<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
----------------------
Date of Report (Date of earliest event reported): October 30, 2000
AFFYMETRIX, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-28218 77-0319159
------------------ ------------------------ --------------------
(State of (Commission File Number) (IRS Employer
incorporation) Identification No.)
3380 Central Expressway, Santa Clara, California 95051
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(408) 731-5000
-------------------------------
(Registrant's telephone number,
including area code)
N/A
-------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 30, 2000, Nautilus Acquisition Corp. (the "Acquisition
Subsidiary"), a California corporation and wholly-owned subsidiary of
Affymetrix, Inc. (the "Company"), merged with and into Neomorphic, Inc.
("Neomorphic"), a California corporation, pursuant to an Agreement and Plan
of Merger dated September 29, 2000 among the Company, the Acquisition
Subsidiary and Neomorphic (the "Merger Agreement"). As a result of the
merger, Neomorphic became a wholly-owned subsidiary of the Company. In the
merger, (i) each outstanding share of Neomorphic common stock was converted
into, and became exchangeable for the right to receive 0.1552 of a share of
common stock of the Company, subject to adjustment under certain
circumstances following the closing (the "Conversion Ratio"), and (ii) each
outstanding share of Neomorphic preferred stock was converted into and became
exchangeable for the right to receive shares of Company common stock at the
Conversion Ratio plus cash in the amount of $3.84. In connection with the
completion of the acquisition, the Company agreed to register the resale of
the Company common stock issued in the merger following the closing. At such
time the final Conversion Ratio may be increased or decreased depending on
the Company's stock performance prior to the effective date of the
registration statement. In lieu of any such increase in the aggregate number
of shares of Company common stock to be issued in the transaction, the
Company has the option of paying cash in an aggregate amount not to exceed
$20 million. In addition, each option exercisable for Neomorphic common stock
issued and outstanding prior to the consummation of the merger was converted
into an option exercisable for shares of the Company's common stock at the
Conversion Ratio, generally under the same terms and conditions as existed
for the original option. As a result of the merger, the Company issued or
agreed to issue, in the aggregate, approximately 1.4 million shares of
Company common stock in exchange for all of the outstanding shares of
Neomorphic common and preferred stock and the assumption of all of
Neomorphic's stock options.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
On November 13, 2000, Affymetrix, Inc. ("Affymetrix") filed a Form
8-K to report the acquisition of Neomorphic, Inc. ("Neomorphic"). Pursuant to
Item 7 of Form 8-K, Affymetrix indicated that it would file certain financial
information no later than January 16, 2001. This Amendment No. 1 is filed to
provide the required financial statements.
(a) Financial Statements of Business Acquired.
Financial statements of the business acquired as of and for the year
ended December 31, 1999 are included herein. Unaudited condensed financial
statements of the business acquired as of and for the nine months ended
September 30, 2000 are also included herein.
(b) Pro Forma Financial Information.
Pro forma financial information as of September 30, 2000, the year
ended December 31, 1999 and the nine months ended September 30, 2000 are
included herein.
(c) Exhibits.
2
<PAGE>
2.1 Agreement and Plan of Merger, dated as of September 29, 2000, by and
among the Company, the Acquisition Subsidiary and Neomorphic (filed as
Exhibit 2.1 to the Company's current report on Form 8-K filed on
November 13, 2000 and incorporated herein by reference)
23.1 Consent of Ernst & Young LLP, Independent Auditors
99.1 Press Release Dated October 31, 2000 (filed as Exhibit 99.1 to the
Company's current report on Form 8-K filed on November 13, 2000 and
incorporated herein by reference)
Item 7(a). Financial Statements of Business Acquired
3
<PAGE>
Neomorphic, Inc.
Index to Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................................................5
Balance Sheet............................................................................................6
Statement of Operations..................................................................................7
Statement of Stockholders' Equity (Deficit)..............................................................8
Statement of Cash Flows..................................................................................9
Notes to Financial Statements...........................................................................10
</TABLE>
4
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors
Neomorphic, Inc.
We have audited the accompanying balance sheet of Neomorphic, Inc. as of
December 31, 1999, and the related statement of operations, stockholders' equity
(deficit), and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Neomorphic, Inc. at December
31, 1999, and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
December 12, 2000
Palo Alto, California
5
<PAGE>
Neomorphic, Inc.
Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 506,693
Accounts receivable 589,221
Prepaid expenses and other current assets 20,041
Deferred tax asset 179,000
-----------------------
Total current assets 1,294,955
Property and equipment, net 141,026
-----------------------
$ 1,435,981
=======================
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable $ 2,520
Accrued compensation 281,949
Other accrued liabilities 142,478
Income taxes payable 204,000
Deferred revenue 1,475,445
Current portion of capital lease obligations 24,686
Note payable 49,002
-----------------------
Total current liabilities 2,180,080
Noncurrent portion of capital lease obligations 41,340
Commitments
Stockholders' equity (deficit):
Convertible preferred stock-no par value; 10,000,000 shares authorized,
none issued and outstanding -
Common stock-no par value; 20,000,000 shares authorized, 7,296,225 shares
issued and outstanding 253,858
Notes receivable from stockholders (97,298)
Accumulated deficit (941,999)
-----------------------
Total stockholders' equity (deficit) (785,439)
-----------------------
$ 1,435,981
=======================
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
Neomorphic, Inc.
Statement of Operations
Year Ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Revenues:
Software licenses and services $ 1,343,501
Grant revenue 216,671
-----------------------
1,560,172
-----------------------
Costs and expenses:
Research and development 1,352,564
Selling, general and administration 676,880
-----------------------
Total costs and expenses 2,029,444
-----------------------
Loss from operations (469,272)
Other income (expense):
Interest income 2,367
Interest expense (11,018)
-----------------------
Net loss before taxes (477,923)
Provision for income taxes (25,712)
-----------------------
Net loss (503,635)
=======================
Basic and diluted net loss per share $ (0.09)
=======================
Weighted-average shares used in computing basic and diluted net loss per share 5,725,401
=======================
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
Neomorphic, Inc.
Statement of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Notes Total
Common Stock Additional Receivable Stockholders'
----------------------- Paid-In From Accumulated Equity
Shares Amount Capital Stockholders Deficit (Deficit)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 7,015,000 $ - $ 60,683 $ (43,460) $ (438,364) $ (421,141)
Issuance of common stock at $0.04-$0.47
per share, net of repurchase 281,225 - 53,838 (53,838) - -
Compensation expense relating to options
granted to consultants - - 139,337 - - 139,337
Net loss and comprehensive loss - - - - (503,635) (503,635)
----------------------------------------------------------------------------------
Balances at December 31, 1999 7,296,225 $ - $253,858 $ (97,298) $ (941,999) $ (785,439)
==================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
Neomorphic, Inc.
Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Year Ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net loss $ (503,635)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 47,854
Issuance of equity instruments for noncash benefits 139,337
Changes in assets and liabilities:
Accounts receivable (570,257)
Prepaid expenses and other current assets 3,152
Deferred tax asset (179,000)
Accounts payable (67,497)
Accrued compensation 5,721
Other accrued liabilities 142,478
Income taxes payable 204,000
Deferred revenue 1,357,112
-----------------------
Net cash provided by operating activities 579,265
-----------------------
INVESTING ACTIVITIES
Capital expenditures (133,383)
-----------------------
Net cash used in investing activities (133,383)
-----------------------
FINANCING ACTIVITIES
Proceeds from new capital leases 54,805
Principal payments on capital lease obligations (19,655)
Repayment of note payable (58,503)
-----------------------
Net cash used in financing activities (23,353)
-----------------------
Net increase in cash and cash equivalents 422,529
Cash and cash equivalents at beginning of period 84,164
-----------------------
Cash and cash equivalents at end of period $ 506,693
=======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 11,018
=======================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Promissory note issued for services $ 107,505
=======================
Notes receivable from stockholders for exercise of stock options $ 53,838
=======================
</TABLE>
SEE ACCOMPANYING NOTES.
9
<PAGE>
Neomorphic, Inc.
Notes to Financial Statements
December 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Neomorphic, Inc. (the "Company") develops and licenses bioinformatics software
products and has proprietary software algorithms and computing infrastructure to
analyze, assemble, and annotate genomic and expressed gene sequence data.
On October 30, 2000, the Company was acquired by Affymetrix, Inc. (See Note 6).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
The Company invests its excess cash in deposits and money market accounts. The
Company considers all highly liquid investments with an original maturity of 90
days or less at the time of purchase to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
calculated using the straight-line method over the estimated useful lives of the
assets, as follows:
Computer equipment 3 years
Fixtures and furniture 3 years
10
<PAGE>
Neomorphic, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the Company reviews
long-lived assets, including property and equipment, for impairment whenever
events or changes in business circumstances indicate that the carrying amount
of the assets may not be fully recoverable. Under SFAS 121, an impairment
loss would be recognized when estimated undiscounted future cash flows
expected to result from the use of the asset and its eventual disposition are
less than its carrying amount. Impairment, if any, is assessed using
discounted cash flows. Through December 31, 1999, there have been no such
losses.
REVENUE RECOGNITION
Revenue is derived principally from software licensing, services, and grants.
Software license revenues consist of fees for perpetual licenses which are
primarily derived from contracts with corporate customers. Revenue from
software license fees is recognized when persuasive evidence of an agreement
exists; delivery of the product has occurred; no significant obligations for
the Company with respect to implementation remain; the fee is fixed; and
collectibility is probable. If significant customization is required, then
the total arrangement fee is accounted for under contract accounting and
revenue is recognized on a percentage of completion basis or upon completion,
as appropriate. If the arrangement requires the delivery of additional
software products, the license fee is accounted for under subscription
accounting and revenue is recognized ratably over the term of the arrangement
or the estimated economic life of the product, as appropriate.
Service revenues consist primarily of revenue from consulting fees, training,
and maintenance agreements. Consulting and training revenue is recognized as the
services are performed. Maintenance revenue is deferred and recognized on a
straight-line basis over the life of the related agreement, which is generally
one year.
Grant revenue is recorded in the period in which reimbursable costs are
incurred.
11
<PAGE>
Neomorphic, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as incurred.
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs
of Computer Software to Be Sold, Leased or Otherwise Marketed," requires the
capitalization of certain software development costs subsequent to the
establishment of technological feasibility, which, for the Company, is
established upon completion of a working model. Costs incurred by the Company
between completion of the working model and the point at which the product is
ready for general release have been insignificant. Therefore, all research
and development costs through December 31, 1999 have been expensed as
incurred.
SIGNIFICANT CONCENTRATIONS
In 1999, Celera Genomics Corporation accounted for 37% of the revenue and 23% of
the accounts receivable balance. The Company does not require collateral or
other security for accounts receivable.
ACCOUNTING FOR STOCK-BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"), the Company has elected to account
for its 1998 Incentive Stock Plan in accordance with the provisions of
Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations. Pro forma disclosures required by SFAS
123 are included in Note 5. Options granted to nonemployees are accounted for
using the Black-Scholes method prescribed by SFAS 123 and, in accordance with
"The Emerging Issues Task Force Consensus No. 96-18," the options are subject to
periodic re-evaluation over their vesting terms.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") requires components of other comprehensive income to be
included in comprehensive income. Comprehensive loss approximated net loss
for the year ended December 31, 1999.
12
<PAGE>
Neomorphic, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENT REPORTING
Statement of Financial Accounting Standards No. 131, "Disclosure about Segments
of an Enterprise and Related Information" ("SFAS 131") establishes annual and
interim reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
The Company has determined that it operates in only one segment.
NET LOSS PER SHARE
Net loss per share has been computed according to the Statement of Financial
Accounting Standards Board No. 128, "Earnings Per Share," which requires
disclosure of basic and diluted earnings per share. Basic net loss per share
is calculated using the weighted-average number of common shares outstanding
during the period less shares subject to repurchase under restricted stock
agreements. Diluted net loss per share, which gives effect to the dilutive
impact of stock options and convertible securities, is the same as basic net
loss per share as the Company is in a net loss position.
A reconciliation of shares used in the calculation is as follows:
<TABLE>
<CAPTION>
<S> <C>
Weighted-average shares of
common stock outstanding 7,200,282
Less: weighted-average shares
subject to repurchase (1,474,881)
----------
Weighted-average shares used
in computing basic and diluted
net loss per share 5,725,401
==========
</TABLE>
13
<PAGE>
Neomorphic, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE (CONTINUED)
Options outstanding of 542,000 were excluded from the computation of diluted
net loss per share, as their effect would have been antidilutive.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" ("SFAS 133") which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. In June 1999, FASB issued Statement of
Financial Accounting Standards No. 137 which deferred the effective date of SFAS
133 to fiscal years beginning after June 15, 2000. The adoption of SFAS 133 is
not anticipated to have an impact on the Company's results of operations of
financial condition when adopted as the Company holds no derivative financial
instruments and does not currently engage in hedging activities.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB
101 summarizes the SEC's views in applying generally accepted accounting
principles to revenue recognition. SAB 101 is required to be adopted by the
Company in the fourth quarter of 2000 and is not anticipated to have a material
impact on the Company's results of operations or financial position when
adopted.
14
<PAGE>
Neomorphic, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transaction Involving
Stock Compensation - An Interpretation of APB Opinion No. 25." FIN 44 clarifies
the application of APB Opinion No. 25 and, among other issues, clarifies the
following: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of the previously fixed stock option or awards; accounting for an exchange
of stock compensation awards in a business combination; and the accounting and
separate-entity reporting of awards granted between companies in a consolidated
group. The adoption of this interpretation had no impact on the Company's
results of operations or financial condition.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
-----------------------
<S> <C>
Computer equipment $ 175,185
Fixtures and furniture 49,381
-----------------------
224,566
Less accumulated depreciation (83,540)
-----------------------
Net property and equipment $ 141,026
=======================
</TABLE>
Equipment leased under capital leases is included in computer equipment and
fixtures and furniture. At December 31, 1999, equipment under capital leases was
approximately $93,363 with accumulated amortization of approximately $27,206.
3. LEASES
The Company leases its office space under operating lease arrangements with an
unrelated party which expire in February 2002. The Company finances certain
office equipment under capital leases.
15
<PAGE>
Neomorphic, Inc.
Notes to Financial Statements (continued)
3. LEASES (CONTINUED)
Future minimum lease payments under all noncancelable leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------------------------------------------
<S> <C> <C>
Year ended December 31,
2000 $ 31,722 $ 71,340
2001 30,383 71,340
2002 19,685 8,918
2003 3,187 -
---------------------------------------------
Total minimum payment required 84,977 $ 151,598
=======================
Less amount representing interest (18,951)
-----------------------
Present value of future lease payments 66,026
Less current portion (24,686)
-----------------------
Noncurrent obligations under capital leases $ 41,340
=======================
</TABLE>
Rent expense under operating leases amounted to $32,509 in 1999.
4. NOTE PAYABLE
The note payable of $49,002 relates to legal services performed. The note is
payable in variable monthly installments ending in September 2000 and bears
interest at approximately 8% per annum.
5. STOCKHOLDERS' EQUITY
SHARES SUBJECT TO REPURCHASE
Through December 31, 1999, the Company has issued 1,115,000 shares of restricted
common stock to officers, employees, and consultants at fair value. Upon
termination of employment, unvested shares are subject to repurchase by the
Company at the original issuance price. Under terms of the stock purchase
agreements, repurchase rights generally lapse over a four-year period. There are
also shares subject to repurchase from the exercise of unvested stock options.
The repurchase rights lapse in accordance with the vesting period. As of
December 31, 1999, total shares subject to repurchase were 1,177,471.
1998 INCENTIVE STOCK PLAN
The Company's 1998 Incentive Stock Plan (the "Plan") provides for (i) the
grant of incentive stock options to employees, (ii) the grant of nonstatutory
stock options to employees and consultants, and (iii) the grant of stock
purchase rights. The option price shall be 100% of the fair value on the date
of grant (110% in certain circumstances). Options granted under the Plan
expire no later than ten years from the date of grant (five years in certain
circumstances). A total of 3,350,000 shares of common stock have been
authorized for issuance under the Plan.
16
<PAGE>
Neomorphic, Inc.
Notes to Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
1998 INCENTIVE STOCK PLAN (CONTINUED)
Under the terms of the Plan, the options and purchase rights granted
generally vest 25% at the end of the first year with the remaining balance
vesting in equal amounts over the next 36 months.
As of December 31, 1999, the Company has reserved 2,032,125 shares of common
stock for future issuance under the Plan.
A summary of activity under the Plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------
SHARES SHARES WEIGHTED-
AVAILABLE UNDER PRICE AVERAGE EXERCISE
FOR GRANT OPTION PER SHARE PRICE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 2,164,700 185,300 $0.04 $0.04
Options granted (689,575) 689,575 $0.04-$1.50 $0.35
Options exercised - (317,875) $0.04-$0.47 $0.17
Options canceled 15,000 (15,000) $0.47 $0.47
------------------------------------
Balance at December 31, 1999 1,490,125 542,000 $0.04-$1.50 $0.34
====================================
</TABLE>
All options and shares were granted with exercise prices equal to the fair value
of the Company's common stock as determined by the Company's board of directors.
All options outstanding are exercisable immediately, with unvested shares
subject to the Company's lapsing right of repurchase.
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER REMAINING CONTRACTUAL
EXERCISE PRICES OF OPTIONS LIFE
--------------------------------------------------------------
(IN YEARS)
<S> <C> <C>
$0.04 304,000 8.98
$0.47 178,000 9.65
$1.50 60,000 9.82
-----------------------
542,000 9.29
=======================
</TABLE>
17
<PAGE>
Neomorphic, Inc.
Notes to Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
1998 INCENTIVE STOCK PLAN (CONTINUED)
Pro forma information regarding net loss is required by SFAS 123, and has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement. The fair value of these options was
estimated at the date of grant using the minimum value method with the following
assumptions: risk-free interest rate of 6.5%, an expected option life of 5
years, and no dividends. The weighted-average fair value of the options granted
in 1999 was $0.18. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the vesting period of the
options. The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
-----------------------
<S> <C>
Net loss:
As reported $ (503,635)
Pro forma $ (517,539)
Basic and diluted net loss per share:
As reported $ (0.09)
Pro forma $ (0.09)
</TABLE>
6. INCOME TAXES
The provision for income taxes for the year ended December 31, 1999 consists
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
----------
<S> <C>
Federal:
Current $ 193,000
Deferred (179,000)
State:
Current 12,000
Deferred -
----------
Total $ 26,000
==========
</TABLE>
The income tax expense differed from the amounts computed by applying the us
statutory federal income tax rate (35%) to pretax loss as a result of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
----------
<S> <C>
Computed expected tax (benefit) $(167,300)
Current year net operating losses
and/or temporary differences
for which no tax benefit is
recognized (140,000)
Change in valuation allowance 342,500
State taxes 7,800
R&D credit (38,000)
Other 21,000
----------
Total income tax provision $ 26,000
==========
</TABLE>
Significant components of the company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
----------
<S> <C>
Deferred tax assets:
Credits $ 34,000
Deferred revenue 459,000
Compensation accrual -
Other accruals/reserves not
currently deductible 137,000
----------
Total deferred tax assets 630,000
Valuation allowance (451,000)
----------
Net deferred tax assets 179,000
Deferred tax liabilities:
Depreciation -
Other -
----------
Net deferred tax assets $ 179,000
==========
</TABLE>
The Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Taxes" (SFAS 109), provides for the
recognition of deferred tax assets if realization of such assets is more
likely than not. The Company recorded a deferred tax asset at December 31,
1999 based on availability of taxable income in the carryback periods for
federal purposes. Due to the uncertainty of future earnings and the lack of
carryback provisions per state purposes, management has determined that the
valuation allowance continues to be necessary.
18
<PAGE>
Neomorphic, Inc.
Notes to Financial Statements (continued)
7. SUBSEQUENT EVENTS
In April 2000, the Company completed a private placement of 458,886 shares of
Series A convertible preferred stock at $5.34 per share for net proceeds of
$2,424,992. Concurrent with this private placement, one stockholder converted
1,000,000 shares of common stock into 166,667 shares of Series A preferred
stock.
In October 2000, the Company was acquired by Affymetrix, Inc. Affymetrix
issued 1,285,655 shares of stock in exchange for all the outstanding common
and preferred shares of Neomorphic and 122,796 options to purchase Affymetrix
common stock in exchange for all the Neomorphic stock options outstanding. In
addition, the preferred stockholders of Neomorphic received cash of $2.4
million. Affymetrix has agreed to register the resale of the Affymetrix stock
issued in the transaction and at such time the aggregate number of shares of
Affymetrix common stock that the Neomorphic stockholders will receive may be
increased or decreased depending on Affymetrix' stock performance prior to
the effective date of the registration statement. If the average fair value
of Affymetrix common stock for a specified period prior to effectiveness of
the registration statement is less than $49.70 per share then Affymetrix will
issue additional shares of common stock. If the average fair value of
Affymetrix is greater than $92.30 per share then Neomorphic's stockholders
and option holders will return shares and options. In lieu of any such
increase in the aggregate number of shares of Affymetrix stock to be issued
in the transaction, Affymetrix has the option of paying cash in an aggregate
amount not to exceed $20 million. The transaction is being accounted for as a
purchase transaction.
19
<PAGE>
Neomorphic, Inc.
Index to Condensed Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Condensed Balance Sheets.................................................................................21
Condensed Statements of Operations.......................................................................22
Condensed Statements of Cash Flows.......................................................................23
Notes to Condensed Financial Statements..................................................................24
</TABLE>
20
<PAGE>
Neomorphic, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
---------------------------------------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 486,368 $ 506,693
Accounts receivable 402,016 589,221
Prepaid expenses and other current assets 158,404 20,041
Income tax receivable 218,466 -
Deferred tax asset - 179,000
---------------------------------------------
Total current assets 1,265,254 1,294,955
Property and equipment, net 184,028 141,026
---------------------------------------------
$ 1,449,282 $ 1,435,981
=============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,854 $ 2,520
Accrued compensation 60,000 281,949
Other accrued liabilities 338,048 142,478
Income taxes payable - 204,000
Deferred revenue 92,877 1,475,445
Current portion of capital lease obligations 24,004 24,686
Note payable - 49,002
---------------------------------------------
Total current liabilities 516,783 2,180,080
Noncurrent portion of capital lease obligations 59,583 41,340
Stockholders' equity (deficit):
Preferred stock - no par value; 10,000,000 shares authorized,
700,000 designated as Series A convertible; 625,553 Series A shares issued
and outstanding in 2000 (none in 1999); aggregate liquidation
preference of $3,339,827 2,424,992 -
Common stock - no par value; 20,000,000 shares authorized;
7,629,650 shares issued and outstanding in 2000 (7,296,225 in
1999) 4,441,923 253,858
Notes receivable from stockholders (1,737,062) (97,298)
Deferred stock compensation (2,333,463) -
Accumulated deficit (1,923,474) (941,999)
---------------------------------------------
Total stockholders' equity (deficit) 872,916 (785,439)
---------------------------------------------
$ 1,449,282 $ 1,435,981
=============================================
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date.
SEE ACCOMPANYING NOTES.
21
<PAGE>
Neomorphic, Inc.
Condensed Statements of Operations
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---------------------------------------------
(Unaudited)
<S> <C> <C>
Revenues:
Software licenses and services $ 1,920,713 $ 925,855
Grant revenue 302,410 108,335
---------------------------------------------
2,223,123 1,034,190
---------------------------------------------
Costs and expenses:
Research and development 2,498,354 793,300
Selling, general and administration 701,749 349,510
---------------------------------------------
Total costs and expenses 3,200,103 1,142,810
---------------------------------------------
Loss from operations (976,980) (108,620)
Other income (expense):
Interest income 5,713 654
Interest expense (10,208) (8,080)
---------------------------------------------
Net loss $ (981,475) $ (116,046)
=============================================
Basic and diluted net loss per share $ (0.35) $ (0.02)
=============================================
Weighted-average shares used in computing basic and diluted
net loss per share 2,772,539 5,764,685
=============================================
</TABLE>
SEE ACCOMPANYING NOTES.
22
<PAGE>
Neomorphic, Inc.
Condensed Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---------------------------------------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (981,475) $(116,046)
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Depreciation and amortization 60,196 25,301
Issuance of equity instruments for noncash benefits 160,796 104,503
Amortization of deferred stock compensation 54,042 -
Changes in assets and liabilities:
Accounts receivable 187,205 (553,690)
Prepaid expenses and other current assets (138,363) 1,823
Income tax receivable (218,466) -
Deferred tax asset 179,000 -
Accounts payable (666) (52,299)
Accrued compensation (221,949) 25,891
Other accrued liabilities 195,570 -
Income taxes payable (204,000) -
Deferred revenue (1,382,568) 773,781
---------------------------------------------
Net cash (used in) provided by operating activities (2,310,678) 209,264
---------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (103,198) (110,597)
---------------------------------------------
Net cash used in investing activities (103,198) (110,597)
---------------------------------------------
FINANCING ACTIVITIES
Proceeds from new capital leases 36,008 54,805
Principal payments on capital lease obligations (18,447) (13,508)
Repayment of long-term debt (49,002) (37,169)
Net proceeds from issuance of convertible preferred stock 2,424,992 -
---------------------------------------------
Net cash provided by financing activities 2,393,551 4,128
---------------------------------------------
Net (decrease) increase in cash and cash equivalents (20,325) 102,795
Cash and cash equivalents at beginning of period 506,693 84,164
---------------------------------------------
Cash and cash equivalents at end of period $ 486,368 $ 186,959
=============================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 10,208 $ 8,080
=============================================
Income taxes paid $ 256,000 $ -
=============================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Promissory note issued for services $ - $ 107,505
=============================================
Notes receivable from stockholders for exercise of stock options $ 1,639,765 $ 8,540
=============================================
Deferred stock compensation $ 2,387,505 $ -
=============================================
</TABLE>
SEE ACCOMPANYING NOTES.
23
<PAGE>
Neomorphic, Inc.
Notes to Condensed Financial Statements
September 30, 2000
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
financial statements include the accounts of Neomorphic, Inc. ("Neomorphic"
or the "Company"). In the opinion of Neomorphic management, all adjustments
(consisting of normal recurring entries) considered necessary for a fair
presentation have been included.
Results for any interim period are not necessarily indicative of results for any
future interim period or for the entire year. The accompanying financial
statements should be read in conjunction with the financial statements and notes
for the year ended December 31, 1999.
In October 2000, the Company was acquired by and became a wholly owned
subsidiary of Affymetrix, Inc. (Seet Note 3).
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") requires components of other comprehensive income to be
included in comprehensive income. At September 30, 2000 and 1999,
comprehensive loss approximated net loss.
NET LOSS PER SHARE
Net loss per share has been computed according to the Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share," which requires
disclosure of basic and diluted earnings per share. Basic net loss per share
is calculated using the weighted-average number of common shares outstanding
during the period less common shares subject to repurchase. Diluted net loss
per share, which gives effect to the dilutive impact of stock options and
convertible securities, is the same as basic net loss per share as the
Company is in a net loss position.
A reconciliation of shares used in the calculations is as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30,
2000 1999
-----------------------------
<S> <C> <C>
Weighted-average shares
of common stock outstanding 6,906,822 7,154,422
Less: weighted-average shares
subject to repurchase (4,134,283) (1,389,737)
Weighted-average shares
used in computing basic and ----------------------------
diluted net loss per share 2,772,539 5,764,685
============================
</TABLE>
24
<PAGE>
Neomorphic, Inc.
Notes to Condensed Financial Statements (continued)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
NET LOSS PER SHARE (CONTINUED)
Outstanding securities which could potentially dilute basic earnings per share
in the future but were excluded from the computation of diluted net loss per
share, as their effect would have been antidilutive, were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---------------------------------------------
<S> <C> <C>
Convertible preferred stock 625,553 -
Outstanding options 689,500 228,700
</TABLE>
2. PREFERRED STOCK
The Company completed a private placement of 458,886 shares of its Series A
convertible preferred stock on April 14, 2000 for net proceeds of $2,424,992.
The Series A preferred stock is convertible at the stockholder's option into
common stock on a one-for-one basis, subject to adjustment for antidilution.
Preferred stockholders are entitled to the number of votes they would have
upon conversion of their shares into common stock. Holders of Series A
convertible preferred stock are entitled to cumulative dividends at $0.32 per
share if and when declared by the board of directors. These dividends are to
be paid in advance of any distribution to common stockholders. No dividends
have been declared through September 30, 2000.
25
<PAGE>
Neomorphic, Inc.
Notes to Condensed Financial Statements (continued)
(Unaudited)
2. PREFERRED STOCK (CONTINUED)
In the event of a liquidation or winding up of the Company, holders of Series A
convertible preferred stock shall have a liquidation preference equal to the
greater of (i) $5.339 per share together with any declared but unpaid dividends
and (ii) such amount per share that would have been payable if each share had
been converted to common stock immediately prior to such liquidation or winding
up. The sale of the Company or substantially all of its assets is defined as
liquidation event.
Concurrent with the private placement, one stockholder converted 1,000,000
shares of common stock into 166,667 shares of Series A preferred stock.
3. DEFERRED STOCK COMPENSATION
The Company has recorded deferred stock compensation with respect to options
granted to employees of approximately $2.4 million for the nine months ended
September 30, 2000, representing the difference between the exercise price of
the options and the deemed fair value of the common stock. These amounts are
being amortized to operations over the vesting periods using the
straight-line method. The amortization expense for the nine months ended
September 30, 2000 amounted to $54,042.
4. SUBSEQUENT EVENT
In October 2000, the Company was acquired by Affymetrix, Inc. ("Affymetrix").
Affymetrix issued 1,285,655 shares of stock in exchange for all the
outstanding common and preferred shares of Neomorphic and 122,796 options to
purchase Affymetrix common stock in exchange for all the Neomorphic stock
options outstanding. In addition, the preferred stockholders of Neomorphic
received cash of $2.4 million. Affymetrix has agreed to register the resale
of the Affymetrix stock issued in the transaction and at such time the
aggregate number of shares of Affymetrix common stock that the Neomorphic
stockholders will receive may be increased or decreased depending on
Affymetrix' stock performance prior to the effective date of the registration
statement. If the average fair value of Affymetrix common stock for a
specified period prior to effectiveness of the registration statement is less
than $49.70 per share then Affymetrix will issue additional shares of common
stock. If the average fair value of Affymetrix is greater than $92.30 per
share then Neomorphic's stockholders and option holders will return shares
and options. In lieu of any such increase in the aggregate number of shares
of Affymetrix stock to be issued in the transaction, Affymetrix has the
option of paying cash in an aggregate amount not to exceed $20 million. The
transaction is being accounted for as a purchase transaction.
26
<PAGE>
Item 7(b). Pro Forma Financial Information
On October 30, 2000, Affymetrix, Inc. ("Affymetrix" or the "Company") acquired
all the equity interests of Neomorphic, Inc. ("Neomorphic"). Prior to the
acquisition, Neomorphic was a privately-held company. Neomorphic develops and
licenses bioinformatics software products and has proprietary software
algorithms and computing infrastructure to analyze, assemble and annotate
genomic and expressed gene sequence data.
Affymetrix issued 1,285,655 shares of stock in exchange for all the
outstanding common and preferred shares of Neomorphic and the 122,796 options
to purchase Affymetrix common stock in exchange for all the Neomorphic stock
options outstanding. In addition, the preferred stockholders of Neomorphic
received cash of $2.4 million. Affymetrix has agreed to register the resale
of the Affymetrix stock issued in the transaction and at such time the
aggregate number of shares of Affymetrix common stock that the Neomorphic
stockholders will receive may be increased or decreased depending on
Affymetrix' stock performance prior to the effective date of the registration
statement. If the average fair value of Affymetrix common stock for a
specified period prior to effectiveness of the registration statement is less
than $49.70 per share then Affymetrix will issue additional shares of common
stock. If the average fair value of Affymetrix is greater than $92.30 per
share then Neomorphic's stockholders and option holders will return shares
and options. In lieu of any such increase in the aggregate number of shares
of Affymetrix stock to be issued in the transaction, Affymetrix has the
option of paying cash in an aggregate amount not to exceed $20 million. The
transaction is being accounted for as a purchase transaction.
Affymetrix also incurred approximately $2.2 million of acquisition related
costs. The purchase price, including liabilities assumed of $1.0 million,
aggregated approximately $41.6 million, of which $1.8 million was allocated
to tangible assets, approximately $15.0 million to acquired in-process
research and development and $4.7 million to other identified intangibles and
goodwill. The fair value of unvested common stock subject to restricted stock
purchase agreements and the intrinsic value of the unvested options held by
employees amounted to approximately $32.4 million and was deducted from the
purchase price and allocated to deferred stock compensation. This amount will
be amortized to compensation expenses over the remaining vesting terms of the
shares and options. The fair value of options granted to nonemployees of
$0.1 million was also deducted from the purchase price. These options will be
periodically revalued as they vest. The allocation of the purchase price was
done on the basis of a preliminary independent appraisal and may be subject
to change.
The Affymetrix consolidated statement of operations for the period in which
the merger with Neomorphic occurs will include a significant charge for
acquired in-process research and development, currently estimated to be
approximately $15.0 million. This amount represents the value determined by
management, using a discounted cash flow methodology, to be attributable to
the in-process research and development of Neomorphic based on a valuation
analysis of such research and development. The charge relates to specific
on-going research and development. Management of Affymetrix believes that the
allocation of the purchase price to in- process research and development is
appropriate given the future potential of this research and development to
contribute to the operations of Affymetrix. Assuming this research continues
through all stages of development, Affymetrix expects to incur substantial
future research and development expenditures related to this technology. If
Affymetrix would have allocated less of the purchase price to in-process
research and development, the value would have been recorded as goodwill on
the balance sheet and amortized over the expected benefit period, resulting
in increased amortization expense during that period.
The following unaudited pro forma condensed combined financial information
reflects the business combination between Affymetrix and Neomorphic accounted
for using the purchase method of accounting. The pro forma condensed combined
balance sheet combines Affymetrix's historical balance sheet with
Neomorphic's historical balance sheet as of September 30, 2000 and reflects
the combination as if it had occurred as of September 30, 2000. The pro forma
condensed combined statements of operations combine Affymetrix's historical
consolidated statements of operations with Neomorphic's historical statements
of operations for the year ended December 31, 1999 and the nine months ended
September 30, 2000 and reflect the combination as if it had occurred at the
beginning of each period presented.
The unaudited pro forma condensed combined statements of operations are not
necessarily indicative of the operating results that would have been achieved
had the transaction been effected as of the beginning of such period and should
not be construed as representative of future operations.
27
<PAGE>
AFFYMETRIX, INC. AND NEOMORPHIC, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, 2000
------------------
PRO FORMA PRO FORMA
AFFYMETRIX NEOMORPHIC ADJUSTMENTS COMBINED
--------------------------------------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,770 $ 486 $ (2,400) (A) $ 1,856
Available-for-sale securities............................. 425,292 - - 425,292
Accounts receivable....................................... 47,697 402 - 48,099
Inventories............................................... 17,599 - - 17,599
Other current assets...................................... 2,893 159 - 3,052
Income tax receivable..................................... - 218 - 218
--------------------------------------------- ---------------
Total current assets...................................... 497,251 1,265 (2,400) 496,116
Net property and equipment...................................... 52,730 184 - 52,914
Acquired technology rights...................................... 10,224 - - 10,224
Goodwill and other intangible assets............................ - - 24,059 (B) 24,059
Notes receivable from employees................................. 1,319 - - 1,319
Other assets.................................................... 47,759 - - 47,759
--------------------------------------------- ---------------
$ 609,283 $ 1,449 $ 21,659 $ 632,391
============================================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 41,534 $ 399 $ 2,662 (C) $ 44,595
Deferred revenue.......................................... 19,627 93 - 19,720
Current portion of capital lease obligation............... 68 24 - 92
--------------------------------------------- ---------------
Total current liabilities................................. 61,229 516 2,662 64,407
Noncurrent portion of capital lease obligations................. - 59 - 59
Obligation to Beckman Coulter, Inc.............................. 5,000 - - 5,000
Convertible subordinated notes.................................. 375,000 - - 375,000
Common stock purchase rights.................................... 3,000 - - 3,000
Stockholders' equity:
Preferred stock........................................... - 2,425 (2,425) -
Common stock.............................................. 555 4,442 (4,429) (A) 568
Additional paid-in-capital................................ 270,485 - 69,015 (A) 339,500
Notes receivable from stockholders........................ - (1,737) 672 (A) (1,065)
Deferred stock compensation............................... - (2,333) (30,770) (A) (33,103)
Accumulated deficit....................................... (136,269) (1,923) (13,066) (A)(B) (151,258)
Other..................................................... 30,283 - - 30,283
--------------------------------------------- ---------------
Total stockholders' equity............................. 165,054 874 18,997 184,925
--------------------------------------------- ---------------
$ 609,283 $ 1,449 $ 21,659 $ 632,391
============================================= ===============
</TABLE>
SEE ACCOMPANYING NOTES
28
<PAGE>
AFFYMETRIX, INC. AND NEOMORPHIC, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Ended
------------------
September 30, 2000
------------------
PRO FORMA PRO FORMA
AFFYMETRIX NEOMORPHIC ADJUSTMENTS COMBINED
--------------------------------------------- ---------------
<S> <C> <C> <C> <C>
Revenue:
Product............................................. $ 122,227 $ - $ - $ 122,227
Research............................................ 4,729 - - 4,729
License fees and royalties.......................... 14,455 2,223 - 16,678
--------------------------------------------- ---------------
Total revenue.................................... 141,411 2,223 - 143,634
--------------------------------------------- ---------------
Costs and expenses:
Cost of product revenue............................. 49,117 - - 49,117
Research and development............................ 38,890 2,498 - 41,388
Selling, general and administrative................. 68,334 702 - 69,036
Merger related costs................................ 2,395 - - 2,395
Amortization of deferred stock compensation (Note(i)) - - 8,276 (D) 8,276
Amortization of goodwill and acquired intangibles... - - 4,075 (E) 4,075
--------------------------------------------- ---------------
Total costs and expenses.......................... 158,736 3,200 12,351 174,287
--------------------------------------------- ---------------
Loss from operations....................................... (17,325) (977) (12,351) (30,653)
Interest income (expense), net............................. 5,259 (4) - 5,255
--------------------------------------------- ---------------
Net loss................................................... $ (12,066) $ (981) $ (12,351) $ (25,398)
============================================= ===============
Basic and diluted net loss per common share................ $ (0.22) $ (0.35) $ (0.46)
============================== ===============
Weighted-average shares used in computing basic and diluted
net loss per common share........................... 54,928 2,773 (F) 55,772
============================== ===============
</TABLE>
Note (i):
All of the amortization charge for deferred stock compensation relates to
research and development costs.
SEE ACCOMPANYING NOTES
29
<PAGE>
AFFYMETRIX, INC. AND NEOMORPHIC, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended
----------
December 31, 1999
-----------------
PRO FORMA PRO FORMA
AFFYMETRIX NEOMORPHIC ADJUSTMENTS COMBINED
--------------------------------------------- ---------------
<S> <C> <C> <C> <C>
Revenue:
Product.................................................. $ 98,168 $ - $ - $ 98,168
Research................................................. 8,059 - - 8,059
License fees and royalties............................... 2,847 1,560 - 4,407
--------------------------------------------- ---------------
Total revenue......................................... 109,074 1,560 - 110,634
--------------------------------------------- ---------------
Costs and expenses:
Cost of product revenue.................................. 42,219 - - 42,219
Research and development................................. 43,524 1,353 - 44,877
Selling, general and administrative...................... 53,590 677 - 54,267
Amortization of deferred stock compensation (Note(i)).... - - 11,034 (D) 11,034
Amortization of goodwill and acquired intangibles........ - - 5,434 (E) 5,434
--------------------------------------------- ---------------
Total costs and expenses............................... 139,333 2,030 16,468 157,831
--------------------------------------------- ---------------
Loss from operations............................................ (30,259) (470) (16,468) (47,197)
Interest income (expense), net.................................. 4,755 (8) - 4,747
--------------------------------------------- ---------------
Net loss before taxes........................................... (25,504) (478) (16,468) (42,450)
Income taxes.................................................... - (26) - (26)
--------------------------------------------- ---------------
Net loss........................................................ (25,504) (504) (16,468) (42,476)
Preferred stock dividends....................................... (2,055) - - (2,055)
--------------------------------------------- ---------------
Net loss attributable to common stockholders.................... $ (27,559) $ (504) $ (16,468) $ (44,531)
============================================= ===============
Basic and diluted net loss per common share..................... $ (1.08) $ (0.09) $ (1.68)
============================== ===============
Weighted-average shares used in computing basic and diluted
net loss per common share................................ 25,583 5,725 (F) 26,505
============================== ===============
</TABLE>
Note (i):
All of the amortization charge for deferred stock compensation relates to
research and development costs.
SEE ACCOMPANYING NOTES
30
<PAGE>
AFFYMETRIX, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
Pro Forma Basis of Presentation
The pro forma condensed combined financial statements reflect the acquisition
by Affymetrix of all of the outstanding capital stock of Neomorphic accounted
for under the purchase method as if it occurred on September 30, 2000 for
balance sheet purposes and at the beginning of the periods presented in the
statements of operations.
(2) Merger Transaction Costs
Affymetrix incurred direct transaction costs of approximately $2.2 million
associated with the transaction, legal and other professional consulting
fees, which are included in the calculation of the purchase price. There can
be no assurance that Affymetrix will not incur additional charges in
subsequent quarters to reflect costs associated with the transaction,
including integration costs, or that management will be successful in their
efforts to integrate the operations of Neomorphic. These acquisition costs
are estimated and are subject to change.
(3) Pro Forma Adjustments
Note A
Neomorphic common and preferred stockholders received 1,285,655 shares of
Affymetrix common stock in exchange for all of their outstanding shares and
Neomorphic option holders received 122,796 options to purchase Affymetrix
common stock in exchange for their Neomorphic stock options. In addition, the
preferred stockholders of Neomorphic received cash of $2.4 million. The fair
value of the Affymetrix common stock issued in exchange for all of the
outstanding shares of Neomorphic common and preferred stock was calculated in
accordance with Emerging Issues Task Force Issue No. 97-15 and was based on a
stock price of $49.70 which represented the lowest fair value of Affymetrix
common stock at which no adjustment would occur to the number of shares and
options issued by Affymetrix. The Affymetrix options issued in connection
with the assumption of the Neomorphic options were valued using the
Black-Sholes option pricing model assuming a volatility of 0.7, expected life
of 3.5 years, risk-free interest rate of 6%, expected dividend yield of 0%
and stock price of $49.70.
In accordance with applicable accounting rules, the fair value of unvested
common stock subject to restricted stock agreements and the intrinsic value
of the unvested options held by employees was deducted from the purchase
price and allocated to deferred stock compensation. The deferred stock
compensation will be amortized to compensation expense over the remaining
vesting term, principally three years. The fair value of unvested options
held by nonemployees was also deducted from the purchase price. These options
will be periodically revalued as they vest in accordance with applicable
accounting guidance.
A summary of the calculation of the purchase price is as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Fair value of common stock issued $ 63,897
Fair value of options assumed 5,254
Less intrinsic value of unvested
options issued to employees at
date of consummation (5,174)
Less fair value of unvested
options issued to nonemployees (123)
--------
63,854
Less fair value of unvested common
stock at date of consummation (27,929)
--------
35,925
Cash paid 2,400
Liabilities assumed 1,026
Transaction costs 2,212
--------
$ 41,563
========
</TABLE>
The pro forma adjustment to stockholders' equity also reflects: the
elimination of Neomorphic's preferred stock of $2.4 million, common stock of
$4.4 million, deferred stock compensation of $2.3 million and accumulated
deficit of $1.9 million.
Note B
The pro forma adjustment consists of goodwill of approximately $19.4 million,
developed technology of $3.4 million and acquired workforce of $1.3 million.
The goodwill will be amortized over five years and the existing technology
and acquired workforce will be amortized over three years.
In addition, accumulated deficit reflects a charge of approximately $15.0
million for the value of acquired in-process research and development.
Note C
Affymetrix has assumed liabilities of approximately $0.4 million for
severance costs. In addition, Affymetrix has estimated that acquisition costs
will be approximately $2.2 million.
Note D
The pro forma adjustment consists of the amortization of deferred stock
compensation resulting from the assumption of unvested Neomorphic common
stock and options held by employees. The amount will be amortized over the
remaining vesting period of principally three years.
Note E
The pro forma adjustment consists of amortization of goodwill expected to be
over a five year period and amortization of purchased intangibles expected to
be over a three year period. Affymetrix is still evaluating the useful lives
of the acquired intangibles.
Note F
Basic and diluted net loss per share has been adjusted to reflect the
issuance of 1,285,655 shares of Affymetrix common stock in connection with
the acquisition as if the shares had been outstanding for the entire periods
presented, deducting the weighted-average number of shares subject to
repurchase of 442,000 for the nine months ended September 30, 2000 and
364,000 for the year ended December 31, 1999. The effect of the Neomorphic
options assumed by Affymetrix has not been included as their inclusion would
be anti-dilutive.
31
<PAGE>
SIGNATURE
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 hereunto duly authorized.
AFFYMETRIX, INC.
By: /s/ VERN NORVIEL
-------------------------------------
Name: Vern Norviel
Title: Senior Vice President, General
Counsel and Secretary
Date: January 12, 2001
32
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of September 29, 2000, by and
among the Company, the Acquisition Subsidiary and Neomorphic (filed
as Exhibit 2.1 to the Company's current report on Form 8-K filed on
November 13, 2000 and incorporated herein by reference)
23.1 Consent of Ernst & Young LLP, Independent Auditors
99.1 Press Release Dated October 31, 2000 (filed as Exhibit 99.1 to the
Company's current report on Form 8-K filed on November 13, 2000 and
incorporated herein by reference)
</TABLE>
33
