The Company's money market funds were valued at December 31, 2010 using calculated net asset values and are therefore classified as Level 2. The Company's warrant liability was valued at December 31, 2010 using a Black-Scholes model and is therefore classified as Level 3.

        The following table represents the Company's assets and liabilities measured at fair value on a recurring basis at June 30, 2011:

        The Company's warrant liability was valued at June 30, 2011 using a Black-Scholes model and is therefore classified as Level 3.

        The following tables roll forward the fair value of our warrant liability, whose fair value is determined by Level 3 inputs for the 2011 period presented:

        The Company's warrant liability relates to warrants issued in connection with two offerings of common stock in 2009. An aggregate of 6,482,505 warrants were issued pursuant to these two offerings, of which 1,945,099 were outstanding as of December 31, 2010 and 681,884 were outstanding as of June 30, 2011. The fair value of the warrants is estimated using a Black-Scholes model. 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 is recorded in the liability section of the balance sheet. As such, the outstanding warrants are 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 carrying amount of the Company's debt approximates its fair value at December 31, 2010 and June 30, 2011.

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HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

7. Debt

        In November 2010, the Company entered into an insider bridge loan facility with two of the four venture capital firms whose representatives are members of the Board. In connection with this transaction, the Company entered into a Note Purchase Agreement (the "Subordinated Secured Note Purchase Agreement") with investment funds affiliated with Atlas Venture and Flagship Ventures (the "Purchasers"), pursuant to which the Company agreed to sell to the Purchasers, and the Purchasers have agreed to purchase, up to an aggregate of $4,000,000 of convertible promissory notes (the "Notes"), a portion of which is committed and a portion of which is optional (the "Bridge Debt Financing"). As of December 31, 2010 and June 30, 2011, the Purchasers have purchased Notes having an aggregate principal amount of $666,667. Subject to the Company's continued compliance with the terms of the Note Purchase Agreement, including that there not be an event of default thereunder, upon notice from the Company the Purchasers are committed to purchase an aggregate of an additional $333,333 of Notes in each of four subsequent closings, for a total aggregate committed amount of $2,000,000. The Purchasers also have the right, but not the obligation, upon the Company's request to purchase up to an additional $2,000,000 of Notes on or before December 31, 2012. As of December 31, 2010 and June 30, 2011, the Company's outstanding indebtedness under the Notes was $674,000 and $708,000, respectively.

        As an inducement for the Purchasers to purchase the Notes, the Company entered into a Risk Premium Payment Agreement in November 2010 with the Purchasers (the "Risk Premium Agreement") simultaneous with the execution of, and as required by, the Subordinated Secured Note Purchase Agreement. Under the terms of the Risk Premium Agreement, the Company agreed to pay the Purchasers the following portions of the consideration it receives (the "Payment Consideration") in Liquidity Transactions, as defined below: (i) until the aggregate Payment Consideration equals $10 million, 60% of the Payment Consideration; (ii) for aggregate Payment Consideration from $10 million to $20 million, 50% of the Payment Consideration; (iii) for aggregate Payment Consideration from $20 million to $30 million, 40% of the Payment Consideration; (iv) for aggregate Payment Consideration from $30 million to $40 million, 30% of the Payment Consideration; and (v) for aggregate Payment Consideration in excess of $40 million, 10% of the Payment Consideration (any such payments, "Risk Premium Payments"). For purposes of determining amounts payable under the Risk Premium Agreement, the Payment Consideration will not include amounts the Company uses to first satisfy specified existing obligations, including obligations under the Loan Agreement, under professional contingency arrangements and obligations that may arise under existing technology license agreements (the "Existing IP Licensing Agreements") between the Company and each of Arizona Technology Enterprises, Roche Diagnostics GMBH and Roche Diagnostics Corporation, and California Institute of Technology. For purposes of the Risk Premium Agreement and subject to various provisions therein, the following shall constitute Liquidity Transactions: (A) the receipt by the Company of any payments from third parties relating to its intellectual property portfolio of the Company, including payments received as a license or other settlement in patent infringement litigation brought by the Company ("IP Licensing Events"); (B) a merger of the Company in which there is a change of control; and (C) the sale or exclusive license by the Company of all or substantially all of its assets or intellectual property.

        In connection with the Bridge Debt Financing in November 2010, the Company amended the existing Loan and Security Agreement (the "Senior Debt") between the Company and certain lenders, including General Electric Capital Corporation (the "Lenders"), pursuant to the fourth amendment

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HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

7. Debt (Continued)

thereto (the "Fourth Amendment"). Pursuant to the Fourth Amendment, the Lenders waived various existing events of default and consented to the Company's incurrence of additional indebtedness and the grant of a junior security interest to the Purchasers under the Subordinated Secured Note Purchase Agreement. The Company amended warrants previously issued to the Lenders to re-price the warrants from $4.80 to $0.01 and the Lenders agreed to defer a $200,000 payment originally due January 31, 2011 to the January 1, 2012 term loan maturity date. In addition, subject to the Company's continued compliance with the terms of the Senior Debt, including that there not be an event of default thereunder, the Lenders agreed to defer up to five additional principal monthly payments with respect to the term loan. Also pursuant to the Fourth Amendment, the Company agreed to grant the Lenders a first priority security interest in all of its intellectual property and to pay the Lenders an additional $50,000 to $200,000 (depending upon how many principal payments are deferred) upon the full repayment of all outstanding amounts due with respect to the term loans. Under the terms of the Senior Debt prior to its amendment by the Fourth Amendment, the scope of the Lenders' first priority security interest included all of its assets other than intellectual property. As of the date of this filing, the additional five monthly principal payments referenced above have been deferred and monthly principal payments of approximately $0.25 million resumed as of May 1, 2011. As of December 31, 2010 and June 30, 2011, the outstanding balance of the Senior Debt was $2.8 million and $2.4 million, respectively.

        As of June 30, 2011, loan payments are due as follows (in thousands):

        The above table does not reflect any Risk Premium Payments potentially due to the Note holders pursuant to the Risk Premium Agreement. Such payments are incalculable without specific eligible transactions to assess the financial consideration and amount of the resulting Risk Premium Payment.

8. Other Income

        Other income of $900,000 in the six months ended June 30, 2011 included $251,000 received from the federal government related to the Therapeutic Discovery Tax Credit pursuant to grants received under the Patient Protection and Affordable Care Act of 2010 and $649,000 received pursuant to a business interruption insurance claim the Company made in 2010. The Company will not receive any additional funds related to the Therapeutic Discovery Tax Credit or the business interruption insurance claim.

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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

        Helicos BioSciences Corporation ("Helicos" or the "Company") is a life sciences company focused on innovative genetic analysis technologies. We have developed a proprietary technology to enable the rapid analysis of large volumes of genetic material by directly sequencing single molecules of DNA or RNA. Our tSMS approach differs from current methods of sequencing DNA or RNA because it analyzes individual molecules of DNA directly instead of analyzing a large number of copies of the molecule which must be 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.

        Our Helicos® Genetic Analysis Platform is designed to obtain sequencing information by repetitively performing a cycle of biochemical reactions on individual DNA or RNA 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 information generated from using our tSMS products may lead to improved drug therapies, personalized medical treatments and more accurate diagnostics for cancer and other diseases.

        We have had limited operations to date and our activities have consisted primarily of raising capital, conducting research and development and recruiting personnel. Accordingly, we are considered to be in the development stage at June 30, 2011, as defined by the Financial Accounting Standards Board ("FASB"). Our fiscal year ends on December 31. We operate as one reportable segment. Helicos is a Delaware corporation and was incorporated on May 9, 2003.

        We plan to deploy our limited resources by focusing on intellectual property monetization and research and development activities that are primarily related to grant-funded initiatives. In addition, we have begun to scale-down other research and development efforts in targeted areas that were designed to achieve tangible proof-of-concept goals connected with potential partnership opportunities with companies interested in next-generation sequencing, or to pursue other funding and strategic alternatives. As of the date of this filing, we do not have adequate resources and will continue to need to generate additional funding from various sources including contract sequencing service projects and government grants. We plan to defend our intellectual property rights through licensing and enforcement strategies. In this regard, we took several actions. We filed a lawsuit against Pacific

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Biosciences of California, Inc., Illumina, Inc. and Life Technologies Corporation (collectively, the "Defendants") for patent infringement. The lawsuit, filed in the United States District Court for the District of Delaware, accuses the Defendants of infringing several patents and seeks injunctive relief and monetary damages. We are seeking a permanent injunction enjoining the Defendants from further infringement as well as monetary and punitive damages, costs and attorneys' fees, interests and other relief as determined by the Court. We believe that the proceeds generated by this litigation, if we are successful, could be substantial. We continue to pursue our technology licensing program for our Single Molecule Sequencing and Sequencing-by-Synthesis intellectual property.

        Although we believe that the HeliScope Sequencer has unique utility across a broad array of MDx tests, due to significant financial and resource constraints and the lack of any significant improvement to our financial outlook, we have further delayed our efforts to bring high-value MDx tests based on our technology to the market through the Clinical Laboratory Improvement Amendments of 1988 ("CLIA") laboratory partnership. Nevertheless, we still believe that diagnostic applications may benefit from the specific features of the Helicos System, including the platform's ability to sequence non-amplified natural DNA and RNA directly, provide quantitative accuracy, operate at a high throughput, utilize small sample quantities in simple and cost effective preparation methods, and demonstrate the lack of biases typically seen with sample amplification. However, there can be no assurance that we will be able to deploy MDx tests or our technology through a CLIA laboratory, out-licensing or through our own efforts.

        In order to further conserve our limited resources, during the second quarter of 2011, we further reduced our workforce by phasing out six business and research positions. These six positions will be phased out during the third quarter of 2011 and will ultimately reduce our total headcount to ten positions by the end of the third quarter. In addition, we are reducing the size and associated expense of our leased facility in Cambridge, Massachusetts which will house our headquarters and scientific laboratory. We did not incur or pay out severance charges or lease exit costs with the implementation of these changes in the second quarter. Notwithstanding these most recent workforce reductions and despite our previous reductions, restructurings, expense saving measures, and the Senior Debt and the Bridge Debt Financing (see Note 7 of Notes to Consolidated Financial Statements), we may not have sufficient funds to pursue our business priorities. We will require significant additional capital in the fourth quarter of 2011 to continue our operations beyond the existing $2,000,000 committed portion of the Bridge Debt. As of the date of this filing, $666,667 has been drawn against this committed facility and $1,333,333 remains available to support ongoing operations. Potential sources of additional funding may include funding from the $2,000,000 uncommitted portion of the Bridge Debt Financing facility and/or from other sources that have not yet been identified, but there can be no assurance that any such funding will be available on reasonable terms, if at all. As a result, we are no longer able to remain current in making payments to trade vendors and other unsecured creditors when such payments are due and, despite the restructuring of our Senior Debt, this inability to remain current increases the likelihood that the Lenders could declare a default under the Senior Debt in the near-term, including with regard to solvency. For the period from November 2010 through April 2011, we made interest only payments on amounts outstanding on the Senior Debt. Beginning in May 2011, we resumed making monthly principal payments of approximately $0.25 million on our Senior Debt. The resumption of principal repayments will put additional pressure on our liquidity and capital resources. Workforce reductions, as well as curtailed financial resources, will further impact our ability to implement our business priorities. In addition, these constraints have caused us to significantly scale back service support and reagent supply to our current installed base. We have also significantly curtailed collaborative activities with other parties. Nevertheless, we believe that these actions will preserve our viability and provide additional time to execute our business priorities.

        In November 2010, our securities were delisted from the NASDAQ Global Market and the trading of our common stock was suspended before the opening of business on November 16, 2010, and a

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Form 25-NSE was subsequently filed with the Securities and Exchange Commission on January 21, 2011 which removed our securities from listing and registration on The NASDAQ Stock Market. Our securities are currently traded under the symbol "HLCS" on the OTCQB which is a market tier for OTC-traded companies that are registered and reporting with the SEC.

        Our future capital requirements will depend on many factors and it may require additional capital beyond our currently anticipated amounts. Any such required additional capital may not be available on reasonable terms, if at all, given our prospects, the current economic environment and restricted access to capital markets. The continued depletion of our resources may make future funding more difficult or expensive to attain. Additional equity financing may be dilutive to our stockholders; debt financing, if available, may involve significant cash payment obligations and covenants that restrict our ability to operate as a business; and strategic partnerships may result in royalties or other terms which reduce its economic potential from any adjustments to our existing long-term strategy. If we are unable to execute our operations according to our plans or to obtain additional financing, we may be forced to cease operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amount of reclassification of liabilities, or any adjustment that might be necessary should we be unable to continue as a going concern.

        Since inception, we have incurred losses and have not generated positive cash flows from operations. We expect losses to continue for a considerable period of time. These losses, among other things, have had and will continue to have an adverse effect on our working capital, total assets and stockholders' equity/(deficit). As of June 30, 2011 and July 31, 2011, we had $1.6 million and $1.4 million, respectively, in cash and cash equivalents. We will require significant additional capital in the fourth quarter of 2011 to continue our operations beyond the existing $2,000,000 committed portion of the Bridge Debt. As of the date of this filing, $666,667 has been drawn against this committed facility and $1,333,333 remains available to support ongoing operations. Potential sources of additional funding may include funding from the $2,000,000 uncommitted portion of the Bridge Debt Financing facility and/or from other sources that have not yet been identified, but there can be no assurance that any such funding will be available on reasonable terms, if at all. Our present capital resources are not sufficient to fund our planned operations for a twelve month period as of the date of this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011; accordingly, our current financial resources raise substantial doubt about our ability to continue as a going concern. The resumption of principal repayments under our loan and security agreement will further diminish our existing capital resources.

        The preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities at the dates of the financial statements. Actual amounts may differ from these estimates because of different assumptions or conditions. The December 31, 2010 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. 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 GAAP in the United States of America. The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated.

        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 December 31, 2010, as defined by the Financial Accounting Standards Board ("FASB"). Our fiscal year ends on December 31,

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and we operate as one reportable segment. Our corporate offices are located at One Kendall Square, Building 200, Cambridge, Massachusetts 02139.

Overview of Results of Operations

Three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2011

        Revenues.    Revenues during the three and six months ended June 30, 2010 and 2011 were as follows:

        Product revenue.    We recognized $85,000 and $127,000 of product revenue during the three and six months ended June 30, 2010, respectively, and $109,000 and $338,000 of product revenue during the three and six months ended June 30, 2011, respectively. Product revenue recognized during the three and six months ended June 30, 2010 and 2011 consists primarily of revenue from the sale of proprietary reagents to customers.

        Service revenue.    We had no service revenues for the three and six months ended June 30, 2010 and $273,000 and $644,000 of service revenue during the three and six months ended June 30, 2011, respectively. Service revenue is derived from sales of DNA and RNA sequencing services which commenced in the fourth quarter of 2010.

        Grant revenue.    We recognized $576,000 and $1.1 million of grant revenue during the three and six months ended June 30, 2010, respectively, and $427,000 and $1.0 million of grant revenue during the three and six months ended June 30, 2011, respectively. Grant revenue recognized during the three and six months ended June 30, 2010 and 2011 relates to the reimbursement of expenses in connection with our government research grants.

        As of December 31, 2010 and June 30, 2011, we had deferred $7.3 million and $7.7 million of revenue pursuant to multiple element, single accounting unit arrangements as we had not completed all obligations under these arrangements. These amounts have been received and future revenue recognition will have no effect on our cash balances.

        Cost of product revenue.    We recorded $104,000 and $176,000 as cost of product revenue during the three and six months ended June 30, 2010, respectively and we recorded $33,000 and $131,000 as cost of product revenue during the three and six months ended June 30, 2011, respectively. Cost of product revenue consists of costs associated with the sale of proprietary reagents.

        Research and development expenses.    Research and development expenses during the three and six months ended June 30, 2010 and 2011 were as follows:

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        Research and development expenses decreased by $3.2 million, or 77%, from the three months ended June 30, 2010 to the three months ended June 30, 2011. Research and development expenses decreased by $6.1 million, or 74%, from the six months ended June 30, 2010 to the six months ended June 30, 2011. The significant decreases in research and development expenses for both the three month and six month periods ended June 30, 2011 is primarily due to a reduction in research and development personnel and research and development support costs in 2011 from 2010. Included in research and development expenses are costs associated with service and grant revenue.

        Selling, general and administrative expenses.    Selling, general and administrative expenses during the three and six months ended June 30, 2010 and 2011 were as follows:

        Selling, general and administrative expenses decreased by $1.3 million, or 48%, from the three months ended June 30, 2010 to the three months ended June 30, 2011. In comparing the six months ended June 30, 2010 to the six months ended June 30, 2011, selling, general and administrative expenses decreased by $4.4 million, or 65%. The significant decreases in selling, general and administrative expenses in both the three and six month periods ended June 30, 2011 is primarily due to the reduction of personnel and related support costs in 2011 from 2010.

        Interest income.    Interest income for the three and six months ended June 30, 2010 and 2011 was as follows:

        The decrease in interest income from the three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2011 was due primarily to decreased cash balances.

        Interest expense.    Interest expense for the three and six months ended June 30, 2010 and 2011 was as follows:

        The increase in interest expense from the three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2011 is attributable to the year over year increase in interest expense, including amortization of deferred financing costs, related to the Bridge Debt and Notes in 2011.

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        Change in fair value of warrant liability.    Change in fair value of warrant liability for the three and six months ended June 30, 2010 and 2011 was as follows:

        In connection with the September and December 2009 equity offerings, we issued warrants to purchase an aggregate of 6,482,509 shares of common stock. As of June 30, 2011, 681,884 of these warrants remained unexercised. The fair value of the warrants is recorded in the liability section of the balance sheet and at June 30, 2010 and 2011 was estimated at $1.7 million and $43,000, respectively. The fair value of the warrant liability will be determined at the end of each reporting period with the resulting gains and losses recorded as the change in fair value of warrant liability on the statement of operations. For the three and six month period ended June 30, 2010, we realized a gain of $1.8 million and $3.3 million, respectively, due to the change in the fair value of the warrant liability. This gain is principally a result of the decrease of our stock price between December 31, 2009 and June 30, 2010. The gains and losses recognized during the three and six month period ended June 30, 2011 were due to the changes in our common stock price during the respective periods. During the three month period ended June 30, 2011 there were no exercises of warrants. For the six months ended June 30, 2011, warrants for 1,263,215 shares of common stock were exercised. The warrant liability was $43,000 at June 30, 2011. Futures changes in the fair value of the warrant liability will be due primarily to fluctuations in the value of our common stock and potential exercises of the remaining warrants outstanding.

Other Income

        Other income of $900,000 in the six months ended June 30, 2011 included $251,000 received from the federal government related to the Therapeutic Discovery Tax Credit pursuant to grants received under the Patient Protection and Affordable Care Act of 2010 and $649,000 received pursuant to a business interruption insurance claim we made in 2010. We will not receive any additional funds related to the Therapeutic Discovery Tax Credit or the business interruption insurance claim. Both the Therapeutic Discovery Tax Credit and the business interruption insurance claim were received in the first quarter of 2011.

Liquidity and Capital Resources

        We have incurred losses since our inception in May 2003 and, as of June 30, 2011 we have an accumulated deficit of $188.6 million. We have financed our operations to date principally through the sale of common stock and preferred stock, including our IPO, two private placements of common stock and warrants, an underwritten offering of common stock and warrants, debt financing and interest earned on investments and revenue. Through June 30, 2011, we have received net proceeds of $80.3 million through the issuance of common stock, including our IPO, private placements and an underwritten offering of common stock and warrants, $66.4 million from the issuance of preferred stock, $2.5 million in debt financing from a lender to finance equipment purchases, and $20.3 million in debt financing from lenders for working capital, capital expenditures and general corporate purposes and $11.0 million in revenue. Working capital deficit as of December 31, 2010 was $(5.6) million, consisting of $6.7 million in current assets and $12.3 million in current liabilities. Working capital deficit as of June 30, 2011 was $(7.0) million, consisting of $5.4 million in current assets and $12.4 million in current liabilities. Our cash and cash equivalents are held in interest-bearing cash accounts. Cash in

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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 six months ended June 30, 2010 and 2011:

        Net cash used in operating activities was $8.5 million for the six months ended June 30, 2010 compared to $0.4 million for the six months ended June 30, 2011. The $8.1 million decrease was primarily due to a decrease in the net loss of $8.9 million. Additionally, the net changes in operating assets and liabilities resulted in a $0.5 million decrease in net cash used by operating activities. A $3.0 million decrease in stock-based compensation expense was essentially offset by a $3.3 million decrease in non-cash income related to the fair value of our warrant liability.

        Net cash used in investing activities was $37,000 for the six months ended June 30, 2010. There was no cash used in or provided by investing activities for the six months ended June 30, 2011.

        Net cash used in financing activities was $1.2 million for the six months ended June 30, 2010 compared to $0.5 million for the six months ended June 30, 2011. The $700,000 decrease was primarily due to a $858,000 decrease in debt payments related to the suspension of principal payments on our Senior Debt which resumed on May 1, 2011, and $158,000 in proceeds from the conversion of warrant shares into common stock.

Operating capital and capital expenditure requirements

        As of June 30, 2011 and July 31, 2011, we had $1.6 million and $1.4 million, respectively, in cash and cash equivalents. We will require significant additional capital to continue our operations by the fourth quarter of 2011. Because our present capital resources are not sufficient to fund our planned operations for a twelve month period as of the date of this Quarterly Report on Form 10-Q for the six month period ended June 30, 2011, our current financial resources raise substantial doubt about our ability to continue as a going concern.

        Notwithstanding recent workforce reductions, restructurings, the Senior Debt and the Bridge Debt Financing, we may not have sufficient funds to pursue our business priorities. We will require significant additional capital in the second half of 2011 to continue our operations. As a result, we are no longer able to remain current in making payments to trade vendors and other unsecured creditors when such payments are due and, despite the restructuring of our Senior Debt discussed above, this inability to remain current increases the likelihood that the Lenders could declare a default under the credit facility in the near-term, including with regard to solvency. For the period from November 2010 through April 2011, we made interest only payments on amounts outstanding on the Senior Debt. Beginning in May 2011, we resumed making monthly principal payments of approximately $0.25 million on our Senior Debt. The resumption of principal repayments will put additional pressure on our liquidity and capital resources. Workforce reductions, as well as curtailed financial resources, will further impact our ability to implement our business priorities. In addition, these constraints have

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caused us to significantly scale back service support and reagent supply to our current installed base. We have also significantly curtailed collaborative activities with other parties. Nevertheless, we believe that these actions will preserve our viability and provide additional time to execute our business priorities.

        Our future capital requirements will depend on many factors and we may require additional capital beyond our currently anticipated amounts. Any such required additional capital may not be available on reasonable terms, if at all, given our prospects, the current economic environment and restricted access to capital markets. The continued depletion of our resources may make future funding more difficult or expensive to attain. Additional equity financing may be dilutive to our stockholders; debt financing, if available, may involve significant cash payment obligations and covenants that restrict our ability to operate as a business; and strategic partnerships may result in royalties or other terms which reduce our economic potential as a result of required adjustments to our existing long-term strategy. If we are unable to execute our operations according to our plans or to obtain additional financing, we may be forced to cease operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amount of reclassification of liabilities, or any adjustment that might be necessary should we be unable to continue as a going concern.

        Failure to satisfy our capital requirements or any delay in doing so would have a material negative impact on our ability to continue as a going concern.

        Through August 10, 2011, we have received cumulative sales orders for ten Helicos Systems. From our inception to date, we recognized revenue on three of the ten sales orders, respectively. We have shipped six units that have not met our revenue recognition criteria and one sales order unit was returned. A system that was installed at The Broad Institute, Inc. on a no-cost basis was returned to us in April 2011. In addition, we had one Helicos System at a leading academic institution for scientific and commercial evaluation which was returned to us in March 2011.

        As of December 31, 2010 and June 30, 2011, we had deferred revenue of $7.3 million and $7.7 million, respectively. Pursuant to the revenue recognition guidelines for multiple element, single accounting unit arrangements, we have continued to defer recognition of these amounts as revenue due to the uncertainty associated with our ability to deliver on all of the obligations under these arrangements. These amounts have been received and future revenue recognition will have no effect on our cash balances.

        Our forecast for the period of time through which our financial resources will be adequate to support our operations, and the costs associated with our new business priorities 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, 2010. We have based these estimates on assumptions that may prove to be wrong, and we could consume our available capital resources sooner than we currently expect.

        Because of the numerous risks and uncertainties associated with our business we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to sustain our operations. Our future capital requirements will depend on many factors, including, but not limited to, the following:

•

any litigation related to defending our intellectual property or defending lawsuits that allege our actions infringe intellectual property of third parties;



•

the success of our research and development efforts;



•

the expenses we incur in marketing and selling our products or services;



•

the revenue generated by future sales of our products or services;

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•

the timeliness of payments from our customers;



•

the ability to structure arrangements with and make payments to our unsecured creditors;



•

the ability to further restructure our Senior Debt arrangement in the future;



•

the continued funding to the Bridge Debt Financing facility;



•

the emergence of competing or complementary technological developments;



•

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



•

regulatory changes in our markets; and



•

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

        Working capital deficit as of December 31, 2010 was $(5.6) million, consisting of $6.7 million in current assets and $12.2 million in current liabilities. Working capital deficit as of June 30, 2011 was $(7.0) million, consisting of $5.4 million in current assets and $12.4 million in current liabilities.

Contractual Obligations

        A summary of our contractual obligations is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. 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, 2010 except that we resumed making monthly principal payments of $0.25 million per month under our loan and security agreement in May 2011.

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 the realization of certain milestones or royalties payable under these agreements.

Senior Debt and Bridge Debt Financing Facility

        As of June 30, 2011, we owed aggregate payments, including interest, of $2.6 million pursuant to the Senior Debt which is due to be paid over the period ending January 1, 2012. In addition to interest being paid monthly, in May 2011 we resumed making monthly principal payments of approximately $0.25 million. In addition, a deferred payment of $800,000, which is included in the total aggregate payments owed on the Senior Debt, is due on January 1, 2012. The Senior Debt contains a subjective material adverse clause, which allows the Lenders to call the loans upon the occurrence of a material adverse event.

        Also, pursuant to the Bridge Debt Financing, we borrowed $0.7 million through June 30, 2011 and have the ability to borrow an additional $1.3 million in monthly amounts of $333,333 through the due date of December 31, 2012. The purchasers of the Notes issued pursuant to the Bridge Debt Financing also have the right, but not the obligation, upon our request to purchase up to an additional $2,000,000 of notes on or before December 31, 2012. As of December 31, 2010 and June 30, 2011, we owed principal and accrued interest aggregating $674,000 and $708,000, respectively.

        As an inducement for the purchasers to purchase the notes pursuant to the Bridge Debt Financing, we entered into a Risk Premium Payment Agreement in November 2010 with such purchasers (the "Risk Premium Agreement"). Under the terms of the Risk Premium Agreement, and with certain exceptions, we have agreed to pay the purchasers of the notes the following portions of the consideration we receive (the "Payment Consideration") in certain liquidity transactions: (i) until the

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aggregate Payment Consideration equals $10 million, 60% of the Payment Consideration; (ii) for aggregate Payment Consideration from $10 million to $20 million, 50% of the Payment Consideration; (iii) for aggregate Payment Consideration from $20 million to $30 million, 40% of the Payment Consideration; (iv) for aggregate Payment Consideration from $30 million to $40 million, 30% of the Payment Consideration; and (v) for aggregate Payment Consideration in excess of $40 million, 10% of the Payment Consideration (any such payments, "Risk Premium Payments"). For purposes of determining amounts payable under the Risk Premium Agreement, the Payment Consideration will not include amounts we use to first satisfy specified existing obligations, including obligations under the Loan Agreement, under professional contingency arrangements and obligations that may arise under existing technology license agreements (the "Existing IP Licensing Agreements") between us and each of Arizona Technology Enterprises, Roche Diagnostics GMBH and Roche Diagnostics Corporation, and California Institute of Technology. For purposes of the Risk Premium Agreement and subject to various provisions therein, the following shall constitute Liquidity Transactions: (A) the receipt by us of any payments from third parties relating to our intellectual property portfolio, including payments received as a license or other settlement in patent infringement litigation brought by us ("IP Licensing Events"); (B) a merger of Helicos in which there is a change of control; and (C) the sale or exclusive license by us of all or substantially all of our assets or intellectual property.

        In connection with the Bridge Debt Financing and the Senior Debt and as security for our obligations under our contingency fee arrangement with outside intellectual property litigation counsel relating to the patent infringement lawsuit we filed against Pacific Biosciences of California, Inc., Illumina, Inc. and Life Technologies Corporation, we entered into a subordinated security agreement with outside intellectual property litigation counsel pursuant to which we agreed to grant outside intellectual property litigation counsel a second priority security interest in the patent infringement lawsuit. Under the terms of the contingency fee arrangement, we are obligated to pay outside intellectual property litigation counsel up to 40% of the proceeds paid to us in connection with the settlement, judgment or other resolution of the Cause of Action (as defined in the contingency fee arrangement) or certain business transactions resulting from or relating to the patent infringement lawsuit.

        In approving the transactions relating to the Bridge Debt Financing and the Senior Debt, our Board of Directors approved a management incentive plan pursuant to which participants in the plan, including Dr. Ivan Trifunovich and Mr. Jeffrey Moore, will be entitled to receive, in the aggregate, an amount equal to 7.5% of the payment consideration resulting from certain IP licensing events (the "Management Incentive Plan"). The specific terms of the Management Incentive Plan, administration and all payments to be made to management thereunder will be under the control and direction of our Board of Directors.

OFF-BALANCE SHEET ARRANGEMENTS

        During the six month periods ended June 30, 2010 and 2011, we did not have any special purpose entities or engage in any off-balance sheet financing arrangements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

        In our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, 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 fair value of financial instruments. We reviewed our policies and determined that those policies remain our critical accounting policies for the six months ended June 30, 2011. We did not make any changes in those policies during the six months ended June 30, 2011.

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RECENT ACCOUNTING PRONOUNCEMENTS

        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. We adopted this accounting guidance on a prospective basis in the first quarter of 2011 for new revenue arrangements. The adoption did not have a material impact on our consolidated financial statements.

        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. We adopted this standard on January 1, 2011. This adoption did not have a material impact on our consolidated financial statements.

        In January 2011, we adopted ASU No. 2010-06, "Improving Disclosures About Fair Value Measurements" which requires additional disclosure about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. In addition, effective for interim and annual periods beginning after December 15, 2010, which for us is January 1, 2011, this standard further requires an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than as one net amount. As this accounting standard only requires enhanced disclosure, the adoption of this newly issued accounting standard did not impact our financial position or results of operations.

        In May 2011, the FASB issued ASU No. 2011-04, "Fair Value Measurement (Topic 820): Amendment to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs". This newly issued accounting standard clarifies the application of certain existing fair value measurement guidance and expands the disclosure for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This ASU is effective on a prospective basis for annual and interim reporting periods beginning on or after December 15, 2011, which for us is January 1, 2012. We do not expect that adoption of this standard will have a material impact on our financial position or results of operations.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

        Our exposure to market risk is limited to our cash. 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 in interest-bearing cash accounts. As all of our investments are cash deposits in a global bank, it is subject to minimal interest rate risk.

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EFFECT OF CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT

        We conduct business operations outside of the United States primarily in Japan and to a lesser extent in certain European countries. The foreign denominated financial obligations that we are exposed to at this time in Japan are relatively short-term. Our practice in Europe has been to enter into US-dollar-denominated transactions with our customers. Therefore, any currency fluctuations will not have a material impact on our financial position, results of operations or cash flows.

Item 4.    Controls and Procedures

Evaluation of Disclosure 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 June 30, 2011. In designing and evaluating our disclosure controls and procedures, we and our management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based on that evaluation, our PEO and PFO have concluded that our disclosure controls and procedures were effective at the reasonable level of assurance.

Changes in Internal Control Over Financial Reporting

        No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended June 30, 2011 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

        On August 27, 2010, we filed a lawsuit against Pacific Biosciences of California, Inc. ("Pacific Biosciences") in the United States District Court for the District of Delaware (CA. No. 10-735-SLR) alleging that Pacific Biosciences infringes U.S. Patent Nos. 7,645,596 ("'596 Patent"), 7,037,687 ("'687 Patent"), 7,169,560 ("'560 Patent"), and 7,767,400 ("'400 Patent"). On October 22, 2010, we filed an amended complaint naming Illumina, Inc. ("Illumina") and Life Technologies Corporation ("Life Technologies") as additional defendants. In the amended complaint, we further allege that Life Technologies infringes the '596 Patent, the '687 Patent, and the '560 Patent, and that Illumina infringes the '687 Patent, the '560 Patent, and U.S. Patent No. 7,593,109 ("'109 Patent"). We accuse Pacific Biosciences of willful patent infringement based at least on its manufacture, use, and sale of its Single Molecule Real Time ("SMRT™") DNA sequencing technology. We accuse Life Technologies of willful patent infringement based at least on its manufacture, use, and offer for sale of its Single Molecule Real-Time DNA Sequencing of a Quantum-dot Nanocrystal technology for single molecule sequencing of DNA. We accuse Illumina of willful patent infringement based at least on its manufacture, use, offer for sale, sale, and importation of its sequencing technology for single molecule sequencing of DNA including its Genome Analyzer, HiSeq 2000, and its Sq Module in combination with its iScan and HiScan platforms. We are seeking a permanent injunction enjoining each of the defendants from further infringement as well as compensatory and punitive damages, costs, and attorneys' fees, interest, and other relief as determined by the Court. On January 27, 2011, Pacific Biosciences submitted requests to the United States Patent and Trademark Office (the "Patent Office") for inter parties reexamination of the '687 Patent, the '560 Patent, the '596 Patent and the '400 Patent and are seeking a determination that one or more of the claims of those patents are invalid. The Patent Office granted the requests for reexamination of the '400 Patent and the '596 Patent on March 10, 2011, the request for reexamination of the '560 Patent on March 31, 2011, and the request for reexamination of the '687 Patent on April 13, 2011, and issued office actions rejecting all claims of the patents. We have filed responses to each of these office actions with the Patent Office, and Pacific Biosciences has subsequently filed third-party requester comments for each of the reexaminations. All four reexaminations remain pending. On April 25, 2011, Pacific Biosciences moved the Court to stay the litigation pending the outcome of the patent-reexamination proceedings. Life Technologies later joined the motion. On June 23, 2011, Life Technologies moved the Court to drop or sever and stay our claims against it. The Court has not yet entered an order on either of these motions. The Court conducted a scheduling conference on February 9, 2011 and set a trial date of September 10, 2012. Discovery opened in the matter on January 12, 2011, and production of documents was completed on July 15, 2011.

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. There have been no material changes to the risk factors previously disclosed in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2010.

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

Issuer Purchases of Equity Securities

        Upon the termination of employees during the quarter ended June 30, 2011, unvested restricted shares were forfeited. The following table provides information about our forfeited restricted shares for the three months ended June 30, 2011:

Item 3.    Defaults upon Senior Securities

        None.

Item 4.    (Removed and Reserved)

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.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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EXHIBIT INDEX

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