<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For Quarterly Period Ended June 30, 2000
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( ) 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
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Illumina, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 33-0804655
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9390 Towne Centre Drive San Diego, CA 92121-3015
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(Address of principal executive offices) (Zip Code)
(858) 587-4290
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __ No X
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Indicate the number of shares outstanding of each of issuer's classes of common
stock, as of the latest practicable date.
Common Stock, $0.01 par value 31,291,087 Shares
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Class Outstanding at August 31, 2000
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ILLUMINA, INC.
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - June 30, 2000
and December 31, 1999 (unaudited)
Condensed Statements of Operations - Three and Six
Month Periods Ended June 30, 2000 and 1999 (unaudited)
Condensed Statements of Cash Flows - Six Month
Periods Ended June 30, 2000 and 1999 (unaudited)
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Change in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index of Exhibits
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ILLUMINA, INC.
Condensed Balance Sheets
------------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
(unaudited) (note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $19,595,187 $21,164,114
Investments 11,544,891 11,924,163
Other current assets 932,154 404,768
----------- -----------
Total current assets 32,072,232 33,493,045
Property and equipment, net 1,490,784 291,314
Intangible and other assets, net 131,176 110,299
----------- -----------
Total assets $33,694,192 $33,894,658
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities $ 1,170,905 $ 612,408
Current portion of equipment note obligations 244,650 --
----------- -----------
Total current liabilities 1,415,555 612,408
Equipment note obligations, less current portion 1,021,245 --
Deferred Revenue 3,750,000 1,250,000
Commitments
Stockholders' equity 27,507,392 32,032,250
----------- -----------
Total liabilities and stockholders' equity $33,694,192 $33,894,658
=========== ===========
</TABLE>
See accompanying notes.
Note: The Balance Sheet at December 31 has been derived from the audited
financial statements as of that date.
3
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ILLUMINA, INC.
Condensed Statements of Operations
----------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------- --------------------------
1999 2000 1999 2000
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue $ 129,863 $ 78,652 $ 172,096 $ 161,857
Costs and expenses:
Research and development (exclusive of
stock based compensation of $110,660
and $947,846 for the three months
ended June 30, 1999 and 2000,
respectively, and $126,256 and
$1,328,342 for the six months ended
June 30, 1999 and 2000 respectively) 832,745 3,046,886 1,542,370 6,671,927
General and administrative (exclusive of
stock based compensation of $18,027
and $901,631 for the three months
ended June 30, 1999 and 2000,
respectively, and $102,734 and
$1,706,960 for the six months ended
June 30, 1999 and 2000, respectively) 374,101 941,545 549,066 1,556,886
Amortization of deferred compensation
and other non-cash compensation charges 128,687 1,849,477 228,990 3,035,302
----------- ----------- ----------- ------------
Total costs and expenses 1,335,533 5,837,908 2,320,426 11,264,115
----------- ----------- ----------- ------------
Loss from operations (1,205,670) (5,759,256) (2,148,330) (11,102,258)
Interest income, net 88,195 489,713 187,416 986,862
----------- ----------- ----------- ------------
Net loss $(1,117,475) $(5,269,543) $(1,960,914) $(10,115,396)
=========== =========== =========== ============
Historical net loss per share, basic
and diluted $ (0.95) $ (2.05) $ (1.80) $ (4.27)
=========== =========== =========== ============
Shares used in calculating historical
net loss per share, basic and diluted 1,176,922 2,565,463 1,089,445 2,370,184
=========== =========== =========== ============
Pro forma net loss per share, basic
and diluted $ (0.09) $ (0.25) $ (0.15) $ (0.48)
=========== =========== =========== ============
Shares used in calculating pro forma
net loss per share, basic and diluted
13,013,219 21,401,760 12,925,742 21,206,481
=========== =========== =========== ============
</TABLE>
See accompanying notes.
4
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ILLUMINA, INC.
Condensed Statements of Cash Flows
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(Unaudited)
<TABLE>
<CAPTION>
Six months
ended
June 30,
-------------------------------
1999 2000
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<S> <C> <C>
Operating activities:
Net loss $(1,960,914) $(10,115,396)
Adjustments to reconcile net loss to net cash used in operating
activities:
Issuance of stock for technology and services 11,336 1,722,000
Depreciation and amortization 19,600 145,015
Amortization of premium (discount) on investments 47,589 (82,200)
Amortization of deferred compensation and other non-cash compensation
charges 228,990 3,035,302
Changes in operating assets and liabilities:
Current assets (22,206) (527,386)
Deferred revenue -- 2,500,000
Other assets (300) (39,810)
Accounts payable and accrued liabilities 61,916 558,497
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Net cash used in operating activities (1,613,989) (2,803,978)
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Investing activities:
Purchase of investment securities (5,826,870) (8,705,639)
Maturity of investment securities 1,725,000 9,150,000
Purchase of property and equipment (3,013) (1,325,552)
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Net cash used in investing activities (4,104,883) (881,191)
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Financing activities:
Borrowings under equipment and convertible note obligations 1,000,000 1,317,682
Payments on equipment note obligations -- (51,787)
Proceeds from stock subscription receivable -- 4,500
Proceeds from issuance of common stock, net of repurchased shares 2,345 845,847
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Net cash provided by financing activities 1,002,345 2,116,242
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Net decrease in cash and cash equivalents (4,716,527) (1,568,927)
Cash and cash equivalents at beginning of period 8,233,729 21,164,114
----------- ------------
Cash and cash equivalents at end of period $ 3,517,202 $ 19,595,187
=========== ============
</TABLE>
See accompanying notes.
5
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ILLUMINA, INC.
Notes to Condensed Financial Statements (continued)
(Unaudited)
Note 1. General
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.
The unaudited financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In management's opinion, the accompanying financial statements have
been prepared on a basis consistent with the audited financial statements and
contain adjustments, consisting of only normal, recurring accruals, necessary to
present fairly the Company's financial position and results of operations.
Interim financial results are not necessarily indicative of results anticipated
for the full year. These unaudited financial statements should be read in
conjunction with the Company's 1999 audited financial statements and footnotes
included in the Company's Registration Statement on Form S-1, as amended (File
No. 333-33922).
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management 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 amount of expenses incurred during the reporting period. Actual
results could differ from those estimates.
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ILLUMINA, INC.
Notes to Condensed Financial Statements (continued)
(Unaudited)
Note 2. Stock Based Compensation
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company accounts for common stock 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 or greater than the fair market value of the
Company's common stock at the date of 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, 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.
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 June 30, 2000, the Company has recorded deferred stock compensation
totaling approximately $18 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. The Company recorded deferred compensation of $13.5 million and $0.4
million related to grants of stock options and sales of restricted stock in the
six months ended June 30, 2000 and 1999, respectively. During the six months
ended June 30, 2000, the Company amortized approximately $2.4 million of this
deferred compensation.
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 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. Deferred consultant compensation of $3 million related to unvested
stock was recorded in February 2000 and is amortized ratably over the contracted
service periods. The Company amortized approximately $319,000 of this deferred
compensation in the six months ended June 30, 2000. Prior to the modification of
the
7
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ILLUMINA, INC.
Notes to Condensed Financial Statements (continued)
(Unaudited)
consulting agreements, the Company recorded approximately $315,000 of
compensation expense related to restricted stock sold to consultants in the six
months ended June 30, 2000.
Note 3. 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.
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
which automatically converted to common stock upon the closing of the Company's
initial public offering in July 2000, as of the original date of issuance.
8
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ILLUMINA, INC.
Notes to Condensed Financial Statements (continued)
(Unaudited)
Note 4. Initial Public Offering
On July 28, 2000 the Company completed an initial public offering in which it
sold 6,000,000 shares of common stock at $16 per share for net proceeds of
approximately $88.0 million, net of underwriting discounts, commissions and
estimated offering expenses. Upon the closing of the offering, all the Company's
convertible preferred stock converted into 18,836,297 shares of common stock.
After the offering, the Company's authorized capital consisted of 120,000,000
shares of common stock, $0.01 par value, and 10,000,000 shares of preferred
stock, $0.01 par value.
On August 2, 2000 the underwriters exercised an over-allotment option to
purchase an additional 900,000 shares resulting in net proceeds of approximately
$13.4 million. The Company has invested the net proceeds of the initial public
offering primarily in money market funds.
Note 5. Commitments
The Company leases approximately 35,000 square feet of office and laboratory
facilities under an operating lease expiring as to 15,000 square feet in August
2001 and the remaining 20,000 square feet in August 2002. In July, the Company
entered into an agreement to lease a total of 97,000 square feet in buildings
that will be constructed over the next year. The lease contains an option to
purchase the buildings together with additional land on the same site. The
Company has provided the lessor with a secured letter of credit for $1.5 million
and upon the commencement of construction, will also provide the developer with
an additional $6.2 million, in the form of a secured interest bearing loan,
which will mature no later than September 2001.
Note 6. 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
9
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ILLUMINA, INC.
Notes to Condensed Financial Statements (continued)
(Unaudited)
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 the purchase of these technologies. Three
projects are related to the development of instrumentation for oligonucleotide
synthesis. These three projects differ in the size and capacity of the
instrumentation. The first of these projects was approximately 50% complete at
the time of acquisition and is expected to be completed in approximately one
year at a cost of $0.8 million. The second of these projects was approximately
20% complete at the date of acquisition and is expected to be completed in
approximately two years 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 2 years at a cost of $1.2 million. Revenue from these
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 date of
acquisition and has no projected completion date at this time.
10
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ILLUMINA, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
This discussion and analysis should be read in conjunction with our financial
statements and accompanying notes included in this report and the financial
statements and notes thereto for the year ended December 31, 1999 included in
the Company's Registration Statement on Form S-1, as amended (File No. 333-
33922) which was declared effective by the Securities and Exchange Commission on
July 27, 2000. Operating results are not necessarily indicative of results that
may occur in future periods.
The following discussion contains forward-looking statements that are based upon
current expectations. Forward-looking statements involve risks and
uncertainties. Our actual results and the timing of events may differ
significantly from the results discussed in the forward-looking statements.
Examples of such forward-looking statements include, but are not limited to,
statements about our plans for commercialization of our products, statements
about future collaborations, statements about our future operating losses and
anticipated operating and capital expenditures, statements about increases in
our research and development expenses, statements about future non-cash charges
related to option grants to our employees, statements about the sufficiency of
our cash on hand and the net proceeds from our recent initial public offering to
fund our operations, statements about anticipated hiring, and statements about
the effect of changes in interest rates on our business and financial results.
Factors that might cause such a difference include, but are not limited to,
those discussed elsewhere in this document and those discussed in "Risk Factors"
and elsewhere in our Registration Statement on Form S-1, as amended (File No.
333-33922).
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.
Since inception, we have recognized no revenue from product sales. We have
incurred net losses since our inception. At June 30, 2000, our accumulated
deficit was approximately $16.8 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 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.
11
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ILLUMINA, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
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 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 find third-party
manufacturers to manufacture our products or unless we develop our product
capability, 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 products, and our
success depends on our ability to develop commercially successful products and
on market acceptance of our new and unproven technology.
We currently have no commercially available 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.
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ILLUMINA, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
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. Prior to
their commercialization, products will require significant research and
development and investment, proven our ability to develop and commercialize
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.
Commercialization of our technologies depends on partnerships and collaborations
with other companies. 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 chosen to enter into arrangements to develop and commercialize
our initial products. We have entered into an agreement with PE Biosystems to
gain access to their proprietary chemistry format for use with the initial
products of the partnership. PE Biosystems also will fund, in part, the
development of these products. Our
13
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ILLUMINA, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
partnership agreement provides that PE 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 our partnership with PE
Biosystems is not successful, or if PE 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.
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.
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.
14
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ILLUMINA, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
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.
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 June
30, 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 quarterly results of operations will fluctuate. This
fluctuation could cause our stock price to decline.
Our quarterly 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 2000. 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 quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. Our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that case, our stock price probably would decline.
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
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ILLUMINA, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
have entered into a strategic partnership with PE Biosystems, a Division of PE
Corporation and research collaborations with The Dow Chemical Company, Third
Wave Technologies, Inc. and Pyrosequencing, Inc. We expect to commercialize our
first products in 2001 in partnership with PE 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.
Our revenues are primarily attributable to research funding. We recognize
revenues related to research funding as we incur related research and
development expenses. Our strategic partners often pay us before we recognize
the related revenues, and we defer these payments until we earn them. As of
June 30, 2000, we had deferred revenue of $3.8 million.
We have incurred substantial operating losses since our inception. As of June
30, 2000, our accumulated deficit was $16.8 million, and total stockholders
equity was $27.5 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
Three Months Ended June 30, 2000 and 1999
Revenue
Revenue for the three months ended June 30, 2000 and 1999 was $79,000 and
$130,000, respectively. Government grants accounted for 100% of our total
revenue for both these periods.
Research and Development
Our research and development expenses consist primarily of salaries and other
personnel-related expenses, facility costs and supplies. Research and
development expenses increased $2.2 million to $3.0 million for the three months
ended June 30, 2000, from $0.8 million for the three months ended June 30, 1999.
This increase was primarily due to increased staffing and other personnel-
related costs to support our BeadArray technology. We expect that our research
and development expenses will increase substantially to support our
collaborative research programs, internal product research and development and
technology development.
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ILLUMINA, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
General and Administrative
General and administrative expenses increased $567,000 to $941,000 for the three
months ended June 30, 2000 from $374,000 for the three months ended June 30,
1999. This increase was 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 legal and accounting
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
As of June 30, 2000 the Company has recorded a cumulative $21 million of
deferred stock compensation related to stock options granted and restricted
stock sold to employees, founders, directors and consultants. We recorded this
amount as a component of stockholders equity and will amortize the amount as a
charge to operations over the vesting period of the stock and options. We
recognized related non-cash stock compensation expense of $1.8 million and
$129,000 for the three months ended June 30, 2000 and 1999, respectively. This
increase was primarily due to an increase in staffing and an increase in the
deemed fair value of our common stock.
Interest Income, net
Interest income, net of interest expense, was $490,000 for the three months
ended June 30, 2000 as compared to $88,000 for the three months ended June 30,
1999. This change was due primarily to changes in our average cash and
investment balances during these periods.
Six Months Ended June 30, 2000 and 1999
Revenue
Revenue for the six months ended June 30, 2000 and 1999 was $162,000 and
$172,000, respectively. Government grants accounted for 95% and 100% of our
total revenue for the six months ended June 30, 2000 and 1999, respectively.
Research and Development
Research and development expenses increased $5.2 million to $6.7 million for the
six months ended June 30, 2000, from $1.5 million for the six months ended June
30, 1999. Of such 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 our BeadArray
technology.
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ILLUMINA, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
General and Administrative
General and administrative expenses increased $1.0 million to $1.6 million for
the six months ended June 30, 2000 from $549,000 for the six months ended June
30, 1999. This increase was primarily attributable to an increase in staffing
necessary to manage and support our growth.
Amortization of Deferred Compensation and Other Non-Cash Compensation Charges
Amortization of deferred compensation and other non-cash compensation charges
increased $2.8 million to $3.0 million for the six months ended June 30, 2000
from $229,000 for the six months ended June 30, 1999.
Interest Income, net
Interest income, net of interest expense, was $987,000 for the six months ended
June 30, 2000 as compared to $187,000 for the six months ended June 30, 1999.
This change was due primarily to changes in our average cash and investment
balances during these periods.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
placements of preferred stock with net proceeds of $37.4 million, and funding
from strategic partners and government grants. As of June 30, 2000, we had
cash, cash equivalents and investments of approximately $31.1 million.
Our operating activities used cash of $2.4 million for the six months ended June
30, 2000 compared to $1.6 million for the six months ended June 30, 1999. Use
of cash for these periods primarily resulted from losses from operations offset
by non-cash compensation, non-cash charges resulting from stock issuances for
technology and funding received from our collaborators.
Our investing activities used cash of $0.9 million for the six months ended June
30, 2000 compared to $4.1 million for the six months ended June 30, 1999. Our
investing activities for the six months ended June 30, 1999 consisted primarily
of purchases and maturities of investment securities. Investing activities for
the six months ended June 30, 2000 consisted of purchases and maturities of
investment securities as well as purchases of property, plant and equipment.
Our financing activities provided cash of $1.7 million for the six months ended
June 30, 2000 compared to $1.0 million for the six months ended June 30, 1999.
Our financing activities for the
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ILLUMINA, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
six months ended June 30, 1999 consisted primarily of proceeds from a
convertible note. Financing activities for the six months ended June 30, 2000
consisted primarily of borrowings under equipment note obligations and proceeds
from the issuance of common stock, net of repurchased shares, offset by deferred
financing costs.
On July 28, 2000 we completed an initial public offering in which we sold
6,000,000 shares of common stock at $16 per share for net proceeds of
approximately $88.0 million, net of underwriting discounts, commissions and
estimated offering expenses. On August 2, 2000 the underwriters exercised an
over-allotment option to purchase an additional 900,000 shares resulting in net
proceeds of approximately $13.4 million. We have invested the net proceeds of
the initial public offering primarily in money market funds.
We currently lease approximately 35,000 square feet of office and laboratory
facilities under an operating lease expiring as to 15,000 square feet in August
2001 and the remaining 20,000 square feet in August 2002. In July 2000, the
Company entered into an agreement to lease a total of 97,000 square feet in
buildings that will be constructed over the next year. The lease contains an
option to purchase the buildings together with additional land on the same site.
The Company has provided the lessor with a secured letter of credit for $1.5
million and upon the commencement of construction, will also provide the
developer with an additional $6.2 million, in the form of a secured interest
bearing loan, which will mature no later than September 2001.
We believe that the net proceeds from our initial public offering combined with
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 development
and our ability to successfully commercialize our first products in partnership
with PE 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.
Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our financial position,
operating results or cash flows due to changes in U.S. interest rates. This
exposure is directly related to our normal operating activities. Our cash, cash
equivalents and short-term investments are invested with high quality issuers
and are of a short-term nature. As a result, we do not believe that near-term
changes in interest rates will have a material effect on our future results of
operations.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
During the three months ended June 30, 2000 we granted options to purchase
228,012 shares of common stock to employees under our 1998 Incentive Stock Plan.
During the three months ended June 30, 2000 employees exercised options for
37,460 shares of common stock. The issuance of these restricted securities were
deemed to be exempt from registration under the Act in reliance upon Section 4
(2) of the Act or Rule 701 promulgated under Section 3 (b) of the Act.
On July 28, 2000 we completed our initial public offering of 6,000,000 shares of
our common stock at an initial public offering price of $16.00 per share for
gross proceeds of $96 million and estimated net proceeds of approximately $88
million. We paid a total of approximately $6.7 million in underwriting
discounts and commissions and estimate other costs and expenses, other than
underwriting discounts and commissions, will total approximately $1.3 million in
connection with the offering. The managing underwriters in the offering were
Goldman, Sachs & Co., Chase H&Q and SG Cowen. The shares of common stock sold
in the offering were registered under the Act in a Registration Statement on
Form S-1, as amended (No. 333-33922). The Securities and Exchange Commission
declared the Registration Statement effective on July 27, 2000.
Furthermore, on August 2, 2000 the underwriters exercised their over-allotment
option for an additional 900,000 shares of our common stock at the initial
public offering price of $16.00 per share for gross proceeds of $14.4 million
and net proceeds of approximately $13.4 million. We paid a total of
approximately $1.0 million in underwriting discounts and commissions in
connection with the exercise of the over-allotment option. All of the net
proceeds were invested primarily in money market funds.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
In July 2000, prior to our initial public offering, our stockholders, acting by
written consents approved: our change of state of incorporation from California
to Delaware; our 2000 Employee Stock Purchase Plan; our 2000 Stock Plan and our
amended charter documents to be in effect upon closing of the initial public
offering.
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Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number Description
------ -----------
27.1 Financial Data Schedule.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Illumina, Inc.
--------------------------------------
(Registrant)
Date: September 8, 2000 /s/ Jay Flatley
--------------------------------------
Jay Flatley
President and Chief Executive Officer
/s/ Timothy Kish
--------------------------------------
Timothy Kish
Vice President of Finance
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ILLUMINA, INC.
Index of Exhibits
-----------------
Exhibit No. Page No.
----------- --------
27.1 Financial Data Schedule.
23
