UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD  TO
 COMMISSION FILE NUMBER: 000-31745
 THIRD WAVE TECHNOLOGIES, INC.
  DELAWARE
    
    39-1791034(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)502 S. ROSA ROAD, MADISON, WI
    
    53719(Address of principal executive offices)
    
    (Zip Code)
 
 þ o
  Large accelerated filer o
    
    Accelerated filer
þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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PAGE NO.PART I FINANCIAL INFORMATION
    
3Item 1. Consolidated Financial Statements
    
3Consolidated Balance Sheets (Unaudited) as of March 31, 2008 and December 31, 2007
    
    3Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2008 and 2007
    
4Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2008 and 2007
    
5Notes to Consolidated Financial Statements (Unaudited)
    
 6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
19Item 4. Controls and Procedures
    
19PART II OTHER INFORMATION
    
    19Item 1. Legal Proceedings
    
    19Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
19Item 3. Defaults Upon Senior Securities
    
    19Item 4. Submission of Matters To A Vote Of Security Holders
    
   19Item 5. Other Information
    
    19Item 6. Exhibits
    
    19SIGNATURES
    
    20EXHIBITS
    
    21
  2




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##### 



MARCH 31,
    
    
    DECEMBER 31,2008
    
    
    2007(Thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    28,933
    
    
    $
    35,354Short-term investments
    
    
    
    
    
    
    385Accounts receivables, net of allowance for doubtful accounts of $250,000 at March 31, 2008 and December 31, 2007, respectively
    
    
    5,569
    
    
    
    6,351Inventories
    
    
    5,344
    
    
    
    5,009Prepaid expenses and other
    
    
    866
    
    
    
    517Total current assets
    
    
    40,712
    
    
    
    47,616Equipment and leasehold improvements:Machinery and equipment
    
    
    17,048
    
    
    
    16,902Leasehold improvements
    
    
    3,252
    
    
    
    3,25020,300
    
    
    
    20,152Less accumulated depreciation and amortization
    
    
    15,625
    
    
    
    15,2394,675
    
    
    
    4,913Intangible assets, net of accumulated amortization
    
    
    873
    
    
    
    898Goodwill
    
    
    490
    
    
    
    490Capitalized license fees, net of accumulated amortization
    
    
    4,592
    
    
    
    2,875Other assets
    
    
    12,295
    
    
    
    12,209Total assets
    
    $
    63,637
    
    
    $
    69,001LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    6,344
    
    
    $
    5,896Accrued payroll and related liabilities
    
    
    1,895
    
    
    
    2,692Other accrued liabilities
    
    
    1,005
    
    
    
    1,316Capital lease obligations due within one year
    
    
    49
    
    
    
    49Total current liabilities
    
    
    9,293
    
    
    
    9,953Long-term debt
    
    
    16,056
    
    
    
    15,819Deferred revenue  long-term
    
    
    42
    
    
    
    Capital lease obligations  long-term
    
    
    63
    
    
    
    45Other liabilities
    
    
    14,093
    
    
    
    13,380Minority interest in subsidiary
    
    
    211
    
    
    
    226Shareholders equity:Participating preferred stock, Series A, $.001 par value, 10,000,000 shares authorized, no shares issued and outstanding
    
    
    
    
    
    
    Common stock, $.001 par value, 100,000,000 shares authorized, 44,156,756 shares issued, 43,938,756 shares outstanding at March 31, 2008 and 43,942,857 shares issued and 43,724,857 shares
outstanding at December 31, 2007
    
    
    44
    
    
    
    44Additional paid-in capital
    
    
    226,146
    
    
    
    224,718Treasury stock  218,000 shares, at cost
    
    
    (877
    )
    
    
    (877
    )Foreign currency translation adjustment
    
    
    758
    
    
    
    280Accumulated deficit
    
    
    (202,192
    )
    
    
    (194,587
    )Total shareholders equity
    
    
    23,879
    
    
    
    29,578Total liabilities and shareholders equity
    
    $
    63,637
    
    
    $
    69,001
  3




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##### 



Three MonthsEnded March 31,(Thousands)2008
    
    
    2007Revenues:Clinical product sales
    
    $
    7,387
    
    
    $
    5,973Research product sales
    
    
    955
    
    
    
    569License and royalty revenue
    
    
    57
    
    
    
    171Total revenues
    
    
    8,399
    
    
    
    6,713Operating expenses:Cost of goods sold
    
    
    2,203
    
    
    
    2,017Research and development
    
    
    6,205
    
    
    
    5,109Selling and marketing
    
    
    3,461
    
    
    
    2,603General and administrative
    
    
    3,737
    
    
    
    2,886Litigation
    
    
    330
    
    
    
    406Restructuring and other charges
    
    
    (487
    )
    
    
    Total operating expenses
    
    
    15,449
    
    
    
    13,021Loss from operations
    
    
    (7,050
    )
    
    
    (6,308
    )Other income (expense):Interest income
    
    
    251
    
    
    
    531Interest expense
    
    
    (976
    )
    
    
    (301
    )Other
    
    
    (26
    )
    
    
    10,748Total other income (expense)
    
    
    (751
    )
    
    
    10,978Income (loss) before minority interest
    
    
    (7,801
    )
    
    
    4,670Minority interest in subsidiary
    
    
    196
    
    
    
    96Net income (loss)
    
    $
    (7,605
    )
    
    $
    4,766Net income (loss) per share  basic
    
    $
    (0.17
    )
    
    $
    0.11Net income (loss) per share  diluted
    
    $
    (0.17
    )
    
    $
    0.11Weighted average shares outstanding  basic
    
    
    43,780
    
    
    
    42,025Weighted average shares outstanding  diluted
    
    
    43,780
    
    
    
    43,884
  4




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##### 



Three MonthsEnded March 31,(Thousands, except share data)2008
    
    
    2007OPERATING ACTIVITIES:Net income (loss)
    
    $
    (7,605
    )
    
    $
    4,766Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Minority interest in net loss of subsidiary
    
    
    (196
    )
    
    
    (96
    )Depreciation and amortization
    
    
    451
    
    
    
    437Amortization of intangible assets
    
    
    25
    
    
    
    401Amortization of licensed technology
    
    
    206
    
    
    
    304Noncash stock compensation
    
    
    522
    
    
    
    616Interest accretion related to convertible note payable
    
    
    237
    
    
    
    223Unrealized gain on derivative instruments
    
    
    (32
    )
    
    
    Unrealized gain on receivables denominated in foreign currencies
    
    
    (17
    )
    
    
    Unrealized loss on license agreement denominated in foreign currency
    
    
    109
    
    
    
    Restructuring charges
    
    
    (487
    )
    
    
    Loss on disposal of equipment
    
    
    1
    
    
    
    12Changes in operating assets and liabilities:Accounts receivable
    
    
    255
    
    
    
    263Inventories
    
    
    (333
    )
    
    
    (285
    )Prepaid expenses and other assets
    
    
    214
    
    
    
    (1,410
    )Accounts payable
    
    
    (416
    )
    
    
    268Accrued expenses and other liabilities
    
    
    (106
    )
    
    
    (2,389
    )Deferred revenue
    
    
    42
    
    
    
    (145
    )Net cash (used in) provided by operating activities
    
    
    (7,130
    )
    
    
    2,965INVESTING ACTIVITIES:Purchases of equipment and leasehold improvements
    
    
    (152
    )
    
    
    (215
    )Proceeds on sale of equipment
    
    
    
    
    
    
    1Purchases of licensed technology
    
    
    (586
    )
    
    
    (245
    )Purchases of short-term investments
    
    
    
    
    
    
    (575
    )Sales and maturities of short-term investments
    
    
    385
    
    
    
    770Net cash used in investing activities
    
    
    (353
    )
    
    
    (264
    )FINANCING ACTIVITIES:Payments on long-term debt
    
    
    
    
    
    
    (98
    )Payments on capital lease obligations
    
    
    (20
    )
    
    
    (34
    )Repurchase of common stock
    
    
    (94
    )
    
    
    Proceeds from issuance of common stock, net
    
    
    563
    
    
    
    502Net cash provided by financing activities
    
    
    449
    
    
    
    370Effect of exchange rate changes on cash
    
    
    613
    
    
    
    36Net increase (decrease) in cash and cash equivalents
    
    
    (6,421
    )
    
    
    3,107Cash and cash equivalents at beginning of period
    
    
    35,354
    
    
    
    42,429Cash and cash equivalents at end of period
    
    $
    28,933
    
    
    $
    45,536
  5




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
    
    During the three months ended March 31, 2008, the Company entered into capital lease
obligations of $39,000.
 
    
    During the three months ended March 31, 2008, the Company entered into a license agreement
under which the Company is required to pay 1,250,000 Euros over two years. The estimated present value
of the license is $1,723,000.
 
    
    During the three months ended March 31, 2008 and 2007, the Company issued 44,246 and 79,441
shares of common stock as partial payment of amounts earned by employees under the 2007 and
2006 Incentive Plans, respectively.
       6




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##### 



THREE MONTHS ENDEDMARCH 31,2008
    
    
    2007Numerator:Net income (loss)
    
    $
    (7,605
    )
    
    $
    4,766Denominator:Weighted average shares outstanding  basic
    
    
    43,780
    
    
    
    42,025Dilutive securities  stock options
    
    
    
    
    
    
    1,859Weighted average shares outstanding  diluted
    
    
    43,780
    
    
    
    43,884Basic net income (loss) per share
    
    $
    (0.17
    )
    
    $
    0.11Dilutive net income (loss) per share
    
    $
    (0.17
    )
    
    $
    0.11
    The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115
 Fair Value Measurements
(
  Fair Value Measurements at March 31, 2008Quoted Prices
    
    Significant
    
    Significantin Active Markets for
    
    Other Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsCash and Cash Equivalents
    $
    28,933
    
    $
    28,933
    
    
    $ 


    
    $
    Derivative asset (see note 5)
    
    32
    
    
    
    
    
    
    32
    
    
    
    Fair Value Measurements at December 31, 2007Quoted Prices
    
    Significant
    
    Significantin Active Markets for
    
    Other Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsCash and Cash Equivalents
    $
    35,354
    
    $
    35,354
    
    
    $
    
    
    
    $
    Short-term investments
    
    385
    
    
    385
    
    
    
    
    
    
    
    
 7




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WEIGHTEDAVERAGE
    
    AGGREGATENUMBER OF
    
    WEIGHTED AVERAGE
    
    CONTRACTUAL
    
    INTRINSICSHARES
    
    EXERCISE PRICE
    
    LIFE
    
    VALUE(Thousands)
    
    
    
    
    
    (Thousands)Outstanding
at December 31, 2007
    
    
    6,206
    
    
    $
    4.41Granted
    
    
    47
    
    
    
    8.10Exercised
    
    
    (171
    )
    
    
    3.83Forfeited
    
    
    (3
    )
    
    
    4.10Outstanding at March 31, 2008
    
    
    6,079
    
    
    $
    4.45
    
    
    
    5.6
    
    
    $
    29,020Options exercisable at March 31, 2008
    
    
    4,996
    
    
    $
    4.58
    
    
    
    5.1
    
    
    $
    23,221
   2008
    
    2007Expected term (years)
    
    
    5
    
    
    
    5Risk-free interest rate
    
    
    2.5
    %
    
    
    4.5
    %Expected volatility
    
    
    61
    %
    
    
    69
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Forfeiture rate
    
    
    25
    %
    
    
    25
    %
     8




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THREE MONTHS ENDEDMARCH 31, 2008NUMBER OF
    
    
    WEIGHTED AVERAGESHARES
    
    
    FAIR VALUE(Thousands)Nonvested restricted stock units at December 31, 2007
    
    
    556
    
    
    $
    4.82Granted
    
    
    425
    
    
    
    7.59Vested
    
    
    (54
    )
    
    
    4.68Forfeited
    
    
    (7
    )
    
    
    4.93Nonvested restricted stock units at March 31, 2008
    
    
    920
    
    
    $
    6.11
           9




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MARCH 31,
    
    
    DECEMBER 31,2008
    
    
    2007Raw materials
    
    $
    2,705
    
    
    $
    2,328Finished goods
    
    
    2,486
    
    
    
    2,685Work in process
    
    
    938
    
    
    
    612Reserve for excess and obsolete inventory
    
    
    (785
    )
    
    
    (616
    )Total inventories
    
    $
    5,344
    
    
    $
    5,009
   THREE MONTHS ENDEDMARCH 31,2008
    
    
    2007Cost of goods sold
    
    $
    23
    
    
    $
    24Research and development
    
    
    82
    
    
    
    124Selling and marketing
    
    
    127
    
    
    
    123General and administrative
    
    
    290
    
    
    
    345Total stock-based compensation
    
    $
    522
    
    
    $
    616
   THREE MONTHS ENDEDMARCH 31,2008
    
    
    2007Net income (loss)
    
    $
    (7,605
    )
    
    $
    4,766Other
comprehensive income (loss):Foreign currency translation adjustments
    
    
    478
    
    
    
    18Comprehensive income (loss)
    
    $
    (7,127
    )
    
    $
    4,784
 (11)
    
    Restructuring and Impairment of Long Lived Assets
    Accrued restructuring balance at December 31, 2007
    
    $
    501Payments made
    
    
    (14
    )Adjustment
    
    
    (487
    )Accrued restructuring balance at March 31, 2008
    
    $
    
  10




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##### 



2008
    
    $
    7402009
    
    
    987Total payments
    
    
    1,727Less amount representing interest
    
    
    (99
    )Present value of payments
    
    $
    1,628
    March 31,
    
    
    December 31,2008
    
    
    2007Debt issuance costs
    
    $
    10,318
    
    
    $
    10,876Rent
    
    
    613
    
    
    
    640Equipment receivables
    
    
    1,010
    
    
    
    406Equipment leased to customers
    
    
    322
    
    
    
    287Derivative asset
    
    
    32
    
    
    
    $
    12,295
    
    
    $
    12,209
   March 31,
    
    
    December 31,2008
    
    
    2007License payments
    
    $
    1,811
    
    
    $
    1,284Long-term
incentive plan
    
    
    2,844
    
    
    
    2,291Restructuring
    
    
    
    
    
    
    367Stock warrants
    
    
    9,238
    
    
    
    9,238Other
    
    
    200
    
    
    
    200$
    14,093
    
    
    $
    13,380
   March 31,
    
    
    December 31,2008
    
    
    2007Bonus accrual
    
    $
    939
    
    
    $
    1,878Paid time off
    
    
    485
    
    
    
    390Other
    
    
    471
    
    
    
    424$
    1,895
    
    
    $
    2,692
   11




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12




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®
    13




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Goodwill and Other Intangible Assets
 14




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##### 



Accounting for Collaborative
Arrangements
 Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
 Disclosures about Derivative Instruments and Hedging
Activities  an amendment of FASB Statement No. 133 , Accounting for Derivative Instruments and Hedging Activities
 15




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16




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17




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-
    
    our progress with our research and development programs;-
    
    the need to pursue FDA clearances or approvals of our products;-
    
    our level of success in selling our products and technologies;-
    
    our ability to establish and maintain successful collaborative relationships;-
    
    the costs we incur in securing intellectual property rights, whether through patents, licenses or otherwise;-
    
    the costs we incur in enforcing and defending our patent claims and other intellectual property rights;-
    
    the need to respond to competitive pressures;-
    
    the possible acquisition of complementary products, businesses or technologies; and-
    
    the timing of capital expenditures.
   18




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19




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THIRD WAVE TECHNOLOGIES, INC.Date: May 9, 2008
    
    /s/ Kevin T. ConroyKevin T. Conroy,Chief Executive OfficerDate: May 9, 2008
    
    /s/ Maneesh K. AroraManeesh K. Arora,Chief Financial Officer
 20




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EXHIBITNO.
    
    DESCRIPTION
    
    INCORPORATED BY REFERENCE TO10.1
    
    Employment Agreement between Christopher Burton
and Third Wave Technologies, Inc. dated January
14, 200810.2
    
    Third Wave Technologies, Inc. 2008
Incentive Plan10.3
    
    Third Wave Technologies, Inc. Long
Term Incentive Plan No. 5
    
    Exhibit 10.42 to the
Registrants Annual Report on Form 10-K for the fiscal year
ended December 31, 2007.31.1
    
    CEOs Certification Pursuant to Section 302 of
the Sarbanes Oxley Act of 200231.2
    
    CFOs Certification pursuant to Section 302 of
the Sarbanes Oxley Act of 200232
    
    CEO and CFO Certification pursuant to 18 U.S.C.
Section 1350, of Chapter 63 of Title 18 of the
United States Code
 21