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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM __________ TO __________ .
COMMISSION FILE NUMBER ______
SYMYX TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0397908
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3100 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051 (408) 764-2000
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE) (REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of voting Common Stock held by non-affiliates of
the registrant (based on the closing price for the Common Stock on the Nasdaq
National Market on March 3, 2000) was approximately $1,286 million. As of March
3, 2000, 29,701,014 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
CERTAIN SECTIONS OF THE PROXY STATEMENT TO BE FILED IN CONNECTION WITH THE
2000 ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III
OF THIS FORM 10-K REPORT WHERE INDICATED.
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INDEX
TABLE OF CONTENTS
ITEM PAGE
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PART I
1. Business.................................................... 3
2. Properties.................................................. 17
3. Legal Proceedings........................................... 17
4. Submission of Matters to a Vote of Security Holders......... 18
PART II
5. Market for Registrant's Common Equity and Related Stock
Matters..................................................... 19
6. Selected Financial Data..................................... 20
7. Management's Discussion and Analysis of Financial Condition
and Results from Operations................................. 21
7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 26
8. Financial Statements and Supplementary Data................. 26
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 44
PART III
10. Directors and Executive Officers of the Registrant.......... 44
11. Executive Compensation...................................... 44
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 44
13. Certain Relationships and Related Transactions.............. 44
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 45
Signatures.................................................. 47
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PART I
ITEM 1. BUSINESS
All statements in this discussion that are not historical are
Forward-Looking Statements within the meaning of Section 21e of the Securities
Exchange Act, including statements regarding the Company's "Expectations",
"Beliefs", "Hopes", "Intentions", "Strategies", or the like. Such statements are
based on management's current expectations and are subject to a number of
factors and uncertainties that could cause actual results to differ materially
from those descried in the Forward-Looking Statements. The Company cautions
investors that there can be no assurance that actual results or business
conditions will not differ materially from those projected or suggested in such
Forward-Looking Statement as a result of various factors, including, but not
limited to, the risk factors discussed in this Annual Report on Form 10-K. Symyx
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any Forward-Looking Statements contained herein to
reflect any change in Symyx' expectations with regard thereto or any change in
events, conditions, or circumstances on which any such statements are based.
We are a pioneer of high-speed technologies for the discovery of new
materials. Our proprietary technologies, including instruments, software and
methods, represent complete processes designed to cost-effectively accelerate
and fundamentally change materials discovery. We are able to generate hundreds
to thousands of unique materials at a time and screen those materials rapidly
and automatically for desired properties. We believe our approach is up to 100
times faster than traditional research methods and reduces the cost per
experiment to as low as 1% of traditional research methods.
We are applying our technology to discover materials for industrial
customers in the life science, chemicals and electronic industries. Our
discovery efforts encompass a broad range of materials, from x-ray storage
phosphors for mammography to polymers to speed DNA separation, thermoelectric
materials for cooling computers and telecommunications equipment, and catalysts
for the manufacture of pharmaceuticals, commodity chemicals, plastics and
rubbers.
Our commercialization strategy is to apply our proprietary technologies to
discover materials under our Industry Collaboration and Symyx Proprietary
Materials businesses, and to commercialize select instruments and software
through our Discovery Tools(TM) Technology Access business.
To support these business areas, we also continue to build our product
development pipeline. In 1999, Company scientists screened over 1 million
different materials and through that process identified ten development
candidates. Six of these candidates are in Symyx Proprietary Materials programs,
in fine chemicals, specialty polymers and electronic materials, and four are in
Industry Collaboration programs, in catalysis and phosphors.
During 1999, we added four major new Industry Collaboration agreements,
including the addition of partnerships with BASF AG and the Dow Chemical
Company, and the second and third expansion of our collaboration with Bayer AG.
To date, our total committed research funding from collaborations and government
contracts is over $90 million of which we have recognized revenue of $49 million
through December 31, 1999.
One of our most advanced discovery efforts is the discovery of new x-ray
phosphors for mammography, achieved in our Agfa program. These materials have
been transferred to Agfa and it is their objective to have products based on
these materials on the market in 2001.
In January 2000, we signed a joint development and licensing agreement with
PE Biosystems to develop our proprietary polymer synthesis materials and methods
for use in the analysis of DNA. This collaboration was the first to result from
our internal efforts to discover, develop and commercialize proprietary
materials. Symyx and PE Biosystems will jointly design polymers as well as the
methods and instrumentation for screening those polymers. We will make and
screen the polymers for use in nucleic acid separations. PE Biosystems will
develop and commercialize successful polymer candidates. Under the terms of the
two-year agreement, we will receive payments for development funding and
royalties on any products commercial-
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ized as a result of this collaboration. In addition, we received a payment in
January 2000 for the transfer of existing development compounds.
We executed sale agreements in November 1999 with the Dow Chemical Company
for a polyolefins Discovery Tools system and, in December 1999, with the
Instituto Mexicano del Petroleo for an initial module of our Discovery Tools
Heterogeneous Catalysis System. The first of these systems was shipped to
Instituto Mexicano del Petroleo in February 2000.
In August 1999, we established a manufacturing and commercialization
agreement with Argonaut Technologies, Inc. to manufacture and commercialize
small, manual instruments capable of performing 5 to 10 experiments a day. The
first product offering of this collaboration is Endeavor(TM), an 8-cell
continuous-stirred parallel pressure reactor. We will earn royalties on the
sales of products by Argonaut which incorporate our technology.
During 2000, we expect to continue to identify new materials for
development and commercialization under our Industry Collaborations and our
Symyx Proprietary Materials businesses, to add additional Industry
Collaborations and licensing agreements for proprietary materials, and to grow
our Discovery Tools business.
INDUSTRY BACKGROUND
Materials and their diverse properties contribute in a vital way to many of
the products we use everyday. Examples include the catalysts used in the
manufacture of major chemicals, pharmaceuticals, plastics and rubbers, the
plastics in many of our household goods, phosphorescent materials in x-rays and
computer screens, and polymers on the bottom of sneakers. The life science,
chemical and electronic companies that produce these materials often face
heightened pressure to achieve growth targets and increase profitability.
Traditional materials discovery relies on an expensive and time-consuming
process of trial and error: making one material; testing it; then making a
different material; testing it and so on. Traditional discovery methods are not
fast enough to keep pace with product life cycles and growth expectations within
the chemicals, life science and electronics industries. As a result, these
companies need to reduce costs, increase innovation, and create new businesses
based on proprietary materials. We believe that we can assist life science,
chemical and electronics companies by discovering new materials in a more
productive and cost-effective manner than by using traditional methods.
The development of combinatorial synthesis and rapid screening methods have
the potential to cost-effectively accelerate materials discovery and
fundamentally change the way materials are discovered. We believe combinatorial
technologies leverage the full potential of personnel by increasing their
experimental productivity by a factor of 100 or more. This promise of a far more
efficient discovery method combined with a greater opportunity for product
innovation is attracting increased attention from the chemical and electronics
industries. We believe that few chemical and electronics companies employ
combinatorial synthesis techniques or have the necessary specialized equipment
available for such activities.
Dr. Alejandro Zaffaroni and Dr. Peter Schultz founded Symyx in 1994. Dr.
Zaffaroni is also a founder of ALZA, Affymax, Affymetrix, Maxygen and DNAX
Research Institute. The conceptual basis for Symyx draws from Affymax and
Affymetrix, which commercialized the use of high-speed combinatorial methods for
pharmaceutical and genetic research, respectively.
SYMYX SOLUTION
Our technology provides complete platforms for materials discovery. Using
our miniaturized, automated technology to execute hundreds to thousands of
experiments at a time, our scientists can dramatically increase the probability
of success and reduce the time and costs per experiment to discover new
materials. Using traditional trial and error methods, a team consisting of a
chemist plus a technician could perform 500 to 1,000 experiments per year. In
our labs, that same team could perform up to 50,000 experiments per year. As a
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result, our scientists would generate significantly more data, increase the
possibility of discoveries within that timeframe, and reduce the associated
costs per experiment dramatically.
TRADITIONAL SYMYX
RESEARCH APPROACH DISCOVERY TECHNOLOGIES
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Team............................. 1 chemist + 1 technician 1 chemist + 1 technician
Cost/year........................ $500,000 $500,000
Experiments/year................. 500 - 1,000 20,000 - 50,000
Cost/experiment.................. $500 - $1,000 $10 - $25
To achieve these efficiencies, we require extensive capabilities in
materials synthesis, screening and data analysis. A particular challenge is the
ability to screen materials for a wide range of properties. For example, to
discover a new catalyst we need to screen how well it performs a specific
chemical reaction, to discover a new polymer we need to screen for physical,
thermal and mechanical properties such as molecular weight, glass transition
temperature and toughness.
As a pioneer in combinatorial materials science, we found no existing
technology capable of meeting our synthesis, screening and data analysis
requirements. To address this challenge, we assembled a team of people who have
expertise in the fields of inorganic, physical, polymer and organic chemistries,
physics, engineering and software programming. This team has successfully
designed, built and validated a powerful array of highly specialized proprietary
instruments and software. Our scientists can now synthesize a wide range of
materials and screen for properties including catalytic, chemical, physical,
mechanical, electronic and optical properties. In addition, we continue to
expand our capabilities through the development of new instruments and software
and enhanced versions of existing systems.
We have focused as well on building a strong competitive position through
our intellectual property position. We have over 90 patent applications pending
in the United States and over 50 foreign patent applications pending covering
combinatorial methodologies, instruments and software and novel materials. In
addition, we have 8 issued United States patents and an additional 2 patent
applications allowed in the United States.
SYMYX STRATEGY
Our objective is to be the leading company using high-speed technologies
for the discovery of new materials with commercially valuable properties. We
have developed a strategy of three business approaches that we intend to follow
in pursuit of our objective:
- Industry Collaborations, in which we enter into collaborative research
and early-stage licensing agreements with corporate partners that provide
funding for research and discovery efforts, commercialize our materials
and pay royalties on commercial sales;
- Symyx Proprietary Materials, where we invest in our own materials
research efforts to discover materials with near-term commercial
potential and then enter into late-stage licensing arrangements or
commercialize materials directly; and
- Discovery Tools Technology Access, in which we sell and license selected
equipment and software to chemical and other industrial companies for
their own use.
INDUSTRY COLLABORATIONS
In collaboration with major chemical and other industrial companies, we
seek to discover new polymer formulations, catalysts, pigments and phosphors for
industrial applications.
We provide the platform technologies and effort, and our partners have
rights to develop and commercialize resulting materials within their predefined
field of exclusivity. Typically, we enter into collaborative arrangements to
discover materials that require considerable investment in product development
and manufacturing, as well as extensive marketing efforts. Our collaborative
partners have already developed
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the infrastructure to support these requirements, and may therefore be in a
strong position to commercialize our discoveries.
We receive funding from our collaborative partners through annual research
payments. These payments are made over the term of the research contract, which
is generally two to three years. If a new material is discovered and
commercialized, we will receive either royalties or milestone payments. We
believe that we have the potential for royalties ranging from 3% to 7% on sales
of products incorporating our materials, such as pigments, phosphors and
polymers and 1% to 3% on sales of end products manufactured using our catalysts,
such as high-volume commodity chemicals and polyolefins.
We currently have nine industry collaboration partners, including Bayer
which has expanded our collaboration three times to date. The table below
indicates, for each of our currently active collaborations, the collaborative
partner, date and field.
PARTNER DATE(S) OF ALLIANCE FIELD(S)
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Agfa March 1998 X-ray phosphors for radiography
BASF March 1999 Specialty polymers for industrial formulations
Bayer March 1998, Polyolefins, commodity chemicals
May 1998,
January 1999,
September 1999
Celanese August 1998 Commodity chemicals
Ciba Specialty Chemicals April 1998 Pigments
Dow Chemical January 1999 Polyolefins
Osram OS* December 1998 Phosphors for lighting
PE Biosystems January 2000 Polymers for nucleic acid separations
Unilever December 1998 Polymers for product formulations
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* an affiliate of Siemens
Our collaborations, together with government grants, provide for over $90
million in aggregate commitments for research payments. Through December 31,
1999, we had recognized revenue of $49 million under these agreements with the
remaining amounts scheduled to be paid through 2003. In order to maintain and
grow our research and product pipelines, we intend to continue to enter into new
collaborative arrangements. As a result of these new arrangements, and the
conclusion of existing collaborations upon completion of research or transfer of
development candidates to our collaborative partners for commercialization, our
portfolio of collaborations will change over time. We expect that new
collaborations will come from existing collaborative partners undertaking new
research initiatives as well as new collaborative partners.
One of our most advanced discovery efforts to date has resulted from our
collaboration with Agfa in the area of discovery of new x-ray phosphors for
radiography. Many groups have worked over the past fifteen years to find
alternative materials that perform better than existing materials. Under our
collaboration, we have made and screened over 50,000 phosphors, and we
discovered several that have shown the potential to provide higher resolution,
be easier to manufacture and have a longer shelf life than existing materials.
These materials have been transferred to Agfa, and we have been advised by Agfa
that their objective is to have products based on these materials on the market
during 2001.
SYMYX PROPRIETARY MATERIALS
We believe that the assets resulting from our investment in proprietary
research programs will be a significant contributor of future value. Our
proprietary research efforts are focused on discovery of products for specialty
markets with well-defined materials needs and short-term development and
commercialization cycles. To date, our efforts to develop Symyx Proprietary
Materials are in specialty polymers for life science applications, catalysts for
the manufacture of fine chemicals such as pharmaceutical intermediates, and
electronic materials.
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Our first agreement for Symyx Proprietary Materials is with PE Biosystems
for polymers to increase resolution and speed DNA separation. Under this
agreement, PE Biosystems made a payment for the transfer of development
candidates, and will also pay us advance royalties and royalties upon
commercialization of materials.
Another Proprietary Materials program seeks to discover polymers to enhance
the sensitivity of biological assays by creating three-dimensional polymer
surfaces to increase probe surface area and allow precise engineering of those
surfaces.
We also have several programs in electronic materials, funded by ourselves
and by the U.S. Office of Naval Research Defense Advanced Research Projects
Agency (known as DARPA) and the United States Department of Energy. One 1999
DARPA program funded research relates to thermoelectric materials used for
refrigeration and applications requiring precise active cooling devices. These
applications include computer chips and missile guidance systems. A second 1999
DARPA program also funded research for magnetic materials used as permanent
magnets in applications including electro-magnetic motors. Our program with the
Department of Energy is funding research relating to materials for fuel cells
for potential use in automobiles. Funding under the DARPA and Department of
Energy programs is structured as grants, and we own the rights to commercialize
materials discovered under these programs.
We expect to commercialize development candidates discovered through our
proprietary materials programs either by manufacturing, marketing, and selling
the product ourselves or through late-stage licensing arrangements. We expect to
be able to obtain significantly higher royalty rates under these late-stage
licenses than under our collaborative agreements because we will have completed
essentially all development work at the time we license the product.
For fine chemicals, we also have developed a "quick-strike" licensing model
in which we would assume the research risk during a short, well-defined,
research period of approximately three months in exchange for the customer's
agreement to make milestone payments and enter into a license agreement upon
completion of research and technical validation. We expect that royalty rates
under these licenses will be in a range of 4% to 7% of sales, which is
attractive to us due to the breadth and number of projects which we believe we
can successfully complete annually.
DISCOVERY TOOLS TECHNOLOGY ACCESS
Our scientific and technical team has spent considerable time and resources
developing a broad array of instruments, software and know-how in support of our
research. In addition to our alliances, we are seeking to meet the growing
demand for combinatorial technologies by offering access to some of our
equipment and technology. We believe that these programs will enhance, not
detract from, our collaborative arrangement efforts by reinforcing our position
as the leading source for combinatorial technology in materials science.
To-date, we have executed purchase orders for Discovery Tools with the Dow
Chemical Company and the Instituto Mexicano Del Petroleo.
The Dow Chemical Company is the first customer of our Discovery Tools
business. Dow, an existing collaborative partner, has placed an order for a
system that provides capabilities to make and test polyolefin catalysts. We sell
our Discovery Tools together with a license to associated software, know-how and
patents. Our first offering, purchased by Dow, is a combination of a
multi-channel polymer reactor system together with two screening instruments.
Under the terms of Dow's purchase, Dow will pay us between $5.0 million and $8.5
million over three years for the manufacture, delivery and use of the system.
The Instituto Mexicano Del Petroleo has purchased an initial module of our
Discovery Tools(TM) Heterogeneous Catalysis System, which we shipped in February
2000. This purchase will provide IMP with the capability to increase
experimental throughput significantly within its laboratories, and will be
directed to the development of refinery catalysts and other materials.
We have designed the Discovery Tools that we initially plan to sell to
perform an average of 100 experiments per day. We do not expect that our sale of
Discovery Tools will affect our ability to enter into new research
collaborations. Companies enter into collaborations with us to access all of our
technologies
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including our highest throughput screening equipment designed for new materials
discovery, as well as the expertise of our scientific and technical staff and
our libraries of catalysts and materials. We do not plan to offer access to
these resources as part of our Discovery Tools program.
In addition to the sale of Discovery Tools, we also believe that there is
significant commercial value in the nonautomated laboratory instruments that we
developed to perform small scale parallel synthesis of materials. We have formed
a collaboration with Argonaut Technologies, Inc. to capture this opportunity.
Argonaut is an instrument company that develops and commercializes synthesizers,
instruments, software and chemical resins and reagents to accelerate and
automate chemical synthesis. Argonaut will refine our designs for manual
benchtop instruments, manufacture the instruments and sell them worldwide. In
return, we will receive a portion of the profits from the sale of these
instruments. Our first product, sold with both the Argonaut and Symyx
trademarks, was introduced for sale in August 1999. This instrument, the
Endeavor, is an eight-channel manual reactor used to synthesize polymers and
other chemicals under high pressure. This instrument has a sale price of
approximately $60,000. We expect other manual bench instruments developed by us
and commercialized by Argonaut to have similar sales prices.
TECHNOLOGY
Our scientists begin the discovery process working with our collaborative
partners or our own business development staff to define the research objective
in terms of the specific properties a new material should have to meet the needs
of a given application. We then apply the components of our combinatorial
process, synthesis, screening and informatics, to discover materials that match
these criteria.
SYNTHESIS
The materials research process begins with chemists' theories about what
elements from the periodic table of elements might be combined to create new
materials with desired properties. However, while chemists working in
traditional labs have to choose the few experiments they will perform on a given
day, our chemists have the ability to perform hundreds or thousands of
experiments at once. Our chemists are therefore able to pursue their theories
both broadly -- across a wide range of elements -- and
comprehensively -- creating materials with the same components in different
ratios.
A Symyx chemist initiates the synthesis process by using Library Studio, a
computer software package created by our programmers to design the group, or
"library," of materials to be synthesized. These instructions, or "recipes," are
then relayed to automated synthesis instruments. These instruments create the
library on a single substrate such as a three-inch diameter silicon wafer or a
96-well plate. The quantity of each compound synthesized is very small,
generally ranging from micrograms to hundreds of milligrams. This contrasts
dramatically with traditional synthesis, where gram to kilogram quantities of a
material are usually necessary. Libraries synthesized on silicon wafers may
range from a few hundred different candidate materials to as many as 25,000,
depending on the type of material and the type of analysis to be done.
Each material synthesized represents a unique experiment and potential
discovery. The desired end result of these experiments is defined at the outset
of the experiment as a target material having specific performance properties.
Our scientists, in conjunction with our collaborative partners, or independently
for our proprietary discovery programs, set the specific performance properties
and define the desired performance attributes of the target material for a given
application or applications. Generally, these criteria are well beyond the
performance attributes of currently used materials.
SCREENING
Once created, the library is analyzed for desired properties. As with
synthesis, our technical staff has designed and built a broad array of
instruments and software to evaluate different properties under a wide variety
of process conditions. These properties include catalytic, physical, mechanical,
thermal, chemical, electronic and optical properties. In general, a Symyx
chemist can design, synthesize and screen a library in a single day.
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To reach the point of commercialization, a candidate material must progress
through an increasingly exhaustive series of tests, or stages, known as hits,
leads and development candidates. First, we screen materials to identify those
materials that have properties defined for the target discovery, called "hits."
Hits are subjected to additional testing and optimization, to find a larger
number of needed properties. Hits also identify areas that merit further
exploration, and new libraries are created using this information. Candidate
materials that continue to meet or exceed the defined criteria are then
classified as "leads." Leads are then transferred to a partner or processed
internally for additional testing and scale up. Leads are then tested on a
larger scale, as bulk samples of 1 to 100 grams, to confirm that the materials
still perform at this "bench scale" level. Once a lead has passed this bench
scale testing by either a collaborative partner or Symyx, it becomes a
development candidate. Finally, if all is successful, the decision will be made
to commercialize the material. Once a material has been identified as a
development candidate, the time to the first sale or commercial usage may be as
short as 1 to 2 years for many pigments, specialty polymers, fine chemicals
catalysts or electronic materials, such as phosphors. Industrial catalysts to
produce high volume commodity chemicals, on the other hand, may require 5 to 7
or more years to reach the market because of the extensive process development
and capital investment involved.
INFORMATICS
A critical factor in our discovery process is the ability to retain and
access the huge amounts of data generated by our synthesis and screening
activities. Given the broad acceptance of high-speed combinatorial discovery in
pharmaceuticals, a number of applications exist to support organic chemistry.
However, those solutions were not sufficient to address the storage and
retrieval needs of our diverse array of inorganic, organometallic and polymer
chemistries. To that end, we have devoted considerable resources to build a
proprietary database capable of addressing our unique needs. Our chemists can
query this database to identify materials screened in the past that possess the
property or properties specified. We believe that this database will emerge as a
powerful tool in accelerating materials discovery by enabling our scientists to
benefit from the cumulative effect of all of our research. Although we typically
cannot use leads and development candidates identified in one collaborative
program for other collaborative programs or for our proprietary research,
materials screened in one program without success may have properties that make
them useful in other programs.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Our success depends upon our proprietary technology. There are five general
areas that may be patented using our combinatorial approach:
- library synthesis methods;
- the libraries themselves;
- screening or characterization methods;
- equipment and software; and
- new materials.
We have over 90 patent applications pending in the United States, and over
50 foreign patent applications pending. In addition, we have 8 issued United
States patents and an additional 2 patent applications allowed in the United
States. We co-own 3 of the issued United States patents and some of the pending
patent applications with Lawrence Berkeley National Laboratory, on behalf of The
Regents of the University of California. We have an exclusive license to these
patents and patent applications from Lawrence Berkeley National Laboratory,
which was agreed to upon formation of the Company. In addition to patents, we
rely on copyright, trademark and trade secret rights, confidentiality procedures
and licensing arrangements to establish and protect our proprietary rights.
As part of our confidentiality and trade secret protection procedures, we
enter into non-disclosure agreements with our employees, consultants and
potential collaborative partners. Despite these precautions,
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third parties could obtain and use our products or technology without
authorization, or develop similar technology independently. It is difficult for
us to police unauthorized use of our methods. Effective protection of
intellectual property rights is unavailable or limited in some foreign
countries. The protection of our proprietary rights may be inadequate and our
competitors could independently develop similar technology, duplicate our
products or design around any patents or other intellectual property rights we
hold.
COMPETITION
We are aware of several companies that have stated interest in applying
their expertise in combinatorial chemistry to materials research and
development. We are also aware of some chemical companies with internal
combinatorial programs participating in materials research and development
consortiums. In addition, Shell Chemicals is participating in a consortium in
The Netherlands and BASF is funding a start-up company in Heidelberg, Germany
named HTE. BASF is also one of our collaborative partners. 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.
Some of our competitors may be addressing the same materials targets as
Symyx or our collaborative partners. Many of our current and potential
competitors, either alone or together with their collaborative partners, have
greater financial, manufacturing, marketing and sales resources than we do.
Accordingly, our competitors may succeed in obtaining patent protection or
commercializing products before us. If we commence commercial product sales, we
will be competing against companies with greater marketing, sales and
manufacturing capabilities, areas in which we have limited or no experience.
EMPLOYEES
As of December 31, 1999, we had a total of 170 employees, including 136
scientific and technical employees and 34 people in business development, legal
and general and administrative services. Of our scientific and technical staff,
124 have masters or doctorate degrees. None of our employees is represented by a
labor union, and we consider our employee relations to be good.
RISK FACTORS
All statements in this annual report that do not discuss past results are
forward-looking statements. Forward-looking statements are based on management's
current expectations and are therefore subject to certain risks and
uncertainties. Any of the following risks could seriously harm our business,
financial condition or results of operations. As a result, these risks could
cause the decline of the trading price of our Common Stock. The risks described
below, however, are not he only ones that we face. You should also refer to the
other information set forth in this annual report, including our financial
statements and the related notes.
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.
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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 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
will also be dependent on sales of Discovery Tools and other instrumentation
primarily to chemical companies.
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 and chemical 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 and chemical 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.
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 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
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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.
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 INTEND TO 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 chemical 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 HAVE CONTRACTS FOR ONLY TWO DISCOVERY TOOLS SYSTEMS, AND WE CANNOT ASSURE YOU
THAT WE WILL BE ABLE TO BUILD A SUSTAINABLE BUSINESS RELATED TO THE SALE OF
ADDITIONAL SYSTEMS
We have contracts for only two of our Discovery Tools systems. Because of
the high cost and complexity of these systems, the sales cycle for them is
likely 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; and
- potential downturns in general or in industry specific economic
conditions.
If the cycle for Discovery Tools systems lengthens unexpectedly, it could
adversely affect the timing of our revenues.
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WE WILL NEED TO DEVELOP MANUFACTURING, SALES AND MARKETING CAPABILITIES FOR
DISCOVERY TOOLS, AND IF WE ARE UNABLE TO DO SO, WE WILL BE UNABLE TO BUILD OUR
DISCOVERY TOOLS BUSINESS
In order to successfully market and sell these systems, we will need to
develop the capability to manufacture, market and sell large capital equipment
items. Although we have several business development professionals with
experience in this area, we may need to hire additional personnel. We may not be
able to develop the necessary manufacturing capability or to sell additional
systems and we may not be able to build a sustainable business related to the
sale of these systems. Factors that could impact our ability to manufacture and
commercialize our Discovery Tools include:
- manufacturing difficulties involving quality control, quality assurance
and shortage of qualified personnel;
- 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; and
- a long sales cycle that involves substantial human and capital resources.
If we are not able to build the business infrastructure to support our
Discovery Tools business, we will be unable to expand this business. 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 build the infrastructure to
support this business.
WE INTEND TO COMMERCIALIZE OUR 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 intend to commercialize our 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.
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; 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.
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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 several companies that are applying their expertise in
combinatorial chemistry to materials research and development. We are also aware
of some chemical companies that have internal combinatorial programs. For
example, Shell Chemicals is participating in a consortium in The Netherlands and
BASF is funding a new start-up company in Heidelberg, Germany named HTE. BASF is
also one of our collaborative partners. 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.
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.
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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.
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
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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.
WE HAVE EXPERIENCED SIGNIFICANT GROWTH, AND WE MUST IMPROVE OUR OPERATIONAL,
FINANCIAL AND MANAGEMENT CONTROLS AND SYSTEMS TO KEEP PACE WITH OUR GROWTH
We have experienced a period of rapid and substantial growth that has
placed and, if such growth continues, will continue to place a strain on our
human and capital resources. If we are unable to manage this growth effectively,
our business, results of operations or financial condition may be materially
adversely affected. We increased the number of our employees from 28 at December
31, 1996 to 170 at December 31, 1999. Our revenues increased from $4.8 million
in 1997 to $13.8 million in 1998 and $30.5 million in 1999. Our ability to
manage our operations and growth effectively requires us to continue to improve
our operational, financial and management controls, reporting systems and
procedures and hiring programs. Due to the pace of our growth, we may be unable
to successfully implement improvements to our management information and control
systems in an efficient or timely manner and may discover deficiencies in
existing systems and controls.
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 approximately 33.0% 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 of 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.
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
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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.
POTENTIAL SALES OF SHARES ELIGIBLE FOR FUTURE SALE AFTER OUR INITIAL PUBLIC
OFFERING COULD CAUSE OUR STOCK PRICE TO DECLINE
If our stockholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market, the market price of our common stock could fall. These sales also
might make it more difficult for us to sell equity or equity-related securities
in the future at a time and price that we deem appropriate. On the 181st day
after completion of our initial public offering a significant number of shares
of our common stock held by existing stockholders will be freely tradable,
subject in some instances to the volume and other limitations of Rule 144. Sales
of these shares and other shares of common stock held by existing stockholders
could cause the market price of our common stock to decline.
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 2. PROPERTIES
Our facilities currently consist of an aggregate of approximately 104,300
square feet of office, research and laboratory space in several locations in
Santa Clara, California, pursuant to leases that expire from 2002 to 2010. These
facilities include a building of approximately 36,500 square feet, which we
expect will be ready for occupancy during the fourth quarter of 2000.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material pending legal proceedings.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Symyx was held on October 22, 1999.
The following is a brief description of each matter voted upon at the meeting
and the number of votes cast for, against or withheld, as well the number of
abstentions as to each matter. The share numbers below represent both common and
preferred stock outstanding at the record date for the meeting on an
as-converted basis and do not reflect the 7-for-9 reverse stock split of our
common stock that our stockholders approved at this meeting.
(a) Our stockholders elected the following persons as directors of Symyx, with
votes for, votes against and abstentions listed below for each nominee:
VOTES
NOMINEE VOTES FOR AGAINST ABSTENTIONS
------- ---------- ------- -----------
Thomas R. Baruch.................................. 25,083,660 5,000 179,538
Samuel D. Colella................................. 25,088,660 -- 179,538
Martin Gerstel.................................... 25,015,660 73,000 179,538
Steven D. Goldby.................................. 25,103,660 -- 164,538
Baron Gaulthaus Kraijenhoff....................... 24,714,660 67,000 486,538
Francois A. L'Eplattenier, Ph.D. ................. 24,775,660 6,000 486,538
Kenneth J. Nussbacher............................. 24,716,660 72,000 479,538
Mario M. Rosati................................... 25,016,660 72,000 179,538
Peter G. Schultz, Ph.D............................ 24,901,952 81,708 284,538
Isaac Stein....................................... 24,774,952 376,708 179,538
(b) Our stockholders approved an amendment to the Symyx Certificate of
Incorporation to effect a 7-for-9 reverse stock split of the outstanding
common stock. There were 24,385,915 votes in favor of, and 795,892 votes
cast against, the proposal. There were 86,391 abstentions.
(c) Our stockholders approved the adoption of our 1999 Employee Stock Purchase
Plan and the reservation of 300,000 shares of common stock for issuance
under this plan, plus an annual increase to be added in fiscal 2000, equal
to the lesser of (i) 350,000 shares, (ii) 1% of the outstanding shares on
such date or (iii) a lesser amount determined by our board of directors.
There were 24,426,607 votes in favor of, and 455,200 votes cast against, the
proposal. There were 386,391 abstentions.
(d) Our stockholders approved various amendments to our 1997 Stock Plan,
including amendments to (i) provide that all shares reserved for future
issuance under our 1996 Stock Plan and all outstanding stock options
returned to our 1996 Stock Plan shall be deemed to be shares reserved for
future issuance under our 1997 Stock Plan, (ii) commencing in 2000, an
annual increase in the number of shares of common stock reserved for
issuance under our 1997 Stock Plan equal to the lesser of 1,500,000 shares,
4% of our outstanding capitalization or a lesser amount determined by the
board of directors, (iii) automatic grants of stock options to our outside
directors upon their re-election at each of our annual meeting of
stockholders, (iv) modify the requirements for stockholder approval of
future amendments in order to conform to current applicable federal
securities laws and regulations and (v) bring such our plan into compliance
with revised Rule 16b-3 under the Securities Exchange Act of 1934. There
were 24,370,742 votes in favor of, and 53,747 votes cast against, the
proposal. There were 843,709 abstentions.
(e) Our stockholders approved our post initial public offering Amended and
Restated Certificate of Incorporation. There were 24,507,982 votes in favor
of, and 225,747 votes cast against, the proposal. There were 534,469
abstentions.
(f) Our stockholders approved our post initial public offering Amended and
Restated Bylaws. There were 24,551,982 votes in favor of, and 181,747 votes
cast against, the proposal. There were 534,469 abstentions.
(g) Our stockholders ratified the appointment of Ernst & Young LLP as
independent auditors of Symyx for the fiscal year ending December 31, 1999.
There were 24,756,062 votes in favor of, and 6,667 votes cast against, the
proposal. There were 505,469 abstentions.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK MATTERS
The Company's Common Stock is traded on the Nasdaq National Market System
under the symbol of SMMX. The following table sets forth, for the period
indicated, the low and high bid prices per share for the Company's Common Stock
as reported by the Nasdaq National Market.
LOW HIGH
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Fourth Quarter 1999........................ $18.00 $35.81
As of March 3, 2000, there were approximately 510 holders of record of the
Company's Common Stock.
No dividends have been paid on the Common Stock since the Company's
inception and the Company currently intends to retain all future earnings, if
any, for use in its business and does not anticipate paying any cash dividends
in the foreseeable future.
USE OF PROCEEDS
On November 18, 1999, a Registration Statement on Form S-1 (No. 333-87453)
was declared effective by the Securities and Exchange Commission, pursuant to
which 6,368,700 shares of the Company's Common Stock, no par value, were offered
and sold for the account of the Company at a price of $14.00 per share,
generating gross offering proceeds of $89.2 million for the account of the
Company. The managing underwriters for the offering were Credit Suisse First
Boston, Donaldson, Lufkin & Jenrette, Invemed Associates & Schroder & Co. Inc.
From the effective date of the Registration Statement to December 31, 1999,
the Company incurred $6.3 million in underwriting discounts and commissions and
$1.5 million in other related expenses. Total expenses incurred in connection
with the offering were $7.8 million. The net proceeds of the offering, after
deducting the foregoing expenses, were $81.4 million. No direct or indirect
payments were made to directors, officers, or general partners of the Company or
their associates, or to persons owning 10% or more of any class of equity
securities of the Company and its affiliates.
From the effective date of the Registration Statement to December 31, 1999,
the Company estimates that it has used a portion of the net proceeds of the
offering as follows: (i) temporary investment in marketable debt securities,
$78.0 million; and (ii) working capital, $3.4 million.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected historical information has been derived from the
audited financial statements of the Company. The financial information as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999 are derived from audited financial statements and are included
elsewhere in this Form 10-K. The table should be read in conjunction with Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Item 8. "Financial Statements and Supplementary Data."
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Revenue from collaborations....................... $ -- $ -- $ 4,806 $13,787 $30,497
Operating expenses:
Research and development........................ 27 2,483 8,764 17,640 23,964
General and administrative...................... 481 567 2,129 4,500 6,494
Amortization of deferred Compensation........... -- -- -- 188 3,794
------ ------- ------- ------- -------
Total operating expenses................ 508 3,050 10,893 22,328 34,252
------ ------- ------- ------- -------
Loss from operations.............................. (508) (3,050) (6,087) (8,541) (3,755)
Interest income................................... -- 375 843 1,117 2,542
Interest and other expense........................ -- (6) (352) (731) (934)
------ ------- ------- ------- -------
Net loss.......................................... $ (508) $(2,681) $(5,596) $(8,155) $(2,147)
====== ======= ======= ======= =======
Basic and diluted net loss per share.............. $(0.40) $ (1.24) $ (1.97) $ (2.13) $ (0.27)
====== ======= ======= ======= =======
Shares used in computing basic and diluted net
loss per share.................................. 1,269 2,168 2,845 3,829 8,087
====== ======= ======= ======= =======
DECEMBER 31,
----------------------------------------------
1995 1996 1997 1998 1999
----- ------- ------- ------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and investments............ $ 15 $ 9,349 $20,614 $35,121 $119,270
Working capital (deficit)......................... (510) 8,789 9,860 15,701 33,299
Total assets...................................... 19 10,674 34,861 52,903 148,305
Long-term obligations, net of current portion..... -- -- 4,455 7,591 6,729
Total stockholders' equity........................ (506) 10,283 25,030 36,166 119,943
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
FROM OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements based upon current
expectations that involve risks and uncertainties. When used in this Annual
Report on Form 10-K, the words "intend," "anticipate," "believe," "estimate,"
"plan" and "expect" and similar expressions are included to identify
forward-looking statements. Our actual results and the timing of events could
differ materially from those anticipated in these forward-looking statements as
a result of many factors, including those set forth under "Risk Factors" and
elsewhere in this Annual Report on Form 10-K.
OVERVIEW
Symyx was founded in September 1994 and began significant operations in
April 1996. To date, our revenues and cash flow have come from research
collaborations with large chemical and electronics companies and government
grants. Our current corporate collaborators are Agfa-Gevaert N.V., BASF AG,
Bayer AG, Celanese Ltd., Ciba Specialty Chemicals, Inc., The Dow Chemical
Company, Osram Opto Semiconductors GmbH & Co. OHG, PE Corporation, Inc. through
its PE Biosystems Group and Unilever UK Central Resources Ltd. These agreements
are generally for a two to three year guaranteed term. Four of our research
contracts commenced in 1999, representing approximately half of our committed
revenue. We expect that our revenues and cash flows for 2000 and 2001 will be
comprised in large part of payments to be made under these agreements. Four of
our research contracts may end by their terms in 2000.
We have invested heavily in establishing the technology, instrumentation
and informatics necessary to pursue high throughput discovery for proprietary
materials. These materials include catalysts to manufacture commodity chemicals
and polyolefins, catalysts and polymers for life sciences applications, and new
electronic materials.
These investments contributed to revenue increases from $4.8 million in
1997 to $13.8 million in 1998 to $30.5 million in 1999. Operating expenses
increased from $10.9 million in 1997 to $22.3 million in 1998 to $34.3 million
in 1999. Our total headcount increased from 76 employees at the end of 1997 to
108 employees at the end of 1998 and to 170 employees at the end of 1999.
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 December 31,
1999, our accumulated deficit was approximately $19.0 million. We expect to
incur additional operating losses over at least the next year as we continue to
expand staffing, equipment and facilities.
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 December 31, 1999, we have deferred revenues of approximately
$12.2 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;
21
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- sales of Discovery Tools and other instruments; and
- sales of any products discovered in our internal research programs.
See Note 2 of Notes to Financial Statements.
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 $3.8
million for 1999 and $188,000 in 1998. The amortization expense relates to
options awarded to employees and consultants in all operating expense
categories. See Note 4 of Notes to Financial Statements.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1999
REVENUES
Our total revenues increased to $30.5 million in 1999, up 121% from $13.8
million in 1998. This increase was due primarily to the addition of new research
collaborations and the expansion of existing government grants. Bayer, Celanese
and The Dow Chemical Company accounted for 38%, 35% and no amount of total
revenue in 1998, and 32%, 12% and 18% of revenue in 1999, respectively. B.F.
Goodrich accounted for 6% of revenue in 1999. Our collaboration with B.F.
Goodrich was terminated by mutual agreement in April 1999 after B.F. Goodrich
merged with another company and changed its business focus from chemicals to
aerospace. B.F. Goodrich has returned to us all of the intellectual property
that was the subject of the collaboration agreement and has made termination
payments through December 1999 amounting to $1.3 million, which have been
recognized as revenue in 1999.
Revenue from research collaborations exceeded research and development
expense for the year ended December 31, 1999. This increase in revenue was
primarily due to Technology Access Fees, which are being recognized over the
term of the agreements, and higher reimbursement rates under certain
collaboration agreements.
RESEARCH AND DEVELOPMENT EXPENSES
Our research and development expenses consist primarily of salaries and
other personnel-related expenses, facility costs, supplies, depreciation of
facilities, and laboratory equipment.
Research and development expenses increased 36% from $17.6 million in 1998
to $24.0 million in 1999. The increase was due primarily to an increase in
salaries and other personnel costs to support our additional collaborative and
internal research efforts.
Research and development expenses represented 128% of total revenues in
1998 and 79% of total revenues in 1999. The decrease as a percentage of total
revenues was due primarily to the addition of significant contracts in 1999. Our
core business is research and development. 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.
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GENERAL AND ADMINISTRATIVE EXPENSES
Our 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.
General and administrative expenses increased 44% from $4.5 in 1998 to $6.5
million in 1999. Expenses increased primarily due to increased staffing
necessary to manage and support our growth.
General and administrative expenses represented 33% of total revenues in
1998 and 21% of total revenues in 1999. The decrease as a percentage of our
total revenues was due primarily to the growth in our total revenues. 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.
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 from $1.1 million in 1998 to $2.5 million in 1999.
This increase was due to higher average cash balances. Interest expense
increased from $731,000 in 1998 to $934,000 in 1999. This increase was due to
additional 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 years ended December
31, 1998 and 1999.
As of December 31, 1999, we had a federal net operating loss carryforward
of approximately $11.3 million. We also had federal research and development
credit carryforwards of approximately $600,000. If not utilized, the net
operating losses and credit carryforwards will expire at various dates beginning
in 2010 through 2019. Utilization of the net operating losses and credits may be
subject to a substantial annual limitation due to the "change in the ownership"
provisions of the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in the expiration of net operating
losses and credit before utilization. See Note 5 of Notes to Financial
Statements.
YEARS ENDED DECEMBER 31, 1997 AND 1998
REVENUES
Our total revenues for 1997 were $4.8 million and our total revenues for
1998 were $13.8 million. The increase was due primarily to the addition of new
research collaborations. Bayer, Hoechst, including its wholly-owned subsidiary
Celanese, and B.F. Goodrich accounted for 22%, 76% and 1% of revenue in 1997 and
38%, 35% and 12% of total revenue in 1998, respectively. Our collaboration with
Hoechst was terminated by mutual agreement in October 1998 following a change in
Hoechst's business focus away from chemicals. One project that was the subject
of the Hoechst collaboration agreement was transferred to Celanese, Hoechst's
wholly-owned subsidiary. Hoescht has returned to us all of the intellectual
property that was the subject of the collaboration agreement in the polyolefin
field. That field is the subject of subsequent agreements with Dow Chemical and
Bayer.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased from $8.8 million in 1997 to
$17.6 million in 1998. The increase was due primarily to an increase in
personnel-related costs. Research and development expenses represented 182% of
total revenues in 1997 and 128% of total revenues in 1998. The decrease as a
percentage of total revenues was due primarily to the growth in our total
revenues.
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GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased from $2.1 million in 1997 to
$4.5 million in 1998. Expenses increased due primarily to increased
personnel-related costs resulting from additional staffing necessary to manage
and support our growth. General and administrative expenses represented 44% of
total revenues for 1997 and 33% of total revenues for 1998. The decrease as a
percentage of our total revenues was due primarily to the growth in our total
revenues.
NET INTEREST INCOME (EXPENSE)
Interest income was $843,000 in 1997 and $1.1 million in 1998. Changes in
interest income were due primarily to changes in our cash balance during these
periods. Interest expense increased from $352,000 in 1997 to $731,000 in 1998
due to additional equipment financing loans used to partially fund leasehold
improvements and acquisition of equipment.
PROVISION FOR INCOME TAXES
We incurred net operating losses in 1997 and 1998 and consequently we did
not pay any federal, state or foreign income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Since 1996, we have financed our operations 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 December 31, 1999, we had $119.3
million in cash, cash equivalents and investments and $3.7 million available
under an equipment financing line of credit.
Our operating activities provided $14.0 million of cash in 1999. The source
of cash for 1999 was primarily the receipt of research and development funding
from collaborative partners, partially offset by operating expenses. Cash used
in our operating activities was $2.9 million and $1.3 million for 1998 and 1997,
respectively. Uses of cash in operating activities were primarily to fund net
operating losses.
Net cash used in investing activities was $81.2 million in 1999, $10.2
million in 1998 and $24.0 million in 1997. 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 $11.5 million in 1999, $5.8 million in 1998 and
$13.2 million in 1997. We expect to continue to make significant investments in
the purchase of property and equipment to support our expanding operations.
Financing activities provided cash of $82.1 million in 1999, $23.3 million
in 1998 and $25.9 million in 1997. These amounts are primarily the proceeds we
received from our initial public offering and the sale of preferred stock, net
of issuance costs, equipment and leasehold improvement loan financings and
proceeds from the exercise of stock options. We will repay loan financings over
the next four years as follows: $3.3 million in 2000, $3.7 million in 2001, $2.5
million in 2002 and $534,000 in 2003.
Accounts receivable and other current assets increased significantly at
December 31, 1999 as compared to December 31, 1998. The increase in accounts
receivable was due to an increase in government sponsored research funding. The
increase in other current assets was primarily due to an increase in interest
receivable from investments resulting from the timing of interest payments.
Deferred revenue also increased significantly at December 31, 1999 as compared
to December 31, 1998. This increase was due to the timing of the receipt of
several advance payments under collaborative research programs.
As of December 31, 1999 and 1998, our principal commitments were $6.6
million and $3.0 million, respectively. Principal commitments consisted of our
obligations under operating leases. We will satisfy these obligations 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 18 months.
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However, we may seek additional financing within this timeframe. 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.
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. We have no current
plans, agreements or commitments, and are not currently engaged in any
negotiations with respect to any such transaction.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("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.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. The adoption of SOP 98-1, as required in 1999,
resulted in the Company capitalizing $595,000 of software development costs
during the year ended December 31, 1999. We expense as incurred the costs
associated with developing software for use in research and development
activities in accordance with Statement of Financial Accounting Standards No. 2,
"Accounting for Research and Development Costs" and related interpretations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 "Revenue Recognition" ("SAB 101"), which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. We believe that our revenue recognition
policy is in compliance with the provisions of SAB 101 and that the impact of
SAB 101 will have no material effect on the financial position or results of
operations.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, to support the development
of our business and do not anticipate paying any cash dividends in the
foreseeable future.
IMPACT OF YEAR 2000
In late 1999, we completed our Year 2000 remediation efforts and testing of
our systems. As a result of those planning and implementation efforts, we did
not experience any disruptions in mission critical information technology and
non-information technology systems. We therefore believe that these systems
25
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successfully responded to the Year 2000 date change. We incurred expenses of
approximately $50,000 during 1999 in connection with remediating our systems. We
are not aware of any material problems resulting from Year 2000 issues, either
with our products, internal systems, or the products and services of third
parties upon whom we are dependent. We intend to continue monitoring our mission
critical computer applications and those of our suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly. At this time, we do not anticipate incurring additional
expenditures related to Year 2000 problems.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is principally confined to our cash, cash
equivalents and investments which have maturities of less than two years. We
maintain a non-trading investment portfolio of investment grade, liquid debt
securities that limits the amount of credit exposure to any one issue, issuer or
type of instrument. The securities in our investment portfolio are not
leveraged, are classified as available for sale and are therefore subject to
interest rate risk. We currently do not hedge interest rate exposure. If market
interest rates were to increase by 100 basis points, or 1%, from December 31,
1999 levels, the fair value of our portfolio would decline by approximately
$706,000. The modeling technique used measures the change in fair values arising
from an immediate hypothetical shift in market interest rates and assumes ending
fair values include principal plus accrued interest.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS PAGE
----------------------------- ----
Report of Ernst & Young LLP, Independent Auditors........... 27
Balance Sheets at December 31, 1999 and 1998................ 28
Statements of Operations for the years ended December 31,
1999, 1998 and 1997....................................... 29
Statement of Stockholders' Equity for the three year period
ended December 31, 1999................................... 30
Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997....................................... 31
Notes to Financial Statements............................... 32
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Symyx Technologies, Inc.
We have audited the accompanying balance sheets of Symyx Technologies, Inc.
as of December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Symyx Technologies, Inc. at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Palo Alto, California
January 28, 2000.
27
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SYMYX TECHNOLOGIES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
DECEMBER 31,
--------------------
1999 1998
-------- --------
Current assets:
Cash and cash equivalents................................. $ 28,943 $ 14,043
Short-term investments.................................... 21,533 9,339
Accounts receivable....................................... 962 626
Prepaid expenses.......................................... 1,555 288
Other current assets...................................... 1,939 551
-------- --------
Total current assets........................................ 54,932 24,847
Property and equipment, net................................. 23,879 16,110
Long-term investments....................................... 68,794 11,739
Other assets................................................ 700 207
-------- --------
$148,305 $ 52,903
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities............ $ 4,951 $ 1,676
Accrued compensation and employee benefits................ 711 416
Deferred rent............................................. 478 446
Deferred revenue.......................................... 12,189 4,172
Current portion of equipment and facility loans........... 3,304 2,436
-------- --------
Total current liabilities................................... 21,633 9,146
Equipment and facility loans................................ 6,729 7,591
Commitments
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 and 23,650,000
shares authorized at December 31, 1999 and 1998,
respectively, issuable in series; no shares and 20,561,156
shares issued and outstanding at December 31, 1999 and
1998, respectively........................................ -- 21
Common stock, $0.001 par value, 100,000,000 and 50,000,000
shares authorized at December 31, 1999 and 1998,
respectively; 29,638,562 and 6,225,475 shares issued and
outstanding at December 31, 1999 and 1998, respectively... 30 6
Additional paid-in capital.................................. 142,048 54,093
Stockholder notes receivable................................ (731) (398)
Deferred stock compensation................................. (2,128) (572)
Accumulated other comprehensive income...................... (189) (44)
Accumulated deficit......................................... (19,087) (16,940)
-------- --------
Total stockholders' equity.................................. 119,943 36,166
-------- --------
Total liabilities and stockholders' equity.................. $148,305 $ 52,903
======== ========
See accompanying notes.
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SYMYX TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
Revenue from collaborations and grants...................... $30,497 $13,787 $ 4,806
Operating costs and expenses:
Research and development.................................. 23,964 17,640 8,764
General and administrative................................ 6,494 4,500 2,129
Amortization of deferred compensation..................... 3,794 188 --
------- ------- -------
Total operating expenses.................................... 34,252 22,328 10,893
------- ------- -------
Income (loss) from operations............................... (3,755) (8,541) (6,087)
Interest income............................................. 2,542 1,117 843
Interest and other expense.................................. (934) (731) (352)
------- ------- -------
Net income (loss)........................................... $(2,147) $(8,155) $(5,596)
======= ======= =======
Basic and diluted net loss per share........................ $ (0.27) $ (2.13) $ (1.97)
======= ======= =======
Shares used in computing basic and diluted net loss per
share..................................................... 8,087 3,829 2,845
======= ======= =======
See accompanying notes.
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SYMYX TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
UNREALIZED
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCKHOLDER DEFERRED GAIN
---------------- --------------- PAID-IN NOTES STOCK (LOSS) ON
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION INVESTMENTS
------- ------ ------ ------ ---------- ----------- ------------ -----------
Balance at December 31, 1996.... 9,601 $ 10 3,425 $ 3 $ 13,459 $ -- $ -- $ --
Issuance of common stock........ -- -- 471 1 103 -- -- --
Issuance of Series C preferred
stock for cash, net of
issuance costs of $19......... 6,750 7 -- -- 20,225 -- -- --
Repurchase of common stock...... -- -- (43) -- (1) -- -- --
Comprehensive income (loss):
Net income (loss) for the year
ended December 31, 1997..... -- -- -- -- -- -- -- --
Unrealized gain (loss) on
available-for-sale
securities.................. -- -- -- -- -- -- -- 8
Comprehensive loss..............
------- ---- ------ --- -------- ----- ------- -----
Balance at December 31, 1997.... 16,351 17 3,853 4 33,786 -- -- 8
Issuance of Series D preferred
stock for cash, net of
issuance costs of $36......... 4,143 4 -- -- 18,606 -- -- --
Issuance of common stock........ -- -- 1,532 1 642 (398) -- --
Conversion of Class B common
stock to common stock on a
1:10 basis.................... -- -- 840 1 (1) -- -- --
Issuance of Series D preferred
stock as consideration for
technology rights............. 67 -- -- -- 300 -- -- --
Deferred stock compensation..... -- -- -- -- 760 -- (760) --
Amortization of deferred stock
compensation.................. -- -- -- -- -- -- 188 --
Comprehensive income (loss):
Net income (loss) for the year
ended December 31, 1998..... -- -- -- -- -- -- -- --
Unrealized gain (loss) on
available-for-sale
securities.................. -- -- -- -- -- -- -- (52)
Comprehensive loss..............
------- ---- ------ --- -------- ----- ------- -----
Balance at December 31, 1998.... 20,561 21 6,225 6 54,093 (398) (572) (44)
Issuance of common stock net of
issuance costs of $7,741...... -- -- 7,440 8 82,413 (361) -- --
Repurchase of common stock...... -- -- (43) -- (35) 28 -- --
Issuance of common stock in
exchange for services......... -- -- 25 -- 222 -- -- --
Conversion of preferred stock to
common stock on a 7 for 9
basis......................... (20,561) (21) 15,992 16 5 -- -- --
Deferred stock compensation..... -- -- -- -- 5,350 -- (5,350) --
Amortization of deferred stock
compensation.................. -- -- -- -- -- -- 3,794 --
Comprehensive income (loss):
Net income (loss) for the year
ended December 31, 1999..... -- -- -- -- -- -- -- --
Unrealized gain (loss) on
available-for-sale
securities.................. -- -- -- -- -- -- -- (145)
Comprehensive loss..............
------- ---- ------ --- -------- ----- ------- -----
Balance at December 31, 1999.... -- $ -- 29,639 $30 $142,048 $(731) $(2,128) $(189)
======= ==== ====== === ======== ===== ======= =====
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
Balance at December 31, 1996.... $ (3,189) $ 10,283
Issuance of common stock........ -- 104
Issuance of Series C preferred
stock for cash, net of
issuance costs of $19......... -- 20,232
Repurchase of common stock...... -- (1)
Comprehensive income (loss):
Net income (loss) for the year
ended December 31, 1997..... (5,596) (5,596)
Unrealized gain (loss) on
available-for-sale
securities.................. -- 8
--------
Comprehensive loss.............. (5,588)
-------- --------
Balance at December 31, 1997.... (8,785) 25,030
Issuance of Series D preferred
stock for cash, net of
issuance costs of $36......... -- 18,610
Issuance of common stock........ -- 245
Conversion of Class B common
stock to common stock on a
1:10 basis.................... -- --
Issuance of Series D preferred
stock as consideration for
technology rights............. -- 300
Deferred stock compensation..... -- --
Amortization of deferred stock
compensation.................. -- 188
Comprehensive income (loss):
Net income (loss) for the year
ended December 31, 1998..... (8,155) (8,155)
Unrealized gain (loss) on
available-for-sale
securities.................. -- (52)
--------
Comprehensive loss.............. (8,207)
-------- --------
Balance at December 31, 1998.... (16,940) 36,166
Issuance of common stock net of
issuance costs of $7,741...... -- 82,060
Repurchase of common stock...... -- (7)
Issuance of common stock in
exchange for services......... -- 222
Conversion of preferred stock to
common stock on a 7 for 9
basis......................... -- --
Deferred stock compensation..... -- --
Amortization of deferred stock
compensation.................. -- 3,794
Comprehensive income (loss):
Net income (loss) for the