<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[_] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-22873
Hyseq, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Nevada 36 - 3855489
------ ------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
670 Almanor Avenue, Sunnyvale, CA 94086
----------------------------------------
(Address of principal executive offices, including zip code)
(408) 524-8100
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Sections 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 [as to (1)] No X [as to (2)]
- -
COMMON STOCK OUTSTANDING ON SEPTEMBER 12, 1997: 12,726,159
Page 1 of 19
Exhibit Index on Page 17
<PAGE>
HYSEQ, INC.
-----------
INDEX
<TABLE>
<CAPTION>
PART I Financial Information PAGE
--------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 1997 and December 31, 1996................. 3
Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended
June 30, 1997 and 1996.............................. 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1997 and 1996..... 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................................... 8
PART II Other Information
-----------------
Item 1. Legal Proceedings................................... 13
Item 2. Change in Securities................................ 13
Item 3. Defaults Upon Senior Securities..................... 13
Item 4. Submission of Matters to a Vote of
Security Holders.................................... 13
Item 5. Other Information................................... 14
Item 6. Exhibits and Reports on Form 8-K.................... 15
SIGNATURES .................................................... 16
EXHIBIT INDEX .................................................... 17
</TABLE>
Page 2 of 19
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
HYSEQ, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996*
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,938 $ 6,707
Accounts receivable 134 147
Prepaid expenses and other current assets 319 312
-------- -------
Total current assets 14,391 7,166
Property and equipment, net 2,401 1,639
Patents, licenses and other assets, net 1,017 561
-------- -------
$ 17,809 $ 9,366
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,294 $ 572
Accrued professional fees 687 89
Other current liabilities 353 285
Current portion of capital lease obligations 142 132
Current portion of loan obligations 176 133
Deferred revenue 75 -
-------- -------
Total current liabilities 2,727 1,211
Noncurrent portion of capital lease obligations 101 174
Noncurrent portion of loan obligations 686 617
Stockholders' equity:
Series A preferred stock 14,780 14,780
Series B preferred stock 10,000 -
Common stock 5,534 2,033
Notes receivable from stockholders (3,869) (1,237)
Deferred compensation (604) -
Accumulated deficit (11,546) (8,212)
-------- -------
Total stockholders' equity 14,295 7,364
-------- -------
$ 17,809 $ 9,366
======== =======
</TABLE>
*The condensed consolidated balance sheet at December 31, 1996 has been derived
from the audited financial statements at that date.
See accompanying notes.
Page 3 of 19
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HYSEQ, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------- ------------------------------------
1997 1996 1997 1996
------------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
Contract and other revenues $ 1,134 $ 84 $ 1,406 $ 163
Operating expenses:
Research and development 1,842 821 3,148 1,767
General and administrative 795 373 1,726 775
------------------------------------- ------------------------------------
Total operating expenses 2,637 1,194 4,874 2,542
------------------------------------- ------------------------------------
Loss from operations (1,503) (1,110) (3,468) (2,379)
Interest income (expense), net 85 56 134 50
------------------------------------- ------------------------------------
Net loss $(1,418) $(1,054) $(3,334) $(2,329)
===================================== ====================================
Net loss per share $ (0.33) $ (0.13) $ (0.56) $ (0.29)
===================================== ====================================
Shares used in computing net loss per share 4,293 7,922 5,923 7,916
===================================== ====================================
Pro forma net loss per share $ (0.16) $ (0.38)
================= ==================
Shares used in computing pro forma net loss
per share 8,639 8,853
================= ==================
</TABLE>
See accompanying notes.
Page 4 of 19
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
HYSEQ, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------------------------------
1997 1996
----------------------- ----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,334) $(2,329)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 344 193
Amortization of deferred compensation 91 -
Shares of common stock issued for services and equipment 116 -
Changes in assets and liabilities:
Accounts receivable 13 52
Notes receivable from officers - 120
Prepaid expenses and other current assets (7) (16)
Other assets (507) (21)
Accounts payable 722 70
Accrued professional fees 598 (382)
Other current liabilities 68 92
Deferred revenue 75 -
------- -------
Net cash used in operating activities (1,821) (2,221)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,055) (399)
------- -------
Net cash used in investing activities (1,055) (399)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of stockholders' notes receivable 38 -
Cash proceeds from issuance of:
Series A preferred stock - 9,869
Series B preferred stock 10,000 -
Common stock 22 3
Cash used to repurchase common stock (2) (4)
Cash proceeds from sale leaseback - 369
Principal payments on capital lease (63) (63)
Proceeds from financing loan 181 -
Principal payments on financing loan (69) -
------- -------
Net cash provided by financing activities 10,107 10,174
------- -------
Net increase in cash and cash equivalents 7,231 7,554
Cash and cash equivalents at beginning of period 6,707 750
------- -------
Cash and cash equivalents at end of period $13,938 $ 8,304
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Interest paid $ 83 $ 19
======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Issuance of 15,728 shares of common stock in exchange for legal services $ 102 $ -
======= =======
Issuance of 1,142 shares of common stock in exchange for equipment $ 14 $ -
======= =======
</TABLE>
See accompanying notes.
Page 5 of 19
<PAGE>
HYSEQ, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles for complete
financial statements. The condensed consolidated balance sheet as of June 30,
1997, statements of operations for the three and six months ended June 30, 1997
and 1996 and statements of cash flows for the six months ended June 30, 1997 and
1996 are unaudited, but include all adjustments (consisting of normal recurring
adjustments) which the Company considers necessary for a fair presentation of
the financial position, operating results and cash flows for the periods
presented. The condensed consolidated financial statements include the accounts
of the Company's wholly-owned subsidiary. The results of operations for the
interim periods shown herein are not necessarily indicative of operating results
expected for the entire year.
The accompanying condensed consolidated financial statements should be read in
conjunction with the financial statements contained in the Company's
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on June 12, 1997, as amended.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted-average number of shares of
Common Stock outstanding. Common equivalent shares are excluded from the
computation as their effect is anti-dilutive, except that, pursuant to the
Securities and Exchange Commission ("SEC") Staff Accounting Bulletins, common
stock and common equivalent shares (stock options and warrants) issued during
the 12-month period prior to the initial public offering at prices below the
public offering price have been included in the calculation as if they were
outstanding for all periods through March 31, 1997 (using the treasury stock
method).
Pro forma net loss per share has been computed as described above and also gives
effect to the conversion of convertible preferred shares not included above that
automatically converted upon completion of the Company's initial public offering
(using the if-converted method) from the original date of issuance.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"), which
is required to be adopted on December 31, 1997. At that time, the Company will
be required to change the method currently used to compute earnings per share
and to restate all prior periods. Under the new requirements of calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. The impact is not expected to result in a change in primary earnings
per share for the three and six months periods ended June 30, 1996 and 1997 as
the Company incurred net losses in those periods and, accordingly, the
calculation of earnings per share for those periods excluded stock options
(except those required to be included by the SEC as discussed above) as their
effect was anti-dilutive.
Page 6 of 19
<PAGE>
3. COMMON AND PREFERRED STOCK
In May and June 1997, Chiron Corporation and The Perkin-Elmer Corporation
acquired Series B Preferred Stock in a private placement which generated net
proceeds to the Company of $10.0 million.
Also in May 1997, the Company's board of directors authorized the filing of a
registration statement with the Securities and Exchange Commission for the
Company's initial public offering of its common stock. See "Subsequent Event"
note. In June 1997, the Company's board of directors approved a 1.92-for-1
stock split of the Company's outstanding common stock. In conjunction with this
split, the Company's board of directors approved an increase in number of
authorized common shares to 50,000,000. Accordingly, all the share and per
share data has been retroactively adjusted to reflect these changes.
4. SUBSEQUENT EVENT
The Company's initial public offering of 3,000,000 shares of common stock, which
generated net proceeds of approximately $38.0 million, was effective August 7,
1997. In September 1997, the Company's underwriters exercised their option to
purchase 450,000 additional shares at $14.00 per share to cover over-allotments,
for additional net proceeds of $5.9 million. Concurrently with the initial
public offering, the Company completed a private placement of 555,144 shares of
its common stock to Chiron and Perkin-Elmer for net proceeds of $2.5 million and
$5.0 million, respectively. These stock issuances and related aggregate net
proceeds of $51.4 million were recorded subsequent to June 30, 1997.
Page 7 of 19
<PAGE>
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 June 30, 1997 and for the three and six month
periods ended June 30, 1997 and 1996 should be read in conjunction with the
sections of the Company's Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on June 12, 1997, as amended, entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Risk Factors."
Certain statements contained in this Form 10-Q that are not historical,
including, but not limited to, statements concerning potential collaboration
arrangements, royalties and other payments under potential collaboration
agreements, and product development and sales and other statements, are forward-
looking statements, which statements involve risks and uncertainties. Actual
results and performance could differ materially from those projected in the
forward-looking statements as a result of many factors, including but not
limited to, the following: the scientific progress of the Company's programs;
the ability of the Company to establish additional collaborative and licensing
arrangements; the extent to which the Company engages in development of products
without collaboration partners; the time and cost involved in obtaining
regulatory approvals for its diagnostics products; the costs involved in
preparing, filing, prosecuting, maintaining and enforcing patent claims;
competing technological and market developments; and whether conditions to
milestone payments are met and the timing of such payment or payments. These
forward looking statements speak only as of the date hereof. The Company
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statements contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
OVERVIEW
Hyseq, Inc. (the "Company"), a Nevada corporation, applies the proprietary
DNA array technology of its HyX Platform to develop gene-based therapeutic
product candidates and diagnostic products and tests. The Company believes that
its HyGenomics Database of partial gene sequences is one of the largest
proprietary human gene databases in the world. The Company presently is
collaborating with Chiron Corporation ("Chiron") to develop therapeutics,
diagnostic molecules and vaccines relating to a specified disease area and with
The Perkin-Elmer Corporation ("Perkin-Elmer") to commercialize HyChip products.
The Company intends to establish additional collaborations in targeted disease
categories. The Company is marketing its HyGnostics Module for DNA testing of
genetic and infectious disease and cancer to clinical reference laboratories.
The Company has initial agreements with SmithKline Beecham Clinical
Laboratories, Inc. and Quest Diagnostics, Inc. relating to evaluation of the
HyGnostics Module for commercial-scale diagnostic testing.
During the quarter ended June 30, 1997, Chiron and Perkin-Elmer invested
$5.0 million each in connection with collaboration agreements with the Company.
In August 1997, the Company completed an initial public offering of its common
stock, for net proceeds of approximately $38.0 million. In September 1997, the
Company's underwriters exercised their option to purchase 450,000 additional
shares at $14.00 per share to cover over-allotments, for net proceeds of $5.9
million. Concurrently with completion of the initial public offering, the
Company privately placed 555,144 shares of its common stock for net proceeds of
$5.0 million from Perkin-Elmer and $2.5 million from Chiron (the "Private
Placement").
Page 8 of 19
<PAGE>
The Company's operating results may fluctuate significantly in the future
as a result of a variety of factors, including, but not limited to, changes in
the demand for the Company's products; the nature, size and timing of
collaborative arrangements and products provided to or developed with the
Company's current and future collaboration partners, changes in the research and
development budgets of the Company's current and future collaboration partners;
capital expenditures and other costs related to the expansion of the Company's
operations; litigation and other costs associated with defending its proprietary
rights; changes in government regulations; and the introduction of competitive
technologies.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 and 1996
---------------------------------------
Contract and Other Revenues. Contract and other revenues were $1.1 million
---------------------------
and $1.4 million for the three and six months ended June 30, 1997, compared to
$0.1 million and $0.2 million for the same periods in 1996. Contract and other
revenues earned during the six months ended June 30, 1997 and the comparable
period of 1996 related to the Company's NIST grant and for the six months ended
June 30, 1997, to the additional revenues from Chiron's payment of a $1.0
million non-refundable license fee in May 1997. The Company recognizes revenues
under its NIST grant as research is performed. The Company recognized revenue
from the non-refundable license fee upon execution of its collaboration
agreement with Chiron. The Company expects to receive research payments under
its collaboration agreement with Chiron which will be recognized as revenue as
the related costs are incurred over the three year term of the agreement. The
recognition of revenues will vary from quarter to quarter and may result in
significant fluctuations in operating results from year to year. There can be
no assurance that the Company will be able to maintain existing collaborations
or obtain additional collaboration partners. The failure to maintain existing
collaboration partners or the inability to enter into additional collaborative
arrangements could have a material effect on the Company's revenues and
operating results.
Operating Expenses. Total operating expenses, consisting of research and
------------------
development expenses and general and administrative expenses, were $2.6 million
and $4.9 million for the three and six months ended June 30, 1997, respectively,
compared to $1.2 million and $2.5 million in the same periods of 1996. As the
Company expands its commercialization efforts, operating expenses are expected
to increase as a result of several factors including: (i) the continued
expansion of sequencing operations, software development and enhancements and
increased work on gene discovery in connection with development of potential
therapeutic product candidates and diagnostic tests; (ii) the continued
expansion of its HyGenomics Database; (iii) expanded research into new
applications of its technologies; (iv) the expansion of marketing capabilities
with respect to its HyGnostics Module and collaborations; and (v) new technology
development expenses relating to the HyChip Module and related products.
The magnitude of the increases in the Company's operating expenses will be
significantly affected by the Company's ability to secure new collaboration
partners. At times, the Company may choose to increase sequencing production and
analysis capabilities in order to support its efforts to recruit new
collaboration partners. However, if the Company does not obtain additional
collaboration partners in a timely manner, it may not be able to adjust
significantly its level of expenditures in any such period, which could have an
adverse effect on the Company's operating results.
Research and development expenses increased to $1.8 million and $3.1
million for the three and six months ended June 30, 1997 from $0.8 million and
$1.8 million in the same periods of 1996. This increase resulted primarily from
expanded sequencing production, software and database development, the addition
of scientific personnel and costs associated with prosecuting the Company's
intellectual
Page 9 of 19
<PAGE>
property. The Company expects to continue research and product development
efforts in support of its gene sequencing and database development programs.
Under the terms of the Company's collaboration agreement with Perkin-Elmer, the
Company is also obligated to commit an aggregate of $5.0 million over the next
two years for the development of the chip component of the HyChip system.
General and administrative expenses were $0.8 million and $1.7 million for
the three and six months ended June 30, 1997 compared to $0.4 million and $0.8
million in the same periods of 1996. This increase resulted from increased
marketing and business development expenses, as well as the addition of
management personnel and administrative staff to support the continued expansion
of the Company's sequencing production and data analysis capabilities. In
addition, during the six months ended June 30, 1997, the Company's legal
expenses increased by approximately $600,000, due primarily to its suit filed
against Affymetrix, Inc. in March 1997 and other corporate legal matters. Legal
expenses relating to the Company's litigation with Affymetrix, Inc. are expected
to remain at approximately the same level over the next six months. As the
Company expands operations, general and administrative expenses in support of
such expansion are expected to increase.
Interest Income Net. Net interest income increased to $0.1 million in the
-------------------
six months ended June 30, 1997 from $0.05 million in the same period of 1996.
The increase in interest income for the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996 results from larger cash and
investment balances held by the Company primarily due to the realization of $9.9
million in net proceeds from its private placement of Series A Preferred Stock
in the second quarter of 1996.
Net Loss. The Company incurred net losses for the three and six months
--------
ended June 30, 1997 of $1.4 million and $3.3 million compared to $1.1 million
and $2.3 million in the same periods of 1996. Since inception, the Company has
incurred operating losses, and as of June 30, 1997, had an accumulated deficit
of $11.5 million. As of December 31, 1996, the Company had a net operating loss
carryover for federal income tax purposes of approximately $7.4 million, the
majority of which expires, if unused, in the year 2011. Utilization of the net
operating loss carryover is expected to be subject to a substantial annual
limitations because of the "change in ownership" provisions of the Internal
Revenue Code of 1986, as amended. The annual limitation may result in the
expiration of net operating losses before utilization.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had $13.9 million in cash, cash
equivalents and marketable securities, compared to $6.7 million as of December
31, 1996. This increase reflects net cash used in operations of $1.8 million
and capital expenditures of $1.1 million during the six months ended June 30,
1997, offset by payments received under the Company's NIST grant, the $1.0
million license fee received from Chiron and the $10.0 million invested by
Chiron and Perkin-Elmer.
The Company has classified all of its investments as short-term as of June
30, 1997, as the Company's investments all mature in less than one year. Cash
and investments are held currently in U.S. Treasury and government agency
obligations, investment-grade commercial paper, bank CD's and other interest-
bearing securities and are invested in accordance with the Company's investment
policy with primary objectives of liquidity, safety of principal and diversity
of investments.
Net cash used in operating activities decreased from $2.2 million for the
six months ended June 30, 1996 to $1.8 million for the comparable period of 1997
due to higher revenues partially offset by increased costs associated with the
expansion of the Company's sequencing producing and data analysis capabilities.
Higher revenues for the six months ended June 30, 1997 as compared to 1996 were
due to
Page 10 of 19
<PAGE>
payments received in those periods pursuant to collaborative arrangements and
receipt of revenues from the Company's NIST grant.
The Company's investing activities, other than the purchase and sales of
cash equivalent investments, have consisted of capital expenditures, which
totaled $1.1 million for the six months ended June 30, 1997 as compared to $0.4
million for the comparable period of 1996. Capital expenditures increased in
1997 primarily due to the addition of capital equipment necessary for the
Company's expanded sequencing production and software development activities.
Net cash provided by financing activities decreased slightly to $10.1
million for the six months ended June 30, 1997 from $10.2 million in the
comparable period of 1996. Net cash provided by financing activities for the
six months ended June 30, 1996 reflects primarily the $9.9 million in net
proceeds from its private placement of Series A Preferred Stock in the first
half of 1996. Net cash provided by financing activities of $10.1 million for
the six months ended June 30, 1997 reflects primarily the $10.0 million in net
proceeds from its private placement of Series B Preferred Stock with Chiron and
Perkin-Elmer in May and June 1997, partially offset by principal payments on
capital lease obligations.
The Company expects its cash requirements to increase significantly in
future periods because of the planned expansion of its sequencing operations,
software development and refinement efforts, increased work on gene discovery
and new technology development expenses relating to the HyChip Module and
related products. In addition, the Company expects to expend additional cash in
1998 and beyond for capital improvements and to acquire a larger facility and
the associated lease expenses related thereto. The Company expects to spend
approximately $2.5 million for its anticipated facility expansion and for
additional capital equipment to increase sequencing capacity through 1998.
Future operations are expected to be funded with revenues from existing
collaborations in addition to using its current cash, cash equivalents and
investments when necessary. The Company intends to fund development of HyChip
products with funds received under its NIST grant and the proceeds of its June
1997, $5.0 million private placement with Perkin-Elmer.
In August 1997, the Company completed an initial public offering of its
common stock. The Company sold 3,000,0000 shares at $14.00 per share, for net
proceeds of approximately $38.0 million. In September 1997, the Company's
underwriters exercised their option to purchase 450,000 additional shares at
$14.00 per share to cover over-allotments, for additional net proceeds of $5.9
million. Concurrently with completion of the initial public offering, the
Company completed its Private Placement in which it sold an additional 555,144
shares of common stock to Chiron and Perkin-Elmer for net proceeds of $2.5
million and $5.0 million, respectively.
The Company expects that the net proceeds from its initial public offering
and the Private Placement completed in August and September 1997, together with
existing capital resources, will be sufficient to support the Company's
operations through 1999. The Company's estimate of the time period for which
cash funds will be adequate to fund its operations is a forward-looking estimate
subject to risks and uncertainty, and actual results may differ materially. The
Company's future capital requirements and the adequacy of its available funds
will depend on many factors, including, but not limited to, scientific progress
in its research and development programs and the magnitude of those programs,
the ability of the Company to establish collaborative and licensing arrangements
and the financial commitments involved in such arrangements.
There can be no assurance that the Company will be able to establish
additional collaborations or that such collaborations will produce revenues,
which together with the Company's cash, cash
Page 11 of 19
<PAGE>
equivalents and marketable securities, will be adequate to fund the Company's
operations and capital requirements. The Company's cash requirements depend on
numerous factors, including the ability of the Company to attract collaboration
partners; the Company's research and development activities; competing
technological and market developments; the cost of filing, prosecuting,
defending and enforcing patent claims and other intellectual property rights;
and the purchase of additional capital equipment, including capital equipment
necessary to insure that the Company's sequencing operation remains competitive.
There can be no assurance that additional funding, if necessary, will be
available on favorable terms, if at all.
Page 12 of 19
<PAGE>
PART II
HYSEQ, INC.
(A NEVADA CORPORATION)
Item 1. LEGAL PROCEEDINGS.
Not applicable.
Item 2. CHANGES IN SECURITIES.
(a) Not applicable.
(b) Not applicable.
(c) For information regarding securities issued by the Company during
the three months ended June 30, 1997, that were not registered under the
Securities Act of 1933, as amended, reference is made to Item 15 of the
Company's Registration Statement on Form S-1 (Registration Statement No. 333-
29091), filed on June 12, 1997, as amended, which is incorporated herein by this
reference.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a)(i) Date of Meeting.
On April 16, 1997, the Company held its Annual Meeting of
Stockholders.
(b)(i) Description of each matter voted on and number of votes cast.
The following actions were taken at the annual meeting:
1. To elect Robert D. Weist and Lewis S. Gruber as Class I
directors.
FOR AGAINST ABSTAIN
2,402,843 5,000 11,692
2. To ratify the selection of Ernst & Young LLP as the auditors for
the fiscal year ended December 31, Company's independent 1997.
FOR AGAINST ABSTAIN
2,406,493 0 11,692
3. To adopt an Amendment to the Company's 1995 Stock Option Plan.
FOR AGAINST ABSTAIN
Page 13 of 19
<PAGE>
2,392,326 7,000 14,634
(a)(ii) Date of Meeting.
On June 10, 1997, the Company held a special meeting of its
Stockholders.
(b)(ii) Description of each matter voted on and number of votes cast.
The following action was taken at the special meeting:
1. To approve an amendment of the Incorporation, as
amended, to 20,000,000 shares to 50,000,000
Company's Amended and Restated increase authorized
Common Stock shares. Articles of from
FOR AGAINST ABSTAIN
2,857,917 0 0
Item 5. OTHER INFORMATION.
Not applicable.
Page 14 of 19
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 11.1 Statement of Computation of Net Loss per
Share
Exhibit 27.0 Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter
ended June 30, 1997.
Page 15 of 19
<PAGE>
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.
Hyseq, Inc.
(Registrant)
Date: September 12, 1997 By: /s/ Christopher R. Wolf
-----------------------
Christopher R. Wolf
Executive Vice President and
Chief Financial Officer
Page 16 of 19
<PAGE>
HYSEQ, INC.
EXHIBIT INDEX
JUNE 30, 1997
Page No.
11.1 Statement of Computation of Net Loss per Share
27.0 Financial Data Schedule
Page 17 of 17
<PAGE>
Exhibit 11.1
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
--------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Net loss $(1,418) $(1,054) $(3,334) $(2,329)
======= ======= ======= =======
Weighted average shares of common stock outstanding: 4,293 5,316 4,198 6,215
Shares related to staff accounting bulletin
topic 4D:
Stock options and warrants 797 399 797
Preferred stock 1,809 1,326 904
------ ------ ------ ------
Shares used in computing net loss per share: 4,293 7,922 5,923 7,916
======= ======= ======= =======
Net loss per share $ (0.33) $ (0.13) $ (0.56) $ (0.29)
======= ======= ======= =======
Calculation of shares outstanding for
computing pro forma net loss per share:
Shares used in computing net loss
per share 4,293 7,922 5,923 7,916
Adjusted to reflect the effect of
the assumed conversion of preferred stock
from the date of issuance 4,346 1,515 2,930 1,515
------ ------ ------ ------
Shares used in computing pro forma net
loss per share 8,639 9,437 8,853 9,431
======= ======= ======= =======
Pro forma net loss per share $ (0.16) $ (0.11) $ (0.38) $ (0.25)
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ITEM 1 OF
FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 13,938
<SECURITIES> 0
<RECEIVABLES> 134
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,391
<PP&E> 3,197
<DEPRECIATION> 796
<TOTAL-ASSETS> 17,809
<CURRENT-LIABILITIES> 2,727
<BONDS> 0
0
24,780
<COMMON> 5,534
<OTHER-SE> (16,019)
<TOTAL-LIABILITY-AND-EQUITY> 17,809
<SALES> 0
<TOTAL-REVENUES> 1,406
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134
<INCOME-PRETAX> (3,334)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,334)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,334)
<EPS-PRIMARY> (0.56)
<EPS-DILUTED> (0.38)
</TABLE>
