FILED PURSUANT TO RULE 424(B)(1)
FILE NUMBER 333-41194
5,000,000 SHARES
[GRAPHIC OMITTED]
COMMON STOCK
------------------
This is an initial public offering of 5,000,000 shares of common stock of
InforMax, Inc. We are selling all of the shares of common stock offered under
this prospectus.
Our common stock has been approved for listing on the Nasdaq National
Market under the symbol "INMX."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 TO READ ABOUT RISKS THAT YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED ON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- --------------
<S> <C> <C>
Public offering price ........................... $ 16.00 $80,000,000
Underwriting discounts and commissions .......... $ 1.12 $ 5,600,000
Proceeds to InforMax, Inc. ...................... $ 14.88 $74,400,000
</TABLE>
------------------
We have granted the underwriters a 30-day option to purchase up to an
additional 750,000 shares of common stock from us at the initial public
offering price less the underwriting discount.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares in New York, New York on October 6,
2000.
------------------
BEAR, STEARNS & CO. INC.
U.S. BANCORP PIPER JAFFRAY
ADAMS, HARKNESS & HILL, INC.
The date of this prospectus is October 2, 2000
<PAGE>
[At the top of the page of the inside front cover appears numerous series of
the letters "C," "A," "G" and "T" in varied order, size, shade and color,
including red, blue, green and white. The letters are surrounded by and overlay
various numbers, preceded by "+" signs. The numbers and letters appear as if
they are rapidly moving horizontally across the page. Beneath the graphic
appears the caption, "From Data to Knowledge."]
[The bottom third of the page along the right side begins with the word
"InforMax" in black and InforMax's greenish-blue, Double Helix Logo Design
above "High-Throughput Research(TM)."
[Along the top left third of the inside two-page gatefold appears numerous
series of the letters "C," "A," "G" and "T" in varied order, size, shade and
color, including red, blue, green and white. The letters are surrounded by and
overlay various numbers, preceded by "+" signs. The numbers and letters appear
as if they are rapidly moving horizontally across the page. Running through the
middle of the graphic is a green horizontal line with various vertical lines
branching out above and below the horizontal line. The vertical lines end in
bullets with the following words appearing next to the bullets, from left to
right alternatively above and below the green horizontal line: "Customer
Databases," "Online Data," "Integration of Data Types," "Our ResearchLogic(TM)
Interface," "Java Framework," "Analysis," "Customized Data Presentation" and
"Collaboration." Perpendicular to the green horizontal line, at the far left
end of the graphic above the green horizontal line is the word "Input" in red
font with an arrow pointing to the phrase "Experimental Data" preceded by a
blue bullet appearing below the green horizontal line. Perpendicular to the
green horizontal line, at the far right end of the graphic above the green
horizontal line is the word "Results" in red font with an arrow pointing to
"Knowledge," "Productivity," and "Products," each preceded by a blue bullet
appearing below the green horizontal line.]
[Along the bottom two thirds of the two page gatefold on the left side is the
caption "GenoMax," above three pictures of computer screens, one for each of
"BLAST Results View," "Molecule View," and "Array Analysis View." Beneath that
is the phrase "Enterprise Bioinformatics System for High-Throughput Research"
in a less bold style. On the right side is the caption "Vector NTI Suite,"
above three pictures of computer screens for each of "Molecule View,"
"AlignX(TM)" and "ContigExpress.(TM)" Beneath that is the phrase "Desktop
Software for Integrated Sequence Analysis and Data Management" in a less bold
style.]
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and our common stock being sold in this
offering and our consolidated financial statements and the notes to our
consolidated financial statements appearing elsewhere in this prospectus before
making an investment decision. You should also consider the information
discussed in "Risk Factors."
OUR BUSINESS
We are a leading global provider of bioinformatic software solutions.
Bioinformatics involves the application of information technology to the
analysis of genomic, proteomic and other biomolecular data. Genomics is the
study of an organism's genes, and proteomics is the study of proteins and their
role in particular diseases. Our bioinformatic software solutions are designed
to enable researchers to more efficiently organize, share, analyze and
interpret these data that form the genetic blueprint of all organisms.
We believe that our position as a leading global provider of bioinformatic
software is based upon the number of our customers, our revenues and the size
of our organization. Since introducing our Vector NTI Suite of software
applications for desktop computers in 1993, we have sold our products to over
1,300 organizations worldwide, including over 500 biotechnology, pharmaceutical
and agricultural biotechnology companies, and over 800 academic and government
research institutions. Our customers include:
o Merck & Company,
o Genzyme Corporation,
o Procter & Gamble,
o Johnson & Johnson,
o Bristol-Myers Squibb,
o Pfizer,
o AstraZeneca,
o Diversa Corporation,
o Novartis Agribusiness Biotechnology Research,
o the Whitehead Institute for Biomedical Research,
o Massachusetts Institute of Technology,
o University of Tokyo, and
o the National Institutes of Health.
Our principal software products are our Vector NTI Suite for desktop
computers and our more powerful and expensive GenoMax enterprise platform for a
network of computers linked together for sharing data and computation. Driven
primarily by increased sales of Vector NTI Suite and the introduction of
GenoMax in late 1998, our products and complementary services generated $10.0
million in revenues in 1999, representing a four-year compound annual growth
rate of 105%, and a 143% increase over 1998.
Building on our existing market penetration, we intend to grow our
business through increased software sales and add new revenue through
professional services, content channeling and distribution alliances and
e-commerce offerings. In August 2000, we entered into a long-term strategic
relationship with Amersham Pharmacia Biotech, a subsidiary of Nycomed Amersham,
to jointly develop and market an expanded version of GenoMax to provide an
enterprise-wide data analysis system for pharmaceutical and biotechnology
companies, for integrating and analyzing data from genomics, proteomics and
drug screening production laboratories.
As of September 27, 2000, we employed 205 people, including a sales and
marketing team of 54, a research and product development team of 95 and an
implementation and support staff of 25.
3
<PAGE>
As of June 30, 2000, we had an accumulated deficit of $8.2 million and a
net loss of $6.1 million for the six months ended June 30, 2000.
OUR MARKET OPPORTUNITY
Around the world, researchers in industry, academia, and government are
producing vast quantities of biomolecular data. In June 2000, the Human Genome
Project and Celera Genomics jointly announced that they had assembled the
world's first working draft of the entire human genetic code, consisting of
approximately 3.12 billion nucleotide bases, the chemical subunits that make up
DNA.
A central problem now facing researchers is how to organize, integrate,
analyze, visualize and interpret these complex and rapidly growing data sets to
achieve breakthroughs in:
o disease diagnosis, treatment and prevention,
o agricultural production,
o environmental management, and
o industrial processes.
Bioinformatic software provides tools for researchers to address this problem.
We believe that the current and future markets for bioinformatic software
products include all of the industries participating in the genomic revolution,
including:
o pharmaceutical and biotechnology companies;
o academic and government research institutions;
o agricultural, environmental and industrial biotechnology companies; and
o emerging clinical genomics companies.
An August 2000 independent industry report by Front Line Strategic
Management Consulting estimates the world-wide bioinformatics market,
consisting of sales by providers of analytical software, enterprise systems and
data, at approximately $468 million in 2000, growing to approximately $2.0
billion in 2005 and approximately $5.4 billion in 2010. We believe that this
growth is being driven by the rapid increase in biomolecular data and by
organizations increasingly turning to external vendors of bioinformatic
software solutions so that they can focus on their core research competencies.
OUR SOLUTION
To meet the challenges and market opportunities presented by the genomic
revolution, we develop and deliver to our customers a portfolio of proprietary
bioinformatic software products and complementary services. Our software
products are flexible, scalable and are designed to integrate with one another.
Our software allows researchers to incorporate, directly, or through the
Internet, customer and third party analytical algorithms and data sets. Our
current and announced product portfolio includes:
o Vector NTI Suite, a comprehensive desktop sequence analysis and
visualization tool for the laboratory scientist engaged in genomic and
protein sequence research.
o Vector Enterprise, an enhancement to the Vector NTI Suite that
incorporates a common relational database, allowing multiple users to
share data and results in a secure environment. Vector Enterprise was
commercially released on September 29, 2000.
4
<PAGE>
o GenoMax, a large-scale modular, enterprise-wide data mining and analysis
application designed for a coordinated effort by a diverse team of
scientists within or across commercial, academic or government research
institutions. As of September 27, 2000, we have made 20 GenoMax enterprise
sales.
OUR ADVANTAGES
We believe that our competitive advantages will allow us to continue to be
a global leader in bioinformatic software solutions:
o Superior products and a broad product portfolio;
o Superior bioinformatic engineering staff;
o Large existing customer franchise;
o Vector NTI Suite's market penetration, which creates opportunities for
new products and business lines; and
o Superior sales and marketing capabilities.
OUR STRATEGY
Our goal is to become the leading provider of bioinformatic software
solutions and establish our products as the effective industry standard.
Elements of our strategy to achieve these goals include:
o Expand our customer franchise through sales of Vector NTI Suite;
o Build on Vector NTI Suite's market penetration to establish GenoMax as
the leading enterprise platform;
o Leverage our customer base for new business lines, including professional
services, content channeling and distribution alliances and e-commerce
opportunities;
o Enhance and expand our technology;
o Establish strategic relationships to maximize our revenues; and
o Engage in acquisitions and strategic investments.
OUR OFFICES
InforMax, Inc. was incorporated in Delaware in May 1990. Our principal
office is located at 6010 Executive Blvd., 10th Floor, Rockville, Maryland
20852. Our telephone number is (301) 984-2206. Our website is
www.informaxinc.com. The information found on our website is not part of this
prospectus.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us ................................. 5,000,000 shares
Common stock to be outstanding after this offering ......... 18,657,720 shares
Use of proceeds ............................................ We will use the net
proceeds of this offering for
acquisitions, joint ventures
and collaborative
arrangements; research and
development; increased
sales and marketing efforts;
and working capital and
other general corporate
purposes.
Nasdaq National Market symbol .............................. "INMX"
</TABLE>
The above information is based on our shares outstanding as of September
27, 2000 and excludes:
o 13,584,645 shares issuable upon exercise of common stock options
outstanding, including 5,054,542 options issued under our equity incentive
compensation plan, at a weighted average exercise price of $1.402 per
share (including 643,340 options granted on September 26, 2000 at an
exercise price of $15.00 per share); and
o outstanding warrants to purchase 40,080 shares of our common stock.
Unless otherwise indicated, the information in this prospectus reflects
the following corporate actions, each effected on September 11, 2000:
o a 1.67 for 1 split of our common stock;
o the reduction of our common stock's par value from $0.01 per share to
$0.001 per share;
o the conversion of all outstanding shares of our non-voting common stock
into common stock; and
o an increase in our authorized capital stock to 100 million shares of
common stock and 20 million shares of preferred stock.
Unless otherwise indicated, the information in this prospectus assumes:
o the filing of our amended and restated certificate of incorporation, to
be effected immediately prior to the closing of this offering, making
such changes as are described elsewhere in this prospectus, and the
amendment of our bylaws;
o the automatic conversion of all outstanding shares of Series A and Series
B redeemable convertible preferred stock into common stock immediately
prior to the closing of this offering; and
o no exercise by the underwriters of their option to purchase additional
shares of stock in this offering to cover over-allotments, if any.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth a summary of our consolidated financial and
certain operating data for the periods presented. The information in the table
should be read together with our consolidated financial statements and related
notes and with "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1995 1996 1997 1998 1999
---------- -------- ------------ ------------ -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Software license and customer support $ 166 $ 382 $ 1,335 $ 2,732 $ 7,277
Professional services ...................... 403 636 867 1,394 2,737
------ ------ -------- -------- ---------
Total revenues ............................ 569 1,018 2,202 4,126 10,014
Gross profit ................................. 405 690 1,448 2,855 7,997
Operating expenses:
Selling, general and administrative (1) 195 507 1,075 2,476 7,000
Research and development (2) ............... 165 161 365 1,162 2,597
Stock based compensation ................... 22 -- 211 18 138
Depreciation and amortization .............. -- 3 18 94 273
------ ------ -------- -------- ---------
Total operating expenses .................. 382 671 1,669 3,750 10,008
Income (loss) from operations ................ 23 19 (221) (895) (2,011)
Net income (loss) ............................ $ 22 $ 4 $ (134) $ (567) $ (1,315)
Net income (loss) applicable to common
shares ..................................... $ 22 $ 4 $ (134) $ (567) $ (1,491)
Basic net income (loss) applicable per
common share (3) ........................... $ 0.01 $ -- $ (0.04) $ (0.16) $ (0.38)
Diluted net income (loss) applicable per
common share (3) ........................... $ 0.01 $ -- $ (0.04) $ (0.16) $ (0.38)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1999 2000
------------ -------------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Software license and customer support $ 3,322 $ 4,855
Professional services ...................... 1,159 1,655
-------- ---------
Total revenues ............................ 4,481 6,510
Gross profit ................................. 3,604 5,397
Operating expenses:
Selling, general and administrative (1) 2,397 7,565
Research and development (2) ............... 1,129 2,471
Stock based compensation ................... 27 975
Depreciation and amortization .............. 89 343
-------- ---------
Total operating expenses .................. 3,642 11,354
Income (loss) from operations ................ (38) (5,957)
Net income (loss) ............................ $ (82) $ (6,069)
Net income (loss) applicable to common
shares ..................................... $ (82) $ (6,237)
Basic net income (loss) applicable per
common share (3) ........................... $ (0.02) $ (1.18)
Diluted net income (loss) applicable per
common share (3) ........................... $ (0.02) $ (1.18)
</TABLE>
-----------
(1) Selling, general and administrative expenses excludes stock based
compensation of $21,916, $-0-, $76,189, $-0-, $111,019, $9,643, and
$845,741 for the years ended December 31, 1995, 1996, 1997, 1998, and 1999
and the six months ended June 30, 1999 and 2000 (unaudited), respectively.
(2) Research and development expenses excludes stock based compensation of
$-0-, $-0-, $134,506, $17,782, $27,166, $16,748, and $128,874 for the
years ended December 31, 1995, 1996, 1997, 1998, and 1999 and the six
months ended June 30, 1999 and 2000 (unaudited), respectively.
(3) As restated for the unaudited six month period ended June 30, 2000, see
Note 6 to the consolidated financial statements.
Following is certain supplemental information for the period presented:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
------ --------- --------- --------- ---------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT NUMBER OF VECTOR NTI SUITE
LICENSES BOOKED AND NUMBER OF GENOMAX SALES BOOKED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue Bookings ............ $569 $1,033 $2,561 $5,571 $10,007 $4,224 $8,994
No. of Vector NTI Suite
Licenses Booked
(cumulative from 1993)..... 331 727 1,399 3,083 6,271 4,094 9,271
No. of GenoMax Sales
Booked (cumulative
from 1998) ................ -- -- -- 2 8 5 16
</TABLE>
Revenue bookings represent all contracted sales of products and services.
7
<PAGE>
The balance sheet data below sets forth a summary of our consolidated
balance sheet at June 30, 2000:
o on an actual basis;
o on a pro forma basis to give effect to the issuance of Series B
redeemable convertible preferred stock after June 30, 2000, the automatic
conversion of all outstanding shares of our redeemable convertible
preferred stock into common stock immediately prior to the closing of
this offering, and the conversion of all outstanding shares of our
non-voting common stock into shares of voting common stock effected on
September 11, 2000; and
o on a pro forma as adjusted basis to give effect to the issuance of Series
B redeemable convertible preferred stock after June 30, 2000, the
automatic conversion of all outstanding shares of our redeemable
convertible preferred stock into common stock immediately prior to the
closing of this offering, the conversion of all outstanding shares of our
non-voting common stock into shares of voting common stock effected on
September 11, 2000, and our receipt of the net proceeds from the sale of
5,000,000 shares of common stock in this offering at the initial public
offering price of $16.00 per share, after deducting underwriting
discounts and commissions and our estimated offering expenses.
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
-----------------------------------------
(UNAUDITED)
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ........................... $ 2,091 $12,091 $85,291
Working capital (deficit) ........................... (1,283) 8,717 81,917
Total assets ........................................ 10,109 20,109 93,309
Total debt .......................................... 3,556 3,556 3,556
Redeemable convertible preferred stock .............. 4,263 -- --
Common stock and additional paid-in capital ......... 6,269 20,532 93,732
Stockholders' equity (deficit) ...................... (3,449) 10,814 84,014
</TABLE>
See our consolidated financial statements and notes included elsewhere in
this prospectus for a description of the computation of the net loss per common
share and the number of shares used in the per share calculations in the
statement of operations data above.
8
<PAGE>
RISK FACTORS
You should carefully consider the following risks before you decide to buy
our common stock. Our business, financial condition and operating results may
suffer if any of the events described in the following risk factors actually
occur. If any of the events we have identified occur, the trading price of our
common stock could decline, and you may lose all or part of the money you paid
to buy our common stock in this offering.
RISKS RELATED TO OUR BUSINESS
WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL ADVANCES AND DEVELOPMENTS NOW
OCCURRING IN BIOINFORMATIC SOFTWARE. IF WE ARE UNABLE TO DO SO, OUR PRODUCTS
AND SERVICES WILL BE LESS ATTRACTIVE TO CUSTOMERS AND OUR REVENUES AND
COMPETITIVE POSITION WILL SUFFER.
The market for our products and services is in the midst of rapid
technological change. In order for us to maintain a competitive position in our
industry and develop and market products that are attractive to customers, we
must:
o continue to enhance and expand the functions of our existing products;
and
o develop and introduce new software products and complementary services
that meet evolving customer needs and preferences and incorporate new
technologies.
Our products and services may not be able to keep pace with technological
change. We may not be able to identify in a timely manner important evolving
industry standards and may invest considerable resources in technologies that
rapidly become obsolete. Our products or product versions may also become
obsolete due to our competitors' introduction of products or services
containing advanced technology and functions. If we do not keep pace with
technological change, our products will not be as attractive to our customers
and our competitive position and sales of our products would be seriously
harmed.
WE MUST ADD NEW CUSTOMERS AND RETAIN AND EXPAND UPON EXISTING CUSTOMER
RELATIONSHIPS IN ORDER TO GENERATE REVENUES TO SUPPORT THE GROWTH OF OUR
BUSINESS.
In order to generate additional revenues sufficient to support our
continued growth, we must add new customers and retain, and expand upon, our
existing customer relationships. These efforts depend significantly upon our
successful development of new products, product versions and services that
respond to the evolving needs of the genomic research community, as well as the
success of our sales and marketing efforts. In addition, much of our
expectation for future growth of revenues is based upon increased sales of our
GenoMax product and the establishment of our GenoMax brand. We expect to derive
a significant portion of our future professional services revenue from a
relationship with the National Center for Biotechnology Information (NCBI) at
the National Institutes of Health and that relationship, which is based on
subcontractor arrangements, could be terminated in the future.
THE CONTINUED ENHANCEMENT AND DEVELOPMENT OF OUR BIOINFORMATIC PRODUCTS AND
SERVICES DEPEND UPON THE RETENTION AND EXPANSION OF OUR RESEARCH AND PRODUCT
DEVELOPMENT GROUP.
The number of technical personnel with experience in the field of
bioinformatics is limited and competition for qualified employees is intense.
Our software was developed by an internal team that has had little turnover,
but that may not be the case in the future. We may not be successful in
retaining our technical employees or recruiting and training additional skilled
personnel. The loss of a significant number of employees in our research and
product development group, occurring at one instance or over a period of time,
could seriously harm our product development and enhancement efforts. We could
also incur significant costs associated with any resulting litigation or
disputes to protect our proprietary information.
9
<PAGE>
PART OF OUR BUSINESS STRATEGY IS TO DEVELOP STRATEGIC RELATIONSHIPS WITH LARGER
ORGANIZATIONS AND PROVIDERS OF COMPLEMENTARY PRODUCTS AND SERVICES. IF WE ARE
NOT SUCCESSFUL IN DOING SO OUR ABILITY TO COMPETE COULD BE HARMED.
A component of our business strategy is to develop strategic
relationships, including co-marketing arrangements, content channeling and
distribution alliances, e-commerce offerings and Internet-hosted delivery
partnerships. We believe that through such relationships we can add revenues,
improve our competitive position and increase market awareness and acceptance
of our products. To date, we have entered into only a few of these strategic
relationships with providers of complementary products and services. If we are
unable to successfully develop these and other similar relationships, or if
these relationships do not yield the results we anticipate, our ability to
compete and to generate future revenues could be materially harmed. In
addition, most of our strategic relationships, other than our relationship with
Amersham, including our co-marketing relationships with Oracle, Compaq and Sun
Microsystems, are based on oral arrangements that are not enforceable and can
be terminated by either party at any time.
In August 2000, we entered into a long-term strategic relationship with
Amersham Pharmacia Biotech to jointly develop and market an expanded version of
GenoMax for pharmaceutical and biotech companies for integrating and analyzing
data from genomics, proteomics and drug screening production laboratories. The
agreement with Amersham can be terminated prior to the end of the term by
mutual agreement of the parties or by one party upon a breach by the other
party. In addition, if we do not use commercially reasonable efforts to develop
the data analysis system, Amersham can terminate the agreement. If the
agreement is terminated for any reason prior to the end of the term or if the
relationship otherwise does not result in the successful marketing of GenoMax
to new customer groups, we may be unable to recoup all of the substantial
investment we will be making in this collaboration and there would be a
material adverse impact on our anticipated future revenues.
WE HAVE INCURRED OPERATING LOSSES IN THE PAST RESULTING IN AN ACCUMULATED
DEFICIT. WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE.
We have incurred operating losses in most periods since our inception. We
incurred net losses of approximately $0.6 million for the year ended December
31, 1998 and approximately $1.3 million for the year ended December 31, 1999.
We incurred a net loss of approximately $6.1 million for the six months ended
June 30, 2000. As of June 30, 2000, we had an accumulated deficit of
approximately $8.2 million. We expect to continue to incur net losses for the
foreseeable future. We expect to invest substantial financial and other
resources to:
o develop and introduce new products, product versions and services;
o expand our research and product development and sales and marketing
groups; and
o consider appropriate acquisitions and strategic relationships.
As a result, we expect that our expenses will increase significantly. We
cannot assure you that we will be able to generate sufficient additional
revenues to achieve profitability. Even if we are able to achieve
profitability, we may not be able to sustain profitability on a quarterly or
annual basis. Failure to achieve consistent profitability may limit our growth
potential and the value of our common stock.
REVENUE RECOGNITION RULES APPLICABLE TO SOFTWARE MAY REQUIRE THAT WE DEFER
RECOGNIZING REVENUES UNDER CERTAIN LICENSES UNTIL QUARTERS AFTER LICENSES ARE
EXECUTED OR FEES ARE RECEIVED. THIS CAN CAUSE OUR QUARTERLY RESULTS TO
FLUCTUATE SUBSTANTIALLY.
We may not be able to recognize revenue associated with a particular
software license in the same quarter in which we enter into the agreement or in
which we collect licensing fees. Under some of our licenses we must deliver to
a customer an enhanced product version or additional module, and therefore we
must defer recognizing any payment previously received until delivery of all
contract
10
<PAGE>
elements is made. For example, in several of our GenoMax sales, our contracts
with customers stipulate future delivery of a gene expression analysis module.
In accordance with generally accepted accounting principles, we have deferred
recognition of revenue on these contracts until delivery of the gene expression
analysis module. This module, included in GenoMax 3.0, was delivered on
September 15, 2000. If we are not able to release future modules as scheduled,
we will be required to defer the recognition of a significant amount of
revenues to quarters after those in which we collect licensing fees. Expenses
associated with software licenses, unlike revenues, are not typically deferred.
The manner in which we recognize revenue, in accordance with the revenue
recognition rules applicable to software under generally accepted accounting
principles, may cause our quarterly operating results to fluctuate
substantially.
WE EXPECT OUR RESULTS OF OPERATIONS TO VARY FROM QUARTER TO QUARTER IN FUTURE
PERIODS AS A RESULT OF THE TIMING AND SEASONALITY OF OUR SOFTWARE SALES. THESE
FLUCTUATIONS MAKE IT DIFFICULT TO EVALUATE OUR BUSINESS AND COULD CAUSE
INSTABILITY IN OUR STOCK PRICE.
We anticipate that our operating results will fluctuate on a quarterly
basis as a result of a number of factors, many of which are outside of our
control. Factors that may cause our quarterly results to fluctuate include the
following:
o the number and timing of orders for our GenoMax enterprise product;
o the seasonal fluctuations of software procurement, particularly for
bioinformatics software;
o the timing of, commencement, delay, cancellation or completion of our
software licensing agreements, strategic relationships and professional
service activities;
o the timing of license, royalty and other payments received under our
agreements;
o the introduction or cancellation of products and services by us and our
competitors; and
o the timing of expenses associated with increased product development,
expanded sales and marketing efforts, and acquisitions and strategic
investments.
In particular, as a result of the academic calendar, European business
practices and commercial information technology procurement practices, we
generally experience a reduction in sales in the third quarter of each calendar
year which typically results in a corresponding reduction in operating
revenues.
Due to the factors described above and other risks discussed in this
prospectus, you should not rely upon quarterly comparisons of our financial
results. These comparisons are not necessarily meaningful nor are they a
reliable indicator of our future performance. As a result of fluctuations in
our quarterly results, the market price of our common stock may be subject to
significant fluctuation and volatility.
OUR PRODUCTS AND SERVICES, PARTICULARLY OUR ENTERPRISE SOFTWARE SOLUTIONS,
REQUIRE A LENGTHY SALES CYCLE. THIS SALES CYCLE OFTEN REQUIRES US TO EXPEND
CONSIDERABLE RESOURCES. IF WE DEVOTE SIGNIFICANT RESOURCES TO SALES THAT DO NOT
MATERIALIZE, OUR REVENUES AND ABILITY TO ACHIEVE PROFITABILITY WOULD BE HARMED.
The sales cycle for our products and services, particularly our enterprise
software solutions on which much of our expectations for future growth are
based, is a lengthy and involved process. Our sales cycle is typically long for
a number of reasons, including:
o the decision to license and deploy enterprise-wide software, by its
nature, is an organization-wide procurement decision, often requiring an
evaluation by a significant number of constituencies in various functional
and geographic areas, each often having specific and possibly conflicting
requirements; and
o the significant resources that are committed to an evaluation of our
software solutions by a potential customer organization require us to
expend substantial time, effort and money educating them about the value
and comparative advantages of our products.
11
<PAGE>
In addition, our agreements with customers and strategic partners often contain
terms that are unique to that customer or partner and require extensive
negotiation. As a result, we may expend substantial funds and effort to
negotiate agreements for these products, but may ultimately be unable to
consummate a sale of our products and services.
THE LOSS OF THE SERVICES OF, OR THE DEVELOPMENT OF SUBSTANTIAL EXTERNAL TIME
COMMITMENTS BY, OUR SENIOR MANAGEMENT COULD HAVE A NEGATIVE EFFECT ON OUR
GROWTH.
The continued growth of our business is substantially dependent on the
performance of our senior management and key employees, especially those named
in the "Management" section of this prospectus. We carry key person life
insurance on only Dr. Titomirov, our Chief Executive Officer, and Dr. Babenko,
our Chief Technology Officer. In addition, we have employment agreements with
only Dr. Babenko, Mr. Lehnen, our Chief Financial Officer, and Mr. Sullivan,
our Senior Vice President of Marketing and Sales. The loss of the services of
any member of our senior management or key personnel may significantly delay or
prevent the implementation of our business strategy and could have a material
adverse effect on the growth of our business.
Dr. Titomirov is also the chairman and a significant stockholder of an
unrelated company named RealTimeHealth.com, Inc. RealTimeHealth.com is
currently a development stage company that intends to allow health care
consumers to establish individual baseline genetic profiles and then monitor
them for a pattern variance over time through the Internet. RealTimeHealth.com
intends to hire and is currently seeking a chief executive officer. Dr.
Titomirov currently anticipates that his duties as chairman of
RealTimeHealth.com will be limited to setting its strategic direction and being
involved in fundamental decisions and activities of the board of directors
generally. In August 2000, we received a commitment letter regarding the
continued services of Dr. Titomirov. Although Dr. Titomirov's commitment letter
states that he currently intends to devote a majority of his professional
working time to his duties as our Chief Executive Officer, there could be
periods where his activities with RealTimeHealth.com substantially reduce the
time devoted to our operations.
WE MAY INCUR SIGNIFICANT COSTS IN PROTECTING OUR INTELLECTUAL PROPERTY RIGHTS
OR RESPONDING TO CLAIMS OF INFRINGEMENT FROM OTHERS.
We currently rely upon a combination of trademark, patent, copyright and
trade secret laws, employee and third party non-disclosure agreements and other
contracts to protect our proprietary rights. Nevertheless, our efforts to
protect our intellectual property may be inadequate and we may be unable to
prevent others from offering products and services substantially similar to
ours. We also need to secure and maintain adequate protection of our
intellectual property outside of the United States, because our sales are
global. 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 engaging
in international business have encountered considerable difficulties in
safeguarding their proprietary rights in foreign jurisdictions.
Moreover, third parties may claim that our current or future products or
services infringe upon their intellectual property. Litigation over these
issues could be a significant distraction and we may incur significant costs,
including several damages. In the event that it is determined that one of our
products infringe upon another's proprietary rights, we may be required to
obtain a license in order to continue selling our products. That license may
not be available to us on favorable terms, or at all.
OUR SOFTWARE FACILITATES RESEARCH COLLABORATION AND THEREFORE SECURITY IS
IMPORTANT TO OUR CUSTOMERS. WE COULD BE EXPOSED TO LIABILITY AND A LOSS IN
CUSTOMER CONFIDENCE IF OUR PRODUCTS FAIL TO PROVIDE THAT SECURITY.
Our software facilitates collaboration among researchers and the sharing
of research results. If there is a breach or failure of the security functions
in our software, researchers' proprietary work product and data may be
compromised and our customers would lose confidence in our software. We may be
exposed to considerable liability from defects or breaches of security in our
products.
12
<PAGE>
IF WE CANNOT EFFECTIVELY MANAGE OUR GROWTH, AND SPECIFICALLY THE TRANSITION OF
OUR BUSINESS RELATED TO AN EMPHASIS ON THE SALE OF ENTERPRISE PRODUCTS, OUR
FUTURE PROSPECTS WOULD BE HARMED.
In recent years, we have experienced significant growth in the size of our
customer base and the scope of our products and services. We also have expanded
and intend to continue to expand our research and product development,
marketing and sales, and professional services organizations. These factors
have placed, and will continue to place, a significant strain on our management
systems and resources. As a result of this offering, we will become a public
company, which will place additional strain on our administrative, financial
and operational systems. Our current accounting information system may be
inadequate to support our growth. Accordingly, we are presently transitioning
to a new accounting information system. Our ability to manage our growth
effectively will depend upon the ability of our officers and key employees to
continue to implement and improve our operational, administrative and financial
control systems and to expand, train and manage our workforce, and implement
necessary changes to our information systems, including our accounting
information system.
Historically, we have focused on the development and sale of our Vector
NTI Suite of desktop products. We are currently seeking to increase market
penetration and brand recognition of our GenoMax enterprise software platform
and, accordingly are devoting an increasing portion of our resources to GenoMax
related marketing and sales and professional services efforts. Failure to
successfully manage that transition effectively would materially and adversely
affect nearly every aspect of our business and cause our financial condition
and results of operations to suffer.
WE SIGNIFICANTLY DEPEND UPON HOLDERS OF H-1B NON-IMMIGRANT VISAS TO STAFF OUR
RESEARCH AND PRODUCT DEVELOPMENT TEAM. OUR PRODUCT DEVELOPMENT AND ENHANCEMENT
EFFORTS COULD BE HARMED IF WE ARE NOT ABLE TO ADEQUATELY STAFF OUR TEAM BECAUSE
OF THE LIMITATIONS OF U.S. IMMIGRATION LAWS.
We recruit professionals for our research and product development group on
an international basis and, therefore, must comply with the immigration laws of
the United States. Most of our research and product development team are
citizens of other countries, with most of those working in the U.S. under H-1B
temporary visas. Under the American Competitiveness and Workforce Improvement
Act of 1988, there is a statutory limit of 115,000 new H-1B visas that may be
issued in fiscal year 2000 with such limit decreasing to 107,500 in 2001 and to
65,000 in fiscal year 2002 and thereafter. In any year in which this limit is
reached, we may be unable to obtain a sufficient number of H-1B visas to employ
those persons we would like to add to our research and product development
group. If we are unable to obtain H1-B visas for our employees in sufficient
quantities or in a timely manner, our product development and enhancement
efforts could be hampered. As a result, we may be unable to deliver products
that satisfy customer preferences and keep pace with technological change.
WE INTEND TO USE A PORTION OF THE PROCEEDS OF THIS OFFERING TO CONSIDER
ACQUISITIONS OR STRATEGIC INVESTMENTS. WE HAVE LIMITED EXPERIENCE WITH THESE
ACTIVITIES AND THE COSTS AND DISTRACTIONS FROM THOSE ACTIVITIES COULD HARM OUR
FUTURE GROWTH.
We intend to use a portion of the proceeds of this offering to consider
acquiring businesses, technologies or products that we believe are a strategic
fit with our business and strategy, although we only have limited experience
with these activities. If appropriate opportunities become available, we could
also issue additional equity securities that would dilute current stockholders'
ownership, or incur substantial debt to finance such transactions. Methods of
financing any acquisitions or strategic investments could result in a negative
impact on our financial condition. We may have difficulties integrating the
businesses, products, technologies or personnel involved in any acquisition or
strategic investment. Our integration efforts may result in significant
expenditures of operating, financial and management resources that could
materially and adversely affect our business. Acquisitions involve many other
risks, including potential loss of key employees or customers, the assumption
of significant liabilities, and the amortization of the intangible assets of
acquired companies. As a result of these and other risks, any acquisitions or
strategic investments may ultimately have a negative impact on our business,
results of operation and financial condition.
13
<PAGE>
DEFECTS OR MALFUNCTIONS IN OUR SOFTWARE PRODUCTS, OR IN THE PRODUCTS OF OUR
TECHNOLOGY PARTNERS, COULD HURT OUR REPUTATION AMONG CUSTOMERS AND EXPOSE US TO
LIABILITY.
Our business and the level of customer acceptance of our bioinformatic
software products are dependent upon the continuous, effective and reliable
operation of our computer software and related tools and functions. Software
defects could occur in our current or future products. To the extent that our
software malfunctions and our customers' use of our products is interrupted,
our reputation and business could suffer. We may also be subject to liability
for the defects and malfunctions of third party technology partners and others
with whom our products and services interoperate.
WE MAY REQUIRE ADDITIONAL FUNDING TO EXECUTE OUR BUSINESS STRATEGY. IF THAT
FUNDING IS NOT AVAILABLE, OR NOT AVAILABLE ON TERMS ACCEPTABLE TO US, WE MAY BE
REQUIRED TO CURTAIL CERTAIN MARKETING AND PRODUCT DEVELOPMENT EFFORTS.
We expect that the proceeds from this offering, our cash flow from
operations and our existing capital resources will be sufficient to fund our
operations for the next 24 months but it is possible that our growth will
require us to seek additional financing during this period. We may seek to
satisfy any additional capital needs through public or private equity
offerings, debt financings and other means. If we raise capital through the
issuance of additional equity securities, your ownership will be diluted. We
may not be able to obtain additional financing when we need capital on terms
favorable to us, if at all. If we cannot obtain such financing, we may be
required to curtail our marketing and sales activities and product development
efforts.
RISKS RELATED TO OUR INDUSTRY
THE BIOINFORMATIC PRODUCTS AND SERVICES MARKET IS INTENSELY COMPETITIVE AND
EVOLVING AND WE MAY NOT ACHIEVE OR MAINTAIN MARKET LEADERSHIP FOR A VARIETY OF
REASONS.
We face, or expect to face, intense competition from:
o third party commercial software vendors;
o bioinformatics developers;
o internal bioinformatics departments of some of our customers and
potential customers;
o organizations engaging in the provision of Internet-hosted, bioinformatic
software; and
o companies facilitating Internet-based e-commerce between participants in
our industry.
We believe that we compete most often with LION biosciences, NetGenics,
Compugen, Genomica, DNA Star, Rosetta Inpharmatics, DoubleTwist and GCG, a unit
of Pharmacopeia recently acquired from Oxford Molecular. Others, including
large, well-established software vendors, could readily enter this market. Many
of our competitors have longer operating histories, stronger name recognition
and significantly greater financial, technical and marketing resources than we
do. As a result of these advantages, our competitors may be better able to
adopt more aggressive pricing policies and better positioned to respond to
changes in customer preference or technology.
To remain competitive, we believe that we must continue to expand and
enhance the functionality of our bioinformatic software products and respond
timely and effectively to evolving industry standards or technology. In an
intensely competitive, technology driven business like ours, there is no
certainty that market leadership can be obtained or maintained for any
sustainable period.
NUMEROUS CUSTOMERS AND POTENTIAL CUSTOMERS FOR OUR BIOINFORMATIC SOFTWARE MAY
ELECT TO INTERNALLY DEVELOP OR CONTINUE TO DEVELOP THEIR OWN SOFTWARE WHICH
COULD HURT OUR SALES EFFORTS.
Our customers and potential customers, including providers of genomic and
proteomic data, may elect to internally develop or continue to develop their
own bioinformatic software. Potential customers for our products may be
unwilling to abandon their prior internal efforts to look to an outside, third
party source to provide their bioinformatic software solutions. As a result our
efforts to add new customers could be hampered.
14
<PAGE>
IF GROWTH IN THE USE OF GENOMIC DATA DOES NOT OCCUR AS WE EXPECT, THE TARGET
MARKETS FOR OUR PRODUCTS AND SERVICES MAY NOT BE AS LARGE AS EXPECTED.
The application of genomic information to pharmaceutical discoveries,
agricultural production, environmental management and industrial processes is
an evolving and unproven practice. Few products have been developed and
commercialized resulting from recent genomic discoveries. If researchers do not
use genomic information in their discovery and development efforts at the level
we project, the target markets for our products and services will not
materialize and our prospects would be materially harmed.
OUR SALE OF BIOINFORMATIC PRODUCTS AND SERVICES COULD SUFFER IF THERE ARE
REDUCTIONS IN RESEARCH AND DEVELOPMENT EXPENDITURES OF OUR CUSTOMERS AND PUBLIC
FUNDING RELATED TO GENOMIC RESEARCH.
Sales of our products and services could suffer as a result of reductions
in customer research and development expenditures and public funding related to
genomic research. Our continued services to the NCBI and sales of our products
to other government and academic institutions could be negatively affected by
reductions in such public funding.
THE PRODUCTS AND THE ACTIVITIES OF OUR CUSTOMERS, INCLUDING THOSE IN THE
PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRIES, MAY BE SUBJECT TO CHANGING
REGULATION THAT COULD ADVERSELY AFFECT GENOMIC RESEARCH AND REDUCE MARKET
DEMAND FOR OUR PRODUCTS.
Because our customers' products potentially touch on areas involving human
health, they are affected by current or future government regulation, including
regulation by the U.S. Food and Drug Administration. Recently, the Clinton
administration proposed legislation regarding oversight of the sale of medical
products over the Internet and announced its intention to implement a set of
regulatory initiatives governing genetically engineered agricultural products.
In addition, numerous laws covering genetic testing of humans, the privacy and
security of human genetic information, and the storage and transmission of
individually identifiable health care information have been introduced or
passed at the state and federal levels. Our sales may indirectly be affected by
changes in government regulation covering our customers in these industries,
including regulation relating to drug development, genomic research, genetic
testing, healthcare reform and the sale of products and transfer of healthcare
data over the Internet.
We cannot assure you that customers and potential customers for our
bioinformatic software products and related services will not curtail or defer
technology investments in response to the proposal or institution of these
governmental efforts. Moreover, any exposure by us to liability or increased
government scrutiny resulting from regulatory or legal changes would distract
the efforts of our organization and require us to spend significant time and
resources in connection with any resulting litigation or regulatory compliance.
OUR BUSINESS MAY BE MATERIALLY AND ADVERSELY AFFECTED AS A RESULT OF ETHICAL,
LEGAL AND SOCIAL CONCERNS SURROUNDING THE USE OF GENOMIC INFORMATION.
A number of ethical, legal and social concerns, including issues related
to privacy, confidentiality and fairness, have arisen as a result of the
increased availability of genomic information. Government and private entities
are currently exploring issues, including:
o ownership and control of genomic information;
o definition of normal conditions, disabilities and disorders; and
o determination of access rights to resulting expensive technologies and
responsibility for payment for treatment based on these technologies.
As a result of these and numerous other ethical, legal and social issues,
government authorities may limit, or increasingly regulate biomolecular
research and the use of products resulting from such research. Such
restrictions could reduce the number of markets and potential customers for our
products and could materially and adversely affect our business.
15
<PAGE>
CONSOLIDATION WITHIN THE PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRIES MAY LEAD
TO FEWER CUSTOMERS FOR OUR PRODUCTS AND SERVICES. CONSOLIDATION COULD INCREASE
COMPETITION AND HARM OUR MARKETING AND SALES EFFORTS.
A significant portion of our customer base consists of pharmaceutical and
biotechnology companies. Mergers between large multinational pharmaceutical
companies have accelerated in recent years. Continued consolidation within the
pharmaceutical and biotechnology industries may result in fewer customers for
our products and services. If one of the parties to a consolidation uses the
products or services of our competitors, we may lose existing customers as a
result of such consolidation.
WE INTEGRATE THIRD PARTY DATABASES INTO OUR BIOINFORMATIC SOFTWARE PRODUCTS AND
MAY BE EXPOSED TO LIABILITY FOR CONTENT ERRORS IN THOSE DATABASES.
Available genomic, proteomic and other biomolecular data is vast and
complex, and errors in databases containing this information are inevitable. We
integrate data housed on public and private content databases into our
bioinformatic software products. We could be subject to claims of liability
associated with damages resulting from any erroneous third party data that we
integrate into our products or for which we facilitate delivery and analysis,
even if not integrated into our products.
RISKS RELATED TO THIS OFFERING
OUR COMMON STOCK MAY HAVE A VOLATILE TRADING PRICE AFTER THIS OFFERING.
Prior to this offering, our common stock has not been sold in a public
market. You will pay a price that we negotiated with the representatives of the
underwriters based on a number of factors. The price you pay for our stock in
this offering may be different from a price established in a competitive
market. After this offering, an active trading market in our stock might not
develop. If an active trading market does develop, it may not continue. The
trading price of our common stock may fluctuate widely as a result of a large
number of factors. The stock market has experienced extreme price and volume
fluctuations that have affected the market prices of many companies involved in
the software and biotechnology industries, which have often been unrelated to
the operating performance of these companies.
A SIGNIFICANT NUMBER OF OUR SHARES ARE ELIGIBLE FOR RESALE AFTER THE DATE OF
THE OFFERING. FUTURE SALES OF THESE SHARES MAY CAUSE THE MARKET PRICE OF OUR
COMMON STOCK TO FALL AND REDUCE OUR ABILITY TO RAISE CAPITAL.
If our existing stockholders sell substantial amounts of our common stock,
including shares issuable upon the exercise of outstanding options or warrants,
or if the market perceives that such sales may occur, the market price of our
common stock may fall. After this offering, we will have outstanding 18,657,720
shares of common stock. This includes the 5,000,000 shares of common stock that
we are selling in this offering and which may be resold in the public market
immediately. This also includes approximately 13,657,720 shares of common stock
which are not registered but which are eligible for resale in the public
market, subject to compliance with Rule 144 or Rule 701 under the Securities
Act of 1933, as amended. While the holders of most of these shares are subject
to lock-up agreements with the underwriters in the offering for 180 days after
the date of the final prospectus for the offering, Bear, Stearns & Co. Inc., in
its sole discretion, may release any portion or all of these shares from the
lock-up restrictions. In addition, sales of a substantial number of shares
could occur at any time after the expiration of the 180-day period. Holders of
8,541,276 shares of our common stock, or warrants exercisable for our common
stock, are entitled to certain registration rights. If these holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, these sales could cause a decline in
the market price of our common stock. If we were to include, in a registration
statement initiated by us, shares held by these holders in accordance with
their registration rights, the inclusion of such shares may reduce our ability
to raise capital.
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<PAGE>
OUR EXECUTIVE OFFICERS AND DIRECTORS AND THEIR AFFILIATES WILL OWN A LARGE
PERCENTAGE OF OUR COMMON STOCK FOLLOWING THE OFFERING AND WILL HAVE THE ABILITY
TO INFLUENCE DECISIONS THAT COULD ADVERSELY AFFECT OUR STOCK PRICE.
Following the completion of this offering, our executive officers,
directors and their affiliates will own approximately 60.0% of the outstanding
shares of common stock. As a result, these stockholders will be able to
substantially influence all matters requiring stockholder approval and,
thereby, our management and affairs. Matters that will require stockholder
approval include:
o election of directors;
o approval of certain mergers or consolidations;
o sale of all or substantially all of our assets; and
o issuance of large amounts of our shares in private transactions or
acquisitions.
This concentration of ownership may delay, deter or prevent acts that
would result in a change of control of our company, which in turn could reduce
the market price of our common stock. This concentration may also prevent new
investors from influencing significant corporate decisions.
INVESTORS PARTICIPATING IN THIS OFFERING WILL INCUR IMMEDIATE DILUTION OF THEIR
COMMON STOCK BASED ON ITS BOOK VALUE AFTER THE OFFERING.
The offering price will be substantially higher than the pro forma net
tangible book value of our common stock as of June 30, 2000. At the initial
public offering price of $16.00 per share, the pro forma net tangible book
value of the common stock is $4.67 per share. This represents an immediate and
substantial dilution per share of $11.33 for investors purchasing shares in
this offering. The dilution per share represents the difference between the
amount per share paid by the purchasers of shares of common stock in this
offering and the pro forma net tangible book value per share of common stock
immediately after the completion of this offering. In addition, to the extent
outstanding options or warrants are exercised, there will be further dilution
to new investors.
OUR CHARTER AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS THAT COULD
DISCOURAGE A TAKEOVER EVEN IF BENEFICIAL TO STOCKHOLDERS.
Our charter and our bylaws, and portions of Delaware law, contain
provisions that could make it more difficult for a third party to obtain
control of InforMax, even if doing so would be beneficial to stockholders. For
example, our amended and restated certificate of incorporation to be effective
immediately prior to the closing of this offering provides for a classified
board of directors, allows the board of directors to expand its size and fill
any vacancies without stockholder approval, and allows the board of directors
to classify and issue preferred stock without stockholder approval. Our bylaws
restrict the ability of stockholders to call a special meeting and require
advance notice of stockholder proposals. Delaware law makes it difficult for us
to be acquired by a significant stockholder that is not approved in advance by
our board of directors.
WE WILL RETAIN BROAD DISCRETION IN THE USE OF THE NET PROCEEDS WE RECEIVE FROM
THIS OFFERING AND MAY SPEND A SUBSTANTIAL PORTION IN WAYS WITH WHICH YOU
DISAGREE.
We will retain a significant amount of discretion over the use of our net
proceeds from this offering, as well as over the timing of our expenditures.
Because of the number and variability of factors that will determine our use of
the net proceeds, we may apply the net proceeds in ways with which you
disagree.
17
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make statements in this prospectus that are forward-looking statements.
These statements are subject to risks and uncertainties. These forward-looking
statements are generally accompanied by words such as "may," "will," "intend,"
"anticipate," "believe," "estimate," "expect," "should" or similar expressions
or the negative of the expressions. These statements are only predictions and
actual events or results may differ materially. 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. You should understand that these forward-looking statements are
subject to a number of assumptions, risks and uncertainties that could cause
our actual results to differ materially from those expressed or implied in the
forward-looking statements. Important factors that could cause actual results
to differ materially from the estimates or projections we make in our
forward-looking statements include those described in "Risk Factors." In light
of the risks we describe in "Risk Factors," the forward-looking events we
discuss in this prospectus may not occur. Except for duties imposed by
applicable law, we do not intend to publicly update or revise any of the
forward-looking statements in this prospectus.
----------------
The marks InforMax & Double Helix Design and Vector NTI, AlignX and
BioPlot are registered trademarks of InforMax, Inc. InforMax, InforMax's Double
Helix Logo Design, GenoMax, ContigExpress, High-Throughput Research and
Software Solution for Bio-Medicine, are each trademarks of InforMax, Inc. and
U.S. trademark applications for these marks have been filed. Vector Enterprise,
Vector NTI Suite, Dynamic License Server Research Logic and Research Logic &
Design are trademarks of InforMax, Inc. All other product, service, and company
names contained in this prospectus are trademarks of other parties.
18
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of our
common stock of approximately $73,200,000, or approximately $84,360,000 if the
underwriters' over-allotment option is exercised in full. This estimate is
based on the initial public offering price of $16.00 per share, and deducts the
underwriting discounts and commissions and our estimated offering expenses.
The principal purposes of this offering are to provide working capital,
create a public market for our common stock, facilitate our future access to
the public capital markets and increase our visibility in our markets. We
anticipate that, subject to the availability of opportunities on terms and at
prices we deem acceptable, we would allocate as much as 80% and as little as
20% of the net proceeds to expanding our business through the acquisition of
additional businesses, products and technologies and to establishing joint
ventures or other collaborative arrangements which we believe complement our
current or future business. We anticipate that the remaining portion of the
offering proceeds would be allocated approximately one-third to expanding
research and development, approximately one-third to expanding sales and
marketing and approximately one-third to working capital and general corporate
purposes. We have no specific plans, agreements or commitments to use the
proceeds for any specific acquisition or collaborative arrangement and, to the
extent appropriate opportunities are not available, all proceeds not allocated
to external expansion would be applied to internal expansion, through expanding
our research and development and our sales and marketing efforts, and to
working capital and general corporate purposes. The amounts that we actually
expend for the purposes above will vary significantly depending on a number of
factors, including future revenue growth, if any, and the amount of cash we
generate from operations. As a result, we will retain broad discretion in the
allocation of the net proceeds of this offering. Until we use the net proceeds
of this offering, we intend to invest them in U.S. government securities or
investment-grade, interest-bearing instruments.
We expect that the net proceeds from this offering, cash flow from
operations and our existing capital resources will be sufficient to fund our
operations for the next 24 months, but it is possible that our growth will
require us to seek additional financing during this period.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. We
expect to retain all earnings, if any, generated by our operations for the
development and growth of our business. We do not intend to pay cash dividends
on our common stock for the foreseeable future. However, our board of directors
is free to change our dividend policy in the future, based upon factors such as
our results of operations, financial condition, cash flow, cash needs and
future prospects. If our board of directors were to change our dividend policy,
so long as we have any amount outstanding under our credit facilities with PNC
Bank, National Association, we would be required to obtain PNC Bank's written
consent prior to the declaration or payment of such dividends.
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<PAGE>
CAPITALIZATION
The following table shows our capitalization as of June 30, 2000:
o on an actual basis;
o on a pro forma basis to give effect to the issuance of Series B
redeemable convertible preferred stock after June 30, 2000, the automatic
conversion of all redeemable convertible preferred stock into common
stock immediately prior to the closing of this offering, and the
conversion of the outstanding non-voting common stock into shares of
voting common stock effected on September 11, 2000;
o on a pro forma basis as adjusted to give effect to the issuance of Series
B redeemable convertible preferred stock after June 30, 2000, the
automatic conversion of all redeemable convertible preferred stock into
common stock immediately prior to the closing of this offering, the
conversion of the outstanding non-voting common stock into shares of
voting common stock effected on September 11, 2000, and our receipt of
the net proceeds from the sale of 5,000,000 shares of common stock in
this offering at the initial public offering price of $16.00 per share,
after deducting underwriting discounts and commissions and our estimated
offering expenses.
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
-----------------------------------------------
(UNAUDITED)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------------- --------------- ---------------
<S> <C> <C> <C>
Long-term debt ........................................................... $ 1,241,973 $ 1,241,973 $ 1,241,973
Series A redeemable convertible preferred stock, par value $0.01 --
2,161,265 shares authorized, issued, and outstanding, actual, and no
shares authorized, issued or outstanding pro forma and pro forma as
adjusted ................................................................ 4,263,194 -- --
------------ ------------ ------------
Series B redeemable convertible preferred stock, par value $0.01 -- no
shares authorized, issued and outstanding actual, pro forma and pro
forma as adjusted (1) ................................................... -- -- --
------------ ------------ ------------
Stockholders' equity (deficit):
Preferred stock, par value $0.01, 20,000,000 shares authorized, no
shares issued or outstanding, actual, pro forma and pro forma as
adjusted .............................................................. -- -- --
Common stock - voting, par value $0.001; 100,000,000 shares
authorized, 2,254,500 shares issued and outstanding, actual;
12,983,068 shares issued and outstanding, pro forma; 17,983,068
shares issued and outstanding, pro forma as adjusted .................. 2,255 12,983 17,983
Common stock - nonvoting, par value $0.001; 14,931,864 shares
authorized, 5,531,508 issued and outstanding, actual; no shares
authorized, issued or outstanding, pro forma and pro forma as
adjusted .............................................................. 5,531 -- --
Subscription receivable .................................................. (1,013,436) (1,013,436) (1,013,436)
Additional paid-in capital ............................................... 6,260,877 20,518,874 93,713,874
Deferred compensation .................................................... (461,734) (461,734) (461,734)
Accumulated deficit ...................................................... (8,242,199) (8,242,199) (8,242,199)
------------ ------------ ------------
Total stockholders' equity (deficit) ................................. (3,448,706) 10,814,488 84,014,488
------------ ------------ ------------
Total capitalization ..................................................... $ 2,056,461 $ 12,056,461 $ 85,256,461
============ ============ ============
</TABLE>
----------
(1) 950,747 shares of Series B convertible preferred stock were issued after
June 30, 2000.
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In addition to the shares of common stock to be outstanding after this
offering, we may issue additional shares of common stock under the following
plans and arrangements:
o 13,425,125 shares issuable upon exercise of outstanding options,
including 4,656,122 options issued under our equity incentive
compensation plan, at a weighted average exercise price of $0.622 per
share as of June 30, 2000;
o 1,356,494 shares available for future issuance under our equity incentive
compensation plan as of June 30, 2000; and
o 40,080 shares issuable upon exercise of outstanding warrants.
Please read the capitalization table together with our consolidated financial
statements and related notes and with the sections of this prospectus entitled
"Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
21
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 2000 was $10.8
million, or $0.83 per share of common stock. We have calculated this amount by:
o subtracting our total liabilities from total tangible assets; and
o then dividing the difference by the total pro forma number of shares of
common stock outstanding, including the number of shares of common stock
that will be issued upon the automatic conversion of all redeemable
convertible preferred stock, including the Series B redeemable
convertible preferred stock issuance after June 30, 2000, immediately
prior to the completion of this offering.
After giving effect to the sale of 5,000,000 shares of our common stock in
this offering and deducting the underwriting discounts and commissions and our
estimated offering expenses, our adjusted pro forma net tangible book value as
of June 30, 2000 would have been $84.0 million, or $4.67 per share. This amount
represents an immediate dilution of $11.33 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share .............................. $ 16.00
--------
Pro forma net tangible book value per share before this offering..... $ 0.83
Increase in pro forma net tangible book value per share
attributable to new investors ..................................... 3.84
-------
Pro forma net tangible book value per share after this offering ...... 4.67
--------
Dilution per share to new investors .................................. $ 11.33
========
</TABLE>
The following table summarizes on a pro forma basis after giving effect to
this offering, as of June 30, 2000, the differences between the existing
stockholders and new investors with respect to the number of shares of common
stock purchased from us, the total consideration paid to us and the average
price per share paid before deducting underwriting discounts and commissions
and our estimated offering expenses:
<TABLE>
<CAPTION>
AVERAGE PRICE
SHARES TOTAL PER COMMON
PURCHASED CONSIDERATION SHARE
------------------------ -------------------------- --------------
NUMBER PERCENT AMOUNT PERCENT
------------ --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 12,983,068 72.2% $4,891,717 5.8% $ 0.38
New investors ................. 5,000,000 27.8 80,000,000 94.2 $ 16.00
---------- ----- ---------- -----
Total ........................ 17,983,068 100.0% 84,891,717 100.0%
========== ===== ========== =====
</TABLE>
If the underwriters exercise their over-allotment option in full, there
will be an increase in pro forma net tangible book value of $5.08 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $10.92 to new investors. Our existing stockholders would own 69.3% and
our new public investors would own 30.7% of the total number of shares of our
common stock outstanding after this offering.
The foregoing discussion and tables are based upon the number of shares
actually issued and outstanding on June 30, 2000 plus the number of shares of
Series B convertible preferred stock issued after June 30, 2000 and assume no
exercise of options or warrants outstanding as of June 30, 2000. As of that
date, there were 13,425,125 shares issuable upon exercise of options
outstanding at a weighted average exercise price of $0.622 per share as of June
30, 2000 and 40,080 shares issuable upon exercise of outstanding warrants.
To the extent that these or any other outstanding options or warrants are
exercised, there will be further dilution to new investors.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
You should read our selected consolidated financial data together with our
consolidated financial statements and their related notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which we have included elsewhere in this prospectus. We have
derived the statement of operations data for the years ended December 31, 1997,
1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999 from
our audited consolidated financial statements included elsewhere in this
prospectus. These consolidated financial statements have been audited by
Deloitte & Touche LLP. We have derived the statement of operations data for the
years ended December 31, 1995 and 1996 from our unaudited consolidated
financial statements that are not included in this prospectus. The balance
sheet data as of December 31, 1995 and 1996 are derived from our unaudited
consolidated financial statements that are not included in this prospectus. The
balance sheet data as of December 31, 1997 are derived from our audited
consolidated financial statements that are not included in this prospectus.
We have derived the statement of operations data for the six months ended
June 30, 1999 and 2000 and the balance sheet data as of June 30, 2000 from our
unaudited consolidated financial statements, which have been prepared on
substantially the same basis as the audited consolidated financial statements
and, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
of operations for these periods.
The historical results presented below are not necessarily indicative of
future results.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- -----------------------
1995 1996 1997 1998 1999 1999 2000
------ ----------- --------- ------------ ----------- --------- -------------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license and customer support ....... $166 $ 382 $1,335 $2,732 $ 7,277 $3,322 $ 4,855
Professional services ....................... 403 636 867 1,394 2,737 1,159 1,655
---- ----- ------ ------ -------- ------ -------
Total revenues ............................ 569 1,018 2,202 4,126 10,014 4,481 6,510
Cost of revenues:
Software license and customer support ....... 8 19 38 190 405 146 233
Professional services (1) ................... 156 309 716 1,081 1,612 731 880
---- ----- ------ ------ -------- ------ -------
Total cost of revenues .................... 164 328 754 1,271 2,017 877 1,113
Gross profit ................................. 405 690 1,448 2,855 7,997 3,604 5,397
Operating expenses:
Selling, general and administrative (2) ..... 195 507 1,075 2,476 7,000 2,397 7,565
Research and development (3) ................ 165 161 365 1,162 2,597 1,129 2,471
Stock based compensation .................... 22 -- 211 18 138 27 975
Depreciation and amortization ............... -- 3 18 94 273 89 343
---- ----- ------ ------ -------- ------ -------
Total operating expenses .................. 382 671 1,669 3,750 10,008 3,642 11,354
Income (loss) from operations ................ 23 19 (221) (895) (2,011) (38) (5,957)
Other income (expense):
Investment earnings ......................... -- -- -- -- 66 2 16
Interest expense ............................ -- (4) (19) (60) (86) (33) (120)
Other ....................................... -- -- (12) (3) (10) -- (8)
---- ------- ------ -------- -------- ------ ----------
Total other income (expense) .............. -- (4) (31) (63) (30) (31) (112)
Income (loss) before income taxes ............ 23 15 (252) (958) (2,041) (69) (6,069)
Income tax expense (benefit) ................. 1 11 (118) (391) (726) 13 --
---- ------- ------ ------- -------- ------ ---------
Net income (loss) ............................ $ 22 $ 4 $ (134) $(567) $ (1,315) $ (82) $(6,069)
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ --------------------------
1995 1996 1997 1998 1999 1999 2000
---------- ------ ---------- ---------- -------------- ----------- --------------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Accretion of transaction costs on
redeemable convertible preferred stock ..... -- -- -- -- (8) -- (8)
Accrued dividend on redeemable
convertible preferred stock ................ -- -- -- -- (168) -- (160)
Net income (loss) applicable to common
shares ..................................... $ 22 $ 4 $ (134) $ (567) $(1,491) $ (82) $(6,237)
====== === ======= ======= ========= ======= =========
Basic net income (loss) applicable per
common share (4) ........................... $ 0.01 $-- $ (0.04) $ (0.16) $ (0.38) $ (0.02) $ (1.18)
====== === ======= ======= ========= ======= =========
Diluted net income (loss) applicable per
common share (4) ........................... $ 0.01 $-- $ (0.04) $ (0.16) $ (0.38) $ (0.02) $ (1.18)
====== === ======= ======= ========= ======= =========
</TABLE>
----------
(1) Cost of revenues - professional services includes stock based compensation
of $-0-, $-0-, $105,539, $-0-, $-0-, $-0- and $5,497 for the years ended
December 31, 1995, 1996, 1997, 1998, 1999 and the six month periods ended
June 30, 1999 and 2000, respectively.
(2) Selling, general and administrative expense excludes stock based
compensation of $21,916, $-0-, $76,189, $-0-, $111,019, $9,643 and
$845,741 for the years ended December 31, 1995, 1996, 1997, 1998, 1999 and
the six month periods ended June 30, 1999 and 2000, respectively.
(3) Research and development expense excludes stock based compensation of $-0-,
$-0-, $134,506, $17,782, $27,166, $16,748 and $128,874 for the years ended
December 31, 1995, 1996, 1997, 1998, 1999 and the six month periods ended
June 30, 1999 and 2000, respectively.
(4) As restated for the unaudited six month period ended June 30, 2000, see
Note 6 to the consolidated financial statements.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
---------------------------------------------------- ---------------
1995 1996 1997 1998 1999 2000
------ ------ -------- --------- ----------- ---------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...................... $ 16 $ 35 $ 382 $ 296 $ 1,399 $ 2,091
Working capital (deficit) ...................... 72 62 371 (419) 1,040 (1,283)
Total assets ................................... 114 250 1,114 2,883 7,265 10,109
Capital lease obligations, less current
portion ....................................... -- 8 55 182 92 49
Equipment loan facility, less current
portion ....................................... -- -- -- -- 623 1,242
Total liabilities .............................. 38 174 974 3,288 4,887 9,295
Redeemable convertible preferred stock ......... -- -- -- -- 4,095 4,263
Common stock and additional paid-in
capital ....................................... 233 233 550 588 975 6,269
Stockholders' equity (deficit) ................. 76 76 139 (405) (1,717) (3,449)
</TABLE>
See our consolidated financial statements and notes included elsewhere in
this prospectus for a description of the computation of the net loss per share
and the number of shares used in the per share calculations in statement of
operations data above.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of our consolidated financial condition and
results of operations. You should read this discussion together with our
consolidated financial statements and the related notes, which we have included
elsewhere in this prospectus. We make some forward-looking statements about our
future performance. These forward-looking statements include numerous risks and
uncertainties, such as those described in the "Risk Factors" section of this
prospectus, and accordingly our actual results may differ materially.
OVERVIEW
We are a leading global provider of bioinformatic software solutions. Our
bioinformatic software enables the analysis and interpretation of genomic,
proteomic and other biomolecular data that form the genetic blueprint of all
living organisms. Since beginning commercial operations in 1993, we have
dedicated substantial resources to expand and enhance our software product
lines, increase our sales and marketing efforts, and enlarge and diversify our
customer base.
We believe that our position as a leading global provider of bioinformatic
software is based upon the number of our customers, our revenues, and the size
of our organization. In 1993, we commercially released our first desktop
software product, the current version of which is marketed as our Vector NTI
Suite 6.0 for desktop computers. In September 1998, we commercially released
our Software Solution for Bio-Medicine enterprise computing platform, the
current version of which was commercially released on September 15, 2000, and
is marketed as GenoMax 3.0.
To date, we have sold over 9,000 licenses for our Vector NTI Suite of
software applications for desktop computers, with more than 20,000 estimated
users. We have also made 20 sales of our GenoMax enterprise platform for use by
a network of computers linked together for sharing data and computation. Our
customer base includes over 1,300 organizations worldwide, including over 500
biotechnology, pharmaceutical and agricultural biotechnology and life science
companies and over 800 academic and government research institutions. In 1999,
our 10 largest customers accounted for less than 37% of our total software
license revenues.
In August 2000, we entered into a strategic relationship with Amersham
Pharmacia Biotech to jointly develop and market an expanded version of GenoMax
to provide an enterprise-wide data analysis system for pharmaceutical and
biotechnology companies, for integrating and analyzing data from genomics,
proteomics and drug screening production laboratories. In connection with this
relationship, Amersham purchased 950,747 shares of our preferred stock in
exchange for $10 million in cash.
Our revenue has increased substantially in recent years. Revenue for the
year ended December 31, 1999 represents a four-year compound annual growth rate
of 105% and a 143% increase over the prior year. We provide sales, marketing,
implementation and support services for our products. Our Vector NTI Suite and
GenoMax software products are considered off-the-shelf products that require
only routine installation to be fully functional by the end user.
We currently generate revenues from software sales and software-related
professional services. Software sales consist of software license fees,
maintenance fees, and related customer training. Professional services have
historically consisted of software development services provided under
contracts to the National Center for Biotechnology Information (NCBI) at the
National Institutes of Health and beginning in 2000 have also included
customer-specified software installation, integration and customization
services related to our commercial software products. NCBI contracts for
professional services through intermediaries for whom we serve as a
subcontractor. These agreements may be terminated on behalf of NCBI at any
time.
We expect to generate future revenues from our channeling and distribution
alliances and from e-commerce offerings. Channeling alliances include
agreements with data content providers to integrate their biomolecular
databases with our software products and to resell subscriptions to these
databases to our customers. Distribution alliances include agreements with
providers of specialized bioinformatic hardware to integrate and resell their
hardware with our software products. Under our content channeling and hardware
distribution alliances, we intend to generate transaction fees and
25
<PAGE>
realize a portion of the revenues for the products we resell. To date, we have
entered into four agreements to resell third party data content or technology
hardware. E-commerce offerings will include incorporating Internet hyperlinks
into our Vector NTI Suite and entering into related partnerships with
laboratory reagent vendors to generate transaction fees on sales we facilitate.
For additional information regarding our channeling and distribution alliances
and our e-commerce offerings please refer to "Business -- Our Product and
Service Lines."
We recognize software license revenues based on the provisions of
Statement of Position ("SOP") No. 97-2, Software Revenue Recognition, as
amended by SOP No. 98-4 and SOP No. 98-9. Software license fees are recognized
as revenue upon the customer's execution of a non-cancelable license agreement
and delivery of the software, provided that the license fee is fixed and
determinable, collectibility is probable, and no customization of the software
is required. In connection with our software licenses, we also enter into
maintenance contracts that provide for technical support and periodic
unspecified upgrades.
During 1997 and 1998, we recognized maintenance revenue together with the
initial licensing fee upon delivery of the software when all of the following
were met:
o the maintenance fee was included with the initial licensing fee,
o the maintenance revenue to be recognized was for one year or less,
o the estimated cost of providing maintenance during the arrangement was
insignificant, and
o any unspecified upgrades were expected to be minimal.
In circumstances where these criteria were not met and the fair value for
undelivered elements of a multiple element contract were not determinable,
revenue on the contract was entirely deferred until either fair value was
determinable or when all elements were delivered. If we were unable to
establish vendor specific objective evidence of fair value on the undelivered
elements and the only undelivered element was maintenance, then all revenue was
recognized ratably over the maintenance period.
Due to the introduction of new modules, product enhancements, and product
versions, we increased our maintenance support staff and, as a result, the
estimated cost of providing maintenance services to our customers was no longer
deemed insignificant. Therefore, beginning in January 1999, revenues from all
software maintenance contracts were unbundled from software licenses based upon
vendor specific objective evidence of fair value and recognized ratably over
the maintenance period. Vendor specific objective evidence for maintenance
contracts is determined by the list price established by management with the
relevant authority or by the renewal rate specified in the contract. We use the
residual method to recognize revenue on delivered elements when vendor specific
objective evidence of fair value has been determined for all undelivered
elements. Discounts, if any, are applied to the delivered elements if the
residual method is used. Amounts received in advance of the delivery of
products or performance of services are classified as deferred revenues
Training is provided on a daily fee basis and we recognize revenue as the
services are provided.
Beginning in 2000, we have provided customer-specified software
installation, integration and customization services related to our commercial
software products on a time and materials basis and recognize revenue as the
services are provided. During 1997, 1998 and 1999 our professional services
revenue was derived from contracts related to software development services
provided to NCBI under time and materials subcontracts and a
cost-plus-fixed-fee subcontract. During 1999 the cost-plus-fixed-fee
subcontract was converted upon its renewal to a time and material contract. We
recognize revenue under the time and material subcontracts as the services are
provided based upon contractual rates. We recognized revenue under the
cost-plus-fixed-fee subcontract as recoverable costs were incurred, including a
proportionate amount of the fixed fee.
26
<PAGE>
Our quarterly operating results have historically fluctuated and we
anticipate such results to continue to fluctuate significantly. Factors that
may cause our quarterly results to fluctuate include the timing of,
commencement, delay, cancellation or completion of our:
o software licensing agreements;
o product delivery schedules;
o strategic relationships; and
o professional service activities, including installation and software
modification.
Our results of operations may also fluctuate as a result of the number and
timing of orders for our GenoMax enterprise product, which can have a
significant effect on revenues for a particular quarter.
The manner in which we recognize revenue, in accordance with the generally
accepted accounting principles, may also cause our quarterly operating results
to fluctuate substantially. In accordance with these principles, we may be
required to defer all or a portion of the revenue from some of our software
licenses sold in a particular quarter to a later quarter. Expenses associated
with software licenses are not typically so deferred. For our maintenance
contracts and professional services, we typically recognize revenues over the
term of the contract.
As a result of the academic calendar, European business practices and
commercial information technology procurement practices, we generally
experience a reduction in sales in the third quarter of each calendar year
which typically results in a corresponding reduction in operating revenues. Due
to the factors described above and other risks discussed in this prospectus,
you should not rely upon quarterly comparisons of our financial results as
these comparisons are not necessarily meaningful nor are they a reliable
indicator of our future performance.
For the period from July 1, 2000 through August 21, 2000, we granted
161,990 qualified options to employees and 33,400 nonqualified options to one
nonemployee. These options were issued with an exercise price of $6.37 per
share. The deemed fair market value of the underlying common stock was $6.37 at
each grant date prior to July 10, 2000 and $15.00 at each grant date
thereafter. Deferred compensation related to the qualified options is
$1,289,883, which will be amortized to expense over a four year vesting period.
Compensation related to the nonemployee options, which vest over a three year
period, is $373,037. On September 26, 2000, we granted 643,340 qualified
options to employees with an exercise price of $15.00 per share.
RESULTS OF OPERATIONS
The following table sets forth our audited consolidated operating results
for the years ended December 31, 1997, 1998 and 1999, and for the unaudited
six-month periods ended June 30, 1999 and 2000, as a percentage of our total
revenue for the respective periods.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Software license and customer support ......... 61% 66% 73% 74% 75%
Professional services ......................... 39 34 27 26 25
-- -- -- -- --
Total revenues .............................. 100 100 100 100 100
Cost of revenues:
Software license and customer support ......... 2 5 4 3 4
Professional services ......................... 32 26 16 17 14
--- --- --- --- ---
Total cost of revenues ...................... 34 31 20 20 18
Gross profit ................................... 66 69 80 80 82
Operating expenses
Selling, general and administrative ........... 49 60 70 53 116
Research and development ...................... 16 29 26 25 38
Stock based compensation ...................... 10 -- 1 1 15
Depreciation and amortization ................. 1 2 3 2 5
--- --- --- --- ---
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -----------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total operating expenses ................ 76 91 100 81 174
Loss from operations .................... (10) (22) (20) (1) (92)
Other income (expense)
Investment earnings .................... -- -- 1 -- --
Interest expense ....................... (1) (1) (1) (1) (2)
Other .................................. -- -- 0 -- --
---- ----- ----- ---- -----
Total other income (expense) ......... (1) (1) 0 (1) (2)
Loss before income taxes ................ (11) (23) (20) (2) (94)
Income tax benefit ...................... (5) (9) (7) -- --
----- ------ ------ ---- -----
Net loss ................................ (6)% (14)% (13)% (2)% (94)%
==== ===== ===== ==== =====
</TABLE>
Six Months Ended June 30, 2000 and 1999
Revenues. For the six months ended June 30, 2000, revenues increased 45%
to $6.5 million from $4.5 million in the corresponding period of 1999. Due to
revenue deferrals required under SOP 97-2, a significant portion of revenue
from new software license agreements entered into in the first six months of
2000 will be recognized in subsequent periods. Deferred revenue increased 99%
to $3.6 million at June 30, 2000 from $1.8 million at December 31, 1999. This
increase is primarily attributable to the deferral of software maintenance
revenues, both for our Vector NTI Suite and our GenoMax enterprise system. The
increase is also attributable to deferrals related to contracts requiring the
delivery of the GenoMax gene expression analysis module which was delivered to
customers on September 15, 2000. Subsequent to the delivery of the GenoMax gene
expression analysis module, revenues will be recognized if there are no
additional undelivered elements related to such contracts for which we do not
have vendor specific evidence of fair value.
Software sales revenue increased 46% to $4.9 million for the six months
ended June 30, 2000 from $3.3 million in the corresponding period of 1999. This
increase resulted primarily from increased sales of our Vector NTI Suite and
sales of our GenoMax enterprise system, which was introduced in late 1998.
Increased Vector NTI Suite sales resulted primarily from expansion of our sales
force.
Professional services revenue increased 43% to $1.7 million for the six
months ended June 30, 2000 from $1.2 million in the corresponding period of
1999. This increase resulted primarily from an expansion of our services
provided to the NCBI and an increase in the number of personnel performing
services under our subcontracts. For the six months ended June 30, 2000,
services provided to the NCBI under subcontracts accounted for $1.5 million or
90% of professional services revenue and 23% of consolidated revenues.
Cost of Revenues. For the six months ended June 30, 2000, cost of revenues
increased 27% to $1.1 million from $0.9 million in the corresponding period of
1999. Costs of software revenues consist primarily of manufacturing costs
incurred on an as needed basis that is driven by supply level, cost of shipping
products, and the cost of providing training and customer support. Costs of
professional services revenues consist primarily of salaries, benefits, and
related expenses of our professional services personnel.
Costs of software license and customer support revenue increased 59% to
$0.2 million for the six months ended June 30, 2000 from $0.1 million in the
corresponding period of 1999. This increase resulted primarily from increased
sales of our Vector NTI Suite and sales of our GenoMax enterprise system.
Costs of professional services revenues increased 20% to $0.9 million for
the six months ended June 30, 2000 from $0.7 million in the corresponding
period of 1999. This increase resulted primarily from increased personnel on
the NCBI subcontracts.
Margins on our software license and customer support and professional
services revenues improved for the six-month period ended June 30, 2000
compared to the prior comparable period
28
<PAGE>
primarily as a result of the increasing size of our customer base and the
reduction in the relative cost of producing products and providing services
stemming from our spreading production overhead costs across a larger customer
base.
Selling, General and Administrative Expenses. For the six months ended
June 30, 2000, selling, general and administrative expenses increased 216% to
$7.6 million from $2.4 million in the corresponding period of 1999. This
increase primarily reflects salary and benefits expenses for additional
personnel and related expenses including increased rent and travel costs to
support our business and revenue growth, along with costs associated with a
significant increased marketing effort. Overall headcount for the period ended
June 30, 2000 was 173 compared to 79 in the corresponding period of 1999. In
connection with this increase in headcount selling, general and administrative
expenses experienced a similar proportionate increase.
Research and Development Expenses. For the six months ended June 30, 2000,
research and development expenses increased 119% to $2.5 million from $1.1
million in the corresponding period of 1999. The increase reflects expense for
an increase in the headcount of our research and product development team as we
expand our product development efforts. Overall headcount for the period ended
June 30, 2000 was 173 compared to 79 in the corresponding period of 1999. In
connection with this increase in headcount research and development expenses
experienced a similar proportionate increase.
Stock Based Compensation. For the six months ended June 30, 2000, stock
based compensation expenses increased 3593% to $1.0 million from $0.03 million
in the corresponding period of 1999. The increase reflects compensation related
to discounted stock option grants and restricted stock awards.
Income Taxes. We incurred net losses for each of the six months ended June
30, 2000 and 1999. At present, we have an accumulated net operating loss
carryforward of $21.4 million, primarily as a result of the exercise of
non-qualified stock options. The tax provision for the six months ended June
30, 1999 and 2000 was $0.01 million and $0.0 million, respectively, using an
effective rate of 18.7% and 0%, respectively. The provision for the six months
ended June 30, 2000 reflects a valuation allowance recorded against the
increase in net operating losses and the change in book basis versus tax basis
of deferred revenue and stock based compensation.
Net Loss. We incurred a net loss of $6.1 million for the six months ended
June 30, 2000, compared with a net loss of $0.08 million for the six months
ended June 30, 1999.
Years Ended December 31, 1999 and 1998
Revenues. For the year ended December 31, 1999, revenues increased 143% to
$10.0 million from $4.1 million for the year ended December 31, 1998.
Software sales revenue increased 166% to $7.3 million from $2.7 million in
the year ended December 31, 1998 due to increased sales of our Vector NTI
desktop software and the introduction of our GenoMax enterprise system in late
1998.
Professional services revenue increased 96% to $2.7 million from $1.4
million in the prior year. In 1999, services provided to the NCBI under
subcontracts accounted for 100% of professional services revenue and 27% of
consolidated revenues.
Cost of Revenues. For the year ended December 31, 1999, overall cost of
revenues increased 59% to $2.0 million from $1.3 million in the prior year.
Costs of software license and customer support revenue increased 113% to
$0.4 million from $0.2 million in the prior year. This increase resulted
primarily from increase manufacturing, shipping costs as a result of increased
software license sales and costs of providing training and customer support.
Costs of professional services revenues increased 49% to $1.6 million from
$1.1 million in the prior year. This increase resulted primarily from the
increase in personnel on the NCBI subcontracts.
Selling, General and Administrative Expenses. For the year ended December
31, 1999, selling, general and administrative expenses increased 183% to $7.0
million from $2.5 million in the year ended December 31, 1998. This increase
primarily reflects our large investment in sales and marketing personnel and
includes salary and benefits for an increase in headcount, and increased rent
and travel costs to support our revenue growth.
29
<PAGE>
Research and Development Expenses. For the year ended December 31, 1999,
research and development expenses increased 123% to $2.6 million from $1.2
million in the year ended December 31, 1998. This increase reflects increases
in the headcount for our research and product development team reflecting
expanded product development efforts.
Stock Based Compensation. For the year ended December 31, 1999, stock
based compensation expenses increased 677% to $0.1 million from $0.02 million
in the year ended December 31, 1998. The increase reflects discounted stock
option grants and restricted stock awards.
Income Taxes. We incurred net losses for each of the years ended December
31, 1999 and 1998. At December 31, 1999, we had an accumulated net operating
loss carryforward of $1.3 million. The tax benefit for the years ended December
31, 1998 and 1999 was $0.4 million and $0.7 million, respectively, using an
effective rate of 40.8% and 35.6%, respectively. The decrease in the effective
tax rate is attributable to a reduction in research and development tax
credits, a rate differential in the utilization of net operating losses carried
back to 1997, and compensation expense associated with qualified stock options
in 1999, which is not deductible for tax purposes. The increase in the tax
benefit primarily reflects the increase in net operating losses and the change
in book basis versus tax basis of deferred revenue, which is included in
taxable income at the date of sale but deferred for book purposes.
Net Loss. We incurred a net loss of $1.3 million for the year ended
December 31, 1999 and a net loss of $0.6 million for the year ended December
31, 1998.
Years Ended December 31, 1998 and 1997
Revenues. For the year ended December 31, 1998, revenues increased 87% to
$4.1 million from $2.2 million in the year ended December 31, 1997.
Software sales revenue increased 105% to $2.7 million from $1.3 million in
the prior year due to increased sales of our Vector NTI desktop software.
Professional services revenue increased 61% to $1.4 million from $0.9
million in the prior year. In 1998, professional services provided to the NCBI
under subcontracts accounted for 100% of professional services revenue and 34%
of consolidated revenues.
Cost of Revenues. For the year ended December 31, 1998, overall cost of
revenues increased 69% to $1.3 million from $0.8 million in the prior year.
Costs of software license and customer support revenue increased 399% to
$0.2 million from $0.04 million in the prior year. This increase resulted
primarily from increase manufacturing and shipping costs as a result of
increased software license sales.
Costs of professional services revenues increased 51% to $1.1 million from
$0.7 million in the prior year. This increase resulted primarily from the
increase in personnel on the NCBI subcontracts.
Selling, General and Administrative Expenses. For the year ended December
31, 1998, selling, general and administrative expenses increased 130% to $2.5
million from $1.1 million in the prior year. This increase primarily reflects
increased salary and benefits for an increase in headcount, and increased rent
and travel costs to support revenue growth.
Research and Development Expenses. For the year ended December 31, 1998,
research and development expenses increased 219% to $1.2 million from $0.4
million in the year ended December 31, 1997. This increase reflects increases
in the headcount for our research and product development team reflecting
expanded product development efforts.
Stock Based Compensation. For the year ended December 31, 1998, stock
based compensation expenses decreased 92% to $0.02 million from $0.2 million in
the year ended December 31, 1997. The decrease reflects a reduction of
non-qualified discounted stock option grants.
Income Taxes. We incurred net losses for each of the year ended December
31, 1998 and 1997. At December 31, 1998, we had an accumulated net operating
loss carryforward of $0.3 million. The tax benefit for the years ended December
31, 1997 and 1998 was $0.1 million and $0.4 million, respectively,
30
<PAGE>
using an effective rate of 46.9% and 40.8%, respectively. The decrease in the
effective tax rate is attributable to a reduction in research and development
tax credits in 1998 in comparison to 1997. The research and development tax
credit is the result of qualifying expenditures incurred in relation to the
development of our software products.
Net Loss. We incurred a net loss of $0.6 million for the year ended
December 31, 1998 and a net loss of $0.1 million for the year ended December
31, 1997.
Quarterly Results of Operations
The following table sets forth unaudited quarterly consolidated financial
data and additional data for the five quarters in the period ended June 30,
2000, and includes such data as a percentage of our total revenue for the
periods indicated. The unaudited quarterly consolidated financial data has been
prepared on a basis consistent with the audited consolidated financial
statements, which are included in this prospectus, and include all adjustments,
consisting only of normal recurring adjustments, that we consider necessary to
present fairly this information when read in conjunction with our consolidated
financial statements and notes thereto in this prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999
-------------------- ------------------------ ------------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software license and customer
support .......................... $2,273 79% $ 1,136 59% $2,820 78%
Professional services ............. 618 21 779 41 799 22
------ -- -------- -- ------ ---
Total revenues ................... 2,891 100 1,915 100 3,619 100
Cost of revenues:
Software license and customer
support .......................... 76 3 71 4 187 5
Professional services ............. 388 13 422 22 459 13
------ --- -------- --- ------ ----
Total cost of revenues ........... 464 16 493 26 646 18
Gross profit ....................... 2,427 84 1,422 74 2,973 82
Operating expenses:
Selling, general and
administrative ................... 1,309 45 1,871 97 2,732 75
Research and development .......... 644 22 637 34 831 23
Stock based compensation .......... 9 -- 26 1 86 2
Depreciation and amortization 48 2 78 4 105 3
------ --- -------- --- ------ ----
Total operating expenses ......... 2,010 69 2,612 136 3,754 103
Income (loss) from operations ...... 417 15 (1,190) (62) (781) (21)
Other income (expense):
Investment earnings ............... 1 -- 42 2 22 --
Interest expense .................. (17) (1) (22) (1) (32) (1)
Other ............................. -- (4) -- (7) --
------ ----- ---------- ----- ------- ------
Total other income
(expense) ....................... (16) (1) 16 1 (17) (1)
Income (loss) before income
taxes ............................. 401 14 (1,174) (61) (798) (22)
Income tax provision (benefit) ..... 146 5 (434) (23) (305) (8)
------ ----- ---------- ----- ------- ------
Net income (loss) .................. $ 255 9% $ (740) (38)% $(493) (14)%
====== ===== ========== ===== ======= =====
Headcount:
Number of Personnel
(Cumulative) ..................... 79 104 117
<CAPTION>
QUARTER ENDED
--------------------------------------------------
MARCH 31, JUNE 30,
2000 2000
------------------------ -------------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Software license and customer
support .......................... $ 2,411 75% $ 2,443 74%
Professional services ............. 797 25 858 26
------- -- ------- --
Total revenues ................... 3,208 100 3,301 100
Cost of revenues:
Software license and customer
support .......................... 100 3 132 4
Professional services ............. 425 13 455 14
------- --- ------- ---
Total cost of revenues ........... 525 16 587 18
Gross profit ....................... 2,683 84 2,714 82
Operating expenses:
Selling, general and
administrative ................... 3,424 107 4,141 125
Research and development .......... 961 30 1,510 46
Stock based compensation .......... 556 17 418 13
Depreciation and amortization 148 5 195 6
------- --- ------- ---
Total operating expenses ......... 5,089 159 6,264 190
Income (loss) from operations ...... (2,406) (75) (3,550) (108)
Other income (expense):
Investment earnings ............... 6 -- 9 0
Interest expense .................. (45) (1) (75) (2)
Other ............................. (5) -- (3) 0
------- --- ------- ---
Total other income
(expense) ....................... (44) (1) (69) (2)
Income (loss) before income
taxes ............................. (2,450) (76) (3,619) (110)
Income tax provision (benefit) ..... -- -- -- 0
--------- ----- --------- ------
Net income (loss) .................. $(2,450) (76)% $(3,619) (110)%
========= ===== ========= ======
Headcount:
Number of Personnel
(Cumulative) ..................... 147 173
</TABLE>
Software license and customer support revenues reported on a quarterly
basis from June 30, 1999 through June 30, 2000 increased substantially with the
exception of the quarter ended September 30, 1999. This increase resulted from
increased sales of our Vector NTI Suite and GenoMax enterprise
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<PAGE>
system. For the quarter ended September 30, 1999, sales were lower due to
seasonal fluctuations of software procurement and the deferral of revenue as a
result of the application of revenue recognition criteria in accordance with
generally accepted accounting principles.
Professional services revenue reported on a quarterly basis from June 30,
1999 through June 30, 2000 increased substantially. The addition of a new
subcontract in the quarter ended September 30, 1999 and modifications to
existing contracts for the other reported periods increased the number of
personnel performing services under our subcontracts and therefore increased
the overall professional services revenue.
Software license and customer support costs reported on a quarterly basis
from June 30, 1999 through June 30, 2000 fluctuated throughout the quarters as
a result of manufacturing costs incurred on an as needed basis driven by supply
level.
Professional services costs reported on a quarterly basis from June 30,
1999 through June 30, 2000 increased in relation to the addition of new
contracts and modification of our existing contracts. For the quarter ended
March 31, 2000, there was a decrease in the cost of professional services due
to a decrease in the number of personnel working on the contracts.
Operating expenses reported on a quarterly basis from June 30, 1999
through June 30, 2000 increased as we experienced substantial growth. Expenses
include additional personnel and related salary and benefits expenses,
significant marketing efforts and other costs that support our business and
revenue growth such as travel and rent expense.
MARKETS
Geographically, North America, Europe, and Japan represent our largest
markets, accounting for 68%, 22%, and 5%, respectively, of sales in 2000
through June 30, 2000, and 79%, 17%, and 1%, respectively, of sales in 1999.
All sales to foreign-based customers are invoiced and paid in U.S. dollars. Our
customer base is comprised of companies in the pharmaceutical, biotechnology,
and agricultural-life science sectors, as well as academic and government
research institutes.
LIQUIDITY AND CAPITAL RESOURCES
From our commencement of commercial operations in 1993 until June 1999, we
funded our growth primarily with internally generated cash flow. In June 1999,
we raised $4.0 million in venture financing. At June 30, 2000, we had $2.1
million in cash and cash equivalents, a net decrease of $2.1 million from June
30, 1999, an increase of $0.7 million from December 31, 1999, and an increase
of $1.8 million from December 31, 1998.
During the six months ended June 30, 2000 and 1999 we generated $7.4
million and $4.8 million of gross cash from operations before consideration of
cash outflows, respectively. For the years ended December 31, 1999 and 1998, we
generated $9.0 million and $4.4 million of gross cash from operations before
consideration of cash outflows, respectively. Gross cash used by operations for
the six months ended June 30, 2000 was $11.0 million compared to $4.5 million
for the six months ended June 30, 1999. Gross cash used by operations for the
year ended December 31, 1999 was $11.6 million compared to $4.4 million for the
year ended December 31, 1998. The net increase in cash used by operations over
these periods reflects the continued growth of our business, particularly as
related to personnel and related infrastructure expenses.
Net cash provided by financing activities was $5.5 million for the six
months ended June 30, 2000 compared to net cash provided by financing
activities of $4.0 million for the comparable period in 1999. Net cash provided
by financing activities was $5.1 million for the year ended December 31, 1999
and $0.05 million for the comparable period in 1998. On June 22, 1999 we
entered into a purchase agreement with FBR Technology Venture Partners, LP for
the sale of 2,161,265 shares of our series A redeemable convertible preferred
stock, $0.01 par value. The shares were sold for an aggregate price of $4.0
million, or $1.85 per share.
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<PAGE>
Net cash used in investing activities was $1.2 million for the six months
ended June 30, 2000 compared to net cash used in investing activities of $0.3
million for the comparable period in 1999. Net cash used in investing
activities was $1.4 million for the year ended December 31, 1999 and $0.07
million for comparable period in 1998. The cash used in investing activities
over those periods were for the purchase of furniture and equipment.
In May 1999, we entered into a loan agreement and a security agreement
with PNC Bank, National Association, in connection with the creation of a
credit facility consisting of a secured revolving credit line and an equipment
line of credit. In February 2000, we entered into a fourth amendment to such
loan agreement increasing the maximum availability under each of the secured
revolving credit line and equipment line of credit to $3.0 million, for a total
of $6.0 million. In connection with this amendment, we entered into an amended
and restated revolving credit note and an amended and restated equipment line
of credit note.
The revolving credit note allows us to borrow, repay and re-borrow the
principal thereunder until February 2, 2001. An amount equal to our qualified
accounts receivable is available for borrowing under this note. Amounts
outstanding under the revolving credit note accrue interest at the prime rate
as reported in the Wall Street Journal plus one percent per annum with interest
due and payable each month. The principal and any accrued but unpaid interest
are due and payable on February 2, 2001, or such later date as may be agreed to
by PNC Bank and us.
The equipment line of credit note allows us to borrow the principal amount
thereunder until February 2, 2001. An amount equal to our qualified equipment
is available for borrowing under this note. Amounts outstanding under the
equipment line of credit note accrue interest at the prime rate as reported in
the Wall Street Journal plus one and one-quarter percent. With respect to
advances made prior to November 6, 1999, principal and interest accrued thereon
are payable in monthly principal amounts of $19,727 through and including April
15, 2002. For advances made after November 6, 1999, principal and interest
accrued thereon shall be made in monthly principal payments of $35,607 through
and including October 15, 2002. We have pledged our personal property,
including our equipment, trademarks and accounts receivable, to PNC Bank as
security for any amounts owed by us under these facilities. Under the loan
agreement, we are generally restricted from incurring additional indebtedness
without the consent of PNC Bank. We must also maintain various financial
covenants, including minimum cash balance and certain financial ratios. In
addition, we may not declare or pay dividends or, make any distribution with
respect to any equity security during the term of the loan agreement without
the consent of PNC Bank.
In June 2000, we entered into a fifth amendment to our loan agreement with
PNC Bank, in connection with a $3.0 million bridge loan for operating expenses.
In connection with this facility, we entered into a bridge note covering any
amounts outstanding under the bridge loan. All outstanding borrowings under the
bridge loan together with interest accrued thereon will become due and payable
upon the earlier of (1) December 19, 2000 and (2) the closing date of any
initial public offering of our capital stock or any other equity event in which
we receive an infusion of at least $3.0 million in cash or non-cash assets from
any holder of our capital stock. Generally, in the event that we raise any
funds through venture financing, private placements of our equity securities,
or strategic investors, we are obligated to make a prepayment on the bridge
loan up to the maximum amount outstanding thereunder. Amounts outstanding under
the bridge loan will accrue interest at the prime rate plus 2.5%. We may
currently draw up to $1.5 million and up to $500,000, in increments of
$250,000, in subsequent months up to the $3.0 million maximum amount. All
borrowings under the bridge loan will be secured by our pledge of personal
property under the loan agreement. To date, we have not drawn down any amounts
under this facility and the face amount remains available to us. However, as a
result of our receipt of $10 million from our sale of Series B preferred stock
in August 2000, as described below, we do not currently anticipate drawing down
any amounts under this facility and intend to let this facility expire. In
connection with the bridge loan we issued to PNC Bank warrants to purchase up
to 15,030 shares of our common stock. In the event that any amounts under the
bridge loan remain due on September 19, 2000, we are obligated to issue to PNC
Bank warrants for an additional 10,020 shares. The warrants are exercisable at
$5.99 per share, subject to adjustment for
33
<PAGE>
certain dilutive issuances through June 2007. PNC Bank was also issued certain
registration rights enabling them to request to include the common stock
underlying their warrants in a registration statement filed by us.
In June 2000, we issued, in the aggregate, 557,191 shares of our common
stock in private sale transaction with four accredited investors and received
cash compensation totalling approximately $3.6 million.
On August 16, 2000, we sold 950,747 shares of our Series B redeemable
convertible preferred stock to Amersham Pharmacia Biotech for aggregate
proceeds of $10.0 million in cash. We expect to use the proceeds for working
capital. At the time of issuance of the Series B redeemable convertible
preferred stock, the deemed fair market value of the underlying common stock
was $15.00 per share. Therefore, the proceeds of $10.0 million will be
initially allocated to additional paid-in capital as a presumed beneficial
conversion feature and the entire amount of $10.0 million will be immediately
accreted to the Series B redeemable convertible preferred stock on August 16,
2000. These shares will automatically be converted into 1,587,747 shares of our
common stock at a conversion price of $6.30 per share immediately prior to the
closing of this offering.
In September 2000, PNC Bank established an irrevocable standby letter of
credit in favor of Pacific Gas & Electric Generating Company, in connection
with our execution of a sublease with Pacific Gas & Electric for our new
Bethesda, Maryland headquarters. The amount of this irrevocable standby letter
of credit will not exceed $460,200, and such amount can be drawn in the event
that we are in default under the sublease. The amount of the irrevocable
standby letter of credit is secured by our deposit with PNC Bank of an equal
amount of cash that is designated solely for use under the irrevocable standby
letter of credit. The irrevocable standby letter of credit expires on September
8, 2001. In connection with the sublease for our Bethesda headquarters, we
anticipate obtaining an additional irrevocable standby letter of credit, surety
bond or other form of security for the remainder of our annual rental
obligation of approximately $1.35 million.
We believe that the net proceeds from this offering, our cash flows from
operations and our existing capital resources will be adequate to fund our
operations for the next 24 months, although we may seek to raise additional
capital during that period. See "Risk Factors--We may require additional
funding to execute our business strategy. If that funding is not available, or
not available on terms acceptable to us, we may be required to curtail certain
marketing and product development efforts" for a discussion of the investment
risks associated with the possibility of our need for additional financing.
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities, " which establishes accounting and reporting standards
for derivative instruments and hedging activities. As amended by Statement of
Financial Accounting Standards No. 137, this standard will be effective for us
for the years and quarters beginning after December 31, 2000, and requires that
we recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. We have not
completed the process of evaluating the impact of this statement and are
therefore unable to predict the potential impact that implementing SFAS No. 133
will have on our financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. The
SAB expresses the SEC's views on applying generally accepted accounting
principles to revenue recognition in financial statements. We do not expect the
application of the SAB to have a material impact on our financial statements,
however, certain SEC staff interpretations of the SAB have not been published
and may have an effect on the applicability of the SAB in relation to our
consolidated financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB
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<PAGE>
Opinion No. 25." With the exception of certain provisions that required earlier
application, this interpretation is effective for all applicable transactions
beginning July 1, 2000. We do not expect that the adoption of this
interpretation will have a material impact on our financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 credit facilities that are closely tied to market rates. 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 risks, market risk and
reinvestment risk. We reduce default risk by investing in investment grade
securities. A hypothetical 100 basis point drop in interest rates along the
entire interest rate yield curve would not significantly affect the fair value
of our interest sensitive financial instruments at December 31, 1998 or
December 31, 1999. Declines in interest rates over time will, however, reduce
our interest income and expense while increases in interest rates over time
will increase our interest income and expense.
35
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BUSINESS
OVERVIEW
We are a leading global provider of bioinformatic software solutions.
Bioinformatics involves the application of information technology to the
analysis of genomic, proteomic and other biomolecular data. Genomics is the
study of an organism's genes, and proteomics is the study of proteins and their
role in particular diseases. Our bioinformatic software solutions are designed
to enable researchers to more efficiently organize, share, analyze and
interpret these data that form the genetic blueprint of all organisms.
We believe that our position as a leading global provider of bioinformatic
software is based upon the number of our customers, our revenues and the size
of our organization. Since introducing our Vector NTI Suite of software
applications for desktop computers in 1993, we have sold our products to over
1,300 organizations worldwide, including over 500 biotechnology, pharmaceutical
and agricultural biotechnology companies, and over 800 academic and government
research institutions. Our customers include:
o Merck & Company,
o Genzyme Corporation,
o Procter & Gamble,
o Johnson & Johnson,
o Bristol-Myers Squibb,
o Pfizer,
o AstraZeneca,
o Diversa Corporation,
o Novartis Agribusiness Biotechnology Research,
o the Whitehead Institute for Biomedical Research,
o Massachusetts Institute of Technology,
o University of Tokyo, and
o the National Institutes of Health.
Our principal software products are our Vector NTI Suite for desktop
computers and our more powerful and expensive GenoMax enterprise platform for a
network of computers linked together for sharing data and computation. Driven
primarily by increased sales of Vector NTI Suite and the introduction of
GenoMax in late 1998, our products and complementary services generated $10.0
million in revenues in 1999, representing a four-year compound annual growth
rate of 105%, and a 143% increase over 1998.
Building on our existing market penetration, we intend to grow our
business through increased software sales and add new revenue through
professional services, content channeling and distribution alliances and
e-commerce offerings. In August 2000, we entered into a long-term strategic
relationship with Amersham Pharmacia Biotech, a subsidiary of Nycomed Amersham,
to jointly develop and market an expanded version of GenoMax to provide an
enterprise-wide data analysis system for pharmaceutical and biotechnology
companies, for integrating and analyzing data from genomics, proteomics and
drug screening production laboratories.
As of September 27, 2000, we employed 205 people, including a sales and
marketing team of 54, a research and product development team of 95 and an
implementation and support staff of 25.
INDUSTRY BACKGROUND
Bioinformatics combines the fields of molecular biology, information
technology, and Internet communications. Bioinformatic software enables
researchers, using automated laboratory research techniques, to efficiently
organize, share, analyze, and interpret genomic, proteomic and other
biomolecular data. Genomic and proteomic factors dictate cellular functions,
susceptibility to disease, and physical characteristics. Researchers expect
that analysis of such data will lead to new ways to diagnose, treat, and
ultimately prevent many of the thousands of disorders that affect humans.
Genomic research involving other organisms, including plants, animals,
bacteria, and viruses, could yield further advances regarding human disorders,
as well as improvements in agricultural production, industrial processes and
environmental management.
36
<PAGE>
Research is Producing a Flood of Genomic and other Biomolecular Data.
Around the world, researchers in industry, academia, and government are
producing vast quantities of biomolecular data. Much of this data is related
to:
o DNA sequence: the order of chemical subunits, called nucleotide bases,
that make up strands of DNA found in the cells of every living organism
and which encode genetic information;
o gene variation, function and expression: the variation in specific
sequences of nucleotide bases found on chromosomes, called genes, that
control the presence of hereditary traits; the biological function of
those sequences; and the degree to which a gene's information is
translated into the production of proteins within a cell; and
o protein structure and function: the sequence of chains of amino acids,
the building blocks of proteins, their 3D structures and the means by
which they direct the regulation, growth and repair of cells, tissues and
organs.
Numerous emerging laboratory technologies, including biochips and
microarrays, are automating and accelerating the generation of much of this
data. The following examples indicate the rapid increase in available data:
o On June 26, 2000, the Human Genome Project, an international
collaboration of academic and government research institutes, and Celera
Genomics, each pursuing the parallel goal of deciphering the human genome,
jointly announced that they had assembled the world's first working draft
of the entire human genetic code, consisting of approximately 3.12 billion
chemical nucleotide bases.
o GenBank, a National Institutes of
Health sponsored public repository
of genetic sequences of humans and
over 47,000 other organisms,
increased from approximately
555,000 complete sequences in 1995
to over 8.2 million complete [GRAPHIC OMITTED]
sequences as of August 2000.
GenBank's database of nucleotide
bases increased from approximately
385 million bases in 1995 to over
9.5 billion bases as of August
2000. The parallel chart reflects
the growth in GenBank data through
August 2000.
Bioinformatic Software Efficiently Stores, Organizes and Integrates Growing
Volumes of Biomolecular Data.
A central problem now facing researchers is how to store, organize and
integrate complex and rapidly growing data sets. Bioinformatic software can
incorporate a relational database, enabling researchers to efficiently store,
organize and search proteomic and genomic data according to the properties of
relevant data objects. Bioinformatic software can also provide a user-friendly
interface for efficient access to numerous in-house and Internet-based
databases of biomolecular information.
Bioinformatic Software Transforms Primary Data into Useful Knowledge.
The true value of the rapidly growing mass of genomic and proteomic data
lies in the transformation of these data into advances in drug discovery and
development, clinical diagnostics, agricultural production, environmental
management, and industrial processes. Bioinformatic software allows researchers
to incorporate proprietary and third party analytical algorithms and analysis
tools to interpret and translate data into useful knowledge for application
across a variety of disciplines. Bioinformatic
37
<PAGE>
software can also automate database queries, analyses and reporting of research
results. Automated analysis is important because as biomolecular databases
grow, researchers must continuously update their analyses to reflect these new
data.
Bioinformatic Software Facilitates Collaboration among Researchers.
Due to the volume and complexity of biomolecular data, efficient
collaboration among researchers within and across organizations is required to
accelerate productivity. Within large pharmaceutical companies, related
research efforts are often conducted across numerous research departments in
different locations. The Human Genome Project, carried out at academic and
government research institutes around the world, represents an example of
inter-organizational collaboration. Internet and intranet-enabled bioinformatic
software solutions such as our Vector NTI Suite and GenoMax enterprise platform
serve as an information bridge allowing researchers to share data and results,
collaborate in analyses and better coordinate their efforts.
Bioinformatic Software Provides an Efficient Interface for Online Data Sources.
Currently, researchers can access over 500 public domain databases
containing genomic, proteomic and other biomolecular data over the Internet.
For example, the National Center for Biotechnology Information (NCBI) provides
access to GenBank and its other databases through its Internet website, which
is used on average by more than 140,000 users per weekday who initiate an
average of over 4 million queries per day. In addition, commercial providers of
genomic, proteomic and other biomolecular data often provide customers with
access to proprietary data through the Internet. Bioinformatic software can act
as a researcher's interface with diverse online databases. The Internet also
enables the distribution of bioinformatic software, the use of bioinformatic
software maintained on remote computers, and the online purchase of products
used in laboratory experiments.
MARKET OPPORTUNITIES IN BIOINFORMATICS
The Market for Bioinformatic Software is Large and Increasing.
An August 2000 independent industry report by Front Line Strategic
Management Consulting estimates the world-wide bioinformatics market,
consisting of sales by providers of analytical software, enterprise systems and
data, at approximately $468 million in 2000, growing to approximately $2.0
billion in 2005 and approximately $5.4 billion in 2010. We believe that this
growth is being driven in part by organizations increasingly turning to
external vendors of bioinformatic software solutions, allowing them to focus on
their core research competencies. We believe that market growth for
bioinformatic software solutions is driven by several factors common to all
industries engaged in biological research, including:
o the difficulty of managing and integrating the rapidly increasing volumes
of available biomolecular data;
o increased demand for productivity and cost efficiency by researchers
engaging in biological discovery;
o the advantages of making front-end technology investments to avoid costly
failures later in the research and development process; and
o the opportunity to claim valuable patent rights on biomolecular
information underlying diseases, human behavior, agricultural
productivity, environmental management, industrial processes, and other
areas.
We believe that our software products provide researchers with an
efficient means by which to access disparate data sources and give them the
tools to rapidly interpret, analyze and translate such data for application in
numerous disciplines. Given the market opportunities created by the
applications of genomic, proteomic and other biomolecular data, and the
efficiency and productivity gains that can be achieved through the use of
bioinformatic software, we believe that the market for our software solutions
will continue to increase.
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Target Markets for Bioinformatic Software Applications
Bioinformatic software facilitates increased research efficiency,
productivity and collaboration in the numerous disciplines that apply a data
driven, genomic approach to biological discovery. In 1997, there were
approximately 373,500 scientists and engineers engaged in research and
development in the life sciences and related science fields, including 171,700
in commercial organizations and 201,800 in academic and government research
institutions. We believe that the current and future markets for bioinformatic
software products include all of the industries participating in the genomic
revolution, including:
Pharmaceutical and Biotechnology Companies. There are over 250
pharmaceutical companies and 2,000 biotechnology companies worldwide. In
1999, pharmaceutical companies are estimated to have spent approximately
$20.1 billion in research and development in the United States alone. In
addition, U.S. biotechnology companies are estimated to have spent
approximately $9.9 billion in research and development. Current estimates
suggest that over 90% of potential drug candidates fail at some point in
the development process and that bringing a new drug to market costs
approximately $500 million and requires an average of 15 years in
development. In an effort to increase the number and quality of marketable
drug candidates, pharmaceutical and biotechnology companies are
increasingly moving away from the trial-and-error approach of conventional
laboratory research to a more effective, data-intensive, genomic approach
to drug discovery.
Academic and Government Research Institutions. Academic and government
research institutions, including the international institutions that make
up the Human Genome Project, have been significant participants in
biomolecular research and the advancement of genomics. Public spending on
such research is expected to increase rapidly over the next several years.
Government funding for the National Institutes of Health increased from
$13.6 billion in 1998 to $15.6 billion in 1999. The National Institutes of
Health budget, over 65% of which is expected to fund grants to researchers
and support internal research efforts, is expected to reach $17.8 billion
in 2000, a 14% increase over 1999.
Agricultural, Environmental and Industrial Biotechnology Companies.
Greater knowledge about plant and animal genomes may enable researchers to
engineer stronger, more disease resistant plants and animals, resulting in
increased farming and livestock productivity. Researchers may use such
knowledge to develop more nutritious and pesticide free foods and cultivate
enzymes that aid in industrial processes and environmental management. By
reducing discovery and development costs, bioinformatic software may
facilitate the creation and commercialization of agricultural,
environmental and industrial products and technologies that might otherwise
be cost prohibitive and therefore unable to gain broad market acceptance.
Emerging Clinical Genomics Industry. Industry participants expect
genomics and the study of genetic variation to play a central role in the
market for clinical diagnostics and the emerging market for customized drug
therapies. Through the analysis of genomic data, researchers are gaining
improved understanding of disease onset and progress and are working to
translate these findings into earlier-stage and more accurate diagnostic
tests. In addition, researchers engaged in the emerging pharmacogenomics
field are seeking to determine how the millions of tiny genetic variations
among individuals impact drug response, and thereby develop a more
personalized approach to medicine.
OUR SOLUTION
In response to the challenges and market opportunities presented by the
genomic revolution, we develop and deliver to our customers a portfolio of
proprietary bioinformatic software products and complementary services.
Our software products are flexible and scalable and are designed to
integrate with one another. Our software products provide access to public and
commercial databases and are designed to provide e-commerce connectivity with
vendors of laboratory reagents for use in actual experiments. Our products are
designed to be stand-alone applications or Internet-hosted applications
provided through application service providers. Our current and announced
product portfolio includes:
o Vector NTI Suite, a comprehensive desktop analysis and visualization
toolset for the laboratory scientist engaged in genomic and protein
sequence research. Vector NTI Suite
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contains modules that enable researchers to store, manage, assemble and
analyze biomolecular data. Vector NTI Suite is designed to reflect and
simulate the workflow and analytical processes used by a laboratory
researcher. Launched in 1993, Vector NTI Suite is offered for both
Microsoft Windows and Apple Macintosh operating systems. To date we have
sold over 9,000 licenses for Vector NTI Suite, with more than 20,000
estimated users, to over 1,300 organizations engaged in genomic research.
o Vector Enterprise, designed for researchers working in larger groups, or
who collaborate with others on sequence analysis projects. Using a shared
Oracle relational database, Vector Enterprise is an enhancement to the
Vector NTI Suite that allows users to share data and results in a secure
environment. We commercially released Vector Enterprise on September 29,
2000.
o GenoMax, a large-scale modular, enterprise-wide data mining application
that integrates multiple genomic data types and enables researchers to
automate complex analysis tasks. GenoMax enables researchers to
efficiently store, search, manage and analyze large amounts of
biomolecular data. GenoMax facilitates research collaboration and is
designed for a coordinated effort by a diverse team of scientists within
or across organizations. Since its launch in late 1998, we have made 20
sales of GenoMax.
Through the continued expansion and enhancement of our product offerings
to meet the needs and preferences of our customers, we seek to establish our
software products as the effective industry standard for bioinformatic
solutions.
OUR ADVANTAGES
We believe that our competitive strengths, including those listed below,
position us to continue to be a global leader in bioinformatic software
solutions:
Superior Products and a Broad Product Portfolio
Benefiting from years of user feedback, we have tailored our product
portfolio to meet the current and anticipated needs and preferences of
biomolecular researchers. Our software solutions are flexible and scalable, can
integrate with each other and can incorporate proprietary and third party
analytical algorithms and data sets. Our products contain advanced analysis,
visualization and simulation tools and reflect the natural workflow of the
laboratory scientist. Our product portfolio includes Vector NTI Suite for
individual researchers or groups of researchers, via our Dynamic License Server
which provides numerous users concurrent access from a centralized server.
Vector Enterprise provides a Vector NTI Suite user group with the additional
advantages of a shared relational database. GenoMax is a modular enterprise
platform that can scale to meet the needs of smaller biotechnology or academic
customers as well as major pharmaceutical companies and research institutions.
We believe that our broad product offering and the sophisticated and
user-friendly functionality of our products give us a competitive advantage in
the market for bioinformatic solutions.
Superior Bioinformatic Engineering Staff
Software engineering for commercial-grade bioinformatic applications
requires a high level of understanding of software programming, molecular
biology and market requirements. Our development teams are guided by experts in
molecular biology and include professional software engineers trained in
computer science, statistics, mathematics, and physics. Our product development
staff has functional expertise in C/C++, Java, MS Windows, Apple OS, UNIX,
object-oriented design, system-level programming, relational database design
and development (including Oracle), graphical user interface programming,
bioinformatics and molecular biology. Our product development staff has played
a significant role in developing a customized data delivery platform for the
NCBI's GenBank, ENTREZ and PubMed/MEDLINE online genomic databases. As of
September 27, 2000, we had 95 employees dedicated primarily to research and
product development.
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Large Existing Customer Franchise
We are currently a leading provider of bioinformatic software and have
attained a significant level of industry acceptance for our products.
Introduced in 1993, we have sold over 9,000 licenses for our Vector NTI Suite,
with more than 20,000 estimated users, to over 1,300 commercial, academic and
government research institutions, including almost all major pharmaceutical
companies and over 400 biotechnology companies. Since its introduction in late
1998, we have made 20 GenoMax sales to pharmaceutical, biotechnology, and
academic customers, including DuPont, Pioneer Hi-Bred International, Inc.,
Genzyme Corporation, BASF AG, the Whitehead Institute for Biomedical Research,
Massachusetts Institute of Technology and the University of Tokyo. Since
October 1994, we have provided software development services to the NCBI at the
National Institutes of Health, the leading public sector provider of primary
genomic and biomolecular data.
Vector NTI Suite's Market Penetration which Creates Opportunities for New
Products and Business Lines
Our Vector NTI Suite represents an important strategic and competitive
advantage, providing buyers with a lower cost means to validate the quality and
utility of our software solutions. Moreover, our desktop and enterprise
applications integrate with one another and allow researchers to share data and
research results between the applications. We believe that connectivity between
desktop and enterprise solutions and vendor familiarity are important factors
in the selection of an enterprise solution. We believe that for many of our
1,300 Vector NTI Suite customers, these considerations will give GenoMax an
important advantage over competing enterprise platforms. Of our 20 sales of
GenoMax, 16 were to existing users of our Vector NTI Suite. We believe that we
can leverage our significant Vector NTI Suite customer base to add revenues
through new products and business lines, including additional professional
services, content channeling and distribution alliances, and e-commerce
offerings.
Superior Sales and Marketing Capabilities
We have funded our growth primarily with internally generated cash flow.
As a result, our sales and marketing team is focused on execution and committed
to achieving leadership in the markets we serve. We have built an aggressive 54
person sales and marketing organization whose mission is to establish our
products as the standard in the bioinformatics industry. In an effort to gain
further market penetration and increase our brand awareness, we have
co-marketed our products with technology leaders, including Compaq, Oracle, and
Sun Microsystems. In August 2000, we entered into joint marketing and
development agreements with Amersham Pharmacia Biotech, a life sciences
technology company. We currently maintain a staff of 25 representatives to
provide software implementation and integration services and technical and
customer support to our existing customer base. In an effort to ensure that our
development pipeline satisfies evolving market needs and preferences, leaders
from our product development, implementation and support, and sales and
marketing teams regularly share customer feedback.
OUR STRATEGY
Our goal is to become the leading provider of bioinformatic software
solutions and establish our products as the effective industry standard.
Elements of our strategy to achieve these goals include:
Expand Our Customer Franchise Through Sales of Vector NTI Suite
We have expanded our Vector NTI Suite customer base to over 1,300
organizations. We intend to expand and further penetrate our existing Vector
NTI Suite customer base. To execute this strategy, we intend to continue to
improve our technologies and introduce advanced functionality to Vector NTI
Suite, including enhanced Internet connectivity. We also intend to broaden our
sales and marketing efforts and establish and expand upon our co-marketing and
strategic relationships in order to expand our desktop customer base.
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Build on Vector NTI Suite's Market Penetration to Establish GenoMax as the
Leading Enterprise Platform
We intend to leverage the market acceptance of Vector NTI Suite to build
recognition and penetration of our GenoMax enterprise platform. Of our 20
GenoMax sales, 16 were to existing users of our Vector NTI Suite. We
commercially released our Vector Enterprise product on September 29, 2000 and
we expect to employ a similar strategy of leveraging the existing acceptance of
our Vector NTI Suite. We also intend to continue to establish strategic
industry relationships that validate the effectiveness and utility of GenoMax
and maximize market opportunities for our enterprise bioinformatic products.
Leverage Our Customer Base for New Business Lines
We intend to leverage our significant customer base to add revenues
through various sources including new business lines and services. These
offerings include:
Professional Services. We provide installation, integration,
customization, maintenance, support and user training to our GenoMax and larger
Vector NTI Suite customers on a fee for service basis. We believe that we will
be able to increase market penetration and customer loyalty for our software
solutions by increasing the value-added professional services that we provide
to our customers.
Channeling and Distribution Alliances. We seek to enter into alliances
with selected data content and technology providers and to integrate and market
their biomolecular data and specialized bioinformatic hardware along with our
software products. To date, we have entered into four agreements to resell
third party genomic content or technology hardware.
e-Commerce Offerings. Vector NTI Suite allows researchers to design and
simulate laboratory experiments and provides researchers with recommendations
for reagents, enzymes and other specific genomic material necessary to execute
actual laboratory experiments. We intend to incorporate Internet hyperlinks
into Vector NTI Suite that will enable users to purchase these materials
directly from partnered vendors. We expect to generate transaction fees from
our partnered vendors for providing them access to our user base at the point
of their research decisions.
Enhance and Expand our Technology
We intend to continue to enhance and expand our bioinformatic software
products and technology to meet evolving customer needs and preferences. We
intend to aggressively attract and retain additional personnel for our research
and product development group including skilled software engineers, information
technology professionals and experts in molecular biology. On September 15,
2000, we commercially released GenoMax 3.0 containing significant product
enhancements. On September 29, 2000, we commercially released our Vector
Enterprise product for use in collaborative sequence analysis projects. We
intend to pursue opportunities to develop products for new applications,
including clinical diagnostics and personalized drug therapy.
Establish Strategic Relationships to Maximize our Revenues
We intend to enter into strategic relationships with selected partners to
expand our customer base and product distribution channels, including:
o Co-Marketing Relationships. We intend to continue to establish and expand
our co-marketing relationships with leading organizations in our target
markets. We believe that these relationships will significantly increase
global market awareness of and receptivity to our software products. We
have established co-marketing relationships with technology leaders
including Compaq, Oracle, and Sun Microsystems. In August 2000, we entered
into joint marketing and development agreements with Amersham Pharmacia
Biotech, a life sciences technology company.
o Internet-hosted Software Delivery Alliances. We intend to provide our
customers with access to our software products through Internet-hosted
services. We expect that by providing our software through an application
service provider's Internet-based network, we will be able to accelerate
the
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the deployment and facilitate the management of our software solutions. In
January 2000, we entered into an agreement with an application service
provider and, in the third quarter of 2000, we made our bioinformatic
software solutions available through its Internet-based hosting network.
Engage in Acquisitions and Strategic Investments
Where appropriate, we will pursue acquisitions and strategic investments,
both domestically and internationally, to enter new markets and accelerate the
development of comprehensive solutions to our customers' needs. We believe that
through acquisitions and strategic investments, we may be able to add
complementary technologies, products and services, and expand our customer
base.
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OUR PRODUCT AND SERVICE LINES
SOFTWARE PRODUCTS
--------------------------------------------------------------------------------
VECTOR NTI SUITE: suite of desktop applications
designed for individual scientists engaged in
genomic and proteomic
research
<TABLE>
<CAPTION>
VERSION MODULES FUNCTIONS
<S> <C> <C>
VECTOR NTI SUITE 6.0 VECTOR NTI data analysis and visualization
(released Q2 2000) BIOPLOT sequence analysis
ALIGNX multiple sequence alignments
CONTIGEXPRESS sequence fragment assembly
3D MOL structure analysis and visualization
<S> <C>
VECTOR ENTERPRISE (released Q3 2000):
incorporates a shared relational database into a network of Vector
NTI Suite applications to enable real-time collaboration among multiple
researchers in a secure environment
GENOMAX ENTERPRISE: large-scale, modular, enterprise-wide data mining and analysis application
</TABLE>
<TABLE>
<CAPTION>
VERSIONS MODULES FUNCTIONS
<S> <C> <C>
GENOMAX 3.0 SEQUENCE ANALYSIS similarity searches, sequence alignments and annotation
(released Q3 2000)
GENE EXPRESSION ANALYSIS management and visualization of microarray data
PROTEIN 3-D STRUCTURE analysis and prediction of protein molecular structure
FUTURE GENOMAX VERSIONS GENOME VIEWING chromosome and expressed sequence tag (EST) mapping
PROTEIN-PROTEIN INTERACTION analysis of protein intracellular behavior
SNP ANALYSIS genetic variation analysis
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
PROFESSIONAL SERVICES
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Consulting and software development
SOFTWARE DEVELOPMENT services provided under contract
<S> <C>
IMPLEMENTATION AND Software installation, integration
and customization for GenoMax
customers
SUPPORT SERVICES
--------------------------------------------------------------------------------
</TABLE>
CHANNELING AND DISTRIBUTION ALLIANCES
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Partnerships to integrate and
distribute third party data content
and to distribute
CONTENT CHANNELING AND specialized bioinformatic hardware
HARDWARE RESELLING with our software
<S> <C>
E-COMMERCE PARTNERING Partnerships to enable Vector NTI
Suite customers to use hyperlinks to
make
online purchases of laboratory
reagents, including those specified
by Vector NTI
Suite's decision support functions
</TABLE>
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Software Products
Our portfolio of software products currently includes our Vector NTI Suite
desktop application, our Vector Enterprise product and our GenoMax enterprise
platform.
Vector NTI Suite
Vector NTI Suite is a comprehensive, integrated analysis and visualization
software toolset for scientists working with genomic and proteomic data. We
launched our first desktop application in 1993 and released Vector NTI Suite
6.0, our sixth generation desktop product, in June 2000. Vector NTI Suite
consists of five modules, each of which is described below:
o Vector NTI. Vector NTI provides the desktop researcher with bioinformatic
tools to create, analyze, map, manage, and graphically represent
biological data. Vector NTI incorporates an object-oriented database for
the storage and organization of DNA and protein sequence data and
biomolecular materials used in the cloning of disparate DNA molecules
called recombinant cloning. These recombinant cloning materials include
vectors, plasmids, oligonucleotides, gel markers, and restriction enzymes,
which can be organized and stored. The database can be sorted, customized,
and searched according to the properties of relevant data objects. Vector
NTI has the ability to design recombinants based on built-in biological
knowledge and selected user preferences which accelerates the complex and
time-consuming process of designing cloning experiments. By developing
cloning strategies before performing actual laboratory work, users save
valuable research time, reduce reagent costs, and enhance the prospects
for a successful cloning experiment. Through its simulation function,
Vector NTI recommends necessary protocols and reagents to complete the
experiment. Vector NTI includes tools for cutting DNA sequences known as
restriction enzyme analysis and for amplifying a DNA sequence called PCR
primer design. Vector NTI also enables the study and induction of
mutations known as mutagenesis analysis and the separation of DNA
fragments and proteins called gel electrophoresis. Through Vector NTI's
sophisticated graphical user interface, researchers can visualize their
data and results of analysis.
o BioPlot. BioPlot is a protein and nucleic acid sequence analysis tool
that plots more than fifty different pre-defined physical and chemical
protein analysis types and links them with feature maps and actual
sequences. Amino acid scaling allows visualization of the distribution of
the structural and chemical properties of amino acids along a molecular
chain, providing clues as to the functional properties of protein regions
or domains. These functional properties allow researchers to more quickly
identify and understand regions of interest in molecules under study.
o AlignX. AlignX allows researchers to create and edit multiple sequence
alignments of proteins or nucleotides. The multi-pane view allows relevant
domains in individual sequences to be linked, localized and compared in
their alignment and in plots of similarity and sequence complexity,
referred to as homology. AlignX integrates actively with Vector NTI and
can read a multitude of data formats, a capability common to every module
in the Vector NTI Suite.
o ContigExpress. ContigExpress allows the user to take small analyzed
sequence fragments, either in text format or from sequencing
chromatograms, the output from automated sequencing equipment, and
visually assemble them together into a longer, contiguous sequence.
ContigExpress further allows the user to edit the fragments directly, with
the chromatograms in full view, while it tracks all the changes made. The
ability to simultaneously show sequence and trace data allows the
researcher to inspect the relative intensity of the sequencing
chromatogram and modify the called base, if needed.
o 3D MOL. Released as part of Vector NTI Suite 6.0, this tool enables
researchers to analyze and visualize molecule structures using numerous
display modes. 3D MOL enables researchers to manipulate the 3D structure
of protein and DNA sequences correlated to their constituent to amino
acids and nucleotide sequences. The analytical features of 3D MOL enable
researchers to measure distances and angles within molecules.
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Benefits of Vector NTI Suite
The benefits of our Vector NTI Suite include:
o Integrated Software Suite. Vector NTI Suite includes a fully searchable
database template that allows researchers to store and manage DNA
sequences, protein molecules, enzymes, and other biomolecular data. Vector
NTI Suite allows users to perform analyses involving several integrated
applications and to store and move data objects between the components of
the desktop suite without reformatting between applications.
o Open Architecture. Vector NTI Suite is offered for both Windows and
Macintosh operating systems and can accommodate data in numerous text
formats used in the research world including FASTA, GenBank, EMBL,
SWISS-PROT, GenPept and ASCII. The software can run from a single static
license for one machine or with our Dynamic License Server that can
allocate a pre-defined number of users running the software on a
centralized server. The Dynamic License Server creates an easily scalable
environment, where the number of concurrent licenses can be set according
to the expected usage.
o Research Logic System Reflects Scientists' Natural Workflow. Vector NTI
Suite eliminates many of the time-consuming laboratory design and
execution processes by generating protocols and suggestions for cloning
strategies, PCR primers and DNA fragment assembly called oligo design,
restriction fragment analysis, mutagenesis analysis, protein and DNA/RNA
analyses, multiple sequence alignments, and contig assembly. Researchers
are also able to use the graphical features of Vector NTI Suite to produce
presentation quality materials describing the results of their research.
o Internet Connectivity. Vector NTI Suite provides connectivity to over 20
Internet sites for searching and importing fully annotated molecules back
into Vector NTI Suite for further manipulation and analysis. Vector NTI
Suite can analyze these data along with data collected from internal
research as well as data from other publicly available sources. Vector NTI
Suite 6.0 incorporates enhanced Internet connectivity, providing users
with e-commerce capability directly through our software. We intend to
enter into partnering arrangements by which this feature will allow users
to purchase through the Internet reagents suggested by Vector NTI Suite
and other biomolecular material necessary to conduct actual laboratory
experiments.
o Transparent Data Searching. Vector NTI Suite 6.0 allows researchers to
conduct BLAST homology searches and query the ENTREZ and PubMed/MEDLINE
databases at the NCBI through the desktop application without the need for
a web browser. BLAST is the NCBI's basic local alignment search tool and
involves the use of an algorithm to search online databases to compare any
newly discovered DNA or protein sequence with known sequences. The results
of this algorithm, which allows the identification of regions of
similarity between sequence data, can be stored and managed by Vector NTI
Suite. The ENTREZ and PubMed/MEDLINE search system allows researchers to
search the NCBI databases of biomolecular data and perform scientific
literature searches. Results of such searches can be stored and managed by
Vector NTI Suite for later use or presentation.
o Application Facilitates Research Collaboration. Vector NTI Suite allows
researchers to share and exchange data and research results from their
individual databases between several installations of Vector NTI Suite. In
addition, Vector NTI Suite supports special document types that can be
used as "packagers" for heterogeneous data and research results.
Geographically distributed users may exchange these documents and use
Vector NTI Suite's graphical viewers to visualize each others' research
results.
Vector Enterprise
Our Vector Enterprise database software is designed for biologists working
in larger research groups, or those who need to work collaboratively with
others on sequence analysis projects. Vector Enterprise is an enhancement to
the basic Vector NTI Suite and relies on a shared Oracle relational database to
store user data and results. This product is coupled with the desktop database
already
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present in the Vector NTI Suite and permits multi-user access and data sharing
across entire companies or organizations by all researchers using Vector NTI
Suite, with secure data storage and analysis. We commercially released the
first version of Vector Enterprise on September 29, 2000.
GenoMax Enterprise Solutions
GenoMax is a large-scale, enterprise-wide, data-mining application that
enables research organizations to store, manage, integrate and analyze large
amounts of genomic and proteomic data from disparate sources. GenoMax
incorporates proprietary and third party analytical tools that perform complex
integrated analyses across multiple experiment types that are not possible on
desktop programs. GenoMax relies upon our user-friendly, Java-based Research
Logic interface system and maintains an open architecture that allows new tools
and proprietary algorithms to be incorporated into the GenoMax framework. The
GenoMax architecture supports access to the system through Intranet, wide area
network or dedicated Internet connectivity, while preserving data security and
integrity. GenoMax enables multiple users to collaborate in the design and
execution of research ranging from molecule analysis and annotation to complex
bioinformatic algorithms. The combination of a collaborative environment and
sophisticated data-mining and management capabilities makes GenoMax an
effective tool for coordinated genomics research.
GenoMax was originally launched under the brand name Software Solution for
Bio-Medicine in September 1998. GenoMax 3.0, which was commercially released on
September 15, 2000, includes a gene sequence analysis module with functionality
including database similarity searches, multiple sequence alignments, sequence
annotation and visualization, and restriction enzyme analysis. GenoMax 3.0 also
includes enhancements such as fully distributed computing for analyses, data
management and storage in order to achieve improved scalability and to fully
utilize a client's existing computing infrastructure.
GenoMax Enterprise Solutions Modules
The following describes modules that are included in GenoMax 3.0 as well
those modules that are currently in development and expected to be included in
future versions of our GenoMax enterprise solution:
o Sequence Analysis: for database similarity searches including BLAST and
FASTA, multiple sequence alignments, sequence annotation and
visualization, restriction enzyme analysis, automated search agents and
proprietary sequence comparison tools. This module is available as part of
GenoMax 3.0.
o Gene Expression Analysis: for management, analysis and visualization of
microarray data. This module is available as part of GenoMax 3.0.
o Protein 3D Structure: for prediction and analysis of tertiary structures
of proteins including molecular structure. This module is available as
part of GenoMax 3.0.
o Genome Viewing: for visualization and analysis of chromosome maps and
mapping of expressed sequence tag (EST) clusters, transcripts, and genomic
sequences. This module is currently in development.
o Protein-Protein Interactions: for analysis of protein intracellular
behavior. This module is currently in development.
o Single Nucleotide Polymorphism (SNP) Analysis: designed to manage rapidly
growing volumes of data on these tiny genetic variations, this module is a
key analysis tool for research in pharmacogenomics. This module is
currently in development.
Benefits of GenoMax
The benefits of our GenoMax enterprise solution include:
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o Collaboration-Oriented Architecture. GenoMax is a client-server software
solution that allows collaboration within and across organizations.
Multiple users may simultaneously search and analyze large quantities of
data and share their results. Computationally intensive algorithms run on
the server side, while the results are delivered on the client side
through an intuitive Java-based graphical user interface, enabling
real-time feedback with the central server, other users, and with third
parties. GenoMax secures research analyses behind a corporate firewall and
incorporates a flexible hierarchy of user rights, giving managers control
of research projects and permitting administrators to customize their
security needs by adding and deleting authorized users as necessary.
o Large-Scale Data Processing / High Throughput Research. GenoMax is
designed to accommodate the needs of research institutions that analyze
large amounts of genomic, proteomic and biomolecular data from multiple
sources. The Oracle relational database system that is integrated into
GenoMax automatically updates databases from public and subscription
sources and includes alert mechanisms that notify users when new data has
been imported. Data can be accessed and analyzed by researchers manually
or automatically through GenoMax's High Throughput Research system which
allows researchers to create sophisticated analysis protocols and apply
them to process data on a 24-hour basis.
o Flexible Bioinformatic Framework. GenoMax supports a wide range of
data-mining algorithms, including BLAST, FASTA, HMM, flexible pattern
search, ORF analysis, and homology blocks search. GenoMax's architecture
is open, scalable, secure, and easily extended so that our customers may
incorporate client-developed and publicly available algorithms and
solutions. To enhance efficiency, GenoMax includes data management tools
for organized storage and analysis and employs results filtering to select
the most useful results according to user specifications.
Professional Services
Software Development. As part of our growth strategy, we have developed,
and intend to expand, our partnerships with genomic content providers. These
relationships provide us with additional revenue opportunities, and broaden,
validate, and reinforce our bioinformatic capabilities and brand recognition.
Since October 1994, we have provided software development services to the NCBI,
a division of the National Library of Medicine at the National Institutes of
Health. NCBI maintains the world's largest databases of genomic and other
biomolecular data, which are available via the Internet to all participants
engaged in genetic and biological research. We have played a significant role
in the development of the public content delivery interfaces for the NCBI's
databases, including GenBank, ENTREZ, and PubMed/MEDLINE. Our relationship with
NCBI allows us to work with the world's largest genomic and biomolecular
databases, covering diverse sets of information. NCBI contracts for these
services through intermediaries for whom InforMax is a subcontractor. These
government contracts may be terminated on the behalf of the NCBI at any time.
Implementation and Support Services. Our implementation and support
services group provides installation, integration, customization, and
maintenance support to our customers. We provide professional services on a fee
for service basis for our GenoMax and larger Vector NTI Suite customers. Our
implementation and support group includes professionals experienced in
implementing our software in conjunction with systems manufactured by leading
technology companies including Compaq, Oracle, and Sun Microsystems. We respond
to requests for customer support through numerous channels. Our service group
also provides training and educational programs to researchers using our
products.
Channeling and Distribution Alliances.
Content Channeling Relationships. We have entered into and intend to
continue to seek distribution or reselling agreements with various biomolecular
data content providers to sell subscriptions to their data sets to our GenoMax
and Vector NTI Suite customers. These alliances leverage our market presence
and use our software as an integration and analysis tool for the data content
of our partners.
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Through such arrangements, we seek to share in ongoing subscription content
revenues and receive a portion of milestone payments and royalties resulting
from end-user discoveries derived from this content. To date, we have entered
into alliances with the following organizations:
o AxCell Biosciences Corporation. In August 1999, we entered into an
agreement with AxCell Biosciences, a wholly owned subsidiary of Cytogen
Corporation, to market AxCell's proprietary protein-protein interaction
database with our GenoMax enterprise product. AxCell is a leader in the
production of protein-protein interaction data. Under this agreement, we
will develop and market, on a subscription basis, a product that couples
AxCell's proprietary protein databases with our GenoMax enterprise
platform. Under this agreement, we will receive a portion of subscription
revenues, and milestone payments and royalties associated with discoveries
based on data delivered via our content platform.
o Centre National de la Recherche Scientifique (CNRS). In March 2000, we
entered into a letter of intent with CNRS, the French National Center for
Scientific Research, to market CNRS's databases with our GenoMax
enterprise product. CNRS maintains proprietary databases containing data
on gene structure, expression, and location within the human genome. This
product would be marketed on a subscription basis and we would be entitled
to receive a portion of the net revenue from sales to our customers and a
portion of any milestone payments and royalties. The letter of intent also
provides for us to work with CNRS to establish a European Center of
Excellence in Computational Genomics and Proteomics to be located in
Villejuif, France.
o Structural Bioinformatics. In August 2000, we entered into an agreement
with Structural Bioinformatics, to market their proprietary
three-dimensional protein structure database with our GenoMax enterprise
product. Structural Bioinformatics is a leader in the production of
three-dimensional protein structure data. Under this agreement, we will
develop and market, on a subscription basis, a product that couples
Structural Bioinformatics' three-dimensional protein structure databases
with our GenoMax enterprise platform. As resellers of this data, we will
receive a portion of subscription revenues.
Hardware Reselling Alliance. We believe that we can further leverage our
market presence and increase our product offerings to our customers by entering
into distribution and reselling agreements with selected bioinformatic hardware
companies. In March 2000, we entered into an alliance with TimeLogic
Corporation to link its DeCypher genomic analysis accelerator products that
speed data mining, with our GenoMax enterprise platform. Pursuant to this
agreement, we will market DeCypher to our customers along with our GenoMax
product and share in a portion of net revenues and maintenance fees.
e-Commerce Opportunities. Researchers use our Vector NTI Suite to design
and simulate laboratory experiments. Vector NTI Suite provides researchers with
specific experimental protocols and recommendations for reagents, enzymes, and
other specific genomic material necessary to execute actual laboratory
experiments. To extend this functionality, we intend to incorporate Internet
hyperlinks into our Vector NTI Suite product to enable users to purchase
genomic products and materials relevant to their research directly from online,
partnered reagent vendors. We expect to generate transaction fees from
partnered vendors for providing them access to our user base at the point of
their research decisions.
In September 2000, we entered into an agreement with Incyte Genomics,
Inc., a manufacturer and provider of genomic and other biomolecular databases.
Under our agreement we will incorporate hyperlinks into Vector NTI Suite that
will direct researchers to Incyte's website. These hyperlinks are intended to
allow researchers to register with Incyte and to purchase access to certain of
its genomic databases which can be used with the searching and analysis
functions of our Vector NTI Suite. These hyperlinks will also enable
researchers to purchase reagents from Incyte for their laboratory research.
Under this agreement, we will receive a portion of the net revenues associated
with sales of Incyte's database and reagent products and a fee based on the
number of registrations with Incyte, each as generated through the hyperlinks
to be contained in Vector NTI Suite.
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CUSTOMERS
We license our desktop software solutions to pharmaceutical, biotechnology
and agricultural biotechnology companies, academic and government research
institutions, and individual researchers. We have sold over 9,000 licenses to
our Vector NTI Suite, with more than 20,000 estimated users, to over 1,300
organizations, including over 500 pharmaceutical, biotechnology and
agricultural biotechnology companies and 800 academic and government research
institutions. Since its introduction in late 1998, we have made 20 sales of
GenoMax. Our major customers include:
<TABLE>
<S> <C> <C>
Pharmaceutical and Agricultural Biotechnology Companies
o AstraZeneca UK Limited o E.I. du Pont de Nemours and Company o Pioneer Hi-Bred International, Inc.
o Aventis Pharmaceuticals, Inc. o Hoechst Marion Roussel o Procter & Gamble
o BASF AG o Johnson & Johnson o Eli Lilly and Company
o Bristol-Myers Squibb Company o Merck & Company, Inc. o Novartis Agribusiness
o Pfizer, Inc. Biotechnology Research, Inc.
Biotechnology Companies
o Amgen Inc. o Biofrontera Pharmaceuticals GmbH o Genzyme Corporation
o Aurora Biosciences Corporation o Diversa Corporation o Microbia Incorporated
Academic and Government Research Institutions
o Katholieke Universiteit Leuven o National Institutes of Health o University of Pennsylvania
o European Molecular Biology o The Whitehead Institute for Biomedical Research o Washington University in St. Louis
Laboratory (EMBL) o Massachusetts Institute of Technology o University of Tokyo
</TABLE>
MARKETING AND SALES
Our marketing and sales force consists of 54 employees. Our marketing team
uses a variety of strategies to increase brand recognition for our products and
reach a broader base of potential customers for our bioinformatic software
solutions. In addition, the efforts of our service and implementation group to
educate, convert, and train researchers on our enterprise and desktop products
support our marketing efforts.
Our sales force is divided into territorial revenue teams. Each territory
is headed by an experienced regional sales vice president and includes a team
dedicated to direct sales efforts for our GenoMax enterprise software
solutions. GenoMax enterprise sales involve a significantly longer and more
complex sales cycle than our desktop applications, often involving many levels
of procurement and purchasing decisions by a customer organization.
Each territorial revenue team also includes a tele-sales team focused on
sales of our Vector NTI Suite of desktop applications. Historical experience
shows the typical sales cycle to be 30 to 60 days from an indication of
interest to a purchase order. In addition, Vector NTI Suite consists of a
number of component modules, which allows us to market to new users at a low
initial price and sell additional modules later. We also offer flexible
licensing alternatives that allow us to price consistently across customer
organizations of different sizes.
CO-MARKETING ALLIANCES
In connection with our sales and marketing efforts, we seek to establish
strategic alliances and co-marketing relationships to accelerate market
penetration of our bioinformatic software. We believe that purchasers of
bioinformatic software often look to market leaders in technology to keep them
abreast of possible emerging industry standards. We also believe that customers
often select technology leaders because of a perception that there is a reduced
risk in making a technology commitment. We have established relationships with
the following leaders in the technology industry:
o Compaq. We jointly market our software products with Compaq technology
and benefit from a financing arrangement in which Compaq leases computer
hardware that is coupled together with our software to its customers. This
turnkey approach reduces financial barriers, and streamlines the
installation of our enterprise software solutions by pre-loading it onto
Compaq
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servers. Compaq also has agreed to feature our GenoMax enterprise software
in its Center for Excellence in Bioinformatics, one of its technology
demonstration sites targeted to the biotechnology industry. In June 2000,
we jointly conducted a nine-city seminar series with Compaq on enhanced
biological data mining and integrated genomic analysis.
o Oracle. We jointly market our software products with Oracle databases and
cooperate in the re-selling of Oracle database technology. We are also
working with Oracle to streamline the installation of our enterprise
software solutions and maximize the functionality and cooperative features
of our technologies.
o Sun Microsystems. We jointly market our software products in connection
with the sale of Sun Microsystems servers to industry participants. Sun
also has agreed to install our GenoMax enterprise platform in one of its
key technology demonstration sites.
Web-based Provision of Bioinformatic Software Applications. In January
2000, we entered into an alliance with an application service provider
specializing in Internet-hosted research informatics solutions for the
biopharmaceutical market, to offer our GenoMax and Vector NTI Suite software
solutions as Web-based, hosted applications. We expect that by providing our
software through an application service provider, we will be able to accelerate
the deployment and facilitate the management of our software solutions. We made
our bioinformatic software solutions available through this Internet-hosted
method in the third quarter of 2000.
STRATEGIC COLLABORATION WITH AMERSHAM PHARMACIA BIOTECH
In August 2000, we entered into a strategic relationship with Amersham
Pharmacia Biotech under which we will jointly develop and market an expanded
version of GenoMax to provide an enterprise-wide data analysis system for
pharmaceutical and biotechnology companies for integrating and analyzing data
from genomics, proteomics and drug screening production laboratories. The
primary use of the data analysis system is to enable pharmaceutical and
biotechnology companies to accelerate and lower the cost of development of new
drugs and therapies. Under the agreement establishing this relationship, we
will jointly own, with Amersham, the jointly developed code for the data
analysis system and all related intellectual property rights. In connection
with this relationship, we have granted a license to Amersham for its internal
use of our GenoMax software, as part of the data analysis system. The
relationship has a 20-year term.
Under the agreement, we will receive a portion of the revenues resulting
from the sale, license or maintenance fees associated with the
jointly-developed data analysis system. We will receive 60% of the license and
maintenance fees for every license of the data analysis system to a life
science or biotechnology company whose principal place of business is outside
of the United States, Canada and Western Europe, or any such company whose
principal place of business is in the United States, Canada or Western Europe
and had revenues among the top fifty life science and biotech companies for the
last calendar year (the "Life Sciences Market"). We will receive 80% of the
license and maintenance fees for every license of the data analysis system to a
life science or biotechnology company whose principal place of business is in
the United States, Canada and Western Europe that did not have revenues among
the top fifty life science and biotech companies for the last calendar year
(the "Biotech Market"). In the event that, in connection with the marketing of
the jointly developed data analysis system, a customer elects to purchase our
software on a standalone basis and not as part of the data analysis system, we
will pay Amersham a one-time fee equal to 10% or 15% of the license fee for our
software depending upon whether the customer is in the Biotech Market or the
Life Sciences Market. We will recognize revenues from the sale of our
standalone products that result from joint marketing of the data analysis
system on a gross basis equal to the license fee of our software and will
record the one-time fee equal to 10% or 15% of the license fee as a cost of
sale. Amersham will also pay us a portion of any recurring annual maintenance
fees for the relevant markets above equal to the percentages described above.
The agreement prohibits either party from contacting a customer that was
initially approached to market the data analysis system for the purpose of
selling one of its standalone products or services, until the earlier of the
date such customer states that it is not interested in licensing the data
analysis system or a date six months from the initial presentation of the data
analysis system to such customer.
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We have agreed to use commercially reasonable efforts to develop the data
analysis system in accordance with mutually agreed upon specifications. If we
do not use commercially reasonable efforts to develop the data analysis system,
Amersham can terminate the agreement. The agreement can also be terminated
prior to the end of the term by mutual agreement of the parties or by one party
upon a breach by the other party.
We are required to provide certain training and customer support functions
in connection with the jointly developed data analysis system.
In connection with this strategic relationship, Amersham purchased 950,747
shares of our Series B preferred stock, which are convertible into 1,587,747
shares of common stock, for aggregate proceeds to us of $10 million in cash.
RESEARCH AND DEVELOPMENT
Recruiting and retaining skilled personnel for our research and product
development group is a critical component of our current and future competitive
success. As of September 27, 2000, we had 95 employees dedicated primarily to
research and product development. Our research and development team consists of
applications and systems programmers, database administrators, and
bioinformatics designers, numerous of which have experience in both computer
science and molecular biology. To date, we have not encountered any significant
turnover in our research and product development group, and we believe that our
products and services have benefited from this level of continuity. Our
research and development expenditures in 1997, 1998, and 1999 were $0.4
million, $1.2 million, and $2.6 million, respectively, and approximately $2.5
million for the first six months of 2000.
Our research and product development group possesses core competencies in
C/C++, Java, MS Windows, Apple OS, UNIX, object-oriented design, system-level
programming, relational database design and development, including Oracle,
graphical user interface programming, bioinformatics, and molecular biology.
Our team has a significant level of aptitude in working with a wide array of
biomolecular data, including DNA and protein sequences and structures, gene
expression, genetic maps, protein-protein interaction, and SNPs. We continue to
enhance our existing products in an effort to expand their functionality and
utility. Our research and product development team seeks to develop new
products that use computational methods to further understand biological
processes and enable users of genomic data to realize efficiency and
productivity gains.
COMPETITION
We believe that the principal competitive factors in the evolving
bioinformatic software industry include:
o functionality and ease of use of software products;
o rapid incorporation of technological and biomolecular innovations;
o product flexibility, scalability, and integration;
o level of customer service, product implementation, and support
functions;
o existing market penetration and brand awareness;
o alliances with strategic partners and technology market leaders; and
o price.
We face, or expect to face, competition for market leadership from
industry participants, including:
o third party commercial software vendors;
o bioinformatic developers;
o internal bioinformatics departments of some of our customers and
potential customers;
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o organizations engaging in the provision of Internet-hosted,
bioinformatic software; and
o companies facilitating Internet-based e-commerce between participants in
our industry.
We believe that we compete most often with LION biosciences, NetGenics,
Compugen, Genomica, DNA Star, Rosetta Inpharmatics, DoubleTwist and GCG, a unit
of Pharmacopeia recently acquired from Oxford Molecular. We intend to compete
with such organizations on the basis of pricing, scope of products and
services, functionality of products, quality of service, strength of
organization and support and training.
We believe that in response to existing and future market opportunities,
there is a strong likelihood of additional market participants. Many of our
current and potential competitors have longer operating histories, stronger
name recognition, and significantly greater financial, technical, and marketing
resources than we do. As a result of these advantages, these competitors may be
better able to adopt more aggressive pricing policies and better positioned to
respond to changes in customer preference or technology.
INTELLECTUAL PROPERTY
We believe that the proprietary protection of our bioinformatic software
products is critical to the success of our business and our ability to compete
effectively. We rely upon a combination of trade secret, patent, copyright and
trademark laws, license agreements, nondisclosure and other contractual
provisions to protect our proprietary rights in our products, technology, and
processes. In January 2000, Dr. Vadim Babenko, our Chief Technology Officer,
assigned to us an application for a United States patent directed to InforMax's
approach to integrated access to biomedical resources. Dr. Babenko has
previously assigned to us two copyrights relating to our Vector NTI Suite of
desktop applications. To date, we have been issued U.S. trademark registrations
for the marks InforMax and Double Helix Design, Vector NTI, AlignX and BioPlot.
We have filed trademark applications in the U.S. for the marks GenoMax,
InforMax, the InforMax Double Helix Logo Design, HTR, HTR Partners Program,
SSBM, ContigExpress, High-Throughput Research, and Software Solution for
Bio-Medicine, among others. In addition, we have filed trademark applications
in the European Community Trademark Office ("CTM") for the marks AlignX,
BioPlot, Vector NTI Suite, ContigExpress, Software Solution for Bio-Medicine
(SSBM). We have pledged our trademarks to PNC Bank, National Association as a
security for the facilities under our loan agreement.
Two oppositions to our CTM trademark application for Vector NTI Suite have
been filed. We have negotiated a settlement of one opposition and are in the
process of negotiations to settle the other opposition. We believe that an
amicable settlement can be reached.
Additional trademark registrations in France for the marks Align.X,
Vector.NTI, and Software Solution For Bio-Medicine, among others, are in the
process of being assigned to us by our wholly-owned French subsidiary.
We believe that the source code for our proprietary software solutions is
protected under applicable copyright and trade secret law in the United States.
Comparable and effective copyright and trade secret protection may not be
available in each country where we distribute our products.
We regularly enter into confidentiality agreements with our employees,
consultants, and strategic partners and generally seek to control access to and
distribution of our software, documentation, and other proprietary information.
We may nonetheless be subject to unauthorized access to, and use of, our
software products. In addition, third parties may be able to develop technology
substantially similar to our existing and future software solutions. These
events could materially affect our business, financial condition and results of
operations.
EMPLOYEES
As of September 27, 2000, we had 205 full-time employees, including 95
employees primarily engaged in research and product development, 54 in sales
and marketing and 25 in implementation and support. We believe that our future
success will depend in part on our continued ability to attract
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and retain qualified personnel. Competition for these personnel is intense, and
there can be no assurance that we will be successful in attracting or retaining
these personnel in the future. None of our employees is currently represented
under a collective bargaining agreement, and we consider relations with our
employees to be good.
FACILITIES
We lease approximately 24,400 square feet of office space for our current
headquarters in Rockville, Maryland for approximately $620,000 per year,
subject to an annual three percent rent escalation. The term of this lease
expires in July 2006. In September 2000, we entered into a sublease for
approximately 36,190 square feet of office space for our new headquarters in
Bethesda, Maryland. The rent for this space is approximately $1,357,125 per
year, subject to an annual two and one half percent rent escalation during the
term. The term of this sublease expires on October 31, 2012. We maintain
additional offices in Annapolis, San Francisco, Denver, and Oxford, England,
and have sales representatives in Boston and Bonn, Germany.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers, key employees and directors, and their ages as of
the date of this prospectus, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------- ----- -----------------------------------------------------
<S> <C> <C>
Alex Titomirov, Ph.D .......... 40 Chairman of the Board of Directors, President and
Chief Executive Officer
James Bernstein, M.D .......... 61 Director, Chief Operating Officer and Executive Vice
President, Strategic Development
Vadim Babenko, Ph.D ........... 38 Chief Technology Officer and Senior Vice President,
Research and Product Development
Joseph Lehnen ................. 40 Chief Financial Officer
Timothy Sullivan .............. 40 Senior Vice President, Marketing and Sales
Richard Melzer ................ 44 Vice President, Global Sales
Dean Goddette, Ph.D ........... 42 Vice President, Marketing
Peter Covitz, Ph.D ............ 35 Director of Implementation and Support Services
Hooks Johnston ................ 38 Director
Harry D'Andrea ................ 44 Director
Andrew Whiteley ............... 42 Director
Wei Wu He, Ph.D ............... 35 Director
</TABLE>
----------
Alex Titomirov, Ph.D., is the founder of InforMax and has served as our
President, Chief Executive Officer and Chairman of the Board of Directors since
our inception in 1990. Dr. Titomirov is also the Chairman of the Board of
Directors of RealTimeHealth.com, Inc., a development stage company monitoring
genetic profiles over the Internet. Prior to founding InforMax, Dr. Titomirov
participated in research on the developmentally regulated expression of
mammalian cells for gene targeting at the Laboratory of Mammalian Genes and
Development at the National Institutes of Health. Upon his arrival in the
United States in 1989, Dr. Titomirov served as a visiting scientist at the
Department of Microbiology at Columbia University. While in the former Soviet
Union, Dr. Titomirov served as Group Leader of a research team in the field of
DNA transfer technology at the Institute of Molecular Biology in Moscow, and
served as Head of Theoretical Seminars at the Laboratory of Functional
Morphology of Chromosomes. Dr. Titomirov has also served as a member of the
Grant Committee of the Russian Academy of Sciences and an instructor at the
Moscow Physical Technical Institute. Dr. Titomirov earned his Ph.D. in
Molecular Genetics in 1986 from the Institute of Cytology, Russian Academy of
Sciences in St. Petersburg, Russia, and his M.S. in Molecular Genetics in 1982
from St. Petersburg State University.
James Bernstein, M.D., has served as a director since our inception and as
our Chief Operating Officer and Executive Vice President of Strategic
Development since 1998. Dr. Bernstein is a founder and director of Age Wave,
L.L.C., a holding company that develops businesses driven by population aging,
and Chairman of Age Wave Impact, Inc., a relationship marketing company
focusing on the 50+ population. From 1995 to 1997, Dr. Bernstein served as a
consultant at Age Wave, L.L.C. From 1989 to 1994, Dr. Bernstein was engaged in
the development of a private company for the distribution of pharmaceuticals
and over-the-counter medicines in the former Soviet Union. Dr. Bernstein is a
founder and former Chief Executive Officer of General Health, Inc., an
information publishing company in the field of health risk assessment and
management. Dr. Bernstein has served as a special consultant to the National
Heart, Lung and Blood Institute of the National Institutes of Health with a
focus on disease prevention, control and physician education. Prior to his
tenure at NIH, he was a Deputy Director of the Georgetown University Health
Policy Center. From 1972 to 1974, Dr. Bernstein headed the office of the
Chairman of the Board of Supervisors of San Diego County, California. Prior to
his government service, Dr. Bernstein was a research associate and Assistant to
the President of the Salk Institute. Dr. Bernstein received his M.D. in 1964
from Cornell University Medical College and his Bachelor's degree in 1960 from
Harvard University.
Vadim Babenko, Ph.D., has served as our Chief Technology Officer and
Senior Vice President of Research and Product Development since our inception
in 1990. Dr. Babenko directs our research and
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product development team, having designed our first product offering and
directed all subsequent enhancements. Before arriving in the United States from
the former Soviet Union, Dr. Babenko was the Development Team Leader at
GenInform, Inc., Moscow, where he designed and managed development of software
for genetic engineering simulation. Prior to this, he served for five years as
a Senior Scientist at the Institute of Molecular Genetics at the Soviet Academy
of Sciences conducting research on genetic data analysis, protein and DNA
modeling, and computer simulation of biological processes using artificial
intelligence techniques. Dr. Babenko has managed a number of research groups,
led several international collaborations, and authored over 30 publications in
the fields of bioinformatics and artificial intelligence. Dr. Babenko also held
an appointment as a Senior Scientist at the Institute of Informatic Problems
where he developed original methods for applying systems to medical diagnostics
and decision making. Dr. Babenko earned a Ph.D. in biophysics in 1990, a
Master's degree in Theoretical Physics in 1985, and a Bachelor's degree in
Automatics and Telemechanics in 1983, each from the Moscow Institute of
Physical Technology. He was cited Outstanding Young Scientist in 1989 at the
Soviet Academy of Sciences, Outstanding Researcher in 1987 by the Soviet
Association of Artificial Intelligence, and Best Student Researcher in 1984 by
the Moscow Institute of Physical Technology.
Joseph Lehnen has served as our Chief Financial Officer since January
1999. Prior to joining InforMax, Mr. Lehnen spent eight years as an investment
banker with J.P. Morgan & Co., working with health care sector clients ranging
from early-stage companies to Fortune 100 corporations. His experience as an
investment banker included financing transactions in the public and private
markets, merger and acquisition execution, industry analysis, strategic
advisory work and financial risk analysis. Prior to his tenure at J.P. Morgan,
Mr. Lehnen held positions as an aide in the U.S. Senate and as a radar design
engineer for Litton Industries' defense contracting division. Mr. Lehnen
received a Master's degree in public policy from Harvard University in 1989, a
Master's degree in physics from Yale University in 1985 and a Bachelor's degree
in physics from Santa Clara University in 1982.
Timothy Sullivan has served as our Senior Vice President of Marketing &
Sales since January 1999. Prior to joining InforMax, Mr. Sullivan held
positions in product management, alliance management, and major accounts
management at Manugistics, Inc., a supply-chain decision support software
vendor, from 1995 to 1999. Prior to his tenure at Manugistics, Mr. Sullivan
served as product manager at TSI Software International, an electronic commerce
vendor, from 1993 to 1995. Mr. Sullivan previously served as a management
consultant with Andersen Consulting and Booz-Allen & Hamilton. Prior to
entering the private sector in 1988, Mr. Sullivan was a Platoon Commander in
the United States Marine Corps. He received an M.B.A. in Marketing in 1992 and
a Bachelor's degree in Classics in 1984, each from Columbia University.
Richard Melzer has served as our Vice President of Global Sales since
January 2000. Mr. Melzer previously served as our enterprise account manager
from April 1999 to December 1999. Prior to joining InforMax, Mr. Melzer served
as a senior account manager for Manugistics, Inc., a supply-chain decision
support vendor, from April 1994 to March 1999. From April 1984 to March 1994,
Mr. Melzer served in a number of positions including Vice President and
Managing Director of European, Middle Eastern and African operations and Vice
President of Sales and Operations for DISC, Inc., a NYNEX Company that sold
application software to major banks, corporations and insurance companies. Mr.
Melzer received Bachelor's degrees in International Relations and Multinational
Enterprise from the Wharton School of the University of Pennsylvania in 1978.
Dean Goddette, Ph.D., has served as our Vice President of Marketing since
June 2000. Prior to joining InforMax, Dr. Goddette held positions including
Vice President of Marketing and Sales and Vice President of Bioinformatics with
Structural Bioinformatics, Inc. from August 1998 to June 2000. From December
1993 to August 1998, Dr. Goddette held positions including Manager of central
U.S. and Canada sales and Senior Product Manager for Tripos, Inc., a
pharmaceutical and biotechnology software and services company. Dr. Goddette
received a Ph.D. in Biochemistry from Washington University School of Medicine
in 1996 and a Bachelor's degree in Protein Biophysics from the University of
Connecticut in 1980.
Peter Covitz, Ph.D, has served as our Director of Implementation and
Support Services since September 1999. Dr. Covitz coordinates our software
integration, customization, maintenance, support and training efforts. Prior to
joining InforMax, Dr. Covitz led the microarray gene expression
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software team at Molecular Applications Group, a bioinformatic software
company, from September 1998 to August 1999. From March 1997 to August 1998,
Dr. Covitz served as a senior product scientist for Incyte Pharmaceuticals,
Inc. where he worked with the development of a classification system for their
sequence databases. Dr. Covitz received a Ph.D. in Microbiology from Columbia
University in 1993 and a Bachelor's degree in Biology from Colgate University
in 1986.
Hooks Johnston has served as a director since June 1999. Mr. Johnston has
been Managing Director of FBR Technology Venture Partners, a venture capital
investment firm, since December 1998. From November 1997 to December 1998, Mr.
Johnston served as the President of Descartes Systems Group, a leading supply
chain software company, which he assisted in taking public in early 1998. From
September 1995 to November 1997, Mr. Johnston served as the President and Chief
Executive Officer of Roadshow International, Inc., a transportation software
company that was acquired by Descartes. From August 1993 to September 1995, Mr.
Johnston was the Chief Operating Officer of ALG, Inc., a design, pre-press and
web development services company. Mr. Johnston currently serves on the boards
of directors of Intranets.com, Inc., MarketSwitch Corporation, B2Emarkets,
Inc., Shop2u, Inc., Radiowave.com, Inc., Collaborex, Inc., Global Logistics
Technologies, Inc. and Shelflink, Inc. Mr. Johnston received an M.B.A. from
Harvard Business School in 1988, and a Bachelor of Science degree in Applied
Mathematics and Economics from Brown University in 1984.
Harry D'Andrea has served as a director since June 1999. Mr. D'Andrea has
been the Chief Financial Officer of Advanced Switching Communications, Inc., a
telecommunications equipment provider, since June 1999. From August 1998 to
June 1999, Mr. D'Andrea served as Chief Financial Officer of Call Technologies,
inc., a telecommunications software provider. From June 1997 to July 1998, Mr.
D'Andrea served as Chief Financial Officer of Yurie Systems, Inc., a provider
of networking and telecommunications equipment. In 1996, Mr. D'Andrea served as
Chief Financial Officer of American Communications Services, Inc., now e.spire
Communications, Inc., a telecommunications service provider. Prior to that Mr.
D'Andrea served as Executive Vice President, Chief Financial Officer and
Treasurer of Caterair International Corporation, a provider of catering
services for commercial airlines. Mr. D'Andrea currently serves on the board of
directors of Coagulation Diagnostics, Inc. Mr. D'Andrea received an M.B.A. in
Finance from Drexel University in 1980 and a Bachelor's degree in Foreign
Service from Pennsylvania State University in 1978.
Andrew Whiteley has served as a director since August 2000. Mr. Whiteley
has been the Vice President of Bioinformatics for Amersham Pharmacia Biotech,
Inc., a provider of integrated drug discovery solutions, since January 2000.
From October 1997 to December 1999, Mr. Whiteley served as Vice President of
Amersham Pharmacia Biotech's sequencing business. For a portion of the period
above, Mr. Whiteley also served as site director for Amersham International
PLC's Cleveland facility. From April 1995 to March 1997, Mr. Whiteley was the
head of Amersham International's group marketing. Mr. Whiteley serves on the
board of directors of Cimarron Software Services, Inc. and Imaging Research,
Inc. Mr. Whiteley received Bachelor's degrees in Chemistry and BioChemistry
from Nottingham University in the U.K. in 1980.
Wei-Wu He, Ph.D., has served as a director since August 2000. Since March
2000, Dr. He has served as the General Partner of Emerging Technology Partners,
L.L.C., a venture capital fund he founded that is dedicated to investing in
genomics technology companies. In 1996, Dr. He founded OriGene Technologies
Inc., a provider of genomics technologies for the pharmaceutical industry and
served as President from June 1996 to March 2000. From 1993 to 1996 Dr. He was
a scientist at Human Genome Sciences, Inc. and prior to that he was a research
fellow at Massachusetts General Hospital. Additionally, Dr. He serves on the
Board of Directors of numerous organizations such as the Chinese Pharmaceutical
Association, of which he was elected President in 2000, the Scientific Advisory
Board of F & S Inc., the Monte Jade Association, and Aptus Genomics Inc. Dr. He
received his Ph.D. in Molecular Biology from the Baylor College of Medicine in
1991 and a Bachelor's degree in Biochemistry from Nanjing University in 1985.
Dr. He also received an M.B.A. from The Wharton School of the University of
Pennsylvania in 1999.
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BOARD STRUCTURE
Our bylaws currently provide for a board of directors consisting of not
more than seven members, to be fixed from time to time by our board of
directors. All directors hold office until the next annual meeting of our
stockholders and until their successors have been elected and qualified or
until their earlier resignation or removal. Messrs. Johnston, D'Andrea and
Whiteley were elected to the board of directors under a voting agreement among
us, FBR Technology Venture Partners II, LP, Amersham Pharmacia Biotech and our
other principal stockholders. This voting agreement will terminate upon
completion of this offering.
In accordance with the terms of our amended and restated certificate of
incorporation to be effective upon completion of this offering, the board of
directors will be divided into three classes, each serving staggered three-year
terms, following the completion of this offering:
o Class I, whose initial term will expire at the annual meeting, or special
meeting held in lieu of an annual meeting, of stockholders held in 2001;
o Class II, whose initial term will expire at the annual meeting, or
special meeting held in lieu of an annual meeting, of stockholders held in
2002; and
o Class III, whose initial term will expire at the annual meeting, or
special meeting held in lieu of an annual meeting, of stockholders held in
2003.
As a result, only one class of directors will be elected at each annual meeting
of stockholders of InforMax with the other classes continuing for the remainder
of their respective terms. Mr. D'Andrea and Dr. He have been designated as
Class I directors; Mr. Johnston and Dr. Bernstein have been designated as Class
II directors; and Dr. Titomirov and Mr. Whiteley have been designated as Class
III directors. These provisions in our amended and restated certificate of
incorporation may have the effect of delaying or preventing changes in control
or management of InforMax.
BOARD COMMITTEES
We have two standing committees: a compensation committee and an audit
committee. The compensation committee currently consists of Messrs. Johnston
and D'Andrea. The compensation committee:
o reviews and approves the compensation and benefits for our executive
officers and grants stock options under our equity incentive compensation
plan; and
o makes recommendations to the board of directors regarding these matters.
The audit committee consists of Messrs. Johnston, D'Andrea, and He. The
audit committee:
o makes recommendations to the board of directors regarding the selection
of independent auditors;
o reviews the results and scope of the audit and other services provided by
our independent auditors; and
o reviews and evaluates our audit and control functions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of InforMax serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving on our board of directors or compensation committee.
58
<PAGE>
COMPENSATION OF DIRECTORS
Directors do not receive cash compensation for their service on our board
of directors or any board committee. In 1999, we granted Mr. D'Andrea an option
to purchase 25,050 shares of our common stock at an exercise price of $0.30.
Such options are subject to conditions relating to vesting and continued
participation on our board of directors. We reimburse non-employee directors
for their reasonable expenses incurred in connection with their attendance at
meetings of our board of directors and board committees and may in the future
issue options to non-employee directors upon:
o appointment, election, or re-election to the board; and
o each anniversary thereof if he or she continues to serve as a director.
SCIENTIFIC ADVISORY BOARD
We have recruited a scientific advisory board consisting of individuals
with expertise in genomics, bioinformatics, information technology and
pharmaceutical discovery. Our scientific advisory board was assembled during
the second quarter of 2000 and we anticipate consulting with our scientific
advisory board regarding industry and scientific developments.
<TABLE>
<CAPTION>
NAME POSITION AND ORGANIZATION
--------------------------------------------- ------------------------------------------------------
<S> <C>
Michael N. Liebman, Ph.D, Chairman .......... Global Head, Computational Genetics, Roche
Biosciences
Jacquelyn S. Fetrow, Ph.D ................... Chief Scientific Officer, GeneFormatics, Inc.
Lawrence M. Kauvar, Ph.D .................... President, Trellis Bioinformatics, Inc.
Doron Lancet, Ph.D .......................... Professor of Neurogenomics, Weizmann Institute
Crown Human Genome Center
F. Raymond Salemme, Ph.D .................... President and Chief Scientific Officer, 3-Dimensional
Pharmaceuticals, Inc.
John N. Weinstein, M.D., Ph.D ............... Group Chief of National Cancer Institute, National
Institutes of Health
Arthur L. Williams, Ph.D .................... Executive Director Pharmaceutical Development
Informatics, Bristol-Myers Squibb
George Maalouf, Ph.D ........................ Vice President of Bioinformatics, NeoGenesis Drug
Discovery, Inc.
Charles Auffray, Ph.D ....................... Director of Research, Centre Nationale de la
Recherche Scientifique
Wei Wu He, Ph.D ............................. General Partner, Emerging Technologies, L.L.C.
</TABLE>
KEY MAN INSURANCE
We maintain "key man" life insurance in the amount of $2,000,000 on each
of Dr. Titomirov and Dr. Babenko, with proceeds payable to us.
EMPLOYMENT AGREEMENTS
On August 14, 2000, Dr. Alex Titomirov provided us a commitment letter
regarding his continued service with us. Under the commitment letter, Dr.
Titomirov agreed to devote to us at least a majority of his professional
working time for a period equal to the longer of (1) 18 months
59
<PAGE>
from the date of this prospectus, provided such date does not extend beyond
August 14, 2003, or (2) August 14, 2002. This commitment is conditioned on his
salary continuing at a rate not less than his current salary and his receipt of
bonuses commensurate with those received by our other senior management. Dr.
Titomirov has further agreed that for a period of two years after he ceases to
be an officer, employee or 10% holder of our outstanding shares, he will not
directly render services for any business engaged in such business activities
that we are involved in at the time of his termination or which are anticipated
and have been approved by our board of directors by that time. Dr. Titomirov
has also agreed that for such two year period he will not hire or attempt to
hire any of our employees, or persons that were employed by us during the one
year period prior to his ceasing to be an officer, employee or 10% holder of
our outstanding shares.
In July 2000, we entered into an employment agreement with Vadim Babenko,
to serve as our Chief Technology Officer through July 14, 2002. The term of Dr.
Babenko's employment automatically renews for successive one year periods
unless and until either party provides written notice, not less than 90 days
prior to the end of the then current term, of their intent not to renew.
Pursuant to this agreement, Dr. Babenko's salary was set at $285,000 per year,
with eligibility for increases and bonuses as determined by the Chief Executive
Officer and our board of directors. In the event that Dr. Babenko's employment
is terminated by us without cause, he will receive a lump sum payment of an
amount equal his then effective annual salary. Dr. Bakenko has agreed not to
compete with us or solicit our employees during the term of our agreement and
for a period of two years following the termination of this agreement.
In April 1999, we entered into an employment agreement with Joseph Lehnen,
to serve as our Chief Financial Officer and Senior Vice President through
December 31, 2002. The term of Mr. Lehnen's employment automatically renews for
successive one year periods unless and until either party provides written
notice, not less than 90 days prior to the end of the then current term, of
their intent not to renew. Pursuant to this agreement, Mr. Lehnen's initial
salary was set at $150,000 per year, with eligibility for bonuses and stock
options as determined by the Chief Executive Officer and our board of
directors. In the event that Mr. Lehnen's employment is terminated by us
without cause, or terminated by Mr. Lehnen as a result of our breach of his
employment agreement, he will receive an amount equal to fifty percent of his
salary and bonus for the previous 12 month period. In the event that Mr.
Lehnen's employment is terminated without cause upon, or within one year of, a
change of control of our company, he will receive an amount equal to his salary
and bonus for the previous 12 month period. In the event that Mr. Lehnen is
terminated for cause or voluntarily resigns without breach by us of our
agreement, he has agreed not to compete with us or solicit our employees for a
period of 12 months following the cessation of his employment.
In April 1999, we entered into an employment agreement with Timothy
Sullivan, to serve as our Senior Vice President, Marketing and Sales, through
March 31, 2003. The term of Mr. Sullivan's employment automatically renews for
successive one year periods unless and until either party provides written
notice, not less than 90 days prior to the end of the then current term, of
their intent not to renew. Pursuant to this agreement, Mr. Sullivan's initial
salary was set at $150,000 per year plus monthly commissions of one percent of
that month's software license and professional services revenues. In the event
that Mr. Sullivan's employment is terminated by us without cause, or terminated
by Mr. Sullivan as a result of our breach of his employment agreement, he will
receive an amount equal to fifty percent of his salary and earned commissions
for the previous 12 month period. In the event that Mr. Sullivan's employment
is terminated without cause upon, or within 180 days of, a change of control of
our company, he will receive an amount equal to his annual salary and earned
commissions for the previous 12 month period. In the event that Mr. Sullivan is
terminated without cause, other than upon a change of control, or Mr. Sullivan
terminates his employment as a result of our breach of his employment
agreement, he has agreed not to compete with us or solicit our employees for a
period of six months following the cessation of his employment. In the event
that Mr. Sullivan's employment is terminated for any other reason, he has
agreed not to compete with us or solicit our employees for a period of 12
months following the cessation of his employment.
60
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation awarded to, earned by, or paid
to our Chief Executive Officer and the four other most highly compensated
executive officers whose total cash compensation exceeded $100,000 during the
year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- ----------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
------------------------------ ------ ----------------- ---------- ----------------
<S> <C> <C> <C> <C>
Dr. Alex Titomirov, 1999 $ 300,757 0 6,512,833
Chief Executive Officer and
Chairman of the Board of
Directors
Dr. Vadim Babenko, 1999 $ 200,000 0 2,672,000
Chief Technology Officer and
Senior Vice President
Dr. James Bernstein, 1999 $ 225,000 0 1,753,500
Chief Operating Officer and
Executive Vice President
Joseph Lehnen, 1999 $ 145,000(1) $35,000 584,500(2)
Chief Financial Officer
Timothy Sullivan, 1999 $ 222,747(3) 0 626,250(4)
Senior Vice President,
Marketing and Sales
</TABLE>
(1) Under the terms of his April 1999 employment agreement Mr. Lehnen's annual
salary is $150,000.
(2) Does not include 167,000 options granted on January 1, 2000.
(3) Includes $72,747 in commissions based on the sale of our software products.
(4) Does not include 292,250 options granted on January 1, 2000.
61
<PAGE>
OPTIONS GRANTS DURING 1999
All of the following stock options were granted under our equity incentive
plan and are exercisable for shares of our common stock. The percentages below
are based on a total of 14,932,487 shares subject to options we granted during
the year ended December 31, 1999 to our employees, directors, and consultants,
including the executive officers named in the Summary Compensation Table.
The exercise price per share of each option is equal to the fair market
value of the common stock as determined by the board of directors on the date
of grant. The potential realizable value is based on the initial public
offering price of $16.00 per share. The calculations below assume that the
price of our common stock increases from the date of grant until the end of the
ten-year option term at the assumed 5% and 10% rates. These assumed rates are
calculated based on rules promulgated by the Securities and Exchange Commission
and do not reflect future stock price growth. The actual value realized may be
greater or less than the assumed rates illustrated in the table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POTENTIAL REALIZABLE
SHARES TOTAL EXERCISE VALUE AT ASSUMED
UNDERLYING OPTIONS PRICE ANNUAL RATES OF STOCK
OPTIONS GRANTED TO PER EXPIRATION PRICE APPRECIATION FOR
GRANTED EMPLOYEES SHARE DATE OPTION TERM
------------ ------------ ---------- ------------ ---------------------------------
5% 10%
NAME
<S> <C> <C> <C> <C> <C> <C>
Dr. Alex Titomirov 6,512,833 43.6% $ .30 3/20/2009 $167,785,649 $268,327,934
Dr. Vadim Babenko 2,672,000 17.9% $ .30 3/20/2009 $ 68,836,903 $110,086,078
Dr. James Bernstein 1,753,500 11.7% $ .30 3/20/2009 $ 45,174,218 $ 72,243,988
Joseph Lehnen 584,500 3.9% $ .30 3/24/2009 $ 15,058,073 $ 24,081,329
Timothy Sullivan 626,250 4.2% $ .30 3/24/2009 $ 16,133,649 $ 25,801,424
</TABLE>
AGGREGATE OPTION EXERCISES DURING 1999 AND YEAR-END OPTION VALUES
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by each of the
executive officers named in the Summary Compensation Table as of December 31,
1999.
The value realized represents the difference between the fair market value
of the shares as of December 31, 1999, based on the initial public offering
price of $16.00 per share, and the exercise price of the option.
<TABLE>
<CAPTION>
NUMBERS OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
FISCAL YEAR END FISCAL YEAR END
------------------------------- --------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Dr. Alex Titomirov 6,512,833 0 $102,255,378 0
Dr. Vadim Babenko 3,340,000 0 $ 52,636,000 0
Dr. James Bernstein 1,780,220 0 $ 27,958,360 0
Joseph Lehnen 347,049 237,451(1) $ 5,448,877 $3,728,123
Timothy Sullivan 169,602 456,648(1) $ 2,662,853 $7,169,647
</TABLE>
(1) Subsequent to December 31, 1999, the vesting of the covered options has
been accelerated such that all options are currently exercisable by
Messrs. Lehnen and Sullivan.
62
<PAGE>
EQUITY INCENTIVE COMPENSATION PLAN
Administration
We established our equity incentive compensation plan, as amended, in
order to provide incentives for our eligible officers, employees, directors,
and consultants to improve our business results, by giving such persons an
opportunity to acquire or increase their proprietary interest in us. Our plan
also better enables us to attract, retain, and reward talented and skilled
personnel.
Our plan may be administered by our board of directors or a board
committee. Subsequent to this offering, our plan will be administered by the
compensation committee of our board of directors, which will include at least
two "disinterested persons," for purposes of Rule 16b-3 under the Exchange Act,
and "outside directors," within the meaning of Section 162(m) of the Internal
Revenue Code of 1986. The administrator has authority to take all actions and
make all determinations required or provided for under our plan, including:
o determination of the terms of any options or other awards granted;
o the exercise price of the option or other award;
o the number of shares subject to each option or other award;
o the exercisability and vesting thereof;
o and the form of consideration payable upon such exercise.
Moreover, the administrator may rescind, modify or waive certain limitations or
conditions associated with a grant under the plan so as to accelerate the
exercise period. Currently, the total number of shares of our common stock
authorized for use by the plan is 8,179,000. As of September 27, 2000, 50,100
shares of restricted stock and 5,054,542 options exercisable for common stock
were outstanding pursuant to incentive awards under the plan. As of September
27, 2000, we also had outstanding 50,100 shares of restricted stock and options
to purchase 8,530,103 shares of common stock.
Stock Options
The plan provides for the discretionary grant of incentive stock options,
within the meaning of Section 422 of the Internal Revenue Code, and for the
grant of non-qualified stock options. The exercise price of all incentive stock
options granted under our plan must be at least equal to 100% of the fair
market value of the shares underlying the options on the date of grant. With
respect to any participant who owns stock possessing more than 10% of the
voting power of all classes of our outstanding capital stock, the exercise
price of any incentive stock option granted must be at least equal to 110% of
the fair market value on the grant date and the term of such incentive stock
option must not exceed five years. Under our plan, an option will constitute an
incentive option only to the extent that the aggregate fair market value of the
underlying stock, at the time of the option grant, does not exceed $100,000.
The exercise price of any stock options issued under our plan may not be less
than the par value of the underlying common stock. The term of options issued
under our plan may not exceed ten years.
Restricted Stock
Under our plan, the administrator may grant to such eligible individuals
shares of our restricted common stock, subject to the recipient's both paying
not less than the par value of such common stock and attaining or completing
any performance objectives and service requirements upon which such grant is
conditioned. Upon the recipient's non-payment of the price specified for the
shares, failure to attain the performance objectives prior to expiration of the
specified period, or termination of employment without having satisfied the
service requirement, the shares of restricted stock, or the appropriate portion
thereof, will be forfeited and will again be available for reissuance under the
terms of our plan.
63
<PAGE>
Transferability
Options and other awards granted under our plan are generally not
transferable by the recipient. Awards granted under the plan must generally be
exercised within six months after a recipient's death or permanent and total
disability, but in no event later than the expiration of the option's term.
Except as may be provided by the administrator in the option agreement or
restricted stock agreement, upon termination of employment or service, other
than by reason of death or permanent and total disability, shares of restricted
stock and options that have not become vested under the plan will terminate and
the recipient thereof will have no further right to purchase the covered shares
of common stock. Upon the termination of the recipient's employment or service
for any reason, we will have the right, for a period of 180 days following such
termination, to repurchase any or all of the shares acquired by the recipient
pursuant to an incentive award under the plan at either the fair market value
of such shares on the date of termination, or a lower price as specified in an
agreement at the time of grant.
Change in Capitalization, Merger or Sale
The number and price of shares covered by outstanding stock options and
restricted stock awards granted under the plan will be proportionately
adjusted, as determined by our board of directors, to take into account any
recapitalization, stock split, reverse stock split, stock dividend,
combination, exchange or reclassification of shares or similar event. The plan
provides that if we:
o liquidate, dissolve, merge, consolidate or reorganize with another
company in which we are not the surviving entity;
o sell substantially all of our assets to another company; or
o approve a transaction that results in any person or entity owning 80% or
more of the voting power of all classes of our stock, other than existing
stockholders at the time our plan was approved, and their affiliates,
then all options outstanding under the plan will terminate if the option is not
assumed by the surviving corporation, its parent or subsidiary, or if such
entities do not substitute another award reflecting an appropriate adjustment
to the number and price of such covered shares. In the event that the option is
terminated as a result of the transactions above, the holder will be given an
opportunity to exercise the vested portion of the option immediately prior to
the option's termination.
64
<PAGE>
CERTAIN TRANSACTIONS
SERIES B CONVERTIBLE PREFERRED STOCK FINANCING
On August 16, 2000, we sold 950,747 shares of our Series B preferred stock
to Amersham Pharmacia Biotech, Inc. in connection with the creation of our
strategic relationship. We sold the preferred stock at approximately $10.52 per
share, for aggregate proceeds to us of $10 million in cash. We expect to use
the proceeds for general working capital purposes. These shares will
automatically be converted into 1,587,747 shares of our common stock
immediately prior to the closing of this offering, with an aggregate value of
$25,403,952, based on the initial offering price of $16.00 per share. Andrew
Whiteley, one of our directors, is the Vice President of Bioinformatics of
Amersham Pharmacia Biotech.
In connection with the sale of preferred stock, we amended and restated
our investor rights agreement to grant certain registration rights to Amersham.
In the event that we are able to effect a short form registration, Amersham,
subject to certain conditions, may require us to file such a registration
statement. In addition, Amersham is entitled to certain piggyback registration
rights by which it can, subject to certain circumstances, include shares of its
common stock in a registration statement filed by us. Amersham's short form and
piggyback registration rights terminate when all of its shares can be sold
under Rule 144 in any 90 day period. The investor rights agreement also
contains certain restrictions on Amersham's ability to transfer its shares of
our stock.
In connection with the sale of our Series B preferred stock, we entered
into a 20 year strategic relationship with Amersham Pharmacia Biotech under
which we will jointly develop and market an expanded version of GenoMax to
provide an enterprise-wide data analysis system for pharmaceutical and
biotechnology companies for integrating and analyzing data from genomics,
proteomics and drug screening production laboratories.
SERIES A CONVERTIBLE PREFERRED STOCK FINANCING
On June 22, 1999, we sold 2,161,265 shares of our Series A preferred stock
to FBR Technology Venture Partners II, LP, at approximately $1.85 per share,
for aggregate proceeds to us of $4 million in cash. The proceeds were used for
general working capital purposes. These shares will automatically be converted
into 3,609,312 shares of our common stock immediately prior to the closing of
this offering, with an aggregate value of $57,748,992, based on the initial
offering price of $16.00 per share. Hooks Johnston, one of our directors, is a
managing director of FBR Technology Venture Partners, the general partner of
FBR Technology Venture Partners II, LP.
In connection with the sale of our Series A preferred stock, we entered
into an investor rights agreement with FBR Technology Venture Partners II, LP,
which was amended and restated in August 2000, with respect to the granting of
certain registration rights. FBR, and each of the other FBR entities disclosed
in the "Principal Stockholders" as assignees of FBR, were granted demand
registration rights pursuant to which they may, subject to certain conditions,
and beginning 180 days from the date of this prospectus, require us to file a
registration statement on their behalf covering shares of their common stock on
not more than two occasions. These rights expire five years from the date of
this prospectus. In the event that we are able to effect a short form
registration, the FBR entities, subject to certain conditions, may require us
to file such a registration statement on up to four occasions. In addition, the
FBR entities are entitled to certain piggyback registration rights by which
they can, subject to certain circumstances, include shares of their common
stock in a registration statement filed by us. The FBR entities' short form and
piggyback registration rights terminate when all of their shares can be sold
under Rule 144 in any 90 day period or if their ownership falls below 1% of our
outstanding shares.
The investor rights agreement also contains certain restrictions on the
FBR entities ability to transfer their shares of our common stock.
65
<PAGE>
OTHER RELATED PARTY TRANSACTIONS
In 1999, Dr. Titomirov, our President and Chief Executive Officer,
personally guaranteed an equipment loan facility of ours in the amount of
$125,000. The outstanding balance was paid in full in 1999.
In 1999, Dr. Titomirov personally guaranteed a line of credit of ours in
the amount of $400,000. The outstanding balance was paid in full in 1999.
In April 1999, we loaned $65,000 to Dr. Titomirov. The amount of the loan
was secured by a promissory note to be repaid upon the fifth anniversary of the
date of the loan. Interest accrued at the prime rate as reported in The Wall
Street Journal plus 1% and was due and payable on each anniversary until the
balance of the note was paid in full. The funds were loaned to Dr. Titomirov
for payment of federal and state income taxes. The principal and interest due
thereon associated with this note were fully repaid in July 2000.
In June 1999, we granted Mr. D'Andrea, one of our directors, an option to
purchase 25,050 shares of our common stock at an exercise price of $0.30 per
share. Such options are subject to conditions relating to vesting and continued
participation on our board of directors.
In March 2000, Dr. Titomirov entered into a private transaction for the
sale of 835,000 shares to FBR Technology Venture Partners II, LP at $5.99 per
share. In March 2000, Dr. Titomirov and Dr. Babenko, our Chief Technology
Officer, entered into a private transaction with certain of the Weiss, Peck &
Greer entities disclosed in the "Principal Stockholders" table for the sale of
584,500 and 668,000 of their shares of common stock, respectively, at $5.99 per
share. In June 2000, Drs. Titomirov and Babenko entered into a private
transaction for the sale of 835,000 and 275,550 of their shares of common
stock, respectively, at approximately $6.37 per share to Paul Capital Partners
VI Holdings. In connection with these transactions, Paul Capital Partners VI
Holdings and the Weiss, Peck & Greer entities became parties to our
non-preferred holder rights agreement and received certain registration rights.
In the event that we are able to effect a short form registration, we may be
required to file such a registration statement on not more than two occasions.
In addition, we granted certain piggyback registration rights by which the
parties to the non-preferred rights agreement can, subject to certain
circumstances, include shares of their common stock in a registration statement
filed by us. These short form and piggyback registration rights terminate five
years from the date of this prospectus. In addition, such rights shall earlier
terminate if the shares of a party to the agreement can be sold under Rule 144
in any 90 day period or if their share ownership falls below a certain level.
In June 2000, we sold 156,954 shares of our common stock to ETP/FBR
Genomic Fund, LP, at $6.37 per share, for aggregate proceeds to us of $1
million in cash. ETP/FBR Genomic Fund's general partner is ETP/FBR Genomic
Venture Capital Partners, LLC which is controlled by Emerging Technology
Partners, LLC. ETP/FBR Genomic Fund, LP is a recently formed venture capital
fund that intends to invest primarily in companies involved in genomics
technology. Dr. Wei Wu He, one of our directors, is the General Partner of
Emerging Technology Partners, LLC, a venture capital fund he founded. Dr. He
was one of the first employees at Human Genome Sciences, Inc. Dr. He has
assisted us with marketing our GenoMax product. We believe that a relationship
with ETP/FBR Genomic Fund, LP will be an important strategic benefit in the
future. A limited partner of ETP/FBR Genomic Fund, LP is under common ownership
with FBR Venture Capital Managers, Inc., the beneficial owner of our
outstanding shares of Series A stock for which Hooks Johnston, one of our
directors, serves as the Managing Director. In August 2000, Dr. Bernstein
entered into a private transaction with ETP/FBR Genomic Fund, LP for the sale
of 83,900 shares of common stock, at $6.30 per share. In connection with these
transactions, ETP/FBR Genomic Fund, LP joined as a party to our non-preferred
holder rights agreement and received certain registration rights described
above.
In September 2000, ETP/FBR Genomic Fund, LP purchased an aggregate of
300,000 shares of our common stock at $11.00 per share from existing
stockholders and option holders, including purchases of 65,000 shares from Dr.
Bernstein, 45,000 shares from Dr. Babenko, 35,000 shares from Mr. Sullivan, our
Senior Vice President of Marketing and Sales, and 35,000 shares from Mr.
Lehnen, our Chief Financial
66
<PAGE>
Officer. Each of Messrs. Bernstein, Babenko, Sullivan and Lehnen exercised
vested options in order to deliver shares to ETP/FBR Genomic Fund, LP under
these agreements. The options exercised by Messrs. Bernstein, Babenko, Sullivan
and Lehnen amounted, in each case, to less than 5% of their respective vested
options.
We believe that the terms of each of the transactions described in this
section are no less favorable to us than that we could have obtained from
disinterested third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of September 27,
2000 for:
o each person, entity, or group known by us to own beneficially more than
5% of our outstanding common stock;
o each named executive officer and each of our directors; and
o our directors and executive officers as a group.
Unless otherwise indicated, the address of each person identified is c/o
InforMax, Inc., 6010 Executive Boulevard, 10th Floor, Rockville, MD 20852.
The percentages shown are based on 13,657,720 shares of common stock
outstanding prior to this offering as of September 27, 2000, and 18,657,720
shares of common stock outstanding after this offering. A person is deemed as
of any date to have "beneficial ownership" of any security that such person has
a right to acquire within 60 days after such date. Pursuant to Rule 13d-3 under
the Exchange Act, shares of common stock that a person has the right to acquire
pursuant to the exercise of stock options held by that holder that are
exercisable within 60 days of September 27, 2000 are deemed outstanding for the
purpose of computing the percentage ownership of that person, but are not
deemed outstanding for computing the percentage ownership of any other person.
Except as indicated by footnote, and subject to community property laws where
applicable, the persons named in the table have sole voting and investment
power for all shares of common stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
------------------------ -------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
----------------------------------------------- ------------ --------- ------------ ----------
<S> <C> <C> <C> <C>
Alex Titomirov, Ph.D.(1) ...................... 6,112,200 34.1% 6,112,200 26.7%
FBR Venture Capital Managers, Inc.(2) ......... 4,444,312 32.5% 4,444,312 23.8%
1001 19th Street
Arlington, VA 22209
Hooks Johnston(3) ............................. 4,444,312 32.5% 4,444,312 23.8%
Vadim Babenko, Ph.D.(4) ....................... 2,434,950 15.2% 2,434,950 11.6%
James Bernstein, M.D.(5) ...................... 1,948,619 12.7% 1,948,619 9.6%
Amersham Pharmacia Biotech, Inc.(6) ........... 1,587,747 11.6% 1,587,747 8.5%
800 Centennial Avenue
P.O. Box 1327
Piscataway, NJ 08855-1327
Weiss, Peck & Greer, LLC(7) ................... 1,252,497 9.2% 1,252,497 6.7%
One New York Plaza
New York, New York 10004
Paul Capital Partners VI Holdings(8) .......... 1,110,550 8.1% 1,110,550 6.0%
50 California Street
Suite 3000
San Francisco, CA 94111
Timothy Sullivan(9) ........................... 881,830 6.1% 881,830 4.5%
Joseph Lehnen(10) ............................. 716,500 5.0% 716,500 3.7%
Harry D'Andrea(11) ............................ 5,010 * 5,010 *
Andrew Whiteley ............................... -- -- -- --
Wei Wu He(12) ................................. 540,856 4.0% 540,856 2.9%
All directors and executive officers as a group
(9 persons)(13) .............................. 17,084,277 72.8% 17,084,277 60.0%
</TABLE>
----------
* Represents less than 1% of the outstanding shares of common stock.
(1) Includes 4,258,333 shares issuable upon exercise of vested options.
(2) Includes 2,161,265 shares of our Series A preferred stock to be converted
into 3,609,312 shares of common stock immediately prior to the closing of
this offering. All shares held by FBR/TVP II Employee Fund, L.P., FBR/TVP
II Employee Fund II, L.P., FBR/TVP II Employee Fund III, L.P., FBR
Technology Venture Partners II, L.P., and FBR Technology Venture Partners
II (QP), L.P. FBR Venture Capital Managers, Inc. is the general partner of
each of the limited partnerships. Mr. Johnston, one of our directors, is
the Managing Director of FBR Venture Capital Managers, Inc.
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(3) Represents shares held by FBR/TVP II Employee Fund, L.P., FBR/TVP II
Employee Fund II, L.P., FBR/TVP II Employee Fund III, L.P., FBR Technology
Venture Partners II, L.P., and FBR Technology Venture Partners II (QP),
L.P. FBR Venture Capital Managers, Inc. is the general partner of each of
the limited partnerships. Mr. Johnston is a Managing Director of FBR
Venture Capital Managers, Inc.
(4) Includes 2,351,450 shares issuable upon exercise of vested options.
(5) Includes 1,631,319 shares issuable upon exercise of vested options,
417,500 of which are held by family trusts over which Dr. Bernstein has
voting and dispositive power.
(6) Includes 950,747 shares of our Series B preferred stock to be converted
into 1,587,747 shares of common stock immediately prior to the closing of
this offering. Mr. Whiteley, one of our directors, is a Vice President of
Amersham Pharmacia Biotech, Inc.
(7) Represents (a) 71,966 shares held of record by WPG Networking Overseas
Master Fund, L.P., (b) 343,360 shares held of record by WPG Institutional
Software Fund, L.P., (c) 300,902 shares held of record by WPG Raytheon
Networking Fund, L.P., (d) 318,211 shares held of record by WPG Raytheon
Software Fund, L.P., (e) 170,964 shares held of record by WPG Software
Fund, L.P., (f) 45,424 shares held of record by WPG Networking QP Fund,
L.P., and (g) 1,670 shares held of record by Raj Mehra. Messrs. Raj Mehra
and Ben Taylor are the general partners of each of the entities identified
in (a) through (f) above and share voting and dispositive power for these
shares.
(8) The general partner of which Paul Capital Partners VI is Paul Capital
Management, Inc. LLC, of which Bryon T. Sheets is the manager.
(9) Represents 881,830 shares issuable upon exercise of vested stock options.
(10) Includes 686,500 shares issuable upon exercise of vested stock options.
(11) Includes 5,010 shares issuable upon exercise of vested stock options.
(12) Represents 540,856 shares held by ETP/FBR Genomic Fund, LP, which is
controlled by Emerging Technology Partners, LLC, of which Dr. Wei Wu He is
the General Partner.
(13) Includes 9,814,442 shares issuable upon exercise of vested stock options.
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DESCRIPTION OF CAPITAL STOCK
At the time of the closing of this offering, our authorized capital stock
will consist of 120 million shares, including:
o 100 million shares of common stock, par value $0.001 per share,
18,657,720 of which will be outstanding upon completion of this offering;
and
o 20 million shares of preferred stock, par value $0.01 per share, none of
which will be outstanding upon completion of this offering.
The following is a summary of various provisions of our common stock and
preferred stock. The following summary does not purport to be complete and is
subject to, and is qualified in its entirety by, the provisions of our amended
and restated certificate of incorporation and amended and restated bylaws,
where such rights are set forth in full, and the provisions of applicable law.
COMMON STOCK
As of September 27, 2000, there were 8,460,661 shares of common stock
issued and outstanding and held of record by 68 stockholders. An additional
5,197,059 shares of our common stock will be issued upon the automatic
conversion of all outstanding shares of our preferred stock immediately prior
to the closing of this offering. There will be 18,657,720 shares of common
stock outstanding after giving effect to the sale of the shares of common stock
offered hereby. See "Shares Eligible for Future Sale" for information regarding
the number of shares of common stock underlying outstanding options.
Voting Rights. The holders of our common stock are entitled to one vote
per share on all matters to be voted on by stockholders. Holders of our common
stock are not entitled to cumulate their votes in the election of directors.
Generally, all matters on which stockholders will vote must be approved by a
majority of the votes entitled to be cast by all shares of common stock present
in person or represented by proxy, subject to any voting rights granted to
holders of any preferred stock.
Dividends. Holders of our common stock are entitled to share ratably in
any dividends declared by our board of directors, subject to any priority
dividend rights of any preferred stock we may issue in the future. We do not
intend to pay cash dividends on our common stock for the foreseeable future.
This is because we intend to retain our cash for working capital and to finance
our planned growth. However, our board of directors is free to change our
dividend policy in the future, based upon factors such as our results of
operations, financial condition, cash flow, cash needs, and future prospects.
If our board of directors were to change our dividend policy, so long as we
have any amount outstanding under our credit facilities with PNC Bank, National
Association, we would be required to obtain PNC Bank's written consent prior to
the declaration or payment of such dividends.
Liquidation Rights. If we are liquidated, dissolved, or wound up, we must
first pay all amounts we owe our creditors and then pay the full amounts
required to be paid to holders of any shares of our preferred stock then
outstanding before we may make any payments to holders of shares of our common
stock. All holders of shares of our common stock are entitled to share ratably
in any assets available for distribution to them, after all of our creditors
have been satisfied and we have paid the liquidation preferences of any of our
preferred stock.
Other Rights. No shares of our common stock are subject to redemption by
us. Holders of shares of our common stock do not have any preemptive rights to
purchase additional shares of our common stock.
All of our shares of our common stock to be outstanding after this
offering will be validly issued, fully paid and nonassessable.
PREFERRED STOCK
As of September 27, 2000, there were 3,112,012 shares of our redeemable
convertible preferred stock authorized, 2,161,265 of which were designated
Series A preferred stock and 950,747 of which were designated Series B
preferred stock, each issued and outstanding. Immediately prior to the closing
of this offering, all of our outstanding shares of preferred stock will be
converted into shares of our common stock.
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Our amended and restated certificate of incorporation authorizes our board
of directors to create and issue preferred stock from time to time in one or
more classes or series. In creating and issuing a class or series of preferred
stock, our board of directors, without further vote of our stockholders, may
determine the exact terms of the class or series, including the following:
o the number of shares constituting the series and the distinctive
designation of the series;
o the dividend rate on the shares of the series; whether dividends will
be cumulative, and if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of the
series;
o whether the series will have voting rights in addition to the voting
rights provided by law, and if so, the terms of the voting rights;
o whether the series will have conversion privileges and, if so, the
terms and conditions of conversion;
o whether the shares of the series will be redeemable, and, if so, the
dates, terms, and conditions of redemption;
o whether the series will have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of
the sinking fund; and
o the rights of the shares of the series in the event of our voluntary
or involuntary liquidation, dissolution, or winding up and the
relative rights or priority, if any, of payment of shares of the
series.
REGISTRATION RIGHTS
Amersham Pharmacia Biotech, each of the FBR entities disclosed in the
"Principal Stockholders" table, as assignees of FBR Technology Venture Partners
II, LP, each of the Weiss, Peck & Greer entities disclosed in such table, Paul
Capital Partners VI Holdings, PNC Bank, National Association, Raj Mehra, ETP/FBR
Genomic Fund, LP and three accredited investors have certain registration rights
as to the 8,541,276 shares of common stock or warrants to acquire common stock
they will own upon the closing of this offering. The FBR entities are entitled
to certain demand registration rights pursuant to which they may require us to
file a registration statement under the Securities Act with respect to their
shares of common stock. Beginning on the date 180 days from the effectiveness of
our registration statement in connection with this offering, the FBR entities,
may, subject to certain conditions, require us to use our best efforts to effect
a registration statement on their behalf on not more than two occasions. In the
event that we are able to register our shares through use of a short-form
registration under the Securities Act, the FBR entities, Amersham, WPG, Paul
Capital, ETP/FBR Genomic Fund, LP and the accredited investors may, subject to
certain conditions require that we register their shares on such form, provided
that we have not filed a short form registration within 12 months of the date of
the demand. The FBR entities are permitted up to four short form registration
demands, while WPG, Paul Capital, ETP/FBR Genomic Fund, LP and the three
accredited investors together are permitted up to two short form registration
demands. Amersham does not have a similar limit with regard to its short form
registration rights.
In the event that we propose to register any of our securities for sale
under the Securities Act, except for certain employee benefit plans or as part
of certain corporate reorganizations, each of the stockholders above are
entitled to notice of such registration and to "piggyback" onto and include its
shares in that registration. These registration rights are subject to conditions
and limitations, including the right of our underwriters to limit the number of
shares included in such offering and our right to delay registration because it
would be seriously detrimental to us and our stockholders. All registration
rights above terminate not later than five years from the date of effectiveness
of our registration statement in this offering, except for the FBR entities' and
Amersham's respective "piggyback" and short form registration rights which
terminate when all shares held by the investor can be sold under Rule 144 in any
90 day period, or in the case of the FBR entities, if the FBR entities'
ownership of our
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stock falls below 1% of our then outstanding shares. We are generally
responsible for the costs and expenses of all such registrations. We are
required to obtain the consent of the holders of two-thirds of the FBR entities'
and Amersham's shares prior to the granting of equal or more favorable
registration rights to any third party.
SHAREHOLDERS' AGREEMENT
We are party to a shareholders' agreement with Drs. Titomirov and
Bernstein, the "Founders," certain individual shareholders who together with the
Founders are referred to as the "Individual Parties", and each of the Weiss,
Peck & Greer entities noted in the Principal Stockholder table. Unless
terminated in writing, the agreement continues in effect until the earlier of
the date on which all our common stock is owned by one of the parties to the
agreement or such date on which more than 50% of our outstanding shares of
common stock are registered under the Securities Act. The agreement provides
that so long as the Founders continue to hold shares of common stock, have not
departed from InforMax and are able to perform services for InforMax of at least
15 eight-hour days during any six month period, the Individual Parties will vote
all of their shares to elect each of the Founders to our board of directors. The
shareholders' agreement contains certain restrictions on transfer that limit the
ability of the parties to sell, transfer, or otherwise dispose of their shares.
The agreement provides that upon any separation from InforMax of an Individual
Party, we and the remaining Individual Parties have a six-month option to
purchase all, but not less than all of the separated party's shares. A
separation from InforMax includes, for example, disability, death, resignation
or termination other than for cause. If we terminate the employment of any
Founder for cause, we and the remaining Individual Parties will have a six month
option to purchase any or all of the terminated Founder's shares. The Individual
Parties may not sell, transfer or otherwise dispose of their shares to a third
party without giving the other parties notice of their intent to sell, and a
right of first refusal to purchase all, but not less than all, of such shares on
the same terms. Transfer of shares to third persons, including family members,
is permitted, provided such persons become bound by the terms of the agreement.
During the term of the agreement, and for a period of two years after its
termination, the Individual Parties have agreed not to compete, directly or
indirectly, with us in the development and licensing of our bioinformatic
software. In connection with a private sale transaction, Paul Capital was
assigned certain rights and assumed all obligations and responsibilities as a
shareholder party under the shareholders' agreement with regard to its shares of
common stock purchased from Dr. Titomirov.
DIRECTORS' LIABILITIES
As permitted by the Delaware General Corporation Law, as amended, the
"DGCL," our certificate of incorporation limits the liability of our directors
to our company or our stockholders for monetary damages for breach of fiduciary
duty as directors to the fullest extent permitted by the DGCL as it now exists
or as it may be amended. As of the date of this prospectus, the DGCL permits
limitations of liability for director's breach of fiduciary duty other than
liability:
o for any breach of the director's duty of loyalty to our company or our
stockholders,
o for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law,
o under Section 174 of the DGCL, or
o for any transaction from which the director derived an improper
personal benefit.
In addition, our bylaws provide that we will indemnify, to the fullest extent
permitted under the DGCL, all of our directors, officers, employees and agents
for acts performed on our behalf in such capacity.
ANTI-TAKEOVER PROVISIONS OF CHARTER DOCUMENTS AND DELAWARE LAW
We are subject to the provisions of Section 203 of the DGCL. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date that the person became an interested
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stockholder unless, with some exceptions, the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale or other transaction resulting in a financial benefit to the
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years prior, did own, 15% or
more of the corporation's outstanding voting stock.
Immediately prior to completion of this offering, our charter documents
also will contain provisions that may have the effect of delaying or preventing
changes in control or management of InforMax, which could have an adverse effect
on the market price of our common stock. For example, our charter documents will
contain a provision eliminating the ability of stockholders to take actions by
written consent. In addition, our amended and restated certificate of
incorporation to be effective immediately prior to completion of this offering
provides that the board of directors will be divided into three classes, each
serving staggered three-year terms, following the completion of this offering:
o Class I, whose initial term will expire at the annual meeting, or
special meeting held in lieu of an annual meeting, of stockholders
held in 2001;
o Class II, whose initial term will expire at the annual meeting, or
special meeting held in lieu of an annual meeting, of stockholders
held in 2002; and
o Class III, whose initial term will expire at the annual meeting, or
special meeting held in lieu of an annual meeting, of stockholders
held in 2003.
As a result, only one class of directors will be elected at each annual meeting
of stockholders of InforMax, with the other classes continuing for the remainder
of their respective terms.
Our amended and restated certificate of incorporation permits our board of
directors to issue up to 20 million shares of preferred stock and to fix the
rights, preferences, privileges and restrictions, including voting rights, of
these shares without any further vote or action by the stockholders. Issuances
of our preferred stock could have the effect of delaying, deferring or
preventing a change in control, as removal of our board of directors and
management may be rendered more difficult. Issuances of our preferred stock may
have a negative impact on the ability of our stockholders to participate, if
applicable, in a tender offer or exchange offer for the common stock, which
would diminish the value of our common stock.
Further, our issuance of preferred stock also could decrease the amount of
any earnings and assets available for distribution to the holders of common
stock or could negatively affect the rights and powers, including voting rights,
of the holders of the common stock.
Our bylaws will not permit our stockholders to call a special meeting of
stockholders. Under the bylaws, only our President, Chairman of the board of
directors, or a majority of the board of directors will be able to call a
special meeting. The bylaws also require that stockholders give advance notice
to our secretary of any nominations for director or other business to be brought
by stockholders at any stockholders' meeting. These provisions may delay or
prevent changes of control or management.
TRANSFER AGENT
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock.
Future sales of substantial amounts of our common stock, or even the possibility
of future sales, could reduce the prevailing market price of our common stock.
As described below, only a limited number of shares of common stock currently
held by our stockholders will be available for sale shortly after this offering
because of contractual and legal restrictions on resale. Sales of substantial
amounts of common stock in the public market after the restrictions lapse could
negatively affect the prevailing market price and our ability to raise equity
capital in the future.
Upon the closing of this offering, 18,657,720 shares of our common stock
will be outstanding based on the number of shares of our preferred stock and
common stock outstanding as of September 27, 2000, and assuming no exercise of
the underwriters' over-allotment option. Of these shares, the 5,000,000 shares
of common stock being sold in this offering will be freely tradable without
restriction under the Securities Act, unless purchased by an "affiliate" of ours
as such term is defined in the Securities Act. The remaining 13,657,720 shares
of common stock were issued and sold by us in private transactions and are
"restricted securities" that are eligible for public sale only if registered
under the Securities Act or sold in compliance with Rule 144 under that Act.
All of our officers, directors, and certain shareholders, including all
holders of 1.5% or more of our outstanding shares, have signed lock-up
agreements, in which they agreed that they will not, directly or indirectly,
offer, sell, or agree to sell, or otherwise dispose of any shares of our common
stock or other securities without the prior written consent of Bear, Stearns &
Co. Inc., for a period of 180 days from the date of this prospectus.
Rule 144. In general, under Rule 144 of the Securities Act as currently in
effect, beginning 90 days after the date of this prospectus, a person or persons
whose shares are aggregated, who has beneficially owned restricted securities
for at least one year, including the holding period of any earlier owner except
an affiliate, will be entitled to sell within any three month period a number of
shares that do not exceed the greater of:
o 1% of the number of shares of our common stock then outstanding, which
will equal approximately 186,577 shares immediately after this
offering; or
o the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks before the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.
Rule 144(k). Under Rule 144(k) of the Securities Act as currently in
effect, a person who is not one of our affiliates at any time during the 90 days
before a sale, and who has beneficially owned the shares proposed to be sold for
at least two years, including the holding period of any earlier owner except an
affiliate, is entitled to sell these shares without complying with the manner of
sale, public information, volume limitation, or notice provisions of Rule 144.
Registration Rights. As described above, holders of 8,541,276 shares of our
common stock, or warrants to acquire common stock, that are restricted
securities will be entitled to certain registration rights covering their
shares. Registration of their shares under the Securities Act would result in
these shares becoming freely tradable without restriction under the Securities
Act immediately upon the effectiveness of that registration, except for shares
purchased by affiliates.
Rule 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants, or advisors, other than affiliates,
who purchases or receives shares from us in connection with our equity incentive
plan or other written agreement will be eligible to resell their shares
beginning 90 days after the date of this prospectus, subject only to the manner
of sale provisions of Rule 144. Affiliates will be able to sell such shares
under Rule 144 without compliance with its holding period requirements.
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Stock Options. Following this offering we intend to file a registration
statement on Form S-8 under the Securities Act covering the shares of common
stock underlying options held by our officers, directors and employees,
including shares reserved for issuance under our equity incentive compensation
plan. The registration statement on Form S-8 will become effective upon filing
with the Securities and Exchange Commission. Accordingly, shares registered
under that registration statement will, subject to limitations applicable to
affiliates, be available for sale in the open market after the filing, except
those shares subject to lock-up agreements and unvested shares.
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UNDERWRITING
Subject to the terms and conditions provided in an agreement among the
underwriters and us, the underwriters named below, through their representatives
Bear, Stearns & Co. Inc., U.S. Bancorp Piper Jaffray Inc. and Adams, Harkness &
Hill, Inc., have severally agreed to purchase from us the aggregate number of
shares of our common stock indicated opposite their names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ------------
<S> <C>
Bear, Stearns & Co. Inc. ................................... 1,925,000
U.S. Bancorp Piper Jaffray Inc. ............................ 787,500
Adams, Harkness & Hill, Inc. ............................... 787,500
Banc of America Securities LLC ............................. 100,000
Chase Securities, Inc. ..................................... 100,000
Dain Rauscher Incorporated ................................. 100,000
Deutsche Bank Securities Inc. .............................. 100,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated ......... 100,000
Morgan Stanley & Co. Incorporated .......................... 100,000
Thomas Weisel Partners LLC ................................. 100,000
Robert W. Baird & Co. Incorporated ......................... 50,000
William Blair & Company, L.L.C. ............................ 50,000
Chatsworth Securities LLC .................................. 50,000
Gaines, Berland Inc. ....................................... 50,000
Gerard Klauer Mattison & Co., LLC .......................... 50,000
Jesup & Lamont Securities Corporation ...................... 50,000
Josephthal & Co. Inc. ...................................... 50,000
Ladenburg Thalmann & Co. Inc. .............................. 50,000
Legg Mason Wood Walker, Incorporated ....................... 50,000
McDonald Investments Inc., a KeyCorp Company ............... 50,000
Needham & Company, Inc. .................................... 50,000
The Robinson-Humphrey Company, LLC ......................... 50,000
Sanders Morris Harris ...................................... 50,000
Sands Brothers & Co., Ltd. ................................. 50,000
Scott & Stringfellow, Inc. ................................. 50,000
Wunderlich Securities, Inc. ................................ 50,000
Total ...................................................... 5,000,000
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to approval of various legal matters by their counsel
and to various other conditions, including delivery of legal opinions by our
counsel, the delivery of a letter by our independent auditors and the accuracy
of the representations and warranties made by us in the underwriting agreement.
Under the underwriting agreement, the underwriters are obliged to purchase and
pay for all the above shares of our common stock if any are purchased.
PUBLIC OFFERING PRICE
The underwriters propose to offer the shares of our common stock directly
to the public at the offering price indicated on the cover page of this
prospectus and at that price less a concession not in excess of $0.67 per share
of common stock to other dealers who are members of the National Association of
Securities Dealers, Inc. The underwriters may allow, and those dealers may
reallow, concessions not in excess of $0.10 per share of common stock to other
underwriters or to other dealers. After this offering, the offering price,
concessions and other selling terms may be changed by the underwriters. Our
common stock is offered subject to receipt and acceptance by the underwriters
and subject to other conditions, including the right to reject orders in whole
or in part. The underwriters have informed us that the underwriters do not
expect to confirm sales of common stock to any accounts over which they exercise
discretionary authority.
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The following table summarizes the per share and total public offering
price of the shares of common stock in the offering, the underwriting
compensation to be paid to the underwriters by us, and the proceeds of the
offering, before expenses, to us. The information presented assumes either no
exercise or full exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
TOTAL
----------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
----------- ---------------- ---------------
<S> <C> <C> <C>
Public offering price ........................................ $ 16.00 $80,000,000 $92,000,000
Underwriting discounts and commissions payable by us ......... 1.12 5,600,000 6,440,000
Proceeds, before expenses, to us ............................. 14.88 74,400,000 85,560,000
</TABLE>
The underwriting discount and commission per share is equal to the public
offering price per share of our common stock less the amount paid by the
underwriters to us per share of common stock.
We estimate total expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will be
approximately $ 1,200,000.
OVER-ALLOTMENT OPTION TO PURCHASE ADDITIONAL SHARES
We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of 750,000 additional shares of our common stock
exercisable at the offering price less the underwriting discounts and
commissions, each as provided on the cover page of this prospectus. If the
underwriters exercise this option in whole or in part, then each of the
underwriters will be obligated to purchase additional shares of common stock in
proportion to their respective purchase commitments as shown in the table set
forth above, subject to various conditions.
INDEMNIFICATION AND CONTRIBUTION
The underwriting agreement provides that we will indemnify the underwriters
against liabilities specified in the underwriting agreement under the Securities
Act, including liabilities arising from material misstatements or omissions in
connection with disclosure, or will contribute to payments that the underwriters
may be required to make in respect of those liabilities. The underwriters have
agreed to indemnify us against liabilities specified in the underwriting
agreement under the Securities Act. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to the underwriters, the
underwriters have been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
LOCK-UP AGREEMENTS
Our directors and officers and certain stockholders, including all holders
of 1.5% or more of our outstanding shares, have agreed that they will not,
directly or indirectly, offer, sell or agree to sell, or otherwise dispose of
any shares of our common stock or convertible securities without the prior
written consent of Bear, Stearns & Co. Inc. for a period of 180 days from the
date of this prospectus.
In addition, we have agreed that for a period of 180 days from the date of
this prospectus, we will not, without the prior written consent of Bear, Stearns
& Co. Inc., directly or indirectly:
o issue, offer, sell, grant any option, warrant or other right to
purchase or otherwise dispose of any shares of common stock or
convertible securities,
o pledge, make any short sale or maintain any short position, establish
or maintain a put position,
o enter into any swap, derivative transaction or other arrangement that
transfers to another any of the economic consequences of ownership of
common stock, or
o otherwise dispose of any common stock or convertible securities or any
interest in our common stock or convertible securities.
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During this lock-up period, we may, however, issue, and grant options to
purchase, shares of common stock and restricted stock under our equity incentive
compensation plan, so long as the recipients of any such shares are themselves
subject to the 180 day lock-up. During this lock-up period, subject to various
conditions, we may also issue additional common stock or securities convertible
into common stock in connection with collaborative and licensing arrangements or
to pay for possible acquisitions, so long as the recipients of such securities
are also subject to the 180 day lock-up period.
NASDAQ NATIONAL MARKET QUOTATION
Before this offering, there has been no public market for our common stock.
As a result, the initial public offering price for the common stock has been
determined by negotiations between us and the representatives of the
underwriters. Among the factors considered in determining the initial public
offering price were our future prospects and the future prospects of our
industry in general, our sales, earnings and certain other financial and
operating information in recent periods, and the price-earnings ratios,
price-sales ratios, market prices of securities and certain financial and
operating information of companies engaged in activities similar to ours. Our
common stock has been approved for listing on the Nasdaq National Market, under
the symbol "INMX." We cannot assure you, however, that an active or orderly
trading market will develop for our common stock or that the common stock will
trade in the public market subsequent to this offering at or above the initial
offering price.
STABILIZATION, SYNDICATE SHORT POSITION AND PENALTY BIDS
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain, or otherwise affect the
market price of our common stock.
The underwriters may over-allot shares of our common stock in connection
with this offering, thus creating a short position for their own account. Short
sales involve the sale by the underwriters of a greater number of shares than
they are committed to purchase in the offering. A short position may involve
either "covered" short sales or "naked" short sales. Covered short sales are
sales made in an amount not greater than the underwriters' over-allotment option
to purchase additional shares in the offering described above. The underwriters
may close out any covered short position by either exercising their
over-allotment option or purchasing shares in the open market. In determining
the source of shares to close the covered short position, the underwriters will
consider, among other things, the price of shares available for purchase in the
open market as compared to the price at which they may purchase shares through
the over-allotment option. Naked short sales are sales in excess of the
over-allotment option. The underwriters must close out any naked short position
by purchasing shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there may be downward
pressure on the price of the shares in the open market after pricing that could
adversely affect investors who purchase in the offering.
Accordingly, to cover these short sales positions or to stabilize the
market price of our common stock, the underwriters may bid for, and purchase,
shares of our common stock in the open market. These transactions may be
effected on the Nasdaq National Market or otherwise. Additionally, the
representatives, on behalf of the underwriters, may also reclaim selling
concessions allowed to an underwriter or dealer. Similar to other purchase
transactions, the underwriters' purchases to cover the syndicate short sales or
to stabilize the market price of our common stock may have the effect of raising
or maintaining the market price of our common stock or preventing or mitigating
a decline in the market price of our common stock. As a result, the price of
shares of our common stock may be higher than the price that might otherwise
exist in the open market. No representation is made as to the magnitude or
effect of any such stabilization or other activities. The underwriters are not
required to engage in these activities and, if commenced, may end any of these
activities at any time.
DIRECTED SHARE PROGRAM
At our request, the underwriters have reserved for sale at the initial
public offering price up to 250,000 shares of common stock to be sold in this
offering for sale to our directors, officers, employees, business associates,
vendors and related persons. Purchases of reserved shares are to be
78
<PAGE>
made through an account at Bear, Stearns & Co. Inc. in accordance with Bear,
Stearns & Co. Inc.'s procedures for opening an account and transacting in
securities. The number of shares available for sale to the general public will
be reduced to the extent that any reserved shares are purchased. Any reserved
shares not purchased by our directors, officers, employees, business associates,
vendors and related persons will be offered by the underwriters to the general
public on the same terms as the other shares offered by this prospectus.
LEGAL MATTERS
Certain legal matters, including the legal validity of the shares of common
stock we are offering, will be passed upon for us by our counsel, Hogan &
Hartson L.L.P., Washington, D.C. Certain legal matters in connection with this
offering will be passed upon for the underwriters by Coudert Brothers, New York,
New York. A partner of Hogan & Hartson L.L.P. beneficially owns 56,359 shares of
our common stock.
EXPERTS
The consolidated financial statements as of December 31, 1998 and 1999 and
for each of the three years in the period ended December 31, 1999 included in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission under the Securities Act covering the shares of our common
stock offered by this prospectus. The registration statement contains certain
exhibits and schedules described in this prospectus. While the information
contained in this prospectus is complete in all material respects, the full text
of contracts or documents that are filed as exhibits to the registration
statement are available for your review, excluding portions for which
confidential treatment has been granted by the Securities and Exchange
Commission. A copy of our registration statement, including the exhibits and
schedules, may be read and copied at the Securities and Exchange Commission's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Information on the operation of the Public Reference Room may be obtained by
calling the Securities and Exchange Commission at 1-800-SEC-0330. Also, the
Securities and Exchange Commission maintains an Internet site at
http://www.sec.gov, from which you can electronically access our registration
statement, including the exhibits and schedules attached to it.
As a result of this offering, we will become subject to the full
informational requirements of the Securities Exchange Act of 1934. We intend to
fulfill these requirements by filing periodic reports and other information with
the Securities and Exchange Commission. We intend to furnish our stockholders
with annual reports containing consolidated financial statements certified by an
independent public accounting firm.
79
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report ............................................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999 and as of
June 30, 2000 -- actual and proforma, (unaudited) ...................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1997, 1998
and 1999 and for the six months ended June 30, 1999 and 2000 (unaudited) ............... F-5
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years
ended December 31, 1997, 1998 and 1999 and for the six months ended
June 30, 2000 (unaudited) .............................................................. F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1998
and 1999 and for the six months ended June 30, 1999 and 2000 (unaudited) ............... F-7
Notes to Consolidated Financial Statements .............................................. F-10
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
InforMax, Inc. and Subsidiary
Rockville, Maryland
We have audited the accompanying consolidated balance sheets of InforMax, Inc.
and subsidiary as of December 31, 1998 and 1999, and the related consolidated
statements of operations, changes in stockholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1999. 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 of America. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of InforMax, Inc. and subsidiary as of
December 31, 1998 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE LLP
McLean, Virginia
June 7, 2000, except for Note 16, paragraphs six, seven, eight, nine, ten,
eleven, twelve, thirteen, fourteen and fifteen as to which the dates are June
19, 2000, June 23, 2000, June 29, 2000, June 30, 2000, July 7, 2000, August 16,
2000, September 8, 2000, September 11, 2000, September 21, 2000 and September
26, 2000, respectively.
F-2
<PAGE>
INFORMAX, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 2000
----------------------------- --------------------------------
(PRO FORMA)
1998 1999 ACTUAL (NOTE 2)
ASSETS ------------- ------------- --------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ................. $ 295,669 $1,398,937 $ 2,090,541 $12,090,541
Accounts receivable (net of allowance for
doubtful accounts of $15,000 at December
31, 1998 and 1999 and $20,000 at June 30,
2000 (unaudited)), respectively ......... 1,550,328 2,640,485 3,666,023 3,666,023
Income tax receivable ..................... -- 122,446 -- --
Deferred tax asset ........................ 581,353 676,379 52,872 52,872
Prepaid expenses .......................... -- 222,473 192,157 192,157
Deferred offering costs ................... -- -- 373,740 373,740
Other current assets ...................... 9,435 28,837 35,731 35,731
---------- ---------- ----------- -----------
Total current assets ................... 2,436,785 5,089,557 6,411,064 16,411,064
---------- ---------- ----------- -----------
Property and equipment:
Computer equipment ........................ 434,669 1,060,435 1,684,488 1,684,488
Purchased software ........................ 4,340 58,306 118,822 118,822
Office furniture and equipment ............ 46,236 537,908 1,063,212 1,063,212
Leasehold improvements .................... -- 155,122 243,316 243,316
---------- ---------- ----------- -----------
485,245 1,811,771 3,109,838 3,109,838
Less: Accumulated depreciation and
amortization ............................ (114,426) (375,472) (717,989) (717,989)
---------- ---------- ----------- -----------
Property and equipment - net ........... 370,819 1,436,299 2,391,849 2,391,849
---------- ---------- ----------- -----------
Other assets:
Deposits .................................. 10,883 67,996 81,519 81,519
Loan to shareholder ....................... -- 69,360 -- --
Deferred tax asset ........................ 64,341 601,500 1,225,007 1,225,007
---------- ---------- ----------- -----------
Total other assets ..................... 75,224 738,856 1,306,526 1,306,526
---------- ---------- ----------- -----------
Total assets ............................... $2,882,828 $7,264,712 $10,109,439 $20,109,439
========== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
INFORMAX, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 2000
----------------------------- -------------------------------
PRO FORMA
1998 1999 ACTUAL (NOTE 2)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ------------- --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Accounts payable ............................................ $ 391,477 $ 404,016 $ 1,145,226 $ 1,145,226
Accounts payable to related parties ......................... 23,325 21,806 352,847 352,847
Accrued liabilities ......................................... 341,972 933,125 484,488 484,488
Line of credit .............................................. 200,000 550,000 1,650,000 1,650,000
Equipment loan facility - current portion ................... -- 337,302 664,000 664,000
Notes payable ............................................... 64,415 -- -- --
Capital lease obligations - current portion ................. 114,106 113,293 96,815 96,815
Deferred revenue ............................................ 1,489,389 1,689,997 3,301,025 3,301,025
Income taxes payable ........................................ 151,296 -- -- --
Billings in excess of cost on government contracts .......... 79,796 -- -- --
---------- ------------ ------------ ------------
Total current liabilities ................................ 2,855,776 4,049,539 7,694,401 7,694,401
---------- ------------ ------------ ------------
Long-term liabilities:
Capital lease obligations - less current portion ............ 182,346 92,208 48,873 48,873
Equipment loan facility - less current portion .............. -- 623,245 1,241,973 1,241,973
Deferred revenue ............................................ 249,886 121,673 309,704 309,704
---------- ------------ ------------ ------------
Total long-term liabilities .............................. 432,232 837,126 1,600,550 1,600,550
---------- ------------ ------------ ------------
Commitments and contingencies
(Notes 13 and 14 ) ..........................................
Series A redeemable convertible preferred stock, par value
$0.01; no shares authorized, issued and outstanding at
December 31, 1998, 2,161,265 shares authorized, issued, and
outstanding at December 31, 1999 and June 30, 2000
(unaudited) and no shares authorized, issued and outstanding
at June 30, 2000 pro forma (unaudited),
liquidation preference - $1.85 per share..................... -- 4,095,054 4,263,194 --
---------- ------------ ------------ ------------
Series B redeemable convertible preferred stock, par value
$0.01--no shares authorized, issued and outstanding at
December 31, 1998 and 1999, June 30, 2000 (unaudited),
and June 30, 2000 pro forma (unaudited) ..................... -- -- -- --
---------- ------------ ------------ ------------
Stockholders' equity (deficit):
Common stock - voting, par value $0.001; 100,000,000 shares
authorized; 1,914,822, 2,505,000, 2,254,500, and 12,983,068
shares issued, and 1,664,322, 2,254,500, 2,254,500, and
12,983,068 shares outstanding at December 31, 1998 and 1999,
June 30, 2000 (unaudited), and June 30, 2000 pro forma
(unaudited), respectively ................................. 1,915 2,505 2,255 12,983
Common stock - nonvoting, par value $0.001; 14,931,864
shares authorized; 2,387,098, 2,034,060, 5,531,508 and no
shares issued, and 2,069,798, 1,716,760, 5,531,508, and no
shares outstanding at December 31, 1998 and 1999, June 30,
2000 (unaudited) and June 30, 2000 pro
forma (unaudited), respectively ........................... 2,387 2,034 5,531 --
Subscription receivable ..................................... -- -- (1,013,436) (1,013,436)
Additional paid-in capital .................................. 583,865 970,806 6,260,877 20,518,874
Deferred compensation ....................................... (16,218) (400,208) (461,734) (461,734)
Accumulated deficit ......................................... (858,129) (2,173,144) (8,242,199) (8,242,199)
Treasury stock, 567,800 shares at cost at December 31,
1998 and 1999 and no shares at June 30, 2000
(unaudited) and June 30, 2000 pro forma (unaudited),
respectively .............................................. (119,000) (119,000) -- --
---------- ------------ ------------ ------------
Total stockholders' equity (deficit) ..................... (405,180) (1,717,007) (3,448,706) 10,814,488
---------- ------------ ------------ ------------
Total liabilities and stockholders' equity (deficit) ......... $2,882,828 $ 7,264,712 $ 10,109,439 $ 20,109,439
========== ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
INFORMAX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- -------------------------------
1997 1998 1999 1999 2000
------------- ------------- --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license and customer support .............. $1,334,510 $2,732,382 $ 7,277,627 $ 3,321,877 $ 4,854,534
Professional services .............................. 867,212 1,393,863 2,736,798 1,159,250 1,655,395
---------- ---------- ------------ ----------- ------------
Total revenues .................................. 2,201,722 4,126,245 10,014,425 4,481,127 6,509,929
---------- ---------- ------------ ----------- ------------
Cost of revenues:
Software license and customer support .............. 38,102 190,144 404,848 146,857 233,031
Professional services(1) ........................... 716,059 1,081,021 1,612,167 730,757 879,949
---------- ---------- ------------ ----------- ------------
Total cost of revenues .......................... 754,161 1,271,165 2,017,015 877,614 1,112,980
---------- ---------- ------------ ----------- ------------
Gross profit ........................................ 1,447,561 2,855,080 7,997,410 3,603,513 5,396,949
---------- ---------- ------------ ----------- ------------
Operating expenses:
Selling, general and administrative(2) ............. 1,075,264 2,475,840 6,999,916 2,396,848 7,564,959
Research and development(3) ........................ 365,034 1,162,471 2,597,281 1,129,298 2,471,185
Stock based compensation ........................... 210,695 17,782 138,185 26,391 974,613
Depreciation and amortization ...................... 17,945 93,809 272,548 88,872 342,984
---------- ---------- ------------ ----------- ------------
Total operating expenses ........................ 1,668,938 3,749,902 10,007,930 3,641,409 11,353,741
---------- ---------- ------------ ----------- ------------
Loss from operations ................................ (221,377) (894,822) (2,010,520) (37,896) (5,956,792)
---------- ---------- ------------ ----------- ------------
Other income (expense):
Investment earnings ................................ -- -- 66,342 2,104 15,769
Interest expense ................................... (18,523) (59,910) (86,538) (32,927) (120,005)
Other .............................................. (12,404) (3,313) (10,642) -- (8,027)
---------- ---------- ------------ ----------- ------------
Total other income (expense) .................... (30,927) (63,223) (30,838) (30,823) (112,263)
---------- ---------- ------------ ----------- ------------
Loss before income taxes ............................ (252,304) (958,045) (2,041,358) (68,719) (6,069,055)
Income tax provision (benefit) ...................... (118,224) (391,291) (726,343) 12,870 --
---------- ---------- ------------ ----------- ------------
Net loss ............................................ (134,080) (566,754) (1,315,015) (81,589) (6,069,055)
Accretion of transaction costs on redeemable
convertible preferred stock ........................ $ -- $ -- $ (8,139) $ -- $ (8,136)
Accrued dividend on redeemable convertible
preferred stock .................................... -- -- (168,300) -- (160,002)
---------- ---------- ------------ ----------- ------------
Net loss applicable to common shares ................ $ (134,080) $ (566,754) $ (1,491,454) $ (81,589) $ (6,237,193)
========== ========== ============ =========== ============
Basic net loss applicable per common share(4) ....... $ (0.04) $ (0.16) $ (0.38) $ (0.02) $ (1.18)
========== ========== ============ =========== ============
Diluted net loss applicable per common share(4) ..... $ (0.04) $ (0.16) $ (0.38) $ (0.02) $ (1.18)
========== ========== ============ =========== ============
Weighted average common shares outstanding -
Basic and diluted(4) ............................... 3,132,753 3,611,626 3,874,122 3,795,131 5,268,665
========== ========== ============ =========== ============
</TABLE>
------------------
(1) Cost of revenues -- professional services includes stock based compensation
of $105,539, $-0-, $-0-, $-0-, and $5,497 for the years ended December 31,
1997, 1998, and 1999 and the six month periods ended June 30, 1999 and 2000
(unaudited), respectively.
(2) Selling, general and administrative expenses includes related party legal
expenses of $4,751, $21,256, $227,000, $142,608 and $136,832 and consulting
expenses of $-0-, $34,333, $120,833, $53,000 and $25,000 and excludes stock
based compensation of $76,189, $-0-, $111,019, $9,643 and $845,741 for the
years ended December 31, 1997, 1998, and 1999 and six month periods ended
June 30, 1999 and 2000 (unaudited), respectively.
(3) Research and development expenses excludes stock based compensation of
$134,506, $17,782, $27,166, $16,748 and $128,874 for the years ended
December 31, 1997, 1998 and 1999 and the six month periods ended June 30,
1999 and 2000, (unaudited) respectively.
(4) As restated for the unaudited six month period ended June 30, 2000, see Note
6.
See notes to consolidated financial statements.
F-5
<PAGE>
INFORMAX, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK - VOTING COMMON STOCK - NONVOTING
---------------------------- ----------------------------------------------
ISSUED OUTSTANDING ISSUED OUTSTANDING
SHARES SHARES AMOUNT SHARES SHARES AMOUNT
-------------- ------------- ---------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 ................ 1,914,822 1,914,822 $ 1,915 1,652,131 1,652,131 1,652
Purchase of treasury stock .............. -- (250,500) -- (317,300) --
Issuance of stock options ............... -- -- -- -- -- --
Net loss ................................ -- -- -- -- -- --
--------- --------- ------- --------- --------- -----
Balance, December 31, 1997 .............. 1,914,822 1,664,322 $ 1,915 1,652,131 1,334,831 1,652
Share options exercised ................. -- -- -- 734,967 734,967 735
Issuance of stock options ............... -- -- -- -- -- --
Amortization of deferred
compensation on stock options .......... -- -- -- -- -- --
Net loss ................................ -- -- -- -- -- --
--------- --------- ------- --------- --------- -----
Balance, December 31, 1998 .............. 1,914,822 1,664,322 $ 1,915 2,387,098 2,069,798 2,387
Conversion -- non-voting shares to
voting ................................. 590,178 590,178 590 (590,178) (590,178) (590)
Issuance of common stock ................ -- -- -- 100,200 100,200 100
Share options exercised ................. -- -- -- 136,940 136,940 137
Issuance of stock options ............... -- -- -- -- -- --
Amortization of deferred
compensation on stock options
and restricted stock ................... -- -- -- -- -- --
Accretion of transaction costs on
redeemable convertible preferred
stock .................................. -- -- -- -- -- --
Accrual of dividend on redeemable
convertible preferred stock ............ -- -- -- -- -- --
Net loss ................................ -- -- -- -- -- --
--------- --------- ------- --------- --------- -----
Balance, December 31, 1999 .............. 2,505,000 2,254,500 2,505 2,034,060 1,716,760 2,034
Share options exercised ................. -- -- 3,257,555 3,257,555 3,257
Issuance of stock options ............... -- -- -- -- -- --
Issuance of common stock ................ 557,193 557,193 557
Issuance of warrants ....................
Adjustments to deferred
compensation for variable stock
options and restricted stock ........... -- -- -- -- -- --
Amortization of deferred
compensation on stock options
and restricted stock ................... -- -- -- -- -- --
Accretion of transaction costs on
redeemable convertible preferred
stock .................................. -- -- -- -- -- --
Accrual of dividend on redeemable
convertible preferred stock ............ -- -- -- -- -- --
Retirement of treasury stock ............ (250,500) (250) (317,300) (317)
Net loss ................................ -- -- -- -- -- --
--------- --------- ------- --------- --------- -----
Balance, June 30, 2000 (unaudited) ...... 2,254,500 2,254,500 2,255 5,531,508 5,531,508 5,531
Pro forma conversion of redeemable
convertible preferred stock to
common stock (unaudited) ............... 579,979 579,979 580 4,617,081 4,617,081 4,617
Pro forma conversion of nonvoting
to voting common stock
(unaudited) ............................ 10,148,589 10,148,589 10,148 (10,148,589) (10,148,589) (10,148)
---------- ---------- ------- ----------- ----------- -------
Pro forma balance, June 30, 2000
(unaudited) ............................ 12,983,068 12,983,068 $12,983 -- -- $ --
========== ========== ======= =========== =========== ==========
<CAPTION>
TREASURY STOCK
---------------------------
ADDITIONAL
PAID-IN DEFERRED SUBSCRIPTION
SHARES AMOUNT CAPITAL COMPENSATION RECEIVABLE
------------- ------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 ................ -- $ -- $ 229,965 $ -- $ --
Purchase of treasury stock .............. 567,800 (119,000) -- -- --
Issuance of stock options ............... -- -- 316,234 -- --
Net loss ................................ -- -- -- -- --
------- ----------- ----------- ---------- ------------
Balance, December 31, 1997 .............. 567,800 (119,000) 546,199 -- --
Share options exercised ................. -- -- 3,666 -- --
Issuance of stock options ............... -- -- 34,000 (34,000) --
Amortization of deferred
compensation on stock options .......... -- -- -- 17,782 --
Net loss ................................ -- -- -- --
------- ----------- ----------- ----------
Balance, December 31, 1998 .............. 567,800 (119,000) 583,865 (16,218) --
Conversion -- non-voting shares to
voting ................................. -- -- -- --
Issuance of common stock ................ -- -- 101,914 (87,014) --
Share options exercised ................. -- -- 26,305 --
Issuance of stock options ............... -- -- 435,161 (435,161) --
Amortization of deferred
compensation on stock options
and restricted stock ................... -- -- -- 138,185 --
Accretion of transaction costs on
redeemable convertible preferred
stock .................................. -- -- (8,139) -- --
Accrual of dividend on redeemable
convertible preferred stock ............ -- -- (168,300) -- --
Net loss ................................ -- -- -- --
------- ----------- ----------- ----------
Balance, December 31, 1999 .............. 567,800 (119,000) 970,806 (400,208) --
Share options exercised ................. -- -- 972,060 -- (13,436)
Issuance of stock options ............... -- -- 712,803 (712,803)
Issuance of common stock ................ 3,549,454 -- (1,000,000)
Issuance of warrants .................... 13,492 -- --
Adjustments to deferred
compensation for variable stock
options and restricted stock ........... -- -- 328,835 (328,835) --
Amortization of deferred
compensation on stock options
and restricted stock ................... -- -- -- 980,112 --
Accretion of transaction costs on
redeemable convertible preferred
stock .................................. -- -- (8,138) -- --
Accrual of dividend on redeemable
convertible preferred stock ............ -- -- (160,002) -- --
Retirement of treasury stock ............ (567,800) 119,000 (118,433)
Net loss ................................ -- -- -- --
-------- ----------- ----------- ----------
Balance, June 30, 2000 (unaudited) ...... -- -- 6,260,877 (461,734) (1,013,436)
Pro forma conversion of redeemable
convertible preferred stock to
common stock (unaudited) ............... -- -- 14,257,997 -- --
Pro forma conversion of nonvoting
to voting common stock
(unaudited) ............................ -- -- -- -- --
-------- ----------- ----------- ---------- ------------
Pro forma balance, June 30, 2000
(unaudited) ............................ -- $ -- $20,518,874 $ (461,734) $ (1,013,436)
======== =========== =========== ========== ============
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
---------------- ---------------
<S> <C> <C>
Balance, January 1, 1997 ................ $ (157,295) $ 76,237
Purchase of treasury stock .............. -- (119,000)
Issuance of stock options ............... -- 316,234
Net loss ................................ (134,080) (134,080)
------------ ------------
Balance, December 31, 1997 .............. (291,375) 139,391
Share options exercised ................. -- 4,401
Issuance of stock options ............... -- --
Amortization of deferred
compensation on stock options .......... -- 17,782
Net loss ................................ (566,754) (566,754)
------------ ------------
Balance, December 31, 1998 .............. (858,129) (405,180)
Conversion -- non-voting shares to
voting ................................. -- --
Issuance of common stock ................ -- 15,000
Share options exercised ................. -- 26,442
Issuance of stock options ............... -- --
Amortization of deferred
compensation on stock options
and restricted stock ................... -- 138,185
Accretion of transaction costs on
redeemable convertible preferred
stock .................................. -- (8,139)
Accrual of dividend on redeemable
convertible preferred stock ............ -- (168,300)
Net loss ................................ (1,315,015) (1,315,015)
------------ ------------
Balance, December 31, 1999 .............. (2,173,144) (1,717,007)
Share options exercised ................. -- 961,881
Issuance of stock options ............... -- --
Issuance of common stock ................ 2,550,011
Issuance of warrants .................... 13,492
Adjustments to deferred
compensation for variable stock
options and restricted stock ........... -- --
Amortization of deferred
compensation on stock options
and restricted stock ................... -- 980,112
Accretion of transaction costs on
redeemable convertible preferred
stock .................................. -- (8,138)
Accrual of dividend on redeemable
convertible preferred stock ............ -- (160,002)
Retirement of treasury stock ............ --
Net loss ................................ (6,069,055) (6,069,055)
------------ ------------
Balance, June 30, 2000 (unaudited) ...... (8,242,199) (3,448,706)
Pro forma conversion of redeemable
convertible preferred stock to
common stock (unaudited) ............... -- 14,263,194
Pro forma conversion of nonvoting
to voting common stock
(unaudited) ............................ -- --
------------ ------------
Pro forma balance, June 30, 2000
(unaudited) ............................ $ (8,242,199) $ 10,814,488
============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
INFORMAX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- ------------------------------
1997 1998 1999 1999 2000
-------------- -------------- ---------------- ------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net loss ................................ $ (134,080) $ (566,754) $ (1,315,015) $ (81,589) $ (6,069,055)
Adjustments to reconcile net loss
to net cash provided by (used
in) operating activities:
Depreciation expense .................. 17,945 93,809 272,548 88,872 342,984
Loss on sale of furniture and
equipment ............................ -- -- 9,840 -- 4,312
Expense related to stock
options, restricted stock and
warrants ............................. 316,234 17,782 138,185 26,391 993,513
Deferred income tax benefit ........... (254,403) (391,291) (623,223) (23,320) --
Changes in other assets:
(Increase) decrease in
accounts receivable ................ (165,251) (1,184,462) (1,090,157) 567,767 (1,025,538)
(Increase) decrease in income
tax receivable ..................... -- -- (122,446) -- 122,446
(Increase) decrease in prepaid
expenses ........................... -- -- (222,473) (49,910) 30,316
Increase in other current
assets ............................. (8,073) (1,362) (23,762) (14,551) (2,535)
Increase in deposits ................. (4,752) (4,046) (57,113) (39,474) (13,522)
Changes in other liabilities:
Increase in accounts payable ......... 53,158 346,669 11,020 324,407 698,511
Increase (decrease) in accrued
liabilities ........................ 117,483 163,647 591,153 (169,417) (448,637)
Increase (decrease) in income
tax payable ........................ 125,638 15,307 (151,296) (98,355) --
Increase (decrease) in billings
in excess of cost on
government contracts ............... 8,578 56,218 (79,796) 33,345 --
Increase (decrease) in
deferred revenue ................... 350,900 1,388,375 72,395 (290,546) 1,799,059
---------- ------------ ------------ ---------- ------------
Cash provided by (used in)
operating activities .............. 423,377 (66,108) (2,590,140) 273,620 (3,568,146)
---------- ------------ ------------ ---------- ------------
Cash flow from investing activities:
Purchase of furniture and
equipment ............................. (5,437) (71,505) (1,342,908) (272,227) (1,306,476)
Proceeds from sale of furniture
and equipment ......................... -- -- 9,621 -- 3,629
Increase in shareholder note
receivable ............................ -- -- (65,000) (65,000) --
Repayment of shareholder note
receivable ............................ -- -- -- -- 65,000
---------- ------------ ------------ ---------- ------------
Cash used in investing
activities ........................ (5,437) (71,505) (1,398,287) (337,227) (1,237,847)
---------- ------------ ------------ ---------- ------------
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- -------------------------------
1997 1998 1999 1999 2000
------------ -------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from financing activities:
Repayments on capital lease
obligations ............................ (16,915) (88,390) (105,532) (42,711) (59,813)
Proceeds from line of credit ............. -- 140,509 618,239 368,239 1,500,000
Repayments on line of credit ............. -- -- (268,239) (200,000) (400,000)
Proceeds from notes payable .............. -- 29,415 92,363 15,193 --
Proceeds from equipment loan
facility ............................... -- -- 960,547 -- 1,135,000
Repayment of equipment loan
facility ............................... -- -- -- -- (189,574)
Repayments on notes payable .............. (5,000) (35,000) (156,778) (79,608) --
Purchase of treasury stock ............... (49,000) -- -- -- --
Closing costs for Series A
redeemable convertible
preferred stock ........................ -- -- (81,385) (81,385) --
Proceeds from sale of Series A
redeemable convertible
preferred stock ........................ -- -- 4,000,000 4,000,000 --
Proceeds from issuance of common
stock .................................. -- -- 15,000 320 2,550,014
Proceeds from issuance of warrants........ -- -- -- -- 90
Proceeds from share options
exercised .............................. -- 4,401 17,480 -- 961,880
------- ------- --------- --------- ---------
Cash (used in) provided by
financing activities ............... (70,915) 50,935 5,091,695 3,980,048 5,497,597
------- ------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents ......................... 347,025 (86,678) 1,103,268 3,916,441 691,604
Beginning cash and cash equivalents ....... 35,322 382,347 295,669 295,669 1,398,937
------- ------- --------- --------- ---------
Ending cash and cash equivalents .......... $ 382,347 $ 295,669 $1,398,937 $4,212,110 $2,090,541
========= ========== ========== ========== ==========
Supplemental information on noncash
investing and financing transactions:
Purchases of equipment through
capital lease obligations:
Purchase of equipment .................... $ (97,071) $ (296,814) $ (14,581) $ (14,581) $ --
Increase in capital lease obligations..... 97,071 296,814 14,581 14,581 --
--------- ---------- ---------- ---------- ----------
$ -- $ -- $ -- $ -- $ --
========= ========== ========== ========== ==========
Purchase of treasury stock through note payable:
Increase in notes payable ................ $ 70,000 $ -- $ -- $ -- $ --
Increase in treasury stock ............... (70,000) -- -- -- --
--------- ---------- ---------- ---------- ----------
$ -- $ -- $ -- $ -- $ --
========= ========== ========== ========== ==========
Retirement of treasury stock:
Increase in additional paid in
capital ................................ $ -- $ -- $ -- $ -- $ 118,433
Increase in common stock ................. -- -- -- -- 567
Decrease in treasury stock ............... -- -- -- -- (119,000)
--------- ---------- ---------- ---------- ----------
$ -- $ -- $ -- $ -- $ --
========= ========== ========== ========== ==========
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- --------------------------------
1997 1998 1999 1999 2000
---------- ---------- ----------- ------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Deferral of offering costs:
Increase in deferred offering costs ....... $ -- $ -- $ -- $ -- $ 373,740
Increase in accounts payable .............. -- -- -- -- (373,740)
------- ------- -------- ------- ------------
$ -- $ -- $ -- $ -- $ --
======= ======= ======== ======= ============
Stock purchase through subscription receivable:
Increase in subscription receivable ....... $ -- $ -- $ -- $ -- $ (1,013,436)
Increase in additional paid-in capital..... -- -- -- -- 1,013,234
Increase in common stock .................. -- -- -- -- 202
------- ------- -------- ------- ------------
$ -- $ -- $ -- $ -- $ --
======= ======= ======== ======= ============
Supplemental cash flow information:
Cash paid for income taxes ............... $ -- $ -- $151,296 $ -- $ --
======= ======= ======== ======= ============
Cash paid for interest ................... $18,523 $59,910 $ 83,995 $32,927 $ 119,229
======= ======= ======== ======= ============
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
1. NATURE OF THE BUSINESS
InforMax is a global provider of bioinformatic software solutions for the
analysis and interpretation of genomic, proteomic and other biomolecular data.
Bioinformatic software is a key enabling technology, representing the
convergence of molecular biology, information technology and Internet
communications. Bioinformatic software, combined with automated laboratory
research technologies, enables researchers across the numerous disciplines using
a data driven, genomic approach to biological discovery to achieve greater
efficiency, productivity and collaboration in their research. The Company's
bioinformatic software solutions make it possible for researchers within and
across organizations to efficiently organize, integrate, analyze, interpret and
visualize diverse and rapidly growing volumes of genomic, proteomic and other
biomolecular data. The Company also provides technology consulting services to
the National Center for Biotechnology Information (NCBI) under subcontracts.
InforMax, Inc. was incorporated in Delaware in May 1990 and its majority-owned
subsidiary, InforModus SARL, was organized under the tax laws of France in 1997.
The Company is headquartered in Rockville, Maryland, and has sales offices in
Rockville, Maryland; Annapolis, Maryland; San Francisco, California; Denver,
Colorado; and Oxford, England.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying consolidated financial statements
include the accounts of InforMax, Inc. and its 74% ownership interest in its
subsidiary. The minority interest is immaterial in relation to the consolidated
financial statements. All significant intercompany accounts and transactions
have been eliminated.
Basis of Accounting - The accompanying financial statements have been prepared
on the accrual basis of accounting and in conformity with accounting principles
generally accepted in the United States of America.
Revenue Recognition - The Company derives revenue principally from four sources:
software licensing, maintenance fees, training and consulting services primarily
under government contracts. Software licensing, maintenance fees, and training
are presented as software license and customer support on the Consolidated
Statements of Operations. Consulting services are presented as professional
services on the Consolidated Statements of Operations.
The Company recognizes software license revenue based on the provisions of
Statement of Position ("SOP") No. 97-2, Software Revenue Recognition (as amended
by SOP No. 98-4 and SOP No. 98-9). Software license fees are recognized as
revenue upon the customer's execution of a non-cancelable license agreement and
the Company's delivery of the software, provided that the license fee is fixed
and determinable, collectibility is probable, and no customization of the
software is required. In connection with software licenses, the Company also
enters into maintenance contracts that provide for technical support and
periodic unspecified upgrades.
During 1997 and 1998, maintenance revenue was recognized together with the
initial licensing fee upon delivery of the software when all of the following
were met: (1) the maintenance fee was included with the initial licensing fee,
(2) the maintenance revenue to be recognized was for one year or less, (3) the
estimated cost of providing maintenance during the arrangement was
insignificant, and (4) any unspecified upgrades were expected to be minimal. In
circumstances where these criteria were not met and where fair value for
undelivered elements of a multiple element contract are not determinable,
revenue on the contract is entirely deferred until either fair value is
determinable or when all elements are delivered. If the Company was unable to
establish vendor specific objective evidence of fair value on the undelivered
elements and the only undelivered element was maintenance then all revenue is
recognized ratably over the maintenance period.
F-10
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
Due to the introduction of new modules, product enhancements, and product
versions, the Company increased its maintenance support staff and, as a result,
the estimated cost of providing maintenance services (post-contract support
services) to customers was no longer deemed insignificant. Therefore, beginning
in January 1999, revenues from all software maintenance contracts were unbundled
from software license based upon vendor specific objective evidence of fair
value and was recognized ratably over the maintenance period. Vendor specific
objective evidence of fair value for maintenance contracts is determined by the
list price established by management with the relevant authority or by the
renewal rate specified in the contract. The Company uses the residual method to
recognize revenue on delivered elements when vendor specific objective evidence
of fair value has been determined for all undelivered elements. Discounts, if
any, are applied to the delivered elements if the residual method is used.
Amounts received in advance of the delivery of products or performance of
services are classified as deferred revenues.
Training is provided on a daily fee basis with revenue recognized as the
services are provided.
Consulting services other than under government contracts are provided on a time
and material basis with revenue recognized as the services are provided.
During 1997 and 1998, the Company's consulting services revenue under government
contracts related to services provided under a time and material subcontract and
a cost-plus-fixed-fee subcontract. During 1999 the cost-plus-fixed-fee
subcontract was converted at the time of renewal to a time and material
contract. Revenue under the time and material subcontracts is recognized based
on contractual rates as the services are provided. Revenue under the
cost-plus-fixed-fee subcontract was recognized as recoverable costs were
incurred, including a proportionate amount of the fixed fee. Billings under cost
reimbursement contracts are based on provisional rates. The amount reported in
the accompanying financial statements as billings in excess of costs results
from the difference between the provisional rates billed and the actual rates
incurred.
Property and Equipment - Property and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation on property and
equipment is computed on a straight-line basis over the estimated useful lives
of the assets ranging from three to ten years. Leasehold improvements are
depreciated over the shorter of the estimated useful life of the assets or the
terms of the related lease. Repairs and maintenance are expensed as incurred;
major improvements and betterments are capitalized.
Software Development Costs - Development costs incurred in the research and
development of new software products and enhancements to existing software
products are expensed as incurred until technological feasibility has been
established. The Company considers technological feasibility to be established
when all planning, designing, coding and testing has been completed according to
design specifications. After the technological feasibility has been established,
any additional costs would be capitalized in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." Through December 31, 1999,
software development has been substantially completed concurrently with the
establishment of technological feasibility, and accordingly, no costs have been
capitalized to date.
Income Taxes - The income tax provision includes income taxes currently payable
plus the net change during the year in deferred tax assets or liabilities.
Deferred tax assets and liabilities reflect the differences between the carrying
value in conformity with accounting principles generally accepted in the United
States of America and tax values of assets and liabilities using enacted tax
rates for the period in which the differences are expected to reverse.
Cash and Cash Equivalents - Cash and cash equivalents consist of cash and money
market accounts. For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
F-11
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
Concentration of Credit Risk - Financial instruments that potentially subject
the Company to a concentration of credit risks consist principally of cash, cash
equivalents, and accounts receivable. The Company generally does not require
collateral on accounts receivable as the majority of its customers are
well-established companies, colleges, universities and government entities.
The Company maintains its cash and cash equivalents in bank accounts that at
times may exceed federally insured limits. At December 31, 1998 and 1999,
balances of approximately $48,000 and $1,436,000, respectively, were in excess
of the federally insured limit of $100,000. The Company has not experienced any
losses in these accounts and believes it is not exposed to any significant
credit risk.
Stock-Based Compensation - In February 1999, the Board of Directors instituted
an Equity Incentive Plan (the Plan) intended to qualify as such under the
provisions of Section 422 of the Internal Revenue Code of 1986, as amended. In
addition, the Company has issued nonqualified stock options.
The Company follows Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123). In accounting for stock options, as permitted by SFAS No. 123, the
Company accounts for stock-based compensation to employees in accordance with
Accounting Principles Board (APB) Opinion No. 25, and accordingly, recognizes
compensation expense for fixed stock option grants only when the exercise price
is less than the fair value of the shares on the date of the grant. Pro forma
information is provided for employee stock option grants made in 1997, 1998, and
1999 as if the fair value based method defined in SFAS No. 123 had been applied.
Evaluation of Long-lived Assets - The Company evaluates the potential impairment
of long-lived assets based upon projections of undiscounted cash flows whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be fully recoverable. Management believes no impairment of these assets
exists at December 31, 1998 and 1999.
Fair Value of Financial Instruments - The following disclosures of estimated
fair value were determined by management using available market information and
appropriate valuation methodologies.
The fair values of the Company's financial instruments, including cash
equivalents, accounts receivable, accounts payable, accrued expenses, lines of
credit, notes payable and long-term debt approximate their carrying values.
Disclosure about fair values of financial instruments is based on pertinent
information available to management as of December 31, 1998 and 1999. Although
management is not aware of any factors that would significantly affect the
reasonable fair value amounts, current estimates of fair value may differ
significantly from the amounts presented herein.
Advertising - The Company expenses all advertising costs as incurred. Total
advertising expense was $3,157, $83,419 and $612,196 for the years ended
December 31, 1997, 1998, and 1999, respectively.
Estimates and Assumptions - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions. These estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
year. Actual results could vary from the estimates that were used.
Redeemable Convertible Preferred Stock - The Company accretes the increase in
the redemption value of its Series A Redeemable Convertible Preferred Stock
through a charge to additional paid-in capital based upon the redemption dates
prescribed in the Series A Preferred Stock Agreement. The period of accretion
begins on the June 1999 issue date and ends on the prescribed redemption date,
which is the fifth anniversary of the original issue date.
F-12
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
Comprehensive Income - The Company has no elements of comprehensive income other
than net loss.
Net Loss Per Share - Basic net loss per share has been computed using the
weighted average number of common shares outstanding during the year: diluted
net loss per share includes dilutive stock options and convertible preferred
stock. Due to net operating losses for each of the three years in the period
ended December 31, 1999, the stock options and convertible preferred stock are
considered antidilutive.
Unaudited Interim Financial Statements -- The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments considered necessary for a fair presentation, have been included.
Operating results for any period are not necessarily indicative of the results
for any other period or for the full year.
Unaudited Pro forma Presentation - Under the terms of the Company's agreements
with the holders of the Series A and Series B Redeemable Convertible Preferred
Stock (see Notes 7 and 16), all of such preferred stock will be converted
automatically into shares of common stock upon the closing of the Company's
initial public offering. The unaudited pro forma balance sheet information at
June 30, 2000 reflects the issuance of Series B Redeemable Convertible Preferred
Stock and conversion of the Series A and Series B Redeemable Convertible
Preferred Stock into 5,197,060 shares of common stock as if the conversion
occurred on June 30, 2000. In addition, the unaudited pro forma balance sheet
information at June 30, 2000 reflects the conversion of the outstanding
nonvoting common stock into shares of voting common stock as if the conversion
occurred on June 30, 2000.
Reclassifications - Certain reclassifications have been made to the prior-year
financial statements to conform to current-year presentation.
New Accounting Pronouncements - In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. As amended by Statement of Financial Accounting Standards
No. 137, this standard will be effective for the Company for fiscal years and
quarters beginning after December 31, 2000, and requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company has
not completed the process of evaluating the impact that will result from
adopting SFAS No. 133. The Company is therefore unable to predict the potential
impact that adopting SFAS No. 133 will have on its financial position and
results of operations when such statement is adopted.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". This SAB expresses the SEC's views on applying generally accepted
accounting principles to revenue recognition in financial statements. The
application of this SAB will not have a material impact on the Company's
financial statements, however, certain SEC staff interpretations of the SAB have
not been published and may have an effect on the applicability of the SAB to the
consolidated financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25." With the exception of
certain provisions which require earlier application, this interpretation is
effective for all applicable transactions beginning July 1, 2000. The Company
does not expect that the adoption of this Interpretation will have a material
impact on its financial statements.
F-13
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
3. ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Accrued bonuses ................................. $ 85,000 $182,250
Accrued interest ................................ -- 2,543
Accrued commissions ............................. 224,070 369,105
Accrued litigation liability (Note 14) .......... -- 228,600
Other ........................................... 32,902 150,627
-------- --------
Total ......................................... $341,972 $933,125
======== ========
</TABLE>
4. INCOME TAXES
The components of the benefit for income taxes for the years ended December 31,
1997, 1998, and 1999, were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Current provision (benefit):
Federal ..................................... $ 107,599 $ -- $ (86,495)
State ....................................... 28,580 -- (16,625)
---------- ---------- ----------
Total current provision (benefit) ......... 136,179 -- (103,120)
---------- ---------- ----------
Deferred benefit:
Federal ..................................... (208,291) (324,627) (504,380)
State ....................................... (46,112) (66,664) (118,843)
---------- ---------- ----------
Total deferred benefit .................... (254,403) (391,291) (623,223)
---------- ---------- ----------
Total benefit for income taxes ............ $ (118,224) $ (391,291) $ (726,343)
========== ========== ==========
</TABLE>
At December 31, 1998 and 1999, respectively, the components of the Company's
deferred tax assets and deferred tax liabilities were as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -------------
<S> <C> <C>
Deferred tax assets:
Deferred revenue ............................... $449,643 $ 699,667
Compensation relating to stock options ......... 64,341 84,838
Allowance for doubtful accounts ................ 5,793 5,793
Restricted stock ............................... -- 12,530
Accrued commissions ............................ -- 17,909
Net operating loss ............................. 110,450 493,401
Research and development tax credit ............ 23,500 --
-------- ----------
Total deferred tax assets .................... 653,727 1,314,138
-------- ----------
Deferred tax liabilities:
Accelerated depreciation ....................... (8,033) (36,259)
-------- ----------
Total deferred tax liabilities ............... (8,033) (36,259)
-------- ----------
Net deferred tax assets ...................... $645,694 $1,277,879
======== ==========
</TABLE>
At December 31, 1999, the Company had a net federal operating loss carryforward
of approximately $1,277,600, expiring in 2019. The net operating loss generated
in 1998 was carried back to 1996 and 1997 resulting in an income tax receivable
of $122,446 as of December 31, 1999. The provision for
F-14
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
income taxes differs from the amount computed by applying the statutory U.S.
Federal income taxes as a result of the following:
<TABLE>
<CAPTION>
1997 1998 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Statutory U.S. Federal rate ............................ (34.00)% (34.00)% (34.00)%
(Increase) decrease in taxes resulting from: ...........
State income taxes - net of Federal benefit .......... ( 4.62) ( 4.62) ( 4.38)
R&D credits .......................................... ( 8.52) ( 2.45) --
Other ................................................ 0.28 0.23 2.80
------ ------ ------
Effective tax rate .................................... (46.86)% (40.84)% (35.58)%
====== ====== ======
</TABLE>
5. STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock - The Company has two classes of common stock. These classes
include a voting class of common stock (Voting Shares) and a nonvoting class of
common stock (Nonvoting Shares). Voting shares have voting rights with respect
to all matters customarily reserved to holders of a corporation's common stock
under the Delaware General Corporation Law. Except with respect to the lack of
voting rights, Nonvoting Shares have all of the rights and interests of the
Voting Shares. With respect to the voting rights of the Nonvoting Shares, such
shares are only entitled to vote on amendments to the Certificate of
Incorporation of the Company that would: (a) increase or decrease the number of
authorized nonvoting shares, (b) increase or decrease the par value of the
nonvoting shares, or (c) alter or change the powers, preferences, or special
rights of the Nonvoting Shares. See Note 16.
In February 1999, the Board of Directors approved a 100:1 stock split of all of
the shares of the common stock of the Company issued and outstanding. In
connection with the stock split, the Board of Directors approved the increase in
the number of authorized shares of voting common stock to 1,595,455 and the
increase in the number of authorized shares of nonvoting common stock to
14,931,864. Further, the Board of Directors approved the exchange of 590,178
shares of nonvoting common stock for 590,178 shares of voting common stock by
the President/Chief Executive Officer. Shares issued and outstanding have been
adjusted retroactively for all periods presented to reflect that change in
capital structure.
In 1999, the Board of Directors granted 100,200 shares of restricted stock to
two consultants of the Company. The restricted stock vests over a four-year
period and is subject to service and performance requirements. At the time of
grant, the restricted stock and deferred compensation relating to the issuance
of the restricted stock was recorded based on the estimated fair market value of
the Company's common stock. The Company recognizes compensation expense related
to the restricted stock on a monthly basis as the stock is earned and vests,
based upon the difference between the price paid at the original date of
issuance and the estimated fair market value of the common stock at the end of
each subsequent month. Deferred compensation expense is adjusted monthly to
reflect the amount of compensation expense recognized and the change in the
estimated fair market value of the Company's common stock with respect to the
unvested restricted stock. In relation to the issuance of this restricted stock,
the Company received $15,000 in cash and recorded compensation expense in the
amount of $32,444 during the year ended December 31, 1999 and deferred
compensation of $54,570 was included in stockholders' equity (deficit) at
December 31, 1999.
Stock Options - During 1997, the Company granted 1,569,967 nonqualified stock
options to employees and one nonemployee, all such options vesting immediately.
For services rendered, the non-employee received a total of 167 options having a
fair value based upon the
F-15
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
Black-Scholes pricing model of approximately $3,400. The Company recorded
compensation expense in the amount of $316,234 during the year ended December
31, 1997 in relation to the options issued to the one nonemployee and employees.
In 1998, the Company granted 167,000 nonqualified stock options to an employee,
originally vesting over a four-year period. The Company recorded compensation
expense relating to 1998 options in the amount of $17,782 and $16,218 during the
years ended December 31, 1998 and 1999, respectively and deferred compensation
of $16,218 and $-0- was included in stockholders' equity (deficit) at December
31, 1998 and 1999, respectively.
On February 10, 1999, the Board of Directors also instituted an equity incentive
compensation plan (the Plan). The Plan provides for up to 5,344,000 shares of
common stock of the Company for the granting of restricted stock and incentive
stock options to purchase common stock. The exercise price per share for an
incentive stock option must be equal to or greater than the estimated fair
market value, as determined by the Board committee administering the Plan, on
the date of grant. In connection with the issuance of the Series A Redeemable
Convertible Preferred Stock, a limit was placed on the number of options that
could be granted under the Plan. At December 31, 1999, the total shares that
could be issued under the Plan without further approval by the Series A designee
to the Board was 4,854,783.
Pursuant to the terms of the key agreement underlying the Company's relationship
with one of the Company's key investors, unless otherwise approved by the Board
of Directors, all stock options and other stock equivalents issued pursuant to
agreements executed by the Company to employees, Directors, consultants, and
other service providers shall be subject to vesting as follows: (a) twenty-five
percent (25%) of such stock shall vest at the end of the first year following
the earlier of the date of issuance or such person's service commencement date
with the Company, and (b) seventy-five (75%) of such stock shall vest over the
remaining three year period subsquent to the end of the first year described in
(a).
During 1999, the Company granted 3,818,804 stock options to employees. Out of
the total stock option grants, 746,698 options vested immediately, 111,624
options were forfeited or cancelled, with the remaining 2,960,480 options
vesting over a four-year period.
In February 1999, the Board of Directors also granted 10,938,333 nonqualified
stock options to the three employees who were founders of the Company. These
stock options vested immediately. At grant date, the option price was equal to
the fair value of the Company's common stock.
During 1999, the Company also granted 175,350 stock options under three separate
nonqualified stock option agreements, one of which is with a non employee
director, the other two were with non employee advisors. The non employee
director compensation expense was determined based upon the difference between
the exercise price and the estimated fair market value of the common stock at
the date of grant. The Company recognized compensation expense related to the
non-employee advisors nonqualified stock options on a monthly basis as the
options are earned and vest, based upon the fair value of the options earned
calculated using the Black-Scholes pricing model. Deferred compensation expense
is adjusted monthly to reflect the amount of compensation expense recognized and
the change in the estimated fair value of the unvested nonqualified stock
options. Changes in the fair value of the unvested nonqualified stock options
F-16
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
could result in an increase in future compensation changes. All of these options
were granted for a ten-year period and vest over either three, four, or five
years which coincides with the period of performance. The number of shares to
vest in each year is as follows:
<TABLE>
<S> <C>
1999 ......... 34,095
2000 ......... 45,364
2001 ......... 42,585
2002 ......... 37,735
2003 ......... 10,561
2004 ......... 5,010
</TABLE>
In relation to the issuance of the options to the nonemployee director, the
Company recorded compensation expense in the amount of $1,998 during the year
ended December 31, 1999 and deferred compensation of $5,502 was included in
stockholders' equity (deficit) at December 31, 1999. In relation to the issuance
of options issued to the non-employee advisors, the Company recorded
compensation expense in the amount of $51,078 during the year ended December 31,
1999 and deferred compensation of $80,889, was included in stockholders' equity
(deficit) at December 31, 1999.
The Company recorded compensation expense relating to employee options granted
during 1999 with exercise prices below the estimated fair market value at the
dates of grant in the amount of $36,447, and deferred compensation in the amount
of $259,247 which was included in stockholders' equity (deficit) at December 31,
1999.
Option transactions were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------------- -----------------
<S> <C> <C>
Options outstanding, January 1, 1997 ............................. 106,880 $ 0.006
Options granted ................................................ 1,569,967 0.006
---------
Options outstanding, December 31, 1997 .......................... 1,676,847 0.006
Options granted ................................................ 167,000 0.006
Options exercised .............................................. (734,967) 0.006
---------
Options outstanding, December 31, 1998 .......................... 1,108,880 0.006
Options granted ................................................ 14,932,487 0.299
Options forfeited or cancelled ................................. (111,624) 0.299
Options exercised .............................................. (136,940) 0.128
----------
Options outstanding, December 31, 1999 .......................... 15,792,803 0.280
==========
Options exercisable as of December 31, 1999 ..................... 13,175,805 0.277
==========
Options available for future grant at December 31, 1999 ......... 922,154
==========
</TABLE>
At December 31, 1999, options outstanding were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER REMAINING
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE
---------------- ------------- -----------------
<S> <C> <C>
$ 0.006 1,028,720 7.8 years
$ 0.299 14,764,082 9.3 years
</TABLE>
The Company has computed the pro forma disclosures required under SFAS No. 123
for all stock options granted as of December 31, 1997, 1998, and 1999. The
Company used the minimum value
F-17
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
method permitted by SFAS No. 123 for nonpublic entities for 1997 and 1998. The
weighted average fair value at the date of grant for options granted during both
1997 and 1998 was $0.21. The weighted average exercise price and weighted
average fair value at the date of grant for options granted during 1999 was as
follows:
<TABLE>
<CAPTION>
EXERCISE PRICE EXERCISE PRICE
EQUALS FAIR MARKET VALUE LESS THAN FAIR MARKET VALUE
-------------------------- ----------------------------
<S> <C> <C>
Weighted average exercise price per share $ 0.299 $ 0.299
Weighted average fair value per share .... $ 0.299 $ 0.968
Options granted .......................... 14,171,081 758,406
</TABLE>
The weighted average assumptions used for options granted during fiscal years
1997, 1998, and 1999 were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate .......... 6.50% 6.50% 5.20%
Expected dividend yield .......... 0.00% 0.00% 0.00%
Expected life .................... 5 years 5 years 4 years
Volatility factor ................ 0% 0% 71%
</TABLE>
The pro forma effects of applying SFAS No. 123 for fiscal years 1997, 1998, and
1999 would be as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------------- -------------- ----------------
<S> <C> <C> <C>
Pro forma net loss .............................. $ (138,944) $ (566,897) $ (2,265,691)
Pro forma net loss per share - basic ............ $ (0.04) $ (0.16) $ (0.58)
Pro forma net loss per share - diluted .......... $ (0.04) $ (0.16) $ (0.58)
</TABLE>
6. NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, "Earnings Per Share". This statement requires dual presentation of
basic and diluted earnings per share on the face of the income statement. Basic
earnings per share is to be computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share is to reflect the potential dilution that
could occur if securities or other contracts to issue common shares were
exercised or converted into common shares for all periods presented.
The weighted average number of common shares outstanding and potential dilutive
shares were 4,799,747, 4,685,323 and 17,261,716 relating to stock options and
redeemable convertible preferred stock in 1997, 1998, and 1999, respectively.
For the years ended December 31, 1997, 1998, and 1999, the Company incurred a
net loss; therefore, all potential common shares are antidilutive and are not
included in the calculation of the diluted net loss per common share.
Net loss Per Share for the Six Months Ended June 30, 2000 (unaudited) --
Subsequent to the issuance of the June 30, 2000 unaudited consolidated financial
statements, management determined that a mathematical error occurred in the
calculation of weighted average common shares outstanding -- basic and diluted
for the six months ended June 30, 2000. As a result, the weighted average common
shares outstanding -- basic and diluted for the six months ended June 30, 2000
has been restated from 4,202,880 to 5,268,665 and basic and diluted net loss
applicable per common share for the six months ended June 30, 2000 has been
restated from $1.48 to $1.18.
F-18
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
On June 22, 1999, the Company entered into a Series A Preferred Stock Purchase
Agreement (the Agreement) with a purchaser. The Company authorized, issued, and
sold 2,161,265 shares of Series A Redeemable Convertible Preferred Stock, $.01
par value, for $4,000,000 ($1.85 per share). Each outstanding share of the
Series A Redeemable Convertible Preferred Stock is entitled to the number of
votes such that the aggregate vote of the holders of the Series A Redeemable
Convertible Preferred Stock is equal to the economic stake such shares have in
the Company at the record date for the determination of shareholders entitled to
vote on such matters. The purchasers of the Series A Redeemable Convertible
Preferred Stock, voting as a separate class, exclusive of all other
stockholders, are entitled to elect one director of the Company. The holders of
the Common Stock, voting as a separate class, exclusive of all other
stockholders, are entitled to elect four directors. The holders of the Series A
Redeemable Convertible Preferred Stock and the Voting Common Stock, voting as a
single class, are entitled to elect one director. Such rights with respect to
the election of directors terminate upon the effectiveness of the Company's
initial public offering.
The holder of any such shares of Series A Redeemable Convertible Preferred Stock
has the right, at its option at any time, to convert any such shares of Series A
Redeemable Convertible Preferred Stock into 1.67 fully paid and nonassessable
shares of Common Stock subsequent to the stock split discussed in Note 16. Each
share of Series A Redeemable Convertible Preferred Stock is convertible into the
number of shares of Common Stock that would result from dividing the original
issue price per share ($1.85) of the Series A Redeemable Convertible Preferred
Stock by the conversion price for the Series A Redeemable Convertible Preferred
Stock that is in effect at the time of the conversion. The initial conversion
price for the Series A Redeemable Convertible Preferred Stock is the original
issue price for the Series A Redeemable Convertible Preferred Stock. The
conversion price may be adjusted from time to time upon certain conditions, such
as sales of common stock, issuance of options and other common stock events.
The holders of the Series A Redeemable Convertible Preferred Stock are entitled
to receive, out of funds legally available when and if declared by the Board of
Directors, cumulative dividends at the annual dividend rate of $.148 per share.
Upon any liquidation, dissolution, or winding up of the Company, whether
voluntary or involuntary, or upon redemption, the holders of the Series A
Redeemable Convertible Preferred Stock are first entitled, before any
distribution or payment is made with respect to the Common Stock or any other
series of capital stock, to be paid out of available funds and assets an amount
equal to the "Original Issue Price" ($1.85) for each Series A Redeemable
Convertible Preferred Stock as adjusted for common stock events plus, in the
case of each share, an amount equal to all accrued dividends unpaid thereon
(whether or not declared) and any other dividends declared but unpaid thereon.
The undeclared dividends are being accreted to the redemption value. The 1999
accrued dividend of $168,300 is presented on the Consolidated Statements of
Operations as an addition to net loss applicable to common shareholders.
If, at any time, the Company obtains a firm commitment-underwritten public
offering of shares of Common Stock in which (i) the aggregate net proceeds of
such public offering equals or exceeds $15,000,000 and (ii) the public offering
price per share equals or exceeds $3.32 per share (adjusted for common stock
event), then effective upon closing of the sales of such shares by the Company
pursuant to such public offering, all outstanding shares of Series A Redeemable
Convertible Preferred Stock will automatically convert to fully paid
nonassessable shares of Common Stock.
After June 22, 2004, the fifth anniversary of the original issue, at the written
request of a majority of the then-outstanding holders of the Series A Redeemable
Convertible Preferred Stock to redeem at least 20% of such shares, the Company
shall, within 60 days, redeem in cash from legally available funds, the number
of shares as requested of the Series A Redeemable
F-19
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
Convertible Preferred Stock. If the Company does not have sufficient funds
legally available to make full payment in cash or if such payment would cause
the Company to be in violation of any covenants to lenders or others, then,
within sixty days, the Company shall redeem one-third of the Series A Redeemable
Convertible Preferred Stock as requested in the redemption notice. An additional
third shall be redeemed one year after the redemption notice and the last third
shall be redeemed two years after the redemption notice. If the Company is
unable to make full payment pursuant to the above, then the Company shall redeem
the Series A Redeemable Convertible Preferred Stock in accordance to a payment
schedule mutually agreed to by the Company and the holders of the Series A
Redeemable Convertible Preferred Stock.
The redemption price for each share of Series A Redeemable Convertible Preferred
Stock shall be equal to the Series A Liquidation Preference. The Series A
Liquidation Preference is the Original Issue Price per share, as adjusted for
any common stock events, plus all accrued but unpaid dividends whether or not
earned or declared.
The difference between the carrying amounts of the Series A Redeemable
Convertible Preferred Stock of $4,095,054 at December 31, 1999, and the
redemption amount of $4,168,300, based upon the liquidation amount, represents
the cost of issuance, which is being accreted pro rata over the period beginning
on June 22, 1999 issuance date and ending on the prescribed redemption date,
June 22, 2004. The 1999 accretion of $8,139 is presented on the Consolidated
Statements of Operations as an addition to net loss applicable to common
shareholders.
8. LEASE COMMITMENTS
Operating Leases - The Company leases its headquarters office space under an
operating lease that expires in July 2006. The lease for the headquarters office
space contains an escalation clause that provides for increased rentals based on
an annual escalation of 1.03 times the preceding year's base rent.
As of December 31, 1999, the Company was committed to leases for its other sales
offices with portions of the leases expiring through June 2003.
Total rental expense under all office leases for fiscal years 1997, 1998, and
1999 was $61,357, $117,833, and $320,525, respectively. At December 31, 1999,
future minimum lease payments required under noncancelable leases were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
2000 ................................. $ 598,723
2001 ................................. 630,562
2002 ................................. 637,630
2003 ................................. 596,867
2004 ................................. 588,605
Thereafter ........................... 966,033
----------
Total minimum lease payments ......... $4,018,420
==========
</TABLE>
F-20
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
Capital Leases - The Company is obligated under capital leases for computers and
other equipment. The leases expire at various dates through April 2002. The
following is a summary of assets under capital leases:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1999
<S> <C> <C>
Computer equipment ...................................... $ 357,202 $ 368,723
Office equipment ........................................ 44,728 31,151
---------- ----------
Total ................................................... 401,930 399,874
Less: Accumulated depreciation and amortization ......... (100,638) (222,321)
---------- ----------
Assets under capital lease - net ........................ $ 301,292 $ 177,553
========== ==========
</TABLE>
Assets under capital lease are depreciated or amortized over three- to five-year
lives, with expense totaling $14,991, $85,090, and $128,670 for the years ended
December 31, 1997, 1998, and 1999, respectively.
The future minimum lease payments under capital leases are computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
2000 ......................................................... $ 130,940
2001 ......................................................... 85,648
2002 ......................................................... 15,351
----------
231,939
Less: Interest ................................................. (26,438)
----------
Present value of future minimum capital lease payments ......... 205,501
Less: Current portion .......................................... (113,293)
----------
Capital lease obligation, net of current portion ............... $ 92,208
==========
</TABLE>
9. NOTES PAYABLE
In 1997, the Company purchased common stock (treasury stock) from a stockholder
for $49,000 cash and a $70,000 note payable. The note payable specified payments
of $35,000 in February 1998 and February 1999 and was non-interest bearing.
In 1998, the Company borrowed $29,415 against an equipment loan facility of
$125,000. This note is interest only monthly, convertible on a quarterly basis
to a thirty-six month note with principal and interest due monthly. Borrowings
under this note are secured by equipment and accounts receivable and bear
interest at prime plus 1%, which was 8.75% at December 31, 1998. The agreement
is personally guaranteed by the President/Chief Executive Officer. The balance
was paid in full during 1999.
10. LINE OF CREDIT AND EQUIPMENT LOAN FACILITY
At December 31, 1998, the Company had a line of credit in the amount of $400,000
that was payable on demand. Borrowings under this note are secured by accounts
receivable of the Company and bear interest at prime plus 2% which was 9.75% at
December 31, 1998. The agreement required no financial covenants and was
personally guaranteed by the President/Chief Executive Officer.
F-21
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
In May 1999, the Company paid off the outstanding amount on the original line of
credit and outstanding note payable and obtained a new line of credit in the
amount of $1,000,000 consisting of an $800,000 secured revolving credit line and
a $200,000 equipment line of credit.
In August 1999, the Company amended (Amendment No. 1) the May 1999 line of
credit agreement to increase the maximum availability under the equipment line
to $600,000.
In November 1999, the Company amended (Amendment No. 2) the May 1999 line of
credit agreement to increase the maximum availability under each of the
revolving credit and the equipment line to $1,000,000. Under this amendment
interest rates for the revolving credit line was adjusted to prime plus 1% and
the interest rate for the equipment line was adjusted to prime plus 1.25%.
In 1999, the Company borrowed $960,547 against the equipment loan facility of
$1,000,000. Any outstanding amounts within the first six months of the loan plus
accrued interest were converted to a term loan. Borrowings under this note are
secured by personal property, including equipment, trademarks and accounts
receivable of the Company, bear interest at prime plus 1.25% (9.75% at December
31, 1999) and are subject to certain financial covenants. In November 1999, all
equipment line advances then outstanding, plus any accrued interest, were
converted to a term loan (the "First Term Loan"). All equipment line advances
made since the First Term Loan conversion shall be converted into a Second Term
Loan in May 2000. Each of the First Term Loan and the Second Term Loan shall
provide repayments of principal and interest in thirty equal monthly
installments. The Company must also maintain various financial covenants,
including minimum cash balance and certain financial ratios. In addition, the
Company cannot declare or pay dividends on, or make any distribution with
respect to, any class of its equity during the term of this facility.
At December 31, 1999, the amounts outstanding under the revolving credit line
was $550,000 payable by May 2000 with accrued interest due and payable monthly.
Borrowings under this note are secured by accounts receivable of the Company and
bear interest at prime plus 1% (9.5% at December 31, 1999) and are subject to
certain financial covenants.
The following represents the maturities of the equipment loan facility:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PRINCIPAL DUE
---------------------------- --------------
<S> <C>
2000 .................. $337,302
2001 .................. 397,679
2002 .................. 225,566
--------
Total ................. $960,547
========
</TABLE>
11. RELATED PARTY TRANSACTIONS
The Company had an arrangement with another company, the president of which is
also a member of the Company's Board of Directors, whereby the other company
provides advisory and fiduciary oversight services to the Company at an average
monthly fee of $2,500. This arrangement ended and was paid in full during July
1999. Total fees paid to the other company under this arrangement totaled
$26,000 and $50,000 for the years ended December 31, 1998 and 1999,
respectively, and the Company's accrued liability to the other company was
$2,000 at December 31, 1998. There was no accrued liability at December 31,
1999.
The Company engaged a law firm during 1997 and 1998. An attorney at the firm is
also a shareholder of the Company. The Company incurred $4,751 and $2,098 in
expense to the Firm during 1997 and 1998, respectively. There was no accrued
liability at December 31, 1997 and 1998, respectively.
F-22
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
The Company engaged another law firm during 1998 and 1999. An attorney at the
firm is also a shareholder of the Company. The Company incurred $19,158 and
$227,039 in expense to the firm and the Company's accrued liability to the firm
was $17,158 and $21,806 at December 31, 1998 and 1999, respectively.
Beginning in 1998, the Company has an arrangement with a shareholder of the
Company whereby the shareholder provides consulting services to the Company in
the form of technical advise on bioinformatics, gene expression, and the use of
complex genetic databases, in addition to marketing of the Company's products in
Europe. This shareholder was paid an average monthly fee of $4,167. Total fees
paid to the shareholder under this arrangement totaled $8,333 and $50,000 for
the years ended December 31, 1998 and 1999, respectively, and the Company's
accrued liability to the shareholder was $4,167 at December 31, 1998. There was
no accrued liability at December 31, 1999.
Beginning in 1999, the Company has an arrangement with a nonqualified stock
option holder of the Company whereby the option-holder provides consulting
services to the Company in the form of bioinformatic product design advise and
information on market conditions and receptivity to bioinformatic products, in
addition to chairing and recommending participation in the Company's Scientific
Advisory Board. This option-holder was paid an average monthly fee of $4,167.
Total fees paid to the option-holder under this arrangement totaled $20,833 for
the year ended December 31, 1999.
On April 6, 1999, the Company loaned the President of the Company $65,000, which
is to be paid in full with all unpaid, accrued interest by April 2004. The
interest rate of this note is prime plus 1% (9.5% at December 31, 1999).
Interest income earned during the year and receivable at December 31, 1999 was
$4,360.
12. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company operates in one industry segment, the development and sale of
computer software programs and related services.
Two customers accounted for 26% and 23% of total accounts receivable at December
31, 1998. The Company's services to NCBI under two subcontracts accounted for
12% of total accounts receivable at December 31, 1998. One customer accounted
for approximately 14% of total accounts receivable at December 31, 1999. The
Company's services to the NCBI under two subcontracts accounted for 18% of total
accounts receivable at December 31, 1999.
The Company's professional services provided to the NCBI under two subcontracts
accounted for 34% of total revenue for the year ended December 31, 1998 and 27%
of revenue for the year ended December 31, 1999. There were no sales to any
individual country except for the United States where such sales accounted for
10% or more of total revenue.
Substantially all assets are held in the United States at December 31, 1998 and
1999.
Revenues by geographic destination and as a percentage of total revenues are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
GEOGRAPHIC AREA BY DESTINATION
----------------------------------
United States ................ $1,843,152 $2,882,439 $ 8,513,617
International ................ 358,570 1,243,806 1,500,808
---------- ---------- -----------
$2,201,722 $4,126,245 $10,014,425
========== ========== ===========
</TABLE>
F-23
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
GEOGRAPHIC AREA BY DESTINATION
----------------------------------
United States ................ 84.0% 70.0% 85.0%
International ................ 16.0 30.0 15.0
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
13. COMMITMENTS
Employment Agreements - All employees hired in 1999 have employment agreements
that entitle them to two weeks of severance in case of termination. In addition,
three employees of the Company have employment agreements that entitle these
individuals to specified amounts of severance if such individuals are
terminated.
14. CONTINGENCIES
Government Audits - Payments to the Company on subcontracts with prime U.S.
Government contractors are subject to adjustment upon audit by various agencies
of the U.S. Government. For the years ended December 31, 1997, 1998 and 1999, no
audits of costs and the related payments have been performed by the various
agencies. At December 31, 1998, the Company accrued a potential liability for
billings in excess of costs incurred of $79,796 related to a cost-plus-fee
contract. In July 1999, this contract was converted to a time and material based
contract by signing new agreements. Any potential liabilities from the prior
contract ceased under the new agreements. At December 31, 1999, there are no
liabilities accrued related to the billing in excess of cost. In the opinion of
management, the final determination of these costs and related payments will not
have a material effect on the Company's financial position, results of
operations, or liquidity.
Litigation - In late 1998, litigation was filed in France by a former sales
representative. A hearing was held in 1999 and according to the decision of the
French court, the Company has been directed to pay $228,600 to the former
representative. The liability of $228,600 was accrued at December 31, 1999.
15. RETIREMENT PLAN
Effective January 1, 1999, the Company established a 401(k) retirement plan (the
401(k) Plan) covering all eligible employees, as defined. Under the terms of the
401(k) Plan, participants may defer a portion of their salaries as employee
contributions and are immediately 100% vested. The Company may make matching,
nonelective or discretionary contributions to the 401(k) Plan. In general,
matching and discretionary contributions made by the Company vest ratably over a
three-year period. The Company did not make a contribution under this Plan for
1999.
16. SUBSEQUENT EVENTS
In January 2000, the Company joined in a value-added reseller and comarketing
agreement with another company. The Company grants to the other company a
nonexclusive worldwide internal use license and value-added reseller license.
Each license has a term of two years, and the Company will receive a sublicense
fee for each copy of the product sublicensed by the other company.
In January 2000, the Company joined in agreement with a biotech company to
develop a customized version of its software for use by the biotech company in
connection with distribution of the biotech company's data through license
agreements. The biotech company agrees to pay for the customization of the
product on a time-and-materials basis along with any reasonable expenses
incurred during the customization of the product.
F-24
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
In February 2000, the Company increased the line of credit to $3,000,000 and the
equipment line of credit to $3,000,000 (equipment loan). Any outstanding amounts
on the line of credit are payable by February 2001; however, any accrued
interest is due and payable monthly. Borrowings under this line of credit are
secured by accounts receivable of the Company and bear interest at prime plus
1.00% and are subject to certain financial covenants, such as minimum cash
balances, net worth, and current ratios. Any outstanding amount on the equipment
loan within the first six months of the loan plus any accrued interest shall be
converted to a term loan in May 2000 with principal-and-interest payments
required monthly over a twenty-four month period. Borrowings under this loan are
secured by equipment of the Company, bear interest at prime plus 1.25%, and are
subject to a minimum level of net worth.
On June 7, 2000, the Board of Directors approved the Company's plan to make an
initial public offering of up to $100,000,000 of common stock.
On June 7, 2000 the Board of Directors approved an increase in the number of
authorized common shares reserved for issuance under the Company's equity
incentive compensation plan to 6,179,000.
On June 19, 2000, the Company amended (Amendment No. 5) the May 1999 line of
credit agreement in connection with a $3 million bridge loan. This amendment
provides a $3 million bridge loan to fund the Company's operating expenses and
modifies certain financial covenants. All outstanding borrowings under the
bridge loan will accrue interest at the prime rate plus 2.5% to be payable
monthly beginning on July 15, 2000. All outstanding borrowings under the bridge
loan together with any unpaid interest accrued thereon will become due and
payable upon the earlier of (i) December 19, 2000 and (ii) the closing date of
any initial public offering of any capital stock or any other equity event in
which the Company receives an infusion of at least $3 million in cash or
non-cash assets from any holder of our capital stock. Generally, in the event
that the Company raises any funds through venture financing, private placements
of our equity securities, or strategic investors, the Company is obligated to
make a prepayment on the bridge loan up to the maximum amount outstanding
thereunder. The Company may initially draw up to $1.5 million and up to $500,000
(in increments of $250,000) in subsequent months up to the $3 million maximum
amount. In connection with the bridge loan the Company issued to the bank
warrants to purchase up to 15,030 shares of common stock for $0.006 per warrant.
In the event that any amounts under the bridge loan remain due on September 19,
2000, the Company is obligated to issue additional 10,020 warrants to the bank.
The warrants are initially exercisable at $5.99 per share, subject to adjustment
for certain dilutive issuances. The fair value of each warrant granted was
estimated on the date of the grant using the Black-Scholes pricing model with
the following weighted average assumptions: risk-free interest rate of 5.74%,
expected dividend yield of 0%, expected life of one year and expected volatility
of 93%. A discount on the loan was recorded equal to the fair value of the
warrants and will be amortized to interest expense over the term of the loan.
The bank was also issued certain registration rights enabling them to request
the Company to include the common stock underlying their warrants in a
registration statement filed by the Company.
On June 23, 2000, the Company issued 243,282 shares of common stock in a private
sale transaction with three accredited investors and received cash totaling
approximately $1.55 million. Of these shares, 156,954 were sold to a related
party. This related party relationship results from common ownership of this
purchaser and an existing stockholder of the Company.
On June 29, 2000, the Company issued 313,909 share of common stock in a private
sale transaction to an accredited investor and received cash totaling
approximately $2.0 million. In addition, the Company issued warrants to purchase
25,050 shares of common stock. The warrants are initially exercisable at $6.37
per share subject to adjustment for certain dilutive issuances.
F-25
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
On June 30, 2000, in connection with the settlement and payment of the
litigation liability of $228,600 to the former sales representative in France
(see note 14), the Company purchased from the former sales representative the
remaining 26% interest in its subsidiary InforModus SARL for approximately
$7,500.
On April 20, 2000, the president of the Company paid $65,000 toward the interest
and principal outstanding under the loan that the Company made in April 1999. On
July 7, 2000, the remaining principal and interest of approximately $6,000 was
repaid.
On August 16, 2000, the Company entered into a Series B Redeemable Convertible
Preferred Stock Purchase Agreement with a purchaser. The Company authorized,
issued and sold 950,747 shares of Series B redeemable Convertible Preferred
Stock, $.01 par value, for $10,000,000 ($10.52 per share). The Series B
Redeemable Convertible Preferred Stock contains similar rights and privileges as
the Company's Series A Redeemable Convertible Preferred Stock and is convertible
into 1,587,747 shares of common stock of the company at any time at a conversion
price of $6.30. At the time of issuance of the Series B Redeemable Convertible
Preferred Stock, the deemed fair market value of the underlying common stock was
$15.00 per share. Therefore, the proceeds of $10,000,000 will be initially
allocated to additional paid-in capital as a presumed beneficial conversion
feature. As the Series B Redeemable Convertible Preferred Stock is convertible
at any time, the entire amount of $10,000,000 will be immediately accreted to
the Series B Convertible Redeemable Preferred Stock on August 16, 2000. In
connection with the issuance of the Series B Redeemable Convertible preferred
stock, the Company entered into joint development and marketing agreements.
On September 8, 2000, the Board of Directors amended the equity incentive
compensation plan to increase the number of shares authorized to 8,179,000.
On September 11, 2000, in connection with the Company's contemplated initial
public offering of common stock, the Company filed an amended certificate of
incorporation pursuant to Board of Director and stockholder approval which
resulted in a 1.67 for 1 split of common stock, a change in par value of common
stock from $0.01 to $0.001 per share, conversion of nonvoting common stock to
voting common stock, an increase in the authorized shares of common stock to
100,000,000, and the authorization of 20,000,000 shares of preferred stock with
a par value of $0.01. All references to the number of common shares, per share
amounts and par values have been restated as appropriate to reflect the effect
of the split, par value change and change in the authorized number of common
shares for all periods presented.
On September 21, 2000, a lease agreement was executed for new headquarters
offices that the Company is scheduled to take possession of in January, 2001.
This agreement, which expires on October 31, 2012, does not require rental
payments during the initial 90 days of possession after which the Company is
required to make rental payments of $1,357,125 a year, subject to a 2.5% annual
escalation clause. Rental payments may also be adjusted for the Company's pro
rata share of increases in building expenses as defined in the lease. The
Company is entitled to leasehold improvement materials amounting to $60,697 and
a leasehold improvement allowance not to exceed $1,085,700. The lease requires
the Company to maintain a security deposit of $1,380,600 of which $460,200 was
due upon execution of the lease agreement and $920,400 will be due when the
Company takes possession. This security deposit may be reduced subject to the
Company meeting certain minimum financial requirements. To satisfy the security
deposit requirement of the lease, PNC Bank, NA has issued an irrevocable standby
letter of credit for $460,200 in favor of the lessor which requires a
compensating balance arrangement of $460,200.
For the period from July 1, 2000 through September 26, 2000, the Company granted
805,330 qualified options to employees and 33,400 nonqualified options to one
nonemployee. These options were issued with exercise prices ranging from $6.37
to $15.00 per share; the deemed fair
F-26
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
market value of the underlying common stock was $6.37 at each grant date prior
to July 10, 2000 and $15.00 at each grant date thereafter. Deferred compensation
related to the qualified options is $1,289,883 which will be amortized to
expense over a four year vesting period. Compensation related to nonemployee
options, which vest over a three year period, is $373,037.
17. VALUATION AND QUALIFYING ACCOUNTS
The following table sets forth activity in the Company's accounts receivable
reserve accounts:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING CHARGES TO END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Year ended -
December 31, 1997 ......... $ -- $ -- $ -- $ --
December 31, 1998 ......... -- 15,000 -- 15,000
December 31, 1999 ......... 15,000 -- -- 15,000
</TABLE>
* * * * * *
F-27
<PAGE>
================================================================================
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until October 27, 2000, all dealers effecting transactions in the common
stock of InforMax, Inc., whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
--------------------------------
TABLE OF CONTENTS
--------------------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary ........................... 3
Risk Factors ................................. 9
Special Note Regarding
Forward-Looking Statements ................ 18
Use of Proceeds .............................. 19
Dividend Policy .............................. 19
Capitalization ............................... 20
Dilution ..................................... 22
Selected Consolidated Financial Data ......... 23
Management's Discussion and Analysis
of Financial Condition and
Results of Operations ..................... 25
Business ..................................... 36
Management ................................... 55
Certain Transactions ......................... 65
Principal Stockholders ....................... 68
Description of Capital Stock ................. 70
Shares Eligible for Future Sale .............. 74
Underwriting ................................. 76
Legal Matters ................................ 79
Experts ...................................... 79
Additional Information ....................... 79
Index to Consolidated Financial
Statements ................................ F-1
</TABLE>
================================================================================
================================================================================
[GRAPHIC OMITTED]
5,000,000 SHARES
COMMON STOCK
------------------------------------------------
PROSPECTUS
------------------------------------------------
BEAR, STEARNS & CO. INC.
U.S. BANCORP PIPER JAFFRAY
ADAMS, HARKNESS & HILL, INC.
OCTOBER 2, 2000
================================================================================
<PAGE>
[Alternate Page]
5,000,000 SHARES
[GRAPHIC OMITTED]
COMMON STOCK
------------------
This is an initial public offering of 5,000,000 shares of common stock of
InforMax, Inc. We are selling all of the shares of common stock offered under
this prospectus.
Our common stock has been approved for listing on the Nasdaq National
Market under the symbol "INMX."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 TO READ ABOUT RISKS THAT YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED ON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- --------------
<S> <C> <C>
Public offering price ........................... $ 16.00 $80,000,000
Underwriting discounts and commissions .......... $ 1.12 $ 5,600,000
Proceeds to InforMax, Inc. ...................... $ 14.88 $74,400,000
</TABLE>
------------------
We have granted the underwriters a 30-day option to purchase up to an
additional 750,000 shares of common stock from us at the initial public offering
price less the underwriting discount.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares in New York, New York on October 6,
2000.
------------------
BEAR, STEARNS INTERNATIONAL LIMITED
U.S. BANCORP PIPER JAFFRAY
ADAMS, HARKNESS & HILL, INC.
The date of this prospectus is October 2, 2000
<PAGE>
[Alternate Page]
No action has been or will be taken in any jurisdiction by us or any
underwriter that would permit a public offering of the common stock or
possession or distribution of this prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this prospectus comes are required by us and the underwriters
to inform themselves about, and to observe any restrictions as to, the offering
of the common stock and the distribution of this prospectus.
The shares may not be offered to persons in the United Kingdom other than
in circumstances which are deemed not to be an offer to the public in the United
Kingdom for the purposes of the Public Offers of Securities Regulations 1995.
Neither this prospectus, nor any other document issued in connection with the
offering of the shares may be issued to any person in the United Kingdom unless
that person is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996 (as amended) or is
a person to whom such document may be otherwise lawfully issued.
<PAGE>
[Alternate Page]
================================================================================
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until October 27, 2000, all dealers effecting transactions in the common
stock of InforMax, Inc., whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
--------------------------------
TABLE OF CONTENTS
--------------------------------
<TABLE>
<CAPTION>
PAGE
--------------
<S> <C>
Prospectus Summary ........................... 3
Risk Factors ................................. 9
Special Note Regarding
Forward-Looking Statements ................ 18
Use of Proceeds .............................. 19
Dividend Policy .............................. 19
Capitalization ............................... 20
Dilution ..................................... 22
Selected Consolidated Financial Data ......... 23
Management's Discussion and Analysis
of Financial Condition and
Results of Operations ..................... 25
Business ..................................... 36
Management ................................... 55
Certain Transactions ......................... 65
Principal Stockholders ....................... 68
Description of Capital Stock ................. 70
Shares Eligible for Future Sale .............. 74
Underwriting ................................. 76
Legal Matters ................................ 79
Experts ...................................... 79
Additional Information ....................... 79
Index to Consolidated Financial
Statements ................................ F-1
</TABLE>
================================================================================
================================================================================
[GRAPHIC OMITTED]
5,000,000 SHARES
COMMON STOCK
------------------------------------------------
PROSPECTUS
------------------------------------------------
BEAR, STEARNS
INTERNATIONAL LIMITED
U.S. BANCORP PIPER JAFFRAY
ADAMS, HARKNESS & HILL, INC.
OCTOBER 2, 2000
================================================================================
