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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________ .
COMMISSION FILE NUMBER: 000-30361
ILLUMINA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0804655
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9390 TOWNE CENTRE DRIVE, SAN DIEGO, 92121
CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (858) 587-4290
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 8, 2001, there were 32,068,459 shares of the Registrant's
Common Stock outstanding. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant (based on the closing price for the Common
Stock on the Nasdaq National Market on March 8, 2001) was approximately
$179,306,764. This amount excludes an aggregate of 16,130,080 shares of common
stock held by officers and directors and each person known by the Registrant to
own 10% or more of the outstanding common stock. Exclusion of shares held by any
person should not be construed to indicate that such person possesses the power,
direct or indirect, to direct or cause the direction of management or policies
of the Registrant, or that such person is controlled by or under common control
with the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 2001 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Report.
Certain exhibits filed with the Registrant's prior registration statements
and Forms 10-Q are incorporated herein by reference into Part IV of this Report.
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ILLUMINA, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
PAGE
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PART I
Item 1 Business.................................................... 1
Item 2 Properties.................................................. 10
Item 3 Legal Proceedings........................................... 10
Item 4 Submission of Matters to a Vote of Security Holders......... 10
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 11
Item 6 Selected Financial Data..................................... 12
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
Item 7A Quantitative and Qualitative Disclosures about Market
Risk...................................................... 21
Item 8 Financial Statements and Supplementary Data................. 22
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 22
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 23
Item 11 Executive Compensation...................................... 23
Item 12 Security Ownership of Certain Beneficial Owners and
Management................................................ 23
Item 13 Certain Relationships and Related Transactions.............. 23
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 24
Signatures............................................................ 26
Financial Statements.................................................. F-1
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This Annual Report on Form 10-K may contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, and Section 21E
of the Securities Exchange Act of 1934. These statements relate to future events
or our future financial performance. We have attempted to identify forward-
looking statements by terminology including "anticipates," "believes," "can,"
"continue," "could," "estimates," "expects," "intends," "may," "plans,"
"potential," "predicts," "should" or "will" or the negative of these terms or
other comparable terminology. These statements are only predictions and involve
known and unknown risks, uncertainties and other factors, including the risks
outlined under "Factors Affecting Operating Results," contained in Item
7 -- "Management's Discussion and Analysis of Financial Condition and Results of
Operation," that may cause our actual results, levels of activity, performance
or achievements to be materially different from any future results, levels or
activity, performance or achievements expressed or implied by these
forward-looking statements. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. We are not under any
duty to update any of the forward-looking statements after the date we file this
Annual Report on Form 10-K or to conform these statements to actual results,
unless required by law.
Illumina(TM), BeadArray(TM), Array of Arrays(TM) and Oligator(TM) are our
trademarks. This report also contains brand names, trademarks or service marks
of companies other than Illumina, and these brand names, trademarks and service
marks are the property of their respective holders.
PART I
ITEM 1. BUSINESS.
OVERVIEW
We are a leading developer of next-generation tools for the large-scale
analysis of genetic variation and function. Understanding genetic variation and
function is critical to the development of personalized medicine, a key goal of
genomics. Our tools will provide information that could be used to improve drugs
and therapies, customize diagnoses and treatment, and cure disease.
Completion of the sequencing of the human genome will drive demand for
tools that can assist researchers in processing the billions of tests necessary
to convert raw genetic data into medically valuable information. This requires
functional analysis of highly complex biological systems, involving a scale of
experimentation not practical using currently available tools and technologies.
Using our technologies, we are developing a comprehensive line of products that
can address the scale of experimentation and the breadth of functional analysis
required to achieve the goals of molecular medicine.
Our patented BeadArray technology uses fiber optics to achieve a level of
array miniaturization that allows for a new scale of experimentation. An array
is a collection of miniaturized test sites arranged on a surface that permits
many tests, or assays, to be performed in parallel. By arranging our arrays in a
pattern that matches the wells of industry standard containers called microtiter
plates, we can simultaneously process many samples in parallel, achieving
throughput significantly beyond the capability of any technology known to us. We
assemble our arrays using relatively inexpensive raw materials. Our proprietary
manufacturing process allows us to easily adapt the arrays to a broad range of
applications. These advances allow us to create next-generation arrays with a
unique combination of high throughput, cost effectiveness and flexibility. In
addition, our complementary Oligator technology permits parallel synthesis of
the millions of different pieces of DNA necessary to perform large-scale genetic
analysis on arrays.
We intend to provide both products and services that utilize our
proprietary technologies. Our first products, being developed in partnership
with Applied Biosystems, will include disposable BeadArray cassettes, reagent
kits for analyzing variation in genetic sequences, and instruments that
automatically read data from the BeadArray cassettes. An array cassette is a
collection of individual arrays arranged in a pattern, and a reagent kit is a
set of chemicals used for performing specific analyses. We also plan to
commercialize services for the analysis of genetic variation.
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We were incorporated in California in April 1998. We reincorporated in
Delaware in July 2000. Our principal executive offices are located at 9390 Towne
Centre Drive, Suite 200, San Diego, California 92121. Our telephone number is
(858) 587-4290.
INDUSTRY BACKGROUND
Genetic Variation and Function
Every person inherits two copies of each gene, one from each parent. The
two copies of each gene may be identical, or they may be different. These
differences are referred to as genetic variation. Examples of the physical
consequences of genetic variation include differences in eye and hair color.
Genetic variation can also have important medical consequences, including
predisposition to disease and differential response to drugs. Genetic variation
affects diseases, including cancer, diabetes, cardiovascular disease and
Alzheimer's disease. In addition, genetic variation may cause people to respond
differently to the same drug. Some people may respond well, others may not
respond at all, and still others may experience adverse side effects.
The most common form of genetic variation is a Single Nucleotide
Polymorphism, or SNP. A SNP is a variation in a single position in a DNA
sequence. It is estimated that the human genome contains between three and six
million SNPs. The importance of SNPs is illustrated by the recent formation of
the SNP Consortium, which includes nine major pharmaceutical companies,
chartered to discover an initial set of approximately 300,000 SNPs.
While in some cases a single SNP will be responsible for medically
important effects, it is now believed that the genetic component of most major
diseases is the result of the interaction of many SNPs. Therefore, it will be
important to investigate many SNPs together in order to discover medically
valuable information.
In addition to the knowledge gained from the analysis of SNPs, the study of
gene function will significantly contribute to clinical diagnosis and treatment.
This study focuses on the physiological functions that are affected by medically
relevant SNPs.
Current efforts to understand genetic variation and function have centered
around three principal techniques: SNP genotyping, gene expression profiling and
proteomics.
SNP Genotyping
SNP genotyping is the process of determining which SNPs are present in each
of the two copies of a gene, or other portion of DNA sequence, within an
individual or other organism. The use of SNP genotyping to obtain meaningful
statistics on the effect of an individual SNP or a collection of SNPs, and to
apply that information to clinical trials and diagnostic testing, will require
the analysis of millions of SNP genotypes and the testing of large populations
for each disease. For example, a single large clinical trial could involve
genotyping 300,000 SNPs per patient in 1,000 patients, thus requiring 300
million assays. Using available technologies, this scale of SNP genotyping is
both impractical and prohibitively expensive.
Large-scale SNP genotyping, when commercially feasible, will be used for a
variety of applications, including genomics-based drug development, clinical
trial analysis, disease predisposition testing, and disease diagnosis. SNP
genotyping can also be used outside of healthcare, for example in the
development of plants and animals with desirable commercial characteristics.
These markets will require billions of SNP genotyping assays annually.
Gene Expression Profiling
Gene expression profiling is the process of determining which genes are
active in a specific cell or group of cells and is accomplished by measuring
mRNA, the intermediary between genes and proteins. Variation in gene expression
can cause disease, or act as an important indicator of disease or predisposition
to disease. By comparing gene expression patterns between cells from different
environments, such as normal tissue compared to diseased tissue or in the
presence or absence of a drug, specific genes or groups of genes that play
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a role in these processes can be identified. Studies of this type, used in drug
discovery, require monitoring thousands, and preferably tens of thousands, of
mRNAs in large numbers of samples. The high cost of large-scale gene expression
profiling has limited the development of the gene expression profiling market.
Once gene expression patterns have been correlated to specific diseases,
gene expression profiling is expected to become an important diagnostic tool.
Diagnostic use of expression profiling tools is anticipated to grow rapidly with
the combination of the sequencing of various genomes and the availability of
more cost-effective technologies.
Proteomics
Proteomics is the process of determining which proteins are present in
cells and how they interact with one another. Proteomics is another method of
correlating the molecular state of a cell with disease or reaction to a stimulus
such as a drug. This market remains undeveloped, as low cost, accurate
technologies for analysis have not been available. We expect that proteomics
will become valuable in drug discovery research as the technologies improve and
that array technology will be critical in facilitating the growth of this
market.
OUR TECHNOLOGIES
We have developed a proprietary array technology that enables the
large-scale analysis of genetic variation and function. Our BeadArray technology
combines fiber optic bundles and microscopic beads in a simple proprietary
manufacturing process to produce array cassettes that can perform many assays
simultaneously. Our BeadArray technology provides a unique combination of high
throughput, cost effectiveness, and flexibility. We achieve high throughput with
a high density of test sites per array and our ability to format arrays in a
pattern arranged to match the wells of standard microtiter plates. We maximize
cost effectiveness by reducing consumption of expensive reagents and valuable
samples, and from the low manufacturing costs associated with our complementary
technologies. Our ability to vary the size, shape and format of the fiber optic
bundles and to create specific beads for different applications provides the
flexibility to address multiple markets and market segments. We believe that
these features will enable our BeadArray technology to become a leading platform
for the emerging high-growth markets of SNP genotyping, gene expression
profiling and proteomics.
Our proprietary BeadArray technology combines fiber optic bundles and
specially prepared beads that self-assemble into an array. Each fiber optic
bundle contains thousands to millions of individual fibers depending on the
diameter of the bundle. In a separate process, we create sensors by affixing a
specific type of molecule to each of the billions of microscopic beads in a
given batch. The particular molecules on a bead define that bead's function as a
sensor. We combine batches of beads coated with specific molecules to form a
pool specific to the type of array we intend to create.
To form an array, we typically dip each fiber optic bundle into a pool of
coated beads. The coated beads are drawn into the wells, one bead per well, on
the end of each fiber in the bundle. The tens of thousands of beads at the end
of the fiber optic bundle comprise our BeadArray. One may perform an experiment
by then dipping the BeadArray into a prepared sample. The molecules in the
sample bind to their matching molecules on the coated bead. Since each bead
performs its own assay, we are able to make tens of thousands of quantitative
measurements simultaneously on each sample.
Using our BeadArray technology, we have addressed the limitations of the
tools for genetic analysis. We achieve high throughput with a high density of
test sites per array and our ability to format arrays in a pattern arranged to
match the wells of standard microtiter plates. We maximize cost effectiveness by
reducing consumption of expensive reagents and valuable samples, and through the
low manufacturing cost associated with our BeadArray technology. Our ability to
vary the size, shape and format of the fiber optic bundles and to create
specific beads for various applications gives us the flexibility to address
multiple markets and market segments.
Our proprietary Oligator technology complements our BeadArray technology.
The Oligator synthesizes in parallel many different short segments of DNA to
meet the requirements of large-scale genomics applications.
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We believe that our Oligator technology is substantially more cost effective and
provides higher throughput than available commercial alternatives.
BeadArray Technology
Our proprietary BeadArray technology combines fiber optic bundles and
specially prepared beads that self-assemble into an array.
Fiber Optic Bundles. We have the fiber optic bundles manufactured to our
specifications, which we cut into lengths of less than one inch. Each bundle
contains thousands to millions of individual fibers depending on the size of the
bundle. For example, a fiber optic bundle with a diameter of approximately one
millimeter could contain up to 50,000 individual fibers. Dipping the fiber optic
bundles into a chemical solution etches a microscopic well at the end of each
individual fiber within a bundle. In the preceding example, this process would
create 50,000 microscopic wells per bundle.
Microscopic Beads. In a separate process, we create sensors by affixing a
specific type of molecule to each of the billions of microscopic beads in a
batch. We make different batches of beads, with the beads in a given batch
coated with one particular type of molecule. The particular molecules on a bead
define that bead's function as a sensor. For example, we create a batch of SNP
sensors by attaching a particular DNA sequence to each bead in the batch. We
combine batches of coated beads to form a pool specific to the type of array we
intend to create. A bead pool one milliliter in volume contains sufficient beads
to produce thousands of arrays.
BEADARRAY SENSORS: COATING, POOLING AND SELF-ASSEMBLY
Array Self-Assembly and Decoding. To form an array we typically dip each
fiber optic bundle into a pool of coated beads. The coated beads are drawn into
the wells, one bead per well, on the end of each fiber in the bundle. We call
this process self-assembly. The tens of thousands of beads at the end of the
fiber optic bundle comprise our BeadArray. Because the beads assemble randomly
into the wells, we perform a final procedure called decoding in order to
determine which bead type occupies which well in the array. We employ several
proprietary methods for decoding, a process that requires only a few steps to
identify all the beads in the array. One beneficial by-product of the decoding
process is a validation of each bead in the array. This quality control test
characterizes the performance of each bead and can identify and eliminate use of
any empty wells. We ensure that each bead type on the array is sufficiently
represented by having multiple copies of each bead type. This improves the
reliability and accuracy of the resulting data by allowing statistical
processing of the results of identical beads.
Array Use in Experiments. One performs an experiment on the BeadArray by
preparing a sample, such as DNA from a patient, and introducing it to the array.
The design features of our BeadArray allow it to be simply dipped into a
solution containing the sample. The molecules in the sample bind to their
matching molecules on the coated bead. An analytical instrument detects the
matched molecules by shining a laser through the fiber optic bundle. Since the
molecules in the sample have a structure that causes them to emit light in
response to a laser, detection of a binding event is possible. This allows the
measurement of the number of molecules bound to each coated bead, resulting in a
quantitative analysis of the sample.
Oligator Technology
Genomic applications require many different short pieces of DNA that can be
made synthetically, called oligonucleotides. For example, SNP genotyping
typically requires three to four different oligonucleotides per assay. A SNP
genotyping experiment analyzing 10,000 SNPs may therefore require 30,000 to
40,000 different oligonucleotides, contributing significantly to the expense of
the experiment.
We have designed our proprietary Oligator technology for the parallel
synthesis of many different oligonucleotides to meet the requirements of
large-scale genomics applications. We believe that our Oligator technology is
substantially more cost effective and provides higher throughput than available
commercial alternatives. Our technology utilizes centrifugation for the
automated parallel synthesis of 1536 different
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oligonucleotides per machine per day. Using a similar approach, we expect to
develop instruments in the future with substantially greater capacity.
Key Advantages of Our BeadArray and Oligator Technologies
We believe that our BeadArray and Oligator technologies provide distinct
advantages, in a variety of applications, over competing technologies, by
creating cost-effective, highly miniaturized arrays with the following
advantages:
High Throughput. The miniaturization of our BeadArray provides
significantly greater information content per unit area than any other array
known to us. To further increase throughput, we have formatted our arrays in a
pattern arranged to match the wells of standard microtiter plates, allowing
throughput levels of up to 3 million unique assays per microtiter plate. The
Oligator's parallel synthesis capability allows us to manufacture the diversity
of oligonucleotides necessary to support large-scale genomic applications.
Cost Effectiveness. Our BeadArray substantially reduces the cost of
experiments as a result of our proprietary manufacturing process and our ability
to capitalize on cost reductions generated by advances in fiber optics, digital
imaging and bead chemistry. In addition, our miniaturized BeadArray requires
smaller volumes than other array technologies, and therefore reduces reagent
costs. Our Oligator technology further reduces reagent costs, as well as the
cost of coating beads.
Flexibility. A wide variety of conventional chemistries are available for
attaching different molecules, such as DNA, RNA, proteins, and other chemicals
to beads. By using beads, we are able to take advantage of these chemistries to
create a wide variety of sensors, which we assemble into arrays using the same
proprietary manufacturing process. In addition, we can have fiber optic bundles
manufactured in multiple shapes and sizes and organized in various arrangements
to optimize them for different markets and market segments. In combination, the
use of beads and fiber optic bundles provides the flexibility and scalability
for our BeadArray technology to be tailored to perform many applications in many
different market segments, from drug discovery to diagnostics. Our Oligator
technology allows us to manufacture a wide diversity of lengths and quantities
of oligonucleotides.
Accuracy. The high density of beads in each array enables us to have
multiple copies of each individual bead type. We measure the copies
simultaneously and combine them into one data point. This allows us to make a
comparison of each bead against its own population of identical beads, which
permits the statistical calculation of a more reliable and accurate value for
each data point. Finally, the manufacture of the array includes a proprietary
decoding step that also functions as a quality control test of every bead on
every array, improving the overall accuracy of the data.
OUR STRATEGY
Our goal is to make our BeadArray platform the industry standard for
products and services utilizing array technologies. We plan to achieve this by:
- focusing on emerging high-growth markets;
- rapidly commercializing our BeadArray technology for SNP genotyping;
- partnering with multiple companies to expand our market opportunity;
- expanding our technologies into multiple product lines; and
- strengthening our technological leadership.
PRODUCTS AND SERVICES
The first implementation of our BeadArray technology, the Array of Arrays,
will be a disposable cassette with 96 fiber optic bundles arranged in a pattern
that matches the standard 96-well microtiter plate. Each fiber optic bundle will
perform approximately 2,000 unique assays. Therefore, one Array of Arrays can
perform approximately 192,000 individual assays simultaneously, more than any
other array system known to us.
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By simply increasing the number of fiber optic bundles in the cassette, we
will expand the Array of Arrays to match standard 384-well and 1,536-well
microtiter plates. In these configurations, the Array of Arrays will be able to
simultaneously perform approximately 768,000 and 3,072,000 unique assays,
respectively.
We intend to provide both products and services using our proprietary
BeadArray platform. In partnership with Applied Biosystems, we are developing
our first products based on our Array of Arrays. These products will include
disposable Array of Arrays, reagent kits for SNP genotyping and instruments that
automatically read data from our Array of Arrays. Our services may involve
partnerships for early access to our technology prior to its general commercial
release. In addition to early access, we may commercialize assay development and
genotyping services.
SNP Genotyping
We are designing our first product based on the Array of Arrays for SNP
genotyping. The first SNP genotyping assay format that we intend to
commercialize will be Applied Biosystems' proprietary OLA ZipCode assay format.
This assay format enables the creation of a universal Array of Arrays that can
be used to analyze any set of SNPs. We expect to commercialize our first product
using this assay format in the early part of 2002. We plan to extend our
BeadArray technology to create products using other assay formats.
Gene Expression Profiling
We will design our first product for gene expression profiling to test
selected sets of approximately 100 to 2,000 genes on large numbers of samples.
We believe that there is currently a need for a cost-effective and
high-throughput gene expression profiling technology to analyze the activity of
selected sets of genes from many samples simultaneously. We expect our initial
products in gene expression profiling, based on the Array of Arrays combined
with specific assay formats, to be commercially available in 2002.
High-Throughput Synthesis
We plan to use our Oligator technology to build internal capacity to
produce millions of oligonucleotides per year. In addition to their use to coat
beads, these oligonucleotides may be components of the reagent kits for our
BeadArray products and used for assay development. We expect that our production
capacity will exceed our internal needs for oligonucleotides and that we will be
able to offer oligonucleotide manufacturing services to selected high volume
users starting in 2001.
PARTNERSHIPS AND COLLABORATIONS
We have entered into the following strategic agreements with commercial
entities to expand the functionality of our BeadArray technology and to provide
distribution channels for the commercialization of our products and services:
Applied Biosystems, a Division of Applera Corporation. In November 1999, we
entered into a partnership with Applied Biosystems (formerly PE Biosystems), a
leading supplier of instruments and reagents to the life sciences and
pharmaceutical industries. Illumina and Applied Biosystems will jointly
implement Applied Biosystems' proprietary OLA ZipCode assay format on Illumina's
proprietary Array of Arrays initially for SNP genotyping. We will develop and
manufacture the Array of Arrays and Applied Biosystems will develop and
manufacture the detection instrument and the reagent kits. Applied Biosystems
and Illumina will co-brand products and Applied Biosystems will distribute them
through their worldwide sales channels. Under the agreement, Illumina has rights
to use and sell the instruments developed in the partnership for certain other
applications.
In connection with this partnership, Applera Corporation invested $5
million to purchase shares of our preferred stock and agreed to provide Illumina
with substantial research and development support over two years. Illumina and
Applied Biosystems will divide the profits from all partnership products,
including instruments, array cassettes and reagent kits, after both parties have
received repayment for cost-of-goods, sales and marketing expenses, and ongoing
research and development expenses.
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The Dow Chemical Company. In June 1999, we entered into a research
collaboration with Dow Chemical to develop a BeadArray designed for the
identification of chemical solvents prior to entry into Dow Chemical's
manufacturing facilities. If successful, Dow Chemical could use our technology
as a rapid and reliable method for performing a quality control check on their
incoming raw materials. We retain all rights to commercialize any resulting
products.
Third Wave Technologies, Inc. In December 1999, we entered into a research
collaboration with Third Wave Technologies to adapt their proprietary assay
format, called Invader, to our BeadArray platform. If the research collaboration
is successful, Illumina and Third Wave Technologies may negotiate a
commercialization agreement.
PyroSequencing, Inc. In November 1999, we entered into a research
collaboration with PyroSequencing to adapt their proprietary assay format,
called PyroSequencing, to our BeadArray platform. PyroSequencing provides
instrumentation and chemistry to perform DNA sequencing and SNP genotyping. If
the research collaboration is successful, Illumina and PyroSequencing may
negotiate a commercialization agreement.
Chevron U.S.A. In January 2001 we signed a research collaboration agreement
with Chevron to develop a BeadArray designed to perform leak detection and
discrimination of gasoline grades in the petroleum and petrochemical industries.
We retain all rights to commercialize any resulting products.
We also have entered into collaborations with Tufts University, The
Australian National University, Stanford University and The University of
California, San Diego to develop new applications for our BeadArray technology.
RESEARCH AND DEVELOPMENT
We have made substantial investments in research and development since our
inception. We have assembled a team of skilled engineers and scientists who are
specialists in biology, chemistry, informatics, instrumentation, optical
systems, software, manufacturing and other related areas required to complete
the development of our products. Our research and development efforts have
focused primarily on the tasks required to optimize our BeadArray and Oligator
technologies so that we can commercialize the initial products derived from
these technologies. These efforts include among others, increasing the number of
assays that can be performed simultaneously on a single fiber bundle, developing
new software and instruments to automate parts of the manufacturing process,
developing new Oligator instruments that can produce larger numbers of
oligonucleotides, adapting new assay formats to run on our arrays, developing
the assays and processes required to perform gene expression and proteomics
analysis on our arrays and exploring how we can apply our technology to markets
outside the life sciences area. Our research and development expenses for the
years ended 2000, 1999 and 1998 (exclusive of charges relating to stock based
compensation) were $13.6 million, $4.1 million and $0.8 million, respectively.
GOVERNMENT GRANTS
Government grants allow us to fund internal scientific programs and
exploratory research. We retain ownership of all intellectual property and
commercial rights generated during these projects, subject to a non-exclusive,
non-transferable, paid-up license to practice, for or on behalf of the United
States, inventions made with federal funds. This license is retained by the U.S.
government as provided by applicable statutes and regulations. We do not believe
that the retained license will have any impact on our ability to market our
products. We do not need government approval to enter into collaborations or
other relationships with third parties. We have seven grants from the National
Institutes of Health.
INTELLECTUAL PROPERTY
We have an extensive patent portfolio, including ownership of, or exclusive
licenses to, 13 issued U.S. patents and 55 pending U.S. patent applications,
including two allowed applications, some of which derive from a common parent
application. Our issued patents, which cover fiber optic arrays, bead array
technology and chemical detection, expire between 2010 and 2017. We are seeking
to extend this patent protection on our
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BeadArray, Oligator and related technologies. We have received or filed
counterparts for many of these patents and applications in one or more foreign
countries.
We also rely upon copyright protection, trade secrets, know-how, continuing
technological innovation and licensing opportunities to develop and maintain our
competitive position. Our success will depend in part on our ability to obtain
patent protection for our products and processes, to preserve our copyrights and
trade secrets, to operate without infringing the proprietary rights of third
parties and to acquire licenses related to enabling technology or products used
with our BeadArray and Oligator technologies.
We are party to various exclusive and non-exclusive license agreements with
third parties which grant us rights to use key aspects of our BeadArray and
Oligator technologies. For example, we have an exclusive license from Tufts
University to patents filed by Dr. David Walt, a Director, the Chairman of our
Scientific Advisory Board and one of our founders. Our exclusive licenses expire
with the termination of the underlying patents, which will occur between 2010
and 2017. These exclusive licenses are critical to our business.
MANUFACTURING
We manufacture our BeadArrays and Array of Arrays in-house and intend to
rely upon Applied Biosystems to manufacture the imaging system and reagent kits
for our first product. We currently depend upon outside suppliers for materials
used in the manufacture of our BeadArrays and Array of Arrays. We intend to
continue, and may extend, the outsourcing of portions of our manufacturing
process to subcontractors where we determine it is in our best commercial
interests.
We have designed our manufacturing facility to optimize material flow and
personnel movement. We adhere to access and safety standards required by
federal, state and local health ordinances, such as standards for the use,
handling and disposal of hazardous substances. We have recently implemented a
company-wide enterprise resource planning system to manage and control our
manufacturing resources.
COMPETITION
Although we expect that our BeadArray product, when commercially available,
will provide significant advantages over currently available products, we expect
to encounter intense competition from other companies that offer products for
the SNP genotyping, gene expression and proteomics markets. These include
companies such as Affymetrix, Aclara Biosciences, Agilent, Caliper Technologies,
Applied Biosystems, Luminex, Orchid Bioscience, and Sequenom. In addition, a
number of other companies have announced plans to introduce products that
address these markets, which include Corning and Motorola. Many of these
companies have or will have substantially greater financial, technical,
research, and other resources and larger, more established marketing, sales,
distribution and service organizations than we do. In addition, they may have
greater name recognition than we do in the markets we need to address. Each of
these markets is very competitive and we expect new competitors to emerge and
the intensity of competition to increase in the future. In order to effectively
compete with these companies, we will need to demonstrate that our products have
superior throughput, cost and accuracy advantages over the existing products.
Rapid technological development may result in our products or technologies
becoming obsolete. Products offered by us could be made obsolete either by less
expensive or more effective products based on similar or other technologies.
Although we believe that our technology will provide advantages to our products
that will make them unique and enable us to compete effectively with these
companies, we cannot assure you that we will be successful.
EMPLOYEES
As of December 31, 2000, we had a total of 105 employees, 28 of whom hold
Ph.D. or M.D. degrees and 86 of whom are engaged in full-time research and
development activities. We plan to expand our research and development programs
as well as corporate collaborations and will hire additional staff as these
initiatives are implemented. None of our employees is represented by a labor
union. We consider our employee relations to be good.
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OUR EXECUTIVE OFFICERS
Our executive officers are as follows:
NAME AGE POSITION
---- --- --------
Jay T. Flatley....................... 48 President, Chief Executive Officer and Director
David L. Barker, Ph.D................ 59 Vice President, Chief Scientific Officer
Mark S. Chee, Ph.D................... 39 Founder, Vice President of Genomics
David C. Douglas..................... 46 Vice President of Manufacturing
Noemi C. Espinosa.................... 42 Vice President of Intellectual Property
Robert C. Kain....................... 40 Vice President of Engineering
Timothy M. Kish...................... 49 Vice President, Chief Financial Officer
Arnold Oliphant, Ph.D................ 41 Vice President of Scientific Operations
John R. Stuelpnagel, DVM............. 43 Founder, Vice President of Business Development and
Director
JAY T. FLATLEY has served as our President, Chief Executive Officer and a
Director since October 1999. Prior to joining Illumina, Mr. Flatley was
co-founder, President, Chief Executive Officer and a Director of Molecular
Dynamics, a life sciences company, from May 1994 to September 1999. He served in
various other positions with that company from 1987 to 1994. From 1985 to 1987,
Mr. Flatley was Vice President of Engineering and Vice President of Strategic
Planning at Plexus Computers, a UNIX computer company. Mr. Flatley holds a B.A.
in Economics from Claremont McKenna College and a B.S. and M.S. in Industrial
Engineering from Stanford University.
DAVID L. BARKER, PH.D., has served as our Vice President and Chief
Scientific Officer since March 2000. Prior to joining us, Dr. Barker was Vice
President and Chief Science Advisor at Amersham Pharmacia Biotech, a life
sciences company, from September 1998 to March 2000. From May 1997 to September
1998, Dr. Barker was Vice President of Research and Business Development of
Molecular Dynamics. From 1992 to 1997, he was Vice President of Scientific
Development. From 1988 to 1995, he held various other positions with that
company. Dr. Barker holds a B.S. in Chemistry from California Institute of
Technology and received his Ph.D. in Biochemistry from Brandeis University.
MARK S. CHEE, PH.D., one of our founders, has served as our Vice President
of Genomics since June 1998. Prior to founding Illumina, Dr. Chee served as
Director of Genetics Research at Affymetrix, a life sciences company, from April
1997 to July 1997 and in other positions from 1993 to April 1997. Dr. Chee
received his B.Sc. in Biochemistry from the University of New South Wales and
his Ph.D. from the University of Cambridge.
DAVID C. DOUGLAS has served as our Vice President of Manufacturing since
January 2001. Prior to joining us, Mr. Douglas was Vice President of Operations
at POSDATA Inc., an information technology equipment company, from July 1989 to
December 2000. From July 1988 to July 1989, Mr. Douglas was Test Operations
Manager at Acuson Computed Sonography, a medical equipment company. Previous to
that he held various positions at Plexus Computers and Spectra Physics. Mr.
Douglas holds a B.S. in Electronics Engineering Technology from Oregon Institute
of Technology.
NOEMI C. ESPINOSA has served as our Vice President of Intellectual Property
since May 2000. Prior to joining us, Ms. Espinosa was a partner with the firm of
Brobeck, Phleger & Harrison LLP from January 1992 to April 2000, having joined
the firm in 1990. From 1983 to 1990, Ms. Espinosa was associated with the
intellectual property firm of Townsend & Townsend. Ms. Espinosa holds a B.S. in
Chemical Engineering from San Jose State University and a J.D. from the
University of California, Hastings College of Law. She is registered to practice
before the United States Patent and Trademark Office.
ROBERT C. KAIN has served as our Vice President of Engineering since
December 1999. Prior to joining us, Mr. Kain was Senior Director of Engineering
at Molecular Devices from July 1999 to December 1999. Previously, Mr. Kain
served as Director of Microarray Engineering at Molecular Dynamics from August
1998 to July 1999 and in other positions from August 1996 to August 1998. From
1983 to 1988, Mr. Kain was
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employed at DatagraphiX, an information technology equipment company. Mr. Kain
received his B.S. in Physics from San Diego State University and his M.B.A. from
St. Mary's College.
TIMOTHY M. KISH has served as our Vice President and Chief Financial
Officer since May 2000. Prior to joining us, Mr. Kish was Vice President,
Finance and Chief Financial Officer at Biogen, Inc., a biopharmaceutical
company, from September 1993 to April 2000. He served as Corporate Controller of
that company from 1986 to 1993. From 1983 to 1986, Mr. Kish was Director of
Finance at Allied Health & Scientific Products Company, a subsidiary of
Allied-Signal Corporation. Mr. Kish holds a B.B.A. from Michigan State
University and an M.B.A. from the University of Minnesota.
ARNOLD OLIPHANT, PH.D., has served as our Vice President of Scientific
Operations since October 2000. Prior to joining us, Dr. Oliphant was Vice
President of Functional Genomics at Myriad Genetics, a genomics company, from
1997 to September 2000 and was Process Development and Production Director from
January 1995 to June 1997. From January 1992 to January 1995, Dr. Oliphant held
several positions at Pioneer Hybrid International, a plant genetics company and
prior to that was an Assistant Professor at the University of Utah. Dr. Oliphant
received his B.A. in biology from the Univeristy of Utah and his Ph.D. in
Genetics from the Harvard Medical School.
JOHN R. STUELPNAGEL, D.V.M., one of our founders, is our Vice President of
Business Development, and a Director since April 1998. From April 1998 to
October 1999, he served as Illumina's acting President and Chief Executive
Officer and was acting Chief Financial Officer through April 2000. While
founding Illumina, Dr. Stuelpnagel was an associate with CW Group, a venture
capital firm, from June 1997 to September 1998 and with Catalyst Partners, a
venture capital firm, from August 1996 to June 1997. Dr. Stuelpnagel received
his B.S. in Biochemistry and his Doctorate in Veterinary Medicine from the
University of California, Davis and his M.B.A. from the University of
California, Los Angeles.
ITEM 2. PROPERTIES.
We lease approximately 33,000 square feet of office, manufacturing and
laboratory facilities in San Diego, California. Our lease for approximately
21,000 square feet of this space expires in August 2001 and for the remaining
12,000 square feet in August 2002. In July 2000, we signed a 10-year lease for a
total of 97,000 square feet of space in two buildings in San Diego, which are
under construction. This lease contained on option to purchase those buildings
as well as adjacent land that has been approved for construction of a third
building. In December 2000, we exercised the option for this property, which
will become our principal office, manufacturing and laboratory facilities. We
expect to sublease a portion of the space until it is required for our
operations. We expect that these facilities, including the potential third
building, will be sufficient space for our San Diego based operations for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
On March 15, 2001, a complaint seeking damages of an unspecified amount was
filed against us by Anthony W. Czarnik in the Superior Court of the State of
California in connection with the termination of Mr. Czarnik's employment with
Illumina. We believe that the lawsuit is without merit and intend to defend
against it vigorously.
We are not currently a party to any other material legal proceedings. From
time to time, we may be involved in litigation relating to claims arising out of
our operations in the usual course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
Our common stock has been quoted on the Nasdaq National Market under the
symbol "ILMN" since July 28, 2000. Prior to that time, there was no public
market for our common stock. The following table sets forth, for the periods
indicated, the quarterly high and low closing prices per share of the common
stock as reported on the Nasdaq National Market. Our present policy is to retain
earnings, if any, to finance future growth. We have never paid cash dividends
and have no present intention to pay cash dividends.
HIGH LOW
------ ------
FISCAL 2000
Third Quarter (from July 28, 2000)......................... $46.63 $33.31
Fourth Quarter............................................. $45.75 $16.00
At March 8, 2001, there were approximately 2,550 stockholders of record and
the price per share of our common stock was $11.25.
SALES OF UNREGISTERED SECURITIES
In January 2000, we sold 175,000 shares of our common stock at a price of
$0.25 per share to an investor, two consultants, and an officer, for $43,750.
In February 2000, we sold 110,000 shares of our common stock at a price of
$0.40 per share to a director and a consultant for $44,000.
In March 2000, we sold 425,000 shares of our common stock at a price of
$0.40 per share to three officers and a director for $170,000 and 590,000 shares
of our common stock at a price of $1.00 per share to two officers, for $590,000.
In connection with an asset purchase transaction, we issued 175,000 shares of
our common stock valued at $0.40 per share for $70,000. In addition, we issued
1,000 shares of our common stock valued at $0.40 per share to two consultants
for services rendered to Illumina, with an aggregate value of $400.
In April 2000, we issued 9,500 shares of our common stock valued at $5.00
per share to seven consultants for services rendered to Illumina, with an
aggregate value of $47,500.
The sales of the above securities were deemed to be exempt from
registration in reliance on Section 4(2) of the Securities Act as transactions
by an issuer not involving any public offering. All recipients were either
accredited or sophisticated investors, as those terms are defined under the
Securities Act. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and other instruments
issued in such transactions. All recipients either received adequate information
about us or had access, through employment or other relationships, to such
information.
From January 1, 2000 through July 27, 2000, we granted stock options to
acquire an aggregate of 906,512 shares of our common stock at prices ranging
from $.40 to $14.00 per share to employees, consultants and directors pursuant
to our 1998 Incentive Stock Plan. During the same period, we issued an aggregate
of 165,874 shares of our common stock to employees, consultants and directors
pursuant to the exercise of these stock options, for aggregate consideration of
$12,791. The sales of these securities were deemed to be exempt from
registration in reliance on Rule 701 promulgated under Section 3(b) under the
Securities Act as transactions pursuant to a compensatory benefit plan or a
written contract relating to compensation.
USE OF PROCEEDS
On July 27, 2000, we commenced our initial public offering pursuant to a
Registration Statement on Form S-1 (File No. 333-33922). During 2000 we used
$8.5 million of these proceeds in connection with a lease and purchase option
arrangement related to two buildings we intend to purchase in 2001. From the
time of receipt through December 31, 2000, the remaining net proceeds were all
applied to temporary investments in corporate commercial paper and notes, U.S.
government and agency notes, and money market funds.
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction with
the financial statements and the notes to the financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere in this report. The statements of
operations data for each of the two years ended December 31, 2000 and 1999, and
the period from our inception on April 28, 1998 through December 31, 1998, and
the balance sheet data as of the years then ended, are derived from our audited
financial statements.
PERIOD FROM
APRIL 28, 1998
YEAR ENDED YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------ ------------ --------------
STATEMENTS OF OPERATIONS DATA
Revenue............................................ $ 1,309,111 $ 474,026 $ --
Costs and expenses:
Research and development (exclusive of stock
based compensation of $3,856,845, $611,852 and
$62,092 in 2000, 1999 and 1998,
respectively)................................. 13,554,365 4,085,743 770,901
General and administrative (exclusive of stock
based compensation of $2,940,230, $345,970 and
$16,095 in 2000, 1999 and 1998,
respectively)................................. 4,193,031 1,348,870 345,080
Amortization of deferred compensation and other
non-cash compensation charges................. 6,797,075 957,822 78,187
------------ ----------- -----------
Total costs and expenses................. 24,544,471 6,392,435 1,194,168
------------ ----------- -----------
Loss from operations............................... (23,235,360) (5,918,409) (1,194,168)
Interest income, net............................... 4,628,895 400,764 48,548
------------ ----------- -----------
Net loss........................................... $(18,606,465) $(5,517,645) $(1,145,620)
============ =========== ===========
Historical net loss per share, basic and diluted... $ (1.37) $ (3.91) $ (1.71)
============ =========== ===========
Shares used in calculating historical net loss per
share, basic and diluted......................... 13,556,941 1,410,225 668,748
============ =========== ===========
Pro forma net loss per share, basic and diluted.... $ (0.76) $ (0.40) $ (0.26)
============ =========== ===========
Shares used in calculating pro forma net loss per
share, basic and diluted......................... 24,440,135 13,696,522 4,453,318
============ =========== ===========
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------ ------------ ------------
BALANCE SHEET DATA
Cash, cash equivalents and investments............. $117,102,951 $33,088,277 $8,233,729
Working capital.................................... 126,260,337 32,880,637 8,231,079
Total assets....................................... 132,792,679 33,894,658 8,557,415
Accumulated deficit................................ (25,269,730) (6,663,265) (1,145,620)
Total stockholders equity.......................... 124,099,736 32,032,250 8,380,245
See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used to compute historical and pro forma
basic and diluted net loss per share.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read with "Selected
Financial Data" and our financial statements and notes thereto included
elsewhere in this Annual Report on Form 10-K. The discussion and analysis in
this Annual Report on Form 10-K may contain forward-looking statements that
involve risks and uncertainties, such as statements of our plans, objectives,
expectations and intentions. The cautionary statements made in this Annual
Report on Form 10-K should be read as applying to all related forward-looking
statements wherever they appear in this Annual Report on Form 10-K. Our actual
results could differ materially from those discussed here. Factors that could
cause or contribute to these differences include those discussed in "Factors
Affecting Operating Results" below as well as those discussed elsewhere.
OVERVIEW
We were founded and began operations in April 1998. We are developing
next-generation tools that will permit the large-scale analysis of genetic
variation and function. To date, we have generated revenues primarily from
government grants from the National Institutes of Health. We have entered into a
strategic partnership with Applied Biosystems and research collaborations with
Dow Chemical, Third Wave Technologies, PyroSequencing and Chevron USA. We expect
to commercialize our first products in the early part of 2002 in partnership
with Applied Biosystems. We have not entered into any commercial agreements with
our research collaborators, but we may do so in the future.
We have dedicated substantial resources to the development of our
proprietary technologies. We have designed our technologies to provide the
throughput, cost effectiveness and flexibility necessary to investigate and
understand genetic variation and function on the large scale necessary to
extract medically valuable information from raw genetic data. We devoted much of
2000 to the further development of the technology that will be used in our first
commercial products.
Our revenues are primarily attributable to research funding. We recognize
revenues related to research funding in accordance with the provisions of SAB
101. Our strategic partners often pay us before we recognize the related
revenues, and we defer these payments until we earn them. As of December 31,
2000, we had deferred revenue of $5.0 million.
We have incurred substantial operating losses since our inception. As of
December 31, 2000, our accumulated deficit was $25.3 million, and total
stockholders' equity was $124.1 million. We expect to incur additional operating
losses over the next several years as we continue to fund internal research and
development, develop our technologies and commercialize products based on those
technologies.
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999
Revenue
Revenue for the years ended December 31, 2000 and 1999 was $1.3 million and
$0.5 million, respectively. Virtually all of our revenues for both years were
derived from government grants. We expect grant revenue to generally decline
over the next few years as it becomes a less important part of our business.
Research and Development Expenses
Our research and development expenses consist primarily of salaries and
other personnel-related expenses, facility costs and supplies. Research and
development expenses increased $9.5 million to $13.6 million for the year ended
December 31, 2000, from $4.1 million for the year ended December 31, 1999. Of
that increase, $1.6 million was the result of a purchase of in-process
technologies recorded in March 2000. The balance was primarily due to increased
staffing and other personnel-related costs to support the further development of
our BeadArray and Oligator technologies. Increased staffing also caused stock
based compensation related to research and development employees and consultants
to increase by $3.3 million to $3.9 million for the year ended December 31, 2000
from approximately $0.6 million for the year ended December 31, 1999. We expect
that our research and development expenses will increase substantially in
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future years to support our collaborative research programs, internal product
research and technology development.
General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel
costs for finance, human resources, business development and general management,
as well as professional fees, such as expenses for legal and accounting
services. General and administrative expenses increased $2.9 million to $4.2
million for the year ended December 31, 2000 from $1.3 million for the year
ended December 31, 1999. Stock based compensation related to general and
administrative employees, directors and consultants increased $2.6 million to
$2.9 million for the year ended December 31, 2000 from $0.3 million for the year
ended December 31, 1999. These increases were primarily attributable to an
increase in staffing necessary to manage and support our growth. We expect that
our general and administrative expenses will increase as we expand our staff,
add infrastructure and incur additional costs to support our growth and
requirements as a public company.
Amortization of Deferred Compensation and Other Non-Cash Compensation Charges
In connection with the grant of stock options and sale of restricted common
stock to employees, founders and directors, we recorded deferred compensation of
approximately $13.3 million and $4.3 million for the years ended December 31,
2000 and 1999, respectively. We recorded this amount as a component of
stockholders' equity and amortize the amount as a charge to operations over the
vesting period of the stock and options. We recorded amortization of this
deferred compensation of $5.4 million and $0.6 million for the years ended
December 31, 2000 and 1999, respectively. We recorded an additional $0.3 million
charge to operations for the acceleration of vesting of restricted stock during
the year ended December 31, 2000.
In connection with the sale of restricted common stock to consultants, we
recorded $0.3 million and $0.4 million of expense for the years ended December
31, 2000 and 1999, respectively, which was expensed as our rights to repurchase
the common stock lapsed.
For employees, founders and directors, deferred compensation represents the
difference between the exercise price of the option or purchase price of the
stock and the deemed fair value of our common stock on the date of grant in
accordance with Accounting Principles Board Opinion No. 25 and its related
interpretations. For consultants, deferred compensation is recorded at the fair
value for the options granted or stock sold in accordance with Statement of
Financial Accounting Standards No. 123 and is periodically remeasured and
expensed in accordance with Emerging Issues Task Force No. 96-18.
We recognize compensation expense over the vesting period for employees,
founders and directors, using an accelerated amortization methodology in
accordance with Financial Accounting Standards Board Interpretation No. 28. In
February 2000, we modified all our consultant agreements to include assurances
that the contracts would be fulfilled. In accordance with these modifications,
we recorded additional deferred compensation of $3.0 million as a component of
stockholders' equity and will amortize this amount as a charge to operations
ratably over the vesting period of the stock and options. We recorded
amortization of this deferred compensation of approximately $0.8 million for the
year ended December 31, 2000.
Other Income
Other income, net of expenses, primarily consists of interest income, net
of interest expense. Interest income on our cash and cash equivalents and
investments, was $4.7 million for the year ended December 31, 2000 as compared
to $0.4 million for the year ended December 31, 1999. Changes in interest income
were due primarily to changes in our average cash and investment balances during
these periods. Interest expense was $93,000 for the year ended December 31, 2000
as compared to $48,000 for the year ended December 31, 1999. Interest expense is
higher in 2000 due to a loan arrangement for purchases of capital equipment.
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Provision for Income Taxes
We incurred net operating losses for the years ended December 31, 2000 and
1999, and accordingly, we did not pay any federal or state income taxes. We have
recorded a valuation allowance for the full amount of the resulting net deferred
tax asset, as the future realization of the tax benefit is uncertain. As of
December 31, 2000, we had net operating loss carryforwards for federal and state
tax purposes of approximately $16.0 million and 16.3 million, respectively,
which begin to expire in 2018 and 2006.
We also had federal and state research and development tax credit
carryforwards of approximately $0.9 million and $0.6 million, respectively,
which begin to expire in 2018, unless previously utilized.
Our utilization of the net operating losses and credits may be subject to
substantial annual limitations pursuant to Section 382 and 383 of the Internal
Revenue Code, and similar state provisions, as a result of changes in our
ownership structure. These annual limitations may result in the expiration of
net operating losses and credits prior to utilization.
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND THE PERIOD FROM OUR INCEPTION ON
APRIL 28, 1998 THROUGH DECEMBER 31, 1998
Revenue
Revenue for the year ended December 31, 1999 was $0.5 million, virtually
all of which was from government grants. We had no revenue for the period from
our inception on April 28, 1998 through December 31, 1998.
Research and Development
Research and development expenses increased $3.3 million to $4.1 million
for the year ended December 31, 1999, from $0.8 million for the period from
April 28, 1998 through December 31, 1998. Stock based compensation related to
research and development employees and consultants increased $0.5 million to
$0.6 million for the year ended December 31, 1999 from approximately $62,000 for
the period from April 28, 1998 through December 31, 1998. These increases were
primarily due to increased staffing and other personnel costs to support the
further development of our technologies.
General and Administrative Expenses
General and administrative expenses increased $1.0 million to $1.3 million
for the year ended December 31, 1999 from $0.3 million for the period from April
28, 1998 through December 31, 1998. Stock based compensation related to general
and administrative employees, directors and consultants increased to $0.3
million for the year ended December 31, 1999 from approximately $16,000 for the
period from April 28, 1998 through December 31, 1998. These increases were
primarily attributable to an increase in staffing necessary to manage and
support our growth.
Amortization of Deferred Compensation and Other Non-Cash Compensation Charges
In connection with the grant of stock options and sale of restricted common
stock to employees, founders and directors, we recorded deferred compensation of
approximately $4.3 million and $0.3 million for the year ended December 31, 1999
and the period from April 28, 1998 through December 31, 1998, respectively. We
recorded amortization of this deferred compensation of $0.6 million and
approximately $33,000 for the year ended December 31, 1999 and the period from
April 28, 1998 through December 31, 1998, respectively. We recorded an
additional $0.4 million and $45,000 of expense related to restricted common
stock sold to consultants for the year ended December 31, 1999 and the period
from April 28, 1998 through December 31, 1998, respectively, which is expensed
as our rights to repurchase the common stock lapse.
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Other Income
Interest income was $0.4 million for the year ended December 31, 1999 as
compared to $48,000 for the period from April 28, 1998 through December 31,
1998. Interest expense was $48,000 for the year ended December 31, 1999. There
was no interest expense for the period from April 28, 1998 through December 31,
1998.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2000, we had cash, cash equivalents and investments of
approximately $117.1 million. We currently invest our funds in U.S.
investment-grade corporate debt securities with maturities not exceeding 18
months.
Our operating activities used cash of $14.3 million in the year ended
December 31, 2000, as compared to $2.9 million in the year ended December 31,
1999. Our use of cash for these periods primarily resulted from our losses from
operations offset by receipt of funding from collaborators and government
grants. In the year ended December 31, 2000 we used $8.5 million of cash in
connection with a lease and purchase option arrangement related to buildings we
intend to purchase in 2001.
Our investing activities provided cash of $6.0 million in the year ended
December 31, 2000 and used cash of $12.3 million in the year ended December 31,
1999. Investing activities consist of purchases and maturities of investment
securities and purchases of property and equipment.
Our financing activities provided $103.3 million in the year ended December
31, 2000, as compared to $28.1 million in the year ended December 31, 1999. Our
financing activities consisted primarily of the initial public offering of our
stock in the year ended December 31, 2000, and the sale of stock to both private
investors and strategic partners in the year ended December 31, 1999.
We lease approximately 33,000 square feet of office and laboratory
facilities under an operating lease. In addition, we entered into a $1 million
capital equipment lease financing arrangement with a lease financing corporation
in October 1998. As of December 31, 1999, we had utilized all funds available
under this lease agreement. In April 2000, we entered into a $3 million loan
arrangement to be used at our discretion to finance purchases of capital
equipment, $1.7 million of which remains available.
Our existing facility lease will expire as to approximately 21,000 square
feet in August 2001 and 12,000 square feet in August 2002. In July 2000, we
signed a 10-year lease to rent a total of 97,000 square feet in two buildings
that will be constructed during 2001. In addition, the lease contained an option
to purchase the buildings together with adjacent land that has been approved for
constructing a third building. At the time the lease was executed, we provided
the developer a $1.6 million letter of credit, secured by restricted cash, and
funding of $6.2 million, in the form of an interest bearing, secured loan with a
term of approximately one year. In December 2000, we exercised our option to
purchase the buildings and land at a cost of $2.3 million. Both the purchase
option amount and the $6.2 million loan plus accrued interest will be applied to
the purchase price of the land and buildings. The purchase of the building is
expected to close in August 2001, at which time we will assume a $24 million ten
year mortgage, at an 8.41% fixed interest rate, and pay the remaining
construction costs of the building, which are expected to be between $3.0 to
$5.0 million.
At December 31, 2000, the total of annual future minimum lease payments was
$37 million and $1.4 million under operating and capital lease arrangements,
respectively, including the lease on the building which we plan to acquire.
Without that building lease our future minimum lease payments under operating
lease arrangements are $2.1 million of which $1.6 million relates to 2001. Total
annual payments under the mortgage we expect to assume will approximate $2.3
million.
We expect that our current cash and cash equivalents, investments and
funding from existing strategic alliances and grants will be sufficient to fund
our anticipated operating needs for at least the next 24 months. However, our
future capital requirements and the adequacy of our available funds will depend
on many factors, including scientific progress in our research and development
programs, the magnitude of those programs, competing technological and market
developments and our ability to successfully commercialize
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our first products in partnership with Applied Biosystems and to establish
additional strategic relationships. Therefore, we may require additional funding
within this time frame and the additional funding, if needed, may not be
available on terms that are acceptable to us, or at all. Further, any additional
equity financing may be dilutive to our then existing stockholders and may
adversely affect their rights.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
Revenue Recognition in Financial Statements. SAB No. 101 provides guidance in
applying generally accepted accounting principles to revenue recognition in
financial statements, including the recognition of nonrefundable up-front fees
received in conjunction with a research and development arrangement. SAB No. 101
requires that license and other up-front fees received from research
collaborators be recognized over the term of the agreement unless the fee is in
exchange for products delivered or services performed that represents the
culmination of a separate earnings process. SAB No. 101 was implemented in the
fourth quarter of 2000. The adoption of SAB No. 101 did not have a material
impact on the current and prior years results of operations or financial
condition. However, it could have a material impact in the upcoming years.
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
will be effective January 1, 2001. This statement establishes accounting and
reporting standards requiring that every derivative instrument, including
derivative instruments imbedded in other contracts, be recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
also requires that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. We believe the
adoption of SFAS No. 133 will not have an effect on our financial statements
because we do not currently engage in derivative or hedging activities.
In March 2000, the Financial Accounting Standards Board issued Financial
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation -- an interpretation of APB Opinion No. 25". FIN 44 clarifies
the definition of employee for purposes of applying Accounting Practice Board
Opinion No. 25, "Accounting for Stock Issued to Employees", the criteria for
determining whether a plan qualifies as a non-compensatory plan, the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award and the accounting for an exchange of stock compensation awards
in a business combination. FIN 44 became effective on July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occur after either December 15,
1998 or January 12, 2000. The adoption of FIN 44 has not had a material impact
on the Company in the fiscal year ended December 31, 2000.
FACTORS AFFECTING OUR OPERATING RESULTS
We have generated no revenue from product sales to date. We expect to continue
to incur net losses and we may not achieve or maintain profitability.
We have incurred net losses since our inception and expect to continue to
incur net losses. At December 31, 2000, our accumulated deficit was
approximately $25.3 million. We expect to continue to have increasing net losses
and negative cash flow. The magnitude of our net losses will depend, in part, on
the rate of growth, if any, of our revenues and on the level of our expenses. We
expect to incur significant expenses for research and development, for
developing our manufacturing capabilities and for efforts to commercialize our
products. As a result, we expect that our operating expenses will increase
significantly in the near term and, consequently, we will need to generate
significant additional revenues to achieve profitability. Even if we achieve
profitability, we may not be able to achieve or sustain or increase
profitability on a quarterly or annual basis.
Our success depends upon the increasing availability of genetic information
and the continued emergence and growth of markets for analysis of genetic
variation and function.
We design our products primarily for applications in the life sciences and
pharmaceutical industries. The usefulness of our technology depends in part upon
the availability of genetic data. We are initially focusing on markets for
analysis of genetic variation and function, namely SNP genotyping, gene
expression profiling and
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proteomics. These markets are new and emerging, and they may not develop as we
anticipate, or reach their full potential. Other methods of analysis of genetic
variation and function may emerge and displace the methods we are developing.
Also, researchers may not seek or be able to convert raw genetic data into
medically valuable information through the analysis of genetic variation and
function. If genetic data is not available or if our target markets do not
emerge in a timely manner, demand for our products will not develop as we
expect, and we may never become profitable.
We have limited manufacturing experience. If we are unable to develop our
manufacturing capability or find third-party manufacturers to manufacture our
products, we may not be able to launch our products in a timely manner, or at
all.
We have no experience manufacturing our products in the volumes that will
be necessary for us to achieve significant commercial sales. To date, we have
limited our manufacturing activities to the manufacturing of prototype systems
for testing purposes and for internal use by our collaborative partners.
The nature of our products requires customized components that currently
are available from a limited number of sources. For example, we currently obtain
the fiber optic bundles included in our products from a single source. If we are
unable to secure a sufficient supply of fiber optic bundles or other product
components, we will be unable to meet future demand for our products. We will
need to enter into contractual relationships with manufacturers for commercial
scale production of our products, or develop these capabilities internally, and
we cannot assure you that we will be able to do so on a timely basis, for
sufficient quantities or on commercially reasonable terms. Accordingly, we may
not be able to establish or maintain reliable, high-volume manufacturing at
commercially reasonable costs.
We are an early stage company with no commercially available microarray
products, and our success depends on our ability, alone or with our partners
or collaborators, to develop commercially successful products and on market
acceptance of our new and unproven technology.
We currently have no commercially available microarray products. Our
technologies are in the early stages of development. You should evaluate us in
light of the uncertainties and complexities affecting an early stage company
developing tools for the life sciences and pharmaceutical industries.
Historically, life sciences and pharmaceutical companies have analyzed
genetic variation and function using a variety of technologies. Compared to the
existing technologies, our technologies are new and unproven. In order to be
successful, our products must meet the commercial requirements of the life
sciences and pharmaceutical industries as tools for the large-scale analysis of
genetic variation and function.
We may not be successful in the commercial development of products. We must
conduct a substantial amount of additional research and development before any
of our products will be ready for sale. Problems frequently encountered in
connection with the development of commercial products using new and unproven
technologies might limit our ability to develop and commercialize our products.
Market acceptance will depend on many factors, including:
- our ability and the ability of our collaborative partners to demonstrate
to potential customers the benefits and cost effectiveness of our
products and services relative to others available in the market;
- the extent of our partners' efforts to market, sell and distribute our
products;
- our or our partners' ability to manufacture products in sufficient
quantities with acceptable quality and reliability and at an acceptable
cost; and
- the willingness and ability of customers to adopt new technologies
requiring capital investments.
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Commercialization of our technologies depends on partnerships and
collaborations with other companies, in particular Applied Biosystems. If our
current partnership and collaborations are not successful, or if we are not
able to enter into additional partnerships and collaborations in the future,
we may not be able to develop our technologies or products.
Since we currently do not possess all of the resources necessary to develop
and commercialize products that may result from our technologies, we will need
either to develop a sales, marketing and support group with relevant experience
or make appropriate arrangements with strategic partners to market and sell our
products. We have initially chosen to enter into arrangements to develop and
commercialize our initial products. We have entered into an agreement with
Applied Biosystems to gain access to their proprietary chemistry format for use
with the initial products of the partnership. Applied Biosystems also will fund,
in part, the development of these products. Our partnership agreement provides
that Applied Biosystems will develop the detection instrument and reagent kits
required for use with these products, and will provide sales and marketing
support for the products. If Applied Biosystems does not deliver the instrument
in a timely way or successfully market the system or if Applied Biosystems
elects to terminate our partnership, we may not be able to develop or
successfully commercialize our initial products on a timely basis, or at all. We
intend to rely on other corporate partners and collaborators to develop other
chemistry formats and to gain access to genetic data for use with our
technologies. If we do not enter into additional partnership agreements, or if
these agreements are not successful, our ability to develop and commercialize
products will be impacted negatively and our revenues will decline.
We have limited or no control over the resources that any partner or
collaborator may devote to our products. Any of our present or future partners
or collaborators may not perform their obligations as expected. These partners
or collaborators may breach or terminate their agreements with us or otherwise
fail to meet their obligations or perform their collaborative activities
successfully and in a timely manner. Further, any of our partners or
collaborators may elect not to develop products arising out of our partnerships
or collaborations or devote sufficient resources to the development, manufacture
or commercialization of these products. If any of these events occur, we may not
be able to develop our technologies or commercialize our products and our
ability to generate revenues will decrease.
Any inability to adequately protect our proprietary technologies could harm
our competitive position.
Our success will depend in part on our ability to obtain patents and
maintain adequate protection of our intellectual property in the United States
and other countries. If we do not protect our intellectual property adequately,
competitors may be able to use our technologies and thereby erode our
competitive advantage. The laws of some foreign countries do not protect
proprietary rights to the same extent as the laws of the United States, and many
companies have encountered significant problems in protecting their proprietary
rights abroad. These problems can be caused by the absence of rules and methods
for defending intellectual property rights.
The patent positions of companies developing tools for the life sciences
and pharmaceutical industries, including our patent position, generally are
uncertain and involve complex legal and factual questions. We will be able to
protect our proprietary rights from unauthorized use by third parties only to
the extent that our proprietary technologies are covered by valid and
enforceable patents or are effectively maintained as trade secrets. We will
apply for patents covering our technologies and products, as we deem
appropriate. However, our applications may be challenged and may not result in
issued patents. Our existing patents and any future patents we obtain may not be
sufficiently broad to prevent others from practicing our technologies or from
developing competing products. There also is risk that others may independently
develop similar or alternative technologies or design around our patented
technologies. Also, others may challenge or invalidate our patents, or our
patents may fail to provide us with any competitive advantage. In addition, we
may need to initiate lawsuits to protect or enforce our patents, which would be
expensive and, if we lose, may cause us to lose some of our intellectual
property rights, which would reduce our ability to compete in the marketplace.
We also rely upon trade secret protection for our confidential and
proprietary information. We have taken security measures to protect our
proprietary information. These measures, however, may not provide adequate
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22
protection for our trade secrets or other proprietary information. We seek to
protect our proprietary information by entering into confidentiality agreements
with employees, collaborators and consultants. Nevertheless, employees,
collaborators or consultants may still disclose our proprietary information, and
we may not be able to meaningfully protect our trade secrets. In addition,
others may independently develop substantially equivalent proprietary
information or techniques or otherwise gain access to our trade secrets.
We expect intense competition in our target markets, which could render our
products obsolete or substantially limit the volume of products that we sell.
This would limit our ability to compete and achieve profitability.
We compete with life sciences companies that design, manufacture and market
instruments for analysis of genetic variation and function and other
applications using technologies such as two-dimensional electrophoresis,
capillary electrophoresis, mass spectrometry, flow cytometry, microfluidics, and
mechanically deposited, inkjet and photolithographic arrays. We anticipate that
we will face increased competition in the future as new companies enter the
market with new technologies. The markets for our products are characterized by
rapidly changing technology, evolving industry standards, changes in customer
needs, emerging competition and new product introductions. One or more of our
competitors may render our technology obsolete or uneconomical. Many of our
competitors have greater financial and personnel resources and more experience
in research and development than we have. Furthermore, the life sciences and
pharmaceutical companies, which are our potential customers and strategic
partners, could develop competing products.
If we lose our key personnel or are unable to attract and retain additional
personnel, we may be unable to achieve our goals.
We are highly dependent on our management and scientific personnel. The
loss of their services could adversely impact our ability to achieve our
business objectives. We will need to hire additional qualified personnel with
expertise in molecular biology, chemistry and biological information processing.
We compete for qualified management and scientific personnel with other
biotechnology companies, universities and research institutions, particularly
those focusing on genomics. Competition for these individuals, particularly in
the San Diego area, is intense, and the turnover rate can be high. Failure to
attract and retain management and scientific personnel would prevent us from
pursuing collaborations or developing our products or technologies.
Our planned activities will require additional expertise in specific
industries and areas applicable to the products developed through our
technologies, including the life sciences and healthcare industries and
molecular biology, chemistry and biological information processing. Thus, we
will need to add new personnel, including management, and develop the expertise
of existing management. The failure to do so could impair the growth of our
business.
We may need additional capital in the future. If additional capital is not
available on acceptable terms, we may have to curtail or cease operations.
Our future capital requirements will be substantial and will depend on many
factors including payments received under collaborative agreements and
government grants, the progress and scope of our collaborative and independent
research and development projects, and the filing, prosecution and enforcement
of patent claims. We anticipate that our existing capital resources will enable
us to maintain currently planned operations for at least the next 24 months.
However, we premise this expectation on our current operating plan, which may
change as a result of many factors. Consequently, we may need additional funding
sooner than anticipated. Our inability to raise capital would seriously harm our
business and product development efforts. In addition, we may choose to raise
additional capital due to market conditions or strategic considerations even if
we believe we have sufficient funds for our current or future operating plans.
To the extent that additional capital is raised through the sale of equity or
convertible debt securities, the issuance of these securities could result in
dilution to our stockholders.
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We currently have no credit facility or committed sources of capital other
than an equipment lease line with $1.7 million unused and available as of
December 31, 2000. To the extent operating and capital resources are
insufficient to meet future requirements, we will have to raise additional funds
to continue the development and commercialization of our technologies. These
funds may not be available on favorable terms, or at all. If adequate funds are
not available on attractive terms, we may be required to curtail operations
significantly or to obtain funds by entering into financing, supply or
collaboration agreements on unattractive terms.
We expect that our results of operations will fluctuate. This fluctuation
could cause our stock price to decline.
Our operating results have fluctuated in the past and are likely to do so
in the future. These fluctuations could cause our stock price to fluctuate
significantly or decline. A large portion of our expenses is relatively fixed,
including expenses for facilities, equipment and personnel. In addition, we
expect operating expenses to increase significantly in 2001. Accordingly, if
revenues do not grow as anticipated, we may not be able to correspondingly
reduce our operating expenses. Failure to achieve anticipated levels of
revenues, therefore, could significantly harm our operating results for a
particular fiscal period.
Due to the possibility of fluctuations in our revenues and expenses, we
believe that comparisons of our operating results are not a good indication of
our future performance. Our operating results may not meet the expectations of
stock market analysts and investors. In that case, our stock price probably
would decline.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
investment portfolio and on the increase or decrease in the amount of interest
expense we must pay with respect to our various outstanding debt instruments.
Our risk associated with fluctuating interest expense is limited, however, to
our capital lease obligations, the interest rates under which are closely tied
to market rates, and our investments in interest rate sensitive financial
instruments. Under our current policies, we do not use interest rate derivative
instruments to manage exposure to interest rate changes. We ensure the safety
and preservation of our invested principal funds by limiting default risk,
market risk and reinvestment risk. We mitigate default risk by investing in
investment grade securities. A hypothetical 100 basis point adverse move in
interest rates along the entire interest rate yield curve would not materially
affect the fair value of our interest sensitive financial instruments. Declines
in interest rates over time will, however, reduce our interest income while
increases in interest rates over time will increase our interest expense.
The table below presents our investment portfolio by expected year of
maturity and related weighted average interest rates at December 31, 2000:
2001
--------------
Cash equivalents and restricted cash.................. $117.7 million
Average interest rate................................. 6.58%
Investments........................................... $1.0 million
Average interest rate................................. 6.72%
Total securities...................................... $118.7 million
Average interest rate................................. 6.58%
Our equipment financings, amounting to $1.1 million as of December 31,
2000, are all at fixed rates and therefore, have minimal exposure to changes in
interest rates.
We have operated primarily in the United States and all transactions to
date have been made in U.S. dollars. Accordingly, we have not had any material
exposure to foreign currency rate fluctuations, nor do we have any foreign
currency hedging instruments in place.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Report of Independent Auditors, Financial Statements and Notes to
Financial Statements begin on page F-1 immediately following the signature page
and are incorporated here by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Identification of Directors. Information concerning our directors is
incorporated by reference from the section entitled "Proposal 1 -- Election of
Directors" contained in our definitive Proxy Statement with respect to our
Annual Meeting of Stockholders to be filed with the SEC no later than April 29,
2001.
(b) Identification of Executive Officers. Information concerning our
executive officers is set forth under "Our Executive Officers" in Part I of this
Annual Report on Form 10-K and is incorporated herein by reference.
(c) Compliance with Section 16(a) of the Exchange Act. Information
concerning compliance with Section 16(a) of the Securities Exchange Act of 1934
is incorporated by reference from the section entitled "Compliance with Section
16(a) of the Securities Exchange Act" contained in our Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
Information concerning executive compensation is incorporated by reference
from the sections entitled "Executive Compensation" contained in our Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information concerning the security ownership of certain beneficial owners
and management is incorporated by reference from the section entitled "Ownership
of Securities" contained in our Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information concerning certain relationships is incorporated by reference
from the sections entitled "Proposal 1 -- Election of Directors," "Executive
Compensation and Other Information" and "Certain Transactions" contained in our
Proxy Statement.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
(1) Financial Statements:
PAGE
----
Index to Financial Statements............................... F-1
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets at December 31, 2000 and 1999................ F-3
Statements of Operations -- Years Ended December 31, 2000
and 1999 and for the period from April 28, 1998
(inception) to December 31, 1998.......................... F-4
Statements of Stockholders' Equity -- Years Ended December
31, 2000 and 1999 and for the period from April 28, 1998
(inception) to December 31, 1998.......................... F-5
Statements of Cash Flows -- Years Ended December 31, 2000
and 1999 and for the period from April 28, 1998
(inception) to December 31, 1998.......................... F-7
Notes to Financial Statements............................... F-8
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(3) Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------- -----------------------
2.1(1) Form of Merger Agreement between Illumina, Inc., a
California corporation, and Illumina, Inc., a Delaware
corporation.
3.1 Amended and Restated Certificate of Incorporation.
3.2(1) Bylaws.
4.1(1) Specimen Common Stock Certificate.
4.2(1) Amended and Restated Investors Rights Agreement, dated
November 5, 1999, by and among the Registrant and certain
stockholders of the Registrant.
+10.1(1) Form of Indemnification Agreement between the Registrant and
each of its directors and officers.
+10.2(1) 1998 Incentive Stock Plan.
+10.3(1) 2000 Employee Stock Purchase Plan (Filed as Exhibit 99.2).
10.4(1) Sublease Agreement dated August 1998 between Registrant and
Gensia Sicor Inc. for Illumina's principal offices.
10.5(1) Joint Development Agreement dated November 1999 between
Registrant and PE Corporation (with certain confidential
portions omitted).
10.6(1) Asset Purchase Agreement dated November 1998 between
Registrant and nGenetics, Inc. (with certain confidential
portions omitted).
10.7(1) Asset Purchase Agreement dated March 2000 between Registrant
and Spyder Instruments, Inc. (with certain confidential
portions omitted).
10.8(1) License Agreement dated May 1998 between Tufts and
Registrant (with certain confidential portions omitted).
10.9(1) Master Loan and Security Agreement, dated March 6, 2000, by
and between Registrant and FINOVA Capital Corporation.
+10.10(1) 2000 Stock Plan (Filed as Exhibit 99.1).
10.11(1) Eastgate Pointe Lease, dated July 6, 2000, between
Diversified Eastgate Venture and Registrant.
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EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------- -----------------------
10.12(1) Option Agreement and Joint Escrow Instructions, dated July
6, 2000, between Diversified Eastgate Venture and
Registrant.
23.1 Consent of Ernst & Young, LLP, Independent Auditors.
24.1 Power of Attorney (included on the signature page).
- ---------------
+ Management contract or corporate plan or arrangement
(1) Incorporated by reference to the same numbered exhibit filed with our
Registration Statement on Form S-1 (333-33922) filed April 3, 2000, as
amended.
(b) Reports on Form 8-K
We did not file a Current Report on Form 8-K during the quarter ended
December 31, 2000.
SUPPLEMENTAL INFORMATION
No Annual Report to stockholders or proxy materials have been sent to
stockholders as of the date of this report. The Annual Report to stockholders
and proxy material will be furnished to our stockholders subsequent to the
filing of this report and we will furnish such material to the SEC at that time.
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SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) 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, on March 29, 2001.
ILLUMINA, INC.
By: /s/ JAY T. FLATLEY
------------------------------------
Jay T. Flatley
President and Chief Executive
Officer
March 29, 2001
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Jay T. Flatley and Timothy M. Kish, and each or
any one of them, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Annual Report on
Form 10-K, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
/s/ JAY T. FLATLEY March 29, 2001
- -----------------------------------------------------
Jay T. Flatley
President and Chief Executive Officer
Director
(Principal Executive Officer)
/s/ TIMOTHY M. KISH March 29, 2001
- -----------------------------------------------------
Timothy M. Kish
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ JOHN R. STUELPNAGEL March 29, 2001
- -----------------------------------------------------
John R. Stuelpnagel
Vice President of Business Development
Director
/s/ CHARLES M. HARTMAN March 29, 2001
- -----------------------------------------------------
Charles M. Hartman
Director
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29
/s/ ROBERT T. NELSEN March 29, 2001
- -----------------------------------------------------
Robert T. Nelsen
Director
/s/ GEORGE POSTE March 29, 2001
- -----------------------------------------------------
George Poste
Director
/s/ WILLIAM H. RASTETTER March 29, 2001
- -----------------------------------------------------
William H. Rastetter
Director
/s/ DAVID R. WALT March 29, 2001
- -----------------------------------------------------
David R. Walt
Director
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30
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets as of December 31, 2000 and 1999............. F-3
Statements of Operations for the years ended December 31,
2000 and 1999 and for the period from April 28, 1998
(inception) to December 31, 1998.......................... F-4
Statements of Stockholders' Equity for the period from April
28, 1998 (inception) to December 31, 2000................. F-5
Statements of Cash Flows for the years ended December 31,
2000 and 1999 and for the period from April 28, 1998
(inception) to December 31, 1998.......................... F-7
Notes to Financial Statements............................... F-8
F-1
31
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Illumina, Inc.
We have audited the accompanying balance sheets of Illumina, Inc. as of
December 31, 2000 and 1999, and the related statements of operations,
stockholders' equity, and cash flows for the years ended December 31, 2000 and
1999 and for the period from April 28, 1998 (inception) to December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Illumina, Inc. at December
31, 2000 and 1999, and the results of its operations and its cash flows for the
years ended December 31, 2000 and 1999 and for the period from April 28, 1998
(inception) to December 31, 1998, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Diego, California
January 19, 2001
F-2
32
ILLUMINA, INC.
BALANCE SHEETS
ASSETS
DECEMBER 31,
---------------------------
2000 1999
------------ -----------
Current assets:
Cash and cash equivalents................................. $116,101,736 $21,164,114
Investments, available for sale........................... 1,001,215 11,924,163
Restricted cash........................................... 1,616,475 --
Note receivable........................................... 6,339,500 --
Prepaid expenses and other current assets................. 4,007,727 404,768
------------ -----------
Total current assets.............................. 129,066,653 33,493,045
Property and equipment, net................................. 3,289,387 291,314
Intangible assets, net...................................... 37,867 75,733
Other assets................................................ 398,772 34,566
------------ -----------
Total assets...................................... $132,792,679 $33,894,658
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 727,273 $ 318,219
Accrued liabilities....................................... 1,818,176 292,689
Current portion of equipment financing.................... 260,867 1,500
------------ -----------
Total current liabilities......................... 2,806,316 612,408
Noncurrent portion of equipment financing................... 886,627 --
Deferred revenue............................................ 5,000,000 1,250,000
Commitments
Stockholders' equity:
Convertible preferred stock, $.01 par value, 10,000,000
shares, authorized; no shares issued and outstanding at
December 31, 2000; no par value, 50,000,000 shares
authorized, 18,836,297 shares issued and outstanding at
December 31, 1999...................................... -- 37,397,998
Common stock, $.01 par value, 120,000,000 shares
authorized, 31,964,864 shares issued and outstanding at
December 31, 2000; 60,000,000 shares authorized,
5,139,083 shares issued and outstanding at December 31,
1999................................................... 319,649 51,391
Additional paid-in capital................................ 163,079,225 5,288,231
Deferred compensation..................................... (14,029,594) (4,026,916)
Accumulated other comprehensive income.................... 186 (10,689)
Note receivable........................................... -- (4,500)
Accumulated deficit....................................... (25,269,730) (6,663,265)
------------ -----------
Total stockholders' equity........................ 124,099,736 32,032,250
------------ -----------
Total liabilities and stockholders' equity........ $132,792,679 $33,894,658
============ ===========
See accompanying notes.
F-3
33
ILLUMINA, INC.
STATEMENTS OF OPERATIONS
PERIOD FROM
APRIL 28, 1998
YEAR ENDED YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------ ------------ --------------
Revenue............................................ $ 1,309,111 $ 474,026 $ --
Costs and expenses:
Research and development (exclusive of stock
based compensation of $3,856,845, $611,852 and
$62,092 in 2000, 1999 and 1998,
respectively)................................. 13,554,365 4,085,743 770,901
General and administrative (exclusive of stock
based compensation of $2,940,230, $345,970 and
$16,095 in 2000, 1999 and 1998,
respectively)................................. 4,193,031 1,348,870 345,080
Amortization of deferred compensation and other
non-cash compensation charges................. 6,797,075 957,822 78,187
------------ ----------- -----------
Total costs and expenses................. 24,544,471 6,392,435 1,194,168
------------ ----------- -----------
Loss from operations............................... (23,235,360) (5,918,409) (1,194,168)
Interest income, net............................... 4,628,895 400,764 48,548
------------ ----------- -----------
Net loss........................................... $(18,606,465) $(5,517,645) $(1,145,620)
============ =========== ===========
Historical net loss per share, basic and diluted... $ (1.37) $ (3.91) $ (1.71)
============ =========== ===========
Shares used in calculating historical net loss per
share, basic and diluted......................... 13,556,941 1,410,225 668,748
============ =========== ===========
Pro forma net loss per share, basic and diluted.... $ (0.76) $ (0.40) $ (0.26)
============ =========== ===========
Shares used in calculating pro forma net loss per
share, basic and diluted......................... 24,440,135 13,696,522 4,453,318
============ =========== ===========
See accompanying notes.
F-4
34
ILLUMINA, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
CONVERTIBLE PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------------- --------------------- PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
------------ ------------- ---------- -------- ------------ ------------
BALANCE AT APRIL 28, 1998...... -- $ -- -- $ -- $ -- $ --
Issuance of common stock at
$.01 per share for cash.... -- -- 600,000 6,000 -- --
Issuance of restricted common
stock at $.01 to $.03 per
share for cash............. -- -- 2,856,000 28,560 15,120 --
Issuance of Series A
preferred stock at $.30 per
share for cash............. 2,499,998 749,999 -- -- -- --
Issuance of Series B
preferred stock at $.926
per share for cash......... 9,212,147 8,533,000 -- -- -- --
Issuance of Series B
preferred stock at $.926
per share for nGenetics
acquisition................ 124,152 114,999 -- -- -- --
Deferred compensation related
to stock options and
restricted stock........... -- -- -- -- 319,818 (319,818)
Amortization of deferred
compensation............... -- -- -- -- -- 32,923
Deferred compensation related
to restricted stock
purchased by consultants... -- -- -- -- 45,264 --
Net loss and comprehensive
loss....................... -- -- -- -- -- --
----------- ------------ ---------- -------- ------------ ------------
BALANCE AT DECEMBER 31, 1998... 11,836,297 9,397,998 3,456,000 34,560 380,202 (286,895)
Issuance of common stock
including exercise of stock
options for cash and note
receivable................. -- -- 297,416 2,974 167 --
Issuance of restricted common
stock for cash............. -- -- 1,367,000 13,670 109,360 --
Issuance of common stock for
technology................. -- -- 35,000 350 100,986 --
Repurchase of restricted
common stock............... -- -- (16,333) (163) (327) --
Issuance of Series C
preferred stock at $4.00
per share for cash......... 7,000,000 28,000,000 -- -- -- --
Deferred compensation related
to stock options and
restricted stock........... -- -- -- -- 4,334,469 (4,334,469)
Amortization of deferred
compensation............... -- -- -- -- -- 594,448
Deferred compensation related
to restricted stock
purchased by consultants... -- -- -- -- 363,374 --
Comprehensive loss:
Unrealized loss on
investments................ -- -- -- -- -- --
Net loss..................... -- -- -- -- -- --
Comprehensive loss........... -- -- -- -- -- --
----------- ------------ ---------- -------- ------------ ------------
UNREALIZED TOTAL
GAIN/(LOSS) ON NOTE ACCUMULATED STOCKHOLDERS'
INVESTMENTS RECEIVABLE DEFICIT EQUITY
-------------- ---------- ------------ -------------
BALANCE AT APRIL 28, 1998...... $ -- $ -- $ -- $ --
Issuance of common stock at
$.01 per share for cash.... -- -- -- 6,000
Issuance of restricted common
stock at $.01 to $.03 per
share for cash............. -- -- -- 43,680
Issuance of Series A
preferred stock at $.30 per
share for cash............. -- -- -- 749,999
Issuance of Series B
preferred stock at $.926
per share for cash......... -- -- -- 8,533,000
Issuance of Series B
preferred stock at $.926
per share for nGenetics
acquisition................ -- -- -- 114,999
Deferred compensation related
to stock options and
restricted stock........... -- -- -- --
Amortization of deferred
compensation............... -- -- -- 32,923
Deferred compensation related
to restricted stock
purchased by consultants... -- -- -- 45,264
Net loss and comprehensive
loss....................... -- -- (1,145,620) (1,145,620)
-------- ------ ------------ ------------
BALANCE AT DECEMBER 31, 1998... -- -- (1,145,620) 8,380,245
Issuance of common stock
including exercise of stock
options for cash and note
receivable................. -- -- -- 3,141
Issuance of restricted common
stock for cash............. -- (4,500) -- 118,530
Issuance of common stock for
technology................. -- -- -- 101,336
Repurchase of restricted
common stock............... -- -- -- (490)
Issuance of Series C
preferred stock at $4.00
per share for cash......... -- -- -- 28,000,000
Deferred compensation related
to stock options and
restricted stock........... -- -- -- --
Amortization of deferred
compensation............... -- -- -- 594,448
Deferred compensation related
to restricted stock
purchased by consultants... -- -- -- 363,374
Comprehensive loss:
Unrealized loss on
investments................ (10,689) -- -- (10,689)
Net loss..................... -- -- (5,517,645) (5,517,645)
------------
Comprehensive loss........... -- -- -- (5,528,334)
-------- ------ ------------ ------------
F-5
35
ILLUMINA, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
(CONTINUED)
CONVERTIBLE PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------------- --------------------- PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
------------ ------------- ---------- -------- ------------ ------------
BALANCE AT DECEMBER 31, 1999... 18,836,297 $ 37,397,998 5,139,083 $ 51,391 $ 5,288,231 $ (4,026,916)
Issuance of common stock for
cash, technology and
services, net of
repurchased shares......... -- -- 7,989,484 79,895 103,781,606 --
Conversion of convertible
preferred stock into common
stock, in connection with
the initial public
offering................... (18,836,297) (37,397,998) 18,836,297 188,363 37,209,635 --
Repayment of note
receivable................. -- -- -- -- -- --
Deferred compensation related
to stock options and
restricted stock........... -- -- -- -- 13,522,372 (13,272,372)
Deferred compensation related
to restricted stock
purchased by consultants... -- -- -- -- 3,277,381 (2,962,300)
Amortization of deferred
compensation............... -- -- -- -- -- 6,231,994
Comprehensive loss:
Unrealized gain on
investments................ -- -- -- -- -- --
Net loss..................... -- -- -- -- -- --
Comprehensive loss........... -- -- -- -- -- --
----------- ------------ ---------- -------- ------------ ------------
BALANCE AT DECEMBER 31, 2000... -- $ -- 31,964,864 $319,649 $163,079,225 $(14,029,594)
=========== ============ ========== ======== ============ ============
UNREALIZED TOTAL
GAIN/(LOSS) ON NOTE ACCUMULATED STOCKHOLDERS'
INVESTMENTS RECEIVABLE DEFICIT EQUITY
-------------- ---------- ------------ -------------
BALANCE AT DECEMBER 31, 1999... $(10,689) $(4,500) $ (6,663,265) $ 32,032,250
Issuance of common stock for
cash, technology and
services, net of
repurchased shares......... -- -- -- 103,861,501
Conversion of convertible
preferred stock into common
stock, in connection with
the initial public
offering................... -- -- -- --
Repayment of note
receivable................. -- 4,500 -- 4,500
Deferred compensation related
to stock options and
restricted stock........... -- -- -- 250,000
Deferred compensation related
to restricted stock
purchased by consultants... -- -- -- 315,081
Amortization of deferred
compensation............... -- -- -- 6,231,994
Comprehensive loss:
Unrealized gain on
investments................ 10,875 -- -- 10,875
Net loss..................... -- -- (18,606,465) (18,606,465)
------------
Comprehensive loss........... -- -- -- (18,595,590)
-------- ------- ------------ ------------
BALANCE AT DECEMBER 31, 2000... $ 186 $ -- $(25,269,730) $124,099,736
======== ======= ============ ============
See accompanying notes.
F-6
36
ILLUMINA, INC.
STATEMENTS OF CASH FLOWS
PERIOD FROM
APRIL 28, 1998
YEAR ENDED YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------ ------------ --------------
OPERATING ACTIVITIES
Net loss.......................................... $(18,606,465) $ (5,517,645) $(1,145,620)
Adjustments to reconcile net loss to net cash
used in operating activities:
Write-off of assets purchased in exchange for
Series B preferred stock..................... -- -- 399
Issuance of stock for technology and services... 1,722,000 101,336 --
Depreciation and amortization................... 467,850 42,841 --
Amortization of premium/(discount) on
investments.................................. (69,687) 53,526 --
Amortization of deferred compensation and other
non-cash compensation charges................ 6,797,075 957,822 78,187
Changes in operating assets and liabilities:
Prepaid expenses and other current assets.... (3,602,959) (230,248) (174,520)
Note receivable.............................. (6,339,500) -- --
Deferred revenue............................. 3,750,000 1,250,000 --
Other assets................................. (364,206) -- (34,566)
Accounts payable............................. 409,054 188,234 129,985
Accrued liabilities.......................... 1,525,487 247,004 45,685
------------ ------------ -----------
Net cash used in operating activities... (14,311,351) (2,907,130) (1,100,450)
INVESTING ACTIVITIES
Purchase of investment securities................. (10,328,685) (16,244,380) --
Maturity of investment securities................. 19,715,720 4,256,000 --
Purchase of property and equipment................ (3,428,057) (295,286) --
------------ ------------ -----------
Net cash provided by (used in) investing
activities............................ 5,958,978 (12,283,666) --
FINANCING ACTIVITIES
Proceeds from note payable, net of repayments..... 1,145,994 -- 1,500
Proceeds from stock subscription receivable....... 4,500 -- --
Proceeds from issuance of common stock, net of
repurchased shares.............................. 102,139,501 121,181 49,680
Net proceeds from issuance of Series A preferred
stock........................................... -- -- 749,999
Net proceeds from issuance of Series B preferred
stock........................................... -- -- 8,533,000
Net proceeds from issuance of Series C preferred
stock........................................... -- 28,000,000 --
------------ ------------ -----------
Net cash provided by financing
activities............................ 103,289,995 28,121,181 9,334,179
------------ ------------ -----------
Net increase in cash and cash equivalents......... 94,937,622 12,930,385 8,233,729
Cash and cash equivalents at beginning of the
period.......................................... 21,164,114 8,233,729 --
------------ ------------ -----------
Cash and cash equivalents at end of the period.... $116,101,736 $ 21,164,114 $ 8,233,729
============ ============ ===========
NON-CASH INVESTING AND FINANCING TRANSACTIONS
Purchase of property and equipment and intangible
assets in exchange for Series B preferred
stock........................................... $ -- $ -- $ 114,999
============ ============ ===========
Issuance of stock for stock subscription
receivable...................................... $ -- $ 4,500 $ --
============ ============ ===========
Issuance of stock for technology and services..... $ 1,722,000 $ 101,336 $ --
============ ============ ===========
See accompanying notes.
F-7
37
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Illumina, Inc. (the "Company") was incorporated on April 28, 1998. The
Company is developing next-generation tools that will permit the large-scale
analysis of genetic variation and function. The Company's proprietary BeadArray
technology will provide the throughput, cost effectiveness and flexibility
necessary to enable researchers in the life sciences and pharmaceutical
industries to perform the billions of tests necessary to extract medically
valuable information from advances in genomics. This information will correlate
genetic variation and gene function with particular disease states, enhancing
drug discovery, allowing diseases to be detected earlier and more specifically
and permitting better choices of drugs for individual patients. In addition to
the life sciences and pharmaceutical industries, the Company's technology will
have applicability across a wide variety of industries, including agriculture,
petrochemicals and food, flavor and beverages.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid investments with
an original maturity of less than three months when purchased.
Investments
The Company applies Statement of Financial Accounting Standards ("SFAS")
No. 115, Accounting for Certain Investments in Debt and Equity Securities, to
its investments. Under SFAS No. 115, the Company classifies its investments as
"Available-for-Sale" and records such assets at estimated fair value in the
balance sheet, with unrealized gains and losses, if any, reported in
stockholders' equity.
At December 31, 2000, investments consist of the following:
AMORTIZED UNREALIZED
COST MARKET VALUE GAIN (LOSS)
---------- ------------ -----------
Corporate debt securities..................... $1,001,029 $1,001,215 $186
---------- ---------- ----
Total............................... $1,001,029 $1,001,215 $186
========== ========== ====
There were no material realized gains or losses for the year ended December
31, 2000.
At December 31, 1999, investments consist of the following:
AMORTIZED UNREALIZED
COST MARKET VALUE GAIN (LOSS)
----------- ------------ -----------
Corporate debt securities.................... $11,935,562 $11,924,163 $(11,399)
----------- ----------- --------
Total.............................. $11,935,562 $11,924,163 $(11,399)
=========== =========== ========
The Company had an unrealized gain of $710 related to cash equivalents,
resulting in total unrealized losses of $10,689 at December 31, 1999.
F-8
38
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
short-term investments. The Company limits its exposure to credit loss by
placing its cash, cash equivalents and investments with high credit quality
financial institutions.
Fair Value of Financial Instruments
Financial instruments, including cash and cash equivalents, accounts
payable and accrued liabilities, are carried at cost, which management believes
approximates fair value because of the short-term maturity of these instruments.
Property and Equipment
Property and equipment are stated at cost and depreciated over the
estimated useful lives of the assets (generally three to five years) using the
straight-line method. Amortization of leasehold improvements is computed over
the shorter of the lease term or the estimated useful life of the related
assets.
Acquired Technology Rights
The intangible assets consist of acquired technology rights related to the
acquisition of nGenetics in 1998. The purchase price was $114,999, consisting of
124,152 shares of Series B preferred stock, valued at $0.926 per share, the
selling price paid in cash by outside investors in a contemporaneous sale of
stock.
In accordance with Accounting Practice Board ("APB") Opinion No. 17,
Accounting for Intangible Assets, the acquired technology rights are recorded at
cost. The rights related to the acquired technology are being amortized over its
estimated useful life (three years) and the Company has amortized $75,733
through December 31, 2000.
Long-Lived Assets
In accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, if indicators of
impairment exist, the Company assesses the recoverability of the affected
long-lived assets by determining whether the carrying value of such assets can
be recovered through undiscounted future operating cash flows. If impairment is
indicated, the Company measures the future cash flows associated with the use of
the asset. While the Company's current and historical operating and cash flow
losses are indicators of impairment, the Company believes the future cash flows
to be received from the long-lived assets will exceed the assets' carrying
value, and accordingly the Company has not recognized any impairment losses
through December 31, 2000.
Revenue Recognition
Revenue from government grants is recognized on a percentage of completion
basis as related costs are incurred, provided that amounts earned are not
subject to refund if the research is unsuccessful. Payments received in advance
of the performance or product sale requirements are deferred in accordance with
Staff Accounting Bulletin ("SAB") No. 101 until the related performance or
product sale requirements have been completed.
Research and Development
Expenditures relating to research and development are expensed in the
period incurred.
F-9
39
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Income Taxes
Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred income tax asset or liability is
computed for the expected future impact of differences between the financial
reporting and tax bases of assets and liabilities, as well as the expected
future tax benefit to be derived from tax loss and credit carryforwards.
Deferred income tax expense is generally the net change during the year in the
deferred income tax asset or liability. Valuation allowances are established
when realizability of deferred tax assets is uncertain. The effect of tax rate
changes is reflected in tax expense during the period in which such changes are
enacted.
Stock-Based Compensation
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company accounts for common stock options granted, and restricted stock sold, to
employees, founders and directors using the intrinsic value method and, thus,
recognizes no compensation expense for options granted, or restricted stock
sold, with exercise prices equal to or greater than the fair value of the
Company's common stock on the date of the grant. The Company has recorded
deferred stock compensation related to certain stock options, and restricted
stock, which were granted with exercise prices below estimated fair value (see
Note 3), which is being amortized on an accelerated amortization methodology in
accordance with FIN 28.
Deferred compensation for options granted, and restricted stock sold, to
consultants has been determined in accordance with SFAS No. 123 and EITF 96-18
as the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measured. Deferred charges for
options granted, and restricted stock sold, to consultants are periodically
remeasured as the underlying options vest.
Comprehensive Loss
In accordance with SFAS No. 130, Reporting Comprehensive Income, the
Company has disclosed comprehensive loss as a component of stockholders' equity.
Net Loss Per Share
Basic and diluted net loss per common share are presented in conformity
with SFAS No. 128, Earnings per Share, and SAB 98, for all periods presented.
Under the provisions of SAB 98, common stock and convertible preferred stock
that has been issued or granted for nominal consideration prior to the
anticipated effective date of the initial public offering must be included in
the calculation of basic and diluted net loss per common share as if these
shares had been outstanding for all periods presented. To date, the Company has
not issued or granted shares for nominal consideration.
In accordance with SFAS No. 128, basic and diluted net loss per share has
been computed using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. Pro forma
basic and diluted net loss per common share, as presented in the statements of
operations, has been computed as described above, and also gives effect to the
conversion of preferred stock into common stock (using the "as if converted"
method) from the original date of issuance.
F-10
40
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table presents the calculation of net loss per share:
PERIOD FROM
APRIL 28, 1998
YEAR ENDED YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------ ------------ --------------
Net loss................................... $(18,606,465) $(5,517,645) $(1,145,620)
============ =========== ===========
Basic and diluted net loss per share....... $ (1.37) $ (3.91) $ (1.71)
============ =========== ===========
Weighted-average shares used in computing
historical net loss per share, basic
and diluted.............................. 13,556,941 1,410,225 668,748
============ =========== ===========
Pro forma net loss per share, basic and
diluted.................................. $ (0.76) $ (0.40) $ (0.26)
============ =========== ===========
Shares used above.......................... 13,556,941 1,410,225 668,748
Pro forma adjustment to reflect
weighted-average effect of assumed
conversion of convertible preferred
stock.................................... 10,883,194 12,286,297 3,784,570
------------ ----------- -----------
Shares used in computing pro forma net loss
per share, basic and diluted............. 24,440,135 13,696,522 4,453,318
============ =========== ===========
The Company has excluded all convertible preferred stock, outstanding stock
options and warrants, and shares subject to repurchase from the calculation of
diluted loss per common share because all such securities are antidilutive for
all periods presented. The total number of shares excluded from the calculation
of diluted net loss per share, prior to application of the treasury stock method
for options and warrants, was 4,482,069, 22,649,271 and 14,919,900 for the years
ended December 31, 2000 and 1999 and for the period from April 28, 1998
(inception) through December 31, 1998, respectively. Such securities, had they
been dilutive, would have been included in the computation of diluted net loss
per share.
Segment Reporting
The Company has determined that it operates in only one segment.
Effect of New Accounting Standards
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
became effective January 1, 2001. This statement establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments imbedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement also requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met. The
Company believes the adoption of SFAS No. 133 will not have an effect on the
financial statements because the Company does not engage in derivative or
hedging activities.
In March 2000, the Financial Accounting Standards Board issued Financial
Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions Involving
Stock Compensation -- an interpretation of APB Opinion No. 25". FIN 44 clarifies
the definition of employees for purposes of applying APB Opinion No. 25,
"Accounting for Stock Issued to Employees", the criteria for determining whether
a plan qualifies as a non-compensatory plan, the accounting consequence of
various modifications to the terms of a previously fixed stock option or award,
and the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 became effective on July 1, 2000, but certain conclusions in
FIN 44 cover specific events that occur after either December 15, 1998 or
January 12, 2000. The adoption of FIN 44 has not had a material impact on the
Company.
F-11
41
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. BALANCE SHEET ACCOUNT DETAILS
Property and equipment consist of the following:
DECEMBER 31,
----------------------
2000 1999
---------- --------
Laboratory equipment................................. $2,531,374 $271,250
Computer equipment................................... 1,102,827 24,487
Furniture and fixtures............................... 90,142 549
---------- --------
3,724,343 296,286
Accumulated depreciation and amortization............ (434,956) (4,972)
---------- --------
Total...................................... $3,289,387 $291,314
========== ========
Accrued liabilities consist of the following:
DECEMBER 31,
----------------------
2000 1999
---------- --------
Compensation......................................... $ 993,064 $ 94,236
Professional fees.................................... 737,091 103,771
Sponsored research................................... 82,417 74,667
Other................................................ 5,604 20,015
---------- --------
Total...................................... $1,818,176 $292,689
========== ========
3. STOCKHOLDERS' EQUITY
Initial Public Offering
In July 2000, the Company completed an initial public offering of 6,000,000
shares of its common stock to the public, at a per share price of $16.00. In
conjunction with the initial public offering, the Company's underwriters
exercised an option to purchase an additional 900,000 shares of common stock at
a price of $16.00 per share to cover over-allotments. The Company received net
proceeds from the offerings of approximately $101.3 million. Upon the closing of
the initial public offering, each of the outstanding 18,836,297 shares of
convertible preferred stock was automatically converted into one share of common
stock.
Common stock
As of December 31, 2000, the Company has 31,964,864 shares of common stock
outstanding, of which 4,909,333 shares were sold to employees and consultants
subject to restricted stock agreements. The restricted common shares vest in
accordance with the provisions of the agreements, generally over five years. All
unvested shares are subject to repurchase by the Company at the original
purchase price. As of December 31, 2000, 2,931,490 shares of common stock were
subject to repurchase.
Warrants
In connection with a lease financing facility in 1998 (Note 6), the Company
issued the lessor warrants to purchase 43,183 shares of common stock at $.926
per share. The warrants are exercisable, in whole or in part, until July 27,
2003.
Stock Options
In June 2000, the Company's board of directors and stockholders adopted the
2000 Stock Plan. The 2000 Stock Plan amended and restated the 1998 Incentive
Stock Plan and increased the shares reserved for
F-12
42
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
issuance by 4,000,000 shares. In addition, the 2000 Stock Plan provides for an
automatic annual increase in the shares reserved for issuance by the lesser of
5% of outstanding shares of the Company's common stock on the last day of the
immediately preceding fiscal year, 1,500,000 shares or such lesser amount as
determined by the Company's board of directors.
In 1998, the Company adopted the 1998 Incentive Stock Plan (the "Plan") and
had reserved 5,750,000 shares of common stock for grants under the Plan. The
Plan provides for the grant of incentive and nonstatutory stock options, stock
bonuses and rights to purchase stock to employees, directors or consultants of
the Company. The Plan provides that incentive stock options will be granted only
to employees at no less than the fair value of the Company's common stock (no
less than 110% of the fair value for nonstatutory stock options), as determined
by the board of directors at the date of the grant. Options generally vest 20%
one year from the date of grant and ratably each month thereafter for a period
of 48 months and expire ten years from date of grant. In December 1999, the
Company modified the plan to allow for acceleration of vesting in the event of
an acquisition or merger.
A summary of the Company's stock option activity from April 28, 1998
(inception) through December 31, 2000 follows:
WEIGHTED-
AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
Outstanding at April 28, 1998 (inception)........... -- $ --
Granted............................................. 525,000 $ 0.02
---------
Outstanding at December 31, 1998.................... 525,000 $ 0.02
Granted............................................. 495,200 $ 0.10
Exercised........................................... (297,416) $ 0.01
Cancelled........................................... (77,584) $ 0.03
---------
Outstanding at December 31, 1999.................... 645,200 $ 0.08
Granted............................................. 1,254,764 $11.09
Exercised........................................... (191,318) $ 0.08
Cancelled........................................... (201,250) $ 5.18
---------
Outstanding at December 31, 2000.................... 1,507,396 $ 8.57
=========
At December 31, 2000, options to purchase approximately 60,462 shares were
exercisable and 5,141,620 shares remain available for future grant.
Following is a further breakdown of the options outstanding as of December
31, 2000:
WEIGHTED
WEIGHTED AVERAGE
AVERAGE WEIGHTED EXERCISE PRICE
RANGE OF OPTIONS REMAINING LIFE AVERAGE OPTIONS OF OPTIONS
EXERCISE PRICES OUTSTANDING IN YEARS EXERCISE PRICE EXERCISABLE EXERCISABLE
- --------------- ----------- -------------- -------------- ----------- --------------
$ 0.03 - 1.00 836,152 8.64 $ 0.37 46,646 $ 0.15
$ 5.00 - 14.00 323,992 9.43 $ 7.98 12,878 $ 5.00
$19.19 - 22.56 89,500 9.93 $20.43 -- $ --
$30.06 - 37.00 242,752 9.77 $30.95 938 $33.00
$40.63 - 45.75 15,000 9.75 $45.31 -- $ --
--------- ------
1,507,396 60,462
========= ======
Pro forma information regarding net loss is required by SFAS No. 123 and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that statement. The fair
F-13
43
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
value for these options was estimated at the dates of grant using the fair value
option pricing model (Black Scholes) with the following weighted-average
assumptions for 2000, 1999 and 1998: (a) weighted average risk-free interest
rate of 6.5%, (b) expected dividend yield of 0%, (c) anticipated volatility of
70% and (d) five year estimated life of the options.
For purposes of adjusted pro forma disclosures, the estimated fair value of
the options is amortized to expense over the vesting period. The Company's
adjusted pro forma information is as follows:
PERIOD FROM
APRIL 28, 1998
YEAR ENDED YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------ ------------ --------------
Adjusted pro forma net loss................ $(15,588,007) $(4,868,928) $(1,091,846)
Adjusted pro forma basic net loss per
share.................................... $ (1.15) $ (3.45) $ (1.63)
The pro forma effect on net loss presented is not likely to be
representative of the pro forma effects on reported net income or loss in future
years because these amounts reflect less than five years of vesting.
2000 Employee Stock Purchase Plan
In February 2000, the board of directors and stockholders adopted the 2000
Employee Stock Purchase Plan (the "Purchase Plan"). A total of 500,000 shares of
the Company's common stock have been reserved for issuance under the Purchase
Plan. The Purchase Plan permits eligible employees to purchase common stock at a
discount, but only through payroll deductions, during defined offering periods.
The price at which stock is purchased under the Purchase Plan is equal to 85% of
the fair market value of the common stock on the first or last day of the
offering period, whichever is lower. The initial offering period commenced in
July 2000. In addition, the Purchase Plan provides for annual increases of
shares available for issuance under the Purchase Plan beginning with fiscal
2001.
Deferred Stock Compensation
Since the inception of the Company, in connection with the grant of certain
stock options and sales of restricted stock to employees, founders and directors
through July 25, 2000, the Company has recorded deferred stock compensation
totaling approximately $17.9 million, representing the difference between the
exercise or purchase price and the fair value of the Company's common stock as
estimated by the Company's management for financial reporting purposes on the
date such stock options were granted or restricted common stock was sold.
Deferred compensation is included as a reduction of stockholders' equity and is
being amortized to expense over the vesting period of the options and restricted
stock. During the year ended December 31, 2000, the Company recorded
amortization of deferred stock compensation expense of approximately $5.4
million.
In February 2000, the Company modified the consulting agreements with all
of its outside consultants. Under the modified consulting agreements, the
consultants agreed to pay a substantial financial penalty if they did not
fulfill their performance obligations under the agreements. The amount of the
penalty was determined for each consultant based on the intrinsic value of the
unvested restricted common stock based on the original purchase price and the
fair value of the common stock as estimated by the Company's management for
financial reporting purposes on the date of modification. Each consultant had
already vested in a portion of the original restricted common stock in
accordance with the services already provided, and the amounts related to the
vested common stock was expensed. The deferred consultant compensation related
to the unvested stock of $3.0 million was recorded in February 2000 and will be
amortized ratably over the contracted service periods. The Company amortized
approximately $0.8 million of this deferred compensation in the year ended
December 31, 2000. No shares were issued under the 2000 Employee Stock Purchase
Plan during fiscal 2000.
F-14
44
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a breakdown of the amortization of deferred compensation
and other non-cash charges:
PERIOD FROM
APRIL 28, 1998
YEAR ENDED YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------ ------------ --------------
Research and development..................... $3,856,845 $611,852 $62,092
General and administrative................... 2,940,230 345,970 16,095
---------- -------- -------
$6,797,075 $957,822 $78,187
========== ======== =======
Shares Reserved for Future Issuance
At December 31, 2000, the Company has reserved shares of common stock for
future issuance as follows:
2000 Stock Plan........................................... 6,649,016
2000 Employee Stock Purchase Plan......................... 500,000
Warrants.................................................. 43,183
---------
7,192,199
=========
4. COLLABORATIVE AGREEMENTS
Applera Corporation
In November 1999, the Company signed a collaborative agreement with Applera
Corporation through its Applied Biosystems unit ("ABI") under which both
companies will perform certain research activities with an objective of
developing and commercializing products utilizing the Company's technology. In
conjunction with the agreement, ABI purchased 1,250,000 shares of Series C
convertible preferred stock at $4.00 per share. Under the agreement, ABI will
provide the Company with non-refundable research and development support, a
portion of which is dependent on the achievement of certain scientific
milestones. Upon commercialization of the products developed under the
collaboration, the Company will share in the operating profits resulting from
the sale of such products, which will be partially offset by the research
funding amounts provided by ABI to the Company. The Company has deferred
recognition of revenue from the research funding of $5,000,000 provided by ABI,
and will recognize such amounts as revenue in conjunction with the sale of any
commercial products resulting from the development efforts.
Other Agreements
The Company has various research agreements with governmental and academic
organizations for which the Company performs research activities. These
organizations fund the research efforts, the revenue for which is recognized as
the procedures are performed.
5. ASSET AND TECHNOLOGY PURCHASE
In March 2000, the Company signed an agreement to acquire certain tangible
assets and rights to certain in-process technologies in exchange for $100,000
and 175,000 shares of common stock valued at $1,575,000 ($9.00 per share). The
Company recorded the tangible assets at their fair value of approximately
$50,000. As of the date these technologies were acquired, they had not achieved
technological or commercial feasibility and there is no significant alternative
future use should the Company's development efforts prove unsuccessful.
Accordingly, the Company recorded an acquired in-process technology charge of
$1,625,000 in March 2000 related to the purchase of these technologies.
Four projects were acquired in this purchase of these technologies. Three
projects are related to the development of instrumentation for oligonucleotide
synthesis. These three projects differ in the size and
F-15
45
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
capacity of the instrumentation. The first of these projects was approximately
50% complete at the date of acquisition and was completed in approximately nine
months at a cost of $1.0 million. Revenue from this project is expected to
commence in February 2001. The second of these projects was approximately 20%
complete at the date of acquisition and is expected to be completed in
approximately one year at a cost of $1.5 million. The third of these projects
was approximately 10% complete at the date of acquisition and is expected to be
completed in approximately two years at a cost of $1.0 million. Revenue from
these two projects, if successful, is expected subsequent to their respective
completion dates. The fourth project is related to the development of
instrumentation for peptide synthesis. This project was approximately 20%
complete at the time of acquisition and has no projected completion date at this
time.
6. COMMITMENTS
Leases
The Company leases approximately 33,000 square feet of office and
laboratory facilities under an operating lease. The lease expires as to
approximately 21,000 square feet in August 2001 and 12,000 square feet in August
2002. In June 2000, the Company signed a ten year lease to rent a total of
97,000 square feet in two buildings that will be constructed during 2001. In
addition, the lease contained an option to purchase the buildings together with
certain adjacent land that has been approved for construction of a third
building. At the time the lease was executed, the Company provided the developer
a $1.6 million letter of credit, secured by restricted cash, and funding of $6.2
million, in the form of an interest bearing, secured loan with a term of
approximately one year. In December 2000, the Company paid $2.3 million to
execute the option to purchase the buildings and related land in 2001. At the
time the purchase closes, the Company will assume a $24 million mortgage at an
8.41% fixed interest rate, and pay remaining construction costs, which are
expected to be $3 to $5 million. Both the $2.3 million purchase option amount
and the $6.2 million loan plus accrued interest will be applied to the purchase
price of the land and buildings.
In October 1998, the Company entered into a $1,000,000 lease financing
arrangement with a lease financing corporation. As of December 31, 2000, the
Company had utilized all funds available under the lease arrangement. In April
2000, the Company entered into a $3,000,000 loan arrangement to be used at its
discretion to finance purchases of capital equipment. The loan is secured by the
capital equipment financed. As of December 31, 2000, $1,682,318 remains
available under this loan arrangement. Cost and accumulated depreciation of
equipment under capital leases at December 31, 2000 is $1,317,682 and $279,614,
respectively. Depreciation of equipment under capital leases are included in
depreciation expense.
At December 31, 2000, annual future minimum rental payments under the
Company's operating and capital leases (including the buildings which we have
exercised the option to purchase) are as follows:
OPERATING LEASES CAPITAL LEASES
---------------- --------------
2001............................................ $ 3,072,390 $ 393,881
2002............................................ 3,632,275 393,881
2003............................................ 3,180,259 393,881
2004............................................ 3,275,667 263,310
2005............................................ 3,373,937 --
Thereafter...................................... 20,434,629 --
----------- ----------
Total minimum lease payments.......... $36,969,157 1,444,953
===========
Less amount representing interest............... (297,459)
----------
Total present value of minimum payments......... 1,147,494
Less current portion............................ (260,867)
----------
Non-current portion............................. $ 886,627
==========
F-16
46
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Total minimum lease payments on operating leases excluding the buildings we
have exercised the option to purchase are $2,096,035 of which $1,551,390 relates
to 2001.
Rent expense for the years ended December 31, 2000 and 1999 and for the
period from April 28, 1998 (inception) to December 31, 1998 was $1,324,317,
$620,387, and $138,264, respectively.
The balances due under these obligations approximate fair value.
7. INCOME TAXES
At December 31, 2000, the Company has federal and state tax net operating
loss carryforwards of approximately $15,964,000 and $16,318.000, respectively.
The federal and state tax loss carryforwards will begin expiring in 2018 and
2006 respectively, unless previously utilized. The Company also has federal and
state research and development tax credit carryforwards of approximately
$912,000 and $544,000 respectively, which will begin to expire in 2018, unless
previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use
of the Company's net operating loss and credit carryforwards may be limited in
the event of a cumulative change in ownership of more than 50% within a three
year period.
Significant components of the Company's deferred tax assets as of December
31, 2000 and 1999 are shown below. A valuation allowance has been recognized as
of December 31, 2000 and 1999 to offset the deferred tax assets as realization
of such assets is uncertain.
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
Deferred tax assets:
Net operating loss carryforwards................ $ 6,526,000 $ 2,094,000
Research and development credit carryforwards... 1,265,000 431,000
Other........................................... 668,000 224,000
----------- -----------
Total deferred tax assets............... 8,459,000 2,749,000
Valuation allowance for deferred tax assets....... (8,459,000) (2,749,000)
----------- -----------
Net deferred taxes................................ $ -- $ --
=========== ===========
8. RETIREMENT PLAN
The Company has a 401(k) savings plan covering substantially all of its
employees. Company contributions to the plan are discretionary and no such
contributions were made during the years ended December 31, 2000 and 1999 and
for the period from April 28, 1998 (inception) through December 31, 1998.
F-17
47
ILLUMINA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following financial information reflects all normal recurring
adjustments which are, in the opinion of management, necessary for a fair
statement of the results of interim periods. Summarized quarterly data for
fiscal 2000 and 1999 are as follows:
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
2000:
Total revenues.................... $ 83,205 $ 78,652 $ 662,589 $ 484,665
Total expenses.................... 5,426,207 5,837,908 6,044,871 7,235,485
Other income, net................. 497,149 489,713 1,507,629 2,134,404
Net loss.......................... (4,845,853) (5,269,543) (3,874,653) (4,616,416)
Historical net loss per share,
basic and diluted.............. (2.23) (2.05) (0.19) (0.16)
Pro forma net loss per share,
basic and diluted.............. (0.23) (0.25) (0.15) (0.16)
1999:
Total revenues.................... $ 42,233 $ 129,863 $ 100,269 $ 201,661
Total expenses.................... 984,893 1,335,533 1,644,578 2,427,431
Other income, net................. 99,221 88,195 65,189 148,159
Net loss.......................... (843,439) (1,117,475) (1,479,120) (2,077,611)
Historical net loss per share,
basic and diluted.............. (0.84) (0.95) (0.94) (1.10)
Pro forma net loss per share,
basic and diluted.............. (0.07) (0.09) (0.11) (0.13)
F-18