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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, 2000
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 1, 2000: 13,258,393
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HYSEQ, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
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PAGE
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Part I Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999....................... 3
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2000 and 1999 .... 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999 .... 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.............................................................................. 13
Item 2. Change in Securities and Use of Proceeds....................................................... 14
Item 3. Defaults Upon Senior Securities................................................................ 14
Item 4. Submission of Matters to a Vote of Security Holders............................................ 14
Item 5. Other Information.............................................................................. 14
Item 6. Exhibits and Reports on Form 8-K............................................................... 14
Signature........................................................................................................ 15
</TABLE>
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ITEM 1. FINANCIAL STATEMENTS
HYSEQ, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) (unaudited)
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MARCH 31, DECEMBER 31,
2000 1999
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ASSETS
Current Assets:
Cash and cash equivalents $ 25,434 $ 13,675
Short-term investments 4,481 16,962
Accounts receivable 1,499 1,250
Other current assets 536 1,111
-------- --------
Total Current Assets 31,950 32,998
Cash on deposit 2,106 2,106
Equipment, leasehold improvements and capitalized software, net 9,241 8,427
Patents, licenses and other assets, net 475 1,833
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Total Assets $ 43,772 $ 45,364
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 1,346 $ 1,473
Accrued professional fees 1,684 1,778
Other current liabilities 968 580
Deferred revenue 9,877 5,000
Current portion of capital lease and loan obligations 2,087 2,090
-------- --------
Total Current Liabilities 15,962 10,921
Noncurrent portion of capital lease and loan obligations 4,737 5,221
-------- --------
Total Long-Term Liabilities 4,737 5,221
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Total Liabilities 20,699 16,142
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Commitments and contingencies -- --
Stockholders' Equity:
Preferred stock, par value $0.001; 8,000,000 shares authorized; none issued and -- --
outstanding as of March 31, 2000 and December 31, 1999.
Common stock, par value $0.001; 50,000,000 shares authorized; 13,247,844 13 13
and 13,083,242 issued and outstanding as of March 31, 2000
and December 31,1999, respectively.
Additional Paid-in Capital 82,931 82,450
Treasury stock 71,107 shares as of March 31, 2000 (3,816) --
Notes receivable from stockholders -- (3,503)
Deferred stock compensation (30) (37)
Accumulated other comprehensive loss (26) (32)
Accumulated deficit (55,999) (49,669)
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Total stockholders' equity 23,074 29,222
-------- --------
Total liabilities and stockholders' equity $ 43,772 $ 45,364
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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HYSEQ, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data) (unaudited)
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THREE MONTHS ENDED MARCH 31,
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2000 1999
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Contract revenues $ 1,805 $ 2,752
Operating expenses:
Research and development 5,788 5,602
General and administrative 2,590 2,188
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Total operating expenses 8,378 7,790
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Loss from operations (6,572) (5,038)
======== ========
Interest income and other income 449 601
Interest expense (207) (165)
-------- --------
Net loss $ (6,330) $ (4,603)
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Basic and diluted net loss per share $ (0.48) $ (0.35)
======== ========
Shares used in computing basic and diluted net loss per share 13,155 12,967
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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HYSEQ, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
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2000 1999
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,212 (6,866)
-------- --------
Cash flow from investing activities:
Purchases of property and equipment (1,922) (1,152)
Purchases of short-term investments -- (11,498)
Maturities of short-term investments 12,475 14,800
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 10,553 2,150
-------- --------
Cash flow from financing activities:
Payment on capital lease and loan obligations (487) (337)
Repurchase of common stock from stockholder -- (115)
Proceeds from issuance of common stock, net of issuance costs 481 22
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (6) (430)
-------- --------
Net increase (decrease) in cash and cash equivalents 11,759 (5,146)
Cash and cash equivalents at beginning of period 13,675 21,555
-------- --------
Cash and cash equivalents at end of period $ 25,434 $ 16,409
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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HYSEQ, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (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, 2000, the statements of operations for the three months ended March
31, 2000 and 1999, and the statements of cash flows for the three months ended
March 31, 2000 and 1999 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 balance sheet as of
December 31, 1999 is derived from the Company's audited financial statements.
The condensed consolidated financial statements include the accounts of the
Company's wholly-owned subsidiaries. The result of operations for the interim
periods shown herein are not necessarily indicative of operating results
expected for the entire year.
2. Notes Receivable from Stockholders
In December 1996, a former officer of the Company purchased 161,280
shares of common stock at $4.17 per share for a total purchase price of
approximately $0.7 million. Simultaneously with the purchase of such stock, the
officer borrowed from the Company approximately $0.7 million as evidenced by a
promissory note that bore interest at 3% per annum, matured in December 2001,
and was secured by and with recourse only to the 161,280 shares. In March 1997,
the Company sold an additional 179,712 shares of common stock for $6.51 per
share to this officer in exchange for a second promissory note with terms
similar to the one previously described. In January 2000, this former officer
repaid these two promissory notes, which were recorded as a reduction to
stockholders' equity, plus accrued interest totaling $2,003,624. The notes were
repaid by surrendering to the Company approximately 56,000 shares of common
stock.
Also in December 1996, another officer of the Company exercised options
to purchase 48,000 shares of common stock at an exercise price of $1.56 per
share and exercised warrants to purchase 144,000 shares of common stock at $2.90
per share. Simultaneously with the exercises, the officer borrowed from the
Company approximately $0.5 million, as evidenced by a promissory note that bore
interest at 3% per annum, matured in December 2001, and was secured by and with
recourse only to 118,080 shares. In March 1997, the Company sold a total of
179,712 shares of common stock for $6.51 per share to this officer of the
Company in exchange for a second promissory note with terms similar to those
described above. In February 2000, this officer and director repaid these two
promissory notes, which were recorded as a reduction to stockholders' equity,
plus accrued interest totaling $1,811,208. The notes were repaid by surrendering
to the Company approximately 15,000 shares of common stock.
3. Comprehensive Loss
During the three months ended March 31, 2000 and 1999, the Company's
comprehensive loss amounted to approximately $6.3 and $4.6 million,
respectively.
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4. Subsequent Events
In May 2000, the Company and Kirin Brewery Co. Ltd. of Japan expanded
the scope of co-development under their collaboration agreement and extended the
term of their agreement to November 30, 2000.
In May 2000, Chiron Corporation elected to extend the term of its
agreement with the Company for an additional two-year period, as provided under
the agreement. The Company's collaboration with Chiron now extends until the end
of May 2002, and requires Chiron to make minimum annual payments of $1.0
million. Chiron has the right to extend the agreement for one additional
two-year period.
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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. Forward-looking
statements may be identified by words including "anticipate," "believe,"
"intends," "estimates," "expect," "should," "may," "potential" and similar
expressions. Such statements are based on our 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. Actual results and performance could also differ
materially from time to time from those projected in our filings with the
Securities and Exchange Commission. The factors causing such differences may
include, but are not limited to, the following:
- the amount of research and development we engage in with respect
to our biopharmaceutical product candidates;
- our ability to obtain additional collaborative arrangements;
- the nature, size, timing or termination of our collaborative
arrangements;
- the costs involved in preparing, filing, prosecuting,
maintaining and enforcing our patent claims;
- our competitors may have or obtain patent rights that are
superior to ours;
- our ability to find suitable space for expansion of our
operations;
- changes in government regulation; and
- our competitors' release of successful products into the market.
RESULTS OF OPERATIONS
Contract Revenues
Comparison of Three Months Ended March 31, 2000 and 1999.
Revenues for the first quarter of 2000 were $1.8 million, compared to
revenues of $2.8 million recorded for the same period in 1999. The prior year's
quarter included revenue recognition for research discovery work of $1.2 million
under our collaboration with the pharmaceutical division of Kirin Brewery Co.,
Ltd. During the first quarter of 2000, we also received $7.0 million in cash
from American Cyanamid which was recorded as deferred revenue.
Our contract revenues earned during the first quarter of 2000 included
$1.4 million related to Chiron, $0.3 million related to American Cyanamid, and
$0.1 million related to PE Corporation. As of March 31, 2000, $1.1 million
remained to be recognized over the remaining term of the Chiron agreement that
ends at the end of May 2000. Under the agreement, Chiron has the right to
extend the agreement for up to two additional periods of two years each. In May
2000, Chiron exercised its right to extend the agreement for an additional
two-year period.
We received payments of $5.0 million in December 1999 and $7.0 million
during the first quarter of 2000 from American Cyanamid, $2.2 million
of which has been applied against certain capitalized cost, $0.3 million of
which was recognized as revenue in the first quarter of 2000 and the remainder
of which has been classified as deferred revenue. Subject to compliance with the
terms of our collaboration agreement with American Cyanamid, we expect to
recognize a significant portion of the deferred revenue during 2000 as we
perform work under the agreement.
Our revenues typically vary from quarter to quarter and may result in
significant fluctuations in our operating results from year to year. In the
future, we may not be able to maintain existing collaborations, obtain
additional collaboration partners or obtain revenue from other sources. The
failure to maintain existing collaborations or the inability to enter into
additional collaborative arrangements or obtain revenues from other sources
could have a material adverse effect on our revenues and operating results.
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Operating Expenses
Comparison of the Three Months Ended March 31, 2000 and 1999.
Our total operating expenses, consisting of research and development
expenses and general and administrative expenses, increased by $0.6 million to
$8.4 million for the first quarter of 2000 compared to $7.8 million for the
first quarter of 1999.
For the first quarter of 2000, our research and development expenses
increased by $0.2 million to $5.8 million compared to $5.6 million for the first
quarter of 1999. Our higher research and development expenses reflect primarily
higher staffing and outside services expenses related to our collaborations,
partially offset by lower material consumption costs.
For the first quarter of 2000, our general and administrative expenses
increased by $0.4 million to $2.6 million compared to $2.2 million in the first
quarter of 1999. The increase in general and administrative expenses during the
first quarter of 2000 resulted primarily from higher legal expenses, salary
expenses and rent expense.
We expect operating expenses during the remainder of 2000 to increase as
we plan to significantly expand:
- research and development of our biopharmaceutical product
candidates;
- complete gene sequencing programs;
- development and production of our HyChip biochip; and
- efforts related to prosecuting and enforcing our intellectual
property rights, including increasing expenses as our patent
litigation with Affymetrix proceeds to trial.
The magnitude of the increases in our operating expenses will be
significantly affected by our ability to secure adequate sources of external
financing or additional sources of revenue. If we do not obtain adequate
financing or revenue in a timely manner, we may be required to delay or
eliminate one or more of our research or development programs. Any such action
could significantly harm our business, financial condition.
Interest Income and Expense
Comparison of the Three Months Ended March 31, 2000 and 1999.
Our interest income decreased by $0.1 million to $0.5 million for the
first quarter of 2000 compared to $0.6 million for the first quarter of 1999.
This decrease resulted from lower cash and investment balances held by us. Our
interest expense increased slightly as a result of higher average loan balances
outstanding under our loan agreements.
Net Loss
Since our inception, we have incurred operating losses, and as of March
31, 2000, we had an accumulated deficit of $56.0 million. During the first
quarter of 2000, we incurred a net loss of $6.3 million as compared to a $4.6
million net loss in the first quarter of 1999 as the Company continues to
develop its gene discoveries for biopharmaceutical product candidates. We expect
to continue to incur significant operating losses, which may increase
substantially as we expand research and development of our biopharmaceutical
product candidates and other operations, and as we prosecute and enforce our
intellectual property rights.
LIQUIDITY AND CAPITAL RESOURCES.
Cash, Cash Equivalents, Short-Term Investments, and Cash on Deposit
As of March 31, 2000, we had $32.0 million in cash and short-term
investments, including $29.9 million in cash, cash equivalents and short-term
investments and $2.1 million in a restricted cash on deposit account. These
amounts reflect a net decrease of
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$0.7 million from the $32.7 million in cash, cash equivalents, short-term
investments and restricted cash on deposit account we had as of December 31,
1999.
All of our investments in marketable securities are considered
available-for-sale and as such are classified as short-term investments. We
currently hold our cash equivalents and investments in investment-grade
commercial paper, bank certificates of deposit and other interest-bearing
securities. We make our investments in accordance with our investment policy.
The primary objectives of our investment policy are liquidity, safety of
principal and diversity of investments.
In addition, we have $2.1 million in restricted cash on deposit as
security for a $2.0 million letter of credit in conjunction with a facility
lease. Provided that no event of default under the lease has occurred, the
letter of credit and the cash collateralizing it will be reduced by $0.5 million
per year commencing in 2001. The cash on deposit at any time in conjunction with
this letter of credit is restricted and cannot be withdrawn. We control the
investment of the cash and receive the interest earned thereon.
SOURCES AND USES OF CASH
Cash Provided by (Used in) Operating Activities
Comparison of Three Months Ended March 31, 2000 and 1999.
The amount of net cash provided by operating activities was $1.2 million
during the first quarter of 2000 as compared to net cash used in operating
activities of $6.9 million in the first quarter of 1999. The increase in cash
provided by operating activities for the first quarter of 2000 compared to the
same period in 1999 was due primarily to a $7.0 million cash payment received
during the first quarter of 2000 under our collaboration agreement with American
Cyanamid. During the first quarter of 1999 a significant increase in accounts
receivable was the result of the Company's accelerated efforts in its Chiron
collaboration.
Cash Provided by Investing Activities.
Our investing activities, other than purchases and sales of short-term
investments, have consisted primarily of capital expenditures.
Comparison of the Three Months Ended March 31, 2000 and 1999.
Net cash provided by investing activities increased by $8.4 million to
$10.6 million for the first quarter of 2000 compared to $2.2 million for the
first quarter of 1999. The increase was primarily due to our net redemptions of
short-term investments, which were higher in the first quarter of 2000 than in
the first quarter of 1999. During the first quarter of 2000 all of our
short-term investments were reinvested upon maturity into commercial paper with
maturities of less than 90 days.
Cash Used in Financing Activities
Comparison of the Three Months Ended March 31, 2000 and 1999.
Net cash used in financing activities for the first quarter of 2000 was
negligible compared to $0.4 million used in financing activities for the first
quarter of 1999. In the current quarter, principal payments of capital leases
and loan obligations were offset by employee stock option exercises.
During the first quarter of 2000, we borrowed no additional amounts from
an asset-backed financing commitment obtained in 1999. This commitment has been
extended through June 30, 2000. We are currently evaluating our future needs for
equipment financing and may seek to obtain additional equipment financing. There
is no assurance that in the future we will be able to secure new equipment
financing on favorable terms, if at all.
We have financed our operations since inception through private and
public sales of our stock, revenue from research and development collaborations,
grants, asset-backed financings and investment income. We anticipate that
existing capital resources, anticipated cash from existing collaborative
partners and funds we receive under our capital financing commitment will be
sufficient to support our biopharmaceutical research and development and other
operations into 2001. Our estimate of the time period for which existing and
anticipated cash funds will be adequate to fund our operations is a
forward-looking estimate subject to risks and uncertainty. Actual results may
differ substantially. Our future capital requirements and the adequacy of our
available funds will depend on many factors, including, but not limited to:
- continued scientific progress in our research and development
programs;
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- our ability to attract additional financing on favorable terms;
- the magnitude and scope of our research and development
programs, including our development of biopharmaceutical product
candidates and our complete gene sequencing programs;
- our ability to maintain existing and establish additional
collaborative and licensing arrangements, and the financial
commitments involved in such collaborative and licensing
arrangements;
- the cost of prosecution and enforcement of our intellectual
property rights;
- expansion of our facilities to support research and development
of our biopharmaceutical candidates;
- progress with preclinical studies and clinical trials;
- the time and cost involved in obtaining regulatory approvals;
- competing technological and market developments;
- our need to develop, acquire or license new technologies or
products; and
- other factors not within our control.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." This statement gives specific guidance and clarification on the
conditions that must be met before an entity may recognize revenue. In March
2000, the SEC issued SAB 101A to defer for one quarter the effective date of
implementation of SAB 101 with earlier application encouraged. As a result of
this amendment, SAB 101 shall be effective for the second fiscal quarter of the
fiscal year beginning after December 15, 1999. The Company adopted Staff
Accounting Bulletin No. 101 as of December 31, 1999.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN No. 44"), "Accounting for Certain Transactions
Involving Stock Compensation". This interpretation clarifies the application of
APB Opinion No. 25, "Accounting for Stock Issued to Employees". This
Interpretation is effective for July 1, 2000, but certain conclusions in this
Interpretation cover specific events that occur after either December 15, 1998,
or January 12, 2000. To the extent that this Interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effects of applying this
Interpretation are recognized on a prospective basis from July 1, 2000.
The company does not expect a material impact from implementation of SAB
No. 101 and FIN 44 on its financial position, results of operations and cash
flows.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RATE RISK
There were no significant changes in the Company's market risk
exposures through the first quarter 2000. For further discussion of the
Company's market risk exposures, refer to Part II, Item 7A., "Quantitative and
Qualitative Disclosures About Market Risk" of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 3, 1997, the Company brought suit against Affymetrix, Inc. 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. Patent Nos.
5,202,231 and 5,525,464 (Hyseq, Inc. v. Affymetrix, Inc., Case No. C 97-20188
RMW (PVT)) ("Hyseq I"). On May 5, 1997, the Company filed an Amended Complaint.
On December 9, 1997, the Company filed a second lawsuit against Affymetrix
alleging infringement by Affymetrix of the Company's U.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 before Judge Ronald M. Whyte.
The consolidated suits allege that Affymetrix willfully infringed, and
continues to infringe, the Company's patents covering
sequencing-by-hybridization (SBH) technology. Through the lawsuit, the Company
seeks both to enjoin Affymetrix from infringing its patents covering SBH
technology and an award of monetary damages for Affymetrix' past infringement.
On May 19, 1997, Affymetrix filed an Answer and Affirmative Defenses to the
First Amended Complaint in 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 asserted in Hyseq I. On
September 9, 1997, the Company filed a reply to the counterclaim in which it
denied the allegations 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), initial case
management conferences were held in each case in which the Court entered a
pre-trial schedule. The Court held a claims construction hearing on November 17
and 18, 1998 in Hyseq I and II. On July 12, 1999, Affymetrix filed an amended
answer and counterclaim alleging the additional defense that the patents were
obtained through inequitable conduct. On October 27, 1999, the Court issued an
order construing terms in the claims of the patents-in-suit and inviting the
parties to submit briefs setting forth any perceived errors or inconsistencies
in the Order. The Company and Affymetrix submitted their briefs on December 17
and 27, 1999, respectively. On January 7, 2000, the Court held a further Case
Management Conference. On February 22, 2000, the Court received oral argument
from the parties regarding the Claims Construction Order. The Company and
Affymetrix are currently engaged in pretrial discovery during which documents
and other written discovery are being exchanged and depositions are being taken.
While the Company believes it has asserted valid claims and has meritorious
defenses to the counterclaims, this litigation is at an early stage and there
can be no assurance that the Company will prevail in these actions.
On August 18, 1998, Affymetrix filed suit against the Company in the
U.S. District Court for the Northern District of California, San Francisco
Division, alleging that the Company infringed two of Affymetrix' U.S. patents,
No. 5,795,716 and 5,744,305 (Affymetrix, Inc. v. Hyseq, Inc., Case No. C
98-13192). Affymetrix filed an amended complaint on September 1, 1998 alleging
infringement of its U.S. Patent No. 5,800,992. The case was reassigned to Judge
Jeremy Fogel in the San Jose Division. At the time of the assignment to Judge
Fogel, the case was also renumbered as Case No. C 99-21163 JF (MEJ). A Case
Management Conference before Judge Fogel is scheduled for July 10, 2000. The
Company believes that Affymetrix' allegations are 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.
On October 26, 1999, the Company filed a third lawsuit against
Affymetrix in the U.S. District Court for the Northern District of California,
San Francisco Division (Hyseq, Inc. v. Affymetrix, Inc., Case No. C-99 4735 MJJ)
("Hyseq III"), alleging infringement by Affymetrix of the Company's
recently-issued U.S. Patent No. 5,972,619 (the "'619 Patent"). Hyseq also
alleges that Affymetrix' U.S. Patent No. 5,795,716 is invalid because the
subject matter was first invented by Hyseq scientists and is claimed and covered
by Hyseq's '619 Patent. Affymetrix filed an answer and counterclaim on November
15, 1999. The counterclaim seeks a declaratory judgment of invalidity,
unenforceability and non-infringement with respect to Hyseq's '619 Patent. On
December 9, 1999, the Company filed a reply to the counterclaim in which it
denied the allegations of invalidity, unenforceability, and non-infringement.
Subsequently, Hyseq III was reassigned to Judge Fogel and was given Case No.
C-00-20050 JF/PVT. Hyseq III is presently scheduled for a Case Management
Conference on July 10, 2000 along with Affymetrix, Inc. v. Hyseq, Inc.
The Company has incurred substantial costs and expended substantial
personnel time in asserting the Company's patent rights and defending its
technology against Affymetrix and may continue to incur such costs in asserting
its patent rights and defending its technology against Affymetrix or others.
There can be no assurance that the Company will be successful in these efforts.
Failure to
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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
Not applicable.
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
<TABLE>
<CAPTION>
DATE OF FILING SUBJECT
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<S> <C>
February 4, 2000 Form 8-K, Item 5, appointment of Dr. George B. Rathmann
as Chairman of Hyseq, Inc.
March 17, 2000 Form 8-KA, amending Form 8-K, Item 5 filed on December 14, 1999,
collaboration agreement with American Cyanamid Company.
</TABLE>
14
<PAGE> 15
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 15, 2000
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
27.0 Financial Data Schedule
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE TABLE BELOW HOLDS SUMMARY FINANCIAL INFORMATION CONTAINED IN HYSEQ, INC.
INTERIM FINANCIAL REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 25,434
<SECURITIES> 4,481
<RECEIVABLES> 1,499
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,950
<PP&E> 15,719
<DEPRECIATION> (6,478)
<TOTAL-ASSETS> 43,772
<CURRENT-LIABILITIES> 15,962
<BONDS> 0
0
0
<COMMON> 82,944
<OTHER-SE> (59,871)
<TOTAL-LIABILITY-AND-EQUITY> 43,772
<SALES> 0
<TOTAL-REVENUES> 1,805
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,378
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (207)
<INCOME-PRETAX> (6,330)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,330)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,330)
<EPS-BASIC> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
