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Symyx Technologies 10-Q 2009 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
For the quarterly period ended June 30, 2009
or
For the transition period from _________ to _________
Commission File Number: 000-27765
SYMYX TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and, (2) has been subject to such filing requirements for the past 90
days.
Yes ý No o
Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232-405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files.) Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).oYes ý No
As of July 31, 2009, Registrant had outstanding 34,406,029 shares of Common Stock, $0.001 par value.
TABLE OF CONTENTS
Part I: Financial Information
Part II: Other Information
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYMYX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
See accompanying notes to condensed consolidated financial statements
SYMYX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
See accompanying notes to condensed consolidated financial statements
SYMYX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
See accompanying notes to condensed consolidated financial statements
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business and Basis of Presentation
Symyx Technologies, Inc. (together with its wholly-owned subsidiaries, the "Company" or "Symyx") enables global leaders in the life sciences, chemical, energy, and consumer and industrial products industries to optimize and accelerate their scientific research and development ("R&D"). Through its abilities in scientific informatics
management, workflow optimization, and micro-scale, parallel experimentation, Symyx helps companies transform their R&D operations to minimize the time their scientists spend on routine, repetitive tasks and to maximize their return on R&D investments.
Symyx incorporated in California on September 20, 1994 and reincorporated in Delaware in February 1999. Symyx's headquarters are in Sunnyvale, California.
Management has prepared the accompanying unaudited condensed consolidated balance sheet as of June 30, 2009, the unaudited condensed consolidated statements of operations for the three and six month periods ended June 30, 2009 and 2008, respectively, and the unaudited condensed consolidated statements of cash flows for the six month periods
ended June 30, 2009 and 2008, respectively, in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities Exchange Commission ("SEC"). In management's opinion, all adjustments
(which include only normal recurring adjustments) necessary to present fairly the consolidated financial position of Symyx at June 30, 2009 and the results of its operations and cash flows for all periods presented have been made. The condensed consolidated balance sheet at December 31, 2008 was derived from the audited financial statements at that date, but does not include all of the disclosures required by GAAP for complete financial statements.
Because all of the disclosures required by GAAP in complete financial statements are not included herein, these unaudited condensed consolidated financial statements and the notes accompanying them should be read in conjunction with the Company's audited financial statements and the notes thereto included in the Company's 2008 Annual Report
on Form 10-K for the fiscal year ended December 31, 2008 filed with the SEC. The consolidated results of operations for the three and six months ended June 30, 2009 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending December 31, 2009.
The Company has evaluated subsequent events for recognition or disclosure through the time of filing these consolidated financial statements on Form 10-Q with the U.S. Securities and Exchange Commission on August 7, 2009.
Principles of Consolidation
These unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Symyx accounts for equity investments in companies over which Symyx has the ability to exercise significant influence, but does not hold a controlling interest, under the equity method. Accordingly,
Symyx records its proportionate share of income or losses in the unaudited condensed consolidated statements of operations. Symyx has eliminated all significant intercompany accounts and transactions.
Use of Estimates
Preparing financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts in Symyx's consolidated financial statements and accompanying notes. Estimates include the assumptions used in determining the implied fair value of goodwill, the forfeiture rates for stock-based
awards, the collectability of outstanding accounts receivable, write-downs for excess and/or obsolete inventory, future warranty expenditures, and assumptions such as the elements comprising a revenue arrangement, including the distinction between software upgrades/enhancements and new products, when the Company's products achieve technological feasibility, the potential outcome of future tax consequences of events recognized in the Company's financial statements or tax returns, and the value of acquired intangible
assets. Actual results and outcomes may differ from management's estimates and assumptions.
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Investments
As of December 31, 2008 and June 30, 2009, the Company has maintained its cash in treasury-bill money market funds, classified as cash and cash equivalents.
The Company determines the accounting method used to account for investments in equity securities in which it does not have a controlling interest primarily based on the Company's ownership of the investee and whether the Company has the ability to exercise significant influence over the strategic, operating, investing, and financing
activities of the investee. Accordingly, the Company accounts for its investment in Intermolecular, Inc. using the cost method of accounting. At both June 30, 2009 and December 31, 2008, the carrying value of Intermolecular was $15,147,000, which equals the original total of the Company's investment to date in Intermolecular. The Company estimates that the fair value of its investment
in Intermolecular was approximately $23,535,000 as of December 31, 2008 and believes that there have not been identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment.
Customer Indemnification
From time to time, the Company agrees to indemnify its customers against certain third party liabilities, including liability if its products infringe a third party's intellectual property rights. The Company accounts for such indemnification provisions in accordance with the Financial Accounting Standards Board (FASB) Interpretation No.
45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Other than for limited exceptions (e.g., intellectual property indemnity or bodily harm), the Company's indemnification obligation in these arrangements is typically limited to no more than the amount paid by the customer. As of June 30, 2009, the Company was not
subject to any pending intellectual property-related litigation. The Company has not received any requests for and has not been required to make any payments under these indemnification provisions during any periods covered in these unaudited condensed consolidated financial statements.
Contingencies
In July 2006, the Company acquired all of the outstanding shares of Autodose SA (Autodose). Pursuant to the terms of the merger agreement the Company entered into with Autodose, the former stockholders of Autodose are eligible to receive additional purchase price consideration of up to 6,500,000 Swiss Franc (equivalent to $5,987,000
using the foreign currency exchange rate in effect on June 30, 2009) upon achievement of the 2009 revenue target with respect to the Company's Autodose product line. The Company evaluates the likelihood of achieving this target from time to time. If the 2009 revenue target is met, the Company would record the fair value of any additional consideration as an additional cost of the acquisition and would further consider for the capitalization and
impairment of the additional acquisition cost. No additional consideration was recorded as of June 30, 2009.
In August 2008, the Company acquired 100% of the ownership of Integrity Biosolution, LLC ("IntegrityBio"), a privately-held research service company based in Camarillo, California. Pursuant to the terms of the purchase agreement, the founder of IntegrityBio will earn an
additional $1.75 million in cash, so long as the founder serves as an employee of the Company or its affiliates continuously for 24 months from the acquisition date. The Company has determined it is probable the amounts will be earned and paid and has to date recorded $774,000 as of June 30, 2009. The Company also agreed to pay 46% of total revenue generated by IntegrityBio during the one-year period starting from September 1, 2009 to the founder as additional consideration pursuant to the terms of the purchase
agreement, for which the Company cannot yet estimate the total liability.
Revenue Concentration
For the three and six months ended June 30, 2009 and 2008, the following customers contributed more than 10% of the Company's total revenue (dollars in thousands):
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The revenue from these customers has been included in the following reportable segments (see Note 6) for the three and six months ended June 30, 2009 and 2008 (in thousands):
The revenue from these customers has been included in the unaudited condensed consolidated statements of operations as follows (in thousands):
Research and Development ("R&D")
The Company's policy is to expense as incurred all costs of research and development, including direct and allocated expenses, related both to costs incurred on its own behalf and on behalf of its customers. The types of costs classified as research and development expense include salaries of technical staff, consultant costs, chemical
and scientific supplies costs, facilities rental, and utilities costs related to laboratories and offices occupied by technical staff, depreciation on equipment and facilities used by technical staff and outside services, such as machining and third-party research and development costs.
Research and development includes those activities performed on behalf of some of the Company's alliance partners including Dow and ExxonMobil. As the Company does not track fully burdened R&D costs or capital expenditures by project, these amounts are not included
in costs of service. However, based on hours spent on each project, the Company estimates the R&D efforts undertaken for various projects were as follows:
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Inventories
Raw materials inventory consists of purchased parts. Work-in-process inventory consists of purchased parts and fabricated sub-assemblies for product sales in the process of being built. Finished goods inventory consists of completed systems ready for shipment to customers.
At each balance sheet date, the Company examines its ending inventories for possible excess quantities and obsolescence. This evaluation includes analysis of sales levels by product and projections of future demand. The Company writes down inventories on hand in excess of forecasted demand and writes off inventories that it considers obsolete. Additionally inventories are carried at the lower of cost or market, with cost determined on a specific identification basis. The Company's inventory balances at June 30,
2009 and December 31, 2008 were as follows (in thousands):
Accrued Warranty
The Company offers a warranty on each Symyx Tools system sold to a customer. Warranty terms vary depending upon the product sold and country in which the transaction occurs. However, warranties typically include parts and labor and software bug fixes for a specified period
(typically one year). The Company estimates warranty costs to be incurred under its basic limited warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company's warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts, as necessary. Changes in the Company's
product warranty expense accrual during the six months ended June 30, 2009 and 2008 were as follows (in thousands):
Goodwill and Intangible Assets
The Company's goodwill at June 30, 2009 and December 31, 2008 is reported as follows (in thousands):
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's goodwill balance decreased $362,000 during the six months ended June 30, 2009, primarily due to the effect of foreign currency exchange rate fluctuation on the goodwill recorded by the Company's subsidiaries in foreign currencies.
Intangible assets are amortized using the straight-line method over their estimated periods of benefit, ranging from one to seven years.
The Company accounts for goodwill in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). As required by SFAS No. 142, the Company tests goodwill of its reporting units for impairment
annually during its fourth quarter or whenever events occur or circumstances change, such as an adverse change in business climate or a decline in the overall industry, that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company allocated goodwill into three reporting units: Symyx Software, Symyx Research and Symyx Tools.
Testing goodwill for impairment requires a two-step approach under SFAS No. 142. In determining the fair value of its reporting units in step one of its SFAS No. 142 impairment analysis, the Company uses a combination of the income approach, which is based on the present value of discounted cash flows and terminal value projected
for the reporting unit, and the market approach, which estimates fair value based on an appropriate valuation multiple of revenue or earnings derived from comparable companies, adjusted by an estimated control premium. These calculations are dependent on several subjective factors including the timing of future cash flows, future growth rates, the discount rate, and a selection of peer market transactions. The discount rate that the Company uses
in the income approach of valuation represents the weighted average cost of capital that the Company believes is reflective of the relevant risk associated with the projected cash flows.
If the estimated fair value of a reporting unit's goodwill exceeds its net book value, the Company concludes that its goodwill is not impaired. Otherwise, the Company performs step two of the above test to compare the estimated implied fair value of goodwill to its carrying value. The excess carrying value of goodwill as compared to the
implied is recorded as a goodwill impairment. In the fourth quarter of 2008, the Company performed an impairment test of each reporting unit's goodwill. As a result of this analysis, the Company concluded that the carrying amounts of goodwill exceeded the implied fair value of goodwill in the Symyx Software and Symyx Research reporting units and recorded an impairment charge.
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (SFAS No. 144), the Company tests other long-lived assets, including property, equipment
and leasehold improvements and other intangible assets subject to amortization, for recoverability whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable. The Company assesses the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset
in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, the Company will estimate the fair value of the asset group using the same approaches indicated above for SFAS No. 142 step two and compare it to its carrying value. The excess of the carrying value over the fair value is allocated pro rata to derive the adjusted carrying value. The adjusted carrying value of each asset in the asset group is not reduced below its fair value.
In the fourth quarter of 2008, due to the significant decline of its market capitalization, the Company also performed an impairment test of long-lived assets. As a result of this analysis, the Company concluded that the carrying amounts of intangibles and other long-lived assets in Symyx Research and Symyx Tools reporting units exceeded their implied fair values and recorded an impairment charge.
Based on the impairment analysis conducted in the fourth quarter of 2008, the Company recorded impairment charges of $76,489,000 to goodwill, $2,574,000 to intangible assets and $11,267,000 to property, plant and equipment.
No indicators of impairment were noted for the six months ended June 30, 2009.
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest.
The Company assesses its allowance for doubtful accounts based on a combination of factors. In cases in which the Company is aware of circumstances that may impair a specific customer's ability to meet its financial obligations to us, the Company records a specific allowance against amounts due and thereby reduces the net recognized receivable
to the amount it reasonably believes will be collected. For all other customers, the Company records allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment and its historical experience. For the six months ended June 30, 2009 and 2008, the Company's allowance for doubtful accounts changed as follows (in thousands):
Deferred Costs
Occasionally the Company enters into certain software consulting service and tool product arrangements under which all revenue is deferred until elements of the arrangements are delivered in the future. In these cases, the direct variable expenses, not exceeding the expected revenue, are deferred and included in other current assets on
the balance sheet until the revenue is recognized. Direct variable expenses include direct labor costs and direct services contracts with third parties working on the software service arrangements. As of June 30, 2009 and December 31, 2008, the Company deferred approximately $1,229,000 and $2,162,000, respectively, of direct variable expenses related to software consulting service and tools product arrangements in which the revenue is deferred until future periods.
Fair Value Measurements
In September 2006, the Financial Accounting Standard Board ("FASB") issued Statement No. 157 ("SFAS 157"), Fair Value Measurements. SFAS No. 157 establishes a three-level hierarchy which prioritizes the inputs used in measuring fair value. In general, fair value
determined by Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations in which there is little, if any, market activity for the asset or liability. The fair value of the Company's cash equivalents were $74,822,000
and $51,999,000 at June 30, 2009 and December 31, 2008, respectively, based on Level 1 inputs. Effective January 1, 2009, the Company adopted the provisions under SFAS No. 157 for valuation of nonfinancial assets and nonfinancial liabilities. The adoption of such provisions did not impact the Company's financial position, results of operations or cash flows.
Effect of New Accounting Pronouncements
In April 2009, the FASB issued the following new accounting standards:
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
These standards are effective for periods ending after June 15, 2009. These standards do not have material impact on the Company's financial statements.
In May 2009, the FASB issued Statement No. 165, Subsequent Events ("SFAS 165"), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165
also requires the disclosure of the date through which an entity has evaluated subsequent events and whether that evaluation date represents the date the financial statements were issued or were available to be issued. The Company adopted SFAS 165 in the second quarter of 2009. The adoption of SFAS 165 did not have any impact on its consolidated financial statements.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) ("SFAS 167"), which changes the consolidation rules as they relate to variable interest entities. Specifically, SFAS 167 makes significant changes to the model for determining who should
consolidate a variable interest entity, and also addresses how often this assessment should be performed. SFAS 167 will be effective for the Company beginning in the first quarter of 2010. The Company does not expect the adoption will have a material impact on its consolidated financial statements.
2. Stock-Based Benefit Plans
The Company has an Employee Stock Purchase Plan ("ESPP") that permits eligible employees to purchase Symyx common stock at a discount, but only through payroll deductions, during concurrent 12-month offering periods. Each offering period is divided into two consecutive six-month purchase periods. On the last day of each purchase period,
eligible employees can purchase shares under the plan at 85% of the fair market value of Symyx's common stock on the first day of the offering period or the last day of the purchase period, whichever was lower. The two purchase dates per year under the ESPP are April 30 and October 31. A total of 194,659 and 127,856 shares were purchased during the six months ended June 30, 2009 and 2008, respectively. The Company also registered an additional
1,005,793 shares authorized under the evergreen provision of its ESPP program. As of June 30, 2009, there were 2,046,444 shares of common stock available for future purchase under the ESPP.
The Company also has adopted various stock plans that provide for the grant to employees of stock-based awards, including stock options, restricted stock units and restricted stock. Certain of these plans permit the grant of nonstatutory stock-based awards to outside consultants
and members of the Company's Board of Directors. During the three and six months ended June 30, 2009, the Company granted options to purchase 0 and 30,000 shares of common stock, respectively, under its stock plans. During the three and six months ended June 30, 2008, the Company granted options to purchase 20,000 and 77,500
shares of common stock, respectively, under its stock plans. The Company valued options granted in the three and six months ended June 30, 2008 and 2009 using the Black-Scholes method with the following valuation assumptions:
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the three months ended June 30, 2009 and 2008, the Company granted restricted stock units of 64,818 shares and 30,240 shares, respectively. During the six months ended June 30, 2009 and 2008, the Company granted restricted stock units of 68,646 shares and 33,422 shares, respectively. The fair value of each restricted stock unit
equaled to the closing sales price of the Company's common stock on the grant date.
Stock-based compensation expense recognized in the Company's results of operations for these periods was as follows (in thousands):
As of June 30, 2009, 4,781,560 shares were available for issuance under the Company's various stock plans.
3. Loss per Share
Basic and diluted net loss per share has been computed by dividing the net loss for the period by the weighted-average number of shares of common stock outstanding during the period. The computation of the weighted-average number of shares outstanding for the three and six months ended June 30, 2009 and 2008 was (in thousands):
The following shares were excluded from the calculation of basic and diluted net loss per share for the three and six months ended June 30, 2009 and 2008, respectively, because all were anti-dilutive for the respective periods (in thousands):
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Related Party Transactions
The Company entered into a Collaborative Development and License Agreement in March 2005 and an Alliance Agreement in December 2005 with Intermolecular, Inc. ("Intermolecular"). Under these agreements, the two companies worked together to conduct research and development and other activities with respect to materials and high-throughput
technology for use in semiconductor applications. Each party bore its own expenses. In November 2007, following the conclusion of the joint research and development activities, these agreements were amended. Under the amended agreements, the Company has an ongoing obligation to provide two employees to modify and integrate certain Symyx software with and into Intermolecular products and to provide Intermolecular access to certain Symyx equipment for development purposes. In August 2006, the Company invested
$13,500,000 in exchange for approximately 13% of Intermolecular's outstanding shares, and in December 2008 invested an additional $1,647,000. As of June 30, 2009, the Company owned approximately 12% of Intermolecular's outstanding shares. The Company accounts for its ownership interest in Intermolecular using the cost method, because the Company does not have the ability to exercise significant influence over Intermolecular's strategic, operating, investing and financing activities. Isy Goldwasser, the Company's
chief executive officer, is a director of Intermolecular. For the three months ended June 30, 2009 and 2008, the Company recognized revenue from Intermolecular of $540,000 and $587,000, respectively. For the six months ended June 30, 2009 and 2008, the Company recognized revenue from Intermolecular of $623,000 and $639,000, respectively. As of June 30, 2009, the Company recorded $17,000 of deferred revenue and a $77,000 customer deposit from Intermolecular.
As of December 31, 2008, the Company recorded $32,000 of deferred revenue and a $77,000 customer deposit from Intermolecular.
5. Comprehensive Loss
The components of comprehensive loss for the three and six months ended June 30, 2009 and 2008 were as follows (in thousands):
6. Segment Disclosure>
SFAS No. 131 ("SFAS 131"), Disclosures about Segments of an Enterprise and Related Information, requires disclosures of certain information regarding operating segments, products and services, geographic areas of operation and major customers. The method for determining what information
to report under SFAS 131 is based upon the "management approach," or the way that management organizes the operating segments within a company for which separate financial information is available and evaluated regularly by the Chief Operating Decision Maker ("CODM") when deciding how to allocate resources and in assessing performance. The Company's Chief Executive Officer is its CODM, who allocates resources to and assesses the performance of each business unit using information about the business unit's revenue
and operating income (loss). The Company's CODM generally does not review the Company's assets by business segment.
Revenue is defined as revenue from external customers and is disaggregated into:
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The disaggregated financial information reviewed by the CODM in 2009 and 2008 is listed in the table below. The Company has research and development, manufacturing, sales and marketing, and general and administrative groups. Expenses for these groups are generally allocated to the business units. Certain corporate-level operating expenses
and charges were not allocated to each business unit and were included in the "other" category. These expenses and charges include, but not limited to:
* The Company did not implement a reporting system prior to 2009 to segregate operating expenses by business segment. It is impracticable to restate prior periods to be consistent with the current period presentation.
Geographic Area Data
The table below shows revenue by physical location of the Company's customers based on the "ship-to" address (in thousands):
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company acquired certain patent rights and know-how from third parties. It also obtained certain intangible assets in various business acquisitions. These intangible assets are being amortized on a straight-line basis over the estimated useful lives of the assets. In
the three months ended June 30, 2009 and 2008, the Company recorded amortization expenses of intangible assets of $3,108,000 and $3,329,000, respectively. In the six months ended June 30, 2009 and 2008, the Company recorded amortization expenses of intangible assets of $6,367,000 and $6,666,000, respectively. In the fourth quarter of 2008, the Company evaluated the recoverability of intangible assets and recorded an impairment charge of $2,574,000.
Assuming no subsequent impairment of the underlying assets, the amortization expense of total intangible assets is expected to be as follows (in thousands):
The reconciliation of the federal statutory income tax rate to the Company's effective income tax rate is as follows:
As of June 30, 2008, the Company anticipated that it is reasonably possible that its gross unrecognized tax benefits may decrease within the next twelve months. To the extent that certain federal statutes of limitations expire, unrecognized tax benefits would decrease by approximately $1,091,000, of which approximately $746,000 and
$345,000 would be recorded as an income tax benefit and an increase to additional paid-in capital, respectively. U.S. income taxes were not provided on undistributed earnings from investments in certain non-U.S. subsidiaries. Determination of the amount of unrecognized deferred tax liability for temporary differences related to investments in these non-U.S. subsidiaries that are essentially permanent in duration is not practicable. The Company intends
to reinvest these earnings in operations outside the U.S.
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Bank Credit Facility
On September 28, 2007, the Company entered into a Credit Agreement (the "Credit Agreement") with Bank of America, N.A., as Administrative Agent and L/C Issuer (the "Agent"), and each lender from time to time a party thereto. Under the Credit Agreement, the Agent has agreed to provide a $25 million aggregate commitment for a two-year revolving
credit facility and issuances of letters of credit for the Company's account (the "Facility"), secured by substantially all of the Company's assets excluding intellectual property.
Loans under the Credit Agreement bear interest at either (i) for Eurodollar rate loans, the rate per annum equal to the British Bankers Association LIBOR plus a margin ranging from 0.25 percent to 0.50 percent or (ii) a formula based on the Agent's prime rate and the federal funds effective rate. Subject to certain conditions
stated in the Credit Agreement, the Company may borrow, pre-pay and re-borrow amounts under the Facility at any time during the term of the Credit Agreement. The Credit Agreement will terminate and all amounts owing thereunder will be due and payable on September 28, 2009, unless the commitments are earlier terminated, either at the Company's request or, if an event of default occurs, by the lenders. The Company may also, upon the agreement of either the Agent or additional banks not currently a party
to the Credit Agreement, increase the commitments under the Facility up to an additional $50 million. The Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including financial covenants and events of default. The negative covenants set forth in the Credit Agreement include restrictions on additional indebtedness and liens, fundamental changes and entering into burdensome agreements. The financial covenants require the Company to meet quarterly financial
tests with respect to consolidated net worth and consolidated interest coverage ratio, and financial tests with respect to a consolidated leverage ratio.
Due to the non-cash impairment charges and valuation allowances recorded in the fourth quarter of 2008, the Company did not meet the Consolidated Net Worth covenant related to the Facility ("Existing Default") as of December 31, 2008. In March 2009, the Company and the Agent executed an amendment to the Facility which provided a waiver
with respect to the Existing Default and lowered the Consolidated Net Worth covenant amount for future measurement dates.
Effective July 1, 2009, the Company consolidated certain of its subsidiaries and concluded certain internal asset transfers. In August 2009, the Company and the Agent executed a second amendment to the Credit Agreement which provided a waiver with respect to any noncompliance under the Facility triggered by such transactions.
As of June 30, 2009, the Company had no outstanding borrowings under the Facility and was in compliance with all financial covenants related to the Facility.
10. Restructuring Charges
In order to realign its operations to drive performance and improve operating efficiency, on December 3, 2008 the Company initiated a reorganization plan ("2008 Plan") to combine Symyx Tools and Symyx Research to create Symyx High Productivity Research ("HPR"). The 2008 Plan included a worldwide reduction in force of approximately
90 employees and the consolidation of certain facilities. The Company recorded total restructuring charges of $5,160,000 according to FASB Statement No. 146 ("FAS 146"), consisting of severance and one-time benefits of approximately $3,897,000, exit costs of facilities of approximately $526,000, write-off of related fixed assets of approximately $583,000, and associated legal costs of approximately $154,000.
The Company estimated the cost of exiting and terminating facility leases or acquired leases by referring to the contractual terms of the agreements and by evaluating the current real estate market conditions. In addition, the Company has estimated sublease income by evaluating the current real estate market conditions or, where applicable,
by referring to amounts being negotiated. The ability to generate this amount of sublease income, as well as the ability to terminate lease obligations at estimated amounts, is highly dependent upon the commercial real estate market conditions in certain geographies at the time the evaluations and negotiations are performed.
SYMYX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On October 1, 2007, the Company acquired MDL Information Systems, Inc. ("MDL"), a company providing technical R&D software solutions to more than 1,000 life sciences companies. On October 2, 2007, in connection with the acquisition of MDL, the Company announced a restructuring plan ("2007 Plan") to terminate approximately 120 employees
of the Company, comprised of approximately 100 positions in the United States and approximately 20 positions internationally. Total estimated restructuring termination benefits were $7,040,000, consisting primarily of involuntary employee termination benefits. Of the total restructuring charges, $6,823,000 was associated with the former MDL employees and therefore was accrued as part of the liabilities assumed at the time of MDL acquisition according to FASB Statement No. 141, Accounting
for Business Combinations, as well as EITF Consensus No. 95-3. The remaining balance associated with the termination of employees of the acquiring company was recorded as part of the operating expenses according to FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. As of June 30, 2009, the Company completed the majority of the restructuring plan but estimates that up to $567,000 may
yet be incurred in severance benefits and associated legal fees pertaining to the termination of certain former employees of MDL.
The following table illustrates the change in accrued restructuring costs during the six months ended June 30, 2009 (in thousands):
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q ("Report"), including the "Management's Discussion and Analysis of Financial Condition and Results of Operation," contains forward-looking statements that involve risks and uncertainties within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. These statements typically may be identified by the use of forward-looking words or phrases such as "may," "will," "believe," "expect," "plan," "intend," "goal," "anticipate," "should," "planned," "estimated," "potential," and "continue," or the negative thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future. The cautionary statements made in this Report
should be read as being applicable to all related forward-looking statements whenever they appear in this Report. Forward-looking statements include, without limitation, statements regarding: our intentions, beliefs and expectations regarding our future financial performance and operating results; anticipated trends in our business; our belief that our cash and cash equivalents will be sufficient to satisfy our anticipated cash requirements for at least the next twelve months; and our expectations regarding our
customers.
Among the factors that could cause actual results to differ materially are the factors detailed in Item 1A, "Risk Factors," of Part II of this Report, which readers should review. Given these uncertainties, readers are cautioned not to place undue reliance on the forward-looking statements.
Any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Report. The following discussion and analysis should be read in conjunction
with the unaudited condensed consolidated financial statements and the notes thereto included in this Report and the audited consolidated financial statements and accompanying notes included in our annual report on Form 10-K for the year ended December 31, 2008.
All percentage amounts and ratios were calculated using the underlying data in thousands. Operating results for the three and six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for any subsequent quarter
or for the full fiscal year.
Overview
Symyx Technologies, Inc. enables global leaders in the life sciences, chemical, energy, and consumer and industrial products industries to optimize and accelerate their scientific research and development ("R&D"). Through our expertise in scientific informatics management, workflow optimization, and micro-scale, parallel experimentation,
we help companies transform their R&D operations to minimize the time their scientists spend on routine, repetitive tasks and to maximize the return on their R&D investments. Symyx software, tools, and research services enable scientists to design, execute, analyze and report experimental results faster, easier and less expensively.
Symyx Software provides a suite of scientific software, content and technology to support R&D information lifecycle management across the enterprise, improving scientists' ability to search, develop, manage, manipulate and store research data and to manage intellectual property. Symyx Software is the larger of our business units, accounting
for 61% of our first half of 2009 revenue.
Symyx HPR provides various ways for customers to access our proprietary high-throughput technologies for parallel (versus serial) experimentation, enabling greater speed and breadth of research. Symyx HPR develops and applies high-throughput technologies that empower customers to engage in faster, broader experimentation by working with
small amounts of materials in an automated fashion and utilizing parallel, or array-based, testing. Our customers can bring some of the capabilities of our laboratories into their own organizations by purchasing our tools to integrate and automate laboratory experimentation to increase research productivity. Customers can also leverage our expertise and infrastructure through the purchase of research services, with programs that range from directed
research to strategic collaborative relationships. The reorganization of services, along with the combination of tools and research into HPR are intended to leverage the expertise and experience of our technical staff and sales team, and provide new revenue opportunities to replace the expected continued decline in research-related revenue.
Through software licensing, automated workflow sales and research services, we provide customers multiple ways to begin working with us. Our goal is to leverage and integrate all of our offerings so that, over time, our customers can easily access our entire technology platform to improve their R&D productivity and reduce program risk.
Highlights for the quarter ended June 30, 2009 include:
Our net loss for the three months ended June 30, 2009 was $1.2 million, compared to a net loss of $1.5 million for the three months ended June 30, 2008. Our
net loss for the six months ended June 30, 2009 was $4.3 million, compared to a net loss of $8.3 million for the six months ended June 30, 2008. The decrease in net loss was due primarily to significantly lower operating expenses as the result of our restructuring in December 2008 and our continuing expense control
efforts.
Stock-based compensation expense recognized in our results of operations for the three and six month periods ended June 30, 2009 was as follows (in thousands):
Critical Accounting Policies and Use of Estimates
We prepare our financial statements and accompanying notes in accordance with generally accepted accounting principles in the United States ("GAAP"). In "Critical Accounting Policies" under Item 7, and in Note 1 of the Notes to the Consolidated Financial Statements included under Item 8, in
each case of our Annual Report on Form 10-K for the year ended December 31, 2008, we describe the significant accounting policies and methods used in the preparation of the consolidated financial statements. Preparing financial statements and related disclosures requires management to exercise judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by management's application of accounting policies.
Estimates include the assumptions used in determining the implied fair value of goodwill, the forfeiture rates for stock-based awards, the collectability of outstanding accounts receivables, reserve for excess or obsolete inventory, future warranty expenditures, assumptions such as the elements comprising a revenue arrangement, including the distinction between software upgrades/enhancements and new products, when our products achieve technological feasibility, the potential outcome of future tax consequences
of events recognized in the our financial statements or tax returns and the fair value of acquired intangible assets. We evaluate our estimates, including those mentioned above, on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from those estimates under different assumptions or conditions. We have not materially changed these policies from those reported in our Annual Report on Form 10-K for the year ended December 31, 2008, except for the following additional critical accounting policy regarding deferred costs.
Deferred Costs
Occasionally we enter into certain software consulting service and tools product arrangements under which all the revenue is deferred until certain elements of the arrangements are delivered in the future. In these cases, the direct variable expenses, not exceeding the expected revenue, are deferred and included in other current
assets on the balance sheet until the revenue is recognized. Direct variable expenses include direct labor costs and direct services contracts with third parties working on the software service arrangements. As of June 30, 2009 and December 31, 2008, we deferred approximately $1.3 million and $2.2 million, respectively, of direct variable expenses related to software consulting service and tools product arrangements where the revenue is deferred until future periods.
Results of Operations
Revenue
Revenue for the three months ended June 30, 2009 decreased relative to the same period of 2008 due to a $2.2 million, or 61%, reduction in software consulting services, lower software content and license revenue, and lower research service revenue, partially offset by slightly
higher Symyx HPR tools sales.
Revenue for the six months ended June 30, 2009 decreased relative to the same period of 2008 due to lower research service revenue following the May 2008 expiration of our primary alliance agreement with ExxonMobil, the second quarter 2009 decreases in Symyx Software revenue described above, and lower Symyx HPR tools sales.
Concentration of Revenue
ExxonMobil and The Dow Chemical Company ("Dow") are the only two major customers that contributed more than 10% of our revenue for the periods addressed below. The aggregate revenue, and corresponding percent of revenue by each revenue component, from ExxonMobil and Dow is as follows (in thousands, except percentages):
With the MDL acquisition in October 2007, we have substantially broadened our customer base, but continue to expect that Dow and ExxonMobil will remain our two largest customers in 2009 based on existing commitments. However, we further expect Symyx HPR revenue to decrease materially in 2009 as a result of the May 2008 expiration
of our main alliance agreement with ExxonMobil.
Revenue by Segment
We segregate revenue into the following business units:
Symyx Software generates revenue primarily from the licensing of software, including the Isentris platform and our lab execution and analysis software ("LEA") and Electronic Laboratory Notebook ("ELN") products, content subscriptions, and providing associated support, maintenance and consulting services. Software revenue decreased in the
three and six months ended June 30, 2009 compared with the same periods in 2008 due to a substantial decrease in software consulting services revenue in response to the continued challenging economic conditions affecting all industries, and lighter content and licensing revenue, partially offset by an increase in maintenance revenue due to our increased software installation base.
Symyx HPR generates revenue primarily from providing directed and collaborative research services and selling tools and associated services, and to a lesser extent, licensing materials and other intellectual property. The decrease in Symyx HPR revenue in the three and six months ended June 30, 2009 from the same periods of 2008 resulted
largely from the decrease in service revenue from ExxonMobil by $2.1 million and $5.8 million, respectively, due to the expiration of our primary agreement with ExxonMobil in May 2008. The balance of the decline for the six month period of 2009 compared with the same period of 2008 was due to lower tools sales while our customers continued to reduce their capital expenditures.
Cost of Revenue
* Less than 1%
Total costs of revenue represented 34% and 26%, respectively, of total revenue for the three months ended June 30, 2009 and 2008. Total costs of revenue represented 33% and 27%, respectively, of total revenue for the six months ended June 30, 2009 and 2008. The increase in costs of revenue as a percentage of total revenue was was due to
incremental expenses from our new HPR formulations business resulting from our IntegrityBio acquisition which, as an emerging service business, has lower margins than our other business lines. Also, as we expand our research services activities, certain personnel who currently work on our internally-funded R&D projects will increasingly be used to provide services to customers, thereby their associated expenses will be included in cost of revenue. Accordingly,
over time, our gross margin percentage may decline, but we would expect a corresponding decrease in our research and development expenses.
Cost of service includes certain operating expenses related to software consulting and software and hardware maintenance and costs associated with research services for life science and chemical and energy industries. Cost of service increased 21% and 30%, respectively,
for the three and six month periods ended June 30, 2009 over the same periods in 2008 primarily due to the incremental costs from the acquisition of IntegrityBio in August 2008.
The fluctuation in the cost of product sold in the comparable periods of 2009 and 2008 was primarily due to changes in product mix.
Cost of license fees, content and royalties consists of primarily royalties we pay for third-party content we include in our content subscription offerings, and remained consistently at approximately 20% of content revenue recognized.
Other Operating Expenses
Research and Development ("R&D") Expenses
Our R&D expenses consist primarily of:
Total R&D expenses for the three and six months ended June 30, 2009 decreased significantly in both dollar and percentage terms versus the same periods in 2008 due (i) to the significant workforce reduction we implemented in December 2008, (ii) to lower depreciation
expenses following the write-down of fixed asset fair values in the fourth quarter of 2008, and (iii) to the fact that an increasing amount of personnel and other associated expenses related to research services provided to life science and chemical and energy industries have been recorded as cost of service rather than R&D expense.
The innovations and advances generated by our research laboratories support our Symyx HPR and Symyx Software operations, and generate intellectual property and discovered materials. We expect to continue to devote significant resources to R&D.
Research and development includes those activities performed on behalf of some of our alliance partners including Dow and ExxonMobil. As we do not track fully burdened R&D costs or capital expenditures by project, these amounts are not included in costs of service.
However, based on hours spent on each project, we estimate the R&D efforts undertaken for various projects were as follows:
The decrease in R&D hours spent on customer-sponsored projects from 2008 to 2009 was primarily due to the decline in our collaboration with ExxonMobil.
Sales, General and Administrative ("SG&A") Expenses
Our SG&A expenses consist primarily of (i) personnel costs for sales and marketing, general management, finance, legal and human resources, (ii) associated facilities and information technology expenses, (iii) commissions to our foreign sales agents, and (iv) professional
expenses, such as outside legal and accounting fees. The decrease in SG&A expenses for the three and six months ended June 30, 2009 compared to the same periods in 2008 was primarily due to reduction in workforce implemented in December 2008 and tighter control of operating expenses. We expect to continue to invest in our sales and support teams and our marketing activities
to capitalize on our market opportunities.
Interest and Other Income, Net
Interest and other income, net, for the three and six months ended June 30, 2009 significantly decreased from interest and other income in the same periods of 2008, which included a $1.6 million gain from the sale of our Occupational Health Service business and a $960,000 foreign currency gain.
Income Tax Benefits
We recorded an income tax benefit of $345,000 and $2.0 million for the three and six months ended June 30, 2009, respectively, compared to an income tax benefit of $915,000 and $5.2 million for the three and six months ended June 30, 2008, respectively. The effective
income tax benefit rate was 22% and 38% for the three month periods ended June 30, 2009 and 2008, respectively. The effective income tax benefit rate was 31% and 39% for the six month periods ended June 30, 2009 and 2008, respectively. The effective income tax benefit rate for the three and six months ended June 30, 2009 was lower than our statutory rate of 35% due to the additional valuation allowance we recorded against certain state deferred tax assets generated in 2009. The valuation allowance reflects that
portion of deferred tax assets which management believes will not be realized on a more likely than not basis. If the actual results differ from these estimates or these estimates are adjusted in future periods, the valuation allowance may be adjusted, which could materially impact our financial position and results of operations.
As of June 30, 2008, we anticipate that it is reasonably possible that our gross unrecognized federal tax benefits may decrease within the next twelve months. To the extent that certain federal statutes of limitations expire, then our unrecognized tax benefits would decrease by approximately $1.1 million, of which approximately $746,000
and $345,000 would be recorded as an income tax benefit and an increase to additional paid-in capital, respectively.
We are subject to taxation in the U.S. and various state and foreign jurisdictions. We are not currently under audit by any tax authorities. Because we used some of the tax attributes carried forward from previous years to tax years that are still open, statutes of limitation remain open for all tax years to the extent of the
attributes carried forward into tax years starting from 2005 for federal and California tax purposes.
Recent Accounting Pronouncements
In April 2009, the FASB issued the following new accounting standards:
These standards are effective for periods ending after June 15, 2009. The adoption of these standards did not have a material impact on our financial statements.
In May 2009, the FASB issued Statement No. 165, Subsequent Events ("SFAS 165"), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165
also requires the disclosure of the date through which an entity has evaluated subsequent events and whether that evaluation date represents the date the financial statements were issued or were available to be issued. We adopted SFAS 165 in the second quarter of 2009. The adoption of SFAS 165 did not have any impact on our consolidated financial statements.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) ("SFAS 167"), which changes the consolidation rules as they relate to variable interest entities. Specifically, SFAS 167 makes significant changes to the model for determining who should
consolidate a variable interest entity, and also addresses how often this assessment should be performed. SFAS 167 will be effective for us beginning in the first quarter of 2010. We do not expect the adoption will have a material impact on our consolidated financial statements.
Liquidity and Capital Resources
This section discusses the effects of the changes in our balance sheets, cash flows and commitments on our liquidity and capital resources.
Balance Sheet and Cash Flows
At June 30, 2009, we had cash and cash equivalents of approximately $84.9 million, an increase of $18.5 million from December 31, 2008. During
the first half of the year, we typically receive payments for annual renewals of recurring maintenance and content subscriptions in our software business and collect against tools sales (which are typically seasonally highest in the fourth quarter) from our customers, driving the cash balance to the highest point of the year.
Our operating activities provided $21.4 million and $39.1 million of cash during the six months ended June 30, 2009 and 2008, respectively. The change in operating cash flow was primarily due to the timing of customer payments for service and products delivered or to be delivered.
Net cash used in investing activities during the six months ended June 30, 2009 was $3.2 million, all for the purchase of property and equipment. Net cash provided by investing activities during the six months ended June 30,
2008 was $12.0 million, primarily due to the fact that proceeds from the maturities of marketable securities were invested in securities that were considered cash equivalents as well as the receipt of a $5.0 million working capital adjustment from the seller of MDL.
Net cash provided by financing activities during the six months ended June 30, 2009 and 2008 was from Employee Stock Purchase Plan ("ESPP") purchases and option exercises, partially offset by the payment of employee withholding taxes in exchange for common stock upon the
vesting of restricted stock units.
Current liabilities as of June 30, 2009 increased by $12.2 million compared to December 31, 2008 primarily due to an increase of $19.3 million in deferred revenue, reflecting the seasonally higher renewals of maintenance and content subscriptions during the six months ended
June 30, 2009 in our Symyx Software business, partially offset by the reduction in accounts payable and other accrued liabilities as we paid off significantly more liabilities before the consolidation of our domestic operations.
On September 28, 2007, we entered into a Credit Agreement (the "Credit Agreement") with Bank of America, N.A., as Administrative Agent and L/C Issuer (the "Agent"), and each lender from time to time a party thereto. Under the Credit Agreement, the Agent has agreed to provide a $25 million aggregate commitment for a two-year revolving credit
facility and issuances of letters of credit for Symyx (the "Facility"), secured by substantially all of our assets excluding intellectual property. In March 2009, we entered into an amendment to the Facility with the Agent which lowered the Consolidated Net Worth covenant amount for future measurement dates. In August 2009, we entered into the second amendment to the Credit Agreement in which the Agent consented to the consolidation of our U.S. operation. As of June 30, 2009, we were in compliance with the amended
covenants in the Credit Agreement and had no borrowing under the Facility.
We believe our current cash and cash equivalents and the cash flows generated by operations will be sufficient to satisfy our anticipated cash needs for working capital, capital expenditures, investment requirements, and other liquidity requirements associated with our existing operations for at least the next twelve months. However, we
may choose to raise additional funds through public or private financing, collaborative relationships or other arrangements. We cannot provide assurance that additional funding, if sought, will be available or be 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 and licensing 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.
Customer Indemnification
From time to time, we agree to indemnify our customers against certain third party liabilities, including liability if our products infringe a third party's intellectual property rights. Such indemnification provisions are accounted for in accordance with Financial Accounting Standards Board Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Our indemnification obligation in these arrangements is typically limited to no more than the amount paid by the customer. As of June 30, 2009, we were not subject to any pending intellectual property-related litigation. We have not received any requests for and have not been required to make any payments under these indemnification
provisions. We are not able to estimate the maximum potential impact of these indemnification provisions on our future results of operations since the liabilities associated with those types of claims are dependent on various factors that are not known until an action is commenced or the claim is made.
Contingencies
In July 2006, we acquired all of the outstanding shares of Autodose SA (Autodose). Pursuant to the terms of the merger agreement, the former stockholders of Autodose are eligible to receive additional purchase price consideration of up to 6,500,000 Swiss Franc (equivalent to $5,987,000 using the foreign currency exchange rate
in effect on June 30, 2009) upon achievement of the 2009 revenue target with respect to the Company's Autodose product line. We do not expect to pay additional consideration with respect to 2009 sales. However, we will continue to evaluate the likelihood of achieving this target from time to time. If the 2009 revenue target is met, we would record the fair value of any additional consideration as an additional cost of the acquisition.
No additional consideration was recorded as of June 30, 2009, and we do not expect to record additional consideration during the remainder of fiscal 2009.
In August 2008, we acquired 100% of the ownership of Integrity Biosolution, LLC ("IntegrityBio"), a privately-held research service company based in Camarillo, California. Pursuant to the terms of the purchase agreement, the founder of IntegrityBio will earn an additional
$1.75 million in cash, so long as the founder serves as an employee of Symyx or its affiliates continuously for 24 months from the acquisition date. We have determined it is probable the amounts will be earned and paid and have to date recorded $774,000 payable to the founder as of June 30, 2009. We also agreed to pay 46% of total revenue generated by IntegrityBio during the one-year period starting from September 1, 2009 to the founder as additional consideration pursuant to the terms of the purchase agreement,
for which we cannot yet estimate the total liability.
Contractual Obligations
During the six months ended June 30, 2009, there were no material changes to our commitments disclosures as set forth under the captions "Principal Commitments" and "Other Commitments" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for
the year ended December 31, 2008.
Off Balance Sheet Arrangements
We have not entered into any off-balance sheet financing arrangements and have not established any special purpose entities as of June 30, 2009. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
Related Party Transactions
Transactions between Symyx and related parties during the three months ended June 30, 2009 were as follows:
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