10-Q

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 March 31, 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  ¨

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  ¨    Accelerated filer  ¨    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  ¨    No  x

As of May 15, 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	3
	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006	3
	Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2007 and 2006	4
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2007	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20
PART II.	OTHER INFORMATION	20
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 6.	Exhibits	21
Signatures		22

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)

	March 31, 2007			December 31, 2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	7,912		$	5,868
Accounts receivable (net of allowances for bad debts of $420 and $444, respectively)		5,667			6,525
Inventories		3,138			2,672
Prepaid expenses and other current assets		741			540
Current assets of discontinued operations		5			—
Total current assets		17,463			15,605
PROPERTY AND EQUIPMENT:
Equipment		10,372			10,345
Furniture and fixtures		3,817			3,820
		14,189			14,165
Less: Accumulated depreciation		12,887			12,667
		1,302			1,498
OTHER ASSETS:
Goodwill		638			638
Other assets		785			853
Non-current assets of discontinued operations		—			2,773
	$	20,188		$	21,367
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,544		$	1,558
Other accrued expenses		3,112			2,898
Accrued compensation		478			689
Current liabilities of discontinued operations		215			184
Total current liabilities		5,349			5,329
Other long-term liabilities		129			—
Total liabilities		5,478			5,329
COMMITMENTS AND CONTINGENCIES (Note F)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value, 15,000,000 shares authorized, none outstanding		—			—
Common stock, $0.01 par value, 100,000,000 and 60,000,000 shares authorized, respectively, 49,189,672 and 49,189,672 shares outstanding, respectively		497			497
Additional paid-in capital		138,987			138,966
Accumulated other comprehensive income		2,076			2,100
Accumulated deficit		(126,850	)		(125,525	)
Total stockholders’ equity		14,710			16,038
	$	20,188		$	21,367

See notes to unaudited 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 March 31,
	2007			2006
NET SALES	$	5,222		$	6,497
COST OF GOODS SOLD		2,514			3,515
Gross profit		2,708			2,982
OPERATING EXPENSES:
Selling, general and administrative		2,980			2,709
Research and development		1,058			604
		4,038			3,313
LOSS FROM OPERATIONS		(1,330	)		(331	)
OTHER INCOME:
Interest income, net of interest expense		61			44
Other, net		4			—
		65			44
LOSS BEFORE INCOME TAXES		(1,265	)		(287	)
INCOME TAX EXPENSE		5			17
LOSS FROM CONTINUING OPERATIONS		(1,270	)		(304	)
INCOME(LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX		74			(14	)
NET LOSS	$	(1,196	)	$	(318	)
BASIC AND DILUTED LOSS PER SHARE:
From continuing operations	$	(0.02	)	$	(0.01	)
From discontinued operations		0.00			0.00
	$	(0.02	)	$	(0.01	)
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING		49,189,672			49,184,722

See notes to unaudited condensed consolidated financial statements.

4

TRANSGENOMIC, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 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		$	16,038
Cumulative effect of adoption of FIN 48 (Note G)	—		—		—		(129	)		—			(129	)
Balance, January 1, 2007	49,182,672	$	497	$	138,966	$	(125,654	)	$	2,100		$	15,909
Net loss	—		—		—		(1,196	)		(1,196	)		(1,196	)
Other comprehensive loss:
Foreign currency translation adjustment	—		—		—		—			(24	)		(24	)
Comprehensive loss	—		—		—		—			(1,220	)		—
Stock-based compensation	—		—		21		—			—			21
Balance, March 31, 2007	49,189,672	$	497	$	138,987	$	(126,850	)	$	2,076		$	14,710

See notes to unaudited condensed consolidated financial statements.

5

TRANSGENOMIC, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Three Months Ended March 31,
	2007			2006
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss	$	(1,196	)	$	(318	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization		342			437
Non-cash, stock-based compensation		21			—
Gain on sale of assets		(95	)		—
Changes in operating assets and liabilities:
Accounts receivable		864			(21	)
Inventories		(478	)		194
Prepaid expenses and other current assets		(205	)		(66	)
Accounts payable		(45	)		263
Accrued expenses		21			(515	)
Net cash flows used in operating activities		(771	)		(26	)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchase of property and equipment		(17	)		(110	)
Change in other assets, including cash paid for patents		(8	)		(23	)
Proceeds from asset sales		2,873			—
Net cash flows from (used in) investing activities		2,848			(133	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock		—			5
Net cash flows from financing activities		—			5
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH		(33	)		28
NET CHANGE IN CASH AND CASH EQUIVALENTS		2,044			(126	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		5,868			6,736
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	7,912		$	6,610
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	3		$	—
Income taxes, net		5			17

See notes to unaudited condensed consolidated financial statements.

6

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2007 and 2006

(Dollars in thousands except per share data)

A. BUSINESS DESCRIPTION

Business Description.

Transgenomic, Inc. (the “Company”) 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. The Company also provides genetic variation analytical services to the medical research, clinical and pharmaceutical markets. Net sales are categorized as bioinstruments, bioconsumables and discovery services.

• Bioinstruments. The Company’s 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 1,360 WAVE Systems as of March 31, 2007. The Company also distributes bioinstruments produced by other manufacturers through its 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. The Company develops, manufactures and sells these products. In addition, the Company manufactures and sells consumable products that can be used on multiple, independent platforms. These products include SURVEYOR^® Nuclease and a range of HPLC separation columns.

• Discovery Services. The Company provides 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 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 testing for hematology, oncology and certain inherited diseases for physicians and third-party laboratories.

Historically, the Company 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, the Company implemented a plan to exit the Nucleic Acids operating segment and during the three months ended March 31, 2007, the Company 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 the Company has experienced declining sales and recurring net losses (resulting in an accumulated deficit of $126,850 at March 31, 2007), management believes existing sources of liquidity, including cash and cash equivalents of $7,912, are sufficient to meet expected cash needs through 2007. The Company will need to increase net sales and further reduce operating expenses in order to meet its liquidity needs for the existing business on a long-term basis. There is no assurance that the Company will be able to increase net sales or further reduce expenses and, accordingly, the Company 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 the Company’s new product pipeline and ultimately net sales. The Company could also pursue additional financing, but ultimately, the Company 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 - Continued

Three Months Ended March 31, 2007 and 2006

(Dollars in thousands except per share data)

Cash and Cash Equivalents.

Cash and cash equivalents include cash and temporary 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 months ended March 31, 2007 and 2006:

	Three Months Ended March 31,
	2007			2006
Beginning balance	$	444		$	615
Charges to income/expense		(24	)		29
Deductions from reserves		—			(63	)
Ending balance	$	420		$	581

While payment terms are generally 30 days, the Company has also provided extended payment terms of up to 90 days in certain cases.

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	3 to 10 years
Furniture and fixtures	5 to 7 years
Production equipment	5 to 7 years
Computer equipment	3 to 5 years
Research and development equipment	3 to 5 years
Demonstration equipment	3 to 5 years

Depreciation and amortization totaled $342 and $437 during the three months ended March 31, 2007 and 2006, respectively, of which $245 and $365, respectively, related to depreciation of property and equipment from continuing operations.

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. The Company performs 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.

8

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

Three Months Ended March 31, 2007 and 2006

(Dollars in thousands except per share data)

Other Assets.

Other assets include capitalized software development costs, intellectual property, patents, other intangible assets, deferred financing costs and other long-term assets.

Capitalized Software Development Costs. The Company capitalized software development costs for products offered for sale in accordance with SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. This Standard allows for the capitalization of certain development costs once a software product has reached technological feasibility. The Company capitalized no software development costs during the three months ended March 31, 2007 or 2006.

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

Other Intangible Assets. Other intangible assets with indefinite lives will not be amortized, but will be tested for impairment annually. Impairment occurs when the carrying value is not recoverable and the fair value of the asset is less than the carrying value. If impaired, the asset’s carrying value is reduced to its fair value. 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.

Deferred Financing Costs. Certain financing costs are capitalized and amortized to interest expense over the life of the related financing.

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 March 31, 2007 had vesting periods of three years from date of grant. None of the stock options outstanding at March 31, 2007 are subject to performance or market-based vesting conditions.

The Company adopted Financial Accounting Standards Board (FASB) Statement No. 123(R), Share-Based Payment (“FAS 123(R)”), on January 1, 2006. FAS 123(R) requires the Company 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, the Company’s 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 not intrinsic value associated with these fixed awards at the date of modification. Accelerating the vesting of these options allows the Company to avoid recognition of compensation expense associated with these options in future periods.

During the three months ended March 31, 2007 and 2006, the Company recorded compensation expense of $21 and $0, respectively, within the general administrative expense related to the vesting of 540,000 options during the period. 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 4.71% 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 9 years, based on historical exercise activity behavior; and volatility of

9

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

Three Months Ended March 31, 2007 and 2006

(Dollars in thousands except per share data)

89.14%, based on the historical volatility of our stock over a time that is consistent with the expected life of the option. As of March 31, 2007, there was $215 of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted average period of nearly three years.

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. The Company’s 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 Company’s 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. The Company also enters 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 March 31, 2007 and December 31, 2006, deferred revenue mainly associated with the Company’s service contracts, included in the Company’s balance sheet in other accrued expenses, was approximately $1,666 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 increased net loss by $30 during the three months ended March 31, 2007 and reduced net loss by $108 during the three months ended March 31, 2006.

Comprehensive Income.

Accumulated other comprehensive income at March 31, 2007 and December 31, 2006 consisted of foreign currency translation adjustments, net of applicable tax of zero. The Company deems its foreign investments to be permanent in nature and does not provide for taxes on currency translation adjustments arising from converting its investments in a foreign currency to U.S. dollars.

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 13,729,241 and 13,592,341 shares of our common stock have been excluded from the computation of diluted earnings per share at March 31, 2007 and March 31, 2006, respectively, because the exercise or conversion price of these instruments exceeded the market price of our common stock on those dates.

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. The Company adopted FIN 48 on January 1, 2007. Under FIN 48, tax

10

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

Three Months Ended March 31, 2007 and 2006

(Dollars in thousands except per share data)

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 the Company’s 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 for the Company beginning in the first quarter of 2008. The Company is currently assessing the impact FAS 157 may have on its 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 the Company beginning with the first quarter of 2008. The Company is currently assessing the impact FAS 159 may have on its Consolidated Financial Statements.

C. DISCONTINUED OPERATIONS AND DIVESTITURES

In the fourth quarter of 2005, the Company implemented a plan to exit its Nucleic Acids operating segment. Accordingly, the Company now reflects 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 March 31,
	2007			2006
NET SALES	$	—		$	554
COST OF GOODS SOLD		—			380
Gross profit		—			174
OPERATING EXPENSES		(73	)		189
INCOME (LOSS) FROM OPERATIONS		73			(15	)
OTHER INCOME		1			1
INCOME (LOSS) BEFORE INCOME TAXES		74			(14	)
INCOME TAX		—			—
INCOME (LOSS) FROM DISCONTINUED OPERATIONS	$	74		$	(14	)

Assets associated with the Nucleic Acids segment consisted principally of the Company’s facility in Glasgow, Scotland. During the three months ended March 31, 2007, the Company 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.

11

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

Three Months Ended March 31, 2007 and 2006

(Dollars in thousands except per share data)

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

	March 31, 2007		December 31, 2006
Accounts receivable (net of allowances for bad debts of $169 and $169, respectively)	$	—	$	—
Prepaid expenses and other current assets		5		—
Current assets of discontinued operations	$	5	$	—
Property, plant and equipment, net	$	—	$	2,773
Non-current assets of discontinued operations	$	—	$	2,773
Accounts payable	$	53	$	45
Other accrued expenses		162		139
Current liabilities of discontinued operations	$	215	$	184

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

D. INVENTORIES

Inventories consisted of the following:

	March 31, 2007		December 31, 2006
Finished goods	$	2,467	$	2,146
Raw materials and work in process		657		443
Demonstration inventory		14		83
	$	3,138	$	2,672

E. OTHER ASSETS

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

	March 31, 2007						December 31, 2006
	Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value
Intellectual property	$	765	$	680	$	85	$	765	$	677	$	88
Patents		654		170		484		676		155		521
Other		302		86		216		705		461		244
Total	$	1,721	$	936	$	785	$	2,146	$	1,293	$	853

Amortization expense for intangible assets was $22 and $17 during the three months ended March 31, 2007 and 2006, respectively. Amortization expense for intangible assets is expected to be approximately $44 for the remainder of 2007, $53 in 2008, $42 in 2009 and 2010, $38 in 2011, and $32 in 2012 and 2013.

F. COMMITMENTS AND CONTINGENCIES

The Company is 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 the Company’s financial position, results of operations or cash flows.

The Company leases 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 $651 for the remainder of 2007, $769 in 2008, $692 in 2009, $574 in 2010, $378 in 2011, $226 in 2012, and $98 thereafter. Rent expense for continuing operations related all to operating leases for the three months ended March 31, 2007 and 2006 was approximately $281 and $252, respectively.

12

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

Three Months Ended March 31, 2007 and 2006

(Dollars in thousands except per share data)

At March 31, 2007, firm commitments to vendors to purchase components used in WAVE Systems and instruments manufactured by others totaled $734. The Company expects to satisfy these purchase commitments during 2007.

G. 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. The Company 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 Company’s tax returns that do not meet these recognition and measurement standards.

Upon adoption of FIN 48 on January 1, 2007, the Company recognized a $129,000 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 $129,000, all of which would affect the effective tax rate if recognized. Included in this amount is an aggregate of $72,000 of interest and penalties. The Company’s policy is to recognize interest and penalties directly related to income taxes as part of income tax expense.

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. The Company has statutes of limitation open for Federal income tax returns related to tax years 2004 through 2006. The Company has 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. The Company’s primary foreign jurisdiction is the United Kingdom which has open tax years for 2005 through 2006. The Company is not currently under examination in any jurisdiction.

During the three-month period ended March 31, 2007, there were no material changes to the liability for uncertain tax positions.

H. EMPLOYEE BENEFIT PLAN

The Company maintains an employee 401(k) retirement savings plan that allows for voluntary contributions into designated investment funds by eligible employees. The Company matches the employees’ contributions at the rate of 50% on the first 6% of contributions. The Company may, at the discretion of its Board of Directors, make additional contributions on behalf of the Plan’s participants. For the three months ended March 31, 2007 and 2006, the Company contributions to the 401(k) plan were $42 and $42, respectively.

I. STOCKHOLDERS’ EQUITY

Common Stock Warrants.

No common stock warrants were issued during the three months ended March 31, 2007 or 2006. At March 31, 2007, the Company had 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	$	1.20
Laurus Master Fund, Ltd. (2)	2003	2010	200,000	$	1.92
Laurus Master Fund, Ltd. (2)	2003	2010	200,000	$	2.07
Laurus Master Fund, Ltd. (2)	2003	2010	150,000	$	2.35
Laurus Master Fund, Ltd. (2)	2004	2011	125,000	$	2.57
Laurus Master Fund, Ltd. (2)	2004	2011	400,000	$	1.18
TN Capital Equities, Ltd. (2)	2003	2008	45,918	$	2.94
TN Capital Equities, Ltd. (2)	2004	2009	15,566	$	3.18
GE Capital (3)	2002	2007	13,762	$	3.27
GE Capital (3)	2003	2008	9,175	$	3.27
Total			8,062,577

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TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

Three Months Ended March 31, 2007 and 2006

(Dollars in thousands except per share data)

(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 the two loans that had been made by Laurus Master Fund, Ltd. to the Company (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.

J. STOCK OPTIONS

The following table summarizes stock option activity during the three months ended March 31, 2007:

	Number of Options		Weighted Average Exercise Price
Balance at January 1, 2007	5,467,664		$	4.08
Granted	200,000			0.75
Exercised	—			—
Forfeited	(1,000	)		1.30
Balance at March 31, 2007	5,666,664		$	3.96
Vested and expected to vest at March 31, 2007	5,662,264		$	3.96
Exercisable at March 31, 2007	5,126,664		$	4.30

During the three months ended March 31, 2007, the Company granted 200,000 stock options at exercise prices of $0.75 under its 2006 Equity Incentive Plan (formerly, the 1997 Stock Option Plan). The weighted average grant date fair value per share of options granted during the three months ended March 31, 2007 was $0.56.

During the three months ended March 31, 2007 and 2006, the Company recorded compensation expense of $21 and $0, respectively, within the general administrative expense related to the vesting of 540,000 options during the period. 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 4.71% 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 9 years, based on historical exercise activity behavior; and volatility of 89.14%, based on the historical volatility of our stock over a time that is consistent with the expected life of the option. As of March 31, 2007, there was $215 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 - Continued

Three Months Ended March 31, 2007 and 2006

(Dollars in thousands except per share data)

K. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION

The Company has 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 March 31,
	2007		2006
Bioinstruments	$	2,623	$	4,042
Bioconsumables		2,230		2,244
Discovery Services		369		211
	$	5,222	$	6,497

Net sales by geographic region were as follows:

	Three Months Ended March 31,
	2007		2006
United States	$	1,293	$	1,829
Europe		3,239		3,741
Pacific Rim		315		418
Other		375		509
	$	5,222	$	6,497

No customer accounted for more than 10% of consolidated net sales during the three months ended March 31, 2007 and 2006.

Substantially, all the Company’s long-lived assets are within the United States.

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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 1,360 WAVE Systems as of March 31, 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.

Executive Summary of First Quarter 2007 Results

Net sales for the three months ended March 31, 2007 declined 20% compared to the same period in 2006. The decline was largely due to a decline in the sales of bioinstruments. Net sales of bioconsumable products were essentially unchanged from the first quarter of 2006. Net sales from our Discovery Services group grew by 75% over the first quarter of 2006. We added new customers in this area and saw significant growth in the volume of tests being ordered. We were able to improve gross margins due to reductions in overall cost of goods sold. Both general and administrative expense and research and development costs were higher in the first quarter of 2007 than they were in the first quarter of 2006, however, to a large degree this is due to higher compensation expenses that are now recorded in continuing operations resulting from the reassignment of certain personnel from our discontinued Nucleic Acids segment which had been treated as costs of discontinued operations. The reduction in sales, combined with higher costs of operations led to a net loss of $1.2 million, or $0.02 per share, in the first quarter of 2007 compared to a net loss of $0.3 million, or $0.01 per share, in the first quarter of 2006. As of the end of the first quarter, we had cash and cash equivalents of $7.9 million and believe we will have sufficient liquidity to meet our operating needs through the year.

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 instruments we sell for other manufactures, 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. 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. We recently announced further cost reduction initiatives, including the closing of facilities in Europe. While the effects of these efforts have not been realized in the first quarter of 2007, we expect to see a more noticeable impact in the second half of the year.

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Results of Continuing Operations

Three Months Ended March 31, 2007 and 2006

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

	Three Months Ended March 31,				Change
	2007		2006		$			%
Bioinstruments	$	2,623	$	4,042	$	(1,419	)	(35	)%
Bioconsumables		2,230		2,244		(14	)	(1	)%
Discovery Services		369		211		158		75	%
Net sales	$	5,222	$	6,497	$	(1,275	)	(20	)%

The bioinstrument net sales decrease of 35% was due to fewer WAVE Systems and OEM instruments being sold. Fourteen WAVE Systems were sold during the three months ended March 31, 2007, compared to 23 during the same period of 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 consistent year over year. The increase of 75% in discovery services net sales was 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):

	Three Months Ended March 31,				Change
	2007		2006		$			%
Bioinstruments	$	992	$	1,760	$	(768	)	(44	)%
Bioconsumables		1,064		1,274		(210	)	(16	)%
Discovery Services		458		481		(23	)	(5	)%
Cost of goods sold	$	2,514	$	3,515	$	(1,001	)	(28	)%

Gross profit was $2.7 million or 52% of total net sales during the three months ended March 31, 2007, compared to $3.0 million or 46%, during the same period of 2006. Although net sales declined, gross profits as percentage of net sales increased due to lower costs for refurbished WAVE Systems and lower consumable material and manufacturing costs. Some of the decrease in manufacturing costs was due to a shifting of personnel to research and development efforts. The Company continues 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.

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 $3.0 million during the three months ended March 31, 2007, compared to $2.7 million during the same period of 2006, an increase of $0.3 million or 10%. This increase was due to increased compensation expense associated with personnel reasigned from Nucleic Acid production. These expenses are down slightly from the third and fourth quarter of 2006 which we believe is a better comparison as all three quarters are comparable with no realignment of expenses between areas.

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 $1.1 million during the three months ended March 31, 2007, compared to $0.6 million during the same period of 2006, an increase of $0.5 million, primarily from collaboration expense on new WAVE applications, increased compensation costs associated with personnel reassigned from Nucleic Acid production and patent costs for discovery services.

17

Research and development expenses totaled 20% and 9% of net sales during the three months ended March 31, 2007 and 2006, respectively.

Other Income (Expense). Other income during the three months ended March 31, 2007 and 2006 was less than $0.1 million in both periods. 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

Three Months Ended March 31, 2007 and 2006

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 March 31,
	2007			2006
NET SALES	$	—		$	554
COST OF GOODS SOLD		—			380
Gross profit		—			174
OPERATING EXPENSES		(73	)		189
INCOME (LOSS) FROM OPERATIONS		73			(15	)
OTHER INCOME		1			1
INCOME (LOSS) BEFORE INCOME TAXES		74			(14	)
INCOME TAX		—			—
INCOME (LOSS) FROM DISCONTINUED OPERATIONS	$	74		$	(14	)

Assets associated with the Nucleic Acids segment consisted principally of the Company’s facility in Glasgow, Scotland. During the three months ended March 31, 2007, the Company 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 March 31, 2007 and December 31, 2006 were as follows (in thousands):

	March 31, 2007		December 31, 2006		Change
Current assets (including cash and cash equivalents of $7,912 and $5,868, respectively)	$	17,463	$	15,605	$	1,858
Current liabilities		5,349		5,329		20
Working capital	$	12,114	$	10,276	$	1,838

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 offset by the net loss for the three months ended March 31, 2007.

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Although we have experienced declining sales and recurring net losses (resulting in an accumulated deficit of $126.9 million at March 31, 2007), management believes existing sources of liquidity, including cash and cash equivalents of $7.9 million, are sufficient to meet expected cash needs through 2007. We will need to increase our net sales and further reduce operating expenses in order to meet our liquidity needs for the existing business 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 of the Company 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 the Company’s new product pipeline and ultimately net sales. The Company could also pursue additional financing, but ultimately, the Company must achieve sufficient net sales to consistently generate net income and cash flows.

Analysis of Cash Flows

Three Months Ended March 31, 2007 and 2006

Net Change in Cash and Cash Equivalents. Cash and cash equivalents increased $2.0 million during the three months ended March 31, 2007 compared to a decrease of $0.1 million during the three months ended March 31, 2006. The 2007 increase was the result of net cash provided by investing activities of $2.8 million, offset by net cash used by operating activities of $0.8 million. These were minimally offset from foreign currency exchange rates. The 2006 decrease was similarly the result of net cash used in investing activities of $0.1 million. Again, the effect of foreign currency exchange rate was minimal in 2006.

Cash Flows used in Operating Activities. Cash flows used in operating activities totaled $0.8 million during the three months ended March 31, 2007, compared to minimal cash flows used in operating activities during the same period of 2006. The increase in 2007 related primarily to a larger net loss of $1.2 million in 2007 compared to $0.3 million in 2006 plus higher inventory levels and prepaid expenses. These items were partially offset by a decrease in accounts receivable and accrued expenses. Working capital and other adjustments increased cash flows from operating activities by $0.1 million.

The use of cash flows in 2006 related primarily to a net loss of $0.3 million offset by non-cash charges of $0.4 million. Non-cash charges consisted of depreciation and amortization. Working capital and other adjustments decreased cash flows from operating activities by $0.2 million.

Cash Flows from Investing Activities. Cash flows provided by investing activities totaled $2.8 million during the three months ended March 31, 2007 compared to cash flows used in investing activities of $0.1 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. Cash flows used by investing activities in 2006 consisted of purchases of property and equipment and patent costs.

Cash Flows from Financing Activities. Cash flows from financing activities were minimal during the three months ended March 31, 2007 and March 31, 2006.

Obligations and Commitments

The following identifies material obligations and commitments as of March 31, 2007:

	Payments Due by Period
Contractual Obligations Millions of dollars	Total		2007		2008		2009		2010		2011		After 2011
Operating leases (a)	$	3.49	$	0.65	$	0.77	$	0.69	$	0.57	$	0.38	$	0.42
Purchase obligations (b)		0.73		0.73		—		—		—		—		—
Total contractual obligations	$	4.22	$	1.38	$	0.77	$	0.69	$	0.57	$	0.38	$	0.42

(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 March 31, 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.

19

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 three months ended March 31, 2007, except for the treatment of tax 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 G in Part I, item 1 of this report.

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 changes to those listed.

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 three months ended March 31, 2007 and 2006, our international sales represented more than 50% of our net sales. These sales of products in foreign countries are mainly completed in either British Pounds Sterling or the Euro. Additionally, we have two wholly-owned subsidiaries, Transgenomic, LTD., and Cruachem, LTD., whose operating 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.

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.

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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, 2005

  3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 (Registration No. 333-32174) filed on March 10, 2000)

  4 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, 2000)

10.1 Separation Agreement, dated January 12, 2007, between the Registrant and Collin J. D’Silva

31 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

21

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: May 15,2007	By:	/s/ CRAIG J. TUTTLE
		Craig J. Tuttle President and Chief Executive Officer

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EX-10.1

Exhibit 10.1

SEPARATION AGREEMENT

AND

WAIVER AND RELEASE OF ALL CLAIMS

This Separation Agreement and Waiver and Release of All Claims (the “Agreement”) is made and entered by and between Transgenomic, Inc. (the “Company”) and Collin J. D’Silva (“Employee”) in connection with the resignation of Employee. Company and Employee desire to resolve all disputes between them, known and unknown.

In resolution of any and all disputes, if any, between the Company and Employee arising from Employee’s employment by the Company or Employee’s resignation from the Company, or otherwise, and in consideration of the payments to Employee made under Paragraph 3 of this Agreement, the Company and Employee promise and agree as follows:

1. Employment Status. Effective as of the Effective Date (as defined below) and continuing through the Employment Termination Date (as defined below), Employee shall serve as the Company’s “Director of Mergers and Acquisitions.” During the period in which Employee serves as the Company’s Director of Mergers and Acquisitions, Employee’s sole responsibility shall be to work with Thomas Weisel Partners, LLC (“TWP”) in connection with TWP’s evaluation of strategic alternatives on behalf of the Company. Employee’s services shall be performed at the direction and under the supervision of the Company’s Chief Executive Officer, and the Chief Executive Officer shall participate in all meetings and conference calls between Employee, TWP and/or any third parties. Employee shall vacate his Company office as of the Effective Date. Unless otherwise approved by the Company’s Chief Executive Officer, in writing, Employee shall not use Company facilities, equipment or support staff in performing his services as the Company’s Director of Mergers and Acquisitions, except that Employee shall be provided with ongoing access to Company e-mail and cellular telephone service while performing such services. Effective as of the earlier of (a) the termination of the Company’s engagement with TWP or (b) March 31, 2007 (such earlier date being referred to herein as the “Employment Termination Date”), Employee shall be deemed to have resigned his employment with the Company in all capacities. From and after the Employment Termination Date, Employee’s employment by and with the Company shall be terminated and he shall no longer be employed by or as an agent of the Company.

2. Resignation of Positions as Officer and Director. Effective as of the Effective Date, Employee shall be deemed to have resigned from the Board of Directors of the Company, including his position as Chairman of the Board. Additionally, effective as of the Effective Date, Employee shall be deemed to have resigned his position as Secretary of the Company. From and after the Effective Date, Employee shall have no further rights as an officer or director of the Company or to serve as an observer to the Board of Directors of the Company.

3. Employment and Separation Payments. The Company shall, in exchange for the covenants and promises, and subject to all of the terms and conditions, contained in this Agreement, pay to Employee an amount equal to Employee’s base salary in effect as of the date of this Agreement ($19,166.67 per month), less applicable federal, state and local withholding taxes, through March 31, 2007. Such payments shall be made in accordance with the Company’s standard payroll procedure, and shall be made irrespective of whether the Employment Termination Date occurs prior to March 31, 2007. In addition, the Company shall reimburse Employee for all pre-approved and properly reimbursable business expenses incurred in connection with Employee’s services as the Company’s Director of Mergers and Acquisitions through the Employment Termination Date.

4. Continued Health Insurance. Employee is eligible to elect continued group health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”). If Employee chooses to continue health insurance coverage, the Company will pay the employer and employee portions of premiums for such continuation coverage for a period of eighteen (18) months following the Effective Date.

5. Confidentiality, Non-competition and Non-solicitation.

(a) Employee acknowledges that the information, observations and data obtained by him during the course of his employment with the Company concerning the business or affairs of the Company and its subsidiaries is the property of the Company or such subsidiary, as the case may be. Therefore, Employee agrees that he will not directly or indirectly use, divulge, furnish or make accessible to any unauthorized person or use for his own account any confidential or proprietary information or trade secrets of the Company or any of its subsidiaries without the Company’s prior written consent, except and to the extent required by law. In the event Employee shall be required by law to make any disclosure as set forth above and prior to any such disclosure, Employee shall promptly notify the Company in writing of the basis for and the extent of the required disclosure and shall cooperate with the Company to preserve in full the confidentiality of all intellectual property, trade secrets, confidential information and other proprietary rights of the Company and/or its subsidiaries. For purposes hereof, confidential information does not include any information that has become publicly known or made generally available through no wrongful act of Employee or of any other person who is known by Employee to be subject to a confidentiality agreement with the Company.

(b) Employee agrees that for three (3) years after the Employment Termination Date, he will neither directly nor indirectly engage in, have any interest in, own, manage, operate, control, be connected with as a stockholder, joint venturer, officer, employee, partner or consultant or invest or participate in a business competing with any of the businesses then conducted (or, to the knowledge of Employee, planned to be conducted within one year) by the Company or any of its successors or subsidiaries.

(c) Employee agrees that for one (1) year after the Employment Termination Date, he will not directly or indirectly through another entity (i) induce or attempt to induce any employee of the Company or any subsidiary to leave the employ of the Company or such subsidiary, or in any way interfere with the relationship between the Company or any subsidiary and any employee thereof, (ii) hire any person who was an employee of the Company or any subsidiary at any time during the prior six (6) months, or (iii) induce or attempt to induce any customer, supplier, licensee or other business relation of the Company or any subsidiary to cease doing business with the Company or such subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any subsidiary.

(d) Nothing contained in this Paragraph 5 shall prevent Employee from owning up to a 5% interest in any corporation or entity having one or more classes of its securities listed on a national securities exchange or publicly traded in the over-the-counter market, provided Employee is not actively involved in the operation or management of such corporation or entity.

(e) If, under the circumstances existing at the time of enforcement of this Paragraph 5, the period, scope or geographic area described in this Paragraph 5 shall be found or held to be unreasonable, the parties hereto agree that the maximum period, scope or geographic area reasonable under the circumstances shall be substituted for the stated period, scope or geographic area.

6. Release of All Claims. In consideration of the payments made pursuant to Paragraph 3 of this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employee, on behalf of Employee and his Heirs, hereby irrevocably, unconditionally and completely releases, discharges and holds harmless the Company of, from and

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against any and all Claims (as such terms are defined below). This release is a material inducement to the Company to enter into this Agreement.

The release set forth in this Paragraph 6 includes, without limitation, any Claim(s) that Employee or his Heirs has, had, or may claim to have, whether known or unknown, against the Company for or arising out of:

• Breach of express or implied contract, including but not limited to any contract of employment, and any employment-related torts or personal injuries (whether physical or mental), including wrongful termination or discharge, intentional or negligent infliction of emotional distress, defamation, interference with contractual relations, invasion of the right to privacy, misrepresentation, negligence, conspiracy or otherwise;

• Any federal or state law, including without limitation Title VII of the Civil Rights Act of 1964 [42 USC Section 2000e (and following sections)], or any other federal, state or local law that prohibits discrimination on the basis of race, color, religion, sex, age, national origin, ancestry, disability, or any other protected group status;

• The Age Discrimination in Employment Act and the Older Workers Benefit Protection Act [29 USC Section 621 (and following sections)], which prohibit discrimination against employees age 40 and above;

• The Family and Medical Leave Act [29 USC Section 2601 (and following sections)];

• The Employee Retirement Income Security Act [29 USC Section 1001 (and following sections)];

• The Reconstruction Era Civil Rights Act [42 USC Section 1981 (and following sections)];

• The Americans with Disabilities Act [29 USC Section 12101 (and following sections)];

• The Worker Adjustment and Retraining Notification Act [29 USC Section 2100 (and following sections)];

• Attorneys’ fees, expenses, or court costs; and

• Any other Claim(s) in any way related to or arising out of Employee’s employment with the Company or the termination of that employment.

Nothing in this Agreement waives Employee’s rights, if any, to continue Employee’s participation in any employee welfare benefit plan, as allowed by COBRA and the terms, conditions, and limitations of any such plan, or any vested rights that Employee may have under any employee pension or welfare benefit plan or stock option plan in which Employee participated as an employee of the Company.

For purposes of this Agreement, the following terms shall have the following meanings:

“Heir(s)” means and includes Employee’s heirs, personal representatives, guardians, conservators or assigns, and any and all other persons or entities claiming by, through, or under Employee.

“Claim(s)” means and includes any and all claims, liabilities, charges, demands, promises, agreements, grievances and lawsuits (including claims for attorneys’ fees, costs, back

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pay, front pay, benefits and punitive and compensatory damages) of any nature whatsoever and causes of action of any kind or nature whatsoever, including without limitation, claims for contribution, subrogation, or indemnification, whether direct or indirect, liquidated or unliquidated, known or unknown, which Employee or any Heir had, has, or may claim to have against the Company, arising out of or otherwise related to Employee’s employment by the Company (or the termination of such employment).

7. Full and Complete Release. Employee understands and agrees that he is releasing and waiving all Claim(s) of any type, whether or not Employee knows that any such Claim(s) exist in Employee’s favor at the time Employee signs this Agreement, and including Claims which, if Employee knew of their existence, would materially affect Employee’s decision to sign this Agreement. For the purpose of implementing a full and complete release and discharge of the Company, Employee expressly acknowledges that the release set forth in Paragraph 6 is intended to include in its effect, without limitation, all Claim(s) which Employee does not know or suspect to exist at the time this Agreement is executed and that the release set forth in Paragraph 6 contemplates the extinguishment of any such Claim(s).

8. Covenant Not to Sue. Employee promises not to file, or permit to be filed on Employee’s behalf, and immediately to dismiss or withdraw, any lawsuit, charge, or complaint against the Company with any administrative agency (unless prohibited by applicable statute or agency regulation) or with any state or federal court asserting any Claim(s) released in Paragraphs 6 and 7. In addition, Employee waives any right to recover damages, costs, and attorneys’ fees in any action brought by Employee or by any other person or entity on Employee’s behalf asserting any Claim(s) released by Paragraphs 6 and 7.

If and only if a court of competent jurisdiction rules, and such ruling is affirmed on appeal or the Company elects not to appeal such ruling, that Employee is prohibited from waiving Employee’s right to recover damages, costs, or attorneys’ fees, as set forth above, Employee agrees that the entire amount paid to Employee under Paragraph 3 of this Agreement, less the sum of One Hundred and no/100 Dollars ($100.00), shall be set off against any recovery that Employee might obtain against the Company in any action brought against the Company asserting any Claim(s) released in Paragraphs 6 and 7 hereof. In addition, the Company will be released of all covenants and promises it has made in connection with the execution of this Agreement and will be entitled to recover any and all legal fees and costs (including expert fees) incurred by the Company in defending against any action or charge brought against the Company asserting any Claim(s) released under Paragraphs 6 and 7 of this Agreement, in addition to any other relief to which the Company may be legally entitled.

9. Compliance with Securities Laws. Employee acknowledges that he currently is and, after the Employment Termination Date, he will continue to be subject to all applicable laws, rules and regulations governing the sale or purchase of securities, including but not limited to the Securities Act of 1933 (the “33 Act”) and the Securities Exchange Act of 1934 (the “34 Act”) with respect to shares of the common stock of the Company. Accordingly, Employee agrees that, for so long as he holds at least ten percent (10%) of the outstanding capital stock of the Company, he will not trade in Company securities if he is in possession of any material, non-public information with respect to the Company. Additionally, Employee agrees that, through the Employment Termination Date, he (a) will comply with all Company policies pertaining to or limiting the sale of Company securities, including but not limited to any trading windows, and (b) will notify the Company’s Chief Financial Officer at least three (3) business days prior to executing any trade of Company securities. Provided that the Employee has complied with the requirements of subparagraph (b) of the immediately preceding sentence, through the Employment Termination Date, the Company agrees that it shall prepare and submit to the United States Securities and Exchange Commission, on the Employee’s behalf, any filings required pursuant to Sections 13(d) and 16 of the 34 Act and the rules and regulations promulgated thereunder. Employee hereby acknowledges that, after the Employment Termination Date, he shall be solely responsible for preparing and submitting to the United States Securities and Exchange Commission any filings required pursuant to Sections 13 (d) and

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16 of the 34 Act and the rules and regulations promulgated thereunder, and Employee represents to the Company that all such filings shall be in compliance with the requirements of the 34 Act.

10. Acknowledgement of Receipt. Employee acknowledges and agrees that on the 9th day of January, 2007, he received from the Company a copy of this Agreement.

11. Review Period. Employee acknowledges and understands that he has been given twenty-one (21) days from the date Employee receives a copy of this Agreement to consider and review the terms of this Agreement prior to signing it, and releasing his claims. Employee understands that he may execute this Agreement, in his sole and absolute discretion, prior to the expiration of said twenty-one (21) day period.

12. Right of Revocation. Employee acknowledges and understands that he may revoke this Agreement for a period of up to seven (7) days after he executes it (not counting the day it is signed). To revoke this Agreement, Employee must give written notice to the Company stating that Employee wishes to revoke this Agreement, by providing notice by hand-delivery or U.S. mail to:

Mr. Greg Sloma

Transgenomic, Inc.

12325 Emmett

Omaha, NE 68164

If Employee mails a notice of revocation to the Company, it must be postmarked no later than seven (7) days following the date on which Employee signed this Agreement (not counting the day it was signed) or the revocation will not be effective.

Employee acknowledges and understands that the “Effective Date” of this Agreement shall be seven (7) days following execution by Employee of this Agreement, if the Agreement is not revoked.

13. Remedies. Employee expressly acknowledges that any breach or violation of any of the covenants and agreements made by him in this Agreement will cause immediate and irreparable injury to the Company and that in the event of a breach or threatened or intended breach of this Agreement by him, the Company, in addition to all other legal and equitable remedies available to it, shall be entitled to injunctions, both preliminary and temporary, and restraining orders, enjoining and restraining such breach or threatened or intended breach.

14. Wages Paid in Full. The Company agrees that, on January 15, 2007, it shall pay to Employee all of Employee’s accrued but unused vacation benefits. Upon receipt of such payment, Employee acknowledges that he shall have received all monies due and owing to Employee from the Company, including without limitation any monies due and owing to Employee for wages, vacation benefits or otherwise, and that he has no claim against the Company whatsoever for the payment of any further wages, vacation benefits, or other monies except as specifically identified herein.

15. Return of Property. Employee certifies that he has delivered or caused to be delivered to the Company the following:

a. any and all Company equipment and all documents or other tangible or electronic materials (whether originals, copies, or abstracts, and including without limitation, books, records, manuals, files, calling or business cards, credit cards, customer or company lists or records, correspondence, computer printout documents, contracts, phone and address lists, memoranda, notes, work papers, agreements, invoices and receipts) which in any way relate to the Company’s business and were furnished to Employee by the Company or were prepared,

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compiled, used or acquired by Employee while employed by the Company, excluding personal items paid for by Employee and any items that are necessary to the performance of Employee’s services as Director of Mergers and Acquisitions (which items shall be delivered to the Company upon the Employment Termination Date);

b. all keys, combinations, and access codes to the premises, facilities and equipment of the Company (including without limitation, the offices, desks, storage cabinets, safes, data processing systems and communications equipment); and

c. any money owed by Employee to the Company for whatever reason.

16. Restriction on Disclosure. This Agreement is and contains confidential information owned by the Company. Employee agrees that he shall not disclose the terms of this Agreement except to the extent required by law. Notwithstanding the foregoing, Employee may disclose the terms of this Agreement to Employee’s spouse, attorney, agent, financial advisor or tax advisor if, as a condition of such disclosure, Employee first advises such person and obtains a commitment in favor of the Company that such person must not disclose the terms of this Agreement except to the extent required by law.

17. No Admission. This Agreement does not constitute an admission by the Company or Employee, and the Company and Employee each specifically deny that the Company or Employee has violated any contract, law, or regulation or that it has discriminated against the other party or otherwise infringed on the other party’s rights or privileges or done any other wrongful act.

18. General. This Agreement constitutes the entire understanding between the parties on the subject matter contained herein, and supersedes all negotiations, representations, prior discussions, and preliminary agreements between the parties. No promise, representation, warranty, or covenant not included in this Agreement has been or is relied upon by either party. Notwithstanding any statute or case law to the contrary, this Agreement may not be modified except by a written instrument signed by each of the parties, whether or not such modification is supported by separate consideration. This Agreement shall be binding upon and be for the benefit of the Company and its successors and assigns and Employee and his Heirs. Employee and the Company warrant that they have not assigned any Claim(s) released by this Agreement, or any interest therein, to any third party. Any waiver by any party hereto of any breach of any kind or character whatsoever by any other party, whether such waiver be direct or implied, shall not be construed as a continuing waiver of, or consent to, any subsequent breach of this Agreement on the part of the other party. In addition, no course of dealing between the parties, nor any delay in exercising any rights or remedies hereunder or otherwise, shall operate as a waiver of any of the rights or remedies of the parties. The provisions of this Agreement are severable. If any part of this Agreement is found to be unenforceable, the other provisions shall remain fully valid and enforceable. It is the intention and agreement of the parties that all of the terms and conditions hereof be enforced to the fullest extent permitted by law.

19. Knowing and Voluntary Execution. Employee acknowledges that he has read this Agreement carefully and fully understands the meaning of the terms of this Agreement. Employee acknowledges that he has signed this Agreement voluntarily and of Employee’s own free will and that he is knowingly and voluntarily releasing and waiving all Claim(s) that he has or may have against the Company.

20. Consultation with Attorney. The Company advises Employee to consult with an attorney of Employee’s choosing prior to signing this Agreement. Employee will be solely responsible for any attorneys’ fees incurred by Employee in connection with this Agreement.

21. Employee Representations. Employee represents and warrants that: (a) he is over the age of majority, of sound mind and has the exclusive power and authority to execute and deliver the

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Agreement; (b) the Agreement has been duly executed and delivered by Employee, after having been advised in writing to seek legal counsel and having the opportunity to consult with legal counsel, and it constitutes Employee’s legal, valid, and binding obligation enforceable in accordance with its terms; (c) Employee is the exclusive owner of all rights and claims Employee may have or assert against the Company and no person or entity is now, or shall be, subrogated to any claims or rights that Employee has or may have against the Company; and (d) no promises, representations or inducements have been made by the Company to Employee to cause Employee to sign the Agreement.

22. Miscellaneous. All matters pertaining to the validity, construction, interpretation, and effect of the Agreement shall be governed by the laws of the State of Nebraska. If for any reason the Agreement is not executed or otherwise consummated, the Agreement shall not constitute any evidence in any proceeding or be used in discovery in any way. Employee and the Company agree mutually not to denigrate or disparage the other following the Employee’s termination of employment.

I HAVE BEEN AFFORDED THE OPPORTUNITY TO REVIEW AND CONSIDER THIS DOCUMENT FOR AT LEAST TWENTY-ONE (21) DAYS.

I UNDERSTAND THAT I HAVE SEVEN (7) DAYS FROM THE DATE GIVEN BELOW TO REVOKE THIS RELEASE AND WAIVER.

I HAVE READ AND UNDERSTAND THIS DOCUMENT. I HAVE SIGNED THIS DOCUMENT FREELY AND OF MY OWN ACCORD AFTER HAVING BEEN GIVEN AMPLE OPPORTUNITY AND HAVING BEEN ADVISED TO SECURE THE ADVICE AND COUNSEL OF AN ATTORNEY OF MY CHOOSING.

Executed this 12th day of January, 2007.

Transgenomic, Inc.
By:	/s/ GREGORY T. SLOMA
Its:	Board Member
Transgenomic, Inc.
/s/ COLLIN J. D’SILVA
Collin J. D’Silva

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EX-31

Exhibit 31

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Craig J. Tuttle, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Transgenomic, Inc. (the Registrant);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ CRAIG J. TUTTLE

Craig J. Tuttle

President and Chief Executive Officer

Date: May 15, 2007

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Exhibit 31

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Debra A. Schneider, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Transgenomic, Inc. (the Registrant);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ DEBRA A. SCHNEIDER

Debra A. Schneider

Chief Financial Officer

Date: May 15, 2007

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EX-32

Exhibit 32

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying Quarterly Report on Form 10-Q of Transgenomic, Inc. for the quarter ended March 31, 2007, I, Craig J. Tuttle, President and Chief Executive Officer of Transgenomic, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

(1) Such Quarterly Report on Form 10-Q of Transgenomic, Inc. for the quarter ended March 31, 2007, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in such Quarterly Report on Form 10-Q of Transgenomic, Inc. for the quarter ended March 31, 2007, fairly presents, in all material respects, the financial condition and results of operations of Transgenomic, Inc.

/s/ CRAIG J. TUTTLE

Craig J. Tuttle

President and Chief Executive Officer

Date: May 15, 2007

A signed original of the certification required by Section 906 has been provided to Transgenomic, Inc. and will be retained by Transgenomic, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 32

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying Quarterly Report on Form 10-Q of Transgenomic, Inc. for the quarter ended March 31, 2007, I, Debra A. Schneider, Chief Financial Officer of Transgenomic, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

(1) Such Quarterly Report on Form 10-Q of Transgenomic, Inc. for the quarter ended March 31, 2007, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in such Quarterly Report on Form 10-Q of Transgenomic, Inc. for the quarter ended March 31, 2007, fairly presents, in all material respects, the financial condition and results of operations of Transgenomic, Inc.

/s/ DEBRA A. SCHNEIDER

Debra A. Schneider

Chief Financial Officer

Date: May 15, 2007

A signed original of the certification required by Section 906 has been provided to Transgenomic, Inc. and will be retained by Transgenomic, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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