SEQUENOM INC - 10-Q Quarterly Report

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 ending June 30, 2002

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-29101

SEQUENOM, INC.
(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation or organization)		77-0365889 (I.R.S. Employer Identification Number)

3595 John Hopkins Court San Diego, California (Address of principal executive offices)		92121 (Zip Code)

Registrant’s telephone number, including area code: (858) 202-9000

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. x Yes o No

The number of shares of the Registrant’s Common Stock outstanding as of August 9, 2002 was 37,616,386.

SEQUENOM, INC.

INDEX

		Page No.

PART I - FINANCIAL INFORMATION		3

Item 1. Financial statements

	Condensed Consolidated Balance Sheets — as of June 30, 2002 (unaudited) and December 31, 2001	3

	Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2002 and 2001	4

	Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2002 and 2001	5

	Notes to the unaudited Condensed Consolidated Financial Statements	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of operations		10

Item 3. Quantitative and Qualitative Disclosures About Market Risk		34

PART II - OTHER INFORMATION		35

Item 1. Legal Proceedings		35

Item 2. Changes in Securities and Use of Proceeds		35

Item 4. Submission of Matters to a Vote of Security Holders		36

Item 6. Exhibits and reports on Form 8-K		36

PART I - FINANCIAL INFORMATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share information)

		June 30, 2002			December 31, 2001

		(Unaudited)
Assets
Current assets:
	Cash and cash equivalents	$	34,974		$	71,686
	Short-term investments, available-for-sale		75,497			67,322
	Restricted cash and investments		3,681			4,127
	Accounts receivable, net		5,905			9,995
	Inventories, net		7,507			8,051
	Other current assets and prepaid expenses		5,006			4,134

Total current assets			132,570			165,315
Equipment and leasehold improvements, net			23,202			25,099
Intangible assets, net			18,399			19,416
Goodwill			24,618			141,565
Other assets			4,139			4,986

Total assets		$	202,928		$	356,381

Liabilities and stockholders’ equity
Current liabilities:
	Accounts payable and accrued expenses	$	16,022		$	21,464
	Accrued acquisition and integration costs		8,436			6,519
	Deferred revenue		1,293			6,625
	Current portion of long-term bank debt		958			1,250
	Current portion of capital lease obligations		810			1,059

Total current liabilities			27,519			36,917
Deferred revenue, less current portion			1,100			1,800
Capital lease obligations, less current portion			817			1,092
Long-term debt, less current portion			1,597			1,750
Long-term deferred tax liability			5,565			6,220
Stockholders’ equity:
	Common stock, par value $0.001; 75,000,000 shares authorized, 37,547,757 and 37,367,228 shares issued and outstanding at June 30, 2002 and December 31, 2001, respectively		38			37
	Additional paid-in capital		448,422			447,756
	Deferred compensation related to stock options		(342	)		(605	)
	Accumulated other comprehensive (expense) income		(380	)		437
	Accumulated deficit		(281,408	)		(139,023	)

Total stockholders’ equity			166,330			308,602

Total liabilities and stockholders’ equity		$	202,928		$	356,381

See accompanying notes.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share information)

		Three months ended June 30,						Six months ended June 30,

			2002			2001			2002			2001

		(Unaudited)						(Unaudited)
Revenues:
Product related		$	5,727		$	5,007		$	12,500		$	8,717
Services			3,384			2,311			5,170			3,782
Research and development grants			78			36			119			103

	Total revenues		9,189			7,354			17,789			12,602

Costs and expenses:
Cost of product and service revenue			5,265			5,045			10,057			9,198
Research and development			8,139			6,814			16,208			12,104
Selling, general and administrative			7,242			5,509			14,281			10,035
Integration costs			3,000			—			3,000			—
Amortization of acquired intangibles			936			—			1,871			—
Amortization of deferred stock compensation			119			250			264			541

	Total costs and expenses		24,701			17,618			45,681			31,878


Loss from operations			(15,512	)		(10,264	)		(27,892	)		(19,276	)
Net interest income			1,087			1,564			2,115			3,579
Other (expense) income, net			(389	)		9			(316	)		(24	)

Net loss before income taxes and cumulative effect of accounting change			(14,814	)		(8,691	)		(26,093	)		(15,721	)
Deferred income tax benefit			327			—			654			—

Net loss before cumulative effect of accounting change			(14,487	)		(8,691	)		(25,439	)		(15,721	)
Cumulative effect of accounting change			—			—			(116,947	)		—

Net loss		$	(14,487	)	$	(8,691	)	$	(142,386	)	$	(15,721	)


Net loss per share, basic and diluted:
Before cumulative effect of accounting change		$	(0.39	)	$	(0.36	)	$	(0.68	)	$	(0.65	)
Cumulative effect of accounting change			—			—		$	(3.12	)		—

Net loss per share, basic and diluted		$	(0.39	)	$	(0.36	)	$	(3.80	)	$	(0.65	)

Weighted average shares outstanding, basic and diluted			37,526,627			24,356,766			37,491,696			24,347,069

See accompanying notes.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

		Six months ended June 30,

		2002			2001

		(Unaudited)
Operating activities
Net loss		$	(142,386	)	$	(15,721	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Cumulative effect of accounting change		116,947			—
	Other non-cash items		3,954			3,728
Changes in operating assets and liabilities:
	Inventories		661			(2,237	)
	Accounts receivable		4,242			(3,061	)
	Other current assets		(813	)		4,394
	Other assets		2,977			(2,787	)
	Accounts payable and accrued expenses		(6,359	)		128
	Deferred revenue		(6,023	)		—
	Other liabilities		3,390			—

Net cash used in operating activities			(23,410	)		(15,556	)

Investing activities
Purchase of equipment and leasehold improvements			(2,312	)		(9,224	)
Net change in restricted cash			511			—
Net change in marketable investment securities			(10,393	)		(21,832	)
Investment in investee			(1,000	)		—

Net cash used in investing activities			(13,194	)		(31,056	)

Financing activities
Net payments on capital lease obligations			(524	)		373
Repayment of long-term debt			(444	)		—
Proceeds from exercise of stock options and ESPP purchases			647			274

Net cash (used)/provided by financing activities			(321	)		647

Net decrease in cash and cash equivalents			(36,925	)		(45,965	)
Effect of exchange rate changes on cash and cash equivalents			213			(177	)
Cash and cash equivalents at beginning of period			71,686			70,046

Cash and cash equivalents at end of period		$	34,974		$	23,904

Supplemental disclosure of cash flow information:
Interest paid		$	123

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