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

The following analysis gives effectSee notes to the restatement of our condensed consolidated statements of cash flows for the nine months ended September 30, 2004 and 2003, as discussed in Note M to the accompanying unaudited condensed consolidated financial statements.

Overview

We provide innovative products and services for the synthesis, purification and analysis of nucleic acids. We develop, assemble, manufacture and market our products and services to the life sciences industry to be used in research focused on molecular genetics of humans and other organisms. Such research could lead to development of new diagnostics and therapeutics. Our products can be used to analyze DNA or RNA at the molecular level, amplify, separate, and isolate nucleic acid fragments of particular interest and synthesize conventional or chemically-modified nucleic acid molecules. These capabilities are central to research seeking to discover and understand variations in the genetic code, the relationship of these variations to disease and, ultimately, to develop diagnostics and therapeutics based on this understanding. Our business plan is to participate in the value chain associated with these activities by providing key technology, tools, consumables, biochemical reagents and services to those entities engaged in basic biomedical research and the development of diagnostics and therapeutic agents.

The Company’s operations are managed based upon the nature of the products and services provided. Accordingly, the Company has determined that it operates in two segments, BioSystems and Nucleic Acids. Operations for these segments are evaluated based upon specific identification of revenues and expenses associated with the business activities resulting in a segment operating income. Expenses that cannot be directly identified to an operating activity or are considered corporate overhead are not allocated to the segments in arriving at operating income for the segment.

The BioSystems operating segment generates revenue from the sale of automated instrument systems and associated consumable products and services. This segment’s products are based upon separations chemistries and enzymology. Specifically, this segment’s main products are the WAVE System, related bioconsumables and research services. Since the WAVE System product introduction in 1997, we have sold over 1,000 instruments to customers in over 30 countries.

The Nucleic Acids operating segment has been engaged in the manufacture of nucleic acid building blocks or phosphoramidites, oligonucleotides, fluorescent markers, dyes and associated reagents and novel chemistry and process development services. This operating segment has historically operated at a loss and the Company has been exploring strategic alternatives regarding this operating segment during 2004. On November 11, 2004, we sold the assets associated with our specialty oligonucleotide manufacturing facility in Boulder, Colorado to a subsidiary of Eyetech Pharmaceuticals, Inc. As a result, we no longer manufacture and sell oligonucleotides.

Executive Summary and Operating Strategy

We have incurred significant losses resulting principally from costs incurred in research and development and selling, general and administrative costs associated with our operations. At September 30, 2004, we had an accumulated deficit of $100.2 million. Our liquidity and working capital positions deteriorated during the quarter predominately due to operating losses. These operating losses were funded primarily by borrowings under our credit facility and reductions in accounts receivables.

While we expect to continue to incur substantial research and development and selling, general and administrative costs, we have implemented an operating strategy which is designed to refocus on the BioSystems segment of our business and to align our cost structure with projected revenues. We have initiated the following steps to accomplish this objective.

Strategic Alternatives For Our Nucleic Acids Operating Segment. Our Nucleic Acids operating segment has historically operated at a loss and produced negative cash flow. While we believe the long-term prospects for this business segment are favorable, the projected levels of near-term revenues from this segment are not expected to generate either positive cash flows or profits from operations. After considering, among other factors, the historical financial results of this division and the near-term outlook for the nucleic acids industry, our2

Board of Directors directed management to explore strategic alternatives for this operating segment, including the possible sale of one or both of the facilities in Glasgow, Scotland and Boulder, Colorado. On November 11, 2004, the Company sold the assets associated with its specialty oligonucleotide manufacturing facility in Boulder, Colorado to a subsidiary of Eyetech Pharmaceuticals, Inc. (“Eyetech”). The sale price was $3.0 million in cash plus the assumption of the lease on the Boulder facility and certain equipment leases with a gross value of $2.3 million. Substantially all of the 27 employees at the Boulder facility became Eyetech employees. Net proceeds from the sale (after transaction expenses and fees paid to our investment advisors) equaled approximately $2.7 million, subject to a holdback of $300,000 that will be held in escrow for 90 days for liabilities for representations and warranties and to pay the costs of moving certain acquired assets to the Boulder facility. The net proceeds will be used primarily for general working capital purposes and to repay portion of our credit line. We have also taken steps to downsize our remaining nucleic acids facility in Glasgow, Scotland as part of the restructuring plan described below.

Restructuring Plan. On November 13, 2004, the Board of Directors approved a restructuring plan designed to refocus the Company on its BioSystems business segment and to align the Company’s cost structure with anticipated revenues. The plan (which is incremental to the sale of the Boulder facility previously summarized) includes a workforce reduction of approximately 60 positions and the closure of two domestic research and development facilities associated with our nucleic acids operating segment and two European field offices. The majority of workforce reductions will be completed by the end of November 2004. The plan is expected to yield annualized savings of $6.0 to $8.0 million once the cost reductions are fully implemented in the first quarter 2005. In conjunction with the plan, the Company expects to incur a charge of between $1.5 million to $1.8 million during the quarter ending December 31, 2004 related primarily to severance, benefits and facility closures. Additionally, we have adopted processes to improve the collection of accounts receivables, especially with respect to sales in European markets which historically have longer payment cycles. Finally, we have taken steps to more appropriately align the timing of our inventory acquisitions with anticipated sales.

Together, the sale of our oligonucleotide manufacturing facility and the November 13, 2004 restructuring plan, is expected to result in $10.0 to $12.0 million in annual cost savings.

Revisions to Credit Facilities. We have entered into a $7.5 million line of credit (the “Credit Line”) and a separate $2.75 million convertible note with Laurus (the “Term Note”) with Laurus Master Fund, Ltd. (“Laurus”) (collectively, the “Laurus Loans”). In February 2004, Laurus waived the borrowing base limitation on the Credit Line, thereby making the full $7.5 million facility available to the Company regardless of the available collateral. On August 31, 2004, Laurus agreed to extend the borrowing base waiver on the Credit Line through March 19, 2005. In addition, Laurus has deferred certain payments due under the Term Note and reduced the interest rate on both of the Laurus Loans to 0% for any day the closing sale price of the Company’s common stock is at or above $1.75 per share). In return, we lowered the conversion price on each of the Laurus Loans to $1.00 per share and issued a warrant to Laurus covering an additional 400,000 common shares at an exercise price of $1.25 per share. The closing price of the Company’s common stock on August 31, 2004 was $1.20 per share.

The revisions to the Laurus Loans agreements, along with the anticipated liquidity benefits resulting from the sale of the Boulder facility and implementation of the restructuring plan are expected to significantly improve our liquidity position. However, there can be no assurance that these initiatives alone will be sufficient to allow the Company to operate without additional capital.

Results of Operations Three Months Ended September 30, 2004 and 2003

Net Sales. Net sales during the third quarter of 2004 increased 9% from the third quarter of 2003, as a result of 10% reduction in sales in our BioSystems operating segment offset by 85% increase in sales in our Nucleic Acids operating segment.

The decrease in BioSystems sales resulted from a 27% decline in revenues from the sales of bioinstruments. This reduction was partially offset by a 99% increase from discovery services and a 15% increase in bioconsumables. Net sales of software upgrades, service contracts and consumable products continued to increase due to a larger installed base of WAVE Systems. Increased discovery services revenue is attributable to a focus on providing genetic variation discovery and analysis services to our pharmaceutical base of customers. In December 2003, we announced a discovery services agreement with Novartis Pharmaceuticals Corp. supporting the clinical development of oncology therapeutics. We believe that genetic variation discovery and analysis services provide us a significant opportunity to expand revenues in the future.

Sales in our Nucleic Acid operating segment increased by 85% in the third quarter of 2004 compared to the third quarter of 2003 as a result of a substantial increase in sales of our chemical building block products, primarily to Geron Corporation. Sales of oligonucleotide products remained flat during the period. These products are used by our biopharmaceutical and pharmaceutical customers as raw materials in DNA based drug candidates and demand is affected by the timing of completion and/or failure clinical trials for these drug candidates. As a result of the sale of our Boulder, Colorado facility in November 2004, we no longer manufacture or sell oligonucleotides.

Cost of Goods Sold. Cost of goods sold remained relatively flat year to year despite the increase in our revenues. Fixed costs associated with excess manufacturing capacity in our Nucleic Acids business unit and a lower number of high margin WAVE Systems sold kept our cost of goods sold comparable to the third quarter of 2003. The BioSystems business unit cost of goods sold as a percentage of sales increased year over year but remained within historical ranges at 45% to 50%. We expect that our BioSystems margins will fluctuate within historical ranges based upon the sales mix of systems, consumables and services. Currently our Nucleic Acid products are sold at lower margins compared to our BioSystems products. The margins in our Nucleic Acids business unit have been negatively impacted by higher manufacturing costs and excess capacity due largely to our plant expansion efforts in Glasgow, Scotland and Boulder, Colorado.

As a result of the sale of our Boulder, Colorado facility and the restructuring plan implemented in November 2004, we anticipate that our cost of goods sold for our Nucleic Acid products will be significantly improved. However, until demand for our Nucleic Acid products increase we will continue to have excess manufacturing capacity and lower than expected margins.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased slightly as a result of increased costs in our Glasgow, Scotland facility offset by reductions in personnel and personnel related expenses and travel costs attributed to the decrease, offset by foreign currency increases.

Research and Development Expenses. Research and development expenses decreased as a result of our focus on expense control. Reductions in personnel, personnel related expenses and outside services all contributed to the decrease. We expense our research and development costs in the year in which they are incurred.

Other Income (Expense). Other income (expense) includes of interest and investment income, interest expense and loss on debt extinguishment.

Interest and investment income (loss) totaled $(345,000) in the third quarter of 2004 compared to $2,000 during the same period of 2003. The decrease related primarily to losses realized on the sale of Geron stock. As described in Note B to the condensed consolidated financial statements, Geron has paid us for products with Geron common stock that we have accounted for as available for sale securities.

Interest expense was $378,000 in the third quarter of 2004 compared to $98,000 for the same period of 2003. The increase related to a significantly higher debt burden and a slightly higher cost of funds.

Loss on debt extinguishment totaled $2.9 million in the third quarter of 2004. As described in Note J to the condensed consolidated financial statements, certain August 31, 2004 modifications to our Laurus facilities were treated as extinguishments for financial reporting purposes since the change in present value of expected cash flows between the original and modified agreements is greater than 10%. As such, the Company recorded a loss on extinguishment of debt of $2.9 million at August 31, 2003 reflecting the difference between (i) the recorded amount of debt, net of related discounts, of $7.4 million and (ii) the fair value of the new debt instrument of $10.3 million plus the fair value of the new warrants of $120,000. The difference between the fair value of the new debt of $10.3 million and the face value of the debt of $8.6 million represents a premium, which will be reflected as a reduction of interest expense over the life of the new debt.

Income Tax Expense. The Company’s tax expense (benefit) relates to its operations in certain foreign countries and certain states. The tax benefit recorded in the third quarter of 2004 relates to refunds received in the United Kingdom. No further tax benefits are being recorded due to the uncertainty as to whether we will be able to utilize any additional losses as carrybacks. We will continue to assess the recoverability of deferred tax assets and the related valuation allowance. We expect to continue to incur losses and expect to continue to provide valuation allowances against deferred tax assets. To the extent we begin to generate taxable income in future years and it is determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized.

Results of Operations Nine Months Ended September 30, 2004 and 2003

Net Sales. Net sales during the nine months ended September 30, 2004 increased 1% from the same period of 2003, as a result of a 27% increase in sales in our Nucleic Acids operating segment offset by a 6% reduction in sales in our BioSystems operating segment.

Sales in our Nucleic Acid operating segment increased by 27% in the nine months ended September 30, 2004 compared to the same period of 2003 as a result of increases in sales of our chemical building block products, primarily to Geron Corporation and substantial increases in sales of oligonucleotides. These products are used by our biopharmaceutical and pharmaceutical customers as raw materials in DNA based drug candidates and demand is affected by the timing of completion and/or failure clinical trials for these drug candidates. As a result of the sale of our Boulder, Colorado facility in November 2004, we will no longer manufacture or sell oligonucleotides.

The decrease in BioSystems sales resulted from a 16% decrease in bioinstrument and discovery services sales offset by a 21% increase in bioconsumable sales. This resulted from a 24% decline in revenues from the sales of bioinstruments. This reduction was partially offset by a 309% increase from discovery services and a 21% increase in bioconsumables. Net sales of software upgrades, service contracts and consumable products continued to increase due to a larger installed base of WAVE Systems. Increased discovery services revenue is attributable to a focus on providing genetic variation discovery and analysis services to our pharmaceutical base of customers. In December 2003, we announced a discovery services agreement with Novartis Pharmaceuticals Corp. supporting the clinical development of oncology therapeutics. We believe that genetic variation discovery and analysis services provide us a significant opportunity to expand revenues in the future.

Cost of Goods Sold. Cost of goods sold remained relatively flat year to year despite the increases in our revenues. Fixed costs associated with excess manufacturing capacity in our Nucleic Acids business unit and a lower number of high margin WAVE Systems sold kept our cost of goods sold comparable to the prior period. The BioSystems business unit cost of goods sold as a percentage of sales increased year over year but remained within historical ranges at 45% to 50%. We expect that our BioSystems margins will fluctuate within historical ranges based upon the sales mix of systems, consumables and services. Currently our Nucleic Acid products are sold at lower margins compared to our BioSystems products. The margins in our Nucleic Acids business unit have been negatively impacted by higher manufacturing costs and excess capacity due largely to our plant expansion efforts in Glasgow, Scotland and Boulder, Colorado.

As a result of the sale of our Boulder, Colorado facility and the restructuring plan implemented in November 2004, we anticipate that our cost of goods sold for our Nucleic Acid products will be significantly improved. However, until demand for our Nucleic Acid products increase we will continue to have excess manufacturing capacity and lower margins.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased slightly as a result of our focus on expense control. Reductions in personnel and personnel related expenses and travel costs attributed to the decrease, offset by foreign currency increases.

Research and Development Expenses. Research and development expenses decreased as a result of our focus on expense control. Reductions in personnel, personnel related expenses and outside services all contributed to the decrease. We expense our research and development costs in the year in which they are incurred.

Impairment Charges.During the three months ended March 31, 2004, our Board of Directors directed us to explore strategic alternatives for the Nucleic Acids operating segment. The ongoing process has included significant due diligence by us, our advisors and prospective independent buyers and other interested parties.

Based upon information obtained through this process during the three months ended June 30, 2004, we determined that it was more likely than not that the assets of the Nucleic Acids business were impaired. Accordingly, we engaged an external valuation firm to assist with the completion of a mid-year impairment test. As a result, we recorded a non-cash charge of $12.0 million related to its Nucleic Acids segment during the three months ended June 30, 2004. The charge consisted of $9.9 million related to the impairment of goodwill and $2.1 million related to the impairment of property and equipment.

Restructuring Charges. During the fourth quarter of 2002 management formulated and executed a significant portion of a restructuring plan. The plan was developed to reduce expenses thereby better aligning the Company’s

expense structure with current business prospects. The plan included employee terminations, office closures, termination of collaborations and write-offs of abandoned intellectual property. We continued to execute the plan during the first quarter of 2003 resulting in the additional charges recorded in 2003. These charges consisted of mainly employee severance costs and office closings. We have not incurred any significant restructuring charges in the nine months ended September 30, 2004.

Other Income (Expense). Other income (expense) includes of interest and investment income, interest expense and loss on debt extinguishment.

Interest and investment income (loss) totaled $(371,000) in the nine months ended September 30, 2004 compared to $48,000 during the same period of 2003. The decrease related primarily to losses realized on the sale of Geron stock. As described in Note B to the condensed consolidated financial statements, Geron has paid us for products with Geron common stock that we have accounted for as available for sale securities.

Interest expense was $1.3 million in the nine months ended September 30, 2004 compared to $191,000 for the same period of 2003. The increase related to a significantly higher debt burden and a slightly higher cost of funds.

Loss on debt extinguishment totaled $2.9 million in the nine months ended September 30, 2004. As described in Note J to the condensed consolidated financial statements, certain August 31, 2004 modifications to our Laurus facilities were treated as extinguishments for financial reporting purposes since the change in present value of expected cash flows between the original and modified agreements is greater than 10%. As such, the Company recorded a loss on extinguishment of debt of $2.9 million at August 31, 2004 reflecting the difference between (i) the recorded amount of debt, net of related discounts, of $7.4 million and (ii) the fair value of the new debt instrument of $10.3 million plus the fair value of the new warrants of $120,000. The difference between the fair value of the new debt of $10.3 million and the face value of the debt of $8.6 million represents a premium, which will be reflected as a reduction of interest expense over the life of the new debt.

Income Tax Expense. The Company’s tax expense (benefit) relates to its operations in certain foreign countries and certain states. The tax benefit recorded in the nine months ended September 30, 2004 relates to refunds received in the United Kingdom. No further tax benefits are being recorded due to the uncertainty as to whether we will be able to utilize any additional losses as carrybacks. We will continue to assess the recoverability of deferred tax assets and the related valuation allowance. We expect to continue to incur losses and expect to continue to provide valuation allowances against deferred tax assets. To the extent we begin to generate taxable income in future years and it is determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized.

Liquidity and Capital Resources

Overview

As of September 30, 2004, we had approximately $1.1 million in cash and cash equivalents. At November 15, 2004, we had cash and cash equivalents of $500,000 plus an additional $2.8 available under our Credit Line. The increase in cash and cash equivalents from September 30, 2004, relates primarily to the sale of our Boulder, Colorado facility.

We have experienced recurring net losses and had an accumulated deficit of $100.2 million at September 30, 2004. Based on our 2004 and 2005 operating plans, we believe existing sources of liquidity will be sufficient to meet cash needs. If necessary, we believe we can manage costs and expenses at reduced levels to conserve working capital. The need for any such cost and expense reductions during 2004 or 2005 would likely delay implementation of our business plan. Additionally, we may pursue additional financing alternatives. Ultimately, we must achieve sufficient revenue levels to support its cost structure.

The following table summarizes our short-term liquidity and sources and uses of cash, as of September 30, 2004 and December 31, 2003 and for the three months ended September 30, 2004 and 2003:

In December 2003, we entered into a $7.5 million line of credit (the “Credit Line”) with Laurus Master Fund, Ltd. (“Laurus”). The term of the Credit Line is three years carrying an interest rate of 2.0% over the prime rate or a minimum of 6.0%. Funds available under the Credit Line are determined by a borrowing base equal to 90% of eligible accounts receivable balances plus up to $1.0 million related to inventory balances. The Credit Line is secured by most of the Company’s assets. Prior to amendments to the Credit Line discussed below, payment of interest and principal could, under certain circumstances, be made with shares of the Company’s common stock at a fixed conversion price of $2.20 per share. Conversion of this debt to common stock may be made at the election of Laurus or the Company. We could elect to convert only if its shares trade at a price exceeding $2.42 per share for ten consecutive trading days, and such conversion is further subject to trading volume limitations and a limitation on the total beneficial ownership by Laurus of our common stock. Upon entering into the Credit Line, we issued warrants to Laurus to acquire 550,000 shares of our common stock at an exercise price exceeding the average trading price of our common stock over the ten trading days prior to the date of the warrant. As of September 30, 2004, we had approximately $7.1 million outstanding on the Credit Line.

In February 2004, we entered into a separate $2.75 million convertible note with Laurus (the “Term Note”). The Term Note carries an interest rate of 2.0% over the prime rate or a minimum of 6.0% and has a term of 3 years. Prior to amendments to the Term Note discussed below, the principal and interest on the Term Note could be converted into common stock of the Company at a fixed conversion price of $2.61 per share. Upon entering the Term Note, we issued warrants to Laurus to acquire 125,000 shares of its common stock. Borrowings under the Term Note were primarily used to retire the mortgage debt on our Glasgow facility. Remaining borrowings of approximately $750,000 were used to complete the build-out of the Glasgow facility, complete the consolidation our Glasgow operations into the new facility and provide funds for operations.

In February 2004, Laurus waived the borrowing base limitation on the Credit Line, thereby making the full $7.5 million facility available to us regardless of the available collateral. On August 31, 2004, Laurus agreed to extend the borrowing base waiver on the Credit Line through March 19, 2005. In addition, Laurus (i) deferred certain payments due under the Term Note and (ii) reduced the interest rate on both of the Laurus Loans to 0% for any day the closing sale price of our common stock is at or above $1.75 per share.). In return, we lowered the conversion price on each of the Laurus Loans to $1.00 per share and issued a warrant to Laurus covering an additional 400,000 common shares at an exercise price of $1.25 per share. The closing price of our common stock on August 31, 2004 was $1.20 per share.

Analysis of Cash Flows

Cash flows used in operating activities totaled $8.7 million during the nine months ended September 30, 2004 compared to $9.4 million during the comparable period of 2003. The use in 2004 related primarily to a net loss of $27.4 million offset by non-cash charges of $19.2 million. Non-cash charges consisted of depreciation and amortization, impairment charges, loss on debt extinguishment and non-cash financing charges. Working capital and other adjustments generated cash flows from operating activities of $500,000.

Cash flows from investing activities totaled $1.5 million during the nine months ended September 30, 2004 compared to cash flows used in investing activities of $2.2 million during the comparable period of 2003. The investing cash flows generated in 2004 were from the sale of short-term investments (Geron common stock) and reductions in other assets that were offset by purchases of property and equipment.

Cash flows from financing activities totaled $7.1 million during the nine months ended September 30, 2004 compared to $3.2 million during the comparable period of 2003. The cash from financing activities in 2004 relate primarily to net draws on our Credit Line and proceeds from the Term Note.

Obligations and Commitments

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

Off Balance Sheet Arrangements

At September 30, 2004 and 2003, the Company 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 condensed consolidated financial statements may involve the use of management judgments and estimates. Certain of the Company’s accounting policies are considered critical as they are both important to the portrayal of the Company’s financial statements and they require significant or complex judgments on the part of management. Our judgments and estimates are based on experience and assumptions that we believe are reasonable under the circumstances. Further, we evaluate our judgments and estimates from time to time as circumstances change. Actual financial results based on judgments or estimates may vary under different assumptions or circumstances.

The Company considers its critical accounting policies to be:

For additional discussion of these critical accounting policies, see the “Management Discussion and Analysis” section of the Company’s 2003 Annual Report on Form 10-K.

Impact of Inflation

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

Foreign Currency Rate Fluctuations

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

Forward-looking Information

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

Controls and Procedures

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

This review and evaluation took into account the restatements described in Note M to the accompanying unaudited condensed consolidated financial statements and, after considering the nature of and the isolated effects of such restatements on the condensed consolidated statements of cash flows and the controls underlying the accumulation of the related information, the Company’s management has concluded that the restatement was not the result of a material weakness in internal control over financial reporting.

PART II. OTHER INFORMATION

Item 6. Exhibits

(10.14)		Common Stock Purchase Warrant by and between the Registrant and laurus Master Fund, Ltd., dated August 31, 2004 (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-3 (Registration No. 333-118970) as filed on September 14, 2004)
(31)		Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
(32)  32		Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

The Registrant furnished a Report on Form 8-K on August 13, 2004, reporting the announcement of its results of operations for the quarter ended June 30, 2004, pursuant to Items 5 and 12 of Form 8-K.

The Registrant filed a Report on Form 8-K on August 25, 2004, reporting the appointment of Michael A. Summers as Chief Financial Officer effective August 17, 2004 pursuant to Item 5.01 of Form 8-K.

The Registrant filed a Report on Form 8-K on September 7, 2004, reporting the amendment of its Credit Line and Term Note with Laurus Master Trust on August 31, 2004, pursuant to Item 1.01 of Form 8-K.3

SIGNATURES

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

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