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 and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of ~~1934,~~1934) Yes ¨ No x

As of ~~May 13,~~August 15, 2005, the number of shares of common stock outstanding was ~~34,234,922.~~34,241,281.


	March 31, 2005			December 31, 2004
	March 31, 2005			December 31, 2004			June 30, 2005			December 31, 2004
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,498		$	1,002		$	1,714		$	1,002
Accounts receivable (net of allowances for bad debts of $1,030 and $1,051, respectively)		8,327			10,197
Accounts receivable (net of allowances for bad debts of $998 and $1,051, respectively)								8,682			10,197
Inventories		4,957			5,366			4,585			5,366
Prepaid expenses and other current assets		1,142			1,343			912			1,343

Total current assets		15,924			17,908			15,893			17,908

PROPERTY AND EQUIPMENT:
Land and buildings		2,367			2,427			2,274			2,427
Equipment		19,113			19,263			18,528			19,263
Furniture and fixtures		5,948			5,781			5,876			5,781

		27,428			27,471			26,678			27,471
Less: accumulated depreciation		14,719			13,946			14,941			13,946

		12,709			13,525			11,737			13,525
GOODWILL		638			638			638			638
OTHER ASSETS		5,065			5,387			4,697			5,387

	$	34,336		$	37,458		$	32,965		$	37,458

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,404		$	3,431		$	2,501		$	3,431
Other accrued expenses		4,765			7,318
Accrued expenses								5,430			7,318
Accrued compensation		1,024			636			761			636
Line of credit		5,739			6,514			6,570			6,514
Current portion of long-term debt		225			825			450			825

Total current liabilities		15,157			18,724			15,712			18,724
Long-term debt		1,761			2,199			1,494			2,199

Total liabilities		16,918			20,923			17,206			20,923

COMMITMENTS AND CONTINGENCIES (Note F)
STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value, 15,000,000 shares authorized, none outstanding		—			—			—			—
Common stock, $.01 par value, 60,000,000 shares authorized, 34,234,922 and 29,330,874 shares outstanding, respectively		348			299
Common stock, $.01 par value, 60,000,000 shares authorized, 34,241,281 and 29,330,874 shares outstanding, respectively								348			299
Additional paid-in capital		124,989			120,798			124,993			120,798
Accumulated other comprehensive income		2,074			2,539			1,409			2,539
Accumulated deficit		(109,993	)		(107,101	)		(110,991	)		(107,101	)

Total stockholders’ equity		17,418			16,535			15,759			16,535

	$	34,336		$	37,458		$	32,965		$	37,458


	Three Months Ended March 31,						Six Months Ended June 30,
	2005			2004 (As restated, See Note L)			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,892	)	$	(3,859	)	$	(3,890	)	$	(18,992	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization		1,049			1,202			2,101			2,410
Impairment charges								—			11,964
Non-cash financing costs		1,438			460			1,434			622
(Gain)/Loss on sale of securities		—			27			(9	)		27
Other		3			—			2			—
Changes in operating assets and liabilities, net of acquisitions:
Changes in operating assets and liabilities:
Accounts receivable		1,769			423			1,241			(1,926	)
Inventories		323			(344	)		611			(422	)
Prepaid expenses and other current assets		189			(416	)		399			(362	)
Accounts payable		12			(100	)		(841	)		61
Accrued expenses		(2,104	)		(1,242	)		(2,220	)		(334	)

Net cash flows from operating activities		(213	)		(3,849	)		(1,172	)		(6,952	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from asset sales		100			—
Proceeds from sale of available for sale securities		—			933
Proceeds from the maturities and sale of available for sale securities								617			932
Purchase of property and equipment		(387	)		(435	)		(671	)		(1,133	)
Proceeds from sales of property and equipment								139			—
Change in other assets		68			(68	)		(1	)		(1	)

Net cash flows from investing activities		(219	)		430			84			(202	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in line of credit		1,161			3,423
Advances on line of credit								10,790			14,600
Payments on line of credit								(8,740	)		(9,014	)
Proceeds from long-term debt		—			2,750			—			2,750
Payments on long-term debt		(178	)		(1,744	)		(178	)		(1,729	)
Issuance of common stock, net of expenses		3			17			7			45

Net cash flows from financing activities		986			4,446			1,879			6,652
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH		(58	)		(39	)		(79	)		(83	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		496			988			712			(585	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		1,002			1,241
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR								1,002			1,241

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,498		$	2,229		$	1,714		$	656

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	171		$	85		$	316		$	237
Income taxes, net		4			(96	)		18			(95	)
Non-cash transactions:
Available for sale securities acquired for goods and services		—			959			608			959
Conversions of debt to equity		2,579			2,000			2,579			2,000

The accompanying unaudited consolidated financial statements of Transgenomic, Inc. and Subsidiaries (the “Company”) have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. In the opinion of management of the Company, all adjustments (consisting of only normal and recurring items) have been made to present fairly the financial positions, the results of operations and cash flows for the periods presented.

The results of operations for the three and six months ended ~~March 31,~~June 30, 2005 and 2004 are not necessarily indicative of the results to be expected for the full year.

Although the Company believes that the disclosures are adequate to make the information presented not misleading, these financial statements should be read in conjunction with the consolidated financial statements ~~for the period ended December 31, 2004,~~ that are included in the Company’s annual report on Form 10-K for the year ended December 31, 2004, as amended.

The Company has experienced recurring net losses and had an accumulated deficit of ~~$109,993~~$110,991 at ~~March 31,~~June 30, 2005. Based on the Company’s ~~2005~~ operating plan, management believes its existing sources of liquidity will be sufficient to meet its cash needs during 2005. If necessary, the Company’s management believes they 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 the Company’s business plan. Additionally, management may pursue ~~additional~~ financing alternatives. Ultimately, the Company must achieve sufficient revenue levels to support its cost structure.

The consolidated financial statements include the accounts of Transgenomic, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

For purposes of reporting cash flows, cash and cash equivalents include cash and temporary investments with original maturities at acquisition of three months or less.

Accounts receivable are shown net of allowance for doubtful accounts. The following is a summary of activity for the allowance for doubtful accounts during ~~each~~ of the three and six months ended ~~March 31,~~June 30, 2005 and 2004.

Revenue on the sales of products is recognized in accordance with the terms of the sales arrangement. Such recognition is based on receipt of an unconditional customer order and transfer of title and risk of ownership to the customer, typically upon shipment of the product. Our sales terms do not provide for the right of return unless the product is damaged or defective. Revenues from certain services associated with our analytical instruments, to be performed subsequent to shipment of the products, is deferred and recognized when the services are provided. Such

services, mainly limited to installation and training services that are not essential to the functionality of the instruments, typically are performed in a timely manner subsequent to shipment of the instrument. The Company also enters into various service contracts that cover installed WAVE systems. These contracts cover specific time periods and revenue associated with these contracts is deferred and recognized over the service period. At ~~March 31,~~June 30, 2005 and December 31, 2004, deferred revenue ~~mainly~~ associated with the Company’s service contracts ~~included on the Company’s balance sheet~~ was approximately ~~$1,765~~$1,856 and $1,478 ~~respectively.~~respectively, and is included in “accrued expenses” in the accompanying unaudited consolidated balance sheets.

During the ~~three~~six months ended ~~March 31,~~June 30, 2004, the Company recognized approximately $196 of product sales under bill-and-hold arrangements. Under these arrangements, the customer had accepted title and risk of ownership

to the product, but had requested that the Company store the product on behalf of the customer, in a rented freezer, until the ~~three~~six months ended June 30, 2004. There were no sales under bill-and –hold arrangements recognized during the ~~three~~six months ended ~~March 31, 2005 under bill-and-hold arrangements.~~June 30, 2005.

The Company accounts for its employee stock option grants under the provisions of Accounting Principles Board Opinion No. 25, ~~(“APB”),~~Accounting for Stock Issued to Employees, which utilizes the intrinsic value method. Accordingly, compensation cost for stock options is measured as the excess, if any, of the fair market value of the Company’s common stock at the date of grant over the stock option exercise price. Stock option grants to non-employees are accounted for using the fair value method of accounting in accordance with ~~Statement of Financial Accounting Standards (“SFAS”)~~SFAS No. 123,Accounting for Stock-Based Compensation, using the Black-Scholes model.

The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock based employee compensation.


	Three Months Ended March 31,						Three Months Ended						Six Months Ended
	2005			2004			June 30, 2005			June 30, 2004			June 30, 2005			June 30, 2004
Net Loss:
As reported	$	(2,892	)	$	(3,859	)	$	(998	)	$	(15,132	)	$	(3,890	)	$	(18,992	)
Less pro forma stock-based employee compensation expense determined under fair value method, net of related tax								(73	)		(221	)		(143	)		(484	)

Pro forma		(3,175	)		(4,123	)	$	(1,071	)	$	(15,353	)	$	(4,033	)	$	(19,476	)
Basic and diluted loss per share:
Basic and Diluted Loss Per Share:
As reported		(0.10	)		(0.13	)	$	(0.03	)	$	(0.52	)	$	(0.12	)	$	(0.66	)
Pro forma		(0.11	)		(0.14	)	$	(0.03	)	$	(0.53	)	$	(0.13	)	$	(0.67	)

Financial statements of subsidiaries outside the U.S. are measured using the local currency as the functional currency. The adjustments to translate those amounts into U.S. dollars are accumulated in a separate account in stockholders’ equity and are included in ~~accumulated~~ other comprehensive income. Foreign currency transaction gains or losses resulting from changes in currency exchange rates are included in the determination of net income. Foreign currency transaction adjustments ~~decreased net~~adversely affected loss from operations by approximately ~~$200~~$228 and ~~$120~~$8 for the three months ended ~~March 31,~~June 30, 2005 and 2004, ~~respectively.~~respectively, and by approximately $428 and $128 for the six months ended June 30, 2005 and 2004.

Basic ~~earnings~~loss per share are calculated based on the weighted-average number of common shares outstanding during each period. Diluted ~~earnings~~loss per share ~~include~~includes shares issuable upon exercise of outstanding stock options and warrants or conversion of convertible notes, where dilutive. For all periods presented, basic and diluted weighted average shares outstanding and loss per share are identical, since all potentially dilutive securities are antidilutive. Potentially dilutive securities consist of stock options and warrants representing 4,759,547 and 1,159,421 shares of

common stock at June 30, 2005, respectively. Additionally, certain portions of the Company’s debt are convertible into the Company’s common stock at prices that were greater than the market price of the Company’s common stock at June 30, 2005.

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R,Share-Based ~~Payment~~.Payment. SFAS No.123R addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using ~~APB~~Accounting Principles Board Opinion No. 25 and generally requires that such transactions be accounted for using a fair-value-based method. The Company expects to adopt this standard on January 1, 2006. The Company is currently assessing the final impact of this standard on its financial position, results of operations or cash flows. This assessment includes evaluating option valuation methodologies and assumptions as well as potential changes to compensation strategies.

On November 24, 2004, the FASB issued SFAS No. 151,Inventory Costs – an amendment of ARB No. 43. SFAS No. 151 requires idle facility expenses, freight, handling costs, and wasted material (spoilage) costs to be excluded from the cost of inventory and expensed when incurred. It also requires that allocation of fixed production overhead to be based on the normal capacity of the production facilities. SFAS No. 151 will be effective at the beginning of 2006. The Company is currently assessing the final impact of this standard on its financial position, results of operations or cash flows.

The preparation of consolidated financial statements 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.

Inventories consisted of the following at ~~March 31,~~June 30, 2005 and December 31, 2004:


	BioSystems Operating Segment					Nucleic Acids Operating Segment					Total
	March 31, 2005		December 31, 2004			March 31, 2005		December 31, 2004			March 31, 2005			December 31, 2004			BioSystems Operating Segment						Nucleic Acids Operating Segment						Total
	March 31, 2005							December 31, 2004		June 30, 2005				December 31, 2004		December 31, 2004			June 30, 2005			December 31, 2004			June 30, 2005			December 31, 2004
Finished goods	$	2,336	December 31, 2004		$	March 31, 2005	2,637	$	2,855		March 31, 2005	$	2,380		$	5,191		$	5,017		$	2,260		$	2,637		$	2,159		$	2,380		$	4,419	$	5,017
Raw materials and work in process		728		780			1,679		2,275			2,407			3,055			504			780			2,217			2,275			2,721			3,055
Demonstration inventory		147		153			—		—			147			153			123			153			—			—			123			153

		3,211		3,570			4,534		4,655			7,745			8,225			2,887			3,570			4,376			4,655			7,263			8,225
Less inventory classified as a long-term asset		—		—			2,788		2,859			2,788			2,859			—			—			2,678			2,859			2,678			2,859

Net inventory	$	3,211	$	3,570		$	1,746	$	1,796		$	4,957		$	5,366
Net Inventory																	$	2,887		$	3,570		$	1,698		$	1,796		$	4,585		$	5,366

The Nucleic Acids operating segment inventory at ~~March 31,~~June 30, 2005 and December 31, 2004 consisted primarily of ~~phosphoramadites~~chemical building blocks for synthetic nucleic acids (know as phosphoramadites) and the raw materials to produce phosphoramadites which are used and produced at the Company’s facility in Glasgow, Scotland. As of ~~March 31,~~June 30, 2005, the Company has classified a portion of this inventory as a long-term other asset based on its existing sales forecasts for these products.

The Company periodically evaluates its inventory of ~~chemical building blocks~~phosphoramadites to determine whether they continue to meet quality and other specifications and over what time period such products are expected to be sold. Product that does not meet quality and other specifications can generally be re-worked to enhance purity. Costs to purify such product and related yield losses are expensed as incurred.

~~At March 31,~~Goodwill totaled $638 at June 30, 2005 and December 31, 2004 and related entirely to the BioSystem operating segment. The following summarizes goodwill adjustments for the three and six months ended June 30, 2005 and 2004.

During the three months ended March 31, 2004, the Company’s Board of Directors directed management to explore strategic alternatives for the Nucleic Acids operating segment. The process included significant due diligence by ~~operating~~management, its advisors and prospective independent buyers and other interested parties. Based upon information obtained through this process during the three months ended June 30, 2004, management determined that it was more likely than not that the assets of the Nucleic Acids business were impaired. Accordingly, the Company engaged an external valuation firm to assist with the completion of a mid-year impairment test. As a result, the Company recorded a non-cash charge of $11,964 related to its Nucleic Acids segment during the three months ended June 30, 2004. The charge consisted of $9,864 related to the ~~following:~~impairment of goodwill and $2,100 related to the impairment of property and equipment.

At ~~March 31,~~June 30, 2005 and December 31, 2004, finite lived intangible assets and other assets consisted of the following:


	March 31, 2005						December 31, 2004						June 30, 2005						December 31, 2004
	Cost		Accumulated Reserve		Net Book Value		Cost		Accumulated Reserve		Net Book Value		Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value
Finite Lived Intangible Assets
Capitalized software	$	2,132	$	1,646	$	486	$	2,132	$	1,468	$	664	$	2,132	$	1,824	$	308	$	2,132	$	1,468	$	664
Intellectual property		765		490		275		765		476		289		765		503		262		765		476		289
Patents		1,073		200		873		1,071		194		877		1,077		205		872		1,071		194		877
Deferred financing costs		393		48		345		576		183		393
Long term inventory		4,797		2,009		2,788		4,797		1,938		2,859

														3,974		2,532		1,442		3,968		2,138		1,830

Other Assets
Long Term Inventory														2,678		—		2,678		2,859		—		2,859
Deferred Financing Costs														576		279		297		576		183		393
Other		449		151		298		452		147		305		448		168		280		452		147		305

														3,702		447		3,255		3,887		330		3,557

Total	$	9,609	$	4,544	$	5,065	$	9,793	$	4,406	$	5,387	$	7,676	$	2,979	$	4,697	$	7,855	$	2,468	$	5,387

Amortization expense for intangible assets was approximately ~~$249~~$245 and ~~$243~~$242 during the three months ended ~~March 31,~~June 30, 2005 and 2004, respectively, and $495 and $486 for the six months ended June 30, 2005 and 2004, respectively. Amortization expense for intangible assets is expected to be approximately ~~$763~~$518 for the remainder of 2005, $342 in 2006, ~~$330~~$331 in 2007, $62 in 2008, ~~$133~~$134 in 2009, ~~$133~~$134 in 2010 and $26 in ~~2011~~2011.

Funds available under the Credit Line are determined by a borrowing base equal to 90% of eligible accounts receivable balances plus up to $1,000 related to inventory balances. On March 18, 2005, Laurus agreed to extend an existing waiver of the borrowing base ~~waiver on the Credit Line~~ until March 31, 2006. In connection with this extension, the Company agreed to allow Laurus to convert $1,879 of the outstanding principal balance under the Credit Line into 3,600,000 shares of its common stock at $0.52 per share. In addition, on March 24, 2005 the Company agreed to allow Laurus to convert $650 of the outstanding principal balance of the Term Note into 1,250,000 shares of common stock at $0.52 per share. Laurus agreed to apply this Term Note conversion against substantially all remaining 2005 scheduled principal payments on such loan. The closing market price of the Company’s common stock the day before each of these conversions was $0.58 per share. No other provisions of ~~our~~the Company’s Credit Line or Term Note (collectively, the “Laurus Loans”) were modified, including the $1.00 conversion price for remaining debt. In conjunction with these conversions, wethe Company accelerated amortization of $409 of related debt premiums and discounts and recorded a charge of $1,365 related to the fair value of incremental shares received by Laurus.


	Three Months Ended March 31,					Three Months Ended					Six Months Ended
	2005			2004		June 30, 2005			June 30, 2004		June 30, 2005			June 30, 2004
Interest paid or accrued on outstanding debt	$	171		$	85	$	134		$	152	$	305		$	237
Amortization of debt premiums		(568	)		—		(124	)		—		(692	)		—
Amortization of debt discounts – warrants		11			—		9			—		20			—
Amortization of debt discount – beneficial conversion feature		629			460		15			158		644			618
Fair value of incremental shares received by Laurus		1,365			—		—			—		1,365			—
Other		47			44
Deferred Financing Costs							49			36		96			80

	$	1,655		$	589	$	83		$	346	$	1,738		$	935

Principal repayments under the Term Note are scheduled as follows: $0 for the remainder of 2005, $875 in 2006, and $800 in 2007.

The Company ~~has been~~was named as a defendant in a lawsuit filed in Spain by a prospective distributor who claims that the Company breached a promise to grant the plaintiff a distributorship for certain of the Company’s products in a specific geographic area in Europe. The plaintiff iswas seeking monetary relief of approximately $500. ~~The Company believes~~During the ~~lawsuit is without merit and intends to vigorously defend~~three months ended June 30, 2005, a court dismissed this ~~matter.~~matter in favor of the Company.

The Company is subject to a number of other claims of various amounts, which arise out of the normal course of business. In the opinion of management, the disposition of ~~all~~ claims currently pending will not have a material adverse effect on the Company’s financial position, results of operations or cash flows, after considering amounts already reflected in the consolidated financial statements.

The Company leases certain equipment, vehicles and operating facilities. The Company’s leases related to its operating facilities currently expire on various dates through 2010. At ~~March 31,~~June 30, 2005, the future minimum lease payments required under non-cancellable lease provisions are approximately ~~$1,092~~$858 for the remainder of 2005, ~~$1,384~~$1,230 in 2006, $441 in 2007, $187 in 2008, $191 in 2009, and ~~$181~~$165 in 2010. Rent expense related to all operating leases for the three months ended ~~March 31,~~June 30, 2005 and 2004 was approximately ~~$237~~$310 and ~~$585,~~$588, respectively, and $663 and $1,173 for the six months ended June 30, 2005 and 2004, respectively.

At ~~March 31,~~June 30, 2005, the Company had firm commitments totaling $~~477~~$468 to a vendor to purchase components used in WAVE Systems.

Income tax recorded during the three and six months ended ~~March 31,~~June 30, 2005 and 2004 related to income taxes in states, foreign countries and other local jurisdictions offset by refunds received.

Due to the Company’s cumulative losses, expected losses in future years and inability to utilize any additional losses as carrybacks, the Company has not provided for an income tax benefit during the three and six months ended ~~March 31,~~June 30, 2005 or 2004 based on management’s determination that it was more likely than not that such benefits would not be realized. The Company will continue to assess the recoverability of deferred tax assets and the related valuation allowance. To the extent the Company begins to generate taxable income in future periods and it determines that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized at such time. As of ~~March 31,~~June 30, 2005 and December 31, 2004, the Company’s deferred tax assets were offset by a valuation allowance of approximately ~~$39,417~~$39,747 and $38,287, respectively.

~~During three~~The following shows changes to the components of stockholders’ equity during the six months ended ~~March 31,~~June 30, 2005.

During the three and six months ended June 30, 2005, the Company issued zero and 4,900,000 shares, respectively of common stock in conjunction with conversions under the Laurus Loans.


Date	Price	Shares Issued	Proceeds		Facility	Applied To	Price		Shares Issued	Proceeds		Facility	Applied To
January 2005	$1.00	50,000	$	50	Term Note	Principal	$	1.00	50,000	$	50	Term Note	Principal
March 2005	$0.52	3,600,000		1,879	Credit Line	Principal	$	0.52	3,600,000		1,879	Credit Line	Principal
March 2005	$0.52	1,250,000		650	Term Note	Principal	$	0.52	1,250,000		650	Term Note	Principal

		4,900,000	$	2,579					4,900,000	$	2,579

~~During~~No options were granted during the three months ended ~~March 31, 2005, the Company granted 172,500 options at an exercise price of $1.09 per share.~~June 30, 2005. The following table summarizes activity under the 1997 Stock Option Plan during the ~~three~~six months ended ~~March 31,~~June 30, 2005.


	Number of Options		Weighted Average Exercise Price		Number of Options		Weighted Average Exercise Price
Balance at December 31, 2004	5,088,037		$	5.09	5,088,037		$	5.09
Granted	172,500		$	1.09	172,500			1.09
Exercised	—			—
Forfeited	(218,268	)	$	4.94	(500,990	)		3.95

Balance at March 31, 2005	5,042,269		$	4.96
Balance at June 30, 2005					4,759,547		$	5.07

Exercisable at March 31, 2005	4,150,845		$	5.50
Exercisable at June 30, 2005					4,170,266		$	5.44

The weighted average fair value of options granted during the ~~three~~six months ended ~~March 31,~~June 30, 2005 was $~~0.59~~$0.61 per share. The fair value of each stock option granted is estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for options granted ~~three~~during the six months ended ~~March 31,~~June 30, 2005: no common stock dividends; risk-free interest rates of 4.14% to 4.79%; 85% volatility; and an expected option life of 3 years. At ~~March 31,~~June 30, 2005, the weighted average remaining contractual life of options outstanding was ~~5.2~~4.7 years.

The following table summarizes information about options outstanding as of ~~March 31,~~June 30, 2005:

The Company operates 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. Expenses that cannot be directly identified to an operating activity or are considered corporate overhead are not allocated to the segments in arriving at operating income for the segment. Generally, decisions regarding asset allocation, financing, taxes or other items impacting the Company’s balance sheet are made at the corporate level and, accordingly, operating segment balance sheet information is not typically reviewed by operating decision makers.

The BioSystems operating segment generates revenue from the sale of automated instrument systems and associated consumable products and services. This segment’s products are based upon two of the Company’s three core competencies: separations chemistries and enzymology. Specifically, this segment’s main products are the WAVE system, related bioconsumables and research services.

The Nucleic Acids operating segment generates revenue from the sale of products and services based upon all three of the Company’s core competencies: nucleic acid chemistries, separations chemistries and enzymology. Specifically, this segment’s main products are nucleic acid building blocks or “phosphoramidites,” fluorescent markers, dyes and associated reagents and novel chemistry and process development services.

The following table sets forth net sales and operating income (loss) by segment.


	Three Months Ended March 31						Three Months Ended						Six Months Ended
	2005			2004			June 30, 2005			June 30, 2004			June 30, 2005			June 30, 2004
Net Sales
BioSystems	$	6,927		$	6,385		$	6,889		$	6,563		$	13,816		$	12,948
Nucleic Acids		446			2,244			744			2,448			1,189			4,692

Total	$	7,373		$	8,629		$	7,633		$	9,011		$	15,005		$	17,640

Income (Loss) from operations
Income (Loss) from Operations
BioSystems	$	580		$	(517	)	$	767		$	(158	)	$	1,347		$	(675	)
Nucleic Acids		(732	)		(1,382	)	$	(535	)	$	(13,178	)	$	(1,266	)	$	(14,561	)
Corporate		(1,073	)		(1,414	)		(1,167	)		(1,415	)		(2,248	)		(2,829	)

Total	$	(1,225	)	$	(3,313	)	$	(935	)	$	(14,751	)	$	(2,167	)	$	(18,065	)

During the three and six months ended ~~March 31,~~June 30, 2005, sales to Novartis Pharmaceuticals, Inc. (“Novartis”) totaled ~~$717~~$667 and $1,410, respectively, and represented ~~10%~~9.7% and 10.2%, respectively, of net sales within the Company’s BioSystems ~~Operating~~operating segment and ~~10%~~8.7% and 9.4%, respectively, of total consolidated net sales. Sales to Novartis are governed by a non-binding master services agreement dated August 22, 2002.

During the three and six months ended June 30, 2005, sales to Geron Corporation (“Geron”) totaled $54 and $105, respectively, and represented 7.3% and 8.8%, respectively, of net sales within the Company’s Nucleic Acids operating segment and less than 1% of total consolidated sales. During the three and six months ended June 30, 2004, sales to Geron totaled $1,174 and $1,896, respectively, and represented 48% and 40%, respectively, of net sales within the Company’s Nucleic Acids operating segment and 13% and 11%, respectively, of total consolidated net sales. Sales to Geron are governed by a non-binding supply agreement dated June 15, 2002, as amended. Under the supply agreement and related addendums, Geron has historically paid the Company for goods and services with its common stock. The terms of each addendum generally provide that Geron pre-pay 50% of the total sales price of goods sold under the addendum upon execution of the addendum and the remaining 50% upon acceptance of the related goods and services. Geron shares received by the Company are restricted for resale until they are registered with the Securities and Exchange Commission. The Company assumes all market risk related to the value of these securities and any selling costs are paid by the Company. Once registered, it has been the Company’s intent and practice to sell such securities as soon as practical.

The following is a summary of Geron shares received and sold during the six months ended June 30, 2005 and 2004.

The 101,801 Geron shares received by the Company in April 2005 were a prepayment for products that are expected to be completed and delivered to Geron in the second half of 2005. The related deferred revenue of $608 is included in “accrued expenses” in the accompanying unaudited consolidated balance sheet at June 30, 2005.

During the three months ended March 31, 2004, sales to Geron Corporation (“Geron”) totaled $722 and represented 32% of net sales within our Nucleic Acids operating segment and 8% of total consolidated net sales. In the first quarter of 2004, the Company entered into addendums to an existing supply agreement with Geron. The addendums allowed Geron to pay for products being manufactured by the Company under the addendum with Geron common stock. The following is a summary of Geron shares received and sold by the Company during the three months ended March 31, 2005 and 2004.

Subsequent to March 31, 2005, Geron issued 101,801 shares valued at $608 as a prepayment for products that are expected to be completed in the second half of 2005. These shares were sold during the second quarter of 2005 for $617 resulting in a gain of $9.

The Company had accrued expenses associated with its 2004 restructuring plan of ~~$931~~$581 and ~~$1,909~~$1,910 at ~~March 31,~~June 30, 2005 and December 31, 2004, respectively. The balance at ~~March 31,~~June 30, 2005 relates primarily to future rents on closed facilities (net of projected sublease rents) of which ~~$602~~$283 is expected to be paid during the remainder of 2005 and ~~$329~~$272 in 2006 and thereafter.

Subsequent to the issuance of the Company’s financial statements for the year ended December 31, 2004, the Company’s management determined that it had incorrectly included the amortization of software development costs within net cash flows from investing activities rather than within net cash flows from operating activities.

As a result, the Company’s unaudited consolidated statement of cash flows for the three months ended March 31, 2004 have been restated from the amounts previously reported to correct these errors. This restatement had no impact on the Company’s consolidated balance sheets or consolidated statements of operations. The impact of this restatement on the consolidated statements of cash flows is as follows: (dollars in thousands):

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operations

The following analysis gives effect to the restatement of our statements of cash flows for the quarter ended March 31, 2004, as discussed in Note L to the accompanying unaudited consolidated financial statements.

We provide innovative products and services for the synthesis, purification and analysis of nucleic acids. Our operations fall into two principal business units, BioSystems and Nucleic Acids. Our BioSystems products include our WAVE^{^®} automated instrument systems, WAVE associated consumable products and other related consumable products. Our Nucleic Acids products consist principally of chemical building blocks for nucleic acid synthesis. Both business units 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. In our first core competency, separations chemistry, 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 expand 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 the assets associated with this facility to a subsidiary of Eyetech Pharmaceuticals, Inc. As a result of this sale, we no longer manufacture and sell these specialized oligonucleotides.

Our operations are managed based upon the nature of the products and services provided. Accordingly, we operate 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 the Notes to the accompanying unaudited consolidated financial statements for detailed segment information.

~~To respond~~Since 2000 (the year of our initial public offering), we have incurred net losses of $98.15 million largely related to ~~changes in the overall business climate and~~ our ~~liquidity position, we~~Nucleic Acids operating segment. We instituted significant changes during the fourth quarter of 2004 designed to, among other things, better align our cost structure with projected revenues, focus on opportunities in our BioSystems operating segment, and minimize the adverse financial effect of our Nucleic Acids operating segment. Specifically, during the fourth quarter of 2004, we sold our manufacturing facility in Boulder, Colorado and implemented a restructuring plan (the “2004 Restructuring Plan”). While the primarily goals of these changes were to provide the foundation for a self-sustaining, growth-oriented company with positive cash flows and earnings, there can be no assurance that we can achieve these goals.

An increasing installed base and strong performance from Discovery Services, fueled 8% revenue growth in our BioSystms operating segment during the first quarter of 2005 compared to the same period of 2004. Revenues from our Nucleic Acids operating segment did not meet our expectations during the quarter; however, amendments recently executed with Geron Corporation (“Geron”) and other customers provide significant backlog for the remainder of 2005.

Expenses for the first quarter of 2005 reflect the benefits we expected to receive from the sale of our Boulder, Colorado facility and the 2004 Restructuring Plan. Our loss from operations of $1.23 million (including depreciation and amortization expense of $1.05 million) and cash flows used by operations of $0.21 million ranked among the best quarters since our initial public offering in 2000, and demonstrated significant progress toward our goal of generating positive operating and net cash flows. Foreign currency charges totaling $0.20 million during the quarter were not expected and adversely affected our loss from operations and cash flows from operations. We spent $0.94 million during the quarter to fund our 2004 Restructuring Plan, which also adversely affected cash flow from operations. These restructuring costs were expected and had been previously accrued. We are assessing strategies to effectively manage our foreign exchange risk (which could be significant) and do not expect cash paid for restructuring costs to recur at these levels.

Our liquidity and working capital positions improved during the first ~~quarter~~six months of 2005 due principally to conversions of ~~borrowing~~$2.53 million of borrowings under our credit line (“Credit Line”) and term note (“Term Note”) (collectively, the “Laurus Loans”) with Laurus Master Fund, Ltd. (“Laurus”) ~~totaling $2 million~~ into common stock. ~~The accounting effects of conversions and modifications to the Laurus Loans~~At June 30, 2005, we had an ~~adverse effect on our reported results. Interest expense~~accumulated deficit of $110.99 million.

We achieved a number of significant milestones during the second quarter of 2005.

Our loss from operations and net loss during the quarter ~~totaled $1.66~~ended June 30, 2005 of $0.94 million ~~representing an effective annual interest yield approaching 100%. However, interest actually paid or accrued on this debt totaled only $0.17 million. The remainder~~and $1.00 million, respectively, were the best in our public-company history. Year-over-year net sales increases of ~~the expense related primarily~~5% in our BioSystems operating segment together with cost reductions from our 2004 Restructuring Plan led to ~~net amortization of discounts and premiums~~our record performance. Recurring sales (consumables plus ~~non-cash charges~~service contract revenue) associated with our increasing installed base of WAVE systems grew to represent 40% of consolidated net sales and nearly 45% of net sales in our BioSystem operating segment. We expect that we can leverage on our existing cost structure to support annual revenues ranging up to $40.00.

Operating cash flows continue to validate the ~~aforementioned conversion of Laurus Loans into shares~~effectiveness of our ~~common stock.~~ 2004 Restructuring Plan. Cash used in operations for the three and six months ended June 30, 2005 totaled $1.03 million and $1.17 million, respectively. This represents significant improvement over historical levels of cash used in operations that have ranged from $1.76 million to $5.73 million and demonstrates significant progress toward a major goal of neutral to positive operating cash flows by the end of 2005.

We completed testing of our new generation WAVE platform and expect to roll it out during the third quarter of 2005.There are significant technical and functional enhancements designed into the WAVE 4500 (our fourth generation WAVE platform) that offer users enhanced flexibility, speed and ease of operation, throughput, and sensitivity. We expect the WAVE 4500 to drive new product and upgrade sales in the second half of 2005 and into 2006.

Our investment in Discovery Services continues to yield significant growth.For the six months ended June 30, 2005, net sales from Discovery Services totaled $1.45 million compared to $0.89 million for the same period of 2004, an increase of 63%. These contract research service offerings represent a relatively new area of business for us. We plan to continue to ~~evaluate alternatives~~seek opportunities to ~~simplifying our capital structure~~provide genetic variation discovery and ~~enhancing~~analysis services to pharmaceutical and other customers and believe that these services provide us significant opportunities to expand revenue in the ~~transparency of reported results.~~future.

Net Sales. Net sales for the quarter ended ~~March 31,~~June 30, 2005 decreased ~~$1.26~~$1.38 million or 15% from the same period of 2004 as a result of a ~~$0.54~~$0.33 million or 8%5% increase in sales in our BioSystems operating segment offset by a ~~$1.80~~$1.70 million or ~~80%~~70% decrease in sales in our Nucleic Acids operating segment.

The increase in sales in our BioSystems operating segment resulted from an decrease of $0.23 million or 6% from bioinstruments, increases in sales of bioconsumables of ~~$0.10~~$0.44 million or 5%21% and increases from Discovery Services of ~~$0.44~~$0.12 million or ~~126%~~23%. ~~These increases were offset by the slight decrease in sales of bioinstruments.~~ WAVE Systems sold totaled 2325 during the quarter ended ~~March 31,~~June 30, 2005 compared to ~~32 in~~34 during the same period of 2004. The selling prices of our instruments vary based on the specific model and optional accessories. We had an installed base of approximately ~~1,216~~1,241 units at ~~March 31,~~June 30, 2005 compared to 1,193 units at December 31, 2004. The increase in the installed base of instruments continues to drive increases in sales of bioconsumables used with these instruments. The increase in Discovery Services revenue during 2005 was primarily attributable to the discovery services agreements that we entered into with ~~pharmaceutical companies~~Novartis Pharmaceuticals, Inc. (“Novartis”) to support their clinical development of oncology therapeutics. We plan to continue to seek opportunities to provide genetic variation discovery and analysis services to pharmaceutical and other customers and believe that these services provide us a significant opportunity to expand revenues in the future. During the three months ended ~~March 31,~~June 30, 2005, Discovery Services sales to Novartis ~~Pharmaceuticals, Inc. (“Novartis”)~~ totaled ~~$0.72~~$0.67 million and represented 10% of net sales within the BioSystems operating segment and ~~10%~~9% of total consolidated net sales. ~~Sales to~~We have no long-term agreement with Novartis, therefore, sales will fluctuate and may ~~fluctuate substantially from period to period.~~be zero. Future revenues from our BioSystems operating segment would be substantially reduced if Novartis’s need for our products declined.

Nucleic Acids operating segment sales decreased by ~~$1.80~~$1.71 million or ~~80%~~70% during the quarter ended ~~March 31,~~June 30, 2005 compared to the same period of 2004 as a result of the elimination of any sales of specialty oligonucleotides produced by our former facility in Boulder, Colorado. As a result of the sale of this facility in November 2004, we no longer manufacture or sell oligonucleotides. Sales of ourfewer chemical building block ~~products produced in our Glasgow, Scotland facility decreased $1.12 million or 72% as a result of lower~~ sales to Geron Corporation (“Geron”). and the sale of our specialty oligonucleotides facility in Boulder, Colorado. Sales ~~of chemical building blocks~~ to Geron during the ~~first~~second quarter of 2005 totaled $0.05 million compared to ~~$0.72~~$1.17 million during the ~~first~~second quarter of 2004.

~~During the three months ended March 31, 2004,~~ Net sales to Geron ~~totaled $0.72 million~~during the quarter ended June 30, 2005 represented 7% of net sales in our Nucleic Acids operating segment and did not represent a significant portion of total consolidated net sales. Net sales to Geron during the quarter ended June 30, 2004 represented ~~32%~~48% of net sales within our Nucleic Acids operating segment and 8%13% of total consolidated net sales. ~~Sales to~~We have no long-term agreement with Geron, therefore, sales will fluctuate and may ~~fluctuate~~be zero. Future revenues from our Nucleic Acids operating segment would be substantially ~~from period to period. Subsequent to March 31, 2005, Geron issued 101,801 shares valued at $0.61 million as~~reduced if Geron’s need for our products declined. As a ~~prepayment for products that are expected to be completed~~result of the sale of our facility in ~~the second half~~Boulder, Colorado, net sales of ~~2005.~~specialty oligonucleotides decreased by $0.71 million. We no longer manufacture or sell oligonucleotides.

Costs of Goods Sold.Costs of goods sold include material costs for the products that we sell and substantially all other costs associated with our manufacturing facilities (primarily personnel costs, rent and depreciation). It also includes direct costs (primarily personnel costs and supplies) associated with our Discovery Services operations. Depreciation expense included in costs of goods sold totaled ~~$0.58~~$0.56 million and ~~$0.57~~$0.59 million during the quarters ended ~~March 31,~~June 30, 2005 and 2004, respectively.

Costs of goods sold during the quarter ended ~~March 31,~~June 30, 2005 decreased ~~$1.37~~$1.41 million or 24% from the same period of 2004 as a result of a ~~$0.69~~$0.43 million or ~~25%~~15% increase in our BioSystems operating segment ~~and~~offset by a ~~$2.06~~$1.84 million or ~~69%~~64% decrease in our Nucleic Acids operating segment. The overall decrease was primarily attributable to the sale of our oligonucleotide facility and our 2004 Restructuring Plan.

Gross profit was ~~$2.97~~$3.18 million or ~~40%~~42% of total net sales during the ~~first~~second quarter of 2005 compared to ~~$2.86~~$3.15 million and ~~33%~~35% during the same period of 2004. A summary of gross profit by operating segment follows (dollars in thousands):


	Quarter Ended March 31,										Quarter Ended June 30,
	2005					2004					2005					2004
	Gross Profit			Percent of Revenue		Gross Profit			Percent of Revenue		Gross Profit/(Loss)			Percent of Revenue		Gross Profit/(Loss)			Percent of Revenue
BioSystems operating segment	$	3,437		50	%	$	3,589		56	%	$	3,488		46	%	$	3,598		40	%
Nucleic Acids operating segment		(464	)	(104	)%		(728	)	(33	)%		(305	)	(4	)%		(445	)	(5	)%

	$	2,973		40	%	$	2,861		33	%	$	3,183		42	%	$	3,153		35	%

~~We expect gross profits from our~~The increase in BioSystems operating segment gross profit as a percentage of revenue to ~~be within historic ranges~~46% from 40% for the quarters ended June 30, 2005 and 2004, respectively, is largely attributable to changes in the composition of ~~50% to 60%. As a result of the sale of our Boulder, Colorado facility and the 2004 Restructuring Plan, we anticipate that our cost of goods sold will be significantly improved. However, our~~products sold. Our Nucleic Acids operating segment continues to have excess capacity in its Glasgow, Scotland manufacturing facility that will adversely impact costs of goods sold and gross profit until demand for our Nucleic Acids building block products increase.

Selling, General and Administrative Expenses. Selling, general and administrative expenses primarily include personnel costs, marketing, travel and entertainment costs, professional fees, and facility costs. These costs totaled ~~$3.59~~$3.54 million during the quarter ended ~~March 31,~~June 30, 2005 compared to ~~$4.25~~$4.27 million during the same period of 2004, a decrease of ~~$0.66~~$0.73 million or ~~16%~~17%. This decrease ~~related~~resulted primarily tofrom the 2004 Restructuring Plan, offset by the effects of unfavorable foreign currency ~~adjustments~~transactions that totaled ~~$0.20~~$0.23 million and ~~$0.12~~$0.01 million during the quarters ended ~~March 31,~~June 30, 2005 and 2004, respectively. Depreciation expense included in selling, general and administrative expenses totaled ~~$0.18~~$0.19 million and ~~$0.27~~$0.25 million during the quarters ended ~~March 31,~~June 30, 2005 and 2004, respectively.

As a percentage of revenue, selling, general and administrative expenses totaled just over ~~49%~~46% and 47% during the quarters ended ~~March~~June 30, 2005 and 2004, respectively.

Research and Development Expenses. Research and development expenses primarily include personnel costs, supplies, and facility costs. These costs totaled $0.58 million during the quarter ended June 30, 2005 compared to $1.67 million during the same period of 2004, a decrease of $1.09 million or 65%. The decrease resulted primarily from the 2004 Restructuring Plan, which resulted in the elimination of substantially all research and development efforts associated with our Nucleic Acids operating segment. Depreciation expense included in research and development expenses included $0.12 million and $0.22 million during the quarters ended June 30, 2005 and 2004, respectively.

As a percentage of revenue, research and development expenses totaled 8% and 19% of revenue during the quarters ended June 30, 2005 and 2004. We expect to continue to invest a substantial portion of our revenues in research and development activities primarily associated with our BioSystems operating segment. Research and development costs are expensed in the period in which they are incurred.

Other Income (Expense). Other income/(expense) during the quarter ended June 30, 2005 of $0.04 million consisted of interest expense of $0.08 million and other income net of $.03 million. Other expense during the quarter ended June 30, 2004 consisted of interest expense of $0.35 million and other expense net of $0.03 million, which consisted primarily of net investment losses associated with sales of Geron stock.

The decrease in interest paid or accrued on outstanding debt resulted from lower average debt balances partially offset by higher interest rates. Gross debt (before related premiums and discounts) totaled $7.79 million at June 30, 2005 compared to $8.50 million at December 31, 2004. Our Laurus Loans had average balances during the quarters ended June 30, 2005 and 2004 of $7.65 million and $8.25 million, respectively, with weighted average interest rates of 8.00% and 6.00%, respectively. The high and low borrowings under our Credit Line during the quarter ended June 30, 2005 were $6.49 million and $5.26 million, respectively.

Income Tax Expense.Income tax recorded during the three months ended June 30, 2005 and 2004 related to income taxes in states, foreign countries and other local jurisdictions, offset by refunds received.

Due to the Company’s cumulative losses, expected losses in future years and inability to utilize any additional losses as carrybacks, the Company has not provided for an income tax benefit during the three months ended June 30, 2005 or 2004 based on management’s determination that it was more likely than not that such benefits would not be realized. The Company will continue to assess the recoverability of deferred tax assets and the related valuation allowance. To the extent the Company begins to generate taxable income in future periods and it determines that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized at such time. As of June 30, 2005, the Company’s deferred tax assets were offset by a valuation allowance of approximately $39.7 million.

Net Sales. Net sales for the six months ended June 30, 2005 decreased $2.64 million or 15% from the same period of 2004 as a result of a $0.87 million or 7% increase in sales in our BioSystems operating segment offset by a $3.50 million or 75% decrease in sales in our Nucleic Acids operating segment.

The increase in sales in our BioSystems operating segment resulted from a decrease of $0.24 million or 3% from bioinstruments, increases in sales of bioconsumables of $0.54 million or 13% and increases from Discovery Services of $0.57 million or 64%. WAVE Systems sold totaled 48 during the six months ended June 30, 2005 compared to 66 during the same period of 2004. The selling prices of our instruments vary based on the specific model and optional accessories. The increase in the installed base of instruments continues to drive increases in sales of bioconsumables used with these instruments. The increase in Discovery Services revenue during 2005 was primarily attributable to the discovery services agreements that we entered into with Novartis to support their clinical development of oncology therapeutics. During the six months ended June 30, 2005, Discovery Services sales to Novartis totaled $1.41 million and represented 10% of net sales within the BioSystems operating segment and 9% of total consolidated net sales. We have no long-term agreement with Novartis, therefore, Sales will fluctuate and may be zero. Future revenues from our Nucleic Acids operating segment would be substantially reduced if Geron’s need for our products declined. Future revenues from our BioSystems operating segment would be substantially reduced if Novartis’s need for our products declined.

Nucleic Acids operating segment sales decreased by $3.50 million or 75% during the six months ended June 30, 2005 compared to the same period of 2004 as a result of fewer chemical building block sales to Geron and the sale of our specialty oligonucleotides facility in Boulder, Colorado. Net sales to Geron during the six month ended June 30, 2005 totaled $0.10 million compared to $1.90 million during the same period of 2004. Net sales to Geron during the six months ended June 30, 2005 represented 8% of net sales in our Nucleic Acids operating segment and did not represent a significant portion of total consolidated net sales. Net sales to Geron during the six months ended June 30, 2004, represented 18% of net sales within our Nucleic Acids operating segment and 11% of total consolidated net sales. We have no long-term agreement with Geron, therefore, sales will fluctuate and may be zero. As a result of the sale of our facility in Boulder, Colorado, net sales of specialty oligonucleotides decreased by $1.38 million. We no longer manufacture or sell oligonucleotides

Costs of Goods Sold.Costs of goods sold include material costs for the products that we sell and substantially all other costs associated with our manufacturing facilities (primarily personnel costs, rent and depreciation). It also includes direct costs (primarily personnel costs and supplies) associated with our Discovery Services operations. Depreciation expense included in costs of goods sold totaled $1.14 million and $1.15 million during the six months ended June 30, 2005 and 2004, respectively.

Costs of goods sold during the six months ended June 30, 2005 decreased $2.78 million or 24% from the same period of 2004 as a result of a $1.17 million or 20% increase in our BioSystems operating segment and a $3.95 million or 67% decrease in our Nucleic Acids operating segment. The overall decrease was primarily attributable to the sale of our oligonucleotide facility and our 2004 Restructuring Plan.

Gross profit was $6.16 million or 41% of total net sales during the six months of 2005 compared to $6.01 million and 34% during the same period of 2004. A summary of gross profit by operating segment follows (dollars in thousands):

The increase in BioSystems operating segment gross profit as a percentage of revenue to 46% from 41% for the six months ended June 30, 2005 and 2004, respectively, is largely attributable to changes in the composition of products sold. Our Nucleic Acids operating segment continues to have excess capacity in its Glasgow, Scotland manufacturing facility that will adversely impact costs of goods sold and gross profit until demand for our Nucleic Acids building block products increase.

Selling, General and Administrative Expenses. Selling, general and administrative expenses primarily include personnel costs, marketing, travel and entertainment costs, professional fees, and facility costs. These costs totaled $7.14 million during the six months ended June 30, 2005 compared to $8.51 million during the same period of 2004, a decrease of $1.37 million or 16%. This decrease related primarily to the 2004 Restructuring Plan, offset by the effects of unfavorable foreign currency transactions that totaled $0.43 million and $0.12 million during the six months ended June 30, 2005 and 2004, respectively. Depreciation expense included in selling, general and administrative expenses totaled $0.36 million and $0.52 million during the six months ended June 30, 2004 and 2004, respectively.

As a percentage of revenue, selling, general and administrative expenses totaled just over 48% during the six months ended June 30, 2005 and 2004.

Research and Development Expenses. Research and development expenses primarily include personnel costs, supplies, and facility costs. These costs totaled ~~$0.61~~$1.19 million during the ~~quarter~~six months ended ~~March 31,~~June 30, 2005 compared to ~~$1.93~~$3.60 million during the same period of 2004, a decrease of ~~$1.32~~$2.41 million or ~~69%~~67%. The decrease related primarily to the 2004 Restructuring Plan, which resulted in the elimination of substantially all research and development efforts associated with our Nucleic Acids operating segment. Depreciation expense included in research and development expenses included ~~$0.14~~$0.25 million and ~~$0.21~~$0.43 million during the ~~quarters~~six months ended ~~March 31,~~June 30, 2005 and 2004, respectively.

As a percentage of revenue, research and development expenses totaled 8% and ~~22%~~20% of revenue during the ~~quarters~~six months ended ~~March 31,~~June 30, 2005 and ~~2004.~~2004, respectively. We expect to continue to invest a substantial portion of our revenues in research and development activities primarily associated with our BioSystems operating segment. Research and development costs are expensed in the year in which they are incurred.

Other Income (Expense). Other expense during the ~~quarter~~six months ended ~~March 31,~~June 30, 2005 of ~~$1.66~~$1.70 million consisted of interest expense of ~~$1.65~~$1.74 million and other income net ~~expense~~ of ~~$.01~~$.04 million. Other expense during the ~~quarter~~six months ended ~~March 31,~~June 30, 2004 consisted of interest expense of ~~$0.59~~$0.94 million and other income net ~~expense~~ of ~~$0.05~~$0.07 million, which consisted primarily of net investment losses associated with sales of Geron stock.


	Quarter Ended March 31,					Six months Ended June 30,
	2005			2004		2005			2004
Interest paid or accrued on outstanding debt	$	171		$	85	$	305		$	237
Amortization of debt premiums		(568	)		—		(692	)		—
Amortization of debt discounts – warrants		11			—		20			—
Amortization of debt discount – beneficial conversion feature		629			460		644			618
Fair value of incremental shares received by Laurus		1,365			—
Valuation charge associated with March 2005 conversions							1,365			—
Other		47			44		96			80

	$	1,655		$	589	$	1,738		$	935

The increase in interest paid or accrued on outstanding debt resulted from higher average debt balances and interest ~~rates during the first quarter of~~rates. Gross debt (before related premiums and discounts) totaled $7.79 million at June 30, 2005 compared to the same period of 2004. Although average debt was higher in the first quarter of 2005 compared to the same period of 2004, the partial conversion of the Laurus Loans resulted in outstanding debt of $6.9$8.50 million at ~~March 31, 2005 compared to $7.2 million at March~~December 31, 2004. ~~Our Credit Line and Term Note had average balances during~~During the ~~quarters~~six months ended ~~March 31,~~June 30, 2005 and 2004, we had average debt of ~~$8.38~~$8.01 million and ~~$5.57~~$7.01 million, respectively, with weighted average interest rates of ~~7.50%~~7.67% and ~~7.60%~~6.0%, respectively. The high and low borrowings under our Credit Line during the ~~quarter~~six months ended ~~March 31,~~June 30, 2005 were $6.90 million and $4.75 million, respectively.

On March 18, 2005, ~~Laurus agreed to extend the borrowing base waiver on the Credit Line until March 31, 2006. In connection with this extension,~~ the Company agreed to allow Laurus to convert $1.88 million of the outstanding principal balance under the Credit Line into 3,600,000 shares of its common stock at $0.52 per share. In addition, on March 24, 2005 the Company agreed to allow Laurus to convert ~~$650~~$0.65 million of the outstanding principal balance of the Term Note into 1,250,000 shares of common stock at $0.52 per share. Laurus agreed to apply this Term Note conversion against substantially all remaining 2005 scheduled principal payments on such loan. The closing market price of the Company’s common stock the day before each of these conversions was $0.58 per share. No other provisions of our Credit Line or Term Note were modified, including the $1.00 conversion price for remaining debt. In conjunction with these conversions we accelerated amortization of ~~$409~~$0.41 million of related debt premiums and discounts and recorded a charge of $1.37 million related to the fair value of incremental shares received by Laurus.

Income Tax Expense.Income tax recorded during the ~~three~~six months ended ~~March 31,~~June 30, 2005 and 2004 related to income taxes in states, foreign countries and other local jurisdictions, offset by refunds received.

Due to the Company’s cumulative losses, expected losses in future years and inability to utilize any additional losses as carrybacks, the Company has not provided for an income tax benefit during the ~~three~~six months ended ~~March 31,~~June 30, 2005 or 2004 based on management’s determination that it was more likely than not that such benefits would not be realized. The Company will continue to assess the recoverability of deferred tax assets and the related valuation allowance. To the extent the Company begins to generate taxable income in future periods and it determines that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized at such time. As of ~~March 31,~~June 30, 2005, ~~and December 31, 2004,~~ the Company’s deferred tax assets were offset by a valuation allowance of approximately ~~$39,417 and $38,287, respectively.~~$39.7 million.

Our working capital ~~(deficiency)~~ positions at ~~March 31,~~June 30, 2005 and December 31, 2004 were as follows (amounts are in thousands):


	March 31, 2005		December 31, 2004			Change			June 30, 2005		December 31, 2004			Change
Current assets⁽¹⁾	$	15,924	$	17,908		$	(1,984	)	$	15,893	$	17,908		$	(2,015	)
Current liabilities		15,157		18,724			(3,567	)		15,712		18,724			(3,012	)

Working capital (deficiency)	$	767	$	(816	)	$	1,583
Working Capital									$	181	$	(816	)	$	997

The improvement in our working capital position during the first ~~quarter~~six months of 2005 was due primarily to conversions of ~~$2.53~~$2.58 million of borrowings under our Laurus Loans into shares of our common stock.

~~We have experienced recurring net losses and had an accumulated deficit of $109,993 at March 31, 2005. Based on~~While we expect our ~~2005 operating plan, we believe~~ existing sources of liquidity ~~will~~to be sufficient to meet our cash needs ~~during 2005. If necessary,~~for the remainder of 2005 and beyond, there can be no assurances that they will be, especially if we ~~believe~~do not generate net positive cash flows from operations. It is essential that we ~~can~~achieve revenue growth in our BioSystems operating segment and manage costs according to our existing plan. Our projected liquidity needs may or may not be realized based upon actual operating results and ~~expenses at reduced levels~~capital project requirements. Accordingly, if our existing cash balances, cash generated by operations, and available borrowings under the Credit Line are insufficient to ~~conserve working capital. The need for any such cost and expense reductions during 2005 would likely delay implementation of~~satisfy our ~~business plan. Additionally,~~liquidity requirements, we may ~~pursue~~need to sell additional equity or debt securities or obtain additional credit arrangements, sell certain assets or further reduce expenses. We are monitoring our liquidity position and are prepared to take appropriate measures, as needed, to address liquidity. We cannot assure you that any financing ~~alternatives. Ultimately, we must achieve sufficient revenue levels~~arrangement will be available in amounts or on terms acceptable to ~~support~~us. Our failure to raise additional capital, if needed, would harm our ~~cost structure.~~

Laurus Loans. The Credit Line is a $7.50 million line of credit that we entered into with Laurus in December 2003. The term of the Credit Line is three years carrying an interest rate of 2.0% over the prime rate or a minimum of 6.0% ~~(7.75%~~(8.00% at ~~March 31,~~June 30, 2005). Funds available under the Credit Line are determined by a borrowing base equal to 90% of eligible accounts receivable balances plus up to $1.00 million related to inventory balances. The Credit Line is secured by most of our assets. Prior to amendments to the Credit Line discussed below, payment of interest and principal could, under certain circumstances, be made with shares of our common stock at a fixed conversion price of $2.20 per share. Conversion of this debt to common stock may be made at the election of Laurus or the Company. We could elect to convert only if our shares trade at a price exceeding $2.42 per share for ten consecutive trading days, and such conversion is further subject to trading volume limitations and a limitation on the total beneficial ownership by Laurus of our common stock. Upon entering into the Credit Line, we issued warrants to Laurus to acquire 550,000 shares of the our common stock at an exercise price exceeding the average trading price of our common stock over the ten trading days prior to the date of the warrant.

In February 2004, we entered into the $2.75 million Term Note with Laurus. The Term Note carries an interest rate of 2.0% over the prime rate or a minimum of 6.0% ~~(7.75%~~(8.00% at ~~March 31,~~June 30, 2005) and has a term of 3 years. Prior to amendments to the Term Note discussed below, the principal and interest on the Term Note could be converted into our common stock at a fixed conversion price of $2.61 per share. Upon entering into the Term Note, we issued warrants to Laurus to acquire 125,000 shares of our common stock. Borrowings under the Term Note were primarily used to retire the mortgage debt on our Glasgow, Scotland facility. Remaining borrowings of approximately $0.75 million were used to complete the build-out of the Glasgow facility, complete the consolidation our Glasgow operations into the new facility and provide funds for operations.

In February 2004, Laurus waived the borrowing base limitation on the Credit Line, thereby making the full $7.50 million facility available to us regardless of the available collateral. On August 31, 2004, Laurus agreed to extend the borrowing base waiver on the Credit Line through March 19, 2005. In addition, Laurus 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 our 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 issued a warrant to Laurus covering an additional 400,000 common shares at an exercise price of $1.25 per share. The closing price of our common stock on August 31, 2004 was $1.20 per share.

On March 18, 2005, Laurus agreed to extend the borrowing base waiver on the Credit Line until March 31, 2006. In connection with this waiver, we agreed to allow Laurus to convert ~~$1.88~~$1.87 million of the outstanding principal balance under the Credit Line into 3,600,000 shares of our common stock at $0.52 per share. In addition, on March 24, 2005, we agreed to allow Laurus to convert $0.65 million of the outstanding principal balance of the Term Note into 1,250,000 shares of our common stock at $0.52 per share. Laurus agreed to apply this Term Note

conversion against substantially all remaining 2005 scheduled principal payments on such loan. The market price of our common stock on March 18 and 24, 2005 was $0.58. No other provisions of our loans with Laurus were modified, including the $1.00 conversion price on remaining debt.

Net Change in Cash and Cash Equivalents.Cash and cash equivalents increased ~~$0.50~~$0.71 million during the ~~first quarter of~~six months ended June 30, 2005 as a result of a net cash ~~flows~~ from investing activities and financing activities of ~~$0.99~~$0.08 million and $1.88 million, respectively, offset by ~~uses of~~net cash ~~from~~used in operating activities ~~and investing activities~~ of ~~$0.21~~$1.17 million, ~~and $0.22 million, respectively,~~ and changes in foreign currency exchange rates of ~~$0.06~~$0.08 million.

Cash Flows from Operating Activities. Cash flows used in operating activities totaled ~~$0.21~~$1.17 million during the ~~first quarter of~~six months ended June 30, 2005 compared to ~~$2.9~~$7.0 million during the same period of 2004. The use in 2005 related primarily to a net loss of ~~$2.89~~$3.89 million offset by non-cash charges of ~~$3.85~~$3.53 million. Non-cash charges consisted primarily of depreciation and amortization and certain financing costs. Working capital and other adjustments ~~increased~~decreased cash flows from operating activities by ~~$0.19~~$0.81 million. We spent ~~$0.94~~$1.33 million during the ~~first quarter of~~six months ended June 30, 2005 related to the 2004 Restructuring Plan. We had accrued expenses associated with this plan of ~~$0.93~~$0.58 million at ~~March 31,~~June 30, 2005. This balance relates primarily to future rents on closed facilities (net of projected sublease rents) of which ~~$0.60~~$0.28 million is expected to be paid during the remainder of 2005 and ~~$0.33~~$0.27 million in 2006 and thereafter.

Cash Flows from Investing Activities. Cash flows ~~used in~~provided by investing activities totaled ~~$0.21~~$0.84 million during the ~~quarter~~six months ended ~~March 31,~~June 30, 2005 compared to cash flows ~~from~~used in investing activities of ~~$0.43~~$0.20 million during the same period of 2004. The use in 2005 related primarily to purchases totaling ~~$0.39~~$0.67 million of property and equipment associated with the build out of our Glasgow, Scotland manufacturing facility that is substantially ~~complete. As such, we~~complete, offset by sales of available for sale securities (Geron stock) of $0.62 million. We do not anticipate this level of capital expenditures to recur during any remaining quarter in 2005. We currently estimate that consolidated capital expenditures will not exceed $0.50 million for the remainder of 2005.

Cash Flows from Financing Activities. Cash flows from financing activities totaled ~~$0.99~~$1.88 million during the ~~quarter~~six months ended ~~March 31,~~June 30, 2005 compared to ~~$4.45~~$6.65 million during 2004. The source in 2005 related primarily to net draws on our Credit Line that were offset by payments on our Term Note. ~~As a result of~~There are no scheduled principal payments for the ~~conversions of a portion of the Term Loan into common stock during the first quarter~~remainder of 2005 ~~we will not make any further principal payments~~ on ~~the~~our Term ~~Note during 2005.~~Note.

Our ongoing capital commitments consist of debt service requirements and obligations under capital leases. The following table sets forth our contractual obligations as of ~~December 31, 2004~~June 30, 2005 along with cash payments due in each period indicated:


	Payments Due by Period										Payments Due by Period
	2005		2006		2007		2008		2009 and Thereafter		Total		2005		2006		2007		2008		2009 and thereafter
	In thousands										In Thousands
Credit Line⁽¹⁾		$5,230	$	—	$	—	$	—	$	—	$	6,119	$	6,119	$	—	$	—	$	—	$	—
Term Note⁽¹⁾		—		875		800		—		—		1,675		—		875		800		—		—
Operating lease payments⁽²⁾		1,092		1,384		441		187		372		4,178		1,964		1,230		441		187		356
Purchase obligations												468		468		—		—		—		—

Total contractual obligations	$	6,322	$	2,259	$	1,241	$	187	$	372	$	12,440	$	8,551	$	2,105	$	1,241	$	187	$	356

(2)	These are gross lease commitments. Certain facilities underlying these commitments are sublet to independent third parties. Annual rents from these subtenants are expected to total $0.32 million, $0.17 million, and $0.02 million in 2005, 2006 and thereafter, respectively.

~~At March 31, 2005, we had firm commitments totaling $0.48 million to Hitachi High Technologies America to purchase components used in our WAVE Systems. These commitments will be fulfilled during 2005.~~

At ~~March 31,~~June 30, 2005 and December 31, 2004, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Accounting policies used in the preparation of the consolidated financial statements may involve the use of management judgments and estimates. Certain of the Company’s accounting policies are considered critical as they are both important to the portrayal of the Company’s financial statements and they require significant or complex judgments on the part of management. Our judgments and estimates are based on experience and assumptions that we believe are reasonable under the circumstances. Further, we evaluate our judgments and estimates from time to time as circumstances change. Actual financial results based on judgment or estimates may vary under different assumptions or circumstances. The Company’s critical accounting policies are discussed in our annual report on Form 10-K, as amended, for the year ended December 31, 2004. There have been no significant changes with respect to these estimates during the ~~first quarter of~~six months ended June 30, 2005.

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment. SFAS No.123R addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using Accounting Principles Board Opinion No. 25 and generally requires that such transactions be accounted for using a fair-value-based method. We expect to adopt this standard on January 1, 2006. We are currently assessing the final impact of this standard on our financial position, results of operations or cash flows. This assessment includes evaluating option valuation methodologies and assumptions as well as potential changes to compensation strategies.

On November 24, 2004, the FASB issued SFAS No. 151, Inventory Costs – an amendment of ARB No. 43. SFAS No. 151 requires idle facility expenses, freight, handling costs, and wasted material (spoilage) costs to be excluded from the cost of inventory and expensed when incurred. It also requires that allocation of fixed production overhead to be based on the normal capacity of the production facilities. SFAS No. 151 will be effective at the beginning of 2006. We are currently assessing the final impact of this standard on our financial position, results of operations or cash flows.

We do not believe that price inflation had a material adverse effect on our financial condition or results of operations during the periods presented.

During the last three fiscal years, our international sales have represented approximately 50-65% of our net sales. These sales of products in foreign countries are mainly completed in either British Pounds Sterling or the Euro. Additionally, we have two wholly owned subsidiaries, Transgenomic, LTD., and Cruachem, LTD., whose operating currency is British Pounds Sterling and the Euro. Results of operations for the Company’s foreign subsidiaries are translated using the average exchange rate during the period. Assets and liabilities are translated at the exchange rate in effect on the balance sheet dates. As a result we are subject to exchange rate risk. The operational expenses of our foreign subsidiaries help to reduce the currency exposure we have based on our sales denominated in foreign currencies by converting foreign currencies directly into goods and services. As such, we feel do not have a material exposure to foreign currency rate fluctuations at this time.

This report contains a number of “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. Many of these forward-looking statements refer to our plans, objective, expectations and intentions, as well as our future financial results. You can identify these forward-looking statements by forward-looking words such as “expects,” “anticipates,” “intends,” “plans,” “may,” “will,” “believes,” “feels,” “seeks,” “estimates,” and similar expressions. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those expressed or implied by these forward-looking statements. Such factors would include the growth of the markets for DNA analysis technology and consumable products, the acceptance of our technology, our ability to continue to improve our products, the development of competing technologies, and our ability to protect our intellectual property rights.

Our Laurus Loans carry a variable interest rate of 2% over the prime rate or a minimum of 6% ~~(7.75%~~(8.00% at ~~March 31,~~June 30, 2005), and therefore, expose us to interest rate risk. Based on the outstanding balance of these loans at ~~March 31,~~June 30, 2005 of $6.91 million, a 1% increase in the prime rate would increase our interest expense by approximately $0.07 million annually.

A review and evaluation was performed by the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that review and evaluation, the CEO and CFO concluded that the Company’s current disclosure controls and procedures, as designed and implemented, were effective. There have been no changes in the Company’s internal ~~controls~~control over financial reporting subsequent to the date of their evaluation.

~~This~~ There were no material weaknesses identified in the course of such review and evaluation ~~took into account~~and, therefore, no corrective measures were taken by the restatements described in Note L to the accompanying unaudited consolidated financial statements, and, after considering the nature of and the isolated effects of such restatements on the consolidated statements of cash flows and the controls underlying the accumulation of the related information, the Company’s management has concluded that the restatement was not the result of a material weakness in internal control over financial reporting.Company.

The Company ~~has been~~was named as a defendant in a lawsuit filed in Spain by a prospective distributor who claims that the Company breached a promise to grant the plaintiff a distributorship for certain of the Company’s products in a specific geographic area in Europe. The plaintiff iswas seeking monetary relief of approximately ~~$500,000. The Company believes~~$500. During the ~~lawsuit is without merit and intends to vigorously defend~~three months ended June 30, 2005, a court dismissed this ~~matter.~~matter in favor of the Company.

The Company is subject to a number of other claims of various amounts, which arise out of the normal course of its business. In the opinion of management, the disposition of claims currently pending will not have a material adverse effect on the Company’s financial position, results of operations or cash flows after considering amounts already reflected in the consolidated financial statements.

The Company made no repurchases of its common stock during the ~~first~~second quarter of 2005; therefore, tabular disclosure is not presented.



(3.2)		Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to Registration Statement on Form S1S-1 (Registration No. 333-32174) as filed on March 10, 2000)

(4)		Form of Certificate of the Registrant’s Common Stock (incorporated by reference to Exhibit 4 to Registration Statement on Form S-1 (Registration No. 333-32174) as filed on March 10, 2000)

~~(10.1)~~		~~Amendment to Waiver Letter and Secured Convertible Minimum Borrowing Note Series B dated March 18, 2005~~

~~(10.2)~~		~~Amendment to Secured Convertible Term Note dated March 24, 2005~~

(31)		Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(32)		Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

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


12325 Emmet Street, Omaha, Nebraska		68164
(Address of principal executive offices)		(Zip Code)


		Page No.
PART I.	FINANCIAL INFORMATION	1

Item 1.	Financial Statements	1

	Unaudited Consolidated Balance Sheets as of ~~March 31,~~June 30, 2005 and December 31, 2004	1

	Unaudited Consolidated Statements of Operations for the Three and Six Months Ended ~~March 31,~~June 30, 2005 and 2004	2

	Unaudited Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2005 and 2004 ~~(restated)~~	3

	Notes to Unaudited Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1213

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2024

Item 4.	Controls and Procedures	2024

PART IIII.	OTHER INFORMATION	20

Item 1.	Legal Proceedings	2024

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2025

Item 6.	Exhibits	2025

Signatures		2126


	Three Months Ended March 31,
	2005			2004
NET SALES	$	7,373		$	8,629
COST OF GOODS SOLD		4,400			5,768

Gross profit		2,973			2,861
OPERATING EXPENSES:
Selling, general and administrative		3,592			4,245
Research and development		606			1,929

		4,198			6,174

LOSS FROM OPERATIONS		(1,225	)		(3,313	)
OTHER INCOME (EXPENSE):
Interest expense (including net expense of $1,438 and $460, respectively associated with amortization of debt premiums and discounts)		(1,655	)		(589	)
Other—net		(8	)		(54	)

		(1,663	)		(643	)

LOSS BEFORE INCOME TAXES		(2,888	)		(3,956	)
CURRENT INCOME TAX EXPENSE (BENEFIT)		4			(97	)

NET LOSS	$	(2,892	)	$	(3,859	)

BASIC AND DILUTED LOSS PER SHARE	$	(0.10	)	$	(0.13	)
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING		29,984,491			28,728,230


	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net sales	$	7,633		$	9,011		$	15,005		$	17,640
Cost of goods sold		4,450			5,858			8,848			11,627

Gross profit		3,183			3,153			6,157			6,013
Operating expenses:
Selling, general and administrative		3,537			4,268			7,138			8,513
Research and development		581			1,672			1,186			3,601
Impairment charges (Note C)		—			11,964			—			11,964

		4,118			17,904			8,324			24,078
Loss from operations		(935	)		(14,751	)		(2,167	)		(18,065	)
Other income (expense):
Interest expense (Note E)		(83	)		(346	)		(1,738	)		(935	)
Other income (expense), net		34			(33	)		34			(87	)

		(49	)		(379	)		(1,704	)		(1,022	)
Loss before income taxes		(984	)		(15,130	)		(3,871	)		(19,087	)
Current income tax expense (benefit)		14			2			19			(95	)

Net loss	$	(998	)	$	(15,132	)	$	(3,890	)	$	(18,992	)

Basic and diluted weighted average shares outstanding		34,237,042			29,053,226			32,122,502			28,887,334
Net loss per common share—basic and diluted	$	(0.03	)	$	(0.52	)	$	(0.12	)	$	(0.66	)


	March 31, 2005			December 31, 2004
Credit Line (“Credit Line”) with Laurus Master Funds, Ltd (“Laurus”)
Gross amount due (2% above prime or 7.75% and 6.75% at March 31, 2005 and 2004, respectively, due December 2006)	$	5,230		$	5,948
Debt premium		598			1,004
Debt discount - warrants		(74	)		(85	)
Debt discount - beneficial conversion premium		(15	)		(353	)

	$	5,739		$	6,514

Long-Term Debt with Laurus (“Term Note”)
Convertible debt (2% above prime or 7.75% and 6.75% at March 31, 2005 and 2004, respectively, due February 2007)	$	1,675		$	2,550
Debt Premium		311			474
Less current portion		(225	)		(825	)

	$	1,761		$	2,199


	Beginning Balance		Additional Charges to Income	Deductions from Reserve	Ending Balance
Three Months Ended March 31, 2005	$	1,051	—	21	$	1,030
Three Months Ended March 31, 2004	$	549	17	16	$	550


	Biosystems Operating Segment		Nucleic Acids Operating Segment		Total
Balance December 31, 2004	$	638	$	0	$	638
Adjustments		0		0		0

Balance March 31, 2005	$	638	$	0	$	638


	Common Stock			Additional Paid in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
	Outstanding Shares	Par Value		Additional Paid in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
Balance, January 1, 2005	29,330,874	$	299	$	120,798	$	(107,101	)	$	2,539		$	16,535
Net loss	—		—		—		(3,890	)		(3,890	)		(3,890	)
Other comprehensive income (loss):
Foreign currency translation adjustment	—		—		—		—			(1,130	)		(1,130	)
Comprehensive loss	—		—		—		—			(5,020	)
Beneficial conversion premium	—		—		292		—			—			292
Issuance and shares upon conversion of Laurus Loans	4,900,000		48		2,531		—			—			2,579
Fair value of incremental shares issued	—		—		1,365		—			—			1,365
Issuaance of shares for employee stock purchase plan	10,407		1		7		—			—			8

Balance, June 30, 2005	34,241,281	$	348	$	124,993	$	(110,991	)	$	1,409		$	15,759


	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price		Number Exercisable	Weighted-Average Exercise Price
	(in years)
$ 1.00—$ 1.30	539,168	7.9	$	1.23	196,676	$	1.24
$ 1.31—$ 2.60	966,500	8.0	$	1.88	538,183	$	1.89
$ 2.61—$ 3.90	35,000	7.6	$	2.90	23,334	$	2.90
$ 3.91—$ 5.20	2,101,700	2.8	$	5.00	2,101,700	$	5.00
$ 5.21—$ 6.50	739,250	6.1	$	6.15	676,101	$	6.15
$ 6.51—$ 9.10	10,000	6.1	$	9.00	10,000	$	9.00
$ 9.11—$10.40	355,920	6.0	$	9.87	347,920	$	9.87
$10.41—$13.00	294,731	5.2	$	12.82	256,931	$	12.83

	5,042,269	5.2	$	4.96	4,150,845	$	5.50


Date Received	Shares	Product Sales Price		Date Sold	Net Proceeds		Gain (Loss)
January 2004	85,855	$	959	February 2004	$	932	$	(27	)
March 2004	33,662	$	289	July 2004	$	263	$	(26	)
April 2005	101,801	$	608	May 2005	$	617	$	9


Date Received	Shares	Value		Date Sold	Proceeds		Gain (Loss)
January 2004	85,855	$	959	February 2004	$	932	$	(27	)
March 2004	33,662	$	289	July 2004	$	263	$	(26	)


	As of March 31, 2004
	As Previously Reported			As Restated
Depreciation and amortization	$	1,048		$	1,202
Net cash flows from operating activities		(4,003	)		(3,849	)

Change in other assets		86			(68	)
Net cash flows from investing activities		584			430


Amounts in thousands	2005		2004		Change			% Change
Net Sales
Bioinstruments	$	3,734	$	3,966	$	(232	)	(6	)%
Bioconsumables		2,494		2,059		435		21	%
Discovery Services		661		538		123		23	%

Total BioSystems Business Unit		6,889		6,563		326		5	%

Chemical Building Blocks		744		1,740		(996	)	(57	)%
Specialty Oligonucleotides and Services		—		708		(708	)	(100	)%

Total Synthetic Nucleic Acids Business Unit		744		2,448		(1,704	)	(70	)%

Total Net Sales		7,633		9,011		(1,378	)	(15	)%

Cost of Goods Sold
Bioinstruments		1,753		1,656		97		6	%
Bioconsumables		1,065		982		83		9	%
Discovery Services		583		327		256		78	%

Total BioSystems Business Unit		3,401		2,965		436		15	%

Chemical Building Blocks		1,049		1,335		(286	)	(21	)%

Specialty Oligonucleotides and Services		—		1,558		(1,558	)	(100	)%

Total Synthetic Nucleic Acids Business Unit		1,049		2,893		(1,844	)	(64	)%
Total Cost of Goods Sold		4,450		5,858		(1,408	)	(24	)%

Selling, General and Administrative Expenses		3,537		4,268		(731	)	(17	)%
Research and Development Expenses		581		1,672		(1,091	)	(65	)%
Impairment Charges		—		11,964		(11,964	)	(100	)%


(3.1)		Second Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 2 to Amendment No. 1 to Registration Statement on Form S-1 (Registration No. 333-32174) as filed on May 17, 2000)


	TRANSGENOMIC, INC.

Date: ~~May 26,~~August 15, 2005	By:	/s/ MICHAEL A. SUMMERS
		Michael A. Summers Chief Financial Officer (authorized officer and principal financial officer)