10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                              to                             

Commission File Number 000-30975

TRANSGENOMIC, INC.
(Exact Name of Registrant as Specified in its Charter)

Delaware	91-1789357
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification Number)
12325 Emmet Street Omaha, NE 68164	68164
(Address of Principal Executive Offices)	(Zip Code)

(402) 452-5400
(Registrant's Telephone Number, Including Area Code)

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

Title of Each Class	Name of Each Exchange On Which Registered
None

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

Common Stock, par value $.01 per share
(Title of Class)

        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 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-K / /

        The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of March 6, 2002 (based on the last reported closing price per share of Common Stock as reported on The Nasdaq National Market on such date) was approximately $141,720,000.

        As of March 6, 2002, the registrant had 23,670,321 shares of Common Stock outstanding that consist of 23,932,225 shares issued less 261,904 shares of treasury stock.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the 2001 Proxy Statement relating to the Registrants May 22, 2002, Annual Stockholders Meeting are incorporated by reference into Part III.

TRANSGENOMIC, INC.
Index to Form 10-K for the Fiscal Year Ended December 31, 2001

PART I
	Item 1.	Business	3
	Item 2.	Properties	21
	Item 3.	Legal Proceedings	21
	Item 4.	Submission of Matters to a Vote of Security Holders	21
	Item 4a.	Executive Officers	21
PART II
	Item 5.	Market for Registrant's Common Equity and Related Shareholder Matters	23
	Item 6.	Selected Financial Data	23
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
	Item 8.	Financial Statements and Supplementary Data	35
		Independent Auditors' Report	35
		Consolidated Balance Sheets as of December 31, 2001 and 2000	36
		Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999	37
		Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2001, 2000 and 1999	38
		Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999	39
		Notes to the Consolidated Financial Statements for the Years Ended December 31, 2001, 2000 and 1999	40
	Item 9.	Changes in and Disagreement with Accountants on Accounting And Financial Disclosure	57
PART III
	Item 10.	Directors and Executive Officers of the Registrant	57
	Item 11.	Executive Compensation	57
	Item 12.	Security Ownership of Certain Beneficial Owners and Management	57
	Item 13.	Certain Relationships and Related Transactions	57
PART IV
	Item 14.	Exhibits, Financial Statement Schedules and Reports of Form 8-K	57
SIGNATURES			60

        This Form 10-K references the following trademarks which are the property of Transgenomic: DNASEP®, GUARD-DISC®, WAVE®, WAVEMAKER®, TRANSFORMING THE WORLD®, TRANSGENOMIC®, TRANSGENOMIC and DESIGN and TRANSGENOMIC GLOBE LOGO®; OLIGOSEP™, OPTIMASE™, RNASEP™, WAVE OPTIMIZED™, WAVE-MD™, WAVE NAVIGATOR™, THE POWER OF DISCOVERY™, and MutuationDiscovery.com™. All other trademarks or trade names referred to in this Form 10-K are the property of their respective owners.

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PART I

FORWARD-LOOKING STATEMENTS

        We have made forward-looking statements in this annual report on Form 10-K that are subject to risks and uncertainties. Many of these forward-looking statements refer to our plans, objectives, expectations and intentions, as well as our future financial results. You can identify these forward-looking statements by forward-looking words such as "expects," "anticipates," "intends," "plans," "may," "will," "believes," "seeks," "estimates" and similar expressions. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors discussed under "Risks Related to Our Business" and other factors identified by cautionary language used elsewhere in this annual report on Form 10-K.

Item 1.    Business.

Overview

        We provide innovative solutions for the synthesis, purification and analysis of nucleic acids. Our solutions include automated instrument systems, associated consumables, and chemical building blocks for nucleic acid synthesis. Our technologies center around three core competencies: separation chemistries, enzymology, and nucleic acid chemistries. We develop, assemble, manufacture and market our products 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, and biochemical reagents to those entities engaged in basic biomedical research and the development of diagnostics and therapeutic agents.

        Prior to the formation of Transgenomic, Inc., we conducted our business operations through an Iowa corporation known as CETAC Holding Company, Inc. and its various subsidiaries. CETAC Holding Company, Inc. designed, manufactured and sold several different types of non-life sciences instruments that prepared samples of material so that they may be more easily analyzed by, and efficiently introduced into testing apparatus. We also manufactured and sold chromatography products that are used in a variety of testing applications, such as food analysis and environmental testing. On July 1, 1997, we consolidated these companies into a new Delaware corporation known as Transgenomic, Inc., that was formed to develop, manufacture and market our new DNA separation and analysis products in addition to continuing the non-life sciences business of CETAC Holding Company, Inc. and its subsidiaries. In 1999, we acquired, through our subsidiary in the United Kingdom, substantially all of the assets of Kramel Biotech International, Limited, a manufacturer of laboratory consumables used in the field of molecular biology. Effective April 1, 2000 we sold the assets related to our non-life sciences instrument product line for a total adjusted purchase price of $5.65 million. In May 2001, we acquired Annovis, Inc., a specialty chemicals company that develops, manufactures and markets a wide variety of nucleic acid-based products and services for the life science industry, for a total purchase price of approximately $15.9 million.

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Industry Background

DNA and Genomics-Based Research

        The human body is composed of billions of cells each containing deoxyribonucleic acid, or DNA, which encodes the basic instructions for cellular function. The complete set of DNA is called the genome, or genetic code. The human genome is composed of 23 pairs of chromosomes that are further divided into approximately 30,000, or more, smaller regions called genes. Genes are used in the cell as the template for the production of proteins, and it is these proteins that direct cell function that are ultimately reflected in the individual traits of the person. Researchers theorize that the human genome may provide cells instructions on how to make up to approximately 300,000 or more different proteins. Each gene is made up of four different chemicals known as nucleotide bases which are commonly designated by the first letter of their chemical names, or G, C, A and T. The entire human genome contains approximately 3 billion of these nucleotides arranged in order along the two complementary strands of the DNA molecule. The order of the nucleotides along these strands is known as the DNA sequence, and it is this sequence that determines the function of the genes. Any variation in the DNA sequence of a particular gene may result in a change in the cell function controlled by that gene. These changes, known as genetic variations, are often the cause of disease or make an individual more susceptible to disease.

        Genomics is the systematic and comprehensive analysis of the sequence, structure and function of the genes that comprise the genome, the objective of which is identifying and understanding the role of genes in human physiology and disease. During the 1990's, an intense effort was initiated to determine the sequence of the entire human genome. This basic research yielded a rough draft of the genome in the year 2000. Both the U.S.-government sponsored Human Genome Project and private researchers have been involved in this effort that has provided an immense amount of sequencing information for human DNA. While these efforts will provide a basic blueprint of the human genome, they have out of necessity been centered on determining the DNA sequence of a limited number of individuals. Therefore, this fundamental sequencing data will not, by itself, provide much information about the function of genes and their relationship to disease. This information will only be developed through the intense study of genetic variation. Accordingly, genomics researchers are now attempting to understand variations in this DNA sequence information and how it correlates to disease in order to develop new therapeutics and diagnostic tools.

Importance of the Discovery of Genetic Variation

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

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

        The discovery of new genetic variations will be ongoing. All organisms, whether human, plant, animal or bacterial, undergo change. The linkage of specific variations and the correlation of those variations in a population group with a disease must be analyzed. In order to do this on the scale that likely will be

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required, researchers will need technologies that provide faster sample analysis, greater accuracy and reliability and lower costs than technologies that they have historically used. It will be especially important that the technology used by these researchers be able to detect all types of variations, including SNPs, insertions and deletions, translocations and repetitions, and whether the existence of the variation is known or unknown. It is this need that we believe creates a market opportunity for our WAVE System and its ability to detect genetic variations quickly, accurately and inexpensively.

Role of Synthetic Nucleic Acids

        Synthetic nucleic acid molecules—commonly referred to as oligonucleotides—are necessary consumable reagents for numerous DNA-based analytical technologies. Such technologies include polymerase chain reaction, widely used to amplify the number of specific DNA fragments, DNA sequencing, technologies making use of DNA chips and a number of other technologies. In addition, oligonucleotides and oligomimetics (chemically-modified oligonucleotides) are increasingly being used as agents designed to modulate gene expression and biological responses for both experimental and potential therapeutic applications. The most mature of these applications, antisense technology, has generated therapeutic candidates that have advanced to Phase II and Phase III clinical trials. We believe activity in these areas of basic and applied research and product development will continue to accelerate, resulting in a growing and sustained demand for the basic chemical building block products as well as for the finished synthetic nucleic acid products.

Importance of Nucleic Acid Purification

        When synthesizing oligonucleotides it is important that the single-stranded synthetic DNA fragments do not contain unwanted DNA sequence. In commercial scale production of oligonucleotides, it is difficult to remove unwanted DNA sequences in a cost effective manner. As the usage of oligonucleotides in research and other applications continues to expand, so too will the need to produce high quality, very pure oligonucleotides in an automated, scalable and cost-effective means. Additionally, the genomes of an increasing number of non-human organisms, such as microbial pathogens, plants and animals of economic importance are likely to become the subjects of more research initiatives for some time to come. This is likely to generate the need for synthesized oligonucleotides for these non-human organisms.

Genomics-based Diagnostics

        Once a relationship is established between a particular genetic variation(s) and a disease it becomes possible to look for the specific variation(s) as a way of diagnosing a person's susceptibility to the disease or the actual presence of the disease. To create such a diagnostic, researchers take advantage of a fundamental property of DNA. DNA is made up of two long strands of nucleic acids joined together into a single molecule that resembles a spiraling ladder. This is often referred to as a double helix. Very specific pairing of the nucleic acids (A always with T and C always with G) binds the two strands of the helix together somewhat like opposite poles of magnets. Samples of DNA to be tested can be denatured into single strands and those strands exposed to a synthetic version of single stranded DNA containing the sequence of nucleic acids that makes up the variation associated with a disease. If the sample and the synthetic DNA match they will bind together indicating that the source of the sample contains the variation and is likely to be susceptible to the disease. Genomics-based diagnosis is generally referred to as molecular diagnostics. The synthetic version of single strand DNA used to diagnose is referred to as a probe and is an oligonucleotide 30 to 40 nucleotides in length. Most current molecular diagnostic methods expose samples to multiple probes at once to speed up diagnosis, in some cases as many as several hundred thousand in some chip array technologies.

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Genomics-based Therapeutics

        Drug development has historically been inefficient with very low success rates. Genomics and modern molecular biology offer the promise of dramatically altering the drug discovery and development paradigm. The potential impact of genomics on several specific stages of the drug development continuum is as follows:

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Target Identification—It has been estimated that the human genome sequence could provide 5,000-10,000 new potential target molecules on which to base drug discovery efforts, representing a 10 to 20-fold increase over the approximately 500 targets identified during the entire history of drug development to date. However, knowledge of the nucleotide sequences of thousands of new genes alone is not enough, this raw genomic data must be expanded upon to associate genes with their biological functions. The analysis of genetic variation within populations offers a powerful approach to the discovery of such associations, potentially leading to the development of correlations between genes and their encoded proteins with diseases.



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Target Validation—Target validation is the process of establishing proof that a particular drug target is involved in a disease or biological process of interest and, furthermore, that experimental modulation of the target (which would ultimately be accomplished by a drug) has an impact on that process. As discussed above, the discovery of correlations between genetic variation and disease offers a powerful means to link target identification with target validation providing valuable information regarding gene function at an early point in the discovery process.    Other approaches to target validation can be as simple as analysis of correlating test data, or measurement of gene expression in certain disease states, or it can involve more complex strategies to reduce or eliminate the expression of target genes. While this latter approach has traditionally involved the use of mice genetically engineered to lack a particular gene (a time-consuming approach), various antisense strategies have been used more recently. Such strategies employ synthetic nucleic acids such as oligonucleotides and oligomimetics to reduce or eliminate the expression of a target gene in cultured cells or in a model organism. Importantly, as these approaches continue to evolve, so will the need for both bulk production of synthetic nucleic acids, as well as for innovative new oligomimetics.



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Clinical Trials—After a drug target has been identified and validated, drug candidates are screened for their ability to act on the target of interest. After a lead drug candidate has been identified, and its safety and efficacy has been demonstrated in animal models, testing must be performed on human subjects. This testing is performed in context of Phase I, II, and III clinical trials. Genetic variation among patients can impact drug efficacy as well as the likelihood of adverse drug reactions. It has been suggested that study of these effects should be incorporated into the clinical trial process. The relatively new segment of genomics called pharmacogenetics studies the impact genetic variation has on the safety and efficacy of drugs. An increased understanding of the genetic basis of an individual's response to drug therapy could diminish the traditional "one size fits all" approach to drug therapy and lead to an era of personalized medicine.

Our Technology and Products

Core Competencies

Separation Chemistries

        Our separation chemistries competency consists of expertise in developing novel chemical compounds tailored to interact with samples of interest. Specifically, this interaction involves binding of the total sample to the compound followed by a selective release of individual components of the sample. This release is induced by the introduction of other factors, such as chemical reagents, temperature changes and pressure changes. The separation compound is coated on the surface of microscopic polymer beads and

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packed in a column. The interaction and separation occurs within the tube as the sample is pumped through it. We currently have novel chemistries for separating nucleic acids, proteins, peptides, amino acids and carbohydrates.

        One of our significant separation technologies is currently embodied in the WAVE System. The WAVE System is primarily used as a denaturing high-performance liquid chromatography (DHPLC) instrument for genetic variation discovery. In addition, other applications for the WAVE System in the genomics-based research industry include the mapping of genes, mutational analysis of candidate genes, targeted screening for induced mutations, direct allelic discrimination, analysis of primer extension products, quantification of gene expression and others. Additionally, the ability of the WAVE to purify oligonucleotides quickly and inexpensively provides an effective solution for commercial scale purification of oligonucleotides. Finally, the WAVE system offers an effective approach to the DNA fragment isolation steps associated with high-throughput gene cloning and sequencing initiatives. Our WAVE system may be designed in the future to meet the needs of the emerging molecular diagnostics market.

Enzymology

        Our second core competency is expertise in developing novel enzymes. Enzymes are proteins that act as catalysts for biochemical reactions. One such reaction useful in genomics is the cleavage of DNA into defined fragments at specific points, accomplished by the use of restriction enzymes. Another example is the formation of DNA or RNA from precursor substances in the presence of pre-existing DNA or RNA acting as a template. Enzymes that catalyze this reaction are called polymerases. The ability to develop enzymes useful in the experimental manipulation of genes provides powerful tools for producing genetic material in the form needed for further analysis or incorporation into diagnostics and therapeutics. One of our current enzymology offerings is called Optimase, a polymerase that is optimized for use in preparing samples for analysis using our WAVE system.

Nucleic Acid Chemistries

        Our third core competency stems in part from our 2001 acquisition of Annovis, Inc. We possess the expertise to manufacture synthetic chemical building blocks known as phosphoramidites. Our expertise extends to the ability to produce special building blocks that are used to synthesize modified oligonucleotides referred to as oligomimetics. Oligomimetics mimic the action(s) of natural DNA and RNA, but are superior with regard to certain practical features such as the affinity of their binding to complementary DNA and RNA molecules or their ability to resist degradation. We also have the capability to design, optimize, and produce specialized oligomimetics based on the specific needs of our customers involved in basic biomedical research, diagnostics, and therapeutics. Finally, our nucleic acid chemistry capabilities also include expertise in the ability to produce related specialty chemicals, such as molecular tags, dyes, quenchers, linkers, and solvents used to modify nucleic acids for subsequent detection, or manipulation. We feel the demand for these products will increase significantly as more and more relationships between genetic variation and disease are established.

Our Products

WAVE Systems

        Our WAVE System is a versatile instrument that can be used for variation detection, size-based double-strand DNA separation and analysis, single-strand DNA separation and analysis and DNA purification. Because of this versatility, the WAVE System can essentially replace the use of traditional gel electrophoresis in the molecular biology laboratory. Our patented technology uses a process known as high performance liquid chromatography to separate DNA material so that genetic variation may be identified and analyzed. In this process, DNA is injected into a special tube or column containing microscopic polymer beads. These micro-beads have special surface chemistries that cause the DNA molecules to

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attach to the surface of the beads. A chemical reagent is then pumped through the column under carefully controlled pressure and temperature conditions causing the DNA molecules to be selectively released from the beads so that they can be separated and measured. Our proprietary software controls the entire process and produces the results of the operation in an easy-to-read chart format. Once the DNA sample is loaded into the instrument and necessary data is entered into the software, the process requires virtually no additional input from the researcher. By using our patented DNASep, OLIGOSep and RNASep columns and specifically formulated reagents that we have developed for various applications, the researcher is able to achieve a consistent high-quality result. Our WAVE System includes the following components:

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



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a pump (pumps the sample and reagents through the DNASep, OLIGOSep or RNASep column and instrument)



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a DNASep, OLIGOSep or RNASep column (separates DNA fragments)



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a column oven (controls the temperature of the column)



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



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



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a personal computer and proprietary software (used for instrument control, experiment design, data collection, data analysis, and reporting)

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

WAVE Optimized Molecular Biology Consumables

        The WAVE System requires the use of various consumable products that we manufacture and sell separately. As more WAVE Systems are sold, we expect that these consumable products will become an increasingly significant source of revenue for us. The principal consumable products used with the WAVE System are the DNASep, OLIGOSep and RNASep columns and the chemical reagents that are used to carry the DNA samples through the WAVE System. Other consumables include filters and other replacement parts of the WAVE System.

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

        We also sell the chemical reagents used with the WAVE System. In general, these reagents are special fluids that are pumped through the columns in order to cause DNA molecules to release their chemical bonds to the micro-beads under the correct conditions. Although most of these reagents are similar to those that can be obtained from various suppliers, we have developed formulas for these reagents that have been specially optimized for use in the WAVE System. By using these WAVE Optimized reagents, we believe that researchers are more likely to achieve consistent high quality results with their WAVE Systems.

        Some consumables are contained and packaged in convenient kits to increase ease of use and minimize possibility of user error. These kits may be used in sample preparation or automated instrument

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operations for particular applications. By adding different application kits, the WAVE System can perform various applications.

Synthetic Nucleic Acids

        Our Synthetic Nucleic Acid products consist of chemical building blocks ("phosphoramidites"), fluorescent markers and dyes, associated reagents and oligomimetics. Oligomimetics are chemically-modified DNA and RNA molecules exhibiting proven enhancements in stability, bioavailability, specificity and efficacy making them excellent candidates for use in clinical applications such as genetic diagnostics and therapeutics. These products are currently being sold to research organizations, diagnostic companies and pharmaceutical companies. The raw materials, called nucleosides, which are the beginning stage of creating phosphoramidites, are purchased from a variety of third party producers. We then chemically process these nucleosides to create an intermediate product, called trityls. These intermediate trityls are either sold to customers or used to produce the phosphoramidites. The majority of our synthetic nucleic acid revenues are phosphoramidite products that are produced in our Glasgow, Scotland facility.

Optimase Polymerase

        Our Optimase polymerase is a novel enzyme unique to Transgenomic that was developed specifically to meet the needs of customers with post polymerase chain reaction (PCR) applications such as the WAVE system. Although this product may be used for any PCR application, it was specifically developed to be used with the WAVE system. Optimase, used in conjunction with our WAVE optimized consumables, provides superior testing results and extends the life of our DNASep, OligoSep and RNASep columns. This product is expected to further expand our sales of consumable products to WAVE system users and may also be sold for other PCR applications.

Business Strategy

        Our business strategy is to align our product and solution offerings with the evolution of genetic advancements and to become a critical-component supplier to diagnostic and pharmaceutical companies. Genetic advancements have been and continue to develop over time. This genomics continuum began with gene discovery and the mapping of the human genome over the last several years. The movement along this continuum and related market opportunities has shifted from gene discovery to analysis of variations in gene sequences. Studying variations in gene sequences, including polymorphisms and mutations, is the next step in understanding the impact of abnormal genes and their effect on proteins. From these variations researchers are beginning to link the impacts to associated disorders and diseases that further lead to the creation of diagnostic tests and appropriate therapeutic treatments and drugs.

Key elements of our strategy are as follows:

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Become the Principal Supplier of Synthetic Chemical Building Blocks. Our synthetic nucleic acid products are used in large quantities by a variety of commercial entities. Our strategy is to be the high quality, low cost provider of these products on a large scale. Therefore, we are targeting strategic customers who are willing to commit to large volume supply contracts. These commitments will allow us to better plan our raw material purchases, production cycles and production capacities. In conjunction with aligning our new products and solutions with the genomics continuum our strategy also includes vertical expansion of our synthetic nucleic acid solution components whereby we intend to produce more of the components of the phosphoramidite chain starting from the raw material (nucleosides), to intermediates (trityls), to the end phosphoramidite product. These phosphoramidites in turn become the primary building block material for oligonucleotides that we also provide to customers. By taking this approach we can control the quality and lead time more effectively which in turn, will allow us to be more capable in meeting customer demand and more definitive in meeting shorter delivery schedules.

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Expand Our Synthetic Nucleic Acid Production Capacity. Long term supply agreements and purchase commitments for our synthetic nucleic acid products are expected to allow us to scale up to manufacture more product quantities, become more efficient in our manufacturing processes and produce or purchase raw materials at a lower cost. We are currently expanding our existing production facilities in Glasgow Scotland that will allow us to increase from approximately 2,000 kilograms per year of phosphoramidites to 4,000 kilograms per year by the end of 2002. This expansion will be accomplished by adding equipment, replacing existing equipment with more efficient technology and fine-tuning our processes. Our longer-term goal is to further expand annual production capabilities to 20,000 kilograms by the year 2005. To accomplish this we anticipate adding facilities, equipment and personnel.



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Focus on the Genetic Variation Discovery Market. Our ongoing focus is to promote the use of our WAVE System by researchers involved in the discovery and analysis of genetic variation. The investment in genomics research is large and growing and the corresponding need to analyze genetic variations has led to increased demand for new technologies such as the WAVE System. We believe the WAVE System significantly increases research productivity and may accelerate drug development and diagnostics.



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Establish the WAVE System as the Industry Standard. We have focused our marketing efforts on large well-known government, academic and commercial research institutions to establish the WAVE System as the industry standard for variation analysis. We believe we are the first to bring high performance DNASep micro-bead technology to the market and have sold instruments to key genomics researchers to gain validation of our technology, which has resulted in the publication of over 200 articles in numerous scientific journals discussing the WAVE System. A key component of our strategy is to maintain a worldwide sales organization that provides technical support on a local level. Because we believe that a major factor in ensuring the success of our products is to provide qualified technical support on a local level, we expect to increase the number of our sales teams composed of sales personnel, technical support representatives and application scientists.



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Increase Sales Penetration into Commercial Applications. Our WAVE system may be used for a number of different applications. One initial focus has been on the purification of oligonucleotides. A number of companies produce short single-strand DNA fragments, known as oligonucleotides, with a known sequence and sell them to genetic researchers who use them in research and other applications. When synthesizing oligonucleotides, it is important that the single-stranded DNA fragments do not contain fragments with unwanted DNA sequences. The WAVE System's ability to separate and purify DNA fragments is currently used by the synthesizers of oligonucleotides to produce a more consistently pure product. This is an important market for the WAVE System and we continue to develop other commercial applications for the WAVE system. WAVE systems sold for commercial and industrial uses increased to approximately 34% of placements in 2001 from approximately 25% of placements during 2000.



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Increase Consumable Sales. We expect that our expanding base of installed WAVE Systems will result in recurring sales of our associated consumable products that include our proprietary columns and reagents. Additionally, WAVE system enhancements have increased the system throughput and extended the time a system can run samples unattended. As a result, sales of our consumable products should increase. In order to support the expected increase in consumable sales, we have dedicated manufacturing facilities in California, Nebraska and the United Kingdom.



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Penetrate New Markets. Our WAVE System may be used for purposes other than genetic variation discovery research. These other potential uses represent additional market opportunities that we intend to pursue. For example, a potential new market for the WAVE System will be the genetic screening market. This market consists primarily of researchers who could use the WAVE System to screen DNA samples for variations known to be related to genetic disease. We believe that the

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ability of the WAVE System to screen genetic variations quickly, accurately and economically can make it a useful tool for this market. It will allow researchers to use the validated technology used for the original variation discovery work to screen for variations in a larger population. Additional market opportunities exist in the fields of pathogen identification, bioterrorism and plant genetics. We continue to develop new applications for the WAVE and expect further improvements to be available in the future.

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Expand Core Competencies. Our current core competencies of separation chemistries, enzymology, and nucleic acid chemistries have provided us the ability to offer solutions to genomics researchers. Our strategy includes a continual expanding of these core competencies and may extend beyond genomics to include pharmacogenetics, proteomics and bioinformatics.



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Strengthen Intellectual Property Base. We currently have a strong portfolio of patents and applications for additional patents. We have also secured key license agreements from other patent holders. Our strategy includes a continuing expansion of our patent portfolio in addition to seeking and obtaining licenses to other key patents and technologies that are important to our products.

Research and Development

        During fiscal years 2001, 2000 and 1999, we spent $9.4 million, $7.7 million and $6.3 million, respectively, on research and development activities. We maintain an active program of research and development and expect to continue to spend significant amounts on research and development in 2002. Our research and development activities include the improvement of the DNA separation media used in our columns, the refinement of the hardware and software components of the WAVE System, the creation of unique enzymes and WAVE optimized enzymes for PCR and the improvement of chemical and biochemical reaction techniques for synthetic nucleic acids. We consult with several leading scientists from around the world as part of our ongoing research and development efforts. These advisors assist us in formulating our research, development and commercialization strategies.

        Our WAVE System related research and development work is focused on developing additional functionality in the WAVE System that will allow us to sell additional applications other than those addressing genetic variation discovery. We are also developing improved methods and procedures to enable researchers to use the WAVE System to screen DNA samples for variations known to be related to genetic disease. We believe the WAVE System will be an attractive tool for this group of users because it will allow them to use the same validated methodology used to discover a variation and its link to disease to screen for that variation in a large population. We are working to make the screening process faster and more automated through the development of new software and improved separation media and instrumentation.

Sales and Marketing

        We currently sell our WAVE Systems and consumable products in major geographical markets. We target the U.S., the U.K. and most countries in Western Europe with a direct sales and support staff. For the rest of the world, we sell our products through dealers and distributors located in those local markets. As of December 31, 2001, we had over 25 dealers and distributors. We also maintain regionally-based technical support staffs and applications scientists to support our sales and marketing activities throughout the U.S., Europe and Japan. See Note L, "Sales and Product Information," to our consolidated financial statements for a summary of our net sales by geographic area and product group.

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

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Customers

        We have sold WAVE Systems to customers in over 25 countries. Customers that have purchased WAVE systems include numerous core laboratory facilities and a number of other leading academic and medical institutions in the U.S. and abroad, including Harvard University, Stanford University, Baylor College of Medicine, University of Chicago, Fred Hutchison Cancer Research Facility, Mayo Clinic, National Cancer Institute, National Institutes of Health, Institut Curie, University of Cambridge, Welcome Trust-Oxford University and Institut Gustav Roussy. Customers also include a number of large, established U.S. and foreign pharmaceutical, biotech and commercial companies including GlaxoSmithKline, Bristol-Meyers Squibb, Millennium Pharmaceuticals, Merck & Company, Novartis, Applied Biosystems and Eli Lilly and Company.

        Our consumable products have been sold to over 600 customers in over 20 countries and include many large pharmaceutical and biotechnology companies and academic research centers. Customers include Abbott Laboratories, Affymetrix, Applied Biosystems, AstraZenceca, Avecia, Fisher Scientific, Genset, Geron, Hitachi, Isis Pharmaceuticals, La Jolla Pharmaceuticals, Invitrogen, Lynx Therapeutics, MWG Biotech, Roche Biosciences, Ribozyme Pharmaceuticals and GlaxoSmithKline.

        During 2001, one customer, Applied Biosystems, accounted for approximately 14% of our total revenues. Sales to Applied Biosystems included WAVE systems, WAVE optimized consumable products and synthetic nucleic acid products. No single customer accounted for more than 10% of our sales in 2000 or 1999.

Manufacturing

        We manufacture consumable products including our proprietary DNASep, OLIGOSep and RNASep separation columns, liquid reagents, polymerase and nucleic acid products. We also incorporate our own modifications into the basic liquid chromatography instrument that we use in our WAVE System. Our manufacturing facilities are located in San Jose, California, Omaha, Nebraska, Glasgow, Scotland, Aston, Pennsylvania and Cramlington, England.

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

        Our relationship with Hitachi has existed since 1997. Under our agreement, we have the exclusive right to market any co-developed products for DNA analysis and purification using our DNASep technologies. In addition, the agreement provides for fixed pricing of the liquid chromatography instruments for our WAVE System. Our agreement with Hitachi has no fixed term and we have retained the right to work with other vendors for liquid chromatography instruments. Under the agreement, there will be no transfer of intellectual property rights without a specific agreement to do so.

        Currently our synthetic nucleic acid products are manufactured in Glasgow, Scotland and Aston, Pennsylvania. In executing our strategy of focusing on large consumable users and entering into long term supply contracts for these products, we have seen a significant increase in orders which have resulted in order backlogs. As a result we are currently expanding our production capabilities in Glasgow through both process improvements and physical expansion. In 2002 we expect to either lease or purchase additional production space in Glasgow thereby further expanding our production capacity.

Backlog

        We manufacture our consumable products and assemble our system units based upon forecasts of near-term demand and receipts of firm orders from customers. Systems are configured to customer specifications and are generally shipped shortly after receipt of the order. Customers may reschedule

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orders with little or no penalty. For these reasons, our systems backlog at any given time is not particularly meaningful because it is not necessarily indicative of future sales levels. For our consumable products we had order backlogs at December 31, 2001, totaling approximately $3.0 million. In addition to our order backlog, we have deferred revenue recorded on our balance sheet totaling approximately $1.2 million. This amount is made up mainly of deferred revenue associated with service contracts on our WAVE Systems that cover a certain period of time. Such deferred revenue is generally recognized over the service contract period.

Intellectual Property

        To establish and protect our proprietary technologies and products, we rely on a combination of patent, copyright, trademark and trade-secret laws, as well as confidentiality provisions in our contracts. We have implemented an aggressive patent strategy designed to provide us with freedom to operate and facilitate commercialization of our current and future products. As of December 31, 2001 we own 55 issued United States and foreign patents and have 112 pending United States and foreign applications. Certain of our nucleic acid products are sold pursuant to licenses of United States and foreign patent rights of others. While we fully expect to continue to make and sell products pursuant to these licenses, circumstances may affect the licenses that are presently unforeseeable.

        Generally, U.S. patents have a term of either 17 years from the date of issue or 20 years from the application filing date or earlier claimed priority date while patents in most other countries have a term of 20 years from the date of filing the patent application. Our issued United States patents will expire between 2009 and 2017. Our success depends to a significant degree upon our ability to develop proprietary products and technologies. We intend to continue to file patent applications as we develop new products and technologies.

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

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

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Competition

        We face competition on two main fronts, our WAVE-based technologies and our nucleic acid chemistries products. Competitors for our WAVE technologies include other HPLC providers like Waters, Agilent, and Shimadzu, as well as alternative technology providers for DNA mutation discovery, separation analysis, and purification. Alternative technology providers include Waters mass spectrometry products, Agilent through its relationship with Caliper for separation technologies and other companies including Affymetrix, Amersham Pharmacia Biotech, Applied Biosystems, Beckman Coulter, Bio-Rad, Invitrogen, and Sequenom for their various systems and services.

        Competitors for our nucleic acid products vary depending on the application. In the research market that uses the standard chemical building blocks, we compete with Applied Biosystems, Proligo and Amersham Pharmacia Biotech. With the improvements in our manufacturing processes and capacity that are currently in process, we believe that we can produce building blocks in large scale and at high purity and effectively compete for growing demand for these products. To distinguish ourselves from our competitors, we offer mimetics, chemically modified nucleic acid molecules that are more stable than their natural counterparts and therefore easier to work with and more effective. The competition in this area consists of smaller, specialized companies offering some modified oligonucleotides. We offer a large variety of oligomimetics and, more importantly, the capability to impart drug-like characteristics to antisense molecules and help our corporate partners develop their drugs faster.

        The DNA based diagnostic market is so new that there is insufficient information to define a competitive landscape. While we believe that competitors exist, we have not encountered any companies that partner with diagnostic firms to provide them with linkers, attachments and modified nucleic acids to develop their screens more efficiently and with higher quality. We anticipate that most raw materials for new diagnostics are presently being produced in-house. As the DNA based diagnostic market evolves, we believe that demand will grow and that competition will increase.

        In the DNA based therapeutic market, we compete with Pharmacia and Upjohn in the production of high quality chemical building blocks. The principles of satisfaction in this market are flexibility, fast turnaround time, and the ability to meet customers' specific needs. Companies that offer drug intermediates and active ingredients according to GMP standards are Avecia, Hybridon, and Boston Biosystems. We intend to compete with these companies by offering technically challenging and proprietary chemistries for our manufacturing services and scale-up capabilities for difficult antisense molecules. We believe that our ability to provide research and development assistance for the development of antisense molecules with mimetic characteristics is one of our competitive advantages.

Employees

        As of December 31, 2001, we had 308 full-time employees. The following sets forth the number of persons employed in the principal areas of our operation:

Manufacturing	70
Sales and Marketing	79
Research and Development	91
Administration	68

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

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        We supplement our workforce through the use of independent contractors and consultants. As of December 31, 2001, we have engaged independent contractors or consultants who provide services to us approximately equivalent to 8 full time employees.

Risks Related to Our Business

Our limited operating history as a company focused on life sciences technologies and applications subjects us to risks inherent in the development of a new business enterprise and to the risk that we may not achieve profitability.

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

•

to develop a market for our products;



•

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



•

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

        Our future operating results will depend on a number of factors, including the market acceptance of our products, the introduction of new products by our competitors, our ability to adapt our technology to the commercial needs of our customers and to developments in the genomics industry and the timing and extent of our research and development efforts. Our limited operating history in the life sciences industry makes accurate prediction of future operations difficult.

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

        We experienced losses from operations of $9.7 million during the year ended December 31, 2001, $8.7 million in fiscal 2000 and $6.9 million in fiscal 1999. These losses were mostly due to research and development expenses and sales and marketing expenses related to the development and marketing of our WAVE System. In order to continue to enhance our WAVE System and related products, develop new products, increase the pace of installations and expand our marketing, sales and customer support service staffs, we expect to incur increases in our expenses over the next several years. As a result, we could continue to incur losses for the foreseeable future and may never be profitable.

We will need to continue to refine our WAVE System to allow it to meet new requirements of commercial users.

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

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If ethical and other concerns surrounding the use of genetic information become widespread, we may have less demand for our products.

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

We have a limited sales force and limited experience with direct marketing of our products that could limit our ability to effectively penetrate new markets.

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

The sale of our WAVE instrument involves a lengthy sales cycle that makes our revenues difficult to forecast.

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

Sales growth in our synthetic nucleic acid products may be impacted by technological changes and acceptance of new products.

        While the demand for chemically synthesized DNA building blocks is established, new developments in nucleic acid research create changing product requirements. Rapid technological change and frequent new product introductions are typical. Our success in this marketplace will depend in part on continuous, timely development and introduction of new products that address evolving market requirements. Factors affecting product acceptance include:

•

availability and price of competing products



•

technological advancements



•

acceptable product quality



•

ability to meet delivery schedules

        We cannot be certain that our products will meet the requirements of our customers or the marketplace.

We may need to raise additional funding which may not be available.

        To date, we have financed our operations primarily from the proceeds of a $77.3 million public offering of common stock, a $10.0 million private offering of common stock, a $12.0 million issuance of convertible notes and borrowings under our former $5.0 million bank line of credit. We will continue to need substantial amounts of cash for research and development and to expand our sales and manufacturing infrastructure. We expect our capital and operating expenses to increase over the next several years as

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we expand this infrastructure and our research and development activities. The amount of additional capital that we may need to raise will depend on many factors, including:

•

the level of our research and development activities;



•

market acceptance of our products and technologies;



•

the level of our sales and marketing expenses;



•

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



•

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



•

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

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

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

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

Our chromatographic columns, a core component of the WAVE System, are manufactured at a single facility that is located in an earthquake-prone area.

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

Our Synthetic Nucleic Acid products are manufactured at a single facility.

        All of our chemical building blocks are manufactured at our facility in Glasgow, Scotland. In the event our manufacturing facility or equipment was affected by man-made or natural disasters, we would be unable to manufacture our products for sale or meet customer demand or sales projections. If our manufacturing operations were curtailed or ceased for any significant period of time, it could limit our future revenues.

Our plans to expand our production levels for our synthetic nucleic acid products may not be successful.

        We are in the process of expanding our current production capacity of phosphoramidites from 2,000 kilograms per year to 4,000 kilograms by the end of 2002 and then to 20,000 kilograms per year by the year 2005. The current year expansion plans include adding additional production equipment, replacing current equipment with more efficient technology, and improving processes. Long-term expansion plans will

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require additional equipment, improved processes and additional real estate facilities. We may not be able to effectively deploy new equipment or obtain the necessary personnel and real estate facilities to accomplish the expansion. Additionally, increasing our production batch sizes or running more production cycles may not provide a level of quality within the finished product that is acceptable to our customers.

We face, and will continue to face, intense competition, both in the U.S. and abroad, from companies that are engaged in the development of products that analyze DNA and provide genetic information.

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

        Extensive research efforts and rapid technological progress characterize the genomics industry. To remain competitive, we will be required to continue to expand and enhance the functionality of our DNA separation and analysis equipment and to offer comprehensive DNA analysis, and complementary applications and solutions, with greater ease of use. This will include the need to increase the WAVE System's capacity and to develop new instrumentation, software and application kits to allow the system to provide a broader range of DNA and RNA separation and analysis applications. New products may require additional development work, enhancement, testing, or further refinement before they can be made commercially available and, therefore, we could experience significant delays in the development and manufacture of our products. Even after new products are made commercially available, unforeseen technical difficulties could arise, requiring additional expenditures by us to correct such difficulties and possibly resulting in further delays. We cannot be certain that new products will be successfully developed at all.

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

        Our business and competitive position are dependent upon our ability to protect our proprietary technology. While we currently hold a number of domestic and foreign patents and licenses, the issuance of a patent is not conclusive as to its validity or enforceability, nor does it provide the patent holder with freedom to operate without infringing the patent rights of others. Our patents or licenses could be challenged by litigation and, if the outcome of such litigation were adverse to us, our competitors could be free to use our technology. As a result, the invalidation of key patents owned by or licensed to us, or non-approval of pending patent applications, could increase competition for our products. We may not be able to obtain additional patents for our technology, or if we are able to do so, patents may not provide us with substantial protection or be commercially beneficial. Our patent applications may not protect our products because of the following reasons:

•

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



•

we may develop additional proprietary technologies that are not patentable;



•

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



•

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

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•

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

        Patent law relating to the scope of claims in the technology fields in which we operate is still evolving. The degree of future protection for our proprietary rights is uncertain. Furthermore, we cannot be certain that others will not independently develop similar or alternative products or technology, duplicate any of our products, or, if patents are issued to us, design around the patented products developed by us. In addition, we could incur substantial costs in litigation if we are required to defend ourselves in patent suits brought by third parties or if we initiate such suits.

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

        We rely upon trade secret protection, copyright and trademark laws, non-disclosure agreements and other contractual provisions for some of our confidential and proprietary information that is not subject matter for which patent protection is being sought. Such measures, however, may not provide adequate protection for our trade secrets or other proprietary information. If they do not protect our rights, third parties could use our technology and our ability to compete in the market would be reduced. While we require employees, academic collaborators and consultants to enter into confidentiality and/or intellectual property assignments where appropriate, any of the following could still occur:

•

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



•

others may independently develop substantially equivalent proprietary information and techniques;



•

we may not have adequate remedies for any breach; or



•

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

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

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

The protection of intellectual property in foreign countries is uncertain.

        We have sold approximately 50% of our WAVE Systems to customers located outside the U.S. Additionally, customers located outside the U.S generate over 50% of our total sales revenue. 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 that could require us to pay substantial royalties.

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

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that our products infringe on another party's intellectual property rights. We could also be prohibited from selling our products before we obtain a license, which, if available at all, may require us to pay substantial royalties. Even if a claim is without merit, defending a lawsuit takes significant time, may be expensive and may divert management attention from other business concerns.

Our business depends on key relationships with third parties that we may not be able to establish and maintain.

        Our revenue stream and our business strategy depend in part on our entering into and maintaining collaborative or alliance agreements with third parties concerning product marketing as well as research and development programs. Our ability to enter into agreements with collaborators depends in part on convincing them that our technology can help achieve and accelerate their goals and strategies. This may require substantial time, effort and expense on our part with no guarantee that a strategic relationship will result. We may not be able to establish or maintain these relationships on commercially acceptable terms. Our future agreements may not ultimately be successful. Even if we enter into collaborative or alliance agreements, our collaborators could terminate these agreements or they could expire before meaningful developmental milestones are reached. The termination or expiration of any of these relationships could have a material adverse effect on our business.

        Some collaborators may not perform their obligations as we expect. Some of the companies we currently have alliances with or are targeting as potential alliances offer products competitive with our products or may develop competitive production technologies or competitive products outside of their collaborations with us that could have a material adverse effect on our competitive position.

We depend on attracting and retaining key employees.

        We are highly dependent on the principal members of our management staff and research and development group, including Collin J. D'Silva, our Chief Executive Officer. We have entered into employment agreements with Mr. D'Silva and some, but not all, of our other key employees. The loss of services of any of these individuals could seriously harm our product development and commercialization efforts for our new life sciences products. Our future success will also depend on our ability to attract, hire and retain additional personnel, including sales and marketing personnel, technical support and customer service staff and application scientists. There is strong competition for qualified personnel in our industry, especially for experienced personnel in the areas of chemistry and molecular biology, software and electric engineering, manufacturing and marketing, and there can be no assurance that we will be able to continue to attract and retain such personnel. Failure to attract and retain key personnel could reduce our ability to continue development of our DNA separation and analysis technology and to successfully market our products.

We will need to effectively manage our growth if we are to successfully implement our strategy.

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

Our failure to comply with any applicable government regulations or otherwise respond to claims relating to improper handling, storage or disposal of hazardous chemicals 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 and local laws and regulations governing the use,

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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.

Item 2.    Properties.

        We do not own any real property. As of December 31, 2001, we lease office and manufacturing space in the following locations:

Location	Square Footage	Annual Rent		Lease Term Expires
Omaha, Nebraska	30,243	$	361,690	2007
San Jose, California	14,360	$	239,206	2005
Crewe, England	10,250	£	97,500	2006
Cramlington, England	8,200	£	32,500	2006
Tokyo, Japan	1,000	¥	7,293,000	2002
Cambridge, Massachusetts	2,500	$	81,390	2007
Gaithersburg, Maryland	6,560	$	98,535	2006
Houston, Texas	2,760	$	24,000	2003
San Diego, California	9,990	$	272,876	2007
Aston, Pennsylvania	15,000	$	137,500	2002
Glasgow, Scotland	14,500	£	95,000	2007

Item 3.    Legal Proceedings.

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

Item 4.    Submission of Matters to a Vote of Security Holders.

        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.

Item 4a. Executive Officers.

        Our executive officers are elected annually by the Board of Directors at the first meeting following the annual stockholder's meeting. Other officers are elected by the Board of Directors from time to time. Each officer holds office until a successor has been duly elected or appointed and qualified or until the death, resignation or removal of such officer.

        Our current officers and their ages as of December 31, 2001 are listed below followed by a brief biography.

Name	Age	Position
Collin J. D'Silva	44	Chairman of the Board, Chief Executive Officer and Director
Gregory J. Duman	46	Executive Vice President, Chief Financial Officer and Director
John L. Allbery	43	Executive Vice President
William Walker	66	Vice President of Intellectual Property
Mitchell L. Murphy	45	Vice President, Secretary and Treasurer

        Collin J. D'Silva.    Mr. D'Silva has served as our Chairman of the Board and Chief Executive Officer since 1997 and is also a Director. Mr. D'Silva, a co-founder of Transgenomic, has worked for Transgenomic and its predecessors since 1988. Prior to that time, Mr. D'Silva was employed by AT&T from 1980. At

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AT&T, he held various positions in engineering, materials management, sales support and business development. His last position at AT&T was Business Unit Manager and Engineering Manager for a network distribution products division. Mr. D'Silva holds a B.S. degree and a M.Eng. degree in industrial engineering from Iowa State University and a M.B.A. from Creighton University.

        Gregory J. Duman.    Mr. Duman joined us in March 2001, and currently serves as our Chief Financial Officer and is a member of our Board of Directors. Prior to joining us, Mr. Duman was Chief Financial Officer of Artios, Inc. from 2000 to 2001. From 1983 to 2000 Mr. Duman served in several capacities including Executive Vice President, Chief Financial Officer and Controller of Transaction Systems Architects, Inc. Mr. Duman is currently the Chairman of the Board of Directors of Transaction Systems Architects, Inc. From 1979 to 1983 Mr. Duman worked for Arthur Anderson & Co. as a Certified Public Accountant. Mr. Duman holds a B.S. degree in Business Administration from the University of Nebraska-Omaha.

        John L. Allbery.    Mr. Allbery joined us in June 2001, and currently serves as an Executive Vice President. Prior to joining us, Mr. Allbery was a private business consultant based in Budapest, Hungary from 2000 to 2001. From 1999 to 2000 Mr. Allbery served as the Chief Financial Officer of The Virtus Group, a private business venture in Budapest, Hungry. Mr. Allbery also spent approximately 20 years in public accounting. Prior to leaving public accounting, Mr. Allbery was a partner with Deloitte & Touche LLP. Mr. Allbery holds a B.A. degree in Accounting from Doane College and a MBA in taxation from Golden Gate University.

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

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

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Part II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters.

        Our common stock is listed for trading on the NASDAQ National Market under the symbol TBIO. The following table sets forth the high and low prices for our common stock during the third and fourth quarters of 2000 beginning on July 17, 2000, the date of our initial public offering of common stock, and each of the quarters of 2001.

Year Ended December 31, 2000	High		Low
Third Quarter (July 18 - September 30, 2000)	$	30.016	$	15.75
Fourth Quarter	$	23.00	$	5.75
Year Ended December 31, 2001
First Quarter	$	10.98	$	5.19
Second Quarter	$	15.00	$	5.50
Third Quarter	$	12.85	$	6.01
Fourth Quarter	$	12.60	$	5.45

        Prior to July 17, 2000 there was no public market for our common stock. At February 20, 2002, there were 23,662,903 shares of our common stock outstanding and approximately 3,300 holders of record. The outstanding shares consist of 23,924,807 shares issued less 261,904 shares of treasury stock.

        We have never declared or paid any cash dividends on our capital stock and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently expect to retain all earnings, if any, for investment in our business. 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.

Item 6.    Selected Financial Data.

        The statement of operations data for the years ended December 31, 2001, 2000 and 1999 and the balance sheet data as of December 31, 2001 and 2000 are derived from our historical consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K, which have been audited by Deloitte & Touche LLP, our independent auditors. The statement of operations data for the years ended December 31, 1998 and 1997 and the balance sheet data as of December 31, 1999, 1998 and 1997 are derived from our audited historical consolidated financial statements that are not included in this Annual Report on Form 10-K. In May 2001, we acquired Annovis, Inc., a specialty chemicals company that develops, manufactures and markets a wide variety of nucleic acid-based products and services for the life science industry, for a total purchase price of approximately $15.9 million. Annovis's results of operations have been included in the accompanying financial statements beginning on May 1, 2001. Additionally, our financial statements include the results from our non-life sciences product line which was sold effective April 1, 2000. Financial information prior to July 1, 1997 is that of our predecessor corporation, CETAC Holding Company, Inc. and its subsidiaries or predecessors.

        The following selected financial data should be read in conjunction with our consolidated financial statements and the related notes thereto and the information under "Management Discussion and

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Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K.

	Year Ended December 31,
	2001			2000			1999			1998			1997
	In thousands, except per share data
Statement of Operations Data:
Net sales	$	38,467		$	25,883		$	23,035		$	18,935		$	11,577
Cost of good sold		17,198			12,800			12,090			9,590			6,336
Gross profit		21,269			13,083			10,945			9,345			5,241
Selling, general and administrative		21,497			14,047			11,532			8,160			6,412
Research and development		9,372			7,652			6,297			3,159			2,047
Stock based compensation expense		139			861			—			—			—
Gain on sale of product line		—			(784	)		—			—			—
Operating expenses		31,008			21,776			17,829			11,319			8,459
Loss before income taxes		(7,377	)		(8,481	)		(8,082	)		(2,506	)		(3,646	)
Net loss	$	(7,401	)	$	(8,661	)	$	(9,827	)	$	(1,576	)	$	(2,410	)
Basic and diluted net loss per share	$	(0.33	)	$	(0.52	)	$	(0.76	)	$	(0.13	)	$	(0.22	)
Basic and diluted weighted average shares outstanding		22,560			16,630			13,000			12,279			11,145

	As of December 31,
	2001		2000		1999			1998		1997
	In thousands
Balance Sheet Data:
Total assets	$	89,286	$	77,863	$	19,964		$	14,736	$	10,010
Long-term debt, less current portion		—		—		12,538			695		1,128
Total stockholders' equity (deficit)	$	82,103	$	73,966	$	(2,099	)	$	6,649	$	991

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

Overview

        We provide innovative solutions for the synthesis, purification and analysis of nucleic acids. Our solutions include automated instrument systems, associated consumables and chemical building blocks for nucleic acid synthesis. Our technologies center around three core competencies: separation chemistries, enzymology, and nucleic acid chemistries. We develop, assemble, manufacture and market our products 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, and biochemical reagents to those entities engaged in basic biomedical research and the development of diagnostics and therapeutic agents.

        Revenues are generated from the sale of our principal products, the WAVE System and our consumable products. During the fiscal year ended December 31, 2001, we sold 285 WAVE Systems to major academic and government research centers and commercial and biopharmaceutical companies.

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Since the WAVE System product introduction in 1997 we have sold over 740 instruments to customers in over 25 countries. Revenues from the sale of consumable products increased significantly during 2001, due largely to our acquisition of Annovis, Inc. discussed below, and represented approximately 40% of our net sales as compared to approximately 19% in 2000. We expect that over the next five years, sales from consumable products will increase both in amount and as a percentage of our net sales.

        Before July 1, 1997, we manufactured and sold instruments and other products used in the non-life sciences instrumentation industry through our predecessor company, CETAC Holding Company, Inc. and its subsidiaries. On July 1, 1997, we merged these companies into Transgenomic, Inc., a new Delaware corporation, for the purpose of developing, manufacturing and selling our new life sciences product line in addition to continuing to manufacture and market our existing non-life sciences products. In 1999, we decided to focus our resources on our life sciences product line. Accordingly, during the second quarter of 2000 we sold the assets related to our non-life sciences instrument products. These assets consisted of inventory, property, plant and equipment, patents, other intellectual property rights and a lease deposit. Financial information for periods ending before the effective date of the sale, April 1, 2000, includes the results of our non-life sciences instrument product line. On July 21, 2000, we completed our initial public offering, selling 5,152,000 shares of common stock at $15.00 per share for net proceeds of approximately $69.9 million. In May 2001, we acquired Annovis, Inc., a specialty chemicals company that develops, manufactures and markets a wide variety of nucleic acid-based products and services for the life science industry, for a total purchase price of approximately $15.9 million.

        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 December 31, 2001, we had an accumulated deficit of $28.4 million. Although we expect to continue to incur substantial research and development and selling, general and administrative costs as we continue to expand our operations we also expect these costs as a percentage of sales to decline.

Accounting Policies

        Accounting policies used in the preparation of the consolidated financial statements may involve the use of management judgments and estimates. Our judgements and estimates are based on experience and assumptions that we believe are reasonable under the circumstances. Further, we evaluate our judgements 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 accounting policies that may involve the use of judgment or estimates.

Allowance for Doubtful Accounts

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

•

the age of the accounts receivable,



•

customer credit history,



•

customer financial information,



•

reasons for non-payment, and



•

our knowledge of the customer.

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

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Inventories

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

Depreciation and Amortization of Long-Lived Assets

        The Company's long-lived assets consist primarily of property, plant and equipment, goodwill, patents, intellectual property and capitalized software development costs. We believe the useful lives we assigned to these assets are reasonable. If our assumptions about these assets change as a result of events or circumstances and we believe the assets may have declined in value we may record impairment charges resulting in lower profits.

        Property and equipment are carried at cost. Depreciation and amortization are computed by the straight-line and accelerated methods over the estimated useful lives of the related assets ranging from 3 to 7 years. Goodwill arising from the excess of cost over the fair value of net assets at dates of acquisition has been amortized using the straight-line method over lives ranging from 12 to 15 years. The Company capitalizes the external and in-house legal costs and filing fees associated with obtaining patents on its new discoveries and amortizes these costs using the straight-line method over the shorter of the legal life of the patent or its economic life, generally 17 years, beginning on the date the patent is issued. Intellectual property, which is purchased technology, is recorded at cost and is amortized over its estimated useful life of between 5 and 10 years.

Impairment of Long-Lived Assets

        The Company assesses the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In such cases, if the sum of the expected cash flows (undiscounted and without interest) resulting from the use of the asset is less than the carrying amount, an impairment loss is recognized based on the difference between the carrying amount and the fair value of the assets. No impairment loss has been recognized to date.

Income Taxes

        Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities at each balance sheet date using tax rates expected to be in effect in the year the differences are expected to reverse. A valuation allowance has been provided in 2001 and 2000 for our remaining deferred tax assets due to the Company's cumulative losses in recent years, expected losses in future years and an inability to utilize any additional losses as carrybacks. The Company will continue to assess the recoverability of deferred tax assets and the related valuation allowance. To the extent the Company begins to generate income in future years and it is determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized at such time.

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Results of Operations

Years Ended December 31, 2001 and 2000

        Net Sales.    Revenue on the sales of products is recognized in accordance with the terms of the sales arrangement, which is generally based on receipt of an unconditional customer order and shipment of product. Our sales terms do not provide for the right of return unless the product is damaged or defective. Revenues from certain services associated with our research 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.

        Net sales increased 49%, from $25.9 million in 2000 to $38.5 million in 2001. Sales of our life sciences products increased 62%, from $23.7 million in 2000 to $38.5 million in 2001. Total revenues from sales of WAVE Systems increased 25%, from $18.8 million in 2000 to $23.5 million in 2001. WAVE system sales continue to grow as we execute on our strategy of developing new applications and markets for the instrument platform. Consumable product sales and other revenue increased from $4.9 million in 2000 to $15.0 million in 2001. Most of the increase in consumable sales and other revenue came from our synthetic nucleic acid products, obtained through our acquisition of Annovis, Inc. in May 2001, which accounted for approximately 64% of our consumable product sales and other revenue. Additionally, WAVE related consumable products revenue increased approximately 32% from $2.1 million in 2000 to $3.1 million in 2001. We expect to see increased sales of our synthetic nucleic acid products as we focus our sales efforts on large consumers of these products who are willing to commit to long-term supply agreements. Sales of WAVE related consumable products increased as the installed base of WAVE Systems has increased and as researchers begin to use them more extensively in place of other methods of DNA analysis. Sales of our non-life sciences instrument products were $2.2 million in 2000. There were no sales in 2001 as a result of our divestiture of this product line effective April 1, 2000. We expect that our consumable product sales will increase at a higher rate than our WAVE system sales, thus we expect our consumables revenue to become a larger percentage of our overall revenue.

        Cost of Goods Sold.    Cost of goods sold increased 34% from $12.8 million in 2000 to $17.2 million in 2001, representing 49% of net sales in 2000 and 45% of net sales in 2001. Cost of goods sold as a percent of sales improved year over year due to improved margins on our WAVE systems sales offset by the lower margin bulk sales of our synthetic nucleic acid products. Systems sales margins improved due to lower combined material and manufacturing costs for our life science instruments, higher average selling prices per systems and the sale of our lower margin non-life sciences instrument product line in 2000. The average sales price per instrument increased from approximately $77,000 in 2000 to approximately $82,000 in 2001. The improved margins in systems sales were offset by a lower margin on consumable sales. The consumable sales margin was lower due mainly to bulk sale pricing discounts. We anticipate that this percentage will improve in the future as we refine our systems configurations potentially reducing material costs and improve upon production methods which currently result in higher overall manufacturing costs.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased 53%, from $14.0 million in 2000 to $21.5 million in 2001. This increase is the result of additional personnel and personnel-related expenses and depreciation. The average selling, general and administrative personnel counts increased 32% from 99 in 2000 to 131 in 2001. This personnel increase was due largely to the acquisition of Annovis. Direct personnel expenses and increased travel and travel related expenses associated with the activities of our expanded staff accounted for approximately 37% of the total increase. Increased rent and depreciation expense associated with investments in offices and equipment supporting our expanded staff accounted for approximately 34% of the total increase. Total selling, general and administrative expenses represented 54% of net sales in 2000 versus 56% of net sales in 2001. While we anticipate selling, general and administrative expenses to increase over the next several years to support

27

our growing marketing, sales and business activities and costs associated with operating as a public company, we also expect these costs as a percentage of sales to decline.

        Research and Development Expenses.    Research and development expenses increased 23%, from $7.7 million in 2000 to $9.4 million in 2001. Research and development expenses consist of salaries and related personnel costs of researchers and software developers, material costs for prototypes and test units, legal expenses relating to intellectual property research and application development activities, testing and enhancement of our products and amortization of intellectual property. We expense our research and development costs in the year in which they are incurred with the exception of certain capitalized software development costs. The increase in these expenses is attributable to increased personnel and personnel related expenses and professional services fees associated with the expanded activities of the staff. The average research and development personnel count increased 27% from 57 in 2000 to 73 in 2001. This increase in personnel was due largely to the acquisition of Annovis. Salaries, payroll taxes and benefits accounted for approximately 49% of the total increase. We supplement the expanded activities of our staff through the engagement of external consultants. Increased professional services fees accounted for approximately 51% of the total increase in research and development expenses. Total research and development expenses represented 30% of net sales in 2000 versus 24% of net sales in 2001. While we expect research and development spending to increase over the next several years as we expand our development efforts, we also expect these costs as a percentage of sales to decline.

        Stock Based Compensation.    Stock based compensation expense was $0.9 million in 2000 as compared to $0.1 in 2001. Stock based compensation expense was higher in 2000 as we accelerated the vesting of 71,700 options in connection with the sale of our non-life sciences instrument product line. Former employees who were associated with our non-life sciences product line held these options. The acceleration resulted in the recording of $0.6 million of stock based compensation expense in the first quarter of 2000.

        Gain on Sale of Product Line.    Effective April 1, 2000 we sold the assets related to our non-life sciences instrument product line to enable us to focus our business plan on the genomics segment of the life sciences industry. The assets were sold for a total adjusted purchase price of $5.65 million plus reimbursement by the buyer of approximately $0.4 million of expenses paid by us since March 31, 2000 in connection with this product line. At the date of the transaction the gain to be recognized on the sale of the assets was deferred until we received all proceeds from the buyer. All such proceeds were received on December 29, 2000 and a gain on the sale of $0.8 million, before taxes, was recognized.

        Other Income (Expense).    Other income and expense, which consists mainly of net interest income and expense, increased from income of $0.2 million in 2000 to income of $2.4 million in 2001. Interest expense for the year was $58,000 as compared to $1.8 million in 2000. During 2000 we carried a large amount of debt that was either paid or converted into common stock subsequent to our initial public offering in July 2000. As a result of the elimination of debt from our balance sheet we incurred little interest expense in 2001. Interest income for the year was $2.5 million as compared to $2.0 million in 2000. The increase in interest income was a result of the investment of the net proceeds from our initial public offering. Interest income on investments during 2001 was negatively impacted by the significant decline in short-term interest rates. We expect interest income to decline in 2002 as short term interest rates are expected to continue to be low and as we continue to use cash in our operating and investing activities.

        Income Taxes.    Income tax expense in 2000 was $0.2 million while in 2001 income tax expense was $24,000. The expense recorded in 2000 relates to the recognized gain on the sale of the assets related to our non-life sciences product line. Income tax expense in 2001 is related to our sales branch in Japan. Our deferred tax assets as of December 31, 2001 were $14.7 million and were offset by a valuation allowance of $14.7 million. Our deferred tax assets as of December 31, 2000 were $7.6 million and were offset by a valuation allowance of $7.6 million. No tax benefit related to our net operating losses is being recorded due to our cumulative losses in recent years, expected losses in the future and the uncertainty as to whether we

28

will be able to utilize any additional losses as carryforwards. We will continue to assess the recoverability of deferred tax assets and the related valuation allowance. We expect to continue to incur losses and expect to continue to provide valuation allowances against deferred tax assets. To the extent we begin to generate income in the future and it is determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized. As of December 31, 2001, we had federal net operating loss carryforwards of approximately $38.0 million. We also had federal research and development tax credit carryforwards of approximately $0.7 million. The net operating loss and credit carryforwards will expire at various dates from 2008 through 2021, if not utilized. We also had state income tax loss carryforwards of $15.4 million at December 31, 2001. These carryforwards will also expire at various dates beginning in 2008 if not utilized.

Years Ended December 31, 2000 and 1999

        Net Sales.    Net sales increased 12%, from $23.0 million in 1999 to $25.9 million in 2000. Sales of our life sciences products increased 67%, from $14.2 million in 1999 to $23.7 million in 2000. Total revenues from sales of WAVE Systems increased 68%, from $11.2 million in 1999 to $18.8 million in 2000. Life sciences consumable sales increased 61%, from $3.0 million in 1999 to $4.9 million in 2000. Most of the increase in consumable sales came from our WAVE related consumables that increased 130% from $0.9 million in 1999 to $2.1 million. Sales of consumable products increased as the installed base of WAVE Systems has increased and as researchers begin to use them more extensively in place of other methods of DNA analysis. Sales of our non-life sciences instrument products decreased 75%, from $8.8 million in 1999 to $2.2 in 2000 due to the fact that we sold this product line effective April 1, 2000, therefore, no sales of these products were recorded after March 31, 2000.

        Cost of Goods Sold.    Cost of goods sold increased 6% from $12.1 million in 1999 to $12.8 million in 2000, representing 52% of net sales in 1999 and 49% of net sales in 2000. Cost of goods sold as a percent of sales improved year over year due to lower combined material and manufacturing costs for our life science instruments as compared to the non-life sciences instruments. We anticipate that this percentage will improve in the future as we refine our systems configurations potentially reducing material costs and as consumables become a greater percentage of our revenues.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased 22%, from $11.5 million in 1999 to $14.0 million in 2000. This increase is the result of additional personnel and personnel-related expenses and depreciation. The average selling, general and administrative personnel counts increased 10% from 90 in 1999 to 99 in 2000. The average count for 1999 included approximately 32 employees whose positions were associated with the non-life sciences product line that we sold effective April 1, 2000. Direct personnel expenses and increased travel and travel related expenses associated with the activities of our expanded staff accounted for approximately 77% of the total increase. Increased depreciation expense associated with investments in offices and equipment supporting our expanded staff accounted for approximately 10% of the total increase. We anticipate selling, general and administrative expenses to increase over the next several years to support our growing marketing, sales and business activities and costs associated with operating as a public company.

        Research and Development Expenses.    Research and development expenses increased 22%, from $6.3 million in 1999 to $7.7 million in 2000. These expenses represented 27% of net sales in 1999 versus 30% of net sales in 2000. Research and development expenses consist of salaries and related personnel costs of researchers and software developers, material costs for prototypes and test units, legal expenses relating to intellectual property, research activities, testing and enhancement of our products, and amortization of intellectual property. We expense our research and development costs in the year in which they are incurred. The increase in these expenses is attributable to increased personnel and personnel related expenses, the costs associated with the expanded activities of the staff and depreciation. The average research and development personnel count increased 4% from 55 in 1999 to 57 in 2000. The

29

average count for 1999 included approximately 7 employees whose positions were associated with the non-life sciences product line that we sold effective April 1, 2000. Salaries, payroll taxes and benefits accounted for approximately 46% of the total increase. This percentage increase is greater than the percentage increase in average personnel counts due to the timing of personnel hiring in 1999. The majority of personnel additions in 1999 occurred in the second half of the year while personnel counts in 2000 were consistent. We supplement the expanded activities of our staff through the engagement of external consultants. Increased professional services fees accounted for approximately 18% of the total increase in research and development expenses. The increase in depreciation is the result of investments in equipment during the year. The increase in depreciation accounted for approximately 20% of the total increase. We expect research and development spending to increase over the next several years as we expand our development efforts.

        Stock Based Compensation.    Stock based compensation expense was $0.9 million in 2000. In connection with the sale of our non-life sciences instrument product line, we accelerated the vesting of 71,700 options, which would have otherwise been forfeited. Former employees who were associated with our non-life sciences product line held these options. The acceleration resulted in the recording of $0.6 million of stock based compensation expense in the first quarter of 2000. The remaining expense is due to amortization of deferred compensation related to stock options issued.

        Gain on Sale of Product Line.    Effective April 1, 2000 we sold the assets related to our non-life sciences instrument product line to enable us to focus our business plan on the genomics segment of the life sciences industry. The assets were sold for a total adjusted purchase price of $5.65 million plus reimbursement by the buyer of approximately $0.4 million of expenses paid by us since March 31, 2000 in connection with this product line. At the date of the transaction the gain to be recognized on the sale of the assets was deferred until we received all proceeds from the buyer. All such proceeds were received on December 29, 2000 and a gain on the sale of $0.8 million, before taxes, was recognized.

        Other Income (Expense).    Other income and expense, which consists mainly of net interest income and expense, improved from an expense of $1.2 million in 1999 to income of $0.2 million in 2000. Interest expense for the year was $1.8 million as compared to $1.3 million in 1999. The increase in interest expense was the result of interest expense on our $12 million convertible notes that were issued in March 1999, additional interest expense on our working capital lending facility and accelerated interest charges on our convertible notes. On the effective date of our initial public offering interest payable on the notes was accelerated through the maturity date of the notes at an annual interest rate of 3.6%. As a result, the Company recorded additional interest expense of approximately $0.8 million in the third quarter of 2000. Interest income for the year was $2.0 million as compared to $0.1 million in 1999. The increase in interest income is a result of the investment of the net proceeds from our initial public offering.

        Income Taxes.    Income tax expense in 1999 was $1.7 million while in 2000 income tax expense was $0.2 million. The expense recorded in 1999 relates to the establishment of a valuation allowance against previously recorded deferred tax assets. The expense recorded in 2000 relates to the recognized gain on the sale of the assets related to our non-life sciences product line. No further tax benefit is being recorded due to our cumulative losses in recent years, expected losses in future years and the uncertainty as to whether we will be able to utilize any additional losses as carrybacks. We will continue to assess the recoverability of deferred tax assets and the related valuation allowance. We expect to continue to incur losses and expect to continue to provide valuation allowances against deferred tax assets. To the extent we begin to generate income in future years and it is determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized. As of December 31, 2000, we had federal net operating loss carryforwards of approximately $19.9 million. We also had federal research and development tax credit carryforwards of approximately $0.2 million. The net operating loss and credit carryforwards will expire at various dates from 2012 through 2020, if not utilized. We also had state income tax loss carryforwards of $4.2 million. These carryforwards will also expire at various dates if not utilized.

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        As of December 31, 1999, we had deferred tax assets of approximately $0.2 million. The deferred tax asset at December 31, 1999 has been offset by a valuation allowance of $4.5 million due to our cumulative losses in recent years, expected losses in future years and an inability to utilize any additional losses as carrybacks. The deferred tax assets as of December 31, 2000 were $7.6 million and were offset by a valuation allowance of $7.6 million. Deferred tax assets relate primarily to net operating loss carryforwards.

Liquidity and Capital Resources

        We have experienced net losses and negative cash flows from operations during the past three years. As a result, we had an accumulated deficit of $28.4 million as of December 31, 2001. On July 21, 2000, we issued 5,152,000 shares of common stock in our initial public offering at $15.00 per share. After payment of the underwriters' discounts and commissions and other expenses, we received net proceeds of approximately $69.9 million from this offering. In addition, warrants and options to purchase shares of common stock have been exercised at various times since our initial public offering providing us with approximately $5.2 million in additional cash. As of December 31, 2001 and 2000, we had approximately $19.6 million and $38.2 million, respectively, in cash and cash equivalents. In addition, as of December 31, 2001 and 2000, we had approximately $23.9 million and $23.7 million in short-term investments for total cash and short-term investments of approximately $43.5 million and $61.9 million, respectively.

        Our operating activities resulted in net outflows of $8.7 million in 1999 and $4.7 million in 2000 as compared to $11.1 million in 2001. The operating cash outflows for these periods resulted from significant investments in research and development and sales and marketing, which resulted in operating losses. The operating cash outflows for 2001 were significantly higher than those in the prior year due in large part to increased accounts receivable and inventory balances. Accounts receivable increased due to increased sales and the timing of those sales during the year. In addition, during 2000 the average days to collect accounts receivable was approximately 73 days while the average days to collect accounts receivable increased to approximately 83 days in 2001. This increase was due in part to extended payment terms granted to significant customers and distributors in the second half of 2001. Inventory balances increased due mainly to an increase in WAVE Systems on hand at the end of the year.

        Net cash used in investing activities was $3.5 million in 1999 and $22.2 million for 2000 compared to $9.4 million in 2001. The investing cash flow in 2001 was due primarily to our investment in property, plant and equipment and our acquisition of Annovis, Inc. During 2002 we expect to continue to make significant investments in property, plant and equipment. Our capital expenditures budget for 2002 is approximately $5.0 million, exclusive of our synthetic nucleic acid product facility expansion project, and is expected to relate to general facility and equipment improvements. Plans and budgets for our synthetic nucleic acid product production facility expansion project are being finalized and we currently expect the capital expenditures on this project to be in the $10.0 to $15.0 million range over the next 2 to 3 years. The facility expansion is being planned in anticipation of the expected growth in our synthetic nucleic acid products business.

        Net cash provided by financing activities was $12.2 million in 1999 and $64.9 million for 2000 compared to $1.9 million in 2001. The financing cash inflows in 2001 were the result of the sale of common stock through the exercise of warrant and options offset by the repayment of debt held by Annovis, Inc. at the time of our acquisition. The financing cash inflows in 2000 were the result of our initial public offering offset by the repayment of bank debt and our purchase of treasury stock. Our initial public offering and subsequent sales of common stock for the exercise of warrants and options resulted in cash inflow, net of expenses, of approximately $72.7 million. The repayment of debt resulted in cash outflow of approximately $5.2 million and the purchase of treasury stock resulted in cash outflow of approximately $2.7 million.

        In February 2002, pursuant to a Term Loan Agreement, the Company loaned $1.5 Million to Genodyssee, S.A., a French limited company located near Paris. Genodyssee is a European genomics

31

company that operates in two main divisions, one that is developing drug targets based on genetic variability and one that provides custom research services. The loan proceeds are to be used by Genodyssee for general corporate purposes. The loan carries an annual interest rate of 5% and all accrued interest and principal are due on the earlier of January 31, 2003, or the first closing date of a "qualified offering" defined as the issuance of new voting equity securities in Genodyssee pursuant to a private or public offering that raises gross proceeds of not less than $5 million. Genodyssee may prepay this debt in whole or in part at anytime. Genodyssee may make repayment of the principal and accrued interest in one of the following forms:

•

Shares of Genodyssee issued as the same type and class and under the same terms and conditions, including share price, as shares issued in a "qualified offering",



•

Shares of Genodyssee issued based on an independent third party appraisal in the event that a "qualified offering" is not consummated prior to January 31, 2003, or



•

Cash.

        Genodyssee has been a customer of Transgenomic since July of 2000 purchasing multiple WAVE systems, system upgrades and consumable products. In addition, in December 2001, the Company and Genodyssee entered into a Service Provider Agreement. The Service Provider Agreement is a strategic alliance between Transgenomic and Genodyssee whereby Transgenomic will perform sales and marketing activities in the United States, Europe and Japan for certain analytical services related to nucleic acids which will be performed by Genodyssee. The Service Provider Agreement has an initial term of 3 years and automatically renews for successive 1 year periods until cancelled under the terms of the Agreement. As a part of the Service Provider Agreement, the Company entered into a $1.0 Million Revolving Line of Credit Agreement with Genodyssee. Genodyssee will utilize the Line of Credit in managing its cash flows and working capital needs to perform services under the Service Provider Agreement. The outstanding balance of the Line of Credit is not to exceed the lesser of $1.0 million or 25% of the total amount currently due to Genodyssee under customer contracts entered into under the Service Provider Agreement. The Line of Credit carries an annual interest rate of 5% and the same term as the Service Provider Agreement. As of December 31, 2001, there was no balance outstanding on the Line of Credit.

        As of December 31, 2001, we did not have any significant contractual purchase obligations. We are party to a number of lease agreements mainly for office, research and development and production facilities. Such lease agreements expire at various dates through 2007. At December 31, 2001, the future minimum lease payments required under noncancellable lease provisions are approximately $1.9 million in 2002; $1.5 million in 2003; $1.5 million in 2004; $1.3 million in 2005; $1.0 million in 2006; and a total of approximately $0.2 million in rental payments for the year 2007.

        In May 2001, we acquired Annovis, Inc., a specialty chemicals company that develops, manufactures and markets a wide variety of nucleic acid-based products and services for the life science industry, for a total purchase price of approximately $15.9 million. As part of the purchase price we issued approximately 1.9 million shares of common stock valued at $13.1 million. The remaining purchase price is made up of direct acquisition related expenses of approximately $2.2 million and cash paid in lieu of shares to certain Annovis stockholders of approximately $0.6 million.

        In August 2000, we converted our $12 million convertible notes, due in 2002, into 2,750,906 shares of common stock. These notes contained features that were impacted by our initial public offering. On the effective date of our initial public offering interest payable on the notes was accelerated through the maturity date of the notes at an annual interest rate of 3.6%. As a result, we recorded additional interest expense of approximately $0.8 million. These notes contained a conversion feature that allowed us, upon satisfaction of certain conditions, to cause conversion of the principal plus accrued interest into shares of our common stock at a conversion price of $5.00 per share. On August 14, 2000, our Board of Directors authorized us to convert the notes into common stock upon meeting the required conditions. On

32

August 15, 2000, such conditions were met and the notes were converted. All principal and accrued interest at the conversion date of approximately $13.9 million was recorded to stockholders equity.

        On May 19, 2000, we sold the assets related to our non-life sciences instrument product line to a company controlled by Stephen F. Dwyer, a director and a principal stockholder of ours, for a total adjusted purchase price of $5.65 million plus reimbursement by the buyer of approximately $0.4 million of expenses paid by us since March 31, 2000 in connection with this product line. Approximately $3.65 million was paid in cash at the closing of the sale and $2.0 million was paid with an interest-bearing promissory note repaid on December 30, 2000.

        We expect to devote substantial capital resources to continue our research and development efforts, to expand our marketing and sales and customer support activities, and for other general corporate activities. Our capital requirements depend on a number of factors, including the level of our research and development activities, market acceptance of our products, the resources we devote to developing and supporting our products, and other factors. Given the current interest rate environment and the expected costs of our planned facility expansion in Glasgow, Scotland, we are currently investigating various financing vehicles for the project. Even if we complete our facility expansion using existing cash, we believe that our current cash balances will be sufficient to fund operations through at least fiscal year 2003. During or after this period, if cash generated by operations is insufficient to satisfy our liquidity requirement, we may need to sell additional equity or debt securities, or obtain additional credit arrangements.

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.

Recent Accounting Pronouncements

        In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. SFAS No. 142 establishes new guidelines for accounting for goodwill and other intangible assets and provides that goodwill and other intangible assets with indefinite lives will not be amortized, but will be evaluated for impairment annually. SFAS No. 142 is effective for the Company beginning January 1, 2002. The historical impact of not amortizing goodwill would have been to decrease net loss by $0.9 million, $0.1 million and $0.1 million for the fiscal years ended December 31, 2001, 2000 and 1999, respectively. Other than the impact of discontinuing to amortize goodwill, the Company believes the adoption of SFAS No. 142 will not have a significant impact on the financial statements of the Company.

        In August 2001, the FASB issued SFAS No. 143, Accounting For Asset Retirement Obligations. SFAS No. 143 requires the Company to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and is effective for the Company's fiscal year beginning January 1, 2003. Management is in the process of evaluating the impact, if any, this standard will have on the Company's consolidated financial statements.

        In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 replaces SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144 develops one accounting model based upon the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. The accounting model applies to all long-lived assets, including discontinued operations, and it replaces the provisions of APB Opinion No. 30, Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for a disposal of segments of a business. SFAS No. 144 requires that long-lived assets be measured at the lower

33

of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS No. 144 also broadens the definition of discontinued operations. SFAS No. 144 is effective for the Company's fiscal year beginning January 1, 2002. The Company believes the adoption of SFAS No. 144 will not have a significant impact on the financial statements of the Company.

Foreign Currency Rate Fluctuations

        Approximately 50% of our net sales have been to customers in the United States. While we do sell products in many foreign countries, most of these sales are completed by our wholly-owned subsidiary, Transgenomic, LTD., and are made in its operating currency British pounds sterling, or the Euro. Results of operations for the Company's foreign subsidiary 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. To further limit our exposure to exchange rate risk all sales quotes issued by Transgenomic, Ltd. are based upon the United States dollar pricing converted at prevailing exchange rates at the time of the quote. Additionally, such quotes have short expiration dates. As a result, although we are subject to exchange rate risk, management feels we do not have a material exposure to foreign currency rate fluctuations at this time.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

        The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we invest in may have market risk. This means that a change in prevailing interest rates may cause the market value of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the market value of our investment will probably decline. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, government and non-government debt securities. The average duration of all of our investments in 2001 was less than one year. Due to the short-term nature of these investments, we believe we have no material exposure to interest rate risk arising from our investments. Therefore, no quantitative tabular disclosure is presented.

34

Item 8.    Financial Statements and Supplementary Data.

INDEPENDENT AUDITORS' REPORT

         Board of Directors
Transgenomic, Inc.
Omaha, Nebraska

        We have audited the accompanying consolidated balance sheets of Transgenomic, Inc. and subsidiaries (the Company) as of December 31, 2001 and 2000 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Transgenomic, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 30, 2002

35

TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of December 31, 2001 and 2000

(in thousands except share and per share data)

			2001			2000
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	19,613		$	38,193
	Short term investments			23,913			23,728
	Accounts receivable, net			11,248			4,733
	Inventories			5,829			2,567
	Prepaid expenses and other current assets			2,273			948
		Total current assets		62,876			70,169
PROPERTY AND EQUIPMENT:
	Equipment			10,459			6,359
	Furniture and fixtures			3,004			1,068
				13,463			7,427
	Less—accumulated depreciation			5,278			2,836
				8,185			4,591
DEMONSTRATION INVENTORY				250			196
OTHER ASSETS				17,975			2,907
			$	89,286		$	77,863
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
	Accounts payable		$	2,664		$	1,961
	Accrued compensation			1,212			569
	Other accrued expenses			3,306			1,367
		Total current liabilities		7,182			3,897
COMMITMENTS AND CONTINGENCIES (Notes E, G and I)
STOCKHOLDERS' EQUITY:
	Preferred stock, $.01 par value, 15,000,000 shares authorized, none outstanding			—			—
	Common stock, $.01 par value, 60,000,000 shares authorized, 23,867,907 and 21,472,816 shares issued in 2001 and 2000, respectively			239			215
	Additional paid-in capital			113,260			97,965
	Unearned compensation			(158	)		(463	)
	Accumulated deficit			(28,406	)		(21,005	)
	Accumulated other comprehensive income (loss)			(81	)		4
				84,854			76,716
	Less: Treasury Stock, at cost, 261,904 shares			(2,750	)		(2,750	)
		Total stockholders' equity		82,104			73,966
			$	89,286		$	77,863

See notes to consolidated financial statements.

36

TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2001, 2000 and 1999

(in thousands except share and per share data)

		2001			2000			1999
NET SALES		$	38,467		$	25,883		$	23,035
COST OF GOODS SOLD			17,198			12,800			12,090
	Gross profit		21,269			13,083			10,945
OPERATING EXPENSES:
	Selling, General and administrative		21,497			14,047			11,532
	Research and development		9,372			7,652			6,297
	Stock based compensation expense		139			861			—
	Gain on sale of product line		—			(784	)		—
			31,008			21,776			17,829
LOSS FROM OPERATIONS			(9,739	)		(8,693	)		(6,884	)
OTHER INCOME (EXPENSE):
	Interest income		2,450			2,005			126
	Interest expense		(58	)		(1,779	)		(1,324	)
	Other—net		(30	)		(14	)		—
			2,362			212			(1,198	)
LOSS BEFORE INCOME TAXES			(7,377	)		(8,481	)		(8,082	)
INCOME TAX EXPENSE (BENEFIT):
	Current		24			—			(28	)
	Deferred		—			180			1,773
			24			180			1,745
NET LOSS		$	(7,401	)	$	(8,661	)	$	(9,827	)
BASIC AND DILUTED LOSS PER SHARE		$	(0.33	)	$	(0.52	)	$	(0.76	)
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING			22,560,057			16,629,555			13,000,000

See notes to consolidated financial statements.

37

TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

Years Ended December 31, 2001, 2000 and 1999

(in thousands except share data)

			Common Stock
																			Accumulated Other Comprehensive Income
			Outstanding Shares		Par Value		Additional Paid in Capital			Notes Receivable			Unearned Compensation (Loss)			Accumulated Deficit						Treasury Stock			Total
Balance, January 1, 1999			13,000,000		$	130	$	10,119		$	(1,086	)	$	—		$	(2,517	)	$	3		$	—		$	6,649
	Net loss																(9,827	)		(9,827	)					(9,827	)
	Other comprehensive income (loss):
		Foreign currency translation adjustment																		(7	)					(7	)
	Comprehensive loss																			(9,834	)
	Net receivable from related party										1,086															1,086
	Issuance of stock options							113						(113	)											—
Balance, December 31, 1999			13,000,000			130		10,232			—			(113	)		(12,344	)		(4	)		—			(2,099	)
	Net loss																(8,661	)		(8,661	)					(8,661	)
	Other comprehensive (loss):
		Foreign currency translation adjustment																		(5	)					(5	)
		Unrealized gain on available for sale securities																		13						13
	Comprehensive loss																			(8,653	)
	Sale of common shares		25,000					250																		250
	Initial public offering (net of expenses)		5,152,000			52		69,644																		69,696
	Conversion of Notes Payable and accrued interest		2,750,906			28		13,909																		13,937
	Issuance and exercise of stock options or warrants		544,910			5		3,930						(508	)											3,427
	Amortization of unearned compensation													158												158
	Purchase of treasury stock		(261,904	)																			(2,750	)		(2,750	)
Balance, December 31, 2000			21,210,912			215		97,965			—			(463	)		(21,005	)		4			(2,750	)		73,966
	Net loss																(7,401	)		(7,401	)					(7,401	)
	Other comprehensive income (loss):
		Foreign currency translation adjustment																		(107	)					(107	)
		Unrealized gain on available for sale securities																		22						22
	Comprehensive loss																			(7,486	)
	Issuance of shares for acquisition		1,889,523			19		13,065																		13,084
	Issuance and exercise of stock options or warrants		505,568			5		2,396																		2,401
	Deferred compensation							(166	)					204												38
	Amortization of unearned compensation													101												101
Balance, December 31, 2001			23,606,003		$	239	$	113,260		$	—		$	(158	)	$	(28,406	)	$	(81	)	$	(2,750	)	$	82,104

See notes to consolidated financial statements.

38

TRANSGENOMIC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2001, 2000 and 1999

(in thousands)

			2001			2000			1999
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss		$	(7,401	)	$	(8,661	)	$	(9,827	)
	Adjustments to reconcile net loss to net cash flows from operating activities:
		Depreciation and amortization		3,680			1,807			1,364
		Deferred income taxes		—			180			1,773
		Loss (gain) on sale of assets		(9	)		4			(16	)
		Gain on sale of product line		—			(784	)		—
		Accrued interest and redemption premium		—			1,415			859
		Amortization of deferred financing costs		—			101			150
		Stock based compensation expense		139			861			—
	Changes in operating assets and liabilities, net of acquisitions:
		Accounts receivable		(4,677	)		1,444			(1,635	)
		Inventories		(1,910	)		(223	)		(1,775	)
		Prepaid expenses and other current assets		(1,169	)		(357	)		(296	)
		Accounts payable		(378	)		(796	)		481
		Accrued expenses		608			261			179
		Net cash flows from operating activities		(11,117	)		(4,748	)		(8,743	)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchase of property and equipment			(5,706	)		(3,109	)		(1,828	)
	Proceeds from asset sales			15			5,657			21
	Increase in other assets			(1,351	)		(980	)		(1,461	)
	Net increase in short term investments			(163	)		(23,728	)		—
	Purchase of business, net of cash acquired			(2,189	)		—			(187	)
		Net cash flows from investing activities		(9,394	)		(22,160	)		(3,455	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Issuance of common stock, net of expenses			2,401			72,670			—
	Net change in note payable—bank			—			(4,340	)		1,190
	Proceeds from notes payable—other			—			204			—
	Payments on notes payable—other			—			(901	)		(430	)
	Purchase of treasury stock			—			(2,750	)		—
	Proceeds from convertible notes payable			—			—			12,000
	Deferred financing costs			—			—			(588	)
	Repayment of acquired business debt			(458	)		—			—
		Net cash flows from financing activities		1,943			64,883			12,172
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH				(12	)		65			(8	)
NET CHANGE IN CASH AND CASH EQUIVALENTS				(18,580	)		38,040			(34	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR				38,193			153			187
CASH AND CASH EQUIVALENTS AT END OF YEAR			$	19,613		$	38,193		$	153

See notes to consolidated financial statements.

39

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2001, 2000 and 1999

(in thousands except share and per share data)

A.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Description.

        Transgenomic, Inc., a Delaware corporation, and its subsidiaries (the "Company") provide innovative instruments and consumable products for the synthesis, purification and analysis of nucleic acids. The Company develops, assembles, manufactures and markets instruments and products to the life science industry to be used in research, diagnostics and therapeutics development. These products aid researchers seeking to discover and understand variations in the human genetic code and the relationship of these variations to disease. In addition, the Company's instruments are versatile and can be used for size-based double-strand DNA separation and analysis, single-strand DNA separation and analysis and DNA purification. The Company's wide variety of consumable products is based upon core technological competencies of separation chemistries, enzymology and synthetic nucleic acids. The Company's business plan is to focus on providing solutions to the genomics segment of the life science industry through enabling instruments and consumable product offerings.

        The Company markets and sells these instruments and consumable products primarily through a direct sales and support group in North America and Europe and through a network of distributors in the Pacific Rim and other international markets. These sales efforts are directed from the Company headquarters in Omaha, Nebraska and through a series of sales and support offices strategically located throughout the United States, Europe and Japan. Through March 31, 2000, the Company also manufactured and designed sample preparation and monitoring instruments, which were primarily used with various types of optical and mass spectrometers to analyze the chemical makeup of samples. The assets related to this non-life sciences product line were sold effective April 1, 2000.

Principles of Consolidation.

        The consolidated financial statements include the accounts of Transgenomic, Inc. and its wholly-owned subsidiaries as follows:

•

Transgenomic, Ltd., which provides sales and customer support in Europe,



•

Transgenomic Japan, Inc., which sponsors a sales and support branch office in Japan,



•

Annovis, Inc., which develops, produces and sells nucleic acid-based products,



•

Cruachem, Ltd., which develops, produces and sells nucleic acid-based products, and



•

Transgenomic St. Thomas, Inc., which is organized as a foreign sales corporation.

        All intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents.

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

40

Short Term Investments.

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

Accounts Receivable.

        Accounts receivable are shown net of allowance for doubtful accounts of $213 and $180 in 2001 and 2000, respectively. Payment terms generally are 30 or 60 days. The Company has also provided extended payment terms up to 90 days to some of its customers.

Inventories.

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

Property and Equipment.

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

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

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Goodwill.

        Goodwill arising from the excess of cost over the fair value of net assets at dates of acquisition has been amortized using the straight-line method over lives ranging from 12 to 15 years.

Impairment of Long-Lived Assets.

        The Company assesses the recoverability of long-lived assets held for use, including certain intangible assets and goodwill, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In such cases, if the sum of the expected cash flows (undiscounted and without interest) resulting from the use of the asset is less than the carrying amount, an impairment loss is recognized based on the difference between the carrying amount and the fair value of the assets. No impairment loss has been recognized to date.

Other Assets.

        Other assets include patents, intellectual property, goodwill and capitalized software development costs. The Company capitalizes the external and in-house legal costs and filing fees associated with obtaining patents on its new discoveries and amortizes these costs using the straight-line method over the shorter of the legal life of the patent or its economic life, generally 17 years, beginning on the date the patent is issued. Intellectual property, which is purchased technology, is recorded at cost and is amortized over its estimated useful life of between 5 and 10 years.

Software Development Costs.

        The Company capitalizes software development costs for products offered for sale in accordance with Statement of Financial Accounting Standard No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. This Standard allows for the capitalization of certain development costs once a software product has reached technological feasibility. Capitalized costs are included in Other Assets, net of amortization. Such capitalized costs are amortized over the estimated useful life of the software product beginning when a product is released for sale.

        The Company capitalizes internal use software development costs in accordance with Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Capitalized internal use software development costs are amortized on an accelerated basis over three years. For the years ended December 31, 2001 and 2000, capitalized internal software costs included in property, plant and equipment, net of accumulated amortization, totaled $423 and $290, respectively.

Stock Based Compensation.

        The Company accounts for its employee stock option grants under the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, which utilizes the intrinsic value method. Accordingly, compensation cost for stock options is measured as the excess, if any, of the deemed fair market value of the Company's common stock at the date of grant over the stock option exercise price. Stock option grants to nonemployees are accounted for using the fair value method of

42

accounting in accordance with Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation using the Black-Scholes model.

Unearned Compensation.

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

Income Taxes.

        Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities at each balance sheet date using tax rates expected to be in effect in the year the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent that it is unlikely they will be realized.

Revenue Recognition.

        Revenue on the sales of products is recognized in accordance with the terms of the sales arrangement, which is generally based on receipt of an unconditional customer order and shipment of product. The Company's sales terms do not provide for the right of return unless the product is damaged or defective. Revenue from certain services associated with the Company's research instruments, to be performed subsequent to shipment of the products, is deferred and recognized when the services are performed. Such services, mainly limited to installation and training services that are not essential to the functionality of the instruments, typically are performed in a timely manner subsequent to shipment of the instrument. The Company also enters into various service contracts that cover installed WAVE systems. These contracts cover specific time periods and revenue associated with these contracts is deferred and recognized over the service period. At December 31, 2001, deferred revenue, mainly associated with service contracts, included on the Company's balance sheet was approximately $1.2 million. As of December 31, 2000, the Company had no deferred revenue.

Research and Development.

        Research and development costs are charged to expense when incurred with the exception of certain software development costs that are capitalized.

Translation of Foreign Currency.

        Financial statements of subsidiaries outside the U.S. are measured using the local currency as the functional currency. The adjustments to translate those amounts into U.S. dollars are accumulated in a separate account in stockholders' equity and are included in other comprehensive income. Foreign currency transaction gains or losses resulting from changes in currency exchange rates are included in the determination of net income. For the periods presented, foreign currency transaction adjustments were not significant.

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Comprehensive Income.

        Comprehensive income for all periods presented consists of net income, foreign currency translation adjustments and unrealized gains or losses on available for sale investments. The Company deems its foreign investments to be permanent in nature and does not provide for taxes on currency translation adjustments arising from converting its investments in a foreign currency to U.S. dollars. There were no reclassification adjustments to be reported in the periods presented.

Fair Value of Financial Instruments.

        The carrying amount of the Company's cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair value because of the short maturity of those instruments. The Company derives the fair value of its short-term investments based on quoted market prices.

Earnings Per Share.

        Basic earnings per share are calculated based on the weighted-average number of common shares outstanding during each period. Diluted earnings per share include shares issuable upon exercise of outstanding stock options and warrants or conversion of convertible notes, where dilutive. Potentially dilutive securities have been excluded from the computation of diluted earnings per share as they have an antidilutive effect due to the Company's net loss.

Accounting Pronouncements.

        In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. SFAS No. 142 establishes new guidelines for accounting for goodwill and other intangible assets and provides that goodwill and other intangible assets with indefinite lives will not be amortized, but will be evaluated for impairment annually. SFAS No. 142 is effective for the Company beginning January 1, 2002. The historical impact of not amortizing goodwill would have been to decrease net loss by $0.9 million, $0.1 million and $0.1 million for the fiscal years ended December 31, 2001, 2000 and 1999, respectively. Other than the impact of discontinuing to amortize goodwill, the Company believes the adoption of SFAS No. 142 will not have a significant impact on the financial statements of the Company.

        In August 2001, the FASB issued SFAS No. 143, Accounting For Asset Retirement Obligations. SFAS No. 143 requires the Company to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and is effective for the Company's fiscal year beginning January 1, 2003. Management is in the process of evaluating the impact, if any, this standard will have on the Company's consolidated financial statements.

        In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 replaces SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144 develops one accounting model based

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upon the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. The accounting model applies to all long-lived assets, including discontinued operations, and it replaces the provisions of APB Opinion No. 30, Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for a disposal of segments of a business. SFAS No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS No. 144 also broadens the definition of discontinued operations. SFAS No. 144 is effective for the Company's fiscal year beginning January 1, 2002. The Company believes the adoption of SFAS No. 144 will not have a significant impact on the financial statements of the Company.

Use of Estimates.

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

Reclassifications.

        Certain reclassifications have been made to the 1999 and 2000 financial statements to conform to the 2001 presentation.

B.    SHORT TERM INVESTMENTS

        The amortized cost of available-for-sale securities and their approximate fair values were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2001
Commercial Paper	$	8,782	$	10	$	—	$	8,792
U.S. Government Agencies		5,774		—		—		5,774
Corporate Debt		9,322		25		—		9,347
Total securities available-for-sale	$	23,757	$	35	$	—	$	23,913
December 31, 2000
Commercial Paper	$	14,697	$	—	$	—	$	14,697
U.S. Government Agencies		2,949		—		1		2,948
Corporate Debt		6,069		14		—		6,083
Total securities available-for-sale	$	23,715	$	14	$	1	$	23,728

        Maturities of short-term investments are due within one year.

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C.    INVENTORIES

        At December 31, 2001 and 2000, inventories consist of the following:

	2001			2000
Finished goods	$	2,335		$	703
Raw materials and work in process		3,248			1,557
Demonstration inventory		496			503
		6,079			2,763
Less long-term demonstration inventory		(250	)		(196	)
	$	5,829		$	2,567

        During 2000, the Company reclassified demonstration inventory of approximately $1.0 million to property and equipment.

D.    OTHER ASSETS

        At December 31, 2001 and 2000, other assets consist of the following:

	2001						2000
	Cost		Accumulated Reserve		Net Book Value		Cost		Accumulated Reserve		Net Book Value
Capitalized software	$	728	$	—	$	728	$	—	$	—	$	—
Goodwill		15,345		1,266		14,079		903		382		521
Intellectual property		535		321		214		535		267		268
Patents		1,514		78		1,436		1,368		36		1,332
Other		1,717		199		1,518		786		—		786
Total	$	19,839	$	1,864	$	17,975	$	3,592	$	685	$	2,907

E.    COMMITMENTS AND CONTINGENCIES

        The Company leases certain equipment, vehicles and operating facilities. The Company's leases related to its operating facilities currently expire on various dates through 2007. At December 31, 2001, the future minimum lease payments required under non-cancelable lease provisions are approximately $1.9 million in 2002; $1.5 million in 2003; $1.5 million in 2004; $1.3 million in 2005; $1.0 million in 2006; and a total of approximately $0.2 million in rental payments for the year 2007. Rent expense related to all operating leases for the years ended December 31, 2001, 2000 and 1999 was approximately $1.7 million, $1.0 million and $1.0 million, respectively.

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

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F.    INCOME TAXES

        Loss before income taxes consists of the following:

	Years ended December 31,
	2001			2000			1999
United States	$	(7,448	)	$	(8,231	)	$	(7,671	)
International		71			(250	)		(411	)
	$	(7,377	)	$	(8,481	)	$	(8,082	)

        The income tax provision consists of the following:

		Years ended December 31,
		2001		2000		1999
CURRENT TAX EXPENSE (BENEFIT)
	United States Federal	$	24	$	—	$	(28	)
DEFERRED TAX EXPENSE (BENEFIT)
	United States Federal		—		180		1,773
Total Income Tax Provision		$	24	$	180	$	1,745

        The Company's provision for income taxes for the years ended December 31, 2001, 2000 and 1999 differs from the amounts determined by applying the statutory Federal income tax rate to loss before income taxes for the following reasons:

	2001			2000			1999
Benefit at Federal Rate	$	(2,508	)	$	(2,884	)	$	(2,748	)
Increase (decrease) resulting from:
State income taxes—net of federal benefit		(154	)		(119	)		(63	)
Intangible amortization		298			39			43
Research and development tax credit		(98	)		(69	)		(54	)
Meals and entertainment		55			43			39
Other—net		(25	)		33			37
Valuation allowance		2,456			3,137			4,491
Total income tax expense (benefit)	$	24		$	180		$	1,745

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        The Company's deferred income tax asset at December 31, 2001 and 2000 is comprised of the following temporary differences:

	2001			2000
Net operating loss carryforward	$	14,634		$	7,359
Allowance for doubtful accounts		45			61
Fixed asset depreciation		98			48
Accrued vacation		107			97
Other		(16	)		(2	)
		14,695			7,563
Less valuation allowance		(14,695	)		(7,563	)
	$	—		$	—

        At December 31, 2001, the Company has unused federal tax net operating loss carryforwards of approximately $1.8 million which expire in 2008, $3.4 million which expire in 2009, $2.9 million which expire in 2010, $0.9 million which expire in 2011, $3.4 million which expire in 2012, $1.8 million which expire in 2018, $8.2 million which expire in 2019, $8.8 million which expire in 2020 and $6.4 million which expire in 2021. Approximately $11.8 million of the Company's total federal net operating loss carryforwards were obtained in the acquisition of Annovis, Inc. and may be subject to certain restrictions. Additionally, at December 31, 2001, the Company has unused state tax net operating loss carryforwards of approximately $15.4 million and unused general business credits earned primarily through increased research expenditures of approximately $0.7 million. These credits expire at various times between 2008 and 2021. A valuation allowance has been provided in 2001 and 2000 for the remaining deferred tax assets, due to the Company's cumulative losses in recent years, expected losses in future years and an inability to utilize any additional losses as carrybacks. The Company will continue to assess the recoverability of deferred tax assets and the related valuation allowance. To the extent the Company begins to generate income in future years and it is determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized at such time.

G.    EMPLOYEE BENEFIT PLAN

        The Company maintains an employee 401(k) retirement savings plan that allows for voluntary contributions into designated investment funds by eligible employees. The Company matches the employees' contributions at the rate of 50% on the first 6% of contributions. The Company may at the discretion of its Board of Directors, make additional contributions on behalf of the Plan's participants. Company contributions were $357, $220 and $175 for the years ended December 31, 2001, 2000 and 1999, respectively.

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H.    STOCKHOLDERS' EQUITY

Common Stock Warrants.

        The Company issued 2,000,000 shares of the Company's common stock, mainly through placement agents, in a private placement during 1997 and 1998. The Company also issued warrants to the Placement Agents with an exercise price of $5.00 per share (subject to certain cashless exercise rights) that have terms of five years expiring in 2003. Total shares eligible to be purchased through these warrants were 49,613 and 106,754 at December 31, 2001, and 2000, respectively.

Preferred Stock.

        The Company's Board of Directors is authorized to issue up to 15,000,000 shares of preferred stock in one or more series, from time to time, with such designations, powers, preferences and rights and such qualifications, limitations and restrictions as may be provided in a resolution or resolutions adopted by the Board of Directors. The authority of the Board of Directors includes, but is not limited to, the determination or fixing of the following with respect to shares of such class or any series thereof: (i) the number of shares; (ii) the dividend rate, whether dividends shall be cumulative and, if so, from which date; (iii) whether shares are to be redeemable and, if so, the terms and amount of any sinking fund providing for the purchase or redemption of such shares; (iv) whether shares shall be convertible and, if so, the terms and provisions thereof; (v) what restrictions are to apply, if any, on the issue or reissue of any additional preferred stock; and (vi) whether shares have voting rights. The preferred stock may be issued with a preference over the common stock as to the payment of dividends. The Company has no current plans to issue any series of preferred stock. Classes of stock such as the preferred stock may be used, in certain circumstances, to create voting impediments on extraordinary corporate transactions or to frustrate persons seeking to effect a merger or otherwise to gain control of the Company. For the foregoing reasons, any preferred stock issued by the Company could have an adverse effect on the rights of the holders of the common stock.

Common Stock.

        In May 2001, the Company issued 1,889,523 shares of common stock in connection with the acquisition of Annovis, Inc. See Footnote N for further discussion of this acquisition.

        In May 2001, Company shareholders approved the adoption of the Transgenomic, Inc. 2001 Employee Stock Purchase Plan that was subsequently implemented in November 2001. Substantially all of the Company's U.S. employees are eligible to participate in the Plan. Eligible employees authorize payroll deductions to be made for the purchase of shares. Such deductions are accumulated during a defined participation period at the end of which each participant is deemed to have been granted an option to purchase shares of stock from the Company at 85% of the fair market value of the Company stock as measured by the closing price of the stock on either the first of last business day of the participation period, whichever is lower. The number of shares purchased under the option is based upon the participants elected withholding amount. At the end of the participation period such option is automatically exercised. This plan is structured to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended. During 2001 there were no shares issued under this plan.

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        In August 2000, the Company's Board of Directors authorized conversion of the Company's $12 million aggregate principal amount 6% convertible notes due March 25, 2002 into common stock upon meeting the required conversion conditions. On August 15, 2000, such conditions were met, and the notes were converted into 2,750,906 shares of common stock. All principal and accrued interest at the conversion date of approximately $13.9 million was converted to stockholders equity.

        On July 21, 2000, the Company issued 5,152,000 shares of common stock in its initial public offering at $15.00 per share. After payment of the underwriters' discounts and commissions and other expenses, the Company received net proceeds of approximately $69.9 million from this offering. In addition, since the date of the initial public offering, holders of warrants and options to purchase shares of common stock have exercised at various times.

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

I.    STOCK OPTIONS

        The Company's 1997 Stock Option Plan, as amended (the "Stock Option Plan"), allows the Company to grant both incentive stock options and nonqualified stock options to acquire shares of the Company's common stock to employees and directors of the Company and to nonemployee advisors. Either incentive or non-qualified stock options may be granted to employees of the Company, but only nonqualified stock options may be granted to nonemployee directors and advisors. The maximum number of shares for which options may be granted under the Stock Option Plan is 7,000,000. The Stock Option Plan is administered by the Compensation Committee of the Board of Directors (the "Committee") which has the authority to set the number, exercise price, term and vesting provisions of the options granted under the Stock Option Plan, subject to the terms thereof. The options must be granted at exercise prices not less than the fair market value of the common stock on the date of the grant. Generally, the stock options vest at a rate of either 20% per year over a five-year period or 33¹/3% per year over a three-year period and expire 10 years after the date the option was granted. If the option holder ceases to be employed by the Company, the Company will have the right to terminate any outstanding but unexercised options.

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        The following table summarizes activity under the Stock Option Plan during the three years ended December 31, 2001:

		Number of Options		Weighted Average Exercise Price
Balance at January 1, 1999:		3,205,250		$	5.00
	Granted	590,250			5.00
	Exercised	—			—
	Canceled	(257,750	)		5.00
Balance at December 31, 1999		3,537,750			5.00
	Granted	1,137,000			10.57
	Exercised	(200,969	)		5.28
	Canceled	(438,900	)		6.45
Balance at December 31, 2000:		4,034,881			6.43
	Granted	1,865,950			7.88
	Exercised	(470,900	)		5.00
	Canceled	(296,100	)		9.75
Balance at December 31, 2001:		5,133,831		$	6.90
Exercisable at December 31, 2001		2,568,681		$	5.99

        The weighted average fair value per share of options granted in 2001, 2000 and 1999 was $2.32, $5.43 and $1.00, respectively.

        The Company has elected to follow the measurement provisions of Accounting Principles Board Opinion No. 25, under which no recognition of expense is required in accounting for stock options granted to employees for which the exercise price equals or exceeds the deemed fair market value of the stock at the grant date. In those cases where options have been granted with an exercise price below the deemed fair market value, the Company recognizes compensation expense using the straight-line method over the vesting periods of the individual stock options. During 2000, the Company recorded unearned compensation of $298 for options granted with exercise prices less than the deemed fair market value at the date of grant and $271 for options granted to non-employees. These amounts are being amortized by charges to operations over the vesting periods of the individual stock options using the straight-line method. Such amortization expense amounted to approximately $101 and $154 in 2001 and 2000, respectively.

        During 2001 and 2000, the Company recorded compensation expense of $38 and $133, respectively for options granted to non-employees. The expense amounts were calculated using the Black-Scholes option pricing model with the following assumptions: no common stock dividends, risk-free interest rates ranging from 4.66% to 6.57%; volatility of 35%; and an expected option life of 1 to 5 years.

        In connection with the sale of the Company's non-life sciences instrument product line, the Company accelerated the vesting of 71,700 options, which would have otherwise been forfeited. Compensation expense of approximately $574 was recorded for these options during the first quarter of 2000, representing the difference between the exercise price of the options and the deemed fair value of the common

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stock at the date the vesting was accelerated. In addition, 218,700 options were forfeited as a result of the sale.

        The following table summarizes information about options outstanding as of December 31, 2001:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price		Number Exercisable	Weighted-Average Exercise Price
		(in years)
$2.51—$5.00	2,504,950	6.2	$	5.00	1,993,050	$	5.00
$5.01—$7.50	1,217,250	9.3	$	6.18	222,500	$	6.08
$7.51—$10.00	919,500	7.4	$	9.88	149,000	$	9.59
$10.01—$12.50	110,000	8.8	$	11.93	26,000	$	11.93
$12.51—$13.00	382,131	7.9	$	13.00	178,131	$	13.00
	5,133,831	7.3	$	6.90	2,568,681	$	5.99

        Pro forma information regarding net income and income per share is required by Statement of Financial Accounting Standard No. 123, Accounting for Stock-based Compensation, (SFAS No. 123) assuming the Company accounted for its employee stock options using the fair value method. The fair value of each stock option granted is estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for options granted in 2001, 2000 and 1999, respectively: no common stock dividends, risk-free interest rates ranging from 4.66% to 5.65% and 5.11% to 6.53% and 5.51% to 6.13%; 35% volatility and no volatility (prior to becoming a public company); and an expected option life of 1 to 10 years. Pro forma net income and income per share assuming compensation expense for the Stock Option Plan had been determined under SFAS No. 123, are as follows:

		2001			2000			1999
Net Loss:
	As reported	$	(7,401	)	$	(8,661	)	$	(9,827	)
	Pro forma		(10,110	)		(10,205	)		(9,974	)
Basic and diluted loss per share:
	As reported		(0.33	)		(0.52	)		(0.76	)
	Pro forma		(0.45	)		(0.61	)		(0.77	)

J.    RELATED PARTY TRANSACTIONS

        In May 2000, the Company sold the assets related to its non-life sciences instrument product line to a company controlled by Stephen F. Dwyer, a director and principal stockholder of the Company, for a total adjusted purchase price of $5.65 million plus reimbursement by the purchaser of approximately $0.4 million of expenses paid by the Company in connection with this product line since March 31, 2000. The effective date of the transaction was April 1, 2000. Approximately $3.65 million of the purchase price was

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paid in cash and $2.0 million was paid with an 8.75% interest-bearing promissory note due on December 30, 2000. The purchaser financed the cash portion of the purchase price for these assets plus initial working capital needs with borrowings of approximately $4.6 million obtained from a bank. The Company acquired the notes evidencing these loans from the bank upon closing of its initial public offering on July 21, 2000 by paying to the bank an amount equal to the entire principal balance of the notes plus accrued and unpaid interest. The acquired notes were due on December 30, 2000, and had an interest rate of 8.75% per annum. These acquired notes were consolidated with the original $2.0 million note. All of the principal and accrued interest on this consolidated note was repaid prior to maturity. On December 29, 2000, we repurchased 261,904 shares of our common stock from Mr. Dwyer for $10.50 per share, which was the closing price for our common stock on that day, for an aggregate purchase price of $2.7 million. Mr. Dwyer used these proceeds and additional resources to pay the principal and interest on the consolidated note.

        The net assets sold and their book values were as follows:

Inventories	$	2,485
Property, net		705
Other assets		1,775
Accrued liabilities		(98	)
Net assets sold	$	4,867

        The Company realized a gain on the sale of these assets of approximately $784 before taxes.

K.    SALES AND PRODUCT INFORMATION

        The Company believes it is advantageous to operate on a fully integrated basis in one operating segment. Accordingly, management of the Company evaluates performance and determines the allocation of resources on an entity-wide basis. The following is supplemental information for net sales by geographic area and product group:

			2001		2000		1999
Sales by Geographic Area:
	United States		$	18,063	$	11,586	$	10,002
	Europe			15,918		10,237		9,286
	Pacific Rim			2,901		3,313		2,992
	Other			1,585		747		755
		Total	$	38,467	$	25,883	$	23,035
Sales by Product Group:
	Bio-Systems		$	23,474	$	18,842	$	11,219
	Bio-Consumables			14,993		4,870		3,022
	Sub-total—life science products			38,467		23,712		14,241
	Non-life sciences products			—		2,171		8,794
		Total	$	38,467	$	25,883	$	23,035

Long-lived assets by geographic area as of December 31, 2001 are as follows:
			2001		2000
	United States		$	5,918	$	3,505
	Europe			2,223		1,072
	Pacific Rim			44		14
		Total	$	8,185	$	4,591

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        During 2001, one customer accounted for approximately 14% of our total sales. No single customer accounted for more than 10% of total sales in 2000 or 1999.

L.    SUPPLEMENTAL CASH FLOW INFORMATION

	2001		2000		1999
Cash paid for interest	$	10	$	233	$	319
Cash paid for income taxes	$	3	$	4	$	38
Noncash investing and financing activities:
Exchange of note receivable for intellectual property	$	—	$	—	$	1,086
Liabilities assumed in connection with business acquisitions	$	3,388	$	—	$	135
Conversion of Notes Payable and Accrued Interest into Common Stock	$	—	$	13,909	$	—
Reclassification of demonstration inventory to property	$	—	$	975	$	41
Issuance of common stock as acquisition consideration	$	13,084	$	—	$	—

M.    ALLOWANCE FOR DOUBTFUL ACCOUNTS

        The following is a summary of activity for the allowance for doubtful accounts during each of the three years ended December 31, 2001:

	Beginning Balance		Additional Charges to Income		Deductions from Reserve			Ending Balance
Year Ended December 31, 2001	$	180	$	65	$	(32	)	$	213
Year Ended December 31, 2000	$	161	$	19	$	—		$	180
Year Ended December 31, 1999	$	562	$	122	$	(523	)	$	161

        During 1999 the Company wrote-off one uncollectible account of a former European distributor of non-life sciences products.

N.    ACQUISITION

        Effective May 1, 2001, the Company acquired Annovis, Inc, a privately held company, for approximately $15.9 million through the issuance of approximately 1.9 million shares of Transgenomic, Inc. common stock, the payment of approximately $563 in cash in lieu of common stock to certain Annovis stockholders and the payment of approximately $2.2 million of direct acquisition related expenses. The acquisition was structured as a merger of Annovis with a subsidiary of the Company and resulted in Annovis becoming a wholly-owned subsidiary of the Company. A total of 15% of the total shares of common stock issued in the merger is held in an escrow account with a bank. Delivery of the escrowed shares to the former shareholders of Annovis is subject to certain other conditions described in the merger agreement. Annovis is a specialty chemicals company that develops, manufactures and markets a wide

54

variety of nucleic acid based products and service for the life sciences industry. Annovis's results of operations have been included in the accompanying financial statements beginning on May 1, 2001.

        The Company accounted for this transaction as a purchase. The Company obtained an appraisal of the fair value of the tangible and intangible assets acquired from an independent appraiser. As of December 31, 2001, all identifiable tangible and intangible assets acquired and liabilities assumed have been allocated a portion of the cost equal to their estimated fair values as follows:

Net tangible assets and liabilities	$	1,390
Intangible assets	$	60
Goodwill	$	14,462
Total Purchase Price (including direct expenses)	$	15,912

        The costs assigned to intangible assets and goodwill have been amortized through December 31, 2001 on a straight-line basis over a period averaging 10 years.

        In connection with this acquisition, the Company began to formulate a plan at the date of acquisition that could lead to workforce reductions or relocations and the closure and consolidation of certain facilities. Such a plan had not been finalized as of December 31, 2001 and is not reflected in the amounts shown above. Such a plan is expected to be finalized in the first quarter of 2002 and fully executed before December 31, 2002. Significant issues related to the plan that remained open at December 31, 2001 included final timelines for the transfer of certain production capacity, finalization of workforce reduction and relocation and determination of severance and relocation packages for those employees impacted by the plan. The Company anticipates closing one facility and completing a workforce reduction or relocation affecting approximately 25 employees. Total costs of the plan are currently estimated as $300 to $500 and will be recorded as an adjustment to the total purchase price shown above and added to goodwill.

O.    PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)

        The Company's unaudited pro forma results of operations for the year ended December 31, 2001 and 2000, assuming the acquisition of Annovis, Inc. and the sale of the non-life sciences instrument product line occurred as of the beginning of the periods presented are as follows:

	Twelve Months Ended December 31
	2001			2000
Net Sales	$	42,581		$	32,728
Net Loss	$	(7,672	)	$	(10,293	)
Basic and diluted loss per share	$	(0.33	)	$	(0.56	)

        The pro forma results for 2000 do not include the realized gain on the sale of the non-life sciences product line of $784 before taxes.

55

P.    QUARTERLY RESULTS (UNAUDITED)

        The following table contains selected unaudited consolidated statements of operations data for each quarter for fiscal years 2001 and 2000.

	1st Quarter			2nd Quarter			2001 3rd Quarter			4th Quarter			Total
Net Sales	$	7,930		$	9,545		$	10,254		$	10,738		$	38,467
Gross Margin		4,263			5,408			5,663			5,935			21,269
Operating Loss		(2,013	)		(2,226	)		(2,421	)		(3,079	)		(9,739	)
Loss before taxes		(1,119	)		(1,641	)		(1,905	)		(2,712	)		(7,377	)
Net loss	$	(1,128	)	$	(1,648	)	$	(1,910	)	$	(2,715	)	$	(7,401	)
Basic & Diluted Loss Per Share	$	(0.05	)	$	(0.07	)	$	(0.08	)	$	(0.12	)	$	(0.33	)
Basic and Diluted Weighted Average Shares Outstanding		21,227,564			22,504,309			23,183,637			23,302,793			22,560,057

	2000
	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			Total
Net Sales	$	6,944		$	5,593		$	6,249		$	7,097		$	25,883
Gross Margin		3,113			2,912			3,294			3,764			13,083
Operating Loss		(3,029	)		(2,270	)		(2,120	)		(1,274	)		(8,693	)
Loss before taxes		(3,498	)		(2,713	)		(2,077	)		(193	)		(8,481	)
Net loss	$	(3,498	)	$	(2,713	)	$	(2,077	)	$	(373	)	$	(8,661	)
Basic & Diluted Loss Per Share	$	(0.27	)	$	(0.21	)	$	(0.11	)	$	(0.02	)	$	(0.52	)
Basic and Diluted Weighted Average Shares Outstanding		13,007,692			13,025,000			19,030,546			21,448,220			16,629,555

        Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly per share losses may not equal the annual loss per share. Effective May 1, 2001, the Company acquired Annovis, Inc. Annovis's results of operations have been included in the accompanying financial statements beginning on May 1, 2001. In May 2000, the Company sold the assets related to its non-life sciences instrument product line. The effective date of the transaction was April 1, 2000. No sales related to the non-life sciences instrument product line have been recorded subsequent to the effective date of the transaction.

56

Item 9.    Changes in and Disagreement With Accountants on Accounting and Financial Disclosure.

        None.

Part III

Item 10.    Directors and Executive Officers of the Registrant.

        We will file a definitive Proxy Statement with the Securities Exchange Commission not later than April 30, 2002. Information about our directors required by Item 401 of Regulation S-K is incorporated by reference to the Proxy Statement. Information about our Executive Officers is shown in Part I of this filing.

        Section 16(a) Beneficial Ownership Reporting Compliance.    Item 405 of Regulation S-K requires disclosure of any known late filing or failure by an insider to file a report required by Section 16 of the Securities Exchange Act of 1934. We believe all Section 16 reports were filed in a timely manner during 2001 except as follows:

Reporting Person	Total Number of Forms Filed Late	Total Number of Transactions Late
John L. Allbery	2	5
Collin J. D'Silva	2	9
Stephen F. Dwyer	8	16
Martin Hensley	1	2

Item 11.    Executive Compensation.

        Information required by this Item is incorporated by reference to our definitive Proxy Statement.

Item 12.    Security Ownership of Certain Beneficial Owners and Management.

        Information required by this Item is incorporated by reference to our definitive Proxy Statement.

Item 13.    Certain Relationships and Related Transactions

        Information required by this Item is incorporated by reference to our definitive Proxy Statement.

Part IV

Item 14.    Exhibits, Financial Statement Schedules and Reports of Form 8-K.

(a)

The following documents are filed as part of this report:



1.

Financial Statements

The financial statements listed in the Index to Form 10-K for the Fiscal Year Ended December 31, 2001, on page 3 are filed as part of this report.

2.

Financial Statement Schedules—None.



3.

Exhibits. The Exhibits required by Item 601 of Regulation S-K of the Securities of Exchange Act of 1934, as amended, filed as part of this report are listed in the Exhibit Index under paragraph (c) of this Item 14.




(b)

Reports on Form 8-K. The Company did not file any reports on Form 8-K during the quarter ended December 31, 2001.

57

(c)

Exhibits.

2.1	Asset Purchase Agreement, dated May 16, 2000 between the Registrant and SD Acquisition Inc.(2)
2.2	Agreement and Plan of Merger, dated as of April 30, 2001 among Transgenomic, Inc., TBIO Nebraska, Inc., TBIO, Inc. and Annovis, Inc.(3)
2.3	Addendum to Agreement and Plan of Merger, dated as of May 18, 2001 among Transgenomic, Inc., TBIO Nebraska, Inc., TBIO, Inc. and Annovis, Inc.(3)
3.1	Second Amended and Restated Certificate of Incorporation of the Registrant(2)
3.2	Bylaws of the Registrant(1)
4	Form of Certificate of the Registrant's Common Stock(1)
10.1	Amended and Restated 1997 Stock Option Plan of the Registrant(4)
10.2	1999 UK Approved Stock Option Sub Plan of the Registrant(1)
10.3	Employment Agreement, dated April 1, 2000, between the Registrant and Colin J. D'Silva(1)
10.4	Employment Agreement, dated March 30, 2001, between the Registrant and Gregory J. Duman(6)
10.5	Employee Stock Purchase Plan of the Registrant(5)
10.6	Employment Agreement, dated November 16, 1998, between the Registrant and William B. Walker(1)
10.7	Employment Agreement, dated June 1, 2001, between the Registrant and John L. Allbery
10.8	License Agreement, dated September 1, 1994, between Registrant and Professor Dr. Gunther Bonn, et. al. and Amendment thereto, dated March 14, 1997(1)
10.9	License Agreement, dated August 20, 1997, between the Registrant and Leland Stanford Junior University(1)
10.10	Supply Agreement, dated January 1, 2000, between the Registrant and Hitachi Instruments(1)
10.11	Services Provider Agreement, dated December 28, 2001, between the Registrant and Genodyssee S.A.+
10.12	Revolving Line of Credit Agreement, dated December 28, 2001, between the Registrant and Genodyssee S.A.
10.13	License Agreement, dated December 1, 1989, between Cruachem Holdings Ltd. (a wholly owned subsidiary of the Registrant) and Millipore Corporation+
10.14	Sublicense Agreement, dated October 1, 1991, between Cruachem Holdings Ltd. (a wholly owned subsidiary of the Registrant) and Applied Biosystems, Inc.+
21	Subsidiaries of the Registrant
23	Consent of Deloitte & Touche LLP
24	Powers of Attorney

(1)

This Exhibit is incorporated by reference to the Registration Statement of the Registrant (Registration No. 333-32174), which was filed on March 10, 2000.

(2)

This Exhibit is incorporated by reference to the Registration Statement of the Registrant (Registration No. 333-32174), as amended by Amendment 1, which amendment was filed on May 17, 2000.

(3)

This Exhibit is incorporated by reference to the Registration Statement of the Registrant (Registration No. 000-30975), which was filed on May 31, 2001.

58

(4)

This Exhibit is incorporated by reference to the Registrant's Report on Form 10-Q, which was filed on August 14, 2001.

(5)

This Exhibit is incorporated by reference to the Registration Statement of the Registrant (Registration No. 333-71866), which was filed on October 19, 2001.

(6)

This Exhibit is incorporated by reference to the Registrant's Report on Form 10-Q, which was filed on May 14, 2001.

+

Certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text. This Exhibit has been filed separately with the Secretary of the Commission with the redacted text pursuant to the Registrant's Application Requesting Confidential Treatment under Rule 24b-2 of the Securities Exchange Act.

59

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) 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 on this 25th day of March 2002.

TRANSGENOMIC, INC.
By	/s/  COLLIN J. D'SILVA Collin J. D'Silva, Chairman and Chief Executive Officer

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on this 25th day of March 2002.

Signature	Title
/s/  COLLIN J. D'SILVA Collin J. D'Silva	Chairman of the Board, Director and Chief Executive Officer (Principal Executive Officer)
/s/  GREGORY J. DUMAN Gregory J. Duman	Chief Financial Officer (Principal Financial Officer), Director
Stephen F. Dwyer*	Director
Jeffrey Sklar, M.D., Ph.D.*	Director
Roland J. Santoni*	Director
Parag Saxena*	Director
*By Collin J. D'Silva, as attorney-in-fact
/s/  COLLIN J. D'SILVA Collin J. D'Silva Attorney-in-fact for the individuals as indicated.

60

QuickLinks

Index
PART I
FORWARD-LOOKING STATEMENTS

Item 1. Business.

Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 4a. Executive Officers.

Part II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

INDEPENDENT AUDITORS' REPORT
TRANSGENOMIC, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 2001 and 2000 (in thousands except share and per share data)
TRANSGENOMIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2001, 2000 and 1999 (in thousands except share and per share data)
TRANSGENOMIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) Years Ended December 31, 2001, 2000 and 1999 (in thousands except share data)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

Item 9. Changes in and Disagreement With Accountants on Accounting and Financial Disclosure.

Part III

Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions

Part IV

Item 14. Exhibits, Financial Statement Schedules and Reports of Form 8-K.

SIGNATURES

EX-10.7

EXHIBIT 10.7

                              EMPLOYMENT AGREEMENT

     THIS AGREEMENT is made effective as of June 1, 2001, by and between
Transgenomic, Inc., a Delaware corporation (the "Company"), and John Allbery
("Employee").

     The Company and Employee desire to enter into an Employment Agreement (this
"Agreement"). Accordingly, the Company and Employee agree as follows:

     Section I. EFFECTIVE DATE; POSITION; TERM. This Agreement shall become
effective on June 1, 2001 (the "Effective Date"). The Company shall employ
Employee as Chief of Operations. The initial term of the Agreement will be for a
minimum of four (4) years from the Effective Date, and the Agreement may be
extended upon mutual consent of the parties.

     Section 2. POSITION AND DUTIES. During the Employment Period:

            (a) Employee shall have the normal responsibilities, duties and
     authorities of Chief of Operations to be defined prior to the Effective
     Date.

            (b) Employee shall report to the Chief Executive Officer of the
     Company and Employee shall perform faithfully the executive duties assigned
     to him to the best of his ability in a diligent, trustworthy, businesslike
     and efficient manner and will devote his full business time and attention
     to the business and affairs of the Company and its Subsidiaries and
     Affiliates; provided, however, that Employee may serve as a director of or
     a consultant to other corporations which do not compete with the Company,
     nonprofit corporations, civic organizations, professional groups and
     similar entities.

            (c) For purposes of this Agreement, "Subsidiary" shall mean any
     corporation or other entity of which securities having a majority of the
     voting power in electing directors or comparable management are, at the
     time of determination, owned by the Company, directly or through one or
     more Subsidiaries.

            (d) For purposes of this Agreement, "Affiliate" of any particular
     person means any other person controlling, controlled by or under common
     control with such particular person.

     Section 3. BASIC COMPENSATION.

     (a) BASE SALARY. As compensation for his services hereunder, the Company
shall pay to Employee during the Employment Period an initial base salary of
$200,000 per year.

     Base Salary shall be payable in equal installments in arrears on a biweekly
basis or as otherwise may be mutually agreed upon.

     The salary shall be increased over the previous year's salary as mutually
agreed to.

     Section 4. BONUS. In addition to the Base Salary, Employee shall be
eligible to receive an annual bonus based on Employee's performance in
conjunction with specific mutually agreed goals and objectives defined prior to
such calendar year payable at such time or times during or following each
calendar year as shall be determined by the Chief Executive

                                       1


Officer and the Board of Directors (the "Board") or a committee thereof in its
sole discretion and based on formulas to be determined each year by the Board or
such committee in its sole discretion for the Company's management bonus plan.

     Section 5. PARTICIPATION IN EMPLOYEE BENEFIT PLANS. Employee will be
entitled to participate in all Company salaried employee benefit plans and
programs, subject to the terms and conditions of each such employee benefit plan
or program and to the extent commensurate with his position as Chief of
Operations.

     Section 6. OTHER BENEFITS.

     (a) VACATION. Employee shall initially be entitled to four weeks' paid
vacation each year.

     (b) INSURANCE. The Company shall make available to Employee health,
hospitalization, major medical insurance and dental insurance (including
dependent coverage), and other benefits from time to time provided to employees.

     (c) RELOCATION. Employee shall be entitled to reimbursement of all
reasonable costs of relocation back to the U.S. as previously discussed and
agreed.

     Section 7. BUSINESS EXPENSES. The Company shall reimburse Employee for all
reasonable expenses incurred by him in the course of performing his duties under
this agreement which are consistent with the Company's policies in effect from
time to time with respect to travel, entertainment and other business expenses,
subject to the Company's requirements with respect to report and documentation
of such expenses.

     Section 8. STOCK OPTIONS AND OPTION SHARES. Employee was previously granted
100,000 shares at $10.00 per share of options, 20,000 shares to vest per year.

     Section 9. TERMINATION OF EMPLOYMENT.

     (a) EVENTS OF TERMINATION AND SEVERANCE PAYMENT. In the event that, during
the term of this Agreement, Employee is discharged for any reason other than for
Just Cause (as defined below), Employee shall be entitled to receive certain
payment (the "Severance Payment") following termination of employment. Severance
Payment will be made at the Employees then current base salary for an amount
equal to 12 (twelve) months' salary. In addition, in case of such discharge,
Employee will retain all vested stock options. All unvested stock options will
lapse.

     (b) "Just Cause" being defined as any criminal act (felony) being committed
by employee, if employee commits fraud or dishonesty toward the Company, other
significant activities materially harmful to the reputation of the Company as
reasonably defined by the Company, willful refusal to perform or substantial
disregard of the duties properly assigned, significant violation of any
statutory or common law or a material violation of Section 11 or 12 below, or
intentionally takes any other action materially inimical to the best interests
of the Company

     (c) EFFECT OF BREACH OF NONCOMPETITION PROVISIONS. In the event Employee
breaches or otherwise fails to comply with the provisions of Section 11 or 12
below, then, in addition to any other remedies provided herein or at law or in
equity, the Company shall have the right to require return of any severance
payment made to the Employee. Return of such Severance Payment pursuant to the
preceding sentence shall not relieve Employee's obligations pursuant to Section
11 or 12 below.

     Section 10. ASSIGNMENT AND SUCCESSION.

     (a) The rights and obligations of the Company under this Agreement shall
inure to the benefit of and be binding upon its respective successors and
assigns, and Employee's rights and obligations hereunder shall inure to the
benefit of and be binding upon his successors and permitted assigns, whether so
expressed or not.

     (b) Employee acknowledges that the services to be rendered by him hereunder
are unique and personal. Accordingly, Employee may not pledge or assign any of
his rights or delegate any of his duties or obligations under this Agreement


                                       2


without the express prior written consent of the Company.

     (c) The Company may not assign its interest in or obligations under this
Agreement without the prior written consent of Employee.

     Section 11. CONFIDENTIAL INFORMATION.

     (a) COMPANY INFORMATION. Employee agrees at all times during the term of
his Relationship with the Company and thereafter, to hold in strictest
confidence, and not to use, except for the benefit of the Company, or to
disclose to any person, firm, corporation or other entity without written
authorization of the Board of Directors of the Company, any Confidential
Information of the Company which Employee obtains or creates, by whatever means.
Employee further agrees not to make copies of such Confidential Information
except as authorized by the Company. Employee understands that "CONFIDENTIAL
INFORMATION" means any Company proprietary information, technical data, trade
secrets or know-how, including, but not limited to, research product plans,
products, services, suppliers, customer lists and customers (including, but not
limited to, customers of the Company on whom Employee called or with whom
Employee became acquainted during the Relationship), prices and costs, markets,
software, developments, inventions, laboratory notebooks, processes, formulas,
technology, designs, drawings, engineering, hardware configuration information,
marketing, licenses, finances budgets or other business information disclosed to
Employee by the Company either directly or indirectly in writing, orally or by
drawings or observation of parts or equipment or created by Employee during the
period of the Relationship, whether or not during working hours. Employee
understands that "CONFIDENTIAL INFORMATION" includes, but is not limited to,
information pertaining to any aspects of the Company's business which is either
information not known by actual or potential competitors of the Company or is
proprietary information of the Company or its customers or suppliers, whether of
a technical nature or otherwise. Employee further understands that "CONFIDENTIAL
INFORMATION" does not include any of the foregoing items which have become
publicly and widely known and made generally available through no wrongful act
of Employee's or of others who were under confidentiality obligations as to the
item or items involved.

          (b) FORMER EMPLOYER INFORMATION. Employee represents that as an
     employee of the Company, he has not breached and will not breach any
     agreement to keep in confidence proprietary information, knowledge or data
     acquired by Employee in confidence or trust prior or subsequent to the
     commencement of Employee's Relationship with the Company, and Employee will
     not disclose to the Company, or induce the Company to use, any inventions,
     confidential or proprietary information or material belonging to any
     previous employer or any other party.

          (c) THIRD PARTY INFORMATION. Employee recognizes that the Company has
     received and in the future will receive confidential or proprietary
     information from third parties subject to a duty on the Company's part to
     maintain the confidentiality of such information and to use it only for
     certain limited purposes. Employee agrees to hold all such confidential or
     proprietary information in the strictest confidence and not to disclose it
     to any person, firm or corporation or to use it except as necessary in
     carrying out Employee's work for the Company consistent with the Company's
     agreement with such third party.

     Section 12. NONCOMPETITION. Independent of any obligation under any other
contract or agreement between Employee and the Company, for a period of one (1)
year following the termination of Employee's employment relationship with the
Company, Employee shall not, directly or indirectly, whether as an individual
for his own account, or for or with any other person, firm, corporation,
partnership, joint venture, association, or other entity whatsoever, which is or
intends to be engaged in biotechnology business and, more particularly, that
provides technologies for DNA/RNA analysis and purification utilization DHPLC
technologies (provided, however, that the restrictions set forth in this clause
shall not apply to involvement that consists solely of "beneficially owning," as
such term is used in Rule 13d-3 promulgated under the Exchange Act) 2% or less
of the outstanding securities of any class of securities issued by a
publicly-traded entity):

          (a) Solicit, interfere with, or endeavor to entice away from the
     Company, any person, firm, corporation,

                                       3


     partnership, or entity of any kind whatsoever, which was or is a client or
     licensor of the Company, for which the Company performed services, with
     respect to any business, product or service that is competitive to the
     products or services offered by the Company, or under development by the
     Company, as of the date of the termination of Employee's relationship with
     the Company. This restriction shall apply only to such clients or licensors
     of the Company as were serviced or solicited by Employee at any time during
     the one (1) year prior to the separation of Employee's relationship with
     the Company, either as an independent contractor or as an employee of the
     Company;

          (b) Solicit or endeavor to induce any of the Company's employees or
     consultants to terminate their relationship with the Company, or take away
     such employees or consultants, or attempt to solicit, induce, recruit,
     encourage or take away employees or consultants of the Company, either for
     Employee or for any other person or entity;

          (c) Induce or attempt to induce any supplier, licensee or other
     business relation of the Company to cease doing business with the Company,
     or in any way interfere with the relationship between any such supplier,
     licensee or business relation and the Company.

     Section 13. BUSINESS OPPORTUNITY. Employee represents and acknowledges that
the foregoing restrictions will not prevent him from obtaining gainful
employment in his/her field of expertise or cause him undue hardship; and that
there are numerous other employment opportunities available to him/her that are
not affected by the foregoing restrictions. Employee further acknowledges that
the foregoing restrictions are reasonable and necessary, in order to protect
the Company's legitimate interests, and that any violation thereof would result
in irreparable injury to the Company.

     Section 14. CONFLICTS OF INTEREST POLICIES. Employee shall diligently
adhere to the Company's Conflict of Interest Policy as adopted by the Board and
in effect from time to time.

     Section 15. ARBITRATION AND EQUITABLE REMEDIES.

          a) Except as provide in Section 14(b) hereof, the parties agree that
     any dispute or controversy arising out of, relating to, or concerning the
     interpretation, construction, performance or breach of this Agreement,
     shall be settled by arbitration to be held in Nebraska, in accordance with
     the Employment Dispute Resolution rules of the American Arbitration
     Association then in effect. The arbitrator may grant injunctions or other
     relief in such dispute or controversy and the decision of the arbitrator
     shall be final, conclusive and binding on the parties to the arbitration.
     Judgment may be entered on the arbitrator's decision in any court having
     jurisdiction. The Company and Employee shall each pay one-half of the costs
     and expenses of such arbitration, and each shall separately pay the fees
     and expenses of their respective legal counsel.

          THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A
     JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL
     ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP.

          (b) Notwithstanding paragraph (a) of this Section 14, the parties
     agree that, in the event of the breach or threatened breach of Sections 11,
     12 or 13 of this Agreement by Employee, monetary damages alone would not be
     an adequate remedy to the Company and its Subsidiaries for the injury that
     would result from such breach, and that the Company and its Subsidiaries
     shall be entitled to apply to any court of competent jurisdiction for
     specific performance and/or injunctive relief (without posting bond or
     other security) in order to enforce or prevent any violation of such
     provisions of this Agreement. Employee further agrees that any such
     injunctive relief obtained by the Company or any of its Subsidiaries shall
     be in addition to monetary damages.

     Section 16. INDEMNIFICATION. The Company agrees to indemnify and hold
harmless Employee for any and all


                                       4


actions taken by Employee in carrying out his duties under this Agreement.

     Section 17. ENTIRE AGREEMENT. This Agreement represents the entire
agreement between the parties relating to the subject matters covered hereby and
shall supersede any prior understandings, agreements or representations by or
between the parties, written or oral, which may have related to the subject
matter hereof in any way and shall not be amended or waived except in a writing
signed by the parties hereto.

     Section 18. NOTICES. Any notice or request required or permitted to be
given hereunder shall be in writing and will be deemed to have been given (i)
when delivered personally, sent by telecopy (with hard copy to follow) or
overnight express courier or (ii) five days following mailing by certified or
registered mail, postage prepaid and return receipt requested, to the addresses
below unless another address is specified by such party in writing:

          To the Company:           Transgenomic, Inc.
                                    12325 Emmet Street
                                    Omaha, NE 68164
                                    Attention: Chief Executive Officer
                                    Telephone: (402) 452-5433
                                    Telecopy: (402) 452-5447

          To the Employee:          John L. Allbery
                                    110 Deer Creek Drive
                                    Omaha, NE 68164

     Section 19. HEADINGS. The article and section headings herein are for
convenience of reference only and shall not define or limit the provisions
hereof.

     Section 20. APPLICABLE LAW. The corporate law of the State of Delaware will
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement shall be governed by the internal laws of the
State of Nebraska.

     Section 21. SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held prohibited by,
invalid or unenforceable in any respect under applicable law, such provision
will be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Agreement.

     Section 22. AMENDMENTS AND WAIVERS. Any provision of this Agreement may be
amended or waived only with the prior written consent of the Company and
Employee.

     Section 23. NO STRICT CONSTRUCTION. The language used in this Agreement
will be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
party hereto.

     Section 24. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.

     Section 25. EMPLOYEE REPRESENTATIONS. Employee hereby represents and
warrants to the Company that (i) the execution, delivery and performance of this
Agreement by Employee does not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Employee is a party or by which he is bound, (ii) Employee is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Employee, enforceable in accordance with its


                                       5


terms.

     Section 26. SURVIVAL. Sections 8, 11, 12 and 15 shall survive and continue
in full force in accordance with their terms notwithstanding any termination of
the Employment Period.

     IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its duly authorized officer and Employee has signed this Agreement.

                                    TRANSGENOMIC, INC.

                                    By /s/ Collin D'Silva
                                       ----------------------------------
                                       Name: Collin D'Silva
                                       Title: Chief Executive Officer

                                    EMPLOYEE

                                        /s/ John L. Allbery
                                        ---------------------------------
                                        Name: John Allbery


                                       6

EX-10.11

EXHIBIT 10.11

** Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text indicated by two astericks "**". This Exhibit
has been filed separately with the Secretary of the Commission without the
**pursuant to the Registrant's Application Requesting Confidential Treatment
under Rule 24b-2 of the Securities Exchange Act.

                           SERVICES PROVIDER AGREEMENT

     THIS SERVICES PROVIDER AGREEMENT ("this Agreement") is entered into as of
the 28th day of December 2001 (hereinafter referred to as the effective date of
the Agreement), by and between GENODYSSEE S.A., a French societe anonyme with a
share capital of 65,122 euros, having its registered office at Parc Affaires
Technopolis, 3, avenue du Canada, BP 810 Les Ulis, 91974 Courtaboeuf, France and
registered with the REGISTRE DU COMMERCE ET DES SOCIETES of Evry under number
424 796 548 (hereinafter referred to as "GEN") and TRANSGENOMIC, INC., a
corporation organized under the laws of the State of Delaware U.S.A. with its
principal place of business in Omaha, Nebraska U.S.A. (hereinafter referred to
as "TBIO") or individually, a "party" or collectively, the "parties."

                                    PREAMBLE

     WHEREAS, TBIO wishes to offer and provide to its customers and prospects
certain analytical services relating to nucleic acids.

     WHEREAS, GEN has applicable resources to perform those analytical services
on behalf of TBIO and its customers.

     WHEREAS, GEN and TBIO wish to enter into a strategic alliance to market and
perform those services.

NOW, THEREFORE, in consideration of the mutual covenants, promises,
representations and warranties set forth herein, the parties agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

All capitalized terms used in this Agreement shall have the following meanings
(such meanings to be equally applicable to both the singular and the plural
forms of the terms defined):

"AGREEMENT" shall mean this Services Provider Agreement, including all exhibits
hereto, as the same may be amended or otherwise modified from time to time.

"CUSTOMER" shall mean a party with whom either TBIO or GEN has entered into a
contract to provide Services in accordance with the terms of this Agreement.

     "REVENUE SPLIT" shall mean that portion of the gross revenues (calculated
on a cash basis in accordance with accounting principles generally accepted in
the United States of America) received from a Customer to which each party of
this Agreement shall be entitled. The percentage amount of the Revenue Split to
each party is further outlined in Article III of this Agreement.

     "SALES TERRITORY" shall mean the United States of America and its
territories, the nations of the European Union, the United Kingdom, Switzerland
and Japan.

     "SERVICES" shall mean those certain analytic services related to nucleic
acids to be offered and/or provided to Customers, as more specifically
determined by the parties by mutual agreement from time to time.

All monetary amounts expressed herein are stated in terms of U.S. Dollars.

                                       1

                                   ARTICLE II

                                RESPONSIBILITIES

     SECTION 2.01. TBIO RESPONSIBILITIES.

     (a) SALES AND MARKETING ACTIVITIES. With respect to the strategic alliance
between TBIO and GEN, TBIO shall be responsible for conducting all sales and
marketing activities in efforts to enter into contracts for Services with
Customers within the Sales Territory. During the term of this Agreement, TBIO
will dedicate a minimum of two employees to perform and support sales and
marketing activities for Services. TBIO will also make aware, educate, inform,
and train the remainder of its marketing and sales staff with regard to: 1) the
existence of this Agreement; 2) the strategic alliance between the parties; and
3) the Services.

     (b) SALES PROPOSALS. TBIO will present each sales proposal received by it
(including any outstanding sales proposals made to potential Customers prior to
the date hereof) in writing to GEN prior to the acceptance thereof by TBIO, and
will review pricing, the scope and quantity of service work to be performed, and
other pertinent terms and conditions of such sales proposal with GEN. GEN will
have a right of first refusal to accept and perform the Services to be performed
under the terms of each sales proposal. Any sales proposal submitted to a
prospective Customer for which GEN has exercised it right to perform the
Services will identify GEN as the services provider for TBIO and will set forth
the Services which will be performed by GEN. Should GEN elect not to participate
in the sales proposal, then TBIO shall have the right to: 1) perform the work
itself; or 2) work with another individual or entity to perform such Services.
In the event that any of the material terms of a sales proposal are revised at
any time subsequent to the exercise by GEN of its right not to perform the
related Services, such sales proposal shall be considered to be a new sales
proposal and TBIO shall represent such sales proposal to GEN for its
consideration according to this clause (b).

     (c) CUSTOMER CONTRACTS. In the event GEN elects to provide services to a
Customer, TBIO will enter into all relevant contracts directly with Customers
and will directly invoice Customers for the work performed under the respective
contract. To assist TBIO in its monthly invoicing to Customers, GEN will provide
TBIO with any requested information related to the work performed by GEN under
each contract. TBIO will use its commercially reasonable efforts to collect all
amounts due from the Customers. The foregoing notwithstanding, from time to time
the parties may determine that it is more practical to have GEN contract
directly with a Customer and/or to have GEN collect amounts due from a Customer.
In such instances, the parties will mutually agree to the manner in which such
contracting and/or collection will be handled, including any modification to the
Revenue Split as provided for herein.

     (d) PAYMENTS OF REVENUE SPLITS. TBIO shall remit to GEN its respective
Revenue Split by the 15th day of each month for payments received from any
Customer in the previous calendar month. Should GEN be the direct contracting
party with the Customer and receive any such payments, then GEN will remit to
TBIO its respective Revenue Split in the same manner. All payments shall be made
via wire transfer to such account as may be designated by the receiving party,
and such payments shall be accompanied by a statement identifying all payments
received for Services during the previous calendar month and the calculation of
the Revenue Split. In the event that each party is required to remit a Revenue
Split payment to the other party with respect to a given calendar month, the
parties may agree to net such payments, provided that each party shall provide
the payment information specified in the previous sentence. The payment of any
Revenue Split from TBIO to GEN hereunder shall be subject to TBIO's right of
set-off pursuant to that certain Revolving Line of Credit Agreement, dated as of
the date hereof, between TBIO and GEN, which provisions are incorporated herein
by reference and made a part hereof.

     (e) REMARKETING ASSISTANCE. The parties acknowledge that in order for GEN
to be able to perform Services in the volume anticipated by the parties, that
GEN will need to increase its capacity to perform such services, including the
acquisition of additional WAVE instruments manufactured by TBIO. If, during the
term of this Agreement, the anticipated volume of Services to be performed under
this Agreement are not realized by the parties and GEN determines that it has
excess WAVE instruments, TBIO agrees that it will use its best efforts in
assisting GEN to re-sell such excess WAVE instruments. Nothing in this Section
2.01 shall obligate TBIO to repurchase any such WAVE instruments for its own
account.

                                       2


     SECTION 2.02. GEN RESPONSIBILITIES AND RIGHTS.

     (a) EXERCISE OF FIRST RIGHT OF REFUSAL. Within a reasonable period of time
subsequent to TBIO presenting GEN with a sales proposal for Services, GEN shall
advise TBIO as to whether it intends to exercise its right of first refusal to
perform such Services.

     (b) WORK PERFORMANCE. In the event that GEN elects to provide services
pursuant to clause (a) above, GEN shall: 1) perform the Services with in a
professional and quality manner, in accordance with applicable standards
recognized in the industry; 2) comply fully with the specifications, standards
and requirements as set forth in any sales proposal; and 3) use its commercially
reasonable efforts to obtain all necessary consents, licenses, releases or other
authorizations that may be required in connection with performing the Services.
GEN will provide to TBIO a status report on a monthly basis of all work
completed under each contract and the remaining work to be performed over the
remaining term of such contracts.

     (c) DEDICATION OF RESOURCES. GEN will hire and assign qualified personnel
to satisfactorily perform the Services as specified in any sales proposals which
have been accepted by GEN pursuant to clause 2.02(a), at GEN's sole cost and
expense (including all wages, benefits and taxes). GEN will also obtain and
maintain all necessary equipment, building facilities, and chemicals necessary
to satisfactorily perform the Services as specified in such accepted sales
proposals, at GEN's sole cost and expense (including any taxes or fees that may
be associated therewith).

     (d) DIRECT CONTACT WITH CUSTOMERS. So as to allow GEN to adequately perform
the services under Customer contracts, GEN will have the right to contact and
work directly with Customers on an ongoing basis.

     (e) COMPETITION. In the event that GEN declines to exercise its right of
first refusal with regard to any sales proposal, GEN shall not provide any
services comparable to or competitive with the Services to the Customer which
was the subject of the proposal (a "Restricted Customer") for a period of six
(6) months from the date that GEN notifies TBIO of its intention not to provide
the Services pursuant to the sales proposal (the "Restricted Period"). In the
event that GEN provides services comparable to or competitive with the Services
to a Restricted Customer within the Restricted Period, GEN shall pay to TBIO an
amount equal to (CONFIDENTIAL TREATMENT REQUESTED) of its gross revenues from
such Restricted Customer during the Restricted Period. The provisions of this
Section 2.02(e) shall survive the termination of this Agreement other than a
termination by GEN for "Cause" (as that term in defined in Section 4.02.)

     SECTION 2.03. JOINT RESPONSIBILITIES.

     (a) OPERATION PLAN. The parties agree to use their commercially reasonable
efforts to jointly develop an operation plan that details additional processes,
procedures, and responsibilities of each party no later than 60 days from the
date of this Agreement.

     (b) MANAGEMENT. Each party shall designate an officer or other senior
person to be responsible for the overall administration of this Agreement and
shall notify the other thereof.

     (c) COMPLIANCE WITH LAW. In performing their duties pursuant to this
Agreement, the parties agree that they shall comply in all material respects
with any and all applicable laws, regulations and ordinances.

                                   ARTICLE III

                       REVENUE TARGETS AND REVENUE SHARING

     SECTION 3.01. REVENUE TARGETS.

     For the purposes of assisting each party to establish their respective
business plans and budgets, the parties have determined estimated contracted
sales targets, as outlined in Exhibit A, for each of the three years under the
initial term of this Agreement. The parties acknowledge and agree that these
targets are informational only and that no penalties or premiums will be due to
either party from the other for any shortfalls or excess achievements against
those targets.

                                       3


     SECTION 3.02. REVENUE SHARING. During the first twelve months of this
Agreement the Revenue Split shall be as follows:

          (a) TBIO will receive ** of the gross revenues received in cash from
     Customers under contracts for Services contemplated by this Agreement.

          (b) GEN will receive ** of the gross revenues received in cash from
     Customers under contracts for Services contemplated by this Agreement.

     So as to assist the parties in determining reasonable profitability for
their respective efforts, the parties agree to review the Revenue Splits on an
annual basis and adjust the Revenue Splits accordingly if mutually agreed upon.
This review will be conducted no later than thirty (30) days after each
anniversary date of this Agreement. If the parties agree to revise the Revenue
Splits, they will establish an effective date for the revised Revenue Splits.
The revised Revenue Splits will apply only to any new Customer contracts, and to
any extension of a then existing Customer contract, entered into, or extended,
after such effective date and not to existing Customer contracts. If, after
negotiation in good faith, the parties cannot reach a mutual agreement to a
change in the Revenue Splits, then the Revenue Splits will remain at the levels
previously agreed to by the parties; provided, however, in such case, either
party may terminate the Agreement upon ninety (90) days prior written notice to
the other party.

                                   ARTICLE IV

                              TERM AND TERMINATION

     SECTION 4.01. TERM.

     This Agreement will be effective as of the date set forth above and the
initial term shall expire three (3) years from the date hereof unless otherwise
terminated earlier as set forth herein. This Agreement shall be automatically
renewed for successive one-year periods unless either party gives written notice
of termination to the other party at least ninety (90) days before the date of
expiration of the initial term or additional term.

     SECTION 4.02. TERMINATION. This Agreement may be terminated prior to the
expiration of its term:

          (a) By either party as provided in Section 3.02 hereof;

          (b) By either party in the event the other party materially defaults
     in the performance of its respective obligations hereunder, and fails to
     substantially cure such default within thirty (30) days after receiving
     written notice from the party not in default specifying the default; or

          (c) Automatically if either party becomes insolvent or enters,
     voluntarily or involuntarily, into bankruptcy, suspension of payment,
     moratorium, reorganization or any other proceeding that relates to
     insolvency or protection of creditors rights.

Any termination pursuant to paragraphs (b) or (c) of this Section 4.02 being
referred to as termination for "Cause."

     SECTION 4.03 EFFECT OF TERMINATION. In the event this Agreement expires as
of the end of its term (or any extension thereof) or is terminated pursuant to
Section 4.02 hereof, then the rights and obligations of the parties hereunder
will terminate, except as specifically stated elsewhere in this Agreement.
Notwithstanding the termination of this Agreement, each party will be required
to remit to the other party any Revenue Splits relating to Services provided to
Customers prior to the date of termination. In addition, unless this Agreement
is terminated by GEN pursuant to paragraph (b) or (c) of Section 4.02 on the
ground of Cause, TBIO may, at its option and in its sole discretion, immediately
upon notice of termination or at any time thereafter:

                                       4


          (a) direct that GEN cease providing Services to Customers pursuant to
     this Agreement and TBIO may either provide such Services itself or appoint
     an alternate service provider to provide such Services; or

          (b) direct and require that GEN continue to provide Services to
     existing Customers pursuant to this Agreement for a period not to exceed
     three (3) months following the effective date of the termination, in which
     case the parties will continue to be remit to each other (as the case may
     be) Revenue Splits from such Services in accordance with this Agreement
     through the date GEN ceases to provide such Services.

                                    ARTICLE V

                           RELATIONSHIP OF THE PARTIES

     Nothing herein contained shall be construed to imply a joint venture,
partnership or principal-agent relationship between the parties, and neither
party shall have the right, power, or authority to obligate or bind the other in
any manner whatsoever, except as otherwise agreed to in writing. The parties do
not contemplate sharing of profits relating to the services as to create a
separate taxable entity, nor co-ownership of a business or property as to create
a separate partnership under the laws of any jurisdiction. Accordingly for tax,
property, and liability purposes each party will perform its services, each on a
professional basis and as an independent contractor of the other. Revenue and
expenses relating to the services shall be reported separately by the parties
for tax purposes. During the performance of any of the services TBIO's employees
will not be considered employees of GEN, and vice versa, within the meaning or
the application of any federal, state, or local laws or regulations including,
but not limited to, laws or regulations covering unemployment insurance, old age
benefits, workers' compensation, industrial accident, labor, or taxes of any
kind. TBIO personnel who are to perform the TBIO services or additional services
to be provided by TBIO shall be under the employment, and ultimate control,
management, and supervision of TBIO, and TBIO shall have sole responsibility for
the acts and omissions of such personnel. TBIO and GEN personnel who are to
perform the Services or any other services to be provided hereunder shall be
under the employment and ultimate control, management, and supervision of TBIO
and GEN, respectively, and such respective employer shall have sole
responsibility for the acts and omissions of such personnel. It is understood
and agreed that GEN's employees shall not be considered TBIO's employees within
the meaning or application of TBIO's employee benefit programs, and vice versa.

                                   ARTICLE VI

                          INDEMNIFICATION AND INSURANCE

     Each party at its own expense shall indemnify, defend, and hold the other,
its partners, shareholders, directors, officers, employees, and agents harmless
from and against any and all third party suits, actions, investigations, and
proceedings, and related costs and expenses (including reasonable attorneys'
fees) resulting solely and directly from the indemnifying party's negligence or
willful misconduct. Neither party shall be required hereunder to defend,
indemnify, or hold harmless the other and/or its partners, shareholders,
directors, officers, employees and agents, or any of them from liability
resulting from the negligence or wrongful acts of the party seeking
indemnification or of any third party. Each party agrees to give the other party
prompt written notice of any claim or other matter as to which it believes this
indemnification provision is applicable. The indemnifying party shall have the
right to defend against any such claim with counsel of its own choosing and to
settle and/or compromise such claim as it deems appropriate. Each party further
agrees to cooperate with the other in the defense of any such claim or other
matter. Additionally, throughout the term of this Agreement each party shall
maintain general liability insurance coverage in such amounts and on such terms
as are commercially reasonable.

                                       5


                                   ARTICLE VII

                                 CONFIDENTIALITY

     Each party acknowledges that the parties and their clients may disclose
confidential and proprietary information developed, acquired by or licensed to
the disclosing party regarding such party's respective business, products and
services. Each party will take all reasonable precautions necessary to safeguard
the confidentiality of such information, including, but not limited to, (i)
those taken by the receiving party to protect its own confidential information,
and (ii) those which the disclosing party or its authorized representative may
reasonably request from time to time. Neither party will disclose, in whole or
in part, any items of information that have been designated as confidential by
the disclosing party to any individual, entity or other person, except to those
of its employees or agents who have a need to know such information in order for
the receiving party to perform its rights and obligations under this Agreement.
Each party acknowledges that any unauthorized use or disclosure of the other
party's confidential information may cause irreparable damage to the disclosing
party and its licensors and Customers. Neither party will have any
confidentiality obligation with respect to any portion of such information that
(i) the receiving party knew or independently developed before receiving such
information from the disclosing party under this Agreement, (ii) the receiving
party lawfully obtained from a third party under no confidentiality obligation
to the disclosing party, (iii) became available to the public other than as a
result of any act or omission by the receiving party or any of its employees or
agents, or (iv) the receiving party is obligated under law to disclose.


                                  ARTICLE VIII

                              INTELLECTUAL PROPERTY

     (a) TBIO acknowledges that all right, title, and interest to the Services
and all related processes, formulas or other intellectual property is owned by
GEN (other than to the extent rights to the results of the Services may be
granted to the Customer pursuant to contract) and that TBIO gains no rights in
or to such by virtue of this Agreement.

     (b) Information received from the Customer or work performed on engagements
pursuant to this Agreement by either party shall be the exclusive property of
the Customer. All underlying methodology utilized by either party to perform the
engagements pursuant to this Agreement which was created or developed by either
party before the Agreement shall not become the property of the other.


                                   ARTICLE IX

                                   ASSIGNMENT

     Neither party shall assign, delegate or otherwise transfer this Agreement
or any of its rights or obligations hereunder without the other party's prior
written consent, which consent shall not be unreasonably withheld or delayed.
This Agreement shall be binding upon and inure to the benefit of each party's
rightful successors and assigns.


                                    ARTICLE X

                                  MISCELLANEOUS

     SECTION 10.01. LINE OF CREDIT AGREEMENT.

     Under a separate Revolving Line of Credit Agreement, dated as of the date
hereof, TBIO has agreed to provide GEN a line of credit of up to $1,000,000
during the initial three year term of this Agreement. The line of credit will be
utilized by GEN to assist GEN in managing its cash flow and working capital
needs to perform Services under contracts

                                       6


relating to this Agreement. Any default under the terms of such Revolving Line
of Credit Agreement, or the associated promissory note, shall be deemed a
default under this Agreement.

     SECTION 10.02. NOTICES.

     All notices or other communications to be given hereunder shall be given in
writing and delivered by (a) certified mail, return receipt requested, (b)
personal delivery, (c) facsimile or (d) express carrier addressed as follows:

If to the TBIO:                     Transgenomic, Inc.
                                    12325 Emmet Street
                                    Omaha, Nebraska 68164
                                    U.S.A.
                                    Attention:  Gregory J. Duman
                                    Email:  gduman@transgenomic.com
                                    Telephone:  (402) 452-5400
                                    Telecopy:  (402) 452-5447

If to GEN:                          Genodyssee S.A.
                                    3 avenue du Canada
                                    Batiment Alpha - BP810
                                    Les Ulis - 91974 Courtaboeuf Cedex
                                    France
                                    Attention:  Jean-Louis Escary
                                    Email:  escary@genodyssee.com
                                    Telephone:  (33)(0) 1 69 29 80 55
                                    Telecopy:  (33)(0) 1 69 29 80 79

or to such other address furnished by any party to the other in writing at any
time and from time to time for such notice purposes. Any notice served by either
party on the other shall be deemed effective upon receipt of return receipt
following deposit in the mail if sent by certified mail, return receipt
requested, when received, if delivered personally, upon machine confirmation if
sent by facsimile, or upon confirmation of delivery by express carrier.

     SECTION 10.03. AMENDMENTS AND WAIVERS; NONEXCLUSIVE RIGHTS.

     No amendment, modification or waiver of any provision of this shall be
effective unless the same shall be in writing and signed by an authorized
officer of both parties.

     SECTION 10.04. SURVIVAL OF CERTAIN AGREEMENTS.

     The provisions of Sections 2.02(e) and 4.02 and the agreements and
covenants in Articles VI, VII and VIII shall survive the termination of this
Agreement.

     SECTION 10.05. SEVERABILITY.

     If any provision of this Agreement is held invalid or unenforceable, or
which is prohibited under Law for any reason, the invalidity shall not affect
the validity of the remaining provisions of this Agreement, and the parties
shall substitute for the invalid provision a valid provision which most closely
approximates the intent and economic effect of the invalid provision.

                                       7


     SECTION 10.06. GOVERNING LAW; ARBITRATION; NO THIRD-PARTY RIGHTS.

     (a) This Agreement and the rights and obligations of the parties hereunder
shall be governed by and construed and interpreted in accordance with the laws
of the United States and State of New York applicable to contracts made and to
be performed wholly within such State, without regard to any choice or conflict
of laws rules.

     (b) The parties to this Agreement shall act in good faith to resolve any
dispute or other controversy arising under this Agreement. Absent agreement
resolving a dispute within 20 days after written notice of the dispute has been
delivered from one party to the other, any party shall have the right to seek to
settle the matter by arbitration to the exclusion of any other form of dispute
resolution. Any arbitration shall be conducted according to the applicable rules
of the American Arbitration Association and shall take place in New York, New
York. Such arbitration shall be heard by a single arbitrator, who shall be
jointly designated by TBIO and GEN if the parties are unable to agree within ten
(10) days after the dispute is submitted to arbitration, by the American
Arbitration Association. The decision of the arbitrator shall be final and
binding upon the parties hereto. The each party in any arbitration proceeding
shall pay its own costs in connection therewith, including attorneys' fees.

     (c) This Agreement is solely for the benefit of the parties hereto and
their respective successors and assigns, and no other Person shall have any
right, benefit, priority or interest under, or because of the existence of, this
Agreement.

     SECTION 10.07. HEADINGS; INTERPRETATION.

     The section headings are for convenience only and shall not affect the
interpretation or construction of this Agreement. The Exhibits referred to
throughout this Agreement are attached to this Agreement and are incorporated
into this Agreement. Unless the context clearly indicates, words used in the
singular include the plural, words in the plural include the singular and the
word "including" means "including but not limited to."

     SECTION 10.08. WAIVER.

         The failure of either party at any time to require performance by the
other party of any provision of this Agreement shall not affect in any way the
full right to require the performance at any subsequent time. The waiver by
either party of a breach of any provision of this Agreement shall not be taken
or held to be a waiver of the provision itself. Any course of performance shall
not be deemed to amend or limit any provision of this Agreement.

     SECTION 10.09. SECTION REFERENCES.

     References to "Sections," "Subsections" and "Exhibits" shall be to
Sections, Subsections, Exhibits and Schedules, respectively, of this Agreement
unless otherwise specifically provided.

     SECTION 10.10. ENTIRE AGREEMENT.

     This Agreement, including the Exhibits attached hereto, sets forth all of
the promises, agreements, conditions and understandings between the parties
respecting the subject matter hereof and supersedes all negotiations,
conversations, discussions, correspondence, memorandums and agreements between
the parties concerning the subject matter.

     SECTION 10.11. DISCLAIMER OF WARRANTY.

     EACH PARTY ACKNOWLEDGES THAT (I) THE OTHER PARTY'S PRODUCTS AND SERVICES
MAY NOT SATISFY ALL CUSTOMER REQUIREMENTS AND (II) THE USE OF SUCH PRODUCTS AND
SERVICES MAY NOT BE UNINTERRUPTED OR ERROR-FREE. EXCEPT FOR ANY EXPRESS
WARRANTIES SET FORTH HEREIN, ALL WARRANTIES, CONDITIONS, REPRESENTATIONS,
INDEMNITIES AND GUARANTEES WITH RESPECT TO THE PRODUCTS OR SERVICES OF EITHER
PARTY, WHETHER EXPRESS OR IMPLIED, ARISING BY LAW, CUSTOM, PRIOR ORAL OR WRITTEN
STATEMENTS BY THE PARTIES, THEIR AGENTS OR OTHERWISE (INCLUDING, BUT NOT LIMITED
TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE) ARE HEREBY
OVERRIDDEN, EXCLUDED AND DISCLAIMED.

                                       8


     SECTION 10.12. NO CONSEQUENTIAL DAMAGES; LIMITATION ON TOTAL DAMAGES.

     UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL,
INDIRECT, SPECIAL, PUNITIVE, EXEMPLARY OR INCIDENTAL DAMAGES OF ANY KIND
WHATSOEVER, WHETHER FORESEEABLE OR UNFORESEEABLE, AND WHETHER BASED ON EACH
OTHER'S CLAIMS OR THOSE OF ITS CUSTOMERS OR VENDORS (INCLUDING BUT NOT LIMITED
TO, CLAIMS FOR LOST REVENUE, LOST PROFITS, LOSS OF DATA, LOSS OF GOODWILL, LOSS
OF USE OF MONEY OR USE OF SERVICES, INTERRUPTION IN THE USE OR AVAILABILITY OF
DATA, STOPPAGE OF OTHER WORK OR IMPAIRMENT OF OTHER ASSETS), ARISING OUT OF
BREACH OR FAILURE OF EXPRESS OR IMPLIED WARRANTY, BREACH OF CONTRACT,
MISREPRESENTATION, NEGLIGENCE, STRICT LIABILITY IN TORT OR OTHERWISE. THIS
SECTION WILL NOT APPLY ONLY WHEN AND TO THE EXTENT THAT APPLICABLE LAW
SPECIFICALLY REQUIRES LIABILITY, DESPITE THE FOREGOING EXCLUSION AND LIMITATION.
THE ENTIRE LIABILITY OF EITHER PARTY TO THE OTHER PARTY FOR DAMAGES (OTHER THAN
DAMAGES DESCRIBED ABOVE FOR WHICH THE PARTIES HAVE NO LIABILITY) IN CONNECTION
THIS AGREEMENT SHALL NOT EXCEED IN THE AGGREGATE THE TOTAL COMPENSATION RECEIVED
BY OR DUE TO THE LIABLE PARTY HEREUNDER.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered by their proper and duly authorized officers as of the day and
year first above written.

     TRANSGENOMIC, INC., a Delaware corporation


                                      By   /s/  Collin J. D'Silva
                                           -------------------------------------

     Collin J. D'Silva, President and Chief Executive Officer


                                      GENODYSSEE S.A., a French societe anonyme


                                      By   /s/  Jean-Louis Escary
                                           -------------------------------------

     Jean-Louis Escary, President du Conseil d' Administration

                                       9


                           SERVICES PROVIDER AGREEMENT
                                    EXHIBIT A
                                 REVENUE TARGETS

INITIAL 3 YEAR TERM.  GROSS REVENUE TARGET

2002     **
2003     **
2004     **

These targets are calculated based on the total gross revenues projected over
the term of contracts signed during each year of this Agreement, without
discount for present value and before revenue splits between the two parties.
These amounts are for budgetary purpose only and no premiums will be provided
for exceeding the minimum, nor penalties being applied if the minimums are not
obtained. The parties understand that actual amounts may differ from the above
amounts.

                                       10

EX-10.12

EXHIBIT 10.12

                            REVOLVING LINE OF CREDIT
                                    AGREEMENT

THIS REVOLVING LINE OF CREDIT AND SECURITY AGREEMENT (this "Agreement") is dated
and effective as of December 28, 2001 by and between TRANSGENOMIC, INC., a
corporation organized under the laws of the State of Delaware U.S.A. and with
its principal place of business in Omaha, Nebraska U.S.A. (the "Lender"), and
GENODYSSEE S.A., a societe anonyme organized under the laws of France, with a
share capital of 65,122 euros, having its registered office at Parc Affaires
Technopolis, 3, avenue du Canada, BP 810 Les Ulis, 91974 Courtaboeuf, France and
registered with the REGISTRE DU COMMERCE ET DES SOCIETES of Evry under number
424 796 548 ("the Borrower"). The Lender and the Borrower are sometimes
collectively referred to herein as the "parties" and individually as a "party."

                                    PREAMBLE

WHEREAS, the Lender and the Borrower have entered into a Services Provider
Agreement, dated as of the date hereof (the "Services Agreement"), pursuant to
which Borrower will provide certain genetic discovery analysis services to
clients of the Lender requiring such services and Lender will commit certain
sales and support resources to obtaining clients requiring such services; and

WHEREAS, in order to provide additional working capital to Borrower during the
initial term of the Services Agreement, the Lender has agreed to make available
to the Borrower, on a revolving basis, a line of credit in an amount of up to
One Million U.S. Dollars (US $1,000,000) (the "Loan"), subject to the terms and
conditions set forth herein, which line of credit will evidenced by a promissory
note in the form attached hereto as Exhibit A (the "Note"); and

WHEREAS, the parties desire to set forth certain terms and conditions relating
to the Loan;

NOW, THEREFORE, in consideration of the mutual covenants, promises,
representations and warranties set forth herein, the parties agree as follows:

                                   ARTICLE II

                                   DEFINITIONS

All capitalized terms used in this Agreement shall have the following meanings
(such meanings to be equally applicable to both the singular and the plural
forms of the terms defined):

"ADVANCES" shall have the meaning set forth in Section 2.01.

"AGREEMENT" shall mean this Revolving Line of Credit Agreement, as the same may
be amended or otherwise modified from time to time.

"BORROWING BASE" shall mean the total future Revenue Splits to which the
Borrower shall be entitled under the Services Agreement resulting from all
remaining contractual payments to be made (including any amounts in excess of
minimum contractual payments that the parties agree are more likely than not to
be made) under Customer Agreements which the Borrower is servicing pursuant to
the Services Agreement in existence on the date the Borrowing Base is
calculated; provided, that Revenue Splits from any Customer Agreement for which
any contractual payments are more than 30 days past due shall be excluded from
the Borrowing Base. The Borrowing Base shall be calculated as of the last
Business Day of each calendar quarter during the term of this Agreement.

"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or other day on
which commercial banks are authorized or required to close under the laws of the
United States of America or the Republic of France.

"CUSTOMER AGREEMENTS" shall mean those agreements entered into from time to time
with customers by the Lender or the Borrower (as the case may be) pursuant to
the Services Agreement.

"DEFAULT" shall mean any of the events specified in Section 7.01, without giving
effect to any requirement for the giving of notice, for the lapse of time, or
both, or for the happening of any other condition, event or

                                       1


act.

"EVENT OF DEFAULT" shall mean any of the events specified in Section 7.01,
provided that any requirement for the giving of notice, the lapse of time, or
both, or for the happening of any further condition, event or act has occurred
or has been satisfied.

"GOVERNMENTAL AUTHORITY" shall mean any government (whether the located within
or outside the United States or France) or any department, agency, division or
instrumentality thereof.

"LAW" shall mean any statute, rule, regulation, order, judgment, award or decree
of any Governmental Authority.

"MATURITY DATE" shall have the meaning set forth in Section 4.02.

"PAYMENT DATE" shall mean (i) the last Business Day of each calendar quarter
during the term hereof and (ii) any date upon which some or all of the
Outstanding Principal Balance of the Loan is due and payable hereunder under
Section 4.02 hereof.

"PERSON" shall mean and include an individual, a partnership, a corporation, a
trust, an unincorporated association, a joint venture or any other entity or a
government or any agency or political subdivision thereof.

     "OUTSTANDING PRINCIPAL BALANCE" shall mean the aggregate amount of all
Advances made by the Lender to the Borrower hereunder, less all repayments
thereof.

     "REVENUE SPLIT" shall mean that portion of the gross revenues (calculated
on a cash basis in accordance with accounting principles generally accepted in
the United States of America) received under a Customer Agreement to which
either the Lender or the Borrower shall be entitled pursuant to the Services
Agreement.

     "SERVICES AGREEMENT" shall mean the agreement between the Lender and the
Borrower, dated as of the date hereof, pursuant to which Borrower will provide
certain genetic discovery analysis services to third parties that enter into
Customer Agreements, Lender will commit certain sales and support resources to
obtaining customers requiring such services and the Lender and Borrower shall
share in the gross revenues generated by the Customer Agreements.

All monetary amounts expressed herein are stated in terms of U.S. Dollars.

                                   ARTICLE III

                                    THE LOAN

SECTION 3.01. LOAN ADVANCES.

(a) The Lender shall make advances to the Borrower (each an "Advance") from time
    to time during the term hereof and ending on the Maturity Date (or such
    earlier time specified in Section 4.02(a) hereof); in such amounts as may be
    requested by the Borrower in accordance with the provisions hereof;
    provided, however, that the Outstanding Principal Amount at any time shall
    not exceed the lesser of (i) One Million and No/100 Dollars ($1,000,000.00)
    or (ii) 25% of the Borrowing Base (collectively, the "Loan"). The Loan will
    be evidenced by the Note.

(b) All requests for Advances shall be made by the Borrower to the Lender in
    writing (in such form as is reasonably satisfactory to the Lender) or by
    telephone request (which shall be promptly confirmed in writing) which
    specifies the amount of the Advance to be made and the date the proceeds of
    the Advance are requested to be made available to the Borrower (a "Loan
    Request"). No Loan Request will be made for less than $50,000 or, if less,
    the aggregate amount of the unused the Lender's

                                       2


    commitment hereunder, and all Loan Requests will be made for Advances that
    are an integer multiple of $50,000 (plus such unused amount).

(c) A Loan Request received by the Lender on a day that is not a Business Day or
    that is received by Lender after 12:00 noon, Omaha, Nebraska U.S.A. time, on
    a Business Day shall be treated as having been received by the Lender on the
    first following Business Day. There may not be more than one Advance made on
    any one day. The Lender shall not incur liability to the Borrower for
    treating any such request as a Loan Request if the Lender believes in good
    faith that the Person making the request is an authorized officer of the
    Borrowing.

(d) Advances under the Line of Credit shall be made by direct wire transfer of
    funds from the Lender to an account designated by Borrower in writing to
    Lender.

SECTION 3.02. USE OF PROCEEDS. The Loan shall be applied by the Borrower for
     working capital purposes.

                                   ARTICLE IV

                                    INTEREST

SECTION 4.01. INTEREST RATE. The Borrower shall pay interest on the Outstanding
     Principal Balance at the rate of 5% per annum from the date of issuance
     thereof to and including the date of repayment.

SECTION 4.02. COMPUTATION. Interest on the Advances shall be computed on the
     basis of a year deemed to consist of 365 days and paid for the actual
     number of days elapsed.

                                   ARTICLE V

                                    PAYMENTS

SECTION 5.01. INTEREST PAYMENTS. All accrued and unpaid interest on the
     Outstanding Principal Balance will be payable, without demand of the
     Lender, on each Payment Date, whether or not the Borrower is required to
     repay any portion of the Outstanding Principal Balance on such Payment
     Date.

SECTION 5.02. PRINCIPAL PAYMENTS.

(a) The Outstanding Principal Balance shall be due and payable in full, without
    demand by the Lender, immediately upon 3:00 p.m. GMT on December 31, 2004
    (the "Maturity Date"). In addition, in the event of the early termination of
    the Services Agreement pursuant to the terms thereof, no additional advances
    will be made by the Lender to the Borrower under this Agreement and the
    Outstanding Principal Balance shall be due and payable in full on such date
    prior to the Maturity Date as the Lender and the Borrower shall negotiate in
    good faith, but which in no event shall be more than 180 days after the
    termination of the Services Agreement.

(b) On each Payment Date on which the full Outstanding Principal Balance is not
    required to be repaid, that portion, if any, of the Outstanding Principal
    Balance that exceeds the Borrowing Base calculated as of such Principal
    Payment Date shall be due and payable in full, without demand by the Lender.
    The Borrower will provide the Lender with a calculation of the Borrowing
    Base (in a form satisfactory to the Lender) no less than 10 Business Days
    prior to each such Principal Payment Date. Unless the Lender objects, in
    writing, to the Borrower's calculation of the Borrowing Base (which

                                       3


    objection, if any, must be delivered to the Borrower not less than three
    Business Days prior to the relevant Principal Payment Date), the Borrower's
    calculation of the Borrowing Base shall be deemed to be agreed to by the
    Lender. If the Lender objects to the Borrower's calculation of the Borrowing
    Base, it shall notify the Borrower thereof and the parties agree to
    negotiate the dispute in good faith. No additional Advances shall be made by
    Lender hereunder until the parties resolve any such dispute by arbitration
    as provided in Section 8.06(b) hereof.

SECTION 5.03. MANNER OF PAYMENTS. All payments of principal and interest on the
    Loan to be made by the Borrower shall be by direct wire transfer of
    immediately available funds to such accounts as shall be designated by the
    Lender from time to time. All such payments shall be denominated in U.S.
    dollars and shall be made on or before the date when due, without deduction,
    setoff or counterclaim by the Borrower.

SECTION 5.04. DUE DATES NOT ON BUSINESS DAYS. If payment required hereunder
    becomes due on a date that is not a Business Day, then such due date shall
    be deemed to be the next following Business Day.

SECTION 5.05. RIGHT TO PREPAY. The Borrower shall have the right, in its sole
    discretion, to prepay, in whole or in part, the Outstanding Principal
    Balance at any time, without any penalty.

                                   ARTICLE VI

                                     SET-OFF

SECTION 6.01. GRANT OF A RIGHT OF SETOFF. In the case of an Event of Default,
    the Borrower hereby grants the Lender a right of set-off on all Revenue
    Splits to be made by Lender to the Borrower under the Services Agreement
    against all payments to be made by the Borrower to the Lender under this
    Agreement, to the extent permitted under the laws of France. The Lender may
    withhold such Revenue Splits and apply them in the manner provided in
    Section 7.02(c) hereof.

                                  ARTICLE VII

                                    COVENANTS

SECTION 7.01. AFFIRMATIVE COVENANTS. During the term of this Agreement, the
    Borrower covenants and agrees:

(a) CORPORATE EXISTENCE AND AUTHORIZATIONS. The Borrower shall maintain in good
    standing its corporate existence and its right to transact business in those
    jurisdictions in which it is now or hereafter doing a material amount of
    business, and the Borrower shall maintain all material licenses, permits and
    registrations necessary for the conduct of its operations.

(b) COMPLIANCE WITH LAWS. The Borrower shall comply with all material Laws
    applicable to its business operations.

(c) PAYMENT OF OBLIGATIONS. The Borrower shall promptly pay and discharge or
    cause to be paid and discharged, as and when due (or as amended or extended
    by the lender or creditor), any and all of its lawful debts and other
    obligations, including all lawful taxes, rates, levies and assessments and
    all claims for labor, materials or supplies; provided, however, that nothing
    herein contained shall be construed as prohibiting the Borrower from
    diligently contesting in good faith by appropriate

                                       4


    proceedings the validity of any such debt or other obligation, provided
    Borrower has established adequate reserves for such debt or obligation on
    its books and records.

(d) FINANCIAL INFORMATION. The Borrower will provide the Lender with copies of
    its audited financial statements for the year ending December 31, 2001 as
    soon as reasonably practicable after such financial statements are
    available, but in no event later than March 31, 2002. The Borrower will
    provide the Lender with unaudited quarterly financial statements within 45
    days of the end of each calendar quarter ending during prior to the Maturity
    Date.

SECTION 7.02. NEGATIVE COVENANTS. During the term of this Agreement, the
    Borrower covenants and agrees, that without the prior written consent of the
    Lender:

(a) DIVIDENDS. The Borrower shall not declare or pay dividends or other
    distributions to its existing shareholders or other equity owners.

(b) USE OF PROCEEDS. The Borrower will not use the proceeds of the Loan to be
    used for any purpose other than that stated herein.

(c) CONFLICTING AGREEMENTS. The Borrower will not enter into any agreement, any
    term or condition of which would, if complied with by Borrower, result in an
    Event of Default.

                                  ARTICLE VIII

                                     DEFAULT

SECTION 8.01. EVENTS OF DEFAULT. Any one or more of the following shall
    constitute an Event of Default under this Agreement, unless waived by the
    Lender:

(a) PAYMENT. Failure to pay principal or interest when due and payable under the
    Note, or failure to pay any other indebtedness of the Borrower which
    continues beyond any applicable grace period.

(b) BREACH OF COVENANTS. The material breach of any covenant in Article VI
    unless expressly waived, in writing, by the Lender, which breach is not
    cured within 30 Business Days.

(c) ACCELERATION OF OTHER INDEBTEDNESS. Any obligation of the Borrower for the
    payment of borrowed money becomes or is declared to be due and payable or
    required to be prepaid (other than by a regularly scheduled prepayment)
    prior to the expressed maturity thereof and the Borrower has not cured the
    default giving rise to such an acceleration within 30 Business Days.

(d) JUDGMENTS; ATTACHMENT; ETC. Any one or more judgments or orders against the
    Borrower or any attachment or other levy against the property of the
    Borrower with respect to a claim or claims, involving in the aggregate
    liabilities (not paid or fully covered by insurance, less the amount of
    reasonable deductibles) in excess of $500,000, remains unpaid, unstayed on
    appeal, undischarged, unbonded or undismissed for a period of 30 Business
    Days.

SECTION 8.02. RIGHTS AND REMEDIES IN THE EVENT OF DEFAULT.

(a) Upon any Event of Default, and at any time thereafter, the Lender may
    declare in writing to the Borrower all or any part of the Outstanding
    Principal Balance and accrued interest thereon

                                       5


    immediately due and payable, and upon such declaration the then Outstanding
    Principal Balance and such accrued interest shall automatically become
    immediately due and payable.

(b) Set-off against all amounts owed by the Borrower to the Lender under this
    Agreement and the Note, any and all payments which may be due from Lender to
    Borrower under the Services Agreement.

(c) Any funds received by the Lender with respect to the Loan shall be applied
    as follows: (i) first, to the payment of the reasonable and necessary
    expenses incurred by Lender in connection with the collection of amounts due
    hereunder; (ii) second, to the payment of interest accrued and unpaid on the
    Loan; and (iii) third, to the payment of Outstanding Principal Balance. Any
    remaining amounts shall be paid to the Borrower.

(d) At the option of the Lenders, the Borrower shall pay interest on (i) all
    amounts overdue by more than five Business Days and (ii) all amounts due by
    the Borrower, whether mature or not, after the occurrence of an Event of
    Default (until such time as the Event of Default may be cured), at a rate
    equal to the greater of (x) 7.0% per annum or (y) the prime interest rate
    prevailing in the United States as of the date of the Event of Default, as
    published in the WALL STREET JOURNAL.

SECTION 8.03. REMEDIES NOT EXCLUSIVE. The Lender shall be entitled to enforce
    payment and performance of all obligations of the Borrower hereunder or
    under the Note and to exercise all rights and powers hereunder or under the
    Note, or under any Law and the pursuit of any remedy available to the Lender
    against the Borrower shall not prejudice or in any manner affect the
    Lender's right to realize upon or enforce any other remedy or security now
    or hereafter available to it in such order and in such manner as the Lender
    may determine in its sole discretion. No such right or remedy shall be
    exclusive, but each shall be cumulative and shall be in addition to every
    other remedy provided herein or in any other agreement or by Law and each
    such remedy may be exercised concurrently or independently. Nothing in this
    Agreement shall be construed as prohibiting the Lender from seeking a
    deficiency judgment against the Borrower.

                                   ARTICLE IX

                                  MISCELLANEOUS

SECTION 9.01. NOTICES. All notices or other communications to be given hereunder
    shall be given in writing and delivered by (a) certified mail, return
    receipt requested, (b) personal delivery, (c) facsimile or (d) express
    carrier addressed as follows:

If to the Lender:                   Transgenomic, Inc.
                                    12325 Emmet Street
                                    Omaha, Nebraska 68164
                                    U.S.A.
                                    Attention: Gregory J. Duman
                                    Email:  gduman@transgenomic.com
                                    Telephone: (402) 452-5400
                                    Telecopy: (402) 452-5447

If to the Borrower:                 Genodyssee S.A.
                                    Parc Affaires Technopolis
                                    3, avenue du Canada - Batiment Alpha
                                    BP 810 Les Ulis - 91974 Courtaboeuf Cedex
                                    France

                                       6


                                    Attention: Jean-Louis Escary
                                    Email: escary@genodyssee.com
                                    Telephone: (33)(0) 1 69 29 80 55
                                    Telecopy: (33)(0) 1 69 29 80 79

or to such other address furnished by any party to the other in writing at any
time and from time to time for such notice purposes. Any notice served by either
party on the other shall be deemed effective upon receipt of return receipt if
sent by certified mail, return receipt requested, when received, if delivered
personally, upon machine confirmation if sent by facsimile, or upon confirmation
of delivery by an express carrier.

SECTION 9.02. AMENDMENTS AND WAIVERS. No amendment, modification or waiver of
    any provision of this Agreement or the Note shall be effective unless the
    same shall be in writing and signed by the Borrower and the Lender;
    provided, however, that any such waiver or consent shall be effective only
    in the specific instance and for the purpose for which given.

SECTION 9.03. SUCCESSORS AND ASSIGNS. Neither the Borrower nor the Lender may
    assign, delegate or transfer any of its rights or obligations under this
    Agreement or the Note without the prior written consent of the other.

SECTION 9.04. SEVERABILITY. If any provision of this Agreement is held invalid
    or unenforceable, or which is prohibited under Law for any reason, the
    invalidity shall not affect the validity of the remaining provisions of this
    Agreement, and the parties shall substitute for the invalid provision a
    valid provision which most closely approximates the intent and economic
    effect of the invalid provision.

SECTION 9.05. COUNTERPARTS. This Agreement may be executed by the parties hereto
    on any number of separate counterparts, and all such counterparts taken
    together shall constitute one and the same instrument. It shall not be
    necessary in making proof of this Agreement to produce or account for more
    than one counterpart signed by the party to be charged.

SECTION 9.06. GOVERNING LAW; ARBITRATION; NO THIRD-PARTY RIGHTS.

     (a) This Agreement and the rights and obligations of the parties
hereunder shall be governed by and construed and interpreted in accordance with
the laws of the United States and State of New York applicable to contracts made
and to be performed wholly within such State, without regard to any choice or
conflict of laws rules.

     (b) The parties to this Agreement shall act in good faith to resolve
any dispute or other controversy arising under this Agreement. Absent agreement
resolving a dispute within 20 days after written notice of the dispute has been
delivered from one party to the other, any party shall have the right to seek to
settle the matter by arbitration to the exclusion of any other form of dispute
resolution. Any arbitration shall be conducted according to the applicable rules
of the American Arbitration Association and shall take place in New York, New
York. Such arbitration shall be heard by a single arbitrator, who shall be
jointly designated by the Lender and the Borrower if the parties are unable to
agree within ten (10) days after the dispute is submitted to arbitration, by the
American Arbitration Association. The decision of the arbitrator shall be final
and binding upon the parties hereto. The each party in any arbitration
proceeding shall pay its own costs in connection therewith, including attorneys'
fees.

     (c) This Agreement is solely for the benefit of the parties hereto and
their respective successors and assigns, and no other Person shall have any
right, benefit, priority or interest under, or because of the existence of, this
Agreement.

                                       7


SECTION 9.07. HEADINGS. The section headings are for convenience only and shall
    not affect the interpretation or construction of this Agreement or the Note.
    The Exhibits referred to throughout this Agreement are attached to this
    Agreement and are incorporated into this Agreement. Unless the context
    clearly indicates, words used in the singular include the plural, words in
    the plural include the singular and the word "including" means "including
    but not limited to."

SECTION 9.08. THE LENDER'S SOLE DISCRETION. Any provision in any of this
    Agreement or the Note which requires the Lender's approval or consent shall
    be interpreted to mean at the Lender's sole discretion unless otherwise
    specified.

SECTION 9.09. CONFLICT OF TERMS. In the event of any material conflict between
    the terms of this Agreement and the Note, the terms of this Agreement shall
    control.

SECTION 9.10. OTHER JURISDICTIONS. The Borrower agrees that the Lender shall
    have the right to proceed against the Borrower or its property in a court in
    any location to enable the Lender to enforce a judgment or other court order
    entered in favor of the Lender. The Borrower waives any objection that it
    may have to the location of the court in which the Lender have commenced a
    proceeding described in this Section 8.10.

SECTION 9.11. WAIVER. The failure of either party at any time to require
    performance by the other party of any provision of this Agreement shall not
    affect in any way the full right to require the performance at any
    subsequent time. The waiver by either party of a breach of any provision of
    this Agreement shall not be taken or held to be a waiver of the provision
    itself. Any course of performance shall not be deemed to amend or limit any
    provision of this Agreement.

SECTION 9.12. SECTION REFERENCES. References to "Sections," "subsections" and
    "Exhibits" shall be to Sections, subsections, Exhibits and Schedules,
    respectively, of this Agreement unless otherwise specifically provided.

SECTION 9.13. RELATIONSHIP OF PARTIES. Nothing contained in this Agreement shall
    be deemed or construed by the parties, or by any third party, to create the
    relationship of partnership or joint venture between the parties hereto, it
    being understood and agreed that no provision contained herein shall be
    deemed to create any relationship between the parties hereto other than the
    relationship of borrower and lender.

SECTION 9.14. ENTIRE AGREEMENT. This Agreement and the Note set forth all of the
    promises, agreements, conditions and understandings between the parties
    respecting the subject matter hereof and supersedes all negotiations,
    conversations, discussions, correspondence, memorandums and agreements
    between the parties concerning the subject matter.

SECTION 9.15. TIME OF THE ESSENCE. Time is of the essence with respect to this
    Agreement

                                        8


IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered by their proper and duly authorized officers as of the day and
year first above written.

                                     LENDER

    TRANSGENOMIC, INC., a Delaware corporation


                                      By  /s/ Collin J. D'Silva
                                         --------------------------------------

    Collin J. D'Silva, President and Chief Executive Officer


                                    BORROWER

                                      GENODYSSEE S.A., a French societe anonyme


                                      By  /s/ Jean-Louis Escary
                                         --------------------------------------

    Jean-Louis Escary, President du Conseil d' Administration

                                        9


                                    EXHIBIT A

                                 PROMISSORY NOTE


$1,000,000.00                                              Courtaboeuf,, France
December 28, 2001

For value received, the undersigned, GENODYSSEE S.A., a societe anonyme formed
under the laws of France (herein, the "Maker") hereby promises to pay to the
order of TRANSGENOMIC, INC., a corporation formed under the laws of the State of
Delaware, U.S.A. (hereinafter, the "Holder"), at any place designated at any
time by the Holder, in lawful money of the United States of America and in
immediately available funds, the principal sum of ONE MILLION AND 00/100 DOLLARS
($1,000,000.00) or, if less, the then unpaid principal amount of all Advances
(as defined in that certain Revolving Line of Credit Agreement, dated December
28, 2001, between the Maker and the Holder (the "Loan Agreement")) made by the
Holder pursuant to the Agreement. (the "Principal Balance") on or before
December 31, 2004.

This Note is issued pursuant to the Loan Agreement. All capitalized terms used
and not otherwise defined shall have the meanings given them in the Loan
Agreement.

The Maker promises to pay the Principal Balance as set forth in the Loan
Agreement. The Maker further promises to pay interest from the date hereof on
the outstanding Principal Balance at the rate set forth in the Loan Agreement.
Interest shall be computed and payable as provided in the Loan Agreement.

Upon any Event of Default, the Holder may, without notice or demand, declare the
then outstanding Principal Balance and all outstanding interest immediately due
and payable and shall then have in any jurisdiction where enforcement hereof is
sought, in addition to any other rights or remedies, the rights and remedies set
forth in the Loan Agreement.

If this Note is not paid as provided herein and in the Loan Agreement and is
referred to an attorney for collection, the Maker promises to pay the reasonable
fees and expenses of such attorney in addition to the full amount due hereon,
whether or not litigation is commenced.

Demand for payment, protest, notice of dishonor and all other notices and
demands under this Note and any and all lack of diligence in the enforcement of
this Note are hereby waived by the Maker, and the same hereby assents to each
and every extension or postponement of the time of payment, at or after demand,
or other indulgence, and hereby waive any and all notice thereof.

No amendment, modification or waiver of any provision of this Note, nor consent
to any departure by the Maker here from, shall be effective unless the same
shall be in a writing signed by an authorized officer of the Holder, and then
only in the specific instance and for the purpose for which given. No failure to
exercise, and no delay in exercising, any right under the Loan Agreement or this
Note shall operate as a waiver thereof, nor shall any single or partial exercise
of any right under the Loan Agreement or this Note preclude any other or further
exercise thereof or the exercise of any other right. Each and every right
granted hereunder or by law or in equity shall be deemed cumulative, and such
remedies may be exercised from time to time concurrently or consecutively.

All notices required to be given or which may be given in connection with this
Note shall be given in the manner required for notices under the Loan Agreement.

Any term of this Note that does not comply with applicable law will not be
effective if that law does not

                                       10


expressly or impliedly permit variations by agreement. If any part of this Note
cannot be enforced according to its terms, that fact will not affect the balance
of this Note.

Neither this Note nor the Maker's or Holder's rights and obligations under this
Note are assignable or delegable without the prior written consent of the other
as set forth in the Loan Agreement. This Note will be governed by the laws of
the United States and the State of New York, including the Uniform Commercial
Code. The terms of any agreement securing the payment of this Note may also be
governed by the law of the state where the property is located.

IN WITNESS WHEREOF, the Maker has executed and delivered this Note effective as
of the date first set forth above.
                                      MAKER


                                      GENODYSSEE S.A., a French societe anonyme
                                      By  /s/ Jean-Louis Escary
                                          -------------------------------------

    Jean-Louis Escary, President du Conseil d' Administration

                                       11

EX-10.13

EXHIBIT 10.13

**Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text indicated by two asterisks "**". This Exhibit
has been filed separately with the Secretary of the Commission without the **
pursuant to the Registrant's Application Requesting Confidential Treatment
under Rule 24b-2 of the Securities Exchange Act.

                                LICENSE AGREEMENT

     This Agreement, effective this 1st day of December, 1989 by and between
Millipore Corporation, a corporation of the Commonwealth of Massachusetts having
a place of business in Bedford, Massachusetts ("LICENSOR") and Cruachem Holdings
Limited, a corporation of the United Kingdom having a place of business in
Glasgow, Scotland ("LICENSEE").

RECITALS

     LICENSOR is the owner of United States Patent No. 4,725,677, issued
February 16, 1988, entitled "Process for the Preparation of Oligonucleotides"
(the "'677 Patent").

     LICENSEE is desirous of obtaining a license under the '677 Patent, and
LICENSOR is willing to grant such license under the terms and conditions
hereinafter set forth.

     In consideration of the above recitals and the mutual covenants and
obligations set forth herein, the parties agree as follows:
ARTICLE I. DEFINITIONS

     1.1 "Licensed Patent" shall mean the '677 Patent, all reissues,
continuations and extensions thereof, as well as all foreign patents and patent
applications corresponding thereto.

     1.2 "Licensed Product" shall mean any product or process covered by a claim
of any unexpired, issued Licensed Patent which has not been disclaimed,
forfeited or held invalid by a decision beyond the right of review.

     1.3 "Net Sales" means the gross selling price of Licensed Product sold by
LICENSEE less: (i) allowances for damaged and returned goods; (ii) discounts
actually credited to customers; and (iii) sales and excise taxes actually paid
by LICENSEE with respect to the sale of Licensed Product. The Net Sales of
Licensed Product used, but not sold, by LICENSEE shall be calculated as though
such Licensed Product had been sold by LICENSEE during the same time period to a
third party in a "bona fide arms-length transaction. A Licensed Product is
considered sold hereunder when invoiced or, if not invoiced, when shipped or
mailed or otherwise delivered, or when paid for before delivery.

                                        1


ARTICLE II. GRANT

     2.1 LICENSOR hereby grants, subject to the terms and conditions herein, to
LICENSEE and LICENSEE hereby accepts a non-exclusive, non-transferable license
under the Licensed Patent to manufacture, use and sell Licensed Product.

     2.2 LICENSEE shall have no right to grant sublicenses under this Agreement.
Notwithstanding the foregoing, LICENSEE shall have a right to grant sub-licenses
under this Agreement to a company which is a subsidiary of or otherwise
controlled by LICENSEE and only upon such terms as are herein contained for the
performance and observance of obligations by LICENSEE, and LICENSEE shall notify
LICENSOR of any such sub-license and provide evidence to LICENSOR of its
subsidiary or controlled status.

ARTICLE III. ROYALTIES AND PAYMENTS

     3.1 In consideration of the rights granted by LICENSOR to LICENSEE under
this Agreement, LICENSEE agrees to pay LICENSOR:

          (a) One-hundred thousand US dollars (US $100,000) payable in
     installments as set forth in Section 3.3 below.

          (b) A royalty of ** of Net Sales of all Licensed Product manufactured,
     used or sold by LICENSEE during the term of this Agreement.

     3.2 LICENSEE shall also pay to LICENSOR in installments at the times
hereinafter provided an amount equal to (CONFIDENTIAL TREATMENT REQUESTED) of
Net Sales of all Licensed Product manufactured, used or sold by LICENSEE (i) in
the United States of America during the period February 16, 1986 through June
30, 1989 and (ii) worldwide during the period July 1, 1989 through November 30,
1989.

     3.3 Each of the installments referred to in Sections 3.l(a) and 3.2 shall
together amount to $15,000 and the first payment shall be made at the time of
execution of this Agreement. Subsequent payments of $15,000 shall be made within
45 days of the last day of February, May, August and November of each year
commencing on February 28, 1990 and continuing until the payments called for in
Sections 3.l(a) and 3.2 are paid in full. The first of such subsequent payments
shall be accompanied by a written accounting of all Licensed Products
manufactured, used or sold (i) in the United States of America for the period
February 16, 1988 through June 30, 1989 and (ii) worldwide for the period July
1, 1989 through November 30, 1989 in sufficient detail to permit a calculation
of the royalties due thereon.

ARTICLE IV. REMITTANCES, RECORDS AND REPORTS

     4.1 Commencing in 1990, LICENSEE agrees to deliver to LICENSOR within
forty-five (45) days of the last day of February, May, August and November of
each year during the term of this Agreement a written accounting of all Licensed
Product used or sold by it during the preceeding three

                                        2


months in sufficient detail to permit a calculation of the royalties due
thereon. LICENSEE agrees to accompany such accounting with the payment due
thereon.

     4.2 LICENSEE agrees to maintain adequate records in sufficient detail to
enable the royalties payable by LICENSEE hereunder to be determined. It is
further agreed that LICENSOR shall have the right, at its own expense and during
regular business hours no more than once in any calendar year during the term of
this Agreement and for one (1) year thereafter, to have such records examined by
an independent auditor acceptable to both LICENSOR and LICENSEE.

     4.3 Any payment hereunder which is made more than thirty (30) days past due
sha11 be subject to interest payments calculated from the due date at the prime
rate (i.e., the base rate on corporate 1oans given at large U.S. commercial
banks) plus one percent (1%).

ARTICLE V. MOST FAVORED LICENSEE

     5.1 In the event that LICENSOR shall hereafter grant a license to a third
party under the Licensed Patent at a more favorable royalty rate, LICENSEE shall
have the right to substitute the more favorable royalty rate granted to such
third party, but only if LICENSEE shall accept any less favorable terms that may
be included in such license. Any change in royalty rate hereunder shell be by
written amendment and shall be effective only for the period during which the
more favorable royalty is in effect under such other license.

     5.2 The provisions of Section 5.1 shall not apply where:

          (a) LICENSOR has received, in lieu of or in addition to a cash
royalty, a grant of proprietary rights, a license or immunity from suit, or
other considerations in exchange for such license; or

          (b) A more favorable royalty is given only in consideration of the
settlement of a claim of past infringement and does not apply in respect of
future infringement.

ARTICLE VI. INFRINGEMENT

     6.1 If LICENSEE is charged with a claim of patent infringement through its
sale of Licensed Product by a third party, and such claim substantially
interferes with LICENSEE'S ability to exercise in a commercially reasonable
manner its rights under this Agreement, LICENSEE shall give LICENSOR notice of
such claim. If, after reasonable and diligent defense against such claim,
including conferring with LICENSOR regarding the merits thereof, LICENSEE is
required to obtain a license under the patent

                                        3


rights of such third party, LICENSEE may at its election reduce the royalty rate
provided for in Section 3.1(b) by up TO fifty percent (50%), provided that said
reduction shall be by no more than fifty percent (50%) of any royalties paid to
such third party.

     6.2 The provisions of Section 6.1 shall not apply to any claim arising from
U.S. Patent Nos. 4,458,066 and/or 4,415,722, or under any patent rights
(domestic or foreign) issuing from or corresponding to said aforementioned
patents.

ARTICLE VII. PATENT MARKING

     7.1 LICENSEE agrees to mark labels, product literature, and packages for
Licensed Products which are sold with the following legend:

        "This product contains reagents manufactured under patent license from
        Millipore Corporation

        --U.S. Patent No. 4,725,677."

ARTICLE VIII. RESTRICTED WARRANTY AND INDEMNITY; INFRINGEMENT OF LICENSED PATENT
AND MAINTENANCE

     8.1 LICENSOR warrants that it has full authority to enter into this
Agreement and that it has no knowledge of any third party rights that would
affect its ability to grant the license hereunder. However, LICENSOR makes no
representation or warranty, express or implied, as to the validity of the
Licensed Patent nor to the merchantability of Licensed Product that is sold by
LICENSEE. LICENSOR does not assume any liability for any infringement or alleged
infringement of any patent or other rights of third parties due to LICENSEE's
activities under the license set forth herein.

     8.2 LICENSEE agrees to defend, indemnify and hold LICENSOR harmless from
any claims of whatever nature arising from LICENSEE's making, using and/or
selling Licensed Product unless such claims can be established to be based on
LICENSOR's negligence.

     8.3 Should LICENSOR be made aware of any apparent infringement of the
Licensed Patent upon receipt of written notice from LICENSEE to that effect by
any of the following entities: Applied Biosystems, Inc.; Beckman Instruments,
Inc.; Biosearch, Inc.; E.I. DuPont DeNemours & Co., Inc.; Pharmacia LKB
Biotechnology AB; Sigma Chemical Company; Vega Biotechnologies, Inc.; American
Bionetics, Inc., E Merck AG Damstadf; or Glen Research Corporation and any other
person(s) or legal entity, corporate body or otherwise, which is not licensed by
LICENSOR and which LICENSEE states is having a significant effect on its
business in Licensed Product (collectively referred to herein as an

                                        4


"unlicensed entity"). LICENSOR shall provide LICENSEE written notice that such
unlicensed entity has either (1) accepted a license, (2) been found not to
infringe the Licensed Patent and the reasons therefor or (3) been contacted
concerning its unlicensed use. In the event of item (3) above, LICENSOR will
commence legal action for infringement against any such unlicensed entity if no
satisfactory response is received within a reasonable period of time or if
discussions become stalled for an unreasonable period of time.

     LICENSOR"S obligation to pursue action against an unlicensed entity shall
only apply if LICENSEE can demonstrate that such unlicensed entity has annual
net sales of Licensed Product which exceed $400,000, provided that if the
unlicensed entity's annual net sales of Licensed Product do not exceed $400,000
and LICENSEE shall insist that LICENSOR take action then the costs of LICENSOR
in taking such action as aforesaid will be paid by LICENSEE. In the event of
LICENSOR being required by LICENSEE to take action against an unlicensed entity
having net sales less than $400,OOO, LICENSOR shall assume full control over
such action or any settlement thereof, and LICENSOR may terminate such action if
LICENSEE fails to pay any invoice for legal expenses within 30 days of receipt
from LICENSOR. LICENSOR shall be obligated to pursue only one infringement
action at a time against an unlicensed entity, in an order to be solely
determined by LICENSOR.

     8.4 LICENSOR will use its reasonable best efforts to ensure that all
registrations of the Licensed Patent are maintained in full force and effect to
protect the interests hereunder of LICENSEE.

ARTICLE IX.  TERM AND TERMINATION


     9.1 Unless earlier terminated as provided in this Article IX, this
Agreement shall continue in full force and effect until February 16, 2005.

     9.2 LICENSEE shall have the right to terminate this Agreement and surrender
the license granted hereunder at any time upon ninety (90) days written notice
to LICENSOR.

     9.3 If LICENSEE defaults in the performance of any of the obligations under
this Agreement including the failure to make any of the payments provided for in
Article III at the times specified therein and such default is not cured within
thirty (30) days after LICENSOR has given to LICENSEE written notice specifying
the nature of the default, LICENSOR shall have the right to terminate this
Agreement by giving written notice of termination to LICENSEE. Upon the receipt
of such notice of termination by LICENSEE this Agreement shall immediately
terminate.

     9.4 If during the term of this Agreement, LICENSEE becomes bankrupt or
insolvent, or if the business of LICENSEE is placed in the hands of a receiver
or trustee, whether by voluntary act of LICENSEE or otherwise, this Agreement
shall immediately terminate.

                                        5


     9.5 The termination of this Agreement for any reason shall be without
prejudice to LICENSOR's right to receive all payments accrued and unpaid at the
effective date of such termination and to the remedy of either party hereto with
respect to any previous breach or default in respect to any of the covenants
contained herein.

ARTICLE X.  NOTICE

     10.1 Any notice or other communication relating to this Agreement shall be
sent by registered mail or overnight express prepaid to the address of the party
to be served therewith which is shown below and shall be deemed to have been
given upon the date the notice or communication was mailed:

     If to LICENSOR:                    Millipore Corporation
                                        80 Ashby Road
                                        Bedford, Massachusetts 01730
                                        Attention: General Counsel

     If to LICENSEE:                    Cruachem Holdings Limited
                                        Todd Campus
                                        West of Scotland Science Park
                                        Acre Road
                                        Glasgow G20 OVA
                                        Scotland

ARTICLE XI. RIGHT OF ASSIGNMENT

     11.1 Neither this Agreement nor any of the rights and powers created herein
may be assigned, in whole or in part, by either party hereto, without the
written consent of the other party and any attempted assignment or transfer
thereof without such consent shall be void, except that without securing such
prior written consent, either party may assign this Agreement to a successor of
all or substantially all of the business and good will in Licensed Patent or
Licensed Product by giving the other party thirty (30) days written notice
thereof.

ARTICLE XII. GENERAL PROVISIONS

     12.1 This Agreement is binding upon and inures to the benefit of the
parties hereto. This Agreement and the license granted herein is personal to
LICENSEE and cannot be assigned or transferred by LICENSEE except as provided
for in Article XI.

                                        6


     12.2 This Agreement is to be construed under the laws of the Commonwealth
of Massachusetts.

     12.3 This Agreement constitutes the entire agreement between the parties
hereto and there are no representations or warranties of any kind not expressly
set forth herein. No modification, amendment or waiver of any of its provisions
shall have any force or effect unless it be in writing and signed by the parties
to be bound thereby.

     12.4 This Agreement has been drafted on the basis of mutual understanding
and neither party shall be prejudiced as the draftor thereof.

     12.5 The waiver by either LICENSOR or LICENSEE of any right or failure to
perform or of any breach by the other shall not be deemed as a waiver of any
other right hereunder or of any other breach of failure by the other, whether of
a similar nature or otherwise.

     12.6 If any provision of this Agreement shall be held to be invalid,
illegal, or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed in duplicate counterparts in their behalf by an authorized representative
as of the date and year first above written.

        MILLIPORE CORPORATION           CRUACHEM HOLDINGS LIMITED
           (LICENSOR)                           (LICENSEE)

        By /s/ [ILLEGIBLE]                By /s/ Ian Wilke
           --------------------------        -------------------------------
        Title President                   Title Chief Executive
              -----------------------           ----------------------------
              Millipore-Bioresearch
               Division

                                        7

EX-10.14

EXHIBIT 10.14

**Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text indicated by two asterisks "**". This Exhibit
has been filed separately with the Secretary of the Commission without the **
pursuant to the Registrant's Application Requesting Confidential Treatment
under Rule 24b-2 of the Securities Exchange Act.

                              SUBLICENSE AGREEMENT

     AGREEMENT made as of the 1st day of October, 1991, between APPLIED
BIOSYSTEMS, INC., a California corporation having its principal office at 777
Lincoln Centre Drive, Foster City, California 94404 (hereinafter referred to as
"ABI"), and CRUACHEM HOLDINGS, LTD., a United Kingdom corporation having its
principal office at Todd Campus, West of Scotland Science Park, Acre Road,
Glasgow, Scotland G20 QUA (hereinafter referred to as LICENSEE) (ABI and
LICENSEE being sometimes hereinafter referred to collectively as the "Parties").

                                  WITNESSETH:

     WHEREAS, MARVIN CARUTHERS and MARK MATTEUCCI are co-inventors of U.S.
Patent No. 4,458,066, issued July 3, 1984 and entitled "Process for Preparing
Polynucleotides" (the "'066 Patent"); and

     WHEREAS, MARVIN CARUTHERS and SERGE BEAUCAGE are co-inventors of U.S.
Patent No. 4,415,732, issued November 15,1983 and entitled "Phosphoramidite
Compounds and Processes" (the "732 Patent"); and

     WHEREAS, the '066 Patent and the '732 Patent have been assigned by the
inventors to UNIVERSITY PATENTS, INC. of Westport, Connecticut ("UPI"), and UPI
has granted to ABI, pursuant to a license agreement between them, the exclusive
right to sublicense said patents together with corresponding patents which may
issue in other countries throughout the world; and

     WHEREAS, in connection with the settlement of litigation concerning said
patents pursuant to the Settlement Agreement dated January 24, 1992 (the
"Settlement Agreement"), LICENSEE wishes to acquire a sublicense, and ABI is
willing to grant a sublicense, on the terms and conditions set forth herein.

     NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is acknowledged by the Parties;

                                        1


     IT IS AGREED:

                             ARTICLE I. DEFINITIONS

     (a) "Licensed Patents" shall mean the Process and Apparatus Patents and the
Reagent Patents.

     (b) "Process and Apparatus Patents" shall mean the '066 Patent and any
other U.S. patents issuing from the application for the '066 Patent or from any
parent or predecessor application, together with any foreign counterparts of
such patents, including any continuations, continuations-in-part, divisions
and/or reissues thereof.

     (c) "Reagent Patents" shall mean the '732 Patent and any other U.S. patents
issuing from the application for the '732 Patent, together with any foreign
counterparts of such patents, including any continuations,
continuations-in-part, divisions and/or reissues thereof.

     (d) "Licensed Machine" shall mean any machine, device or apparatus,
including polymer supports, the manufacture or use of which is covered by a
claim or claims of any of the Process and Apparatus Patents or which is
advertised, represented, promoted or otherwise marketed as useful for or capable
of use in a manner covered by a claim or claims of any of the Process and
Apparatus Patents.

     (e) "Licensed Reagent" shall mean any stabilized phosphoramidite which
embodies or uses or is made pursuant to an invention which is covered by a
Reagent Patent. It is acknowledged and agreed that such a compound is covered by
a Reagent Patent regardless of whether the Rl hydrocarbyl protecting group is
methyl, cyanoethyl, or a like conventional protecting group.

     (f) "Licensed Polynucleotide" shall mean any polynucleotide made by or for
LICENSEE through use of Licensed Reagents or Machines.

     (g) "Licensed Product" shall mean a Licensed Polynucleotide or a Licensed
Reagent in a package suitable for sale directly to end users.

     (h) "Kit" shall mean a system or other combination sold as a unit,
including (i) one or more Licensed Reagents and one or more other components, or
(ii) one or more Licensed Polynucleotides and one or more other components, or
(iii) one or more polymer supports included within the definition of "Licensed
Machine" and one or more other components.

                                        2


     (i) "Net Selling Price" shall mean:

          (1) For a sale or fixed rental lease of a Licensed Machine, the sales
or lease price for all original equipment and subsequent spare parts provided by
LICENSEE and pertaining directly to said Licensed Machine, less sales or other
taxes paid by LICENSEE, cash allowances and usual trade discounts and
commissions, freight charges (if any) and credits and allowances on account of
return on sales to bona fide third parties.

          (2) For a rental lease based on use of a Licensed Machine by a lessee
or other arrangement wherein LICENSEE receives any "use" payments from Licensed
Machines, the invoiced gross income LICENSEE receives including any one or more
of the following: (i) initial installation fees (if any); (ii) payments to
LICENSEE based on direct or indirect production throughput, and/or (iii)
on-going royalties or fees (if any) for the on-going right to lease said
Licensed Machine, less sales or other taxes paid by LICENSEE, cash allowances
and usual trade discounts and commissions, and freight charges (if any).

          (3) For a sale of Licensed Products (except in Kits and except for a
Sale of Licensed Reagents in Bulk), the actual gross selling price of each
Licensed Product upon its Commercial Sale by LICENSEE, including all packaging,
instructional or other charges made to a purchaser, but less customary trade
discounts and refunds or credits allowed for shortages, returns or defective
articles.

          (4) For a Sale of Licensed Reagents in Bulk, the Net Selling Price
that would be calculated according to subparagraph (3) above for the sale of an
equal amount of Licensed Reagents by LICENSEE in packages intended for research
use; PROVIDED, however, that if LICENSEE does not then regularly sell, at an
established price, commercial quantities of Licensed Reagents in packages
intended for research use, "Net Selling Price" shall mean (i) the Net Selling
Price that would be calculated according to subparagraph (3) above for the sale
by LICENSEE's customer of an equal amount of Licensed Reagents in packages
intended for research use during the applicable period, or (ii) if such customer
does not resell such Licensed Reagents or if LICENSEE elects not to apply clause
(i), the Net Selling Price that would be calculated according to subparagraph
(3) above based on ABI's list price for

                                        3


an equal amount of Licensed Reagents in packages intended for research use
during the applicable period.

          (5) For a sale of a Kit, the Net Selling Price that would apply
hereunder in respect of the (i) Licensed Reagents and/or (ii) Licensed
Polynucleotides and/or (iii) polymer supports included within the definition of
"Licensed Machine" included in said Kit, if sold alone.

          (6) For use by LICENSEE or Licensed Products or Machines for purposes
other than the production or other Licensed Products or Machines that are in
turn to be sold, leased or otherwise transferred by LICENSEE, the Net Selling
Price that would apply hereunder if such Licensed Products or Machines had been
sold by LICENSEE instead of used.

     (j) "License Year" shall mean the twelve month period beginning on the
first day of January, April, July or October next following the effective date
of this Agreement, and each twelve month period thereafter, except that the
first License Year hereunder shall include the period from the effective date of
this Agreement to the first day of said twelve month period.

     (k) "Sale of Licensed Reagents in Bulk" shall mean a sale of Licensed
Reagent for repackaging and resale.

     (l) "Cruachem Patents" shall mean any patents now or hereafter owned or
controlled (i.e., licensable without the payment of any additional consideration
to any third party) by Cruachem or any of its subsidiaries issued or issuing in
respect of any inventions that are reduced to practice prior to June 30, 1994.

                            ARTICLE II. THE LICENSES

     (a) ABI hereby grants to LICENSEE for the benefit of itself and its
subsidiaries a nonexclusive, nontransferable, worldwide sublicense under the
Process and Apparatus Patents and the Reagent Patents to make, have made, use,
lease and sell Licensed Machines and Licensed Products.

     (b) LICENSEE shall have no right to grant sublicenses hereunder.

     (c) LICENSEE agrees to mark every product or machine manufactured or sold
by it under this

                                        4


Agreement as instructed by ABI in accordance with the statutes of the country of
manufacture and sale relating to the marking of patented articles and with a
notice that such products and machines are sold subject to this sublicense. For
Licensed Machines manufactured or sold in the United States, unless otherwise
advised by ABI, the required marking and notice shall be as follows:

     "Purchase of this instrument includes a license under U .S. Patent No.
     4,458,066 and corresponding patents issued in other countries. No other
     license is granted to the purchaser either directly or by implication,
     estoppel or otherwise. Patented reagents suitable for use with this
     instrument are available from licensed sources."

     For Licensed Reagents manufactured or sold in the United States, unless
otherwise advised by ABI, the required marking and notice shall be as follows:

     "Purchase of these reagents includes a license under U.S. Patent No.
4,415,732 and corresponding patents issued in other countries, and a license to
manually practice the process claimed in U.S. Patent No. 4,458,066 and
corresponding patents issued in other countries. No other license is granted to
the purchaser either directly or by implication, estoppel or otherwise."

     At LICENSEE's option, the notice may also include the following:

     "The purchaser may use these reagents with an instrument licensed under
U.S. Patent No. 4,458,066 and corresponding patents issued in other countries."

     (d) No license is granted by ABI to LICENSEE, either directly or by
implication, estoppel or otherwise, under any patents other than the Licensed
Patents.

     (e) LICENSEE hereby grants to ABI a royalty free, nonexclusive, worldwide
license to make, have made, use, lease and sell any product covered by, and in
all other respects to practice any invention claimed by, any of the Cruachem
Patents. ABI agrees to mark (in accordance with applicable statutes relating to
the marking of patented articles) every product or machine manufactured or sold
by it under such license as it may be reasonably instructed by Cruachem.

                   ARTICLE III. PAYMENTS UNDER THE SUBLICENSE

     (a) Intentionally Omitted.

                                        5


     (b) In consideration of the sublicense granted herein, LICENSEE agrees to
pay to ABI royalties in respect of each Licensed Product and Licensed Machine
manufactured and used (for purposes other than the production of other Licensed
Products or Machines that are in turn to be sold, leased or otherwise
transferred), leased or sold by or for LICENSEE, as follows:

          (1) ** of the Net Selling Price of each Licensed Machine;

          (2) ** of the Net Selling Price of each Licensed Product.

     (c) Once a royalty has been paid hereunder in respect of a Licensed Product
or a Licensed Machine being used or leased by LICENSEE, no further royalty will
be due in respect of any subsequent lease or sale of any such respective
Licensed Product or Licensed Machine.

     (d) Licensee may at its election reduce its royalty payments due in respect
of sales of Licensed Reagents hereunder by up to Fifty Percent (50%) of the
amounts paid under its license under U.S. Patent No.4725677 and European Patent
No. EP298982 in respect of such sales; provided however, that no such royalty
payment may be reduced pursuant to this paragraph (d) by more than Twenty-Five
Percent (25%) of the amount that would otherwise be due hereunder.

     (e) In consideration of the license granted to ABI by LICENSEE herein,
LICENSEE may at its election further reduce its royalty payments due in respect
of sales of Licensed Reagents by Twenty-Five Percent (25%) of the amount that
would otherwise be due pursuant to paragraph (b) above.

     (0 Upon a finding by a court or other authority of competent jurisdiction
that any of the Licensed Patents is invalid or unenforceable or is not infringed
by the manufacture, use, or sale of Licensed Machines or Licensed Reagents, any
further royalty payments due under this Agreement in respect of such patent may
be paid into an escrow account pursuant to escrow instructions consistent with
the terms hereof. Once such finding (as affirmed, reversed, or modified) has
become final and non-appealable or is no longer subject to appellate review, the
royalty payments made into the escrow

                                        6


account, together with any interest earned thereon, shall be disbursed from the
escrow account in a manner consistent with such final finding and further
royalty payments, if any, shall resume to the extent consistent with such final
finding.

             ARTICLE IV. REMITTANCES, RECORDS AND REPORTS

     (a) ACCRUAL. Royalties shall accrue when Licensed Products and Licensed
Machines are first sold, leased or otherwise transferred by or for LICENSEE, and
shall be considered sold or leased when billed out. Royalties shall also accrue
when Licensed Machines and Licensed Products are first used by or for LICENSEE
other than for the production of other Licensed Products or Machines that are in
turn to be sold, leased or otherwise transferred.

     (b) PAYMENT. Payments of royalties shall be made within forty-five (45)
days following the end of each calendar quarter or each License Year (and, with
respect to the first License Year, on or before February 15, 1992 or, if later,
within fifteen (15) days following entry of a Consent Judgment pursuant to the
Settlement Agreement) for the sale of all Licensed Products and Licensed
Machines sold or otherwise transferred by or for LICENSEE during said calendar
quarter and for the use of all Licensed Products and Licensed Machines first
used by or for LICENSEE during said calendar quarter. Such payment shall be
accompanied by a statement certified to ABI by an officer of LICENSEE which
shall give sufficient information from which to calculate the amount of
royalties due hereunder. Payment hereunder shall be made in U.S. dollars in the
United States. Statements shall also be submitted in the event no sale took
place.

     (c) INSPECTION. LICENSEE shall keep records in sufficient detail to permit
the determination of royalties payable hereunder for three (3) years following
the sales to which such records relate. At the request of ABI, LICENSEE will
permit an independent Certified Public Accountant designated by ABI to examine
such records, in confidence, during ordinary business hours, for the sole
purpose of verifying or determining royalties paid or payable under this
Agreement.

                                        7


                   ARTICLE V. TERM OF SUBLICENSE; TERMINATION

     (a) The term of this Agreement shall be from the date first written above
until expiration of the last to expire of the Licensed Patents.

     (b) LICENSEE may terminate this Agreement with respect to any one or more
of the Licensed Patents upon sixty (60) days written notice to ABI.

     (c) If LICENSEE shall at any time default in any obligation under this
Agreement, including, but not limited to failing to intake any report, pay any
royalties, or permit the inspection of its books and records as hereinabove
required, and such default shall not be cured within thirty (30) days after
receipt by LICENSEE of written notice from ABI specifying the nature of the
default, or in the event LICENSEE pays royalties into escrow in circumstances
not expressly permitted under the terms of this Agreement, then ABI shall have
the right to terminate this Agreement by giving written notice to LICENSEE and
such termination shall become effective on the thirtieth (30th) day after giving
of such notice.

     (d) This Agreement shall terminate automatically as to the Licensed Patents
in the event of a failure to comply with the terms of Article IX within ninety
(90) days of any attempted assignment of this Agreement.

     (e) LICENSOR may terminate this Agreement as to the Licensed Patents in
accordance with the terms of paragraph 2 of the Settlement Agreement.

     (f) Any termination pursuant hereto shall not relieve LICENSEE or ABI of
any obligation or liability accrued hereunder prior to such termination, nor
rescind or give rise to any right to rescind anything done or any payments made
or other consideration given hereunder prior to the time of such termination and
shall not affect in any manner any rights of either party arising out of this
Agreement prior to such termination.

                              ARTICLE VI. WARRANTY

     ABI warrants and represents that it has the right and license from UPI to
grant the sublicense set forth herein; that it has not entered into any
agreements, assignments, or encumbrances inconsistent with the provisions of
this Agreement other than as expressly set forth herein; and that UPI has
represented and warranted to ABI that UPI has the full right and power to grant
to ABI the right to grant the sublicense set forth herein. ABI makes no other
representation or warranty, express or implied, nor does

                                        8


ABI assume any liability in respect of any infringement or alleged infringement
of any patent or other right of third parties due to LICENSEE's activities under
the sublicense set forth herein.

             ARTICLE VII. MOST FAVORED LICENSEE

     If ABI shall hereafter grant, at any time during the term of this
Agreement, a license which grants the same or substantially equivalent rights as
granted hereunder to LICENSEE under said Licensed Patents at a more favorable
effective royalty rate than that provided for in this Agreement, LICENSEE shall
receive the same more favorable royalty rate specified with respect to such
Licensed Patents subject to the terms and conditions under which such more
favorable rate has been granted, provided that any such modification of this
Agreement, which shall be by written amendment, shall be effective only for the
period such more favorable royalty rate is in effect under such license. The
foregoing provisions shall not apply:

          (i) where ABI receives a grant of patent rights, a license or immunity
or other than a monetary consideration for such license; or

          (ii) where the more favorable royalty rate applies only to apparatus
for which there is a claim of past infringement and is given in consideration of
settlement of such claim, but not in respect of future infringement; or

          (iii) where LICENSEE elects to continue paying royalties on the basis
set forth in Agreement.

ABI shall give notice to Cruachem of all licenses or the LICENSED PATENTS and
copies of any such licenses that grant the same or substantially equivalent
rights as granted hereunder to LICENSEE at a more favorable effective royalty
rate.

              ARTICLE VIII. COMMUNICATION

     Any payment, notice or other communication required or permitted to be made
or given to either Party hereto pursuant to this Agreement shall be sufficiently
made or given on the date of mailing if sent to such Party by prepaid overnight
express, addressed to it at its address set forth or to such other

                                        9


address as it shall designate by written notice to the other Party as follows:

     In the case of ABI:

             Applied Biosystems, Inc.
             777 Lincoln Center Drive
             Foster City, California 94404
             Attention: Vice President--Finance

     In case of LICENSEE:
             Cruachem Holdings, Ltd.
             Todd Campus
             West of Scotland Science Park
             Acre Road
             Glasgow G20 QUA

                    ARTICLE IX. ASSIGNMENTS

     (a) This Agreement shall not be assignable by LICENSEE, in whole or in
part, by operation of law, for the benefit of creditors, or otherwise, without
the prior written consent of ABI, except to a successor in ownership (including
any acquiring person described in the following sentence) of all or
substantially all of the business assets of LICENSEE that relate to the subject
matter of the Licensed Patents and which successor shall expressly assume in
writing the performance of all the terms and conditions of this Agreement to be
performed by LICENSEE. For purposes of this Agreement, an assignment shall be
deemed to have occurred upon the acquisition of majority control of LICENSEE by
any person through the purchase of stock or by way of a merger transaction or
otherwise as well as through the purchase of all or substantially all of the
business assets of LICENSEE that relate to the subject matter of the Licensed
Patents.

     (b) If any such successor or any of its affiliates is engaged in the sale
of instruments or reagents for use in the synthesis of oligonucleotide, the
credit described in Article III(e) shall terminate effective upon such
assignment and the license granted to ABI pursuant to Article II(e) shall not
apply to any inventions reduced to practice after such assignment. If neither
such successor nor any of its affiliates is engaged in such business, the credit
described in Article III(e) shall terminate as provided in the preceding
sentence unless within ninety (90) days of the assignment the ultimate parent of
the successor

                                       10


(or the successor if it has no parent) in writing grants to ABI a royalty free,
nonexclusive, worldwide license under any patents then or thereafter owned or
controlled (i.e., licensable without the payment of any additional consideration
to any third party) by such parent (or successor) or any of its subsidiaries
issued or issuing in respect of any inventions that are reduced to practice
prior to June 30, 1994 and that cover and disclose products or processes for use
in the synthesis of oligonucleotides, PROVIDED, that the foregoing shall not
apply to any patent that covers a compound specific for use in therapeutics or
any process specific to the production of such compound.

             ARTICLE X. MISCELLANEOUS

     (a) This Agreement will not be binding upon the Parties until it has been
signed hereinbelow by or on behalf of each Party, in which event it shall be
effective as of the date first above written. No amendment or modification
hereof shall be valid or binding upon the Parties unless made in writing and
signed as aforesaid.

     (b) This Agreement together with the Settlement Agreement, embodies the
entire understanding of the Parties and shall supersede all previous
communications, representations, or undertakings, either verbal or written,
between the Parties relating to the subject matter hereof.

     (c) LICENSEE shall have no right under this Agreement or otherwise to use
the name or other designation of UPI, The University of Colorado, or employees
thereof in connection with any sales or promotion of Licensed Products or
Licensed Machines. Licensee may refer to ABI as the licensor of the Licensed
Patents in a fair and truthful manner.

     (d) If any provision or provisions of this Agreement shall be held to be
invalid, illegal, or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

     (e) This Agreement shall be construed, and the legal relations between the
Parties determined, in accordance with the laws of the State of California as
such laws are applied to contracts made and to be performed entirely within
California.

                                       11


     (f) The headings of the several sections are inserted for convenience of
reference only, and are not intended to be a part of or affect the meaning or
interpretation of this Agreement.

                                       12


     IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed as of the date first above written.

                                        APPLIED BIOSYSTEMS, INC.

                                        By: /s/ Michael W. Hunkapiller
                                            -----------------------------------
                                        Name:   MICHAEL W. HUNKAPILLER
                                              ---------------------------------
                                        Title:  VICE PRESIDENT
                                               --------------------------------

                                        CRUACHEM HOLDINGS LTD.

                                        By: /s/ Ian Wilkie
                                            -----------------------------------
                                        Name:   IAN WILKIE
                                              ----------------------------------
                                        Title:  CHIEF EXECUTIVE
                                               --------------------------------

                                       13

EX-21

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

LEGAL NAME                                      JURISDICTION OF ORGANIZATION

Transgenomic, Ltd.                                     United Kingdom
Transgenomic Japan, Inc.                                  Delaware
Annovis, Inc.                                             Delaware
Cruachem, Ltd.                                            Scotland
Transgenomic St. Thomas, Inc.                        U.S. Virgin Islands

                                        1

EX-23

EXHIBIT 23

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement No.
333-69334 and Registration Statement No. 333-71866 on Forms S-8 and Registration
Statement No. 333-70102 on Form S-3 of our report dated January 30, 2002,
appearing in this Annual Report on Form 10-K of Transgenomic, Inc. for the year
ended December 31, 2001.

/s/ Deloitte & Touche LLP

Omaha, Nebraska
March 22, 2002

                                        1

EX-24

     EXHIBIT 24

                                POWER OF ATTORNEY

The undersigned does hereby make, constitute and appoint Collin J. D'Silva as
his lawful agent and attorney-in-fact solely for the purpose of executing and
filing all reports on Form 10-K relating to the year ending December 28, 2001,
and any amendments thereto, required to be filed with the Securities and
Exchange Commission by Transgenomic, Inc.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
the 11th day of February 2002.

                                          /s/ Jeffrey L. Sklar
                                          -------------------------------------
                                          Jeffrey L. Sklar

                                        1


                                POWER OF ATTORNEY

The undersigned does hereby make, constitute and appoint Collin J. D'Silva as
his lawful agent and attorney-in-fact solely for the purpose of executing and
filing all reports on Form 10-K relating to the year ending December 28, 2001,
and any amendments thereto, required to be filed with the Securities and
Exchange Commission by Transgenomic, Inc.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
the 11th day of February 2002.

                                           /s/ Stephen F. Dwyer
                                           ------------------------------------
                                           Stephen F. Dwyer

                                        2


                                POWER OF ATTORNEY

The undersigned does hereby make, constitute and appoint Collin J. D'Silva as
his lawful agent and attorney-in-fact solely for the purpose of executing and
filing all reports on Form 10-K relating to the year ending December 28, 2001,
and any amendments thereto, required to be filed with the Securities and
Exchange Commission by Transgenomic, Inc.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
the 11th day of February 2002.

                                          /s/ Roland J. Santoni
                                          -------------------------------------
                                          Roland J. Santoni

                                        3


                                POWER OF ATTORNEY

The undersigned does hereby make, constitute and appoint Collin J. D'Silva as
his lawful agent and attorney-in-fact solely for the purpose of executing and
filing all reports on Form 10-K relating to the year ending December 28, 2001,
and any amendments thereto, required to be filed with the Securities and
Exchange Commission by Transgenomic, Inc.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
the 11th day of February 2002.

                                           /s/ Parag Saxena
                                           ------------------------------------
                                           Parag Saxena

                                        4


                                POWER OF ATTORNEY

The undersigned does hereby make, constitute and appoint Collin J. D'Silva as
his lawful agent and attorney-in-fact solely for the purpose of executing and
filing all reports on Form 10-K relating to the year ending December 28, 2001,
and any amendments thereto, required to be filed with the Securities and
Exchange Commission by Transgenomic, Inc.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
the 11th day of February 2002.

                                           /s/ Gregory J. Duman
                                           ------------------------------------
                                           Gregory J. Duman

                                        5