<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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] No [ ]
COMMON STOCK OUTSTANDING ON MAY 12, 1998: 12,744,688
<PAGE> 2
HYSEQ, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I Financial Information.........................................................3
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 1998, and December 31, 1997.........................................3
Condensed Consolidated Statements of Operations
for the Three Months Ended
March 31, 1998 and 1997.......................................................4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1998 and
1997..........................................................................5
Notes to Condensed Consolidated Financial Statements..........................6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................................................8
Item 3. Quantitative and Qualitative Disclosures about Market Risk...................11
PART II Other Information
Item 1. Legal Proceedings............................................................12
Item 2. Change in Securities and Use of Proceeds.....................................12
Item 3. Defaults Upon Senior Securities..............................................13
Item 4. Submission of Matters to a Vote of Security Holders..........................13
Item 5. Other Information............................................................13
Item 6. Exhibits and Reports on Form 8-K.............................................13
SIGNATURES .............................................................................14
EXHIBIT INDEX .............................................................................15
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HYSEQ, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997*
------------ ------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 32,671 $ 23,204
Short-term investments 22,860 33,930
Accounts receivable 619 2,186
Other current assets 427 904
------------ ------------
Total current assets 56,577 60,224
Cash on deposit 2,106 2,106
Equipment and leasehold improvements, net 5,031 3,947
Patents, licenses and other assets, net 663 673
------------ ------------
$ 64,377 $ 66,950
============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 1,633 $ 1,571
Accrued professional fees 724 584
Other current liabilities 736 907
Current portion of lease and loan obligations 331 338
------------ ------------
Total current liabilities 3,424 3,400
Noncurrent portion of capital lease and loan obligations 560 613
Commitments and contingencies
Stockholders' equity:
Preferred stock -- --
Common stock
Issued and outstanding shares - 12,733,963 and 12,733,965
at March 31, 1998 and December 31, 1997, respectively 81,795 81,795
Notes receivable from stockholders (3,579) (3,658)
Deferred compensation (365) (445)
Net unrealized gain (loss) on securities available-for-sale (20) (6)
Accumulated deficit (17,438) (14,749)
------------ ------------
Total stockholders' equity 60,393 62,937
------------ ------------
$ 64,377 $ 66,950
============ ============
</TABLE>
* The condensed consolidated balance sheet at December 31, 1997 has been derived
from the audited financial statements at that date.
See accompanying notes.
3
<PAGE> 4
HYSEQ, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------
1998 1997
---------------------------
<S> <C> <C>
Contract and other revenues $ 2,683 $ 272
Operating expenses
Research and development 4,094 1,306
General and administrative 2,077 931
-------- --------
6,171 2,237
Total operating expenses -------- --------
Loss from operations (3,488) (1,965)
Interest income (expense), net 799 49
-------- --------
Net loss $ (2,689) $ (1,916)
======== ========
Basic and diluted net loss per share(1) $ (0.21) $ (0.43)
======== ========
Shares used in computing basic and 12,734 4,473
diluted net loss per share(1) ======== ========
Pro forma basic and diluted net loss per share(1) $ (0.22)
========
Shares used in computing pro forma basic and
diluted net loss per share(1) 8,640
========
</TABLE>
(1) Basic and diluted net loss per share for the period ending March 31, 1997
has been retroactively restated to apply the requirements of Staff
Accounting Bulletin No. 98, issued by the Securities and Exchange
Commission in February 1998 ("SAB 98"). Under SAB 98, certain shares of
common stock and options and warrants to purchase shares of common stock
issued at prices substantially below the per share price of shares sold in
the Company's initial public offering previously included in the
computation of shares outstanding pursuant to Staff Accounting Bulletins
Nos. 55, 64 and 83 are now excluded from the computation.
See accompanying notes.
4
<PAGE> 5
HYSEQ, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,689) $ (1,916)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 391 165
Amortization of deferred compensation 80 12
Shares of common stock issued for services -- 102
Unrealized loss on short-term investments (14) --
Changes in assets and liabilities:
Accounts receivable 1,567 (126)
Other current assets 477 21
Other assets (16) 1
Accounts payable 62 (299)
Accrued processional fees 140 308
Other current liabilities
(171) 26
-------- --------
Net cash used in operating activities
(173) (1,706)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (1,449) (208)
Purchases of short-term investments (33,930) --
Maturities of short-term investments 45,000 --
-------- --------
Net cash provided by (used in) investing activities 9,621 (208)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of stockholders' notes receivable 79 1
Cash proceeds from issuance of:
Common stock -- 12
Cash used to repurchase common stock -- (1)
Principal payments on capital lease and loan obligations (60) (62)
-------- --------
Net cash provided by (used in) financing activities 19 (50)
-------- --------
Net increase in cash and cash equivalents 9,467 (1,964)
Cash and cash equivalents at beginning of period 23,204 6,707
-------- --------
Cash and cash equivalents at end of period $ 32,671 $ 4,743
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Interest paid $ 33 $ 43
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Issuance of 15,728 shares of common stock
in exchange for legal services $ -- $ 102
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
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 March 31,
1998, the statements of operations for the three months ended March 31, 1998 and
1997 and the statements of cash flows for the three months ended March 31, 1998
and 1997 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.
2. Cash, Cash Equivalents and Short-Term Investments
As of March 31, 1998, short-term investments are classified as
available-for-sale securities and are carried at fair market value with
unrealized gains and losses reported in stockholders' equity. The following is a
summary of available-for-sale securities as of March 31, 1998:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
(in thousands) Cost Gains Losses Fair Value
-------- ----------- -------- --------
<S> <C> <C> <C> <C>
Money market funds $ 6,984 $ -- $ -- $ 6,984
Commercial paper 32,691 -- (18) 32,673
Certificates of deposit 14,498 -- (2) 14,496
Cash 1,378 -- -- 1,378
-------- ----------- -------- --------
$ 55,551 $ -- $ (20) $ 55,531
======== =========== ======== ========
Above amounts are included in
the balance sheet as
follows:
Cash and cash equivalents $ 32,677 $ -- $ (6) $ 32,671
Short-term investments 22,874 -- (14) 22,860
-------- ----------- -------- --------
Total: $ 55,551 $ -- $ (20) $ 55,531
======== =========== ======== ========
</TABLE>
The estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation methodologies.
3. Changes in Accounting Standards
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this statement has no impact on the
Company's net loss or stockholders' equity. SFAS 130 requires, among other
things, unrealized gains or losses on the Company's short-term investments to be
included in comprehensive income or loss. During the three months ended March
31, 1998 and 1997, the Company's comprehensive loss amounted to $2,703,000 and
$1,916,000, respectively.
6
<PAGE> 7
4. Net Loss Per Share
In accordance with SFAS No. 128, basic net loss per share has been computed
using the weighted-average number of shares of common stock outstanding during
the period.
Basic pro forma net loss per share as presented in the Statements of
Operations gives effect to the conversion of convertible preferred stock that
automatically converted at the completion of the Company's initial public
offering (using the if-converted method) from the original date of issuance.
A reconciliation of shares used in the calculation of basic net loss per
share and pro forma net loss per share follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1998 1997
-------- ---------
(in thousands except
per share amounts)
<S> <C> <C>
Net loss $( 2,689) $( 1,916)
======== ========
Basic and Diluted
Weighted average shares of common stock
outstanding 12,734 4,473
======== ========
Basic and diluted net loss per share $( 0.21) $( 0.43)
======== ========
Pro Forma Basic and Diluted
Shares used in computing basic and diluted net
loss per share 4,473
Adjusted to reflect the effect of the assumed
conversion of preferred stock 4,167
========
Shares used in computing pro forma basic
and diluted net loss per share 8,640
========
Pro forma basic and diluted net loss per share $ (0.22)
========
</TABLE>
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995 concerning existing and
potential collaboration arrangements, royalties and other payments under
existing and potential collaboration arrangements, and product development and
sales and other statements. Such statements are based on Management's current
expectations and 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 discussed herein and from time to time in the
Company's filings with the Securities and Exchange Commission ("SEC"), 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; whether conditions to milestone
payments are met and the timing of such payment or payments; and, other factors
and risks detailed under the caption "Factors That May Impact Results" in the
Company's 1997 Annual Report on Form 10-K.
Overview
The Company 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 proprietary HyGenomics Database of partial
human gene sequences is the largest such database in the world. The Company
presently is collaborating with Chiron Corporation ("Chiron") to develop
therapeutics, diagnostic molecules and vaccines relating to solid tumors 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 making available its HyGnostics Module for
DNA testing of genetic and infectious disease and cancer to clinical reference
laboratories.
The Company has incurred operating losses since inception and expects to incur
operating losses at least through 1999 and possibly longer. The Company may
never achieve significant revenues or profitable operations. There can be no
assurance that the Company will be able to obtain licensees of its HyGnostics
Module, customers for HyChip products, additional collaboration partners on
acceptable terms or that its collaborative arrangements or products will produce
revenues adequate to fund the Company's operations. 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
Contract Revenues. Contract and other revenues increased significantly to $2.7
million in the three months ended March 31, 1998 from $272,000 for the
comparable period of 1997. All revenues recorded during the three months ended
March 31, 1998 were earned in conjunction with the Company's research
collaboration with Chiron. The Company receives minimum research payments under
its collaboration agreement with Chiron which are recognized as revenue ratably
over the contract term based on the specified funding level for each
8
<PAGE> 9
period. Contract revenues in the first three months of March 31, 1997 were
received in conjunction with work performed under a grant from the National
Institute of Standards and Technology ("NIST"). The Company recognized revenues
under its NIST grant as research was performed. Work under the NIST grant was
completed at December 31, 1997 and it is not anticipated that the Company will
receive additional funding from NIST in the future. 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 and obtain additional
collaboration partners. The failure to maintain existing collaboration partners
or the inability to enter into additional collaborative arrangements could have
a material adverse 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 $6.1 million
and $2.2 million for the three months ended March 31, 1998 and 1997,
respectively. This increase in expenses during the three months ended March 31,
1998 compared to the corresponding period in 1997, is due primarily to costs
associated with the Company's collaboration with Chiron, and the associated
scale-up of the Company's gene sequencing capacity from less than 100,000
partial human gene sequences per month during the first quarter of 1997 to more
than one million partial human gene sequences per month at the end of 1997.
The research and development component of operating expenses increased to $4.1
million during the three months ended March 31, 1998 from $1.3 million during
the comparable period of 1997. Increases in 1998 as compared to 1997 resulted
primarily from expanded internal sequencing production and expanded sequencing
production in connection with the collaboration with Chiron, the addition of
scientific personnel and software and database development, and costs associated
with protecting and increasing the Company's intellectual property. The Company
expects to continue to expand research and 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 spend an aggregate of $5.0 million through May 1999 for the
development of the chip component of the HyChip system. The Company spent
approximately $2.2 million for the development of the chip component of the
HyChip system from June 1997 through March 31, 1998. Of this amount, $504,000
was reimbursed to the Company under its NIST grant.
The general and administrative component of operating expenses increased to $2.1
million during the three months ended March 31, 1998 from $1.0 million during
the comparable period of 1997. The increase between the periods was due in part
to 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, for the three month period ended March 31, 1998, the
Company's total legal expenses increased by approximately $436,000 (expenses
related to new patent prosecution have been allocated to research and
development) as compared to the same period in 1997, due primarily to costs
associated with being a public company, and its suits filed against Affymetrix,
Inc. in March and December 1997. Legal expenses relating to the Company's
litigation with Affymetrix, Inc. are expected to increase over the next year.
As the Company expands its production and commercialization efforts, operating
expenses are expected to increase as a result of several factors including: (i)
the planned 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 other 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, however, the Company may choose to increase sequencing
production and analysis capabilities in order to expand its internal sequencing
effort and 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.
Interest Income, Net. Net interest income increased to $799,000 during the three
months ended March 31, 1998 from $49,000 for the comparable period in 1997. The
increase in interest income during the three months ended March 31, 1998 as
compared to the comparable period of 1997 resulted from larger cash and
investment
9
<PAGE> 10
balances held by the Company primarily due to the realization of net proceeds
from the Company's $17.5 million private placements and the net proceeds of the
Company's initial public offering completed in 1997.
Net Loss. Since inception, the Company has incurred operating losses, and as of
March 31, 1998, had an accumulated deficit of $17.5 million. The Company
incurred a net loss for the three months ended March 31, 1998 of $2.7 million
compared to a net loss of $1.9 million in the comparable period of 1997.
Liquidity and Capital Resources
As of March 31, 1998, the Company had $55.5 million in cash, cash equivalents
and short-term investments and $2.1 million in a restricted cash account,
compared to $59.2 million at December 31, 1997 and $4.7 million at March 31,
1997. This increase in cash and investments from the corresponding quarter in
1997 was a result of the Company's initial public offering of 3.45 million
shares of common stock completed in the third quarter of 1997 and private
placements with Chiron and Perkin-Elmer in May and August 1997.
The Company has classified all of its investments as short-term as of March 31,
1998, as the Company's investments all mature in less than one year. Cash and
investments are held currently in investment-grade commercial paper, bank
certificates of deposit 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. In addition, the
Company has $2.1 million on deposit with the Company's primary bank as security
for a letter of credit in conjunction with a facility lease. The letter of
credit and the cash collateralizing it will be reduced by $500,000 commencing in
2001 and will be further reduced by $500,000 each year thereafter provided the
Company is not in default under the lease. The cash on deposit at any time in
conjunction with this letter of credit is restricted and cannot be withdrawn.
The Company controls the investment of the cash and will receive the interest
earned thereon.
Net cash used in operating activities decreased to $173,000 during the three
months ended March 31, 1998 from $1.7 million in the comparable period of 1997.
The decrease in cash usage from operations for the first quarter of 1998 was due
primarily to revenue received in conjunction with the Company's collaboration
with Chiron.
The Company's investing activities, other than the purchase and sales of
short-term investments, have consisted of capital expenditures, which totaled
$1.4 million for the three months ended March 31, 1998 as compared to $208,000
for the comparable period of 1997. Capital expenditures increased in 1997 and
through the first quarter of 1998 primarily due to the addition of capital
equipment necessary for the Company's expanded sequencing production and
software development activities, as well as expenditures related to the upgrade
of the Company's new facility.
Net cash provided by financing activities increased to $19,000 for the three
months ended March 31, 1998 as compared to a cash usage of $50,000 for the
comparable period of 1997. This increase resulted primarily due to payments
received on notes held by stockholders.
The Company expects that 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
10
<PAGE> 11
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 equivalents and
short-term investments, will be adequate to fund the Company's operations. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company currently does not invest excess funds in derivative financial
instruments or other market rate sensitive instruments for any purpose.
11
<PAGE> 12
PART II
HYSEQ, INC.
(A NEVADA CORPORATION)
ITEM 1. LEGAL PROCEEDINGS.
On March 3, 1997, the Company brought suit against Affymetrix in the U.S.
District Court for the Northern District of California, San Jose Division,
alleging infringement by Affymetrix of the Company's U.S. Patents Nos. 5,202,231
and 5,525,464 (Hyseq, Inc. v. Affymetrix, Inc., Case No. C 97-20188 RMW ENE,
U.S. District Court) ("Hyseq I"). On May 5, 1997, the Company filed an Amended
Complaint. The suit alleges that Affymetrix willfully infringed, and continues
to infringe, upon these patents covering SBH technology. Through the lawsuit,
the Company seeks both to enjoin Affymetrix from infringing upon the patents
covering SBH technology and an award of monetary damages for Affymetrix's past
infringement. On May 19, 1997, Affymetrix filed an Answer and Affirmative
Defenses to the First Amended Complaint and also filed a counterclaim against
the Company. The counterclaim seeks a declaratory judgment of invalidity and
non-infringement with respect to these patents covering SBH technology. On June
9, 1997, the Company filed a reply to the counterclaim in which it denied the
allegation of invalidity and non-infringement. While the Company believes it has
made valid claims and has a meritorious defense to the counterclaim, this
litigation is at an early stage and there can be no assurance that the Company
will prevail in the claim. On August 1, 1997, an initial case management
conference was held by the Court and a pre-trial schedule was entered by the
Court. The Company and Affymetrix are currently engaged in pretrial discovery
during which documents are being exchanged and depositions are being taken.
On December 9, 1997, the Company filed a second lawsuit against Affymetrix
which alleges infringement by Affymetrix of the Company's patent No. 5,695,940
(Hyseq, Inc. v. Affymetrix, Inc., Case No. C-97-4469 THE) ("Hyseq II"). Like the
Company's first action against Affymetrix, this action was filed in the U.S.
District Court for the Northern District of California, San Jose Division.
Affymetrix was served with a summons and complaint in the Company's new case on
December 9, 1997. After the March 28, 1997 case management conference, the Court
issued a case management order under which, like the June 9, 1997 case
management order entered in Hyseq I, the parties will engage in pretrial
discovery. The Company may incur substantial costs and expend substantial
personnel time in asserting the Company's patent rights against Affymetrix or
others and there can be no assurance that the Company will be successful in
asserting its patent rights. Failure to successfully enforce its patent rights
or the loss of these patent rights covering SBH technology also could remove a
legal obstacle to competitors in designing platforms with similar competitive
advantages.
The Company is not a party to any other litigation that is expected to
have a material effect on the Company or its business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) On August 7, 1997, the Company's Registration Statement on Form S-1
(File No. 333-209091) was declared effective by the Securities and Exchange
Commission (the "Commission") and the Company's Registration Statement on Form
S-1 (File No. 333-13417) filed pursuant to Rule 462(b) of the Securities Act of
1933, as amended, was automatically effective upon filing (collectively, the
"IPO Registration Statements"). The IPO Registration Statements registered a
total of 3,450,000 shares of Common Stock, including the underwriters'
over-allotment which was exercised in full, all of which were issued and sold by
the Company (the "Offering"). All of the shares covered by the Registration
Statements were sold upon termination of the Offering in September 1997 to an
underwriting syndicate managed by Lehman Brothers Inc. The shares sold by the
Company were sold at an aggregate price to public of $48,300,000, netting
$44,919,000 to the Company after underwriters' discount of $3,381,000. Since the
effective date of the IPO Registration
12
<PAGE> 13
Statements, the Company has incurred approximately $949,000 in expenses in
addition to the underwriters' discount described above in connection with the
registration, offering, issuance and sale of the shares in the Offering, netting
estimated proceeds from the Offering to the Company of approximately $43,970,000
(the "Net Proceeds"). None of such expenses were paid to any officer, director
or 10% or greater stockholder of the Company or an affiliate of any such
persons. Since the effective date of the IPO Registration Statements, the Net
Proceeds have been applied to the following uses in the following estimated
amounts:
<TABLE>
<S> <C>
Purchase and installation of capital equipment: $ 2,429,000
Lease and improvement of real estate: $ 505,000
Working Capital: $13,320,000
Temporary Investment: $27,716,000
</TABLE>
The temporary investments specified above have consisted primarily of
investment-grade commercial paper, bank CDs and other interest-bearing
securities. None of the payments of proceeds mentioned above have been paid to
any officer, director or 10% or greater stockholder of the Company or and
affiliate of any such persons.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 27.0 Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter
ended March 31, 1998.
13
<PAGE> 14
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)
By: /s/ Christopher R. Wolf
----------------------------------
Christopher R. Wolf
Executive Vice President and
Chief Financial Officer
Date: May 15, 1998
14
<PAGE> 15
HYSEQ, INC.
EXHIBIT INDEX
27.0 Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 32,671
<SECURITIES> 22,860
<RECEIVABLES> 619
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56,577
<PP&E> 6,722
<DEPRECIATION> 1,691
<TOTAL-ASSETS> 64,377
<CURRENT-LIABILITIES> 3,424
<BONDS> 0
0
0
<COMMON> 81,795
<OTHER-SE> (21,402)
<TOTAL-LIABILITY-AND-EQUITY> 64,377
<SALES> 0
<TOTAL-REVENUES> 2,683
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,171
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (33)
<INCOME-PRETAX> (2,689)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,689)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,689)
<EPS-PRIMARY> (0.21)<F1>
<EPS-DILUTED> (0.21)<F1>
<FN>
<F1>For purposes of this exhibit, both Primary and Diluted mean Basic and Diluted.
</FN>
</TABLE>
