##### 



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 SEPTEMBER 30, 2007
 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
(State or other jurisdiction 
of incorporation or organization)
    
    39-1791034
(I.R.S. Employer
Identification No.)
 502 S. ROSA ROAD, MADISON, WI
    
    53719(Address of principal executive offices)
    
    (Zip Code)
 
 þ o
  o þ o
 o þ




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##### 



PAGE NO.PART I FINANCIAL INFORMATION
    
    
    3Item 1. Consolidated Financial Statements
    
    
    3Consolidated Balance Sheets (Unaudited) as of September 30, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended
September 30, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30,
2007 and 2006Notes to Consolidated Financial Statements (Unaudited)
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20PART II OTHER INFORMATION
    
    
    20Item 1. Legal Proceedings
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults Upon Senior Securities
    
    
    21Item 4. Submission Of Matters To A Vote Of Security Holders
    
    
    21Item 5. Other Information
    
    
    21Item 6. Exhibits
    
    
    21SIGNATURES
    
    
    22EXHIBITS
    
    
    23
 2




---



##### 



September 30, 2007
    
    
    December 31, 2006ASSETSCurrent assets:Cash and
cash
equivalents
    
    $
    43,204,188
    
    
    $
    42,428,841Short-term
investments
    
    
    385,000
    
    
    
    1,770,000Accounts receivable, net of allowance for doubtful
accounts of $250,000 and
$200,000 at September 30, 2007 and December 31,
2006, respectively
    
    
    5,153,810
    
    
    
    4,756,497Inventories
    
    
    4,866,651
    
    
    
    3,513,909Prepaid
expenses and
other assets
    
    
    953,940
    
    
    
    463,139Total current
assets
    
    
    54,563,589
    
    
    
    52,932,386Equipment and
leasehold
improvements:Machinery
and
equipment
    
    
    17,030,791
    
    
    
    16,623,560Leasehold
improvements
    
    
    2,922,220
    
    
    
    2,362,67619,953,011
    
    
    
    18,986,236Less
accumulated
depreciation
    
    
    14,719,803
    
    
    
    14,763,9325,233,208
    
    
    
    4,222,304Intangible assets, net of
accumulated amortization
    
    
    931,765
    
    
    
    2,135,884Goodwill
    
    
    489,873
    
    
    
    489,873Capitalized license fees, net of
accumulated amortization
    
    
    3,147,456
    
    
    
    2,624,580Other assets
    
    
    3,152,171
    
    
    
    1,828,949Total assets
    
    $
    67,518,062
    
    
    $
    64,233,976LIABILITIES AND SHAREHOLDERS EQUITYCurrent
liabilities:Accounts
payable
    
    $
    6,542,852
    
    
    $
    7,095,860Accrued
payroll and
related
liabilities
    
    
    2,413,394
    
    
    
    3,856,999Other
accrued
liabilities
    
    
    1,204,645
    
    
    
    1,446,500Deferred
revenue
    
    
    
    
    
    
    109,052Capital lease obligations due
within one year
    
    
    70,759
    
    
    
    124,220Long-term
debt due
within one
year
    
    
    
    
    
    
    368,269Total current
liabilities
    
    
    10,231,650
    
    
    
    13,000,900Long-term debt
    
    
    15,588,508
    
    
    
    15,182,478Deferred revenue
 long-term
    
    
    
    
    
    
    36,330Capital lease
obligations  long-term
    
    
    54,323
    
    
    
    99,446Other liabilities
    
    
    5,421,104
    
    
    
    4,776,272Minority
interest in
subsidiary
    
    
    386,143
    
    
    
    465,134Shareholders
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, 43,722,150
shares issued, 43,504,149 shares outstanding at
September 30, 2007 and
42,135,713 shares issued and 41,917,713 shares
outstanding at December 31,
2006
    
    
    43,722
    
    
    
    42,136Additional
paid-in
capital
    
    
    223,176,620
    
    
    
    209,355,204Unearned
stock
compensation
    
    
    
    
    
    
    (6,354
    )Treasury
stock at
cost,
218,000
shares
    
    
    (877,159
    )
    
    
    (877,159
    )Foreign
currency
translation
adjustment
    
    
    143,562
    
    
    
    (102,186
    )Accumulated
deficit
    
    
    (186,650,411
    )
    
    
    (177,738,225
    )Total
shareholders
equity
    
    
    35,836,334
    
    
    
    30,673,416Total
liabilities and
shareholders
equity
    
    $
    67,518,062
    
    
    $
    64,233,976
  3




---



##### 



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Clinical product sales
    
    $
    6,734,778
    
    
    $
    5,368,470
    
    
    $
    18,963,811
    
    
    $
    15,136,818Research product sales
    
    
    1,403,070
    
    
    
    1,181,226
    
    
    
    3,035,833
    
    
    
    5,809,175License and royalty revenue
    
    
    19,897
    
    
    
    51,827
    
    
    
    232,080
    
    
    
    106,353Grant revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182,876Total revenues
    
    
    8,157,745
    
    
    
    6,601,523
    
    
    
    22,231,724
    
    
    
    21,235,222Operating expenses:Cost of goods sold
    
    
    2,141,198
    
    
    
    2,237,106
    
    
    
    6,098,633
    
    
    
    6,298,027Research and development
    
    
    5,811,401
    
    
    
    3,451,043
    
    
    
    16,134,831
    
    
    
    8,785,640Selling and marketing
    
    
    2,888,135
    
    
    
    2,713,646
    
    
    
    8,698,757
    
    
    
    8,634,435General and administrative
    
    
    4,821,128
    
    
    
    3,536,620
    
    
    
    11,010,630
    
    
    
    11,482,926Litigation
    
    
    1,784,324
    
    
    
    255,809
    
    
    
    3,433,618
    
    
    
    1,438,671Restructuring
    
    
    
    
    
    
    (180,000
    )
    
    
    
    
    
    
    (180,000
    )Total operating expenses
    
    
    17,446,186
    
    
    
    12,014,224
    
    
    
    45,376,469
    
    
    
    36,459,699Loss from operations
    
    
    (9,288,441
    )
    
    
    (5,412,701
    )
    
    
    (23,144,745
    )
    
    
    (15,224,477
    )Other income (expense):Interest income
    
    
    503,010
    
    
    
    368,727
    
    
    
    1,584,489
    
    
    
    1,115,637Interest expense
    
    
    (300,168
    )
    
    
    (55,251
    )
    
    
    (896,563
    )
    
    
    (161,433
    )Other
    
    
    2,485,966
    
    
    
    (118,845
    )
    
    
    13,156,726
    
    
    
    (98,949
    )Total other income (expense)
    
    
    2,688,808
    
    
    
    194,631
    
    
    
    13,844,652
    
    
    
    855,255Loss before minority interest
    
    $
    (6,599,633
    )
    
    $
    (5,218,070
    )
    
    $
    (9,300,093
    )
    
    $
    (14,369,222
    )Minority interest in subsidiary
    
    
    169,170
    
    
    
    65,481
    
    
    
    387,907
    
    
    
    106,327Net loss
    
    $
    (6,430,463
    )
    
    $
    (5,152,589
    )
    
    $
    (8,912,186
    )
    
    $
    (14,262,895
    )Net loss per share  basic and diluted
    
    $
    (0.15
    )
    
    $
    (0.12
    )
    
    $
    (0.21
    )
    
    $
    (0.34
    )Weighted average shares outstanding  basic and diluted
    
    
    42,942,190
    
    
    
    41,515,143
    
    
    
    42,454,591
    
    
    
    41,427,973
  4




---



##### 



Nine Months Ended September 30,2007
    
    
    2006OPERATING ACTIVITIES:Net loss
    
    $
    (8,912,186
    )
    
    $
    (14,262,895
    )Adjustments to reconcile net loss to net cash used in operating
activities:Minority interest in net
loss of subsidiary
    
    
    (387,907
    )
    
    
    (106,327
    )Depreciation and amortization
    
    
    1,283,019
    
    
    
    1,230,262Amortization of intangible assets
    
    
    1,204,119
    
    
    
    1,128,564Amortization of licensed technology
    
    
    827,824
    
    
    
    939,998Noncash stock compensation
    
    
    3,851,638
    
    
    
    2,720,817Interest accretion related to convertible note payable
    
    
    677,274
    
    
    
    Impairment charge and loss on disposal of equipment
    
    
    161,029
    
    
    
    28,564Changes in operating assets and liabilities:Accounts receivable
    
    
    (392,523
    )
    
    
    (625,604
    )Inventories
    
    
    (1,352,995
    )
    
    
    (1,171,114
    )Prepaid expenses and other assets
    
    
    (1,802,687
    )
    
    
    (333,386
    )Accounts payable
    
    
    (199,767
    )
    
    
    (1,118,105
    )Accrued expenses and other liabilities
    
    
    (1,412,104
    )
    
    
    971,293Deferred revenue
    
    
    (145,382
    )
    
    
    (89,235
    )Net cash used in operating activities
    
    
    (6,600,648
    )
    
    
    (10,687,168
    )INVESTING ACTIVITIES:Purchases of equipment and
leasehold improvements
    
    
    (2,451,933
    )
    
    
    (570,668
    )Proceeds on sale of equipment
    
    
    1,439
    
    
    
    Purchases of licensed technology
    
    
    (912,292
    )
    
    
    (702,274
    )Purchases of short-term investments
    
    
    (960,000
    )
    
    
    (1,770,000
    )Sales and maturities of short-term investments
    
    
    2,345,000
    
    
    
    11,035,000Change in restricted cash balance
    
    
    
    
    
    
    805,184Net cash provided by (used in) investing activities
    
    
    (1,977,786
    )
    
    
    8,797,242FINANCING ACTIVITIES:Payments on long-term debt
    
    
    (639,513
    )
    
    
    (282,070
    )Payments on capital lease obligations
    
    
    (98,584
    )
    
    
    (106,702
    )Proceeds from issuance of common stock, net
    
    
    4,556,614
    
    
    
    729,286Proceeds from minority equity investment in subsidiary
    
    
    5,259,058
    
    
    
    5,093,973Repurchase of common stock
    
    
    (53,492
    )
    
    
    Net cash provided by financing activities
    
    
    9,024,083
    
    
    
    5,434,487Effect of exchange rate changes on cash
    
    
    329,698
    
    
    
    Net increase in cash and cash equivalents
    
    
    775,347
    
    
    
    3,544,561Cash and cash equivalents at beginning of period
    
    
    42,428,841
    
    
    
    27,681,704Cash and cash equivalents at end of period
    
    $
    43,204,188
    
    
    $
    31,226,265
 5




---



##### 




    
    During the nine months ended September 30, 2007,
the Company issued 79,441 shares of common stock as
partial payment of amounts earned by employees
under the 2006 Incentive Plan.
    
    During the nine months ended September 30, 2006 the
Company entered into capital lease obligations of
$58,659.
    
    During the nine months ended September 30, 2006 the
Company entered into a license agreement under
which the Company will pay 1,000,000 Euros over two
years. The estimated present value of the license
is $1,122,338.
    
    During the nine months ended September 30, 2007 the
Company entered into a license agreement under
which the Company will pay $1,250,000 over time
through 2010. The estimated present value of the
license is $1,150,700.
  6




---



##### 



THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDSEPTEMBER 30
    
    
    SEPTEMBER 302007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Net loss
    
    $
    (6,430,463
    )
    
    $
    (5,152,589
    )
    
    $
    (8,912,186
    )
    
    $
    (14,262,895
    )Denominator:Weighted average shares outstanding  basic
    
    
    42,942,190
    
    
    
    41,515,143
    
    
    
    42,454,591
    
    
    
    41,427,973Dilutive securities  stock options
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AWeighted average shares outstanding  diluted
    
    
    42,942,190
    
    
    
    41,515,143
    
    
    
    42,454,591
    
    
    
    41,427,973Basic net loss per share
    
    $
    (0.15
    )
    
    $
    (0.12
    )
    
    $
    (0.21
    )
    
    $
    (0.34
    )Diluted net loss per share
    
    $
    (0.15
    )
    
    $
    (0.12
    )
    
    $
    (0.21
    )
    
    $
    (0.34
    )
 7




---



##### 



WEIGHTEDWEIGHTED
    
    
    AVERAGE
    
    
    AGGREGATENUMBER OF
    
    
    AVERAGE
    
    
    CONTRACTUAL
    
    
    INTRINSICSHARES
    
    
    EXERCISE PRICE
    
    
    LIFE
    
    
    VALUEOutstanding at December 31, 2006
    
    
    7,787,607
    
    
    $
    4.12Granted
    
    
    79,829
    
    
    
    6.88Exercised
    
    
    (1,390,563
    )
    
    
    3.12Forfeited
    
    
    (122,388
    )
    
    
    4.95Outstanding at September 30, 2007
    
    
    6,354,485
    
    
    $
    4.38
    
    
    
    6.0
    
    
    $
    27,128,525Options exercisable at September 30, 2007
    
    
    4,977,407
    
    
    $
    4.60
    
    
    
    5.4
    
    
    $
    20,187,269
   2007
    
    2006Expected term (years)
    
    
    5
    
    
    
    5Risk-free interest rate
    
    
    4.58
    %
    
    
    4.83
    %Expected volatility
    
    
    66
    %
    
    
    74
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Forfeiture rate
    
    
    25
    %
    
    
    25
    %
     8




---



##### 



NINE MONTHS ENDEDSEPTEMBER 30, 2007NUMBER
    
    
    WEIGHTEDOF
    
    
    AVERAGESHARES
    
    
    FAIR VALUENonvested restricted stock units at December 31, 2006
    
    
    109,079
    
    
    $
    2.84Granted
    
    
    557,709
    
    
    
    4.78Vested
    
    
    (105,880
    )
    
    
    3.24Forfeited
    
    
    (12,627
    )
    
    
    2.25Nonvested restricted stock units at September 30, 2007
    
    
    548,281
    
    
    $
    4.73
      (¥)
    9




---



##### 



SEPTEMBER 30,
    
    
    DECEMBER 31,2007
    
    
    2006Raw materials
    
    $
    2,510,487
    
    
    $
    2,283,852Finished goods
    
    
    2,117,437
    
    
    
    1,367,177Work in process
    
    
    974,727
    
    
    
    517,880Reserve for excess and obsolete inventory
    
    
    (736,000
    )
    
    
    (655,000
    )Total inventories
    
    $
    4,866,651
    
    
    $
    3,513,909
   THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDSEPTEMBER 30,
    
    
    SEPTEMBER 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Cost of goods sold
    
    $
    26,569
    
    
    $
    43,636
    
    
    $
    78,926
    
    
    $
    105,945Research and development
    
    
    203,218
    
    
    
    155,982
    
    
    
    541,393
    
    
    
    476,892Selling and marketing
    
    
    154,674
    
    
    
    183,728
    
    
    
    437,100
    
    
    
    565,234General and administrative
    
    
    2,059,138
    
    
    
    551,821
    
    
    
    2,794,219
    
    
    
    1,572,746Total stock-based compensation
    
    $
    2,443,599
    
    
    $
    935,167
    
    
    $
    3,851,638
    
    
    $
    2,720,817
   THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDSEPTEMBER 30,
    
    
    SEPTEMBER 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (6,430,463
    )
    
    $
    (5,152,589
    )
    
    $
    (8,912,186
    )
    
    $
    (14,262,895
    )Other comprehensive loss:Foreign currency translation adjustments
    
    
    336,083
    
    
    
    (114,167
    )
    
    
    245,748
    
    
    
    (159,474
    )Comprehensive loss
    
    $
    (6,094,380
    )
    
    $
    (5,266,756
    )
    
    $
    (8,666,438
    )
    
    $
    (14,422,369
    )
   SEPTEMBER 30, 2007
    
    
    DECEMBER 31, 2006GROSS
    
    
    
    
    
    
    GROSSCARRYING
    
    
    ACCUMULATED
    
    
    CARRYING
    
    
    ACCUMULATEDAMOUNT
    
    
    AMORTIZATION
    
    
    AMOUNT
    
    
    AMORTIZATIONCosts of settling patent litigation
    
    $
    10,533,248
    
    
    $
    10,524,944
    
    
    $
    10,533,248
    
    
    $
    9,396,380Technology license
    
    
    915,828
    
    
    
    76,320
    
    
    
    915,828
    
    
    
    7,632Trademark
    
    
    91,583
    
    
    
    7,630
    
    
    
    91,583
    
    
    
    763Customer agreements
    
    
    38,000
    
    
    
    38,000
    
    
    
    38,000
    
    
    
    38,000Total
    
    $
    11,578,659
    
    
    $
    10,646,894
    
    
    $
    11,578,659
    
    
    $
    9,442,775
   10




---



##### 



Accrued restructuring balance at December 31, 2006
    
    $
    631,260Payments made
    
    
    (97,747
    )Accrued restructuring balance at September 30, 2007
    
    $
    533,513
   SEPTEMBER 30,
    
    
    DECEMBER 31,2007
    
    
    2006License payments
    
    $
    1,557,406
    
    
    $
    1,048,260Long-term Incentive Plan
    
    
    2,267,601
    
    
    
    1,885,989Restructuring
    
    
    399,558
    
    
    
    505,681Rent
    
    
    996,539
    
    
    
    1,103,313Other
    
    
    200,000
    
    
    
    233,029$
    5,421,104
    
    
    $
    4,776,272
      11




---



##### 



12




---



##### 



13




---



##### 



14




---



##### 



15




---



##### 



16




---



##### 



17




---



##### 



18




---



##### 




    
    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
 19




---



##### 



20




---



##### 



1.
    
    the election of Kevin T. Conroy and David A. Thompson to serve as directors with terms
ending in 2010, and2.
    
    the proposal to ratify the appointment of Grant Thornton LLP as independent registered
public accounting firm for the fiscal year ending December 31, 2007.
  DIRECTOR
    
    VOTES FOR
    
    VOTES WITHHELDKevin T. Conroy
    
    
    38,555,138
    
    
    
    533,935David A. Thompson
    
    
    38,552,137
    
    
    
    536,936
   VOTES FOR
    
    VOTES AGAINST
    
    VOTES ABSTAIN
    
    BROKER NON-VOTES39,011,113
    
    61,523
    
    16,437
    
    0
       21




---



##### 



THIRD WAVE TECHNOLOGIES, INC.Date: November 1, 2007
    /s/ Kevin T. ConroyKevin T. Conroy,Chief Executive OfficerDate:  November 1, 2007
    /s/ Maneesh K. AroraManeesh K. Arora,Chief Financial Officer 22




---



##### 



EXHIBITNO.
    
    DESCRIPTION
    
    INCORPORATED BY REFERENCE TO10.1
    
    Amended and Restated Employment
agreement between Cindy S. Ann and Third Wave Technologies, Inc.
dated November 7, 200710.2
    
    Employment Agreement between Ivan
Trifunovich and Third Wave Technologies, Inc. dated November 7,
200710.3
    
    Lease Agreement between Third Wave Technologies,
Inc and University Research Park, Inc. dated
July 13, 2007
    
    Exhibit 10.3 to the Registrants
Quarterly Report on Form 10-Q for
the period ended June 30, 200731.1
    
    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
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