UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 20082009

OR

For the transition period from                    to                    

Commission File Number 000-30975

TRANSGENOMIC, INC.

(Exact Name of Registrant as Specified in its Charter)

(402) 452-5400

(Registrant’s Telephone Number, Including Area Code)

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

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

Common Stock, par value $.01 per share

(Title of Class)

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

Yes                No      X    

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

Yes                No      X    

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

Yes      X        No            

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-KForm10-K             

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

Large Accelerated Filer¨     Accelerated Filer¨     Non-Accelerated Filer¨     Smaller Reporting Companyx

(Do not check if a smaller reporting company)

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

Yes                No      X    

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant based on the last reported closing price per share of Common Stock as reported on the OTC Bulletin Board on the last business day of the registrant’s most recently completed second quarter was approximately $26.6$14.5 million. An affiliate is anyone who owns 10% or more of our stock.

At March 30, 2009,February 25, 2010, the registrant had 49,189,672 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant Proxy Statement relating to its 20092010 Annual Meeting of Stockholders (the “Proxy Statement”) have been incorporated into Part III of this Report on Form 10-K.

TRANSGENOMIC, INC.

Index to Form 10-K for the Fiscal Year Ended December 31, 20082009

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

PART I

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-Kreport, including Management’s Discussion & Analysis, contains or incorporates by reference certain forward-looking statements. ManyThese statements are based on management’s current views, assumptions or beliefs of these forward-looking statements refer to our plans, objectives, expectationsfuture events and intentions, as well as our future financial resultsperformance and are subject to riskuncertainty and uncertainty. You can identifychanges in circumstances. Readers of this report should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements. These factors include, among other things: our expected revenue, income(loss), receivables, operating expenses, supplier pricing, availability and prices of raw materials, Medicare/Medicaid/Insurance reimbursements, product pricing, foreign currency exchange rates, sources of funding operations and acquisitions, our ability to raise funds, sufficiency of available liquidity, future interest costs, future economic circumstances, industry conditions, our ability to execute our operating plans, the success of our cost savings initiatives, competitive environment and related market conditions, actions of governments and regulatory factors affecting our business and other risks as described in our reports filed with the Securities and Exchange Commission. In some cases these statements byare identifiable through the use of words such as “expects,“anticipate,” “anticipates,“believe,” “intends,“estimate,” “plans,“expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “believes,” “seeks,” “estimates”“would” and similar expressions. Because

You are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements involvewe make are not guarantees of future performance and are subject to various assumptions, risks and uncertainties, there are manyother factors that could cause our actual results to differ materially from those expressed or impliedsuggested by these forward-looking statements. Actual results may differ materially from those suggested by the forward-looking statements that we make for a number of reasons including those discussed underdescribed in Item 1A, “Risk Factors”Factors,” and other factors identified by cautionary language used elsewhere in this report.

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

The following discussion should be read together with our financial statements and related notes contained in this report. Results for the Annual Report on Form 10-K.year ended December 31, 2009 are not necessarily indicative of results that may be attained in the future.

Transgenomic, Inc. (together with its affiliates,Affiliates, the “Company” or “Transgenomic”) provides innovative products for the purification and analysis of nucleic acids used in the life sciences industry for research focused on molecular genetics and diagnostics. The CompanyWe also providesprovide genetic variation analytical services to the medical research, clinical and pharmaceutical markets. Net sales are categorized as Instrument Related Business and Laboratory Services.

Instrument Related Business:

as of December 31, 2008.2009. We also distribute bioinstruments produced by other manufacturers (“OEM Equipment”) through our sales and distribution network. Service contracts to maintain installed systems are sold and supported by technical support personnel.

Laboratory Services:

in pharmacogenomic, biomarker and mutation discovery research serving the pharmaceutical and biomedical industries worldwideworld-wide for disease research, drug and diagnostic development and clinical trial support.

We previously operated a segment (the “Nucleic Acids operating segment”) that developed, manufactured and marketed chemical building blocks for nucleic acid synthesis. In the fourth quarter of 2005, we implemented a plan to exit the Nucleic Acids operating segment and during the three months ended March 31, 2007, we completed the sale of the remaining assets associated with this segment. Accordingly, the assets and results of the Nucleic Acids operating segment are reflected as discontinued operations for all periods presented in this filing.

Business Strategy

Since inception, ourOur business strategy has beenis to provide products and services to biomedical researchers, medical institutions, and diagnostic and pharmaceutical companies that are tied to advancements in the field of genomics.genomics and, increasingly, personalized medicine. Advances in genomics have fueled efforts to understand individual differences in disease susceptibility, disease progression, and response to therapy. Accordingly, a principal component of our strategy has and continues to be to establish our WAVE System as an industry standard in the biomedical research market and to develop additional markets for the WAVE System such as clinical research and diagnostics. WeFor continued high quality support for our WAVE System and associated bioconsumables, we attained ISO90001:2000 accreditationcertification for our Omaha manufacturing site in the fourth quarter of 2008.2008 and have since been certified to the ISO9001:2008 standard in 2009.

Over the last couple offew years our strategy has shifted somewhatgrown to include another areaincreasing concentration of strategic focus that we believe can provide significant opportunities. Through our two Laboratory Services offerings webusinesses. We have gained exposure to the translational and clinical research markets, laying the foundation for increasing our participation in the full value chain associated with activities ranging from basic biomedical research to development of diagnostic and therapeutic products.products to increasing opportunities for developing and manufacturing companion diagnostics. During the fourth quarter of 2005, our laboratory in Omaha, Nebraska was certified under the Clinical Laboratory Improvement Amendments and we received our first patient samples for molecular-based testing for hematology, oncology and certain inherited diseases for physicians and third-party laboratories.laboratories to aid in patient diagnoses or pharmaceutical drug development and drug clinical trials. In December of 2008 we were awarded an accreditation by the Commission on Laboratory Accreditation of the College of American Pathologists (CAP) based on the results of an onsite investigation. The CAP Laboratory Accreditation Program, begun in the early 1960’s, is recognized by the federal government as being equal to or more stringent than the government’s own inspection program.inspection. We believe

there is a significant opportunity for us to capitalize oncontinue growing the increasing demand for molecular-based personalized medicine by leveraging on our technologies and experience gained from the genomic biomarker analysis that our Laboratory Services business has and will continue to provide to pharmaceutical and biopharmaceutical companies. In addition, we continue to seek out and evaluate new technologies and genomic based laboratory tests which will further extend our offerings in our Molecular Diagnostics Laboratory and our Pharmacogenomics Services Lab.

Sales and Marketing

We have sold our products to customers in over 50 countries. We use a direct sales and support staff for sales in the U.S., U.K. and most countries in WesternEurope. Our sales and support team consists of regionally-based sales people, engineers and applications scientists to support our sales and marketing activities throughout the U.S. and Europe. For the rest of the world, we sell our products through dealers and distributors located in thosewithin local markets. We have over 35 dealers and distributors. We also maintain regionally-based technical support staff and applications scientists to support our sales and marketing activities throughout the U.S. and Europe. The nature of our Instrument Related Businessbusiness does not generally lend itself to tracking and reporting sales backlog.

Customers

Customers include numerous leading academic and medical institutions in the U.S. and abroad. In addition, our customers also include a number of large, established U.S. and foreign pharmaceutical, biotech and commercial companies.companies both in the U.S. and abroad. No customer accountsaccounted for more than 10% of our consolidated net sales for the years ended December 31, 2009 and 2008. For the year ended December 31, 2009 one customer made up 20% of the Laboratory Services net sales. For the year ended December 31, 2008 four customers each made up more than 10% of the Laboratory Services net sales. Combinedsales and combined they represent 56% of the Laboratory Services net sales.

Research and Development

We continue to invest in research and development in order to remain competitive and to take advantage of new business opportunities as they arise. We maintain a program of research and development with respect to instruments and services, engaging existing and new technologies to create scientific and medical applications that will have significant commercial value. Major areas of focus include ultra-high sensitivity DNA mutation detection building in our WAVE and SurveyorSURVEYOR products; a “toolbox” of mitochondrial DNA assays to assess damage, copy number, deletion and mutation for applications ranging from toxicology to diabetes to aging; clinical development of in-licensed diagnostics in neurodegenerative diseases, including Alzheimer’s and Parkinson’s diseases; and development of oncology mutation kits using WAVE/SurveyorSURVEYOR for selection of anti-cancer therapies.

For the years ended December 31, 20082009 and 2007,2008, our research and development expenses were $2.5$3.2 million and $3.0$2.5 million, respectively.

Manufacturing

We manufacture bioconsumable products including our separation columns, liquid reagents, and enzymes. The major components of our WAVE Systems are manufactured for us by a third party. We integrate our own hardware and software with these third party manufactured components. Our manufacturing facilities for our WAVE Systems and bioconsumables are located in Omaha, Nebraska and San Jose, California.

Intellectual Property

To establish and protect our proprietary technologies and products, we rely on a combination of patent, copyright, trademark and trade-secret laws, as well as confidentiality provisions in our contracts. We presently own rights to 66 issued patents and 10 pending applications in both the U.S. and abroad. Our WAVE System and related consumables are protected by patents and in-licensed technologies that expire in various periods beginning in 2013 through 2023.2027. We will continue to file patent applications and seek new licenses as warranted to protect and develop new technologies of interest to our customer base in the coming years.

Competition

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

Competition for our WAVE Systems arises primarily from DNA sequencing and genotyping technologies. Competitors in these areas include Applied Biosystems, Idaho Technologies, Roche, Sequenom, and others. Competition for some of our non-WAVE consumable products comes from numerous well-diversified life sciences reagents providers, including, among others, Invitrogen, Qiagen, Roche, Stratagene, and Promega. Our Laboratory Services facedivision faces competition from a number of companies offering contract DNA sequencing and other genomic analysis services, including Genizon,Genzyme, Clinical Data, SeqWright and others. In addition, several clinical diagnostics service providers, such as Labcorp, Quest, Athena and Baylor College of Medicine, also offer related laboratory services. Finally, additional competition arises from academic core laboratory facilities.

Employees

As of December 31, 20082009 and 2007,2008, we had employees focused in the following areas of our operation:

Our employees were employed in the following geographical locations:

General Information

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

We make reports filed by us with the SEC available free of charge on our website as soon as reasonably practicable after these reports are filed. The address of our website iswww.transgenomic.com. Information on our website, including any SEC report, is not part of this Annual Report on Form 10-K.

Item 1A. Risk Factors

Risk Factors

We may not have adequate financial resources to execute our business plan.

We have historically operated at a loss and have not consistently generated sufficient cash from operating activities to cover our operating and other cash expenses. While we have been able to historically finance our operating losses through borrowings or from the issuance of additional equity, we currently have no plans to borrow additional funds or to issue additional equity securities for this purpose. At December 31, 2008,2009, we had cash and cash equivalents of $4.8$5.6 million. While we believe that existing sources of liquidity are sufficient to meet expected cash needs through 2009,2010, we will need to increase our net sales or further reduce our operating expenses in order to be assured of meeting our liquidity needs on a long-term basis. However, we cannot assure you that we will be able to increase our net sales, or further reduce our expenses, or raise further capital or equity and, accordingly, we may not have sufficient sources of liquidity to continue the operations of the Company indefinitely.

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

We have experienced annual losses from continuing operations since inception of our operations. Our net loss for the year ended December 31, 20082009 was $0.5$1.9 million. Our loss from continuing operations for the year ended December 31, 20072008 was $2.2$0.5 million. These historical losses have been due principally to the high levels of research and development expenses and sales and marketing expenses that we have incurred in order to develop and market our products, the fixed nature of our manufacturing costs, restructuring charges and impairment charges. In addition, markets for our products and services have developed more slowly than expected in many cases and may continue to do so. As a result, we may incur operating losses in the future.

Market demand is outside of our control.

There are many factors that affect the market demand for our products and services that we cannot control. Demand for our WAVE System is affected by the needs and budgetary resources of research institutions, universities, hospitals and others who use the WAVE System for genetic-variation research. The WAVE System represents a significant expenditure by these types of customers and often requires a long sales cycle. Similarly, the sales cycle for the OEM equipment that we sell can also be lengthy. If net sales from the sales of our products and services continue at current levels, we may need to take steps to further reduce operating expenses or raise additional working capital. We cannot assure you that sales will increase or that we will be able to reduce operating expenses or raise additional working capital.

The current economy may decrease sales.

Demand for our instruments is affected by the budgetary resources of institutions that use our products. Potential customers may be unable to obtain the financing that they need to make such significant capital expenditures during these troubled economic times. In addition, potential customers may be under budgetary restrictions which do not allow for such capital expenditures in the foreseeable future.

Sales of our Laboratory Services have been variable.

Laboratory Services include services performed by both our Molecular Clinical Reference Laboratory and our Pharmacogenomics Research Services. Testing volumes at the Molecular Clinical

Reference Laboratory is dependent on patient visits to doctors’ offices and other providers of health care and tends to fluctuate on a seasonal basis. Volume of testing generally declines during the year end holiday periods, other major holidays and the summer. The Pharmacogenomics Research Services depends on project based work which will change from quarter to quarter. Therefore, comparison of the results of successive quarters may not accurately reflect trends or results for the full year.

ComplianceOur Laboratory requires ongoing CLIA certification.

The Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) extended federal oversight to virtually all clinical laboratories by requiring that they be certified by the federal government or by a federally-approved accreditation agency. CLIA requires that all clinical laboratories meet quality assurance, quality control and personnel standards. Laboratories also must undergo proficiency testing and are subject to inspections.

The sanctions for failure to comply with CLIA requirements include suspension, revocation or limitation of a laboratory’s CLIA certificate, which is necessary to conduct business, cancellation or suspension of the laboratory’s approval to receive Medicare and/or Medicaid reimbursement, as well as significant fines and/or criminal penalties. The loss or suspension of a CLIA certification, imposition of a fine or other penalties, or future changes in the CLIA law or regulations (or interpretation of the law or regulations) could have a material adverse effect on us.

We believe that we are in compliance with all applicable laboratory requirements, but no assurances can be given that our laboratories will pass all future certification inspections.

Failure to comply with HIPAA is time consuming andcould be costly.

The Health Insurance Portability and Accountability Act (HIPAA) and associated regulations protect the privacy and security of certain healthcareprotected health information and establish standards for electronic healthcare transactions in the United States. These privacy regulations establish federal standards regarding the uses and disclosures of protected health information. Our Molecular Clinical Reference Laboratory is subject to HIPAA and its associated regulations and ifregulations. If we fail to comply with these laws and regulations we could suffer civil and criminal penalties, fines, exclusion from participation in governmental healthcare programs and the loss of various licenses, certificates and authorizations necessary to operate our Laboratory Services business. We could also incur liabilities from third party claims.

Our business could be adversely impacted by healthcare reform.

Government attention to the healthcare industry in the United States is significant and may increase. There has been extensive public discussion on healthcare reform. While it is not possible to predict what changes in U.S. government regulation of healthcare will occur, or the nature or impact of any such change, our business could be adversely impacted by these changes.

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

During the past several years, international sales have represented more than 50%approximately 60% of our total net sales. As a result, a major portion of our net sales are subject to risks associated with international sales and operations. These risks include:

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

We rely on a single supplier, Hitachi High Technologies America, to provide the basic instrument modules used in our WAVE Systems. While other suppliers of instrumentation are available, we believe that our arrangement with Hitachi offers strategic advantages. We have successfully converted the latest model of WAVE Systems to utilize Hitachi’s newest instrument line. If we were required to seek alternative sources of supply, it could be more 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 net sales.

The current economy may cause suppliers of products to not be able to perform.

We rely on various suppliers for products and materials needed to produce our products. In the event that they would be unable to deliver those items due to product shortage or business closure, we would be unable to deliver our products or may need to increase our prices. The current economy poses additional risk of our suppliers’ ability to continue their businesses as usual.

We may not have adequate personneltop executive talent to execute our business plan.

In order to reduce our operating costs, we have reduced the number of employees in most areas of our business. In addition, we may lose key management, scientific, technical, sales and manufacturing personnel from time to time. It may be very difficult to replace personnelrecruit and retain executive management if they are needed in the future, and the loss of key personneltop executive talent could harm our business and operating results. We cannot assure you that our employee reductions will not impair our ability to continue to develop new products and refine existing products in order to remain competitive. In addition, these reductions could prevent us from successfully marketing our products and developing our customer base.

Our markets are very competitive.

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

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

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

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

We rely upon trade secret protection, copyright and trademark laws, non-disclosure agreements and other contractual provisions for some of our confidential and proprietary information that is not

subject matter for which patent protection is being sought. Such measures, however, may not provide adequate protection for our trade secrets or other proprietary information. If such measures do not protect our rights, third parties could use our technology and our ability to compete in the market would be reduced.

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

We have licensed key components of our technologies from third parties. If these agreements were to terminate prematurely due to our breach of the terms of these licenses or we otherwise fail to maintain our rights to such technology, we may lose the right to manufacture or sell a substantial portion of our products. In addition, we may need to obtain licenses to additional technologies in the

future in order to keep our products competitive. If we fail to license or otherwise acquire necessary technologies, we may not be able to develop new products that we need to remain competitive.

The protection of intellectual property in foreign countries is uncertain.

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

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

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

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

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

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

The trading price for our common stock has fluctuated significantly over recent years. The volatility in the price of our stock is attributable to a number of factors, not all of which relate to our operating results and financial position. Our stock is traded on the OTC Bulletin Board (OTCBB).

Continued volatility in the market price for our stock should be expected and we cannot assure you that the price of our stock will not decrease in the future. Fluctuations or further declines in the price of our stock may affect our ability to sell shares of our stock and to raise capital through future equity financing.

Our stock has been delisted from the Nasdaq Capital Market and is now trading on the OTC Bulletin Board (OTCBB).

On February 1, 2007, we received a staff determination letter from Nasdaq’s Listing Qualifications Department indicating that we no longer met the minimum bid price requirement for continued listing on the Nasdaq Capital Market. As a result, our common stock on the Nasdaq Capital

Market was ended on February 22, 2007. Trading information about our common stock became available on the OTC Bulletin Board beginning on February 26, 2007.

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

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

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

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

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

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and

the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

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

At December 31, 2008,2009, we had obligations to issue 11,524,78611,309,887 shares of common stock upon exercise of outstanding stock options representing 3,531,0643,331,731 shares and warrants representing 7,993,722

7,978,156 shares. The issuance of these additional shares of common stock may be dilutive to our current shareholders and could negatively impact the market price of our common stock.

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

At December 31, 2008,2009, we had 49,189,672 shares of common stock outstanding. Fewer than ten unrelated, institutional holders own more than 50% of these shares. The sale of significant shares into the public market has potential to cause significant downward pressure on the price of our common stock. This is particularly the case if the shares being placed into the market exceed the market’s ability to absorb the stock. Such an event could place further downward pressure on the price of our common stock. This presents an opportunity for short sellers to contribute to the further decline of our stock price. If there are significant short sales of our stock, the price decline that would result from this activity will cause the share price to decline more so, which, in turn, may cause long holders of the stock to sell their shares thereby contributing to sales of stock in the market.

None.

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

(2)	This lease expiration assumes that we exercise the early termination clause which allows the lease to terminate in February 2011. The original lease expiration is February 2014.

We occupy the leased facilities, with the exception of the Paris, France facility which we have vacated and are in the process of finding a tenant to sublease this facility. In the event we are unable to sublease the Paris, France facility, we will exercise the early termination clause which allows for the lease to terminate in February 2011. The original term of the lease expires on February 1, 2014. We have a reserve of $0.2$0.1 million in other accrued expenses for the remaining lease liability.

We believe that our facilities are suitable and adequate for our current level of operations.

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

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

PART II

Market Information.    Share price information for our common stock is available on the OTC Bulletin Board under the symbol TBIO.OB. Prior to February 22, 2007, our common stock was listed for trading on the Nasdaq Capital Market under the symbol TBIO. The following table sets forth the high and low closing prices for our common stock during each of the quarters of 20072008 and 2008.2009.

Holders.    At December 31, 2008,2009, there are 49,189,672 shares of our common stock outstanding and approximately 2,8512,800 holders of record.

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

Sale of Unregistered Securities.    The Company made no sales of its common stock during the years ended December 31, 20082009 and 20072008 that were not registered under the Securities Act of 1933 (the “Securities Act”). Information regarding sales of equity securities by the Company during the year ended December 31, 2005 that were not registered under the Securities Act of 1933 have been previously reported by the Company on Form 8-Ks filed on March 18, 2005, March 30, 2005 and October 31, 2005.

Issuer Purchase of Equity Securities.    The Company made no purchases of its common stock during the quarter ended December 31, 2008. Therefore, tabular disclosure is not presented.

Item 6.

Selected Consolidated Financial Data.

The selected consolidated balance sheet data as of December 31, 20082009 and 20072008 and the selected consolidated statements of operations data for each year ended December 31, 20082009 and 20072008 have been derived from our audited consolidated financial statements that are included elsewhere in this Annual Report on Form 10-K. The selected consolidated balance sheet data as of December 31, 2007, 2006 2005 and 20042005 and the selected consolidated statements of operations data for each year ended December 31, 2007, 2006 2005 and 20042005 have been derived from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K. Dollar amounts, except per share data, are presented in thousands.

(3)

Other income (expense) for all years presented primarily includes interest expense and interest income. Other income in 2007 includes $.9 million from the sale of an investment security and $.2 million in insurance proceeds related to equipment destroyed in fire at our Cramlington, England facility. The loss on debt extinguishment of $0.5 million in 2005 related to the repayment of long-term debt and $2.9 million resulting from certain modifications to long-term borrowing agreements that were treated as extinguishments for financial reporting purposes. Other expense in 2004 of $5.3 million consisted of interest expense of $2.4 million and loss on debt extinguishment of $2.9 million.

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

You are cautioned not to Consolidated Financial Statementsplace undue reliance on these forward-looking statements. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks and other information in this report,factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Actual results may differ materially from those suggested by the forward-looking statements that we make for a number of reasons including Risk Factors set forththose described in Item 1A, “Risk Factors,” and Critical Accounting Policies set forth at the endother factors identified by cautionary language used elsewhere in this report.

We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of this Item 7.new information, future events or otherwise, except as required by law.

Our continuing operations consist of the Instrument Related Business (including the manufacture and sale of our WAVE System and related consumable products) and the Laboratory Services (see the description of our business in Item 1). The Company has, for the first time,We have broken out our business into two reportable segments: Instrument Related business and Laboratory Services business. While we have been showing Net Sales and Cost of Sales for these segments, we have not previously disclosed any further detail. There are estimates involved in breaking out the remaining expenses and other disclosures.

The Consolidated Financial Statements also reflectfollowing discussion should be read together with our financial statements and related notes contained in this report. Results for the assets andyear ended December 31, 2009 are not necessarily indicative of results of our former Nucleic Acids operating segment, which are shown as discontinued operations in all periods as a result of the implementation of a plan to exit this operating segmentthat may be attained in the fourth quarter of 2005.future.

Executive Summary

20082009 Results

Full year net sales for 20082009 of $24.0$22.0 million increaseddecreased by 4%8% compared with total net sales for 20072008 of $23.2$24.0 million. Our bioinstruments business declined in 2008 due to fewer WAVE instruments sold in both the US and European markets. The Instrument Related Business decreased 3%12% from 20072008 to 2008.2009. The

growth in our Laboratory Services was 56%7% over the prior year. Overall gross margins increaseddecreased from 55%57% to 57%53%. Operating expenses in 2008, exclusive of $1.0 million in foreign currency revaluation gains, a goodwill impairment write-off of $0.6 million, and $0.1 million of restructurerestructuring charges, were $14.3 million as compared to $14.4$13.2 million in 2007,2009, exclusive of $0.1$0.3 million of revaluation losses and $1.5 million of restructure charges. While in total there has only been a slight decrease here, after adjusting for the items noted above, there has been some movement within the components.losses. General and administrative costs, exclusive of foreign currency revaluation, are down by approximately $0.5 million, research and development costs are downup by $0.6$0.7 million and sales and marketing costs are updown by $0.9 million due to the focus around growing the laboratory business.$1.3 million.

Although weWe have taken significant steps to reduce our operating expenses, we have also increased sales and marketing costs to drive growth in the business.expenses. We continued to generategenerated a

negative positive cash flow during the year; however, our use of cash was reduced over the last two years. Our losses from continuing operations have gone from $2.2 million in 2007year largely due to net loss of $0.5 million in 2008. We were able to avoid new debtinventory management and improve our gross margins in 2008.accounts receivable collection.

20092010 Outlook

We will work to continue to leverage our core instrument business.business for on-going instrument sales worldwide as well as employing our instruments and related expertise in our two laboratory services businesses. Challenges do exist for WAVE System and consumable sales growth in our traditional markets. We continue to look for emerging markets and novel applications to provide us with new opportunities for our WAVE System.System such as our newly launched KRAS mutation detection kit. We intend to continue to look for opportunities to diversify into new markets, including the personalized medicine market (particularly in oncology), where the sensitivities of our technologies are essential. In addition, we are also selling refurbished WAVE Systems in order to allow an opportunity for customers that may not be able to afford the cost of a new system. Additionally, we have developed credibility and momentum with third-party platforms that will allow us to leverage on our direct sales force and distribution network.

On the Laboratory Services front, we have completed cancer pathway gene mutation projects for a number of high visibility pharmaceutical companies which have continued to demonstrate the unique sensitivity of detecting DNA mutations in cancer genes which are central to effective therapy selection for current and future cancer therapeutics. To this end, we are now gaining clinical trial program contracts which we believe will more rapidly impact our revenue opportunities from this segment. To compliment our mutation detection expertise, we also have strengthened our capabilities in biomarker development and mutation detection in novel cancer pathway genes which will aid in the development of true personalized medicine for our pharmaceutical partners. We have also increased our effortsrecently licensed and are developing a new technology for even greater DNA mutation enrichment and detection sensitivity which should prove to expandbe the highest sensitivity technology in the market. In our Molecular Clinical Reference Laboratory sales by hiring additional experienced field sales representatives and addingwe have continued to seek out or develop new tests to further expand our suite of products.menu and growth opportunities for this business.

Although we have experienced declining sales and recurring net losses (resulting in an accumulated deficit of $128.3$130.2 million at December 31, 2008)2009), management believes existing sources of liquidity, including cash and cash equivalents of $4.8$5.6 million, are sufficient to meet expected cash needs during 2009.2010. We will need to increase net sales in order to meet our liquidity needs on a long-term basis. In future periods, there is no assurance that we will be able to increase net sales or further reduce expenses and, accordingly, we may not have sufficient sources of liquidity to continue operations indefinitely. The current economic conditions may have a negative impact on our net sales in 2009.2010. The tightening of the credit market may make it difficult for customers to purchase instruments due to lack of funding. This was certainly true in 2009. In the event we do not have net sales growth, we will continueexpect to make cost reductions to align our expenses with our net sales.

Results of Continuing Operations

Years Ended December 31, 20082009 and 20072008

Net Sales.    Net sales for the years ended December 31, 20082009 and 20072008 consisted of the following (dollars in thousands):

Bioinstrument sales consist of sales of our WAVE System and associated equipment that we manufacture or assemble, net sales from service contracts that we enter into with purchasers of our instruments, as well as sales of instruments we distribute for other manufacturers (“OEM equipment”). We also sell refurbished WAVE Systems in order to access customers that may not be able to afford new systems. Bioinstrument net sales are down $1.0 million, or 9% during the year ended December 31, 2009 as compared to the same period in 2008. We sold 3032 WAVE Systems during the year ended December 31, 20082009 compared to 5630 systems during 2007.2008. This increase resulted from higher demand in the Asia markets which is offset by our average sales price decreasing 30% from 2008 to 2009. This decrease resulted from lower demand in all majoraverage sales price is largely due to the geographic markets and among both research and diagnostic users particularlymakeup of the sales. We sold 11 OEM instruments during the year ended December 31, 2009 compared to 13 in our largest markets.the same period of 2008 with a 6% increase in the average sales price. There was a reduction in service contract net sales in the European market largely due to foreign currency exchange impact of $0.5 million. Service contract revenue decreased in the United States due to fewer service contract renewals. Demand for WAVE Systems has beencontinues to be affected by significant competitive challenges from traditional (i.e. sequencing) and evolving technologies. OffsettingInstrument related revenue is subject to many factors such as type of instrument sold and the WAVE decline was our OEM instrument sales. We sold 13 OEM instruments during the year ended December 31, 2008 comparedcountry of sale. Due to only 8 in the samethese factors each period should be considered on a stand alone basis and is not indicative of 2007.future net sales streams.

Bioconsumable net sales decreased during the year ended December 31, 20082009 compared to 2007.2008 by $1.3 million. The primary decrease in consumables is due to lower usage of the WAVE consumables in Europe and the negative impact of the foreign currency exchange rates, primarily the Great British Pound to the US Dollar.Dollar and a smaller usage decline of the WAVE consumables. The active WAVE System base has declined from 2007 to 2008 which causes aforeign currency exchange impact included in this decrease in the demand for our consumable products.was $0.8 million.

Laboratory Services net sales increased during the year ended December 31, 20082009 compared to 20072008 by approximately $1.5 million.$0.3 million or 7%. Laboratory Services sales includes both the Molecular Clinical Reference Laboratory Services and the Pharmacogenomics Research Services. The Molecular Clinical Reference

Laboratory Services net sales of $2.9$3.5 million increased 70%23% over the year ended December 31, 2007.2008. The Molecular Clinical Reference Laboratory Services net sales growth is attributablehas increased due to theincreased test volume. Our test volume has increased by 45% due to our increased sales focus. We haveThe average revenue per test has decreased by 15% due to the mix of tests performed and increased the number of sales employees during 2008. The number of customers has increased as well as the net sales penetration per account.Medicare and Medicaid test volumes which drives lower reimbursements for these tests. The Pharmacogenomics Research Services net sales of $1.4$1.0 million during 2008 increased 33%2009 decreased 26% over the year ended December 31, 2007. Our sales focus for the2008. Pharmacogenomics Research revenue was lower during 2009 than in 2008 due to fewer large projects completed in 2009. The Pharmacogenomics Research Services has been

to increase the number of sales representatives to allow them to build relationships with the pharmaceutical companies and government agencies. The growth in 2008 net sales have peaks due to the nature of project related business. Each period for Pharmacogenomics Research Services should be considered on a stand alone basis and is attributable to three large customers which accounted for 85%not indicative of thefuture net sales. All of these customers had an increase in the amount of work performed from 2007 to 2008.

Costs of Goods Sold.    Costs of goods sold include material costs for the products that we sell and substantially all other costs associated with our manufacturing facilities (primarily personnel costs, rent and depreciation) as well as the wholesale price we pay manufacturers of OEM Equipment that we distribute. It also includes direct costs (primarily personnel costs, test outsourcing fees, rent, supplies and depreciation) associated with our Laboratory Services operations. Cost of goods sold for the years ended December 31, 20082009 and 20072008 consisted of the following (dollars in thousands):

Gross profit equaled $13.7$11.6 million or 57%53% of total net sales during the year ended December 31, 20082009 compared to $12.7$13.6 million and 55%or 57% during the same period of 2007.2008. The increasedecrease in gross profit as a percent of net sales is largely attributable to changes in the composition of products sold. Margins on bioinstruments improveddeclined from 64% to 63% from 2008 to 64% from 2007 to 20082009 due to the change in the geographic mix of instruments sold.sold, a decline in service contract revenue and obsolescence of $0.1 million related to an older low throughput instrument. Margins on bioconsumables decreased from 54% in 2007 to 53% in 2008 largely due to 48% in 2009 primarily related to an obsolescence reserve of $0.4 million for control plasmids used in our SURVEYOR kits and the impact on net sales.transition from a steel syringe delivery method to a disposable delivery method. The Laboratory Services business segment improved margins decreased for the year ended December 31, 20082009 to 45%38% as compared to 23%45% for the year ended December 31, 2007 due primarily to leveraging a fixed cost structure with increased net sales and consolidation of our Pharmacogenomic2008. The margin decline in the Laboratory Services business segment is driven by the decrease in Pharmacogenomics Research Services from Gaithersburgrevenue. In addition, Laboratory Services had higher operating supplies cost in 2009 than the same period in 2008 related to Omaha in 2008.the higher volume of tests and work required on the Pharmacogenomic projects.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses primarily include personnel costs, marketing, travel and entertainment costs, professional fees, facility

costs and foreign currency revaluation. These costsSelling, general and administrative expenses, excluding foreign currency revaluation gains and losses, decreased as a percentage of net sales from 49% in 20072008 to 45%46% in 2008. These reductions were primarily due to gains from2009. SG&A would have been $10.0 million excluding the foreign currency revaluation which decreased operating expenses by approximately $1.0expense of $0.3 million for the year ended December 31, 2008.2009. SG&A would have been $11.8 million excluding the $1.0 million foreign currency revaluation gain for the year ended December 31, 2008. In the year ended December 31, 2007 foreign currency revaluation adjustments increased operating expenses by $0.1 million. SG&A would have been $11.4 million excluding the foreign currency revaluation expense for the year ended December 31, 2007.These reductions were primarily due to open employment positions not being filled and lower commissions, travel and stock option expenses.

Research and Development Expenses.    Research and development expenses primarily include personnel costs, collaboration costs, legal fees, supplies, and facility costs. These costs totaled $2.4$3.2 million during the year

ended December 31, 20082009 compared to $3.0$2.5 million during the same period of 2007, a decrease2008, an increase of $0.6$0.7 million or 19%29%. 2007The increase is primarily due to collaboration expenses with Power3 for their NuroPro assay development related to the diagnosis of Alzheimer’s and Parkinson’s diseases, the Dana-Farber Cancer Institute related to the development of high sensitivity mutation detection technology called Cold-PCR and purchases of samples related to research and development expenses included $0.4work in legal and collaboration fees that were not needed in 2008.progress. As a percentage of net sales, research and development expenses totaled 10%14% and 13%10% of net sales during the year ended December 31, 2009 and 2008 and 2007 respectively. We expect to continue to invest approximately 10% to 12% of our net sales in research and development expenses. Research and development expenses are expensed in the year in which they are incurred.

Restructuring Charges.    There were no restructuring charges in 2009. We recorded restructuring charges of $0.1 million in 2008 related to the additional lease expense on the shut down of the Paris facilityfacility. This is due to changes in the market place causing our inability to sublease itthe facility of $0.3 million, which is offset by reserves for fixed assets and severance of $0.2 million not utilized. In addition, we took restructuring charges of less than $0.1 million in 2008 related to severance due to the relocation of the Pharmacogenomics Laboratory from Gaithersburg, Maryland to Omaha, Nebraska. We recorded restructuring charges totaling $1.5 million during 2007. The restructuring charges were comprised of severance payments totaling $.9 million, facility closure costs totaling $.5 million and other costs totaling $.1 million. Restructuring charges related to three events: A restructuring plan completed in the second quarter of 2007, which resulted in the termination of four employees in Omaha, Nebraska; the closure of the Cramlington, England bioconsumable production facility and consolidation of this production in the Omaha, Nebraska facility; and the closure of an administrative office outside Paris, France and combining those operations with those functions performed elsewhere in the organization. These restructuring charges do not relate to any activities taken by us during 2007 or prior periods in connection with the termination of our Nucleic Acids business segment. All costs associated with those activities are included in income (loss) from discontinued operations.

Goodwill.    We review goodwill for impairment on an annual basis.    As part of our 2008 impairment assessment we determined that goodwill was impaired and, accordingly, it was written off. The goodwill iswas attached to the WAVE related business. See goodwill discussion in Footnote B.

Other Income (Expense).    Other income during the year ended December 31, 2008 was $0.1 million while other income for the year ended December 31, 2007 was $1.4 million. In 2008 other income mainly included interest income. In 2007 we sold an investment in equity securities. On May 10, 2007, we sold 250,000 shares of stock in Pinnacle Pharmaceuticals, Inc. which we acquired in connection with a prior business acquisition. Gross proceeds realized from the sale were $0.9 million and because our carrying cost in this stock was $0, the sale resulted in a gain of $0.9 million. Other income also included $0.2 million in insurance proceeds related to equipment destroyed in the fire at our Cramlington facility and $0.3 millionconsists primarily of interest income we received from cash and cash equivalents invested in overnight instruments. Other income for the years ended December 31, 2009 and 2008 was offset by a nominal amount of interest expense in 2007.less than $0.1 million for each period.

Income Tax Expense.    Income tax expense recorded during the years ended December 31, 20082009 and 20072008 related to income taxes in states, foreign countries and other local jurisdictions and totaled less than $0.1 million and $0.2 million, in each year. respectively. The 2009 income tax expense is partially offset by a refundable tax credit related to the 2008 federal and state income tax returns. This credit is anticipated to continue for 2009. The effective tax rate for the year ended December 31, 2009 is 2.3%, which is primarily the result of valuation allowances against net operating losses for the United States.

A net deferred tax assetliability was recorded during 20082009 relating to the UK income taxes of less than $0.1 million.million compared to a net deferred tax asset of $0.1 million at year end 2008. Due to our cumulative losses and inability to utilize any additional losses as carrybacks, we did not provide for an income tax benefit during the year ended December 31, 20082009 based on our determination that it was more likely than not that such benefits would not be realized. We will continue to assess the recoverability of deferred tax assets and the related valuation allowance. To the extent we begin to generate taxable income in future periods and determine that such valuation allowance is no longer

required, the tax benefit of the remaining deferred tax assets will be recognized

at such time. Our net operating loss carryforwards from continuing and discontinued operations of $109.3$107.2 million will expire at various dates from 20092010 through 2028,2029, if not utilized. We also had state income tax loss carryforwards from continuing and discontinued operations of $41.9$41.0 million at December 31, 2008.2009. We plan to do a study related to our federal and state net operating loss carryforwards in 20092010 to determine if these have been limited due to change of control provisions. These carryforwards will also expire at various dates if not utilized.

Results of Discontinued Operations

On December 22, 2005, the Company’s Directors voted to either sell or close and liquidate the Nucleic Acids operating segment, which consists primarily of a manufacturing facility in Glasgow, Scotland. This decision was made after an evaluation of, among other things, short and long-term sales projections for products sold by this operating segment, including estimates of 2006 sales to the operating segment’s largest customer. In conjunction with the decision to exit this operating segment, the Company recorded impairment charges of $.4 million and $8.0 million in 2006 and 2005, respectively, consisting of valuation adjustments to reflect the carrying value of the related net assets at estimated fair market value. Accordingly, the results of this business segment are shown as discontinued operations for all periods presented. Expenses that are not directly attributable to this operating segment or are considered corporate overhead have not been allocated to this segment in determining the results from discontinued operations.

Income attributable to these discontinued operations during the year ended December 31, 2007 was less than $0.1 million. No income or loss from discontinued operations has been reported in 2008.

Assets associated with the Nucleic Acids segment consisted principally of our facility in Glasgow, Scotland. During 2007 we completed the sale of the Glasgow facility and the associated equipment for $2.9 million, net of selling expenses, which resulted in a gain of $.1 million.

Liquidity and Capital Resources

Our working capital positions at December 31, 20082009 and 20072008 were as follows (in thousands):

WeWhile we did generate cash in 2009, we have historically operated at a loss and have not consistently generated sufficient cash from operating activities to cover our operating and other cash expenses. In 20082009 we had a net loss of $0.5$1.9 million and needed to use $0.4 million for operating expenses and $0.4 million in investing activities which was offset by cash provided by operating activities. While we have been able to historically finance our operating losses through borrowings or from the issuance of additional equity, we currently have no borrowings and have no plans to issue additional equity securities for this purpose. At December 31, 20082009 and December 31, 2007,2008, we had cash and cash equivalents of $4.8$5.6 and $5.7$4.8 million, respectively. While we believe that existing sources of liquidity are sufficient to meet expected cash needs during 2009,2010, we will need to increase our net sales,

focus on receivables and inventory management or further reduce our operating expenses in order to be assured of meeting our liquidity needs on a long-term basis. However, we cannot assure you that we will be able to increase our net sales or further reduce our expenses, or raise further capital or equity and, accordingly, we may not have sufficient sources of liquidity to continue our operations indefinitely.

Analysis of Cash Flows

Years Ended December 31, 20082009 and 20072008

Net Change in Cash and Cash Equivalents.    Cash and cash equivalents increased $0.9 million during the year ended December 31, 2009 primarily as a result of $1.3 million being provided by operating activities and net cash used in investing activities of $0.4 million. Cash and cash equivalents decreased $1.0 million during the year ended December 31, 2008 as a result of net cash of $0.4 million being used by operating activities, changes in foreign currency exchange rates of $0.1 million and net cash used in investing activities of $0.4 million.

Cash Flows UsedProvided In Operating Activities.    Cash flows usedprovided in operating activities totaled $0.4$1.3 million during the year ended December 31, 20082009 compared to $2.9$0.4 million used in operating activities during the same periodyear ended December 31, 2008. We were able to generate cash flows from operating activities in 2009 due to our focus on accounts receivable collections and strong

inventory management. The cash flows provided by operating activities in 2009 primarily relate to the increased accounts receivable collections of 2007.$1.1 million, the decrease in inventory of $1.3 million and noncash items of $1.1 million, offset by the loss of $1.9 million and lower accrued expenses of $0.4 million. The use in 2008 resulted from an increase in accounts receivable of $1.1 million and higher inventory levels of $0.7 million related primarily to the acquisition of OEM Equipment and a net loss of $0.5 million offset somewhat by non-cash charges.charges of $1.9 million. Non-cash charges consisted of depreciation and amortization of $0.9 million, goodwill impairment of $0.6 million and non-cash stock based compensation of $0.4 million. The use in 2007 resulted primarily from our net loss of $2.1 million, higher inventory levels of $1.4 million related to the acquisition of OEM Equipment and gain on investment securities of $0.9 million and changes in other assets and liabilities totaling $0.9 million. This was offset by accounts receivable collection of $1.5 million and non-cash charges of $1.1 million. Non-cash charges consisted primarily of depreciation and amortization, and non-cash stock based compensation.

Cash Flows Used In Investing Activities.    Cash flows used in investing activities totaled $0.4 million during the yearyears ended December 31, 2008 compared to $3.1 million of cash flow provided by investing activities during the same period of 2007.2009 and 2008. Cash flows used in investing activities in 2009 and 2008 consisted primarily of $0.3 million for purchases of property and equipment. Cash flows provided by investing activities in 2007 consisted primarily of sales proceeds from our Glasgow facility and equipment of $2.9 million and proceeds from the sale of an investment in equity securities of $0.9 million. This was offset by purchases of $0.7 million of property and equipment.

Off Balance Sheet Arrangements

At December 31, 20082009 and 2007,2008, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies

Accounting policies used in the preparation of the consolidated financial statements may involve the use of management judgments and estimates. Certain of our accounting policies are considered critical as they are both important to the portrayal of our financial statements and they require significant or complex judgments on the part of management. Our judgments and estimates are based on experience and assumptions that we believe are reasonable under the circumstances. Further,

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

Allowance for Doubtful Account.    Accounts receivable are shown net of an allowance for doubtful accounts. In determining an allowance for doubtful accounts, we consider the age of the accounts receivable, customer credit history, customer financial information, reasons for non-payment, and our knowledge of the customer. If our customers’ financial condition were to deteriorate, resulting in a change in their ability to make payment, additional allowances may be required.

Inventories.    Inventories are stated at the lower of cost or market.market net of allowance for obsolete inventory. Cost is computed using standard costs for finished goods and average or latest actual cost for raw materials and work in process.process, which approximates the first-in, first-out (FIFO) method. We write down slow-moving and obsolete inventory by the difference between the value of the inventory and our estimate of the reduced value based on potential future uses, the likelihood that overstocked inventory will be sold and the expected selling prices of the inventory. If our ability to realize value on slow-moving or obsolete inventory is less favorable than assumed, additional write-downs of the inventory may be required.

Depreciation and Amortization of Long-Lived Assets.    Our long-lived assets consist primarily of property and equipment, patents and intellectual property and capitalized software development costs.property. We believe the useful lives we assigned to these assets are reasonable. If our assumptions about these assets change as a result of events or circumstances and we believe the assets may have declined in value we may record impairment

charges resulting in an increase to operating expenses. Property and equipment are carried at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets ranging from 1 to 10 years. We capitalize legal costs and filing fees associated with obtaining patents on our new discoveries and amortize these costs using the straight-line method over the shorter of the legal life of the patent or its economic life beginning on the date the patent is issued. Intellectual property which is purchased technology, is recorded at cost and is amortized over its estimated useful life.

Impairment of Long-Lived Assets.    We evaluate goodwill for impairment on an annual basis. We assess the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These computations utilize judgments and assumptions inherent in our estimate of future undiscounted and discounted cash flows to determine recoverability of these assets. As part of our 2008 impairment assessment, we determined that goodwill was impaired, and accordingly, it was written off.

Net Sales Recognition.    Revenue onis realized and earned when all of the following criteria are met:

Net sales of our instrument and bioconsumable products isare recognized in accordance with the terms of the sales arrangement. Such recognition is based on receipt of an unconditional customer order and transfer of title and risk of ownership to the customer, typically upon shipment of the product. Our normal sales terms do not provide for the right of return unless the product is damaged or defective. Net Sales from certain services associated with our analytical instruments, to be performed subsequent to shipment of the products, is deferred and recognized when the services are provided. Such services, mainly limited to installation and training services that are not essential to the functionality of the instruments, typically are performed in a timely manner subsequent to shipment of the instrument. We also enter into various service contracts that cover installed instruments. These contracts cover specific time period and net sales associated with these contracts are deferred and ratably recognized over the service period.

Net sales recognition for our Molecular Clinical Reference Laboratory is on an individual test basis and takes place when the test report is compete, all sign offs have been completed, reviewed and the report is sent to the client net of reimbursement allowanceless the reserve for insurance, Medicare

and Medicaid expected reimbursement. Adjustments to the allowances, based on actual receipts from the third party payers, are recorded upon settlement.

In our Pharmacogenomics research group we perform services on a project by project basis. When we get payment in advance we recognize net sales based on proportionate performance measurement for each project. revenue when we deliver the service. These projects typically do not extend beyond one year.

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

Recently Issued Accounting Pronouncements

In July 2006,June 2009, the FASB issued Interpretation No. 48,FASB ASC 105, Generally Accepted Accounting for UncertaintyPrinciples, which establishes the FASB Accounting Standards Codification as the sole source of authoritative

generally accepted accounting principles. Pursuant to the provisions of FASB ASC 105, the Company has updated references to GAAP in Income Taxes(“FIN 48”). FIN 48 applies to all tax positions within the scope of Statement 109 and clarifies when and how to recognize tax benefits in theits financial statements with a two-step approachissued for the period ended September 30, 2009. The adoption of recognitionFASB ASC 105 did not impact the Company’s financial position or results of operations.

ASC 820, “Fair Value Measurement and measurement. We adopted FIN 48 on January 1, 2007. Under FIN 48, tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is more likely than not to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in our tax returns that do not meet these recognition and measurement standards.

In September 2006, the FASB issued Statement No. 157,Fair Value Measurement (“FAS 157”). While this Statement does not require newDisclosures” defines fair value, measurements, it provides guidance on applyingestablishes a framework for measuring fair value and expands required disclosures. FAS 157 is effective as of January 1, 2008 for financial assets and financial liabilities within its scope. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”), which defers the effective date of FAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed atdisclosures about fair value in the financial statements on a recurring basis (at least annually), for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years for items within the scope of FSP FAS 157-2.measurements. We have implemented FAS 157 and FSP FAS 157-2.

In February 2007, the FASB issued Statement No. 159,The Fair Value Option for Financial Assets and Financial Liabilities (“FAS 159”). This Statement, which expands fair value measurement, permits entities to choose to measure many financial instruments and certain other items at fair value. We implemented FAS 159 on January 1, 2008. We currently have no financial assets or financial liabilities for which FAS 159 would be applicable.

In December 2007, the FASB issued FAS No. 141(R) “Business Combinations” (“FAS 141(R)”). FAS 141(R) changes several underlying principles in applying the purchase method of accounting. Among the significant changes, FAS 141(R) requires a redefining of the measurement date of a business combination, expensing direct transaction costs as incurred, capitalizing in-process research and development costs as an intangible asset and recording a liability for contingent consideration at the measurement dateadopted ASC 820 with subsequent re-measurements recorded in the results of operations. FAS 141(R) also requires that costs for business restructuring and exit activities related to the acquired company will be included in the post-combination financial results of operations and also provides new guidance for the recognition and measurement of contingent assets and liabilities in a business combination. In addition, FAS 141(R) requires several new disclosures, including the reasons for the business combination, the factors that contribute to the recognition of goodwill, the amount of acquisition related third-party expenses incurred, the nature and amount of contingent consideration, and a discussion of pre-existing relationships between the parties. FAS 141(R) is effective as of January 1, 2009. We currently do not have any plans for a business combination, therefore FAS No. 141 (R) is expected to have no impact on our consolidated financial statements.

In December 2007, the FASB issued FAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51”, (“FAS 160”). FAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FAS 160 requires noncontrolling interests in subsidiaries initially to be measured at fair value and classified as a separate component of equity. FAS 160 also requires a new presentation on the face of the consolidated financial statements to separately report the amounts attributable to controlling and non-controlling interests. FAS 160 is effective as of January 1, 2009. We do not expect FAS No. 160 to have an impact on our consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP No. FAS 142-3”). FSP No. FAS 142-3ASC 350, “Intangibles – Goodwill and Other” requires companies estimating the useful life of a recognized intangible asset to consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, to consider assumptions that market participants would use about renewal or extensionextension. ASC 350 was adopted on January 1, 2009 and had no impact on our financial statements.

ASC 815-40, “Derivatives and Hedging” addresses freestanding contracts that are indexed to, and potentially settled in, an entity’s own stock. We adopted ASC 815-40 on January 1, 2009. We have assessed our warrants and determined the fair value is $0 so there is no impact to our financial statements.

Accounting Standards Update No. 2009-13 addresses the accounting for multiple deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as adjusteda combined unit. This update is effective for FASfiscal years on or after June 15, 2010. We are currently assessing the impact to our financial statements.

Accounting Standards Update No. 142’s, Goodwill2009-05 provides amendments to ASC Topic 820, “Fair Value Measurements and Other Intangible Assets, entity-specific factors. FSPDisclosure” for the fair value measurement of liabilities. We have implemented ASU 2009-05 with no impact on our financial statements.

Accounting Standards Update No. FAS 142-32009-14 addresses the accounting for revenue arrangements that contain tangible products and software. This update is effective for fiscal years beginning on or after DecemberJune 15, 2008 (fiscal 2009 for the Company).2010. We are currently assessing the impact if any, of FSP No. FAS 142-3 onto our consolidated financial statements.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles (“FAS 162”). This Standard identified the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. FAS 162 directs the hierarchy to the entity, rather than the independent auditors, as the entity is responsible for selecting accounting principles for financial statements that are presented in conformity with generally accepted accounting principles. FAS 162 is effective November 15, 2008 and did not have an impact on our financial statements.

In June 2008 the FASB issued Abstract Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock” (“EITF 07-5”). EITF 07-5 clarifies the exceptions that are allowable under FAS 133, “Accounting for Derivative Instruments and Hedging Activities” in paragraph 11A. Under FAS 133 most derivatives are recorded as assets or liabilities with changes in their fair value being recorded through earnings. One of the exceptions outlined in paragraph 11A of FAS 133 states that if a derivative is indexed to the entity’s own stock and is classified in shareholder’s equity, the derivative accounting is avoided. EITF 07-5 clarifies whether or not a derivative is indexed to an entity’s own stock. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. We are currently assessing the impact, if any, of EITF 07-5 on the consolidated financial statements.

Use of Estimates

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reported period. In addition, estimates and assumptions associated with the determination of the fair value of certain assets and related impairments and the determination of goodwill impairments require considerable judgment by management. Actual results could differ from the estimates and assumptions used in preparing these financial statements.

This report, including Management’s Discussion & Analysis, contains forward-looking statements. These statements are based on management’s current views, assumptions or beliefs of future events and financial performance and are subject to uncertainty and changes in circumstances. Readers of this report should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements. These factors include, among other

things: our expected revenue, income(loss), receivables, operating expenses, supplier pricing, availability and prices of raw materials, Medicare/Medicaid/Insurance reimbursements, product pricing, foreign currency exchange rates, sources of funding operations and acquisitions, our ability to raise funds, sufficiency of available liquidity, future interest costs, future economic circumstances, industry conditions, our ability to execute our operating plans, the success of our cost savings initiatives, competitive environment and related market conditions, actions of governments and regulatory factors affecting our business and other risks as described in our reports filed with the Securities and Exchange Commission. In some cases these statements are identifiable through the use of words such as “anticipate”, believe”, “estimate”, “expect”, “intend”, “plan”, “project”, “target”, “can”, “could”, “may”, “should”, “will”, “would” and similar expressions.

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

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

Impact of Inflation

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

Foreign Currency Translation Risk.During the last two fiscal years, our international sales have represented more than 50%60% of our net sales. These sales of products in foreign countries are mainly completed in either British Pounds Sterling or the Euro. Additionally, we have twothe British Pound is the functional currency of our wholly owned subsidiaries,subsidiary, Transgenomic Limited, and Cruachem Limited, whose operating currency is British Pounds Sterling and the Euro.Limited. Results of operation and the Balance Sheet are translated from the functional currency of the subsidiary, Great British Pounds, to our reporting currency of the US dollar.Dollar. Results of operations for the Company’s foreign subsidiaries are translated using the average exchange rate during the period. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. In addition, we have revaluation risk which occurs when the transaction is done in a currency other than the British Pound. This transaction must be revalued within the Transgenomic Limited ledger, whose functional currency is the British Pound Sterling. The majority of the transactions on this ledger are in Euro. As a result we are subject to exchange rate risk. The foreign exchange rates have had large variances during 2008.recently. At January 1, 2008 the Euro to GBPGreat British Pound exchange rate was .73650 as compared to December 31, 20082009 rate of .9740..9000. The GBPGreat British Pound to US Dollar exchange rate was 1.9970 at January 1, 2008 compared to 1.447901.59280 at December 31, 2008. This is a decrease of 27%. These2009. Such large changes in foreign exchange rates may negatively impact our business in 2009.2010.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Transgenomic, Inc.

We have audited the accompanying consolidated balance sheets of Transgenomic, Inc. and subsidiariessubsidiary as of December 31, 20082009 and 2007,2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for years then ended. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Transgenomic, Inc. and subsidiariessubsidiary as of December 31, 20082009 and 2007,2008, and the results of its their operations and their cash flows for years then ended, in conformity with U.S. generally accepted accounting principles.

We were not engaged to examine management’s assessment of the effectiveness of Transgenomic, Inc.’s internal control over financial reporting as of December 31, 2008,2009, included in the accompanying Management’s Report on Internal Control Over Financial Reporting and, accordingly, we do not express an opinion thereon.

TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of December 31, 20082009 and 20072008

(Dollars in thousands except per share data)

See notes to consolidated financial statements.

TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 20082009 and 20072008

(Dollars in thousands except per share data)

See notes to consolidated financial statements.

TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years Ended December 31, 20082009 and 20072008

(Dollars in thousands except per share data)

See notes to consolidated financial statements.

TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 20082009 and 20072008

(Dollars in thousands)