-----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, VGADFG/aOV/5Nl5BdHH7va4ghwcQ10oTQYW0M0tXHa/OXWyvA/6JqvN3duvaHDNM fGwirlmn2yOsPKGQGlXV5Q== 0000950005-97-000497.txt : 19970512 0000950005-97-000497.hdr.sgml : 19970512 ACCESSION NUMBER: 0000950005-97-000497 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970509 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: 97598953 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 MARCH 31, 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 March 31, 1997, were 3,140,672, 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 9 Lynx Therapeutics, Inc. INDEX
PART I FINANCIAL INFORMATION Page Item 1. Condensed Consolidated Balance Sheets - March 31, 1997 and December 31, 1996........................................... 3 Condensed Consolidated Statements of Operations - three months ended March 31, 1997 and 1996.................................. 4 Condensed Consolidated Statements of Cash Flows - three months ended March 31, 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................................................... 9 Item 2. Changes in Securities............................................... 9 Item 3. Defaults Upon Senior Securities..................................... 9 Item 4. Submission of Matters to a Vote of Security Holders................. 9 Item 5. Other Information................................................... 9 Item 6. Exhibits and Reports on Form 8-K.................................... 9 Signatures .................................................................... 9
Page 2 of 9 PART I FINANCIAL INFORMATION Item 1. Financial Statements Lynx Therapeutics, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
March 31, December 31, 1997 1996* -------------------------------- Unaudited) Assets Current assets: Cash and cash equivalents $ 10,409 $ 12,109 Short-term investments -- 1,973 Accounts receivable 72 118 Other current assets 91 158 -------------------------------- Total current assets 10,572 14,358 Property and equipment: Leasehold improvements 3,810 3,193 Laboratory and other equipment 3,224 2,976 -------------------------------- 7,034 6,169 Less accumulated depreciation and amortization (2,590) (2,290) -------------------------------- Net property and equipment 4,444 3,879 Notes receivable from employees 180 175 -------------------------------- $ 15,196 $ 18,412 ================================ Liabilities and stockholders' equity Current liabilities: Accounts payable $ 503 $ 429 Accrued compensation and vacation 365 394 Accrued professional fees 125 169 Deferred revenue from related parties - current 3,500 3,875 Other accrued liabilities 255 373 -------------------------------- Total current liabilities 4,748 5,240 Deferred revenue from related parties - long-term 1,604 2,292 Other noncurrent liabilities 156 148 Stockholders' equity: Preferred stock 27,189 27,189 Common stock 17,329 17,361 Notes receivable from stockholders (210) (210) Deferred compensation (1,912) (2,092) Unrealized gain on marketable securities 5 3 Accumulated deficit (33,713) (31,519) -------------------------------- Total stockholders' equity 8,688 10,732 -------------------------------- $ 15,196 $ 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 9 Lynx Therapeutics, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) (Unaudited) Three Months Ended March 31, -------------------------- 1997 1996 ---- ---- Net revenues: Revenues from collaborative arrangements with $ 1,063 $ 375 related parties Other revenues 72 117 -------------------------- Total revenues 1,135 492 Operating expenses: Research and development 3,075 2,405 General and administrative 425 544 -------------------------- Total operating expenses 3,500 2,949 -------------------------- Loss from operations (2,365) (2,457) Interest income 171 187 -------------------------- Net loss $ (2,194) $ (2,270) ========================== Net loss per share $ (0.70) $ (0.97) ========================== Shares used in per share computation 3,144,627 2,334,826 ========================== See accompanying notes. Page 4 of 9 Lynx Therapeutics, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended March 31, ------------------------- 1997 1996 ---- ---- Cash flows from operating activities Net loss $ (2,194) $ (2,270) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 300 216 Deferred compensation 180 -- Changes in operating assets and liabilities: Accounts receivable 46 (29) Other current assets 67 (147) Accounts payable 74 (432) Accrued liabilities (191) (24) Deferred revenue from related party (1,063) (375) Other noncurrent liabilities 8 15 ------------------------- Net cash used in operating activities (2,773) (3,046) Cash flows from investing activities Purchases of short-term investments -- (994) Maturities of short-term investments 1,975 -- Purchases of property and equipment (865) (318) Notes receivable from employees (5) (190) ------------------------- Net cash provided by (used in) investing activities 1,105 (1,502) Cash flows from financing activities Issuance (repurchase) of common stock (32) 7 ------------------------- Net cash provided by (used in) financing activities (32) 7 ------------------------- Net decrease in cash and cash equivalents (1,700) (4,541) Cash and cash equivalents at beginning of period 12,109 13,779 ------------------------- Cash and cash equivalents at end of period $ 10,409 $ 9,238 ========================= See accompanying notes.
Page 5 of 9 Lynx Therapeutics, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1997 (Unaudited) 1. Ownership and nature of business Lynx was formed to discover and target inappropriate gene expression in disease. The Company's early efforts relied on academic collaborations for the discovery and understanding of altered or inappropriate gene function and on its own expertise in synthetic DNA ("oligodeoxynucleotide" or "ODN") chemistry for the development of compounds aimed at modulating undesirable gene expression. These early collaborations resulted in a number of compounds aimed at the prevention of restenosis following balloon angioplasty and certain leukemias and cancers. The Company has recently initiated an internal biology-based drug discovery program designed around in vitro and in vivo models of acute biological stress or injury. This program is currently focused on models relevant to diseases resulting from brain and spinal cord injuries. Its aim is to better define and characterize gene function and inappropriate gene expression in diseases of interest. The Company has also established a group to focus on the development of new and proprietary DNA sequencing technologies that would be capable of accelerating the discovery and validation of targets for drug discovery. Foremost among these are the Massively Parallel Signature Sequencing ("MPSS") and the Massively Parallel Genomic Sequencing ("MPGS") technologies. The first is designed to enable researchers to identify a majority of the genes expressed by living cells whether in culture or in a tissue of interest. The second is designed to enable the simultaneous sequencing of up to a million genomic fragments in order to arrive rapidly at genomic sequences. The Company is currently refining various aspects of the biochemistries and instrumentation needed to implement these technologies. 2. Basis of presentation The accompanying 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. In the opinion of management, the financial statements 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 quarter ended March 31, 1997, are not necessarily indicative of the results for the full year. The unaudited condensed consolidated financial statements include all accounts of the Company. Lynx has dissolved its majority owned subsidiary, LYNXNebraska, Inc., with no consequent impact on the financial statements of Lynx. 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. Page 6 of 9 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 Since its inception in July 1989 (as a division of Applied Biosystems, Inc. or "ABI"), Lynx has devoted its efforts toward research, drug discovery, and development programs. 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 development of its phosphoramidate chemistry, MPSS and MPGS technologies, as well as preclinical studies and clinical trials. 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 and MPGS technologies 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 $1.1 million and $492,000 for the quarters ended March 31, 1997 and 1996 respectively. The 1997 revenue was comprised of $1,063,000 earned under collaborative agreements with corporate partners and $72,000 earned from a government grant. The 1996 revenue was comprised of $375,000 earned under a collaborative agreement with a corporate partner and $117,000 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 $3.1 million and $2.4 million in the quarters ended March 31, 1997 and 1996, respectively. The increase was due to the costs associated with increased research staffing, the amortization of deferred compensation recorded in conjunction with the Agreement of Merger between Lynx and its majority owned subsidiary, Spectragen, Inc. in November Page 7 of 9 1996, and clinical trial costs associated with the LR-3280 compound. 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 $425,000 for the quarter ended March 31, 1997, compared to $544,000 for the quarter ended March 31, 1996. The decrease was due to lower investor relations costs compared to the first quarter of 1996 in which the costs of the reverse stock split were reflected, and to lower headcount-related costs. Lynx expects to continue to incur substantial administrative expenses in support of its research and corporate development efforts. Interest Income Interest income was $171,000 and $187,000 for the quarters ended March 31, 1997 and 1996 respectively. Liquidity and Capital Resources 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. Lynx may receive additional collaborative research payments from its existing partners (Hoechst, Tanabe, Schwarz Pharma and BASF) and an equity investment from Hoechst, subject to achieving the milestones set forth in the various agreements. Net cash used in operating activities of $2.8 million for the quarter ended March 31, 1997, differs from the net loss for the same period primarily due to current period recognition of a portion of previously deferred revenue, 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 the expansion of laboratory facilities and purchases of capital equipment. Lynx expects that future capital expenditures will be commensurate with growth in the employee base. Cash and equivalents were $10.4 million at March 31, 1997. Lynx is currently utilizing its available funds for supporting development of its MPSS technology, funding preclinical research and clinical trials and the planned growth in Lynx's internal efforts toward research, drug discovery, and development programs. 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. The 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 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 partnerships and the availability of alternate methods of financing. Lynx believes that its current capital resources and interest income thereon will enable it to maintain its current and planned operations through at least 1997. From time to time, Lynx may seek to raise additional funding through the sale of its equity securities or through corporate collaborations 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. Page 8 of 9 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 None 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 March 31, 1997. 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: May 9, 1997 /s/ Edward C. Albini ------------------------------------- By: Edward C. Albini Chief Financial Officer (Principal Financial and Accounting Officer) Date: May 9, 1997 Page 9 of 9 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FORM 10-Q PERIOD ENDED MARCH 31, 1997 1,000 3-MOS DEC-31-1997 JAN-1-1997 MAR-31-1997 10,409 0 72 0 0 10,572 7,034 2,590 15,196 4,748 0 17,329 0 27,189 35,830 15,196 0 1,135 0 0 3,500 0 0 (2,194) 0 (2,194) 0 0 0 (2,194) (0.70) (0.70)
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