-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MPnNsCA9eNl6rqaWYv3SRDiTcjL5HmrLdiCsz+3wKkSjV/sO46Y4euRplNiBLMIc eErM/k86QfrPiJFH2dEDgw== 0000950005-97-000686.txt : 19970812 0000950005-97-000686.hdr.sgml : 19970812 ACCESSION NUMBER: 0000950005-97-000686 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970811 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LYNX THERAPEUTICS INC CENTRAL INDEX KEY: 0000913275 STANDARD INDUSTRIAL CLASSIFICATION: MEDICINAL CHEMICALS & BOTANICAL PRODUCTS [2833] IRS NUMBER: 943161073 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22570 FILM NUMBER: 97656073 BUSINESS ADDRESS: STREET 1: 3832 BAY CENTER PL CITY: HAYWARD STATE: CA ZIP: 94545 BUSINESS PHONE: 5106709300 MAIL ADDRESS: STREET 1: 3832 BAY CENTER PLACE CITY: HAYWARD STATE: CA ZIP: 74545 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --------- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997. OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - --------- SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . ------ ----- Commission File Number 0-22570 Lynx Therapeutics, Inc. (Exact name of registrant as specified in its charter) Delaware 94-3161073 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3832 Bay Center Place Hayward, CA 94545 (Address of principal executive offices) (Zip Code) (510) 670-9300 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----------- ----------- The number of shares of Common Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock outstanding as of July 31, 1997, were: 3,207,670; 332,288; 123,299; and 40,000, respectively. The Series B, Series C and Series D Preferred Stock are convertible into Common Stock on a ten-for-one basis. Information regarding the aggregate market value of the Registrant's voting stock is not included because there is currently no established public trading market for the Company's voting stock. Page 1 of 11 Lynx Therapeutics, Inc. INDEX
PART I FINANCIAL INFORMATION Page Item 1. Condensed Consolidated Balance Sheets - June 30, 1997 and December 31, 1996............................................................... 3 Condensed Consolidated Statements of Operations - three and six months ended June 30, 1997 and 1996....................................................... 4 Condensed Consolidated Statements of Cash Flows - six months ended June 30, 1997 and 1996........................................................ 5 Notes to Condensed Consolidated Financial Statements.................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 7 PART II OTHER INFORMATION Item 1. Legal Proceedings....................................................................... 10 Item 2. Changes in Securities................................................................... 10 Item 3. Defaults Upon Senior Securities......................................................... 10 Item 4. Submission of Matters to a Vote of Security Holders..................................... 10 Item 5. Other Information....................................................................... 10 Item 6. Exhibits and Reports on Form 8-K........................................................ 10 Signatures ........................................................................................ 11 Page 2 of 11
PART I FINANCIAL INFORMATION Item 1. Financial Statements Lynx Therapeutics, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, December 31, 1997 1996* --------------------------------------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 6,718 $ 12,109 Short-term investments -- 1,973 Accounts receivable 191 118 Other current assets 67 158 --------------------------------------------- Total current assets 6,976 14,358 Property and equipment: Leasehold improvements 3,749 3,193 Laboratory and other equipment 3,663 2,976 --------------------------------------------- 7,412 6,169 Less accumulated depreciation and amortization (2,921) (2,290) --------------------------------------------- Net property and equipment 4,491 3,879 Notes receivable from employees 189 175 --------------------------------------------- $ 11,656 $ 18,412 ============================================= Liabilities and stockholders' equity Current liabilities: Accounts payable $ 349 $ 429 Accrued compensation and vacation 311 394 Accrued professional fees 107 169 Deferred revenue from related parties - current 3,125 3,875 Other accrued liabilities 365 373 --------------------------------------------- Total current liabilities 4,257 5,240 Deferred revenue from related parties - long-term 916 2,292 Other noncurrent liabilities 164 148 Stockholders' equity: Preferred stock 27,189 27,189 Common stock 17,469 17,361 Notes receivable from stockholders (460) (210) Deferred compensation (1,650) (2,092) Unrealized gain/(loss) on marketable securities (2) 3 Accumulated deficit (36,227) (31,519) --------------------------------------------- Total stockholders' equity 6,319 10,732 --------------------------------------------- $ 11,656 $ 18,412 ============================================= *The Balance Sheet amounts at December 31, 1996 have been derived from audited financial statements at that date but do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. Page 3 of 11
Lynx Therapeutics, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Net revenues: Revenues from collaborative arrangements with related parties 1,224 375 2,287 750 Other revenues 98 87 170 204 ------------------------------------------------------------------- Total revenues 1,322 462 2,457 954 Operating expenses: Research and development 3,377 2,929 6,452 5,334 General and administrative 591 628 1,017 1,167 ------------------------------------------------------------------- Total operating expenses 3,968 3,557 7,469 6,501 ------------------------------------------------------------------- Loss from operations (2,646) (3,095) (5,012) (5,547) Interest income 133 143 304 330 ------------------------------------------------------------------- Net loss (2,513) (2,952) (4,708) (5,217) =================================================================== Net loss per share (0.79) (1.26) (1.49) (2.23) =================================================================== Shares used in per share computation 3,198,205 2,338,815 3,171,416 2,336,820 =================================================================== See accompanying notes. Page 4 of 11
Lynx Therapeutics, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six Months Ended June 30, --------------------------------- 1997 1996 ---- ---- Cash flows from operating activities Net loss $ (4,708) $ (5,217) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 631 457 Deferred compensation 293 --- Changes in operating assets and liabilities: Accounts receivable (73) (12) Other current assets 91 (145) Accounts payable (80) (65) Accrued liabilities (153) 246 Deferred revenue from related parties (2,126) (750) Other noncurrent liabilities 16 29 --------------------------------- Net cash used in operating activities (6,109) (5,457) Cash flows from investing activities Purchases of short-term investments -- (995) Maturities of short-term investments 1,968 994 Purchases of property and equipment (1,243) (1,006) Notes receivable from employees (264) (230) --------------------------------- Net cash provided by (used in) investing activities 461 (1,237) Cash flows from financing activities Issuance of common stock 257 13 --------------------------------- Net cash provided by financing activities 257 13 --------------------------------- Net decrease in cash and cash equivalents (5,391) (6,681) Cash and cash equivalents at beginning of period 12,109 13,779 --------------------------------- Cash and cash equivalents at end of period $ 6,718 $ 7,098 ================================= See accompanying notes. Page 5 of 11
Lynx Therapeutics, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 (Unaudited) 1. Company Overview Lynx has developed a unique, proprietary technology for the analysis of DNA called Massively Parallel Signature Sequencing, or MPSS. MPSS, the Company believes, is the only technology available today that can analyze and identify, simultaneously, very large numbers of DNA molecules or fragments from a single biological sample. Lynx's technology has three major applications and each of these can be applied to the genomes of man, pathogenic organisms and commercially important plants and animals. These three major applications are gene expression analysis, genomic sequencing and high resolution genomic maps. In 1995, Lynx launched an internal biology-based drug discovery program to establish the concepts, strategies and techniques necessary for the identification of drug targets based on the analysis of differential gene expression. This program is designed to capitalize eventually on the power of MPSS but in its early phase it is utilizing know-how and intermediate technologies currently resident within Lynx. The initial projects are centered on the medically important field of neurovascular diseases that are particularly well suited to analyses with the Company's gene sequencing and target discovery (MPSS) technologies. Lynx was originally formed in late 1992 to target inappropriate gene expression in disease with synthetic DNA fragments designed to bind to, and functionally block, genes whose inappropriate expression could be correlated with disease. Lynx's early efforts at identifying and targeting gene function in disease were based on the research of academic collaborators using conventional techniques. The research efforts have resulted in a compound (LR-3280) now in Phase II clinical trials for the prevention of coronary artery restenosis. Lynx's early efforts in this area have formed the foundation and understanding for the development of its new genetic technologies. 2. Basis of presentation The condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations promulgated by the Securities and Exchange Commission (the "Commission"). Certain prior year amounts have been reclassified to conform with current year presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to Commission rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading. The financial statements include all accounts of the Company and, in the opinion of management, contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position, results of operations, and cash flows of the Company for the interim periods presented. The results of operations for the three and six months ended June 30, 1997, are not necessarily indicative of the results for the full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the Company's year ended December 31, 1996. 3. Net loss per share In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share" ("EPS"). SFAS 128 requires that companies Page 6 of 11 present two measures of earnings per share, basic and diluted. Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period, while diluted EPS reflects the potential dilution of securities that could share in the earnings of the company. SFAS 128 is effective for interim and annual periods ending after December 15, 1997. The Company does not believe the adoption of SFAS 128 will have a material impact on its loss per share calculations. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section, as well as in the Company's annual report (Form 10-K) filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1996. Overview Lynx has been unprofitable since its inception and may incur substantial losses for the next several years, due primarily to the expansion of its research and development programs, including additional development of its MPSS technology. Lynx may generate revenues based on its agreements with collaborative partners as a result of achievement of the milestones defined in the agreements. However, there is no guarantee that the milestones will be achieved or that the technologies will be proven successful. Lynx does not anticipate that it will generate significant revenues and profits, if any, from the commercial sale of its products and services for several years, if not longer. There can be no assurance that Lynx will ever successfully develop and market any of its proposed products or that it will ever be able to achieve or sustain profitability. Lynx's business is subject to significant risks, including the risks inherent in its research and development efforts, uncertainties associated with obtaining and enforcing patents, the lengthy and expensive regulatory approval process, and possible competition from other products. The MPSS program is dependent upon the successful integration of independent technologies, each of which has its own development risks. In addition, Lynx's MPSS technology could face competition from the development of similarly efficient, or better, combinations of novel cloning and sequencing techniques. Even if Lynx's therapeutic compounds appear promising at an early stage of development, they may not reach the market for a number of reasons. Such reasons include but are not limited to the possibilities that the compounds are found to be toxic or ineffective during clinical trials, the failure to receive necessary regulatory approvals, the difficulty to manufacture on a large scale, or the inability to market a compound due to proprietary rights of third parties. Results of Operations Revenue Lynx had total revenues of approximately $1.3 million and $462,000 for the quarters ended June 30, 1997 and 1996, respectively. The 1997 revenue was comprised of approximately $1.2 million earned under collaborative agreements with corporate partners, $85,000 in product revenue and $13,000 earned under a government grant. The 1996 revenue was comprised of $375,000 earned under a collaborative agreement with a corporate partner and $87,000 earned from a government grant. Lynx had revenues of approximately $2.5 million and $954,000 in the six months ended June 30, 1997 and 1996, respectively. The 1997 revenue consisted of approximately $2.3 million in collaborative Page 7 of 11 revenue, $85,000 in product revenue and $85,000 in grant revenue. The 1996 revenue was comprised of $750,000 in collaborative revenue and $204,000 earned from a government grant. Revenue will continue to fluctuate based on activity with current and potential corporate partners, achievement of milestones, and timing of government grant funding. Operating Expenses Research and development expenses were $3.4 million and $2.9 million in the three months ended June 30, 1997 and 1996, respectively. For the six-month periods ending on June 30, 1997 and 1996, research and development expenses were $6.5 million and $5.3 million, respectively. The increases were due to the costs associated with increased levels of research and development personnel, and the amortization of deferred compensation recorded in conjunction with the Agreement of Merger between Lynx and its majority owned subsidiary, Spectragen, Inc. in November 1996. The increases were partially offset by reduced company-funded sponsored research. Lynx expects to incur substantial and increasing research and development expenses due to planned spending for ongoing research and development activities and new research applications. General and administrative expenses were $591,000 for the quarter ended June 30, 1997, compared to $628,000 for the quarter ended June 30, 1996. The decrease was due to lower outside professional fees, and slightly lower headcount-related expenses. General and administrative expenses were $1.0 million for the six months ended June 30, 1997, compared to $1.2 million for the six months ended June 30, 1996. The decrease was due to lower headcount-related expenses and to lower investor relations costs compared to 1996. Investor relations costs in 1996 reflected the costs of the reverse stock split. Lynx expects to continue to incur substantial administrative expenses in support of its research and development efforts. Interest Income Interest income was $133,000 and $143,000 for the three months ended June 30, 1997 and 1996, respectively. For the six months ended June 30, 1997 and 1996, interest income was $304,000 and $330,000, respectively. Liquidity and Capital Resources Net cash used in operating activities of approximately $6.1 million for the six months ended June 30, 1997 differs from the net loss for the same period primarily due to current period recognition of a portion of previously deferred revenue, offset in part by depreciation and amortization, and deferred compensation expense. Net cash provided by investing activities related to maturities of short-term investments partially offset by costs associated with purchases of capital equipment and the expansion of laboratory facilities. Lynx expects that future capital expenditures will be commensurate with growth in the employee base and the development of its MPSS and other technologies. At June 30, 1997, Lynx's cash and cash equivalents were $6.7 million. Lynx is currently utilizing its available funds to support development of its MPSS and other technologies, and to fund preclinical research and clinical trials. Pending such uses as described above, Lynx intends to invest its excess cash in short-term, investment grade, interest-bearing securities or certificates of deposit. Since commencing operations as an independent company, Lynx has obtained funding for its operations through sales of preferred and common stock to venture capital investors and collaborative partners, revenue from collaborative research and development arrangements, interest income, product sales, and government grants. The cost, timing and amount of funds required for specific uses by Lynx cannot be precisely determined at this time and will be based upon Lynx's progress in its research and Page 8 of 11 development, the scope and results of preclinical research and clinical trials, the cost and timing of regulatory approvals, administrative and legal costs, the establishment of corporate collaborations and other arrangements, and the availability of alternate methods of financing. Lynx may receive additional collaborative research payments from its existing partners (Hoechst, Tanabe, Schwarz Pharma and BASF) and equity investments from Hoechst, subject to achieving the milestones set forth in the various agreements. Lynx may also seek to raise additional funding through the sale of its equity securities or through corporate collaborations and other arrangements with existing or potential corporate partners. There can be no assurance that any additional financing required by Lynx will be available or, if available, will be on terms favorable to Lynx. The failure to obtain such financing may cause the Company to seek other sources of capital or reevaluate its operating plans. Lynx believes that its current cash and cash equivalents and interest income thereon will enable it to maintain its current operations through the end of 1997. Page 9 of 11 PART II OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders At the annual meeting of shareholders held May 13, 1997, shareholders voted on the following: (1) Election of Directors: Nominee For Withheld ------- --- -------- Sam Eletr 1,942,842 133,610 Sydney Brenner 1,942,893 95,844 Kathleen D. La Porte 1,942,893 95,653 William K. Bowes 1,942,842 95,704 James C. Kitch 1,937,007 101,539 Craig C. Taylor 1,942,902 95,644 (2) Ratification of Selection of Independent Auditors: For Against Non-Vote --- ------- -------- 2,036,025 1,303 -- Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K. a) Exhibits - The following document is filed as an Exhibit to this report: Exhibit Number Description ------- ----------- 27.1 Financial Data Table b) No reports on Form 8-K were filed during the quarter ended June 30, 1997. Page 10 of 11 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. LYNX THERAPEUTICS, INC. /s/ Sam Eletr ------------------------------------ By: Sam Eletr, Ph.D. Chief Executive Officer and Chairman of the Board Date: August 12, 1997 /s/ Edward C. Albini ------------------------------------ By: Edward C. Albini Chief Financial Officer (Principal Financial and Accounting Officer) Date: August 12, 1997 Page 11 of 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FORM 10-Q PERIOD ENDED JUNE 30, 1997. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 6,718 0 191 0 0 6,976 7,412 (2,921) 11,656 4,257 0 0 27,189 17,469 (38,339) 11,656 0 2,457 0 0 7,469 0 0 (4,708) 0 (4,708) 0 0 0 (4,708) (1.49) (1.49)
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