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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2000
		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: 000-30549

GENOMIC SOLUTIONS INC.
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (734) 975-4800

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

Yes No

The number of shares outstanding of the registrant’s Callable Common Stock, $.001 par value, as of October 31, 2000, was 23,710,604. The number of shares of the registrant’s Common Stock, $.001 par value, as of October 31, 2000, was 1,269,841.

GENOMIC SOLUTIONS INC.
INDEX TO FORM 10-Q

Page No.

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PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GENOMIC SOLUTIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

The accompanying notes are an integral part of these consolidated statements.

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GENOMIC SOLUTIONS INC.

(unaudited; in thousands, except per share data)

The accompanying notes are an integral part of these consolidated statements.

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GENOMIC SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in thousands)

The accompanying notes are an integral part of these consolidated statements.

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GENOMIC SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Basis of Presentation

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

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Registration Statement on Form S-1 (File No. 333-30246) filed with the Securities and Exchange Commission and declared effective on May 4, 2000.

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. For the three and nine month periods ended September 30, 2000 and 1999, the effect of stock options and warrants outstanding for the purchase of shares of common stock have not been used in the calculation of diluted net loss per share 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 period are equal.

Comprehensive Loss

Comprehensive loss is the total of net loss and all other non-owner changes in equity. The difference between net loss, as reported in the accompanying condensed consolidated statements of operations, and comprehensive loss is the foreign currency translation adjustment for the respective periods. Accumulated other comprehensive income consists solely of the cumulative translation adjustment as presented in the accompanying condensed consolidated balance sheets. The components of comprehensive loss for the three months and nine months ended September 30, 2000 and 1999 are as follows (in thousands):

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2. INVENTORIES

Finished goods and work-in-progress inventories include material, labor and manufacturing overhead costs. Inventories consisted of the following (in thousands):

3. FINANCING

On May 5, 2000, we completed our initial public offering, raising net proceeds, after deducting underwriting discounts and commissions, of approximately $57.0 million, including the underwriters’ over-allotment option. All of our preferred stock was automatically converted to callable common stock or common stock and all of our warrants issued in connection with the subordinated note agreements in April and October 1999 were either exercised or cancelled upon the completion of the initial public offering. In March and April 2000, we amended our primary bank line-of-credit agreement to provide for borrowings up to $32 million through July 2001. As of September 30, 2000, we had drawn down $31.8 million under this line of credit. On June 9, 2000, we repaid the $6.0 million of subordinated notes issued in April 1999 and the $3.5 million of subordinated notes issued in October 1999.

4. RESTRUCTURING

On May 16, 2000, we announced we were taking a one time restructuring charge of $600,000 to close our Chelmsford, Massachusetts proteomics facility. A new Center for Proteomics has been constructed at our Ann Arbor, Michigan headquarters. The charge consisted primarily of $400,000 for employee termination benefits for fifteen employees and $200,000 for exit costs associated with closing the facility. At September 30, 2000, the remaining balance of the restructuring reserve totaled $49,000 and is included in accrued liabilities in the accompanying condensed consolidated balance sheet.

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5. SEGMENT INFORMATION

In 1999, we adopted SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”. Under the provisions of SFAS No. 131, we operate in one segment: the development, manufacture and marketing of integrated, high throughput genomic and proteomic systems and services for analyzing and quantifying biomolecules. Our two product lines, genomic and proteomic systems and services, have similar economic characteristics and attributes, including similar marketing and distribution patterns, similar production processes and similar, if not the same, customers. As a result, we aggregate our product lines into a single segment of genomic and proteomic systems and services. We operate primarily in three geographic regions: the United States, United Kingdom and Japan.

We license products to customers on a worldwide basis. Sales and marketing operations outside the United States are conducted principally through our foreign subsidiaries and our international distribution partner, PerkinElmer, Inc. Intercompany sales and transfers between geographic areas are accounted for at prices, which are designed to be, representative of third party transactions.

The following table summarizes selected financial information of our operations by geographic location (in thousands):

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6. INVESTMENTS

In 1998, Genomic Solutions Ltd. purchased a 30% interest in HD Technologies Limited, a UK company (excluding retained technology rights), for approximately $150,000. We account for this investment under the equity method of accounting. The carrying amount of this investment was approximately $173,000 at December 31, 1999 and is included in other assets in the accompanying condensed consolidated balance sheet for the year ended December 31, 1999. Equity income from this investment was $14,000 for the nine months ended September 30, 1999 and is included in other income in the accompanying condensed consolidated statements of operations.

In January 2000, we sold our investment in HD Technologies for approximately $600,000 in cash, which resulted in a pre-tax gain of approximately $407,000. In September 2000, we sold all of our product and intellectual property rights to the mass spectrometer developed by us in collaboration with HD Technologies for approximately $600,000, consisting of $150,000 in cash and equipment valued at approximately $450,000, which resulted in a pre-tax gain of approximately $484,000.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement

      This Management’s Discussion and Analysis of Financial Condition and Results of Operations as of September 30, 2000 and for the three and nine month periods ended September 30, 2000 and 1999 should be read in conjunction with the sections of our Registration Statement on Form S-1 filed with the Securities and Exchange Commission and declared effective on May 4, 2000, as amended, entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The following discussion of the financial condition and results of our operations should be read in conjunction with our Condensed Consolidated Financial Statements, including the Notes thereto, included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. 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. When used in this report or elsewhere by management from time to time, the words “believe,” “anticipates,” “intends,” “plans,” “estimates,” and similar expressions are forward looking statements. These statements address or may address the following subjects: results of operations, customer growth and retention; development of technology; losses or earnings; operating expenses, including, without limitation, marketing expense and technology and development expense; and revenue growth. Prospective investors are cautioned that any such forward- looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors, many of which are described in the “Risk Factors” section of our final prospectus dated May 5, 2000, comprising a part of our Registration Statement on Form S-1 filed with the Securities and Exchange Commission. You should carefully consider those risks, in addition to the other information in this report and in our other filings with the Securities and Exchange Commission. Except as required by law, we undertake no obligations to update any forward looking statements.

Overview

We design, develop, manufacture, market and sell genomic and proteomic instruments, software, consumables and services. Unlike many other life sciences companies in the gene expression and proteomic markets, we offer integrated systems with demonstrated market acceptance. Our biochip and proteomic products and systems enable researchers to perform complex, high-volume experiments at lower costs and in less time than with traditional techniques. Our customers use our integrated and automated systems to produce biochips, maintain DNA libraries, quantify gene expression levels and isolate, identify and characterize proteins, thereby facilitating more rapid and less expensive drug discovery. We have sold our products in over 30 countries to pharmaceutical and biotechnology companies, government agencies, universities and private research institutions.

We have a limited history of operations, and we anticipate that our quarterly results will fluctuate for the foreseeable future due to several factors, including market acceptance of current and new products,

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the introduction of new products by our competitors, the success of our research and development projects and the timing of significant orders. Our limited operating history makes it difficult or impossible to accurately predict future operations.

RESULTS OF OPERATIONS

Three months ended September 30, 2000 and 1999

Revenue

Revenue increased $1.9 million, or 59%, to $5.0 million in the third quarter of 2000 from $3.2 million in the third quarter of 1999. This increase in revenue was due primarily to increased unit sales of our biochip and proteomic systems, which increased $1.9 million, or 68%, to $4.6 million. Sales of our biochip systems increased $1.2 million, or 59% to $3.3 million in the third quarter of 2000 compared to $2.1 million in the third quarter of 1999 primarily from sales of our GeneTAC(TM) Biochip System, GeneTAC(TM) Hybridization Station and GeneTAC(TM) LS4 Biochip Analyzer. Product sales of our proteomic systems increased $663,000, or 98% to $1.3 million, in the third quarter of 2000 compared to $677,000 in the third quarter of 1999 from sales of our Investigator(TM) Proteomic System. Increased sales of these products offset the $93,000 revenue decline associated with our products for documenting and analyzing one dimensional separations of DNA and proteins, which were discontinued in 1999 in all markets except Japan. The remainder of our revenue was attributable to services and consumables associated with our biochip and proteomic product lines.

Cost of revenue

Cost of revenue increased $838,000, or 49%, to $2.5 million in the third quarter of 2000 from $1.7 million in the third quarter of 1999. This increase was due primarily to $764,000 in increased cost of materials attributable to increased instrumentation sales. The remainder of the increase in cost of revenue was attributable to increased spending on product support, employees and facilities related to occupying a larger facility in the United Kingdom.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $995,000, or 49%, to $3.0 million in the third quarter of 2000 from $2.0 million in the third quarter of 1999. Of this increase, approximately $485,000 was attributable to salaries, sales commissions and other employee related costs due primarily to the hiring of additional sales, marketing and administrative personnel and increased revenue. Approximately $255,000 was attributable to increased expenses associated with promotional activities and the remaining approximately $255,000 was attributable to increased office expenses and depreciation expense associated with the hiring of additional personnel.

Research and development expenses

Research and development expenses increased $301,000, or 26%, to $1.5 million in the third quarter of 2000 compared to $1.2 million in the third quarter of 1999. Research and

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development spending increased due primarily to approximately $143,000 increase in our usage of development materials for new products and approximately $145,000 increase in outside consulting services and patent costs.

Restructuring charge

In May 2000, we recorded a restructuring charge to operations of $600,000 in connection with the closing of our proteomic services and chemical production facility located in Chelmsford, Massachusetts. The charge consisted primarily of $400,000 for employee termination benefits for fifteen employees and $200,000 for exit costs associated with closing the facility. At September 30, 2000, the remaining balance of the restructuring reserve totaled $49,000 and is included in accrued liabilities in the accompanying condensed consolidated balance sheet. We anticipate favorable financial, operating and strategic results from the consolidation of our proteomic operations in Ann Arbor, Michigan.

Interest expense

Interest expense decreased $382,000 to $255,000 in the third quarter of 2000 from $637,000 in the third quarter of 1999. This decrease was due primarily to the repayment on June 9, 2000 of $6 million of subordinated notes with warrants issued April 1999 and $3.5 million of subordinated notes with warrants issued October 1999. The $255,000 of interest in the third quarter of 2000 represents interest incurred on the increased borrowings under our commercial bank borrowing facility and under capital leases.

Interest income

Interest income increased $926,000 in the third quarter of 2000 to $948,000 from $22,000 in the third quarter of 1999. Interest income increased due to higher average cash and cash equivalent balances in 2000, resulting from the investment of the proceeds from our initial public offering which went effective on May 4, 2000 and closed on May 10, 2000.

Other expense

Other expense, net of other income, was $87,000 in the third quarter of 2000.

Benefit from income taxes

For the third quarter of 2000 and 1999 we incurred net operating losses and consequently we did not pay any federal income taxes.

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Nine months ended September 30, 2000 and 1999

Revenue

Revenue increased $4.8 million, or 56%, to $13.5 million in 2000 from $8.7 million in 1999. This increase in revenue was due primarily to $5.3 million from sales of biochip and proteomic systems. New product sales consisted of $3.2 million from our GeneTAC(TM) Biochip System, GeneTAC(TM) Hybridization Station and GeneTAC(TM) LS4 Biochip Analyzer and $2.0 million from our Investigator(TM) Proteomic System, which was first shipped in June 1999. Increased sales of these products offset the $417,000 revenue decline associated with our products for documenting and analyzing one-dimensional separations of DNA and proteins, which were discontinued in all markets except Japan. The remainder of our 2000 revenues were attributable to services and consumables.

Cost of revenue

Cost of revenue increased $2.2 million, or 48%, to $6.9 million in 2000 from $4.7 million in 1999. This increase was due primarily to $2.1 million in increased cost of materials attributable to increased instrumentation sales. The remainder of the increase in cost of revenue was attributable to increased spending on product support, employees and facilities. In 2000, cost of revenue reflected added costs associated with occupying a larger production facility for our United Kingdom operations since July 2000.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $2.9 million, or 48%, to $8.9 million in 2000 from $6.0 million in 1999. Of this increase, $1.8 million was attributable to salaries, sales commissions and other employee-related costs due primarily to the addition of approximately eleven sales, marketing and administrative personnel and increased sales commissions. The remaining increase consisted of approximately $440,000 from promotional activities and approximately $613,000 from increased office expenses and depreciation expense associated with the hiring of additional personnel.

Research and development expenses

Research and development expenses increased $440,000, or 12%, to $4.1 million in 2000 compared to $3.6 million in 1999. Research and development spending increased due primarily to approximately $487,000 increase in salaries and other employee related costs including $149,000 in recruiting and relocation costs associated with hiring new management and scientists, specifically in the proteomic area.

Restructuring charge

In May 2000, we recorded a restructuring charge to operations of $600,000 in connection with the closing of our proteomic services and chemical production facility located in Chelmsford, Massachusetts. The charge consisted primarily of $400,000 for employee termination benefits for fifteen employees and $200,000 for exit costs associated with closing

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the facility. At September 30, 2000, the remaining balance of the restructuring reserve totaled $49,000 and is included in accrued liabilities in the accompanying condensed consolidated balance sheet. We anticipates favorable financial, operating and strategic results from the consolidation of our proteomic operations in Ann Arbor, Michigan.

Interest expense

Interest expense increased $1.3 million in the nine months ended September 30, 2000 to $2.5 million from $1.2 million in the nine months ended September 30, 1999. This increase was due primarily to $6 million of subordinated notes with warrants issued in April 1999 and $3.5 million of subordinated notes with warrants issued in October 1999 and the increase in borrowings under our capital leases and our commercial bank borrowing facilities.

Interest expense in the nine months ended September 30, 2000 includes amortization expense of approximately $965,000 related to the discount recorded on the subordinated notes. The discount was being amortized over the period from the date of issuance to April 2000. The amortization period of the discount was treated as shorter than the contractual life of the subordinated notes as the notes contained a provision that they automatically mature upon closing of an initial public offering (originally expected to be April 2000) and were expected to be repaid with a portion of the offering proceeds. However, in March and April 2000, we amended the note agreements with the subordinated debt holders to change the acceleration of the maturity date from the closing date of the initial public offering to the earlier to occur of a date one year from the closing of an initial public offering or the date on which our cash and cash equivalents fall below $50 million. We retained the right to prepay these notes at any time. We accounted for the amendment to the subordinated notes as an extinguishment of debt and recorded an extraordinary loss of approximately $1,050,000 in March 2000. The extraordinary loss represents the difference between the carrying value of the original subordinated notes less the related unamortized debt issuance costs at March 24, 2000 and the estimated fair value of the new subordinated notes. The effective interest rate was 53.0% and 154.1% for the subordinated notes issued in April 1999 and October 1999, respectively, calculated based on an expected maturity date of April 2000. The effective interest rate on the new subordinated notes was 8.75%.

We repaid the $6 million of subordinated notes with warrants issued April 1999 and $3.5 million of subordinated notes with warrants issued October 1999 in their entirety on June 9, 2000.

Interest income

Interest income increased $1.8 million in the nine months ended September 30, 2000 to $1.9 from $87,000 in the nine months ended September 30, 1999. Interest income increased due to higher average cash and cash equivalent balances in 2000, resulting primarily from the investment of the net proceeds from our initial public offering which went effective on May 4, 2000 and closed on May 10, 2000, and $8.0 million in gross proceeds from the sale of preferred stock to PerkinElmer in January 2000.

Benefit from income taxes

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We incurred net operating losses in the nine months ended September 30, 2000 and 1999, and consequently, we did not pay any federal income taxes. At December 31, 1999, we have available net operating loss carryforwards of approximately $16.3 million, which can be utilized to offset future taxable income. These net operating loss carryforwards expire between 2010 and 2019. Additionally, utilization of approximately $1,900,000 of the net operating loss carryforwards are limited under Section 382 of the Internal Revenue Code due to ownership changes, as defined by Section 382, that occurred in 1997. There may be further limitations due to additional ownership changes related to our initial public offering completed in May 2000. These and other deferred income tax assets are fully reserved by a valuation allowance due to historical operating losses. Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which are uncertain. Accordingly, valuation allowances in amounts equal to the deferred tax assets have been established to reflect these uncertainties.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2000 our cash, cash equivalents and repurchase agreements totaled $75.7 million compared to $1.3 million at December 31, 1999. In January 2000, we received $8.0 million in gross proceeds from the sale of preferred stock to PerkinElmer. Also in January 2000, we received approximately $600,000 in cash from the sale of our 30% ownership interest in HD Technologies. In May 2000, we completed our initial public offering, raising net proceeds, after deducting underwriter discounts and commissions, of approximately $57.0 million, including the underwriters’ over-allotment option. Prior to that, we funded our operations with $23.5 million of private equity, $9.5 million in subordinated promissory notes with warrants, $3.0 million from fixed asset lease financing and $32.3 million from bank borrowings.

Cash used in operations for the nine-month period ended September 30, 2000 was $7.7 million compared with $7.3 million for the same period in 1999. Our net loss of $7.6 million in the first nine months of 2000 included non-cash charges of $965,000 for amortization of discount on subordinated notes with warrants, $1.1 million for extraordinary loss on extinguishment of debt, $407,000 gain on sale of investment in HD Technologies, $484,000 gain on sale of assets, $600,000 for restructuring, and $937,000 for depreciation and amortization expense. The use of cash in operating activities in the first nine months was also due to increases of $3.2 million in accounts receivable and $1.8 million in inventories as a result of and to accommodate increased sales. The use of cash in operating activities was partially offset by $2.1 million increase in accrued liabilities and accounts payable due primarily to professional service fees attributed to our initial public offering and increases in cost of revenue and total operating expenses.

Our investing activities for the nine months ended September 30, 2000, excluding activity under our repurchase agreements, used cash of $633,000 compared with usage of $1.4 million for the same period in 1999. Cash used in investing activities was attributable to $1.1 million in capital expenditures offset by approximately $600,000 in cash received from the sale of our 30% ownership interest in HD Technologies. Cash used in 1999 was attributable to $1.2 million for capital expenditures, which consisted mainly of purchases of computers, laboratory equipment and leasehold improvements related to expansion of our laboratories. Our capital equipment additions in 2000 and 1999 were primarily financed with our fixed asset lease line of credit.

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Cash provided by financing activities for the nine months ended September 30, 2000 was $83 million compared to $6.5 million for the same period in 1999. Financing activities included the receipt of $57 million in net proceeds, after deducting underwriter discounts and commissions, from the sale of callable common stock in our initial public offering, borrowings of $30 million under our amended primary bank line-of-credit agreement and the receipt of $7.4 million in net proceeds from the sale of preferred stock in January 2000. Financing activities for the first nine months of 2000 also included the repayment on June 9, 2000 of $6.0 million subordinated notes with warrants issued in April 1999 and $3.5 million of subordinated notes with warrants issued in October 1999.

In March and April 2000, we amended our primary bank line-of-credit agreement to provide for borrowings up to $32 million through July 2001. As of September 30, 2000, we had drawn down $31.8 million under this line of credit.

Working capital increased $47.2 million to $49.2 million at September 30, 2000 from $2.0 million at December 31, 1999. The increase in working capital resulted from cash proceeds received from our initial public offering, the sale of preferred stock to PerkinElmer and the sale of our 30% ownership interest in HD Technologies, increases in accounts receivable of $3.0 million and inventory of $1.5 million due to our growth in revenue and operations, partially offset by increases of $2.4 million in accounts payable and accrued liabilities balances.

As of September 30, 2000, we had an aggregate of $2.2 million in future obligations of principle payments under capital leases and other long-term debt, of which $793,000 is to be paid within the next twelve months.

We believe our existing cash, cash equivalents and short term investments will be sufficient to fund our operating expenses, debt obligations and capital requirements on both a short-term and long-term, greater than 12 months, basis. However, we may need to raise additional capital to fund our research and development programs, to scale up manufacturing activities, to expand our sales and marketing capabilities or to fund unforeseeable expenses. Even if we have sufficient funds for our operating plans, we may choose to raise additional capital due to market conditions or strategic considerations. We may seek funding through public or private equity offerings, debt financing or additional collaborations. We cannot assure you that additional financing will be available on favorable terms, if at all.

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ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Other than as disclosed in this report on Form 10-Q, there have been no significant changes in our market risk exposure as described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included as Item 7a in our registration statement filed on Form S-1 and declared effective on May 4, 2000, and incorporated herein by reference.

Recent accounting pronouncements

We adopted Financial Accounting Standards Board Interpretation No. 44, “Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25,” effective July 1, 2000. There was no impact on our consolidated financial position or results of operations.

Various accounting pronouncements have been issued but which are not effective including, but not limited to, Statement of Financial Accounting Standards Nos. 133 and 138, “Accounting for Derivative Instruments and Hedging Activities,” which is effective for fiscal years beginning after June 15, 2000; and Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition,” which we must adopt no later than the fourth quarter of 2000. Management expects that adoption of these pronouncements will have little, if any, impact on our consolidated financial position or results of operations.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

      We are not engaged in any legal proceedings.

      We have received a letter from Molecular Dynamics, Inc. threatening to file a complaint against us in California as a result of our failure to purchase shares of capital stock of Meridian Instruments, Inc. owned by Molecular Dynamics. The demand seeks payment of $732,175, increased by $8,333 each month until payment is made. In 1998, we purchased assets from Insight Biomedical Imaging, which in 1997 acquired assets of Meridian Instruments through a lien foreclosure. Molecular Dynamics claims to have had the contractual right to require Meridian Instruments to purchase the shares of Meridian Instruments owned by Molecular Dynamics. Molecular Dynamics has asserted, among other things, that we assumed the purchase obligation, that we are a legal successor of Meridian Instruments, and that there was a fraudulent transfer of Meridian Instruments assets. We do not believe we have any liability to Molecular Dynamics and we are attempting to resolve this matter.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

Sales of Unregistered Securities

      From July 1, 2000 to September 30, 2000, we sold and issued the following unregistered securities.

•

150,418 shares of our callable common stock issued upon the exercise of stock options for an aggregate purchase price of $124,248.

      No underwriters were involved in the foregoing offers and sales of securities. Such offers and sales were made in reliance upon an exemption from the registration provisions of the Securities Act of 1933, as amended (the “Securities Act”), set forth in, Rule 701 under the Securities Act. All of the foregoing securities are deemed restricted securities for purposes of the Securities Act.

Use of Proceeds

On May 10, 2000 we completed an initial public offering of 7,000,000 shares of callable common stock at $8.00 per share. The managing underwriters in the offering were UBS Warburg LLC, Lehman Brothers and Dain Rauscher Wessels. The shares of callable common stock sold in the offering were registered under the Securities Act of 1933 on a Registration Statement on Form S-1(Registration No. 333-30246) that was declared effective by the Securities and Exchange Commission on May 4, 2000. The purchase price to the public was $8.00 per share and, after deducting underwriter discounts and commissions, we received proceeds per share of $7.44. The aggregate-offering price was approximately $57.0 million. We incurred expenses of approximately $6.1 million, of which approximately $4.3 million represented underwriting discounts and commissions and approximately $1.8 million represented other expenses related to the offering. The proceeds to us from the offering,

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including the over-allotment option, after deducting underwriting discounts and commissions and other offering expenses, were approximately $55.2 million. The proceeds have been invested in short-term investment-grade securities. The principal purposes of the offering were to: (1) increase our equity capital, (2) create a public market for the callable common stock in order to facilitate future access to public equity markets and (3) create liquidity for our existing stockholders. We intend to use the net proceeds of this offering, together with our existing cash and cash equivalents, short-term investments and repurchase agreements, to fund research and development, expand laboratory and office facilities and for general corporate purposes. We may also use a portion of the net proceeds for the acquisition of businesses, technologies or products complementary to us.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

      Not applicable.

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

      Not applicable.

ITEM 5. OTHER INFORMATION.

      Not applicable.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a)	Exhibits

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

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SIGNATURES

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

GENOMIC SOLUTIONS INC.

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Exhibit Index