AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
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 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 $0.01 (2) ......... shares $ $75,000,000 $19,800
</TABLE>
--------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act.
(2) Includes shares which the underwriters have the option to purchase
to cover over-allotments, if any.
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 , 2000
PRELIMINARY PROSPECTUS
SHARES
[GRAPHIC OMITTED]
COMMON STOCK
------------------
This is an initial public offering of 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 $
and $ 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 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 above
"High-Throughput Research(TM)." Beneath that is the word "GenoMax(TM)," above
the phrase "Enterprise Bioinformatics System for High-Throughput Research" in a
less bold style. Beneath that is the phrase "Vector NTI(Reg. TM) Suite" above
the phrase "Desktop Software for Integrated Sequence Analysis and Data
Management" in a less bold style.]
[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
"GenoMax" in blue above three pictures of computer screens, one for each of
"Blast Results View," "SimBlockView," and "Array Analysis View." In the middle
is "Vector NTI Suite" in blue above three pictures of computer screens for each
of "Molecule View," "BioPlot(TM)" and "ContigExpress.(TM)" Along the right side
of the bottom two thirds of the gatefold is the following disclosure:
"InforMax is a leader in bioinformatic software for accelerated drug
discovery, enabling pharmaceutical, biotechnology and research organizations
worldwide to achieve greater insights through biological data mining and
integrated sequence analysis.
GENOMAX(TM)
Launched in late 1998, our GenoMax enterprise software has been purchased
by 16 organizations engaged in genomic research.
This large-scale data mining application integrates multiple genomic data
types and enables researchers to automate complex analysis tasks. It is
designed for a coordinated effort by a diverse team of scientists working
across research divisions.
VECTOR NTI(Reg. TM) SUITE
Launched in 1993, Vector NTI Suite has been licensed to over 17,000
desktops worldwide.
This desktop application is a comprehensive sequence analysis and
visualization tool for laboratory scientists engaged in genomic and protein
sequence research. Vector NTI is designed to reflect the natural workflow and
analytical processes used by a laboratory researcher."
In the bottom right hand corner of the two-page gatefold appears "InforMax" and
the InforMax 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." Unless otherwise indicated, this prospectus
assumes:
o the automatic conversion of our outstanding Series A redeemable
convertible preferred stock into common stock upon closing of the
offering;
o the filing of our amended and restated certificate of incorporation,
converting our non-voting class of common stock into voting common stock
and authorizing a single class of voting common stock after the offering,
and making other changes as are described elsewhere in this prospectus,
and the amendment of our bylaws; 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.
The Company expects to effect a ___ - for-_____ stock split prior to
closing of the offering.
OUR BUSINESS
InforMax is a leading global provider of bioinformatic software solutions
for the analysis and interpretation of genomic, proteomic and other biomolecular
data. Since we introduced our Vector NTI Suite of desktop applications in 1993,
we have sold our products to over 1,300 organizations worldwide, including over
500 biotechnology, pharmaceutical and agricultural-life science companies and
over 800 academic and government research institutions. Our customers, including
organizations such as Merck & Company, Genzyme Corporation, Proctor & Gamble,
Johnson & Johnson, Bristol-Myers Squibb, Pfizer, AstraZeneca, Diversa
Corporation, Novartis Agribusiness Biotechnology Research, the Whitehead
Institute for Biomedical Research, Massachusetts Institute of Technology,
University of Tokyo and the National Institutes of Health, rely on our software
products to achieve greater research productivity.
Our principal software products are our Vector NTI Suite for desktop
computers and our more powerful and expensive GenoMax enterprise computing
platform. 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. As of June 30,
2000, we employed 172 people, including a sales and marketing team of 45, a
research and product development team of 84 and an implementation and support
staff of 17.
Bioinformatic software applications, combined with automated laboratory
research techniques, enable researchers to efficiently organize, share, analyze,
and interpret genomic, proteomic, and other biomolecular data. Genomic data,
including DNA sequences and genes, and proteomic data, including protein
function, expression and interaction, form the genetic blueprint for all
organisms. Bioinformatics is a key enabling technology representing the
convergence of molecular biology, information technology and Internet
communications.
OUR MARKET OPPORTUNITY
Around the world, researchers in industry, academia, and government are
producing vast quantities of data related to DNA sequence and gene function,
genetic variation, gene expression, protein sequence, protein structure and
interactions and cell processes. In June
3
<PAGE>
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 chemical bases, the 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 disease diagnosis, treatment and prevention,
agricultural production, environmental management and industrial processes. We
believe that the current and future markets for bioinformatic software products
include all of the industries participating in the genomic revolution:
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 independent industry report estimates that customer spending on third party
bioinformatic software and data content was $290 million in 1998, growing to
$1.2 billion in 2005. Given the broad opportunities created by the use of
genomic, proteomic and other biomolecular data, and the efficiency and
productivity gains that can be achieved through bioinformatic software, we
believe that the market for our software solutions will continue to increase.
OUR SOLUTION
In response to the challenges and market opportunities presented by the
genomic revolution, we develop and deliver to our customers a portfolio of
proprietary bioinformatic software products and complementary services. Our
software products are flexible, 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 June 30, 2000, 16 organizations engaged in genomic
research have purchased GenoMax.
OUR ADVANTAGES
We believe that our competitive strengths position 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.
4
<PAGE>
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.
--------------------
The marks InforMax & Double Helix Design and Vector NTI are registered
trademarks of InforMax, Inc. InforMax, InforMax's Double Helix Logo Design,
AlignX, BioPlot, 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, and Dynamic License Server are trademarks of InforMax, Inc.
All other product, service, and company names are trademarks of other parties.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us ................................. __________ shares
Common stock to be outstanding after this offering ......... __________ shares
Use of proceeds ............................................ We will use the net proceeds
of this offering for 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 June 30,
2000 and excludes:
o 8,038,996 shares issuable upon exercise of common stock options
outstanding, including 2,753,096 issued under our equity incentive
compensation plan at a weighted average exercise price of $0.669 per
share as of June 30, 2000;
o an aggregate of 812,272 shares reserved for future issuance under our
equity incentive compensation plan; and
o outstanding warrants to purchase 24,000 shares of our common stock.
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 $ 7,278
Professional services .................... 403 636 867 1,394 2,737
------ ------ -------- -------- ---------
Total revenues .......................... 569 1,018 2,202 4,126 10,015
Gross profit ............................... 405 690 1,448 2,855 7,998
Operating expenses:
Selling, general and administrative ...... 195 507 1,075 2,476 7,000
Research and development ................. 165 161 365 1,162 2,597
Stock based compensation ................. 22 211 18 138
Depreciation and amortization ............ -- 3 18 94 272
------ ------ -------- -------- ---------
Total operating expenses ................ 382 671 1,669 3,750 10,007
Income (loss) from operations .............. 23 19 (221) (895) (2,009)
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 $ -- $ (0.07) $ (0.26) $ (0.64)
Diluted net income (loss) applicable per
common share ............................. $ 0.01 $ -- $ (0.07) $ (0.26) $ (0.64)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 2000
------------ -------------
(UNAUDITED)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Software license and customer support $ 1,049 $ 2,411
Professional services .................... 541 797
-------- ---------
Total revenues .......................... 1,590 $ 3,208
Gross profit ............................... 1,176 2,683
Operating expenses:
Selling, general and administrative ...... 1,088 3,424
Research and development ................. 485 961
Stock based compensation ................. 17 556
Depreciation and amortization ............ 41 148
-------- ---------
Total operating expenses ................ 1,631 5,089
Income (loss) from operations .............. (455) (2,406)
Net income (loss) .......................... $ (337) $ (2,450)
Net income (loss) applicable to common
shares ................................... $ (337) $ (2,534)
Basic net income (loss) applicable per
common share ............................. $ (0.15) $ (1.01)
Diluted net income (loss) applicable per
common share ............................. $ (0.15) $ (1.01)
</TABLE>
<PAGE>
Following is certain supplemental information for the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1995 1996 1997 1998 1999
---------- -------- ------------ ------------ -------------
(IN THOUSANDS, EXCEPT NUMBER OF VECTOR NTI SUITE
LICENSES BOOKED AND NUMBER OF GENOMAX SALES BOOKED)
<S> <C> <C> <C> <C> <C>
Revenue Bookings............................. $ 569 $ 1,033 $ 2,575 $ 5,571 $ 10,087
No. of Vector NTI Licenses Booked
(cumulative)..............................
No. of Genomax Sales Booked (cumulative)..... -- -- -- 2 8
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 2000
------------ -------------
(UNAUDITED)
<S> <C> <C>
Revenue Bookings............................ $ 1,598 $ 4,107
No. of Vector NTI Licenses Booked
(cumulative)............................
No. of Genomax Sales Booked (cumulative).... 3 10
</TABLE>
Revenue bookings represent all invoiced sales of products and services.
7
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
-------------------------------------------
(UNAUDITED)
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ........................... $ 889
Working capital (deficit) ........................... (113)
Total assets ........................................ 8,296
Total debt .......................................... (2,611)
Redeemable convertible preferred stock .............. 4,179
Common stock and additional paid-in capital ......... 2,534
Stockholders' equity (deficit) ...................... (3,066)
</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.
The balance sheet data above sets forth a summary of our consolidated
balance sheet at March 31, 2000:
o on an actual basis;
o on a pro forma basis to give effect to the ___ for ___ stock split to
be effected on ________, 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 voting common
stock upon the closing of this offering; and
o on a pro forma as adjusted basis to give effect to the ___ for ___
stock split to be effected prior to the closing of this offering, 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 voting common stock upon the closing of this offering,
and our receipt of the estimated net proceeds from the sale of
________ shares of common stock in this offering at an assumed initial
public offering price of $____ per share (after deducting estimated
underwriting discounts and commissions and our estimated offering
expenses).
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. We may encounter additional risks that we are not currently able to
identify. These may also adversely affect our business, financial condition or
operating results. If any of the events we have identified, or those that we
cannot currently identify, 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
THE MARKET FOR BIOINFORMATIC PRODUCTS AND SERVICES RELATED TO GENOMIC RESEARCH
IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND WE MUST KEEP PACE WITH THESE
CHANGES IN ORDER TO BE COMPETITIVE.
The market for our products and services has undergone, and is expected to
continue to confront, 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, our efforts must include:
o the continued enhancement and expansion of the functions of our
existing products; and
o the development and introduction of 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. The technological life cycles of our products or particular product
versions are difficult to estimate. 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 and fail to develop, market and deliver new
products or product versions in a timely manner, we could lose market share and
our business would be seriously harmed.
IF WE ARE UNABLE TO ESTABLISH OUR GENOMAX BRAND, AND INCREASE MARKET
PENETRATION FOR OUR VECTOR NTI SUITE BRAND, WE MAY NOT BE ABLE TO MAINTAIN AND
EXPAND OUR EXISTING BASE OF CUSTOMERS AND STRATEGIC PARTNERS.
We believe that the development of a strong brand identity for our
products and services, particularly for our newer GenoMax enterprise product,
will be critical to our ability to retain and attract customers as well as
strategic partners who can assist us in promoting our products. The reputation
of our brands will largely depend on our ability to provide high quality,
user-friendly software products and complementary services that meet the needs
of the genomic research community. Promotion and enhancement of our brand will
also depend upon the effectiveness of our marketing and advertising efforts. If
we do not successfully develop a strong brand identity for our products and
services, we may not be able to retain or expand our base of customers and
strategic partners, which would adversely affect our ability to achieve or
sustain revenue growth and profitability.
WE MUST RETAIN, AND EXPAND UPON, OUR EXISTING CUSTOMER RELATIONSHIPS AND ADD
NEW CUSTOMERS IN ORDER TO GROW OUR REVENUES AND ACHIEVE PROFITABILITY.
In order to generate additional revenues sufficient to offset an
anticipated significant increase in our expenses, we must obtain additional
customers and retain, and expand upon, our existing customer relationships. Our
ability to retain existing customers and add new customers depends upon our
successful development of new products and services that respond to the
evolving needs of the genomic research community. These goals are also
significantly dependent upon the success of our sales and marketing efforts. We
cannot assure you that our products and services will gain increased market
acceptance. Much of our expectation for future growth is based upon growth in
our sales of
9
<PAGE>
enterprise-wide software products. Since its commercial launch in late 1998, we
have entered into agreements with 16 customers for our GenoMax enterprise
platform. We are scheduled to commercially release our Vector Enterprise product
in the third quarter of 2000. Our failure to add customers or expand upon our
existing relationships with customers, particularly for our GenoMax enterprise
product, would significantly harm our ability to generate revenue and to achieve
profitability. In addition, we expect to derive a significant portion of our
professional services revenue via subcontracts to contracts with the National
Center for Biotechnology Information (NCBI) at the National Institutes of
Health, the continuation of which subcontracts cannot be assured.
OUR PRODUCT DEVELOPMENT EFFORTS AND BUSINESS PROSPECTS SIGNIFICANTLY DEPEND
UPON THE RETENTION AND EXPANSION OF OUR RESEARCH AND PRODUCT DEVELOPMENT GROUP.
Our current and future business prospects are significantly dependent upon
our ability to retain and expand upon our current 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. We may not be successful in retaining existing 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 efforts and could cause us to incur significant costs associated
with any resulting litigation or dispute arising in connection with the
protection of our proprietary information.
OUR FUTURE REVENUES AND PROFITABILITY MAY DEPEND UPON OUR ABILITY TO DEVELOP
STRATEGIC RELATIONSHIPS AND COLLABORATIONS WITH LARGER ORGANIZATIONS AND
PROVIDERS OF COMPLEMENTARY PRODUCTS AND SERVICES.
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 relationships with selected genomic
content providers, third party information technology vendors, reagent vendors
and application service providers, we can add revenues and increase market
awareness and acceptance of our products. To date, we have entered into a
limited number of these strategic relationships with providers of complementary
products and services. We may not be successful in developing additional
strategic relationships on terms favorable to us, if at all. Even if we are
able to establish such relationships, we may not gain additional revenues, our
products and services may not achieve broad market acceptance, and we may incur
significant costs and harm to our industry reputation as a result of failed
alliances. If we are unable to successfully develop these relationships, or if
these relationships do not yield the results we anticipate, our ability to
achieve profitability could be materially harmed.
WE HAVE INCURRED OPERATING LOSSES IN THE PAST, RESULTING IN AN ACCUMULATED
DEFICIT, AND 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 March 31, 2000, we had an accumulated deficit of approximately $4.6
million. We expect to continue to incur net losses for the foreseeable future.
The extent of our future losses will depend, in part, on the rate of our
revenue growth, if any, and the level of our expenses. We expect to invest
substantial financial and other resources to develop and introduce new
products, product versions and services, expand each of our research and
product development and sales and marketing groups, and consider appropriate
acquisitions and strategic relationships. As a result, we expect that our
expenses will increase significantly. We will, therefore, need to generate
significant additional revenue to achieve profitability. 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. If we cannot achieve
and maintain profitability, the market price of our common stock could suffer
and you could lose all or part of your investment.
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WE DEPEND ON OUR KEY PERSONNEL AND THE LOSS OF THEIR SERVICES OR THE
DEVELOPMENT OF SUBSTANTIAL EXTERNAL TIME COMMITMENTS WOULD IMPAIR OUR ABILITY
TO COMPETE.
Our business is substantially dependent on the performance of our senior
management and key employees, including 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 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 our business.
Our Chief Executive Officer, 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. Although Dr.
Titomirov has informed us that he currently intends to devote substantially all
of his time to his duties as our Chief Executive Officer, he does not have an
employment agreement with us, and there could be periods where his activities
with RTH substantially reduce the time devoted to our operations, which could
have a material adverse effect on our business.
Our future success will also depend upon our ability to identify, recruit
and retain additional qualified managerial personnel. There is currently a
shortage of skilled executives and competition for such personnel in our
industry is intense. We cannot assure you that we will be able to attract and
retain personnel with the advanced qualifications necessary for the development
of our business. The inability to attract and retain such personnel could have
a material adverse effect upon our business.
WE EXPECT OUR RESULTS OF OPERATIONS TO VARY FROM QUARTER TO QUARTER IN FUTURE
PERIODS, WHICH COULD CAUSE OUR STOCK PRICE TO FLUCTUATE OR DECLINE.
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 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, including installation and software
customization;
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;
o the timing of expenses associated with increased product development,
expanded sales and marketing efforts, and acquisitions and strategic
investments; and
o the number and timing of orders for our GenoMax enterprise product,
which can have a significant effect on revenues for a particular
quarter.
In addition, the manner in which we recognize revenue, in accordance with
the generally accepted accounting principles, may 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 these practices, our quarterly operating
results may vary significantly.
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As a result of the academic calendar, European business practices and
commercial information technology procurement practices, we generally
experience a significant reduction in sales in the third quarter of each
calendar year which typically results in a corresponding reduction in operating
revenues. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a further discussion of quarterly fluctuation in our
operating results.
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.
CONSUMMATING THE SALE OF MANY OF OUR PRODUCTS AND SERVICES INVOLVES A LENGTHY
SALES CYCLE, WHICH MAKES OUR REVENUES DIFFICULT TO PREDICT.
The sales cycle for our enterprise software solutions, on which much of
our expectations for future growth are based, is a lengthy and involved
process. We may expend substantial effort and resources while marketing our
products to potential customers. 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. We may expend substantial funds and effort to negotiate these
agreements, but may ultimately be unable to consummate a sale of our products
and services. As a result, predicting the timing and amount of our sales is
difficult. Our inability to complete one or more enterprise-wide sales in a
particular quarter or calendar year could materially adversely affect our
business and would contribute to our operating results varying significantly
from quarter to quarter.
ANY FAILURE TO ADEQUATELY SAFEGUARD OUR PROPRIETARY TECHNOLOGIES COULD HARM OUR
COMPETITIVE POSITION.
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. Our efforts to protect our
intellectual property may be inadequate. We may be unable to prevent others
from offering products and services substantially similar to ours. Our business
may also suffer as a result of the misappropriation of, and other unauthorized
access, or use of, our proprietary technologies. Moreover, third parties may
claim that our current or future products or product versions infringe upon
their intellectual property. As a result of a third party's claim that we are
infringing their intellectual property or our claim that a third party is
infringing our intellectual property, litigation could arise. Litigation with
respect to intellectual property could be a significant distraction to our
management efforts, and we may incur significant costs, including the payment
of any damages awarded. In the event that it is determined that one of our
products or product versions infringe upon another's proprietary rights, we may
be required to obtain a license in order to continue selling our products. Such
a license may not be available to us on favorable terms, or at all. Our success
also depends in part on our ability to secure and maintain adequate protection
of our intellectual property for our technologies and products in other
countries. 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.
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OUR BUSINESS IS DEPENDENT UPON THE SECURE OPERATION OF OUR COMPUTER SOFTWARE
AND RELATED TOOLS AND FUNCTIONS.
Our software facilitates collaboration among researchers and the sharing
of research results. If there is a breach of 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 as a result of defects or breaches of security in our
products.
WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR GROWTH, AND FUTURE GROWTH COULD
SIGNIFICANTLY STRAIN OUR EXISTING RESOURCES.
In recent years, we have experienced significant growth in the size of our
customer base and the scope of our products and services. We also have expanded
and intend to continue to expand our research and product development, marketing
and sales, and professional services organizations. These factors have placed,
and will continue to place, a significant strain on our management systems and
resources. As a result of this offering, we will become a public company, which
will place additional strain on our administrative, financial and operational
systems. Our 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. Historically, we have focused a significant
portion of our resources on the sale and development 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. We may not be able to efficiently
manage the above transitions. Failure to manage our growth effectively could
affect our ability to retain and add customers and strategic partners and would
materially and adversely affect our business, financial condition and results of
operations.
WE SIGNIFICANTLY DEPEND UPON HOLDERS OF H-1B NON-IMMIGRANT VISAS TO STAFF OUR
RESEARCH AND PRODUCT DEVELOPMENT TEAM AND OUR BUSINESS WOULD BE AFFECTED BY
CHANGES IN U.S. IMMIGRATION LAW.
We recruit professionals for our research and product development group on
an international basis and, therefore, must comply with the immigration laws in
the relevant countries, particularly the United States. The vast majority 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 efforts could be hampered and our
business, operating results and financial condition could be materially
adversely affected. Any changes in such laws making it more difficult to hire
foreign nationals or limiting our ability to retain existing foreign employees,
could require us to incur additional unexpected labor costs and expenses and
could hamper product enhancement and expansion efforts.
IF WE ENGAGE IN ANY ACQUISITIONS OR STRATEGIC INVESTMENTS, WE MAY INCUR CERTAIN
COSTS, STRAIN OUR RESOURCES AND ENCOUNTER OTHER RISKS THAT COULD ADVERSELY
AFFECT OUR BUSINESS OPERATIONS.
We will consider acquiring businesses, technologies or products that we
believe are a strategic fit with our business and strategy. 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 business, results of
operation and 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,
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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.
PRODUCT DEFECTS OR MALFUNCTIONS COULD HURT OUR INDUSTRY REPUTATION AND EXPOSE
US TO LIABILITY.
Our business and the level of customer acceptance of our bioinformatic
software products are significantly dependent upon the continuous, effective
and reliable operation of our computer software and related tools and
functions. To the extent that our software malfunctions and our customers' use
of our products is interrupted, our reputation and business could suffer.
Software defects could be found in current or future products. We may also be
subject to defects and malfunctions of third party technology partners and
others with whom our products and services interoperate. We cannot assure you
that we will not be exposed to liability for defects or errors associated with
products and data whose sale we facilitate. Any such litigation could divert
resources and management's attention from our business strategy and adversely
affect our business.
WE MAY REQUIRE ADDITIONAL FUNDING TO EXECUTE OUR BUSINESS STRATEGY AND THAT
FUNDING MAY NOT BE AVAILABLE ON TERMS ACCEPTABLE TO US, IF AT ALL.
We expect that the proceeds from this offering and our existing capital
resources will be sufficient to satisfy our operating plans for the next 24
months. We cannot assure you that we will not require additional financing
during this period. We may satisfy any additional capital needs through public
or private equity offerings, debt financings and other means. If we raise such
financing 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 certain marketing and sales activities
and certain product development efforts.
RISKS RELATED TO OUR INDUSTRY
THE BIOINFORMATIC PRODUCTS AND SERVICES MARKET IS INTENSELY COMPETITIVE AND
EVOLVING.
We face, and expect to continue to face, intense competition from third
party commercial software vendors, bioinformatics developers and academic and
government research institutions that are either currently providing, or
pursuing, technologies and products that are similar to our own. We also face
significant competition from the internal bioinformatics departments of some of
our customers and organizations that are potential customers of our products
and services. Our customers and potential customers, including providers of
genomic and proteomic data, may elect to internally 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 solutions. We may also face competition
from organizations engaging in the provision of Internet-hosted, bioinformatic
software, as well as companies facilitating Internet-based e-commerce between
participants in our industry. We cannot assure you that we will be able to
compete successfully with the organizations described above in the market to
provide bioinformatic products and related services.
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. Our competitors may develop technologies that
are superior to ours. We cannot assure you that technology developments by
others, including our customers and potential customers, will not render our
products and services obsolete or noncompetitive.
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IF THE USE OF GENOMIC INFORMATION DOES NOT OCCUR AS WE EXPECT, OUR GROWTH WILL
BE SIGNIFICANTLY HAMPERED.
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 our current
customers and potential customers are unable to utilize genomic information in
their discovery and development efforts, the current target market for our
products or services will not materialize, which would materially and adversely
affect our business.
THE SALE OF OUR PRODUCTS AND SERVICES IS SUBJECT TO THE INDUSTRY RISKS FACED BY
OUR CUSTOMERS AND POTENTIAL CUSTOMERS, INCLUDING THE PHARMACEUTICAL AND
BIOTECHNOLOGY INDUSTRIES.
Sales of our products and services are subject to all of the risks and
uncertainties of our customers, including those that affect the pharmaceutical
and biotechnology industries. Sale of our products and services may encounter
difficulties as a result of any reduction or delay in the research and
development expenditures of our customers' industries. Sales to NCBI and other
government institutions are subject to changes in public funding.
Pharmaceutical and biotechnology industries have been subject to an increase in
governmental regulations and reform proposals in recent years. We currently
derive, and expect for the foreseeable future to continue to derive, a
significant portion of our revenues from customers engaged in the
pharmaceutical and biotechnology industries. Our sales may indirectly be
affected by changes in government regulation covering such customers, 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.
THE PRODUCTS AND THE ACTIVITIES OF OUR CUSTOMERS 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. As a result of these and other reform and
regulatory efforts, governmental involvement in those industries applying
genomic research may increase, affecting the operating environment for customers
and potential customers in our target markets. 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.
CONSOLIDATION WITHIN THE PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRIES MAY HARM
OUR EFFORTS TO MARKET AND COMMERCIALIZE OUR BIOINFORMATIC SOFTWARE PRODUCTS.
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 and greater competition between our competitors and
us. 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.
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WE MAY BE EXPOSED TO LIABILITY ASSOCIATED WITH CONTENT ERRORS IN DATABASES FOR
WHICH WE PROVIDE DELIVERY AND ANALYSIS TOOLS.
We intend to integrate data housed on public and private content databases
into our bioinformatic software products. We cannot assure you that we would
not 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.
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 such treatments.
As a result of these and numerous other ethical, legal and social issues,
including those not currently contemplated, 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.
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. If an
active trading market does develop, the trading price of our common stock may
fluctuate widely as a result of a large number of factors. In addition, 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. Our stock price could fluctuate as a result of
these changing market conditions.
FUTURE SALES OF SHARES OF OUR COMMON STOCK MAY CAUSE THE MARKET PRICE OF OUR
COMMON STOCK TO FALL.
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. These sales also might make it more difficult for us to
raise funds by sales of equity or equity-related securities or engage in
acquisitions or strategic investments at a time and price that we deem
appropriate. After this offering, we will have outstanding shares of
common stock. This includes the 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 6,823,545 shares of common stock
which are not registered but which are eligible for sale, subject to compliance
with Rule 144 or Rule 701 under the Securities Act. 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 3,933,913 shares of our
common stock, or warrants exercisable for our common stock, are entitled to
certain
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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.
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 % 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 March 31, 2000. At the assumed
offering price of $ per share, the pro forma net tangible book value of
the common stock will be $ per share. This represents an immediate and
substantial dilution per share of $ 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. We are under no duty to publicly
update or revise any of the forward-looking statements after the date of this
prospectus.
SPECIAL NOTE REGARDING MARKET DATA
We use market data and industry forecasts throughout this prospectus, which
we have obtained from internal surveys, market research, publicly available
information and industry publications. With regard to market data for customer
spending on third party bioinformatic software and data content, we have relied
upon the data from a 1998 report from Front Line Strategic Management
Consulting, reporting 1998 market size and estimated 2005 market size. Industry
publications generally state that the information they provide has been obtained
from sources believed to be reliable, but that the accuracy and completeness of
such information is not guaranteed. Similarly, we believe that the surveys and
market research we or others have performed are reliable, but we have not
independently verified this information. Neither we nor any of the underwriters
can guarantee that any such information used in this prospectus is accurate.
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USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of our
common stock of approximately $ million, or approximately $ million if
the underwriters' over-allotment option is exercised in full. This estimate is
based on an assumed public offering price of $ per share, 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 intend to
use the net proceeds of this offering primarily for working capital and other
general corporate purposes. Proceeds may also be used to discharge any amounts
outstanding under our bridge loan, up to a maximum amount of $3.0 million, with
PNC Bank, National Association. We may also use a portion of the net proceeds to
acquire additional businesses, products and technologies or to establish joint
ventures that we believe will complement our current or future business.
However, we have no specific plans, agreements or commitments to do so. The
amounts that we actually expend for working capital purposes 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.
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 March 31, 2000:
o on an actual basis;
o on a pro forma basis to give effect to the for
stock split to be effected on _________, 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 voting common stock upon the closing of this offering; and
o on a pro forma basis as adjusted to reflect the for
stock split to be effected prior to the closing of this offering; 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 voting common stock upon the closing of this offering;
and our receipt of the estimated net proceeds from the sale of shares
of common stock in this offering at an assumed offering price of $ per
share (after deducting estimated underwriting discounts and
commissions and estimated offering expenses).
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
--------------------------------------------
(UNAUDITED)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------------- ----------- ------------
<S> <C> <C> <C>
Long-term debt ............................................... $ 959,732
Series A redeemable convertible preferred stock, par
value $0.01 - 2,161,265 shares authorized, issued,
and outstanding, actual, no shares authorized,
issued or outstanding pro forma and pro forma as
adjusted .................................................... 4,179,124
------------ ------
Stockholders' equity (deficit):
Common stock - voting, par value $0.01; 1,595,455
shares authorized, 1,500,000 shares issued and
1,350,000 shares outstanding, actual;
shares authorized shares issued and
shares outstanding, pro forma;
shares authorized shares
issued and shares outstanding, pro
forma as adjusted ......................................... 15,000
Common stock - nonvoting, par value $0.01,
14,931,864 shares authorized, 2,468,000 shares
issued and 2,278,000 shares outstanding, actual;
shares authorized, shares
issued and shares outstanding, pro
forma; shares authorized,
shares issued and shares outstanding,
pro forma as adjusted ..................................... 24,680
Additional paid-in capital ................................... 2,494,727
Deferred compensation ........................................ (857,863)
Accumulated deficit .......................................... (4,623,221)
Treasury stock, 340,000 shares - at cost ..................... (119,000)
------------ ------
Total stockholders' equity (deficit) ..................... (3,065,677)
------------ ------
Total liabilities and stockholders' equity (deficit) ......... $ 8,295,812 $
============ =======
</TABLE>
20
<PAGE>
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 8,658,370 shares issuable upon exercise of outstanding options
including 2,637,470 issued under our equity incentive compensation
plan at a weighted average exercise price of $0.515 per share as of
March 31, 2000; and
o 393,530 shares available for future issuance under our equity
incentive compensation plan.
Please read the capitalization table together with our consolidated financial
statements and related notes and with the sections of this prospectus entitled
"Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
21
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 2000 was $ , or
$ per share. Pro forma net tangible book value per share represents the
amount of our total pro forma tangible assets reduced by the amount of our
total pro forma liabilities, divided by the pro forma number of shares of
common stock outstanding as of March 31, 2000. These pro forma amounts assume
our sale of shares of our common stock in this offering at an assumed
initial public offering price of $ per share also occurred on March 31,
2000. After deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us, our pro forma net tangible book
value at March 31, 2000 would have been approximately $ , or $ per
share. This represents an immediate increase in pro forma net tangible book
value of $ per share to our stockholders prior to this offering and an
immediate dilution of $ per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ....................... $
Pro forma net tangible book value per share at March 31, 2000 ......... $
Increase in pro forma net tangible book value per share
attributable to new investors ...................................... $
Adjusted pro forma net tangible book value per share after this
offering .............................................................
-------
Dilution per share to new investors ................................... $
=======
</TABLE>
If the underwriters exercise their over-allotment option in full, there
will be an increase in pro forma net tangible book value of $ per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $ to new investors. Our existing stockholders would own % and
our new public investors would own % of the total number of shares of our
common stock outstanding after this offering.
The following table summarizes on a pro forma basis after giving effect to
the offering, as of March 31, 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 ......... % $ % $
New investors ................. $
-------- ----- -------- ---- ----------
Total ........................ 100% 100% $
======== ===== ======== ===== ==========
</TABLE>
The foregoing discussion and tables are based upon the number of shares
actually issued and outstanding on March 31, 2000 and assume no exercise of
options outstanding as of March 31, 2000. As of that date, there were 8,658,370
shares issuable upon exercise of options outstanding at a weighted average
exercise price of $0.515 per share as of March 31, 2000.
To the extent that these or any other outstanding options or warrants are
exercised, there will be further dilution to new investors.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
You should read our selected consolidated financial data together with our
consolidated financial statements and their related notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which we have included elsewhere in this prospectus. We have
derived the statement of operations data for the years ended December 31, 1997,
1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999 from
our audited consolidated financial statements included elsewhere in this
prospectus. These consolidated financial statements have been audited by
Deloitte & Touche LLP. We have derived the statement of operations data for the
years ended December 31, 1995 and 1996 from our unaudited consolidated
financial statements that are not included in this prospectus. The balance
sheet data as of December 31, 1995 and 1996 are derived from our unaudited
consolidated financial statements that are not included in this prospectus. The
balance sheet data as of December 31, 1997 are derived from our audited
consolidated financial statements that are not included in this prospectus.
We have derived the statement of operations data for the three months
ended March 31, 1999 and 2000 and the balance sheet data as of March 31, 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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- -----------------------
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 $ 7,278 $1,049 $ 2,411
Professional services ..................... 403 636 867 1,394 2,737 541 797
---- ----- ------ ------ -------- ------ -------
Total revenues .......................... 569 1,018 2,202 4,126 10,015 1,590 $ 3,208
Cost of revenues:
Software license and customer support ..... 8 19 38 190 405 71 100
Professional services ..................... 156 309 716 1,081 1,612 343 425
---- ----- ------ ------ -------- ------ -------
Total cost of revenues .................. 164 328 754 1,271 2,017 414 525
Gross profit ............................... 405 690 1,448 2,855 7,998 1,176 2,683
Operating expenses:
Selling, general and administrative ....... 195 507 1,075 2,476 7,000 1,088 3,424
Research and development .................. 165 161 365 1,162 2,597 485 961
Stock based compensation .................. 22 -- 211 18 138 17 556
Depreciation and amortization ............. -- 3 18 94 272 41 148
---- ----- ------ ------ -------- ------ -------
Total operating expenses ................ 382 671 1,669 3,750 10,007 1,631 5,089
Income (loss) from operations .............. 23 19 (221) (895) (2,009) (455) (2,406)
Other income (expense):
Investment earnings ....................... -- -- -- -- 66 -- 6
Interest expense .......................... -- (4) (19) (60) (87) (15) (45)
Other ..................................... -- -- (12) (3) (11) -- (5)
---- ------- ------ -------- -------- ------ ----------
Total other income (expense) ............ -- (4) (31) (63) (32) (15) (44)
Income (loss) before income taxes .......... 23 15 (252) (958) (2,041) (470) (2,450)
Income tax expense (benefit) ............... 1 11 (118) (391) (726) (133) --
---- ------- ------ ------- -------- ------ ---------
Net income (loss) .......................... $ 22 $ 4 $ (134) $(567) $ (1,315) $ (337) $(2,450)
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- -------------------------
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) -- (4)
Accrued dividend on redeemable
convertible preferred stock ............ -- -- -- -- (168) -- (80)
Net income (loss) applicable to common
shares ................................. $22 $ 4 $ (134) $ (567) $(1,491) $ (337) $(2,534)
=== === ======= ======= ========= ======= =========
Basic net (loss) applicable per common
share .................................. $-- $-- $ (0.07) $ (0.26) $ (0.64) $ (0.15) $ (1.01)
=== === ======= ======= ========= ======= =========
Diluted net income (loss) applicable per
common share ........................... $-- $-- $ (0.07) $ (0.26) $ (0.64) $ (0.15) $ (1.01)
=== === ======= ======= ========= ======= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
---------------------------------------------------- ----------------
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 $ 889
Working capital (deficit) ...................... 72 62 371 (419) 1,040 (113)
Total assets ................................... 114 250 1,114 2,883 7,265 8,296
Capital lease obligations, less current
portion ....................................... -- 8 55 182 92 69
Equipment loan facility, less current
portion ....................................... -- -- -- -- 623 960
Total liabilities .............................. 38 174 974 3,288 4,887 7,182
Redeemable convertible preferred stock ......... -- -- -- -- 4,095 4,179
Common stock and additional paid-in
capital ....................................... 233 233 550 588 975 2,534
Stockholders' equity (deficit) ................. 76 76 139 (405) (1,717) (3,066)
</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.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of our consolidated financial condition and
results of operations. You should read this discussion together with our
consolidated financial statements and the related notes, which we have included
elsewhere in this prospectus. We make some forward-looking statements about our
future performance. These forward-looking statements include numerous risks and
uncertainties, such as those described in the "Risk Factors" section of this
prospectus, and accordingly our actual results may differ materially.
OVERVIEW
We are a leading global provider of bioinformatic software solutions for
the analysis and interpretation of genomic, proteomic and other biomolecular
data. 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 17,000 desktop licenses for Vector NTI Suite
and 16 enterprise licenses for GenoMax. Our customer base includes over 1,300
organizations worldwide, including over 500 biotechnology, pharmaceutical and
agricultural-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. 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.
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 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 bioformatic hardware to integrate and resell their
hardware with our software products. To date, we have entered into three
agreements to resell third party data content or technology hardware.
E-commerce offerings will include incorporating Internet hyperlinks into our
Vector NTI Suite and entering into related partnerships with laboratory reagent
vendors to generate transaction fees on sales we facilitate.
We recognize software license revenues based upon the provisions of the
American Institute of Certified Public Accountants' Statement of Position No.
97-2 ("SOP No. 97-2"), Software Revenue Recognition, which is the recognized
standard within the industry. Accordingly, software revenues are recognized
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
25
<PAGE>
customization of the software is not required. Following the provisions of SOP
No. 97-2, for multi-element software contracts in which the fair value of
undelivered elements are not determinable, we have deferred the full amount of
contract revenue until fair value is determined or delivery of all elements has
occurred, unless the only undelivered element is maintenance in which case
revenue is recognized ratably over the remaining maintenance period.
In connection with our software licenses, we also enter into maintenance
contracts that provide for technical support and periodic unspecified upgrades.
During 1998 and 1997, we recognized maintenance revenue 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. We
recognized revenues from software maintenance contracts that extended beyond
one year ratably over the maintenance period. During 1999, due to the
introduction of and increased sales of new modules, product enhancements and
product versions, we increased our maintenance support staff to levels for
which the estimated cost of providing maintenance was no longer deemed
insignificant. Therefore, beginning in January 1999, revenues from all software
maintenance contracts have been recognized ratably based upon their fair value
and recorded over the maintenance period. 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 material 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 software licensing
agreements, strategic relationships and professional service activities,
including installation and software customization. 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. 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.
As a result of the academic calendar, European business practices and
commercial information technology procurement practices, we generally experience
a significant reduction in sales in the third quarter of each calendar year
which typically results in a corresponding reduction in operating revenues.
26
<PAGE>
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
three-month periods ended March 31, 1999 and 2000, as a percentage of our total
revenue for the respective periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Software license and customer
support ................................... 61% 66% 73% 66% 75%
Professional services ....................... 39 34 27 34 25
---- ---- ---- ---- ----
Total revenues ............................ 100 100 100 100 100
Cost of revenues:
Software license and customer
support ................................... 2 5 4 4 3
Professional services ....................... 32 26 16 22 13
---- ---- ---- ---- ----
Total cost of revenues .................... 34 31 20 26 16
Gross profit ................................. 66 69 80 74 84
Operating expenses
Selling, general and administrative ......... 49 60 70 68 107
Research and development .................... 16 29 26 30 30
Stock based compensation .................... 10 -- 1 1 17
Depreciation and amortization ............... 1 2 3 3 5
---- ---- ---- ---- ----
Total operating expenses .................. 76 91 100 102 159
Loss from operations ......................... (10) (22) (20) (28) (75)
Other income (expense)
Investment earnings ......................... -- -- 1 0 --
Interest expense ............................ (1) (1) (1) (1) (1)
Other ....................................... -- -- 0 -- --
---- ---- ---- ---- ----
Total other income (expense) .............. (1) (1) 0 -- (1)
Loss before income taxes ..................... (11) (23) (20) (29) (76)
Income tax benefit ........................... (5) (9) (7) (8) --
---- ---- ---- ---- ----
Net loss ..................................... (6)% (14)% (13)% (21)% (76)%
==== ==== ==== ==== ====
</TABLE>
Three Months Ended March 31, 2000 and 1999
Revenues. For the three months ended March 31, 2000, revenues increased
102% to $3.2 million from $1.6 million in the corresponding period of 1999.
Software sales revenue increased 130% to $2.4 million for the three months
ended March 31, 2000 from $1.0 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 47% to $0.8 million for the three
months ended March 31, 2000 from $0.5 million in the corresponding period of
1999. For the three months ended March 31, 2000, services provided to the NCBI
under subcontracts accounted for $0.8 million or 98% of professional services
revenue and 24% of consolidated revenues.
Cost of Revenues. For the three months ended March 31, 2000, cost of
revenues increased 27% to $0.5 million from $0.4 million in the corresponding
period of 1999. Costs of software revenues consist primarily of manufacturing,
shipping of products and cost of providing training and customer support. Costs
of professional services revenues consist primarily of salaries, benefits, and
related expenses of our professional services team.
27
<PAGE>
Costs of software license and customer support revenue increased 43% to
$0.1 million for the three months ended March 31, 2000 from $0.07 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 24% to $0.4 million for
the three months ended March 31, 2000 from $0.3 million in the corresponding
period of 1999. This increase resulted primarily from increased personnel on
the NCBI subcontracts.
Selling, General and Administrative Expenses. For the three months ended
March 31, 2000, selling, general and administrative expenses increased 215% to
$3.4 million from $1.1 million in the corresponding period of 1999. This
increase primarily reflects expenses for additional personnel and related
resource investments to support our business and revenue growth.
Research and Development Expenses. For the three months ended March 31,
2000, research and development expenses increased 98% to $1.0 million from $0.5
million in the corresponding period of 1999. The increase reflects an increase
in the headcount of our research and product development team, expansion of our
service offerings and our product development efforts.
Stock Based Compensation. For the three months ended March 31, 2000, stock
based compensation expenses increased 3059% to $0.6 million from $0.02 million
in the corresponding period of 1999. The increase reflects discounted stock
option grants and restricted stock awards.
Income Taxes. We incurred net losses for each of the three months ended
March 31, 2000 and 1999. At present, we have an accumulated net operating loss
carryforward of $13.3 million, primarily as a result of the exercise of
non-qualified stock options. The tax benefit for the three months ended March
31, 1999 and 2000 was $0.1 million and $0.0, respectively, using an effective
rate of 28.3% and 0%, respectively. The decrease for the three months ended
March 31, 2000 primarily reflects the result of 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 $2.5 million for the three months
ended March 31, 2000, compared with a net loss of $0.3 million for the three
months ended March 31, 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
resource investments to support our revenue growth.
28
<PAGE>
Research and Development Expenses. For the year ended December 31, 1999,
research and development expenses increased 123% to $2.6 million from $1.2
million in the year ended December 31, 1998. This increase reflects increases
in the headcount for our research and product development team reflecting
expanded product development efforts.
Stock Based Compensation. For the year ended December 31, 1999, stock
based compensation expenses increased 677% to $0.1 million from $0.02 million
in the year ended December 31, 1998. The increase reflects discounted stock
option grants and restricted stock awards.
Income Taxes. We incurred net losses for each of the years ended December
31, 1999 and 1998. At December 31, 1999, we had an accumulated net operating
loss carryforward of $1.3 million. The tax benefit for the years ended December
31, 1998 and 1999 was $0.4 million and $0.7 million, respectively, using an
effective rate of 40.8% and 35.6%, respectively. The increase in the tax benefit
primarily reflects the increase in net operating losses and the change in book
basis versus tax basis of deferred revenue, which is included in taxable income
at the date of sale but deferred for book purposes.
Net Loss. We incurred a net loss of $1.3 million for the year ended
December 31, 1999 and a net loss of $0.6 million for the year ended December
31, 1998.
Years Ended December 31, 1998 and 1997
Revenues. For the year ended December 31, 1998, revenues increased 87% to
$4.1 million from $2.2 million in the year ended December 31, 1997.
Software sales revenue increased 105% to $2.7 million from $1.3 million in
the prior year due to increased sales of our Vector NTI desktop software.
Professional services revenue increased 61% to $1.4 million from $0.9
million in the prior year. In 1998, professional services provided to the NCBI
under subcontracts accounted for 100% of professional services revenue and 34%
of consolidated revenues.
Cost of Revenues. For the year ended December 31, 1998, overall cost of
revenues increased 69% to $1.3 million from $0.8 million in the prior year.
Costs of software license and customer support revenue increased 399% to
$0.2 million from $0.04 million in the prior year. This increase resulted
primarily from increase manufacturing and shipping costs as a result of
increased software license sales.
Costs of professional services revenues increased 51% to $1.1 million from
$0.7 million in the prior year. This increase resulted primarily from the
increase in personnel on the NCBI subcontracts.
Selling, General and Administrative Expenses. For the year ended December
31, 1998, selling, general and administrative expenses increased 130% to $2.5
million from $1.2 million in the prior year. This increase primarily reflects
our large personnel and resource investments 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 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, included in taxable income
at the date of sale but deferred for book purposes.
29
<PAGE>
Net Loss. We incurred a net loss of $0.6 million for the year ended
December 31, 1998 and a net loss of $0.1 million for the year ended December
31, 1997.
Quarterly Results of Operations
The following table sets forth unaudited quarterly consolidated financial
data for the five quarters in the period ended March 31, 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
-----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30,
1999 1999 1999
--------------------- ------------------ ------------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software license and customer
support .......................... $1,049 66% $2,273 79% $ 1,136 59%
Professional services ............. 541 34 618 21 779 41
------ --- ------ -- -------- --
Total revenues ................... 1,590 100 2,891 100 1,915 100
Cost of revenues:
Software license and customer
support .......................... 71 4 76 3 71 4
Professional services ............. 343 22 388 13 422 22
------ ---- ------ --- -------- ---
Total cost of revenues ........... 414 26 464 16 493 26
Gross profit ....................... 1,176 74 2,427 84 1,422 74
Operating expenses:
Selling, general and
administrative ................... 1,088 68 1,309 45 1,871 97
Research and development .......... 485 30 644 22 637 34
Stock based compensation .......... 17 1 9 -- 26 1
Depreciation and amortization 41 3 48 2 78 4
------ ---- ------ --- -------- ---
Total operating expenses ......... 1,631 102 2,010 69 2,612 136
Income (loss) from operations ...... (455) (28) 417 15 (1,190) (62)
Other income (expense):
Investment earnings ............... -- -- (1) -- 42 (2)
Interest expense .................. (15) (1) (17) (1) (22) (1)
Other ............................. -- -- -- (4) --
------ ----- --- ----------- -----
Total other income
(expense) ....................... (15) (1) (16) (1) 16 (1)
Income (loss) before income
taxes ............................. (470) (29) 401 14 (1,174) (61)
Income tax provision (benefit) ..... (133) (8) 146 5 (434) (23)
------ ------ ------ --- ---------- -----
Net income (loss) .................. $ (337) (21)% $ 255 9% $ (740) (38)%
====== ===== ====== === ========== =====
<CAPTION>
QUARTER ENDED
-------------------------------------------------
DECEMBER 31, MARCH 31,
1999 2000
------------------------ ------------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Software license and customer
support .......................... $2,820 78% $ 2,411 75%
Professional services ............. 799 22 797 25
------ -- ------- --
Total revenues ................... 3,619 100 3,208 100
Cost of revenues:
Software license and customer
support .......................... 187 5 100 3
Professional services ............. 459 13 425 13
------ --- ------- ---
Total cost of revenues ........... 646 18 525 16
Gross profit ....................... 2,973 82 2,683 84
Operating expenses:
Selling, general and
administrative ................... 2,732 75 3,424 107
Research and development .......... 831 23 961 30
Stock based compensation .......... 86 2 556 17
Depreciation and amortization 105 3 148 5
------ --- ------- ---
Total operating expenses ......... 3,754 103 5,089 159
Income (loss) from operations ...... (781) (21) (2,406) (75)
Other income (expense):
Investment earnings ............... 22 -- 6 --
Interest expense .................. (32) (1) (45) (1)
Other ............................. (7) -- (5) --
-------- ----- ---------- -----
Total other income
(expense) ....................... (17) (1) (44) (1)
Income (loss) before income
taxes ............................. (798) (22) (2,450) (76)
Income tax provision (benefit) ..... (305) (8) -- --
------- ----- --------- -----
Net income (loss) .................. $(493) (14)% $(2,450) (76)%
======= ===== ========= =====
</TABLE>
MARKETS
Geographically, North America, Europe, and Japan represent our largest
markets, accounting for 72%, 20%, and 6% of sales respectively through May 31,
2000, and 79%, 17%, and 1% of sales respectively 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
Since beginning commercial operations in 1993, we have funded our growth
primarily with internally generated cash flow. In June 1999, we raised $4.0
million in venture financing. At March 31, 2000, we had $0.9 million in cash
and cash equivalents, a net increase of $0.5 million from March 31, 1999, a
decrease of $0.5 million from December 31, 1999, and an increase of $0.6
million from December 31, 1998.
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<PAGE>
During the three months ended March 31, 2000 we generated $3.2 million of
cash from operations compared to $2.5 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 three months
ended March 31, 2000 was $4.6 million compared to $2.3 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 $1.7 million for the quarter
ended March 31, 2000 compared to net cash used in financing activities of $0.02
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 million, or $1.85
per share.
Net cash used in investing activities was $0.8 million for the quarter
ended March 31, 2000 compared to net cash used in investing activities of $0.05
million for the comparable period in 1999. Net cash used in investing
activities was $1.4 million for the year ended December 31, 1999 and $0.07
million for comparable period in 1998. The cash used in investing activities
over those periods were for the purchase of furniture and equipment.
In May 1999, we entered into a loan agreement and a security agreement with
PNC Bank, National Association, in connection with the creation of a credit
facility consisting of a secured revolving credit line and an equipment line of
credit. In February 2000, we entered into a fourth amendment to such loan
agreement increasing the maximum availability under each of the revolving credit
and equipment line 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 line of credit note. The revolving credit note
allows us to borrow, repay and re-borrow the principal thereunder until February
2, 2001. 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 line of credit note allows us to borrow
the principal amount thereunder until February 2, 2001. Amounts outstanding
under the 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 the facility. 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
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<PAGE>
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. In connection with the bridge loan we issued
to PNC Bank warrants to purchase up to 9,000 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 2,000 warrants to PNC Bank. The warrants
are exercisable at $10.00 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, 333,648 shares of our common
stock in private sale transaction with four accredited investors and received
cash compensation totalling approximately $3.6 million.
We believe that the net proceeds from this offering and our cash flows
from operations will be adequate to satisfy our cash requirements for
operations, working capital and capital expenditures 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 and
that funding may not be available on terms acceptable to us, if at all" 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 sand Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. The
SAB expresses the Commission'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.
32
<PAGE>
BUSINESS
OVERVIEW
InforMax is a leading global provider of bioinformatic software solutions
for the analysis and interpretation of genomic, proteomic and other biomolecular
data. Since we introduced our Vector NTI Suite of desktop applications in 1993,
we have sold our products to over 1,300 organizations worldwide, including over
500 biotechnology, pharmaceutical and agricultural-life science companies, and
over 800 academic and government research institutions. Our customers, including
organizations such as Merck & Company, Genzyme Corporation, Proctor & Gamble,
Johnson & Johnson, Bristol-Myers Squibb, Pfizer, AstraZeneca, Diversa
Corporation, Novartis Agribusiness Biotechnology Research, the Whitehead
Institute for Biomedical Research, Massachusetts Institute of Technology,
University of Tokyo and the National Institutes of Health, rely on our software
products to achieve greater research productivity.
Our principal software products are our Vector NTI Suite for desktop
computers and our more powerful and more expensive GenoMax enterprise computing
platform. 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. As of June 30,
2000, we employed 172 people, including a sales and marketing team of 45, a
research and product development team of 84 and an implementation and support
staff of 17.
INDUSTRY BACKGROUND
Bioinformatics is a key enabling technology representing the convergence
of molecular biology, information technology, and Internet communications.
Bioinformatic software applications, combined with automated laboratory
research techniques, enable researchers to efficiently organize, share,
analyze, and interpret genomic, proteomic, and other biomolecular data. Genomic
data, including DNA sequences and genes, and proteomic data, including protein
function, expression and interaction, form the genetic blueprint for all
organisms. 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.
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 data related to DNA sequences, gene function and
expression, protein sequence and expression, protein structure and
interactions, genetic variation and cell processes. Numerous emerging
laboratory technologies, including biochips and microarrays, are automating and
accelerating the generation of much of this data. The following examples
indicate the rapid increase in available data:
o On June 26, 2000, the Human Genome Project, an international
collaboration of academic and government research institutes, and
Celera Genomics, each pursuing the parallel goal of deciphering the
human genome, jointly announced that they had assembled the world's
first working draft of the entire human genetic code, consisting of
approximately 3.12 billion chemical bases, the sub-units that make up
DNA.
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<PAGE>
The graphic is a line graph that plots the growth of the following data;
"Sequences" and "Base Pairs of DNA," as contained in the GenBank database. The
resulting line graph is enclosed within a square, the bottom line of which is
the X-axis of the line graph, and the left and right sides of which are the left
Y-axis and right Y-axis of the line graph, respectively. The line graph is
entitled "Growth of GenBank," which appears in bold font along the top of the
graphic outside of the square.
Outside of the square on the left Y-axis, appears from the bottom to the top,
the numbers "0" through "8"," evenly spread out along the left Y-axis. Along the
middle of the left Y-axis, to the left of the numbers appears the word,
"Sequences," printed perpendicular to the title. Atop the left Y-axis appears
the phrase"(in millions"), serving as a key for the numbers along the left-Y
axis.
Outside of the square on the right Y-axis, appears from the bottom to the top,
the numbers "0" through "10,000", evenly spread out along the right Y-axis in
1,000 number increments. Along the middle of the right Y-axis, to the right of
the numbers appears the phrase, "Base Pairs of DNA," printed perpendicular to
the title. Atop the right Y-axis appears the phrase"(in millions"), serving as a
key for the numbers along the right Y-axis.
Outside of the square along the X-axis, appears from the left Y-axis to the
right Y-axis the years "1982" through "2000," evenly spread out in three year
increments. Centered below that is the key for the data inside the square. From
the left the key contains a small dark shaded rectangle to the left of the
phrase "Base Pairs" (noting that Base Pairs data in the line graph is expressed
in dark shading). Continuing to the right the key contains a small lightly
shaded line with a square in the middle to the left of the word "Sequences"
(noting that Sequences data in the line graph is expressed as a lightly shaded
line with squares).
Inside the square the line graph plots the data points below
<TABLE>
<CAPTION>
<S> <C> <C>
Sequences Base Pairs of DNA
1982 606 680,338
1983 2,427 2,274,029
1984 4,175 3,368,765
1985 5,700 5,204,420
1986 9,978 9,615,371
1987 14,584 15,514,776
1988 20,579 23,800,000
1989 28,791 34,762,585
1990 39,533 49,179,285
1991 55,627 71,947,426
1992 78,608 101,008,486
1993 143,492 157,152,442
1994 215,273 217,102,462
1995 555,694 384,939,485
1996 1,021,211 651,972,984
1997 1,765,847 1,160,300,687
1998 2,837,897 2,008,461,484
1999 4,864,570 3,841,163,011
2000 7,077,000 8,604,000,000
</TABLE>
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 7.0 million complete sequences as of June 2000. GenBank's
database of nucleotide bases increased from approximately 385 million
bases in 1995 to over 8.6 billion bases as of June 2000. The parallel
chart reflects the growth in GenBank data through June 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 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
34
<PAGE>
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 independent industry report estimates that customer spending on third
party bioinformatic software and data content was $290 million in 1998, growing
to $1.2 billion in 2005. We believe that this growth is being driven in part by
organizations increasingly turning to external vendors of bioinformatic
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 the tools to
rapidly interpret, analyze and translate such data for application in numerous
disciplines. Given the market opportunities created by the applications of
genomic, proteomic and other biomolecular data, and the efficiency and
productivity gains that can be achieved through the use of bioinformatic
software, we believe that the market for our software solutions will continue
to increase.
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 sciences 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 2,200 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.
35
<PAGE>
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, to increase
farming and livestock productivity, to develop more nutritious and
pesticide free foods; and to cultivate enzymes that aid in industrial
processes and environmental management. By reducing discovery and
development costs, bioinformatic software may facilitate the creation and
commercialization of agricultural, environmental and industrial products
and technologies that might otherwise be cost prohibitive and therefore
unable to gain broad market acceptance.
Emerging Clinical Genomics Industry. Industry participants expect
genomics and the study of genetic variation to play a central role in the
market for clinical diagnostics and the emerging market for customized drug
therapies. Through the analysis of genomic data, researchers are gaining
improved understanding of disease onset and progress and are working to
translate these findings into earlier-stage and more accurate diagnostic
tests. In addition, researchers engaged in the emerging pharmacogenomics
field are seeking to determine how the millions of tiny genetic variations
among individuals impact drug response, and thereby develop a more
personalized approach to medicine.
OUR SOLUTION
In response to the challenges and market opportunities presented by the
genomic revolution, we develop and deliver to our customers a portfolio of
proprietary bioinformatic software products and complementary services.
Our software products are flexible and scalable and are designed to
integrate with one another. Our software products provide access to public and
commercial databases and are designed to provide e-commerce connectivity with
vendors of laboratory reagents. 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 17,000 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 16 organizations engaged in genomic research.
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<PAGE>
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, via our Dynamic License Server which provides
numerous users concurrent access from a centralized server, groups of
researchers. Vector Enterprise provides a Vector NTI Suite user group with the
additional advantages of a shared relational database. GenoMax is a modular
enterprise platform that can scale to meet the needs of smaller biotechnology
or academic customers as well as major pharmaceutical companies and research
institutions. We believe that our broad product offering and the sophisticated
and user-friendly functionality of our products give us a competitive advantage
in the market for bioinformatic solutions.
Superior Bioinformatic Engineering Staff
Software engineering for commercial-grade bioinformatic applications
requires a high level of understanding of software programming, molecular
biology and market requirements. Our development teams are guided by experts in
molecular biology and include professional software engineers trained in
computer science, statistics, mathematics, and physics. Our product development
staff has functional expertise in C/C++, Java, MS Windows, Apple OS, UNIX,
object-oriented design, system-level programming, relational database design and
development (including Oracle), graphical user interface programming,
bioinformatics and molecular biology. Our product development staff has played a
significant role in developing a customized data delivery platform for the
National Center for Biotechnology Information's (NCBI) GenBank, ENTREZ and
PubMed/MEDLINE online genomic databases. As of June 30, 2000, we had 84
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 17,000 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 16 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
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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. For many of
our 1,300 Vector NTI Suite customers, these considerations give GenoMax an
important advantage over competing enterprise platforms. At the time of
purchase, 14 of 16 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
and scalable 45 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 aligned our software marketing efforts with technology leaders, including
Compaq, Oracle, and Sun Microsystems. We currently maintain a staff of 15
representatives to provide software implementation and customization 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
In the past 12 months we have expanded our Vector NTI Suite customer base
from 800 to over 1,300 organizations. We intend to expand and further penetrate
our existing Vector NTI Suite customer base. To execute this strategy, we
intend to continue to improve our technologies and introduce advanced
functionality to Vector NTI Suite, including enhanced Internet connectivity. We
also intend to broaden our sales and marketing efforts and establish and expand
upon our co-marketing and strategic relationships in order to expand our
desktop customer base.
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 16 customers, 14 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.
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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 three 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 alliances will significantly increase
global market awareness of and receptivity to our software products. In
the past 12 months, we have established such relationships with technology
leaders including Compaq, Oracle, and Sun Microsystems.
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
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SOFTWARE PRODUCTS
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VECTOR NTI SUITE: suite of desktop applications designed for individual
scientists engaged in genomic and proteomic research
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VERSION MODULES FUNCTIONS
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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
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VECTOR ENTERPRISE: incorporates a shared relational database into a network of
(scheduled Q3 2000) Vector NTI Suite applications to enable real-time collaboration
among multiple researchers in a secure environment.
(scheduled Q3 2000)
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GENOMAX ENTERPRISE: large-scale, modular, enterprise-wide data mining and
analysis application
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VERSION MODULES FUNCTIONS
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GENOMAX 2.5 GENE SEQUENCE similarity searches, sequence alignments
(released Q1 2000) ANALYSIS and annotation
GENOMAX 3.0 GENE EXPRESSION ANALYSIS management and visualization of microarray
(scheduled Q3 2000) PROTEIN 3-D STRUCTURE data analysis and prediction of protein
molecular structure
FUTURE GENOMAX VERSIONS GENOME VIEWING chromosome and expressed sequence tag (EST)
PROTEIN-PROTEIN INTERACTION mapping analysis of protein intracellulur
SNP ANALYSIS behavior 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
HARDWARE RESELLING and to distribute 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
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</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 a robust set
of 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 materials used in recombinant cloning including vectors, plasmids,
oligonucleotides, gel markers, and restriction enzymes. 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
restriction enzyme analysis (for cutting DNA sequences), PCR primer design
(involving methods for amplifying a DNA sequence), mutagenesis analysis
(involving the study and induction of mutations), and simulation of gel
electrophoresis (a method of separating DNA fragments and proteins from
similar molecules). 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 sequencers, 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 linked to amino acids and nucleotide sequences.
The analytical features of 3D MOL enable researchers to measure distances,
angles and torsion angles.
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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, 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 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
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database to store user data and results. This product is coupled with the
desktop database already 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 Gene 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.
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Benefits of GenoMax
The benefits of our GenoMax Enterprise Solution include:
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
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leverage our market presence and use our software as an integration and
analysis tool for the data content of our partners. 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.
Hardware Reselling Alliances. 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 life science companies, academic and government research
institutions, and individual researchers. Vector NTI Suite is currently
licensed to over 17,000 desktops at 1,300 organizations, including over 500
pharmaceutical, biotechnology and agricultural life-science companies and 800
academic and government research institutions. Introduced in late 1998, our
GenoMax enterprise platform has been purchased by 16 customers. Our major
customers include:
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<S> <C> <C>
Pharmaceutical and Agricultural Life Science Companies
o AstraZeneca UK Limited o E.I. du Pont de Nemours and Company o Pfizer, Inc.
o Aventis Pharmaceuticals, Inc. o Hoechst Marion Roussel o Pioneer Hi-Bred International, Inc.
o BASF AG o Johnson & Johnson o Eli Lilly and Company
o Bristol-Myers Squibb Company o Merck & Company, Inc. o Novartis Agribusiness
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 45 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 a 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.
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.
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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.
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 June 30, 2000, we had 84 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 $0.5 million, $1.2
million, and $2.6 million, respectively, and $1.0 million for the first three
months of 2000.
Our research and product development group possesses core competencies in
C/C++, Java, MS Windows, Apple OS, UNIX, object-oriented design, system-level
programming, relational database design and development (including Oracle),
graphical user interface programming, bioinformatics, and molecular biology.
Our team has a significant level of aptitude in working with a wide array of
biomolecular data, including DNA and protein sequences and structures, gene
expression, genetic maps, protein-protein interaction, and SNPs. We continue to
enhance our existing products in an effort to expand their functionality and
utility. Our research and product development team seeks to develop new
products that use computational methods to further understand biological
processes and enable users of genomic data to realize efficiency and
productivity gains.
COMPETITION
We believe that the principal competitive factors in the evolving
bioinformatic software industry include:
o functionality and ease of use of software products;
o rapid incorporation of technological and biomolecular innovations;
o product flexibility, scalability, and integration;
o level of customer service, product implementation, and support
functions;
o existing market penetration and brand awareness;
o alliances with strategic partners and technology market leaders; and
o price.
We face, and expect to continue to face, competition for market leadership
from industry participants, including:
o other bioinformatic software companies;
o "in-house" software development groups of companies engaged in genomic
research, including genomic and proteomic data providers;
o third party software and information technology vendors;
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o academic, private, and government research institutions; and
o companies delivering Internet-enabled bioinformatic software tools.
We believe that in response to existing and future market opportunities,
there is a strong likelihood of additional market participants, including large
software applications companies. Many of our current and potential competitors,
including academic and government research institutions, software and
information technology vendors, and genomic data providers, 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 and Vector NTI. We have filed
trademark applications in the U.S. for the marks GenoMax, InforMax, the
InforMax Double Helix Logo Design, AlignX, BioPlot, 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 are in the process of negotiations to settle these oppositions
and believe that an amicable settlement can be reached.
Additional trademark registrations in France for the marks Align.X,
Vector.NTI, and Software Solution For Bio-Medicine, among others, are in the
process of being assigned to us by our wholly-owned French subsidiary.
We believe that the source code for our proprietary software solutions is
protected under applicable copyright and trade secret law in the United States.
Comparable and effective copyright and trade secret protection may not be
available in each country where we distribute our products.
We regularly enter into confidentiality agreements with our employees,
consultants, and strategic partners and generally seek to control access to and
distribution of our software, documentation, and other proprietary information.
We may nonetheless be subject to unauthorized access to, and use of, our
software products. In addition, third parties may be able to develop technology
substantially similar to our existing and future software solutions. These
events could materially affect our business, financial condition and results of
operations.
EMPLOYEES
As of June 30, 2000, we had 172 full-time employees, including 84 employees
primarily engaged in research and product development, 45 in sales and marketing
and 17 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.
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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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<PAGE>
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
</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 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 College.
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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 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 & 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 and coordinates our international sales efforts. 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
each of 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 and coordinates our promotional efforts. 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.
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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 micoarray gene expression 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 he joined in 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 MBA in
Finance in 1980 from Drexel University and a Bachelor's degree in Foreign
Service from The Pennsylvania State University in 1978.
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 and D'Andrea were
elected to the board of directors under a voting agreement among InforMax and
its 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
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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. Messrs. and have been designated as
Class I directors; Messrs. and have been designated as Class II
directors; and Messrs. and 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 Mr. Johnston and
Mr. 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 . 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.
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.
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.
EXECUTIVE OFFICERS
Our executive officers are appointed and serve at the discretion of our
board of directors.
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EMPLOYMENT AGREEMENTS
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.
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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 100,000 options granted on January 1, 2000.
(3) Includes $72,747 in commissions based on the sale of our software products.
(4) Does not include 175,000 options granted on January 1, 2000.
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 8,941,609 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 was 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 values assume that the initial public
offering price of $ per share was the fair market value of the common
stock on the date of grant and that the price of the applicable 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.
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OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES
OF STOCK
NUMBER OF PERCENT OF PRICE
SHARES TOTAL EXERCISE APPRECIATION
UNDERLYING OPTIONS PRICE FOR
OPTIONS GRANTED TO PER EXPIRATION OPTION
GRANTED EMPLOYEES SHARE DATE TERM
------------ ------------ ---------- ------------ -----------
5% 10%
NAME
<S> <C> <C> <C> <C> <C> <C>
Dr. Alex Titomirov 3,899,900 43.6% $ .50 3/20/2009
Dr. Vadim Babenko 1,600,000 17.9% $ .50 3/20/2009
Dr. James Bernstein 1,050,000 11.7% $ .50 3/20/2009
Joseph Lehnen 350,000 3.9% $ .50 3/24/2009
Timothy Sullivan 375,000 4.2% $ .50 3/24/2009
</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 3,899,900 0 $5,849,850 0
Dr. Vadim Babenko 2,000,000 0 $3,196,000 0
Dr. James Bernstein 1,066,000 0 $1,606,840 0
Joseph Lehnen 207,814 142,186(1) $ 311,721 $213,279
Timothy Sullivan 101,558 273,442(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.
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
determination of the terms of any options or other awards granted, the exercise
price of the option or other award, the number of shares subject to each option
or other award, the exercisability and vesting thereof, 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 3.7 million. As
of June 30, 2000, options to purchase 8,038,996 shares of our common stock and
60,000 shares of restricted stock were granted including 2,753,096 shares of
common stock issuable pursuant to incentive awards under the plan.
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<PAGE>
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 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 (a) payment
of not less than the par value of such common stock and (b) the attainment of
such performance objectives and the completion of such service requirements as
determined to be a condition of such grant. 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 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 shall 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 the fair market
value of such shares on the date of termination (or at such lower price as
shall have been 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 liquidate, dissolve, merge, consolidate or reorganize with
another company in which we are not the surviving entity, sell substantially
all of our assets to another company, or approve a transaction that results in
any person or entity (other than existing stockholders at the time our plan was
approved and their affiliates) owning 80% or more of the voting power of all
classes of our stock, 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.
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<PAGE>
CERTAIN TRANSACTIONS
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. The proceeds were used for general
working capital purposes. These shares will automatically be converted into
2,161,265 shares of our common stock upon the closing of this offering. 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. See "Principal Stockholders." In connection with this sale of preferred
stock, we entered into an investment right agreement with FBR Technology
Venture Partners II, LP with respect to the granting of certain registration
rights. See "Description of Capital Stock -- Registration Rights" for a summary
discussion of the registration rights granted as part of the Series A
transaction. FBR Technology Venture Partners II, LP and certain holders of our
common stock are party to a shareholders' agreement that contains certain
restrictions on the transfer of our common stock by our stockholders who are
parties to the agreement. See "Description of Capital Stock -- Shareholders'
Agreement" for a summary discussion of the applicable transfer restrictions and
other provisions.
OTHER RELATED PARTY TRANSACTIONS
In 1999, Dr. Titomirov, our President and Chief Executive Officer,
personally guaranteed an equipment loan facility of the Company 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 the
Company in the amount of $400,000. The outstanding balance was paid in full in
1999.
In April 1999, we loaned $65,000 to Dr. Titomirov. The amount of the loan
was secured by a promissory note to be repaid upon the fifth anniversary of the
date of the loan. Interest accrued at the prime rate as reported in the Wall
Street Journal plus 1% and was due and payable on each anniversary until the
balance of the note was paid in full. The funds were loaned to Dr. Titomirov
for payment of federal and state income taxes. The principal and interest due
thereon associated with this note were fully repaid in July 2000.
In April 1999, we entered into employment agreements with each of Joseph
Lehnen, our Chief Financial Officer and Senior Vice President, and Timothy
Sullivan, our Senior Vice President of Marketing and Sales. See "Management --
Employment Agreements" for a summary discussion of the terms of the employment
agreements.
In June 2000, Drs. Titomirov and Babenko entered into a private
transaction for the sale of 500,000 and 165,000 of their shares of common
stock, respectively, at approximately $10.64 per share to Paul Capital Partners
VI Holdings. In connection with this transaction, Paul Capital Partners VI
Holdings became a party to our non-preferred holder rights agreement and
received certain registration rights granted therein. 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 350,000 and 400,000 of their shares of common stock,
respectively, at $10.00 per share. In connection with this transaction, the
purchasers entered into a non-preferred holder rights agreement with us and
received certain registration rights granted therein. For a discussion of the
registration rights granted in these transactions, see "Description of Capital
Stock - Registration Rights." In March 2000, Dr. Titomirov entered into a
private transaction for the sale of 500,000 shares to FBR Technology Venture
Partners II, LP at $10.00 per share.
Stock option grants to directors and executive officers of InforMax are
described under the captions "Management -- Board Compensation" and
"--Executive Compensation."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of June 30, 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 6,823,545 shares of common stock
outstanding prior to the offering as of June 30, 2000, and shares of common
stock outstanding after the offering. 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 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(1) AFTER OFFERING(1)
------------------------ -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
----------------------------------------------- ------------ --------- ------------ --------
<S> <C> <C> <C> <C>
Alex Titomirov, Ph.D.(2) ...................... 3,660,000 39.0% 3,660,000
Hooks Johnston(3) ............................. 2,661,265 39.0% 2,661,265
FBR Technology Ventures
Partners II, LP
1001 19th Street
Arlington, VA 22209
Vadim Babenko, Ph.D.(4) ....................... 1,485,000 18.0% 1,485,000
James Bernstein, M.D.(5) ...................... 1,256,000 15.9% 1,256,000
Weiss, Peck & Greer, LLC(6) ................... 750,000 11.0% 750,000
One New York Plaza
New York, New York 10004
Paul Capital Partners VI Holdings ............. 665,000 9.7% 665,000
50 California Street
Suite 3000
San Francisco, CA 94111
Timothy Sullivan(7) ........................... 550,000 7.5% 550,000
Joseph Lehnen(8) .............................. 450,000 6.2% 450,000
Harry D'Andrea(9) ............................. 3,000 * 3,000
All directors and executive officers as a group
(7 persons)(10) .............................. 10,065,265 78.2% 10,065,265
</TABLE>
----------
* Represents less than 1% of the outstanding shares of common stock.
(1) 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. Accordingly, shares underlying options or warrants exercisable or
convertible within 60 days after June 30, 2000, are deemed to be
outstanding for purposes of calculating the number of shares beneficially
owned and percentages owned by the holder of such options or warrants.
(2) Includes 2,549,900 shares issuable upon exercise of vested options.
59
<PAGE>
(3) Includes 2,161,265 shares of our Series A preferred stock to be converted
into 2,161,265 shares of common stock upon the closing of this offering.
Represents shares held of record by FBR Technology Venture Partners II,
L.P., the general partner of which is FBR Venture Capital Managers, Inc.
Mr. Johnston, one of our directors, is the Managing Director of FBR
Technology Venture Partners II, L.P.
(4) Includes 1,435,000 shares issuable upon exercise of vested options.
(5) Includes 1,066,000 shares issuable upon exercise of vested options.
(6) Represents (a) 7,620 shares held of record by WPG Institutional Networking
Fund, L.P., (b) 205,605 shares held of record by WPG Institutional
Software Fund, L.P., (c) 35,474 shares held of record by WPG Networking
Fund, L.P., (d) 180,181 shares held of record by WPG Raytheon Networking
Fund, L.P., (e) 190,546 shares held of record by WPG Raytheon Software
Fund, L.P., (f) 102,374 shares held of record by WPG Software Fund, L.P.,
(g) 27,200 shares held of record by WPG Networking QP Fund, L.P., and (h)
1,000 shares held of record by Raj Mehra. Weiss, Peck & Greer LLC is the
general partner of each of the entities identified in (a) through (g)
above.
(7) Includes 550,000 shares issuable upon exercise of vested stock options.
(8) Includes 450,000 shares issuable upon exercise of vested stock options.
(9) Includes 3,000 shares issuable upon exercise of vested stock options.
(10) Includes 6,053,900 shares issuable upon exercise of vested stock options.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
At the time of the closing of this offering, our authorized capital stock
will consist of million shares, including:
o million shares of common stock, par value $0.01 per share, of
which will be outstanding upon completion of this offering; and
o 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, where such rights are set forth in
full, and the provisions of applicable law.
COMMON STOCK
As of June 30, 2000, there were 4,662,280 shares of common stock issued
and outstanding and held of record by 47 stockholders. An additional 2,161,265
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 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 June 30, 2000, there were 2,161,265 shares of our redeemable
convertible preferred stock authorized, all of which were designated Series A
preferred stock, 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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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 or not 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.
Although we have no present plans to issue any shares of preferred stock,
any future grant of shares of preferred stock, or the grant of rights to
purchase preferred shares, may also have the effect of delaying, deferring or
preventing a change in control in our company or an unsolicited acquisition
proposal. The grant 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.
REGISTRATION RIGHTS
FBR Technology Venture Partners II, LP, 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 3,933,913 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 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, WPG, Paul Capital and the
accredited investors may 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 are
permitted up to two short-form registration demands.
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 "piggy back" 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
62
<PAGE>
statement in this offering, except for FBR's "piggy back" and short form
registration rights. We are generally responsible for the costs and expenses of
all such registrations. We are required to obtain FBR's consent prior to the
granting of equal or more favorable registration rights to any third party.
SHAREHOLDERS' AGREEMENT
We are party to a shareholders' agreement with Drs. Titomirov and
Bernstein (the "Founders"), certain individual shareholders (together with the
Founders, 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 and
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
(e.g. disability, death, resignation or termination other than for cause) 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.
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 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 (i) for any breach of the director's duty of loyalty to our company
or our stockholders, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) 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 Delaware Law. 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: 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; 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 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 2,161,265 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. Use 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. Further, use of the 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.
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 .
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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, _____________ shares of our common
stock will be outstanding based on the number of shares of our preferred stock
and common stock outstanding as of June 30, 2000, and assuming no exercise of
the underwriters' over-allotment option. Of these shares, the _____________
shares of common stock being sold in this offering will be freely tradable
(unless purchased by our "affiliate" as such term is defined in the Securities
Act) without restriction under the Securities Act. The remaining 6,823,545
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 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 _________ 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), 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 3,933,913 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
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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.
Stock Options. Following this offering we intend to file a registration
statement on Form S-8 under the Securities Act covering the shares of common
stock underlying options held by our officers, directors and employees,
including shares reserved for issuance under our equity incentive compensation
plan. The registration statement on Form S-8 will become effective upon filing
with the Securities and Exchange Commission. Accordingly, shares registered
under that registration statement will, subject to limitations applicable to
affiliates, be available for sale in the open market after the filing, except
those shares subject to lock-up agreements and unvested shares.
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UNDERWRITING
Subject to the terms and conditions provided in an agreement among the
underwriters and us, the underwriters named below, through their representatives
Bear, Stearns & Co. Inc., U.S. Bancorp Piper Jaffray Inc. and Adams, Harkness &
Hill, Inc., have severally agreed to purchase from us the aggregate number of
shares of our common stock indicated opposite their names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------- ----------
<S> <C>
Bear, Stearns & Co. Inc. ...............
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 $ _______.
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 __________ 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
67
<PAGE>
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, offer, sell, grant any option,
warrant or other right to purchase or otherwise dispose of any shares of common
stock or convertible securities, pledge, make any short sale or maintain any
short position, establish or maintain a put position, enter into any swap,
derivative transaction or other arrangement that transfers to another any of
the economic consequences of ownership of common stock, or 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.
STABILIZATION, SYNDICATE SHORT POSITION AND PENALTY BIDS
In order to facilitate this offering, certain persons participating in
this offering may engage in transactions that stabilize, maintain or otherwise
affect the price of the common stock during and after this offering.
Specifically, the underwriters may over-allot or otherwise create a short
position in the common stock for their own account by selling more shares of
common stock than we have actually sold to them. The underwriters may elect to
cover any such short position by purchasing shares of common stock in the open
market and may impose penalty bids, under which selling concessions allowed to
syndicate members or other broker-dealers participating in this offering are
reclaimed if shares of common stock previously distributed in this offering are
repurchased in
68
<PAGE>
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price at a level above
that which might otherwise prevail in the open market. The imposition of a
penalty bid may also affect the price of the common stock to the extent that it
discourages resales thereof. No representation is made as to the magnitude or
effect of any such stabilization or other transactions. Such transactions may
be effected on the Nasdaq National Market or otherwise and, if commenced, may
be discontinued 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.
69
<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 reports 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. This prospectus does not contain all the
information we included in the registration statement and the exhibits and
schedules we attached to it. 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.
70
<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
March 31, 2000 (unaudited) .............................................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1997, 1998
and 1999 and for the three months ended March 31, 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 three months ended March 31, 2000 F-6
(unaudited)
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1998
and 1999 and for the three months ended March 31, 1999 and 2000 (unaudited) ............. F-7
Notes to Consolidated Financial Statements ............................................... F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
InforMax, Inc., and Subsidiary
Rockville, Maryland
We have audited the accompanying consolidated balance sheets of InforMax, Inc.,
and subsidiary as of December 31, 1999 and 1998, and the related consolidated
statements of operations, 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, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999,
in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
McLean, Virginia
June 7, 2000, except for Note 16, paragraphs six, seven, eight, nine and ten, as
to which the dates are June 19, 2000, June 23, 2000, June 29, 2000, June 30,
2000 and July 7, 2000, respectively.
F-2
<PAGE>
INFORMAX, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 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 $ 889,359 $
Accounts receivable (net of allowance for
doubtful accounts of $15,000 at December
31, 1998 and 1999 and March 31, 2000
(unaudited)), respectively ............. 1,550,328 2,640,485 3,542,682
Income tax receivable .................... -- 122,446 100,935
Deferred tax asset ....................... 581,353 676,379 1,162,921
Prepaid expenses ......................... -- 222,473 194,939
Other current assets ..................... 9,435 28,837 52,851
---------- ---------- ----------- ------------
Total current assets .................. 2,436,785 5,089,557 5,943,687
========== ========== =========== ============
Property and equipment:
Computer equipment ....................... 434,669 1,060,435 1,315,817
Purchased software ....................... 4,340 58,306 109,278
Office furniture and equipment ........... 46,236 537,908 978,312
Leasehold improvements ................... -- 155,122 211,932
---------- ---------- ----------- ------------
485,245 1,811,771 2,615,339
Less: Accumulated depreciation and
amortization ........................... (114,426) (375,472) (523,289)
---------- ---------- ----------- ------------
Property and equipment - net .......... 370,819 1,436,299 2,092,050
---------- ---------- ----------- ------------
Other assets:
Deposits ................................. 10,883 67,996 74,212
Loan to shareholder ...................... -- 69,360 70,904
Deferred tax asset ....................... 64,341 601,500 114,959
---------- ---------- ----------- ------------
Total other assets .................... 75,224 738,856 260,075
---------- ---------- ----------- ------------
Total assets .............................. $2,882,828 $7,264,712 $ 8,295,812
========== ========== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
INFORMAX, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 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 $ 843,497 $
Accounts payable to related parties ......................... 23,325 21,806 91,233
Accrued liabilities ......................................... 341,972 933,125 753,030
Line of credit .............................................. 200,000 550,000 1,050,000
Equipment loan facility - current portion ................... -- 337,302 601,635
Notes payable ............................................... 64,415 -- --
Capital lease obligations - current portion ................. 114,106 113,293 104,246
Deferred revenue ............................................ 1,489,389 1,689,997 2,612,953
Income taxes payable ........................................ 151,296 -- --
Billings in excess of cost on government contracts .......... 79,796 -- --
---------- ------------ ------------ --------
Total current liabilities ................................ 2,855,776 4,049,539 6,056,594
---------- ------------ ------------ --------
Long-term liabilities:
Capital lease obligations - less current portion ............ 182,346 92,208 69,005
Equipment loan facility - less current portion .............. -- 623,245 959,732
Deferred revenue ............................................ 249,886 121,673 97,034
---------- ------------ ------------ --------
Total long-term liabilities .............................. 432,232 837,126 1,125,771
========== ============ ============ ========
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 March 31,
2000 (unaudited) and no shares issued and outstanding
at March 31, 2000 pro forma (unaudited), liquidation
preference - $1.85 per share................................. -- 4,095,054 4,179,124
---------- ------------ ------------ --------
Stockholders' equity (deficit):
Common stock - voting, par value $0.01; 1,595,455
shares authorized; 1,146,600, 1,500,000, 1,500,000, and
_________ shares issued, and 996,600, 1,350,000,
1,350,000, and _________ shares outstanding at
December 31, 1998, 1999, March 31, 2000 (unaudited),
and March 31, 2000 pro forma (unaudited),
respectively .............................................. 11,466 15,000 15,000
Common stock - nonvoting, par value $0.01; 14,931,864
shares authorized; 1,429,400, 1,218,000, 2,468,000, and
_________ shares issued, and 1,239,400, 1,028,000,
2,278,000, and ________ shares outstanding at
December 31, 1998 and 1999, March 31, 2000
(unaudited) and March 31, 2000 pro forma
(unaudited), respectively ................................. 14,294 12,180 24,680
Additional paid-in capital .................................. 562,407 948,165 2,494,727
Deferred compensation ....................................... (16,218) (400,208) (857,863)
Accumulated deficit ......................................... (858,129) (2,173,144) (4,623,221)
Treasury stock, 340,000 shares - at cost, at
December 31, 1998 and 1999, March 31, 2000
(unaudited) and March 31, 2000 pro forma
(unaudited), respectively ................................. (119,000) (119,000) (119,000)
---------- ------------ ------------ --------
Total stockholders' equity (deficit) ..................... (405,180) (1,717,007) (3,065,677)
---------- ------------ ------------ --------
Total liabilities and stockholders' equity (deficit) ......... $2,882,828 $ 7,264,712 $ 8,295,812 $
========== ============ ============ ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
INFORMAX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- -------------------------------
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 $ 1,048,828 $ 2,411,476
Professional services............................ 867,212 1,393,863 2,736,798 541,358 797,116
---------- ---------- ------------ ----------- ------------
Total revenues ............................... 2,201,722 4,126,245 10,014,425 1,590,186 3,208,592
========== ========== ============ =========== ============
Cost of revenues:
Software license and customer support ........... 38,102 190,144 404,848 70,468 100,426
Professional services(1)......................... 716,059 1,081,021 1,612,167 342,724 425,094
---------- ---------- ------------ ----------- ------------
Total cost of revenues ....................... 754,161 1,271,165 2,017,015 413,192 525,520
========== ========== ============ =========== ============
Gross profit ..................................... 1,447,561 2,855,080 7,997,410 1,176,994 2,683,072
---------- ---------- ------------ ----------- ------------
Operating expenses:
Selling, general and administrative(2)........... 1,075,264 2,475,840 6,999,916 1,088,455 3,423,604
Research and development(3)...................... 365,034 1,162,471 2,597,281 485,245 961,305
Stock based compensation ........................ 210,695 17,782 138,185 17,611 556,291
Depreciation and amortization ................... 17,945 93,809 272,548 40,754 148,284
---------- ---------- ------------ ----------- ------------
Total operating expenses ..................... 1,668,938 3,749,902 10,007,930 1,632,065 5,089,484
========== ========== ============ =========== ============
Loss from operations ............................. (221,377) (894,822) (2,010,520) (455,071) (2,406,412)
---------- ---------- ------------ ----------- ------------
Other income (expense):
Investment earnings ............................. -- -- 66,342 609 6,503
Interest expense ................................ (18,523) (59,910) (86,538) (15,325) (44,853)
Other ........................................... (12,404) (3,313) (10,642) -- (5,315)
---------- ---------- ------------ ----------- ------------
Total other income (expense) ................. (30,927) (63,223) (30,838) (14,716) (43,665)
========== ========== ============ =========== ============
Loss before income taxes ......................... (252,304) (958,045) (2,041,358) (469,787) (2,450,077)
Income tax benefit ............................... (118,224) (391,291) (726,343) (132,842) --
---------- ---------- ------------ ----------- ------------
Net loss ......................................... (134,080) (566,754) (1,315,015) (336,945) (2,450,077)
Accretion of transaction costs on redeemable
convertible preferred stock ..................... $ -- $ -- $ (8,139) $ -- $ (4,069)
Accrued dividend on redeemable convertible
preferred stock ................................. -- -- (168,300) -- (80,001)
---------- ---------- ------------ ----------- ------------
Net loss applicable to common shares ............. $ (134,080) $ (566,754) $ (1,491,454) $ (336,945) $ (2,534,147)
========== ========== ============ =========== ============
Basic net loss applicable per common share ....... $ (0.07) $ (0.26) $ (0.64) $ (0.15) $ (1.01)
========== ========== ============ =========== ============
Diluted net loss applicable per common share ..... $ (0.07) $ (0.26) $ (0.64) $ (0.15) $ (1.01)
========== ========== ============ =========== ============
Weighted average common shares outstanding -
Basic and diluted ............................... 1,875,900 2,162,650 2,319,833 2,245,400 2,519,484
========== ========== ============ =========== ============
</TABLE>
------------------
(1) Cost of revenues -- professional services includes stock based compensation
of $105,539, $-0-, $-0-, $-0-, and $4,187 for the years ended December 31,
1997, 1998, and 1999 and the three month periods ended March 31, 1999 and
2000 (unaudited), respectively
(2) Selling, general and administrative expenses includes related party legal
expenses of $4,751, $21,256, $227,039, $38,642 and $69,427 and consulting
expenses of $-0-, $34,333, $120,833, $31,500 and $25,000 and excludes stock
based compensation of $76,189, $-0-, $111,019, $1,393 and $538,023 for the
years ended December 31, 1997, 1998, and 1999 and three month periods ended
March 31, 1999 and 2000 (unaudited), respectively
(3) Research and development expenses excludes stock based compensation of
$134,506, $17,782, $27,166, $16,218 and $18,268 for the years ended December
31, 1997, 1998 and 1999 and the three month periods ended March 31, 1999 and
2000, 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 ............ 1,146,600 1,146,600 $11,466 989,300 989,300 $ 9,893
Purchase of treasury stock .......... -- (150,000) -- -- (190,000) --
Issuance of stock options ........... -- -- -- -- -- --
Net loss ............................ -- -- -- -- -- --
--------- --------- ------- ------- -------- ---------
Balance, December 31, 1997 .......... 1,146,600 996,600 11,466 989,300 799,300 9,893
Share options exercised ............. -- -- -- 440,100 440,100 4,401
Issuance of stock options ........... -- -- -- -- -- --
Amortization of deferred
compensation on stock
options ............................ -- -- -- -- -- --
Net loss ............................ -- -- -- -- -- --
--------- --------- ------- ------- -------- ---------
Balance, December 31, 1998 .......... 1,146,600 996,600 11,466 1,429,400 1,239,400 14,294
Conversion -- non-voting shares
to voting .......................... 353,400 353,400 3,534 (353,400) (353,400) (3,534)
Issuance of common stock ............ -- -- -- 60,000 60,000 600
Share options exercised ............. -- -- -- 82,000 82,000 820
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 .......... 1,500,000 1,350,000 15,000 1,218,000 1,028,000 12,180
Share options exercised ............. -- -- 1,250,000 -- 12,500
Issuance of stock options ........... -- -- -- -- -- --
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 .................... -- -- -- -- -- --
Net loss ............................ -- -- -- -- -- --
--------- --------- ------- --------- --------- ---------
Balance, March 31, 2000
(unaudited) ........................ 1,500,000 1,350,000 15,000 2,468,000 1,028,000 24,680
Pro forma conversion of
nonvoting to voting common
stock (unaudited) ..................
Pro forma conversion of
redeemable convertible
preferred stock to common
stock (unaudited) ..................
--------- --------- ------- --------- --------- ---------
Pro forma balance, March 31,
2000 (unaudited) ................... $ $
========= ========= ======= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TREASURY STOCK
------------------------
ADDITIONAL
PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
---------- ------------- ------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 ............ -- $ -- $ 212,173 $ - $ (157,295) $ 76,237
Purchase of treasury stock .......... 340,000 (119,000) - - - (119,000)
Issuance of stock options ........... -- -- 316,234 - - 316,234
Net loss ............................ -- -- - - (134,080) (134,080)
------- ----------- ----------- ----------- ------------- -------------
Balance, December 31, 1997 .......... 340,000 (119,000) 528,407 - (291,375) 139,391
Share options exercised ............. -- -- -- - - 4,401
Issuance of stock options ........... -- -- 34,000 (34,000) - -
Amortization of deferred
compensation on stock
options ............................ -- -- - 17,782 - 17,782
Net loss ............................ -- -- - - (566,754) (566,754)
------- ----------- ----------- ----------- ------------- -------------
Balance, December 31, 1998 .......... 340,000 (119,000) 562,407 (16,218) (858,129) (405,180)
Conversion -- non-voting shares
to voting .......................... -- -- -- -- - -
Issuance of common stock ............ -- -- 101,414 (87,014) - 15,000
Share options exercised ............. -- -- 25,622 -- - 26,442
Issuance of stock options ........... -- -- 435,161 (435,161) - -
Amortization of deferred
compensation on stock options
and restricted stock ............... -- -- -- 138,185 - 138,185
Accretion of transaction costs on
redeemable convertible
preferred stock .................... -- -- (8,139) -- - (8,139)
Accrual of dividend on
redeemable convertible
preferred stock .................... -- -- (168,300) -- - (168,300)
Net loss ............................ -- -- -- -- (1,315,015) (1,315,015)
------- ----------- ----------- ----------- ------------- -------------
Balance, December 31, 1999 .......... 340,000 (119,000) 948,165 (400,208) (2,173,144) (1,717,007)
Share options exercised ............. -- -- 612,500 -- -- 625,000
Issuance of stock options ........... -- -- 500,303 (500,303) -- --
Adjustments to deferred
compensation for variable
stock options and restricted
stock .............................. -- -- 517,829 (517,829) -- --
Amortization of deferred
compensation on stock options
and restricted stock ............... -- -- -- 560,477 -- 560,477
Accretion of transaction costs on
redeemable convertible
preferred stock .................... -- -- (4,069) -- -- (4,069)
Accrual of dividend on
redeemable convertible
preferred stock .................... -- -- (80,001) -- -- (80,001)
Net loss ............................ -- -- -- -- (2,450,077) (2,450,077)
------- ----------- ----------- ----------- ------------- -------------
Balance, March 31, 2000
(unaudited) ........................ 340,000 (119,000) 2,494,727 (857,863) (4,623,221) (3,065,677)
Pro forma conversion of
nonvoting to voting common
stock (unaudited) ..................
Pro forma conversion of
redeemable convertible
preferred stock to common
stock (unaudited) .................. ------- ------------ ----------- ----------- ------------- -------------
Pro forma balance, March 31,
2000 (unaudited) ................... $ $ $ $ $
======= ============ =========== =========== ============= =============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
INFORMAX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- ------------------------------
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) $ (336,945) $ (2,450,077)
Adjustments to reconcile net loss
to net cash provided by (used
in) operating activities:
Depreciation expense .................. 17,945 93,809 272,548 40,754 148,284
Loss on sale of furniture and
equipment ............................ -- -- 9,840 -- 4,312
Expense related to stock options
and restricted stock ................. 316,234 17,782 138,185 17,611 560,478
Deferred income tax benefit ........... (254,403) (391,291) (623,223) (150,069) --
Changes in other assets:
(Increase) decrease in
accounts receivable ................ (165,251) (1,184,462) (1,090,157) 965,077 (902,197)
(Increase) decrease in income
tax receivable ..................... -- -- (122,446) 21,511
(Increase) decrease in prepaid
expenses ........................... -- -- (222,473) (5,400) 27,534
Increase in other current
assets ............................. (8,073) (1,362) (23,762) (5,989) (25,559)
Increase in deposits ................. (4,752) (4,046) (57,113) (25,511) (6,216)
Changes in other liabilities:
Increase in accounts payable ......... 53,158 346,669 11,020 20,933 508,908
Increase (decrease) in accrued
liabilities ........................ 117,483 163,647 591,153 (159,512) (180,095)
Increase (decrease) in income
tax payable ........................ 125,638 15,307 (151,296) (151,296) --
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 (25,430) 898,317
---------- ------------ ------------ ---------- ------------
Cash provided by (used in)
operating activities .............. 423,377 (66,108) (2,590,140) 217,568 (1,394,800)
---------- ------------ ------------ ---------- ------------
Cash flow from investing activities:
Purchase of furniture and
equipment ............................. (5,437) (71,505) (1,342,908) (54,882) (811,977)
Proceeds from sale of furniture
and equipment ......................... -- -- 9,621 -- 3,629
Increase in shareholder note
receivable ............................ -- -- (65,000) -- --
---------- ------------ ------------ ---------- ------------
Cash used in investing
activities ........................ (5,437) (71,505) (1,398,287) (54,882) (808,348)
---------- ------------ ------------ ---------- ------------
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- ----------------------------
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) (2,700) (32,250)
Proceeds from line of credit .......... -- 140,509 618,239 -- 500,000
Repayments on line of credit .......... -- -- (268,239) -- --
Proceeds from notes payable ........... -- 29,415 92,363 15,193 660,000
Proceeds from equipment loan
facility ............................ -- -- 960,547 -- --
Repayments on notes payable ........... (5,000) (35,000) (156,778) (35,000) (59,180)
Purchase of treasury stock ............ (49,000) -- -- -- --
Closing costs for Series A
redeemable convertible
preferred stock ..................... -- -- (81,385) -- --
Proceeds from sale of Series A
redeemable convertible
preferred stock ..................... -- -- 4,000,000 -- --
Proceed from issuance of common
stock ............................... -- -- 15,000 320 125
Proceeds from share options
exercised ........................... -- 4,401 17,480 -- 624,875
------- ------- --------- ------- --------
Cash (used in) provided by
financing activities ............ (70,915) 50,935 5,091,695 (22,187) 1,693,570
------- ------- --------- ------- ----------
Net increase (decrease) in cash and
cash equivalents ...................... 347,025 (86,678) 1,103,268 140,499 (509,578)
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 $ 436,168 $ 889,359
========= ========== ========== ========= ==========
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) -- -- -- --
--------- ---------- ---------- --------- ----------
$ -- $ -- $ -- $ -- $ --
========= ========== ========== ========= ==========
Supplemental cash flow information:
Cash paid for income taxes ............ $ -- $ -- $ 151,296 $ -- $ --
========= ========== ========== ========= ==========
Cash paid for interest ................ $ 18,523 $ 59,910 $ 83,995 $ 15,325 $ 44,853
========= ========== ========== ========= ==========
</TABLE>
See notes to consolidated financial statements.
F-8
<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 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). Except as noted below, software license fees
are recognized as revenue upon the customer's execution of a noncancelable
license agreement and the Company's delivery of the software, provided that
the fee is fixed and determinable, collectibility is probable, and no
customization of the software is required. During 1997 and 1998,
maintenance revenue was recognized together with the initial licensing fee
on 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. Revenues from software maintenance contracts that extended beyond
one year were recognized ratably over the maintenance period. During 1999
due to the introduction of and increased sales 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
during the arrangement period was no longer deemed insignificant. Therefore
beginning in January 1999, revenues from all software maintenance contracts
were recognized ratably based upon their vendor specific objective evidence
of fair value and recorded over the maintenance period.
F-9
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
In circumstances 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, unless the only undelivered element is maintenance, in which
case revenue is recognized ratably over the remaining maintenance period.
Maintenance contracts provide for technical support and periodic
unspecified upgrades. 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.
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.
F-10
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
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-11
<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 Redeemable Convertible
Preferred Stock (see Note 7), 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 March 31, 2000 reflects the conversion of the Series A preferred stock
into 2,161,265 shares of common stock as if the conversion occurred on
March 31, 2000. In addition, the unaudited pro forma balance sheet
information at March 31, 2000 reflects the conversion of the outstanding
nonvoting common stock into shares of voting common stock as if the
conversion occurred on March 31, 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-12
<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
------ ------ ------
(46.86)% (40.84)% (35.58)%
Effective tax rate ................................... ====== ====== ======
</TABLE>
F-13
<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 353,400 shares of nonvoting common stock for
353,400 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 60,000 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. 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 940,100 nonqualified stock
options to employees and one nonemployee, all such options vesting
immediately. 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 100,000 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 the Plan. The
Plan provides for up to 3,200,000 shares of common stock of the Company for
the granting of restricted stock and incentive stock options to purchase
common stock. The exercise price per share for an incentive stock option
must be equal to or greater than the estimated fair market value, as
determined by the Board committee administering the Plan, on the date of
grant. In connection with the issuance of the Series A Redeemable
Convertible Preferred Stock, a limit was placed on the number of options
that could be granted under the Plan. At December 31, 1999, the total
shares that could be issued under the Plan without further approval by the
Series A designee to the Board was 2,907,056.
During 1999, the Company granted 2,286,709 stock options to employees. Out
of the total stock option grants, 447,125 options vested immediately,
66,841 options were forfeited or cancelled, with the remaining 1,772,743
options vesting over a four-year period.
In February 1999, the Board of Directors also granted 6,549,900
nonqualified stock options to the
F-14
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
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 105,000 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. For the non employee advisors,
total compensation expense was determined monthly based on the fair value
of the options earned. These options were granted for a ten-year period and
vest over either three, four, or five years. In relation to the issuance of
these options, the Company recorded compensation expense in the amount of
$53,076 during the year ended December 31, 1999 and deferred compensation
of $86,391 was included in stockholders' equity (deficit) at December 31,
1999.
The Company recorded compensation expense relating to employee options
granted during 1999 with exercise prices below the estimated fair market
value at the dates of grant in the amount of $36,447, and deferred
compensation in the amount of $259,247 which was included in stockholders'
equity (deficit) at December 31, 1999.
Option transactions were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------------- -----------------
<S> <C> <C>
Options outstanding, January 1, 1997 ............................. 64,000 $ 0.010
Options granted ................................................ 940,100 0.010
-------
Options outstanding, December 31, 1997 .......................... 1,004,100 0.010
Options granted ................................................ 100,000 0.010
Options exercised .............................................. (440,100) 0.010
---------
Options outstanding, December 31, 1998 .......................... 664,000 0.010
Options granted ................................................ 8,941,609 0.500
Options forfeited or cancelled ................................. (66,841) 0.500
Options exercised .............................................. (82,000) 0.213
---------
Options outstanding, December 31, 1999 .......................... 9,456,768 0.468
=========
Options exercisable as of December 31, 1999 ..................... 7,889,704 0.463
=========
Options available for future grant at December 31, 1999 ......... 552,188
=========
</TABLE>
At December 31, 1999, options outstanding were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER REMAINING
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE
---------------- ------------- -----------------
<S> <C> <C>
$ 0.010 616,000 7.8 years
$ 0.500 8,840,768 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 fiscal years 1997, 1998 and
1999 was $.35, $.35 and $1.32 per share, respectively.
F-15
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
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>
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 ............ $ (0.07) $ (0.26) $ (0.72)
Pro forma net loss per share - diluted .......... $ (0.07) $ (0.26) $ (0.72)
</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 2,874,100, 2,805,583 and 10,336,357 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,
F-16
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
at its option at any time, to convert any such shares of Series A
Redeemable Convertible Preferred Stock into the same number of fully paid
and nonassessable shares of Common Stock. Each share of Series A Redeemable
Convertible Preferred Stock is convertible into the number of shares of
Common Stock that would result from dividing the original issue price per
share ($1.85) of the Series A Redeemable Convertible Preferred Stock by the
conversion price for the Series A Redeemable Convertible Preferred Stock
that is in effect at the time of the conversion. The initial conversion
price for the Series A Redeemable Convertible Preferred Stock is the
original issue price for the Series A Redeemable Convertible Preferred
Stock. The conversion price may be adjusted from time to time upon certain
conditions, such as sales of common stock, issuance of options and other
common stock events.
The holders of the Series A Redeemable Convertible Preferred Stock are
entitled to receive, out of funds legally available when and if declared by
the Board of Directors, cumulative dividends at the annual dividend rate of
$.148 per share. Upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, or upon redemption, the holders
of the Series A Redeemable Convertible Preferred Stock are first entitled,
before any distribution or payment is made with respect to the Common Stock
or any other series of capital stock, to be paid out of available funds and
assets an amount equal to the "Original Issue Price" ($1.85) for each
Series A Redeemable Convertible Preferred Stock as adjusted for common
stock events plus, in the case of each share, an amount equal to all
accrued dividends unpaid thereon (whether or not declared) and any other
dividends declared but unpaid thereon. The undeclared dividends are being
accreted to the redemption value. The 1999 accrued dividend of $168,300 is
presented on the Consolidated Statements of Operations as an addition to
net loss applicable to common shareholders.
If, at any time, the Company obtains a firm commitment-underwritten public
offering of shares of Common Stock in which (i) the aggregate net proceeds
of such public offering equals or exceeds $15,000,000 and (ii) the public
offering price per share equals or exceeds $5.55 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
F-17
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
the liquidation amount, represents the cost of issuance, which is being
accreted pro rata over the period beginning on June 22, 1999 issuance date
and ending on the prescribed redemption date, June 22, 2004. The 1999
accretion of $8,139 is presented on the Consolidated Statements of
Operations as an addition to net loss applicable to common shareholders.
8. LEASE COMMITMENTS
Operating Leases - The Company leases its headquarters office space under an
operating lease that expires in July 2006. The lease for the headquarters
office space contains an escalation clause that provides for increased
rentals based on an annual escalation of 1.03 times the preceding year's
base rent.
As of December 31, 1999, the Company was committed to leases for its other
sales offices with portions of the leases expiring through June 2003.
Total rental expense under all office leases for fiscal years 1997, 1998,
and 1999 was $61,357, $117,833, and $320,525, respectively. At December 31,
1999, future minimum lease payments required under noncancelable leases
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
2000 ................................. $ 598,723
2001 ................................. 630,562
2002 ................................. 637,630
2003 ................................. 596,867
2004 ................................. 588,605
Thereafter ........................... 966,033
----------
Total minimum lease payments ......... $4,018,420
==========
</TABLE>
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.
F-18
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
The future minimum lease payments under capital leases are computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
2000 ......................................................... $ 130,940
2001 ......................................................... 85,648
2002 ......................................................... 15,351
---------
231,939
Less: Interest ................................................. (26,438)
---------
Present value of future minimum capital lease payments ......... 205,501
Less: Current portion .......................................... (113,293)
---------
Capital lease obligation, net of current portion ............... $ 92,208
=========
</TABLE>
9. NOTES PAYABLE
In 1997, the Company purchased common stock (treasury stock) from a
stockholder for $49,000 cash and a $70,000 note payable. The note payable
specified payments of $35,000 in February 1998 and February 1999 and was
non-interest bearing.
In 1998, the Company borrowed $29,415 against an equipment loan facility of
$125,000. This note is interest only monthly, convertible on a quarterly
basis to a thirty-six month note with principal and interest due monthly.
Borrowings under this note are secured by equipment and accounts receivable
and bear interest at prime plus 1%, which was 8.75% at December 31, 1998.
The agreement is personally guaranteed by the President/Chief Executive
Officer. The balance was paid in full during 1999.
10. LINE OF CREDIT AND EQUIPMENT LOAN FACILITY
At December 31, 1998, the Company had a line of credit in the amount of
$400,000 that was payable on demand. Borrowings under this note are secured
by accounts receivable of the Company and bear interest at prime plus 2%
which was 9.75% at December 31, 1998. The agreement required no financial
covenants and was personally guaranteed by the President/Chief Executive
Officer.
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
F-19
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
1999, all equipment line advances then outstanding, plus any accrued
interest, were converted to a term loan (the "First Term Loan"). All
equipment line advances made since the First Term Loan conversion shall be
converted into a Second Term Loan in May 2000. Each of the First Term Loan
and the Second Term Loan shall provide repayments of principal and interest
in thirty equal monthly installments. The Company must also maintain
various financial covenants, including minimum cash balance and certain
financial ratios. In addition, the Company cannot declare or pay dividends
on, or make any distribution with respect to, any class of its equity
during the term of this facility.
At December 31, 1999, the amounts outstanding under the revolving credit
line was $550,000 payable by May 2000 with accrued interest due and payable
monthly. Borrowings under this note are secured by accounts receivable of
the Company and bear interest at prime plus 1% (9.5% at December 31, 1999)
and are subject to certain financial covenants.
The following represents the maturities of the equipment loan facility:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PRINCIPAL DUE
---------------------------- --------------
<S> <C>
2000 .................. $337,302
2001 .................. 397,679
2002 .................. 225,566
--------
Total ................. $960,547
========
</TABLE>
11. RELATED PARTY TRANSACTIONS
The Company had an arrangement with another company, the president of which
is also a member of the Company's Board of Directors, whereby the other
company provides advisory and fiduciary oversight services to the Company
at an average monthly fee of $2,500. This arrangement ended and was paid in
full during July 1999. Total fees paid to the other company under this
arrangement totaled $26,000 and $50,000 for the years ended December 31,
1998 and 1999, respectively, and the Company's accrued liability to the
other company was $2,000 at December 31, 1998. There was no accrued
liability at December 31, 1999.
The Company engaged a law firm during 1997 and 1998. An attorney at the
firm is also a shareholder of the Company. The Company incurred $4,751 and
$2,098 in expense to the Firm during 1997 and 1998, respectively. There was
no accrued liability at December 31, 1997 and 1998, respectively.
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
at 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 at an average monthly fee of $4,167. Total fees
paid to the option-holder under this arrangement
F-20
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
totaled $20,833 for the year ended December 31, 1999.
On April 6, 1999, the Company loaned the President of the Company $65,000,
which is to be paid in full with all unpaid, accrued interest by April
2004. The interest rate of this note is prime plus 1% (9.5% at December 31,
1999). Interest income earned during the year and receivable at December
31, 1999 was $4,360.
12. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company operates in one industry segment, the development and sale of
computer software programs and related services.
Two customers accounted for 26% and 23% of total accounts receivable at
December 31, 1998. The Company's services to NCBI under two subcontracts
accounted for 12% of total accounts receivable at December 31, 1998. One
customer accounted for approximately 14% of total accounts receivable at
December 31, 1999. The Company's services to the NCBI under two
subcontracts accounted for 18% of total accounts receivable at December 31,
1999.
The Company's professional services provided to the NCBI under two
subcontracts accounted for 34% of total revenue for the year ended December
31, 1998 and 27% of revenue for the year ended December 31, 1999. There
were no sales to any individual country except for the United States where
such sales accounted for 10% or more of total revenue.
Substantially all assets are held in the United States at December 31, 1998
and 1999.
Revenues by geographic destination and as a percentage of total revenues
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
GEOGRAPHIC AREA BY DESTINATION
---------------------------------
United States ................ $1,843,152 $2,882,439 $ 8,513,617
International ................ 358,570 1,243,806 1,500,808
---------- ---------- -----------
$2,201,722 $4,126,245 $10,014,425
========== ========== ===========
</TABLE>
<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
F-21
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
payments have been performed by the various agencies. At December 31, 1998,
the Company accrued a potential liability for billings in excess of costs
incurred of $79,796 related to a cost-plus-fee contract. In July 1999, this
contract was converted to a time and material based contract by signing new
agreements. Any potential liabilities from the prior contract ceased under
the new agreements. At December 31, 1999, there are no liabilities accrued
related to the billing in excess of cost. In the opinion of management, the
final determination of these costs and related payments will not have a
material effect on the Company's financial position, results of operations,
or liquidity.
Litigation - In late 1998, litigation was filed in France by a former sales
representative. A hearing was held in 1999 and according to the decision of
the French court, the Company has been directed to pay $228,600 to the
former representative. The liability of $228,600 was accrued at December
31, 1999.
15. RETIREMENT PLAN
Effective January 1, 1999, the Company established a 401(k) retirement plan
(the 401(k) Plan) covering all eligible employees, as defined. Under the
terms of the 401(k) Plan, participants may defer a portion of their
salaries as employee contributions and are immediately 100% vested. The
Company may make matching, nonelective or discretionary contributions to
the 401(k) Plan. In general, matching and discretionary contributions made
by the Company vest ratably over a three-year period. The Company did not
make a contribution under this Plan for 1999.
16. SUBSEQUENT EVENTS
In January 2000, the Company joined in a value-added reseller and
comarketing agreement with another company. The Company grants to the other
company a nonexclusive worldwide internal use license and value-added
reseller license. Each license has a term of two years, and the Company
will receive a sublicense fee for each copy of the product sublicensed by
the other company.
In January 2000, the Company joined in agreement with a biotech company to
develop a customized version of its software for use by the biotech company
in connection with distribution of the biotech company's data through
license agreements. The biotech company agrees to pay for the customization
of the product on a time-and-materials basis along with any reasonable
expenses incurred during the customization of the product. In addition, the
Company will receive a fee for each license agreement and an annual
maintenance fee per end user for each license and maintenance sale to
outside parties by the biotech company.
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.
F-22
<PAGE>
INFORMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
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 3,700,000.
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 9,000 shares of common stock.
In the event that any amounts under the bridge loan remain due on September
19, 2000, the Company is obligated to issue additional 6,000 warrants to
the bank. The warrants are initially exercisable at $10.00 per share,
subject to adjustment for certain dilutive issuances. The bank was also
issued certain registration rights enabling them to request the Company to
include the common stock underlying their warrants in a registration
statement filed by the Company
On June 23, 2000, the Company issued 145,678 shares of common stock in a
private sale transaction with three accredited investors and received cash
compensation totaling approximately $1.55 million.
On June 29, 2000, the Company issued 187,970 share of common stock in a
private sale transaction to an accredited investor and received cash
compensation totaling approximately $2.0 million. In addition, the Company
issued warrants to purchase 15,000 shares of common stock. The warrants are
initially exercisable at $10.64 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.
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-23
<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
Special Note Regarding Market Data ........... 18
Use of Proceeds .............................. 19
Dividend Policy .............................. 19
Capitalization ............................... 20
Dilution ..................................... 22
Selected Consolidated Financial Data ......... 23
Management's Discussion and Analysis
of Financial Condition and
Results of Operations ..................... 25
Business ..................................... 33
Management ................................... 50
Certain Transactions ......................... 58
Principal Stockholders ....................... 59
Description of Capital Stock ................. 61
Shares Eligible for Future Sale .............. 65
Underwriting ................................. 67
Legal Matters ................................ 70
Experts ...................................... 70
Additional Information ....................... 70
Index to Consolidated Financial
Statements ................................ F-1
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
SHARES
COMMON STOCK
------------------------------------------------
PROSPECTUS
------------------------------------------------
BEAR, STEARNS & CO. INC.
U.S. BANCORP PIPER JAFFRAY
ADAMS, HARKNESS & HILL, INC.
, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<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. ......... *
NASD filing fee .............................................. *
Nasdaq National Market listing fee ........................... *
Transfer agent's and registrar's fees. ....................... *
Printing expenses ............................................ *
Legal fees and expenses ...................................... *
Accounting fees and expenses ................................. *
Miscellaneous expenses ....................................... *
=====
Total .................................................... $ *
=====
</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.
(1) In June 2000, we issued 187,970 shares of our common stock to an accredited
investor for approximately $2 million, or $10.64 per share. In exchange
for the rendering of certain consulting services, we also issued to the
same accredited investor warrants exercisable for 15,000 shares of our
common stock at $10.64 per share, subject to certain adjustment.
(2) In June 2000, we issued an aggregate of 145,678 shares of our common stock
to three accredited investors for approximately $1.55 million, or $10.64
per share.
(3) In June 2000, we issued warrants exercisable for 9,000 shares of our common
stock with an exercise price of $10.00 per share. The warrants were issued
in connection with a $3 million bridge loan financing and we received
$0.01 per warrant.
(4) 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.
(5) 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.
(6) In March 1998, we issued 440,100 shares of our common stock to Dr.
Titomirov and two investors in exchange for $4,401.
(7) 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 940,100 $ 0.01
1998 100,000 $ 0.01
1999 8,941,609 $ 0.50
1/1/2000 - 6/30/2000 596,523 $0.50 - $10.64
</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 Amended and Restated Certificate of Incorporation and Certificate of the
Designations, Powers, Preferences and Rights of the Series A Convertible
Preferred Stock
3.2 Form of Amended and Restated Certificate of Incorporation (proposed,
post-offering)*
3.3 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 Investor Rights Agreement between InforMax, Inc. and FBR Technology
Venture Partners II, L.P. dated June 22, 1999
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 and addendum thereto dated November 22, 1999+
</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
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5.1 hereto) *
24.1 Power of Attorney of Directors (included in signature pages)
27.1 Financial Data Schedule
</TABLE>
* 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.
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, employee or agent of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer, 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.
II-4
<PAGE>
(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 Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Montgomery, State of
Maryland, on July 11, 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 July 11, 2000
--------------------------- Directors, President and Chief
Dr. Alex Titomirov Executive Officer (Principal
Executive Officer)
/S/ Joseph Lehnen Chief Financial Officer July 11, 2000
--------------------------- (Principal Financial Officer)
Joseph Lehnen
/S/ Dr. James E. Bernstein Director July 11, 2000
---------------------------
Dr. James E. Bernstein
/S/ Harry D'Andrea Director July 11, 2000
---------------------------
Harry D'Andrea
/S/ Hooks Johnston Director July 11, 2000
---------------------------
Hooks Johnston
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
------------- ---------------------------------------------------------------------------------
<S> <C>
1.1 Underwriting Agreement *
3.1 Amended and Restated Certificate of Incorporation and Certificate of the
Designations, Powers, Preferences and Rights of the Series A Convertible
Preferred Stock
3.2 Form of Amended and Restated Certificate of Incorporation (proposed,
post-offering)*
3.3 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 Investor Rights Agreement between InforMax, Inc. and FBR Technology
Venture Partners II, L.P. dated June 22, 1999
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 and addendum thereto dated November 22, 1999+
</TABLE>
II-7
<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
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5.1 hereto) *
24.1 Power of Attorney of Directors (included in signature pages)
27.1 Financial Data Schedule
</TABLE>
* To be filed by amendment
+ Confidential Treatment requested as to certain portions of this Exhibit
II-8
