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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number:
SYMYX TECHNOLOGIES, INC.
(Exact name of Registrant issuer as specified in its charter)
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DELAWARE 77-0397908
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3100 CENTRAL EXPRESSWAY, SANTA CLARA, CALIFORNIA 95051
(Address of principal executive offices) (Zip code)
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(408) 764-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No__
As of October 30, 2000, Registrant had outstanding 30,022,477 shares of Common
Stock, $.001 par value.
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TABLE OF CONTENTS
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PAGE
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Condensed Statements of Operations - three and nine months ended September 30, 2000 and 1999.. 2
Condensed Balance Sheets - September 30, 2000 and December 31, 1999........................... 3
Condensed Statements of Cash Flows - nine months ended September 30, 2000 and 1999............ 4
Notes to Condensed Financial Statements....................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................... 18
PART II: OTHER INFORMATION
Item 1. Legal Proceedings............................................................................. 19
Item 2. Changes in Securities and Use of Proceeds..................................................... 19
Item 3. Defaults Upon Senior Securities............................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders........................................... 19
Item 5. Other Information............................................................................. 19
Item 6. Exhibits and Reports on Form 8-K.............................................................. 19
Signatures................................................................................. 20
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYMYX TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPT 30 SEPT 30
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2000 1999 2000 1999
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Revenues:
Revenue from collaborations and grants ........... $ 8,226 $ 7,219 $ 25,799 $ 22,849
Product and license revenue....................... 591 -- 6,116 --
------- ------- -------- --------
Total revenues.............................. 8,817 7,219 31,915 22,849
Operating costs and expenses:
Cost of products sold............................. 29 -- 1,758 --
Research and development.......................... 8,657 7,347 26,109 18,641
Sales, general and administrative................. 2,723 1,933 8,968 5,609
------- ------- -------- --------
Total operating expenses.................... 11,409 9,280 36,835 24,250
------- ------- -------- --------
Income (loss) from operations ...................... (2,592) (2,061) (4,920) (1,401)
Interest income (expense), net ..................... 1,587 319 4,614 732
------- ------- -------- --------
Net income (loss)................................... $(1,005) $(1,742) $ (306) $ (669)
======= ======= ======== ========
Basic and diluted net income (loss) per share....... $ (0.03) $ (0.30) $ (0.01) $ (0.12)
======= ======= ======== ========
Shares used in computing basic and diluted net
income (loss) per share............................. 29,112 5,874 28,721 5,546
======= ======= ======== ========
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See accompanying notes to condensed financial statements
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SYMYX TECHNOLOGIES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
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SEPTEMBER 30, DECEMBER 31,
2000 1999
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(UNAUDITED) (NOTE 1)
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ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 25,229 $ 28,943
Short-term investments..................................................... 6,871 21,533
Accounts receivable........................................................ 1,152 962
Prepaid expenses........................................................... 1,339 1,555
Inventories................................................................ 2,982 462
Other current assets. ..................................................... 1,525 1,477
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Total current assets......................................................... 39,098 54,932
Property and equipment, net.................................................. 25,753 23,879
Long-term investments........................................................ 74,864 68,794
Other assets................................................................. 2,233 700
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$ 141,948 $ 148,305
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities............................. $ 3,745 $ 4,951
Accrued compensation and employee benefits................................. 1,267 711
Deferred rent.............................................................. 490 478
Deferred revenue........................................................... 5,781 12,189
Current portion of equipment and facility loans............................ 3,927 3,304
--------- ---------
Total current liabilities.................................................... 15,210 21,633
Equipment and facility loans................................................. 3,664 6,729
Stockholders' equity:
Preferred stock, 10,000,000 shares authorized, issuable in series; no
shares issued and outstanding.............................................. -- --
Common stock, $0.001 par value, 100,000,000 shares authorized and
30,019,986 and 29,638,562 shares issued and outstanding at September
30, 2000 and December 31, 1999, respectively............................... 30 30
Additional paid-in capital................................................... 144,332 142,048
Stockholder notes receivable................................................. (622) (731)
Deferred stock compensation.................................................. (1,195) (2,128)
Accumulated other comprehensive income (loss)................................ (78) (189)
Accumulated deficit.......................................................... (19,393) (19,087)
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Total stockholders' equity................................................... 123,074 119,943
--------- ---------
Total liabilities and stockholders' equity................................... $ 141,948 $ 148,305
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See accompanying notes to condensed financial statements.
3
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SYMYX TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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NINE MONTHS ENDED
SEPTEMBER 30
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2000 1999
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OPERATING ACTIVITIES
Net income (loss)................................................................... $ (306) $ (669)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.................................................... 5,297 3,234
Deferred compensation amortization............................................ 757 2,822
Changes in assets and liabilities:
Accounts receivable......................................................... (190) (788)
Inventories................................................................. (2,520) (114)
Prepaid expenses............................................................ 216 (551)
Other current assets........................................................ (48) (351)
Accounts payable and other current liabilities.............................. (1,206) 310
Deferred revenue............................................................ (6,408) 4,958
Accrued compensation and employee benefits.................................. 556 164
Deferred rent............................................................... 12 24
Other long-term assets...................................................... 52 (355)
------- -------
Net cash provided by (used in) operating activities................................. (3,788) 8,684
INVESTING ACTIVITIES
Purchase of property and equipment, net............................................. (6,431) (4,061)
Purchase of investments............................................................. (30,738) (14,530)
Proceeds from maturities of investments............................................. 39,325 9,050
Acquisition of technology........................................................... (1,000) --
------- -------
Net cash provided by (used in) investing activities................................. 1,156 (9,541)
FINANCING ACTIVITIES
Proceeds from issuance of common stock, net of repurchases.......................... 1,360 372
Principal payments on equipment and facility loans.................................. (2,442) (1,956)
Proceeds from equipment and facility loans.......................................... -- 2,026
------- -------
Net cash provided by (used in) financing activities................................. (1,082) 442
------- -------
Net increase (decrease) in cash and cash equivalents................................ (3,714) (415)
Cash and cash equivalents at beginning of period.................................... 28,943 14,043
------- -------
Cash and cash equivalents at end of period.......................................... 25,229 13,628
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid....................................................................... 724 811
======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Common shares issued and contribution of capital in consideration of
technology acquisition........................................................... 815 --
======= =======
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See accompanying notes to condensed financial statements
4
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SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION
Symyx Technologies, Inc. (the "Company") was incorporated on September 20,
1994 in the state of California to research, develop, manufacture and market
products through the application of combinatorial technologies in the area of
materials science. In February 1999, the Company completed a re-incorporation in
the State of Delaware. To date, the Company's operations have involved research
and development activities, a significant portion of which has been funded by
collaborative partners and in the nine months ended September 30, 2000 the
Company generated its first product and license revenue.
On November 18, 1999, the Company completed an initial public offering of
its shares pursuant to which it issued 6,368,700 common shares for net proceeds
of approximately $81,420,000. Immediately prior to the closing of the initial
public offering, each outstanding share of preferred stock was converted to
common stock on a seven-for-nine share basis.
The accompanying unaudited condensed financial information has been
prepared by management, in accordance with generally accepted accounting
principles for interim financial information and pursuant to instructions to
Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the Securities and Exchange Commission's rules and regulations. In
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position at September 30,
2000 and results of operations and cash flows for all periods presented have
been made. The condensed balance sheet at December 31, 1999 has been derived
from the audited financial statements at that date.
These condensed financial statements should be read in conjunction with the
Company's audited financial statements as included in the Company's 1999 Annual
Report on Form 10-K as filed with the Securities and Exchange Commission. The
results of operations for the three and nine months ended September 30, 2000 are
not necessarily indicative of the results to be expected for any subsequent
quarter or for the entire fiscal year ending December 31, 2000.
Comprehensive Income (Loss)
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income". The only component of other comprehensive
loss is unrealized gains and losses on available-for-sale securities.
Comprehensive loss amounted to approximately $834,000 and $195,000 for the three
and nine months ended September 30, 2000 respectively, compared to a
comprehensive loss of approximately $1.7 million and $683,000 for the three and
nine months ended September 30, 1999.
Inventories
Work in process is the only component of inventories for all periods
presented and comprises instruments in the process of being built for customers.
Revenue Recognition
The Company recognizes revenues from research collaboration agreements and
government grants as earned based upon the performance requirements of the
agreements. Payments received prior to performance are deferred and recognized
as revenue when earned over future performance periods. Collaboration agreements
generally specify minimum levels of research effort required to be performed by
the Company. Payments received under research collaboration agreements are not
refundable if the research effort is not successful. Direct costs associated
with these contracts and grants are reported as research and development
expense.
Non-refundable up-front payments received in connection with research and
development collaboration agreements, including technology access fees, are
deferred and recognized on a straight-line basis over the relevant periods
specified in the agreement, generally the research term.
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SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
Revenue Recognition (continued)
Product and license revenues include sales of Discovery Tools hardware,
software and maintenance together with amounts earned for licenses to third
parties licensed under the Company's intellectual property. Product revenues
from the sale of Discovery Tools are recognized when earned, which is generally
upon shipment, transfer of title to and acceptance by the customer. Reserves are
provided for warranty expenses at the time the associated revenue is recognized.
Payments received in advance under these arrangements are recorded as deferred
revenue until earned.
Amounts earned from third parties licensed under the Company's intellectual
property are recognized when earned under the terms of the related agreements.
2. ACQUISITION OF TECHNOLOGY
In February 2000, the Company exercised an option to license certain patent
rights and know-how relating to synthesis and screening of diverse materials in
connection with combinatorial materials science research. Symyx paid an amount
of $750,000 and issued 16,262 shares of common stock to acquire these rights.
The License Agreement also provides for Symyx to pay up to an additional
$1,500,000 subject to the achievement of certain milestones. The first of these
milestones was met during the quarter ended June 30, 2000 and consequently a
further $250,000 was paid in July 2000. The exercise of this option and the
subsequent milestone payment has been accounted for as an acquisition of
technology and the associated costs are being amortized over the expected
remaining useful life of the technology.
3. EARNINGS PER SHARE
Basic earnings per share is computed using net income and the weighted
average number of common shares outstanding during each period less shares
subject to repurchase. Diluted earnings per share is computed using net income
and the weighted average number of common and dilutive common equivalent shares
outstanding during each period. The computation of the weighted average number
of shares outstanding for the three and nine month periods ended September 30,
2000 and 1999 are as follows (in thousands):
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
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2000 1999 2000 1999
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Weighted average outstanding shares........................... 29,947 7,203 29,816 6,840
Shares subject to a right of repurchase....................... (835) (1,329) (1,095) (1,294)
------- ------- ------ ------
Shares used in calculation of basic net loss per share........ 29,112 5,874 28,721 5,546
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SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
4. DEFERRED COMPENSATION
The amortization of deferred stock compensation, combined with the expense
associated with stock options granted to non-employees, has been included in the
following items in the accompanying statements of operations (in thousands):
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
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2000 1999 2000 1999
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Research and Development.................. 140 886 566 1,854
Sales, General and Administrative......... 14 247 191 968
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Total........................... $ 154 $ 1,133 $ 757 $ 2,822
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this Form 10-Q contain forward-looking statements
that involve risks and uncertainties. These statements typically may be
identified by the use of forward-looking words or phrases such as "believe,"
"expect," "intend," "anticipate," "should," "planned," "estimated," and
"potential," among others. All forward-looking statements included in this
document are based on our current expectations, and we assume no obligation to
update any such forward-looking statements. The Private Securities Litigation
Reform Act of 1995 provides a "safe harbor" for such forward-looking statements.
In order to comply with the terms of the safe harbor, we note that a variety of
factors could cause actual results and experience to differ materially from the
anticipated results or other expectations expressed in such forward-looking
statements. The risks and uncertainties that may affect the operations,
performance, development, and results of our businesses include but are not
limited to (1) market acceptance of our products and services; (2) uncertainties
relating to the pace, quality or number of discoveries of new materials; (3) the
dependence on collaborators to successfully commercialize products; (4)
uncertainties of patent protection and litigation; (5) future growth strategy;
(6) earthquakes; and (7) other factors that might be described from time to time
in our periodic filings with the Securities and Exchange Commission and include
those set forth in this filing as "Factors Affecting Future Results" and "Other
Risk Factors".
All percentage amounts and ratios were calculated using the underlying data in
thousands. Operating results for the three and nine month periods ended
September 30, 2000, are not necessarily indicative of the results that may be
expected for the full fiscal year.
OVERVIEW
Symyx was founded in September 1994 and began significant operations in
April 1996. To date, our revenues and cash flows from operations have come from
research collaborations with large chemical and electronics companies, license
of proprietary materials, sale and license of instruments and software, and
government grants. We currently have over 15 partners and customers including
Applied Biosystems, BASF AG, Bayer AG, Celanese Ltd., The Dow Chemical Company,
Exxon and Unilever UK Central Resources Ltd. We expect that our cash flows and
revenue for the remainder of 2000 and 2001 will be comprised in large part of
payments to be made and revenue to be earned under these and new agreements
together with product and license revenue particularly from our Discovery Tools
business.
We have invested heavily in establishing the technology, instrumentation
and informatics necessary to pursue high throughput discovery for proprietary
materials. These materials include:
- polymers, phosphors and catalysts for life science applications;
- catalysts to manufacture commodity chemicals and polyolefins; and
- new materials for electronic applications.
We expect to continue to make significant investments in research and
development, including the development of new instruments and software, to
enhance our technologies. In addition, an important part of our strategy is to
expand our operations and employee base, and to build our resources for research
and development, business development and marketing.
We have incurred significant losses since our inception. As of September
30, 2000, our accumulated deficit was approximately $19.4 million. We may incur
additional operating losses over at least the next year as we continue to expand
staffing, equipment and facilities. See "Factors Affecting Future Results."
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SOURCE OF REVENUES AND REVENUE RECOGNITION POLICY
We recognize revenues from research collaboration agreements and government
grants as earned upon achievement of the performance requirements of the
agreements and grants. Payments received that are related to future performance
are deferred and recognized as revenue as the performance requirements are
achieved. As of September 30, 2000, we have deferred revenues of approximately
$5.8 million. The terms of our collaboration agreements generally require us to
perform minimum levels of research. Our sources of potential revenue for the
next several years are likely to be:
- payments under existing and possible future collaborative
arrangements;
- government research grants;
- royalties from our partners based on revenues received from any
products commercialized under those agreements;
- sales of Discovery Tools and other instruments; and
- licensing of software and intellectual property.
We recognize revenues from the sale of products and from licenses when earned
under the terms of the related agreements.
DEFERRED COMPENSATION
Deferred compensation for options granted to employees has been determined
as the difference between the deemed fair market value of our common stock on
the date options were granted and the exercise price. Deferred compensation for
options granted to consultants has been determined in accordance with Statement
of Financial Accounting Standards No. 123 as the fair value of the equity
instruments issued. Deferred compensation for options granted to consultants is
periodically remeasured as the underlying options vest.
In connection with the grant of stock options to employees and consultants,
we recorded deferred stock compensation of approximately $5.4 million in the
year ended December 31, 1999 and $760,000 in the year ended December 31, 1998.
These amounts were initially recorded as a component of stockholders' equity and
are being amortized by charges to operations over the vesting period of the
options. We recorded amortization of deferred compensation of approximately $1.1
million and $2.8 million during the nine month periods ended September 30, 2000
and 1999, respectively.
RESULTS OF OPERATIONS
Revenues
Our total revenues increased to $8.8 million for the three months ended
September 30, 2000, up 22% from $7.2 million in the same period in 1999. In the
first nine months of 2000, total revenues increased to 40% to $31.9 million from
$22.9 million in the same period in 1999. Service revenue from Industry
Collaborations for the three months ended September 30, 2000 increased 14% to
$8.2 million, up from $7.2 million for the three months ended September 30,
1999. Service revenue from Industry Collaborations for the nine months ended
September 30, 2000 also increased 13% to $25.8 million, up from $22.9 million
for the nine months ended September 30, 1999. The increases in service revenues
were due to increased funding under current collaborations and the addition of a
number of new agreements. Applied Biosystems, Bayer, Celanese and The Dow
Chemical Company accounted for 13%, 21%, 11% and 23% of total revenue for the
nine months ended September 30, 2000, and 0%, 32%, 12% and 18% of revenue for
the same period in 1999.
Revenue from research collaborations was less than research and development
expense for the three and nine month periods ended September 30, 2000 due
primarily to the research costs associated with internal projects which are an
investment in our proprietary materials business and the development costs
associated with our recently initiated Discovery Tools business. The excess of
revenue over research and development costs during the nine months ended
September 30, 1999 was primarily due to expenses being driven by our research
collaborations. During the nine months ended September 30, 1999, we did not
incur significant costs in our Discovery Tools and proprietary materials
businesses.
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Cost of Products Sold
Cost of products sold was $29,000 and $1.8 million for the three and nine
month periods ended September 30, 2000, respectively. There was no cost of
products sold in the three and nine months ended September 30, 1999.
The increase in cost of products sold was due directly to the introduction
of the Discovery Tools Business, which first resulted in product revenue in the
year 2000. The Company has limited sales of Discovery Tools systems and
consumables to date, and the cost of products sold is expected to fluctuate from
period to period and will be driven by the variability of product mix and sales
volumes in each period.
Research and Development Expenses
Our research and development expenses consist primarily of:
- salaries and other personnel-related expenses;
- facility costs;
- supplies; and
- depreciation of facilities and laboratory equipment.
Research and development expenses increased 18% to $8.7 million in the
three months ended September 30, 2000 compared to $7.3 million for the same
period in 1999 and 40% to $26.1 million in the nine months ended September 30,
2000 compared to $18.6 million for the same period in 1999. The increase was due
primarily to increases in salaries and other personnel related costs, facilities
costs, collaborative research and consultant costs and chemical and scientific
supplies costs to support our additional collaborative and internal research
efforts. These increases were partially offset by a decrease in the deferred
compensation charge.
Research and development expenses represented 98% and 82% of total revenues
in the three and nine months ended September 30, 2000 and 102% and 82% of total
revenues for the same periods in 1999, respectively. The decreases as a
percentage of total revenues were due primarily to revenue increases associated
with the addition of significant contracts and the addition of product and
license revenues in 2000. Our core businesses are research to discover new
materials and the sale of instruments and software. Accordingly, we expect to
continue to devote substantial resources to research and development, and we
expect that research and development expenses will continue to increase in
absolute dollars.
Sales, General and Administrative Expenses
Our sales, general and administrative expenses consist primarily of
personnel costs for finance, human resources, business development, legal and
general management, as well as professional expenses, such as legal and
accounting. Sales, general and administrative expenses increased 41% to $2.7
million in the three months ended September 30, 2000, from $1.9 million for the
same period in 1999 and 60% to $9.0 million in the nine months ended September
30, 2000 from $5.6 million for the same period in 1999. Expenses increased
primarily due to the addition of a number of business development personnel,
increased salaries, consultant and other personnel related costs due to
additional staffing necessary to manage and support our growth. Expenses also
increased due to an increase in travel costs related mainly to business
development and sales efforts, an increase in public relations costs associated
with being a public company, an increase in insurance and license costs and
expenses related to a proposed stock offering which was withdrawn during the
three months ended March 31, 2000. These increases were partially offset by a
decrease in the deferred compensation charge.
Sales, general and administrative expenses represented 31% and 28% of total
revenues for the three and nine month periods ended September 30, 2000 and 27%
and 25% of total revenues for the same periods in 1999. We expect that our
general and administrative expenses will increase in absolute dollar amounts as
we:
- expand our business development and administrative staff;
- add facilities; and
- incur additional costs related to being a public company, including
directors' and officers' insurance, investor relations programs and
increased professional fees.
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Net Interest Income (Expense)
Net interest income (expense) represents interest income earned on our cash
and cash equivalents net of interest expense on equipment financing loans.
Interest income increased to approximately $1.8 million and $5.4 million for the
three and nine month periods ended September 30, 2000, respectively from
$538,000 and $1.5 million for the same periods in 1999. This increase was due to
higher average cash balances. Interest expense decreased to $218,000 and
$724,000 for the three and nine month periods ended September 30, 2000,
respectively, from $220,000 and $769,000 for the same periods in 1999. This
decrease was due to a reduction in the outstanding balances of equipment
financing loans used to partially fund our acquisition of equipment.
Provision for Income Taxes
Due to operating losses and the inability to recognize the benefits
therefrom, there is no provision for income taxes for the three and nine month
periods ended September 30, 2000 and 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations to date, primarily through net proceeds
from our initial public offering of $81.4 million and, prior to the initial
public offering, private placements of preferred stock, totaling $52.2 million,
research and development funding from collaborative partners and, to a lesser
extent, equipment financing loans. As of September 30, 2000, we had $107.0
million in cash, cash equivalents and investments and $3.7 million available
under an equipment financing line of credit.
Our operating activities used cash of $3.8 million during the nine months
ended September 30, 2000 and provided cash of $8.7 million for the nine months
ended September 30, 1999. The source of cash was primarily the receipt of
research and development funding from collaborative partners and revenue from
product sales, offset by operating expenses and an increase in inventories of
components used in Discovery Tools systems which are in the process of being
built for customers.
Net cash provided by investing activities was $1.2 million for the nine
months ended September 30, 2000. Investing activities used cash totaling $9.5
million for the same period in 1999. The fluctuations from period to period are
due primarily to the timing of purchases, sales and maturity of investment
securities and the purchase of property and equipment. Purchases of property and
equipment were $6.4 million for the nine months ended September 30, 2000 and
$4.1 million for the same period in 1999. We expect to continue to make
significant investments in the purchase of property and equipment to support our
expanding operations.
Financing activities used cash totaling $1.1 million during the nine months
ended September 30, 2000 and provided cash of $442,000 for the same periods in
1999. These amounts are primarily repayment of equipment and leasehold
improvement loan financings partially offset by the proceeds from the exercise
of stock options and proceeds from equipment and facility loans in 1999.
Current assets decreased at September 30, 2000 as compared to December 31,
1999. The decrease was due primarily to a change in the classification of
marketable securities between short and long term investments. At December 31,
1999 more of our portfolio was held as a short term investment, whereas at
September 30, 2000 we have invested in a greater number of longer term
securities to take advantage of the higher interest rates. This change in the
classification of marketable securities has been partially offset by an increase
in interest receivable from these investments and an increase in inventories
related to Discovery Tools systems currently being constructed. Deferred revenue
decreased at September 30, 2000 as compared to December 31, 1999. This decrease
was due to the timing of the receipt of advance payments, including technology
access fees, under collaborative research programs.
As of September 30, 2000, our principal commitments were $27.0 million.
Principal commitments consisted of our obligations under operating leases. These
obligations are due over the next ten years.
We believe that our current cash balances and the cash flows generated by
operations will be sufficient to satisfy our anticipated cash needs for working
capital and capital expenditures for at least the next two years. However, we
may seek additional financing within this time frame. We may raise additional
funds through public or private financing, collaborative relationships or other
arrangements. We cannot assure you that additional funding, if sought, will be
available on terms favorable to us. Further, any additional equity financing may
be dilutive to stockholders, and debt financing, if available, may involve
restrictive covenants. Collaborative arrangements may require us to relinquish
our rights to some of our technologies or products. Our failure to raise capital
when needed may harm our business and operating results.
11
<PAGE> 13
A portion of our cash may be used to acquire or invest in complementary
businesses or products or to obtain the right to use complementary technologies.
From time to time, in the ordinary course of business, we may evaluate potential
acquisitions of such businesses, products or technologies.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
("SAB 101") which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. SAB 101 requires companies to
report any changes in revenue recognition as a cumulative change in accounting
principle at the time of implementation in accordance with APB Opinion No. 20,
"Accounting Changes." In June 2000, the SEC issued Staff Accounting Bulletin No.
101B which defers the effective date of SAB 101 until no later than the fourth
quarter of 2000. Management believes that the Company's revenue recognition
policy is in compliance with the provisions of SAB 101 and that the adoption of
SAB 101 will have no material effect on the financial position or results of
operations of the Company.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which will be effective for the year
ending 2001. This Statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments imbedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The Statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. In July 1999, the FASB issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133." ("SFAS 137"). SFAS No. 137 deferred the effective date of
SFAS No. 133 until fiscal years beginning after June 15, 2000. We will adopt
SFAS No. 133 during our year ending December 31, 2001. To date, we have not
engaged in derivative or hedging activities. We are unable to predict the impact
of adopting SFAS No. 133 if we were to engage in derivative and hedging activity
in the future.
FACTORS AFFECTING FUTURE RESULTS
WE ARE DEPLOYING NEW TECHNOLOGY IN A NEW BUSINESS AND, AS A RESULT, WE MAY NOT
BE ABLE TO ACHIEVE PROFITABILITY
Our combinatorial materials discovery technologies and processes are new.
To date, our partners have not successfully commercialized as products any
materials that we have discovered using these technologies and processes.
Discovery and development of new materials is a highly uncertain process.
Accordingly, because of these uncertainties, our discovery process may not
result in the identification of development candidates we or our partners will
commercialize. If we are not able to use our technologies to discover new
materials with significant commercial potential, we will be unable to achieve
our objectives or build a sustainable or profitable business.
WE ARE DEPENDENT ON THE RESEARCH AND DEVELOPMENT ACTIVITIES OF COMPANIES IN THE
LIFE SCIENCE AND CHEMICAL INDUSTRIES, AND DECLINES OR REDUCTIONS IN RESEARCH AND
DEVELOPMENT ACTIVITIES IN THESE INDUSTRIES COULD HARM OUR BUSINESS
The market for our discovery services and instrumentation within the life
science and chemical industries depends on our customers' ability and
willingness to invest in research and development. Substantially all of our
revenues are attributable to our research collaborations. Our future revenues
are dependent on funding of our research collaborations, licensing or
proprietary materials and sales of Discovery Tools and other instrumentation.
In particular, many companies in the chemical industry have, in the past
several years, experienced declining profitability. In addition, many chemical
products have become commodity products which compete primarily on the basis of
price. As a result, some chemical companies have reduced their research and
development activities. If commoditization of chemical products and other
pressures affecting the industry continue in the future, more companies could
adopt strategies that involve significant reductions in their research and
development programs. Although we believe that our approach can help life
science, chemical and electronic companies increase the efficiency of their
research and development activities, our efforts to convince them of this value
may be unsuccessful. To the extent that life science, chemical and electronic
companies reduce their research and development activities, they would be less
likely to do business with us. Decisions by these companies to reduce their
research and development activities could therefore reduce our revenues and harm
our business and operating results.
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<PAGE> 14
WE ARE DEPENDENT UPON ACCEPTANCE OF OUR TECHNOLOGY AND APPROACH BY CUSTOMERS,
AND IF WE CANNOT ACHIEVE MARKET ACCEPTANCE FROM POTENTIAL CUSTOMERS, WE WILL BE
UNABLE TO BUILD A SUSTAINABLE OR PROFITABLE BUSINESS
Our ability to succeed is also dependent upon the acceptance by potential
customers of our high throughput screening technology as an effective tool in
the discovery of new materials. Historically, life science and chemical
companies have conducted materials research and discovery activities internally
using traditional manual discovery methods. In order for us to achieve our
business objectives, we must convince these companies that our technology and
capabilities justify outsourcing part of their basic research and discovery
programs. If we cannot convince companies in the chemical industry of the
effectiveness of our automated discovery methods, we may be unable to keep our
existing customers or attract additional customers on acceptable terms or
develop a sustainable, profitable business.
WE CANNOT PREDICT THE PACE, QUALITY OR NUMBER OF DISCOVERIES WE MAY GENERATE,
AND ANY INABILITY OF OURS TO GENERATE A SIGNIFICANT NUMBER OF DISCOVERIES WOULD
REDUCE OUR REVENUES AND HARM OUR BUSINESS
Our future revenues and profitability are dependent upon our ability to
achieve discoveries. Because of the inherently uncertain nature of research
activities, we cannot predict with a high level of precision the pace with which
we may generate discoveries or the quality of any discoveries that we may
generate. Due to the uncertain nature of materials discovery, in which several
hundred thousand compounds must often be screened to identify a single
development candidate, we may not generate the number of discoveries that we
would expect to generate from a given number of experiments. In addition, our
development candidates may not result in products having the commercial
potential we or our collaborators anticipate. In either case, our future
revenues from our research collaborations and from commercialization of products
would likely decline. In addition, our existing and potential new customers may
become reluctant to renew or enter into new agreements with us. As a result, our
failure to generate discoveries and development candidates would reduce our
revenues and harm our business and operating results.
WE CONDUCT PROPRIETARY RESEARCH PROGRAMS, AND ANY CONFLICTS WITH OUR
COLLABORATORS OR ANY INABILITY TO COMMERCIALIZE DEVELOPMENT CANDIDATES RESULTING
FROM THIS RESEARCH WOULD HARM OUR BUSINESS
Our strategy involves conducting proprietary research programs. These
programs are focused on discovery of products for specialty markets that have
fewer barriers to entry for an emerging company. In general, our collaborative
research programs are focused on commodity chemical markets, which are larger
than fine chemical and specialty chemical markets that are the focus of our
proprietary programs. We believe that this differentiation of focus will enable
us to minimize conflicts with our collaborators relating to rights to
potentially overlapping leads developed through our proprietary programs and
through programs funded by a collaborator. However, conflicts between us and a
collaborator could potentially arise, particularly if we were to discover a
material in one of our proprietary programs that was a potential target of one
of our collaborative programs. In this event, we may become involved in a
dispute with our collaborator regarding the material. Disputes of this nature
could harm the relationship between us and our collaborator, and concerns
regarding our proprietary research programs could also affect our ability to
enter into new collaborative relationships. If circumstances surrounding our
proprietary research programs were to affect our existing collaborative
relationships or our ability to enter into new relationships, our revenues and
operating results would decline.
In addition, we will either commercialize development candidates resulting
from our proprietary programs directly or through licensing to other companies.
In order for us to commercialize these development candidates directly, we would
need to develop, or obtain through outsourcing arrangements, the capability to
manufacture, market and sell products. We do not have this capability, and we
may not be able to develop or otherwise obtain the requisite manufacturing,
marketing and sales capabilities. If we are unable to successfully commercialize
products resulting from our proprietary research efforts, our revenues and
operating results would decline.
WE ARE DEPENDENT ON OUR COLLABORATIONS WITH MAJOR COMPANIES, AND THE FAILURE OF
OUR COLLABORATIVE PARTNERS TO SUCCESSFULLY COMMERCIALIZE PRODUCTS WOULD REDUCE
OUR REVENUES AND HARM OUR BUSINESS
To date, substantially all of our revenues have come from collaborative
arrangements with chemical, electronics and life science companies. These
contracts generally expire after a fixed period of time. If they are not renewed
or if we do not enter into new collaborative arrangements, our business and
operating results may be harmed. For example, our contracts with the B.F.
Goodrich Company and Hoechst AG were terminated by mutual agreement as these
companies shifted their business away from chemicals.
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<PAGE> 15
For us to achieve and sustain a significant level of profitability, we must
achieve discoveries with significant commercial potential, and our collaborators
must successfully commercialize products based on our discoveries. We will not
receive royalties on sales of products by our collaborators until the
collaborator has commenced commercial sales of a product resulting from the
collaboration. We are dependent upon our collaborative partners to successfully
commercialize products resulting from our collaborations. The failure of our
partners to commercialize development candidates resulting from our research
efforts would reduce our revenues and would harm our business and operating
results.
WE HAVE A LIMITED NUMBER OF CONTRACTS FOR DISCOVERY TOOLS SYSTEMS TO DATE, AND
WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO BUILD A SUSTAINABLE BUSINESS
RELATED TO THE SALE OF ADDITIONAL SYSTEMS
To date, we have a limited number of contracts for our recently initiated
Discovery Tools systems. Because of the high cost and complexity of these
systems, the sales cycle for them has been and is likely to continue to be long.
Sales of these systems will require us to educate our potential customers about
the full benefits of these systems, which may require significant time. Due to
these factors, sales of Discovery Tools systems will be subject to a number of
significant risks over which we have little or no control, including:
- customers' budgetary constraints and internal acceptance review
procedures;
- complexity of our systems and difficulties we may encounter in meeting
individual customer specifications and commitments on a timely basis;
- the fact that there may be only a limited number of customers that are
willing to pay several million dollars for our systems;
- a long sales cycle that involves substantial human and capital
resources; and
- potential downturns in general or in industry specific economic
conditions.
Because we expect future revenue growth from the sale of Discovery Tools,
our revenues may decline or not grow as anticipated if we are unable to build
the infrastructure to support this business or if the cycle for Discovery Tools
systems lengthens unexpectedly.
WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS AND WILL BE DELAYED IN OUR
MANUFACTURE OR UNABLE TO MANUFACTURE OUR DISCOVERY TOOLS IF SHIPMENTS FROM THESE
SUPPLIERS ARE DELAYED OR INTERRUPTED.
Key parts of our Discovery Tools systems are currently available only from
a single source or a limited number of sources. In addition, components of our
capital equipment are available from one of only a few suppliers. In the event
that supplies from these vendors were delayed or interrupted for any reason, we
may not be able to get equipment or components for Discovery Tools systems or
our own research efforts in a timely fashion or in sufficient quantities or
under acceptable terms.
Even if alternative sources of supply are available, it could be time
consuming and expensive for us to qualify new vendors. In addition, we are
dependent on our vendors to provide components of appropriate quality and
reliability. Consequently, in the event that supplies from these vendors were
delayed or interrupted for any reason, we could be delayed in our ability to
develop and deliver products to our customers.
WE COMMERCIALIZE CERTAIN MANUAL LABORATORY INSTRUMENTS THROUGH A THIRD PARTY
ARRANGEMENT, AND IF THIS THIRD PARTY DOES NOT PERFORM EFFECTIVELY, OUR ABILITY
TO GENERATE REVENUE FROM THE SALE OF THESE PRODUCTS WILL BE HARMED
We commercialize certain manual laboratory instruments through our
relationship with Argonaut Technologies. The commercial success of these
instruments will depend in large part on their features and price as compared to
competing products and on their ability to achieve market acceptance. In
addition, our ability to realize significant commercial sales of these
instruments will also depend on the efforts of Argonaut in promoting, marketing
and selling these instruments. Argonaut's efforts in this regard will be outside
of our control. Accordingly, to the extent that Argonaut fails to effectively
promote, market and sell our manual instruments, our revenues from the sales of
these instruments, and therefore our operating results, would be harmed.
Our ability to commercialize future manual laboratory instruments is
dependant upon securing new partners with the appropriate expertise or extending
existing relationships. To the extent that we fail to secure new partners or
extend existing relationships, or these partners fail to effectively promote,
market and sell our manual instruments, our revenues from the sales of these
instruments, and therefore our operating results, would be harmed.
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<PAGE> 16
WE EXPECT THAT OUR QUARTERLY RESULTS OF OPERATIONS WILL FLUCTUATE, AND THIS
FLUCTUATION COULD CAUSE OUR STOCK PRICE TO DECLINE, CAUSING INVESTOR LOSSES
Our quarterly operating results have fluctuated in the past and are likely
to do so in the future. These fluctuations could cause our stock price to
fluctuate significantly or decline. Revenues in future fiscal periods may be
greater or less than revenues in the immediately preceding period or in the
comparable period of the prior year. Some of the factors which could cause our
operating results to fluctuate include:
- expiration of research contracts with major chemical companies, which may
not be renewed or replaced with contracts with other companies;
- the success rate of our discovery efforts associated with milestones and
royalties;
- the timing and willingness of partners to commercialize our discoveries
which would result in royalties;
- the size and timing of customer orders for, and shipments of, Discovery
Tools instrumentation;
- the size and timing of late stage licensing agreements we may enter into;
and
- general and industry specific economic conditions, which may affect our
customers' capital investment levels.
A large portion of our expenses, including expenses for facilities,
equipment and personnel, are relatively fixed in nature. Accordingly, in the
event revenues decline or do not grow as anticipated due to expiration of
research contracts, failure to obtain new contracts or other factors, we may not
be able to correspondingly reduce our operating expenses. In addition, we plan
to significantly increase operating expenses in 2000. Failure to achieve
anticipated levels of revenues could therefore significantly harm our operating
results for a particular fiscal period.
Due to the possibility of fluctuations in our revenues and expenses, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. Our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that case, our stock price would probably decline, and investors would
experience a decline in the value of their investment.
THE LOSS OF KEY PERSONNEL OR THE INABILITY TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS
We believe our future success will depend upon our ability to attract and
retain highly skilled personnel, including W. Henry Weinberg, our Senior Vice
President and Chief Technical Officer, and other key scientific and managerial
personnel. We do not have any key-person life insurance relating to our key
personnel. These employees are at-will and not subject to employment contracts.
We may not be successful in attracting and retaining key personnel in the
future.
As we seek to expand our operations, the hiring of qualified scientific and
technical personnel will be difficult due to the limited availability of
qualified professionals. The number of people with experience in the fields of
combinatorial materials science and combinatorial chemistry is limited, and we
face intense competition for these types of employees. We have in the past
experienced difficulty in recruiting qualified personnel. Failure to attract and
retain personnel, particularly scientific and technical personnel, would impair
our ability to grow our business and pursue new discovery initiatives and
collaborative arrangements.
COMPETITION COULD INCREASE, AND COMPETITIVE DEVELOPMENTS COULD RENDER OUR
TECHNOLOGIES OBSOLETE OR NONCOMPETITIVE, WHICH WOULD REDUCE OUR REVENUES AND
HARM OUR BUSINESS
The field of combinatorial materials science is increasingly competitive.
We are aware of companies that may apply their expertise in combinatorial
chemistry to materials research and development. We are also aware of some
companies that have internal combinatorial programs. In addition, there are
companies focusing on aspects of combinatorial chemistry for the discovery of
materials, including Avantium in The Netherlands and HTE in Heidelberg, Germany.
In addition, academic and research institutions may seek to develop technologies
that would be competitive with our systems for materials discovery. Because
combinatorial materials science is an emerging field, competition from
additional entrants may increase.
Many of our current and potential competitors have greater financial,
manufacturing, marketing and sales resources than we do. In addition, some of
our existing competitors may, individually or together with companies affiliated
with them, have greater human and scientific resources than we do. Our
competitors could develop technologies and methods for materials research and
discovery that render our technologies and systems obsolete or less competitive.
Any competitive developments of this nature would make our technologies and
methodologies less competitive. Accordingly, if competitors introduce new
materials discovery technologies that are faster or more cost-effective than our
technologies, customers may switch to these new technologies. We would then
experience a decline in our revenues and operating results.
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<PAGE> 17
ANY INABILITY OF OURS TO KEEP PACE WITH TECHNOLOGICAL ADVANCES AND EVOLVING
INDUSTRY STANDARDS WOULD HARM OUR BUSINESS
The market for our products is characterized by continuing technological
development, evolving industry standards and changing customer requirements. Due
to increasing competition in our field, it is likely that the pace of innovation
and technological change will increase. The introduction of products by our
direct competitors or others embodying new technologies, the emergence of new
industry standards or changes in customer requirements could render our existing
products obsolete, unmarketable or less competitive. Our success depends upon
our ability to enhance existing products and services and to respond to changing
customer requirements. Failure to develop and introduce new products and
services, or enhancements to existing products, in a timely manner in response
to changing market conditions or customer requirements will harm our future
revenues and our business and operating results.
OUR INABILITY TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS
The success of our business depends on our ability to protect our
intellectual property portfolio and obtain patents without infringing the
proprietary rights of others. If we do not effectively protect our intellectual
property, our business and operating results could be harmed.
Patents may not issue from our applications. Even if we are able to obtain
patents covering our technology, the patents may be challenged, circumvented,
invalidated or unenforceable. Competitors may develop similar technology or
design around any patents issued to us or our other intellectual property
rights. Our competitors would then be able to offer research services and
develop, manufacture and sell products which compete directly with our research
services and products. In that case, our revenues and operating results would
decline.
We also seek to protect our technology and processes in part by
confidentiality agreements with our collaborators, employees and consultants. We
also do not provide broad access to our proprietary technologies and processes
to collaborators. However, confidentiality agreements might be breached by
collaborators, former employees or others, and in that event, we might not have
adequate remedies for the breach. Further, our trade secrets might otherwise
become known or be independently discovered by competitors. Unauthorized
disclosure of our trade secrets could enable competitors to use some of our
proprietary technologies. This would harm our competitive position and could
cause our revenues and operating results to decline.
LITIGATION OR OTHER PROCEEDINGS OR THIRD PARTY CLAIMS OF INFRINGEMENT COULD
REQUIRE US TO SPEND TIME AND MONEY AND COULD SHUT DOWN SOME OF OUR OPERATIONS
We may receive communications from others in the future asserting that our
business or technologies infringe their intellectual property rights. If we
became involved in litigation or interference proceedings declared by the United
States Patent and Trademark Office, or oppositions or other intellectual
property proceedings outside of the United States, to defend our intellectual
property rights or as the result of alleged infringement of the rights of
others, we might have to spend significant amounts of money. The litigation or
proceedings could divert our management's time and efforts. An adverse ruling,
including an adverse decision as to the priority of our inventions, would
undercut or invalidate our intellectual property position. An adverse ruling
could also subject us to significant liability for damages or prevent us from
using or marketing systems, processes or products. Any of these events would
have a negative impact on our business and operating results. Even unsuccessful
claims could result in significant legal fees and other expenses, diversion of
management's time and disruptions in our business. Uncertainties resulting from
the initiation and continuation of any patent or related litigation could harm
our ability to compete, pending resolution of the disputed matter.
We believe we have taken adequate measures to assess the validity of our
intellectual property rights. We are not currently involved in any disputes with
third parties regarding intellectual property rights. However, we may become
involved in intellectual property disputes or receive communications from others
in the future asserting that our business or technologies infringe their
intellectual property rights. To settle these disputes, we may need to obtain
licenses to patents or other proprietary rights held by others. However, these
licenses might not be available on acceptable terms, or at all. In that event,
we could encounter delays in system, process or product introductions while we
attempt to design around the patents. Our redesigned systems, processes or
products may be inferior to our original designs or we may be unable to continue
system, process or product development in the particular field. In either case,
our competitive position, business, revenues and operating results would likely
suffer.
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<PAGE> 18
WE USE HAZARDOUS MATERIALS IN OUR BUSINESS, AND ANY CLAIMS RELATING TO IMPROPER
HANDLING, STORAGE OR DISPOSAL OF THESE MATERIALS COULD SUBJECT US TO SIGNIFICANT
LIABILITIES
Our business involves the use of a broad range of hazardous chemicals and
materials. Environmental laws impose stringent civil and criminal penalties for
improper handling, disposal and storage of these materials. In addition, in the
event of an improper or unauthorized release of, or exposure of individuals to,
hazardous materials, we could be subject to civil damages due to personal injury
or property damage caused by the release or exposure. A failure to comply with
environmental laws could result in fines and the revocation of environmental
permits, which could prevent us from conducting our business. Accordingly, any
violation of environmental laws or failure to properly handle, store or dispose
of hazardous materials could result in restrictions on our ability to operate
our business and could require us to incur potentially significant costs for
personal injuries, property damage and environmental cleanup and remediation.
OUR FACILITIES ARE LOCATED NEAR KNOWN EARTHQUAKE FAULT ZONES, AND THE OCCURRENCE
OF AN EARTHQUAKE OR OTHER CATASTROPHIC DISASTER COULD CAUSE DAMAGE TO OUR
FACILITIES AND EQUIPMENT AND HARM OUR BUSINESS
Our facilities are located in the Silicon Valley near known earthquake
fault zones and are vulnerable to damage from earthquakes. In October 1989, a
major earthquake that caused significant property damage and a number of
fatalities struck this area. We are also vulnerable to damage from other types
of disasters, including fire, floods, power loss, communications failures and
similar events. If any disaster were to occur, our ability to operate our
business at our facilities would be seriously, or potentially completely,
impaired. In addition, the unique nature of our research activities and of much
of our equipment could make it difficult for us to recover from a disaster. The
insurance we maintain may not be adequate to cover our losses resulting from
disasters or other business interruptions. Accordingly, an earthquake or other
disaster could harm our business and operating results.
OTHER RISK FACTORS
SOME OF OUR EXISTING STOCKHOLDERS CAN EXERT CONTROL OVER US, AND MAY NOT MAKE
DECISIONS THAT ARE IN THE BEST INTERESTS OF ALL STOCKHOLDERS
Our officers, directors and principal stockholders (greater than 5%
stockholders) together control a significant percentage of our outstanding
common stock. As a result, these stockholders, if they act together, will be
able to exert a significant degree of influence over our management and affairs
and over matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may have the effect of delaying or preventing a change in control
of Symyx and might affect the market price of our common stock, even when such a
change may be in the best interests of all stockholders.
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE
The market price of our common stock since our initial public offering has
increased dramatically and has been highly volatile. Volatility in the market
price for our common stock will be affected by a number of factors, including
the following:
- the announcement of new products or services by us or our competitors;
- quarterly variations in our or our competitors' results of operations;
- failure to achieve operating results projected by securities analysts;
- changes in earnings estimates or recommendations by securities
analysts;
- developments in our industry; and
- general market conditions and other factors, including factors
unrelated to our operating performance or the operating performance of
our competitors.
These factors and fluctuations, as well as general economic, political and
market conditions, may materially adversely affect the market price of our
common stock.
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<PAGE> 19
PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD
PREVENT A CHANGE IN OUR CONTROL, EVEN IF THIS WOULD BE BENEFICIAL TO
STOCKHOLDERS
Provisions of our amended and restated certificate of incorporation, bylaws
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. These provisions
include:
- a classified board of directors, in which our board is divided into
three classes with three year terms with only one class elected at
each annual meeting of stockholders, which means that a holder of a
majority of our common stock will need two annual meetings of
stockholders to gain control of the board;
- a provision which prohibits our stockholders from acting by written
consent without a meeting;
- a provision which permits only the board of directors, the president
or the chairman to call special meetings of stockholders; and
- a provision which requires advance notice of items of business to be
brought before stockholders meetings.
These provisions can be amended only with the vote of the holders of 66
2/3% of our outstanding capital stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the reported market risks since December
31, 1999.
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<PAGE> 20
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently a party to any material pending legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
Report of Use of Proceeds from Initial Public Offering date November 18,
1999
<TABLE>
<S> <C>
Aggregate offering price $ 89,161,800
Expenses incurred in connection with offering 7,741,326
------------
Net offering proceeds to issuer 81,420,474
Purchase of equipment 12,092,269
Temporary investment in marketable securities 34,935,528
Working capital 34,392,677
</TABLE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.01 Financial Data Schedule
(b) Reports on Forms 8-K.
The Company did not file any reports on Form 8-K during the period covered
by this report.
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<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SYMYX TECHNOLOGIES, INC.
(Registrant)
Date: November 8, 2000
/s/ Steven D. Goldby
Steven D. Goldby
Chairman of the Board,
Chief Executive Officer
(Principal Executive Officer)
Date: November 8, 2000
/s/ Jeryl L. Hilleman
Jeryl L. Hilleman
Senior Vice President,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
20
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
27.01 Financial Data Schedule
</TABLE>
