THIRD WAVE TECHNOLOGIES INC /WI - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2003 OR

[ ] 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.
(Exact name of Registrant as specified in its charter)

DELAWARE 39-1791034
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)

502 S. ROSA ROAD, MADISON, WI 53719
(Address of principal executive offices) (Zip Code)

(888) 898-2357
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 [ ]

Indicate by check whether the Registrant is an accelerated filer (as defined in
Exchange Act Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

The number of shares outstanding of the registrant's Common Stock, $.001 par
value, as of March 31, 2003, was 39,569,174.

THIRD WAVE TECHNOLOGIES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2003

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THIRD WAVE TECHNOLOGIES, INC.
Consolidated Balance Sheets

See accompanying notes to financial statements.

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THIRD WAVE TECHNOLOGIES, INC.

Consolidated Statements of Operations
(Unaudited)

See accompanying notes to financial statements.

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THIRD WAVE TECHNOLOGIES, INC.

Consolidated Statements of Cash Flows
(Unaudited)

See accompanying notes to financial statements.

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THIRD WAVE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003 and 2002
(unaudited)

(1) Basis of Presentation

The accompanying unaudited consolidated financial statements of Third Wave
Technologies, Inc. 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 and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, considered necessary for a fair presentation
have been included. Interim results are not necessarily indicative of results
that may be expected for the year ending December 31, 2003.

The balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements.

The accompanying unaudited consolidated financial statements should be read in
conjunction with the audited financial statements and footnotes thereto included
in our Form 10-K for the fiscal year ended December 31, 2002 filed with the
Securities and Exchange Commission.

(2) Net Loss Per Share

In accordance with accounting principles generally accepted in the United
States, basic and diluted net loss per share has been computed using the
weighted-average number of shares of common stock outstanding during the
respective periods. Shares associated with stock options are not included
because they are antidilutive for the periods presented.

(3) Stock-Based Compensation

Third Wave has stock-based employee compensation plans. SFAS No. 123,
"Accounting for Stock-Based Compensation," encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. We have chosen to continue using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations, in accounting for its stock
option plans.

Had compensation cost been determined based upon the fair value at the grant
date for awards under the plans based on the provisions of SFAS No. 123, our
SFAS No. 123 pro forma net loss and net loss per share would have been as
follows:

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(4) Inventories

Inventories, consisting mostly of raw materials, are carried at the lower of
cost or market using the first-in, first-out (FIFO) method for determining cost.

Inventories consists of the following:

(5) Stock Compensation

Included in operating expenses are the following stock compensation charges, net
of reversals related to terminated employees:

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(6) Derivative Instruments

We sell products in a number of countries throughout the world. In the quarter
ending March 31, 2003, we sold certain products with the resulting accounts
receivable denominated in Japanese Yen. Simultaneous with such sales and
purchase order commitments, we purchased foreign currency forward contracts to
manage the risk associated with foreign currency collections in the normal
course of business. These derivative instruments have maturities of less than
one year and are intended to offset the effect of transaction gains and losses,
which arise when collections in a foreign currency are received after the asset
is generated. There were no contracts outstanding at March 31, 2003. The changes
in the fair value of the derivatives and the loss or gain on the hedged asset
relating to the risk being hedged are recorded currently in earnings.

(7) Goodwill and Intangible Assets

Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." Under SFAS No.
142, goodwill and intangible assets deemed to have indefinite lives are no
longer amortized, but are subject to annual impairment tests. Other intangible
assets continue to be amortized over their useful lives.

In connection with the adoption of SFAS No. 142, we completed the first step
of the transitional impairment test of goodwill, which required us to compare
the fair value of its reporting units to the carrying value of the net assets of
the respective reporting units as of January 1, 2002. Based on this analysis, it
was concluded that no impairment existed at the time of adoption, and
accordingly, we did not recognize any transitional impairment loss for goodwill.
For intangible assets with indefinite lives, the fair values of these assets
were compared to their carrying values as of January 1, 2002, also resulting in
no transitional impairment.

We completed the annual impairment tests as of September 30, 2002. For
goodwill, this analysis is based on the comparison of the fair value of its
reporting units to the carrying value of the net assets of the respective
reporting units. The fair value of the reporting units was determined using a
combination of discounted cash flows method and other common valuation
methodologies. For intangible assets with indefinite lives, the fair values of
these assets were compared to their carrying values. Based on the analyses, we
determined that goodwill and intangible assets deemed to have indefinite lives
were impaired and accordingly, recognized an impairment charge of $4,676,902
(Goodwill -- $4,210,313, Indefinite-lived intangible assets -- $466,589).

Identifiable intangible assets with indefinite lives consist of the
following:

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Amortizable intangible assets consist of the following:

(8) Restructuring and Impairment of Long Lived Assets

During the third quarter of 2002, we announced a restructuring plan designed
to simplify product development and manufacturing operations and reduce
operating expenses. The restructuring charges recorded were determined based
upon plans submitted by the management and approved by the Board of Directors
using information available at the time. The restructuring charge of $11.1
million in 2002 included $2.5 million for the consolidation of facilities,
$500,000 for prepayment penalties mainly under capital lease arrangements, an
impairment charge of $7.2 million for abandoned leasehold improvements and
equipment to be sold or abandoned and $945,000 of other costs related to the
restructuring. We also recorded a $1.1 million charge within cost of goods sold
related to inventory that was considered obsolete based upon the restructuring
plan.

Assets held for sale on the balance sheet represent equipment that we
continue to attempt to sell, written down to its estimated fair value. The
facilities charge contains estimates based upon our potential to sublease a
portion of the corporate office for a portion of the remaining lease term.
Actual results may differ from these estimates, which could require adjustments
to the restructuring accrual in future periods.

The following table shows the components of the restructuring and other
charges and changes in the restructuring accrual through March 31, 2003. The
remaining facilities balance of $1.9 million included in the restructuring
accrual is primarily related to rent payments on non-cancelable leases, net of
estimated sublease income, which will continue to be paid over the respective
lease terms through 2011. The other component of the restructuring accrual
mainly represents amounts owed resulting from the termination of non-cancelable
purchase orders for equipment. The current portion of the accrual is included in
"Other accrued liabilities" on the balance sheet and the long-term portion is
included in "Other liabilities."

(9) Reclassifications

Certain reclassifications have been made to the 2002 financial statements to
conform to the 2003 presentation.

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THIRD WAVE TECHNOLOGIES, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of
Operations as of March 31, 2003 and for the three months ended March 31, 2003
and 2002 should be read in conjunction with our Form 10-K for the fiscal year
ended December 31, 2002 filed with the Securities and Exchange Commission. In
this Form 10-Q, the terms "we," "us," "our," "Company," and "Third Wave" each
refer to Third Wave Technologies, Inc. The following discussion of our financial
condition and results of our operations should be read in conjunction with our
Financial Statements, including the Notes thereto, included elsewhere in this
Form 10-Q. This Form 10-Q contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, and Section
27A of the Securities Act of 1933, as amended. For a more detailed discussion of
such forward-looking statements and the potential risks and uncertainties that
may affect their accuracy, see the "Forward-Looking Statements" section of this
Form 10-Q.

OVERVIEW

Third Wave Technologies, Inc. is a leading genetic analysis products company. We
believe our proprietary Invader technology platform is easier to use, more
accurate and cost-effective, and enables higher testing throughput than
conventional methods based on polymerase chain reaction, or PCR. These and other
advantages conferred by our technology platform are enabling us to continue to
successfully serve select research customers, while focusing the majority of our
commercial effort on the rapidly growing, high-value clinical molecular
diagnostic market.

More than 100 clinical molecular diagnostic laboratory customers are using Third
Wave's products in routine patient care. Our research customer base includes the
most notable genome research projects in the world, including the Japanese
government's SNP Initiative and that government's share of the International
Haplotype Map Project. Other customers include pharmaceutical and biotechnology
companies, academic research centers and major health care providers.

Third Wave markets a growing number of products including analyte-specific
reagents (ASRs) for routine clinical use. These ASRs allow certified clinical
reference laboratories to create assays to screen for cystic fibrosis and other
inherited disorders, and to test for the Factor V Leiden and a host of other
mutations associated with predisposition to cardiovascular and other diseases.
We also market a series of Invader RNA Assays for measuring expression levels of
an extensive number of genes with proven clinical relevance.

Our financial results may vary significantly from quarter to quarter due to
fluctuations in the demand for our products, timing of new product introductions
and deliveries made during the quarter, the timing of research, development and
grant revenues, and increases in spending, including expenses related to our
product development.

CRITICAL ACCOUNTING POLICIES

Management's discussion and analysis of our financial condition and results
of operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. We review the accounting policies we use in reporting our
financial results on a regular basis. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and

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related disclosure of contingent assets and liabilities. On an ongoing basis, we
evaluate our estimates, including those related to accounts receivable,
inventories, equipment and leasehold improvements and intangible assets. We base
our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Results may differ from these
estimates due to actual outcomes being different from those on which we based
our assumptions. These estimates and judgments are reviewed by management on an
ongoing basis, and by the Audit Committee at the end of each quarter prior to
the public release of our financial results. We believe the following critical
accounting policies affect our more significant judgments and estimates used in
the preparation of our consolidated financial statements.

RESTRUCTURING AND OTHER CHARGES.

The restructuring and other charges resulting from the restructuring plan in
the third quarter of 2002 has been recorded in accordance with EITF Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)"
and Staff Accounting Bulletin No. 100, "Restructuring and Impairment Charges."
The restructuring charge is comprised primarily of costs to consolidate
facilities, impairment charges for abandoned leasehold improvements and
equipment to be sold or abandoned, prepayment penalties related mainly to
capital lease obligations on equipment to be sold or abandoned, and other costs
related to the restructuring. In calculating the cost to consolidate the
facilities, we estimated the future lease and operating costs to be paid until
the leases are terminated and the amount, if any, of sublease receipts for each
location. This required us to estimate the timing and costs of each lease to be
terminated, the amount of operating costs, and the timing and rate at which we
might be able to sublease the site. To form our estimates for these costs, we
performed an assessment of the affected facilities and considered the current
market conditions for each site. Estimates were also used in our calculation of
the estimated realizable value on equipment that is being held for sale. These
estimates were formed based on recent history of sales of similar equipment and
market conditions. Our assumptions on the lease termination payments, operating
costs until terminated, the offsetting sublease receipts and estimated
realizable value of equipment held for sale may turn out to be incorrect and our
actual cost may be materially different from our estimates.

LONG-LIVED ASSETS -- IMPAIRMENT

Equipment, leasehold improvements and amortizable identifiable intangible
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. For assets held and
used, if the sum of the expected undiscounted cash flows is less than the
carrying value of the related asset or group of assets, a loss is recognized for
the difference between the fair value and carrying value of the asset or group
of assets. For assets removed from service and held for sale, we estimate the
fair market value of such assets and record an adjustment if fair value less
costs to sell is lower than carrying value.

DERIVATIVE INSTRUMENTS

We sell products in a number of countries throughout the world. During 2003
and 2002, we sold certain products with the resulting accounts receivable
denominated in Japanese Yen. Simultaneous with such sales and purchase order
commitments, we purchased foreign currency forward contracts to manage the risk
associated with collections of receivables denominated in foreign currencies in
the normal course of business. These derivative instruments have maturities of
less than one year and are intended to offset the effect of transaction gains
and losses. There were no contracts outstanding at March 31, 2003. The changes
in the fair value of the derivatives and the loss or gain on the hedged asset
relating to the risk being hedged are recorded currently in earnings.

INVENTORIES -- SLOW MOVING AND OBSOLESCENCE

Significant management judgment is required to determine the reserve for
obsolete or excess inventory. Inventory on hand may exceed future demand either
because of process improvements or technology

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advancements, the amount on hand is more than can be used to meet future need,
or estimates of shelf lives may change. We currently consider all inventory that
we expect will have no activity within one year as well as any additional
specifically identified inventory to be subject to a provision for excess
inventory. We also provide for the total value of inventories that we determine
to be obsolete based on criteria such as changing manufacturing processes and
technologies. At March 31, 2003, our inventory reserves were $2.5 million, or
58% of our $4.3 million total gross inventories.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2003 and 2002

REVENUES. Revenues for the three months ended March 31, 2003 of $8.5 million
represents a decrease of $1.6 million as compared to revenues of $10.1 million
for the corresponding period of 2002.

Product revenues decreased to $8.2 million for the quarter ended March 31, 2003,
from $9.5 million in the quarter ended March 31, 2002. The decrease in product
sales during the three months ending March 31, 2003 resulted from lower research
product sales, primarily due to the conclusion of the initial phase of the
Japanese Millenium Project in mid year 2002.

Development revenues decreased to $0.3 million for the three months ended March
31, 2003, from $0.4 million for the three months ended March 31, 2002. The
decrease was primarily due to a decrease in funding amounts per our development
and commercialization agreement with BML, Inc (BML). Under the agreement, we
will develop assays in accordance with a mutually agreed development program for
use in clinical applications by BML. This development is expected to be
completed by the end of 2003.

COST OF GOODS SOLD. Cost of goods sold consists of materials used in the
manufacture of product, depreciation on manufacturing capital equipment,
salaries and related expenses for management and personnel associated with our
manufacturing and quality control departments and amortization of licenses and
settlement fees. For the three months ended March 31, 2003, cost of goods sold
decreased to $3.1 million, compared to $7.7 million for the corresponding period
of 2002. The decrease was due to lower volume, lower variable costs achieved by
improved operational efficiencies, and lower fixed costs as a result of the
restructuring that occurred in the third quarter of 2002.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses consist
primarily of salaries and related personnel costs, material costs for assays and
product development, fees paid to consultants, depreciation and facilities costs
and other expenses related to the design, development, testing and enhancement
of our products and acquisition of technologies used or to be used in our
products. Research and development costs are expensed as they are incurred.
Research and development expenses for the three months ended March 31, 2003 were
$2.7 million, compared to $4.4 million for the corresponding period of 2002. The
decrease in research and development expenses was primarily attributable to
decreased material costs for assay and product development and a decrease in
fees paid for consulting, development, and other services.

SELLING AND MARKETING EXPENSES. Selling and marketing expenses consist primarily
of salaries and related personnel costs for our sales and marketing management
and field sales force, commissions, office support and related costs, and travel
and entertainment. Selling and marketing expenses for the three months ended
March 31, 2003 were $2.4 million, a decrease of $0.2 million, as compared to
$2.6 million for the corresponding period of 2002.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist
primarily of salaries and related expenses for executive, finance and other
administrative personnel, legal and professional fees, office support and
depreciation. General and administrative expenses increased to $3.4 million in
the three months ended March 31, 2003, from $2.7 million for the corresponding
period in 2002. The increase is due to an increase in legal fees primarily
related to litigation. (See Part II, Item 1 of this quarterly report).

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INTEREST INCOME. Interest income for the three months ended March 31, 2003 was
$0.2 million, compared to $0.3 million for the corresponding period of 2002.
This decrease was primarily due to lower interest rates and lower cash balances
compared to the three months ending March 31, 2002.

INTEREST EXPENSE. Interest expense for the three months ended March 31, 2003 was
approximately $0.1 million, compared to $0.4 million in the corresponding period
in 2002. The decrease in interest expense was due to lower interest rates on
debt.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have financed our operations primarily through private
placements of equity securities, research grants from federal and state
government agencies, payments from strategic collaborators, equipment loans,
capital leases, sale of products, a convertible note and an initial public
offering. As of March 31, 2003, we had cash and cash equivalents and short-term
investments of $59.3 million.

Net cash used in operations for the three months ended March 31, 2003 was
$1.0 million, compared with $4.7 million in the corresponding period in 2002.
The decrease in cash used in operations was primarily due to lower operating
losses.

Net cash used in investing activities for the three months ended March 31,
2003 was less than $0.1 million, compared to $1.1 million in the corresponding
period in 2002. Investing activities included capital expenditures of $87,000 in
the three months ended March 31, 2003, compared to $1.2 million in the
corresponding period in 2002. Capital expenditures during 2002 were higher due
to investments in production and lab equipment.

Net cash provided by financing activities was $16,000 in the three months
ended March 31, 2003, compared to net cash used in financing activities of $1.0
million in 2002. Cash used in financing activities in the three months ending
March 31, 2003 consisted of $6,000 to repay debt, compared to $0.6 million in
the corresponding period in 2002. Additionally, in the three months ending March
31, 2002, $0.4 million was used for capital lease obligation payments. During
2002, we entered into a term loan agreement due on July 31, 2003 to pay off the
then existing debt and capital lease obligations. The term loan is
collateralized with a 12-month certificate of deposit.

The following summarizes our contractual obligations at March 31, 2003 and
the effect those obligations are expected to have on our liquidity and cash flow
in future periods (in thousands):

As of December 31, 2002, a valuation allowance equal to 100% of our net deferred
tax assets had been recognized since our future realization is not assured. At
December 31, 2002, we had federal and state net operating loss carryforwards of
approximately $103 million. The net operating loss carryforwards will expire at
various dates beginning in 2008, if not utilized. Utilization of the net
operating losses and credits to offset future taxable income may be subject to
an annual limitation due to the change of ownership

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provisions of federal tax laws and similar state provisions as a result of the
initial public offering in February 2001.

We cannot assure you that our business or operations will not change in a manner
that would consume available resources more rapidly than anticipated. We also
cannot assure you that we will not require substantial additional funding before
we can achieve profitable operations. Our capital requirements depend on
numerous factors, including the following:

o our progress with our research and development programs;

o our level of success in selling our products and technologies;

o our ability to establish and maintain successful collaborative
relationships;

o the costs we incur in enforcing and defending our patent
claims and other intellectual property rights; and

o the timing of purchases of additional capital.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk is currently confined to changes in foreign exchange
and interest rates. The securities in our investment portfolio are not leveraged
and, due to their short-term nature, are subject to minimal interest rate risk.
We currently do not hedge interest rate exposure. Due to the short-term
maturities of our investments, we do not believe that an increase in market
rates would have any negative impact on the realized value of our investment
portfolio.

To reduce foreign exchange risk, we selectively use financial instruments. Our
earnings are affected by fluctuations in the value of the U.S. dollar against
foreign currencies as a result of the sales of our products in foreign markets.
Forward foreign exchange contracts are used to hedge against the effects of such
fluctuations. Our policy prohibits the trading of financial instruments for
profit. A discussion of our accounting policies for derivative financial
instruments is included in the notes to the financial statements.

ITEM 4. CONTROLS AND PROCEDURES

The Company's management, including its chief executive officer and chief
financial officer, have conducted an evaluation of the effectiveness of
disclosure controls and procedures within the 90-day period prior to the filing
of this report, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.
Based on that evaluation, the chief executive officer and chief financial
officer concluded that the disclosure controls and procedures are effective in
ensuring that all material information required to be filed in this quarterly
report has been made known to them in a timely fashion. There have been no
significant changes in internal controls, or in factors that could significantly
affect internal controls, subsequent to the date the chief executive officer and
chief financial officer completed their evaluation

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FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. When used in this Form 10-Q the words
"believe," "anticipates," "intends," "plans," "estimates," and similar
expressions are forward-looking statements. Such forward-looking statements
contained in this Form 10-Q are based on current expectations. Forward-looking
statements may address the following subjects: results of operations; customer
growth and retention; development of technologies; losses or earnings; operating
expenses, including, without limitation, marketing expense and technology and
development expense; and revenue growth. We caution investors that there can be
no assurance that actual results, outcomes or business conditions will not
differ materially from those projected or suggested in such forward-looking
statements as a result of various factors, including, among others, our limited
operating history, unpredictability of future revenues and operating results,
competitive pressures and also the potential risks and uncertainties set forth
in the "Overview" section hereof and in the "Overview" and "Risk Factors"
sections of our annual report on Form 10-K for the fiscal year ended December
31, 2002 filed with the Securities and Exchange Commission, which factors are
specifically incorporated herein by this reference. You should also carefully
consider the factors set forth in other reports or documents that we file from
time to time with the Securities and Exchange Commission. Except as required by
law, we undertake no obligation to update any forward-looking statements.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS - With the exception of the matters
identified below, there are no material legal proceedings pending.
From time to time, we may be involved in litigation relating to
claims arising out of our operations in the usual course of
business.

On September 6, 2002 the Company filed a patent infringement action
against Eragen Biosciences, Inc. in the United States District Court
for the Western District of Wisconsin. The complaint alleges that the
defendant is infringing certain claims of the Company's U.S. Patent No.
6,348,314 entitled "Invasive cleavage of nucleic acids" and U.S. Patent
No. 6,090,543 entitled "Cleavage of nucleic acids" based on Eragen's
development and sale of products known as "Gene-Code" or similar
technologies or products. The defendants answered the complaint on
October 8, 2002 and asserted a counterclaim seeking declaratory
judgment that Eragen has not infringed any valid claims of the Company
patents at issue. On April 9, 2003, the Company and Eragen settled the
litigation. Under the terms of the settlement agreement, Eragen agreed
to cease and desist from the development and sale of certain Gene Code
products and technologies and further agreed not to use or develop
products or technologies employing invasive cleavage technologies.
Eragen also agreed to a nonmaterial payment of cash to the Company. The
Company agreed to dismiss the lawsuit against Eragen and issued a
covenant not to sue under certain Company patents.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) None
(b) None
(c) None
(d) Use of Proceeds. Pursuant to our Registration Statement on
Form S-1, as amended, filed with the Securities and Exchange
Commission and declared effective February 9, 2001,
(Registration No. 333-42694), we commenced our initial public
offering of 7,500,000 registered shares of common stock,
$0.001 par value, on February 9, 2001, at a price of $11.00
per share (the "Offering"). The Offering was completed on
February 14, 2001, and all of the 7,500,000 shares were sold,
generating gross proceeds of approximately $82,500,000. The
managing underwriters for the Offering were Lehman Brothers
Inc., CIBC World Markets, Dain Rauscher Incorporated, Robert
W. Baird & Co. Incorporated, and Fidelity Capital Markets.

In connection with the Offering, we incurred approximately
$5.8 million in underwriting discounts and commissions, and
approximately $1.9 million in other related expenses. The net
offering proceeds to us, after deducting the foregoing
expenses, were approximately $74.8 million.

From the time of receipt through March 2003, we have invested
the net proceeds from the Offering in investment-grade,
interest-bearing securities. We used $4.0 million of the
proceeds to satisfy a cancellation fee for the termination of
a distribution agreement with Endogen Corporation. We used
approximately $12.1 million for general corporate purposes,
including working capital and research and development
activities.

We expect to use the remainder of the net proceeds for general
corporate purposes, including working capital and expanding
research and development and sales and marketing efforts to
accelerate the commercialization of new products and the
development of new partnerships.

A portion of the net proceeds may also be used to acquire or
invest in complementary businesses or products to obtain the
right to use complementary technologies. From time to time, in
the ordinary course of business, we may evaluate potential
acquisitions of these businesses, products, or technologies.
We have no current agreements or commitments regarding any
such transaction.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None.

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ITEM 5. OTHER INFORMATION - None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits, furnished:

(b) Reports on Form 8-K filed during the three months ended March
31, 2003: The registrant filed a Current Report on Form 8-K
dated February 18, 2003 reporting, under Items 5 and 7 of Form
8-K, an amendment to the Stock Rights Agreement between the
registrant and Equiserve Trust Company N.A., as rights agent.

(c) Exhibit 99.1 - Certification Pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States Code

(d) Exhibit 99.2 - Certification Pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States Code

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SIGNATURES

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

THIRD WAVE TECHNOLOGIES, INC.

Date: May 15, 2003 By: /s/ Lance Fors
--------------------------------
Lance Fors, CEO

Date: May 15, 2003 By: /s/ John Puisis
--------------------------------
John Puisis, CFO

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CERTIFICATION

I, Lance Fors, CEO of Third Wave Technolgies, Inc. (the "registrant"), certify
that:

1. I have reviewed this Quarterly Report on Form 10-Q (the "Report") of
the registrant;

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

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

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which the Report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of the Report (the "Evaluation Date"); and

(c) presented in the Report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

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

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in the
Report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: May 15, 2003

/s/ Lance Fors
----------------------
Lance Fors, CEO

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CERTIFICATION

I, John Puisis, CFO of Third Wave Technolgies, Inc. (the "registrant"), certify
that:

1. I have reviewed this Quarterly Report on Form 10-Q (the "Report") of
the registrant;

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

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

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which the Report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of the Report (the "Evaluation Date"); and

(c) presented in the Report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

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

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in the
Report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: May 15, 2003

/s/ John Puisis
----------------------------
John Puisis, CFO

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