THERASENSE INC - 10-Q Quarterly Report

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 PERIOD ENDED SEPTEMBER 30, 2002

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

FOR THE TRANSITION PERIOD FROM ___________ TO ___________

Commission File Number: 000-33139

THERASENSE, INC.
(Exact name of Registrant issuer as specified in its charter)

Delaware		94-3267373
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1360 South Loop Road, Alameda, California
(Address of principal executive offices)

94502
(Zip code)

(510) 749-5400
(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

As of November 1, 2002, Registrant had outstanding 40,651,819 shares of Common Stock, $0.001 par value.

THERASENSE, INC.
QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

		PAGE

Part I: Financial Information

Item 1. Condensed Consolidated Financial Statements (unaudited):
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001	1
	Condensed Consolidated Balance Sheets at September 30, 2002 and December 31, 2001	2
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3. Quantitative and Qualitative Disclosures About Market Risk		26
Item 4. Controls and Procedures		26

Part II: Other Information

Item 1. Legal Proceedings		27
Item 2. Changes in Securities and Use of Proceeds		27
Item 3. Defaults Upon Senior Securities		27
Item 4. Submission of Matters to a Vote of Security Holders		27
Item 5. Other Information		27
Item 6. Exhibits and Reports on Form 8-K		27

	Signature	30

PART I: FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THERASENSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

			Three Months Ended September 30,						Nine Months Ended September 30,

			2002			2001			2002			2001

Total revenues			$	39,029		$	19,858		$	131,535		$	45,382
Cost of revenues				18,362			12,938			71,198			32,606

Gross profit				20,667			6,920			60,337			12,776

Operating expenses:
	Research and development			5,332			4,671			15,819			11,003
	Selling, general and administrative			24,991			15,250			69,055			42,093

		Total operating expenses		30,323			19,921			84,874			53,096

Loss from operations				(9,656	)		(13,001	)		(24,537	)		(40,320	)
Interest income, net				308			76			1,108			462

Net loss				(9,348	)		(12,925	)		(23,429	)		(39,858	)
Deemed dividend related to beneficial conversion feature of preferred stock				—			—			—			(26,783	)

Net loss attributable to common stockholders			$	(9,348	)	$	(12,925	)	$	(23,429	)	$	(66,641	)

Net loss per common share, basic and diluted			$	(0.23	)	$	(2.53	)	$	(0.59	)	$	(13.79	)

Weighted-average shares used in computing net loss per common share, basic and diluted				39,999			5,115			39,918			4,832

The accompanying notes are an integral part of these condensed consolidated financial statements.

THERASENSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

				September 30, 2002			December 31, 2001

				(unaudited)			(Note 1)
Assets
Current assets:
	Cash and cash equivalents			$	38,205		$	143,187
	Available-for-sale investments				13,895			—
	Accounts receivable, net				36,697			18,495
	Inventories				22,835			6,649
	Deferred cost of products sold				—			16,359
	Prepaid expenses and other current assets				9,680			8,239

			Total current assets		121,312			192,929
Available-for-sale investments					33,271			4,278
Property and equipment, net					12,783			6,539
Other assets					3,047			2,830

			Total assets	$	170,413		$	206,576

Liabilities and stockholders’ equity
Current liabilities:
	Accounts payable			$	25,940		$	20,223
	Accrued liabilities				12,217			16,598
	Deferred revenue				1,000			23,709
	Current portion of long-term debt				5,690			3,990

			Total current liabilities		44,847			64,520
Long-term debt					3,559			4,255
Other liabilities					3,011			4,262

			Total liabilities		51,417			73,037

Stockholders’ equity:
	Common stock				41			39
	Additional paid-in capital				271,156			270,376
	Notes receivable from stockholders				(232	)		(292	)
	Deferred stock-based compensation, net				(13,337	)		(20,995	)
	Accumulated other comprehensive income				386			—
	Accumulated deficit				(139,018	)		(115,589	)

			Total stockholders’ equity		118,996			133,539

			Total liabilities and stockholders’ equity	$	170,413		$	206,576


(1)		The balance sheet at December 31, 2001 has been derived from the audited financial statement at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

THERASENSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

				Nine Months Ended September 30,

				2002			2001

Cash flows from operating activities:
Net loss				$	(23,429	)	$	(39,858	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization				2,248			1,420
	Amortization of deferred stock-based compensation				4,580			3,593
	Other				—			424
	Changes in operating assets and liabilities:
		Accounts receivable			(18,202	)		(8,277	)
		Inventories			(16,186	)		(1,896	)
		Deferred cost of products sold			16,359			(4,924	)
		Prepaid expenses and other current assets			(1,442	)		(3,174	)
		Other assets			(217	)		(2,207	)
		Accounts payable			5,717			3,382
		Accrued and other liabilities			(4,882	)		7,594
		Deferred revenue			(23,459	)		13,089

			Net cash used in operating activities		(58,913	)		(30,834	)

Cash flows from investing activities:
Proceeds from maturities of investments					3,000			—
Purchases of investments					(45,422	)		—
Purchases of property and equipment					(8,492	)		(1,894	)
Proceeds from sales of property and equipment					—			6

			Net cash used in investing activities		(50,914	)		(1,888	)

Cash flows from financing activities:
Proceeds from issuance of convertible preferred stock, net					—			53,863
Proceeds from exercise of stock options					3,861			501
Principal payments on lines of credit					(2,109	)		(1,663	)
Principal payments on long-term debt					(4,123	)		(552	)
Proceeds from long-term debt					7,236			—
Repayment of notes receivable from stockholders					60			—

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