GENOMETRIX INC, S-1/A, 2000-05-22

GENOMETRIX INC
S-1/A, 2000-05-22
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 2000

REGISTRATION NO. 333-32584
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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AMENDMENT NO. 3

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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GENOMETRIX INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 8731 76-0634223
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

2700 RESEARCH FOREST DRIVE
THE WOODLANDS, TX 77381
(281) 465-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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

MITCHELL D. EGGERS
CHIEF EXECUTIVE OFFICER
CHAIRMAN OF THE BOARD
GENOMETRIX INCORPORATED
2700 RESEARCH FOREST DRIVE
THE WOODLANDS, TX 77381
(281) 465-5000
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

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

WITH COPIES TO:

<TABLE>
<S> <C>
STANFORD N. GOLDMAN, JR., ESQ. JUSTIN P. MORREALE, ESQ.
WILLIAM T. WHELAN, ESQ. GERALD J. KEHOE, ESQ.
MINTZ, LEVIN, COHN, FERRIS, BINGHAM DANA LLP
GLOVSKY AND POPEO, P.C. 150 FEDERAL STREET
ONE FINANCIAL CENTER BOSTON, MA 02110
BOSTON, MA 02111 (617) 951-8000
(617) 542-6000
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are being 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,
please check the following box. [ ] _______________

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE
TITLE OF EACH CLASS TO BE OFFERING PRICE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE(3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share 8,050,000 $12.00 $96,600,000 $25,503
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- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Includes 1,050,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.

(2) Estimated solely for the purpose of calculating the amount of registration
fee pursuant to Rule 457(a) under the Securities Act, as amended.
(3) A fee of $31,680 was paid in connection with our initial filing on March 15,
2000 which should result in a credit to us of $6,177 for future
registrations.
------------------------

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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
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<PAGE> 2

THE INFORMATION CONTAINED 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.

Subject to Completion, dated May 19, 2000

PROSPECTUS
7,000,000 Shares

[GENOMETRIX INCORPORATED LOGO]

Common Stock
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. We are offering
7,000,000 shares of our common stock. No public market currently exists for our
shares. We have applied for quotation on the Nasdaq National Stock Market under
the symbol "GNMX." We expect the initial public offering price to be between
$10.00 and $12.00 per share.

Motorola, Inc., a collaborative partner and existing stockholder, has agreed to
purchase 909,090 shares of common stock, subject to adjustments based on the
final number of shares offered and offering price, in a private placement
concurrent with this offering.

INVESTING IN THE SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 6.

<TABLE>
<CAPTION>
PER
SHARE TOTAL
------ --------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount and Commissions....................... $ $
Proceeds to Genometrix...................................... $ $
</TABLE>

We have granted the underwriters a 30-day option to purchase up to an aggregate
of 1,050,000 additional shares of common stock to cover over-allotments, if any.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Lehman Brothers, on behalf of the underwriters, expects to deliver the shares of
common stock on or about June , 2000.

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Joint Lead Managers
LEHMAN BROTHERS CHASE H&Q
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DAIN RAUSCHER WESSELS THOMAS WEISEL PARTNERS LLC
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FIDELITY CAPITAL MARKETS
a division of National Financial Services Corporation

, 2000
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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.................... 2
Risk Factors.......................... 6
Special Note Regarding Forward-Looking
Statements and Market Data.......... 15
Use of Proceeds....................... 16
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Selected Financial Data............... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 25
</TABLE>

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Management............................ 44
Related Transactions.................. 51
Principal Stockholders................ 53
Description of Capital Stock.......... 56
Shares Eligible for Future Sale....... 59
Underwriting.......................... 61
Legal Matters......................... 64
Experts............................... 64
Where You Can Find Additional
Information......................... 64
Index to Financial Statements......... F-1
</TABLE>

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

ABOUT THIS PROSPECTUS

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy our common stock in any jurisdiction where it is
unlawful. This preliminary prospectus is subject to completion prior to this
offering.

"Genometrix" and "GenoVista" are pending trademark applications of our
subsidiary, Genometrix Genomics Incorporated, formerly known as Genometrix
Incorporated.

Until , 2000, all dealers selling shares of the common stock,
whether or not participating in the public offering, may be required to deliver
a prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes appearing elsewhere in this
prospectus. You should read the entire prospectus carefully, especially the
risks of investing in our common stock discussed under "Risk Factors" beginning
on page 6.

GENOMETRIX

We are a pioneer and leading provider of cost-effective, high throughput
genomic services and information. Our founders filed the first patent covering
our core electronic and optical DNA chip technology in 1991 in the early stage
of the genomics field. We believe that applied genomics -- the practical use and
understanding of genetic information and its relationship to disease -- is the
key to reducing the risk, cost and lead-time of drug discovery and to the
development of personalized medicine. We believe that our unified platform is
the only technology that currently enables automated high throughput genotyping
(the process of identifying an individual's genetic make-up), gene expression (a
technique that shows whether or not a gene is activated) and, in the future,
protein analysis on a single system. Our goal is to become the leading provider
of high throughput genomic services to the pharmaceutical and biotechnology
industries for the discovery and development of new drugs. And, in time, we plan
to establish ourselves as the leading provider of high throughput genomic
services to physicians in support of therapeutic treatments personalized for
each patient's genetic profile.

In November 1999, we commercially launched our genomic services through the
GenoVista Partnership Program. Our current commercial customers are
Schering-Plough Corporation and Procter & Gamble Pharmaceuticals. We also have
research and development collaborations with the University of Arizona Cancer
Center, the University of Texas M.D. Anderson Cancer Center, the National Cancer
Institute and the U.S. National Center for Toxicological Research. In addition,
we have formed a strategic partnership with Motorola, Inc. under which we
entered into research and development agreements, preferred supplier
arrangements and an agreement to license intellectual property relating to
electrical DNA chip technology and hybridization (binding) chemistries primarily
for Motorola's own commercial development of portable DNA-based clinical systems
that are complementary to our genomic services. To date, Motorola has made an
equity investment of $10 million in our Company and has agreed to purchase an
additional $10 million of our common stock in a private placement concurrent
with the closing of this offering.

MARKET OPPORTUNITY

The first phase of the genomics revolution has focused on sequencing
significant portions of DNA within the human genome. The next phase, applied
genomics, is the effort to understand how genetic variation among individuals
impacts disease and its treatment, and to use this information in the
development of new therapeutics. Thousands of genes have been discovered and
each gene is a potential drug target. As a result, a strong demand has emerged
for efficient high throughput genomic services that reduce the time and cost of
bringing a new drug to market and increase the success rate of therapeutic
response. Overall, our technology leverages genomic information in a number of
areas, including drug discovery and development, diagnostics and, eventually,
personalized medicine. We believe our efficient, high throughput, on-line
genomic services business will be especially suited to these market
opportunities.

OUR SOLUTION

We have developed a highly integrated technology platform that combines
high throughput microarray analyses, automated sample handling, high capacity
bioinformatics (the statistical analysis of biological data) and statistical
genetics (the correlative analysis of many individuals and their genetic
make-up). We are also amassing a repository of patient-consented samples with
attendant clinical records for DNA analysis. These genomic services are
conveniently provided on-line to our customers via secure Internet links. As a
consequence, we offer a unified, high throughput solution to genomic-based drug
discovery and development.

2
<PAGE> 5

OUR STRATEGY

- establish, build and maintain strong commercial relationships with
our biotechnology and pharmaceutical customers;

- develop research and development collaborations with pharmaceutical,
biotechnology and academic institutions;

- expand our proprietary solid-state DNA repository;

- generate and license intellectual property from our DNA repository;

- develop genotype-based diagnostics to expand the applications of our
core technology; and

- establish genotyping and database services to facilitate personalized
medicine.

OUR SERVICES

We believe we have the only unified DNA chip microarray technology that can
serve genotyping, gene expression and, in the future, protein analysis
applications. We have developed and are commercializing the following services,
which have been designed to promote access to genomic technologies and to
facilitate use by pharmaceutical and biotechnology companies:

- VistaMorph Genotyping Service, featuring high throughput genetic
variation analysis using standard or custom microarrays;

- VistaExpress Gene Expression Service, which enables researchers to
efficiently profile gene expression patterns across thousands of
biological samples;

- VistaLogic Information System, an Internet-based application software
providing a user friendly interface between Genometrix and our
customers; and

- VistaClinic DNA Repository, a collection of DNA samples and attendant
clinical records which will be available to our customers for
large-scale genotyping analysis.

OUR HISTORY

Genometrix Incorporated was incorporated in Delaware on March 10, 2000 and
is the holding company of Genometrix Genomics Incorporated, the operating entity
formerly known as "Genometrix Incorporated," incorporated in Delaware on May 28,
1993. Our principal executive offices are located at 2700 Research Forest Drive,
The Woodlands, TX 77381. Our telephone number at that address is (281) 465-5000.
We maintain a web site on the Internet at www.genometrix.com. We do not intend
for the information on our web site to be part of this prospectus.

3
<PAGE> 6

THE OFFERING

Common stock offered in this
offering......................... 7,000,000 shares

Common stock to be outstanding
after this offering.............. 30,068,437 shares

Use of proceeds.................. Support and expand our commercialization
activities, expand our DNA repository and
research and development efforts and
working capital and other general corporate
purposes. See "Use of Proceeds."

Proposed Nasdaq National Market
symbol........................... GNMX

The number of shares of common stock to be outstanding after the offering
does not include:

- 3,906,530 shares of common stock that may be issued upon the exercise
of stock options outstanding as of March 31, 2000 at a weighted
average exercise price of $2.06 per share;

- warrants to purchase 241,970 shares of Series B Convertible Preferred
Stock at an exercise price of $1.10 per share which will be
automatically converted into warrants to purchase an equivalent
number of common shares at the same exercise price upon completion of
this offering; and

- 784,887 shares of common stock that we could issue under our 1994
Stock Plan and 5,000,000 shares we could issue under our 2000
Employee, Director and Consultant Stock Option Plan.

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

Unless otherwise indicated, all information contained in this prospectus:

- Assumes that the underwriters do not exercise their over-allotment
option;

- Assumes we adopt and file an Amended and Restated Certificate of
Incorporation and the adoption of restated By-Laws upon completion of
this offering;

- Shows a common stock equivalent number of shares for our Series A and
Series B Convertible Preferred Stock amounts outstanding to reflect
an adjustment to conversion price ratio of each series for a 10 for 1
split of our common stock that occurred on May 25, 1998;

- Reflects the automatic conversion of all of our outstanding shares of
preferred stock into a total of 8,973,254 shares of common stock upon
completion of this offering;

- Reflects the conversion of notes payable from a 1996 financing and
related accrued interest as of March 31, 2000 into 403,280 shares of
common stock upon completion of this offering;

- Assumes the exercise of 870,274 common stock purchase warrants
immediately prior to completion of this offering under binding
subscription agreements with the warrant holders; and

- Reflects the purchase by Motorola of 909,090 shares of common stock
at an assumed price of $11.00 per share in a private placement
concurrent with the closing of this offering.

4
<PAGE> 7

SUMMARY FINANCIAL DATA

The following is a summary of our historical financial data and is not
necessarily indicative of future anticipated results of operations. The
statements of operations data for each of the five years ended September 30,
1995, 1996, 1997, 1998 and 1999 and the balance sheet data for the year ended
September 30, 1999 have been derived from our audited financial statements. The
statements of operations data for the six months ended March 31, 1999 and 2000
and the balance sheet data as of March 31, 2000 have been derived from our
unaudited financial statements. The financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the financial statements and the notes thereto and any other
information contained in this prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
-------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
------ ------ ------ ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Grant and contract research revenue....................... $ 714 $ 796 $ 970 $ 1,467 $ 1,637 $ 757 $ 779
Service revenue........................................... -- -- 34 77 14 -- 380
License and royalty revenue............................... -- -- -- -- -- -- 125
------ ------ ------ ------- ------- ------- --------
Total revenue............................................... 714 796 1,004 1,544 1,651 757 1,284
Costs and expenses:
General and administrative................................ 528 823 533 1,412 3,514 1,359 3,246
Research and development.................................. 535 596 635 1,435 2,603 1,090 2,676
Amortization of deferred stock compensation............... -- -- -- -- -- -- 998
Expense related to beneficial conversion feature of
preferred stock......................................... -- -- -- -- -- -- 3,709
------ ------ ------ ------- ------- ------- --------
Total costs and expenses.................................... 1,063 1,419 1,168 2,847 6,117 2,449 10,629
------ ------ ------ ------- ------- ------- --------
Operating loss.............................................. (349) (623) (164) (1,303) (4,466) (1,692) (9,345)
Net loss.................................................... (394) (689) (304) (1,715) (4,370) (1,695) (9,226)
Dividend related to beneficial conversion feature of
preferred stock........................................... -- -- -- -- -- -- (3,180)
------ ------ ------ ------- ------- ------- --------
Net loss attributable to common stockholders................ $ (394) $ (689) $ (304) $(1,715) $(4,370) $(1,695) $(12,406)
====== ====== ====== ======= ======= ======= ========
Net loss per common share, basic and diluted................ $ (.04) $ (.07) $ (.03) $ (.16) $ (.39) $ (.15) $ (1.06)
====== ====== ====== ======= ======= ======= ========
Shares used in computing net loss per common share, basic
and diluted............................................... 9,046 10,300 10,416 10,629 11,109 11,027 11,697
Pro forma net loss per common share, basic and diluted...... $ (.21) $ (.57)
======= ========
Shares used in computing pro forma net loss per common
share, basic and diluted.................................. 21,148 21,736
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AS ADJUSTED
SEPTEMBER 30, MARCH 31, MARCH 31, MARCH 31,
1999 2000 2000(1) 2000(2)
------------- --------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 7,369 $ 8,165 $ 10,458 $ 90,868
Working capital............................................. 6,327 6,976 9,712 90,122
Total assets................................................ 10,721 14,193 16,485 96,895
Accumulated deficit......................................... (7,635) (16,861) (16,861) (16,861)
Total stockholders' equity.................................. 9,169 11,834 14,570 94,980
</TABLE>

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(1) The pro forma balance sheet data gives effect to (i) the conversion of all
8,973,254 outstanding shares of convertible preferred stock into 8,973,254
shares of common stock, (ii) the conversion of notes payable with a
principal face amount of $300,000 and related accrued interest of $143,608
into 403,280 shares of common stock and (iii) the assumed exercise under
binding subscription agreements with the warrant holders of 870,274
outstanding common stock purchase warrants into an equivalent number of
shares of common stock at a weighted average exercise price of $2.63 per
share upon completion of this offering.

(2) The adjusted pro forma balance sheet data reflects the sale of 7,000,000
shares of our common stock offered by us at an assumed initial public
offering price of $11.00 per share, less underwriting discounts and
commissions and the estimated offering expenses payable by us and the
purchase by Motorola of 909,090 shares of common stock at an assumed price
of $11.00 per share in a private placement concurrent with the closing of
this offering.

5
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RISK FACTORS

An investment in our common stock is risky. You should carefully consider
the following risks, as well as the other information contained in this
prospectus. Our business and results of operations could be seriously harmed by
any of the following risks. This could cause the trading price of our common
stock to decline and you may lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

WE ARE A DEVELOPMENT STAGE ENTERPRISE. IF WE DO NOT SUCCESSFULLY COMMERCIALIZE
OUR PRODUCTS, THEN OUR BUSINESS MAY FAIL.

We commenced operations in 1993 and are in the early stage of
commercializing our services. While we are beginning to generate revenues from
this commercialization, we have incurred significant losses to date and our
revenues have been almost exclusively derived from grants from governmental
bodies and from universities. Substantially all of our resources have been
dedicated to developing our high throughput microarray technology and genomic
services infrastructure. We cannot assure you that we will successfully design,
develop, market, manufacture or sell any future products or services, or that we
will be able to sustain or increase revenue from our current services. Our
failure to generate positive cash flow could cause our business to fail and
ultimately, shut down.

Our business is subject to all of the risks inherent in the development of
a new business enterprise, such as the need:

- to obtain sufficient capital to support the expenses of developing
our technology and commercializing our products and services;

- to develop a market and attract customers for our products and
services;

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

- to successfully execute our business strategy;

- to attract and retain qualified management, sales, technical and
scientific staff; and

- to manage our growth.

Our operations also may be affected by problems frequently encountered with
the use of new technologies and by the competitive environment in which we
operate, and by the risks detailed below.

WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES AND NEGATIVE CASH FLOW
AND WE MAY NEVER ACHIEVE OR MAINTAIN PROFITABILITY.

We have an accumulated deficit of $16.9 million as of March 31, 2000 and
expect that we will continue to incur additional net operating losses for the
foreseeable future. These losses may increase as we expand our investment in
microarray technology and genomic services infrastructure. Since we are in the
early stages of commercializing our business, we face significant challenges in
simultaneously expanding our operations, pursuing key scientific goals and
attracting customers for our services. As a result, there is a high degree of
uncertainty that we will be able to achieve significant revenue or
profitability.

WE MAY NEED ADDITIONAL CAPITAL TO SUPPORT OUR OPERATIONS, WHICH MAY BE
UNAVAILABLE OR COSTLY.

Based on our current plans, we believe that our existing cash and cash
equivalents, together with the net proceeds of this offering, will be sufficient
to fund our operating expenses and capital requirements through at least
December 2001. However, we may need to raise additional capital to fund our
research and development programs, to scale up manufacturing activities, to
expand our sales and marketing capabilities and to fund unforeseeable expenses.
Future collaborations may require us to commit

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<PAGE> 9

substantial capital. We cannot assure you that additional financing will be
available when needed, or that, if available, it will be obtained on favorable
terms. Our failure to raise capital on acceptable terms when needed could result
in a shortage of funds to finance our research and development activities and
commercialization strategy such that we might never become profitable. Many
factors, some of which are beyond our control, will determine our funding
requirements and we may need funds sooner than currently anticipated. These
factors include:

- our level of success in selling our high throughput VistaMorph
Genotyping Services, our VistaExpress Gene Expression Services and
our VistaClinic DNA Repository and related database and in developing
and selling other genomic services which use our high throughput
microarray technology;

- our ability to establish, maintain and successfully implement
collaborations;

- our ability to add customers and to generate additional business from
existing customers;

- the level of our manufacturing, sales and marketing expenses;

- the level of our expenses associated with unforeseen litigation or
other extraordinary items;

- the costs and timing of defending our proprietary rights and of
obtaining new patent rights; and

- regulatory changes, competition and technological developments in the
market.

If we require additional funds but are unable to obtain them on favorable
terms, we may have to substantially reduce or eliminate expenditures for further
commercialization of our products, sell some or all of our technology or assets,
or merge with another entity. If we raise additional funds by selling additional
shares of our capital stock, the ownership interests of our stockholders will be
diluted and debt financing, if available, may include restrictive covenants.

IF WE FAIL TO CONVINCE PHARMACEUTICAL AND BIOTECHNOLOGY COMPANIES AND OTHER
HEALTH CARE PROVIDERS TO PURCHASE OUR SERVICES, OUR COMMERCIALIZATION STRATEGY
COULD FAIL.

In the near-term we must be able to convince pharmaceutical companies of
our ability to assist in discovering complex connections between genetic
profiles, disease risk and therapeutic response so as to enhance drug discovery
and development. In the long-term, our commercial objectives include playing a
key role in the provision of "personalized medicine." The commercial success of
our services depends upon continuing and expanding market acceptance of our high
throughput microarray platform, genomic services and VistaClinic DNA Repository
by pharmaceutical and biotechnology companies, academic research centers,
government-funded research laboratories and physicians. Market acceptance
depends on many factors, including demonstrating to customers that our
technology and services are superior to and more cost-effective than other
technologies and services which are available now or which may become available
in the future.

Our newly launched GenoVista Partnership Program offers high throughput
custom microarray fabrication and analysis services for genotyping and gene
expression profiling. Although we are beginning to obtain revenue from this
program, we may be unable to sustain or grow these revenues. We must be able to
market and sell our capabilities to many areas within the pharmaceutical drug
discovery development process, including target identification, target
validation, primary screening, lead optimization and preclinical and clinical
development. We may not, however, succeed in selling our services and in
maintaining annual subscriptions to our database with pharmaceutical companies.
The cost of our services and subscriptions may deter certain potential customers
and we may be required to discount the price of our services. Pharmaceutical and
biotechnology companies may not agree to purchase our services at the
anticipated subscription rate. Potential customers will need to be trained to
use our technology to benefit from its capabilities and we may be unable to
provide sufficient training and technical support to facilitate our customers'
projects. If we do not attract and retain customers for our services, we will
not generate sufficient revenues to become profitable. Our business, if not
profitable, will eventually fail.

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<PAGE> 10

WE MAY BECOME INVOLVED IN LAWSUITS TO PROTECT OR ENFORCE OUR PATENTS, WHICH
WOULD BE EXPENSIVE AND, IF WE LOSE, MAY CAUSE US TO LOSE SOME OR ALL OF OUR
INTELLECTUAL PROPERTY RIGHTS, AND THEREBY REDUCE OUR ABILITY TO COMPETE IN OUR
MARKETS.

Our success may depend on our ability to obtain and defend patent rights
and trade secrets. Our patent rights may not afford adequate protection for our
technology. Others may challenge our patents and, as a result, our patents could
be held invalid or unenforceable. In addition, our patent applications may not
result in the issue of patents in the United States or foreign countries.
Competitors may develop products similar to ours that do not infringe our
patents. In addition, others may develop high throughput microarray systems and
other technology in violation of our patents or independent of our patents that
may reduce the market for our services. In order to protect or enforce our
patent rights, it may be necessary to undertake patent litigation against third
parties, such as infringement suits or interference proceedings. These lawsuits
can be expensive, take significant time, divert management's attention from
other business concerns and may provoke third parties to assert their patents
against us. The patent position of biotechnology firms is generally uncertain,
involves complex legal and factual questions, and has been subject to
litigation. No consistent policy has emerged from the U.S. Patent and Trademark
Office or the courts regarding the breadth of claims allowed or the degree of
protection afforded under biotechnology patents. In addition, the approval or
rejection of patent applications may take several years.

THE RIGHTS WE RELY UPON TO PROTECT OUR INTELLECTUAL PROPERTY MAY NOT BE
ADEQUATE, WHICH COULD ENABLE THIRD PARTIES TO USE OUR TECHNOLOGY AND REDUCE OUR
ABILITY TO COMPETE IN OUR MARKETS.

We require our employees, consultants and advisors to execute
confidentiality agreements. However, we cannot guarantee that these agreements
will provide us with adequate protection against improper use or disclosure of
confidential information. In addition, in some situations, these agreements may
conflict with, or be subject to, the rights of third parties with whom our
employees, consultants or advisors have prior employment or consulting
relationships. Further, others may independently develop substantially
equivalent proprietary information and techniques, or otherwise gain access to
our trade secrets.

OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING ON
OR MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS AND WITHOUT OTHERS
INFRINGING ON OR MISAPPROPRIATING OUR PROPRIETARY RIGHTS.

To date, we have received no notices alleging that we are infringing the
patents of any third party. Nonetheless, we may in the future be sued for
infringing the patent rights of others. Intellectual property litigation is
costly, and, even if we prevail, the cost of such litigation could adversely
affect our financial condition and could divert management attention and
resources away from our business. If we do not prevail in any litigation, in
addition to any damages we might have to pay, we could be required to cease the
allegedly infringing activity or to obtain a license. Such a required license
may not be available to us or may not be available on acceptable terms. In
addition, some licenses may be non-exclusive, so that our competitors may have
access to the same technology licensed to us. If we fail to obtain a required
license, or are unable to design around a third party patent, we may be required
to stop providing a particular service or product that incorporates such
intellectual property, which could result in a loss of revenue and customers.

Other companies may infringe on or misappropriate our proprietary rights
that are necessary for the operation of our business. Litigation to enforce our
proprietary rights could be expensive and time-consuming, especially if the
other parties to such litigation commit greater financial resources and
personnel. We may decide not to enforce our proprietary rights because of the
high cost and personnel required to prosecute any such case. In the event we
fail to enforce our proprietary claims, or are unsuccessful at enforcing such
claims, our competitors may utilize our technology in their products and harm us
competitively by selling products based on our technology without the associated
costs of our research and development efforts and also by diverting our
customers to their products.

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<PAGE> 11

IF THE RIGHTS TO TECHNOLOGY THAT WE HAVE LICENSED FROM THIRD PARTIES CHANGE OR
TERMINATE, OUR COMMERCIALIZATION EFFORTS COULD BE DELAYED OR FAIL.

Our core technology has been licensed from third parties. We have exclusive
rights to our core technology, but these exclusive rights terminate in 2006, and
may be extended after good faith negotiations as provided in the agreement, but
there can be no assurance that the licensor will extend such exclusivity on
commercially reasonable terms, or at all. In addition, changes to or termination
of our agreements with these third parties could result in losing access to this
technology and could delay or suspend our overall commercialization efforts. For
example, the academic institutions from whom we license rights to electrokinetic
hybridization technologies may refuse to license these rights to us, or may
insist on licensing these rights on commercially unreasonable terms. Such
failure to maintain the right to license such technologies could require us to
cease providing services or products utilizing such licensed technology, and
therefore, may result in loss of revenue streams and customers for our business.

WE MAY BE UNABLE TO OBTAIN LICENSES TO PATENTED SNPS WHICH COULD PREVENT US FROM
OBTAINING SIGNIFICANT REVENUE OR BECOMING PROFITABLE.

The U.S. Patent and Trademark Office has issued at least one patent to a
third party relating to a single nucleotide polymorphism (SNP). If important
SNPs are patented, we will need to obtain rights to those SNPs in order to
develop, use and sell related assays. Required licenses may not be available on
commercially acceptable terms, or at all. If we fail to obtain licenses to
important patented SNPs, we may never achieve significant revenue or become
profitable.

WE DEPEND, AND EXPECT TO DEPEND IN THE FORESEEABLE FUTURE, ON A SMALL NUMBER OF
CUSTOMERS FOR A SUBSTANTIAL PORTION OF OUR REVENUE. THE LOSS OF ANY ONE OR MORE
OF THESE CUSTOMERS, OR A REDUCTION IN SERVICES REQUIRED BY OUR CUSTOMERS, COULD
RESULT IN A SUBSTANTIAL DECLINE IN OUR REVENUE.

For the foreseeable future, we expect that our customers will be
concentrated in a limited number of pharmaceutical and biotechnology companies,
academic research centers and government-funded research laboratories. As a
result, our financial performance may depend on large orders from a limited
number of customers, and the loss of, or reduction in, the purchase of our
services from our customers could harm our revenue stream and our ability to
become profitable. Also, if consolidation trends in the pharmaceutical and
biotechnology industries continue, the number of our current and potential
customers could decrease. If this occurs, large customers may seek reductions in
the prices of our services based on volume purchases.

ETHICAL AND OTHER CONCERNS SURROUNDING THE USE OF GENETIC INFORMATION MAY REDUCE
THE OVERALL MARKET FOR OUR SERVICES.

We believe that the value of our VistaClinic DNA Repository to customers
will depend upon our success in collecting and archiving patient-consented
biological samples and medical records and in providing rapid responses to
requests for customized and existing microarrays and samples. Genetic testing
has raised ethical issues regarding confidentiality and the appropriate uses of
the resulting information. For these reasons, governmental authorities may call
for limits on or regulation of the use of information obtained from genetic
testing or may prohibit testing for genetic predisposition to certain
conditions, particularly for those conditions that have no known cure. The
successful development of our VistaClinic DNA Repository depends upon collecting
a large number of biological samples and accompanying patient medical records,
for which we must obtain patient consent. Individuals may not give such consent
due to concerns about the privacy and use of medical records and biological
specimens. Failure to develop a sufficient database and archive would make our
bioinformatics services less valuable to customers and could result in a loss of
revenue for our business.

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<PAGE> 12

THE FAILURE OF OUR CUSTOMERS TO SUCCESSFULLY COMMERCIALIZE PRODUCTS THAT WERE
DEVELOPED USING OUR PRODUCTS AND SERVICES COULD SUBSTANTIALLY HARM OUR BUSINESS.

Our business model for earning revenues includes a royalty-sharing
provision with customers who develop products using our genotyping and gene
expression services and our bioinformatics services. If our customers fail to
commercialize products using our products and services, we will not realize this
potential stream of revenue and such failure could substantially harm our
business. Moreover, there is no assurance that customers will agree to a
royalty-sharing provision even if their own commercialization efforts are
successful. The failure to share in our customers' commercialization efforts may
substantially harm our business.

ANY SIGNIFICANT REDUCTION, DELAY OR TERMINATION OF RESEARCH AND DEVELOPMENT
BUDGETS AND GOVERNMENT FUNDING COULD LIMIT OUR MARKET AND HARM OUR BUSINESS.

Our customers include researchers at pharmaceutical and biotechnology
companies, at academic institutions and at government and private laboratories.
If our customers reduce their research and development budgets, they may reduce
the services they purchase from us, and we may not earn sufficient revenues to
become profitable.

A significant portion of our services is provided to researchers,
universities, government laboratories and private foundations whose funding is
dependent upon grants from government agencies such as, for example, the U.S.
National Institutes of Health ("NIH"). Although the level of NIH research
funding has increased during the past several years, these increases may not
continue or research funding may be reduced. Government funding of research and
development is subject to the political process, which is inherently fluid and
unpredictable. A reduction in government funding for the NIH or other government
research agencies could result in a shortage of funds for our research and
development efforts.

Our academic customers generally receive funds from approved grants at
particular times of the year. In the past, grants have been frozen for extended
periods or have otherwise become unavailable to various institutions without
advance notice. The timing of the receipt of grant funds affects the timing of
purchase decisions by our customers and, as a result, can cause fluctuations in
our sales and operating results.

THE SALES CYCLE FOR OUR SERVICES IS LENGTHY. WE MAY EXPEND SUBSTANTIAL FUNDS AND
MANAGEMENT EFFORT WITH NO ASSURANCE OF SUCCESSFULLY SELLING OUR SERVICES.

Our ability to obtain customers for our services depends in significant
part upon the perception that our services can help accelerate drug discovery
and development efforts. The sales cycle is typically 9 to 12 months due to the
education effort that is required. Our sales effort requires the effective
demonstration of the benefits of our technology and services to and significant
training of many different departments within a potential customer. These
departments might include research and development personnel and key management.
In addition, we may be required to negotiate agreements containing terms unique
to each customer. Our marketing and sales force may not be sufficiently large or
knowledgeable to successfully undertake these efforts. We may expend substantial
funds and management effort with no assurance that we will successfully sell our
services.

OUR PHARMACEUTICAL CUSTOMERS MUST USUALLY OBTAIN REGULATORY APPROVAL TO MARKET
THEIR PRODUCTS IN THE UNITED STATES AND FOREIGN JURISDICTIONS, AND IF THEY FAIL
TO OBTAIN SUCH APPROVALS AND TO COMMERCIALIZE PRODUCTS DEVELOPED WITH GENOMIC
INFORMATION WE PROVIDE THEM, OUR MARKETS COULD BE LIMITED AND OUR BUSINESS
HARMED.

The pharmaceutical industry is subject to stringent regulation by a wide
range of authorities. We cannot predict whether regulatory clearance will be
obtained for any product that our pharmaceutical customers develop. A
pharmaceutical product cannot be marketed in the United States until it has
completed rigorous preclinical testing and clinical trials and an extensive
regulatory clearance process overseen by the FDA. It typically takes many years
and substantial resources to satisfy regulatory requirements, depending upon the
type, complexity and novelty of the product. Of particular significance

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<PAGE> 13

are the requirements covering research and development, testing, manufacturing,
quality control, labeling and promotion of drugs for human use.

Before commencing clinical trials in humans, pharmaceutical companies must
submit applications to, and receive approval from, the FDA. Clinical trials also
are subject to oversight by institutional review boards. Before receiving FDA
clearance to market a product, pharmaceutical companies must demonstrate that
the product is safe and effective on the patient population that will be
treated. Data obtained from preclinical and clinical activities are susceptible
to varying interpretations that could delay, limit or prevent regulatory
clearances. In addition, delays or rejections may be encountered based upon
additional government regulation from future legislation or administrative
action or changes in FDA policy during the period of product development,
clinical trials and FDA regulatory review. Failure to comply with applicable FDA
or other applicable regulatory requirements may result in criminal prosecution,
civil penalties, recall or seizure of products, total or partial suspension of
production or injunction, as well as other regulatory action against the
pharmaceutical company.

If regulatory clearance of a product is granted, this clearance will be
limited to those disease states and conditions for which the product is
demonstrated through clinical trials to be safe and efficacious. We cannot
ensure that any compound developed by our pharmaceutical customers based on
genomic information we provide will prove to be safe and efficacious in clinical
trials and will meet all of the applicable regulatory requirements needed to
receive marketing clearance.

Outside the United States, a pharmaceutical company's ability to market a
product is contingent upon receiving a marketing authorization from the
appropriate regulatory authorities. This foreign regulatory approval process
includes all of the risks associated with FDA clearance described above.

IF WE BECOME SUBJECT TO INCREASED GOVERNMENT REGULATION, OUR COMMERCIALIZATION
EFFORTS COULD FAIL.

Our services are not currently subject to regulation by the FDA, although
the products of many of the pharmaceutical and biotechnology companies to which
we market our services are regulated by the FDA. The interest of the FDA or
other governmental agencies in our services may increase as the number of
pharmaceuticals and other products developed using our technology increases. We
are subject to laws and regulations pertaining to the protection of human
subjects and to genetic privacy. For example, we are subject to the Policy for
the Protection of Human Subjects, a body of regulations which applies to all
federally funded research on humans. In addition, although we are not a "covered
entity" under the Health Insurance Portability and Accountability Act (HIPAA),
health plans from whom we may seek clinical information for our VistaClinic DNA
Repository are covered entities, and their compliance with HIPAA will place
additional administrative and cost burdens on Genometrix and will affect our
ability to obtain individual health information from covered entities. If we
fail to obtain such clinical information, it could affect the usefulness of our
VistaClinic database to our customers and may result in a loss of those
customers and a decrease in our revenues.

THERE IS A SHORTAGE OF WORKERS WITH THE NECESSARY SCIENTIFIC AND TECHNICAL
BACKGROUND TO PERFORM OUR WORK. IF WE FAIL TO ATTRACT AND RETAIN PRINCIPAL
MEMBERS OF OUR MANAGEMENT, SALES AND SCIENTIFIC STAFF, OUR PRODUCTION
CAPABILITIES AND REVENUE STREAM COULD SUFFER.

Our success depends on our ability to attract, retain and motivate highly
skilled managers, biochemists, engineers, other scientists and technicians and
sales persons and particularly on our ability to retain our current Chief
Executive Officer, Mitchell D. Eggers, and Chief Scientific Officer, Michael
Hogan. Our ability to maintain, expand or renew existing arrangements with our
customers, enter into new arrangements and provide additional services to our
existing customers depends, in large part, on our ability to hire and retain
scientists and technicians with the skills necessary to keep pace with
continuing changes in genomic and proteomic research. We believe that there is a
shortage of, and significant competition for, scientists and technicians with
the skills and experience in chemistry and engineering necessary to perform the
services we require and that our competitors may actively seek to divert our
employees. We compete with the research departments of pharmaceutical companies,
biotechnology

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<PAGE> 14

companies, combinatorial chemistry companies, contract research companies,
hospitals and research and academic institutions for new personnel. Our
inability to hire additional qualified personnel may materially adversely affect
our future growth. In addition, our inability to hire additional qualified
personnel may require an increase in the level of responsibility for both
existing and new personnel. We cannot assure you that we will be successful in
attracting, retaining or motivating our scientific, technical and sales
personnel. Any failure on our part to hire, train and retain sufficient
qualified personnel would result in a slow-down in our production capabilities
and might result in a reduction in our revenue stream.

WE DEPEND ON VENDORS TO SUPPLY US WITH COMPONENTS OF OUR PRODUCTS. IF SUCH
COMPONENTS ARE NOT AVAILABLE, WE MAY NOT BE ABLE TO COMMERCIALIZE OUR PRODUCTS.

We rely to a substantial extent on outside vendors to manufacture many of
the components used in our microarrays and other technology and in providing our
genomic services. Some of these components and materials are obtained from a
single supplier or a limited group of suppliers. Our reliance on outside vendors
generally and on a sole or a limited group of suppliers in particular, involves
several risks, including:

- the inability to obtain an adequate supply of required components due
to constraints in manufacturing capacity, a discontinuance of a
product by a third-party manufacturer or other supply constraints;

- reduced control over quality and pricing of components; and

- delays and long lead times in receiving materials from vendors.

Any interruption in the supply of a single-sourced product would have a
material adverse effect on our ability to increase the number of work stations
we have in production and on our overall throughput until a new source of supply
is qualified. We may be unable to secure a sufficient alternative source within
a reasonable time period, or on commercially reasonable terms, if at all. If we
are unable to obtain the components we need for our work stations and other
technology on favorable terms, our throughput will be reduced and we may not be
able to meet our customers' product needs, resulting in a loss of revenues for
our business.

IF WE FAIL TO ACHIEVE AND MAINTAIN THE HIGH MANUFACTURING STANDARDS THAT OUR
MICROARRAYS AND OTHER TECHNOLOGY REQUIRE, WE WILL NOT BE SUCCESSFUL.

The production of our microarrays requires careful calibration and precise,
high-quality manufacturing. Our failure to achieve and maintain these high
manufacturing standards, including the incidence of manufacturing errors, design
defects or component failures, could result in delays or failures in technology
testing or service delivery, cost overruns or other problems that could
seriously hurt our business. Despite our high manufacturing standards, we cannot
completely eliminate the risk of errors, defects or failures. If we are unable
to manufacture the components of our high throughput microarray technology on a
timely basis at acceptable quality and cost, or if we experience unanticipated
technological problems or delays in production, customers may reject our
products and our goodwill may be harmed.

The manufacture of our technology is and will continue to be complex and
costly, requiring a number of separate processes and components. Achieving
precision and quality control requires skill and diligence by our personnel.
Further, to be successful, we believe we will need to increase our manufacturing
capacity.

We may experience difficulties in scaling up manufacturing of new services
and products, including problems related to quality control and assurance,
component and service availability, adequacy of control policies and procedures
and lack of skilled personnel. If we cannot hire, train and retain enough
experienced and capable scientific and technical workers, we may not be able to
manufacture sufficient quantities of our current or future technology and
products at an acceptable cost and on time, which could limit market acceptance
of our technology.

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<PAGE> 15

SECURITY BREACHES INTO OUR VISTALOGIC INFORMATION SYSTEM COULD RESULT IN
LAWSUITS OR A LOSS OF CUSTOMERS.

If any customer data transmitted over the Internet through our VistaLogic
Information System is intercepted or destroyed by hackers, computer viruses,
programming errors or any similar malfunction, we could be subject to lawsuits
or loss of customers. We may be required to spend substantial amounts to protect
against security breaches or to ameliorate problems caused by such a security
breach. Breaches of our security could result in losing customer confidence and
the goodwill of the public, resulting in material harm to our business.

IF OUR FACILITY IS DAMAGED, WE COULD EXPERIENCE LOST REVENUE AND OUR BUSINESS
COULD BE SERIOUSLY HARMED.

Our only facility is located in The Woodlands, Texas, near Houston. Damage
to our facility due to fire, natural disaster, power loss, communications
failure, unauthorized entry or other events could cause us to cease development
and manufacturing of our products. We do not currently have a backup DNA
repository for housing our blood samples. We have limited insurance to protect
against business interruption; however, there can be no assurance that this
insurance will be adequate or that it will continue to be available to us on
commercially reasonable terms, or at all.

OUR COMPETITORS MAY DEVELOP SUPERIOR TECHNOLOGIES, SO THAT ONE OR MORE OF OUR
PRODUCTS AND SERVICES BECOMES OBSOLETE.

The biotechnology industry is characterized by rapid technological change.
Our future success will depend on our ability to maintain a competitive position
with respect to the new technologies germane to our business. Other companies
may develop competing technologies that are superior to our technologies. These
companies may also be more effective in implementing their technologies to
develop commercial products and services. Our failure to discover or to
commercialize new technologies or to respond to technological advances and
emerging industry standards could impair our ability to attract and retain
customers for our products and services.

IF PRODUCT LIABILITY CLAIMS ARE SUCCESSFULLY BROUGHT AGAINST US, WE COULD FACE
SUBSTANTIAL LIABILITIES THAT EXCEED OUR RESOURCES.

Our business exposes us to potential product liability claims that are
inherent in the life science field. Any product liability claim for which the
company would be responsible for payment would have to be paid out of our cash
reserves which would have a detrimental effect on our financial condition,
results of operations and cash flows. Also, we cannot assure you that we can or
will maintain insurance policies on commercially acceptable terms, or at all.

WE USE HAZARDOUS CHEMICALS AND RADIOACTIVE AND BIOLOGICAL MATERIALS IN OUR
BUSINESS. RESPONDING TO CLAIMS RELATING TO IMPROPER HANDLING, STORAGE OR
DISPOSAL OF THESE MATERIALS COULD BE TIME CONSUMING AND COSTLY.

We use controlled hazardous and radioactive materials in our business. The
risk of accidental contamination or injury from these materials cannot be
completely eliminated. If an accident with these substances occurs, we could be
liable for any damages that result, which could seriously harm our business.
Additionally, an accident could damage our research and operations, resulting in
delays and increased costs.

RISKS RELATED TO THIS OFFERING

CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK AMONG OUR EXISTING EXECUTIVE
OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM
INFLUENCING SIGNIFICANT CORPORATE DECISIONS.

Upon completion of this offering, our executive officers, directors and
beneficial owners of 5% or more of our common stock and their affiliates will,
in aggregate, beneficially own approximately 41.8% of our outstanding common
stock or 40.4% if the underwriters' over-allotment option is exercised in full.
As a

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<PAGE> 16

result, these persons, acting together, will have the ability to significantly
impact the outcome of all matters submitted to our stockholders for approval,
including the election and removal of directors and any merger, consolidation or
sale of all or substantially all of our assets. In addition, such persons,
acting together, will have significant ability to control the management and
affairs of our company. Accordingly, this concentration of ownership may harm
the market price of our common stock by:

- delaying, deferring or preventing a change in control of our company;

- impeding a merger, consolidation, takeover or other business
combination involving our company; or

- discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control of our company.

Please see "Principal Stockholders" for additional information on
concentration of ownership of our common stock.

OUR STOCK PRICE COULD BE VOLATILE AND YOUR INVESTMENT COULD SUFFER A DECLINE IN
VALUE, WHICH IN TURN COULD AFFECT OUR ABILITY TO RAISE ADDITIONAL CAPITAL TO
FUND THE COMMERCIALIZATION OF OUR SERVICES.

The trading price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in price in response to various factors,
many of which are beyond our control, including:

- actual or anticipated variations in quarterly operating results;

- announcements of technological innovations by us or our competitors;

- new products or services introduced or announced by us or our
competitors;

- changes in financial estimates by securities analysts;

- conditions or trends in the biotechnology, pharmaceutical and
genomics industries;

- changes in the market valuations of other similar companies;

- announcements by us of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;

- additions or departures of key personnel; and

- sales of our common stock.

In addition, the stock market in general, and the Nasdaq National Market
and the market for technology companies in particular, have experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of those companies. Further, there has been
particular volatility in the market prices of securities of biotechnology and
life science companies. These broad market and industry factors may seriously
harm the market price of our common stock, regardless of our operating
performance. In the past, following periods of volatility in the market price of
a company's securities, securities class-action litigation has often been
instituted against that company. Such litigation, if instituted against us,
could result in substantial costs and a diversion of management's attention and
resources, which could deplete our resources and ultimately cause our business
to fail.

THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE.

Sales of substantial amounts of our common stock in the public market after
this offering could seriously harm prevailing market prices for our common
stock. These sales might make it difficult or

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<PAGE> 17

impossible for us to sell additional securities when we need to raise capital.
The number of additional shares available for sale in the public market will be
affected by restrictions imposed by:

- the Securities Act and related rules, including the volume and other
restrictions of Rule 144; and

- lock-up agreements between us and our stockholders or between
stockholders and the underwriters.

Please see "Shares Eligible for Future Sale" for a description of the
number of shares that may be sold by existing stockholders in the future.

NEW INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE TANGIBLE NET
BOOK VALUE OF THEIR SHARES.

We expect the initial public offering price will be substantially higher
than the tangible net book value per share of the common stock. As a result,
investors purchasing common stock in this offering will incur immediate
substantial dilution. The net tangible book value of a share of common stock
purchased at the assumed initial public offering price of $11.00 per share will
be only $3.15. In addition, we have issued options and warrants to acquire
common stock at prices significantly below the initial public offering price,
which will result in additional dilution when and if they are exercised.

Please see "Dilution" for more information about the dilutive effect of
this offering.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA

Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements relate to future events or our
future financial performance and involve known and unknown risks, uncertainties
and other factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
these forward-looking statements. Such factors include those listed under "Risk
Factors" in this prospectus.

In some cases, you can identify forward-looking statements by terminology
like "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue" or the negative of these terms
or other comparable words. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements.

This prospectus also contains market data related to our business and the
specific segments of the genomics industry in which we compete. This market data
includes statistics that are based on a number of factors and were prepared by
third parties unrelated to us. Our markets may not grow at the rates
historically experienced or at growth rates implied by these statistics, or at
all. The failure of these markets to grow at implied rates may have a material
adverse impact on our business and the market price of our common stock.

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<PAGE> 18

USE OF PROCEEDS

The net proceeds that we will receive from the sale of our shares of common
stock in this offering and the purchase by Motorola of 909,090 shares of common
stock in a private placement concurrent with the closing of this offering are
estimated to be $80.4 million, after deducting the estimated underwriting
discounts and commissions and offering expenses payable by us and assuming an
initial public offering price of $11.00 per share. If the underwriters exercise
their over-allotment option in full, we estimate the net proceeds from this
offering will be $91.2 million.

Our management will have broad discretion as to the use of proceeds from
this offering. We intend to use the net proceeds of this offering to support and
expand our commercialization activities, expand our DNA repository and our
research and development efforts and for working capital and other general
corporate purposes.

At the present time, we have no understandings, commitments or agreements
with respect to any material business acquisition. Pending the use of the net
proceeds of this offering for the purposes described above, we intend to invest
these proceeds in short-term, interest-bearing, investment-grade securities.

At the present time, we do not have any specific plans as to the allocation
of the net proceeds of the offering. The foregoing discussion is based on our
current intentions and we may allocate the net proceeds among these purposes as
we determine is prudent. The amounts and timing of our actual expenditures
depend on several factors, including future sales growth, the progress of our
product development efforts and the amount of cash generated or used by our
operations. Other market factors may require us to allocate portions of the net
proceeds for purposes other than those described above.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock. We
intend to retain any earnings to fund our future growth and the operation of our
business. Therefore, we do not anticipate paying any cash dividends in the
foreseeable future.

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CAPITALIZATION

The following table presents the following information:

- Our actual capitalization as of March 31, 2000;

- Our pro forma capitalization reflecting (i) the conversion of all
8,973,254 outstanding shares of convertible preferred stock into
8,973,254 shares of common stock, (ii) the conversion of notes
payable with a principal face amount of $300,000 and related accrued
interest of $143,608 into 403,280 shares of common stock and (iii)
the assumed exercise of 870,274 outstanding common stock purchase
warrants under binding subscription agreements with the warrant
holders into an equivalent number of shares of common stock at a
weighted average exercise price of $2.63 per share upon completion of
this offering; and

- Our pro forma as adjusted capitalization reflecting the sale of
7,000,000 shares of common stock offered by us at an assumed initial
offering price of $11.00 per share, less the underwriting discounts
and commissions and the estimated offering expenses payable by us and
the purchase by Motorola of 909,090 shares of common stock at an
assumed price of $11.00 per share in a private placement concurrent
with the closing of this offering.

<TABLE>
<CAPTION>
MARCH 31, 2000
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
Convertible notes payable................................. $ 300 $ -- $ --
======== ======== =======
Stockholders' equity:
Convertible preferred stock, $.001 par value, 11,823,381
shares designated, 8,973,254 issued and outstanding,
actual; 6,000,000 shares authorized, no shares issued
and outstanding, pro forma and pro forma as adjusted.... 8 -- --
Common stock, $.0001, par value, 36,000,000 shares
authorized, 12,712,539 shares issued and 11,912,539
shares outstanding, actual; 22,959,347 issued and
22,159,347 outstanding, pro forma; $.01, par value,
75,000,000 shares authorized, 30,868,437 issued and
30,068,437 outstanding, pro forma as adjusted........... 1 2 309
Additional paid-in-capital................................ 35,892 38,635 118,738
Accumulated deficit....................................... (16,861) (16,861) (16,861)
Deferred stock-based compensation......................... (7,206) (7,206) (7,206)
Treasury stock, 800,000 shares at cost.................... -- -- --
-------- -------- -------
Total stockholders' equity................................ $ 11,834 $ 14,570 $94,980
======== ======== =======
</TABLE>

The table above excludes:

- 3,906,530 shares issuable upon exercise of options as of March 31,
2000 at a weighted average exercise price of $2.06 per share;

- 784,887 additional shares as of March 31, 2000 that we could issue
under our 1994 Stock Plan;

- 5,000,000 shares authorized as of March 2000 that we could issue
under our 2000 Employee, Director and Consultant Stock Option Plan;
and

- warrants to purchase 241,970 shares of Series B Convertible Preferred
Stock at an exercise price of $1.10 per share, which shall be
automatically converted into warrants to purchase an equivalent
number of common shares at the same exercise price upon completion of
this offering.

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<PAGE> 20

DILUTION

The pro forma net tangible book value of our common stock on March 31,
2000, after giving effect to (i) the conversion of all of our outstanding
preferred stock into a total of 8,973,254 shares of common stock, (ii) the
assumed exercise under binding subscription agreements with the warrant holders
of all 870,274 outstanding common stock purchase warrants into an equivalent
number of shares of common stock at a weighted average exercise price of $2.63
per share and (iii) the conversion of $300,000 in notes payable and related
accrued interest of $143,608 into 403,280 shares of common stock upon completion
of this offering was $14.3 million or $.64 per share of common stock. Pro forma
net tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the number of shares of common stock
outstanding. Assuming the sale by us of 7,000,000 shares of common stock in this
offering at an assumed initial public offering price of $11.00 per share and the
purchase by Motorola of 909,090 shares of common stock at an assumed offering
price of $11.00 per share in a private placement concurrent with the closing of
this offering, our pro forma net tangible book value as of March 31, 2000 would
have been $94.7 million, or $3.15 per share of common stock. This represents an
immediate increase in pro forma net tangible book value of $2.51 per share to
our existing stockholders and an immediate dilution in pro forma net tangible
book value of $7.85 per share to new investors purchasing shares in this
offering. The following table illustrates this dilution on a per share basis:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $11.00
Pro forma net tangible book value per share as of March 31,
2000...................................................... $ .64
Increase attributable to new investors...................... 2.51
Pro forma net tangible book value per share after this offering.... 3.15
------
Dilution in net tangible book value to new investors............... $ 7.85
======
</TABLE>

The following table summarizes, on a pro forma basis as of March 31, 2000,
the number of shares of stock purchased from us, the total consideration paid to
us and the average price per share paid by existing stockholders and by new
investors. We have used an assumed initial public offering price of $11.00 per
share for shares purchased in this offering, before deducting the estimated
underwriting discounts and commissions and estimated offering expenses:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
New investors....................... 7,909,090 26% $ 86,999,990 77% $11.00
Existing stockholders............... 22,159,347 74% $ 26,399,473 23% $ 1.19
---------- --- ------------ --- ------
Total............................. 30,068,437 100% $113,399,463 100% $ 3.77
========== === ============ === ======
</TABLE>

As of March 31, 2000, there were 3,906,530 shares of common stock issuable
upon the exercise of stock options outstanding at a weighted average exercise
price of $2.06 per share.

These tables assume no exercise of any outstanding stock options to
purchase common stock. To the extent these options are exercised, there will be
further dilution to the new investors.

18
<PAGE> 21

SELECTED FINANCIAL DATA

The statements of operations data for each of the three years ended
September 30, 1997, 1998 and 1999 and the balance sheet data as of September 30,
1998 and 1999 have been derived from our audited financial statements included
elsewhere in this prospectus. The statement of operations data for the six
months ended March 31, 1999 and 2000 and the balance sheet data as of March 31,
2000 have been derived from our unaudited financial statements included
elsewhere in this prospectus, and, in the opinion of management, have been
prepared on a basis consistent with the audited financial statements and include
all adjustments, which consist only of normal recurring adjustments, necessary
to present fairly in all material respects the information included in those
statements. The statement of operations data for the years ended September 30,
1995 and 1996 and the balance sheet data as of September 30, 1997 have been
derived from audited financial statements not included in this prospectus. Our
historical results are not necessarily indicative of results to be expected for
any future period. The data presented below have been derived from financial
statements that have been prepared in accordance with generally accepted
accounting principles and should be read in connection with our financial
statements, including the notes, and with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
----- ------ ------ ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue:
Grant and contract research revenue....................... $ 714 $ 796 $ 970 $ 1,467 $ 1,637 $ 757 $ 779
Service revenue........................................... -- -- 34 77 14 -- 380
License and royalty revenue............................... -- -- -- -- -- -- 125
----- ------ ------ ------- ------- ------- --------
Total revenue............................................... 714 796 1,004 1,544 1,651 757 1,284
Costs and expenses:
General and administrative(1)............................. 528 823 533 1,412 3,514 1,359 3,246
Research and development(2)............................... 535 596 635 1,435 2,603 1,090 2,676
Amortization of deferred stock compensation............... -- -- -- -- -- -- 998
Expense related to beneficial conversion feature of
preferred stock......................................... -- -- -- -- -- -- 3,709
----- ------ ------ ------- ------- ------- --------
Total costs and expenses.................................... 1,063 1,419 1,168 2,847 6,117 2,449 10,629
----- ------ ------ ------- ------- ------- --------
Operating loss.............................................. (349) (623) (164) (1,303) (4,466) (1,692) (9,345)
Net interest income (expense)............................... (45) (66) (140) (412) 96 (3) 119
----- ------ ------ ------- ------- ------- --------
Net loss.................................................... (394) (689) (304) (1,715) (4,370) (1,695) (9,226)
Dividend related to beneficial conversion feature of
preferred stock........................................... -- -- -- -- -- -- (3,180)
----- ------ ------ ------- ------- ------- --------
Net loss attributable to common stockholders................ $(394) $ (689) $ (304) $(1,715) $(4,370) $(1,695) $(12,406)
===== ====== ====== ======= ======= ======= ========
Net loss per common share, basic and diluted................ $(.04) $ (.07) $ (.03) $ (.16) $ (.39) $ (.15) $ (1.06)
===== ====== ====== ======= ======= ======= ========
Shares used in computing net loss per common share, basic
and diluted............................................... 9,046 10,300 10,416 10,629 11,109 11,027 11,697
Pro forma net loss per common share, basic and diluted...... $ (.21) $ (.57)
======= ========
Shares used in computing pro forma net loss per common
share, basic and diluted.................................. 21,148 21,736
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, PRO FORMA AS ADJUSTED
------------------------------ MARCH 31, MARCH 31, MARCH 31,
1997 1998 1999 2000 2000(3) 2000(4)
-------- -------- -------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 298 $ 1,684 $ 7,369 $ 8,165 $ 10,458 $ 90,868
Working capital..................................... 405 1,715 6,327 6,976 9,712 90,122
Total assets........................................ 630 3,279 10,721 14,193 16,485 96,895
Convertible notes................................... 300 300 -- -- -- --
Accumulated deficit................................. (1,550) (3,265) (7,635) (16,861) (16,861) (16,861)
Total stockholders' equity.......................... 7 2,243 9,169 11,834 14,570 94,980
</TABLE>

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

(1) Exclusive of $443,997 related to amortization of deferred stock-based
compensation for the six months ended March 31, 2000.

(2) Exclusive of $554,424 related to amortization of deferred stock-based
compensation and $3,709,205 of expense related to beneficial conversion
feature of preferred stock for the six months ended March 31, 2000.

(3) The pro forma balance sheet data gives effect to (i) the conversion of all
8,973,254 outstanding shares of convertible preferred stock into 8,973,254
shares of common stock, (ii) the conversion of notes payable with a
principal face amount of $300,000 and related accrued interest of $143,608
into 403,280 shares of common stock and (iii) the assumed exercise under
binding subscription agreements with the warrant holders of 870,274
outstanding common stock purchase warrants into an equivalent number of
shares of common stock at a weighted average exercise price of $2.63 per
share upon completion of this offering.

(4) The adjusted pro forma balance sheet data reflects the sale of 7,000,000
shares of our common stock offered by us at an assumed initial public
offering price of $11.00 per share, less underwriting discounts and
commissions and the estimated offering expenses payable by us and the
purchase by Motorola of 909,090 shares of common stock at an assumed price
of $11.00 per share in a private placement concurrent with the closing of
this offering.

19
<PAGE> 22

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

The following discussion and analysis of the financial condition and
results of operations of Genometrix should be read in conjunction with "Selected
Financial Data" and our financial statements and related notes appearing
elsewhere in this prospectus. This discussion and analysis contains forward-
looking statements that involve risks, uncertainties and assumptions. The actual
results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, those
set forth under "Risk Factors" and elsewhere in this prospectus.

OVERVIEW

Genometrix was founded in 1993 to capitalize on the convergence of
electronics with molecular biology. We have built a highly integrated technology
platform that combines high throughput microarray analyses, automated sample
handling, high capacity bioinformatics and statistical genetics. We offer on-
line, cost-effective, high throughput analysis services to assist pharmaceutical
and biotechnology companies in their efforts to develop safer, personalized
therapeutics.

We are a development stage company. Until November 1999, when we launched
our first commercial services, we had financed our operations primarily through
the sale of private equity securities and funding under governmental grant
programs and contract research. We have an accumulated deficit as of March 31,
2000 of $16.9 million and expect to incur additional losses through fiscal year
2001 as we continue to develop and commercialize our genomic services platform.

Our initial source of commercial revenue has come from fee-for-service
agreements with pharmaceutical customers. We recognize revenue for the design,
fabrication and analysis of custom or standard DNA microarrays as services are
performed in accordance with the terms of each agreement. Payments received in
advance of performance are deferred and recognized systematically as the related
services are delivered. Subsequent to the launch of our VistaClinic database in
Fall 2000, we expect another source of revenue from the sale of multi-year
subscriptions providing access to the samples and associated clinical
information in our DNA repository for large-scale genotyping analysis.
Subscription access fees will be determined and recognized as revenue over the
subscription period. Future potential sources of revenue may come from our own
DNA discovery program whereby we will seek to discover panels of gene variation.
We plan to patent and license any predictive correlations discovered through
data mining of our DNA repository. We have a future revenue opportunity to
supply microarray-based diagnostic instrumentation by developing genomic-based
diagnostics utilizing our DNA repository in conjunction with our high throughput
genomics platform. We expect to continue to receive government grant and
research funding under research and development collaborations. We recognize
grant and contract revenue as the related work is performed and we are assured
of collection of the receivable; however, we expect this source of revenue to
decline as a percentage of total revenues as we focus on commercial business
opportunities.

For the six month period ended March 31, 2000, our initial commercial
customer, Schering-Plough, accounted for all of our service revenue or
approximately 30% of our total revenue while Motorola accounted for
approximately 23% of our total revenue through a combination of contract
research, license and royalty revenues. For the fiscal years ended September 30,
1997, 1998 and 1999, domestic federal granting authorities accounted for 97%,
95% and 94%, respectively, of our total revenues.

Our expenses have consisted primarily of costs incurred in research and
development, production scale-up, business development and overall general and
administrative costs. Research and development expenses consist primarily of
salaries and related personnel costs, material costs for the design, fabrication
and validation of standard and custom microarrays, and other expenses for the
design, development, testing, and enhancement of our services in support of both
commercial and grant programs. We expect research and development expenses to
increase significantly as we expand our service offerings. Our marketing, sales
and business development expenses will increase as we broaden our commercial
product and service offerings and attempt to more broadly penetrate our target
customer base. General and

20
<PAGE> 23

administrative expenses consist primarily of salaries and related expenses for
executive, financial and other administrative personnel, professional fees and
other corporate expenses. Overall general and administrative expenses are
expected to increase to support our growing business activities and to reflect
the costs associated with operating as a public reporting entity.

We have a limited history of operations. We anticipate that our quarterly
results of operations will fluctuate for the foreseeable future due to various
factors, including market evaluation and acceptance of current or new products
and services, the introduction of new products by our competitors, the timing
and extent of our research and development efforts, potential patent conflicts
and the timing of significant service contracts. Our limited operating history
makes accurate predictions of future operations difficult if not impossible.

We account for stock-based employee compensation arrangements in accordance
with provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"). Under APB No. 25, compensation
expense is based on the difference, if any, on the date of grant between the
fair value of our stock and the exercise price.

In connection with the grant of stock options to employees in December 1999
and March 2000, we recorded deferred stock compensation of approximately $8.2
million in the six months ended March 31, 2000. This amount was recorded as a
component of stockholders' equity and is being amortized as a charge to
operations over the vesting period of the options using the straight line
method. We recorded amortization of deferred compensation of $998,000 for the
six months ended March 31, 2000 consisting of $444,000 and $554,000 applicable
to general and administrative and research and development expenses,
respectively. We anticipate recording amortization of deferred stock
compensation approximately as follows: $2.2 million, $2.3 million, $2.1 million,
$1.2 million and $400,000 in our fiscal years ending September 30, 2000, 2001,
2002, 2003 and 2004, respectively.

We account for equity instruments issued to non-employees in accordance
with the provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") and Emerging Issues
Task Force Issue No. 96-18, "Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."

The sale to Motorola of 1,000,000 shares of Series E Convertible Preferred
Stock in January 2000 resulted in a non cash operating expense of approximately
$3.7 million related to the beneficial conversion feature for the six month
period ended March 31, 2000. Due to our strategic licensing and research and
development agreement with Motorola, the beneficial conversion feature was
calculated at fair value and was not limited by the proceeds from the Series E
issuance.

The sale of 597,000 shares of Series F Convertible Preferred Stock on
December 29, 1999, representing a second round investment of an offering
commenced in August 1999 and the sale of 712,095 shares of Series F Convertible
Preferred Stock on January 31, 2000, representing a third round investment of an
offering commenced in August 1999, resulted in a $3.2 million dividend related
to the beneficial conversion feature included in net loss attributable to common
stockholders for the six months ended March 31, 2000. The dividend is calculated
in accordance with Emerging Issues Task Force No. 98-5, "Accounting for
Convertible Securities with Beneficial Conversion Features" and is therefore
limited by the gross proceeds attributable to the preferred stock and recorded
at amounts less than fair market value.

RESULTS OF OPERATIONS

Six months ended March 31, 1999 and 2000

Revenue. For the six months ended March 31, 2000, revenue increased to
$1,284,000 from $757,000 for the comparable period in 1999. The increase was
principally due to service revenue of $380,000 from a major pharmaceutical
customer and $292,000 in contract research, license and royalty revenue from
Motorola partially offset by a decrease of $145,000 in governmental grant
revenue.

21
<PAGE> 24

General and administrative expenses. For the six months ended March 31,
2000, general and administrative expenses increased to $3,246,000 from
$1,359,000 for the comparable period in 1999. The increase of $1,887,000 was due
principally to higher salary and related costs associated with higher staffing
levels contributing over $1,100,000 of the increase. More specifically,
headcount attributable to general administration business development and sales
and marketing increased on average by approximately 20 between the two periods.
The remainder of the increase was largely attributable to a variety of factors
including higher lease expenses on expanded square footage under lease, costs
and fees for relocation, recruiting, and other professional fees, and higher
travel and other support costs associated with an expanded business development
and sales effort.

Research and development expenses. For the six months ended March 31,
2000, research and development expenses increased to $2,676,000 from $1,090,000
for the comparable period in 1999. The increase of $1,586,000 was attributable
to the continued growth of research and development activities due to increased
salary and wage expense of approximately $800,000 due to higher staffing levels
and increased materials costs of approximately $575,000 for the design,
fabrication, and validation of standard and custom DNA microarrays in support of
our initial commercialization activities.

Net interest income (expense). For the six months ended March 31, 2000,
net interest income was $119,000 compared to net interest expense of $3,000 for
the comparable period in 1999. This change was principally due to an increase in
our interest bearing cash and cash equivalent balances.

Fiscal years ended September 30, 1999 and 1998

Revenue. For the fiscal year ended September 30, 1999, revenue increased
to $1,651,000 from $1,544,000 in fiscal year 1998. This increase was primarily
attributable to revenue recognized on a contract research collaboration and a
$100,000 increase in overall grant revenue. Included in 1999 revenue is the
first year of a three year $1,800,000 grant from the National Institute of
Environmental Health Sciences.

General and administrative expenses. For the fiscal year ended September
30, 1999, general and administrative expenses increased to $3,514,000 from
$1,412,000 in fiscal year 1998. The increase was primarily due to increased
staffing and personnel related costs incurred to manage and support our growth.

Research and development expenses. For the fiscal year ended September 30,
1999, research and development expenses increased to $2,603,000 from $1,435,000
in fiscal year 1998. The increase was primarily attributable to increased
payroll and associated costs from expanding research and development personnel
by 26 individuals as well as costs to further develop our processes and
technologies into commercial applications.

Net interest income (expense). For the fiscal year ended September 30,
1999, net interest income was $96,000 compared to net interest expense of
$412,000 in fiscal year 1998. The net change of approximately $500,000 was
primarily due to a one-time charge in fiscal year 1998 of $381,000 in original
issue discount costs on our convertible notes payable and our higher cash and
cash equivalent balances during fiscal year 1999.

Fiscal years ended September 30, 1998 and 1997

Revenue. For the fiscal year ended September 30, 1998, revenue increased
to $1,544,000 from $1,004,000 in fiscal year 1997. This increase was
attributable primarily to a subcontract awarded to us in a collaboration with
Baylor College of Medicine under a grant from the National Cancer Institute for
developing microarray technology for molecular oncology.

General and administrative expenses. For the fiscal year ended September
30, 1998, general and administrative expenses increased to $1,412,000 from
$533,000 in fiscal year 1997. The increase was due primarily to compensation
costs for additional general and administrative employees, recruiting,
relocation and legal fees.

22
<PAGE> 25

Research and development expenses. For the fiscal year ended September 30,
1998, research and development expenses increased to $1,435,000 from $635,000 in
fiscal year 1997. The increase was principally due to equipment purchases under
federal grants which are expensed as research and development, increased salary
and related costs associated with higher staffing levels and higher material
purchases.

Net interest income (expense). For the fiscal year ended September 30,
1998, net interest expense increased to $412,000 from $140,000 in fiscal year
1997. The increase was primarily attributable to the recognition of $381,000 in
original issue discount costs on our convertible notes payable associated with
the notes beneficial conversion feature.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception through March 31, 2000, we have financed our business
primarily with $22.8 million of preferred stock issuances, $1.1 million in
convertible debt issuances and $6.3 million in cumulative funding under
government grants. As of March 31, 2000, we had $300,000 in convertible notes
which were not in compliance with one of the administrative debt covenants. The
non-compliance pertains to the requirement to submit audited financial
statements to the note holders within 120 days of our fiscal year end. The
convertible notes are classified as current on our balance sheet and to date the
note holders have not demanded payment. If payment is demanded, the effect of
the repayment will have an immaterial effect on our financial condition.
Concurrent with the offering contemplated herein, the notes and related accrued
interest of $143,608 as of March 31, 2000 will automatically convert into
403,280 shares of common stock.

As of March 31, 2000, we had $8.2 million in cash and cash equivalents. Our
cash balances are currently invested in short-term money market instruments. We
used $4.7 million in cash from operations in the six months ended March 31, 2000
consisting of a $9.2 million net loss for the period plus working capital
changes of $146,000 partially offset by non cash expenses for depreciation,
amortization of deferred stock compensation and expense related to the
beneficial conversion feature of preferred stock of $217,000, $998,000 and $3.7
million, respectively. Investing activities used $1.7 million of cash in the six
month period while financing activities generated $7.2 million in cash from $6.9
million in net proceeds from preferred stock issuance and $236,000 from the
exercise of common stock options and warrants.

For the fiscal years ended September 30, 1999 and 1998, cash used in
operations totaled $3.6 million and $1.2 million, respectively. Our investing
activities used cash of $1.9 million in fiscal year 1999 and $1.0 million in
fiscal year 1998. Our investment activities consist primarily of purchases of
property and equipment and additions to patents and license agreements. Our
financing activities provided cash of $11.2 million in the fiscal year ended
September 30, 1999 and $3.6 million in fiscal year 1998 from the sale of
preferred stock.

We believe that our existing cash and cash equivalents together with the
net proceeds from this offering as well as commercial revenues from products and
services sold to customers will be sufficient to fund our operating expenses and
capital equipment requirements through at least December 31, 2001. We lease our
corporate facility under an operating lease which expires in 2008. We have no
credit facility or other committed sources of capital. To the extent our capital
resources are insufficient to meet future capital requirements, we may need to
raise additional capital through the sale of additional equity or the issuance
of debt securities. Such financing may not be available on terms acceptable to
us or at all. The sale of additional equity or convertible debt securities may
result in further dilution to our stockholders. Our failure to raise capital
when needed may harm our business and operating results. Our future capital uses
and requirements depend on a number of factors, including our success in
developing markets for our services, our continued progress with research and
development, our sales, marketing and business development expenses, the
availability of government research grants, costs and timing of obtaining new
patent rights or defending and enforcing existing patent claims and the status
of competitive products and technological developments in the market. We do not
have any material contractual or capital commitments.

23
<PAGE> 26

DISCLOSURE ABOUT MARKET RISK

Our interest income is sensitive to the changes in the general level of
U.S. interest rates particularly since the majority of our investments are in
short-term money market instruments. Due to the nature of our short-term
investments, we have concluded that there is no material market risk exposure.

INFLATION

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

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" ("SFAS No. 133"), which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS No. 133, as amended, is effective for
fiscal years beginning after June 15, 2000 and is not anticipated to have an
impact on our financial position or results of operations.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or
SAB No. 101, which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB No. 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosure related to revenue recognition policies. The Company's
revenue recognition policy is in compliance with the provisions of SAB No. 101.

24
<PAGE> 27

BUSINESS

OVERVIEW

We believe that our unified platform is the only technology that currently
enables automated high throughput genotyping (the process of identifying an
individual's genetic make-up at specific locations), gene expression (a
technique that shows whether or not a gene is activated) and protein analysis on
a single system. Our technology platform is also highly integrated, combining
high throughput microarray analyses, automated sample handling, high capacity
bioinformatics (the analysis of biological data) and statistical genetics (the
correlative analysis of many individuals and their genetic make-up). In November
1999, we launched our GenoVista Partnership Program, the commercialization of
our technologies. Our current customers are Schering-Plough and Procter & Gamble
Pharmaceuticals.

THE IMPORTANCE OF GENOMICS

Genetic information provides a basis for understanding biological and
physiological functions in organisms. This information is encoded in
deoxyribonucleic acid (DNA), which is the basis of the inherited characteristics
for these organisms. Each DNA molecule is comprised of a combination of four
chemicals, or nucleotide bases -- adenine, guanine, cytosine and
thymine -- which are most commonly referred to by their first letters. Each
nucleotide base is arranged along one of two strands in the DNA, each A pairing
with T and each G pairing with C. The order of the bases along a DNA strand is
called the DNA sequence and the entire DNA content of an organism is called its
genome. The study of the structure and function of a genome is called genomics.
Differences of one or more bases in the DNA sequence, referred to as genetic
variation, can modify how a gene functions by altering the proteins it produces
and thereby altering its effect on cell function. Genetic variations are a major
component of all major diseases, including cancer, diabetes and cardiovascular
disease.

In an effort to better understand genetic information, scientists have been
analyzing the human genome since the mid-1980s to determine the sequence of
nucleotide bases in DNA. The Human Genome Project and other major public and
private genetic research programs are identifying hundreds of millions of DNA
base sequences. The Human Genome Project is expected to produce a rough draft of
the human DNA sequence by mid-2000, with a completed draft expected within the
next few years. While the first phase of the genomics revolution has centered
around sequencing large regions of DNA within the human genome, we believe the
next phase will involve analyzing the genes themselves in order to understand
the extent of genetic variation from person to person.

The most common types of genetic variation are single nucleotide
polymorphisms, or SNPs. A polymorphism is a genetic variation within an
individual's genome resulting from differences in the DNA sequence. A SNP is a
specific change in a single base pair along the DNA sequence, such as replacing
a T with a G along one strand and its complementary A with a C along the other
strand. It is estimated that there are 3 to 10 million SNPs inherited from each
parent. Tens of thousands of SNPs will have to be measured in each individual to
determine which SNPs are medically relevant and which SNPs are of no medical
consequence. In order to better comprehend the genetic basis of disease and its
treatment, genetic variation among individuals and its relation to biological
function must be understood. A major worldwide effort is underway to discover
the genetic SNP variability which exists in the population and in turn to use
this basic SNP data as a starting point to understand inherited personalized
variation in disease risk and in therapeutic response.

25
<PAGE> 28

THE DRUG DISCOVERY AND DEVELOPMENT PROCESS

The traditional drug discovery process is expensive, time consuming, risky
and labor intensive. Despite expenditures of billions of dollars, only a small
fraction of the thousands of compounds screened by pharmaceutical companies are
developed into commercial drugs. To compete successfully, pharmaceutical and
biotechnology companies are seeking more productive drug discovery methods which
will allow them to develop significantly higher numbers of drug compounds per
year.

In order to develop new medical treatments and diagnostics based on genetic
information, pharmaceutical companies will need to have access to information
establishing the relevant functional connections between genes and
pharmaceutical treatments. For example, genetic tests are now employed to screen
patients for compatibility with thioguanine, an antimetabolite used in treating
certain types of leukemia, and a genetic test for inherited hypercholesteremia
is now used in the treatment of cardiovascular disease. The study of genetic
material, or genomics, can now be applied to each stage of the drug discovery
and development process. These stages are described below:

- Target identification determines whether a particular gene is a good
target for further investigation. This stage is most often initiated
with genomics studies, in particular by DNA sequencing, genetic
mapping and analysis of ribonucleic acid (RNA). RNA is the nucleic
acid that serves as an intermediary for translating DNA sequence
information into proteins.

- Target validation demonstrates whether an identified target has an
effect on the course of a disease. Target validation employs a
variety of methods including RNA analysis, protein analysis and cell
biology. This stage requires investigating candidate targets under
many different experimental conditions to better understand and
select optimal drug targets.

- Primary screening identifies drug leads through large-scale testing
of collections, or libraries, of compounds against validated targets.
The goal is to find "hits," which are individual members of the
compound library that bind to, inhibit or activate a particular
target. High throughput genotyping, the study of DNA variation, and
gene expression, the analysis of gene activity, enable researchers to
screen hundreds of genes.

- Lead optimization identifies the drug leads that are likely to have
appropriate therapeutic properties by conducting successive rounds of
chemical alterations and biological tests. Similar to target
validation, a variety of methods are used in lead optimization,
including protein analysis, cell biology, chemical synthesis and
other high throughput experiments. This stage can also involve the
genotyping and gene expression of compounds for therapeutic activity
in animal models of disease.

- Preclinical development tests compounds in cell cultures and animals
to evaluate their safety, effectiveness, distribution throughout the
body and metabolization. Formulation tests determine the best method
of delivery as well as consistent quality in manufacturing.
Expression analysis can provide toxicity assessments by indicating
the behavior of specific toxicity marker genes.

- Clinical development demonstrates the safety and efficacy of drug
leads, or pharmaceutical compounds, through testing in humans.
Because clinical trials are the most expensive part of drug
development, pharmaceutical companies will, in the future, analyze
the genetic make-up of each patient to determine or predict
responsiveness or adverse reactions to particular drugs. Genotyping
experiments help identify each individual's likely response to a
drug, thus maximizing the productivity of the trial and reducing the
overall costs.

We believe that genomics is the key to reducing the risk, cost and
lead-time of drug discovery and the development of personalized medicine.
Pharmaceutical and biotechnology companies are likely to continue incorporating
genomics into each stage of drug development. These companies will require
rapid, large-scale and systematic searches for panels of SNPs, coupled with the
lifestyle and clinical data of each person providing a sample. This will
facilitate discovery of the predictive rules which relate individual patient
data to disease risk and patient response to pharmaceutical therapy. The
complexity of the data

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required, the process of risk factor discovery and ultimately the ability to
deliver these discoveries into clinical trials will require access to diverse
technologies that have only recently become available. These technologies
include:

- high throughput genetic and molecular analysis;

- high capacity bioinformatics and advanced statistical methodologies;

- automated, high throughput sample handling; and

- large-scale sample libraries.

MARKET OPPORTUNITY

The opportunity for commercialization of our technologies is derived from
the identification of thousands of new genes through the sequencing of the human
genome. The market opportunity for genomic products and services is a function
of experimental complexity (the number of genes interrogated per experiment) and
the sample throughput rate (the number of patient samples genotyped or the
number of compounds profiled). In an effort to screen through the thousands of
genes identified by the human genome sequencing programs, the industry focus to
date has been on high density, low throughput technologies, allowing researchers
to sift out those genes that are potentially interesting. This filtering process
has been partially successful; pharmaceutical companies have been able to narrow
their lists of possible drug targets to hundreds of genes. Since it is
impractical to take hundreds of targets through the entire development pipeline,
the challenge of the next phase of functional genomics is to determine which
genes are the most viable candidates for commercialization. Genomic research
requires technologies that enable examination of candidate genes against an
extensive battery of experimental conditions to further optimize the selection
of the most promising gene.

Shown below in graphic form are the main areas of pharmaceutical drug
development and commercialization, represented as a function of experimental
complexity and sample throughput, that can take advantage of genomic
technologies. The graph plots each area's experimental processing requirements
as a function of the number of genes analyzed per assay, versus the number of
samples analyzed per instrument per 8-hour shift, or throughput. As indicated,
the academic and genomics research markets require relatively few samples to be
analyzed with respect to a very large number of genes. Ideally, for genomic drug
discovery efforts, samples would be analyzed with respect to the entire set of
human genes responsible for protein production (approximately 100,000 genes). In
contrast, once these initial target genes have been identified, a much smaller
set of genes are employed (typically 10 - 100 genes) for determining the
linkages between genes and drug response (pharmaceutical genotyping), as well as
determining the expression patterns of a relatively small set of genes when
affected by trial compounds (lead validation). Although a modest number of genes
are required for lead validation and pharmaceutical genotyping, a very large
number of compounds or patient samples (in excess of 1,000) are required to
obtain meaningful statistics to support the derived linkage information. In a
similar manner, DNA diagnostics and clinical genotyping require only a modest
number of genes, yet very large sample populations. Specifically for
diagnostics, mutation and infectious diseases can be diagnosed using a modest
amount of genes for each ailment (i.e., Cystic Fibrosis can be detected with
less than 30 genes with near 90% confidence), although many thousands of patient
samples will be tested per day upon widespread application. And finally,
clinical genotyping to support personalized medicine will also require modest
gene sets (indicative of toxicological response), yet require high throughput
due to the potential demand from large populations (approximately 3 billion
prescriptions are written in the US each year). The figures on the chart below
represent our understanding of the relationship between throughput and the
number of genes analyzed in various stages of the drug development process based
on our collective industry experience.

Genometrix can currently process 200,000 data points, representing either
SNPs or gene expression information, per instrument per 8-hour shift. The entire
shaded region illustrates the processing capabilities we believe we can achieve
next year utilizing our current technologies. Specifically, we believe our
throughput will increase to 1,000,000 genotypes per day per workstation while
analyzing up to hundreds of genes per sample. Our current commercial
applications apply to pharmaceutical genotyping and lead

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validation as indicated in the chart below. Consistent with the second phase of
our corporate strategy, we anticipate further increases in sample throughput
thereby allowing us to effectively compete in both the clinical genotyping and
DNA diagnostics markets. We believe that clinical genotyping will require
massive throughput (in excess of 10,000,000 genotypes per day) to facilitate
personalized medicine for large populations.

[GRAPH]

There are six market segments, representing various research areas addressed by
our technology and services, shown on the graph. These areas and their
respective locations on the graph are academic research (approximately 50-1,000
genes interrogated vs. 10-100 samples analyzed), genomics research
(approximately 1,000-50,000 genes interrogated vs. 10-500 samples analyzed),
pharmaceutical genotyping (approximately 30-1,000 genes interrogated vs.
1,000-5,000 samples analyzed), lead validation (approximately 1-400 genes
interrogated vs. 10,000-100,000 samples analyzed), DNA diagnostics
(approximately 50-1,000 genes interrogated vs. 100,000-1,000,000 samples
analyzed), and clinical genotyping (approximately 30-500 genes interrogated vs.
1,000,000 -- more than 10,000,000 samples analyzed). There is a clustering of
the last four segments in the upper left side of the chart.

A shaded region, indicating the area where our technology platform can be
applied, is drawn in the upper left side (approximately 50-900 genes
interrogated vs. 1,000-1,000,000 samples analyzed) and overlaps with the last
four market segments.

Drug discovery and development. Every new gene is a potential drug target.
We believe there is a need for services and databases that will help
pharmaceutical and biotechnology companies screen their candidate genes and
examine possible lead compounds in much greater detail for their validation and
discovery programs. Due to the amount of genomic information being created,
researchers must be able to rapidly execute experiments in the areas of target
discovery and validation, lead compound screening and validation, pre-clinical
testing and clinical genotyping.

Diagnostics. Our technology and data correlation tools will help increase
the industry's knowledge and understanding of the genome and its relation to
disease onset and drug response. We feel that this higher level of understanding
of the human genetic profile will enable us to participate in developing
diagnostic tests using genomic information. The predictive correlations that may
be identified by our services can be implemented as high throughput diagnostic
tests that are used by pharmaceutical companies, hospitals and clinicians.

Personalized medicine. We foresee that the predictive value of SNPs and
gene expression profiles will be used by physicians to request an analysis of
their patients' genomes to assess risks of disease, likely responses to
medication and the best courses of therapy. This market is in its infancy, but
if our technology is adopted by the pharmaceutical and biotechnology industries
in their drug discovery and

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development processes, we believe we will be well positioned to play a leading
role in this personalized medicine market.

Given the market opportunities created by the drug development process, we
believe our technology is especially suited to help reduce the time and cost of
bringing a new drug to market while increasing the success rate. The specific
areas of focus for commercialization of our capabilities include target
discovery and optimization, lead validation, toxicity assessments and research
and clinical diagnostics.

THE LIMITATIONS OF CURRENT TECHNOLOGIES

Current methods for analyzing gene expression and studying SNPs are
typically low throughput technologies that produce data of limited accuracy due
to human error and small sample sizes. These procedures typically generate
single data points per sample per experiment, such as the expression levels of a
single gene, or the identification of a single polymorphism. A significant
amount of work is involved in preparing a sample, processing it and generating
the data for eventual analysis. The resulting data is not easily reproduced due
to cost, time and sample availability. Since the biological samples are often of
limited quantity, researchers must be careful to use the samples sparingly if
they hope to generate more data in future experiments.

The existing commercial technologies are gel-based assays, enzymatic tests,
mass spectroscopy, bead-based methods and array-based systems. A number of other
technologies are currently in development.

Gel electrophoresis-based DNA sequencing is the conventional technology for
SNP analysis and, as one of the original methods, is widely adopted. A
fragmented DNA mixture is put into a gel matrix and an electric field is applied
to cause the DNA to migrate through the gel. The migration is dependent on
fragment length, so the various DNA molecules form a "ladder" in the gel. The
ladder pattern is detected either with a radioisotope or a fluorescent tag
attached to the DNA pieces. As the pattern is deciphered, a complete sequence of
the experimental DNA sample is generated. The resulting data is not always
entirely accurate as there are often variations in DNA migration through the
gel. The entire process is labor intensive and subject to high variability due
to sample processing, gel matrix variations and data acquisition and analysis.

A 5-prime nuclease assay, commonly referred to as TaqMan, is the
conventional method and accepted standard for low throughput measurement of gene
expression. TaqMan utilizes real time polymerase chain reaction (PCR) technology
and a dual labeled fluorescent probe. Cleavage of the probe during PCR results
in an increase in fluorescence intensity proportional to the amount of specific
DNA amplified. Real time detection assays are limited in the number of dyes used
in the assay, permitting the detection of only a single gene's expression level
in an individual experiment. Consequently, real time detection is considered to
be a relatively low throughput assay.

Cleavage based detection methods can be used for detecting specific DNA
sequences and have been developed for genotyping analysis. The method is
sensitive and does not require PCR amplification. The procedure requires
multiple custom reagents and multiple enzymatic events for final analysis. This
system is used for detection of a single SNP per reaction.

Mass spectroscopy technologies are now being applied to SNP analysis by
detecting quantities of a defined mass of a specific DNA with the pulse of a
laser beam. Although current mass-spectroscopy technology requires only small
amounts of a sample, the process is complex, requires time consuming sample
preparation and produces a low yield of data. Additionally, this technology is
not typically used to accurately quantify gene expression.

Bead-based technologies are relatively new in the area of SNP detection and
can be very high throughput. DNA is first bound to a sphere which is then
exposed to the labeled target DNA. The labeled target is detected by a method
known as fluorescence activated cell sorting, or FACs, or by attaching the bead
to a fiber-optic strand. With FACs, gene detection is limited by the number of
dyes that can be blended and identified, whereas the fiber-optic method requires
additional steps of sequential hybridization. Because the target is distributed
across a wider area on a FACs screen, this method is less sensitive than typical
microarrays.

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Primer extension technology, such as genetic bit analysis (GBA), is used in
SNP detection. Primer extension technology can be adapted for high throughput
genotyping. GBA detects a SNP using a variety of methods including fluorescence,
optical density, electrophoresis, or mass spectrometry. This technology
generates relatively low information content per sample. GBA is limited to
genotyping and is not applicable to gene expression profiling.

High-density microarrays permit the analysis of many genes for either gene
expression or genotyping information. They are typically used for exploratory
screening purposes in discovery areas of pharmaceutical drug development. When
researchers are unsure of which genes may be relevant to their research, the
high-density microarray offers a broad, global scan of thousands of genes. The
commercially available high-density microarrays are used on relatively small
numbers of samples and are not practical for analysis of thousands of biological
samples, a necessary component in compound screening, SNP correlations and
safety testing.

Current technologies are also limited by sample storage and tracking.
Traditional sample storage methods involve storage of liquid materials or frozen
tissue specimens and require costly, space-consuming low temperature cryogenic
facilities. Scaleability of these storage methods is difficult and would
necessitate larger facilities and more freezers. Additionally, sample tracking
and retrieval is problematic since employing a fully robotic system under
cryogenic conditions is costly and impractical.

The graph below represents our estimate of each noted technology's current
processing capabilities based on our collective understanding of the industry.
Each technology's capabilities is a function of the number of genes analyzed per
assay versus the number of samples typically analyzed per instrument per 8-hour
shift. Six distinct genotyping or gene expression analysis technologies are
plotted on the graph to identify their main application area. The graphic plots
cover a broad range to reflect what we believe to be the typical application
range for each technology based on cost, labor, practicality and desired
outcome.

[GRAPH]

Six distinct genotyping or gene expression analysis technologies are plotted on
the graph to identify their main application area: Gel sequencing (approximately
100-1,000 genes interrogated vs. 10-500 samples analyzed), enzymatic assays
(approximately 10-100 genes interrogated vs. 10-500 samples analyzed), mass
spectrometry (approximately 10-500 genes interrogated vs. 500-800 samples
analyzed), bead detection (approximately 500-10,000 genes interrogated vs.
100-800 samples analyzed), high density arrays (approximately 1,000-50,000 genes
interrogated vs. 10-400 samples analyzed), and high throughput arrays (50-800
genes interrogated vs. 1,000-50,000 samples analyzed).

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THE GENOMETRIX SOLUTION

At Genometrix, we believe our technology and services overcome the major
limitations of other technologies. We have developed a highly integrated
technology platform that combines high throughput microarray analyses, automated
sample handling, high capacity bioinformatics and statistical genetics. This
enables us to offer on-line, cost-effective, high throughput analysis services
that assist pharmaceutical and biotechnology companies in their efforts to
develop safer, more effective therapeutics.

We believe we are well positioned to become the leading provider of
cost-effective high throughput genomic services and information for the
following reasons:

Unified and Integrated Technology Platform

Our core technology is our microarray platform, the hardware on which
genomic services are performed, which provides a unique, single platform for
performing genotyping, gene expression and, in the future, protein experiments.
We have merged hardware, software and services into an integrated partnership
program for our customers. By providing common technology and bioinformatics
tools, we will enable our customers to utilize a single platform for diverse
tasks across multiple departments. We plan to compliment our genomic services by
offering our DNA repository, which will result in an integrated solution to
complex genomics inquiries. For example, a customer will be able to use our gene
expression services to discover which of their compounds have toxic profiles and
with this information, use our database service to discover which genotypes can
tolerate this compound.

Cost-Effective, High Throughput Services

Our proprietary DNA chip (microarray) processing techniques enable us to
provide cost-effective, high throughput genomic services to major pharmaceutical
and biotechnology companies. A microarray consists of an array of test sites
formed on a suitable structure. DNA or RNA probes of known binding
characteristics are attached to each of the test sites. The probes in each test
site differ from the probes in other test sites in a known manner. A sample
containing an unknown candidate molecule, such as a target molecular structure,
is added to the microarray. A signal is applied to the microarray so that
electrical, mechanical or optical projections of the test sites can be detected,
indicating that a molecular structure present in the sample substance has bound
to a certain probe in one or more of the test sites of the array. Our
proprietary capillary microarray manufacturing systems are capable of printing
microarrays within seconds. Furthermore, our microarray imagers based on our
patented DNA chip technology quantitatively image an entire plate of 96
microarrays within 60 seconds, compared to the hours required by traditional
systems. With our proprietary systems and procedures, tens of thousands of
genotypes can be performed per instrument per 8-hour shift. Additionally,
because our processes are automated with robotics, the entire operational system
is quickly scaleable and human error is minimized. Consequently, we have made
large-scale genotyping and gene expression analysis a practical reality.

Interactive Bioinformatics Solutions

We have developed a fully integrated bioinformatics platform that can be
used by our customers for high capacity data analysis. Our VistaLogic
Information System software will enable users to customize their queries in
order to ask biologically important questions of the data and subsequently view
genotype and gene expression data with our visualization tools that facilitate
data mining. Customers will also be able to use our bioinformatics tools to
browse through our VistaClinic DNA Repository so as to select patient samples
with clinical profiles relevant to their research interests. The VistaLogic
Information System can accommodate multiple research areas within a single
pharmaceutical or biotechnology company. Additionally, integration of our
software with our manufacturing and operations group will enable sample
tracking, real-time sample status updates and automated quality control which
will in turn greatly improve data quality.

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Expanding DNA Repository

Within our VistaClinic DNA Repository and database, we are amassing
biological samples with attendant clinical records for DNA analysis. We intend
to continue obtaining these samples from a variety of sources both inside and
outside of the United States, such as public and private research organizations,
profit and nonprofit hospital systems and universities. We have built a
1000-square-foot fireproof vault for the automated storage and retrieval of
these DNA samples. The DNA samples are collected on our proprietary solid state
format, a piece of chemically treated filter paper on which the blood or tissue
is deposited and absorbed. These samples are accompanied by detailed electronic
clinical records from which all information that could identify the patient has
been deleted. The samples and clinical information will be available in the
future to our customers for large-scale genotyping analysis. In addition to the
services we plan to offer, we plan to perform our own genomics analysis
utilizing the repository and make our data available to customers through
subscriptions to our VistaClinic database.

Strong Intellectual Property Position

Our founders are co-inventors on patents relating to electronic and optical
DNA chip technology, which are based upon work performed at the Massachusetts
Institute of Technology, Baylor College of Medicine and Houston Advanced
Research Center. We hold exclusive rights to all non-semiconductor aspects of
this patented DNA chip technology. The DNA chip patents relate to
microelectronic detection of DNA hybridization (the binding of specific,
complimentary DNA strands to one another), electrokinetic hybridization (DNA
hybridization enhanced by an electric charge), optical charge coupled device
(CCD) detection of DNA present on specific surfaces (a highly sensitive imaging
system) and DNA chip fabrication. As of May 19, 2000, five patents have been
issued in the United States and a European patent has been granted relating to
various aspects of our DNA chip technology. We believe that the inventions
disclosed in these patents also support patent rights relating to automated
workstations, rapid hybridization chemistries and efficient DNA chip fabrication
techniques.

THE GENOMETRIX STRATEGY

Our goal is to establish our technology platform as the industry standard
and to become the market leader in high throughput genomic services and
information for the pharmaceutical and biotechnology industries (business to
business), and subsequently for physicians in the clinical environment
(personalized medicine). Unlike most of our competitors who provide product
solutions to specific components of the drug discovery and development process,
we offer a unified genomic service solution that can be employed throughout the
pharmaceutical development process without customer investment in
instrumentation. The anticipated success of the Human Genome Project to produce
a draft of the human DNA sequence and the efforts of various genomic companies
to identify tens of thousands of SNPs will yield vital core data, which, if
properly analyzed, could significantly assist both drug discovery and patient
care. To exploit the sheer volume of identified SNPs and the breadth of
individual inherited variations, there is a need to develop and use tools and
processes that can correlate and analyze such data on a high volume, time
efficient basis. Our strategy has been to develop and deliver high throughput
services and information necessary for pharmaceutical and biotechnology
companies, and eventually, physicians, to better analyze and utilize such volume
of data. Key components of our strategy include the following:

Establish, build and maintain strong commercial relationships with our
pharmaceutical and biotechnology customers.

We plan to continue our efforts to develop commercial relationships with
leading pharmaceutical and biotechnology companies. For example, we have begun
offering commercial genotyping and gene expression services to Schering-Plough
Corporation and Procter & Gamble Pharmaceuticals under fee-for-service
arrangements. Additionally, we are in discussions with other large
pharmaceutical companies for evaluation of our technology and services. We
believe that it is critical to develop close relationships with our customers at
an early stage in order to educate them on how our technologies can accelerate
their product development cycles. A key factor in building and maintaining these
relationships is the assignment
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of a "Client Program Manager" to each account in order to maximize the
likelihood of project success. These M.S.- or Ph.D.-level scientists help design
and coordinate the projects for each account, serving as the primary Genometrix
contact person for technical inquiries and training on our technology and
software. Our Client Program Managers act internally to ensure timely processing
of samples and data and externally to ensure that our customers are sufficiently
trained on the intricacies of our technology.

Develop research and development collaborations with pharmaceutical and
biotechnology companies and academic institutions.

We intend to leverage our microarray technology, DNA repository and
automated high throughput processing capabilities to generate value added
genotyping and gene expression information for our customers in their search for
new drugs. Of primary focus is establishing and maintaining commercial
collaborations with pharmaceutical and biotechnology companies. These
collaborations can range from fee-for-service agreements to joint development
programs where we share in developing and commercializing intellectual property.
By adopting our genomic services platform with the data mined from our DNA
repository, a comprehensive solution is provided for utilization throughout the
drug development process, including validating lead drug candidates,
toxicological studies, clinical trials and research diagnostics. We expect the
expression profiling and genotyping correlations that stem from the use of our
databases will have milestone and royalty-based fee structures.

Expand our proprietary, solid-state DNA repository.

We plan to broadly expand the VistaClinic DNA Repository to include large,
diverse populations with multiple outcomes. This strategy will provide a
resource with sufficient detail and flexibility to accommodate customer needs
well into the future. We intend to obtain DNA samples beyond the 5,500 currently
available from 4,500 patients and related clinical data in two ways: we will
obtain previously-collected samples from public and private research and health
care organizations, and we will undertake our own primary collection efforts
on-site at these organizations. Each sample will be stored in our proprietary
solid-state format in our DNA repository and will be utilized for hundreds of
experiments. Eventually, in excess of hundreds of thousands of patients will be
represented in the repository. Thus, we believe the number of potential
genotyping experiments that can be conducted using our unique DNA repository
could exceed one hundred million within the next few years.

Generate and license intellectual property from mining our DNA repository.

In addition to our service business, we have initiated our own DNA
discovery program to discover panels of genetic variation that can predict
personalized disease risk and/or pharmaceutical responsiveness. Initially, this
effort will be focused on cancer and cardiovascular disease. We anticipate that
the data mined from our DNA repository may result in new disease correlations,
which will be important in developing new diagnostic tests and in improving drug
therapies. We intend to seek patent protection for our new discoveries and to
license such rights to third parties where appropriate.

Develop genomic-based diagnostics to expand the applications of our core
technology.

We are positioned to develop genomic-based diagnostics utilizing our DNA
repository in conjunction with our high throughput genomics platform. We believe
this will provide the opportunity to become a leading supplier of
microarray-based diagnostic instrumentation and pharmacogenomics services for
the rapid diagnosis and optimal selection of therapeutics for enhanced patient
management.

Establish genotyping and database services to facilitate personalized
medicine.

A unique component of our long-term corporate strategy is to offer
physicians cost-effective genotyping services in collaboration with health
maintenance organizations and/or pharmacy benefit managers to facilitate
personalized medicine. In 1998, physicians wrote approximately three billion
prescriptions. We believe this presents a significant opportunity which we
intend to capture by offering

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physicians a specialized Internet-based genomic service that will assist them in
selecting the optimal medication with low predicted toxicity and high efficacy
for their patients.

TECHNOLOGY PLATFORM

Our microarray technology enables us to provide cost-effective, high
throughput genomic services to major pharmaceutical and biotechnology companies.
This platform is integrated with our bioinformatics capabilities as well as our
high throughput automation systems. Our integrated technology platform includes:

DNA Microarrays

Our founders were early developers of microarray technology. We have
created a unique platform for microarray design, fabrication and processing. Our
platform is compatible with standard 96-well plate geometry. Within seconds, DNA
arrays are created inside each "well" of a 96-well plate using a proprietary
automated capillary based arraying system. Thus, 96 experimental samples can be
easily tested against our arrays, permitting high throughput genotyping and gene
expression analysis. We provide customers and strategic partners with two
categories of arrays: standard and customized. Our custom microarrays are
created based on customer specifications and can be easily modified for
subsequent projects without significant delay and cost. Our flexible technology
design allows the same instruments and robotic workstations to be used for both
genotyping and gene expression.

Microarray Imagers

We have developed a proprietary imaging technology that scans a microarray
in a fraction of the time needed by conventional technology. Off-the-shelf
scanning imagers require 1 to 5 minutes to scan one microarray. Therefore, these
scanners would require 1.5 to 8 hours to scan one plate of 96 microarrays. Using
a proprietary imaging method, our microarray imager can scan all 96 microarrays
in 60 seconds.

Automated Processing

Our production line is automated to achieve sample throughputs of thousands
per day. Proprietary hardware has been configured for robotic manipulations,
from the initial quality control of our manufactured arrays to the ultimate step
of imaging. We have also focused on formatting arrays into standard dimensions
utilized in 96-well or 384-well plates to facilitate upstream and downstream
sample processing with commercially available instrumentation.

Novel Hybridization Chemistries

We have developed novel chemistries that significantly reduce the
hybridization time required for genotyping and gene expression to approximately
one hour. Conventional hybridization requires 12 to 48 hours in a temperature
and humidity controlled environment that is acceptable for low throughput
settings, but inadequate for high throughput production. Our reduced time and
relaxed temperature specifications increase throughput and reduce costs
substantially as water baths or humidity chambers are not required. Our research
is now focused on developing newer surface chemistries to further decrease
hybridization time, while increasing hybridization specificity and sensitivity.

Bioinformatics

We have developed proprietary bioinformatics software that permits users to
analyze data for thousands of samples with the aid of logical query tools and
data visualization features. Bioinformatics tools are critical components of a
high throughput facility that processes many unique biological samples. We
continue to refine and develop our software based on the needs of our customers
and strategic partners. We believe that the data generated by our core
technology platform provides users with unique and valuable information that can
be better understood with robust analytical tools developed by our team of
pharmacogenomics, epidemiology and software experts.
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Automated DNA Sample Storage

We have developed a novel platform for storing blood samples at room
temperature in a format that stabilizes DNA for up to 50 years after collection.
DNA samples are typically derived from blood or cheek swabs. Traditional
techniques for archiving tissue samples are inferior due to the difficulty of
automation and the instability of a liquid biological sample following repeated
thawing and sampling. To circumvent these problems, we have devised a
proprietary, large-scale, automated method for archiving and retrieving
biological samples. To access the genomic DNA contained in the sample, a small
"punch" of the solid phase substrate is collected using an automated device and
the sample is processed to determine the patient's genotype. For long-term
storage and security, we house our sample archive in a fireproof vault.

Protein Microarrays

Proteomics, or the detection of protein levels, is a major focus of our
research and development efforts. We believe we have an opportunity to
significantly impact the proteomics field as we have shown the success of a new
and improved assay which enhances the number of data points twelve-fold (with a
theoretical upper limit to 250 times more data) over conventional proteomics
enzyme linked immunoabsorbent assay (ELISA) technology. As currently done with
nucleic acids, our microarray platform can be configured for fabrication of
protein microarrays. Specifically, we can array multiple antibodies to create a
multiplex micro-ELISA assay for simultaneous detection of multiple proteins. As
a logical extension of gene expression studies, protein profiling should prove
valuable for comparing gene expression levels to protein levels.

SERVICES

The services and products we have developed provide, we believe, the only
microarray technology that offers a single, unified platform for genotyping,
gene expression and, in the future, proteomics applications. The products and
services that we have developed and plan to commercialize are designed to
promote access to genomic technologies and facilitate use by pharmaceutical and
biotechnology companies. Through fee-for-service agreements our clients can
easily access our high throughput microarray technology which is flexible,
customized and fully expandable. These programs have already been launched and
are described below. We plan to introduce new products and services that provide
subscription-based access to software and databases.

In November 1999, we launched the GenoVista Partnership Program, which
provides our customers with access to our core technology platform and offers
high throughput custom microarray fabrication and analysis services for
genotyping and gene expression profiling. Our first customer to access this
program was Schering-Plough Corporation, and in March 2000, Procter & Gamble
Pharmaceuticals became our second customer. We also provide access to our
technology to the University of Arizona Cancer Center, the University of Texas
M.D. Anderson Cancer Center and the U.S. National Center for Toxicological
Research.

Additional products are under development as extensions to our GenoVista
Partnership Program. Currently, we plan to develop and market a series of
standardized microarray products for genotyping and gene expression analysis.
The products will be focused on a specific disease or biological area and will
let researchers investigate critical genes in detail. In Spring 2000, we
launched a microarray for examining polymorphisms in genes involved in drug
metabolism. A second set will focus on cancer related gene polymorphisms and
will be available in Summer 2000. Also in Summer 2000, we expect to release an
array for analyzing the expression of growth factor and cytokine genes as a
means of examining tumor growth and progression. These will be followed by a
cell cycle and apoptosis (cell death) array that will let researchers examine
genes related to cell growth, differentiation and death. We believe there are no
significant technological obstacles that would prevent the commercial launch of
these microarrays.

We expect to launch a version of the VistaClinic DNA Repository and
associated database in Fall 2000. Prior to that, we will provide beta versions
to selected existing customers for evaluation and external

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feedback. The beta version of VistaClinic will provide users with access to our
DNA repository samples and their associated medical and clinical records for
designing experiments. We will provide access to the DNA repository and database
on a subscription basis.

The following table summarizes our existing and soon to be offered
services:

[CHART]

VistaMorph Genotyping Service

Our VistaMorph Genotyping Service features our high throughput VistaMorph
microarray containing up to 250 genes per microarray. Customers may provide
their own tissue, DNA or blood samples, or in the future, may select samples
from our VistaClinic DNA Repository for genotyping. Customers would then choose
whether to use standard or custom microarrays for investigating their samples.
Standard arrays are pre-fabricated and contain SNPs of general interest, such as
those related to drug metabolism. For customers that have already identified
their own SNPs, we will design custom microarrays containing these
polymorphisms. For each array, the customers identify the SNPs of interest and
submit them to us through our VistaLogic Information System or on an electronic
spreadsheet. We design, fabricate and validate a set of custom microarrays and
PCR primers specific to the requested SNP. After the customers identify the
microarray, they submit the project request into the VistaLogic bioinformatics
system where it is logged in and the work order scheduled. We barcode all DNA
and blood samples, amplify the DNA, interrogate the sample with the VistaMorph
microarray and deliver the final data to our customers through the VistaLogic
service for final data analysis.

VistaExpress Gene Expression Service

Our VistaExpress Gene Expression Service enables researchers to efficiently
profile gene expression patterns across thousands of biological samples. Similar
in format to our VistaMorph services, customers provide their own RNA or tissue
culture samples, then choose the standard or custom arrays to interrogate their
samples. We are developing two series of standard VistaExpress microarrays.
Customers may also opt to fabricate custom arrays. Through our VistaLogic system
or an electronic spreadsheet, customers identify genes of interest. We then
design, fabricate and validate a set of custom microarrays. Upon receipt of the
customer RNA or cell sample, we process the biological material, interrogate the
sample with the VistaExpress microarray and deliver the final data back to the
customer through the VistaLogic service for final data analysis.

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VistaLogic Information System

Our VistaLogic Information System is an Internet-based application software
providing customers a user friendly interface with us. By simply pointing and
clicking, customers can select from a menu of genomic services we provide,
including high throughput genotyping and gene expression analyses. Customers
will be able to browse through the DNA repository to select patient samples with
clinical profiles relevant to their research interests. The VistaLogic software
runs directly on our customers' computers for high-speed data analysis and
accesses the Internet only when information is transferred. We also intend to
provide regular updates to the VistaLogic system and collect customer usage
information that will enable us to adapt the system and our services to meet
each customer's unique needs. The suite of software tools resides in a single
customer-server application that will be deployed at customer sites and permits
Internet-based connection to our databases via a secure encrypted network.
VistaLogic encompasses proprietary analytic and visualization tools, as well as
unique algorithms for large data set analysis. Using the proprietary algorithms
developed at Genometrix, customers will be able to determine associations using
the statistical power of thousands of samples. Our VistaLogic Laboratory
Information Management System (LIMS) ensures that all samples, processing
reagents, microarray controls, key robotic outputs and data are tracked. This
prevents the loss of samples and decreases the response time on the operations
floor if quality specifications are not met.

VistaClinic DNA Repository and Database

The VistaClinic DNA Repository and associated database is our collection of
DNA samples and their attendant clinical records. We plan to include diverse DNA
samples from across the country and the world. These samples will be accompanied
by detailed electronic clinical records that have been stripped of all
information that could lead to patient identification. The samples and
associated information will be available to our customers for large-scale
genotyping analysis. Customers will be able to search through the sample set
using our software query tools, select the most optimal subset of patients for
their investigations, design a genotyping study on-line and submit the analysis
request directly to Genometrix. In addition, we will perform our own genotyping
analysis of the samples and make our data available to customers who subscribe
to our VistaClinic database. We anticipate the launch of this subscription-based
program in Fall 2000.

Depending on the use to which our clients put our services and products,
they may be subject to the same types of laws and regulation that are described
in the "Government Regulation" section as well as other laws and regulations
that do not apply to us. In addition, they may be subject to extensive
regulation by FDA. It is each client's responsibility, however, to ensure that
it is in compliance with applicable regulation.

SALES AND MARKETING

We employ a multi-phase sales strategy. Through the GenoVista Partnership
Program, we provide gene expression and genotyping services and develop custom
arrays on a fee-for-service basis. Thereafter, customers may access our
VistaClinic DNA Repository and genotyping database on a multi-year subscription
basis.

We have created flexible pilot and volume programs that provide customers
with access to our genotyping and/or gene expression services, as determined by
their specific needs. Customers are encouraged to work closely with our highly
skilled customer support staff to develop custom programs in which we fabricate
and validate custom microarrays that are used to analyze customer samples.

We are focused on selling access to our platform technology to our targeted
customer base of pharmaceutical and biotechnology companies, with the plan to
develop relationships which will lead to expanded use of our services. Our sales
and marketing team has extensive experience in the pharmaceutical and
biotechnology industries and advanced knowledge of molecular biology, gene
expression, genotyping and polymorphism analysis. The team consists of ten
persons, based in Houston,

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Boston, San Francisco and San Diego. We plan to grow the sales and marketing
group to continue to focus on commercialization of our GenoVista program and
related products and services.

CUSTOMERS AND COLLABORATIONS

Central to our business development is the establishment of several types
of collaborations with commercial customers, research and development partners
and external licensees. Our primary focus is establishing and maintaining
commercial collaborations with pharmaceutical and biotechnology companies. Such
collaborations can range from fee-for-service agreements to joint development
programs where we share in developing and commercializing intellectual property.
The joint development programs are initialized with research and development
agreements that specify the sharing of the intellectual property created in the
course of the program. External licensing collaborations include the licensing
of our intellectual property in fields of use outside our planned business areas
to third parties in exchange for licensing fees and royalties. Overall, these
collaborations are important to the continued development and commercialization
of our multidisciplinary genomic services.

Customers

With the launch of our first genomic services in November 1999, the
GenoVista Partnership Program, we plan to continue to initiate partnership
agreements with pharmaceutical and biotechnology companies similar to those
described below.

Schering-Plough Corporation. In November 1999, we began offering
commercial genotyping and gene expression services to Schering-Plough, a leading
pharmaceutical company, through our GenoVista Partnership Program. This service
provides Schering-Plough with access to custom VistaArray services for analysis
of biological samples for gene expression and genotyping. Additionally, when
available, Schering-Plough will be a beta test-site for our VistaLogic
Information System, as well as the VistaClinic DNA Repository upon its release
to facilitate genotyping of patient samples. Schering-Plough accounted for all
of our service revenue or 30% of our total revenue for the six month period
ending March 31, 2000.

Procter & Gamble Pharmaceuticals. In March 2000, we began working with
Procter & Gamble Pharmaceuticals through our GenoVista Partnership Program.
Procter & Gamble Pharmaceuticals will utilize our custom VistaArray services to
enhance their drug development programs with customized, high throughput gene
expression analysis. For the six month period ending March 31, 2000, we
recognized no revenues from Procter & Gamble Pharmaceuticals but expect to
recognize revenues in our fiscal third quarter ending June 30, 2000.

Technology Licensing

We license our intellectual property that lies outside our core
commercialization interests to third parties who have demonstrated success in
commercializing new technologies.

Motorola. In December 1998 we entered into a License and Option Agreement
with Motorola to sublicense some of our intellectual property relating to
electrokinetic hybridization enhancement and surface chemistries technologies.
Pursuant to this agreement we granted Motorola both a worldwide license for
research and development and an option for a non-exclusive, royalty-bearing
worldwide license for commercialization of portable point of care, DNA-based
diagnostic systems. Under the agreement, Motorola did not have the right to
grant sublicenses. We will receive royalty payments based on net sales of the
licensed products. Unless terminated earlier, the agreement remains in effect
until the expiration of the last patent subject to the agreement. Either party
may terminate the agreement in the event of a material breach by the other party
and we, at our option, may terminate the agreement upon non-payment of royalties
by Motorola.

In July 1999 Motorola exercised its option under the 1998 agreement. Under
the 1999 License and Research Agreement, Motorola obtained a co-exclusive,
royalty-bearing, worldwide license relating to our electrokinetic hybridization
enhancement technologies, a co-exclusive, royalty-bearing, perpetual, worldwide
license relating to our surface chemistries technologies and a non-exclusive,
royalty-bearing, worldwide license relating to non-CCD based optical detection
of DNA technology. In addition, Motorola was

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granted the right to sublicense our electrokinetic hybridization and surface
chemistries technologies. In addition to licensing fees, we are entitled to
receive annual royalties, subject to minimums, for the duration of the license
agreement. If Motorola fails to pay the minimum royalty payments, we may
terminate their right to grant sublicenses of the electrokinetic hybridization
and surface chemistries technologies.

Under the agreement, we agreed to conduct research, funded by Motorola, for
the purpose of adapting our surface chemistries technology to Motorola's
microarray format. This research commenced on July 31, 1999 and was extended by
the First Amendment to the License and Research Agreement (described below)
until December 31, 2000.

Unless earlier terminated, the agreement remains in effect until the
expiration of the last patent or disallowance of the last patent subject to the
agreement. Both parties may terminate the agreement in the event of a material
breach by either party and we, at our option, may terminate the agreement upon
non-payment of royalties by Motorola.

In March 2000, we strengthened our strategic partnership with Motorola
through the execution of an Amendment to our existing License and Research
Agreement. The Amendment served to clarify previous definitions, extend and
expand the previous research and development program, reduce the running
royalties paid to Genometrix from sublicensing income received by Motorola from
two third parties and initiate a preferred partnership. Through the partnership,
Motorola established Genometrix as a preferred provider of genomic services and
Motorola has agreed to offer high-density DNA chips to Genometrix at preferred
prices.

To date, Motorola has made a cumulative equity investment of $10 million in
our Company. In the six month period ended March 31, 2000, Motorola accounted
for approximately 23% of our total revenue through a combination of contract
research, license and royalty revenues. In addition, Motorola entered into an
agreement with us whereby Motorola agreed to purchase 909,090 shares of common
stock, based on an assumed offering size of seven million shares at an assumed
offering price of $11 per share, in a private placement concurrent with the
closing of this offering.

We have been advised that in late April 2000, Nanogen, Inc. commenced a
lawsuit in a California Federal Court against Motorola, Beckman Coulter, Inc.
and MIT seeking a declaratory judgment. We are not a party to the lawsuit. In
its complaint, Nanogen alleges, among other things, that it has been unable to
successfully negotiate a sublicense of certain intellectual property previously
licensed by us to Motorola. Nanogen is asking the court if the use by it of such
intellectual property, absent such a sublicense, would be an infringement of the
patent underlying such intellectual property. Nanogen is also asking the court
to declare that some of the claims made in the patent underlying such
intellectual property are invalid. Based on the information known to us at this
time, we believe that, in the event Nanogen were to prevail in such lawsuit, it
would not have a materially adverse affect on our current and prospective
business operations.

Research and Development Collaborations

Other collaborations with third parties for the purpose of developing new
intellectual property are detailed below. With the exception of the non-funded
collaborative work with MIT, Genometrix has the right to obtain an exclusive
license, upon commercially reasonable terms, to any intellectual property
arising from the joint development efforts. Specific royalty rates and licensing
fees are negotiated at the time licenses to desired intellectual property are
negotiated. Since our inception through March 31, 2000 we have received
cumulative funding under governmental grants of $6.3 million. None of the
payments received by us under these grants are subject to repayment.

National Cancer Institute (NCI). In 1998, we entered a three-year program
funded by the NCI to develop new automation and microarray technology to enable
use of microarrays as diagnostic and discovery tools in a clinical setting. This
program also involves collaborations with the Baylor College of Medicine
(Molecular Physiology), M.D. Anderson Cancer Center (Thoracic Surgery) and the
University of Houston (Molecular Modeling). About half of this approximately
$3.5 million dollar grant has been awarded directly to Genometrix.

In 1998, we entered a program funded by the NCI and sponsored by the
University of Arizona to design and fabricate standardized DNA probe microarrays
and provide automated hybridization and

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detection tools. The initial one-year term was extended to two years and
provides Genometrix with $492,000 in funding.

National Institute of Environmental Health Sciences (NIEHS). In 1998, we
were awarded a $1.8 million three-year grant from the NIEHS for the development
and validation of microarrays for population scale analysis of chemical
carcinogenesis and pharmaceutical toxicology. Under this program, we have
established a close collaboration with the National Center for Toxicological
Research (NCTR), which is the FDA laboratory focused on the study of adverse
drug reaction and the toxicity of environmental chemicals. NCTR provides
externally analyzed samples for technology validation, as well as expert advice
in the area of pharmacogenomics and chemical toxicology.

Massachusetts Institute of Technology. We have been a collaborator with
the Lincoln Laboratory of MIT in the area of DNA microarray technology since our
inception. Current collaborative efforts involve no grant funding, but are
directed towards microarray applications including enhanced surface chemistries
and novel DNA sequencing technologies, in addition to advanced genotyping
methods.

University of Texas M.D. Anderson Cancer Center. We have several
collaborative projects with the University of Texas M.D. Anderson Cancer Center
in conjunction with our funded programs under NIEHS and NCI grants. These
projects focus on the validation of our technologies in the area of cancer
diagnostics and genetic epidemiology. Projects include large scale sample
archiving technology, microarray technology for SNP analysis of inherited
disease risk factors, protein microarrays for diagnostics and risk analysis and
the development of DNA microarrays as a new class of mRNA-based blood test for
toxicology, radio responsiveness and inherited disease risk analysis.

INTELLECTUAL PROPERTY

Our core technology is protected by patents relating to electronic and
optical DNA chip technology and for methods of using DNA chip technology to
image microarrays. As of May 19, 2000, five U.S. patents have issued on various
aspects of this technology: U.S. Patent No. 5,532,128, U.S. Patent No.
5,653,939, U.S. Patent No. 5,670,322, U.S. Patent No. 5,846,708 and U.S. Patent
No. 5,891,630. These patents are co-owned by MIT, Houston Advanced Research
Center and Baylor College of Medicine, and are licensed to the Company as
described below. These patents will expire between 2011 and 2014.

In 1994, Genometrix received a license of technology related to such
patents, and such license was renewed and amended in 1996. Such exclusive rights
expire in 2006, at which time the exclusive rights will become non-exclusive
unless the licensor agrees to extend exclusivity. In order to maintain the
exclusive rights under the license through 2006, we are required to make minimum
sales of products and services using such technology. We are also required to
pay royalties on sales of products and services using such technology and on
such licenses of such technology.

In addition, we have filed patent applications in the areas of automated
solid-state biological storage devices and methods, methods of retrieving
solid-state biological samples and methods for manufacturing microarrays and for
performing room temperature hybridization chemistries. We have also filed patent
applications relating to scanning microarray fabrication technology, and have
received a notice from the United States Patent and Trademark Office that the
first of these applications has been allowed.

In addition to pursuing intellectual property rights in the United States,
we and our licensors routinely pursue patent protection in other countries,
including Japan and countries in Europe. One patent related to our licensed DNA
chip technology, EP 0543550 B1, was granted by the European Patent Office on
January 27, 1999. An opposition to this European patent grant was filed by
Clinical Micro Sensors, Inc. on October 27, 1999. A reply defending the European
grant must be filed by June 17, 2000.

We intend to continue to file patent applications as we develop new
products and technologies. We believe our patent and licensing rights give us a
competitive position in the area of high throughput applied genomic services.

Our commercial success may also depend on obtaining patent protection for
discoveries mined from our DNA repository and on products, methods and services
based on such discoveries. We intend to apply for patent protection for such
discoveries, methods and services; however, complex legal and factual
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determinations and evolving laws make patent protection uncertain. As a result,
we cannot be sure that patents will issue from these or from any other of our
patent applications, or from patent applications licensed to us. Nor can we
guarantee that any patents that may issue from these patent applications will
have the breadth necessary to create an effective competitive barrier. In
addition, our patent rights may be challenged by third parties and, if so, may
be found to be invalid or unenforceable. Moreover, the laws of some foreign
countries may not protect our proprietary rights to the same degree as does U.S.
law.

By entering into confidentiality agreements with third parties, employees
and consultants, we attempt to protect our trade secrets, including
bioinformatic algorithms, as well as software and know-how for integrating
multiple robotic platforms with microarray technology to form our automated
genotyping workstations. Our employees and consultants are contractually
obligated to maintain the confidentiality of all company know-how and
intellectual property, and to refrain from unfairly competing with us both
during their term of employment and for a period of time thereafter, including
non-solicitation of our employees and customers. Our employees and consultants
are also obliged to assign to us all of their right, title and interest in any
discoveries, inventions, patents and copyrights arising from their work for us.
We cannot assure you that these agreements will be kept, or that, if challenged,
they would be upheld. In addition, we can not guarantee that a third party would
be prevented from independently discovering or inventing competing technologies,
or that a third party could not reverse engineer our trade secrets. If our
intellectual property is not protected from disclosure to or use by third
parties, our competitive market position may be adversely affected.

Although we are not a party to any material legal proceedings, in the
future, third parties may file suits asserting that our technologies or products
infringe on their intellectual property rights. We cannot predict whether third
parties will file suit to assert their intellectual property rights against us
or against our licensors, or whether such suits would harm our business. If we
are forced to defend against such a suit, whether the claims in suit are with or
without merit, or whether the claims in suit 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 genomics service market is competitive and we expect the intensity of
the competition to increase. We currently compete with other companies providing
microarray services and access to SNP and expression databases. With the current
product mix, our products and services compete with alternative technologies
such as gel-based assays, enzymatic tests, mass spectroscopy, bead-based
methods, as well as array-based systems.

In the areas of genotyping and SNP analysis, we compete with a number of
companies offering services and/or products with alternative technologies. These
companies include Affymetrix Inc., Amersham Pharmacia Biotech Ltd., Hyseq, Inc.,
Illumina, Inc., Luminex Corporation, Nanogen, Inc., Orchid Biosciences, Inc., PE
Biosystems group, Rapigene, Inc., Sequenom, Inc., Qiagen Ltd., Third Wave
Technologies, Inc. and Visible Genetics, Inc.

In the areas of gene expression analysis, our principle competitors include
Affymetrix, Inc., Amersham Pharmacia Biotech Ltd., Incyte Pharmaceuticals, Inc.,
Invitrogen Inc. and PE Biosystems group.

Our principal competitors in the field of pharmacogenomics include Celera
Genomics group, CLONTECH Laboratories, Inc., CuraGen Corporation, Genaissance
Pharmaceuticals, Inc., GENSET Corporation, Incyte Pharmaceuticals, Inc.,
Millennium Pharmaceuticals, Inc., Myriad Genetics, Inc. and Variagenics, Inc.

In many instances, our competitors have, or may have, greater financial,
technical, research and other resources, or may have larger or more established
marketing, sales, distribution and service organizations than we do. Moreover,
competitors may have greater name recognition and may offer discounts as a

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competitive tactic. We cannot assure you that our competitors will not succeed
in developing or marketing technologies or products that are more effective,
commercially attractive or technologically advanced than ours. Also, we may not
have the financial resources, technical expertise or marketing, distribution or
support capabilities to compete successfully in the future. Our success will
depend in large part on our ability to maintain a competitive position with our
technologies.

GOVERNMENT REGULATION

As with any research involving humans, we are subject to laws and
regulations pertaining to the protection of human subjects and to genetic
privacy. For example, we are subject to the Policy for the Protection of Human
Subjects (45 CFR, Part 46), a body of regulations enforced by The Office for
Protection from Research Risks (OPRR) of the U.S. Department of Health and Human
Services (HHS), which applies to all federally funded research on humans.

There are several currently enacted federal statutes that seek to prevent
unauthorized or discriminatory use of individually identifiable DNA. The Genetic
Discrimination Act of 1995 prevents insurers from requiring applicants to submit
to genetic testing and provides that failure to submit to such tests cannot be
the basis for a denial of coverage.

Similarly, the Health Insurance Portability and Accountability Act of 1996
(HIPAA) (P.L. 104-191) prohibits discrimination in health insurance on the basis
of existing conditions, including genetic disorders. HIPAA protects individually
identifiable health information that is electronically maintained or transmitted
by a covered entity. Thus, a health plan cannot transmit to Genometrix any
patient information that, among other restrictions, is created or received by a
provider or health plan, that relates to the patient's past, present or future
health and that identifies the individual or could identify the individual.
Pursuant to HIPAA, the Secretary of HHS has promulgated proposed standards for
the confidentiality of individually identifiable health information. The
proposed rules create limitations to the disclosure and use of protected health
information and create rights for the subjects of that information. A key
component of our VistaClinic DNA Repository is the attendant clinical records
that we receive. Although researchers are not considered "covered entities" to
whom the proposed regulations directly apply, the regulations do specifically
address the use and disclosure of protected health information for both
federally- and privately-funded research purposes.

A "covered entity" can use and disclose protected health information for
research without individual authorization, provided that the covered entity
receives documentation that the researcher's protocol has been reviewed by an
Institutional Review Board or equivalent body such as a privacy board. The board
must conclude that the researcher's protocol meets specified criteria designed
to protect the subject's privacy. Absent such a conclusion, protected
information may not be used for research purposes unless the covered entity has
obtained the individual's prior authorization. The required use of an IRB or
privacy board under HIPAA will place additional administrative and cost burdens
on Genometrix and will affect our ability to obtain individual health
information from covered entities. Such entities may not agree to disclose such
information to us without first obtaining assurances that the researcher has
complied fully with the requirements of the proposed regulations.

In addition to the above noted federal legislation, there is a variety of
genetic privacy and protection legislation currently pending in various stages
of review by congressional committees, as well as in the legislatures of several
states. Much of this legislation seeks to impose the same restraints on
employers nationwide that President Clinton's recent executive order imposes on
the federal government. The executive order limits the use of genetic test
results in deciding whether to hire, promote or extend particular benefits to
federal employees.

Although our services are not regulated by governmental agencies such as
the United States Food and Drug Administration, the FDA has announced its
interest in collaborating with academia, industry and government in the
development of microarray technologies to better define the biomarkers of toxic
response for susceptible populations. In particular, the FDA is interested in
working with other organizations to develop the capacity to utilize DNA-, RNA-
and bioinformatic-based technologies to better understand toxin-induced
responses in in vitro and in vivo model systems and to improve

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extrapolation of these systems to humans. The interest of the FDA or other
governmental organizations in our services may increase as the number of
pharmaceutical and biotechnology companies utilizing our technology increases.

Because our DNA testing laboratory is designed for research purposes only
at this point, we are not currently regulated under the Clinical Laboratory
Improvement Act (CLIA). As we develop clinical testing, however, we will apply
for CLIA laboratory certification. CLIA is intended 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, (i) "waived," (ii) "moderately
complex," and (iii) "highly complex," and the standards applicable to a clinical
laboratory depend on the level of the tests it performs. Although the levels of
CLIA diagnostic tests are not directly overlapping with genetic marker testing,
we cannot assure you that the CLIA regulations and future administrative
interpretations of CLIA will not have a materially adverse impact on us by
limiting the potential market for our DNA testing services.

In addition to laws regulating human subjects and genetic material, we are
subject to numerous environmental and safety laws and regulations, including
those governing the use and disposal of hazardous materials and to state health
and safety laws and regulations pertaining to medical research. Any violation
of, and the cost of compliance with, these regulations could have a material
adverse effect on our business and operations.

Finally, while most of the initial commercialization of our business has
been within the United States, we anticipate that we will expand our services to
other countries. Laws and regulations pertaining to our genomic services are in
effect in many of the foreign countries in which we may do business. 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
foreign regulatory approvals.

EMPLOYEES

As of May 19, 2000, we employed a total of 106 persons in the following
areas, 23 of whom hold Ph.D degrees and 27 of whom hold other advanced degrees:
44 in research and development; 11 in sales and marketing; 31 in operations; and
20 in finance and administration. To support our anticipated future growth, we
expect to hire additional employees, particularly in the areas of sales and
marketing. None of our employees are represented by unions and we believe our
relations with our employees are good.

FACILITIES

We currently lease approximately 47,000 square feet of newly constructed
space at 2700 Research Forest Drive, The Woodlands, Texas. All of our genomics
services, research and development, DNA storage and retrieval are performed at
this site. Our facility includes a 1,000 square foot fireproof vault for the
automated storage and retrieval of DNA samples. We believe our current facility,
which was developed to our specifications, will be adequate to meet our
near-term space requirements. We also have an option to expand our occupancy in
our current facility to 70,000 square feet on commercially reasonable terms.

LEGAL PROCEEDINGS

We have licensed rights under a European patent that was granted on January
27, 1999 to Massachusetts Institute of Technology, Baylor College of Medicine
and Houston Advanced Research Center. The subject matter of this European patent
grant corresponds to the subject matter in three of the five U.S. patents
relating to DNA chip technology discussed under "Intellectual Property," above.
Clinical Micro Sensors, Inc. filed an opposition to this European patent grant
on October 27, 1999, and a reply defending the European grant must be filed by
June 17, 2000. We are not a party to this action, and we can not assure you that
our licensed rights to certain aspects of this DNA chip technology will not be
adversely affected by this European opposition proceeding.

We are not a party to any material legal proceedings.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the name, age, position and committee
membership of each of our directors and executive officers:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Mitchell D. Eggers................... 42 Chief Executive Officer, Director and Chairman of the
Board
Robert H. Ellis(1)................... 53 President, Director
Michael Hogan(1)..................... 48 Chief Scientific Officer, Director
David E. Jorden...................... 37 Vice President and Chief Financial Officer
Deval Lashkari....................... 33 Vice President of Business Development and Marketing
Aleksandar Milosavljevic............. 38 Vice President of Bioinformatics
Stephen Das.......................... 53 Vice President of Operations
Robert D. Touslee.................... 41 Vice President and Chief Intellectual Property Officer
C. Thomas Caskey(2)(3)............... 61 Director
Nicholas J. Naclerio................. 38 Director
Bruce Peacock(2)(3).................. 48 Director
J. Evans Attwell(1)(2)(3)............ 68 Director
</TABLE>

- ---------------
(1) will be elected concurrently with the completion of the offering

(2) will serve on our Audit Committee upon completion of this offering

(3) will serve on our Compensation Committee upon completion of this offering

Mitchell D. Eggers founded Genometrix in 1993. Mr. Eggers has served as
Chief Executive Officer, Director and Chairman of the Board since the Company's
inception. He also served as our President from May 1993 to July 1998. Prior to
founding Genometrix, he was on the staff of the Lincoln Laboratory at MIT where
he founded and directed a multidisciplinary biochip development program. He was
subsequently the founder and program manager of the first DNA chip consortium,
assembled in 1991. Mr. Eggers received a B.S., M.S. and Ph.D. in electrical
engineering from Texas A&M University and is currently completing an M.B.A. from
Rice University.

Robert H. Ellis has served as our President since July 1998 and will join
our board of directors concurrently with the completion of this offering. From
1986 until joining us, Mr. Ellis served as product manager and then as president
and general manager of Applied Biosystems Japan, a division of Perkin Elmer, a
manufacturer of biotechnology equipment. During his twelve year career at Perkin
Elmer, Mr. Ellis was promoted to business unit manager of Applied Markets and
Nucleic Acids. Prior to his joining Perkin Elmer, Mr. Ellis was a section
manager at Hewlett Packard where he led product development for analytical
chemistry systems. Mr. Ellis received a B.A. in chemistry from Hartwick College
and attended graduate school at Rensselaer Polytechnic Institute.

Michael Hogan has served as our Chief Scientific Officer since May 1998 and
has worked extensively with us since 1991 on joint research programs. Mr. Hogan
will join our board of directors concurrently with the completion of this
offering. From 1987 until joining us, Mr. Hogan was a tenured professor at
Baylor College of Medicine in Houston where he developed pioneering surface
chemistries that enhanced the rate and specificity of nucleic acid hybridization
on solid supports. Prior to his professorship at Baylor, Mr. Hogan was an
assistant professor at Princeton University and completed his post-doctoral
studies at Stanford University. Mr. Hogan received a B.A. in biology from
Dartmouth College and a Ph.D. in biophysics from Yale University.

David E. Jorden has served as our Vice President and Chief Financial
Officer since March 2000. From 1989 through 1996 and from 1998 until joining us,
Mr. Jorden was a principal at Fayez Sarofim & Co., an investment management
company, where he was engaged in equity security analysis and portfolio
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management. From 1996 until 1998, Mr. Jorden co-founded and was a principal at
Cypress Asset Management, Inc., an independent investment advisory firm. Mr.
Jorden received a B.B.A. from the University of Texas and an M.M. from Kellogg
Graduate School of Management at Northwestern University. Mr. Jorden is a
Chartered Financial Analyst and Certified Public Accountant.

Deval Lashkari has served as our Vice President of Business Development and
Marketing since May 1999. From 1998 until joining us, Mr. Lashkari was director
of product development for Incyte Pharmaceuticals in its business development
and marketing groups where he developed new microarray-based genomic programs
for pharmaceutical customers. In 1996, he was an early employee and founding
scientist of Synteni, a microarray company later acquired by Incyte, where he
was a research director. Mr. Lashkari received a B.A. in genetics from the
University of California, Berkeley and a Ph.D. in genetics from Stanford
University.

Aleksandar Milosavljevic has served as Vice President of Bioinformatics
since November 1998 and directs our bioinformatics and database development
efforts. From 1995 until joining us, Mr. Milosavljevic led the bioinformatics
activities of CuraGen Corporation, a biotechology company. Mr. Milosavljevic was
also a member of the genomics group at Argonne National Laboratory from 1992
until 1995, managed the group from 1994 until 1995 and was responsible for
processing and cataloging the results of one million experiments on DNA chips
daily. Mr. Milosavljevic received a Dipl. Ing. in electrical engineering from
the University of Belgrade, Yugoslavia, an M.S. in computer science and
engineering from Santa Clara University and a Ph.D. in computer and information
sciences from the University of California, Santa Cruz.

Stephen Das has served as our Vice President of Operations since December
1999. From November 1998 until joining us, Mr. Das was vice president of
operations for MRG, a manufacturer of implantable drug delivery systems in
California. From 1994 to 1998, Mr. Das was vice president of manufacturing for
Sulzer Intermedics, a biotechnology company, where he was responsible for U.S.
manufacturing operations for implantable cardiac pacemakers. Mr. Das received a
B.S. in physics from the University of Central Florida.

Robert D. Touslee has served as our Vice President and Chief Intellectual
Property Officer since March 2000. Prior to joining us, Mr. Touslee was
associate general counsel to the Johns Manville Corporation from 1997 to March
2000. Prior to that, Mr. Touslee was patent counsel to Air Liquide, S.A. from
1993 to 1997. Mr. Touslee received a B.S. in chemical engineering from Auburn
University, an M.B.A. from University of Colorado and a J.D. from the University
of Denver.

C. Thomas Caskey joined our board of directors in February 2000. Mr. Caskey
served as senior vice president of human genetics and vaccines discovery at
Merck Research Laboratories from 1995 until March 2000 and was also a trustee
and president of the Merck Genome Research Institute, Inc. He is also an adjunct
professor in the department of molecular and human genetics, biochemistry and
cell biology at Baylor College of Medicine in Houston and in the department of
molecular genetics and microbiology at the University of Medicine and Dentistry
of New Jersey. Mr. Caskey received an M.D. degree from Duke University.

Nicholas J. Naclerio joined our board of directors in February 1999. Mr.
Naclerio has served as vice president and general manager of the BioChip Systems
business unit at Motorola, Inc. since June 1999. Mr. Naclerio joined Motorola in
November 1997, where he served as director of strategy for new enterprises
including biochip systems. From January 1990 until joining Motorola, Mr.
Naclerio held various positions at the Defense Advanced Research Projects Agency
including his last position as assistant director of the electronics technology
office. Mr. Naclerio received a Ph.D. in electrical engineering from the
University of Maryland.

Bruce A. Peacock served on our board of directors from June 1998 to June
1999 and rejoined our board of directors in February 2000. Mr. Peacock has
served as president, chief operating officer and director of Orthovita, Inc., a
biomaterials corporation since June 1999. From 1992 to 1999, Mr. Peacock was
chief operating officer at Cephalon, Inc., a biopharmaceutical company engaged
in drug discovery.

45
<PAGE> 48

Previously, Mr. Peacock was the chief financial officer for Centocor, a
biopharmaceutical company. Mr. Peacock received a B.A. degree in business
administration from Villanova University.

J. Evans Attwell will join our board of directors concurrently with the
completion of this offering. Mr. Attwell is currently of counsel to Vinson &
Elkins, L.L.P., a law firm headquartered in Houston, Texas; from 1965 to 1995,
Mr. Attwell was a partner at such firm, and its managing partner from 1981 to
1991. Mr. Attwell is currently a director of American General Corporation, Dain
Rauscher Incorporated, one of the underwriters of this offering, and Ocean
Energy, Inc. and a trustee of The Robert A. Welch Foundation. Mr. Attwell
received a B.A. in history from Rice University and an L.L.B. from the
University of Texas.

Our executive officers are appointed by the board of directors and serve at
the discretion of the board. There are no family relationships between any
director or executive officer. Mr. Naclerio has a contractual right to serve on
the board of directors as the designated representative of Motorola, and
although Mr. Naclerio will continue to serve as a director after the offering,
such contractual right will terminate following the conversion of preferred
stock upon completion of this offering.

SCIENTIFIC ADVISORY BOARD

We have established a scientific advisory board made up of leaders in
fields related to genomics, proteomics and bioinformatics. These advisors assist
us in formulating our research, development and commercialization strategies.
Members are reimbursed for the reasonable expenses of attending meetings of the
scientific advisory board. We have also granted each member of our scientific
advisory board the option to purchase 6,000 shares of our common stock.

<TABLE>
<CAPTION>
ADVISOR INSTITUTION
- ------- -----------
<S> <C>
David S. Alberts, M.D. .............. Professor of Medicine and Pharmacology, Arizona Cancer
Center
Christopher Amos, Ph.D. ............. Professor of Epidemiology, M.D. Anderson Cancer Center
Nicholas P. Lang, M.D. .............. Professor of Internal Medicine, University of Arkansas
Medical Center
Yasufumi Murakami, Ph.D. ............ Professor of Genomics, Science University of Tokyo
Teruhisa Noguchi, Ph.D. ............. President and CEO, Tenox Institute, Japan
</TABLE>

BOARD COMPOSITION

We currently have four directors. Upon completion of this offering, our
board of directors will consist of seven members divided into three classes. As
a result, a portion of our board of directors will be elected each year. The
division of the three classes, the initial directors and their respective
election dates are as follows:

- The Class I directors will be C. Thomas Caskey and Michael Hogan and
their term will expire at the annual meeting of stockholders to be
held in 2001.

- The Class II directors will be Bruce Peacock, Robert H. Ellis and J.
Evans Attwell and their term will expire at the annual meeting of
stockholders to be held in 2002.

- The Class III directors will be Nicholas J. Naclerio and Mitchell D.
Eggers and their term will expire at the annual meeting of
stockholders to be held in 2003.

At each annual meeting of stockholders after the initial classification,
the successors to directors whose terms expire at the meeting, will be elected
to serve from the time of election by the stockholders until the third annual
meeting following election. In addition, the authorized number of directors may
be changed only by resolution of the board of directors. Any additional
directorships resulting from an increase in the number of directors will be
evenly distributed among the three classes so that, as nearly as possible, each
class will consist of one-third of the directors. This classification of the
board of directors may have the effect of delaying or preventing changes in our
control or management.

46
<PAGE> 49

COMMITTEES OF THE BOARD OF DIRECTORS

Compensation Committee. Upon completion of this offering, our board of
directors will have a compensation committee composed of Bruce Peacock, C.
Thomas Caskey and J. Evans Attwell, which will make recommendations concerning
salaries and incentive compensation for our employees and consultants, establish
and approve salaries and incentive compensation for our executive officers and
administer our stock plans.

Audit Committee. Upon completion of this offering, our board of directors
will have an audit committee composed of Bruce Peacock, C. Thomas Caskey and J.
Evans Attwell, which will review the result and scope of audits, the
independence of our auditors and other services provided by our independent
public accountants.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the compensation committee has at any time been one of our
officers or employees; however, Bruce Peacock had a consulting arrangement with
us until February 2000, which arrangement has terminated and has not been
renewed. None of our executive officers serves 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. Prior to the formation of the compensation committee, the board of
directors as a whole made decisions relating to the compensation of our
executive officers.

COMPENSATION OF DIRECTORS

We reimburse our non-employee directors for all travel and other reasonable
expenses incurred in attending board of director meetings. Our non-employee
directors are eligible to receive nonqualified stock option grants under our
1994 Stock Plan and 2000 Employee, Director and Consultant Stock Option Plan. In
February 2000, C. Thomas Caskey and Bruce Peacock received non-qualified stock
options under our 1994 Stock Plan to purchase 20,000 shares of our common stock
at an exercise price of $10.00 per share. Options for 10,000 of these shares
were immediately exercisable and the remaining portion of these options shall
become exercisable in February 2001 provided that the directors are still
serving on the board of directors on such date.

LIMITATIONS OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our certificate of incorporation provides that no director will be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director and limits the liability of our directors to the
fullest extent permitted by Delaware law. Our certificate of incorporation and
By-Laws also provide that we will indemnify and advance expenses to any of our
directors who by reason of his or her service as an officer or director, is
involved in legal proceedings of any nature.

We will repay expenses incurred by a director or an officer in connection
with any civil or criminal proceeding, specifically including actions by us or
in our name (derivative suits). Such expenses include, to the maximum extent
permitted by law, attorney's fees, judgments, civil or criminal fines,
settlement amounts and other expenses. A director or officer will not receive
indemnification if the director or officer is found not to have acted in good
faith and in a manner the director or officer reasonably believed to be in the
company's best interest.

Such limitation of liability and indemnification does not affect the
availability of equitable remedies. In addition, we have been advised that in
the opinion of the SEC, indemnification for liabilities arising under the
Securities Act is against public policy as expressed in the Securities Act and
is therefore unenforceable.

There is no pending litigation or proceeding involving any of our
directors, officers, employees or agents in which indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
47
<PAGE> 50

EXECUTIVE COMPENSATION

The following table presents summary information for the fiscal year ended
September 30, 1999 regarding the compensation of each of our Chief Executive
Officer and other four most highly-compensated individuals whose salary and
bonus for Fiscal Year 1999 were in excess of $100,000.

SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 1999

<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------------------------------- --------------------------
OTHER SECURITIES ALL
ANNUAL COMPENSATION ANNUAL UNDERLYING OTHER
--------------------- COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) ($) (#) ($)
- --------------------------- --------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Mitchell D. Eggers............... $213,684 $55,000 $12,000(1) -- --
Chief Executive Officer
William Balch.................... $236,642(2) -- -- -- --
Vice President of Marketing and
Sales
Robert H. Ellis.................. $182,268 $50,000 -- -- --
President
Michael Hogan.................... $159,421 $42,500 -- -- --
Chief Scientific Officer
Aleksandar Milosavljevic......... $116,711 $27,393 -- 100,000 --
Vice President of
Bioinformatics
</TABLE>

- ---------------
(1) Represents payment of tuition for an MBA program in which Mr. Eggers is
enrolled.

(2) Includes a lump sum severance of $99,382 in connection with Mr. Balch's
voluntary termination of employment on September 17, 1999.

OPTION GRANTS IN FISCAL YEAR 1999

The following table presents the only stock options granted during the
fiscal year ended September 30, 1999 to an individual listed in the Summary
Compensation Table. The option was granted under our 1994 Stock Plan.

The potential realizable value is calculated based on the ten year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to the rules promulgated by the SEC and does not represent our
estimate of future stock price performance. The potential realizable values at
5% and 10% appreciation are calculated by:

- multiplying the number of shares of common stock under the option by
the deemed fair market value on the date of grant;

- assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the option; and

- subtracting from the result the aggregate option exercise price.

The percentage shown under "Percent of Total Options Granted to Employees
in Fiscal Year 1999" is based on an aggregate of 618,900 options granted to our
employees under our 1994 Stock Plan in Fiscal Year 1999.

48
<PAGE> 51

<TABLE>
<CAPTION>
POTENTIAL REALIZATION
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR (PER SHARE) DATE 5% 10%
- ---- ---------- ------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Aleksandar Milosavljevic................ 100,000(1) 16.2% $2.36 11/1/2008 $148,419 $376,123
Vice President of Bioinformatics
</TABLE>

- ---------------
(1) The option was 20% exercisable upon grant. The remaining 80,000 vests
annually over four years from November 1, 1998.

In addition to the information presented above, we granted the following
executive officers fully-exercisable options to purchase shares of common stock
at an exercise price of $3.00 per share in the month of December 1999: Mitchell
D. Eggers, Chief Executive Officer and Chairman of the Board, 15,000 shares;
Robert H. Ellis, President, 20,000 shares; Michael Hogan, Chief Scientific
Officer, 15,000 shares; and Aleksandar Milosavljevic, Vice President of
Bioinformatics, 15,583 shares. Further, we also granted the following executive
officers options to purchase shares of common stock at $3.00 per share on March
9, 2000: David E. Jorden, Vice President and Chief Financial Officer, 500,000
shares, vesting over four years; and Deval Lashkari, Vice President of Business
Development and Marketing, 125,000 shares, vesting over 27 months.

1999 OPTION VALUES

The following table presents the number and value of securities underlying
unexercised options that are held by each of the individuals listed in the
Summary Compensation Table as of September 30, 1999.

Amounts shown in the column "Value of Unexercised In-the-Money Options at
September 30, 1999" are based on an assumed initial public offering price of
$11.00, without taking into account any taxes that may be payable in connection
with the transaction, multiplied by the number of shares underlying the option,
less the exercise price payable for these shares.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mitchell D. Eggers........................ -- -- -- --
William Balch............................. 283,333(1) -- $2,971,500 --
Robert H. Ellis........................... 220,000 600,000 $2,310,000 $6,300,000
Michael Hogan............................. 283,333 566,667 $2,971,500 $5,950,004
Aleksandar Milosavljevic.................. 20,000 80,000 $ 172,800 $ 691,200
</TABLE>

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

(1) In March 2000, Mr. Balch exercised 40,000 of these options and the balance
of 243,333 expired.

EMPLOYMENT AGREEMENTS; TERMINATION OF EMPLOYMENT; CHANGE IN CONTROL ARRANGEMENTS

We have not entered into employment agreements with any of our executive
officers. We have entered into consulting agreements with each member of the
scientific advisory board which continue unless terminated on thirty days'
notice of either party or for reasonable cause by us. We also entered into a
consulting agreement with Bruce Peacock, a member of our board of directors,
which expired on February 1, 2000, and have issued 21,186 shares of our common
stock under this agreement for services he provided in exploring sources of
funding for our business.

We entered into a severance agreement with William Balch, our former Vice
President of Sales and Marketing, on the date of his voluntary termination,
September 17, 1999. Pursuant to this agreement,

49
<PAGE> 52

Mr. Balch received a lump sum severance of $99,382 including a payment for
unused vacation time and a payment for the exercise price of his vested options.

EMPLOYEE BENEFIT PLANS

1994 Stock Plan and 2000 Employee, Director and Consultant Stock Option Plan

Our 1994 Stock Plan and 2000 Stock Plan were approved by our board of
directors and by our stockholders in 1995 and 2000, respectively. Under both
plans, we may grant incentive stock options and nonqualified stock options.
Options to purchase common stock under both plans generally vest over a period
of three years. A total of 8,300,000 and 5,000,000 shares of common stock have
been reserved for issuance under the 1994 Stock Plan and the 2000 Stock Plan,
respectively. As of March 31, 2000, 3,608,583 shares have been issued upon
exercise of options granted under the 1994 Stock Plan, 3,906,530 shares may be
issued upon the exercise of options outstanding and 784,887 shares are available
for future issuance under the 1994 Stock Plan. No options have been granted
under the 2000 Stock Plan. Shares subject to stock options that expire or
otherwise terminate without having been exercised in full again become available
for grant of awards under both plans.

Upon completion of this offering, both the 1994 Stock Plan and the 2000
Stock Plan will be administered by our Compensation Committee. The Compensation
Committee will determine the terms of options granted pursuant to these plans,
including:

- the exercise price and the number of shares subject to each option;

- the vesting schedule for options;

- the termination or cancellation provisions applicable to options; and

- the conditions relating to our right to reacquire shares subject to
options.

The maximum term of options granted under each plan is ten years.

401(k) Plan

We maintain a retirement and deferred savings plan for our employees that
is intended to qualify as a tax-qualified plan under the Internal Revenue Code.
The 401(k) Plan provides that each participant may contribute up to 15% of the
employee's pre-tax compensation to the savings plan, subject to applicable
limitations under the law. We match 25% of every dollar contributed by an
employee up to a total contribution of 0.75% of the employee's monthly salary.

50
<PAGE> 53

RELATED TRANSACTIONS

Stock Purchases. The following executive officers, directors or holders of
more than 5% of our voting securities purchased or received securities with a
value of $60,000 or more on the dates set forth below within the last three
years:

<TABLE>
<CAPTION>
SHARES OF CONVERTIBLE PREFERRED STOCK
----------------------------------------------------
PURCHASER SERIES C SERIES D SERIES E SERIES F
- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
DIRECTORS AND OFFICERS
David E. Jorden.......................... 50,000 85,000
Nicholas J. Naclerio..................... 706,714(1) 2,666,667(1)
FIVE PERCENT STOCKHOLDERS
Motorola, Inc. .......................... 706,714 2,666,667
1303 East Algonquin Road
11th Floor
Schaumburg, IL 60196
Fayez Sarofim............................ 106,000 886,550(2)
2907 Two Houston Center
Houston, TX 77010
Price Per Share.......................... $2.36 $2.83 $3.00 $3.00
Date(s) of Purchase...................... 9/3/98 12/28/98 7/6/99- 8/31/99-
1/13/00 1/31/00
</TABLE>

- ---------------
(1) Represents 706,714 shares of Series D Convertible Preferred Stock and
2,666,667 shares of Series E Convertible Preferred Stock held by Motorola, a
more than 5% stockholder. Mr. Naclerio is the designated representative of
Motorola on our board of directors. Mr. Naclerio disclaims beneficial
ownership of all such shares.

(2) Includes 443,275 shares held by FSI No. 2 Corporation. Fayez Sarofim is the
controlling stockholder of The Sarofim Group, Inc. which indirectly owns
more than 80% of the outstanding capital stock of FSI No. 2 Corporation.
Until February 29, 2000, David E. Jorden, our Vice President and Chief
Financial Officer, was a principal of Fayez Sarofim & Co.

Warrants. In addition to the stock purchases listed above, on August 31
and December 29, 1999, respectively, David E. Jorden, our Vice President and
Chief Financial Officer, purchased common stock warrants for 12,000 and 5,000
shares, respectively. These warrants were included in the units he purchased in
the first and second rounds of the Series F financing, respectively, for an
aggregate consideration of $255,000. Mr. Jorden also holds an immediately
exercisable call option for 7,500 of Mr. Egger's shares issued in connection
with his investment in the Series F financing. Mr. Fayez Sarofim, a more than 5%
stockholder, purchased 66,433 and 22,222 of such common stock warrants as part
of units in the first and second rounds of the Series F financing for an
aggregate consideration of $1,329,825. FSI No. 2 Corporation, an affiliate of
Mr. Sarofim, also purchased 66,433 and 22,222 common stock warrants as part of
the Series F units for an aggregate consideration of $1,329,825. In addition,
Mr. Sarofim and FSI No. 2 Corporation each hold an immediately exercisable call
option for 33,333 shares issued in connection with their investments in the
Series F financing. Fayez Sarofim is the controlling stockholder of The Sarofim
Group, Inc. which indirectly owns more than 80% of the outstanding capital stock
of FSI No. 2 Corporation.

51
<PAGE> 54

Agreements and Transactions.

We have entered into the following related-party agreements and
transactions with our executive officers, directors and more than 5%
stockholders during the last three fiscal years.

1. The following eight agreements relate to transactions with Motorola,
Inc., a more than 5% stockholder. Nicholas J. Naclerio, one of our directors, is
also an officer of Motorola, Inc.

- On December 28, 1998, we entered into a Stock Purchase Agreement with
Motorola, Inc., pursuant to which Motorola purchased 706,714 shares
of our Series D Convertible Preferred Stock for an aggregate purchase
price of $2,000,000.

- On December 28, 1998, we entered into a License and Option Agreement
with Motorola pursuant to which we licensed intellectual property
relating to electrical DNA chip technology and hybridization
chemistries for Motorola's evaluation purposes with the option to
license the technology for commercial purposes in exchange for
royalties and a license option fee.

- On December 28, 1998, we entered into a Voting and Right of First
Refusal Agreement with Motorola pursuant to which Motorola has first
refusal rights on common stock owned by Mitchell D. Eggers, our Chief
Executive Officer, director and Chairman of the Board.

- On July 6, 1999, we entered into a Stock Purchase Agreement with
Motorola pursuant to which Motorola purchased 1,666,667 shares of our
Series E Convertible Preferred Stock on July 6, 1999 and 1,000,000
shares of our Series E Convertible Preferred Stock on January 13,
2000 for an aggregate purchase price of $8,000,000.

- On July 6, 1999, we entered into a License and Research Agreement
with Motorola pursuant to which Motorola licensed intellectual
property relating to electrical DNA chip technology and hybridization
chemistries for commercial purposes in exchange for royalties and a
licensing fee.

- On July 6, 1999, we entered into an Amended and Restated Registration
Rights Agreement with Motorola, pursuant to which Motorola has
demand, piggy-back and shelf-registration rights.

- On March 20, 2000, we entered into a First Amendment to our License
and Research Agreement with Motorola pursuant to which Motorola named
Genometrix as a preferred provider of genomic services and agreed to
offer high-density chips to Genometrix at preferred prices.

- On March 27, 2000, we entered into a Stock Purchase Agreement,
pursuant to which Motorola agreed to purchase 909,090 shares of
common stock, based on an assumed offering of 7,000,000 shares at an
assumed offering price of $11 per share, in a private placement
concurrent with the closing of this offering.

2. On September 3, 1998, we entered into an Amended and Restated
Registration Rights Agreement with our founders (including Mitchell D. Eggers
and Michael Hogan, each an executive officer and a director) and the holders of
Series A, Series B and Series C Preferred Stock, as well as the purchasers of
convertible notes issued in 1994 and 1996 and subsequent purchasers of Series F
Preferred Stock. Fayez Sarofim and Kenneth Nill, both more than 5% stockholders,
are parties to this agreement.

3. On July 5, 1994, we entered into a Stockholders' Agreement with Mitchell
D. Eggers, our Chief Executive Officer, Chairman of the Board and director,
Kenneth Nill, a more than 5% stockholder, and Daniel J. Erhlich, a founder. This
agreement was amended in August 1997 and September 1998 and provides for rights
of first refusal and for their election to the Board of Directors. This
agreement will terminate upon completion of the offering except for a 180-day
market-standoff provision.

4. On July 1, 1998, we entered into a consulting agreement with Bruce
Peacock, one of our directors, pursuant to which Mr. Peacock has been issued
21,186 shares for services rendered in connection with his consulting agreement.
This agreement terminated on February 1, 2000 and has not been renewed.

5. On September 17, 1999 we entered into a Severance Agreement with William
Balch pursuant to which Mr. Balch received a lump sum severance due to his
voluntary resignation as our Vice President of Marketing and Sales in the amount
of $99,382 including a payment for unused vacation time and a payment for the
exercise price of his vested options.

52
<PAGE> 55

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 2000 and as adjusted to reflect
the sale of the 7,000,000 shares of common stock in this offering and the
purchase by Motorola of 909,090 shares of common stock in a private placement
concurrent with the closing of this offering, by:

- each executive officer named in the Summary Compensation Table;

- each of our directors;

- all of our current directors and executive officers as a group; and

- each person or group of affiliated persons known by us to own
beneficially more than five percent of our common stock.

Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to the securities. Shares
of common stock that may be acquired by an individual or group within 60 days of
March 31, 2000 pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person shown in the table.
Percentage of ownership is based on 20,885,793 shares of common stock
outstanding on March 31, 2000, which assumes the conversion of all outstanding
shares of preferred stock into common stock and 30,068,437 shares of common
stock outstanding after the completion of this offering.

Except as indicated in footnotes to this table, we believe that the
stockholders named in this table have sole voting and investment power with
respect to all shares of common stock shown to be beneficially owned by them
based on information provided to us by such stockholders. Unless otherwise
indicated, the address for each director and executive officer listed is: c/o
Genometrix Incorporated, 2700 Research Forest Drive, The Woodlands, TX 77381.

53
<PAGE> 56

AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED AS OF MARCH 31, 2000

<TABLE>
<CAPTION>
SHARES ISSUABLE
UNDER OPTIONS
OR WARRANTS PERCENTAGE OF
EXERCISABLE COMMON STOCK
NUMBER OF WITHIN BENEFICIALLY OWNED
SHARES 60 DAYS OF -------------------
BENEFICIALLY MARCH 31, BEFORE AFTER
BENEFICIAL OWNER OWNED 2000 TOTAL OFFERING OFFERING
- ---------------- ------------ --------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS
Mitchell D. Eggers....... 5,912,300(1)(2) 16,000(3) 5,928,300(1)(2)(3) 28.4% 19.7%
Robert H. Ellis.......... 1,000(4) 219,000 220,000(4) 1.0% *
William Balch............ 540,000 540,000 2.6% 1.8%
Michael Hogan............ 975,000(5)(6) 581,666 1,556,666(5)(6) 7.3% 5.1%
Aleksandar
Milosavljevic.......... 55,583 55,583 * *
C. Thomas Caskey......... -- 10,000 10,000 * *
Bruce Peacock............ 18,436 10,000 28,436 * *
Nicholas J. Naclerio..... 3,373,381(7) -- 3,373,381(7) 16.2% 14.2%(8)
J. Evans Attwell......... 88,895 17,779(9) 106,674(9) * *
All current directors and
executive officers as a
group (14 persons)..... 11,099,595 963,111 12,062,706 55.2% 41.8%
---------- ------- ---------- ==== ====
FIVE PERCENT OR MORE
STOCKHOLDERS
Motorola, Inc. .......... 3,373,381 -- 3,373,381 16.2% 14.2%(8)
1303 East Algonquin
Road
Schaumburg, IL 60196
Kenneth Nill............. 1,292,700(10) -- 1,292,700(10) 6.2% 4.3%
16 Bennington Road
Lexington, MA 02173
Fayez Sarofim............ 992,550(11) 177,310(12)(13) 1,169,860(11)(12)(13) 5.6% 3.9%
2907 Two Houston Center
Houston, TX 77010
</TABLE>

- ---------------
* Represents beneficial ownership of less than 1% of our outstanding shares.

(1) Includes 5,000 shares held by Mr. Eggers' spouse. Mr. Eggers disclaims
beneficial ownership of such shares.

(2) Includes 100,000 shares subject to immediately exercisable call options
held by seven investors in the second round of the Series F financing.

(3) Includes a warrant, held by Mr. Eggers' spouse, to purchase 1,000 shares of
common stock. Mr. Eggers' disclaims beneficial ownership of the shares
underlying such warrant.

(4) Includes 250 shares owned by each of Mr. Ellis' three children and 250
owned by his spouse. Mr. Ellis disclaims beneficial ownership of all such
shares.

(5) Includes 75,000 shares held by Mr. Hogan's daughter.

(6) Includes 13,336 shares subject to an immediately exercisable call options
held by two investors in the second round of the Series F financing.

(7) Represents 706,714 shares of Series D Convertible Preferred Stock and
2,666,667 shares of Series E Convertible Preferred Stock held by Motorola,
a more than 5% stockholder. Mr. Naclerio is the designated representative
of Motorola on our board of directors. Mr. Naclerio disclaims beneficial
ownership of all such shares.

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<PAGE> 57

(8) Reflects 4,282,471 shares held by Motorola after the offering adjusted for
the purchase by Motorola of 909,090 shares of common stock in a private
placement concurrent with the closing of this offering.

(9) Does not include an immediately exercisable call option to purchase 6,668
of common stock from Mr. Hogan.

(10) Includes 19,153 shares subject to an immediately exercisable call option
held by one investor in the second round of the Series F financing.
Includes 1,100,000 shares held by the Kenneth W. Nill Qualified Annuity
Trust 2000 and 7,000 shares held by Mr. Nill's sister. Mr. Nill disclaims
beneficial ownership of all shares held by the trust and his sister.

(11) Includes 443,275 shares held by FSI No. 2 Corporation. Fayez Sarofim is the
controlling stockholder of The Sarofim Group, Inc. which indirectly owns
more than 80% of the outstanding capital stock of FSI No. 2 Corporation.

(12) Includes warrants to purchase 88,655 shares of common stock held by FSI No.
2 Corporation. Fayez Sarofim is the controlling stockholder of The Sarofim
Group, Inc. which indirectly owns more than 80% of the outstanding capital
stock of FSI No. 2 Corporation.

(13) Does not include an immediately exercisable call option to purchase 33,333
shares from Mr. Eggers held by each of Fayez Sarofim and FSI No. 2
Corporation.

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<PAGE> 58

DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, we will be authorized to issue 75,000,000
shares of common stock, $.01 par value per share, and 6,000,000 shares of
preferred stock, $.01 par value per share, and there will be 30,068,437 shares
of common stock and no shares of preferred stock outstanding. As of March 31,
2000, we had 22,159,347 shares of common stock outstanding held of record by 35
stockholders, 8,973,274 shares of preferred stock outstanding held of record by
89 stockholders and there were outstanding options to purchase 3,906,530 shares
of common stock and outstanding warrants to purchase 870,274 shares of common
stock and warrants to purchase 241,970 shares of Series B Convertible preferred
stock which will be automatically converted into warrants to purchase an
equivalent number of common shares at the same exercise price upon completion of
the offering.

COMMON STOCK

Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders and do not have
cumulative voting rights. Subject to preferences that may be applicable to any
outstanding shares of preferred stock, holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
our board of directors out of funds legally available for dividend payments. All
outstanding shares of common stock are fully paid and nonassessable and the
holders of common stock have no preferences or rights of conversion, exchange or
pre-emption.

PREFERRED STOCK

The preferred stock, if issued, would have priority over the common stock
with respect to dividends and other distributions, including the distribution of
assets upon liquidation. Our board of directors has the authority, without
further stockholder authorization, to issue from time to time shares of
preferred stock in one or more series and to fix the terms, limitations,
relative rights and preferences and variations of each series. Although we have
no present plans to issue any shares of preferred stock, the issuance of shares
of preferred stock, or the issuance of rights to purchase such shares, could
decrease the amount of earnings and assets available for distribution to the
holders of common stock, could adversely affect the rights and powers, including
voting rights, of the common stock and could have the effect of delaying,
deterring or preventing a change in control of Genometrix or an unsolicited
acquisition proposal.

OPTIONS

As of March 31, 2000, options to purchase a total of 3,906,530 shares of
common stock were outstanding at a weighted average exercise price of $2.06 per
share under our 1994 Stock Plan. No options have been granted under our 2000
Stock Plan. Options to purchase an additional 784,887 shares of common stock may
be granted under the 1994 Stock Plan and options to purchase 5,000,000 shares of
common stock may be granted under the 2000 Stock Plan.

WARRANTS

We have outstanding warrants to purchase a total of 870,274 shares of our
common stock at a weighted average exercise price of $2.63 per share which may
be exercised prior to the completion of this offering. If not exercised on or
prior to the completion of this offering, these warrants will expire. In
addition, we have outstanding warrants to purchase a total of 241,970 shares of
our Series B Convertible Preferred Stock at an exercise price of $1.10 per share
issued in connection with notes issued in a 1996 financing, and that are
exercisable for one year after completion of the offering. The warrants contain
anti-dilution provisions providing for adjustments of the exercise price and the
number of shares underlying the warrants upon the occurrence of recapitalization
events, including any reclassification, stock dividend, stock split, stock
combination or similar transactions. All of the warrants are currently
exercisable.

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<PAGE> 59

REGISTRATION RIGHTS

The holders of the following shares of our common stock are entitled to the
registration rights described below with respect to those shares. These
registration rights are subject to the right of the underwriters of an offering
to limit the number of shares included in any such registration by the terms of
each agreement. All expenses incurred in connection with registrations effected
in connection with the following rights will be borne by us, except
underwriters' discounts and commissions in connection with an underwritten
offering.

Demand Rights. Beginning 180 days after completion of this offering, the
holders of at least 50% of the 3,373,381 shares of common stock to be issued
upon the conversion of the Series D and Series E Convertible Preferred Stock
with anticipated net proceeds to the holders of at least five million dollars
may request that we effect a registration statement of such stock. Upon such
request, we are obligated to use our best efforts to register such shares.
Stockholders with these registration rights who are not part of an initial
registration demand are entitled to notice and are entitled to include their
shares of common stock in the registration.

Piggyback Rights. If at any time after this offering we propose to
register any of our equity securities under the Securities Act, the holders of
9,376,534 shares of common stock and 1,112,294 shares of common stock issuable
upon the exercise of outstanding warrants are entitled to notice of such
registration and are entitled to include their common stock in the registration.

Shelf Registration Rights. In addition, holders of at least 30% of the
3,373,381 shares of common stock to be issued upon conversion of the Series D
and Series E Convertible Preferred may request that we register such shares on
Form S-3, provided that we are eligible to use this form. There is no limit to
the number of registrations on Form S-3 that we may be required to effect,
except that we will not be required to effect such a registration unless the
aggregate offering price of the shares to be registered, based on the then
current market price, is at least one million dollars. Stockholders with these
registration rights who are not part of an initial registration demand are
entitled to notice and are entitled to include their shares of common stock in
the registration.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

The provisions of Delaware law and of our certificate of incorporation and
By-Laws to be effective upon completion of the offering discussed below could
discourage or make it more difficult to accomplish a proxy contest or other
change in our management or the acquisition of control by a holder of a
substantial amount of our voting stock. It is possible that these provisions
could make it more difficult to accomplish, or could deter, transactions that
stockholders may otherwise consider to be in their best interests or the best
interests of Genometrix.

Delaware Statutory Business Combinations Provision. We are subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporations
Law. In general, 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 date of the transaction in which the person
became an interested stockholder, unless the business combination is, or the
transaction in which the person became an interested stockholder was, approved
in a prescribed manner or another prescribed exception applies. For purposes of
Section 203, a "business combination" is defined broadly to include a merger,
asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and, subject to the exceptions therein, an "interested
stockholder" is a person who, together with his or her affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.

Classified Board of Directors. Upon completion of this offering, our board
of directors will be divided into three classes as nearly equal in number as
possible. Each year the stockholders will elect the members of one of the three
classes to a three-year term of office. All directors elected to our classified
board of directors will serve until the election and qualification of their
respective successors or their earlier resignation or removal. The board of
directors is authorized to create new directorships and to fill such

57
<PAGE> 60

positions so created and is permitted to specify the class to which any such new
position is assigned. The person filling such position would serve for the term
applicable to that class. The board of directors (or its remaining members, even
if less than a quorum) is also empowered to fill vacancies on the board of
directors occurring for any reason for the remainder of the term of the class of
directors in which the vacancy occurred. Members of the board of directors may
only be removed for cause. These provisions are likely to increase the time
required for stockholders to change the composition of the board of directors.
For example, in general, at least two annual meetings will be necessary for
stockholders to effect a change in a majority of the members of the board of
directors.

Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. Our By-Laws provide that, for nominations to the
board of directors or for other business to be properly brought by a stockholder
before a meeting of stockholders, the stockholder must first have given timely
notice of the proposal in writing to our Secretary. For an annual meeting, a
stockholder's notice generally must be delivered not less than 45 days nor more
than 75 days prior to the anniversary of the mailing date of the proxy statement
for the previous year's annual meeting. For a special meeting, the notice must
generally be delivered by the later of 90 days prior to the special meeting or
ten days following the day on which public announcement of the meeting is first
made. Detailed requirements as to the form of the notice and information
required in the notice are specified in the By-Laws. If it is determined that
business was not properly brought before a meeting in accordance with our By-Law
provisions, such business will not be conducted at the meeting.

Special Meetings of Stockholders. Special meetings of the stockholders may
be called only by our board of directors pursuant to a resolution adopted by a
majority of the total number of directors.

No Stockholder Action by Written Consent. Our amended and restated
certificate of incorporation to be effective upon completion of the offering
does not permit our stockholders to act by written consent. As a result, any
action to be effected by our stockholders must be effected at a duly called
annual or special meeting of the stockholders.

Super-Majority Stockholder Vote Required for Certain Actions. The Delaware
General Corporation Law 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 the corporation's
certificate of incorporation or bylaws, as the case may be, requires a greater
percentage. Our certificate of incorporation requires the affirmative vote of
the holders of at least 70% of our outstanding voting stock to amend or repeal
any of the provisions discussed in this section of this prospectus entitled
"Delaware Law and Certain Charter and By-law Provisions" or to reduce the number
of authorized shares of common stock or preferred stock. This 70% stockholder
vote would be in addition to any separate class vote that might in the future be
required pursuant to the terms of any preferred stock that might then be
outstanding. A 70% vote is also required for any amendment to, or repeal of, our
By-Laws by the stockholders. Our By-Laws may be amended or repealed by a simple
majority vote of the board of directors.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock will be American
Stock Transfer & Trust Company.

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<PAGE> 61

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect market prices prevailing from time to time. Furthermore,
because only a limited number of shares will be available for sale shortly after
this offering due to existing contractual and legal restrictions on resale as
described below, there may be sales of substantial amounts of our common stock
in the public market after the restrictions lapse. This may adversely affect the
prevailing market price and our ability to raise equity capital in the future.

Upon completion of this offering, we will have 30,068,437 shares of common
stock outstanding, assuming no exercise of options or the warrants to purchase
Series B Convertible Preferred Stock outstanding as of March 31, 2000 and the
conversion of all outstanding shares of preferred stock, the conversion of notes
payable and related accrued interest as of that date, the assumed exercise of
all common stock purchase warrants and the purchase by Motorola of 909,090
shares of common stock in a private placement concurrent with the closing of the
offering. Of these shares, only the shares sold in this offering will be freely
transferable without restriction or registration under the Securities Act,
except for any shares purchased by one of our existing "affiliates," as that
term is defined in Rule 144 under the Securities Act. The remaining 23,068,437
shares of common stock existing are "restricted shares" as defined in Rule 144.
Restricted shares may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144 or 701 of the
Securities Act. As a result of the contractual 180-day lock-up period described
below and the provisions of Rules 144 and 701, these shares will be available
for sale in the public market as follows:

<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF SHARES DAYS AFTER THE EFFECTIVE DATE
---------------------------- -----------------------------
<S> <C>
-- On Effectiveness.
3,448,678........ 90 days.
19,020,480........ 180 days (subject, in some cases, to volume limitations).
30,068,437........ At various times after 180 days (subject, in some cases, to
volume limitations).
</TABLE>

Lock-Up Agreements. Motorola and our directors and executive officers and
the majority of our stockholders and option holders have each agreed not to
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock, for a period of 180 days after the date of this
prospectus, without the prior written consent of Lehman Brothers subject to
limited exceptions. Lehman Brothers, however, may in its sole discretion, at any
time without notice, release all or any portion of the shares subject to lock-up
agreements.

Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after this offering, a person, or persons whose shares are aggregated, who
owns shares that were purchased from us, or any affiliate, at least one year
previously, is entitled to sell within any three-month period a number of shares
that does not exceed the greater of 1% of our then-outstanding shares of common
stock, which will equal approximately 300,684 shares immediately after this
offering, or the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a notice
of the sale on Form 144. Sales under Rule 144 are also subject to manner of sale
provisions, notice requirements and the availability of current public
information about us. Any person, or persons whose shares are aggregated who is
not deemed to have been one of our affiliates at any time during the three
months preceding a sale and who owns shares within the definition of "restricted
securities" under Rule 144 that were purchased from us, or any affiliate, at
least two years previously, would be entitled to sell shares under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.

Rule 701. Subject to limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from us by our

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<PAGE> 62

employees, directors, officers or consultants prior to the date we become
subject to the reporting requirements of the Securities Exchange Act of 1934, or
the Exchange Act, under written compensatory benefit plans or written contracts
relating to the compensation of these persons. In addition, the Securities and
Exchange Commission has indicated that Rule 701 will apply to typical stock
options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of the options, including exercises after the date of this prospectus.
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 90 days after the
date of this prospectus, may be sold by persons other than affiliates subject
only to the manner of sale provisions of Rule 144 and by affiliates under Rule
144 without compliance with its minimum holding period requirements.

Stock Options. As of March 31, 2000, options to purchase a total of
3,906,530 shares of common stock under our 1994 Stock Plan were outstanding.
3,764,947 of the shares subject to options are subject to lock-up agreements. No
options have been granted under our 2000 Stock Plan. An additional 784,887
shares of common stock were available for future option grants under the 1994
Stock Plan and options to purchase 5,000,000 shares of common stock may be
granted under the 2000 Stock Plan.

Upon completion of this offering, we intend to file a registration
statement under the Securities Act covering all shares of common stock subject
to outstanding options or issuable pursuant to our 1994 Stock Plan and our 2000
Stock Plan. Subject to Rule 144 volume limitations applicable to affiliates,
shares registered under any registration statements will be available for sale
in the open market, beginning 90 days after the date of this prospectus, except
to the extent that the shares are subject to vesting restrictions with us or the
contractual restrictions described above.

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<PAGE> 63

UNDERWRITING

Under the underwriting agreement, which was filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., Chase Securities Inc., Dain Rauscher
Incorporated and Thomas Weisel Partners LLC are acting as representatives, have
agreed to purchase from us the respective number of shares of common stock shown
opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Lehman Brothers Inc. .......................................
Chase Securities Inc. ......................................
Dain Rauscher Incorporated..................................
Thomas Weisel Partners LLC..................................
Fidelity Capital Markets, a division of National Financial
Services Corporation......................................
--------
Total..................................................... 7,000,000
========
</TABLE>

The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement and that if any of the shares of common
stock are purchased by the underwriters under the underwriting agreement, then
all of the shares of common stock which the underwriters have agreed to purchase
under the underwriting agreement must be purchased. The conditions contained in
the underwriting agreement include the requirement that the representations and
warranties made by us to the underwriters are true and that there is no material
change in the financial markets and that we deliver to the underwriters
customary closing documents.

The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by us. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase 1,050,000 additional shares.

<TABLE>
<CAPTION>
FULL
PAID BY GENOMETRIX INCORPORATED NO EXERCISE EXERCISE
- ------------------------------- ----------- --------
<S> <C> <C>
Per Share...................................................
Total.......................................................
</TABLE>

The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus and to dealers, who may include
the underwriters, at the public offering price less a selling commission not in
excess of $ per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $ per share to brokers and dealers.
After the offering, the underwriters may change the offering price and other
selling terms.

We have granted the underwriters an option to purchase up to an aggregate
of 1,050,000 additional shares of common stock, exercisable to cover
over-allotments, if any, at the public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time until 30 days after the date
of the underwriting agreement. If this option is exercised, each underwriter
will be committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the underwriter's initial commitment as indicated in the
preceding table and we will be obligated, under the over-allotment option, to
sell the shares of common stock to the underwriters.

Motorola, all of our executive officers and directors and holders of the
majority of our capital stock have agreed under lock-up agreements that, without
the prior consent of Lehman Brothers, they will not, directly or indirectly,
offer, sell, or otherwise dispose of any shares of common stock or any
securities which may be converted into or exchanged for any such shares for the
period ending 180 days after the date of this prospectus. Please see "Shares
Eligible for Future Sale."

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<PAGE> 64

Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price has been negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions:

- our historical performance and capital structure;

- estimates of our business potential and earning prospects;

- an overall assessment of our management; and

- the consideration of the above factors in relation to market
valuation of companies in related businesses.

We have applied to the Nasdaq National Market for listing approval under
the symbol "GNMX".

Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager on 138 filed
public offerings of equity securities, of which 102 have been completed, and has
acted as a syndicate member in an additional 75 public offerings of equity
securities. Thomas Weisel Partners does not have any material relationship with
us or any of our officers, directors or other controlling persons, except with
respect to its contractual relationship with us pursuant to the underwriting
agreement entered into in connection with this offering.

Mr. J. Evans Attwell, who has consented to be a director upon completion of
this offering, is also a director of Dain Rauscher Incorporated, one of the
representatives of the underwriters. Mr. J. Evans Attwell owns preferred stock
of Genometrix and also owns stock of Dain Rauscher which he purchased in the
open market and restricted stock and options which he received as part of his
compensation as a director of Dain Rauscher. In accordance with Rule
2710(c)(7)(A) of the NASD Conduct Rules, Mr. Attwell will not sell, transfer,
assign, or hypothecate shares of Genometrix Series F Preferred Stock purchased
by him on December 29, 1999 and the shares acquired by him upon exercise of the
warrants and call options issued on December 29, 1999 for a period of one year
from the effective date of the offering except to officers or partners (not
directors) of the underwriters and members of the selling group and/or their
officers or partners.

We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act of 1933 and liabilities arising from
breaches of the representations and warranties contained in the underwriting
agreement and to contribute to payments that the underwriters may be required to
make for these liabilities.

We estimate that the total expenses of the offering excluding underwriting
discounts and commissions, will be approximately .

Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.

The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create a
short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option. The underwriters have informed us that they do not intend to confirm
sales to discretionary accounts that exceed 5% of the total number of shares of
common stock offered by them.

The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
common stock in the open market to reduce the
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<PAGE> 65

underwriters' short position or to stabilize the price of the common stock, they
may reclaim the amount of the selling concession from the underwriters and
selling group members who sold those shares as part of the offering.

In general, purchase of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.

Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.

At our request, the underwriters have reserved up to 500,000 shares of the
common stock offered by this prospectus for sale to our officers, directors,
employees, consultants and their family members and to our business associates
at the initial public offering price set forth on the cover page of this
prospectus. The consultants that may participate in this directed share program
provide us with a variety of services, including engineering, programming,
finance and administration, recruiting, production and sales and marketing
services. These persons must commit to purchase no later than the close of
business on the date following the date of this prospectus. The number of shares
available for sale to the general public will be reduced to the extent these
persons purchase the reserved shares.

Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering and will be
facilitating electronic distribution of information through the Internet,
intranet and other proprietary electronic technology.

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<PAGE> 66

LEGAL MATTERS

The validity of the issuance of the common stock offered by us in this
offering will be passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., Boston, Massachusetts. Legal matters in connection with this
offering will be passed upon for the underwriters by Bingham Dana LLP, Boston,
Massachusetts.

EXPERTS

The financial statements of Genometrix Incorporated as of September 30,
1998 and 1999 and for each of the three years in the period ended September 30,
1999 and for the period from May 28, 1993 (inception) through September 30,
1999, included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.

The statements in this prospectus under the captions "Risk Factors -- we
may become involved in lawsuits to protect or enforce our patents . . .," "Risk
Factors -- the rights we rely upon to protect our intellectual property may not
be adequate . . .," "Risk Factors -- our success will depend partly on our
ability to operate without infringing on or misappropriating the proprietary
rights of others . . .," and "Business -- Intellectual Property," insofar as
they constitute summaries of patent law, have been included in this prospectus
in reliance on the review of Fish & Richardson, P.C. of San Diego, California,
given the authority of such firm as experts in patent and intellectual property
law.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, with respect to the common stock offered by this prospectus.
This prospectus, which is part of the registration statement, omits certain
information, exhibits, schedules and undertakings set forth in the registration
statement. For further information pertaining to us and our common stock,
reference is made to the registration statement and the exhibits and schedules
to the registration statement. In each instance where a copy of the document has
been filed as an exhibit to the registration statement, reference is made to the
exhibit for a more complete description of the matters involved.

You may read and copy all or any portion of the registration statement
without charge at the office of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of the registration statement may be obtained from the SEC at
prescribed rates from the Public Reference Section of the SEC at such address
and at the SEC's regional offices located at 7 World Trade Center, 13th Floor,
New York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. In addition, registration statements and certain
other filings made with the SEC electronically are publicly available through
the SEC's Web site at http://www.sec.gov. The registration statement, including
all exhibits and amendments to the registration statement, has been filed
electronically with the SEC.

64
<PAGE> 67

GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-7
Notes to Financial Statements............................... F-8
</TABLE>

F-1
<PAGE> 68

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Genometrix Incorporated:

In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' equity and cash flows present fairly, in all
material respects, the financial position of Genometrix Incorporated (a
development stage company) at September 30, 1998 and 1999, and the results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1999 and for the period from May 28, 1993 (inception)
through September 30, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

Houston, Texas
November 19, 1999

F-2
<PAGE> 69

GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30, PRO FORMA
------------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
----------- ----------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 1,683,715 $ 7,369,452 $ 8,164,995
Accounts receivable..................... 409,527 250,179 955,606
Unbilled revenue........................ 191,911 133,334 --
Other current assets.................... 11,731 106,941 195,574
----------- ----------- ------------
Total current assets................. 2,296,884 7,859,906 9,316,175
Property and equipment, net............... 972,774 2,492,253 3,922,390
Intangible assets, net.................... -- 262,736 313,662
Other assets.............................. 9,206 105,900 640,338
----------- ----------- ------------
Total assets......................... $ 3,278,864 $10,720,795 $ 14,192,565
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible notes payable............... $ -- $ 300,000 $ 300,000 $ --
Accounts payable........................ 484,680 322,626 1,021,165
Accrued liabilities..................... 96,728 788,882 875,322
Accrued interest payable................ -- 121,864 143,608 --
----------- ----------- ------------
Total current liabilities............ 581,408 1,533,372 2,340,095
Convertible notes payable................. 300,000 -- --
Accrued interest payable.................. 81,295 -- --
Other liabilities......................... 73,557 18,337 18,337
Commitments and contingencies
Stockholders' equity:
Preferred stock......................... 1,297 5,204 7,545 --
Common stock, $.0001 par value,
36,000,000 shares authorized;
11,952,880, 12,463,473, 12,712,539
(unaudited) and 22,959,347
(unaudited) shares issued at
September 30, 1998 and 1999, March
31, 2000 and pro forma March 31,
2000, respectively and 11,152,880,
11,663,473, 11,912,539 (unaudited)
and 22,159,347 (unaudited) shares
outstanding at September 30, 1998 and
1999, March 31, 2000 and pro forma
March 31, 2000, respectively......... 1,195 1,246 1,271 2,295
Additional paid-in capital.............. 5,505,262 16,797,794 35,892,597 38,635,495
Deficit accumulated during the
development stage.................... (3,265,070) (7,635,078) (16,861,194) (16,861,194)
Deferred stock-based compensation....... -- -- (7,206,006) (7,206,006)
Treasury stock, 800,000 shares at
cost................................. (80) (80) (80) (80)
----------- ----------- ------------ -----------
Total stockholders' equity........... 2,242,604 9,169,086 11,834,133 $14,570,510
----------- ----------- ------------ -----------
Total liabilities and stockholders'
equity............................. $ 3,278,864 $10,720,795 $ 14,192,565
=========== =========== ============
</TABLE>

The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 70

GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
MAY 28, 1993
YEAR ENDED SEPTEMBER 30, (INCEPTION) TO
----------------------------------------- SEPTEMBER 30,
1997 1998 1999 1999
----------- ----------- ----------- --------------

<S> <C> <C> <C> <C>
Revenues:
Grant and contract research revenue...... $ 969,869 $ 1,467,291 $ 1,637,259 $ 5,626,715
Service revenue.......................... 34,398 76,750 13,890 208,371
License and royalty revenue.............. -- -- -- --
----------- ----------- ----------- -----------
Total Revenues.................. 1,004,267 1,544,041 1,651,149 5,835,086
----------- ----------- ----------- -----------
Costs and Expenses:
General and administrative (exclusive of
$443,997 related to amortization of
deferred stock-based compensation for
the six months ended March 31, 2000)... 533,442 1,412,162 3,513,953 6,937,780
Research and development (exclusive of
$554,424 related to amortization of
deferred stock-based compensation and
$3,709,205 of expense related to
beneficial conversion feature of
preferred stock for the six months
ended March 31, 2000).................. 634,852 1,434,505 2,603,101 5,958,379
Amortization of deferred stock-based
compensation expense................... -- -- -- --
Expense related to beneficial conversion
feature of preferred stock............. -- -- -- --
----------- ----------- ----------- -----------
Total costs and expenses........ 1,168,294 2,846,667 6,117,054 12,896,159
----------- ----------- ----------- -----------
Net operating loss......................... (164,027) (1,302,626) (4,465,905) (7,061,073)
Interest expense........................... (139,873) (417,237) -- (675,918)
Interest income............................ 35 5,204 95,897 101,913
----------- ----------- ----------- -----------
Net loss................................... (303,865) (1,714,659) (4,370,008) (7,635,078)
Dividend related to beneficial conversion
feature of preferred stock............... -- -- -- --
----------- ----------- ----------- -----------
Net loss attributable to common
stockholders............................. $ (303,865) $(1,714,659) $(4,370,008) $(7,635,078)
=========== =========== =========== ===========
Net loss per common share, basic and
diluted.................................. $ (0.03) $ (0.16) $ (0.39)
=========== =========== ===========
Weighted-average common shares outstanding,
basic and diluted........................ 10,416,175 10,629,145 11,109,262
=========== =========== ===========
Pro forma net loss per common share
(unaudited).............................. $ (0.21)
===========
Pro forma weighted-average common shares
outstanding (unaudited).................. 21,147,636
===========

<CAPTION>
SIX MONTHS ENDED MAY 28, 1993
MARCH 31, (INCEPTION) TO
--------------------------- MARCH 31,
1999 2000 2000
----------- ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues:
Grant and contract research revenue...... $ 757,089 $ 778,750 $ 6,405,465
Service revenue.......................... -- 380,000 588,371
License and royalty revenue.............. -- 125,000 125,000
----------- ------------ ------------
Total Revenues.................. 757,089 1,283,750 7,118,836
----------- ------------ ------------
Costs and Expenses:
General and administrative (exclusive of
$443,997 related to amortization of
deferred stock-based compensation for
the six months ended March 31, 2000)... 1,359,281 3,245,192 10,182,972
Research and development (exclusive of
$554,424 related to amortization of
deferred stock-based compensation and
$3,709,205 of expense related to
beneficial conversion feature of
preferred stock for the six months
ended March 31, 2000).................. 1,089,828 2,676,073 8,634,452
Amortization of deferred stock-based
compensation expense................... -- 998,421 998,421
Expense related to beneficial conversion
feature of preferred stock............. -- 3,709,205 3,709,205
----------- ------------ ------------
Total costs and expenses........ 2,449,109 10,628,891 23,525,050
----------- ------------ ------------
Net operating loss......................... (1,692,020) (9,345,141) (16,406,214)
Interest expense........................... (19,272) (46,110) (722,028)
Interest income............................ 16,718 165,135 267,048
----------- ------------ ------------
Net loss................................... (1,694,574) (9,226,116) (16,861,194)
Dividend related to beneficial conversion
feature of preferred stock............... -- (3,179,878) (3,179,878)
----------- ------------ ------------
Net loss attributable to common
stockholders............................. $(1,694,574) $(12,405,994) $(20,041,072)
=========== ============ ============
Net loss per common share, basic and
diluted.................................. $ (.15) $ (1.06)
=========== ============
Weighted-average common shares outstanding,
basic and diluted........................ 11,026,918 11,697,280
=========== ============
Pro forma net loss per common share
(unaudited).............................. $ (.57)
============
Pro forma weighted-average common shares
outstanding (unaudited).................. 21,735,654
============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-4
<PAGE> 71

GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
------------------ ------------------- PAID-IN DEVELOPMENT DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE COMPENSATION
--------- ------ ---------- ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock at $.00025
per share......................... -- $ -- 8,000,000 $ 800 $ 1,200 $ -- $ --
Net loss for the year ended
September 30, 1993................ -- -- -- -- -- (1,368) --
--------- ------ ---------- ------ ----------- ------------ -----------
Balance at September 30, 1993...... -- -- 8,000,000 800 1,200 (1,368) --
Issuance of common stock
warrants.......................... -- -- -- -- 100 -- --
Net loss for the year ended
September 30, 1994................ -- -- -- -- -- (163,144) --
--------- ------ ---------- ------ ----------- ------------ -----------
Balance at September 30, 1994...... -- -- 8,000,000 800 1,300 (164,512) --
Exercise of stock options.......... -- -- 2,300,000 230 345 -- --
Net loss for the year ended
September 30, 1995................ -- -- -- -- -- (393,570) --
--------- ------ ---------- ------ ----------- ------------ -----------
Balance at September 30, 1995...... -- -- 10,300,000 1,030 1,645 (558,082) --
Net loss for the year ended
September 30, 1996................ -- -- -- -- -- (688,464) --
--------- ------ ---------- ------ ----------- ------------ -----------
Balance at September 30, 1996...... -- -- 10,300,000 1,030 1,645 (1,246,546) --
Issuance of Series A Preferred
Stock at $15 per share, net of
issuance costs.................... 39,868 40 -- -- 541,851 -- --
Issuance of Series A Preferred
Stock at $15 per share upon
conversion of notes payable and
accrued interest.................. 67,193 67 -- -- 1,007,828 -- --
Exercise of stock options.......... -- -- 482,360 48 4,775 -- --
Issuance of common stock in
connection with license
agreement......................... -- -- 950,000 95 -- -- --
Issuance of common stock
warrants.......................... -- -- -- -- 300 -- --
Gift of treasury stock............. -- -- -- -- 80 -- --
Net loss for the year ended
September 30, 1997................ -- -- -- -- -- (303,865) --
--------- ------ ---------- ------ ----------- ------------ -----------
Balance at September 30, 1997...... 107,061 107 11,732,360 1,173 1,556,479 (1,550,411) --
Issuance of Series B Preferred
Stock at $22 per share, net of
issuance costs.................... 50,943 51 -- -- 1,029,043 -- --
Issuance of Series B Preferred
Stock for financial advisory
services in connection with the
sale of related stock............. 701 1 -- -- (1) -- --
Issuance of Series C Preferred
Stock at $2.36 per share, net of
issuance costs.................... 1,129,247 1,129 -- -- 2,536,792 -- --
Issuance of Series C Preferred
Stock for financial advisory
services in connection with the
sale of related stock............. 8,564 9 -- -- (9) -- --
Interest related to convertible
notes payable to be paid in
preferred stock................... -- -- -- -- 381,285 -- --

TREASURY STOCK
-----------------
SHARES AMOUNT TOTAL
-------- ------ -----------
<S> <C> <C> <C>
Issuance of common stock at $.00025
per share......................... -- $ -- $ 2,000
Net loss for the year ended
September 30, 1993................ -- -- (1,368)
-------- ---- -----------
Balance at September 30, 1993...... -- -- 632
Issuance of common stock
warrants.......................... -- -- 100
Net loss for the year ended
September 30, 1994................ -- -- (163,144)
-------- ---- -----------
Balance at September 30, 1994...... -- -- (162,412)
Exercise of stock options.......... -- -- 575
Net loss for the year ended
September 30, 1995................ -- -- (393,570)
-------- ---- -----------
Balance at September 30, 1995...... -- -- (555,407)
Net loss for the year ended
September 30, 1996................ -- -- (688,464)
-------- ---- -----------
Balance at September 30, 1996...... -- -- (1,243,871)
Issuance of Series A Preferred
Stock at $15 per share, net of
issuance costs.................... -- -- 541,891
Issuance of Series A Preferred
Stock at $15 per share upon
conversion of notes payable and
accrued interest.................. -- -- 1,007,895
Exercise of stock options.......... -- -- 4,823
Issuance of common stock in
connection with license
agreement......................... -- -- 95
Issuance of common stock
warrants.......................... -- -- 300
Gift of treasury stock............. (800,000) (80) --
Net loss for the year ended
September 30, 1997................ -- -- (303,865)
-------- ---- -----------
Balance at September 30, 1997...... (800,000) (80) 7,268
Issuance of Series B Preferred
Stock at $22 per share, net of
issuance costs.................... -- -- 1,029,094
Issuance of Series B Preferred
Stock for financial advisory
services in connection with the
sale of related stock............. -- -- --
Issuance of Series C Preferred
Stock at $2.36 per share, net of
issuance costs.................... -- -- 2,537,921
Issuance of Series C Preferred
Stock for financial advisory
services in connection with the
sale of related stock............. -- -- --
Interest related to convertible
notes payable to be paid in
preferred stock................... -- -- 381,285
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-5
<PAGE> 72

<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
------------------ ------------------- PAID-IN DEVELOPMENT DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE COMPENSATION
--------- ------ ---------- ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Exercise of stock options.......... -- -- 169,520 17 1,678 -- --
Issuance of common stock for
financial advisory services in
connection with the issuance of
Series C Preferred Stock.......... -- -- 51,000 5 (5) -- --
Net loss for the year ended
September 30, 1998................ -- -- -- -- -- (1,714,659) --
--------- ------ ---------- ------ ----------- ------------ -----------
Balance at September 30, 1998...... 1,296,516 1,297 11,952,880 1,195 5,505,262 (3,265,070) --
Issuance of Series C Preferred
Stock for financial advisory
services in connection with the
sale of related stock............. 36,000 36 -- -- (36) -- --
Issuance of Series D Preferred
Stock at $2.83 per share, net of
issuance costs.................... 706,714 707 -- -- 1,965,186 -- --
Issuance of Series E Preferred
Stock at $3.00 per share, net of
issuance costs.................... 1,666,667 1,666 -- -- 4,966,573 -- --
Issuance of Series F Preferred
Stock and common stock warrants at
$3.00 per share, net of issuance
costs............................. 1,481,670 1,481 -- -- 4,283,006 -- --
Interest related to convertible
notes payable to be paid in
preferred stock................... -- -- -- -- 40,536 -- --
Exercise of stock options.......... -- -- 500,000 50 4,950 -- --
Issuance of common stock in
connection with a consulting
agreement......................... -- -- 10,593 1 25,848 -- --
Issuance of options to scientific
advisors.......................... -- -- -- -- 6,486 -- --
Net loss for the year ended
September 30, 1999................ -- -- -- -- -- (4,370,008) --
Issuance of Series F Preferred
Stock for financial advisory
services in connection with the
sale of related stock............. 16,667 17 -- -- (17) -- --
--------- ------ ---------- ------ ----------- ------------ -----------
Balance at September 30, 1999...... 5,204,234 5,204 12,463,473 1,246 16,797,794 (7,635,078) --
Issuance of Series F Preferred
Stock and common stock warrants at
$3.00 per share, net of issuance
costs (unaudited)................. 1,309,095 1,309 -- -- 3,924,328 -- --
Issuance of Series E Preferred
Stock at $3.00 per share
(unaudited)....................... 1,000,000 1,000 -- -- 2,999,000 -- --
Beneficial conversion feature
related to issuance of Series E
and F Convertible Preferred Stock
(unaudited)....................... -- -- -- -- 6,889,083 -- --
Amortization of beneficial
conversion feature of Series F
Convertible Preferred Stock
(unaudited)....................... -- -- -- -- (3,179,878) -- --
Exercise of stock options
(unaudited)....................... -- -- 156,703 16 162,234 -- --
Exercise of common stock warrants
(unaudited)....................... -- -- 49,270 5 73,900 -- --
Issuance of common stock in
connection with a consulting
agreement (unaudited)............. -- -- 10,593 1 -- -- --
Interest related to convertible
notes payable to be paid in
preferred stock (unaudited)....... -- -- -- -- 21,744 -- --
Deferred stock-based compensation
(unaudited)....................... -- -- -- -- 8,204,427 -- (8,204,427)
Amortization of deferred
stock-based compensation
(unaudited)....................... -- -- -- -- -- -- 998,421
Issuance of common stock and Series
F Preferred Stock for financial
advisory services in connection
with the sale of preferred stock
(unaudited)....................... 31,580 32 32,500 3 (35) -- --
Net loss for the six months ended
March 31, 2000 (unaudited)........ -- -- -- -- -- (9,226,116) --
--------- ------ ---------- ------ ----------- ------------ -----------
Balance at March 31, 2000
(unaudited)....................... 7,544,909 $7,545 12,712,539 $1,271 $35,892,597 $(16,861,194) $(7,206,006)
========= ====== ========== ====== =========== ============ ===========

TREASURY STOCK
-----------------
SHARES AMOUNT TOTAL
-------- ------ -----------
<S> <C> <C> <C>
Exercise of stock options.......... -- -- 1,695
Issuance of common stock for
financial advisory services in
connection with the issuance of
Series C Preferred Stock.......... -- -- --
Net loss for the year ended
September 30, 1998................ -- -- (1,714,659)
-------- ---- -----------
Balance at September 30, 1998...... (800,000) (80) 2,242,604
Issuance of Series C Preferred
Stock for financial advisory
services in connection with the
sale of related stock............. -- -- --
Issuance of Series D Preferred
Stock at $2.83 per share, net of
issuance costs.................... -- -- 1,965,893
Issuance of Series E Preferred
Stock at $3.00 per share, net of
issuance costs.................... -- -- 4,968,239
Issuance of Series F Preferred
Stock and common stock warrants at
$3.00 per share, net of issuance
costs............................. -- -- 4,284,487
Interest related to convertible
notes payable to be paid in
preferred stock................... -- -- 40,536
Exercise of stock options.......... -- -- 5,000
Issuance of common stock in
connection with a consulting
agreement......................... -- -- 25,849
Issuance of options to scientific
advisors.......................... -- -- 6,486
Net loss for the year ended
September 30, 1999................ -- -- (4,370,008)
Issuance of Series F Preferred
Stock for financial advisory
services in connection with the
sale of related stock............. -- -- --
-------- ---- -----------
Balance at September 30, 1999...... (800,000) (80) 9,169,086
Issuance of Series F Preferred
Stock and common stock warrants at
$3.00 per share, net of issuance
costs (unaudited)................. -- -- 3,925,637
Issuance of Series E Preferred
Stock at $3.00 per share
(unaudited)....................... -- -- 3,000,000
Beneficial conversion feature
related to issuance of Series E
and F Convertible Preferred Stock
(unaudited)....................... -- -- 6,889,083
Amortization of beneficial
conversion feature of Series F
Convertible Preferred Stock
(unaudited)....................... -- -- (3,179,878)
Exercise of stock options
(unaudited)....................... -- -- 162,250
Exercise of common stock warrants
(unaudited)....................... -- -- 73,905
Issuance of common stock in
connection with a consulting
agreement (unaudited)............. -- -- 1
Interest related to convertible
notes payable to be paid in
preferred stock (unaudited)....... -- -- 21,744
Deferred stock-based compensation
(unaudited)....................... -- -- --
Amortization of deferred
stock-based compensation
(unaudited)....................... -- -- 998,421
Issuance of common stock and Series
F Preferred Stock for financial
advisory services in connection
with the sale of preferred stock
(unaudited)....................... -- -- --
Net loss for the six months ended
March 31, 2000 (unaudited)........ -- -- (9,226,116)
-------- ---- -----------
Balance at March 31, 2000
(unaudited)....................... (800,000) $(80) $11,834,133
======== ==== ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-6
<PAGE> 73

GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
MAY 28, 1993 SIX MONTHS ENDED MAY 28, 1993
YEAR ENDED SEPTEMBER 30, (INCEPTION) TO MARCH 31, (INCEPTION) TO
------------------------------------- SEPTEMBER 30, ------------------------- MARCH 31,
1997 1998 1999 1999 1999 2000 2000
--------- ----------- ----------- -------------- ----------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.................... $(303,865) $(1,714,659) $(4,370,008) $(7,635,078) $(1,694,574) $(9,226,116) $(16,861,194)
--------- ----------- ----------- ----------- ----------- ----------- ------------
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization............ 29,394 49,588 127,552 247,029 53,091 216,753 463,782
Issuance of common stock
in connection with
license agreement....... 95 -- -- 95 -- -- 95
Expense related to
beneficial conversion
feature of preferred
stock................... -- -- -- -- -- 3,709,205 3,709,205
Amortization of deferred
stock-based
compensation............ -- -- -- -- -- 998,421 998,421
Non cash interest
expense................. -- 381,285 40,536 421,821 21,783 443,604
Issuance of common stock
for consulting
services................ -- -- 25,849 25,849 -- -- 25,849
Issuance of options to
scientific advisors..... -- -- 6,486 6,486 -- -- 6,486
Increase (decrease) in
cash relating to change
in:
Accounts receivable..... (172,129) (143,423) 159,348 (250,179) 318,851 (705,427) (955,606)
Unbilled revenue........ -- (191,911) 58,577 (133,334) (237,883) 133,334 --
Other current assets.... 480 (1,812) (95,210) (106,941) (11,072) (88,633) (195,574)
Other assets............ 3,352 -- (96,694) (105,900) (16,540) (534,438) (640,338)
Accounts payable........ 56,982 347,452 (162,054) 322,626 79,802 698,539 1,021,165
Accrued liabilities..... (11,181) 64,517 692,154 788,882 (106,283) 86,440 875,322
Accrued interest
payable............... 134,867 35,618 40,569 329,759 16,319 21,744 351,503
Other liabilities....... -- (33,851) (55,220) 18,337 (55,222) -- 18,337
--------- ----------- ----------- ----------- ----------- ----------- ------------
Total adjustments....... 41,860 507,463 741,893 1,564,530 41,063 4,557,721 6,122,251
--------- ----------- ----------- ----------- ----------- ----------- ------------
Net cash used in
operating
activities............ (262,005) (1,207,196) (3,628,115) (6,070,548) (1,653,511) (4,668,395) (10,738,943)
--------- ----------- ----------- ----------- ----------- ----------- ------------
Cash flows from investing
activities:
Additions to patents and
license agreements........ -- -- (266,070) (266,070) -- (76,009) (342,079)
Capital expenditures...... (20,550) (976,084) (1,643,697) (2,735,948) (1,070,075) (1,621,805) (4,357,753)
--------- ----------- ----------- ----------- ----------- ----------- ------------
Net cash used in
investing
activities............ (20,550) (976,084) (1,909,767) (3,002,018) (1,070,075) (1,697,814) (4,699,832)
--------- ----------- ----------- ----------- ----------- ----------- ------------
Cash flows from financing
activities:
Proceeds from short-term
borrowing............... 76,050 -- -- 76,050 -- -- 76,050
Payment of short-term
borrowing............... (76,050) -- -- (76,050) -- -- (76,050)
Proceeds from issuance of
long-term debt.......... -- -- -- 1,100,000 -- -- 1,100,000
Proceeds from issuance of
preferred stock, net of
issuance costs.......... 541,891 3,567,015 11,218,619 15,327,525 1,969,399 6,925,097 22,252,622
Proceeds from issuance of
common stock............ 4,823 1,695 5,000 14,093 -- 162,750 176,843
Proceeds from exercise of
common stock warrants... 73,905 73,905
Proceeds from issuance of
common stock warrants... 300 -- -- 400 -- -- 400
--------- ----------- ----------- ----------- ----------- ----------- ------------
Net cash provided by
financing
activities............ 547,014 3,568,710 11,223,619 16,442,018 1,969,399 7,161,752 23,603,770
--------- ----------- ----------- ----------- ----------- ----------- ------------
Net increase (decrease) in
cash and cash
equivalents............... 264,459 1,385,430 5,685,737 7,369,452 (754,187) 795,543 8,164,995
Cash and cash equivalents at
beginning of period....... 33,826 298,285 1,683,715 -- 1,683,715 7,369,452 --
--------- ----------- ----------- ----------- ----------- ----------- ------------
Cash and cash equivalents at
end of period............. $ 298,285 $ 1,683,715 $ 7,369,452 $ 7,369,452 $ 929,528 $ 8,164,995 $ 8,164,995
========= =========== =========== =========== =========== =========== ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-7
<PAGE> 74

GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Genometrix Incorporated (the "Company") was founded in 1993 to provide
on-line, high throughput genomic services to assist pharmaceutical and
biotechnology companies in their efforts to develop safer, personalized
therapeutic drugs. The Company has operated as a development stage company since
its inception by devoting substantially all of its efforts to financial
planning, raising capital, research and development and commercializing its
offered services. As discussed in Note 11, the Company changed its name on March
10, 2000 to Genometrix Genomics Incorporated.

Following is a summary of the Company's significant accounting policies.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include all
highly liquid investments purchased with a maturity date of three months or
less.

Property and Equipment

Property and equipment are recorded at cost. Depreciation of property and
equipment is provided using the straight-line method over the estimated useful
lives of the depreciable assets, which range from three years for office and
computer equipment to seven years for furniture and lab equipment. Additions or
improvements that increase the value or extend the life of an asset are
capitalized. Expenditures for normal maintenance and repairs are expensed as
incurred. Disposals are removed from the accounts at cost less accumulated
depreciation, and any gain or loss from disposition is reflected in operations.

Interest costs related to construction of assets for internal use are
capitalized. Capitalized interest is amortized over the estimated useful lives
of the related assets.

Intangible Assets

Intangible assets include patents and patent license agreements and are
amortized using the straight-line method over their estimated useful lives of
five years.

Impairment of Long-Lived Assets

The Company periodically assesses the carrying value of its long-lived
assets and certain identifiable intangible assets when events or circumstances
indicate that the carrying value of such assets may not be recoverable.
Recoverability is assessed by comparison of an asset's carrying value to the
undiscounted future cash flows expected to be generated by that asset. In the
event that the Company determines that an asset's carrying value is not
recoverable, the amount of impairment is measured based on the fair value of the
asset as determined by market comparables or discounted future cash flows when
no market comparables are available. No impairment losses have been recorded
through September 30, 1999.

Fair Value of Financial Instruments

The carrying amounts of the Company's cash and cash equivalents, accounts
receivable, accounts payable, accrued expenses, and other liabilities at
September 30, 1998 and 1999 approximated their fair values due to their short
maturities. The fair value of the Company's convertible notes payable and
accrued interest at September 30, 1998 and 1999 was approximately $1,570,000 and
$1,841,000, respectively, based on the underlying fair value of the stock into
which the notes and related accrued interest are convertible.

F-8
<PAGE> 75
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes

The Company uses the liability method of accounting for income taxes. Under
this method, deferred income taxes are recorded to reflect the tax consequences
on future years of temporary differences between the tax basis of assets and
liabilities and their financial amounts at year end. A valuation allowance is
provided, if necessary, to reduce any resulting deferred tax assets to their net
realizable value.

Segment Reporting

Statement of Financial Accounting Standards No. 131, "Disclosure About
Segments of an Enterprise and Related Information" requires that segments be
identified based on a management approach. Accordingly, management of the
Company has determined that the Company operates in one business segment. All
long-lived assets are located in the United States.

Revenue Recognition

Research grant revenue for the reimbursement of time and materials is
recognized as the related costs are incurred and realization is assured.
Contract research revenue is recognized as the related work is performed and
costs are incurred or upon the achievement of pre-determined benchmarks and when
realization is assured. Grant and contract research revenue recognized in the
accompanying financial statements is not subject to repayment. Fee-for-service
revenue is recognized as services are performed in accordance with the terms of
each agreement and realization is assured. Payments received in advance of
performance are deferred and recognized systematically as the related services
are rendered. License revenues include amounts earned from third parties under
the Company's licensed intellectual property and are recognized when earned
under the terms of the related agreement and when realization is assured.
Royalty revenues are recognized when earned under terms of the related royalty
agreement and when realization is assured. The Company does not currently have
an allowance for potential credit losses at September 30, 1998 or 1999 as all
receivables at those dates are considered fully recoverable due to the quality
of the underlying customers.

Research and Development

Costs of research and development for government and Company-sponsored
projects are expensed as incurred. These costs consist of direct costs
associated with specific projects. Costs associated with the internal
development of computer software to be provided with the Company's current and
future services are expensed as incurred until technological feasibility has
been established. Costs incurred for the internal development of computer
software used in conjunction with the Company's research and development
activities that have no alternative future uses are expensed as incurred.

Stock-Based Compensation

The Company accounts for stock-based compensation to employees and members
of the Board of Directors in accordance with the provisions of Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees."
Compensation expense is recorded to the extent that the fair value of the
underlying stock exceeds the purchase or exercise price on the date of grant.
Any deferred compensation expense is recognized over the applicable vesting
period.

Transactions with non-employees in which equity instruments are issued in
consideration for goods or services are accounted for in accordance with the
fair value basis set forth by Statement of Financial Accounting Standards No.
123 ("SFAS No. 123") "Accounting for Stock-Based Compensation."

F-9
<PAGE> 76
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Net Loss per Share

Net loss per share is calculated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128 "Earnings per Share." Basic
net loss per share is calculated by dividing the net loss for the period by the
weighted-average number of common shares outstanding during the period. Because
of their anti-dilutive effect, securities consisting of common shares issuable
upon the exercise of stock options and warrants and shares issuable upon the
conversion of convertible debt and convertible preferred stock have been
excluded from the calculation of historical diluted net loss per share.

Net loss attributable to common stockholders reflects dividends deemed to
have been recognized as a result of the beneficial conversion feature derived
from the Series F Convertible Preferred Stock issued during the six months ended
March 31, 2000 (Note 11).

The following outstanding options and warrants (prior to the application of
the treasury stock method), convertible preferred stock (on an as-if converted
basis) and convertible notes payable and accrued interest (on an as-if converted
basis) were excluded from the computation of diluted net loss per share because
they have an antidilutive effect:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Options and warrants........................................ 837,045 3,785,291 3,409,078
Convertible preferred stock................................. 1,070,610 2,760,861 6,632,579
Convertible notes payable and accrued interest.............. 502,803 554,611 613,574
</TABLE>

Estimates

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

Reclassifications

Certain amounts in the 1997 and 1998 and from May 28, 1993 (inception) to
September 30, 1999 financial statements have been reclassified to conform to the
current year presentation.

Interim Financial Information

The interim financial statements as of March 31, 2000, for the six months
ended March 31, 1999 and 2000 and for the period from May 28, 1993 (inception)
to March 31, 2000 are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company's management, the unaudited interim financial statements contain all
adjustments, all of which are of a normal recurring nature, that are considered
necessary for a fair presentation. The results of operations for the interim
periods are not necessarily indicative of the results for the entire fiscal
year.

Unaudited Pro Forma Information

If the Company's initial public offering as described in Note 11 is
consummated, all preferred stock outstanding, convertible notes payable and
accrued interest will automatically convert into common stock.

F-10
<PAGE> 77
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The pro forma balance sheet at March 31, 2000 has been adjusted for the assumed
conversion of preferred stock outstanding as of March 31, 2000 into 8,973,254
shares of common stock, the conversion of notes payable and accrued interest
into 403,280 shares of common stock and the assumed exercise under binding
subscription agreements with the warrant holders of 870,274 common stock
warrants outstanding as of March 31, 2000. The common stock warrants would have
otherwise expired upon completion of the initial public offering.

The calculation of pro forma net loss per share includes shares issuable
upon the conversion of convertible preferred stock and notes payable and the
exercise of common stock warrants using the as-if converted method from the
beginning of each period presented. The interest expense on convertible notes
payable has also been removed for purposes of calculating pro forma net loss
attributable to common stockholders for the six months ended March 31, 2000.
There was no pro-forma interest expense adjustment made for the year ended
September 30, 1999 because all interest incurred during that period was
capitalized. A reconciliation of pro forma net loss and pro forma shares used in
the calculations is as follows:

<TABLE>
<CAPTION>
SIX
YEAR ENDED MONTHS ENDED
SEPTEMBER 30, 1999 MARCH 31, 2000
------------------ -----------------
<S> <C> <C>
Net loss attributable to common stockholders................ $(4,370,008) $(12,405,994)
Interest related to convertible notes payable and accrued
interest.................................................. -- 21,744
----------- ------------
Pro forma net loss attributable to common stockholders...... $(4,370,008) $(12,384,250)
=========== ============
Weighted-average shares used in calculating basic and
diluted net loss per share................................ 11,109,262 11,697,280
Adjustment to reflect the weighted-average effect of assumed
conversion of preferred stock and convertible notes and
the exercise of warrants (unaudited)...................... 10,038,374 10,038,374
----------- ------------
Weighted-average shares used in pro forma basic and diluted
net loss per share (unaudited)............................ 21,147,636 21,735,654
=========== ============
</TABLE>

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that all derivatives be recognized at fair
value in the statement of financial position, and that the corresponding gains
or losses be reported either in the statement of operations or as a component of
comprehensive income, depending on the type of relationship that exists. The
Company, to date, has not engaged in derivative or hedging activities.

In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101") which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. The Company's
revenue recognition policy is in compliance with the provisions of SAB 101.

F-11
<PAGE> 78
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1998 1999
--------- ----------
<S> <C> <C>
Office and computer equipment............................... $ 139,493 $ 377,793
Lab equipment............................................... 262,172 344,083
Office furniture............................................ 61,044 102,529
--------- ----------
462,709 824,405
Less accumulated depreciation............................... (119,477) (243,695)
Equipment work in process................................... 629,542 1,911,543
--------- ----------
$ 972,774 $2,492,253
========= ==========
</TABLE>

The Company constructed one major array imaging instrument for use in its
operations during fiscal year 1999 and is in the process of constructing two
others. Costs estimated to complete the equipment work in process totalled
approximately $100,000 at September 30, 1999. There was no interest capitalized
during fiscal years 1997 and 1998. In 1999, approximately $104,000 of interest
cost was capitalized.

3. ACCRUED LIABILITIES:

Accrued liabilities consisted of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1999
------- --------
<S> <C> <C>
Bonus....................................................... $ -- $344,734
Payroll..................................................... 51,370 161,560
Commissions................................................. -- 150,000
Vacation.................................................... 27,337 78,882
Other....................................................... 18,021 53,706
------- --------
$96,728 $788,882
======= ========
</TABLE>

4. CONVERTIBLE NOTES AND ACCRUED INTEREST PAYABLE:

Long-term debt consists of uncollateralized convertible notes payable
bearing interest at prime (8.49% and 8.25% at September 30, 1998 and 1999,
respectively) plus 2%. The notes and related interest are payable in a single
installment on July 6, 2001. Under the terms of the note agreements, the notes
and any interest accrued thereon were to become convertible into convertible
preferred stock at the option of the note holders only upon the closing of a
financing transaction with aggregate gross proceeds of at least $750,000 (the
"Financing"). Upon the occurrence of the Financing, the note agreements provided
for the notes and accrued interest to be convertible into convertible preferred
stock at a price per share equal to 50% of the price per share paid by the
purchasers in the Financing.

Upon the issuance of the Series B Convertible Preferred Stock in February
1998, the notes and accrued interest became convertible into Series B
Convertible Preferred Stock at a price per share of $11. The Company recognized
additional interest expense related to the beneficial conversion feature of the
notes totaling approximately $381,000 and $41,000 for the years ended September
30, 1998 and 1999, respectively. This resulted in an effective annual interest
rate of 115% and 20% for the years ended

F-12
<PAGE> 79
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

September 30, 1998 and 1999, respectively. The notes will automatically convert
to shares of common stock upon the completion of an initial public offering as
described in Note 11.

Among other provisions, the note agreements contain a covenant that
requires the Company to submit audited financial statements to the note holders
within 120 days of year-end. The Company is currently not in compliance with
this requirement, and the note holders have not granted a waiver. The note
agreements provide that the note holders may call the notes in the event of a
covenant violation; accordingly, the notes payable and related accrued interest
have been classified as current in the September 30, 1999 and March 31, 2000
balance sheets.

5. FEDERAL INCOME TAXES:

Due to the Company's loss position, there was no provision for income taxes
for the years ended September 30, 1997, 1998 or 1999.

The tax effects of temporary differences and loss carryforwards that give
rise to deferred tax assets and liabilities and the valuation allowance were as
follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Property and equipment.................................... $ 16,376 $ --
Organization costs........................................ 266,887 207,579
Net operating losses...................................... 805,940 2,366,743
----------- -----------
Total deferred tax assets............................... 1,089,203 2,574,322
Property and equipment.................................... -- (2,402)
----------- -----------
Total deferred tax liabilities.......................... -- (2,402)
Net deferred tax asset.................................... 1,089,203 2,571,920
Valuation allowance....................................... (1,089,203) (2,571,920)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>

Based upon the weight of available evidence, which includes the Company's
historical operating performance and the reported cumulative net losses in all
prior years, the Company has provided a full valuation allowance against its net
deferred tax assets because the Company does not consider it more likely than
not that the deferred tax asset will be realized. The valuation allowance
increased by $102,519, $581,979 and $1,482,717 during 1997, 1998 and 1999,
respectively.

The Company has federal net operating loss carryforwards which, if not
utilized, will expire as follows:

Utilization of the net operating losses may be subject to a substantial
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986, as amended. The annual limitation may result in
the expiration of net operating losses before utilization.

F-13
<PAGE> 80
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. STOCKHOLDERS' EQUITY:

Common Stock

In February 1997, the Board of Directors authorized a stock split whereby
each share of the then outstanding common stock was exchanged for 10,000 shares
of common stock. The Board of Directors authorized an additional stock split in
May 1998 whereby each share of outstanding common stock was exchanged for 10
shares of common stock. Common stock, additional paid-in capital and all options
and warrants to convert to common stock have been retroactively restated for all
periods presented to reflect these changes in the capital structure. Common
stock reserved for warrants outstanding and the conversion of preferred stock
totaled 657,725 shares and 6,632,578 shares, respectively, at September 30,
1999.

Preferred Stock

The Company is authorized to issue 13,000,000 shares of Preferred Stock.
The following table summarizes information regarding the various designations of
Preferred Stock at September 30, 1998
and 1999:

<TABLE>
<CAPTION>
SHARES ISSUED AND
OUTSTANDING
SEPTEMBER 30,
PAR SHARES --------------------- LIQUIDATION
VALUE AUTHORIZED 1998 1999 PREFERENCE
------ ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Series A Convertible Preferred Stock.......... $0.001 125,000 107,061 107,061 $ 1,806,654
Series B Convertible Preferred Stock.......... 0.001 200,000 51,644 51,644 1,238,423
Series C Convertible Preferred Stock.......... 0.001 1,200,000 1,137,811 1,173,811 2,950,257
Series D Convertible Preferred Stock.......... 0.001 706,714 -- 706,714 2,090,001
Series E Convertible Preferred Stock.......... 0.001 2,666,667 -- 1,666,667 5,075,001
Series F Convertible Preferred Stock.......... 0.001 4,000,000 -- 1,498,337 4,517,486
Preferred Stock (undesignated)................ 0.001 4,101,619 -- -- --
---------- --------- --------- -----------
13,000,000 1,296,516 5,204,234 $17,677,822
========== ========= ========= ===========
</TABLE>

Each share of Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock is convertible into ten shares of common stock. Each share of
Series C Convertible Preferred Stock, Series D Convertible Preferred Stock,
Series E Convertible Preferred Stock and Series F Convertible Preferred Stock is
convertible into one share of common stock. All Preferred Stock is
non-cumulative and voting. No cash dividends were paid for the fiscal years
ended September 30, 1997, 1998 and 1999.

All shares of preferred stock will automatically convert to common stock
upon completion of an initial public offering as discussed in Note 11.

F-14
<PAGE> 81
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Stock Purchase Warrants

The Company issued warrants for the purchase of common stock in connection
with the issuance of various series of preferred stock, the conversion of
certain convertible notes payable and in connection with related financial
advisory agreements. The following table summarizes warrants outstanding as of
September 30, 1999:

<TABLE>
<CAPTION>
NUMBER OF EXERCISE FAIR
STOCK SHARES PRICE VALUE EXPIRATION
GRANT DATE CLASSIFICATION EXERCISABLE PER SHARE PER SHARE DATES
- ---------- -------------- ----------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
August 1997.......... Common 234,040 $1.50 $ .01 August 2000
March 1998........... Common 26,210 $2.20 $ .24 August 2002
September 1998....... Common 31,141 $2.36 $ .25 September 2002
August 1999.......... Common 299,667 $3.00 $ .32 August 2001
August 1999.......... Common 66,667 $3.00 $ .32 August 2003
-------
657,725
=======
</TABLE>

The weighted-average exercise price of warrants outstanding as of September
30, 1999 was $2.40. Warrants issued pursuant to financial advisory agreements in
connection with sales of preferred stock were recorded based on their fair
values as determined using the Black-Scholes option pricing model and reflected
as stock issuance costs. Warrants issued to investors concurrently with the sale
of preferred stock were assigned fair values as determined by the Black-Scholes
model and recorded as additional paid-in capital based on their estimated fair
values relative to the fair values of the preferred stock with which they were
issued. Warrants valued using the Black-Scholes model assumed an exercise date 3
years after the grant date, the declaration of no dividends, the utilization of
a risk free interest rate of 6.8% and a volatility rate of 34%. All of the above
warrants will expire upon the dates noted above or upon the completion of an
initial public offering as described in Note 11. During the year ended September
30, 1999, 84,000 preferred stock warrants and 16,800 common stock warrants
expired.

Stock Plan

In February 1995, the Company established the 1994 Stock Plan, which
provides for the issuance of up to 6,500,000 shares of common stock to
employees, directors and consultants of the Company. Shares may be issued as
incentive stock options, non-qualified stock options or purchase opportunities.
The exercise price of incentive stock options granted under the plan is to be
greater than or equal to the fair value of the common stock at the date of
grant. The incentive stock options are exercisable over a period not to exceed
ten years from the date of grant. The option price and purchase price of
non-qualified stock options and purchase opportunities are to be not less than
the par value of the common stock at the date of grant. The non-qualified stock
options and purchase opportunities are exercisable as determined by each stock
option agreement. Options granted under the 1994 Stock Plan vest over periods up
to five years.

F-15
<PAGE> 82
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

All options issued through September 30, 1999 had exercise prices that
were equal to the estimated fair market value of the Company's common stock
on the date of grant. A summary of changes in common stock options is as
follows:

<TABLE>
<CAPTION>
STOCK SHARES ISSUABLE WEIGHTED
OPTIONS UNDER AVERAGE
AVAILABLE OUTSTANDING EXERCISE PRICE
FOR ISSUE OPTIONS PER SHARE
---------- --------------- --------------
<S> <C> <C> <C>
Balance at Inception, May 28, 1993 and at
September 30, 1993
Options authorized........................ 2,800,000 -- $ --
Options granted........................... (500,000) 500,000 .00025
---------- ---------- -------
Balance at September 30, 1994............... 2,300,000 500,000 .00025
Options granted........................... (1,800,000) 1,800,000 .00025
Options exercised......................... -- (2,300,000) .00025
---------- ---------- -------
Balance at September 30, 1995 and 1996...... 500,000 -- --
Options granted........................... (1,212,000) 1,212,000 .01
Options exercised......................... -- (482,360) .01
Shares reacquired......................... 800,000 -- .01
---------- ---------- -------
Balance at September 30, 1997............... 88,000 729,640 .01
Options authorized........................ 3,700,000
Options granted........................... (2,625,000) 2,625,000 .50
Options exercised......................... -- (169,520) .01
---------- ---------- -------
Balance at September 30, 1998............... 1,163,000 3,185,120 .41
Options granted........................... (646,900) 646,900 2.75
Options exercised......................... -- (500,000) .01
Options expired and forfeited............. 580,667 (580,667) .54
---------- ---------- -------
Balance at September 30, 1999............... 1,096,767 2,751,353 $ 1.01
========== ========== =======
</TABLE>

Outstanding options that were fully vested and exercisable totaled
60,467, 852,088 and 909,453 at September 30, 1997, 1998 and 1999,
respectively. Total shares issuable under outstanding options vest as
follows:

<TABLE>
<CAPTION>
TOTAL
OPTIONS
SEPTEMBER 30, VESTED
- ------------- ---------
<S> <C>
2000.............................................. 1,623,753
2001.............................................. 2,338,053
2002.............................................. 2,726,353
2003.............................................. 2,751,353
2004.............................................. 2,751,353
</TABLE>

F-16
<PAGE> 83
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

A summary of options outstanding at September 30, 1999 is as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE NUMBER REMAINING
OUTSTANDING PRICE EXERCISABLE TERM
----------- -------- ----------- ---------------
<S> <C> <C> <C>
60,120 $0.01 60,120 Less than 8
2,055,333 $0.50 807,733 8.0 - 8.9 years
155,000 $2.36 40,000 9.0 - 9.9 years
326,900 $2.83 2,000 9.0 - 9.9 years
154,000 $3.00 -- 10.0 years
</TABLE>

During the six months ended March 31, 2000, the Company issued 1,564,880
common stock options with exercise prices per share of $3.00 and $10.00 to
certain employees and directors. Because these options were issued with exercise
prices below the fair value of the common stock at the grant dates, the Company
recorded deferred compensation of approximately $8.2 million which is being
amortized ratably over the vesting period of each option.

The pro forma disclosures as if the Company had used the fair value method
of accounting as required by SFAS No. 123 are presented below:

<TABLE>
<CAPTION>
NET LOSS ATTRIBUTABLE BASIC AND DILUTED
TO COMMON STOCKHOLDERS NET LOSS PER SHARE
-------------------------- ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
1997.............................. $ (303,865) $ (306,380) $(0.03) $(0.03)
1998.............................. $(1,714,659) $(1,715,055) $(0.16) $(0.16)
1999.............................. $(4,370,008) $(4,495,026) $(0.39) $(0.40)
</TABLE>

Under SFAS No. 123, compensation cost is measured at the grant date based
on the fair value of the awards and is recognized over the service period, which
is usually the vesting period. The fair value of the options granted was
estimated at the date granted using the Black-Scholes option pricing model
assuming the options will be exercised approximately 5 years after the grant
date, the declaration of no dividends and utilizing a risk free interest rate of
5.27% and a volatility rate of 34%.

The weighted-average fair value of options granted during the fiscal years
ended September 30, 1997, 1998 and 1999 was $.002, $.12 and $1.06 respectively,
which would have resulted in compensation expense of $2,515, $396 and $125,018,
respectively.

The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future effects because it does not apply to awards prior to 1995
and additional stock option awards in future years are anticipated.

7. LICENSE AND RESEARCH AGREEMENTS:

In May 1994, the Company entered into a license agreement (the "MIT License
Agreement") with the Massachusetts Institute of Technology (the "Licensor") for
the purpose of undertaking development to manufacture, use and sell licensed
products. Under the terms of the agreement, the Company shall pay the Licensor
royalties on the net sales of the licensed products and processes utilizing
electrical and optical DNA chip technology. If the Company elects to sublicense
this patent technology to a non-affiliated entity, the Company must pay to the
Licensor a percentage of any sublicense fees or royalty fees received. This
agreement is effective until May 2004, unless the Company ceases to be a party
to a certain collaboration agreement or is unable to achieve certain required
net sales, as described in the agreement,

F-17
<PAGE> 84
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

in which event the exclusive licenses in the agreement shall become
nonexclusive. In January 1997, the Company issued 950,000 shares of common stock
at par value, which approximated fair value, to the Licensor in accordance with
royalty terms included in the agreement. Royalty expense totaled $95, $4,407 and
$11,688 in fiscal years 1997, 1998 and 1999, respectively.

In July 1999, in connection with the issuance of Series E Convertible
Preferred Stock to Motorola, Inc. ("Motorola"), the Company entered into a
License and Research Agreement with Motorola. Pursuant to the agreement, the
Company granted Motorola a perpetual, royalty-bearing, worldwide license to some
of its intellectual property relating to electrical DNA chip technology and
hybridization chemistries primarily for Motorola's commercialization of portable
DNA-based clinical diagnostic systems. Under the terms of the MIT License
Agreement the Company pays the Licensor a percentage of any license fees
generated under the License and Research Agreement. The agreement requires
Motorola to pay a royalty on sales of certain products that are derived under
this license agreement. There was no royalty income for the year ended September
30, 1999. In addition, Motorola agreed to provide $250,000 of funding to the
Company in return for research and development work as defined in the agreement.
The Company recognized $83,333 in revenue from this agreement during the fiscal
year ended September 30, 1999. Included in accounts receivable at March 31, 2000
is $175,000 due from Motorola. There were no amounts either payable to or due
from Motorola as of September 30, 1998 and 1999.

8. CONCENTRATION OF CREDIT RISK:

The Company maintains its cash & cash equivalents with several financial
institutions. Periodically, cash balances may exceed the federally insured
limit. Management periodically assesses the financial condition of the
institution and believes that any possible credit risk is minimal. Cash
equivalents are invested in money market funds consisting primarily of
commercial paper and various other short-term corporate obligations.

The Company has historically derived most of its revenue from several
domestic federal granting authorities. The percentage of grant revenue derived
from grant proceeds for the periods ended September 30, 1997, 1998, 1999 and
since inception were as follows:

<TABLE>
<CAPTION>
MAY 28, 1993,
(INCEPTION) TO
SEPTEMBER 30,
1997 1998 1999 1999
---- ---- ---- --------------
<S> <C> <C> <C> <C>
Department of Commerce........................ 65% 34% 2% 38%
National Cancer Institute..................... 5 42 56 29
National Aeronautics and Space
Administration.............................. 23 10 -- 16
National Institute of Environmental Health
Sciences.................................... -- 9 26 10
Massachusetts Institute of Technology......... -- -- 16 4
Other......................................... 7 5 -- 3
--- --- --- ---
100% 100% 100% 100%
=== === === ===
</TABLE>

Grant revenue totalled approximately 97%, 95%, and 94% of the total revenue
for the fiscal years ended September 30, 1997, 1998 and 1999, respectively.

F-18
<PAGE> 85
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

9. COMMITMENTS AND CONTINGENCIES:

Employee Benefit Plan

In October 1995, the Company adopted a defined contribution profit sharing
401(k) plan covering substantially all full time employees who have attained the
age of twenty-one. Under the terms of the plan, employees who have completed at
least one month of service may contribute up to 15% of their annual salary to
the plan, subject to certain IRS limitations. The Company will match 25% of such
contributions up to 0.75% of each employee's monthly salary. The Company
contributed $2,617, $3,112 and $13,853 in matching contributions to the plan for
the fiscal years ended September 30, 1997, 1998 and 1999, respectively.

Operating Lease Commitments

The Company leases its facility in The Woodlands, Texas, and office
equipment under operating leases with terms ranging from two to eight years.
Future minimum lease payments under noncancelable operating leases having an
initial term in excess of one year as of September 30, 1999, were as follows:

<TABLE>
<S> <C>
2000..................................................... $ 614,000
2001..................................................... 765,000
2002..................................................... 775,000
2003..................................................... 780,000
2004..................................................... 792,000
Thereafter............................................... 2,668,000
----------
Total minimum lease payments............................. $6,394,000
==========
</TABLE>

Rental expense totaled approximately $134,000, $188,000 and $198,000 in
fiscal years 1997, 1998 and 1999, respectively.

Government Grants

The Company is subject to review by governmental agencies to assure
compliance with various laws and regulations and the provisions of certain
contracts and grants. In February 1997, the Department of Commerce ("DOC")
reviewed the Company's compliance with the "Genosensor Technology Development"
project. In connection with this review, the Company has recorded other
liabilities totaling approximately $74,000 and $18,000 as of September 30, 1998
and 1999, respectively. These amounts represent federal funds passed through
from the DOC in excess of allowable costs. Other potential contingencies may be
identified as a result of future reviews.

License Agreement

In August 1999, the Company entered into a license agreement with
Xenometrix, Inc. to gain access to intellectual property for the examination of
gene expression following the transfection of a cell with a known compound.
Under the terms of the agreement, the Company shall pay Xenometrix a royalty on
the net sales of its products and services incorporating this licensed
intellectual property. The agreement is effective, unless earlier terminated,
until the expiration or disallowance of the last claim of a patent or patent
application included in the license agreement in September 2016. No royalties
have been paid under the agreement as of September 30, 1999.

F-19
<PAGE> 86
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

10. SUPPLEMENTAL INFORMATION FOR STATEMENT OF CASH FLOWS:

<TABLE>
<CAPTION>
MAY 28, 1993
YEAR ENDED SEPTEMBER 30, (INCEPTION) TO
------------------------------- SEPTEMBER 30,
1997 1998 1999 1999
-------- ------- -------- --------------
<S> <C> <C> <C> <C>
Interest paid................................. $ 5,006 $ -- $ 3,391 $ 8,397
Noncash operating activities:
Conversion of accrued interest to Series A
Convertible Preferred Stock.............. $207,895 $ -- $ -- $207,895
Noncash investing activities:
Interest capitalized on equipment
work-in-process.......................... $ -- $ -- $103,719 $103,719
Noncash financing activities:
Conversion of long-term debt to Series A
Convertible Preferred Stock.............. $800,000 $ -- $ -- $800,000
Gift of treasury stock...................... $ 80 $ -- $ -- $ 80
</TABLE>

11. SUBSEQUENT EVENTS (UNAUDITED):

Sales of Preferred Stock and Common Stock Warrants

On December 29, 1999, the Company issued 597,000 shares of Series F
Convertible Preferred Stock and 119,400 common stock warrants for aggregate
proceeds of $1,791,000. In connection with the December 29, 1999 issuance of
Preferred Stock, founding common stockholders of the Company, Mitchell D.
Eggers, Michael Hogan, Kenneth Nill and Daniel Ehrlich, issued 150,000 call
options on their personal common stock of the Company at an exercise price of
$3.00 per share to eleven purchasers of the Series F Convertible Preferred
Stock. On January 31, 2000, the Company issued an additional 712,095 shares of
Series F Convertible Preferred Stock and 142,419 common stock warrants for
aggregate proceeds of $2,136,285.

In connection with the December 1999 and January 2000 Preferred Stock
issuances, the Company recognized dividends relating to the beneficial
conversion features of the Series F Convertible Preferred Stock of approximately
$1,344,000 and $1,836,000 in December 1999 and January 2000, respectively. The
dividend recognized on the beneficial conversion feature was calculated in
accordance with Emerging Issues Task Force No. 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features," as the difference between the
fair value of the Company's common stock on the dates of issue and the
conversion price, but limited by the gross proceeds received from the issuance
of the convertible preferred stock.

Pursuant to the July 1999 Stock Purchase Agreement with Motorola and as a
result of the Company raising in excess of $6,000,000 by December 31, 1999, on
January 13, 2000, Motorola purchased the remaining 1,000,000 shares of Series E
Convertible Preferred Stock for an aggregate purchase price of $3,000,000. The
Company recognized an expense of approximately $3,709,000 attributable to the
beneficial conversion feature of the Series E Convertible Preferred Stock.
Because of the Company's strategic licensing and research and development
agreement with Motorola, the beneficial conversion feature was calculated at
fair value in accordance with Emerging Issues Task Force No. 96-18: "Accounting
for Equity Instruments that are Issued to Other than Employees for Acquiring or
in Connection with Selling Goods or Services," and was not limited by the
proceeds from the Series E issuance.

F-20
<PAGE> 87
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Issuance of Stock Options

During the six months ended March 31, 2000 the Company granted a total of
1,564,880 options for the purchase of common stock to certain employees and
directors of the Company at exercise prices of $3.00 and $10.00 per share. The
Company recorded deferred compensation of approximately $7.1 million upon the
granting of these options, approximately $998,000 of which was recognized as
compensation expense during the six months ended March 31, 2000.

On March 9, 2000, the Board of Directors and stockholders adopted the 2000
Employee, Director and Consultant Stock Option Plan with authority to grant
options to purchase an aggregate of 5,000,000 shares of common stock.

Reorganization and Initial Public Offering

On March 10, 2000, the Company changed its name to Genometrix Genomics
Incorporated and formed a wholly-owned subsidiary, Genometrix Incorporated,
which in turn formed a wholly-owned subsidiary, Genometrix Merger Corp.
Immediately thereafter, the Company executed a merger with Genometrix
Incorporated and Genometrix Merger Corp., which resulted in Genometrix Genomics
Incorporated becoming a wholly-owned subsidiary of Genometrix Incorporated.

Effective March 10, 2000, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission for the
initial sale of common stock to the public. If the offering is completed under
the terms presently contemplated, all shares of outstanding convertible
preferred stock will convert to shares of common stock under the terms described
in Note 6. In addition, all convertible notes and related accrued interest
payable will convert to shares of common stock under the terms described in Note
4.

The Company has binding subscription agreements with the warrant holders
covering the 870,274 common stock purchase warrants outstanding at March 31,
2000 indicating the warrant holders' desire to exercise their warrants upon the
closing of the initial public offering. The warrants would otherwise expire upon
the closing of the offering.

New Agreements

On March 20, 2000, the Company entered into a First Amendment to the
License and Research Agreement with Motorola pursuant to which Motorola named
Genometrix as a preferred provider of genomic services and agreed to offer
high-density chips to Genometrix at preferred prices. The Company and Motorola
also agreed to extend the existing research and development program until
December 31, 2000 and Motorola will pay the Company $750,000 for the extension.
The extension payment of $750,000 is subject to completion by the Company of
milestones as set forth in the amended agreement.

On March 27, 2000, the Company and Motorola entered into a Common Stock
Purchase Agreement (the "Agreement") under which Motorola has agreed to purchase
from the Company, contemporaneously with the closing of the initial public
offering as discussed above, a number of common shares at a price per share
equal to the per share offering price to the public. The number of shares to be
purchased will be the lesser of (a) $10,000,000 divided by the per share
offering price to the public; or (b) 15% of the total number of shares of common
stock issued in the first closing of the initial public offering. If the closing
of the initial public offering does not occur by September 30, 2000, Motorola
may terminate the Agreement.

F-21
<PAGE> 88

7,000,000 Shares

[GENOMETRIX INCORPORATED LOGO]

Common Stock

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

PROSPECTUS
, 2000

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

LEHMAN BROTHERS
CHASE H&Q

DAIN RAUSCHER WESSELS
THOMAS WEISEL PARTNERS LLC

FIDELITY CAPITAL MARKETS
a division of National Financial Services Corporation
<PAGE> 89

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth an itemization of all estimated expenses,
all of which we will pay, in connection with the issuance and distribution of
the securities being registered:

<TABLE>
<S> <C>
SEC Registration Fee........................................ $25,503
Nasdaq National Market Listing Fee.......................... $95,000
NASD Filing Fee............................................. $12,500
Printing and Engraving Fees................................. *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................. 10,000
Transfer Agent and Registrar Fees........................... 10,000
Miscellaneous............................................... 20,000
-------
Total..................................................... $ *
=======
</TABLE>

- ---------------
* to be filed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Our certificate of incorporation provides that we shall indemnify, to the
fullest extent authorized by the Delaware General Corporation Law, each person
who is involved in any litigation or other proceeding because such person is or
was a director or officer of Genometrix, or is or was serving as an officer or
director of another entity at our request, against all expense, loss or
liability reasonably incurred or suffered in connection therewith. Our By-Laws
provide that the right to indemnification includes the right to be paid expenses
incurred in defending any proceeding in advance of its final disposition,
provided, however, that such advance payment will only be made upon delivery to
us of an undertaking, by or on behalf of the director or officer, to repay all
amounts so advanced if it is ultimately determined that such director is not
entitled to indemnification. If we do not pay a proper claim for indemnification
in full within 60 days after we receive a written claim for such
indemnification, our By-Laws authorize the claimant to bring an action against
us and prescribe what constitutes a defense to such action.

Section 145 of the Delaware General Corporation Law permits a corporation
to indemnify any director or officer of the corporation against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any action, suit or
proceeding brought by reason of the fact that such person is or was a director
or officer of the corporation, if such person acted in good faith and in a
manner that such person reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, with respect to any criminal action or
proceeding, if such person had no reason to believe his or her conduct was
unlawful. In a derivative action, (i.e., one brought by or on behalf of the
corporation), indemnification may be provided only for expenses actually and
reasonably incurred by any director or officer in connection with the defense or
settlement of such an action or suit if such person acted in good faith and in a
manner that he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification shall be provided
if such person shall have been adjudged to be liable to the corporation, unless
and only to the extent that the court in which the action or suit was brought
shall determine that the defendant is fairly and reasonably entitled to
indemnity for such expenses despite such adjudication of liability.

II-1
<PAGE> 90

Pursuant to Section 102(b)(7) of the Delaware General Corporation Law,
Article Ninth of our certificate of incorporation eliminates the liability of a
director to us or our stockholders for monetary damages for such a breach of
fiduciary duty as a director, except for liabilities arising:

- from any breach of the director's duty of loyalty to us or our
stockholders;

- from acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

- under Section 174 of the Delaware General Corporation Law; and

- from any transaction from which the director derived an improper
personal benefit.

We carry insurance policies insuring our directors and officers against
certain liabilities that they may incur in their capacity as directors and
officers.

Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provides for indemnification by the underwriters of
Genometrix, our directors and officers who sign the Registration Statement and
persons who control Genometrix, under the terms of the agreement.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

In the three years preceding the filing of this Registration Statement, we
have sold the following securities that were not registered under the Securities
Act.

(a) Issuances of Capital Stock and Warrants

The sale and issuance of the securities described in paragraphs (1) through
(21) below were deemed to be exempt from registration under the Securities Act
by virtue of Section 4(2) or Regulation D promulgated thereunder and the
issuances in paragraph (22) were deemed exempt pursuant to Rule 701 under the
Securities Act. Items (1) through (10) have been adjusted for a 10 for 1 stock
split of our common stock on May 25, 1998.

(1) On August 29, 1997, we sold a total of 398,680 shares of Series A
Convertible Preferred Stock and issued warrants to purchase 79,730 shares
of our common stock at an exercise price of $1.50 per share to eleven
purchasers for an aggregate consideration of $598,020.

(2) On August 29, 1997, we issued two warrants to purchase a total of
84,000 shares of Series A Convertible Preferred Stock at an exercise price
of $1.50 per share to two persons in consideration for conversion of
outstanding notes issued by us pursuant to a Note and Warrant Purchase
Agreement dated July 6, 1994 and which expired in July 1999.

(3) On August 29, 1997, we issued four warrants to purchase a total
of 71,540 shares of our common stock at an exercise price of $1.50 per
share to two persons in consideration for conversion of outstanding notes
issued by us pursuant to a Note and Warrant Purchase Agreement dated July
6, 1994 of which 16,800 warrants expired in July 1999.

(4) On August 29, 1997, we issued a total of 273,710 shares of Series
A Convertible Preferred Stock to two persons in consideration for
conversion of outstanding notes issued by us pursuant to a Note and Warrant
Purchase Agreement dated July 6, 1994.

(5) On August 29, 1997, we issued 398,220 shares of our Series A
Convertible Preferred Stock to one person in consideration for conversion
of outstanding notes issued by us pursuant to a Note Purchase Agreement
dated May 17, 1995.

(6) On August 29, 1997, we issued one warrant to purchase 79,640
shares of our common stock at an exercise price of $1.50 per share to one
person in consideration for conversion of outstanding notes issued by us
pursuant to a Note Purchase Agreement dated May 17, 1995.

II-2
<PAGE> 91

(7) On August 29, 1997, we issued a warrant to purchase 19,930 shares
of our common stock at an exercise price of $1.50 per share to one person
as compensation for services under an Investment Agreement dated August 29,
1997.

(8) On March 26, 1998, we sold a total of 509,430 shares of our
Series B Convertible Preferred Stock to 28 purchasers for an aggregate
consideration of $1,120,746.

(9) On March 26, 1998, we issued a total of 7,010 shares of our
Series B Convertible Preferred Stock to two persons as compensation for
services under an Amended and Restated Financial Advisory Agreement dated
January 16, 1998.

(10) On March 26, 1998, we issued warrants to purchase a total of
26,210 shares of our common stock at an exercise price of $2.20 per share
to three persons as compensation for services under an Amended and Restated
Financial Advisory Agreement dated January 16, 1998.

(11) On September 3, 1998, we sold 1,129,247 shares of our Series C
Convertible Preferred Stock to forty-one purchasers for an aggregate
consideration of $2,665,023.

(12) On September 3, 1998, we issued a total of 44,564 shares of our
Series C Convertible Preferred Stock to two persons as compensation for
services under an Amended and Restated Financial Advisory Agreement dated
January 16, 1998.

(13) On September 3, 1998, we issued warrants for a total of 31,141
shares of our common stock at an exercise price of $2.36 per share to two
persons as compensation for services under an Amended and Restated
Financial Advisory Agreement dated January 16, 1998.

(14) On December 28, 1998, we sold 706,714 shares of our Series D
Convertible Preferred Stock to one purchaser for an aggregate consideration
of $2,000,000.

(15) On July 6, 1999, we sold 1,666,667 shares of our Series E
Convertible Preferred Stock to one purchaser for an aggregate consideration
of $5,000,000.

(16) On August 31, 1999, we sold a total of 1,481,670 shares our
Series F Convertible Preferred Stock and issued warrants to purchase a
total of 296,334 shares of our common stock at an exercise price of $3.00
per share to twelve purchasers for an aggregate consideration of
$4,445,010.

(17) On August 31, 1999 we issued warrants to purchase a total of
70,000 shares of our common stock at an exercise price of $3.00 per share
to one person as compensation for services under an Amended and Restated
Financial Advisory Agreement dated January 16, 1998.

(18) On August 31, 1999, we issued 16,667 shares of our Series F
Convertible Preferred Stock to one person as compensation for services
under an Amended and Restated Financial Advisory Agreement dated January
16, 1998.

(19) On December 29, 1999, we sold a total of 597,000 shares of our
Series F Convertible Preferred Stock and issued warrants to purchase a
total of 119,400 shares of our common stock to fourteen purchasers for an
aggregate consideration of $1,791,000.

(20) On January 13, 2000 we sold 1,000,000 shares of our Series E
Convertible Preferred Stock to one purchaser for an aggregate consideration
of $3,000,000.

(21) On January 31, 2000, we sold a total of 712,095 shares of our
Series F Convertible Preferred Stock and issued warrants to purchase a
total of 142,419 shares of our common stock at an exercise price of $3.00
per share to twenty-five purchasers for an aggregate consideration of
$2,136,285.

II-3
<PAGE> 92

(22) The following table sets forth information regarding grants of
stock options under the 1994 Stock Plan:

<TABLE>
<CAPTION>
NUMBER OF RANGE OF
DATES SHARES EXERCISE PRICES
- ----- --------- ------------------
<S> <C> <C>
October 1, 1996 through September 30, 1997............ 1,212,000 $ .01
October 1, 1997 through September 30, 1998............ 2,625,000 $ .50
October 1, 1998 through September 30, 1999............ 646,900 $2.36 - $3.00
</TABLE>

(b) Certain Grants and Exercises of Stock Options

The sale and issuance of the securities described below were deemed to be
exempt from registration under the Securities Act in reliance on Rule 701
promulgated under Section 3(b) of the Securities Act, as transactions by an
issuer not involving a public offering or transactions pursuant to compensatory
benefit plans and contracts relating to compensation as provided under Rule 701.

Pursuant to our 1994 Stock Plan, as of March 31, 2000 we have issued
options to purchase an aggregate of 8,348,780 shares of common stock. Of these
options:

- options to purchase 833,667 shares of common stock have been canceled
or lapsed without being exercised;

- options to purchase 3,608,583 shares of common stock have been
exercised; and

- options to purchase a total of 3,906,530 shares of common stock are
currently outstanding, at a weighted-average exercise price of $2.06
per share.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) EXHIBITS

II-4
<PAGE> 93

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
+-10.6 License Agreement between the Registrant and Xenometrix,
Inc. dated August 27, 1999
+-10.7 License and Option Agreement between the Registrant and
Motorola, Inc. dated December 28, 1998
+-10.8 License and Research Agreement between the Registrant and
Motorola, Inc. dated July 6, 1999
+-10.9 Genomic Services Agreement between the Registrant and the
Procter & Gamble Company dated March 3, 2000
+10.10 First Amended and Restated Registration Rights Agreement
between the Registrant and Motorola, Inc. dated July 6, 1999
+10.11 Amended and Restated Registration Rights Agreement among the
Registrant, Investors and list of additional signatories
dated September 3, 1998
+10.12 Note and Warrant Purchase Agreement between the Registrant
and Palmetto Partners, Ltd. dated January 24, 1996
+10.13 Note and Warrant Purchase Agreement between the Registrant
and Donald and Dianne Kendall dated January 24, 1996
+10.14 Lease Agreement between the Registrant and Technology Center
I Building dated September 17, 1999
+-10.15 First Amendment to the License and Research Agreement
between the Registrant and Motorola, Inc. dated March 20,
2000
+10.16 Common Stock Purchase Agreement between the Registrant and
Motorola, Inc. dated March 27, 2000
23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. (see Exhibit 5.1)
+23.3 Consent of Fish & Richardson P.C.
+23.4 Consent of Robert H. Ellis
+23.5 Consent of Michael Hogan
+23.6 Consent of J. Evans Attwell
24.1 Powers of Attorney (See page II-6)
*27.1 Financial Data Schedule
</TABLE>

- ---------------
* To be filed by amendment.

- - Portions of this Exhibit have been omitted and filed separately with the
Commission pending a request for confidential treatment.

+ Previously filed with the SEC.

(b) FINANCIAL STATEMENT SCHEDULES

Financial Statement Schedules are omitted because the information is
included in our financial statements or notes to those financial statements.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

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 described under

II-5
<PAGE> 94

Item 14 above, 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
of 1933, 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 of 1933, 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> 95

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in The Woodlands,
Texas on May 19, 2000.

GENOMETRIX INCORPORATED

By: /s/ MITCHELL D. EGGERS
------------------------------------
Mitchell D. Eggers
Chief Executive Officer, Director
and
Chairman of the Board

POWER OF ATTORNEY

We, the undersigned officers and directors of Genometrix Incorporated,
hereby severally constitute and appoint Mitchell D. Eggers and Robert H. Ellis,
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 Registration Statement (or any other Registration Statement
for the same offering that is to be effective upon 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 therewith, 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 their or his 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/ MITCHELL D. EGGERS Chief Executive Officer and May 19, 2000
- --------------------------------------------------- Director (principal executive
Mitchell D. Eggers officer)

/s/ ROBERT H. ELLIS President May 19, 2000
- ---------------------------------------------------
Robert H. Ellis

/s/ DAVID E. JORDEN Vice President and Chief Financial May 19, 2000
- --------------------------------------------------- Officer (principal financial and
David E. Jorden accounting officer)

* Director May 19, 2000
- ---------------------------------------------------
C. Thomas Caskey
</TABLE>

II-7
<PAGE> 96

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director May 19, 2000
- ---------------------------------------------------
Nicholas J. Naclerio

* Director May 19, 2000
- ---------------------------------------------------
Bruce Peacock
</TABLE>

* By executing his name hereto on May 19, 2000, Mitchell D. Eggers is signing
this document on behalf of the persons indicated above pursuant to the powers
of attorney duly executed by such persons and filed with the Securities and
Exchange Commission.

By: /s/ MITCHELL D. EGGERS
---------------------------------
Mitchell D. Eggers
Attorney-in-fact

II-8
<PAGE> 97

APPENDIX

Title of Page: "Genometrix Technology"

Graphics: Rendition of 96-well format VistaArray microarray with exploded view
of one microarray to show details and image data.

Text: Summary description of Genometrix' GenoVista Partnership Program and the
VistaArray microarray technology.

Tag line: "we take genomics personally"

Title of Page: "Genometrix Vision of Personalized Medicine"

Graphics: Photographs and images to represent the overall process for utilizing
Genometrix technology. Images are linked by arrows and flow from a list of
types of collaborators through our VistaClinic DNA Repository and into our
GenoVista Partnership Program and out to our current and future customers.

Text: Description of the applications for the GenoVista Partnership Program,
including list of components within each category of sample sources, program
modules and market segments.

Title of Page: "GenoVista Partnership Program"

Graphics: Pictures and images are attached to the three broad application areas
for our technology (VistaMorph, VistaClinic, VistaExpress, and VistaPro). All
three are connected via arrows to a common VistaArray microarray and lead into
the VistaLogic Information System.

Text: Description of the universal platform represented by Genometrix'
technology including the service programs offered by Genometrix and the utility
of the VistaLogic Information System.

<PAGE> 98

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
+1.1 Form of Underwriting Agreement
+3.1 Certificate of Incorporation of the Registrant
+3.2 Amended and Restated Certificate of Incorporation of the
Registrant to be effective upon completion of this offering
+3.3 By-Laws of the Registrant
+3.4 Amended and Restated By-Laws of the Registrant to be
effective upon completion of this offering
*4.1 Form of Common Stock Certificate
+4.2 Form of Warrant issued pursuant to a Note and Warrant
Purchase Agreement dated January 24, 1996 and list of
holders
*5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. with respect to the legality of securities being
registered
+10.1 The Registrant's 1994 Stock Plan
+10.2 The Registrant's 2000 Employee, Director and Consultant
Stock Option Plan
+-10.3 Patent License Agreement between the Registrant and
Massachusetts Institute of Technology dated May 27,1994
+-10.4 Patent License Agreement between the Registrant and
Massachusetts Institute of Technology dated April 1, 1996
+-10.5 Exclusive License Agreement between the Registrant and
Baylor College of Medicine dated May 31, 1998
+-10.6 License Agreement between the Registrant and Xenometrix,
Inc. dated August 27, 1999
+-10.7 License and Option Agreement between the Registrant and
Motorola, Inc. dated December 28, 1998
+-10.8 License and Research Agreement between the Registrant and
Motorola, Inc. dated July 6, 1999
+-10.9 Genomic Services Agreement between the Registrant and the
Procter & Gamble Company dated March 3, 2000
+10.10 First Amended and Restated Registration Rights Agreement
between the Registrant and Motorola, Inc. dated July 6, 1999
+10.11 Amended and Restated Registration Rights Agreement among the
Registrant and Investors dated September 3, 1998
+10.12 Note and Warrant Purchase Agreement between the Registrant
and Palmetto Partners, Ltd. dated January 24, 1996
+10.13 Note and Warrant Purchase Agreement between the Registrant
and Donald and Dianne Kendall dated January 24, 1996
+10.14 Lease Agreement between the Registrant and Technology Center
I Building dated September 17, 1999
+-10.15 First Amendment to the License and Research Agreement
between the Registrant and Motorola, Inc. dated March 20,
2000
+10.16 Common Stock Purchase Agreement between the Registrant and
Motorola, Inc. dated March 27, 2000
23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. (see Exhibit 5.1)
</TABLE>

<PAGE> 99

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
+23.3 Consent of Fish & Richardson P.C.
+23.4 Consent of Robert H. Ellis
+23.5 Consent of Michael Hogan
+23.6 Consent of J. Evans Attwell
24.1 Powers of Attorney (See page II-6)
*27.1 Financial Data Schedule
</TABLE>

- ---------------
* To be filed by amendment.

- - Portions of this Exhibit have been omitted and filed separately with the
Commission pending a request for confidential treatment.

+ Previously filed with the SEC.

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Amendment No. 3 to the
Registration Statement on Form S-1 of Genometrix Incorporated (File No.
333-32584) of our report dated November 19, 1999, relating to the financial
statements of Genometrix Incorporated which appear in such Registration
Statement. We also consent to the reference to us under the heading "Experts"
in such Registration Statement.

/s/ PRICEWATERHOUSECOOPERS LLP

Houston, Texas
May 19, 2000