AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 14,JULY 19, 2000
REGISTRATION NO. 333-32174333-[ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 2
TO

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

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

TRANSGENOMIC, INC.
(Exact name of Registrant as specified in its charter)

DELAWARE 3826 91-1789357
(State of incorporation) (Primary standard (I.R.S.industrial (IRS employer
industrialclassification code number) identification no.)
classification code number)

5600 SOUTH 42ND STREET
OMAHA, NEBRASKA 68107
(402) 738-5480
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)

COLLIN J. D'SILVA
Chairman and Chief Executive OfficerPRESIDENT AND CHIEF EXECUTIVE OFFICER
5600 South 42nd Street
Omaha, NebraskaSOUTH 42ND STREET
OMAHA, NEBRASKA 68107
(402) 738-5480
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Please address a copy of all communications to:

STEVEN P. AMEN, ESQ. ROBERT B. WILLIAMS, ESQ.
Kutak Rock LLP Milbank, Tweed, Hadley & McCloy LLP
1650 Farnam Street One Chase Manhattan Plaza
Omaha, Nebraska 68102 New York, New York 10005
(402) 346-6000 (212) 530-5000

--------------STEVEN P. AMEN, ESQ.
KUTAK ROCK LLP
1650 FARNAM STREET
OMAHA, NEBRASKA 68102
(402) 346-6000

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable on or after the effective date of this Registration Statement.

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, check the following box. [ ]/X/

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

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]/ /

CALCULATION OF REGISTRATION FEE

PROPOSED MAXIMUM
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICEPROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHAREOFFERING PRICE OFFERING PRICE REGISTRATION FEE

Common Stock, par value $0.01 share......... 4,600,000(1) $14.00(2) $64,400,000(2) $17,002(3)share 152,450 $15.00(1) $2,286,750(1) $604(2)
Warrants for purchase of Common Stock 152,450

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

(1) Includes 600,000 shares of Common Stock that the Underwriters have the
option to purchase solely to cover over-allotments, if any.

(2) Estimated solely for the purpose of calculating the registration fee. (3) Previously paid.The
proposed maximum offering price and the proposed maximum aggregate offering
price are based on the public offering price established on July 17, 2000 in
connection with the initial public offering of the Common Stock of
Registrant.

(2) Which amount has been previously paid by Registrant in connection with the
filing by Registrant of Amendment No. 1 to its registration statement on
Form S-1 (Registration No. 333-32174) on May 17, 2000.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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

SUBJECT TO COMPLETION, DATED JUNE 14,JULY 19, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

PROSPECTUS

4,000,000152,450 SHARES

[LOGO]

COMMON STOCK

This is anWARRANTS

The holders of warrants to purchase 152,450 shares of our common stock may
sell up to 152,450 shares of our common stock and the warrants to purchase
152,450 shares under this prospectus. These warrant holders may sell the shares
and warrants at the then prevailing market price for the shares or warrants at
the time of the sale, or at other prices. We will not receive any of the
proceeds from the sale of these shares or warrants by these warrant holders.

We recently sold 4,480,000 shares of our common stock in our initial public
offering. The underwriters of our initial public offering are not underwriting
any of common stockthe shares or warrants being sold by Transgenomic, Inc. We
arethe selling 4,000,000 shares of common stock. The estimatedwarrant holders. Prior
to our initial public offering, price is between $12.00 and $14.00 per share.

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

Prior to this offering, there has beenwas no public market for our common stock.

We have applied for listing of our--------------

Our common stock is listed on the Nasdaq National Market under the symbol
TBIO.

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

PER SHARE TOTAL
--------- -----------

Initial publicThe selling warrant holders are offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Transgenomic, before expenses................... $ $

Transgenomic has granted the underwriters an option for a periodcommon stock and warrants as
described
under "Plan of 30 days
to purchase up to 600,000 additional shares of common stock.Distribution."

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

INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.

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

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

CHASE H&Q

BEAR, STEARNS & CO. INC.

DAIN RAUSCHER WESSELSJuly , 2000
The inside front cover of the prospectus shows a photograph of a technician
using the WAVE System and another photograph of a computer monitor, some of the
consumable products used with the WAVE System and a compact disk containing the
WAVEMaker software. The inside front cover of the prospectus also folds out to
reveal a graphic depiction of DNA analysis using the WAVE System. The various
steps of a sample analysis described in the picture include the following:

SEPARATION

The DNA separation, analysis, and collection processes performed on our
instrument are completely automated. The DNASep Column is key to our process. A
sample is placed into our DNASep Column and DNA fragments are separated
according to size, mutation, or other properties. The process can be analytical
or if pure DNA material is desired the separation can be performed on a
preparative basis.

THREE MODES OF OPERATION

DNA can be separated according to three different modes. Changing the
temperature at which DNA is separated on the DNASep Column controls these modes.
Sizing of double strand DNA (dsDNA) is performed at lower temperatures. Mutant
DNA is separated at intermediate temperatures where DNA is partially denatured
or melted. Single strand DNA (ssDNA) and RNA are separated at higher
temperatures.

DETECTION AND ANALYSIS

DNA fragments flow from the DNASep Column directly into a detection and
measurement device. The type and amount of DNA material is identified using two
different detection measurements. UV detection is used for most applications.
Fluorescence detection is used when measurement of very small amounts of DNA is
desired.

COLLECTION

If desired, highly purified DNA can be collected by our fragment collector.
Purified DNA can be used for cloning, sequencing or in any process where
purified fragments of DNA are needed. Cloning, for example, is much more
efficient if a highly purified fragment is used in the cloning process.

The inside back cover of the prospectus shows a photograph of consumable
products used with the WAVE System under a heading that reads "WAVE Optimized
Molecular Biology Consumables."

TABLE OF CONTENTS

PAGE
--------

Prospectus Summary.......................................... 1
Risk Factors................................................ 7
Forward-Looking Statements.................................. 15
Use of Proceeds............................................. 16
Dividend Policy............................................. 1615
Capitalization.............................................. 17
Dilution.................................................... 1916
Selected Financial Data..................................... 2118
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 2219
Business.................................................... 3027
Management.................................................. 4340
Principal Stockholders...................................... 4946
Related Party Transactions.................................. 5149
Description of Capital Stock................................ 5250
Shares Eligible for Future Sale............................. 5553
U.S. Federal Tax Considerations for Non-U.S. Holders........ 58
Underwriting................................................ 6256
Legal Matters............................................... 6461
Experts..................................................... 6461
Where You Can Find More Information......................... 6562
Index to Financial Statements............................... F-1

THIS PROSPECTUS CONTAINS REFERENCES TO OUR REGISTERED TRADEMARKS
WAVE-REGISTERED TRADEMARK- AND DNASEP-REGISTERED TRADEMARK-. WAVEMAKER-TM-, WAVE
OPTIMIZED-TM- AND THE TRANSGENOMIC NAME AND THE TRANSGENOMIC LOGO ARE OUR
TRADEMARKS FOR WHICH REGISTRATION APPLICATIONS HAVE BEEN FILED WITH THE UNITED
STATES PATENT AND TRADEMARK OFFICE. ALL OTHER TRADEMARKS OR TRADE NAMES REFERRED
TO IN THIS PROSPECTUS ARE THE PROPERTY OF THEIR RESPECTIVE OWNERS.

PROSPECTUS SUMMARY

THE SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND OUR CONSOLIDATED HISTORICAL
AND PRO FORMA FINANCIAL STATEMENTS AND THE NOTES TO THOSE FINANCIAL STATEMENTS
BEGINNING ON PAGE F-1, BEFORE MAKING AN INVESTMENT DECISION.

TRANSGENOMIC

OUR BUSINESS

We provide innovative research tools to the genomics segment of the life
sciences industry. These tools enable researchers to discover and understand
variationvariations in the human genetic code, or genome,genome. Understanding the role of
variations in orderthe human genetic code may lead to acceleratethe development of new drugs
and improve drug development and diagnostics.diagnostic techniques. We believe our WAVE System, which incorporates our
proprietary DNASep separation column and associated software, chemical reagents
and other consumable items, will become a leading tool to analyze genetic
mutations. The WAVE System allows researchers to analyze both known and unknown
genetic mutations faster, with more accuracy and at a lower cost than other
commercially available techniques.

As efforts to sequence the human genome near completion, understanding
variations in the genetic sequence, or mutation analysis, is becoming the vital
link to the development of new drug products and diagnostics. By comparing
genetic mutations in the genome to the occurrence of diseases or particular
traits, correlations can be made between genes and specific diseases or traits.
Our WAVE System, unlike tools employing more conventional technologies, can
detect these genetic mutations without previous knowledge of their existence or
position. As a result, the WAVE System provides researchers a more accurate and
efficient means of performing the experiments necessary to identify mutations
and to correlate the relationships between mutations and diseases.

OUR TECHNOLOGY AND PRODUCTS

Our WAVE System is designed to perform high-speed, automated analyses of DNA
molecules to identify the type, location and frequency of DNA mutations, with a
high degree of accuracy and consistency. The WAVE System is based on our
proprietary micro-bead technology. Our patented micro-beads are packed into our
proprietary DNASep separation column, which is the key component of our WAVE
System. Each micro-bead has specific surface chemistry that interacts with DNA
molecules. The DNA molecules are then selectively separated from the micro-beads
with a mixture of our liquid reagents. This process is automated by our
proprietary WAVEMaker Software for analysis and interpretation.

RESEARCH AND DEVELOPMENT

We maintain an active research and development program. Our research and
development work is focused on making improvements to the WAVE System that are
needed to adapt it to commercial applications such as diagnostics research and
drug development.

CUSTOMERS

Since the product launch in August 1997 and through December 31, 1999, we
sold 210 WAVE Systems in 20 countries to core laboratory facilities, academic
research centers, medical institutions and biopharmaceutical companies. We sold
an additional 88101 WAVE Systems in 2000, 46 in the first quarter and 4255 in the
second quarter through June 9, 2000.quarter. Customers that have purchased at least one WAVE System include
Harvard University, Stanford University, Baylor College of Medicine, University
of Chicago, Fred Hutchison Cancer Research Facility, Mayo Clinic, National
Cancer Institute, National Institutes of Health, Institut Curie,

1
University of Cambridge, Wellcome Trust-Oxford University, Institut Gustave
Roussy, SmithKline Beecham, Bristol-Meyers Squibb, Millennium Pharmaceuticals,
Merck & Company, Novartis and Eli Lilly and Company.

OUR STRATEGY

We intend to be the leading provider of technology platforms which enable
life sciences researchers to discover and understand variations in the human
genome, in order to accelerate and improve drug development and diagnostics. Key
elements of this strategy include:

- FOCUS ON THE GENETIC VARIATION DISCOVERY MARKET;

- ESTABLISH THE WAVE SYSTEM AS THE INDUSTRY STANDARD;

- INCREASE CONSUMABLE SALES;

- PENETRATE NEW MARKETS; AND

- BUILD A SUBSTANTIAL INTELLECTUAL PROPERTY ESTATE.

RECENT DEVELOPMENTS

We were incorporated in Delaware on March 6, 1997 to develop, manufacture
and market our DNA separation and analysis products in addition to continuing to
manufacture and sell the non-life sciences instrumentation products that were
being manufactured and sold by our predecessor company, CETAC Holding Company,
Inc. and its subsidiaries, CETAC Technologies, Inc., Sarasep, Inc. and
Interaction Chromatography, Inc. On July 1, 1997, we merged CETAC Holding
Company, Inc. and its subsidiaries into Transgenomic.

We have since decided to focus our resources on our life sciences products
and recently sold the assets related to our non-life sciences instrument product
line. See "Related Party Transactions."

Our principal office is located at 5600 South 42nd Street, Omaha, Nebraska
68107 (telephone: 402-738-5480). We maintain manufacturing facilities and our
principal research and development office in San Jose, California (telephone:
408-432-3230). Our website is located at http://www.transgenomic.com. The
information contained in our website is not part of this prospectus, and you
should rely only on the information contained in this prospectus in deciding
whether to invest in our common stock.

THE OFFERINGSHARES TO BE SOLD BY SELLING WARRANT HOLDERS

Common stock offered........................................ 4,000,000Stock offered by Selling Warrant Holders............. 152,450 shares

Common stock to be outstanding after this offering.......... 17,325,000Stock outstanding.................................... 17,805,000 shares

Use of proceeds............................................. For debt reduction, capital
expenditures, acquisition of notes
and general working capital. See
"Use of Proceeds."

Proposed Nasdaq National Market symbol...................... TBIO

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

The number of shares to be outstanding after this offering includes all shares
outstanding as of the date of this prospectus plus 300,000does not include (i) 152,450 shares that
will be issued upon the exercise of the warrants held by the selling warrants
holders; (ii) 2,750,914 shares that will be issued upon the assumed conversion
of $12.0 million aggregate principal amount of our convertible notes plus
accrued interest at $5.00 per share uponor (iii) the exercise of warrants that the holder intends
to exercise prior to the closing of this offering.

The number of shares to be outstanding after this offering does not include the
following:

- 152,450 shares issuable upon exercise of outstanding warrants with an
exercise price of $5.00 per share;

- 6,000,000 shares that we could
issue under our employee stock option plan. As of June 1, 2000,the date of this prospectus,
we have issued options to purchase 3,690,5503,982,050 shares of common stock at an exercise
priceprices ranging from $5.00 to $13.00 per share, except that options to acquire shares of common
stock with an aggregate fixed cost of $75,000 issued to one of our
non-employee directors may be exercised at a price equal to the lower
of $5.00 per share for 15,000 shares or 50% of the public offering
price for this offering.share. We may issue options to acquire
up to 2,309,4502,017,950 additional shares of our common stock under this plan;

- 2,728,200 shares issuable upon the conversion of our $12.0 million
aggregate principal amount convertible notes plus accrued interest
thereon at $5.00 per share, assuming such conversion had occurred on
March 31, 2000. We have the right to cause the convertible notes to be
converted into common stock when the sum of (a) the average trading
price of our stock over 20 consecutive trading days and (b) all
accrued interest on the notes (when converted to an amount per share
using the conversion price) equals $13.72 per share;

- an undetermined number of additional shares we would have to issue
upon conversion of our $12.0 million aggregate principal amount
convertible notes if the public offering price for this offering is
less than $10.00 per share. The actual number of shares that we will
issue upon conversion of these convertible notes will be determined by
dividing the amount of principal and interest on the notes being
converted into common stock by the conversion price of the convertible
notes. The conversion price is equal to the lower of $5.00 or 50% of
the public offering price for this offering; andplan.

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

- an undetermined number of additional shares we are obligated to issue
to the holders of 2,000,000 shares of our common stock that were
issued by us in a private placement if the public offering price for
this offering is less than $10.00 per share. The number of additional
shares that we will have to issue to these common stockholders will be
determined by multiplying 2,000,000 times the difference between
$10.00 and the actual public offering price and dividing the product
by the actual public offering price.

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

UNLESS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS:

- ASSUMES THAT THE UNDERWRITERS DO NOT EXERCISE THEIR OVERALLOTMENT
OPTION; AND

- ASSUMES THE INITIAL PUBLIC OFFERING PRICE OF OUR COMMON STOCK WILL BE
$13.00 PER SHARE.

SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA

The summary consolidated historical financial data for our 1997, 1998 and
1999 fiscal years and for the three months ended March 31, 1999 and 2000 is
derived from our consolidated financial statements for these periods. You should
read this summary data along with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," our consolidated financial
statements and the unaudited pro forma financial information, and the related
notes thereto, included elsewhere in this prospectus.

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENTS OF OPERATIONS DATA:
Net sales..................................... $11,577 $18,935 $23,035 $ 5,227 $ 6,944
Gross profit.................................. 5,241 9,345 10,945 2,524 3,113
Operating expenses............................ 8,459 11,320 17,829 4,044 6,142
Loss from operations.......................... (3,218) (1,975) (6,884) (1,520) (3,029)
Net loss...................................... $(2,410) $(1,576) $(9,827) $ (978) $(3,498)
======= ======= ======= ======= =======
Basic and diluted loss per share.............. $ (0.22) $ (0.13) $ (0.76) $ (0.08) $ (0.27)
======= ======= ======= ======= =======
Basic and diluted weighted average shares
outstanding(1).............................. 11,145 12,279 13,000 13,000 13,008
======= ======= ======= ======= =======

AS OF
AS OF DECEMBER 31, MARCH 31,
------------------- ----------
1998 1999 2000
-------- -------- ----------
(IN THOUSANDS)

BALANCE SHEET DATA:
Total assets.............................................. $14,736 $19,964 $18,830
Long-term debt, less current portion...................... 695 12,538 12,78112,782
Stockholders' equity (deficit)............................ 6,649 (2,099) (4,615)

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

(1) See Note A of notes to our consolidated financial statements for an
explanation of the determination of the number of shares used in computing
per share data.

SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA

The following summary unaudited pro forma statement of operations data for
the three months ended March 31, 2000 and the year ended December 31, 1999
reflects the sale of assets related to our non-life sciences instrument product
line on May 19, 2000 as if the sale had occurred on January 1, 1999. The summary
unaudited pro forma balance sheet data reflects the sale as if it had been
completed on March 31, 2000.

The pro forma as adjusted balance sheet data additionally reflects the sale
of 4,000,0004,480,000 shares of common stock offered by us in this offering at an assumedour initial public offering
at a price of $13.00$15.00 per share, less underwriting discounts and commissions and
estimated offering expenses, and the issuance of 300,000 shares of common stock
at $5.00 per share upon the exercise of warrants thatat the holder intends to exercise prior to the closingtime of thisthat offering.
The unaudited pro forma financial data are intended for informational purposes
only and are not intended to be indicative of our results of operations or
financial position had these transactions occurred on the dates specified, nor
are they indicative of our future results of operations or financial position.

You should read this summary along with our consolidated financial
statements and notes thereto, our unaudited pro forma financial information and
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Use of Proceeds" included elsewhere in this
prospectus.

THREE MONTHS ENDED MARCH 31, 2000
---------------------------------------------
ADJUSTMENTS FOR
SALE OF
NON-LIFE
SCIENCES
TRANSGENOMIC INSTRUMENT TRANSGENOMIC
(HISTORICAL) PRODUCT LINE PRO FORMA
------------ --------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $ 6,944 $2,171 $ 4,773
Gross profit....................................... 3,113 738 2,375
Operating expenses................................. 6,142 1,408 4,734
Loss from operations............................... (3,029) (670) (2,359)
Other expense...................................... (469) -- (469)
Loss before income taxes........................... (3,498) (670) (2,828)
Net loss........................................... $(3,498) $ (670) $(2,828)
======= ====== =======
Basic and diluted loss per
share............................................ $ (0.27) $ (0.22)
======= =======
Basic and diluted weighted average shares
outstanding...................................... 13,008 13,008
======= =======

YEAR ENDED DECEMBER 31, 1999
---------------------------------------------
ADJUSTMENTS FOR
SALE OF
NON-LIFE
SCIENCES
TRANSGENOMIC INSTRUMENT TRANSGENOMIC
(HISTORICAL) PRODUCT LINE PRO FORMA
------------ --------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $23,035 $8,794 $ 14,241
Gross profit....................................... 10,945 3,869 7,076
Operating expenses................................. 17,829 3,576 14,253
(Loss) income from operations...................... (6,884) 293 (7,177)
Other expense...................................... (1,198) -- (1,198)
(Loss) income before income taxes.................. (8,082) 293 (8,375)
Net (loss) income.................................. $(9,827) $ 293 $(10,120)
======= ====== ========
Basic and diluted loss per
share............................................ $ (0.76) $ (0.78)
======= ========
Basic and diluted weighted average shares
outstanding...................................... 13,000 13,000
======= ========

AS OF MARCH 31, 2000
----------------------------------------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (1)FORMA(1) AS ADJUSTED (1)ADJUSTED(1)
-------- ------------- --------------------------- --------------
(IN THOUSANDS)

BALANCE SHEET DATA:
Total assets........................................... $18,830 $19,578 $67,938$81,574
Long-term debt, less current portion................... 12,782 12,782 12,782
Stockholders' equity (deficit)......................... (4,615) (3,866) 44,49458,130

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

(1) We have the right to cause our convertible notes to be converted into
common stock when the sum of (a) the average trading price of our stock
over 20 consecutive trading days and (b) all accrued interest on the notes
(when converted to an amount per share using the conversion price) equals
$13.72 per share. The conversion price is equal to the lower of $5.00 per share or
50% of the public offering price per share for this offering. We intend to convert the notes at the earliest possible
date after completion of this
offering.date. Assuming the conversion of $12.0 million aggregate principal amount of
our convertible notes plus accrued interest at an assumedthe conversion price of $5.00
per share and the exercise of the warrants to purchase 300,000 shares of our
common stock at $5.00 per share each occurred as of March 31, 2000, our pro
forma stockholders' equity and total assets, prior to giving effect to the
sale of the 4,000,0004,480,000 shares of common stock offered by us in thisour initial
public offering, would be $10.4 million and $21.1 million, respectively.
Assuming the conversion of the convertible notes occurred as of March 31,
2000, our pro forma as adjusted stockholders' equity and total assets after
thisour initial public offering and the exercise of the warrants would be
$57.2$70.9 million and $67.9$81.6 million, respectively.

RISK FACTORS

YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. ANY OF THE
FOLLOWING RISKS COULD HARM OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AND COULD RESULT IN A COMPLETE LOSS OF YOUR INVESTMENT.

RISKS RELATED TO OUR BUSINESS

OUR LIMITED OPERATING HISTORY AS A COMPANY FOCUSED ON LIFE SCIENCES TECHNOLOGIES
AND APPLICATIONS SUBJECTS US TO RISKS INHERENT IN THE DEVELOPMENT OF A NEW
BUSINESS ENTERPRISE AND TO THE RISK THAT WE MAY NOT ACHIEVE PROFITABILITY.

We have a limited operating history as a company focused on life sciences
technologies and applications and are at a relatively early stage of development
in this business. Our future financial performance will depend on the growth in
demand for automated DNA separation and analysis enabling technologies. The
genomics market is new and emerging, is rapidly evolving, is characterized by an
increasing number of market entrants, and will be subject to frequent and
continuing changes in standards, customers' preferences and technology. As a
result, our business is subject to all of the risks inherent in the development
of a new business enterprise, such as the need:

- to develop a market for our products;

- to obtain enough capital to support the expenses of developing and
commercializing our products; and

- to attract and retain qualified management, sales, technical and
scientific staffs.

We expect that it will be a number of years, if ever, before we will achieve
profitability from the sale of our products. Our future operating results will
depend on a number of factors, including the market acceptance of our products,
the introduction of new products by our competitors, our ability to adapt our
technology to the commercial needs of our customers and to developments in the
genomics industry, and the timing and extent of our research and development
efforts. Our limited operating history in the life sciences industry makes
accurate prediction of future operations difficult. If our operating results
fail to meet the expectations of securities analysts or investors, our stock
price could decline.

WE HAVE A HISTORY OF OPERATING LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE.

We experienced losses from operations of $3.0 million during the three
months ended March 31, 2000, $6.9 million in fiscal 1999, $2.0 million in fiscal
1998 and $3.2 million in fiscal 1997. These losses were mostly due to research
and development expenses and sales and marketing expenses related to the
development and marketing of our WAVE System. As of March 31, 2000, we had an
accumulated deficit of $15.8 million. In order to continue to enhance our WAVE
System and related products, develop new products, increase the pace of
installations and expand our marketing, sales and customer support service
staffs, we expect to incur significant increases in our expenses over the next
several years. As a result, we could continue to incur losses for the forseeable
future and may never be profitable.

OUR TECHNOLOGY AND PRODUCTS ARE RELATIVELY NEW AND MAY NOT GAIN MARKET
ACCEPTANCE AMONG GENOMICS RESEARCHERS.

Our WAVE System and other automated DNA separation and analysis products are
relatively new products. Market acceptance of our products is dependent upon
factors, some of which are not in our control, such as continued growth in the
genomics industry, the availability and price of competing products and
technologies, the success of our sales efforts, and the acceptance of our
product by the

academic and research community, such as biologists, geneticists and
biochemists, who are more familiar with the existing, traditional methods of DNA
separation and analysis. Our products must compete against well-established
techniques, such as gel and capillary electrophoresis and sequencing-based
technologies. We cannot be certain that our products will replace or compete
successfully against existing products or that our products will achieve market
acceptance. If our products do not achieve market acceptance, we may not achieve
profitability.

WE WILL NEED TO REFINE OUR WAVE SYSTEM TO ALLOW IT TO MEET THE REQUIREMENTS OF
COMMERCIAL USERS.

Our WAVE System is relatively new and has been developed primarily for basic
genomics research applications. The WAVE System will require significant
enhancements to its capacity and software in order for it to be adapted to
commercial applications such as diagnostic research and drug development. The
adaptation of the current WAVE System for these commercial applications will
require additional research and development work that may be expensive and
time-consuming. We cannot assure you that we will be able to make the necessary
improvements to the WAVE System for use in commercial applications. If we are
unable to complete the further development of the WAVE System we may not be able
to successfully market it for commercial applications and this will limit our
future revenues.

IF ETHICAL AND OTHER CONCERNS SURROUNDING THE USE OF GENETIC INFORMATION BECOME
WIDESPREAD, WE MAY HAVE LESS DEMAND FOR OUR PRODUCTS.

Genetic testing has raised ethical issues regarding confidentiality and the
appropriate uses of the resulting information. For these reasons, governmental
authorities may call for limits on or regulation of the use of genetic testing
or prohibit testing for genetic predisposition to disease, particularly for
those that have no known cure. Any of these scenarios could reduce the potential
markets for our products, which could limit our future revenues.

WE HAVE A LIMITED SALES FORCE AND LIMITED EXPERIENCE WITH DIRECT MARKETING OF
OUR PRODUCTS WHICH COULD LIMIT OUR ABILITY TO EFFECTIVELY PENETRATE NEW MARKETS.

Our direct sales force may not be sufficiently large or knowledgeable to
successfully penetrate the market. We may not be able to expand our direct sales
force to meet our commercial objectives. In addition, our sales force may not be
able to address complex scientific and technical issues raised by our customers.
Our customer support personnel may also lack the broad range of technical
expertise required to adequately service and support our products in the field.

THE SALE OF OUR PRODUCTS INVOLVES A LENGTHY SALES CYCLE WHICH MAKES OUR REVENUES
DIFFICULT TO FORECAST.

Our ability to obtain customers for our WAVE System and related accessories
depends in large part on the perception that our products can help accelerate
basic genomics research, diagnostic testing and related applications such as
drug discovery and development efforts. A WAVE System sells for between $60,000
to $100,000 depending on its features and accessories. For many potential
customers, who are often constrained by limited research budgets, this will be a
large capital outlay. Additionally, the sales cycle is often three to six months
long due to the need to educate potential customers as to the benefits and use
of our WAVE System. We also need to effectively communicate the benefits of our
WAVE System to a variety of constituencies within potential customer groups,
including research and development personnel and key management. We may expend
substantial funds and sales effort with no assurance that a sale will result.
Due to the lengthy sales cycle required, our revenues could be difficult to
forecast.

OUR BUSINESS MAY EXPERIENCE LONG COLLECTION PERIODS WHICH COULD HAVE A NEGATIVE
IMPACT ON OUR LIQUIDITY.

We have experienced in the past, and may experience in the future,
collection periods of up to a year or more in connection with sales of our WAVE
System. Some customers delay payment due to the large capital outlay associated
with a purchase of the WAVE System. Other clients in the academic and research
fields are accustomed to longer payment periods than commercial buyers. In
general, our overseas customers pay less promptly than is customary in the
United States. In addition, because we are in the early stages of
commercialization of the WAVE System, we sometimes agree to provide extended
payment terms in order to make a sale. Our typical accounts receivable terms are
30 to 60 days. Longer collection periods may have a negative impact on our
liquidity. As of March 31, 2000, our accounts receivable equaled $5.1 million.
Balances subject to extended terms were approximately $179,000, of which
approximately $68,000 was due more than one year from March 31, 2000.

WE MAY NEED TO RAISE ADDITIONAL FUNDING WHICH MAY NOT BE AVAILABLE.

To date, we have financed our operations primarily from the net proceeds of
a $10,000,000 private offering of common stock, a $12,000,000 issuance of
convertible notes and borrowings under our $5 million bank line of credit. We
will continue to need substantial amounts of cash for research and development
and to expand our sales and marketing infrastructure. We expect our capital and
operating expenses to increase over the next several years as we expand this
infrastructure and our research and development activities. The amount of
additional capital which we will need to raise will depend on many factors,
including:

- the level of our research and development activities;

- market acceptance of our products and technologies;

- the level of our sales and marketing expenses;

- expenditures in connection with alliances and license agreements and
in acquiring new businesses and technologies;

- costs incurred in enforcing and defending our patent claims and other
intellectual property rights; and

- the cost of financing the purchase of additional capital equipment and
development tools.

We may need to raise the additional capital in the future through bank
financings or strategic investments. Additional financing may not be available
to us when we need it, or, if available, we cannot assure that we will be able
to obtain such financing on terms favorable to us or our stockholders. If we
raise additional capital by issuing equity securities, the issuance of such
securities would result in ownership dilution to our stockholders.

OUR WAVE SYSTEM INCLUDES HARDWARE COMPONENTS AND INSTRUMENTS MANUFACTURED BY A
SINGLE SUPPLIER AND IF WE WERE NO LONGER ABLE TO OBTAIN THESE COMPONENTS AND
INSTRUMENTS OUR ABILITY TO MANUFACTURE OUR PRODUCTS COULD BE IMPAIRED.

We currently rely on a single supplier, Hitachi Instruments, Inc., to
provide the basic instrument used in our WAVE System. While other suppliers of
instrumentation and computer hardware are available, we believe that our
arrangement with Hitachi offers strategic advantages. If we were required to
seek alternative sources of supply, it could be time consuming or expensive or
require significant and costly modification of our WAVE System. Also, if we were
unable to obtain instruments from Hitachi in sufficient quantities or in a
timely manner, our ability to manufacture our products could be impaired, which
could limit our future revenues.

OUR CHROMATOGRAPHIC COLUMNS, A CORE COMPONENT OF THE WAVE SYSTEM, ARE
MANUFACTURED AT A SINGLE FACILITY WHICH IS LOCATED IN AN EARTHQUAKE-PRONE AREA.

All of our proprietary DNASep columns are manufactured at our manufacturing
facility in San Jose, California, which is located in an earthquake-prone area.
In the event our manufacturing facility or equipment was affected by man-made or
natural disasters, we would be unable to manufacture our products for sale or
meet customer demand or sales projections. If our manufacturing operations were
curtailed or ceased for any significant period of time, it could limit our
future revenues.

WE FACE, AND WILL CONTINUE TO FACE, INTENSE COMPETITION, BOTH IN THE U.S. AND
ABROAD, FROM COMPANIES THAT ARE ENGAGED IN THE DEVELOPMENT OF PRODUCTS THAT
ANALYZE DNA AND PROVIDE GENETIC INFORMATION.

The market for our products is highly competitive. Our principal competitors
include other biotechnology companies that provide alternative technologies and
products for the separation and analysis of DNA. Many of our competitors have
greater financial, operational, sales and marketing resources and more
experience in research and development and commercialization than we have.
Moreover, some of our competitors have greater name recognition than we do and
provide more conventional technologies and products with which some of our
customers and potential customers may have more familiarity or experience. In
order to effectively compete against alternative technologies we will need to
demonstrate the superior performance, speed, capabilities and cost effectiveness
of our WAVE System.

The genomics industry is characterized by extensive research efforts and
rapid technological progress. To remain competitive, we will be required to
continue to expand and enhance the functionality of our DNA separation and
analysis equipment and to offer comprehensive DNA analysis, and complimentary
applications and solutions, with greater ease of use. This will include the need
to increase the WAVE System's capacity and to develop new instrumentation,
software and application kits to allow the system to provide a broader range of
DNA and RNA separation and analysis applications. New products may require
additional development work, enhancement, testing, or further refinement before
they can be made commercially available and, therefore, we could experience
significant delays in the development and manufacture of our products. Even
after new products are made commercially available, unforeseen technical
difficulties could arise, requiring additional expenditures by us to correct
such difficulties and possibly resulting in further delays. We cannot be certain
that new products will be successfully developed at all. If our products have
performance, reliability or quality shortcomings, then we may experience reduced
orders, higher development costs, delays in collecting accounts receivable and
additional warranty and service expenses, and our reputation as a reliable
provider of quality products could be harmed. In addition, new developments are
expected to continue in DNA analysis, and we cannot assure you that our WAVE
System will not be made obsolete by more effective or less expensive
technologies. Because of rapid technological change, we may be required to
expend greater amounts in the development of new products, which in turn will
require greater revenues to recoup such expenditures. We cannot assure you that
we will be able to make the necessary enhancements to our technology or products
to compete successfully with new technologies that may emerge.

WE RECENTLY SOLD THE ASSETS RELATED TO OUR NON-LIFE SCIENCES INSTRUMENT PRODUCT
LINE WHICH HAVE HISTORICALLY GENERATED MOST OF OUR REVENUES AND EARNINGS.

In addition to our DNA separation and analysis products, we have produced
and sold various non-life sciences products. Until 1999, most of our revenues
and profits came from these non-life sciences products. We have decided to focus
our resources on our new automated DNA separation and analysis products and
technologies and have recently sold the assets related to our non-life sciences
product line. As a result, we will no longer generate revenues from the sale of
these products. The future growth of our company will be entirely dependent on
the sale of our WAVE System and associated DNA separation products and
technologies. You should keep this fact in mind when reviewing our financial
statements.

Because of the change in our product offerings, our historic financial
statements will not necessarily indicate our future financial performance.

WE MAY EXPERIENCE DIFFICULTY IN COLLECTING ACCOUNTS RECEIVABLE FROM CUSTOMERS OF
OUR NON-LIFE SCIENCES INSTRUMENT PRODUCT LINE AFTER ITS SALE.

We recently sold the assets related to our non-life sciences instrument
product line. The agreement for the sale of these assets provided that we will
retain accounts receivable equaling approximately $1.8 million that arose from
sales of these products prior to March 31, 2000. We may experience difficulty in
collecting the remaining accounts receivable due to the lack of a continuing
relationship with some customers.

OUR PATENTS MAY NOT PROTECT US FROM OTHERS USING OUR TECHNOLOGY WHICH COULD HARM
OUR BUSINESS AND COMPETITIVE POSITION.

Our business and competitive position are dependent upon our ability to
protect our proprietary technology. While we currently hold a number of domestic
and foreign patents and licenses, the issuance of a patent is not conclusive as
to its validity or enforceability, nor does it provide the patent holder with
freedom to operate without infringing the patent rights of others. 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. As a result, the invalidation of key patents owned by or licensed to
us or non-approval of pending patent applications could increase competition for
our products.

We may not be able to obtain additional patents for our technology, or if we
are able to do so, patents may not provide us with substantial protection or be
commercially beneficial. Our patent applications may not protect our products
because of the following reasons:

- we cannot be certain that any of our pending patent applications will
result in additional issued patents;

- we may develop additional proprietary technologies that are not
patentable;

- we cannot be certain that any patents issued or licensed to us will
provide a basis for commercially viable products;

- we cannot be certain that any patents issued or licensed to us will
not be challenged or circumvented or invalidated by third parties; and

- we cannot be certain that any patents issued to others will not have
an adverse effect on our ability to do business.

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. In addition, we could incur substantial
costs in litigation if we are required to defend ourselves in patent suits
brought by third parties or if we initiate such suits.

WE CANNOT BE CERTAIN THAT OTHER MEASURES TAKEN TO PROTECT OUR INTELLECTUAL
PROPERTY WILL BE EFFECTIVE.

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

require employees, academic collaborators and consultants to enter into
confidentiality and/or intellectual property assignments where appropriate, any
of the following could still occur:

- proprietary information could be disclosed or others may gain access
to such information;

- others may independently develop substantially equivalent proprietary
information and techniques;

- we may not have adequate remedies for any breach; or

- we may not be able to meaningfully protect our trade secrets.

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 acquired or licensed key components of our technologies from third
parties. If these agreements were to terminate prematurely or if we breach the
terms of any licenses or otherwise fail to maintain our rights to such
technology, we may lose the right to manufacture or sell 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 PROTECTION OF INTELLECTUAL PROPERTY IN FOREIGN COUNTRIES IS UNCERTAIN.

We have sold approximately 50% of our WAVE Systems to customers located
outside the U.S. The patent and other intellectual property laws of some foreign
countries may not protect our intellectual property rights to the same extent as
U.S. laws. We may need to bring proceedings to defend our patent rights or to
determine the validity of our competitors' foreign patents. These proceedings
could result in substantial cost and diversion of our efforts. Finally, some of
our patent protection in the U.S. is not available to us in foreign countries
due to the laws of those countries.

OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS WHICH
COULD REQUIRE US TO PAY SUBSTANTIAL ROYALTIES.

There are a significant number of U.S. and foreign patents and patent
applications submitted for technologies in, or related to, our area of business.
As a result, any application or exploitation of our technology could infringe
patents or proprietary rights of others and any licenses that we might need as a
result of such infringement might not be available to us on commercially
reasonable terms, if at all. This may lead others to assert patent infringement
or other intellectual property claims against us. We may have to pay substantial
damages, including treble damages, for past infringement if it is ultimately
determined that our products infringe on another party's intellectual property
rights. We could also be prohibited from selling our products before we obtain a
license, which, if available at all, may require us to pay substantial
royalties. Even if a claim is without merit, defending a lawsuit takes
significant time, may be expensive and may divert management attention from
other business concerns. Any public announcements related to litigation or
interference proceedings initiated or threatened against us could cause our
stock price to decline.

WE DEPEND ON ATTRACTING AND RETAINING KEY EMPLOYEES.

We are highly dependent on the principal members of our management staff and
research and development group, including Collin J. D'Silva, our Chief Executive
Officer and a co-founder, Douglas T. Gjerde, Ph.D., our Chief Scientific Officer
and a co-founder, and William P. Rasmussen, our Chief Financial Officer. We have
entered into employment agreements with Mr. D'Silva, Dr. Gjerde and
Mr. Rasmussen, but not with all of our other key employees. The loss of services
of any of these

individuals could seriously harm our product development and commercialization
efforts for our new life sciences products.

Our future success will also depend on our ability to attract, hire and
retain additional personnel, including sales and marketing personnel, technical
support and customer service staff and application scientists. There is intense
competition for qualified personnel in our industry, especially for experienced
personnel in the areas of chemistry and molecular biology, software and electric
engineering, manufacturing and marketing, and there can be no assurance that we
will be able to continue to attract and retain such personnel. Failure to
attract and retain key personnel could reduce our ability to continue
development of our DNA separation and analysis technology and to successfully
market our products.

WE WILL NEED TO EFFECTIVELY MANAGE OUR GROWTH IF WE ARE TO SUCCESSFULLY
IMPLEMENT OUR STRATEGY.

The number of employees and scope of our business operations are expected to
grow as we continue the commercialization of our WAVE System. This growth may
place a strain on our management and operations. Our ability to manage our
growth will depend on the ability of our officers and key employees to continue
to implement and improve our operational, management information and financial
control systems and to expand, train and manage our work force both in the U.S.
and abroad. We may be required to open non-U.S. offices in addition to our
current U.K., Japan and satellite European offices, which could result in
additional burdens on our systems and resources. Our inability to manage our
growth effectively could affect our ability to pursue business opportunities and
expand our business.

OUR FAILURE TO COMPLY WITH ANY APPLICABLE GOVERNMENT REGULATIONS OR OTHERWISE
RESPOND TO CLAIMS RELATING TO IMPROPER HANDLING, STORAGE OR DISPOSAL OF
HAZARDOUS CHEMICALS WHICH 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, including acetonitrile. We
are subject to federal, state and local 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 RELATED TO THIS OFFERING

WE ARE CONTROLLED BY A SMALL GROUP OF OUR EXISTING STOCKHOLDERS, WHOSE INTERESTS
MAY DIFFER FROM OTHER STOCKHOLDERS.

Our directors, executive officers and principal stockholders and their
affiliates beneficially own approximately 77% of the outstanding equity
securities, and after the offering will beneficially own approximately 58%56% of our outstanding equity
securities. Accordingly, they collectively will have a significant influence in
determining the outcome of any corporate transaction or other matter submitted
to the stockholders for approval, including mergers, acquisitions,
consolidations and the sale of all or substantially all of our assets, and also
the power to prevent or cause a change in control. The interests of these
stockholders may differ from the interests of the other stockholders.

PROVISIONS IN OUR CHARTER MAY INHIBIT A TAKEOVER, WHICH COULD LIMIT THE PRICE
INVESTORS MIGHT BE WILLING TO PAY IN THE FUTURE FOR OUR COMMON STOCK.

Provisions in our certificate of incorporation and bylaws may have the
effect of delaying or preventing a change in control or changes in our
management that stockholders consider favorable or beneficial. If a 13
change of
control or change in management is delayed or prevented, the market price of our
common stock could decline.

13
THERE MAY NOT BE AN ACTIVE LIQUID TRADING MARKET FOR OUR COMMON STOCK.

Prior to thisour initial public offering in July 2000, there will have beenwas no public
market for our common stock. An active public market for our common stock may
not develop or be sustained after this offering. We and the underwriters, through negotiations,
will determine the initial public offering price. The initial public offering
price is not necessarily indicative of the market price at which the common
stock will trade after this offering. Please see "Underwriting" for more
information regarding our arrangements with the underwriters and the factors
considered in setting the initial offering price.sustained.

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

The trading price of our common stock could be highly volatile and subject
to large fluctuations in price in response to various factors, many of which
will be beyond our control. These factors include:

- actual or anticipated variations in quarterly operating results;

- announcements of technological innovations by us or our competitors;

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

- changes in financial estimates by securities analysts;

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

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

- additions or departures of key personnel; or

- sales of our stock.

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

WE HAVE NEVER PAID DIVIDENDS ON OUR CAPITAL STOCK AND DO NOT INTEND TO DO SO FOR
THE FORSEEABLE FUTURE.

Unlike many public companies, we have never paid dividends on our capital
stock and do not intend to pay any dividends for the foreseeable future. We have
agreed not to pay dividends without the consent of our lenders. Investors
seeking dividends or other current distributions should not invest in our common
stock. See "Dividend Policy."

THE SALE OF A SUBSTANTIAL NUMBER OF OUR COMMON SHARES AFTER THIS OFFERING MAY RESULT IN A DECLINE IN
OUR SHARE PRICE.

The market price of our common shares could decline as a result of sales of
substantial amounts of our common stock in the public market after the closing
of this offering or the perception
that substantial

14
sales could occur. These sales also might make it difficult for
us to sell equity securities in the future at a time and at a price that we deem
appropriate.

After this offering, we willWe have outstanding 17,325,00017,805,000 shares of common stock assumingprior to the issuance
of any shares upon the exercise of the warrants to acquire 300,000 shares of common
stock thatheld by the holder intends to exercise prior to the closing of this offering.selling warrant
holders. This number includes the 4,000,0004,480,000 shares of common stock that we are sellingsold
in thisour initial public offering and which may be resold in the public market
immediately. A total of 11,343,000 of these shares will be subject to lock-up
agreements and will become available for sale 180 days after thisour initial public
offering. In addition, at least 833,000 shares will be subject to lock-up
agreements and will become available for sale 90 days after our initial public
offering.

The holders of 108,500 of the warrants being sold hereunder are also subject to
90-day lock-up agreements. The remaining 5,982,000 shares will become available for sale
at various times following the date of thisour initial public offering. The number
of outstanding shares does not include 2,750,914 shares of our common stock that
will be issued upon the conversion of our $12.0 million convertible notes and
accrued interest on such notes at an assumeda conversion price of $5.00 per share and warrants to purchase 152,450 shares at $5.00 per share. Shares
issued upon conversion of our convertible notes will also be subject to 180-day lock-up agreements. The holders of these warrants are not
subject to
lock-up agreements.

The purchaser of our non-life sciences assets financed the purchase price
for these assets by delivering to us a $2.0 million promissory note and
borrowing approximately $4.6 million from a bank. We have agreed with the bank
that we will acquire the notes evidencing these loans from the bank upon closing
of thisour initial public offering. A total of 1,200,000 shares of our common stock
has been pledged by the sole stockholder of the purchaser of our non-life
sciences assets in order to secure the payment of principal and interest under
each of these notes. We anticipate that we will exercise our right to cause
these shares to be sold in order to pay principal and interest on the notes when
due, subject to a lock-up agreement relating to these shares. See "Related Party
Transactions." See "Shares Eligible for Future Sale" for more information
regarding common stock that may be sold in the market after the closing of this offering.market.

FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this prospectus that are subject
to risks and uncertainties. Many of these forward-looking statements refer to
our plans, objectives, expectations and intentions, as well as our future
financial results. You can identify these forward-looking statements by
forward-looking words such as "expects," "anticipates," "intends," "plans,"
"may," "will," "believes," "seeks," "estimates" and similar expressions. Because
these forward-looking statements involve risks and uncertainties, there are
important factors that could cause our actual results to differ materially from
those expressed or implied by these forward-looking statements, including our
plans, objectives, expectations and intentions and other factors discussed under
"Risk Factors" and other factors identified by cautionary language used
elsewhere in this prospectus. Before you invest in our common stock, you should
be aware that the occurrence of the events described in these risk factors and
elsewhere in this prospectus could materially and adversely affect our business,
financial condition and results of operations.

USE OF PROCEEDS

We expect to receive net proceeds of $46.9 million from the sale of
4,000,000 shares of common stock, assuming a public offering price of
$13.00 per share and after deducting underwriting discounts and commissions of
$3.6 million and estimated expenses of $1.5 million. If the underwriters
exercise their over-allotment option in full, we will receive net proceeds of
this offering of approximately $54.1 million.

We intend to use approximately $2.5 million of the net proceeds of this
offering for reduction in our outstanding debt and up to approximately
$5.0 million for capital expenditures in fiscal 2000. Additionally, we will use
approximately $4.6 million to acquire notes evidencing loans made by a bank to
the purchaser of our non-life sciences instrument product line. See "Related
Party Transactions". We intend to use the remaining net proceeds from this
offering for other general working capital needs, including research and
development and sales and marketing expenses relating to our life sciences
products.

Our management will have broad discretion in allocating and utilizing the
net proceeds from this offering. The amounts and timing of our actual
expenditures will depend on many factors, including the status of our product
development and commercialization efforts, the amount of proceeds actually
raised in this offering, the amount of cash generated by our operations, the
efforts of our competitors, and marketing and sales activities. We may also use
a portion of the proceeds for the acquisition of, or investment in, companies,
technologies or assets that complement our business. However, we have no present
understandings, commitments or agreements to enter into any potential
acquisitions and investments. Pending application of the net proceeds as
described above, we intend to invest the net proceeds of the offering in
short-term, investment-grade, interest-bearing securities.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock and
we do not anticipate paying any cash dividends on our common stock in the
foreseeable future. We currently expect to retain all earnings, if any, for
investment in our business. In addition, the terms of our current credit
facilities prohibitfacility prohibits us from paying cash dividends without our lenders'lender's consent.

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.

1615

CAPITALIZATION

The following table describes our capitalization as of March 31, 2000:

- on an actual basis;

- on a pro forma basis, giving effect to the sale of the assets related
to our non-life sciences instrument product line; and

- on a pro forma as adjusted basis reflecting the sale of the common
stock offered by us at an assumed initial public offering price of $13.00$15.00 per
share after deducting the underwriting discounts and commissions and
estimated offering expenses and the issuance of 300,000 shares of
common stock at $5.00 per share upon the exercise of warrants that the
holder intends to exercise prior toexercised at the closingtime of thisour initial public offering, as if
each had happened as of March 31, 2000.

You should read this table together with the consolidated financial
statements and the related notes and our unaudited pro forma financial
information and the related notes appearing at the end of this prospectus and
the information under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Use of Proceeds.Operations."

AS OF MARCH 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)

Long-term obligations, less current portion................. $ 35 $ 35 $ 35
Convertible notes payable(1)................................ 12,747 12,747 12,747
Stockholders' equity:
Preferred stock, $0.01 par value; 15,000,000 shares
authorized,
no shares issued and outstanding.......................... -- -- --
Common stock, $0.01 par value; 30,000,000 shares authorized,
13,025,000 shares issued and outstanding, actual;
13,025,000 shares issued and outstanding pro forma; and
17,325,00017,805,000 shares issued
and outstanding pro forma as adjusted(2).................. 130 130 173178
Additional paid-in capital.................................. 11,724 11,724 60,04173,672
Other capital items......................................... (627) (627) (627)
Accumulated deficit......................................... (15,842) (15,093) (15,093)
-------- -------- --------
Total stockholders' equity (deficit)...................... (4,615) (3,866) 44,49458,130
-------- -------- --------
Total capitalization...................................... $ 8,167 $ 8,916 $ 57,27670,912
======== ======== ========

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

(1) We have the right to cause the convertible notes to be converted into
common stock when the sum of (a) the average trading price of our stock
over 20 consecutive trading days and (b) all accrued interest on the notes
(when converted to an amount per share using the conversion price) equals
$13.72 per share. The conversion price is equal to the lowerSee "Description of $5.00 or 50%
of the public offering price for this offering.Capital Stock--Convertible Notes". We
intend to convert the notes at the earliest possible date after completion of the offering.date. Assuming the
conversion of $12.0 million aggregate principal amount of our convertible
notes plus accrued interest at an assumedthe conversion price of $5.00 per share and
the exercise of the warrants to purchase 300,000 shares of our common stock
at $5.00 per share that the holder intends to exercise
prior to the closing of this offering each occurred as of March 31, 2000, our pro forma shares
issued and outstanding and stockholders' equity prior to the effect of the
sale of the 4,000,0004,480,000 shares of common stock offered by us in thisour initial
public offering would be 16,053,20016,075,914 and $10,380,000,$10.4 million, respectively.
Assuming the conversion of the convertible notes occurred as of March 31,
2000, our pro forma as 17
adjusted shares issued and outstanding and
stockholders' equity after thisour initial public offering and the issuance of
300,000 shares upon the exercise of the warrants would be 20,053,20020,555,914 and
$57,240,000,$70.9 million, respectively.

(2) On April 25, 2000, we amended our certificate of incorporation to increase
the total number of authorized shares of common stock to 60,000,000. The
number of outstanding shares (actual, pro forma and pro forma, as adjusted)
does not include the following:

- 152,450 shares that we could issue upon exercise of outstanding
warrants held by the selling warrant holders with an exercise price of
$5.00 per share;

- 6,000,000 shares that we could issue under our employee stock option
plan. As of June 1, 2000, weWe have issued options to purchase 3,690,5503,982,050 shares of common
stock at an exercise priceprices ranging from $5.00 to $13.00 per share, except that options to acquire shares of
common stock with an aggregate fixed cost of $75,000 issued to one of
our non-employee directors may be exercised at a price equal to the
lower of $5.00 per share for 15,000 shares or 50% of the public
offering price for this offering.share. We
may issue options to acquire up to 2,309,4502,017,950 additional shares of our
common stock under this plan;

- 2,728,2002,750,914 shares of common stock that would have been issued as of
March 31, 2000 upon the assumed conversion of our $12.0 million
aggregate principal amount convertible notes, plus accrued interest
thereon, at $5.00 per share;

The actual number of shares that we will
issue upon conversion of these convertible notes will be determined by
dividing the amount of principal and interest on the notes being
converted into common stock by the conversion price of the convertible
notes. The conversion price is equal to the lower of $5.00 or 50% of
the public offering price for this offering; and

DILUTION

Our pro forma net tangible book value as of March 31, 2000, reflecting the
sale of the assets related to our non-life sciences instrument product line, was
approximately $(6.0) million, or approximately $(0.46) per share. We have
calculated this amount by:

- subtracting our pro forma total liabilities from our pro forma total
tangible assets; and

- then dividing the difference by the total pro forma number of shares
of common stock outstanding.

If we give effect to our receipt of the net proceeds from our sale of
4,000,000 shares of common stock at an assumed public offering price of $13.00
per share, after deducting estimated underwriting discounts and estimated
offering expenses and the assumed issuance of 300,000 shares of common stock at
$5.00 per share upon the exercise of warrants that the holder intends to
exercise prior to the closing of this offering, our pro forma as adjusted net
tangible book value at March 31, 2000 would have been approximately
$42.4 million, or $2.45 per share. This represents an immediate increase in pro
forma as adjusted net tangible book value of $2.79 per share to existing
stockholders and an immediate dilution of $10.55 per share to new investors. The
following table illustrates this dilution on a per share basis:

Assumed initial public offering price per share............. $13.00
Actual net tangible book value per share as of March 31,
2000, before this offering and pro forma adjustments.... $(0.66)
Increase per share attributable to the sale of assets
related to our non-life sciences instrument product
line(1)................................................. 0.20
------
Pro forma net tangible book value per share as of March
31, 2000................................................ (0.46)
Increase per share attributable to the assumed exercise of
warrants................................................ 0.12
Pro forma as adjusted increase in net tangible book value
attributable to this offering........................... 2.79
------
Pro forma as adjusted net tangible book value per share
after this offering....................................... 2.45
------
Dilution per share to new investors......................... $10.55
======

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

(1) The increase per share is attributable to the sale of $1.8 million of
intangible assets and the expected net gain of approximately $748,000 from
this transaction.

The following table summarizes, on a pro forma as adjusted basis, as of
March 31, 2000, the total number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and to be paid by the new investors in this offering at an assumed
initial public offering price of $13.00 per share, before deducting estimated
underwriting discounts and offering expenses.

SHARES PURCHASED
-------------------------- TOTAL CONSIDERATION
PRO FORMA AS ---------------------- AVERAGE PRICE
ADJUSTED NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------------- -------- ----------- -------- -------------

Existing stockholders............... 13,325,000 76.9% $11,916,978 18.6% $0.89
New investors....................... 4,000,000 23.1 52,000,000 81.4 13.00
---------- ----- ----------- -----
Total........................... 17,325,000 100.0% $63,916,978 100.0%
========== ===== =========== =====

If the underwriters exercise their over-allotment option in full:

- the number of shares of common stock held by existing stockholders
will decrease to approximately 74.3% of the total number of shares of
our common stock outstanding; and

- the number of shares held by new investors will increase to 4,600,000
shares, or approximately 25.7% of the total number of our common stock
outstanding.

If all outstanding options and warrants having an exercise price less than
the offering price had been exercised as of March 31, 2000, the dilutive effect
to new investors prior to the over-allotment would decrease to $10.08 per share
and:

- the number of shares held by existing stockholders would increase to
16,922,000 or 80.9% and the amount of consideration paid by existing
stockholders would increase to $30.6 million or 37.0%; and

- the number of shares held by new investors would decrease to
approximately 19.1% of the total number of our common stock
outstanding and the consideration paid by new investors would decrease
to 63.0% of total consideration.

If all outstanding options and warrants having an exercise price less than
the offering price had been exercised and the $12.0 million aggregate principal
amount of our convertible notes plus accrued interest had been converted at
March 31, 2000, the dilutive effect to new investors prior to the over-allotment
would decrease to $9.88 per share and:

- the number of shares held by existing stockholders would increase to
19,650,200 or 83.1% and the amount of consideration paid by existing
stockholders would increase to $43.4 million or 45.5%; and

- the number of shares held by new investors would decrease to
approximately 16.9% of the total number of our common stock
outstanding and the consideration paid by new investors would decrease
to 54.5% of total consideration.

See "Capitalization," "Management-Stock Option and Other Compensation Plans"
and "Description of Capital Stock."

2017

SELECTED FINANCIAL DATA

The statement of operations data for the years ended December 31, 1997, 1998
and 1999 and the balance sheet data as of December 31, 1998 and 1999 are derived
from our historical consolidated financial statements and notes thereto included
elsewhere in this prospectus, which have been audited by Deloitte & Touche LLP,
independent auditors. The statement of operations data for the years ended
December 31, 1995 and 1996 and the balance sheet data as of December 31, 1995,
1996 and 1997 are derived from our audited historical consolidated financial
statements which are not included in this prospectus. The statement of
operations data for the three months ended March 31, 1999 and 2000 and the
balance sheet data as of March 31, 2000 have been derived from our unaudited
consolidated financial statements included elsewhere in this prospectus. In the
opinion of our management, the unaudited consolidated financial statements
reflect all adjustments (consisting of only normal and recurring accruals)
necessary for a fair presentation of such information.

The following selected financial data should be read in conjunction with our
consolidated financial statements and the related notes thereto appearing
elsewhere in this prospectus and the information under "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1995(1) 1996(1) 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Net sales........................... $7,933 $12,535 $11,577 $18,935 $23,035 $ 5,227 $ 6,944
Cost of good sold................... 3,516 6,760 6,336 9,590 12,090 2,703 3,831
------ ------- ------- ------- ------- ------- -------
Gross profit........................ 4,417 5,775 5,241 9,345 10,945 2,524 3,113
General and administrative
expenses.......................... 715 2,092 2,444 2,795 3,772 1,346 1,755
Marketing and sales expenses........ 1,327 2,659 3,968 5,365 7,760 1,563 2,493
Research and development expenses... 1,518 1,385 2,047 3,159 6,297 1,135 1,894
------ ------- ------- ------- ------- ------- -------
Operating expenses.................. 3,560 6,136 8,459 11,319 17,829 4,044 6,142
Income (loss) before income taxes... 728 (644) (3,646) (2,506) (8,082) (1,613) (3,498)
Net income (loss)................... $ 494 $ (415) $(2,410) $(1,576) $(9,827) $ (978) $(3,498)
====== ======= ======= ======= ======= ======= =======
Basic and diluted net income (loss)
per share......................... $ 0.05 $ (0.04) $ (0.22) $ (0.13) $ (0.76) $ (0.08) $ (0.27)
====== ======= ======= ======= ======= ======= =======
Basic and diluted weighted average
shares outstanding(2)............. 10,000 11,000 11,145 12,279 13,000 13,000 13,008
====== ======= ======= ======= ======= ======= =======

AS OF
AS OF DECEMBER 31, MARCH 31,
---------------------------------------------------- ---------
1995(1) 1996(1) 1997 1998 1999 2000
-------- -------- -------- -------- -------- ---------
(IN THOUSANDS)

BALANCE SHEET DATA:
Total assets............................ $5,774 $9,527 $10,010 $14,736 $19,964 $18,830
Long-term debt, less current portion.... 626 1,597 1,128 695 12,538 12,781
Total stockholders' equity (deficit).... 2,429 2,114 991 6,649 (2,099) (4,615)

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

(1) Financial information prior to July 1, 1997 is that of our predecessor
corporation, CETAC Holding Company, Inc. and its subsidiaries or
predecessors.

(2) See Note A of notes to our consolidated financial statements for an
explanation of the determination of the number of shares used in computing
per share data.

2118

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

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

Before July 1, 1997, we manufactured and sold instruments and other products
used in the non-life sciences instrumentation industry through our predecessor
company, CETAC Holding Company, Inc. and its subsidiaries. On July 1, 1997, we
merged these companies into Transgenomic, Inc., a new Delaware corporation, for
the purpose of developing, manufacturing and selling our new life sciences
product line in addition to continuing to manufacture and market our existing
non-life sciences products. In 1999, we decided to focus our resources on our
life sciences product line. Accordingly, we recently sold the assets related to
our non-life sciences instrument products. These assets consisted of inventory,
property, plant and equipment, patents, other intellectual property rights and a
lease deposit, with an aggregate book value, net of $125,000 of accrued
liabilities, of approximately $4.7 million as of March 31, 2000. For the year
ended December 31, 1999, sales of non-life science instrument products equaled
approximately $8.8 million and accounted for approximately 38% of our total
revenues. Financial information for periods ending before July 1, 1997 is that
of CETAC Holding Company, Inc. and its subsidiaries.

Revenues for the life sciences products are generated from the sale of our
principal product, the WAVE System, and associated consumable products and
reagents. Through March 31, 2000, we have sold over 250 WAVE Systems to major
academic research centers and commercial biopharmaceutical companies in 20
countries. During 1999, revenues from the sale of consumable products
represented approximately 19% of our net sales derived from our life sciences
business. We expect that over the next five years, sales from consumable
products will increase as a percentage of our net sales.

The following graph displays sales of WAVE System units during each calendar
quarter from July 1, 1997 through March 31, 2000:

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

DATE UNITS SOLD

Q3 97 3
Q4 97 2
Q1 98 4
Q2 98 17
Q3 98 21
Q4 98 30
Q1 99 24
Q2 99 32
Q3 99 38
Q4 99 39
Q1 00 46

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

During ourthe second quarter through June 9,of 2000, we have sold 4255 WAVE Systems.

Since our decision to focus on our life sciences products, we have incurred
significant losses, and as of March 31, 2000, we had an accumulated deficit of
$15.8 million. Our losses have resulted principally from costs incurred in
research and development, marketing and sales, and from general and

2219

administrative costs associated with our operations. We expect to continue to
incur substantial research and development, marketing and sales, and general and
administrative costs.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2000 AND 1999

NET SALES. Net sales increased 33%, from $5.2 million for the three months
ended March 31, 1999 to $6.9 million for the three months ended March 31, 2000.
Sales of our life sciences products increased 76%, from $2.7 million in 1999 to
$4.8 million in 2000. Total revenues from sales of WAVE Systems increased 80%,
from $2.0 million to $3.6 million in 2000. WAVE System unit sales increased 92%,
from 24 in 1999 to 46 in 2000. Life sciences consumables sales increased 62%,
from $732,000 in 1999 to $1.2 million in 2000. Sales of our non-life sciences
instruments products decreased 14%, from $2.5 million in 1999 to $2.2 million in
2000. This decrease was the result of reduced demand for these products related
to an industry-wide consolidation among customers for these products and the
negative effect of a reorganization of our dealer and distributor network.

COST OF GOODS SOLD. Cost of goods sold increased from $2.7 million in 1999
to $3.8 million in 2000, representing 52% of net sales in 1999, as compared to
55% in 2000. Because WAVE Systems accounted for a larger percentage of our net
sales in 2000, cost of goods sold as a percent of net sales increased due to
higher material costs associated with the WAVE System.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 30%, from $1.3 million in 1999 to $1.8 million in 2000. This increase
is the result of higher personnel and personnel-related expenses offset by lower
consulting fees. The increase in personnel and personnel related expense is due
to the expansion of our staff and increased compensation expenses recorded
related to the issuance of stock options. General and administrative personnel
increased 20% from 25 in 1999 to 30 in 2000. Stock option-related compensation
expense was $710,000 in 2000 versus no stock option-related compensation expense
in 1999. The decrease in consulting fees is due to a one-time advisory services
fee of $550,000 we paid in 1999 in connection with consulting and financial
advisory services associated with the development of our strategic business plan
and related intermediate and long-term financial strategies. We anticipate
general and administrative expenses to increase over the next several years to
support our growing business activities and costs associated with operating a
public company.

MARKETING AND SALES EXPENSES. Marketing and sales expenses increased 60%,
from $1.6 million in 1999 to $2.5 million in 2000. This increase is the result
of our continuing efforts to build a direct marketing and sales staff for our
entry into the life sciences market. Marketing and sales personnel increased 33%
from 58 in 1999 to 77 in 2000. Of this increase in personnel, nine were in the
United States, six in Europe and four in Japan. Compensation, benefits, hiring
expenses and other direct personnel costs accounted for 60% of the total
increase. The remaining increase is attributable to higher indirect personnel
expenses associated with increased marketing and sales activities. We expect
these expenses to increase over the next several years as we expand our
marketing and sales efforts.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 67%, from $1.1 million in 1999 to $1.9 million in 2000. These expenses
represented 22% of net sales in 1999 versus 27% of net sales in 2000. 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 related to intellectual property research activities,
testing and enhancement of our products, and amortization of patents and
intellectual property. We expense our research and development costs in the year
in which they are incurred. The increase in these expenses is attributable to an
increase in our staff. Research and development personnel increased 20%, from 49
in 1999 to 59 in 2000. Compensation, benefits, hiring expenses and other direct
personnel costs, plus costs of contracted services, accounted for 50% of the
total increase. The remaining increase is attributable to the costs associated
with the expanded

2320

activities of the staff. We expect research and development spending to increase
significantly over the next several years as we expand our development efforts.

OTHER EXPENSES. Other expenses, which consist of net interest expense,
increased from $93,000 in 1999 to $469,000 in 2000. The increase is related to
additional interest expense on our placement of $12 million of convertible notes
in March 1999.

INCOME TAXES. The income tax benefit in 1999 was $635,000, while in 2000 no
income tax benefit was provided due to our cumulative losses in recent years,
expected losses in future years and an inability 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.

As of December 31, 1999 and March 31, 2000, we had deferred tax assets of
approximately $180,000. The net deferred tax asset at March 31, 2000 has been
offset by a valuation allowance of $5.8 million due to our cumulative losses in
recent years, expected losses in future years and inability to utilize any
additional losses as carrybacks.

YEARS ENDED DECEMBER 31, 1999 AND 1998

NET SALES. Net sales increased 22%, from $18.9 million for the year ended
1998 to $23.0 million for the year ended 1999. Sales from our life sciences
products increased 91%, from $7.4 million in 1998 to $14.2 in 1999. Total
revenues from sales of WAVE Systems increased 107%, from $5.4 million in 1998 to
$11.2 million in 1999. WAVE System unit sales increased 85% from 72 in 1998 to
135133 in 1999. Life science consumables sales increased 50%, from $2.0 million in
1998 to $3.0 million in 1999. In 1999, we acquired another manufacturer of life
science consumables and began including sales of these products in our revenues.
These sales, along with an increase of $662,000 in sales of our WAVE Systems
consumables, account for the increase in total life science consumables sales.
Sales of our non-life sciences instruments decreased 24%, from $11.5 million in
1998 to $8.8 million in 1999. This decrease was a result of reduced demand for
these products related to an industry-wide consolidation among customers for
these products and the negative effect of a reorganization of our dealer and
distributor network.

COST OF GOODS SOLD. Cost of goods sold increased from $9.6 million in 1998
to $12.1 million in 1999 due to increased sales. Cost of goods sold as a
percentage of sales remained relatively constant from 1998 to 1999, increasing
from 51% in 1998 to 52% in 1999.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 35%, from $2.8 million in 1998 to $3.8 million in 1999. This increase
is the result of increased wages and salaries, personnel-related expenses and
increased consulting fees. General and administrative personnel increased from
22 in 1998 to 30 in 1999, or 36%. Compensation, benefits, hiring expenses and
other direct personnel costs accounted for 28% of the total increase.
Additionally, we paid a one-time advisory services fee of $550,000, or 55% of
the total increase, in 1999 in connection with consulting and financial advisory
services associated with the development of our strategic business plan and
related intermediate and long-term financial strategies. We anticipate general
and administrative expenses to continue to increase over the next several years
to support our growing business activities and costs associated with operating a
public company.

MARKETING AND SALES EXPENSES. Marketing and sales expenses increased 45%,
from $5.4 million in 1998 to $7.8 million in 1999. This increase is the result
of continuing to build our direct sales and marketing staff in the United States
for our entry into the life sciences market. We also opened an office in Japan
and expanded our life sciences sales efforts in Europe. Sales and marketing
personnel increased 43%, from 47 in 1998 to 67 in 1999. Of this increase in
personnel, 8 were in the United States, 9 in Europe and 3 in Japan.
Compensation, benefits, hiring expenses and other direct personnel costs

2421

accounted for 42% of the total increase. The remaining increase is attributable
to higher indirect personnel expenses associated with marketing and sales
activities. We expect these expenses to continue to increase over the next
several years as we expand our marketing and sales efforts.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 99%, from $3.2 million in 1998 to $6.3 million in 1999. These expenses
represented 17% of net sales in 1998, versus 27% of net sales in 1999. 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 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. The increase in these expenses was attributable to an 84%
increase in research and development personnel, from 31 in 1998 to 57 in 1999.
Compensation, benefits, hiring expenses and other direct personnel costs
accounted for 62% of the total increase. The remaining increase is attributable
to the costs associated with the expanded activities of the research and
development staff. We expect research and development spending to increase
significantly over the next several years as we expand our research and product
development efforts.

OTHER EXPENSES. Other expenses, which consisted mainly of net interest
expense, increased 125%, from $532,000 in 1998 to $1.2 million in 1999. This
increase was related to interest expense on our placement of $12.0 million of
convertible notes in March 1999.

INCOME TAXES. The income tax benefit in 1998 was $930,000, while in 1999
income tax expense was $1.7 million. A valuation reserve of $4.5 million was
recorded in 1999 due to our cumulative losses in recent years, expected losses
in future years and an inability 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 a valuation reserve against deferred tax assets. To the
extent we begin to generate income in future years and determine that such
valuation allowance is no longer required, the tax benefit of the remaining
deferred tax assets will be recognized. As of December 31, 1999, we had federal
net operating loss carryforwards of approximately $11.6 million. We also had
federal research and development tax credit carryforwards of approximately
$131,000. The net operating loss and credit carryforwards will expire at various
dates from 2012 through 2019, if not utilized. We also had state income tax loss
carryforwards of $3.0 million. These carryforwards will also expire at various
dates if not utilized.

As of December 31, 1998 and 1999, we had deferred tax assets of
approximately $2.0 million and $4.7 million, respectively. The net deferred tax
asset at December 31, 1999 has been offset by a valuation allowance of
$4.5 million due to our cumulative losses in recent years, expected losses in
future years and an inability to utilize any additional losses as carrybacks.
The net deferred tax assets were $2.0 million and $180,000 as of December 31,
1998 and 1999, respectively. Deferred tax assets relate primarily to net
operating loss carryforwards.

YEARS ENDED DECEMBER 31, 1998 AND 1997

NET SALES. Net sales increased 64%, from $11.6 million in 1997 to
$18.9 million in 1998. Of the $7.3 million increase, $5.1 million was due to
increased sales of our WAVE System and related consumable products. WAVE System
unit sales increased from five in 1997 to 72 in 1998. Sales of life sciences
consumable products were $1.9 million in 1997 and $2.0 million in 1998. Sales of
non-life sciences instrument products increased 22%, from $9.4 million in 1997
to $11.5 million in 1998. This increase was due to the release of an upgraded
laser-based solid sampling product in the first quarter of 1998.

COST OF GOODS SOLD. Cost of goods sold increased from $6.3 million in 1997
to $9.6 million in 1998, but decreased from 55% of net sales in 1997 to 51% of
net sales in 1998. This decrease was due to the fact

2522

that sales of WAVE Systems accounted for a greater percentage of our total sales
in 1998 than they did in 1997. The amount of in-house manufacturing costs
incurred by us to produce WAVE Systems is less than the in-house manufacturing
costs we incur to produce our non-life sciences instruments. The lower in-house
manufacturing costs for the WAVE System are partially offset by the higher
material costs associated with the WAVE System. The decrease was also due to the
allocation of fixed manufacturing costs over a larger revenue base.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 14%, from $2.4 million in 1997 to $2.8 million in 1998. This increase
is the result of increased bad debt expenses. In total, other general and
administrative expenses remained consistent with the prior year. The increase in
bad debt expenses was related to the write-off of one uncollectible account
receivable in Europe.

MARKETING AND SALES EXPENSES. Marketing and sales expenses increased 35%,
from $4.0 million in 1997 to $5.4 million in 1998. This increase is the result
of building a direct sales and marketing staff in the United States for our
entry into the life sciences market. Sales and marketing personnel increased 24%
from 38 in 1997 to 47 in 1998. Compensation, benefits, hiring expenses and other
direct personnel costs accounted for 54% of the total increase. The remaining
increase is attributable to higher indirect personnel expenses associated with
marketing and sales activities.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 54%, from $2.0 million in 1997 to $3.2 million in 1998. The increase
in these expenses was attributable to an increase in our research and
development staff and increased research and development activities.
Compensation, benefits, hiring expenses and other direct personnel costs
accounted for 50% of the total increase. The remaining increase is related to
the increased activities of both internal staff and out-sourced staff.

OTHER EXPENSES. Other expenses, which consisted mainly of net interest
expense, increased 24%, from $427,000 in 1997 to $532,000 in 1998. This increase
was due to the payment of interest on $1.5 million of mezzanine short-term
financing obtained at the end of 1997. This short-term financing was repaid in
1998.

INCOME TAXES. The income tax benefit for 1997 was $1.2 million, while the
benefit for 1998 was $930,000. The effective tax rate for 1997 was 34%, and the
effective tax rate for 1998 was 37%. As of December 31, 1998, we had federal net
operating loss carryforwards of approximately $3.9 million. We also had federal
research and development tax credit carryforwards of approximately $76,000. The
net operating loss and credit carryforwards will expire at various dates from
2012 through 2018, if not utilized. We also had state income tax loss
carryforwards of $1.4 million. These carryforwards will also expire at various
dates if not utilized. At December 31, 1998, the Company's management had
determined that it was more likely than not that the deferred tax asset of
$1.95 million would be realized through expected profits in future years.

LIQUIDITY AND CAPITAL RESOURCES

We have experienced net losses and negative cash flows from operations
during the past three years. As a result, we had an accumulated deficit of
$15.8 million as of March 31, 2000. We have financed our operations primarily
through the private placements of common stock, the issuance of convertible
notes and, to a lesser extent, through bank financings and a revolving credit
facility. As of December 31, 1999, we had received net proceeds of
$10.4 million from issuance of common stock, and $11.4 million from the issuance
of convertible notes. During the three months ended March 31, 2000, we sold
25,000 shares of common stock to one of our directors at $10.00 per share for
proceeds of $250,000. In addition, we have been notified that the holder of warrants to purchase 300,000
shares of common stock intends to exercise theseexercised those warrants at or before the closingtime of our initial
public offering and this offering which will provideprovided an additional $1.5 million in cash. As of
December 31, 1999 and March 31, 2000, we had approximately $150,000 and
$140,000, respectively, in cash and cash equivalents.

2623

On May 19, 2000 we sold the assets related to our non-life sciences
instrument product line to a company controlled by Stephen F. Dwyer, a director
and a principal stockholder of ours, for a total adjusted purchase price of
$5.65 million plus reimbursement by the buyer of approximately $400,000 of
expenses paid by us since March 31, 2000 in connection with this product line.
Approximately $4,000,000 was paid in cash at the closing of the sale and
$2,000,000 was paid with an interest-bearing promissory note due on
December 30, 2000. The note bears interest at the rate of 8.75% per annum.

The purchaser financed the cash portion of the purchase price for these
assets plus initial working capital needs with borrowings of approximately
$4.6 million obtained from a bank. We have agreed with the bank that we will
acquire the notes evidencing these loans from it upon closing of thisour initial
public offering by paying to the bank an amount equal to the entire principal
balance of the notes plus accrued and unpaid interest. If thisour initial public
offering is not completed, we are under no obligation to acquire these notes.
The acquired notes will mature on December 30, 2000 and will bear interest at a
rate of 8.75% per annum. A total of 1,200,000 shares of our common stock owned
by Mr. Dwyer will be pledged to us as security for the notes and will be held in
an escrow account. We anticipate that we will exercise our right to cause these
shares to be sold in order to pay principal and interest on the notes when due,
subject to Mr. Dwyer's 180-day lock-up agreement. See "Shares Eligible for
Future Sale."

The asset purchase agreement also provided that we will retain all accounts
receivable outstanding as of March 31, 2000 relating to this product line. Our
accounts receivable from the product line were approximately $1.8 million at
March 31, 2000. We may experience difficulty in collecting the remaining
accounts receivable due to the lack of a continuing relationship with customers.
For additional information regarding the sale, see "Related Party Transactions"
below.

Our operating activities resulted in net outflows of $2.6 million in 1997,
$3.4 million in 1998 and $8.7 million in 1999 and $2.5 million for the three
months ended March 31, 1999, respectively. The operating cash outflows for these
periods resulted from significant investments in research and development, and
sales and marketing, which resulted in operating losses. Net cash provided from
operating activities was $93,000, for the three months ended March 31, 2000. The
operating cash flow for this period was a result of increases in receivable
collections and payable balances offsetting our operating losses. We have a long
sales cycle due to the need to educate potential customers prior to the purchase
of the WAVE System and to communicate the benefits of our products to a variety
of constituencies within potential customer groups. We may need to expend
substantial funds and sales effort with no assurance that a sale will result.
Additionally, we may provide extended terms of payment in order to attract new
customers. Accounts receivable balances subject to extended terms were
approximately $59,000 as of December 31, 1998, $216,000 as of December 31, 1999
and $179,000 as of March 31, 2000. Balances due more than one year from the
balance sheet date were approximately $0, $77,000 and $68,000, respectively.

Net cash used in investing activities was $470,000 for the year ended
December 31, 1997, compared to net cash used in investing activities of
$1.5 million in 1998 and $3.5 million in 1999. These year-to-year increases were
due to increased purchases of property and equipment and the purchase of
technology rights related to our non-life sciences product lines. Purchases of
computer, production and research and development equipment accounted for 96% of
property and equipment additions in 1998 and 74% of additions in 1999. During
the year ended 1999, we acquired technology rights from an affiliated company to
intellectual property which is used in our non-life sciences product line. This
technology was purchased for net cash of $888,000. Net cash used in investing
activities decreased from $596,000 for the three months ended March 31, 1999 to
$412,000 for the three months ended March 31, 2000. The decrease was due to our
purchase of Kramel Biotech International, Limited for $187,000 during the first
quarter of 1999.

Net cash provided by financing activities was $3.2 million for the year
ended December 31, 1997, compared to $4.6 million in 1998 and $12.2 million in
1999. The increase in 1999 was due to the issuance of convertible notes which
netted $11.4 million and net other borrowings of $760,000. The increase in

2724

1998 was due to the sale of common stock with net proceeds of $7.3 million which
was partially offset by a reduction in notes payable of $2.7 million. In 1997 we
received $1.7 million net proceeds from the sale of stock. We also increased
notes payable in 1997 by a net $1.9 million. Net cash provided by financing
activities was $8.7 million and $285,000 for the three months ended March 31,
1999 and 2000, respectively. The decrease was due to the issuance of convertible
notes in the first quarter of 1999, which was partially offset by a reduction in
bank borrowings during that period.

At December 31, 1998 and 1999 and March 31, 2000, we had outstanding
borrowings under our revolving credit facility with First National Bank of Omaha
in the amounts of approximately $3.2 million, $4.3 million and $4.5 million,
respectively. Borrowings under our revolving credit facility are limited to the
lesser of $5.0 million or a borrowing base calculated from our accounts
receivable and inventories. The facility bears interest based on the prime
lending rate and interest is payable monthly. The interest rate at December 31,
1998 and 1999 and March 31, 2000 was 7.75%, 8.50%, 9.00%, respectively. This
facility expires July 31, 2000. Substantially all of our assets and life
insurance policies for our executive officers are pledged as collateral to
secure borrowings under this facility. The loan agreement relating to this
facility contains a number of restrictive covenants which must be complied with
on a quarterly basis, including a prohibition on the payment of dividends, the
repurchase of our stock, and the redemption of stock options and warrants, among
other things, without the written agreement of the lender. As of December 31,
1999, we were not in compliance with covenants under our revolving credit
facility relating to tangible net worth, debt to tangible net worth, minimum
working capital and the amount of fixed assets purchased or leased by us. We
were not in compliance with these covenants (excluding the covenant relating to
tangible net worth) at March 31, 2000. The bank issued waivers of these covenant
violations as of December 31, 1999 and March 31, 2000. In May 2000, we repaid
$1.8 million of our revolving credit facility and the remaining outstanding
balance of approximately $460,000 of our installment notes payable with the
proceeds we received from the sale of our non-life sciences instruments assets.

Our capital expenditures budget for 2000 is approximately $5.0 million.
Capital expenditures for the current year are expected to relate to facility and
equipment improvements related to our life sciences business. Our capital
requirements depend on a number of factors, including the level of our research
and development activities, market acceptance of our products, the resources we
devote to developing and supporting our products, and other factors.

Research and development expenses are budgeted at approximately
$6.5 million for 2000. We expect to devote substantial capital resources to
continue our research and development efforts, to expand our marketing and sales
and customer support activities, and for other general corporate activities.

We believe that our current cash balances, together with the proceeds from
the sale of our non-life sciences instrument assets, our existing credit lines,
the sale of stock upon the exercise of outstanding warrants and from cash
provided from operations will be sufficient to fund our operations for the next
12 months. We believe that these cash sources together with the proceeds from
thisour initial public offering will be sufficient to fund our operations through
fiscal year 2003. During or after this period, if cash generated by operations
is insufficient to satisfy our liquidity requirements, we may need to sell
additional equity or debt securities, or obtain additional credit arrangements.
The sale of additional equity or convertible debt securities may result in
additional dilution to our stockholders. We cannot assure you that any financing
arrangement will be available in amounts or on terms acceptable to us.

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.

2825

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "ACCOUNTING FOR DERIVATIVE FINANCIAL
INSTRUMENTS AND FOR HEDGING ACTIVITIES" (SFAS No. 133). This statement, which is
effective for fiscal years beginning after June 15, 2000, requires the
recognition of all derivative financial instruments as either assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. Management is in the process of determining the
effect, if any, SFAS No. 133 will have on our financial statements.

In 1999, we adopted Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1) which, on a
prospective basis, revised the accounting for software development costs. SOP
98-1 requires capitalization of certain costs related to internal use software
once certain criteria have been met. The adoption of this statement did not have
a material impact on our financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that a change in prevailing interest rates may
cause the principal amount of the investment to fluctuate. For example, if we
hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises, the principal
amount of our investment will probably decline. To minimize this risk in the
future, we intend to maintain our portfolio of cash equivalents and short-term
investments in a variety of securities, including commercial paper, money market
funds, government and non-government debt securities. The average duration of
all of our investments in 1999 was less than one year. Due to the short term
nature of these investments, we believe we have no material exposure to interest
rate risk arising from our investments. Therefore, no quantitative tabular
disclosure is presented.

FOREIGN CURRENCY RATE FLUCTUATIONS

Approximately 50% of our net sales have been to customers in the United
States. While we do sell products in many foreign countries, most of these sales
are made in U.S. dollars. Therefore, we do not have a material exposure to
foreign currency rate fluctuations.

2926

BUSINESS

OVERVIEW

We provide innovative tools for DNA separation and analysis to researchers
seeking to discover and understand variations in the human genetic code and the
relationship of these variations to disease. Prior to the formation of
Transgenomic, Inc., we conducted our business operations through an Iowa
corporation known as CETAC Holding Company, Inc. and its various subsidiaries.
CETAC Holding Company, Inc. designed, manufactured and sold several different
types of non-life sciences instruments that prepare samples of material so that
they may be more easily analyzed by, and efficiently introduced into testing
apparatus. We also manufactured and sold chromatography products that are used
in a variety of testing applications, such as food analysis and environmental
testing. On July 1, 1997, we consolidated these companies into a new Delaware
corporation known as Transgenomic, Inc., that was formed to develop, manufacture
and market our new DNA separation and analysis products in addition to
continuing the non-life sciences business of CETAC Holding Company, Inc. and its
subsidiaries. In 1999, we acquired, through our subsidiary in the United
Kingdom, substantially all of the assets of Kramel Biotech International,
Limited, a manufacturer of laboratory consumables used in the field of molecular
biology.

Our business plan is to focus on the genomics segment of the life sciences
industry and the development, marketing and support of our proprietary
technology for the automated separation and analysis of DNA. Therefore, we entered into an agreement to sellsold
the assets associated with our non-life sciences instrument product line in May
2000, and expect to close this sale
prior to the closing of this offering.2000.

INDUSTRY BACKGROUND

DNA AND GENOMICS-BASED RESEARCH

The human body is composed of billions of cells each containing
deoxyribonucleic acid, or DNA, which encodes the basic instructions for cellular
function. The complete set of DNA is called the genome, or genetic code. The
human genome is composed of 23 pairs of chromosomes which are further divided
into over 100,000 smaller regions called genes. Genes are used in the cell as
the template for the production of proteins, and it is these proteins that
direct cell function that are ultimately reflected in the individual traits of
the person. Each gene is made up of four different chemicals known as nucleotide
bases which are commonly designated by the first letter of their chemical names,
or G, C, A and T. The entire human genome contains approximately 3 billion of
these nucleotides arranged in order along the two complimentary strands of the
DNA molecule. The order of the nucleotides along these strands is known as the
DNA sequence, and it is this sequence that determines the function of the genes.
Therefore, any variation in the DNA sequence of a particular gene may result in
a change in the cell function controlled by that gene. These changes, known as
genetic mutations or polymorphisms, therefore, are often the cause of disease or
make an individual more susceptible to disease.

Genomics is the systematic and comprehensive analysis of the sequence,
structure and function of the genes which comprise the genome with the objective
of identifying and understanding the role of genes in human physiology and
disease. During the last ten years, an intense effort has been underway to
determine the sequence of genes in the entire human genome and this basic
research is expected to be completed in the next few years. Both the
U.S.-government sponsored Human Genome Project and private researchers have been
involved in this effort which has provided an immense amount of sequencing
information for human DNA. While these efforts will provide a basic blueprint of
the human genome, they have necessarily been centered on determining the DNA
sequence of a limited number of individuals. Therefore, this fundamental
sequencing data will not, by itself, provide much information about the function
of genes and their relationship to disease. This information will only be
developed through the intense study of genetic variation. Accordingly, genomics
researchers are now attempting to understand variations in this DNA sequence
information and how it correlates to disease in order to develop new drugs,
treatments and diagnostic methods.

3027

IMPORTANCE OF THE DISCOVERY OF GENETIC VARIATION

There are a variety of mutations known to occur in DNA sequences. The most
common form of genetic mutation involves a change in a single nucleotide and is
called a single nucleotide polymorphism, or SNP. Other types of genetic mutation
include the insertion or deletion of several nucleotides and translocation or
repetition of nucleotides. The identification and understanding of these
mutations, including SNPs, are important because they may indicate
predisposition to a variety of diseases. Since even a single mutation of a
nucleotide can have a major role in human disease, efforts to understand and
analyze genetic mutations have recently intensified.

After SNPs or other mutations are discovered, their potential relevance to
disease must be validated by determining the frequency of mutation in different
segments of the population. Some diseases, such as muscular dystrophy, are
caused by DNA mutations in a single gene. Many common diseases, such as
diabetes, cancer and obesity, are caused by mutations in more than one gene.
Since a single mutation or multiple mutations may be required for a particular
disease or trait to manifest itself, it is necessary to measure a sizable
population of these mutations in order to be able to predict with confidence the
association of a mutation with a particular disease or trait.

Therefore, the need to discover new genetic variations will be ongoing as
the variety of human diseases are studied and their correlation with different
populations or groups of individuals is analyzed. In order to do this on the
scale that likely will be required, researchers will need technologies that
provide faster sample analysis, greater accuracy and reliability and lower costs
than technologies that they have historically used. It will be especially
important that the technology used by these researchers be able to detect all
types of mutations, including SNPs, insertions and deletions, translocations and
repetitions, whether the existence of the mutation is known or unknown. It is
this need that we believe creates a market opportunity for our WAVE System and
its ability to detect genetic mutations quickly, accurately and inexpensively.

CURRENT TECHNOLOGIES FOR MUTATION ANALYSIS

Current widely-used DNA mutation analysis technologies were originally
developed primarily for collecting DNA sequence information and not for the
discovery of mutation and other genetic variations. As these methods have been
modified for use in SNP and other mutation analysis, several limitations have
become clear. Current technologies for DNA analysis include the following:

- GEL ELECTROPHORESIS. Gel electrophoresis is primarily a manual
separation technique for DNA which uses an electrical current to cause
DNA fragments to migrate over a gel. Because different lengths of DNA
will migrate at different speeds, they will be separated by this
process. The gel is transferred to a fluorescence-imaging camera and
photographed or scanned into a computer so that the DNA can be
visualized. If a particular fragment of DNA is required, then it must
be cut from the gel with a scalpel, the section can be melted to a
liquid or the DNA can be drawn out of the gel and into the surrounding
electrolyte with a further application of an electric field. Gel
electrophoresis provides good separation resolution and the cost of
associated equipment is relatively inexpensive.

- CAPILLARY ELECTROPHORESIS. Capillary electrophoresis may be in the form
of long thin capillaries or embodied in a chip. This technology
separates DNA by passing an electric current through a capillary tube
filled with a linear polymer and an electrolyte. DNA is introduced into
the top of the capillary and the current is applied. This method is
generally faster than conventional gel electrophoresis and allows for
simultaneous detection of results.

- CHIP ARRAY. Chip Array technology uses short fragments of single-strand
DNA that are attached to small squares on the surface of a "chip" so
that strands within a square have the same DNA sequence, but this
sequence is different in each separate square. The sample strand of DNA
is introduced to this chip and binds, or hybridizes, specifically only
where it matches the sequence attached to one of the squares. In this
way a match can be found, if it exists,

3128

from a very large array of candidate DNA sequences. The chip primarily
identifies sequences which are known prior to analysis.

- MASS SPECTROMETRY. Mass spectrometry is a technique that applies a
charge to the sample and introduces the ionized sample into a chamber
that measures the mass per charge of each type of molecule. The mass of
the sample and various fragments produced indicates the identity of the
molecule that was introduced into the instrument. Although the sequence
of the DNA is not measured when using mass spectrometry, the
nucleotides making up the molecule bases can be measured.

LIMITATIONS OF CURRENT TECHNOLOGIES

Although these technologies are well accepted and established, none is
ideally suited to the analysis of sequence mutations. The limitations of current
methods include the following:

- GEL ELECTROPHORESIS. Gel electrophoresis is a time-consuming, labor
intensive process. Sample introduction, pouring of gels, separation,
identification of bands, and recovery of DNA must all be done manually.
As a result, the analysis of a single sample can often take many hours.
In addition, there is no real-time monitoring of the process and this
can cause problems. For example, if an insufficient sample were used
for the analysis, a researcher would only become aware after several
wasted hours of experimentation.

- CAPILLARY ELECTROPHORESIS. Capillary electrophoresis can automate the
gel electrophoresis process. However, it is difficult to control the
conditions needed to determine genetic variation. Capillary
electrophoresis also requires the attachment of detection-enhancing
fluorescent molecules to the DNA. Fluorescent reagents are relatively
expensive and their use requires further manipulation of the DNA
molecules prior to analysis, thereby increasing the amount of time per
sample spent by a researcher. In addition, the small quantities of DNA
separated by capillary electrophoresis are usually not sufficient for
sequencing of the DNA or cloning applications.

- MASS SPECTROMETRY. Mass spectrometry is only a detection method. It
does not incorporate any separation capability, which is essential for
analysis of multiple DNA molecules needed for mutation detection, as
well as for purification. In addition, this method cannot directly
analyze large DNA fragments or double-stranded DNA due to its
inflexibility and fundamental limitations.

- CHIP ARRAY. Because this technology relies on sample DNA binding to a
DNA strand with a known sequence attached to the chip, it is capable of
detecting only known mutations matching the sequence on the chip. In
addition, the binding process is unreliable when many mutations are to
be detected in the sample.

These disadvantages limit the usefulness of these other techniques for the
efficient discovery of unknown genetic variation. While some types of gel
electrophoresis and capillary electrophoresis can be used to determine the
sequence of nucleotides on a gene fragment and thereby detect unknown mutations,
they are expensive and labor-intensive because the researcher must identify and
compare the sequence of the large number of nucleotides making up both the
sample gene and the standard gene without knowing if a mutation exists or where
the mutation may be. Insertions, deletions, translocations and repetitions are
very difficult to detect using any of these technologies.

THE TRANSGENOMIC SOLUTION

We believe our WAVE System, which incorporates our proprietary DNASep
technology and associated software, chemical reagents and other consumable
products, will become a leading tool to analyze genetic variation. The WAVE
System allows researchers to analyze both known and unknown genetic mutations
faster, with more accuracy and at a lower cost than other commercially available
techniques. The WAVE System enables a researcher to detect the presence of a
mutation without the need to determine the DNA sequence of the gene being
studied, allowing the screening of a large number of samples to identify
mutations without the need to indiscriminately sequence all of the samples. Only
those

3229

samples which are determined to contain a mutation require further sequencing
work in order to determine the precise change in the DNA sequence. Therefore,
the use of the WAVE System can result in a significant savings of time and cost.
We believe key benefits of the WAVE System include the following:

- HIGH SPEED. DNA separation and analysis using our WAVE System can be
performed faster than current methods, depending on the type of
research being conducted. Separation times using our DNASep columns
average approximately 5-7 minutes per sample and can be as short as 3
minutes, depending on the application. After the separation, results
are immediately available for quantification, analysis, reporting and
archiving.

- IMPROVED DATA ACCURACY. Our WAVE System produces more accurate and
consistent data than other existing techniques for mutation analysis.
Based on published reports, accuracy in discovery of known and unknown
mutations is greater than 95% with the WAVE System. The higher level of
data quality achievable with the WAVE System is extremely valuable to
the life sciences researcher.

- REDUCED COST. Because our WAVE System is completely automated, the
amount of time per sample spent by a researcher is greatly reduced. The
WAVE System analyzes very small DNA samples and does not require
additional sample purification. This allows samples to be analyzed with
a smaller volume of chemical reagents than other methods. In addition,
the WAVE System can detect DNA mutations directly without the use of
expensive fluorescent tags or markers required by other techniques.
Savings in labor, reagents and tags significantly reduce the costs per
analysis over current methods.

- AUTOMATION AND EASE OF USE. The WAVE System is fully automated and easy
to operate. A multiple number of amplified DNA samples can be loaded
into the WAVE System's autosampler. Once loaded, the appropriate
application is chosen by the researcher and the WAVE System can
automatically introduce the sample, conduct the DNA separation and
analyze the results. Unlike other techniques, no purification or other
additional preparation of the DNA sample is necessary. With the
addition of a fragment collector, the WAVE System will automatically
collect DNA material for further analysis. The entire process is
controlled by our proprietary WAVEMaker software. This aspect of the
WAVE System can significantly enhance the productivity of a genomics
researcher.

- DISCOVER NEW MUTATIONS. WAVE System technology can efficiently discover
new mutations in a sample without prior knowledge of the mutation or
its location. The WAVE System is uniquely well-suited to the discovery
of insertions and deletions because it does not depend on knowing the
DNA sequence in order to detect the mutation. Other than sequencing,
most genotyping methods require prior knowledge of the location of the
mutation. Compared to sequencing, which requires the researcher to
determine and compare the sequence of a large number of nucleotides
making up both the sample gene and the standard gene to detect unknown
mutations, the WAVE System displays mutations, whether previously known
or unknown, as a vertical spike, or peak, on a simple graph. The
ability to accurately detect the presence of mutations allows for the
screening of large fragments of DNA without time-consuming and
cumbersome sequencing of the entire fragment.

- SCALABILITY. Our bench top WAVE System is scalable depending on the
research problem to be solved. The DNASep separation columns are
available in different sizes depending on the application required.

STRATEGY

We intend to be the leading provider of technology platforms which enable
life science researchers to discover and understand variations in the human
genetic code, or genome, in order to accelerate and improve drug development and
diagnostics. Key elements of our strategy are as follows:

- FOCUS ON THE GENETIC VARIATION DISCOVERY MARKET. Our current focus is
to promote the use of our WAVE System by researchers involved in the
discovery and analysis of genetic variation.

3330

The investment in genomics research is large and growing, and the
corresponding need to analyze genetic variations has led to increased
demand for new technologies such as the WAVE System. We believe the
WAVE System significantly increases research productivity and may
accelerate drug development and diagnostics.

- ESTABLISH THE WAVE SYSTEM AS THE INDUSTRY STANDARD. We are focusing our
initial marketing efforts on large well-known academic and commercial
research institutions to establish the WAVE System as the industry
standard for mutation analysis. We believe we are the first to bring
high performance DNASep micro-bead technology to the market and have
sold instruments to key genomics researchers to gain validation of our
technology, which has resulted in the publication of over 60 articles
in numerous scientific journals discussing the WAVE System. A key
component of our strategy is to maintain a worldwide sales organization
that provides technical support on a local level. We plan to increase
the number of our sales teams composed of sales personnel, application
scientists and technical support persons. In addition, because we
believe that a major factor in ensuring the success of our products is
to provide qualified technical support on a local level, we expect to
increase the number of technical support representatives and
application scientists.

- INCREASE CONSUMABLE SALES. We expect that our expanding base of
installed WAVE Systems will result in recurring sales of our associated
consumable products which include our proprietary columns and reagents.
Sales of our consumable products over the next five years should
increase as a proportion of our net sales. In order to support the
expected increase in consumable sales, we have dedicated manufacturing
facilities in California, Nebraska and the U.K.

- PENETRATE NEW MARKETS. Our WAVE System may be used for purposes other
than genetic mutation discovery research. These other potential uses
represent additional market opportunities that we intend to pursue. For
example, a number of companies produce short single-strand DNA
fragments, known as oligonucleotides, with a known sequence and sell
them to genetic researchers who use them in research and other
applications. When synthesizing oligonucleotides, it is important that
the single-stranded DNA fragments do not contain fragments with
unwanted DNA sequences. The WAVE System's ability to separate and
purify DNA fragments could be used by the synthesizers of
oligonucleotides to produce a more consistently pure product. We
believe that this will become an important new market for the WAVE
System. Another potential new market for the WAVE System will be the
genetic screening market. This market consists primarily of hospitals
and other medical facilities that could use the WAVE System to screen
tissue or blood samples for mutations known to be related to genetic
disease. We believe that the ability of the WAVE System to screen
genetic mutations quickly, accurately and economically can make it a
useful tool for this market. It will allow researchers to use the
validated technology used for the original mutation discovery work to
screen for mutations in a larger population. We are in the process of
designing specific software and hardware improvements to adapt the WAVE
System specifically for these new market opportunities. We expect these
improvements to be available within the next 24 months.

- BUILD A SUBSTANTIAL INTELLECTUAL PROPERTY ESTATE. We pursue an
intellectual property strategy of licensing patents and pursuing patent
protection for our inventions. We currently hold 16 U.S. patents and
two foreign patents. In addition, we hold exclusive licenses to one
U.S. patent, 16 foreign patent applications and one non-exclusive
license to another U.S. patent. We also have pending applications for
26 U.S. patents and 31 foreign patents. These issued and pending
patents are directed at our DNA and related research technologies, and
cover separation chemistry, molecular biology, algorithms, instruments
and software. We believe that our strong intellectual property estate
will continue to be an important competitive advantage.

3431

OUR TECHNOLOGY AND PRODUCTS

Our WAVE System is a versatile system that can be used for mutation
detection, size-based double-strand DNA separation and analysis, single-strand
DNA separation and analysis and DNA purification. Because of this versatility,
the WAVE System can essentially replace the use of traditional gel
electrophoresis in the molecular biology laboratory. Our patented technology
uses a process known as high performance liquid chromatography to separate DNA
material so that genetic variation may be identified and analyzed. In this
process, DNA is injected into a special tube or column containing microscopic
polymer beads. These micro-beads have special surface chemistries that cause the
DNA molecules to attach to the surface of the beads. A chemical reagent is then
pumped through the column under carefully controlled pressure and temperature
conditions causing the DNA molecules to be selectively released from the beads
so that they can be separated and measured. Our proprietary software controls
the entire process by computer and produces the results of the operation in an
easy-to-read chart format. Once the DNA sample is loaded into the instrument and
necessary data is entered into the software, the process requires virtually no
additional input from the researcher. By using our patented DNASep columns and
specifically-formulated reagents that we have developed for various research
applications, the researcher is able to achieve a consistent high-quality
result. Our WAVE System includes the following components:

- an autosampler (automatically introduces the DNA sample into our WAVE
instrument)

- a pump (pumps sample and reagents through the DNASep column and
instrument)

- a DNASep column (separates DNA fragments)

- a column oven (controls the temperature of the DNASep column)

- a detector (detects and measures DNA coming off the column)

- a fragment collector (collects high purity DNA fragments of interest)

- a personal computer and WAVEMaker Software (used for instrument
control, experiment design, data collection, data analysis, and
reporting)

[DIAGRAM OF COMPONENTS OF WAVE SYSTEM]

3532

The basic operation of the WAVE System is described below:

DNA SAMPLE PREPARATION. A sample of the DNA fragment of interest is first
extracted from a biological sample such as tissue or blood. Extraneous proteins
are removed from the DNA sample and the sample is placed into a multi-well plate
along with chemicals or reagents. A targeted DNA sequence is then copied by
repeated cycles of heating and cooling in order to produce enough of the
targeted sequence so that it can be detected. This replication process is known
as polymerase chain reaction, or PCR, amplification.

After the sample has been amplified, the sample DNA fragment may be mixed
with "normal" DNA fragments that have a known sequence of nucleotides. The
sample is then heated to cause the two strands of the DNA molecules in both the
sample DNA and the normal DNA to separate from each other. The mixture is then
cooled so that the strands reattach to each other. Because they are mixed
together, the single-strand DNA from the sample DNA and the normal DNA will, in
some cases, recombine with each other. If the sample DNA has a sequence of
nucleotides that differs from the normal DNA, some of the recombined strands
will not completely match and, therefore, will not bind completely. As a result,
both the mismatched, or heteroduplex, DNA fragments and the correctly matched,
or homoduplex, DNA fragments will be present. On the other hand, if the sample
DNA has the same sequence of nucleotides as the normal DNA, all of the
recombined strands will match and bind completely and only homoduplex DNA
fragments will be present.

WAVE SYSTEM SAMPLE INTRODUCTION AND SEPARATION PROCESS. A sample plate
containing DNA is inserted directly into the WAVE System's autosampler. The
autosampler takes a small volume of the sample and injects it into the DNASep
column containing the micro-beads. Due to the chemical affinity of the DNA to
the surface chemistry on the micro-beads in the column, the DNA attaches itself
to the micro-beads. After the sample is injected into the instrument, a mixture
of reagent fluids is pumped into the column at specified reagent concentrations
and temperature conditions.

As the reagents are pumped through the column, DNA fragments are released
and separated from each other. The DNA fragments flow from the DNASep column and
through an ultraviolet or a fluorescence detector, which then measures and
reports the passage of the DNA fragments of interest. Depending on the mode of
operation, DNA fragments can be identified and measured to determine whether
they are mutant or normal, or a specific DNA size or type. The separation and
detection process continues until the entire DNA sample mixture is separated
into individual fragments. Any fragment of interest can be collected for further
study.

MODES OF OPERATION. DNA can be separated using three different modes by
controlling the oven temperature. These modes include the following:

- NON-DENATURING MODE. This mode uses relatively low temperature so that
no melting, or denaturing, of the double-strand DNA occurs. This allows
double-stranded DNA fragments to be separated by the number of
nucleotides making up the fragment, with the shorter DNA fragments
being first released from the column and increasingly longer fragments
of DNA being released in ascending size order until the entire sample
is separated. The high-resolution separation and purification of
fragments can be used for high-purity cloning, sequencing or PCR
amplification. Tests that are based on fragment length also use this
mode.

3633

- PARTIAL-DENATURING MODE. The partial-denaturing mode is used for detecting
genetic variation. In this mode, the WAVE System uses temperatures ranging
from 50 DEG.C to 65 DEG.C to partially melt, or denature, the
double-strand DNA. Because mismatched, or heteroduplex, DNA fragments will
melt at a slightly lower temperature than homoduplex DNA fragments, they
will be released first from the DNASep column, followed by the release of
the homoduplex DNA fragments. If there was no sequence mutation in the
sample DNA, only homoduplex fragments will be present, all of which will
be released from the DNASep column at the same time. As the release of the
DNA fragments is detected, it will be depicted by the WAVEMaker software
as a single peak on a graph. However, if there was a sequence mutation in
the sample DNA, both homoduplex and heteroduplex DNA fragments will be
present. Because homoduplex and heteroduplex DNA fragments will release
from the DNASep column at different times, these distinct release times
will result in a second peak on the graph.

- FULL-DENATURING MODE. The full-denaturing mode is used for the analysis of
single-strand DNA and RNA (special molecules that transmit genetic
information inside of a cell) where it is necessary to reduce the
interaction of the two complementary strands of DNA with each other. In
this mode, temperatures in excess of 70 DEG.C are used to separate
single-strand DNA or RNA molecules according to sequence and size.

DETECTION. The standard WAVE System uses ultraviolet, or UV, detection. UV
detection is highly sensitive and can be used for all applications with standard
PCR amplification. By adding fluorescence detection to our system, we can
further decrease the amount of DNA needed for analysis. In this process, special
fluorescent molecules, or tags, are attached to specific points in the DNA being
analyzed. This makes it possible to detect fluorescently labeled DNA fragments
from extremely low sample concentrations or from samples with low PCR
amplification.

FRAGMENT COLLECTION. Purified DNA fragments can be collected for PCR
amplification, sequencing or for cloning. Cloning is a process where bacteria is
used to grow a large amount of specified DNA fragments. It is important that the
DNA material used for cloning is very pure so that only the specified DNA
material is found in the bacteria colonies. Amplification and sequencing also
benefit from highly purified DNA fragments.

WAVEMAKER SOFTWARE. Our WAVEMaker Software integrates the instrumentation
control and data acquisition functions of the WAVE System. The software performs
several functions including the formatting and presentation of data. Our
WAVEMaker Software provides logical input and output of instrument data that is
easily understood by researchers familiar with conventional gel-based
technology. We are working to further refine the software component of the WAVE
System to make it easier to operate for a broader market of end users.

WAVEMaker Software enables the user to choose a specific application. The
clear display allows the user to set up the procedure in a matter of minutes.
Customized protocols can easily be created and saved to facilitate future
analyses. Point mutation detection can be performed by importing the sequence or
size of the DNA fragment of interest into WAVEMaker Software.

3734

The following diagram presents a sample screen taken from our WAVEMaker
Software.

[PICTURE OF COMPUTER SCREEN SHOWING WAVEMAKER SOFTWARE]

PRICING. This integrated WAVE System is priced from $60,000 to $100,000
depending on features and accessories. The price is dependent upon user selected
options, which include fragment collection, various detector configurations and
software versions.

WAVE OPTIMIZED MOLECULAR BIOLOGY CONSUMABLES

The WAVE System requires the use of various consumable products which we
manufacture and sell separately. As more WAVE Systems are sold, we expect that
these consumable products will become an increasingly significant source of
revenue for us.

The principal consumable products used with the WAVE System are the DNASep
columns and the chemical reagents that are used to carry the DNA samples though
the WAVE System. Other consumables include filters and other replacement parts
of the WAVE System.

The DNASep columns are essentially small metal tubes which are packed with
microscopic polymer beads, each of which is approximately two microns in
diameter. A micron is one millionth of a meter. The surface of these micro-beads
has a special chemical makeup that causes DNA molecules to adhere to them. The
columns come in two sizes which are used depending on the amount of DNA being
analyzed or purified. The smaller standard column sells for approximately $1,200
and the larger column sells for approximately $2,400. The WAVE System comes with
one standard DNASep column which has a recommended warranted life of
approximately 4,000 test cycles. Our experience to date indicates that the
average customer uses between two and six columns per instrument per year.

We also sell the chemical reagents used with the WAVE System. In general,
these reagents are special fluids that are pumped through the columns in order
to cause DNA molecules to release their

3835

chemical bonds to the micro-beads under the correct conditions. Although most of
these reagents are similar to those that can be obtained from various suppliers,
we have developed formulas for these reagents that have been specially developed
to be used in the WAVE System. By using these WAVE Optimized reagents, we
believe that researchers are more likely to achieve consistent high quality
results with their WAVE Systems.

Some consumables are contained and packaged in convenient kits to increase
ease of use and minimize possibility of user error. These kits may be used in
sample preparation or automated instrument operations for particular
applications. By adding different application kits, the WAVE System can perform
various applications.

RESEARCH AND DEVELOPMENT

We continue to maintain an active program of research and development and
expect to spend approximately $6.5 million on these efforts in 2000. Our
research and development activities include the improvement of the DNA
separation media used in our columns and the refinement of the hardware and
software components of the WAVE System. In addition, we are working to
understand different aspects of the chemistry of molecular biology testing and
to use this knowledge to develop new molecular biology tests.

Our research and development work is focused on developing additional
functionality in the WAVE System that will allow us to sell into market segments
other than the genetic mutation discovery market. For example, we are working on
software and hardware advances that will tailor the WAVE System specifically for
the analysis and purification of single-strand DNA. Short single-strand DNA,
known as oligonucleotides, are used to target a known sequence of DNA in a gene.
A number of companies produce oligonucleotides with a known sequence and sell
them to genetic researchers who use them for PCR amplification, sequencing or
other research applications and to medical facilities for diagnostic testing.
When synthesizing oligonucleotides on a commercial scale, it is important to
exclude fragments with unwanted DNA sequences. Our research efforts are focused
on determining the quality of single-strand DNA needed for each application and
on developing the appropriate instrumentation modifications, software and
separation protocols for each. We expect to have WAVE Systems available for this
market within 24 months.

We are also developing improved methods and procedures to enable hospitals
and other medical facilities to use the WAVE System to screen tissue or blood
samples for mutations known to be related to genetic disease. We believe the
WAVE System will be an attractive tool for this group of users because it will
allow them to use the same validated methodology used to discover a mutation and
its link to disease to screen for that mutation in a large population. We are
working to make the screening process faster and more automated through the
development of new software and improved separation media and instrumentation.
We also expect to have these improvements available in the next 24 months.

SALES AND MARKETING

We currently sell our WAVE Systems and related consumables in major
geographical markets. We target the U.S., the U.K. and most countries in Western
Europe with a direct sales staff of 18 persons. For the rest of the world, we
also sell our products to dealers and distributors located in local markets. We
also maintain regionally-based technical support staffs and applications
scientists to support our sales and marketing activities throughout the U.S.,
Europe and Japan. See Note O, "Sales and Product Information," to our
consolidated financial statements for a summary of our net sales by geographic
area and product group.

Our marketing efforts utilize a variety of promotional channels including
print advertisements, scientific conferences, trade shows, and Internet browser
ads. The primary targets of our marketing efforts are life sciences researchers
and medical geneticists in academic and commercial research institutions.

3936

CUSTOMERS

As of March 31,June 30, 2000, we havehad sold over 250311 WAVE Systems to customers in 20
countries. Customers that have purchased at least one WAVE System include
numerous core laboratory facilities and a number of other leading academic and
medical institutions in the U.S. and abroad, including Harvard University,
Stanford University, Baylor College of Medicine, University of Chicago, Fred
Hutchison Cancer Research Facility, Mayo Clinic, National Cancer Institute,
National Institutes of Health, Institut Curie, University of Cambridge, Welcome
Trust-Oxford University and Institut Gustave Roussy. Customers also include a
number of large, established U.S. and foreign pharmaceutical and biotech
companies including SmithKline Beecham, Bristol-Meyers Squibb, Millennium
Pharmaceuticals, Merck & Company, Novartis and Eli Lilly and Company. No single
customer accounted for more than 3% of our sales in 1999.

MANUFACTURING

We manufacture all of our consumable products including our proprietary
DNASep separation columns and liquid reagents. We also incorporate our own
modifications into the basic liquid chromatography instrument that we use in our
WAVE System. Our manufacturing facilities are located in San Jose, California,
Omaha, Nebraska, and Crewe, England.

We obtain the basic liquid chromatography instrument for our WAVE System
from Hitachi Instruments, Inc. This relationship allows us to use Hitachi's
significant manufacturing capability to meet potential future increases in
demand for the WAVE System without investing in expanding our own manufacturing
capacity.

Although our relationship with Hitachi has existed since 1997, we have
recently entered into a new supply agreement with Hitachi under which they will
cooperate with us in the co-development of a modified instrument for use in our
WAVE System. Under the agreement, we have the exclusive right to market any
co-developed products for DNA analysis and purification using our DNASep
technologies. In addition, the agreement will provide for fixed pricing of the
liquid chromatography instruments for our WAVE System. Our agreement with
Hitachi has no fixed term and we have retained the right to work with other
vendors for liquid chromatography instruments. Under the agreement, there will
be no transfer of intellectual property rights without a specific agreement to
do so.

LEGAL PROCEEDINGS

We are not a party, nor are any of our assets or properties subject, to any
material legal proceedings.

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 have implemented an aggressive patent strategy designed to provide us
with freedom to operate and facilitate commercialization of our current and
future products. We currently own 16 issued patents in the United States and
have 26 pending applications, of which we have received notices of allowances
for five. We also own two foreign issued patents and have 31 foreign patent
applications pending. We hold an exclusive license for components of the DNA
separation technology used in our WAVE System under an agreement with the
inventors. This license terminates in 2013. We have also entered into a
non-exclusive license agreement with a U.S. university relating to DNA detection
technology. We also hold licenses to 16 foreign patent applications.

The DNASep column and the systems with which it is combined are DNA
compatible. The micro-beads used within the DNASep column are covered by
U.S. Patent No. 5,585,236 and corresponding European patents. DNA compatible
systems are free from materials which would bind with DNA and interfere with the
separations. Separating DNA with DNA compatible systems and related processes
are

4037

covered by U.S. Patents 5,772,889, 5,997,742, 5,972,222, 6,017,457, 6,024,878
and 6,056,877, along with a corresponding foreign patent application pending.
Additional patent applications for the DNA compatible column and system are
pending in the U.S., Europe and Japan. Future products including disposable
nucleic acid separation systems are covered by U.S. Patent 5,986,085 and pending
U.S. and foreign patent applications.

Generally, U.S. patents have a term of 17 years from the date of issue for
patents issued from applications filed with the U.S. Patent Office prior to
June 8, 1995, and 20 years from the application filing date or earlier claimed
priority date in the case of patents issued from applications filed on or after
June 8, 1995. Patents in most other countries have a term of 20 years from the
date of filing the patent application. Our issued United States patents will
expire between 2009 and 2017. Our success depends to a significant degree upon
our ability to develop proprietary products and technologies. We intend to
continue to file patent applications as we develop new products and
technologies.

Patents provide some degree of protection for our intellectual property.
However, the assertion of patent protection involves complex legal and factual
determinations and is therefore uncertain. The scope of any of our issued
patents may not be sufficiently broad to offer meaningful protection. In
addition, our issued patents or patents licensed to us may be successfully
challenged, invalidated, circumvented or unenforceable so that our patent rights
would not create an effective competitive barrier. Moreover, the laws of some
foreign countries may not protect our proprietary rights to the same extent as
do the laws of the United States and Canada. In addition, the laws governing
patentability and the scope of patent coverage continue to evolve, particularly
in areas of interest to us. As a result, there can be no assurance that patents
will issue from any of our patent applications or from applications licensed to
us. In view of these factors, our intellectual property positions bear some
degree of uncertainty.

We also rely in part on trade-secret protection of our intellectual
property. We attempt to protect our trade secrets by entering into
confidentiality agreements with third parties, employees and consultants. Our
employees and consultants also sign agreements requiring that they assign to us
their interests in patents and copyrights arising from their work for us. All
employees sign an agreement not to compete unfairly with us during their
employment and after termination of their employment, through the misuse of
confidential information, soliciting employees, soliciting customers and the
like. However, it is possible that these agreements may be breached or
invalidated and if so, there may not be an adequate corrective remedy available.
Despite the measures we have taken to protect our intellectual property, we
cannot assure you that third parties will not independently discover or invent
competing technologies, or reverse engineer our trade secrets or other
technologies. Therefore, the measures we are taking to protect our proprietary
rights may not be adequate.

We do not believe that our products infringe on the intellectual property
rights of any third party. However, third parties may file claims asserting that
our technologies or products infringe on their intellectual property. We cannot
predict whether third parties will assert claims against us or against the
licensors of technology licensed to us, or whether those claims will be found to
have merit. If we are forced to defend against such claims, whether they are
with or without any merit, whether they are resolved in favor of or against us
or our licensors, we may face costly litigation and diversion of management's
attention and resources. As a result of such disputes, we may have to develop
costly non-infringing technology or enter into licensing agreements. These
agreements, if necessary, may be unavailable on terms acceptable to us, or at
all, which could seriously harm our business or financial condition.

COMPETITION

The market for our products is highly competitive. Our principal competitors
include those entities that provide alternative technologies and products for
the separation and analysis of DNA in the areas of sample amplification,
analysis process, sample separation and mutation detection and correlation. They
include Affymetrix, Inc., Agilent Technologies, Amersham Pharmacia Biotech AB,
Bio-Rad

4138

Laboratories, Inc., BioWhittaker Molecular Applications, GeneTrace
Systems, Inc., Invitrogen Corporation, PE Corporation, Sequenom, Inc. and Varian
Associates Inc. Moreover, competitors have greater name recognition than we do
and provide more conventional technologies and products with which some of our
customers and potential customers may have more familiarity or experience. In
many cases, in order to compete against existing and alternative technologies,
we will need to demonstrate the superior performance, speed and capabilities of
our WAVE System, including our proprietary DNASep column and micro-bead
technology. We cannot assure you that we will be able to make the necessary
enhancements to our technology or products to compete successfully with newly
emerging technologies.

EMPLOYEES

As of June 1, 2000, we had 174 full-time employees. Of these 174 employees,
43 hold Ph.D.s. The following sets forth the number of persons employed in the
principal areas of our operation:

Manufacturing............................................... 29
Sales and Marketing......................................... 61
Research and Development.................................... 52
Administration.............................................. 32

Our future success depends on our continuing ability to attract, train and
retain highly qualified technical, sales and managerial personnel. Competition
for these personnel is intense. Due to the limited number of people available
with the necessary technical skills, we can give no assurance that we can retain
or attract key personnel in the future. None of our employees is represented by
a labor union. We have not experienced any work stoppages and consider our
relations with our employees to be good.

PROPERTIES

We do not own any real property. We currently lease office and manufacturing
space in the following locations:

LOCATION SQUARE FOOTAGE ANNUAL RENT LEASE TERM EXPIRES
- -------- -------------- ----------------- ------------------

Omaha, Nebraska(1)................................. 71,799 $308,000 2000
San Jose, California............................... 13,660 $213,000 2002
Crewe, England..................................... 7,400 L70,000 2006
Cramlington, England............................... 8,200 L26,000 2001
Tokyo, Japan....................................... 1,000 Y7,293,000 2001
Cambridge, Massachusetts........................... 2,500 $54,000 2002
Gaithersburg, Maryland............................. 2,294 $35,000 2004
Dallas, Texas...................................... 240 $11,000 2000
Houston, Texas..................................... 2,760 $24,000 2003

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

(1) In connection with the sale of the assets of our non-life sciences
instrument product line, the existing lease for the Omaha, Nebraska
facility was assigned to, and assumed by, the purchaser. We recently entered
into a new seven-year lease agreement for a new, 17,400 square-foot
headquarters and administrative office in Omaha, Nebraska which will
commence on August 1, 2000. The first year lease payment for this property
will be $178,350 and will escalate by 2% per year.

4239

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Our executive officers and directors, positions held by them and their ages,
are as follows:

NAME AGE POSITION
- ---- -------- --------

Collin J. D'Silva......................... 43 Chairman of the Board, Chief Executive
Officer and Director
William P. Rasmussen...................... 48 Chief Financial Officer and Treasurer
Douglas T. Gjerde, Ph.D................... 47 Chief Scientific Officer and Director
John E. Doyle............................. 56 Executive Vice President of Operations
Kraig McKee............................... 42 Vice President of United States Sales
William Walker............................ 64 Vice President of Intellectual Property
Mitchell L. Murphy........................ 44 Controller and Secretary
Stephen F. Dwyer.......................... 57 Director
Jeffrey Sklar, M.D., Ph.D................. 4952 Director
Parag Saxena.............................. 45 Director
Gregory J. Duman.......................... 4445 Director
Roland J. Santoni......................... 58 Director

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 Transgenomic and its predecessors
since 1988. Prior to that time, Mr. D'Silva was employed by AT&T from 1980. 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.

WILLIAM P. RASMUSSEN. Mr. Rasmussen joined us on October 1, 1998 and
currently serves as our Chief Financial Officer and Treasurer. Prior to joining
us, Mr. Rasmussen was Chief Financial Officer at I-Mark Systems from 1996 until
it was purchased in 1997. I-Mark Systems designed integrated computer voting
solutions and was a successor corporation of ADD Consulting Inc., which provided
computer staffing professionals to numerous industries. Mr. Rasmussen served as
Chief Financial Officer of ADD Consulting Inc. from 1994 until joining I-Mark
Systems in 1996. Mr. Rasmussen owned a travel management company from 1986 until
1998, and he provided consulting services to numerous software and
telecommunication companies from 1984 through 1994. Mr. Rasmussen's previous
experience also includes serving as Controller and Principle Accounting Officer
for Applied Communications, Inc. from 1979 until 1984. Applied
Communications, Inc., now known as Transaction Systems Architects, Inc., is a
software provider for transaction processing systems.

DOUGLAS T. GJERDE, PH.D. Dr. Gjerde joined us in 1996 as Chief Scientific
Officer. Dr. Gjerde has held positions as senior scientist for Exxon Research
and Engineering, Director of Research for Wescan Instruments, and President and
Director of Research & Development for Sarasep, Inc. Sarasep, which Dr. Gjerde
co-founded, was acquired by us in 1996. Dr. Gjerde has authored 12 patents and
has more than 40 journal publications, primarily focused on separation
technology. Dr. Gjerde received his B.S. in chemistry in 1976 from Minnesota
State University, Mankato, Minnesota, and his Ph.D. in analytical chemistry in
1980 from Iowa State University, Ames, Iowa.

JOHN E. DOYLE. Mr. Doyle has been with our company since September 1997,
initially focusing on operations and process improvement. In 1999, Mr. Doyle
assumed responsibility for sales, again focusing on process as well as
improvements in staffing. Prior to joining Transgenomic, he was with
Supelco Inc. for 20 years, serving as Chief Executive Officer when it was a
Sigma-Aldrich company; Business Unit Vice

4340

President when it was a subsidiary of Rohm and Haas Corporation; and
International Vice President when it was privately held. Mr. Doyle received his
engineering degree from Pennsylvania State University.

KRAIG MCKEE. Mr. McKee has served as our Vice President of Sales for the
United States since July 1999. Prior to joining us, he was the Sales Director
from 1997 to 1999 for Bayer Diagnostics. From 1987 through 1997, he held a
number of positions in the sales organization of Chiron Diagnostics. His last
position at Chiron was National Sales Director, ACS Reagent Systems. He received
a Bachelor's degree in marketing from Texas Tech University.

WILLIAM WALKER. Mr. Walker joined us in 1998 as Vice President of
Intellectual Property. Mr. Walker is a corporate attorney with an emphasis in
intellectual property law. Mr. Walker served as Director of Patents and
Licensing for Syntex Corporation (1970-1981) and subsequently provided
intellectual property counseling to new and emerging companies. Mr. Walker has a
law degree from Georgetown University Law Center, a B.S. degree in chemical
engineering from the University of Tennessee and a MFCC degree in psychology
from Santa Clara University. He is a member of the California Bar and is active
in numerous professional organizations.

MITCHELL L. MURPHY. Mr. Murphy joined us in 1992. His current duties
include the overall administration of our finance and accounting functions.
Prior to joining Transgenomic, he held accounting and financial management
positions for companies involved in manufacturing, steel distribution and rebar
fabrication for 15 years. 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.

STEPHEN F. DWYER. Mr. Dwyer hasis the Chief Executive Officer of SD
Acquisition Inc., a company that recently signed a letter of intent to
acquireacquired the assets associated with
our non-life sciences instrument product line, which will be operated as a separate business.line. Mr. Dwyer is a director and was a
co-founder of Transgenomic. From 1996 until March 2000, Mr. Dwyer was employed
by Transgenomic and its predecessor company, most recently as Vice Chairman. In
1966, Mr. Dwyer started Sasco Inc., which produced laboratory animals used in
disease research. In 1986, Mr. Dwyer sold Sasco to Charles River Labs. He
continued to run Sasco as a Charles River Labs subsidiary for the next eight
years.

JEFFREY SKLAR, M.D., PH.D. Dr. Sklar is professor of Pathology at Harvard
Medical School, where he has been on the faculty for more than five years. He
also serves as Director of the Divisions of Diagnostic Molecular Biology and
Molecular Oncology, department of Pathology Brigham and Women's Hospital.
Dr. Sklar serves on the Editorial Boards of Numerous Journals in the area of
Pathlogy and Cancer and on Scientific Advisory Committees to the Dana-Farber
Cancer Center, Boston, MA; the Fred Hutchinson Cancer Center, Seattle,
Washington; the New England Regional Primate Center; Harvard University; and the
National Institutes of Health. He is a director of Dianon Systems, Inc., and has
served on the scientific advisory boards of numerous companies in the
biotechnology field. Dr. Sklar holds an M.D. and Ph.D. from Yale University and
an M.A. (honorary) from Harvard University.

PARAG SAXENA. Mr. Saxena is the Chief Executive Officer of INVESCO Private
Capital, Inc. ("IPC") and has held that position for more than five years. As a
founding member of IPC, Mr. Saxena has been involved in numerous private capital
transactions and has served as a director on a number of venture-backed
healthcare and telecommunications companies. Mr. Saxena began his career in 1978
as a product engineer at Becton Dickinson Corporation. He later joined Booz,
Allen and Hamilton in the Technology Management Services Group where his
responsibilities included market analysis, technology strategy, acquisition
evaluation and business strategy formulation for several Fortune 100
corporations in the healthcare field. Mr. Saxena joined Citicorp Investment
Management, Inc. in 1983 as a founding member of the private capital group's
predecessor and was responsible for healthcare private investments and small cap
public stocks. Mr. Saxena received a B. Tech in 1977 from the Indian Institute
of Technology and an M.S. in 1978 in Chemical Engineering from West Virginia
College of Graduate Studies. He earned an M.B.A. in 1982 from the Wharton School
of the University of Pennsylvania.

4441

GREGORY J. DUMAN. Mr. Duman has been a director since March 2000.
Mr. Duman is the Chief Financial Officer of Artios, Inc. (formerly ECOM
Worldwide, Inc.), a transaction processing services company, which he joined in
2000. Prior to that, he was Executive Vice President of Transaction Systems
Architects, Inc. ("TSA"). He joined TSA in 1983 as Director of Administration.
He became Controller in 1985 and Vice President and Chief Financial Officer in
1991, serving until February 2000. From 1979 to 1983, he worked for Arthur
Andersen & Co. as a certified public accountant. Mr. Duman is a director of TSA
and Digital Courier Technologies, Inc.

ROLAND J. SANTONI. Mr. Santoni has been a director since March 2000. He has
been Professor of Law at Creighton University School of Law, Omaha, Nebraska
since 1977. He also has been Of Counsel with Erickson & Sederstrom, P.C. since
1978. Mr. Santoni received a B.S. in Economics from The Wharton School,
University of Pennsylvania, in 1963 and a J.D., CUM LAUDE, from the University
of Pennsylvania School of Law in 1966.

SCIENTIFIC ADVISORS

We consult with several leading scientists from around the world, as part of
our ongoing research and development efforts. These advisors assist us in
formulating our research, development, and commercialization strategies. Some of
these advisors include:

- Dennis R. Burton, Ph.D., Professor of Immunology, The Scripps Research
Institute, La Jolla, California.

- R. Alan North, Ph.D., Professor and Director of the Institute of
Molecular Physiology, the University of Sheffield, Sheffield, U.K.

- Eric Hoffman, Ph.D., Director, Research Center for Genetic Medicine,
The Children's National Medical Center, Washington, D.C.

- Leon Yengoyan, Ph.D., Professor of Chemistry, San Jose State
University, San Jose, California.

We do not pay cash remuneration to our scientific advisors, but may
reimburse them for reasonable expenses they incur on our behalf. We may also
award stock options to them under our stock option plan. See "Stock Option and
Other Compensation Plans" below.

BOARD OF DIRECTORS

Our Board of Directors is comprised of seven directors and is divided into
three classes. Directors of each class are elected for terms of three years.
Class I directors are Parag Saxena and Collin J. D'Silva. Class II directors are
Stephen F. Dwyer and Jeffrey Sklar. Class III directors are Douglas T. Gjerde,
Gregory Duman and Roland J. Santoni. The current terms of the Class I, Class II
and Class III directors will end at our annual stockholders meetings held in
2001, 2002 and 2003, respectively.

BOARD COMMITTEES

The audit committee consists of Messrs. Duman, Sklar and Saxena, each of
whom is an independent director. The audit committee reviews the services
provided by our independent auditors, consults with the auditors on audits and
proposed audits, and reviews and evaluates our internal auditing procedures and
control functions.

The compensation committee consists of Messrs. Sklar, Dwyer and Saxena. The
compensation committee reviews the compensation arrangements for our executive
officers, makes recommendations to the Board of Directors regarding compensation
matters and administers our employee stock option plan. See "Stock Option and
Other Compensation Plans" below.

DIRECTOR COMPENSATION

Directors who are also our officers 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. Non-employee
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

4542

teleconference, as well as reimbursement for out-of-pocket expenses related to
attendance at board and committee meetings.

Our non-employee directors are issued options to purchase 15,000 shares of
common stock under our 1997 Stock Option Plan upon initial appointment to the
board. These options vest at the rate of 20% per year of service on the board.
Additional grants will be made from time to time so that each non-employee
director holds 15,000 unvested options at any time. All options granted to
non-employee directors have exercise prices that represented the fair market
value of our stock on the grant date. Exercise prices on outstanding options
granted to our non-employee directors range from the lesser of $5.00 per share
or 50% of the price that we issue common stock in this offering to $13.00 per share.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of our compensation committee serves as a member of the board of
directors or compensation committee of any other company that has one or more
executive officers serving as a member of our board of directors or compensation
committee.

EXECUTIVE COMPENSATION

The following table sets forth the total compensation we paid during the
year ended December 31, 1999 to our Chief Executive Officer and our next four
most highly compensated executive officers whose salary and bonus for 1999
exceeded $100,000. Also included is the compensation of an executive officer who
resigned prior to the end of the year. These executive officers are referred to
as the named executive officers elsewhere in the prospectus.

SUMMARY COMPENSATION TABLE(1)

ANNUAL COMPENSATION
----------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION COMPENSATION(2)
- --------------------------- -------- -------- ------------ ---------------

Collin J. D'Silva................................... $132,440 $ 0 $6,129 $21,587
Chief Executive Officer

William Walker...................................... 201,466 0 1,889 5,631
Vice President of
Intellectual Property

John E. Doyle....................................... 150,645 4,000 3,615 17,893
Executive Vice President
of Operations

Andrew T. Zander, Ph.D.............................. 117,378 0 2,101 4,695
Vice President of Research and Development(3)

Douglas T. Gjerde, Ph.D............................. 101,216 0 3,074 19,394
Chief Scientific Officer

P. Thomas Pogge..................................... 162,871 0 4,643 8,256
General Counsel(4)

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

(1) No long term compensation was awarded or paid to any named executive
officer during 1999.

(2) Consists of accrued vacation to be taken in the future or paid in cash upon
termination of employment.

(3) Dr. Zander resigned as an executive officer on March 24, 2000.

(4) Mr. Pogge resigned as an executive officer prior to the end of 1999.

All executive officers are eligible to participate in our stock option plan
(described under "Stock Option and Other Compensation Plans") and may
participate in other employee benefit plans and programs, such as health
insurance plans, that we offer to our other employees.

4643

OPTION GRANTS IN LAST FISCAL YEAR

None of the named executive officers were awarded any stock options during
1999.

AGGREGATED OPTION EXERCISE IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES

None of the named executive officers exercised any stock options during
1999.

STOCK OPTION AND OTHER COMPENSATION PLANS

STOCK OPTION PLAN. Our stock option plan allows us to grant options to our
employees, directors and advisors which give them the right to buy our common
stock at a fixed price, even if the market value of our stock goes up. Our stock
option plan is administered by the compensation committee of our Board of
Directors and it has the sole authority to set the number, exercise price, term
and vesting provisions of the options granted under the plan. 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 committee may also require that an option holder remain employed by us for a
specified period of time before an option may be exercised. These "vesting"
provisions are established on an individual basis by the committee. The
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 6,000,000 shares may be granted under the
plan. As of June 1, 2000, weWe have issued options for 3,690,5503,982,050 shares of our common stock. All of theseThese
options have an exercise priceprices ranging from $5.00 to $13.00 per share, except that options to acquire shares of common stock with an
aggregate fixed cost of $75,000 issued to Jeffrey Sklar, Ph.D., a non-employee
director, may be exercised at the lower of $5.00 per share for 15,000 shares or
50% of the price of our common stock in this offering. See "Director
Compensation" above.share.

Under the terms of our stock option plan, if the option holder dies, becomes
permanently disabled or retires any options not vested at such time will become
immediately vested. If an option holder voluntarily resigns, any options not
vested as of the date of resignation will terminate and all rights will cease,
unless the compensation committee determines otherwise. 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 also 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 the years ended December 31, 1997,
1998 and 1999, we contributed $92,733, $117,923 and $174,973 to the savings plan
on behalf of our employees.

LIMITATION OF DIRECTORS AND OFFICERS LIABILITY

Our certificate of incorporation provides that no director will be liable
for monetary damages for breach of the director's fiduciary duty to the company
or its stockholders, except for liability arising from:

- breach of the director's duty of loyalty to the company or its
stockholders;

- acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law;

- improper distributions to stockholders and improper redemptions of
stock; and

- transactions from which the director derived an improper personal
benefit.

4744

This provision of our certificate of incorporation does not eliminate the
directors' fiduciary duties, and in appropriate circumstances, equitable
remedies including an injunction or other forms of non-monetary relief would
remain available under Delaware law. This provision also does not affect a
director's responsibilities under any other laws including federal securities
laws or state or federal environmental laws.

In addition, our bylaws provide that we will indemnify our directors and
officers to the fullest extent permitted by Delaware law. We are also empowered
under our bylaws to enter into indemnification contracts with our directors and
officers and to purchase insurance on behalf of any person we are required or
permitted to indemnify. We have obtained directors and officers liability
insurance coverage which covers, among other things, liabilities arising under
the Securities Act.

EMPLOYMENT AGREEMENTS

We have entered into employment agreements with our Chief Executive Officer,
Collin J. D'Silva, our Chief Financial Officer, William P. Rasmussen, our Chief
Scientific Officer, Douglas T. Gjerde Ph.D. and our Vice-President of
Intellectual Property, William R. Walker. The employment agreements require our
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. Our executives are not allowed to
compete with us during the term of their employment and for a year after they
are no longer our employee. Each agreement contains provisions under which our
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.

Each of the employment agreements with Mr. D'Silva and Dr. Gjerde has an
initial term of four years and may be extended unless we or Mr. D'Silva or
Dr. Gjerde, as the case may be, give notice of an intention not to renew. The
employment agreement with Mr. Walker has an initial term of two years and will
automatically renew for an additional two-year period unless Mr. Walker or we
give notice of an intention not to renew. The employment agreement with
Mr. Rasmussen has an initial term of one year. If one of our officers is
terminated for reasons other than an act of serious misconduct, the officer will
be entitled to severance pay in an amount equal to his then current base salary
for an amount equal to twelve months' salary, except for Mr. Walker who will be
entitled to severance pay in an amount equal to his then current base salary
plus the amount of the previous year's bonus, provided that such severance
payment does not exceed 299% of his current salary. In addition, if Mr. Walker
dies or becomes permanently disabled, he will receive an amount equal to six
months of salary.

4845

PRINCIPAL STOCKHOLDERS

The following table provides information concerning beneficial ownership of
our common stock as of June 1, 2000, by:

- each of our named executive officers;

- each of our directors;

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

- each stockholder that we know owns more than 5% of our outstanding common
stock.

The following table assumes the exercise of warrants for 300,000 shares of
common stock that will be issued at $5.00 per share immediately prior to
completion of this offering. See "Description of Capital Stock--Warrants."

Based on information furnished by such owners, we believe that the beneficial
owners listed below have sole voting and investment power with respect to such
shares.

PERCENT
BENEFICIALLY OWNED
-------------------
NUMBER OF SHARES BEFORE AFTERPERCENT
NAME BENEFICIALLY OWNED OFFERING OFFERINGBENEFICIALLY OWNED
- ---- ------------------ -------- --------------------------

EXECUTIVE OFFICERS AND DIRECTORS
Collin J. D'Silva(1)................................. 4,906,154 36.8% 28.3%27.6%
William P. Rasmussen(2).............................. 65,000 * *
Douglas T. Gjerde, Ph.D.(3).......................... 2,500,000 16.9 13.313.0
John E. Doyle(4)..................................... 45,000 *
*
Kraig McKee(5)....................................... -- *4,000 *
William Walker(6).................................... 25,000 * *
Mitchell L. Murphy(7)................................ 14,000 *
*
Stephen F. Dwyer(8).................................. 2,986,000 22.4 17.216.8
Jeffrey Sklar, M.D., Ph.D.(9)........................ 9,000 *
*
Gregory Duman(10).................................... 25,000 * *
Roland J. Santoni(11)................................ -- *
*
Parag Saxena......................................... -- * *
All executive officers and directors as a group
(12 persons)....................................... 10,575,154 70.7 55.810,579,154 54.4
OTHER STOCKHOLDERS
Arthur P. D'Silva(12)................................ 1,093,846 8.2 6.36.1
INVESCO Private Capital, Inc.(13).................... 2,455,380 15.6 12.42,475,823 12.2

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

* Less than 1%.

(1) Includes 1,400,000 shares owned by the Arthur P. D'Silva Trust, of which
Collin J. D'Silva is the sole trustee and 484,616 shares owned by D'Silva,
LLC of which Mr. D'Silva is the managing member.

(2) Includes vested options to purchase 20,000 shares at $5.00 per share and
25,000 shares at $13.00 per share. Mr. Rasmussen holds unvested options to
purchase an additional 30,000 shares at $5.00 per share and 25,000 shares at
$13.00 per share.

(3) Includes an option to purchase 1,500,000 shares at $5.00 per share.

(4) Consists of vested options to acquire 45,000 shares at $5.00 per share.
Mr. Doyle holds unvested options to purchase an additional 30,000 shares at
$5.00 per share.

49
(5) Consists of vested options to purchase 4,000 shares of common stock at
$5.00 per share. Mr. McKee also holds unvested options to purchase 16,000
shares at $5.00 per share and 20,000 shares at $5.00$13.00 per share.

(6) Consists of vested options to purchase 25,000 shares at $5.00 per share.
Mr. Walker holds unvested options to purchase an additional 75,000 shares
at $5.00 per share.

(7) Consists of 4,000 shares owned by Mr. Murphy and vested options to purchase
10,000 shares at $5.00 per share. Mr. Murphy holds unvested options to
purchase an additional 40,000 shares at $5.00 per share.

(8) Includes 500,000 shares owned by Nancy A. Dwyer, Mr. Dwyer's wife.

(9) Dr. Sklar holdsConsists of vested options to acquire 9,000 shares of common stock with an aggregate
fixed cost of $75,000 which may be exercised at the lesser of (a) $5.00
per share for 15,000 shares or (b) 50% of the initial public offering price, of
which 66.67%, or 9,000 shares, as of this date, are vested and exercisable.share. Dr. Sklar also holds unvested options to buypurchase 6,000 additional shares
as of this
date, at such price. In addition, Dr. Sklar holds unvested options to
purchase$5.00 per share and 9,000 shares at $13.00 per share.

(10) Consists of 25,000 shares owned by Mr. Duman. Mr. Duman holds unvested
options to purchase an additional 15,000 shares at $10.00 per share.

(11) Mr. Santoni holds unvested options to purchase 17,500 shares at $10.00 per
share.

(12) Includes 783,000 shares owned by the Cecilia F. D'Silva Residuary Trust,
of which Arthur P. D'Silva is co-trustee. Mr. D'Silva is the father of
Collin J. D'Silva. Mr. D'Silva's address is Transgenomic, Inc., 5600 South
42nd Street, Omaha, Nebraska 68107.

(13) Consists of shares of common stock that would be issued upon conversion of
$10,800,000 principal amount of convertible notes and accrued interest at
an assumed conversion price of $5.00 per share. These convertible notes are
held by entities affiliated with INVESCO Private Capital, Inc. which
disclaims beneficial ownership of the shares of our common stock that will
be issued upon conversion of these notes. The address of INVESCO Private
Capital, Inc. is 1166 Avenue of the Americas, New York, New York 10036.

5047

SELLING WARRANT HOLDERS

The following table shows the number of shares that will be issued to each
of the selling warrant holders upon the exercise of their warrants. Each warrant
provides that the holder may acquire the number of shares stated in the table at
$5.00 per share. These warrants were issued under the terms of various placement
agent agreements that we entered in connection with the private offering of
2,000,000 shares of common stock by us in 1997 and 1998. This prospectus also
relates to any additional shares of common stock which may become issuable to
the selling warrant holders by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt of
consideration which results in an increase in the number of our outstanding
shares of common stock. The shares and warrants offered by this prospectus may
be offered from time to time by the selling warrant holders.

Percentage ownership is based on the 17,805,000 shares of our common stock
outstanding as of the date of this prospectus. For purposes of computing the
percentage of outstanding shares held by each person or group of persons named
below, any security which such person or group of persons has the right to
acquire within 60 days is deemed to be outstanding for the purpose of computing
the percentage ownership for such person or persons, but is not deemed to be
outstanding for the purpose of computing the percentage ownership of any other
person. Any estimate that we give regarding the number of shares that will be
held by the selling warrant holders after completion of this offering may prove
to be inaccurate because the selling warrant holders may offer all or some of
their warrants or shares and because there currently are no agreements,
arrangements or understandings with respect to the sale of any of the shares or
warrants.

SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING THE OFFERING
------------------------- SHARES TO BE ----------------------
NAME NUMBER PERCENTAGE SOLD NUMBER PERCENTAGE
- ---- ------------ ---------- ------------ --------- ----------

American Frontier Financial
Corporation....................... 13,480 * 13,480 0 *
Millennium Financial Group.......... 500 * 500 0 *
Consolidated Investment Corp.(1).... 33,613 * 33,613 0 *
Max H. Callen(1).................... 5,891 * 5,891 0 *
Eames Irvin(1)...................... 471 * 471 0 *
Allen J. Moore(1)................... 3,417 * 3,417 0 *
George W. Peterson(1)............... 8,601 * 8,601 0 *
William B. Shreve Trust(1).......... 2,946 * 2,946 0 *
Thomas C. Smith(1).................. 47,420 * 47,420 0 *
A. John Walters(1).................. 5,891 * 5,891 0 *
John P. Kanouff..................... 16,850 * 16,850 0 *
Robert H. Taggart................... 3,370 * 3,370 0 *
James M. McCrory.................... 500 * 500 0 *
Leroy J. Schroder................... 2,500 * 2,500 0 *
Namaste, Ltd........................ 2,225 * 2,225 0 *
Deltron, Ltd........................ 2,225 * 2,225 0 *
Michael G. Fugler................... 800 * 800 0 *
Shelley K. Gluck.................... 250 * 250 0 *
David M. Dobson..................... 500 * 500 0 *
Paolo E. Floriani................... 500 * 500 0 *
Frank T. Marino..................... 500 * 500 0 *

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

* less than 1%

(1) Subject to lock-up agreement through October 14, 2000.

RELATED PARTY TRANSACTIONS

On May 19, 2000, we sold the assets related to our non-life sciences
instrument product line to SD Acquisition Inc., a company controlled by
Stephen F. Dwyer, a director and a principal stockholder of ours. These assets
consisted of inventory, property, plant and equipment, patents, other
intellectual property rights and a lease deposit, with an aggregate book value,
net of $125,000 of accrued liabilities, of approximately $4.7 million as of
March 31, 2000. These assets were sold for a total adjusted purchase price of
$5.65 million plus reimbursement by the buyer of approximately $400,000 of
expenses paid by us since March 31, 2000 in connection with this product line.
Approximately $4,000,000 was paid in cash at the closing and $2,000,000 was paid
with an interest-bearing promissory note due on December 30, 2000. The note
bears interest at a rate of 8.75% per annum.

The purchaser financed the cash portion of the purchase price for these
assets plus initial working capital needs with borrowings of approximately
$4.6 million obtained from a bank. We have agreed with the bank that we will
acquire the notes evidencing these loans from it upon closing of thisour initial
public offering by paying to the bank an amount equal to the entire principal
balance of the loans plus accrued and unpaid interest. If thisour initial public
offering is not completed, we are under no obligation to acquire these notes.
The acquired notes will mature on December 30, 2000 and will bear interest at a
rate of 8.75% per annum. Mr. Dwyer has agreed to pledge 1,200,000 shares of
common stock owned by him to us in order to secure payment of principal and
interest on the notes. All of these shares will be held in an escrow account as
security for the notes. We anticipate that we will exercise our right to cause
these shares to be sold on Mr. Dwyer's behalf in order to pay principal and
interest on the notes when due, subject to Mr. Dwyer's 180-day lock-up
agreement.

Since early 1999, we have had discussions with potential purchasers of the
assets relating to our non-life sciences product line, each of which was
unaffiliated with us. In some cases, our management approached companies that we
identified as potential purchasers of these assets based on the nature of their
existing businesses. In other cases, these discussions were unsolicited. Based
on our knowledge of the industry, our management believes that we contacted the
most likely buyers of these assets. As a result, we did not engage any business
brokers or finders, nor did we use any advertising to locate a buyer for these
assets.

These discussions resulted in a single offer, other than Mr. Dwyer's. This
offer specified a total purchase price of $4,000,000 and would have required us
to assume employee severance and other windup costs. Since this was an
arm's-length offer, we believe that it represented a fair market valuation of
these assets. In addition, we considered the book value of these assets to be a
reasonable approximation of their fair market value. Therefore, we did not
obtain an independent appraisal of these assets. The purchase price and other
terms of the transaction were determined through negotiation between us and
Mr. Dwyer and was approved by our disinterested directors.

We will continue to sublease office space in our current building from
SD Acquisition Inc. until our new headquarters facility is ready for occupancy.
We expect to acquire peripheral components of our WAVE System, such as the
autosampler, from SD Acquisition Inc., although we have no agreement to do so.
All components will be acquired at market prices. We may purchase any or all of
these components from other suppliers. Mr. Dwyer will act as a consultant to us
for a one-year period. We will pay Mr. Dwyer a retainer of $70,000 for serving
in this capacity.

On February 10, 2000, we borrowed $204,190 from Stephen F. Dwyer. We
delivered an unsecured promissory note for this loan which bears interest at a
rate of 9.75% per annum and is payable on August 10, 2000.

On July 13, 2000, Collin J. D'Silva, our chief executive officer and a
director, agreed to guarantee a $1 million short-term note issued by us to a
bank.

Collin J. D'Silva, Stephen F. Dwyer and Douglas T. Gjerde were partners of
CT Partners, an Iowa general partnership, along with various other individuals,
some of whom are relatives of Mr. D'Silva and Mr. Dwyer. Mr. D'Silva, Mr. Dwyer
and Dr. Gjerde held partnership interests of 28.6%, 23.8% and 4.8%,

respectively, in CT Partners. In 1997, our predecessor company agreed to provide
CT Partners with research and development services to assist CT Partners in the
development of miniature solid-state optical spectrometry technology to which it
held the rights. Our predecessor company was entitled to a fee for these
services and for reimbursement of its expenses. In addition, our predecessor
company entered into a

51
royalty agreement with CT Partners under which it
received an exclusive license to manufacture and market this technology and
agreed to pay CT Partners a royalty of up to $6,500,000 based on the sales of
products employing this technology. On June 3, 1999, we acquired the rights to
this technology from CT Partners for a purchase price of $2,000,000. The
purchase price was offset by the cancellation of principal and interest due on
promissory notes given to us by CT Partners in payment of the fees and expense
reimbursements owed to us by it. Principal and interest on these notes plus
additional accrued expenses equaled $1,085,931. The sale price was based on the
present value of anticipated future net income from the sale of products
associated with the technology. While we believe the terms of this transaction
represent the fair value of the acquired technology, neither we nor CT Partners
obtained an independent valuation of the technology or took any other steps to
determine what an unaffiliated party would have paid for this technology. The
royalty agreement was cancelled as a result of the sale of the technology rights
by CT Partners to us. We will sell the rights to this technology in connection
with the sale of assets related to the non-life sciences instrument product line
described above.

Parag Saxena, one of our directors, is the managing partner of INVESCO
Private Capital, Inc., the general partner of five limited partnerships that
purchased a total of $10,000,000 of our convertible notes on March 23, 1999. Two
other affiliates of INVESCO Private Capital, Inc. hold $800,000 of our
convertible notes. Under the terms of an Investor Rights Agreement, dated
March 23, 1999, among us, Collin J. D'Silva and the holders of our convertible
notes, Mr. D'Silva has agreed to vote his shares for the election of one person
designated by the note holders to our board of directors. Mr. Saxena has been
elected to our board of directors pursuant to this agreement. Upon completion of
this offering, the Investor Rights Agreement will terminate and Mr. D'Silva will
be under no further obligation to vote in this manner.

DESCRIPTION OF CAPITAL STOCK

GENERAL

We can issue up to 60,000,000 shares of our common stock and 15,000,000
shares of our preferred stock. There are currently 13,025,00017,805,000 shares of our
common stock outstanding. This number will increase to 13,325,000 assuming the
exercise of 300,000 warrants to purchase our common stock that will expire at
the closing of this offering. 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

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
stock holders 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.

52
PREFERRED STOCK

The Board of Directors is authorized to issue up to 15,000,000 shares of
preferred stock in one or more series and to fix the rights, powers,
preferences, qualifications, limitations and restrictions granted to or imposed
on the preferred stock. The authority of the Board of Directors includes the
right to fix dividend rights, conversion rights, terms of redemption,
liquidation preference, sinking fund terms and the number of shares constituting
any series or the designation of a series, without any further vote or action by
the stockholders. The preferred stock may be 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 conversion
rights that could adversely affect the voting power of the holders of common

50
stock. The issuance of preferred stock could have the effect of delaying,
deferring or preventing a change in control of Transgenomic. For the foregoing
reasons, any preferred stock we issue could adversely affect your rights as a
holder of our common stock. We do not have any present plans to issue preferred
stock.

WARRANTS

As of the date of this prospectus, we have issued 452,450152,450 outstanding warrants to
purchase common stock at an exercise price equal to the lower of $5.00 per share
or 50% of the offering price of the common stock in this offering. Of this
total, 300,000share. These
warrants will expire upon the closing of this offering and the
rest will expire in 2003. All of the warrants contain provisions for the
adjustment of the exercise price and the aggregate number of shares that may be
issued upon the exercise of the warrant if a stock dividend, stock split,
reorganization, reclassification or consolidation occurs.

OPTIONS

As of June 1, 2000, weWe have issued options to purchase 3,690,5503,982,050 shares of our common stock at
an exercise priceprices ranging from $5.00 to $13.00 per share,
except that options to acquire shares of common stock with an aggregate fixed
cost of $75,000 issued to one of our non-employee directors may be exercised at
the lower of $5.00 per share for 15,000 shares or 50% of the price of our common
stock in this offering.share. Additional options to
acquire 2,309,4502,017,950 shares of common stock may be issued in the future under our
Stock Option Plan.

CONVERTIBLE NOTES

In March 1999, we issued $12,000,000 of our convertible notes to a group of
investors. The convertible notes will be due and payable in March 2002. Interest
on the notes compoundscompounded at 6% per annum until maturity or until we complete an
underwrittenclosing of our initial public
offering and at 3.6% thereafter through maturity. All interest became due at the
time of our common stock which provides us with net
proceeds of not less than $15 million.initial public offering. Interest will be payable either in cash
upon repayment of the notes at or after the maturity date, or if elected,
upon
the completion of this offering all accrued and unpaid interest shall be converted into shares of common stock.

The interest rate after this offering for
notes that are not converted shall be reduced to 3.6%, and interest shall become
due for the remainder of the term through the maturity date at the closing of
this offering.

The convertible notes and accrued interest thereon may be converted into
2,750,914 shares of our common stock at or
after theany time we make an underwritten public offering of our common stock which
provides us with net proceeds of not less than $15 million. Accordingly, these
conversion rights may be exercised by the holders of the convertible notes when
we close this offering. If this offering is completed before September 25, 2000,
the conversion price per share will be the lower of (i) $5.00 or (ii) 50% of the
public offering price of shares in this offering. If this offering is completed
after that date, the conversion price may be reduced depending on the length of
the delay. In addition, if a merger, a sale of all assets, change of control or
a liquidation of the company were to occur prior to the completion of this
offering, the note holders will have the right to convert their notes into
stock. The number of shares to be issued upon a conversion in one of these cases
will be the greater of (i) the number determined by dividing principal and
accrued interest on the notes

by $5.00 or (ii) the number determined having an aggregate value equal to 200%
of principal and accrued interest on the notes. The value of our common stock
used in this calculation will be determined by the amount realized by our
stockholders from the merger, sale of assets, change of control or liquidation
transaction. Finally, if Collin D'Silva were to sell any of his shares before
this offering, the note holders have the right to convert notes into common
stockmaturity at $5.00 per
share.

We do not anticipate that any merger, sale of assets,
change of control or liquidation transaction will occur prior to the closing of
this offering or that Mr. D'Silva will sell any shares of his stock prior to
that time.

If the note holders do not convert their convertible notes after the
completion of this offering, we may elect to convert theirthe convertible notes if at any time the total of
(i) the average closing bid price for our common stock over 20 consecutive
trading days and (ii) accrued interest on the notes (when converted
into an amount(calculated on a per share
basis using the conversion pricenumber of shares then in effect) equalsissuable upon conversion) equal or exceedsexceed
$13.72 per share. The following is an example of this calculation:

EXAMPLE 1 EXAMPLE 2
--------- ---------

Assumed average trading price
over 20 days: $13.25 $13.00

- total interest on notes: $1,754,571

- number of shares to be issued
upon note conversion: 2,750,914

Interest per share: $ .64 $ .64
------ ------
Total $13.89 $13.64
In connection with the issuance offirst example, we would have the convertible notes, Collin D'Silva has
agreed to vote his shares at any meeting of the stockholdersright to cause a person
designated by the holders of the convertible notes to be
elected to our Board of
Directors.converted into common stock. We would not have also agreed thatthis right in the director designated by the convertible
note holders will be a member of our compensation and audit committees.second example.

ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS

DELAWARE LAW.

In general, Section 203 of the Delaware General Corporation Law prohibits a
publicly held Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years following the date
that the stockholder became an interested stockholder unless:

- prior to that date, the Board of Directors of the corporation approved
either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder;

- upon consummation of the transaction that resulted in the
stockholder's 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, excluding those
shares owned by persons who are directors and also officers, and
employee stock plans in which employee participants do 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.

Section 203 defines "business combination" to include:

- any merger or consolidation involving the corporation and the
interested stockholder;

- any sale, transfer, pledge or other disposition involving the
interested stockholder of 10% or more of the assets of the
corporation;

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

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

In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.

CHARTER PROVISIONS.

Our Second Amended and Restated Certificate of Incorporation and 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. First, our certificate of incorporation provides that all
stockholder actions must be effected at a duly called meeting of holders and not
by a consent in writing. Second, our bylaws 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. Third, our certificate
of incorporation provides that our Board of Directors can issue up to 15,000,000
shares of preferred stock, as described under "Preferred Stock" above. Fourth,
our certificate of incorporation 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 certificate of incorporation and Delaware
law, stockholders will not be able to cumulate votes for directors. Fifth, our
certificate of incorporation 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 bylaws establish procedures, including advance notice procedures,
with regard to the nomination of candidates for election as directors and
stockholder proposals. These provisions of our certificate of incorporation and
bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control or management of our company.

52
TRANSFER AGENT AND REGISTRAR

Norwest Bank, Minnesota, N.A., (which will become Wells Fargo Bank Minnesota, National Association in July 2000)N.A. has been appointed as the transfer agent
and registrar for our common stock.

NATIONAL MARKET LISTING

We have applied for listing of ourOur common stock is listed on the Nasdaq Stock Market's National Market
under the symbol TBIO.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to thisour initial public offering in July 2000, there has beenwas no public
market for our common stock. Sales of substantial amounts of our common stock in
the public market
after the offering could adversely affect the market price of our common stock
and our ability to raise equity capital in the future on terms favorable to us.

After this offering, 17,325,000A total of 17,805,000 shares of our common stock will beare outstanding. We also
have warrants outstanding assumingfor the exercisepurchase of warrants to acquire 300,000152,450 shares of our common stock
that will expire at the closing of this offering and also assuming
that the underwriters do not exercise the over-allotment option. Of these
shares, all of the 4,000,000$5.00 per share. The 4,480,000 shares sold by us in thisour initial public
offering will beare freely tradable without restriction or further registration under
the Securities Act, unless these shares are purchased by "affiliates" as that
term is defined in Rule 144 under the Securities Act. The warrants and the
shares we issue upon the exercise of those warrants have also been registered
under the Securities Act and are freely tradable. The remaining 13,325,000
shares of common stock are "restricted securities" as that term is defined in
Rule 144 under the Securities Act. We may also issue up to 2,858,4382,750,914 shares of
common stock upon the conversion of our convertible notes and accrued interest
thereon. These shares, if issued, will also be restricted securities. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144 or 701 under the
55
Securities Act, which rules are summarized below. We have agreed to register
shares of our common stock and warrants for resale by some of our stockholders
and warrant holders. See "Registration Rights and Stock Plans," below.

The following table indicates approximately when the 13,325,000 shares of
our common stock that are not being sold in thiswere outstanding at the effective date of our initial
public offering but which may be
outstanding when this offering is complete will be eligible for sale in the public market:

ELIGIBILITY OF RESTRICTED SHARES
FOR SALE IN THE PUBLIC MARKET

At effective date........................................... 1,511,500date (July 17, 2000)........................... 967,500
Before 90 days after the effective date..................... 310,000114,000
At 90 days after the effective date......................... 160,500900,500
At 180 days after the effective date........................ 11,343,000

As described under "Lock-Up Agreements" below, 11,343,000 of these
restricted shares are subject to lock-up agreements and may not be sold for
180 days after the effective date of this prospectusour initial public offering without the
consent of Chase Securities Inc. Most of these shares will remain subject to
volume and other resale restrictions under Rule 144 after that date because they
are owned by our affiliates. The holders of our convertible notes have also
signed 180-day lock-up agreements relating to shares of our common stock that
will be issued upon conversion of those notes. In addition, 833,000 shares of
our common stock that are owned by persons who are not our affiliates may not be
sold for 90 days after the effective date of our initial public offering without
the consent of Chase Securities Inc.

RULE 144

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year, including any affiliate of ours, is entitled
to sell, within any three-month period, a number of shares that is not more than
the greater of:

- 1% of the number of shares of common stock then outstanding, which
will equalcurrently equals approximately 173,250 shares immediately after this
offering;178,050 shares; or

- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks before a notice of the
sale on Form 144 is filed.

Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.

RULE 144(K)

Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days before a sale, and who has
beneficially owned the restricted shares for at least two years, including the
holding period of any prior owner other than an affiliate, is entitled to sell
the shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.

RULE 701

In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us under a stock option plan or
other written agreement can resell those shares 90 days after the effective date
of thisour initial public offering in reliance on Rule 144, without having to comply
with the holding period and other restrictions contained in Rule 144.

56
LOCK-UP AGREEMENTS

Our directors, officers and some of our existing stockholders owning
collectively 11,343,000 shares of our common stock (including the person
entitled to obtain 300,000 shares of common stock upon the exercise of a warrant
that will expire upon completion of this offering) plus the persons entitled to
obtain stock upon the conversion of our convertible notes, are subject to
lock-up agreements under which they have agreed not to transfer or dispose of,
directly or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for shares of common stock, for a period of
180 days after the date of this prospectus,our initial public offering, except for transfers to members of
their immediate families or entities they control. In addition, the holders of
833,000 shares of our common stock and the holders of warrants to purchase
108,500 shares of our common stock have entered into 90-day lock-up agreements
with similar provisions. Transfers or dispositions can be made prior to the end
of the 90-day or 180-day period with the prior written consent of Chase
Securities Inc. or its successors.

REGISTRATION RIGHTS AND STOCK PLANS

Concurrently with this offering, we are registering an additionalThis prospectus relates to resales of 152,450 shares of our common stock and
the warrants to purchase 152,450these shares of
our common stock. These shares and warrants are being registered by us at the
request of the holders thereof. Wethat we issued these warrants to the placement agents
engaged by us in connection with a private offering of our common stock in 1997
and 1998. The 152,450 shares of our common stock that we will issue to these
placement agents upon the exercise of their warrants are not included in the
17,325,00017,805,000 shares that are assumed to be outstanding after the completion of this offering because we
do not know if they will be exercised by their holders and we do not have the
right to compel their exercise.currently outstanding. These warrants have an
exercise price equal to $5.00 per share.

Registration of the shares and warrants described above is
expected to become effective at the same time as the registration statement
filed by us in connection with this offering. Once registered, the warrants to
purchase 152,450 shares of our common stock, and the shares issuable upon the
exercise of these warrants, if any, will be freely tradable in the public
market.

We have also agreed to register up to 2,858,4382,750,914 shares of common stock at
the request of the holders of our convertible notes (which is the maximum number
of shares into which the notes may be converted) and 300,000 shares that will bewere
issued upon exercise of a warrant. Because this warrant will expire if not
exercised prior to the closing of this offering, and the holder has indicated
that he intends to exercise the warrant, theThe 300,000 shares issuable upon exercise of
this warrant are included in the 17,325,00017,805,000 shares that are assumed
to be outstanding after completion of this offering.currently
outstanding. The shares issuable upon conversion of the notes are not included
in the 17,325,00017,805,000 shares that are assumed to be outstanding after the offering because we do not know if the
notes will be converted and we do not have the right to compel a conversion of
the notes in all cases. All shares issuable upon conversion of

54
the convertible notes and the shares that were issued upon exercise of this
warrant are subject to 180-day lock-up agreements described above. See "Lock-Up
Agreements." It is anticipated that the registration of these shares will be
effective prior to the expiration of the 180-day lock-up period so that these
shares will be freely tradable in the public market at that time.

As described under "Related Party Transactions," we have sold the assets of
our non-life sciences instrument product line to a company controlled by Stephen
F. Dwyer. At the closing of this sale, we received approximately $4.0 million in
cash and a promissory note for $2.0 million. The purchaser financed the cash
portion of the purchase price for these assets plus initial working capital
needs with borrowings of approximately $4.6 million obtained from a bank. We
have agreed with the bank that we will acquire the notes evidencing these loans
from them upon closing of thisour initial public offering by paying them an amount
equal to the entire principal balance of the notes plus accrued and unpaid
interest. Mr. Dwyer has agreed to pledge 1,200,000 of his shares of our common
stock to us in order to secure the payment of principal and interest under each
of these notes. We anticipate that we will exercise our right to cause these
shares to be sold in order to pay principal and interest on the notes when due,
subject to Mr. Dwyer's 180-day lock-up agreement. The number of shares actually
sold will depend on the prevailing price of our stock at the time of the sale or
sales. In that regard, we intend to register these 1,200,000 shares under the
Securities Act and to list these shares on the NASDAQ Stock Market.

57
Other holders of a total of 2,000,000 shares of our common stock sold in a
private offering by us in 1997 and 1998 also have the right to require us to
register their shares for resale under the Securities Act. None of these
stockholders has requested registration of their common stock at this time. Any
such stockholder who requests registration will be subject to the lock-up
agreements described above.

Immediately after this offering, weWe intend to file a registration statement under the Securities Act covering
6,000,000 shares of our common stock issuable upon the exercise of stock options
under our 1997 Employee Stock Option Plan. This registration statement is
expected to be filed and become effective as soon as practicable after the
completion of thisour initial public offering. As of June 1, 2000,We have issued and outstanding
options to purchase 3,690,5503,982,050 shares of common stock, were issued and
outstanding, 2,230,0002,282,200 of which are
currently vested. As a result, shares registered under those registration
statements will, subject to vesting provisions and Rule 144 volume limitations
applicable to our affiliates, be available for sale in the open market after the
expiration of any applicable lock-up agreement.

U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

The following is a general discussion of the principal U.S. federal income
and estate tax consequences of the ownership and disposition of common shares by
a beneficial owner that is a non-U.S. holder. As used in this prospectus, a
non-U.S. holder is defined as a holder that for U.S. federal income tax purposes
is an individual or entity other than:

- a citizen or individual resident of the United States;

- a corporation or partnership created or organized in or under the laws
of the United States or of any political subdivision thereof, other
than a partnership treated as foreign under U.S. Treasury regulations;

- an estate the income of which is subject to U.S. federal income
taxation regardless of its source; or

- a trust if a U.S. court is able to exercise primary supervision over
the administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust.

This discussion does not address all aspects of U.S. federal income and
estate taxes that:

- may be relevant to non-U.S. holders in light of their personal
circumstances, including the fact that in the case of a non-U.S.
holder that is a partnership, the U.S. tax consequences of holding and
disposing of common shares may be affected by determinations made at
the partner level, or

- may be relevant to non-U.S. holders which may be subject to special
treatment under U.S. federal income tax laws such as insurance
companies, tax-exempt organizations, financial institutions, dealers
in securities and holders of securities held as part of a "straddle,"
"hedge" or "conversion transaction."

This discussion also does not address any tax consequences arising under the
laws of any state, local or foreign jurisdiction. Furthermore, this discussion
is based on provisions of the Internal Revenue Code of 1986, as amended,
existing and proposed regulations promulgated thereunder and administrative and
judicial interpretations thereof, all as of the date hereof, and all of which
are subject to change, possibly with retroactive effect. The following summary
is included herein for general information. ACCORDINGLY, INVESTORS ARE URGED TO
CONSULT THEIR TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S.
INCOME AND OTHER TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF COMMON
SHARES.

5856

For purposes of this discussion, dividends and gain on the sale, exchange or
other disposition of common stock will be considered to be "U.S. trade or
business income" if the income or gain is:

(1) effectively connected with a United States trade or business, or

(2) if a treaty applies, attributable to a permanent establishment (or, in the
case of an individual, a fixed base) in the United States.

DIVIDENDS

We do not anticipate paying cash dividends on our common shares in the
foreseeable future. In the event, however, that dividends are paid on our common
shares, dividends paid to a non-U.S. holder of common shares generally will be
subject to withholding of U.S. federal income tax at a 30% rate, or such lower
rate as may be provided by an applicable income tax treaty. Non-U.S. holders
should consult their tax advisors regarding their entitlement to benefits under
a relevant income tax treaty.

Dividends that are U.S. trade or business income are generally subject to
U.S. federal income tax on a net income basis at regular graduated rates, but
are not generally subject to the 30% withholding tax if the non-U.S. holder
provides a Form 4224 (or successor Form W-8ECI) to the payor. These forms under
U.S. Treasury regulations generally require the non-U.S. holder to provide a
U.S. taxpayer identification number. Any such U.S. trade or business income
received by a non-U.S. holder that is a corporation may also be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.

Under currently applicable U.S. Treasury regulations, dividends paid to an
address in a foreign country are presumed, absent actual knowledge to the
contrary, to be paid to a resident of such country for purposes of the
withholding discussed above and for purposes of determining the applicability of
a tax treaty rate. Under U.S. Treasury regulations generally effective for
payments made after December 31, 2000; however, a non-U.S. holder of our common
shares who wishes to claim the benefit of an applicable treaty rate generally
will need to satisfy applicable certificationdocumentation requirements, including filing a
Form W-8BEN or Form W-8IMY andor providing a document issued by foreign
governmental authorities as proof of residence in a foreign country. In
addition, under these regulations, in the case of our common shares held by a
foreign partnership or other pass-through entity, the certification requirement
will generally be applied to the partners of the partnership and the partnership
will be required to provide specified information, including filing a
Form W-8IMY. The regulations generally effective for payments made after
December 31, 2000 also provide look-through rules for tiered partnerships.
Further,partnerships and
guidance with respect to the Internal Revenue Service intends to issue regulations under whichobligations of a foreign trustee or foreign
executor of a U.S. or foreign trust or estate, depending on the circumstances, will be required
to furnish the appropriate withholding certificate on behalf of the
beneficiaries, trust or estate, as the case may be.

A non-U.S. holder of our common shares that is eligible for a reduced rate
of U.S. withholding tax under an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for a refund with the
Internal Revenue Service.

The U.S. Treasury regulations generally effective for payments made after
December 31, 2000 also provide special rules for dividend
payments made to foreign intermediaries, U.S. or foreign wholly owned entities
that are disregarded for U.S. federal income tax purposes and entities that are
treated as fiscally transparent in the United States, the applicable income tax
treaty jurisdiction, or both. In addition, income tax treaty benefits may be
denied to foreigners receiving income derived through a partnership, or
otherwise fiscally transparent entity. Prospective investors should consult with
their own tax advisors concerning the effect, if any, of these new Treasury
regulations and
this recent legislation on an investment in our common shares.

5957

GAIN ON DISPOSITION OF COMMON SHARES

A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain realized on a disposition of our common shares unless:

- the gain is U.S. trade or business income, in which case, the branch
profits tax described above may also apply to a corporate non-U.S.
holder;

- the non-U.S. holder is an individual who holds our common shares as a
capital asset within the meaning of Section 1221 of the Internal
Revenue Code, is present in the United States for 183 or more days in
the taxable year of the disposition and meets other requirements;

- the non-U.S. holder is subject to tax under the provisions of the U.S.
tax law applicable to United States expatriates; or

- we are or have been a "U.S. real property holding corporation" for
federal income tax purposes at any time during the shorter of the
five-year period preceding such disposition or the period that the
non-U.S. holder held our common shares.

We believe that we have not been, are not currently, and do not anticipate
becoming, a "U.S. real property holding corporation" for U.S. federal income tax
purposes.

If a non-U.S. holder who is an individual is subject to tax on gain which is
U.S. trade or business income, such individual generally will be taxed on the
net gain derived from a sale of common shares under regular graduated U.S.
federal income tax rates. If an individual non-U.S. holder is subject to tax
because such individual holds our common shares as a capital asset, is present
in the United States for 183 or more days in the taxable year of the disposition
and meets other requirements, such individual generally will be subject to a
flat 30% tax on the gain derived from a sale. This gain may be offset by U.S.
capital losses, notwithstanding the fact that the individual is not considered a
resident alien of the United States. Thus, individual non-U.S. holders who have
spent, or expect to spend, more than a DE MINIMIS period of time in the United
States in the taxable year in which they contemplate a sale of common shares are
urged to consult their tax advisors prior to the sale concerning the U.S. tax
consequences of such sale.

If a non-U.S. holder that is a foreign corporation is subject to tax on gain
which is U.S. trade or business income, it generally will be taxed on its net
gain under regular graduated U.S. federal income tax rates and, in addition,
will be subject to the branch profits tax equal to 30% of its "effectively
connected earnings and profits," within the meaning of the Internal Revenue Code
for the taxable year, as adjusted for specific items, unless it qualifies for a
lower rate under an applicable tax treaty.

FEDERAL ESTATE TAX

Common shares owned or treated as owned by an individual who is neither a
U.S. citizen nor a U.S. resident, as defined for U.S. federal estate tax
purposes, at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes and may be subject to U.S. federal estate
tax, unless an applicable estate tax or other treaty provides otherwise.

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

Under U.S. Treasury regulations, we must report annually to the Internal
Revenue Service and to each non-U.S. holder the amount of dividends paid to
these holders, the name and address of the recipient and the tax withheld with
respect to such dividends. Copies of the information returns reporting such
dividends and withholding may also be made available to the tax authorities in
the country in which the non-U.S. holder is a resident under the provisions of
an applicable income tax treaty or agreement.

6058

Currently, U.S. backup withholding, which generally is a withholding tax
imposed at the rate of 31% on payments to persons that fail to furnish specified
information under the U.S. information reporting requirements, generally will
not apply:

- to dividends paid to non-U.S. holders that are subject to the 30% withholding
discussed above, or that are not so subject because a tax treaty
applies that reduces or eliminates such 30% withholding; or

- before January 1, 2001, to dividends paid to a non-U.S. holder at an
address outside of the United States unless the payor has actual
knowledge that the payee is a U.S. person.

Backup withholding and information reporting generally will apply to dividends
paid to addresses inside the United States on our common shares to beneficial
owners that are not "exempt recipients" and that fail to provide identifying
information in the manner required.

The payment of the proceeds of the disposition of our common shares by a
holder to or through the U.S. office of a broker or through a non-U.S. branch of
a U.S. broker generally will be subject to information reporting and backup
withholding at a rate of 31% unless the holder either certifies its status as a
non-U.S. holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a non-U.S. holder
of common shares to or through a non-U.S. office of a non-U.S. broker will not
be subject to backup withholding or information reporting unless the non-U.S.
broker has particular types of U.S. relationships. In the case of the payment of
proceeds from the disposition of our common shares effected by a foreign office
of a broker that is a U.S. person or a U.S. related person, existing regulations
may require information reporting on the payment unless the broker maintains
documentary evidence that the holder is a non-U.S. holder. For this purpose, a
U.S. related person is defined as:

- a "controlled foreign corporation" for U.S. federal income tax
purposes; or

- a foreign person 50% or more of whose gross income from all sources
for the three-year period ending with the close of its taxable year
preceding the payment, or for such part of the period that the broker
has been in existence, is derived from activities that are effectively
connected with the conduct of a U.S. trade or business.

The U.S. Treasury regulations generally effective for payments made after
December 31, 2000 alter the foregoing rules. Among other things, such
regulations provide presumptions under which a non-U.S. holder is subject to
backup withholding at the rate of 31% and information reporting unless we
receive certification in the form of either Form W-8BEN or Form W-8IMY from the
holder of non-U.S. status. Depending on the circumstances, this certification
will need to be provided:

- directly by the non-U.S. holder;

- in the case of a non-U.S. holder that is treated as a partnership,
trust or estate, or by the partners or beneficiaries of such entity;
or

- by qualified financial institutions or other qualified entities on
behalf of the non-U.S. holder.

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a non-U.S. holder will be refunded,
or credited against the holder's U.S. federal income tax liability, if any,
provided that the required information is furnished to the Internal Revenue
Service.

6159

UNDERWRITING

Subject to the terms and conditions contained in an underwriting agreement
dated , 2000, the underwriters named below, throughPLAN OF DISTRIBUTION

The selling warrant holders may sell their representatives, Chase Securities Inc., Bear, Stearns & Co. Inc. and Dain
Rauscher Incorporated have severally agreedwarrants to purchase from us the respective
number of shares ofour common
stock set forth opposite their names below.

UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------

Chase Securities Inc.
Bear, Stearns & Co. Inc.
Dain Rauscher Incorporated
---------
Total................................................ 4,000,000
=========

The underwriting agreement provides that the obligations of the underwriters
are subject to normal conditions, such as the absence of any material adverse
change in our business and the receipt of certificates, opinions and letters
from us, our counsel and the independent auditors. The underwriters are
obligated to purchase all shares of common stock offered by us (other than those
shares covered by the over-allotment option described below) if they purchase
any shares.

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

NO EXERCISE FULL EXERCISE
----------- -------------

Per Share........................................ $ 0.91 $ 0.91
Total............................................ $3,640,000 $4,186,000

We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $1,500,000.

The underwriters propose to offeror the shares of our common stock directlyissued to them upon the exercise of
their warrants from time to time. The selling warrant holders will act
independently of us in making decisions regarding the timing, manner and size of
each sale. The sales may be made on the Nasdaq National Market or in the
over-the-counter market or otherwise, at prices and at terms then prevailing or
at prices related to the public atthen current market price, or in negotiated
transactions. The selling warrant holders may effect such transactions by
selling the initial public offering price set forth onshares or warrants to or through broker-dealers. The shares or
warrants may be sold by one or more of, or a combination of, the cover pagefollowing:

- a block trade in which the broker-dealer will attempt to sell the
shares or warrants 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 such
broker-dealer for its account under this prospectus,

- an exchange distribution in accordance with the rules of such
exchange,

- ordinary brokerage transactions and transactions in which the broker
solicits purchasers, and

- in privately negotiated transactions.

To the extent required, this prospectus may be amended or supplemented from
time to dealers at that price lesstime to describe a concession notspecific plan of distribution. In effecting sales,
broker-dealers engaged by the selling warrant holders may arrange for other
broker-dealers to participate in the resales. The selling stockholders may enter
into hedging transactions with broker-dealers in connection with distributions
of the shares or otherwise. In these transactions, broker-dealers may engage in
short sales of the shares in the course of hedging the positions they assume
with selling stockholders. The selling stockholders also may sell shares short
and redeliver the shares to close out such short positions. The selling
stockholders may enter into option or other transactions with broker-dealers
which require the delivery to the broker-dealer of the shares. The broker-dealer
may then resell or otherwise transfer such shares under this prospectus. The
selling warrant holders also may lend or pledge their warrants or shares to a
broker-dealer. The broker-dealer may sell the warrants or shares so lent, or
upon a default the broker-dealer may sell the pledged warrants or shares under
this prospectus.

Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from selling warrant holders.
Broker-dealers or agents may also receive compensation from the purchasers of
the shares or warrants for whom they act as agents or to whom they sell as
principals, or both. Compensation as to a particular broker-dealer might be in
excess of $
per share. The underwriters may allowcustomary commissions and the dealers may reallow a concession
notwill be in excess of $ per share to other dealers. After the initial public
offering of the shares, the offering price and other selling terms may be
changed by the underwriters. The representatives have informed us that the
underwriters do not intend to confirm discretionary sales of more than 5% of the
shares of common stock offered in this offering.

We have granted to the underwriter an option, exercisable no later than
30 days after the date of this prospectus, to purchase up to 600,000 additional
shares of common stock at the initial public offering price, less the
underwriting discount set forth on the cover page of this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of common stockamounts to be purchased by it shown in the
above table bears to the total number of shares of common stock offered hereby.
We will be obligated, pursuant to the option, to sell shares to the underwriters
to the extent the option is exercised. The underwriters may exercise this option
solely to cover over-allotments, if any, madenegotiated in
connection with the salesale. Broker-dealers or agents and any other participating
broker-dealers or the selling warrant holders may be deemed to be "underwriters"
within the meaning of sharesSection 2(11) of common stock offered hereby.

The offeringthe Securities Act of 1933 (the
"Securities Act") in connection with sales of the shares is made for delivery when, asor warrants.
Accordingly, any such commission, discount or concession received by them and
if acceptedany profit on the resale of the shares or warrants purchased by them may be
deemed to be underwriting discounts or commissions under the underwriters andSecurities Act.
Because selling warrant holders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, the selling warrant holders will
be subject to prior sale and withdrawal, cancellation or
modificationthe prospectus delivery requirements of the offering without notice. The underwriters reserve the right
to reject an orderSecurities Act. In
addition, any securities covered by this prospectus which qualify for the purchase of shares in whole or in part.

We have agreed to indemnify the underwriters for misrepresentations and
omissions made by us in connection with this Offering, including liabilitiessale under
Rule 144 promulgated under the Securities Act and for liability relating tomay be sold under Rule 144 rather
than under this prospectus. The selling warrant holders have advised us that
they have not entered into any agreements, understandings or arrangements with
any underwriters or broker-dealers regarding the directed sale of stocktheir securities. There
is no underwriter or coordinating broker acting in connection with the proposed
sale of shares or warrants by the selling warrant holders.

The shares and warrants will be sold only through registered or licensed
brokers or dealers if required under applicable state securities laws. In
addition, in certain states the shares or warrants may not be sold unless they
have been registered or qualified for sale in the applicable state or an
exemption from the registration or qualification requirement is available and is
complied with.

Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the shares may not simultaneously engage in
market making activities with respect to our directors, officers, employees, business associates and related
persons described below. We have also agreed to contribute to payments the
underwriters may be required to make in respect of these liabilities.

Our executive officers, directors and stockholders who will own in the
aggregate 11,343,000 shares of common stock after the offering, have agreed not
to, without the prior written consent of Chase Securities Inc. or its
successors, sell, offer, contract to sell, transfer the economic risk of
ownership in, make any short sale, pledge or otherwise dispose of any shares of
common stock or any securities convertible into or exchangeable or exercisable
for shares of common stock for a period of 180two
business days fromprior to the datecommencement of this
prospectus,such distribution. In addition, each
selling warrant holder will be subject to some exceptions. The holdersapplicable provisions of our convertible notes
have also signed 180-day lock-up agreements relating tothe Exchange
Act and the associated rules and regulations under the Exchange Act, including
Regulation M, which provisions may limit the timing of purchases and sales of
shares of our common stock thatby the selling warrant holders. We will be issued upon conversion of their notes. We have agreed that we
will not, without the prior written consent of Chase Securities Inc. or its
successors, sell, offer, contract to sell, transfer the economic risk of
ownership in, make any short sale, pledge or otherwise dispose of any shares of
common stock or any securities convertible into or exchangeable or exercisable
for shares of common stock for a period of 180 days following the datecopies
of this prospectus except that we may issue shares uponavailable to the exerciseselling warrant holders and have informed
them of warrantsthe need to deliver copies of this prospectus to purchasers at or
options granted prior
to the date hereof or pursuant to outstanding convertible
notes and may grant additional options under our stock option plan. Shares
issued upon exercisetime of any sale of the optionsshares or warrants.

We will file a supplement to this prospectus, if required, to comply with
Rule 424(b) under the Securities Act upon being notified by a selling warrant
holder that are subject to lock up agreements may
not be soldany material arrangements have been entered into with a
broker-dealer for 180 days after the closingsale of thisshares through a block trade, special offering,
withoutexchange distribution or secondary distribution or a purchase by a broker or
dealer. Such supplement will disclose:

- the prior
written consentname of Chase Securities Inc. or its successors.

At our request, the underwriters have reserved up to 5%each such selling warrant holder and of the total shares
of common stock offered hereby for sale inparticipating
broker-dealer(s),

- the United States at the initial
public offering price to our directors, officers, employees, business associates
and related persons. The number of shares of common stock available for saleor warrants involved,

- the price at which such shares or warrants were sold,

- the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable,

- that such broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this
prospectus, and

- other facts material to the general publictransaction.

In addition, upon being notified by a selling warrant holder that a donee or
pledgee intends to sell more than 500 shares, we will be reduced by the number of reserved shares such persons
purchase. Any reserved shares which are not so purchased will be offered by the
underwritersfile a supplement to the general public on the same basis as the other shares offered
by this
prospectus.

Persons who purchase reserved shares may be required to
agree that theyWe will not, without the prior written consent of Chase
Securities Inc. or its successors, sell, offer, contract to sell, transfer the
economic risk of ownership in, make any short sale, pledge or otherwise dispose
of any shares of common stock or any securities convertible into or exchangeable
or exercisable for shares of common stock for a period of 180 days from the date
of this prospectus.

Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be determined
by negotiation among usbear all costs, expenses and the representatives of the underwriters. Among the
factors considered in determining the initial public offering price will be
prevailing market and economic conditions, our revenues and operating results,
market valuations of other companies engaged in activities similar to ours,
estimates of our business potential and our prospects, the present state of our
business operations, our management and other factors deemed relevant.

We have applied for quotation of the common stock on the Nasdaq National
Market under the symbol TBIO.

In March 1999, we privately placed $12,000,000 aggregate principal amount of
our convertible subordinated notes due March, 2000. Hambrecht & Quist LLC acted
as a placement agentfees in connection with the
transaction and was paid a fee for
its servicesregistration of $530,000. Hambrecht & Quist California and some of its employees
purchased convertible subordinated notes in the aggregate principal amount of
$180,000. Hambrecht & Quist Employee Venture Fund, L.P. II purchased convertible
subordinated notes in the amount of $120,000. Hambrecht & Quist California was
the parent company of Hambrecht & Quist LLC prior to February 1, 2000.
Hambrecht & Quist California is a subsidiary of The Chase Manhattan Corporation.
On February 1, 2000, Hambrecht & Quist LLC merged into Chase Securities Inc., a
wholly

owned subsidiary of The Chase Manhattan Corporation. The limited partnership
interests of Hambrecht & Quist Employee Venture Fund, L.P. II are held by
employees of Hambrecht & Quist California or Chase Securities Inc. (formerly,
Hambrecht & Quist LLC),shares and the general partner of this fund is H&Q Venture
Management LLC, a subsidiary of Hambrecht & Quist California.warrants. The purchases
described above were made onselling warrant holders will
bear all commissions and discounts, if any, attributable to the same terms as those made by other investors in
the private placement. At any time at or after the consummation of this
offering, each convertible note may be converted into shares of common stock.

Chase Securities Inc. has from time to time provided financial advisory and
consulting services to us, for which we paid a one-time fee of $550,000 in
March, 1999.

Persons participating in this offering may over-allot or effect transactions
which stabilize, maintain or otherwise affect the market pricesales of the
common
stock at levels above those which might otherwise prevailshares and warrants. The selling warrant holders may agree to indemnify any
broker-dealer or agent that participates in the open market,
including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the priceinvolving sales of the
common stock. A syndicate covering transaction
meansshares and the placing of any bid on behalf ofwarrants against certain liabilities, including liabilities
arising under the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of common stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq National Market, in the over-the-counter market, or otherwise. This
stabilizing, if commenced, may be discontinued at any time.Securities Act.

LEGAL MATTERS

The validity of the common stock offered by this prospectus will be passed
upon for us by Kutak Rock LLP, Omaha, Nebraska. Legal matters in connection with
this offering will be passed upon for the underwriters by Milbank, Tweed,
Hadley & McCloy LLP, New York, New York.

EXPERTS

The financial statements as of December 31, 1998 and 1999 and for each of
the three years in the period ended December 31, 1999 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.

6461

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered hereby. This prospectus is only a part of the registration
statement and does not contain all of the information included in the
registration statement. Further information with respect to Transgenomic, Inc.
and the common stock offered hereby can be found in the registration statement
and the exhibits and schedules thereto. The exhibits to the registration
statement include the full text of contracts, agreements and other documents
described in this prospectus. You should refer to these exhibits when reading
the descriptions of these documents contained in this prospectus. The
registration statement and the exhibits and schedules thereto may be inspected
without charge at the public reference facilities maintained by the Commission
in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following regional offices of the Commission: Seven World Trade Center, Room
1400, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, Room 1024, at prescribed rates. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, we are required to file electronic versions of
these documents with the Commission through the Commission's Electronic Data
Gathering, Analysis, and Retrieval (EDGAR) system. The Commission maintains an
internet site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.

We intendare subject to furnish to our stockholders annualthe information reporting requirements of the Securities
Exchange Act of 1934, as amended, and we will file reports, containing
consolidated financialproxy statements audited by an independent public accounting
firm and
quarterly reports forother information with the first three quarters of each fiscal year
containing unaudited consolidated financial data.

65Commission.

TRANSGENOMIC, INC.
INDEX TO FINANCIAL STATEMENTS

PAGE
--------

Unaudited Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 1999 and
March 31, 2000.......................................... F-2

Consolidated Statements of Operations for the three months
ended March 31, 1999 and 2000........................... F-3

Consolidated Statements of Stockholders' Equity (Deficit)
for the three months ended March 31, 1999 and 2000...... F-4

Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 2000........................... F-5

Notes to Consolidated Financial Statements for the three
months ended March 31, 1999 and 2000.................... F-6

Audited Consolidated Financial Statements:

Independent Auditors' Report.............................. F-10

Consolidated Balance Sheets as of December 31, 1998 and
1999.................................................... F-11

Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999........................ F-12

Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1997, 1998 and 1999.... F-13

Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999........................ F-14

Notes to Consolidated Financial Statements for the years
ended December 31, 1997, 1998 and 1999.................. F-15

Unaudited Pro Forma Financial Information:

Unaudited Pro Forma Balance Sheet as of March 31, 2000.... F-31

Unaudited Pro Forma Statement of Operations for the three
months ended March 31, 2000............................. F-32

Unaudited Pro Forma Statement of Operations for the year
ended December 31, 1999................................. F-33

Notes to Unaudited Pro Forma Financial Information........ F-34

F-1

TRANSGENOMIC, INC.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 1999 AND MARCH 31, 2000

(UNAUDITED)

DECEMBER 31, MARCH 31,
1999 2000
------------- -----------

ASSETS

CURRENT ASSETS:
Cash and cash equivalents................................. $ 153,336 $ 142,870
Accounts receivable, net.................................. 6,199,059 5,083,542
Inventories............................................... 3,918,866 2,318,751
Prepaid expenses and other current assets................. 527,461 677,379
Refundable income taxes................................... 96,000 96,000
Net assets held for sale.................................. -- 4,711,540
----------- -----------
Total current assets.................................... 10,894,722 13,030,082
PROPERTY AND EQUIPMENT, NET................................. 2,581,139 3,103,511
DEMONSTRATION INVENTORY..................................... 2,124,159 276,318
OTHER ASSETS................................................ 4,363,490 2,419,869
----------- -----------
$19,963,510 $18,829,780
=========== ===========

LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)

CURRENT LIABILITIES
Notes payable-bank........................................ $ 4,340,000 $ 4,490,000
Current portion of notes payable-other.................... 579,724 547,188
Accounts payable.......................................... 2,827,186 3,944,069
Accrued compensation...................................... 666,219 445,371
Other accrued expenses.................................... 1,111,871 1,236,278
----------- -----------
Total current liabilities............................... 9,525,000 10,662,906
NOTES PAYABLE-OTHER, LESS CURRENT MATURITIES................ 116,958 34,609
CONVERTIBLE NOTES PAYABLE................................... 12,421,010 12,746,844
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock $.01 par value, 15,000,000 shares
authorized, none outstanding............................ -- --
Common stock $.01 par value, 30,000,000 shares authorized,
13,000,000 and 13,025,000 shares issued and outstanding
in 1999 and 2000........................................ 130,000 130,250
Additional paid-in capital................................ 10,231,595 11,723,578
Unearned compensation..................................... (112,500) (645,074)
Accumulated deficit....................................... (12,344,075) (15,841,984)
Accumulated other comprehensive (loss) income............. (4,478) 18,651
----------- -----------
Total stockholders' equity (deficit).................... (2,099,458) (4,614,579)
----------- -----------
$19,963,510 $18,829,780
=========== ===========

SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

F-2

TRANSGENOMIC, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999

(UNAUDITED)

1999 2000
----------- -----------

NET SALES................................................... $ 5,227,462 $ 6,943,749
COST OF GOODS SOLD.......................................... 2,703,607 3,830,519
----------- -----------
Gross profit............................................ 2,523,855 3,113,230
OPERATING EXPENSES
General and administrative................................ 1,346,453 1,754,741
Marketing and sales....................................... 1,562,168 2,493,849
Research and development.................................. 1,134,963 1,893,581
----------- -----------
4,043,584 6,142,171
----------- -----------
LOSS FROM OPERATIONS........................................ (1,519,729) (3,028,941)
OTHER INCOME (EXPENSE)
Interest expense, net..................................... (92,917) (468,968)
----------- -----------
LOSS BEFORE INCOME TAXES.................................... (1,612,646) (3,497,909)
INCOME TAX EXPENSE (BENEFIT)................................ (634,588) --
----------- -----------
NET LOSS.................................................... $ (978,058) $(3,497,909)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE............................ $ (0.08) $ (0.27)
=========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING....... 13,000,000 13,007,692
=========== ===========

SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

F-3

TRANSGENOMIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000

(UNAUDITED)

ACCUMULATED
RETAINED OTHER
ADDITIONAL EARNINGS COMPREHENSIVE
COMMON PAID-IN NOTE UNEARNED (ACCUMULATED INCOME
STOCK CAPITAL RECEIVABLE COMPENSATION DEFICIT) (LOSS) TOTAL
-------- ----------- ----------- ------------ ------------ ------------- -----------

BALANCE, JANUARY 1, 1999....... $130,000 $10,119,095 $(1,085,931) $ -- $ (2,517,189) $ 3,134 $ 6,649,109
Net loss..................... -- -- -- -- (978,058) (978,058) (978,058)
Other comprehensive income
(loss):
Foreign currency
translation adjustment... -- -- -- -- -- (2,139) (2,139)
-----------
Comprehensive income
(loss)................. -- -- -- -- -- (980,197) --
Note receivable from related
party...................... -- -- (14,610) -- -- -- (14,610)
-------- ----------- ----------- --------- ------------ ----------- -----------
BALANCE, MARCH 31, 1999........ $130,000 $10,119,095 $(1,100,541) $ -- $ (3,495,247) $ 995 $ 5,654,302
======== =========== =========== ========= ============ =========== ===========

BALANCE, JANUARY 1, 2000....... $130,000 $10,231,595 -- $(112,500) $(12,344,075) $ (4,478) $(2,099,458)
Net loss..................... -- -- -- -- (3,497,909) (3,497,909) (3,497,909)
Other comprehensive income
(loss):
Foreign currency
translation adjustment... -- -- -- -- -- 23,129 23,129
-----------
Comprehensive income
(loss)................. -- -- -- -- -- (3,474,780) --
-----------
Issuance of 59,500 employee
stock options.............. -- 297,500 -- (297,500) -- -- --
Issuance of 128,000
nonemployee stock options
for services............... -- 371,133 -- (270,991) -- -- 100,142
Acceleration of vesting on
71,700 stock options....... -- 573,600 -- -- -- -- 573,600
Amortization of unearned
compensation............... -- -- -- 35,917 -- -- 35,917
Sale of 25,000 common
shares..................... 250 249,750 -- -- -- -- 250,000
-------- ----------- ----------- --------- ------------ ----------- -----------
BALANCE, MARCH 31, 2000........ $130,250 $11,723,578 $ -- $(645,074) $(15,841,984) $ 18,651 $(4,614,579)
======== =========== =========== ========= ============ =========== ===========

SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

F-4

TRANSGENOMIC INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000

(UNAUDITED)

1999 2000
------------ -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (978,058) $(3,497,909)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization........................... 189,857 453,917
Deferred income taxes................................... (639,886) --
Gain (loss) on sale of assets........................... (10,532) 4,200
Accrued interest and redemption premium................. -- 280,000
Non cash compensation expense........................... -- 709,659
Amortization of deferred financing costs................ -- 45,834
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable................................... (193,903) 1,115,517
Inventories........................................... (1,003,572) (12,964)
Prepaid expenses and other current assets............. 5,419 (149,918)
Refundable income taxes............................... -- --
Accounts payable...................................... 95,199 1,116,883
Accrued expenses...................................... 20,082 27,762
------------ -----------
Net cash flows from operating activities............ (2,515,394) 92,981

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (211,805) (341,424)
Proceeds from asset sales................................. 11,000 4,200
Increase in other assets.................................. (207,931) (74,467)
Purchase of business, net of cash acquired................ (187,294) --
------------ -----------
Net cash flows from investing activities............ (596,030) (411,691)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and common stock warrants........ -- 250,000
Net change in note payable-bank........................... (2,675,000) 150,000
Proceeds from notes payable-other......................... -- 204,000
Payments on notes payable-other........................... (104,589) (318,885)
Proceeds from convertible notes payable................... 12,000,000 --
Deferred financing costs.................................. (526,944) --
Increase in related party receivables..................... (14,610) --
------------ -----------
Net cash flows from financing activities............ 8,678,857 285,115

EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH.... (2,137) 23,129
------------ -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 5,565,296 (10,466)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 187,455 153,336
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 5,752,751 $ 142,870
============ ===========

SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

F-5

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND 2000

(UNAUDITED)

A. CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited consolidated financial statements of
Transgenomic, Inc. and Subsidiaries (the "Company") included herein 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 financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management of the Company, all adjustments
(consisting of only normal and recurring accruals) have been made to present
fairly the financial positions, the results of operations and cash flows for the
periods presented. Although the Company believes that the disclosures are
adequate to make the information presented not misleading, it is suggested that
these financial statements be read in conjunction with the December 31, 1999
consolidated financial statements included elsewhere herein.

B. INVENTORIES

At December 31, 1999 and March 31, 2000 inventories consist of the
following:

1999 2000
---------- ----------

Finished goods....................................... $ 157,216 $1,032,867
Raw materials and work in process.................... 2,786,958 1,067,626
Demonstration inventory.............................. 3,098,851 494,576
---------- ----------
6,043,025 2,595,069
Less long-term demonstration inventory............... (2,124,159) (276,318)
---------- ----------
$3,918,866 $2,318,751
========== ==========

During the three months ended March 31, 2000, the Company reclassified
demonstration inventory of $975,198 to property and equipment.

C. NOTE PAYABLE

On February 10, 2000 the Company borrowed $204,190 from a director and
principal stockholder. The promissory note has an interest rate of 9.75% per
annum and is payable on August 10, 2000.

The Company must comply with restrictive covenants in connection with its
note payable-bank and certain installment notes payable to a separate bank. As
of March 31, 2000, the Company was not in compliance with covenants associated
with its note payable-bank, but subsequently received a waiver from the bank for
the covenant violations as of March 31, 2000, which is effective until June 30,
2000. In May 2000, the Company repaid $1.8 million of the note payable-bank and
the remaining outstanding balance of approximately $460,000 of its installment
notes payable with the proceeds it received from the sale of the non-life
sciences instruments assets.

F-6

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 (CONTINUED)

(UNAUDITED)

D. STOCKHOLDERS' EQUITY AND STOCK OPTIONS

STOCKHOLDERS' EQUITY

On March 30, 2000, the Company's stockholders approved an increase in the
number of authorized common shares to 60,000,000.

In the first quarter of fiscal 2000, the Company issued 25,000 common shares
at $10.00 per share to an individual who was subsequently elected to the
Company's Board of Directors.

STOCK OPTIONS

On March 30, 2000, the Company's stockholders approved an amendment to the
1997 Stock Option Plan to increase the number of shares for which common stock
options can be granted to 6,000,000. During the first quarter of fiscal 2000,
the Company granted 364,000 options, including 59,500 options with exercise
prices at $5.00 per share and recorded $297,500 in unearned compensation in
connection with these grants representing the difference between the exercise
price of the options granted and the deemed fair value of the common stock at
the date of grant. These amounts, along with $112,500 of unearned compensation
recorded at December 31, 1999, are being amortized by charges to operations over
the vesting periods of the individual stock options using the straight-line
method. Such amortization expense amounted to approximately $16,000 for the
three months ended March 31, 2000.

In connection with the sale of the Company's non-life sciences instrument
product line, the Company accelerated the vesting of 71,700 options, which would
have otherwise been forfeited. Compensation expense of $573,600 was recorded for
these options for the three months ended March 31, 2000, representing the
difference between the exercise price of the options and the deemed fair value
of the common stock at the date the vesting was accelerated. In addition,
218,700 options were forfeited as a result of the sale.

The Company granted 128,000 options to non-employees under consulting and
other service agreements during the first quarter of fiscal 2000. The Company
recorded $100,000 of compensation expense and $271,000 of unearned compensation
associated with these grants, which is amortized over the respective service
periods using the graded vesting method, which is an accelerated method of
amortization. These expense amounts were calculated using the Black-Scholes
option pricing model with the following assumptions: no common stock dividends,
risk-free interest rates of 6.30% to 6.57%, volatility of 35%, and an expected
option life of 1 to 5 years. Such amortization expense amounted to approximately
$20,000 for the three months ended March 31, 2000.

F-7

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 (CONTINUED)

(UNAUDITED)

D. STOCKHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)
The following table summarizes activity under the 1997 Stock Option Plan
during the three months ended March 31, 2000.

WEIGHTED AVERAGE
NUMBER OF OPTIONS EXERCISE PRICE
----------------- ----------------

Balance at December 31, 1999................. 3,537,750 $ 5.00
Granted.................................... 364,000 10.53
Canceled................................... (293,200) 5.00
--------- ------
Balance at March 31, 2000.................... 3,608,550 $ 5.56
========= ======

Exercisable at March 31, 2000................ 2,100,350
=========

The weighted average fair value of options granted in the first quarter of
fiscal 2000 was $4.88. At March 31, 2000, the weighted average remaining
contractual life of options outstanding was 9.12 years.

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 in the first quarter of fiscal 2000,
respectively: no common stock dividends; risk-free interest rates ranging from
6.30% to 6.57%, 35% volatility; and an expected option life ranging from 1 to
6.5 years. Pro forma net income and income per share for the three months ended
March 31, 2000, assuming compensation expense for the Stock Option Plan had been
determined under SFAS 123, is as follows:

Net Loss:
As reported............................................... $(3,497,909)
Pro forma................................................. $(3,732,895)

Basic and diluted loss per share:
As reported............................................... $ (0.27)
Pro forma................................................. $ (0.29)

E. INCOME TAXES

Due to the Company's cumulative losses in recent years, expected losses in
future years and inability to utilize any additional losses as carrybacks, the
Company has not provided for an income tax benefit during the three months ended
March 31, 2000, 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 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.
During the three months ended March 31, 1999, the Company had provided a
deferred tax benefit based on management's determination that it was more likely
than not that such benefits would be realized through expected future profits.

F-8

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 (CONTINUED)

(UNAUDITED)

F. SUBSEQUENT EVENTS

On May 19, 2000, the Company sold the assets related to its non-life
sciences instrument product line to a company controlled by a director and
principal stockholder of the Company for a total adjusted purchase price of
$5.65 million plus reimbursement by the buyer of approximately $400,000 of
expenses paid by the Company in connection with this product line since
March 31 2000. Approximately $4,000,000 of the purchase price was paid in cash
and $2,000,000 was paid with an interest-bearing promissory note due on
December 30, 2000. The note bears interest at 8.75%. The purchaser financed the
cash portion of the purchase price plus initial working capital needs with
borrowings of approximately $4.6 million obtained from a bank. The Company has
agreed with the bank that it will acquire the notes evidencing these loans from
the bank upon closing of the Company's initial public offering by paying to the
bank an amount equal to the entire principal balance of the notes plus accrued
and unpaid interest. If the offering is not completed, the Company is under no
obligation to acquire these notes. The director and principal stockholder of the
Company has agreed to pledge 1,200,000 shares of the Company's common stock
owned by him as security for the acquired notes. All of these shares will be
held in an escrow account as security for the notes. The Company anticipates
that it will exercise its right to cause the shares to be sold in order to pay
principal and interest on the acquired notes when due, subject to a 180-day
lock-up agreement. The acquired notes will mature on December 30, 2000 and will
bear interest at a rate of 8.75% per annum.

The net assets held for sale are as follows:

AS OF MARCH 31, 2000
--------------------

Inventories............................................... $2,485,722
Property, net............................................. 510,410
Other assets.............................................. 1,839,611
Accrued liabilities....................................... (124,203)
----------
Net assets held for sale.................................. $4,711,540
==========

The Company expects to realize an after-tax gain on the sale of these assets
of approximately $750,000. The Company will defer the gain on the sale until the
earlier of (i) the repayment of the notes in full or (ii) the release of the
1,200,000 shares from the lock-up agreement.

The Company's unaudited pro forma results of operations for the three months
ended March 31, 1999 and 2000 assuming the sale of the non-life sciences
instrument product line occurred as of the beginning of the periods presented
are as follows:

1999 2000
----------- -----------

Net Sales........................................... $ 2,716,631 $ 4,773,074
Net Loss............................................ $(1,337,836) (2,827,483)
Basic and diluted loss per share.................... (0.10) (0.22)

In April 2000, the Company signed a 7-year lease for an office facility
which will commence on August 1, 2000. The first-year lease payment for this
property will be $178,350 and, thereafter, will escalate by 2% per year.

F-9

INDEPENDENT AUDITORS' REPORT

Board of Directors
Transgenomic, Inc.
Omaha, Nebraska

We have audited the accompanying consolidated balance sheets of
Transgenomic, Inc. and subsidiaries (the Company) as of December 31, 1998 and
1999 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, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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 as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States of America.

/s/ DELOITTE & TOUCHE LLP

Omaha, Nebraska
March 7, 2000

F-10

TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 1998 AND 1999

1998 1999
----------- ------------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 187,455 $ 153,336
Accounts receivable, net.................................. 4,425,419 6,199,059
Inventories............................................... 3,363,971 3,918,866
Prepaid expenses and other current assets................. 292,926 527,461
Deferred income taxes..................................... 114,000 --
Refundable income taxes................................... 34,000 96,000
----------- ------------
Total current assets.................................... 8,417,771 10,894,722
PROPERTY AND EQUIPMENT:
Equipment................................................. 3,272,132 4,695,785
Furniture and fixtures.................................... 1,070,569 1,567,370
----------- ------------
4,342,701 6,263,155
Less-accumulated depreciation............................. 2,931,886 3,682,016
----------- ------------
1,410,815 2,581,139
DEMONSTRATION INVENTORY..................................... 819,538 2,124,159
OTHER ASSETS................................................ 4,087,940 4,363,490
----------- ------------
$14,736,064 $ 19,963,510
=========== ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Note payable-bank......................................... $ 3,150,000 $ 4,340,000
Current portion of notes payable-other.................... 432,338 579,724
Accounts payable.......................................... 2,287,451 2,827,186
Accrued compensation...................................... 533,680 666,219
Other accrued expenses.................................... 988,950 1,111,871
----------- ------------
Total current liabilities............................... 7,392,419 9,525,000
NOTES PAYABLE-OTHER, LESS CURRENT MATURITIES................ 694,536 116,958
CONVERTIBLE NOTES PAYABLE................................... -- 12,421,010
COMMITMENTS AND CONTINGENCIES (NOTES H, J, L, M AND N)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value, 15,000,000 shares
authorized, none outstanding............................ -- --
Common stock, $.01 par value, 30,000,000 shares
authorized, 13,000,000 shares issued and outstanding in
1998 and 1999........................................... 130,000 130,000
Additional paid-in capital................................ 10,119,095 10,231,595
Note receivable related party............................. (1,085,931) --
Unearned compensation..................................... -- (112,500)
Accumulated deficit....................................... (2,517,189) (12,344,075)
Accumulated other comprehensive income (loss)............. 3,134 (4,478)
----------- ------------
Total stockholders' equity (deficit).................... 6,649,109 (2,099,458)
----------- ------------
$14,736,064 $ 19,963,510
=========== ============

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-11

TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

1997 1998 1999
----------- ----------- -----------

NET SALES................................................... $11,576,677 $18,935,440 $23,034,954
COST OF GOODS SOLD.......................................... 6,335,986 9,590,663 12,090,036
----------- ----------- -----------
Gross profit............................................ 5,240,691 9,344,777 10,944,918
OPERATING EXPENSES:
General and administrative................................ 2,444,398 2,795,199 3,771,663
Marketing and sales....................................... 3,967,574 5,364,953 7,759,997
Research and development.................................. 2,047,057 3,159,377 6,296,859
----------- ----------- -----------
8,459,029 11,319,529 17,828,519
----------- ----------- -----------
LOSS FROM OPERATIONS........................................ (3,218,338) (1,974,752) (6,883,601)
OTHER INCOME (EXPENSE):
Interest expense, net of interest income of $53,527,
$59,147 and $126,215 in 1997, 1998 and 1999,
respectively............................................ (412,755) (516,366) (1,198,378)
Other-net................................................. (14,634) (15,282) 366
----------- ----------- -----------
(427,389) (531,648) (1,198,012)
----------- ----------- -----------
LOSS BEFORE INCOME TAXES.................................... (3,645,727) (2,506,400) (8,081,613)
INCOME TAX EXPENSE (BENEFIT):
Current................................................... (348,702) 19,993 (27,727)
Deferred.................................................. (887,486) (950,000) 1,773,000
----------- ----------- -----------
(1,236,188) (930,007) 1,745,273
----------- ----------- -----------
NET LOSS.................................................... $(2,409,539) $(1,576,393) $(9,826,886)
=========== =========== ===========
BASIC AND DILUTED LOSS PER SHARE............................ $ (0.22) $ (0.13) $ (0.76)
=========== =========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING....... 11,144,583 12,279,042 13,000,000
=========== =========== ===========

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-12

TRANSGENOMIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

RETAINED
ADDITIONAL EARNINGS
COMMON PREFERRED PAID-IN NOTE UNEARNED (ACCUMULATED
STOCK STOCK CAPITAL RECEIVABLE COMPENSATION DEFICIT)
-------- --------- -------------- ----------- ------------ ------------

BALANCE, JANUARY 1, 1997........... $ 110 $ 41,000 $ 1,242,940 $ (650,782) $ -- $ 1,479,904
Net loss......................... -- -- -- -- -- (2,409,539)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................... -- -- -- -- -- --
Comprehensive income
(loss)..................... -- -- -- -- -- --
Note receivable from related
party.......................... -- -- -- (369,062) -- --
Preferred stock dividends........ -- -- -- -- -- (11,161)
Redeem 410 shares of preferred
stock.......................... -- (41,000) -- -- -- --
1,000 to 1 stock exchange........ 109,890 -- (109,890) -- -- --
Sale of 351,500 common shares.... 3,515 -- 1,620,354 -- -- --
Issuance of warrants to purchase
300,000 common shares.......... -- -- 82,117 -- -- --
-------- -------- -------------- ----------- --------- ------------
BALANCE, DECEMBER 31, 1997......... 113,515 -- 2,835,521 (1,019,844) -- (940,796)
Net loss......................... -- -- -- -- -- (1,576,393)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................... -- -- -- -- -- --
Comprehensive income
(loss)..................... -- -- -- -- -- --
Note receivable from related
party.......................... -- -- -- (66,087) -- --
Sale of 1,648,500 common
shares......................... 16,485 -- 7,283,574 -- -- --
-------- -------- -------------- ----------- --------- ------------
BALANCE, DECEMBER 31, 1998......... 130,000 -- 10,119,095 (1,085,931) -- (2,517,189)
Net loss......................... -- -- -- -- -- (9,826,886)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................... -- -- -- -- -- --
Comprehensive income
(loss)..................... -- -- -- -- -- --
Issuance of 22,500 stock
options........................ -- -- 112,500 -- (112,500) --
Note receivable from related
party.......................... -- -- -- 1,085,931 -- --
-------- -------- -------------- ----------- --------- ------------
BALANCE, DECEMBER 31, 1999......... $130,000 $ -- $ 10,231,595 $ -- $(112,500) $(12,344,075)
======== ======== ============== =========== ========= ============

ACCUMULATED
OTHER
COMPREHENSIVE
INCOME
(LOSS) TOTAL
------------- -----------

BALANCE, JANUARY 1, 1997........... $ 768 $ 2,113,940
Net loss......................... (2,409,539) (2,409,539)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................... 1,348 1,348
-----------
Comprehensive income
(loss)..................... (2,408,191)
-----------
Note receivable from related
party.......................... -- (369,062)
Preferred stock dividends........ -- (11,161)
Redeem 410 shares of preferred
stock.......................... -- (41,000)
1,000 to 1 stock exchange........ -- --
Sale of 351,500 common shares.... -- 1,623,869
Issuance of warrants to purchase
300,000 common shares.......... -- 82,117
----------- -----------
BALANCE, DECEMBER 31, 1997......... 2,116 990,512
Net loss......................... (1,576,393) (1,576,393)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................... 1,018 1,018
-----------
Comprehensive income
(loss)..................... (1,575,375) --
-----------
Note receivable from related
party.......................... -- (66,087)
Sale of 1,648,500 common
shares......................... -- 7,300,059
----------- -----------
BALANCE, DECEMBER 31, 1998......... 3,134 6,649,109
Net loss......................... (9,826,886) (9,826,886)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................... (7,612) (7,612)
-----------
Comprehensive income
(loss)..................... (9,834,498) --
-----------
Issuance of 22,500 stock
options........................ -- --
Note receivable from related
party.......................... -- 1,085,931
----------- -----------
BALANCE, DECEMBER 31, 1999......... $ (4,478) $(2,099,458)
=========== ===========

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-13

TRANSGENOMIC INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

1997 1998 1999
----------- ----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(2,409,539) $(1,576,393) $(9,826,886)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization........................... 918,214 798,708 1,364,246
Deferred income taxes................................... (887,486) (950,000) 1,773,000
Gain on sale of assets.................................. (72,250) (8,411) (16,105)
Accrued interest and redemption premium................. -- -- 858,665
Amortization of deferred financing costs................ -- -- 149,960
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable................................... 318,646 (2,029,247) (1,635,316)
Inventories........................................... (174,192) (1,717,595) (1,775,273)
Prepaid expenses and other current assets............. 52,704 (81,250) (233,686)
Refundable income taxes............................... (54,000) 388,000 (62,000)
Accounts payable...................................... (342,096) 1,392,087 481,068
Accrued expenses...................................... 39,600 340,178 178,793
----------- ----------- -----------
Net cash flows from operating activities............ (2,610,399) (3,443,923) (8,743,534)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (486,190) (682,674) (1,828,047)
Proceeds from asset sales................................. 153,305 10,000 21,425
Increase in other assets.................................. (152,373) (813,405) (1,461,250)
Purchase of business, net of cash acquired................ -- -- (187,294)
Note receivable........................................... 15,560 22,946 --
----------- ----------- -----------
Net cash flows from investing activities............ (469,698) (1,463,133) (3,455,166)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and common stock warrants........ 1,705,986 7,300,059 --
Net change in note payable-bank........................... 750,000 (800,000) 1,190,000
Proceeds from notes payable-other......................... 1,467,918 100,000 --
Payments on notes payable-other........................... (361,343) (1,964,555) (430,192)
Proceeds from convertible notes payable................... -- -- 12,000,000
Deferred financing costs.................................. -- -- (587,615)
Increase in related party receivables..................... (369,062) (66,087) --
----------- ----------- -----------
Net cash flows from financing activities............ 3,193,499 4,569,417 12,172,193

EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH.... 1,348 1,018 (7,612)
----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 114,750 (336,621) (34,119)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 409,326 524,076 187,455
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 524,076 $ 187,455 $ 153,336
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 424,501 $ 472,579 $ 318,856
=========== =========== ===========
Cash paid for taxes....................................... $ 17,026 $ 30,120 $ 37,630
=========== =========== ===========

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-14

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS DESCRIPTION.

Transgenomic, Inc., a Delaware corporation, and its subsidiaries (the
"Company") provide innovative research tools to the life sciences industry.
These tools enable researchers to discover and understand variation in the human
genetic code, or genome, in order to accelerate and improve drug development and
diagnostics. The Company also manufactures and designs sample preparation and
monitoring instruments, which are primarily used with various types of optical
and mass spectrometers to analyze the chemical makeup of samples. The Company
markets and sells these platforms primarily throughout North America, Europe and
the Pacific Rim.

PRINCIPLES OF CONSOLIDATION.

The consolidated financial statements include the accounts of Transgenomic,
Inc. and its wholly-owned subsidiaries Transgenomic, Ltd. (fka CETAC
Technologies, Ltd.), which provides sales and customer support outside the
United States and Transgenomic St. Thomas, Inc., which is organized as a foreign
sales corporation. All material intercompany balances and transactions have been
eliminated. On July 1, 1997 the Company merged with CETAC Holding Company, Inc.
in a 1000 to 1 stock exchange. Before and after the merger, the companies had
identical ownership structures. Accordingly, this transaction was between
companies under common control and was accounted for similar to a pooling of
interests. The Company had no assets, liabilities or operations prior to its
merger with CETAC Holding Company, Inc.

SALES AND DISTRIBUTION STRATEGY.

The Company sells its products in three major ways:

1) DIRECT-The Company serves the United States market through direct sales
efforts from the Company headquarters in Omaha. The Company has direct
salespeople strategically located to cover all sections of the United
States and Europe.

2) DISTRIBUTORS-The Company also sells its products to distributors in its
major European and Pacific Rim markets.

3) ORIGINAL EQUIPMENT MANUFACTURERS (OEM)-The Company sells its sample
preparation and monitoring instruments to major ICP (intra-coupled
plasma) spectrometer manufacturers and their authorized representatives.

The Company has sales offices in the United States, United Kingdom and
Japan. These offices function mainly as service and support centers and also as
sales resources for OEM and distributor customers in Europe.

CASH AND CASH EQUIVALENTS.

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

F-15

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE.

Accounts receivable are shown net of allowance for doubtful accounts of
$561,645 and $160,593 in 1998 and 1999, respectively. Payment terms generally
are 30 or 60 days. The Company has also provided extended payment terms to some
of its customers. Accounts receivable balances subject to extended terms were
approximately $59,000 as of December 31, 1998 and $216,000 as of December 31,
1999. Balances due more than one year from the balance sheet date were
approximately $0 and $77,000, respectively.

INVENTORIES.

Inventories are stated at the lower of cost (first-in, first-out method) or
market. The Company has certain finished goods inventory it provides as
demonstration units to potential customers for evaluation, as well as to certain
universities and original equipment manufacturers for testing and demonstration.
All demonstration units are held for resale and included in inventory at the
lower of cost or market. Demonstration inventory that is greater than one year
old and remains held for resale is reclassified from current assets to long-term
assets and carried at the lower of cost or market. If the instrument is not
purchased by the customer or institution, it is retrieved, and, if necessary,
reconditioned for sale. Demonstration inventory is evaluated for impairment
based on its functional usephysical condition and technological status. No impairment loss has
been recognized to date. At the time these instruments no longer are held for
resale and will be used for in-house testing and analysis, they are transferred
from inventory to property at the lower of cost or market and depreciated.
Demonstration equipment included in property and equipment is used for research
and development and training.

PROPERTY AND EQUIPMENT.

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

Furniture and fixtures...................................... 5 to 7 years
Production equipment........................................ 5 to 7 years
Computer equipment.......................................... 5 years
Research and development equipment.......................... 3 to 5 years
Demonstration equipment..................................... 3 to 5 years

GOODWILL.

Goodwill arising from the excess of cost over the fair value of net assets
at dates of acquisition is being amortized using the straight-line method over
15 years.

IMPAIRMENT OF LONG-LIVED ASSETS.

The Company assesses the recoverability of long-lived assets held for use,
including certain intangible assets and goodwill, whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In such cases, if the sum of the expected cash flows (undiscounted
and without interest) resulting from the use of the asset are less than the
carrying amount, an impairment loss

F-16

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
is recognized based on the difference between the carrying amount and the fair
value of the assets. No impairment loss has been recognized to date.

OTHER ASSETS.

Other assets include patents, capitalized software and intellectual
property. 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 economic life, generally 17 years, beginning on
the date the patent is issued.

The Company develops software as an integral component of its instruments.
The Company capitalizes software development costs, which include purchased
software and direct labor, after technological feasibility for the software has
been established. After the software is ready for general release, the Company
ceases capitalization of software development costs. The software is amortized
over the estimated life of the product, generally three years. Intellectual
property, which is purchased technology, is recorded at cost and is amortized
over its estimated useful life of between 5 and 10 years.

DEFERRED FINANCING COSTS.

Deferred financing costs are amortized over the term of the related
financing using the effective interest method.

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
deemed fair market value of the Company's common stock at the date of grant over
the stock option exercise price. Stock option grants to nonemployees are
accounted for using the fair value method of accounting in accordance with
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION using the Black-Scholes model and volatility factors for comparable
public companies.

UNEARNED COMPENSATION.

Unearned compensation represents the unamortized difference between the
option exercise price and the deemed fair market value of the Company's common
stock at the option grant date, for options issued under the Company's Stock
Option Plan (Note L). The unearned compensation is charged to operations over
the vesting period of the respective options.

INCOME TAXES.

Deferred tax assets and liabilities are determined based on the differences
between the financial reporting and tax bases of assets and liabilities at each
balance sheet date using enacted tax rates expected to be in effect in the year
the differences are expected to reverse.

F-17

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION.

Sales of products are recorded based on receipt of an unconditional customer
order and shipment of product. The Company's sales terms do not provide for the
right of return unless the product is damaged or defective. Installation and
training revenues are deferred and recognized when earned.

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 included in the determination of net income. For the periods presented,
foreign currency transaction adjustments were not significant.

COMPREHENSIVE INCOME.

Comprehensive income for all periods presented consists of net income and
foreign currency translation adjustments. 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 estimated fair value of receivables, accounts payable, and short-term
and long-term notes payable approximate the carrying values. The carrying value
of receivables and accounts payable approximate fair value based on their
short-term nature. The estimated fair value amounts for short-term and long-term
debt were determined using rates that are currently available for issuances of
debt with similar terms and maturities.

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 have been excluded from the computation of diluted earnings per share
as they have an antidilutive effect due to the Company's net loss.
Weighted-average shares outstanding reflects the 1,000 to 1 stock exchange which
occurred on July 1, 1997, in connection with the merger of Transgenomic, Inc.
and CETAC Holding Company, as if such exchange occurred at the beginning of the
earliest period presented.

F-18

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING PRONOUNCEMENTS.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES, (SFAS No. 133). This statement, which is effective for
fiscal years beginning after June 15, 2000, requires the recognition of all
derivative financial instruments as either assets or liabilities in the
statement of financial position and measurement of those instruments at fair
value. Management is in the process of determining the effect, if any, SFAS No.
133 will have on the Company's financial statements.

In 1999, the Company adopted Statement of Position 98-1, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, (SOP 98-1)
which, on a prospective basis, revised the accounting for software development
costs. SOP 98-1 requires the capitalization of certain costs related to internal
use software once certain criteria have been met. The adoption of this statement
did not have a material impact on the Company's financial statements.

USE OF ESTIMATES.

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

RECLASSIFICATIONS.

Certain reclassifications have been made to the 1997 and 1998 financial
statements to conform with the 1999 presentation.

B. ACQUISITION

On January 26, 1999, the Company, through its UK subsidiary, acquired
substantially all of the assets of Kramel Biotech International, Limited
(Kramel) for approximately $187,000 in cash and the assumption of approximately
$135,000 in liabilities of Kramel, and entered into employment agreements with
the two principals. Kramel manufactures laboratory consumables used in the field
of molecular biology. The acquisition was accounted for as a purchase and
resulted in goodwill of approximately $66,000. All identifiable assets acquired
and liabilities assumed were allocated a portion of the cost, equal to their
fair values. Kramel's results of operations have been included in the
accompanying statements of operations subsequent to the date of acquisition.

F-19

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

C. INVENTORIES

At December 31, 1998 and 1999 inventories consist of the following:

1998 1999
---------- ----------

Finished goods....................................... $ 257,173 $ 157,216
Raw materials and work in process.................... 2,295,336 2,786,958
Demonstration inventory.............................. 1,631,000 3,098,851
---------- ----------
4,183,509 6,043,025
Less long-term demonstration inventory............... (819,538) (2,124,159)
---------- ----------
$3,363,971 $3,918,866
========== ==========

During 1997, 1998 and 1999, the Company reclassified demonstration inventory
of $22,914, $9,096 and $41,090, respectively, to property and equipment.

D. OTHER ASSETS

At December 31, 1998 and 1999, other assets consist of the following:

1998 1999
------------------------------------- -------------------------------------
ACCUMULATED NET BOOK ACCUMULATED NET BOOK
COST RESERVE VALUE COST RESERVE VALUE
---------- ----------- ---------- ---------- ----------- ----------

Deferred income taxes.......... $1,839,000 $ -- $1,839,000 $ 180,000 $ -- $ 180,000
Goodwill....................... 843,446 235,435 608,011 909,492 306,463 603,029
Intellectual property.......... 534,852 160,455 374,397 2,534,852 447,273 2,087,579
Patents........................ 815,934 8,010 807,924 1,076,384 21,107 1,055,277
Software....................... 369,678 118,558 251,120 503,730 227,079 276,651
Other.......................... 309,103 101,615 207,488 160,954 -- 160,954
---------- -------- ---------- ---------- ---------- ----------
Total...................... $4,712,013 $624,073 $4,087,940 $5,365,412 $1,001,922 $4,363,490
========== ======== ========== ========== ========== ==========

E. NOTE PAYABLE-BANK

At December 31, 1998 and 1999, note payable-bank consisted of borrowings in
the amounts of $3,150,000 and $4,340,000, respectively, against a revolving line
of credit of $5,000,000. The note carries an interest rate equal to the national
prime. The interest is payable monthly. The interest rate at December 31, 1998
and 1999 was 7.75% and 8.50%, respectively. The line matures July 31, 2000.
Substantially all of the Company's assets and certain life insurance policies
are pledged as collateral on this note payable. The loan contains certain
restrictive covenants that the Company must comply with on a quarterly basis.
Such covenants include a prohibition on the payment of dividends, the purchase
of its stock, and the redemption of stock options and warrants, among other
things, without the written agreement of the lender. As of December 31, 1999,
the Company was not in compliance with these covenants. However, a waiver was
obtained from the bank for the covenant violations as of December 31, 1999.1999,
which is effective until March 31, 2000. The financial covenants for which the
Company was not in compliance were as follows: to maintain no less than
$8.25 million of tangible net worth; to maintain a maximum debt to tangible net
worth ratio of not more than 1.2 to 1; to maintain a minimum working capital of
$4.25 million; and to

F-20

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

E. NOTE PAYABLE-BANK (CONTINUED)
maintain a minimum working capital of $4.25 million; and to
restrict the purchase or lease of fixed assets to an amount that does not exceed
the depreciation taken in the Company's fiscal year.

F. NOTES PAYABLE-OTHER

Notes payable-other at December 31, 1998 and 1999 consists of the following:

1998 1999
---------- --------

Installment note payable to a bank maturing on December
1, 2000; payable in monthly installments of $15,618,
which includes interest of 9.0%; collateralized by
all equipment and furnishings........................ $ 342,194 $179,711
Installment note payable to a bank maturing on August
13, 2001; payable in monthly installments of $15,123
which includes interest of 9.0%; collateralized by
all equipment and furnishings........................ 429,516 280,436
Note payable to a living trust, payable in monthly
installments of $11,000 including interest at 5.33%
per year, due March 1, 2000 secured by certain assets
of the Company's California division................. 355,164 236,535
---------- --------
Total notes payable-other.............................. 1,126,874 696,682
Less current portion................................... 432,338 579,724
---------- --------
Notes payable-other excluding current portion.......... $ 694,536 $116,958
========== ========

Aggregate maturities of notes payable-other at December 31, 1999 consist of
the following:

YEAR ENDING DECEMBER 31,
2000........................................................ $579,724
2001........................................................ 116,958
--------
$696,682
========

In connection with certain installment notes payable to a bank, the Company
must comply with certain restrictive covenants on an annual basis. As of
December 31, 1999, the Company was not in compliance with these covenants.
However, a waiver was obtained from the bank for the covenant violations as of
December 31, 1999.1999, which is effective until December 31, 2000. The financial
covenants for which the Company was not in compliance were as follows: to make
no payments to subsidiaries; to maintain debt service coverage, defined as net
profit plus depreciation, of at least $470,000; and to not incur an operating
loss.

G. CONVERTIBLE NOTES PAYABLE

On March 23, 1999, the Company received approximately $11.4 million of net
proceeds from the placement of $12 million aggregate principal amount 6%
convertible notes due March 25, 2002. Interest

on the notes compounds at 6% per
annum until maturity or a Designated Offering (as defined) ("Offering")

F-21

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

G. CONVERTIBLE NOTES PAYABLE (CONTINUED)
on the notes compounds at 6% per annum until maturity or a Designated Offering
(as defined) ("Offering") and either will be payable in cash upon repayment of
the note at or after the maturity date, or if elected upon the completion of an
Offering all accrued and unpaid interest shall be converted into shares of
common stock. The interest after an Offering shall be reduced to 3.6%, and shall
become due for the remainder of the term through the maturity date at the time
of an Offering.

The holder shall have the right to convert the principal amounts due under
these notes into shares of the Company's common stock at any time. If the
Company completes an Offering prior to September 25, 2000, the conversion price
shall be either the lesser of $5.00 per share or 50% of the per share offering
price. If the Offering is completed between September 25, 2000 and the maturity
date, the conversion price shall be the lesser of $5.00 per share, or between
35% and 50% of the per share offering price to the public, calculated on a
declining straight-line basis, through the day on which an offering is
completed. If an Offering is not completed before the maturity date, the holder
may elect to convert at $5.00 per share but the price will be adjusted to 35% of
the Offering price if less than $5.00 per share, and additional shares, if any,
will be issued to reduce the conversion price to such lesser amount.

If prior to consummation of an Offering, the Company enters into a merger,
consolidation, the sale of substantially all of its assets, change of control,
or the dissolution of the Company or other event causing final liquidation, the
holders of the notes shall have the right to elect to either receive payment in
full of all principal of the notes and accrued interest earned through date of
payment, or convert all outstanding principal and unpaid interest on the notes
into common stock. The holders will be entitled to receive the greater of the
number of shares derived by dividing the balance due by $5.00 per share, or the
number of shares having an aggregate value equal to 200% of the outstanding
unpaid principal, plus all accrued interest.

If the note holders elect not to convert the notes to stock at maturity, the
Company will be required to repay all principal amounts, all accrued and unpaid
interest, if any, and a redemption premium equal to 10% of the face value of the
notes, which is being recognized ratably over the life of the notes. The
effective interest rate, including the redemption premium, was 9.3% at
December 31, 1999. The Company can require conversion after an Offering provided
specific closing prices are achieved for twenty consecutive trading days.

The notes contain numerous covenants with which the Company is in
compliance.

At December 1999, the convertible notes payable balance is comprised of the
following:

Principal................................................... $12,000,000
Accrued interest and redemption premium..................... 858,665
-----------
12,858,665

Deferred financing costs (net of accumulated amortization of
$149,960)................................................. (437,655)
-----------
$12,421,010
===========

F-22

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

H. LEASE COMMITMENTS

The Company leases certain equipment, vehicles and operating facilities. The
Company's leases related to its operating facilities currently expire on various
dates ranging from 1999 through 2006.

F-22

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

H. LEASE COMMITMENTS (CONTINUED) However, one lease allows for cancellation
at either 36 or 48 months upon 60 days advanced written notice. At December 31,
1999, the future minimum lease payments required under noncancellable lease
provisions are approximately $830,000 in 2000; $591,000 in 2001; $304,000 in
2002; $148,000 in 2003; $128,000 in 2004; and a total of approximately $188,000
in rental payments for the years 2005 through 2006.

Rent expense related to all operating leases for the years ended December
31, 1997, 1998 and 1999 was approximately $441,000, $655,000 and $984,000,
respectively.

I. INCOME TAXES

The Company's provision for income taxes for the years ended December 31,
1997, 1998 and 1999 differs from the amounts determined by applying the
statutory Federal income tax rate to income before income taxes for the
following reasons:

1997 1998 1999
----------- --------- -----------

Benefit at Federal Rate................................... $(1,239,547) $(852,176) $(2,747,748)

Increase (decrease) resulting from:
State income taxes-net of federal benefit............... (45,004) (85,805) (62,520)
Intangible amortization................................. 46,804 39,020 42,925
Research and development tax credit..................... (15,319) (23,534) (54,231)
Meals and entertainment................................. 16,999 27,037 38,687
Other-net............................................... (121) (34,549) 37,160
Valuation allowance..................................... -- -- 4,491,000
----------- --------- -----------
Total income tax expense (benefit)........................ $(1,236,188) $(930,007) $ 1,745,273
=========== ========= ===========

The Company's deferred income tax asset at December 31, 1998 and 1999 is
comprised of the following temporary differences:

1998 1999
---------- ----------

Net operating loss carryforward...................... $1,497,000 $4,289,000
Allowance for doubtful accounts...................... 221,000 60,000
Fixed asset depreciation............................. 121,000 124,000
Accrued vacation..................................... 114,000 137,000
Intellectual property amortization................... -- 61,000
---------- ----------
1,953,000 4,671,000
Less valuation allowance............................. -- (4,491,000)
---------- ----------
$1,953,000 $ 180,000
========== ==========

At December 31, 1999, the Company has unused tax net operating loss
carryforwards of approximately $2,106,000 which expire in 2012, $1,828,000 which
expire in 2018 and $7,638,000 which will expire in

F-23

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

I. INCOME TAXES (CONTINUED)
2019. Additionally, at December 31, 1999, the Company has unused general
business credits earned primarily through increased research expenditures of
approximately $131,000. These credits expire at

F-23

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

I. INCOME TAXES (CONTINUED) various times between 2010 and
2019. The Company's management believes that it is more likely than not that the
deferred tax asset of $180,000 will be realized through the sale of the business
discussed in Note R. A valuation allowance has been provided in 1999 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. At
December 31, 1998, the Company's management had determined that it was more
likely than not that the deferred tax asset of $1,953,000 would be realized
through expected profits in future years.

J. EMPLOYEE BENEFIT PLAN

The Company maintains an employee savings plan which 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 $92,733, $117,923 and $174,973 for the years ended December
31, 1997, 1998 and 1999, respectively.

K. STOCKHOLDERS' EQUITY

PRIVATE PLACEMENT

The Company issued 2,000,000 shares of the Company's common stock, par value
$.01 per share (the "Stock"), at a price of $5.00 per share in a private
placement during 1997 and 1998 for net proceeds of $1,623,869 and $7,300,059,
respectively. A total of 1,524,500 shares of the 2,000,000 shares of common
stock were placed by Placement Agents pursuant to selling agent agreements. A 9%
commission was paid to each Placement Agent on all sales of the common stock
made by it and broker-dealers.

The Company also issued warrants to the Placement Agents with an exercise
price of $5.00 per share (subject to certain cashless exercise rights) which
will have terms of five years expiring in 2003. Total shares eligible to be
purchased through these warrants were 152,450 at December 31, 1999 (see Note L).

In 1999, the Company issued convertible notes which can be converted into a
minimum of 2,400,000 common shares (see Note G).

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;

F-24

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

K. STOCKHOLDERS' EQUITY (CONTINUED)
(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

F-24

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

K. STOCKHOLDERS' EQUITY (CONTINUED) 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.

In March 2000, the Company's Board of Directors approved an increase in the
number of authorized common shares to 60,000,000, subject to the approval of the
Company's stockholders.

L. STOCK OPTIONS AND WARRANTS

The Company adopted the 1997 Stock Option Plan in June of 1997 which was
last amended and restated on October 14, 1998. The Company's 1997 Stock Option
Plan (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 4,000,000. 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 20% per year over a five 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. In March 2000, the Company's
Board of Directors approved an amendment to the Stock Option Plan to increase
the number of shares for which options can be granted to 6,000,000, subject to
the approval of the Company's stockholders.

F-25

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

L. STOCK OPTIONS AND WARRANTS (CONTINUED)
The following table summarizes activity under the Stock Option Plan during
the three years ended December 31, 1999:

WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------

Balance at Inception (June 1997):....................... -- $ --
Granted............................................... 1,515,000 5.00
Exercised............................................. -- --
Canceled.............................................. -- --
---------
Balance at December 31, 1997:........................... 1,515,000 5.00
Granted............................................... 1,690,250 5.00
Exercised............................................. -- --
Canceled.............................................. -- --
---------
Balance at December 31, 1998:........................... 3,205,250 5.00
Granted............................................... 590,250 5.00
Exercised............................................. -- --
Canceled.............................................. (257,750) 5.00
---------
Balance at December 31, 1999............................ 3,537,750
=========
Exercisable at December 31, 1999........................ 2,028,650
=========

The weighted average fair value of options granted in 1997, 1998 and 1999
was $1.34, $1.02 and $1.00, respectively. At December 31, 1999, the weighted
average remaining contractual life of options outstanding was 8.4 years.

In 1997, the Company granted options to purchase 1.5 million shares at $5.00
per share to an officer of the Company which are fully vested and exercisable at
December 31, 1997 and expire in 2007. The Company has also granted options to
purchase shares of common stock with an aggregate fixed cost of $75,000 to a
member of the Company's Board of Directors at an exercise price which is the
lower of (a) $5.00 per share for 15,000 shares or (b) 50% of the price per share
at which the Company offers common stock in an initial public offering, of which
66.67% of the shares are vested and exercisable at December 31, 1999. The
remaining options issued in 1997 vest over two years and expire in 2002.

The Company has elected to follow the measurement provisions of Accounting
Principles Board Opinion 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. During December 1999, the Company recorded unearned
compensation of $112,500 for options granted with exercise prices less than the
deemed fair market value at the date of grant.

F-26

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

L. STOCK OPTIONS AND WARRANTS (CONTINUED)
Pro forma information regarding net income and income per share is required
by Statement of Financial Accounting Standard No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, (SFAS No. 123) assuming the Company accounted for its
employee stock options using the fair value method. 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 in 1997, 1998 and 1999, respectively: no common stock dividends,
risk-free interest rates ranging from 5.44% and 5.74% to 6.33% and 5.51% to
6.13%; no volatility (prior to becoming a public company); and an expected
option life of five years. Pro forma net income and income per share assuming
compensation expense for the Stock Option Plan had been determined under SFAS
No. 123, are as follows:

1997 1998 1999
----------- ----------- -----------

Net Loss:
As reported........................... $(2,409,539) $(1,576,393) $(9,826,886)
Pro forma............................. (4,421,148) (1,662,641) (9,974,172)

Basic and diluted loss per share:
As reported........................... (0.22) (0.13) (0.76)
Pro forma............................. (0.40) (0.14) (0.77)

In the first quarter of fiscal 2000, the Company granted 212,500 options,
including 72,000 options with exercise prices at $5.00 per share and will record
unearned compensation in connection with these grants.

During 1998, the Company issued warrants to purchase 152,450 shares of
common stock pursuant to placement agent agreements (see Note K). On December
16, 1997, the Company issued a warrant to purchase 300,000 shares of common
stock pursuant to a Securities Purchase Agreement (see Note M).

M. RELATED PARTY TRANSACTIONS

CT PARTNERS.

The Company and CT Partners were related parties through common ownership.
The Company provided research and development services for CT Partners at cost.
The cost of these services amounted to $650,782 and $318,800 for the years ended
December 31, 1996 and 1997, respectively. There were no research and development
services provided subsequent to 1997 as the technology involved was fully
developed. These amounts are included in note receivable-related party, along
with accrued interest and administration fees of $116,349 at December 31, 1998.
The Company also performs contract research and development services for
unaffiliated entities.

On June 27, 1997 the Company entered into a royalty agreement with CT
Partners in which the Company received an exclusive license to manufacture and
market a miniature solid-state optical spectrometer developed by CT Partners.
This agreement was amended on December 1, 1997. Under the terms of the amended
royalty agreement, the Company would pay a royalty to CT Partners equal to a
maximum of $6.5 million. The first $1.5 million would be paid upon achieving $3
million in sales of products employing the licensed technology or from a sale of
the technology. Subsequent royalty payments would equal 10% of gross revenues
received by the Company from the licensed technology, payable

F-27

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

M. RELATED PARTY TRANSACTIONS (CONTINUED)
quarterly. At December 31, 1998, CT Partners owed the Company $1,085,931 for
contract research and development expenses incurred in connection with this
agreement.

In June 1999, the Company and CT Partners entered into an Asset Purchase
Agreement whereby the parties terminated the royalty agreement and the Company
purchased all intellectual property previously developed for CT Partners for $2
million in cash, less the outstanding note receivable of $1,085,931 and certain
related expenses. The Company is amortizing the intellectual property over 5
years.

SECURITIES PURCHASE AGREEMENT.

On December 16, 1997, the Company entered into a Securities Purchase
Agreement with a private investor who subsequently was elected as a director of
the Company, pursuant to which the private investor purchased from the Company a
secured promissory note in the principal amount of $1,500,000 (the "$1,500,000
Note") and a warrant to purchase 300,000 shares of common stock (the "300,000
Share Warrant"), subject to adjustment. The agreement allowed the purchase of
additional debt securities from the Company. In February 1998, the Company was
informed, as allowed by the agreement, that no additional debt securities would
be purchased. Therefore, in accordance with the terms of the agreement, in 1998
the Company paid the $1,500,000 Note plus interest and other agreed-to expenses.
The private investor is no longer a director of the Company.

The 300,000 Share Warrant entitles the holder to acquire 300,000 shares of
common stock at the lower of (a) $5.00 per share or (b) 50% of the price per
share at which the Company offers common stock in an initial public offering.
The 300,000 Share Warrant will expire if it has not been exercised on or before
the Company's initial public offering. The warrants were valued at $82,117 at
December 31, 1997 using the Black-Scholes pricing model with the following
assumptions: no common stock dividends, risk free interest rate of 5.71%;
expected life of 12 months; and no volatility. These warrants were completely
amortized as of December 31, 1998.

N. COMMITMENTS AND CONTINGENCIES

The Company is not a party to any material legal proceedings.

In May 1998, the Company elected to self-insure the majority of its
employees' health care coverage with lifetime coverage up to $2,000,000 and
$5,000,000 per person at December 31, 1998 and 1999, respectively. In place are
reinsurance policies limiting losses for any individual within the plan of
$10,000 per year, and a total company aggregate stop-loss limit at December 31,
1999 of approximately $282,000, with coverage up to $2,282,000 of aggregated
total claims. Based on estimated claims and the reinsurance in place, management
believes the costs are reasonably estimated in the financial statements.

O. SALES AND PRODUCT INFORMATION

The Company believes it is advantageous to operate on a fully integrated
basis in one operating segment. Accordingly, management of the Company evaluates
performance and determines the allocation

F-28

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)

O. SALES AND PRODUCT INFORMATION (CONTINUED)
of resources on an entity-wide basis. There are no material long-lived assets
held outside the United States. The following is supplemental information for
net sales by geographic area and product group:

1997 1998 1999
----------- ----------- -----------

Sales by Geographic Area:
United States........................ $ 6,435,359 $10,214,962 $10,001,539
Europe............................... 3,009,936 6,248,695 9,286,394
Pacific Rim.......................... 1,620,735 1,704,190 2,992,099
Other................................ 510,647 767,593 754,922
----------- ----------- -----------
Total.................................. $11,576,677 $18,935,440 $23,034,954
=========== =========== ===========
Sales by Product Group:
Bio-Systems.......................... $ 295,000 $ 5,460,684 $11,218,887
Bio-Consumables...................... 2,275 209,814 1,435,702
Scientific Instruments............... 9,410,072 11,496,105 8,794,165
Other Consumables.................... 1,869,330 1,768,837 1,586,200
----------- ----------- -----------
Total.................................. $11,576,677 $18,935,440 $23,034,954
=========== =========== ===========

P. SUPPLEMENTAL CASH FLOW INFORMATION

1997 1998 1999
-------- -------- ----------

Noncash investing and financing activities:
Exchange of note receivable for intellectual
property..................................... $ -- $ -- $1,085,931
Liabilities assumed in connection with business
acquisitions................................. $ -- $ -- $ 135,333
Reduction of equity and increase in other
accrued expenses for redemption of preferred
stock and preferred stock dividends.......... $52,161 -- --

Q. ALLOWANCE FOR DOUBTFUL ACCOUNTS

The following is a summary of activity for the allowance for doubtful
acounts during each of the three years ended December 31, 1999:

ADDITIONAL
BEGINNING CHARGES DEDUCTIONS ENDING
BALANCE TO INCOME FROM RESERVE BALANCE
--------- ---------- ------------ --------

Year Ended December 31, 1997....................... $ -- $102,495 $ (2,495) $100,000
Year Ended December 31, 1998....................... 100,000 462,698 (1,053) 561,645
Year Ended December 31, 1999....................... 561,645 121,609 (522,661) 160,593

R. SUBSEQUENT EVENTS

On March 7, 2000, the Company signed a letter of intent for the sale of the
assets of its non-life sciences instrument product line to a director of the
Company for $6,000,000, of which $5,000,000 will be paid in cash and $1,000,000
will be paid with an interest-bearing promissory note due on March 31, 2001. The
non-life science instrument product line contributed revenues of $8,794,165 in
1999. The Company expects this transaction to close on March 31, 2000, subject
to the approval of the Company's stockholders.

F-29

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma statement of operations for the three
months ended March 31, 2000 and the year ended December 31, 1999 reflects the
sale of assets related to our non-life sciences instrument product line on
May 19, 2000 as if the sale had occurred on January 1, 1999. The following
unaudited pro forma balance sheet reflects the sale as if it had been completed
on March 31, 2000.

The unaudited pro forma statement of operations and balance sheet data
reflect all adjustments necessary in the opinion of the Company's management
(consisting only of normal recurring adjustments) for a fair presentation of
such data.

The unaudited financial data are intended for informational purposes only
and are not intended to be indicative of our results of operations or financial
position had this transaction occurred on the dates specified, nor are they
indicative of our future results of operations or financial position.

The unaudited pro forma financial data, including notes thereto, should be
read in conjunction with our historical consolidated financial statements,
including notes thereto, appearing elsewhere in this Prospectus.

F-30

TRANSGENOMIC, INC.

UNAUDITED PRO FORMA BALANCE SHEET

MARCH 31, 2000

ADJUSTMENTS
FOR SALE OF
NON-LIFE
SCIENCES
INSTRUMENT
THE PRODUCT THE
COMPANY LINE COMPANY
(1) (2A) PRO FORMA
------------ ----------- ------------

ASSETS

CURRENT ASSETS:
Cash and cash equivalents................................. $ 142,870 $3,640,000 $ 3,782,870
Accounts receivable, net.................................. 5,083,542 -- 5,083,542
Note receivable........................................... -- 2,000,000 2,000,000
Inventories............................................... 2,318,751 -- 2,318,751
Prepaid expenses and other current assets................. 677,379 -- 677,379
Net assets held for sale.................................. 4,711,540 (4,711,540) --
Refundable income taxes................................... 96,000 -- 96,000
------------ ---------- ------------
Total current assets.................................... 13,030,082 928,460 13,958,542
PROPERTY AND EQUIPMENT, Net................................. 3,103,511 -- 3,103,511
DEMONSTRATION INVENTORY..................................... 276,318 -- 276,318
OTHER ASSETS................................................ 2,419,869 (180,000) 2,239,869
------------ ---------- ------------
$ 18,829,780 $ 748,460 $ 19,578,240
============ ========== ============

LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)

CURRENT LIABILITIES
Notes payable-bank........................................ $ 4,490,000 $ -- $ 4,490,000
Current portion of notes payable-other.................... 547,188 -- 547,188
Accounts payable.......................................... 3,944,069 -- 3,944,069
Accrued compensation...................................... 445,371 -- 445,371
Other accrued expenses.................................... 1,236,278 -- 1,236,278
------------ ---------- ------------
Total current liabilities............................... 10,662,906 -- 10,662,906
NOTES PAYABLE-other, less current maturities................ 34,609 -- 34,609
CONVERTIBLE NOTES PAYABLE................................... 12,746,844 -- 12,746,844
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock........................................... -- -- --
Common stock.............................................. 130,250 -- 130,250
Additional paid-in capital................................ 11,723,578 -- 11,723,578
Unearned compensation..................................... (645,074) -- (645,074)
Accumulated deficit....................................... (15,841,984) 748,460 (15,093,524)
Accumulated other comprehensive loss...................... 18,651 -- 18,651
------------ ---------- ------------
Total stockholders' equity (deficit).................... (4,614,579) 748,460 (3,866,119)
------------ ---------- ------------
$ 18,829,780 $ 748,460 $ 19,578,240
============ ========== ============

SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION.

F-31

TRANSGENOMIC, INC.

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2000

ADJUSTMENTS
FOR SALE OF
NON-LIFE
SCIENCES
THE INSTRUMENT THE
COMPANY PRODUCT COMPANY
(1) LINE PRO FORMA
----------- ----------- ------------

NET SALES................................................. $ 6,943,749 $2,170,675 (3a) $ 4,773,074
COST OF GOODS SOLD........................................ 3,830,519 1,432,956 (3a,b) 2,397,563
----------- ---------- ------------
Gross profit.......................................... 3,113,230 737,719 2,375,511
OPERATING EXPENSES
General and administrative.............................. 1,754,741 660,439 (3b,c) 1,094,302
Marketing and sales..................................... 2,493,849 328,484 (3b) 2,165,365
Research and development................................ 1,893,581 419,222 (3b) 1,474,359
----------- ---------- ------------
6,142,171 1,408,145 4,734,026
----------- ---------- ------------
LOSS FROM OPERATIONS...................................... (3,028,941) (670,426) (2,358,515)
OTHER INCOME (EXPENSE)
Interest expense, net................................... (468,968) -- (468,968)
----------- ---------- ------------
LOSS BEFORE INCOME TAXES.................................. (3,497,909) (670,426) (2,827,483)
INCOME TAX EXPENSE........................................ -- -- --
----------- ---------- ------------
NET LOSS.................................................. $(3,497,909) $ (670,426) $ (2,827,483)
=========== ========== ============
BASIC AND DILUTED LOSS PER SHARE.......................... $ (0.27) $ (0.22)
=========== ============
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING..... 13,007,692 13,007,692
=========== ============

SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION.

F-32

TRANSGENOMIC, INC.

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1999

ADJUSTMENTS
FOR SALE OF
NON-LIFE
SCIENCES
THE INSTRUMENT THE
COMPANY PRODUCT COMPANY
(1) LINE PRO FORMA
----------- ----------- ------------

NET SALES................................................. $23,034,954 $8,794,165 (3a) $ 14,240,789
COST OF GOODS SOLD........................................ 12,090,036 4,924,757 (3a,b) 7,165,279
----------- ---------- ------------
Gross profit.......................................... 10,944,918 3,869,408 7,075,510
OPERATING EXPENSES
General and administrative.............................. 3,771,663 236,808 (3b,c) 3,534,855
Marketing and sales..................................... 7,759,997 1,610,369 (3b) 6,149,628
Research and development................................ 6,296,859 1,728,827 (3b) 4,568,032
----------- ---------- ------------
17,828,519 3,576,004 14,252,515
----------- ---------- ------------
LOSS FROM OPERATIONS...................................... (6,883,601) 293,404 (7,177,005)
OTHER INCOME (EXPENSE)
Interest expense, net................................... (1,198,378) -- (1,198,378)
Other, net.............................................. 366 -- 366
----------- ---------- ------------
(1,198,012) -- (1,198,012)
----------- ---------- ------------
LOSS BEFORE INCOME TAXES.................................. (8,081,613) 293,404 (8,375,017)
INCOME TAX EXPENSE........................................ 1,745,273 -- 1,745,273
----------- ---------- ------------
NET LOSS.................................................. $(9,826,886) $ 293,404 $(10,120,290)
=========== ========== ============
BASIC AND DILUTED LOSS PER SHARE.......................... $ (0.76) $ (0.78)
=========== ============
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING..... 13,000,000 13,000,000
=========== ============

SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION.

F-33

NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION

On May 19, 2000, we sold the assets related to our non-life sciences
instrument product line to a company controlled by Stephen F. Dwyer, a director
and a principal stockholder of ours, for a total adjusted purchase price of
$5.65 million plus reimbursement by the buyer of expenses paid by us since March
31, 2000 in connection with this product line. Approximately $4,000,000 was paid
in cash at the closing and $2,000,000 was paid with an interest-bearing
promissory note due on December 30, 2000. The note bears interest at 8.75% per
annum. The purchaser financed the cash portion of the purchase price plus
initial working capital needs with borrowings of approximately $4.6 million
obtained from a bank. We have agreed with the bank that we will acquire the
notes evidencing these loans from the bank upon closing of our initial public
offering by paying to the bank an amount equal to the entire principal balance
of the notes plus accrued and unpaid interest. If the offering is not completed,
we are under no obligation to acquire these notes. Mr. Dwyer has agreed to
pledge 1,200,000 shares of our common stock owned by him as security for the
acquired notes. All of these shares will be held in an escrow account as
security for the notes. We anticipate that we will exercise our right to cause
the shares to be sold in order to pay principal and interest on the acquired
notes when due, subject to a 180-day lock-up agreement. The acquired notes will
mature on December 30, 2000 and will bear interest at a rate of 8.75% per annum.
The unaudited pro forma statement of operations for the year ended December 31,
1999 and the three months ended March 31, 2000 reflects this sale, as if it had
occurred on January 1, 1999. The unaudited pro forma balance sheet reflects this
sale as if it had been completed on March 31, 2000. The unaudited pro forma
financial data are based on the following:

1. Our March 31, 2000 historical consolidated financial statements.

2. The pro forma balance sheet adjustments are as follows:

a. The adjustments to reflect the sale of assets relating to our non-life
sciences instrument product line as follows:

Inventories........................................... $2,485,722
Property, net......................................... 510,410
Other assets.......................................... 1,839,611
Accrued liabilities................................... (124,203)
----------
Net assets sold....................................... 4,711,540
Purchase Price:
Cash................................................ 4,000,000
Less estimated working capital adjustments.......... (360,000)
Note Receivable..................................... 2,000,000 5,640,000
---------- ---------
Preliminary gain on sale............................ 928,460
Utilization of deferred tax benefit................. (180,000)
---------
Net adjustment to equity.............................. $ 748,460
=========

The Company will defer the gain on the sale of these assets until the
earlier of (i) the repayment of the notes in full or (ii) the release of the
1,200,000 shares from the lock-up agreement.

3. The pro forma statement of operations adjustments for the sale of the assets
relating to our non-life sciences instrument product line are as follows:

a. Elimination of the actual historical revenues and direct cost of goods
sold.

b. Elimination of indirect manufacturing and operating expenses. The
elimination of these expenses for the year ended December 31, 1999 is
based on an allocation of each department's expenses based on the ratio
of actual life-sciences and non-life sciences individual employees' wages
for each department in proportion to such department's total wages. Our
management believes such method is reasonable. The elimination for the
three months ended March 31, 2000 is based on actual department expenses.

F-34

c. An increase in general and administrative expenses to reflect $200,000
and $50,000 of anticipated increased rental costs for the year ended
December 31, 1999 and the three months ended March 31, 2000,
respectively, which will be incurred by us as a result of the sale of the
assets relating to our non-life sciences instrument product line. We will
be required to relocate to a separate facility subsequent to the sale. A
decrease in general and administrative costs to eliminate $573,600 of
non-recurring compensation costs incurred in connection with the
acceleration of vesting of employee options in connection with the sale
of the assets relating to our non-life sciences instruments product line.
These adjustments for the year ended December 31, 1999 and the three
months ended March 31, 2000 are reflected as follows:

1999 2000
--------- --------

Elimination of the non-life sciences instruments
product line's general and administrative expenses... $ 436,808 $136,839
Elimination of non-recurring compensation expenses..... -- 573,600
Anticipated increased rental costs..................... (200,000) (50,000)
--------- --------
Net reduction in general and administrative expenses... $ 236,808 $660,439
========= ========

d. No tax adjustment has been made due to our current net operating loss
position.

F-35

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

4,000,000152,450 SHARES

[LOGO]

COMMON STOCK
WARRANTS

---------------
PROSPECTUS
------------------

CHASE H&Q
BEAR, STEARNS & CO. INC.
DAIN RAUSCHER WESSELS

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

JULY , 2000

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

YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.

NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE COMMON SHARES OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.

UNTIL AUGUST , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SHARES OF COMMON STOCK MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATIONS TO
DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the expenses (other than the underwriting
discount and commissions) expected to be incurred by the Registrant while
issuing and distributing the securities registered pursuant to this Registration
Statement. All amounts other than the SEC registration fee, NASD filing fee and
Nasdaq National Market listing fee are estimates.

SEC registration fee........................................ $ 604
Legal fees and expenses..................................... 5,000
Accounting fees and expenses................................ 1,000
Printing and engraving...................................... 5,000
Blue sky fees and expenses (including legal fees)........... 2,500
Transfer agent fees......................................... 0
Miscellaneous............................................... 896
-------
Total..................................................... $15,000
=======

ITEM 14: INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law 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, the Registrant's First
Restated 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's duty of loyalty to the
Registrant 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 Law (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 Law is amended to authorize further elimination or limiting of
directors' personal liability, then the First 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.

As permitted by the Delaware General Corporation Law, the Registrant's First
Amended and Restated Certificate of Incorporation and its Bylaws provide that
(1) the Registrant is required to indemnify its directors and officers to the
fullest extent permitted by the Delaware General Corporation Law, subject to
certain very limited exceptions, (2) the Registrant may indemnify its other
employees and agents as set forth in the Delaware General Corporation Law, (3)
the Registrant 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, subject to certain
conditions and (4) the rights conferred by the First Amended and Restated
Certificate of Incorporation and Bylaws are not exclusive.

The Delaware General Corporation Law 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;

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

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

The Delaware General Corporation Law 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 defense of any action, suit or
proceeding for which indemnification is lawful.

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.

Reference is also made to the form of Underwriting Agreement filed as
Exhibit 1 to this Registration Statement for the Registrant's and the
Underwriters' respective agreements to indemnify each other, and to provide
contribution in circumstances where indemnification is unavailable.

ITEM 15: RECENT SALES OF UNREGISTERED SECURITIES

The Registrant has sold and issued the following securities since
January 1, 1997:

A. On July 1, 1997, we issued a total of 11,000,000 shares of our Common
Stock to the shareholders of CETAC Holding Company, Inc. in connection with a
merger of that corporation with and into the Registrant.

B. On December 16, 1997, we issued a $1,500,000 promissory note and a
warrant to purchase 300,000 shares of our Common Stock to a venture capital
investor. Principal and interest on the promissory note was paid in full in
June 1998. The warrant remains outstanding and has an exercise price of equal to
the lower of (i) $5.00 per share or (ii) 50% of the offering price of
Registrant's Common Stock in its initial public offering, subject to certain
adjustments.

C. At various times between July 3, 1997 and December 31, 1998, we issued a
total of 2,000,000 of our Common Stock for an aggregate consideration of
$10,000,000 to various institutional and individual investors. We paid aggregate
cash commissions of $781,600 to various placement agents in connection with this
private offering.

D. In connection with the private offering of Common Stock described in
Item C above, we issued warrants for the purchase of a total of 152,450 shares
of our Common Stock to various placement agents that participated in such
offering. All warrants have an exercise price of equal to the lower of
(i) $5.00 per share or (ii) 50% of the offering price of Registrant's Common
Stock in its initial public offering, subject to certain adjustments.

E. On March 23, 1999, we issued Convertible Notes in an aggregate principal
amount of $12,000,000 to various institutional and individual investors. The
Convertible Notes and interest accrued thereon are convertible into shares of
the Common Stock of the Registrant at a price equal to the lower of (i) $5.00
per share or (ii) 50% of the offering price of Registrant's Common Stock in its
initial public offering, subject to certain adjustments.

F. On March 4, 2000, we issued 25,000 shares of Common Stock to a newly
elected director of the Company for a total purchase price of $250,000.

II-2

G. The Registrant has granted stock options to employees, directors and
advisors under its Second Amended and Restated 1997 Employee Stock Option Plan
as follows:

NUMBER OF SHARES(1) EXERCISE PRICE
------------------- --------------

January 1, 1997 to December 31, 1997........ 1,515,000 $5.00
January 1, 1998 to December 31, 1998........ 1,690,250 $5.00
January 1, 1999 to December 31, 1999........ 590,250 $5.00
January 1, 2000 to present.................. 768,500 $5.00 to 13.00
---------
Total....................................... 4,564,000

(1) Prior to cancellations of options to acquire 581,950 shares.

The above securities were offered and sold by the Registrant in reliance
upon the exemptions from registration pursuant to either (1) Section 4(2) of the
Securities Act of 1933 as transactions not involving any public offering or (2)
Rule 701 promulgated under the Securities Act of 1933. No underwriters were
involved in connection with the sales of securities referred to in this Item 15.

ITEM 16: EXHIBITS AND FINANCIAL STATEMENTS; SCHEDULES

(a) Exhibits.

1 Form of Underwriting Agreement*
2 Asset Purchase Agreement, dated May 16, 2000 between the
Registrant and SD Acquisition Inc.*(2)
3.1 Second Amended and Restated Certificate of Incorporation of
the Registrant*Registrant (2)
3.2 Bylaws of the Registrant*
4Registrant (1)
4.1 Form of Certificate of the Registrant's Common Stock*Stock (4)
4.2 Form of Warrant for Purchase of Common Stock between the
Registrant and various Placement Agents (included in Exhibit
10.3 to the Registration Statement of the Registrant
(Registration No. 333-32174), which was filed on March 10,
2000)
5 Opinion of Kutak Rock LLP*LLP
10.1 Warrant for Purchase of Common Stock, dated December 16,
1997, between the Registrant and G.S. Beckwith Gilbert*Gilbert (1)
10.2 Registration Rights Agreement, dated December 16, 1997,
between the Registrant and G.S. Beckwith Gilbert*Gilbert (1)
10.3 Form of Warrant for Purchase of Common Stock between the
Registrant and various Placement Agents and Schedule of
Warrants Issued*Issued (1)
10.4 First Amended and Restated Shareholder Agreement, dated
July 1, 1997, between the Registrant and each holder of its
Common Stock*Stock (1)
10.5 Subscription Agreement, dated March 23, 1999, between the
Registrant and each purchaser of Registrant's Convertible
Notes due March 25, 2002, including form of Convertible Note*Note
(1)
10.6 Second Amended and Restated 1997 Stock Option Plan of the
Registrant*Registrant (1)
10.7 1999 UK Approved Stock Option Sub Plan of the Registrant*Registrant (1)
10.8 Employment Agreement, dated April 1, 2000, between the
Registrant and Colin J. D'Silva*D'Silva (1)
10.9 Employment Agreement, dated April 1, 2000, between the
Registrant and William P. Rasmussen*Rasmussen (2)
10.10 Employment Agreement, dated March 4, 2000, between the
Registrant and Douglas T. Gjerde*Gjerde (1)
10.11 Employment Agreement, dated November 16, 1998, between the
Registrant and William B. Walker*Walker (1)
10.12 Letter Agreement, dated February 18, 2000, between the
Registrant and Gregory J. Duman*Duman (1)
10.13 Amended and Restated Revolving Loan Agreement, dated
March 8, 2000, between the Registrant and First National
Bank of Omaha*Omaha (1)
10.14 License Agreement, dated September 1, 1994, between the
Registrant and Professor Dr. Gunther Bonn, et. al. and
Amendment thereto, dated March 14, 1997+* (1)

II-3

10.15 License Agreement, dated August 20, 1997, between the
Registrant and Leland Stanford Junior University+* (1)
10.16 Supply Agreement, dated January 1, 2000, between the
Registrant and Hitachi Instruments*+Instruments+ (1)
10.17 Lease Agreement, dated November 2, 1998, between the
Registrant and Westlake Development Company, Inc.* (1)
10.18 Lease Agreement, dated May 15, 1996, between Interaction
Chromatography Inc. and Westlake Development Co., Inc.* (1)
10.19 Waiver Letter of First National Bank of Omaha dated
March 7, 2000*2000 (2)
10.20 Business Property Lease, dated April 20, 2000, between the
Registrant and Todd Smith*Smith (2)
10.21 First Amendment to Amended and Restated Loan Agreement,
dated May 15, 2000, between the Registrant and First
National Bank of Omaha*Omaha (2)
10.22 Waiver Letter of First National Bank of Omaha dated May 15,
2000*2000 (2)
10.23 Takeout Agreement, dated May 19, 2000, between Registrant
and Nebraska State Bank (3)
21 Subsidiaries of the Registrant*Registrant (1)
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Kutak Rock LLP (included in Exhibit 5)*
24 Powers of Attorney*Attorney
27 Financial Data Schedule*Schedule (1)

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

* Previously filed.(1) This Exhibit is incorporated by reference to the same numbered Exhibit to
the Registration Statement of the Registrant (Registration No. 333-32174),
which was filed on March 10, 2000.

(2) This Exhibit is incorporated by reference to the same numbered Exhibit to
the Registration Statement of the Registrant (Registration No. 333-32174),
as amended by Amendment 1, which amendment was filed on May 17, 2000.

(3) This Exhibit is incorporated by reference to the same numbered Exhibit to
the Registration Statement of the Registrant (Registration No. 333-32174),
as amended by Amendment 2, which amendment was filed on June 14, 2000.

(4) This Exhibit is incorporated by reference to Exhibit 4 to the Registration
Statement of the Registrant (Registration No. 333-32174), which was filed on
March 10, 2000.

+ Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text.text (the "Mark"). This Exhibit has been filed
separately with the Secretary of the Commission withwithout the redacted textMark pursuant to
the Registrant's Application Requesting Confidential Treatment under
Rule 406 of the Securities Act.

II-1(b) Financial Statement Schedules:

All financial statement schedules have been omitted because the required
information is included in the consolidated financial statements of the
Registrant or related notes thereto.

ITEM 17: UNDERTAKINGS

The following undertakings correspond to the specified paragraph designation
from Item 512 of Regulation S-K.

(a) RULE 415 OFFERING. 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;

II-4

(ii) to reflect in the prospectus any facts or events arising after the
effetive 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; 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 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.

(h) ACCELERATION OF EFFECTIVENESS. 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
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.

(i) RULE 430A. The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, we havethe Registrant
has duly caused Amendment No. 2 to this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Omaha and State of
Nebraska, on the 13th18th day of JuneJuly, 2000.

TRANSGENOMIC, INC.

By: /s/ COLLIN J. D'SILVA
-----------------------------------------
Collin J. D'Silva
CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Act of 1933, Amendment No. 2
to this
Registration Statement has been signed by the following persons in the
capacities indicated as of the 13th18th day of JuneJuly, 2000.

SIGNATURE TITLE
--------- -----

/s/ COLLIN J. D'SILVA Chairman of the Board, Director and Chief
------------------------------------------- Executive Officer (Principal Executive
Collin J. D'Silva Officer)

/s/ WILLIAM P. RASMUSSEN
------------------------------------------- Chief Financial Officer
(Principal Financial
William P. Rasmussen Officer)

/s/ MITCHELL L. MURPHY
------------------------------------------- Controller (Chief Accounting Officer)and Secretary (Principal Financial
Mitchell L. Murphy Officer)

/s/ STEPHEN F. DWYER*
------------------------------------------- Director
Stephen F. Dwyer

/s/ DOUGLAS T. GJERDE*
------------------------------------------- Director
Douglas T. Gjerde, Ph.D.

/s/ JEFFREY SKLAR*
------------------------------------------- Director
Jeffrey Sklar, M.D., Ph.D.

/s/ ROLAND J. SANTONI*
------------------------------------------- Director
Roland J. Santoni

/s/ GREGORY J. DUMAN*
------------------------------------------- Director
Gregory J. Duman

/s/ PARAG SAXENA*
------------------------------------------- Director
Parag Saxena

*By Collin J. D'Silva, as attorney-in-fact

/s/ COLLIN J. D'SILVA
--------------------------------------
Collin J. D'Silva
ATTORNEY-IN-FACT
FOR THE INDIVIDUALS AS INDICATED.

II-2

EXHIBIT INDEX

EXHIBIT
NO. DESCRIPTION
- --------------------- -----------

1 Form of Underwriting Agreement*
2 Asset Purchase Agreement, dated May 16, 2000 between the
Registrant and SD Acquisition Inc.*
3.1 Second Amended and Restated Certificate of Incorporation of
the Registrant*
3.2 Bylaws of the Registrant*
4 Form of Certificate of the Registrant's Common Stock*
5 Opinion of Kutak Rock LLP*
10.1 Warrant for Purchase of Common Stock, dated December 16,
1997, between the Registrant and G.S. Beckwith Gilbert*
10.2 Registration Rights Agreement, dated December 16, 1997,
between the Registrant and G.S. Beckwith Gilbert*
10.3 Form of Warrant for Purchase of Common Stock between the
Registrant and various Placement Agents and Schedule of
Warrants Issued*
10.4 First Amended and Restated Shareholder Agreement, dated
July 1, 1997, between the Registrant and each holder of its
Common Stock*
10.5 Subscription Agreement, dated March 23, 1999, between the
Registrant and each purchaser of Registrant's Convertible
Notes due March 25, 2002, including form of Convertible
Note*
10.6 Second Amended and Restated 1997 Stock Option Plan of the
Registrant*
10.7 1999 UK Approved Stock Option Sub Plan of the Registrant*
10.8 Employment Agreement, dated April 1, 2000, between the
Registrant and Colin J. D'Silva*
10.9 Employment Agreement, dated April 1, 2000, between the
Registrant and William P. Rasmussen*
10.10 Employment Agreement, dated March 4, 2000, between the
Registrant and Douglas T. Gjerde*
10.11 Employment Agreement, dated November 16, 1998, between the
Registrant and William B. Walker*
10.12 Letter Agreement, dated February 18, 2000, between the
Registrant and Gregory J. Duman*
10.13 Amended and Restated Revolving Loan Agreement, dated
March 8, 2000, between the Registrant and First National
Bank of Omaha*
10.14 License Agreement, dated September 1, 1994, between
Registrant and Professor Dr. Gunther Bonn, et. al. and
Amendment thereto, dated March 14, 1997+*
10.15 License Agreement, dated August 20, 1997, between the
Registrant and Leland Stanford Junior University+*
10.16 Supply Agreement, dated January 1, 2000, between the
Registrant and Hitachi Instruments*+
10.17 Lease Agreement, dated November 2, 1998, between the
Registrant and Westlake Development Company, Inc.*
10.18 Lease Agreement, dated May 15, 1996, between Interaction
Chromatography Inc. and Westlake Development Co., Inc.*
10.19 Waiver Letter of First National Bank of Omaha dated
March 7, 2000*
10.20 Business Property Lease, dated April 20, 2000, between the
Registrant and Todd Smith*
10.21 First Amendment to the Amended and Restated Loan Agreement,
dated May 15, 2000, between the Registrant and First
National Bank of Omaha*
10.22 Waiver Letter of First National Bank of Omaha dated May 15,
2000*
10.23 Takeout Agreement, dated May 19, 2000, between Registrant
and Nebraska State Bank
21 Subsidiaries of the Registrant*
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Kutak Rock LLP (included in Exhibit 5)*
24 Powers of Attorney*
27 Financial Data Schedule*

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

* Previously filed.

+ Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text. This Exhibit has been filed separately with
the Secretary of the Commission with the redacted text pursuant to the
Registrant's Application Requesting Confidential Treatment under Rule 406 of
the Securities Act.II-6