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 September 30, 2001, 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 [ ]
The number of shares outstanding of the registrant's Common Stock, $.001 par
value, as of September 30, 2001, was 38,346,545.
THIRD WAVE TECHNOLOGIES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
TABLE OF CONTENTS
Page No.
--------
PART I FINANCIAL INFORMATION............................................................... 1
Item 1. Financial Statements............................................................ 1
Balance Sheets as of September 30, 2001 and December 31, 2000....................... 1
Statements of Operations for the three and nine months ended September 30, 2001 and
2000................................................................................ 3
Statements of Cash Flows for the nine months ended
September 30, 2001 and 2000......................................................... 4
Notes to Financial Statements....................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................... 13
PART II OTHER INFORMATION................................................................... 14
Item 1. Legal Proceedings............................................................... 14
Item 2. Changes In Securities And Use Of Proceeds....................................... 14
Item 3. Defaults Upon Senior Securities................................................. 14
Item 4. Submission Of Matters To A Vote Of Security Holders............................. 14
Item 5. Other Information............................................................... 14
Item 6. Exhibits And Reports On Form 8-K................................................ 14
SIGNATURES................................................................................... 15
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THIRD WAVE TECHNOLOGIES, INC.
Balance Sheets
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------ ------------
(UNAUDITED) (AUDITED)
ASSETS
------
Current assets:
Cash and cash equivalents $ 1,392,016 $ 14,046,484
Short-term investments 82,307,860 33,132,144
Receivables
Trade, net of allowance for doubtful accounts of $70,000 and $59,000 at
September 30, 2001 and December 31, 2000 4,552,281 1,371,553
Accounts receivable from related party 344,649 22,290
Inventories 8,652,784 760,851
Prepaid expenses and other 4,342,753 1,731,004
------------ ------------
Total current assets 101,592,343 51,064,326
Equipment and leasehold improvements
Machinery and equipment 33,690,692 19,194,828
Leasehold improvements 6,464,797 2,481,222
------------ ------------
40,155,489 21,676,050
Less accumulated depreciation 8,767,019 4,430,927
------------ ------------
31,388,470 17,245,123
Intangible assets 9,623,451 11,071,371
Other assets 3,534,407 3,812,190
------------ ------------
Total assets $146,138,671 $ 83,193,010
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 11,559,690 $ 11,439,002
Accrued expenses and other liabilities 4,692,376 1,995,258
Deferred revenue 2,369,666 1,711,450
Long-term debt due within one year 2,541,296 6,796,234
Capital lease obligations due within one year 1,382,239 0
------------ ------------
Total current liabilities 22,545,267 21,941,944
Deferred revenue 1,166,667 1,916,667
Long-term debt 4,650,829 2,095,211
Convertible note payable 0 10,000,000
Other 200,000 200,000
Capital lease obligations 3,366,284 0
Shareholders' equity:
Convertible preferred stock, $.001 par value, 14,780,400 shares authorized:
Series A, 1,131,600 shares issued and outstanding 0 1,132
Series B, 600,000 shares issued and outstanding 0 600
Series C, 560,400 shares issued and outstanding 0 560
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SEPTEMBER 30, DECEMBER 31,
2001 2000
------------ ------------
(UNAUDITED) (AUDITED)
Series D, 1,185,600 shares issued and outstanding 0 1,186
Series E, 5,190,000 shares issued and outstanding 0 5,190
Series F, 5,444,400 shares issued and outstanding 0 5,444
Common stock, $.001 par value, 100,000,000 and
36,000,000 shares authorized, respectively, 38,346,545
and 15,633,800 shares issued and outstanding, respectively 38,346 15,634
Common stock to be issued, 116,855 shares 0 856,800
Additional paid-in capital 184,608,966 98,871,975
Deferred stock compensation (2,373,307) (4,570,364)
Accumulated deficit (68,064,381) (48,148,969)
------------ ------------
Total shareholders' equity 114,209,624 47,039,188
------------ ------------
Total liabilities and shareholders' equity $146,138,671 $83,193,010
============ ===========
See accompanying notes to financial statements.
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THIRD WAVE TECHNOLOGIES, INC.
Statements of Operations
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- ---------------------------------
2001 2000 2001 2000
------------- -------------- -------------- ----------------
Revenues:
Product sales $ 7,314,642 $ 3,442,092 $ 25,304,633 $ 4,652,006
Development revenue 750,000 0 2,360,000 19,022
Grant revenue 122,996 120,243 389,247 265,440
------------- -------------- -------------- ----------------
Total revenues 8,187,638 3,562,335 28,053,880 4,936,468
------------- -------------- -------------- ----------------
Operating expenses:
Cost of goods sold (note 6) 6,364,558 2,904,827 23,308,973 6,457,562
Research and development (note 6) 4,447,449 1,884,618 11,384,096 4,778,574
Selling and marketing (note 6) 2,173,513 1,138,818 7,074,926 3,366,366
General and administrative (note 6) 3,052,904 1,845,094 8,177,653 4,110,585
Impairment loss 0 0 0 5,788,889
Merger costs 0 195,565 0 804,254
------------- -------------- -------------- ----------------
Total operating expenses 16,038,424 7,968,922 49,945,648 25,306,230
Loss from operations (7,850,786) (4,406,587) (21,891,768) (20,369,762)
Other income (expense):
Interest income 782,222 589,775 2,894,686 860,630
Interest expense (415,564) (213,836) (966,227) (405,668)
Other 66,201 13,703 47,897 41,755
------------- -------------- -------------- ----------------
Other income (expense): 432,859 389,642 1,976,356 496,717
------------- -------------- -------------- ----------------
Net loss $ (7,417,927) $ (4,016,945) $ (19,915,412) $ (19,873,045)
============= ============== ============== ================
Deemed dividend upon issuance of convertible preferred
stock 0 (17,022,824) 0 (17,022,824)
------------- -------------- -------------- ----------------
Net loss attributable to common
shareholders $ (7,417,927) $ (21,039,769) $ (19,915,412) $ (36,895,869)
============= ============== ============== ================
Basic and diluted net loss per share (note 2) $ (0.19) $ (1.40) $ (0.57) $ (2.46)
Pro forma, basic and diluted net loss per share
(note 2) $ (0.19) $ (0.14) $ (0.53) $ (0.79)
Shares used in computing basic and diluted net loss per
share (note 2) 38,335,352 15,053,160 35,046,057 15,005,147
Shares used in computing pro forma, basic and diluted
net loss per share (note 2) 38,335,352 27,713,320 37,215,770 25,003,600
See accompanying notes to financial statements.
-3-
THIRD WAVE TECHNOLOGIES, INC.
Statements of Cash Flows
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30
------------------------------
2001 2000
------------- ------------
OPERATING ACTIVITIES:
Net loss $ (19,915,412) $(19,873,045)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 6,061,795 3,100,960
Noncash stock compensation 2,300,535 1,285,109
Noncash charge for impairment loss 0 5,788,889
Deferred gain on sale of assets 167,042 0
Changes in operating assets and liabilities:
Receivables (3,503,087) (1,413,679)
Inventories (7,891,933) (590,709)
Prepaid expenses and other assets (2,455,309) (1,955,328)
Accounts payable 120,688 7,812,245
Accrued expenses and other liabilities 2,373,636 1,390,068
Deferred revenue (91,784) 693,098
------------- ------------
Net cash used in operating activities (22,833,829) (3,762,392)
------------- ------------
INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (18,479,439) (7,400,957)
Proceeds from sale of equipment 5,070,000 0
Purchases of licensed technology and other intangible assets 0 (6,520,908)
Purchase of short-term investments (101,956,795) (59,738,099)
Sales of short-term investments 52,781,079 17,975,000
------------- ------------
Net cash used in investing activities (62,585,155) (55,684,964)
------------- ------------
FINANCING ACTIVITIES:
Proceeds from long-term debt 5,399,879 2,742,443
Payments on long-term debt (7,099,199) (229,705)
Proceeds from note receivable 0 1,997,736
Proceeds from common stock, net 74,785,313 357,565
Proceeds from preferred stock, net 0 45,456,147
Payments on capital lease obligations (321,477) 0
------------- ------------
Net cash provided by financing activities 72,764,516 50,324,186
------------- ------------
Net change in cash and cash equivalents (12,654,468) (9,123,170)
Cash and cash equivalents at beginning of period 14,046,484 10,128,679
------------- ------------
Cash and cash equivalents at end of period $ 1,392,016 $ 1,005,509
============= ============
Noncash investing and financing activities:
During the nine months ended September 30, 2001, the Company sold $5,070,000 of
equipment and simultaneously leased the equipment back under capital leases.
See accompanying notes to financial statements.
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THIRD WAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2001 and 2000
(unaudited)
(1) Basis of Presentation
The accompanying unaudited 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, 2001.
The balance sheet at December 31, 2000, 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 financial statements should be read in conjunction
with the audited financial statements and footnotes thereto included in our
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission and declared effective on February 9, 2001.
(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, convertible preferred
stock, and convertible note payable, are not included because they are
antidilutive for the periods presented.
Unaudited pro forma, basic and diluted net loss per share, as presented, is
computed using the weighted average number of shares of common stock
outstanding, assuming that the shares associated with the preferred stock and
convertible note payable were converted to common stock upon issuance. It also
excludes from the numerator the interest expense on the convertible note
payable.
-5-
The following table presents the calculation of basic and diluted and pro forma
basic and diluted net loss per share.
For three months ended For nine months ended
September 30, September 30,
----------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Basic and diluted:
Net loss attributable to common shareholders $ (7,417,927) $(21,039,769) $(19,915,412) $(36,895,869)
Shares used in computing basic and diluted net loss per
share 38,335,352 15,053,160 35,046,057 15,005,147
Basic and diluted net loss per share $ (0.19) $ (1.40) $ (0.57) $ (2.46)
Pro forma, basic and diluted:
Net loss $ (7,417,927) $ (4,016,945) $(19,915,412) $(19,873,045)
Interest on convertible note payable 0 0 187,500 0
Pro forma, net loss $ (7,417,927) $ (4,016,945) $(19,727,912) $(19,873,045)
Shares used above 38,335,352 15,053,160 35,046,057 15,005,147
Pro forma adjustment to reflect weighted effect of
conversion of preferred stock and convertible note
payable 0 12,660,160 2,169,713 9,998,453
Shares used in computing pro forma, basic and diluted
net loss per share 38,335,352 27,713,320 37,215,770 25,003,600
Pro forma, basic and diluted net loss per share $ (0.19) $ (0.14) $ (0.53) $ (0.79)
(3) Deemed Dividend Upon Issuance of Convertible Preferred Stock
Subsequent to the commencement of our initial public offering process, we
reevaluated the deemed fair market value of our common stock as of July 2000 and
determined it to be $11.90 per share. The Series F convertible preferred stock
was issued at approximately the same time for $8.78 per share. The $17,022,824
aggregate excess of the fair value of the "if-converted" common stock over the
preferred stock's conversion price was allocated to paid-in capital and created
a discount on the preferred stock. That discount was immediately amortized to
paid in capital (due to lack of retained earnings) and was considered a deemed
dividend for loss-per-share purposes. For all other classes of preferred stock,
the conversion price was greater than or equal to the fair value of the
"if-converted" common stock.
(4) Initial Public Offering
In February 2001, we completed our initial public offering of 7,500,000 shares
of common stock at a price of $11.00 per share (excluding underwriters'
discounts and commissions), generating gross proceeds of approximately $82.5
million and net proceeds of $74.6 million, after deducting an aggregate of $7.9
million in underwriting discounts, commissions, and other offering related
expenses. All shares of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock, Series C Convertible Preferred Stock, Series D
Convertible Preferred Stock, Series E Convertible Preferred Stock, and Series F
Convertible Preferred Stock outstanding as of the closing date of the offering
were automatically converted into shares of common stock. No dividends were paid
on any of the Series A, B, C, D, E, or F Convertible Preferred Stock. We expect
to use the proceeds from the offering for capital expenditures, including
facilities expansion and purchases of equipment, and general corporate purposes,
including working capital and research and development activities.
-6-
(5) Inventory
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.
Inventory consists of the following:
September 30 December 31,
2001 2000
------------ -------------
Raw material $ 7,149,440 $ 579,075
Finished goods and work in process 1,503,344 181,776
------------ -------------
Total inventory $ 8,652,784 $ 760,851
============ =============
(6) Stock Compensation
Included in operating expenses are the following stock compensation charges:
Three Months Ended Nine Months Ended
----------------------------- ------------------------------
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
------------ ------------- ------------- -------------
Cost of goods sold $ 113,690 $ 218,572 $ 443,275 $ 547,767
Research and development 57,355 34,746 221,196 55,540
Selling and marketing 25,766 34,271 101,752 207,899
General and administrative 396,442 183,356 1,534,312 473,903
------------ ------------- ------------- -------------
Total stock compensation $ 593,253 $ 470,945 $ 2,300,535 $ 1,285,109
============ ============= ============= =============
(7) Adoption of New Accounting Standard
In September 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended,
which was adopted by the Company on January 1, 2001. This Statement requires
that all derivatives be recorded in the balance sheet at fair value and that
changes in fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. There was no cumulative effect of adoption because
the Company did not have any derivative financial instruments on January 1,
2001.
The Company sells its products in a number of countries throughout the world. In
the quarter ending September 30, 2001, the Company sold certain products with
the resulting accounts receivable denominated in Japanese Yen. Simultaneous with
such sales, the Company purchased foreign currency forward contracts to manage
the risk associated with foreign currency collections in the normal course of
business, which qualify as foreign currency hedges. These hedges mature in 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. Contracts outstanding at September 30, 2001 represented
a combined U.S. dollar equivalent commitment of approximately $2,986,000. The
changes in the fair value of the Company's derivatives and the loss or gain on
the hedged asset relating to the risk being hedged are recorded currently in
earnings. An unrealized loss on the forward contracts and an offsetting
unrealized gain on the underlying hedged transactions were recorded as a
liability and asset, respectively, in the financial statements.
-7-
(8) Reclassifications
Certain reclassifications have been made to the 2000 financial statements to
conform to the 2001 presentation.
-8-
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 September 30, 2001, and for the three and nine months ended
September 30, 2001 and 2000 should be read in conjunction with the sections of
our Registration Statement on Form S-1 filed with the Securities and Exchange
Commission and declared effective on February 9, 2001, as amended, entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." 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 the 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 develops, manufactures and markets genetic analysis
products used in the discovery and validation of the genetic basis of disease
and the delivery of personalized medicine.
The company's patented Invader(R) product platform is highly accurate,
sensitive, easy to use and cost-effective, enabling the acceleration of genome
and pharmaceutical research and clinical patient analysis.
Third Wave's strategy is rooted in a simple concept: drive value creation by
leveraging any one of its tens of thousands of unique research products into
increasingly larger revenue and market opportunities as it moves from basic
research to medical genetic to routine clinical applications. The Company has
established strategic collaborations in the U.S. and abroad with government
initiatives, pharmaceutical and biotechnology companies, academic research
centers, clinical reference labs and major healthcare providers. Through these
partnerships and ongoing research and development, Third Wave will continue to
expand its menu of products and drive their transition from the research market
to the clinical market
A large suite of Third Wave's turnkey Invader platform products is already
available, including sets of analyte specific reagents for routine clinical use
in the detection of mutations associated with deep vein thrombosis, and the
Invader MAP (Medically Associated Panel) and SNP Panel products for research
use. The Company has also introduced its first series of Invader RNA Assay
products for measuring the expression levels of 30 genes with proven clinical
relevance. Additional products for genotyping and gene expression analysis will
be launched soon. These products will be available in flexible formats and
include various densities of chromosome-specific panels, expanded genome-wide
screening and medically associated panels including disease-specific panels,
microsatellite replacement panels and assays for quantitating a number of
infectious diseases and mRNA transcripts, including drug metabolizing enzymes,
cytokines, chemokines, growth factors and housekeeping and reporter genes.
Invader products are compatible with existing automation processes and detection
platforms and are available in convenient, ready-to-use formats. These
advantages make Invader products ideally suited for both small-scale and
large-scale genetic analysis in research and clinical applications, including
drug discovery and development and patient diagnosis and treatment. Third Wave's
proprietary products and technologies position the Company to exploit the
growing market opportunity for genetic analysis products.
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
-9-
research, development and grant revenues, and increases in spending, including
expenses related to our ongoing scale up of product development and
manufacturing capabilities.
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 2001 and 2000
REVENUES. Revenues for the three months ended September 30, 2001, of $8.2
million represents an increase of $4.6 million as compared to revenues of $3.6
million for the corresponding period of 2000. Revenues for the nine months ended
September 30, 2001, of $28.1 million represents an increase of $23.2 million as
compared to revenues of $4.9 million for the corresponding period of 2000.
Product revenues increased to $7.3 million for the quarter ended September 30,
2001, from $3.4 million in the quarter ended September 30, 2000. Product
revenues increased to $25.3 million for the nine months ended September 30,
2001, from $4.7 million in the nine months ended September 30, 2000. The
increase in product sales was the result of increasing sales of the Invader
products, which are consumable tests and reagents used for DNA and RNA analysis
in research and clinical applications. Product sales during the nine month
period were above expectations as our largest customer accelerated its purchases
of our proprietary Cleavase enzyme. The customer will use the enzyme in
conjunction with previously delivered Invader SNP probes sets, as well as those
planned to be delivered over the remainder of the project.
Development revenues increased to $0.8 million for the three months ended
September 30, 2001, from $0 for the three months ended September 30, 2000.
Development revenues increased to $2.4 million for the nine months ended
September 30, 2001 from less than $0.1 million for the nine months ended
September 30, 2000. The increase is primarily due to development work being done
on a development and commercialization agreement with BML, Inc. 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 the 2003 calendar year.
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 September 30, 2001, cost of goods
sold increased to $6.4 million compared to $2.9 million for the corresponding
period of 2000. For the nine months ended September 30, 2001, cost of goods sold
increased to $23.3 million compared to $6.5 million for the corresponding period
of 2000. The increase was primarily due to the increased material expenses as a
result of higher product sales and costs incurred as we put in place additional
manufacturing capacity to meet accelerating demand for our Invader products.
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 September 30, 2001,
were $4.4 million, compared to $1.9 million for the corresponding period of
2000. Research and development expenses for the nine months ended September 30,
2001, were $11.4 million, compared to $4.8 million for the corresponding period
of 2000. The increase in research and development expenses for the three and
nine month periods of $2.5 and $6.6 million, respectively, was primarily
attributable to increased expenses associated with additional research and
development personnel, increased purchases of laboratory supplies, increased
equipment depreciation, deferred compensation amortization and increased
facilities expenses in connection with the expansion of our internal and
collaborative research efforts.
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, office support and related costs, and travel and
entertainment. Selling and marketing expenses for the three months ended
September
-10-
30, 2001, were $2.2 million, an increase of $1.1 million, as compared to $1.1
million for the corresponding period of 2000. Selling and marketing expenses for
the nine months ended September 30, 2001, were $7.1 million, an increase of $3.7
million, as compared to $3.4 million for the corresponding period of 2000. We
attribute this increase to the hiring of additional personnel and increased
costs associated with establishing and expanding our clinical and research
businesses.
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 $3.1 million in
the three months ended September 30, 2001, from $1.8 million for the
corresponding period in 2000 and $8.2 million in the nine months ended September
30, 2001, from $4.1 million for the corresponding period in 2000. The increase
is due to the hiring of additional personnel to support our growing business
activities and increased costs associated with operating a public company.
IMPAIRMENT LOSS. In the nine month period ending September 30, 2000, an
impairment charge of $5.8 million was recognized. The impairment charge pertains
to intangible assets recorded in connection with terminating a distribution
agreement.
MERGER COSTS. In January 2000, we entered into an agreement to merge with
another company. In May 2000, we and the other company mutually agreed to
terminate the merger agreement. During the three months and nine months ended
September 30, 2000, we incurred expenses related to the proposed merger of $0.2
million and $0.8 million, respectively.
INTEREST INCOME. Interest income for the three months ended September 30, 2001,
was $0.8 million, compared to approximately $0.6 million for the corresponding
period of 2000. Interest income for the nine months ended September 30, 2001,
was $2.9 million, compared to approximately $0.9 million for the corresponding
period of 2000. This increase was primarily due to interest received on larger
cash, cash equivalent and short-term investment balances, which we held as a
result of our initial public offering in February 2001, offset by amounts used
to fund operating activities and a decrease in interest rates realized on our
investments.
INTEREST EXPENSE. Interest expense for the three months ended September 30,
2001, was approximately $0.4 million compared to $0.2 million in the
corresponding period in 2000. Interest expense for the nine months ended
September 30, 2001, was approximately $1.0 million compared to $0.4 million in
the corresponding period in 2000. The increase in interest expense was due to
additional debt related to the capital equipment financing completed in
September 2000, May 2001, and September 2001 and the convertible note payable
from December 2000.
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 September 30, 2001, we had cash and cash equivalents and
short-term investments of $83.7 million.
In February 2001, we completed our initial public offering of 7,500,000 shares
of common stock at a price of $11.00 per share (excluding underwriters'
discounts and commissions), generating net proceeds of approximately $74.6
million.
Net cash used in operations for the nine months ended September 30, 2001, was
approximately $22.8 million, compared with approximately $3.8 million for the
comparable period in 2000. Non-cash charges in the nine months ended September
30, 2001, included stock compensation expense of $2.3 million, depreciation and
amortization expense of $6.1 million and deferred gain on the sale of fixed
assets of $0.2 million. The change in operating assets and liabilities for the
nine months ended September 30, 2001,
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included an increase in accounts receivable of $3.5 million, an increase in
inventory of $7.9 million, an increase in prepaid expenses and other assets of
$2.5 million, an increase in accounts payable of $0.1 million, an increase in
accrued liabilities of $2.4 million and a decrease in deferred revenue of less
than $0.1 million. Investing activities included $18.5 million for purchases of
capital equipment, proceeds of $5.1 million from the sale of equipment during
the nine months ending September 30, 2001, and $49.2 million for the net
purchases of short-term investments. Financing activities for the nine month
period included the use of $7.1 million to repay debt, proceeds of $5.4 million
from capital equipment financing and net proceeds from the issuance of common
stock of $74.8 million, which was primarily from our initial public offering in
February 2001.
As of December 31, 2000, 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, 2000, we had federal and state net operating loss carryforwards of
approximately $48.5 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 provisions of federal tax
laws and similar state provisions as a result of the initial public offering.
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:
- our progress with our research and development programs;
- our level of success in selling our products and technologies;
- our ability to establish and maintain successful collaborative
relationships;
- the costs we incur in enforcing and defending our patent claims
and other intellectual property rights; and
- the timing of purchases of additional capital.
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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, but such an increase may have a negative impact on the interest
expense associated with our long-term debt.
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.
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 by management
from time to time, 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 "Risk Factors" section of our final prospectus dated
February 9, 2001 comprising part of our registration statement on Form S-1 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 - None. From time to time, we may be involved in
litigation relating to claims arising out of our operations in the
usual course of business.
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 $2.1 million in other related expenses. The net
offering proceeds to us, after deducting the foregoing
expenses, were approximately $74.6 million.
From the time of receipt through September, 2001, 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 have used cash on hand prior to the Offering
to fund our general operations.
We expect to use between $10.0 and $20.0 million of the net
proceeds of the Offering for capital expenditures, including
facilities expansion and purchases of equipment. We expect to
use the remainder of the net proceeds for general corporate
purposes, including working capital and research and
development activities.
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.
ITEM 5. OTHER INFORMATION - None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits Required by Item 601 of Regulation S-K - None.
(b) Reports on Form 8-K filed during the three months ended
September 30, 2001 - None.
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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: November 14, 2001 By: /s/ Lance Fors
---------------------------------------------
Lance Fors, CEO
Date: November 14, 2001 By: /s/ John Comerford
---------------------------------------------
John Comerford, Vice President and General
Counsel
Date: November 14, 2001 By: /s/ John Puisis
---------------------------------------------
John Puisis, CFO
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