U.S. SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2003.
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .

(Mark One)


x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004.


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .

Commission file number 0-22170

Epoch Biosciences, Inc.

(Exact name of Registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		91-1311592 (I.R.S. Employer Identification No.)

21720 23^rd Drive SE, #150, Bothell, WA 98021
(Address of principal executive office, including zip code)

(425) 482-5555
(Issuer’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

YES x NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES o ~~NO x~~ NOx

26As of June 30,~~155~~ 2004,~~334~~ ~~shares~~the aggregate market value of ~~Common~~voting ~~Stock~~stock ~~were~~held ~~outstanding~~by non-affiliates, computed by reference to the price at ~~November 3~~which the stock was sold on such date, ~~2003.~~was approximately $52,086,272

~~TABLE~~28,635,671 OFshares ~~CONTENTS~~of Common Stock were outstanding at August 5, 2004.

Part I. Financial Information
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
Part II. Other Information
	Item 6. Exhibits and Reports on Form 8-K
Signatures
EXHIBIT INDEX
EXHIBIT 10.32.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

Epoch Biosciences, Inc.
Index To Form 10-Q

		Page Number	~~Page Number~~
Part I. Financial Information
Item 1. Financial Statements	~~Item 1. Financial Statements~~		3	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~		9	10
Item 3. Quantitative and Qualitative Disclosures About Market Risk	~~Item 3. Quantitative and Qualitative Disclosures About Market Risk~~		22	20
	Item 4: Controls and Procedures			21
Item 4. Controls and Procedures			22
Part II. Other Information
	Item 6. Exhibits and Reports on Form 8-K			22
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities			22
	Note: Items 1, 2, 3, 4, and 5 are omitted, as they are not applicable.
Item 4. Submission of Matters to a Vote of Security Holders			23
Signature				23
Item 6. Exhibits and Reports on Form 8-K			24
Note: Items 1, 3, and 5 are omitted, as they are not applicable.
Signature			25
EXHIBIT 10.40
EXHIBIT 10.41
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

Part I. Financial Information

~~Epoch~~Item ~~Biosciences, Inc~~1. ~~Balance~~ ~~Sheets (unaudited)~~ Financial Statements

			December 31,			September 30,
			2002			2003
Assets
Current assets:
	Cash and cash equivalents		$	3,507,645		$	4,586,048
	Accounts receivable, net			2,031,600			1,321,448
	Inventory			461,381			87,236
	Prepaid expenses and other assets			348,778			277,007
		Total current assets		6,349,404			6,271,739
Property and equipment, net				3,947,995			2,694,811
Identifiable intangible assets, net				1,967,632			1,316,350
Goodwill				2,151,846			—
Restricted cash				614,739			643,897
Other assets				24,550			10,000
		Total assets	$	15,056,166		$	10,936,797
Liabilities and Stockholders’ Equity
Current liabilities:
	Current portion of long term obligations		$	282,451		$	556,499
	Accounts payable and accrued liabilities			2,033,575			1,615,309
	Current portion of deferred revenue			877,258			545,002
		Total current liabilities		3,193,284			2,716,810
Long term obligations, less current portion				511,731			423,854
Deferred revenue, less current portion				2,324,744			2,515,796
Deferred rent				245,582			313,248
Stockholders’ equity:
	Preferred stock, par value $.01; 10,000,000 shares authorized; no shares issued and outstanding			—			—
	Common stock, par value $.01; 50,000,000 shares authorized; shares issued and outstanding: 25,683,589 at December 31, 2002 and 26,155,234 at September 30, 2003			256,836			261,552
	Additional paid-in capital			82,743,658			83,190,961
	Accumulated deficit			(74,219,669	)		(78,485,424	)
		Total stockholders’ equity		8,780,825			4,967,089
		Total liabilities and stockholders’ equity	$	15,056,166		$	10,936,797

Epoch Biosciences, Inc.
Balance Sheets
(unaudited)

See accompanying notes to financial statements.


	December 31,			June 30,
	2003			2004
Assets
Current assets:
Cash and cash equivalents	$	4,415,298		$	9,158,738
Restricted cash		—			92,495
Accounts receivable, net of allowance of $63,311 and $70,366		1,342,377			1,408,800
Inventory		97,540			92,203
Prepaid expenses and other assets		216,547			205,969

Total current assets		6,071,762			10,958,205
Property and equipment, net		2,569,552			2,510,438
Identifiable intangible assets, net		867,647			838,235
Restricted cash		653,723			580,666
Other assets		10,000			5,001

Total assets	$	10,172,684		$	14,892,545

Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term obligations	$	524,562		$	479,821
Accounts payable and accrued liabilities		1,452,733			1,720,335
Deferred revenue – current portion		451,338			371,395
Common stock warrants		—			913,577

Total current liabilities		2,428,633			3,485,128
Long-term obligations, less current portion		358,764			369,451
Deferred revenue, less current portion		2,510,548			2,615,840
Deferred rent		332,984			368,500
Stockholders’ equity:
Preferred stock, par value $.01; 10,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, par value $.01; 50,000,000 shares authorized; shares issued and outstanding:
26,155,484 at December 31, 2003 and 28,635,671 at June 30, 2004		261,555			286,357
Additional paid-in capital		83,191,731			87,074,284
Accumulated deficit		(78,911,531	)		(79,307,015	)

Total stockholders’ equity		4,541,755			8,053,626

Total liabilities and stockholders’ equity	$	10,172,684		$	14,892,545

3See accompanying notes to financial statements.

~~Table of Contents~~3

EpochTable Biosciences, Inc. Statements of Operations (unaudited) Contents

			Three Months Ended						Nine Months Ended
			September 30,						September 30,
			2002			2003			2002			2003
Revenue:
	Product sales		$	1,974,592		$	690,126		$	5,199,183		$	2,127,171
	License fees and royalty income			276,864			1,218,720			709,862			3,908,474
	Contract research revenue			407,407			101,064			1,519,837			842,064
		Total revenue		2,658,863			2,009,910			7,428,882			6,877,709
Operating expenses:
	Cost of product sales			1,052,955			462,711			3,347,151			1,845,268
	Research and development			1,050,761			951,924			3,236,632			3,295,408
	Selling, general and administrative			1,435,531			932,354			4,205,911			3,214,457
	Loss on sale of San Diego operations			—			—			—			2,804,862
		Total operating expenses		3,539,247			2,346,989			10,789,694			11,159,995
		Operating loss		(880,384	)		(337,079	)		(3,360,812	)		(4,282,286	)
	Interest income, net			19,401			5,488			81,493			16,531
		Net loss		(860,983	)		(331,591	)		(3,279,319	)		(4,265,755	)
Net loss per share - basic and diluted			$	(0.03	)	$	(0.01	)	$	(0.13	)	$	(0.16	)
Weighted average number of common shares outstanding - basic and diluted				25,661,032			26,088,593			25,656,784			25,923,936

Epoch Biosciences, Inc.
Statements of Operations
(unaudited)

See accompanying notes to financial statements.


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2003			2004			2003			2004
Revenue:
Product sales	$	688,616		$	488,911		$	1,437,045		$	1,055,447
License fees and royalty income		1,371,685			1,447,926			2,689,754			2,814,508
Contract research revenue		392,000			—			741,000			—

Total revenue		2,452,301			1,936,837			4,867,799			3,869,955
Operating expenses:
Cost of product sales		642,820			347,053			1,382,557			738,975
Research and development		1,086,277			982,272			2,343,484			1,910,086
Selling, general and administrative		981,973			1,378,671			2,282,103			2,590,409
Loss on sale of San Diego operations		2,804,862			—			2,804,862			—

Total operating expenses		5,515,932			2,707,996			8,813,006			5,239,470

Operating loss		(3,063,631	)		(771,159	)		(3,945,207	)		(1,369,515	)
Interest income, net		3,895			22,578			11,043			33,539
Warrant valuation adjustment		—			178,107			—			940,492

Net loss		(3,059,736	)		(570,474	)		(3,934,164	)		(395,484	)

Net loss per share - basic and diluted	$	(0.12	)	$	(0.02	)	$	(0.15	)	$	(0.01	)

Weighted average number of common shares outstanding – basic and diluted		25,949,689			28,635,671			25,840,243			27,888,402

4See accompanying notes to financial statements.

~~Table of Contents~~4

EpochTable Biosciences, Inc. Statements of Cash Flows (unaudited) Contents

					Nine Months Ended September 30,
					2002			2003
Cash flows from operating activities:
	Net loss				$	(3,279,319	)	$	(4,265,755	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization:
			Property and equipment			642,717			625,976
			Identifiable intangible assets			221,623			154,958
		Issuance of common stock warrants for services				28,673			2,252
		Loss on sale of San Diego operations				—			2,804,862
		Interest accrued on restricted cash				(30,267	)		(29,158	)
		Deferred revenue				(617,365	)		(141,204	)
		Deferred rent				79,187			67,666
	Changes in operating assets and liabilities net of assets sold:
		Accounts receivable				(703,442	)		685,152
		Inventory				(315,023	)		269,110
		Prepaid expenses and other assets				(96,910	)		3,436
		Accounts payable and accrued liabilities				507,445			(418,266	)
				Net cash used in operating activities		(3,562,681	)		(240,971	)
	Cash flows from investing activities:
		Acquisition of property and equipment				(780,134	)		(398,125	)
		Proceeds from sale of assets, net				—			1,081,561
		Release of security deposit on facilities				100,000			—
				Net cash provided by (used in) investing activities		(680,134	)		683,436
	Cash flows from financing activities:
		Repayment of long term obligations				(8,014	)		(411,872	)
		Proceeds from bank loan				638,038			598,043
		Proceeds from exercise of warrants				—			212,500
		Proceeds from exercise of stock options				10,957			237,267
				Net cash provided by financing activities		640,981			635,938
	Net increase (decrease) in cash and cash equivalents					(3,601,834	)		1,078,403
	Cash and cash equivalents at beginning of period					7,489,399			3,507,645
	Cash and cash equivalents at end of period				$	3,887,565		$	4,586,048
	Supplemental disclosure of cash flow information - Interest payments				$	1,538		$	28,368

Epoch Biosciences, Inc.
Statements of Cash Flows
(unaudited)

See accompanying notes to financial statements.


	Six Months Ended
	June 30,
	2003			2004
Cash flows from operating activities:
Net loss	$	(3,934,164	)	$	(395,484	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization:
Property and equipment		461,782			322,160
Intangible assets		131,083			29,412
Issuance of common stock warrants for services		1,421			1,043
Warrant valuation adjustment		—			(940,492	)
Loss on sale of San Diego operations		2,804,862			—
Interest accrued on restricted cash		(19,332	)		(19,438	)
Deferred revenue		2,801			25,349
Deferred rent		43,975			35,516
Changes in operating assets and liabilities:
Accounts receivable		714,097			(66,423	)
Inventory		158,833			5,337
Prepaid expenses and other assets		(6,278	)		15,577
Accounts payable and accrued liabilities		(385,983	)		267,602

Net cash used in operating activities		(26,903	)		(719,841	)

Cash flows from investing activities:
Acquisition of property and equipment		(384,065	)		(263,046	)
Proceeds from sale of assets, net		1,081,561			—

Net cash provided by (used in) investing activities		697,496			(263,046	)

Cash flows from financing activities:
Proceeds from bank loan		408,418			271,324
Repayment of long-term obligations		(255,509	)		(305,378	)
Proceeds from exercise of warrants		212,250			—
Proceeds from exercise of stock options		65,060			12,284
Proceeds from the issuance of common stock and warrants		—			5,748,097

Net cash provided by financing activities		430,219			5,726,327

Net increase in cash and cash equivalents		1,100,812			4,743,440
Cash and cash equivalents at beginning of period		3,507,645			4,415,298

Cash and cash equivalents at end of period	$	4,608,457		$	9,158,738

Supplemental disclosure of cash flow information –
Interest payments	$	17,545		$	16,869
Non-cash financing activities -
Fair value of common stock warrants originally classified as liability		—		$	1,854,069

5See accompanying notes to financial statements.

~~Table of Contents~~5

EpochTable Biosciences,of Inc. Notes to Financial Statements September 30, 2003 (unaudited) Contents

1.Epoch ~~Summary~~Biosciences, ofInc. Notes ~~Significant~~to ~~Accounting~~Financial ~~Policies~~Statements June 30, 2004 (unaudited)

~~(a)~~1. ~~Nature~~Summary of ~~Business~~Significant Accounting Policies

~~Epoch Biosciences, Inc. is~~ (a) Nature biotechnology company developing technologies and products to help scientists around the world perform genetic research to improve our lives and our environment. Genetic analysis has become a pervasive activity in academic, biopharmaceutical, clinical, agricultural, veterinary and forensic laboratories. Our technologies facilitate rapid, accurate and cost-effective genetic analysis at the scale for the massive numbers of ~~genetic~~Business ~~studies being conducted today.~~

As Epoch ~~the~~Biosciences, ~~human~~Inc. ~~genome~~is ~~and~~a ~~other~~biotechnology ~~animal~~company developing technologies and ~~plant~~products ~~genomes~~to ~~are~~help ~~sequenced~~scientists, ~~the task~~clinicians, ~~of understanding the structure~~ and ~~function~~physicians ofaround ~~genes~~the ~~lies before us~~world ~~(genomics).~~perform ~~Researchers~~genetic ~~want~~research to ~~know~~improve ~~when~~our lives and ~~why~~our aenvironment. ~~gene switches on and~~Genetic ~~begins~~analysis ~~producing~~has ~~its~~become ~~protein~~a ~~(gene~~pervasive ~~expression)~~activity ~~and what the gene’s protein does~~ in ~~the body (proteomics). Finally~~academic, ~~researchers want to know what people’s~~biopharmaceutical, ~~genetic~~clinical, ~~differences~~agricultural, ~~mean~~veterinary ~~for their health~~ and ~~susceptibility~~forensic ~~to disease~~laboratories. ~~For~~Our technologies ~~example,~~facilitate ~~single nucleotide polymorphisms~~rapid, oraccurate ~~SNPs,~~and ~~are~~cost-effective ~~tiny~~genetic ~~differences~~analysis inat ~~our~~the scale ~~DNA~~necessary ~~that make humans different from one another. SNPs have been linked~~ to ~~individual’s~~ ~~susceptibility~~generate tothe ~~diseases~~massive ~~and~~amounts toof ~~their~~genetic ~~response~~information tobeing ~~medications~~studied today.

~~Because~~ As of the ~~implications~~human genome and other animal and plant genomes are sequenced, the task of understanding ~~gene~~the structure and function onof ~~human~~genes ~~health~~lies before us. ~~and~~Researchers ~~disease,~~want ~~institutions~~to ~~have~~know ~~moved~~when ~~quickly~~and towhy ~~design~~a gene switches on and ~~manufacture~~begins producing ~~automated~~its ~~genetic~~protein ~~analysis~~(gene ~~systems.~~expression) Weand ~~develop~~what ~~patented~~the ~~technologies~~gene’s ~~that~~protein ~~are~~does in the body ~~compatible~~(proteomics); ~~with~~they ~~and~~also ~~improve~~want to know what the ~~output~~genetic ofdifferences ~~these~~among individuals ~~systems~~mean for their health and susceptibility to disease. ~~Just~~For asexample, ~~microprocessors~~single ~~are~~nucleotide ~~found~~polymorphisms, inor ~~essentially~~SNPs, ~~all~~are ~~electronic~~tiny ~~appliances,~~differences in our DNA that ~~chemistries~~make ~~and~~humans ~~technologies~~different from one another. SNPs have ~~the~~been ~~potential~~linked to susceptibility beto ~~incorporated~~diseases, inand ~~nearly all~~to ~~genetic~~people’s ~~analysis~~response ~~systems~~to medications.

Our technologies are useful in genetic research, ~~diagnostics,~~ drug development, prenatal ~~infectious~~testing, ~~disease~~molecular ~~detection~~diagnostics, ~~prenatal~~including ~~testing~~infectious disease, oncology, genetic disease and population screening to assess our risk of disease or to predict our response to drugs. Epoch’s products also have application in forensics, food testing, and environmental testing, including bio-warfare ~~biowarfare~~ and bioterrorism.

~~(b)~~ We ~~Basis~~market ofour ~~Presentation~~products directly to end-users and through distributors that provide worldwide reach, and license our technologies to other companies for incorporation into their products.

The unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required to be presented for complete financial statements. The accompanying financial statements include all adjustments (~~consisting only of normal recurring accruals~~b), Basis ~~which are, in the opinion~~ of ~~management, necessary for a fair~~Presentation ~~presentation of the results for the interim periods presented. Certain 2002~~ ~~balances have been reclassified to conform with the 2003 presentation.~~

The unaudited financial statements ~~and related disclosures~~ have been prepared in accordance with ~~the~~accounting ~~presumption~~principles ~~that~~generally ~~users~~accepted ofin the ~~interim~~United States for interim financial information ~~have~~and ~~read~~with ~~or have~~the ~~access~~instructions to ~~the~~Form ~~audited~~10-Q. ~~financial~~Accordingly, they ~~statements~~do ~~for~~not include all of the ~~preceding~~information ~~fiscal~~and ~~year.~~footnotes required to be ~~Accordingly,~~presented ~~these~~for complete financial statements. ~~should~~The beaccompanying ~~read~~financial statements ininclude ~~conjunction~~all ~~with~~adjustments ~~the audited~~(consisting ~~financial~~only ~~statements~~of ~~and~~normal ~~the~~recurring accruals), ~~related~~which ~~notes~~are, ~~included~~ in ~~Epoch’s~~the ~~2002 Annual~~opinion ~~Report~~of onmanagement, ~~Form 10-K~~necessary asfor ~~filed~~a ~~with~~fair presentation of the ~~Securities~~results ~~and~~for ~~Exchange~~the ~~Commission~~interim periods presented.

6 The financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and the related notes included in our 2003 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

~~Table of Contents~~6

(c)Table Sale of San Diego OperationsContents

~~On May~~(c) ~~30, 2003, we sold the assets and customer base of our non~~Stock-~~proprietary~~Based ~~oligonucleotide operations located in San Diego, California to~~Compensation ~~Eurogentec S.A., a Belgium based supplier of products and services to life~~ ~~sciences companies for $1.4 million in cash. The assets sold included~~ ~~manufacturing and other equipment, inventory, prepaid maintenance contracts,~~ and a non-compete agreement from our acquisition of the business in November 2000. In addition, goodwill of $2,151,846 related to our original acquisition was written-off in the transaction. The sale resulted in a loss of $2,804,862. Net cash proceeds from the transaction were approximately $1.1 million.

We apply APB Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations in measuring compensation costs for its employee stock option plans. We disclose proforma net loss and net loss per share as if compensation cost had been determined consistent with Statement of Financial Accounting Standard (dSFAS) No. 123, “Accounting for Stock-Based Compensation.” Stock options and warrants issued to non-employees are accounted for using the fair value method prescribed by SFAS 123 and Emerging Issues Task Force 96-18.

We Had ~~apply~~we ~~APB~~determined ~~Opinion~~compensation ~~No. 25,~~cost ~~Accounting~~based ~~for~~on ~~Stock~~the ~~Issued~~fair tovalue ~~Employees~~of ~~and~~our stock ~~related~~options ~~interpretations~~on inthe ~~measuring~~grant ~~compensation~~date ~~costs~~under ~~for~~SFAS ~~its~~123, ~~employee~~our ~~stock option plans. We disclose proforma~~ net loss and net loss per share ~~as if~~ ~~compensation~~would ~~cost~~have ~~had~~ been determined consistent with Statement of Financial Accounting Standard (SFAS) No. 123, Accounting for Stock-Based Compensation. Stock options and warrants issued to non-employees are accounted for using the ~~fair~~ ~~value~~pro ~~method~~forma ~~prescribed~~amounts byindicated ~~SFAS 123 and Emerging Issues Task Force 96-18.~~below:

Had we determined compensation cost based on the fair value of our stock options on the grant date under SFAS 123, our net loss and net loss per share would have been the pro forma amounts indicated below:


	Three months ended June 30,						Six months ended June 30,
	2003			2004			2003			2004
Net loss:
As reported	$	(3,059,736	)	$	(570,474	)	$	(3,934,164	)	$	(395,484	)
Add: Stock-based employee compensation expense included in reported net loss		—			—			—			—
Deduct: Stock-based employee compensation determined under fair value based method for all awards		262,804			225,227			498,270			487,187

Pro forma	$	(3,322,540	)	$	(795,701	)	$	(4,432,434	)	$	(882,671	)

Net loss per share – basic and diluted:
As reported	$	(0.12	)	$	(0.02	)	$	(0.15	)	$	(0.01	)

Pro forma	$	(0.13	)	$	(0.03	)	$	(0.17	)	$	(0.03	)

			Three months ended								Nine months ended
		Three months ended June 30,								Six months ended June 30,
			September 30,								September 30,
		2003				2004				2003				2004
			2002				2003				2002				2003
Weighted average fair value of option granted using the Black-Scholes option pricing model		$	1.67			$	1.35			$	1.67			$	1.92
Net loss:
Options granted during the period			172,500				238,000				172,500				602,420
	As reported		$	(860,983	)		$	(331,591	)		$	(3,279,319	)		$	(4,265,755	)
Expected dividend yield			0.0	%			0.0	%			0.0	%			0.0	%
	Add: Stock-based employee compensation expense included in reported net loss			-0-				-0-				-0-				-0-
Risk-free interest rate			2.57	%			3.81	%			2.74	%			3.34	%
	Deduct: Stock-based employee compensation determined under fair value based method for all awards			(317,593	)			(267,098	)			(963,886	)			(765,368	)
Expected volatility			126	%			90	%			126	%			96.95	%
	Pro forma		$	(1,178,576	)		$	(598,689	)		$	(4,243,205	)		$	(5,031,123	)
Expected life in years			5				5				5				5
Net loss per share – basic and diluted:
	As reported		$	(0.03	)		$	(0.01	)		$	(0.13	)		$	(0.16	)
	Pro forma		$	(0.05	)		$	(0.02	)		$	(0.17	)		$	(0.19	)

7 In March 2004, the Financial Accounting Standards Board issued an Exposure Draft of a proposed Statement of Financial Accounting Standards entitled “Share-Based Payment.” This proposed Statement addresses accounting for stock-based compensation and would result in stock-based compensation costs, including employee options, being recognized as an expense in the financial statements. The proposed Statement would eliminate the ability to account for stock-based compensation transactions using the intrinsic value method under APB Opinion No. 25, and generally would require that such transactions be accounted for using a fair-value based method. If approved, the proposed statement would be applied to public entities, prospectively, for fiscal years beginning after December 15, 2004.

~~Table of Contents~~7

	Three months ended						Nine months ended
	September 30,						September 30,
	2002			2003			2002			2003
Weighted average fair value of option granted using the Black-Scholes option pricing model	$	1.00		$	2.29		$	1.72		$	1.76
Options granted during the period		12,500			30,000			520,667			202,500
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Risk-free interest rate		3.19	%		3.15	%		4.12	%		2.88	%
Expected volatility		123	%		126	%		131	%		126	%
Expected life in years		5			5			5			5

(ed) Net Loss Per Share

Basic loss per share is computed based on weighted average shares outstanding during the reporting period and excludes any potential dilution. Diluted per share amounts reflect potential dilution from the exercise or conversion of securities into common stock or from other contracts to issue common stock. Our capital structure includes common stock options and common stock warrants, ~~all~~ of which the following have been excluded from the net loss per ~~share~~ ~~calculations~~share calculation as they are antidilutive~~, as follows:~~.

	At September 30,
	June 30,
	2002		2003
	2003		2004
Outstanding options		2,779,909		2,352,542
Outstanding options excluded from net loss per share		2,620,963		2,684,483
Outstanding warrants		398,333		90,000
Outstanding warrants excluded from net loss per share		90,000		906,000

(fe) Concentration of Credit Risk

Credit is extended based on an evaluation of a customer’s financial condition and collateral is generally not required. The majority of revenues are derived from private and public companies and public enterprises in the research market in the United States.

The table below summarizes the revenue and approximate accounts receivable of our customers where our risk is significantly concentrated.

	Percent of Revenues												Accounts Receivable
	Three months						~~Nine~~Six months						~~December 31,~~		~~September 30,~~
	ended Sept 30,						ended Sept 30,						2002		2003
	ended June 30,						ended June 30,						Dec 31, 2003		Jun 30, 2004
Customer	2002			2003			2002			2003
	2003			2004			2003			2004
A		39	%		69	%		51	%		54	%	$	875,000	$	1,148,000
Customer:
B		15	%		1	%		5	%		16	%		795,000		26,000
Applied Biosystems, Inc.		56	%		69	%		48	%		70	%	$	1,134,000	$	1,253,000
C		15	%		0	%		11	%		3	%		11,000		-0-
Amersham Biosciences		21	%		0	%		21	%		0	%	$	18,000	$	—

8 The amounts due from Applied Biosystems in the above chart primarily represent quarterly royalties and have historically been paid in accordance with the terms of the underlying agreement.

~~Table~~(f) Private ofEquity ~~Contents~~Financing

~~(g)~~ On ~~Bank~~February 23, ~~Financing~~2004, ~~Agreements~~we consummated the issuance of 2,470,000 newly-issued shares of our common stock, and warrants to purchase 741,000 newly-issued shares of our common stock, to a small number of institutional investors, resulting in our receipt of $6,175,000 in gross proceeds, prior to placement agent fees and other offering costs totaling $427,000 and the exercise of the warrants. Investors received a warrant to purchase 0.3 shares of common stock for each share of common stock purchased. The effective price in the private placement was $2.50 for each unit, consisting of one share of common stock and a warrant to purchase 0.3 shares of common stock. The warrants have an exercise period of five years and an exercise price of $3.89 per share. Our placement agent with respect to the transaction received a cash fee equal to 5.5% of the gross proceeds, and its affiliates received warrants to purchase an aggregate of 75,000 shares of our common stock, carrying the same terms as the warrants received by the investors. The registration statement covering the resale by the investors of these shares and the shares of common stock issuable upon exercise of the warrants was declared effective by the SEC on April 30, 2004. Accordingly, these shares and the shares issuable upon exercise of the warrants

~~In September 2003, we modified our term loan agreement used to finance~~8 manufacturing equipment and other assets. Under the modified term loan we can borrow up to $1,000,000 at any time through June 30, 2004. Our working capital line of credit of up to $750,000 continues to be available and funds may be drawn on the working capital line of credit at any time through August 2004, provided that we are in compliance with the following covenants:

•Table We maintain an Adjusted Quick Ratio of 1.3:1. Adjusted Quick Ratio is defined as the sum of unrestricted cash and cash equivalents and trade accounts receivable divided by the sum of current liabilities, excluding current deferred revenues, and bank debt. • We maintain Minimum Tangible Net Worth of $1,500,000. Minimum Tangible Net Worth is defined as total equity in accordance with generally accepted accounting principles less intangible assets. • We maintain with the bank our primary operating accounts and a minimum of 50% of our investment funds.Contents

Wemay ~~are~~be ~~currently~~offered inor ~~compliance~~re-sold ~~with each of these covenants. Advances under the term loan and working capital line of credit are secured by a first position security interest~~ in ~~our assets excluding intellectual property. On~~ the ~~term~~United ~~loan~~States, ~~amounts~~pursuant ~~advanced are repayable in 36 monthly payments of principal and interest equal~~ to the ~~greater~~effective registration ofstatement ~~the bank’s prime rate plus 0.5%~~ or ~~4.5%,~~an ~~but~~applicable ~~not~~exemption ~~more~~from ~~than 8%. On~~ the ~~working capital line of credit, interest~~registration isrequirements ~~payable monthly on any unpaid balances at the bank’s prime rate plus 0.5%, with principal payable in full in September 2004. The bank’s prime rate on October 23, 2003 was 4.0%. As~~ of ~~September 30, 2003, we have drawn $1,445,000 against~~ the ~~original~~Securities ~~term loan which expired June 30, 2003~~Act. ~~We have not drawn~~ ~~on the working capital line of credit or on the modified $1,000,000 equipment~~ ~~line as of this time.~~

~~(h)~~ The ~~Legal~~warrants ~~Proceedings~~issued in the private equity placement provide for cash redemption by the warrant holders upon the occurrence of a change in control that may be outside of the control of our Board of Directors, subject to certain exceptions. As a result, and in accordance with EITF 00-19, “Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In a Company’s Own Stock,” the fair value of the warrants, measured using the Black-Scholes valuation method, is recorded as a current liability on our balance sheet. The decrease in the market price of our common stock and other changes in the valuation assumptions from the closing of the equity placement on February 23, 2004 to March 31, 2004 resulted in a decrease in the value of the warrants between these dates of $762,000. The decrease in the market price of our common stock and other changes in the valuation assumptions from April 1, 2004 to June 30, 2004 resulted in a further decrease in the value of the warrants between these dates of $178,000. Therefore, we report $178,000 and $940,000 as a warrant valuation adjustment in our statements of operations for the three and six month periods, respectively, ending June 30, 2004.

~~Mordecai Jofen, as Trustee of the Harbor Trust, f/k/a~~ The ~~Edward~~assumptions ~~Blech Trust~~used v.in ~~Epoch Biosciences, Inc., United States District Court for~~ the ~~Southern District~~Black-Scholes ofpricing ~~New~~model ~~York, Case No. 01 CV 4129.~~were:

The Harbor Trust (formerly the Edward Blech Trust) filed a complaint against us in 2001, alleging the breach of a 1996 letter agreement between us and David Blech, allegedly resulting in damages to Blech and/or the Harbor Trust of at least $10 million.


	February 23, 2004			March 31, 2004			June 30, 3004
Expected dividend yield		0.0	%		0.0	%		0.0	%
Risk-free interest rate		3.03	%		2.81	%		3.81	%
Expected volatility		104	%		99	%		90	%
Remaining contractual life in years		5			4.9			4.7

In Until ~~July 2002,~~ the ~~Court~~warrants ~~granted~~are ~~our~~exercised ~~motion~~or toexpire, ~~dismiss~~the ~~without~~valuation ~~leave~~of tothe warrants ~~file~~and anthe ~~amended~~corresponding ~~complaint~~liability ~~and~~will ~~the~~be ~~Harbor~~re-measured ~~Trust~~quarterly ~~appealed~~and the ~~Court’s dismissal~~financial ofstatements ~~its~~will ~~case~~reflect toa ~~the~~non-cash ~~United~~valuation ~~States~~adjustment ~~Court~~based ofon ~~Appeal~~the ~~for~~change in the ~~Second~~fair ~~Circuit.~~value ~~On May 14,~~of ~~2003,~~the warrants at the ~~Second~~end ~~Circuit~~of ~~affirmed~~each ~~the~~reporting ~~dismissal~~period.

~~(i)~~Item ~~Subsequent~~2. ~~Event~~Management’s Discussion and Analysis of Financial Condition and Results of Operations

On This ~~October 6,~~Quarterly ~~2003,~~Report weon ~~terminated~~Form a10-Q ~~distribution~~includes ~~and~~“forward-looking ~~licensing agreement~~statements” ~~with~~within ~~Amersham~~the ~~Biosciences,~~meaning of the ~~life~~Private ~~sciences~~Securities ~~business~~Litigation ofReform ~~Amersham~~Act ~~plc.~~of ~~The~~1995. ~~agreement,~~That ~~which~~Act ~~began~~provides ina ~~2002,~~“safe ~~established~~harbor” ~~Amersham~~for asforward-looking ~~the~~statements ~~exclusive~~to ~~worldwide~~encourage ~~sales,~~companies ~~marketing~~to ~~and~~provide ~~distribution~~prospective ~~partner~~information toabout ~~the~~themselves ~~research~~so ~~field~~long ofas ~~Epoch’s MGB~~they ~~Eclipse™~~identify ~~Probe~~these ~~Systems~~statements ~~for~~as ~~SNPs,~~forward-looking and ~~the~~provide ~~co-exclusive~~meaningful, ~~worldwide sales and~~cautionary ~~marketing~~statements ~~partner~~identifying toimportant ~~the~~factors ~~research~~that ~~field~~could ~~for~~cause ~~gene~~actual ~~expression.~~results ~~We had disclosed~~to indiffer ~~August that anticipated revenues~~ from ~~Amersham would be insignificant for~~ the ~~balance~~projected ~~of 2003~~results.

9 Other than statements of historical fact, all statements in this Quarterly Report on Form 10-Q and, in particular, any projections of or statements as to our expectations or beliefs concerning our future financial performance or financial position or as to future trends in our business or in our markets, are forward-looking statements. Forward-looking statements reflect our current expectations and are inherently uncertain and our actual results in future periods may differ materially from our expectations concerning our projections of those results or of future business trends described in this Quarterly Report on Form 10-Q. The sections below entitled “Certain Factors that May Affect Our Business and Future Results” under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” describe some, but not all, of the factors, risks and uncertainties that could cause these differences, including but not limited to the fact that we have realized operating profitability in only one quarter and anticipate future losses, and that we may require additional capital; the fact that we will be dependent upon our agreement with Applied Biosystems for a significant portion of our revenues for

~~Table of Contents~~9

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

~~This~~2004 and future periods; the possibility that potential products utilizing the Company’s technology may be ineffective or, although effective, may be uneconomical to market; that third parties may hold proprietary rights that preclude Epoch or its licensees from marketing its products; or that third parties may market superior products. Readers of this Quarterly Report on Form 10-Q ~~includes~~are “urged to read those sections in their entirety. In light of the significant uncertainties inherent in the forward-looking ~~statements”~~information included ~~within~~in this document, the ~~meaning~~inclusion of ~~the~~information ~~Private~~should ~~Securities~~not ~~Litigation~~be ~~Reform~~regarded ~~Act~~as ~~of 1995.~~a ~~That~~representation ~~Act~~by ~~provides~~us aor ~~“safe~~any ~~harbor”~~other ~~for~~person that our objectives or plans will be achieved. The forward-looking statements tocontained ~~encourage companies~~in tothis ~~provide~~Quarterly ~~prospective~~Report ~~information~~on Form ~~about~~10-Q ~~themselves~~are somade ~~long~~only as ~~they identify~~of ~~these~~the ~~statements~~date asof ~~forward-looking~~this ~~and~~Quarterly ~~provide~~Report ~~meaningful,~~on ~~cautionary~~Form 10-Q ~~statements~~and ~~identifying~~Epoch ~~important~~undertakes ~~factors~~no ~~that~~obligation ~~could~~to ~~cause~~update ~~actual~~or ~~results~~revise tothe forward-looking ~~differ~~statements, ~~from~~whether ~~the~~as ~~projected~~a ~~results~~result of new information, future events or otherwise.

~~Other~~The ~~than~~following ~~statements~~discussion of ~~historical~~Epoch’s ~~fact,~~financial ~~all~~condition ~~statements in this Quarterly Report on Form 10-Q~~ and, inresults ~~particular, any projections~~ of ~~or statements as to~~ ~~our~~operations ~~expectations~~should orbe ~~beliefs~~read ~~concerning~~in ~~our~~conjunction ~~future~~with ~~financial~~the ~~performance or~~ financial ~~position or as to future trends in our business or in our markets, are forward-looking~~ statements. ~~Forward-looking statements reflect our current expectations~~ and ~~are inherently uncertain and our actual results in future~~the ~~periods~~related ~~may~~notes ~~differ~~thereto ~~materially~~included ~~from~~elsewhere ~~our expectations concerning our projections of those results or of future business trends described~~ in this Quarterly Report on Form 10-Q~~. The sections below entitled “Certain Factors that May~~ ~~Affect Our Business~~ and ~~Future~~other ~~Results”~~documents ~~under~~Epoch ~~Item 2,~~files ~~“Management’s~~from ~~Discussion and~~time ~~Analysis~~to oftime ~~Financial~~with ~~Condition and Results of Operations,” describe some, but not all, of~~ the ~~factors,~~Securities ~~risks~~ and ~~uncertainties that could cause these~~ ~~differences~~Exchange Commission, including ~~but~~subsequent ~~not~~Current ~~limited~~Reports to the fact that we have been profitable in only one quarter and anticipate future losses, and that we may require additional capital; the possibility that potential products utilizing the Company’s technology may be ineffective or, although effective, may be uneconomical to market; that third parties may hold proprietary rights that preclude Epoch or its licensees from marketing its products; or that third parties may market superior products. Readers of this Quarterly Report on Form ~~10-Q~~ ~~are urged to read those sections in their entirety. In light of the significant uncertainties inherent in the forward~~8-~~looking information included in this document~~K, ~~the inclusion of information should not be regarded as a~~ ~~representation by us or any other person that our objectives or plans will be achieved. The forward-looking statements contained in this~~ Quarterly ~~Report~~Reports on Form 10-Q ~~are~~and ~~made~~Annual ~~only~~Reports ~~as of the date of this Quarterly Report~~ on Form 10-~~Q and Epoch undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise~~K.

~~The~~Results ~~following discussion~~ of ~~Epoch’s financial condition and results of~~Operations ~~operations should be read in conjunction with the financial statements and the~~ ~~related notes thereto included elsewhere in this Quarterly Report on Form 10-Q~~ ~~and other documents Epoch files from time to time with the Securities and~~ ~~Exchange Commission, including subsequent Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.~~

~~Results of Operations~~Overview

~~Overview~~ Epoch develops technology and products that enable and accelerate genomic analysis. The foundation of our business strategy is the continued funding of innovative research and development and commercialization of the resultant products through a number of channels.

~~Epoch~~We ~~develops~~earn ~~technology~~revenues ~~and~~through ~~products~~a ~~that~~variety ~~enable~~of ~~and~~sources. ~~accelerate~~Historically, ~~genomic~~the majority ~~analysis~~of our revenues have been generated in the research field. ~~The~~In ~~foundation~~July 2004, we commenced commercial sale of our ~~business~~analyte ~~strategy~~specific isreagents ~~the~~to ~~continued~~sophisticated clinical ~~funding~~testing oflaboratories for diagnostic testing. We license our ~~innovative~~technology ~~research~~and sell chemical intermediates to companies, thereby allowing them to incorporate our technology into their products and ~~development~~we generate product revenue and ~~commercialization~~earn oflicense ~~the~~fees ~~resultant~~and royalties from those companies. We also sell our products to end-users through aour ~~number~~direct ofsales ~~channels~~force and through distributors that provide worldwide reach. We also earn revenues through contract research activities, whereby third parties pay for specific research and development activities carried out by our scientists, and through research grants.

We ~~earn~~expect ~~revenues~~to ~~through~~incur aoperating ~~variety~~losses offor ~~sources.~~at Weleast ~~license~~the ~~our~~current ~~technology~~fiscal year ~~and~~as ~~sell~~we ~~chemical~~continue ~~intermediates~~funding toresearch ~~companies,~~and ~~thereby~~development ~~allowing them~~ to ~~incorporate~~ apply our technology ~~into~~to genomic ~~their~~analysis ~~products~~for ~~and~~the weresearch ~~generate~~markets ~~product revenue~~ and ~~earn~~other ~~license~~fields, ~~fees~~ and ~~royalties~~as ~~from~~we ~~those companies. We also sell our~~incur ~~products~~costs to ~~end-users~~commercialize ~~through~~the ~~our~~resultant ~~direct~~products ~~sales force and~~ through ~~distributors~~ ~~that~~various ~~provide worldwide~~channels.

10Critical Accounting Policies

~~Table~~ Our accounting policies are more fully described in Note 1 to our financial statements included with Form 10-K. However, certain of ~~Contents~~our accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management. As a result they are subject to an inherent degree of uncertainty. In applying those policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. Our critical accounting policy is revenue recognition.

~~reach. We also earn revenues through~~10 ~~contract research activities, whereby third parties pay for specific research and development activities carried out by our scientists, and through research grants.~~

WeTable expectof to incur operating losses for at least the current fiscal year as we continue funding research and development to apply our technology to genomic analysis for the research markets and other fields, and as we incur costs to commercialize the resultant products through various channels. Contents

~~Critical~~ Revenue ~~Accounting~~recognition. ~~Policies~~We earn revenues from sales of chemical intermediates and reagents to manufacturers for incorporation into their products, from the sale of specialty oligonucleotides and value added reagents to end users and distributors in the fields of genomics and molecular diagnostics, from license fees for the use of our proprietary technology and know-how, and by providing services to third parties for performing research and development on their behalf. We also have license agreements that result in royalties to us upon ultimate sales of products by our partners. Many of our arrangements contain multiple deliverables which require us to determine the fair value of the various deliverables. To the extent we are unable to determine the fair value of undelivered elements, we are required to defer all revenue and recognize it over the appropriate period or until such time that the fair value of remaining undelivered elements can be determined.

~~Our~~• ~~accounting~~Revenues ~~policies~~from ~~are~~product ~~more~~sales ~~fully~~that ~~described~~require inno ~~Note~~ongoing 1obligations toare ~~our~~recognized ~~annual financial~~when ~~statements~~shipped ~~for~~to the ~~year~~customer ~~ended~~and ~~December 31,~~title ~~2002~~has passed. ~~Our~~To ~~critical accounting~~the ~~policy~~extent isthat ~~revenue~~sales ~~recognition.~~are Inmade ~~applying~~to ~~this~~distributors ~~policy,~~and not sold through to end users our ~~management~~ ~~uses~~future ~~its~~sales ~~judgment~~could decline although distributors generally have no right of return. • License fees are recognized over the term of the agreement to ~~determine~~which the ~~appropriate~~license ~~assumptions~~fees correspond, which may extend to ~~be used~~the expiration of the underlying patents, and based on the terms and future performance obligations in the ~~determination~~underlying agreements. These upfront fees are generally nonrefundable regardless of ~~the~~future ~~estimates~~performance. ~~Those~~Deferred ~~estimates~~revenue principally represents these license fees received in advance and prepayments for product purchases. • Contract research revenues are ~~based~~recognized onas ~~our historical~~the ~~experience,~~applicable research and development activities are performed under the terms of ~~existing~~commercial collaboration and supply agreements and government grants. Direct costs related to these contracts, ~~our~~and ~~observance~~grants ofare ~~trends~~reported in as research and development expenses. • Royalty revenues are recognized when earned under the ~~industry~~terms of the related agreements, ~~information~~which ~~provided~~is generally upon sale of products by our ~~customers~~partner ~~and~~containing ~~information~~our ~~available from~~component ~~other~~products. ~~outside~~To ~~sources~~the extent our partners no longer use our component products or sales of their products are less than expected, asour ~~appropriate~~royalty revenues could decrease in the future.

~~Revenue~~Revenues ~~recognition. We earn revenues from product sales of~~ ~~oligonucleotides to end users and distributors in the research field and of~~ ~~chemical products and reagents to manufacturers for incorporation into their~~ products, from license fees for the use of our proprietary technology and know-how, and by providing services to third parties for performing research and development on their behalf. We also receive royalties upon ultimate sales of products that incorporate our technology by our partners.

• Revenues ~~from~~for ~~product sales that require no ongoing obligations are recognized when shipped to~~ the ~~customer~~three and ~~title~~six ~~has~~month ~~passed.~~periods Toended ~~the~~June 30, ~~extent~~2004 ~~that~~decreased 21% ~~sales are made to end distributors~~ and ~~not~~20%, ~~sold~~respectively, ~~through to end users our future sales could decline. • License fees are recognized~~ over the ~~term~~similar periods of ~~the~~2003, ~~agreement~~primarily todue ~~which~~ to the ~~license~~reduction ~~fees~~in ~~correspond,~~product ~~which~~sales ~~may~~caused ~~extend~~by to the ~~expiration~~sale of the ~~underlying~~assets ~~patents,~~ and ~~based~~customer base onfor ~~the~~our ~~terms~~non-proprietary ~~and~~oligonucleotide ~~future~~business ~~performance~~located ~~obligations~~ in ~~the~~San ~~underlying~~Diego ~~agreements.~~(San Diego ~~These~~Operations) ~~up front fees are generally nonrefundable regardless of future performance. Deferred revenue principally represents license fees received~~ in ~~advance~~May 2003, and ~~prepayments~~a ~~for~~reduction ~~product~~in ~~purchases.~~contract ~~• Contract~~ research revenues are recognized as research and development activities are performed under the terms of commercial collaboration and supply agreements and government grants. Direct costs related to these contracts and grants are reported as research and development expenses. • Royalty revenues are recognized when earned under the terms of the related agreements, partially ~~which~~offset ~~is generally upon sale of products containing our component technologies~~ by ~~our~~increased ~~partner. To the extent our partners no longer use our component products or~~ sales of ~~their products are less than expected,~~ our ~~royalty~~MGB ~~revenues~~Eclipse ~~could decrease in the future~~products.

~~Revenues~~ Product Sales. Product sales include sales of specialty oligonucleotides to end users and to our distribution partners in the research market and sales of chemical intermediates and our dyes, quencher, and modified bases to collaborative partners and distributors. Product sales decreased 29% in the second quarter of 2004 to $489,000 from $689,000 in the comparable quarter of 2003. Product sales also decreased 27% in the six month period ended June 30, 2004 to $1,055,000 from $1,437,000 in the comparable period of 2003. The decrease in product sales in both periods was primarily due to the absence of sales from our San Diego Operations that were sold in May 2003 and a reduction in sales of chemical intermediates to Applied Biosystems. During the three and six month periods ended June 30, 2003, we recognized $184,000 and $451,000 in product sales from our San Diego Operations, respectively. Sales of our products other than from our San Diego Operations, decreased 3% and increased 7% for the three and six month periods ending June 30, 2004, respectively.

~~Revenues for the third quarter ended September 30, 2003 decreased 24% from~~11 the comparable period of 2002 to $2,010,000 due to reductions in product sales and contract research, offset by a significant increase in royalties. Revenues for the nine-month period ended September 30, 2003 decreased 7% over the comparable period of 2002 to $6,878,000 again due to a significant increase in royalties offset by reductions in product sales and contract research revenue.

ProductTable Sales. Product sales include sales of oligonucleotides to end users and distribution partners in the research market and sales of chemical intermediates and dyes, quencher, and modified Contents

11 In both periods, we realized increased sales of our MGB Eclipse™ Probe System products into the research field. These products are sold directly to end users, and also through QIAGEN, our worldwide distributor. Revenues from the sale of these products in the second quarter of 2004 were 23% higher than in the comparable quarter of 2003, and 31% higher for the six month period ended June 30, 2004 compared to the comparable period of 2003, due to increased levels of direct selling activities by Epoch personnel and the introduction in late 2003 of MGB Eclipse By Design assays that we design, manufacture, and functionally validate. We expect continued growth in our MGB Eclipse Probe System sales in the research field and also in the molecular diagnostic market as a result of our launch of MGB Eclipse Detection Reagents in July 2004.

~~Table~~ Chemical intermediate revenues represent component chemistries that we generally supply on cost-plus terms for incorporation in our partners’ products, and sales of ~~Contents~~dyes, quencher, and modified bases through distributors. These revenues decreased 40% in the quarter ended June 30, 2004 and also decreased 38% in the six month period ended June 30, 2004 from the comparable periods of 2003 primarily as a result of a continued decrease in shipments to Applied Biosystems. In 2002 Applied Biosystems actively built an initial inventory of finished goods as well as inventory of component materials in support of their Assays-on-Demand™ and Assays-by-Design™ product launches. In 2002, the initial inventory levels were established and the products launched, and in 2003 operating inventory levels were achieved. As a result, shipments to Applied Biosystems continued to decline in the first six months of 2004 compared to 2003, and are expected to be lower in the second half of 2004 compared to 2003.

~~bases~~ License toFees ~~collaborative~~and ~~partners~~Royalty Income. License fees reflect the amortization of initial payments for technology and ~~distributors~~know-how. ~~Product~~These amounts are amortized over the life of the contract. Royalty income represents amounts due under license agreements with other companies for their sales ~~decreased~~of ~~65%~~products that include our technologies and/or for contractual minimum amounts. License fees and royalty income increased to $~~690~~1,448,000 in the ~~third~~ quarter of ~~2003~~ended ~~from~~June 30, 2004 from $1,~~975~~372,000 in the comparable period of ~~2002,~~2003 and ~~for~~also ~~the~~increased to $2,815,000 in ~~nine-~~the six month period ended ~~September~~June 30, ~~2003,~~2004 ~~decreased~~from ~~59% to~~ $2,~~127~~690,000 ~~from $5,199,000~~ in the comparable period of ~~2002~~2003. ~~The~~These ~~decreases~~increases inare ~~product~~the ~~sales~~result ~~in both~~of ~~the~~higher ~~three~~contractual ~~and~~minimums from ~~nine-month~~Applied ~~periods~~Biosystems ~~were~~and ~~the~~higher ~~result~~sales of ~~decreased~~products ~~revenues~~that incorporate our ~~from~~technologies ~~Applied~~by ~~Biosystems~~our ~~for~~partners, ~~both~~partially ~~chemical~~offset ~~intermediates~~by ~~and~~a ~~MGB~~reduction ~~TaqMan~~in ~~probe~~technology ~~manufacturing~~access fees from our collaboration with Amersham Biosciences. In 2003, Amersham ~~and~~Biosciences ~~lower~~paid ~~sales~~us oftechnology ~~non-proprietary~~access ~~oligonucleotides~~fees ~~from~~for a specified period that expired in June 2003. In October 2003 we terminated our ~~San~~distribution agreement ~~Diego~~with ~~operations~~Amersham that ~~were~~gave ~~sold~~rise into ~~May~~such ~~2003~~technology access fees.

InContract ~~October~~Research ~~2002~~Revenue. ~~payments~~Contract ~~received~~research ~~from~~revenue ~~Applied~~reflects ~~Biosystems~~payments for ~~(in~~contract ~~return~~research and development performed for our corporate partners and ~~manufacturing~~research ~~rights)~~grants ~~which~~from ~~had~~the ~~previously~~National ~~been~~Institute ~~characterized~~of asHealth. ~~product~~We ~~sales~~do not have any ~~were~~contract ~~recharacterized~~research asagreements ~~royalties~~at inthis ~~accordance~~time ~~with~~as ~~the~~a ~~most~~result ~~recent~~of ~~amendment~~completion of work tounder grants from the ~~Licensing~~National ~~and~~Institute ~~Supply~~of ~~Agreement~~Health ~~between~~and the ~~companies~~termination of contract programs with Amersham Biosciences. ~~Accordingly~~In 2003, Amersham Biosciences ~~product~~paid ~~sales~~us ~~decreased~~for ~~and~~specified ~~royalty~~research ~~revenue~~activities ~~increased~~related ~~when~~to ~~comparing~~application ~~the~~of our MGB ~~current~~Eclipse ~~periods~~Probe Systems. Those programs terminated in June 2003, and in October 2003 we terminated our distribution agreement with ~~the~~Amersham ~~comparable~~that ~~periods~~gave ofrise ~~2002~~to such programs.

ACost ~~reduction~~ of ~~$686,000~~Product inSales. ~~the~~The ~~current~~cost ~~quarter~~of ~~and~~product ~~$1,276,000~~sales ~~for~~represents the cost of ~~nine-month~~manufacturing ~~period~~products inthat ~~sales~~we ofsell, ~~our~~including ~~non-proprietary~~costs ~~oligonucleotides~~of ~~from~~material, ~~our~~labor ~~San~~and ~~Diego~~overhead ~~operations~~allocations. ~~reflects:~~The 1)cost ~~the sale~~ of ~~those~~product ~~operations~~sales ondecreased ~~May 30~~to $347,000 ~~2003 resulting~~ in ~~no sales in~~ the second ~~current~~ quarter ~~and~~of ~~only~~2004 ~~five~~compared ~~months~~to of$643,000 ~~shipments~~ in the ~~nine-month~~comparable ~~period~~quarter ~~ended September 30, 2003 (see note (c) Sale~~ of ~~San~~the ~~Diego~~prior ~~Operations);~~year and 2)decreased ato ~~reduction~~$739,000 infor ~~shipments~~the ofsix ~~oligonucleotides~~month toperiod ~~one~~ended June 30, ~~customer~~2004 ~~that~~compared ~~were~~to ~~unusually~~$1,383,000 ~~high~~ in the ~~second~~comparable ~~and~~six ~~third~~month ~~quarters~~period of ~~2002~~2003. Costs as a percentage of product sales

~~Chemical intermediate revenues represent component chemistries that we~~12 supply on cost-plus terms for incorporation in our partners’ products, and sales of dyes, quencher, and modified bases through distributors. These revenues decreased 21% in the quarter and 58% in the nine-month period ended September 30, 2003, respectively, from the comparable periods of 2002 primarily as a result of reduced shipments to Applied Biosystems. In 2002 Applied Biosystems was actively building an initial inventory of finished goods as well as inventory of component materials in support of their Assays-on-Demand™ and Assays-by-Design™ product launches. The inventory levels have been established, the products launched, and shipments to Applied Biosystems in 2003 have been lower than in 2002, as expected.

LicenseTable Fees and Royalty Income. License fees reflect the amortization of initial payments for transfers of technology and know-how. These amounts are amortized over the life of the contract. Royalty income represents amounts due under license agreements with other companies for their sales of products that include our technologies and/or for contractual minimum amounts. License fees and royalty income increased to $1,219,000 in the third quarter of 2003 from $277,000 in the comparable period of 2002 and similarly increased to $3,908,000 in the nine-month period ended September 30, 2003 from $710,000 in the comparable period of 2002. These increases are the result of higher contractual minimums due to an amended agreement with Applied Biosystems that, among other things, provides for quarterly rather than annual minimum royalties and to a lesser extent technology access fees from new collaborations with QIAGEN and Amersham Biosciences. In 2003, Amersham Biosciences paid us technology access fees for a specified period that expired in June 2003. In October 2003 we terminated our relationship with Amersham. Contents

~~Contract Research Revenue. Contract research revenue primarily reflects payments for contract research and development performed for our corporate partners. Contract research revenues~~ decreased from ~~$407,000~~93% in the ~~third~~ second quarter of ~~2002~~2003 to ~~$101,000~~71% in the ~~third~~second quarter of ~~2003~~2004, and ~~similarly~~ decreased from ~~$1,520,000~~96% in the ~~nine-~~six month period ended ~~September~~June 30, ~~2002~~2003 to ~~$842,000~~70% in the comparable six month period of ~~2003~~2004. ~~These decreases were primarily due to~~ ~~completion of the Applied~~

12 Generally, changes in costs of product sales are tied to changes in revenues, while the changes in costs as a percentage of product sales are impacted by the product mix and economies of scale resulting from changes in volume. Shipments of the majority of our chemical intermediates and certain other products, for example, are to larger volume customers and selling prices are determined by contract and tied to fully burdened manufacturing costs, which results in lower gross margins. Further, we manufacture MGB Eclipse Probe System products to various customer specifications - including custom orders, catalog orders, and functionally validated assays. The gross margin on these different products can vary significantly.

~~Table~~ The reduction in the dollar cost of ~~Contents~~product sales and in the percentage cost of product sales in 2004 is primarily the result of the sale of our San Diego Operations on May 30, 2003. Many costs of our non-proprietary oligonucleotide manufacturing operations in San Diego were fixed within a wide range of capacity output. As a result, the low level of sales volume we experienced in our San Diego Operations in 2003 did not result in proportionally lower costs and we experienced very poor gross margins on those sales until we sold the assets and customer base in May 2003.

~~Biosystems~~ Research and Development. Research and development costs of $982,000 in the second quarter of 2004 decreased 10% compared to the comparable period of 2003. Research and development costs of $1,910,000 in the six month period ended June 30, 2004 similarly decreased 18% compared to the comparable period of 2003. Research and development costs are heavily impacted by our use of research ~~contract~~and development personnel in ~~August~~our ~~2002~~manufacturing operations to meet variations in customer demand. As such, the use of research and development ~~termination~~personnel in manufacturing has, and will continue to fluctuate depending on volumes and mix of ~~contract~~product sales and the availability of research byand development ~~Third~~personnel ~~Wave~~to ~~Technologies~~conduct such activities. Significant changes in research and development costs were due to:

In• ~~October~~Transfer ~~2000,~~of wepersonnel ~~entered~~from ~~into~~research ~~a Development, License~~ and ~~Supply Agreement~~development ~~with~~to ~~Third~~manufacturing ~~Wave~~reduced ~~Technologies~~research ~~whereby we licensed our proprietary quencher~~ and ~~fluorescent~~development ~~dye~~expenses ~~technologies~~by to$82,000 ~~Third~~in ~~Wave. Third Wave also has~~ the ~~option~~second toquarter ~~license~~of ~~other~~2004, ~~proprietary~~and ~~chemistries~~by ~~of the company~~$316,000 in ~~which case~~the ~~additional~~six ~~license~~month ~~and~~period ~~royalty~~ended ~~fees~~June ~~would~~30, be2004, ~~due~~compared to ~~us.~~the Wesimilar ~~received~~periods ~~an initial~~of ~~license~~2003. ~~fee~~• ~~that~~Costs ~~is being amortized over the life~~ of ~~the~~chemicals ~~contract~~ and we ~~receive~~supplies ~~royalties~~used onin ~~sales~~research ofactivities ~~Third Wave products which incorporate the licensed technology. Included~~ in the ~~agreement~~first ~~with~~half ~~Third Wave was a collaborative research effort to be funded by Third Wave through December 31, 2003, subject to joint approval~~ of ~~annual~~2004 ~~research~~being ~~plans. In May 2002~~$76,000 ~~Third Wave~~lower ~~informed~~than usin ~~that~~the itcomparable ~~was~~period ~~ceasing~~of ~~funding development activities with us~~2003. We ~~instituted~~• ~~arbitration~~Decreased ~~proceedings~~consulting ~~against~~costs ~~Third~~incurred ~~Wave and~~ in ~~March~~ 2003, ~~held a~~primarily ~~mediation~~related ~~hearing~~to ~~with~~our ~~Third~~efforts ~~Wave at which the parties agreed~~ to ~~the~~obtain ~~terms~~a Department of a ~~settlement~~Defense ~~that~~contract, ~~was~~which ~~finalized~~resulted in ~~May~~lower ~~2003.~~costs ~~The~~of ~~settlement provided that Third Wave will no longer be obligated to fund research activities. In exchange, Third Wave paid us~~ $~~300~~44,000 ~~in two equal installations in May~~ and ~~July~~ ~~2003, of which~~ $8583,000 ~~had been accrued as contract research revenue~~ in ~~2002.~~ In the ~~second~~three ~~quarter,~~ and ~~reflected~~six inmonth ~~the~~periods ~~year~~ended toJune ~~date numbers~~30, ~~of 2003~~2004, ~~we recognized $40~~respectively,~~000~~ incompared ~~contract~~to ~~research~~the ~~revenue~~similar ~~and~~periods ~~$175,000 as a reduction~~ of ~~selling,~~2003. ~~general,~~• ~~and~~Increased ~~administrative~~patent expenses asof an$56,000 ~~offset~~in ~~against arbitration~~the ~~expenses~~six ~~incurred~~month byperiod ~~us.~~ended ~~Third~~June ~~Wave~~30, ~~also~~2004 ~~agreed~~compared to ~~annual~~the ~~minimum royalties~~similar ~~under~~period ~~its~~of ~~license from us for dye and quencher technologies through 2006, subject to amended license termination provisions~~2003.

~~On October 6~~Selling, ~~2003,~~General weand ~~terminated~~Administrative. aSelling, ~~distribution~~general and ~~licensing agreement~~administrative ~~with~~expenses ~~Amersham~~of ~~Biosciences~~$1,379,000 in the ~~life~~second ~~sciences~~quarter ~~business~~ of ~~Amersham~~2004 ~~plc.~~increased ~~The~~$397,000, or ~~agreement~~40%, ~~which~~compared ~~began~~to inthe ~~2002,~~comparable ~~established~~period ~~Amersham~~of as2003 ~~the~~and ~~exclusive~~similarly ~~worldwide~~increased ~~sales~~$308,000, ~~marketing~~or ~~and~~14%, ~~distribution~~in ~~partner~~the tosix ~~the~~month ~~research~~period ~~field~~ended ofJune 30, ~~Epoch’s~~2004 ~~MGB~~compared to the ~~Eclipse™~~comparable ~~Probe~~period ~~Systems~~of ~~for~~2003. ~~SNPs~~Selling, general and ~~the~~administrative ~~co-exclusive~~expenses ~~worldwide~~are expected ~~sales~~to ~~and marketing~~continue ~~partner~~above 2003 levels due to ~~the~~significantly ~~research~~expanded ~~field~~direct sales ~~for~~and ~~gene~~marketing ~~expression~~activities. WeSignificant ~~had~~changes ~~disclosed~~ in ~~August~~the ~~that~~2004 ~~anticipated~~periods compared ~~revenues~~to ~~from~~the ~~Amersham~~2003 ~~would~~periods bewere ~~insignificant~~primarily ~~for~~ the ~~balance~~result of ~~2003.~~:

~~Operating~~• ~~Expenses~~ Increased selling and marketing expenses of $208,000 and $347,000 for the three and six month periods ending June 30, 2004, respectively, as compared to the similar periods of

~~Cost of Product Sales. The cost of product sales represents the costs of~~13 material, labor and overhead allocations associated with product sales. Also included is the cost of outside manufacturers that we use to produce some of our chemical intermediates. The cost of product sales decreased to $463,000 in the third quarter of 2003 compared to $1,053,000 in the comparable period of the prior year and decreased to $1,845,000 in the nine-month period ended September 30, 2003 from $3,347,000 in the 2002 period. Costs as a percentage of product sales increased from 53% in the third quarter of 2002 to 67% in the third quarter of the current year and from 64% in the nine-month period ended September 30, 2002 to 87% in the comparable period of 2003.

Generally,Table changes in costs of product sales are tied to changes in revenues, while the changes in costs as a percentage of product sales are impacted by the product mix and economies of scale resulting from changes in volume. The selling prices of our chemical intermediates and certain other products, for example, are determined by contracts and are tied to fully burdened manufacturing costs, which result in gross margins being fixed at levels below those generally found in the commercial marketplace. Further, we manufacture MGB Eclipse™ Probe Systems to various customer specifications- custom orders, catalog orders, and functionally validated assays. The gross margin on these different products can vary significantly. Contents

13 2003, due to overall increased sales and marketing efforts in the research market and in support of our launch of molecular diagnostic products in July 2004.

~~Table~~• The sale of ~~Contents~~our San Diego Operations in May 2003 resulted in the elimination of our administrative functions which supported those operations and reduced administrative expenses and associated goodwill amortization by a total of $169,000 and $424,000 in the three and six month periods ended June 30, 2004, respectively, compared to the similar periods of 2003. • Recovery of arbitration expenses incurred in 2002 and the first quarter of 2003 as a result of the settlement of our dispute with Third Wave in the second quarter of 2003 resulting in lower reported expenses of $177,000 and $31,000 for the three and six month periods ended June 30, 2003, respectively, compared to the similar periods of the current year. • Increased personnel and other expenses of $79,000 and $144,000 in the three and six month periods ended June 30, 2004, respectively, resulting from our implementation of the FDA’s quality systems regulation. • Increased professional fees associated with business development efforts of $141,000 and $204,000 in the three and six month periods ended June 30, 2004, respectively, compared to the similar periods of 2003.

~~The~~Liquidity ~~increases in costs as a percentage of product sales experienced in the 2003 periods are primarily due to changes in product mix~~ and ~~the~~Capital ~~loss of~~Resources ~~economies of scale caused by decreased product sales. In the third quarter of~~ ~~2002, a significant portion of our product sales were initial stocking orders~~ ~~of catalog MGB Eclipse Probe Systems by one of our distribution partners.~~ Large catalog orders are relatively high gross margin products and as such, these shipments had a positive impact on that quarter’s overall gross margin on product sales. Catalog orders for MGB Eclipse Probe Systems were significantly lower in the third quarter of 2003. Additionally, many costs of our non-proprietary oligonucleotide manufacturing operations in San Diego were fixed within a wide range of capacity output. As a result, significant decreases in volume experienced in early 2003 did not result in a proportional decrease in costs and we experienced very poor gross margins on those sales until we sold the assets and customer base in May 2003.

~~Research~~Cash and ~~Development.~~cash ~~Research~~equivalents ~~and~~amounted ~~development~~to ~~costs of~~ $~~952~~9,159,000 ~~in the~~at ~~third quarter of 2003 decreased 9% compared to the comparable period of 2002. For the nine-month period ended September~~June 30, ~~research~~2004, ~~and development~~a ~~costs of~~ $34,~~295~~743,000 ~~increased~~increase 2%from ~~over~~December 31, ~~the~~2003 ~~comparable~~balances, ~~period~~primarily ofas ~~2002.~~a ~~Research and~~result ~~development costs are heavily impacted by our use~~ of ~~research and~~ ~~development~~the ~~personnel~~private inequity ~~our~~financing ~~manufacturing~~we ~~operations~~completed ~~to meet variations~~ in ~~customer~~ ~~demand~~February 2004. AsAlso ~~such,~~impacting cash ~~the~~flow ~~use~~were ofchanges ~~research and development personnel~~ in ~~manufacturing~~ ~~has,~~working ~~and~~capital ~~will continue to~~accounts, ~~fluctuate~~the ~~depending~~purchase ~~on volumes~~ and ~~mix~~financing of ~~product~~equipment, ~~sales~~ and the ~~availability~~repayment of ~~research~~bank ~~and development personnel to conduct such activities~~debt. ~~Significant changes in research and development costs~~ ~~were due to:~~

• Cash ~~The~~used ~~use~~in ofoperations ~~research~~during ~~and~~the ~~development~~quarter ~~personnel~~ended inJune 30, ~~manufacturing~~2004 ~~being~~amounted to $~~252~~720,000 ~~lower~~primarily inas ~~the~~a ~~third~~result ~~quarter~~ of ~~2003,~~our ~~and~~net loss of $1395,~~148,~~000 ~~lower~~adjusted for the change ~~nine-month~~in ~~period~~fair ~~ended~~value ~~September~~of ~~20,~~common ~~2003,~~stock ~~compared~~warrants ~~to the comparable periods~~ of ~~2002~~$940,000 ~~causing~~and anfor ~~increase~~certain non-cash inreconciling ~~reported~~items ~~R&D costs. • Transfer of personnel from research~~ and ~~development~~fluctuations toin ~~manufacturing~~working ~~and~~capital ~~also~~accounts. ~~permanent~~The most ~~staff~~significant ~~reductions~~changes ~~combined~~were todepreciation ~~reduce research~~ and ~~development~~amortization ~~expenses~~of by $~~306~~352,000 and changes ~~$751,000~~ in ~~the~~working ~~three~~capital ~~and~~accounts ~~nine-month~~that ~~periods~~impacted ~~ended~~cash ~~September~~used ~~30,~~in ~~2003~~operations, including ~~respectively.~~an •increase ~~Reductions~~ in ~~professional~~accounts ~~fees~~payable and ~~facility~~accrued ~~charges~~liabilities of $49268,000 ~~for the quarter,~~ and ~~$271,000~~an ~~for~~increase ~~the~~in ~~nine-month~~accounts ~~period~~receivable of ~~the~~$66,000, ~~current~~all ~~year compared to~~ the ~~prior year periods as a~~ result of ~~fewer~~normal business ~~personnel and our continued focus on controlling costs~~fluctuations.

~~Selling,~~Cash ~~General~~used ~~and~~in ~~Administrative.~~investing ~~Selling,~~activities ~~general~~represents ~~and~~the ~~administrative expenses~~purchase of $~~932~~263,000 inof manufacturing ~~the~~equipment. ~~third~~Future ~~quarter~~capital ofexpenditures ~~2003~~may ~~decreased~~include ~~$503,000,~~increased manufacturing orcapacity ~~35%, compared~~for our Bothell facility and other investments to support ~~the~~our ~~comparable~~operational ~~period~~growth. ofWe ~~2002~~may ~~and~~also ~~decreased~~require ~~$991,000,~~a orlarger ~~24%,~~inventory ~~for~~of raw ~~the~~materials ~~nine-month~~and ~~period~~products ~~ended~~to ~~September 30,~~provide ~~2003~~better service to ~~$3,214,000~~our ~~compared~~customers or to ~~the~~meet ~~comparable~~our ~~period~~customers’ demand, particularly in light of ~~2002.~~our ~~Significant~~launch ~~changes~~of molecular diagnostic products in ~~2003~~July 2004. ~~were~~We ~~primarily~~may ~~the~~finance these purchases from our cash ~~result~~and ~~of:~~cash equivalents on hand, cash generated from our operations, borrowings, equity offerings, or a combination thereof.

• Cash ~~Decreases~~provided inby ~~selling~~financing ~~and~~activities ~~marketing expenses of $154,000 and $589,000~~ in the ~~third~~six ~~quarter~~months ~~of 2003 and the nine-month period~~ ended ~~September~~ June 30, 2004 ~~2003,~~of ~~respectively~~$5,726,000 ~~due~~was ~~primarily~~the toresult ~~reduced expenditures on print advertising and a decision on our part to reduce sales efforts on our oligonucleotide business. • The sale~~ of ~~our~~$5,748,000 ~~oligonucleotide~~received ~~assets~~ in ~~May~~a ~~2003~~private ~~resulted~~equity transaction in ~~the elimination of our administrative functions which supported those operations and reduced administrative expenses by approximately $284~~February 2004,~~000~~ ~~and~~ $~~360~~271,000 in ~~the~~proceeds ~~three~~from ~~and~~bank ~~nine-month periods ended September 30~~loans, ~~2003,~~and ~~respectively. • Recovery of~~ $~~175~~12,000 received infrom ~~arbitration expenses incurred by us in our dispute with Third Wave which was settled in~~ the ~~second~~exercise ~~quarter~~ of ~~2003~~stock ~~and~~options, ~~was~~offset ~~applied~~by ~~against~~repayments ~~legal~~on ~~expenses~~term ~~recognized~~loans of ~~in earlier periods~~$305,000.

14 Private Equity Financing. On February 23, 2004, we consummated the issuance of 2,470,000 newly-issued shares of our common stock, and warrants to purchase 741,000 newly-issued shares of our common stock, to a small number of institutional investors, resulting in our receipt of $6,175,000 in gross proceeds, prior to placement agent fees and other offering costs totaling $427,000 and the exercise of the

~~Table of Contents~~14

LossTable on Sale of San Diego Operations. On May 30, 2003, we sold the assets and customer base of our oligonucleotide operations located in San Diego, California to Eurogentec S.A., a Belgium based supplier of products and services to life sciences companies, for $1,400,000 in cash. The assets sold included manufacturing and other equipment, inventory, prepaid maintenance contracts, and a non-compete agreement from our acquisition of the business in November 2000. In addition, goodwill of $2,151,846 related to our original acquisition was written-off in the transaction. The sale resulted in a loss of $2,804,862. Contents

~~Interest~~warrants. ~~Income,~~Investors ~~net~~received a warrant to purchase 0.3 ~~Interest~~shares ~~income,~~of ~~net~~common stock for each share of common stock purchased. The effective price in the private placement was $2.50 for each unit, ~~throughout~~consisting ~~2003~~of ~~has~~one ~~been~~share of common ~~lower~~stock ~~than~~and ~~the~~a ~~comparable~~warrant ~~periods~~to purchase 0.3 shares of ~~2002~~common ~~due~~stock. The warrants have an exercise period of five years and an exercise price of $3.89 per share. Our placement agent with respect to ~~reduced~~the transaction received a cash ~~balances available~~fee ~~for~~equal ~~investment,~~to 5.5% ~~lower~~of ~~interest~~the ~~rates~~gross proceeds, and ~~higher~~its ~~interest~~affiliates ~~expense~~received aswarrants to purchase an aaggregate ~~result~~of 75,000 shares of our ~~term~~common ~~loan~~stock, ~~facility~~carrying wethe ~~entered~~same ~~into~~terms ~~with~~as ~~Silicon~~the warrants ~~Valley~~received ~~Bank~~by ~~in late~~the ~~2002~~investors.

~~Liquidity~~ The warrants issued in the private equity placement provide for cash redemption by the warrant holders upon the occurrence of a change in control that may be outside of the control of our Board of Directors, subject to certain exceptions. As a result, and ~~Capital~~in ~~Resources~~accordance with EITF 00-19, “Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In a Company’s Own Stock,” the fair value of the warrants, measured using the Black-Scholes valuation method, is recorded as a current liability on our balance sheet. The decrease in the market price of our common stock and other changes in the valuation assumptions from the closing of the equity placement on February 23, 2004 to June 30, 2004 resulted in a decrease in the value of the warrants between these dates and the $940,000 warrant valuation adjustment reported in our statements of operations for the period ending June 30, 2004.

~~Cash~~Until ~~and~~the ~~cash~~warrants ~~equivalents~~are ~~amounted~~exercised toor $4expire,~~586,000~~ atthe ~~September 30,~~valuation ~~2003,~~of athe warrants ~~$1,078,000~~and ~~increase~~the ~~from~~corresponding ~~December 31,~~liability ~~2002~~will ~~balances,~~be ~~primarily~~re-measured asquarterly aand ~~result~~the offinancial ~~the~~statements ~~impact~~will ofreflect ~~changes~~a innon-cash ~~working~~valuation ~~capital~~adjustment ~~accounts,~~based ~~net~~on ~~cash~~the ~~proceeds~~change ~~from the~~in ~~sale~~the offair ~~our~~value ~~non-proprietary~~of ~~oligonucleotide~~the ~~operations~~warrants ~~located~~at ~~in San Diego, and proceeds from~~ the ~~exercise~~end of ~~stock~~each ~~options~~reporting ~~and warrants~~period.

~~Cash~~Bank ~~used~~Financing. inOur ~~operations~~term ~~during~~loan ~~the~~facility ~~nine-month~~expired ~~period~~on ~~ended September~~June 30, ~~2003~~ ~~amounted~~2004 toand ~~$241,000 primarily as a result of~~ our working ~~net~~capital ~~loss~~line of ~~$4,266,000 adjusted~~credit ~~for~~will ~~the~~expire ~~loss~~at on the ~~sale~~end of ~~our~~August 2004. ~~San Diego operations of $2,805,000 and~~Advances ~~for~~under ~~certain~~the ~~non-cash~~term ~~reconciling~~loan ~~items~~are ~~and~~secured ~~fluctuations~~by ina ~~working~~first ~~capital accounts.~~position ~~The~~security ~~most~~interest ~~significant changes~~ in ~~working capital accounts that~~our ~~impacted~~assets ~~cash~~excluding ~~used~~intellectual inproperty, ~~operations~~and ~~were~~are ~~decreases~~repayable in ~~accounts receivable of~~36 monthly ~~$685,000~~payments ~~and in inventories~~ of ~~$269,000~~principal ~~reflecting~~and ~~our~~interest ~~decreased~~at ~~product~~the ~~sales, offset~~bank’s byprime arate ~~net~~plus ~~decrease~~0.5%. inWe ~~accounts payable and accrued liabilities of~~have ~~$418,000,~~not ~~due~~taken ~~primarily~~any toadvances ~~payment~~against ofthe ~~2002~~working ~~incentive~~capital ~~compensation~~line ~~amounts and normal fluctuations in timing~~ of ~~payments~~credit. ~~Changes~~We inhave ~~deferred revenue,~~had ~~representing~~preliminary updiscussions ~~front~~with ~~license~~the ~~and~~commercial ~~technology~~lender ~~access~~about ~~payments subject to recognition over~~ the ~~terms~~renewal of the ~~underlying agreements, also impacts cash flow~~ ~~from~~term ~~operations~~loan facility. ~~During~~There ~~2003,~~can webe ~~received~~no aassurance ~~portion~~that ofsuch ~~the~~discussions ~~technology~~will ~~access~~lead ~~fee~~to ~~from~~a ~~QIAGEN~~renewal ~~as part~~ of ~~our~~that ~~license~~facility ~~and~~on ~~distribution~~acceptable ~~agreement~~terms, ~~and~~or ~~other smaller~~at ~~license fees~~all. ~~No such fees were received in the nine months ended~~ ~~September 30, 2002.~~

~~Cash~~Summary. ~~provided~~Based byon ~~investing~~cash ~~activities~~and ofcash ~~$683,000~~equivalents inon ~~the~~hand ~~nine~~at ~~months ended September~~June 30, ~~2003 consisted of $1~~2004,~~082,000~~ ~~received~~as well ~~from~~as ~~the~~on ~~sale~~results of ~~our~~operations ~~San Diego~~and ~~operations~~cash ~~offset~~flows byfor the ~~purchase~~quarter ofended ~~$398~~June 30,~~000~~ 2004, ofwe ~~equipment~~currently ~~required~~anticipate ~~for manufacturing~~that ~~operations~~existing incash ~~Bothell.~~balances, ~~Future~~projected ~~capital~~cash ~~expenditures~~from operations ~~may~~and ~~include increased~~unused ~~manufacturing~~borrowing capacity ~~for~~under ~~our~~existing ~~Bothell~~bank ~~facility~~loans ~~and~~will ~~other investments~~be sufficient to ~~support~~meet our ~~operational~~anticipated ~~growth.~~working Wecapital ~~may also require a larger inventory of raw materials~~ and ~~products~~capital ~~to provide better service to our customers or to~~expenditures ~~meet~~needs ~~our~~through ~~customers’~~at ~~demand~~least 2005. WeHowever, ~~may finance these purchases from~~ our ~~cash~~future ~~and cash~~capital ~~equivalents~~requirements depend on ~~hand,~~numerous ~~cash generated from our operations~~factors, ~~borrowings, equity~~including ~~offerings,~~but ornot alimited ~~combination thereof.~~to:

~~Cash~~• ~~provided~~the bymagnitude ~~financing~~of ~~activities~~our infuture ~~the~~losses; ~~nine~~• ~~months~~the ~~ended~~timing ~~September 30,~~and ~~2003~~terms of ~~$636,000~~new ~~was~~technology ~~the~~licensing ~~result~~agreements ofor ~~$598,000~~other instrategic ~~proceeds~~relationships ~~from~~that ~~the~~may ~~term~~provide ~~loans and~~up ~~$450,000~~front ~~received~~license ~~from~~fees ~~the~~or ~~exercise~~other ofpayments; ~~stock~~• ~~options~~resources that we devote to research and ~~warrants,~~development ~~offset by~~and ~~repayments~~sales onand ~~term~~marketing ~~loans~~in support of ~~$412,000.~~our ~~Included~~business instrategy; ~~the~~• ~~repayment~~technology oflicenses ~~term loans~~necessary isto ~~the~~support ~~early~~our ~~repayment~~molecular ofdiagnostic ~~$108,000~~products ~~which~~that ~~was~~may ~~secured~~require byupfront ~~assets~~license ~~sold~~fees ~~with our~~or ~~San~~other ~~Diego~~payments; ~~operations~~and • capital expenditures necessary to expand manufacturing capacity.

InIt ~~September~~is ~~2003~~possible that we ~~completed~~may ~~negotiations~~need ~~with~~to ~~Silicon~~raise ~~Valley~~additional ~~Bank~~capital ~~and amended~~to fund our activities ~~term~~and/or ~~loan~~to ~~facility.~~consummate ~~Under~~acquisitions ~~the~~of ~~new~~other ~~terms~~businesses, weproducts ~~have~~or technologies. ~~$1,000,000~~We ~~of term~~may ~~loan~~be ~~financing~~able ~~available~~to ~~for~~raise ~~equipment~~such

~~purchases~~funds ~~through~~by ~~June 30~~selling more stock to the public or to selected investors, ~~2004~~or by borrowing money. ~~Additionally~~In addition, aseven ofthough ~~September 30,~~we ~~2003~~may not need additional funds, we ~~had~~may ~~$750~~still elect to sell additional equity securities or obtain credit facilities for other reasons. We may not be able to obtain additional funds on terms that would be favorable to our shareholders and us,~~000~~ ofor ~~available~~at ~~financing~~all. ~~under~~If awe raise ~~working~~additional ~~capital~~funds ~~line~~by issuing additional equity or convertible debt securities, the ownership percentages of ~~credit~~existing shareholders would be ~~which~~reduced. In addition, the equity or debt securities that we issue may behave rights, ~~used~~preferences ~~through~~or ~~August~~privileges ~~2004~~senior to those of the holders of our common stock.

~~The~~Certain ~~third~~Factors ~~quarter~~That ~~of 2003 was the first full quarter of operations after the sale of our San Diego operations in~~ May ~~2003.~~Affect ~~Based~~Our onBusiness ~~results~~And ~~of operations~~Future ~~and cash flows during such quarter, we anticipate that existing cash~~Results ~~balances, projected cash from operations and unused borrowing capacity under~~ ~~existing bank loans, will be sufficient to meet our anticipated working capital~~ ~~and capital expenditure needs into at least 2005. However, it is possible that~~ we may need to raise additional capital to fund our activities and/or to consummate acquisitions of other businesses, products or technologies. We may be able to raise such funds by selling more stock to the public or to selected investors, or by borrowing money. In addition, even though we may not need additional funds, we may still elect to sell additional equity securities or obtain credit facilities for other reasons. We may not be able to obtain additional funds on terms that would be favorable to our shareholders and us, or at all. If we raise additional funds by issuing additional equity or convertible debt securities, the ownership percentages of existing shareholders would be reduced. In addition, the equity or debt securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock.

~~Certain~~Forward ~~Factors~~Looking ~~That May Affect Our Business And Future Results~~Statements

~~Forward~~ Some ~~Looking~~of ~~Statements~~the information included herein contains forward-looking statements. These statements can be identified by the use of forward-looking terms such as “may,” “will,” “expect,” “anticipates,” “estimate,” “continue,” or other similar words. These statements discuss future expectations, projections or results of operations or of financial condition or state other “forward-looking” information. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements we make. These risk factors could cause our actual results to differ materially from those contained in any forward-looking statement. If any of the following risks actually occur, our business could be harmed and the trading price of our common stock could decline.

~~Some~~We ofhave ~~the~~realized ~~information~~operating ~~included~~profits ~~herein~~in ~~contains~~only ~~forward-looking statements.~~one ~~These~~quarter ~~statements~~and ~~can~~anticipate ~~be identified by the use of forward-looking terms such as “may,” “will,” “expect,” “anticipates,” “estimate,” “continue,” or other similar words. These statements discuss~~ future ~~expectations,~~ ~~projections or results of operations or of financial condition or state other “forward-looking” information. When considering these forward-looking statements~~losses, ~~you should keep in mind the risk factors~~ and ~~other cautionary statements~~ we ~~make.~~may ~~These~~require ~~risk~~additional ~~factors could cause our actual results to~~capital ~~differ materially from those contained in any forward-looking statement. If~~ ~~any of the following risks actually occur, our business could be harmed and the~~ ~~trading price of our common stock could decline.~~

We Since our formation in 1985, we have ~~been~~generated ~~profitable~~limited revenues and realized operating profit in only one quarter, which was the quarter ended December 31, 2002. As of June 30, 2004, we had an accumulated deficit of approximately $79 million. While we are commercializing our products and technologies, ~~anticipate~~prior ~~future~~to adequate revenues being generated from these activities we expect to incur additional operating losses as we expand our manufacturing capacity, continue our research and development activities and fund our product commercialization efforts. There is no assurance that we ~~may~~will ~~require~~ever ~~additional~~become profitable from operations or that we will sustain operational profitability if we do become profitable. Should we experience continued or unforeseen operating losses, our capital requirements would increase and our stock price would likely decline.

~~Since our formation in 1985~~Additionally, weas ~~have generated limited revenues and realized only one profitable quarter, which was the quarter ended December 31, 2002. As~~ of ~~September~~June 30, ~~2003,~~2004 we had ~~an accumulated deficit of~~ approximately $789 million. ~~While~~in wecash and ~~are~~cash ~~commercializing~~equivalents. ~~our~~We ~~products~~currently ~~and~~anticipate ~~technologies,~~that ~~and prior~~our tocurrent ~~adequate~~cash ~~revenues~~balances and ~~being~~cash ~~generated~~ from ~~these~~operations ~~activities,~~will webe ~~expect~~sufficient to ~~incur~~ ~~additional~~meet ~~losses~~our ascash weneeds ~~continue~~through 2005. ~~our~~However, ~~research~~we ~~and~~may ~~development~~need ~~activities, fund~~to ~~our~~seek ~~product~~additional ~~commercialization~~equity ~~efforts,~~ and,/or asdebt ~~demand warrants~~capital, ~~expand our~~and ~~manufacturing~~there ~~capacity.~~can ~~There~~be is no assurance that wesuch capital will ~~ever~~be ~~become profitable~~available orto ~~that~~us weon favorable ~~will~~terms, ~~sustain~~or ~~profitability~~at ifall. weIf doadditional ~~become~~funds ~~profitable. Should~~are wenot ~~experience~~available, ~~continued~~we orwould ~~unforeseen~~be required ~~operating~~to ~~losses~~delay, ~~our~~reduce, ~~capital requirements~~or ~~would~~eliminate ~~increase~~expenditures ~~and~~for ~~our~~some ~~stock~~or ~~price~~all ~~would~~of ~~likely~~our programs ~~decline~~or products.

AsWe ofwill ~~September 30,~~be ~~2003~~dependent weupon ~~had~~our ~~approximately~~agreement ~~$4.6 million~~with inApplied ~~cash~~Biosystems ~~and cash equivalents, a commitment from a bank~~ for a ~~secured term loan of~~ ~~$1,000,000,~~significant ~~and~~portion ~~have a working capital line~~ of ~~credit~~our ofrevenues ~~$750,000.~~for ~~We can draw on the equipment loan through June~~ 2004 and onfuture ~~the working capital line of credit through August 2004. We currently anticipate that our current cash balances~~periods, ~~cash from operations,~~ and ~~unused borrowing capacity will be~~a ~~sufficient~~reduction toof ~~meet~~sales ~~our~~under ~~cash~~or ~~needs~~early ~~through~~termination atof ~~least~~this ~~the~~agreement ~~next~~would ~~twelve months.~~seriously ~~However,~~harm weour ~~may~~revenues ~~need to seek additional equity~~ and~~/or~~ ~~debt~~operating ~~capital,~~results and ~~there can~~would belikely nocause ~~assurance~~our ~~that~~stock ~~such capital will be available~~ price to ~~us on favorable~~decline ~~terms, or at all. If additional funds~~

16 In January 1999, Epoch and Applied Biosystems entered into a License and Supply Agreement pursuant to which we licensed some of our technology to Applied Biosystems for use in its TaqMan® 5’-nuclease real-time PCR assays, (TaqMan® is a registered trademark of Roche Molecular Systems, Inc.).

~~Table of Contents~~16

areTable not available, we would be required to delay, reduce, or eliminate expenditures for some or all of our programs or products. Contents

~~There~~In isJuly 1999, awe ~~risk~~licensed our proprietary software, which speeds the design of oligonucleotide probes used in the study of genes, to Applied Biosystems. In August 2000, the agreement was amended to, among other things, provide for Epoch manufacturing product for Applied Biosystems. In July 2002 this agreement was further amended to remove the manufacturing rights from the contract effective October 2002, redefine product categories, increase the minimum royalties and royalty rates, and establish that ~~our~~minimum ~~technology~~royalties ~~may~~are measured beand ~~non-competitive~~paid orquarterly. ~~might~~We ~~not~~will ~~work~~depend upon product sales and royalties from Applied Biosystems’ sales of its TaqMan® assays under this agreement for a significant portion of our revenues in 2004 and future periods.

The ~~science and~~ technology oflicenses ~~synthetic~~and ~~DNA-based~~Applied ~~products~~Biosystem’s isobligation ~~rapidly evolving. While we have begun~~ to ~~produce~~pay ~~and supply products to customers for~~us ~~commercial~~royalties ~~use,~~on ~~the~~their ~~majority~~sale of ~~our~~ products ~~are~~that inincorporate ~~the~~our ~~early~~technologies ~~stages of~~continue ~~commercialization~~until ~~and~~the ~~future~~expiration ~~products~~of ~~are in~~ the ~~discovery~~underlying ~~or early development stage~~patents. ~~These~~Since ~~proposed~~the ~~products~~July 2002 ~~will require significant further research,~~amendment ~~development,~~that ~~and~~increased ~~testing. We face~~ the ~~risk~~minimum ~~that~~royalty ~~any~~levels, orquarterly ~~all~~royalties ofearned ~~our~~based ~~products and~~on ~~proposed~~actual ~~products~~sales ~~could~~by ~~prove~~Applied toBiosystems behave ~~ineffective~~been orless ~~unsafe,~~than orthe becontractual ~~inferior to~~minimum ~~products~~royalty ~~marketed~~levels. byAs ~~others~~a ~~because~~result, ~~our~~we ~~products~~have ~~are~~received ~~based~~the onspecified ~~new~~quarterly ~~and unproven~~minimum ~~innovative technologies~~amounts. ~~Some~~The ~~of our~~ current ~~research~~agreement ~~and~~calls ~~development activities~~for ~~may~~quarterly ~~not~~royalty ~~result~~minimums ~~in any commercially viable products~~through September 2005. ~~If we do not have commercially viable products~~Thereafter, we will ~~not~~receive beroyalty ~~able~~payments tobased ~~sell~~on ~~our products, we~~actual ~~will~~sales. ~~not~~Based beon ~~able~~experience to ~~attract partners~~date, ~~and~~those wepayments ~~will~~may ~~not~~ be ~~able~~significantly toless than ~~generate~~the ~~funds internally~~minimum topayments ~~support~~currently ~~operations~~being made.

We Either ~~have~~party ~~limited~~may ~~manufacturing~~terminate ~~experience~~the agreement upon 180 days written notice. In the event that this agreement is terminated, our revenues, financial condition and operating results would be adversely affected and our stock price would likely decline.

~~While~~There weis ~~have~~a ~~experience~~risk inthat ~~researching and developing unique, proprietary technologies to enhance the study of genes, and in manufacturing oligonucleotides at relatively small scales,~~ our ~~experience~~technology in manufacturing other chemical reagent products is relatively limited. We have sufficient manufacturing capacity to meet current customer needs. Anticipated increases in customer demand over the next year may ~~require~~not usbe toas ~~expand~~effective ~~our manufacturing capacity in Bothell, acquire additional manufacturing capacity, or utilize costly third-party manufacturing vendors,~~ as ~~necessary. Any delay~~alternatives ~~or inability to expand our manufacturing capacity could materially and~~ ~~adversely affect our manufacturing ability.~~

We The ~~may~~science beand ~~unable~~technology toof ~~maintain~~synthetic ~~our~~DNA-based ~~listing~~products onis ~~Nasdaq,~~rapidly evolving. ~~which~~While ~~could~~we ~~cause~~believe that our ~~stock~~technology is cost-effective and produces ~~price~~results equal or superior to ~~fall~~other ~~materially~~competing ~~and~~technologies, ~~decrease~~we face the ~~liquidity~~risk that any or all of our ~~common~~products ~~stock~~and proposed products could prove to be less effective or more costly than products currently marketed, or under development, by others. If we do not have commercially viable products, we will not be able to sell our products, we will not be able to attract partners, and we will not be able to generate funds internally to support operations.

Our ~~common~~inability ~~stock is currently listed on The Nasdaq SmallCap Market. To maintain the listing, we must continue~~ to ~~satisfy~~implement ~~the~~effective ~~ongoing~~marketing ~~Nasdaq~~programs ~~compliance requirements,~~and ~~including~~build ~~that our common stock have~~ a ~~minimum bid price of $1.00~~successful ~~per~~direct ~~share.~~sales Inforce ~~the third~~ and ~~fourth~~other ~~quarters~~distribution ofchannels ~~2002~~would limit our ~~stock traded below the~~revenue ~~$1 minimum for a few days.~~growth

IfWe ~~our~~have ~~common~~limited ~~stock~~direct issales ~~delisted~~and ~~from~~marketing ~~trading~~experience onin ~~The~~general, ~~Nasdaq SmallCap Market~~little infrastructure, and isno ~~not~~recent ~~relisted~~experience ~~thereon~~selling weto ~~would~~the ~~likely~~molecular ~~seek~~diagnostics market. ~~listing~~We ofbelieve that to market our ~~common~~products ~~stock~~effectively, onin particular our ~~the~~new ~~over-the-counter~~analyte ~~market~~specific reagents, ~~which~~we ismust ~~viewed~~continue byto ~~many~~expand ~~investors~~our asdirect asales operations. ~~less~~This ~~liquid~~expansion will require significant management attention and ~~marketplace~~financial resources to successfully develop direct and indirect U.S. Asand international asales ~~result~~and support channels, ~~the~~and ~~price~~there’s ~~per~~no ~~share~~assurance ofthat we will be successful or that our ~~common~~expenditures ~~stock~~in ~~would~~this ~~likely~~effort will not exceed the ~~decrease~~amount ~~materially~~of any resulting revenues. Competition for qualified sales personnel is intense and, we may not be able to hire and train as many qualified individuals as we may require in the ~~trading~~future. ~~market~~We will continue to incur the expenses for ~~our~~a sales ~~common~~and ~~stock,~~marketing ~~our~~infrastructure ~~ability~~before we recognize significant revenue from sales of the products. If we are not able to ~~issue~~successfully ~~additional~~build ~~securities~~a sales and marketing infrastructure or if our ~~ability~~direct tosales ~~secure~~force ~~additional~~is ~~financing~~not successful we may ~~would~~not ~~likely~~meet beour ~~materially~~revenue goals and ~~adversely~~our ~~affected~~stock price would likely decline.

~~There is a risk that we do not own exclusive rights to our technology, or that~~17 ~~our competition may have access to our technology which may prevent us from selling our products~~

WeTable attempt to protect our proprietary technology by relying on several methods, including United States patents. We also have international patent applications that correspond to many of the U.S. patents and patent applications. The issued patents and pending patent applications cover inventions relating to the components of our core technologies. The expiration dates of these patents range from January 2010 to July 2020. We make no guarantee that any issued patents will provide us with Contents

17We introduced our initial menu of molecular diagnostic products in July 2004. There is a risk that these products may not be commercially viable or successful, which would limit our revenue growth

~~Table~~ We are currently developing and commercializing only a limited number of molecular ~~Contents~~diagnostic products based on our technologies. We plan to develop additional molecular diagnostic products. We cannot assure you that we will be able to complete development of our products that are currently under development or that we will be able to develop additional new products. In addition, some of the products we develop may not be useful or cost effective in molecular diagnostic applications. If our molecular diagnostic products are not commercially successful, we may not meet our revenue goals and our stock price would likely decline.

~~significant~~We ~~proprietary~~have ~~protection,~~limited ~~that~~manufacturing ~~pending patents will be issued,~~experience ~~or that products incorporating the technology covered by our issued patents or~~ ~~pending applications will be free from challenges by competitors.~~

~~Some~~ While ofwe ~~our~~have ~~technology~~experience ~~might~~in ~~infringe~~researching onand developing unique, proprietary technologies to enhance the ~~rights~~study of ~~others~~genes, ~~which~~and ~~may~~in manufacturing ~~prevent~~oligonucleotides and other chemical intermediates at relatively small scales, our experience in manufacturing at larger scales is relatively limited. We currently have sufficient manufacturing capacity to meet current customer needs. Anticipated increases in customer demand over the next year may require us ~~from~~to ~~selling~~expand our ~~products~~manufacturing capacity in Bothell, acquire additional manufacturing capacity, or utilize costly third-party manufacturing vendors, as necessary. Any delay or inability to expand our manufacturing capacity could materially adversely affect our manufacturing ability.

There is a ~~great~~risk ~~deal~~that ofwe ~~litigation~~do ~~regarding~~not ~~patents~~own ~~and~~exclusive ~~other intellectual property~~ rights into ~~the~~our ~~biomedical industry. We were defendants in one action of this kind~~technology, ~~which we settled prior to 1997. Although patent and intellectual property disputes in the biomedical area are sometimes settled through licensing~~ or ~~similar arrangements, this kind of solution can be~~that ~~expensive,~~our ifcompetition amay ~~license~~have ~~can~~access beto ~~obtained at all. An adverse determination in a judicial or administrative proceeding or~~ our ~~failure~~technology towhich ~~obtain~~may ~~necessary licenses could~~ prevent us from ~~manufacturing and~~ selling our products~~. This~~ ~~would substantially hurt our business.~~

We ~~face~~attempt ~~numerous~~to ~~competitors~~protect our proprietary technology by relying on several methods, including United States patents. We also have international patent applications that correspond to many of the U.S. patents and ~~changing~~patent applications. The issued patents and pending patent applications cover inventions relating to the components of our core technologies. ~~which~~The ~~could~~expiration dates of these patents range from January 2012 to July 2020. Additionally, as sales of our MGB Eclipse products to parties other than Applied Biosystems have become a larger proportion of our revenues, we have become increasingly dependent upon certain patent rights that we licensed from Applied Biosystems covering certain technology necessary for the manufacture and use of our MGB Eclipse products. We make no guarantee that any licensed patents or our issued patents will provide us with significant proprietary protection, that pending patents will be issued, or that products ~~obsolete~~incorporating the technology covered by licensed patents, our issued patents or pending applications will be free from challenges by competitors. Further, third parties may hold proprietary rights which precede our claims or claims made under licensed patents and could therefore prohibit us from marketing our current or proposed products.

~~Many~~Some ~~companies~~of doour ~~research~~technology ~~and~~might ~~development~~infringe ~~and market products designed to analyze genes and diagnose conditions based~~ on athe ~~number~~rights of ~~technologies and are developing additional products. Many of these companies have substantially greater capital resources~~others, ~~larger facilities, larger research and development and marketing staffs and greater experience in developing products than we have. Furthermore, the specific field in~~ which ~~we operate is subject to~~may ~~significant~~prevent ~~and~~us ~~rapid~~from ~~technological~~selling ~~change. Even if we successfully introduce~~ our products ~~or proposed products, our technologies could be replaced by new~~ ~~technologies or our products or proposed products might be obsolete or~~ ~~non-competitive.~~

There is a great deal of litigation regarding patents and other intellectual property rights in the biomedical industry. We ~~will~~were bedefendants ~~dependent~~in one ~~upon~~intellectual ~~our~~property ~~agreement~~litigation ~~with~~case, ~~Applied~~which ~~Biosystems~~we ~~for~~settled aprior to 1997. ~~significant~~Although ~~portion~~patent ofand ~~our~~intellectual ~~revenues~~property ~~for~~disputes ~~2003~~in the biomedical area are sometimes settled through licensing or similar arrangements, ~~and~~this kind of solution can be expensive, if a ~~reduction~~license ofcan ~~sales~~be ~~under~~obtained orat all. An adverse ~~early~~determination ~~termination~~in ofa ~~this~~judicial ~~agreement~~or ~~would~~administrative ~~seriously~~proceeding ~~harm~~or our ~~revenues~~failure ~~and~~to ~~operating~~obtain ~~results~~necessary ~~and~~licenses ~~would~~could ~~likely~~prevent ~~cause~~us from manufacturing and selling our products. ~~stock~~This ~~price~~would tosubstantially ~~decline~~hurt our business.

InWe ~~January~~face ~~1999,~~numerous ~~Epoch~~competitors and ~~Applied~~changing ~~Biosystems~~technologies ~~entered into a License and Supply Agreement pursuant to~~ which wecould ~~licensed~~make ~~some of~~ our ~~technology to~~ ~~Applied~~products ~~Biosystems for use in its TaqMan® 5’-nuclease real-time PCR assays~~obsolete ~~(TaqMan® is a registered trademark of Roche Molecular Systems, Inc.) for the~~ ~~research market. In July 1999, we licensed our proprietary software, which~~ speeds the design of oligonucleotide probes used in the study of genes, to Applied Biosystems. In August 2000, we amended the agreement to, among other things, provide for the manufacturing of product by Epoch for Applied Biosystems. In July 2002 we further amended the agreement to discontinue Epoch’s manufacturing obligations effective October 2002, redefine product categories, increase the minimum royalties and royalty rates, and establish that minimum royalties are measured and paid quarterly. We will depend upon product sales and royalties from Applied Biosystems’ sales of its TaqMan® assays under this agreement for a significant portion of our revenues in 2003 and future periods.

~~Either~~Many ~~party~~companies ~~may~~do ~~terminate~~research ~~the agreement upon 180 days written notice. In the event that this agreement is terminated, our revenues, financial condition~~ and ~~operating~~development ~~results would be adversely affected~~ and ~~our~~market ~~stock~~products ~~price~~designed ~~would~~to ~~likely~~analyze ~~decline.~~genes

Weand ~~will~~diagnose beconditions ~~dependent~~based on ~~our~~a ~~agreement~~number ~~with~~of ~~QIAGEN~~technologies Nand are developing additional products.V. ~~for~~In the ~~distribution~~molecular ofdiagnostics market, we also potentially compete with several companies offering alternative technologies to our MGB Eclipse ~~products~~Detection ~~and~~Reagents. ~~the~~Many ~~resultant~~of ~~revenues.~~these ~~Lower~~companies ~~than~~have ~~expected~~substantially ~~sales~~greater capital resources, orlarger ~~early~~research ~~termination~~and ofdevelopment ~~this~~and ~~agreement~~marketing ~~would~~staffs and ~~seriously~~facilities ~~harm~~and ~~our projected~~greater ~~revenues~~experience in developing and ~~operating~~commercializing products ~~results~~than we have. Furthermore, the fields in which we operate are subject to significant and ~~would~~rapid ~~likely~~technological ~~cause~~change. Even if we successfully introduce our ~~stock~~products ~~price~~or proposed products, our technologies could be replaced toby ~~decline~~new technologies or our products or proposed products might be obsolete or non-competitive.

InWe ~~October~~will ~~2002,~~be ~~Epoch~~dependent ~~and~~on ~~QIAGEN~~our ~~entered~~agreement ~~into~~with aQIAGEN ~~license~~N.V. ~~and~~for ~~supply~~the distribution of ~~agreement~~our ~~under~~MGB ~~which~~Eclipse ~~QIAGEN~~products ~~became~~and the ~~co-exclusive~~resultant ~~worldwide~~revenues. Lower than expected sales, ~~marketing and~~or ~~distribution~~early ~~partner~~termination toof ~~the~~this ~~research~~agreement ~~field~~would ofseriously harm our projected ~~MGB~~revenues ~~Eclipse~~and ~~probe products~~operating ~~for~~results ~~gene~~and ~~expression.~~would likely cause our stock price to decline

WeIn ~~will~~October 2002, ~~depend~~Epoch ~~upon~~and ~~product sales to~~ QIAGEN ~~under~~entered ~~this~~into ~~agreement for~~ a ~~significant~~ ~~portion~~license ofand ~~our~~supply agreement ~~revenues~~under inwhich ~~future~~QIAGEN ~~periods.~~became In the ~~event~~co-exclusive ~~that~~worldwide ~~this agreement is terminated~~sales, ormarketing and ~~our~~distribution partner isto ~~unsuccessful~~the atresearch ~~commercializing~~field ~~our technologies,~~of our ~~revenues,~~MGB ~~financial~~Eclipse ~~condition~~Probe ~~and operating results would be~~Systems ~~adversely~~for ~~affected~~gene ~~and our stock price would likely decline~~expression.

~~Some~~ We will depend upon product sales to QIAGEN under this agreement for a significant portion of our ~~customers~~revenues ~~may~~in ~~experience~~future ~~financial~~periods. ~~difficulties~~In the event that this agreement is terminated, ~~which~~or ~~could~~if QIAGEN is unsuccessful at commercializing our technologies, our revenues, financial condition and operating results would be adversely ~~impact~~affected and our ~~collection~~stock ofprice ~~accounts~~would ~~receivable~~likely decline.

~~Although~~Some ~~historically~~of ~~we have experienced minimal credit losses from~~ our ~~trade~~ ~~receivables,~~customers ~~our~~may experience isfinancial ~~limited. At September 30~~difficulties, ~~2003,~~which ~~our~~could ~~allowance~~adversely ~~for~~impact ~~doubtful~~our ~~accounts~~collection ~~was $60,000. We regularly review the collectibility and credit worthiness~~ of ~~our customers and the receivables to determine an appropriate allowance for doubtful~~ accounts, ~~however future~~receivable ~~uncollectible accounts could exceed our current or future allowances.~~

~~The~~ Although ~~loss~~historically ofwe ~~key~~have ~~personnel~~experienced ~~could~~limited ~~adversely~~credit ~~affect~~losses ~~operations~~from byour trade ~~impairing~~receivables, our experience is limited. At June 30, 2004, our allowance ~~research~~for doubtful accounts was $70,000. We regularly review the collectibility and credit worthiness of our ~~efforts~~customers and the receivables to ~~commercialize~~determine ~~and~~an appropriate ~~license~~allowance for doubtful accounts, however future uncollectible accounts could exceed our ~~products~~current or future allowances.

~~Our~~The ~~performance~~loss isof ~~greatly dependent upon our~~ key ~~management, including our President and Chief Executive Officer, Dr. William Gerber, and technical~~ personnel ~~and~~could ~~consultants.~~adversely ~~Our~~affect ~~future~~operations ~~success~~by ~~will~~impairing ~~depend in part upon~~ our ~~ability to retain these people and to recruit additional qualified personnel. We must compete with other companies, universities,~~ research ~~entities~~ and ~~other organizations~~our inefforts ~~order~~ to ~~attract~~commercialize and ~~retain~~license ~~highly qualified personnel. Although we have entered into agreements with~~ our ~~key executive officers, we~~products ~~make no guarantee that we will retain these highly qualified personnel or hire~~ ~~additional qualified personnel. We currently maintain no key man life~~ ~~insurance on any of our management or technical personnel.~~

~~The~~ Our ~~value~~performance ofis greatly dependent upon our ~~common~~key ~~stock~~management, ~~could~~including our ~~change~~Chief ~~significantly~~Executive Officer, Dr. William Gerber, and technical personnel and consultants. Our future success will depend in apart ~~very~~upon ~~short~~our ~~time~~ability to retain these people and to recruit additional qualified personnel. We must compete with other companies, universities, research entities and other organizations in order to attract and retain highly qualified personnel. Although we have entered into agreements with our key executive officers, we make no guarantee that we will retain these highly qualified personnel or hire additional qualified personnel. We currently maintain no key man life insurance on any of our management or technical personnel.

The ~~market~~value ~~price~~ of our common stock ~~may~~could ~~fluctuate~~change significantly. ~~For example, our stock traded as high as $3.70~~ in September 2003, and as low as $0.70 in October 2002. The rapid price changes Epoch has experienced recently, and throughout our history, place your investment in our common stock at risk of substantial loss over a very short ~~period of~~ time~~. We are in the biotechnology~~ ~~industry and the market price of securities of biotechnology companies have~~ ~~fluctuated significantly and these fluctuations have often been unrelated to~~ ~~the companies’ operating performance. Announcements by us or our competitors~~ concerning technological innovations, new products, proposed governmental regulations or actions, developments or disputes relating to patents or proprietary rights, and other factors that affect the market generally could significantly impact our business and the market price of our securities.

19 The market price of our common stock may fluctuate significantly. For example, in the 52 weeks ended August 6, 2004 our stock traded as high as $3.70, and as low as $1.46. The rapid price changes that our stock has experienced recently, and throughout our history, place your investment in our common stock at risk of total loss over a short period of time. We are in the biotechnology industry and

~~Table of Contents~~19

PublicTable opinion regarding ethical issues surrounding the use of genetic information may adversely affect demand for our products Contents

~~Public opinion regarding ethical issues related to~~ the ~~confidentiality~~market ~~and appropriate~~price ~~use~~ of ~~genetic~~securities ~~testing~~of ~~results~~biotechnology ~~may~~companies ~~influence~~have ~~governmental~~fluctuated ~~authorities~~significantly toand ~~call~~these ~~for~~fluctuations ~~limits~~have ~~on,~~often orbeen ~~regulation~~unrelated ofto the companies’ ~~use~~operating ~~of, genetic testing~~performance. InAnnouncements ~~addition,~~by ~~these~~us ~~authorities~~or ~~could~~our ~~prohibit testing for genetic~~competitors ~~predisposition~~concerning totechnological ~~certain conditions~~innovations, ~~particularly~~new ~~for~~products, ~~those~~proposed ~~that have no known~~governmental ~~cure.~~regulations ~~Furthermore~~or actions, ~~adverse~~developments ~~publicity~~or ofdisputes ~~public opinion~~ relating to ~~genetic~~patents or ~~research~~proprietary ~~and testing~~rights, ~~even~~and inother ~~the~~factors ~~absence~~that ofaffect ~~any~~the ~~governmental~~market ~~regulation,~~generally could ~~harm~~significantly impact our business. ~~Any~~and ~~of these scenarios could reduce~~ the ~~potential~~market ~~markets for~~price ~~our~~of ~~products and technologies, which could materially and adversely affect~~ our ~~revenues~~securities.

~~Government~~Public ~~regulation~~opinion ofregarding ~~genetic~~ethical ~~research~~issues orsurrounding ~~testing~~the use of genetic information may adversely affect ~~the~~ demand for our products ~~and impair our business and operations~~

~~Federal,~~Public ~~state~~opinion ~~and~~regarding ~~local~~ethical ~~governments~~issues ~~may~~related ~~adopt regulations relating~~ to the ~~conduct~~ ofconfidentiality ~~genetic~~and appropriate ~~research~~use ~~and~~of genetic testing. ~~These~~results ~~regulations~~may ~~could~~influence ~~limit~~governmental orauthorities ~~restrict~~to ~~genetic~~call ~~research~~for ~~activities~~limits ason, ~~well~~or asregulation ~~genetic~~of ~~testing~~the ~~for~~use ~~research or~~of, ~~clinical purposes~~genetic testing. In addition, ifthese ~~state~~authorities ~~and~~could ~~local~~prohibit ~~regulations~~testing ~~are~~for ~~adopted,~~genetic ~~these~~predisposition ~~regulations~~to ~~may~~certain beconditions, ~~inconsistent~~particularly ~~with,~~for orthose inthat ~~conflict~~have ~~with,~~no ~~regulations~~known ~~adopted~~cure. byFurthermore, ~~other~~adverse ~~state~~publicity orof ~~local~~public ~~governments.~~opinion ~~Regulations~~ relating to genetic research ~~activities~~and ~~could~~testing, ~~adversely~~even ~~affect~~in ~~our~~the ~~ability~~absence toof ~~conduct~~any ~~our~~governmental ~~research~~regulation, could ~~and~~harm ~~development~~our ~~activities~~business. ~~Regulations~~Any ~~restricting~~of ~~genetic~~these ~~testing~~scenarios could ~~adversely~~ ~~affect~~reduce ~~our~~the ~~ability~~potential tomarkets for ~~market and sell~~ our products and ~~our~~ technologies~~. Accordingly~~, ~~any~~which ~~regulations~~could ofmaterially ~~this~~and ~~nature~~adversely ~~could harm our~~affect ~~business~~our revenues.

~~Health~~Government ~~care~~regulation ~~cost~~of ~~containment~~genetic ~~initiatives~~research ~~could~~or ~~limit~~testing ~~the~~may ~~adoption~~adversely ofaffect ~~genetic~~the ~~testing~~demand asfor aour ~~clinical~~products ~~tool,~~and ~~which~~impair ~~would harm~~ our ~~revenues~~business and ~~prospects~~operations

~~In recent years~~Federal, ~~health~~state ~~care~~and ~~payers~~local asgovernments ~~well~~may asadopt ~~federal~~regulations ~~and~~relating ~~state~~to the ~~governments~~conduct ~~have~~of ~~focused~~genetic onresearch ~~containing~~and orgenetic ~~reducing~~testing. ~~health~~These ~~care~~regulations ~~costs.~~could Welimit ~~cannot~~or ~~predict~~restrict ~~the~~genetic ~~effect~~research ~~that~~activities ~~any~~as ofwell ~~these~~as ~~initiatives~~genetic ~~may~~testing ~~have~~for ~~on our~~research ~~business,~~or ~~and~~clinical ~~it is possible that they will adversely affect our business~~purposes. In ~~particular,~~ ~~gene-based therapeutics~~addition, if ~~successfully~~state ~~developed~~ and ~~commercialized,~~ local regulations are ~~likely~~adopted, these toregulations may be ~~costly~~inconsistent ~~compared~~with, toor ~~currently~~in ~~available~~conflict ~~drug~~with, regulations ~~therapies.~~adopted ~~Health~~by ~~care~~other ~~cost~~state ~~containment~~or ~~initiatives~~local ~~focused~~governments. ~~either~~Regulations ~~on gene-based~~relating ~~therapeutics~~to ~~or on~~ genetic research ~~testing~~activities could ~~cause~~adversely ~~the~~affect ~~growth~~our inability ~~the clinical market for genetic testing~~ to beconduct ~~curtailed~~our orresearch and ~~slowed~~development activities. InRegulations ~~addition, health~~restricting ~~care~~genetic ~~cost~~testing ~~containment initiatives~~ could adversely ~~also~~affect ~~cause~~our ~~pharmaceutical companies~~ability to ~~reduce~~market ~~research~~ and ~~development~~sell ~~spending.~~our Inproducts ~~either~~and ~~case,~~ our ~~business~~technologies. ~~and~~Accordingly, ~~our~~any ~~operating~~regulations ~~results~~of ~~would~~this benature ~~harmed~~could harm our business.

~~Item 3.~~Health ~~Quantitative~~care ~~and~~cost ~~Qualitative~~containment ~~Disclosures~~initiatives ~~About~~could ~~Market~~limit ~~Risk~~the adoption of genetic testing as a clinical tool, which would harm our revenues and prospects

~~Our~~In ~~financial~~recent ~~instruments~~years, ~~include~~health ~~cash~~care ~~and~~payers ~~short-term~~as ~~investment~~well ~~grade debt~~as ~~securities.~~federal Weand ~~also~~state governments have ~~term~~focused ~~loans~~ on ~~capital~~containing ~~equipment~~or ~~through~~reducing ~~a commercial~~health ~~bank~~care costs. AtWe cannot ~~December 31,~~predict ~~2002~~the ~~and~~effect ~~September 30,~~that ~~2003~~any ~~the carrying values~~ of ~~our~~these ~~financial~~initiatives ~~instruments~~may ~~approximated~~have ~~their fair values based~~ on our ~~current~~business, ~~market prices~~ and ~~rates.~~it Weis dopossible ~~not believe~~ that ~~fluctuations~~they ~~in interest~~will ~~rates~~adversely ~~would~~affect ~~have a material impact on us~~it. ItHealth ~~is our policy not to~~care ~~enter~~cost ~~into~~containment ~~derivative~~initiatives ~~financial~~focused ~~instruments.~~on Wegenetic dotesting ~~not~~could ~~currently~~cause ~~have~~the ~~material~~growth ~~foreign~~in ~~currency exposure as our international transactions are minimal and~~ the ~~majority~~ ofclinical ~~our~~market ~~international~~for ~~transactions~~genetic ~~are~~testing ~~denominated in U.S. currency. Accordingly, we do not have significant exposure~~ to ~~foreign~~be ~~currency~~curtailed ~~exchange rate~~or ~~risk at September 30, 2003~~slowed. In ~~the future, under the terms of the QIAGEN~~ ~~agreement~~addition, wehealth ~~will~~care becost ~~conducting~~containment ~~some~~initiatives ofcould ~~our~~also ~~business~~cause pharmaceutical incompanies ~~Euros~~to ~~for~~reduce ~~QIAGEN~~research ~~sales in Europe~~ and indevelopment ~~Yen for QIAGEN sales in Japan~~spending. ~~We do not anticipate that~~In ~~these~~either ~~transactions~~case, ~~will~~our ~~create~~business ~~significant~~and ~~exposure~~our tooperating ~~foreign~~results ~~currency exchange~~could ~~rate~~be ~~risk~~harmed.

20We introduced products for the molecular diagnostics market in July 2004, and need to comply with FDA quality system regulations and other regulations relating to the manufacturing, marketing and sale of such products

~~Table~~ The manufacturing, labeling, distribution and marketing of ~~Contents~~our analyte specific reagents are subject to regulation in the United States and in certain other countries.

~~Item 4.~~ In ~~Controls~~the United States, the Food and ~~Procedures~~Drug Administration, or the FDA, regulates, as medical devices, most diagnostic tests and in vitro reagents that are marketed as finished test kits. Some clinical

~~The Company carried out an evaluation, under the supervision and with the~~20 participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s “disclosure controls and procedures” as of the end of the period covered by this report, pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, were effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic SEC filings.

ThereTable hasof been no change in the Company’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Contents

21laboratories, however, purchase molecular diagnostic products which are marketed under FDA regulations as analyte specific reagents, or ASRs, and develop and prepare their own diagnostic tests generically referred to as “home brews.” The FDA regulates ASRs as medical devices that are exempt from premarket approval requirements.

~~Table~~ Unless otherwise exempt, medical devices require FDA approval or clearance prior to marketing in the United States. We believe our currently marketed products, as well as those ASRs we intend to market in the future, are exempt from 510(k) premarket notification and premarket approval requirements. To date, we have not applied for FDA or any other regulatory approvals or clearances with respect to any of ~~Contents~~our molecular diagnostic products. However, products that we may seek to introduce in the future may require FDA approvals or clearances prior to commercial sale in the United States and that process can be time-consuming, expensive, and uncertain. We may experience difficulties that could delay or prevent the successful development, introduction and marketing of new clinical products. There can be no assurance that the FDA will not require us to conduct clinical studies as a condition of approval or clearance. In addition, we cannot assure you that regulatory approval or clearance of any molecular diagnostic products for which we seek such approvals will be granted by the FDA or foreign regulatory authorities on a timely basis, if at all. If approval or clearance is obtained we will be subject to continuing FDA obligations.

~~Part~~ When IImanufacturing medical devices, including ASRs, we are required to adhere to Quality System Regulations, which require us to manufacture our products and maintain records in a prescribed manner. ~~Other~~Our ~~Information~~manufacturing facility for ASRs is subject to periodic and unannounced inspections by the FDA and state agencies for compliance with quality system regulations. We have never undergone an FDA Quality System inspection, and we cannot assure you that we can pass an FDA audit or maintain compliance in the future. Further, the FDA may place substantial restrictions on the indications for which our products may be marketed or to whom they may be marketed. Failure to comply with applicable FDA requirements can result in, among other things:

~~Item 6.~~• ~~Exhibits~~administrative or judicially imposed sanctions; • injunctions, civil penalties, recall or seizure of our products; • total or partial suspension of production; • failure of the government to grant premarket clearance or premarket approval for our products; • withdrawal of marketing clearance or approvals; and ~~Reports~~• oncriminal ~~Form 8-K~~ prosecution.

( Customers purchasing our products for molecular diagnostics use in the United States may be regulated under the Clinical Laboratory Improvement Amendments of 1998, known as CLIA. CLIA is intended to ensure the quality and reliability of clinical laboratories in the United States by mandating specific standards in the areas of personnel qualification, administration, participation in proficiency testing, patient test management, quality control, quality assurance and inspections. The regulations promulgated under CLIA establish three levels of clinical tests and the standards applicable to a) clinical ~~Exhibits~~laboratory depend on the level of the tests it performs. CLIA requirements may prevent some clinical laboratories from using our products. The FDA restricts the sale of our current ASR products to clinical laboratories certified under CLIA to perform high complexity testing. CLIA regulations and future administrative interpretations of CLIA could harm our business by limiting the potential market for our current and future products.

Exhibit
Number		Description
10.32.1		Loan Modification Agreement between Epoch and Silicon Valley Bank, dated September 18, 2003.
31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	(b)		Reports on Form 8-K
	On August 5, 2003, Epoch furnished a report on Form 8-K regarding a press release issued by Epoch to announce Epoch’s first quarter 2003 results. (The information in the foregoing report on Form 8-K, including all exhibits thereto, was furnished pursuant to Item 12 of Form 8-K and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference herein.)
	On August 8, 2003, Epoch furnished a report on Form 8-K regarding an August 5, 2003 conference call Epoch held with analysts and investors, the transcript of which was furnished as an Exhibit. (The information in the foregoing report on Form 8-K, including all exhibits thereto, was furnished pursuant to Item 12 of Form 8-K and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference herein.)
	On September 20, 2003, Epoch filed a report on Form 8-K regarding a press release issued by Epoch announcing that it was not awarded a contract with the United States Department of Defense to provide Block 1 of the Joint Biological Agent Identification and Diagnostic Systems (JBAIDS).
	On October 14, 2003, Epoch filed a report on Form 8-K regarding a press release issued by Epoch announcing that it had terminated a distribution and licensing agreement with Amersham Biosciences.

22 Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~Table~~ Our financial instruments include cash and short-term investment grade debt securities. We also have term loans on capital equipment through a commercial bank. At December 31, 2003 and June 30, 2004 the carrying values of our ~~Contents~~financial instruments approximated their fair values based on current market prices and rates. We do not believe that fluctuations in interest rates would have a material impact on us. It is our policy not to enter into derivative financial instruments. We do not currently have material foreign currency exposure as our international transactions are minimal and the majority of our international transactions are denominated in U.S. currency. Accordingly, we do not have significant exposure to foreign currency exchange rate risk at June 30, 2004. In the future, under the terms of the QIAGEN agreement, we anticipate conducting increasing volumes of business in Euros for QIAGEN sales in Europe and in Yen for QIAGEN sales in Japan. We do not anticipate that these transactions will create significant exposure to foreign currency exchange rate risk.

~~Signatures~~ Item 4. Controls and Procedures

InThe ~~accordance~~Company ~~with~~carried out an evaluation, under the ~~requirements~~supervision and with the participation of the ~~Exchange~~Company’s ~~Act~~management, including the ~~registrant~~Company’s Chief ~~caused~~Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s “disclosure controls and procedures” as of the end of the period covered by this report, pursuant to beRules 13a-15(e) ~~signed~~and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on ~~its~~that ~~behalf~~evaluation, bythe Company’s Chief Executive Officer and Chief Financial Officer have concluded that the ~~undersigned~~Company’s disclosure controls and procedures, ~~thereunto~~as of the end of the ~~duly~~period ~~authorized~~covered by this report, were effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic SEC filings.

	Epoch Biosciences, Inc.
Date: November 6, 2003	By:	/s/ Bert W. Hogue
		Bert W. Hogue
		Vice President and Chief Financial Officer

There has been no change in the Company’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

23Part II. Other Information

~~Table~~Item 2. Changes in Securities, Use of ~~Contents~~Proceeds and Issuer Purchases of Equity Securities

~~EXHIBIT~~Recent ~~INDEX~~Sales of Unregistered Securities

Exhibit
Number		Description
10.32.1		Loan Modification Agreement between Epoch and Silicon Valley Bank, dated September 18, 2003.
31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

On February 23, 2004, we consummated the issuance of 2,470,000 newly-issued shares of our common stock, and warrants to purchase 741,000 newly-issued shares of our common stock, to a small number of institutional investors, resulting in our receipt of approximately $6,175,000 in gross proceeds, prior to placement agent fees and other offering costs totaling $427,000 and the exercise of the warrants. Investors received a warrant to purchase 0.3 shares of common stock for each share of common stock purchased. The effective price in the private placement was $2.50 for each unit, consisting of one share of common stock and a warrant to purchase 0.3 shares of common stock. The warrants have an exercise period of five years and an exercise price of $3.89 per share. Our placement agent with respect to the transaction received a fee equal to 5.5% of the gross proceeds, and its affiliates received warrants to purchase an aggregate of 75,000 shares of our common stock, carrying the same terms as the warrants received by the investors. The registration statement covering the resale by the investors of these shares and the shares of common stock issuable upon exercise of the warrants was declared effective by the SEC on April 30, 2004. Accordingly, these shares and the shares issuable upon exercise of the warrants

may be offered or re-sold in the United States, pursuant to the effective registration statement or an applicable exemption from the registration requirements of the Securities Act. Any opportunity to participate in the private placement was available to a very limited group of institutional and other accredited investors. Exemption from the registration requirements of the Securities Act for the sales of the securities described above was claimed under Section 4(2) of the Securities Act, among others, on the basis that such transactions did not involve any public offering and the purchasers were sophisticated with access to the kind of information registration would provide. We plan to use proceeds from the private placement principally to expand our sales and marketing infrastructure to support direct selling initiatives of products.

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

	(a)		An Annual Meeting of Stockholders was held on May 17, 2004.

	(b)		The following persons were duly elected to serve as directors of the Company.


		Frederick B. Craves, Ph.D.
		Richard L. Dunning
		William G. Gerber, M.D.
		Herbert L. Heyneker, Ph.D.
		Michael Y. Lucero
		R. Janet Whitmore
		Sanford S. Zweifach

(c)

Purpose of the Annual Stockholders Meeting:

(1)

Election of Directors. To elect the following seven nominees to serve as directors until the next annual meeting to stockholders or until their successors are elected and have qualified. The following is a tabulation of votes for each of the proposed seven nominees for election as directors of the company.


	For		Withheld
Frederick B. Craves, Ph.D.		23,031,207		630,532
William G. Gerber, M.D.		23,031,207		630,532
Richard L. Dunning		23,565,607		96,132
Herbert L. Heyneker, Ph.D.		23,565,023		96,716
Michael Lucero		23,030,623		631,116
R. Janet Whitmore		23,564,857		96,882
Sanford S. Zweifach		23,023,707		638,032

(2)

To ratify the appointment of KPMG LLP as independent auditors of the company for the fiscal year ending December 31, 2004. The following is the tabulation of the votes.


For	Against		Abstain
23,623,645		16,853		21,241

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits


Exhibit
Number		Description
10.40		Amendment dated April 5, 2004 to Co-Exclusive License and Supply Agreement between Epoch Biosciences and QIAGEN NV, dated November 4, 2002. (Portions of this exhibit are omitted and were filed separately with the SEC pursuant to rule 406 of the Securities Act.).

10.41		License Agreement by and between Epoch Biosciences, Inc., and Applera Corporation (formerly PE Corporation), dated May 14, 2001 (Portions of this exhibit are omitted and were filed separately with the SEC pursuant to rule 406 of the Securities Act.).

31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K:

On May 4, 2004, Epoch furnished a report on Form 8-K regarding a press release issued by the Company to announce the Company’s first quarter 2004 results. (The information in the foregoing report on Form 8-K, including all exhibits thereto, was furnished pursuant to Item 12 of Form 8-K and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference herein).

Signatures

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Epoch Biosciences, Inc.

Date: August 11, 2004	By:	/s/ Bert W. Hogue Bert W. Hogue Vice President and Chief Financial Officer

EXHIBIT INDEX


Exhibit
Number		Description
10.40		Amendment dated April 5, 2004 to Co-Exclusive License and Supply Agreement between Epoch Biosciences and QIAGEN NV, dated November 4, 2002. (Portions of this exhibit are omitted and were filed separately with the SEC pursuant to rule 406 of the Securities Act.).

10.41		License Agreement by and between Epoch Biosciences, Inc., and Applera Corporation (formerly PE Corporation), dated May 14, 2001 (Portions of this exhibit are omitted and were filed separately with the SEC pursuant to rule 406 of the Securities Act.).

31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Filing Compare · EPOCH BIOSCIENCES INC