UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A-210-K

(Mark One)

For the fiscal year ended December 31, 20042007

OR

For the transition period from                    to                    

Commission File Number 000-30975

TRANSGENOMIC, INC.

(Exact Name of Registrant as Specified in its Charter)

(402) 452-5400

(Registrant’s Telephone Number, Including Area Code)

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

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

Common Stock, par value $.01 per share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes      No      X    

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes      No      X    

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

Yes  x    X        No  ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, (as defineda non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Act).    Yes  Exchange Act. (Check one):

Large Accelerated Filer¨        Accelerated Filer    No  ¨        Non-Accelerated Filer¨        Smaller Reporting Companyx

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).

Yes      No      X    

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant based on the last reported closing price per share of Common Stock as reported on The Nasdaq National Marketthe OTC Bulletin Board on the last business day of the registrant’s most recently completed second fiscal quarter was approximately $38.37$27.9 million.

As of April 14, 2005,At March 30, 2008, the registrant had 34,234,92249,189,672 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Explanatory NotePortions of the registrant Proxy Statement relating to its 2008 Annual Meeting of Stockholders (the “Proxy Statement”) have been incorporated into Part III of this Report on Form 10-K.

We are amending our annual report on Form 10-K for the fiscal year ended December 31, 2004 (“Form 10-K”) for certain adjustments that are required to appropriately report cash flows from operating and investing activities in the audited consolidated statements of cash flows included in Part II, Item 8 herein and related cash flow disclosures included in Part II, Item 7. These restatements are discussed in Note P to the consolidated financial statements and result only in a reclassification of certain items within the audited consolidated statement of cash flows. They have no effect on the net change in cash and cash equivalents for any period reported or any other line item in the audited consolidated financial statements. Except as indicated, we have made no other changes to our Form 10-K.

TRANSGENOMIC, INC.

Index to Form 10-K/A-210-K for the Fiscal Year Ended December 31, 20042007

This annual reportAnnual Report on Form 10-K/A10-K references the following registered trademarks which are the property of Transgenomic: DNASEP^® Columns, WAVE^® System, WAVEMAKER^® Software, TRANSFORMING THE WORLD^® for Laboratory Equipment, TRANSGENOMIC^® and the Globe Logo^®; MutationDiscovery.com^® Website, OLIGOSEP^® for Systems and Reagents, OPTIMASE^® Polymerase, RNASEP^® Columns, SURVEYOR^®WAVE OPTIMIZED^® reagents, and WAVE^® MD Systems. Additionally, this Annual reportReport on Form 10-K references the following trademarks which are the property of Transgenomic: MitoScreen^™ Kits, ProtocolWriter^™ Software, Navigator^™ Software, THE POWER OF DISCOVERY^™ for Lab Reagents and Educational Programs, and Surveyor^™ Nuclease. All other trademarks or trade names referred to in this Annual Report on Form 10-K/A10-K are the property of their respective owners.

Item 1.BusinessPART I

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains or incorporates by reference certain forward-looking statements. Many of these forward-looking statements refer to our plans, objectives, expectations and intentions, as well as our future financial results and are subject to risk and uncertainty. You can identify these forward-looking statements by words such as “expects,” “anticipates,” “intends,” “plans,” “may,” “will,” “believes,” “seeks,” “estimates” and similar expressions. Because these forward-looking statements involve risks and uncertainties, there are many factors that could cause our actual results to differ materially from those expressed or implied by these forward-looking statements, including those discussed under Item 1A “Risk Factors” and other factors identified by cautionary language used elsewhere in the Annual Report on Form 10-K.

We provide innovative products and services for the synthesis, purification and analysis of nucleic acids. Our operations fall into two principal business units, BioSystemsacids used in the life sciences industry for research focused on molecular genetics and Nucleic Acids. Our BioSystems products include our WAVE^® automated instrument systems, WAVE associated consumable productsdiagnostics. We also provide genetic variation analytical services to the medical research, clinical and other related consumable products. Our Nucleicpharmaceutical markets. Net sales are categorized as bioinstruments, bioconsumables and discovery services.

Historically, we operated a segment (the “Nucleic Acids products consist principally ofoperating segment”) that developed, manufactured and marketed chemical building blocks for nucleic acid synthesis. Both business unitsIn the fourth quarter of 2005, we implemented a plan to exit the Nucleic Acids operating segment and have service offerings as well, including genetic variation discovery and analysis services and custom synthesis of specialty nucleic acids.

Our technologies center around three core competencies: separation chemistries, enzymology, and nucleic acid chemistries. We employ novel chemistries for separating nucleic acids, proteins, peptides, amino acids and carbohydrates. Our most significant separation technology is currently embodied in the WAVE System. The WAVE System is a versatile instrument that can be used for genetic variation detection, size-based double-strand DNA separation and analysis, single-strand DNA separation and analysis and DNA purification. The WAVE System requires the use of various consumable products that we manufacture and sell separately.

Our second core competency is expertise in developing novel enzymes. Enzymes are proteins that act as catalysts for biochemical reactions. Several of these reactions are useful in genomics. The ability to develop enzymes useful in the experimental manipulation of genes provides powerful tools for producing genetic material in the form needed for further analysis or incorporation into diagnostics and therapeutics. These products can also expandrecently completed the sale of consumable products to WAVE System users and may also be sold for other applications. Our SURVEYOR^® product line of mutation detection kits allow for the cleaving of DNA at points where DNA sequence variations exists. The resulting DNA fragments can then be analyzed by our WAVE System, fluorescent capillary electrophoresis or standard gel electrophoresis. SURVEYOR Kits provide a simple and robust method of scanning relatively large DNA fragments for both known and novel sequence variations.

Our third core competency is nucleic acid chemistries. Our synthetic nucleic acid products consist of chemical building blocks of nucleic acids (known as phosphoramidites). We also manufacture related specialty chemicals such as fluorescent markers and molecular tags, dyes, quenchers, linkers, and solvents used to modify nucleic acids for subsequent detection or manipulation. These products are used by research organizations, diagnostic companies and pharmaceutical companies. These products are produced primarily in our Glasgow, Scotland facility. Prior to November 11, 2004, we had also manufactured synthesized segments of nucleic acids (known as oligonucleotides) in a facility in Boulder, Colorado. On November 11, 2004, we sold theremaining assets associated with this facility to a subsidiary of Eyetech Pharmaceuticals, Inc. (“Eyetech”). As a result of this sale, we no longer manufacturesegment. Accordingly, the assets and sell these specialized oligonucleotides.

Our operations are managed based upon the natureresults of the products and services provided. Accordingly, we operateNucleic Acids operating segment are reflected as discontinued operations for all periods presented in two reportable segments, BioSystems and Nucleic Acids. Operations for these segments are evaluated based upon specific identification of revenues and expenses associated with the business activities resulting in a segment operating income or loss. See Note K to the accompanying consolidated financial statements for detailed segment information.this filing.

Business Strategy

Since inception, our business strategy has been to provide products and services to biomedical researchers, medical institutions, diagnostic and pharmaceutical companies that are tied to advancements in the field of genetics. The movementgenomics. Advances in the field of genomics have fueled efforts to understand individual differences in disease susceptibility, disease progression, and related market opportunities, has shifted from gene discoveryresponse to the analysis of variations in gene sequences. Researchers are beginning to link variations in the gene sequences to disorders and diseases.therapy. Accordingly, a principal component of our strategy has beenand continues to be to establish our WAVE System as thean industry standard in the geneticbiomedical research market and to develop additional markets for the WAVE System such as clinical research and diagnostics. Through an expanding base of installed systems, we expect to increase the sales of consumable products used with the WAVE.WAVE System and create opportunities to market additional products to this customer base.

WeOver the last year our strategy has shifted somewhat to include another area of strategic focus that we believe can provide significant opportunity. Through our Discovery Services offerings, we have also historically soughtgained exposure to position ourselves as a partner to biopharmaceuticalthe translational and pharmaceutical companiesclinical research markets, laying the foundation for increasing our participation in the early stages of their efforts to develop genomic-based diagnostics and therapeutics, thereby allowing us to participate in future successes of products derived from the expanding knowledge of genomics. While we continue to believe that the long-term prospects for this business segment are favorable, we concluded that near-term revenues from this segment would generate neither positive cash flows nor profits from operations. Consequently, in the second quarter of 2004, our Board of Directors directed management to explore strategic alternatives for our Nucleic Acids operating segment, including the possible sale of one or both of the facilities in Glasgow, Scotland and Boulder, Colorado. On November 11, 2004, we sold the assetsfull value chain associated with our specialty oligonucleotide manufacturing facility in Boulder, Colorado. We continueactivities ranging from basic biomedical research to operate our facility in Glasgow, Scotland which primarily produces chemical building blocks used in the synthesisdevelopment of nucleic acids. However, we have taken steps to consolidate these operationsdiagnostic and to reduce costs in order to better align operating expenses with anticipated revenues.

Our business strategy going forward is to achieve revenue growth in our BioSystems operating segment and to better align our cost structure with anticipated revenues in both of our operating segments. We have already taken steps to implement this strategy as more fully discussed under “Significant 2004 Developments,” below.

Significant 2004 Developments

We determined that our Nucleic Acids operating segment was impaired and sold our specialty oligonucleotides manufacturing facility.

Based upon information obtained through the process of evaluating strategic alternatives for our Nucleic Acids segment, we determined that it was more likely than not that the value of the assets associated with this business were impaired. We engaged an external valuation firm to assist us in conducting an interim period impairment test that resulted in a non-cash charge of $11.97 million related to these assets during the three months ended June 30, 2004. The charge consisted of $9.87 million related to the impairment of goodwill and $2.10 million related to the impairment of property and equipment.

On November 11, 2004, we sold the assets associated with our specialty oligonucleotides manufacturing facility in Boulder, Colorado to Eyetech. The sale price was $3.00 million in cash plus the assumption of the lease on the Boulder facility and of certain equipment leases with a gross value of $2.38 million. Substantially all of the 27 employees at the Boulder facility became Eyetech employees. Net proceeds from the sale (after transaction expenses and fees paid to our investment advisors) equaled approximately $2.70 million. In conjunction with this transaction, we recorded a gain on sale of $1.47 million intherapeutic products. During the fourth quarter of 2004.

2005, our laboratory in Omaha, Nebraska was certified under the Clinical Laboratory Improvement Amendments and we received our first patient samples for molecular-based testing for hematology, oncology and certain inherited diseases for physicians and third-party laboratories. We believe there is a significant opportunity for us to capitalize on the increasing demand for molecular-based personalized medicine by leveraging on our technologies and experience gained from the genomic biomarker analysis that our Discovery Services Group has and will continue to provide to pharmaceutical and biopharmaceutical companies.

Significant Recent Events

We implemented a restructuring planhave continued to better alignwork to reduce operating costs with expected revenues.

On November 13, 2004, our Board of Directors approvedFebruary 20, 2007, we announced a restructuringcost reduction plan designed to refocus the Company on its BioSystems operating segment and to better align our cost structure with anticipated revenues. The plan (whichclosing of the Company’s Cramlington, England production facility was the principal component of this plan. All production is incremental tonow being done in the sale of our Boulder, Colorado facility) included a workforce reduction of approximately 60 positions and the closure of two domestic research and development facilities associated with our Nucleic Acids operating segment and two European field offices. Additionally, we eliminated approximately 10 positionsUnited States at our chemical building blocks manufacturing facilityOmaha, NE and San Jose, CA facilities. All administrative functions that were previously performed in France are now being performed in either the United States or in our one remaining international site, Glasgow, Scotland. In conjunction with these changes, we incurred a charge of $3.57Restructure charges were $1.5 million duringfor the quarteryear ended December 31, 2004 related2007, relating primarily to severance, benefits and facility closures.

closure costs.

Together,Our stock has been delisted from the sale of our specialty oligonucleotide manufacturing facilityNasdaq Capital Market and the implementation of our restructuring plan are expected to result in $10.0 million to $12.00 million in annual cost savings.

We revised our credit facilities with Laurus Master Funds, Ltd.

We have entered into a $7.50 million convertible line of credit (the ”Credit Line”) and a separate $2.75 million convertible note (the ”Term Note”) with Laurus Master Fund, Ltd. (“Laurus”)(collectively, the “Laurus Loans”). In February 2004, Laurus waived the borrowing base limitationis now trading on the Credit Line, thereby makingOTC Bulletin Board (OTCBB)

On February 1, 2007, we received a staff determination letter from Nasdaq’s Listing Qualifications Department indicating that we no longer met the full $7.50 million facility available to the Company regardless of the available collateral. On August 31, 2004, Laurus agreed to extend the borrowing base waiverminimum bid price requirement for continued listing on the Credit Line through March 19, 2005. In addition, Laurus has deferred certain payments due under the Term Note and reduced the interest rate on both of the Laurus Loans to 0% for any day the closing sale price of the Company’s common stock is at or above $1.75 per share. In return, we lowered the conversion price on each of the Laurus Loans to $1.00 per share and issuedNasdaq Capital Market. As a warrant to Laurus covering an additional 400,000 common shares at an exercise price of $1.25 per share. The closing price of the Company’sresult, our common stock on August 31, 2004the Nasdaq Capital Market was $1.20 per share.

Subsequent to December 31, 2004, we further amendedended on February 22, 2007. Trading information about our Credit Line. On March 18, 2005, Laurus agreed to extend the borrowing base waivercommon stock became available on the Credit Line through March 31, 2006. In addition, we agreed to allow Laurus to convert $1.87 million of the outstanding principal balance under the Credit Line into 3,600,000 shares of common stockOTC Bulletin Board beginning on March 18, 2005 and $0.65 million of the outstanding principal balance of the Term Note into 1,250,000 shares of common stock on March 24, 2005. As a result, we have increased the amount available under the Credit Line by $1.87 million and have eliminated substantially all remaining 2005 scheduled principal payments on the Term Loan.February 26, 2007.

Sales and Marketing

We currently sellhave sold our products to customers in over 3050 countries. We use a direct sales and support staff for sales in the U.S., U.K. and most countries in Western Europe. For the rest of the world, we sell our products through dealers and distributors located in those local markets. We currently have over 2535 dealers and distributors. We also maintain regionally-based technical support staffs and applications scientists to support our sales and marketing activities throughout the U.S. and Europe.

The nature of our instruments and bioconsumables business does not generally lend itself to tracking and reporting sales backlog.

Customers

Customers include numerous leading academic and medical institutions in the U.S. and abroad. In addition, our customers also include a number of large, established U.S. and foreign pharmaceutical, biotech and commercial companies.

During 2004, sales to Geron Corporation totaled $4.15 million and represented 12% of total consolidated net sales and 49% of total net sales within our Nucleic Acids operating segment. We do not have a long-term sales agreement with Geron Corporation and, accordingly, the amount of nucleic acid products we sell to it is subject to change. Revenues from our Nucl eic Acids business would be substantially reduced if Geron Corporation’s need for our products declined or if it decided to obtain these products from other suppliers.

No other customer currently accounts for more than 10% of total consolidated or operating segment net sales.

Research and Development

We will need to continue to invest in research and development activities in order to remain competitive and to take advantage of new business opportunities as they arise. Accordingly, we maintain an active program of research and development with respect to bioinstruments, consumables and expect to continue to incur significant expense for these activities going forward. Our research and development activitiesdiscovery services. Areas of focus include the improvement of the DNA separation media used in our WAVE System, the refinement of the hardware and software components of the WAVE System, the creation of unique enzymes and WAVE-Optimized^® enzymes, and to a lesser extent, the improvementdevelopment of chemicalassays on the WAVE System. We have also focused on further refinements and biochemical reaction techniquesprocess manufacturing improvements for synthetic nucleic acids.our Surveyor DNA mismatch cutting enzyme. A significant area of research in discovery services is the area of cancer detection screening and mitochondrial disease diagnosis.

Consistent with our business strategy discussed above, we have taken steps to reduce researchFor the years ended December 31, 2007, 2006 and development expenditures to levels that are more consistent with our current levels of revenue. For 2004,

2005, our research and development expendituresexpenses were approximately $6.69 million. This represents a substantial reduction from our prior levels of expenditures that were $9.31$3.0 million, $12.20$2.4 million and $9.37$2.2 million, in 2003, 2002 and 2001, respectively. We expect that we will further curtail our research and development activities until we are able to increase our revenues or otherwise improve our liquidity and working capital positions.

Manufacturing

We manufacture bioconsumable products including our separation columns, liquid reagents, enzymes and nucleic acid products.enzymes. The major components of our WAVE systemsSystems are manufactured for us by a third party. We integrate our own hardware and software with these third party manufactured components. Our manufacturing facilities for our WAVE^® systems Systems and bioconsumables are located in Omaha, Nebraska and San Jose, California, and Cramlington, England. Our phosphoramidites and related synthetic nucleic acid products are manufactured in our Glasgow, Scotland facility.

California.

Intellectual Property

To establish and protect our proprietary technologies and products, we rely on a combination of patent, copyright, trademark and trade-secret laws, as well as confidentiality provisions in our contracts. We presently own rights to more than 8068 issued patents and 5014 pending applications in both the U.S. and abroad. Our BioSystems operating segment products, comprising the WAVE^® System and related consumables are protected by patents and in-licensed technologies with remaining lives of 9 to 18 years. Intellectual property related to our Synthetic Nucleic Acid business unit, other than production trade secrets, is almost entirely in-licensed. A number of these in-licensed patents have recently, or will soon, expire. As a result, we expect price competitionthat expire in the Nucleic Acids operating segment to intensifyvarious periods beginning in the next year.2013 through 2022. We will continue to file patent applications and seek new licenses as warranted to protect and develop new technologies of interest to our customer base in the coming years.

Competition

The markets in which our Biosystems operating segment operateswe operate are highly competitive and characterized by rapidly changing technological advances. A number of Transgenomic’sour competitors possess substantial resources and are able to develop and offer a much greater breadth of products and/or services, coupled with significant marketing and distribution capabilities. Transgenomic competesWe compete principally on the basis of uniquely enabling technical advantages in specific but significant market segments.

Competition for our WAVE Systems arises primarily from DNA sequencing and genotyping technologies. Competitors in these areas include Applied Biosystems, Beckman Coulter, Amersham (now part of GE Healthcare), Affymetrix, AgilentIdaho Technologies, Nanogen, Illumina,Roche, Sequenom, Pyrosequencing (now part of Biotage AB), Varian, and others. Competition for some of our non-WAVE consumable products comes from numerous well-diversified life sciences reagents providers, including, among others, Invitrogen, Qiagen, Roche, Stratagene, and Promega. Our Discovery Services unit facesdiscovery services face competition from a number of companies offering contract DNA sequencing and other genomic analysis services, including Genaissance Pharmaceuticals, GeneLogic, Agencourt,Genizon, Clinical Data, SeqWright Gentris, and Perlagen.others. In addition, several clinical diagnostics service providers, such as Labcorp, Quest, Athena and Specialty Laboratories, also offer related laboratory services in support of clinical trials. Finally, additional competition arises from academic core laboratory facilities.

Competition is also intense in the markets in which our Nucleic Acids operating segment functions, and increasingly driven by price. Transgenomic competes on the basis of its ability to develop and manufacture synthetic nucleic acid building blocks used to make DNA and RNA oligonucleotides. Competitors include Proligo Degussa, Pierce Nucleic Acid Technologies, and Applied Byosystems. In addition, competition is expected in the future from new overseas entrants focusing on low cost production.

Employees

As of December 31, 20042007, 2006 and 2003, we had 178 and 244 employees, respectively. Certain of those employees at December 31, 2004 were terminated during January and February 2005 in connection with the 2004 restructuring plan. As of February 28, 2005, we had 157 employees and expect our headcount to be relatively stable throughout the remainder of 2005. These employees are focused in the following areas of our operation:

We supplement our workforce through the use of independent contractors and consultants. As of February 28, 2005 and December 31, 2004, we have engaged independent contractors or consultants who provide services to us approximately equivalent to five and four full-time employees, respectively.

Our employees were employed in the following geographical locations.locations:

General Information

We were incorporated in Delaware on March 6, 1997. Our principal office is located at 12325 Emmet Street, Omaha, Nebraska 68164 (telephone: 402-452-5400). We maintain manufacturing facilities in Omaha, Nebraska and San Jose, California, Glasgow, Scotland and Cramlington, England.California. We maintain research and development offices in Gaithersburg, Maryland and Omaha, Nebraska.

Our Internet address iswww.transgenomic.com. We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reportsfiled by us with the SEC available free of charge throughon our website as soon as reasonably practicable after we file these documents with the Securities and Exchange Commission.reports are filed. The address of our website iswww.transgenomic.com. Information on our website, including any SEC report, is not part of this Annual Report on Form 10-K.

Risks Related to Our Business

We may not have adequate financial resources to execute our business plan and may be need to terminate some operations.plan.

We have experienced nethistorically operated at a loss and have not consistently generated sufficient cash from operating activities to cover our operating and other cash expenses. While we have been able to historically finance our operating losses and had an accumulated deficitthrough borrowings or from the issuance of $107,101 atadditional equity, we currently have no plans to borrow additional funds or to issue additional equity securities for this purpose. At December 31, 2004. As of March 31, 2005,2007, we had cash and cash equivalents of $1.37 million plus an additional $2.29 million available under our Credit Line. Based on our 2005 operating plan,$5.7 million. While we believe that existing sources of liquidity will beare sufficient to meet expected cash needs during 2005. If necessary,through 2008, we believewill need to increase our revenues or further reduce our operating expenses in order to be assured of meeting our liquidity needs on a long-term basis. However, we can manage costs and expenses at reduced levels to conserve working capital. The need for any such cost and expense reductions during 2005 would likely delay implementation of our business plan. Additionally, we may pursue additional financing alternatives. Ultimately, we must achieve sufficient revenue levels to support its cost structure.

Not withstanding our beliefs, there is no assurancecannot assure you that we will be able to achieve all of these stepsincrease our revenues or that any of these steps will allow us to meetfurther reduce our cash needs. Accordingly, our existing cash balances, cash generated by operations,expenses and, available borrowings under the Credit Line may be insufficient to satisfy our liquidity requirements if our operating plan is not met. In addition, there is no assurance that we will be able to obtain additional debt or equity financing to meet future cash needs. If we are not able to meet our needs for working capital,accordingly, we may not be ablehave sufficient sources of liquidity to execute parts or allcontinue the operations of our business plan and may need to discontinue operations in one or both of our operating segments.

the Company indefinitely.

We have a history of operating losses and may incur losses in the future.

We have experienced annual losses from continuing operations since inception of our operations. Our operating losses from continuing operations for each of the last three fiscal years ended December 31, 2007, 2006 and 2005 were $29.06$2.2 million, $22.59$3.0 million, and $21.70$5.0 million, respectively. These losses have been due principally to the high levels of research and development expenses and sales and marketing expenses that we have incurred in order to develop and market our products, the fixed nature of our manufacturing costs, restructuring charges and impairment charges. In addition, markets for our products and services have developed more slowly than expected in many cases and may continue to do so. As a result, we may incur operating losses in the future, and we may never be profitable.

future.

We may issue a substantial amount of our stock in conversion of our debt and exercise of options and warrants and this could reduce the market price for our stock.

As of April 14, 2005, we had outstanding 34,234,922 million shares of common stock. We also had obligations to issue approximately 6.2 million shares of common stock under outstanding stock options and warrants. Additionally, we may issue shares of common stock upon conversion of all or part of the Laurus Loans. Currently, Laurus may acquire 2.8 million shares of our common stock upon conversion of this debt. The issuance of such additional shares of common stock may be dilutive to our current shareholders and could negatively impact the market price of our common stock.

Markets for our products and services may continue to develop slowly.

There are many factors that affect the market demand for our products and services that we cannot control. This is especially true in our Nucleic Acids operating segment where the demand for our products depends to a large degree on the success that our customers and potential customers have in developing useful pharmaceutical products based on genetic intervention. A central strategy for our Nucleic Acids operating segment is to sell synthetic nucleic acid products to biopharmaceutical and pharmaceutical companies that are seeking to develop commercially viable genomic-based diagnostic and therapeutic products. We have invested a significant amount of capital into acquiring and developing manufacturing facilities and other assets to allow us to pursue this market. However, this is a new field of commercial development, and many of these biopharmaceutical and pharmaceutical companies are in the early stages of their efforts to develop genomic-based diagnostics and therapeutics and have encountered difficulties in these efforts. As a result, the demand for our synthetic nucleic acid products is difficult to forecast and may develop slowly or sporadically. In addition, we cannot assure you that these companies will not internally develop the chemistries and manufacturing capabilities to produce the products they could buy from us. Demand for our WAVE System is similarly affected by the needs and budgetary resources of research institutions, universities, hospitals and others who use the WAVE System for genetic-variation research. The WAVE System represents a significant expenditure by these types of customers and often requires a long sales cycle. If revenues from the sales of our products and services continue at current levels, we may need to take steps to further reduce operating expenses or raise additional working capital. We cannot assure you that sales will increase or that we will be able to reduce operating expenses or raise additional working capital.

A single customer accounts Similarly, the sales cycle for a significant portion of consolidated net sales and net sales in our Nucleic Acids operating segment.

During 2004, sales to Geron Corporation totaled $4.15 million and represented 12% of total consolidated net sales and 49% of total net sales within our Nucleic Acids operating segment. We do not have a long-term sales agreement with Geron Corporation and, accordingly, the amount of nucleic acid productsOEM equipment that we sell can also be a lengthy

Sales of our Discovery Services have been variable.

Discovery services includes services performed by both our Molecular Clinical Reference Laboratory and our Pharmacogenomics Research Services. Testing volumes at the Molecular Clinical Reference Laboratory is dependent on patient visits to itdoctor’s offices and other providers of health

care and tends to fluctuate on a seasonal basis. Volume of testing generally declines during the year end holiday periods, other major holidays and the summer. The Pharmocogenomics Laboratory depends on project based work which will change from quarter to quarter. Therefore, comparison of the results of successive quarters may not accurately reflect trends or results for the full year.

Compliance with HIPPA is time consuming and costly.

The Health Insurance Portability and Accountability Act (HIPAA) and associated regulations protect the privacy and security of certain healthcare information and establish standards for electronic healthcare transactions in the United States. The privacy regulations establish federal standards regarding the uses and disclosures of protected health information. Our Molecular Clinical Reference Laboratory is subject to change. RevenuesHIPAA and its associated regulations and if we fail to comply with these laws and regulations we could suffer civil and criminal penalties, fines, exclusion from our Nucleic Acids operating segment business would be substantially reduced if Geron Corporation’s need for our products declined or if it decidedparticipation in governmental healthcare programs and the loss of various licenses, certificates and authorizations necessary to obtain these productsoperate this business. We could also incur liabilities from other suppliers.

No other customer currently accounts for more than 10% of total consolidated or operating segment net sales.

third party claims.

Customer clinical trials may be delayed or discontinued.

A significant percentage of our Nucleic Acids operating segment and Discovery Services revenues are generated by sales to customers involved in drug development. Our products and services are generally used by these customers in the manufacture of drug candidates in varying stages clinical trials. If these clinical trials are delayed or cancelled or are otherwise not successful, this could have a significant impact on revenues.

The sale of our products and business operations in international markets subjects us to additional risks.

During the last three fiscalpast several years, our international sales have been approximately 55-65%represented more than half of our total net sales. As a result, a major portion of our revenues and expenses are subject to risks associated with international sales and operations. These risks include:

• payment cycles in foreign markets are typically longer than in the U.S. and capital spending budgets for research agencies can vary over time with foreign governments;

• changes in foreign currency exchange rates can make our products more costly and operating expenses higher in local currencies since our foreign sales and operating expenses are typically paid for in U.S. Dollars, British Pounds or the Euro; and

• the potential for changes in U.S. and foreign laws or regulations that result in additional import or export restrictions, higher tariffs or other taxes, more burdensome licensing requirements or similar impediments to our ability to sell products and services profitably in these markets.

Ÿ

payment cycles in foreign markets are typically longer than in the U.S., and capital spending budgets for research agencies can vary over time with foreign governments;

Our WAVE System includes hardware components and instrumentation manufactured by a single supplier and if we are no longer able to obtain these components and instrumentation our ability to manufacture our products could be impaired.

We currently rely on a single supplier, Hitachi High Technologies America, to provide the basic instrument modules used in our WAVE Systems. While other suppliers of instrumentation and computer hardware are available, we believe that our arrangement with Hitachi offers strategic advantages. Hitachi is replacing its current instrument line with a new instrument line. While we presently planWe have successfully converted the latest model of WAVE systems to convert our technology and applications to this new instrument line, such conversion may not be successful and, therefore, we may incur additional costs for the custom manufacturing of the currentutilize Hitachi’s newest instrument line. If we were required to seek alternative sources of supply, it could be time consuming or expensive or require significant and costly modification of our WAVE System. Also, if we were unable to obtain instruments from Hitachi in sufficient quantities or in a timely manner, our ability to manufacture our products could be impaired, which could limit our future revenues.

We may not have adequate personnel to execute our business plan.

In order to reduce our operating costs, we have significantly reduced the number of employees including reductions in our research and development staff and our sales and marketing personnel.all areas of the business. In addition, we may lose other key management, scientific, technical, sales and

manufacturing personnel from time to time. It may be very difficult to replace personnel if they are needed in the future, and the loss of key personnel could harm our business and operating results. We cannot assure you that our employee reductions will not impair our ability to continue to develop new products and refine existing products in order to remain competitive. In addition, these reductions could prevent us from successfully marketing our products and developing our customer base.

Our markets are very competitive.

As described above, we compete with many other companies in both our Biosystems and Nucleic Acids operating segments. Many of these competing companiesour competitors have greater resources than we do and/or may enjoy other competitive advantages. This may allow them to more effectively market their products to our customers or potential customers, to develop products that make our products obsolete or to produce and sell products less expensively than us. As a result of these competitive factors, demand for and pricing of our products and services could be negatively affected.

The price for our common stock is volatile and may drop further.

The trading price for our common stock has fluctuated significantly over recent years. The volatility in the price of our stock is attributable to a number of factors, not all of which relate to our operating results and financial position. Nevertheless, continued volatility in the market price for our stock should be expected and we cannot assure you that the price of our stock will increase in the future. Fluctuations or further declines in the price of our stock may affect our ability to sell shares of our stock and to raise capital through future equity financing.

If we are unable to maintain our Nasdaq listing, your ability to trade shares of our common stock could suffer.

In order for our common stock to remain listed on the Nasdaq National Market (“Nasdaq”), we must meet the minimum listing requirements for continued listing, including, among other requirements, minimum bid price and market value of public float requirements. On March 31, 2005, we were notified that the bid price for our common stock over a 30-day period was below the $1.00 minimum required for continued listing of our common stock on the Nasdaq. In order to remain listed, the minimum bid price for our common stock must be at least $1.00 per share over ten consecutive business days before September 27, 2005. If we are not able to regain compliance with this listing requirement, we may be delisted from the Nasdaq. If our common stock is delisted from the Nasdaq, transactions in our common stock would likely be conducted only in the over-the counter market, or potentially on regional exchanges, which could negatively impact the trading volume and price of our common stock, and investors may find it more difficult to purchase or dispose of, or to obtain accurate quotations as to the market value of, our common stock. In addition, if our common stock were not listed on the Nasdaq and the trading price of our common stock fell below $1.00 per share, trading in our common stock would also be subject to the requirements of certain rules which require additional disclosures by broker-dealers in connection with any trades involving a stock defined as a “penny stock.” In such event, the additional burdens imposed on broker-dealers to effect transactions in our common stock could further limit the market liquidity of our common stock and the ability of investors to trade our common stock.

Our patents may not protect us from others using our technology that could harm our business and competitive position.

Patent law relating to the scope of claims in the technology fields in which we operate is still evolving. The degree of future protection for our proprietary rights is uncertain. Furthermore, we cannot be certain that others will not independently develop similar or alternative products or technology, duplicate any of our products, or, if patents are issued to us, design around the patented products developed by us. Our patents or licenses could be challenged by litigation and, if the outcome of such litigation were

adverse to us, our competitors could be free to use our technology. We may not be able to obtain additional patents for our technology, or if we are able to do so, patents may not provide us with substantial protection or be commercially beneficial. In addition, we could incur substantial costs in litigation if we are required to defend ourselves in patent suits brought by third parties or if we initiate such suits.

We cannot be certain that other measures taken to protect our intellectual property will be effective.

We rely upon trade secret protection, copyright and trademark laws, non-disclosure agreements and other contractual provisions for some of our confidential and proprietary information that is not subject matter for which patent protection is being sought. Such measures, however, may not provide adequate protection for our trade secrets or other proprietary information. If theysuch measures do not protect our rights, third parties could use our technology and our ability to compete in the market would be reduced.

We are dependent upon our licensed technologies and may need to obtain additional licenses in the future to offer our products and remain competitive.

We have licensed key components of our technologies from third parties. If these agreements were to terminate prematurely due to our breach of the terms of these licenses or we otherwise fail to maintain our rights to such technology, we may lose the right to manufacture or sell a substantial portion of our products. In addition, we may need to obtain licenses to additional technologies in the future in order to keep our products competitive. If we fail to license or otherwise acquire necessary technologies, we may not be able to develop new products that we need to remain competitive.

The patent underlying our nonexclusive license to manufacture standard nucleic acid building blocks expired as of March 15, 2005. The expiration of this patent could result in additional manufacturers entering the market for these products. Some of these manufacturers may have lower cost structures or other competitive advantages which may reduce our market share and/or our operating margins related to these products.

The protection of intellectual property in foreign countries is uncertain.

A significant percentage of our sales are to customers located outside the U.S. The patent and other intellectual property laws of some foreign countries may not protect our intellectual property rights to the same extent as U.S. laws. We may need to bring proceedings to defend our patent rights or to determine the validity of our competitors’ foreign patents. These proceedings could result in substantial cost and diversion of our efforts. Finally, some of our patent protection in the U.S. is not available to us in foreign countries due to the laws of those countries.

Our products could infringe on the intellectual property rights of others.

There are a significant number of U.S. and foreign patents and patent applications submitted for technologies in, or related to, our area of business. As a result, any application or exploitation of our technology could infringe patents or proprietary rights of others and any licenses that we might need as a result of such infringement might not be available to us on commercially reasonable terms, if at all. This may lead others to assert patent infringement or other intellectual property claims against us.

Our failure to comply with any applicable government regulations or otherwise respond to claims relating to improper handling, storage or disposal of hazardous chemicals that we use may adversely affect our results of operations.

Our research and development and manufacturing activities involve the controlled use of hazardous materials and chemicals. We are subject to federal, state, local and international laws and regulations governing the use, storage, handling and disposal of hazardous materials and waste products. If we fail to comply with applicable laws or regulations, we could be required to pay penalties or be held liable for any damages that result and this liability could exceed our financial resources. We cannot assure you that accidental contamination or injury will not occur. Any such accident could damage our research and manufacturing facilities and operations, resulting in delays and increased costs.

The price for our common stock is volatile and may drop.

The trading price for our common stock has fluctuated significantly over recent years. The volatility in the price of our stock is attributable to a number of factors, not all of which relate to our operating results and financial position. The delisting of our stock from the NASDAQ may negatively affect the volume of shares traded and the price for our stock. Continued volatility in the market price for our stock should be expected and we cannot assure you that the price of our stock will not decrease in the future. Fluctuations or further declines in the price of our stock may affect our ability to sell shares of our stock and to raise capital through future equity financing.

Our common stock is deemed to be “penny stock”, which may make it more difficult for investors to sell their shares due to suitability requirements.

Our common stock is classified as a “penny stock” under the rules of the SEC. The Securities and Exchange Commission has adopted Rule 3a51-1 which establishes the definition of a “penny stock”, for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:

·

that the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

We may issue a substantial amount of our common stock to holders of options and warrants and this could reduce the market price for our stock.

At December 31, 2007, we had obligations to issue 12,583,879 shares of common stock including outstanding stock options representing 4,535,064 shares and warrants representing 8,048,815 shares. The issuance of these additional shares of common stock may be dilutive to our current shareholders and could negatively impact the market price of our common stock.

Our common stock is thinly traded and a large percentage of our shares are held by a small group of unrelated, institutional owners.

At December 31, 2007, we had 49,189,672 shares of common stock outstanding. Fewer than ten unrelated, institutional holders own more than 50% of these shares The sale of significant shares into the public market has potential to cause significant downward pressure on the price of our common stock. This is particularly the case if the shares being placed into the market exceed the market’s ability to absorb the stock. Such an event could place further downward pressure on the price of our common stock. This presents an opportunity for short sellers to contribute to the further decline of our stock price. If there are significant short sales of our stock, the price decline that would result from this activity will

cause the share price to decline more so, which, in turn, may cause long holders of the stock to sell their shares thereby contributing to sales of stock in the market.

None.

We currently lease and occupy a total of six facilities throughout the world under non-cancelable leases with various terms. The following table summarizes certain information regarding the leased facilities. Annual rent amounts presented in the table are reflected in thousands.

The leases on the Cramlington, England facility will expire in March 2008, and we will be vacating the property at that time. We have vacated the Paris, France facility and are in the process of finding a tenant to sublease this facility.

The Company is not a party to any pending legal proceedings which, if decided adversely to the Company, will have a material adverse effect on our financial position, results of operations or cash flows.

We did not submit any matters to our stockholders for a vote or other approval during the fourth quarter of the fiscal year covered by this report.

PART II

Market Information.    Share price information for our common stock is available on the OTC Bulletin Board under the symbol TBIO.OB. Prior to February 22, 2007, our common stock was listed for trading on the Nasdaq Capital Market under the symbol TBIO. The following table sets forth the high and low closing prices for our common stock during each of the quarters of 2006 and 2007.

Holders.    At December 31, 2007, there are 49,189,672 shares of our common stock outstanding and approximately 3,310 holders of record.

Dividends.    We have never declared or paid any cash dividends on our common stock and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We expect to retain all earnings, if any, for investment in our business. Dividends on our common stock will be paid only if and when declared by our Board of Directors. The Board’s ability to declare a dividend is subject to limits imposed by Delaware corporate law. In determining whether to declare dividends, the Board may consider our financial condition, results of operations, working capital requirements, future prospects and other relevant factors.

Sale of Unregistered Securities.    The Company made no sales of its common stock during the years ended December 31, 2007 and 2006 that were not registered under the Securities Act of 1933 (the “Securities Act”). Information regarding sales of equity securities by the Company during the years ended December 31, 2005 that were not registered under the Securities Act of 1933 have been previously reported by the Company on Form 8-Ks filed on March 18, 2005, March 30, 2005 and October 31, 2005.

Issuer Purchase of Equity Securities.    The Company made no purchases of its common stock during the quarter ended December 31, 2007. Therefore, tabular disclosure is not presented.

Item 6.

Selected Consolidated Financial Data

The selected consolidated balance sheet data as of December 31, 2007 and 2006 and the selected consolidated statements of operations data for each year ended December 31, 2007, 2006 and 2005 have been derived from our audited consolidated financial statements that are included elsewhere in this Annual Report on Form 10-K. The selected consolidated balance sheet data as of December 31, 2005, 2004 and 2003 and the selected consolidated statements of operations data for each year ended December 31, 2004 and 2003 have been derived from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K. Dollar amounts, except per share data, are presented in thousands.

(3)

Other income (expense) for all years presented primarily includes interest expense and interest income. Other income in 2007 includes $.9 million from the sale of an investment security and $.2 million in insurance proceeds related to equipment destroyed in fire at our Cramlington, England facility. The loss on debt extinguishment of $0.5 million in 2005 related to the repayment of long-term debt and $2.9 million resulting from certain modifications to long-term borrowing agreements that were treated as extinguishments for financial reporting purposes.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following analysis gives effectdiscussion should be read in conjunction with the Consolidated Financial Statements and applicable Notes to Consolidated Financial Statements and other information in this report, including Risk Factors set forth in Item 1A and Critical Accounting Policies at the end of this Item 7.

Our continuing operations consist of the manufacture and sale of our WAVE System and related consumable products and discovery services which make use of the Company’s WAVE System to perform genomic research on a contract basis and disease testing services. These functions are categorized as one reportable operating segment. Although revenue is analyzed by type, the Company’s net financial results are analyzed as a single segment due to the restatementintegrated nature of the products and services that we sell. The Consolidated Financial Statements also reflect the assets and results of our statementsformer Nucleic Acids operating segment, which are shown as discontinued operations in all periods as a result of the implementation of a plan to exit this operating segment in the fourth quarter of 2005.

Executive Summary

2007 Results

Full year revenue for 2007 of $23.2 million was consistent with total revenue for 2006 of $23.4 million. Our instrument business declined in 2007 due to fewer WAVE system sales. The bioconsumable business had a slight increase of 2% from 2006 to 2007. The growth in our discovery services was 149% over the prior year. These revenues, coupled with our recently completed cost reduction efforts enabled us to achieve a profit in the fourth quarter of 2007 of $.2 million. The pharmacogenomics business increased from the third quarter of 2007 to the fourth quarter of 2007 by $.4 million. We believe this is due to our increased focus on pharmaceutical companies that we initiated at the beginning of 2007.

Although we have taken significant steps to reduce our operating expenses, we continued to operate at a loss and to generate a negative cash flow during the year. However, our loss and use of cash flowswere reduced over each of the last three years. Our losses from continuing operations have gone from $5.0 million and $3.0 million in 2005 and 2006, respectively, to $2.2 million in 2007. We were able to maintain our cash level of $5.7 million, avoid new debt and improve our gross margins.

2008 Outlook

We are forecasting revenue growth of 10-15% over 2007 and to be profitable in 2008. To accomplish these goals we must generate sequential growth in net sales and continue to better control operating expenses. We are investing in all parts of our business to drive improved sales in 2008 and have added experienced sales staff. We have worked hard to develop a significant number of exciting collaboration opportunities. In addition, we have strengthened our Board of Directors, added key senior management and formed a Scientific Advisory Board to advise us on the latest developments and scientific opportunities in cancer detection screening and mitochondrial disease diagnosis.

Develop sequential growth in net sales.

We will work to continue to leverage on and strengthen our core instrument business. Challenges exist for WAVE System and consumable growth in traditional markets. We continue to look for emerging markets and novel applications to provide us with new opportunities for our WAVE System. We intend to continue to diversify into new markets, including the personalized medicine market (particularly in oncology), where the sensitivities of our technologies are essential. In the short-term, we believe that the introduction of the newest generation of our flagship product, the WAVE System 4500 will provide upgrade opportunities to our current installed base. In addition, we are also selling refurbished WAVESystems in order to allow an opportunity for customers that may not be able to afford the cost of a new system. In the intermediate to longer-term, we believe that newly developed “targeted” consumable products will increase usability of our installed base and enhance net sales of consumables. Additionally, we have developed credibility and momentum with third-party platforms that will allow us to leverage on our direct sales force and distribution network.

On the discovery services front, we have hired two new business development directors to develop pharmaceutical and clinical research organization customers. We have entered into agreements with two major pharmaceutical companies for three Phase II trials representing more than $.5 million of revenues in the first half of 2008 and are focused on maintaining this momentum in our pharmacogenomics business. To compliment our mutation detection expertise, we also have strong capabilities in biomarker development and mutation detection in cancer pathway genes which will aid in the development of true personalized medicine for our pharmaceutical partners. We have also focused increased efforts to expand our Molecular Clinical Reference Laboratory sales by hiring three experienced sales representatives.

Continue to control operating expenses.

Operating expenses include selling, general and administrative expenses and research and development expenses. We will need to continue to invest in research and development activities in order to remain competitive and to take advantage of new business opportunities as they arise. During 2008, we expect operating expenses, including research and development expense, to be approximately equal to 2007 levels.

Results of Continuing Operations

Years Ended December 31, 2007 and 2006

Net Sales.    Net sales for the years ended December 31, 20042007 and 2003, as discussed2006 consisted of the following (dollars in Note P to the consolidated financial statements.

Overviewthousands):

We had previously entered into a workforce reduction$7.5 million line of approximately 60 positionscredit (the “Credit Line”) and a $2.8 million convertible note (the “Term Note,” and collectively with the closureCredit Line the “Laurus Loans”) from Laurus Master Fund, Ltd. (“Laurus”). On March 18, 2005, Laurus converted $1.9 million of two domestic research and development facilities associated withthe outstanding principal balance under the Credit Line into 3,600,000 shares of our Nucleic Acids

operating segment and two European field offices. Additionally, we eliminated approximately 10 positionscommon stock at its chemical building blocks manufacturing facility in Glasgow, Scotland.$0.52 per share. In addition, on March 24, 2005, Laurus converted $.7 million of the outstanding principal balance of the Term Note into 1,250,000 shares of our common stock at $0.52 per share. In conjunction with these changes,conversions, we incurredaccelerated amortization of $.4 million of related debt premiums and discounts and recorded a charge to interest expense of $3.57$1.4 million related to the fair value of incremental shares received by Laurus. Contemporaneously with the closing of a private offering of common stock in November 2005 (the “2005 Private Placement”), we repaid all outstanding principal and accrued interest on the Laurus Loans. In conjunction with this prepayment, we recorded a loss on debt extinguishment of $.5 million. This loss consisted of prepayment penalties and fees paid to Laurus to facilitate the 2005 Private Placement of $.8 million offset by the elimination of associated net debt premiums of $.3 million.

Income Tax Expense.    Income tax expense recorded during the quarter endingyears ended December 31, 2004 consisting of severance benefits of $1.41 million, future rents on closed facilities (net of projected sublease rents) of $1.24 million, the write-off of property2006 and equipment specifically attributable2005 related to closed facilities of $0.74 millionincome taxes in states, foreign countries and other costs of $0.18 million. We had accrued expenses associated with this restructuring plan of $1.91 million atlocal jurisdictions. Due to our cumulative losses, expected losses in future years and inability to utilize any additional losses as carrybacks, we did not provide for an income tax benefit during the years ended December 31, 2004 of which $1.49 million is expect to be paid in 2005.

Impairment Charges.During the second quarter of 2004,2006 or 2005 based on our Board of Directors directed us to explore strategic alternatives for the Nucleic Acids operating segment. The process included significant due diligence by us, our advisors and prospective independent buyers and other interested parties. Based upon information obtained through this process, we determineddetermination that it was more likely than not that the value of the assets associated with this business were impaired. We engaged an external valuation firm to assist us in conducting an interim period impairment test that resulted in us recording a non-cash charge of $11.97 million related to these assets during the three months ended June 30, 2004. The charge consisted of $9.87 million related to the impairment of goodwill and $2.10 million related to the impairment of property and equipment.

Gain on Sale of Facility. On November 11, 2004, we sold the assets associated with our specialty oligonucleotides manufacturing facility in Boulder, Colorado to a subsidiary of Eyetech Pharmaceuticals, Inc. (“Eyetech”). The sale price was $3.00 million in cash plus the assumption of the lease on the Boulder facility and of certain equipment leases with a gross value of $2.38 million. Net proceeds from the sale (after transaction expenses and fees paid to our investment advisors) equaled approximately $2.70 million. In conjunction with this transaction, we recorded a gain on sale of $1.47 million in the fourth quarter of 2004.

Other Income (Expense). Other expense during 2004 of $5.41 million consisted of interest expense of $2.38 million, loss on debt extinguishment of $2.86 million, and other net expense of $0.16 million which consisted primarily of net investment losses associated with available-for-sales securities (Geron stock). Other expense during 2003 of $0.31 million consisted of interest income of $0.20 million, interest expense of $0.31 million and other net expenses of $0.20 million.

The increase in interest expense resulted from higher average debt balances and interest rates. Gross debt totaled $8.95 million at December 31, 2004 compared to $4.69 million at December 31, 2003. Our Credit Line and Term Note had average balances during 2004 of $5.69 million and $2.73 million, respectively, with weighted average interest rates of 6.39% and 6.48%, respectively. The high and low borrowings under our Credit Line during 2004 were $7.23 million and $2.63 million, respectively. Interest expense in 2004 and 2003 includes amortization of related premiums and discounts of $1.64 million and $0, respectively.

Loss on debt extinguishment totaled $2.86 million during 2004. As described in Note E to the accompanying consolidated financial statements, certain August 31, 2004 modifications to our Laurus Loans were treated as extinguishments for financial reporting purposes since the change in present value of expected cash flows between the original and modified agreements is greater than 10%. As such we recorded a loss on extinguishment of debt of $2.86 million at August 31, 2004 reflecting the difference between (i) the recorded amount of debt, net of related discounts, of $7.43 million and (ii) the fair value of the new debt instrument of $10.29 million plus the fair value of the new warrants of $0.11 million. The difference between the fair value of the new debt of $10.29 million and the face value of the debt of $8.57 million represents a premium, which willbenefits would not be reflected as a reduction of interest expense over the life of the new debt.

Income Tax Expense.Income tax expense relates solely to our operations in certain foreign countries and certain states. In addition to income tax expense in these jurisdictions, we do not record any income tax benefits due to our cumulative losses in recent years, expected losses in future years and the uncertainty as to whether we will be able to utilize any additional losses as carrybacks.realized. We will continue to assess the recoverability of deferred tax assets and the related valuation allowance. We expect to continue to incur losses and expect to continue to provide valuation allowances against deferred tax assets. To the extent we begin to generate taxable income in future yearsperiods and it is determineddetermine that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized. Our deferred tax assets asrecognized at such time.

Results of December 31, 2004 were $38.29 million and were entirely offset by a valuation allowance. As of December 31, 2004, we had federal net operating loss carryforwards of approximately $91.47 million. Our net operating loss carryforwards will expire at various dates from 2008 through 2024, if not utilized. We also had state income tax loss carryforwards of $37.62 million at December 31, 2004. These carryforwards will also expire at various dates beginning in 2005 if not utilized.Discontinued Operations

Years EndedOn December 31, 200322, 2005, the Company’s Directors voted to either sell or close and 2002

Net Sales.Net sales decreased in 2003, as compared to 2002, due to a significant decline in demand for our Nucleic Acids products. Sales in ourliquidate the Nucleic Acids operating segment, decreased due towhich consists primarily of a significant decline in demand for our chemical building block products. These products are used by our biopharmaceutical and pharmaceutical customers as raw materials in DNA based drug candidates. The decrease in demand is largely attributable to the timing of completion and/or failure of Phase III clinical trials by certain of our large customers. This decrease in demand for DNA building blocks in 2003 was partially offset by sales of oligonucleotides generated by our start-up manufacturing facility in Boulder, Colorado.Glasgow, Scotland. This decision was made after an evaluation of, among other things, short and long-term sales projections for products sold by this operating segment, including estimates of 2006 sales to the operating segment’s largest customer. In conjunction with the decision to exit this operating segment,

Salesthe Company recorded impairment charges of $.4 million and $8.0 million in our BioSystems2006 and 2005, respectively, consisting of valuation adjustments to reflect the carrying value of the related net assets at estimated fair market value. Accordingly, the results of this business segment are shown as discontinued operations for all periods presented. Expenses that are not directly identified to this operating segment increasedor are considered corporate overhead have not been allocated to this segment in 2003. Revenuesdetermining the results from salesdiscontinued operations. Summary results of WAVE systems and related services were relatively flat with 2002. However, bioconsumable product sales strength resulted from increased WAVE related consumable usage asoperations of the installed base of WAVE Systems has increased and as researchers begin to use them more extensively in place of other methods of DNA analysis. Also contributing to the increase were revenues generated by new product sales including our Optimase product line that was launched in 2002 and began to see increased usage in 2003. Sales of WAVE systems declined slightly from 2002 to 2003 offset by an increase in related services revenues. The slight decline in systems sales was mainly due to continued low sales volumes to our North American customer base. Increased services revenue was attributable to our focus on providing genetic variation discovery and analysis services to our pharmaceutical base of customers.

Cost of Goods Sold.Cost of goods sold increased in 2003 over 2002 despite the decline in our revenues. This increase was anticipated and was attributable mainly to excess manufacturing capacity in our Nucleic Acids operating segment. The BioSystems operating segment cost of goods sold as a percentage of sales declined year over year but remained within historical ranges at approximately 43%. The margins in ourformer Nucleic Acids operating segment were negatively impacted by higher manufacturing costs and excess capacity due largely toas follows (dollars in thousands):