As filed with the Securities and Exchange Commission on November 30, 2005

Commission File No.: 333-






As filed with the Securities and Exchange Commission on March 15, 2013Registration No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington,

WASHINGTON, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933


TRANSGENOMIC, INC.

(Exact Namename of Registrant As Specified In Its Charter)

registrant as specified in its charter)
Delaware382691-1789357
(State or other jurisdiction of Incorporation)
incorporation or organization)
(Primary Standard Industrial Classification Code Number)
(IRSI.R.S. Employer I.D.
Identification Number)

12325 Emmet Street
Omaha, NebraskaNE 68164
(402) 452-5400

(Address, including zip code, and telephone number, including area code, of registrant’sregistrant's principal executive offices)

Collin


Craig J. D’Silva

Tuttle

President and Chief Executive Officer
12325 Emmet Street
Omaha, NebraskaNE 68164
(402) 452-5400

(Name, address, including zip code, and telephone number, including area code, of Agentagent for Service)service)

Copies to:
Jeff Hartlin, Esq.
Paul Hastings LLP
1117 S. California Avenue
Palo Alto, CA 94304
(650) 320-1804

Approximate date of commencement of proposed sale to the public:

Steven P. Amen

Kutak Rock LLP

1650 Farnam Street

Omaha, Nebraska 68102

Tel: (402) 346-6000

Fax: (402) 346-1148

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:From time to time after the effective date of this Registration Statement as determined by market conditions.registration statement becomes effective.

If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box.¨

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box.xý

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

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




If delivery of the Prospectusthis Form is expected to be madea post-effective amendment filed pursuant to Rule 434, please462(d) under the Securities Act, check the following box.box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

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.
Large Accelerated Filer o
Accelerated Filer x
Non-accelerated Filer o (Do not check if smaller reporting company)
Smaller Reporting Company o

CALCULATION OF REGISTRATION FEE

Title of each class

of securities to be

Registered

  

Amount

to be

registered

 

Proposed maximum

offering price

per unit(1)

  

Proposed Maximum

Aggregate

Offering Price

  

Amount of

Registration

Fee

Common Stock, par value $0.01

  25,038,320(2) $0.885  $22,158,913  $2,371


Title of Each Class of Securities to be Registered
Amount to be Registered (1)
Proposed Maximum Offering Price Per Share (4)
Proposed Maximum Aggregate Offering Price (4)
Amount of Registration Fee
Common Stock, $0.01 par value per share16,600,000
(2) 
$0.49
$8,134,000
$1,109.48
Common Stock, $0.01 par value per share, issuable upon exercise of Warrants8,300,000
(3) 
$0.49
$4,067,000
554.74
Total:24,900,000
  $12,201,000
$1,664.22

(1)CalculatedPursuant to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”), the shares being registered hereunder include such indeterminate number of shares of our Common Stock as may be issuable with respect to the shares being registered hereunder to prevent dilution by reason of any stock dividend, stock split, recapitalization or other similar transaction.

(2)All 16,600,000 shares of Common Stock are to be offered by the selling stockholders named herein, all of which were acquired by the selling stockholders in a private placement.

(3)All 8,300,000 shares of Common Stock issuable upon exercise of the Warrants are to be offered by the selling stockholders named herein, all of which were acquired by the selling stockholders in a private placement.

(4)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act. The offering price per share and aggregate offering price are based onupon the average of the highbid and low sale priceask prices per share of the sharesCommon Stock, as reported on the Nasdaq Stock MarketOTC Bulletin Board, on November 25, 2005.March 11, 2013, a date within five business days prior to the filing of this Registration Statement.



(2)Consists of 16,975,743 shares currently outstanding and 8,039,640 shares issuable upon exercise of warrants.

We


The registrant hereby amendamends this Registration Statementregistration statement on such date or dates as may be necessary to delay its effective date until wethe registrant shall file a further amendment which specifically states that this Registration Statementregistration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statementthe registration statement shall become effective on such date as the Securities and Exchange Commission acting accordingpursuant to said Section 8(a), may determine.





The information in this Prospectusprospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectusprospectus is not an offer to sell these securities and is not seekingneither we nor the selling stockholders are soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, dated November 30, 2005

Dated March 15, 2013

PRELIMINARY PROSPECTUS

25,038,320 Shares

24,900,000 SHARES OF COMMON STOCK

TRANSGENOMIC, INC.

COMMON STOCK


This Prospectus covers 25,038,320 shares (“Shares”) of our common stock thatprospectus relates to the resale by the investors listed in the section titled “Selling Stockholders”, and we refer to the investors as the selling stockholders listed under “Principal and Selling(the “Selling Stockholders” may sell from time to time. These Shares consist of:

) of up to 16,975,74324,900,000 shares of our Common Stock, par value $0.01 per share (the “Common Stock” or “Common Shares”). The Common Shares outstanding held by the selling shareholders; and

offered consist of: (i) up to 8,062,57716,600,000 Common Shares that may be issuedand (ii) up to 8,300,000 Common Shares issuable upon exercise of outstanding warrants.warrants (the “Warrants”). We issued the Common Shares and Warrants in connection with a private placement offering in January 2013. We are registering the resale of the Common Shares and the Common Shares underlying the Warrants as required by the Registration Rights Agreement we entered into with the Selling Stockholders on January 24, 2013 (the “Registration Rights Agreement”).

Our registration of the Common Shares covered by this prospectus does not mean that the Selling Stockholders will offer or sell any of the shares. The selling stockholdersSelling Stockholders may offer and sell the sharesor otherwise dispose of our Common Shares described in this prospectus from time to time through public or private transactions at the then prevailing market price for the sharesprices, at the time of the sale,prices related to prevailing market prices or at otherprivately negotiated prices. The last reported sale price for our common stock on November 29, 2005 was $0.96 per share. The selling stockholders are offering the Shares as described underSee “Plan of Distribution.” Distribution” beginning on page 9 for more information.
We will not receive any of the proceeds from the sale of these sharesCommon Stock sold by the selling stockholders, but will be entitled to theSelling Stockholders, other than any proceeds from the cash exercise of outstanding warrants.

Warrants to purchase shares of our Common Stock.

No underwriter or other person has been engaged to facilitate the sale of shares of Common Stock in this offering. The Selling Stockholders may be deemed underwriters of the Common Shares that they are offering. We have agreed to pay certain expenses in connection with this registration statement and to indemnify the Selling Stockholders against certain liabilities. The Selling Stockholders will pay all underwriting discounts and selling commissions, if any, in connection with the sale of the shares of Common Stock.

You should read this prospectus carefully before you invest.
Our common stockCommon Stock is listedtraded on the Nasdaq National MarketOTC Bulletin Board under the symbol “TBIO.”

On March 14, 2013, the last reported sale price of our Common Stock was $0.44 per share.

Investing in our common stocksecurities involves a high degree of risk. You should carefully considerSee the information under the heading “Risk Factors”section entitled “Risk Factors” beginning on page 58 of this Prospectus before buying shares of our common stock.

prospectus.

Neither the Securities and Exchange Commission nor any state securities commission or other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus.prospectus. Any representation to the contrary is a criminal offense.

, 2005






The date of this prospectus is _________ __, 2013


3
TABLE OF CONTENTS




TRANSGENOMIC, INC.
Index to Form S-1



PROSPECTUS SUMMARY

1

RISK FACTORS

 5

USE OF PROCEEDS

10

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

10

SELECTED FINANCIAL DATA

12

CAPITALIZATION

14

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

15

BUSINESS

31

MANAGEMENT

36

PRINCIPAL AND SELLING STOCKHOLDERS

45

DESCRIPTION OF CAPITAL STOCK

48

PLAN OF DISTRIBUTION

51

EXPERTS

52

LEGAL OPINIONS

52

WHERE YOU CAN FIND MORE INFORMATION

53

INDEX TO FINANCIAL STATEMENTS

  
About this Prospectus
5
A Warning about Forward-Looking Statements
5
Prospectus Summary
7
The Offering
8
Risk Factors
8
Use of Proceeds
14
Determination of Offering Price
14
Plan of Distribution
14
Selling Stockholders
16
Description of Common Stock
20
Legal Matters
23
Experts
24
Where You Can Find Additional Information
24
Incorporation of Certain Information by Reference
24

Forward-Looking Statements

This Prospectus contains certain forward-looking statements. Many of these forward-looking statements refer to our plans, objectives, expectations and intentions, as well as our future financial results and are subject to risk and uncertainty. You can identify these forward-looking statements by words such as “expects,” “anticipates,” “intends,” “plans,” “may,” “believes,” “seeks,” “estimates” and similar expressions. Because these forward-looking statements involve risks and uncertainties, there are many factors that could cause our actual results to differ materially from those expressed or implied by these forward-looking statements, including those discussed under “Risk Factors” in this Prospectus or described in reports that we file from time to time with the Securities and Exchange Commission, such as our Forms 10-K and 10-Q, as amended.




4


ABOUT THIS PROSPECTUS
You should rely only on the information contained or incorporated by reference in this Prospectus. Weprospectus. Neither we nor the Selling Stockholders have not authorized any other personanyone to provide you with information that is different from such information. If anyone provides you with different or inconsistent information, you should not rely on it. The Selling Stockholders are offering to sell Common Stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on its cover page regardless of the time of delivery of this prospectus or any sale of the Common Stock. In case there are differences or inconsistencies between this prospectus and the information incorporated by reference, you should rely on the information in the document with the latest date.
The Selling Stockholders are offering the Common Stock only in jurisdictions where such issuances are permitted. The distribution of this Prospectusprospectus and the issuance of the Common Stock in certain jurisdictions may be restricted by law. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the issuance of the Common Stock and the distribution of this prospectus outside the United States. This prospectus does not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy, the Common Stock offered by this prospectus by any person in any jurisdiction in which it is currentunlawful for such person to make such an offer or solicitation.
It is important for you to read and consider all of the information contained in this prospectus in making your investment decision. To understand the offering fully and for a more complete description of the offering you should read this entire document carefully, including particularly the “Risk Factors” section beginning on page 8. You also should read and consider the information in the documents to which we have referred you in the sections entitled “Where You Can Find Additional Information” and “Incorporation of Certain Information by Reference”.
As used in this prospectus, unless the context requires otherwise, the terms “we”, “us”, “our”, or “the Company” refer to Transgenomic, Inc. and its subsidiaries on a consolidated basis. References to “Selling Stockholders” refer to those stockholders listed herein under “Selling Stockholders” and their successors, assignees and permitted transferees.


A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this prospectus may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), about the Company and its subsidiaries. These forward-looking statements are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, and can be identified by the use of forward-looking terminology such as “believes”, “expects”, “may”, “will”, “could”, “should”, “projects”, “plans”, “goal”, “targets”, “potential”, “estimates”, “pro forma”, “seeks”, “intends”, or “anticipates” or the negative thereof or comparable terminology. Forward-looking statements include discussions of strategy, financial projections, guidance and estimates (including their underlying assumptions), statements regarding plans, objectives, expectations or consequences of various transactions, and statements about the future performance, operations, products and services of the Company and its subsidiaries. We caution our stockholders and other readers not to place undue reliance on such statements.
You should read this prospectus and the documents incorporated by reference completely and with the understanding that our actual future results may be materially different from what we currently expect. Our business and operations are and will be subject to a variety of risks, uncertainties and other factors. Consequently, actual results and experience may materially differ from those contained in any forward-looking statements. Such risks, uncertainties and other factors that could cause actual results and experience to differ from those projected include, but are not limited to, the risk factors set forth in the section entitled “Risk Factors” beginning on page 8 of this prospectus and elsewhere in the documents incorporated by reference in this prospectus, including our Annual Report on Form 10-K for the year ended December 31, 2012.
You should assume that the information appearing in this prospectus, any accompanying prospectus supplement and any document incorporated herein by reference is accurate as of its date. Ourdate only. Further, any forward looking statement speaks only as of the date on which it is made. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business financial condition,or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward looking statements. All written or oral forward-looking statements attributable to us or any person acting on our behalf made after the date of operationsthis prospectus are expressly

5


qualified in their entirety by the risk factors and prospects may have changed since that date.

cautionary statements contained in and incorporated by reference into this prospectus. Unless legally required, we do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events.




6



The Offering
PROSPECTUS SUMMARY

The itemsfollowing summary highlights selected information contained elsewhere in this prospectus and in the following summary are described in more detail laterdocuments incorporated by reference in this Prospectus. This summary provides an overview of selected informationprospectus and does not contain all of the information you will need in making your investment decision. You should consider. Therefore, you should also read carefully this entire prospectus and the more detailed information set outdocuments incorporated by reference in this Prospectus, includingprospectus before making an investment decision. This prospectus provides you with a general description of Transgenomic, the consolidated financial statementsCommon Stock issuable under this prospectus and related notes appearing elsewherethe offering.

Business
Transgenomic, Inc.("we", "us","our Company" or "Transgenomic") is a global biotechnology company advancing personalized medicine in this Prospectus, before investing in our common stock. In particular, you should carefully consider the information discussed under “Risk Factors.” All references to “we,” “us” or the “Company” in this Prospectus mean Transgenomic, Inc.

TRANSGENOMIC, INC.

Our Business

We develop, manufacturedetection and sell innovative products for the analysis, synthesistreatment of cancer and purification of nucleic acidsinherited diseases through two operating segments, BioSystemsits proprietary molecular technologies and Nucleic Acids.

The BioSystems operating segment develops, assembles, manufactures and markets versatile products and provides analytical services to the medical research,world-class clinical and pharmaceutical markets for useresearch services. Our operations are organized and reviewed by management along its product lines and presented in the followingthree complementary business segments.

Clinical Laboratories. Our clinical laboratories specialize in genetic variation analysis. Productstesting for cardiology, neurology, mitochondrial disorders, and servicesoncology. Located in New Haven, Connecticut and Omaha, Nebraska the molecular clinical reference laboratories are sold through a direct sales force incertified under the United StatesClinical Laboratory Improvement Amendment (CLIA) as high complexity labs and throughout muchour Omaha facility is also accredited by the College of Western Europe. For the rest of the world, products and services are sold through more than 25 dealers and distributorsAmerican Pathologists (CAP).
Pharmacogenomics Services. Our Contract Research Organization located in those local markets. Net sales from this operating segment are categorized as bioinstruments, bioconsumablesOmaha, Nebraska provides pharmacogenomics research services supporting Phase II and Phase III clinical trials conducted by our pharmaceutical customers. This lab specializes in pharmacogenomic, biomarker and mutation discovery services.

Bioinstruments. The flagship product ofresearch serving the BioSystems operating segmentpharmaceutical and biomedical industries world-wide for disease research, drug and diagnostic development and clinical trial support.
Diagnostic Tools. Our proprietary product is the WAVE systemWAVE® System which has broad applicability to genetic variation detection in both molecular genetic research and molecular diagnostics. There was a world-wide installed base of 1,269 WAVE systems as of September 30, 2005. Additionally, this operating segment utilizes itsWe also distribute bioinstruments produced by other manufacturers (“OEM Equipment”) through our sales and distribution network to sell a number of independent, third party equipment platforms.network. Service contracts to maintain installed systems are sold and supported by our technical support personnel.

Bioconsumables. The installed WAVE base generatesand some OEM Equipment platforms generate a demand for consumables that are required for the system’s continued operation. These products are developed, manufacturedoperation of the bioinstruments. We develop, manufacture and sold by this operating segment.sell these consumable products. In addition, the BioSystems operating segment manufactureswe manufacture and sellssell consumable products that can be used on multiple, independent platforms. These products include SURVEYORSURVEYOR® Nuclease and a range of HPLC separationchromatography columns.

Discovery Services. The BioSystems operating segment provides various genetic laboratory services through
For a contract research lab in Gaithersburg, Marylandcomplete description of our business, financial condition, results of operations and a second laboratory in Omaha, Nebraskaother important information, we refer you to our filings with the Securities and Exchange Commission (the “SEC”) that operates in a Good Laboratory Practices (“GLP”) compliant environment and is certified under the Clinical Laboratory Improvement Amendment. The services provided primarily include (1) genomic biomarker analysis services to pharmaceutical and biopharmaceutical companies to support preclinical and clinical development of targeted therapeutics; and (2) molecular-based testing for hematology, oncology and certain inherited diseases for physicians and third-party laboratories.

The Nucleic Acids operating segment develops, manufactures and markets chemical building blocks for nucleic acid synthesis to biotechnology, pharmaceutical, oligonucleotide synthesis companies and research institutions throughout the world. These products are produced primarilyincorporated by reference in this operating segment’s only facility, in Glasgow, Scotland. Prior to November 11, 2004, this operating segment also manufactured synthesized segments of nucleic acids (known as oligonucleotides) in a facility in Boulder, Colorado. On November 11, 2004, the assets associated with this facility were sold to an unaffiliated

third party. As a result, the Nucleic Acids operating segment no longer manufactures and sells these specialized oligonucleotides. A substantial portion of this operating segment’s revenues during 2005 and 2004 have been derived from one customer.

We have experienced recurring net losses resulting in an accumulated deficit of $110.88 million at September 30, 2005 and have historically relied upon cash flows from investing and financing activities to offset significant cash outflows from operating activities. We instituted significant changes during the fourth quarter of 2004 designed to, among other things, better alignprospectus, including our cost structure with projected revenues, focusAnnual Report on opportunities in our BioSystems operating segment, and minimize the adverse financial effect of our Nucleic Acids operating segment. Specifically, during the fourth quarter of 2004, we sold our manufacturing facility in Boulder, Colorado and implemented a restructuring plan. While the primarily goals of these changes were to provide the foundationForm 10-K for a self-sustaining, growth-oriented company with positive cash flows and earnings, there can be no assurance that we can achieve these goals. Our business strategy going forward is to achieve revenue growth in our BioSystems operating segment and to better align our cost structure with anticipated revenues in both of our operating segments.

Recent Financing Activities

On October 31, 2005, we closed on a private placement of securities to institutional investors (the “2005 Private Placement”). The securities issued consisted of: (i) 14,925,743 shares of the Company’s common stock, plus (ii) five-year, non-callable warrants to purchase another 5,970,297 shares of common stock with an exercise price of $1.20 per share. The aggregate purchase price for the securities sold was $1.01 per share of common stock initially being sold or $15.08 million. In conjunction with this transaction, we issued a warrant to Oppenheimer & Co., Inc. to purchase 932,859 shares at $1.20 per share as part of their placement fee.

The net proceeds from the 2005 Private Placement were $13.90 million after transaction costs of $1.18 million. These proceeds were partially used to repay all outstanding principal and accrued interest on our convertible line of credit (the “Credit Line”) and convertible term note (the “Term Note”) to Laurus Master Fund, Ltd. (“Laurus”) (collectively, the “Laurus Loans”) including fees to facilitate the 2005 Private Placement and prepayment penalties to Laurus in the sum of $0.82 million. As a result, our Laurus Loans have been cancelled and are no longer available to us. The remaining proceeds of $5.35 million will be used for future working capital needs.

Shares to be sold by Selling Stockholders

This Prospectus covers 25,038,320 shares of our common stock that the selling stockholders listed under “Principal and Selling Stockholders” may offer and resell from time to time. These shares consist of (i) 14,925,743 shares issued in conjunction with the 2005 Private Placement; (ii) 6,903,156 shares issuable upon the exercise of warrants that were also issued in conjunction with the 2005 Private Placement; (iii) 2,050,000 shares in conjunction with a private placement that closed in the fourth quarter of 2003; and (iv) 1,159,421 shares issuable upon the exercise of outstanding warrants that were issued primarily in conjunction with our past indebtedness to Laurus. The exercise price of these warrants range from $1.20 to $3.18 per share. The selling stockholders are offering the common stock as described under “Plan of Distribution.”

At November 29, 2005, we had 49,172,079 shares issued and outstanding. The number of shares outstanding does not include (i) the 8,062,577 shares issuable upon the exercise of outstanding warrants and (ii) up to 6,246,231 shares of our common stock that we could issue under our employee stock option plan of which 5,541,015 options are outstanding.

Use of Proceeds

This Prospectus relates to shares of our common stock that may be offered and sold from time to time by the selling stockholders. This Prospectus also relates to common stock issuable upon the exercise of warrants held by certain selling stockholders. We will not receive any proceeds from the sale of shares of common stock in this offering. We will, however, receive proceeds from the exercise of the warrants, if exercised. The proceeds from the exercise of warrants, if any, will be used for working capital purposes.

Summary Consolidated Financial Information

The following tables present our summary consolidated historical financial information for the periods indicated. You should read this information together with the consolidated financial statements and related notes and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Prospectus. The summary consolidated balance sheet data at December 31, 2004 and 2003 and the summary consolidated statements of operations data for each year ended December 31, 2004, 2003 and 2002 have been derived from our audited consolidated financial statements that are included elsewhere in this Prospectus. The summary consolidated balance sheet data at September 30, 2005 and the summary consolidated statements of operations data for the nine months ended September 30, 2005 and 2004 are derived from our unaudited condensed consolidated financial statements included elsewhere in this Prospectus. The unaudited condensed consolidated financial statements include, in the opinion of management, all adjustments that management considers necessary for the fair presentation of the financial information set forth in those statements. Historical results are not necessarily indicative of the results to be expected in the future. The as adjusted balance sheet data as of September 30, 2005 and the as adjusted statements of operations data for the nine months ended September 30, 2005 and the year ended December 31, 2004 give effect2012. For instructions on how to the 2005 Private Placement and simultaneous repaymentfind copies of the Laurus Loans as if is such transactions had occurred as of September 30, 2005 for purposes of the balance sheet data and as of January 1, 2004 for purposes of the statement of operations data. Such amounts have been derived from our as adjusted unaudited condensed consolidated financial statements that are not included in this Prospectus. For a detailed description of the related adjustments refer to “Capitalization Table” on page 14. Dollar amounts, except per share data, are presented in thousands.

   Nine Months Ended September 30,
  Year Ended December 31,
 
   2005
  2005
  2004
  2004
  2004
  2003
  2002
 
      As Adjusted        As Adjusted       

Statement of Operations Data:

                             

Net sales

  $23,711  $23,711  $25,834  $33,789  $33,789  $33,866  $37,554 

Cost of good sold

   13,609   13,609   18,484   24,596   24,596   24,315   19,569 
   
 
 
 
 
 
 

Gross profit

   10,102   10,102   7,350   9,193   9,193   9,551   17,985 

Selling, general and administrative

   10,023   10,023   12,866   17,499   17,499   17,324   24,199 

Research and development

   1,696   1,696   5,344   6,685   6,685   9,305   12,201 

Restructuring charges(1)

   —     —     —     3,570   3,570   738   3,282 

Impairment charges(2)

   247   247   11,964   11,965   11,965   4,772   —   

Gain on sale of facility(3)

   —     —     —     (1,466)  (1,466)  —     —   

Gain on sale of product line

   —     —     —     —     —     —     —   
   
 
 
 
 
 
 

Operating expenses

   11,966   11,966   30,174   38,253   38,253   32,139   39,682 

Other income (expense)(4)

   (1,888)  (611)  (4,704)  (5,406)  (239)  (305)  437 
   
 
 
 
 
 
 

Loss before income taxes

   (3,752)  (2,475)  (27,528)  (34,466)  (29,299)  (22,893)  (21,260)

Income tax (benefit) expense

   27   27   (94)  (94)  (94)  65   105 
   
 
 
 
 
 
 

Net loss

  $(3,779) $(2,502) $(27,434) $(34,372) $(29,205) $(22,958) $(21,365)
   
 
 
 
 
 
 

Basic and diluted loss per share

  $(0.12) $(0.05) $(0.95) $(1.19) $(0.66) $(0.94) $(0.91)

Basic and diluted weighted average shares outstanding

   32,837   47,763   28,951   29,066   43,992   24,484   23,583 

   As of September 30, 2005
  As of December 31,
   Actual
  As Adjusted
  2004
  2003

Balance Sheet Data:

                

Total assets(5)

  $31,789  $37,163  $37,458  $57,306

Borrowings under credit line

   6,935   —     6,514   2,142

Current portion of long-term debt

   675   —     825   1,693

Long-term debt, less current portion

   1,226   —     2,199   —  

Total stockholders’ equity

   15,577   29,220   16,535   45,058

these documents, see “Where You Can Find Additional Information”.
(1)
Restructuring plans were implemented in 2002 and 2004 to reduce and align our expenses with current business prospects. The plans included employee terminations, office closures, termination of collaborations and write-offs of abandoned intellectual property. As a result, restructuring charges were recorded and are included in operating expenses. See Note N to the accompanying consolidated financial statements.

(2)Impairment charges relate primarily to the impairment of goodwill, and in 2004, also include a charge of $2,100 related to the impairment of property and equipment. See Note C to the accompanying consolidated financial statements.

(3)Gain on sale of facility relates to the sale of our specialty olignucleotide manufacturing facility in Boulder, Colorado during the fourth quarter of 2004. See note M to the accompanying consolidated financial statements.

(4)Other income (expense) for all years presented primarily includes interest expense and in 2004 it includes a loss on debt extinguishment of $2,859 resulting from certain modifications to our Laurus Loans that were treated as extinguishments for financial reporting purposes. See Note E to the accompanying consolidated financial statements.

(5)The reduction in total assets from December 31, 2003 to December 31, 2004 related primarily to impairment charges of $11,965 in our Nucleic Acids operating segment (see Notes C and K to the accompanying consolidated financial statements) and the sale of our specialty oligonucleotide manufacturing facility in Boulder, Colorado (see Note M to the accompanying consolidated financial statements). The reduction in total assets from December 31, 2002 to December 31, 2003 related primarily to operating losses that were funded by reductions in cash and cash equivalents and short term investments.

General Information

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

We make reports filed by us with the SEC available free of charge on our telephone phone number is 402-452-5400. Our website as soon as reasonably practicable after these reports are filed. The address of our website is www.transgenomic.com.www.transgenomic.com. Information on our website, including any SEC report,or that can be accessed through our website, is not incorporated by reference into this prospectus and does not constitute part of this Prospectusprospectus.



7


The Offering
IssuerTransgenomic, Inc.
Common Stock outstanding
88,245,725 Common Shares(1)
Common Stock, offered by the Selling Stockholders
24,900,000 Common Shares(2)
Common Stock outstanding after the offering
 96,545,725 Common Shares(3)
Use of proceeds
We will not receive any proceeds from the sale of the Common Shares. We may, however, receive cash proceeds upon the cash exercise of Warrants, and we intend to use any such proceeds for general corporate and working capital purposes. See "Use of Proceeds" beginning on page9 of this prospectus.
ListingOur Common Stock is listed on the OTC Bulletin Board under the symbol “TBIO”.
Risk FactorsYou should consider carefully the matters set forth under “Risk Factors” beginning on page 8 of this prospectus before deciding to purchase any of the Common Stock.
(1)The number of shares shown to be outstanding is based on the number of shares of our Common Stock outstanding as of March 7, 2013, and does not include shares issuable upon exercise of outstanding warrants (including the shares of Common Stock underlying the Warrants registered hereunder), shares of Common Stock issuable upon conversion of the outstanding shares of our Series A Convertible Preferred Stock or shares issuable upon exercise of outstanding options to acquire Common Stock.

(2)The number of shares shown to be registered hereunder includes 16,600,000 shares of Common Stock outstanding and 8,300,000 shares of Common Stock issuable upon exercise of Warrants.

(3)The number of shares outstanding after the offering assumes full cash exercise by the Selling Stockholders of the 8,300,000 shares of Common Stock issuable upon exercise of Warrants being registered hereunder and includes the Common Shares issuable upon exercise of the Warrants, but excludes shares issuable upon exercise of other outstanding warrants, shares of Common Stock issuable upon conversion of the outstanding shares of our Series A Convertible Preferred Stock and shares issuable upon exercise of outstanding options to acquire Common Stock.

RISK FACTORS

Ownership of our Common Stock involves certain risks. You should consider carefully the risks and you should not rely on ituncertainties described in, deciding whether to investor incorporated by reference in, our common stock.

RISK FACTORS

Anthis prospectus, including the risks described below, along with the other information included or incorporated by reference in this prospectus, in evaluating an investment in the Common Stock.


The risks and uncertainties described in this prospectus are not the only ones facing us. Additional risks and uncertainties that we do not presently know about or that we currently believe are not material may also adversely affect our common stock involves a number of risks. Before making an investment decision, you should carefully consider allbusiness. If any of the risks and other informationuncertainties described in this Prospectus. The risks discussed in this Prospectus could materially adversely affectprospectus or the documents incorporated by reference herein actually occur, our business, financial condition and results of operations andcould be adversely affected in a material way. This could cause the trading price of our common stockCommon Stock to decline, significantly. If this occurs,perhaps significantly, and you may lose part or all of your investment.

Our Common Stock is equity and therefore is subordinate to our indebtedness and preferred stock.
Our Common Stock is an equity interest and does not constitute indebtedness of the Company. Consequently, our Common Stock ranks junior to all current and future indebtedness of the Company and other non-equity claims against us with respect to assets available to satisfy claims against us, including in the event of our liquidation or dissolution. We may, and our other

8


subsidiaries may also, incur additional indebtedness from time to time and may increase our aggregate level of outstanding indebtedness.
Further, holders of our Common Stock are subject to the prior dividend and liquidation rights of any holders of our preferred stock that may be outstanding from time to time. Our Board of Directors has designated 3,879,307 shares of our authorized preferred stock as Series A Convertible Preferred Stock (the “Series A Preferred”) with certain rights, privileges and preferences which are senior to the rights of the holders of our Common Stock. Our Board of Directors is authorized to cause us to issue additional classes or series of preferred stock without any action on the part of your investment.

Risks Relatingour common stockholders. If we issue additional shares of Series A Preferred or other preferred shares in the future that have a preference over our Common Stock with respect to the payment of dividends or upon liquidation, or if we issue preferred shares with voting rights that dilute the voting power of our Common Stock, then the rights of holders of our Common Stock or the market price of our Common Stock could be adversely affected.


Sales of our shares issued in our recent private placement may cause the market price of our shares to decline.

On January 30, 2013, we issued 16,600,000 shares of Common Stock and Warrants to purchase an additional 8,300,000 shares of Common Stock to investors. Pursuant to the Registration Rights Agreement, we are registering with the SEC 24,900,000 of those shares and warrant shares for resale as described in this prospectus. The shares issued on January 30, 2013 represent approximately 26% of our issued and outstanding shares of Common Stock, assuming full cash exercises of the Warrants. Upon effectiveness of this registration statement of which this prospectus is a part, these shares may be freely sold in the open market. The sale of a significant amount of shares in the open market, or the perception that these sales may occur, could cause the trading price of our Common Stock to decline or become highly volatile.

Our Business

We may not have adequate financial resourcesability to executeuse our business plan.

At October 31, 2005, we had cash and cash equivalents and short-term investment of $6.68 million. While we believe that existing sources of liquidity are sufficient to meet expected cash needs through 2006, we have experienced recurring net operating losses and have an accumulated deficit totaling $110.88 million at September 30, 2005 and have historically relied upon cash flows from investing and financing activities to offset significant cash outflowsfuture taxable income will be subject to certain limitations.


In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-ownership change net operating losses, or NOLs, to offset future taxable income. Our existing NOLs will be subject to limitations arising from operating activities. Toprevious ownership changes, and if we undergo an ownership change in the extent necessary, we believefuture, our ability to utilize NOLs could be further limited by Section 382 of the Internal Revenue Code. Furthermore, our ability to utilize NOLs of any companies that we can manage costs and expenses at reduced levelsmay acquire in the future may be subject to conserve working capital.limitations. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to offset U.S. federal taxable income will be subject to limitations, which could potentially result in increased future tax liability to us.  The need for any such cost and expense reductions would likely delay implementationpurchase of our business plan. Ultimately, we must achieve sufficient revenues in orderCommon Stock pursuant to generate positive net earnings and cash flows from operations. However, we cannot assure youthis offering or acquisition of our Common Stock upon Warrant exercise could potentially cause, or increase the risk of, an ownership change that we will be able to increasetriggers the Section 382 limitation upon the utilization of our revenues.

NOLs. 


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

We have experienced annual losses from continuing operations since inception of our operations. Our operating loss from operations for the years ended December 31, 2004, 20032012, 2011 and 20022010 were $29.06$9.5 million $22.59, $3.0 million and $21.70$3.6 million respectively, and for the first nine months of 2005 were $1.86 million., respectively. These historical losses have been due principally to the high levels of research and development expenses and sales and marketing expenses that we have incurred in order to develop and market our products, the fixed nature of our manufacturing costs, restructuring charges, impairment charges and merger and acquisition costs.

We might enter into new acquisitions that are difficult to integrate, disrupt our business, dilute stockholder value or divert management attention.
Our success will depend in part on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands and competitive pressures. We expect to seek to acquire businesses, technologies or products that will complement or expand our existing business, including acquisitions that could be material in size and scope. Any acquisition we might make in the future might not provide us with the benefits we anticipated upon entering into the transaction. Any future acquisitions involve various risks, including:
Difficulties in integrating the operations, technologies, products and personnel of the acquired entities;
The risk of diverting management’s attention from normal daily operations of the business;
Potential difficulties in completing projects associated with in-process research and development;
Risks of entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;
Initial dependence on unfamiliar supply chains or relatively small supply partners;
Unexpected expenses resulting from the acquisition;

9


Potential unknown liabilities associated with acquired businesses;
Insufficient revenues to offset increased expenses associated with the acquisition; and
The potential loss of key employees of the acquired entities.
An acquisition could result in the incurrence of debt, restructuring charges or large one-time write-offs. Acquisitions also could result in goodwill and other intangible assets that are subject to impairment tests, which might result in future impairment charges. In addition, marketsFurthermore, if we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted.
From time to time, we might enter into negotiations for acquisitions that are not ultimately consummated. Those negotiations could result in diversion of management time and potentially significant out-of-pocket costs. If we fail to evaluate and execute acquisitions accurately, we could fail to achieve our products have developed more slowly than expected in many casesanticipated level of growth and may continue to do so. As a result,our business and operating results could be adversely affected.
Our future capital needs are uncertain and we may incur operating lossesneed to raise additional funds in the future.

Markets


Our future capital needs are uncertain and we may need to raise additional funds in the future through debt or equity offerings. Our future capital requirements will depend on many factors, including, but not limited to:
revenue generated by sales of our products;
expenses incurred in manufacturing and selling our products;
costs of developing new products or technologies;
costs associated with capital expenditures;
the number and timing of acquisitions and other strategic transactions; or
working capital requirements related to growing new acquisitions or existing business.
Continued weakness in U.S. or global economic conditions could have an adverse effect on our businesses.
The economies of the United States and other regions of the world in which we do business have experienced significant weakness, which, in the case of the U.S., has resulted in significant unemployment and slower growth in economic activity. A continued decline in economic conditions may adversely affect demand for our services and products, thus reducing our revenue. These conditions could also impair the ability of those with whom we do business to satisfy their obligations to us.
Sales have been variable.
Testing volumes in our Clinical Laboratory are dependent on patient visits to doctors’ offices and other providers of health care and tends to fluctuate on a seasonal basis. Testing volume generally declines during the year-end holiday periods, other major holidays and the summer.
Our Pharmacogenomics Services depends on project-based work that changes from quarter to quarter. Therefore, comparison of the results of successive quarters may not accurately reflect trends or results for the full year.
Changes in payer mix could have a material adverse impact on our net sales and profitability.
Testing services are billed to physicians, patients, Medicare, Medicaid and insurance companies. Tests may be billed to different payers depending on a particular patient’s medical insurance coverage. Increases in the percentage of services billed to government payors could have an adverse impact on our net sales.
We may experience temporary disruptions and delays in processing tissue samples at our facilities.
We may experience delays in processing biological samples caused by software and other errors. In early 2012, our laboratory information management system (LIMS) installed in our New Haven, Connecticut laboratory testing facility experienced a software failure that resulted in reduced sample processing capacity. Although we have reviewed and improved our internal procedures to secure proper function of the LIMS and we believe that the full sample processing capacity has been restored, there are no assurances that we will not experience future temporary delays or disruptions in processing samples at our New Haven, Connecticut facility or at our other facilities. Any delay in processing samples could have an adverse effect on our business, financial condition and results of operations.
Governmental payers and health care plans have taken steps to control costs.
Medicare, Medicaid and private insurers have increased their efforts to control the costs of health care services, including clinical testing services. They may reduce fee schedules or limit/exclude coverage for types of tests that we perform. Medicaid

10


reimbursement varies by state and is subject to administrative and billing requirements and budget pressures. We expect efforts to reduce reimbursements, impose more stringent cost controls and reduce utilization of testing services will continue. These efforts, including changes in law or regulations, may have a material adverse impact on our business.
Our Laboratory requires ongoing CLIA certification.
CLIA extended federal oversight to virtually all clinical laboratories by requiring that they be certified by the federal government or by a federally approved accreditation agency. CLIA requires that all clinical laboratories meet quality assurance, quality control and personnel standards. Laboratories must also undergo proficiency testing and are subject to inspections.
The sanctions for failure to comply with CLIA requirements include suspension, revocation or limitation of a laboratory’s CLIA certificate, which is necessary to conduct business, cancellation or suspension of the laboratory’s approval to receive Medicare and/or Medicaid reimbursement, as well as significant fines and/or criminal penalties. The loss or suspension of a CLIA certification, imposition of a fine or other penalties, or future changes in the CLIA law or regulations (or interpretation of the law or regulations) could have a material adverse effect on us.
We believe that we are in compliance with all applicable laboratory requirements, but no assurances can be given that our laboratories will pass all future certification inspections.
Failure to comply with HIPAA could be costly.
The Health Insurance Portability and Accountability Act (HIPAA) and associated regulations protect the privacy and security of certain patient health information and establish standards for electronic health care transactions in the United States. These privacy regulations establish federal standards regarding the uses and disclosures of protected health information. Our Molecular Labs are subject to HIPAA and its associated regulations. If we fail to comply with these laws and regulations we could suffer civil and criminal penalties, fines, exclusion from participation in governmental health care programs and the loss of various licenses, certificates and authorizations necessary to operate our Laboratory Services business. We could also incur liabilities from third party claims.
Ourbusiness could be adversely impacted by health care reform.
Government attention to the health care industry in the United States is significant and may increase. The Patient Protection and Affordable Care Act passed by Congress and signed into law by the President in March 2010 could adversely impact our business. While the ultimate impact of the legislation on the health care industry is unknown, it is likely to be extensive and could result in significant change.
We may be subject to client lawsuits.
Providers of clinical testing services may develop slowly.

be subject to lawsuits alleging negligence or other 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.

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

customers and often requires a long sales cycle. If revenues fromSimilarly, the sales of our products and services continue at current levels, we may need to take steps to further reduce operating expenses or raise additional working capital. We cannot assure you that sales will increase orcycle for the OEM Equipment that we willsell can be able to reduce operating expenses or raise additional working capital.

lengthy.


Two customers account for a significant portion of sales in our BioSystems and Nucleic Acids operating segments.

During nine months ended September 30, 2005, sales to Geron Corporation (“Geron”) totaled $1.73 million and represented 54%, of net sales within our Nucleic Acids operating segment and 7% of our total consolidated net sales. During the year ended December 31, 2004, sales to Geron Corporation totaled $4.15 million and represented 49% of total net sales within our Nucleic Acids operating segment and 12% of total consolidated net sales. Sales to Geron are governed by a supply agreement that does not require Geron to purchase any minimum quantity of our products. Accordingly, the amount of nucleic acid products we sell to Geron is subject to change. Revenues from our Nucleic Acids operating segment business would be substantially reduced if Geron’s need for our products declined or if it decided to obtain these products from other suppliers.

During the nine months ended September 30, 2005, sales to a large pharmaceutical company totaled $2.0 million and represented 10% of net sales within our BioSystems operating segment and 9% of our total consolidated net sales. During the year ended December 31, 2004, sales to this customer totaled $1.66 million and represented 7% of total net sales within our BioSystems operating segment and 5% of total consolidated net sales. Sales to this customer are governed by a non-binding master services agreement that does not require the customer to purchase any minimum quantity of our services. Accordingly, the amount of sales to this customer is subject to change.

Customer clinical trials may be delayed or discontinued.

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

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

.

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

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

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


11


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

the fluctuation of foreign currency to the US Dollar and the Euro to the British Pound can cause our net sales and expenses to increase or decrease, which adds risk to our financial statements.
Our WAVE System includes hardware components and instrumentation manufactured by a single supplier and if we are no longer able to obtain these components and instrumentation our ability to manufacture our products could be impaired.

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

net sales.

The current economy may cause suppliers of products to not be able to perform.
We may not have adequate personnelrely on various suppliers for products and materials needed to executeproduce our products. In the event that they would be unable to deliver those items due to product shortage or business plan.

In order to reduce our operating costs, we have significantly reduced the number of employees, including reductions in our research and development staff and our sales and marketing personnel. In addition,closure, we may lose other key management, scientific, technical, sales and manufacturing personnel from timebe unable to time. Itdeliver our products to our customers timely or may be very difficultneed to replace personnel if they are needed in the future, and the lossincrease our prices. The current economy poses additional risk of key personnel could harm our business and operating results. We cannot assure you that our employee reductions will not impair oursuppliers’ ability to continue to develop new products and refine existing products in order to remain competitive. In addition, these reductions could prevent us from successfully marketing our products and developing our customer base.

their businesses as usual.

Our markets are very competitive.

As described above, we compete with many other companies in both our Biosystems and Nucleic Acids operating segments.

Many of these competing companiesour competitors have greater resources than we do orand may enjoy other competitive advantages. This may allow them to more effectively market their products to our customers or potential customers, to develop products that make our products obsolete or to produce and sell products less expensively than us. As a result of these competitive factors, demand for and pricing of our products and services could be negatively affected.


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

Patent law relating to the scope of claims in the technology fields in which we operate is still evolving. The degree of future protection for our proprietary rights is uncertain. Furthermore, we cannot be certain that others will not independently develop similar or alternative products or technology, duplicate any of our products, or, if patents are issued to us, design around the patented products developed by us. Our patents or licenses could be challenged by litigation and, if the outcome of such litigation were adverse to us, our competitors could be free to use our technology. We may not be able to obtain additional patents for our technology, or if we are able to do so, patents may not provide us with substantialadequate protection or be commercially beneficial. In addition, we could incur substantial costs in litigation if we are required to defend ourselves in patent suits brought by third parties or if we initiate such suits.

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

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

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

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

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

The protection of intellectual property in foreign countries is uncertain.

A significant percentage of our sales are to customers located outside the U.S. The patentPatent and other intellectual property laws of some foreign countries may not protect our intellectual property rights to the same extent as U.S. laws. We may need to

12


bring proceedings to defend our patent rights or to determine the validity of our competitors’ foreign patents. These proceedings could result in substantial cost and diversion of our efforts. Finally, some of our patent protection in the U.S. is not available to us in foreign countries due to the laws of those countries.

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

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

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

Our research and development and manufacturing activities involve the controlled use of hazardous materials and chemicals. We are subject to federal, state, local and international laws and regulations governing the use, storage, handling and disposal of hazardous materials and waste products. If we fail to comply with applicable laws or regulations, we could be required to pay penalties or be held liable for any damages that result and this liability could exceed our financial resources. We cannot

assure you that accidental contamination or injury will not occur. Any such accident could damage our research and manufacturing facilities and operations, resulting in delays and increased costs.

Risks Relating To This Offering and Ownership of

Our Common Stock

The price for our common stock is volatile anddeemed to be “penny stock” which may drop.

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

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

In order for our common stock to remain listed on the Nasdaq National Market (“Nasdaq”), we must meet the minimum listing requirements for continued listing, including, among other requirements, minimum bid price and market value of public floatsuitability requirements. If our

Our common stock is delistedclassified as a “penny stock” under the rules of the SEC. The SEC has adopted Rule 3a51-1 that establishes the definition of a “penny stock” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires that:
a broker or dealer approve a person’s account for transactions in penny stocks; and
the broker or dealer receives from the Nasdaq,investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person’s account for transactions in our commonpenny stocks, the broker or dealer must:
obtain financial information and investment experience objectives of the person; and
make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, would likelya disclosure schedule prescribed by the SEC relating to the penny stock market, which is in highlight form:
sets forth the basis on which the broker or dealer made the suitability determination; and
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be conducted onlyless willing to execute transactions in the over-the counter market, or potentially on regional exchanges, which could negatively impact the trading volume and pricesecurities subject to “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and investors may find it more difficult to purchase or dispose of, or to obtain accurate quotations as tocause a decline in the market value of our common stock. In addition, if our common
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock were not listedtransactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the Nasdaq and the trading price of our common stock remains below $5.00 per share, tradinglimited market in our common stock would also be subject to certain rules that require additional disclosures by broker-dealers in connection with any trades involving a “penny stock.” In such event, the additional burdens imposed on broker-dealers to effect transactions in our common stock could further limit the market liquidity of our common stock and the ability of investors to trade our common stock.

penny stocks.

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

We alsoDecember 31, 2012, we had obligations to issue 13,603,59229,660,038 shares of common stock underupon exercise of outstanding stock options, warrants or conversion rights. In January 2013, we completed a private placement, pursuant to which we issued warrants to purchase up to an aggregate of 8,300,000 shares of common stock and warrants.shares of our common stock. The issuance of


13


these additional shares of common stock may be dilutive to our current shareholders and could negatively impact the market price of our common stock.

Sales of substantial amounts

Our common stock is thinly traded and a large percentage of our common stock in the public market could adversely affect the market priceshares are held by a small group of our common stock.

unrelated, institutional owners.

At November 29, 2005,December 31, 2012, we have 49,172,079had 71,645,725 shares of common stock outstanding. All but 13,972,384 shares held by affiliates of the Company are freely tradable without restriction or further registration under the Securities Act. Shares held by affiliates may also be sold subject only to the requirements of Rule 144 under the Securities Act. The sale of thesea significant number of shares ininto the public marketsmarket has the potential to cause significant downward pressure on the price of our common stock. This is particularly the case if the shares being placed into the market exceed the market’s ability to absorb the stock. Such an event could place further downward pressure on the price of our common stock. This presents an opportunity for short sellers to contribute to the further decline of our stock price. If there are significant short sales of our stock, the price decline that would result from this activity will cause the share price to decline more so, which, in turn, may cause long holders of the stock to sell their shares thereby contributing to sales of stock in the market.

The price you pay for shares offered by the selling stockholders may be higher than the prices paid by other people acquiring such shares.

Selling stockholders may sell shares under this Prospectus from time to time either at prices then prevailing in the market or at other prices they negotiate with buyers. Accordingly, the price you pay for shares of our common stock you purchase from a selling stockholder may be higher than the prices paid by other people acquiring such shares.



USE OF PROCEEDS


We will not receive additionalno proceeds from the sale of the Common Shares offered by this Prospectus. However, we have already received netthe Selling Stockholders. We may, however, receive cash proceeds (after transaction costs of $1.18 million) of $13.90 million in conjunction with the 2005 Private Placement. These proceeds were partially used to repay all outstanding principal and accrued interest on our Laurus Loans including fees to facilitate the private placement and prepayment penalties to Laurus in the sum of $0.82 million. The remaining proceeds of $5.35 million will be used for future working capital needs. We also received proceeds of $2.05 million in conjunction with the private placement that we closed in the fourth quarter of 2003. Additionally, we may receive approximately $10.49 million upon the exercise of warrants for the remaining 8,062,577 Shares that may be offered hereby. The net proceeds we receive from any exercise of these warrants, if any, will be used by us primarily for working capital purposes.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Our common stock is listed for trading on the Nasdaq under the symbol TBIO. The following table sets forth the high and low closing prices for our common stock during each of the quarters of 2003 and 2004 and through November 29, 2005

   High
  Low

Year Ended December 31, 2003

        

First Quarter

  $4.22  $1.40

Second Quarter

  $2.43  $0.93

Third Quarter

  $2.14  $1.03

Fourth Quarter

  $2.98  $1.45

Year Ended December 31, 2004

        

First Quarter

  $3.23  $1.96

Second Quarter

  $1.87  $1.24

Third Quarter

  $1.58  $1.07

Fourth Quarter

  $1.52  $1.06

Year Ending December 31, 2005

        

First Quarter

  $1.11  $0.53

Second Quarter

  $0.90  $0.45

Third Quarter

  $1.24  $0.70

Fourth Quarter (through November 29, 2005)

  $1.02  $0.80

At November 29, 2005, there are 49,172,079 shares of our common stock outstanding and approximately 3,475 holders of record.

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

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this Prospectus. The selected consolidated balance sheet data at December 31, 2004 and 2003 and the selected consolidated statements of operations data for each year ended December 31, 2004, 2003 and 2002 have been derived from our audited consolidated financial statements that are included elsewhere in this Prospectus. The selected consolidated balance sheet data at December 31, 2002, 2001 and 2000 and the selected consolidated statements of operations data for each year ended December 31, 2001 and 2000 have been derived from our audited consolidated financial statements that are not included in this Prospectus. The selected consolidated balance sheet data at September 30, 2005 and the selected consolidated statements of operations data for the nine months ended September 30, 2005 and 2004 are derived from our unaudited condensed consolidated financial statements included in this Prospectus. The unaudited condensed consolidated financial statements include, in the opinion of management, all adjustments that management considers necessary for the fair presentation of the financial information set forth in those statements. Historical results are not necessarily indicative of the results to be expected in the future. Dollar amounts, except per share data, are presented in thousands.

   Nine Months Ended September 30,
  Year Ended December 31,
 
   2005
  2004
  2004
  2003
  2002
  2001(1)
  2000(1)
 

Statement of Operations Data:

                             

Net sales

  $23,711  $25,834  $33,789  $33,866  $37,554  $38,467  $25,883 

Cost of good sold

   13,609   18,484   24,596   24,315   19,569   17,198   12,800 
   
 
 
 
 
 
 

Gross profit

   10,102   7,350   9,193   9,551   17,985   21,269   13,083 

Selling, general and administrative

   10,023   12,866   17,499   17,324   24,199   21,636   14,908 

Research and development

   1,696   5,344   6,685   9,305   12,201   9,372   7,652 

Restructuring charges(2)

   —     —     3,570   738   3,282   —     —   

Impairment charges(3)

   247   11,964   11,965   4,772   —     —     —   

Gain on sale of facility(4)

   —     —     (1,466)  —     —     —     —   

Gain on sale of product line

   —     —     —     —     —     —     (784)
   
 
 
 
 
 
 

Operating expenses

   11,966   30,174   38,253   32,139   39,682   31,008   21,776 

Other income (expense)(5)

   (1,888)  (4,704)  (5,406)  (305)  437   2,362   212 
   
 
 
 
 
 
 

Loss before income taxes

   (3,752)  (27,528)  (34,466)  (22,893)  (21,260)  (7,377)  (8,481)

Income tax (benefit) expense

   27   (94)  (94)  65   105   24   180 
   
 
 
 
 
 
 

Net loss

  $(3,779) $(27,434) $(34,372) $(22,958) $(21,365) $(7,401) $(8,661)
   
 
 
 
 
 
 

Basic and diluted loss per share

  $(0.12) $(0.95) $(1.19) $(0.94) $(0.91) $(0.33) $(0.52)

Basic and diluted weighted average shares outstanding

   32,837   28,951   29,066   24,484   23,583   22,560   16,630 

   As of
September 30,
2005
  As of December 31,
     2004
  2003
  2002
  2001
  2000

Balance Sheet Data:

                        

Total assets(6)

  $31,789  $37,458  $57,306  $74,035  $89,286  $77,863

Borrowings under credit line

   6,935   6,514   2,142   —     —     —  

Current portion of long-term debt

   675   825   1,693   63   —     —  

Long-term debt, less current portion

   1,226   2,199   —     1,499   —     —  

Total stockholders’ equity

   15,577   16,535   45,058   61,515   82,104   73,966

(1)In May 2001, we acquired Annovis, Inc., a specialty chemicals company that develops, manufactures and markets a wide variety of nucleic acid-based products and services for the life science industry, for a total purchase price of approximately $16,910. Annovis’ results of operations have been included in the accompanying financial statements beginning on May 1, 2001. Additionally, our consolidated financial statements include the results from our non-life sciences product line which was sold effective April 1, 2000.

(2)Restructuring plans were implemented in 2002 and 2004 to reduce and align our expenses with current business prospects. The plans included employee terminations, office closures, termination of collaborations and write-offs of abandoned intellectual property. As a result, restructuring charges were recorded and are included in operating expenses. See Note N to the accompanying consolidated financial statements.

(3)Impairment charges relate primarily to the impairment of goodwill, and in 2004, also include a charge of $2,100 related to the impairment of property and equipment. See Note C to the accompanying consolidated financial statements.

(4)Gain on sale of facility relates to the sale of our specialty olignucleotide manufacturing facility in Boulder, Colorado during the fourth quarter of 2004. See note M to the accompanying consolidated financial statements.

(5)Other income (expense) for all years presented primarily includes interest expense and in 2004 it includes a loss on debt extinguishment of $2,859 resulting from certain modifications to our Laurus Loans that were treated as extinguishments for financial reporting purposes. See Note E to the accompanying consolidated financial statements.

(6)The reduction in total assets from December 31, 2003 to December 31, 2004 related primarily to impairment charges of $11,965 in our Nucleic Acids operating segment (see Notes C and K to the accompanying consolidated financial statements) and the sale of our specialty oligonucleotide manufacturing facility in Boulder, Colorado (see Note M to the accompanying consolidated financial statements). The reduction in total assets from December 31, 2002 to December 31, 2003 related primarily to operating losses that were funded by reductions in cash and cash equivalents and short term investments.

CAPITALIZATION

The following table reflects our capitalization as of September 30, 2005 on an actual and as adjusted basis as if the 2005 Private Placement and simultaneous repayment of the Laurus Loans had occurred on September 30, 2005.

   As of September 30,
 
   Actual
  As Adjusted
 

Credit Line(1)

  $6,935  $—   

Current portion of Term Note(1)

   675   —   

Term Note, less current portion(1)

   1,226   —   

Stockholders’ equity:

         

Preferred stock, $0.01 par value, 15,000,000 shares authorized, none outstanding

   —     —   

Common stock, $0.01 par value, 60,000,000 shares authorized, 34,246,336 and 49,172,079 shares outstanding, respectively(2)

   348   497 

Additional paid-in capital(1) (2)

   125,058   138,803 

Accumulated other comprehensive income

   1,051   1,051 

Accumulated deficit(3)

   (110,880)  (111,131)
   
 

Total stockholders’ equity

   15,577   29,220 
   
 

Total capitalization

  $24,413  $29,220 
   
 

(1)Net proceeds from the 2005 Private Placement (after transaction costs of $1,180) totaled $13,895 and were used in part to prepay all indebtedness and prepayment fees to Laurus. The remaining proceeds will be used for the future working capital needs of the Company. Transaction costs included fees to Oppenheimer of $1,055 and other transaction specific costs of approximately $125.

(2)Subsequent to September 30, 2005, we issued 14,925,743 shares in conjunction with the 2005 Private Placement. At November 29, 2005, we have 13,603,592 potentially dilutive securities consisting of 5,541,015 options issued under our stock option plan and warrants representing 8,062,577 shares.

(3)The as-adjusted presentation assumes that net premiums related to the Laurus Loans totaling $573 at September 30, 2005 will result in a gain upon prepayment of these loans. This gain will be offset by fees to Laurus of $500 to facilitate the private placement and prepayment penalties of $324.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements, unaudited condensed consolidated financial statements and related notes included elsewhere in this Prospectus. This discussion contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors,” “Information Regarding Forward-Looking Statements” and elsewhere in this Prospectus.

The following discussion also gives effectequal to the restatementtotal exercise price of our statements of cash flows for the years ended December 31, 2004 and 2003, as discussed in Note Pany Warrants to the consolidated financial statements for the years ended December 31, 2004, 2003 and 2002.

Overview

The Company develops, manufactures and sells innovative products for the analysis, synthesis and purification of nucleic acids through two operating segments, BioSystems and Nucleic Acids.

The BioSystems operating segment develops, assembles, manufactures and markets versatile products and provides analytical services to the medical research, clinical and pharmaceutical markets for use in genetic variation analysis. Net sales from this operating segment are categorized as bioinstruments, bioconsumables and discovery services.

Bioinstruments. The flagship product of the BioSystems operating segment is the WAVE system which has broad applicability to genetic variation detection in both molecular genetic research and molecular diagnostics. There was a world-wide installed base of 1,269 WAVE systems as of September 30, 2005. Additionally, this operating segment utilizes its sales and distribution network to sell a number of independent, third party equipment platforms. Service contracts to maintain installed systems are sold and supported by technical support personnel.

Bioconsumables. The installed WAVE base generates a demand for consumables that are required for the system’s continued operation. These products are developed, manufactured and sold by this operating segment. In addition, the BioSystems operating segment manufactures and sells consumable products that can be used on multiple, independent platforms. These products include SURVEYOR Nuclease and a range of HPLC separation columns.

Discovery Services. The BioSystems operating segment provides various genetic laboratory services through a contract research lab in Gaithersburg, Maryland and a second laboratory in Omaha, Nebraska that operates in a Good Laboratory Practices (“GLP”) compliant environment and is certified under the Clinical Laboratory Improvement Amendment. The services provided primarily include (1) genomic biomarker analysis services to pharmaceutical and biopharmaceutical companies to support preclinical and clinical development of targeted therapeutics; and (2) molecular-based testing for hematology, oncology and certain inherited diseases for physicians and third-party laboratories.

The Nucleic Acids operating segment develops, manufactures and markets chemical building blocks for nucleic acid synthesis to biotechnology, pharmaceutical and oligonucleotide synthesis companies and research institutions throughout the world. These products are produced primarily in this operating segment’s only facility, in Glasgow, Scotland. Prior to November 11, 2004, this operating

segment also manufactured synthesized segments of nucleic acids (known as oligonucleotides) in a facility in Boulder, Colorado. On November 11, 2004, the assets associated with this facility were sold to an unaffiliated third party. As a result, the Nucleic Acids operating segment no longer manufactures and sells these specialized oligonucleotides.

Results of Operations

Nine Months Ended September 30, 2005 and 2004

Dollars in thousands

  2005
  2004
  Change
  

%

Change

 

Net Sales

                

Bioinstruments

  $11,343  $10,766  $577  5%

Bioconsumables

   6,977   6,286   691  11%

Discovery Services

   2,159   1,398   761  54%
   
 
 
 

Total BioSystems Business Unit

   20,479   18,450   2,029  11%

Chemical Building Blocks

   3,232   5,588   (2,356) (42)%

Specialty Oligonucleotides and Services

   —     1,796   (1,796) (100)%
   
 
 
 

Total Synthetic Nucleic Acids Business Unit

   3,232   7,384   (4,152) (56)%
   
 
 
 

Total Net Sales

   23,711   25,834   (2,123) (8)%

Cost of Goods Sold

                

Bioinstruments

   5,396   4,401   995  23%

Bioconsumables

   3,334   2,981   353  12%

Discovery Services

   1,744   1,041   703  68%
   
 
 
 

Total BioSystems Business Unit

   10,474   8,423   2,051  24%

Chemical Building Blocks

   3,135   5,452   (2,317) (43)%

Specialty Oligonucleotides and Services

   —     4,609   (4,609) (100)%
   
 
 
 

Total Synthetic Nucleic Acids Business Unit

   3,135   10,061   (6,926) 69%
   
 
 
 

Total Cost of Goods Sold

   13,609   18,484   (4,875) (26)%

Selling, General and Administrative Expenses

   10,023   12,866   (2,843) (22)%

Research and Development Expenses

   1,696   5,344   (3,648) (68)%

Impairment Charges

   247   11,964   (11,717) (98)%

Other Income (Expense)

   (1,888)  (4,704)  (2,816) (60)%

Net Sales. Net sales for the nine months ended September 30, 2005 decreased $2.12 million or 8% from the same period of 2004 as a result of a $4.15 million or 56% decrease in net sales from our Nucleic Acids operating segment offset by a $2.03 million or 11% increase in net sales in our BioSystems operating segment.

The increase in net sales in our BioSystems operating segment resulted from an increase of $0.58 million or 5% from bioinstruments, $0.69 million or 11% from bioconsumables, and $0.76 million or 54% from discovery services. WAVE Systems sold totaled 76 during the nine months ended September 30, 2005 compared to 85 during the same period of 2004. The selling prices of our instruments vary based on the specific model and optional accessories. We had an installed base of approximately 1,269 units at September 30, 2005 compared to 1,193 units at December 31, 2004. The increase in the installed base of instruments continues to drive increases in sales of bioconsumables used with these instruments. The increase in discovery services revenue during 2005 was primarily attributable to the discovery services agreements that we entered into with a large pharmaceutical company to support their clinical development of oncology therapeutics. During the nine months ended September 30, 2005, discovery services sales to this customer totaled $2.01 million and represented 10% of net sales within the BioSystems operating segment and 9% of total consolidated net sales. We have no long-term agreement

with customer; therefore, sales will fluctuate and may be zero. Future revenues from our BioSystems operating segment would be substantially reduced if this customer’s need for our products declined.

Nucleic Acids operating segment sales decreased by $4.15 million or 56% during the nine months ended September 30, 2005 compared to the same period of 2004 as a result of fewer chemical building block sales to Geron and the sale of our specialty oligonucleotides facility in Boulder, Colorado. Net sales to Geron during the nine months ended September 30, 2005 totaled $1.73 million compared to $3.59 million during the same period of 2004. Net sales to Geron during the nine months ended September 30, 2005 represented 54% of net sales in our Nucleic Acids operating segment and 7% of total consolidated net sales. Net sales to Geron during the nine months ended September 30, 2004, represented 49% of net sales within our Nucleic Acids operating segment and 14% of total consolidated net sales. We have no long-term agreement with Geron; therefore, sales will fluctuate and may be zero. Future revenue from our Nucleic Acids operating segment would be substantially reduced if Geron’s need for our products declined. As a result of the sale of our facility in Boulder, Colorado, net sales of specialty oligonucleotides decreased by $1.80 million. We no longer manufacture or sell oligonucleotides.

Costs of Goods Sold.Costs of goods sold include material costs for the products that we sell and substantially all other costs associated with our manufacturing facilities (primarily personnel costs, rent and depreciation). It also includes direct costs (primarily personnel costs and supplies) associated with our Discovery Services operations. Depreciation expense included in costs of goods sold totaled $2.23 million and $2.22 million during the nine months ended September 30, 2005 and 2004, respectively.

Costs of goods sold during the nine months ended September 30, 2005 decreased $4.88 million or 26% from the same period of 2004 as a result of a $6.93 million or 69% decrease in our Nucleic Acids operating segment offset by a $2.05 million or 24% increase in our BioSystems operating segment. The overall decrease was primarily attributable to the sale of our oligonucleotide facility and from termination of associated personnel and the elimination of facilities related costs in conjunction with our 2004 Restructuring Plan.

Gross profit was $10.10 million or 43% of total net sales during the nine months ended September 30, 2005 compared to $7.35 million and 28% during the same period of 2004. A summary of gross profit by operating segment follows (dollars in thousands):

   Nine Months Ended September 30,
 
   2005
  2004
 
   

Gross

Profit

  Percent of
Revenue
  Gross
Profit/(Loss)
  Percent of
Revenue
 

BioSystems operating segment

  $10,005  49% $10,027  54%

Nucleic Acids operating segment

   97  3%  (2,677) (36)%
   
     
   
   $10,102  43% $7,350  28%
   
     
   

The decrease in BioSystems operating segment gross profit as a percent of revenue to 49% from 54% for the nine months ended September 30, 2005 and 2004, respectively, is largely attributable to changes in the composition of products sold. Generally, sales of WAVEs and ancillary instrumentation generate higher gross profits than sales of third party platforms. Sales of specialty consumables (SURVEYOR Nuclease, HPLC separation columns, etc.) generate higher gross profits than base buffers and enzymes. Gross profits from discovery services have been less than expected due to the continuing build out of capacity and expansion of product offerings. Our Nucleic Acids operating segment continues to have excess capacity in its Glasgow, Scotland manufacturing facility that will adversely impact costs of goods sold and gross profit until demand for our Nucleic Acids building block products increase.

Selling, General and Administrative Expenses. Selling, general and administrative expenses primarily include personnel costs, marketing, travel and entertainment costs, professional fees, and facility costs. These costs totaled $10.02 million during the nine months ended September 30, 2005 compared to $12.87 million during the same period of 2004, a decrease of $2.85 million or 22%. As a percentage of revenue, selling, general and administrative expenses totaled 42% and 50% during the nine months ended September 30, 2005 and 2004, respectively. This decrease resulted primarily from termination of associated personnel and the elimination of facilities related costs in conjunction with the 2004 Restructuring Plan. Foreign currency transaction adjustments increased operating expenses by approximately $0.24 million during the nine months ended September 30, 2005 compared to the same period of 2004 when foreign currency transaction adjustments reduced operating expenses by approximately $0.14 million. Depreciation expense included in selling, general and administrative expenses totaled $0.50 million and $0.74 million during the nine months ended September 30, 2004 and 2004, respectively.

Research and Development Expenses. Research and development expenses primarily include personnel costs, supplies, and facility costs. These costs totaled $1.70 million during the nine months ended September 30, 2005 compared to $5.34 million during the same period of 2004, a decrease of $3.65 million or 68%. The decrease related primarily to the 2004 Restructuring Plan, which resulted in the elimination of substantially all research and development efforts associated with our Nucleic Acids operating segment. Depreciation expense included in research and development expenses included $0.42 million and $0.75 million during the nine months ended September 30, 2005 and 2004, respectively.

As a percentage of revenue, research and development expenses totaled 7% and 21% of revenue during the nine months ended September 30, 2005 and 2004, respectively. We expect to continue to invest up to 10% of our revenues in research and development activities primarily associated with our BioSystems operating segment. Research and development costs are expensed in the year in which they are incurred.

Impairment Charges.During the nine months ended September 30, 2005, we determined that certain international patent pursuits were no longer consistent with our strategic plan. Accordingly, we recorded an impairment charge of $0.25 million related to the abandonment of such pursuits.

During the second quarter of 2004, our Board of Directors directed us to explore strategic alternatives for the Nucleic Acids operating segment. The process included significant due diligence by us, our advisors and prospective independent buyers and other interested parties. Based upon information obtained through this process, we determined that it was more likely than notextent that the value of the assets associated with this business was impaired. We engaged an external valuation firm to assist us in conducting an interim period impairment test that resulted in us recording a non-cash charge of $11.96 million related to these assets during the nine months ended September 30, 2004.Warrants are exercised for cash. The charge consisted of $9.87 million related to the impairment of goodwill and $2.10 million related to the impairment of property and equipment.

Other Income (Expense). Other expense during the nine months ended September 30, 2005 of $1.89 million consisted of interest expense of $1.92 million and other income of $0.03 million. Other expense during the nine months ended September 30, 2004 consisted of interest expense of $1.68 million, loss on debt extinguishment of $2.86 million and other expense of $0.16 million, which consisted primarily of net investment losses associated with sales of Geron stock.

Interest expense consisted of the following (in thousands):

   Nine Months Ended September 30,
   2005
  2004

Interest paid or accrued on outstanding debt

  $477  $388

Amortization of debt premiums

   (816)  —  

Amortization of debt discounts – warrants

   24   —  

Amortization of debt discount – beneficial conversion feature

   725   809

Valuation charge associated with March 2005 conversions

   1,365   —  

Other

   144   487
   
 
   $1,919  $1,684
   
 

The increase in interest paid or accrued on outstanding debt resulted from higher average debt balances and interest rates. Gross debt (before related premiums and discounts) totaled $8.26 million at September 30, 2005 with an interest rate of 8.75% compared to $8.50 million at December 31, 2004 with an interest rate of 7.25%. During the nine months ended September 30, 2005 and 2004, we had average debt of $8.03 million and $7.81 million, respectively. The high and low borrowings under our Credit Line during the nine months ended September 30, 2005 were $6.90 million and $4.75 million, respectively.

On March 18, 2005, the Company agreed to allow Laurus to convert $1.88 million of the outstanding principal balance under the Credit Line into 3,600,000 shares of its common stock at $0.52 per share. In addition, on March 24, 2005 the Company agreed to allow Laurus to convert $0.65 million of the outstanding principal balance of the Term Note into 1,250,000 shares of common stock at $0.52 per share. Laurus agreed to apply this Term Note conversion against substantially all remaining 2005 scheduled principal payments on such loan. The closing marketexercise price of the Company’s commonWarrants held by the Selling Stockholders is $0.75 per share of our Common Stock. The exercise price and the number of Common Shares issuable upon exercise of the Warrants may be adjusted in certain circumstances, including stock splits, dividends, distributions or reclassifications, and mergers, consolidations, statutory share exchanges, or other similar transactions. However, these Warrants contain a “cashless exercise” feature that allows the day before eachholders, under certain circumstances, to exercise the Warrants without making a cash payment to us. There can be no assurance any of these conversions was $0.58 per share. No other provisions of our Credit LineWarrants will be exercised by the Selling Stockholders at all or Term Note were modified, including the $1.00 conversion pricethat these Warrants will be exercised for remaining debt. In conjunction with these conversions we accelerated amortization of $0.41 million of related debt premiums and discounts and recorded a charge of $1.37 million relatedcash rather than pursuant to the fair value of incremental shares received by Laurus.

Loss on debt extinguishment totaled $2.86 million during the nine months ended September 30, 2004. As described in Note E to the accompanying consolidated financial statements, certain August 31, 2004 modifications to our Laurus Loans were treated as extinguishments for financial reporting purposes since the change in present value of expected cash flows between the original and modified agreements was greater than 10%. As such, we recorded a loss on extinguishment of debt of $2.86 million at August 31, 2004 reflecting the difference between (i) the recorded amount of debt, net of related discounts, of $7.43 million and (ii) the fair value of the new debt instrument of $10.29 million plus the fair value of the new warrants of $0.11 million. The difference between the fair value of the new debt of $10.29 million and the face value of the debt of $8.57 million represents a premium, which will be reflected as a reduction of interest expense over the life of the new debt.

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

Due to the Company’s cumulative losses, expected losses in future years and inability to utilize any additional losses as carrybacks, the Company did not provided for an income tax benefit during the nine months ended September 30, 2005 or 2004 based on management’s determination that it was more likely than not that such benefits would not be realized. The Company will continue to assess the recoverability of deferred tax assets and the related valuation allowance.“cashless exercise” feature. To the extent we receive proceeds from the Company begins to generate taxable income in future periods and it determines that such valuation allowance is no longer required, the tax benefitcash exercise of the remaining deferred tax assets will be recognized atWarrants, we intend to use such time. As of

September 30, 2005, the Company’s deferred tax assets were offset by a valuation allowance of approximately $41.2 million.

Years Ended December 31, 2004, 2003 and 2002

            Dollar Change
  Percent Change
 
   2004
  2003
  2002
  2003 to
2004
  2002 to
2003
  2003 to
2004
  2002 to
2003
 

Net Sales

                           

Bioinstruments

  $14,385  $17,916  $19,098  $(3,531) $(1,182) (20)% (6)%

Bioconsumables

   8,838   7,260   5,137   1,578   2,123  22% 41%

Discovery Services

   2,020   868   —     1,152   868  133% —   
   
 
 
  
 
 
 

Total BioSystems operating segment

   25,243   26,044   24,235   (801)  1,809  (3)% 7%

Chemical Building Blocks

   6,488   6,631   13,319   (143)  (6,688) (2)% (50)%

Specialty Oligonucleotides

   2,058   1,191   —     867   1,191  73% —   
   
 
 
  
 
 
 

Total Nucleic Acids operating segment

   8,546   7,822   13,319   724   (5,497) 9% (41)%
   
 
 
  
 
 
 

Total Net Sales

   33,789   33,866   37,554   (77)  (3,688) (1)% (10)%

Cost of Goods Sold

                           

Bioinstruments

   6,382   7,343   7,650   (961)  (307) (13)% (4)%

Bioconsumables

   4,012   3,475   2,284   537   1,191  15% 52%

Discovery Services

   1,603   557   —     1,046   557  188% —   
   
 
 
  
 
 
 

Total BioSystems operating segment

   11,997   11,375   9,934   622   1,441  5% 15%

Chemical Building Blocks

   7,165   6,937   9,635   228   (2,698) 3% (28)%

Specialty Oligonucleotides

   5,434   6,003   —     (569)  6,003  (9)% —   
   
 
 
  
 
 
 

Total Nucleic Acids operating segment

   12,599   12,940   9,635   (341)  3,305  (3)% 34%
   
 
 
  
 
 
 

Total Cost of Goods Sold

   24,596   24,315   19,569   281   4,746  (1)% 24%

Selling, General and Administrative Expenses

   17,499   17,324   24,199   175   (6,875) 1% (28)%

Research and Development Expenses

   6,685   9,305   12,201   (2,620)  (2,896) (28)% (24)%

Restructuring Charges

   3,570   738   3,282   2,832   (2,544) 384% (78)%

Impairment Charges

   11,965   4,772   —     5,726   4,772  120% —   

Gain on sale of facility

   1,466   —     —     1,466   —    —    —   

Other Income (Expense)

   (5,406)  (305)  437   5,102   742  1673% 170%

Net Sales. Net sales during 2004 decreased $0.08 million or 1% from 2003 as a result of a $0.80 million or 3% decrease in sales in our BioSystems operating segment offset by a $0.72 million or 9% increase in sales in our Nucleic Acids operating segment.

The decrease in sales in our BioSystems operating segment resulted from a decrease of $3.58 million or 20% from bioinstruments that was partially offset by increases in sales of bioconsumables of $1.58 million or 22% and Discovery Services of $1.15 million or 133%. The decrease of bioinstrument sales was primarily the result of a decline in the number of WAVE Systems sold from 122 in 2003 to 107 in 2004. The selling prices of our instruments vary based on the specific model and optional accessories. We had an installed base of approximately 1,200 units at December 31, 2004. The increase in the installed base of instruments continues to drive increases in sales of bioconsumables used with these instruments. The increase in Discovery Services revenue during 2004 was primarily attributable to the discovery services agreements that we entered into with pharmaceutical companies to support their clinical development of oncology therapeutics. We plan to continue to seek opportunitiesproceeds to provide genetic variation discoverycapital support or for general corporate purposes, which may include, without limitation, supporting asset growth and analysis services to pharmaceutical andengaging in acquisitions or other customers and believe that these services provide us a significant opportunity to expand revenues in the future.

Nucleic Acids operating segment sales increased by $0.72 million or 9% in 2004 compared to 2003 as a result of a substantial increase in sales of specialty oligonucleotides produced by our facility in

Boulder, Colorado as raw materials in DNA-based drug candidates. As a result of the sale of this facility in November 2004, we will no longer manufacture or sell oligonucleotides. Sales of our chemical building block products produced in our Glasgow, Scotland facility were essentially the same in 2004 as in 2003. During 2004, sales of chemical building blocks to Geron Corporation totaled $4.15 million and represented 12% of total consolidated net sales, 49% of total net sales within our Nucleic Acids operating segment and 61% of chemical building blocks revenue.business combinations. We do not have long-termany specific plans for acquisitions or other business combinations at this time. Our management will retain broad discretion in the allocation of the net proceeds from the exercise of the Warrants.


Pursuant to the Registration Rights Agreement, we have agreed to pay all expenses related to the registration of the shares of Common Stock.

DETERMINATION OF OFFERING PRICE
The Selling Stockholders will determine at what price they may sell the offered shares, and such sales commitmentsmay be made at prevailing market prices, or at privately negotiated prices.



PLAN OF DISTRIBUTION

We are registering the shares of our Common Stock previously issued to the Selling Stockholders and issuable upon exercise of the Warrants previously issued to the Selling Stockholders to permit the resale of these shares of Common Stock by the holders of the Common Stock and Warrants from Geron Corporationtime to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the Selling Stockholders of the shares of Common Stock. We will bear all fees and accordingly,expenses incident to our obligation to register the amount we sell them is subject to change. Revenuesshares of Common Stock.

The Selling Stockholders, or their pledgees, donees, transferees, or any of their successors in interest selling shares received from our Nucleic Acids operating segment would be substantially reduced if Geron’s need for our products declined or if it decided to obtain these products from other suppliers.

Costs of Goods Sold.Costs of goods sold include material costs for the products that we sell and substantially all other costs associated with our manufacturing facilities (primarily personnel costs, rent and depreciation). It also includes direct costs (primarily personnel costs and supplies) associated with our Discovery Services product line. Depreciation expense included in costs of goods sold totaled $2.10 million and $1.74 million in 2004 and 2003, respectively.

Costs of goods sold during 2004 decreased $0.28 million or 1% from 2003a Selling Stockholder as a resultgift, partnership distribution or other non-sale related transfer after the date of this prospectus, may sell all or a $0.62 millionportion of the shares of Common Stock beneficially owned by them and offered hereby from time to time directly or 5% increasethrough one or more underwriters, broker-dealers or agents. If the shares of Common Stock are sold through underwriters or broker-dealers, the Selling Stockholders will be responsible for underwriting discounts or commissions or agent's commissions. The shares of Common Stock may be sold in our BioSystems operating segment offset by a $0.34 millionone or 3% decrease in our Nucleic Acids operating segment. The overall decrease is consistent withmore transactions at fixed prices, at prevailing market prices at the decrease in net sales.

Gross profit was $9.19 million or 27% of total net sales during 2004 compared to $9.55 million and 28% during 2003. A summary of margins by operating segment follows (dollars in thousands):

   2004
  2003
 
   Dollars
  Percent
  Dollar
  Percent
 

BioSystems operating segment

  $13,246  52% $14,669  56%

Nucleic Acids operating segment

   (4,053) (47)%  (5,118) (65)%
   
    
   
   $9,193  27% $9,551  28%
   
    
   

We expect gross profits from our BioSystems operating segment to be within historic ranges of 50% to 60%. As a resulttime of the sale, at varying prices determined at the time of our Boulder, Colorado facilitysale, or at negotiated prices. The Selling Stockholders will act independently of us in making decisions with respect to the timing, manner and size of each sale. These sales may be effected in transactions, which may involve crosses or block transactions,


on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;

14


in the over-the-counter market;
in transactions otherwise than on these exchanges or systems or in the over-the-counter market;
through the writing of options, whether such options are listed on an options exchange or otherwise;
in ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
in block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
through purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
in an exchange distribution in accordance with the rules of the applicable exchange;
in privately negotiated transactions;
in short sales;
through the distribution of the Common Stock by any Selling Stockholders to its partners, members or stockholders;
through one or more underwritten offerings on a firm commitment or best efforts basis;
in sales pursuant to Rule 144;
whereby broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;
in a combination of any such methods of sale; and
in any other method permitted pursuant to applicable law.


If the Selling Stockholders effect such transactions by selling shares of Common Stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the Selling Stockholders or commissions from purchasers of the shares of Common Stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of Common Stock or otherwise, the Selling Stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of Common Stock in the course of hedging in positions they assume. The Selling Stockholders may also sell shares of Common Stock short and deliver shares of Common Stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The Selling Stockholders may also loan or pledge shares of Common Stock to broker-dealers that in turn may sell such shares.

The Selling Stockholders may pledge or grant a security interest in some or all of the shares of Common Stock or Warrants owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of Common Stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending, if necessary, the list of Selling Stockholders to include the pledgee, transferee or other successors in interest as Selling Stockholders under this prospectus. The Selling Stockholders also may transfer and donate the shares of Common Stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

To the extent any Selling Stockholder identified under “Selling Stockholders” is, or is affiliated with, a broker-dealer, it could be deemed to be, under SEC Staff interpretations, an “underwriter” within the meaning of the Securities Act. The Selling Stockholders and any broker-dealer participating in the distribution of the shares of Common Stock may be deemed to be “underwriters” within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares of Common Stock is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of shares of Common Stock being offered and the restructuring plan implementedterms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the Selling Stockholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers. The Selling Stockholders may indemnify any broker-dealer that participates in November 2004, we anticipate that our cost of goods sold will be significantly improved. However, our Nucleic Acids operating segment continues to have excess capacity in its Glasgow, Scotland manufacturing facility that will adversely impact costs of goods sold and margins until demand for our Nucleic Acids building block products increase.

Selling, General and Administrative Expenses. Selling, general and administrative expenses primarily include personnel costs, marketing, travel and entertainment costs, professional fees, and facility costs. These costs totaled $17.50 million in 2004 compared to $17.32 million in 2003, an increase of $0.18 million or 1%. This increase related to a $1.26 million increase in selling expenses offset by a $1.09 million reduction in general and administrative expenses. As a percentage of revenue, selling, general and administrative expenses totaled just over 51% in both 2004 and 2003. Depreciation expense include in selling, general and administrative expenses totaled $1.02 million and $1.28 million in 2004 and 2003, respectively.

Research and Development Expenses. Research and development expenses primarily include personnel costs, supplies, and facility costs. These costs totaled $6.69 million in 2004 compared to $9.31 million in 2003, a decrease of $2.62 million or 28%. As a percentage of revenue, research and development expenses totaled 20% and 27% of revenue in 2004 and 2003, respectively. These decreases related to our focus on expense control, the sale of our Boulder, Colorado facility and the restructuring plan implemented in November 2004. Depreciation expense included in research and development

expenses included $0.88 million and $0.89 million in 2004 and 2003, respectively. We expect to continue to invest up to 10% of our revenues in research and development activities primarily associated with our BioSystems operating segment. Research and development costs are expensed in the year in which they are incurred.

Restructuring Charges. On November 13, 2004, our Board of Directors approved a restructuring plan designed to refocus on the BioSystems operating segment and to better align the Company’s cost structure with anticipated revenues. The plan (which is incremental totransactions involving the sale of the specialty oligonucleotide manufacturing facilityshares of Common Stock against certain liabilities, including liabilities arising under the Securities Act.


Under the securities laws of some states, the shares of Common Stock may be sold in Boulder, Colorado) includedsuch states only through registered or licensed brokers or dealers. In addition, in some states the shares of Common Stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

There can be no assurance that any Selling Stockholder will sell any or all of the shares of Common Stock registered pursuant to the registration statement, of which this prospectus forms a workforce reductionpart.


15


The Selling Stockholders and any other person participating in such distribution will be subject to applicable provisions of approximately 60 positionsthe Exchange Act and the closure of two domestic researchrules and development facilities associated with our Nucleic Acids operating segment and two European field offices. Additionally, we eliminated approximately 10 positions at its chemical building blocks manufacturing facility in Glasgow, Scotland. In conjunction with these changes, we incurred a charge of $3.57 million during the quarter ending December 31, 2004 consisting of severance benefits of $1.41 million, future rents on closed facilities (net of projected sublease rents) of $1.24 million, the write-off of property and equipment specifically attributable to closed facilities of $0.74 million and other costs of $0.18 million. We had accrued expenses associated with this restructuring plan of $1.91 million at December 31, 2004 of which $1.49 million is expect to be paid in 2005.

Impairment Charges.During the second quarter of 2004, our Board of Directors directed us to explore strategic alternatives for the Nucleic Acids operating segment. The process included significant due diligence by us, our advisors and prospective independent buyers and other interested parties. Based upon information obtained through this process, we determined that it was more likely than not that the valueregulations thereunder, including, without limitation, Regulation M of the assets associated with this business were impaired. We engaged an external valuation firm to assist us in conducting an interim period impairment test that resulted in us recording a non-cash charge of $11.97 million related to these assets during the three months ended June 30, 2004. The charge consisted of $9.87 million related to the impairment of goodwill and $2.10 million related to the impairment of property and equipment.

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

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

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

Loss on debt extinguishment totaled $2.86 million during 2004. As described in Note E to the accompanying consolidated financial statements, certain August 31, 2004 modifications to our Laurus Loans were treated as extinguishments for financial reporting purposes since the change in present value of expected cash flows between the original and modified agreements is greater than 10%. As such, we recorded a loss on extinguishment of debt of $2.86 million at August 31, 2004 reflecting the difference between (i) the recorded amount of debt, net of related discounts, of $7.43 million and (ii) the fair value of the new debt instrument of $10.29 million plus the fair value of the new warrants of $0.11 million. The difference between the fair value of the new debt of $10.29 million and the face value of the debt of $8.57 million represents a premium, which will be reflected as a reduction of interest expense over the life of the new debt.

Income Tax Expense. Income tax expense relates solely to our operations in certain foreign countries and certain states. In addition to income tax expense in these jurisdictions, we do not record any income tax benefits due to our cumulative losses in recent years, expected losses in future years and the uncertainty as to whether we will be able to utilize any additional losses as carrybacks. We will continue to assess the recoverability of deferred tax assets and the related valuation allowance. We expect to continue to incur losses and expect to continue to provide valuation allowances against deferred tax assets. To the extent we begin to generate income in future years and it is determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized. Our deferred tax assets as of December 31, 2004 were $38.29 million and were entirely offset by a valuation allowance. As of December 31, 2004, we had federal net operating loss carryforwards of approximately $91.47 million. Our net operating loss carryforwards will expire at various dates from 2008 through 2024, if not utilized. We also had state income tax loss carryforwards of $37.62 million at December 31, 2004. These carryforwards will also expire at various dates beginning in 2005 if not utilized.

Years Ended December 31, 2003 and 2002

NetSales. Net sales decreased in 2003, as compared to 2002, due to a significant decline in demand for our Nucleic Acids products. Sales in our Nucleic Acids operating segment decreased due to a significant decline in demand for our chemical building block products. These products are used by our biopharmaceutical and pharmaceutical customers as raw materials in DNA based drug candidates. The decrease in demand is largely attributable tomay limit the timing of completion and/or failure of Phase III clinical trials by certain of our large customers. This decrease in demand for DNA building blocks in 2003 was partially offset bypurchases and sales of oligonucleotides generatedany of the shares of Common Stock by our start-up manufacturing facilitythe Selling Stockholders and any other participating person. Regulation M may also restrict the ability of any person engaged in Boulder, Colorado.

Salesthe distribution of the shares of Common Stock to engage in our BioSystems operating segment increased in 2003. Revenues from sales of WAVE systems and related services were relatively flatmarket-making activities with 2002. However, bioconsumable product sales strength resulted from increased WAVE related consumable usage as the installed base of WAVE Systems has increased and as researchers begin to use them more extensively in place of other methods of DNA analysis. Also contributingrespect to the increase were revenues generated by new product sales including our Optimase product line that was launched in 2002 and began to see increased usage in 2003. Salesshares of WAVE systems declined slightly from 2002 to 2003 offset by an increase in related services revenues. The slight decline in systems sales was mainly due to continued low sales volumes to our North American customer base. Increased services revenue was attributable to our focus on providing genetic variation discovery and analysis services to our pharmaceutical base of customers.

Cost of GoodsSold. Cost of goods sold increased in 2003 over 2002 despite the decline in our revenues. This increase was anticipated and was attributable mainly to excess manufacturing capacity in our Nucleic Acids operating segment. The BioSystems operating segment cost of goods sold as a

percentage of sales declined year over year but remained within historical ranges at approximately 43%. The margins in our Nucleic Acids operating segment were negatively impacted by higher manufacturing costs and excess capacity due largely to our plant expansion efforts in Glasgow, Scotland and Boulder, Colorado.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased significantly from 2002 to 2003 as a result of our restructuring activities and focus on expense control. Nearly halfCommon Stock. All of the total decrease was in personnel and personnel related expenses as we significantly reduced our employee headcount. Additionally, reductions in outside services, advertising, sales promotions, depreciation and travel expenses accounted for approximately 30%foregoing may affect the marketability of the total decrease.

Researchshares of Common Stock and Development Expenses. Researchthe ability of any person or entity to engage in market-making activities with respect to the shares of Common Stock. The Selling Stockholders have acknowledged to us that they understands their obligations to comply, and development expenses decreased significantly as a result of our restructuring activities and focus on expense control. Over 60%have agreed that they will comply, with the provisions of the total decrease was in personnel and personnel related expenses as we significantly reduced our employee headcount. Additionally, significant reductions in outside services, supplies, depreciation and travel expenses were realized. During 2003 there were no capitalized software costs, whereas in the prior year we capitalized approximately $1.13 million of development costs. Research and development expenses consist of salaries and related personnel costs of researchers and software developers, material costs for prototypes and test units, legal expenses relating to intellectual property research and application development activities, testing and enhancement of our products, and amortization of intellectual property. We expense our research and development costs in the year in which they are incurred with the exception of certain capitalized software development costs.

Restructuring Charges. During the fourth quarter of 2002 management formulated and executed a significant portion of a restructuring plan. The plan was developed to reduce expenses thereby better aligning the Company’s expense structure with current business prospects. The plan included employee terminations, office closures, termination of collaborations and write-offs of abandoned intellectual property. We continued to execute the plan during the first half of 2003 resulting in the additional charges recorded in 2003. These charges consisted of mainly employee severance costsExchange Act and the write-offrules and regulations thereunder, particularly Regulation M in connection with any offering of a note receivable relatedthe shares of Common Stock registered pursuant to the abandonmentregistration statement, of which this prospectus forms a product development collaboration. The note receivable write-off was a non-cash charge of $0.35 million.

part


Goodwill Impairment Charge. Statement of Financial Accounting Standard (SFAS) No. 142,Goodwill and Other Intangible Assets, establishes guidelines for accounting for goodwill and other intangible assets and provides that goodwill and other intangible assets with indefinite lives will not be amortized, but will be evaluated for impairment annually. The Company engaged an external valuation firm to assist with the completion of its annual impairment test during the fourth quarter of 2003. As a result of this test we recorded a non-cash goodwill impairment charge of $4.77 million related to our nucleic acids segment.

Income Taxes. The Company’s tax expense relates to its operations in certain foreign countries and certain states. No tax benefits are being recorded due to our cumulative losses in recent years, expected losses in future years and the uncertainty as to whether we will be able to utilize any additional losses as carrybacks. We will continue to assess the recoverability of deferred tax assets and the related valuation allowance. We expect to continue to incur losses and expect to continue to provide valuation allowances against deferred tax assets. To the extent we begin to generate income in future years and it is determined that such valuation allowance is no longer required, the tax benefitpay all expenses of the remaining deferred tax assets will be recognized. Our deferred tax assets asregistration of December 31, 2003 were $30.60 million and were entirely offset by a valuation allowance. As of December 31, 2003, we had federal net operating

loss carryforwards of approximately $78.50 million. We also had state income tax loss carryforwards of $28.70 million at December 31, 2003.

Liquidity and Capital Resources

Our working capital positions at September 30, 2005 and December 31, 2004 were as follows (in thousands):

   

September 30,

2005

  

December 31,

2004

  Change
 

Current assets(1)

  $16,399  $17,908  $(1,509)

Current liabilities

   14,986   18,724   (3,738)
   
  
 

Working Capital

  $1,413  $(816) $2,229 
   
  
 

(1)Current assets include cash and cash equivalents of $1,361 and $1,002 at September 30, 2005 and December 31, 2004, respectively.

The improvement in our working capital position during the first nine months of 2005 was due primarily to conversions of $2.58 million of borrowings under our Laurus Loans into shares of our common stock. We had $0.91 million available under our Credit Line at September 30, 2005. On October 31, 2005, we received proceeds fromCommon Stock pursuant to the 2005 Private Placement of $13.90 million after transaction costs of $1.18 million. These proceeds were partially usedRegistration Rights Agreement, estimated to repay all outstanding principal and accrued interest on our Laurus Loansbe $54,164 in total, including, without limitation, SEC filing fees to facilitate the 2005 Private Placement and prepayment penalties to Laurus in the sum of $0.82 million. As a result, our Laurus Loans have been cancelled and are no longer available to us. The remaining proceeds of $5.35 million will be used for future working capital needs.

The following shows the effects of the 2005 Private Placement and simultaneous repayment of the Laurus Loans on our September 30, 2005 consolidated balance sheet data as if these transactions had occurred on September 30, 2005 (in thousands).

   September 30, 2005
   Actual
  As Adjusted

Cash and cash equivalents

  $1,361  $6,669
   
  

Credit Line

  $6,935  $—  
   
  

Current portion of Term Note

  $675  $—  
   
  

Term Note, less current portion

  $1,226  $—  
   
  

Total stockholder’s equity(1)

  $15,577  $29,220
   
  

(1)At November 29, 2005, we have 49,172,079 shares outstanding and 13,603,592 potentially dilutive securities consisting of 5,541,015 options issued under our stock option plan and warrants representing 8,062,577 shares.

While we believe that existing sources of liquidity are sufficient to meet expected cash needs through 2006, we have experienced recurring net losses and have historically relied upon cash flows from investing and financing activities to offset significant cash outflows from operating activities. To the extent necessary, we believe that we can manage costs and expenses at reduced levels to conserve working capital. The need for any such costof compliance with state securities or “Blue Sky” laws; provided, however, that a Selling Stockholder will pay all underwriting discounts and expense reductions would likely delay implementation of our business plan. Ultimately, we must achieve sufficient revenues in order to generate positive net earnings and cash flows from operations.

Analysis of Cash Flows

Nine Months Ended September 30, 2005 and 2004

Net Change in Cash and Cash Equivalents.Cash and cash equivalents increased $0.36 million duringselling commissions, if any. We will indemnify the nine months ended September 30, 2005 as a result of net cash from investing activities and financing activities of $0.24 million and $2.31 million, respectively, offset by net cash used in operating activities of $1.98 million, and changes in foreign currency exchange rates of $0.21 million.

Cash Flows from Operating Activities. Cash flows used in operating activities totaled $1.98 million during the nine months ended September 30, 2005 compared to $8.71 million during the same period of 2004. The use in 2005 related primarily to a net loss of $3.78 million offset by non-cash charges of $4.83 million. Non-cash charges consisted primarily of depreciation and amortization and certain financing costs. Working capital and other adjustments decreased cash flows from operating activities by $3.03 million. We spent $1.54 million during the nine months ended September 30, 2005 related to the 2004 Restructuring Plan. We had accrued expenses associated with this plan of $0.37 million at September 30, 2005. This balance relates primarily to future rents on closed facilities (net of projected sublease rents) of which $0.03 million is expected to be paid during the remainder of 2005 and $0.34 million in 2006 and thereafter.

Cash Flows from Investing Activities. Cash flows provided by investing activities totaled $0.24 million during the nine months ended September 30, 2005 compared to cash flows used in investing activities of $1.54 million during the same period of 2004. The principal source of cash flows from investing activities in 2005 were sales of available for sale securities (Geron stock) of $0.62 million that were offset by purchases of $0.55 million of property and equipment primarily associated with the build out of our Glasgow, Scotland manufacturing facility that is substantially complete.

Cash Flows from Financing Activities. Cash flows from financing activities totaled $2.31 million during the nine months ended September 30, 2005 compared to $7.19 million during 2004. The principal source of cash flows from financing activities in 2005 was net draws on our Credit Line that were offset by payments on our Term Note. There are no scheduled principal payments for the remainder of 2005 on our Term Note.

Years Ended December 31, 2004 and 2003

Net Change in Cash and Cash Equivalents.Cash and cash equivalents decreased $0.24 million during the year ended December 31, 2004 as net cash used in operating activities of $12.75 million offset by net cash from investing activities and financing activities of $6.03 million and $6.00 million, respectively and changes in foreign currency exchange rates of $0.48 million.

Cash Flows Used in Operating Activities. Cash flows used in operating activities totaled $12.75 million during 2004 compared to $13.02 million during 2003. The use in 2004 related primarily to a net loss of $34.37 million offset by non-cash charges of $21.80 million. Non-cash charges consisted of

depreciation and amortization, certain restructuring charges, impairment charges, certain financing costs and loss on debt extinguishment. Working capital and other adjustments decreased cash flows from operating activities by $0.18 million.

Cash Flows from Investing Activities. Cash flows from investing activities totaled $6.03 million during 2004 compared to cash flows used in investing activities of $2.95 million during 2003. The investing cash flows generated in 2004 were from the sale of available for sale securities received from Geron for goods and services and the sale of our specialty oligoneucleotide manufacturing facility and reductions in other assets that were offset by purchases of property and equipment.

Cash Flows from Financing Activities. Cash flows from financing activities totaled $6.00 million during 2004 compared to $7.30 million during 2003. The cash from financing activities in 2004 relate primarily to net draws on our Credit Line and proceeds from the Term Note that were offset by payments of long-term debt.

Obligations and Commitments

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

   Payments Due by Period
   2005
  2006
  2007
  2008
  2009 and
Thereafter

Credit Line(1)

  $5,948  $—    $—    $—    $—  

Term Note(1)

   850   900   850   —     —  

Operating lease payments(2)

   1,958   1,382   486   187   372
   
  
  
  
  

Total contractual obligations

  $8,756  $2,282  $1,336  $187  $372
   
  
  
  
  

The following table sets forth our contractual obligations as of September 30, 2005 along with cash payments due in each period indicated (in thousands):

   Payments Due by Period
   Total
  2005
  2006
  2007
  2008
  2009 and
thereafter

Credit Line(1)

  $6,588  $6,588  $—    $—    $—    $—  

Term Note(1)

   1,675   —     875   800   —     —  

Operating lease payments(2)

   2,584   359   1,233   443   189   360

Purchase obligations

   872   248   370   254   —     —  
   
  
  
  
  
  

Total contractual obligations

  $11,719  $7,195  $2,478  $1,497  $189  $360
   
  
  
  
  
  

(1)Interest payments under the Laurus Loans are not included in these tables. Historically, interest on these loans has been paid monthly based on outstanding debt and prevailing interest rates. In conjunction with the private placement that closed on October 31, 2005, we repaid the Term Note and Credit Line. As of November 29, 2005, we have no significant indebtedness that requires scheduled principal and interest payments. After giving effect to the repayment of the Credit Line and Term Note, total contractual obligations total $3,456 and are payable as follows: $607 in 2005, $1,603 in 2006, $697 in 2007, $189 in 2008 and $360 in 2009 and thereafter.

(2)These are gross lease commitments. Certain facilities underlying these commitments are sublet to independent third parties. As of December 31, 2004, annual rents from these tenants were expected to total $320, $170 and $20 in 2005, 2006 and thereafter, respectively. As of September 30, 2005, annual rents from these subtenants were expected to total $40, $172, and $16 in for the remainder of 2005, 2006 and thereafter, respectively.

At September 30, 2005 and December 31, 2004, we had firm commitments totaling $0.88 million and $0.80 million, respectively, to purchase components used in our WAVE Systems.

Off Balance Sheet Arrangements

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

Critical Accounting Policies

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 reasonableSelling Stockholders against liabilities, including some liabilities under the circumstances. Further, we evaluate our judgments and estimates from time to time as circumstances change. Actual financial results based on judgment or estimates may vary under different assumptions or circumstances. The following are certain critical accounting policies that may involve the use of judgment or estimates.

Allowance for Doubtful Account. Accounts receivable are shown net of an allowance for doubtful accounts. In determining an allowance for doubtful accounts, we consider the following.

The age of the accounts receivable,

Customer credit history,

Customer financial information,

Reasons for non-payment, and

Our knowledge of the customer.

If our customers’ financial condition were to deteriorate, resulting in a change in their ability to make payment, additional allowances may be required.

Inventories. Inventories are stated at the lower of cost or market. Cost is computed using standard costs for finished goods and average or latest actual cost for raw materials and work in process. Inventories include chemical building blocks for synthetic nucleic acids (know as phosphoramadites) and the raw materials to produce phosphoramadites. We periodically evaluate our inventory of phosphoramadites to determine whether they continue to meet quality and other specifications and over what time period such products are expected to be sold. Product that does not meet quality and other specifications can generally be re-worked to enhance purity. Costs to purify such product and related yield losses are expensed as incurred. Product that is not expected to be sold within 12 months is classified as a long-term other assets.

Depreciation and Amortization of Long-Lived Assets. Our long-lived assets consist primarily of property and equipment, patents, intellectual property and capitalized software development costs. We believe the useful lives we assigned to these assets are reasonable. If our assumptions about these assets change as a result of events or circumstances and we believe the assets may have declined in value we may record impairment charges resulting in an increase to operating expenses. Property and equipment are carried at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets ranging from 3 to 15 years. We capitalize external and in-house legal costs and filing fees associated with obtaining patents on its new discoveries and amortizes these costs using the straight-line method over the shorter of the legal life of the patent or its economic life, generally 17 years, beginning on the date the patent is issued. Intellectual property, which is purchased technology, is recorded at cost and is amortized over its estimated useful life.

Impairment of Long-Lived Assets. We evaluate goodwill for impairment on an annual basis. We assess the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These computations utilize judgments and assumptions inherent in our estimate of future undiscounted and discounted cash flows to determine recoverability of these assets. If our assumptions about these assets were to change as a result of events or circumstances, we may be required to record an impairment loss.

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

Recently Issued Accounting Pronouncements

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

On November 24, 2004, the FASB issued SFAS No. 151, “Inventory Costs – an amendment of ARB No. 43”. SFAS No. 151 requires idle facility expenses, freight, handling costs, and wasted material (spoilage) costs to be excluded from the cost of inventory and expensed when incurred. It also requires that allocation of fixed production overhead to be based on the normal capacity of the production facilities. SFAS No. 151 will be effective for the Company on January 1, 2006. We are assessing the final impact of this standard on our financial position, results of operations or cash flows.

Impact of Inflation

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

Foreign Currency Rate Fluctuations

During the last three fiscal years, our international sales have represented approximately 50-65% of our net sales. These sales of products in foreign countries are mainly completed in either British Pounds SterlingRegistration Rights Agreement, or the Euro. Additionally, we have two wholly owned subsidiaries, Transgenomic, LTD., and Cruachem, LTD., whose operating currency is British Pounds Sterling and the Euro. Results of operations for the Company’s foreign subsidiaries are translated using the average exchange rate during the period. Assets and liabilities are translated at the exchange rate in effect on the balance sheet dates. As a result we are subject to exchange rate risk. The operational expenses of our foreign

subsidiaries help to reduce the currency exposure we have based on our sales denominated in foreign currencies by converting foreign currencies directly into goods and services. As such, we feel do not have a material exposure to foreign currency rate fluctuations at this time.

Quantitative and Qualitative Disclosures About Market Risk

Our Laurus Loans carried a variable interest rate of 2% over the prime rate or a minimum of 6%, and therefore, expose us to interest rate risk. Based on the outstanding balance of these loans at December 31, 2004 of $8.50 million, a 1% increase in the prime rate would increase our interest expense by approximately $0.09 million annually. We repaid the entire principal balance of the Laurus Loans on October 31, 2005 with the proceeds from the 2005 Private Placement. As a result, the Laurus Loans have been cancelled and are no longer available to us. Accordingly, we no longer have any borrowings which subject us to material interest rate risk.

BUSINESS

Company Overview

We develop, manufacture and sells innovative products for the analysis, synthesis and purification of nucleic acids through two operating segments, BioSystems and Nucleic Acids.

The BioSystems operating segment develops, assembles, manufactures and markets versatile products and provides analytical services to the medical research, clinical and pharmaceutical markets for use in genetic variation analysis. Products and services are sold through a direct sales force in the United States and throughout much of Western Europe. For the rest of the world, products and services are sold through more than 25 dealers and distributors located in those local markets. Net sales from this operating segment are categorized as bioinstruments, bioconsumables and discovery services.

Bioinstruments. The flagship product of the BioSystems operating segment is the WAVE system which has broad applicability to genetic variation detection in both molecular genetic research and molecular diagnostics. There was a world-wide installed base of 1,269 WAVE systems as of September 30, 2005. Additionally, this operating segment utilizes its sales and distribution network to sell a number of independent, third party equipment platforms. Service contracts to maintain installed systems are sold and supported by technical support personnel.

Bioconsumables. The installed WAVE base generates a demand for consumables that are required for the system’s continued operation. These products are developed, manufactured and sold by this operating segment. In addition, the BioSystems operating segment manufactures and sells consumable products that can be used on multiple, independent platforms. These products include SURVEYOR Nuclease and a range of HPLC separation columns.

Discovery Services. The BioSystems operating segment provides various genetic laboratory services through a contract research lab in Gaithersburg, Maryland and a second laboratory in Omaha, Nebraska that operates in a Good Laboratory Practices (“GLP”) compliant environment and is certified under the Clinical Laboratory Improvement Amendment. The services provided primarily include (1) genomic biomarker analysis services to pharmaceutical and biopharmaceutical companies to support preclinical and clinical development of targeted therapeutics; and (2) molecular-based testing for hematology, oncology and certain inherited diseases for physicians and third-party laboratories.

The Nucleic Acids operating segment develops, manufactures and markets chemical building blocks for nucleic acid synthesis to biotechnology, pharmaceutical and oligonucleotide synthesis companies and research institutions throughout the world. These products are produced primarily in this operating segment’s only facility in Glasgow, Scotland. Prior to November 11, 2004, this operating segment also manufactured synthesized segments of nucleic acids (known as oligonucleotides) in a facility in Boulder, Colorado. On November 11, 2004, the assets associated with this facility were sold to an unaffiliated, third party. As a result, the Nucleic Acids operating segment no longer manufactures and sells these specialized oligonucleotides. A substantial portion of this operating segment’s revenues during 2005 and 2004 have been derived from one customer.

Business Strategy

Since inception, our business strategy has been to provide products and services to biomedical researchers, medical institutions, diagnostic and pharmaceutical companies that are tied to advancements

in the field of genetics. The movement in the field of genomics, and related market opportunities, has shifted from gene discovery to the analysis of variations in gene sequences. Researchers are beginning to link variations in the gene sequences to disorders and diseases. Accordingly, a principal component of our strategy has been to establish our WAVE System as the industry standard in the genetic research market and to develop additional markets for the WAVE System such as diagnostics. Through an expanding base of installed systems, we expect to increase the sales of consumable products used with the WAVE.

We have also historically sought to position ourselves as a partner to biopharmaceutical and pharmaceutical companies in the early stages of their efforts to develop genomic-based diagnostics and therapeutics, thereby allowing us to participate in future successes of products derived from the expanding knowledge of genomics. While we continue to believe that the long-term prospects for this business segment are favorable, we concluded that near-term revenues from this segment would generate neither positive cash flows nor profits from operations. Consequently, in the second quarter of 2004, our Board of Directors directed management to explore strategic alternatives for our Nucleic Acids operating segment, including the possible sale of one or both of the facilities in Glasgow, Scotland and Boulder, Colorado. On November 11, 2004, we sold the assets associated with our specialty oligonucleotide manufacturing facility in Boulder, Colorado. We continue to operate our facility in Glasgow, Scotland which primarily produces chemical building blocks used in the synthesis of nucleic acids. However, we have taken steps to consolidate these operations and to reduce costs in order to better align operating expenses with anticipated revenues.

Our business strategy going forward is to achieve revenue growth in our BioSystems operating segment and to better align our cost structure with anticipated revenues in both of our operating segments.

Sales and Marketing

We have sold our products to customers in over 30 countries. We use a direct sales and support staff for sales in the U.S., U.K. and most countries in Western Europe. For the rest of the world, we sell our products through dealers and distributors located in those local markets. We have over 25 dealers and distributors. We also maintain regionally-based technical support staffs and applications scientists to support our sales and marketing activities throughout the U.S. and Europe.

Operating segment and geographic information is included in the consolidated financial statements included elsewhere in this Prospectus.

Customers

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

During the nine months ended September 30, 2005, sales to a large pharmaceutical company totaled $2.0 million and represented 10% of net sales within the BioSystems operating segment and 9% of total consolidated net sales. Sales to this customer are governed by a non-binding master services agreement dated August 22, 2002. Sales to this customer are governed by a non-binding master services agreement dated August 22, 2002. Accordingly, the amount of sales to this customer is subject to change.

During the nine months ended September 30, 2005, sales to Geron Corporation (“Geron”) totaled $1.7 million and represented 54% of net sales within the Nucleic Acids operating segment and 7% of total consolidated net sales. During 2004, sales to Geron Corporation totaled $4.15 million and represented

49% of total net sales within our Nucleic Acids operating segment and 12% of total consolidated net sales Sales to Geron are governed by a supply agreement under which Geron may pay the Company for goods and services with shares of Geron common stock. The supply agreement does not require Geron to purchase any minimum quantity of our products. Accordingly, the amount of nucleic acid products we sell to Geron is subject to change. Revenues from our Nucleic Acids business would be substantially reduced if Geron’s need for our products declined or if it decided to obtain these products from other suppliers.

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

Research and Development

We maintain an active program of research and development and expect to continue to incur significant expense for these activities going forward. Our research and development activities include the improvement of the DNA separation media used in our WAVE System, the refinement of the hardware and software components of the WAVE System, the creation of unique enzymes and WAVE-Optimized® enzymes, and, to a lesser extent, the improvement of chemical and biochemical reaction techniques for synthetic nucleic acids.

For the nine months ended September 30, 2005 and for the year ended December 31, 2004, our research and development expenses were $1.70 million and $6.69 million, respectively. This represents a substantial reduction from our prior levels of expenditures that were $9.31 million and $12.20 million for the years ended December 31, 2003 and 2002, respectively. We expect to continue to invest in research and development activities at levels that are relatively consistent with those experienced during 2005; however, we may also curtail such activities as required.

Manufacturing

We manufacture bioconsumable products including our separation columns, liquid reagents, enzymes and nucleic acid products. The major components of our WAVE systems are manufactured for us by a third party. We integrate our own hardware and software with these third party manufactured components. Our manufacturing facilities for our WAVE® systems and bioconsumables are located in Omaha, Nebraska, San Jose, California, and Cramlington, England. The nature of our instruments and bioconsumables business does not generally lend itself to tracking and reporting sales backlog.

Our phosphoramidites and related synthetic nucleic acid products are manufactured in our Glasgow, Scotland facility. Inventory for these products consists primarily of chemical building blocks for synthetic nucleic acids (know as phosphoramadites) and the raw materials to produce phosphoramadites. As of September 30, 2005 and December 31, 2004, we have classified a portion of this inventory as a long-term other asset based on its existing sales forecasts for these products. We periodically evaluate our inventory of phosphoramadites to determine whether they continue to meet quality and other specifications and over what time period such products are expected to be sold. Product that does not meet quality and other specifications can generally be re-worked to enhance purity. Costs to purify such product and related yield losses are expensed as incurred.

Intellectual Property

To establish and protect our proprietary technologies and products, we rely on a combination of patent, copyright, trademark and trade-secret laws, as well as confidentiality provisions in our contracts. We presently own rights to more than 80 issued patents and 30 pending applications in both the U.S. and abroad. Our BioSystems operating segment products, comprising the WAVE® System and related

consumables, are protected by patents and in-licensed technologies that expire in various periods beginning in 2013 through 2022. Intellectual property related to our Synthetic Nucleic Acid business unit, other than production trade secrets, is almost entirely in-licensed. A number of these in-licensed patents have recently, or will soon, expire. As a result, we expect price competition in the Nucleic Acids operating segment to intensify in the next year. We will continue to file patent applications and seek new licenses as warranted to protect and develop new technologies of interest to our customer base in the coming years.

Competition

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

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

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

Employees

As of September 30, 2005, December 31, 2004 and December 31, 2003, we had employees focused in the following areas of our operation:

   September 30,
2005
  December 31,
2004
  December 31,
2003

BioSysytems Operating Segment

         

Manufacturing

  51  52  54

Sales, Marketing and Administration

  67  75  90

Research and Development

  10  19  31
   
  
  
   128  146  175

Nucleic Acids Operating Segment

         

Manufacturing

  16  20  45

Sales, Marketing and Administration

  8  6  8

Research and Development

  0  6  16
   
  
  
   24  32  69
   
  
  
   152  178  244
   
  
  

We supplement our workforce through the use of independent contractors and consultants. As of September 30, 2005 and December 31, 2004, we have engaged independent contractors or consultants who provide services to us approximately equivalent to five and four full-time employees, respectively.

Our employees were employed in the following geographical locations.

   September 30,
2005
  December 31,
2004
  December 31,
2003

United States

  91  106  166

Europe (other than the United Kingdom)

  23  22  20

United Kingdom

  43  50  58
   
  
  
   157  178  244
   
  
  

Properties

We own one facility in Glasgow, Scotland and lease 14 facilities throughout the world under non-cancelable leases with various terms. The following table summarizes occupied locations. Annual rent amounts presented in the table are reflected in thousands.

Location

  

Function

  Square
Footage
  Annual
Rent
  

Lease Term
Expires

Owned

             

Glasgow, Scotland

  Phosphoramidite Manufacturing  44,212   N/A  N/A

Leased and Occupied

             

Omaha, Nebraska

  WAVE® and Consumable Manufacturing  25,000  $130  June 2007

San Jose, California

  Consumable Manufacturing  14,360  $139  October 2010

Cramlington, England

  Consumable Manufacturing  8,500  $53  March 2006

Omaha, Nebraska

  Multi Functional(1)  18,265  $187  July 2007

Paris, France

  Multi Functional(1)  4,843  $109  January 2014

Gaithersburg, Maryland

  Multi Functional(1)  6,560  $114  May 2006

Cambridge, Massachusetts

  Multi Functional(1)  2,500  $70  January 2007

Leased and Not Occupied (2)

  Multi Functional(1)  55,759  $505  2005 – 2007

(1)Multi Functional facilities include functions related to manufacturing, services, sales and marketing, research and development and/or administration.

(2)Leased and not occupied facilities represent six facilities with gross annual rents of $0.82 million. A number of these facilities are sublet to independent third parties. Annual rents from these subtenants are expected to total $0.32 million in 2005. We are pursuing sublet tenants for remaining vacated space.

As a result of restructuring initiatives initiated in 2004 and 2002, a significant amount of leased space is unoccupied. In certain cases, we have sublet this space to third parties.

Legal Proceedings

We are subject to a number of claims of various amounts, which arise out of the normal course of 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.

MANAGEMENT

Our executive officers are appointed annually by the Board of Directors at the first meeting following the annual stockholders’ meeting. Other officers are appointed by the Board of Directors from time to time. Each officer holds office until a successor has been duly appointed and qualified or until the death, resignation or removal of such officer. Our executive officers and their ages are listed below followed by a brief biography.

Name

Age

Position

Collin J. D’Silva

48Chairman of the Board, Chief Executive Officer and Director

Michael A. Summers

41Chief Financial Officer

Mitchell L. Murphy

49Vice President, Secretary and Treasurer

Collin J. D’Silva.Mr. D’Silva has served as our Chairman of the Board and Chief Executive Officer since 1997 and is also a Director. Mr. D’Silva, a co-founder of Transgenomic, has worked for the Company and its predecessors since 1988. Mr. D’Silva was employed by AT&T from 1980 to 1988. At AT&T, he held various positions in engineering, materials management, sales support and business development. His last position at AT&T was Business Unit Manager and Engineering Manager for a network distribution products division. Mr. D’Silva holds a B.S. degree and a M.Eng. degree in industrial engineering from Iowa State University and an M.B.A. from Creighton University.

Michael A. Summers.Mr. Summers joined Transgenomic, Inc. in August 2004 and serves as Chief Financial Officer. Mr. Summers was employed with C&A Industries, Inc. from 2003 to 2004 where as General Manager he was responsible for the operations of various divisions that provided human capital management and consulting services. From 2001 to 2003, he was Executive Vice President and Chief Financial Officer for Nexterna, Inc., a wholly-owned technology subsidiary of the Union Pacific Corporation. From 2000 to 2001, he was the Chief Accounting Officer for Able Telcom Holding Corp., a publicly-owned project management and construction company. Prior to 2000, Mr. Summers held various positions including eight years as an auditor for the Omaha, Nebraska office of Deloitte & Touche, LLP. Mr. Summers graduated from Creighton University in 1987 with a B.S. degree in business administration with an accounting major. He is a Certified Public Accountant.

Mitchell L. Murphy.Mr. Murphy joined us in 1992. His current duties include the overall corporate administration and shareholder relations. Prior to joining Transgenomic, he held accounting and financial management positions for 15 years with companies involved in manufacturing, steel distribution and rebar fabrication. He spent over two years as an auditor for the Omaha, Nebraska office of Deloitte, Haskins & Sells (now Deloitte & Touche LLP) working in a broad range of industries. Mr. Murphy graduated with honors from Creighton University in 1978 with a B.S. degree in business administration with an accounting major.

Board of Directors and Committees

Our entire Board of Directors consists of seven positions of which six are occupied. The Board of Directors is divided into three classes with directors in each class serving for a term of three years. The terms of office of the current Class I, Class II and Class III directors will expire in 2007, 2008 and 2006, respectively.

The following table sets forth information about our directors. The Board of Directors has determined that Messrs. Saxena, Sloma, Sklar and Santoni are independent directors of the Company under the listing standards adopted by the Nasdaq Stock Market. All directors have held the positions with the companies (or their predecessors) set forth under “Principal Occupation” for at least five years, unless otherwise indicated.

Name

  Age
  

Principal Occupation

  Director
Since
  Term To
Expire
Gregory T. Sloma  54  Executive Vice President and Chief Financial Officer of SpeedNet Services, Inc. (1)  2004  2008
Jeffrey L. Sklar, M.D., Ph.D.  57  Professor of Pathology, Yale University School of Medicine(2)  1997  2008
Gregory J. Duman  50  President of Prism Technologies LLC(3)  2000  2006
Roland J. Santoni  64  Vice President of West Development, Inc. (4)  2000  2006
Collin J. D’Silva  48  President and Chief Executive Officer of the Company(5)  1997  2007

Parag Saxena

  50  Chief Executive Officer of INVESCO Private Capital, Inc.  1999  2007
(1)Mr. Sloma is also a director of West Corporation. From 1996 to 2003, Mr. Sloma served in several capacities including President, Chief Operating Officer, Chief Executive Officer, and Vice Chairman and Director of Mergers & Acquisitions for DTN Corporation. In September 2003, DTN Corporation filed a pre-packaged Chapter 11 reorganization petition in bankruptcy. DTN Corporation emerged from bankruptcy on October 31, 2003.

(2)From 1989 to 2003, Dr. Sklar was Professor of Pathology, Harvard Medical School.

(3)From 2001 to 2003, Mr. Duman was Executive Vice President and Chief Financial Officer of the Company. From 2000 to 2001, Mr. Duman was Chief Financial Officer of Artios, Inc. From 1983 to 2000, Mr. Duman served in several capacities including Controller, Chief Financial Officer and Executive Vice President of Transaction Systems Architects, Inc.

(4)From 1977 to 2003, Mr. Santoni was Professor of Law at Creighton University. In addition, from 1978 to 2003, he served Of Counsel with the law firm of Erickson & Sederstrom, P.C.

(5)Mr. D’Silva is also a director of Bruker Biosciences Corporation, formerly known as Bruker Daltonics, Inc.

The Board of Directors has established and assigned certain responsibilities to an Audit Committee and a Compensation Committee. We do not have a standing nominating committee. The Board determined that due to the relatively small size of the Board, and due to the policy on director nominations, which is described below, it was not necessary to form a separate committee to evaluate director nominations. Under the director nomination policy, director candidates are identified primarily through suggestions made by directors, management and stockholders of the Company. We have implemented no material changes to the procedures by which stockholders may recommend nominees for the Board of Directors. The Board of Directors will consider director nominees recommended by stockholders that are submitted in writing to the Secretary of the Company in a timely manner and which provide necessary biographical and business experience information regarding the nominee. All candidates for director will be evaluated based on their independence, character, judgment, diversity of experience, financial or business acumen, ability to represent and act on behalf of all stockholders, and

the needs of the Board. In general, the Board expects to nominate incumbent directors who express an interest in continuing to serve on the Board. The independent directors of the Company review and consider all candidates to serve as a director of the Company who are properly suggested by directors, management and stockholders of the Company, and the Board of Directors selects its nominees to serve as a director of the Company from among those candidates who are recommended to the Board of Directors by a majority of the independent directors of the Company.

Audit Committee. The Audit Committee’s primary duties and responsibilities include monitoring the integrity of our financial statements, monitoring the independence and performance of our external auditors, and monitoring our compliance with applicable legal and regulatory requirements. The functions of the Audit Committee also include reviewing periodically with independent auditors the performance of the services for which they are engaged, including reviewing the scope of the annual audit and its results, reviewing with management and the auditors the adequacy of our internal accounting controls, reviewing with management and the auditors the financial results prior to the filing of quarterly and annual reports, and reviewing fees charged by our independent auditors. Our independent auditors report directly and are accountable solely to the Audit Committee. The Audit Committee has the sole authority to hire and fire the independent auditors and is responsible for the oversight of the performance of their duties, including ensuring the independence of the independent auditors. The Audit Committee also approves in advance the retention of, and all fees to be paid to, the independent auditors. The rendering of any auditing services and all non-auditing services by the independent auditors is subject to the approval in advance of the Audit Committee. The Audit Committee operates under a written charter which is available on our website at www.transgenomic.com. The Audit Committee is required to be composed of directors who are independent of the Company under the rules of the Securities and Exchange Commission and under the listing standards of the Nasdaq Stock Market. The current members of the Audit Committee are directors Santoni, Saxena and Sloma. The Board of Directors has determined that Mr. Sloma qualifies as an “audit committee financial expert” under the rules of the Securities and Exchange Commission.

Compensation Committee.The Compensation Committee reviews and approves our compensation policy, changes in salary levels and bonus payments to our executive officers and other management and determines the timing and terms of awards made pursuant to our stock option plan. The Compensation Committee consists of directors Sklar, Santoni and Saxena, each of whom has been determined by the Board of Directors to be independent under the listing standards of the Nasdaq Stock Market.

Compensation of Directors

Directors who are also our officers or affiliates are not separately compensated for serving on the Board of Directors other than reimbursement for out-of-pocket expenses related to attendance at board and committee meetings. Independent directors are paid an annual retainer of $12,000. In addition, they receive a fee of $1,200 for attending meetings in person, or $600 for participating in a meeting by teleconference, as well as reimbursement for out-of-pocket expenses related to attendance at board and committee meetings. Independent directors serving on any committee of the Board of Directors are paid an additional annual retainer of $2,500, except that the additional retainer paid to independent directors serving on the Audit Committee is $5,000.

Our non-employee and non-affiliated directors are issued options to purchase 15,000 shares of common stock under our stock option plan upon initial appointment to the Board. For options granted prior to March 28, 2003, such options vest at the rate of 20% per year of service on the Board. Additional grants were made from time to time so that each non-employee director would hold 15,000 unvested options at any time. Effective March 28, 2003, the options granted to a non-employee and non-affiliated director upon

initial appointment to the Board vest at the rate of 33 1/3% per year of service on the Board. Additional grants of options to purchase 5,000 shares of common stock will be made on a date reasonably close to each anniversary of such director’s appointment to the Board to be determined by the Compensation Committee in its sole discretion, with such options vesting on the third anniversary of the grant. All options granted to non-employee directors have exercise prices that represented or exceeded the fair market value of our stock on the grant date. Exercise prices on outstanding options granted to our non-employee directors range from $2.37 to $13.00 per share.

Compensation Committee Interlocks and Insider Participation

There are no Compensation Committee interlocks and no insider participation in compensation decisions that are required to be reported under the rules and regulations of the Securities Exchange Act of 1934.

Compensation of Executive Officers

The following table sets forth information regarding the annual and long-term compensation paid by us to our Chief Executive Officer, our two other executive officers and three former executive officers for services rendered during the three years ended December 31, 2004.

SUMMARY COMPENSATION TABLE

Annual Compensation
Long-Term Compensation
Awards
Payouts

(a)

Name and Principal Position

(b)

Year

(c)

Salary

($)

(d)

Bonus

($)

(e)

Other Annual

Compensation(1)

($)

(f)

Restricted

Stock

Award(s)

($)

(g)

Securities

Underlying

Options/

SARs

(#)

(h)

LTIP

Payouts(2)

($)

(i)

All Other

Compensation(3)

($)

Collin J. D’Silva

President and Chief

Executive Officer

2004
2003
2002		140,568
142,308
200,000		—  
—  
—  		—  
—  
—  		—  
—  
—  		—  
—  
—  		—  
—  
—  		15,311
5,927
6,113

Michael A. Summers(4)

Chief Financial

Officer

2004
2003
2002		54,578
—  
—  		—  
—  
—  		—  
—  
—  		—  
—  
—  		—  
—  
—  		—  
—  
—  		1,135
—  
—  

Mitchell L. Murphy

Vice President,

Secretary and Treasurer

2004
2003
2002		135,544
120,000
100,538		—  
—  
—  		—  
—  
—  		—  
—  
—  		—  
50,000
—  		—  
—  
—  		14,468
5,986
8,412

Keith A. Johnson(5)

Former Vice President,

General Counsel

2004
2003
2002		135,392
135,000
112,673		—  
—  
—  		—  
—  
—  		—  
—  
—  		25,000
65,000
35,000		—  
—  
—  		10,890
4,776
35,036

John L. Allbery(6)

Former Executive Vice

President

2004
2003
2002		129,693
200,000
200,000		—  
—  
—  		—  
—  
—  		—  
—  
—  		—  
50,000
—  		—  
—  
—  		3,893
6,444
17,473

Michael J. Draper(7)

Former Chief Financial

Officer

2004
2003
2002		59,928
122,731
102,951		—  
—  
—  		—  
—  
—  		—  
—  
—  		—  
75,000
7,500		—  
—  
—  		938
6,873
5,481
(1)No disclosure is required in this column pursuant to applicable Securities and Exchange Commission regulations, as the aggregate value of items covered by this column does not exceed the lesser of $50,000 or 10% of the annual salary and bonus shown for each respective executive officer named.

(2)We do not have a long-term incentive plan as defined in Item 402 of Regulation S-K under the Securities Exchange Act of 1934, as amended.

(3)These amounts consist of accrued vacation to be taken in the future or paid in cash upon termination of employment, 401(k) Company matching contributions, reimbursed moving expenses and auto allowances, as applicable.

(4)Mr. Summers joined the Company and assumed the role of Chief Financial Officer on July 31, 2004.

(5)Mr. Johnson was appointed Vice President, General Counsel by the Board of Directors effective April 4, 2002 and resigned effective May 1, 2005.

(6)Mr. Allbery was appointed Executive Vice President by the Board of Directors effective May 23, 2001. He resigned from the Company on July 23, 2004.

(7)Mr. Draper resigned as Chief Financial Officer effective March 31, 2004.

Options/SAR Grants in Last Fiscal Year

The Compensation Committee may grant either qualified or non-qualified stock options to the officers and employees of the Company and nonqualified stock options to nonemployee directors and advisors under our stock option plan. The following table shows the options granted during 2004 to a former executive officer of the Company whose compensation is reported in the Summary Compensation Table.

   

(b)

Number of

Securities

Underlying

Options/SARs

Granted

(#)(1)

  

(c)

%

of Total

Options/SARs

Granted to

Employees in

Fiscal Year

  

(d)

Exercise or

Base Price

($/Sh)

  

(e)

Expiration

Date

  Potential Realized Value
at Assumed Annual
Rates of Stock Price
Appreciation for Option
Term(2)

(a)

Name

         

(f)

5%($)

  

(g)

10%($)

Keith A. Johnson

  25,000  6.9% $1.32  5/21/2014  $21,000  $53,000
(1)The exercise price of all options granted to executive officers during fiscal 2004 is equal to the fair market value of our common stock on the date of grant. Each option expires ten years from the date of grant. No stock appreciation rights (SARs) may be granted under our stock option plan.

(2)The dollar amounts set forth under these columns are the result of calculations of assumed appreciation in the price of our common stock at these annual rates from the respective dates of the grant to the respective expiration dates of the options. These assumptions are not intended to forecast future price appreciation of our common stock. The market price of our common stock may increase or decrease in value over the time period set forth above.

Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values

The following table sets forth certain information concerning the number of exercised and unexercised options and the value of such options at the end of 2004 held by the executive officers and three former executive officers of the Company whose compensation is reported in the Summary Compensation Table.

(a)

Name

(b)

Shares Acquired

on Exercise(#)

(c)

Value Realized

($)(1)

(d)

Number of

Securities

Underlying

Unexercised

Options/SARs at

Year End(#)

Exercisable/

Unexercisable

(e)

Value of

Unexercised

In-the-Money

Options/SARs at

YearEnd($)(1)

Exercisable/

Unexercisable

Collin J. D’Silva

—  —  0 / 0$0 / $0

Michael A. Summers

—  —  0 / 0$0 / $0

Mitchell L. Murphy

—  —  146,000 / 4,000$0 / $0

Keith A. Johnson

—  —  72,917 / 87,083$0 / $0

John L. Allbery

—  —  0 / 0$0 / $0

Michael J. Draper

—  —  61,253 / 0$0 / $0
(1)Based on the difference between the closing sale price of the Common Stock on the exercise date or December 31, 2004 and the related option exercise price.

Equity Compensation Plan Information

The following equity compensation plan information summarizes plans and securities approved and not approved by security holders as of December 31, 2004:

Plan category

  

(a)

Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights

  

(b)

Weighted-average
exercise price of
outstanding options,
warrants and rights

  

(c)

Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))

Equity compensation plans approved by security holders

  5,088,037  $5.09  867,727

Equity compensation plans not approved by security holders

  —     —    —  
   
  
  

Total

  5,088,037  $5.09  867,727
   
  
  

Long-Term Incentive Plans and Other Matters

We do not maintain a long-term incentive plan or pension plan (as defined in Item 402 of SEC Regulation S-K) for our executive officers and have not repriced any options or SARs for any executive officer during the last fiscal year.

Stock Option and Other Compensation Plans

Stock Option Plan.Our Fourth Amended and Restated 1997 Stock Option Plan allows us to grant options to our employees, directors and advisors, which gives them the right to buy our common stock at a fixed price, even if the market value of our stock goes up. The Compensation Committee of our Board of Directors administers our stock option plan and it has the sole authority to set the number, exercise price, term and vesting provisions of the options granted under the plan, except that any award made to a director serving on the Compensation Committee must be ratified by a majority of the entire Board of Directors. Under the terms of the plan, the exercise price of an incentive stock option, as defined under the Internal Revenue Code of 1986, as amended, cannot be less than the fair market value of our common stock on the date the option is granted. In general, options will expire if not exercised within ten years from the date they are granted. The Compensation Committee may also require that an option holder remain employed by us for a specified period of time before an option may be exercised. The committee establishes these “vesting” provisions on an individual basis. The Compensation Committee will also decide whether options will be nonqualified options or structured to be qualified options for U.S. income tax purposes. Either incentive or nonqualified stock options may be granted to employees, but only nonqualified stock options may be granted to our non-employee directors and advisors. Options for a maximum of 7,000,000 shares may be granted under the plan. Outstanding options for a total of 5,541,015 shares of our common stock are outstanding at the Record Date, of which 4,396,281 may be exercised at this time. Outstanding options have exercise prices ranging from $1.00 to $13.00 per share.

Under the terms of our stock option plan, any options not vested will become immediately vested if the option holder dies, becomes permanently disabled or retires. If an option holder voluntarily resigns, any options not vested as of the date of resignation will terminate and all rights will cease, as determined by the Compensation Committee and documented in the option grant documents. In the event an option holder’s employment, board membership or status as an advisor is terminated for cause, the option holder’s right to exercise an option, whether or not vested, will immediately terminate and all rights will cease, unless the Compensation Committee determines otherwise.

Employee Savings Plan. We have established an employee savings plan that is intended to qualify as a tax-qualified plan under Section 401(k) of the Internal Revenue Code. This plan allows for voluntary contributions up to statutory maximums by eligible employees. We match a specific proportion of these contributions, subject to limitations imposed by law. We may make additional contributions to the savings plan on behalf of our employees if our Board of Directors decides to do so. During each of three years ended December 31, 2004, we contributed approximately $0.5 million to the savings plan on behalf of our employees.

Employee Stock Purchase Plan. Our Second Amended and Restated 2001 Employee Stock Purchase Plan (the “Stock Purchase Plan”) has been structured to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended. Additionally, the Stock Purchase Plan authorizes the Compensation Committee of the Board of Directors to adopt sub-plans designed to achieve desired tax and other objectives in locations outside the United States. Up to 500,000 shares of our common stock may be issued during the term of the Stock Purchase Plan that is defined as December 1, 2001 through November 30, 2006. Employees are able to voluntarily participate in the Stock Purchase Plan through payroll deductions. Such deductions accumulate during the participation

periods, defined as three month periods. On the first business day of each participation period, each participant is deemed to have been granted an option to purchase common stock at 85% of its fair market value as measured by the closing price of the stock on either the first or last business day of the participation period, whichever is lower. The number of shares purchased is based upon the participant’s elected withholding amount. At the end of each participation period such option is automatically exercised.

Employment Agreements

We have entered into employment agreements with our Chief Executive Officer, Collin J. D’Silva and our Chief Financial Officer, Michael A. Summers. The employment agreements with Messrs. D’Silva and Summers require these executives to devote their full time to our business activities, provided that they may serve as directors of or consultants to other companies that do not compete with us and for nonprofit corporations, civic organizations, professional groups and similar entities. These executives are not allowed to compete with us during the term of their employment and for one year after they are no longer our employee. Each agreement contains provisions under which these executive officers have agreed to maintain the confidentiality of information concerning us and which prohibits them from disclosing confidential information about our business to people outside of the Company, except for proper business purposes.

The employment agreement with Mr. D’Silva has a term of 22 months expiring December 2006. The employment agreement with Mr. Summers has an initial term of three years expiring July 2007. Each of these agreements may be extended unless we or the employee, as the case may be, give notice of an intention not to renew. If one of these officers is terminated for reasons other than an act of serious misconduct, the officerSelling Stockholders will be entitled to severance paycontribution. We may be indemnified by the Selling Stockholders against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the Selling Stockholder specifically for use in an amount equalthis prospectus, in accordance with the Registration Rights Agreement, or we may be entitled to his then current base annual salary.

PRINCIPAL AND SELLING STOCKHOLDERScontribution.

Principal Shareholders

This table shows


Once sold under the beneficial ownershipregistration statement, of our common stock by our directors, for our current executive officers who are namedwhich this prospectus forms a part, the shares of Common Stock will be freely tradable in the Summary Compensation Table, by all of our current executive officers and directors as a group, and by each person we believe beneficially owns more than 5% of our outstanding common stock on or about the date of this Prospectus. Each stockholder named in this table has sole voting and investment power over the shares he beneficially owns and all such shares are owned directly by the stockholder unless otherwise indicated. Stock ownership informationhands of persons other than our executive officers and directors is based on available information, including but not limitedaffiliates.


SELLING STOCKHOLDERS
We have prepared this prospectus to Schedules 13D, 13Fallow the Selling Stockholders or 13G filed with the Securities and Exchange Commission.

Name

  Number of Shares
Beneficially Owned
  Percent
of Class (1)
 

Directors and Executive Officers

       

Collin J. D’Silva, Director, President and Chief Executive Officer

  4,739,488(2) 9.6%

Michael A. Summers, Chief Financial Officer

  116,667(3) * 

Mitchell L. Murphy, Vice President, Secretary and Treasurer

  168,667(4) * 

Gregory J. Duman, Director

  240,400(5) * 

Jeffrey L. Sklar, M.D., Ph.D., Director

  24,000(6) * 

Roland J. Santoni, Director

  25,000(7) * 

Parag Saxena, Director

  0(8) * 

Gregory T. Sloma, Director

  10,000(9) * 

All directors and executive officers as a group (8 persons)

  5,324,222(10) 10.8%

Other Stockholders/Beneficial Owners

       

Kopp Investment Advisors, Inc.

  9,595,430(11) 19.5%

David M. Knott

  5,024,867(12) 9.9%

Mazama Capital Management, LLC

  3,792,948(13) 7.7%

LB I Group Inc.

  3,960,396(14) 8.1%

Michael A. Roth and Brian J. Stark

  2,722,772(15) 5.5%

Perceptive Life Sciences Master Fund, Ltd.

  2,772,277(16) 5.6%
*Represents less than 1%their successors, assignees or other permitted transferees to sell or otherwise dispose of, the outstanding Common Stock of the Company.

(1)Applicable percentage ownership is based on 49,172,079 shares of common stock outstanding as of November 29, 2005, together with securities presently exercisable or convertible into shares of common stock and securities that the holder, as of November 29, 2005, had the right to exercise or convert into shares of common stock within sixty (60) days. Securities that are exercisable or convertible as described above are deemed to be outstanding and beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(2)Consists of 2,771,538 shares owned by Mr. D’Silva, 1,400,000 shares owned by the Arthur P. D’Silva Trust, of which Collin J. D’Silva is the sole trustee, 484,616 shares owned by D’Silva, LLC, of which Mr. D’Silva is the managing member and vested options to purchase 83,334 shares at $1.03 per share. Mr. D’Silva also holds unvested options to purchase an additional 166,666 shares at $1.03 per share.

(3)Consists of vested options to purchase 66,667 shares at $1.09 per share and 50,000 shares at $1.03 per share. Mr. Summers also holds unvested options to purchase an additional 33,333 shares at $1.09 per share and 100,000 shares at $1.03 per share.

(4)Consists of 4,000 shares owned by Mr. Murphy and vested options to purchase 50,000 shares at $5.00 per share, 10,000 shares at $11.94 per share, 2,500 shares at $9.91 per share, 8,000 shares at $6.38 per share, 27,500 shares at $6.24 per share, 50,000 shares at $1.92 per share and 16,667 shares at $1.03 per share. Mr. Murphy also holds unvested options to purchase an additional 2,000 shares at $6.38 per share and 33,333 shares at $1.03 per share.

(5)Consists of 25,400 shares owned by Mr. Duman and vested options to purchase 15,000 shares at $10.00 per share and 200,000 shares at $6.00 per share. Mr. Duman also holds unvested options to purchase an additional 5,000 shares at $2.57 per share.

(6)Consists of vested options to purchase 15,000 shares at $5.00 per share and 9,000 shares at $13.00 per share. Dr. Sklar also holds unvested options to purchase an additional 3,000 shares at $6.38 per share, 6,000 shares at $6.16 per share, 5,000 shares at $2.57 per share and 5,000 shares at $1.09 per share.

(7)Consists of 2,500 shares owned by Mr. Santoni and vested options to purchase 17,500 shares at $10.00 per share and 5,000 shares at $2.57 per share. Mr. Santoni also holds unvested options to purchase an additional 3,000 shares at $6.16 per share, 3,000 shares at $6.00 per share and 5,000 shares at $2.57 per share.

(8)Mr. Saxena holds unvested options to purchase 15,000 shares at $1.09 per share.

(9)Consists of vested options to purchase 10,000 shares at $2.57 per share. Mr. Sloma also holds unvested options to purchase an additional 5,000 shares at $2.57 per share.

(10)Includes vested options to acquire 636,168 shares of common stock.

(11)The address of Kopp Investment Advisors, Inc. is 7701 France Avenue South, Suite 500, Edina, Minnesota 55435.

(12)Consists of 3,960,396 shares of common stock held in the names of Knott Partners, L.P.; Matterhorn Offshore Fund Ltd; Common Fund Hedged Equity Company; Shoshone Partners, L.P.; Anno, L.P.; and Good Steward Trading Company (collectively, the “Knott Companies”) and warrants to purchase an additional 1,064,471 shares at $1.20 per share. These shares are beneficially owned by David M. Knott and Dorset Management Corporation. The address of David M. Knott and Dorset Management Group is 485 Underhill Boulevard, Suite 205, Syosset, New York 11791. In addition to the foregoing shares and warrants, the Knott Companies hold warrants to purchase an additional 519,687 shares at $1.20 per share. These warrants are subject to a conversion cap which precludes the holder thereof from exercising such warrants to the extent that such owner would beneficially own in excess of 9.9% of the Company’s common stock.

(13)The address of Mazama Capital Management, LLC is One Southwest Columbia Street, Suite 1500, Portland Oregon 97258.

(14)Consists of 3,960,396 shares of common stock held in the name of LB I Group Inc. Lehman Brothers Holdings Inc. beneficially owns these shares along with Lehman Brothers Inc. and LB I Group Inc. The address of each of these beneficial owners is 745 Seventh Avenue, New York, New York 10019. In addition to these shares, LB I Group Inc. holds warrants to purchase an additional 1,584,158 shares at $1.20 per share. These warrants are subject to a conversion cap which precludes the holder thereof from exercising such warrants to the extent that such owner would beneficially own in excess of 4.9% and 9.9% of the Company’s common stock.

(15)Consists of 2,722,772 shares of common stock held in the name of SF Capital Partners Ltd. The named individuals are the managing members of Stark Offshore Management, LLC, which is the investment manager of SF Capital Partners Ltd. and has sole voting and dispositive power over the shares. The named individuals have disclaimed beneficial ownership of the shares. The address for the named individuals is 3600 South Lake Drive, St. Francis, Wisconsin 53235. In addition to these shares, SF Capital Partners Ltd. holds warrants to purchase an additional 1,089,109 shares at $1.20 per share. These warrants are subject to a conversion cap which precludes the holder thereof from exercising such warrants to the extent that such owner would beneficially own in excess of 4.9% and 9.9% of the Company’s common stock.

(16)Consists of 1,980,198 shares owned by Perceptive Life Sciences Master Fund, Ltd. and warrants to purchase an additional 792,079 shares at $1.20 per share. The warrants are subject to a conversion cap which precludes the holder thereof from exercising such warrants to the extent that such owner would beneficially own in excess of 9.9% of the Company’s common stock. The address of Perceptive Life Sciences Master Fund, Ltd. is c/o Perceptive Advisors, 7284 W. Palmetto Park Road, Suite 306, Boca Raton, Florida 33433.

Selling Stockholders

The shares offered by this Prospectus may be sold from time to time, by the selling stockholders named in the following table. The number of shares these selling stockholders are offering under this Prospectus will be adjustedup to reflect any additional shares of common stock which may become issuable to the selling stockholders by reason of any stock dividend, stock split or other similar transaction effected without the receipt of consideration and which results in an increase in the number of our outstanding shares of common stock or which otherwise increases the number of shares issuable upon conversion of the loan proceeds or upon the exercise of the warrants under which such shares may by issued.

The following table also sets forth the total number of24,900,000 shares of our common stock beneficially owned by each ofCommon Stock. The 24,900,000 shares includes the selling stockholders and the percentagefollowing: (i) 16,600,000 shares of our total outstandingCommon Stock issued pursuant to the Securities Purchase Agreement dated January 24, 2013 (the “Securities Purchase Agreement”); and (ii) 8,300,000 shares of common stock that each selling stockholder beneficially owns. Percentage ownership is based onCommon Stock issuable upon exercise of five-year Warrants with an exercise price of $0.75 issued pursuant to the Securities Purchase Agreement.


The table below presents information regarding the Selling Stockholders and the shares of our common stockCommon Stock that they may sell or otherwise dispose of from time to time under this prospectus. The table is based on information supplied to us by the Selling Stockholders. Percentages of beneficial ownership are based upon 88,245,725 shares of Common Stock issued and outstanding onas of March 7, 2013. Beneficial ownership is determined under Section 13(d) of the Exchange Act and generally includes voting or aboutinvestment power with respect to securities and including any securities that grant the dateSelling Stockholders the right to acquire Common Stock within 60 days of this Prospectus plusMarch 7, 2013. We do not know when or in what amounts the Selling Stockholders may sell or otherwise dispose of the shares that may be issued to certaincovered hereby. The Selling Stockholders might not sell any or all of the selling stockholders and whichshares covered by this prospectus or may be sold undersell or dispose of some or all of the shares other than pursuant to this Prospectus. The estimateprospectus. Because the Selling Stockholders may not sell or otherwise dispose of some or all of the shares owned aftercovered by this offering assumes that all shares offered by the Prospectus are sold. These estimates may prove to be inaccurate because the selling stockholders may offer all or some of their sharesprospectus and because there are currently no agreements, arrangements or understandings with respect to the sale or other disposition of any of the shares.

   Shares Beneficially Owned
Prior to the Offering
     Shares Beneficially Owned
After the Offering
 

Name

  Number
  Percentage(1)
  Shares
to be Sold
  Number
  Percentage
 

Laurus Master Fund, Ltd.(2)

  1,075,000  2.1% 1,075,000  0  * 

TN Capital Equities, Ltd.(3)

  61,484  *  61,484  0  * 

Kopp Emerging Growth Fund(4)

  9,595,430  19.5% 2,050,000  7,545,430  15.3%

Oppenheimer & Co. Inc.(5)

  932,859  1.9% 932,859  0  * 

LB I Group Inc.(6)

  3,960,396  8.1% 5,544,554  0  * 

Knott Partners, L.P.(7), (8)

  1,990,800  4.0% 1,990,800  0  * 

Matterhorn Offshore Fund Ltd.(7), (9)

  2,181,754  4.4% 2,181,754  0  * 

Common Fund Hedged Equity Company(7),(10)

  249,200  *  249,200  0  * 

Shoshone Partners, L.P.(7), (11)

  989,800  2.0% 989,800  0  * 

Anno, L.P.(7), (12)

  62,300  *  62,300  0  * 

Good Steward Trading Company(7), (13)

  70,700  *  70,700  0  * 

SF Capital Partners Ltd.(14)

  2,722,772  5.5% 3,811,881  0  * 

Perceptive Life Sciences Master Fund, Ltd.(15)

  2,772,277  5.6% 2,772,277  0  * 

Iroquois Master Fund Ltd.(16)

  1,732,674  3.5% 1,732,674  0  * 

Saffron Capital Int’l Fund Ltd.(17)

  693,070  1.4% 693,070  0  * 

RAQ, LLC(18)

  346,535  *  346,535  0  * 

Omicron Master Trust(19)

  346,535  *  346,535  0  * 

Endeavor Asset Management, L.P.(20)

  103,960  *  103,960  0  * 

shares, we cannot estimate the number of the shares that will be held by the Selling Stockholders after completion of the offering.

Except as provided below, none of the Selling Stockholders has held any position or office or had any other material relationship with us or any of our predecessors or affiliates within the past three years other than as a result of the ownership of our securities. In addition, unless otherwise indicated in the footnotes below, we believe that: (i) none of the Selling Stockholders are broker-dealers or affiliates of broker-dealers, (ii) no Selling Stockholder has direct or indirect agreements or understandings with any person to distribute their shares, and (iii) the Selling Stockholders have sole voting and investment power with respect to all shares beneficially owned, subject to applicable community property laws. To the extent any Selling Stockholder identified below is, or is affiliated with, a broker-dealer, it could be deemed to be, under SEC Staff interpretations, an “underwriter” within the meaning of the Securities Act. Information about the Selling Stockholders may change over time. Any changed information will be set forth in supplements to this prospectus, if required.



16


Name of Selling Stockholder
Number of Shares of Common Stock Owned Prior to Offering(1)
 Maximum Number of Shares of Common Stock to be Offered Pursuant to this Prospectus 
Number of Shares of Common Stock Owned After Offering (2)
 Number Number Number Percent
        
Anson Investments Master Fund LP (3)
750,000
 750,000
 —
 *%
Aspire Capital Fund, LLC(4)
750,000
 750,000
 —
 *%
Burguete Investment Partnership, L.P.(5)
2,378,003
 300,000
 2,078,003
 2.3%
Capital Ventures International by Heights Capital Management its Authorized Agent(6)
750,000
 750,000
 —
 *%
Cranshire Capital Master Fund, Ltd.(7)
788,018
 705,000
 83,018
 *%
Deerfield Special Situations Fund, L.P.(8)
1,602,000
 1,602,000
 —
 *%
Deerfield Special Situations International Master Fund, L.P.(8)
1,398,000
 1,398,000
 —
 *%
Dennis D. Gonyea168,148
 105,000
 63,148
 *%
Dorothy J. Hoel128,148
 105,000
 23,148
 *%
E Terry Skone TTEE E Terry Skone Rev Trust u/a dtd 11/30/2005153,148
 105,000
 48,148
 *%
Empery Asset Master, LTD(9)
450,000
 450,000
 —
 *%
Gary A. Bergren244,722
 150,000
 94,722
 *%
Hartz Capital Investments, LLC(10)
450,000
 450,000
 —
 *%
Horberg Enterprises Limited Partnership(11)
300,000
 300,000
 —
 *%
Hudson Bay Master Fund Ltd(12)
750,000
 750,000
 —
 *%
Itasca Capital Partners, LLC(13)
519,675
 150,000
 369,675
 *%
JALAA Equities(14)
750,000
 750,000
 —
 *%
Midsummer Small Cap Master, Ltd(15)
836,805
 750,000
 86,805
 *%
Neal Goldman750,000
 750,000
 —
 *%
Parallax Biomedical Fund, LP(16)
600,000
 600,000
 —
 *%
Paul and Nancy Seel Joint Account WROS128,148
 105,000
 23,148
 *%
Preventive Cardiovascular Nurses Association(17)
359,000
 300,000
 59,000
 *%
Richard A. Hoel75,000
 75,000
 —
 *%
Robert G Allison398,379
 300,000
 98,379
 *%
Sabby Healthcare Volatility Master Fund, Ltd(18)
2,100,000
 2,100,000
 —
 *%
Sabby Volatility Warrant Master Fund, Ltd(18)
900,000
 900,000
   *%
Seamark Fund, LP(19)
300,000
 300,000
 —
 *%
Sphinx Trading, LP(20)
45,000
 45,000
 —
 *%
Third Security Incentive 2010 LLC(21)
5,899,847
 1,800,000
 4,099,847
 4.5%
Third Security Senior Staff 2008 LLC(21)
11,799,697
 3,600,000
 8,199,697
 8.6%
Third Security Staff 2010 LLC(21)
11,799,697
 3,600,000
 8,199,697
 8.6%
William H. Baxter Trustee FBO William H. Baxter Revocable Trust u/a dtd 7/3/96128,148
 105,000
 23,148
 *%

* Represents less than 1%


17


*less than 1%

(1)Applicable percentage ownership is based on 49,172,079The number of shares for each Selling Stockholder consists of the aggregate of the number of shares of common stock outstanding as of November 29, 2005, together with securities presently exercisable or convertible intoCommon Stock held by such Selling Stockholder and shares of common stock and securitiesCommon Stock issuable upon exercise of Warrants held by such Selling Stockholder.
(2)For purposes of this table, the Company assumes that all of the holder, as of November 29, 2005, had the right to exercise or convert into shares of common stock within sixty (60) days. Securities that are exercisable or convertible as described above are deemed tocovered by this prospectus will be outstanding and beneficially ownedsold by the person holding such securities forSelling Stockholders.
(3)Moez Kassam is the purposePortfolio Manager of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(2)Shares to be sold consist 1,075,000 shares issuable upon the exercise of warrants. The warrants are subject to a conversion cap which precludes the holder thereof from exercising such warrants to the extent that such owner would beneficially own in excess of 4.99% of the Company’s common stock. However, Laurus may elect to waive the 4.99% limitation with 75 days notice.

(3)All shares to be soldAnson Investments Master Fund LP and beneficially owned represent shares issuable upon the exercise of warrants. TN Capital Equities, Ltd. (“TerraNova”) served as broker for the agreements entered into between the Company and Laurus. Warrants were issued to TerraNova as partial compensation for their services as broker.

(4)Kopp Investment Advisors, LLC acts as the advisor to Kopp Emerging Growth Fund. Votinghas voting and dispositive power over the shares beneficially owned by Anson Investments Master Fund LP.
(4)Steven G. Martin, Erik J. Brown and Christos Komissopoulos, the principals of Aspire Capital Fund, LLC, are deemed to be beneficial owners of all of the shares of Common Stock owned by Aspire Capital Fund, LLC. Messrs. Martin, Brown and Komissopoulos have shared voting and dispositive power over the shares beneficially owned by Aspire Capital Fund, LLC.
(5)James J. Tiampo, President of Verbier Management Corp., which is the general partner of Burguete Investment Partnership, LP, makes investment and voting decisions with respect to shares held by Kopp Emerging Growth FundBurguete Investment Partnership, LP.
(6)Martin Kobinger has voting and dispositive power over the shares beneficially owned by Capital Ventures International (“CVI”) by Heights Capital Management its Authorized Agent. CVI is affiliated with one or more FINRA members, none of whom are exercisedcurrently expected to participate in the sale pursuant to the prospectus contained in this Registration Statement of shares held by a portfolio management committeeCVI. CVI has represented that it acquired the shares in the ordinary course of Kopp Investmentbusiness and, at the time of the acquisition of the shares, had no agreements or understandings, directly or indirectly, with any person to distribute the shares.
(7)Cranshire Capital Advisors, LLC presently consisting(“CCA”) is the investment manager of LeRoy Kopp, Sally AndersonCranshire Capital Master Fund, Ltd. (“Cranshire Master Fund”) and Steven Crowley.has voting control and investment discretion over securities held by Cranshire Master Fund. Mitchell P. Kopin (“Mr. Kopin”), the president and the sole member of the Board of Managers of CCA, has voting control over CCA. As a result, each of Mr. Kopin and CCA may be deemed to have beneficial ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934, as amended) of the securities held by Cranshire Master Fund.

CCA is also the investment manager for managed accounts for Freestone Advantage Partners II (“Freestone II”), and Sphinx Trading, LP (“Sphinx”), and CCA has voting control and investment discretion over securities in the managed accounts for Freestone II and Pyramid. Mr. Kopin, the president and the sole member of the Board of Managers of CCA, has voting control over CCA. As a result, each of Mr. Kopin and CCA also may be deemed to have beneficial ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934, as amended) of 50,000 additional shares of Common Stock, consisting of (i) 5,000 shares of Common Stock that are issuable upon exercise of warrants held by Freestone II, (ii) 30,000 shares of Common Stock held by Sphinx, and (iii) 15,000 shares of Common Stock that are issuable upon exercise of warrants held by Sphinx.
(5)All
(8)James E. Flynn has voting and dispositive power over the shares beneficially owned by Deerfield Special Situations Fund, L.P. and Deerfield Special Situations International Master Fund, L.P.
(9)Empery Asset Management LP, the authorized agent of Empery Asset Master Ltd (“EAM”), has discretionary authority to vote and dispose of the shares held by EAM and may be deemed to be soldthe beneficial owner of these shares. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power over the shares held by EAM. EAM, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares.
(10)Empery Asset Management LP, the authorized agent of Hartz Capital Investments, LLC (“HCI”), has discretionary authority to vote and dispose of the shares held by HCI and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power over the shares held by HCI. Mr. Hoe and Mr. Lane disclaim any beneficial ownership of these shares.
(11)Howard Todd Horberg has voting and dispositive power over the shares beneficially owned representby Horberg Enterprises Limited Partnership.
(12)Hudson Bay Capital Management LP, the investment manager of Hudson Bay Master Fund Ltd., has voting and dispositive power over these securities. Sander Gerber is the managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson Bay Capital Management LP. Sander Garber disclaims beneficial ownership over these securities.

18


(13)Michael S. Wallace, Managing Member of Itasca Capital Partners, LLC, makes investment and voting decisions with respect to shares issuable uponheld by Itasca Capital Partners, LLC.
(14)Jason M. Aryeh has voting and dispositive power over the exercise of warrants. Oppenheimer & Co. Inc. (“Oppenheimer”) served as placement agent for the private placement of securities to various institutional investors which closed on October 31, 2005. Warrants were issued to Oppenheimer as partial compensation for their services as placement agent.shares beneficially owned by JALAA Equities.

(6)Lehman Brothers Holdings Inc., Lehman Brothers Inc.
(15)Joshua Thomas and LB I Group Inc.Michel Amsalem have voting and dispositive power over these shares. Sharesthe shares beneficially owned consist of 3,960,396 shares of common stock held in the name of LB I Group Inc. Shares to be sold also include warrants to purchase an additional 1,584,158 shares at $1.20 per share. These warrants are subject to a conversion cap which precludes the holder thereof from exercising such warrants to the extent that such owner would beneficially own in excess of 4.9% and 9.9% of the Company’s common stock.by Midsummer Small Cap Master, Ltd.

(7)David M. Knott and Dorset Management Group have sole or shared
(16)Kellie Seringer has voting and dispositive power over thesethe shares and warrants.beneficially owned by Parallax Biomedical Fund, LP.

(8)Shares
(17)Perkins Capital Management, Inc. votes proxies for Preventive Cardiovascular Nurses Association and through their power of attorney has full dispositive power over the shares beneficially owned and to be sold consist of 1,422,000 shares of common stock and warrants to purchase an additional 586,800 shares at $1.20 per share. The warrants are subject to a conversion cap which precludes the holder thereof from exercising such warrants to the extent that such owner would beneficially own in excess of 9.9% of the Company’s common stock.by Preventive Cardiovascular Nurses Association.

(9)Shares
(18)Hal Mintz has voting and dispositive power over the shares beneficially owned by Sabby Healthcare Volatility Master Fund, Ltd. and to be sold consist of 1,558,396 shares of common stock and warrants to purchase an additional 623,358 shares at $1.20 per share. The warrants are subject to a conversion cap which precludes the holder thereof from exercising such warrants to the extent that such owner would beneficially own in excess of 9.9% of the Company’s common stock.Sabby Volatility Warrant Master Fund, Ltd.

(10)Shares
(19)David T. Harrington and John D. Fraser, Managing Partners of Seamark Fund, LP, have voting and dispositive power over the shares beneficially owned and to be sold consist of 178,000 shares of common stock and warrants to purchase an additional 71,200 shares at $1.20 per share. The warrants are subject to a conversion cap which precludes the holder thereof from exercising such warrants to the extent that such owner would beneficially own in excess of 9.9% of the Company’s common stock.by Seamark Fund, LP.

(11)Shares owned and to be sold consist of 707,000 shares of common stock and warrants to purchase an additional 282,800 shares at $1.20 per share. The warrants are subject to a conversion cap which precludes the holder thereof from exercising such warrants to the extent that such owner would beneficially own in excess of 9.9% of the Company’s common stock.

(12)(20)Shares owned and to be sold consist of 44,500 shares of common stock and warrants to purchase an additional 17,800 shares at $1.20 per share. The warrants are subject to a conversion cap which precludes the holder thereof from exercising such warrants to the extent that such owner would beneficially own in excess of 9.9% of the Company’s common stock.

(13)Shares owned and to be sold consist of 50,500 shares of common stock and warrants to purchase an additional 20,200 shares at $1.20 per share. The warrants are subject to a conversion cap which precludes the holder thereof from exercising such warrants to the extent that such owner would beneficially own in excess of 9.9% of the Company’s common stock.

(14)Michael A. Roth and Brian J. Stark, as managing members of Stark Offshore Management, LLC, whichCCA is the investment manager of SF Capital Partners Ltd., have solea managed account for Sphinx and has voting control and dispositive powerinvestment discretion over these shares. Shares beneficially owned consist of 2,722,772 shares of common stocksecurities held in by Sphinx in such managed account. Mr. Kopin, the name of SF Capital Partners Ltd. Shares to be sold also include warrants to purchase an additional 1,584,158 shares at $1.20 per share. These warrants are subject to a conversion cap which precludespresident and the holder thereof from exercising such warrants to the extent that such owner would beneficially own in excess of 4.9% and 9.9%sole member of the Company’s common stock.

(15)ConsistsBoard of 1,980,198 shares owned by Perceptive Life Sciences Master Fund, Ltd.Managers of CCA, has voting control over CCA. As a result, each of Mr. Kopin and warrantsCCA may be deemed to purchase an additional 792,079 shares at $1.20 per share. The warrants are subject to a conversion cap which precludes the holder thereof from exercising such warrants to the extent that such owner would beneficially own in excess of 9.9%have beneficial ownership (as determined under Section 13(d) of the Company’s common stock.Securities Exchange Act of 1934, as amended) of the securities held by Sphinx in such managed account.

(16)Shares owned and to be sold consist of 1,237,624 shares of common stock and warrants to purchase an additional 495,050 shares at $1.20 per share.

(17)Shares owned and to be sold consist of 495,050 shares of common stock and warrants to purchase an additional 198,020 shares at $1.20 per share.

(18)Shares owned and to be sold consist of 247,525 shares of common stock and warrants to purchase an additional 99,010 shares at $1.20 per share.

(19)Shares owned and to be sold consist of 247,525 shares of common stock and warrants to purchase an additional 99,010 shares at $1.20 per share.

(20)Shares owned and to be sold consist of 74,257 shares of common stock and warrants to purchase an additional 29,703 shares at $1.20 per share.

Each selling stockholder

CCA is also the investment manager of Cranshire Master Fund and Freestone Advantage Partners II, LP. Mr. Kopin, the president and the sole member of the Board of Managers of CCA, has voting control over CCA. As a result, each of Mr. Kopin and CCA may be deemed to have beneficial ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934, as amended) of the securities held by Cranshire Master Fund and Freestone II that are described in footnote 7.
Sphinx acquired or will acquire, the shares to be sold by such selling stockholderbeing registered hereunder in the ordinary course of business, and at the time of the acquisition of suchthe shares no selling stockholder hadand warrants described herein, Sphinx did not have any agreementarrangements or understanding, directly or indirectly,understandings with any person to distribute such shares.

securities.

(21)Randal J. Kirk makes investment and voting decisions with respect to shares held by the Third Security Entities. The Third Security Entities are the holders of all of the shares outstanding of our Series A Preferred and the amount of securities beneficially owned by each of the Third Security Entities includes shares of Common Stock issuable upon conversion of the outstanding shares of Series A Preferred and the conversion of shares of Series A Preferred issuable upon exercise of warrants for shares of Series A Convertible Preferred Stock. The holders of Series A Preferred have the right to appoint two members to our Board of Directors. Robert M. Patzig and Doit L. Koppler II, employees of Third Security, LLC, which may be deemed to be an affiliate of the Company, serve as directors of the Company. Messrs. Patzig and Koppler were appointed directors of the Company in connection with the right of the holders of the Series A Convertible Preferred Stock to appoint two directors.


19


DESCRIPTION OF CAPITALCOMMON STOCK



General

We can issue up to 100,000,000 shares of our common stock and 15,000,000 shares of our preferred stock. At November 29, 2005, there are 49,172,079 shares of our common stock outstanding. We have not issued any shares of preferred stock. You should read the following summary description of our capital stock in conjunction with our certificate of incorporation and our bylaws, each of which is available upon request.

Common Stock

Matters

The holders of our common stock are entitled to one vote per share on all matters submitted to a vote of our stockholders; the payment of any dividends declared by the Board of Directors out of legally available funds, after the superior rights of any preferred stockholders have been satisfied and share ratably in company assets available for distribution to them in the event of the liquidation, dissolution, distribution of assets or winding up of the Company.

The holders of common stock do not have cumulative voting rights. As a result, the holders of a majority of the outstanding common stock can elect all the directors of the company. The remaining common stock holders will not be able to elect any directors. The holders of common stock have no preemptive or other subscription rights, and there are no conversion, redemption or sinking fund

provisions with respect to the common stock. All outstanding shares of common stock are, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and non-assessable. The common stock has a par value of $0.01 per share.

Preferred Stock

TheCompany's Board of Directors is authorized to issue up to 150,000,000 shares of Common Stock, from time to time, as provided in a resolution or resolutions adopted by the Board of Directors.

Common Stock

As of March 7, 2013, 88,245,725 shares of our Common Stock were issued and outstanding, held by approximately 3,200 stockholders of record, not including beneficial holders whose shares are held in names other than their own.

Dividends, Voting Rights and Liquidation

Holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders and do not have cumulative voting rights. Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by our Board of Directors out of funds legally available for dividend payments. All outstanding shares of Common Stock are fully paid and non-assessable. The holders of Common Stock have no preferences or rights of conversion, exchange, pre-emption or other subscription rights. There are no redemption or sinking fund provisions applicable to the Common Stock. In the event of any liquidation, dissolution or winding-up of our affairs, holders of Common Stock will be entitled to share ratably in our assets that are remaining after payment or provision for payment of all of our debts and obligations. The rights, preferences and privileges of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock currently outstanding or which we may designate and issue in the future.

Preferred Stock

General Matters

Under our Third Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”), we have the authority to issue up to 15,000,000 shares of preferred stock, $0.01 par value per share (“Preferred Stock”), issuable in one or morespecified series and to fix thehaving specified voting, dividend, conversion, liquidation, and other rights powers,and preferences qualifications, limitations and restrictions granted to or imposed on the preferred stock. The authority of theas our Board of Directors includes the rightmay determine, subject to fix dividend rights,limitations set forth in our Certificate of Incorporation. The Preferred Stock may be issued for any lawful corporate purpose without further action by our stockholders. The issuance of any Preferred Stock having conversion rights termsmight have the effect of redemption, liquidation preference, sinking fund termsdiluting the interests of our other stockholders. In addition, shares of Preferred Stock could be issued with rights, privileges and preferences which would deter a tender or exchange offer or discourage the acquisition of control of the Company.

Series A Convertible Preferred Stock

Of the number of shares constituting any series orof Preferred Stock authorized by our Certificate of Incorporation, as of March 7, 2013, 3,879,307 shares had been designated Series A Convertible Preferred Stock with such rights, privileges and preferences as set forth in the designationCertificate of a series, without any further vote or actionDesignation of Series A Convertible Preferred Stock and filed with the Secretary of State of the State of Delaware on December 28, 2010, as amended by the stockholders. The preferred stock may beCertificate of Amendment of Certificate of Designation of Series A Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on May 25, 2012 (as amended, the “Certificate of Designation”). As of March 7, 2013, 2,586,205 shares of the Series A Convertible Preferred Stock (the “Series A Preferred”) were issued with a preference over the common stock as to the payment of dividends. The Board of Directors, without stockholder approval, can issue preferred stock with voting and conversionoutstanding.

Certain rights that could adversely affect the voting power of the holders of the Series A Preferred are senior to the rights of the holders of our Common Stock. The Series A Preferred has a liquidation preference equal to its original price per share, plus any accrued and unpaid dividends thereon. The Series A Preferred accrues cumulative dividends at the rate of 10.0% of the original price per share per annum.

All outstanding shares of Series A Preferred will be automatically converted into Common Stock, at an initial conversion rate of 4:1, at the election of the holders of a majority of the then-outstanding shares of Series A Preferred. The initial conversion rate for the Series A Preferred is subject to adjustment in the event of certain stock splits, stock dividends, mergers, reorganizations and reclassifications.

The Certificate of Designation provides that the holders of Series A Preferred shall be entitled, as a separate voting group, at each annual or special election of directors, to elect two directors of the Company.

20



Generally, the holders of the Series A Preferred are entitled to vote together as a single group with the holders of Common Stock on an as-converted basis. However, the Certificate of Designation provides that we will not perform the following activities, subject to certain exceptions, without the affirmative vote of a majority of the holders of the outstanding shares of Series A Preferred:
authorize, create or issue any other class or series of capital stock having rights, preferences or privileges senior to or in parity with the Series A Preferred;

alter or change the rights, preferences or privileges of the Series A Preferred or increase or decrease the authorized number of shares of Series A Preferred;

authorize or declare any dividends on the common stock. Theshares or any other shares of capital stock other than the Series A Preferred;

authorize any offering of equity securities of the Company representing (on a pro forma basis after giving effect to the issuance of preferredsuch equity securities) the right to receive not less than 10% of any amounts or funds that would, as of immediately following such issuance, be legally available for distribution in connection with a liquidation event;

redeem any shares of capital stock could have(other than pursuant to employee agreements or the effectterms of delaying, deferringthe capital stock);

increase or preventingdecrease the authorized number of members of the Board;

enter into any binding agreement with any director, employee or any affiliate of the Company;

materially change the nature of the Company's business, enter into new lines of business or exit the current line of business or invest in any person or entity engaged in a business that is not substantially similar to the Company's business, or change the location of any permanent location of any part of the Company's business, in each case except as contemplated by the Asset Purchase Agreement dated as of November 29, 2010, by and among PGxHealth, LLC, Clinical Data, Inc. and Transgenomic (the “Purchase Agreement”) or any of the transaction documents included therein;

make any loans or advances, individually or in the aggregate in excess of $1,000,000, to, or own any securities of, any subsidiary or other corporation or other entity unless it is wholly owned by the Company;

make any loan or advance to any natural person, including, without limitation, any employee or director of the Company, except advances and similar expenditures in the ordinary course of business;

guarantee, directly or indirectly, any indebtedness, except for trade accounts of the Company arising in the ordinary course of business;

sell or otherwise dispose of any assets of the Company with a value, individually or collectively, in excess of $500,000, other than in the ordinary course of business;

liquidate or wind-up the business and affairs of the Company or effect a change in control or any other liquidation event;

incur any indebtedness in excess of $1,000,000 in the aggregate, other than trade credit incurred in the ordinary course of business or as contemplated by the Purchase Agreement;

expend funds in excess of $500,000 in the aggregate per year for capital improvements, other than any such expenditure that is consistent with a budget approved by the Board, including the directors elected by the holders of Series A Preferred or as contemplated by the Purchase Agreement;

obligate the Company to make aggregate annual payments in excess of $500,000 or sell, transfer or license any material technology or intellectual property of the Company. ForCompany, other than a non-exclusive license in the foregoing reasons, any preferred stock we issue could adversely affect your rightsordinary course of business, in each case except as a holder of our common stock. We do not have any present plans to issue preferred stock.

Warrants

At November 29, 2005, warrants representing 8,062,577 common shares are outstanding at exercise prices ranging from $1.18 to $3.27 per share. These warrants have terms expiring from 2007 to 2010. All ofcontemplated by the warrants contain provisions forPurchase Agreement; or


increase the adjustment of the exercise price and the aggregate number of shares that may be issued upon the exercisereserved and issuable under any of the warrant if a stock dividend, stock split, reorganization, reclassificationCompany's equity or consolidation occurs. Additionally, the warrants held by Laurus Master Fund, Ltd. contain a provision for the adjustment of the exercise price and the aggregate number of shares that may be issued upon the exercise of the warrant in the event that we issue shares of our common stock at a price per share which is less than the exercise price in effect at the time of such issuance.

option incentive compensation plans.


21



OptionsAnti-Takeover Effects

At November 29, 2005, options to purchase 5,541,015 shares of our common stock are outstanding at exercise prices ranging from $1.00 to $13.00 per share. Additional options to acquire 705,216 shares of common stock may be issued in the future under our Stock Option Plan.

Anti-takeover Provisions of Delaware Law and Charter Provisions

Delaware Law.

In general,Under Section 203 of the Delaware General Corporation Law

We are subject to Section 203 of the General Corporation Law of the State of Delaware (the "DGCL"), which prohibits a publicly held Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years followingafter the date that thesuch stockholder became an interested stockholder, unless:

with the following exceptions:
prior to thatbefore such date, the Boardboard of Directorsdirectors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;


upon consummationcompletion of the transaction that resulted in the stockholder’sstockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced,began, excluding those

shares owned by persons who are directors and also officers, and employee stock plans in which employee participants dofor purposes of determining the voting stock outstanding (but not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or

on or subsequent to that date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.stockholder) those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or an exchange offer; or


•
on or after such date, the business combination is approved by the board of directors and authorized at an annual or a special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 662/3% of the outstanding voting stock that is not owned by the interested stockholder.
        In general, Section 203 defines “business combination”"business combination" to include:

include the following:
any merger or consolidation involving the corporation or any direct or indirect majority owned subsidiary of the corporation and the interested stockholder;stockholder or any other corporation, partnership, unincorporated association, or other entity if the merger or consolidation is caused by the interested stockholder and as a result of such merger or consolidation the transaction is not excepted as described above;


any sale, transfer, pledge, or other disposition involving the interested stockholder(in one transaction or a series) of 10% or more of the assets of the corporation;corporation involving the interested stockholder;

in general,
subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; or


the receipt by the interested stockholder of the benefit of any loans,loss, advances, guarantees, pledges, or other financial benefits provided by or through the corporation.


In general, Section 203 defines an "interested stockholder" as an entity or a person who, together with the person's affiliates and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder as any entity or person beneficially owningstatus did own, 15% or more of the outstanding voting stock of the corporation.
A Delaware corporation and any entitymay “opt out” of these provisions with an express provision in its original certificate of incorporation or person affiliated withan express provision in its certificate of incorporation or controllingbylaws resulting from a stockholders' amendment approved by at least a majority of the outstanding voting shares. We have not opted out of these provisions. As a result, mergers or controlled by the entityother takeover or person.

Charterchange in control attempts of us may be discouraged or prevented.


Anti-Takeover Effects Under Certain Provisions

Our Third Amended and Restated of our Certificate of Incorporation and Bylaws


Our Certificate of Incorporation and our Amended and Restated Bylaws ("Bylaws”) include a number of provisions that may have the effect of deterring hostile takeovers or delaying or preventing changes in control or management of Transgenomic. the Company.

First, our certificateCertificate of incorporationIncorporation provides that all stockholder actions must be effected at a duly called meeting of holders and not by a consent in writing.

Second, our bylawsBylaws provide that special meetings of the holders may be called only by the chairman of the Board of Directors, the Chief Executive Officer or our Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors.

22



Third, our certificateCertificate of incorporationIncorporation provides that our Board of Directors can issue up to 15,000,000 shares of preferred stock,Preferred Stock, as described under “Preferred Stock” above.

Fourth, our certificateCertificate of incorporationIncorporation and the Bylaws provide for a classified Board of Directors in which approximately one-third of the directors would be elected each year. Consequently, any potential acquirer would need to successfully complete two proxy contests in order to take control of the Board of Directors. As a result of the provisions of the certificateCertificate of incorporationIncorporation and Delaware law, stockholders will not be able to cumulate votes for directors.

Fifth, our certificateCertificate of incorporationIncorporation prohibits a business combination with an interested stockholder without the approval of the holders of 75% of all voting shares and the vote of a majority of the voting shares held by disinterested stockholders, unless it has been approved by a majority of the disinterested directors.

Finally, our bylawsBylaws establish procedures, including advance notice procedures, with regard to the nomination of candidates for election as directors and stockholder proposals. These provisions of our certificateThird Amended and Restated Certificate of incorporationIncorporation and bylawsour Amended and Restated Bylaws could discourage potential acquisition proposals and could delay or prevent a change in control orof the management of our company.


Warrants

In addition to the Warrants to purchase 8,300,000 of the shares of Common Stock we are registering hereunder, as of March 7, 2013, warrants to purchase 13,171,268 shares of Common Stock with an average exercise price of $1.08 per share were outstanding, and warrants to purchase 1,293,102 shares of Series A Preferred with an average exercise price of $2.32 per share were outstanding which may be converted into 5,172,408 shares of common stock. All of the outstanding warrants are currently exercisable, and all outstanding warrants contain provisions for the adjustment of the exercise price in the event of stock dividends, stock splits, reorganizations, reclassifications or mergers. In addition, certain of the warrants contain a “cashless exercise” feature that allows the holders thereof to exercise the warrants without a cash payment to us under certain circumstances.

Listing

Our Common Stock is traded on the OTC Bulletin Board under the symbol “TBIO”.

Transfer Agent and Registrar


Wells Fargo Bank Minnesota, N.A. has been appointed as, is the transfer agent and registrar for our common stock.

National Market Listing

Our common stockCommon Stock. Their address is listed on the Nasdaq Stock Market’s National Market under the symbol TBIO.

Shareowner Services, P.O. Box 64854, St. Paul, MN 55164-0854, and their telephone number is (800) 478-9715.



PLAN OF DISTRIBUTION

LEGAL MATTERS
The selling stockholders and any of their pledges, assignees, donees selling shares received from such selling stockholders as a gift, and successors-in-interest may, from time to time, sell any or all of their sharesvalidity of our common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

an exchange distribution in accordance with the rules of the applicable exchange;

privately negotiated transactions;

broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

a combination of any such methods of sale; and

any other method permitted pursuant to applicable law.

The selling stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this Prospectus.

Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.

The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

We are required to pay all fees and expenses incident to the registration of the shares, including certain fees and disbursements of counsel to the selling stockholders. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

To the extent required, we will amend or supplement this Prospectus to disclose material arrangements regarding the plan of distribution.

To comply with the securities laws of certain jurisdictions, registered or licensed brokers or dealers may need to offer or sell the shares offered by this Prospectus. The applicable rules and

regulations under the Securities Exchange Act of 1934, as amended, may limit any person engaged in a distribution of the shares of common stock covered by this Prospectus in its ability to engage in market activities with respect to such shares. A selling stockholder, for example,Common Stock offering hereby will be subject to applicable provisions of the Exchange Act and the rules and regulations under it, which provisions may limit the timing of purchases and sales of any shares of common stockpassed upon for us by that selling stockholder.

Paul Hastings LLP.



23


EXPERTS

The audited consolidated financial statements of Transgenomic, Inc. and its subsidiaries as of December 31, 20042012 and 20032011, and for each of the three years in thethree-year period ended December 31, 20042012, included in our Annual Report on Form 10-K for the year ended December 31, 2012, and the effectiveness of our internal control over financial reporting as of December 31, 2012, incorporated by reference in this Prospectusprospectus have been audited by Deloitte & ToucheMcGladrey LLP, an independent registered public accounting firm, as stated in their report (which report expresses an unqualified opinion and includes explanatory paragraphs relating to an extension of the waiver of the borrowing base limit throughdated March 31, 2006 and the restatement of the Company’s consolidated statements of cash flows for the years ended December 31, 2004 and 2003), appearing14, 2013, which is incorporated by reference herein, and havehas been so includedincorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.



LEGAL OPINIONS

The validity of the common stock offered by this Prospectus has been passed upon for us by Kutak Rock LLP, Omaha, Nebraska.

WHERE YOU CAN FIND MOREADDITIONAL INFORMATION

We file annual, quarterly and specialcurrent reports, proxy statements and other informationdocuments with the Securities and Exchange Commission (the “SEC”).SEC. These filings contain important information which does not appear in this prospectus. You may read and copy, at prescribed rates, any documents we have filed with the materials we fileSEC at the SEC’sits Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549, as well as at the SEC’s regional office at Citicorp Center, 500 West Madison Street, Room 1400, Chicago, Illinois 60661-2511. Please call the Commission at 1-800-SEC-0330 for furtherDC 20549. You may obtain information on the operation of the Public Reference Rooms. OurRoom by calling the SEC at 1-800-SEC-0330. We also file these documents with the SEC electronically. You can access the electronic versions of these filings are also availableon the SEC's website found at http://www.sec.gov .
We have filed with the SEC a registration statement on Form S-1 relating to the public fromsecurities covered by this prospectus. This prospectus is a part of the SEC’s World Wide Web siteregistration statement and does not contain all the information in the registration statement. Whenever a reference is made in this prospectus to a contract, agreement or other document, the reference is only a summary and you should refer to the exhibits that are filed with, or incorporated by reference into, the registration statement for a copy of the contract, agreement or other document. You may review a copy of the registration statement at the SEC's Public Reference Room in Washington, D.C., as well as on the Internet at http://www.sec.gov. This site contains reports, proxy andSEC's website.


INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC's rules allow us to “incorporate by reference” into this prospectus certain information statements and other information regarding issuers that we file electronically with the SEC.

This means that we can include in this prospectus information by referring you to another document already on file with the SEC that contains that information. Any information incorporated by reference into this prospectus is considered to be part of this prospectus.

We make reportsincorporate by reference the following documents filed with the SEC:
Our Annual Report on Form 10-K for the year ended December 31, 2012, as filed by us with the SEC available freeon March 14, 2013;
Our Current Report on Form 8-K as filed by us with the SEC on January 25, 2013;
Our Current Report on Form 8-K/A as filed by us with the SEC on January 31, 2013; and
Our Current Report on Form 8-K as filed by us with the SEC on February 8, 2013.

Notwithstanding the foregoing, we are not incorporating by reference any information furnished and not filed with the SEC, unless, and to the extent, expressly specified otherwise. Any statement contained in a document incorporated in this prospectus shall be deemed to be modified or superseded to the extent that a statement contained in this prospectus modifies or supersedes such statement. Any such statement so modified or superseded shall only be deemed to be a part of this prospectus as so modified or superseded.

24


We will provide without charge to each person, including any beneficial owner, to whom this prospectus is delivered, upon his or her written or oral request, a copy of any or all of the reports or documents referred to above that have been incorporated by reference into this prospectus, excluding exhibits to those documents unless they are specifically incorporated by reference into those documents. You may request a copy of these filings, at no cost, by contacting:
Transgenomic, Inc.
Attn: Investor Relations
12325 Emmet Street
Omaha, NE 68164
Phone: (402) 452-5416
Fax: (402) 452-5461
E-mail: investorrelations@transgenomic.com
You also may access these filings on our website as soon as reasonably practical after these reports are filed.at www.transgenomic.com under Investor Relations Real Time Filings. We maintain a sitedo not incorporate the information on the World Wide Web at www.transgenomic.com. The information contained in our website is not part ofinto this Prospectusprospectus or any supplement to this prospectus and you should not relyconsider any information on, it in deciding whether to invest in our common stock.

TRANSGENOMIC INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page No.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Condensed Consolidated Balance Sheet as of September 30, 2005

F-1

Unaudited Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2005 and 2004

F-2

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004

F-3

Notes to Unaudited Condensed Consolidated Financial Statements

F-4

CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

F-14

Consolidated Balance Sheets as of December 31, 2004 and 2003

F-15

Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002

F-16

Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2004, 2003 and 2002

F-17

Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002

F-18

Notes to Consolidated Financial Statements

F-19

TRANSGENOMIC INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

As of September 30, 2005

(Dollars in thousands except per share data)

   September 30,
2005
 

ASSETS

     

CURRENT ASSETS:

     

Cash and cash equivalents

  $1,361 

Short-term investments

   1,556 

Accounts receivable (net of allowances for bad debts of $896)

   8,729 

Inventories

   4,101 

Prepaid expenses and other current assets

   652 
   

Total current assets

   16,399 
   

PROPERTY AND EQUIPMENT:

     

Land and buildings

   2,221 

Equipment

   18,066 

Furniture and fixtures

   5,833 
   
    26,120 

Less: accumulated depreciation

   15,509 
   
    10,611 

GOODWILL

   638 

OTHER ASSETS

   4,141 
   
   $31,789 
   

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

CURRENT LIABILITIES:

     

Accounts payable

  $2,463 

Accrued expenses

   4,383 

Accrued compensation

   530 

Line of credit

   6,935 

Current portion of long-term debt

   675 
   

Total current liabilities

   14,986 

Long-term debt

   1,226 
   

Total liabilities

   16,212 
   

COMMITMENTS AND CONTINGENCIES (Note F)

     

STOCKHOLDERS’ EQUITY:

     

Preferred stock, $.01 par value, 15,000,000 shares authorized, none outstanding

   —   

Common stock, $.01 par value, 60,000,000 shares authorized, 34,246,336 shares outstanding

   348 

Additional paid-in capital

   125,058 

Accumulated other comprehensive income

   1,051 

Accumulated deficit

   (110,880)
   

Total stockholders’ equity

   15,577 
   
   $31,789 
   

See notes to consolidated financial statements.

TRANSGENOMIC INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Nine Months Ended September 30, 2005 and 2004

(Dollars in thousands except per share data)

   Nine Months Ended
September 30,
 
   2005
  2004
 

Net sales

  $23,711  $25,834 

Cost of goods sold

   13,609   18,484 
   
 

Gross profit

   10,102   7,350 

Operating expenses:

         

Selling, general and administrative

   10,023   12,866 

Research and development

   1,696   5,344 

Impairment charges (Notes C and D)

   247   11,964 
   
 
    11,966   30,174 
   
 

Income (Loss) from operations

   (1,864)  (22,824)

Other income (expense):

         

Interest expense (Note E)

   (1,919)  (1,684)

Loss on debt extinguishment

   —     (2,859)

Other income (expense), net

   31   (161)
   
 
    (1,888)  (4,704)
   
 

Income(loss) before income taxes

   (3,752)  (27,528)

Current income tax expense (benefit)

   27   (94)
   
 

Net income (loss)

  $(3,779) $(27,434)
   
 

Basic and diluted weighted average shares outstanding

   32,837,078   28,951,230 

Net income (loss) per common share—basic and diluted

  $(0.12) $(0.95)

See notes to consolidated financial statements.

TRANSGENOMIC INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2005 and 2004

(Dollars in thousands except per share data)

   Nine Months Ended
September 30,
 
   2005
  2004
 

CASH FLOWS FROM OPERATING ACTIVITIES:

         

Net loss

  $(3,779) $(27,434)

Adjustments to reconcile net loss to net cash flows from operating activities:

         

Depreciation and amortization

   3,294   3,607 

Impairment charges

   247   11,964 

Loss on debt extinguishment

   —     2,859 

Non-cash financing costs

   1,298   759 

(Gain)/Loss on sale of securities

   (9)  370 

Other

   2   12 

Changes in operating assets and liabilities:

         

Accounts receivable

   (626)  (2,469)

Inventories

   960   819 

Prepaid expenses and other current assets

   650   (69)

Accounts payable

   (912)  100 

Accrued expenses

   (3,101)  774 
   
 

Net cash flows from operating activities

   (1,976)  (8,708)

CASH FLOWS FROM INVESTING ACTIVITIES:

         

Proceeds from the maturities and sale of available for sale securities

   617   2,768 

Purchase of property and equipment

   (554)  (1,250)

Proceeds from sales of property and equipment

   139   —   

Change in other assets

   34   26 
   
 

Net cash flows from investing activities

   236   1,544 

CASH FLOWS FROM FINANCING ACTIVITIES:

         

Advances on line of credit

   15,367   19,691 

Payments on line of credit

   (12,848)  (13,594)

Proceeds from long-term debt

   —     2,750 

Payments on long-term debt

   (178)  (1,729)

Issuance of common stock, net of expenses

   (35)  67 
   
 

Net cash flows from financing activities

   2,306   7,185 

EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH

   (207)  (137)
   
 

NET CHANGE IN CASH AND CASH EQUIVALENTS

   359   (116)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

   1,002   1,241 
   
 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $1,361  $1,125 
   
 

SUPPLEMENTAL CASH FLOW INFORMATION

         

Cash paid during the period for:

         

Interest

  $491  $390 

Income taxes, net

   27   (94)

Non-cash transactions:

         

Available for sale securities received for goods and services

   2,099   3,137 

Conversions of debt to equity

   2,535   2,000 

See notes to consolidated financial statements.

TRANSGENOMIC, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended September 30, 2005 and 2004

(Dollars in thousands except per share data)

A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The results of operations for the nine months ended September 30, 2005 are not necessarily indicative of the results to be expected for the full year.

Although the Company believes that the disclosures are adequate to make the information presented not misleading, these financial statements should be read in conjunction with the consolidated financial statements for the years ended December 31, 2004, 2003 and 2002 that are included elsewhere in this Registration Statement.

As discussed in Note L, the Company completed a private placement of additional common stock and warrants subsequent to September 30, 2005 which allowed it to repay outstanding indebtedness to Laurus Master Funds Ltd. (“Laurus”) and provided $5,374 in additional working capital. While the Company’s management believes that existing sources of liquidity are sufficient to meet expected cash needs through 2006, the Company has experienced recurring net losses and has historically relied upon cash flows from investing and financing activities to offset significant cash outflows from operating activities. To the extent necessary, the Company’s management believes that they can manage costs and expenses at reduced levels to conserve working capital. The need for any such cost and expense reductions would likely delay implementation of the Company’s business plan. Ultimately, the Company must achieve sufficient revenues in order to generate positive net earnings and cash flows from operations.

Business Description

The Company develops, manufactures and sells innovative products for the analysis, synthesis and purification of nucleic acids through two operating segments, BioSystems and Nucleic Acids.

The BioSystems operating segment develops, assembles, manufactures and markets versatile products and provides analytical services to the medical research, clinical and pharmaceutical markets for use in genetic variation analysis. Products and services are sold through a direct sales force in the United States and throughout much of Western Europe. For the rest of the world, products and services are sold through more than 25 dealers and distributors located in those local markets. Net sales from this operating segment are categorized as bioinstruments, bioconsumables and Discovery Services.

Bioinstruments. The flagship product of the BioSystems operating segment is the WAVE system which has broad applicability to genetic variation detection in both molecular genetic research and molecular diagnostics. There was a world-wide installed base of 1,241 WAVE systems as of September 30, 2005. Additionally, this operating segment utilizes its sales and distribution network to sell a number of independent, third party equipment platforms. Service contracts to maintain installed systems are sold and supported by technical support personnel.

Bioconsumables. The installed WAVE base generates a demand for consumables that are required for the system’s continued operation. These products are developed, manufactured and sold by this operating segment. In addition, the BioSystems operating segment manufactures and sells consumable productsor that can be used on multiple, independent platforms. These products include SURVEYOR Nuclease and a rangeaccessed through, our website as part of HPLC separation columns.

Discovery Services. The BioSystems operating segment provides various genetic laboratory services through a contract research lab in Gaithersburg, Maryland and a second laboratory in Omaha, Nebraskathis prospectus or any supplement to this prospectus (other than those filings with the SEC that operates in a Good Laboratory Practices (“GLP”) compliant environment and is certified under the Clinical Laboratory Improvement Amendment. The services provided primarily include (1) genomic biomarker analysis serviceswe specifically incorporate by reference into this prospectus or any supplement to pharmaceutical and biopharmaceutical companies to support preclinical and clinical development of targeted therapeutics; and (2) molecular-based testing for hematology, oncology and certain inherited diseases for physicians and third-party laboratories.this prospectus).





25



24,900,000 SHARES OF COMMON STOCK



TRANSGENOMIC, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Nine Months Ended September 30, 2005 and 2004

(Dollars in thousands except per share data)

The Nucleic Acids operating segment develops, manufactures and markets chemical building blocks for nucleic acid synthesis








PROSPECTUS












__________ __, 2013




Neither we nor the Selling Stockholders have authorized any dealer, salesperson or other person to biotechnology, pharmaceutical, oligonucleotide synthesis companies and research institutions throughout the world. These products are produced primarilygive any information or to make any representations not contained in this operating segment’s only facilityprospectus or any prospectus supplement. You must not rely on any unauthorized information. This prospectus is not an offer to sell these securities in Glasgow, Scotland. Prior to November 11, 2004,any jurisdiction where an offer or sale is not permitted. The information in this operating segment also manufactured synthesized segmentsprospectus is current as of large-scale, GMP nucleic acids (known as oligonucleotides) in a facility in Boulder, Colorado. On November 11, 2004, the assets associated with this facility were sold to an unaffiliated, third party. As a result, the Nucleic Acids operating segment no longer manufactures and sells these specialized oligonucleotides. A substantial portion of this operating segment’s revenues during 2005 and 2004 have been derived from one customer.

Principles of Consolidation.

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

Use of Estimates.

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In particular, estimates of the valuation of long-term inventory are subject to considerable estimation error due to the inherent uncertainty in projecting sales of this product over a period of years. In addition, estimates and assumptions associated with the determination of fair value of certain assets and related impairments, and the determination of goodwill impairments require considerable judgment by management. Actual results could differ from the estimates and assumptions used in preparing these financial statements.

Cash and Cash Equivalents.

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

Accounts Receivable.

Accounts receivable are shown net of allowance for doubtful accounts. The followingprospectus. You should not assume that this prospectus is a summary of activity for the allowance for doubtful accounts.

   September 30,
   2005
  2004

Beginning balance

  $1,051  $549

Charges to income

   —     46

Deductions from reserves

   155   15
   
  

Ending balance

  $896  $580
   
  

Revenue Recognition.

Revenue on the sales of products is recognized in accordance with the terms of the sales arrangement. Such recognition is based on receipt of an unconditional customer order and transfer of title and risk of ownership to the customer, typically upon shipment of the product. Our sales terms do not provide for the right of return unless the product is damaged or defective. Revenues from certain services associated with our analytical instruments, to be performed subsequent to shipment of the products, is deferred and recognized when the services are provided. Such services, mainly limited to installation and training services that are not essential to the functionality of the instruments, typically are performed in a timely manner subsequent to shipment of the instrument. The Company also enters into various service contracts that cover installed WAVE systems. These contracts cover specific time periods and revenue associated with these contracts is deferred and recognized over the service period. At September 30, 2005, deferred revenue associated with the Company’s service contracts was approximately $1,600 and is included in “accrued expenses” in the accompanying unaudited consolidated balance sheets.

TRANSGENOMIC, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Nine Months Ended September 30, 2005 and 2004

(Dollars in thousands except per share data)

During the nine months ended September 30, 2004, the Company recognized approximately $646 of product sales under bill-and-hold arrangements. Under these arrangements, the customer had accepted title and risk of ownership to the product, but had requested that the Company store the product on behalf of the customer, in a rented freezer, until the nine months ended September 30, 2004. There were no sales under bill-and-hold arrangements recognized during the nine months ended September 30, 2005.

Stock Based Compensation.

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

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

   September 30,
 
   2005
  2004
 

Net Income (Loss):

         

As reported

  $(3,779) $(27,434)

Less pro forma stock-based employee compensation expense determined under fair value method, net of related tax

   (504)  (764)
   
 

Pro forma

  $(4,283) $(28,198)
   
 

Basic and Diluted Income (Loss) Per Share:

         

As reported

  $(0.12) $(0.95)

Pro forma

  $(0.13) $(0.97)

The weighted average fair value of options granted during the nine months ended September 30, 2005 and 2004 was $0.63 per share and $1.34 per share, respectively. The fair value of each stock option granted is estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for options granted during the nine months ended September 30, 2005 and 2004: no common stock dividends; risk-free interest rates of 4.14% to 4.79%; 95% volatility in 2005 and 85% in 2004; and an expected option life of 3 years. At September 30, 2005, the weighted average remaining contractual life of options outstanding was 5.5 years.

Translation of Foreign Currency.

Financial statements of subsidiaries outside the U.S. are measured using the local currency as the functional currency. The adjustments to translate those amounts into U.S. dollars are accumulated in a separate account in stockholders’ equity and are included in other comprehensive income. Foreign currency transaction gains or losses resulting from changes in currency exchange rates are included in the determination of net income (loss). Foreign currency transaction adjustments increased operating expenses by approximately $237 during the nine months ended September 30, 2005 and reduced operating expenses by approximately $135 during the nine months ended September 30, 2004.

Earnings or Loss Per Share.

Basic earnings or loss per share is calculated based on the weighted-average number of common shares outstanding during each period. Diluted earnings or loss per share includes shares issuable upon exercise of outstanding stock options and warrants or conversion of convertible notes, where dilutive. For all periods presented, basic and diluted weighted average shares outstanding and loss per share are identical, since all potentially dilutive securities are antidilutive. Potentially dilutive securities consist of stock options and warrants representing 5,541,015 and 1,159,421 shares of common stock, respectively, at September 30, 2005,. Additionally, the Company’s gross indebtedness to Laurus totaling $8,263 at September 30, 2005 is convertible into the Company’s

TRANSGENOMIC, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Nine Months Ended September 30, 2005 and 2004

(Dollars in thousands except per share data)

common stock at $1.00 per share, which was the closing price of the Company’s common stock on September 30, 2005. As described in Note L, this indebtedness was repaid subsequent to September 30, 2005.

Recently Issued Accounting Pronouncements

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

On November 24, 2004, the FASB issued SFAS No. 151, “Inventory Costs” – an amendment of ARB No. 43. SFAS No. 151 requires idle facility expenses, freight, handling costs, and wasted material (spoilage) costs to be excluded from the cost of inventory and expensed when incurred. It also requires that allocation of fixed production overhead be based on the normal capacity of the production facilities. SFAS No. 151 will be effective for the Company on January 1, 2006. The Company is currently assessing the final impact of this standard on its financial position, results of operations or cash flows.

B. INVENTORIES

Inventories consisted of the following at September 30, 2005.

   BioSystems
  Nucleic
Acids
  Total

Finished Goods

  $2,155  $1,529  $3,684

Raw materials and work in process

   516   2,393   2,909

Demonstration inventory

   123   —     123
   
  
  
    2,794   3,922   6,716

Less inventory classified as a long-term asset

   —     2,615   2,615
   
  
  

Net Inventory

  $2,794  $1,307  $4,101
   
  
  

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

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

C. GOODWILL

Goodwill totaled $638 at September 30, 2005 and related entirely to the BioSystems. The following summarizes goodwill adjustments for the nine months ended September 30, 2005 and 2004.

   Nine Months
Ended
September 30,
 
   2005
  2004
 

Beginning balance

  $638  $10,503 

Adjustments

   —     (9,865)
   
  

Ending balance

  $638  $638 
   
  

TRANSGENOMIC, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Nine Months Ended September 30, 2005 and 2004

(Dollars in thousands except per share data)

The Company recorded a charge of $9,865 during the nine months ended September 30, 2004 related to the impairment of goodwill associated with the Nucleic Acids operating segment. The amount of the impairment charges was based, in part, on an independent valuation performed by an unaffiliated valuation firm. The charge resulted from an interim period impairment test performed during the second quarter of 2004.

The interim period impairment test became necessary after the Company’s Board of Directors directed management during the second quarter of 2004 to explore strategic alternatives for the Nucleic Acids operating segment. This process included significant due diligence by management, third-party advisors and prospective independent buyers and other interested parties. Information obtained through this process indicated that it was more likely than not that the assets associated with the Nucleic Acids operating segment were impaired.

The Company also recorded a charge of $2,100 during the nine months ended September 30, 2004 related to the impairment of property and equipment associated with the Nucleic Acids operating segment.

D. OTHER ASSETS

Finite lived intangible assets and other assets consisted of the following at September 30, 2005.

   Cost
  Accumulated
Amortization
  Net
Book
Value

Finite Lived Intangible Assets

            

Capitalized software

  $2,132  $1,978  $154

Intellectual property

   765   518   247

Patents

   651   114   537
   
  
  
    3,548   2,610   938
   
  
  

Other Assets

            

Long Term Inventory

   2,615   —     2,615

Deferred Financing Costs

   576   326   250

Other

   543   205   338
   
  
  
    3,734   531   3,203
   
  
  

Total

  $7,282  $3,141  $4,141
   
  
  

During the nine months ended September 30, 2005, management determined that certain international patent pursuits were no longer consistent with the Company’s strategic plan. Accordingly, the Company recorded an impairment charge of $247 related to the abandonment of such pursuits.

Amortization expense for intangible assets was $717 and $728 for the nine months ended September 30, 2005 and 2004, respectively. Amortization expense for intangible assets is expected to be approximately $297 for the remainder of 2005, $342 in 2006, $331 in 2007, $62 in 2008, $134 in 2009, $134 in 2010 and $26 in 2011.

E. DEBT

Debt consisted of the following at September 30, 2005.

Credit Line (“Credit Line”) with Laurus

     

Gross amount due (accruing interest at 2% above prime or 8.75% at September 30, 2005, due December 2006)

  $6,588 

Debt premium

   435 

Debt discount—warrants

   (61)

Debt discount—beneficial conversion premium

   (27)
   
   $6,935 

Long-Term Debt with Laurus (“Term Note”)

     

Convertible debt (accruing interest at 2% above prime or 8.75% at September 30, 2005, due February 2007)

  $1,675 

Debt premium

   226 

Less current portion

   (675)
   
   $1,226 
   

TRANSGENOMIC, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Nine Months Ended September 30, 2005 and 2004

(Dollars in thousands except per share data)

Funds available under the Credit Line are determined by a borrowing base equal to 90% of eligible accounts receivable balances plus up to $1,000 related to inventory balances.

On August 31, 2004, Laurus agreed to extend a then existing borrowing base waiver, defer certain payments due under the Term Note and reduce the interest rate on both of the Laurus Loans to 0% for any day the closing sale price of the Company’s common stock is at or above $1.75 per share. In return, the Company lowered the conversion price on each of the Laurus Loans to $1.00 per share and issued a warrant to Laurus covering an additional 400,000 common shares at an exercise price of $1.25 per share. The closing price of the Company’s common stock on August 31, 2004 was $1.20 per share.

The August 31, 2004 Laurus modifications were treated as extinguishments for financial reporting purposes since the change in present value of expected cash flows between the original and modified agreements is greater than 10%. As such, the Company recorded a loss on extinguishment of debt of $2,859 at August 31, 2004 reflecting the difference between (i) the recorded amount of debt, net of related discounts, of $7,427 and (ii) the fair value of the new debt instrument of $10,287 plus the fair value of the new warrants of $111. The difference between the fair value of the new debt of $10,287 and the face value of the debt of $8,572 represents a premium, which will be reflected as a reduction of interest expense over the life of the new debt.

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

Interest expense consisted of the following for the nine months ended September 30:

    
   2005
  2004

Interest paid or accrued on outstanding debt

  $477  $388

Amortization of debt premiums

   (816)  —  

Amortization of debt discounts – warrants

   24   —  

Amortization of debt discount – beneficial conversion feature

   725   809

Fair value of incremental shares received by Laurus

   1,365   —  

Deferred Financing Costs

   144   487
   
 
   $1,919  $1,684
   
 

As of September 30, 2005 principal repayments under the Term Note are scheduled as follows: $0 for the remainder of 2005, $875 in 2006, and $800 in 2007. As describe in Note L, the Company repaid the entire principal balance and terminated the Laurus Loans subsequent to September 30, 2005 with the proceeds from the private placement. Accordingly, the Company no longer has any borrowings which require scheduled principal and interest payments.

TRANSGENOMIC, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Nine Months Ended September 30, 2005 and 2004

(Dollars in thousands except per share data)

F. COMMITMENTS AND CONTINGENCIES

The Company is 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 claims currently pending will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

The Company leases certain equipment, vehicles and operating facilities. The Company’s leases related to its operating facilities currently expire on various dates through 2010. At September 30, 2005, the future minimum lease payments required under non-cancelable lease provisions were approximately $359 for the remainder of 2005, $1,233 in 2006, $443 in 2007, $189 in 2008, $193 in 2009, and $167 in 2010. Rent expense related to all operating leases was approximately $968 and $1,689 for the nine months ended September 30, 2005 and 2004, respectively.

At September 30, 2005, the Company had firm commitments totaling $872 to purchase components used in WAVE Systems.

G. INCOME TAXES

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

Due to the Company’s cumulative losses, expected losses in future years and inability to utilize any additional losses as carrybacks, the Company has not provided for an income tax benefit during the nine months ended September 30, 2005 or 2004 based on management’s determination that it was more likely than not that such benefits would not be realized. The Company will continue to assess the recoverability of deferred tax assets and the related valuation allowance. To the extent the Company begins to generate taxable income in future periods and it determines that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized at such time. As of September 30, 2005, the Company’s deferred tax assets were offset by a valuation allowance of approximately $41,227.

H. STOCKHOLDERS’ EQUITY

The following shows changes to the components of stockholders’ equity during the nine months ended September 30, 2005.

   Common Stock
  Additional
Paid in
Capital
  Accumulated
Deficit
  Accumulated
Other
Comprehensive
Income (Loss)
  Total
 
   Outstanding
Shares
  Par
Value
      

Balance, January 1, 2005

  29,330,874  $299  $120,798  $(107,101) $2,539  $16,535 

Net loss

  —     —     —     (3,779)  (3,779)  (3,779)

Other comprehensive income (loss), net of tax of zero:

                        

Foreign currency translation adjustment

  —     —     —     —     (1,553)  (1,553)

Unrealized gain on available for sale securities

  —     —     —     —     65   65 
   
  
  
  
 
 

Comprehensive loss

  —     —     —     —     (5,267)    

Beneficial conversion premium

  —     —     399   —     —     399 

Issuance of shares upon conversion of Laurus Loans

  4,900,000   48   2,487   —     —     2,535 

Fair value of incremental shares issued

  —     —     1,365   —     —     1,365 

Issuance of shares for employee stock purchase plan

  15,462   1   9   —     —     10 
   
  
  
  
 
 

Balance, September 30, 2005

  34,246,336  $348  $125,058  $(110,880) $1,051  $15,577 
   
  
  
  
 
 

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

TRANSGENOMIC, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Nine Months Ended September 30, 2005 and 2004

(Dollars in thousands except per share data)

Date
 Price
 Shares
Issued
 Proceeds
 Facility
 Applied
To
January 2005 $1.00 50,000 $50 Term Note Principal
March 2005 $0.52 3,600,000  1,835 Credit Line Principal
March 2005 $0.52 1,250,000  650 Term Note Principal
     
 
    
     4,900,000 $2,535    
     
 
    

I. STOCK OPTIONS

The following table summarizes activity under the 1997 Stock Option Plan during the nine months ended September 30, 2005.

   Number of
Options
  Weighted
Average
Exercise Price

Balance at January 1, 2005

  5,088,037  $5.09

Granted

  1,123,500  $1.04

Cancelled

  (670,522) $4.21
   
   

Balance at September 30, 2005

  5,541,015  $4.37
   
   

Exercisable at September 30, 2005

  4,396,281  $5.11
   
   

The following table summarizes information about options outstandingaccurate as of September 30, 2005:

   Options Outstanding
  Options Exercisable

Range of Exercise Prices

  Number
Outstanding
  Weighted-
Average
Remaining
Contractual
Life
  Weighted-
Average
Exercise
Price
  Number
Exercisable
  Weighted-
Average
Exercise
Price
      (in years)         

$ 1.00—$ 1.30

  1,360,167  9.2  $1.08  558,384  $1.12

$ 1.31—$ 2.60

  798,167  7.6  $1.91  510,682  $1.92

$ 2.61—$ 3.90

  35,000  7.1  $2.90  23,334  $2.90

$ 3.91—$ 5.20

  2,074,700  2.3  $5.00  2,074,700  $5.00

$ 5.21—$ 6.50

  692,750  5.6  $6.15  662,150  $6.15

$ 6.51—$ 9.10

  10,000  5.6  $9.00  10,000  $9.00

$ 9.11—$10.40

  300,500  5.3  $9.88  296,500  $9.88

$10.41—$13.00

  269,731  4.6  $12.80  260,531  $12.83
   
         
    
   5,541,015  5.5  $4.37  4,396,281  $5.11
   
         
    

J. OPERATING SEGMENT AND GEOGRAPHIC any other date.



26



PART II.
INFORMATION

Operations for the BioSystems NOT REQUIRED IN PROSPECTUS



Item 13. Other Expenses of Issuance and Nucleic Acids operating segments are evaluated based upon specific identification of revenues and expenses associated with the business activities resulting in a segment operating income. Expenses that cannot be directly identified to an operating activity or are considered corporate overhead are not allocated to the segments in arriving at operating income for the segment. Generally, decisions regarding asset allocation, financing, taxes or other items impacting the Company’s balance sheet are made at the corporate level and, accordingly, operating segment balance sheet information is not reviewed by operating decision makers.

Distribution.

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

   Nine Months Ended
September 30,
 
   2005
  2004
 

Net Sales

         

BioSystems

  $20,479  $18,450 

Nucleic Acids

   3,232   7,384 
   
 

Total

  $23,711  $25,834 
   
 

Income (Loss) from Operations

         

BioSystems

  $2,227  $(1,309)

Nucleic Acids

   (630)  (17,073)

Corporate

   (3,461)  (4,442)
   
 

Total

  $(1,864) $(22,824)
   
 

TRANSGENOMIC, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Nine Months Ended September 30, 2005 and 2004

(Dollars in thousands except per share data)

During the nine months ended September 30, 2005, sales to a large pharmaceutical company totaled $2,009 and represented 10% of net sales within the Company’s BioSystems operating segment and 9% of total consolidated net sales. Sales to this customer are governed by a non-binding master services agreement dated August 22, 2002.

During the nine months ended September 30, 2005, sales to Geron Corporation (“Geron”) totaled $1,729 and represented 54%, of net sales within the Company’s Nucleic Acids operating segment 7% total net consolidated sales. Sales to Geron are governed by a non-binding supply agreement dated June 15, 2002, as amended. Under the supply agreement and related addendums, Geron has historically paid the Company for goods and services with its common stock. The terms of each addendum generally provide that Geron pre-pay 50% of the total sales price of goods sold under the addendum upon execution of the addendum and the remaining 50% upon acceptance of the related goods and services. Geron shares received by the Company are restricted for resale until they are registered with the Securities and Exchange Commission. The Company assumes all market risk related to the value of these securities and any selling costs are paid by the Company. Once registered, it has been the Company’s intent and practice to sell such securities as soon as practical.

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

Date Received

 

Shares

 

Product Sales Price

 

Date Sold

 

Net

Proceeds

 

Gain (Loss)

January 2004 85,855 $959 February 2004 $   932 $(27)
March 2004 33,662 $289 July 2004 $   263 $(26)
April 2005 101,801 $608 May 2005 $   617 $   9 
August 2005 151,550 $1,491 October 2005 $1,534 $ 43 

K. RESTRUCTURING PLAN

The Company had accrued expenses associated with its 2004 restructuring plan of $368 at September 30, 2005 that relates primarily to future rents on closed facilities (net of projected sublease rents) of which $27 is expected to be paid during the remainder of 2005 and $341 in 2006 and thereafter.

L. SUBSEQUENT EVENT

On October 31, 2005, the Company closed on a private placement of securities to institutional investors. The securities issued consisted of: (i) 14,925,743 shares of the Company’s common stock, plus (ii) five-year, non-callable warrants to purchase another 5,970,297 shares of common stock with an exercise price of $1.20 per share (the “Offering”). The aggregate purchase price for the securities sold in the private placement was $1.01 per share of common stock initially being sold (the “Purchase Price”) or $15,075. In conjunction with the private placement, the Company issued a warrant to Oppenheimer & Co., Inc. (“Oppenheimer”) to purchase 932,859 shares at $1.20 per share as part of their placement fee for the private placement.

Contemporaneously with the closing of the private placement, the Company repaid all outstanding principal and accrued interest on the Laurus Loans, including fees to facilitate the private placement and prepayment penalties to Laurus in the sum of $824. As a result, the Credit Line with Laurus has been cancelled and is no longer available to the Company.

TRANSGENOMIC, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Nine Months Ended September 30, 2005 and 2004

(Dollars in thousands except per share data)

The Company is required to register all shares of common stock sold in the Offering and issuable upon exercise of the warrants. The common stock issued to these institutional investors may be sold in the secondary market at any time once such registration is effective. Failure to register these shares in a timely manner will subject the Company to liquidated damages of 1.5% of the aggregate purchase price per month for each successive 30-day period, calculated on a pro rata basis for any partial 30-day period.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Transgenomic, Inc.

Omaha, Nebraska

We have audited the accompanying consolidated balance sheets of Transgenomic, Inc. and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Transgenomic, Inc. and subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note O, during the first quarter of 2005, the Company obtained an extension of the waiver of the borrowing base limit through March 31, 2006.

As discussed in Note P, the Company restated its consolidated statements of cash flows for the years ended December 31, 2004 and 2003.

/s/ DELOITTE & TOUCHE LLP

Omaha, Nebraska

April 14, 2005 (May 25, 2005, as to the effects of the restatement discussed in Note P)

TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of December 31, 2004 and 2003

(Dollars in thousands except per share data)

   2004
  2003
 

ASSETS

         

CURRENT ASSETS:

         

Cash and cash equivalents

  $1,002  $1,241 

Accounts receivable (net of allowances for bad debts of $1,051 and $549)

   10,197   10,877 

Inventories

   5,366   10,584 

Prepaid expenses and other current assets

   1,343   1,676 
   
 

Total current assets

   17,908   24,378 

PROPERTY AND EQUIPMENT:

         

Land and buildings

   2,427   2,239 

Equipment

   19,263   20,362 

Furniture and fixtures

   5,781   9,054 
   
 
    27,471   31,655 

Less: accumulated depreciation

   13,946   12,951 
   
 
    13,525   18,704 

GOODWILL

   638   10,503 

OTHER ASSETS

   5,387   3,721 
   
 
   $37,458  $57,306 
   
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

         

CURRENT LIABILITIES:

         

Accounts payable

  $3,431  $3,580 

Other accrued expenses

   7,318   3,874 

Accrued compensation

   636   959 

Line of credit

   6,514   2,142 

Current portion of long-term debt

   825   1,693 
   
 

Total current liabilities

   18,724   12,248 

Long-term debt

   2,199   —   
   
 

Total liabilities

   20,923   12,248 

COMMITMENTS AND CONTINGENCIES (Note F)

         

STOCKHOLDERS’ EQUITY:

         

Preferred stock, $.01 par value, 15,000,000 shares authorized, none outstanding

   —     —   

Common stock, $.01 par value, 60,000,000 shares authorized, 29,330,874 and 28,119,122 shares outstanding in 2004 and 2003, respectively

   299   286 

Additional paid-in capital

   120,798   115,904 

Accumulated other comprehensive income

   2,539   1,597 

Accumulated deficit

   (107,101)  (72,729)
   
 

Total stockholders’ equity

   16,535   45,058 
   
 
   $37,458  $57,306 
   
 

See notes to consolidated financial statements.

TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

   2004
  2003
  2002
 

NET SALES

  $33,789  $33,866  $37,554 

COST OF GOODS SOLD

   24,596   24,315   19,569 
   
 
 

Gross profit

   9,193   9,551   17,985 

OPERATING EXPENSES:

             

Selling, general and administrative

   17,499   17,324   24,199 

Research and development

   6,685   9,305   12,201 

Restructuring charges (Note N)

   3,570   738   3,282 

Impairment charges (Note C)

   11,965   4,772   —   

Gain on sale of facility (Note M)

   (1,466)  —     —   
   
 
 
    38,253   32,139   39,682 

LOSS FROM OPERATIONS

   (29,060)  (22,588)  (21,697)

OTHER INCOME (EXPENSE):

             

Interest expense

   (2,383)  (315)  (62)

Loss on debt extinguishment

   (2,859)  —     —   

Other—net

   (164)  10   499 
   
 
 
    (5,406)  (305)  437 

LOSS BEFORE INCOME TAXES

   (34,466)  (22,893)  (21,260)

CURRENT INCOME TAX EXPENSE (BENEFIT)

   (94)  65   105 
   
 
 

NET LOSS

  $(34,372) $(22,958) $(21,365)
   
 
 

BASIC AND DILUTED LOSS PER SHARE

  $(1.19) $(0.94) $(0.91)

BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING

   29,006,241   24,483,861   23,582,687 

See notes to consolidated financial statements.

TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

   Common Stock
  Additional
Paid in
Capital
  Unearned
Compensation
  Accumulated
Deficit
  Accumulated
Other
Comprehensive
Income (Loss)
  Treasury
Stock
  Total
 
   Outstanding
Shares
  Par
Value
        

Balance, January 1, 2002

  23,606,003  $239  $113,260  $(158) $(28,406) $(81) $(2,750) $82,104 

Net loss

  —     —     —     —     (21,365)  (21,365)  —     (21,365)

Other comprehensive income (loss):

                                

Foreign currency translation adjustment

  —     —     —     —     —     493   —     493 

Unrealized gain on available for sale securities

  —     —     —     —     —     (34)  —     (34)
                      
        

Comprehensive loss

  —     —     —     —     —     (20,906)  —       

Issuance and exercise of stock options or warrants

  81,900   1   460   (51)          —     410 

Issuance of shares for employee stock purchase plan

  56,842   —     214   —     —     —     —     214 

Deferred compensation

  —     —     —     131   —     —     —     131 

Purchase of treasury stock

  (232,700)  —     —     —     —     —     (438)  (438)
   
 
  
  
 
 
 
 

Balance, December 31, 2002

  23,512,045   240   113,934   (78)  (49,771)  378   (3,188)  61,515 

Net loss

  —     —     —         (22,958)  (22,958)  —     (22,958)

Other comprehensive income (loss):

                          —       

Foreign currency translation adjustment

  —     —     —     —     —     1,219   —     1,219 
                      
        

Comprehensive loss

  —     —     —     —     —     (21,739)  —       

Issuance of stock options and warrants

  —     —     386   —     —     —     —     386 

Beneficial Conversion Premium

  —     —     480   —     —     —     —     480 

Issuance of shares

  4,500,000   45   969   —     —     —     3,188   4,202 

Issuance of shares for employee stock purchase plan

  107,077   1   135   —     —     —     —     136 

Amortization of unearned compensation

              78   —     —     —     78 
   
 
  
  
 
 
 
 

Balance, December 31, 2003

  28,119,122   286   115,904   —     (72,729)  1,597   —     45,058 

Net loss

  —     —     —     —     (34,372)  (34,372)      (34,372)

Other comprehensive income (loss):

                                

Foreign currency translation adjustment

  —     —     —     —     —     942   —     942 
                      
        

Comprehensive loss

  —     —     —     —     —     (33,430)  —       

Issuance of stock options and warrants

  —     —     189   —     —     —     —     189 

Beneficial Conversion Premium

  —     —     2,420   —     —     —     —     2,420 

Issuance of shares

  1,134,850   12   2,198   —     —     —     —     2,210 

Issuance of shares for employee stock purchase plan

  76,902   1   87   —     —     —     —     88 
   
 
  
  
 
 
 
 

Balance, December 31, 2004

  29,330,874  $299  $120,798  $—    $(107,101) $2,539  $—    $16,535 
   
 
  
  
 
 
 
 

See notes to consolidated financial statements.

TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

   

2004

(as restated, see

Note P)

  

2003

(as restated, see
Note P)

  2002
 

CASH FLOWS FROM OPERATING ACTIVITIES:

             

Net loss

  $(34,372) $(22,958) $(21,365)

Adjustments to reconcile net loss to net cash flows from operating activities:

             

Depreciation and amortization

   4,625   4,597   3,993 

Non-cash restructuring charges (Note N)

   2,027   364   1,698 

Impairment charges (Note C)

   11,965   4,772   —   

Gain on sale of facility (Note M)

   (1,466)  —     —   

Non-cash financing costs

   1,642   —     —   

Loss on debt extinguishment

   2,859   —     —   

(Gain)/Loss on sale of securities

   128   (64)  —   

Other

   18   93   131 

Changes in operating assets and liabilities, net of acquisitions:

             

Purchase of trading securities

   —     (1,566)  —   

Proceeds from sale of trading securities

   —     1,519   —   

Accounts receivable

   (3,334)  342   794 

Inventories

   2,611   2,887   (5,767)

Prepaid expenses and other current assets

   (130)  334   527 

Accounts payable

   (268)  (1,509)  2,249 

Accrued expenses

   941   (1,828)  (204)
   
 
 

Net cash flows from operating activities

   (12,754)  (13,017)  (17,944)

CASH FLOWS FROM INVESTING ACTIVITIES:

             

Proceeds from the maturities and sale of available for sale securities

   4,269   4,000   39,355 

Purchases of available for sale securities

   —     —     (19,088)

Purchase of property and equipment

   (1,758)  (6,413)  (11,468)

Change in other assets

   522   (543)  (2,871)

Proceeds from sale of specialty oligonuceotide manufacturing facility (Note M)

   3,000   —     —   

Proceeds from asset sales

   —     9   —   
   
 
 

Net cash flows from investing activities

   6,033   (2,947)  5,928 

CASH FLOWS FROM FINANCING ACTIVITIES:

             

Net change in line of credit

   4,956   2,992   —   

Proceeds from long-term debt

   2,750   —     1,559 

Payments on long-term debt

   (1,779)  (35)  —   

Issuance of common stock, net of expenses

   71   4,338   624 

Purchase of treasury stock

   —     —     (438)
   
 
 

Net cash flows from financing activities

   5,998   7,295   1,745 

EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH

   484   175   393 
   
 
 

NET CHANGE IN CASH AND CASH EQUIVALENTS

   (239)  (8,494)  (9,878)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

   1,241   9,735   19,613 
   
 
 

CASH AND CASH EQUIVALENTS AT END OF YEAR

  $1,002  $1,241  $9,735 
   
 
 

SUPPLEMENTAL CASH FLOW INFORMATION

             

Cash paid during the year for:

             

Interest

  $560  $314  $30 

Income taxes, net

   (94)  70   120 

Non-cash transactions:

             

Available for sale securities acquired for goods and services

   4,397   277   —   

Conversions of debt to equity

   2,226   —     —   

See notes to consolidated financial statements.

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Description.

Transgenomic, Inc., a Delaware corporation, and its subsidiaries (the “Company”) provide innovative products and services for the synthesis, purification and analysis of nucleic acids. The Company’s products and services include automated instrument systems, associated consumables, nucleic acid chemical building blocks, nucleic acid synthesis products, novel chemistry development for nucleic acids, and genetic variation discovery services. The Company develops, assembles, manufactures and markets its products and services to the life sciences industry to be used in research focused on molecular genetics of humans and other organisms. Such research could lead to development of new diagnostics and therapeutics. The Company’s business plan is to participate in the value chain associated with these activities by providing key technology, tools, consumables, biochemical reagents and services to those entities engaged in basic biomedical research and the development of diagnostics and therapeutic agents.

The Company operates in two reportable segments, BioSystems and Nucleic Acids. The BioSystems operating segment generates revenue from the sale of automated instrument systems and associated consumable products and services. The Nucleic Acids operating segment generates revenue from the sale of nucleic acid-based products and services.

The Company markets and sells these products primarily through a direct sales and support group in North America and Europe and through a network of distributors in the Pacific Rim and other international markets. These sales efforts are directed from the Company headquarters in Omaha, Nebraska and through a series of sales and support offices strategically located throughout the United States, Europe and Japan.

The Company has experienced recurring net losses and had an accumulated deficit of $107,101 at December 31, 2004. Based on the Company’s 2005 operating plan, management believes its existing sources of liquidity will be sufficient to meet its cash needs during 2005. If necessary, the Company’s management believes they can manage costs and expenses at reduced levels to conserve working capital. The need for any such cost and expense reductions during 2005 would likely delay implementation of the Company’s business plan. Additionally, management may pursue additional financing alternatives. Ultimately, the Company must achieve sufficient revenue levels to support its cost structure.

Principles of Consolidation.

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

Cash and Cash Equivalents.

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

Short Term Investments.

The Company classifies all of its short-term investments with maturities at acquisition of greater than three months as available for sale securities. Such short-term investments consist primarily of United States government and federal agency securities, corporate commercial paper and corporate debt that are stated at market value, with unrealized gains and losses on such securities reflected, net of tax, as other comprehensive income in stockholders’ equity. Realized gains and losses on short term investments are included in earnings and are derived using the specific identification method for determining the cost of securities. It is the Company’s intent to maintain a liquid portfolio to take advantage of investment opportunities; therefore, all securities are considered to be available for sale and are classified as current assets.

During 2003 and 2004, the Company accepted common stock from one of its customers (Geron Corporation) as payment for goods and services. These shares were classified as available-for-sale securities. Net losses on these securities of $128 during 2004 and net gains of $111 during 2003 were reflected as other expense on the consolidated statement of operations. Proceeds from the sales of these available for sale securities were reflected within net cash flows from investing activities.

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

Accounts Receivable.

Accounts receivable are shown net of allowance for doubtful accounts. The following is a summary of activity for the allowance for doubtful accounts during each of the three years ended December 31, 2004:

   Beginning
Balance
  Additional
Charges
to Income
  Deductions
from
Reserve
  Ending
Balance

Year Ended December 31, 2004

  $549  $534  $32  $1,051

Year Ended December 31, 2003

  $450  $174  $75  $549

Year Ended December 31, 2002

  $213  $418  $181  $450

While payment terms are generally 30 days, the Company has also provided extended payment terms of up to 90 days in certain cases.

Inventories.

Inventories are stated at the lower of cost or market. Cost is computed using standard costs for finished goods and average or latest actual cost for raw materials and work in process.

Property and Equipment.

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

Buildings

15 years

Leasehold improvements

3 to 7 years

Furniture and fixtures

5 to 7 years

Production equipment

5 to 7 years

Computer equipment

3 to 5 years

Research and development equipment

3 to 5 years

Demonstration equipment

3 to 5 years

Depreciation of property and equipment totaled $4,009, $3,983 and $3,993 in 2004, 2003 and 2002, respectively.

Goodwill and other Intangible Assets

The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142,Goodwill and Other Intangible Assets,beginning on January 1, 2002. SFAS No. 142 provides that goodwill and other intangible assets with indefinite lives will not be amortized, but will be tested for impairment annually. Impairment occurs when the fair value of the asset is less than its carrying amount. If impaired, the asset’s carrying value is reduced to its fair value. Identifiable intangible assets with definite lives are amortized over their estimated useful lives and tested for impairment as events or changes in circumstances indicate the carrying amount of the asset may be impaired. Impairment occurs when the carrying value is not recoverable and the fair value of the asset is less than the carrying value.

The Company has not amortized goodwill for any period presented. Accordingly, there are no differences between reported net loss and loss per share related to goodwill amortization.

Other Assets.

Other assets include long-term inventory, patents, intellectual property, deferred financing costs and capitalized software development costs. The Company capitalizes the external and in-house legal costs and filing fees associated with obtaining patents on its new discoveries and amortizes these costs using the straight-line method over the shorter of the legal life of the patent or its

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

economic life, generally 17 years, beginning on the date the patent is issued. The Company capitalized software development costs for products offered for sale in accordance with SFAS No. 86,Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. This Standard allows for the capitalization of certain development costs once a software product has reached technological feasibility. Development costs capitalized totaled $0 in 2004 and 2003 and $1,127 in 2002.

Stock Based Compensation.

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

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

   2004
  2003
  2002
 

Net Loss:

             

As reported

  $(34,372) $(22,958) $(21,365)

Pro forma

  $(35,432) $(24,794)  (23,274)

Basic and diluted loss per share:

             

As reported

   (1.19)  (0.94)  (0.91)

Pro forma

   (1.22)  (1.01)  (0.99)

Income Taxes.

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 unlikely they will be realized.

Revenue Recognition.

Revenue on the sales of products is recognized in accordance with the terms of the sales arrangement. Such recognition is based on receipt of an unconditional customer order and transfer of title and risk of ownership to the customer, typically upon shipment of the product. Our sales terms do not provide for the right of return unless the product is damaged or defective. Revenues from certain services associated with our analytical instruments, to be performed subsequent to shipment of the products, is deferred and recognized when the services are provided. Such services, mainly limited to installation and training services that are not essential to the functionality of the instruments, typically are performed in a timely manner subsequent to shipment of the instrument. The Company also enters into various service contracts that cover installed WAVE systems. These contracts cover specific time periods and revenue associated with these contracts is deferred and recognized over the service period. At December 31, 2004 and 2003, deferred revenue, mainly associated with the Company’s service contracts, included on the Company’s balance sheet was approximately $1,478 and $1,792 respectively.

Research and Development.

Research and development costs are charged to expense when incurred.

Translation of Foreign Currency.

Financial statements of subsidiaries outside the U.S. are measured using the local currency as the functional currency. The adjustments to translate those amounts into U.S. dollars are accumulated in a separate account in stockholders’ equity and are included in other comprehensive income. Foreign currency transaction gains or losses resulting from changes in currency exchange rates are

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

included in the determination of net income. Foreign currency transaction adjustments decreased net loss approximately $328 in 2004 and $1,089 in 2003 and 2002.

Comprehensive Income.

Accumulated other comprehensive income at December 31, 2004 and 2003 consisted of foreign currency translation adjustments, net of applicable tax of $0. For all previous periods presented, accumulated other comprehensive income consists of foreign currency translation adjustments and unrealized gains or losses on available for sale investments, net of applicable tax of $0. The Company deems its foreign investments to be permanent in nature and does not provide for taxes on currency translation adjustments arising from converting its investments in a foreign currency to U.S. dollars. There were no reclassification adjustments to be reported in the periods presented.

Fair Value of Financial Instruments.

The carrying amount of the Company’s cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair value because of the short maturity of those instruments. The Company derives the fair value of its short-term investments based on quoted market prices. The carrying value of long-term debt and the line of credit approximates fair value based upon existing interest rates available to the Company for similar debt.

Earnings Per Share.

Basic earnings per share are 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 and warrants or conversion of convertible notes, where dilutive. Potentially dilutive securities totaling 13,484,072, 7,671,771 and 5,158,672 in 2004, 2003 and 2002, respectively, have been excluded from the computation of diluted earnings per share as they have an antidilutive effect due to the Company’s net loss.

Recently Issued Accounting Pronouncements

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

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

Use of Estimates.

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

B. INVENTORIES

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

Inventories consisted of the following at December 31:

   Biosystems
Operating
Segment
  Nucleic Acids
Operating
Segment
  Total
   2004
  2003
  2004
  2003
  2004
  2003

Finished goods

  $2,637  $2,875  $2,380  $2,247  $5,017  $5,122

Raw materials and work in process

   780   1,223   2,275   3,851   3,055   5,074

Demonstration inventory

   153   388   —     —     153   388
   
  
  
  
  
  
    3,570   4,486   4,655   6,098   8,225   10,584

Less inventory classified as a long-term asset

   —     —     2,859   —     2,859   —  
   
  
  
  
  
  

Net Inventory

  $3,570  $4,486  $1,796  $6,098  $5,366  $10,584
   
  
  
  
  
  

The Nucleic Acids operating segment inventory at December 31, 2004 and 2003 consisted primarily of phosphoramadites and the raw materials to produce phosphoramadites which are used and produced at the Company’s facility in Glasgow, Scotland. As of December 31, 2004, the Company has classified a portion of this inventory as a long-term other asset based on its existing sales forecasts for these products.

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

C. GOODWILL

At December 31, 2004 and 2003, goodwill by operating segment consist of the following:

   Biosystems
Operating
Segment
  Nucleic Acids
Operating
Segment
  Total
 

Net balance December 31, 2002

  $638  $14,637  $15,275 

Goodwill impairment charge

   —     (4,772)  (4,772)
   
  
 

Net balance December 31, 2003

   638   9,865   10,503 

Goodwill impairment charge

   —     (9,865)  (9,865)
   
  
 

Net Balance December 31, 2004

  $638  $0  $638 
   
  
 

The Company recorded charges of $9,865 and $4,772 during 2004 and 2003, respectively, related to the impairment of goodwill associated with the Nucleic Acids operating segment. In each case, the amount of the impairment charge was based, in part, on independent valuations performed by the same unaffiliated valuation firm. The 2003 charge resulted from the Company’s annual impairment test that was performed in the fourth quarter of 2003. The 2004 charge resulted from an interim period impairment test performed during the second quarter of 2004.

The interim period impairment test became necessary after the Company’s Board of Directors directed management during the second quarter of 2004 to explore strategic alternatives for the Nucleic Acids operating segment. This process included significant due diligence by management, third-party advisors and prospective independent buyers and other interested parties. Information obtained through this process indicated that it was more likely than not that the assets associated with the Nucleic Acids operating segment were impaired.

The Company also recorded a charge of $2,100 during the second quarter of 2004 related to the impairment of property and equipment associated with the Nucleic Acids operating segment.

D. OTHER ASSETS

At December 31, 2004 and 2003, finite lived intangible assets and other assets consisted of the following:

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

   2004
  2003
   Cost
  Accumulated
Reserve
  Net
Book
Value
  Cost
  Accumulated
Reserve
  Net
Book
Value

Capitalized software

  $2,132  $1,468  $664  $2,132  $758  $1,374

Intellectual property

   765   476   289   765   165   600

Patents

   1,071   194   877   1,035   170   865

Deferred Financing Costs

   576   183   393   409   —     409

Long Term Inventory

   4,797   1,938   2,859   —     —     —  

Other

   452   147   305   656   183   473
   
  
  
  
  
  

Total

  $9,793  $4,406  $5,387  $4,997  $1,276  $3,721
   
  
  
  
  
  

Amortization expense for intangible assets was $1,197, $825 and $150 during 2004, 2003 and 2002, respectively. Amortization expense for intangible assets is expected to be approximately $1,009 in 2005, $342 in 2006, $320 in 2007, $62 in 2008 and $130 in 2009.

E. DEBT

Debt consisted of the following at December 31:

   2004
  2003
 

Credit Line

         

Gross amount due (2% above prime, due December 2006)

  $5,948  $2,992 

Debt premium

   1,004   —   

Debt discount – warrants

   (85)  (370)

Debt discount – beneficial conversion premium

   (353)  (480)
   
 
   $6,514  $2,142 
   
 

Long-Term Debt

         

Convertible debt (2% above prime, due February 2007)

  $2,550  $—   

Debt Premium

   474   —   

Mortgage debt

   —     1,693 

Less current portion

   (825)  (1,693)
   
 
   $2,199  $—   
   
 

In December 2003, the Company entered into a $7,500 line of credit (the “Credit Line”) with Laurus Master Fund, Ltd. (“Laurus”). The term of the Credit Line is three years carrying an interest rate of 2.0% over the prime rate or a minimum of 6.0% (7.25% at December 31, 2004). Funds available under the Credit Line are determined by a borrowing base equal to 90% of eligible accounts receivable balances plus up to $1,000 related to inventory balances. The Credit Line is secured by most of the Company’s assets. Prior to amendments to the Credit Line discussed below, payment of interest and principal could, under certain circumstances, be made with shares of the Company’s common stock at a fixed conversion price of $2.20 per share. Conversion of this debt to common stock may be made at the election of Laurus or the Company. The Company could elect to convert only if its shares trade at a price exceeding $2.42 per share for ten consecutive trading days, and such conversion is further subject to trading volume limitations and a limitation on the total beneficial ownership by Laurus of the Company’s common stock. Upon entering into the Credit Line, the Company issued warrants to Laurus to acquire 550,000 shares of the Company’s common stock at an exercise price exceeding the average trading price of the Company’s common stock over the ten trading days prior to the date of the warrant. The amount available under the Credit Line at December 31, 2004 and 2003 was $1,552 and $4,508, respectively.

In February 2004, the Company entered into a separate $2,750 convertible note with Laurus (the “Term Note”). The Term Note carries an interest rate of 2.0% over the prime rate or a minimum of 6.0% (7.25% at December 31, 2004) and has a term of 3 years. Prior to amendments to the Term Note discussed below, the principal and interest on the Term Note could be converted into common stock of the Company at a fixed conversion price of $2.61 per share. Upon entering the Term Note, the Company issued warrants to Laurus to acquire 125,000 shares of its common stock. Borrowings under the Term Note were primarily used to retire the mortgage

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

debt on the Company’s Glasgow facility. Remaining borrowings of approximately $750 were used to complete the build-out of the Glasgow facility, complete the consolidation the Company’s Glasgow operations into the new facility and provide funds for operations.

Certain features of the Credit Line and Term Note (collectively, the “Laurus Loans”) require the Company to separately account for the value of certain amounts related to the warrants issued and the conversion feature of the Laurus Loans. Specifically, Emerging Issues Task Force (“EITF”) No. 00-27,Application of Issue No. 98-5 to Certain Convertible Instruments, requires the Company to separately value the warrants issued and the “beneficial conversion premium” related to the Laurus Loans. Any borrowings under the Credit Line may result in additional beneficial conversion premiums. The values of the warrants and the beneficial conversion premium have been recorded on the balance sheet as a debt discount and an increase to additional paid in capital. The debt discount recorded for these items will be amortized as expense to the income statement over the terms of the Laurus Loans or as the warrants are exercised or the debt is converted into common stock thereby increasing the effective interest rate on the Laurus Loans. In January and February 2004, Laurus exercised its conversion rights on the Credit Line and converted $2,000 of amounts outstanding on the Credit Line into approximately 910,000 shares of common stock of the Company. In connection with this conversion, the Company accelerated the amortization of approximately $480 of the beneficial conversion premium.

In February 2004, Laurus waived the borrowing base limitation on the Credit Line, thereby making the full $7,500 facility available to the Company regardless of the available collateral. On August 31, 2004, Laurus agreed to extend the borrowing base waiver on the Credit Line through March 19, 2005. In addition, Laurus deferred certain payments due under the Term Note and reduced the interest rate on both of the Laurus Loans to 0% for any day the closing sale price of the Company’s common stock is at or above $1.75 per share. In return, the Company lowered the conversion price on each of the Laurus Loans to $1.00 per share and issued a warrant to Laurus covering an additional 400,000 common shares at an exercise price of $1.25 per share. The closing price of the Company’s common stock on August 31, 2004 was $1.20 per share.

The August 31, 2004 Laurus modifications were treated as extinguishments for financial reporting purposes since the change in present value of expected cash flows between the original and modified agreements is greater than 10%. As such, the Company recorded a loss on extinguishment of debt of $2,859 at August 31, 2004 reflecting the difference between (i) the recorded amount of debt, net of related discounts, of $7,427 and (ii) the fair value of the new debt instrument of $10,287 plus the fair value of the new warrants of $111. The difference between the fair value of the new debt of $10,287 and the face value of the debt of $8,572 represents a premium, which will be reflected as a reduction of interest expense over the life of the new debt.

Prospectively, draws on the Credit Line may result in beneficial conversion charges to the extent the price of the Company’s common stock exceeds the conversion price on the day of the draw. Such beneficial charges will be amortized as expense to the income statement during the period the draw remains outstanding or up to the point the debt is converted into common stock thereby increasing the effective interest rate on the Credit Line.

Principal repayments under the Term Note are scheduled as follows: $850 in 2005, $900 in 2006, and $800 in 2007.

Amortization of debt premiums and discounts totaled $1,644 during 2004 and $0 in each 2003 and 2002 and is reflected as interest expense in the accompanying statement of operations.

During 2002, Cruachem Ltd., a wholly owned subsidiary of the Company, entered into a mortgage loan with The Royal Bank of Scotland. The original principal amount of the loan was £1.0 million. Principal and interest were payable in quarterly installments. The loan carried a 15-year term and a fixed annual interest rate of 6.77%. Security for this loan was the Company’s 45,000 square foot manufacturing facility located in Glasgow, Scotland. The loan carried certain financial and non-financial covenants that included a minimum net cash flow requirement. The net book value of the facility was approximately $2,000 at December 31, 2003. During February 2004, the Company repaid the principal balance of the mortgage loan and therefore, the Company included the entire outstanding principal balance of this loan at December 31, 2003 within current liabilities.

F. COMMITMENTS AND CONTINGENCIES

The Company has been named as a defendant in a lawsuit filed in Spain by a prospective distributor who claims that the Company breached a promise to grant the plaintiff a distributorship for certain of the Company’s products in a specific geographic area

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

in Europe. The plaintiff is seeking monetary relief of approximately $500. The Company believes the lawsuit is without merit and intends to vigorously defend this matter.

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

The Company leases certain equipment, vehicles and operating facilities. The Company’s leases related to its operating facilities currently expire on various dates through 2010. At December 31, 2004, the future minimum lease payments required under non-cancellable lease provisions are approximately $1,958 in 2005, $1,382 in 2006, $486 in 2007, $187 in 2008, $191 in 2009, and $181 in 2010. Rent expense related to all operating leases for the years ended December 31, 2004, 2003 and 2002 was approximately $2,007, $2,487 and $2,266, respectively.

At December 31, 2004, the Company had firm commitments totaling $798 to a vendor to purchase components used in WAVE Systems.

G. INCOME TAXES

Loss before income taxes consists of the following:

   Years ended December 31,
 
   2004
  2003
  2002
 

United States

  $(30,467) $(19,809) $(19,640)

International

   (3,999)  (3,084)  (1,620)
   
 
 
   $(34,466) $(22,893) $(21,260)
   
 
 

The Company’s provision for income taxes for the years ended December 31, 2004, 2003 and 2002 differs from the amounts determined by applying the statutory Federal income tax rate to loss before income taxes for the following reasons:

   2004
  2003
  2002
 

Benefit at Federal Rate

  $(11,718) $(7,784) $(7,228)

Increase (decrease) resulting from:

             

State income taxes—net of federal benefit

   (595)  (485)  (518)

Foreign subsidiary tax rate difference

   493   427   224 

Research and development tax credit

   (141)  (250)  (188)

Impairment charges

   3,569   —     —   

Other—net

   78   82   137 

Valuation allowance

   8,220   8,075   7,678 
   
 
 

Total income tax expense (benefit)

  $(94) $65  $105 
   
 
 

The Company’s deferred income tax asset at December 31, 2004 and 2003 is comprised of the following temporary differences:

   2004
  2003
 

Net operating loss carryforward

  $35,587  $29,292 

Research and development credit carryforwards

   1,328   1,188 

Deferred revenue

   708   400 

Accrued vacation

   81   134 

Other

   583   (422)
   
 
    38,287   30,592 

Less valuation allowance

   (38,287)  (30,592)
   
 
   $—    $—   
   
 

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

At December 31, 2004, the Company had total used federal tax net operating loss carryforwards of $91,474 of which $1,770 expire in 2008, $3,698 expire in 2009, $2,970 expire in 2010, $943 expire in 2011, $3,425 expire in 2012, $1,838 expire in 2018, $8,182 expire in 2019, $9,662 expire in 2020, $8,228 expire in 2021, $16,862 expire in 2022; $16,173 expire in 2023 and $17,723 expire in 2024. Of these federal net operating loss carryforwards, $11,820 were obtained in the acquisition of Annovis, Inc. and may be subject to certain restrictions. At December 31, 2004, the Company had unused state tax net operating loss carryforwards of approximately $37,619 that expire at various times between 2005 and 2024. At December 31, 2004, the Company had unused research and development credit carryforwards of $1,328 that expire at various times between 2008 and 2024. A valuation allowance has been provided for the remaining deferred tax assets, due to the Company’s cumulative losses in recent years, expected losses in future years and an inability to utilize any additional losses as carrybacks. The Company will continue to assess the recoverability of deferred tax assets and the related valuation allowance. To the extent the Company begins to generate income in future years and it is determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized at such time.

H. EMPLOYEE BENEFIT PLAN

The Company maintains an employee 401(k) retirement savings plan that allows for voluntary contributions into designated investment funds by eligible employees. The Company matches the employees’ contributions at the rate of 50% on the first 6% of contributions. The Company may at the discretion of its Board of Directors, make additional contributions on behalf of the Plan’s participants. Company contributions were approximately $500 for each of the three years ended December 31, 2004.

I. STOCKHOLDERS’ EQUITY

Preferred 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 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.

Common Stock.

During 2004, the Company issued 1,134,850 shares of common stock in conjunction with conversions under the Laurus Loans.

Date
 Price
 Shares
Issued
 

Net

Proceeds

 Facility
 Applied To
January 2004 $2.20 650,000 $1,422 Credit Line Principal
February 2004 $2.20 259,091  570 Credit Line Principal
December 2004 $1.00 150,000  146 Term Note Principal
December 2004 $1.00 75,759  72 Term Note Interest
     
 
    
     1,134,850 $2,210    
     
 
    

In September 2003, the Company issued 1,780,000 shares of its common stock and in November 2003, the Company issued 2,720,000 shares of its common stock in privately-negotiated sales. These shares were sold pursuant to the terms of a Securities Purchase Agreement, dated August 27, 2003. The sale of these shares was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) as a sale not involving a public offering. These shares have been registered for resale under the Securities Act. The net proceeds to the Company, after payment of transaction fees and other expenses of the offering, were approximately $4,202.

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

In May 2001, Company shareholders approved the adoption of the Transgenomic, Inc. 2001 Employee Stock Purchase Plan that was subsequently implemented in November 2001. Substantially all of the Company’s U.S. employees are eligible to participate in the Plan. Eligible employees authorize payroll deductions to be made for the purchase of shares. Such deductions are accumulated during a defined participation period at the end of which each participant is deemed to have been granted an option to purchase shares of stock from the Company at 85% of the fair market value of the Company stock as measured by the closing price of the stock on either the first or last business day of the participation period, whichever is lower. The number of shares purchased under the option is based upon the participants elected withholding amount. At the end of the participation period such option is automatically exercised. This plan is structured to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended. During 2004, 2003 and 2002 there were 76,902, 107,077 and 56,842 shares issued under this plan, respectively.

Common Stock Warrants.

The following is a summary of the 1,159,421 common stock warrants outstanding at December 31, 2004. No warrants expired or were exercised during 2004.

Warrant Holder

  Issue
Year
  Expiration
Year
  Underlying
Shares
  Exercise
Price

Laurus Master Fund, Ltd.(1)

  2003  2010  200,000  $2.25

Laurus Master Fund, Ltd.(1)

  2003  2010  200,000  $2.44

Laurus Master Fund, Ltd.(1)

  2003  2010  150,000  $2.32

Laurus Master Fund, Ltd.(1)

  2004  2011  125,000  $3.11

Laurus Master Fund, Ltd.(1)

  2004  2011  400,000  $1.25

TN Capital Equities, Ltd.(1)

  2003  2008  45,918  $2.94

TN Capital Equities, Ltd.(1)

  2004  2009  15,566  $3.18

GE Capital(2)

  2002  2007  13,762  $3.27

GE Capital(2)

  2003  2008  9,175  $3.27

(1)These warrants were issued in conjunction with the Laurus Loans and subsequent modifications. Refer to Note E.
(2)These warrants were issued in conjunction with operating leases with GE Capital. While the leases have since been terminated, the warrants are still outstanding.

J. STOCK OPTIONS

The Company’s 1997 Stock Option Plan, as amended (the “Stock Option Plan”), allows the Company to grant both incentive stock options and nonqualified stock options to acquire shares of the Company’s common stock to employees and directors of the Company and to nonemployee advisors. Either incentive or non-qualified stock options may be granted to employees of the Company, but only nonqualified stock options may be granted to nonemployee directors and advisors. The maximum number of shares for which options may be granted under the Stock Option Plan is 7,000,000. The Stock Option Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”) which has the authority to set the number, exercise price, term and vesting provisions of the options granted under the Stock Option Plan, subject to the terms thereof. The options must be granted at exercise prices not less than the fair market value of the common stock on the date of the grant. Generally, the stock options vest at a rate of either 20% per year over a five-year period or 33 1/3% per year over a three-year period and expire 10 years after the date the option was granted. If the option holder ceases to be employed by the Company, the Company will have the right to terminate any outstanding but unexercised options.

The following table summarizes activity under the Stock Option Plan during the three years ended December 31, 2004:

   Number of
Options
  Weighted
Average
Exercise
Price

Balance at January 1, 2002

  5,133,831   6.90

Granted

  632,000   5.09

Exercised

  (81,900)  5.01

Forfeited

  (539,021)  7.69
   
 

Balance at December 31, 2002:

  5,144,910   6.62

Granted

  1,282,000   1.64

Exercised

  —     —  

Forfeited

  (733,994)  7.25
   
 

Balance at December 31, 2003:

  5,692,916   6.62
   
   

Granted

  360,000   1.70

Exercised

  —     —  

Forfeited

  (964,879)  5.24
   
 

Balance at December 31, 2004:

  5,088,037  $5.09
   
 

Exercisable at December 31, 2004

  4,214,214  $5.55
   
 

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

The weighted average fair value per share of options granted in 2004, 2003 and 2002 was $0.40, $0.93 and $2.92, respectively.

The Company has elected to follow the measurement provisions of APB No. 25, under which no recognition of expense is required in accounting for stock options granted to employees for which the exercise price equals or exceeds the deemed fair market value of the stock at the grant date. In those cases where options have been granted with an exercise price below the deemed fair market value, the Company recognizes compensation expense using the straight-line method over the vesting periods of the individual stock options.

Stock-based compensation expense recorded by the Company represents amortization of unearned compensation related to options granted to employees with an exercise price less than the deemed fair market value at the date of grant and options granted to non-employees. During 2004, 2003 and 2002, the Company recorded compensation expense of $0, $93 and $131, respectively. The expense amounts were calculated using the Black-Scholes option pricing model with the following assumptions: no common stock dividends, risk-free interest rates ranging from 3.10% to 6.53%; volatility ranging from 35% to 85%; and an expected option life of 1 to 7.5 years.

The following table summarizes information about options outstanding as of December 31, 2004:

   Options Outstanding
  Options Exercisable

Range of Exercise Prices

  Number
Outstanding
  Weighted-
Average
Remaining
Contractual
Life
  Weighted-
Average
Exercise
Price
  Number
Exercisable
  Weighted-
Average
Exercise
Price
      (in years)         

$ 1.00—$ 1.30

  408,335  6.8  $1.30  155,011  $1.30

$ 1.31—$ 2.60

  1,009,167  7.9  $1.89  551,850  $1.90

$ 2.61—$ 3.90

  50,002  5.5  $2.90  38,336  $2.90

$ 3.91—$ 5.20

  2,142,200  3.0  $5.00  2,142,200  $5.00

$ 5.21—$ 6.50

  768,182  6.1  $6.16  692,633  $6.15

$ 6.51—$ 9.10

  10,000  6.4  $9.00  10,000  $9.00

$ 9.11—$10.40

  396,420  5.6  $9.88  358,253  $9.88

$10.41—$13.00

  303,731  5.2  $12.80  265,931  $12.81
   
  
  
  
    
   5,088,037  5.1  $5.09  4,214,214  $5.55
   
  
  
  
  

K. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION

The Company operates in two reportable segments, BioSystems and Nucleic Acids. Operations for these segments are evaluated based upon specific identification of revenues and expenses associated with the business activities resulting in a segment operating income. Expenses that cannot be directly identified to an operating activity or are considered corporate overhead are not allocated to the segments in arriving at operating income for the segment. Generally, decisions regarding asset allocation, financing, taxes or other items impacting the Company’s Balance Sheet are made at the corporate level and, accordingly, operating segment Balance Sheet information is not typically reviewed by operating decision makers.

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

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

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

The following is information for net sales and operating income by segment.

   2004
  2003
  2002
 

Net Sales

             

BioSystems

  $25,243  $26,044  $24,235 

Nucleic Acids

   8,546   7,822   13,319 
   
 
 

Total

  $33,789  $33,866  $37,554 
   
 
 

Loss from operations

             

BioSystems

  $(2,294) $(2,786) $(9,417)

Nucleic Acids

   (17,623)  (12,440)  (1,004)

Corporate

   (9,143)  (7,362)  (11,276)
   
 
 

Total

  $(29,060) $(22,588) $(21,697)
   
 
 

During 2004, sales to Geron Corporation totaled $4,151 and represented 49% of net sales within our Nucleic Acids operating segment and 12% of total consolidated net sales. During 2003 and 2002 no single customer accounted for more than 10% of operating segment or consolidated net sales.

The following is information for fixed assets and fixed asset additions by segment. Fixed assets are tracked by location and department and thus can be identified to operating segments even though specific segment Balance Sheets are not produced.

   2004
  2003

Fixed Assets

        

BioSystems

  $2,695  $3,412

Nucleic Acids

   10,150   13,991

Corporate

   680   1,301
   
  

Total

  $13,525  $18,704
   
  

Fixed Asset Additions

        

BioSystems

  $901  $1,000

Nucleic Acids

   848   5,393

Corporate

   9   20
   
  

Total

  $1,758  $6,413
   
  

The following is supplemental information for net sales by geographic area.

   2004
  2003
  2002

Sales by Geographic Area:

            

United States

  $13,580  $12,251  $16,805

Europe

   15,392   15,955   16,011

Pacific Rim

   2,794   3,335   4,129

Other

   2,023   2,325   609
   
  
  

Total

  $33,789  $33,866  $37,554
   
  
  

Long-lived assets by geographic area as of December 31 are as follows:

   2004
  2003

United States

  $7,754  $20,935

Europe

   7,564   9,705

Pacific Rim

   11   32
   
  

Total

  $15,329  $30,672
   
  

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

L. QUARTERLY RESULTS (UNAUDITED)

The following table contains selected unaudited consolidated statements of operations data for each quarter for fiscal years 2004 and 2003.

   2004
 
   1st
Quarter
  2nd
Quarter
  3rd
Quarter
  4th
Quarter
  Total
 

Net Sales

  $8,629  $9,011  $8,194  $7,955  $33,789 

Gross Profit

  $2,861  $3,153  $1,337  $1,842  $9,193 

Net loss

  $(3,859) $(15,132) $(8,442) $(6,939) $(34,372)

Basic & Diluted Loss Per Share

  $(0.13) $(0.52) $(0.29) $(0.24) $(1.19)

Basic and Diluted Weighted Average Shares Outstanding

   28,728   29,053   29,078   29,338   29,006 

   2003
 
   1st
Quarter
  2nd
Quarter
  3rd
Quarter
  4th
Quarter
  Total
 

Net Sales

  $9,505  $8,481  $7,537  $8,343  $33,866 

Gross Profit

  $3,691  $2,556  $775  $2,529  $9,551 

Net loss

  $(3,596) $(4,670) $(6,097) $(8,595) $(22,958)

Basic & Diluted Loss Per Share

  $(0.15) $(0.20) $(0.25) $(0.32) $(0.94)

Basic and Diluted Weighted Average Shares Outstanding

   23,519   23,540   24,177   26,723   24,484 

Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly per share losses may not equal the annual loss per share.

M. SALE OF SPECIALTY OLIGONUCLEOTIDE MANUFACTURING FACILITY

On November 11, 2004, the Company sold the assets associated with its specialty oligonucleotides manufacturing facility in Boulder, Colorado to a subsidiary of Eyetech Pharmaceuticals, Inc. (“Eyetech”). The sale price was $3,000 in cash plus the assumption of the lease on the Boulder facility and of certain equipment leases with a gross value of $2,377. Substantially all of the 27 employees at the Boulder facility became Eyetech employees. Net proceeds from the sale (after transaction expenses and fees paid to our investment advisors) equaled approximately $2,700. In conjunction with this transaction, we recorded a gain on sale of $1,466 in the fourth quarter of 2004.

N. RESTRUCTURING PLANS

On November 13, 2004, the Company’s Board of Directors approved a restructuring plan designed to refocus on the BioSystems operating segment and to better align the Company’s cost structure with anticipated revenues. The plan (which is incremental to the sale of the specialty oligonucleotide manufacturing facility in Boulder, Colorado facility) included a workforce reduction of approximately 60 positions and the closure of two domestic research and development facilities associated with our Nucleic Acids operating segment and two European field offices. Additionally, the Company eliminated approximately 10 positions at its chemical building blocks manufacturing facility in Glasgow, Scotland. In conjunction with these changes, the Company incurred a charge of $3,570 during the quarter ending December 31, 2004 consisting of severance benefits of $1,406, future rents on closed facilities (net of projected sublease rents) of $1,241, the write-off property and equipment specifically attributable to closed facilities of $740 and other costs of $183. The Company had accrued expenses associated with this restructuring plan of $1,909 at December 31, 2004 of which $1,486 is expected to be paid 2005 and $423 in 2006.

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

During the fourth quarter of 2002 management formulated and executed a significant portion of a restructuring plan. The plan was developed to reduce expenses thereby better aligning the Company’s expense structure with current business prospects. The plan included employee terminations, office closures, termination of collaborations and write-offs of abandoned intellectual property. Specifically, in the fourth quarter of 2002 the Company notified approximately 60 employees of their termination, notified landlords of our intent to close four facilities and reduce our space commitment under lease at two other facilities, terminated certain consulting and collaboration agreements and abandoned certain patents. As a result of the plan $3,282 in restructuring charges were recorded and are included in operating expenses. These charges consisted of approximately $775 of employee severance costs, $1,200 in office closure related costs, $400 of collaboration and other agreement termination charges and $900 in write-offs of abandoned intellectual property. Approximately 45% of the total charges were for non-cash items. Additional restructuring charges totaling $741 were incurred in the first half of 2003. The Company had accrued expenses associated with these restructuring activities of $0 at December 31, 2004 and $227 at December 31, 2003.

O. SUBSEQUENT EVENTS

On March 18, 2005, Laurus agreed to further extend the borrowing base waiver on the Credit Line until March 31, 2006. In connection with this waiver, the Company agreed to allow Laurus to convert $1,872 of the outstanding principal balance under the Credit Line into 3,600,000 shares of its common stock. In addition, on March 24, 2005 the Company agreed to allow Laurus to convert $650 of the outstanding principal balance of the Term Note into 1,250,000 shares of common stock. As a result, the Company increased the amount available under the Credit Line by $1,872 and eliminated substantially all remaining 2005 scheduled principal payments on the Term Loan.

P. RESTATEMENT OF STATEMENTS OF CONSOLIDATED CASH FLOWS

Subsequent to the issuance of the Company’s financial statements for the year ended December 31, 2004, the Company’s management determined that it had incorrectly included the amortization of software development costs within net cash flows from investing activities rather than within net cash flows from operating activities. The Company’s management also determined that restricted common stock accepted as payment for goods and services from one of the Company’s customers and subsequently sold was incorrectly classified within the consolidated statements of cash flows. It is the Company’s policy to account for restricted common stock received in settlement of a customer’s accounts receivable as available for sale securities. The sale of such securities should be reflected in the consolidated statements of cash flows as an investing activity. Available for sale securities acquired for goods and services should be reflected as non-cash transactions.

As a result, the Company’s consolidated statements of cash flows for the fiscal years ended December 31, 2004 and 2003 have been restated from the amounts previously reported to correct these errors. This restatement had no impact on the statements of consolidated cash flows for the fiscal year ended December 31, 2002. In addition, this restatement had no impact on the Company’s consolidated balance sheets or consolidated statements of operations. The impact of this restatement on the consolidated statements of cash flows is as follows: (dollars in thousands):

   2004 As
Previously
Reported
  

2004

As
Restated

  2003 As
Previously
Reported
  

2003

As
Restated

 

Depreciation and amortization

  $4,009  $4,625  $3,981  $4,597 

Trading securities acquired in settlement of accounts receivable

   (4,397)  —     (1,843)  —   

Proceeds from sales of trading securities

   4,269   —     1,907   1,519 

Purchase of trading securities

   —     —     —     (1,566)

Accounts receivable

   1,063   (3,334)  619   342 

Net cash flows from operating activities

   (9,101)  (12,754)  (13,245)  (13,017)

Proceeds from the maturities and sale of available for sale securities

   —     4,269   3,612   4,000 

Change in other assets

   1,138   522   73   (543)

Net cash flows from investing activities

   2,380   6,033   (2,719)  (2,947)

25,038,320 Shares

TRANSGENOMIC, INC.

COMMON STOCK

PROSPECTUS

, 2005

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.Other Expenses of Issuance and Distribution

The following table indicates the expenses to be incurred in connection with the offering described in this Registration Statement,issuance and distribution of the securities being registered, other than the underwriting discounts and commissions, allcommissions. All of which will be paid by the Company. All amounts shown are estimates, other thanestimated, except the SEC registration fee.

Securities and Exchange Commission filing fee

  $2,371

Legal fees and expenses

   10,000

Accounting fees and expenses

   15,000

Printing and engraving

   1,500

Miscellaneous expenses

   1,129

Total

  $30,000
   

Item 14.Indemnification of Directors and Officers

SEC registration fee$1,664
Legal fees and expenses30,000
Accounting fees and expenses12,500
Miscellaneous10,000
Total$54,164

The Company will bear all of the expenses shown above.


Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation LawDGCL authorizes a court to award, or a corporation to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement of expenses incurred) arising under the Securities Act of 1933.

As permitted by the Delaware General Corporation Law,DGCL, the Registrant’sCompany's Third Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director’sdirector's duty of loyalty to the RegistrantCompany or its stockholders, (2) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the Delaware General Corporation LawDGCL (regarding unlawful dividends and stock purchases) or (4) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation LawDGCL is amended to authorize further elimination or limiting of directors’directors' personal liability, then the Third Amended and Restated Certificate provides that the personal liability of directors will be eliminated or limited to the fullest extent provided under the Delaware General Corporation Law.

DGCL.

As permitted by the Delaware General Corporation Law,DGCL, the Registrant’s Third Amended and Restated Certificate of Incorporation and itsthe Company's Amended and Restated Bylaws provide that (1) the RegistrantCompany is required to indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law,DGCL, subject to certain very limited exceptions, (2) the RegistrantCompany may indemnify its other employees and agents as set forth in the Delaware General Corporation Law,DGCL, (3) the RegistrantCompany is required to advance expenses, as incurred, to its directors and executive officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law,DGCL, subject to certain conditions and (4) the rights conferred by the Third Amended and Restated Certificate of Incorporation and the Company's Amended and Restated Bylaws are not exclusive.

The Delaware General Corporation LawDGCL authorizes a corporation to indemnify its directors and officers provided that the corporation shall not eliminate or limit the liability of a director as follows:

(a) for any action brought by or in the right of a corporation where the director or officer is adjudged to be liable to the corporation, except where a court determines the director or officer is entitled to indemnity;

II-1

(b) for acts or omissions not in good faith or which involve conduct that the director or officer believes is not in the best interests of the corporation;

(c) for knowing violations of the law;

(d) for any transaction from which the directors derived an improper personal benefit; and


27


(e) for payment of dividends or approval of stock repurchases or redemptions leading to liability under Section 174 of the Delaware General Corporation Law.

DGCL.

The Delaware General Corporation LawDGCL requires a corporation to indemnify a director or officer to the extent that the director or officer has been successful, on the merits or otherwise, in the defense of any action, suit or proceeding for which indemnification is lawful.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is therefore unenforceable.
The Company maintains a director and officer insurance policy which insures the directors and officers of the Company against damages, judgments, settlements and costs incurred by reason of certain wrongful acts committed by such persons in their capacities as directors and officers.

Item 15.Recent Sales of Unregistered Securities



Item 15. Recent Sales of Unregistered Securities.
Series A Preferred Shares and Series A Preferred Warrants

On October 31, 2005, we issuedDecember 29, 2010, the Company entered into a Series A Convertible Preferred Stock Purchase Agreement (the “Series A Purchase Agreement”) with Third Security Senior Staff 2008 LLC, Third Security Staff 2010 LLC, and Third Security Incentive 2010 LLC (collectively, the “Third Security Entities”), pursuant to a groupwhich the Company: (i) sold to the Third Security Entities an aggregate of unaffiliated institutional investors 14,925,743 shares of our common stock, together with warrants to purchase an additional 5,970,2972,586,205 shares of the Registrant’s common stock. TheCompany's Series A Convertible Preferred Stock (the “Series A Preferred”) at a price per share of $2.32 for aggregate gross proceeds of approximately $6,000,000; and (ii) issued to the Third Security Entities warrants carry(the “Series A Warrants”) to purchase up to an aggregate of 1,293,102 shares of Series A Preferred with an exercise price of $1.20$2.32 per share (collectively, the “2010 Financing”). The Series A Preferred and Series A Warrants were offered and sold in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder. The agreements executed in connection with the 2010 Financing contained representations to support the Company's reasonable belief that the Third Security Entities had access to information concerning the Company's operations and financial condition, the Third Security Entities acquired the securities for their own account and not with a view to the distribution thereof in the absence of an effective registration statement or an applicable exemption from registration, and that the Third Security Entities are not callablesophisticated within the meaning of Section 4(2) of the Securities Act and expire in 5 years.are “accredited investors” (as defined by Rule 501 under the Securities Act). The Series A 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 Preferred issuable pursuant to the Series A Purchase Agreement and warrants wereupon exercise of the Series A Warrants are initially convertible into shares of 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 Company used the net proceeds from the 2010 Financing to acquire certain assets of Clinical Data, Inc. (“Clinical Data”) and PGx Health, LLC, a wholly-owned subsidiary of Clinical Data.
In connection with the 2010 Financing, the Company also entered into a registration rights agreement with the Third Security Entities (the “2010 Registration Rights Agreement”). Pursuant to the terms of the 2010 Registration Rights Agreement, the Company has granted the Third Security Entities certain demand, “piggyback” and S-3 registration rights covering the resale of the shares of Common Stock underlying the Series A Preferred issued pursuant to the termsSeries A Purchase Agreement and issuable upon exercise of the Series A Warrants and all shares of Common Stock issuable upon any dividend or other distribution with respect thereto.

On November 8, 2011, the Company entered into an Amendment Agreement with the Third Security Entities, which are the holders of all of the outstanding shares of the Company's Series A Preferred. Pursuant to the Amendment Agreement, the Third Security Entities and the Company agreed to amend the Certificate of Designation to eliminate certain features of the Series A Preferred relating to (i) an anti-dilution adjustment to the conversion rate upon which the Series A Preferred is convertible into Common Stock, and (ii) an optional redemption of the Series A Preferred by the Third Security Entities (the “Certificate Amendment”); subject to the requisite stockholder approval of the Certificate Amendment at the Company's next annual meeting of its stockholders. Pursuant to the Amendment Agreement, the Third Security Entities agreed to vote the Series A Preferred and their Common Stock in favor of the Certificate Amendment and agreed to waive their rights to the features of the Series A Preferred being eliminated by the Certificate Amendment.  In exchange for the Third Security Entities entering into the Amendment Agreement, the Company agreed to issue to the holders an aggregate of $0.3 million market value of Common Stock or 245,903 shares of Common Stock. The Company's stockholders approved the Certificate Amendment at the 2012 Annual Meeting of Stockholders held on May 23, 2012, and the Company filed the Certificate Amendment with the Delaware Secretary of State on May 25, 2012.

28



Convertible Promissory Notes
On December 30, 2011, the Company entered into a Convertible Promissory Note Purchase Agreement (the “Note Purchase Agreement”) with the Third Security Entities in the aggregate amount of $3.0 million. Affiliates of the investors currently own all the outstanding shares of the Company's Series A Preferred. Under the Note Purchase Agreement, the Company sold to each of the Third Security Entities a convertible note which had a March 31, 2012 maturity date. The Note Purchase Agreement and notes provided for conversion of any amount remaining due to the Third Security Entities under the notes into equity securities of the Company of the same class(es) or series and at the same price as the equity securities of the Company sold in the Company's first sale or issuance of its equity securities after December 30, 2011, in the aggregate amount of at least $3.0 million. The notes and the equity securities into which the notes are convertible were offered and sold in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder. The Note Purchase Agreement contained representations to support the Company's reasonable belief that the Third Security Entities had access to information concerning the Company's operations and financial condition, the Third Security Entities acquired the securities for their own account and not with a view to the distribution thereof in the absence of an effective registration statement or an applicable exemption from registration, and that the Third Security Entities are sophisticated within the meaning of Section 4(2) of the Securities Act and are “accredited investors” (as defined by Rule 501 under the Securities Act).
2012 Private Placement and Note Conversion

On February 2, 2012, the Company entered into a Securities Purchase AgreementsAgreement with certain institutional and other accredited investors pursuant to which were authorized and approved by our shareholdersthe Company: (i) sold to the investors an aggregate of 19,000,000 shares of the Company's Common Stock (the “2012 Financing Shares”) at a special meetingprice per share of the shareholders held on October 26, 2005. The$1.00 for aggregate gross proceeds from the sale were $15.08 million. We paid the placement agent a commissionof approximately $19.0 million; and expenses consisting of cash in the amount of $1.08 million. Additionally, we(ii) issued to the placement agent a warrantinvestors warrants to purchase 932,859up to an aggregate of 9,500,000 shares of Common Stock with an exercise price of $1.25 per share (the “2012 Financing Warrants”). The 2012 Financing Warrants may be exercised, in whole or in part, at any time from February 7, 2012 until February 7, 2017 and contain both cash and “cashless exercise” features. The 2012 Financing Warrants also impose penalties on the Company for failure to deliver the shares of Common Stock issuable upon exercise. These warrants also contain certain anti-dilution provisions that provide for an adjustment to the exercise price and number of shares issuable upon exercise of the warrant in the event that we engage in certain issuances of shares of our common stock at a price lower than the exercise price of the warrant. The Company used the net proceeds from the offering for general corporate and working capital purposes, primarily to accelerate development of several of the Company's key initiatives.
As part of the offering, in connection with the conversion of the convertible promissory notes in the aggregate amount of $3.0 million issued by the Company on December 30, 2011 to the Third Security Entities, the Third Security Entities collectively received 3,000,000 shares of Common Stock (the “Third Security Common Shares”) and warrants to purchase up to 1,500,000 shares of Common Stock (the “Third Security Warrants”) upon the same terms as the investors. The Company offered and sold the 2012 Financing Shares, 2012 Financing Warrants, Third Security Common Shares and Third Security Warrants to “accredited investors” as such term is defined in the Securities Act and in reliance on the exemption from registration afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act and corresponding provisions of state securities laws. Each investor represented that it was an “accredited investor,” as defined in Regulation D, and acquired the 2012 Financing Shares, 2012 Financing Warrants, Third Security Common Shares, Third Security Warrants and shares of Common Stock issuable upon exercise of the 2012 Financing Warrants and Third Security Warrants for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof.
In connection with the offering, the Company also entered into a Registration Rights Agreement with the investors and the Third Security Entities (the “2012 Registration Rights Agreement”). The 2012 Registration Rights Agreement required that the Company file a registration statement with the SEC within forty-five (45) days of the closing date of the offering for the resale by the investors and the Third Security Entities of all of the 2012 Financing Shares, the shares of Common Stock issuable upon exercise of the 2012 Financing Warrants, the Third Security Common Shares, the shares of Common Stock issuable upon exercise of the Third Security Warrants and all shares of Common Stock issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect thereto. Pursuant to and as required by the 2012 Registration Statement, on March 21, 2012, the Company filed a registration statement on Form S-1 registering for resale the 2012 Financing Shares, the shares of Common Stock issuable upon exercise of the 2012 Financing Warrants, the Third Security Common Shares, the shares of Common Stock issuable upon exercise of the Third Security Warrants and all shares of Common Stock issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect thereto. The registration statement was declared effective by the SEC on April 4, 2012.

29


Craig-Hallum Capital Group LLC served as the sole placement agent for the offering. In consideration for services rendered as the placement agent in the offering, the Company agreed to (i) pay to the placement agent cash commissions equal to $1,330,000, or 7.0% of the gross proceeds received in the offering, (ii) issue to the placement agent a five-year warrant to purchase up to 380,000 shares of the Company's Common Stock (representing 2% of the 2012 Financing Shares sold in the offering) with an exercise price of $1.20$1.25 per share.

share and other terms that are the same as the terms of the 2012 Financing Warrants and the Third Security Warrants issued in connection with the offering; and (iii) reimburse the placement agent for reasonable out-of-pocket expenses, including fees paid to the placement agent's legal counsel, incurred in connection with the offering, which reimbursable expenses shall not exceed $125,000. The offercalculation of the placement agent's fees did not include the Third Security Common Shares and saleThird Security Warrants issued to the Third Security Entities in connection with the conversion of these securities wasthe convertible promissory notes described above.


2013 Private Placement

On January 24, 2013, the Company entered into a Securities Purchase Agreement with certain institutional and other accredited investors pursuant to which the Company: (i) sold to the investors an aggregate of 16,600,000 shares of Common Stock at a price per share of $0.50 for aggregate gross proceeds of approximately $8.3 million; and (ii) issued to the investors Warrants to purchase up to an aggregate of 8,300,000 shares of Common Stock with an exercise price of $0.75 per share. The Warrants may be exercised, in whole or in part, at any time from January 30, 2013 until January 30, 2018 and contain both cash and “cashless exercise” features. The Warrants also impose penalties on the Company for failure to deliver the shares of Common Stock issuable upon exercise. The Company currently intends to use the net proceeds from the offering for general corporate and working capital purposes, primarily to accelerate development of several of the Company's key initiatives. The Common Stock and Warrants were offered and sold in transactions exempt from registration under the Securities Act, in reliance on Section 4(2) thereof and Rule 506 of Regulation D thereunder. Each investor represented that it was an “accredited investor,” as defined in Regulation D, and acquired the Common Stock, Warrants and shares issuable upon exercise of the Warrants for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof.

In connection with the offering, the Company also entered into a Registration Rights Agreement with the investors. The Registration Rights Agreement requires that the Company file a registration statement with the Securities and Exchange Commission within forty-five (45) days of the closing date of the offering for the resale by the investors of all of the Common Shares, the shares of Common Stock issuable upon exercise of the Warrants, and all shares of Common Stock issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect thereto. The initial registration statement must be declared effective by the SEC within ninety (90) days of the closing date of the offering subject to certain adjustments. Upon the occurrence of certain events, including, but not limited to, that the initial Registration Statement is not filed prior to the filing date, the Company will be required to pay liquidated damages to each of the investors upon the date of the event and then monthly thereafter until the earlier of the date that: (i) the event is cured, or (ii) the registrable shares are eligible for resale under Rule 144 without manner of sale or volume limitations. In no event shall the aggregate amount of liquidated damages payable to each of the investors exceed in the aggregate 10% of the aggregate purchase price paid by such investor for the registrable securities. Pursuant to this Registration Statement and as required by the Registration Rights Agreement, the Company is registering the resale of the Common Shares, the shares of Common Stock issuable upon exercise of the Warrants and all shares of Common Stock issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect thereto.

Lazard Capital Markets LLC served as the lead placement agent for the offering, and Craig-Hallum Capital Group LLC acted as co-placement agent. In consideration for services rendered as the placement agents in the offering, the Company agreed to (i) pay to the placement agents cash commissions equal 7% of the gross proceeds received in the offering, and (ii) reimburse the placement agent for reasonable out-of-pocket expenses, including fees paid to the placement agents' legal counsel, incurred in connection with the offering, which reimbursable expenses shall not exceed $25,000.

The above common stock transaction required the repricing and issuance of additional common stock warrants to the warrant holders of the February 2012 common stock sale. The exercised price decreased from $1.25 per share to $1.08 per share and the number of shares issuable upon exercise increased from 11,380,000 to 13,171,268.


30


Item 16. Exhibits
See the Exhibit Index attached hereto and incorporated herein by reference.


Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1)To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Act");
(ii)To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii)To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2)That, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3)To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4)That, for the purpose of determining liability under the Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5)Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.


31


SIGNATURES
    Pursuant to the requirements of the Securities Act of 1933, as amended, (the “Act”) under Section 4(2)the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Omaha. State of Nebraska, onMarch 15, 2013.
Transgenomic, Inc.
By:/s/ CRAIG J. TUTTLE
Craig J. Tuttle
President and Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
Each of the Actundersigned hereby appoints each of Craig J. Tuttle and Rule 506Mark P. Colonnese as attorney-in-fact and agent for the undersigned, with full power of Regulation D.

On September 9, 2003, we issued 1,780,000 sharessubstitution, for and in the name, place and stead of our common stockthe undersigned, to sign and on November 13, 2003, we issued 2,720,000 shares of our common stock in privately-negotiated sales to certain unaffiliated institutional investors. The sale of these shares was exempt from registrationfile with the Securities and Exchange Commission under the Securities Act of 1933, as amended, (the “Securities Act”) as a sale not involving a public offering. These shares were soldany and all amendments (including post-effective amendments) to this registration statement, any other registration statements and exhibits thereto that is the subject of this registration statement filed pursuant to the terms of a Securities Purchase Agreement, dated August 27, 2003. The net proceeds to us, after payment of a 5% sales commission to Fahnestock & Co. Inc., who acted as our placement agent for the sale,Rule 462 under such Act, and any and all applications, instruments and other expensesdocuments to be filed with the Securities and Exchange Commission pertaining to the registration of securities covered hereby, with full power and authority to do and perform any and all acts and things as may be necessary or desirable in furtherance of such registration.

Pursuant to the requirements of the offering, were approximately $4.24 million.

Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated .
Item 16.
Exhibits.

  2.1  Signature TitleDate
/s/ CRAIG J. TUTTLE
Craig J. Tuttle
Director, President and Chief Executive Officer (Principal Executive Officer)March 15, 2013
/s/ MARK P. COLONNESE
Mark P. Colonnese
Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)March 15, 2013
/s/ RODNEY S. MARKIN
Rodney S. Markin
DirectorMarch 15, 2013
/s/ ANTONIUS P. SCHUH
Antonius P. Schuh
DirectorMarch 15, 2013
/s/ ROBERT M. PATZIG
Robert M. Patzig
DirectorMarch 15, 2013
/s/ DOIT L. KOPPLER II
Doit L. Koppler II
DirectorMarch 15, 2013



32


EXHIBIT INDEX

†2.1
Asset Purchase Agreement and Plan of Merger, dated as of April 30, 2001, by and among the Registrant, TBIO Nebraska, Inc., TBIO,Scoli Acquisition Sub, Inc. and Annovis,Axial Biotech, Inc. dated August 27, 2012 (incorporated by reference to Exhibit 2.1 to Registrant’sthe Registrant's Quarterly Report on Form 8-K10-Q filed on May 31, 2001)
November 8, 2012).
 2.2   Addendum to Agreement and Plan of Merger, dated as of May 18, 2001, by and among Registrant, TBIO Nebraska, Inc., TBIO, Inc. and Annovis, Inc. (incorporated by reference to Exhibit 2.2 to Registrant’s Report on Form 8-K filed on May 31, 2001)

II-2

  2.3  3.1Asset Purchase Agreement, dated as of November 8, 2004, by and between Registrant and Eyetech Boulder Inc. (incorporated by reference to Exhibit 2.3 to Registrant’s Annual Report on Form 10-K filed on April 15, 2005)
  3.1  
 Third Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to Registrant’sthe Registrant's Quarterly Report on Form 10-Q filed on November 14, 2005)
.
 3.2   
3.2
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.232(ii) to the Registrant's Current Report on Form 8-K filed on the 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 the Registrant's Current Report on Form 8-K filed on January 4, 2011.
3.4
Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed on May 29, 2012).
3.5
Certificate of Amendment of Certificate of Designation of Series A Convertible Preferred Stock of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed on May 29, 2012).
4.1
Form of Certificate of the Registrant's Common Stock (incorporated by reference to Exhibit 4 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-32174) filed on March 10, 2000)
.
 4.1   Form of
4.2
Certificate of the Registrant’s CommonDesignation of Series A Convertible Preferred Stock dated as of December 28, 2010 (incorporated by reference to Exhibit 43.1 to Registration Statementthe Registrant's Current Report on Form S-1 (Registration No. 333-32174)8-K filed on March 10, 2000)
January 4, 2011).
 
5.1
 Opinion of Kutak RockPaul Hastings LLP
10.1  Fourth Amended and Restated 1997 Stock Option
*10.1
2006 Equity Incentive Plan of the Registrant (incorporated by reference to Exhibit 10.14(b) to Registrant’s Annual Reportthe Registrant's Registration Statement on Form 10-KS-8 (Registration No. 333-139999) filed on April 15, 2005)January 16, 2007.
*10.2
 1999 UK Approved Stock Option Sub Plan of the Registrant (incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-32174) filed on March 10, 2000).
10.3  Employee Stock Purchase Plan of
*10.3
Employment Agreement between the RegistrantCompany and Craig J. Tuttle dated July 12, 2006 (incorporated by reference to Exhibit 4(b)10.1 to Registration Statementthe Registrant's Current Report on Form S-8 (Registration No. 333-71866)8-K filed on October 19, 2001)July 12, 2006.
10.4  Employment Agreement, dated April 1, 2000, by and between the Registrant and Collin J. D’Silva (incorporated by reference to Exhibit 10.8 to Registration Statement on Form S-1 (Registration No. 333-32174) filed on March 10, 2000)
*10.4
10.5  
 Amendment No. 1 to the Employment Agreement between the Company and Craig J. Tuttle, effective March 1, 2000, by and between Transgenomic, Inc. and Collin D’SilvaJuly 12, 2006 (incorporated by reference to Exhibit 10.9 of10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 17, 2004)
10.6  Employment Agreement, effective July 31, 2004, by and between Transgenomic, Inc. and Michael A. Summers (incorporated by reference to Exhibit 10.11 to Registrant’sRegistrant's Quarterly Report on Form 10-Q filed on November 15, 2004)14, 2006).
10.7  Employment Agreement, dated January 22, 2002, between the Registrant and Keith A. Johnson (incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q filed on May 14, 2002)
10.5
10.8  
 License Agreement, dated September 1, 1994, between Registrant and Professor Dr. Gunther Bonn, et. al. and Amendment thereto, dated March 14, 1997 (incorporated by reference to Exhibit 10.14 to Registration Statement on Form S-1 (Registration No. 333-32174) filed on March 10, 2000)

II-3

10.9  License Agreement, dated August 20, 1997, between the Registrant and Leland Stanford Junior University (incorporated by reference to Exhibit 10.15 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-32174) filed on March 10, 2000).
10.1010.6
 License Agreement, dated December 1, 1989, between Cruachem Holdings Ltd.Limited (a wholly-ownedwholly owned subsidiary of the Registrant) and Millipore Corporation (incorporated by reference to Exhibit 10.13 to Registrant’sthe Registrant's Annual Report on Form 10-K filed on March 25, 2002).
10.1110.7
 Sublicense Agreement, dated October 1, 1991, between Cruachem Holdings Ltd.Limited (a wholly-ownedwholly owned subsidiary of the Registrant) and Applied Biosystems, Inc. (incorporated by reference to Exhibit 10.14 to Registrant’sthe Registrant's Annual Report on Form 10-K filed on March 25, 2002).
10.1210.8
 Missives, dated May 17, 2002, between Cruachem Limited (a wholly-owned subsidiary of the Registrant) and Robinson Nugent (Scotland) Limited (incorporated by reference to Exhibit 10.1 to Registrant’sthe Registrant's Quarterly Report on Form 10-Q filed on August 14, 2002).
10.13 
10.9
License Amendment Agreement, dated June 2, 2003, by and between Geron Corporation and the Registrant (incorporated by reference to Exhibit 10.2 to Registrant’sthe Registrant's Quarterly Report on Form 10-Q filed on August 12, 2003).
10.1410.10
 Supply Agreement, dated January 1, 2000, between the Registrant and Hitachi Instruments (incorporated by reference to Exhibit 10.16 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-32174) filed on March 10, 2000).

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10.1510.11
 Form of Securities Purchase Agreement by and between the Registrant and various counterparties, dated August 27, 2003 (incorporated by reference to Exhibit 10 to the Registrant’s Report on Form 8-K filed on August 29, 2003)
10.16Securities Purchase Agreement by and between the Registrant and Geron Corporation, dated June 2, 2003 (incorporated by reference to Exhibit 10.0 to Amendment No. 3 to Registration Statement on Form S-3 (Registration No. 333-108319) as filed on October 14, 2003)
10.17Security Agreement by and between the Registrant and Laurus Master Fund, Ltd., dated December 3, 2003 (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-111442) filed on December 22, 2003)
10.18Amendment to Security Agreement and Related Documents by and between the Registrant and Laurus Master Fund, Ltd., dated August 31, 2002 (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-3 (Registration No. 333-118970) as filed on September 14, 2004)
10.19Secured Revolving Note by and between the Registrant and Laurus Master Fund, Ltd., dated December 3, 2003 (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-111442) filed on December 22, 2003)
10.20Secured Convertible Minimum Borrowing Note by and between the Registrant and Laurus Master Fund, Ltd., dated December 3, 2003 (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-111442) filed on December 22, 2003)

II-4

10.21Secured Convertible Minimum Borrowing Note Series B by and between the Registrant and Laurus Master Fund, Ltd., dated December 3, 2003, as amended on April 15, 2004 (incorporated by reference to the Registration Statement of the Registrant (Registration No. 333-114661) filed on April 21, 2004)
10.22Common Stock Purchase Warrant by and between the Registrant and Laurus Master Fund, Ltd., dated December 3, 2003 (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-111442) filed on December 22, 2003)
10.23Registration Rights Agreement by and between the Registrant and Laurus Master Fund, Ltd., dated December 3, 2003 (incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-111442) filed on December 22, 2003)
10.24Common Stock Purchase Warrant by and between the Registrant and TN Capital Equities, Ltd., dated December 3, 2003 (incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-111442) filed on December 22, 2003)
10.25Securities Purchase Agreement by and between the Registrant and Laurus Master Fund, Ltd., dated February 19, 2004, as amended on April 15, 2004 (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-114661) filed on April 21, 2004)
10.26Amendment to Securities Purchase Agreement and Related Document by and between the Registrant and Laurus Master Fund, Ltd., dated August 31, 2004 (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-3 (Registration No. 333-118970) as filed on September 14, 2004)
10.27Secured Convertible Term Note by and between the Registrant and Laurus Master Fund, Ltd., dated February 19, 2004, as amended on April 15, 2004 (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-114661) filed on April 21, 2004)
10.28Common Stock Purchase Warrant by and between the Registrant and Laurus Master Fund, Ltd., dated February 19, 2004, as amended on April 15, 2004 (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-114661) filed on April 21, 2004)
10.29Registration Rights Agreement by and between the Registrant and Laurus Master Fund, Ltd., dated February 19, 2004 (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-114661) filed on April 21, 2004)
10.30Common Stock Purchase Warrants by and between the Registrant and TN Capital Equities, Ltd., dated March 1, 2004 (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-114661) filed on April 21, 2004)

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10.31Common Stock Purchase Warrant by and between the Registrant and Laurus Master Fund, Ltd., dated August 31, 2004 (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-3 (Registration No. 333-118970) as filed on September 14, 2004)
10.32Engagement Agreement by and between the Registrant and Goldsmith, Agio, Helms Securities, Inc., dated March 19, 2004, as amended August 12, 2004 (incorporated by reference to Exhibit 10.10 to Registrant’s Quarterly Report on Form 10-Q filed on November 15, 2004)
10.33Form of Securities Purchase Agreement by and between the Registrant and various counterpartiescounter-parties dated September 22, 2005 (incorporated by reference to Exhibit 10.1 to Registrant’sthe Registrant's Quarterly Report on Form 10-Q filed on November 14, 2005)
23.1  Consent of Deloitte & Touche LLP
23.2  Consent of Kutak Rock LLP (included in Exhibit 5.1)
24     Powers of Attorney (included on page II-8 hereto)

Item 17.Undertakings

We undertake:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) to include any Prospectus required by section 10(a)(3) of the Securities Act of 1933;

(ii) to reflect in the Prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement;

(iii) to include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in this registration statement (notwithstanding the foregoing, any increase or decrease in volume of securities (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of a Prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” in this registration statement); provided, however, that the undertakings set forth in paragraphs (i) and (ii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this registration statement.

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(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(5) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referred to in Item 15 (other than the insurance policies referred to therein), or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted against the Registrant by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

II-7

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Omaha, Nebraska, on the November 28, 2005.

TRANSGENOMIC, INC.

By:/s/    COLLIN J. D’SILVA        .
  Collin J. D’Silva,
*10.12
 Employment Agreement Extension between the Registrant and Craig Tuttle dated July 12, 2008 (incorporated by reference to the Registrant's Current Report on Form 8-K filed on July 16, 2008).
  President
10.13
 License Agreement between the Registrant and Chief Executive Officerthe Dana-Farber Cancer Institute dated October 8, 2009 (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on November 5, 2009).
+10.14
Asset Purchase Agreement, dated November 29, 2010, by and among PGxHealth, LLC, Clinical Data, Inc. and the Registrant. (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on January 4, 2011).
+10.15
Amendment to Asset Purchase Agreement, dated December 29, 2010, by and among PGxHealth, LLC, Clinical Data, Inc. and the Registrant (incorporated by reference to Exhibit 2.2 to the Registrant's Current Report on Form 8-K filed on January 4, 2011).
10.16
Series A Convertible Preferred Stock Purchase Agreement with Third Security dated December 29, 2010 (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on January 4, 2011).
10.17
Form of Series A Convertible Preferred Stock Warrant issued to Third Security Senior Staff 2008 LLC, Third Security Staff 2010 LLC, and Third Security Incentive 2010 LLC on December 29, 2010 (incorporated by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed on January 4, 2011).
10.18
Registration Rights Agreement, dated December 29, 2010, by the Registrant, 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 the Registrant's Current Report on Form 8-K filed on January 4, 2011).
10.19
Secured Promissory Note, issued December 29, 2010 by the Registrant. in favor of PGxHealth, LLC. (incorporated by reference to Exhibit 4.4 to the Registrant's Current Report on Form 8-K filed on January 4, 2011).
10.20
Secured Promissory Note, issued December 29, 2010 by the Registrant. in favor of PGxHealth, LLC. (incorporated by reference to Exhibit 4.5 to the Registrant's Current Report on Form 8-K filed on January 4, 2011).
10.21
Sublease Agreement, dated December 29, 2010, by and between the Registrant. and Clinical Data, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on January 4, 2011).
10.22
 Noncompetition and Nonsolicitation Agreement, dated December 29, 2010, by and among PGxHealth, LLC, Clinical Data, Inc. and the Registrant (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on January 4, 2011).
10.23
 Security Agreement, dated December 29, 2010, by and between PGxHealth, LLC and the Registrant. (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on January 4, 2011).
10.24
 First Amendment to Registration Rights Agreement dated November 8, 2011 (incorporated by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed on November 14, 2011).
10.25
Agreement Regarding Preferred Stock dated November 8, 2011 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on November 14, 2011).
10.26
Convertible Promissory Note Purchase Agreement by and among the Registrant; Third Security Senior Staff 2008 LLC; Third Security Staff 2010 LLC; and Third Security Incentive 2010 LLC dated December 30, 2011 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on January 6, 2012).
10.27
Convertible Promissory Note by and between the Registrant. and Third Security Senior Staff 2008 LLC dated December 30, 2011(incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on January 6, 2012).
10.28
Convertible Promissory Note by and between the Registrant. and Third Security Staff 2010 LLC dated December 30, 2011 (incorporated by reference to Exhibit 10.34 to the Registrant's Current Report on Form 8-K filed on January 6, 2012).
10.29
Convertible Promissory Note by and between the Registrant. and Third Security Incentive 2010 LLC dated December 30, 2011(incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on January 6, 2012).

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, whose signatures appear below, hereby constitute and appoint Collin J. D’Silva and Michael Summers, or either of them, as their true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for them and in their name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as full and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

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


34


Date: November 28, 2005

10.30
 By:/s/    COLLIN J. D’SILVA        Securities Purchase Agreement entered into by and among the Registrant and the Investors dated February 2, 2012 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on February 7, 2012).
   
10.31
 Collin J. D’Silva,Form of Warrant issued by the Registrant to the Third Securities Entities on February 7, 2012(incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on February 7, 2012).
   
10.32
 President, Chief Executive Officer andForm of Warrant issued by the Registrant to the Investors on February 7, 2012 (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on February 7, 2012).
   
10.33
 Director (Principal Executive Officer)

Date: November 28, 2005

By:/s/    MICHAEL A. SUMMERS        Form of Registration Rights Agreement entered into by and among the Registrant, the Third Securities Entities and the Investors dated February 2, 2012 (incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed on February 7, 2012).
   
*10.34
 Michael A. SummersEmployment Agreement between the Registrant and Mark P. Colonnese (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on September 17, 2012).
   
10.35
 Chief Financial OfficerSecurities Purchase Agreement, entered into by and among the Registrant and the Investors, dated January 24, 2013 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K/A filed on January 31, 2013).
   
10.36
 (Principal Financial Officer)

Date: November 28, 2005

By:/s/    GREGORY J. DUMAN        Form of Warrant issued by the Registrant to the Investors on January 30, 2013 (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K/A filed on January 31, 2013).
   
10.37
 Gregory J. Duman,Registration Rights Agreement, entered into by and among the Registrant and the Investors, dated January 24, 2013 (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K/A filed on January 31, 2013).
   
10.38
 Director

Date: November 28, 2005

By:/s/    JEFFREY SKLAR        Forbearance Agreement, dated February 7, 2013, by and between the Registrant and Dogwood Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on February 8, 2013).
   
10.39
 Jeffrey Sklar,Loan and Security Agreement among the Registrant, Third Security Senior Staff 2008 LLC, as administrative agent and a lender, and the other lenders party thereto, dated March 13, 2013
   
21.1
 Director

Date: November 28, 2005

By:/s/    ROLAND J. SANTONI        Subsidiaries of the Registrant
   
23.1
 Roland J. Santoni,Consent of Independent Registered Public Accounting Firm
   
23.2
 Director

Date: November 28, 2005

By:/s/    PARAG SAXENA        Consent of Paul Hastings LLP (included as part of Exhibit 5.1)
   
24.1
 Parag Saxena,Power of Attorney (included as part of the signature page of the registration statement on Form S-1)
   
   
†
 Director

Date: November 28, 2005

By:/s/    GREGORY SLOMA        Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to this agreement have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request.
   
*
 Gregory Sloma,Denotes exhibit that constitutes a management contract, or compensatory plan or arrangement.
   
+
Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.
   Director

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