<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] 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 10, 1999: 12,994,692
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HYSEQ, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1999, and
December 31, 1998.....................................................................................3
Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 1999 and 1998...............................................................................4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1999 and 1998...............................................................................5
Notes to Condensed Consolidated Financial Statements..................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................................6
Item 3. Quantitative and Qualitative Disclosures about Market Risk...........................................10
Part II Other Information
Item 1. Legal Proceedings....................................................................................10
Item 2. Change in Securities and Use of Proceeds.............................................................11
Item 3. Defaults Upon Senior Securities......................................................................12
Item 4. Submission of Matters to a Vote of Security Holders..................................................12
Item 5. Other Information....................................................................................12
Item 6. Exhibits and Reports on Form 8-K.....................................................................12
Signature ................................................................................................................13
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HYSEQ, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ------------
1999 1998*
--------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,409 $ 21,555
Short-term investments 21,578 24,880
Accounts receivable 3,402 651
Other current assets 897 1,118
-------- --------
Total current assets 42,286 48,204
Cash on deposit 2,106 2,106
Equipment and leasehold improvements, net 7,468 6,902
Patents, licenses and other assets, net 722 702
-------- --------
Total assets $ 52,582 $ 57,914
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,693 $ 1,905
Accrued professional fees 1,284 1,575
Other current liabilities 1,188 1,025
Current portion of lease and loan obligations 1,375 1,354
-------- --------
Total current liabilities 5,540 5,859
Noncurrent portion of lease and loan obligations 4,121 4,479
Commitments and contingencies
Stockholders' equity:
Preferred stock -- --
Common stock 82,248 82,341
Notes receivable from stockholders (3,503) (3,503)
Deferred compensation (58) (126)
Accumulated other comprehensive loss (42) (14)
Accumulated deficit (35,724) (31,122)
-------- --------
Total stockholders' equity 42,921 47,576
-------- --------
Total liabilities and stockholders' equity $ 52,582 $ 57,914
======== ========
</TABLE>
* The condensed consolidated balance sheet at December 31, 1998 has been
derived from the audited financial statements at that date.
See accompanying notes.
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HYSEQ, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1999 1998
-------- --------
<S> <C> <C>
Contract revenues $ 2,752 $ 2,683
Operating expenses:
Research and development 5,602 4,094
General and administrative 2,188 2,077
-------- --------
Total operating expenses 7,790 6,171
-------- --------
Loss from operations (5,038) (3,488)
Interest income, net 436 799
-------- --------
Net loss $ (4,602) $ (2,689)
======== ========
Basic and diluted net loss per share $ (0.35) $ (0.21)
======== ========
Shares used in computing basic and diluted net loss per share 12,967 12,734
======== ========
</TABLE>
See accompanying notes.
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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,
-----------------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,602) $ (2,689)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of patents and licenses 592 391
Amortization of deferred compensation 68 80
Unrealized loss on short-term investments (28) (14)
Changes in assets and liabilities:
Accounts receivable (2,751) 1,567
Other current assets 221 477
Other assets (26) (16)
Accounts payable (212) 62
Accrued professional fees (291) 140
Other current liabilities 163 (171)
-------- --------
Net cash used in operating activities (6,866) (173)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (1,152) (1,449)
Purchases of short term investments (11,498) (33,930)
Maturities of short term investments 14,800 45,000
-------- --------
Net cash provided by investing activities 2,150 9,621
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of stockholders' notes receivable -- 79
Principal payments on capital lease and loan obligations (337) (60)
Issuance of common stock for ESPP 22 --
Re-purchase of common stock from stockholder (115) --
-------- --------
Net cash (used in) provided by financing activities (430) 19
-------- --------
Net (decrease) increase in cash and cash equivalents (5,146) 9,467
Cash and cash equivalents at beginning of period 21,555 23,204
-------- --------
Cash and cash equivalents at end of period $ 16,409 $ 32,671
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Interest Paid $ 165 $ 33
======== ========
</TABLE>
See accompanying notes.
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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,
1999, statements of operations for the three months ended March 31, 1999 and
1998 and statements of cash flows for the three months ended March 31, 1999 and
1998 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. Changes in Accounting Standards
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed For or Obtained For Internal Use" (the
"SOP"). Effective January 1, 1999, the Company adopted the SOP. The SOP requires
the capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. The Company
previously expensed such costs as incurred. The adoption of the new SOP resulted
in capitalization of approximately $0.3 million for the period ended March 31,
1999.
3. Comprehensive Loss
During the three months ended March 31, 1999 and 1998, the Company's
comprehensive loss amounted to $4,630,000 and $2,703,000, respectively.
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, 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 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.
Hyseq is a registered trademark and service mark of the Company. HyX, HyChip,
HyProfile, HyPace and HyBrow are trademarks and HyGenomics, HyGnostics, HyPace,
Global Expression Technology, GET and ProbeSure are service marks of the
Company.
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RESULTS OF OPERATIONS
Contract revenues were $2.8 million in the three months ended March 31, 1999,
compared to $2.7 million for the same period in 1998. Revenues recorded during
the three months ended March 31, 1999 included $1.6 million from Chiron
Corporation and $1.2 million from the pharmaceutical division of Japan's Kirin
Brewery Co., Ltd. The Company substantially completed recognition of revenues
from the second year of its Chiron collaboration during the first quarter of
1999 due to acceleration of its efforts. As the third year of the Chiron
collaboration begins on June 1, 1999, the Company expects to have limited
revenue from Chiron during April and May 1999. The Company recognizes payments
under its collaboration agreement with Chiron as revenue either ratably over the
collaboration term based on the guaranteed minimum funding requirement, which is
$5.5 million for the third year of the collaboration, or as earned based on
performance levels for each period in excess of minimum funding levels. First
quarter revenues also reflect the achievement of an important milestone in the
Company's collaboration with Kirin which was achieved ahead of schedule. The
acceleration of Chiron and Kirin work under those collaborations was done in
part for the Company to undergo its planned second quarter gene discovery
capacity expansion. With the achievement of this milestone, the Company has
earned $2.7 million of the $3.0 million payable in its Kirin collaboration, with
the remainder to be recognized over the remainder of the collaboration term. 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.
Total operating expenses, consisting of research and development expenses and
general and administrative expenses, were $7.8 million and $6.2 million for the
three months ended March 31, 1999 and 1998, respectively. The research and
development component of operating expenses increased to $5.6 million during the
three months ended March 31, 1999 from $4.1 million during the same period of
1998. This increase in expenses during the three months ended March 31, 1999 is
due to addition of scientific and bioinformatic personnel, costs associated with
the Company's pharmacogenomic activities and activities related to continued
research on potential product candidates, increased investment in the Company's
intellectual property, costs related to continuing development and production of
its HyChip system in connection with its Early Access Program, and increased
depreciation and rental expenses associated with the expansion of the Company's
facilities. In connection with the Company's planned second quarter expansion of
its gene discovery capacity to over 2 million samples per month to accommodate
additional potential collaboration opportunities and expanded internal gene
discovery research, the Company expects operating expenses during the second
quarter to decrease primarily from lower material consumption costs, a
significant component of research and development operating expenses, subject to
gene discovery collaboration requirements. The general and administrative
component of operating expenses increased slightly to $2.2 million during the
three months ended March 31, 1999 from $2.1 million during the same period of
1998, primarily due to increased staffing to support the Company's growth over
the prior 12 months.
The magnitude of the increases or decreases 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. 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.
Net interest income decreased to $0.4 million during the three months ended
March 31, 1999 from $0.8 million for the same period in 1998. The decrease in
interest income resulted from lower cash and investment balances held by the
Company and higher interest expense from increased financing activities.
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Since inception, the Company has incurred operating losses and, as of March 31,
1999, had an accumulated deficit of $35.7 million. The Company incurred a net
loss for the three months ended March 31, 1999 of $4.6 million compared to a net
loss of $2.7 million in the same period of 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had $40.1 million in cash and investments,
which includes $38.0 million in cash, cash equivalents and short-term
investments and $2.1 million in a restricted cash account, compared to $48.5
million at December 31, 1998. This decrease was a result of a significant
increase in accounts receivable, on-going gene discovery work, patent-related
costs including its on-going litigation against Affymetrix, Inc. and cost
related to continuing development and production of its HyChip universal
sequencing chip product. In connection with the Company's planned second quarter
expansion, the Company has a commitment, at its option, for financing capital
expenditures for the expansion and the capital needs of the Company for the
balance of the year.
The Company has classified all of its investments as short-term as of March 31,
1999, as the Company may decide not to hold its investments until maturity in
order to take advantage of favorable market conditions. 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 $0.5 million commencing in 2001 and
will be further reduced by $0.5 million each year thereafter. 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
receives the interest earned thereon.
Net cash used in operating activities increased to $6.9 million during the three
months ended March 31, 1999 from $0.2 million in the same period of 1998. The
increase in cash usage from operations for the first quarter of 1999 was due
primarily to a significant increase in accounts receivable, higher operating
expenses, and a decrease in interest income. The increase in accounts receivable
was a result of the Company's accelerated efforts in its Chiron collaboration
during the first quarter of 1999. In the corresponding quarter in 1998, the
significantly lower cash usage from operations was due primarily to a major
decrease in accounts receivable and lower operating expenses.
The Company's investing activities, other than the purchase and sales of
short-term investments, have consisted of capital expenditures, which totaled
$1.2 million for the three months ended March 31, 1999 as compared to $1.4 for
the same period of 1998. Capital expenditures decreased in first quarter of 1999
primarily due to a lower level of additional build out of facilities, which
included capital equipment additions necessary for software development and
research and development, partially offset by the capitalization of internal
software costs as a result of the Company's adoption of Statement of Position
98-1. See Note 2 of Notes to Condensed Consolidated Financial Statements. The
Company may require significant capital expenditures during the second quarter
in connection with its planned expansion which capital expenditures the Company
expects to finance.
Net cash used by financing activities was $0.4 million for the three months
ended March 31, 1999 as compared to negligible net cash provided by financing
activities for the same period in 1998. The net cash usage in the first quarter
in 1999 was primarily due to payments on capital leases and loan obligations.
For the corresponding period in 1998, the net cash provided by financing
activities was a result of the Company receiving payments on notes held by
stockholders.
The Company expects that existing capital resources, anticipated revenue from
existing collaborative partners, and its capital financing commitment will be
sufficient to support the Company's operations at least through 2000. The
Company's estimate of the time period for which cash funds will be adequate to
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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 new 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 revenues from existing collaboration partners, 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.
YEAR 2000 COMPLIANCE
The Year 2000 compliance problem or "Y2K" issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any of the Company's or its vendors' or collaborators' computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process data
or engage in certain business activities.
Based on recent assessment, the Company believes that substantially all of its
critical bioinformatics software and internal information technology systems are
Y2K compliant. The Company has developed most of it bioinformatics software
in-house during the last three years, and has been aware of the Y2K issue. As a
result, the Company believes that its proprietary software is Y2K compliant. The
Company is currently assessing the status of its third party software and
hardware, including embedded chips, used in its production line. Affected
systems may include certain older robotic technologies.
Due to the recent upgrade of the Company's accounting and human resource systems
and software, and based on representations of the manufacturers, the Company
believes that its accounting and human resource systems are Y2K compliant.
The Company has sent letters to its vendors, collaborators and other third
parties regarding their Y2K compliance. To date, the Company has identified
areas that are supplied by third-party vendors that may not be Y2K compliant
based on the representations of such vendors. The Company is independently
testing these systems and is also evaluating the cost to upgrade or replace
these systems if necessary. However, the Company does not believe the failure to
upgrade or replace these systems would have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
expects to complete its assessment during the third quarter of 1999.
Given the information known at this time about the Company's systems, coupled
with the Company's ongoing efforts to upgrade and maintain business systems as
necessary, it is currently not anticipated that the Y2K issue or related costs
will have a material adverse effect on the Company's business, financial
condition and results of operations. The cost of any required modifications
likely to be found in this process is expected not to exceed $50,000. However,
disruptions in the economy generally resulting from Y2K issues could materially
adversely affect the Company. The amount of potential liability and loss of
revenue cannot be reasonably estimated at this time.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RATE RISK
The Company's exposure to market rate risk for changes in interest rates relates
primarily to the Company's investment portfolio. The Company does not use
derivative financial instruments in its investment portfolio. The Company places
its investments with high quality issuers and, by policy, limits the amount of
credit exposure to any one issuee. The Company is averse to principal loss and
ensures the safety and preservation of its invested funds by limiting default,
market and reinvestment risk. The Company classifies its cash equivalents and
marketable securities as "fixed-rate" if the rate of return on such instruments
remains fixed over their term. These "fixed-rate" investments include U.S.
government securities, commercial paper, corporate bonds, certificates of
deposit, and all such investments held in the Company's portfolio as of March
31, 1999 mature in 1999 and 2000. The Company classifies its cash equivalents
and marketable securities as "variable-rate" if the rate of return on such
investments varies based on the change in a predetermined index or set of
indices during their term. These "variable-rate" investments primarily include
money market accounts. The table below presents the amounts and related weighted
interest rates of the Company's investment portfolio as of March 31, 1999:
<TABLE>
<CAPTION>
AVERAGE INTEREST RATE COST FAIR VALUE
-----------------------------------------------------------
(In thousands, except interest rates)
<S> <C> <C> <C>
Cash equivalents
Variable rate 4.70% 11,410 11,410
Fixed rate 4.89% 5,003 4,999
Marketable securities
Fixed rate 5.21% 21,616 21,578
</TABLE>
PART II. OTHER INFORMATION
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. 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"). On April 22, 1998 the two cases were consolidated.
The suit alleges that Affymetrix willfully infringed, and continues
to infringe, upon the Company's 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 to Hyseq I and also filed a
counterclaim against the Company. The counterclaim seeks a declaratory judgment
of invalidity and non-infringement with respect to the two patents in Hyseq I.
On June 9, 1997, the Company filed a reply to the counterclaim in which it
denied the allegation of invalidity and non-infringement. A similar answer and
counterclaim was filed by Affymetrix in Hyseq II on December 28, 1997 and a
similar reply to the counterclaim was filed by the Company on January 29, 1998.
On August 1, 1997 (Hyseq I), and on March 28, 1998 (Hyseq II), an initial case
management conference for each case was held by the Court and a pre-trial
schedule was entered by the Court. A claims construction hearing occurred on
November 17 and 18, 1998, but the court has yet to render its decision on those
issues. By letter dated April 26, 1999, Affymetrix requested the Company to
stipulate to the filing of an amended answer that adds the defense that Hyseq
obtained its patents by defrauding the Patent Office; Hyseq declined Affymetrix'
request, in part because the proposed amendment was so vague as to be
insufficient as a matter of law. The Company and Affymetrix are currently
engaged in pretrial discovery during which
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documents are being exchanged and depositions are being taken. 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 18, 1998, Affymetrix filed suit against the Company
alleging that the Company infringed two of Affymetrix's U.S. patents, No.
5,795,716 and 5,744,305 (Case No. C-98-013192 FMS). This action was filed in the
U.S. District Court for the Northern District of California, San Jose Division.
Affymetrix filed an amended complaint on September 1, 1998 alleging infringement
of another U.S. Patent, No. 5,800,992. The Company believes that the suit is
without merit and intends to vigorously defend the action. However, the
litigation is at a very early stage and it is impossible to predict the ultimate
outcome of this matter. Procedurally, Affymetrix moved to disqualify counsel for
the Company and the matter was heard by the District Court Judge on April 16,
1999. On May 6, 1999 the District Court Judge denied Affymetrix' motion and
ruled that counsel for the Company would not be disqualified.
The Company has incurred substantial costs and expended substantial
personnel time in asserting the Company's patent rights against Affymetrix and
may continue to incur such costs in asserting its patent rights against
Affymetrix or others. 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.
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 IPO 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
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
Company estimates that it has used a portion of the Net Proceeds of the
Offerings as follows: (i) development of potential therapeutic product
candidates and diagnostic tests and products while continuing to expand its
HyGenomics database, $18.6 million, (ii) development of its HyChip system and
related products, $4.5 million, (iii) investment in capital equipment and
leasing of additional space to increase sequencing capacity, $3.0 million, (iv)
working capital and other general corporate purposes, $15.7 million and (v)
temporary investments, $2.2 million.
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
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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, 1999.
12
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SIGNATURE
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/ Mark E. Gitter
-----------------------
Mark E. Gitter
Chief Financial Officer
Date: May 10, 1999
13
<PAGE> 14
INDEX TO EXHIBITS
Exhibit
Number Description
27.0 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 16,409
<SECURITIES> 21,578
<RECEIVABLES> 3,402
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42,286
<PP&E> 11,006
<DEPRECIATION> 3,538
<TOTAL-ASSETS> 52,582
<CURRENT-LIABILITIES> 5,540
<BONDS> 0
0
0
<COMMON> 82,248
<OTHER-SE> (39,327)
<TOTAL-LIABILITY-AND-EQUITY> 42,921
<SALES> 0
<TOTAL-REVENUES> 2,752
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,790
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165
<INCOME-PRETAX> (4,602)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,602)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,602)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
