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HELICOS BIOSCIENCES CORP 10-Q 2009

Documents found in this filing:

  1. 10-Q
  2. Ex-10.1
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.1
  6. Ex-32.1

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)    

ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-33484

HELICOS BIOSCIENCES CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  05-0587367
(I.R.S. Employer
Identification No.)

One Kendall Square, Building 700, Cambridge, MA 02139
(617) 264-1800
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

        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 than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: ý    No: o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: o    No: o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See the definitions of "large accelerated filer, large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company ý

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: o    No: ý

        The number of shares of the registrant's Common Stock, $.001 par value, outstanding as of October 31, 2009, was 72,963,658 shares.


Table of Contents


HELICOS BIOSCIENCES CORPORATION (a development stage company)

Table of Contents

 
   
  Page

Part I—Financial Information

   

Item 1.

 

Consolidated Financial Statements (Unaudited)

   

 

Consolidated Balance Sheets as of December 31, 2008 and September 30, 2009

 
3

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2008 and 2009 and the period from May 9, 2003 (date of inception) through September 30, 2009

 
4

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2009 and the period from May 9, 2003 (date of inception) through September 30, 2009

 
5

 

Notes to Consolidated Financial Statements

 
6

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 
14

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 
26

Item 4.

 

Controls and Procedures

 
26

Part II—Other Information

   

Item 1.

 

Legal Proceedings

 
27

Item 1A.

 

Risk Factors

 
27

Item 2.

 

Unregistered Sale of Equity Securities and Use of Proceeds

 
29

Item 3.

 

Defaults upon Senior Securities

 
31

Item 4.

 

Submission of Matters to a Vote of Security Holders

 
31

Item 5.

 

Other Information

 
31

Item 6.

 

Exhibits

 
31

SIGNATURES

 
32

2


Table of Contents


Part I—Financial Information

Item 1.    Consolidated Financial Statements

        


HELICOS BIOSCIENCES CORPORATION (a development stage company)

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share and per share data)

 
  December 31,
2008
  September 30,
2009
 

ASSETS

             

Current assets

             
 

Cash and cash equivalents

  $ 19,713   $ 11,469  
 

Accounts receivable

    223     52  
 

Unbilled government grant receivable

    205     13  
 

Inventory

    6,830     7,778  
 

Prepaid expenses and other current assets

    235     590  
           
     

Total current assets

    27,206     19,902  

Property and equipment, net

    4,016     2,137  

Restricted cash

    225     225  

Other assets

    13     83  
           
     

Total assets

  $ 31,460   $ 22,347  
           

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current liabilities

             
 

Accounts payable

  $ 789   $ 764  
 

Accrued expenses and other current liabilities

    1,652     1,660  
 

Deferred revenue

    623     25  
 

Current portion of long-term debt

    3,323     2,856  
           
     

Total current liabilities

    6,387     5,305  

Long-term debt, net of current portion

    4,535     2,733  

Warrants

        5,202  

Other long-term liabilities

    35      
           
     

Total liabilities

    10,957     13,240  

Commitments and contingencies

             

Stockholders' equity

             
 

Preferred stock: par value $0.001 per share; 5,000,000 shares authorized at December 31, 2008 and September 30, 2009; no shares issued and outstanding at December 31, 2008 and September 30, 2009

         
 

Common stock: par value $0.001 per share; 120,000,000 shares authorized at December 31, 2008 and September 30, 2009; 63,808,282 and 72,949,697 shares issued and outstanding at December 31, 2008 and September 30, 2009, respectively

    64     73  
 

Additional paid-in capital

    160,144     168,491  
 

Deficit accumulated during the development stage

    (139,705 )   (159,457 )
           
     

Total stockholders' equity

    20,503     9,107  
           
     

Total liabilities and stockholders' equity

  $ 31,460   $ 22,347  
           

The accompanying notes are an integral part of the interim consolidated financial statements.

3


Table of Contents


HELICOS BIOSCIENCES CORPORATION (a development stage company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share data)

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  Period from
May 9, 2003
(date of inception)
through
September 30, 2009
 
 
  2008   2009   2008   2009  

Product revenue

  $   $ 1,100   $   $ 2,221   $ 2,257  

Grant revenue

    202     13     566     465     1,978  
                       
   

Total revenue

    202     1,113     566     2,686     4,235  
                       

Costs and expenses

                               
 

Cost of product revenue

        451         1,096     1,106  
 

Research and development

    5,644     3,513     18,432     11,145     87,505  
 

Selling, general and administrative

    5,403     3,145     16,417     8,728     56,683  
                       
 

Total costs and expenses

    11,047     7,109     34,849     20,969     145,294  
                       
   

Operating loss

    (10,845 )   (5,996 )   (34,283 )   (18,283 )   (141,059 )
 

Interest income

    124     5     607     67     4,126  
 

Interest expense

    (734 )   (246 )   (1,464 )   (826 )   (3,674 )
 

Change in fair value of warrant liability

        (710 )       (710 )   (710 )
                       
   

Net loss

    (11,455 )   (6,947 )   (35,140 )   (19,752 )   (141,317 )

Beneficial conversion feature related to Series B redeemable convertible preferred stock

                    (18,140 )
                       

Net loss attributable to common stockholders

  $ (11,455 ) $ (6,947 ) $ (35,140 ) $ (19,752 ) $ (159,457 )
                       

Net loss attributable to common stockholders per share—basic and diluted

  $ (0.55 ) $ (0.11 ) $ (1.70 ) $ (0.31 )      
                         

Weighted average number of common shares used in computation—basic and diluted

    20,741,822     64,837,332     20,719,026     63,969,719        
                         

The accompanying notes are an integral part of the interim consolidated financial statements.

4


Table of Contents


HELICOS BIOSCIENCES CORPORATION (a development stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands, except share data)

 
  Nine Months Ended
September 30,
  Period from
May 9, 2003
(date of inception)
through
September 30, 2009
 
 
  2008   2009  

Cash flows from operating activities:

                   

Net loss

  $ (35,140 ) $ (19,752 ) $ (141,317 )
 

Adjustments to reconcile net loss to cash used in operating activities:

                   
 

Depreciation and amortization

    1,847     1,887     7,618  
 

Amortization of lease incentive

    (112 )   (101 )   (466 )
 

Common stock issued for licenses

            147  
 

Stock-based compensation expense

    3,522     3,432     12,861  
 

Noncash interest expense related to debt and warrants

    335     255     807  
 

Noncash expense related to change in fair value of warrant liability

        710     710  
 

Provisions on inventory

            1,577  

Changes in operating assets and liabilities:

                   
 

Accounts receivable

        171     (52 )
 

Unbilled government grant receivable

    (85 )   192     (13 )
 

Inventory

    (6,051 )   (948 )   (9,610 )
 

Prepaid expenses and other current assets

    295     (355 )   (590 )
 

Deferred revenue

        (598 )   25  
 

Accounts payable

    (313 )   (25 )   764  
 

Accrued expenses and other current liabilities

    551     123     1,952  
 

Other long-term liabilities

    (148 )   (31 )   161  
               
   

Net cash used in operating activities

    (35,299 )   (15,040 )   (125,426 )
               

Cash flows from investing activities:

                   

Purchases of property and equipment

    (2,799 )   (8 )   (9,500 )

Purchase of intangible asset

        (75 )   (75 )

Increase in restricted cash

    (10,000 )       (225 )

Purchases of short-term investments

            (34,709 )

Maturities of short-term investments

            34,709  
               

Net cash used in investing activities

    (12,799 )   (83 )   (9,800 )
               

Cash flows from financing activities:

                   

Proceeds from debt issuances

    9,850         22,256  

Payments on debt

    (2,062 )   (2,516 )   (16,786 )

Payments of debt issuance costs

    (20 )       (194 )

Proceeds from initial public offering

            49,011  

Deferred initial public offering costs

            (1,838 )

Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs

            66,405  

Proceeds from bridge loan

            350  

Proceeds from issuance of common stock and common stock warrants

        9,353     27,164  

Proceeds from issuance of restricted common stock

            339  

Payments to employees for cancelled restricted common stock

    (47 )       (104 )

Proceeds from exercise of stock options

    12     42     92  
               

Net cash provided by financing activities

    7,733     6,879     146,695  
               

Net (decrease) increase in cash and cash equivalents

    (40,365 )   (8,244 )   11,469  

Cash and cash equivalents, beginning of period

    52,683     19,713      
               

Cash and cash equivalents, end of period

  $ 12,318   $ 11,469   $ 11,469  
               

Supplemental disclosure of cash flow information

                   

Cash paid during the year for interest

  $ 947   $ 667   $ 2,448  

Transfers from inventory to property and equipment

  $   $   $ 255  

Noncash financing activities:

                   

Issuance of redeemable convertible preferred stock warrants

  $   $   $ 95  

Issuance of common stock warrants

  $ 337   $ 4,492   $ 10,513  

Number of common stock shares issued upon exercise of warrants

        3,110,184     3,110,184  

Change in fair value of warrant liability

  $   $ 710   $ 710  

Conversion of bridge loan to equity

  $   $   $ 350  

Beneficial conversion feature related to Series B redeemable convertible preferred stock

  $   $   $ 18,140  

Conversion of preferred stock to common stock

  $   $   $ 66,755  

Reclassification of preferred stock warrants to common stock warrants

  $   $   $ 162  

Cashless exercise of common stock warrants

  $   $   $  

The accompanying notes are an integral part of the interim consolidated financial statements.

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Table of Contents


HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Nature of the Business and Basis of Presentation

        Helicos BioSciences Corporation ("Helicos" or the "Company") is a life sciences company focused on innovative genetic analysis technologies for the research, drug discovery and clinical diagnostics markets. Helicos has developed a proprietary technology to enable the rapid analysis of large volumes of genetic material by directly sequencing single molecules of DNA or RNA. Helicos is a Delaware corporation and was incorporated on May 9, 2003.

        The Company has had limited operations to date and its activities have consisted primarily of raising capital, conducting research and development and recruiting personnel. Accordingly, the Company is considered to be in the development stage at September 30, 2009, as defined by the Financial Accounting Standards Board ("FASB"). The Company's fiscal year ends on December 31. The Company operates as one reportable segment.

        As previously disclosed, the Company engaged Thomas Weisel Partners LLC (TWP), a nationally recognized investment bank, to assist the Company with its evaluation and execution of strategic alternatives. Based on the Company's improving standalone prospects and its current market valuation, the Board of Directors has decided to disengage from discussions involving a potential sale of the Company at the current time. The Company continues to work with TWP as a financial advisor in connection with its long term financing strategy. The Company's failure to raise capital as and when needed would have a material negative impact on its financial condition and would have a material adverse impact on the viability of the Company to continue as a going concern.

        Since inception, the Company has incurred losses and has not generated positive cash flows from operations. The Company expects such losses to continue for at least two years as it continues to develop and commercialize its products. During the quarter ended September 30, 2009, the Company completed a private placement through the sale of shares of its common stock and warrants to certain new and existing investors. The offering raised approximately $9.4 million in net proceeds, after deducting placement agent fees and offering expenses. As of September 30, 2009 and November 9, 2009, the Company had $11.5 million and $8.4 million, respectively, in cash and cash equivalents. In addition, the Company expects to receive approximately $5.0 million in cash receipts from customers during the fourth quarter of 2009 and the first quarter of 2010. The Company believes that its existing cash and cash equivalents and receipts from customers on sales of products will be sufficient to fund its operations through the first quarter of 2010. If the Company's current operating plan including forecasted sales for the remainder of 2009 and the first quarter of 2010 does not materialize or if adequate additional funds are not available when required, the Company will be required to further delay, reduce or eliminate research and development programs, reduce or eliminate commercialization efforts, obtain funds through arrangements with collaborators or others on terms unfavorable to the Company, or pursue divestiture or other strategies.

        The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles ("GAAP") in the United States of America. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated.

        The preparation of financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses,

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HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

1. Nature of the Business and Basis of Presentation (Continued)


and related disclosure of contingent liabilities at the dates of the financial statements. Actual amounts may differ from these estimates, different assumptions or conditions.

        It is management's opinion that the accompanying interim consolidated financial statements reflect all adjustments (which are normal and recurring) that are necessary for a fair statement of the results for the interim periods. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2008 included in the Company's Form 10-K.

2. Summary of Significant Accounting Policies

        The Company's significant accounting policies were identified in its Form 10-K for the fiscal year ended December 31, 2008.

Revenue recognition

        Government research grants that provide for payments to the Company for work performed are recognized as revenue when the related expenses are incurred.

        The Company recognizes revenue when persuasive evidence of a sales arrangement exists; delivery of goods occurs through transfer of title and risk and rewards of ownership, the selling price is fixed or determinable and collectibility is reasonably assured.

        In instances where the Company sells instruments with a related installation obligation, the Company will allocate the revenue between the instrument and the installation based on relative fair value at the time of the sale. The instrument revenue will be recognized when title and risk of loss passes. The installation revenue will be recognized when the installation is performed. If fair value is not available for any undelivered element, revenue for all elements is deferred until delivery and installation are complete.

        In instances where the Company sells an instrument with specified acceptance criteria, the Company will defer revenue recognition until such acceptance has been obtained.

        The customer may also purchase a service contract. Revenue from service contracts will be recognized ratably over the service period.

        During the nine months ended September 30, 2009, the Company obtained customer acceptance on two instrument systems. The first instrument system was previously shipped to a customer in 2008 and the second instrument system was shipped to a customer in 2009. Accordingly, the Company recognized product revenue of $1.8 million during the nine months ended September 30, 2009. In addition, product revenue includes $377,000 of revenue recognized from the sale of proprietary reagents to customers in the nine months ended September 30, 2009.

Recent Accounting Pronouncements

        In December 2007, the FASB issued new accounting guidance which requires an acquiring company to measure all assets acquired and liabilities assumed, including contingent considerations and all contractual contingencies, at fair value as of the acquisition date. In addition, an acquiring company

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HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

2. Summary of Significant Accounting Policies (Continued)


is required to capitalize in-process research and development and either amortize it over the life of the product, or write it off if the project is abandoned or impaired. The new accounting guidance is effective for transactions occurring on or after January 1, 2009. The adoption of this new accounting guidance did not have a material impact on the Company's consolidated financial statements during the nine months ended September 30, 2009. However, it will affect the accounting for any acquisition in the future.

        Effective January 1, 2008, the Company implemented new accounting guidance related to fair value measurement for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. Effective January 1, 2009, the Company implemented new accounting guidance related to fair value measurement as it relates to the Company's non-financial assets and non-financial liabilities that are recognized and disclosed at fair value in the financial statements. The adoption of this new accounting guidance to the Company's financial and non-financial assets and liabilities and non-financial assets and liabilities that are re-measured and reported at fair value at least annually did not have an impact on the Company's financial results in any period.

        In April 2009, the FASB issued new accounting guidance which requires disclosures about fair value of financial instruments in interim as well as in annual financial statements. This new requirement was effective for periods ending after June 15, 2009. There was no significant impact to the Company's consolidated financial statements from the adoption of this new requirement.

        In June 2009, the Company adopted a new accounting standard, which establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued. The adoption of this standard did not impact the Company's financial position or results of operations. Management evaluated all events or transactions that occurred after September 30, 2009 up through November 9, 2009, the date these financial statements were issued. During this period, the Company did not have any material recognizable subsequent events.

        Also in June 2009, the FASB issued the FASB Accounting Standards Codification ("Codification"). The Codification will become the single source for all authoritative GAAP recognized by the FASB to be applied for financial statements issued for interim or annual reporting periods ending after September 15, 2009. The Codification does not change GAAP and will not have an effect on the Company's financial position or results of operations.

        In October 2009, the FASB issued an amendment to the accounting guidance for revenue arrangements with multiple deliverables. This guidance provides principles for allocation of consideration among its multiple-elements, allowing more flexibility in identifying and accounting for separate deliverables under an arrangement. The guidance introduces an estimated selling price method for valuing the elements of a bundled arrangement if vendor-specific objective evidence or third-party evidence of selling price is not available, and significantly expands related disclosure requirements. This guidance is effective on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Alternatively, adoption may be on a retrospective basis, and early application is permitted. The Company is currently evaluating the impact of adopting this pronouncement.

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Table of Contents


HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

2. Summary of Significant Accounting Policies (Continued)

        In October 2009, the FASB issued an amendment to the accounting standards related to certain revenue arrangements that include software elements. This standard clarifies the existing accounting guidance such that tangible products that contain both software and non-software components that function together to deliver the product's essential functionality, shall be excluded from the scope of the software revenue recognition accounting standards. Accordingly, sales of these products may fall within the scope of other revenue recognition accounting standards or may now be within the scope of this standard and may require an allocation of the arrangement consideration for each element of the arrangement. This standard, for which the Company is currently assessing the impact, will become effective for the Company on January 1, 2011.

3. Inventory

        Inventories are stated at the lower of cost or market with cost determined under the first-in, first-out, or FIFO, method. The components of inventory are as follows (in thousands):

 
  December 31,
2008
  September 30,
2009
 

Raw materials

  $ 1,277   $ 1,375  

Work in process

    3,238     1,081  

Finished goods

    2,315     5,322  
           

Total inventory

  $ 6,830   $ 7,778  
           

4. Net Loss per Share

        Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. The Company's potential dilutive shares, which include outstanding common stock options, unvested restricted stock and warrants, have not been included in the computation of diluted net loss per share for all periods as the result would be antidilutive. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share. Such potential common shares consist of the following:

 
  September 30,  
 
  2008   2009  

Stock options

    3,077,628     4,812,764  

Unvested restricted stock

    339,903     1,501,838  

Warrants

    110,000     24,294,589  
           

    3,527,531     30,609,191  
           

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HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

5. Stock-Based Compensation

        The Company recognized stock-based compensation expense on all employee and non-employee awards as follows:

 
  Three months ended
September 30,
  Nine months ended
September 30,
 
 
  2008   2009   2008   2009  

($ in thousands)

                         

Selling, general and administrative

  $ 931   $ 818   $ 2,552   $ 2,220  

Research and development

    318     419     970     1,212  
                   

Total stock-based compensation expense

  $ 1,249   $ 1,237   $ 3,522   $ 3,432  
                   

        During the nine months ended September 30, 2008, the Company granted 148,333 stock options at an exercise price of $12.36 per share, 50,600 stock options at an exercise price of $6.15 per share, 23,812 stock options at an exercise price of $6.99 per share, 151,850 stock options at an exercise price of $5.93 per share, 44,718 stock options at an exercise price of $4.93 per share, 448,367 stock options at an exercise price of $4.81, 113,611 stock options at an exercise price of $4.77, 150,000 stock options at an exercise price of $4.40, and 300 stock options at an exercise price of $3.70. During the nine months ended September 30, 2008, the Company granted 190,000 shares of restricted stock.

        In connection with the Company's 2008 Corporate Retention Program, in the first quarter of 2009, the Company granted stock options and restricted stock to all employees. During the nine months ended September 30, 2009, the Company granted 1,409,521 stock options at an exercise price of $1.04 per share, 82,260 stock options at an exercise price of $0.78 per share, 100,000 stock options at an exercise price of $0.62 per share, 5,000 stock options at an exercise price of $0.54 per share, 233,330 stock options at an exercise price of $0.79 per share, and 783,696 at an exercise price of $2.72 per share. During the nine months ended September 30, 2009, the Company granted 1,749,591 shares of restricted stock.

        For the nine months ended September 30, 2008 and 2009, the fair value of stock options was estimated on the date of grant using the Black-Scholes option valuation model with the following assumptions:

 
  Nine months ended
September 30,
 
 
  2008   2009  

Expected volatility

    65.5 %   63.2 %

Expected option life

    6 years     6 years  

Weighted average risk-free interest rate

    3.0 %   2.2 %

Expected annual dividend yield

    none     none  

6. Fair Value Measurement

        The Company considers all highly liquid investments with original maturities of generally three months or less at the time of acquisition to be cash equivalents. Cash equivalents are stated at cost, which approximates fair market value. The Company classifies marketable securities as

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HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

6. Fair Value Measurement (Continued)


available-for-sale. These securities are carried at fair market value with unrealized gains and, to the extent deemed temporary, unrealized losses, reported as a component of other comprehensive gain or loss in stockholders' equity. Realized gains or losses on securities sold are based on the specific identification method.

        Marketable securities are considered to be impaired when a decline in fair value below cost basis is determined to be other-than-temporary. The Company evaluates whether a decline in fair value below cost basis is other-than-temporary using available evidence regarding its investments. In the event that the cost basis of a security significantly exceeds its fair value, the Company evaluates, among other factors, the duration of the period that, and extent to which, the fair value is less than cost basis, the financial health of and business outlook for the issuer, including industry and sector performance, and operational and financing cash flow factors, overall market conditions and trends, the Company's intent to sell the investment and if it is more likely than not that the Company would be required to sell the investment before its anticipated recovery. Once a decline in fair value is determined to be other-than-temporary, a write-down is recorded in the consolidated statements of operations and a new cost basis in the security is established. In April 2009, the Company adopted new accounting guidance which provides additional guidance in assessing the credit and noncredit component of an other-than-temporary impairment event for debt securities and modifies the presentation and disclosures when an other-than-temporary impairment event for debt securities has occurred. The adoption of this new accounting guidance did not have a significant impact on the Company's financial statements.

        The Company's assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2009 and December 31, 2008 are measured in accordance with FASB standards. Fair values determined by Level 1 inputs utilize observable data such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the reporting entity to develop its own assumptions.

        At December 31, 2008, the Company's cash and cash equivalents consisted entirely of cash deposits. The following table represents the Company's assets and liabilities measured at fair value on a recurring basis at September 30, 2009:

 
  Quoted Prices
in Active
Markets
(Level 1)
  Other
Observable
Inputs
(Level 2)
  Unobservable
Inputs
(Level 3)
  Total  

($ in thousands)

                         

Money market funds

  $   $ 3,052   $   $ 3,052  

Warrant liability

            5,202     5,202  
                   

  $   $ 3,052   $ 5,202   $ 8,254  
                   

        The Company's cash equivalents were valued at September 30, 2009 using calculated net asset values and are therefore classified as Level 2. The Company's warrant liability was valued at September 30, 2009 using a Black-Scholes model and is therefore classified as Level 3.

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HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

6. Fair Value Measurement (Continued)

        The following tables roll forward the fair value of our warrant liability, whose fair value is determined by Level 3 inputs for the 2009 periods presented:

Balance at June 30, 2009

  $  
       
 

Issuance of new warrants

    4,492  
 

Change in fair value

    710  
       

Balance at September 30, 2009

  $ 5,202  
       

Balance at December 31, 2008

  $  
       
 

Issuance of new warrants

    4,492  
 

Change in fair value

    710  
       

Balance at September 30, 2009

  $ 5,202  
       

        The valuation of the warrant liability is discussed further in Note 7.

        The carrying amount of the Company's debt approximates its fair value at December 31, 2008 and September 30, 2009.

7. Common Stock and Warrant Liability

        In September 2009, the Company entered into a securities purchase agreement with certain investors pursuant to which it (i) sold to certain existing investors a total of 1,030,028 units, each unit consisting of (a) one share of common stock (collectively, the "Shares") and (b) one warrant (collectively, the "Warrants") to purchase 0.662 shares of common stock at an exercise price equal to $2.61 per share (105% of the closing bid price of the common stock on September 15, 2009), each such unit to be at a purchase price equal to $2.57 per unit, and (ii) sold to certain new investors a total of 3,281,252 units, each unit consisting of (a) one share of common stock and (b) one warrant to purchase 0.50 shares of common stock at an exercise price equal to $2.61 per share, each such unit to be at a purchase price equal to $2.24 per unit (together, the "September 2009 Offering"). The closing of the transaction occurred on September 18, 2009. In connection with the September 2009 Offering, the Company raised approximately $10.0 million in gross proceeds. After paying $646,000 in placement agent fees and offering expenses, the net proceeds were $9.4 million.

        In connection with the September 2009 Offering, the Company issued warrants to purchase an aggregate of 2,322,509 shares of common stock which become exercisable on or after the six month anniversary following the closing of the transaction. The warrants have an exercise price of $2.61 per share and have a five and a half year term. The fair value of the warrants was estimated at $4.5 million using a Black-Scholes model with the following assumptions: expected volatility of 100%, risk free interest rate of 2.49%, expected life of five and a half years and no dividends. Expected volatility was based on the volatility contractually specified in the warrant agreements. Due to a price adjustment clause included in the warrant agreements, the warrants were deemed to be a liability and, therefore, the fair value of the warrants was recorded in the liability section of the balance sheet. As such, the warrants will be revalued each reporting period, with the resulting gains and losses recorded as the change in fair value of warrant liability on the statement of operations. The change in the fair value of the warrant liability from the closing date of September 18, 2009 through the end of the current period

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HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

7. Common Stock and Warrant Liability (Continued)


of September 30, 2009 resulted in a charge of approximately $710,000 for the quarter ended September 30, 2009.

        In connection with the September 2009 Offering, the Company entered into a registration rights agreement (the "Registration Rights Agreement") with each of the investors. The Registration Rights Agreement provides that the Company will file a "resale" registration statement (the "Initial Registration Statement") covering all of the Shares and the shares issuable upon exercise of the Warrants (the "Warrant Shares"), up to the maximum number of shares able to be registered pursuant to applicable Securities and Exchange Commission ("SEC") regulations, within 15 days of the closing of the September 2009 Offering. The Company currently maintains an effective registration statement relating to these shares (File No. 333-162240). Under the terms of the Registration Rights Agreement, the Company is obligated to maintain the effectiveness of the "resale" registration statement until all securities therein are sold or are otherwise can be sold pursuant to Rule 144, without any restrictions. A cash penalty at the rate of 2% per month will be triggered for any filing or effectiveness failures or 1% in the event of suspensions of prospectus delivery or if, at any time after six months following the closing of the September 2009 Offering, the Company ceases to be current in its periodic reports with the SEC. The aggregate penalty accrued with respect to each investor may not exceed 12% of the original purchase price paid by that investor. The Company has not recorded an amount associated with the contingent obligation regarding the cash penalties as of September 30, 2009.

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

        This quarterly report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In particular, statements contained in this Form 10-Q, including but not limited to, statements regarding our future results of operations and financial position, business strategy and plan prospects, projected revenue or costs and objectives of management for future research, development or operations, are forward-looking statements. These statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as "may," "will," "should," "expects," "plans," "anticipates," "intends," "targets," "projects," "contemplates," "believes," "seeks," "goals," "estimates," "predicts," "potential" and "continue" or similar words. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under Part II, Item 1A. "Risk Factors" and elsewhere herein. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

Business Overview

        We are a life sciences company focused on innovative genetic analysis technologies for the research, drug discovery and clinical diagnostics markets. Our products are based on our proprietary True Single Molecule Sequencing (tSMS)™ technology which enables rapid analysis of large quantities of genetic material by directly sequencing single molecules of DNA or single DNA copies of RNA. This approach differs from current methods of sequencing DNA because it analyzes individual molecules of DNA directly instead of analyzing a large number of copies of the molecule produced through complex sample preparation techniques. Our tSMS technology eliminates the need for costly, labor-intensive and time-consuming sample preparation techniques, such as amplification or cloning, which are required by other methods to produce a sufficient quantity of genetic material for analysis.

        We believe that our tSMS technology will represent the first comprehensive and universal solution for single molecule genetic analysis and that its adoption can expand the market for genetic analysis while substantially lowering the cost of individual analyses. Our goal is to enable production-level genetic analysis on an unprecedented scale by providing scientists and clinicians with the ability to compare genes and genomes from thousands of individuals. If our tSMS-based products are successful, the information generated from using these products may lead to improved drug therapies, personalized medical treatments and more accurate diagnostics for cancer and other diseases.

        Our Helicos® Genetic Analysis Platform is designed to obtain sequencing information by repetitively performing a cycle of biochemical reactions on individual DNA molecules and imaging the results after each cycle. The platform consists of an instrument called the HeliScope™ Single Molecule Sequencer, an image analysis computer tower called the HeliScope™ Analysis Engine, associated reagents, which are chemicals used in the sequencing process, and disposable supplies.

        The imaging capability of the HeliScope Sequencer is designed to accommodate performance beyond what is needed to meet the platform's initial goals, providing the flexibility to introduce substantial throughput and cost improvements in the future without major changes to or replacement of the instrument. We believe that the Helicos Genetic Analysis Platform will ultimately enable the automated, parallel sequencing of billions of individual DNA molecules at greater speed and lower cost than other sequencing systems.

        As previously disclosed, we engaged Thomas Weisel Partners LLC (TWP), a nationally recognized investment bank, to assist us with our evaluation and execution of strategic alternatives. Based on our

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improving standalone prospects and current market valuation, the Board of Directors has decided to disengage from discussions involving a potential sale of our company at the current time. We continue to work with TWP as a financial advisor in connection with our long term financing strategy. Our failure to raise capital as and when needed would have a material negative impact on our financial condition and would have a material adverse impact on the viability of our company to continue as a going concern.

        We shipped our first two Helicos Systems in 2008, one of which was ultimately returned. As we exited the third quarter of 2009, we have received cumulative sales orders for seven Helicos Systems. In addition, we have one system installed at the Broad Institute, Inc. on a no cost basis, and have three systems at leading academic institutions for scientific and commercial evaluation. During 2009, we have recognized revenue on two of the seven sales orders.

        We believe that we have incurred the substantial majority of the costs related to the development of the initial version of our Helicos System. In anticipation of future orders, shipments and placements, we are assembling and are testing multiple production units of our Helicos System. These future shipments, as well as shipments that have occurred but have not yet generated revenue, of the Helicos Systems will be subject to various customer evaluation periods with acceptance criteria, and we expect the customer evaluation period to extend beyond the fiscal quarters in which commercial units are shipped. We continue to secure orders for the Helicos System and recognized revenue from two of our instrument shipments during the nine months ended September, 30 2009. Future revenues from sales of our instruments, proprietary reagents and disposable supplies will depend on individual customer agreements, timing of the installation and turnover to customer, customers' use of the system and our ability to maintain our proprietary position on the reagents and disposable supplies. Because we have limited experience in the commercialization of our Helicos System, we cannot predict the percentage of our revenues that we will derive from sales of proprietary reagents and disposable supplies. However, over time we would expect the sales of the reagents and disposable supplies to increase as our installed base of instruments grows and usage of these instruments increases.

        In December 2008, we raised approximately $17.8 million, after deducting placement agent fees and estimated offering expenses, through the issuance of 42,753,869 units, each unit consisting of (i) one share of common stock and (ii) one warrant to purchase 0.6 shares of common stock at an exercise price of $0.45 per share, for a purchase price of $0.435 per unit. Also during December 2008, we implemented a 30% reduction in our workforce and took other measures to reduce our future operating costs (the "Reduction in Force Plan"). In September 2009, we raised approximately $9.4 million, after deducting placement agent fees and offering expenses, through the issuance of 4,311,280 shares of common stock and warrants to acquire up to 2,322,509 shares of common stock for an exercise price of $2.61 per share. Our cash flow from operations during the first nine months of 2009 was a negative $15.0 million. Since inception, we have incurred losses and have not generated positive cash flows from operations. We expect such losses from operations to continue for at least two years as we continue to develop and commercialize our products. As of September 30, 2009 and November 9, 2009, we had $11.5 million and $8.4 million, respectively, in cash and cash equivalents. In addition, we expect to receive approximately $5.0 million in cash receipts from customers during the fourth quarter of 2009 and the first quarter of 2010. We believe that our existing cash and cash equivalents and receipts from customers on sales of products will be sufficient to fund our operations through the first quarter of 2010. If our current operating plan including forecasted sales for the remainder of 2009 and the first quarter of 2010 does not materialize or if adequate additional funds are not available when required, we will be required to further delay, reduce or eliminate research and development programs, reduce or eliminate commercialization efforts, obtain funds through arrangements with collaborators or others on terms unfavorable to us, or pursue divestiture or other strategies.

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        We were incorporated in Delaware in May 2003 under the name RareEvent Medical Corporation, renamed Newco LS6, Inc. in September 2003 and ultimately renamed Helicos BioSciences Corporation in November 2003. Our activities to date have consisted primarily of conducting research and development. Accordingly, we are considered to be in the development stage at September 30, 2009. Our fiscal year ends on December 31, and we operate as one reportable segment. Our corporate offices are located at One Kendall Square, Building 700, Cambridge, Massachusetts 02139.

Financial Overview

Grant revenue

        In September 2006, we were awarded a grant from the National Human Genome Research Institute (NHGRI), a branch of the National Institutes of Health (NIH), pursuant to which we are eligible to receive reimbursement of our research expenses of up to $2.0 million through August 2009. We recognized revenue during the three months ended September 30, 2008 and 2009 of $202,000 and $2,000, respectively, in connection with this award. During the nine months ended September 30, 2008 and 2009, we recognized revenue of $566,000 and $454,000, respectively, in connection with this award. We have fully expended all available funds under the grant as of September 30, 2009.

        In September 2009, we were awarded another grant from the NHGRI, pursuant to which we are eligible to receive reimbursement of our research expenses of up to $2.9 million through August 2011. The two year grant is part of the Sequencing Technology Development Program representing NHGRI's Signature Project for the American Recovery and Reinvestment Act's effort to jumpstart the economy and create or save millions of jobs. This project, a part of NIH's "Grand Opportunities" program, is designed to support large-scale, high impact research projects that are expected to accelerate critical scientific breakthroughs and enable growth and investment in biomedical research and development. We recognized revenue during the three and nine months ended September 30, 2009 of $11,000, in connection with this award.

Product revenue

        Product revenue for the nine months ended September 30, 2009 primarily consists of $1.8 million of revenue recognized from the sale of two instrument systems. The first instrument system was previously shipped to a customer in 2008 and the second instrument system was shipped to a customer in 2009. Product revenue also includes $377,000 of revenue recognized from the sale of proprietary reagents to customers in the nine months ended September 30, 2009.

Cost of product revenue

        Cost of product revenue for the nine months ended September 30, 2009 primarily consists of costs associated with the sale of instruments and proprietary reagents.

Research and development expenses

        Research and development expenses consist of costs associated with scientific research activities, and engineering development efforts. Such costs primarily include salaries, benefits and stock-based compensation; lab and engineering supplies; investment in equipment; consulting fees; and facility related costs, including rent and depreciation. During the nine months ended September 30, 2009, research and development expenses also included labor and overhead costs associated with the under-utilization of the manufacturing facility.

        Substantially all research and development expenses since our inception have been in connection with the launch of the initial version of the Helicos™ Genetic Analysis System and we believe that we have incurred the substantial majority of the development costs associated with the commercial launch

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of the first generation of the Helicos System through December 2007. However, additional costs were incurred during 2008 and the first nine months of 2009 to both maintain and enhance the initial version of the Helicos System in addition to development of new and different genetic analysis assays which will extend the capability of the initial version.

        Research and development expenses for the nine months ended September 30, 2008 and 2009 were $18.4 million and $11.1 million, respectively. From 2008 to 2009, expenses decreased in connection with the Reduction in Force Plan implemented in December 2008, as we focused more of our efforts on manufacturing activities and spent less time and resources on research and development activities.

        In addition to our ongoing research and development efforts, we have incurred start-up manufacturing costs related to the assembly, testing and performance validation of the Helicos System. These costs were accounted for as research and development expenses in our pre-commercialization phase as we prepared to ship the first Helicos System, which occurred on March 5, 2008. We reached technological feasibility of the Helicos System in December 2007 and, as a result, we began to record the cost of the Helicos System in inventory.

        We believe that the Helicos System can potentially access a wide range of genetic analysis tests useful to the basic, pharmaceutical, and biomedical research and diagnostic markets. In addition, we have envisioned a series of performance enhancements to the chemistries and consumables used on the initial Helicos System which potentially serve to greatly enhance the sequencing throughput. Each of these research and development projects is dependent upon achieving technical objectives, which are inherently uncertain. As a result of these uncertainties, we are unable to predict to what extent we will receive cash inflows from the sale of future tests or from the future enhanced throughput. Our inability to complete these new research and development projects in a timely manner would significantly increase our capital requirements and would adversely impact our liquidity.

Selling, general and administrative expenses

        Selling, general and administrative expenses consist principally of salaries, benefits and stock-based compensation, consulting and professional fees, including patent related costs, general corporate costs and facility costs not otherwise included in research and development expenses or cost of product revenue.

        Selling, general and administrative expenses for the nine months ended September 30, 2008 and 2009 were $16.4 million and $8.7 million, respectively. The decrease is due to the Reduction in Force Plan implemented in December 2008, as well as a significant reduction in costs associated with ERP system enhancements, public company expenses, investor relations programs, and outside consultant costs related to Sarbanes-Oxley compliance.

Restructuring

        In December 2008, we implemented a work force reduction plan that resulted in the reduction of approximately 30% of our workforce (the "Reduction in Force Plan"). The Reduction in Force Plan was designed to reduce our operating costs and direct our resources to continue advancing towards our near term goals. Employees directly affected by the Reduction in Force Plan were provided with severance payments and outplacement assistance.

        We incurred restructuring charges relating to one-time termination benefits of approximately $433,000 in the fourth quarter of 2008. These charges represent employee severance and termination costs which were paid out during the fourth quarter of 2008 and the first quarter of 2009.

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        A summary of restructuring activity at September 30, 2009 is as follows:

 
  Balance
December 31, 2008
  Payments/
Settlements
  Balance
September 30,
2009
 

($ in thousands)

                   

Employee severance, benefits and related costs:

                   
 

Research and development

  $ 69   $ (69 ) $  
 

Selling, general and administrative

    64     (64 )    
               
 

Total

  $ 133   $ (133 ) $  
               

Overview of Results of Operations

Three and nine months ended September 30, 2008 compared to three and nine months ended September 30, 2009

        Grant revenue.    We recognized $202,000 and $566,000 of grant revenue during the three and nine months ended September 30, 2008, respectively, and $13,000 and $465,000 of grant revenue during the three and nine months ended September 30, 2009, respectively. Grant revenue recognized during the three and nine months ended September 30, 2008 and 2009 related to the reimbursement of expenses in connection with our government research grants.

        Product revenue.    We did not recognize product revenue during the three and nine months ended September 30, 2008. We recognized $1.1 million and $2.2 million of product revenue during the three and nine months ended September 30, 2009, respectively. Product revenue recognized during the three months ended September 30, 2009 primarily consists of $1.0 million of revenue from the sale of an instrument that was shipped during the second quarter of 2009. Product revenue recognized during the nine months ended September 30, 2009 primarily consists of $1.8 million of revenue recognized from the sale of two instrument systems, while the remaining amount consists of revenue from the sale of proprietary reagents to customers.

        Cost of product revenue.    We did not record any cost of product revenue during the three and nine months ended September 30, 2008. We recorded $451,000 and $1.1 million as cost of product revenue during the three and nine months ended September 30, 2008 and 2009, respectively. Cost of product revenue consists of costs associated with the sale and placement of instruments and sale of proprietary reagents.

        Research and development expenses.    Research and development expenses during the three and nine months ended September 30, 2008 and 2009 were as follows:

 
  Three months
ended
September 30,
   
   
  Nine months
ended
September 30,
   
   
 
 
  2008   2009   Change   2008   2009   Change  

($ in thousands)

                                                 

Research and development

  $ 5,644   $ 3,513   $ (2,131 )   -38 % $ 18,432   $ 11,145   $ (7,287 )   -40 %

        Research and development expenses decreased by $2.1 million from the three months ended September 30, 2008 to the three months ended September 30, 2009. The majority of the decrease was due to a $926,000 decrease in product development costs, that included lab expenses, materials, supplies, temporary help and prototype expenses and was driven by cost reductions identified as part of the Reduction in Force Plan implemented in December 2008. In addition to our overall reduction in operating costs, our product development costs decreased as we moved toward manufacturing and

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production activities. Also contributing to the decrease in research and development expenses was a $627,000 decrease in the charge for labor and overhead costs associated with the under-utilization of the manufacturing facility. In addition, our salary and benefit expenses decreased by $440,000 as a result of cost savings that were realized from the Reduction in Force Plan. These decreases were slightly offset by a $76,000 increase in stock-based compensation expense from the three months ended September 30, 2008 to the three months ended September 30, 2009.

        In comparing the nine months ended September 30, 2008 to the nine months ended September 30, 2009, research and development expenses decreased $7.3 million. The decrease was due to a $3.1 million decrease in product development costs, that included lab expenses, materials, supplies, temporary help and prototype expenses and were driven by cost reductions identified as part of the Reduction in Force Plan. In addition to our overall reduction in operating costs, our product development costs decreased as we moved toward manufacturing and production activities. There was also a $2.0 million decrease in the charge for labor and overhead costs associated with the under-utilization of the manufacturing facility. In addition, our salary and benefit expenses decreased by $1.9 million as a result of cost savings that were realized from the Reduction in Force. These decreases were partly offset by a $319,000 increase in stock-based compensation expense from the nine months ended September 30, 2008 to the nine months ended September 30, 2009. We expect our research and development expenses to remain relatively constant in the fourth quarter of 2009. However, as we gain commercial traction we will need to invest in future versions of our system.

        Selling, general and administrative expenses.    Selling, general and administrative expenses during the three and nine months ended September 30, 2008 and 2009 were as follows:

 
  Three months
ended
September 30,
   
   
  Nine months
ended
September 30,
   
   
 
 
  2008   2009   Change   2008   2009   Change  

($ in thousands)

                                                 

Selling, general and administrative

  $ 5,403   $ 3,145   $ (2,258 )   -42 % $ 16,417   $ 8,728   $ (7,689 )   -47 %

        Selling, general and administrative expenses decreased by $2.3 million from the three months ended September 30, 2008 to the three months ended September 30, 2009. A decrease of $1.3 million was the result of a reduction in expenses which were driven by cost reductions identified as part of the Reduction in Force Plan implemented in December 2008. Such reduced expenses related to lower spending on the following activities: investor relations programs, business insurance, outside consulting fees associated with Sarbanes-Oxley compliance, certain outside legal expenses, marketing programs, and travel. In addition, our salary and benefit expenses decreased by $319,000 as a result of cost savings that were realized from the Reduction in Force Plan. Furthermore, our stock-based compensation expense decreased by $247,000 from the three months ended September 30, 2008 to the three months ended September 30, 2009.

        In comparing the nine months ended September 30, 2008 to the nine months ended September 30, 2009, selling, general and administrative expenses decreased $7.7 million. A decrease of $4.1 million was the result of a reduction in expenses which were driven by cost reductions identified as part of the Reduction in Force Plan. Such reduced expenses related to lower spending on the following activities: investor relations programs, business insurance, outside consulting fees associated with Sarbanes-Oxley compliance, certain outside legal expenses, marketing programs, and travel. In addition, our salary and benefit expenses decreased by $2.3 million as a result of cost savings that were realized from the Reduction in Force Plan. Furthermore, our stock-based compensation expense decreased by $467,000 from the nine months ended September 30, 2008 to the nine months ended September 30, 2009. We expect our selling, general and administrative expenses to remain relatively constant in the fourth

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quarter of 2009. However, as we gain commercial traction we will need to expand our sales, marketing, and administrative functions.

        Interest income.    Interest income for the three and nine months ended September 30, 2008 and 2009 was as follows:

 
  Three months
ended
September 30,
   
   
  Nine months
ended
September 30,
   
   
 
 
  2008   2009   Change   2008   2009   Change  

($ in thousands)

                                                 

Interest income

  $ 124   $ 5   $ (119 )   -96 % $ 607   $ 67   $ (540 )   -89 %

        The decrease in interest income from the three and nine months ended September 30, 2008 compared to the three and nine months ended September 30, 2009 was due primarily to lower interest rates, and to a lesser extent, lower cash balances.

        Interest expense.    Interest expense for the three and nine months ended September 30, 2008 and 2009 was as follows:

 
  Three months
ended
September 30,
   
   
  Nine months
ended
September 30,
   
   
 
 
  2008   2009   Change   2008   2009   Change  

($ in thousands)

                                                 

Interest expense

  $ 734   $ 246   $ (488 )   -66 % $ 1,464   $ 826   $ (638 )   -44 %

        The decrease in interest expense from the three and nine months ended September 30, 2008 compared to the three and nine months ended September 30, 2009 is attributable to the year over year decrease in our long-term debt obligations.

        Change in fair value of warrant liability.    In connection with the September 2009 Offering, we issued warrants to purchase an aggregate of 2,322,509 shares of common stock which become exercisable on or after the six month anniversary following the closing of the transaction. The warrants have an exercise price of $2.61 per share and have a five and a half year term. The fair value of the warrants was estimated at $4.5 million using a Black-Scholes model with the following assumptions: expected volatility of 100%, risk free interest rate of 2.49%, expected life of five and a half years and no dividends. Expected volatility was based on the volatility contractually specified in the warrant agreements. The fair value of the warrants was recorded in the liability section of the balance sheet. As such, the warrants will be revalued each reporting period, with the resulting gains and losses recorded as the change in fair value of warrant liability on the income statement. The change in the fair value of the warrant liability from the closing date of September 18, 2009 through the end of the current period of September 30, 2009 resulted in a charge of approximately $710,000 for the quarter ended September 30, 2009 as a result of the increase of our stock price between September 18, 2009 and September 30, 2009.

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Liquidity and Capital Resources

        We have incurred losses since our inception in May 2003 and, as of September 30, 2009 we have an accumulated deficit of $159.5 million. We have financed our operations to date principally through the sale of common stock and preferred stock, including our IPO and two private placements of common stock and warrants, debt financing and interest earned on investments. Through September 30, 2009, we have received net proceeds of $74.7 million through the issuance of common stock, including our IPO and private placements of common stock and warrants, $66.8 million from the issuance of preferred stock, $2.5 million in debt financing from a lender to finance equipment purchases, and $19.6 million in debt financing from a lender for working capital, capital expenditures and general corporate purposes. Working capital as of December 31, 2008 was $20.8 million, consisting of $27.2 million in current assets and $6.4 million in current liabilities. Working capital as of September 30, 2009 was $14.6 million, consisting of $19.9 million in current assets and $5.3 million in current liabilities. Our cash and cash equivalents are held in interest-bearing cash accounts. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily to achieve liquidity and capital preservation.

        The following table summarizes our net decrease in cash and cash equivalents for the nine months ended September 30, 2008 and 2009:

 
  Nine months ended
September 30,
 
 
  2008   2009  

($ in thousands)

             

Net cash (used in) provided by:

             
 

Operating activities

  $ (35,299 ) $ (15,040 )
 

Investing activities

    (12,799 )   (83 )
 

Financing activities

    7,733     6,879  
           

Net decrease in cash and cash equivalents

  $ (40,365 ) $ (8,244 )
           

        Net cash used in operating activities was $35.3 million for the nine months ended September 30, 2008 compared to $15.0 million for the nine months ended September 30, 2009. The $20.3 million decrease was primarily due to a decrease in the net loss of $15.4 million, a decrease in inventory purchases of $5.1 million, and an increase in the change in the fair value of the warrant liability of $710,000, partially offset by a decrease in deferred revenue of $598,000 and an increase in prepaid expenses and other current assets of $591,000.

        Net cash used in investing activities was $12.8 million for the nine months ended September 30, 2008 compared to $83,000 for the nine months ended September 30, 2009. The $12.7 million decrease was due to a $10.0 million decrease in restricted cash, as well as a $2.8 million decrease in purchases of property and equipment.

        Net cash provided by financing activities was $7.7 million for the nine months ended September 30, 2008 compared to net cash provided by financing activities of $6.9 million for the nine months ended September 30, 2009. The $854,000 decrease was primarily due to a $9.9 million decrease in proceeds from debt issuances, as well as a $454,000 increase in debt payments, offset by a $9.4 million increase in the proceeds from the issuance of common stock and warrants.

Operating capital and capital expenditure requirements

        As previously disclosed, we engaged Thomas Weisel Partners LLC (TWP), a nationally recognized investment bank, to assist us with our evaluation and execution of strategic alternatives. Based on our improving standalone prospects and current market valuation, the Board of Directors has decided to

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disengage from discussions involving a potential sale of our company at the current time. We continue to work with TWP as a financial advisor in connection with our long term financing strategy. Our failure to raise capital as and when needed would have a material negative impact on our financial condition and would have a material adverse impact on the viability of our company to continue as a going concern.

        We shipped our first two Helicos Systems in 2008, one of which was ultimately returned. As we exited the third quarter of 2009, we have received cumulative sales orders for seven Helicos Systems. In addition, we have one system installed at the Broad Institute, Inc. on a no cost basis, and have three systems at leading academic institutions for scientific and commercial evaluation. During 2009, we have recognized revenue on two of the seven sales orders.

        To date, we have not achieved profitability. We anticipate that we will continue to incur substantial net losses for at least two years as we continue our efforts in commercializing the Helicos System and develop the corporate infrastructure required to manufacture and sell our products. We continue to secure orders for the Helicos System, and we expect to generate additional instrument revenue during 2009. Future revenues from sales of our instruments, proprietary reagents and disposable supplies will depend on individual customer agreements, timing of the installation and turnover to customer, customers' use of the system and our ability to maintain our proprietary position on the reagents and disposable supplies. Because we have limited experience in the commercialization of our Helicos System, we cannot predict the percentage of our revenues that we will derive from sales of proprietary reagents and disposable supplies. However, over time we would expect the sales of the reagents and disposable supplies to increase as our installed base of instruments grows and usage of these instruments increases.

        Since inception, we have incurred losses and have not generated positive cash flows from operations. As of September 30, 2009 and November 9, 2009, we had $11.5 million and $8.4 million, respectively, in cash and cash equivalents. In addition, we expect to receive approximately $5.0 million in cash receipts from customers during the fourth quarter of 2009 and the first quarter of 2010. We believe that our existing cash and cash equivalents and receipts from customers on sales of products will be sufficient to fund our operations through the first quarter of 2010. If our current operating plan including forecasted sales for the remainder of 2009 and the first quarter of 2010 does not materialize or if adequate additional funds are not available when required, we will be required to further delay, reduce or eliminate research and development programs, reduce or eliminate commercialization efforts, obtain funds through arrangements with collaborators or others on terms unfavorable to us, or pursue divestiture or other strategies.

        Our forecast of the period of time through which our financial resources will be adequate to support our operations, the costs to complete development of products and the cost to commercialize our future products are forward-looking statements and involve risks and uncertainties, and actual results could vary materially and negatively as a result of a number of factors, including the factors discussed in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2008 and under Part II, Item 1A herein. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

        Because of the numerous risks and uncertainties associated with the development of our product, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to complete the development of our future products and successfully deliver any such products to the market. Our future capital requirements will depend on many factors, including, but not limited to, the following:

    the rate of progress and cost of our commercialization activities;

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    the success of our research and development efforts;

    the expenses we incur in marketing and selling our products;

    the revenue generated by future sales of our products;

    the timeliness of payments from our customers;

    the emergence of competing or complementary technological developments;

    the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

    the terms and timing of any collaborative, licensing or other arrangements that we may establish; and

    the acquisition of businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

        Working capital as of December 31, 2008 was $20.8 million, consisting of $27.2 million in current assets and $6.4 million in current liabilities. Working capital as of September 30, 2009 was $14.6 million, consisting of $19.9 million in current assets and $5.3 million in current liabilities.

Contractual obligations

        A summary of our contractual obligations is included in our Form 10-K for the fiscal year ended December 31, 2008. There have been no material changes to our contractual obligations previously disclosed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2008.

License agreements and patents

        We have fixed annual costs associated with license agreements into which we have entered. In addition, we may have to make contingent payments in the future upon realization of certain milestones or royalties payable under these agreements.

Line of credit facility and security agreement

        In June 2006, we entered into a line of credit facility and security agreement with General Electric Capital Corporation ("GE Capital"). The credit facility provided that we may borrow up to $8.0 million at an interest rate based on the Federal Reserve's three year Treasury Constant Maturities Rate. The advance period ended on December 31, 2007. The proceeds of the credit facility may be used for the purchase of equipment and are collateralized by specific equipment assets. Payments are required to be made on a monthly basis. For the first six months interest-only payments were required. Thereafter, for the following 30 months, payments of principal and interest will be due for each advance. The outstanding balance is collateralized by the equipment purchased with the proceeds from each equipment advance. As of September 30, 2009, advances on the credit facility were $2.5 million at a weighted-average interest rate of 10.1%. As of December 31, 2008 and September 30, 2009, the outstanding balance on the credit facility was $799,000 and $161,000, respectively.

Loan and security agreement

        In December 2007, we entered into a loan and security agreement with two lenders including GE Capital, which is serving as agent. The loan agreement provided that we may borrow up to $20.0 million at an interest rate equal to the sum of (i) the greater of (A) an interest rate based on the Federal Reserve's three year Treasury Constant Maturities Rate and (B) 3.84% plus (ii) 6.11%. The initial term loan was made on the closing date in an aggregate principal amount equal to $10.0 million.

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        In June 2008, we entered into an amendment to the loan and security agreement with two lenders including GE Capital. A subsequent term loan was made upon execution of the amendment in an aggregate principal amount equal to $10.0 million. The loan amendment provided that the interest rate for the subsequent term loan is equal to the sum of (i) the greater of (A) an interest rate based on the Federal Reserve's three year Treasury Constant Maturities Rate and (B) 3.17% plus (ii) 8.33%. The loan agreement, as amended, contained affirmative and negative covenants to which we and our subsidiaries were required to adhere. Pursuant to the amendment, we were required to maintain, at all times, unrestricted cash in our bank account equal to at least $10.0 million. The borrowings under the loan agreement were collateralized by essentially all of our personal property, including the pledge of the stock of our wholly-owned subsidiary, and proceeds of any intellectual property, but not by our intellectual property. Payments are required to be made on a monthly basis. For the initial term loan, interest-only payments were required for the first five months. Thereafter, for the following 31 months, payments of principal and interest will be due. For the subsequent term loan, principal and interest payments are required for the 36 month term of the loan.

        In connection with the execution of the June 2008 amendment to the loan and security agreement with two lenders including GE Capital, we issued warrants to the two lenders to purchase an aggregate of 110,000 shares of common stock. The warrants have an exercise price of $4.80 per share and expire in June 2014. The fair value of the warrants was estimated at $337,000 using a Black-Scholes model with the following assumptions: expected volatility of 65.4%, risk free interest rate of 3.4%, expected life of six years and no dividends. Expected volatility was based on the volatility of similar entities in the life sciences industry of comparable size of market capitalization and financial position that completed initial public offerings within the last ten years. The fair value of the warrants was recorded as equity and a debt discount and will be amortized to interest expense over the term of the loan.

        In December 2008, we entered into an additional amendment to the loan and security agreement with certain lenders including GE Capital. The amendment amended the prepayment provisions of the loan and security agreement to allow us to make a prepayment of $10.0 million (the "Pay Down Amount") without incurring any prepayment penalties. Pursuant to the amendment, we made a prepayment, equal to the Pay Down Amount, before December 31, 2008. In connection with such prepayment, and in lieu of the 4% final payment fee with respect to the Pay Down Amount, the amendment provides that we will pay a fee equal to 2% of the initial $10.0 million term loan, payable on the earlier of (a) January 31, 2011 and (b) the maturity date for the subsequent term loan.

        The amendment further provides that our obligations under the loan agreement, as amended, are no longer secured by a cash amount of $10.0 million. As such, this amount is no longer classified as restricted cash. Such obligations continue to be secured under various collateral documents by interests in substantially all of our personal property, including the pledge of the stock of our wholly-owned subsidiary, and proceeds of any intellectual property, but not by our intellectual property.

        As of December 31, 2008 and September 30, 2009, the outstanding balance on the loan agreement was $7.1 million and $5.2 million, respectively. The carrying amount of the loan agreement approximates its fair value at December 31, 2008 and September 30, 2009.

Private Placement in Public Equity Offering (December 2008)

        In December 2008, we entered into a securities purchase agreement with certain investors pursuant to which we sold a total of 42,753,869 units (the "Units"), each Unit consisting of (i) one share of common stock and (ii) one warrant to purchase 0.6 shares of common stock at an exercise price of $0.45 per share, for a purchase price of $0.435 per unit (representing the closing bid price plus an additional amount for the warrants) (the "December 2008 Offering"). The closing of the transaction occurred on December 23, 2008. In connection with the December 2008 Offering, we raised

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approximately $18.6 million in gross proceeds. We paid $813,000 in placement agent fees and offering expenses and expect to use the remaining net proceeds of $17.8 million for general corporate purposes.

        In connection with the December 2008 Offering, we issued warrants to purchase an aggregate of 25,652,333 shares of common stock which are exercisable immediately. The warrants have an exercise price of $0.45 per share and have a five year term. The relative fair value of the warrants was estimated at $4.4 million using a Black-Scholes model with the following assumptions: expected volatility of 66.15%, risk free interest rate of 1.53%, expected life of five years and no dividends. Expected volatility was based on the volatility of similar entities in the life sciences industry of comparable size of market capitalization and financial position that completed initial public offerings within the last ten years. The relative fair value of the warrants was recorded in the equity section of the balance sheet.

        In connection with the December 2008 Offering, we have entered into a registration rights agreement (the "Registration Rights Agreement") with each of the investors. The Registration Rights Agreement provides that we file a "resale" registration statement (the "Registration Statement") covering all of the Shares and the shares issuable upon exercise of the Warrants (the "Warrant Shares"), up to the maximum number of shares able to be registered pursuant to applicable Securities and Exchange Commission ("SEC") regulations, within 30 days of the closing of the December 2008 Offering. We currently maintain an effective registration statement relating to a portion of these shares (File No. 333-156885). Under the terms of the Registration Rights Agreement, we are obligated to maintain the effectiveness of the "resale" registration statement until all securities therein are sold or are otherwise can be sold pursuant to Rule 144, without any restrictions. A cash penalty at the rate of 2% per month will be triggered for any filing or effectiveness failures or suspensions of prospectus delivery or if, at any time after six months following the closing of the December 2008 Offering, we cease to be current in our periodic reports with the SEC. The aggregate penalty accrued with respect to each investor may not exceed 12% of the original purchase price paid by that investor.

Private Placement in Public Equity Offering (September 2009)

        In September 2009, we entered into a securities purchase agreement with certain investors pursuant to which we (i) sold to certain existing investors a total of 1,030,028 units, each unit consisting of (a) one share of common stock and (b) one warrant to purchase 0.662 shares of common stock at an exercise price equal to $2.61 per share (105% of the closing bid price of the common stock on September 15, 2009), each such unit to be at a purchase price equal to $2.57 per unit, and (ii) sold to certain new investors a total of 3,281,252 units, each unit consisting of (a) one share of common stock and (b) one warrant to purchase 0.50 shares of common stock at an exercise price equal to $2.61 per share, each such unit to be at a purchase price equal to $2.24 per unit (together, the "September 2009 Offering"). The closing of the transaction occurred on September 18, 2009. In connection with the September 2009 Offering, we raised approximately $10.0 million in gross proceeds. We paid $646,000 in placement agent fees and offering expenses and expect to use the remaining net proceeds of $9.4 million for general corporate purposes.

        In connection with the September 2009 Offering, we issued warrants to purchase an aggregate of 2,322,509 shares of common stock which become exercisable on or after the six month anniversary following the closing of the transaction. The warrants have an exercise price of $2.61 per share and have a five and a half year term. The fair value of the warrants was estimated at $4.5 million using a Black-Scholes model with the following assumptions: expected volatility of 100%, risk free interest rate of 2.49%, expected life of five and a half years and no dividends. Expected volatility was based on the volatility contractually specified in the warrant agreements. Due to a price adjustment clause included in the warrant agreements, the warrants were deemed to be a liability and, therefore, the fair value of the warrants was recorded in the liability section of the balance sheet. As such, the warrants will be revalued each reporting period, with the resulting gains and losses recorded as the change in fair value

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of warrant liability on the income statement. The change in the fair value of the warrant liability from the closing date of September 18, 2009 through the end of the current period of September 30, 2009 resulted in a charge of approximately $710,000 for the quarter ended September 30, 2009.

        In connection with the September 2009 Offering, we entered into a registration rights agreement (the "Registration Rights Agreement") with each of the investors. The Registration Rights Agreement provides that we will file a "resale" registration statement (the "Initial Registration Statement") covering all of the Shares and the shares issuable upon exercise of the Warrants (the "Warrant Shares"), up to the maximum number of shares able to be registered pursuant to applicable Securities and Exchange Commission ("SEC") regulations, within 15 days of the closing of the September 2009 Offering. We currently maintain an effective registration statement relating to these shares (File No. 333-162240). Under the terms of the Registration Rights Agreement, we are obligated to maintain the effectiveness of the "resale" registration statement until all securities therein are sold or are otherwise can be sold pursuant to Rule 144, without any restrictions. A cash penalty at the rate of 2% per month will be triggered for any filing or effectiveness failures or 1% in the event of suspensions of prospectus delivery or if, at any time after six months following the closing of the September 2009 Offering, we cease to be current in our periodic reports with the SEC. The aggregate penalty accrued with respect to each investor may not exceed 12% of the original purchase price paid by that investor.

Off-balance sheet arrangements

        During the nine months ended September 30, 2008 and 2009, we did not engage in any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

        In our Form 10-K for the fiscal year ended December 31, 2008, our critical accounting policies and estimates upon which our financial status depends were identified as those relating to inventory; revenue recognition; impairment of long-lived assets; allowance for doubtful accounts; stock-based compensation; and net operating losses and tax credit carryforwards. We reviewed our policies and determined that those policies remain our critical accounting policies for the nine months ended September 30, 2009. We did not make any changes in those policies during the nine months ended September 30, 2009.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

        Our exposure to market risk is limited to our cash and cash equivalents. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk. To achieve our goals, we maintain our cash and cash equivalents in interest-bearing bank accounts. As all of our investments are cash deposits and money market funds in global banks, they are subject to minimal interest rate risk.

Item 4.    Controls and Procedures

        Our management, with the participation of our principal executive officer (PEO) and principal financial officer (PFO), has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of September 30, 2009. Based on that evaluation, our PEO and PFO have concluded that our disclosure controls and procedures were effective at the reasonable level of assurance.

        No change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II—Other Information

Item 1.    Legal Proceedings

        Not applicable.

Item 1A.    Risk Factors

        The Company cautions investors that its future performance and results and, therefore, any forward-looking statements are subject to risks and uncertainties. Various factors may cause the Company's future results to differ materially from those projected in any forward-looking statements. These factors were disclosed, but are not limited to, the items in the Company's most recent Annual Report on Form 10-K, Part I, Item 1A. The following risk factors have been revised from the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2008.

RISKS RELATED TO OUR BUSINESS

In or before the second quarter of 2010, we will need to raise additional funding, which may not be available on favorable terms, if at all, or without dilution to our stockholders. If we do not raise the necessary funds, we will need to cut back or terminate some or all aspects of our operations, which would materially adversely affect our business prospects.

        Because our Helicos™ Genetic Analysis System is complex and is new to the market and involves significant capital expenditures by customers and a long sales cycle, it is very difficult to predict the actual rate of product sales. We will need additional financing to execute on our current and future business strategies. We expect capital outlays and operating expenditures to increase over the next several years as we expand our infrastructure, commercialization, manufacturing and research and development activities. The amount of additional capital we will need to raise depends on many factors, including:

    the level of research and development investment required to maintain and improve our technology position;

    the amount and growth rate of our revenues;

    changes in product development plans needed to address any difficulties in manufacturing or commercializing our Helicos System and enhancements to our system;

    the costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;

    competing technological and market developments;

    our need or decision to acquire or license complementary technologies or acquire complementary businesses; and

    changes in regulatory policies or laws that affect our operations.

        The instability of the worldwide financial markets has materially and adversely impacted the availability of financing to a wide variety of companies, particularly early-stage companies such as Helicos. We do not know whether the additional capital which we will require will be available when and as needed, on favorable terms if at all, or that our actual cash requirements will not be greater than anticipated. In addition, if we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we obtain additional debt financing, a substantial portion of any future operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, and the terms of

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the debt securities issued could impose significant restrictions on our operations. If we raise additional funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our technologies or products, or grant licenses on terms that are not favorable to us. If our current operating plan including forecasted sales for the remainder of 2009 and the first quarter of 2010 does not materialize or if adequate additional funds are not available to us when required, we will be required to further delay, reduce or eliminate research and development programs, reduce or eliminate commercialization efforts, obtain funds through arrangements with collaborators or others on terms unfavorable to us, or pursue divestiture or other strategies.

We have a history of operating losses, expect to continue to incur substantial losses, and might never achieve or maintain profitability.

        We are a development-stage company with limited operating history. We have incurred significant losses in each fiscal year since our inception, including net losses attributable to common stockholders of $45.7 million in the year ended December 31, 2008 and $19.8 million in the nine months ended September 30, 2009. As of September 30, 2009, we had an accumulated deficit of $159.5 million. These losses have resulted principally from costs incurred in our research and development programs and from our selling, general and administrative expenses. In the nine months ended September 30, 2009, we used cash in operating activities of $15.0 million and had used cash in investing activities totaling $83,000. As of September 30, 2009 and November 9, 2009, we had $11.5 million and $8.4 million, respectively, in cash and cash equivalents.

        We will need to generate significant revenue to achieve profitability. As we exited the third quarter of 2009, we have received cumulative sales orders for seven Helicos Systems. In addition, we have one system installed at the Broad Institute, Inc. on a no cost basis, and have three systems at leading academic institutions for scientific and commercial evaluation. We have only recognized revenue from two of these initial shipments. Moreover, one of the systems that had been shipped in 2008 was returned in 2009. Because our products will be subject to various customer evaluation periods with acceptance criteria, we expect the customer evaluation period and our ability to have any recognizable revenue from additional initial sales, if any, to extend beyond the fiscal quarters in which the products are shipped. Moreover, even after we begin selling our products on a commercial scale, we expect our losses to continue for at least the next two years as a result of ongoing research and development expenses, as well as increased manufacturing, sales and marketing expenses. These losses, among other things, have had and will continue to have an adverse effect on our working capital, total assets and stockholders' equity. Because of the numerous risks and uncertainties associated with our product development and commercialization efforts, we are unable to predict when we will become profitable, and we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we are unable to achieve and then maintain profitability, the market value of our common stock will decline.

A significant portion of our total outstanding shares may be sold into the public market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

        Approximately 10.7% of the shares of our common stock outstanding as of September 30, 2009 may be offered and sold by selling stockholders pursuant to a Registration Statement on Form S-3 (File No. 333-156885) which was declared effective on April 28, 2009. We are obligated to file a new registration statement to register an additional 52,558,721 shares of common stock, which includes 21,862,080 shares issuable upon exercise of warrants, pursuant to the terms of a registration rights agreement entered into with the selling stockholders. In addition, a majority of the other outstanding shares of our common stock and other warrants are eligible for resale by the holders of those shares pursuant to other effective registration statements or in exempt private transactions.

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        If our existing stockholders sell substantial amounts of our common stock in the public market, the market price of our common stock could decrease significantly. The perception in the public market that our stockholders might sell shares of common stock could also depress the market price of our common stock. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities, and may cause you to lose part or all of your investment in our shares of common stock.

        We have registered the issuance of all shares of common stock that we have issued and may issue under our employee option plans. Having registered the issuance of these shares, they can be freely sold in the public market upon issuance. In addition, as of September 30, 2009, there were 277,777 shares of common stock reserved for future issuance as charitable contribution to the Broad Institute, Inc. that will become eligible for sale in the public market to the extent permitted by Rule 144 under the Securities Act of 1933, as amended.

        Due to these factors, sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.

Item 2.    Unregistered Sale of Equity Securities and Use of Proceeds

Use of Proceeds from Private Placement in Public Equity Offering (December 2008 Offering)

        On December 19, 2008, we announced that we had entered into a securities purchase agreement with certain investors pursuant to which it has agreed to sell a total of 42,753,869 units (the "Units"), each Unit consisting of (i) one share of common stock (collectively, the "Shares") and (ii) one warrant (collectively, the "Warrants") to purchase 0.6 shares of common stock at an exercise price of $0.45 per share, for a purchase price of $0.435 per unit (representing the closing bid price plus an additional amount for the warrants) (the "December 2008 Offering") for gross proceeds of $18.6 million. We paid $813,000 in placement agent fees and offering expenses and expect to use the remaining net proceeds of $17.8 million for general corporate purposes, which include ongoing research and development activities, funding marketing initiatives and funding manufacturing expenses associated with the commercial version of our Helicos System. The Shares and Warrants were immediately separable and were issued separately. The Warrants have a five year term and became exercisable immediately following the closing of the transaction. The closing of the transaction occurred on December 23, 2008.

        Under NASDAQ Marketplace Rule 4350(i)(1)(B), stockholder approval is required for issuances of securities that will result in a change of control of the issuer. In order to comply with Rule 4350(i)(1)(B), until the December 2008 Offering has been approved by the stockholders, the Warrants prohibit holders from exercising the Warrants for any number of shares which would cause that holder to hold more than 19.9% of our common stock following the exercise. We obtained approval of the December 2008 Offering at our annual meeting of stockholders, which was held on June 3, 2009.

        In connection with the December 2008 Offering, we have entered into a registration rights agreement (the "Registration Rights Agreement") with each of the investors. The Registration Rights Agreement provides that we file a "resale" registration statement (the "Registration Statement") covering all of the Shares and the shares issuable upon exercise of the Warrants (the "Warrant Shares"), up to the maximum number of shares able to be registered pursuant to applicable Securities and Exchange Commission ("SEC") regulations, within 30 days of the closing of the December 2008 Offering. We currently maintain an effective registration statement relating to a portion of these shares (File No. 333-156885). Under the terms of the Registration Rights Agreement, we are obligated to maintain the effectiveness of the "resale" registration statement until all securities therein are sold or are otherwise can be sold pursuant to Rule 144, without any restrictions. A cash penalty at the rate of 2% per month will be triggered for any filing or effectiveness failures or suspensions of prospectus

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delivery or if, at any time after six months following the closing of the December 2008 Offering, we cease to be current in our periodic reports with the SEC. The aggregate penalty accrued with respect to each investor may not exceed 12% of the original purchase price paid by that investor.

Use of Proceeds from Private Placement in Public Equity Offering (September 2009 Offering)

        In September 2009, we entered into a securities purchase agreement with certain investors pursuant to which we (i) sold to certain existing investors a total of 1,030,028 units, each unit consisting of (a) one share of common stock and (b) one warrant to purchase 0.662 shares of common stock at an exercise price equal to $2.61 per share (105% of the closing bid price of the common stock on September 15, 2009), each such unit to be at a purchase price equal to $2.57 per unit, and (ii) sold to certain new investors a total of 3,281,252 units, each unit consisting of (a) one share of common stock and (b) one warrant to purchase 0.50 shares of common stock at an exercise price equal to $2.61 per share, each such unit to be at a purchase price equal to $2.24 per unit (together, the "September 2009 Offering") for gross proceeds of $10.0 million. We paid $646,000 in placement agent fees and offering expenses and expect to use the remaining net proceeds of $9.4 million for general corporate purposes, which include ongoing research and development activities, funding marketing initiatives and funding manufacturing expenses associated with the commercial version of our Helicos System. The warrants have a five and a half year term and become exercisable on or after the six month anniversary following the closing of the transaction. The closing of the transaction occurred on September 18, 2009.

        Under NASDAQ Marketplace Rule 4350(i)(1)(B), stockholder approval is required for issuances of securities that will result in a change of control of the issuer. In order to comply with Rule 4350(i)(1)(B), until the September 2009 Offering has been approved by the stockholders, the warrants prohibit holders from exercising the warrants for any number of shares which would cause that holder to hold more than 19.9% of our common stock following the exercise. We expect to seek approval of the September 2009 Offering at our next annual meeting of stockholders.

        In connection with the September 2009 Offering, we entered into a registration rights agreement (the "Registration Rights Agreement") with each of the investors. The Registration Rights Agreement provides that we will file a "resale" registration statement (the "Initial Registration Statement") covering all of the Shares and the shares issuable upon exercise of the Warrants (the "Warrant Shares"), up to the maximum number of shares able to be registered pursuant to applicable Securities and Exchange Commission ("SEC") regulations, within 15 days of the closing of the September 2009 Offering. We currently maintain an effective registration statement relating to these shares (File No. 333- 162240). Under the terms of the Registration Rights Agreement, we are obligated to maintain the effectiveness of the "resale" registration statement until all securities therein are sold or are otherwise can be sold pursuant to Rule 144, without any restrictions. A cash penalty at the rate of 2% per month will be triggered for any filing or effectiveness failures or 1% in the event of suspensions of prospectus delivery or if, at any time after six months following the closing of the September 2009 Offering, we cease to be current in our periodic reports with the SEC. The aggregate penalty accrued with respect to each investor may not exceed 12% of the original purchase price paid by that investor.

Issuer Purchases of Equity Securities

        During the first nine months of 2009, we purchased 67,590 restricted shares from employees to cover withholding taxes due from the employees at the time the shares vested. The following table

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provides information about these purchases of restricted shares for the nine months ended September 30, 2009:

Period
  Total Number of
Shares Purchased
  Average Price
Paid Per Share
($)
 

January 1 to 31, 2009

    480   $ 0.60  

February 1 to 28, 2009

         

March 1 to 31, 2009

         

April 1 to 30, 2009

    11,147   $ 0.63  

May 1 to 31, 2009

         

June 1 to 30, 2009

         

July 1 to 31, 2009

    55,963   $ 0.43  

August 1 to 31, 2009

         

September 1 to 30, 2009

         
             
 

Total

    67,590        
             

        Upon the termination of employees during the nine months ended September 30, 2009, 36,374 unvested restricted shares were forfeited. The following table provides information about our forfeited restricted shares for the nine months ended September 30, 2009:

Period
  Total Number of
Shares Forfeited
  Average Price
Per Share
($)
 

January 1 to 31, 2009

         

February 1 to 28, 2009

    6,250   $ 0.58  

March 1 to 31, 2009

         

April 1 to 30, 2009

         

May 1 to 31, 2009

         

June 1 to 30, 2009

    3,190   $ 0.48  

July 1 to 31, 2009

    26,934      

August 1 to 31, 2009

      $ 2.69  

September 1 to 30, 2009

           
             
 

Total

    36,374        
             

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

        None.

Item 6.    Exhibits

        The exhibits listed in the Exhibit Index immediately preceding such exhibits are filed as part of this report and such Exhibit Index is incorporated herein by reference.

31


Table of Contents


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.


Dated: November 9, 2009

 

/s/ RONALD A. LOWY

Ronald A. Lowy
Chief Executive Officer
(Principal Executive Officer)

Dated: November 9, 2009

 

/s/ JEFFREY R. MOORE

Jeffrey R. Moore
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)

32


Table of Contents


EXHIBIT INDEX

  4.1 * Form of Warrant (incorporated by reference herein to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on September 17, 2009).

 

10.1

+

First Amendment to the Company's Amended and Restated Management Incentive Bonus Plan of the Registrant dated as of September 8, 2009.

 

10.2

*

Letter Agreement between the Company and Stephen P. Hall dated August 6, 2009 (incorporated by reference herein to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 11, 2009).

 

10.3

*

Offer Letter between the Company and Jeffrey R. Moore dated August 6, 2009 (incorporated by reference herein to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on August 11, 2009).

 

10.4

*

Change in Control Agreement between the Company and Jeffrey R. Moore dated August 6, 2009 (incorporated by reference herein to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on August 11, 2009).

 

10.5

*

Securities Purchase Agreement between the Company and each of the Purchasers identified therein dated September 15, 2009 (incorporated by reference herein to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 17, 2009).

 

10.6

*

Registration Rights Agreement between the Company and each of the Holders identified therein dated September 15, 2009 (incorporated by reference herein to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on September 17, 2009).

 

10.7

*

First Amendment to Change in Control Agreement by and between the Company and Ronald A. Lowy dated September 28, 2009 (incorporated by reference herein to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 28, 2009).

 

10.8

*

Fifth Amendment to Lease by and between the Company and RB Kendall Fee, LLC dated October 8, 2009 (incorporated by reference herein to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 13, 2009).

 

31.1

 

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2

 

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32.1

 

Certifications pursuant to 18 U.S.C. Section 1350

+
Indicates a management contract or any compensatory plan, contract or arrangement.

*
Previously filed.

33



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