ORCHID BIOSCIENCES INC, S-1, 2000-09-22

ORCHID BIOSCIENCES INC
S-1, 2000-09-22
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH

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<PAGE>

As filed with the Securities and Exchange Commission on September 22, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

ORCHID BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
Delaware 8731 22-3392819
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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ORCHID BIOSCIENCES, INC.
303 College Road East
Princeton, NJ 08540
(609) 750-2200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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DALE R. PFOST, Ph.D.
Chairman of the Board, President and Chief Executive Officer
ORCHID BIOSCIENCES, INC.
303 College Road East
Princeton, NJ 08540
(609) 750-2200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
<TABLE>
<S> <C>
Joseph E. Mullaney III, Esq. Peter H. Jakes, Esq.
John J. Cheney III, Esq. Gregg B. Shulklapper, Esq.
Mintz, Levin, Cohn, Ferris, Willkie Farr & Gallagher
Glovsky and Popeo, P.C. 787 Seventh Avenue
One Financial Center New York, New York 10019-6099
Boston, Massachusetts 02111 Telephone: (212) 728-8000
Telephone: (617) 542-6000 Telecopy: (212) 728-8111
Telecopy: (617) 542-2241
</TABLE>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed
Proposed Maximum
Title of each Class of Amount Maximum Aggregate Amount of
Securities to be to be Offering Price Offering Registration
Registered Registered(1) Per Share(2) Price(1)(2) Fee
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<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share........ 4,025,000 $31.34 $126,143,500 $33,302
-------------------------------------------------------------------------------
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</TABLE>

(1) Includes shares which the Underwriters may purchase to cover over-
allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933.

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 22, 2000

3,500,000 Shares

[ORCHID LOGO APPEARS HERE]

Common Stock

--------

Orchid BioSciences, Inc. is selling 2,500,000 shares and the selling
stockholders are selling 1,000,000 shares. We will not receive any of the
proceeds from the sale of shares by the selling stockholders.

Our common stock is quoted on The Nasdaq Stock Market's National Market under
the symbol "ORCH." The last reported sale price of our common stock on
September 21, 2000 was $30.63 per share.

The underwriters have an option to purchase up to 525,000 additional shares
to cover over-allotments of shares.

Investing in our common stock involves risks. See "Risk Factors" beginning on
page 5.

<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions Orchid Stockholders
-------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share.................................. $ $ $ $
Total...................................... $ $ $ $
</TABLE>

Delivery of the shares of common stock will be made on or about , 2000.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Credit Suisse First Boston

Robertson Stephens

Salomon Smith Barney

The date of this prospectus is , 2000.
<PAGE>

[Inside front cover contains background graphics which represent an artist's
depiction of our SNP-ITTM primer-extension technology. Photos represent our
product and service offerings, including SNPstream, SNPware kits, GeneScreen
services and microfluidic chips, as well as a photograph of our MegaSNPatron
facility.

Caption under the photograph of MegaSNPatron facility: "MegaSNPatronTM
Facility"]
<PAGE>

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TABLE OF CONTENTS

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Page
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<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 5
Special Note Regarding Forward
Looking Statements................. 17
Trademarks.......................... 17
Use of Proceeds..................... 18
Dividend Policy..................... 18
Price Range of Common Stock......... 18
Capitalization...................... 19
Dilution............................ 20
Selected Financial Data............. 21
Unaudited Pro Forma Consolidated
Financial Data..................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 26
</TABLE>
<TABLE>
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Page
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<S> <C>
Business............................ 35
Management.......................... 55
Certain Transactions................ 69
Principal and Selling Stockholders.. 71
Description of Capital Stock........ 73
Shares Eligible for Future Sale..... 76
Underwriting........................ 77
Notice to Canadian Residents........ 79
Legal Matters....................... 80
Experts............................. 80
Where You Can Find More
Information........................ 80
Index to Consolidated Financial
Statements......................... F-1
</TABLE>

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

You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
<PAGE>

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information you should consider before
buying shares in the offering. Therefore, you should read the entire prospectus
carefully.

Orchid BioSciences

We are engaged in the development and commercialization of technologies,
products and services designed to measure and use information related to
genetic diversity. We expect our proprietary products and technologies will
significantly enhance the way companies generate information about single
nucleotide polymorphisms, or "SNPs," the most common form of genetic diversity.
The pharmaceutical and medical communities can use genetic diversity
information to facilitate the development of highly specific and efficacious
drugs, to improve the effectiveness of existing drugs, and to increase the
likelihood of success of tissue transplants. Our proprietary products and
technologies also have other commercial applications outside of the healthcare
field, including forensics and paternity testing, as well as improved crop
development and livestock breeding programs.

The Opportunity

We believe that the recent completion of the first draft of the sequence of
the human genome begins a post-genomics era that will be driven by the
identification of genetic variation from person to person. We expect that
researchers will discover millions of SNPs over the next several years, fueling
a dramatic increase in the demand for studies associating particular SNPs, or
combinations of SNPs, with medically important attributes. We expect that these
studies will create a need for the analysis, or what we refer to as "scoring,"
of billions of SNPs. Traditional methods of conducting SNP scoring have
significant limitations, including high expense, low accuracy, lack of flexible
design, lack of scalability and sensitivity to variations in experimental
conditions. The transition to the post-genomics era and the increase in the
number of SNP association studies creates a pressing need for fast and flexible
SNP scoring systems that can score SNPs with a higher level of accuracy and at
a lower cost than is achievable with alternative methods.

Orchid's Unique Solution

SNP-IT primer extension is a method of isolating the precise location of the
site of a suspected SNP by using a specially synthesized DNA primer and an
enzyme known as DNA polymerase which selectively extends the DNA chain by one
base at the suspected SNP location. Our SNP scoring system rapidly generates
highly accurate information relating to SNPs at a cost that is significantly
lower than alternative systems.

We have designed our SNP-IT primer-extension technology to be automated and
usable in environments ranging from small scale laboratories to large scale
commercial facilities. It is also adaptable to a wide variety of instrument
platforms and laboratory conditions. We have also developed proprietary
technologies designed to control the flow of chemicals in miniaturized systems
using our microfluidics technologies. We believe the combination of our SNP-IT
primer-extension technology with our proprietary microfluidics technologies
will enable us to gain competitive advantages in the cost and capacity, or
throughput, of SNP scoring conducted at our high-throughput MegaSNPatron
facility. As we refine our microfluidics technologies, we intend to integrate
them into our facility in order to increase its throughput to millions of SNP
scores per day and significantly reduce SNP scoring costs.

Although we believe that our proprietary SNP-IT primer-extension SNP scoring
technology has advantages over alternative SNP scoring technologies, there are
elements of our technology platform which

1
<PAGE>

may be perceived as being limitations by our potential customers. These include
our reliance on third party prepared primers; the potential failure of
prospective customers to adopt our technologies; and our reliance upon third
parties for sequence information.

We believe our unique approach to SNP scoring will enable pharmaceutical
companies to improve their identification of lead drug candidates for
optimization and development by allowing them to generate and rapidly convert
genetic variation data into diverse collections of potentially useful targets
and drug candidates. In addition, we believe pharmaceutical companies will use
our technologies to assess the effectiveness and toxicity of drug candidates
which they are developing as well as their currently-marketed drugs. We also
intend to use our technologies to develop proprietary applications of SNPs
designed to improve medical treatment. We believe our proprietary technologies
will also be applicable to the development of agricultural and diagnostic
products. We believe these applications of genetic diversity will be an
important part of the post-genomics era.

Our Target Markets

We are targeting our SNP scoring technologies at a number of the most
rapidly developing markets in the field of genetic diversity. Specifically, we
believe our SNP scoring technologies can provide significant value in many
aspects of drug discovery, development and marketing as well as disease
predisposition assessment, diagnostic test development, transplantation
matching and development of agricultural products. Each of these markets
presents us with a wide range of opportunities for our technologies, including
SNP confirmation and SNP association studies, as well as the application of SNP
scoring to clinical trials and in clinical diagnostics.

Our Strategy

Our objective is to become the premier provider of instruments, consumables,
services and technologies for SNP scoring and of other genetic diversity tests.
The key elements of our strategy to achieve this objective include the
following:

. Rapid commercialization. We intend to rapidly commercialize our products
and services, including our line of SNPstream instruments and SNPware
kits for SNP scoring. We intend to commercialize SNPware kits for use on
our hardware instrument platform, as well as on other SNP scoring
platforms. For example, we are developing a SNPware consumable product
line for Affymetrix, a leading DNA chip company. In addition, we intend
to offer our products and services to other major companies for
distribution to their customers. We currently provide SNP scoring
services at our high-throughput MegaSNPatron facility.

. Market extension. We intend to leverage our strong position in the
research market to expand into the clinical and diagnostic markets. We
believe these markets have the largest long-term growth potential in the
genetic diversity field. We also intend to expand geographically by
establishing international SNP scoring facilities to create additional
service revenues and promote the sale of our entire line of products. We
also intend to provide SNP scoring on patient samples through our Web
sites targeted to physicians and patients.

. Proprietary SNP value creation. We intend to continue to create
proprietary rights covering the association of SNPs with medically
important attributes. We expect this will result in proprietary rights
covering a broad range of new and existing drugs consisting of both
"composition of matter patents," which cover the drugs themselves, and
"use patents," which extend the drug's label coverage.

. Sustained competitive advantage. We plan to build and sustain our
competitive advantage in the genetic diversity field through scientific
collaborations and acquisitions. We intend to use our microfluidics
technologies to leverage our SNP scoring technologies and to maintain a
competitive advantage in SNP scoring costs and capacity.

2
<PAGE>

Our Products and Services

We currently offer our SNPstream hardware system and SNPware consumables to
enable customers to conduct SNP scoring. We also offer SNP scoring services at
our high-throughput MegaSNPatron facility and genetic diversity testing
services through our clinical laboratories, or Regional GeneScreen Centers, for
use in forensic and paternity testing as well as for improvements in the
success rate of bone marrow transplants.

Recent Developments

Since our initial public offering in May 2000, we have made progress in
developing our business in several areas. Specifically, we have:

. established business relationships with leading pharmaceutical and life
sciences companies including
-- Applied Biosystems, Inc.,
-- Amersham Pharmacia Biotech, Inc.,
-- Bristol-Myers Squibb Company,
-- Luminex Corp., and
-- Millennium Pharmaceuticals;

. entered into a collaboration to expand our relationship with The SNP
Consortium Ltd., an organization comprised of leading pharmaceutical
companies; and

. opened a sales office in the United Kingdom.

Corporate Information

We organized our company as a Delaware corporation on March 8, 1995 and in
February 2000 we changed our name from Orchid Biocomputer, Inc. to Orchid
BioSciences, Inc. Our principal office is located at 303 College Road East,
Princeton, NJ 08540 and our telephone number is (609) 750-2200. You can find
our corporate Web site at http://www.orchid.com. We do not intend any of the
information contained on any of our Web sites to be considered a part of this
prospectus.

The Offering

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<C> <S>
Common stock we are offering........................ 2,500,000 shares

Common stock the selling stockholders are offering.. 1,000,000 shares

Common stock to be outstanding after this offering.. 35,675,595 shares

Use of proceeds..................................... For general corporate and
working capital purposes,
including potential
acquisitions. See "Use of
Proceeds."

Nasdaq National Market symbol....................... ORCH
</TABLE>

The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding on August 31, 2000 and
excludes:

. 3,506,558 shares of common stock that we may issue upon exercise of
options outstanding as of August 31, 2000 at a weighted average exercise
price of $5.75 per share; and

. 1,312,138 shares of common stock that we may issue upon exercise of
warrants outstanding as of August 31, 2000 at a weighted average exercise
price of $4.83 per share.

Unless otherwise indicated, information in this prospectus assumes no
exercise of the underwriters' over-allotment option.

3
<PAGE>

Summary Historical and Pro Forma Financial Data
(in thousands, except per share data)

In the "Pro Forma Year Ended December 31, 1999" column below, we have
adjusted the consolidated statements of operations data to give pro forma
effect to the acquisition of GeneScreen, Inc. on December 30, 1999 as if it had
occurred on January 1, 1999.

In the "As Adjusted" column in the consolidated balance sheet data below, we
have adjusted the actual balance sheet data as of June 30, 2000 to give effect
to our receipt of the estimated net proceeds of $71.4 million from the sale of
2,500,000 shares of common stock in this offering at an assumed offering price
of $30.63 per share, after deducting underwriting discounts and commissions and
the estimated offering expenses payable by us.

<TABLE>
<CAPTION>
Period from
March 8, 1995
(inception) Pro Forma Six months
to Year Ended December 31, Year Ended ended June 30,
December 31, ------------------------------------ December 31, -----------------
1995 1996 1997 1998 1999 1999 1999 2000
------------- ------- ------- -------- -------- ------------ ------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenues................ $2,795 $ 6,230 $ 3,763 $ 2,781 $ 1,793 $ 15,540 $ 807 $ 8,060
Operating expenses:
Cost of product revenues
and access fees........ -- -- -- -- -- -- -- 610
Cost of clinical
laboratory testing..... -- -- -- -- -- 10,054 -- 4,835
Selling, general and
administrative......... 37 718 2,927 5,199 9,611 17,808 4,000 13,176
Research and
development............ 2,795 6,727 10,813 7,574 14,447 14,546 6,157 16,742
Acquisition of in-
process research and
development............ -- -- -- 2,353 -- -- -- --
------ ------- ------- -------- -------- -------- ------- --------
Total operating
expenses............... 2,832 7,445 13,740 15,126 24,058 42,408 10,157 35,363
------ ------- ------- -------- -------- -------- ------- --------
Operating loss.......... (37) (1,215) (9,977) (12,345) (22,265) (26,868) (9,350) (27,303)
Other income (expenses),
net.................... 31 91 49 866 (5,955) (5,929) (398) 1,756
------ ------- ------- -------- -------- -------- ------- --------
Net loss................ (6) (1,124) (9,928) (11,479) (28,220) (32,797) (9,748) (25,547)
Beneficial conversion
feature of preferred
stock.................. -- -- -- -- 44,554 44,554 -- 29,574
------ ------- ------- -------- -------- -------- ------- --------
Net loss allocable to
common stockholders.... $ (6) $(1,124) $(9,928) $(11,479) $(72,774) $(77,351) $(9,748) $(55,121)
====== ======= ======= ======== ======== ======== ======= ========
Basic and diluted net
loss per share
allocable to common
stockholders........... $ (.05) $ (3.45) $(27.57) $ (17.09) $ (95.87) $(101.90) $(13.39) (5.52)
Shares used in computing
basic and diluted net
loss per share
allocable to common
stockholders........... 131 326 360 672 759 759 728 9,981

Pro Forma Net Loss Per Share Data(1):
Pro forma basic and
diluted net loss per
share allocable to
common stockholders
(unaudited)............ $ (15.61)
Shares used in computing
pro forma basic and
diluted net loss per
share allocable to
common stockholders
(unaudited)............ 4,663
</TABLE>

<TABLE>
<CAPTION>
June 30, 2000
--------------------
Actual As Adjusted
-------- -----------
(unaudited)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments.......... $ 87,851 $159,232
Working capital............................................ 87,338 158,719
Total assets............................................... 155,904 227,285
Long-term debt, less current portion....................... 3,598 3,598
Total stockholders' equity................................. 143,472 214,853
</TABLE>
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(1) Please see Note 1 to our consolidated financial statements for the years
ended 1997, 1998 and 1999 and Note 2 to our condensed consolidated
financial statements for the six months ended June 30, 1999 and 2000
appearing elsewhere in this prospectus for an explanation of the method
used to calculate net loss per share allocable to common stockholders and
pro forma net loss per share allocable to common stockholders and the
number of shares used in the computation of per share amounts.

4
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RISK FACTORS

You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. If any of the
following risks actually occurs, we may not be able to conduct our business as
currently planned and our financial condition and operating results could be
seriously harmed. In that case, the market price of our common stock could
decline, and you could lose all or part of your investment. See "Special Note
Regarding Forward-Looking Statements."

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 SNPware consumables and SNPstream instruments;

. 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 SNPware consumables and SNPstream
instruments; 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 $76.3 million as of June 30, 2000 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 $25.5 million during the six months ended June 30,
2000, $28.2 million in 1999, $11.5 million in 1998 and $9.9 million in 1997. As
of June 30, 2000, we had an accumulated deficit of $76.3 million. In order to
further develop our SNP scoring and microfluidics technologies, 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.

Our 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;

5
<PAGE>

. 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

. 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 significantly harm our operating results for a particular fiscal
period. In addition, 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 and will need to acquire new
facilities to manufacture our products on a commercial scale.

We have limited manufacturing experience and currently possess only a single
facility capable of manufacturing limited quantities of our SNPware products
for both sale to our customers and internal use. To achieve the production
levels necessary for successful commercialization, we will need to scale-up our
manufacturing facilities and establish automated manufacturing capabilities. We
are presently in the process of building out our manufacturing facility to meet
our manufacturing needs beyond 2001. If we are unable to successfully scale-up
our existing manufacturing capability, 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 who do not have specific training in sales. We
also intend to market our SNP scoring and microfluidics products and services
through collaborations and distribution agreements with pharmaceutical and
biotechnology companies. We cannot assure you that we will be able to
successfully establish 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 initial commercial products and services may not be
commercially viable or successful, which would adversely affect our revenues.

We have not yet completed the development of our SNP scoring technologies or
the build-out of our high-throughput MegaSNPatron facility for SNP scoring,
both of which are important elements of our business strategy. We may not be
able to successfully develop these technologies or build-out this facility.
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

6
<PAGE>

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 therapeutic or 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.

If our customers do not purchase significant volumes of SNPware consumables,
our rapid 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 necessary to conduct SNP scoring with our
SNPstream systems. 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 DNA testing contracts we have with various state
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 DNA
testing services we provide in the paternity and forensic fields. These
services are heavily dependent upon contracts we have with various state
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 state contracts
or be the successful bidder on any additional state contracts which may become
available in the future, or negotiate terms acceptable to us in connection with
any state contract awarded to us, which would adversely affect our results of
operations and financial condition.

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 significant resources to develop this facility, increase our research
and development and commercialization activities and acquire additional
manufacturing facilities. 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 selling our SNP scoring
products and associated technologies and services;

. our ability to establish and maintain successful collaborations; and

7
<PAGE>

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

We believe the proceeds from this offering, together with cash on hand, will
be sufficient to fund our operating costs for at least the next 18 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 therapeutic and
diagnostic products 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 therapeutic
and 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, including our
collaboration with Affymetrix, could harm our business and financial
condition.

The collaboration agreements we have with third parties, including
Affymetrix, 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
we allow them to terminate their agreements with us prior to the expiration of
the negotiated term under certain circumstances. If Affymetrix or any other
third party were to terminate its agreement with us or otherwise fail to
perform its obligations under our collaboration 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 our 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

8
<PAGE>

negotiate acceptable collaborations in the future with additional consultants
or scientific advisors at academic and other institutions.

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 based on indirect
detection of hybridization and/or labeling which differ in certain of the
methods of amplification, separation of samples or detection and analysis of
SNPs. We may also compete against certain of our customers, which could
adversely affect our relationships with them.

Our SNP scoring technologies will also need to compete against well-
established techniques and enhancements for discovering novel drugs, including
combinatorial chemistry and high-throughput screening. We may be unable to
compete successfully against these existing techniques and instruments, which
would materially and adversely affect our ability to market and sell our
products and services.

We believe our future success will depend, in large part, on our ability to
maintain a competitive position in the instrument and kit-based SNP scoring,
pharmacogenetics and microfluidics product fields and in the SNP scoring
services field. 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 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 our discoveries, which would harm our
competitive position.

Our commercial success will depend, in large 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 intend to apply for patent
protection on novel SNPs of known genes and their uses, as well as novel uses
for previously identified SNPs discovered by third parties. In the latter
cases, we would need a license from the holder of the patent with respect to
such SNP in order to make, use or sell any related products. We may not be
able to acquire such licenses on terms acceptable to us, if at all.

If any genomic sequence information related to a SNP is publicly released
prior to the time we apply for patent protection on a related SNP, we may be
unable to obtain patent protection with respect to that SNP. In addition,
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 uses for such genes or SNPs, the risk increases that the sale
of products, including therapeutics, or processes developed by us or our
collaborators may give rise to claims of patent infringement against us.
Others may have filed and, in the future are likely to file, patent
applications covering SNPs. Any such patent application could have priority
over our patent applications and could further require us to obtain rights to
previously issued patents covering SNPs. 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.

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<PAGE>

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 U.S. 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.

If significant data on identified SNPs becomes unavailable or available only
on unacceptable terms, we could experience increased research and development
expenses.

We currently obtain and rely on our continued access to significant data on
SNPs from several sources, including The SNP Consortium, Ltd., a group of
leading pharmaceutical companies identifying SNPs. Although many of these
sources make information relating to identified non-proprietary SNPs publicly
and freely available, we cannot assure you that we will be able to continue to
obtain this SNP data without paying licensing or other fees to third parties.
If SNP data is no longer freely available, or is available only at significant
costs, we may be unable to implement our business strategy.

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 recently 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 are 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 our 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 we rely upon to protect our intellectual
property may not be adequate to protect our products and services and could
reduce our 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;

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<PAGE>

. 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.

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

We have recently completed acquisitions of Molecular Tool, a developer of
SNP technologies, and GeneScreen, a provider 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 acquisition we might make 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.
In addition, as a public company, the cost of acquiring companies may increase
relative to the cost of acquiring similar companies when we were a private
company. 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 operation.

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 and local 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 and data on patient samples.
Further, we are subject to the Clinical Laboratory Improvement Act, or CLIA, as
a result of our recent acquisition of three GeneScreen laboratories. 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. Although we believe
we comply in all material respects with the standards prescribed by federal,
state and local laws and regulations, if we fail to comply with applicable laws
or regulations, including CLIA, or if an accident occurs, we could be required
to pay significant penalties or be held liable for any damages that result and
this liability could exceed our financial resources.

All three of our GeneScreen 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 Bank 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. We cannot
assure you that we will be able to maintain our accreditations with any of
these authorities. 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, the relevant authority could require us to close our laboratories,
which could eliminate or significantly reduce the revenues supporting our
GeneScreen business results of operation.

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<PAGE>

The sale of our SNPware consumables 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 prospective customers, including research and development
personnel and key management. As a result, in many instances we may expend
significant human and capital resources to market our products without any
resulting sales.

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 DNA
testing services, which may require us to defend ourselves in costly
litigation.

Our Regional GeneScreen 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 microfluidic chip 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 Beckman Coulter under which they supply us with the components
of our SNPstream system, and with NEN Life Sciences, Inc. 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.

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., our Chairman of the Board, President and Chief
Executive Officer; and

. Donald R. Marvin, our Senior Vice President, Chief Operating Officer and
Chief Financial Officer.

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<PAGE>

If either of Dr. Pfost or Mr. Marvin were to be 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 to 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 pharmaceutical products has associated risks, including
compliance with pre-clinical and clinical testing and manufacturing
regulations.

Although it is likely to be years before we develop any potential
pharmaceutical products, any future products will require significant research,
development and pre-clinical and clinical testing before we submit any
regulatory application for their commercial use. If we were to undertake any of
these activities without the collaboration of others, we would have to expend
significant funds. Any of our potential pharmaceutical products will be subject
to the risks of failure inherent in the development of pharmaceutical products
based on new technologies. These risks include the following possibilities:

. that potential pharmaceutical products will be found to be unsafe, non-
efficacious or otherwise fail to receive necessary regulatory
clearances;

. that the products, if safe and 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 pharmaceutical products may expose us to liability claims
from the use of such pharmaceutical products. We may not be able to obtain
product liability insurance or, even if we do, any coverage we obtain could be
insufficient or costly. In addition, should we choose to manufacture or to
develop pharmaceutical products ourselves, we will have to make significant
investments in pharmaceutical product development, marketing, sales and
regulatory compliance resources, and we will have to establish or contract for
the manufacture of products under the regulations of the FDA

13
<PAGE>

regarding good manufacturing practices. We cannot assure you that we will be
able to develop or commercialize successfully any potential pharmaceutical
products.

Risks Associated With This Offering

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. The Board of Directors may exercise this authority without any further
approval of our stockholders. The rights of the holders of 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 bylaws, as well
as Section 203 of the Delaware General Corporation Law, may discourage, delay
or prevent a change in control of our company, even if the change of 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 bylaws;

. 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 the Board of Directors or for proposing matters that can
be acted upon by stockholders at stockholder meetings.

In addition, our stock incentive plans may discourage, delay or prevent a
change in control of our 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 biotechnology companies have in the past
been, and are likely to continue in the future to be, 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 discovery efforts by us or our
competitors;

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

. 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;

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<PAGE>

. 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; and

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

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.

We are at risk of securities class action litigation due to our expected stock
price volatility.

In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources, which could have a material adverse effect on our
business and the market for our common stock.

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

Our directors, executive officers and principal stockholders will
beneficially own, in the aggregate, approximately 19.1% of our common stock
following this offering. 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.

We will have broad discretion as to the use of proceeds of this offering and
may fail to use them effectively.

We have no exact plan with respect to the use of the net proceeds of this
offering and have not committed these proceeds to any particular purpose apart
from expenses of the business and general working capital. Accordingly, our
management will have broad discretion in applying the net proceeds of this
offering and may use the proceeds in ways with which you and our other
stockholders may disagree. We may not be able to invest these funds effectively
which would adversely affect our financial condition.

You will suffer substantial dilution in the net tangible book value of the
common stock you purchase in this offering.

The public offering price of our common stock is substantially higher than
the net tangible book value per share of our common stock. Based on an assumed
public offering price of $30.63 per share, if you purchase shares of common
stock in this offering, you will suffer immediate and substantial dilution of
$25.89 per share in the net tangible book value of our common stock at June 30,
2000. To the extent outstanding options, warrants or the underwriters' over-
allotment option are exercised you will suffer further dilution.

There is a large number of shares that may be sold in the market following this
offering, which may depress the market price of our common stock.

After this offering, based on the number of shares outstanding on August 31,
2000, we will have approximately 35,675,595 shares of common stock outstanding.
Of these, 6,900,000 shares offered in our initial public offering and all of
the shares being offered in this offering will generally be freely tradable.

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<PAGE>

Sales of a substantial number of these shares of our common stock in the
public market following this offering could cause the market price of our
common stock to decline. The number of shares of common stock available for
sale in the public market is limited by restrictions under federal securities
law and under lock-up agreements that certain of our stockholders have entered
into with the underwriters and with us. These lock-up agreements restrict our
stockholders from selling, pledging or otherwise disposing of their shares for
a period of 90 days after the date of this prospectus without the prior written
consent of Credit Suisse First Boston Corporation. However, Credit Suisse First
Boston Corporation may, in its sole discretion, release all or any portion of
the common stock from the restrictions of the lock-up agreements. The following
table indicates approximately when the 26,275,595 unregistered shares of our
common stock that are not being sold in the offering, but which were
outstanding as of August 31, 2000, will be eligible for sale into the public
market:

<TABLE>
<CAPTION>
Eligibility of Restricted
Shares for Sale in Public
Market
-------------------------
<S> <C>
On the date of this prospectus...................
90 days after the date of this prospectus........
At various times after 90 days from the date of
this prospectus.................................
</TABLE>

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<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing forward-looking statements may be found
in the material set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations and Business," as well as in this
prospectus generally. We generally use words such as "believe," "intend,"
"expect," "anticipate," "plan," and similar expressions to identify forward-
looking statements. This prospectus also contains third-party estimates
regarding the size and growth of the biotechnology market in general. You
should not place undue reliance on these forward-looking statements. Our actual
results could differ materially from those anticipated in the forward-looking
statements for many reasons, including the risks described above and elsewhere
in this prospectus.

Although we believe the expectations reflected in the forward-looking
statements are reasonable, they relate only to events as of the date on which
the statements are made, and we cannot assure you that our future results,
levels of activity, performance or achievements will meet these expectations.

TRADEMARKS

This prospectus contains references to our trademark GeneScreen(R). SNP-IT,
SNPstream, SNPware, DNAstream, MegaSNPatron, SNPcode, Clinical Genetics
Network, Regional GeneScreen Center, SNP CONFIRM, SNP ASSOCIATION, SNP WIDEMAP,
GENESCREEN IDENTITY, GENESCREEN FORENSIC, GENESCREEN TRANSPLANT TESTING, Orchid
and the Orchid logo 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 prospectus are the property of
their respective owners.

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<PAGE>

USE OF PROCEEDS

We estimate that our net proceeds from the sale of 2,500,000 shares of
common stock we are offering at an assumed offering price of $30.63 per share
will be $71.4 million after deducting underwriting discounts and commissions
and the estimated offering expenses payable by us. We expect to use the net
proceeds we receive for general corporate purposes, including potential
acquisitions and to construct or acquire additional manufacturing capacity. We
will not receive any proceeds from the sale of shares of common stock by the
selling stockholders.

The amount and timing of our actual expenditures will depend upon numerous
factors, including the status of our product development and commercialization
efforts, the amount of proceeds actually raised in this offering, the amount of
cash generated by our operations, competition, and sales and marketing
activities. We may also use a portion of the proceeds for the acquisition of,
or investment in, companies, technologies or assets that we believe can
complement our business. However, we have no present understandings,
commitments or agreements to enter into any potential acquisitions or make any
investments. Further, we have not determined the amounts we plan to spend on
any of the areas listed above or the timing of these expenditures. As a result,
our management will have broad discretion to use the net proceeds from this
offering. Pending application of the net proceeds as described above, we intend
to invest the net proceeds of the offering in short-term, investment-grade,
interest-bearing securities.

The principal purposes of this offering are to increase our equity capital
and to enhance our ability to use our common stock as consideration for
acquisitions and as a means of attracting and retaining key employees.

DIVIDEND POLICY

We have never paid cash dividends on our common stock. We currently
anticipate retaining all of our future earnings, if any, to support operations
and to finance the growth and development of our business and do not anticipate
paying any cash dividends for the foreseeable future. The terms of future
credit agreements may prevent us from paying any dividend or making any
distributions or payment with respect to our capital stock.

PRICE RANGE OF COMMON STOCK

Our common stock has been quoted on The Nasdaq Stock Market's National
Market under the symbol "ORCH" since May 5, 2000. Prior to that time, there was
no public market for our common stock. The following table sets forth, for the
periods indicated, the range of the high and low closing price per share for
our common stock as reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
2000 Second Quarter
(May 5, 2000-June 30, 2000)................................... $37.97 $10.56

2000 Third Quarter
(through September 21, 2000).................................. $57.88 $30.63
</TABLE>

On September 21, 2000 the reported last sale price of our common stock on
the Nasdaq National Market was $30.63. As of August 31, 2000, there were
approximately 398 holders of record of our common stock.

18
<PAGE>

CAPITALIZATION

The following table presents our capitalization as of June 30, 2000:

. on an actual basis; and

. on an "as adjusted" basis, to give effect to the sale of 2,500,000
shares of common stock offered by us in this offering at an assumed
public offering price of $30.63 per share, less underwriting discounts
and commissions and the estimated offering expenses payable by us.

This table should be read with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and related notes appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
June 30, 2000
-------------------
As
Actual Adjusted
--------- --------
(unaudited)
(in thousands,
except share and
per share data)
<S> <C> <C>
Current portion of long-term debt......................... $ 1,158 $ 1,158
Long-term debt, less current portion...................... 3,598 3,598
--------- --------
Stockholders' equity:
Preferred stock, $.001 par value, authorized 5,000,000
shares; no shares issued or outstanding on an actual
and as adjusted basis.................................. -- --
Common stock, $.001 par value, authorized 50,000,000
shares; 33,155,057 and 35,655,057 issued and
outstanding on an actual and as adjusted basis,
respectively........................................... 33 36
Additional paid-in capital................................ 239,710 311,088
Deferred compensation..................................... (19,966) (19,966)
Accumulated deficit....................................... (76,305) (76,305)
--------- --------
Total stockholders' equity.............................. 143,472 214,853
--------- --------
Total capitalization.................................. $ 148,228 $219,609
========= ========
</TABLE>

This table excludes the following:

. 3,449,396 shares of common stock that we may issue upon exercise of
stock options outstanding as of June 30, 2000 at a weighted average
exercise price of $4.91 per share; and

. 1,312,138 shares of common stock that we may issue upon the exercise of
warrants outstanding as of June 30, 2000 at a weighted average exercise
price of $4.83 per share.

19
<PAGE>

DILUTION

The net tangible book value of our common stock as of June 30, 2000 was
$97.7 million, or $2.95 per share. Net tangible book value per share represents
the amount of our total tangible assets less total liabilities divided by the
number of shares of common stock outstanding as of June 30, 2000. Dilution in
net tangible book value per share represents the difference between the amount
per share paid by purchasers of shares of common stock in this offering and the
net tangible book value per share of our common stock immediately following
this offering. After giving effect to our sale of 2,500,000 shares of common
stock offered by us in this offering at an assumed public offering price of
$30.63 per share, and after deducting underwriting discounts and commissions
and the estimated offering expenses payable by us, our net tangible book value
as of June 30, 2000, would have been approximately $169.1 million, or $4.74 per
share. This represents an immediate increase in net tangible book value to
existing investors of $1.79 per share and an immediate decrease in net tangible
book value of $25.89 per share to new investors purchasing shares of common
stock in this offering. The following table illustrates this dilution on a per
share basis:

<TABLE>
<S> <C> <C>
Public offering price per share of this offering................ $30.63
------
Net tangible book value per share as of June 30, 2000........... $2.95
Increase in net tangible book value per share attributable to
new investors.................................................. 1.79
-----

Net tangible book value per share after this offering........... 4.74
------

Dilution per share to new investors............................. $25.89
======
</TABLE>

The foregoing discussion and table are based on the number of shares of
common stock outstanding after this offering and exclude the following:

. 3,449,396 shares of common stock that we may issue upon exercise of
options outstanding as of June 30, 2000 at a weighted average exercise
price of $4.91 per share; and

. 1,312,138 shares of common stock that we may issue upon exercise of
warrants outstanding as of June 30, 2000 at a weighted average exercise
price of $4.83 per share.

20
<PAGE>

SELECTED FINANCIAL DATA
(in thousands, except per share data)

The consolidated statements of operations data for the six months ended June
30, 1999 and 2000 and the consolidated balance sheet data as of June 30, 2000
have been derived from our unaudited condensed consolidated financial
statements included elsewhere in this prospectus. The consolidated statements
of operations data for the years ended December 31, 1997, 1998 and 1999 and the
consolidated balance sheet data as of December 31, 1998 and 1999 were derived
from our consolidated financial statements included elsewhere in this
prospectus, which have been audited by KPMG LLP, independent certified public
accountants. The consolidated statement of operations data for the period from
March 8, 1995 (inception) to December 31, 1995 and for the year ended December
31, 1996 and the consolidated balance sheet data as of December 31, 1995, 1996
and 1997 were derived from our audited financial statements not included in
this prospectus, which have been audited by KPMG LLP. 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" and our consolidated
financial statements and related notes included elsewhere in this prospectus.

<TABLE>
<CAPTION>
Period from
March 8, 1995 Six months
(inception) to Year Ended December 31, ended June 30,
December 31, --------------------------------- ----------------
1995 1996 1997 1998 1999 1999 2000
-------------- ------ ------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenues:
Product revenues and
access fees........... $ -- $ -- $ -- $ -- $ -- $ -- $ 930
Clinical laboratory
testing............... -- -- -- -- -- -- 6,160
Collaboration
revenues--related
parties............... 2,795 6,230 3,763 2,748 -- -- --
Collaboration
revenues--unrelated
parties............... -- -- -- -- 828 500 --
Grant revenues......... -- -- -- 33 811 307 378
License and other
revenues.............. -- -- -- -- 154 -- 592
----- ------ ------- ------- ------- ------- -------
Total revenues.......... 2,795 6,230 3,763 2,781 1,793 807 8,060
----- ------ ------- ------- ------- ------- -------
Operating expenses:
Cost of product
revenues and access
fees.................. -- -- -- -- -- -- 610
Cost of clinical
laboratory testing.... -- -- -- -- -- -- 4,835
Selling, general and
administrative........ 37 718 2,927 5,199 9,611 4,000 13,176
Research and
development........... 2,795 6,727 10,813 7,574 14,447 6,157 16,742
Acquisition of in-
process research and
development........... -- -- -- 2,353 -- -- --
----- ------ ------- ------- ------- ------- -------
Total operating
expenses............... 2,832 7,445 13,740 15,126 24,058 10,157 35,363
----- ------ ------- ------- ------- ------- -------
Operating loss.......... (37) (1,215) (9,977) (12,345) (22,265) (9,350) (27,303)
Other income (expense):
Interest income........ 31 91 49 932 203 106 2,090
Interest expense....... -- -- -- (66) (6,158) (504) (258)
Other expense.......... -- -- -- -- -- -- (76)
----- ------ ------- ------- ------- ------- -------
Total other income
(expense).............. 31 91 49 866 (5,955) (398) 1,756
----- ------ ------- ------- ------- ------- -------
Net loss................ (6) (1,124) (9,928) (11,479) (28,220) (9,748) (25,547)
Beneficial conversion
feature of preferred
stock.................. -- -- -- -- 44,554 -- 29,574
----- ------ ------- ------- ------- ------- -------
Net loss allocable to
common stockholders.... (6) (1,124) (9,928) (11,479) (72,774) (9,748) (55,121)
===== ====== ======= ======= ======= ======= =======
Basic and diluted net
loss per share
allocable to common
stockholders........... $(.05) $(3.45) $(27.57) $(17.09) $(95.87) $(13.39) $ (5.52)
Shares used in computing
basic and diluted net
loss per share
allocable to common
stockholders........... 131 326 360 672 759 728 9,981
Unaudited Pro Forma Net
Loss Per Share Data(1):
Pro forma basic and
diluted net loss per
share allocable to
common stockholders.... $(15.61)
Shares used in computing
pro forma basic and
diluted net loss per
share allocable to
common stockholders ... 4,663
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
December 31, June 30,
--------------------------------------- --------
1995 1996 1997 1998 1999 2000
------ ------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash, cash equivalents and
short-term investments..... $1,710 $1,618 $6,405 $ 8,088 $33,804 $87,851
Working capital............. 544 (201) 773 5,751 27,275 87,338
Total assets................ 1,961 2,406 6,884 15,599 94,856 155,904
Long-term debt, less current
portion.................... -- -- -- 3,548 4,122 3,598
Mandatorily redeemable
preferred stock............ -- -- 9,230 27,530 88,946 --
Convertible preferred
stock...................... 1 1 1 212 1 --
Total stockholders' equity
(deficit).................. 795 188 (8,009) (18,123) (8,285) 143,472
</TABLE>
---------------------
(1) Please see Note 1 to our consolidated financial statements for the years
ended December 31, 1997, 1998 and 1999 and Note 2 to our condensed
consolidated financial statements for the six months ended June 30, 1999
and 2000 included elsewhere in this prospectus for an explanation of the
method used to calculate the net loss per share allocable to common
stockholders and pro forma net loss per share allocable to common
stockholders and number of shares used in the computation of per share
amounts.

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 and the sale of common stock in our initial
public offering in May 2000. Please see our notes to the consolidated financial
statements included elsewhere in this prospectus for further discussions of
these transactions.

22
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

The following unaudited pro forma consolidated statement of operations is
based on our historical consolidated financial statements for the year ended
December 31, 1999 and the historical financial statements of GeneScreen for the
period from January 1, 1999 to December 29, 1999, included elsewhere in this
prospectus, adjusted to give pro forma effect to the acquisition of GeneScreen
on December 30, 1999 as if it occurred on January 1, 1999. Our historical,
consolidated balance sheet as of December 31, 1999 reflects our acquisition of
GeneScreen.

On December 30, 1999, we acquired all of the outstanding shares of common
and preferred stock of GeneScreen in exchange for a price of $42.7 million,
which was satisfied by consideration consisting primarily of up to 4,000,000
shares of our series E mandatorily redeemable convertible preferred stock with
a stated value of $4.50 per share. The note payable to GeneScreen related to
our purchase of the Molecular Tool assets in the amount of $3,547,821 and other
liabilities totaling $421,000 were also cancelled. We accounted for our
acquisition of GeneScreen under the purchase method of accounting. We have
included $28,530,000 as a beneficial conversion feature 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 our common stock on the commitment date,
December 22, 1999, over the $4.50 per share conversion price of the stock.

The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1999 gives effect to the GeneScreen acquisition as if it had
occurred on January 1, 1999. The unaudited pro forma adjustments are based upon
available information and certain assumptions that we believe are reasonable
under the circumstances. The unaudited pro forma consolidated statement of
operations does not purport to represent what our results of operations would
actually have been had the transaction occurred on such date, nor does it
purport to project our results of operations for any future period.

23
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 1999

<TABLE>
<CAPTION>
Actual
------------------------- Pro Forma
Orchid GeneScreen Adjustments Pro Forma
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Laboratory testing.... $ -- $13,746,615 $ -- $ 13,746,615
Collaboration revenues
from unrelated
party................ 828,000 -- -- 828,000
Grant revenues........ 810,838 -- -- 810,838
License and other
revenues............. 154,167 -- -- 154,167
------------ ----------- ----------- ------------
Total revenues...... 1,793,005 13,746,615 -- 15,539,620
Operating expenses:
Cost of laboratory
testing.............. -- 10,054,681(5) 10,054,681(5)
General and
administrative....... 9,547,089 5,922,537(5) (902,490)(1) 17,744,136(5)
3,177,000(2)
General and
administrative--
related party........ 63,519 -- -- 63,519
Research and
development.......... 11,695,798 97,909 -- 11,793,707
Research and
development--related
party................ 2,751,927 -- -- 2,751,927
------------ ----------- ----------- ------------
Total operating
expenses........... 24,058,333 16,075,127 2,274,510 42,407,970
------------ ----------- ----------- ------------
Operating loss...... (22,265,328) (2,328,512) (2,274,510) (26,868,350)
Other income (expenses):
Interest income....... 202,699 -- (27,000)(3) 175,699
Interest expense...... (6,157,662) (159,698) 212,869(4) (6,104,491)
------------ ----------- ----------- ------------
Total other income
(expenses)......... (5,954,963) (159,698) 185,869 (5,928,792)
------------ ----------- ----------- ------------
Loss from continuing
operations......... (28,220,291) (2,488,210) (2,088,641) (32,797,142)
------------ ----------- ----------- ------------
Beneficial conversion
feature of preferred
stock.................. 44,554,000 -- -- 44,554,000
------------ ----------- ----------- ------------
Loss from continuing
operations before
nonrecurring charges
directly attributable
to the acquisition
allocable to common
stockholders......... $(72,774,291) $(2,488,210) $(2,088,641) $(77,351,142)
============ =========== =========== ============
Basic and diluted loss
from continuing
operations before
nonrecurring charges
directly attributable
to the acquisition per
share allocable to
common stockholders.... $ (95.87) $ (101.90)
============ ============
Shares used in computing
basic and diluted loss
from continuing
operations before
nonrecurring charges
directly attributable
to the acquisition per
share allocable to
common stockholders.... 759,078 759,078
============ ============
</TABLE>

See accompanying notes to unaudited pro forma consolidated statements of
operations.

24
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

The unaudited pro forma consolidated financial information is based on our
historical consolidated financial statements and those of our subsidiary,
GeneScreen, adjusted to give pro forma effect to our acquisition of GeneScreen.

The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1999 gives effect to the GeneScreen acquisition as if it
occurred on January 1, 1999. The unaudited pro forma adjustments set forth
below are based upon available information and assumptions that we believe are
reasonable under the circumstances. The unaudited pro forma consolidated
statements of operations do not purport to project our operating results for
any future period. The information set forth below should be read together with
the historical consolidated financial statements of Orchid and GeneScreen and
related notes included elsewhere in this prospectus.

(1) Adjustment to reduce general and administrative expense for transaction
related costs incurred by GeneScreen in connection with our acquisition of
GeneScreen.

(2) Adjustment to record the amortization of goodwill and other intangible
assets on a straight line basis over their estimated useful lives. In the
application of purchase accounting for our acquisition of GeneScreen, we
allocated $43,121,000 of the net purchase price to intangible assets, as
follows:

<TABLE>
<CAPTION>
Amortization
Value Period
----------- ------------
<S> <C> <C>
Customer lists................................. $ 4,210,000 11 years
Base technology................................ 5,580,000 12 years
Trademark and tradename........................ 1,762,000 15 years
Goodwill....................................... 30,983,000 15 years
Other intangible assets........................ 586,000 4 years
-----------
$43,121,000
===========
</TABLE>

(3) Adjustment to reduce our interest income by $27,000, assuming an interest
rate of 6% per annum. This amount represents interest income that would
have been earned on $450,000, the amount of cash we estimated for payment
to GeneScreen stockholders in lieu of issuing series E shares and
transaction costs incurred in the acquisition of GeneScreen.

(4) Adjustment to reduce interest expense on our 6% per annum $3,547,821 note
payable to GeneScreen, which was cancelled in connection with the
acquisition of GeneScreen.

(5) Cost of laboratory testing and general and administrative expenses include
$276,374 and $687,960, respectively, of compensation expense resulting
from our acquisition of GeneScreen, the terms of which required
accelerated vesting for all unvested GeneScreen options and certain
cashless exercises of GeneScreen options.

25
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read with "Selected
Financial Data" and our consolidated financial statements and related notes
included elsewhere in this prospectus. This discussion in this prospectus
contains forward-looking statements that involve risks and uncertainties, such
as statements of our plans, objectives, expectations and intentions. The
cautionary statements made in this prospectus should be read as applying to all
related forward-looking statements wherever they appear in this prospectus. Our
actual results could differ materially from those discussed here. Factors that
could cause or contribute to these differences include those discussed in "Risk
Factors," as well as those discussed elsewhere. See "Risk Factors" and "Special
Note Regarding Forward-Looking Statements."

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 SNPs and microfluidics technologies for applications
in drug discovery, principally in the field of pharmacogenetics and DNA
synthesis.

For the first three years of our existence, 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. During this period, we derived most
of our revenues through payments from SmithKline Beecham. Revenues during these
early years fluctuated due to the timing of both work performed under the
contract with SmithKline Beecham and of earning milestone revenues. After
management and an independent third-party consulting firm conducted a strategic
review of our business strategy in the first half of 1998, we decided to apply
our research and development efforts to the fields of pharmacogenetics and DNA
synthesis. As a result of this review of our business focus, in September 1998,
we acquired substantially all of the assets of Molecular Tool, Inc., a wholly-
owned subsidiary of GeneScreen, for approximately $7.1 million in cash, debt
and equity securities. Molecular Tool's proprietary SNP-IT primer-extension
technology for scoring SNPs matched very well with our microfluidics
technologies that we developed earlier and has together formed the basis for
our current SNP technologies, products and services.

On December 30, 1999, we acquired GeneScreen for a net purchase price of
$42.7 million, consisting of a combination of cash and shares of our series E
mandatorily redeemable convertible preferred stock, offset by the cancellation
of certain debt we owed to GeneScreen. We included $28.5 million as a
beneficial conversion feature in the purchase price. The amount of the
beneficial conversion feature was calculated as the difference between the
$11.75 per share fair value of our common stock on December 22, 1999, the
commitment date which was the date of the merger agreement for the acquisition,
over the $4.50 per share conversion price of the stock. GeneScreen is a company
engaged in DNA laboratory analysis for paternity, forensics and transplantation
testing and had revenues of approximately $13.7 million in 1999. In connection
with the acquisition of GeneScreen, we recorded approximately $43.1 million of
goodwill and other intangible assets, which we will amortize over periods
ranging from four to fifteen years.

Most of our current activities and resources are directed toward
commercializing our SNP scoring products and services that apply our
proprietary SNP-IT primer-extension technology. We expect to recognize revenues
from the sale of both our SNPstream instrument systems and our SNPware
consumables. We also expect each SNPstream system we place will generate an
additional recurring revenues stream from the sale of our SNPware consumables.
We also provide, or plan to provide, a variety of genetic diversity services to
the pharmaceutical and biotechnology industries through our high-throughput
MegaSNPatron facility.

GeneScreen's established business in paternity testing, forensics and
transplantation supports our goal of building our business in genetic
diversity. We believe our SNP-IT and microfluidics technologies will be able to

26
<PAGE>

improve the performance of GeneScreen's genetic testing laboratories. We plan
to use the clinically approved laboratories at GeneScreen to expand our SNP
scoring services to pharmacogenetics testing of patient samples in
pharmaceutical clinical trials. We also plan to use these laboratories to
conduct SNP scoring services we intend to offer via the Internet.

GeneScreen's DNA testing business is dependent upon contracts with various
governmental entities to provide paternity testing. These contracts are
generally put out to bid by each respective state every one to three years. The
contract bidding process is highly competitive and the criteria used to
determine the awards varies from state to state. In some states contracts are
awarded solely on the lowest price, while others use a scoring matrix to
achieve the desired mix of price, quality and service. GeneScreen derives its
transplantation business through tissue typing and donor drive support services
with independent bone marrow donor registries, under contract with the National
Marrow Donor Program, or NMDP, and on a fee-for-service basis directly with
NMDP-affiliated donor centers. Bone marrow registries are not-for-profit
agencies that facilitate hematopoietic cell transplants through organizing
volunteer donor drives, maintaining donor registries and other educational
services. With the acquisition of GeneScreen, we expect to generate service
revenues in fiscal year 2000 and use GeneScreen's CLIA approved testing
laboratories to expand our genetic diversity testing business and services.

Our ability to achieve profitability will depend, in part, on our ability to
successfully develop and commercialize our proprietary SNP scoring and
microfluidics technologies in the form of products and services for
pharmaceutical and biotechnology companies and research institutions. We
introduced our SNPstream 25K SNP scoring system, SNPware consumables and
related services in late 1999. We intend to develop prototype SNPstream
instruments with lower throughput capabilities. Because our proprietary SNP-IT
primer-extension technology is very adaptable to other hardware platforms, we
intend to offer our SNPware consumables for use on instruments made or sold by
other companies. Our collaborations with Affymetrix and Amersham Pharmacia
Biotech are examples of this platform propagation strategy.

We based our proprietary SNP value creation strategy on the creation of
proprietary rights covering the identification of SNPs and their associations
to medically important attributes of patients. We intend to develop
intellectual property rights in this area through collaborations with members
of our Clinical Genetics Network, pharmaceutical and biotechnology companies.
We do not expect royalties from commercial sale or license of intellectual
property rights generated by using our technologies for at least several years,
if at all.

Through December 31, 1999, we had recorded an aggregate of $9.8 million of
deferred compensation expense resulting from the granting of stock options to
employees, directors or consultants covering shares of common stock, which
stock options had exercise prices below the fair value of the underlying common
stock at the date of their grant. Net of prior amortization, net deferred
compensation of $7.9 million at December 31, 1999 will be amortized over the
vesting periods of the respective options, typically four years. In January and
February 2000, we issued 36,500, 729,400, 40,750 and 40,750 stock options at
exercise prices of $1.25, $6.00, $8.00 and $12.00, respectively, for which we
recorded deferred compensation of $4.3 million which will be amortized over the
respective vesting periods of the options. Included in the 729,400 options are
520,000 options granted to executive officers at an exercise price of $6.00 per
share for which we recorded deferred compensation of $3.1 million, which is
included in the $4.3 million, and which will be amortized over the respective
vesting periods. On March 31, 2000, we granted 289,660 stock options at
exercise prices of $12.00 for which we recorded deferred compensation of
$800,000 which will be amortized over the respective vesting periods of the
options. In addition, in February 2000, we issued approximately 800,000
performance based stock options, at exercise prices of $6.00 per share,
including 600,000 to executive officers, for which compensation expense will be
measured as the difference between the fair value of our common stock at the
time the performance criteria is met and the exercise price and will be
immediately recorded as compensation expense. During the quarter ended June 30,
2000, we issued approximately 214,000 stock options at various exercise prices
to certain employees, directors and consultants for which an initial
compensation charge of approximately $5.1 million was recorded and will be
recognized over the respective vesting periods of the options. Amortization of
deferred compensation, and compensation charges resulting from both the
remeasurement of consultant options and from the measurement of performance
based options, where performance was achieved, for the six months ended June
30, 2000, was $4.0 million.

27
<PAGE>

We anticipate recording total compensation charges resulting from the
amortization of the deferred compensation recorded as of June 30, 2000
approximately as follows, in millions:

<TABLE>
<CAPTION>
Six months
ending Year ending
---------- ---------------------------------------------------------------------------
December 31,
-----------------------------------------------------------------------------------------
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
$4.0 $7.2 $4.8 $3.5 $0.5
</TABLE>

Some of these amounts result from grants to consultants which are subject to
remeasurement at the end of each reporting period based upon the changes in the
fair value of the common stock until the consultant completes performance under
his or her respective option agreement. 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.

We have incurred losses since inception, and, as of June 30, 2000, we had
total stockholders' equity of $143.5 million, including an accumulated deficit
of $76.3 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 to the research market and we
fully implement our proprietary SNP value creation business strategies. We
expect this expansion to result in 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.

Sources of Revenues and Revenue Recognition

We have had, and expect in the future to have, several sources of revenues.
Prior to our acquisition of GeneScreen, we derived substantially all of our
revenues from research and development collaborations, technology grants and
awards from several governmental agencies. GeneScreen derives its revenues from
the performance of laboratory DNA testing services. In 1999, we derived our
first revenues from the placement of our first commercial SNPstream hardware
system, and commencing in 2000, we anticipate deriving increasing amounts of
revenues from the sale of SNPware consumables.

In connection with the research and development collaborations that provided
the majority of our revenues in the early years of our corporate history, we
recognized revenues when related research expenses were incurred and when we
satisfied specific performance obligations under the terms of the respective
research contracts. Up front licensing fees obtained in connection with such
agreements are deferred and amortized over the estimated performance period of
the respective research contract.

GeneScreen DNA laboratory and SNP scoring services revenues are recognized
on an accrual basis at the time test results are reported. Deferred revenues
represent the unearned portion of payments received in advance of tests being
completed.

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.
Revenues on the sale of the hardware is recorded upon transfer of title and
after we have met all of our significant performance obligations. Access fee
payments, which are received when a system is initially placed, are deferred
and revenues are recognized on a straight-line basis over the term of the
agreement.

In early 2000, we began to record revenues from the sale of SNPware
consumables. Revenues from these sales are recognized upon the transfer of
title, generally when the SNPware products are shipped to our customers from
our facility.

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Results of Operations

Six Months Ended June 30, 2000 and 1999

Revenues. Revenues for the six months ended June 30, 2000 of $8.1 million
represents an increase of $7.3 million as compared to revenues of $0.8 million
for the corresponding period of 1999. The increase was largely due to revenues
generated from our GeneScreen DNA testing operations of $6.2 million and
revenues generated from access fees related to the placements of our SNPstream
25K instrument systems and sales of consumables of $0.9 million. License
revenues from an agreement to license our SNP-IT technology were $0.6 million
and grant revenues were $0.4 million for the six months ended June 30, 2000.
The results of operations for the six months ended June 30, 1999 do not include
those of GeneScreen, Inc., which we acquired on December 30, 1999. GeneScreen's
revenues during the six months ended June 30, 1999 were comparable with
revenues for the same period in 2000.

Cost of product revenues and access fees. Cost of product revenues and
access fees for the six months ended June 30, 2000 was $0.6 million, compared
to $0 for the corresponding period of 1999. The increase was attributable to
the costs associated with the SNPstream instrument placements, primarily
depreciation, and consumables sold, in the first six months of 2000. There were
no sales for the six months ended June 30, 1999.

Cost of clinical laboratory testing. Cost of clinical laboratory testing was
$4.8 million for the six months ended June 30, 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 the six months ended June 30, 1999 due to the fact that
we had not yet acquired GeneScreen at that time. Cost of clinical laboratory
testing of GeneScreen for the six months ended June 30, 1999 was comparable
with cost of clinical laboratory testing for the same period in 2000.

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 the six months ended June 30, 2000 were $13.2 million, an increase
of $9.2 million, as compared to $4.0 million for the corresponding period of
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 becoming a public company and
supporting our future growth, amortization of deferred compensation expense of
$3.2 million and operating costs of $3.1 million related to GeneScreen which
was acquired on December 30, 1999, of which $1.6 million represents
amortization of intangibles related to the acquisition.

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 the six months ended June
30, 2000 were $16.7 million, compared to $6.2 million for the corresponding
period of 1999. The increase in research and development expenses of $10.5
million for the six months ended June 30, 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 $0.8 million, increased
facilities expenses in connection with the expansion of our internal and
collaborative research efforts and $7.8 million related to a $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 Corporation 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 the six months ended June 30, 2000. Future research
and development expenses are expected to increase as we hire additional
personnel and

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expand our research and development facilities to accommodate our strategic
collaborations and internal research. As part of our expanded collaboration
with the SNP Consortium, we will accelerate the hiring of personnel for, and
use of SNPware consumables in, our MegaSNPatron facility. We estimate that this
will result in additional research and development expenses over the next six
to twelve months of between $3 million and $6 million.

Interest income. Interest income for the six months ended June 30, 2000 of
$2.1 million increased $2.0 million from $0.1 million for the first six months
of 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 the six months ended June 30, 2000
was $0.3 million compared to $0.5 million for the corresponding period in 1999.
This was due to greater outstanding debt balance related to the bridge
financing completed in June 1999, as compared to the lower outstanding debt
balance in 2000, comprised entirely of borrowings on our equipment line of
credit.

Net loss allocable to common stockholders. Due to the factors discussed
above, for the six months ended June 30, 2000, we reported a net loss allocable
to common stockholders of $55.1 million as compared to $9.7 million for the
first six months of 1999. Net loss allocable to common stockholders includes a
beneficial conversion feature on preferred stock for the six months ended June
30, 2000 of $29.6 million.

Years Ended December 31, 1999 and 1998

Pro forma results discussed below give pro forma effect to our acquisition
of GeneScreen as if it were acquired on January 1, 1999.

Revenues. Revenues decreased to $1.8 million for the year ended December 31,
1999 from $2.8 million for the comparable period in 1998. The $1.0 million
decrease resulted primarily from a $2.7 million decrease in contract revenues
from SmithKline Beecham, which we offset by an increase in grant revenues of
$0.8 million and contract revenues from Motorola of $0.8 million. On a pro
forma basis, revenues were $15.5 million for the year ended December 31, 1999.

Research and Development Expenses. Research and development expenses consist
primarily of salaries and related personnel costs, fees paid to consultants and
outside service providers for chip development, material costs for prototype
and test units, and other expenses related to the design, development, testing
and enhancement of our products. We expense our research and development costs
as we incur them. Research and development expenses increased to approximately
$14.4 million for the year ended December 31, 1999 from approximately $7.6
million for the comparable period in 1998. We attributed the increase to
continued growth of research and development activities, including increased
personnel costs of $2.2 million and increased lab supplies and chemicals costs
of $1.8 million to support our technology program and development of our
initial products, higher operating expenses as a result of our move to a larger
facility in May 1999 of $0.6 million, increased non-cash expenses from equity
issuances for licensed technology of $1.0 million, and increased amortization
of deferred compensation of $0.6 million. On a pro forma basis, research and
development expenses for 1999 were not materially different from research and
development expenses in 1998. We expect research and development spending to
increase significantly over the next several years as we expand our research
and product development efforts.

General and Administrative Expenses. 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. General and administrative expenses increased to approximately $9.6
million for the year ended December 31, 1999 from approximately $5.2 million
for the comparable period in 1998. The increase was primarily due to increased
compensation for

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general and administrative personnel of $1.0 million, higher operating expenses
as a result of our move to a larger facility in May 1999 of $0.7 million,
increased costs related to intellectual property prosecution and protection and
other professional services of $0.8 million and increased amortization of
deferred compensation of $0.9 million. We expect general and administrative
expenses to continue to increase over the next several years to support our
growing business activities, the commercialization of our products, and due to
the costs associated with operating as a public company. On a pro forma basis,
general and administrative expense was $17.8 million for the year ended
December 31, 1999. The increase in these expenses was related to amortization
of goodwill and other intangibles of $3.2 million and $5.0 million of costs
related to the additional staffing to operate and to manage GeneScreen DNA
testing business.

Acquisition of in-process research and development. Acquisition of in-
process research and development amounted to $2.4 million in 1998 arising from
our acquisition of certain Molecular Tool assets in 1998, including an in-
process research and development component, which we immediately charged to
expense upon acquisition. We did not incur any comparable charge in 1999.
Please see Note 2 to the Notes to Consolidated Financial Statements for a
discussion of this charge.

The principal corporate activity of Molecular Tool at the date of
acquisition was the continued technical development of our product programs in
the areas of SNPware consumables, MegaSNPatron services, SNPstream hardware
systems and microfluidic genotyping chips. At the date of acquisition, none of
the products or services under development by Molecular Tool had achieved
technological feasibility or had been sold on the market. Substantial risks and
significant uncertainty still existed concerning the remaining course of
technical development. Key development risks for this product included
validation testing, engineering of stability into the critical reagents to
permit their use in the field, and developing the means of scaling-up
manufacturing of the reagents and other elements of the product for eventual
sale. We identified and proposed the microfluidic genotyping chips as a new
technology development area at the time of the acquisition. However, Molecular
Tool had not yet demonstrated major components of the chip as feasible. These
components have required and will continue to require substantial investment.
Molecular Tool had not yet shown the following elements of these components to
be feasible: chip materials fabrication and biocompatibility; method and
composition of bioactive surface preparation; and method and composition of
optical detection systems compatible with chip design. The MegaSNPatron
services, while currently more commercially advanced than the microfluidic
genotyping chips, required additional development and feasibility demonstration
in several key areas, including the method and composition of the bioarray
components; the ability to capture and process results data from the
MegaSNPstream process; and the composition of stable, viable, and cost
effective reagents for the tests. In the case of the SNPstream hardware
systems, development of the analysis machine was largely complete but was still
expected to face engineering challenges before ultimate completion. We faced
challenges in our efforts to successfully commercialize our SNPstream hardware
and SNPware reagents such as the feasibility of adapting an off-the-shelf
robotic system as the SNPstream platform; development of software systems for
data management; and development and validation of viable, stable and cost
effective reagents usable in the SNPware kits. An overall risk facing these
projects was the potential development of competing technologies to facilitate
cost reduction in genetic assays prior to marketing the Molecular Tool
products. Accordingly, a significant portion of the purchase price was
allocated to in-process research and development. These product candidates will
significantly impact future results of operations and cash flows.

The primary valuable elements of the product candidates were separated into
base technology, supporting patents, and the element associated with in-process
research and development. The base technology and patent elements were
separately valued and reported in the acquisition balance sheet. The valuable
elements qualified to receive treatment as in-process research and development
were separately valued as such.

The remaining development cost and time required to develop the project
candidates into commercially viable products as of December 31, 1999 are as
follows: $1.5 million through 2003 for microfluidic genotyping chips and
$800,000 through 2001 for MegaSNPatron services. The SNPware consumables and
SNPstream hardware systems are currently commercial products.

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Material risks affecting the timely completion and commercialization of the
products included the ability to secure raw materials and material supply
agreements for our SNPware kits and MegaSNPatron services, including dyes and
enzymes necessary for the performance of our SNPware kits and services, and
reliance on the development of outside technology for optical components and
some aspects of robotic instrumentation from our SNPstream OEM products. The
remaining development cost and time for these products reflect, in part the
acquisition through supply agreement, development and validation of the raw
materials needed for commercialization. Additionally the remaining development
cost and time reflects, in part, the identification, validation and development
of the technologies external to us needed to select our SNP-IT technology. An
additional material risk affecting commercialization was the presence of
competing technologies.

Interest Income. Interest income consists of income from our cash and short-
term investments. Interest income decreased to $0.2 million for the year ended
December 31, 1999 from $0.9 million for the comparable period of 1998. This
$0.7 million decrease resulted from a lower average cash and short-term
investment balance due to cash used in operating activities.

Interest Expense. Interest expense increased to $6.2 million for the year
ended December 31, 1999 from $0.1 million in the comparable period of 1998.
This $6.1 million increase resulted substantially from interest on the bridge
notes which converted into series E mandatorily redeemable convertible
preferred stock in December 1999 of $0.5 million, interest on the convertible
note payable to GeneScreen which we cancelled in the GeneScreen acquisition of
$0.2 million, and interest attributable both to warrants issued in connection
with our bridge financing of $5.2 million and borrowings on our line of credit
in 1999 of $0.2 million.

Net Loss. Due to the factors discussed above, our net loss was $28.2 million
for the year ended December 31, 1999 compared with a net loss of $11.5 million
for the comparable period in 1998.

Years Ended December 31, 1998 and 1997.

Revenues. Revenues decreased to $2.8 million for the year ended December 31,
1998 from $3.8 million for the comparable period in 1997. The $1.0 million
decrease resulted from a decrease in contract revenues recognized from
SmithKline Beecham.

Research and Development Expenses. Our research and development expenses
decreased to $7.6 million for the year ended December 31, 1998 from $10.8
million for the comparable period in 1997. The decrease of $3.2 million was due
to a reduction in our expenditures at Sarnoff Corporation including expenses
recorded in 1997 related to an obligation under the SmithKline Beecham contract
which did not have a corresponding charge in 1998.

General and Administrative Expense. General and administrative expenses
increased to $5.2 million for the year ended December 31, 1998 from $2.9
million for the comparable period in 1997. The $2.3 million increase was
primarily due to increased costs of $0.5 million resulting from the hiring of
additional personnel to support our growing business activities, increased
professional services fees of $1.2 million and increased facility charges of
$0.2 million.

Acquisition of in-process research and development. Acquisition of in-
process research and development was $2.4 million for the year ended December
31, 1998 resulting from our acquisition of certain Molecular Tool assets in
1998, including an in-process research and development component which we
immediately charged to expense upon acquisition. We did not incur any
comparable charge in 1997.

Interest Income. Interest income increased to approximately $0.9 million for
the year ended December 31, 1998 from approximately $0 for the comparable
period in 1997. This $0.9 million increase resulted from a higher average cash
and short-term investment balance due to the sale of series C mandatorily
redeemable convertible preferred stock in a private placement in December 1997
and March 1998.

Net loss. Due to the factors discussed above, our net loss was $11.5 million
for the year ended December 31, 1998 compared to $9.9 million for the
comparable period in 1997.

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Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through
research and development funding from collaborative partners and two private
placements of equity securities that closed in March 1998 and in December 1999
and January 2000 with aggregate net proceeds of approximately $102 million. The
sale of the series E mandatorily redeemable convertible preferred stock in
December 1999 resulted in a $44.6 million beneficial conversion feature which
was included in net loss allocable to common stockholders in 1999. The closing
of series E mandatorily redeemable convertible preferred stock in January 2000
resulted in an additional $29.6 million beneficial conversion feature which was
included in net loss allocable to common stockholders in the six months ended
June 30, 2000. In December 1998, we obtained a secured $6.0 million equipment
line of credit, for the purchase of plant and equipment at our corporate
headquarters and research and development laboratories. At December 31, 1999,
this funding commitment expired and at June 30, 2000 we had borrowings of $4.3
million outstanding under this facility. We lease our corporate and primary
research facility under an operating lease which expires in 2008.

As part of our transition from a business model based on microfluidics
technologies to one based on SNP scoring technologies, on April 13, 2000 we
amended our License and Option Agreement with Sarnoff by making a single
payment of approximately $3.0 million, issuing 250,000 shares of common stock
and delivering a five-year warrant to purchase 75,000 shares of our common
stock at an exercise price of $8.00 per share. Previously on February 2, 2000,
we issued 100,000 shares of common stock to Sarnoff as an advance on the
issuances which we would have owed in December 2000 for the two option fields
that Sarnoff previously exercised under the License and Option Agreement. As
the licensed technology had not reached technological feasibility and had no
alternative uses, the cash payment of approximately $3.0 million and the fair
value of the equity securities of approximately $4.8 million was charged to
research and development expense in the six months ended June 30, 2000.

In May 2000, we completed our initial public offering of 6,900,000 shares of
common stock, including the sale of over-allotment shares to the underwriters,
at a price of $8.00 per share (excluding underwriters' discounts and
commissions), generating net proceeds of approximately $48.4 million, after
deducting underwriting discounts and commissions and offering expenses payable
by us. All shares of series A convertible preferred stock, series B convertible
preferred stock and series E convertible preferred 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
mandatorily redeemable convertible preferred stock converted into 4,825,259
shares of common stock. No dividends were paid on any of our preferred stock.

As of June 30, 2000, we had $87.9 million in cash and cash equivalents and
short-term investments, compared to $33.8 million as of December 31, 1999. This
increase primarily reflects the completion of our private placement of equity
securities in January 2000 and our initial public offering in May 2000,
including the underwriters' over-allotment shares.

Net cash used in operations for the six months ended June 30, 2000 was
approximately $19.2 million compared with approximately $8.6 million for the
comparable period in 1999. Non-cash charges in the six months ended June 30,
2000 included compensation expense of $4.0 million and research and development
expense of $4.8 million, both from the issuance of equity securities, and
depreciation and amortization expense of $2.7 million. Investing activities
included $3.8 million in cash used during the six months June 30, 2000 for
equipment purchases and $38.2 million for the net purchases of short term
investments. Financing activities included the use of $1.5 million to repay
debt from lines of credit and net proceeds of $48.4 million from our initial
public offering in May 2000 and $29.6 million from the sale of our series E
preferred stock in January 2000.

Working capital increased to approximately $87.3 at June 30, 2000 from
approximately $27.3 million at December 31, 1999. The increase in working
capital was primarily due to the proceeds from our series E mandatorily
redeemable convertible preferred stock financing in January 2000 and our
initial public offering in May 2000.

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At September 1, 2000, we held cash and cash equivalents and short-term
investments of approximately $79.8 million. We believe that our cash reserves,
expected short-term revenues, and the net proceeds of this offering will be
sufficient to fund our operations through at least the next 18 months. We may
need to access the capital markets for additional financing to operate our
ongoing business activities. We expect to expend between approximately $8
million and $12 million in the next twelve months for the build-out of our
MegaSNPatron facility.

As of December 31, 1999, our net operating loss carryforwards were
approximately $40.0 million and $44.0 million for federal and state income tax
purposes, respectively. If not utilized, our federal and state tax loss
carryforwards will begin to expire in 2003. 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, including our series E mandatorily redeemable preferred stock
financing in December 1999 and January 2000, our initial public offering in May
2000 and this offering. This annual limitation is likely to result in the
expiration of certain net operating losses prior to their use.

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 DNAstream and
software product lines and associated reagent consumables;

. the success rate of establishing new contracts, and renewal rate of
existing contracts, for DNA testing 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, if necessary, and if at all, on
favorable terms.

Disclosure About Market Risk

Our exposure to market risk is principally confined to our cash equivalents
and short-term investments, all of which have maturities of less than one year.
We maintain a non-trading investment portfolio of investment grade, liquid debt
securities that limits the amount of credit exposure to any one issue, issuer
or type of instrument. The fair value of these securities approximates their
cost.

Inflation

We do not believe inflation has had a material impact on our business or
operating results during the periods presented.

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BUSINESS

Overview

We are engaged in the development and commercialization of technologies,
products and services designed to measure and use information related to
genetic diversity. We expect our proprietary technologies will significantly
enhance the way companies generate information about single nucleotide
polymorphisms, or "SNPs," the most common form of genetic diversity. The
pharmaceutical and medical communities can use genetic diversity information to
facilitate the development of highly specific and efficacious drugs, to improve
the effectiveness of existing drugs and to increase the likelihood of success
of tissue transplants. Our proprietary products and technologies also have
other commercial applications outside of the healthcare field, including
forensics and paternity testing, as well as improved crop development and
livestock breeding programs.

History

Background

Genetic information provides a basis for understanding biological and
medical functions in organisms. In recent years, scientists have begun to
analyze large portions of deoxyribonucleic acid, or DNA, to determine the
sequence of nucleotide bases in DNA within the human genome and within the
genomes of plant and animal species. In June 2000, a group of scientists
announced the completion of the first draft sequence of the human genome.

The first phase of the genomics revolution has centered around sequencing
significant portions of DNA within the human genome. We believe the next phase
of the genomics revolution will involve the identification of genetic variation
within the genome from person to person resulting from differences, or
polymorphisms, in these DNA sequences.

The Impact of Genetic Variation

Pharmacogenetics is the study of the impact of genetic variation on the
efficacy, pharmacology and toxicity of a drug. As scientists and researchers
have acquired a greater understanding of genetic variation, they have realized
that the effect a drug has upon an individual is often a function of that
individual's unique genetic sequence. Genetic variation may indicate why some
individuals contract certain diseases and others do not and may also determine
why two individuals respond differently to the same drug. Typically,
pharmaceutical companies develop drugs to interact with a single version of a
given protein or receptor. Accordingly, a drug may only 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 the proteins involved in
the metabolism of the drug, may not respond to the drug or may experience
adverse side effects.

We expect that the methods used by the pharmaceutical industry to develop
new drugs and to improve existing drugs will undergo a fundamental
transformation to take genetic variation into account. However, the

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usefulness of genetic variation information is not limited to drug development.
In fact, genetic variation can play a significant role in all stages of drug
discovery and development. Pharmaceutical companies can improve drugs already
on the market by using genetic variation information to select the best drug
for a particular patient. Genetic variation information may also be used to
improve the success of organ and bone marrow transplantations by matching the
compatibility of donors to recipients as well as for paternity testing,
forensic testing and for agricultural and livestock breeding programs.

SNPs: A Key Indicator of Genetic Variation

DNA sequences contain a variety of known polymorphisms. The most common form
of polymorphism involves a change in a single nucleotide base and is called a
single nucleotide polymorphism, or SNP. Because SNPs are the most common type
of polymorphism, they can have significant effects on both susceptibility to
disease as well as drug response. As a result, the biotechnology and
pharmaceutical industries have recently focused attention on the discovery of
SNPs. For example, in 1999, a group of leading pharmaceutical companies formed
The SNP Consortium for the primary purpose of discovering new SNPs and making
them publicly available. The SNP Consortium members include: The Wellcome
Trust, Amersham Pharmacia Biotech, AstraZeneca, Aventis, Bayer, Bristol-Myers
Squibb, F. Hoffmann-LaRoche, Glaxo Wellcome, IBM, Motorola, Novartis, Pfizer,
Searle and SmithKline Beecham.

The increased focus on the discovery of SNPs highlights the important
distinction between SNP discovery and SNP scoring. SNP discovery refers to the
identification of the specific location in a gene where there is variability in
a single nucleotide base across a population. By contrast, SNP scoring refers
to the measurement of the presence or absence of a particular SNP in the
genetic sequence of a particular individual. We believe that the mere discovery
of SNPs has not been of significant value in the treatment of disease. Unlike
SNP discovery, SNP scoring focuses on what we believe is a compelling and
potentially more valuable opportunity of correlating a given SNP or combination
of SNPs with important medical attributes. Recently reported data indicates
that there are in excess of one million SNPs in each individual. While some of
these SNPs have obvious and immediate medical relevance, the significance of
the vast majority of SNPs is currently unknown. We believe the commercial value
of SNPs will be realized by identifying SNPs with medical relevance by
performing SNP scoring studies on hundreds of thousands of SNPs in hundreds of
thousands of individuals.

As work on the Human Genome Project continues, the number of identified SNPs
will increase dramatically. Scientists and researchers will then need to
conduct SNP association studies to find the potential relevance of identified
SNPs to human health. As a result, we expect the demand for SNP scoring to
increase significantly over the next few years. This increase in demand will be
driven not only by a small group of dedicated laboratories conducting large-
scale experiments, but also by a large number of smaller research and clinical
laboratories conducting a more diverse set of experiments. To find the subset
of SNPs that occurs with the greatest frequency in human disease or that are
potentially responsible for variations in drug response, hundreds of millions
of SNP scores must be made and correlated with health and other features of
interest. Research and clinical laboratories will require the use of a highly
accurate, high-throughput SNP scoring technology that can be implemented at a
competitive cost to find these valuable SNPs.

The SNP Consortium has published a set of approximately 300,000 SNPs to
date. If research laboratories were to score all of these SNPs in a group of
1,000 patients, they would require large-scale experiments consisting of over
300,000,000 individual SNP scores. Since there are many research laboratories
currently conducting research on SNPs, we estimate they will require the
performance of billions of SNP scores over the next few years and potentially a
thousand-fold more over the next decade. Since performing SNP scoring using
conventional sequencing methods can cost several dollars per SNP score, these
studies would be cost-prohibitive without further technological advancement.

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Traditional Methods of SNP Analysis and Their Limitations

Traditional methods for discovering SNPs rely on DNA sequencing, which is
currently conducted by large dedicated laboratories using automated
instruments. While DNA sequencing is an efficient SNP discovery tool, it is
expensive and complex when used to conduct SNP scoring.

Researchers have developed variations based upon standard DNA sequencing
methods, such as DNA hybridization. DNA hybridization relies upon the principle
that a unique piece of DNA will hybridize most strongly to its exact complement
as opposed to a complement containing a SNP. A significant problem with
hybridization as a DNA sequencing method, however, is that it requires ideal
testing conditions. Slight changes in temperature, salt concentration or DNA
composition will dramatically affect the reliability of the hybridization
reaction. As a result, some commercial tests based on hybridization require ten
or more repetitive analyses for every SNP scored. While various commercial
variations of the hybridization technique have improved the reliability of
hybridization, the technique remains complex and costly.

SNP Scoring Systems

SNP scoring systems typically contain two basic elements: an instrument
platform or "hardware" component and a biochemistry or "wetware" component. The
hardware component, which is the instrument platform where the SNP scoring
takes place, typically consists of a means of detection, such as fluorescence,
mass spectroscopy or optical density; a separation apparatus such as
electrophoresis, beads or multi-well plates; and a liquid dispensing apparatus
having such features as pipetting or microfluidics. The wetware component,
which is a specifically designed set of biochemical reagents, conducts the
test, or assay, that recognizes the SNP at the molecular level as being present
or absent at its expected location. The actual recognition, or scoring of the
SNP, takes place by having molecules bind or react with or near the location of
the SNP in a test tube or other suitable chamber. Since the wetware component
consists of consumable reagents designed for a specific set of procedures and
packaged within a single kit, multiple kits must be purchased for multiple SNP
analyses.

There are certain key criteria of both hardware and wetware components that
contribute to the success of the overall SNP scoring system. For the hardware
component, these criteria include throughput, cost, flexibility, automation and
ease of use. For the wetware component, these criteria include the following:

. Accuracy. The sensitivity of the biochemistry wetware in accurately
recognizing and scoring a single SNP or a group of SNPs in a large group
of samples.

. Flexibility. The adaptability of the biochemistry wetware for use on many
different instrument platform hardware systems having various degrees of
automation and detection methods.

. Cost-effectiveness. The cost of the reagents and the labor used to
perform each SNP score.

. Robustness. The ability of the assay to perform well under a variety of
experimental conditions and the user-friendliness of the protocol
required to conduct the test.

. Scalability. The ability of the biochemistry wetware to function through
a range of production size requirements from single sample tests to large
scale mass production.

Because each SNP scoring customer will have specific system requirements,
the ideal SNP scoring system should be capable of addressing all of the
criteria described above.

With the biotechnology and pharmaceutical industries' increased focus on the
medical and industrial relevance of SNPs and the increase in the number of
discovered SNPs, there is a pressing need for a fast and flexible SNP scoring
system that can score SNPs with a higher level of accuracy and at a lower cost
than is achievable with alternative methods.

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Orchid's Unique Solutions

Our Proprietary Wetware -- SNP-IT

We conduct SNP scoring using our 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, we first bind a specially synthesized DNA
primer to the sample DNA to expose the DNA site of interest where a SNP may be
present. We then add DNA polymerase, a naturally occurring molecule that
accurately and reliably inserts the appropriate complementary base to a chain
of DNA, to extend the DNA chain by one base at the suspected SNP location. We
then use one of several conventional methods, including fluorescence, optical
density, electrophoresis and mass spectroscopy, 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.

We believe our proprietary SNP-IT primer-extension technology has certain
advantages over alternative SNP scoring technologies because it can produce
accurate results in less than ideal conditions. Further, our SNP-IT primer-
extension technology uses experimental steps and instruments already familiar
to technicians and scientists in the life sciences field. SNP-IT primer
extension is distinct from other alternative SNP scoring technologies in the
following ways:

. Accuracy. We believe our proprietary technologies permit users to realize
higher levels of accuracy without incurring the time and expense of
conducting repetitive analyses of the same SNP. Unlike hybridization-
based methods, our SNP scoring technologies rely on the inherent accuracy
of DNA polymerase. The use of DNA polymerase enables our SNP-IT primer-
extension technology to achieve the accuracy and reproducibility of DNA
sequencing, while lowering costs and reducing complexity. Since a SNP
scoring technology that is susceptible to even a one percent error rate
could double the sample requirements and significantly increase the costs
of a clinical trial, the degree of accuracy of our SNP scoring
technologies should improve the design and reduce the cost of large
clinical studies.

. Flexibility. Our biochemistry wetware component is compatible not only
with our hardware platform, but also with the estimated 100,000 other
instrument systems already installed around the world. Unlike the wetware
components of competing systems, we may apply our wetware to a wide range
of formats and systems including: arrays, gels and beads, as well as mass
spectroscopy and optical systems. We believe the flexibility of our SNP-
IT primer-extension technology will permit us to provide our products and
services to customers who use different platforms with a combination of
price and performance tailored to their needs.

. Cost-effectiveness. We expect the use of our SNP-IT primer-extension
technology for SNP scoring will reduce the amount of data required to be
analyzed when conducting SNP association studies relative to current
alternative methods of primer extension. We believe eliminating the need
for repetitive SNP scoring tests will reduce costs associated with both
clinical trial sample collection and SNP scoring.

. Robustness. We believe SNP-IT primer-extension technology provides
accurate results over a wide range of testing conditions and is less
vulnerable to failure or false results if testing conditions are not
ideal.

. Scalability. We believe we are unique in our ability to scale our SNP
technologies to meet the needs of prospective customers who will require
tests ranging from a single SNP per sample to hundreds of thousands of
SNPs on thousands of samples.

There are, however, elements of our SNP-IT technology which may be perceived as
limitations by our potential customers. These limitations include:

. Reliance upon third party prepared primers. The accuracy of results that
customers may achieve with our SNP-IT technology and our SNPstream
instruments relies upon the accuracy and quality of primers

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prepared by these customers or third parties. If primers are not properly
prepared, our technologies and products may not produce accurate results.
Our competitors who use other technologies such as hybridization similarly
rely on primers prepared by third parties.

. Adoption of technology. A number of prospective customers in our industry
may be slow to adopt our SNP-IT technology in part, because it has not
achieved widespread use in the market and because these customers may not
be aware of the advantages of our technologies. Many of our competitors
offer more widely recognized technology that may be selected by customers
because of the familiarity they may have with our competitor's
technology.

. Reliance upon third party sequence information. Our SNP-IT technology
relies on having complete sequence information for the bases surrounding
a potential SNP site in order to design a primer that will bind with that
SNP. By contrast, our competitors who are engaged in the discovery of
SNPs through the use of DNA sequencing do not require sequence
information about the bases surrounding a potential SNP site.

Our Complementary Technologies

We also have a portfolio of microfluidics technologies which we are
applying to the field of SNP scoring. We can use our microfluidics systems to
increase the throughput and decrease the costs of SNP scoring. We plan to use
our microfluidics technology to synthesize DNA for use as primers in SNP
scoring. We can manufacture our primer arrays for use in a wide variety of
formats, including industry standard 384-well plates in our MegaSNPatron
facility and arrays compatible with other DNA chip systems. This should allow
us to format SNP arrays and tailor them rapidly on a project-by-project basis
and give us the ability to produce DNA arrays on demand. Microfuidics will
also enable us to greatly reduce the amount of costly reagents required for
SNP scoring. By applying these technologies, we believe we will be able to
both increase the throughput and reduce the cost of SNP scoring.

We have also developed additional chemistries and technologies which
augment our SNP scoring capabilities, including detection methods, target
preparation methods, signaling chemistries, surface chemistries, SNP scoring
algorithms, primer design software, data management tools and primer extension
permutations. We have designed proprietary algorithms which allow for the
automated selection of important SNP patterns associated with the scoring of
inherited SNPs. Many of our chemistries and technologies involve novel uses of
instrumentation, software and technologies that still require validation in
commercial applications. Many alternative chemistries and technologies
currently in use have been demonstrated to be commercially viable.
Nonetheless, rapid changes in the development of technology in the field of
genetic diversity can quickly make genetic diversity technologies, including
our own, obsolete. We intend to continue to pursue new chemistries and
technologies which can improve our core technology position in SNP scoring and
analysis.

Genetic Diversity Markets

Due to the key role of SNPs as indicators of genetic diversity, we believe
SNP scoring will have significant applicability in all stages of drug
discovery and development. In each of these stages, we believe SNP scoring can
provide significant value for our customers while creating market
opportunities for us as described below:

The Use of SNP Scoring in Drug Discovery

. Target Identification. Researchers can use correlations between
individuals with a given disease and SNPs to identify candidate genes
that are related to the disease. These genes can then serve as candidate
targets for new drug development.

. Target Validation. A target containing many SNPs is likely to be a poor
target for traditional drug discovery since too much variability may lead
to a lack of uniform response in a patient population.

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Researchers can use SNP studies to validate candidate targets by either
taking into account the target's variability or by eliminating targets
with excessive variability at an early stage of the drug discovery
process.

. Lead Identification. Pharmaceutical companies can identify lead compounds
which act not only on the proteins encoded by the target gene, but also
the proteins encoded by the SNP variants of the gene. In this manner,
they can identify lead compounds that act on multiple versions of a
target protein.

. Lead Validation. Pharmaceutical companies can conduct biological assays
on lead compounds against SNP variants of a given protein, thereby
validating a lead candidate.

The Use of SNP Scoring in Drug Development

. Lead Optimization. Pharmaceutical companies can use studies on known SNP
variants of targets to improve existing drugs by seeking broader efficacy
over larger patient populations with genetic variations. They can also
use SNP scoring to re-evaluate and modify drugs that previously failed or
that have been dropped from the market through evaluation of efficacy on
specific SNP variants of drug targets.

. Preclinical Testing. Studies with model systems to correlate drug
response or lack of response and metabolism to known SNPs in the target
or in related enzymes can yield improved efficacy and permit more
accurate safety predictions for a drug.

. Clinical Trials. Pharmaceutical companies may select patients for
clinical trials based on the presence or absence of SNPs known to be
associated with drug response. Our technologies may reduce the duration
and expense of clinical trials through the use of SNP scoring in smaller
patient populations.

The Use of SNP Scoring in Drug Marketing

. Market Extension. Pharmaceutical companies can use SNP scoring in
marketing programs to expand or extend markets of an existing drug to new
patient groups based on SNP variants. This may lead to label extensions
and longer commercial lives for existing compounds based on patient SNP
type. In addition, these companies may use SNP scoring to exclude
patients that are more likely to experience toxicity when treated with a
certain drug. This should permit drugs to remain on the market for a
longer period of time.

. Generic Drugs. Pharmaceutical companies can use SNP scoring to discover
novel uses of existing non-proprietary drugs, with the potential for new
patent protection.

. Drug Revival. Pharmaceutical companies can use SNP scoring to bring
drugs, which previously failed due to adverse drug response or lack of
response, back to the market for use on better defined patient
populations.

The Use of SNP Scoring and Other Polymorphism Analyses in Healthcare Delivery

. Clinical Diagnostics. Healthcare providers can use SNP scoring in patient
testing for disease diagnosis or in determining the appropriate medical
treatment for a patient.

. Drug Selection. Healthcare providers can use SNP scoring to tailor
formulations of drug treatments selected specifically for a patient
having a unique set of SNPs. This could revolutionize drug prescription,
significantly reducing erroneous or ineffective prescriptions. They may
also use tailored formulations to develop more cost-effective formularies
for managed care systems.

. Medical Treatment Selection. Healthcare providers can use SNP scoring not
only for drug selection, but also to modulate drug dosage and to select
non-pharmaceutical treatment, such as surgery, in cases where drugs may
not be effective in a particular patient. We expect the reduction of the
time required to identify an effective treatment will improve medical
outcomes.

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. Transplantation Matching. Genetic variability in genes plays a key role
in the success of transplantation therapy. The ability to rapidly and
accurately match donated tissues to recipients through polymorphism
matching has become increasingly important.

Potential Impact of SNP Scoring on Our Prospective Markets

The market potential for SNP scoring is a function not only of the variety
of different markets as described above but also of the impact of our SNP
scoring technologies on each of these markets. We describe the impact of new
and expanding uses of SNP scoring as the lifecycle of a SNP, consisting of the
following five stages.

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

Stage 2: Confirmation. Confirmation that the suspected SNP is indeed a SNP
and not a sequencing mistake or rare mutation. This is accomplished by scoring
the SNP on hundreds of patients, plants or animals to determine its frequency
of occurrence.

Stage 3: Association. Association of the confirmed SNP with the occurrence
of an adverse drug response, the lack of response to a drug or perhaps the
presence or absence of a disease through SNP scoring on a set of patient
samples grouped by medical attributes. In this manner, healthcare providers can
use SNP associations to determine the optimal drug selection for each patient
SNP type.

Stage 4: Clinical Trials. Use of the knowledge of the presence or absence of
one or more SNPs to predict or improve the outcome of clinical trials.

Stage 5: Diagnostic Testing and Industrial Application. Use of SNPs in the
clinical diagnostic testing of a patient to determine appropriate drug or
alternative treatment or in industrial applications.

Each of these stages of the SNP lifecycle represents a separate business
opportunity with unique market dynamics and product or service requirements. As
a SNP progresses through this lifecycle, the throughput requirements at any
given laboratory for scoring this SNP may decrease. However, we expect the
number of laboratories performing SNP scoring in these later stages to increase
substantially. For example, it may take a laboratory with a throughput of a
million SNPs per day to identify the one specific SNP from a potential pool of
several thousand that can predict the response to a specific drug. In order to
make such association studies commercially viable, the laboratory would
probably want to use a SNP scoring technology such as SNP-IT primer extension,
that can provide accurate results without the need for repetitive testing. Once
a SNP progresses through the SNP association stage, that one SNP might find its
way into thousands of clinical laboratories performing tests on a few hundred
patients a day in order to complete clinical trials or diagnostic testing.
Thus, as the field of genetic diversity matures over the next few years, we
expect that researchers will use more and more SNPs in a larger number of
smaller laboratories such as clinical laboratories. Following the progression
of many SNPs through the early stages of the SNP lifecycle, we expect that our
SNP-IT primer-extension technology, which can adapt to existing diagnostic
testing instruments, will have significant market appeal.

Industrial Applications of Genetic Diversity

Genetic diversity also has many commercial and industrial applications.
State and other government agencies can use information related to genetic
diversity between individuals to determine identity and paternity. For example,
we can test DNA material collected from a crime scene to determine if a
particular individual was involved in the crime. Similarly, we can match the
DNA of a child to that of the mother and the purported father to determine
unambiguously the actual parents of the child. These two applications have
revolutionized forensics and child support enforcement. We also test DNA for
likely compatibility of organs or tissues for transplantation between
individuals. Our technologies enable us to screen large numbers of potential

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donors for compatibility. We estimate that the market size for DNA testing in
these areas is more than $100 million per year.

As with humans, genetic diversity in plants and animals results in
differences between species as well as differences in characteristics within
the members of given species. For example, plants have genetic variations
responsible for differences in crop yield as well as product size and flavor.
Animals also have genetic variations responsible for traits such as fertility
and resistance to disease. Agricultural companies and livestock breeders can
optimize traditional plant hybridization and breeding programs by using genetic
variation information to more rapidly attain desired quality traits of plants
and animals without engaging in genetic engineering.

Our Business and Commercialization Strategy

Our objective is to become the premier provider of instruments, consumables,
services and technologies for SNP scoring and other genetic diversity tests.
The key elements of our strategy to achieve this objective include the
following:

Rapid Commercialization

We intend to rapidly commercialize our growing line of instruments,
consumables and services for SNP scoring. Our product lines currently include
our SNPstream hardware instruments, our SNPware wetware consumables and our
high-throughput MegaSNPatron facility for SNP scoring services. We intend to
expand our existing products and services to offer a wide range of performance
options. An example of our SNPstream product line expansion is our
collaboration with Luminex.

We currently sell SNPware consumables for use in SNP scoring and provide
non-exclusive, one-time use licenses of our SNP-IT primer-extension technology
in connection with each sale solely for the purpose of performing SNP scoring
using the quantity of samples and SNPs contained in each kit. We also expect to
generate substantial recurring revenues from the sale of our SNPware
consumables to purchasers of our SNPstream hardware systems.

We also intend to expand the market for our SNPware through our platform
propagation strategy, which consists of:

. offering SNPware for use on instruments made and sold by other companies,
as we plan to do in our collaboration with Affymetrix, in order to take
advantage of their existing marketing and distribution channels;

. selling SNPware and kits directly to the existing customer base of such
companies; and

. licensing our SNP-IT primer-extension technology to allow certain
companies to manufacture kits for SNP scoring for use with their
instruments, as we currently do through our agreements with Applied
Biosystems and Amersham Pharmacia Biotech.

We believe our proprietary biochemistry underlying our SNP-IT technology is
flexible enough to be adapted to various instrument platforms, including
capillary and slab-gel electrophoresis, DNA sequencers, mass spectrometers,
optical plate readers, fluorescence plate readers, micro array readers and DNA
chip systems. We believe the installed base of these instrument platforms is
more than 100,000 instruments in the aggregate. We also believe this strategy
will allow us to establish our SNP-IT technology as the leading means of SNP
scoring more quickly than if our technologies were limited to a single
platform.

Market Extension

The pharmaceutical and research communities are currently our largest SNP
scoring markets. Although we expect these markets to grow rapidly over the next
several years, we believe the application of SNP scoring in the clinical and
diagnostic markets, which are still in the early stages of development, has the
most significant

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long-term potential. We believe that our market extension strategy leverages
our developing research market position, which we expect to expand using our
SNPstream and SNPware product lines, as well as the services we conduct in our
high-throughput MegaSNPatron facility. As researchers find more medically
important SNPs using our technologies, products and services, we believe more
suppliers of genotyping services in the clinical and diagnostic markets will
select our SNP scoring technologies. Due to the flexibility and scalability of
our SNP scoring technologies, we also believe we can readily adapt these
technologies to many systems in the clinical and diagnostic markets. As a
result, we believe we are well positioned to collaborate with companies with
large installed bases of clinical systems.

We have already started to expand our genetic diversity services by
acquiring GeneScreen. GeneScreen sells genetic diversity testing services for
use in forensic and paternity testing as well as for improving the success of
transplantation of bone marrow. As a result of this acquisition, we believe we
are currently the second largest provider of paternity tests in the United
States. We intend to consider other acquisition opportunities to further expand
applications of SNP scoring in industrial and clinical markets.

We also intend to expand our markets geographically by establishing SNP
scoring facilities and distribution channels in other countries through what we
call our Regional GeneScreen Centers. Through this strategy, we intend to
rapidly penetrate the global market and form relationships with a diverse group
of scientists throughout the world. The Regional GeneScreen Centers are
intended to create service revenues, as well as serve as applications
laboratories to promote the local sale of our products. We expect to establish
the first of these Regional GeneScreen Centers within the next 12 months.

As the clinical value of SNPs becomes more accepted, we believe consumers
will represent a significant potential market for our services. We intend to
develop a number of distribution channels to this market, including a Web site
based service enabling physicians to order pharmacogenetic tests over the
Internet. This service would offer SNP scoring on patient samples. This service
would indicate the adverse drug responses to which patients may be susceptible
and assist in the selection of drugs which may work best for the patient. We
plan to provide a related service to the healthcare industry which we would
design to provide important topical information about our available services
and the field of pharmacogenetics generally. We plan to provide leadership in
establishing high standards of medical ethics, confidentiality and data
security in introducing and establishing these services. When implemented, we
intend to perform this type of testing at our Regional GeneScreen Centers.

We also intend to expand into industrial applications of SNP scoring,
including agricultural applications which represent a growing market
opportunity for our products and services. We believe the SNP scoring needs in
the agricultural industry will be similar to those for the pharmaceutical
industry and may involve similar products and/or SNP scoring facilities.
Therefore, we believe we are well-positioned to take advantage of this market
and expect to form additional collaborations with members of the agricultural
industry community in the last quarter of 2001.

Proprietary SNP Value Creation

We have based our proprietary SNP value creation strategy on the creation of
proprietary rights covering the identification of SNPs and their associations
to medically important attributes of patients. We believe the knowledge gained
from such associations will allow healthcare providers to screen patients more
accurately for appropriate medication and treatment. We expect this will result
in proprietary rights covering a broad range of new and existing drugs,
consisting of both "composition of matter" patents which cover the drugs
themselves and "use patents" which extend their label coverage.

We believe we can also use our proprietary SNP value creation strategy to
extend patent coverage on existing drugs as well as drugs that are off patent.
We also believe, in some cases, SNP-enhanced

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pharmaceuticals will be tantamount to novel drugs and we may either license
these extended patents to pharmaceutical companies or develop them
commercially.

We believe SNPs will be useful in a variety of research and clinical
applications. As researchers and scientists associate SNPs with medically or
commercially important attributes, we can assemble them into SNP scoring panels
designed for specific applications. Once researchers and scientists find these
SNP associations, we expect to file patents on the use of specific SNPs. For
example, we could package a panel of five SNPs that were all known to correlate
with a lack of response to a certain drug as a SNP scoring kit. Individual
patients might be able to benefit from such a SNP panel by receiving an
effective drug over a shorter period of time. We believe we can generate
revenues from the licensed use of our SNP-IT primer-extension technology as
well as from our growing portfolio of proprietary uses of SNPs.

Sustained Competitive Advantage

In order to build and sustain our competitive advantage in the field of
genetic diversity, we plan to form strategic alliances and scientific
collaborations and make strategic acquisitions. We believe our financial and
technology positions will make us an attractive partner to a variety of other
participants in this industry. We are expanding our paternity, forensic and
transplant genetic testing services in our Regional GeneScreen Centers to
include new testing services and new groups of customers. Through
collaborations and selective acquisitions, we will seek access to distribution
channels and opportunities to improve operational efficiencies. We have already
formed a number of collaborations with research physicians in what we call our
Clinical Genetics Network. Through this network, we believe we will gain access
to clinical samples which will enable us to find correlations between SNPs and
medically important attributes. This may enable us to create additional
intellectual property rights.

We also intend to continue our aggressive investment in our proprietary
technologies through internal development and by licensing third-party
technologies. Examples of this include the application of our microfluidics
technology to DNA synthesis for use in genomics research and to increase the
throughput and reduce the costs of SNP scoring in our MegaSNPatron facility. We
will also seek to improve the cost-effectiveness of our products and services
through increased automation and development of improved information
technologies.

Products and Services

We are currently marketing or developing the following products and
services:

Instruments and Systems -- Hardware

We have developed our SNP scoring instrument systems using an original
equipment manufacturer, or OEM, strategy by modifying instruments already
produced by other companies. We intend to continue this OEM strategy to expand
the number of instruments that we offer while minimizing the engineering
expenses normally associated with the internal development of these systems.

SNPstream Product Line

We introduced our SNPstream 25K system in September 1999 and currently have
10 systems in operation. This system is based on an OEM robotic system
optimized for use with our proprietary SNP-IT primer-extension SNP scoring
assays, formatted in 384-well plates and uses our dedicated consumables and
software to provide the user with turn-key SNP scoring capabilities of
approximately 25,000 SNPs per day. The equipment manufacturer, Beckman Coulter,
installs and services this system, and we support the SNP scoring applications.
We intend to develop a medium-throughput version of our SNPstream system that
will enable users to analyze approximately 5,000 SNPs per day. In addition, we
intend to introduce a low-throughput SNP

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scoring system capable of scoring up to 1,000 SNPs per day. These systems are
in development and we expect to begin expected initial commercial testing of
the medium-throughput system by the end of 2000.

SNPware Consumables -- Wetware

Customers may conduct our SNP scoring biochemistry by using a set of
approximately 10 reagents. These reagents can be pre-dispensed in the necessary
amounts to run a specific number of SNP scores. We assemble this set of
reagents along with the labware and instructions in a kit for the convenience
of our customers. We intend to sell these kits under our SNPware brand name for
use on our own SNPstream systems as well as the systems of other companies. We
also intend to market SNPware on one of our Web sites, where customers can
order custom panels of SNPs to fit their needs. Our SNPware consumable product
line includes the following:

SNPware 384

SNPware 384 kits are the custom 384-plate kits supplied with SNPstream 25K,
containing optimized reagents and software for performing accurate, robust SNP
scoring. We typically format these kits for scoring of specific sets of SNPs at
the request of our customers. A given panel may screen thousands of samples for
a small number of SNPs.

SNPcode Kit

We designed our SNPcode kit for use with the Affymetrix GeneChip system,
which will enable users to run SNP-IT primer extension for SNP scoring on the
Affymetrix GeneChip system. We currently anticipate launching this kit in the
fourth quarter of 2000.

Additional Products

DNAstream Product Line

We are designing our DNAstream line of products to enable the simultaneous
synthesis of up to 96 oligonucleotides. Purchasers of DNAstream products may
use these oligonucleotides as the DNA primers for our SNP-IT primer-extension
technology. We are also developing our proprietary microfluidic technology for
use in DNA synthesis instruments. We expect the unique control features of our
microfluidics chip will enable our customers to use standard chemistry to
produce DNA of exceptional purity using controlled pore glass or polystyrene
supports in arrays of microreactors. Potential benefits of our DNAstream
products include reduced reagent usage and lower cost enabled by the execution
of reactions in a microreactor well, rather than on the surface of glass plates
or in flow-through cartridges, which are commonly used in current commercial
DNA synthesizers. We may also use the high-throughput versions of this line of
products internally to produce the DNA required for our high-throughput
MegaSNPatron facility and/or offer on a service basis. We currently expect to
commence initial commercial testing of the DNAstream product line in 2003.

In the future, we anticipate commercializing SNP-IT primer-extension
technology kits for use on other platforms or for other readout methods,
including fluorescence polarization, gel-based sequencers, optical readers and
mass spectroscopy.

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The following chart summarizes the important features of our SNPstream,
DNAstream and SNPware product lines:

<TABLE>
<CAPTION>
Expected
Initial
Assay Commercial Expected
Products Media Mode Platform/Readout Testing Launch
-------- -------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C>
SNPstream Product Line
SNPstream 25K (high
throughput)............ Plate Orchid completed launched
SNPstream 5K (medium Plate, bead Orchid 2000 2001
throughput)............ or glass slide
SNPstream 1K (low
throughput)............ Plate Orchid 2001 2001

SNPware Product Line
SNPware 384............. Custom kit Orchid completed launched
SNPcode Kit............. Custom kit Affymetrix 2000 2001
Additional SNPware Generic kits Multiple 2001 to 2002 2001 to 2003
Products............... instruments
Additional Products
DNAstream 96............ Bead/cleave Orchid 2003 2004
</TABLE>

Services

We provide, or intend to provide, a variety of genetic diversity services
through our high-throughput MegaSNPatron facility and Regional GeneScreen
Centers.

MegaSNPatron Facility Services

We intend to continue to provide among 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 are continuing to
expand throughput capabilities in order to perform over one million SNP scores
per day by the first quarter of 2001.

. SNP CONFIRM SERVICES. We offer customers SNP confirmation services in
which we score new SNPs and verify the existence of SNPs discovered
through DNA sequencing. In the past, we have provided this service to The
SNP Consortium.

. SNP ASSOCIATION SERVICES. We offer our SNP association service to
pharmaceutical companies who design and undertake studies in order to
discover associations between SNPs and multiple patients' medically
important attributes. The discovery of these associations is a critical
phase in the lifecycle of a SNP. Further, we also are gathering SNP
association data from our Clinical Genetics Network to generate patents
covering the use of drugs in conjunction with specific SNPs.

. SNP WIDEMAP SERVICES. We are able to perform genome-wide SNP studies at
the chromosome or genome scale. In order to identify genome regions of
interest for further mapping studies and candidate gene location a
researcher or scientist typically uses 300 to 3,000 SNPs. We plan to
provide this service to The SNP Consortium by utilizing the SNP sets from
its discovery effort to determine the frequency with which these SNPs
appear in the general population or a specific population subgroup.

Regional GeneScreen Center Services

. GENESCREEN IDENTITY SERVICES. We offer a variety of paternity tests,
consisting primarily of a standard test involving the mother, child and
purported father.

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. GENESCREEN TRANSPLANT TESTING SERVICES. We provide screening test
services for the typing of bone marrow specimens containing human
leukocyte antigen, or HLA, through both DNA and serological testing.

. GENESCREEN FORENSIC SERVICES. We test a variety of forensic samples found
at crime scenes, such as hair, blood, semen, saliva, skin, bone, muscle
tissue and urine, and conduct large scale screening studies for criminal
justice agencies.

Technology

SNP-IT

An experiment using SNP-IT primer extension would typically include the
following steps:

. Preparation of the target DNA sample. Capture of the target DNA from a
patient sample by hybridization is accomplished by the SNP-IT primer,
which includes approximately 20 nucleotide bases ending immediately prior
to the location of the suspected SNP on the patient's DNA sample.

. Selective extension of the SNP-IT primer. The SNP-IT primer DNA is
increased in length through the use of a labeled DNA base, or primer
extension. This primer extension product will only occur when the labeled
DNA base available for extension matches the DNA base at the expected
location of the SNP in the patient's DNA.

. Analysis of the SNP-IT primer-extension product. We can analyze the SNP-
IT primer extension product by a variety of means depending on the label
used, including; fluorescence, optical density and mass spectroscopy. The
analysis, or scoring, of the SNP, can thus be accomplished on a wide
variety of instrumentation systems and in a variety of formats depending
on the design of the steps in the experiment and the selection of the
detection technology for the label for the DNA primer extension.

[GRAPHIC APPEARS HERE]

Since we can perform SNP-IT primer extension in both solution and solid-
phase formats, the operational advantages of our system can be significant. We
can automate the biochemistry using liquid handling robots and can automate the
data acquisition and analysis of test results using readily available array
scanners or microtiter plate readers that transmit quantitative information to
a computer. We can then automatically interpret this digitized data to provide
custom tailored reports and statistical information on SNP scoring results.

We facilitate the standardization and reproducibility of SNP-IT primer
extension by the stable attachment or capture and detection of oligonucleotide
primers to the solid phase. This permits large-scale batch preparation of the
SNP-IT arrays, signal uniformity and quality control of the test.

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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. We can use a variety
of materials to create our chips, including glass, silicon and polymers. These
structures are typically flat and layered to create the desired three-
dimensional structures with the required network of fluidic channels in the
upper reusable portions and an array of reactors in a consumable lower portion.
We employ a variety of means to create the defined fluidic conduits or reactors
within our chips, which may include some, but not all of the following: laser
ablation, etching, photolithography, milling, molding or embossing.

Proprietary rights and patents cover our pumping and valving techniques
which control the timing, location and amount of desired reagent delivery
within our chips. Our proprietary valving technology relies on a capillary
break, which halts the reagent flow at a defined expansion point in a fluidic
channel. Electrodes in the channel create simple pneumatic or hydraulic
pressure and electrohydrodynamic pumping. Once the flow is halted, pressure or
electric current can reinitiate the flow.

Combined Technologies

We design our microfluidics technologies to drive genetic analysis to higher
throughput while achieving lower costs. By applying our SNP-IT primer-extension
technology to our two-dimensional arrays of identical reactors and channels, we
intend to process in parallel a large number of similar samples to create
highly automated internal facilities capable of performing millions of SNP
scoring experiments per day. Traditional SNP scoring techniques, including DNA
sequencing, cost several dollars per SNP score. We also plan to use our
microfluidics technologies to synthesize the DNA for use in our MegaSNPatron
facility. We expect that this will accelerate our ability to introduce new SNPs
and increase the throughput at this facility. By significantly increasing the
throughput of SNP scoring, we intend to significantly reduce the cost of SNP
scoring.

Research and Development

We intend to continue our aggressive investment in our proprietary
technologies through internal development and licensing of third-party
technologies to increase and improve other characteristics of our systems. We
will also continue to invest in improving the cost-effectiveness of our
products through automation and information technologies. We are actively
pursuing research projects aimed at identifying and developing new technologies
to improve and expand on our genetic diversity, microfluidics and software
products. These projects involve research conducted by us, collaborations with
other researchers and the acquisition of chemistries and other technologies
developed by universities and other academic institutions.

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 which 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 for us.

We have entered into collaboration and license agreements with Affymetrix,
NEN Life Sciences, Inc., Amersham Pharmacia Biotech, Applied Biosystems,
Beckman Coulter and Luminex.

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<PAGE>

Affymetrix, Inc.

In November 1999, as part of our platform propagation strategy, we entered
into a Collaboration Agreement with Affymetrix to develop, manufacture, market
and sell kits capable of performing SNP-IT-based SNP detection on Affymetrix's
GeneChip system and software applications for certain instruments
commercialized by Affymetrix. We agreed to collaborate on the development of
three types of kits, designated under our agreement as Generic Kits, Standard
Kits and Custom Kits. We are responsible for all development costs associated
with the development of Generic Kits and Custom Kits and the optimization of
the SNP-IT primer-extension tests to be used on the Affymetrix GeneChip system.
We will share costs associated with the development of approved Standard Kits.
Affymetrix will market and distribute all Generic and Standard Kits developed
under the agreement, and we will market and distribute all Custom Kits.
Affymetrix has agreed to purchase, and we have agreed to manufacture and
supply, all of Affymetrix's requirements of Generic and Standard Kits at
agreed-upon prices. The parties have agreed, through a collaboration committee,
to set minimum annual sales requirements for Affymetrix in connection with
sales of its Generic and Standard Kits. The collaboration committee has not yet
set these minimum annual sales requirements and therefore we cannot determine
at this time the materiality or the value of this agreement to us or to our
business. The collaboration agreement has an initial term of five years and may
be renewed for additional one year terms upon written notice by either party to
the other. In the event of a breach of this agreement, the non-breaching party
may terminate the agreement upon 30 days' written notice for uncured breaches
relating to non-payment, and upon 60 days' written notice for all other uncured
breaches.

NEN Life Sciences, Inc.

In February 2000, we entered into an agreement with NEN Life Sciences, under
which NEN has agreed to supply us with all of our required terminators for use
in our SNPware kits. Terminators are nucleotides which stop the extension of a
DNA chain. In consideration of NEN's agreement to supply us with terminators at
preferential prices, we sold to NEN 125,000 shares of our common stock for a
purchase price of $750,000 and paid NEN an up-front fee of $750,000. Under the
supply agreement we will pay NEN a royalty fee based on our revenues for
SNPware kits we sell above a specified sales price. We are also required to
purchase minimum quantities of terminators during each year of the agreement as
follows: first year $333,000; second year $700,000; third year $990,000; and
fourth year $1,320,000. 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 NEN (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.

Amersham Pharmacia Biotech, Inc.

In June 2000, we entered into a license agreement with Amersham Pharmacia
Biotech, the life sciences division of Nycomed Amersham Plc, pursuant to which
we granted a royalty-bearing, non-exclusive license to Amersham Pharmacia
Biotech to use our SNP-IT single base primer-extension technology. Under the
terms of the agreement, Amersham Pharmacia Biotech will produce and sell
reagent kits and software incorporating our technology to allow researchers to
perform SNP analyses on Amersham Pharmacia Biotech's 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
Pharmaceuticals does not provide for minimum annual sales requirements, and
therefore we can not determine at this time the materiality or the value of
this agreement to us or our business. This agreement terminates on the date
upon which the last of the patents we license to Amersham Pharmacia Biotech
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.

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<PAGE>

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 can not determine at this time the materiality
or the value of this agreement to us or our business. 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 pursuant
to which we will perform certain SNP scoring services for determining the
frequency with which at least 60,000 SNP genomic markers appear in the general
population or in a specific population subgroup. The term of this collaboration
is through the earlier of March 1, 2001 or completion of the project. We will
bear all costs to perform these services. As part of this collaboration, we
will accelerate the hiring of personnel for, and use of SNPware consummables
in, our MegaSNPatron facility, resulting in additional research and development
expenses over the next six to twelve months of between $3 and $6 million. We
will additionally need to accelerate previously planned capital expenditures of
approximately $4 million relating to the build-out of our MegaSNPatron
facility. Under our agreement, we have the right to commercialize primers and
certain technology we develop as a result of performing these services,
including any improvements to our primer-extension technology, subject to the
intellectual property rights related to the assay data retained by The SNP
Consortium.

Other Licenses and Collaborations

In addition, in the past, we have entered into license and collaboration
agreements with respect to our microfluidics technology with Motorola and
various other third parties which are nearing completion and which are not
material to our SNP scoring business. We intend to continue to enter into
similar agreements to enable us to apply our microfluidics technologies for use
in our SNP scoring products and services.

Customers

We have entered into licensing arrangements with certain customers with
respect to SNP-IT primer-extension technology. We typically structure these
arrangements, such 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
consummables are sold to these customers for use with the systems. We have also
targeted biotechnology and pharmaceutical companies that utilize different
hardware to perform SNP scoring and have established marketing and distribution
channels. We also perform SNP scoring services on a fee-for-service basis. Our
customers include SmithKline Beecham, Monsanto, Bristol-Myers Squibb and
Millennium Pharmaceuticals and the SNP Consortium. We have placed four
instruments from our SNPstream product line with our customers.

Manufacturing and Suppliers

We manufacture SNPware consummables at our Princeton, New Jersey facility.
We believe we currently have sufficient manufacturing capacity to meet
commercial demand for our products through 2001. Although our manufacturing
capacity may be scaled up at our facility, we may need to acquire additional
facilities during

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<PAGE>

the period from 2001 to 2002 and beyond. We plan to increase our manufacturing
capacity by building out or constructing additional facilities which we believe
will be completed within the next 12 months. We may need to enter into
manufacturing arrangements with third parties to produce commercial quantities
of our products.

Our manufacturing facility is designed to optimize material flow and
personnel movement with centrally located manufacturing and quality control
operations. We produce critical components in an environmentally controlled
clean room which is isolated from the rest of the facility. We are planning to
comply with quality system requirements, or QSRs, analyte-specific reagents, or
ASRs, and ISO 9001 registration standards 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 components of our
SNPstream system and some reagents which we provide in our SNPware kits. We
have agreements with Beckman Coulter for the components of our SNPstream system
and NEN Life Sciences, Inc. for some of the key reagents in our SNPware kits.
We also have an agreement with Motorola that relates to the manufacture and
supply of our microfluidics chips. We also currently rely on DNA provided by
suppliers and rely on other third parties to perform DNA synthesis for us.

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.

We also perform service testing at all of our facilities. Three of our
facilities have the Clinical Laboratory Improvement Act, or CLIA,
accreditations necessary to be in compliance with the required regulations.

Distribution

We intend to expand our business internationally by establishing
relationships with distributors in several countries. In larger countries, we
will consider establishing our own direct sales force. We established a
European subsidiary, Orchid BioSciences Europe, Ltd., in Oxford, United Kingdom
in July 2000. We intend to use our international operations as service
locations and redistribution centers for our consumables.

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
pharmacogenetics and microfluidics. This strategy will continue to focus on
protecting and commercializing our current and future products. Our patent
portfolio reflects our international ambitions and includes pursuing patent
protection in many of the industrialized nations of the world. We currently
own, or have exclusive licenses to, 48 United States patents and 8 foreign
patents, and have received notices of allowance for 3 additional U.S. and 1
Australian patent applications. Additionally, we have 173 pending patent
applications of which 66 are United States applications and 107 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 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

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<PAGE>

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 do U.S. and Canadian laws.

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 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.

Competition

The markets for our products are competitive, and we expect the intensity of
competition to 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 scoring field, we compete with several companies offering
alternative technology concepts based on indirect detection of the molecule
through hybridization and/or labeling. These companies include: Affymetrix,
Inc., Amersham Pharmacia Biotech Ltd., Applied Biosystems, Inc., Genometrix
Inc., Illumina, Inc., Nanogen, Inc., Pyro Sequencing Inc., QIAGEN Genomics
Inc., Sequenom, Inc. and Third Wave Technologies, Inc.

Our principal competitors in the field of pharmacogenetics research and
development include: Celera Genomics Corporation, CLONTECH Laboratories, Inc.,
CuraGen Corporation, Genaissance Pharmaceuticals, Inc., GENSET Corp.,
Millennium Pharmaceuticals, Inc., Myriad Genetics, Inc. and Variagenics, Inc.
Our competitors in the field of DNA testing include: Identagene Corporation,
Laboratory Corporation of America and Lifecodes Corporation, and in the field
of microfluidics include: ACLARA Biosciences Corporation and Caliper
Technologies Corporation.

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 United States and in certain other
countries.

In the United States, 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

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<PAGE>

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 American Association of Blood Banks, or AABB, has accredited our
CLIA laboratories. The AABB does not permit publicly funded DNA testing
services to be offered together with privately funded testing services in a
CLIA laboratory. As a result, we must maintain the separation of our DNA
testing services or risk losing our accreditation, which would adversely affect
our business.

The FDA has also adopted a set of regulations known as 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 SNPstream product that these guidelines may affect.

The Food, Drug, and Cosmetic Act requires that medical devices introduced to
the United States market, unless exempted by regulation, be the subject of
either a premarket notification clearance, also known as a 510(k) or an
approved premarket 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
United States. 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 United States. 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 you that we will
obtain regulatory approvals in such countries or that we will not be required
to incur significant costs in obtaining or maintaining 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 are regulated under CLIA. The intent of
CLIA is to ensure the quality and reliability of clinical laboratories in the
United States 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

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<PAGE>

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.

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 September 11, 2000, we employed 272 persons, of whom 43 hold Ph.D. or
M.D. degrees and 30 hold other advanced degrees. Approximately 52 employees are
engaged in research and development, 23 employees are engaged in business
development, sales and marketing, 140 employees are engaged in manufacturing
and DNA testing services and 57 employees are engaged in intellectual property,
finance and other administrative functions. None of our employees is
represented by a collective bargaining agreement, nor have we experienced any
work stoppage. We believe we maintain good relations with our employees.

Facilities

We lease three facilities which provide us with approximately 44,000 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 also lease an
approximately 19,000 square foot facility in Dallas, Texas; an approximately
12,500 square foot facility in Dayton, Ohio; and an approximately 5,100 square
foot facility in Sacramento, California. The latter three facilities include
CLIA approved laboratories where our genetic DNA diversity testing services are
located. We currently believe our facilities are sufficient to meet our space
requirements through the year 2000.

Legal Proceedings

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 U.S. 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.

Other than as described above, we are not a party to any material legal
proceedings. We are engaged in discussions with Motorola in an attempt to
resolve certain areas of disagreement that have arisen under our existing
collaboration in the area of microfluidics. The primary issue of disagreement
between the parties relates to whether, under the terms of our agreement,
Motorola has a right to obtain a license to our SNP-IT technology for use with
Motorola's microfluidic chips. While we believe that, under the terms of our
agreement, Motorola has no rights to our SNP-IT technology, we cannot assure
you that we can reach agreement with Motorola on this issue or that we would
prevail if this dispute were to develop into arbitration or litigation.
Furthermore, we are likely to incur substantial costs and expend substantial
personnel time in resolving this issue if it becomes the subject of arbitration
or litigation. Nonetheless, we believe that, even if we fail to successfully
resolve this issue or to prevail in any such arbitration or litigation, we
would only be obligated to grant Motorola a non-exclusive license to use our
SNP-IT technology with their microfluidic chips on terms no less favorable than
those offered to other licensees. We do not believe that this result is likely
to have a material adverse affect on our business or financial condition.

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MANAGEMENT

Executive Officers, Directors and Key Employees

Our executive officers, directors and key employees and their respective
ages and position(s) as of August 31, 2000 are as follows:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Dale R. Pfost, Ph.D......................... 43 Chairman, Chief Executive
Officer, President
Donald R. Marvin............................ 48 Senior Vice President, Chief
Financial Officer, Chief
Operating Office and
Secretary
Christopher P. Ashton, Ph.D................. 40 Vice President and Managing
Director of European
Operations
Michael T. Boyce-Jacino, Ph.D............... 41 Vice President of Research
and Development
Keith W. Brown.............................. 47 Vice President and General
Manager of GeneScreen
Russell T. Granzow.......................... 37 Vice President of Business
Development, Sales and
Marketing
Barbara L. Lindheim......................... 52 Vice President of Strategic
Corporate Communications
Sarajane N. Mackenzie....................... 45 Vice President of Human
Resources and Chief People
Officer
Scott Rakestraw, Ph.D....................... 38 Executive Director of
Therapeutics Business
Development
Gary J. Schnerr............................. 56 Executive Director of
Engineering and Manufacturing
Robert C. Giles, Ph.D....................... 47 Science Director of
GeneScreen
Gary A. Beaudry, Ph.D....................... 44 Senior Director of Genotyping
Operations
Kevin J. Bertone............................ 41 Senior Director of Corporate
Services
Denis M. Grant, Ph.D........................ 43 Senior Director of
Pharmacogenetics
Kevin B. Nash, Esquire...................... 36 Senior Director of Licensing
and Intellectual Property
Counsel
Frank A. Shemansky, Jr., Ph.D............... 39 Senior Director of
Microsystems Development
Joseph M. Warusz, CPA....................... 44 Senior Director of Finance
William M. Testa, CPA....................... 35 Corporate Controller
Sidney M. Hecht, Ph.D.(1),(2)............... 55 Director
Samuel D. Isaly(1),(2)...................... 55 Director
Jeremy M. Levin, D.Phil., MB.BChir.(1),(2).. 45 Director
Ernest Mario, Ph.D.(2)...................... 61 Director
George Poste, DVM, Ph.D..................... 55 Director
Robert M. Tien, M.D., M.P.H. ............... 42 Director
Anne M. VanLent(1).......................... 52 Director
</TABLE>
---------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee

Dale R. Pfost, Ph.D. has served as our Chairman, Chief Executive Officer and
President since November 1996. Dr. Pfost has also served as the Chairman and
President of GeneScreen, Inc. and GeneShield.com., Inc., two of our
subsidiaries, since December 1999 and October 1999, respectively. Dr. Pfost has
also served as a Director of Orchid BioSciences Europe Limited, our U.K.
subsidiary, since its inception in July 2000. From 1988 to 1996, Dr. Pfost was
the President and Chief Executive Officer of Oxford GlycoSciences, a leader in
proteomics and glycobiology. From 1982 to 1984, Dr. Pfost was the President and
a founder of Infinitek, Inc., the company that developed the Biomek 1000. From
1984 to 1988, Dr. Pfost served as the General Manager of the Robotics and
Automated Chemistry Systems business at SmithKline Beecham following its
acquisition of Infinitek. Dr. Pfost received his B.S. in Physics from the
University of California Santa Barbara and his Ph.D. in Physics from Brown
University.

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<PAGE>

Donald R. Marvin has served as our Senior Vice President, Chief Operating
Officer and Secretary since November 1997 and has served as our Chief Financial
Officer since February 2000. Mr. Marvin has also served as a Director and the
Vice President of GeneScreen, Inc. and GeneShield.com, Inc., two of our
subsidiaries, since December 1999 and October 1999, respectively. Mr. Marvin
has also served as a Director and Secretary of Orchid BioSciences Europe
Limited, our U.K. subsidiary, since its inception in July 2000. From 1994 to
1997, Mr. Marvin was the founder and President of Cairn Associates Inc., a firm
providing management and financial services to emerging growth life services
companies. From 1986 to 1994, Mr. Marvin was President and Chief Executive
Officer of Diatron Corporation, a biomedical company developing fluorescence-
based instrument systems for the clinical diagnostics industry. Mr. Marvin
received his B.S. in Microbiology from Ohio State University and his M.B.A.
from Iona College. Mr. Marvin serves on the Board of Directors of GenoVision
AS, a diagnostic test systems company.

Christopher P. Ashton, Ph.D. has served as our Vice President and Managing
Director of European Operations since May 2000. Dr. Ashton has also served as a
Director of Orchid BioSciences Europe Limited, our U.K. subsidiary, since
September 2000. From 1999 to 2000, Dr. Ashton was Commercial Director at
Inpharmatica Ltd. From 1992 to 1999, Dr. Ashton was Business Development
Director and Marketing Director at Oxford GlycoSciences, plc. From 1985 to
1992, Dr. Ashton was European Marketing Manager at Applied Biosystems, Inc. Dr.
Ashton received his B.S. in Biochemistry and his Ph.D. in Organic Chemistry
from the University of Manchester Institute of Science and Technology.

Michael T. Boyce-Jacino, Ph.D. has served as our Vice President of Research
and Development since September 1998. From 1991 until our acquisition of
Molecular Tool, Inc. in 1998, Dr. Boyce-Jacino served in various capacities at
Molecular Tool as a scientist, General Manager and Director, Research and
Development and most recently President. Dr. Boyce-Jacino received his B.S. in
Medical Microbiology from the University of Wisconsin Madison, and his Ph.D. in
Microbiology from the University of Minnesota.

Keith W. Brown has served as our Vice President and General Manager of our
GeneScreen business, since January 2000. Mr. Brown co-founded GeneScreen in
1987 and from 1988 through December 1999 served as its President and Chief
Executive Officer. Mr. Brown received his B.S. in Computer Science and
Statistics from the University of Manitoba and his M.B.A. from Harvard Graduate
School of Business Administration.

Russell T. Granzow has served as our Vice President of Marketing, Sales and
Business Development since 1997. From 1996 to 1997, Mr. Granzow served as
Manager, Business Development at Sarnoff Corporation. Mr. Granzow was a founder
of Pharmacia Biosensor, now BIAcore, and from 1992 to 1996 served in various
positions, most recently as Manager, Marketing and Business Development. Prior
to 1992, Mr. Granzow was involved in drug discovery in the Inflammation Group
at Schering-Plough Corp. Mr. Granzow received his B.S. in Biochemistry from the
University of Illinois.

Barbara L. Lindheim has served as our Vice President of Strategic Corporate
Communications since April 2000. From 1998 to 2000, Ms. Lindheim was Senior
Vice President at Edelman Public Relations Worldwide. From 1996 to 1998, Ms.
Lindheim was Senior Vice President at Noonan/Russo Communications, Inc. and
from 1995 to 1996, Ms. Lindheim was an independent consultant to the
pharmaceutical and biotechnology industries. Prior to 1995, Ms. Lindheim held
strategic marketing positions at Pfizer, SmithKline, Sterling Winthrop and
SmithKline Beecham. Ms. Lindheim received her B.S. from Cornell University, her
M.B.A. from Harvard Business School and her M.P.A. from the Woodrow Wilson
School at Princeton University.

Sarajane N. Mackenzie has served as our Vice President of Human Resources
and Chief People Officer since January 2000. From 1998 to 1999, Ms. Mackenzie
was founder and President of Mackenzie Strategic Human Resources, Inc., a
consulting firm. From 1987 to 1997, Ms. Mackenzie was with Novo Nordisk A/S,
first as head of international human resources and then as Vice President of
Human Resources for their U.S. affiliate. Ms. Mackenzie received her B.A. in
Psychology from the University of California at Santa Cruz, and her M.S. in
Organization Development and Human Resources from the University of San
Francisco.

Scott Rakestraw, Ph.D. has served as our Executive Director of Therapeutics
Business Development since May 2000. From 1997 to 2000, Dr. Rakestraw served as
Vice President of Business Development and General

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Manager of the Biomedical Business Unit at Altus Biologics Inc. From 1990 to
1997, Dr. Rakestraw was at DuPont, where he held increasingly senior positions
in Business Development, Research and Development and Marketing. Dr. Rakestraw
received his B.S. in Chemical Engineering from the University of Illinois and
his Ph.D. in Biochemical Engineering from the Massachusetts Institute of
Technology.

Gary J. Schnerr has served as our Executive Director of Engineering and
Manufacturing since May 1998. From 1993 to 1997, Mr. Schnerr served as Vice
President Manufacturing and Technology of Peak Instruments. From 1985 to 1993,
he served as Vice President of Operations at Applied Color Systems. Mr. Schnerr
received his B.S. in Electrical Engineering from Drexel University and his
M.B.A. in Marketing/Finance from the Wharton School of the University of
Pennsylvania.

Robert C. Giles, Ph.D. has served as our Science Director of our GeneScreen
business since January 2000. Dr. Giles co-founded GeneScreen in October 1987
and most recently served as Corporate Science Director and Operations Manager
of its Dallas facility through December 1999. Dr. Giles has served as an
auditor for laboratory accreditation for human parentage testing for the
American Association of Blood Banks since 1995. Dr. Giles received his B.S. in
General Science and his M.S. in Microbiology from Mississippi State University
and his Ph.D. in Immunology and Medical Microbiology from the University of
Florida.

Gary A. Beaudry, Ph.D. has served as our Senior Director of Genotyping
Operations since July 2000. From 1998 to 2000, Dr. Beaudry served as Scientific
Leader and Section Head for the Molecular Biology Department at Roche Vitamins,
Inc. of Hoffman-La Roche. From 1992 to 1998, Dr. Beaudry was at Genzyme
Corporation, where he held many positions and most recently served as Associate
Scientific Director and Head of the genomics program. Dr. Beaudry received his
B.S. in Biology from the University of Connecticut and his Ph.D. in
Biochemistry from Wake Forest University Medical Center.

Kevin J. Bertone has served as our Senior Director of Corporate Services
since May 2000. From 1989 to 2000, Mr. Bertone was at Novo Nordisk
Pharmaceuticals Inc., where he held several positions and was most recently
Senior Director of Corporate Services. From 1979 to 1989, Mr. Bertone was at
Carter-Wallace Inc., where he was most recently Manager of Office Services. Mr.
Bertone became a Certified Facility Manager in 1997.

Denis M. Grant, Ph.D. has served as our Senior Director of Pharmacogenetics
since May 1999. From 1995 to 1998, Dr. Grant was a Senior Scientist in the
Genetics and Genomic Biology Program, Research Institute at the Hospital for
Sick Children in Toronto, Canada. Prior to joining the Hospital for Sick
Children Dr. Grant was a faculty member in the Department of Pharmacology at
the University of Toronto. Dr. Grant received his B.S. in Biochemistry from
McMaster University and his Ph.D. in Pharmacology from the University of
Toronto.

Kevin B. Nash, Esq. has served as our Senior Director of Licensing and
Intellectual Property Counsel since April 1999. From 1995 to 1998, Mr. Nash was
patent counsel for Integra Life Sciences Corporation. Prior to joining Integra
Life Sciences he was a special project assistant in the Office of Technology
Licensing at Stanford University. Mr. Nash received his B.A. in Genetics from
University of California, Berkeley and his J.D. from Golden Gate University
School of Law.

Frank A. Shemansky, Jr., Ph.D. has served as our Senior Director of
Microsystems Development since March 1999. From September 1991 to March 1999,
Dr. Shemansky worked at Motorola, Inc., where he held several positions and was
most recently Manager of Sensor Technology Development for the Semiconductor
Products Sector. Dr. Shemansky received his B.S. in Chemical Engineering from
The Pennsylvania State University, and his M.S. and Ph.D. in Chemical
Engineering from Arizona State University.

Joseph M. Warusz, CPA has served as our Senior Director of Finance since May
2000. From 1998 to 1999, Mr. Warusz served as Vice President and Chief
Financial Officer for Nexmed, Inc., a start-up drug development company. From
1983 to 1998, Mr. Warusz was at Bristol-Myers Squibb, where he held many
positions and most recently served as Director of Contract Compliance and
Analysis. Mr. Warusz received his B.S. in Accounting and M.B.A. from Drexel
University and is a Certified Public Accountant.

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William M. Testa, CPA has served as our Corporate Controller since February
1998. From 1996 to 1998, Mr. Testa worked as a tax accountant for Sarnoff
Corporation, where he was involved in maintaining the accounting functions of
several spin-off companies, including ours. From 1994 to 1996, Mr. Testa served
as the Controller of a manufacturing company. Prior to that, he spent seven
years in public accounting. Mr. Testa received his B.S. in Accounting from
Rider College and is a Certified Public Accountant.

Sidney M. Hecht, Ph.D. has served as a member of our Board of Directors
since 1995. He has served as John W. Mallet Professor of Chemistry and
Professor of Biology at University of Virginia since 1978. From 1981 to 1987,
Dr. Hecht held concurrent appointments first as Vice President, Preclinical
Research and Development, and then Vice President, Chemical Research and
Development at SmithKline & French Laboratories, where he was appointed a
Distinguished Fellow. From 1971 to 1979, he was Assistant Professor and then
Associate Professor of Chemistry at the Massachusetts Institute of Technology.
Dr. Hecht received his B.A. in Chemistry from the University of Rochester and
his Ph.D. in Chemistry from the University of Illinois.

Samuel D. Isaly has served as a member of our Board of Directors since
February 1998. He has served as the Managing Member of OrbiMed Advisors LLC
since January 1998. Mr. Isaly founded the investment consulting firm Mehta and
Isaly in 1989, which provided consulting and investment management services to
the biotechnology and healthcare industries, where he was a General Partner
until 1998. He received his B.A. from Princeton University and his M.Sc. in
International Economics, Mathematics and Econometrics at the London School of
Economics, where he was a Fulbright Scholar.

Jeremy M. Levin, D.Phil., MB.BChir. has served as a member of our Board of
Directors since May 1998. From 1996 to 2000, Dr. Levin served as the Chairman
of Physiome Sciences, Inc., and was appointed as Physiome Sciences' Chief
Executive Officer in 2000. From 1998 through 1999, he was Managing Director of
Perseus Capital LLC and from 1992 to 1998, Dr. Levin served as the President
and Chief Executive Officer of Cadus Pharmaceutical Corporation, where he also
served as Chairman from 1996 to 1998. Prior to 1992, Dr. Levin was a Vice
President at IG Laboratories, a wholly owned subsidiary of Genzyme Corporation.
Dr. Levin has served on a number of public biosciences companies and on the
Executive Committee and the Emerging Companies Section of the Biotechnology
Industry Organization and on the Board of Vialactia, an agricultural genetics
company. Dr. Levin received an MB.BChir. from the University of Cambridge and a
D.Phil. in DNA structure from the University of Oxford.

Ernest Mario, Ph.D. has served as a member of our Board of Directors since
March 2000. Since 1993, Dr. Mario has served as Chairman and Chief Executive
Officer of ALZA, a designer and producer of therapeutic drug delivery systems.
From 1986 to 1993, Dr. Mario was at Glaxo, where his most recent position was
Deputy Chairman and Chief Executive of Glaxo Wellcome. From 1977 to 1985, Dr.
Mario worked with Squibb Corporation where he served most recently President
and Chief Executive Officer of its medical products division and as a member of
the Board of Directors for the company. Dr. Mario currently serves as Chairman
of the Board of the Duke University Health System and the American Foundation
for Pharmaceutical Education. Dr. Mario received his B.S. degree in pharmacy
from Rutgers University and his M.S. and Ph.D. degrees in physical science from
the University of Rhode Island.

George Poste, DVM, Ph.D. has served as a member of our Board of Directors
since March 2000. He currently serves as Chief Executive Officer of Health
Technology Networks, a consulting group specializing in the impact of genetics,
computing and other advanced technologies on healthcare research and
development and internet-based systems for healthcare delivery. From 1992 to
1999, Dr. Poste was President of Research and Development, Chief Science and
Technology Officer and a member of the Board of Directors at SmithKline
Beecham. Dr. Poste is a non-executive chairman of diaDexus, LLC, the joint
venture in molecular diagnostics between SmithKline Beecham and Incyte
Pharmaceuticals, and a non-executive chairman of Structural GenomiX. He serves
on the Board of Directors of Maxygen, Inc. and Illumina, Inc. Dr. Poste
received his degree in veterinary medicine and his Ph.D. in virology from the
University of Bristol, England. He is a Board-certified pathologist and a
Fellow of the Royal Society.

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Robert M. Tien, M.D. M.P.H. has served as a member of our Board of Directors
since February 2000. He is Founder and Chairman of Electronic Business
International and Vice President and member of the International Scientific
Advisory Board for the American Academy of Anti-Aging Medicine. He has several
academic and hospital appointments, including a tenured Professorship at Duke
University Medical Center, where his most recent positions included Director of
Neuroradiology and Director of Neuro-MR from 1991 to 1996. He has authored or
co-authored more than 160 papers. Dr. Tien received his B.S. and M.D. from the
National Taiwan University and School of Medicine and his Master of Public
Health, or M.P.H., from Harvard University Graduate School of Public Health.

Anne M. VanLent has served as a member of our Board of Directors since June
1999. She has served as Vice President, Ventures of Sarnoff Corporation since
July 1997. From March 1994 to July 1997, she was the founder and President of
AMV Associates, which provides consulting services to emerging growth life
sciences companies. Ms. VanLent received her B.S. in Physics from Mount Holyoke
College and completed a graduate fellowship at Universite de Strasbourg,
Strasbourg, France. She serves on the Board of Directors of Penwest
Pharmaceuticals Co. and i-STAT Corp., both publicly traded life science
companies, as well as several private companies.

Composition of the Board of Directors

Our Board of Directors is divided into three staggered classes. The Board
consists of two Class I directors (Ms. VanLent and Dr. Hecht), three Class II
directors (Drs. Tien, Levin and Mario) and three Class III directors (Drs.
Pfost and Poste and Mr. Isaly). At each annual meeting of stockholders, a class
of directors is elected for a three-year term to succeed the directors of the
same class whose terms are then expiring. The terms of the Class I directors,
Class II directors and Class III directors will expire upon the election and
qualification of successor directors at the annual meeting of our stockholders
to be held during calendar years 2001, 2002 and 2003, respectively.

Each officer serves at the discretion of the Board of Directors and holds
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. There are no family relationships among any of
our directors or executive officers.

Committees of the Board of Directors

Our Board of Directors has standing audit and compensation committees. The
audit committee consists of Dr. Hecht, Mr. Isaly, Dr. Levin and Dr. Mario. The
audit committee oversees the engagement of our independent public accountants,
reviews the annual financial statements and the scope of the annual audits and
considers matters relating to accounting policy and internal contracts. The
compensation committee reviews, approves and makes recommendations to our Board
of Directors concerning our compensation practices, policies and procedures for
our executive officers, including our Chief Executive Officer. The compensation
committee's duties include the administration of our 1995 Stock Incentive Plan
and 2000 Employee, Director and Consultant Stock Plan. The compensation
committee is currently composed of Dr. Hecht, Mr. Isaly, Dr. Levin and Ms.
VanLent.

Compensation Committee Interlocks and Insider Participation

Dr. Hecht, Mr. Isaly, Dr. Levin and Ms. VanLent, all of whom are non-
employee directors, constitute our compensation committee. None of our
executive officers serve as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving as a
member of our Board of Directors or compensation committee.

Scientific Advisory and Medical Advisory Boards

Our Scientific Advisory and Medical Advisory Boards consist of individuals
with demonstrated expertise in various fields who advise us concerning long-
term scientific and medical planning, research and

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development. Members also evaluate our research program, recommend personnel to
us and advise us on technology and medical matters.

Scientific Advisory Board

Dr. Sidney M. Hecht has served as Chairman of our Scientific Advisory Board
since March 1997. Dr. Hecht is the John W. Mallet Professor of Chemistry and
Professor of Biology at University of Virginia. A member of our Board of
Directors, Dr. Hecht has been an Alfred P. Sloan Fellow and a John Simon
Guggenheim Fellow. Throughout his career, Dr. Hecht has been the recipient of
numerous distinguished awards, including the 1996 Cope Scholar Award of the
American Chemical Society and Virginia's Outstanding Scientist for 1996. He is
also the author or co-author of more than 250 scientific papers. Dr. Hecht
received his B.A. in Chemistry from the University of Rochester and his Ph.D.
in Chemistry from the University of Illinois.

Dr. Leroy Hood has been President, Director and Founder of the Institute for
Systems Biology in Seattle since 1999. Previously, Dr. Hood was at the
University of Washington, where he created the cross-disciplinary Department of
Molecular Biotechnology and was the William Gates III Professor of Biomedical
Sciences. Dr. Hood was also at the California Institute of Technology where his
efforts helped pioneer the four cornerstone instruments that constitute the
technological foundation for contemporary molecular biology --synthesizers and
sequencers for both peptide/proteins and DNA. The DNA sequencer enabled the
rapid sequencing of DNA that ushered in the modern genomics era. Dr. Hood was
awarded his M.D. from Johns Hopkins University and his Ph.D. in Biochemistry
from the California Institute of Technology. He has received numerous patents
and awards for his scientific achievements and has published more than 500
peer-reviewed papers and co-authored textbooks in biochemistry, immunology,
molecular biology and genetics.

Dr. Richard J. Roberts has served as Research Director of New England
Biolabs since 1992. In 1993, Dr. Roberts was awarded a Nobel Prize for the
discovery of introns. From 1972 to 1992, Dr. Roberts served as Assistant
Director of Research at Cold Spring Harbor Laboratory. He has served as an
advisor to many research organizations including HUGO, EMBO, and GENBANK. He is
executive editor of Nucleic Acids Research and an editor of Bioinformatics,
Inc. as well as several other scientific journals. Dr. Roberts has been a long-
time advisor to Molecular Tool, Inc. and to us. He is also the Chairman of the
Scientific Advisory Board for Celera Corporation. He received his Ph.D. in
Organic Chemistry from the University of Sheffield and performed postdoctoral
work at Harvard University.

Dr. Michael C. Pirrung has been our first appointed President's Fellow since
December 1999. He is a Professor of Chemistry at Duke University and Director
of the University's Biotechnology for Business Program and Director of the
Program in Biological Chemistry and was formerly an Assistant Professor of
Chemistry at Stanford University. Dr. Pirrung is the co-inventor of the VLSIPS
technology for using photolithography to perform chemical synthesis. He also is
a founder of and former Senior Scientist at Affymax Research Institute. He is
the author or co-author of more than one hundred scientific papers and has
previously been appointed an Alfred P. Sloan Fellow and a John Simon Guggenheim
Fellow. Dr. Pirrung received his B.A. in Chemistry from the University of Texas
and his Ph.D. in Organic Chemistry from the University of California, Berkeley.

Dr. Nabil M. Lawandy has been a Research Professor of Engineering and
Physics at Brown University since August 1981 and the Chief Executive Officer
of Spectra Science Corporation and SpectraDisc Corporation since November 1996.
From 1974 to 1980, Dr. Lawandy worked as a physicist at the Laser Technology
Branch of NASA's Goddard Space Flight Center where he developed lasers for
submillimeter heterodyne astronomy and upper atmospheric LIDAR. While at Brown
University, Dr. Lawandy worked primarily on non-linear optics, opto-electronic
devices and micro-structures. Dr. Lawandy has authored over 170 papers, holds
over 30 patents, is a recipient of a Presidential Young Investigator Award and
an Alfred P. Sloan Fellowship. He received his B.S. in Physics and M.S. and
Ph.D. in Chemistry from The Johns Hopkins University.

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Dr. Nathan Lewis has been teaching at the California Institute of
Technology, or CalTech, since 1988, and has served as Professor since 1991. He
has also served as the Principal Investigator of the Beckman Institute
Molecular Materials Resource Center at CalTech since 1992. From 1981 to 1986,
he taught at Stanford where his most recent position was Associate Professor
with tenure. Dr. Lewis has been an Alfred P. Sloan Fellow, a Camille and Henry
Dreyfus Teacher-Scholar, and a Presidential Young Investigator. He received the
Fresenius Award in 1990 and the ACS Award in Pure Chemistry in 1991. He has
published approximately 150 papers and supervised approximately 50 graduate
students and postdoctoral associates. Dr. Lewis received his Ph.D. in Chemistry
from the Massachusetts Institute of Technology.

Dr. F. Peter Guengerich has served as a Professor of Biochemistry and
Director of the Center in Molecular Toxicology at Vanderbilt University since
1981. He has been the recipient of numerous awards, including Outstanding
Investigator Awards from the National Cancer Institute, John Jacob Abel Award,
Bernard B. Brodie Award in Drug Metabolism, and George H. Scott Award. Dr.
Guengerich has also recently been awarded the distinction of AAAS Fellow by the
American Association of the Advancement of Science. Dr. Guengerich received his
B.S. in Agricultural Science from the University of Illinois, Urbana, and his
Ph.D. in Biochemistry from Vanderbilt University.

Dr. Philip Goelet serves as Director for Ribo Targets, Ltd., The Rhode
Island Corporation and Boyce Thompson Institute for Plant Research, Inc. From
1996 to 1999, Dr. Goelet served as Director of GeneScreen, Inc. prior to the
time we acquired GeneScreen. In 1989, he founded Molecular Tool, Inc. and
served as Chairman and Chief Executive Officer until the company merged with
GeneScreen in 1996. While at Molecular Tool, Dr. Goelet participated in the
invention and development of a number of the company's key technologies and
products. He has authored or co-authored more than 30 papers. Dr. Goelet
received his B.A. from Oxford University and his M.Phil. and Ph.D. in
Biochemistry from Cambridge University.

Dr. Jonathan Karn is a leading molecular biologist who has made significant
contributions in the areas of gene discovery, recombinant DNA technology and
virology. Dr. Karn is a member of the Board of Directors of RiboTargets Ltd.,
and Chairman of its Scientific Advisory Board. In 1997, Dr. Karn founded
RiboTargets, and served as the Company's Chief Scientific Officer until 1999.
Since 1984, as a Senior Scientist at the MRC Laboratory of Molecular Biology,
Dr. Karn has headed the laboratory's research efforts on AIDS, playing a
leading role in the establishment of the UK's research effort into AIDS. During
1984, as a visiting scientist at the Salk Institute in California, he initiated
his current program in the area of gene expression in retroviruses. He has
authored more than 80 papers. Dr. Karn received his B.S. in Biology from Yale
College and his Ph.D. in Molecular Biology from Rockefeller University.

Medical Advisory Board

Dr. Daniel J. Rader has been an Assistant Professor of Medicine at the
University of Pennsylvania since 1994. At the University of Pennsylvania, Dr.
Rader is Director of the Lipid Research Center and co-directs the
Cardiovascular Disease Program in the Institute for Human Gene Therapy. From
1991 to 1993, he was a Research Associate at the National Institute of Health
and from 1987 to 1988, was Chief Resident and Instructor in Medicine at Yale
School of Medicine. Dr. Rader has authored more than 50 publications on lipid
metabolism, including familial hyper-cholesterolemia and the influence of
genetic polymorphisms on lipid metabolism. He received his B.A. from Lehigh
University and his M.D. summa cum laude from the Medical College of
Pennsylvania.

Dr. Richard J. Davies is Chairman and Professor of the Department of Surgery
at the Hackensack University Medical Center since 1993, as well as Professor of
Surgery at University of Medicine and Dentistry New Jersey. From 1983 to 1993,
he held various positions at the University of California at San Diego, School
of Medicine. From 1981 to 1983, Dr. Davies was a fellow in surgical oncology at
Memorial Sloan Kettering Cancer Center, New York, and Chief Surgical Fellow. He
formerly served as Chairman of the Scientific Advisory Board of Biofield
Corporation of Atlanta, GA, and is a member of the Scientific Advisory Board of
Dynamic Imaging, as well as the holder of many other national committee
memberships. Dr. Davies is an

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internationally recognized specialist in surgical oncology who has published
over 80 articles and chapters. Dr. Davies received his M.D. from the London
Hospital Medical College, University of London.

Dr. Garret A. FitzGerald has been a Professor of Medicine and Pharmacology
and Director of the Clinical Research Center since 1994, and chair of the
Department of Pharmacology since 1996, at the University of Pennsylvania. From
1991 to 1994, he was Professor and Chairman of the Department of Medicine and
Experimental Therapeutics at the University of Dublin. From 1981 to 1991, he
served in various positions at Vanderbilt University School of Medicine, most
recently as Director of the Division of Clinical Pharmacology. He is the author
of nearly 200 articles and has served as an editor of several clinical research
journals including Circulation. Dr. FitzGerald received his M.D. from the
University College of Dublin, Ireland and performed postgraduate work at
several institutions including Max Planck.

Dr. Michael B. Harris is Professor of Pediatrics at the University of
Medicine and Dentistry of New Jersey since 1997. He also serves as Chief of
Pediatric Hematology-Oncology and Director of the Tomorrow's Children's
Institute at the Hackensack University Medical Center since 1987. Dr. Harris
previously served as an Associate Professor at Mount Sinai School of Medicine
from 1977 to 1987. He has published more than 50 peer reviewed articles in the
field of pediatric oncology. He received his M.D. from Albert Einstein School
of Medicine, New York, and completed post-doctoral training at the Children's
Hospital of Philadelphia.

Dr. Stephen Anderson is Chair, Department of Molecular Biology and
Biochemistry at Rutgers University. He has served as Associate Professor of
this department and Resident Member of the Center for Advanced Biotechnology
and Medicine at Rutgers University since 1988. From 1987 to 1989, Dr. Anderson
was an Associate Adjunct Professor in the Department of Pharmaceutical
Chemistry, School of Pharmacy, at the University California at San Francisco.
From 1982 to 1988, he was Associate Director of the Biocatalysis Department and
leader of the Second Generation t-PA project team at Genentech, Inc. Dr.
Anderson has authored or co-authored over 60 papers and holds over 20 patents.
He received his A.B. in Biochemical Sciences from Harvard College and his Ph.D.
in Biochemistry from Harvard University.

Each member of our Scientific Advisory and Medical Advisory Boards has
entered into a consulting agreement with us covering the terms of such person's
position as a consultant to us and member of the Scientific Advisory and
Medical Advisory Boards. All scientific or medical advisors own shares and/or
options to acquire shares of our common stock, some of which are subject to
vesting. All of our scientific or medical advisors are employed by employers
other than us and may have commitments to, or consulting or advisory contracts
with, other entities which may conflict or compete with their obligations to
us. Generally, scientific or medical advisors are not expected to devote a
substantial portion of their time to our matters.

Stock Incentive Plans

We maintain two stock incentive plans for the benefit of our employees,
directors and consultants: our 1995 Stock Incentive Plan and our 2000 Employee,
Director and Consultant Stock Plan.

1995 Stock Incentive Plan

Our 1995 Stock Incentive Plan was approved by our Board of Directors and
stockholders in November 1995. The 1995 plan authorizes the issuance of stock
options and restricted stock grants to our employees, directors and
consultants.

Share Reserve. A total of 3,500,000 shares of our common stock have been
reserved for issuance under the 1995 plan, of which 55,961 shares were
available for future grant as of August 31, 2000.

Administration. The compensation committee of our Board of Directors
administers the 1995 plan. The compensation committee has the authority to
determine the following:

. the persons to whom stock-based awards will be granted;

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. the number of shares to be covered by each stock-based award; and

. the terms and conditions upon which a stock-based award may be granted.

Stock-based awards under the 1995 plan will be subject to such terms and
conditions as the compensation committee deems to be appropriate and in our
best interest. These terms may include conditions relating to our right to
reacquire the shares subject to a stock-based award, including the time and
events upon which such rights shall accrue and the purchase price of the
shares.

Eligibility. Options granted under the 1995 plan may be either (i) options
intended to qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended or (ii) non-qualified stock options.
Incentive stock options may be granted to our employees. The compensation
committee may also grant options at an exercise price less than, equal to or
greater than the fair market value of the common stock on the date of grant.
Under present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code may not be granted at an exercise price less than the fair market value of
the common stock on the date of grant or less than 110% of the fair market
value in the case of incentive stock options granted to optionees holding more
than 10% of our voting power. The 1995 plan permits the compensation committee
to determine how optionees may pay the exercise price of their options,
including by cash, check or in connection with a "cashless exercise" through a
broker, by surrender of shares of common stock, by delivery of a promissory
note, or by any combination of the permitted forms of payment. Non-qualified
stock options may be granted to our consultants, non-employee directors or
employees.

General Provisions. The aggregate fair market value, determined on the date
of grant, of shares issuable pursuant to incentive stock options that become
exercisable in any calendar year under the 1995 plan and any of our other
existing or future potential incentive stock plans may not exceed $100,000.
Incentive stock options granted under the 1995 plan may not be granted at a
price less than the fair market value of our common stock on the date of grant,
or 110% of fair market value in the case of employees holding 10% or more of
our voting stock. Non-qualified stock options granted under the 1995 plan may
not be granted at an exercise price less than the par value per share of our
common stock on the date of the grant. Incentive stock options granted under
the 1995 plan expire not more than ten years from the date of grant, or not
more than five years from the date of grant in the case of incentive stock
options granted to an employee or officer holding 10% or more of our voting
stock.

Effect of Employment Termination. An incentive stock option granted under
the 1995 plan may be exercised after the termination of the optionholder's
employment with us, other than by reason of death, disability or termination
for "cause" as defined in the 1995 plan, to the extent exercisable on the date
of termination, at any time prior to the earlier of the option's specified
expiration date or 90 days after such termination. The compensation committee
may specify the termination or cancellation provisions applicable to a non-
qualified stock option. In the event of the optionholder's death or disability,
both incentive stock options and non-qualified stock options generally may be
exercised, to the extent exercisable on the date of death or disability, by the
optionholder or the optionholder's survivors at any time prior to the earlier
of the option's specified expiration date or one year from the date of death or
six months from the date of disability. Generally, in the event of the
optionholder's termination for cause, all outstanding and unexercised options
shall be forfeited.

Effect of a Change in Control. The 1995 plan provides that in the event of a
"change in control" as defined in the 1995 plan in the beneficial ownership of
us, all options may, at the discretion of the compensation committee, become
fully vested and exercisable immediately prior to the change in control.

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2000 Employee, Director and Consultant Stock Plan.

Our 2000 Employee, Director and Consultant Stock Plan was approved by our
Board of Directors in February 2000, and by our stockholders in March 2000. The
2000 plan authorizes the issuance of stock options and restricted stock grants
to our employees, directors and consultants.

Share Reserve. A total of 1,500,000 shares of our common stock have been
reserved for issuance under the 2000 plan, of which 1,206,685 shares were
available for future grant as of August 31, 2000.

Administration. Our Board of Directors has the authority to adopt, amend and
repeal the administrative rules, guidelines and practices relating to the 2000
plan and to interpret its provisions and may delegate authority under the 2000
plan to a committee of the Board of Directors. The compensation committee of
our Board of Directors administers the 2000 plan. The compensation committee
has the authority to determine the following:

. the persons to whom stock-based awards will be granted;

. the number of shares to be covered by each stock-based award; and

. the terms and conditions upon which a stock-based award may be granted.

Stock-based awards under the 2000 plan will be subject to such terms and
conditions as the compensation committee deems to be appropriate and in our
best interest. These terms may include conditions relating to our right to
reacquire the shares subject to a stock-based award, including the time and
events upon which such rights shall accrue and the purchase price of the
shares.

Eligibility. Options granted under the 2000 plan may be either (i) options
intended to qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended or (ii) non-qualified stock options.
Incentive stock options may be granted to our employees. The compensation
committee may also grant options at an exercise price less than, equal to or
greater than the fair market value of the common stock on the date of grant.
Under present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code may not be granted at an exercise price less than the fair market value of
the common stock on the date of grant or less than 110% of the fair market
value in the case of incentive stock options granted to optionees holding more
than 10% of our voting power. The 2000 plan permits the Board of Directors to
determine how optionees may pay the exercise price of their options, including
by cash, check or in connection with a "cashless exercise" through a broker, by
surrender of shares of common stock, by delivery of a promissory note, or by
any combination of the permitted forms of payment. Non-qualified stock options
may be issued to our consultants, directors or employees.

General Provisions. The aggregate fair market value, determined on the date
of grant, of shares issuable pursuant to incentive stock options that become
exercisable in any calendar year under the 2000 plan and under any of our other
existing or future potential incentive stock plans may not exceed $100,000.
Incentive stock options granted under the 2000 plan may not be granted at a
price less than the fair market value of our common stock on the date of grant,
or 110% of fair market value in the case of employees holding 10% or more of
our voting stock. Non-qualified stock options granted under the 2000 plan may
not be granted at an exercise price less than the par value per share of our
common stock on the date of the grant. Incentive stock options granted under
the 2000 plan expire not more than ten years from the date of grant, or not
more than five years from the date of grant in the case of incentive stock
options granted to an employee or officer holding 10% or more of our voting
stock. An option granted under the 2000 plan is not transferable by the
optionholder except by will or by the laws of descent and distribution or as
otherwise determined by the compensation committee and set forth in the
applicable option agreement.

Effect of Termination of Employment. An incentive stock option granted under
the 2000 plan may be exercised after the termination of the optionholder's
employment with us, other than by reason of death,

64
<PAGE>

disability or termination for "cause" as defined in the 2000 plan, to the
extent exercisable on the date of termination, at any time prior to the earlier
of the option's specified expiration date or 90 days after such termination.
The compensation committee may specify the termination or cancellation
provisions applicable to a non-qualified stock option. In the event of the
optionholder's death or disability, both incentive stock options and non-
qualified stock options generally may be exercised, to the extent exercisable
on the date of death or disability, by the optionholder or the optionholder's
survivors at any time prior to the earlier of the option's specified expiration
date or one year from the date of death or disability. Generally, in the event
of the optionholder's termination for cause, all outstanding and unexercised
options shall be forfeited.

Effect of Acquisition. If we are to be consolidated with or acquired by
another entity in a merger, sale of all or substantially all of our assets or
otherwise, the compensation committee or the board of directors of any entity
assuming our obligations under the 2000 plan shall, as to outstanding options
under the 2000 plan, either (i) make appropriate provision for the continuation
of such options by substituting, on an equitable basis, for the shares then
subject to such options, the consideration payable with respect to the
outstanding shares of common stock in connection with such an acquisition or
securities of the successor or acquiring entity; (ii) upon written notice to
the optionholders, provide that all options must be exercised (either to the
extent then exercisable or, at the discretion of the compensation committee,
all options being made fully exercisable for purposes of the transaction)
within a specified number of days of the date of such notice, at the end of
which period the options shall terminate; or (iii) terminate all options in
exchange for a cash payment equal to the excess of the fair market value of the
shares subject to each such option (either to the extent then exercisable or,
at the discretion of the compensation committee, all options being made fully
exercisable for purposes of the transaction) over the exercise price thereof.

Director Compensation

All of the directors are reimbursed for expenses incurred to attend meetings
of our Board of Directors and any committees of the Board of Directors. We have
in the past granted non-employee directors options to purchase our common stock
pursuant to the terms of our 1995 Incentive Stock Plan and our Board of
Directors continues to have the discretion to grant options to new non-employee
directors. All non-employee directors have received stock options.

Executive Compensation

The following table sets forth the total compensation paid to or earned for
the fiscal year ended December 31, 1999 by our chief executive officer and by
all of our executive officers whose salary and bonus exceed $100,000. We refer
to these persons as named executive officers:

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
------------------- ------------
Securities
Underlying
Name and Principal Position Salary Bonus Options
--------------------------- -------- ------- ------------
<S> <C> <C> <C>
Dale R. Pfost, Ph.D........................... $291,500(1) $66,250 160,300
Chairman, Chief Executive Officer and
President
Donald R. Marvin.............................. $220,500(2) $52,500 67,300
Senior Vice President, Chief Operating
Officer,
Chief Financial Officer and Secretary
</TABLE>

(1) Includes $26,500 contributed by us to a non-qualified retirement plan on
behalf of Dr. Pfost in accordance with Dr. Pfost's employment agreement.
(2) Includes $10,500 contributed by us to a non-qualified retirement plan on
behalf of Mr. Marvin in accordance with Mr. Marvin's employment agreement.

65
<PAGE>

On February 2, 2000, the Compensation Committee of our Board of Directors
increased Dr. Pfost's and Mr. Marvin's annual compensation retroactive to
January 1, 2000 as follows:

<TABLE>
<CAPTION>
Annual
Compensation
--------------
Name Salary Bonus
---- -------- -----
<S> <C> <C>
Dale R. Pfost, Ph.D.............................................. $350,000 (1)
Donald R. Marvin................................................. $275,000 (2)
</TABLE>

(1) We will pay Dr. Pfost an annual bonus of up to 25% of his salary upon our
achievement of specific performance milestones. If we substantially exceed
these milestones, Dr. Pfost's annual bonus may be increased to up to 35%
of his salary, as determined in good faith by the Board of Directors in
its sole discretion.
(2) We will pay Mr. Marvin an annual bonus of up to 25% of his salary upon our
achievement of specific performance milestones. If we substantially exceed
these milestones, Mr. Marvin's annual bonus may be increased to up to 35%
of his salary, as determined in good faith by the Board of Directors in
its sole discretion.

On February 2, 2000, the Compensation Committee of our Board of Directors
also granted additional options to purchase common stock to Dr. Pfost and Mr.
Marvin as follows:

<TABLE>
<CAPTION>
Long-Term
Performance-
Based
Name Options
---- ------------
<S> <C>
Dale R. Pfost, Ph.D................................................ 630,000(1)
Donald R. Marvin................................................... 490,000(1)
</TABLE>

(1) These options will vest if the price of our stock exceeds certain levels
for 45 consecutive trading days. As of August 31, 2000, none of these
options had vested.

Option Grants in Last Fiscal Year

The following table sets forth information regarding options granted by us
to our named executive officers during the fiscal year ended December 31, 1999.
We have never granted any stock appreciation rights. The potential realizable
value is calculated based on the term of the option at its time of grant. It is
calculated assuming that the fair market value of common stock on the date of
grant appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and sold on the last
day of its term for the appreciated stock price. These numbers are calculated
based on the requirements of the Securities and Exchange Commission and do not
reflect our estimate of future stock price growth. Actual gains, if any, on
stock option exercises are dependent on the future performance of the common
stock and overall stock market conditions. The amounts reflected in the table
may not necessarily be achieved. The percentage of total options granted to
employees in the last fiscal year is based on options to purchase an aggregate
of 957,529 of common stock granted under our option plans. There was no public
market for our common stock as of December 31, 1999. Accordingly, the fair
market value on December 31, 1999 is based on the initial public offering price
of $8.00 per share.

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<PAGE>

Potential Realizable
Individual Grants Value at
--------------------------------------------- Assumed Annual
Number of Percent of Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to Exercise for Option Term
Options Employees in Price Per Expiration ---------------------
Granted 1999 Share Date 5% 10%
---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dale R. Pfost, Ph.D. ... 160,300 16.7 $1.25 2009 $1,789,048 $2,823,457
Donald R. Marvin........ 67,300 7.0 $1.25 2009 $ 751,110 $1,185,394
</TABLE>

Aggregate Stock Option Exercises in Fiscal Year 1999 and
Fiscal Year-End Option Values

The following table sets forth certain information concerning the number of
unexercised options held by each of our named executive officers on December
31, 1999 and the value realized by named executive officers. None of our
executive officers exercised stock options in the fiscal year ended December
31, 1999. There was no public market for our common stock as of December 31,
1999. Accordingly, the fair market value on December 31, 1999 is based on the
initial public offering price of $8.00 per share.

<TABLE>
<CAPTION>
Shares Number of Shares
Acquired Underlying Unexercised Value of Unexercised
on Value Options at In-the-Money Options at
Exercise Realized December 31, 1999 December 31, 1999
-------- -------- ------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dale R. Pfost, Ph.D..... -- $-- 65,017 195,283 $462,822 $1,344,202
Donald R. Marvin........ -- $-- 41,933 110,367 $324,897 $ 777,527
</TABLE>

Corporate 401(k) Plan

We sponsor a 401(k) plan covering employees who meet certain defined
requirements. Under the terms of our 401(k) plan, participants may elect to
make contributions on a pre-tax and after-tax basis, subject to certain
limitations under the Internal Revenue Code and we may match a percentage of
employee contributions, on a discretionary basis, as determined by our Board of
Directors. We may make other discretionary contributions to the 401(k) plan,
although pursuant to a determination by our Board, we currently match 50% of
the first 4% of employee contributions.

Executive Deferred Compensation Plan

We have established an executive deferred compensation plan, which took
effect on February 3, 1999. It was established primarily for the purpose of
providing life and disability insurance and retirement benefits as well as
deferred compensation for our executive officers, directors and highly
compensated employees. Participants in the plan are permitted to defer receipt
of, and income taxation on, up to 50% of their regular base salary and all or
any portion of any bonus until they terminate their employment with us. Under
the terms of the plan, we will also provide an annual cash allowance to each
eligible participant to pay the premiums for their supplemental life and
disability insurance.

GeneScreen 401(k) Plan

We sponsor a 401(k) plan covering our GeneScreen employees who meet certain
defined requirements. Under the terms of the GeneScreen 401(k) plan,
participants may elect to make contributions on a pre-tax basis, up to 15% of
compensation, subject to certain limitations under the Internal Revenue Code.
We may at our

67
<PAGE>

discretion match employee contributions at a discretionary rate and make
discretionary profit sharing contributions to the 401(k) Plan.

Employment Agreements

We entered into a three year employment agreement with Dale R. Pfost, Ph.D.,
effective as of January 2000, to serve as our President and Chief Executive
Officer at an annual base salary of $350,000. Under the terms of his employment
agreement, Dr. Pfost is entitled to receive an annual bonus of up to 25% of his
base salary to be awarded based upon our achievement of specific performance
milestones. If our Board determines in good faith that our performance has
exceeded such milestones, it may increase Dr. Pfost's bonus to up to 35% of his
base salary. We also contribute an additional amount equal to 10% of Dr.
Pfost's annual salary to a non-qualified retirement plan for the sole benefit
of Dr. Pfost. In addition, upon execution of the agreement, we issued to Dr.
Pfost options to purchase an aggregate of 730,000 shares of our common stock.
Of these 730,000 options, options to purchase 100,000 shares were previously
granted in December 1999 with an exercise price of $1.25 per share. The
remaining 630,000 options have an exercise price of $6.00 per share. A total of
360,000 of these newly issued options with $6.00 per share exercise prices will
vest if and when the price of our stock exceeds certain specified levels for 45
consecutive trading days. We may terminate the agreement with or without cause
at any time. If we terminate Dr. Pfost's employment for cause, we are only
obligated to pay him severance equal to his accrued base salary up to the date
of termination. If we terminate Dr. Pfost's employment without cause, or if Dr.
Pfost terminates his employment for good reason, we are obligated to pay Dr.
Pfost a severance amount equal to his annual base salary and benefits for an
eighteen month period following the effective date of termination. We must
provide Dr. Pfost with notice of termination in advance of the effective
termination date. The advance notice period ranges from six to eighteen months,
depending on the timing of the effective date of the termination.

We entered into a three year employment agreement with Donald R. Marvin,
effective as of January 2000, to serve as our Senior Vice President, Corporate
Development and Chief Operating Officer at an annual base salary of $275,000.
Under the terms of his employment agreement, Mr. Marvin is entitled to receive
an annual bonus of up to 25% of his base salary to be awarded based upon our
achievement of specific performance milestones. If our Board determines in good
faith that our performance has exceeded such milestones, it may increase Mr.
Marvin's bonus to up to 35% of his base salary. In addition, upon execution of
the agreement, we issued to Mr. Marvin options to purchase an aggregate of
557,000 shares of our common stock. Of these 557,000 options, options to
purchase 67,000 shares were previously granted in December 1999 with an
exercise price of $1.25 per share. The remaining 490,000 options have an
exercise price of $6.00 per share. A total of 240,000 of these newly issued
options with $6.00 per share exercise prices will vest if and when the price of
our stock exceeds certain specified levels for 45 consecutive trading days. We
also contribute an additional amount equal to 5% of Mr. Marvin's annual salary
to a non-qualified retirement plan for the sole benefit of Mr. Marvin. We may
terminate the agreement with or without cause at any time. If we terminate Mr.
Marvin's employment for cause, we are only obligated to pay him severance equal
to his accrued base salary up to the date of termination. If we terminate Mr.
Marvin's employment without cause, or if Mr. Marvin terminates his employment
for good reason, we are obligated to pay Mr. Marvin a severance amount equal to
his annual base salary and benefits for an eighteen month period following the
effective date of termination. We must provide Mr. Marvin with notice of
termination in advance of the effective termination date. The advance notice
period ranges from six to eighteen months, depending on the timing of the
effective date of the termination.

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<PAGE>

CERTAIN TRANSACTIONS

Since January 1999, there has not been nor is there currently proposed, any
transaction or series of similar transactions to which we were or are to be a
party in which the amount involved exceeded or exceeds $60,000 and in which any
director, executive officer, holder of more than 5% of our common stock or any
member of the immediate family of any of the foregoing persons had or will have
a direct or indirect material interest other than the transactions described
below.

In December 1997, we entered into a License and Option Agreement with
Sarnoff Corporation pursuant to which Sarnoff granted rights to us under
certain technology for the research, development and sale of products and
services in the field of combinatorial chemistry and in vitro diagnostics. As
part of our transition from our historical business model based on
microfluidics technologies to our current business model based on our SNP
scoring technologies, on April 13, 2000 we amended our License and Option
Agreement with Sarnoff pursuant to which we mutually agreed to convert our
existing licenses in each relevant field from an ongoing royalty-based license
to a license paid in full. In addition, we exercised and fully paid up our
exclusive option to the genomics and research products fields. We waived our
exclusivity (but retained our non-exclusive licenses) to the fields of high-
throughput screening and cell-based assay fields. Under the terms of this
amendment, in lieu of all our future cash payment, research funding, potential
royalty payment and stock issuance obligations, in April 2000, we paid a one-
time payment to Sarnoff in the aggregate amount of approximately $3.0 million
and issued to Sarnoff 250,000 shares of our common stock and a warrant to
purchase 75,000 shares of our common stock at $8.00 per share. Upon payment of
this consideration, we received exclusive licenses in the fields formerly
covered by options under our License and Option Agreement. On February 2, 2000,
we 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 exercised under the License and Option Agreement. The Sarnoff
agreement has a term which continues until terminated by mutual agreement or by
Sarnoff, if we fail to make any payment when due unless the failure is cured
within 90 days of notice from Sarnoff. As this licensed technology has not
reached technological feasibility and has no alternative uses, the cash payment
of approximately $3.0 million and the fair value of the equity securities of
approximately $4.8 million has been charged to research and development expense
during the six months ended June 30, 2000.

In June 1999, we completed a bridge financing in which we issued
subordinated convertible term notes in the aggregate principal amount of
$7,590,000 and warrants to purchase an aggregate of 381,500 shares of common
stock. In connection with this offering, we issued OrbiMed Advisors, LLC, a
five percent beneficial stockholder, through each of Eaton Vance Worldwide
Health Sciences Fund, Finsbury Worldwide Pharmaceutical Trust and
PHARMAw/HEALTH, notes in the aggregate principal amount of $2,750,000 and
warrants to purchase an aggregate of 137,500 shares of our common stock. We
also issued INVESCO Global Health Sciences Fund, a five percent beneficial
stockholder, through its affiliate Pirate Ship & Co., a note in the aggregate
principal amount of $1,800,000 and warrants to purchase 90,000 shares of our
common stock. On December 22, 1999, in accordance with the terms of the bridge
financing, we issued OrbiMed Advisors and INVESCO Global Health Sciences Fund,
additional warrants to purchase an additional 137,500 and 89,910 shares of
stock, respectively.

In December 1999 and January 2000, we completed a private placement in which
we issued 18,881,563 shares of series E convertible preferred stock, which
amount includes the shares issued in connection with the acquisition of
GeneScreen. INVESCO Global Health Sciences Fund, a five percent beneficial
stockholder, through each of Global Health Sciences Fund and Pirate Ship & Co.,
purchased an aggregate of 645,189 shares of series E convertible preferred
stock in this private placement for an aggregate purchase price of $2,903,350
consisting of cash in the aggregate principal amount of $1,000,000, and the
conversion of the principal amount of and accrued interest on a bridge note
held by Pirate Ship & Co. in the aggregate amount of $1,903,350. OrbiMed
Advisors, LLC, a five percent beneficial stockholder, through each of Caduceus
Capital II, L.P., Eaton Vance Worldwide Health Sciences Fund, Finsbury
Worldwide Pharmaceutical Trust, PHARMAw/HEALTH and Winchester Global Trust
Company Limited, as Trustee for Caduceus Capital Trust, purchased an aggregate
of 1,312,864 shares of series E convertible preferred stock for an aggregate
purchase price of $5,907,888 in this

69
<PAGE>

private placement consisting of cash in the aggregate amount of $3,000,000, and
the conversion of the principal of and all accrued interest on the three bridge
notes held by each of Eaton Vance Worldwide Health Sciences Fund, Finsbury
Worldwide Pharmaceutical Trust and PHARMAw/HEALTH in the aggregate amount of
$2,907,860. Oracle Strategic Partners, LP, a five percent beneficial
stockholder, purchased an aggregate of 2,150,000 shares of series E convertible
preferred stock in this private placement for an aggregate purchase price of
$9,675,000.

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<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information known to us regarding the
beneficial ownership of our common stock as of August 31, 2000 and as adjusted
to reflect the sale of the shares of our common stock in this offering for:

. each person known by us to beneficially own more than 5% of our common
stock;

. each of our directors;

. each of our executive officers named in the summary compensation table;

. all of our directors and executive officers as a group; and

. all other selling stockholders.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock under options held by that person that are currently
exercisable or exercisable within 60 days of August 31, 2000 are considered
outstanding. These shares, however, are not considered outstanding when
computing the percentage ownership of each other person.

Except as indicated in the footnotes to this table and pursuant to state
community property laws, each stockholder named in the table has sole voting
and investment power for the shares shown as beneficially owned by them.
Percentage of ownership is based on 33,175,595 shares of common stock
outstanding on August 31, 2000 and 35,675,595 shares of common stock
outstanding after the completion of this offering based on the number of shares
outstanding on August 31, 2000. This table assumes no exercise of the
underwriters' over-allotment option.

<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After
Offering(1) Offering(1)
Name and Address of ---------------------- Shares ----------------------
Beneficial Owner(1) Number Percent Offered Number Percent
------------------- ------------ --------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
Stockholders owning more
than 5%
OrbiMed Advisors, 2,469,784
LLC(2)................. 7.3%
767 Third Avenue, 6th
Floor
New York, NY 10017
Oracle Strategic
Partners, LP(3)........ 2,150,000 6.4%
712 5th Avenue, 45th
Floor,
New York, NY 10019
INVESCO Global Health
Sciences Fund(4)....... 1,701,555 5.1%
7800 East Union
Avenue, Mail Stop 1102
New York, New York
10019
Directors and Executive
Officers
Dale R. Pfost,
Ph.D.(5)............... 263,715 *
Donald R. Marvin(6)..... 190,657 *
Sidney M. Hecht,
Ph.D.(7)............... 19,054 *
Samuel D. Isaly(8)...... 2,469,748 7.3%
Jeremy M. Levin,
D.Phil., MB.Bchir.(9).. 13,332 *
Ernest Mario,
Ph.D.(10).............. 4,628 *
George Poste, DVM,
Ph.D.(11).............. 23,147 *
Robert M. Tien, M.D.,
M.P.H.(12)............. 9,305 *
Anne M. VanLent(13)..... 15,306 *
All directors and
executive officers as a
group
(9 persons)(14)....... 3,008,928 9.0%
Other Selling
Stockholders
</TABLE>

71
<PAGE>

---------------------
* Represents beneficial ownership of less than one percent of our common
stock.
(1) Unless otherwise indicated, the address of each shareholder is c/o Orchid
BioSciences, Inc., 303 College Road East, Princeton, New Jersey, 08540.
(2) Represents 807,749 shares of common stock held by Eaton Vance Worldwide
Health Sciences Fund, 100,000 shares of common stock subject to a
currently exercisable warrant held by Eaton Vance Worldwide Health
Sciences Fund, 410,254 shares of common stock held by Finsbury Worldwide
Pharmaceutical Trust, 100,000 shares of common stock subject to a
currently exercisable warrant held by Finsbury Worldwide Pharmaceutical
Trust, 526,782 shares of common stock held by PHARMAw/HEALTH, 75,000
shares of common stock subject to a currently exercisable warrant held by
PHARMAw/HEALTH, 74,074 shares of common stock held by Caduceus Capital II,
L.P., 148,148 shares held by Winchester Global Trust Company Limited as
Trustee For Caduceus Capital Trust, 222,222 shares of common stock held by
Hare & Co. for the benefit of Finsbury Worldwide Pharmaceutical Trust and
5,555 shares of common stock subject to a currently exercisable option
held by OrbiMed Advisors, LLC. OrbiMed Advisors, LLC is the investment
advisor for each of these funds, whose Managing Member, Samuel D. Isaly,
has sole authority to vote such shares and as such is considered the
beneficial owner of the common stock held by each of these funds.
(3) Larry Fineberg, who is a general partner of Oracle Strategic Partners, LP,
has the authority to vote such shares.
(4) Represents 1,299,33 shares of common stock held by Pirate Ship & Co.,
222,222 shares of common stock held by Global Health Sciences Fund and
180,000 shares of common stock subject to a currently exercisable warrant
held by Pirate Ship & Co. John Schroer, Senior Vice President of INVESCO
Global Health Science Fund, which manages each of Pirate Ship & Co. and
Global Health Science Fund, has authority to vote such shares.
(5) Includes 143,824 shares of common stock subject to currently exercisable
options, 2,500 shares held by Dr. Pfost's wife, individually, and 2,500
shares held jointly by Dr. Pfost's wife and son.
(6) Includes 76,007 shares of common stock subject to currently exercisable
options, 70,000 shares of common stock subject to currently exercisable
warrants held by Cairn Investments Inc., 42,150 shares of common stock
held by Cairn Investments Inc. and 2,500 shares of common stock held by
Mr. Marvin's wife. Cairn Investments Inc. is an investment corporation
whose stockholders consist of Mr. Marvin and his wife.
(7) Represents 19,054 shares of common stock subject to currently exercisable
options. Mr. Hecht disclaims any beneficial ownership of the shares of
common stock beneficially owned by SmithKline Beecham Corporation and
SmithKline Beecham plc, except to the extent of his pecuniary interest in
such shares, if any.
(8) Mr. Isaly who is the Managing Member of OrbiMed Advisors, LLC is deemed to
be the beneficial owner of shares of common stock attributed to OrbiMed
Advisors, LLC. See footnote number 2, above.
(9) Represents 13,332 shares of common stock subject to currently exercisable
options.
(10) Represents 4,628 shares of common stock subject to currently exercisable
options.
(11) Represents 23,147 shares of common stock subject to currently exercisable
options.
(12) Represents 9,305 shares of common stock subject to a currently exercisable
option. Dr. Tien disclaims any beneficial ownership of EB Finance Co.,
Ltd., except to the extent of his pecuniary interest in such shares, if
any.
(13) Ms. VanLent disclaims any beneficial ownership of the shares of common
stock beneficially owned by Sarnoff Corporation, except to the extent of
her pecuniary interest in such shares, if any.
(14) Represents 262,724 shares subject to currently exercisable options and
345,000 shares subject to currently exercisable warrants.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 50,000,000 shares of common stock,
$.001 par value per share, and 5,000,000 shares of preferred stock, $.001 par
value per share.

After the completion of this offering, based on the number of shares
outstanding on August 31, 2000, there will be:

. 35,675,595 shares of common stock outstanding;

. 3,506,558 shares of common stock that we may issue upon exercise of
options outstanding as of August 31, 2000, 575,036 of which were
exercisable as of August 31, 2000;

. 1,312,138 shares of common stock that we may issue upon exercise of
warrants outstanding as of August 31, 2000, 1,160,138 of which were
exercisable as of August 31, 2000.

Common Stock

Holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Accordingly, holders of a majority of the shares of
common stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of common stock have no preemptive,
subscription, redemption or conversion rights and are not subject to future
calls or assessments by us. No sinking fund provisions apply to our common
stock. All outstanding shares are fully paid and non-assessable. In the event
of our liquidation, dissolution or winding up, holders of common stock are
entitled to share ratably in assets available for distribution, subject to
prior distribution rights of preferred stock, if any, then outstanding. Holders
of common stock are entitled to receive proportionately any such dividends
declared by the board of directors, out of legally available funds for the
dividends subject to the rights of the holders of our preferred stock and any
preferences that may be applicable to any other then outstanding preferred
stock. See "Shares Eligible for Future Sale."

Preferred Stock

Our Board of Directors is authorized to issue up to 5,000,000 shares of
preferred stock in one or more series without stockholder approval. Our Board
of Directors also has discretion to determine the rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences of each
series of preferred stock.

The purpose of authorizing our Board of Directors to issue preferred stock
in one or more series and determine the number of shares in the series and its
rights and preferences is to eliminate delays associated with a stockholder
vote on specific issuances. Examples of rights and preferences that the Board
of Directors may fix are (1) dividend rights, (2) dividend rates, (3)
conversion rights, (4) voting rights, (5) terms of redemption, including
sinking price or prices, and (6) liquidation preferences. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could make it more
difficult for a third party to acquire, or could discourage a third party from
acquiring, a majority of our outstanding voting stock. The rights of holders of
our common stock described above will be subject to, and may be adversely
affected by, the rights of any preferred stock that we may designate and issue
in the future.

Warrants

As of August 31, 2000, there were outstanding warrants to purchase 1,312,138
shares of common stock held by 24 investors. Such warrants have expiration
dates ranging from June 2002 to April 2005, and have a weighted average
exercise price of $4.83 per share. The number of shares for which the warrants
are exercisable is subject to adjustment for stock splits, combinations or
dividends and reclassifications, exchanges or substitutions.

73
<PAGE>

Registration Rights

The holders of approximately 21,748,991 shares of common stock will be
entitled to rights with respect to the registration of those shares under the
Securities Act of 1933 as follows:

Demand Registration Rights. Under the terms of the agreements between us and
the holders of those registrable shares, the former holder of series A
convertible preferred stock, the former holder of series B convertible
preferred stock and the holders of not less than one-third of the former
holders of series C convertible preferred stock and series E convertible
preferred stock may at any time require us to file a registration statement
under the Securities Act with respect to shares of common stock owned by them
and we are required to use our reasonable best efforts to effect that
registration.

Piggyback Registration Rights. Also, if we propose to register any of our
securities under the Securities Act, other than in connection with demand
registrations, registrations on Form S-8 or in connection with our public
offering, the foregoing holders are entitled to notice of and to include in the
registration shares of common stock owned by them.

S-3 Registration Rights. Finally, the former holders of not less than 25% of
the series C convertible preferred stock and series E convertible preferred
stock and a certain holder of common stock may require us to file a
registration statement under the Securities Act on Form S-3 with respect to
shares of common stock owned by them.

All of these registration rights are subject to various conditions and
limitations, among them certain rights of the underwriters of an offering to
limit the number of shares included in a registration and our right not to
effect a requested registration within 90 days after the effective date of a
previous registration on a Form S-1 or within 90 days after the effective date
of a registration which included all shares requested by holders of registrable
shares. We will bear all of the expenses incurred in connection with all
exercises of these registration rights.

Delaware Law and Certain Charter and Bylaw Provisions

We are subject to the provisions of Section 203 of the Delaware General
Corporation Law statute. Section 203 prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years after the person becomes an interested
stockholder, unless the business combination is approved in a prescribed
manner. A business combination includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an interested stockholder is a person who,
together with affiliates and associates, owns, or within three years did own,
15% or more of the corporation's voting stock.

Our bylaws divide the Board of Directors into three classes with staggered
three-year terms. See "Management." Under the bylaws, any vacancy on our Board
of Directors, including a vacancy resulting from an enlargement of our Board of
Directors, may only be filled by vote of a majority of the directors then in
office. The classification of the Board of Directors and the limitation on
filling of vacancies could make it more difficult for a third party to acquire,
or discourage a third party from acquiring, control of our company.

Our bylaws also provide that our stockholders can only take action at an
annual meeting or special meeting, and not by written action in lieu of a
meeting. Our bylaws further provide that only stockholders holding a majority
of outstanding shares, our Chairman of the Board, President or our Board of
Directors may call a special meeting of stockholders.

Our stockholders must comply with advance notice and information disclosure
requirements in order for any matter to be considered "properly brought" before
a meeting. Stockholders must deliver written notice to us between 60 and 90
days prior to the meeting. If we give less than 70 days' notice or prior public
disclosure of the meeting date, stockholders must deliver written notice to us
within ten days following the date upon

74
<PAGE>

which the notice of the meeting was mailed or such public disclosure was made,
whichever occurs first. If the matter relates to the election of directors, the
notice must set forth specific information regarding each nominee and the
nominating stockholder. For any other matter, the notice must set forth a brief
description of the proposed matter and certain information regarding the
proponent stockholder. These provisions could delay until the next
stockholders' meeting proposed actions which are favored by the holders of a
majority of our outstanding voting securities. These provisions could also
discourage a third party from making a tender offer for our common stock,
because even if it acquired a majority of the outstanding voting securities,
the third party would be able to take action as a stockholder only at a duly
called stockholders' meeting, and not by written consent.

The Delaware General Corporation Law statute provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws,
unless a corporation's certificate of incorporation or bylaws, as the case may
be, requires a greater percentage. Our bylaws require the affirmative vote of
holders of at least 70% of the votes which all the stockholders would be
entitled to cast in any annual election of directors or class of directors to
amend or repeal any of the provisions described in the prior two paragraphs.

Our certificate of incorporation contains certain provisions permitted under
the Delaware General Corporation Law statute relating to the limitation of
liability of directors. These provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. Further, the certificate of incorporation contains
provisions to indemnify our directors and officers to the fullest extent
permitted by the Delaware General Corporation Law statute. We believe these
provisions will assist us in attracting and retaining qualified individuals to
serve as our directors.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.

75
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

After completion of this offering and assuming no exercise of the
underwriters' over-allotment option, there will be 35,675,595 shares of common
stock outstanding based upon the number of shares outstanding as of August 31,
2000. Of these, the 6,900,000 shares sold in our initial public offering and
the 2,500,000 shares sold by us in this offering will be freely tradable
without restriction or further registration under the Securities Act of 1933,
except that any shares purchased by our "affiliates," as that term is defined
in Rule 144 under the Securities Act, may generally only be sold in compliance
with the limitations of Rule 144 described below.

Sales of Restricted Shares

All of the shares offered under this prospectus and the 6,900,000 shares
registered in our initial public offering will generally be freely tradable in
the open market. The remaining 26,275,595 shares of common stock that will be
outstanding after this offering will be considered "restricted securities"
under Rule 144 of the Securities Act. Generally, restricted securities that
have been owned for a period of at least two years may be sold immediately
after the completion of this offering, and restricted securities that have been
owned for at least one year may be sold 90 days after the completion of this
offering. Certain of the restricted securities are subject to lock-up
agreements with the underwriters. The persons subject to lock-up agreements
have agreed not to sell shares of our common stock without the prior written
permission of Credit Suisse First Boston Corporation for a period of 90 days
after the completion of this offering. Credit Suisse First Boston Corporation
has indicated that it does not intend to release anyone from the lock-up
agreement. The information regarding potential sales of restricted securities
is set forth below.

. shares may be sold on the date of this prospectus;

. shares may be sold 90 days after the date of this prospectus; and

. shares may be sold at various times after 90 days from the date of
this prospectus.

Options

Shares of common stock may also be issued and sold upon the exercise of
options. After this offering, we intend to register substantially all of the
common stock which may be issued under our 1995 Stock Incentive Plan and our
2000 Employee, Director and Consultant Stock Plan and other stock options not
issued under a plan. Shares issued upon the exercise of stock options after the
effective date of the registration statements on Form S-8 will be eligible for
resale in the public market without restriction, subject to Rule 144
limitations applicable to affiliates and the lock-up agreements noted above, if
applicable.

Registration Rights

The holders of 21,748,991 shares of common stock will be entitled to various
rights with respect to the registration of these shares under the Securities
Act. Registration of these shares under the Securities Act would result in
these shares becoming freely tradable without restriction under the Securities
Act immediately upon the effectiveness of the registration, except for shares
purchased by affiliates. See "Description of Capital Stock -- Registration
Rights" for a more complete description of these registration rights.

Effect of Sales of Shares

We cannot advise you as to the effect, if any, that sales in the public
market of shares of our common stock, or the availability of shares for sale,
will have on the market price of our common stock prevailing from time to time.
Nevertheless, sales of significant numbers of shares of our common stock in the
public market could adversely affect the market price of our common stock and
could impair our ability to raise capital.

76
<PAGE>

UNDERWRITING

We and the selling stockholders have entered into an underwriting agreement,
dated , 2000, with the underwriters named below, for whom Credit Suisse
First Boston Corporation, Robertson Stephens, Inc. and Salomon Smith Barney
Inc. are acting as representatives. We and the selling stockholders are
obligated to sell, and the underwriters are obligated to purchase, all of the
shares of the common stock offered on the cover page of this prospectus, if any
are purchased other than those shares covered by the over-allotment option
described below. Subject to conditions set forth in the underwriting agreement,
each underwriter has severally agreed to purchase from us the number of shares
of common stock set forth below opposite its name:

<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Robertson Stephens, Inc............................................
Salomon Smith Barney Inc...........................................

---------
Total............................................................ 3,500,000
=========
</TABLE>

The underwriting agreement provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.

We have granted the underwriters a 30-day option to purchase up to 525,000
additional shares at the public offering price less the underwriting discounts
and commissions. The option may be exercised only to cover any over-allotments
of the common stock.

The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share on
sales to other broker/dealers. After this offering, the public offering price
and concession and discount to broker/dealers may be changed by the
representatives.

The following table summarizes the compensation and estimated expenses we
and the selling stockholders will pay.

<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions payable
by us.................. $ $ $ $
Expenses payable by us.. $ $ $ $
Underwriting discounts
and commissions payable
by the selling
stockholders........... $ $ $ $
Expenses payable by the
selling stockholders... $ $ $ $
</TABLE>

We and the selling stockholders have agreed to indemnify the underwriters
against liabilities under the Securities Act or contribute to payments that the
underwriters may be required to make in that respect.

77
<PAGE>

We, our directors and our officers and the selling stockholders have agreed
that we and they will not offer, sell, contract to sell, pledge, or otherwise
dispose of, directly or indirectly, or file with the Commission a registration
statement under the Securities Act relating to, any additional shares of our
common stock or securities convertible into or exchangeable or exercisable for
any of our common stock, or publicly disclose the intention to make any such
offer, sale, pledge, disposition or filing, without the prior written consent
of Credit Suisse First Boston Corporation for a period of 90 days after the
date of this offering, except that we can issue shares pursuant to the exercise
of employee stock options outstanding on the date hereof. In addition, some of
our stockholders have signed similar lock-up agreements with Credit Suisse
First Boston Corporation which expire on , 2001.

Our common stock is quoted on the Nasdaq National Market under the symbol
"ORCH."

In connection with the offering the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions,
penalty bids and passive market making in accordance with Regulation M under
the Securities Exchange Act of 1934.

. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

. Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares that they may purchase in the over-
allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may close out any short position by either
exercising their over-allotment option and/or purchasing shares in the
open market.

. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the over-
allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option, a naked short position, the
position can be only be closed out by buying shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there could be downward pressure on the price of the
shares in the open market after pricing that could adversely affect
investors who purchase in the offering.

. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.

. In passive marketing making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to limitations,
make bids for or purchase of the common stock until the time, if any, at
which a stabilizing bid is made.

These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of our
common stock or preventing or retarding the decline in the market price of the
common stock. As a result, the price of the common stock may be higher than the
price that might otherwise exist in the open market. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued any time.

A prospectus in electronic format will be made available on the Web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters
for sale to their online brokerage account holders. Internet distributions will
be allocated by the underwriters that will make Internet distributions on the
same basis as other allocations.

78
<PAGE>

NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
stockholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are made. Any resale
of the common stock in Canada must be made under applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made under available statutory exemptions or under a
discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the common stock.

Representations of Purchasers

By purchasing common stock in Canada and accepting a purchase confirmation,
a purchaser is representing to us, the selling stockholders, and the dealer
from whom such purchase confirmation is received that

. the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws,

. where required by law, that the purchaser is purchasing as principal and
not as agent, and

. the purchaser has reviewed the text above under Resale Restrictions.

Rights of Action (Ontario Purchasers)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recession or rights of action under the civil liability provisions
of the U.S. federal securities laws.

Enforcement of Legal Rights

All of the issuer's directors and officers as well as the experts named
herein and the selling stockholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.

Notice to British Columbia Residents

A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.

Taxation and Eligibility for Investment

Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.

79
<PAGE>

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston,
Massachusetts. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Willkie Farr & Gallagher, New York, New
York. Members and employees of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. own 604 shares of common stock and options to purchase an aggregate of
4,096 shares of common stock.

EXPERTS

The consolidated financial statements of Orchid BioSciences, Inc. and
subsidiaries as of December 31, 1998 and 1999, and for each of the years in the
three-year period ended December 31, 1999, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.

The consolidated financial statements of GeneScreen, Inc. and subsidiaries
as of December 29, 1999, and for the period from January 1, 1999 to December
29, 1999, have been included herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

The consolidated financial statements of GeneScreen, Inc. and subsidiaries
as of December 31, 1998 and for the year then ended have been included herein
and in the registration statement in reliance upon the report of Deloitte &
Touche LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form S-1 (including its exhibits
and schedules) with the Securities and Exchange Commission under the Securities
Act with respect to our common stock to be sold in this offering. This
prospectus, which is a part of the registration statement, does not contain all
of the information included in the registration statement. Certain information
is omitted and you should refer to the registration statement and its exhibits.
With respect to references made in this prospectus to any contract, agreement
or other document of Orchid BioSciences, Inc., such references are not
necessarily complete and you should refer to the exhibits attached to the
registration statement for copies of the actual contract, agreement or other
document. You may review a copy of the registration statement, including
exhibits, at the Securities and Exchange Commission's public reference room at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the SEC located at Seven World Trade Center, 13th
Floor, New York, New York 10048 or at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Please call 1-800-SEC-0330 for further
information about the operation of the public reference rooms.

We are obligated to file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information on file at
the public reference rooms. You can also request copies of these documents, for
a copying fee, by writing to the Securities and Exchange Commission.

We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors and to make available
to our stockholders quarterly reports containing unaudited financial data for
the first three quarters of each fiscal year.

The registration statement and our other Securities and Exchange Commission
filings can also be reviewed by accessing the Securities and Exchange
Commission's Internet site at http://www.sec.gov, which contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Securities and Exchange Commission.

80
<PAGE>

ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Orchid BioSciences, Inc. and subsidiaries:
Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of December 31, 1999 and June
30, 2000 (unaudited)................................................... F-2
Condensed Consolidated Statements of Operations for the six months ended
June 30, 1999 and 2000 (unaudited)..................................... F-3
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1999 and 2000 (unaudited)..................................... F-4
Notes to Condensed Consolidated Financial Statements (unaudited)........ F-5
Audited Consolidated Financial Statements:
Independent Auditors' Report........................................... F-10
Consolidated Balance Sheets at December 31, 1998 and 1999.............. F-11
Consolidated Statements of Operations for the years ended December 31,
1997, 1998 and 1999................................................... F-13
Consolidated Statements of Stockholders' Deficit for the years ended
December 31, 1997, 1998 and 1999...................................... F-14
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999................................................... F-15
Notes to Consolidated Financial Statements............................. F-16
GeneScreen, Inc. and subsidiaries:
Audited Consolidated Financial Statements:
Independent Auditors' Report............................................ F-38
Independent Auditors' Report............................................ F-39
Consolidated Balance Sheets at December 31, 1998 and December 29, 1999.. F-40
Consolidated Statements of Operations for the year ended December 31,
1998 and the period from January 1, 1999 to December 29, 1999.......... F-41
Consolidated Statements of Stockholders' Equity (Deficit) for the year
ended December 31, 1998 and the period from January 1, 1999 to December
29, 1999............................................................... F-42
Consolidated Statements of Cash Flows for the year ended December 31,
1998 and the period from January 1, 1999 to December 29, 1999.......... F-43
Notes to Consolidated Financial Statements.............................. F-44
</TABLE>

F-1
<PAGE>

ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share data)
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ -----------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................... $ 33,804 $ 49,675
Restricted cash..................................... 400 --
Short-term investments.............................. -- 38,176
Accounts receivable, net............................ 2,102 4,519
Inventory........................................... -- 1,968
Other current assets................................ 1,041 1,834
-------- --------
Total current assets.............................. 37,347 96,172
Equipment and leasehold improvements, net............. 9,474 12,497
Goodwill, net......................................... 31,051 30,004
Other intangibles, net................................ 16,519 15,732
Other assets.......................................... 465 1,499
-------- --------
Total assets...................................... $ 94,856 $155,904
======== ========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Note payable--bank.................................. $ 1,000 $ --
Current portion of long-term debt................... 1,141 1,158
Accounts payable.................................... 2,302 4,369
Accrued expenses.................................... 4,777 2,088
Due to related party................................ 64 --
Deferred revenue.................................... 789 1,219
-------- --------
Total current liabilities......................... 10,073 8,834
Long-term debt, less current portion.................. 4,122 3,598
Commitments and contingencies
Manditorily redeemable convertible preferred stock,
$.001 par value, none authorized at June 30, 2000
(note 1):
Series C, at redemption value; issued and
outstanding 2,480,176 and 0 shares at December 31,
1999 and June 30, 2000, respectively............... 27,530 --
Series E issued and outstanding 7,934,966 and 0
shares at December 31, 1999 and June 30, 2000,
respectively....................................... 39,035 --
Series E to be issued, at redemption value,
(4,974,694 shares at December 31, 1999)............ 22,381 --
-------- --------
88,946 --
-------- --------
Stockholders' equity (deficit):
Preferred stock, $.001 par value. Authorized
5,000,000 shares; no shares issued or outstanding.. $ -- $ --
Convertible preferred stock, $.001 par value:
Series A; issued and outstanding 970,900 and 0
shares at December 31, 1999 and June 30, 2000,
respectively....................................... 1 --
Series B, issued and outstanding 103,840 and 0
shares at December 31, 1999 and June 30, 2000,
respectively....................................... -- --
Common stock, $.001 par value. Authorized 50,000,000
shares; issued and outstanding 845,450 and
33,155,057 at December 31, 1999 and June 30, 2000,
respectively....................................... 1 33
Common stock to be issued (10,000 shares at December
31, 1999).......................................... 76 --
Additional paid-in capital.......................... 50,325 239,710
Deferred compensation............................... (7,930) (19,966)
Accumulated deficit................................. (50,758) (76,305)
-------- --------
Total stockholders' equity (deficit).............. (8,285) 143,472
-------- --------
Total liabilities and stockholders' equity
(deficit)........................................ $ 94,856 $155,904
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.

F-2
<PAGE>

ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except share and per share data)
(Unaudited)

<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------
1999 2000
-------- ----------
<S> <C> <C>
Revenues:
Product revenues and access fees........................ $ -- $ 930
Clinical laboratory testing............................. -- 6,160
Grant revenues.......................................... 307 378
Collaboration revenues.................................. 500 --
License and other revenues.............................. -- 592
-------- ----------
Total revenues......................................... 807 8,060
Operating expenses:
Cost of product revenues and access fees................ -- 610
Cost of clinical laboratory testing..................... -- 4,835
Selling, general and administrative..................... 4,000 13,176
Research and development................................ 6,157 16,742
-------- ----------
Total operating expenses............................. 10,157 35,363
Other income (expense):
Interest income........................................ 106 2,090
Interest expense....................................... (504) (258)
Other expense.......................................... -- (76)
-------- ----------
Total other income (expense)......................... (398) 1,756
Net loss............................................. (9,748) (25,547)
Beneficial conversion feature of preferred stock......... -- 29,574
-------- ----------
Net loss allocable to common stockholders............ $ (9,748) $ (55,121)
======== ==========
Basic and diluted net loss per share allocable to common
stockholders (note 2)................................... $ (13.39) $ (5.52)
======== ==========
Shares used in computing basic and diluted net loss per
share allocable to common stockholders (note 2)......... 727,934 9,981,418
======== ==========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-3
<PAGE>

ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------
1999 2000
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(9,748) $(25,547)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash research and development expense................ -- 4,775
Noncash compensation expense............................ 294 4,016
Noncash interest expense................................ 90 --
Depreciation and amortization........................... 457 2,701
Changes in assets and liabilities:
Accounts receivable................................... -- (2,417)
Inventory............................................. -- (1,968)
Other current assets.................................. 164 (793)
Other assets.......................................... 140 332
Accounts payable...................................... 244 2,067
Accrued expenses...................................... 411 (2,689)
Due to related party.................................. (381) (64)
Deferred revenue...................................... (250) 430
------- --------
Net cash used in operating activities............... (8,579) (19,157)
------- --------
Cash flows from investing activities:
Capital expenditures...................................... (4,976) (3,756)
Decrease in restricted cash............................... -- 400
Maturities of short-term investments...................... 7,615 7,703
Purchase of short term investments........................ -- (45,879)
------- --------
Net cash (used in) provided by investing
activities......................................... 2,639 (41,532)
------- --------
Cash flows from financing activities:
Net proceeds from issuance of Series E manditorily
redeemable convertible preferred stock................... -- 29,574
Proceeds from issuance of debt from line of credit........ 1,894 --
Repayment of debt on lines of credit...................... (58) (1,507)
Proceeds from convertible term notes...................... 6,515 --
Proceeds from issuance of common stock.................... -- 48,405
Proceeds from issuance of common stock warrants........... 1,075 --
Proceeds from exercise of common stock options............ 2 88
------- --------
Net cash provided by financing activities........... 9,428 76,560
------- --------
Net increase in cash and cash equivalents................... 3,488 15,871
Cash and cash equivalents at beginning of period............ 473 33,804
------- --------
Cash and cash equivalents at end of period.................. $ 3,961 $ 49,675
======= ========
Supplemental disclosure of noncash financing and investing
activities:
Deferred compensation from grant of common stock options.. $ 638 $ 16,052
Issuance of common stock and common stock warrants for
technology licenses...................................... -- 4,775
Issuance of common stock in connection with supply
agreement................................................ -- 1,500
Issuance of common stock warrants in connection with
borrowings on line of credit............................. 8 --
Conversion of manditorily redeemable convertible preferred
stock and convertible preferred stock into common stock.. -- 118,521
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-4
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 2000
(unaudited)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of
Orchid BioSciences, Inc. ("Orchid") and subsidiaries (Orchid, together with its
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
include the results of the Company and its wholly owned subsidiaries. All
intercompany accounts and transactions have been eliminated.

The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements and footnotes thereto included elsewhere in this prospectus.

(2) 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
period 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
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. The Company has
reflected $29,573,564 as a beneficial conversion feature in the net loss
allocable to common stockholders for the six months ended June 30, 2000 for the
5,971,903 shares of Series E mandatorily redeemable convertible preferred stock
("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 date 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.

(3) GeneScreen, Inc. Pro Forma Financial Information

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

<TABLE>
<CAPTION>
Six months ended
June 30, 1999
----------------
(in thousands)
<S> <C>
Revenues..................................................... $ 6,851
========
Net loss allocable to common stockholders.................... $(39,951)
========
Basic and diluted net loss per share allocable to common
stockholders................................................ $ (54.88)
========
</TABLE>

F-5
<PAGE>

ORCHID BIOCOMPUTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

June 30, 1999 and 2000
(unaudited)

(4) Employment Agreements

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 executive's salary and benefits for up to eighteen
months after leaving the Company.

(5) Sale of Convertible Preferred Stock

In January 2000, the Company completed the sale of 5,971,903 shares of
Series E stock for gross proceeds of $29,573,564. The issuance of these
securities resulted in a $29,573,564 beneficial conversion feature which
increased net loss per share allocable to common stockholders in the six months
ended June 30, 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 stock. The Company also issued 1,040,341 shares of Series E
stock 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.

(6) Stock Option Grants

In January and on February 2, 2000, the Company granted 36,500, 729,400,
40,750 and 40,750 stock options under the 2000 Employee, Director and
Consultant Stock Plan at exercise prices of $1.25, $6.00, $8.00, $12.00 (see
note 12), respectively, for which an initial compensation charge of
approximately $4.3 million was recorded in the first quarter of 2000 and will
be recognized over the respective vesting periods of the options. Some of these
amounts result from grants to consultants which are subject to remeasurement at
the end of each reporting period based upon the changes in the fair value of
the common stock until the consultant completes performance under the option
agreement. In addition, the Company issued approximately 800,000 performance
based stock options at exercise prices of $6.00 for which compensation expense
will be measured as the difference between the fair value of our common stock
at the time the performance criteria is met and the exercise price and will be
immediately recorded as compensation expense.

On March 31, 2000, the Company granted 289,660 stock options under the 1995
Stock Incentive Plan at exercise prices of $12 per share for which an initial
compensation charge of approximately $800,000 was recorded in the first quarter
of 2000 and will be recognized over the respective vesting periods of the
options. Some of these amounts result from grants to consultants which are
subject to remeasurement at the end of each reporting period based upon the
changes in the fair value of the common stock until the consultant completes
performance under the option agreement.

During the quarter ended June 30, 2000, the Company issued approximately
214,000 stock options at various exercise prices to certain employees,
directors and consultants for which an initial compensation charge of
approximately $5.1 million was recorded and will be recognized over the
respective vesting periods of the options. Some of these amounts result from
grants to consultants which are subject to remeasurement at the end of each
reporting period based upon the changes in the fair value of the common stock
until the consultant completes performance under the option agreement and from
the measurement of compensation charges on performance based options, where
performance was achieved.

(7) 2000 Employee, Director and Consultant Stock Incentive Plan

On February 11, 2000 and March 17, 2000, respectively, the Board of
Directors and stockholders of the Company approved the 2000 Employee, Director
and Consultant Stock Incentive Plan ("Plan") for the

F-6
<PAGE>

ORCHID BIOCOMPUTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

June 30, 1999 and 2000
(unaudited)

issuance of common stock, incentive stock options and non-qualified stock
options to employees, directors and consultants. The Board of Directors also
authorized the granting of up to a total of 1,500,000 options under this Plan
and 3,500,000 under the 1995 Stock Incentive Plan.

(8) ABS Termination

Effective February 15, 2000, the Company's Collaborative Development and
Marketing Agreement with Advanced Bioanalytical Services, Inc. ("ABS") was
terminated. The Company paid ABS $75,000 in full and final settlement of all
amounts owed under this agreement.

(9) NEN Agreement

On February 21, 2000, the Company entered into an Agreement for the License
and Supply of Terminators with NEN Life Science Products, Inc., now known as
NEN Life Sciences, Inc. ("NEN"), pursuant to which NEN has agreed to supply the
Company with terminators for use in the Company's SNPware kits. In
consideration of NEN's agreement to supply the Company with terminators at
favorable prices, the Company sold NEN 125,000 shares of its common stock for a
purchase price of $750,000 and paid NEN an up-front fee of $750,000. The
Company also agreed to pay NEN a certain percentage of net sales revenues based
on the number of SNPware kits sold, in certain cases. The 125,000 shares had a
fair value of $1,500,000 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 $750,000 up-front fee plus
the $750,000 excess of the fair value of the issued common stock over the
purchase price (or a total of $1.5 million) 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 $333,000, second year
$700,000, third year $990,000 and fourth year $1,320,000. Either party can
terminate the agreement any time after four years from the commencement date,
without cause, upon 90 days written notice.

(10) Sarnoff Agreement

On April 13, 2000, the Company amended its License and Option Agreement with
Sarnoff Corporation ("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
$3.0 million, issued 250,000 shares of common stock and granted five-year
warrants to purchase 75,000 shares of common stock to Sarnoff 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. Previously, on February
2, 2000, the Company 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 $3.0 million and the
fair value of the equity securities of approximately $4.8 million was charged
to research and development expense during the six months ended June 30, 2000.

(11) Change in Authorized Shares

On May 10, 2000, the Company filed a restated certificate of incorporation
which increased its authorized shares of common stock to 50,000,000 shares,
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.

F-7
<PAGE>

ORCHID BIOCOMPUTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

June 30, 1999 and 2000
(unaudited)

(12) Initial Public Offering

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 $48.4
million. All shares of Series A Convertible Preferred Stock ("Series A stock"),
Series B Convertible Preferred Stock ("Series B stock"), 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 ("Series C 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.

(13) Inventory

Inventory at June 30, 2000 consists entirely of raw materials.

(14) Legal Matters

The Company has been in discussions with St. Louis University of St. Louis,
Missouri regarding their belief that the Company's SNP scoring technology
infringes certain claims under U.S. patent 5846710, which is controlled by the
University. Although the Company is confident that our 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 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 likely will result in claims
against the Company, including patent infringement. As a result, the outcome of
this action is uncertain. Furthermore, while the Company is seeking declaratory
judgment in this action, the lawsuit could take significant time, be expensive
and divert our management's attention from other business concerns.

Other than as described above, the Company is not a party to any material
legal proceeding. The Company is engaged in discussions with Motorola, Inc.
("Motorola") in an attempt to resolve certain areas of disagreement that have
arisen under the existing collaboration in the area of microfluidics. The
primary issue of disagreement between the parties relates to whether, under the
terms of the agreement with Motorola, Motorola has a right to obtain a license
to the Company's SNP-IT technology for use with Motorola's microfluidic chips.
While the Company believes that, under the terms of the agreement, Motorola has
no rights to its SNP-IT technology, there can be no assurance that an agreement
can be reached with Motorola on this issue or that the Company would prevail if
this dispute were to develop into arbitration or litigation. Nonetheless, the
Company believes that, even if it fails to successfully resolve this issue or
to prevail in any such arbitration or litigation, it would only be obligated to
grant Motorola a non-exclusive license to use its SNP-IT technology with their
microfluidic genotyping chips on terms no less favorable than those offered to
other licensees. The Company does not believe that such a result is likely to
have a material adverse affect on the Company's business, financial condition
and operating results.

(15) Self-Insurance Reserve

GeneScreen Inc., the Company's wholly owned subsidiary, is self-insured for
the risk of loss relating to certain litigation claims that might arise from
GeneScreen's testing results. However, due to provisions in

F-8
<PAGE>

ORCHID BIOCOMPUTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

June 30, 1999 and 2000
(unaudited)

certain service contracts, GeneScreen is insured for claims arising from
testing performed under the Texas, Ohio and Arizona contracts. Insurance
coverage began in 1995 for testing under the Texas contract, in 1997 for
testing under the Ohio and Arizona contracts and all other contracts in August
1998. Management estimates future litigation costs based on historical
litigation experience. The accrued litigation reserve for the self-insured risk
at June 30, 2000 was $156,000.

(16) 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 their
business are as follows: (i) the Company prior to the acquisition of GeneScreen
("Orchid"), which performs SNP scoring analysis and markets related equipment
and consumables; and (ii) GeneScreen, which performs DNA laboratory analysis
for paternity, transplantation and forensic testing.

The Company evaluates performance of and allocates resources to the
segments. Prior to the acquisition of GeneScreen on December 30, 1999, the
Company was operated and managed as one business. Segment information as of and
for the six months ended June 30, 2000 for Orchid and GeneScreen is as follows:

<TABLE>
<CAPTION>
Orchid GeneScreen Total
-------- ---------- --------
(in thousands)
<S> <C> <C> <C>
Revenues from external customers................. $ 1,900 $ 6,160 $ 8,060
Segment net loss................................. (23,660) (1,887) (25,547)
Total assets..................................... 112,929 42,975 155,904
</TABLE>

(17) Subsequent Events

In July 2000, the Company expanded its collaboration with the SNP Consortium
Ltd. under which the Company will perform certain SNP scoring service for
determining the allelic frequency of 60,000 SNP genomic markers in diverse
populations. The term of this collaboration is through the earlier of March 1,
2001 or completion of the project. The Company will bear all costs to perform
these services. To fulfill its commitment under this collaboration, the Company
will accelerate the hiring of personnel for, and use of SNPware consummables
in, the Company's MegaSNPatron facility, resulting in additional research and
development expenses over the next six to twelve months of between $3 million
and $6 million. The Company will additionally need to accelerate previously
planned capital expenditures relating to the build-out of the MegaSNPatron
facility of approximately $4 million. In exchange, the Company has the right to
commercialize certain technology developed as a result of performing these
services.

F-9
<PAGE>

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheets of Orchid
BioSciences, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' deficit and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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, 1998 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.

KPMG LLP

Princeton, New Jersey

February 11, 2000 except as to
the seventh paragraph of note 16
which is as of March 17, 2000,
the eighth paragraph of note 16
which is as of February 15,
2000, the ninth paragraph of
note 16 which is as of February
21, 2000, the tenth paragraph of
note 16 which is as of March 31,
2000 the eleventh paragraph of
note 16 which is as of April 13,
2000 and the twelfth paragraph
of note 16 which is as of May 4,
2000.

F-10
<PAGE>

ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 1998 and 1999

<TABLE>
<CAPTION>
Pro Forma
December 31,
1999
1998 1999 (see note 1)
----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................ $ 472,725 $33,803,935 $33,803,935
Restricted cash.......................... -- 400,000 400,000
Short-term investments................... 7,615,127 -- --
Accounts receivable, net................. -- 2,102,563 2,102,563
Laboratory materials and supplies........ -- 182,532 182,532
Other current assets..................... 307,340 858,774 858,774
----------- ----------- -----------
Total current assets..................... 8,395,192 37,347,804 37,347,804
Equipment and leasehold improvements,
net..................................... 1,736,654 9,474,416 9,474,416
Goodwill, net of accumulated amortization
of $2,275 and $10,075 in 1998 and 1999,
respectively............................ 75,725 31,050,518 31,050,518
Other intangibles, net................... 4,840,590 16,518,757 16,518,757
Other assets............................. 551,264 464,815 464,815
----------- ----------- -----------
Total assets............................. $15,599,425 $94,856,310 $94,856,310
=========== =========== ===========
Liabilities and Stockholders' Equity
(Deficit)
Current liabilities:
Note payable--bank....................... $ -- $ 1,000,000 $ 1,000,000
Current portion of long-term debt........ -- 1,141,230 1,141,230
Accounts payable......................... 1,004,860 2,302,123 2,302,123
Accrued expenses......................... 1,008,536 4,777,157 4,777,157
Due to related party..................... 381,033 63,519 63,519
Deferred revenue......................... 250,000 789,091 789,091
----------- ----------- -----------
Total current liabilities................ 2,644,429 10,073,120 10,073,120
Long-term debt, less current portion..... 3,547,821 4,122,357 4,122,357
Commitments and contingencies............
Manditorily redeemable convertible
preferred stock, $.001 par value
(converts into 17,734,919 shares of
common stock on an unaudited pro forma
basis at December 31, 1999 upon
consummation of the offering
contemplated herein):
Series C, at redemption value, designated
2,493,692 shares; issued and outstanding
2,480,176 shares at December 31, 1998
and 1999 (Aggregate liquidation value of
$27,530,000 at December 31, 1999) ...... 27,530,000 27,530,000 --
Series E, designated 19,000,000 shares;
issued and outstanding 7,934,966 shares
at December 31, 1999 (Aggregate
liquidation value of $35,707,320 at
December 31, 1999)...................... -- 39,034,609 --
Series E to be issued, at redemption
value, (4,974,694 shares, including
518,534 shares subject to repurchase
rights at December 31, 1999) (Aggregate
liquidation value of $22,281,534 at
December 31, 1999)...................... -- 22,381,533 --
----------- ----------- -----------
27,530,000 88,946,142 --
----------- ----------- -----------
</TABLE>

F-11
<PAGE>

ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS--(Continued)

December 31, 1998 and 1999

<TABLE>
<CAPTION>
Pro
Forma
December 31,
1999
1998 1999 (see note 1)
----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
Stockholders' equity (deficit):
Preferred stock, $.001 par value.
Authorized 23,400,000 shares; 38,961
shares with no designation; no shares
issued or outstanding................. $ -- $ -- $ --
Convertible preferred stock, $.001 par
value (converts into 1,074,740 shares
of common stock on an unaudited pro
forma basis at December 31, 1999 upon
consummation of the initial public
offering):
Series A, designated 1,200,000 shares;
issued and outstanding 904,200 and
970,900 shares at December 31, 1998
and 1999, respectively (Liquidation
value--see note 13).................. 904 971 --
Series B, designated 300,000 shares;
issued and outstanding 68,640 and
103,840 shares at December 31, 1998
and 1999, respectively (Liquidation
value--see note 13).................. 69 104 --
Series B, to be issued (35,200 shares
at December 31, 1998) (Liquidation
value--see note 13).................. 211,200 -- --
Series D, designated 367,347 shares;
no shares issued or outstanding...... -- -- --
Common stock, $.001 par value.
Authorized 30,000,000 shares; issued
and outstanding 726,751 and 845,450
shares at December 31, 1998 and 1999,
respectively (19,655,109 shares on an
unaudited pro forma basis at December
31, 1999 upon conversion of the
manditorily redeemable convertible
preferred stock and the convertible
preferred stock)...................... 727 845 19,655
Common stock to be issued (5,000 and
10,000 shares at December 31, 1998 and
1999, respectively)................... 17,500 76,250 76,250
Additional paid-in capital............. 4,808,773 50,324,522 139,252,929
Deferred compensation.................. (624,318) (7,930,030) (7,930,030)
Accumulated deficit.................... (22,537,680) (50,757,971) (50,757,971)
----------- ----------- -----------
Total stockholders' equity
(deficit).......................... (18,122,825) (8,285,309) 80,660,833
----------- ----------- -----------
Total liabilities and stockholders'
equity (deficit)................... $15,599,425 $94,856,310 $94,856,310
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-12
<PAGE>

ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended December 31, 1997, 1998 and 1999

<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Collaboration revenue-related
party.............................. $ 3,763,000 $ 2,747,800 $ --
Collaboration revenue-unrelated
party.............................. -- -- 828,000
Grant revenue....................... -- 33,152 810,838
License and other revenue........... -- -- 154,167
----------- ------------ ------------
Total revenues.................... 3,763,000 2,780,952 1,793,005
----------- ------------ ------------
Operating expenses:
General and administrative ......... 2,812,815 4,947,786 9,547,089
General and administrative-related
party.............................. 114,636 251,449 63,519
Research and development............ 46,845 4,984,575 11,695,798
Research and development-related
party.............................. 10,765,767 2,589,538 2,751,927
Acquisition of in-process research
and development.................... -- 2,352,838 --
----------- ------------ ------------
Total operating expenses.......... 13,740,063 15,126,186 24,058,333
----------- ------------ ------------
Operating loss.................... (9,977,063) (12,345,234) (22,265,328)
----------- ------------ ------------
Other income (expense):
Interest income..................... 49,303 931,390 202,699
Interest expense.................... -- (65,635) (6,157,662)
----------- ------------ ------------
Total other income (expenses)..... 49,303 865,755 (5,954,963)
----------- ------------ ------------
Net loss.......................... (9,927,760) (11,479,479) (28,220,291)
Beneficial conversion feature of
preferred stock...................... -- -- 44,554,000
----------- ------------ ------------
Net loss allocable to common
stockholders..................... $(9,927,760) $(11,479,479) $(72,774,291)
=========== ============ ============
Basic and diluted net loss per share
allocable to common stockholders
(note 1)............................. $ (27.57) $ (17.09) $ (95.87)
=========== ============ ============
Shares used in computing basic and
diluted net loss per share allocable
to common stockholders (note 1)...... 360,079 671,589 759,078
=========== ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-13
<PAGE>

ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

For the years ended December 31, 1997, 1998 and 1999

<TABLE>
<CAPTION>
Convertible preferred stock
--------------------------------------
Series A Series B
-------------- --------------
Number Number Series B
of of To be
shares Amount shares Amount issued
------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C>
Balance, December
31, 1996......... 670,000 $670 68,640 $ 69 --
Issuance of
common stock for
technology
licenses........ -- -- -- -- --
Issuance of
restricted
common stock.... -- -- -- -- --
Issuance of
Series A
convertible
preferred stock
for technology
license......... 167,500 167 -- -- --
Deferred
compensation
resulting from
the grant of
options......... -- -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- --
Exercise of
common stock
options......... -- -- -- -- --
Net loss........ -- -- -- -- --
------- ---- ------- ---- --------
Balance, December
31, 1997......... 837,500 837 68,640 69 --
Exercise of
common stock
options......... -- -- -- -- --
Issuance of
stock for
technology
licenses........ 66,700 67 -- -- --
Series B
convertible
preferred stock
to be issued.... -- -- -- -- 211,200
Deferred
compensation
resulting from
the grant of
options......... -- -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- --
Issuance of
common stock
options in
connection with
acquisition of
Molecular Tool,
Inc............. -- -- -- -- --
Net loss........ -- -- -- -- --
------- ---- ------- ---- --------
Balance, December
31, 1998......... 904,200 904 68,640 69 211,200
Issuance of
stock for
technology
licenses........ 66,700 67 -- -- --
Series B
convertible
preferred stock
to be issued.... -- -- 35,200 35 (211,200)
Warrants in
connection with
convertible term
loans........... -- -- -- -- --
Warrants in
connection with
draws on line of
credit.......... -- -- -- -- --
Warrants in
connection with
sale of Series E
manditorily
redeemable
convertible
preferred
stock........... -- -- -- -- --
Beneficial
conversion
feature on
issuance of
Series E
manditorily
redeemable
convertible
preferred stock
in connection
with acquisition
of GeneScreen... -- -- -- -- --
Deferred
compensation
resulting from
the grant of
options......... -- -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- --
Exercise of
common stock
options......... -- -- -- -- --
Net loss........ -- -- -- -- --
------- ---- ------- ---- --------
Balance, December
31, 1999......... 970,900 $971 103,840 $104 --
======= ==== ======= ==== ========
<CAPTION>
Common stock
--------------
Number Common stock Additional Deferred Total
of to be paid-in compen- Accumulated stockholders'
shares Amount issued capital sation deficit deficit
------- ------ ------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1996......... 330,829 $331 -- 1,317,812 -- (1,130,441) 188,441
Issuance of
common stock for
technology
licenses........ 157,500 158 -- 354,218 -- -- 354,376
Issuance of
restricted
common stock.... 109,333 109 -- 131,657 (131,766) -- --
Issuance of
Series A
convertible
preferred stock
for technology
license......... -- -- -- 1,289,583 -- -- 1,289,750
Deferred
compensation
resulting from
the grant of
options......... -- -- -- 314,562 (314,562) -- --
Amortization of
deferred
compensation.... -- -- -- -- 85,697 -- 85,697
Exercise of
common stock
options......... 4,117 4 -- -- -- -- 4
Net loss........ -- -- -- -- -- (9,927,760) (9,927,760)
------- ------ ------------ ----------- ----------- ------------ -------------
Balance, December
31, 1997......... 601,779 602 -- 3,407,832 (360,631) (11,058,201) (8,009,492)
Exercise of
common stock
options......... 1,582 2 -- (2) -- -- --
Issuance of
stock for
technology
licenses........ 123,390 123 17,500 762,643 -- -- 780,333
Series B
convertible
preferred stock
to be issued.... -- -- -- -- -- -- 211,200
Deferred
compensation
resulting from
the grant of
options......... -- -- -- 438,300 (438,300) -- --
Amortization of
deferred
compensation.... -- -- -- -- 174,613 -- 174,613
Issuance of
common stock
options in
connection with
acquisition of
Molecular Tool,
Inc............. -- -- -- 200,000 -- -- 200,000
Net loss........ -- -- -- -- -- (11,479,479) (11,479,479)
------- ------ ------------ ----------- ----------- ------------ -------------
Balance, December
31, 1998......... 726,751 727 17,500 4,808,773 (624,318) (22,537,680) (18,122,825)
Issuance of
stock for
technology
licenses........ 83,300 83 58,750 1,762,350 -- -- 1,821,250
Series B
convertible
preferred stock
to be issued.... -- -- -- 211,165 -- -- --
Warrants in
connection with
convertible term
loans........... -- -- -- 5,232,000 -- -- 5,232,000
Warrants in
connection with
draws on line of
credit.......... -- -- -- 76,000 -- -- 76,000
Warrants in
connection with
sale of Series E
manditorily
redeemable
convertible
preferred
stock........... -- -- -- 753,000 -- -- 753,000
Beneficial
conversion
feature on
issuance of
Series E
manditorily
redeemable
convertible
preferred stock
in connection
with acquisition
of GeneScreen... -- -- -- 28,530,000 -- -- 28,530,000
Deferred
compensation
resulting from
the grant of
options......... -- -- -- 8,937,071 (8,937,071) -- --
Amortization of
deferred
compensation.... -- -- -- -- 1,631,359 -- 1,631,359
Exercise of
common stock
options......... 35,399 35 -- 14,163 -- -- 14,198
Net loss........ -- -- -- -- -- (28,220,291) (28,220,291)
------- ------ ------------ ----------- ----------- ------------ -------------
Balance, December
31, 1999......... 845,450 $845 76,250 50,324,522 (7,930,030) (50,757,971) (8,285,309)
======= ====== ============ =========== =========== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.

F-14
<PAGE>

ORCHID BIOSCIENCES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 1997, 1998 and 1999

<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................. $(9,927,760) $(11,479,479) $(28,220,291)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Noncash research and development
expense............................ 1,644,126 3,133,171 1,821,250
Noncash compensation expense........ 85,697 174,613 1,631,359
Noncash amortization of debt
issuance costs and interest
expense............................ -- -- 5,985,749
Depreciation and amortization....... 99,235 513,444 1,359,772
Changes in assets and liabilities:
Other current assets............... 279,307 (242,371) (395,326)
Other assets....................... (25,694) (525,570) 155,745
Accounts payable................... 117,460 609,699 756,938
Accrued expenses................... 481,457 309,352 1,519,486
Due to related party............... (1,469,907) 51,074 (317,514)
Milestone advance.................. 1,320,000 (1,108,800) --
Deferred revenue................... (133,000) 161,000 346,045
Obligation under research and
development contract.............. 3,130,000 (3,130,000) --
----------- ------------ ------------
Net cash used in operating
activities........................ (4,399,079) (11,533,867) (15,356,787)
----------- ------------ ------------
Cash flows from investing activities:
Acquisition of certain assets and
liabilities of Molecular Tool,
Inc................................. -- (3,392,293) --
Cash acquired in acquisition of
GeneScreen, Inc. and subsidiaries,
net of costs........................ -- -- 1,051,207
Capital expenditures................. (43,229) (1,691,404) (8,246,338)
Increase in restricted cash.......... -- -- (400,000)
Purchase of short-term investments... -- (15,545,308) --
Maturities of short-term
investments......................... -- 7,930,181 7,615,127
----------- ------------ ------------
Net cash used in (provided by)
investing activities.............. (43,229) (12,698,824) 19,996
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of Series C
mandatorily redeemable convertible
preferred stock..................... 9,230,000 18,300,000 --
Net proceeds from issuance of Series
E manditorily redeemable convertible
preferred stock..................... -- -- 34,165,197
Proceeds from convertible term
notes............................... 8,765,000
Proceeds from issuance of debt from
line of credit...................... -- -- 5,036,570
Proceeds from common stock warrants.. -- -- 1,075,000
Repayment of debt on line of credit.. -- -- (387,964)
Proceeds from exercise of common
stock options....................... 4 -- 14,198
----------- ------------ ------------
Net cash provided by financing
activities........................ 9,230,004 18,300,000 48,668,001
----------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents..................... 4,787,696 (5,932,691) 33,331,210
Cash and cash equivalents at beginning
of year.............................. 1,617,720 6,405,416 472,725
----------- ------------ ------------
Cash and cash equivalents at end of
year................................. $ 6,405,416 $ 472,725 $ 33,803,935
=========== ============ ============
Supplemental disclosure of noncash
financing and investing activities:
Deferred compensation from issuance
of restricted stock, grant of
options and warrants................ $ 446,328 $ 438,300 $ 8,937,071
Issuance of common stock and Series A
convertible preferred stock for
technology licenses................. 1,475,376 762,833 1,762,500
Common stock granted or to be issued
to SB............................... 168,750 17,500 58,750
Beneficial conversion feature on
issuance of Series E mandatorily
redeemable convertible preferred
stock in connection with acquisition
of GeneScreen....................... -- -- 28,530,000
Series E mandatorily redeemable
convertible preferred stock to be
issued in connection with
acquisition of GeneScreen........... -- -- 17,600,000
Conversion of bridge notes and
accrued interest into Series E
mandatorily redeemable convertible
preferred stock..................... -- -- 10,302,329
Issuance of long-term debt in
connection with acquisition of
Molecular Tool, Inc................. -- 3,547,821 --
Issuance of Series B convertible
preferred stock in exchange for
milestone advance................... -- 211,200 --
Cancellation of long-term debt in
connection with acquisition of
GeneScreen, Inc. ................... -- -- 3,547,821
Issuance of common stock warrants in
connection with borrowings on line
of credit........................... -- -- 76,000
Issuance of common stock options in
connection with acquisition of
Molecular Tool, Inc. ............... -- 200,000 --
Issuance of common stock warrants in
connection with the Series E
mandatorily redeemable convertible
preferred stock private placement... -- -- 753,000
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.

F-15
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1998 and 1999

(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 notes 11 and 13).

On December 30, 1999, the Company acquired GeneScreen, Inc. ("GeneScreen"),
a wholly-owned subsidiary of the Company, 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 sources of revenue
represent paternity testing under contracts with several state and county
government agencies and transplantation testing under grants from the National
Marrow Donor Program.

The Company has not yet achieved profitable operations or positive cash flow
from operations. There is no assurance that profitable operations, 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 $50,757,971 through December 31,
1999 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. As a result of
the acquisition of GeneScreen, Inc. ("GeneScreen") during 1999, the Company is
no longer considered to be in the development stage for financial reporting
purposes as it was in the prior years.

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 United States 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, which approximates costs, of the investments based on quoted
market prices at December 31, 1998. The Company considered all of these
investments to be available for sale.

F-16
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

Laboratory Materials and Supplies

Laboratory materials and supplies are stated at the lower of cost or market.
Cost is determined by the first-in, first-out method.

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 useful lives or the remaining
lease term. Expenditures for maintenance and repairs are charged to expense as
incurred.

Goodwill and Other Intangibles

Goodwill, which represents the excess purchase price over fair value of net
assets acquired, and other intangibles are amortized on a straight-line basis
over its estimated useful lives, as follows:

<TABLE>
<CAPTION>
Years
-----
<S> <C>
Customer lists..................................................... 11
Base technology.................................................... 12-15
Trademarks and tradename........................................... 15
Goodwill........................................................... 10-15
Patents............................................................ 15
Other intangibles.................................................. 4
</TABLE>

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.

F-17
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

Revenue Recognition

On December 3, 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 provides the SEC staff's views on the
recognition of revenue including nonrefundable technology access fees received
by registrants in connection with research collaborations with third parties.
SAB 101 states that in certain circumstances the SEC staff believes that up-
front fees, even if nonrefundable, should be deferred and recognized
systematically over the term of the research arrangement. The Company's revenue
recognition policies are consistent with the provisions of SAB 101 and the
accompanying consolidated financial statements reflect this policy for all
periods presented.

Revenue related to research and development contracts and grants is
recognized when the related research expenses are incurred and the Company's
specific performance obligations under the terms of the respective contract are
satisfied. To the extent expended, funding related to research and development
contracts for equipment is deferred and amortized over the shorter of its
useful life or the life of the related contract. Revenue recognized in the
accompanying consolidated financial statements is not subject to repayment.
Payments, if any, received in advance of performance under the contract are
deferred and recognized as revenue when earned. Up-front licensing fees are
deferred and amortized over the estimated performance period.

Revenue on DNA laboratory testing and from SNP testing services are
recognized on an accrual basis at the time test results are reported. Deferred
revenue represents the unearned portion of payments received in advance of
tests being completed. Unbilled receivables represent revenue which has been
earned on completed tests which have not been billed to the customer.

Revenue on product sales is recorded on transfer of title and after all
significant performance obligations of the Company have been met. Revenue from
operating lease transactions is recognized on a straight-line basis over the
term of the lease in accordance with the lease agreement.

Research and Development

Costs incurred for research and product development, including costs
incurred in obtaining license rights to technology in the development stage 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
estimated fair value 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 non-
public entities to provide pro forma net loss and net loss per share
disclosures for stock-based compensation as if the minimum value method defined
in SFAS No. 123 had been applied. 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.

F-18
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

Use of Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles 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.

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. As of December
31, 1999, the Company has certain options, warrants, convertible preferred
stock and mandatorily redeemable convertible preferred stock (see notes 11, 12
and 13), which 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 year are equal. The Company has
reflected $44,554,000 as a beneficial conversion feature in the net loss
allocable to common stockholders for the Series E mandatorily redeemable
convertible preferred stock ("Series E") issued or issuable in exchange for
cash at December 31, 1999. 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 date 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.

Pro Forma Net Loss Per Share (Unaudited)

The following pro forma basic and diluted net loss per share allocable to
common stockholders and shares used in computing pro forma basic and diluted
net loss per share allocable to common stockholders have been presented
reflecting the automatic conversion into shares of common stock of the
convertible preferred stock and mandatorily redeemable convertible preferred
stock upon completion of the offering contemplated herein (see note 13), using
the if converted method from their respective dates of issuance:

<TABLE>
<CAPTION>
Year ended
December 31,
1999
------------
<S> <C>
Pro forma basic and diluted net loss per share allocable to
common stockholders.......................................... $ (15.61)
==========
Shares used in computing pro forma basic and diluted net loss
per share allocable to common stockholders................... 4,662,952
==========
</TABLE>

Pro Forma Balance Sheet (Unaudited)

Upon the closing of the initial public offering, all of the outstanding
shares and shares to be issued of convertible preferred stock and mandatorily
redeemable convertible preferred stock at December 31, 1999 automatically
convert into 18,809,659 shares of common stock (see note 13) and the repurchase
rights of certain Series E holders expire (see note 3). The December 31, 1999
unaudited pro forma balance sheet has been prepared assuming the conversion of
the convertible preferred stock outstanding and the mandatorily redeemable
convertible preferred stock outstanding and to be issued as of December 31,
1999, into common stock as of December 31, 1999.

F-19
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

Reclassifications

Certain reclassifications have been made in the 1998 consolidated financial
statements to conform to the 1999 presentation.

(2) Acquisition of Molecular Tool, Inc.

On September 11, 1998, the Company acquired substantially all the assets
and assumed certain liabilities of Molecular Tool, Inc. (MT), a subsidiary of
GeneScreen. 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 purchase price was approximately $7.1 million of which $3.2
million was paid in cash, $3,548,000 was in the form of a note (see note 7)
and $200,000 represented the fair value of 93,289 Orchid stock options
exchanged for GeneScreen options held by employees of MT and others.

The purchase price, including acquisition costs of approximately $163,000,
was allocated as follows:

<TABLE>
<S> <C>
Patents.......................................................... $1,100,000
Base technology.................................................. 3,635,000
Other intangibles................................................ 240,000
Goodwill......................................................... 78,000
In-process research and development.............................. 2,353,000
Other assets..................................................... 35,000
Liabilities...................................................... (300,000)
----------
$7,141,000
==========
</TABLE>

The results of operations of MT have been included in the Company's
consolidated financial statements from September 11, 1998.

Acquired in this transaction were a variety of intellectual property and
intangible assets including Molecular Tool's patent portfolio, assembled
workforce of research and development staff, and base technology upon which
its research efforts were based.

Molecular Tool was engaged in the development of proprietary technologies
and products for the identification and analysis of DNA sequence variation,
including an approach called SNP-IT, an approach to analyzing large numbers of
DNA samples for a given genetic effect, and the use of genetic variations
called single nucleotide polymorphisms ("SNPs").

The charge relating to the acquisition of Molecular Tool consists of
acquired in-process research and development of $2,352,838 which was
immediately charged to expense.

The value of acquired research and development related to this acquisition
represents the fair value of Molecular Tool products and services under
development. These products were associated with the application of SNP and
SNP-IT technologies under development by Molecular Tool as of the closing date
of the transaction. They include SNP Kits valued at $273,000, representing
collections of SNPs contained in plates and arrays to facilitate genetic
analysis; SNP Services valued at $418,000, representing the provision of
genetic analysis by Molecular Tool based on the SNP Kits under development;
SNP OEM equipment and machinery valued at $1.605 million, which is designed to
perform automated genetic analysis based on the technology and procedures
inherent in the SNP Kits; and microfluidic genotyping chips valued at $57,000,
representing a system permitting genetic analysis to be performed at the level
of a silicon chip in an effort to further automate genetic analysis.

F-20
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

At the date of acquisition, none of the products or services under
development by Molecular Tool, Inc. had achieved technological feasibility and
none were being sold on the market. There still remained substantial risks and
significant uncertainty concerning the remaining course of technical
development. Key development risks for this product included validation
testing, engineering of stability into the critical reagents to permit their
use in the field, and developing the means of scaling-up manufacturing of the
reagents and other elements of the product for eventual sale. The microfluidic
genotyping chips had been identified and proposed as a new technology
development area at the time of the acquisition. However, major components of
the chip had not been demonstrated as feasible and have required and will
continue to require substantial investment. Areas not yet shown to be feasible
included: chip materials fabrication and biocompatibility; method and
composition of bioactive surface preparation; method and composition of optical
detection systems compatible with chip design. The MegaSNPatron Services, while
now more commercially advanced than the microfluidic chips, faced the need for
development and feasibility demonstration in several key areas, most notably:
method and composition of the bioarray components; the ability to capture and
process results data from the Mega SNPstream process; and the composition of
stable, viable, and cost effective reagents for the tests. In the case of the
SNP OEM equipment, development of the analysis machine was largely complete but
was still expected to face engineering challenges before ultimate completion.
The challenges faced by SNPstream hardware and SNPware reagents to complete
successful commercialization included: feasibility of adapting an off-the-shelf
robotic system as the SNPstream platform; development of software systems for
data management; and development and validation of viable, stable and cost
effective reagents usable in the SNPware kits. An overall risk facing these
projects was the potential development of competing technologies to facilitate
cost reduction in genetic assays before the Molecular Tool products would even
reach the market.

Because of the great uncertainty associated with these issues, and both the
uncertainty and remaining effort associated with development for these
products, the Molecular Tool development projects had not established
technological feasibility at the acquisition date. Further, these partially
completed products had no alternative future uses at the valuation date if the
contemplated programs were to fail, as the technology was highly specialized to
the targeted products.

The estimated values of all acquired intangible assets including the
acquired development projects were determined. Other identified intangibles
included patents, the assembled workforce (principally research and development
personnel), and the base technology of Molecular Tool associated with SNP-IT
and single nucleotide polymorphisms.

The value of the acquired in-process research and development projects was
determined by projecting expected completion costs for the development projects
as well as projected cash flows resulting from their commercialization.
Material net cash inflows are projected to be realized for the development
programs in 2002, except for the microfluidic genotyping chip, which was
projected at 2003 to 2004. The risk adjusted discount rates applied to the
projects' cash flows were 40% for each of the projects except for the
microfluidic genotyping chips, for which the risk adjusted discount rate was
45%. In the development of projected cash flows a completion percentage of
60.0% was employed for each project in the calculation of cash flows to be
discounted. The resulting net cash flows implied by this projection were
discounted to present value using an appropriate risk adjusted cost of capital.
This rate was developed by including a risk premium above the return associated
with the valuation of the base technology of Molecular Tool, and above the
observed weighted average costs of capital for comparable companies involved
with the development and sale of similar technologies.

The following unaudited pro forma financial information presents the
combined results of operations of the Company and Molecular Tool as if the
acquisition had occurred as of January 1, 1997, after giving effect to certain
pro forma adjustments, including amortization of goodwill and other
intangibles, and increased interest

F-21
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

expense from the Company's note payable to GeneScreen, excluding the related
acquired in-process research and development charge of $2,352,838. The pro
forma financial information does not necessarily reflect the results of
operations that would have occurred had the Company and Molecular Tool
constituted a single entity during this period or the results of operations
which may occur in the future.

<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------------
Statement of Operations Data 1997 1998
---------------------------- ------------ ------------
(unaudited)
<S> <C> <C>
Revenues........................................ $ 4,889,066 $ 3,348,941
Net loss allocable to common stockholders before
non-recurring charge........................... (11,296,644) (10,624,275)
Basic and diluted net loss per share allocable
to common stockholders, before non-recurring
charge......................................... $ (31.37) $ (15.82)
</TABLE>

(3) 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 MT assets in the amount of $3,547,821 (see note 7) and certain
other liabilities totalling $421,000 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 $28,530,000 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 $42,711,000, including acquisition costs of
approximately $150,000, was allocated as follows:

<TABLE>
<S> <C>
Cash............................................................ $ 1,064,000
Accounts receivable, net........................................ 2,103,000
Other assets.................................................... 721,000
Customer list................................................... 4,210,000
Base technology................................................. 5,580,000
Trademark/tradename............................................. 1,762,000
Other intangibles............................................... 586,000
Goodwill........................................................ 30,983,000
Current portion of long-term debt............................... (1,190,000)
Accounts payable and accrued expenses........................... (2,490,000)
Deferred revenue................................................ (193,000)
Long-term debt, less current portion............................ (425,000)
-----------
$42,711,000
===========
</TABLE>

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 $300,000 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
million 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

F-22
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

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. The $1 million value of these shares has been
included in the recorded purchase price; payment of these shares in
satisfaction of claims would result in a reduction of goodwill. Also, 518,534
of the 4,000,000 shares, when issued, will give the holders the rights to force
the Company to repurchase these shares after certain dates falling within one
year from the acquisition date. These repurchase rights expire upon the closing
of an initial public offering of the Company's common stock with gross proceeds
of at least $25 million. The total value at the date of acquisition of the
Series E to be issued, including the beneficial conversion feature, was
$46,230,000.

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 acquisition of GeneScreen is reflected in the
accompanying consolidated balance sheet as of December 31, 1999.

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........................................................ $ 15,539,620
============
Net loss........................................................ $(32,797,142)
============
Net loss allocable to common stockholders....................... $(77,351,142)
============
Basic and diluted net loss per share allocable to common
stockholders................................................... $ (101.90)
============
</TABLE>

(4) Accounts Receivable and Credit Risks

Accounts receivable are comprised of the following at December 31, 1999:

<TABLE>
<S> <C>
Billed trade receivables....................................... $ 1,489,324
Unbilled trade receivables..................................... 831,705
------------
2,321,029
Less allowance for doubtful accounts........................... 218,466
------------
Accounts receivable, net....................................... $ 2,102,563
============
</TABLE>

Accounts receivable is primarily composed of amounts owed by government
agencies. The Company performs periodic credit evaluations of its customer's
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.

F-23
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

(5) Equipment and Leasehold Improvements

Equipment and leasehold improvements are comprised of the following at
December 31, 1998 and 1999:

<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Laboratory equipment................................ $1,155,216 $ 4,886,052
Computers........................................... 485,201 721,604
Furniture and fixtures.............................. 229,219 918,378
Leasehold improvements.............................. 299,154 4,271,657
---------- -----------
2,168,790 10,797,691
Less accumulated depreciation....................... (432,136) (1,323,275)
---------- -----------
$1,736,654 $ 9,474,416
========== ===========
</TABLE>

(6) Other Intangibles

Other intangibles are comprised of the following at December 31, 1998 and
1999:

<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Base technology..................................... $3,635,000 $ 9,215,000
Customer list....................................... -- 4,210,000
Trademark/tradename................................. -- 1,762,000
Patents............................................. 1,100,000 1,100,000
Other............................................... 240,000 827,000
---------- -----------
4,975,000 17,114,000
Less accumulated amortization....................... (134,410) (595,243)
---------- -----------
$4,840,590 $16,518,757
========== ===========
</TABLE>

(7) Debt

On September 11, 1998, the Company entered into a subordinated convertible
term note in the amount of $3,547,821 in connection with the MT acquisition.
The note bears interest at 6% per annum and all principal and accrued interest
was to be due September 11, 2008. On December 30, 1999, the note was cancelled
in connection with the acquisition of GeneScreen, the holder of the note (see
note 3).

In December 1998, the Company entered into a $6,000,000 equipment line of
credit which is secured by the purchased equipment. The funding commitment
terminated in December 1999. 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, 1998 and 1999, $0 and
$4,648,606, respectively, were outstanding under the facility and annual
interest rates on the four draws range from 10.55% to 11.66%. 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 $76,000, 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
$1,000,000 at December 31, 1999. On January 20, 2000, the Company repaid the
balance and cancelled the credit facility. The note was collateralized by
$400,000 of pledged cash and cash equivalents on deposit at the financial
institution until the loan was repaid.

F-24
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

Long-term debt is comprised of the following at December 31, 1998 and 1999:

<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Equipment line of credit secured by purchased
equipment........................................... $ -- $4,648,606
Note payable to former employee, due in 16 quarterly
installments of $27,932, commencing January 1, 1999,
and one lump-sum payment of $51,013, due January 1,
1999, net of unamortized discount of $23,030........ -- 312,154
Note payable to employee, due in 12 quarterly
installments of $25,514, commencing January 1, 2000,
net of unamortized discount of $21,037.............. -- 285,131
Convertible note payable to GeneScreen, cancelled in
1999................................................ 3,547,821 --
Other................................................ -- 17,696
---------- ----------
3,547,821 5,263,587
Less current portion................................. -- 1,141,230
---------- ----------
Long-term debt, less current portion................. $3,547,821 $4,122,357
========== ==========
</TABLE>

The scheduled maturities of long-term debt outstanding as of December 31,
1999 are summarized as follows:

(8) Accrued Liabilities

Accrued liabilities is comprised of the following at December 31, 1998 and
1999:

<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Employee compensation................................ $ 397,066 $1,358,776
Professional fees related to acquisition of
GeneScreen by Orchid................................ -- 679,570
Other professional fees.............................. 98,468 404,107
Employee relocation.................................. 342,901 72,177
Royalties on licensed technology..................... -- 906,107
Other................................................ 170,101 1,356,420
---------- ----------
$1,008,536 $4,777,157
========== ==========
</TABLE>

(9) Income Taxes

No Federal or state taxes are payable as of December 31, 1998 and 1999. As
of December 31, 1999, the Company has approximately $40,000,000 of Federal and
$44,000,000 of state net operating loss ("NOL") carryforwards available to
offset future taxable income. The Federal and state NOL carryforwards will
begin expiring in 2003 if not utilized.

F-25
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

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,
including the offering contemplated herein. 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 U.S. 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, 1998 and
1999 are presented below:

<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 6,120,000 $ 16,285,000
Other.............................................. 204,000 1,201,000
----------- ------------
Total gross deferred tax assets.................. 6,324,000 17,486,000
Less valuation allowance........................... (6,289,000) (17,450,000)
----------- ------------
Net deferred tax assets.......................... 35,000 36,000
Deferred tax liabilities:
Depreciation on equipment.......................... 35,000 36,000
----------- ------------
Net deferred taxes............................... $ -- $ --
=========== ============
</TABLE>

At December 31, 1999, a valuation allowance of $17,450,000 has been
recognized to fully offset the net deferred tax assets as realization of these
assets is uncertain. The net change in the valuation allowance for the years
ended December 31, 1998 and 1999 were increases of $1,878,500 and $11,161,000,
respectively, related primarily to additional net operating losses incurred by
the Company.

(10) Segment Information

The Company evaluates performance of and allocates resources to the
segments. The accounting policies of the segments are substantially 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. Segment assets as of December 31, 1999
for Orchid and GeneScreen amounted to approximately $52,145,000 and
$42,711,000, respectively. No other segment information is presented as the
1999 activity is that of Orchid only.

One related party, SmithKline Beecham, accounted for 100%, 99% and 0% of
total revenue for 1997, 1998 and 1999, respectively, under the terms of the
August 1995 Development and License Agreement (see note 11).

F-26
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

(11) 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").

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 1997, 1998 and
1999, Sarnoff provided contract research services of $6,121,641, $2,056,953 and
$930,677, respectively. Also included in research and development-related party
in the statement of operations for the year ended December 31, 1997 was $3.0
million which was accrued in 1997 related to the Company's obligation to fund
research for SB (see below) but for which services were provided by Sarnoff in
1998. The Company's office was also located in the Sarnoff facility until 1998
and Sarnoff provides certain administrative support, for which the Company paid
Sarnoff; expenses related to these items totalled $114,636, $251,449 and
$63,519 in 1997, 1998 and 1999, respectively. Certain administrative costs were
allocated from Sarnoff based on either a usage percentage of actual costs or an
approximation of market rates in the case of rent. Management believes these
allocation methods are reasonable. A total of $381,033 and $63,519 is recorded
as due to related party in the accompanying balance sheets at December 31, 1998
and 1999, respectively, related to these items.

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 $800,000. SB
also agreed to provide research and development funding of up to approximately
$16 million for the design and testing of a product for certain applications
and is required to make further payments of up to $8 million upon the
achievement of certain technical milestones. The Company met its first
milestone in 1996 and received a milestone payment of $1.5 million and issued
26,973 shares of Series B to SB. The Company allocated $517,882 of this amount
to the Series B shares, which was the fair value at the time of issuance and
recorded the remaining $982,118 of this milestone payment as contract revenue.
The Company paid $350,000 of this amount to Sarnoff as a milestone payment. In
1997, SB advanced a portion of the second milestone payment. This advance
totaled $1,320,000 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 $1,320,000 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 $211,200 of this amount to the Series B shares,
which was the fair value at the time of the agreement and recorded the
remaining $1,108,800 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

F-27
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

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 1997, 1998 and 1999 the Company recognized contract revenue
from SB of $3,763,000, $2,747,800 and $0 in the accompanying consolidated
statements of operations.

In December 1997, in consideration for an amendment of 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. The deemed fair value of the shares of common stock was $168,750, which
was recorded as research and development expense in the accompanying 1997
consolidated statement of operations. No value was ascribed to the warrants
based on the fair value as determined using a Black-Scholes option pricing
model. 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, 1998 and 1999, the Company is obligated to
issue 5,000 and 10,000 shares (including the 5,000 shares from 1998) of common
stock, respectively, to SB related to the option fields exercised by the
Company in 1998 and 1999, respectively. The fair value of these 5,000 shares of
common stock in 1998 and 1999 was $17,500 and $58,750, respectively, and has
been recorded as research and development expense in the accompanying
consolidated statements of operations. Common stock to be issued has been
recorded in the amounts of $17,500 and $76,250 at December 31, 1998 and 1999,
respectively. These 10,000 shares were issued in February 2000.

Pursuant to a December 1997 amendment to the Development and License
Agreement, the Company committed to fund $3.5 million of research within the
scope of the original Agreements and which had already been incurred and
expensed in 1997 and $3.0 million outside of the original scope and solely for
the benefit of SB. The Company received new rights to certain microfluidic
technology related to low-throughput chemical synthesized devices containing
not greater than 864 reaction wells we previously developed under this
agreement in exchange for the aforementioned obligation to fund research valued
at $3.0 million. As the Company was obligated to incur these costs in
fulfilling the terms of the Agreements without any increase in corresponding
contract revenue, and as this technology to which the rights were received has
not reached technological feasibility and has no alternative future uses, the
acquisition of these rights for $3.0 million was recorded as research and
development expense in 1997. The Company fulfilled its obligation and funded
these costs during 1998.

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 $185,626 and 167,500 shares of Series A, with a
fair value of $1,289,750, of which both amounts were recorded as research and
development expense in the accompanying 1997 consolidated statement of
operations. The options expire one per year over a four year period with
certain extension provisions as defined in the Option Agreement. 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 $5.5 million over 4 years. In both December 1998
and 1999, the Company exercised one of its options under

F-28
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

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 $114,885 in 1998 and $391,275 in 1999, and 66,700 shares of Series A
in each of 1998 and 1999, with a fair value of $400,200 in 1998 and $783,725 in
1999, which amounts were recorded as research and development expense in the
accompanying 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.

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 $587,500, 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 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 $100,000
payment. This amount has been recorded as deferred revenue at December 31, 1999
and will be recognized over the estimated term of the license. The Company also
issued an option to Motorola to purchase up to $5,000,000 of common stock at a
per share price of the lesser of $33.30 or 110% of the average closing price of
the common stock for the ten days following an initial public offering. No
value was ascribed to the option based on the fair value as determined using a
Black-Scholes option pricing model. The option expired unexercised on December
15, 1999.

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 million
over a 30 month period in these activities. Total cash payments of at least
$1.7 million were to be made to the Company for services in support of the
collaboration. Motorola made a payment to the Company in 1998 of $250,000,
which was recorded as deferred revenue as of December 31, 1998 and which was
recognized as revenue in 1999 as the related research and development
activities were performed. 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 $505,000, of which the Company recognized
$245,000 as revenue as the related research and development activities were
performed and $260,000 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. In accordance with the terms of the Collaboration Agreement, the
Company has also recorded approximately $333,000 as contract revenue-unrelated
party in 1999 and as a termination fee receivable at December 31, 1999 and will
be reimbursed for certain shutdown costs not to exceed $178,000 in connection
with the termination. The Company does not expect that shutdown costs will
exceed $178,000.

On April 1, 1998, the Company entered into a license agreement with Dynal
A.S. whereby the Company issued 90,090 shares of common stock for an exclusive
license. The fair value of the stock, $247,748, has been recorded as research
and development expense in the accompanying 1998 consolidated statement of
operations.

In February 1999, the Company and Cytomics, A.S. ("Cytomics") entered into a
Collaborative Research and License Agreement whereby Cytomics will perform
research on the Company's behalf with the Company's financial support and
granted to the Company a non-exclusive, royalty-free, worldwide license for
certain technology. Prior to executing the agreement in February 1999, the
Company made payments to Cytomics of

F-29
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

$345,000, for which services were performed and which was recorded as research
and development expense in 1998. The agreement was terminated, effective June
30, 1999. The Company recorded research and development expense of $110,000 in
1999.

In September 1998, the Company entered into a Cooperative Agreement with the
National Institute of Standards and Technology ("NIST") to perform certain
research and development. The total amount expected to be provided to the
Company over the three year period of January 1, 1999 through December 31, 2001
is $1,954,000; however no obligation exists for the federal government to
provide any portion of the 2001 funding. Funding in 1999 amounted to $690,000
which was recorded as grant revenue and $602,000 in funding for 2000 has been
approved. The anticipated funding for the year 2001 is $662,000. The award in
1999 was conditional upon the Company's funding of indirect costs aggregating
$319,000 in 1999 which was incurred by the Company. To receive full funding in
2000 and 2001, the Company's funding of indirect costs must aggregate $309,000
and $385,000 in 2000 and 2001, respectively.

On December 31, 1998, the Company entered into a Collaborative Development
and Marketing Agreement with Advanced Bioanalytical Services, Inc. ("ABS")
under which Orchid obtained a license. Per the terms of the agreement, both
parties are to conduct certain research and development activities based upon a
mutually agreed upon budget and each party will bear their respective costs.
The Company paid ABS a non-refundable $100,000 license fee payment upon signing
the agreement, which was recorded as research and development expenses in 1998.
In 1999 upon certain technological achievements by ABS, the Company made
milestone payments aggregating $225,000 to ABS, all of which was recorded as
research and development.

In October 1999, the Company entered in a one year license and supply
agreement with a licensee to provide an instrument, consumables and related
support for automated SNP scoring analysis. As consideration for use of the
instrument for the one year, the licensee paid $500,000 license fee, which is
refundable on a pro-rata basis upon certain events. The licensee is obligated
to purchase a minimum order of consumables which are billed separately when
purchased and may elect to purchase the instrument from the Company for an
additional payment. The licensee may terminate the contract, in which case the
Company would be entitled to a termination fee of $100,000 and to bill the
remaining minimum amount of consumables to the licensee. As of December 31,
1999, the Company has recognized approximately $104,000 of the license fee and
deferred the remaining $396,000. The remaining deferred license fee will be
recognized on a straight-line basis over the remaining term of the agreement.

On November 5, 1999, the Company entered into a collaboration agreement with
Affymetrix, Inc. ("Affymetrix"), for the Company to develop, manufacture, and
for both parties to market and sell specific products. Each party is
responsible for costs associated with their respective development
responsibilities. The Company agreed to collaborate on the development of three
types of kits, designated under our agreement as Generic Kits, Standard Kits
and Custom Kits. The Company is responsible for all development costs
associated with the development of Generic Kits and Custom Kits and the
optimization of the SNP-IT primer-extension tests to be used on the Affymetrix
GeneChip system. The Company and Affymetrix will share costs associated with
the development of Standard Kits. Affymetrix will market and distribute all
Generic and Standard Kits developed under the agreement, and we will market and
distribute all Custom Kits. Affymetrix has agreed to purchase, and we have
agreed to manufacture and supply, all of Affymetrix's requirements of Generic
and Standard Kits at agreed upon prices. The agreement is for an initial term
of five years and is renewable for additional one-year terms by mutual
agreement.

(12) Stock Incentive Plan

During 1995 the Company established the 1995 Stock Incentive Plan (the
"Plan"), which provides for the granting of restricted common stock or
incentive and nonqualified stock options to directors, employees and

F-30
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

consultants. An aggregate of 1,500,000 shares of the Company's common stock is
authorized to be issued under the Plan. The options are exercisable generally
for a period of ten years after the date of grant and generally vest over a
four-year period. The Plan provides 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 plan also specifies other terms
such as eligibility and annual limits.

A summary of activity under the Plan is as follows:

<TABLE>
<CAPTION>
Exercise
price
Shares per share
--------- ----------
<S> <C> <C>
Balance at December 31, 1996.......................... 10,292 $ .001
Granted............................................. 211,730 .01--.10
Exercised........................................... (4,117) .001
---------
Balance at December 31, 1997.......................... 217,905 .001--.10
Granted............................................. 418,038 .75--1.25
Exercised........................................... (1,582) 1.25
---------
Balance at December 31, 1998.......................... 634,361 .001--1.25
Granted............................................. 957,529 1.25
Exercised........................................... (35,399) .001--1.25
Cancelled........................................... (93,480) .001--1.25
---------
Balance at December 31, 1999.......................... 1,463,011 .001--1.25
=========
</TABLE>

At December 31, 1999, the Plan 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-.10 165,980 7.7 years $.01 95,269 $.01
.75 202,350 8.2 years .75 89,618 .75
1.25 1,094,681 9.6 years 1.25 102,553 1.25
--------- --------- ---- ------- ----
1,463,011 9.2 years 1.04 287,440 .68
========= ========= ==== ======= ====
</TABLE>

The Company applies APB Opinion No. 25 in accounting for its stock option
plan. In 1997, 1998 and 1999, certain employees of the Company were granted
options to acquire 170,130, 322,575 and 870,329 shares of common stock,
respectively. The weighted average fair values of common stock for the years
ended December 31, 1997, 1998 and 1999 were $1.26, $2.95 and $5.58 per share,
respectively. The difference between the respective exercise prices at the
grant dates and the fair value of the common stock on the dates of grant, as
determined by the Board of Directors, has been recorded as deferred
compensation ($291,700, $308,488 and $6,994,552 for 1997, 1998 and 1999,
respectively) which is being amortized on a straight-line basis to expense over
the respective vesting periods.

F-31
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

Had the Company determined compensation cost for options based on the
minimum value method at the measurement date 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:

<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Net loss allocable to common
stockholders:
As reported..................... $(9,927,760) $(11,479,479) $(72,774,291)
=========== ============ ============
Pro forma under SFAS No. 123.... $(9,932,266) $(11,484,871) $(72,974,593)
=========== ============ ============
Basic and diluted net loss per
share allocable to common
stockholders:
As reported..................... $ (27.57) $ (17.09) $ (95.87)
=========== ============ ============
Pro forma under SFAS No. 123.... $ (27.58) $ (17.10) $ (96.14)
=========== ============ ============
</TABLE>

In 1997, 1998 and 1999, the Company granted options to certain non-employees
to purchase 41,600, 95,463 and 87,200 shares of common stock, respectively.
Such options vest over a three or four year period based upon future service
requirements. The Company recorded deferred compensation of $22,862, $129,812
and $1,085,284 for 1997, 1998 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 1998 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. Additional
deferred compensation in the amount of $857,235 was recorded in 1999 related to
the remeasurement of the 1998 grants. 146,316 options subject to this treatment
remain unvested at December 31, 1999.

The per share weighted-average minimum value of the stock options granted to
employees during 1997, 1998 and 1999 was $1.71, $2.15 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 1997, 1998 and 1999 was $.79,
$2.39 and $7.34 per share, respectively, on the date of grant. Such values were
determined using the minimum value method for employees and the Black Scholes
option-pricing model for non-employees with the following weighted-average
assumptions: expected dividend yield 0%; risk free interest rate of 6.5% for
1997, 5.0% for 1998 and 5.0% for 1999; volatility is not applicable for
employees as the Company is private and 60% in 1997, 70% in 1998 and 1999 for
non-employees; and an expected option life of 7 years for employees and 10
years for non-employees.

(13) 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 $9,230,000 in 1997 and recorded a stock subscription receivable of
$3,000,000 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.

F-32
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

In May and June 1999, the Company issued an aggregate of $7,590,000 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 million. The note bore interest at prime plus 2%. In December
1999, the principal plus accrued interest of approximately $436,000 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 are to be 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 $5,232,000 and was recorded as interest
expense in 1999 and an increase in additional paid-in capital.

In November 1999, Affymetrix paid the Company $2,250,000 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 amount of $2,276,537 should have automatically
converted into Series E. As the Series E was not issued, the amount is shown as
Series E to be issued at December 31, 1999. In a separate agreement, Affymetrix
granted the Company two put options to sell $250,000 of common stock of the
Company at $9.00 per share for each put as a means of providing additional
equity financing to the Company. One put option becomes exercisable upon the
closing of the acquisition of GeneScreen and the other becomes exercisable upon
a certain type of kit contemplated under the collaboration agreement with
Affymetrix having been developed, manufactured and ready for commercial
release. Neither put was exercisable and each had a fair value of $0 at
issuance at which time the fair value of the Company's common stock was $11.75
per share. Upon the closing of the Gene Screen acquisition in December 1999,
one of the puts became exercisable, however, the Company has not exercised its
option as of December 31, 1999. These put options expire in December 2001. If
these puts are exercised, the proceeds will be recorded in stockholders'
equity.

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
$31,008,818. In connection with this sale, the Company will issue five year
warrants to purchase 86,334 shares of common stock at an exercise price of
$6.00 per share. The Company recorded $753,000 of additional paid-in capital
based on the fair value of these warrants as determined using a Black-Scholes
option pricing model.

The Company has reflected $44,554,000 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.

The Series A and Series B are not entitled to any dividends. The Series C,
Series D and Series E shall be entitled to receive dividends if and when
declared by the Board of Directors. No dividends were declared in 1997, 1998 or
1999.

On or after December 2002 and 2004, at the request of holders of not less
than 66-2/3 percent of the then outstanding shares of Series C and Series E,
respectively, the Company is required to redeem the outstanding shares of
Series C and Series E of those requesting stockholders at $11.10 and $4.50 per
share, respectively, in three equal annual installments plus any accrued but
unpaid dividends.

The holders of Series A, Series B, Series C, and Series D are entitled to
vote that number of shares of common stock into which each respective share of
preferred stock held by such holder could be converted.

F-33
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

Each share of Series A, Series B, Series C, Series D and Series E is
convertible into one share of common stock, subject to adjustment, (i) at the
option of the holder at any time (prior to any redemption as noted above for
the Series C and Series E) or, (ii) automatically at the closing of a
registration statement under the Securities Act of 1933 for the sale of the
Company's common stock with a gross offering price of at least $15 million for
the Series A, Series B and Series D and for the Series C and Series E both a
gross offering price of at least $25 million and a per share price of at least
$15, subject to adjustment.

Upon liquidation, dissolution or winding up of the Company, the holders of
Series B, Series C and Series E are entitled to liquidation preferences over
all other types of capital stock as follows: $19.20 per share and the Licenses
for the Series B, $11.10 per share plus an amount equal to any declared but
unpaid dividends for the Series C and $4.50 per share plus an amount equal to
any declared but unpaid dividends for the Series E. The Series A stockholder is
entitled to the license originally granted (if Sarnoff continues to own all
Series A), or its fair value in cash as consideration for the Series A shares.
The holders of Series D are entitled to a liquidation preference of $12.25 per
share plus an amount equal to any declared but unpaid dividends, after payment
in full of all amounts required to be distributed to the holders of Series A,
Series B, Series C and Series E. After these liquidation payments, holders of
the common stock and Series C and Series E would share ratably in the remaining
assets of the Company.

In 1997, the Company issued 109,333 shares of restricted common stock to an
executive officer of the Company. The shares vested over a two year period. The
deemed value of this stock was $131,766 which was recorded as deferred
compensation and was amortized to expense over the vesting period.

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.

(14) 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 1999, the Company's
contributions amounted to $119,452 in accordance with the terms of the Plan.

(15) Commitments and Contingencies

The Company leases office and laboratory facilities under noncancellable
operating lease arrangements. Future minimum rental commitments required by
such leases as of December 31, 1999 are as follows:

<TABLE>
<S> <C>
2000.............................................................. $ 988,000
2001.............................................................. 938,000
2002.............................................................. 783,000
2003.............................................................. 695,000
2004.............................................................. 726,000
2005 and thereafter............................................... 2,904,000
----------
$7,034,000
==========
</TABLE>

Rental expense aggregated $32,518 in 1997, $276,615 in 1998 and $925,979 in
1999.

F-34
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

Legal Matters

The Company is not a party to any material legal proceeding. The Company is
engaged in discussions with Motorola in an attempt to resolve certain areas of
disagreement that have arisen under the existing collaboration in the area of
microfluidics. The primary issue of disagreement between the parties relates to
whether, under the terms of the agreement with Motorola, Motorola has a right
to obtain a license to the Company's SNP-IT technology for use with Motorola's
microfluidic genotyping chips. While the Company believes that, under the terms
of the agreement, Motorola has no rights to its SNP-IT technology, there can be
no assurance that an agreement can be reached with Motorola on this issue or
that the Company would prevail if this dispute were to develop into arbitration
or litigation. Nonetheless, the Company believes that, even if it fails to
successfully resolve this issue or to prevail in any such arbitration or
litigation, it would only be obligated to grant Motorola a non-exclusive
license to use its SNP-IT technology with their microfluidic genotyping chips
on terms no less favorable than those offered to other licensees. The Company
does not believe that such a result is likely to have a material adverse affect
on the Company's business, financial condition and operating results.

Self-Insurance Reserve

GeneScreen is self-insured for the risk of loss relating to certain
litigation claims that might arise from GeneScreen's testing results. However,
due to provisions in certain service contracts, GeneScreen is insured for
claims arising from testing performed under the Texas, Ohio and Arizona
contracts. Insurance coverage began in 1995 for testing under the Texas
contract, in 1997 for testing under the Ohio and Arizona contracts and all
other contracts in August 1998. Management estimates future litigation costs
based on historical litigation experience. The accrued litigation reserve for
the self-insured risk at December 31, 1999 was $191,000.

(16) Subsequent Events

Employment agreements

Effective January 2000, we 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.

Change in Authorized Shares

In January 2000, the Company amended its Certificate of Incorporation to
change the authorized number of shares as follows: Common stock to 30,000,000
shares and Series E convertible preferred stock to 19,000,000 shares.

Sale of Convertible Preferred Stock

In January 2000, the Company completed the sale of 5,971,903 shares of
Series E for gross proceeds of $29,573,564. The issuance of these securities
will result in a $29,573,564 beneficial conversion feature which will increase
net loss per share allocable to common stockholders in the first quarter of
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 (see note 13) and for cash received
by December 31, 1999 for which shares were not issued, and which was included
in Series E to be issued at December 31, 1999.

F-35
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

Stock Option Grants

In January and on February 2, 2000, the Company granted 36,500, 729,400,
40,750 and 40,750 stock options under the 2000 Employee, Director and
Consultant Stock Plan at exercise prices of $1.25, $6, $12 and at the per share
price of the initial public offering, respectively, for which a compensation
charge of approximately $4.3 million will be recognized over the respective
vesting periods of the options. Some of these amounts result from grants to
consultants which are subject to remeasurement at the end of each reporting
period based upon the changes in the fair value of the common stock until the
consultant completes performance under the option agreement. In addition, the
Company issued approximately 800,000 performance based stock options at
exercise prices of $6.00, including 600,000 to executive officers, for which
compensation expense will be measured as the difference between the fair value
of our common stock, at the time the performance criteria is met and the
external price and will be immediately recorded as compensation expense.

Initial Public Offering

On February 11, 2000, the Board of Directors authorized the filing of a
registration statement with the SEC for the sale of shares of common stock. If
the offering is consummated under the terms presently anticipated, all shares
of Series A, B, and E stock outstanding as of the closing date of the Offering
will automatically convert into shares of common stock on a one-for-one basis.
The 2,480,176 shares outstanding of Series C will convert into 4,825,259 shares
of common stock. No dividends will be payable on any of the Series A, B, C, or
E.

Change in Authorized Shares

On February 11, 2000, the Board of Directors approved filing a restated
certificate of incorporation effective upon the closing of the offering
contemplated herein which would increase the authorized shares of common stock
to 50,000,000 shares, all existing preferred stock designations will be revoked
and 5,000,000 shares of preferred stock will be authorized. The Board of
Directors will have the authority, without any further stockholder approval to
determine the price, privileges and other terms of the shares.

2000 Employee, Director and Consultant Stock Incentive Plan

On February 11, 2000 and March 17, 2000, the Board of Directors and
stockholders approved, respectively, the 2000 Employee, Director and Consultant
Stock Incentive Plan for the issuance of common stock, incentive stock options
and non-qualified stock options to employees, directors and consultants. The
Board of Directors also authorized the granting of up to a total of 1,500,000
options under this plan and 3,500,000 under the 1995 Stock Incentive Plan.

ABS Termination

Effective February 15, 2000, the Collaborative Development and Marketing
Agreement with ABS was terminated, with Orchid paying ABS $75,000 in full and
final settlement of all amounts owed under this agreement.

NEN Agreement

On February 21, 2000, we entered into an Agreement with NEN pursuant to
which NEN has agreed to supply us with terminators for use in our SNPware kits.
In consideration of NEN's agreement to supply us with terminators at favorable
prices, we sold 125,000 shares of our common stock for a purchase price of
$750,000 and paid NEN an up-front fee of $750,000. We also agreed to pay NEN a
certain percentage of net sales revenue based on the number of SNPware kits we
sell. The 125,000 shares had a fair value of $1,500,000 on

F-36
<PAGE>

ORCHID BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and 1999

the date of the agreement. Since the products being supplied are used in
Orchid's current products and may be used in future products, the Company will
defer and amortize the $750,000 up-front fee plus the $750,000 excess of the
fair value of the issued common stock over the purchase price (or a total of
$1.5 million) 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. We are required to purchase quantities of products with an approximate
minimum value during each annual period from the effective date as follows:
first year $333,000, second year $700,000, third year $990,000 and fourth year
$1,320,000. Either party can terminate the agreement any time after four years
from the commencement date, without cause, upon 90 days written notice.

Grant of Stock Options

On March 31, 2000, the Company granted 289,660 stock options under the Plan
at exercise prices of $12 per share for which a compensation charge of
approximately $800,000 will be recognized over the respective vesting periods
of the options. Some of these amounts result from grants to consultants which
are subject to remeasurement at the end of each reporting period based upon the
changes in the fair value of the common stock until the consultant completes
performance under the option agreement.

Sarnoff Agreement

On April 13, 2000, we amended our 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 million and issued 250,000 shares of
common stock and granted five-year warrants to purchase 75,000 shares of common
stock at the initial public offering price, or at $12 per share if there has
been no initial public offering one year after issuance of the warrant. The
Company will also not be able to exercise the remaining two option fields as a
result of this amendment. Previously on February 2, 2000, the Company 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 Option Agreement. As this licensed technology has not reached
technological feasibility and has no alternative future uses, the cash payment
of approximately $3.0 million and the fair value of the equity securities of
approximately $4.8 million will be charged to research and development expense
in the quarter ended June 30, 2000.

Change in Automatic Conversion Terms

After previously obtaining requisite stockholder approval, on May 4, 2000,
the Company filed an amendment to its certificate of incorporation to reduce
the per share price required in an initial public offering to automatically
convert shares of Series C and Series E into shares of common stock to be
consistent with the per share price contemplated in this offering.

F-37
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
GeneScreen, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of GeneScreen,
Inc. and subsidiaries as of December 31, 1998, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides 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 GeneScreen,
Inc. and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

Deloitte & Touche LLP

Dallas, Texas
February 19, 1999

F-38
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
GeneScreen, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheet of GeneScreen,
Inc. and subsidiaries as of December 29, 1999, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
the period from January 1, 1999 to December 29, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GeneScreen,
Inc. and subsidiaries as of December 29, 1999, and the results of their
operations and their cash flows for the period from January 1, 1999 to December
29, 1999 in conformity with generally accepted accounting principles.

KPMG LLP

Princeton, New Jersey
January 21, 2000

F-39
<PAGE>

GENESCREEN, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 1998 and December 29, 1999

<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash .............................................. $ 1,873,302 $ 538,411
Restricted cash.................................... -- 400,000
Accounts receivable, net........................... 2,940,560 2,228,554
Laboratory materials and supplies.................. 413,792 304,938
Escrow receivable.................................. 380,000 --
Prepaid expenses and other current assets.......... 196,203 156,108
----------- -----------
Total current assets............................. 5,803,857 3,628,011
Property and equipment, net.......................... 574,637 382,563
Note receivable...................................... 3,547,821 3,547,821
Other assets......................................... 111,297 47,920
----------- -----------
Total assets..................................... $10,037,612 $ 7,606,315
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Note payable--bank................................. $ 1,130,000 $ 1,000,000
Current portion of long-term debt.................. 1,309,714 190,352
Accounts payable................................... 1,307,540 541,226
Accrued liabilities................................ 1,197,382 1,949,135
Deferred revenue................................... 207,154 193,046
----------- -----------
Total current liabilities........................ 5,151,790 3,873,759
Long-term debt, less current portion................. 328,819 424,628
Deferred gain on sale of Molecular Tool.............. 3,927,821 3,570,646
----------- -----------
Total liabilities................................ 9,408,430 7,869,033
Stockholders' equity (deficit):
Convertible preferred stock, Series A, $.05 par
value; 350,000 shares authorized, issued and
outstanding (liquidation preference of $1,423,443
at December 29, 1999)............................. 17,500 17,500
Convertible preferred stock, Series B, $.05 par
value; 700,000 shares authorized; 691,723 shares
issued and outstanding (liquidation preference of
$2,964,630 at December 29, 1999).................. 34,586 34,586
Common stock, $.01 par value; 10,000,000 shares
authorized; 2,620,493 and 2,804,239 shares issued
and outstanding at December 31, 1998 and December
29, 1999, respectively............................ 26,205 28,042
Additional paid-in capital......................... 7,695,716 8,896,451
Treasury stock--53 common shares, at cost.......... (22) (22)
Notes receivable--stockholders..................... (36,563) --
Accumulated deficit................................ (7,108,240) (9,239,275)
----------- -----------
Total stockholders' equity (deficit)............. 629,182 (262,718)
Commitments and contingencies........................
----------- -----------
Total liabilities and stockholders' equity
(deficit)....................................... $10,037,612 $ 7,606,315
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-40
<PAGE>

GENESCREEN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Year ended December 31, 1998 and period
from January 1, 1999 to December 29, 1999

<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Revenue:
Laboratory testing.................................. $15,399,991 $13,746,615
----------- -----------
Operating expenses:
Cost of laboratory testing.......................... 12,190,514 10,054,681
General and administrative.......................... 4,953,158 5,922,537
Research and development............................ 84,843 97,909
----------- -----------
Total operating expenses.......................... 17,228,515 16,075,127
----------- -----------
Operating loss.................................... (1,828,524) (2,328,512)
Other expense:
Interest expense.................................... (208,858) (159,698)
----------- -----------
Loss from continuing operations................... (2,037,382) (2,488,210)
----------- -----------
Discontinued operations:
Loss on discontinued operations of Molecular Tool... (939,864) --
Gain on sale of Molecular Tool, net of tax.......... 2,277,476 357,175
----------- -----------
Total discontinued operations..................... 1,337,612 357,175
----------- -----------
Net loss.......................................... $ (699,770) $(2,131,035)
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-41
<PAGE>

GENESCREEN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

Year ended December 31, 1998 and period
from January 1, 1999 to December 29, 1999

<TABLE>
<CAPTION>
Convertible preferred stock
-------------------------------
Series A Series B Common stock
--------------- --------------- -----------------
Number Number Number Additional Notes
of of of paid-in Treasury receivable - Accumulated
shares Amount shares Amount shares Amount capital stock stockholders deficit Total
------- ------- ------- ------- --------- ------- ---------- -------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1997............ 350,000 $17,500 691,723 $34,586 2,619,497 $26,195 7,695,409 (22) (85,317) (6,408,470) 1,279,881
Exercise of
common stock
options......... -- -- -- -- 996 10 307 -- -- -- 317
Cancellation of
note receivable
from
stockholder..... -- -- -- -- -- -- -- -- 48,754 -- 48,754
Net loss......... -- -- -- -- -- -- -- -- -- (699,770) (699,770)
------- ------- ------- ------- --------- ------- --------- --- ------- ---------- ----------
Balance,
December 31,
1998............ 350,000 $17,500 691,723 $34,586 2,620,493 $26,205 7,695,716 (22) (36,563) (7,108,240) 629,182
Exercise of
common stock
options......... -- -- -- -- 136,736 1,367 40,839 -- -- -- 42,206
Cancellation of
note receivable
from
stockholder..... -- -- -- -- -- -- -- -- 36,563 -- 36,563
Common stock
issued in
exchange for
consulting
services........ -- -- -- -- 47,010 470 195,562 -- -- -- 196,032
Net loss......... -- -- -- -- -- -- -- -- -- (2,131,035) (2,131,035)
Accelerated
vesting and
cashless
exercise of
common stock
options......... -- -- -- -- -- -- 964,334 -- -- -- 964,334
------- ------- ------- ------- --------- ------- --------- --- ------- ---------- ----------
Balance,
December 29,
1999............ 350,000 $17,500 691,723 $34,586 2,804,239 $28,042 8,896,451 (22) -- (9,239,275) (262,718)
======= ======= ======= ======= ========= ======= ========= === ======= ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-42
<PAGE>

GENESCREEN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31, 1998 and period
from January 1, 1999 to December 29, 1999

<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................... $ (699,770) $(2,131,035)
Adjustments to reconcile net loss to net cash
provided by
(used in) in operating activities:
Gain on sale of Molecular Tool................... (2,277,476) (357,175)
Depreciation and amortization.................... 465,622 384,309
Non-cash employee compensation................... 510,959 327,750
Common stock issued in exchange for consulting
services........................................ -- 196,032
Non-cash compensation on accelerated vesting and
cashless exercise of common stock options....... -- 964,334
Loss on disposal of property and equipment....... -- 59,566
Changes in assets and liabilities:
Accounts receivable............................ (1,055,400) 712,006
Laboratory materials and supplies.............. (79,162) 108,854
Prepaid expenses and other current assets...... 63,481 56,864
Accounts payable............................... 102,954 (766,314)
Accrued liabilities............................ 595,848 751,753
Deferred revenue............................... 51,810 (14,108)
Discontinued operations items, net............. 756,969 --
----------- -----------
Net cash provided by (used in) operating
activities.................................. (1,564,165) 292,836
----------- -----------
Cash flows from investing activities:
Additions to property and equipment................ (107,632) (188,424)
Increase in restricted cash........................ -- (400,000)
Proceeds from sale of Molecular Tool............... 2,506,807 357,175
Advances to Molecular Tool......................... (277,819) --
----------- -----------
Net cash provided by investing activities.... 2,121,356 (231,249)
----------- -----------
Cash flows from financing activities:
Borrowings (net payments) under line of credit..... 130,000 (130,000)
Borrowings from stockholders....................... 863,526 --
Borrowings from Lifecodes.......................... 300,000 --
Payments on long-term obligations.................. -- (1,308,684)
Exercise of common stock options................... 317 42,206
----------- -----------
Net cash provided by (used in) financing
activities.................................. 1,293,843 (1,396,478)
----------- -----------
Net increase (decrease) in cash...................... 1,851,034 (1,334,891)
Cash at beginning of year............................ 22,268 1,873,302
----------- -----------
Cash at end of year.................................. $ 1,873,302 $ 538,411
=========== ===========
Supplemental disclosure of cash flow information:
Cash payments during the period for:
Interest......................................... $ 112,389 $ 314,164
Income taxes..................................... 38,821 245,000
=========== ===========
Supplemental disclosure of non-cash financing activi-
ties:
Notes payable issued and notes receivable cancelled
in exchange
for employee severance and settlement agreements.. $ 510,959 $ 327,750
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-43
<PAGE>

GENESCREEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1998 and December 29, 1999

(1) Summary of Significant Accounting Policies

Organization and Business Activities

GeneScreen, Inc. ("GeneScreen" or the "Company") operates genetic testing
laboratories in Dallas, Texas; Dayton, Ohio (acquired in 1992); and Sacramento,
California (acquired in 1994). GeneScreen performs paternity testing, forensic
identification testing to assist in criminal investigations and medical genetic
testing using technologies developed at the University of Texas Southwestern
Medical Center and other medical research facilities. GeneScreen's primary
sources of revenue represent paternity testing under contracts with several
state government agencies and genetic testing under grants from the National
Marrow Donor Program.

On September 11, 1998, the Company sold the assets of its Molecular Tool
("MTool") division to Orchid BioSciences, Inc. ("Orchid") (see Note 2). Prior
to this sale, MTool performed research and development activities for third
parties under contract and for its own account and developed and patented a
proprietary technology called SNP-IT primer-extension technology ("SNP-IT") for
the analysis of DNA.

GeneScreen was acquired by Orchid on December 30, 1999 (see Note 11).

Consolidated Financial Statements

The consolidated financial statements include the accounts of GeneScreen and
its wholly owned subsidiaries. Significant intercompany balances and
transactions are eliminated in consolidation.

Use of Estimates

Financial statement preparation requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Laboratory Materials and Supplies

Laboratory materials and supplies are stated at the lower of cost or market.
Cost is determined by the first-in, first-out (FIFO) method.

Property and Equipment

Property and equipment are stated at cost. Depreciation on equipment is
calculated on the straight-line method over the estimated useful lives of the
assets, which range from two to seven years. Leasehold improvements are
amortized straight line over the shorter of the lease term or estimated useful
life of the asset.

Financial Instruments

Financial instruments consist of cash, accounts and notes receivable,
payables and notes payable, the carrying value of which approximate their fair
values due to their short maturities or current interest rates.

Revenue Recognition

Revenue is recognized on an accrual basis at the time test results are
reported. Deferred revenue represents the unearned portion of payments received
in advance of tests being completed. Unbilled receivables represent revenue
which has been earned on completed tests which have not been billed to the
customer.

F-44
<PAGE>

GENESCREEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and December 29, 1999

Research and Development and Advertising

Costs incurred for research and product development and advertising are
expensed as incurred. The results of operations for the MTool research and
development facility sold during 1998 are reported as discontinued operations
(see note 2). Advertising costs totalled $131,237 and $47,262 in 1998 and 1999,
respectively.

Stock-based Compensation

The Company accounts for its stock-based compensation to employees in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. As such, deferred compensation is recorded on the date of
issuance or grant as the excess of the fair value 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 income (loss) disclosures for
stock-based compensation as if the minimum value method defined in SFAS No. 123
had been applied. 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 based method.

Income Taxes

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

Reclassifications

Certain reclassifications have been made in the 1998 consolidated financial
statements to conform to the 1999 presentation.

(2) Discontinued Operations of Molecular Tool, Inc.

In May 1998, the Board of Directors approved a plan to sell the MTool
assets, except that the Company retained certain rights to the SNP-IT
technology of MTool to permit the Company to continue implementation of the
SNP-IT testing processes.

F-45
<PAGE>

GENESCREEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and December 29, 1999

In September 1998, the MTool assets were acquired by Orchid. GeneScreen
received $2,806,807 in cash and $3,547,821 in a subordinated convertible note
receivable, and $380,000 was placed in escrow.

The escrow was to be released to GeneScreen by Orchid upon approval by
certain Federal regulatory agencies of Orchid as a valid recipient of
outstanding MTool grant funds and totaled $380,000 and $0 at December 31, 1998
and December 29, 1999. The note receivable of $3,547,821, bears interest at 6%
annually, and is due on September 11, 2008. As part of this agreement,
GeneScreen retained a lien on the existing MTool patents until settlement of
this note has occurred. This note was cancelled in the acquisition of
GeneScreen by Orchid (see note 11).

This sale resulted in a gain for the Company of $6,205,297. Of this amount,
$3,927,821, which is equal to the convertible note receivable plus the escrow,
was deferred at December 31, 1998, until the respective settlements of these
items occur. The convertible note receivable was cancelled as part of the
acquisition by Orchid (see note 11) and the escrow funds of $380,000 were
received in 1999 and $357,175 was recorded as a gain, net of tax.

The accompanying consolidated financial statements include the Company's
investment in MTool on the equity basis and MTool's operations as discontinued
operations. The Company's investment, on the equity basis, in the net assets of
MTool at the time of the sale on September 11, 1998 was determined as follows:

<TABLE>
<S> <C>
Current assets.................................................... $ 156,858
Property and equipment............................................ 69,402
Intangible assets................................................. 399,919
Liabilities (reduced by $1,335 in cash)........................... (396,848)
---------
Basis in MTool assets............................................. $ 229,331
=========
</TABLE>

Revenue and expenses for the MTool research and development facility for the
period from January 1, 1998 to September 11, 1998, are as follows:

<TABLE>
<S> <C>
Research and development revenue................................ $ 567,989
Operating expenses:
Cost of revenue............................................... 666,174
General and administrative.................................... 490,539
Patent legal fees............................................. 218,572
Depreciation and amortization................................. 199,421
----------
Total operating expenses...................................... 1,574,706
Other income.................................................... 66,853
----------
Net loss...................................................... $ (939,864)
==========
</TABLE>

Interest expense was not allocated to these discontinued operations.

F-46
<PAGE>

GENESCREEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and December 29, 1999

(3) Accounts Receivable and Credit Risks

Accounts receivable at December 31, 1998 and December 29, 1999, consist of
the following:

<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Billed trade receivables.............................. $2,130,827 $1,615,315
Unbilled trade receivables............................ 914,926 831,705
---------- ----------
3,045,753 2,447,020
Less allowance for doubtful accounts.................. 105,193 218,466
---------- ----------
Accounts receivable, net............................ $2,940,560 $2,228,554
========== ==========
</TABLE>

GeneScreen's accounts receivable are primarily composed of amounts owed by
government agencies. GeneScreen performs periodic credit evaluations of its
customers' financial condition and generally does not require a deposit from
government agencies or private institutions. GeneScreen 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.

(4) Property and Equipment

Property and equipment at December 31, 1998 and December 29, 1999 consist of
the following:

<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Laboratory and office equipment....................... $1,972,554 $1,950,268
Leasehold improvements................................ 151,955 151,955
---------- ----------
2,124,509 2,102,223
Less accumulated depreciation and amortization........ 1,549,872 1,719,660
---------- ----------
$ 574,637 $ 382,563
========== ==========
</TABLE>

(5) Credit Facility and Debt

On November 30, 1999, the Company amended its revolving credit agreement.
Borrowings are available under this agreement for up to $1,000,000. The note
bears interest at prime plus 2% (10.5% at December 29, 1999) payable monthly,
and is collateralized by $400,000 of pledged cash and cash equivalents on
deposit at the financial institution until the loan is repaid. The note is also
secured by the tangible and intangible assets of the Company. The Company had
outstanding borrowings under its revolving credit agreement of $1,130,000 and
$1,000,000 at December 31, 1998 and December 29, 1999, respectively. On January
20, 2000, the $1,000,000 was repaid.

F-47
<PAGE>

GENESCREEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and December 29, 1999

Long-term debt at December 31, 1998 and December 29, 1999, consist of the
following:

<TABLE>
<CAPTION>
1998 1999
--------- --------
<S> <C> <C>
Note payable to former employee, due in 16 quarterly
installments of $27,932, commencing January 1, 1999,
and one lump-sum payment of $51,013, due January 1,
1999, net of unamortized discount of $39,583 and
$23,030 at December 31, 1998 and December 29, 1999,
respectively.......................................... $ 458,342 $312,154
Note payable to employee, due in 12 quarterly
installments of $25,514, commencing January 1, 2000,
net of unamortized discount of $21,037 at December 29,
1999.................................................. -- 285,131
Note payable to stockholders due April 30, 1999,
bearing interest at 18%............................... 863,526 --
Note payable to Lifecodes Corporation, due February 28,
1999, bearing interest at prime rate.................. 300,000 --
Other.................................................. 16,665 17,695
--------- --------
1,638,533 614,980
Less current portion................................... 1,309,714 190,352
--------- --------
Long-term debt, less current portion................. $ 328,819 $424,628
========= ========
</TABLE>

(6) Accrued Liabilities

Accrued liabilities at December 31, 1998 and December 29, 1999 consist of
the following:

<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Employee compensation................................. $ 239,597 $ 42,913
Professional fees for transaction with Orchid......... -- 529,375
Self-insurance reserve................................ 125,211 191,000
Royalties on licensed technology...................... 114,769 906,107
State income taxes payable............................ 300,000 30,226
Other................................................. 417,805 249,514
---------- ----------
$1,197,382 $1,949,135
========== ==========
</TABLE>

(7) Income Taxes

As of December 29, 1999, the Company has approximately $5,074,000 of Federal
and $2,261,000 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.

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 has experienced various ownership
changes, as defined by the Act, as a result of past financings and the
acquisition by Orchid (see note 11). Accordingly, the Company's ability to
utilize the aforementioned carryforwards may be limited. Additionally, because
U.S. 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.

F-48
<PAGE>

GENESCREEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and December 29, 1999

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities, consist of the following
at December 31, 1998 and December 29, 1999:

<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Current:
Allowances and accruals, not currently
deductible.................................... $ 190,884 $ 165,862
Less valuation allowance....................... (190,884) (165,862)
----------- -----------
$ -- $ --
=========== ===========
Long-term:
Net operating loss carryforward................ 899,251 2,033,358
Depreciation and amortization, not currently
deductible.................................... 384,967 164,254
Allowances and accruals, not currently
deductible.................................... 10,888 199,511
Deferred gain on sale of MTool, currently
taxable....................................... 847,695 434,353
Other.......................................... (29,093) (13,991)
----------- -----------
2,113,708 2,817,485
Less valuation allowance....................... (2,113,708) (2,817,485)
----------- -----------
Net deferred taxes........................... $ -- $ --
=========== ===========
</TABLE>

At December 29, 1999, a valuation of allowance of $2,983,347 has been
recognized to fully offset the deferred tax assets as it is more likely than
not that these assets will not be realized. The change in the valuation
allowance in 1998 and 1999 were increases of $504,253 and $678,755,
respectively, related primarily to additional net operating losses incurred by
the Company.

(8) Stockholders' Equity (Deficit)

Preferred Stock

The Company is authorized to issue a total of 5,000,000 shares of various
series of preferred stock. The Series A and Series B preferred stocks are
convertible into common stock on a 1-for-1 basis, subject to adjustment for
dilution, are entitled to vote with common stock on the basis of common shares
into which they are convertible, and provide for noncumulative annual dividends
at rates of $.20 and $.26 per share, respectively, when and if declared.

The Series A and Series B preferred stocks may be redeemed in whole or in
part, at the Company's option, at any time beginning after March 31, 1999 and
January 31, 2003, respectively. The per share redemption price for Series A is
$2.50 plus approximately $.20 for each year outstanding since February 1992.
The per share redemption price for Series B is $3.28 plus approximately $.02
for each month outstanding since February 1996. For both series, the
liquidation value is computed in the same manner as the redemption price. The
Series A and Series B preferred stocks have a liquidation preference over
common stock.

All shares of the Series A and Series B preferred stocks will automatically
convert to common stock upon the sale of the Company's common stock in a public
offering, subject to certain offering criteria. At December 29, 1999, the
Company has reserved approximately 1,050,000 shares of common stock for
issuance upon conversion of all preferred stock (see note 11).

F-49
<PAGE>

GENESCREEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and December 29, 1999

Common Stock

During 1999, a member of GeneScreen's Board of Directors provided
consulting services to the Company in exchange for total consideration of
$289,277, consisting of $93,245 in cash and 47,010 shares of common stock
valued at $196,032.

Notes Receivable from Stockholders

Warrants to purchase 50,000 shares of common stock at $2.50 per share were
exercised by two employees in 1996 in exchange for notes receivables totaling
$125,000, which were shown as a reduction of stockholders' equity. During
1997, the Company received payments of $39,683. In 1998, $48,754 was canceled
pursuant to the severance agreement with one of the employees. During 1999,
the remaining outstanding balance of $36,563 was cancelled pursuant to the
settlement agreement with the other employee (see note 10).

(9) Stock Option Plan

Under the Stock Option Plan (the "Plan"), options to purchase up to 686,667
shares of common stock may be granted to certain key employees and officers of
the Company. Options are exercisable immediately and expire no later than ten
years from the date of grant. The Board may determine the individuals to whom
and the time at which options shall be granted and the number of shares of
common stock covered by each option. The exercise price per share will be
determined by the Board but may not be less than 85% of the fair value of the
common stock on the date of grant. Common stock issued related to the options
is subject to repurchase by GeneScreen upon termination of employment. The
percentage of stock eligible for repurchase will decrease ratably over a
period varying from three to five years from the date of grant. Options for
stock no longer eligible for repurchase are considered fully vested (see note
11).

The following is a summary of the Plan's activity for the periods shown:

<TABLE>
<CAPTION>
Weighted average
exercise price
Number of shares per share
-------------------- -----------------
1998 1999 1998 1999
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Options outstanding, beginning of
period........................... 577,677 511,079 $ .45 $ .41
Granted......................... 40,000 172,500 .80 .80
Exercised....................... (996) (136,736) .32 .31
Terminated...................... (105,602) (22,396) .79 .59
--------- ---------
Options outstanding, end of
period........................... 511,079 524,447 .41 .55
========= =========
</TABLE>

The following table summarizes information for options outstanding and
vested at December 29, 1999:

<TABLE>
<CAPTION>
Options outstanding Options vested
---------------------------------------- ------------------------
Weighted
average Weighted Weighted
Range of remaining average average
exercise Number of contractual exercise Number of exercise
prices shares life price shares price
-------- --------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$.12 167,747 1.7 $.12 167,747 $.12
.25 20,000 2.5 .25 20,000 .25
.50 14,600 4.0 .50 14,600 .50
.80 322,100 7.9 .80 107,075 .80
------- -------
524,447 5.6 .55 309,422 .38
======= =======
</TABLE>

F-50
<PAGE>

GENESCREEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and December 29, 1999

Immediately prior to Orchid's acquisition of the Company, all unvested stock
options were subject to accelerated vesting and all outstanding options were
exercised (on a cashless basis) for shares of GeneScreen common stock,
resulting in compensation expense of $964,334, which is reflected in the
consolidated statements of operations for 1999.

The Company applies the provisions of APB No. 25 and related interpretations
in accounting for its stock option plan. No compensation cost has been
recognized for its stock option plan, since the fair market value of the common
stock at the date of grant was not in excess of the option exercise price. Had
compensation cost for the Company's stock option plan been determined based on
the minimum value of the options at the grant dates consistent with the method
prescribed by SFAS No. 123, the Company's pro forma net loss would have been
$702,693 and $2,170,710 in 1998 and 1999, respectively.

In the pro forma calculations, the weighted average minimum value of options
granted in 1998 and 1999 was estimated at $.21 and $.23, respectively. The
minimum value of each option grant is estimated on the date of grant using the
minimum value method with the following weighted average assumptions used for
grants in 1998 and 1999: risk free interest rate of 5.1% and 5.6% in 1998 and
1999, respectively; expected lives of six years; no dividend yield; and no
expected volatility (because the Company's stock is not publicly traded).

(10) Commitments and Contingencies

Leases

The Company leases its facilities under noncancellable operating leases with
options to renew. Future minimum rental payments as of December 29, 1999, are
as follows:

Rent expense in 1998 and 1999 was $295,258 and $322,270, respectively.

Self-Insurance Reserve

The Company is self-insured for the risk of loss relating to certain
litigation claims that might arise from the Company's testing results. However,
due to provisions in certain service contracts, the Company is insured for
claims arising from testing performed under the Texas, Ohio and Arizona
contracts. Insurance coverage began in 1995 for testing under the Texas
contract, in 1997 for testing under the Ohio and Arizona contracts and all
other contracts in August 1998. Management estimates future litigation costs
based on historical litigation experience. The accrued litigation reserve for
the self-insured risk at December 31, 1998 and December 29, 1999 was $125,211
and $191,000, respectively.

Employment Contracts

Under a 1992 employment contract, the Company was contingently liable to one
individual through December 31, 2001, for minimum payments in the event of
involuntary termination or death of this individual. In 1999, the Company
agreed to a settlement agreement with the employee with a net cost of $327,750,
which

F-51
<PAGE>

GENESCREEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 and December 29, 1999

includes cancellation of a note receivable from the employee for $36,563 plus
accrued interest of $6,056 (see note 8). The settlement is payable in quarterly
installments over three years, the total of which has been recorded at a
discounted amount of $285,131 plus interest of $21,037 (see note 5).

Until 1998, the Company was contingently liable to another employee under
similar contract conditions. This employee retired effective December 31, 1998,
and the Company agreed to a total severance cost of $550,542, which is payable
as follows: cancellation of a note receivable due from the employee for $48,754
plus accrued interest of $3,863 (see note 8) and payment of the balance of his
contract in quarterly installments over four years, the total of which has been
recorded at a discounted amount of $458,342 plus interest of $39,583 (see note
5).

(11) Acquisition of GeneScreen by Orchid

On December 30, 1999, Orchid acquired all of the outstanding shares of
common and preferred stock of GeneScreen in exchange for consideration
consisting primarily of 4,000,000 shares of Orchid Series E convertible
preferred stock ("Series E") (see note 9) with a stated value of $4.50 per
share. The Company estimates that approximately $300,000 will be paid in lieu
of issuing Series E shares to satisfy certain regulatory requirements and
eliminate fractional shares. This equates to 65,647 shares of Series E which
will not be issued. Also, as part of the acquisition, the note receivable from
Orchid of $3,547,821 was cancelled. GeneScreen incurred costs totaling $902,490
for fees to outside advisors related to this transaction which are included in
general and administrative expenses in the 1999 consolidated statements of
operations. Amounts included in the accompanying consolidated financial
statements are stated on a historical cost basis and do not reflect any fair
value adjustments which might result from the application of purchase
accounting as a result of the acquisition of the Company by Orchid.

F-52
<PAGE>

[Inside back cover contains graphics which represent an artist's depiction of
our SNP-IT primer-extension technology.]

<PAGE>

[LOGO OF ORCHID]
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the estimated underwriting discounts
and commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.

<TABLE>
<S> <C>
SEC registration fee............................................ $ 33,302
NASD filing fee................................................. 30,500
Nasdaq National Market listing fee.............................. 17,500
Blue Sky fees and expenses...................................... 10,000
Transfer Agent and Registrar fees............................... 10,000
Accounting fees and expenses.................................... 125,000
Legal fees and expenses......................................... 250,000
Printing and mailing expenses................................... 100,000
Miscellaneous................................................... 23,698
--------
Total......................................................... $600,000
========
</TABLE>

Item 14. Indemnification of Directors and Officers

Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount
advanced if it is ultimately determined that he is not entitled to
indemnification for such expenses.

Indemnification is required to be made unless the Registrant determines that
the applicable standard of conduct required for indemnification has not been
met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.

II-1
<PAGE>

Article NINTH of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive,
and provides that in the event that the Delaware General Corporation Law is
amended to expand the indemnification permitted to directors or officers the
Registrant must indemnify those persons to the fullest extent permitted by such
law as so amended.

Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal proceeding, if such
person had no reasonable cause to believe his conduct was unlawful; provided
that, in the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such
person shall have been adjudged to be liable to the corporation unless and only
to the extent that the adjudicating court determines that such indemnification
is proper under the circumstances.

Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed
as Exhibit 1 hereto.

Item 15. Recent Sales of Unregistered Securities

Set forth in chronological order is information regarding shares of common
stock and preferred stock issued, options granted and warrants granted by the
Registrant in the three years preceding the filing of this Registration
Statement. Further included is the consideration, if any, received by the
Registrant for such shares and options and information relating to the section
of the Securities Act of 1933, as amended (the "Securities Act"), or rule of
the Securities and Exchange Commission under which exemption from registration
was claimed.

A. Certain Stock Option Grants

The Registrant from time to time has granted stock options to employees and
consultants in reliance upon exemption from registration pursuant to either (1)
Section 4(2) of the Securities Act of 1933 or (2) Rule 701 promulgated under
the Securities Act of 1933. The following table sets forth certain information
regarding such grants:

<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- --------
<S> <C> <C>
September 1, 1997 to August 31, 1998......................... 438,213 $0.49
September 1, 1998 to August 31, 1999......................... 371,072 $1.25
September 1, 1999 to August 31, 2000......................... 3,072,914 $6.61
</TABLE>

B. Issuances of capital stock

1. In December 1997, we entered into a License and Option Agreement with
Sarnoff Corporation, a five percent beneficial stockholder, under which we
received a license under certain technology to research, develop and sell
products and services in the field of combinatorial chemistry and in vitro
diagnostics and options to obtain exclusive licenses for the use of technology
in four designated areas of microfluidics. In consideration of grant of those
licenses, we issued Sarnoff 82,500 shares of our common stock and 167,500
shares of our series A convertible preferred stock. Concurrent with the
exercise of each option, we are obligated to issue Sarnoff 33,300 shares of our
common stock and 66,700 shares of our series A convertible preferred stock and
to fund research to be performed by Sarnoff in an amount as defined in the
agreement, but no less than $5.5 million in

II-2
<PAGE>

the aggregate. We exercised one option in each of December 1998 and 1999. In
consideration of the exercise of each option, we issued Sarnoff 33,300 shares
of our common stock and 66,700 shares of our series A convertible preferred
stock in 1998 and in 1999.

2. In December 1997, in consideration for an amendment to the Development
and License Agreement, we issued SmithKline Beecham 75,000 shares of our common
stock and warrants to purchase 275,000 shares of our common stock.

3. From December 24, 1997 through March 27, 1998, we sold approximately
2,480,176 shares of our series C convertible preferred stock in a private
placement to sixteen accredited investors for an aggregate purchase price of
$27,530,000.

4. On April 1, 1998, in partial consideration of the execution of a License
Agreement with Dynal A.S., we issued 90,090 shares of our common stock to
Dynal.

5. On June 3, 1998 in connection with his executive compensation package, we
granted Donald R. Marvin a warrant to purchase 60,000 shares of our common
stock. Mr. Marvin's warrant is issued in the name of Cairn Investments Inc., an
investment company whose stockholders consist of Mr. Marvin and his wife.

6. On December 1, 1998, in connection with his executive compensation
package, we granted Donald R. Marvin a warrant to purchase 25,000 shares of our
common stock. Mr. Marvin's warrant is issued in the name of Cairn Investments
Inc.

7. On December 10, 1998, in connection with the exercise of an option under
our License and Option Agreement with Sarnoff Corporation, we issued Sarnoff an
aggregate of 33,300 shares of our common stock and 66,700 shares of our series
A convertible preferred stock. In connection with the exercise of this option
under this agreement, we also issued SmithKline Beecham 5,000 shares of our
common stock.

8. On January 1, 1999 in connection with the achievement of a milestone
under the Development and License Agreement dated August 1995, with SmithKline
Beecham, we issued SmithKline Beecham an aggregate of 35,200 shares of our
series B convertible preferred stock.

9. On March 4, 1999 in connection with an equipment financing transaction,
we granted two warrants to purchase an aggregate of 6,185 shares of our common
stock to Phoenixcor, Inc.

10. In May and June 1999, we consummated a bridge financing in which we
issued subordinated convertible term notes in the aggregate principal amount of
$7,590,000 and warrants to purchase 381,500 shares of our common stock to
twelve accredited investors. The aggregate principal amount of these notes, and
all accrued interest thereon, automatically converted into 1,783,509 shares of
our series E convertible preferred stock in December 1999.

11. On September 16, 1999, in connection with an equipment financing
transaction, we granted a warrant to purchase 7,678 shares of our common stock
to Phoenixcor, Inc.

12. On November 5, 1999, we consummated a bridge financing in which we
issued a senior convertible promissory note in the original principal amount of
$2,250,000 to Affymetrix, Inc. The aggregate principal amount of this note, and
all accrued interest thereon, was automatically converted into 505,897 shares
of our series E convertible preferred stock in January 2000. Affymetrix granted
us two put options to require Affymetrix to purchase an aggregate of
approximately 55,555 shares of common stock at a purchase price of $9.00 per
share. The put options are exercisable by us upon the occurrence of certain
triggering events and expire, if not exercised, on the second anniversary of
their issuance.

13. On December 10, 1999 in connection with the exercise of an option and on
the one year anniversary of the exercise of another option under our License
and Option Agreement with Sarnoff Corporation, we issued

II-3
<PAGE>

Sarnoff an aggregate of 83,300 shares of our common stock and 66,700 shares of
our series A convertible preferred stock. In connection with the exercise of
this option, we also issued SmithKline Beecham 5,000 shares of our common
stock.

14. On December 22, 1999, in connection with the consummation of the series
E private placement and pursuant to the terms of the June 1999 bridge
financing, we issued the investors in the bridge financing additional warrants
to purchase 382,410 shares of our common stock.

15. From December 22, 1999 through January 27, 2000, we issued an aggregate
of 18,881,563 shares of our series E convertible preferred stock in a private
placement to 147 investors at an aggregate purchase price of $85,500,000.

16. On December 28, 1999 in consideration of an equipment financing
transaction, we granted a warrant to purchase 7,031 shares of our common stock
to Phoenixcor, Inc.

17. On December 22, 1999 in consideration of advisory services provided in
connection with the series E private placement, we granted EB Finance Co., Ltd.
a warrant to purchase 77,667 shares of our common stock.

18. On December 22, 1999 in consideration of advisory services provided in
connection with the series E private placement, we granted Por Hsuing Lai a
warrant to purchase 8,667 shares of our common stock.

19. On December 22, 1999 in consideration of advisory services provided in
connection with our acquisition of Molecular Tool we granted NeoMed Innovation
AS a warrant to purchase 6,000 shares of our common stock.

20. On February 2, 2000, we issued Sarnoff Corporation an aggregate of
100,000 shares of our common stock as an advance of shares to be owed in the
future under the License and Option Agreement with Sarnoff.

21. On March 31, 2000, in partial consideration of the execution of our
Agreement for the License and Supply of Terminators with NEN Life Sciences,
Inc., we issued NEN and its affiliate an aggregate of 125,000 shares of our
common stock.

22. On April 13, 2000, in connection with the amendment to our License and
Option Agreement with Sarnoff Corporation we agreed to issue to Sarnoff 250,000
shares and grant a warrant to purchase 75,000 shares of our common stock.

The issuances of securities described in Part A were deemed to be exempt
from registration under the Securities Act by virtue of Rule 701 promulgated
thereunder as transactions pursuant to a written employee compensatory benefit
plan approved by the registrant's board of directors.

The issuances of securities described in Items 1 through 22 of Part B were
deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2), Regulation D or Regulation S promulgated thereunder. The
recipients represented their intention to acquire the securities for investment
purposes only and not with a view to the distribution thereof. Appropriate
legends are affixed to the stock certificates issued in such transactions.

II-4
<PAGE>

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

<TABLE>
<CAPTION>
Exhibit
No. Description
--------- -----------
<C> <S>
*1 Underwriting Agreement
#2 Agreement and Plan of Merger by and among the Registrant, GS
Acquisition Corp. and GeneScreen, Inc. dated December 21, 1999
#3.1 Certificate of Incorporation of the Registrant
#3.2 Restated Certificate of Incorporation of the Registrant
#3.3 Bylaws of the Registrant
#3.4 Amended and Restated Bylaws of the Registrant, to be effective upon
the closing of this offering
#4.1 Specimen certificate for shares of common stock
*5 Form of opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C.
#10.1 1995 Stock Incentive Plan, as amended, including form of stock
option certificate for incentive and non-statutory stock options
#10.2 2000 Employee, Director, Consultant Stock Plan, including form of
stock option agreement for non-statutory and incentive stock options
#10.3 Executive Benefit Program, including Executive Deferred Compensation
Plan Executive and Severance Plan
#10.4 Lease Agreement between College Road Associates, Limited Partnership
and the Registrant, dated March 6, 1998
#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
#10.6 License and Option Agreement, dated December 10, 1997, 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
#10.7 Employment Agreement, effective as of January 1, 2000, by and
between the Registrant and Dale R. Pfost, Ph.D.
#10.8 Employment Agreement, effective as of January 1, 2000 by and between
the Registrant and Donald R. Marvin
#+10.9 Agreement for the License and Supply of Terminators, dated February
16, 2000 between the Registrant and NEN Life Science Products, Inc.
##++10.10 Non-Exclusive License Agreement by and between Registrant and
Applied Biosystems dated as of July 1, 2000.
##++10.11 Non-Exclusive License Agreement by and between Registrant and
Amersham Pharmacia Biotech, Inc. dated as of June 12, 2000.
##++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.
21 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP
23.2 Consent of KPMG LLP
23.3 Consent of Deloitte & Touche LLP
*23.4 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included in Exhibit 5)
24 Power of Attorney (see page II-7)
27 Financial Data Schedule
</TABLE>
---------------------
* To be filed by amendment
+ 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.

II-5
<PAGE>

++ 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.
# 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.
## Previously filed 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.

(b) Financial Statement Schedules

All schedules are omitted because they are not required, are not
applicable or the information is included in financial statements or
notes thereto.

Item 17. Undertakings

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-6
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Princeton, New Jersey, on this 22nd
day of September, 2000.

Orchid Biosciences, Inc.

/s/ Dale R. Pfost
By: _________________________________
Dale R. Pfost,
President and Chief Executive
Officer

POWER OF ATTORNEY

We, the undersigned officers and directors of Orchid BioSciences, Inc.,
hereby severally constitute and appoint Dale R. Pfost, Donald R. Marvin, Joseph
E. Mullaney III, Esq. and John J. Cheney III, Esq. and each of them singly
(with full power to each of them to act alone), our true and lawful attorneys-
in-fact and agents, with full power of substitution and resubstitution in each
of them for him and in his name, place and stead, and in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this filing pursuant to Rule 462(b) under the Securities Act of
1933), and to file the same, with all exhibits thereto and other documents in
connection herewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing requisite or necessary to be
done in and about the premises, as full to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them or his substitute or substitute or
substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities held on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Dale R. Pfost President, Chief Executive September 22, 2000
______________________________________ Officer and Director (principal
Dale R. Pfost executive officer)

/s/ Donald R. Marvin Senior Vice President, Chief September 22, 2000
______________________________________ Operating Officer and Chief
Donald R. Marvin Financial Officer (principal
financial and accounting officer)

/s/ Sidney M. Hecht Director September 22, 2000
______________________________________
Sidney M. Hecht, Ph.D.

/s/ Samuel D. Isaly Director September 22, 2000
______________________________________
Samuel D. Isaly

</TABLE>

II-7
<PAGE>

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jeremy M. Levin Director September 22, 2000
______________________________________
Jeremy M. Levin, D.Phil., MB.BChir.

/s/ Anne M. VanLent Director September 22, 2000
______________________________________
Anne M. VanLent

/s/ Robert M. Tien Director September 22, 2000
______________________________________
Robert M. Tien, M.D., M.P.H.

/s/ Ernest Mario Director September 22, 2000
______________________________________
Ernest Mario, Ph.D.

/s/ George Poste Director September 22, 2000
______________________________________
George Poste, DVM, Ph.D.
</TABLE>

II-8
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
No Description
--------- -----------
<C> <S>
*1 Underwriting Agreement
#2 Agreement and Plan of Merger by and among the Registrant, GS
Acquisition Corp. and GeneScreen, Inc. dated December 21, 1999
#3.1 Certificate of Incorporation of the Registrant
#3.2 Restated Certificate of Incorporation of the Registrant, to be
effective upon the closing of this offering
#3.3 Bylaws of the Registrant
#3.4 Amended and Restated Bylaws of the Registrant, to be effective upon
the closing of this offering
#4.1 Specimen certificate for shares of common stock
*5 Form of Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C.
#10.1 1995 Stock Incentive Plan, as amended, including form of stock
option certificate for incentive and non-statutory stock options
#10.2 2000 Employee, Director, Consultant Stock Plan, including form of
stock option agreement for non-statutory and incentive stock options
#10.3 Executive Benefit Program, including Executive Deferred Compensation
Plan Executive and Severance Plan
#10.4 Lease Agreement between College Road Associates, Limited Partnership
and the Registrant, dated March 6, 1998
#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
#10.6 License and Option Agreement, dated December 10, 1997, 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
#10.7 Employment Agreement, effective as of January 1, 2000, by and
between the Registrant and Dale R. Pfost, Ph.D.
#10.8 Employment Agreement, effective as of January 1, 2000 by and between
the Registrant and Donald R. Marvin
#+10.9 Agreement for the License and Supply of Terminators, dated February
16, 2000 between the Registrant and NEN Life Science Products, Inc.
##++10.10 Non-Exclusive License Agreement by and between Registrant and
Applied Biosystems dated as of July 1, 2000.
##++10.11 Non-Exclusive License Agreement by and between Registrant and
Amersham Pharmacia Biotech, Inc. dated as of June 12, 2000.
##++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.
21 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP
23.2 Consent of KPMG LLP
23.3 Consent of Deloitte & Touche LLP
*23.4 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included in Exhibit 5)
24 Power of Attorney (see page II-7)
27 Financial Data Schedule
</TABLE>
-------------------
* To be filed by amendment
+ 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.
# 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.
## Previously filed 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.