future due to a
variety of factors, many of which are outside of our control. These factors
include:

          .    the volume and timing of orders for our SNPware consumables,
               SNPstream instruments and other products and services;

          .    changes in the mix of our products and services offered;

          .    the number, timing and significance of new products and services
               introduced by our competitors;

          .    our ability to develop, market and introduce new and enhanced
               products and services on a timely basis;

          .    changes in the cost, quality and availability of reagents and
               components required to manufacture or use our products; and

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<PAGE>

         .    availability of commercial and government funding to researchers
              who use our products and services.

         Research and development costs associated with our technologies,
products and services, as well as personnel costs, marketing programs and
overhead account for a substantial portion of our operating expenses. We cannot
adjust these expenses quickly in the short term. If our revenues decline or do
not grow as anticipated, we may not be able to reduce our operating expenses
accordingly. Our failure to achieve anticipated levels of revenues could
therefore harm our operating results for a particular fiscal period. In
addition, market and other conditions may require certain non-cash charges such
as stock based compensation charges and impairment charges related to long-lived
assets to be recorded by us in future periods. If our operating results in some
quarters fail to meet the expectations of public market analysts or investors,
the market price of our common stock is likely to fall.

We have limited manufacturing experience as it relates to manufacturing our
products on a commercial scale.

         We have limited manufacturing experience and currently possess eight
accredited facilities capable of manufacturing limited quantities of our
products for both sale to our customers and internal use. We have completed a
significant portion of building out our manufacturing facility to meet current
market needs. If commercial sales were to increase dramatically in the short
term, we may need to scale-up our manufacturing facilities. If we are unable to
successfully scale-up our existing manufacturing capability quickly to meet such
a demand, we may not be able to provide our customers with the quantity of
products and services they require, which would result in reduced revenues. If
any natural disaster were to significantly damage our manufacturing facility or
if other events were to cause our operations to fail, these events could prevent
us from developing and manufacturing our products. Furthermore, we may not have
adequate insurance to cover the damage, which would adversely affect our results
of operations.

We have limited sales and marketing experience, and as a result, may be unable
to compete successfully with our competitors in commercializing our potential
products and services.

         We have limited experience in sales and marketing. We have only
recently established a small direct sales force and will continue to rely
principally upon a small number of employees. We also intend to market our
products and services through collaborations and distribution agreements with
pharmaceutical, biotechnology, and agricultural companies and DNA testing
services to governmental entities and individual consumers. We cannot assure you
that we will be able to successfully establish or maintain either a direct sales
force or distribution arrangements to market our products and services, which
could have a material adverse effect on our financial condition and business
strategy.

Our technologies and commercial products and services may not be commercially
viable or successful, which would adversely affect our revenues.

         We have not yet fully completed the development of our SNP scoring
technologies or the build-out of our ultra high-throughput MegaSNPatron facility
for SNP scoring, although the facility meets current market needs. These are
both important elements of our business strategy. We may not be able to
successfully develop these technologies. Even if we develop these technologies
or complete the build-out of this facility, we cannot be certain that our
prospective customers will value them. We are currently developing and
commercializing only a limited number of products based on our SNP scoring
technologies. We cannot assure you that we or our customers will be able to use
these technologies to successfully identify and score SNPs. In addition, any
SNPs which we or our customers score may not be useful in assisting
pharmaceutical or diagnostic product development. Our SNP scoring technologies
are in part directed toward the role of genes and polymorphisms in complex
diseases. A limited number of companies have developed or commercialized
products based on gene discoveries and/or polymorphisms to date. Accordingly,
even if we or our customers are successful in scoring SNPs and associating these
SNPs with specific drug responses or diseases, we cannot assure you that these
discoveries will lead to the development of therapeutic or diagnostic products.
If we fail to successfully develop our SNP scoring technologies or any
commercially successful diagnostic products and services based on such
technologies, we may not achieve a competitive position in the market.

         Our SNP scoring technologies involve novel uses of instrumentation,
software and technologies that require validation in commercial applications.
Previously unrecognized defects or limitations of our SNP scoring technologies
may become apparent in these commercial applications. As a result, we may be
unable to validate or achieve the improvements in the components of our SNP
scoring technologies necessary for their successful commercialization.

                                       21

<PAGE>

If our customers do not purchase significant volumes of SNPware consumables, our
commercialization strategy could fail.

     Our customers may not generate sufficient data in a cost-effective manner
using our SNPstream line of products and services. This may limit their
purchases of our SNPware consumables. Other factors which may limit the use of
our kits and consumables include the acceptance of our technologies by our
customers and the training of our customers' personnel. If our customers are
slow to, or never, achieve sufficient results using our SNPstream system, or
fail to purchase sufficient quantities of our SNPware consumables, we may never
achieve profitability. Further, our customers may not adopt SNPware consumables
for use with their own instrument systems. Even if they do, our products may not
work on their systems. Either circumstance would materially and adversely affect
our revenues and our rapid commercialization strategy.

If we fail to maintain the identity genomics contracts we have with various
state and governmental agencies or fail to enter into additional contracts, we
would lose a significant source of revenues.

     We currently derive a substantial portion of our revenues from the identity
genomics services we provide in the paternity and forensic fields. These
services are heavily dependent upon contracts we have with various governmental
agencies, which are typically open to bid and awarded every one to three years.
The process and criteria for these awards are typically complex and highly
competitive. We may not be able to maintain any of our existing governmental
contracts or be the successful bidder on any additional governmental contracts
which may become available in the future, or negotiate terms acceptable to us in
connection with any governmental contract awarded to us, which would adversely
affect our results of operations and financial condition.

If we fail to improve our genetic analyses process, we could fail to achieve
cost improvements and lose our competitive position in the market.

     Due to rapid product development and technological advancement in the
medical diagnostics and DNA testing industry, our growth and future operating
results will depend, in significant part, upon our ability to apply new
technologies to automate and improve our genetic analysis services and modify
our existing products to take advantage of new technologies. There can be no
assurance that our development efforts will result in any additional
commercially viable or successful improvements to our testing processes or
products. Any potential improvements to the testing process or new product will
require substantial additional investment, laboratory development and clinical
testing, and possibly regulatory approvals, prior to commercialization. Our
inability to successfully develop improvements to our testing processes or new
products or to achieve market acceptance of such improvements or new products
could have a material adverse effect on our business, financial condition and
results of operations. In addition, the rapid product development and
technological advancement in the genetic analysis and DNA testing industry could
result in our current or future DNA testing services or products becoming
obsolete. We believe that our future operating results will depend substantially
upon our ability to overcome significant technological challenges, successfully
introduce new technologies into our laboratories and to our customers and to
gain access to and successfully integrate such technologies if developed by
others.

We will require additional capital to fund our future operating plans which may
not be available on acceptable terms, if at all.

     We anticipate that our existing capital resources may not be sufficient to
fund our future operating plans and we may therefore need to raise significant
additional capital. We expect our capital and operating expenses to be
significant for the foreseeable future. We have expended significant resources
to date in developing our MegaSNPatron facility and expect to continue to expend
resources to maintain this and our other facilities, as well as fund
commercialization activities. The amount of additional capital which we will
need to raise will depend on many factors, including:

       .   our progress with research and development;

       .   the number and breadth of our research programs;

       .   our internal use of and our level of success in commercialization
           activities;

       .   our ability to establish and maintain successful collaborations; and

                                       22

<PAGE>

              .      the costs incurred by us in enforcing and defending patent
                     claims and other intellectual property rights.

         We believe our cash on hand will be sufficient to fund our operating
costs for at least the next 12 months. However, we may need additional financing
sooner if we:

              .      decide to expand faster than planned;

              .      develop new or enhanced services or products ahead of
                     schedule;

              .      need to respond to competitive pressures; or

              .      decide to acquire complementary products, businesses or
                     technologies.

         If we raise additional funds through the sale of equity or convertible
debt or equity-linked securities, your percentage ownership in the company will
be reduced. In addition, these transactions may dilute the value of our
outstanding common stock. We may issue securities that have rights, preferences
and privileges senior to our common stock. If we raise additional funds through
collaborations or licensing arrangements, we may be forced to relinquish rights
to certain of our technologies or products, or grant licenses to third parties
on terms that are unfavorable to us. We may be unable to raise additional funds
on terms acceptable to us. If future financing is not available to us on
acceptable terms, we may not be able to fund our future needs which would have a
material adverse effect on our results of operations and financial condition.

If we cannot enter into new collaborations or licensing agreements, we may be
unable to develop or commercialize our technologies, products and services.

         Our strategy for developing and commercializing technologies, products
and services based on our discoveries depends upon our ability to form research
collaborations and licensing arrangements. As a result, we may be dependent on
our collaborators and licensees for marketing of SNP scoring systems, regulatory
approval and manufacturing and marketing of diagnostic products and personalized
medicine resulting from the application of our technologies. If we are unable to
enter into such research collaborations and licensing arrangements or implement
our strategy to develop and commercialize diagnostic products based upon our
discoveries it would have a material adverse effect on our results of operation
and financial condition.

     The early termination of any of our collaborations or licenses could harm
our business and financial condition.

         The collaboration agreements we have with third parties may be
terminated early under certain circumstances, including in the event of a
material breach by us. In addition, we intend to enter into additional
collaborations and licenses with third parties, who may require that their
agreements with us permit termination by them prior to the expiration of the
negotiated term under certain circumstances. If any third party were to
terminate its agreement with us or otherwise fail to perform its obligations or
to complete them in a timely manner, we could lose significant revenues.

     We may not be able to attract and retain consultants and scientific
advisors.

         We have historically maintained relationships with consultants and
scientific advisors at academic and other institutions who have conducted
research on our behalf critical to the development of our technologies, products
and services. The majority of these individuals have commitments to other
entities and have limited time available for us. Some of these entities may also
compete with us. We will need to establish new relationships with consultants
and scientific advisors in its genetic diversity fields. We will have little, if
any, control over the activities of any new collaborators and can expect only
limited amounts of their time to be dedicated to our activities. Our ability to
discover and score SNPs and commercialize products based on these discoveries
will depend in part on continued collaborations with researchers at academic and
other institutions. We cannot assure you that any of our existing collaborations
will be successful. Further, we may not be able to negotiate acceptable
collaborations in the future with additional consultants or scientific advisors
at academic and other institutions.

                                       23

<PAGE>

If we do not successfully distinguish and commercialize our technologies,
products and services, we may be unable to compete successfully with our
competitors or to generate significant revenues.

         We are subject to significant competition from companies that are
pursuing products and services that are substantially similar to our existing
and proposed products and services. Many of the organizations competing with us
have greater financial, manufacturing, marketing, sales, distribution and
technical resources than we do. In the SNP scoring field, we compete with
several companies offering alternative technologies. We may also compete against
certain of our customers, which could adversely affect our relationships with
them.

         We also face significant competition in our strategy designed to
identify and patent medically important uses of SNPs (our GeneShield
strategies). Some of the organizations competing with us have greater financial
and technical resources. We also have limited experience working in the managed
care and health care delivery industries and may not be able to successfully
commercialize our inventions, either on our own or in partnership with others.
It may also take longer than currently anticipated for SNPs and pharmacogenetics
to become widely used in clinical practice, which could adversely impact our
ability to realize significant revenues from our GeneShield business division in
the foreseeable future.

         We believe our future success will depend, in large part, on our
ability to maintain a competitive position in instrument and kit-based SNP
scoring, SNP scoring services, and pharmacogenetics product fields. Others may
make rapid technological developments which may result in our technologies,
products or services becoming obsolete before we recover the expenses incurred
to develop them. Our inability to also make the enhancements to our technologies
necessary to compete successfully with newly emerging technologies would have a
material adverse effect on our competitive position.

If we are unable to protect our proprietary methods and technologies, we may not
be able to commercialize our products and services.

     If our patent applications do not result in issued patents, our competitors
     may obtain rights to commercialize ours discoveries, which would harm our
     competitive position.

         Our commercial success will depend, in part, on our ability to obtain
patent protection on many aspects of our business, technologies, products and
services, including the discovery and the association of particular SNPs with
disease predisposition and adverse drug metabolism, and on the products, methods
and services we develop. We may not be able to obtain new patents for our
SNPware consumables and SNPstream systems. We will pursue patent protection on
novel uses of SNPs discovered by us of known genes, as well as novel uses for
previously identified SNPs discovered by third parties. We may need to obtain a
license from such third parties with respect to any patent covering such SNPs in
order to make, use or sell any related products. In addition, we may need to
obtain a separate license from the gene patent holder. We may not be able to
acquire such licenses on terms acceptable to us, if at all.

         Certain parties are attempting to rapidly identify and characterize
genes and SNPs through the use of gene expression analysis and other
technologies. To the extent any patents issue to other parties on such partial
or full-length genes or SNPs or on uses for such genes or SNPs, the risk that
the sale of products,or processes developed by us or our collaborators may give
rise to claims of patent infringement against us may increase. Others may have
filed and, in the future, are likely to file, patent applications covering SNP
uses. Any such patent application could have priority over our patent
applications and could further require us to obtain rights to previously issued
patents covering SNP uses. We cannot assure you that any license that we may
require under any such patents will be made available to us on commercially
acceptable terms, if at all.

     The scope of our issued patents may not provide us with adequate protection
     of our intellectual property, which would harm our competitive position.

         Any issued patents that cover our proprietary technologies may not
provide us with substantial protection or be commercially beneficial to us. The
issuance of a patent is not conclusive as to its validity or its enforceability.
The United States Patent and Trademark Office may invalidate one or more of our
patents. In addition, third parties may have patents of their own which could,
if asserted, prevent us from practicing our proprietary technologies, including
the methods we use to conduct SNP scoring. If we are otherwise unable to
practice our patented technologies, we may not be able to commercialize our
technologies, products or services and our competitors could commercialize our
technologies.

                                       24

<PAGE>

   Our success will depend partly on our ability to operate without
   misappropriating the intellectual property rights of others.

         We may be sued for infringing, or may initiate litigation to determine
that we are not infringing, on the intellectual property rights of others. For
example, we have commenced an action against St. Louis University seeking
declaratory judgment of non-infringement, invalidity and non-enforcement with
respect to a patent controlled by St. Louis University. Intellectual property
litigation is costly, and could adversely affect our results of operations. If
we do not prevail in any intellectual property litigation, in addition to any
damages we might have to pay, we could be required to stop the infringing
activity, or obtain a license to or design around the intellectual property in
question. If we are unable to obtain a required license on acceptable terms, or
is unable to design around any third party patent, we may be unable to sell some
of our products and services, which would result in reduced revenues.

   We may need to initiate lawsuits to protect or enforce our patents and other
   intellectual property rights, which could result in the forfeiture of these
   rights.

         In order to protect or enforce our patent rights, we may need to
initiate patent litigation against third parties. These lawsuits could be
expensive, take significant time, and could divert management's attention from
other business concerns. These lawsuits could result in the invalidation or a
limitation in the scope of our patents or forfeiture of the rights associated
with its patents. We cannot assure you that we will prevail in the St. Louis
University action or in any future litigation or that a court will not find
damages or award other remedies in favor of the opposing party in any of these
suits. During the course of these suits, there may be public announcements of
the results of hearings, motions and other interim proceedings or developments
in the litigation. Securities analysts or investors may perceive these
announcements to be negative, which would likely cause the market price of our
stock to decline.

   Other rights and measures that werely upon to protect our intellectual
   property may not be adequate to protect our products and services and could
   reduce ours ability to compete in the market.

         In addition to patents, we rely on a combination of trade secrets,
copyright and trademark laws, non-disclosure agreements and other contractual
provisions and technical measures to protect our intellectual property rights.
While we require employees, collaborators, consultants and other third parties
to enter into confidentiality and/or non-disclosure agreements where
appropriate, any of the following could still occur:

            .     the agreements may be breached;

            .     we may have inadequate remedies for any breach;

            .     proprietary information could be disclosed to our competitors;
                  or

            .     others may independently develop substantially equivalent
                  proprietary information and techniques or otherwise gain
                  access to our trade secrets or disclose such technologies.

         If for any of the above reasons our intellectual property is disclosed
or misappropriated, it would harm both our ability to protect our rights and our
competitive position.

                                       25

<PAGE>

Future acquisitions or investments could disrupt our ongoing operations,
increase our expenses and adversely affect our revenues.

         Since September 1998, we acquired Molecular Tool, a developer of SNP
technologies, as well as GeneScreen, Cellmark and Lifecodes, providers of
genetic diversity testing services. Although we have no commitments or
agreements with respect to any additional acquisitions at present, we anticipate
that a portion of our future growth may be accomplished by acquiring existing
businesses. Factors that will affect the success of any potential acquisition to
be made by us include our ability to integrate acquired personnel, operations,
products and technologies into our organization effectively, to motivate key
personnel and to retain customers of acquired businesses. We may not be able to
identify suitable acquisition opportunities, obtain any necessary financing for
such acquisitions on acceptable terms or successfully integrate acquired
personnel and operations. These difficulties could disrupt our ongoing business,
distract our management and employees, increase our expenses and materially and
adversely affect our revenues.

Our failure to comply with applicable government and industry regulations may
affect our ability to develop, produce, or market our potential products and
services and may adversely affect our results of operations.

         Our research and development, manufacturing and service activities
involve the controlled use of hazardous materials and chemicals and patient
samples. We are subject to federal, state, local, UK and European laws and
regulations governing the use, storage, handling and disposal of such materials
and certain waste products, as well as the conveyance, processing, and storage
of data on patient samples. Further, we are subject to CLIA as a result of our
acquisition of GeneScreen, Cellmark, and Lifecodes. CLIA imposes certain
certification requirements on all clinical laboratories performing tests on
human specimens for the purpose of providing information for the diagnosis,
prevention or testing of any diseases. In addition, we are subject to the
European Directive 98/79/EC as a result of our acquisition of the Cellmark
Laboratory. European Directive 98/79/EC imposes certain requirements in
connection with Cellmark's sale of gene diagnostic kits. Although we believe we
comply in all material respects with the standards prescribed by federal, state,
local, UK and European laws and regulations, if we fail to comply with
applicable laws or regulations, including CLIA and European Directive 98/79/EC,
or if an accident occurs, we could be required to pay penalties or be held
liable for any damages that result and this liability could exceed our financial
resources.

         All eight of our clinical genotyping laboratories must comply with
various industry regulations and accreditation standards in order to continue to
provide our paternity testing, forensic testing and bone marrow typing services.
For example, our GeneScreen laboratories have obtained accreditation from the
American Association of Blood Banks in order to provide paternity testing, from
the National Forensic Science Testing Center in order to provide criminal
forensic testing services and from the American Society of Histocompatibility
and Immunology in order to provide bone marrow donor typing services. In
addition, our Cellmark laboratory must comply with various industry regulations
and accreditation standards in order to provide paternity and forensic testing
services. For example, our Cellmark laboratory has obtained accreditation from a
Notified Body (SGC Yarsley ICS) and the United Kingdom Accreditation Service and
a registration from the Ministry of Agriculture, Fisheries and Food in order to
provide paternity and forensic testing services. In addition, Cellmark must
comply with regulations applicable to the marketing of its products. We cannot
assure you that we will be able to maintain our accreditations with any of these
authorities or comply with the regulations applicable to the marketing of
Cellmark products. If we fail to comply with the applicable regulations
promulgated by any of these agencies or if we were to lose our accreditation by
any of them, which could eliminate or significantly reduce the revenues
supporting our GeneScreen or Cellmark division.

                                       26

<PAGE>

The sale of our SNPware consumables, MegaSNPatron and SNPstream instruments
involves a lengthy and expensive sales cycle that may not result in sales.

         Our ability to obtain customers for our SNPware consumables and
SNPstream instruments will depend in significant part upon the perception that
our products and services can help accelerate or improve drug discovery and
development efforts or have beneficial effects on human health. Our average
sales cycle is lengthy due to the education effort that is required to
effectively sell the benefits of our products and services to a variety of
constituencies within our prospective customer base, including research and
development personnel and key management. As a result, in some instances we may
expend significant human and capital resources to market our products without
any resulting sales.

The international sale of our products and services are subject to increased
costs and other risks which could affect our revenues.

         Our Cellmark laboratory as well as our diagnostic business unit rely
upon international sales which are subject to certain inherent risks, including
difficulties in collecting accounts receivable, potentially longer payment
cycles, increased costs associated with maintaining international marketing
efforts, currency fluctuations, changes in regulatory requirements, and
difficulties in enforcement of contractual obligations and intellectual property
rights.

If our customers fail to accurately prepare DNA samples for use with our SNPware
and SNPstream product line or for analysis at our MegaSNPatron facility, our
products and services may fail to produce accurate results.

         Before using our SNPstream product line and MegaSNPatron SNP scoring
service facility, customers must prepare samples by following several steps that
are prone to human error, including DNA isolation and DNA segment amplification.
If they do not prepare DNA samples appropriately, our SNPstream products and
MegaSNPatron SNP scoring service will not generate an accurate reading.
Alternatively, they may achieve lower levels of throughput than the levels for
which our system was designed. If our customers generate inaccurate readings or
are unable to achieve expected levels of throughput, they may not continue to
purchase our consumables, instruments or services, which could materially and
adversely affect our revenues.

We may be held liable for any inaccuracies associated with our research and
identity genomics services, which may require us to defend ourselves in costly
litigation.

         Our clinical laboratory testing centers provide pharmacogenetic,
forensic and paternity testing services. Claims may be brought against us for
false identification of paternity or other inaccuracies. Litigation of these
claims can be costly. We could expend significant funds during any litigation
proceeding brought against us. Further, if a court were to require us to pay
damages to a plaintiff, the amount of such damages could significantly harm our
financial condition.

If our vendors fail to supply us with components for which availability is
limited, we may experience delays in our product development and
commercialization.

         Certain key components of our SNP scoring and associated system
technologies are currently available only from a single source or a limited
number of sources. We currently rely on outside vendors to manufacture certain
components of our SNPstream system and certain reagents we provide in our
SNPware kits. Some or all of these key components may not continue to be
available in commercial quantities at acceptable costs. For example, we have an
agreement with NEN Life Sciences (now known as PerkinElmer) under which they
supply us with some of the key reagents contained in our SNPware kits. We rely
on third parties to provide DNA samples to us and to perform DNA synthesis. It
could be time consuming and expensive for us to seek alternative sources of
supply. Consequently, if any events cause delays or interruptions in the supply
of our components, we may not be able to supply our customers with our products
and services on a timely basis which would adversely affect our results of
operations. We also currently rely on DNA and oligonucleotides provided to us by
suppliers and rely on other third parties to perform DNA synthesis for us. A
steady supply of oligonucleotides is essential for both our internal and
external scoring needs. The market for custom oligonucleotide synthesis is
dominated by only six producers of oligonucleotides. To the extent that our
suppliers fail to meet our requirements completely or consistently, we may need
to enter a new agreement with other suppliers, the terms of which may not be as
favorable toward us as our existing supply agreements.

                                       27

<PAGE>

If we fail to retain our key personnel and hire, train and retain qualified
employees, we may not be able to compete effectively, which could result in
reduced revenues.

     Our future success will depend on the continued services and on the
performance of our senior management, in particular the services of:

       .  Dale R. Pfost, Ph.D., Orchid's Chairman of the Board, President and
          Chief Executive Officer; and

       .  Donald R. Marvin, Orchid's Chief Operating Officer, Chief Financial
          Officer, and Senior Vice President of Corporate Development.

     If either of Dr. Pfost or Mr. Marvin were hired away from us by a
competitor, or if for any reason they could not continue to work for us, we
would have difficulty hiring officers with equivalent skills in general and
financial management. We do not currently carry "key man" life insurance, so the
loss of the services of either of these individuals could seriously impair our
ability to operate or to compete in our industry.

     In addition, our researchers, scientists and technicians have significant
experience in research and development related to genetic diversity. If we were
to lose these employees to our competitors, we could spend a significant amount
of time and resources to replace them, which could impair our research and
development efforts. Further, in order to scale-up our manufacturing capability
and to further our research and development efforts, we will need to hire,
train, and retain additional research, scientific, and technical personnel. If
we are unable to do so, we may experience delays in the research, development
and commercialization of our technologies, products and services.

Risks Related to the Biotechnology Industry

Public opinion regarding ethical issues surrounding the use of genetic
information may adversely affect demand for our products.

     Public opinion regarding ethical issues related to the confidentiality and
appropriate use of genetic testing results may influence governmental
authorities to call for limits on, or regulation of the use of, genetic testing.
In addition, such authorities could prohibit testing for genetic predisposition
for certain conditions, particularly for those that have no known cure. Any of
these scenarios could reduce the potential markets for our products, which could
materially and adversely affect our revenues.

Commercializing medical products has associated risks, including compliance with
clinical testing and manufacturing regulations.

     If we were to undertake the development of medical, testing or diagnostic
products without the collaboration of others, we would have to expend
significant funds. Any of our potential medical, testing or diagnostic products
will be subject to the risks of failure inherent in the development of
diagnostic products based on new technologies. These risks include the following
possibilities:

       .  that the products, if efficacious, will be difficult to manufacture on
          a large scale or uneconomical to market;

       .  that proprietary rights of third parties will preclude us or our
          collaborative partners from marketing such products; or

       .  that third parties will market superior or equivalent products.

     If we have difficulty managing these risks, we may not be able to develop
any commercially viable products. In addition, clinical trials or marketing of
any such potential medical, testing or diagnostic products may expose us to
liability claims from the use of such products. We may not be able to obtain
product liability insurance and, even if we do, any coverage we obtain could be
insufficient or costly. In addition, should we choose to manufacture or to
develop our own products independently, we will have to make significant
investments in product development, marketing, sales and regulatory compliance
resources, and we will have to establish or contract for the manufacture of
products under the

                                       28

<PAGE>

regulations of the FDA regarding good manufacturing practices. We cannot assure
you that it will be able to develop or commercialize successfully any potential
medical, testing or diagnostic products.

Risks Associated With Our Common Stock

Future issuance of our preferred stock may dilute the rights of our common
stockholders.

         Our board of directors has the authority to issue up to 5,000,000
shares of preferred stock and to determine the price, privileges and other terms
of these shares. Our board of directors may exercise this authority without any
further approval of our stockholders. The rights of the holders of our common
stock may be adversely affected by the rights of the holders of our preferred
stock that may be issued in the future.

We have various mechanisms in place that you as a stockholder may not consider
favorable, which may discourage takeover attempts.

         Certain provisions of our certificate of incorporation and by-laws, as
well as Section 203 of the Delaware General Corporation Law and our adoption of
a shareholder's rights plan, may discourage, delay or prevent a change in
control of the Company, even if the change in control would be beneficial to
stockholders. These provisions include:

      .  authorizing the issuance of "blank check" preferred stock that could be
         designated and issued by our board of directors to increase the number
         of outstanding shares and thwart a takeover attempt;

      .  creating a classified board of directors with staggered, three-year
         terms, which may lengthen the time required to gain control of our
         board of directors;

      .  prohibiting cumulative voting in the election of directors, which will
         allow a majority of stockholders to control the election of all
         directors;

      .  requiring super-majority voting to effect certain amendments to our
         certificate of incorporation and by-laws;

      .  limiting who may call special meetings of stockholders;

      .  prohibiting stockholder action by written consent, which requires all
         actions to be taken at a meeting of stockholders; and

      .  establishing advance notice requirements for nominations of candidates
         for election to our board of directors or for proposing matters that
         can be acted upon by stockholders at stockholder meetings.

         Pursuant to our stockholder rights plan, each share of our common stock
has an associated preferred share purchase right. The rights will not trade
separately from the common stock until, and are exercisable only upon, the
acquisition or the potential acquisition through tender offer by a person or
group of 15% or more of the outstanding our common stock.

         In addition, our stock incentive plans may discourage, delay or prevent
a change in control of the Company.

Our stock price has been, and likely will continue to be, volatile and your
investment may suffer a decline in value.

         The market prices for securities of companies quoted on The Nasdaq
Stock Market, including our market price, have in the past been, and are likely
to continue in the future to be, very volatile. The Nasdaq Composite Index has
significantly declined since our initial public offering in May 2000 and remains
very volatile. The market price of our common stock has been, and likely will
continue to be, subject to substantial volatility depending upon many factors,
many of which are beyond our control, including:

      .  announcements regarding the results of development efforts by us or our
         competitors;

      .  announcements regarding the acquisition of technologies or companies by
         us or our competitors;

                                       29

<PAGE>

      .  changes in our existing strategic alliances or licensing arrangements
         or formation of new alliances or arrangements;

      .  technological innovations or new commercial products developed by us or
         our competitors;

      .  changes in our intellectual property portfolio;

      .  developments or disputes concerning our proprietary rights;

      .  issuance of new or changed securities analysts' reports and/or
         recommendations applicable to us;

      .  additions or departures of our key personnel;

      .  operating losses by us;

      .  actual or anticipated fluctuations in our quarterly financial and
         operating results and degree of trading liquidity in our common stock;
         and

      .  continued economic uncertainty with respect to valuation of certain
         technology companies and other market conditions.

         We cannot assure you that your initial investment in our common stock
will not fluctuate significantly. One or more of these factors could
significantly harm our business and cause a decline in the price of our common
stock in the public market, which would adversely affect our business and
financial operations.

Our directors, executive officers and principal stockholders will have
substantial control over our affairs.

         Our directors, executive officers and principal stockholders
beneficially own, in the aggregate, approximately 21% of our common stock. These
stockholders, acting together, will have the ability to exert substantial
influence over all matters requiring approval by our stockholders. These matters
include the election and removal of our directors and any merger, consolidation
or sale of all or substantially all of our assets. In addition, they may dictate
the management of our business and affairs. This concentration of ownership
could have the effect of delaying, deferring or preventing a change in control,
or impeding a merger or consolidation, takeover or other business combination of
which you might otherwise approve.

                                       30

<PAGE>

Item 2.      PROPERTIES

         We lease five facilities which provide us with approximately 80,000
square feet for our operations in Princeton, New Jersey which serve as our
headquarters and as the base for marketing and product support operations,
research and development and manufacturing activities. We lease approximately
8,000 square feet of office space in Roslyn, Virginia. We lease an approximately
19,000 square foot facility in Dallas, Texas; an approximately 16,500 square
foot facility in Dayton, Ohio; and an approximately 5,100 square foot facility
in Sacramento, California. We also lease an approximately 37,000 square foot
facility in Stamford, Connecticut, an approximately 18,000 square foot facility
in Germantown, Maryland, an approximately 15,000 square foot facility in
Nashville, Tennessee, and an approximately 9,000 square foot facility in East
Lansing, Michigan. Of these facilities, these last eight include CLIA approved
laboratories where our genetic DNA diversity testing services are located. We
also lease a total of approximately 75,000 square feet in three buildings
located in Abingdon, UK for the operations of Orchid BioSciences Europe Limited
and our Cellmark division. We currently believe our facilities are sufficient to
meet our space requirements through the year 2002.

Item 3.      LEGAL PROCEEDINGS

         On or about November 21, 2001, we were made aware of a complaint filed
in the United States District Court for the Southern District of New York naming
us as defendants, along with certain of our officers and underwriters. The
complaint purportedly is filed on behalf of persons purchasing the Company's
stock between May 4, 2000 and December 6, 2000, and alleges violations of
Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, and
Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
promulgated thereunder. The complaint alleges that, in connection with our May
5, 2000 initial public offering, the defendants failed to disclose additional
and excessive commissions purportedly solicited by and paid to the underwriter
defendants in exchange for allocating shares of our stock to preferred customers
and alleged agreements among the underwriter defendants and preferred customers
tying the allocation of IPO shares to agreements to make additional aftermarket
purchases at pre-determined prices. Plaintiffs claim that the failure to
disclose these alleged arrangements made our registration statement on Form S-1
filed with the SEC in May 2000 and the prospectus, a part of the registration
statement, materially false and misleading. Plaintiffs seek unspecified damages.
On February 13, 2002, we received a Notice of Lawsuit and Request for Waiver of
Service of Summons and a copy of the complaint filed in the United States
District Court for the Southern District of New York in connection with the
class action lawsuit. The notice included a request on behalf of the plaintiffs
that we waive formal service of a judicial summons. Such a waiver is a customary
cost-savings procedure in complex litigation that will enable the action to
proceed as if formal service of the summons had been made on the date that the
waiver is filed. We intend to provide the requested waiver. We have not reserved
any amount related to this case as we believe that the allegations are without
merit and intend to vigorously defend against the plaintiffs' claims.

         We have been in discussions with St. Louis University of St. Louis,
Missouri regarding its belief that our SNP scoring technology infringes certain
claims under US patent 5846710, which is controlled by the University. Although
we are confident that our SNP scoring technology does not infringe any claims
under the University's patent, we nonetheless entered into discussions with the
University regarding the scope of these claims in the hope of resolving the
issue. Upon our failure to reach agreement with the University, in August 2000
we filed a lawsuit against the University in the U.S. District Court for the
Southern District of California, Case No. 00CV1558L (JFS), seeking declaratory
judgment of non-infringement, invalidity and non-enforceability with respect to
the University's patent. While we believe that our position in this action is
strong, patent litigation is complex and likely will result in claims against
us, including patent infringement. As a result, the outcome of this action is
uncertain. Furthermore, while we are seeking declaratory judgment in this
action, the lawsuit could take significant time, be expensive and divert our
management's attention from other business concerns.

                                       31

<PAGE>

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

         No matters were submitted during the fourth quarter of the year ended
December 31, 2001.

                                       32

<PAGE>

                                     PART II

Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


Market Information

     Our common stock began trading on The Nasdaq National Market on May 5, 2000
under the symbol "ORCH". The following table sets forth, for the periods
indicated, the high and low sales prices for our common stock, as reported by
Nasdaq, since our common stock commenced public trading:

                                                               Common Stock
                                                               ------------
                                                              High       Low
                                                              ----       ---
     2000:

            Second Quarter (from May 5, 2000) ...........   $ 38.75   $  9.50
            Third Quarter ...............................     61.00     28.75
            Fourth Quarter ..............................     33.75      7.25

     2001:

            First Quarter ...............................   $ 14.38   $  3.12
            Second Quarter ..............................      8.74      3.10
            Third Quarter ...............................      7.30      1.50
            Fourth Quarter ..............................      6.35      1.95

         On March 1, 2002, the last sale price of the common stock was $2.41.

Stockholders

     As of March 1, 2002, there were approximately 675 stockholders of record of
the 54,200,537 outstanding shares of common stock.

Dividends

     We have not paid dividends to our stockholders since our inception and do
not plan to pay cash dividends in the foreseeable future. We currently intend to
retain earnings, if any, to finance our growth.

                                       33

<PAGE>

Item 6.     SELECTED FINANCIAL DATA

     The consolidated statements of operations data for the years ended December
31, 2001, 2000, and 1999 and the consolidated balance sheet data as of December
31, 2001 and 2000 were derived from our audited consolidated financial
statements included elsewhere in this Annual Report on Form 10-K. The
consolidated statements of operations data for the years ended December 31, 1998
and 1997 and the consolidated balance sheet data as of December 31, 1999, 1998
and 1997 were derived from our audited financial statements not included in this
Annual Report on Form 10-K. Our historical results are not necessarily
indicative of results to be expected for any future period. The data presented
below should be read with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in Item 7 and our consolidated
financial statements and related notes included elsewhere in this Annual Report
on Form 10-K.

<TABLE>
<CAPTION>
                                                                              Year Ended December 31
                                                                              ----------------------
                                                               2001        2000         1999        1998        1997
                                                               ----        ----         ----        ----        ----
                                                                       (in thousands, except per share data)
<S>                                                        <C>          <C>            <C>        <C>           <C>
Consolidated Statements of Operations Data:
Revenues:
  Product revenues and access fees .....................   $   5,333    $   2,329    $      --    $      --    $      --
  Clinical laboratory testing revenue ..................      21,147       12,086           --           --           --
  License revenues .....................................       2,275        3,133           --           --           --
  Grant revenues .......................................         912          701          811           33           --
  Collaboration revenues--related parties ..............          --           --           --        2,748        3,763
  Collaboration revenues--unrelated parties ............       1,324           --          828           --           --
  Other ................................................         224          132          154           --           --
                                                           ---------    ---------    ---------    ---------    ---------
Total revenues .........................................      31,215       18,381        1,793        2,781        3,763
                                                           ---------    ---------    ---------    ---------    ---------

Operating expenses:
  Cost of product revenues and access fees .............       4,023        1,610           --           --           --
  Cost of clinical laboratory testing ..................      14,666        9,278           --           --           --
  Selling, general and administrative ..................      34,725       29,970        9,611        5,199        2,927
  Restructuring charge .................................         388           --           --           --           --
  Research and development .............................      33,550       28,881       14,447        7,574       10,813
  Impairment of assets .................................      30,652           --           --           --           --
  Acquisition of in-process research and development ...          --           --           --        2,353           --
                                                           ---------    ---------    ---------    ---------    ---------
Total operating expenses ...............................     118,004       69,739       24,058       15,126       13,740
                                                           ---------    ---------    ---------    ---------    ---------
Operating loss .........................................     (86,789)     (51,358)     (22,265)     (12,345)      (9,977)
Other income (expense):
  Interest income ......................................       2,898        4,064          203          932           49
  Interest expense .....................................        (847)        (497)      (6,158)         (66)          --
  Other expense ........................................          60          (76)          --           --           --
                                                           ---------    ---------    ---------    ---------    ---------
Total other income (expense) ...........................       2,111        3,491       (5,955)         866           49
                                                           ---------    ---------    ---------    ---------    ---------
Net loss ...............................................     (84,678)     (47,867)     (28,220)     (11,479)      (9,928)
Beneficial conversion feature of preferred stock .......          --      (29,574)     (44,554)          --           --
                                                           ---------    ---------    ---------    ---------    ---------
Net loss allocable to common stockholders ..............   $ (84,678)   $ (77,441)   $ (72,774)   $ (11,479)   $  (9,928)
                                                           =========    =========    =========    =========    =========

Basic and diluted net loss per share allocable to common
  stockholders .........................................   $   (2.27)   $   (3.58)   $  (95.87)   $  (17.09)   $  (27.57)
Shares used in computing basic and diluted net loss per
  share allocable to common stockholders ...............      37,260       21,646          759          672          360
</TABLE>

                                       34

<PAGE>

<TABLE>
<CAPTION>
                                                                    December 31,
                                                                    ------------
                                                 2001       2000       1999        1998        1997
                                                 ----       ----       ----        ----        ----
<S>                                            <C>        <C>        <C>         <C>         <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
  investments ..............................   $ 27,942   $ 66,415   $ 33,804    $  8,088    $  6,405
Working capital ............................     27,522     64,644     27,275       5,751         773
Total assets ...............................    120,916    142,327     94,856      15,599       6,884
Long-term debt, less current portion........      6,327      6,152      4,122       3,548          --
Mandatorily redeemable preferred stock......         --         --     88,946      27,530       9,230
Convertible preferred stock ................         --         --          1         212           1
Total stockholders' equity (deficit)........     93,238    123,303     (8,285)    (18,123)     (8,009)
</TABLE>

         The following transactions had a material effect on the comparability
of the data presented in the consolidated financial data above, as follows:
contract revenues received from related parties relating to the SmithKline
Beecham agreement, the acquisition of certain Molecular Tool assets in September
1998, the acquisition of GeneScreen in December 1999, the sale of series C
mandatorily redeemable convertible preferred stock in December 1997 and March
1998, the sale of series E mandatorily redeemable convertible preferred stock in
December 1999 and January 2000, the sale of common stock in our initial public
offering in May 2000, the sale of common stock in our secondary offering in June
2001, and the acquisitions of Cellmark in February 2001 and Lifecodes in
December 2001. Please see our notes to the consolidated financial statements
included elsewhere in this Annual Report on Form 10-K for further discussions of
these transactions.

                                       35

<PAGE>

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATION

     This Management's Discussion and Analysis of Financial Condition as of
December 31, 2001 and Results of Operations for the years ended December 31,
2001, 2000 and 1999 should be read in conjunction with our Consolidated
Financial Statements and related Notes to Consolidated Financial Statements and
Selected Financial Data included elsewhere in this Annual Report on Form 10-K.
For a more detailed discussion of forward-looking statements and the potential
risks and uncertainties that may impact upon their accuracy, see the
"Forward-Looking Statements" section of this Management's Discussion and
Analysis of Financial Condition and Results of Operations and also the potential
risks and uncertainties set forth in the "Overview" section hereof and in the
"Risk Factors" section included elsewhere in this Annual Report on Form 10-K.
Except as required by law, we undertake no obligations to update any
forward-looking statements. You should also carefully consider the factors set
forth in other reports or documents that we file from time to time with the
Securities and Exchange Commission.

OVERVIEW

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

     In 2001, our business focused on our SNP scoring products and services that
apply our proprietary SNP-IT primer extension technology, and on our identity
genomics services in paternity and forensics. During 2001, we entered into
various agreements. These agreements had varying terms and included but were not
limited to: (i) services agreements whereby we agreed to provide genetic
analysis services; (ii) services agreements under which we would provide
genotyping services; (iii) license agreements pursuant to which we granted third
parties royalty bearing, non-exclusive and exclusive licenses to use our SNP-IT
single base primer extension technology to produce and sell reagent kits and
software incorporating our technology; and (iv) agreements under which we agreed
to provide SNPstream instruments and SNPware consumables. We have recognized
revenue associated with these agreements. We are entitled to receive royalties
on product sales, if any, for the duration of any of our license agreements,
subject to certain creditable up-front payments we have received. Since late
1999, following our acquisition of GeneScreen and, our subsequent acquisitions
of Cellmark and Lifecodes, in 2001, we also have been a leading provider of DNA
testing services in the paternity, forensics and HLA transplantation typing
fields.

     Our ability to achieve profitability will depend, in part, on our ability
to continue to develop and commercialize our proprietary SNP scoring
technologies in the form of products and services for pharmaceutical,
biotechnology and diagnostic companies and research institutions, as well as our
ability to competitively bid on, and receive contracts, for identity genomics
testing services. We introduced our SNPstream 25K SNP scoring system, SNPware
consumables and related services in late 1999. In September 2001, we introduced
the SNPstream MT solution with medium throughput capabilities and based on the
Luminex xMap platform. Because our proprietary SNP-IT primer extension
technology is very adaptable to other hardware platforms, we intend to expand
our offerings of SNPware consumables for use on instruments made or sold by
other companies and to obtain license fees and royalties by licensing our SNP-IT
technology for incorporation in the consumable kits of others. Our
collaborations with Affymetrix, Amersham Biosciences, Applied Biosystems and
PerkinElmer are examples of this Platform Propagation strategy. We also provide
SNP-IT-based high quality SNP scoring to a variety of customers on a fee-for
service basis. Our MegaSNPatron facility currently offers high throughput SNP
genotyping services to such customers as AstraZeneca, Ellipsis, GlaxoSmithKline,
Lilly, Oklahoma Medical Research Foundation, Pig Improvement Corporation on
three different platforms, the SNPstream 25K system, the SNPstream MT, and
SNPcode. We intend to add our ultra-high throughput SNPstream UHT system to our
MegaSNPatron facility in early 2002, giving us the broadest range of SNP scoring
options available to service customers in the industry. We believe
fee-for-service SNP scoring will be an attractive option for many customers.

                                       36

<PAGE>

Acquisitions

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

     On February 12, 2001, we acquired Cellmark Diagnostics, a division of
AstraZeneca, in an asset acquisition, for a combination of cash and 222,980
shares of our common stock. Cellmark is a leading provider of genetic testing
services in the UK and sells kits and conducts testing for genetic diseases,
including cystic fibrosis. We agreed to prepare and file a registration
statement on Form S-3 with the Securities and Exchange Commission to register
for resale the 222,980 shares of common stock issued to AstraZeneca in partial
consideration for our purchase of the assets of Cellmark. The shares issued to
AstraZeneca as part of the purchase were registered with the Securities and
Exchange Commission on May 10, 2001, which registration became effective on May
18, 2001.

     On December 5, 2001, we acquired all of the outstanding equity securities
of Lifecodes Corporation, in a tax-free transaction. Lifecodes, now a wholly
owned subsidiary of Orchid, is a leading provider of genomics testing for
forensics and paternity in the US. We acquired Lifecodes in order to strengthen
our position in the clinical testing market. Lifecodes also maintains a
diagnostic kit business which adds to our current products. We view this
acquisition, in addition to the two previous acquisitions of GeneScreen and
Cellmark, as a significant step in providing a cost efficient, high throughput
clinical testing business. In exchange for Lifecodes shares we agreed to issue
6,622,951 shares of our common stock to former stockholders of Lifecodes,
1,414,754 shares which were deposited in an escrow account and may be used to
compensate us in the event that we are entitled to indemnification under the
Amended and Restated Agreement and Plan of Merger. We also issued 313,978 and
472,313 fully vested options and warrants, respectively, which are exercisable
for our common stock in exchange for existing Lifecodes options and warrants.
The acquisition has been accounted for by the purchase method, and accordingly,
the assets and liabilities acquired have been recorded at their fair values. The
total consideration as a result of this acquisition is approximately $23.7
million.

     GeneScreen's, Cellmark's, and Lifecodes' businesses in paternity and
forensics testing supports our goal of extending our business in genetic
diversity. We intend to apply our ultra-high throughput SNP scoring technology
to the paternity and forensics businesses of GeneScreen, Cellmark, and Lifecodes
in order to significantly reduce the cost of providing these identity genomics
services. We also plan to use the accredited laboratories at GeneScreen,
Cellmark, and Lifecodes to offer clinical quality pharmacogenetic SNP scoring of
patient samples for clinical association studies and pharmaceutical clinical
trials. We also plan to use these laboratories to conduct pharmacogenetic SNP
scoring services that we offer to physicians and patients in the future through
a number of distribution channels, including the Internet. Our DNA testing
business is dependent upon our ability to successfully and competitively bid and
qualify for contracts with various governmental entities to provide paternity
and forensics testing services. We expect revenues from the respective forensics
businesses of GeneScreen, Cellmark, and Lifecodes to increase as DNA analyses
are increasingly being used by the authorities within the criminal justice
system to identify perpetrators and exonerate the innocent.

     Our GeneShield business, established in 2001, is working to implement a
strategy based on the creation of proprietary rights covering the identification
of SNPs and their associations to medically important attributes of patients.
GeneShield is also developing a number of innovative programs designed to
accelerate the adoption of pharmacogenetics into routine health care. These
programs are focused on health outcomes and may include a number of health
system participants, including providers, patients and payers. GeneShield
expects to announce its first beta test program in the last quarter of 2002. We
are developing intellectual property rights in this area through collaborations
with members of our Clinical Genetics Network, and we intend also to develop
intellectual property rights to medical and diagnostic uses of SNPs through our
collaborations with pharmaceutical and biotechnology companies. We expect
GeneShield to commence generating revenues in 2003.

Compensation Charges

     In prior years, we recorded deferred compensation resulting from the
granting of stock options to employees, directors or consultants with exercise
prices below the fair market value of the underlying common stock at the date of
their grant. During 2001, all stock options were granted with grant prices equal
to the fair value of our common stock at the grant date. Net of prior
amortization, and remeasurement related to options previously granted to
consultants, deferred compensation of approximately $7.5 million at December 31,
2001 will be amortized over the vesting periods of the respective options,
typically four years.

     We anticipate recording total compensation charges resulting from the
amortization in future periods of the deferred compensation as of December 31,
2001 as follows (in millions):

                                       37

<PAGE>

                            Year Ended December 31,
                            -----------------------
                        2002                       2003
                        ----                       ----
                        $4.0                       $3.5


     The portion of these amounts which results from grants to consultants is
subject to remeasurement at the end of each reporting period based upon the
changes in the fair value of our common stock until the consultant completes
performance under his or her respective option agreement. A reduction of
deferred compensation of approximately $2.7 million was recorded in 2001 related
to such remeasurements. Also, certain grants of performance-based options have
been made for which no deferred compensation expense has been recorded and for
which compensation expense will be measured at the time the performance criteria
is met as the difference between the fair value of the common stock and the
exercise price and will be immediately recorded as compensation expense.

     We have incurred losses since inception, and, as of December 31, 2001, we
had total stockholders' equity of approximately $93.2 million, including an
accumulated deficit of approximately $183.3 million. We anticipate incurring
additional losses over at least the next several years. We expect these losses
to continue as we expand the commercialization of our products and services and
we fully implement our proprietary GeneShield business. We expect this expansion
to result in some increases in research and development, marketing and sales,
and general and administrative expenses. Payments under strategic alliances,
collaborations and licensing arrangements will be subject to significant
fluctuation in both timing and amount and therefore our results of operations
for any period may not be comparable to the results of operations for any other
period.

Critical Accounting Policies

     Our critical accounting policies are as follows:

     .    revenue recognition

     .    valuation of long-lived and intangible assets and goodwill.

     Sources of Revenues and Revenue Recognition. We have had, and expect in the
future to have, several sources of revenues. Prior to our acquisitions of
GeneScreen, Cellmark, and Lifecodes, we derived substantially all of our
revenues from research and development collaborations, technology grants and
awards from several governmental agencies. In 2001, we derived our first
revenues from the sale of testing kits and laboratory DNA testing services from
our Cellmark division in the UK. In 2000, we derived our first revenues from the
performance of laboratory DNA testing services by GeneScreen, our wholly owned
subsidiary in the US. In 1999, we derived our first revenues from the placement
of our first commercial SNPstream hardware system, and throughout 2000 and 2001,
we derived increased amounts of revenues from the sale of SNP-IT-based
consumables. We also derived significant license revenue beginning in 2000. Our
services segment also includes SNP scoring analyses revenue.

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

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

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

                                       38

<PAGE>

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

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

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

          .    significant underperformance relative to expected historical or
               projected future operating results;

          .    significant changes in the manner of our use of the acquired
               assets or the strategy for our overall business;

          .    significant negative industry or economic trends; and

          .    significant decrease in market value of assets.

     When we determine that the carrying value of intangibles, long-lived assets
and related goodwill, and enterprise level goodwill may not be recoverable based
upon the existence of one or more of the above indicators of impairment, we
measure any impairment based on a projected discounted cash flow method using a
discount rate determined by our management to be commensurate with the risk
inherent in our current business. Net intangible assets, long-lived assets, and
goodwill amounted to $69.7 million as of December 31, 2001.

     In 2002, Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets", became effective and, as a result, we will cease to
amortize approximately $2.2 million of net goodwill recorded as of December 31,
2001. We had recorded approximately $1.9 million of amortization during 2001. In
lieu of amortization, we are required to perform an initial impairment review of
our goodwill in 2002 and also an annual impairment review in 2002 and
thereafter. We currently do not expect to record an impairment upon completion
of the initial impairment review. However, there can be no assurance that at the
time the review is completed a material impairment will not be recorded. Certain
events or market and business conditions in the future could cause us to revise
our estimates and judgments, and could result in a material impairment of
property and equipment and other intangible assets.

RESULTS OF OPERATIONS

Years Ended December 31, 2001 and 2000

     Revenues. Revenues for 2001 of approximately $31.2 million represent an
increase of approximately $12.8 million as compared to revenues of approximately
$18.4 million for 2000. This increase is primarily attributable to a $9.1
million increase in clinical laboratory testing revenue, of which $6.8 million
relates to our two acquisitions in 2001, Cellmark and LifeCodes, an increase in
revenues derived from our GeneScreen operations, as well as genotyping services
performed under genotyping service arrangements entered into during 2001.
Product revenues also increased by approximately $3.0 million during 2001, of
which $1.1 million relates to our two acquisitions in 2001, Cellmark and
LifeCodes, the placement of SNPstream systems, as well as an increase in related
consumable sales. The Company also recognized approximately $1.3 million in
collaboration revenue during 2001 which is primarily related to the successful
completion of the first milestone under our genotyping agreement with
AstraZeneca whereby we recognized $.75 million.  We have also recognized license
revenue of approximately $2.3 million for 2001 versus $3.1 million in 2000,
which is primarily composed of royalty bearing, non-exclusive and exclusive
licenses to use our SNP-IT technology.

     Cost of product revenues and access fees. Cost of product revenues and
access fees for 2001 was approximately $4.0 million, or 75% of product revenues
and access fees, compared to approximately $1.6, or 69% of product revenues and
access fees, for 2000. The increase in cost of product revenues and access fees
as a percent of product revenue is attributable to an increased number of
SNPstream 25K placements in 2001 which had a lower gross margin. The increase in
cost of product revenue was attributable to the costs associated with the
SNPstream instrument placements, and to consumables sold during 2001, including
an increase of $0.9 million related to our acquisition of Cellmark on February
12, 2001 and Lifecodes on December 5, 2001.

     Cost of clinical laboratory testing. Cost of clinical laboratory testing
was approximately $14.7 million, or 69% of clinical laboratory testing revenue
for 2001, compared to approximately $9.3 million, or 77%, for 2000. The increase
was attributable to costs associated with our Cellmark division of approximately
$2.3 million, which we acquired on February 12, 2001, and costs associated with
Lifecodes of approximately $0.8 million, which we acquired on December 5, 2001.

                                       39

<PAGE>

The decrease in cost of clinical laboratory testing as a percent of clinical
laboratory testing revenues is attributed to our Cellmark division, which
generates a higher gross margin.

     Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of salaries and related expenses for
executive, finance and other administrative personnel, recruiting expenses,
professional fees, legal expenses resulting from intellectual property
prosecution and protection, and other corporate expenses including business
development and general legal activities. Selling, general and administrative
expenses for 2001 were approximately $34.7 million, an increase of approximately
$4.7 million, as compared to approximately $30.0 million for 2000. We attribute
this increase primarily to the expansion of administration facilities and the
hiring of additional personnel as we increased our executive and administrative
staffing in anticipation of our growth. During 2001, there was an increase in
our depreciation expense of approximately $0.9 million, due to capital
expenditures made in 2001 for computers, furniture and fixtures, and leasehold
improvements associated with our facilities expansion. We also incurred
additional salaries and related expenses of approximately $1.6 million, as well
as an increase in selling, general and marketing expenses of approximately $3.3
million relating to our Cellmark division and $0.9 million relating to
Lifecodes. These various increases in general and administrative expenses were
offset by a decrease in amortziation of deferred compensation in 2001 of
approximately $1.5 million.

     Research and development expenses. Research and development expenses
consist primarily of salaries and related personnel costs, fees paid to
consultants and outside service providers, material costs for prototypes and
test units, and other expenses related to the design, development, testing and
enhancement of our products. Research and development expenses for 2001 were
approximately $33.6 million, compared to approximately $28.9 million for 2000.
The increase in research and development expenses of approximately $4.7 million
for 2001 includes the netting effect of a prior year transaction with Sarnoff
Corporation whereby we recorded an approximate $7.8 million charge related to
approximately a $3.0 million cash payment made to and the fair value of 350,000
shares of common stock and five-year warrants to purchase 75,000 shares of
common stock issued to Sarnoff Corporation as an advance on the issuances that
would have been owed in December 2000 under a License and Option Agreement, and
an amendment to that agreement. As the licensed technology under this agreement
had not reached technological feasibility and had no alternative uses, the $7.8
million was charged to research and development. Excluding this transaction,
research and development expense in 2001 increased by approximately $12.5
million. This increase was primarily attributable to increased expenses as we
hired additional research and development personnel of approximately $5.1
million, increased purchases of material and laboratory supplies of
approximately $2.6 million, and increased research and development expenses
related to our GeneScreen, Cellmark, and Lifecodes facilities of approximately
$1.5 million, $0.5 million, and $0.1 million, respectively. This increase was
also attributable to increased facilities expenses in connection with the
expansion of our internal and collaborative research efforts, including our
collaboration with The SNP Consortium, of approximately $2.0 million. These
various increases were offset by a decrease in amortization of deferred
compensation during 2001 of approximately $0.8 million. We expect future
research and development expenses to decrease as our products shift from the
research and development stage to commercialization.

     Impairment of assets. During 2001, we recorded an impairment charge of
approximately $27.3 million to write-down goodwill which was recorded when we
acquired GeneScreen on December 30, 1999. Subsequent to September 30, 2001, we
announced our intention to acquire Lifecodes (as discussed above). Lifecodes
operates primarily in the same industry and provides the same services as
GeneScreen. Based primarily on the acquisition price for Lifecodes, among other
matters, we determined that a triggering event occurred for which an impairment
review would be required pursuant to SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). The
impairment charge was recorded based on the fair value of GeneScreen as computed
using a discounted cash flow valuation model. This charge reduced the
unamortized goodwill recorded in the acquisition of GeneScreen to zero. This
charge relates to the "services" segment of our business.

     During the year ended December 31, 2001, we recorded an impairment charge
related to certain equipment. We utilize this equipment primarily to perform
research and development activities and, to a limited extent, genotyping
services for customers. During the first half of 2002, we expect to launch the
second generation of this equipment. The second generation provides higher
throughput and is more cost effective. We expect to use this next generation
equipment to replace the first generation equipment over time and to provide the
same services and functions that the first generation equipment provided. We
performed an analysis of our future needs relating to this equipment and
determined its fair value. As a result of this analysis, we recorded an
impairment charge of approximately $3.4 million, which represents the amount by
which the carrying value of the equipment exceeded the related fair value.

                                       40

<PAGE>

         Interest income. Interest income for 2001 of approximately $2.9 million
decreased approximately $1.2 million from approximately $4.1 million for 2000.
This decrease was primarily due to interest received on larger cash, cash
equivalent and short-term investment balances which we held during 2000, offset
by amounts used to fund operating activities. This decrease is also attributable
to lower interest rates during 2001 compared to 2000.

         Interest expense. Interest expense for 2001 was approximately $0.8
million compared to approximately $0.5 million for 2000. This increase was due
to borrowings made during late 2000 and in May and December 2001 on our
equipment loan line.

         Net loss allocable to common stockholders. Due to the factors discussed
above, for 2001, we reported a net loss allocable to common stockholders of
approximately $84.7 million as compared to approximately $77.4 million for 2000.
Net loss allocable to common stockholders for 2000 includes a beneficial
conversion feature on preferred stock of approximately $29.6 million.

Years Ended December 31, 2000 and 1999

         Revenues. Revenues for 2000 of approximately $18.4 million represent an
increase of approximately $16.6 million as compared to revenues of approximately
$1.8 million for 1999. The increase was largely due to revenues generated from
our GeneScreen DNA testing operations of approximately $12.1 million, revenues
generated from access fees related to the placements of our SNPstream 25K
instrument systems and sales of consumables of approximately $2.3 million,
license revenues from several agreements to license our SNP-IT technology of
approximately $3.1 million and grant revenues of approximately $0.7 million for
2000. The results of operations for 1999 do not include those of GeneScreen,
which we acquired on December 30, 1999. GeneScreen's revenues for 1999 were
approximately $13.7 million compared to approximately $12.1 million for the same
period in 2000. The approximately $1.6 million decrease in revenue from 1999 to
2000 was caused by the loss of one contract.

         Cost of product revenues and access fees. Cost of product revenues and
access fees for 2000 were approximately $1.6 million, compared to approximately
$0 for 1999. The increase was attributable to the costs associated with the
SNPstream instrument placements, primarily depreciation and consumables sold.

         Cost of clinical laboratory testing. Cost of clinical laboratory
testing was approximately $9.3 million for 2000. The increase was attributable
to the acquisition of GeneScreen on December 30, 1999, which provides 100% of
our clinical laboratory testing. There was no cost of clinical laboratory
testing for 1999 due to the fact that we had not yet acquired GeneScreen at that
time. Cost of clinical laboratory testing of GeneScreen for 1999 was
approximately $10.1 million, or 74% of revenues compared to the cost of clinical
laboratory testing for 2000 of approximately $9.3 million, or 77% of revenues.

         Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of salaries and related expenses for
executive, finance and other administrative personnel, recruiting expenses,
professional fees, legal expenses resulting from intellectual property
prosecution and protection, and other corporate expenses including business
development and general legal activities. Selling, general and administrative
expenses for 2000 were approximately $30.0 million, an increase of approximately
$20.4 million, as compared to approximately $9.6 million for 1999. We attribute
this increase primarily to the expansion of administration facilities and the
hiring of additional personnel as we increased our executive and administrative
staffing in anticipation of and after becoming a public company and supporting
our future growth, amortization of deferred compensation expense of
approximately $4.3 million and operating costs of approximately $7.7 million
related to GeneScreen, of which approximately $3.2 million represents
amortization of intangibles related to that acquisition, and professional fees
of approximately $5.8 million.

         Research and development expenses. Research and development expenses
consist primarily of salaries and related personnel costs, fees paid to
consultants and outside service providers, material costs for prototypes and
test units, and other expenses related to the design, development, testing and
enhancement of our products. Research and development expenses for 2000 were
approximately $28.9 million, compared to approximately $14.4 million for 1999.
The increase in research and development expenses of approximately $14.5 million
for 2000 was primarily attributable to increased expenses as we hired additional
research and development personnel, increased purchases of laboratory supplies,
increased equipment depreciation, amortization of deferred compensation expense
of approximately $1.2 million, increased facilities

                                       41

<PAGE>

expenses in connection with the expansion of our internal and collaborative
research efforts, an aggregate of approximately $7.8 million comprised of an
approximate $3.0 million cash payment made to and the fair value of 350,000
shares of common stock and 75,000 warrants to purchase common stock issued to
Sarnoff as an advance on the issuances that we would have owed to Sarnoff in
December 2000 under a License and Option Agreement, and an amendment to that
agreement. As the technology licensed under this agreement had not reached
technological feasibility and had no alternative uses, the $7.8 million was
charged to research and development in 2000.

         Interest income. Interest income for 2000 of approximately $4.1 million
increased approximately $3.9 million from approximately $0.2 million for 1999.
This increase was primarily due to interest received on larger cash, cash
equivalent and short-term investment balances which we held as a result of our
receipt of proceeds from our series E private placement in December 1999 and
January 2000 and our initial public offering in May 2000, offset by amounts used
to fund operating activities.

         Interest expense. Interest expense for 2000 was approximately $0.5
million compared to approximately $6.2 million for 1999. This was due to greater
outstanding debt balance related to the bridge financing completed in June 1999,
which converted to Series E mandatorily redeemable convertible preferred stock
in December 1999, and interest attributable to warrants issued in connection
with the bridge financing, as compared to the lower outstanding debt balance in
2000, comprised entirely of borrowings on our equipment loan line.

         Net loss allocable to common stockholders. Due to the factors discussed
above, we reported a net loss allocable to common stockholders of approximately
$77.4 million for 2000 as compared to approximately $72.8 million for 1999. Net
loss allocable to common stockholders for 2000 and 1999 includes a beneficial
conversion feature on preferred stock of approximately $29.6 million and
approximately $44.6 million, respectively.


LIQUIDITY AND CAPITAL RESOURCES

     Since our inception, we have financed our operations primarily through
research and development funding from collaborative partners, from our two
private placements of equity securities with aggregated net proceeds of
approximately $102.0 million that closed in March 1998 and in December 1999 and
January 2000, $48.4 million from our initial public offering which closed in May
2000, and approximately $33.2 million from our follow-on offering of common
stock in June 2001. Our sale of series E mandatorily redeemable convertible
preferred stock in December 1999 resulted in an approximate $44.6 million
beneficial conversion feature which was included in net loss allocable to common
stockholders in 1999. The closing of our sale of series E mandatorily redeemable
convertible preferred stock in January 2000 resulted in an approximate
additional $29.6 million beneficial conversion feature which was included in net
loss allocable to common stockholders in 2000. In December 1998, we obtained a
secured $6.0 million equipment loan line, for the purchase of plant and
equipment at our corporate headquarters and research and development
laboratories whose availability expired in 1999. In December 2000, this
agreement was amended to establish a new borrowing base of an additional $8.0
million. At December 31, 2001, we had borrowings of approximately $8.8 million
outstanding, and approximately $0.9 million available to be borrowed under this
facility through 2002. We lease our corporate and primary research facility
under operating leases, which expire in 2006 and 2008, respectively. If we do
not maintain minimum unrestricted cash, as defined in the agreement, equal to
the greater of $35 million or twelve month's cash needs (calculated by taking
the trailing three months net cash used in operations multiplied by four), we
are required to provide a cash security deposit or letter of credit equal to an
amount defined in the agreement, not to exceed 50% of outstanding amounts on
draws made in or subsequent to December 2000 (50% equal to approximately $3
million at December 31, 2001). In addition, as of December 31, 2001 and just
prior to the follow-on offering completed in March 2002, we have not maintained
the minimum unrestricted cash defined in the Agreement. We have received a
waiver from our lender with respect to this financial covenant violation for
this period.

         On May 10, 2001, we filed a Registration Statement on Form S-3 with the
Securities and Exchange Commission. Subject to our ongoing obligations under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, the Registration Statement permits us to offer and sell various types
of securities, up to an aggregate value of approximately $75.0 million, of which
approximately $16.8 million remains available for future use. The sale of common
stock in June 2001 for gross proceeds of approximately $35.7 million was
registered under this Registration Statement. The subsequent sale of common
stock in February and March 2002 for gross proceeds of approximately $22.5
million was also registered under a Prospectus Supplement to this Registration
Statement.

                                       42

<PAGE>

         As of December 31, 2001, we had approximately $27.9 million in cash and
cash equivalents and short-term investments, compared to approximately $66.4
million as of December 31, 2000. This decrease is due to increased operating
expenses related to the expansion of our genotyping and GeneShield facilities,
cash paid to acquire Cellmark, Lifecodes, and the Affymetrix patent and license,
and to fund our operations during 2001, offset by net proceeds of approximately
$33.4 million received from our offering of common stock in June 2001.

         Net cash used in operations for 2001 was approximately $46.0 million
compared with approximately $36.0 million for 2000. Non-cash charges for 2001
included a goodwill and equipment impairment charge of approximately $30.7
million, depreciation and amortization expense of approximately $7.9 million and
compensation expense of approximately $3.3 million. Investing activities
included capital expenditures of approximately $10.1 million, approximately $2.9
million in cash paid related to our acquisition of Cellmark including
acquisition costs, approximately $6.4 million in cash paid related to our
acquisition of Lifecodes net of cash acquired and including acquisition costs
paid, approximately $4.1 million related to our acquisition of the patents and
licenses, and approximately $34.3 million of net proceeds from sales and
maturities, net of purchases, of short term investments. Financing activities
primarily consisted of approximately $33.4 million of net proceeds from issuance
of common stock, primarily our offering of common stock in June 2001, and cash
received from stock options and warrants exercised in 2001.

         Working capital decreased to approximately $27.5 million at December
31, 2001 from approximately $64.6 million at December 31, 2000. This decrease is
due to operating expenses related to the expansion of our genotyping and
Geneshield facilities, cash paid to acquire Cellmark, Lifecodes, and the
Affymetrix patent and license, and to fund operations of the Company during
2001, offset by net proceeds of approximately $33.4 million received from our
offering of common stock in June 2001.

         We believe that our cash reserves and expected short-term revenue will
be sufficient to fund our operations through at least the next 12 months. We may
need to access the capital markets for additional financing to operate our
ongoing business activities after that time.

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

     .   our ability to enter into strategic alliances or make acquisitions;

     .   regulatory changes and competing technological and market developments;

     .   changes in our existing collaborative relationships;

     .   the cost of filing, prosecuting, defending and enforcing patent claims
         and other intellectual property rights;

     .   the development of our SNPware consumables, SNPstream and software
         product lines and associated reagent consumables;

     .   our ability to successfully secure contracts for high volume genotyping
         services from pharmaceutical, biotechnology and agricultural companies;

     .   the success rate of establishing new contracts, and renewal rate of
         existing contracts, for identity genomics services in the areas of
         paternity, forensics and transplantation;

     .   the progress of our existing and future milestone and royalty producing
         activities; and

     .   the availability of additional funding at favorable terms, if
         necessary.

         As of December 31, 2001, our net operating loss carry forwards were
approximately $134.2 million and approximately $134.5 million for Federal and
state income tax purposes, respectively. If not utilized, our Federal and state
tax loss carry forwards will begin to expire in 2003 and 2002, respectively.
Utilization of our net operating losses to offset future taxable income, if any,
may be substantially limited due to "change of ownership" provisions in the
Internal Revenue Code of 1986. We have not yet determined the extent to which
limitations were triggered as a result of past financings or may be triggered as
a result of future financings. This annual limitation is likely to result in the
expiration of certain net operating losses prior to their use.
                                       43

<PAGE>

Recent Pronouncements

         In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 as well as all purchase
method business combinations completed after June 30, 2001. SFAS 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. SFAS 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions of SFAS 142. SFAS
142 will also require that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 121.

         We adopted the provisions of SFAS 141 immediately and are required to
adopt SFAS 142 effective January 1, 2002. Furthermore, goodwill and intangible
assets determined to have an indefinite useful life acquired in a purchase
business combination completed after June 30, 2001, but before SFAS 142 is
adopted in full will not be amortized, but will continue to be evaluated for
impairment in accordance with the appropriate pre-SFAS 142 accounting
literature. Goodwill and intangible assets acquired in business combinations
completed before July 1, 2001 will continue to be amortized and tested for
impairment in accordance with the appropriate pre-SFAS 142 accounting
requirements prior to the adoption of SFAS 142.

         SFAS 141 will require upon adoption of SFAS 142, that we evaluate our
existing intangible assets and goodwill that were acquired in a prior purchase
business combination, and to make any necessary reclassifications in order to
conform with the new criteria in SFAS 141 for recognition apart from goodwill.
Upon adoption of SFAS 142, we will be required to reassess the useful lives and
residual values of all intangible assets acquired, and make any necessary
amortization period adjustments by the end of the first interim period after
adoption. In addition, to the extent an intangible asset is identified as having
an indefinite useful life, we will be required to test the intangible asset for
impairment in accordance with the provisions of SFAS 142. Any impairment loss
will be measured as of the date of adoption and recognized as the cumulative
effect of a change in accounting principle in the first interim period.

         In connection with SFAS 142's transitional goodwill impairment
evaluation, the statement will require us to perform an assessment of whether
there is an indication that goodwill is impaired as of the date of adoption. To
accomplish this, we must identify our reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of the
date of adoption. We will then have up to six months from the date of adoption
to determine the fair value of each reporting unit and compare it to the
reporting unit's carrying amount. To the extent a reporting unit's carrying
amount exceeds its fair value, an indication exists that the reporting unit's
goodwill may be impaired and we must perform the second step of the transitional
impairment test. In the second step, we must compare the implied fair value of
the reporting unit's goodwill, determined by allocating the reporting unit's
fair value to all of its assets (recognized and unrecognized) and liabilities in
a manner similar to a purchase price allocation in accordance with SFAS 141, to
its carrying amount, both of which would be measured as of the date of adoption.
This second step is required to be completed as soon as possible, but no later
than the end of the year of adoption. Any transitional impairment loss will be
recognized as the cumulative effect of a change in accounting principle in our
statement of operations.

         As of the date of adoption, we have unamortized goodwill in the amount
of approximately $2.2 million and unamortized identifiable intangible assets in
the amount of approximately $37.8 million, all of which will be subject to the
transition provisions of SFAS 141 and 142. Amortization expense related to
goodwill was approximately $1.9 million and $2.1 million for the years ended
December 31, 2001 and 2000, respectively. Because of the extensive effort needed
to comply with adopting SFAS 141 and 142, it is not practicable to reasonably
estimate the impact of adopting these statements on our consolidated financial
statements at the date of this report, including whether it will be required

                                       44

<PAGE>

to recognize any transitional impairment losses as the cumulative effect of a
change in accounting principle.

         In July 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS 143 requires the recognition of a liability for an
asset retirement obligation in the period in which it is incurred. A retirement
obligation is defined as one in which a legal obligation exists in the future
resulting from existing laws, statutes or contracts. We are required to adopt
SFAS 143 effective January 1, 2003. We do not believe the adoption of SFAS No.
143 will have a material impact on our consolidated financial statements.

         In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which supersedes both SFAS No. 121,
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations--Reporting Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a business segment (as previously defined in
that Opinion). SFAS 144 retains the fundamental provisions in SFAS No. 121 for
recognizing and measuring impairment losses on long-lived assets held for use
and long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with SFAS No. 121. For example,
SFAS No. 144 provides guidance on how long-lived assets that are used as part of
a group should be evaluated for impairment, establishes criteria for when a
long-lived asset is held for sale, and prescribes the accounting for a
long-lived asset that will be disposed of other than by sale. SFAS No. 144
retains the basic provisions of APB No. 30 on how to present discontinued
operations in the income statement but broadens that presentation to include a
component of an entity (rather than a segment of a business). Unlike SFAS No.
121, an impairment assessment under SFAS No. 144 will never result in a
write-down of goodwill. Rather, goodwill is evaluated for impairment under SFAS
No. 142.

         We are required to adopt SFAS No. 144 on January 1, 2002. We do not
expect the adoption of SFAS No. 144 for assets held for use to have a material
impact on the consolidated financial statements because the impairment
assessment under SFAS No. 144 is largely unchanged from SFAS No. 121. The
provisions of the new standard for assets held for sale or disposal generally
are required to be applied prospectively after the adoption date to newly
initiated disposal activities. Therefore, we cannot determine the potential
effects that the adoption of the provisions of SFAS No. 144 will have on the
consolidated financial statements.


SUBSEQUENT EVENT

         On February 26, 2002, we sold 8.0 million shares to a group of new and
existing shareholders. The shares of common stock were offered through a
prospectus supplement pursuant to our effective shelf registration statement.
The underwriter also exercised its right to purchase an additional 1.0 million
shares to cover an over-allotment which was sold on March 5, 2002. We generated
proceeds as a result of this offering of approximately $21.1 million.

CONTRACTUAL COMMITMENTS

         We maintain multiple contractual commitments as of December 31, 2001,
which will support future business operations of the Company. Such commitments
relate to non-cancelable operating lease arrangements, long term debt, minimum
supply purchases, and future patent and minimum royalty obligations. We have
identified and quantified the significant commitments in the following table.

                                       45

<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                  Payments Due by Period
                                                       (in $ 000's)
----------------------------------------------------------------------------------------------------------------------------

Contractual Obligations
                                          2002           2003           2004          2005          2006   Thereafter   Total
---------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>            <C>            <C>            <C>           <C>                 <C>
Non-cancelable operating
   lease arrangements (1)                 3,811          3,653         3,272          2,909         2,264    4,652     20,561

Long-term debt (2)                        3,397          3,498         2,170            659             -        -      9,724


Future patent obligations (3)             1,492          1,178           310              -             -        -      2,980

Minimum purchase commitments (4)            700            990         1,320              -             -        -      3,010

Future minimum royalties                      -              -             -          1,240         1,550       (5)     2,790

                                     --------------------------------------------------------------------------------------------
Total Contractual Obligations             9,400          9,319         7,072          4,808         3,814    4,652     39,065
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Such amounts represent future minimum rental commitments for office space
     leased under non-cancelable operating lease arrangements. We lease
     approximately 208,000 square feet for operations in the United States and
     approximately 75,000 square feet in Abingdon, UK to support foreign
     operations.

(2)  Such amounts primarily consist of amounts payable pursuant to our equipment
     loan line. Also included in such amounts are notes payable to former
     employees (net of unamortized discount) and capital lease obligations for
     certain machinery and equipment (including interest).

(3)  Such amounts represent obligations to pay future amounts over the next
     three years in-conjunction with our acquisition of U.S. Patent No.
     5,856,092 and its foreign counterparts from Affymetrix in July 2001.

(4)  Such amounts represent minimum purchase commitments of terminators from
     PerkinElmer (formerly known as NEN Life Science Products, Inc.) pursuant to
     the License and Supply Agreement for Terminators, effective February 21,
     2000.

(5)  In connection with our acquisition of U.S. Patent No. 5,856,092, we are
     also obligated to pay future minimum royalties commencing in 2005 which
     increases up to $1.9 million in 2007 and until the expiration of the
     agreement.



FORWARD-LOOKING STATEMENTS

This report may contain forward-looking statements. Such statements are based on
management's current expectations and are subject to a number of factors and
uncertainties that could cause actual results or outcomes to differ materially
from those described in such forward-looking statements. These statements
address or may address the following subjects: our expectation that the use of
our proprietary products, services and technologies will increase in certain
commercial applications; our expectation that the demand for SNP scoring will
continue to rapidly increase, our expectation that SNPs will become more
important as their impact is better understood: our expectation that a growing
number of researchers and practitioners will score an increasing total number of
SNPs in an increasing number of laboratories; our expectation that we will
receive $4.8 million from the US Department of Defense, our expectation that we
will launch the SNP-IT-based kit in strategic partnership with an industry
leader; our expectation that SNPstream systems we place will generate additional
recurring revenue stream from the sale of our SNPware consumables; our intention
to expand our offerings of SNPware consumables for use on instruments made or
sold by other companies and to obtain access fees and royalties by licensing our
SNP-IT technology for incorporation in consumable kits of others; our
expectation that diagnostic applications for SNP-IT technology will become
increasingly important as genetic assays progress from research laboratories to
routine clinical use; our expectation that diagnostic applications of SNP-IT
will become increasingly important as our strategic partners move products into
clinical trials; our expectation that the distribution arrangements for Luiminex
systems will have a significant role in marketing our SNPstream MT in North
America and Japan; our intent to use the internet to market and sell SNPware
kits; our expectation that we will launch generic SNPware 384 kits in early
2002, our expectation that we will expand the distribution of our ELUCIGENE CF
Kits in 2002, our intention to expand the number of assays we offer for A and B
antigens; our expectation that we will have dozens of LifeMatch systems sold by
the end of 2002; our expectation that revenues from the respective forensics
businesses of GeneScreen, Cellmark and Lifecodes will increase as DNA analysis
are increasingly being used by the criminal justice system, our expectation that
we will continue to incur losses; our expectations regarding impairment; our
expectation that future research and development expenses will decrease as our
products shift from the research and development phase to commercialization, our
expectation of expanding our operations that may lead to increases in expenses;
our expectation of having several sources of revenue in the future; our
intention to use our international operations to expand our identity genomics
and clinical genetic testing services; our expectation that we will announce our
first beta test program to improve selection of medicines in the last quarter of
2002; our expectation that we will begin replacing older technologies for
paternity testing with SNP panels during 2002; our expectation that SNPs will
have utility in forensic applications; our expectation that our cash reserves
and expected short-term revenue will be sufficient to fund operations through at
least the next 12 months; our expectation that our Diagnostics business will
serve as the foundation for a significantly expanded product line of molecular
diagnostic genotyping assays over the next few years; our intent to continue
selected investments in our proprietary technologies through internal
development and by licensing third-party technologies; our intention to continue
to enter Platform Propagation strategy collaboration involving the use of our
SNP-IT primer extension technology in our customers products; our expectation
that we will formally launch the SNPstream UHT system for use by our customers
by early 2002; our expectation that we will be able to demonstrate compliance of
our IVD products with European Directive, 98/79/EC; our expectation that
GeneShield will commence generating revenues in 2003; our expectation that the
intensity of competition in the markets for our products may increase; our
intention to add the ultra-high throughput SNPstream UHT system to the
MegaSNPatron in the first half of 2002; our expectation that fee-for-service SNP
scoring will be an attractive option for many customers, and that it can provide
us with the opportunity to develop higher value content and intellectual
property; GeneShield's expectation of announcing its first major collaboration
in 2002; our intention to apply our ultra-high throughput SNP scoring technology
to the identity genomics, that is, the paternity and forensics businesses of
GeneScreen and Cellmark, in order to significantly reduce the cost of providing
these services. We caution investors that there can be no assurance that actual
results, outcomes or business condition will not differ materially from those
projected or suggested in such forward-looking statements as a result of various
factors, including, among others, our limited operating history,
unpredictability of future revenues and operating results, and competitive
pressures. For further information, refer to the more specific factors and
uncertainties discussed throughout this report and in the "Risk Factors" section
of our Registration Statement on Form S-4 filed with the Securities and Exchange
Commission which became effective on November 5, 2001.

                                       46

<PAGE>

Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Our exposure to market risk is principally confined to our cash
equivalents and short-term investments, which are conservative in nature, with a
focus on preservation of capital and all of which have maturities of less than
one year which limit their exposure to market fluctuations. We maintain a
non-trading investment portfolio of investment grade, liquid debt securities
that limit the amount of credit exposure to any one issue, issuer or type of
instrument.

         Market risk refers to the risk of loss arising from adverse changes in
foreign currency exchange rates. As a result of the acquisition of our business
division, Cellmark, in February 2001, the acquisition of Lifecodes in December
2001, and a limited number of agreements with foreign companies, we may be
affected by fluctuations in currency exchange rates.

We have a minimal amount of long-term debt recorded on our books. The interest
rates applicable to such debt are not variable with respect to market
conditions.

                                       47

<PAGE>

 Item 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                            ORCHID BIOSCIENCES, INC.
                                AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>
                                                                            Page
<S>                                                                         <C>
Consolidated Financial Statements:
  Independent Auditors' Report                                                49
  Consolidated Balance Sheets as of December 31, 2001 and 2000                50
  Consolidated Statements of Operations for the years ended
     December 31, 2001, 2000, and 1999                                        51
  Consolidated Statements of Comprehensive Loss for the years
     ended December 31, 2001, 2000, and 1999                                  52
  Consolidated Statements of Stockholders' Equity (deficit) for
     the years ended December 31, 2001, 2000, and 1999                        53
  Consolidated Statements of Cash Flows for the years ended
     December 31, 2001, 2000, and 1999                                        54
  Notes to Consolidated Financial Statements                                  55
Financial Statement Schedule:
     Schedule of Valuation and Qualifying Accounts                            76
</TABLE>


                                       48

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Stockholders and Board of Directors
Orchid BioSciences, Inc.:

         We have audited the consolidated financial statements of Orchid
BioSciences, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about 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. We believe that our audits provide a
reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Orchid
BioSciences, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects, the information set forth therein.

         As discussed in Notes 1 and 4 to the consolidated financial statements,
effective July 1, 2001 the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and
certain provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," as
required for goodwill and other intangibles resulting from business combinations
consummated after June 30, 2001.

                                    KPMG LLP

Princeton, New Jersey
February 25, 2002, except as to Note 21,
which is as of March 5, 2002.

                                       49

<PAGE>

                            ORCHID BIOSCIENCES, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2001 and 2000
                 (In thousands, except share and per share data)

<TABLE>
<CAPTION>
Assets                                                                              2001             2000
                                                                                ----------         ---------
<S>                                                                             <C>                <C>
Current assets:
      Cash and cash equivalents                                                 $   10,746         $  14,558
      Short-term investments                                                        17,196            51,857
      Accounts receivable, net                                                      12,330             5,510
      Inventory                                                                      5,354             3,526
      Other current assets                                                           1,855             2,065
                                                                                ----------         ---------
         Total current assets                                                       47,481            77,516

Equipment and leasehold improvements, net                                           29,615            19,657
Goodwill, net of accumulated amortization of $136 and $2,084 in 2001 and
 2000, respectively                                                                  2,192            28,977
Other intangibles, net                                                              37,845            14,936
Other assets                                                                         3,783             1,241
                                                                                ----------         ---------
         Total assets                                                           $  120,916         $ 142,327
                                                                                ==========         =========


Liabilities and Stockholders' Equity
Current liabilities:
      Current portion of long-term debt                                         $    3,397         $   2,337
      Accounts payable                                                               6,161             5,492
      Accrued expenses                                                               9,180             4,034
      Deferred revenue                                                               1,221             1,009
                                                                                ----------         ---------
         Total current liabilities                                                  19,959            12,872

Long-term debt, less current portion                                                 6,327             6,152
Other liabilities                                                                    1,392                --

Commitments and contingencies

Stockholders' equity
      Preferred stock, $.001 par value, authorized 5,000,000 shares; no shares
         issued or outstanding                                                          --                --
      Series A junior participating preferred stock, $.001 par value, 1,000,000
         shares designated; no shares issued or outstanding                             --                --
      Common stock, $.001 par value, authorized 100,000,000 shares;
         issued and outstanding 46,180,450 and 33,195,096
         at December 31, 2001 and 2000, respectively                                    46                33
      Additional paid-in capital                                                   283,857           234,692
      Deferred compensation                                                         (7,543)          (13,374)
      Accumulated other comprehensive income                                           181               577
      Accumulated deficit                                                         (183,303)          (98,625)
                                                                                ----------         ---------

         Total stockholders' equity                                                 93,238           123,303
                                                                                ----------         ---------

         Total liabilities and stockholders' equity                             $  120,916         $ 142,327
                                                                                ==========         =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       50

<PAGE>

                            ORCHID BIOSCIENCES, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              For the years ended December 31, 2001, 2000 and 1999
                 (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                               2001          2000        1999
                                                            -----------   ----------- ----------
<S>                                                         <C>           <C>          <C>
Revenues:
      Product revenues and access fees                      $     5,333   $     2,329  $      --
      Clinical laboratory testing                                21,147        12,086         --
      License revenues                                            2,275         3,133         --
      Grant revenues                                                912           701        811
      Collaboration revenues                                      1,324            --        828
      Other                                                         224           132        154
                                                            -----------   -----------  ---------

         Total revenues                                          31,215        18,381      1,793
                                                            -----------   -----------  ---------

Operating expenses:
      Cost of product revenues and access fees                    4,023         1,610         --
      Cost of clinical laboratory testing                        14,666         9,278         --
      Selling, general and administrative                        34,725        29,970      9,547
      Selling, general and administrative-related party              --            --         63
      Restructuring                                                 388            --         --
      Research and development                                   33,550        28,881     11,696
      Research and development-related party                         --            --      2,752
      Impairment of assets                                       30,652            --         --
                                                            -----------   -----------  ---------

         Total operating expenses                               118,004        69,739     24,058
                                                            -----------   -----------  ---------

         Operating loss                                         (86,789)      (51,358)   (22,265)

Other income (expense):
      Interest income                                             2,898         4,064        203
      Interest expense                                             (847)         (497)    (6,158)
      Other expense                                                  60           (76)        --
                                                            -----------   -----------  ---------

         Total other income (expense)                             2,111         3,491     (5,955)
                                                            -----------   -----------  ---------

         Net loss                                               (84,678)      (47,867)   (28,220)
Beneficial conversion feature of preferred stock                     --       (29,574)   (44,554)
                                                            -----------   -----------  ---------

         Net loss allocable to common stockholders          $   (84,678)  $   (77,441) $ (72,774)
                                                            ===========   ===========  =========

Basic and diluted net loss per share allocable to common
      stockholders (note 1)                                 $     (2.27)  $     (3.58) $  (95.87)
                                                            ===========   ===========  =========

Shares used in computing basic and diluted net loss per
      share allocable to common stockholders (note 1)        37,259,779    21,645,645    759,078
                                                            ===========   ===========  =========
</TABLE>




   See accompanying notes to consolidated financial statements.

                                       51

<PAGE>

                            ORCHID BIOSCIENCES, INC.
                                AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
              For the years ended December 31, 2001, 2000 and 1999
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                2001             2000            1999
                                                                             ----------       ---------        ---------
<S>                                                                          <C>              <C>              <C>
Net loss                                                                     $  (84,678)      $ (47,867)       $ (28,220)

      Other comprehensive income (loss):
           Unrealized holding gains arising during the period                       195             599               --
           Less reclassification adjustment for gains included in  net loss         599              --               --
                                                                             ----------       ---------        ---------
       Unrealized holding gain (loss) on available-for-sale securities             (404)            599               --
       Foreign currency translation adjustment                                        8             (22)              --
                                                                             ----------       ---------        ---------
      Other comprehensive income (loss)                                            (396)            577               --
                                                                             ----------       ---------        ---------

Comprehensive loss                                                           $  (85,074)      $ (47,290)       $ (28,220)
                                                                             ----------       ---------        ---------
</TABLE>



   See accompanying notes to consolidated financial statements.

                                       52

<PAGE>

                            ORCHID BIOSCIENCES, INC.
                                AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIT)
                        (In thousands, except share data)
              For the years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                    Convertible preferred stock
                                              ---------------------------------------------------
                                              ----------------------------------------            ---------------------
                                                   Series A             Series B                       Common Stock
                                              ----------------------------------------            ---------------------
                                                                                                                           Common
                                               Number               Number                Series B    Number                stock
                                                 of                   of                    to be       of                  to be
                                               shares     Amount    shares      Amount     issued     shares     Amount    issued
                                              ------------------------------------------------------------------------------------
<S>                                           <C>        <C>        <C>         <C>       <C>         <C>        <C>      <C>
Balance, December 31, 1998                     904,200    $    1      68,640    $   --    $    211     726,751   $    1   $     17
   Issuance of stock for technology licenses    66,700        --          --        --          --      83,300                  59
   Series B convertible preferred
    stock to be issued                              --        --      35,200        --        (211)         --       --         --
   Warrants in connection with
    convertible term loans                          --        --          --        --          --          --       --         --
   Warrants in connection with draws
    on line of credit                               --        --          --        --          --          --       --         --
   Warrants in connection with sale
    of Series E mandatorily redeemable
    convertible preferred stock                     --        --          --        --          --          --       --         --
   Beneficial conversion feature on
    issuance of Series E mandatorily redeemable
    convertible preferred stock in connection
    with acquisition of GeneScreen                  --        --          --        --          --          --       --         --
   Deferred compensation resulting from the
    grant and remeasurement of common stock
    options                                         --        --          --        --          --          --       --         --
   Amortization of deferred compensation            --        --          --        --          --          --       --         --
   Exercise of common stock options                 --        --          --        --          --      35,399       --         --
   Net loss                                         --        --          --        --          --          --       --         --
                                              ------------------------------------------------------------------------------------

Balance, December 31, 1999                     970,900         1     103,840        --          --     845,450        1         76
   Issuance of common stock to be issued
    at December 31, 1999                            --        --          --        --          --      10,000       --        (76)
   Issuance of common stock in connection
    with supply Agreement                           --        --          --        --          --     125,000       --         --
   Issuance of common stock for technology
    licenses                                        --        --          --        --          --     350,000       --         --
   Exercise of common stock options                 --        --          --        --          --     183,084       --         --
   Issuance of common stock in connection
    with the initial public offering, net           --        --          --        --          --   6,900,000        7         --
   Conversion of mandatorily redeemable
    convertible preferred stock and
    convertible preferred stock into common
    stock in connection with initial public
    offering                                  (970,900)       (1)   (103,840)       --          --  24,781,562       25         --
   Deferred compensation resulting from the
    grant and remeasurement of common stock
    options                                         --        --          --        --          --          --       --         --
   Amortization of deferred compensation            --        --          --        --          --          --       --         --
   Foreign currency translation adjustment          --        --          --        --          --          --       --         --
   Unrealized gain on available-for-sale
    securities                                      --        --          --        --          --          --       --         --
   Net loss                                         --        --          --        --          --          --       --         --
                                              ------------------------------------------------------------------------------------

Balance, December 31, 2000                          --        --          --        --          --  33,195,096       33         --
   Issuance of common stock to AstraZeneca
    in connection with the acquisition of
    Cellmark                                        --        --          --        --          --     222,980       --         --
   Issuance of common stock in connection
    with follow-on Offering, net                    --        --          --        --          --   5,950,000        6
   Issuance of common stock in connection
    with the acquisition of Lifecodes               --        --          --        --          --   6,622,951        7         --
   Common stock options and warrants
    issued in connection with the
    acquisition of Lifecodes                        --        --          --        --          --          --       --         --
   Issuance of common stock in connection
    with services                                   --        --          --        --          --      29,609       --         --
   Deferred compensation resulting from the
    grant and remeasurement of common stock
    options                                         --        --          --        --          --          --       --         --
   Amortization of deferred compensation            --        --          --        --          --          --       --         --
   Exercise of common stock options                 --        --          --        --          --     134,814       --         --
   Exercise of common stock warrants                --        --          --        --          --      25,000       --         --
   Foreign currency translation adjustment          --        --          --        --          --          --       --         --
   Unrealized loss on available-for-sale
    securities                                      --        --          --        --          --          --       --         --
   Net loss                                         --        --          --        --          --          --       --         --
                                              ------------------------------------------------------------------------------------

Balance, December 31, 2001                          --    $   --          --    $   --    $     --  46,180,450   $   46   $     --

                                              ====================================================================================

<CAPTION>


                                                                              Accumulated                             Total
                                                Additional      Deferred      other compre-                       stockholders'
                                                  paid-in        compen-         hensive       Accumulated           equity
                                                  capital        sation          income          deficit           (deficit)
                                              ---------------------------------------------------------------------------------
<S>                                           <C>              <C>            <C>              <C>               <C>
Balance, December 31, 1998                    $      4,809     $    (624)     $        --      $   (22,538)      $      (18,123)
   Issuance of stock for technology licenses         1,763            --               --               --                1,822
   Series B convertible preferred
    stock to be issued                                 211            --               --               --                   --
   Warrants in connection with
    convertible term loans                           5,232            --               --               --                5,232
   Warrants in connection with draws
    on line of credit                                   76            --               --               --                   76
   Warrants in connection with sale
    of Series E mandatorily
    redeemable convertible preferred stock             753            --               --               --                  753
   Beneficial conversion feature on
    issuance of Series E
    mandatorily redeemable convertible
    preferred stock in connection with
    acquisition of GeneScreen                       28,530            --               --               --               28,530
   Deferred compensation resulting from the
    grant and remeasurement of common stock
    options                                          8,937        (8,937)              --               --                   --
   Amortization of deferred compensation                --         1,631               --               --                1,631
   Exercise of common stock options                     14            --               --               --                   14
Net loss                                                --            --               --          (28,220)             (28,220)
                                              ---------------------------------------------------------------------------------

Balance, December 31, 1999                          50,325        (7,930)              --          (50,758)              (8,285)
   Issuance of common stock to be issued
   at December 31, 1999                                 76            --               --               --                   --
   Issuance of common stock in connection
    with supply Agreement                            1,500            --               --               --                1,500
   Issuance of common stock for technology
    licenses                                         4,775            --               --               --                4,775
   Exercise of common stock options                    137            --               --               --                  137
   Issuance of common stock in connection
    with the initial public offering, net           48,398            --               --               --               48,405
   Conversion of mandatorily redeemable
    convertible preferred stock and
    convertible preferred stock into common
    stock in connection with initial public
    offering                                       118,495            --               --               --              118,519
   Deferred compensation resulting from the
    grant and remeasurement of common stock
    options                                         10,986       (10,986)              --               --                   --
   Amortization of deferred compensation                --         5,542               --               --                5,542
   Foreign currency translation adjustment              --            --              (22)              --                  (22)
   Unrealized gain on available-for-sale
    securities                                          --            --              599               --                  599
   Net loss                                             --            --               --          (47,867)             (47,867)
                                              ---------------------------------------------------------------------------------

Balance, December 31, 2000                         234,692       (13,374)             577          (98,625)             123,303
   Issuance of common stock to AstraZeneca
    in connection with the acquisition of
    Cellmark                                         2,019            --               --               --                2,019
   Issuance of common stock in connection
    with follow-on Offering, net                    33,144            --               --               --               33,150
   Issuance of common stock in connection
    with the acquisition of Lifecodes               14,118            --               --               --               14,125
   Common stock options and warrants
    issued in connection with the
    acquisition of Lifecodes                         2,015            --               --               --                2,015
   Issuance of common stock in connection
    with services                                      229            --               --               --                  229
   Deferred compensation resulting from the
    grant and remeasurement of common stock
    options                                         (2,560)        2,560               --               --                   --
   Amortization of deferred compensation                --         3,271               --               --                3,271
   Exercise of common stock options                    169            --               --               --                  169
   Exercise of common stock warrants                    31            --               --               --                   31
   Foreign currency translation adjustment              --            --                8               --                    8
   Unrealized loss on available-for-sale
    securities                                          --            --             (404)              --                 (404)
   Net loss                                             --            --               --          (84,678)             (84,678)
                                              ---------------------------------------------------------------------------------

Balance, December 31, 2001                    $    283,857     $  (7,543)       $     181      $  (183,303)      $       93,238

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

                                       53


<PAGE>

                    ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                For years ended December 31, 2001, 2000 and 1999
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                               2001          2000          1999
                                                                                            -------------------------------------
<S>                                                                                         <C>           <C>           <C>
Cash flows from operating activities:
      Net loss                                                                              $ (84,678)    $ (47,867)    $ (28,220)
      Adjustments to reconcile net loss to net cash used in operating activities:
         Noncash research and development expense                                                  --         4,775         1,822
         Noncash compensation expense                                                           3,271         5,542         1,631
         Noncash amortization of debt issuance costs and interest expense                          --            --         5,986
         Depreciation and amortization                                                          7,906         6,489         1,360
         Impairment of assets                                                                  30,652            --            --
         Changes in assets and liabilities:
              Accounts receivable                                                              (3,335)       (3,407)           --
              Inventory                                                                           667        (3,344)           --
              Other current assets                                                                522          (832)         (396)
              Other assets                                                                        453            70           156
              Accounts payable                                                                 (1,493)        3,190           757
              Accrued expenses                                                                    (73)         (743)        1,519
              Due to related party                                                                 --           (64)         (318)
              Deferred revenue                                                                   (214)          220           346
              Other liabilities                                                                   352            --            --
                                                                                            -------------------------------------
                  Net cash used in operating activities                                       (45,970)      (35,971)      (15,357)
                                                                                            -------------------------------------
Cash flows from investing activities:
      Cash paid to acquire Cellmark, including acquisition costs                               (2,909)           --            --
      Cash paid to acquire Lifecodes, including acquisition costs, net of cash
          acquired                                                                             (6,378)           --            --
      Cash paid to acquire patents and license                                                 (4,064)           --            --
      Cash acquired in acquisition of GeneScreen, net of costs                                     --            --         1,051
      Capital expenditures                                                                    (10,077)      (12,737)       (8,246)
      Decrease (increase) in restricted cash                                                       --           400          (400)
      Purchase of short-term investments                                                      (78,881)     (101,270)           --
      Sales of short-term investments                                                           6,563            --            --
      Maturities of short-term investments                                                    106,575        49,990         7,615
      Other investing activities                                                               (2,135)           --            --
                                                                                            -------------------------------------
                  Net cash provided by (used in) investing activities                           8,694       (63,617)           20
                                                                                            -------------------------------------
Cash flows from financing activities:
      Net proceeds from issuance of common stock                                               33,350        48,542         1,089
      Net proceeds from issuance of Series E mandatorily redeemable convertible
          preferred stock                                                                          --        29,574        34,165
      Proceeds from convertible term notes                                                         --            --         8,765
      Proceeds from issuance of debt from line of credit                                        2,796         4,300         5,037
      Repayment of debt on line of credit                                                      (2,716)       (2,074)         (388)
                                                                                            -------------------------------------
                  Net cash provided by financing activities                                    33,430        80,342        48,668
                                                                                            -------------------------------------
Effect of foreign currency translation on cash and cash equivalents                                34            --            --
Net increase (decrease) in cash and cash equivalents                                           (3,812)      (19,246)       33,331
Cash and cash equivalents at beginning of year                                                 14,558        33,804           473
                                                                                            -------------------------------------
Cash and cash equivalents at end of year                                                       10,746        14,558        33,804
                                                                                            -------------------------------------
Supplemental disclosure of noncash financing and investing activities:
      Deferred compensation from grant and remeasurement of common stock options and
          warrants                                                                             (2,560)       10,986         8,937
      Issuance of common stock in connection with the acquisition of Cellmark                   2,019            --            --
      Issuance of common stock and common stock options and warrants in connection
          with the acquisition of Lifecodes                                                    16,140            --            --
      Issuance of common stock for services accrued in 2000                                       229            --            --
      Obligations assumed in connection with patent acquisitions, net of discount               2,725            --            --
      Issuance of common stock in connection with supply agreement                                 --         1,500            --
      Issuance of common stock, common stock warrants and Series A convertible
          preferred stock for technology licenses                                                  --         4,775         1,763
      Conversion of mandatorily redeemable convertible preferred stock and
          convertible preferred stock into common stock                                            --       118,519            --
      Common stock granted or to be issued to SB                                                   --            76            59
      Beneficial conversion feature on issuance of Series E mandatorily redeemable
          convertible preferred stock in connection with acquisition of GeneScreen                 --            --        28,530
      Series E mandatorily redeemable convertible preferred stock to be issued in
          connection with acquisition of GeneScreen                                                --            --        17,600
      Conversion of bridge notes and accrued interest into Series E mandatorily
          redeemable convertible preferred stock                                                   --            --        10,302
      Cancellation of long-term debt in connection with acquisition of GeneScreen                  --            --         3,548
      Issuance of warrants in connection with borrowings on line of credit                         --            --            76
      Issuance of common stock warrants in connection with the Series E mandatorily
          redeemable convertible preferred stock private placement                                 --            --           753
Supplemental disclosure of cash flow information:
      Cash paid during the year for interest                                                      830           480           173
</TABLE>

See accompanying notes to consolidated financial statements.

                                       54

<PAGE>

                    ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
                (in thousands except share and per share amounts)

(1) Summary of Significant Accounting Policies

Organization and Business Activities

     Orchid BioSciences, Inc. (previously known as Orchid Biocomputer, Inc.) and
subsidiaries (the "Company"), was organized under the laws of the State of
Delaware on March 8, 1995 to develop and commercialize genetic diversity
technologies, products and services using the Company's proprietary biochemistry
for scoring single nucleotide polymorphisms ("SNPs") and microfluidics
technologies for applications in drug discovery, principally in the field of
pharmacogenetics and DNA synthesis. The Company was a wholly-owned subsidiary of
Sarnoff Corporation ("Sarnoff") at inception, was reduced to a majority-owned
subsidiary of Sarnoff in 1995 and as a result of the December 1997 financing,
Sarnoff's ownership in the Company was reduced to less than a majority (see note
14).

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

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

     The Company has not achieved profitable operations or positive cash flow
from operations. There is no assurance that profitable operations can be
achieved or, if ever achieved, could be sustained on a continuing basis. In
addition, development and commercialization activities will require significant
additional financing. The Company's accumulated deficit aggregated $183,303 at
December 31, 2001, and it expects to incur substantial losses in future periods.

Consolidated Financial Statements

     The accompanying consolidated financial statements include the results of
operations of the Company and its wholly owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

     The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. All cash
and cash equivalents are held in US financial institutions and money market
funds. To date, the Company has not experienced any losses on its cash and cash
equivalents. The carrying amount of cash and cash equivalents approximates its
fair value due to its short-term and liquid nature.

Short-term Investments

     Short-term investments consist of corporate debt securities with original
maturities greater than three months. In accordance with Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments
in Debt and Equity Securities," the Company classifies its short-term
investments as available-for-sale. Available-for-sale securities are recorded at
fair value of the investments based on quoted market prices at December 31,
2001. Cost is determined on a specific identification basis. The Company
considered all of these investments to be available-for-sale.

Inventory

     Inventory is stated at the lower of cost or market. Cost is determined by
the first-in, first-out method.

                                       55

<PAGE>

Equipment and Leasehold Improvements

     Equipment is carried at cost, less accumulated depreciation, which is
computed on the straight-line basis over the estimated useful lives of the
related assets, which range from two to eight years. Leasehold improvements are
recorded at cost, less accumulated depreciation, which is computed on the
straight-line basis over the shorter of their estimated useful lives or the
remaining lease term. Expenditures for maintenance and repairs are charged to
expense as incurred.

Goodwill and Other Intangibles

     Goodwill represents the excess purchase price over fair value of net assets
acquired in a business combination. Intangible assets acquired as a result of a
business combination are recorded at their fair value at the acquisition date.
Intangible assets acquired individually are recorded at their acquisition cost.
Prior to the full adoption of Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangibles" (see below), both goodwill and other
intangible assets are amortized on a straight-line basis over their estimated
useful lives (see note 9 regarding intangible assets acquired in connection with
the Lifecodes acquisition), as follows:

                                                         Years
                                                       -------

     Customer lists                                         11
     Base technology                                     10-12
     Trademarks and tradename                            10-15
     Goodwill                                            10-15
     Patents                                             10-15
     Other intangibles                                       4

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of

     In accordance with 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, certain identifiable intangibles and goodwill for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to the undiscounted future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to dispose.

Income Taxes

     The Company accounts for income taxes in accordance with the asset and
liability method prescribed by Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using tax rates in effect for
the years in which the differences are expected to reverse. The measurement of
deferred tax assets is reduced, if necessary, by a valuation allowance for any
tax benefits which are not expected to be realized. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that
such tax rate changes are enacted.

Revenue Recognition

     Revenues related to research and development collaborations are recognized
when related research expenses are incurred and when the Company has satisfied
specific performance obligations under the terms of the respective research
contracts. Up-front fees obtained in connection with such agreements are
deferred and amortized over the estimated performance period of the respective
research contract. Milestone payments are recognized as revenues upon the
completion of the milestone event or requirement, if it represents the
achievement of a significant step in the research and development or performance
process.

     Clinical laboratory and SNP scoring services revenues are recognized on a
completed contract basis at the time test results are completed and reported.
Deferred revenue represents the unearned portion of payments received in advance
of tests being completed and reported. Unbilled receivables represent revenue
which has been earned on completed and reported tests, but has not been billed
to the customer.

     The Company offers SNPstream system hardware in two basic types of
transactions, either a purchase and sale transaction or an arrangement in which
the customer takes possession of the system and pays an access fee for its use.
Revenue on the sale of the SNPstream system hardware is recorded upon transfer
of title and after the Company has met all significant performance obligations.
Access fee payments, which are received when a system is initially placed, are
deferred and revenue

                                       56

<PAGE>

is recognized on a straight-line basis over the term of the agreement. Revenue
from the sale of SNPware consumables is recognized upon the transfer of title,
generally when the SNPware products are shipped to customers from the Company's
facility.

     Revenues from license arrangements, including license fees creditable
against potential future royalty obligations of the licensee, are recognized
when an arrangement is entered into if the Company has no significant continuing
involvement under the terms of the arrangement. If the Company has significant
continuing involvement under such an arrangement, license fees are deferred and
recognized over the estimated performance period.

Research and Development

     Costs incurred for research and product development, including salaries and
related personnel costs, fees paid to consultants and outside service providers,
material costs for prototypes and test units, and other expenses related to the
design, development, testing and enhancement of our products, are expensed as
incurred. In addition, the Company recognizes research and development expenses
in the period incurred and in accordance with the specific contractual
performance terms of such research agreements. Costs incurred in obtaining
technology licenses are charged to research and development expense if the
technology licensed has not reached technological feasibility and has no
alternative uses.

Stock-based Compensation

     The Company accounts for its stock-based compensation to employees and
members of the Board of Directors in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. As such, compensation is recorded on
the date of issuance or grant as the excess of the current market price
(estimated fair value prior to the initial public offering in May 2000 ("IPO"))
of the underlying stock over the purchase or exercise price. Any deferred
compensation is amortized over the respective vesting periods of the equity
instruments, if any. The Company has adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation," which permits entities to provide pro
forma net loss and net loss per share disclosures for stock-based compensation
as if the fair value method defined in SFAS No. 123 had been applied. Pro forma
net loss and net loss per share disclosures for stock-based compensation have
been prepared as if the fair value method had been applied in periods prior to
the Company's IPO and as if the minimum value method had been applied in 1999
and 1998, as the Company was not a public registrant during those years. As
required by SFAS No. 123, transactions with non-employees, in which goods or
services are the consideration received for the issuance of equity instruments,
are accounted for under the fair value basis in accordance with SFAS 123.

Use of Estimates

     The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires the Company to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.

Financial Instruments

     The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate their fair values because of
the short maturity of these instruments. The interest rates on long-term debt
and capital leases approximates rates for similar types of borrowing
arrangements at December 31, 2001 and 2000, therefore the fair value of the
long-term debt and capital leases approximate the carrying value at December 31,
2001 and 2000.

                                       57

<PAGE>

Net Loss Per Share

     Net loss per share is computed in accordance with SFAS No. 128, "Earnings
Per Share," by dividing the net loss allocable to common stockholders by the
weighted average number of shares of common stock outstanding. During each year
presented, the Company has certain options, warrants, convertible preferred
stock and/or mandatorily redeemable convertible preferred stock, which have not
been used in the calculation of diluted net loss per share allocable to common
stockholders because to do so would be anti-dilutive. As such, the numerator and
the denominator used in computing both basic and diluted net loss per share
allocable to common stockholders for each year are equal. For the year ended
December 31, 1999, the Company reflected $44,554 as a beneficial conversion
feature in the net loss allocable to common stockholders for the Series E
mandatorily redeemable convertible preferred stock ("Series E" stock) issued or
issuable in exchange for cash at December 31, 1999. For the year ended December
31, 2000, the Company has reflected $29,574 as a beneficial conversion feature
in the net loss allocable to common stockholders as result of the Series E stock
sold in January 2000. The amount of the beneficial conversion feature was
calculated as the difference between the fair value of the Company's common
stock on the commitment dates of $11.75 per share over the conversion price of
$4.50 per share, with a limitation that the beneficial conversion feature can
not exceed the gross proceeds received from the issuance of the stock.

Recent Accounting Pronouncements

     In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations" ("SFAS 141"), and SFAS No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001 as well as all purchase method business combinations completed after
June 30, 2001. SFAS 141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill, noting that any purchase price allocable to an assembled
workforce may not be accounted for separately. SFAS 142 will require that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of SFAS 142. SFAS 142 will also require that intangible
assets with estimable useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121.

     The Company adopted the provisions of SFAS 141 immediately and is required
to adopt SFAS 142 effective January 1, 2002. Furthermore, goodwill and
intangible assets determined to have an indefinite useful life acquired in a
purchase business combination completed after June 30, 2001, but before SFAS 142
is adopted in full will not be amortized, but will continue to be evaluated for
impairment in accordance with the appropriate pre-SFAS 142 accounting
literature. Goodwill and intangible assets acquired in business combinations
completed before July 1, 2001 will continue to be amortized and tested for
impairment in accordance with the appropriate pre-SFAS 142 accounting
requirements prior to the adoption of SFAS 142.

     SFAS 141 will require upon adoption of SFAS 142, that the Company evaluate
its existing intangible assets and goodwill that were acquired in a prior
purchase business combination, and to make any necessary reclassifications in
order to conform with the new criteria in SFAS 141 for recognition apart from
goodwill. Upon adoption of SFAS 142, the Company will be required to reassess
the useful lives and residual values of all intangible assets acquired, and make
any necessary amortization period adjustments by the end of the first interim
period after adoption. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, the Company will be required to
test the intangible asset for impairment in accordance with the provisions of
SFAS 142 . Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.

     In connection with SFAS 142's transitional goodwill impairment evaluation,
the statement will require the Company to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption. To
accomplish this, the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare
it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and the Company must perform the second step of
the transitional impairment test. In the second step, the Company must compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of its assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with SFAS 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
operations.

     As of the date of adoption, the Company has unamortized goodwill in the
amount of $2,192 and unamortized identifiable intangible assets in the amount of
$37,845, all of which will be subject to the transition provisions of SFAS 141
and 142. Amortization expense related to goodwill was $1,940, $2,074 and $10 for
the years ended December 31, 2001, 2000 and 1999.

                                       58

<PAGE>

respectively. Because of the extensive effort needed to comply with adopting
SFAS 141 and 142, it is not practicable to reasonably estimate the impact of
adopting these statements on the Company's consolidated financial statements at
the date of this report, including whether it will be required to recognize any
transitional impairment losses as the cumulative effect of a change in
accounting principle.

     In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). SFAS 143 requires the recognition of a
liability for an asset retirement obligation in the period in which it is
incurred. A retirement obligation is defined as one in which a legal obligation
exists in the future resulting from existing laws, statutes or contracts. The
standard is effective for the Company on January 1, 2003. The Company does not
believe the adoption of SFAS No. 143 will have a material impact on the
consolidated financial statements.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which supersedes both
SFAS No. 121, and the accounting and reporting provisions of APB Opinion No. 30,
"Reporting the Results of Operations--Reporting Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a business segment (as previously defined in
that Opinion). SFAS 144 retains the fundamental provisions in SFAS No. 121 for
recognizing and measuring impairment losses on long-lived assets held for use
and long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with SFAS No. 121. For example,
SFAS No. 144 provides guidance on how long-lived assets that are used as part of
a group should be evaluated for impairment, establishes criteria for when a
long-lived asset is held for sale, and prescribes the accounting for a
long-lived asset that will be disposed of other than by sale. SFAS No. 144
retains the basic provisions of APB No. 30 on how to present discontinued
operations in the income statement but broadens that presentation to include a
component of an entity (rather than a segment of a business). Unlike SFAS No.
121, an impairment assessment under SFAS No. 144 will never result in a
write-down of goodwill. Rather, goodwill is evaluated for impairment under SFAS
No. 142.

     The Company is required to adopt SFAS No. 144 on January 1, 2002. The
Company does not expect the adoption of SFAS No. 144 for assets held for use to
have a material impact on the consolidated financial statements because the
impairment assessment under SFAS No. 144 is largely unchanged from SFAS No. 121.
The provisions of the new standard for assets held for sale or disposal
generally are required to be applied prospectively after the adoption date to
newly initiated disposal activities. Therefore, the Company cannot determine the
potential effects that the adoption of these provisions of SFAS No. 144 will
have on the consolidated financial statements.

(2) Acquisition of GeneScreen, Inc.

     On December 30, 1999, the Company acquired all of the outstanding shares of
common and preferred stock of GeneScreen in exchange for consideration
consisting primarily of up to 4,000,000 shares of the Company's Series E with a
stated value of $4.50 per share. The note payable to GeneScreen related to the
purchase of the Molecular Tool assets (acquired in September 1998) in the amount
of $3,548 and certain other liabilities totaling $421 were also cancelled. The
acquisition has been accounted for by the purchase method and, accordingly, the
assets and liabilities acquired have been recorded at their fair values. The
Company has included $28,530 as a beneficial conversion feature attributable to
the Series E in the purchase price which was recorded as an increase to
additional paid-in capital. The amount of the beneficial conversion feature was
calculated as the difference between the $11.75 per share fair value of the
Company's common stock on December 22, 1999, the commitment date, over the $4.50
per share conversion price.

     The net purchase price of $42,711, including acquisition costs of
approximately $150, was allocated as follows:

     Cash                                                       $ 1,064
     Accounts receivable, net                                     2,103
     Other assets                                                   721
     Customer list                                                4,210
     Base technology                                              5,580
     Trademark/tradename                                          1,762
     Other intangibles                                              586
     Goodwill                                                    30,983
     Current portion of long-term debt                           (1,190)
     Accounts payable and accrued expenses                       (2,490)
     Deferred revenue                                              (193)
     Long-term debt, less current portion                          (425)
                                                                -------
                                                                $42,711
                                                                =======

                                       59

<PAGE>

     As of December 31, 1999, none of the 4,000,000 shares had been issued. By
January 27, 2000, 3,934,353 shares were issued, which represents all of the
shares which will be issued and which are recorded as Series E mandatorily
redeemable convertible preferred stock to be issued in the December 31, 1999
consolidated balance sheet. Additionally, the Company recorded a liability at
December 31, 1999 of approximately $300 representing the 65,647 shares of Series
E which will not be issued and for which cash will be paid in lieu of issuing
Series E shares to satisfy certain regulatory requirements and to eliminate
fractional shares. Of the 4,000,000 shares, shares with a value of $1,000 based
on the stated value of $4.50 per share, allocated from the GeneScreen
stockholders on a pro rata basis, will remain in escrow for up to one year to
satisfy any claims based upon any breach of representations and warranties by
the GeneScreen stockholders under the merger agreement or claims based upon any
liability of GeneScreen under ERISA with respect to eligibility requirements
under GeneScreen's 401(k) plan. All of these shares have been subsequently
distributed. The $1,000 value of these shares has been included in the recorded
purchase price. The total value at the date of acquisition of the Series E to be
issued, including the beneficial conversion feature was $46,230.

     The results of operations of GeneScreen since its acquisition by the
Company on December 30, 1999 through December 31, 1999 have not been included in
the Company's 1999 consolidated statement of operations as they are not material
to those results of operations. The results of operations have been included in
the consolidated statements of operations of the Company for 2000 and 2001.

     The following unaudited pro forma financial information presents the
combined results of operations of the Company and GeneScreen as if the
acquisition had occurred as of January 1, 1999, after giving effect to certain
pro forma adjustments, including amortization of goodwill and other intangibles,
decreased interest expense from the cancellation of the Company's note payable
to GeneScreen and elimination of transaction-related costs incurred by
GeneScreen prior to the acquisition. The pro forma financial information does
not necessarily reflect the results of operations that would have occurred had
the Company and GeneScreen constituted a single entity during this period or the
results of operations which may occur in the future.

<TABLE>
<CAPTION>
                                                                                  Year ended
                                                                                 December 31,
                                                                                     1999
                                                                                 ------------
                                                                                  (unaudited)
<S>                                                                              <C>
Revenues                                                                           $  15,540
                                                                                   =========
Net loss                                                                           $ (32,797)
                                                                                   =========
Net loss allocable to common stockholders                                          $ (77,351)
                                                                                   =========
Basic and diluted net loss per share allocable to common stockholders              $ (101.90)
                                                                                   =========
</TABLE>

(3)  Acquisition of Cellmark Diagnostics and Genotyping Collaboration Agreement
     with AstraZeneca

     On February 12, 2001, the Company completed its acquisition of certain
assets of AstraZeneca's business division, Cellmark Diagnostics ("Cellmark"), a
leading provider of genetic diversity testing services in the United Kingdom
("UK") which also sells kits for and conducts tests for genetic diseases,
including cystic fibrosis. The acquisition has been accounted for under the
purchase method of accounting and, accordingly, the assets and liabilities
acquired have been recorded at their fair values. Assets acquired included
intangibles of approximately $2,700. The purchase price, including acquisition
costs, was comprised of $2,909 in cash and 222,980 shares of the Company's
common stock valued at $2,019.

     As part of the agreement to purchase the Cellmark assets from AstraZeneca,
the Company entered into an Investor Rights Agreement with AstraZeneca, pursuant
to which the Company agreed to register 222,980 shares of the Company's common
stock issued to AstraZeneca. The shares issued to AstraZeneca as part of the
purchase were registered with the Securities and Exchange Commission on May 10,
2001, which registration became effective on May 18, 2001.

     The results of operations of Cellmark have been included in the Company's
consolidated statement of operations since the date of acquisition by the
Company on February 12, 2001. The pro forma results of operations of Cellmark
have not been presented because they are immaterial to the Company's results of
operations for 2001 and 2000.

                                       60

<PAGE>

     In addition, on February 12, 2001, the Company entered into a multi-year
agreement with AstraZeneca to conduct a variety of studies using SNPs. The
genotyping agreement also allows AstraZeneca access to the Company's SNP
databases, the development by the Company of proprietary SNP panels, and the use
of these panels in genetic association and linkage studies. In 2001, the Company
recognized revenue related to the accomplishment of a milestone under this
agreement of $750.

(4) Acquisition of Lifecodes Corporation

     On December 5, 2001, the Company acquired all of the outstanding equity
securities of Lifecodes Corporation ("Lifecodes"). Lifecodes, now a wholly owned
subsidiary of Orchid, is a leading provider of genomics testing for forensics
and paternity in the US. The Company acquired Lifecodes in order to strengthen
its position in the clinical testing market. Lifecodes also maintains a
diagnostic kit business which will add to the Company's current products. The
Company views this acquisition, in addition to the two previous acquisitions of
GeneScreen and Cellmark as a significant step in providing a cost efficient high
throughput clinical and diagnostic testing business. In exchange for Lifecodes
equity securities the Company issued 6,622,951 shares of its common stock to
former stockholders of Lifecodes, 1,414,754 shares of which the Company
deposited in an escrow account and may be used to compensate Orchid in the event
that it is entitled to indemnification under the Amended and Restated Agreement
and Plan of Merger. The value of these escrow shares has been included in the
recorded purchase price. The Company also issued 313,978 and 472,313 fully
vested options and warrants, respectively, which are exercisable for Orchid
common stock in exchange for certain existing Lifecodes options and warrants.
The acquisition has been accounted for by the purchase method under SFAS 141,
and accordingly, the assets and liabilities acquired have been recorded at their
fair values.

     The fair value of the 6,622,951 shares issued in connection with the
Lifecodes acquisition of $14,125 was determined based on the average market
price of the Company's common stock for a reasonable period before and after the
date of announcement of the acquisition, October 1, 2001. The value of the
common stock options and warrants issued of $2,015 was determined by using the
Black-Scholes option pricing model. Also included in the purchase price was
$5,000 of Lifecodes debt repaid by the Company and a $700 working capital
advance made by the Company to Lifecodes, both prior to closing the acquisition.
The Company also assumed approximately $750 in acquisition related liabilities
and paid $1,150 in acquisition costs, which were included in the purchase price.

                                       61

<PAGE>

         The net purchase price of $23,740 was allocated to the assets and
liabilities of Lifecodes as follows:

         Cash                                                  $   472
         Accounts receivable, net                                3,452
         Inventory                                               2,325
         Property and equipment                                  5,904
         Other current and long-term assets                      1,172
         Trademark/tradename                                     1,800
         Patents and know-how                                    8,800
         Developed technology                                    4,080
         Other intangibles                                         800
         Goodwill                                                1,658
         Amounts payable and accrued expenses                   (5,380)
         Deferred revenue                                         (426)
         Capital lease obligations                                (800)
         Other liabilities                                        (117)
                                                               -------
                                                               $23,740
                                                               =======

         The results of operations of Lifecodes since its acquisition by the
Company on December 5, 2001 have been included in the Company's 2001
consolidated statement of operations. Amortization of intangibles was immaterial
during the period. (See note 9 for weighted average lives and expected future
amortization expense)

         The following unaudited pro forma financial information presents the
combined results of operations of the Company and Lifecodes as if the
acquisition had occurred as of January 1, 2001 and January 1, 2000, after giving
effect to certain pro forma adjustments, including amortization of other
intangibles and elimination of transaction-related costs incurred by Lifecodes
prior to the acquisition. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had the
Company and Lifecodes constituted a single entity during this period or the
results of operations which may occur in the future.

<TABLE>
<CAPTION>
                                                                                          Year ended
                                                                                December 31,       December 31,
                                                                                    2001               2000
                                                                                -----------        -------------
                                                                                (unaudited)         (unaudited)
<S>                                                                             <C>                   <C>
Revenues                                                                        $  60,409             $  46,168
                                                                                =========             =========

Net loss                                                                        $ (84,815)            $ (48,894)
                                                                                =========             =========

Net loss allocable to common stockholders                                       $ (84,815)            $ (78,468)
                                                                                =========             =========

Basic and diluted net loss per share allocable to common stockholders           $   (1.95)            $   (2.77)
                                                                                =========             =========
</TABLE>

(5) Short-Term Investments

         The cost, gross unrealized gains, and fair value for available-for-sale
securities by major security type and class of security at December 31, 2001 and
2000, were as follows:

                                       62

<PAGE>

<TABLE>
<CAPTION>
                                                                        Gross
         2001                                                        Unrealized     Fair
                                                           Cost         gains       Value
                                                           ----         -----       -----
         <S>                                             <C>          <C>          <C>
         Debt securities of the US government            $ 6,900        $  11      $ 6,911
         Corporate debt securities                        10,101          184       10,285
                                                        --------       ------      -------
                                                         $17,001        $ 195      $17,196
                                                        ========       ======      =======
         2000

         Debt securities of the US government            $43,689        $ 572      $44,261
         Corporate debt securities                         7,569           27        7,596
                                                        --------       ------      -------
                                                         $51,258        $ 599      $51,857
                                                        ========       ======      =======
</TABLE>


All available-for-sale securities held by the Company as of December 31, 2001
and 2000 had contractual maturity dates within one year of the date of purchase.

(6) Accounts Receivable and Credit Risks

         Accounts receivable are comprised of the following at December 31, 2001
and 2000:

<TABLE>
<CAPTION>
                                                          2001         2000
                                                       ---------    ----------
         <S>                                           <C>          <C>
         Billed trade receivables                       $ 12,198     $   5,366
         Unbilled trade receivables                          992           652
                                                       ---------    ----------
                                                          13,190         6,018
         Less allowance for doubtful accounts               (860)         (508)
                                                       ---------    ----------
         Accounts receivable, net                       $ 12,330     $   5,510
                                                       =========    ==========
</TABLE>



         Clinical laboratory testing accounts receivable is primarily composed
of amounts owed by government agencies. The Company performs periodic credit
evaluation of its customers' financial condition and generally does not require
a deposit from government agencies or private institutions. The Company believes
private pay accounts for paternity testing represent the most significant credit
risk and generally requires a deposit for all or a portion of the services to be
rendered. Credit losses have consistently been within management's estimates.

(7) Inventory

         Inventory is comprised of the following at December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                 2001      2000
                                               --------  --------
         <S>                                   <C>       <C>
         Raw materials                         $ 3,087    $ 3,074
         Work in progress                        1,208        452
         Finished goods                          1,059         --
                                               -------   --------
                                               $ 5,354    $ 3,526
                                               =======   ========
</TABLE>


         Raw materials consist mainly of reagents, enzymes, chemicals and plates
used in SNP scoring, genotyping and to manufacture SNPware consumables. The
Company currently has only one supplier for oligonucleotides, an important raw
material.

                                       63

<PAGE>

Work in progress consists mainly of case work not yet completed and kits that
are in the production process. Finished goods consist mainly of kits that have
been produced, but have not been shipped.

(8) Equipment and Leasehold Improvements

         Equipment and leasehold improvements are comprised of the following at
December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                       2001         2000
                                                     --------     --------
<S>                                                  <C>          <C>

         Laboratory equipment                        $ 21,112     $ 14,603
         Computers                                      5,949        2,792
         Furniture and fixtures                         1,912          993
         Leasehold improvements                         8,676        5,146
                                                     --------     --------
                                                       37,649       23,534
         Less accumulated depreciation                 (8,034)      (3,877)
                                                     --------     --------
                                                     $ 29,615     $ 19,657
                                                     ========     ========
</TABLE>



         During the year ended December 31, 2001, the Company recorded an
impairment charge related to certain equipment. The Company utilizes this
equipment primarily to perform research and development activities and, to a
limited extent, genotyping services for customers. During the first half of
2002, the Company expects to launch the second generation of this equipment. The
second generation provides higher throughput at a lower cost. The Company
expects to use this next generation equipment to replace the first generation
equipment over time and to provide the same services and functions that the
first generation equipment provided. The Company determined that a triggering
event occurred for which an impairment review of this equipment was required
pursuant to SFAS 121. As such, the Company performed an analysis of its future
needs relating to this equipment and determined its fair value. As a result of
this analysis, the Company recorded an impairment charge of $3,396 which
represents the amount by which the carrying value of the equipment exceeded the
related fair value.

(9) Goodwill and Other Intangible Assets

         The following table sets forth the Company's other intangible assets at
December 31, 2001 and 2000:

                                       64

<PAGE>

<TABLE>
<CAPTION>
                                                   2001        2000
                                                ---------   ---------
<S>                                              <C>         <C>

         Base technology                         $  9,615    $  9,215
         Customer list                              5,040       4,210
         Trademark/tradename                        3,998       1,762
         Patents and know-how                      16,718       1,100
         Developed technology                       4,080          --
         Other                                      2,543         827
                                                ---------   ---------
         Total                                     41,994      17,114
         Less accumulated amortization             (4,149)     (2,178)
                                                ---------   ---------
                                                 $ 37,845    $ 14,936
                                                =========   =========
</TABLE>





         The Company has estimated the following useful lives as it relates to
intangible assets acquired in connection with the acquisition of Lifecodes as
follows:

                                                      Useful Life
                                                      -----------

         Trademark/tradename                                   10
         Patents and know-how                                  12
         Developed technology                                  10
         Other intangibles                                      3

         The weighted average useful life for these intangible assets is
approximately 10.78 years. Expected future amortization expense related to the
intangible assets acquired in connection with the acquisition of Lifecodes over
the next five years is as follows:

         2002                                                $1,593
         2003                                                 1,593
         2004                                                 1,593
         2005                                                 1,323
         2006                                                 1,323


         During the year ended December 31, 2001, the Company recorded an
impairment charge of approximately $27,256 to write-down goodwill which was
recorded when the Company acquired GeneScreen on December 30, 1999. On October
1, 2001, the Company announced its intention to acquire Lifecodes (see note 4).
Lifecodes operates primarily in the same industry and provides the same services
as GeneScreen. Based primarily on the acquisition price for Lifecodes, among
other matters, the Company determined that a triggering event occurred for which
an impairment review would be required pursuant to SFAS 121. The impairment
charge was recorded based on the fair value of GeneScreen as computed using a
discounted cash flow valuation model. This charge reduced the unamortized
goodwill recorded in the acquisition of GeneScreen to zero. This charge relates
to the "services" segment of the Company's business.

         During 2001, the Company completed a series of agreements that replaces
its existing collaboration agreement with Affymetrix entered into in November
1999 (see note 14). The Company also acquired from Affymetrix exclusive
ownership of U.S. Patent No. 5,856,092 and its foreign counterparts and
Affymetrix granted the Company a non-exclusive license to make and sell products
incorporating Affymetrix's proprietary universal Tag sequences. The Company has
capitalized the costs associated with this patent and license from Affymetrix,
including certain required future payments, which are being amortized over their
estimated useful lives. The required future payments have been recorded as
liabilities in the accompanying consolidated balance sheet (see note 19).

(10) Debt

         In December 1998, the Company entered into a $6,000 equipment loan line
which is secured by the purchased equipment whose availability expired in 1999.
In December 2000, the Company amended the loan line and established a new
borrowing base of

                                       65

<PAGE>

$8,000. At December 31, 2001 and 2000, the Company had $8,753 and $8,064
outstanding under this and the previous lines of credit. At December 31, 2001,
the remaining amount available to be borrowed was $904, of which there were no
loan line fees associated. If the Company does not maintain minimum unrestricted
cash, as defined in the agreement, equal to the greater of $35,000 or twelve
month's cash needs (calculated by taking the trailing three months net cash used
in operations multiplied by four), the Company is required to provide a cash
security deposit or letter of credit equal to an amount defined in the
agreement, not to exceed 50% of outstanding amounts on draws made in or
subsequent to December 2000 (50% equal to approximately $3,000 at December 31,
2001). The Company is also required to provide a cash security deposit or obtain
a letter of credit equal to $2,150 plus 50% of any future draw amount no later
than June 30, 2001, unless the Company has completed a follow-on equity offering
of at least $50,000 in net unrestricted proceeds. During 2001, the Company did
complete a follow-on offering as described in note 16 below. However, the net
unrestricted proceeds from this offering were less than the minimum amount
required under the loan line. The Company has received written notice from the
lender stating that the lender waived the requirement of a pledge of cash
security deposit or letter of credit under this agreement. In addition, as of
December 31, 2001 and just prior to the follow-on offering (see note 21), the
Company does not maintain the minimum unrestricted cash defined in the
Agreement. The Company has also received a waiver from its lender with respect
to this financial covenant violation for this period.

         All borrowings under the facility are to be repaid in monthly principal
installments plus interest over 48 months from the date of funding, with the
final 15% of the original principal amount due in a balloon payment at the end
of loan term. At December 31, 2001, annual interest rates on the seven draws
range from 9.16% to 11.66%. During 1999, in connection with this arrangement,
20,894 warrants to purchase common stock were granted at the time of the
borrowings with exercise prices which ranged from $4.50 to $12.25 per share. The
fair value of these warrants of $76, as determined using a Black-Scholes option
pricing model, was recorded as debt issuance costs and is being amortized over
the term of the debt.

         GeneScreen had outstanding borrowings under a revolving credit
agreement of $1,000 at December 31, 1999. In 2000, the Company repaid the
balance and cancelled the credit facility. The note was collateralized by $400
of pledged cash and cash equivalents on deposit at the financial institution
until the loan was repaid.

         Long-term debt is comprised of the following at December 31, 2001 and
2000:

<TABLE>
<CAPTION>
                                                                       2001       2000
                                                                    ---------   ---------
<S>                                                                 <C>         <C>
         Equipment loan line secured by purchased equipment         $   8,753   $   8,064
         Notes payable to former employees,
            net of unamortized discount                                   222         407
         Capital lease obligations and other long-term debt               749          18
                                                                    ---------   ---------
                                                                        9,724       8,489
         Less current portion                                           3,397       2,337
                                                                    ---------   ---------
         Long-term debt, less current portion                       $   6,327   $   6,152
                                                                    =========   =========
</TABLE>


         The scheduled maturities of long-term debt outstanding as of December
31, 2001 are summarized as follows:

         2002                                               $  3,397
         2003                                                  3,498
         2004                                                  2,170
         2005                                                    659
                                                            --------
                                                            $  9,724
                                                            ========

 (11) Accrued Expenses

         Accrued expenses are comprised of the following at December 31, 2001
and 2000:

                                       66

<PAGE>

                                                               2001      2000
                                                            -------    ------

         Employee compensation                              $ 2,803    $1,142
         Current portion of patent obligation                 1,447        --
         Royalties on licensed technology                       866       456
         Customer obligations                                    --       721
         Professional fees                                    1,348       932
         Acquisition related liabilities                        750        --
         Other                                                1,966       783
                                                            -------    ------
                                                            $ 9,180    $4,034
                                                            =======    ======
(12) Income Taxes

         No Federal or state taxes are payable as of December 31, 2001 and 2000.
As of December 31, 2001, the Company has approximately $134,200 of Federal and
$134,500 of state net operating loss ("NOL") carryforwards available to offset
future taxable income. The federal and state NOL carryforwards will begin
expiring in 2003 and 2002, respectively, if not utilized. As a result of our
acquisitions of GeneScreen and LifeCodes, the Company acquired Federal NOL's of
approximately $4,536 and $1,693, respectively. In the event that the Company
becomes profitable in the future and is able to utilize these NOL's, these
acquired NOL carryforwards will not be reflected as income tax benefits in the
results of operations, but as a reduction of intangible assets and goodwill
related to these acquisitions. The Company also may receive tax benefits in the
future relating to stock option deductions that will not be reflected in the
results of operations.

         The Tax Reform Act of 1986 ("the Act") provides for a limitation on the
annual use of NOL carryforwards (following certain ownership changes, as defined
by the Act) which could significantly limit the Company's ability to utilize
these carryforwards. The Company may have experienced various ownership changes,
as defined by the Act, as a result of past financings and may experience others
in connection with future financings. Accordingly, the Company's ability to
utilize the aforementioned carryforwards may be limited. The Company has not yet
determined whether or not ownership changes, as defined by the Act, have
occurred. Additionally, because US tax laws limit the time during which these
carryforwards may be applied against future taxes, the Company may not be able
to take full advantage of these attributes for Federal income tax purposes.

         The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 2001 and
2000 are presented below:

<TABLE>
<CAPTION>
                                                               2001           2000
                                                            ----------      --------
<S>                                                         <C>              <C>
Deferred tax assets:
         Net operating loss carryforwards                   $   56,837      $ 35,474
         Compensation related items                              5,769         3,991
         Amortization and depreciation                           1,542           752
         Deferred revenue                                           91           408
         Other                                                     432           216
                                                            ----------      --------
               Total gross deferred tax assets                  64,671        40,841
         Less valuation allowance                              (58,220)      (40,841)
                                                            ----------      --------
               Net deferred tax assets                           6,451            --

Deferred tax liabilities:

         Intangible assets                                      (6,451)           --
                                                            ==========      ========

               Net deferred taxes                           $       --      $     --
                                                            ==========      ========
</TABLE>

         At December 31, 2001 and 2000, valuation allowances of $58,220 and
$40,841, respectively, have been recognized to offset the net deferred tax
assets as realization of these assets is uncertain. The net change in the
valuation allowance for 2001 and 2000 were increases of $17,379 and $23,391,
respectively, related primarily to additional net operating losses incurred by
the Company.

         Based on the Company's net loss before income taxes during 2001, 2000
and 1999, the Company would have recorded a tax benefit. During 2001, the
Company recorded approximately $27,256 as an impairment to goodwill, which is
considered a permanent difference and will not be deductible for tax purposes in
future years. This permanent difference reduced the expected tax benefit in
2001. There was also an increase in the valuation allowance during 2001 due to
uncertainty regarding the realization of deferred taxes which further reduced
the actual tax benefit to zero. During 2000 and 1999, the Company recorded
increases in the valuation allowance due to uncertainty regarding the
realization of deferred taxes which reduced the Company's actual income tax
benefit to zero in those years.

(13) Segment Information

         The Company operates in two segments, each of which are strategic
businesses that are managed separately because each business develops,
manufactures and sells distinct products and services. The segments and a
description of each of them are as follows: (i) the business which markets
equipment, consumables for SNP scoring analysis, and kits for genetic analysis
("Products"); and (ii) the business which performs genotyping services including
DNA laboratory analysis for paternity, transplantation and forensic testing and
SNP scoring services ("Services"). The Company allocates the majority of its
corporate and other general and administrative expenses to its reportable
segments based upon actual usage, occupancy, percentage of each segments'
revenue to the

                                       67

<PAGE>

consolidated revenue and other correlations with operating metrics. During 2001
and 2000 the chief operating decision maker of the Company measured segment
profit/(loss) using operating loss, which excludes other income (expense). The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies, as discussed in note 1. Prior to the
acquisition of GeneScreen on December 30, 1999, the Company was operated and
managed as one business. No segment information is presented as the 1999
activity is that of Orchid only.

        During 2002, the Company began the process of realigning its business
for marketing purposes into four business units. These business units will
consist of Orchid Life Sciences, Orchid Identity Genomics, Orchid Diagnostics
and Orchid GeneShield. These business units may or may not constitute reportable
segments in 2002. Accordingly, goodwill by reportable segment has not been
deteremined.

         In 2000, the Company changed its basis of segmentation from "Orchid"
and "GeneScreen" to "Products" and "Services" to reflect how the chief operating
decision maker now views the business. Also, in 2001, the Company changed the
segment for license and other revenues. In 2000, these revenues were included in
products, however, in 2001, the chief operating decision maker determined that
such revenues should be included in its service segment. These changes had no
material impact on the previously reported segment information Segment
information as of and for the years ended December 31, 2001 and 2000 is as
follows:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
          Year ended December 31, 2001               Products         Services          Total
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
<S>                                                  <C>              <C>               <C>
Revenues from external customers                         $   5,333      $   25,882        $  31,215
---------------------------------------------------------------------------------------------------
Segment operating loss                                     (22,606)        (64,183)         (86,789)
---------------------------------------------------------------------------------------------------
Depreciation and amortization expense                        1,753           6,153            7,906
---------------------------------------------------------------------------------------------------
Non-cash stock based compensation                            1,348           1,923            3,271
---------------------------------------------------------------------------------------------------
Capital expenditures                                         3,187           6,890           10,077
---------------------------------------------------------------------------------------------------
Impairment of assets                                           858          29,794           30,652
---------------------------------------------------------------------------------------------------
Total assets                                                31,848          89,068          120,916
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------

          Year ended December 31, 2000
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
Revenues from external customers                             6,295          12,086           18,381
---------------------------------------------------------------------------------------------------
Segment operating loss                                     (45,381)         (5,581)         (51,358)
---------------------------------------------------------------------------------------------------
Depreciation and amortization expense                       (3,988)         (2,501)          (6,489)
---------------------------------------------------------------------------------------------------
Non-cash research and development expense                   (4,775)             --           (4,775)
---------------------------------------------------------------------------------------------------
Non-cash stock based compensation                           (4,892)           (650)          (5,542)
---------------------------------------------------------------------------------------------------
Capital expenditures                                        10,243           2,494           12,737
---------------------------------------------------------------------------------------------------
Total assets                                               103,857          38,470          142,327
---------------------------------------------------------------------------------------------------
</TABLE>


         During 2001, the Company generated approximately $3,388, or 64% of
products revenue from four customers. These customers represented approximately
30%, 14%, 10%, and 10%, respectively. During 2001, the Company entered into 2
license agreements which accounted for 48% and 18% of the total license revenues
of $2,755. During 2001, the Company generated approximately $8,304 or 32% of
service revenue from four customers. These customers represented approximately
12%, 9%, 6%, and 5%, respectively. During 2000, the Company generated
approximately $5,943, or 49% of service revenue from four customers. These four
customers represented approximately 20%, 11%, 9% and 9%, respectively. During
2000, the Company entered into three license agreements which accounted for
approximately $2,800 of total license revenues. One customer, to which the
Company primarily sells SNPware consumables, represented approximately 11% of
consolidated revenue for 2000. During 1999, the Company generated contract
revenue and grant revenue of approximately 46% and 38%, respectively, of total
consolidated revenue from two customers.

         As a result of the Company's acquisition of Cellmark in February 2001,
the Company now has significant international operations, primarily in the UK.
During the year ended December 31, 2001, the Company recorded revenues from
international customers, primarily from Cellmark, of approximately $8,510, or
27% of total consolidated revenues. One customer represented approximately 29%
of total international revenues for 2001.

(14) Agreements

         In August 1995, the Company entered into an Investment Agreement and a
Development and License Agreement with Sarnoff and SmithKline Beecham ("SB"),
which were amended in 1997 and 1998 (as amended, the "Agreements").

                                       68

<PAGE>

         Under the Agreements, Sarnoff granted to the Company a perpetual,
royalty-free, exclusive, worldwide license for certain technology. In addition,
Sarnoff agreed to provide, for standard fees paid by third parties, contract
research services necessary under the Agreements to the Company. In
consideration for the license, the Company issued 670,000 shares of Series A
convertible preferred stock ("Series A") to Sarnoff. No value was ascribed to
the license or the stock as the Company was controlled by Sarnoff at the time
and because the license had a carrying value of $0 on Sarnoff's books. In 2001,
2000 and 1999 Sarnoff provided contract research services of $0, $0 and $931,
respectively. The Company's office was also located in the Sarnoff facility
until 1998 and Sarnoff provided certain administrative support, for which the
Company paid Sarnoff; expenses related to these items totaled $0, $0 and $64 in
2001, 2000 and 1999, respectively.

         The Company and Sarnoff also issued to SB a license to technology which
may result from this research, subject to certain potential future payments from
SB to allow SB to retain exclusivity. The Company also agreed to sell products
developed under the contract to SB at prices to be determined per the
Agreements. SB also granted to Orchid certain non-exclusive licenses (the
"Licenses") which Orchid may require in conducting research or producing
products developed under the contract.

         In accordance with the Agreements, in October 1995, SB purchased 41,667
shares of Series B convertible preferred stock ("Series B") for $800. SB also
agreed to provide research and development funding of up to approximately
$16,000 for the design and testing of a product for certain applications and is
required to make further payments of up to $8,000 upon the achievement of
certain technical milestones. The Company met its first milestone in 1996 and
received a milestone payment of $1,500 and issued 26,973 shares of Series B to
SB. The Company allocated $518 of this amount to the Series B shares, which was
the fair value at the time of issuance and recorded the remaining $982 of this
milestone payment as contract revenue. The Company paid $350 of this amount to
Sarnoff as a milestone payment. In 1997, SB advanced a portion of the second
milestone payment. This advance totaled $1,320 and was recorded as a milestone
advance at December 31, 1997. In 1998, the Company and SB entered into an
agreement acknowledging that a portion of the second milestone had been
accomplished and therefore, a portion of the second milestone payment equal to
the $1,320 milestone advance was therefore earned and non-refundable. No further
performance obligations remained related to this acknowledged portion of the
milestone. They also agreed that SB would receive 35,200 shares of Series B, the
number of shares proportionate to the milestone fee earned. Those shares were
issued in 1999. The Company allocated $211 of this amount to the Series B
shares, which was the fair value at the time of the agreement and recorded the
remaining $1,109 of this milestone payment as contract revenue. Any future
milestone payments are subject to reduction for cost overruns funded by SB or
delays in the timing of the performance of the milestones and the Company is
obligated to pay Sarnoff 10% of any future milestone payments received. Any
payments to Sarnoff will be capitalized to the extent that the technology has
reached technological feasibility or has alternative uses; otherwise the
payments will be expensed to research and development. The Company is required
to issue a total of up to 96,533 additional shares of Series B for no additional
consideration upon the payment by SB to the Company of these remaining
milestones. During 2001, 2000, and 1999 the Company did not recognize any
contract revenue from SB.

         In December 1997, in consideration for an amendment to the Agreements,
the Company issued to SB an additional 75,000 shares of common stock and
warrants to purchase 275,000 shares of common stock at an exercise price of
$11.10 per share. Warrants to purchase 138,000 shares of common stock became
exercisable immediately with the 137,000 remaining warrants vesting upon the
payment of the next milestone payment to the Company. All of these warrants
expire in December 2002. Also, the Company is obligated to issue up to an
additional 20,000 shares of common stock to SB upon the exercise of certain
options to acquire additional licenses for technology under the License and
Option Agreement discussed below. As of December 31, 1999 and 1998, the Company
was obligated to issue 10,000, and 5,000 shares (including the 5,000 shares from
1998) of common stock, respectively, to SB related to the option fields
exercised by the Company in 1999 and 1998, respectively. The fair value of these
5,000 shares of common stock in 1999 and 1998 was $59 and $17, respectively, and
has been recorded as research and development expense. Common stock to be issued
has been recorded in the amounts of $76 and $17 at December 31, 1999 and 1998,
respectively. The 10,000 shares were issued in February 2000.

         In December 1997, the Company entered into a License and Option
Agreement ("Option Agreement") with Sarnoff under which the Company has options
to obtain exclusive licenses for the use of certain technology in four
designated areas: genomics, certain high throughput screening, analysis and
synthesis and cell-based assays. In addition, the Company obtained non-exclusive
and exclusive licenses in a certain field. In consideration of the licenses
obtained under the Option Agreement, the Company issued to Sarnoff 82,500 shares
of common stock, with a fair value of $186 and 167,500 shares of Series A, with
a fair value of $1,290, of which both amounts were recorded as research and
development expense in the 1997 consolidated statement of operations. Concurrent
with the exercise of each option, the Company is obligated to issue 33,300
shares of common stock and 66,700 shares of Series A to Sarnoff and to fund
research to be performed by Sarnoff at an amount as defined in the contract, but
no less than a total of $5,500 over 4 years. In both December 1998 and 1999, the
Company exercised one of its options under the Option Agreement. In
consideration for the options, the Company issued to Sarnoff 33,300 shares of
common stock in each of 1998 and 1999, with a fair value of $115 in 1998 and
$391 in 1999, and 66,700 shares of Series A in each of 1998 and 1999, with a
fair value of $400 in 1998 and $784 in 1999, which amounts were recorded as
research and development expense in the 1998 and 1999 consolidated statements of
operations. All of the amounts noted above which were paid as consideration for
licensed technology have been recorded as research and development expense as
the technology licensed has not reached technological feasibility and has no
alternative uses.

                                       69

<PAGE>

         In addition, the Company is obligated to issue an additional 50,000
shares of common stock to Sarnoff at the end of each year during the term of the
research for each option exercised. Accordingly, the Company issued 50,000
shares of common stock in 1999 to Sarnoff related to the option exercised in
December 1998. The fair value of this stock was $588, which was recorded as
research and development expense in the accompanying 1999 consolidated statement
of operations. The Company is also required to make royalty payments as set
forth in the Option Agreement on future net sales of products and services
derived from these licenses, if any.

         On April 13, 2000, the Company amended its License and Option Agreement
with Sarnoff. Under the terms of the amendment, in lieu of all future cash
payment, research funding, potential royalty payment and stock issuance
obligations, the Company made a payment to Sarnoff of approximately $3,000 and
issued 250,000 shares of common stock and granted five-year warrants to purchase
75,000 shares of common stock at an exercise price of $8.00 per share. The
Company exercised the remaining two option fields on a non-exclusive basis as a
result of this amendment. In February 2000, the Company also issued 100,000
shares of common stock to Sarnoff as an advance on the issuances which would be
owed in December 2000 for the two option fields previously issued under the
License and Option Agreement. As this licensed technology has not reached
technological feasibility and has no alternative future uses, the cash payment
of approximately $3,000 and the fair value of the equity securities of
approximately $4,800 has been charged to research and development expense during
2000.

         On March 27, 1998, the Company entered into a license agreement with
Motorola, Inc. ("Motorola"). In 1999, Motorola exercised an option to acquire a
license under this agreement, effective January 1, 2000, by making a $100
payment. This amount has been recorded as deferred revenue at December 31, 1999.
During 2000, the Company recognized $333 in license revenues which consisted of
the $100 deferred at December 31, 1999 and an additional $233 earned and
received pursuant to the agreement. During 2001, the Company recognized
approximately $666 in revenues pursuant to the agreement.

         On November 11, 1998, the Company entered into a Collaboration
Agreement with Motorola to jointly perform certain research and development
activities. Motorola intended to invest cash or in-kind payments of at least
$5,000 over a 30-month period in these activities. Total cash payments of at
least $1,700 were to be made to the Company for services in support of the
collaboration. Motorola made a payment to the Company in 1998 of $250, which was
recorded as deferred revenue as of December 31, 1998 and which was recognized as
revenue in 1999. On October 25, 1999, this agreement was terminated, as allowed
under the Collaboration Agreement causing all research and development
activities to cease. In 1999, Motorola made additional payments under this
agreement aggregating $505, of which the Company recognized $245 as revenue and
$260 is recorded as a liability at December 31, 1999 as it relates to work which
will not be performed given the termination of the agreement. The Company also
recorded approximately $333 as contract revenue-unrelated party in 1999 and as a
termination fee receivable at December 31, 1999. This shutdown was completed in
2000. As of December 31, 2000, the $260 liability and $511 receivable are
reflected in the accompanying consolidated balance sheet. These amounts were
settled during 2001.

         On February 21, 2000, the Company entered into an Agreement for the
License and Supply of Terminators with PerkinElmer (formerly known as NEN Life
Science Products, Inc.) pursuant to which PerkinElmer has agreed to supply the
Company with terminators for use in the Company's SNP kits. In consideration of
PerkinElmer's agreement to supply the Company with terminators at favorable
prices, the Company sold PerkinElmer 125,000 shares of its common stock for a
purchase price of $750 and paid PerkinElmer an up-front fee of $750. The Company
also agreed to pay PerkinElmer a certain percentage of net sales revenue based
on the number of SNP kits sold, in certain cases. The 125,000 shares had a fair
value of $1,500 on the date of the agreement. Since the products being supplied
are used in the Company's current products and may be used in future products,
the Company deferred and is amortizing the $750 up-front fee plus the $750
excess of the fair value of the issued common stock over the purchase price (or
a total of $1,500) over the estimated four year term of the agreement on a
straight-line basis. The Company measured the fair value of the common stock on
the date of the agreement as these shares were fully paid and nonforfeitable on
that date. The Company is required to purchase quantities of products with an
approximate minimum value during each annual period from the effective date as
follows: first year $333, second year $700, third year $990 and fourth year
$1,320. Either party can terminate the agreement any time after four years from
the commencement date, without cause, upon 90 days written notice. During 2001,
the Company did purchase the minimum quantity as called for under the agreement.

         In July 2000, the Company expanded its collaboration with The SNP
Consortium Ltd. under which the Company will perform certain SNP scoring
services for determining the allelic frequency of 60,000 SNP genomic markers in
diverse populations. The Company will bear all costs to perform these services.
To fulfill its commitment under this collaboration, the Company has accelerated
the hiring of personnel for, and use of SNPware consumables in the Company's
MegaSNPatron facility, resulting in additional research and development expenses
in 2000 and 2001. The Company also accelerated previously planned capital
expenditures relating to the build-out of the MegaSNPatron facility of several
million dollars in 2000. In exchange, the Company has the right to commercialize
certain technology developed as a result of performing these services. The
collaboration continued into 2001. The agreement was further amended in November
2000 to include potential milestone payments to the Company. During 2001, the
Company recognized approximately $250 in revenue for achieving certain
milestones.

         In July 2001, the Company completed a series of agreements that replace
its existing collaboration agreement with Affymetrix entered into in November
1999, which combines the Company's primer extension technology with the
Affymetrix

                                       70

<PAGE>

         GeneChip(R) GenFlex(TM) Tag Array in the Company's SNPcode genotyping
kits. In addition, the Company also acquired from Affymetrix exclusive ownership
of U.S. Patent No. 5,856,092 and its foreign counterparts (see note 9). Under
the terms of these agreements, Affymetrix will supply GenFlex arrays to the
Company that the Company will use to provide SNPcode-based genotyping services
to its customers and distribute GenFlex arrays in connection with SNPcode
reagents to its customers to conduct primer extension-based genotyping using the
Affymetrix GeneChip system. Also, Affymetrix granted the Company a non-exclusive
license to make and sell products incorporating Affymetrix's proprietary
universal Tag sequences (see note 9 and 19).

         During 2001, the Company has entered into various collaboration
agreements under which the Company recognized revenue. These agreements had
varying terms and included but were not limited to: (i) services agreements
whereby the Company would provide genetic analysis services; (ii) services
agreements under which the Company would provide genotyping services; (iii)
license agreements which granted third parties royalty bearing, non-exclusive
and exclusive licenses to use its SNP-IT single base primer extension
technologyto produce and sell reagent kits and software incorporating the
Company's technology; (iv) and agreements under which the Company would provide
SNPstream instruments and SNPware consumables. The Company received fees
associated with these agreements which were recognized as revenue in 2001 and
2000. The Company is entitled to receive royalties on product sales, if any, for
the duration of any of its license agreements.

(15) Stock Incentive Plan

         During 1995, the Company established the 1995 Stock Incentive Plan
("the 1995 Plan"), which provides for the granting of restricted common stock or
incentive and nonqualified stock options to directors, employees and
consultants. An aggregate of 3,500,000 shares of the Company's common stock is
authorized to be issued under the 1995 Plan. During 2000, the Board of Directors
and stockholders of the Company approved the 2000 Employee, Director and
Consultant Stock Incentive Plan ("the 2000 Plan") for the issuance of common
stock, incentive stock options and nonqualified stock options to employees,
directors and consultants. The Company is authorized to issue options for up to
4,500,000 shares of the Company's common stock. The options granted are
exercisable generally for a period of ten years after the date of grant and
generally vest over a four-year period. The Plans provide that in the event of a
change in control in the beneficial ownership of the Company, as defined, all
options may at the discretion of the compensation committee become fully vested
and exercisable immediately prior to the change in control. The plans also
specify other terms such as eligibility and annual limits.

A summary of activity under the 1995 and 2000 Plans is as follows:

                                       71

<PAGE>

<TABLE>
<CAPTION>
                                                                                        Weighted average
                                                                                                exercise
                                                                                                   price
                                                                                Options        per share
         <S>                                                               <C>                 <C>
         Balance at December 31, 1998                                          634,361              0.68
               Granted                                                         957,529              1.25
               Exercised                                                       (35,399)             0.40
               Cancelled                                                       (93,480)             0.83
                                                                           -----------
         Balance at December 31, 1999                                        1,463,011              1.05
               Granted                                                       2,362,977              9.25
               Exercised                                                      (183,084)             0.75
               Cancelled                                                       (50,367)             1.96
                                                                           -----------
         Balance at December 31, 2000                                        3,592,537             $6.44
               Granted                                                       2,192,126              4.51
               Exercised                                                      (134,814)             1.25
               Cancelled                                                      (520,668)             8.51
                                                                           -----------
         Balance at December 31, 2001                                        5,129,181             $5.54
                                                                           ===========
</TABLE>

         At December 31, 2001, the 1995 and 2000 Plans had the following options
outstanding and exercisable by price range, as follows:

<TABLE>
<CAPTION>
                                   Options outstanding                               Options exercisable
                  -------------------------------------------------------       -----------------------------
       Range                    Weighted average         Weighted average       Number       Weighted average
    of exercise    Number           remaining             exercise price          of          exercise price
      prices      of shares     contractual life             per share          shares           per share
    -----------   ---------     ----------------         ----------------       -------      ----------------
    <S>           <C>           <C>                      <C>                 <C>             <C>
     $.001-.75      193,515       6.14 years                   $0.64            187,757           $ 0.64
       1.25         895,106       7.71 years                    1.25            537,863             1.25
    2.26 - 4.56   1,329,785       9.53 years                    3.38            251,770             2.82
    4.58 - 6.00   1,648,684       8.29 years                    5.55            789,701             5.74
   6.05 - 12.00     865,011       8.66 years                    9.50            321,542            10.10
   12.12 - 49.75    197,080       8.62 years                   26.91             85,852            24.83
                 ----------       ----------                  ------         ----------           ------
                  5,129,181       8.50 years                  $ 5.54          2,174,485           $ 5.25
                 ==========       ==========                  ======         ==========           ======
</TABLE>

         The Company applies APB Opinion No. 25 in accounting for its stock
option plans. In 2001, 2000 and 1999, certain employees of the Company were
granted options to acquire 2,150,276, 2,146,670 and 870,329 shares of common
stock, respectively. Included in the 2,146,670 options granted in 2000 to
employees were 800,000, including 600,000 to executive officers,
performance-based options at an exercise price of $6.00 for which compensation
expense will be measured as the difference between the fair value of the common
stock at the time the performance criteria is met and the exercise price and
will be immediately recorded as compensation expense. During 2001, 200,000 of
the 600,000 performance based stock options issued to executives in 2000 were
forfeited as the performance criteria was not met. The weighted average fair
values of common stock for the years ended December 31, 2000 and 1999 were
$16.37 and $5.58 per share, respectively. During 2000 and 1999, the difference
between the respective exercise prices at the grant dates and the fair value of
the common stock on the dates of grant has been recorded as deferred
compensation of $8,105 and $6,995, respectively, which is being amortized on a
straight-line basis to expense over the respective vesting periods. During 2001,
all stock options granted by the Company were made at fair value on the date of
grant.

         Had the Company determined compensation cost for options based on the
minimum value method at the measurement date for 2000 (pre-IPO), and 1999 and
the fair value method for 2001 and 2000 (post IPO) for its stock options under
SFAS No. 123, the Company's net loss allocable to common stockholders and net
loss per share allocable to common stockholders would have been increased to the
pro forma amounts indicated below:

                                       72

<PAGE>

<TABLE>
<CAPTION>
                                                                 Year ended December 31,
                                                        -----------------------------------------
                                                          2001           2000             1999
                                                        ---------      ---------        ---------
        <S>                                             <C>            <C>              <C>
        Net loss allocable to common stockholders:
             As reported                                 $(84,678)      $(77,441)        $(72,774)
                                                        =========      =========        =========
             Pro forma under SFAS No. 123                $(88,619)      $(79,838)        $(72,975)
                                                        =========      =========        =========
        Basic and diluted net loss per share
          allocable to common stockholders:
             As reported                                 $  (2.27)      $  (3.58)        $ (95.87)
                                                        =========      =========        =========
             Pro forma under SFAS No. 123                $  (2.38)      $  (3.69)        $ (96.14)
                                                        =========      =========        =========
</TABLE>

        In 2001, 2000 and 1999, the Company granted options to certain
non-employees to purchase 41,850, 216,307 and 87,200 shares of common stock,
respectively. Options to non-employees were also granted prior to 1999. Such
options vest over a three or four year period based upon future service
requirements. The Company recorded deferred compensation of $129, $2,344, and
$1,085 for 2001, 2000 and 1999, respectively, based on the fair value at the
grant date as determined using a Black-Scholes option pricing model. Such
deferred compensation is being amortized to expense using the methodology
prescribed in FASB Interpretation No. 28 over the respective vesting periods. In
accordance with EITF Issue 96-18, the amount of compensation expense to be
recorded in future periods related to the 2001, 2000 and 1999 grants is subject
to change each reporting period based upon changes in the fair value of the
Company's common stock, estimated volatility and risk free interest rate until
the non-employee completes performance under the option agreement. Changes in
deferred compensation in the amount of $(2,689), $537, and $857 were recorded in
2001, 2000 and 1999, respectively, related to the remeasurement of the
non-employee grants. 173,061 options subject to this treatment remain unvested
at December 31, 2001.

        The per share weighted-average fair value (post-IPO) and minimum value
(pre-IPO) of the stock options granted to employees during 2001, 2000 and 1999
was $3.50, $15.01 and $8.71 per share, respectively, on the date of grant. The
per share weighted-average fair value of stock options granted to non-employees
during 2001, 2000 and 1999 was $3.62, $16.25 and $7.34 per share, respectively,
on the date of grant. Such values were determined using the minimum value method
for employees (for 2000 pre-IPO, and 1999) and the Black Scholes option-pricing
model for employees during 2001 and 2000 (post-IPO) and for non-employees during
2001, 2000 and 1999 with the following weighted-average assumptions: expected
dividend yield 0%; risk free interest rate of 5% and 6.5% for employees and
non-employees for 2001, 6.5% for both employees and non-employees for 2000, and
5.0% for both employees and non-employees for 1999, volatility of 90% for both
employees (post-IPO) and non-employees in 2001 and 2000, and 70% in 1999; and an
expected option life of 7 years for employees and 10 years for non-employees for
all three years.

(16) Mandatorily Redeemable Convertible Preferred Stock, Convertible Preferred
     Stock and Common Stock

        On December 24, 1997, the Company completed the sale of 1,101,801 shares
of Series C mandatorily redeemable convertible preferred stock ("Series C"),
through a private placement for $11.10 per share. The Company received cash
proceeds of $9,230 in 1997 and recorded a stock subscription receivable of
$3,000 at December 31, 1997, which was subsequently received in January 1998. On
March 27, 1998, the Company completed the sale of 1,378,375 shares of Series C,
through a private placement, for $11.10 per share.

        In May and June 1999, the Company issued an aggregate of $7,590 of
convertible subordinated term notes and warrants to purchase 381,500 shares of
the Company's common stock. The notes were to be convertible into Series E at $6
per share, subject to adjustment, at any time at the option of the holder or
automatically upon the closing of a private placement financing with proceeds of
at least $24,000. The note bore interest at prime plus 2%. In December 1999, the
principal plus accrued interest of approximately $436 were automatically
converted into 1,783,509 shares of Series E at a conversion price of $4.50, the
price per share in the Series E financing, in accordance with the original
conversion terms, with this combined amount being recorded as Series E. Based
upon the issuance price per share of the Series E and the conversion not
occurring until December 1999, 382,410 additional warrants were issued related
to these convertible subordinated term notes. All warrants have an exercise
price of $1.25 per share and are exercisable for five years. The fair value of
the originally issued and additional warrants, using a Black Scholes option
pricing model, was approximately $5,232 and was recorded as interest expense in
1999 and an increase in additional paid-in capital.

        In November 1999, Affymetrix paid the Company $2,250 in consideration
for a convertible promissory note. The note bears interest at the prime rate
plus 2%. In December 1999, on closing of the sale of Series E, the principal and
accrued interest in the

                                       73

<PAGE>

amount of $2,277 should have automatically converted into Series E. As the
Series E was not issued in 1999, the amount is shown as Series E to be issued at
December 31, 1999.

         In December 1999, the Company completed the sale of 6,151,457 shares of
the Series E, through a private placement for aggregate net proceeds of $31,009.
In connection with this sale, the Company issued five year warrants to purchase
86,334 shares of common stock at an exercise price of $6.00 per share. The
Company recorded $753 of additional paid-in capital based on the fair value of
these warrants as determined using a Black-Scholes option pricing model. During
1999, the Company has reflected $44,554 as a beneficial conversion feature in
the net loss allocable to common stockholders for the Series E mandatorily
redeemable preferred stock issued or issuable in exchange for cash in accordance
with EITF Issue 98-5.

         In January 2000, the Company completed the sale of 5,791,903 shares of
Series E for gross proceeds of $29,574. The issuance of these securities
resulted in a $29,574 beneficial conversion feature which increased net loss per
share allocable to common stockholders in 2000. The fair value of the Company's
common stock on the commitment date was $11.75; however, the amount of the
beneficial conversion feature was limited to the amount of gross proceeds
received from the issuance of the Series E. The Company also issued 1,040,341
shares of Series E related to the conversion of the Affymetrix convertible
promissory note and for cash received by December 31, 1999 for which shares were
not issued, and which was included in Series E stock to be issued at December
31, 1999.

         In 1997 and 1998, the Company issued warrants to purchase 60,000 and
25,000 shares of common stock at $11.10 and $12.25 per share, respectively, to
an executive officer of the Company. The warrants vest based upon specific
performance criteria, which were met for 70,000 warrants by December 31, 1999.
No additional warrants vested in 2000 or 2001.

         In May 2000, the Company completed its initial public offering of
6,900,000 shares of common stock at a price of $8.00 per share (excluding
underwriters' discounts and commissions), generating net proceeds of
approximately $48,400. All shares of Series A, Series B, and Series E stock
outstanding as of the closing date of the offering were automatically converted
into shares of common stock on a one-for-one basis. The 2,480,176 shares
outstanding of Series C convertible preferred stock converted into 4,825,259
shares of common stock. No dividends were paid on any of the Series A, B, C or E
stock.

         On May 10, 2000, the Company filed a restated certificate of
incorporation which revoked all existing preferred stock designations and
authorized 5,000,000 shares of preferred stock. The Board of Directors has the
authority, without any further stockholder approval, to determine the price,
privileges and other terms of the shares of unissued preferred stock.

         On May 10, 2001, the Company filed a shelf registration statement on
Form S-3 with the Securities and Exchange Commission. This will permit the
Company, from time to time, to offer and sell various types of securities, up to
a total value of $75,000. The Company filed the registration statement to gain
additional flexibility in accessing capital markets for general corporate
business purposes. In June 2001, the Company sold 5,950,000 shares to a group of
new and existing stockholders at a price of $6.00 per share. The shares of
common stock were offered through a prospectus supplement pursuant to the
Company's effective shelf registration statement. The offering raised net
proceeds of approximately $33,150 which will be used for general corporate
business purposes (see note 21).

(17) Stockholder Rights Plan

         On May 16, 2001, the Company's Board of Directors (the "Board") adopted
a Stockholder Rights Plan ("Rights Plan"), which is designed to protect the
Company's stockholders in the event of any takeover offer. On May 16, 2001, the
Company's Board declared a dividend of one preferred stock purchase right (a
"Right") for each outstanding share of the Company's common stock to
stockholders of record at the close of business on May 31, 2001 (the "Record
Date"). Each Right entitles the registered holder to purchase from the Company
one one-hundredth of a share of Series A Junior Participating Preferred Stock,
$0.001 par value per share, at an initial purchase price of $40.00 in cash,
subject to adjustment.

         Initially, the Rights will be attached to all common stock certificates
representing shares then outstanding, and no separate Rights certificates will
be distributed. The Rights will separate from the common stock and a
Distribution Date, as defined in the Rights Plan, will occur if certain events
as described below transpire. Rights will also be attached to all shares of
common stock issued following the Record Date but prior to the Distribution
Date. The Rights are not exercisable until the Distribution Date and will expire
at the close of business on May 16, 2011, unless earlier redeemed by the
Company. The Distribution Date has not occurred as of December 31, 2001.

         In the event that a person or a group of affiliated or associated
persons becomes the beneficial owner of more than 15% of the then outstanding
shares of common stock (except pursuant to an offer for all outstanding shares
of common stock which the Board determines to be fair to, and otherwise in the
best interests of, the Company and its stockholders), each holder of a Right
will thereafter have the right to receive, upon exercise, that number of shares
of common stock (or, in certain circumstances, cash, property or other
securities of the Company) which equals the exercise price of the Right divided
by one-half of the current market price (as defined in the Rights Plan) of the
common stock at the date of the occurrence of the event. However, Rights are not
exercisable

                                       74

<PAGE>

following the occurrence of any of the events set forth above until such time as
the Rights are no longer redeemable by the Company. In the event that the
Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation, or, more than 50% of the
Company's assets or earning power is sold or transferred, each holder of a Right
shall thereafter have the right to receive, upon exercise, that number of shares
of common stock of the acquiring company which equals the exercise price of the
Right divided by one-half of the current market price (as defined in the Rights
Plan) of such common stock at the date of the occurrence of the event.

(18) Employee Benefit Plan

       Effective January 1, 1999, the Company sponsors a defined contribution
401(k) savings plan (the 401(k) Plan) covering all employees of the Company.
Participants can contribute up to 15% of their pretax annual compensation to the
401(k) Plan, subject to certain limitations. The Company matches 50% of the
participant's contribution, up to 4% of compensation. For 2001, 2000 and 1999
the Company's contributions amounted to $265, $108 and $119, respectively, in
accordance with the terms of the Plan.

(19) Commitments and Contingencies

       The Company leases office and laboratory facilities under non-cancelable
operating lease arrangements. Future minimum rental commitments required by such
leases as of December 31, 2001 are as follows:

        2002                                                     $ 3,811
        2003                                                       3,653
        2004                                                       3,272
        2005                                                       2,909
        2006                                                       2,264
        Thereafter                                                 4,652
                                                                 -------
                                                                 $20,561
                                                                 =======

       Rent expense aggregated $2,313 in 2001, $1,437 in 2000, and $926 in 1999.

       The Company has capital leases for certain machinery and equipment.
Minimum lease payments, including interest, under capital leases at December 31,
2001 are as follows:

                                       75

<PAGE>

         2002                                                            $355
         2003                                                             420
         2004                                                             103
                                                                      -------
         Total minimum lease payments                                     878
         Less amounts representing interest                               129
                                                                      -------
         Present value of future minimum lease payments                   749
         Less current portion                                             445
                                                                      -------
         Obligations under capital leases, less current portion          $304
                                                                      =======

         In connection with the Company's acquisition of certain patents in
2001, the Company assumed an obligation to pay future amounts over the next
three years. The obligation has been recorded in the accompanying consolidated
balance sheet as of December 31, 2001, at the net present value of the future
obligations. The payments which are to be made to the original patent holder are
as follows:

         2002                                                         $ 1,492
         2003                                                           1,178
         2004                                                             310
                                                                      -------
         Total                                                          2,980

         Less amount that represents interest                            (255)
                                                                      -------

         Net present value of future obligations                      $ 2,725
                                                                      =======

         The Company is also obligated to pay minimum royalties related to these
patents of $1.2 million in 2005, $1.6 million in 2006, and $1.9 million in 2007
until the expiration of the agreement.

         Effective January 2000, the Company entered into three-year employment
agreements with two executives of the Company. In certain cases, the Company may
be obligated to pay the executives' salary and benefits for up to eighteen
months after leaving the Company.

         On or about November 21, 2001, the Company was made aware of a
complaint filed in the United States District Court for the Southern District of
New York naming the Company as defendants, along with certain of our officers
and underwriters. The complaint purportedly is filed on behalf of persons
purchasing the Company's stock between May 4, 2000 and December 6, 2000, and
alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of
1933, as amended, and Section 10(b) of the Securities Exchange Act of 1934, as
amended, and Rule 10b-5 promulgated thereunder. The complaint alleges that, in
connection with the Company's May 5, 2000 initial public offering, the
defendants failed to disclose additional and excessive commissions purportedly
solicited by and paid to the underwriter defendants in exchange for allocating
shares of the Company's stock to preferred customers and alleged agreements
among the underwriter defendants and preferred customers tying the allocation of
IPO shares to agreements to make additional aftermarket purchases at
pre-determined prices. Plaintiffs claim that the failure to disclose these
alleged arrangements made the Company's registration statement on Form S-1 filed
with the SEC in May 2000 and the prospectus, a part of the registration
statement, materially false and misleading. Plaintiffs seek unspecified damages.
On February 13, 2002, the Company received a Notice of Lawsuit and Request for
Waiver of Service of Summons and a copy of the complaint filed in the United
States District Court for the Southern District of New York in connection with
the class action lawsuit. The notice included a request on behalf of the
plaintiffs that the Company waive formal service of a judicial summons. Such a
waiver is a customary cost-savings procedure in complex litigation that will
enable the action to proceed as if formal service of the summons had been made
on the date that the waiver is filed. The Company intends to provide the
requested waiver. The Company has not reserved any amount related to this case
as the Company believes that the allegations are without merit and intends to
vigorously defend against the plaintiffs' claims.

         The Company has been in discussions with St. Louis University of St.
Louis, Missouri regarding its belief that our SNP scoring technology infringes
certain claims under U.S. patent 5846710, which is controlled by the University.
Although the Company is confident that its SNP scoring technology does not
infringe any claims under the University's patent, the Company nonetheless
entered into discussions with the University regarding the scope of these claims
in the hope of resolving the issue. Upon the Company's failure to reach
agreement with the University, in August 2000 the Company filed a lawsuit
against the University in the U.S. District Court for the Southern District of
California, Case No. 00CV1558L (JFS), seeking declaratory judgment of
non-infringement, invalidity and non-enforceability with respect to the
University's patent. While the Company believes that its position in this action
is strong, patent litigation is complex and might result in claims against the
Company, including patent infringement. As a

                                       76

<PAGE>

result, the outcome of this action is uncertain. Furthermore, while we are
seeking declaratory judgment in this action, the lawsuit could take significant
time, be expensive and divert our management's attention from other business
concerns.

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

(20) Quarterly Financial Data (Unaudited)

        The following tables represent certain unaudited consolidated quarterly
financial information for each of the quarters in 2001 and 2000. In the opinion
of the Company's management, this quarterly information has been prepared on the
same basis as the annual consolidated financial statements and include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information for the period presented.

<TABLE>
<CAPTION>
                                                                  QUARTERS ENDED

                                          March 31,          June 30,     September 30,     December 31,
                                               2001              2001              2001             2001
                                          ---------          --------     -------------     ------------
<S>                                       <C>                <C>          <C>               <C>
Total revenues                             $  5,635          $  6,718         $   7,431        $  11,431
Gross margin on product revenue
      and access fees                           190               344               695               81
Gross margin on clinical laboratory
      testing                                 1,025             1,565             1,431            2,460
Net loss                                    (11,491)          (14,307)          (41,850)         (17,030)
Net loss allocable
      to common stockholders                (11,491)          (14,307)          (41,850)         (17,030)
Basic and diluted net
      loss per share allocable to
      common stockholders                  $  (0.34)         $  (0.41)        $   (1.06)       $   (0.41)
</TABLE>

                                       77

<PAGE>

<TABLE>
<CAPTION>
                                                                 QUARTERS ENDED

                                          March 31,          June 30,     September 30,     December 31,
                                               2000              2000              2000             2000
                                        -----------     -------------     -------------   --------------
<S>                                     <C>            <C>                <C>             <C>
Total revenues                             $  3,466          $  4,594          $  4,931         $  5,390
Gross margin on product revenue
      and access fees                           172               148               182              217
Gross margin on clinical laboratory
      testing                                   641               684               775              708
Net loss                                     (7,579)          (17,968)           (8,986)         (13,334)
Net loss allocable
      to common stockholders                (37,153)          (17,968)           (8,986)         (13,334)
Basic and diluted net
      loss per share allocable to
      common stockholders                  $ (40.30)         $  (0.94)         $  (0.27)        $  (0.40)
</TABLE>

(21) Subsequent Event

         On March 5, 2002 we completed an offering through which we sold 9.0
million shares, including an overallotment, to a group of new and existing
shareholders. The shares of common stock were offered through a prospectus
supplement pursuant to our effective shelf registration statement. We generated
net proceeds as a result of this offering of approximately $21.1 million.

                                       78

<PAGE>

                                                                     Schedule II

                    ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES
                          FINANCIAL STATEMENT SCHEDULE

                        VALUATION AND QUALIFYING ACCOUNTS
                                 (In thousands)

<TABLE>
<CAPTION>
 Column A                                   Column B             Column C              Column D       Column E
 --------                                   --------             --------              --------       --------
                                           Balance at    Charged to    Charged to
                                          Beginning of     Costs &        Other                      Balance at
Description                                  Period       Expenses    Accounts(net)    Deduction    end of period
-----------------------------------------------------------------------------------------------------------------
<S>                                      <C>             <C>         <C>              <C>          <C>
2001:
     Allowance for doubtful accounts           508          106            375/1/         129             860
2000:
     Allowance for doubtful accounts           218          445             --            155             508
1999:
     Allowance for doubtful accounts            --           --            218/1/          --             218
</TABLE>

--------
/1/ Relates to an increase in the Company's allowance for doubtful accounts
recorded upon the acquisitions of Lifecodes and Genescreen, which effect has not
been included in the Company's consolidated results of operations.

                                       79

<PAGE>

Item 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE

                 Not applicable.


                                    PART III

Item 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

                  The response to this item is incorporated by reference from
the discussion responsive thereto under the captions "Management" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
Company's Proxy Statement for the 2001 Annual Meeting of Stockholders.


Item 11.          EXECUTIVE COMPENSATION

                  The response to this item is incorporated by reference from
the discussion responsive thereto under the caption "Executive Compensation" in
the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders.


Item 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                  The response to this item is incorporated by reference from
the discussion responsive thereto under the caption "Share Ownership" in the
Company's Proxy Statement for the 2001 Annual Meeting of Stockholders.


Item 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                  The response to this item is incorporated by reference from
the discussion responsive thereto under the caption "Certain Relationships and
Related Transactions" and "Executive Compensation--Employment Agreements,
Termination of Employment and Change of Control Arrangements" in the Company's
Proxy Statement for the 2001 Annual Meeting of Stockholders.


                                     PART IV

Item 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
                  FORM 8-K

Item 14(a).       The following documents are filed as part of this annual
                  report on Form 10-K.

Item 14(a)(1)     See "Index to Consolidated Financial Statements and Financial
and (2)           Statement Schedules" at Item 8 to this Annual Report on Form
                  10-K. Other financial statement schedules have not been
                  included because they are not applicable or the information is
                  included in the financial statements or notes thereto.

                                       80

<PAGE>

Item 14(a)(3) Exhibits
              --------

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

  Exhibit
  -------
  Number                                        Description
  ------          --------------------------------------------------------------
       (1)2.1     Agreement and Plan of Merger by and among the Registrant, GS
                  Acquisition Corp. and GeneScreen, Inc., dated December 21,
                  1999 (filed as Exhibit 2)
       (2)2.2     Amended and Restated Agreement and Plan of Merger by and among
                  the Registrant, Persia Merger Sub, Inc., Lifecodes Corporation
                  and certain stockholders of Lifecodes Corporation, dated as of
                  November 5, 2001 (filed as Annex A)
       (1)3.1     Restated Certificate of Incorporation of the Registrant (filed
                  as Exhibit 3.2)(3)3.2 Certificate of Amendment to the Restated
                  Certificate of Incorporation of the Registrant, dated June 12,
                  2001 (filed as Exhibit 3.2)
       (3)3.3     Certificate of Designations, Preferences, and Rights of
                  Series A Junior Participating Preferred Stock of the
                  Registrant, dated August 1, 2001 (filed as Exhibit 3.3)
          3.4     Second Amended and Restated Bylaws of the Registrant
       (4)4.1     Specimen certificate for shares of common stock (filed as
                  Exhibit 4.1)
       (5)4.2     Rights Agreement, dated as of July 27, 2001, by and between
                  the Registrant and American Stock Transfer & Trust Company,
                  which includes the form of Certificate of Designations setting
                  forth the terms of the Series A Junior Participating Preferred
                  Stock, $0.001 par value, as Exhibit A, the form of rights
                  certificate as Exhibit B and the summary of rights to purchase
                  Series A Junior Participating Preferred Stock as Exhibit C.
                  Pursuant to the Rights Agreement, printed rights certificates
                  will not be mailed until after the Distribution Date (as
                  defined in the Rights Agreement) (filed as Exhibit 4.1)
      (1)10.1     1995 Stock Incentive Plan, as amended, including form of stock
                  option certificate for incentive and non-statutory stock
                  options (filed as Exhibit 10.1)
      (1)10.2     2000 Employee, Director, Consultant Stock Plan, including form
                  of stock option agreement for non-statutory and incentive
                  stock options (filed as Exhibit 10.2)
      (1)10.3     Executive Benefit Program, including Executive Deferred
                  Compensation Plan and Executive Severance Plan (filed as
                  Exhibit 10.3)
      (1)10.4     Lease Agreement by and between College Road Associates,
                  Limited Partnership and the Registrant, dated March 6, 1998
                  (filed as Exhibit 10.4)
      (1)+10.5    Collaboration Agreement, by and between the Registrant and
                  Affymetrix, Inc., dated November 5, 1999, as amended by
                  Amendment No. 1, dated November 12, 1999 (filed as Exhibit
                  10.5)
      (1)10.6     License and Option Agreement, dated December 10, 1997, by and
                  between Sarnoff Corporation and the Registrant, as amended by
                  Amendment to License and Option Agreement, dated as of April
                  13, 2000, by and between Sarnoff Corporation and the
                  Registrant (filed as Exhibit 10.6)
      (1)10.7     Employment Agreement, effective as of January 1, 2000, by and
                  between the Registrant and Dale R. Pfost, Ph.D. (filed as
                  Exhibit 10.7)
      (1)10.8     Employment Agreement, effective as of January 1, 2000, by and
                  between the Registrant and Donald R. Marvin (filed as Exhibit
                  10.8)
     (1)+10.9     Agreement for the License and Supply of Terminators, dated
                  February 16, 2000, by and between the Registrant and NEN Life
                  Science Products, Inc. (filed as Exhibit 10.9)
   (6)++10.10     Non-Exclusive License Agreement by and between Registrant and
                  Applied Biosystems, dated as of July 1, 2000 (filed as Exhibit
                  10.1)
   (6)++10.11     Non-Exclusive License Agreement by and between Registrant and
                  Amersham Pharmacia Biotech, Inc., dated as of June 12, 2000
                  (filed as Exhibit 10.2)
   (6)++10.12     License and Supply Agreement for Automated SNP Analysis by and
                  between Registrant and Bristol-Myers Squibb Company, dated as
                  of June 12, 2000 (filed as Exhibit 10.3)
  (7)+++10.13     Genotyping Collaboration Agreement, dated as of February 12,
                  2001, by and between the Registrant and AstraZeneca UK,
                  Limited (filed as Exhibit 10.13)
     (7)10.14     Investor Rights Agreement, dated as of February 12, 2001, by
                  and between Registrant and AstraZeneca UK, Limited (filed as
                  Exhibit 10.14)
     (8)10.15     Lifecodes Corporation 1992 Employee Stock Option Plan (filed
                  as Exhibit 99.2)
     (8)10.16     Lifecodes Corporation 1995 Employee Stock Option Plan (filed
                  as Exhibit 99.3)
     (8)10.17     Lifecodes Corporation 1998 Stock Plan (filed as Exhibit 99.4)
         21.1     Subsidiaries of the Registrant

         23.1     Consent of KPMG LLP

  +   Portions of this Exhibit were omitted and have been filed separately with
      the Secretary of the Commission pursuant to the Registrant's application
      requesting confidential treatment under Rule 406 of the Act, filed on
      February 18, 2000, April 7, 2000, and May 1, 2000.
 ++   Portions of this Exhibit were omitted and have been filed separately with
      the Secretary of the Commission pursuant to the Registrant's application
      requesting confidential treatment under Rule 406 of the Act, filed as of
      August 14, 2000.
+++   Portions of this Exhibit were omitted and have been filed separately with
      the Secretary of the Commission pursuant to the Registrant's application
      requesting confidential treatment under Rule 406 of the Act, filed as of
      April 2, 2001.
  (1) Previously filed with the Commission as Exhibits to, and incorporated by
      reference from, the Registrant's Registration Statement on Form S-1, File
      No. 333-30774.
  (2) Previously filed with the Commission as Exhibits to, and incorporated by
      reference from, the Registrant's Proxy Statement-Prospectus on Form S-4,
      File No. 333-72442.
  (3) Previously filed with the Commission as Exhibits to, and incorporated
      herein by reference from, the Registrant's Quarterly Report on Form 10-Q
      for the period ending June 30, 2001.
  (4) Previously filed with the Commission as Exhibits to, and incorporated
      herein by reference from, the Registrant's Quarterly Report on Form 10-Q
      for the period ending September 30, 2001.
  (5) Previously filed with the Commission as Exhibits to, and incorporated by
      reference from, the Registrant's Registration Statement on Form 8-A.
  (6) Previously filed with the Commission as Exhibits to, and incorporated
      herein by reference from, the Registrant's Quarterly Report on Form 10-Q
      for the period ending June 30, 2000.
  (7) Previously filed with the Commission as Exhibits to, and incorporated
      herein by reference from, the Registrant's Annual Report on Form 10-K for
      the year ending December 31, 2000.
  (8) Previously filed with the Commission as Exhibits to, and incorporated by
      reference from, the Registrant's Registration Statement on Form S-8, File
      No. 333-76744.

         Where a document is incorporated by reference from a previous filing,
the Exhibit number or Annex in that previous filing is indicated in parentheses
after the description of such document.

                                       81

<PAGE>

Item 14(b)        Reports on Form 8-K
                  -------------------

         The Company filed the following reports on form 8-K with the Securities
and Exchange Commission during the quarter ended December 31, 2001:

         Form 8-K filed October 5, 2001 announcing that the Company had entered
         into an Agreement and Plan of Merger, dated as of October 1, 2001,
         which set forth the terms and conditions of the proposed acquisition of
         Lifecodes Corporation by the Company.

         Form 8-K filed November 8, 2001 regarding the earnings of the Company
         for the quarter ending September 30, 2001.

         Form 8-K filed November 21, 2001 regarding the complaint filed in the
         United States District Court for the Southern District of New York
         naming as defendants the Company, along with certain of our officers
         and underwriters.

         Form 8-K filed December 5, 2001 announcing the completion of the
         acquisition of Lifecodes Corporation.

                                       82

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                         ORCHID BIOSCIENCES, INC.

                         By:  /s/ Donald R. Marvin         Date: March 29, 2002
                              ------------------------
                              Donald R. Marvin
                              Senior Vice President, Chief Operating
                              Officer, Chief Financial Officer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated below and on the dates indicated.

<TABLE>
<CAPTION>
Signatures                                       Title                                               Date
----------                                       -----                                               ----
<S>                                              <C>                                       <C>
By: /s/ Dale R. Pfost, PhD                       President, Chief Executive
     ---------------------------------------     Officer & Director (principal             March 29, 2002
     Dale R. Pfost, Ph.D.                        executive officer)


By: /s/ Donald R. Marvin                         Senior Vice President, Chief Operating
    ----------------------------------------     Officer, Chief Financial Officer          March 29, 2002
     Donald R. Marvin                            (principal financial and
                                                 accounting officer)


By: /s/ Sidney M. Hecht, PhD                     Director                                  March 29, 2002
    ----------------------------------------
      Sidney M. Hecht, Ph.D.

By: /s/ Samuel D. Isaly                          Director                                  March 29, 2002
    ----------------------------------------
      Samuel D. Isaly

By: /s/ Jeremy M. Levin, D.Phil, MB.B Chir       Director                                  March 29, 2002
    ----------------------------------------
      Jeremy M. Levin, D.Phil., MB.BChir.

By: /s/ Ernest Mario, PhD                        Director                                  March 29, 2002
    ----------------------------------------
      Ernest Mario, Ph.D.

By: /s/ Kenneth D. Noonan, PhD                   Director                                  March 29, 2002
    ----------------------------------------
      Kenneth D. Noonan, Ph.D.

By: /s/ George Poste, DVM, PhD                   Director                                  March 29, 2002
    ----------------------------------------
      George Poste, DVM, Ph.D.

By: /s/ Robert M. Tien, MD, MPH                  Director                                  March 29, 2002
    ----------------------------------------
      Robert M. Tien, M.D., M.P.H.
</TABLE>

                                       83