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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ) Yes ¨ No ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x

As of ~~November 15, 2010,~~May 13, 2011, the number of shares of common stock outstanding was ~~49,289,672.~~49,299,672.


	September 30, 2010 (unaudited)			December 31, 2009
							March 31, 2011 (unaudited)			December 31, 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	4,589		$	5,642		$	3,170		$	3,454
Accounts receivable (net of allowances for bad debts of $335 and $310, respectively)		3,536			4,522
Inventories (net of allowances for obsolescence of $520 and $507, respectively)		3,658			3,552
Prepaid expenses and other current assets		646			738
Accounts receivable (net of allowances for bad debts of $716 and $334, respectively)								7,551			7,601
Inventories (net of allowances for obsolescence of $520 and $518, respectively)								3,163			3,344
Other current assets								762			635

Total current assets		12,429			14,454			14,646			15,034

PROPERTY AND EQUIPMENT:
Equipment		10,371			9,972			9,839			9,820
Furniture, fixtures & leasehold improvements		3,836			3,834			3,707			3,479

		14,207			13,806			13,546			13,299
Less: accumulated depreciation		(13,160	)		(12,839	)		(11,885	)		(11,697	)

		1,047			967			1,661			1,602

OTHER ASSETS:
Other assets (net of accumulated amortization of $524 and $525, respectively)		461			583

Goodwill								6,275			6,275
Intangibles (net of accumulated amortization of $817 and $519, respectively)								8,664			8,962
Other assets								152			154
	$	13,937		$	16,004
							$	31,398		$	32,027

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	889		$	1,013		$	813		$	1,360
Other accrued expenses		2,722			2,517
Accrued compensation		668			573			1,015			875
Short term debt								741			989
Accrued liabilities								4,017			3,231
Contractual obligation								1,572			1,628
Current portion of lease obligations								182			170

Total current liabilities		4,279			4,103			8,340			8,253
Long term debt less current maturities								8,640			8,640
Redeemable Series A convertible preferred stock, $0.1 par value, 3,879,307 shares authorized, 2,586,205 shares issued and outstanding								1,553			1,457
Preferred stock conversion feature								5,078			1,983
Warrant liability								1,283			2,351
Other long-term liabilities		351			239			918			843

Total liabilities		4,630			4,342			25,812			23,527

STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value, 15,000,000 shares authorized, none outstanding		—			—
Common stock, $.01 par value, 100,000,000 shares authorized, 49,289,672 and 49,189,672 shares outstanding, respectively		498			497
Preferred stock, $.01 par value, 15,000,000 shares authorized, 2,586,205 shares issued and outstanding								—			—
Common stock, $.01 par value, 100,000,000 shares authorized, 49,299,672 and 49,289,672 shares issued and outstanding, respectively								498			498
Additional paid-in capital		139,715			139,703			139,746			139,730
Accumulated other comprehensive income		1,644			1,645			1,697			1,589
Accumulated deficit		(132,550	)		(130,183	)		(136,355	)		(133,317	)

Total stockholders’ equity		9,307			11,662			5,586			8,500

	$	13,937		$	16,004		$	31,398		$	32,027


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2010			2009			2010			2009			2011			2010
NET SALES	$	4,419		$	5,046		$	14,956		$	15,508		$	7,480		$	5,442
COST OF GOODS SOLD		2,402			2,293			7,568			7,291			3,326			2,558

Gross profit		2,017			2,753			7,388			8,217			4,154			2,884
OPERATING EXPENSES:
Selling, general and administrative		2,159			2,215			7,623			7,922			4,323			2,432
Research and development		613			938			1,952			2,468			557			827
Restructuring charges		72			—			72			—
Restructuring Charges														24			—

		2,844			3,153			9,647			10,390			4,904			3,259

LOSS FROM OPERATIONS		(827	)		(400	)		(2,259	)		(2,173	)		(750	)		(375	)
OTHER INCOME (EXPENSE):
Interest, net		—			1			1			14
Interest expense														(238	)		—
Expense on preferred stock														(2,027	)		—
Other, net		—			(1	)		—			(4	)		231			—

		—			—			1			10			(2,034	)		—

LOSS BEFORE INCOME TAXES		(827	)		(400	)		(2,258	)		(2,163	)		(2,784	)		(375	)
INCOME TAX EXPENSE (BENEFIT)		71			(34	)		109			(114	)
INCOME TAX BENEFIT														(6	)		(51	)

NET LOSS	$	(898	)	$	(366	)	$	(2,367	)	$	(2,049	)	$	(2,778	)	$	(324	)

BASIC AND DILUTED LOSS PER SHARE	$	(0.02	)	$	(0.01	)	$	(0.05	)	$	(0.04	)
PREFERRED STOCK DIVIDENDS AND ACCRETION														(260	)		—

BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING		49,289,672			49,189,672			49,228,561			49,189,672
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS													$	(3,038	)	$	(324	)

BASIC AND DILUTED LOSS PER COMMON SHARE													$	(0.06	)	$	(0.01	)

BASIC AND DILUTED WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING														49,293,005			49,189,672


	Common Stock																Common Stock
	Outstanding Shares		Par Value		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, 2010		49,189,672	$	497	$	139,703		$	(130,183	)	$	1,645		$	11,662
Balance, January 1, 2011																		49,289,672	$	498	$	139,730	$	(133,317	)	$	1,589		$	8,500
Net loss		—		—		—			(2,367	)		(2,367	)		(2,367	)		—		—		—		(2,888	)		(2,888	)		(2,888	)
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax		—		—		—			—			(1	)		(1	)		—		—		—		—			107			107

Comprehensive loss												(2,368	)														(2,781	)

Non-cash stock-based compensation		—		—		(29	)		—			—			(29	)		—		—		9		—			—			9
Issuance of shares for employee stock options		100,000		1		41			—			—			42			10,000		—		7		—			—			7
Dividends on preferred stock																		—		—		—		(150	)		—			(150	)

Balance, September 30, 2010		49,289,672	$	498	$	139,715		$	(132,550	)	$	1,644		$	9,307
Balance, March 31, 2011																		49,299,672	$	498	$	139,746	$	(136,355	)	$	1,697		$	5,586


	Nine Months Ended September 30,						Three Months Ended March 31,
	2010			2009			2011			2010
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss	$	(2,367	)	$	(2,049	)	$	(2,778	)	$	(324	)
Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities:
Depreciation, amortization and disposals		523			615
Adjustments to reconcile net loss to net cash flows provided (used in) by operating activities:
Depreciation and amortization								494			165
Non-cash, stock based compensation		(29	)		151			9			1
Loss on sale assets								—			1
Provision for losses on doubtful accounts								448			(27	)
Provision for losses on inventory obsolescence								7			(1	)
Preferred stock revaluation								2,027			—
Changes in operating assets and liabilities:
Accounts receivable		969			1,461			(350	)		(56	)
Inventories		(167	)		709			210			(18	)
Prepaid expenses and other current assets		90			20			316			(220	)
Accounts payable		(121	)		(142	)		(780	)		247
Accrued expenses and accrued compensation		242			(557	)
Accrued liabilities								471			684
Other long term liabilities		(44	)		29			(29	)		(67	)
Long term deferred income taxes		20			—			6			7

Net cash flows provided by (used in) operating activities		(884	)		237			51			392

CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment		(141	)		(327	)		(86	)		(47	)
Change in other assets		(25	)		(20	)		(1	)		—

Net cash flows used in investing activities		(166	)		(347	)		(87	)		(47	)

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
CASH FLOWS USED IN FINANCING ACTIVITIES:
Principal payments on capital lease obligations								(66	)		—
Issuance of common stock		42			—			7			—
Principal payments on capital lease obligations		(57	)		—
Principal payment on note payable								(248	)		—

Net cash flows provided by financing activities		(15	)		—
Net cash flows used in financing activities								(307	)		—

EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH		12			—			59			(89	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		(1,053	)		(110	)		(284	)		256
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		5,642			4,771			3,454			5,642

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	4,589		$	4,661		$	3,170		$	5,898

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	—		$	—		$	238		$	—
Income taxes, net		4			163			13			1
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
Acquisition of equipment through capital leases	$	286			—		$	147		$	—
Dividends payable on preferred stock								150			—

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~

Transgenomic, Inc. ~~provides innovative products for the purification and analysis of nucleic acids used~~is a global biotechnology company specializing in ~~the life sciences industry for research focused on molecular genetics and diagnostics. We also provide~~high sensitivity genetic variation ~~analytical~~and mutation analysis, providing products and services ~~to the medical~~in DNA mutation detection and discovery for clinical research, clinical molecular diagnostics and pharmacogenomics analyses.

Molecular Clinical Reference Laboratory. The molecular clinical reference laboratory specializes in genetic testing for oncology, hematology and inherited disorders. Located in New Haven, Connecticut and Omaha, Nebraska the molecular clinical reference laboratories are certified under the Clinical Laboratory Improvement Amendment (CLIA) as high complexity labs and our Omaha facility is accredited by CAP (College of American Pathologists).

Pharmacogenomics Research Services. Pharmacogenomics research services are provided by our Contract Research Organization located in Omaha, Nebraska. This lab specializes in pharmacogenomic, biomarker and mutation discovery research serving the pharmaceutical ~~markets. Net sales are categorized as Instrument Related Business~~ and ~~Laboratory Services.~~biomedical industries world-wide for disease research, drug and diagnostic development and clinical trial support.

Molecular Clinical Reference Laboratory. The molecular clinical reference laboratory specializes in mitochondrial and molecular diagnostic testing including genetic testing for oncology, hematology and inherited disorders. Located in Omaha, Nebraska, the molecular clinical reference laboratory operates in a Good Laboratory Practices compliant environment and is certified under the Clinical Laboratory Improvement Amendment (CLIA) as a high complexity lab and is accredited by CAP (College of American Pathologists).

Although we have experienced recurring net losses (resulting in an accumulated deficit of $132.6 million at September 30, 2010) management believes existing sources of liquidity, including cash and cash equivalents of $4.6 million, are sufficient to meet expected cash needs through 2011. We will need to increase net sales in order to meet our liquidity needs on a long-term basis. If we cannot increase net sales, further reductions to operating expenses will be needed. In future periods, there is no assurance that we will be able to increase net sales or further reduce expenses and, accordingly, we may not have sufficient sources of liquidity to continue operations indefinitely.

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

Certain risks and uncertainties are inherent in our day-to-day operations and to the process of preparing our financial statements. The more significant of those risks are presented below and throughout the notes to the financial statements.

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

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 net sales and expenses during the reporting period. In addition, estimates and assumptions associated with the determination of the fair value of certain assets and related impairments require considerable judgment by management. Actual results could differ from the estimates and assumptions used in preparing these consolidated financial statements.

No customer accounted for more than 10% of consolidated net sales during the three ~~and nine~~ months ended ~~September 30, 2010~~March 31, 2011 and ~~2009.~~2010. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2011 no customers made up more than 10% of the Laboratory Services revenue. For the three months ended March 31, 2010 one customer ~~accounted for~~made up more than 10% of the Laboratory Services net sales. This customer represented 16% of the Laboratory Services net sales for the three months ended ~~September 30, 2010 and 15% of the Laboratory Services net sales for the nine months ended September 30,~~March 31, 2010. For the three and nine months ended September 30, 2009 one customer accounted for more than 10% of the Laboratory Services net sales. This customer represented 18% of the Laboratory Services net sales for the three months ended September 30, 2009 and 20% for the nine months ended September 30, 2009.

From time to time, we may maintain a cash position with financial institutions in amounts that exceed federally insured limits. We have not experienced any losses on such accounts as of September 30, 2010. The preferred stock conversion feature and warrant liability are recorded at fair value. See Footnote L

The condensed consolidated balance sheet as of December 31, ~~2009~~2010 was derived from our audited balance sheet as of that date. The accompanying consolidated financial statements as of and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~ are unaudited and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. These unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, ~~2009~~2010 contained in our Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year.

Cash and cash equivalents include cash and investments with original maturities at acquisition of three months or less. Such investments presently consist of temporary overnight investments.

The following is a summary of activity for the allowance for doubtful accounts during the three ~~and nine~~ months ended ~~September 30, 2010~~March 31, 2011 and ~~2009:~~2010:

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

While payment terms are generally 30 days, we have also provided extended payment terms of up to 90 days in certain cases. We operate globally and some of the international payment terms may be greater than 90 days. Accounts receivable are carried at original invoice and shown net of allowance for doubtful ~~accounts.~~accounts and contractual allowances. The estimate made for doubtful accounts is based on a review of all outstanding amounts on a quarterly basis. We determine the allowance for doubtful accounts and contractual allowances by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received.

Inventories are stated at the lower of cost or market net of an allowance for obsolete inventory. Cost is computed using standard costs for finished goods and average or latest actual cost for raw materials and work in process, which approximates the first-in, first-out (FIFO) method.

The following is a summary of activity for the allowance for obsolete inventory during the three ~~and nine~~ months ended ~~September 30, 2010~~March 31, 2011 and ~~2009:~~2010:

We determine the allowance for obsolete inventory by evaluating quarterly the inventory for items deemed to be slow moving or obsolete. Included in our provision is the foreign currency impact of the consolidation of our subsidiary.

Property and equipment are carried at ~~cost less accumulated depreciation.~~cost. Depreciation is computed by the straight-line method over the estimated useful lives of the related assets as follows:

Depreciation expense related to property and equipment during the three months ended March 31, 2011 and 2010 was $0.2 million and $0.1 million, respectively. Included in depreciation for the three months ended March 31, 2011 was less than $0.1 million related to capital leases. We did not have any capital leases in the first quarter of 2010.

~~Other~~Goodwill is the excess of the purchase price over fair value of assets acquired and is not amortized. Goodwill is tested for impairment annually. We perform this impairment analysis during the fourth quarter of each year or when a significant event occurs which may impact goodwill. Impairment occurs when the carrying value is determined to be not recoverable thereby causing the carrying value of the goodwill to exceed its fair value. If impaired, the asset’s carrying value is reduced to its fair value. We recorded no impairment charges related to goodwill as of December 31, 2010. No events have transpired in the three months ended March 31, 2011 that would require revaluation of this conclusion.

Intangibles include intellectual property, patents and ~~other long-term assets.~~acquired products.

Initial costs paid to license intellectual property from independent third parties are capitalized and amortized using the straight-line method over the license period. Ongoing royalties related to such licenses are expensed as incurred.

We capitalize legal costs, filing fees and other expenses associated with obtaining patents on new discoveries and amortize these costs using the straight-line method over the shorter of the legal life of the patent or its economic life beginning on the date the patent is issued.

As a part of the FAMILION acquisition we acquired technology, in process technology, trademarks/tradenames and third party relationships. These costs will be amortized straight line over their estimated economic life of seven to eight years. See Footnote E.

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~

~~Each of these~~These assets isare treated as long-lived assets. Long-lived assets will be tested for impairment on an annual basis or when a significant event occurs, which may impact impairment. We quarterly review the carrying value of our long-lived assets to assess recoverability and impairment. We recorded no ~~impairment~~impairments as of December 31, 2010. No events have transpired in the three ~~or nine~~ months ended ~~September 30, 2010 or 2009.~~March 31, 2011 that would require a revaluation of this conclusion.

Other ~~long-term~~long term assets include ~~U.S.~~US security deposits and deferred tax ~~assets, net of applicable valuation allowances.~~assets.

All stock options awarded to date have exercise prices equal to the market price of our common stock on the date of grant and have ten-year contractual terms. Unvested options as of ~~September 30, 2010~~March 31, 2011 had vesting periods of one or three years from date of grant. None of the stock options outstanding at ~~September 30, 2010~~March 31, 2011 are subject to performance or market-based vesting conditions.

We measure and recognize compensation expense for all stock-based awards made to employees and directors, including stock options. Compensation expense is based on the calculated fair value of the awards as measured at the grant date and is expensed ratably over the service period of the awards (generally the vesting period).

During the ~~nine~~three months ended ~~September 30, 2010,~~March 31, 2011, we recorded compensation expense ~~recovery~~ of less than $0.1 million within the selling, general and administrative ~~expense. The~~expense as a result of the vesting of options exercisable for the purchase of ~~1.3~~1.4 million ~~shares was offset by the expense recovery for stock options which were forfeited due to the requisite service not being rendered.~~shares. During the ~~nine~~three months ended ~~September 30, 2009,~~March 31, 2010, we recorded compensation expenses of ~~$0.2~~less than $0.1 million within selling, general and administrative expense as a result of the vesting of options exercisable for the purchase of 1.7 million shares. As of ~~September 30, 2010,~~March 31, 2011, there was ~~less than~~ $0.1 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted average period of nearly three years.

~~No stock options were granted during the quarters ended September 30, 2010 and 2009.~~ The fair value of the options granted during the ~~nine months~~quarter ended ~~September 30, 2010 and 2009~~March 31, 2011 was estimated on their respective grant dates using the Black-Scholes option pricing model. ~~There were 75,000 stock options granted during the nine months ended September 30, 2010.~~ The Black-Scholes model was used with the following assumptions: risk-free interest rates of ~~1.98%~~2.16% based on the U.S. Treasury yield in effect at the time of grant; dividend yields of zero percent; expected ~~life~~lives of ~~five~~six years, based on historical exercise activity behavior; and volatility of 107% based on the historical volatility of our stock over a time that is consistent with the expected life of the option. A small group of senior executives hold the majority of the stock options and are expected to hold the options until they are vested. Forfeitures of ~~2.2%~~3.6% have been ~~assumed in~~assumed.

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of September 30,~~quarter ended March 31, 2010.

Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities at each balance sheet date using tax rates expected to be in effect in the year the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent that it is more likely than not that they will not be realized.

Net sales of products are 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 under a purchase order. Our sales terms do not provide for the right of return unless the product is damaged or defective. Net sales from certain services associated with the 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. We also enter into various service contracts that cover installed instruments. These contracts cover specific time ~~periods. Net~~periods and net sales associated with these contracts are deferred and recognized ratably over the service period. At ~~September 30,~~March 31, 2011 and March 31, 2010, ~~and September 30, 2009,~~ deferred net sales, mainly associated with our service contracts, included in the balance sheet in other accrued expenses, was approximately $1.5 million and $1.4 million, ~~respectively for each of the periods.~~respectively.

Net sales from our Molecular Clinical Reference Laboratory Services are recognized on an individual test basis and takes place when the test report is completed, reviewed and sent to the client less the reserve for insurance, Medicare and Medicaid ~~expected reimbursement.~~contractual adjustments. There are no deferred net sales associated with our Molecular Clinical Reference Laboratory. Adjustments to the allowances, based on actual receipts from third party payers, are recorded upon settlement.

In our Pharmacogenomics Research Services Group, we perform services on a project by project basis. When we get payment in advance we recognize revenue when we deliver the service. These projects typically do not extend beyond one year. At ~~September 30,~~March 31, 2011 and 2010, ~~and 2009,~~ deferred net sales associated with the pharmacogenomics research projects included in the balance sheet in other accrued ~~expenses,~~liabilities, was $0.1 million and less than $0.1 million, ~~for each period.~~respectively.

Taxes collected from customers and remitted to government agencies for specific net sales producing transactions are recorded net with no effect on the income statement.

Research and development and various collaboration costs are charged to expense when incurred.

We entered into a Series A Convertible Preferred Stock Purchase Agreement on December 29, 2010, as discussed in Note L, selling shares of preferred stock and issuing warrants to purchase a certain number of shares of Series A Preferred Stock. The Series A Preferred Stock meets the definition of mandatorily redeemable stock as it is preferred capital stock which is redeemable at the option of the holder and should be reported outside of equity. Preferred stock is accreted to its redemption value. The warrants do not qualify to be treated as equity, and accordingly, are recorded as a liability. A preferred stock conversion feature is embedded within the Series A Preferred Stock that meets the definition of a derivative. The preferred stock, warrant liability and preferred stock conversion feature are all recorded separately and were initially recorded at fair value using the Black Scholes model. We are required to record these instruments at fair value at each reporting date and changes will be recorded as an adjustment to earnings. The warrant liability and preferred stock conversion feature are considered level three financial instruments. See Footnote L.

Our foreign subsidiary uses the local currency of the country in which ~~they are~~it is located as their functional currency. Its assets and liabilities are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Cumulative translation ~~losses~~gain of ~~less than~~approximately $0.1 million ~~are~~is reported as accumulated other comprehensive gain on the accompanying consolidated balance sheet as of March 31, 2011. Cumulative translation gains of $0.2 million were reported as accumulated other comprehensive income onfor the ~~accompanying~~three months ended March 31, 2010. Revenues and expenses are translated at the average rates during the period. For transactions that are not denominated in the functional currency, we recognized a net gain of $0.1 million as foreign currency transaction gain in the determination of net loss for the three months ending March 31, 2011 and a net loss of $0.1 million as foreign currency transaction loss in the determination of net loss for the three months ending March 31, 2010.

Other income consists primarily of interest income from cash and cash equivalents invested in overnight instruments. Other income in the three months ended March 31, 2011 includes an award of a federal grant under the Qualifying Therapeutic Discovery Project related to COLD-PCR, Surveyor Scan kit development for key cancer pathway gene mutations and mtDNA damage assays. Other income related to this federal grant was $0.2 million, net of consulting fees. Other income for the three months ending March 31, 2010 was less than $0.1 million.

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~

consolidated balance sheets for the nine months ended September 30, 2010. Revenues and expenses are translated at the average exchange rates during the period. For transactions that are not denominated in the functional currency, we recognized net losses of $0.3 million as foreign currency transaction losses in the determination of net income for each of the nine months ending September 30, 2010 and 2009.

Accumulated other comprehensive income at ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009~~2010 consisted of foreign currency translation adjustments, net of applicable tax of zero. We deem our foreign investments to be permanent in nature and do not provide for taxes on currency translation adjustments arising from converting investments in a foreign currency to U.S. dollars.

Basic earnings per share is calculated based on the weighted average number of common shares outstanding during each period. Diluted earnings per share include shares issuable upon exercise of outstanding stock options, warrants or conversion rights that have exercise or conversion prices below the market value of our common stock. Options, warrants and conversion rights pertaining to ~~10,598,156~~18,095,894 and ~~11,383,720~~10,611,263 shares of our common stock have been excluded from the computation of diluted earnings per share at ~~September 30,~~March 31, 2011 and 2010, ~~and 2009,~~ respectively. The options, warrants and conversion rights that were exercisable in ~~2010~~2011 and ~~2009~~2010 were not included because the effect would be anti-dilutive due to the net loss. As a result, none of our outstanding options, warrants or conversion rights affect the calculation of diluted earnings per share.

In October 2009, the FASB issued ASU No. 2009-13,Revenue Recognition (ASC 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force); effective for years beginning after June 15, 2010. ~~This standard update will be effective for us on January 1, 2011.~~ Vendors often provide multiple products and/or services to their customers as part of a single arrangement. These deliverables may be provided at different points in time or over different time periods. The existing guidance regarding how and whether to separate these deliverables and how to allocate the overall arrangement consideration to each was originally captured in EITF Issue No. 00-21,Revenue Arrangements with Multiple Deliverables, which is now codified at ASC 605-25,Revenue Recognition – Multiple-Element Arrangements. The issuance of ASU 2009-13 amends ASC 605-25 and represents a significant shift from the existing guidance that was considered abuse-preventative and heavily geared toward ensuring that revenue recognition was not accelerated. The application of this new guidance is expected to result in accounting for multiple-deliverable revenue arrangements that better reflects their economics as more arrangements will be separated into individual units of accounting. ~~We are currently evaluating the~~Our adoption of ASU No. 2009-13 did not have a material impact ~~of adopting ASU 2009-13.~~on our consolidated financial statements.

In October 2009, the FASB issued ASU No. 2009-14,Software (ASC 985): Certain Revenue Arrangements That Include Software Elements (a consensus of the FASB Emerging Issues Task Force); effective for years beginning after June 15, 2010. ~~This standard update will be effective for us on January 1, 2011.~~ ASU 2009-14 modifies the existing scope guidance in ASC 985-605,Software Revenue Recognition, for revenue arrangements with tangible products that include software elements. This modification was made primarily due to the changes in ASC 605-25 noted previously, which further differentiated the separation and allocation guidance applicable to non-software arrangements as compared to software arrangements. Prior to the modification of ASC 605-25, the separation and allocation guidance for software and non-software arrangements was more similar. Under ASC 985-605, which was originally issued as AICPA Statement of position 97-2,Software Revenue Recognition, an arrangement to sell a tangible product along with software was considered to be in its scope if the software was more than incidental to the product as a whole. Our adoption of ASU No. 2009-14 did not have a material impact on our consolidated financial statements.

In January 2010, the FASB issued guidance to amend the disclosure requirements related to fair value measurements, effective for years beginning after December 15, 2010. The guidance requires the disclosure of roll forward activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level Three fair value measurements). We ~~are currently evaluating~~adopted the ~~impact~~new disclosure provisions with the filing of ~~adopting ASU 2009-14.~~our Form 10-Q for the three months ended March 31, 2011.

In the third quarter of 2010 we made a decision to consolidate our research and development activities in Omaha, Nebraska. We ~~expect to substantially complete the transition by December 31, 2010. We~~ have recognized expenses for restructuring, including but not limited to, severance, facility costs and costs to move equipment from Gaithersburg, Maryland to Omaha, Nebraska. The facility has been closed at March 31, 2011. These restructuring charges are attributable to our ~~lab services~~Lab Services and ~~instrument segments.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~Liabilities recorded for the consolidation of our Gaithersburg, Maryland facility for the third quarter of 2010 consist of the following:~~


	Dollars in Thousands											Dollars in Thousands
	Balance at June 30, 2010		Costs Incurred and Charged to Expense		Costs Paid or Otherwise Settled			Changes in Estimates		Balance at September 30, 2010		Costs Incurred in the Three Months Ended March 31, 2011		Cumulative Costs Incurred at March 31, 2011		Total Expected Costs
Severance and related costs	$	—	$	40	$	—		$	—	$	40	$	—	$	53	$	53
Facility closure costs		—		24		(8	)		—		16		14		59		59
Other		—		8		(8	)		—		—		10		50		54

Total	$	—	$	72	$	(16	)	$	—	$	56
Restructuring charges												$	24	$	162	$	166


	Dollars in Thousands						Dollars in Thousands
	September 30, 2010			December 31, 2009			March 31, 2011			December 31, 2010
Finished goods	$	2,167		$	2,322		$	1,933		$	2,119
Raw materials and work in process		1,590			1,588			1,549			1,531
Demonstration inventory		421			149			201			212

		4,178			4,059		$	3,683		$	3,862
Less allowance for obsolescence		(520	)		(507	)		(520	)		(518	)

Total	$	3,658		$	3,552		$	3,163		$	3,344

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~

~~Finite lived~~Long Lived intangible assets and other assets consisted of the following:


	Dollars in Thousands												Dollars in Thousands
	September 30, 2010						December 31, 2009						March 31, 2011						December 31, 2010
	Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value
Intangibles—acquired technology													$	6,535	$	228	$	6,307	$	6,535	$	—	$	6,535
Intangibles—assay royalties														1,434		51		1,383		1,434		—		1,434
Intangibles—third party payor relationships														367		—		367		367		—		367
Intangibles—tradenames and trademarks														344		12		332		344		—		344
Patents														511		252		259		511		245		266
Intellectual property	$	290	$	273	$	17	$	310	$	284	$	26		290		274		16		290		274		16
Patents		531		251		280		598		241		357
Other		164		—		164		200		—		200

Total	$	985	$	524	$	461	$	1,108	$	525	$	583
													$	9,481	$	817	$	8,664	$	9,481	$	519	$	8,962

Other assets include ~~U.S.~~US security deposits and deferred tax ~~assets.~~assets, net of applicable valuation allowances.

Amortization expense for intangible assets was ~~less than~~$0.3 million and $0.1 million during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2011 and 2010, ~~and 2009,~~ respectively. Amortization expense for intangible assets is expected to be $1.2 million in each of the years 2011 through 2017.

The entire unpaid balance of the Notes will become immediately due and payable if: (i) we fail to make timely payments under the Notes; (ii) we make an assignment for the benefit of creditors; (iii) we file for bankruptcy; or (iv) upon any event of default under the Security Agreement. Additionally, under the terms of the First Note, if we consummate an equity financing that involves the receipt by us of net proceeds of not less than ~~$0.1 million~~$6,000,000, then we shall, upon the consummation of such equity financing, pay to PGxHealth the lesser of: (i) 25% of the gross proceeds received from such financing; and (ii) the then-outstanding balance under the First Note. Under the terms of the Second Note, in the event of a sale of all or substantially all of the assets of the Company, we shall pay PGxHealth the lesser of: (i) 100% of the proceeds, less certain fees, received pursuant to such sale; and (ii) the then-outstanding balance under the Second Note.

The aggregate minimum principal maturities of the debt for each of the three fiscal years following December 31, 2010 are as follows:

The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of March 31, 2011.

Three Months Ended March 31, 2011 and ~~thereafter. During the nine months ended September 30,~~ 2010 ~~we abandoned patents of $0.1 million.~~

We are subject to a number of claims of various amounts, which arise out of the normal course of business. In the opinion of management, the disposition of pending claims will not have a material adverse effect on our financial position, results of operations or cash flows.

We lease certain equipment, vehicles and operating facilities under non-cancellable operating leases that expire on various dates through 2016. The future minimum lease payments required under these leases are approximately ~~$0.3 million in 2010, $0.6~~$0.9 million in 2011, ~~$0.3~~$1.0 million in 2012, ~~less than $0.1~~$0.4 million in ~~each of the years~~ 2013, ~~through 2016.~~$0.2 million in 2014 and $0.2 million in 2015. Rent expense for each of the three months ended ~~September 30,~~March 31, 2011 and 2010 was $0.3 million and ~~2009 was~~ $0.2 ~~million. Rent expense for each of the nine months ended September 30, 2010 and 2009 was $0.6 million.~~million, respectively.

We have entered into an employment agreement with Craig J. Tuttle, our President and Chief Executive Officer. The current term of Mr. Tuttle’s employment agreement ends on July 12, 2011. The employment agreement provides that Mr. Tuttle will be entitled to receive a severance ~~payments~~payment from the Company if his employment is terminated involuntarily except if such termination is based on “just cause”, as that term is defined in ~~the~~his employment agreement. The severance payment payable in the event of involuntary termination without just cause is equal to his annual base salary at the time of termination and will be paid over a twelve-month period. The employment agreement provides that the severance payment ~~provisions~~provision will be honored if the Company is acquired by, or merged into, another company and his position is eliminated as a result of such acquisition or merger. In addition we have one employee who is entitled to a severance payment of less than $0.1 million if the employee’s position is eliminated prior to July 2012.

At ~~September 30, 2010,~~March 31, 2011, firm commitments to vendors to purchase components used in WAVE Systems and instruments manufactured by others totaled ~~$0.3~~$0.1 million.

We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. We have statutes of limitation open for Federal income tax returns related to tax years 2007 through ~~2009.~~2010. We have state income tax returns subject to examination primarily for tax years ~~2006~~2007 through ~~2009.~~2010. Open tax years related to foreign jurisdictions remain subject to examination. Our primary foreign jurisdiction is the United Kingdom which has open tax years for ~~2006~~2007 through ~~2009.~~2010.

Income tax ~~expense~~benefit for the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 was a benefit of less than $0.1 million. This is the result of the change in deferred tax assets and liabilities reported in financial statements of our subsidiary outside the U.S. ~~This~~We believe the tax benefit recorded will be offset in future periods by a tax expense

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~includes state and franchise taxes as well as reserves for uncertain~~ related to income ~~taxes.~~reported in financial statements of our subsidiary outside the U.S. Income tax benefit for the ~~nine~~three months ended ~~September 30, 2009~~March 31, 2010 was less than $0.1 million. The effective tax rate for the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 is ~~(4.84)%~~1.0% which is primarily the result of valuation allowances against the ~~net operating losses~~Net Operating Losses for the U.S. partially ~~adjusted~~offset by permanent differences related to intercompany foreign currency exchange of our subsidiary outside the U.S. ~~The effective tax rate for the nine months ended September 30, 2009 was 5.27%.~~

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2011 and 2010, there were no material changes to the liability for uncertain tax positions.

We maintain an employee 401(k) retirement savings plan that allows for voluntary contributions into designated investment funds by eligible employees. We ~~currently~~ match the employee’s contributions at the rate of 50% on the first 6% of contributions. We may, at the discretion of our Board of Directors, make additional contributions on behalf of the Plan’s participants. Contributions to the 401(k) plan were less than $0.1 million for ~~each of~~ the three ~~and nine~~ months ended ~~September 30,~~March 31, 2010. No contributions were made in the three months ended March 31, 2011 due to cost saving initiatives.

The Company’s Board of Directors is authorized to issue up to 100,000,000 shares of common stock, from time to time, as provided in a resolution or resolutions adopted by the Board of Directors.

No common stock warrants were issued or exercised during the three ~~and nine~~ months ended ~~September 30, 2010~~March 31, 2011 or ~~2009.~~2010. At ~~September 30, 2010,~~March 31, 2011, there were warrants outstanding which were exercisable to purchase ~~7,978,156~~5,572,408 shares of common stock.

The Company’s Board of Directors is authorized to issue up to 15,000,000 shares of preferred stock in one or more series, from time to time, with such designations, powers, preferences and rights and such qualifications, limitations and restrictions as may be provided in a resolution or resolutions adopted by the Board of Directors. The authority of the Board of Directors includes, but is not limited to, the determination or fixing of the following with respect to shares of such class or

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

any series thereof: (i) the number of shares; (ii) the dividend rate, whether dividends shall be cumulative and, if so, from which date; (iii) whether shares are to be redeemable and, if so, the terms and amount of any sinking fund providing for the purchase or redemption of such shares; (iv) whether shares shall be convertible and, if so, the terms and provisions thereof; (v) what restrictions are to apply, if any, on the issue or reissue of any additional preferred stock; and (vi) whether shares have voting rights. The preferred stock may be issued with a preference over the common stock as to the payment of dividends. The Company has no current plans to issue any series of preferred stock. Classes of stock such as the preferred stock may be used, in certain circumstances, to create voting impediments on extraordinary corporate transactions or to frustrate persons seeking to effect a merger or otherwise to gain control of the Company. For the foregoing reasons, any preferred stock issued by the Company could have an adverse effect on the rights of the holders of the common stock.

On December 29, 2010, we entered into a Series A Convertible Preferred Stock Purchase Agreement (“Series A Purchase Agreement”) with Third Security, LLC pursuant to which we: (i) sold an aggregate of 2,586,205 shares of Series A Convertible Preferred Stock; and (ii) issued warrants to purchase up to an aggregate of 1,293,102 shares of Series A Convertible Preferred Stock with an exercise price of $2.32 per share. The Warrants may be exercised at any time from December 29, 2010 until December 28, 2015 and contain a “cashless exercise” feature. The shares of Series A Convertible Preferred Stock issuable pursuant to the Series A Purchase Agreement and upon exercise of the Warrants are initially convertible into shares of our common stock at a rate of 4-for-1, which conversion rate is subject to further adjustment as set forth in the Certificate of Designation. The aggregate gross proceeds from the issuance were $6.0 million.

The Series A Convertible Preferred Stock meets the definition of mandatorily redeemable stock as it is preferred capital stock which is redeemable at the option of the holder and should be reported outside of equity. Preferred stock is accreted to its redemption value. The warrants do not qualify to be treated as equity, and accordingly, are recorded as a liability. A preferred stock conversion feature is embedded within the Series A Convertible Preferred Stock that meets the definition of a derivative.

The costs to secure the preferred stock were taken against the preferred stock. For the year ended December 31, 2010 these costs were $0.2 million.

We used the net proceeds from the financing to acquire the FAMILION family of genetic tests from PGxHealth, a subsidiary of Clinical Data.

In connection with the Financing, we filed a Certificate of Designation of Series A Convertible Preferred Stock with the Secretary of State of the State of Delaware, designating 3,879,307 shares of our Preferred Stock as Series A Convertible Preferred Stock. Certain rights of the holders of the Series A Convertible Preferred Stock are senior to the rights of the holders of Common Stock. The Series A Convertible Preferred Stock has a liquidation preference equal to its original price per share, plus any accrued and unpaid dividends thereon. The Series A Convertible Preferred Stock accrues cumulative dividends at the rate of 10.0% of the original price per share per annum.

Generally, the holders of the Series A Preferred Stock are entitled to vote together with the holders of Common Stock, as a single group, on an as-converted basis. However, the Certificate of Designation provides that we shall not perform some activities, subject to certain exceptions, without the affirmative vote of a majority of the holders of the outstanding shares of Series A Convertible Preferred Stock. The holders of the Series A Convertible Preferred Stock also are entitled to elect or appoint, as a single group, two (2) of the five (5) directors of the Company.

In connection with the Financing, we also entered into a registration rights agreement with the Investors (the “Registration Rights Agreement”). Pursuant to the terms of the Registration Rights Agreement, the Company has granted the Investors certain demand, “piggyback” and S-3 registration rights covering the resale of the shares of Common Stock underlying the Series A Convertible Preferred Stock issued pursuant to the Series A Purchase Agreement and issuable upon exercise of the Warrants and all shares of Common Stock issuable upon any dividend or other distribution with respect thereto. The holders of the Series A Convertible Preferred Stock are entitled to receive quarterly dividends which will accrue whether or not declared, shall compound annually and shall be cumulative. In any calendar quarter we shall be required to pay from funds legally available a cash dividend in the amount of 50% of the distributable cash flow or aggregate amount of dividends accrued on the Series A Convertible Preferred Stock. During the first quarter of 2011 we recorded $0.2 million in dividends payable which were not distributed.

Financial Accounting Standards Board (“FASB”) guidance on fair value measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements for our financial assets and liabilities, as well as for other assets and liabilities that are carried at fair value on a recurring basis in our consolidated financial statements.

FASB guidance establishes a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The three levels of inputs used to measure fair value are as follows:

Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities,

Level 2—Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets, and

Level 3—Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing the asset or liability.

The preferred stock, warrant liability and preferred stock conversion feature are all recorded separately and are recorded at fair value. We are required to record these instruments at fair value at each reporting date and changes are recorded as an adjustment to earnings. The warrant liability and preferred stock conversion feature are considered Level 3 financial instruments which are valued using the Black Scholes call option pricing formula.

During the three months ended March 31, 2011, the changes in the fair value of the liabilities measured using significant unobservable inputs (Level 3) were comprised of the following:

We had no Level 3 liabilities at March 31, 2010. There were no purchases, sales, issuances or settlements in the three months ended March 31, 2011 and 2010. The gains or losses included in earnings are reported in other income (expense) in our Statement of Operations.

The following table summarizes stock option activity during the ~~nine~~three months ended ~~September 30, 2010:~~March 31, 2011:

During the nine months ended September 30, 2010, we granted options exercisable to purchase 75,000 shares of common stock at a weighted average exercise price of $0.58 under our 2006 Equity Incentive Plan.

Our company’s chief operating decision-maker is the Chief Executive Officer, who regularly evaluates our performance based on net sales and gross profit. The preparation of this segment analysis requires management to make estimates and assumptions around expense below the gross profit level. While we believe the segment information to be directionally correct, actual results could differ from the estimates and assumptions used in preparing this information.

The accounting policies of the segments are the same as the policies discussed in Footnote B – Summary of Significant Accounting Policies.

~~Segment information for the three months ended September 30, 2010~~segments, Lab Services and ~~2009 is as follows:~~Instrument Business.

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~

Segment information for the ~~nine~~three months ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~ is as follows:


	Dollars in Thousands																		Dollars in Thousands
	2010									2009									2011									2010
	Instrument Business			Lab Services			Total			Instrument Business			Lab Services			Total			Lab Services			Instrument Business			Total			Lab Services			Instrument Business			Total
Net Sales	$	11,180		$	3,776		$	14,956		$	11,794		$	3,714		$	15,508		$	3,757		$	3,723		$	7,480		$	1,271		$	4,171		$	5,442
Gross Profit		6,320			1,068			7,388			6,692			1,525			8,217			1,787			2,367			4,154			483			2,401			2,884
Net Loss before Taxes		(343	)		(1,915	)		(2,258	)		(451	)		(1,712	)		(2,163	)
Net Income/(Loss) before Taxes																				(3,536	)		752			(2,784	)		(613	)		238			(375	)
Income Tax Expense (Benefit)		109			—			109			(114	)		—			(114	)		—			(6	)		(6	)		—			(51	)		(51	)

Net Loss	$	(452	)	$	(1,915	)	$	(2,367	)	$	(337	)	$	(1,712	)	$	(2,049	)
Net Income/(Loss)																			$	(3,536	)	$	758		$	(2,778	)	$	(613	)	$	289		$	(324	)

Depreciation/Amortization		151			229			380			352			207			559			428			49			477			79			56			135
Restructuring Charges		38			34			72			—			—			—
Interest Income		1			—			1			10			4			14
Restructure																				—			24			24			—			—			—
Interest Income (Expense)																				(233	)		(5	)		(238	)		—			1			1

	September 30, 2010									September 30, 2009									3/31/2011									12/31/10
Total Assets	$	7,072		$	6,865		$	13,937		$	8,686		$	6,669		$	15,355		$	21,817		$	9,581		$	31,398		$	24,631		$	7,396		$	32,027


	Dollars in Thousands				Dollars in Thousands				Dollars in Thousands
									Three Months Ended March 31,
									2011		2010
Laboratory Services:
Molecular Clinical Reference Laboratory									$	3,487	$	942
Pharmacogenomics Research Services										270		329
	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009			3,757		1,271
Instrument Related Business:
Bioinstruments	$	1,356	$	1,999	$	5,925	$	6,215		1,837		2,352
Bioconsumables		1,799		1,853		5,255		5,579		1,886		1,819

		3,155		3,852		11,180		11,794		3,723		4,171
Laboratory Services:
Molecular Clinical Reference Laboratory		918		923		2,790		2,886
Pharmacogenomics Research Services		346		271		986		828

		1,264		1,194		3,776		3,714

Total Net Sales	$	4,419	$	5,046	$	14,956	$	15,508	$	7,480	$	5,442


	Dollars in Thousands				Dollars in Thousands				Dollars in Thousands
									Three Months Ended March 31,
									2011		2010
Laboratory Services:
Molecular Clinical Reference Laboratory									$	1,587	$	462
Pharmacogenomics Research Services										383		326
	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009			1,970		788
Instrument Related Business:
Bioinstruments	$	532	$	526	$	2,487	$	2,167		522		932
Bioconsumables		774		1,097		2,373		2,935		834		838

		1,306		1,623		4,860		5,102		1,356		1,770
Laboratory Services:
Molecular Clinical Reference Laboratory		670		479		1,631		1,607
Pharmacogenomics Research Services		426		191		1,077		582

		1,096		670		2,708		2,189

Total Cost of Goods Sold	$	2,402	$	2,293	$	7,568	$	7,291	$	3,326	$	2,558

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~

Net sales for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~ by country were as follows:


	Dollars in Thousands					Dollars in Thousands				Dollars in Thousands
	Three Months Ended September 30,					Nine Months Ended September 30,				Three Months Ended March 31,
	2010			2009		2010		2009		2011		2010
United States	$	2,082		$	1,920	$	6,483	$	6,254	$	5,036	$	2,330
Italy		813			913		2,300		2,676		826		766
France		209			386		812		1,175
United Kingdom											258		568
Germany		194			441		1,099		973		211		560
United Arab Emirates		4			—		778		—
United Kingdom		224	��		230		991		666
All Other Countries		893			1,156		2,493		3,764		1,149		1,218

Total	$	4,419		$	5,046	$	14,956	$	15,508	$	7,480	$	5,442

~~Approximately 80%~~No customer accounted for more than 10% of consolidated net sales during the three months ended March 31, 2011 and 2010. For the three months ended March 31, 2011 no customers made up more than 10% of Laboratory Services net sales. For the three months ended March 31, 2010 one customer made up more than 10% of the Laboratory Services net sales. This customer represented 16% of the Laboratory Services net sales for the three months ended March 31, 2010.

More than 95% of our long-lived assets are within the United States. Substantially all of the remaining long-lived assets are within Europe.

Events or transactions that occur after the balance sheet date, but before the financial statements are complete, are reviewed to determine if they should be recognized.

~~On October 27, 2010 6,903,156 common stock warrants to various institutional holders expired unexercised.~~

We have ~~been awarded a federal grant under the Qualifying Therapeutic Discovery Project Program related~~no material subsequent events to ~~2009 projects. Net of our consultant fees we expect to receive $0.6 million cash in the fourth quarter of 2010.~~be disclosed.

Item 2.

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

This report, including Management’s Discussion & Analysis, contains forward-looking statements. These statements are based on management’s current views, assumptions or beliefs of future events and financial performance and are subject to uncertainty and changes in circumstances. Readers of this report should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements. These factors include, among other things: our expected revenue, ~~income(loss)~~income (loss), receivables, operating expenses, supplier pricing, availability and prices of raw materials, Medicare/Medicaid/Insurance reimbursements, product pricing, foreign currency exchange rates, sources of funding operations and acquisitions, our ability to raise funds, sufficiency of available liquidity, future interest costs, future economic circumstances, industry conditions, our ability to execute our operating plans, the success of our cost savings initiatives, competitive environment and related market conditions, actions of governments and regulatory factors affecting our business and other risks as described in our reports filed with the Securities and Exchange Commission. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” and similar expressions.

You are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Actual results may differ materially from those suggested by the forward-looking statements that we make for a number of reasons including those described in Part II, Item 1A, “Risk Factors,” of this report.

We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

The following discussion should be read together with our financial statements and related notes contained in this report and with the financial statements, related notes, and Management’s Discussion & Analysis in our annual report on Form 10-K for the fiscal year ended December 31, ~~2009.~~2010. Results for the quarter ended ~~September 30, 2010~~March 31, 2011 are not necessarily indicative of results that may be attained in the future.

Molecular Clinical Reference Laboratory. The molecular clinical reference laboratory specializes in mitochondrial and molecular diagnostic testing including genetic testing for oncology, hematology and inherited disorders. Located in Omaha, Nebraska the molecular clinical reference laboratory operates in a Good Laboratory Practices compliant environment and is certified under the Clinical Laboratory Improvement Amendment (CLIA) as a high complexity lab and is accredited by CAP (College of American Pathologists).

Although we have experienced recurring net losses (resulting in an accumulated deficit of $132.6 million at September 30, 2010) management believes existing sources of liquidity, including cash and cash equivalents of $4.6 million, are sufficient to meet expected cash needs during 2010. We will need to increase net sales in order to meet our liquidity needs on a long-term basis. If we cannot increase net sales, further reductions to operating expenses will be needed. In future periods, there is no assurance that we will be able to increase net sales or further reduce expenses and, accordingly, we may not have sufficient sources of liquidity to continue operations indefinitely.

Net sales for the ~~nine~~three months ended ~~September 30, 2010 were down 4%~~March 31, 2011 increased by $2.0 million or 37% compared to the same period in ~~2009.~~2010. The first quarter of 2011 included the results of the FAMILION acquisition in our Laboratory Services segment. During the three months ended March 31, 2011, net sales from Laboratory Services increased by $2.5 million compared to the same three month period in 2010. The Clinical Reference Laboratory increase is a result of the revenue of $2.7 million related to the FAMILION acquisition. Net sales from Pharmacogenomics Research Services decreased by less than $0.1 million. Net sales in our Instrument Related Business were ~~down 5%~~up 11% or ~~$0.6~~$0.4 million for the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 compared to the same period in ~~2009.~~2010. Net sales from bioinstruments were down 5%22% and net sales of consumables were ~~down 6%~~up 4% for the comparable ~~nine~~three month periods. During the nine months ended September 30, 2010, net sales from Laboratory Services were up 2% compared to the same nine month period in 2009. The Clinical Reference Laboratory decreased 3% and net sales from Pharmacogenomics Research Services increased by 19%.

Our gross profit margin ~~decreased by 4%~~increased from 53% for the ~~nine~~three months ended ~~September 30,~~March 31, 2010 ~~compared~~ to the same period in 2009. The Instrument Related Business gross margin was flat at 57% for each of the nine months ended in 2010 and 2009. Laboratory Services gross margin decreased from 41% gross profit in the nine months ended September 30, 2009 to 28%56% for the same period in ~~2010. Net loss~~2011. Laboratory Services gross margin increased from 38% in the three months ended March 31, 2010 to 48% for the same period in 2011. Loss from operations was ~~$2.4~~$0.8 million for the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 compared to ~~net loss of $2.0~~$0.4 million for the ~~nine~~three months ended ~~September 30, 2009.~~March 31, 2010.

We continue to leverage our core instrument business for on-going instrument sales worldwide as well as employing our ~~instruments~~instrument technology and related expertise in our two laboratory services businesses. We anticipate ~~continued~~strengthening growth in both of our laboratory services businesses and we continue to seek out new assay technologies and tests to license or develop internally to expand our menu offerings for both of these service businesses. ~~And although challenges do exist~~In particular, we have substantially increased our footprint in the molecular diagnostics laboratory market through our recent acquisition of the Clinical Data FAMILION laboratory testing business. This acquisition brings us approximately $13.0 million in new annual revenues and a much larger presence both with insurers and patients. This acquisition also provides us access to higher throughput technologies and an expert staff to aid us in growing our reference laboratory business as well as consolidation opportunities for laboratory operations, billing and sales and marketing.

In our Pharmacogenomics Lab, we continue to perform cancer pathway gene mutation projects for a number of high visibility pharmaceutical companies both for drug discovery and drug clinical trials. Employing our recently licensed ultra sensitive DNA mutation detection technology, termed Cold-PCR, and a significant improvement to COLD-PCR termed Ice COLD-PCR, we have added the significant addition of utilizing blood as a mutation detection sample source rather than just testing patients’ tumors. This is a significant achievement and should, we believe, lead to much faster expansion of our service testing for pharmaceutical partners as they adopt this novel approach for both drug and disease research. In addition to Ice Cold-PCR, which offers sensitivity improvements as much as 10,000 times higher than routine DNA testing technology, we have recently discovered a technique to further improve mutation detection sensitivity of standard Sanger sequencing. We have termed this new discovery BLOCker-Sequencing and we are combining this new discovery with our Ice Cold-PCR program to bring what we believe to be the most accurate and sensitive mutation detection technology available in the market today. We believe that this combination of technologies will offer us the ability to develop tests for earlier cancer detection using blood or even saliva, to measure recurrence for a very early warning to better manage patients suffering from cancer as well as support earlier drug selection or drug resistance determinations for these patients.

Although the WAVE System is a fully matured technology, and both it and its corresponding consumable sales growth in our traditional markets are shrinking, we are ~~having some success with~~expanding our opportunities by selling systems into new geographic areas, including the Middle East and Asia, to continue the revenue from our instrument related business segment. We also continue to ~~look~~sell OEM instruments worldwide for ~~emerging markets and novel applications to provide us with new opportunities for~~pre-analytical karyotyping automation. We have launched our ~~WAVE System such as our newly launched K-RAS mutation detection kit. During the third quarter we completed the requirements for~~ CE IVD ~~labeling of our SURVEYOR~~^® ~~Scan~~labeled K-RAS mutation detection kit into Europe and the U.S. and have ~~significantly expanded distribution throughout most of~~released two follow on kits for detecting mutations in key cancer pathway genes BRAF and PIK3CA. These are key cancer pathway mutation assessment tools and, through our proprietary technologies, bring noteworthy improvements in sensitivity and cost efficiency to the ~~European Union as a result.~~market compared to competing technologies. We intend to continue to look for opportunities to diversify into new markets, including the personalized medicine market, ~~(particularly~~particularly in ~~oncology),~~oncology, where the sensitivities of our technologies are essential. ~~As discussed below, a recently licensed technology that could provide the highest sensitivity available in the marketplace is being refined for use~~We have also embarked on our Wave Systems. In addition, we are also selling refurbished WAVE Systems in order to allow an opportunity for customers who may not be able to afford the full cost of a new system to purchase and utilize our WAVE technology. Additionally, we have developed credibility and momentum with third-party platforms that will allow us to leverage our direct sales force and distribution network.

On the Laboratory Services front, we have completed cancer pathway gene mutation projects for a number of high visibility pharmaceutical companies which have continued to demonstrate the unique sensitivity of detecting DNA mutations in cancer genes which are central to effective therapy selection for current and future cancer therapeutics. To this end, we are now gaining clinical trial program contracts which we believe will more rapidly impact our revenue opportunities from this segment. To compliment our mutation detection expertise, we also have strengthened our capabilities in biomarker development and mutation detection in novel cancer pathway genes which will aid in the development of true personalized medicine for our pharmaceutical partners. We recently licensed and are developing a new technology for even greater DNA mutation enrichment and detection sensitivity which could prove to be the highest sensitivity technology in the market. In our Molecular Clinical Reference Laboratory we have continued to seek out or develop new testsseveral academic collaborations to further ~~expand~~validate our ~~menu~~newest technologies and ~~growth opportunities~~better determine how they can and will be used in clinical settings for ~~this business, including a test that would determine the likelihood of the sibling of an autistic child also developing autism.~~patients undergoing treatment for cancer.

We have historically operated at a loss and have not consistently generated sufficient cash from operating activities to cover our operating ~~expenses~~ and other cash ~~needs.~~expenses. While we have been able to historically finance our operating losses through borrowings or from the issuance of additional equity, ~~there is the risk that~~ we may not be able to obtain such funding indue to the ~~future.~~tightened credit markets. At ~~September 30, 2010~~March 31, 2011 we had cash and cash equivalents of ~~$4.6~~$3.2 million. We do believe that existing sources of liquidity are sufficient to meet expected cash needs ~~into~~during 2011.

The uncertainty of the current general economic conditions could negatively impact our business in the future. There are many factors that affect the market demand for our products and services that we cannot control. Demand for our Instrument Related Business is affected by the needs and budgetary resources of research institutions, universities and hospitals. The instrument purchase represents a significant expenditure by these types of customers and often requires a long sales cycle. These customers may not have the funding available to purchase our instruments. Competition and new instruments in the marketplace also may impact our sales.

We have ~~foreign currency~~ revaluation risk which occurs when ~~a transaction occurs~~transactions are done in a currency other than the ~~entity’s “functional currency”.~~British Pound Sterling. These transactions must be revalued within the Transgenomic, Limited ledger, whose functional currency is the British Pound Sterling. The majority of ~~our international sales~~the transactions on this ledger are ~~transacted~~ in ~~the euro, which must be first converted into British pound sterling, and then into U.S. dollars. At January 1, 2009 the Euro~~Euro. As a result we are subject to ~~Great British Pound~~ exchange rate ~~was .9690 as compared to the September 30, 2010 rate of .8613. The Great British Pound to U.S. Dollar exchange rate was 1.4501 at January 1, 2009 compared to 1.5809 at September 30, 2010.~~risk. Fluctuations in the foreign exchange rates could ~~impact~~cause our business results. Foreign currency revaluation adjustments decreased operating expenses and net loss by $0.2 million and $0.1 million for the three months ended September 30, 2010 and 2009, respectively and foreign currency revaluation adjustments increased operating expenses and net loss by $0.3 million during each of the nine months ended September 30, 2010 and 2009.to be impacted.


	Dollars in Thousands										Dollars in Thousands
											Three Months Ended March 31,				Change
											2011		2010		$			%
Laboratory Services:
Molecular Clinical Reference Laboratory											$	3,487	$	942	$	2,545			270	%
Pharmacogenomics Research Services												270		329		(59	)		(18	)%
	Three Months Ended September 30,				Change
	2010		2009		$			%				3,757		1,271		2,486			196	%
Instrument Related Business:
Bioinstruments	$	1,356	$	1,999	$	(643	)		(32	)%		1,837		2,352		(515	)		(22	)%
Bioconsumables		1,799		1,853		(54	)		(3	)%		1,886		1,819		67			4	%

		3,155		3,852		(697	)		(18	)%		3,723		4,171		(448	)		(11	)%
Laboratory Services:
Molecular Clinical Reference Laboratory		918		923		(5	)		(1	)%
Pharmacogenomics Research Services		346		271		75			28	%

		1,264		1,194		70			6	%

Total Net sales	$	4,419	$	5,046	$	(627	)		(12	)%	$	7,480	$	5,442	$	2,038			37	%

Net sales of Laboratory Services increased $2.5 million during the three months ended March 31, 2011 compared to the same period in 2010. Laboratory Services sales includes both the Molecular Clinical Reference Laboratory Services and the Pharmacogenomics Research Services. The Molecular Clinical Reference Laboratory Services net sales were up $2.5 million compared to the three months ended March 31, 2010. The increase in Molecular Clinical Reference Laboratory revenue is due to our acquisition of the FAMILION family of genetic tests on December 29, 2010.

The Pharmacogenomics Research Services net sales of $0.3 million during the three months ended March 31, 2011 decreased $0.1 million compared to the first quarter of 2010. We had three more customers in 2011 which was offset by lower average revenue per customer. The Pharmacogenomics Research Services net sales have peaks due to the nature of project related business. Each period for Pharmacogenomics Research Services should be considered on a stand alone basis and is not indicative of future net sales.

Bioinstrument sales consist of sales of our WAVE System and associated equipment that we manufacture or assemble, net sales from service contracts that we enter into with purchasers of our instruments, as well as sales of instruments we distribute for other manufacturers (“OEM equipment”). We also sell refurbished WAVE Systems in order to access ~~customers that may not be able to afford new systems.~~additional customers. Bioinstrument net sales ~~are down $0.6~~decreased $0.5 million, or ~~32%~~22%, during the three months ended ~~September 30, 2010~~March 31, 2011 as compared to the same period in ~~2009.~~2010. The decrease in bioinstrument net sales was due to ~~changes~~fewer OEM instruments sold in the ~~product mix sold during the~~first quarter ~~as well as fewer instruments sold. No~~of 2011. There were two OEM instruments ~~were~~ sold in ~~2010~~2011 compared to ~~one OEM sale~~five in the ~~third~~first quarter of ~~2009.~~2010 each of which was offset by a higher average sales price in the first quarter of 2011. We sold four WAVE instruments in the ~~third quarter 2010 as compared to five WAVE instruments in the third~~first quarter of ~~2009.~~2011 and 2010. The average sales price was higher in the third quarter of 2009 due to the geographic location of the sales. Service contract sales were flat during the three months ended September 30, 2010 as compared to the same period in 2009. Parts, freight2011. Demand for WAVE Systems has been affected by significant competitive challenges from traditional (i.e. sequencing) and ~~miscellaneous income was lower by $0.1 million in the third quarter of 2010 as compared to the same period in 2009.~~evolving technologies.

Net sales of bioconsumables were ~~down less than~~up 4% or $0.1 ~~million, or 3%, during the three months ended September 30, 2010 compared to 2009. This decrease is related to lower sales volume in our European markets.~~

Net sales of Laboratory Services increased 6% during the three months ended September 30, 2010 compared to 2009. Laboratory Services sales includes both the Molecular Clinical Reference Laboratory Services and the Pharmacogenomics Research Services. The Molecular Clinical Reference Laboratory Services net sales were down 1% compared to the three months ended September 30, 2009. The Molecular Clinical Reference Laboratory average revenue per test has decreased by 4% due to the mix of tests performed and increased Medicare and Medicaid test volumes which generates lower reimbursement for these tests. The decrease in average revenue per test is offset by a 4% increase in sales volume. The Pharmacogenomics Research Services net sales of $0.3 million during the three months ended ~~September 30, 2010 was up 28%~~March 31, 2011 compared to ~~2009.~~2010. The ~~increase in Pharmacogenomics Research Services net sales is largely due to an increase~~volume sold in the ~~number~~United States increased by $0.3 million which was offset by lower volumes in Europe of customers for the third quarter of 2010 compared to 2009. The Pharmacogenomics Research Services net sales have peaks due to the project related nature of the business. Each period for Pharmacogenomics Research Services should be considered on a stand alone basis and is not indicative of future net sales.$0.2 million.

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, rent, supplies and depreciation) associated with our Laboratory Services operations. Cost of goods sold consisted of the following:


	Dollars in Thousands										Dollars in Thousands
											Three Months Ended March 31,				Change
											2011		2010		$			%
Laboratory Services:
Molecular Clinical Reference Laboratory											$	1,587	$	462	$	1,125			244	%
Pharmacogenomics Research Services												383		326		57			(17	)%
	Three Months Ended September 30,				Change
	2010		2009		$			%				1,970		788		1,182			150	%
Instrument Related Business:
Bioinstruments	$	532	$	526	$	6			1	%		522		932		(410	)		(44	)%
Bioconsumables		774		1,097		(323	)		(29	)%		834		838		(4	)		0	%

		1,306		1,623		(317	)		(20	)%		1,356		1,770		(414	)		(23	)%
Laboratory Services:
Molecular Clinical Reference Laboratory		670		479		191			40	%
Pharmacogenomics Research Services		426		191		235			123	%

		1,096		670		426			64	%

Cost of goods sold	$	2,402	$	2,293	$	109			5	%	$	3,326	$	2,558	$	768			30	%

Gross profit was ~~$2.0~~$4.2 million or ~~46%~~56% of total net sales during the ~~third~~first quarter of ~~2010,~~2011, compared to ~~$2.8~~$2.9 million or ~~55%~~53% during the same period of 2009. Margins on the instrument related business are up by 1% compared to the same period in 2009. The bioinstrument margin decreased from 74% in the three months ended September 30, 2009 to 61% in the same period of 2010. This decrease is driven by the composition of products sold and fewer instruments sold in the third quarter of 2010. Margins on bioconsumables increased from 41% for the three months ended September 30, 2009 to 57% in the same period of 2010. During the three months ended ~~September 30, 2010,~~March 31, 2011, the gross margin for the Laboratory Services was ~~13%~~48% as compared to ~~44%~~38% in the same period of ~~2009.~~2010. The gross margin on the Clinical Reference Laboratory was ~~27%~~54% for the ~~third~~first quarter of ~~2010~~2011 compared to ~~48%~~51% for the ~~third~~first quarter of ~~2009.~~2010. The three months ended March 31, 2011 include the business acquired in the acquisition of the FAMILION family of genetic tests. Pharmacogenomics gross margin decreased from ~~30%~~1% for the three months ended ~~September 30, 2009~~March 31, 2010 to a negative ~~23%~~42% for the three months ended ~~September 30, 2010. These decreases are~~March 31, 2011. This decrease is due to staff added along with higher operating supplies cost. The bioinstrument margin increased from 60% in the three months ended March 31, 2010 to 72% in the same period of 2011. This increase is primarily driven by the composition of products sold. Margins on bioconsumables increased from 54% to 56% in 2011.

Selling, General and Administrative Expenses. Selling, general and administrative expenses primarily consist of personnel costs, marketing, travel and entertainment costs, professional fees, and facility costs. In addition, foreign currency revaluation is included here. ~~Excluding foreign currency revaluation gains or losses,~~Our selling, general and administrative costs increased $1.9 million from $2.4 million to $4.3 million during the three month period ended March 31, 2011 compared to the same period in 2010. The primary increase in our selling, general and administrative costs ~~were down less than $0.1 million compared~~is due to the ~~same period~~acquisition of ~~2009.~~the FAMILION family of genetic tests. Foreign currency revaluation gains infor the three months ended ~~September 30, 2010~~March 31, 2011 were ~~$0.2~~$0.1 million compared to $0.1 million in revaluation ~~gains~~loss for the three months ended ~~September 30, 2009.~~March 31, 2010.

Research and Development Expenses.Research and development expenses primarily include personnel costs, legal fees, outside services, collaboration expenses, supplies, and facility costs and are expensed in the period in which they are incurred. For the ~~third~~first quarter of ~~2010~~2011 and ~~2009~~2010 these costs totaled $0.6 million and ~~$0.9~~$0.8 million, respectively. The 2009 research and development costs included collaboration expenses with the Dana-Farber Cancer Institute related to the development of high sensitivity mutation detection technology called COLD-PCR (coamplification at lower denaturation temperature PCR).

Research and development expenses totaled ~~14%~~7% and ~~19%~~15% of net sales during the three months ended ~~September 30,~~March 31, 2011 and 2010, respectively. Decrease is due primarily to the consolidation of our research and ~~2009, respectively.~~development activities in Omaha, Nebraska.

Other Income (Expense).Other income ~~consists primarily of interest income from cash and cash equivalents invested in overnight instruments. Other expense during~~for the three months ended ~~September 30, 2010~~March 31, 2011 includes an award of a federal grant under the Qualifying Therapeutic Discovery Project of $0.2 million, net of consulting fees. The expense on preferred stock is due to the increase in fair value of the Preferred Stock conversion feature and ~~2009 was less than $0.1 million for each period.~~warrants. This is a non-cash item.

Income Tax Expense (Benefit). Income tax ~~expense~~benefit for the three months ended ~~September 30, 2010~~March 31, 2011 was a benefit of less than $0.1 million. This is the result of the change in deferred tax assets and liabilities reported in the financial statements of our subsidiary outside the U.S. This tax benefit is partially offset by tax expense ~~includes~~related to state and franchise taxes as well as reserves for uncertain income taxes. We believe the tax benefit recorded will be offset in future periods by a tax expense, related to income reported in financial statements of our subsidiary outside the U.S. Income tax benefit for the three months ended ~~September 30, 2009~~March 31, 2010 was less than $0.1 million.

Bioinstrument sales consist of sales of our WAVE System and associated equipment that we manufacture or assemble, net sales from service contracts that we enter into with purchasers of our instruments, as well as sales of instruments we distribute for other manufacturers (“OEM equipment”). We also sell refurbished WAVE Systems in order to access customers that may not be able to afford new systems. Bioinstrument net sales are down $0.3 million, or 5%, during the nine months ended September 30, 2010 as compared to the same period in 2009. The decrease in bioinstrument net sales was due to lower average sales price in the nine months ended September 30, 2010. We sold five OEM instruments in each of the nine months ended September 30, 2010 and September 30, 2009. The average sales price was lower on our OEM instruments sold in 2010 as compared to 2009. We sold twenty-two WAVE Systems in the nine months ended September 30, 2010 as compared to eighteen in the nine months ended September 30, 2009, and the average sales price was lower due to the geographic location of the sales. Service contract sales were down $0.1 million for the nine months ended September 30, 2010 compared to the same period of 2009 due to lower volumes in both the European and U.S. markets. Parts, freight and miscellaneous income was lower by $0.3 million in the nine months ended September 30, 2010 as compared to the same period of 2009.

Net sales of bioconsumables decreased during the nine months ended September 30, 2010 compared to 2009. The primary decrease in consumables is due to lower volume in our European market offset by higher volume in our U.S. market.

Net sales of Laboratory Services increased by 2% for the nine months ended September 30, 2010 compared to 2009. Sales of Laboratory Services include both the Molecular Clinical Reference Laboratory Services and the Pharmacogenomics Research Services. The Molecular Clinical Reference Laboratory Services net sales of $2.8 million represented a decrease of 3% over the nine months ended September 30, 2009. The Molecular Clinical Reference Laboratory average revenue per test has decreased by 6% due to the mix of tests performed and the increased Medicare and Medicaid test volumes which generates lower reimbursement for these tests. The decrease in average revenue per test is offset by a 3% increase in volume. The Pharmacogenomics Research Services net sales of $1.0 million during the nine months ended September 30, 2010 represented an increase of 19% from the nine months ended September 30, 2009. The increase in Pharmacogenomics Research Services is largely due to an increase in the number of clients for the nine months ended September 30, 2010 compared to the same period of 2009. The Pharmacogenomics Research Services net sales have peaks due to the project related nature of the business. Each period for Pharmacogenomics Research Services should be considered on a stand alone basis and is not indicative of future net sales.

~~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, rent, supplies and depreciation) associated with our Laboratory Services operations. Cost of goods sold consisted of the following:

Gross profit was $7.4 million or 49% of total net sales during the nine months ended September 30, 2010, compared to $8.2 million or 53% during the same period of 2009. Margins on the Instrument Related Business were flat for the nine months ended September 30, 2010 compared to the same period in 2009. During the nine months ended September 30, 2010, the gross margin for the Laboratory Services was 28% as compared to 41% in the same period of 2009. The erosion in the gross margin is driven by the lower average net sales reimbursement per test due to increased Medicare and Medicaid test volume and higher operating costs.

~~Selling, General and Administrative Expenses.~~ Selling, general and administrative expenses primarily consist of personnel costs, marketing, travel and entertainment costs, professional fees, and facility costs. In addition, foreign currency revaluation is included here. Excluding foreign currency revaluation losses, which was a loss of $0.3 million in each of the nine months ended September 30, 2010, our selling, general and administrative costs decreased from $7.7 million to $7.3 million. The primary decrease is due to lower salary and stock option expense.

~~Research and Development Expenses.~~Research and development expenses primarily include personnel costs, legal fees, outside services, collaboration expenses, supplies, and facility costs and are expensed in the period in which they are incurred. Research and development expenses were $2.0 million and $2.5 million for the nine months ended September 30, 2010 and 2009, respectively.

~~Research and development expenses totaled 13% and 16% of net sales during the nine months ended September 30, 2010 and 2009, respectively.~~

~~Other Income (Expense).~~Other income consists primarily of interest income from cash and cash equivalents invested in overnight instruments. Other income during the nine months ended September 30, 2010 and September 30, 2009 was less than $0.1 million for each period.

~~Income Tax Expense (Benefit).~~ Income tax expense for the nine months ended September 30, 2010 was $0.1 million. This is the result of the change in deferred tax assets and liabilities reported in financial statements of subsidiaries outside the U.S. This tax expense includes state taxes as well as reserves for uncertain income taxes. Income tax benefit for the nine months ended September 30, 2009 was $0.1 million.

Our working capital positions at ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009~~2010 were as follows:


	Dollars in Thousands							Dollars in Thousands
	September 30, 2010		December 31, 2009		Change			March 31, 2011		December 31, 2010		Change
Current assets (including cash and cash equivalents of $4,589 and $5,642, respectively)	$	12,429	$	14,454	$	(2,025	)
Current assets (including cash and cash equivalents of $3,170 and $3,454, respectively)								$	14,646	$	15,034	$	(388	)
Current liabilities		4,279		4,103		176			8,340		8,253		(87	)

Working capital	$	8,150	$	10,351	$	(2,201	)	$	6,306	$	6,781	$	(475	)

The working capital decrease ~~at September 30, 2010 compared to December 31, 2009~~ is primarily a result of ~~our net loss of $2.4 million for the nine months ended September 30,~~increased accrued expenses and compensation at March 31, 2011 compared to December 31, 2010.

We have historically operated at a loss and have not consistently generated sufficient cash from operating activities to cover our operating and other cash expenses. While we have been able to historically finance our operating losses through borrowings or from the issuance of additional equity, we currently have no borrowings and have no plans to issue additional equity securities for this purpose. At ~~September 30, 2010~~March 31, 2011 we had cash and cash equivalents of ~~$4.6~~$3.2 million. We believe that existing sources of liquidity are sufficient to meet expected cash needs ~~into 2011. We~~during 2011, we will need to increase our net sales, and focus on ~~receivables and inventory management or further~~the integration of the FAMILION acquisition to reduce our operating expenses in order to be assured of meeting our liquidity needs on a long-term basis. However, we cannot assure you that we will be able to increase our net sales or further reduce our expenses, or raise further capital or equity and, accordingly, we may not have sufficient sources of liquidity to continue our operations indefinitely. We continue to explore additional sources of liquidity.

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~

Net Change in Cash and Cash Equivalents.Cash and cash equivalents decreased by ~~$1.1~~$0.3 million during the ~~nine~~three months ended ~~September 30, 2010 to $4.6 million~~March 31, 2011 compared to ~~a decrease~~an increase of ~~$0.1~~$0.3 million ~~in cash balances~~ during the ~~nine~~three months ended ~~September 30, 2009. In 2010 net~~March 31, 2010. During the three months ended March 31, 2011 we used cash ~~used~~ in operating, ~~activities was $0.7 million~~investing and ~~$0.5 million was used in investing~~financing activities which was offset by ~~less than $0.1 million provided by financing activities. The impact of~~ foreign currency exchange ~~revaluation was nominal.~~revaluation. In ~~2009~~2010 net cash provided by operating activities was ~~$0.2~~$0.4 million offset by ~~$0.3~~less than $0.1 million of net cash flow used in investing activities ~~with minimal~~and $0.1 million impact of foreign currency exchange rates.

Cash Flows ~~Used in~~Provided by Operating Activities. Cash flows ~~used in~~provided by operating activities ~~were $0.7~~totaled $0.1 million during the ~~nine~~three months ended ~~September 30, 2010,~~March 31, 2011, compared to cash flows provided by operating activities of ~~$0.2~~$0.4 million during the same period of 2009. The cash flows used in operating activities in 2010 relate to the net loss of $2.4 million which is offset by the timely collection of accounts receivable of $1.0 million and noncash items of $0.5 million.2010. The cash flows provided by operating activities in ~~2009 primarily~~2011 include the net loss and decrease in accounts payable, offset by the non-cash items which include revaluation of the preferred stock conversion feature and warrant liability, depreciation and amortization. The cash flows provided by operating activities in 2010 relate to the increase in accounts ~~receivable collections~~payable and accrued expenses of ~~$1.5 million and noncash items of $0.8~~$0.9 million offset by the decrease in prepaid expenses of $0.2 million and the net loss of ~~$2.0~~$0.3 million.

Cash Flows Used In Investing Activities. Cash flows used in investing activities totaled ~~$0.5~~$0.1 million during the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 compared to cash flows used in investing activities of ~~$0.3~~less than $0.1 million during the same period of ~~2009.~~2010. Cash flows used in investing activities in ~~2010~~2011 and ~~2009~~2010 consisted primarily of purchases of property and equipment.

Cash Flows ~~Provided by~~Used in Financing Activities. Cash flows ~~provided by~~used in financing activities were ~~less than $0.1~~$0.3 million for the ~~nine~~three months ended ~~September 30, 2010. This resulted from~~March 31, 2011. Cash flows used in financing activities were for payments on debt and capital lease obligations offset by the issuance of common stock due to the exercise of stock options for ~~100,000~~10,000 shares during the ~~second~~first quarter of ~~2010.~~2011. There were no cash flows provided by or used in financing activities for the ~~nine~~three months ended ~~September 30, 2009.~~March 31, 2010.

At ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, 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 our accounting policies are considered critical as they are both important to the portrayal of our 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 judgments or estimates may vary under different assumptions or circumstances. Our critical accounting policies are discussed in our annual report on Form 10-K for the fiscal year ended December 31, ~~2009.~~2010.

Please refer to our annual report on Form 10-K for the fiscal year ended December 31, ~~2009.~~2010. There have been no changes to those accounting pronouncements listed except as noted in note B to the financial statements contained in this report.

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

Evaluation of Disclosure Controls and Procedures. Management performed, ~~under~~with the ~~direction~~participation of our Chief Executive Officer and ~~Interim~~ Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s forms, and that such information is accumulated and communicated to our management including our Chief Executive Officer and our ~~Interim~~ Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on the evaluation, the Company’s Chief Executive Officer and our ~~Interim~~ Chief Financial Officer concluded that, as of ~~September 30, 2010~~March 31, 2011, Transgenomic’s disclosure controls and procedures were effective.

~~Change in Internal Control Over Financial Reporting~~~~. There~~We have ~~been no~~evaluated the changes in our internal control over financial reporting that occurred during the ~~quarter~~three months ended March 31, 2011 and concluded that there have not been any changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are subject to ~~occasional~~a number of claims of various amounts which arise out of the normal course of our business. In our opinion, the disposition of pending claims will not have a material adverse effect on our financial position, results of operations or cash flows.

An investment in our common stock involves a number of risks. You should carefully consider each of the risks described in Item 1A of our annual report on Form 10-K for the fiscal year ended December 31, ~~2009~~2010 before deciding to invest in our common stock. If any of the risks actually occur, our business, financial condition or results of operations could be negatively affected, the market price of our common stock or other securities could decline and you may lose all or part of your investment.

In addition to the risks described in Item 1A of our annual report on Form 10-K for the fiscal year Ended December 31, 2009 please consider the following risks before deciding to invest in our common stock:

Providers of clinical testing services may be subject to lawsuits alleging negligence or other similar legal claims. Potential suits could involve claims for substantial damages. Litigation could also have an adverse impact on our client base and reputation. We maintain liability insurance coverage for certain claims that could result from providing or failing to provide clinical testing services, including inaccurate testing results and other exposures. Our insurance coverage limits our maximum recovery on individual claims and, therefore, there is no assurance that such coverage will be adequate.

The risk factors presented above and in Item 1A of our annual report on Form 10-K for the fiscal year ended December 31, 2009 are all of the ones that we currently consider material. However, they are not the only ones facing our company. Additional risks not presently known to us, or which we currently consider immaterial, may also adversely affect us. There may be risks that a particular investor views differently from us, and our analysis might be wrong. If any of the risks that we face actually occur, our business, financial condition and operating results could be materially adversely affected and could differ materially from any possible results suggested by any forward-looking statements that we have made or might make. In such case, the trading price of our common stock could decline, and you could lose part or all of your investment.We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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.


Delaware		911789357
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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


		Page No.

PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of ~~September 30, 2010~~March 31, 2011 (Unaudited) and December 31, ~~2009~~2010 (Audited)	3

	Unaudited Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~	4

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the ~~Nine~~Three Months Ended ~~September 30, 2010~~March 31, 2011	5

	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~	6

	Notes to ~~Unaudited~~ Condensed Consolidated Unaudited Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1922

Item ~~4T.~~4.	Controls and Procedures	2627

PART II.	OTHER INFORMATION	2728

Item 1.	Legal Proceedings	2728

Item 1A.	Risk Factors	2728

Item 6.	Exhibits	2729

Signatures		2830



Leasehold improvements			1 to 10 years

Furniture and fixtures			3 to 7 years

Production equipment			3 to 7 years

Computer equipment			3 to 7 years

Research and development equipment			2 to 7 years


		Estimated Useful Life
Intellectual property		10 years
Patents		7 years
Intangibles—acquired technology		7 – 8 years
Intangibles—third party payor relationships		Indefinite
Intangibles—assay royalties		7 years
Intangibles—tradenames and trademarks		7 years


	Dollars in Thousands
	Beginning Balance		Provision			Write Offs			Ending Balance
Three Months Ended September 30, 2010	$	295	$	40		$	—		$	335
Three Months Ended September 30, 2009	$	358	$	(5	)	$	(8	)	$	345
Nine Months Ended September 30, 2010	$	310	$	29		$	(4	)	$	335
Nine Months Ended September 30, 2009	$	388	$	27		$	(70	)	$	345


	Dollars in Thousands
	Asset Balances at September 30
Classes of Property	2010		2009
Equipment	$	286	$	—
Less: Accumulated amortization		—		—

Total	$	286	$	—


	Dollars in Thousands
	Costs Incurred in the Three Months Ended September 30, 2010		Cumulative Costs Incurred at September 30, 2010		Total Expected Costs
Severance and related costs	$	40	$	40	$	53
Facility closure costs		24		24		63
Other		8		8		66

Restructuring charges	$	72	$	72	$	182


	Dollars in Thousands
	Asset Balances at
Classes of Property	March 31, 2011			December 31, 2010
Equipment	$	541		$	394
Less: Accumulated amortization		(39	)		(13	)

Total	$	502		$	381


	Dollars in Thousands
2011	$	177
2012		140
2013		124
2014		8

Total minimum lease payments	$	449
Less: Amount representing interest		(48	)

Present value of net minimum lease payments	$	401


Warrant Holder	Issue Year		Expiration		Underlying Shares		Exercise Price
Various Institutional Holders (1)		2005		Oct. 2010		6,903,156	$	1.20
Laurus Master Fund, Ltd. (2)		2003		Dec. 2010		200,000	$	1.92
Laurus Master Fund, Ltd. (2)		2003		Dec. 2010		200,000	$	2.07
Laurus Master Fund, Ltd. (2)		2003		Dec. 2010		150,000	$	2.35
Laurus Master Fund, Ltd. (2)		2004		Feb. 2011		125,000	$	2.57
Laurus Master Fund, Ltd. (2)		2004		Aug. 2011		400,000	$	1.18

Total						7,978,156


Warrant Holder	Issue Year		Expiration Year		Underlying Shares		Exercise Price
Laurus Master Fund, Ltd. (1)		2004		2011		400,000	$	1.13
Affiliates of Third Security, LLC (2)		2010		2015		5,172,408	$	.58

Total						5,572,408


	Dollars in Thousands
	For the three months ended March 31, 2011
	Preferred Stock Conversion Feature		Warrants			Total
Beginning balance at January 1	$	1,983	$	2,351		$	4,334
Total gains or losses:
Recognized in earnings		3,095		(1,068	)		2,027

Balance at March 31	$	5,078	$	1,283		$	6,361


	Number of Options			Weighted Average Exercise Price
Balance at January 1, 2010:		3,331,731		$	2.39
Granted		75,000			.58
Exercised		(100,000	)		(.42	)
Forfeited		(553,500	)		(.75	)
Expired		(133,231	)		(12.50	)

Balance at September 30, 2010:		2,620,000		$	2.24

Exercisable at September 30, 2010:		2,363,334		$	2.42


	Number of Options			Weighted Average Exercise Price
Balance at January 1, 2011		2,565,001		$	2.08
Granted		130,000			.74
Exercised		(10,000	)		(.70	)
Forfeited		(219,668	)		(2.48	)

Balance at March 31, 2011		2,465,333		$	2.02

Exercisable at March 31, 2011		2,178,666		$	2.20



3.1		Third Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to Registrant’s Report on Form 10-Q (Registration No. 000-30975) filed on November 14, 2005)

3.2		Amended and Restated Bylaws of the Registrant (incorporated by reference to Registrant’s Report on Form 8-K (Registration No. 000-30975) filed on May 25, 2007)

3.3		Certificate of Designation of Series A Convertible Preferred Stock dated as of December 28, 2010 (incorporated by reference to Exhibit 3.1 to Registrant’s Report on Form 8-K (Registration No. 000-30975) filed on January 4, 2011)

4.1		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) filed on March 10, 2000)

4.2		Series A convertible Preferred Stock Purchase Agreement, dated December 29, 2010, by and among Transgenomic, Inc., Third Security Senior Staff 2008 LLC, Third Security Staff 2010 LLC, and Third Security Incentive 2010 LLC (incorporated by reference to Exhibit 4.1 to Registrant’s Report on Form 8-K (Registration No. 000-30975) filed on January 4, 2011)

4.3		Form of Warrant (incorporated by reference to Exhibit 4.2 to Registrant’s Report on Form 8-K (Registration No. 000-30975) filed on January 4, 2011)

4.4		Registration Rights Agreement, dated December 29, 2010, by and among Transgenomic, Inc., Third Security Senior Staff 2008 LLC, Third Security Staff 2010 LLC, and Third Security Incentive 2010 LLC (incorporated by reference to Exhibit 4.3 to Registrant’s Report on Form 8-K (Registration No. 000-30975) filed on January 4, 2011)

4.5		Secured Promissory Note, issued December 29, 2010 by Transgenomic, Inc. in favor of PGxHealth, LLC (incorporated by reference to Exhibit 4.4 to Registrant’s Report on Form 8-K (Registration No. 000-30975) filed on January 4, 2011)

4.6		Secured Promissory Note, issued December 29, 2010 by Transgenomic, Inc. in favor of PGxHealth, LLC (incorporated by reference to Exhibit 4.5 to Registrant’s Report on Form 8-K (Registration No. 000-30975) filed on January 4, 2011)

10.1		Sublease Agreement, dated December 29, 2010, by and between Transgenomic, Inc. and Clinical Data, Inc. (incorporated by reference to Exhibit 10.1 to Registrant’s Report on Form 8-K (Registration No. 000-30975) filed on January 4, 2011)

10.2		Noncompetition and Nonsolicitation Agreement, dated December 29, 2010 by and among PGxHealth, LLC, Clinical Data, Inc. and Transgenomic, Inc. (incorporated by reference to Exhibit 10.2 to Registrant’s Report on Form 8-K (Registration No. 000-30975) filed on January 4, 2011)

10.3		Security Agreement, dated December 29, 2010, by and between PGxHealth, LLC and Transgenomic, Inc. (incorporated by reference to Exhibit 10.3 to Registrant’s Report on Form 8-K (Registration No. 000-30975) filed on January 4, 2011)

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


		TRANSGENOMIC, INC.

Date:	~~November 15, 2010~~May 13, 2011	By:	/S/ CRAIG J. TUTTLE
			Craig J. Tuttle President and Chief Executive Officer

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