<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 2000
REGISTRATION NO. 333-41194
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
INFORMAX, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7371 56-1687783
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------
6010 EXECUTIVE BOULEVARD, 10TH FLOOR, ROCKVILLE, MD 20852, (301) 984-2206
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JOSEPH E. LEHNEN
CHIEF FINANCIAL OFFICER
6010 EXECUTIVE BOULEVARD, 10TH FLOOR
ROCKVILLE, MD 20852
(301) 984-2206
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL J. SILVER JEFFREY E. COHEN
Hogan & Hartson L.L.P. Coudert Brothers
111 S. Calvert Street, Suite 1600 1114 Avenue of the Americas
Baltimore, MD 21202 New York, NY 10036
(410) 659-2700 (212) 626-4400
</TABLE>
------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the Effective Date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE (1) REGISTRATION FEE
--------------------------------- --------------------- ------------------ -------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.001 .. 5,750,000 shares(2) $ 16.00 $92,000,000 $ 24,288 (3)
</TABLE>
--------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act.
(2) Includes 750,000 shares which the underwriters have the option to purchase
to cover over-allotments, if any.
(3) $19,800 previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 31, 2000
PRELIMINARY PROSPECTUS
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.
We expect the public offering price for our common stock to be between
$14.00 and $16.00 per share. There is currently no public market for our common
stock. We have applied to have our common stock 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 ........................... $ $
Underwriting discounts and commissions .......... $ $
Proceeds to InforMax, Inc. ...................... $ $
</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 , 2000.
------------------
BEAR, STEARNS & CO. INC.
U.S. BANCORP PIPER JAFFRAY
ADAMS, HARKNESS & HILL, INC.
The date of this prospectus is , 2000
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES, IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<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, "What's behind the genomic revolution?"]
[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
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. Beneath the far left side of the
graphic is the phrase "From Data to Knowledge."]
[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," "SimBlockView," 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,"
"BioPlot(TM)" and "ContigExpress.(TM)" Beneath that is the phrase "Desktop
Software for Integrated Sequence Analysis and Data Management" in a less bold
style.]
[In the bottom right hand corner of the two-page gatefold appears "InforMax"
and InforMax's greenish-blue Double Helix Logo Design, above "High-Throughput
Research(TM)."]
<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.
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
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 companies, for
integrating and analyzing data from genomics, proteomics and drug screening
production laboratories.
As of August 23, 2000, we employed 192 people, including a sales and
marketing team of 51, a research and product development team of 90 and an
implementation and support staff of 23.
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.
3
<PAGE>
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 is
scheduled for commercial launch in the third quarter of 2000.
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 August 31, 2000, 18 organizations engaged in genomic
research have purchased GenoMax.
4
<PAGE>
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 ......... 18,128,514 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.
Proposed Nasdaq National Market symbol ..................... "INMX"
</TABLE>
The above information is based on our shares outstanding as of August 23,
2000 and excludes:
o 13,470,517 shares issuable upon exercise of common stock options
outstanding, including 5,185,735 issued under our equity incentive
compensation plan at a weighted average exercise price of $0.708 per
share;
o an aggregate of 1,131,528 shares reserved for future issuance under our
equity incentive compensation plan; and
o outstanding warrants to purchase 40,080 shares of our common stock.
Unless otherwise indicated, the information in this prospectus assumes:
o a 1.67 for 1 split of our common stock to be effected prior to the
closing of the offering;
o the reduction, to be effected prior to the closing of the offering, of
our common stock's par value from $0.01 per share to $0.001 per share;
o the filing of our amended and restated certificate of incorporation, to
be effected prior to the closing of the offering, converting our
non-voting class of common stock into voting common stock and authorizing
a single class of common stock after the offering, and making other
changes as are described elsewhere in this prospectus, and the amendment
of our bylaws;
o the automatic conversion of our outstanding Series A and Series B
redeemable convertible preferred stock into common stock upon the closing
of the offering; and
o no exercise by the underwriters of their option to purchase additional
shares of stock in the 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 ............................... $ 0.01 $ -- $ (0.04) $ (0.16) $ (0.38)
Diluted net income (loss) applicable per
common share ............................... $ 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 ............................... $ (0.02) $ (1.48)
Diluted net income (loss) applicable per
common share ............................... $ (0.02) $ (1.48)
</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.
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 $2,575 $5,571 $10,087 $3,025 8,994
No. of Vector NTI
Licenses Booked
(cumulative) ............
No. of Genomax Sales
Booked (cumulative) ..... -- -- -- 2 8 3 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 upon the closing of this offering, and
the conversion of the outstanding nonvoting common stock into shares of
common stock upon the closing of this offering; 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 upon the closing of this
offering, the conversion of the outstanding nonvoting common stock into
shares of common stock upon the closing of this offering, and our receipt
of the estimated net proceeds from the sale of 5,000,000 shares of common
stock in this offering at an assumed initial public offering price of
$15.00 per share, the mid-point of the offering range, after deducting
estimated 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 $80,641
Working capital (deficit) ........................... (1,283) 8,717 77,267
Total assets ........................................ 10,109 20,109 88,659
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 89,082
Stockholders' equity (deficit) ...................... (3,449) 10,814 79,364
</TABLE>
See our consolidated financial statements and notes included elsewhere in
this prospectus for a description of the computation of the historical and pro
forma net loss per common share and the number of shares used in the historical
and pro forma 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 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, AND WE MAY
NOT BE SUCCESSFUL IN DOING SO.
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 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 companies for integrating and analyzing data from
genomics, proteomics and drug screening production laboratories. The agreements
with Amersham can be terminated prior to the end of term based upon a breach by
the other party and are subject to testing and acceptance periods for products
jointly developed. If the agreements are 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.
As of June 30, 2000, we had an accumulated deficit of approximately $8.2
million and a net loss of $6.1 million for the six months ended June 30, 2000.
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 each of 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.
Under generally accepted accounting principles, we may not 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 elements is made. For
example, in several of our GenoMax sales, our contracts with our 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 is scheduled for delivery as part of GenoMax 3.0 in the
third quarter of 2000. If we do not release GenoMax 3.0 in the third quarter of
2000 as scheduled, we will be required to defer a significant amount of
revenues
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that we currently anticipate recognizing in that quarter. 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.
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.
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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, RealTimeHealth.com, Inc. ("RTH"). RTH 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. RTH intends to hire and is
currently seeking a chief executive officer. Dr. Titomirov currently
anticipates that his duties as chairman of RTH 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 details that he currently intends to devote a
majority of his time to his duties as our Chief Executive Officer, there could
be periods where his activities with RTH 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.
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
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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 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 will 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 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.
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 current or future products. To the extent that our
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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 bioscience, NetGenics,
Compugen, Genomica, DNA Star, Rosetta Inpharmatics, DoubleTwist and GCG, a
division of Oxford Molecular being sold to Pharmacopeia. 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 us.
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.
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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
utilize 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 CUSTOMER RESEARCH AND DEVELOPMENT EXPENDITURES AND PUBLIC
FUNDING.
Sales of our products and services could suffer as a result of reductions
in customer research and development expenditures and public funding. Our
continued services to the NCBI and sales of our products to other government
and academic institutions could be negatively affected by reductions in 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.
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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 18,128,514
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 13,128,514 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 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 8,241,276 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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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 60.3% 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 assumed
initial public offering price of $15.00 per share, the midpoint of the offering
range, the pro forma net tangible book value of the common stock will be $4.41
per share. This represents an immediate and substantial dilution per share of
$10.59 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
upon 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.
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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.
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USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of our
common stock of approximately $68,550,000 , or approximately $79,012,500 if the
underwriters' over-allotment option is exercised in full. This estimate is based
on an assumed initial public offering price of $15.00 per share, the mid-point
of the offering range, and deducts the estimated 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.
19
<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
convertible preferred stock after June 30, 2000, the automatic conversion
of all redeemable convertible preferred stock into common stock upon the
closing of this offering, and the conversion of the outstanding nonvoting
common stock into shares of voting common stock upon the closing of this
offering;
o on a pro forma basis as adjusted to give effect to the issuance of Series
B convertible preferred stock after June 30, 2000, the automatic
conversion of all redeemable convertible preferred stock into common
stock upon the closing of this offering, and the conversion of the
outstanding nonvoting common stock into shares of voting common stock
upon the closing of this offering; and our receipt of the estimated net
proceeds from the sale of 5,000,000 shares of common stock in this
offering at an assumed initial public offering price of $15.00 per share,
after deducting estimated underwriting discounts and commissions and
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
2,161,265 shares, authorized, no shares issued or
outstanding pro forma and pro forma as adjusted ........................ 4,263,194 -- --
------------ ------------ ------------
Series B redeemable convertible preferred stock, par value $0.01 --
950,747 shares authorized, issued and outstanding actual,
pro forma and pro forma as adjusted .......................... -- -- --
------------ ------------ ------------
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; 24,936,212 shares
authorized, 5,531,508 issued and outstanding, actual; no shares
issued and 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 89,063,874
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 79,364,486
------------ ------------ ------------
Total capitalization .................................................... $ 2,056,461 $ 12,056,461 $ 80,606,461
============ ============ ============
</TABLE>
In addition to the shares of common stock to be outstanding after the
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
4,990,345 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; 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.
20
<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 Convertible Preferred
Stock issuance after June 30, 2000, upon 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 the
estimated offering expenses payable by us, our adjusted pro forma net tangible
book value as of June 30, 2000 would have been $79.4 million, or $4.41 per
share. This amount represents an immediate dilution of $10.59 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share .............................. $ 15.00
--------
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 ..................................... 3.58
-------
Pro forma net tangible book value per share after this offering ...... 4.41
--------
Dilution per share to new investors .................................. $ 10.59
========
</TABLE>
The following table summarizes on a pro forma basis after giving effect to
the 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 estimated discounts and commissions and
estimated offering expenses payable by us:
<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 6.1% $ 0.38
New investors ................. 5,000,000 27.8 75,000,000 93.9 $ 15.00
---------- ----- ---------- ----- -------
Total ........................ 17,983,068 100.0% 79,891,717 100.0%
========== ===== ========== =====
</TABLE>
If the underwriters exercise their over-allotment option in full, there
will be an increase in pro forma net tangible book value of $4.80 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $10.20 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 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 warrants outstanding.
To the extent that these or any other outstanding options or warrants are
exercised, there will be further dilution to new investors.
21
<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 three 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>
22
<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 (loss) applicable per common
share ...................................... $ 0.01 $-- $ (0.04) $ (0.16) $ (0.38) $ (0.02) $ (1.48)
====== === ======= ======= ========= ======= =========
Diluted net income (loss) applicable per
common share ............................... $ 0.01 $-- $ (0.04) $ (0.16) $ (0.38) $ (0.02) $ (1.48)
====== === ======= ======= ========= ======= =========
</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.
<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 historical and pro
forma net loss per share and the number of shares used in the historical and
pro forma per share calculations in statement of operations data above.
23
<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.
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 is
marketed as GenoMax 2.5.
To date, we have sold over 20,000 licenses for our Vector NTI Suite of
software applications for desktop computers and 18 licenses for our GenoMax
enterprise platform for 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 partnership with Amersham
Pharmacia Biotech to jointly develop and market an expanded version of GenoMax
to provide an enterprise-wide data analysis system for pharmaceutical
companies, for integrating and analyzing data from genomics, proteomics and
drug screening production laboratories. In connection with this partnership,
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 InforMax serves 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 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
24
<PAGE>
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.
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;
25
<PAGE>
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.
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
---- ---- ---- --- ---
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>
26
<PAGE>
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 software
license bookings in the first six months of 2000 will be recognized in
subsequent periods.
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 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. 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. 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 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.
27
<PAGE>
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 20.3% 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.
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.
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<PAGE>
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, 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.
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<PAGE>
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>
Revenues:
Software license and customer
support .............................. $2,273 79% $ 1,136 59% $2,820
Professional services ................. 618 21 779 41 799
------ -- -------- -- ------
Total revenues ....................... 2,891 100 1,915 100 3,619
Cost of revenues:
Software license and customer
support .............................. 76 3 71 4 187
Professional services ................. 388 13 422 22 459
------ --- -------- --- ------
Total cost of revenues ............... 464 16 493 26 646
Gross profit ........................... 2,427 84 1,422 74 2,973
Operating expenses:
Selling, general and
administrative ....................... 1,309 45 1,871 97 2,732
Research and development .............. 644 22 637 34 831
Stock based compensation .............. 9 -- 26 1 86
Depreciation and amortization 48 2 78 4 105
------ --- -------- --- ------
Total operating expenses ............. 2,010 69 2,612 136 3,754
Income (loss) from operations .......... 417 15 (1,190) (62) (781)
Other income (expense):
Investment earnings ................... 1 -- 42 2 22
Interest expense ...................... (17) (1) (22) (1) (32)
Other ................................. -- (4) -- (7)
----- ----------- ----- --------
Total other income
(expense) ........................... (16) (1) 16 1 (17)
Income (loss) before income
taxes ................................. 401 14 (1,174) (61) (798)
Income tax provision (benefit) ......... 146 5 (434) (23) (305)
------ ----- ---------- ----- -------
Net income (loss) ...................... $ 255 9% $ (740) (38)% $(493)
====== ===== ========== ===== =======
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> <C>
Revenues:
Software license and customer
support ....................................... 78% $ 2,411 75% $ 2,443 74%
Professional services .......................... 22 797 25 858 26
------- ------- ------- ------- -------
Total revenues ................................ 100 3,208 100 3,301 100
Cost of revenues:
Software license and customer
support ....................................... 5 100 3 132 4
Professional services .......................... 13 425 13 455 14
------- ------- ------- ------- -------
Total cost of revenues ........................ 18 525 16 587 18
Gross profit .................................... 82 2,683 84 2,714 82
Operating expenses:
Selling, general and
administrative ................................ 75 3,424 107 4,141 125
Research and development ....................... 23 961 30 1,510 46
Stock based compensation ....................... 2 556 17 418 13
Depreciation and amortization .................. 3 148 5 195 6
------- ------- ------- ------- -------
Total operating expenses ...................... 103 5,089 159 6,264 190
Income (loss) from operations ................... (21) (2,406) (75) (3,550) (108)
Other income (expense):
Investment earnings ............................ -- 6 -- 9 0
Interest expense ............................... (1) (45) (1) (75) (2)
Other .......................................... -- (5) -- (3) 0
------- ------- ------- ------- -------
Total other income
(expense) .................................... (1) (44) (1) (69) (2)
Income (loss) before income
taxes .......................................... (22) (2,450) (76) (3,619) (110)
Income tax provision (benefit) .................. (8) -- -- -- 0
------- ------- ------- ------- -------
Net income (loss) ............................... (14)% $(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 systems. 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.
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<PAGE>
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 72%, 20%, and 6%, respectively, of sales through May
31, 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 we generated $7.4 million of
cash from operations compared to $4.8 million for the comparable period in
1999. 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 comparable
period in 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 $3.9 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.
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 $0.4
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
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<PAGE>
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 facility.
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 an additional warrants for an
additional 10,020 shares PNC Bank. The warrants are exercisable at $5.99 per
share, subject to adjustment for 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, 557,192 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 preferred stock
to Amersham Pharmacia Biotech for aggregate proceeds of $10.0 million in cash.
We expect to use the proceeds for working capital. These shares will
automatically be converted into 1,587,747 shares of our common stock upon the
closing of this offering.
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<PAGE>
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 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.
33
<PAGE>
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.
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
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 companies, for
integrating and analyzing data from genomics, proteomics and drug screening
production laboratories.
As of August 23, 2000, we employed 192 people, including a sales and
marketing team of 51, a research and product development team of 90 and an
implementation and support staff of 23.
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.
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<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
[GRAPHIC OMITTED]
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 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 this data into advances in drug discovery and
development, clinical diagnostics, agricultural production, environmental
management, and industrial processes. Bioinformatic software allows researchers
to
35
<PAGE>
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 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 the 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
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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.
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.
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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 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 and has been licensed to over 20,000 desktops
at 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 anticipate commercially launching Vector Enterprise in
the third quarter of 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. Launched in late 1998, GenoMax has been
purchased by 18 organizations engaged in genomic research.
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
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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
August 23, 2000, we had 90 employees dedicated primarily to research and
product development.
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, our Vector NTI Suite is currently licensed to over 20,000
desktops at 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 sold our
GenoMax enterprise platform to 18 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. At the time of
purchase, 15 of 18 of our GenoMax enterprise customers were already 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 51
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 23 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
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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.
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. Since its launch
in late 1998, we have sold our GenoMax enterprise system to 18 customers, 15 of
whom were already users of Vector NTI Suite. We are scheduled to launch our
Vector Enterprise product in the third quarter of 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. We are scheduled to
launch version upgrades to our GenoMax product in 2000 that contain significant
product enhancements and are scheduled to commercially launch our Vector
Enterprise product in the third quarter of 2000. 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.
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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 deployment and facilitate the management of our software solutions.
In January 2000, we entered into an agreement with an application service
provider and we anticipate offering our products through its
Internet-based hosting network beginning in the third quarter of 2000.
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
<TABLE>
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SOFTWARE PRODUCTS
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
VECTOR NTI SUITE: suite of desktop applications designed for individual scientists engaged in genomic and proteomic
research
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VERSION MODULES FUNCTIONS
------------------------------------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------------------------------
VECTOR ENTERPRISE (scheduled 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
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GENOMAX ENTERPRISE: large-scale, modular, enterprise-wide data mining and analysis application
------------------------------------------------------------------------------------------------------------------------------------
VERSIONS MODULES FUNCTIONS
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GENOMAX 2.5 SEQUENCE ANALYSIS similarity searches, sequence alignments and
(released Q1 2000) annotation
GENOMAX 3.0 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
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PROFESSIONAL SERVICES
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SOFTWARE DEVELOPMENT Consulting and software development services provided under contract
IMPLEMENTATION AND Software installation, integration and customization for GenoMax customers
SUPPORT SERVICES
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CHANNELING AND DISTRIBUTION ALLIANCES
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CONTENT CHANNELING AND Partnerships to integrate and distribute third party data content and to distribute
HARDWARE RESELLING specialized bioinformatic hardware with our software
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 are scheduled to commercially
launch the first version of Vector Enterprise in the third quarter of 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. Our current GenoMax 2.5 version was launched in
March 2000 and 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,
which is scheduled for release in the third quarter of 2000, 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 modules 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 currently available
with GenoMax 2.5 and is scheduled to be enhanced as part of GenoMax 3.0.
o Gene Expression Analysis: for management, analysis and visualization of
microarray data. This module is scheduled for release 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 scheduled for
release 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.
CUSTOMERS
We license our desktop software solutions to pharmaceutical, biotechnology
and agricultural biotechnology companies, academic and government research
institutions, and individual researchers. Vector NTI Suite is currently
licensed to over 20,000 desktops at 1,300 organizations, including over
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500 pharmaceutical, biotechnology and agricultural biotechnology companies and
800 academic and government research institutions. Introduced in late 1998, our
GenoMax enterprise platform has been purchased by 18 customers. 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 51 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 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.
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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
intend to begin providing our bioinformatic software solutions through this
Internet-hosted method in late 2000.
STRATEGIC COLLABORATION WITH AMERSHAM PHARMACIA BIOTECH
In August 2000, 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 companies for integrating and analyzing data from genomics,
proteonics and drug screening production laboratories. Under the agreements
outlining our relationship, we will receive a portion of the revenues resulting
from the sale, license or maintenance fees associated with such products. The
agreements can be terminated prior to the end of the term based upon a breach
by the other party and are subject to certain testing and acceptance periods
for the products jointly developed. 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 August 23, 2000, we had 90 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;
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<PAGE>
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;
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 bioscience, NetGenics,
Compugen, Genomica, DNA Star, Rosetta Inpharmatics, DoubleTwist and GCG, a
division of Oxford molecular being sold to Pharmacopeia. We intend to compete
with such organizations regarding pricing and 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 & 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 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.
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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 August 23, 2000, we had 192 full-time employees, including 90
employees primarily engaged in research and product development, 51 in sales
and marketing and 23 in implementation and support. We believe that our future
success will depend in part on our continued ability to attract 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 currently lease approximately 24,400 square feet of office space for
our 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. We maintain additional offices in Annapolis, San
Francisco, Denver, and Oxford, England, and have sales representatives in
Boston and Bonn, Germany. We believe that we will be able to obtain suitable
additional or substitute space as necessary at commercially reasonable rates.
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. Whitely received a Bachelor's degree 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 Whiteley.
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.
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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 15,000 shares of our common stock at an exercise price of $0.50.
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 ............... Global Head, Computational Genetics, Roche
Biosciences
Jacquelyn S. Fetrow, Ph.D .............. Chief Scientific Officer, GeneFormatics, Inc.
Rainer Fuchs, Ph.D ..................... Vice President, CIO, Ariad Pharmaceuticals, Inc.
Lawrence M. Kanvar, Ph.D ............... President, Trellis Bioinformatics, Inc.
Dorn Lancet, Ph.D ...................... Professor of Neurogenomics, Weizmann Institute
Crown Human Genome Center
F. Raymond Salemme, Ph.D ............... President and CSO, 3-Dimensional Pharmaceuticals,
Inc.
Robert Strausberg, Ph.D ................ Assistant to the Director of National Cancer Insititute,
National Institutes of Health
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 ................... Former Director, Computational Biology, Compaq
Computer Corporation
Raymond Cho ............................ Vice President of Genomics, InGenuity Systems
</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
56
<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 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.
57
<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 $ 300,000 0 3,899,900
Chief Executive Officer and
Chairman of the Board of
Directors
Dr. Vadim Babenko, 1999 $ 200,000 0 1,600,000
Chief Technology Officer and
Senior Vice President
Dr. James Bernstein, 1999 $ 225,000 0 1,050,000
Chief Operating Officer and
Executive Vice President
Joseph Lehnen, 1999 $ 145,000(1) $35,000 350,000(2)
Chief Financial Officer
Timothy Sullivan, 1999 $ 222,747(3) 0 375,000(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.
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<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 an assumed initial public
offering price of $15.00 per share, the midpoint of the offering range. 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 $9,769,250 $19,538,499
Dr. Vadim Babenko 2,672,000 17.9% $ .30 3/20/2009 $4,008,000 $ 8,016,000
Dr. James Bernstein 1,753,500 11.7% $ .30 3/20/2009 $2,630,250 $ 5,260,500
Joseph Lehnen 584,500 3.9% $ .30 3/24/2009 $ 876,750 $ 1,753,500
Timothy Sullivan 626,250 4.2% $ .30 3/24/2009 $ 939,375 $ 1,878,750
</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 assumed fair market value
of $2.00 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 $5,849,850 0
Dr. Vadim Babenko 3,340,000 0 $3,196,000 0
Dr. James Bernstein 1,780,220 0 $1,606,840 0
Joseph Lehnen 347,049 237,451(1) $ 311,721 $213,279
Timothy Sullivan 169,601 456,648(1) $ 152,337 $410,163
</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.
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<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. The total number of shares of our common stock authorized for
use by the plan is 6,179,000. As of August 23, 2000, options to purchase
13,470,517 shares of our common stock and 60,000 shares of restricted stock
were granted including 5,185,735 shares of common stock issuable pursuant to
incentive awards under the plan.
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.
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
60
<PAGE>
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.
61
<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 upon the
closing of this offering, with an aggregate value of $23,816,212, assuming an
initial offering price of $15.00 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.
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 upon the closing of this offering,
with an aggregate value of $54,139,680 assuming an initial offering price of
$15.00 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 was granted demand registration rights
pursuant to which it may, subject to certain conditions, and beginning 180 days
from the date of this prospectus, require us to file a registration statement
on its behalf covering shares of its 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, FBR, subject to
certain conditions, may require us to file such a registration statement on up
to four occasions. In addition, FBR 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. FBR's short
form and piggyback registration rights terminate when all of its shares can be
sold under Rule 144 in any 90 day period or if FBR's ownership falls below 1%
of our outstanding shares.
The investor rights agreement also contains certain restrictions on FBR's
ability to transfer its shares of our common stock.
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.
62
<PAGE>
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 $10.00 per
share. In March 2000, Drs. Titomirov and Babenko 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 August 2000, Dr. Bernstein entered into a private transaction with an
accredited investor for the sale of 83,900 shares of common stock, at $6.30
per share. In connection with this transaction, the purchaser joined as a party
to our non-preferred holder rights agreement and received certain registration
rights described above.
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.
63
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of August 23, 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 13,128,514 shares of common stock
outstanding prior to the offering as of August 23, 2000, and 18,128,514 shares
of common stock outstanding after the 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 August 23, 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 SHARES BENEFICIALLY
OWNED 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 35.2% 6,112,200 27.3%
FBR Technology Venture Partners II, LP(2) .......... 4,444,312 33.9% 4,444,312 24.5%
1001 19th Street
Arlington, VA 22209
Hooks Johnston(3) .................................. 4,444,312 33.9% 4,444,312 24.5%
Vadim Babenko, Ph.D.(4) ............................ 2,479,950 16.0% 2,479,950 12.1%
James Bernstein, M.D.(5) ........................... 2,013,619 13.6% 2,013,619 10.2%
Amersham Pharmacia Biotech, Inc.(6) ................ 1,587,747 12.1% 1,587,747 8.8%
800 Centennial Avenue
P.O. Box 1327
Piscataway, NJ 08855-1327
Weiss, Peck & Greer, LLC(7) ........................ 1,252,497 9.5% 1,252,497 6.9%
One New York Plaza
New York, New York 10004
Paul Capital Partners VI Holdings(8) ............... 1,110,550 8.5% 1,110,550 6.1%
50 California Street
Suite 3000
San Francisco, CA 94111
Timothy Sullivan(9) ................................ 916,830 7.0% 916,830 5.1%
Joseph Lehnen(10) .................................. 751,500 5.4% 751,500 4.0%
Harry D'Andrea(11) ................................. 5,010 * 5,010 *
Andrew Whiteley .................................... -- -- -- --
Wei Wu He .......................................... 240,855 1.8% 240,855 1.3%
All directors and executive officers as a group
(9 persons)(12) ................................... 16,964,276 73.3% 16,964,276 60.3%
</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 upon the closing of this offering.
The general partner of FBR Technology Venture Partners II, LP is FBR
Venture Capital Managers, Inc. Mr. Johnston, one of our directors, is the
Managing Director of FBR Technology Venture Partners II, LP.
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<PAGE>
(3) Represents shares held by FBR Technology Venture Partners II, LP, of which
Mr. Johnston is the Managing Director.
(4) Includes 2,396,450 shares issuable upon exercise of vested options.
(5) Includes 1,696,319 shares issuable upon exercise of vested options,
417,500 of which are held by family trusts over which Mr. 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 upon 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., (e) 318,211 shares held of record by WPG Raytheon
Software Fund, L.P., (f) 170,964 shares held of record by WPG Software
Fund, L.P., (g) 45,424 shares held of record by WPG Networking QP Fund,
L.P., and (h) 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 (g) 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) Includes 916,830 shares issuable upon exercise of vested stock options.
(10) Includes 751,500 shares issuable upon exercise of vested stock options.
(11) Includes 5,010 shares issuable upon exercise of vested stock options.
(12) Includes 10,026,112 shares issuable upon exercise of vested stock options.
65
<PAGE>
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,
18,128,514 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 August 23, 2000, there were 13,128,514 shares of common stock issued
and outstanding and held of record by 54 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 on the closing of this offering.
There will be 18,128,514 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 August 23, 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. Concurrently with 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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<PAGE>
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
FBR Technology Venture Partners II, LP, Amersham Pharmacia Biotech, each
of the Weiss, Peck & Greer entities disclosed in the "Principal Stockholders"
table, Paul Capital Partners VI Holdings, PNC Bank, National Association and
four accredited investors have certain registration rights as to the 8,241,276
shares of common stock or warrants to acquire common stock they will own upon
the closing of this offering. FBR is entitled to certain demand registration
rights pursuant to which it 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, FBR 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, FBR, Amersham, WPG, Paul Capital 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. FBR is permitted up to four short
form registration demands, while WPG, Paul Capital and the four 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 FBR 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 FBR, if FBR's
ownership of our 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 FBR and
Amersham's shares prior to the granting of equal or more favorable registration
rights to any third party.
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<PAGE>
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 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.
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<PAGE>
Upon 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 upon completion of this offering also 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. Issuance
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. Issuance 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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<PAGE>
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, 18,128,514 shares of our common stock
will be outstanding based on the number of shares of our preferred stock and
common stock outstanding as of August 23, 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 13,128,514
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 holders of at least ___________ shares
of our stock 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. The lock-up agreements do not apply to any shares
acquired in this offering through the directed share program.
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 181,285 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 8,241,276 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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<PAGE>
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. ................
U.S. Bancorp Piper Jaffray Inc. .........
Adams, Harkness & Hill, Inc. ............
Total ...................................
</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 $ ______ 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 $______ 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.
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 ............................... $ $ $
Underwriting discounts and commissions payable by us
Proceeds, before expenses, to us ....................
</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.
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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 our stockholders holding _________ shares
of our stock 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.
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 will
be determined by negotiations between us and the representatives of the
underwriters. Among the factors to be considered in determining the initial
public offering price will be 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. We
have applied for approval for the quotation of our common stock 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.
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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 _______ 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 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.
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<PAGE>
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 33,748
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 reports 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. Where contracts or
documents are filed as exhibits, descriptions in this prospectus of such
contracts or other documents are qualified in all respects by the exhibit. For
further information about us and the shares we are offering by this prospectus,
you should review this registration statement and the exhibits and schedules
attached to it. 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.
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<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>
THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS GIVE EFFECT TO THE
COMPLETION OF THE 1.67-FOR-1 SPLIT OF COMMON STOCK, CHANGE IN PAR VALUE FROM
$0.01 TO $0.001, 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 WHICH WILL TAKE PLACE AFTER APPROVAL BY THE COMPANY'S BOARD
AND PRIOR TO THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT. THE FOLLOWING
REPORT IS IN THE FORM WHICH WILL BE FURNISHED BY DELOITTE & TOUCHE LLP UPON
COMPLETION OF THE STOCK SPLIT, CHANGE IN PAR VALUE, AND AUTHORIZATION OF COMMON
AND PREFERRED STOCK DESCRIBED IN NOTE 16 TO THE CONSOLIDATED FINANCIAL
STATEMENTS AND ASSUMING THAT FROM DECEMBER 31, 1999 TO THE DATE OF SUCH
COMPLETION NO OTHER MATERIAL EVENTS HAVE OCCURRED THAT WOULD AFFECT THE
ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS OR REQUIRED DISCLOSURE THEREIN.
Deloitte & Touche LLP
McLean, Virginia
August 31, 2000
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 the 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.
McLean, Virginia
June 7, 2000, except for Note 16, paragraphs six, seven, eight, nine, ten,
eleven, and twelve as to which the dates are June 19, 2000, June 23, 2000, June
29, 2000, June 30, 2000, July 7, 2000, August 16, 2000, and , 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 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--950,747 shares authorized, and no shares issued
and outstanding at 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 12,983,086 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 ....... $ (0.04) $ (0.16) $ (0.38) $ (0.02) $ (1.48)
========== ========== ============ =========== ============
Diluted net loss applicable per common share ..... $ (0.04) $ (0.16) $ (0.38) $ (0.02) $ (1.48)
========== ========== ============ =========== ============
Weighted average common shares outstanding -
Basic and diluted ............................... 3,132,753 3,611,626 3,874,122 3,795,131 4,202,880
========== ========== ============ =========== ============
</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.
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> <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) (286,808) (1,306,476)
Proceeds from sale of furniture
and equipment ......................... - - 9,621 - 3,629
Increase in shareholder note
receivable ............................ - - (65,000) (65,000) 0
Repayment of shareholder note
receivable ............................ - - - - 65,000
Cash used in investing
activities ........................ (5,437) (71,505) (1,398,287) (351,808) (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) (28,130) (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 2,550,139
Proceeds from issuance of warrants........ - - - - 90
Proceeds from share options
exercised .............................. - 4,401 17,480 - 961,755
------- ------- --------- --------- ---------
Cash (used in) provided by
financing activities ............... (70,915) 50,935 5,091,695 3,994,629 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) - - - -
--------- ---------- ---------- ---------- ----------
$ - $ - $ - $ - $ -
========= ========== ========== ========== ==========
</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>
Retirement of treasury stock:
Increase in additional paid in capital..... $ - $ - $ - $ - $ 118,433
Increase in common stock .................. - - - - 567
Decrease in treasury stock ................ - - - - (119,000)
------- ------- -------- ------- ------------
$ - $ - $ - $ - $ -
======= ======= ======== ======= ============
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
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 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 conversion of the
Series A and Series B 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.
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>
F-13
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
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 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>
F-14
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
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.
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 570,178 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 100,000 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 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
these options. 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.
F-15
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
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 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
F-16
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
$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>
$ 0.060 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 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
</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% 13%
</TABLE>
F-17
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
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) $ (1,663,429)
Pro forma net loss per share - basic ............ $ (0.04) $ (0.16) $ (0.43)
Pro forma net loss per share - diluted .......... $ (0.04) $ (0.16) $ (0.43)
</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.
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.
F-18
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
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 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.
F-19
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
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>
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.
F-20
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
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.
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>
F-21
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
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.
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.
F-22
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
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>
<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.
F-23
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 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.
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 will be
estimated on the date of the grant using the Black-Scholes pricing model
with the following weighted average assumptions: risk-free interest rate of
5.71%, expected dividend yield of 0%, expected life of one year and expected
volatility of 12%. A discount on the loan will be 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.
F-24
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
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.
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.
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 InforModas 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. In connection with the issuance of the Series B Redeemable
Convertible preferred stock, the Company entered into joint development and
marketing agreements.
On , 2000, in connection with the Company's contemplated initial public
offering of common stock, the Board of Directors approved a 1.67 for 1 split
of common stock, a change in par value from $0.01 to $0.001, an income 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, prior to
the closing of the offering. 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 and par value change for all periods
presented.
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-25
<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 , 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 ..................................... 21
Selected Consolidated Financial Data ......... 22
Management's Discussion and Analysis
of Financial Condition and
Results of Operations ..................... 24
Business ..................................... 34
Management ................................... 52
Certain Transactions ......................... 62
Principal Stockholders ....................... 64
Description of Capital Stock ................. 66
Shares Eligible for Future Sale .............. 70
Underwriting ................................. 72
Legal Matters ................................ 75
Experts ...................................... 75
Additional Information ....................... 75
Index to Consolidated Financial
Statements ................................ F-1
</TABLE>
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--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
SHARES
COMMON STOCK
------------------------------------------------
PROSPECTUS
------------------------------------------------
BEAR, STEARNS & CO. INC.
U.S. BANCORP PIPER JAFFRAY
ADAMS, HARKNESS & HILL, INC.
, 2000
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by us in
connection with the registration of the securities offered hereby. All of the
amounts shown are estimated except the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee. ......... $ 24,288
NASD filing fee .............................................. $ 9,700
Nasdaq National Market listing fee ........................... $ 95,000
Transfer agent's and registrar's fees. ....................... $ 10,000
Printing expenses ............................................ $ 200,000
Legal fees and expenses ...................................... $ 500,000
Accounting fees and expenses ................................. $ 300,000
Miscellaneous expenses ....................................... $ 61,012
==========
Total .................................................... $1,200,000
==========
</TABLE>
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the General Corporate Law of the State of Delaware,
InforMax has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). InforMax's bylaws
(Exhibit 3.2 hereto) also provide for mandatory indemnification of its
directors and executive officers.
InforMax's certificate of incorporation (Exhibit 3.1 hereto) provides that
the liability of its directors for monetary damages shall be eliminated to the
fullest extent permissible under Delaware law. Pursuant to Delaware law, this
includes elimination of liability for monetary damages for breach of the
directors' fiduciary duty of care to InforMax and its stockholders. These
provisions do not eliminate the directors' duty of care and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to InforMax, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision also does not affect a
director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
InforMax intends to obtain in conjunction with the effectiveness of this
registration statement a policy of directors' and officers' liability insurance
that insures InforMax's directors and officers against the cost of defense,
settlement or payment of a judgment under certain circumstances.
The underwriting agreement filed as Exhibit 1.1 to this registration
statement provides for indemnification by the underwriters of InforMax and its
officers and directors for certain liabilities arising under the Securities
Act.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the registrant has issued unregistered
securities to a limited number of persons as described below (all common stock
amounts are on a post-split basis).
(1) In August 2000, we issued 950,747 shares of our Series B preferred stock to
Amersham Pharmacia Biotech, Inc., in exchange for $10 million in cash.
(2) In June 2000, we issued 313,909 shares of our common stock to an accredited
investor for approximately $2 million, or $6.37 per share. In exchange for
the rendering of certain consulting services, we also issued to the same
accredited investor warrants exercisable for 25,000 shares of our common
stock at $6.37 per share, subject to certain adjustments.
(3) In June 2000, we issued an aggregate of 243,282 shares of our common stock
to three accredited investors for approximately $1.55 million, or $6.37
per share.
(4) In June 2000, we issued warrants exercisable for 15,030 shares of our
common stock with an exercise price of $5.99 per share. The warrants were
issued in connection with a $3 million bridge loan financing and we
received $0.006 per warrant.
(5) In connection with an equipment line, a revolving line of credit and a
bridge loan, we have issued notes to the lender covering any outstanding
amounts under the credit facilities.
(6) In June 1999, we issued 2,161,265 shares of our Series A preferred stock to
FBR Technology Venture Partners II, in exchange for $4,000,000 in cash.
(7) In March 1998, we issued 734,967 shares of our common stock to Dr.
Titomirov and two investors in exchange for $7,350.
(8) We have, from time to time, granted options and restricted stock grants to
employees, consultants and directors. The following table sets forth
certain information regarding such grants:
<TABLE>
<CAPTION>
YEAR NUMBER OF SHARES RANGE OF EXERCISE PRICE
---------------------- ------------------ ------------------------
<S> <C> <C>
1997 1,569,967 $ 0.006
1998 167,000 $ 0.006
1999 14,932,487 $ 0.30
1/1/2000 - 8/23/2000 1,191,501 $0.30 - $6.37
</TABLE>
The sale and issuance of securities in the transactions described above
were exempt from registration under the Securities Act in reliance on Section
4(2) of the Securities Act or Regulation D promulgated thereunder as
transactions by an issuer not involving a public offering, where the purchasers
were sophisticated investors who represented their intention to acquire
securities for investment only and not with a view to distribution and received
or had access to adequate information about InforMax.
No underwriters were employed in the above transactions.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
------------- ---------------------------------------------------------------------------------
<S> <C>
1.1 Underwriting Agreement *
3.1 Second Restated Certificate of Incorporation
3.2 Form of Amended and Restated Certificate of Incorporation (proposed,
post-offering)*
3.3 Second Amended and Restated Bylaws
3.4 Form of Amended and Restated Bylaws (proposed, post-offering)*
4.1 Specimen Common Stock Certificate *
5.1 Opinion of Hogan & Hartson L.L.P. *
10.1 InforMax, Inc. Equity Incentive Plan, Amendment No. 1 thereto dated July 11,
1999 and Amendment No. 2 thereto dated January 25, 2000+
10.2 Employment Agreement between Joseph Lehnen and InforMax, Inc. dated
April 1, 1999+
10.3 Employment Agreement between Timothy Sullivan and InforMax, Inc. dated
April 1, 1999+
10.4 Amended and Restated Investor Rights Agreement between InforMax, Inc.,
FBR Technology Venture Partners II, L.P. and Amersham Pharmacia Biotech,
Inc. dated August 16, 2000
10.5 Non-Preferred Holder Rights Agreement between InforMax, Inc. and each of
the Weiss, Peck & Greer entities noted in the Principal Stockholders table dated
March 29, 2000+
10.6 Shareholder's Agreement among InforMax, Inc., Dr. Alex Titomirov, Dr. James
Bernstein and certain other stockholders, and Amendment No. 1 thereto dated
August 17, 1999, and Amendment No. 2 thereto dated March 29, 2000+
10.7 Loan Agreement between InforMax, Inc. and PNC Bank, National Association
dated May 6, 1999, Amendment No. 1 thereto dated August 6, 1999,
Amendment No. 2 thereto dated November 30, 1999, Amendment No. 3 thereto
dated February 7, 2000, Amendment No. 4 thereto dated February 29, 2000 and
Amendment No. 5 thereto dated June 19, 2000+
10.8 Second Amended and Restated Revolving Credit Note dated February 7, 2000+
10.9 Third Amended and Restated Line of Credit Note dated February 7, 2000+
10.10 Security Agreement between InforMax, Inc. and PNC Bank, National
Association dated May 6, 1999+
10.11 Office Lease Agreement between InforMax, Inc. and Jemal Cayre 6010
Executive Blvd. L.L.C. dated March 31, 1999, Addendum No. 1 thereto dated
July 8, 1999 and Addendum No. 2 thereto dated February 1, 2000 and
Addendum No. 3 thereto dated May 19, 2000+
10.12 Letter Agreement between InforMax, Inc. and Management System Designers,
Inc. dated July 9, 1999, in connection with services to be provided to the
National Center for Biotechnology Information (NCBI), addendum thereto
dated November 22, 1999, addendum thereto dated November 22, 1999 and
addendum dated July 26, 2000++
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
------------- --------------------------------------------------------------------------------
<S> <C>
10.13 Technical Services Agreement between InforMax, Inc. and Unisys Corporation
dated April 18, 2000 in connection with services to be provided to the National
Center for Biotechnology Information (NCBI)++
10.14 Bridge Note dated June 19, 2000+
10.15 Warrant Purchase Agreement between InforMax, Inc and PNC Bank, National
Association dated June 19, 2000+
10.16 Joinder Agreement between InforMax, Inc. and Paul Capital Partners VI
Holdings dated June 13, 2000+
10.17 Joinder Agreement between InforMax, Inc. and Cogene Biotech Ventures, L.P.
dated June 29, 2000+
10.18 Joinder Agreement between InforMax, Inc. and Gene Fund, LP, Kenson
Venture, LLC and VitalBio Holdings, Inc. and June 23, 2000+
10.19 Data Analysis Products Development and Distribution Agreement dated
August 16, 2000 between InforMax, Inc. and Amersham Pharmacia Biotech, Inc. *
10.20 Business Information Products Development and Distribution Agreement dated
August 16, 2000 between InforMax, Inc. and Amersham Pharmacia Biotech, Inc. *
10.21 Employment Agreement between Dr. Vadim Babenko and InforMax, Inc. dated
July 14, 2000
10.22 Commitment letter dated August 14, 2000 from Dr. Alex Titomirov to
InforMax, Inc.
10.23 Joinder Agreement between InforMax, Inc. and Gene Fund, LP dated August 16,
2000
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5.1 hereto) *
23.3 Consent of Front Line Strategic Management Consulting, Inc.
24.1 Power of Attorney of Directors (included in signature pages)
27.1 Financial Data Schedule
</TABLE>
+ previously filed
* To be filed by amendment
+ Confidential Treatment requested as to certain portions of this Exhibit
(B) FINANCIAL STATEMENT SCHEDULES:
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions of the Underwriting Agreement, its
Charter or Bylaws or the Delaware General Corporation Law or otherwise, the
Registrant has 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.
II-4
<PAGE>
In the event that a claim for indemnification against such liabilities,
other than the payment by the Registrant of expenses incurred or paid by a
director, officer, controlling person employee or agent of the Registrant in
the successful defense of any action, suit or proceeding, is asserted by such
director, officer, controlling person, employee or agent in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, InforMax, Inc. has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the County of
Montgomery, State of Maryland, on August 31, 2000.
INFORMAX, INC.
By: /S/ Dr. Alex Titomirov
-----------------------------------
Dr. Alex Titomirov
Chairman and Chief Executive Officer
KNOW BY ALL PERSONS, that each person whose signature appears below
constitutes and appoints Dr. Alex Titomirov, Dr. James Bernstein and Joseph
Lehnen, and each of them, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and sign
any registration statement for the same offering covered by the Registration
Statement that is to be effective upon filing pursuant to Rule 462 promulgated
under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----------------------------- ------------------------------- ----------------
<S> <C> <C>
/S/ Dr. Alex Titomirov Chairman of the Board of August 31, 2000
--------------------------- Directors, President and Chief
Dr. Alex Titomirov Executive Officer (Principal
Executive Officer)
/S/ Joseph Lehnen Chief Financial Officer August 31, 2000
--------------------------- (Principal Financial Officer)
Joseph Lehnen
/S/ Dr. James E. Bernstein Director August 31, 2000
---------------------------
Dr. James E. Bernstein
/S/ Harry D'Andrea Director August 31, 2000
---------------------------
Harry D'Andrea
/S/ Hooks Johnston Director August 31, 2000
---------------------------
Hooks Johnston
/S/ Andrew Whiteley Director August 31, 2000
---------------------------
Andrew Whiteley
/S/ Dr. Wei Wu He Director August 31, 2000
---------------------------
Dr. Wei Wu He
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
------------- ---------------------------------------------------------------------------------
<S> <C>
1.1 Underwriting Agreement *
3.1 Second Restated Certificate of Incorporation
3.2 Form of Amended and Restated Certificate of Incorporation (proposed,
post-offering)*
3.3 Second Amended and Restated Bylaws
3.4 Form of Amended and Restated Bylaws (proposed, post-offering)*
4.1 Specimen Common Stock Certificate *
5.1 Opinion of Hogan & Hartson L.L.P. *
10.1 InforMax, Inc. Equity Incentive Plan, Amendment No. 1 thereto dated July 11,
1999 and Amendment No. 2 thereto dated January 25, 2000+
10.2 Employment Agreement between Joseph Lehnen and InforMax, Inc. dated
April 1, 1999+
10.3 Employment Agreement between Timothy Sullivan and InforMax, Inc. dated
April 1, 1999+
10.4 Amended and Restated Investor Rights Agreement between InforMax, Inc.,
FBR Technology Venture Partners II, LP and Amersham Pharmacia Biotech,
Inc. dated August 16, 2000
10.5 Non-Preferred Holder Rights Agreement between InforMax, Inc. and each of
the Weiss, Peck & Greer entities noted in the Principal Stockholders table dated
March 29, 2000+
10.6 Shareholder's Agreement among InforMax, Inc., Dr. Alex Titomirov, Dr. James
Bernstein and certain other stockholders, and Amendment No. 1 thereto dated
August 17, 1999, and Amendment No. 2 thereto dated March 29, 2000+
10.7 Loan Agreement between InforMax, Inc. and PNC Bank, National Association
dated May 6, 1999, Amendment No. 1 thereto dated August 6, 1999,
Amendment No. 2 thereto dated November 30, 1999, Amendment No. 3 thereto
dated February 7, 2000, Amendment No. 4 thereto dated February 29, 2000 and
Amendment No. 5 thereto dated June 19, 2000+
10.8 Second Amended and Restated Revolving Credit Note dated February 7, 2000+
10.9 Third Amended and Restated Line of Credit Note dated February 7, 2000+
10.10 Security Agreement between InforMax, Inc. and PNC Bank, National
Association dated May 6, 1999+
10.11 Office Lease Agreement between InforMax, Inc. and Jemal Cayre 6010
Executive Blvd. L.L.C. dated March 31, 1999, Addendum No. 1 thereto dated
July 8, 1999 and Addendum No. 2 thereto dated February 1, 2000 and
Addendum No. 3 thereto dated May 19, 2000+
10.12 Letter Agreement between InforMax, Inc. and Management System Designers,
Inc. dated July 9, 1999, in connection with services to be provided to the
National Center for Biotechnology Information (NCBI), addendum thereto
dated November 22, 1999, addendum thereto dated November 22, 1999 and
addendum dated July 26, 2000++
10.13 Technical Services Agreement between InforMax, Inc. and Unisys Corporation
dated April 18, 2000 in connection with services to be provided to the National
Center for Biotechnology Information (NCBI)+
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
------------- ------------------------------------------------------------------------------
<S> <C>
10.14 Bridge Note dated June 19, 2000+
10.15 Warrant Purchase Agreement between InforMax, Inc and PNC Bank, National
Association dated June 19, 2000+
10.16 Joinder Agreement between InforMax, Inc. and Paul Capital Partners VI
Holdings dated June 13, 2000+
10.17 Joinder Agreement between InforMax, Inc. and Cogene Biotech Ventures, L.P.
dated June 29, 2000+
10.18 Joinder Agreement between InforMax, Inc. and Gene Fund, LP, Kenson
Venture, LLC and VitalBio Holdings, Inc. and June 23, 2000+
10.19 Data Analysis Products Development and Distribution Agreement dated
August 16, 2000 between InforMax, Inc. and Amersham Pharmacia Biotech, Inc. *
10.20 Business Information Products Development and Distribution Agreement dated
August 16, 2000 between InforMax, Inc. and Amersham Pharmacia Biotech, Inc. *
10.21 Employment Agreement between Dr. Vadim Babenko and InforMax, Inc. dated
July 14, 2000
10.22 Commitment letter dated August 14, 2000 from Dr. Alex Titomirov to
Informax, Inc.
10.23 Joinder Agreement between InforMax Inc. and Gene Fund, LP dated August 16,
2000
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5.1 hereto) *
23.3 Consent of Front Line Strategic Management Consulting, Inc.
24.1 Power of Attorney of Directors (included in signature pages)
27.1 Financial Data Schedule
</TABLE>
+ previously filed
* To be filed by amendment
+ Confidential Treatment requested as to certain portions of this Exhibit
II-8
