**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**







**FORM
      10-Q**







**(Mark
      One)**


**x**
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934****For
                  the Quarterly Period Ended September 30, 2007****Or**** ̈**
              **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**
            **911789357****(State
                or other jurisdiction of**
              **incorporation
                or organization)**
            **(I.R.S.
                Employer**
              **Identification
                No.)****12325
                Emmet Street, Omaha, Nebraska**
            **68164****(Address
                of principal executive offices)**
            **(Zip
                Code)**




**(402)
      452-5400**


**(Registrant’s
      telephone number, including area code)**







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 and (2) has been subject to such filing
      requirements for the past 90 days.    Yes  x No  o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer” and “large accelerated filer” in Rule 12b-2 of the Securities Exchange
      Act of 1934.


Large
      accelerated filer  o Accelerated
      filer  o Non-accelerated
      filer  x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Securities Exchange Act of
      1934)    Yes  o No  x




As
      of
      September 30, 2007, the number of shares of common stock outstanding was
      49,189,672.












**TRANSGENOMIC,
      INC.**




**INDEX**




**Page No.****PART I.**
            **FINANCIAL
                INFORMATION**
            3**Item 1.**
            Financial
                Statements
            3Unaudited
                Condensed Consolidated Balance Sheets as of September 30, 2007 and
                December 31, 2006
            3Unaudited
                Condensed Consolidated Statements of Operations for the Three and
                Nine
                Months Ended September 30, 2007 and 2006
            4Unaudited
                Condensed Consolidated Statements of Stockholders’ Equity for the Nine
                Months Ended September 30, 2007
            5Unaudited
                Condensed Consolidated Statements of Cash Flows for the Nine Months
                Ended
                September 30, 2007 and 2006
            6Notes
                to Unaudited Condensed Consolidated Financial Statements
            7**Item 2.**
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            17**Item 3.**
            Quantitative
                and Qualitative Disclosures About Market Risk
            23**Item 4.**
            Controls
                and Procedures
            23**PART II.**
            **OTHER
                INFORMATION**
            24**Item 1.**
            Legal
                Proceedings
            24**Item 1A.**
            Risk
                Factors
            24**Item 6.**
            Exhibits
            24**Signatures**
            25




2





**PART
      I. FINANCIAL INFORMATION**




**Item 1.**  **Financial
      Statements**




**TRANSGENOMIC,
      INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED BALANCE SHEETS**


**(Dollars
      in thousands except per share data)**




**September 30,**
              **2007**
              **(unaudited)**
            
            **December 31,**
              **2006****ASSETS****CURRENT
                ASSETS:**Cash
                and cash equivalents
            
            $
            6,543
            
            $
            5,868Accounts
                receivable (net of allowances for bad debts of $585 and $613,
                respectively)
            
            
            5,646
            
            
            6,525Inventories
            
            
            4,492
            
            
            2,672Prepaid
                expenses and other current assets
            
            
            905
            
            
            540Total
                current assets
            
            
            17,586
            
            
            15,605**PROPERTY
                AND EQUIPMENT:**Equipment
            
            
            10,759
            
            
            10,345Furniture
                and fixtures
            
            
            4,058
            
            
            3,82014,817
            
            
            14,165Less:
                accumulated depreciation
            
            
            13,251
            
            
            12,6671,566
            
            
            1,498**OTHER
                ASSETS:**Goodwill
            
            
            638
            
            
            638Other
                assets
            
            
            725
            
            
            853Non-current
                assets of discontinued operations
            
            
            —
            
            
            2,773$
            20,515
            
            $
            21,367**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES:**Accounts
                payable
            
            $
            1,964
            
            $
            1,558Other
                accrued expenses
            
            
            3,882
            
            
            2,898Accrued
                compensation
            
            
            575
            
            
            689Current
                liabilities of discontinued operations
            
            
            —
            
            
            184Total
                current liabilities
            
            
            6,421
            
            
            5,329Other
                long-term liabilities
            
            
            129
            
            
            —Total
                liabilities
            
            
            6,550
            
            
            5,329**COMMITMENTS
                AND CONTINGENCIES **STOCKHOLDERS’
                EQUITY:****Preferred
                stock, $.01 par value, 15,000,000 shares authorized, none
                outstanding
            
            
            —
            
            
            —Common
                stock, $.01 par value, 100,000,000 and 60,000,000 shares authorized,
                respectively, 49,189,672 and 49,189,672 shares outstanding,
                respectively
            
            
            497
            
            
            497Additional
                paid-in capital
            
            
            139,054
            
            
            138,966Accumulated
                other comprehensive income
            
            
            2,387
            
            
            2,100Accumulated
                deficit
            
            
            (127,973
            )
            
            (125,525
            )Total
                stockholders’ equity
            
            
            13,965
            
            
            16,038$
            20,515
            
            $
            21,367




See
      notes
      to condensed consolidated financial statements.




3


**TRANSGENOMIC,
      INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**


**(Dollars
      in thousands except per share data)**




**Three Months Ended**
              **September 30,**
            
            **Nine Months Ended**
              **September 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****NET
                SALES**
            
            $
            5,151
            
            $
            4,919
            
            $
            16,645
            
            $
            17,605**COST
                OF GOODS SOLD**
            
            
            2,500
            
            
            2,607
            
            
            7,872
            
            
            9,261Gross
                profit
            
            
            2,651
            
            
            2,312
            
            
            8,773
            
            
            8,344**OPERATING
                EXPENSES:**Selling,
                general and administrative
            
            
            2,672
            
            
            3,305
            
            
            8,719
            
            
            8,834Research
                and development
            
            
            720
            
            
            586
            
            
            2,270
            
            
            1,721Restructuring
                Charge
            
            
            681
            
            
            —
            
            
            1,305
            
            
            —4,073
            
            
            3,891
            
            
            12,294
            
            
            10,555**LOSS
                FROM OPERATIONS**
            
            
            (1,422
            )
            
            (1,579
            )
            
            (3,521
            )
            
            (2,211
            )**OTHER
                INCOME (EXPENSE):**Interest
                income (expense)
            
            
            75
            
            
            (7
            )
            
            215
            
            
            149Gain
                on sale of investment
            
            
            —
            
            
            —
            
            
            938
            
            
            —Other,
                net
            
            
            4
            
            
            68
            
            
            8
            
            
            —79
            
            
            61
            
            
            1,161
            
            
            149**LOSS
                BEFORE INCOME TAXES**
            
            
            (1,343
            )
            
            (1,518
            )
            
            (2,360
            )
            
            (2,062
            )**INCOME
                TAX EXPENSE**
            
            
            6
            
            
            7
            
            
            25
            
            
            24**LOSS
                FROM CONTINUING OPERATIONS**
            
            
            (1,349
            )
            
            (1,525
            )
            
            (2,385
            )
            
            (2,086
            )**INCOME(LOSS)
                FROM DISCONTINUED OPERATIONS, NET OF TAX**
            
            
            —
            
            
            (164
            )
            
            66
            
            
            (304
            )**NET
                LOSS**
            
            $
            (1,349
            )
            $
            (1,689
            )
            $
            (2,319
            )
            $
            (2,390
            )**COMPREHENSIVE
                LOSS**
            
            $
            (1,217
            )
            $
            (1,350
            )
            $
            (2,032
            )
            $
            (1,552
            )**BASIC
                AND DILUTED LOSS PER SHARE:**From
                continuing operations
            
            $
            (0.03
            )
            $
            (0.03
            )
            $
            (0.05
            )
            $
            (0.04
            )From
                discontinued operations
            
            
            (0.00
            )
            
            0.00
            
            
            (0.00
            )
            
            (0.01
            )$
            (0.03
            )
            $
            (0.03
            )
            $
            (0.05
            )
            $
            (0.05
            )**BASIC
                WEIGHTED AVERAGE SHARES OUTSTANDING**
            
            
            49,189,672
            
            
            49,189,672
            
            
            49,189,672
            
            
            49,188,040**DILUTED
                WEIGHTED AVERAGE SHARES OUTSTANDING**
            
            
            49,189,672
            
            
            49,189,672
            
            
            49,189,672
            
            
            49,188,040




See
      notes
      to condensed consolidated financial statements.





4




**TRANSGENOMIC,
      INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**


**Nine
      Months Ended September 30, 2007**


**(Dollars
      in thousands except per share data)**




**Common Stock****Outstanding**
              **Shares**
            
            **Par**
              **Value**
            
            **Additional**
              **Paid-in**
              **Capital**
            
            **Accumulated**
              **Deficit**
            
            **Accumulated**
              **Other**
              **Comprehensive**
              **Income (Loss)**
            
            **Total**Balance,
                December 31, 2006
            
            
            49,189,672
            
            $
            497
            
            $
            138,966
            
            $
            (125,525
            )
            $
            2,100
            
            $
            16,038Cumulative
                effect of adoption of FIN 48 (Note H)
            
            
            —
            
            
            —
            
            
            —
            
            
            (129
            )
            
            —
            
            
            (129
            )Balance,
                January 1, 2007
            
            
            49,189,672
            
            $
            497
            
            $
            138,966
            
            $
            (125,654
            )
            $
            2,100
            
            $
            15,909Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            (2,319
            )
            
            (2,319
            )
            
            (2,319
            )Other
                comprehensive loss:Foreign
                currency translation adjustment
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            287
            
            
            287Comprehensive
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (2,032
            )
            
            —Stock-based
                compensation
            
            
            —
            
            
            —
            
            
            87
            
            
            —
            
            
            —
            
            
            87Balance,
                September 30, 2007
            
            
            49,189,672
            
            $
            497
            
            $
            139,054
            
            $
            (127,973
            )
            $
            2,387
            
            $
            13,965




See
      notes
      to condensed consolidated financial statements.




5




**TRANSGENOMIC,
      INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Dollars
      in thousands)**




**Nine Months Ended**
              **September 30,****2007**
            
            **2006****CASH
                FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:**Net
                loss
            
            $
            (2,319
            )
            $
            (2,390
            )Adjustments
                to reconcile net loss to net cash flows provided by (used in) operating
                activities:Depreciation
                and amortization
            
            
            978
            
            
            1,361Impairment
                charge
            
            
            —
            
            
            437Non-cash,
                stock based compensation
            
            
            87
            
            
            152(Gain)
                Loss on sale of investment and assets
            
            
            (1,034
            )
            
            15Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            1,041
            
            
            2,585Inventories
            
            
            (1,800
            )
            
            805Prepaid
                expenses and other current assets
            
            
            (344
            )
            
            26Accounts
                payable
            
            
            124
            
            
            (820
            )Accrued
                expenses
            
            
            615
            
            
            (1,691
            )Net
                cash flows provided by (used in) operating activities
            
            
            (2,652
            )
            
            480**CASH
                FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:**Purchase
                of property and equipment
            
            
            (523
            )
            
            (228
            )Change
                in other assets
            
            
            (133
            )
            
            (54
            )Proceeds
                from asset sales
            
            
            3,935
            
            
            95Net
                cash flows provided by (used in) investing activities
            
            
            3,279
            
            
            (187
            )**CASH
                FLOWS PROVIDED BY FINANCING ACTIVITIES:**Issuance
                of common stock
            
            
            —
            
            
            5Net
                cash flows from financing activities
            
            
            —
            
            
            5**EFFECT
                OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH**
            
            
            48
            
            
            271**NET
                CHANGE IN CASH AND CASH EQUIVALENTS**
            
            
            675
            
            
            569**CASH
                AND CASH EQUIVALENTS AT BEGINNING OF YEAR**
            
            
            5,868
            
            
            6,736**CASH
                AND CASH EQUIVALENTS AT END OF PERIOD**
            
            $
            6,543
            
            $
            7,305**SUPPLEMENTAL
                CASH FLOW INFORMATION**Cash
                paid during the period for:Interest
            
            $
            5
            
            $
            —Income
                taxes, net
            
            
            25
            
            
            24




See
      notes
      to condensed consolidated financial statements.




6




**TRANSGENOMIC,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**Nine
      Months Ended September 30, 2007 and 2006**


**(Dollars
      in thousands except per share data and as noted)**




**A.**  **BUSINESS
      DESCRIPTION**




*Business
      Description.*




Transgenomic,
      Inc. provides innovative products for the synthesis, purification and analysis
      of nucleic acids used in the life sciences industry for research focused on
      molecular genetics and diagnostics. We also provide genetic variation analytical
      services to the medical research, clinical and pharmaceutical markets. Net
      sales
      are categorized as bioinstruments, bioconsumables and discovery services.


•
              Bioinstruments. 
                  The flagship product is the WAVE®System which has broad applicability to genetic variation detection
                  in
                  both molecular genetic research and molecular diagnostics. There
                  is a
                  worldwide installed base of over 1,400 WAVE Systems as of
                  September 30, 2007. We also distribute bioinstruments produced by
                  other manufacturers through our sales and distribution network.
                  Service
                  contracts to maintain installed systems are sold and supported
                  by
                  technical support personnel.•
              Bioconsumables. 
                  The installed WAVE base and some third-party installed platforms
                  generate
                  a demand for consumables that are required for the system’s continued
                  operation. We develop, manufacture and sell these products. In
                  addition,
                  we manufacture and sell consumable products that can be used on
                  multiple,
                  independent platforms. These products include SURVEYOR®Nuclease and a range of HPLC separation columns.•
              Discovery
                  Services.  We provide various genetic laboratory services through a
                  contract research lab in Gaithersburg, Maryland and a second laboratory
                  in
                  Omaha, Nebraska. The lab in Omaha operates in a Good Laboratory
                  Practices
                  (“GLP”) compliant environment and is certified under the Clinical
                  Laboratory Improvement Amendment. The services provided by the
                  laboratories primarily include (1) genomic biomarker analysis
                  services to pharmaceutical and biopharmaceutical companies to support
                  preclinical and clinical development of targeted therapeutics,
                  and
                  (2) molecular-based testing for hematology, oncology and certain
                  inherited diseases for physicians and third-party laboratories.




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




Although
      we have experienced declining sales and recurring net losses (resulting in
      an
      accumulated deficit of $128 million at September 30, 2007), management
      believes existing sources of liquidity, including cash and cash equivalents
      of
      $6.5 million, are sufficient to meet expected cash needs into 2008. Although
      our
      business consolidation efforts have helped control our operating costs, we
      will
      need to increase net sales and/or further reduce operating expenses in order
      to
      meet our liquidity needs on a long-term basis. In future periods, there is
      no
      assurance that we will be able to increase net sales or further reduce expenses
      and, accordingly, we may not have sufficient sources of liquidity to continue
      operations indefinitely. In addition, such cost and expense reductions could
      have an adverse impact on the new product pipeline and ultimately net sales.
      We
      could also pursue additional financing, but ultimately, we must achieve
      sufficient net sales to consistently generate net income and cash flows from
      operations.




**B.**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**




*Principles
      of Consolidation.*




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




*Use
      of Estimates.*




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




7




**TRANSGENOMIC,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **Nine
        Months Ended September 30, 2007 and 2006**
 **(Dollars
        in thousands except per share data and as noted)**




*Basis
      of Presentation.*




The
      consolidated balance sheet as of December 31, 2006 was derived from our audited
      balance sheet as of that date. The accompanying consolidated financial
      statements as of and for the three and nine months ended September 30, 2007
      and
      2006 are unaudited and reflect all adjustments (consisting only of normal
      recurring adjustments) which are, in the opinion of management, necessary for
      a
      fair presentation of the financial position and operating results for the
      interim periods. These unaudited consolidated financial statements and notes
      should be read in conjunction with the audited consolidated financial statements
      and notes thereto for the year ended December 31, 2006 contained in our Annual
      Report on Form 10-K. The results of operations for the interim periods presented
      are not necessarily indicative of the results for the entire year.




*Cash
      and Cash Equivalents.*




Cash
      and
      cash equivalents include cash and temporary overnight investments with original
      maturities at acquisition of three months or less.




*Accounts
      Receivable.*




Accounts
      receivable are shown net of allowance for doubtful accounts. The following
      is a
      summary of activity for the allowance for doubtful accounts during the three
      and
      nine months ended September 30, 2007 and 2006:





**Three Months Ended**
              **September 30,**
            
            **Nine Months Ended**
              **September 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Beginning
                balance
            
            $
            649
            
            $
            493
            
            $
            613
            
            $
            1,008Charges
                to income
            
            
            (64
            )
            
            30
            
            
            (27
            )
            
            7Deductions
                from reserves
            
            
            —
            
            
            26
            
            
            (1
            )
            
            (466
            )Ending
                balance
            
            $
            585
            
            $
            549
            
            $
            585
            
            $
            549




While
      payment terms are generally 30 days, we have also provided extended payment
      terms of up to 90 days in certain cases. We review accounts receivable on a
      quarterly basis and adjust our bad debt reserve accordingly.




*Inventories.*




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




*Equipment,
      Furniture and Fixtures.*




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




Leasehold
                improvements
            2 to 10 yearsFurniture
                and fixtures
            5
                to 7 yearsProduction
                equipment
            5
                to 7 yearsComputer
                equipment
            3
                to 5 yearsResearch
                and development equipment
            3
                to 5 yearsDemonstration
                equipment
            3
                to 5 years




Depreciation
      and amortization during the three months ended September 30, 2007 and 2006,
      respectively, included $236 and $405, respectively, related to depreciation
      of
      property and equipment. Depreciation and amortization during the nine months
      ended September 30, 2007 and 2006, respectively, included $978 and $1,361
      respectively.




8




**TRANSGENOMIC,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **Nine
        Months Ended September 30, 2007 and 2006**
 **(Dollars
        in thousands except per share data and as noted)**




*Goodwill.*




Statement
      of Financial Accounting Standards (“SFAS”) No. 142, *Goodwill
      and Other Intangible Assets,* provides
      that goodwill will not be amortized, but will be tested for impairment annually.
      We perform this impairment analysis during the fourth quarter of each year.
      Impairment occurs when the carrying value is determined to be not recoverable
      thereby causing the fair value of the goodwill to exceed the carrying value.
      If
      impaired, the asset’s carrying value is reduced to its fair value.




*Other
      Assets.*




*Long-Lived
      Assets.*




In
      August
      2001, the Financial Accounting Standards Board issued SFAS No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* ,
      (SFAS
      No. 144) which addresses financial accounting and reporting for the
      impairment or disposal of long-lived assets and supersedes SFAS No. 121,
      and the accounting and reporting provisions of Accounting Principles Board
      (APB)
      Opinion No. 30, *Reporting
      the Results of Operations* ,
      for a
      disposal of a segment of a business. We periodically review the carrying value
      of our long-lived assets to assess recoverability and impairment.  We
      recorded no impairments during the three and nine months ended
      September 30, 2007 or 2006.




Other
      assets include intellectual property, patents, other intangible assets, and
      other long-term assets.




Intellectual
      Property. Initial costs paid to license intellectual property from independent
      third parties are capitalized and amortized using the straight-line method
      over
      the license period. Ongoing royalties related to such licenses are expensed
      as
      incurred.




Patents.
      We capitalize external and in-house legal costs, filing fees and other expenses
      associated with obtaining patents on new discoveries and amortize these costs
      using the straight-line method over the shorter of the legal life of the patent
      or its economic life, generally 17 years, beginning on the date the patent
      is
      issued.




Other
      Intangible Assets. Identifiable intangible assets with definite lives are
      amortized over their estimated useful lives and tested for impairment as events
      or changes in circumstances indicate the carrying amount of the asset may be
      impaired.




Other
      Long-Term Assets. Other long-term assets consist primarily of demonstration
      inventory that has been at customer or prospective customer sites for greater
      than one year and security deposits on leased facilities. Long-term
      demonstration inventory is stated at the lower of cost or market.




*Stock
      Based Compensation.*




All
      stock
      options awarded to date have exercise prices equal to the market price of our
      common stock on the date of grant and have ten-year contractual terms. Unvested
      options as of September 30, 2007 had vesting periods of three years from
      date of grant. None of the stock options outstanding at September 30, 2007
      are subject to performance or market-based vesting conditions.




We
      adopted Financial Accounting Standards Board (FASB) Statement No. 123(R), *Share-Based
      Payment* (“FAS
      123(R)”), on January 1, 2006. FAS 123(R) requires us to measure and
      recognize compensation expense for all stock-based awards made to employees
      and
      directors, including stock options. Compensation expense is based on the
      calculated fair value of the awards as measured at the grant date and is
      expensed ratably over the service period of the awards (generally the vesting
      period).




On
      December 28, 2005, our Directors approved a plan to accelerate the vesting
      of all outstanding stock options. Aside from the acceleration of the vesting
      date, the terms and the conditions of the stock option award agreements
      governing the underlying stock option grants remained unchanged. As a result
      of
      this plan, options to purchase approximately 1,081,845 shares became immediately
      exercisable. All such options were out-of-the-money and, accordingly, the
      accelerated vesting resulted in no compensation expense since there was no
      intrinsic value associated with these fixed awards at the date of modification.
      Accelerating the vesting of these options allowed us to avoid recognition of
      compensation expense associated with these options in future periods.




During
      the nine months ended September 30, 2007, we recorded compensation expense
      of $87 within the general administrative expense related to the vesting of
      870,000 options. During the nine months ended September 30, 2006, we recorded
      compensation expenses of $3 related to 240,000 new option grants and $149
      related to an extension of the post-termination exercise period for 450,000
      options from 90 days after termination to the remaining contractual term of
      the
      original option grants. The fair value of the options was estimated on their
      respective grant dates using the Black-Scholes option pricing model. The
      Black-Scholes model was used with the following assumptions: risk-free interest
      rates of 4.97% to 5.08%, based on the U.S.  Treasury
      yield in effect at the time of grant; dividend yields of zero percent; expected
      lives of 2 to 10 years, based on historical exercise activity behavior; and
      volatility of 89.14% and 67.58% for grants issued for the nine months ended
      September 30, 2007 based on the historical volatility of our stock over a
      time that is consistent with the expected life of the option. As of
      September 30, 2007, there was $435 of unrecognized compensation expense
      related to unvested stock options, which is expected to be recognized over
      a
      weighted average period of nearly three years.




9




**TRANSGENOMIC,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **Nine
        Months Ended September 30, 2007 and 2006**
 **(Dollars
        in thousands except per share data and as noted)**




*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 more likely than not that they will not
      be
      realized.




*Revenue
      Recognition.*




Revenue
      (referred to as “net sales”) on the sales of products is recognized in
      accordance with the terms of the sales arrangement. Such recognition is based
      on
      receipt of an unconditional customer order and transfer of title and risk of
      ownership to the customer, typically upon shipment of the product under a
      purchase order. Our sales terms do not provide for the right of return unless
      the product is damaged or defective. Net sales from certain services associated
      with the analytical instruments, to be performed subsequent to shipment of
      the
      products, is deferred and recognized when the services are provided. Such
      services, mainly limited to installation and training services that are not
      essential to the functionality of the instruments, typically are performed
      in a
      timely manner subsequent to shipment of the instrument. We also enter into
      various service contracts that cover installed instruments. These contracts
      cover specific time periods and net sales associated with these contracts are
      deferred and recognized over the service period. At September 30, 2007 and
      December 31, 2006, deferred revenue mainly associated with our service
      contracts, included in the balance sheet in other accrued expenses, was
      approximately $1,898 and $1,591, respectively.




*Research
      and Development.*




Research
      and development costs are charged to expense when incurred.




*Translation
      of Foreign Currency.*




Financial
      statements of subsidiaries outside the U.S. are measured using the local
      currency as the functional currency. The adjustments to translate those amounts
      into U.S. dollars are accumulated in a separate account in stockholders’ equity
      and are included in accumulated other comprehensive income. Foreign currency
      transaction gains or losses resulting from changes in currency exchange rates
      are included in the determination of net income. Foreign currency transaction
      adjustments from continuing operations decreased net loss by $77 and $181 during
      the three and nine months ended September 30, 2007, respectively. For the
      three and nine months ended September 30, 2006, foreign currency transactions
      adjustments from continuing operations increased net loss by $98 and decreased
      net loss by $98, respectively.




*Comprehensive
      Income.*




Accumulated
      other comprehensive income at September 30, 2007 and December 31, 2006
      consisted of foreign currency translation adjustments, net of applicable tax
      of
      zero. We deem our foreign investments to be permanent in nature and do not
      provide for taxes on currency translation adjustments arising from converting
      investments in a foreign currency to U.S. dollars.




*Earnings
      Per Share.*




Basic
      earnings per share is 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, warrants or conversion
      rights that have exercise or conversion prices below the market value of our
      common stock. Options, warrants and conversion rights pertaining to 12,201,141
      and 13,778,841 shares of our common stock have been excluded from the
      computation of diluted earnings per share at September 30, 2007 and 2006,
      respectively, because the effect would be anti-dilutive due to the net loss
      from
      continuing operations in those periods. As a result, none of our outstanding
      options, warrants or conversion rights affect the calculation of diluted
      earnings per share.




10




**TRANSGENOMIC,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **Nine
        Months Ended September 30, 2007 and 2006**
 **(Dollars
        in thousands except per share data and as noted)**




*Recently
      Issued Accounting Pronouncements.*




In
      July
      2006, the FASB issued Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”). FIN 48 applies to all tax positions within the scope of Statement 109 and
      clarifies when and how to recognize tax benefits in the financial statements
      with a two-step approach of recognition and measurement. We adopted FIN 48
      on
      January 1, 2007. Under FIN 48, tax benefits are recognized only for tax
      positions that are more likely than not to be sustained upon examination by
      tax
      authorities. The amount recognized is measured as the largest amount of benefit
      that is more likely than not to be realized upon ultimate settlement.
      Unrecognized tax benefits are tax benefits claimed in our tax returns that
      do
      not meet these recognition and measurement standards.




In
      September 2006, the FASB issued Statement No. 157, *Fair
      Value Measurement* (“FAS
      157”). While this Statement does not require new fair value measurements, it
      provides guidance on applying fair value and expands required disclosures.
      FAS
      157 is effective beginning in the first quarter of 2008. We are currently
      assessing the impact FAS 157 may have on our Consolidated Financial Statements.




In
      February 2007, the FASB issued Statement No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* (“FAS
      159”). This Statement, which is expected to expand fair value measurement,
      permits entities to choose to measure many financial instruments and certain
      other items at fair value. FAS 159 will become effective for us beginning with
      the first quarter of 2008. We are currently assessing the impact FAS 159 may
      have on our Consolidated Financial Statements.




**C.**  **DISCONTINUED
      OPERATIONS**




In
      the
      fourth quarter of 2005, we implemented a plan to exit the Nucleic Acids
      operating segment. Accordingly, we now reflect the results related to this
      operating segment as discontinued operations for all periods presented. Expenses
      that are not directly identified to the Nucleic Acids operating segment or
      that
      are considered corporate overhead have not been allocated in arriving at the
      loss from discontinued operations. Summary results of operations of the former
      Nucleic Acids operating segment were as follows:




**Three Months Ended**
              **September 30,**
            
            **Nine Months Ended**
              **September 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****NET
                SALES**
            
            $
            —
            
            $
            7
            
            $
            —
            
            $
            1,142**COST
                OF GOODS SOLD**
            
            
            —
            
            
            —
            
            
            —
            
            
            843Gross
                profit
            
            
            —
            
            
            7
            
            
            —
            
            
            299**OPERATING
                EXPENSES**
            
            
            —
            
            
            172
            
            
            (66
            )
            
            605**INCOME
                (LOSS) FROM OPERATIONS**
            
            
            —
            
            
            (165
            )
            
            66
            
            
            (306
            )**OTHER
                INCOME**
            
            
            —
            
            
            1
            
            
            —
            
            
            2**INCOME
                (LOSS) BEFORE INCOME TAXES**
            
            
            —
            
            
            (164
            )
            
            66
            
            
            (304
            )**INCOME
                TAX**
            
            
            —
            
            
            —
            
            
            —
            
            
            —**INCOME
                (LOSS) FROM DISCONTINUED OPERATIONS**
            
            $
            —
            
            $
            (164
            )
            $
            66
            
            $
            (304
            )




Assets
      associated with the Nucleic Acids segment consisted principally of our facility
      in Glasgow, Scotland. During the quarter ended March 31, 2007, we completed
      the sale of the Glasgow facility and the associated equipment for $2.9 million,
      net of selling expenses, which resulted in a gain of $0.1 million.




11




**TRANSGENOMIC,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **Nine
        Months Ended September 30, 2007 and 2006**
 **(Dollars
        in thousands except per share data and as noted)**




The
      assets and liabilities of the former Nucleic Acids operating segment were as
      follows:




**September 30,**
              **2007**
            
            **December 31,**
              **2006**Accounts
                receivable (net of allowances for doubtful accounts of $177 and $173,
                respectively)
            
            $
            —
            
            $
            —Prepaid
                expenses and other current assets
            
            
            —
            
            
            —Current
                assets of discontinued operations
            
            $
            —
            
            $
            —Property
                and equipment, net
            
            $
            —
            
            $
            2,773Non-current
                assets of discontinued operations
            
            $
            —
            
            $
            2,773Accounts
                payable
            
            $
            —
            
            $
            45Other
                accrued expenses
            
            
            —
            
            
            139Current
                liabilities of discontinued operations
            
            $
            —
            
            $
            184




Liabilities
      are related to expenses to be paid during 2007 for final closing costs of the
      Glasgow facility.




**D.**  **RESTRUCTURING
      CHARGES**




We
      recorded restructuring charges totaling $681 and $1.3 million for the three
      and
      nine months ended September 30, 2007. The restructuring charges were
      comprised of severance totaling $892, facility closure costs totaling $272
      and
      other costs totaling $155. Restructuring charges related to three events: A
      restructuring plan completed in the second quarter of 2007, which resulted
      from
      the termination of four employees in Omaha, Nebraska; facility closure
      activities to close the Cramlington, England production facility and consolidate
      production in the Omaha, Nebraska facility; and facility closure activities
      to
      close an administrative office outside Paris, France, and combine those
      operations with those functions performed elsewhere in the organization.




**E.**  **INVENTORIES**




Inventories
      consisted of the following:




**September 30,**
              **2007**
            
            **December 31,**
              **2006**Finished
                goods
            
            $
            3,193
            
            $
            2,146Raw
                materials and work in process
            
            
            1,286
            
            
            443Demonstration
                inventory
            
            
            13
            
            
            83$
            4,492
            
            $
            2,672


**F.**  **OTHER
      ASSETS**




Finite
      lived intangible assets and other assets consisted of the following:




**September 30, 2007**
            
            **December 31, 2006****Cost**
            
            **Accumulated**
              **Amortization**
            
            **Net Book**
              **Value**
            
            **Cost**
            
            **Accumulated**
              **Amortization**
            
            **Net Book**
              **Value**Intellectual
                property
            
            $
            865
            
            $
            704
            
            $
            161
            
            $
            765
            
            $
            677
            
            $
            88Patents
            
            
            659
            
            
            185
            
            
            474
            
            
            676
            
            
            155
            
            
            521Other
            
            
            303
            
            
            213
            
            
            90
            
            
            705
            
            
            461
            
            
            244Total
            
            $
            1,827
            
            $
            1,102
            
            $
            725
            
            $
            2,146
            
            $
            1,293
            
            $
            853




12




**TRANSGENOMIC,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **Nine
        Months Ended September 30, 2007 and 2006**
 **(Dollars
        in thousands except per share data and as noted)**




Amortization
      expense for intangible assets was $24 and $10 during the three months ended
      September 30, 2007 and 2006, respectively, and $69 and $160 during the nine
      months ended September 30, 2007 and 2006, respectively. Amortization
      expense for intangible assets is expected to be approximately $22 for the
      remainder of 2007, $87 in 2008, $75 in 2009, $50 in 2010, $39 in 2011, and
      $32
      in 2012 and 2013.




**G.**  **COMMITMENTS
      AND CONTINGENCIES**




We
      are
      subject to a number of claims of various amounts, which arise out of the normal
      course of business. In the opinion of management, the disposition of pending
      claims will not have a material adverse effect on our financial position,
      results of operations or cash flows.




We
      lease
      certain equipment, vehicles and operating facilities under non-cancellable
      operating leases that expire on various dates through 2014. The future minimum
      lease payments required under these leases are approximately $259 for the
      remainder of 2007, $862 in 2008, $768 in 2009, $655 in 2010, $498 in 2011,
      $293
      in 2012, and $98 thereafter. Rent expense for continuing operations related
      all
      to operating leases for the three months ended September 30, 2007 and 2006
      was approximately $298 and $260, respectively, and for the nine months ended
      September 30, 2007 and 2006 was approximately $825 and $774, respectively.




At
      September 30, 2007, firm commitments to vendors to purchase components used
      in WAVE Systems and instruments manufactured by others totaled $349. We expect
      to satisfy these purchase commitments during 2007.




**H.**  **INCOME
      TAXES**




In
      July
      2006, the FASB issued Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”). FIN 48 applies to all tax positions within the scope of Statement 109 and
      clarifies when and how to recognize tax benefits in the financial statements
      with a two-step approach of recognition and measurement. We adopted FIN 48
      on
      January 1, 2007. Under FIN 48, tax benefits are recognized only for tax
      positions that are more likely than not to be sustained upon examination by
      tax
      authorities. The amount recognized is measured as the largest amount of benefit
      that is more than likely not to be realized upon ultimate settlement.
      Unrecognized tax benefits are tax benefits claimed in the tax returns that
      do
      not meet these recognition and measurement standards.




Upon
      adoption of FIN 48 on January 1, 2007, we recognized a $129 increase in the
      liability for unrecognized tax benefits. This increase in the liability was
      offset by an increase to the January 1, 2007 balance in the accumulated
      deficit. The gross amount of unrecognized tax benefits as of the date of
      adoption was $129, all of which would affect the effective tax rate if
      recognized. Included in this amount is an aggregate of $72 of interest and
      penalties. Our policy is to recognize interest and penalties directly related
      to
      income taxes as part of income tax expense.




We
      file
      income tax returns in the U.S. federal jurisdiction, various U.S. state
      jurisdictions and various foreign jurisdictions. We have statutes of limitation
      open for Federal income tax returns related to tax years 2004 through 2006.
      We
      have state income tax returns subject to examination primarily for tax years
      2003 through 2006. Open tax years related to foreign jurisdictions remain
      subject to examination. Our primary foreign jurisdiction is the United Kingdom
      which has open tax years for 2005 through 2006. We are not currently under
      examination in any jurisdiction.




During
      the three and nine months ended September 30, 2007, there were no material
      changes to the liability for uncertain tax positions.




**I.**  **EMPLOYEE
      BENEFIT PLAN**




We
      maintain an employee 401(k) retirement savings plan that allows for voluntary
      contributions into designated investment funds by eligible employees. We match
      the employees’ contributions at the rate of 50% on the first 6% of
      contributions. We may, at the discretion of our Board of Directors, make
      additional contributions on behalf of the Plan’s participants. Contributions to
      the 401(k) plan were $37 and $40 for the three months ended September 30,
      2007 and 2006, respectively, and $118 and $122 for the nine months ended
      September 30, 2007 and 2006, respectively.




13


**TRANSGENOMIC,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **Nine
        Months Ended September 30, 2007 and 2006**
 **(Dollars
        in thousands except per share data and as noted)**




**J.**  **STOCKHOLDERS’
      EQUITY**




*Common
      Stock Warrants.*





No
      common
      stock warrants were issued during the three and nine months ended
      September 30, 2007 or 2006. At September 30, 2007, there are 8,062,577
      common stock warrants outstanding.




**Warrant
                Holder**
            
            **Issue Year**
            
            **Expiration Year**
            
            **Underlying Shares**
            
            **Exercise Price**Various
                Institutional Holders (1)
            
            
            2005
            
            
            2010
            
            
            6,903,156
            
            $
            1.20Laurus
                Master Fund, Ltd. (2)
            
            
            2003
            
            
            2010
            
            
            200,000
            
            $
            1.92Laurus
                Master Fund, Ltd. (2)
            
            
            2003
            
            
            2010
            
            
            200,000
            
            $
            2.07Laurus
                Master Fund, Ltd. (2)
            
            
            2003
            
            
            2010
            
            
            150,000
            
            $
            2.35Laurus
                Master Fund, Ltd. (2)
            
            
            2004
            
            
            2011
            
            
            125,000
            
            $
            2.57Laurus
                Master Fund, Ltd. (2)
            
            
            2004
            
            
            2011
            
            
            400,000
            
            $
            1.18TN
                Capital Equities, Ltd. (2)
            
            
            2003
            
            
            2008
            
            
            45,918
            
            $
            2.94TN
                Capital Equities, Ltd. (2)
            
            
            2004
            
            
            2009
            
            
            15,566
            
            $
            3.18GE
                Capital (3)
            
            
            2002
            
            
            2007
            
            
            13,762
            
            $
            3.27GE
                Capital (3)
            
            
            2003
            
            
            2008
            
            
            9,175
            
            $
            3.27Total
            
            
            
            
            
            
            
            
            8,062,577


(1)
              These
                  warrants were issued in conjunction with a private placement of
                  common
                  stock in October 2005 (the “2005 Private Placement”).(2)
              These
                  warrants were issued in conjunction with two loans that had been
                  made to
                  us by Laurus Master Fund, Ltd. (the “Laurus Loans”), and subsequent
                  modifications of these loans. In conjunction with the 2005 Private
                  Placement, the exercise prices of these warrants were adjusted
                  according
                  to repricing provisions contained in the original warrant agreements.
                  While the Laurus Loans have been terminated, the warrants remain
                  outstanding.(3)
              These
                  warrants were issued in conjunction with operating leases with
                  GE Capital.
                  While the leases have since been terminated, the warrants remain
                  outstanding.




**K.**  **STOCK
      OPTIONS**




The
      following table summarizes stock option activity during the nine months ended
      September 30, 2007:




**Number of**
              **Options**
            
            **Weighted Average**
              **Exercise Price**Balance
                at January 1, 2007:
            
            
            5,467,664
            
            $
            4.07Granted
            
            
            570,000
            
            
            .70Exercised
            
            
            —
            
            
            —Forfeited
            
            
            (1,883,100
            )
            
            4.18Balance
                at September 30, 2007:
            
            
            4,166,064
            
            $
            3.56Exercisable
                at September 30, 2007:
            
            
            3,271,064
            
            $
            4.35




During
      the nine months ended September 30, 2007, we granted 570,000 stock options
      at a weighted average exercise price of $0.70 under our 2006 Equity Incentive
      Plan (formerly, the 1997 Stock Option Plan). The weighted average grant date
      fair value per share of options granted during the nine months ended
      September 30, 2007 was $0.70.




During
      the nine months ended September 30, 2007, we recorded compensation expense
      of $87 within the general administrative expense related to the vesting of
      options. During the nine months ended September 30, 2006, we recorded
      compensation expenses of $3 related to 240,000 new option grants and $149
      related to an extension of the post-termination exercise period for 450,000
      options from 90 days after termination to the remaining contractual term of
      the
      original option grants. The fair value of the options was estimated on their
      respective grant dates using the Black-Scholes option pricing model. The
      Black-Scholes model was used with the following assumptions: risk-free interest
      rates of 4.97% to 5.08%, based on the U.S.  Treasury
      yield in effect at the time of grant; dividend yields of zero percent; expected
      lives of 2 to 10 years, based on historical exercise activity behavior; and
      volatility of 89.14% and 67.58% for grants issued for the nine months ended
      September 30, 2007 based on the historical volatility of our stock over a
      time that is consistent with the expected life of the option. As of
      September 30, 2007, there was $435 of unrecognized compensation expense
      related to unvested stock options, which is expected to be recognized over
      a
      weighted average period of nearly three years.




14




**TRANSGENOMIC,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **Nine
        Months Ended September 30, 2007 and 2006**
 **(Dollars
        in thousands except per share data and as noted)**


**L.**  **OPERATING
      SEGMENT AND GEOGRAPHIC INFORMATION**




We
      have
      one reportable operating segment. Although net sales are analyzed by type,
      net
      financial results are analyzed as one segment due to the integrated nature
      of
      the products. Net sales by product were as follows:




**Three Months Ended**
              **September 30,**
            
            **Nine Months Ended**
              **September 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Bioinstruments
            
            $
            2,371
            
            $
            2,510
            
            $
            8,377
            
            $
            10,294Bioconsumables
            
            
            2,113
            
            
            2,100
            
            
            6,561
            
            
            6,640Discovery
                Services
            
            
            667
            
            
            309
            
            
            1,707
            
            
            671$
            5,151
            
            $
            4,919
            
            $
            16,645
            
            $
            17,605




Net
      cost
      of goods sold was as follows:




**Three Months Ended**
              **September 30,**
            
            **Nine Months Ended**
              **September 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Bioinstruments
            
            $
            783
            
            $
            1,046
            
            $
            3,142
            
            $
            4,297Bioconsumables
            
            
            1,119
            
            
            1,135
            
            
            3,197
            
            
            3,630Discovery
                Services
            
            
            598
            
            
            426
            
            
            1,533
            
            
            1,334$
            2,500
            
            $
            2,607
            
            $
            7,872
            
            $
            9,261




Net
      sales
      by geographic region were as follows:




**Three Months Ended**
              **September 30,**
            
            **Nine
                Months Ended**
              **September 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**United
                States
            
            $
            2,005
            
            $
            1,712
            
            $
            5,663
            
            $
            4,996Europe
            
            
            2,216
            
            
            2,870
            
            
            8,865
            
            
            10,652Pacific
                Rim
            
            
            381
            
            
            165
            
            
            1,022
            
            
            1,075Other
            
            
            549
            
            
            172
            
            
            1,095
            
            
            882$
            5,151
            
            $
            4,919
            
            $
            16,645
            
            $
            17,605




No
      customer accounted for more than 10% of consolidated net sales during the three
      and nine months ended September 30, 2007 and 2006.




Substantially,
      all of the long-lived assets are within the United States.




15




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




**Overview**




We
      develop, assemble, manufacture and market versatile products for the synthesis,
      purification and analysis of nucleic acids used in life sciences industry for
      research focused on molecular genetics and diagnostics. We also provide
      analytical services to the medical research, clinical and pharmaceutical markets
      for use in genetic variation analysis. Products and services are sold through
      a
      direct sales force in the United States and throughout much of Western Europe.
      For the rest of the world, products and services are sold through more than
      35
      dealers and distributors located in those local markets. Net sales are
      categorized as bioinstruments, bioconsumables and discovery services.


•
              Bioinstruments.
                  Our flagship product is the WAVE System which has broad applicability
                  to
                  genetic variation detection in both molecular genetic research
                  and
                  molecular diagnostics. There is a worldwide installed base of over
                  1,400
                  WAVE Systems as of September 30, 2007. We also sell a number of
                  complementary equipment platforms manufactured by others (“OEM
                  Instruments”). Service contracts to maintain installed systems are sold
                  and supported by technical support personnel.•
              Bioconsumables.
                  The installed WAVE base and some third-party installed platforms
                  generate
                  a demand for consumables that are required for the system’s continued
                  operation. We develop, manufacture and sell these products. In
                  addition,
                  we manufacture and sell consumable products that can be used on
                  a number
                  of equipment platforms manufactured by others. These products include
                  SURVEYOR Nuclease and a range of HPLC separation columns.•
              Discovery
                  Services. We provide various genetic laboratory services through
                  a
                  contract research lab in Gaithersburg, Maryland and a second laboratory
                  in
                  Omaha, Nebraska. The lab in Omaha operates in a Good Laboratory
                  Practices
                  (“GLP”) compliant environment and is certified under the Clinical
                  Laboratory Improvement Amendment (“CLIA”). The services provided by our
                  labs primarily include (1) genomic biomarker analysis services to
                  pharmaceutical and biopharmaceutical companies to support preclinical
                  and
                  clinical development of targeted therapeutics, and
                  (2) molecular-based medical testing services for hematology, oncology
                  and certain inherited diseases for physicians and third-party
                  laboratories.




Historically,
      we operated a segment (the “Nucleic Acids operating segment”) that developed,
      manufactured and marketed chemical building blocks for nucleic acid synthesis
      to
      biotechnology, pharmaceutical and oligonucleotide synthesis companies and
      research institutions throughout the world. In the fourth quarter of 2005,
      we
      implemented a plan to exit this operating segment. Accordingly, results of
      this
      operating segment are reflected as discontinued operations for all periods
      presented in this filing. In the first quarter of 2007, we completed the sale
      of
      the remaining assets associated with the segment.




**Executive
      Summary**




Net
      sales
      for the three months ended September 30, 2007 increased by 5%, compared to
      the same period in 2006. The increase is primarily attributable to our Discovery
      Services products. Net sales from bioinstruments were down 6%. Net sales from
      bioconsumables were flat. Net sales from Discovery Services grew more than
      115%,
      or $358, compared to the same quarter in 2006. The entire increase was related
      to the CLIA laboratory services. Gross margins improved year over year. Our
      gross profit margins improved from 47% in the third quarter of 2006 to 51%
      in
      the current quarter ended September 30, 2007. The largest contributor to
      this increase is our Discovery Services product line which went from a negative
      gross profit in the third quarter of 2006 to a positive gross profit margin
      of
      10% in the quarter ended September 30, 2007. Overall operating expenses
      included a non recurring expense of $681 for restructuring charges, primarily
      related to closings in France and the United Kingdom. Net loss was $1.3 million
      for the third quarter ended September 30, 2007. This is an improvement of
      $340 or 20% over the same quarter in 2006. As of the end of the third quarter
      ended September 30, 2007, we had cash and cash equivalents of $6.5 million.




**Outlook**




We
      continue to work toward our objective of generating income from continuing
      operations and positive cash flows from continuing operations. To accomplish
      these goals, we must generate growth in net sales and continue to control
      manufacturing and other operating expenses. Sales of bioinstruments, including
      both our WAVE System and OEM instruments, we continue to be affected by
      competition from other technologies. In addition, ongoing changes in the
      marketplace and the funding arrangements of our customers have led to sporadic
      sales in some markets. We continue to work to develop new applications for
      our
      WAVE System in an attempt to expand its market and sales. Sales of our OEM
      instruments continue to be a priority. We are also focusing increased efforts
      to
      expand our Discovery Services sales. In particular, the growth in our CLIA
      laboratory services has been promising and we believe we will continue to see
      ongoing growth from this business. In addition, we completed work on seven
      pharmaceutical company projects and completed negotiations to begin a phase
      two
      clinical trial for an important cancer drug for a major bio-pharmaceutical
      partner. We continue to work on our cost reduction initiatives, including the
      closing of facilities in Europe. We expect to complete these initiatives by
      the
      end of the year. The effects of these efforts will have a more noticeable impact
      in 2008.




16




**Results
      of Continuing Operations**




**Three
      Months Ended September 30, 2007 and 2006**




*Net
      Sales.* Net
      sales consisted of the following (dollars in thousands):




**Three Months Ended**
              **September 30,**
            
            **Change****2007**
            
            **2006**
            
            **$**
            
            **%**Bioinstruments
            
            $
            2,371
            
            $
            2,510
            
            $
            (139
            )
            
            (6
            )%Bioconsumables
            
            
            2,113
            
            
            2,100
            
            
            13
            
            
            1
            %Discovery
                Services
            
            
            667
            
            
            309
            
            
            358
            
            
            116
            %Net
                sales
            
            $
            5,151
            
            $
            4,919
            
            $
            232
            
            
            5
            %




The
      bioinstrument net sales decrease of 6% was due to fewer OEM Systems being sold.
      There were no OEM instrument sales in the third quarter of 2007. Fourteen WAVE
      Systems were sold during the three months ended September 30, 2007,
      compared to nine during the same period of 2006. The increased sales were in
      the
      United States and Asia markets. WAVE sales in each period include sales of
      refurbished WAVEs. There are significant competitive challenges from traditional
      (i.e. sequencing) and evolving technologies. Net sales of consumables related
      to
      our WAVE Systems and other third-party instruments were flat year over year.
      The
      largest growth was in our discovery services net sales. The 116% increase was
      all attributable to CLIA laboratory services.




*Costs
      of Goods Sold.* Costs
      of
      goods sold include material costs for the products that we sell and
      substantially all other costs associated with our manufacturing facilities
      (primarily personnel costs, rent and depreciation). It also includes direct
      costs (primarily personnel costs, rent, supplies and depreciation) associated
      with our discovery services operations. Cost of goods sold consisted of the
      following (dollars in thousands):




**Three Months Ended**
              **September 30,**
            
            **Change****2007**
            
            **2006**
            
            **$**
            
            **%**Bioinstruments
            
            $
            783
            
            $
            1,046
            
            $
            (263
            )
            
            (25
            )%Bioconsumables
            
            
            1,119
            
            
            1,135
            
            
            (16
            )
            
            (1
            )%Discovery
                Services
            
            
            598
            
            
            426
            
            
            172
            
            
            40
            %Cost
                of goods sold
            
            $
            2,500
            
            $
            2,607
            
            $
            (107
            )
            
            (4
            )%




Gross
      profit was $2.7 million or 51% of total net sales during the three months ended
      September 30, 2007, compared to $2.3 million or 47% during the same period
      of 2006. Gross profits as percentage of net sales increased due to product
      mix
      in our instrument sales and also due to the leverage of the discovery services
      costs. We continue to have a large fixed expense base outside of direct material
      costs. Discovery Services costs have a large fixed component, so increases
      in
      net sales drive gross profit improvement. The Discovery Services revenue
      increase quarter over quarter was 116% while the increase in cost of goods
      sold
      was only 40%.




*Selling,
      General and Administrative Expenses.* Selling,
      general and administrative expenses primarily consist of personnel costs,
      marketing, travel and entertainment costs, professional fees, and facility
      costs. These costs totaled $2.7 million during the three months ended
      September 30, 2007, compared to $3.3 million during the same period of
      2006, a decrease of $0.6 million or 19%. This decrease was primarily due to
      the
      consolidation and cost containment initiatives.




17




*Research
      and Development Expenses.* Research
      and development expenses primarily include personnel costs, outside services,
      supplies, and facility costs and are expensed in the period in which they are
      incurred. These costs remained flat and totaled $0.7 million during the three
      months ended September 30, 2007, compared to $0.6 million during the same
      period of 2006.




Research
      and development expenses totaled 14% and 12% of net sales during the three
      months ended September 30, 2007 and 2006, respectively.




*Restructuring
      Charges.* Restructuring charges consist of costs related to a reduction in force at our
      Omaha, Nebraska facility, ongoing activities to close a production facility
      in
      Cramlington, England, and ongoing activities to close an administrative office
      outside of Paris, France.




*Other
      Income (Expense).* Other
      income consists primarily of interest income from cash and cash equivalents
      invested in overnight instruments. Other income totaled $0.1 million during
      both
      the three months ended September 30, 2007, and the same period of 2006.




*Income
      Tax Expense.* In
      July
      2006, the FASB issued Interpretation (“FIN”) No. 48, *Accounting
      for Uncertainty in Income Taxes* .
      FIN 48
      applies to all tax positions within the scope of Statement 109 and clarifies
      when and how to recognize tax benefits in the financial statements with a
      two-step approach of recognition and measurement. We adopted FIN 48 on
      January 1, 2007. Under FIN 48, tax benefits are recognized only for tax
      positions that are more likely than not to be sustained upon examination by
      tax
      authorities. The amount recognized is measured as the largest amount of benefit
      that is more likely than not to be realized upon ultimate settlement.
      Unrecognized tax benefits are tax benefits claimed in our tax returns that
      do
      not meet these recognition and measurement standards.




**Nine
      Months Ended September 30, 2007 and 2006**




*Net
      Sales.* Net
      sales consisted of the following (dollars in thousands):




**Nine Months Ended**
              **September 30,**
            
            **Change****2007**
            
            **2006**
            
            **$**
            ****
            **%**Bioinstruments
            
            $
            8,377
            
            $
            10,294
            
            $
            (1,917
            )
            
            (19
            )%Bioconsumables
            
            
            6,561
            
            
            6,640
            
            
            (79
            )
            
            (1
            )%Discovery
                Services
            
            
            1,707
            
            
            671
            
            
            1,036
            
            
            154
            %Net
                sales
            
            $
            16,645
            
            $
            17,605
            
            $
            (960
            )
            
            (5
            )%




The
      bioinstrument net sales decrease of 19% was due to fewer WAVE Systems and OEM
      instruments being sold. Forty four WAVE Systems were sold during the nine months
      ended September 30, 2007, compared to 56 during the same period of 2006.
      There were 3 OEM instruments sold during the nine months ended
      September 30, 2007 compared to 14 during the same period in 2006. WAVE
      sales in each period include sales of refurbished WAVEs. This decrease resulted
      from lower demand in all major geographic markets and among both research and
      diagnostic users, particularly in our largest markets throughout Western Europe.
      There are significant competitive challenges from traditional (i.e. sequencing)
      and evolving technologies. Net sales of consumables related to our WAVE Systems
      and other third-party instruments were relatively flat year over year. The
      largest growth, an increase of 154%, was in discovery services, and all
      attributable to our CLIA laboratory services.




*Costs
      of Goods Sold.* Costs
      of
      goods sold include material costs for the products that we sell and
      substantially all other costs associated with our manufacturing facilities
      (primarily personnel costs, rent and depreciation). It also includes direct
      costs (primarily personnel costs, rent, supplies and depreciation) associated
      with our discovery services operations. Cost of goods sold consisted of the
      following (dollars in thousands):




**Nine Months Ended**
              **September 30,**
            
            **Change****2007**
            
            **2006**
            
            **$**
            ****
            **%**Bioinstruments
            
            $
            3,142
            
            $
            4,297
            
            $
            (1,155
            )
            
            (27
            )%Bioconsumables
            
            
            3,197
            
            
            3,630
            
            
            (433
            )
            
            (12
            )%Discovery
                Services
            
            
            1,533
            
            
            1,334
            
            
            199
            
            
            15
            %Cost
                of goods sold
            
            $
            7,872
            
            $
            9,261
            
            $
            (1,389
            )
            
            (15
            )%





Gross
      profit was $8.8 million or 53% of total net sales during the nine months ended
      September 30, 2007 compared to $8.3 million or 47% during the same period
      of 2006. Gross profits as percentage of net sales increased due to the mix
      of
      instruments sold, lower consumable material and manufacturing costs and the
      leverage related to the discovery services net sales. Some of the decrease
      in
      manufacturing costs was due to a shifting of personnel to research and
      development efforts. We continue to have a large fixed expense base outside
      of
      direct material costs. Discovery Services costs have a large fixed component,
      so
      increases in net sales drive gross profit improvement.




18




*Selling,
      General and Administrative Expenses.* Selling,
      general and administrative expenses primarily consist of personnel costs,
      marketing, travel and entertainment costs, professional fees, and facility
      costs. These costs totaled $8.7 million during the nine months ended
      September 30, 2007, compared to $8.8 million during the same period of
      2006.




*Research
      and Development Expenses.* Research
      and development expenses primarily include personnel costs, outside services,
      supplies, and facility costs and are expensed in the period in which they are
      incurred. These costs totaled $2.3 million during the nine months ended
      September 30, 2007, compared to $1.7 million during the same period of
      2006, an increase of $0.6 million, primarily from collaboration expense,
      increased compensation costs associated with personnel reassigned from Nucleic
      Acid production and patent costs for discovery services.




Research
      and development expenses totaled 14% and 10% of net sales during the nine months
      ended September 30, 2007 and 2006, respectively.




*Restructuring
      Charges.* Restructuring charges consist of costs related to a reduction in force at our
      Omaha, Nebraska facility, ongoing activities to close a production facility
      in
      Cramlington, England, and ongoing activities to close an administrative office
      outside of Paris, France.




*Other
      Income (Expense).* Other
      income during the nine months ended September 30, 2007 and 2006 was $1.1
      million and $0.1 million, respectively. The increase was attributable to the
      sale of an investment in equity securities. On May 10, 2007, we sold
      250,000 shares of stock in Pinnacle Pharmaceuticals, Inc. at a price of $3.75
      per share. Gross proceeds realized from the sale were $937,500 which resulted
      in
      a gain of $937,500 and is reflected in other income during the period. The
      investment was in an unlisted company and was carried at a cost of $0. The
      investment resulted from a prior business combination and the fair value at
      the
      acquisition date was determined to be $0. The investment was subject to certain
      restrictions relating to sale, transfer or other disposition. Remaining other
      income consisted primarily of interest income from cash and cash equivalents
      invested in overnight instruments.




*Income
      Tax Expense.* In
      July
      2006, the FASB issued Interpretation (“FIN”) No. 48, *Accounting
      for Uncertainty in Income Taxes* .
      FIN 48
      applies to all tax positions within the scope of Statement 109 and clarifies
      when and how to recognize tax benefits in the financial statements with a
      two-step approach of recognition and measurement. We adopted FIN 48 on
      January 1, 2007. Under FIN 48, tax benefits are recognized only for tax
      positions that are more likely than not to be sustained upon examination by
      tax
      authorities. The amount recognized is measured as the largest amount of benefit
      that is more likely than not to be realized upon ultimate settlement.
      Unrecognized tax benefits are tax benefits claimed in our tax returns that
      do
      not meet these recognition and measurement standards.




**Results
      of Discontinued Operations**




In
      the
      fourth quarter of 2005, we implemented a plan to exit the Nucleic Acids
      operating segment. Accordingly, we now reflect the related results as
      discontinued operations for all periods presented. Expenses that are not
      directly identified to the Nucleic Acids operating segment or that are
      considered corporate overhead have not been allocated in arriving at the loss
      from discontinued operations. Summary results of operations of the former
      Nucleic Acids operating segment were as follows (in thousands):




**Three
      Months Ended September 30, 2007 and 2006**




**Three Months Ended**
              **September 30,****2007**
            
            **2006****NET
                SALES**
            
            $
            —
            
            $
            7**COST
                OF GOODS SOLD**
            
            
            —
            
            
            —Gross
                profit
            
            
            —
            
            
            7**OPERATING
                EXPENSES**
            
            
            —
            
            
            172**LOSS
                FROM OPERATIONS**
            
            
            —
            
            
            (165
            )**OTHER
                INCOME**
            
            
            —
            
            
            1**LOSS
                BEFORE INCOME TAXES**
            
            
            —
            
            
            (164
            )**INCOME
                TAX**
            
            
            —
            
            
            —**LOSS
                FROM DISCONTINUED OPERATIONS**
            
            $
            —
            
            $
            (164
            )




19




**Nine
      Months Ended September 30, 2007 and 2006**




**Nine Months Ended**
              **September 30,****2007**
            
            **2006****NET
                SALES**
            
            $
            —
            
            $
            1,142**COST
                OF GOODS SOLD**
            
            
            —
            
            
            843Gross
                profit
            
            
            —
            
            
            299**OPERATING
                EXPENSES:**
            
            
            (66
            )
            
            605**INCOME
                (LOSS) FROM OPERATIONS**
            
            
            66
            
            
            (306
            )**OTHER
                INCOME**
            
            
            —
            
            
            2**INCOME
                (LOSS) BEFORE INCOME TAXES**
            
            
            66
            
            
            (304
            )**INCOME
                TAX**
            
            
            —
            
            
            —**INCOME
                (LOSS) FROM DISCONTINUED OPERATIONS**
            
            $
            66
            
            $
            (304
            )




Assets
      associated with the Nucleic Acids segment consisted principally of our facility
      in Glasgow, Scotland. During the nine months ended September 30, 2007, we
      completed the sale of the Glasgow facility and the associated equipment for
      $2.9
      million, net of selling expenses, which resulted in a gain of $0.1 million.
      The
      gain is reflected in the operating expenses of discontinued operations during
      the period.




**Liquidity
      and Capital Resources**


Our
      working capital positions at September 30, 2007 and December 31, 2006
      were as follows (in thousands):




**September 30,**
              **2007**
            
            **December 31,**
              **2006**
            
            **Change**Current
                assets (including cash and cash equivalents of $6,543 and $5,868,
                respectively)
            
            $
            17,586
            
            $
            15,605
            
            $
            1,981Current
                liabilities
            
            
            6,421
            
            
            5,329
            
            
            1,092Working
                capital
            
            $
            11,165
            
            $
            10,276
            
            $
            889




The
      increase in working capital was largely driven by the proceeds from the sale
      of
      the Glasgow facility and related equipment for $2.9 million and the sale of
      an
      investment in equity securities of $0.9 million, offset by the significant
      increase in inventory of OEM instruments and the net loss for the nine months
      ended September 30, 2007.




Although
      we have experienced declining sales and recurring net losses (resulting in
      an
      accumulated deficit of $128 million at September 30, 2007), management
      believes existing sources of liquidity, including cash and cash equivalents
      of
      $6.5 million, are sufficient to meet expected cash needs into 2008. We will
      need
      to increase our net sales and further reduce operating expenses in order to
      meet
      our liquidity needs on a long-term basis. We cannot assure you that we will
      be
      able to increase net sales or further reduce our expenses and, accordingly,
      we
      may not have sufficient sources of liquidity to continue operations
      indefinitely. If necessary, management believes they can further reduce costs
      and expenses to conserve working capital. However, such cost and expense
      reductions could have an adverse impact on our new product pipeline and
      ultimately net sales. We could also pursue additional financing, but ultimately,
      we must achieve sufficient net sales to consistently generate net income and
      cash flows.




**Analysis
      of Cash Flows**




**Nine
      Months Ended September 30, 2007 and 2006**




*Net
      Change in Cash and Cash Equivalents.* Cash
      and
      cash equivalents increased $0.7 million during the nine months ended
      September 30, 2007 compared to an increase of $0.6 million during the nine
      months ended September 30, 2006. The 2007 increase was the result of net
      cash provided by investing activities of $3.3 million, offset by net cash used
      by operating activities of $2.6 million. These were minimally offset from
      foreign currency exchange rates. The 2006 increase was the result of net cash
      used in investing activities of $0.2 million offset by net cash from operating
      activities of $0.5 million, net cash from financing activities of $0.01 and
      changes in foreign currency exchange rates of $0.3 million.




*Cash
      Flows used in Operating Activities.* Cash
      flows used in operating activities totaled $2.6 million during the nine months
      ended September 30, 2007, compared to cash flows generated from operating
      activities of $0.5 million during the same period of 2006. The use of cash
      flows
      in 2007 related primarily to the net loss of $2.3 million and the higher
      inventory levels of $1.8 million related primarily to the OEM instruments.
      This
      is offset by accounts receivable collections of $1.0 and decreased accrued
      expenses of $0.6.




20




Cash
      flows generated from operating activities of $0.5 million in 2006 related
      primarily to $2.6 million of decreased accounts receivable, $0.8 million of
      decreased inventory and depreciation/amortization non-cash changes of $1.4
      million offset by a net loss of $2.4 million. Non-cash charges consisted of
      depreciation and amortization. Working capital and other adjustments increased
      cash flows from operating activities by $0.5 million.




*Cash
      Flows from Investing Activities.* Cash
      flows provided by investing activities totaled $3.3 million during the nine
      months ended September 30, 2007 compared to cash flows used in investing
      activities of $0.2 million during the same period of 2006. Cash flows provided
      by investing activities in 2007 consisted primarily of sales proceeds from
      our
      Glasgow facility and equipment of $2.9 million and sales proceeds of an
      investment in equity securities of $0.9 million. This is offset by the use
      of
      cash for the purchase of property and equipment of $0.5 million. Cash flows
      used
      by investing activities in 2006 consisted of purchases of property and equipment
      of $0.2 million and changes in other assets of $0.1 million offset by proceeds
      from asset sales of $0.1 million.




*Cash
      Flows from Financing Activities.* Cash
      flows from financing activities were minimal during the nine months ended
      September 30, 2007 and September 30, 2006.




**Obligations
      and Commitments**




The
      following identifies material obligations and commitments as of
      September 30, 2007:




**Payments Due by Period****Contractual
                Obligations****Millions
                of dollars**
            
            **Total**
            
            **2007**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **2011**
            
            **2012**Operating
                leases (a)
            
            $
            3.50
            
            $
            0.3
            
            $
            0.9
            
            $
            0.8
            
            $
            0.7
            
            $
            0.5
            
            $
            0.3Purchase
                obligations (b)
            
            
            0.4
            
            
            0.4
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
                contractual obligations
            
            $
            3.90
            
            $
            0.7
            
            $
            0.9
            
            $
            0.8
            
            $
            0.7
            
            $
            0.5
            
            $
            0.3







(a) Operating
      leases include facility, automobile and other equipment leases.


(b) Purchase
      obligations include purchase commitments for components used in WAVE Systems
      and
      OEM instruments.




**Off-Balance
      Sheet Arrangements**




At
      September 30, 2007 and December 31, 2006, we did not have any
      relationships with unconsolidated entities or financial partnerships, such
      as
      entities often referred to as structured finance or special purpose entities,
      which would have been established for the purpose of facilitating off-balance
      sheet arrangements or other contractually narrow or limited purposes.




**Critical
      Accounting Policies and Estimates**




Accounting
      policies used in the preparation of the consolidated financial statements may
      involve the use of management judgments and estimates. Certain of our accounting
      policies are considered critical as they are both important to the portrayal
      of
      our financial statements and they require significant or complex judgments
      on
      the part of management. Our judgments and estimates are based on experience
      and
      assumptions that we believe are reasonable under the circumstances. Further,
      we
      evaluate our judgments and estimates from time to time as circumstances change.
      Actual financial results based on judgments or estimates may vary under
      different assumptions or circumstances. Our critical accounting policies are
      discussed in our annual report on Form 10-K for the fiscal year ended
      December 31, 2006. There have been no significant changes with respect to
      these estimates during the nine months ended September 30, 2007, except for
      the treatment of the contingency accruals.




Effective
      January 1, 2007, we began to measure and record tax contingency accruals in
      accordance with Financial Accounting Standards Board (“FASB”) Interpretation
      No. 48, *Accounting
      for Uncertainty in Income Taxes* , *an
      Interpretation of FASB Statement No. 109* (“FIN
      48”). Under FIN 48, tax benefits are recognized only for tax positions that are
      more likely than not to be sustained upon examination by tax authorities. The
      amount recognized is measured as the largest amount of benefit that is more
      than
      likely not to be realized upon ultimate settlement. Unrecognized tax benefits
      are tax benefits claimed in our tax returns that do not meet these recognition
      and measurement standards. For additional information on the adoption of FIN
      48,
      see Note H of this report.




21




**Recently
      Issued Accounting Pronouncements**




Please
      refer to our annual report on Form 10-K for the fiscal year ended
      December 31, 2006. There have been no chnages to those listed except as
      noted in note B.




**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.




**Item 3.**  **Quantitative
      and Qualitative Disclosures about Market Risk**




***Foreign
      Currency Translation Risk.*** During
      the nine months ended September 30, 2007 and 2006, our international sales
      represented more than 67% of our net sales. These sales of products in foreign
      countries are mainly completed in either British Pounds Sterling or the Euro.
      Additionally, we have two wholly-owned subsidiaries, Transgenomic Limited,
      and
      Cruachem Limited, whose operating currencies are British Pounds Sterling and
      the
      Euro. Results of operations for our foreign subsidiaries are translated using
      the average exchange rate during the period. Assets and liabilities are
      translated at the exchange rate in effect on the balance sheet dates. As a
      result we are subject to exchange rate risk. The operational expenses of our
      foreign subsidiaries help to reduce the currency exposure we have based on
      our
      sales denominated in foreign currencies by converting foreign currencies
      directly into goods and services. As such, we feel we do not have a material
      exposure to foreign currency rate fluctuations at this time. **




**Item 4.**  **Controls
      and Procedures**




(a)
            Evaluation
                of Disclosure Controls and Procedures. A review and evaluation was
                performed by our President, Chief Executive Officer (“CEO”) and Chief
                Financial Officer (“CFO”) of the effectiveness of the design and operation
                of our disclosure controls and procedures as of the end of the period
                covered by this quarterly report. Based on that review and evaluation,
                the
                CEO and CFO concluded that the Corporation’s disclosure controls and
                procedures, as designed and implemented, were effective in assuring
                that
                information required to be disclosed is recorded, processed, summarized
                and reported in the reports we submit under the Securities Exchange
                Act of
                1934.




(b)
            Change
                in Internal Control Over Financial Reporting. There have been no
                changes
                in our internal control over financial reporting during the quarter
                that
                have materially affected, or are reasonably likely to materially
                affect,
                our internal control over financial reporting.




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**PART
      II. OTHER INFORMATION**




**Item 1.**  **Legal
      Proceedings**




We
      are
      subject to a number of claims of various amounts which arise out of the normal
      course of business. In our opinion, the disposition of pending claims will
      not
      have a material adverse effect on our financial position, results of operations
      or cash flows.




**Item 1A.**  **Risk
      Factors**




There
      have been no material changes in our risk factors from those described in
      Item 1A of our annual report on Form 10-K for the fiscal year ended
      December 31, 2006.




**Item 6.**  **Exhibits**




(a)  Exhibits




3.1
            Third
                Amended and Restated Certificate of Incorporation of the Registrant
                (incorporated by reference to Exhibit 3.1 to Registrant’s Report on Form
                10-Q (Registration No. 000-30975) filed on November 14,
                20053.2
            Amended
                and Restated Bylaws of the Registrant filed on May 25,
                20074
            Form
                of Certificate of the Registrant’s Common Stock (incorporated by reference
                to Exhibit 4 to Registration Statement on Form S-1 (Registration
                No. 333-32174) filed on March 10, 200031
            Certifications
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                200232
            Certifications
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002




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**SIGNATURES**




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




TRANSGENOMIC,
                INC.Date:
                November 14, 2007
            By:
            /s/
                CRAIG J. TUTTLECraig
                J. Tuttle
              *President
                and Chief Executive Officer*




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