-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CdfyZaDwvLAOZf1+klxGeZhve0oC+3hQjjX0bYSuN8cB0Q2VW0j84i4GMebcUI5x SX/MbikdObN0HFzVfVbqkA== 0000912057-01-001367.txt : 20010123 0000912057-01-001367.hdr.sgml : 20010123 ACCESSION NUMBER: 0000912057-01-001367 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001030 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AFFYMETRIX INC CENTRAL INDEX KEY: 0000913077 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 770319159 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-28218 FILM NUMBER: 1508316 BUSINESS ADDRESS: STREET 1: 3380 CENTRAL EXPRESSWAY CITY: SANTA CLARA STATE: CA ZIP: 95051 BUSINESS PHONE: 4085226000 MAIL ADDRESS: STREET 1: 3380 CENTRAL EXPRESSWAY CITY: SANTA CLARA STATE: CA ZIP: 95051 8-K/A 1 a2034831z8-ka.txt 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 8-K/A Amendment No. 1 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ---------------------- Date of Report (Date of earliest event reported): October 30, 2000 AFFYMETRIX, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 0-28218 77-0319159 - ------------------ ------------------------ -------------------- (State of (Commission File Number) (IRS Employer incorporation) Identification No.) 3380 Central Expressway, Santa Clara, California 95051 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (408) 731-5000 ------------------------------- (Registrant's telephone number, including area code) N/A - ------------------------------------------------------------------------------- (Former name or former address, if changed since last report) Item 2. ACQUISITION OR DISPOSITION OF ASSETS On October 30, 2000, Nautilus Acquisition Corp. (the "Acquisition Subsidiary"), a California corporation and wholly-owned subsidiary of Affymetrix, Inc. (the "Company"), merged with and into Neomorphic, Inc. ("Neomorphic"), a California corporation, pursuant to an Agreement and Plan of Merger dated September 29, 2000 among the Company, the Acquisition Subsidiary and Neomorphic (the "Merger Agreement"). As a result of the merger, Neomorphic became a wholly-owned subsidiary of the Company. In the merger, (i) each outstanding share of Neomorphic common stock was converted into, and became exchangeable for the right to receive 0.1552 of a share of common stock of the Company, subject to adjustment under certain circumstances following the closing (the "Conversion Ratio"), and (ii) each outstanding share of Neomorphic preferred stock was converted into and became exchangeable for the right to receive shares of Company common stock at the Conversion Ratio plus cash in the amount of $3.84. In connection with the completion of the acquisition, the Company agreed to register the resale of the Company common stock issued in the merger following the closing. At such time the final Conversion Ratio may be increased or decreased depending on the Company's stock performance prior to the effective date of the registration statement. In lieu of any such increase in the aggregate number of shares of Company common stock to be issued in the transaction, the Company has the option of paying cash in an aggregate amount not to exceed $20 million. In addition, each option exercisable for Neomorphic common stock issued and outstanding prior to the consummation of the merger was converted into an option exercisable for shares of the Company's common stock at the Conversion Ratio, generally under the same terms and conditions as existed for the original option. As a result of the merger, the Company issued or agreed to issue, in the aggregate, approximately 1.4 million shares of Company common stock in exchange for all of the outstanding shares of Neomorphic common and preferred stock and the assumption of all of Neomorphic's stock options. Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS On November 13, 2000, Affymetrix, Inc. ("Affymetrix") filed a Form 8-K to report the acquisition of Neomorphic, Inc. ("Neomorphic"). Pursuant to Item 7 of Form 8-K, Affymetrix indicated that it would file certain financial information no later than January 16, 2001. This Amendment No. 1 is filed to provide the required financial statements. (a) Financial Statements of Business Acquired. Financial statements of the business acquired as of and for the year ended December 31, 1999 are included herein. Unaudited condensed financial statements of the business acquired as of and for the nine months ended September 30, 2000 are also included herein. (b) Pro Forma Financial Information. Pro forma financial information as of September 30, 2000, the year ended December 31, 1999 and the nine months ended September 30, 2000 are included herein. (c) Exhibits. 2 2.1 Agreement and Plan of Merger, dated as of September 29, 2000, by and among the Company, the Acquisition Subsidiary and Neomorphic (filed as Exhibit 2.1 to the Company's current report on Form 8-K filed on November 13, 2000 and incorporated herein by reference) 23.1 Consent of Ernst & Young LLP, Independent Auditors 99.1 Press Release Dated October 31, 2000 (filed as Exhibit 99.1 to the Company's current report on Form 8-K filed on November 13, 2000 and incorporated herein by reference) Item 7(a). Financial Statements of Business Acquired 3 Neomorphic, Inc. Index to Financial Statements
Report of Ernst & Young LLP, Independent Auditors........................................................5 Balance Sheet............................................................................................6 Statement of Operations..................................................................................7 Statement of Stockholders' Equity (Deficit)..............................................................8 Statement of Cash Flows..................................................................................9 Notes to Financial Statements...........................................................................10
4 Report of Ernst & Young LLP, Independent Auditors The Board of Directors Neomorphic, Inc. We have audited the accompanying balance sheet of Neomorphic, Inc. as of December 31, 1999, and the related statement of operations, stockholders' equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Neomorphic, Inc. at December 31, 1999, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP December 12, 2000 Palo Alto, California 5 Neomorphic, Inc. Balance Sheet December 31, 1999
ASSETS Current assets: Cash and cash equivalents $ 506,693 Accounts receivable 589,221 Prepaid expenses and other current assets 20,041 Deferred tax asset 179,000 ----------------------- Total current assets 1,294,955 Property and equipment, net 141,026 ----------------------- $ 1,435,981 ======================= Liabilities and stockholders' equity (deficit) Current liabilities: Accounts payable $ 2,520 Accrued compensation 281,949 Other accrued liabilities 142,478 Income taxes payable 204,000 Deferred revenue 1,475,445 Current portion of capital lease obligations 24,686 Note payable 49,002 ----------------------- Total current liabilities 2,180,080 Noncurrent portion of capital lease obligations 41,340 Commitments Stockholders' equity (deficit): Convertible preferred stock-no par value; 10,000,000 shares authorized, none issued and outstanding - Common stock-no par value; 20,000,000 shares authorized, 7,296,225 shares issued and outstanding 253,858 Notes receivable from stockholders (97,298) Accumulated deficit (941,999) ----------------------- Total stockholders' equity (deficit) (785,439) ----------------------- $ 1,435,981 =======================
SEE ACCOMPANYING NOTES. 6 Neomorphic, Inc. Statement of Operations Year Ended December 31, 1999
Revenues: Software licenses and services $ 1,343,501 Grant revenue 216,671 ----------------------- 1,560,172 ----------------------- Costs and expenses: Research and development 1,352,564 Selling, general and administration 676,880 ----------------------- Total costs and expenses 2,029,444 ----------------------- Loss from operations (469,272) Other income (expense): Interest income 2,367 Interest expense (11,018) ----------------------- Net loss before taxes (477,923) Provision for income taxes (25,712) ----------------------- Net loss (503,635) ======================= Basic and diluted net loss per share $ (0.09) ======================= Weighted-average shares used in computing basic and diluted net loss per share 5,725,401 =======================
SEE ACCOMPANYING NOTES. 7 Neomorphic, Inc. Statement of Stockholders' Equity (Deficit)
Notes Total Common Stock Additional Receivable Stockholders' ----------------------- Paid-In From Accumulated Equity Shares Amount Capital Stockholders Deficit (Deficit) ---------------------------------------------------------------------------------- Balances at December 31, 1998 7,015,000 $ - $ 60,683 $ (43,460) $ (438,364) $ (421,141) Issuance of common stock at $0.04-$0.47 per share, net of repurchase 281,225 - 53,838 (53,838) - - Compensation expense relating to options granted to consultants - - 139,337 - - 139,337 Net loss and comprehensive loss - - - - (503,635) (503,635) ---------------------------------------------------------------------------------- Balances at December 31, 1999 7,296,225 $ - $253,858 $ (97,298) $ (941,999) $ (785,439) ==================================================================================
SEE ACCOMPANYING NOTES. 8 Neomorphic, Inc. Statement of Cash Flows Increase (Decrease) in Cash and Cash Equivalents Year Ended December 31, 1999
OPERATING ACTIVITIES Net loss $ (503,635) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 47,854 Issuance of equity instruments for noncash benefits 139,337 Changes in assets and liabilities: Accounts receivable (570,257) Prepaid expenses and other current assets 3,152 Deferred tax asset (179,000) Accounts payable (67,497) Accrued compensation 5,721 Other accrued liabilities 142,478 Income taxes payable 204,000 Deferred revenue 1,357,112 ----------------------- Net cash provided by operating activities 579,265 ----------------------- INVESTING ACTIVITIES Capital expenditures (133,383) ----------------------- Net cash used in investing activities (133,383) ----------------------- FINANCING ACTIVITIES Proceeds from new capital leases 54,805 Principal payments on capital lease obligations (19,655) Repayment of note payable (58,503) ----------------------- Net cash used in financing activities (23,353) ----------------------- Net increase in cash and cash equivalents 422,529 Cash and cash equivalents at beginning of period 84,164 ----------------------- Cash and cash equivalents at end of period $ 506,693 ======================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 11,018 ======================= SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Promissory note issued for services $ 107,505 ======================= Notes receivable from stockholders for exercise of stock options $ 53,838 =======================
SEE ACCOMPANYING NOTES. 9 Neomorphic, Inc. Notes to Financial Statements December 31, 1999 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS AND BASIS OF PRESENTATION Neomorphic, Inc. (the "Company") develops and licenses bioinformatics software products and has proprietary software algorithms and computing infrastructure to analyze, assemble, and annotate genomic and expressed gene sequence data. On October 30, 2000, the Company was acquired by Affymetrix, Inc. (See Note 6). USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. CASH AND CASH EQUIVALENTS The Company invests its excess cash in deposits and money market accounts. The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets, as follows: Computer equipment 3 years Fixtures and furniture 3 years 10 Neomorphic, Inc. Notes to Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) IMPAIRMENT OF LONG-LIVED ASSETS In accordance with the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Under SFAS 121, an impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Impairment, if any, is assessed using discounted cash flows. Through December 31, 1999, there have been no such losses. REVENUE RECOGNITION Revenue is derived principally from software licensing, services, and grants. Software license revenues consist of fees for perpetual licenses which are primarily derived from contracts with corporate customers. Revenue from software license fees is recognized when persuasive evidence of an agreement exists; delivery of the product has occurred; no significant obligations for the Company with respect to implementation remain; the fee is fixed; and collectibility is probable. If significant customization is required, then the total arrangement fee is accounted for under contract accounting and revenue is recognized on a percentage of completion basis or upon completion, as appropriate. If the arrangement requires the delivery of additional software products, the license fee is accounted for under subscription accounting and revenue is recognized ratably over the term of the arrangement or the estimated economic life of the product, as appropriate. Service revenues consist primarily of revenue from consulting fees, training, and maintenance agreements. Consulting and training revenue is recognized as the services are performed. Maintenance revenue is deferred and recognized on a straight-line basis over the life of the related agreement, which is generally one year. Grant revenue is recorded in the period in which reimbursable costs are incurred. 11 Neomorphic, Inc. Notes to Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RESEARCH AND DEVELOPMENT Research and development expenditures are charged to operations as incurred. Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed," requires the capitalization of certain software development costs subsequent to the establishment of technological feasibility, which, for the Company, is established upon completion of a working model. Costs incurred by the Company between completion of the working model and the point at which the product is ready for general release have been insignificant. Therefore, all research and development costs through December 31, 1999 have been expensed as incurred. SIGNIFICANT CONCENTRATIONS In 1999, Celera Genomics Corporation accounted for 37% of the revenue and 23% of the accounts receivable balance. The Company does not require collateral or other security for accounts receivable. ACCOUNTING FOR STOCK-BASED COMPENSATION As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected to account for its 1998 Incentive Stock Plan in accordance with the provisions of Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations. Pro forma disclosures required by SFAS 123 are included in Note 5. Options granted to nonemployees are accounted for using the Black-Scholes method prescribed by SFAS 123 and, in accordance with "The Emerging Issues Task Force Consensus No. 96-18," the options are subject to periodic re-evaluation over their vesting terms. COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") requires components of other comprehensive income to be included in comprehensive income. Comprehensive loss approximated net loss for the year ended December 31, 1999. 12 Neomorphic, Inc. Notes to Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SEGMENT REPORTING Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS 131") establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas, and major customers. The Company has determined that it operates in only one segment. NET LOSS PER SHARE Net loss per share has been computed according to the Statement of Financial Accounting Standards Board No. 128, "Earnings Per Share," which requires disclosure of basic and diluted earnings per share. Basic net loss per share is calculated using the weighted-average number of common shares outstanding during the period less shares subject to repurchase under restricted stock agreements. Diluted net loss per share, which gives effect to the dilutive impact of stock options and convertible securities, is the same as basic net loss per share as the Company is in a net loss position. A reconciliation of shares used in the calculation is as follows:
Weighted-average shares of common stock outstanding 7,200,282 Less: weighted-average shares subject to repurchase (1,474,881) ---------- Weighted-average shares used in computing basic and diluted net loss per share 5,725,401 ==========
13 Neomorphic, Inc. Notes to Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NET LOSS PER SHARE (CONTINUED) Options outstanding of 542,000 were excluded from the computation of diluted net loss per share, as their effect would have been antidilutive. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Financial Instruments and for Hedging Activities" ("SFAS 133") which provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. In June 1999, FASB issued Statement of Financial Accounting Standards No. 137 which deferred the effective date of SFAS 133 to fiscal years beginning after June 15, 2000. The adoption of SFAS 133 is not anticipated to have an impact on the Company's results of operations of financial condition when adopted as the Company holds no derivative financial instruments and does not currently engage in hedging activities. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes the SEC's views in applying generally accepted accounting principles to revenue recognition. SAB 101 is required to be adopted by the Company in the fourth quarter of 2000 and is not anticipated to have a material impact on the Company's results of operations or financial position when adopted. 14 Neomorphic, Inc. Notes to Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED) In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transaction Involving Stock Compensation - An Interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB Opinion No. 25 and, among other issues, clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock option or awards; accounting for an exchange of stock compensation awards in a business combination; and the accounting and separate-entity reporting of awards granted between companies in a consolidated group. The adoption of this interpretation had no impact on the Company's results of operations or financial condition. 2. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, 1999 ----------------------- Computer equipment $ 175,185 Fixtures and furniture 49,381 ----------------------- 224,566 Less accumulated depreciation (83,540) ----------------------- Net property and equipment $ 141,026 =======================
Equipment leased under capital leases is included in computer equipment and fixtures and furniture. At December 31, 1999, equipment under capital leases was approximately $93,363 with accumulated amortization of approximately $27,206. 3. LEASES The Company leases its office space under operating lease arrangements with an unrelated party which expire in February 2002. The Company finances certain office equipment under capital leases. 15 Neomorphic, Inc. Notes to Financial Statements (continued) 3. LEASES (CONTINUED) Future minimum lease payments under all noncancelable leases are as follows:
CAPITAL OPERATING LEASES LEASES --------------------------------------------- Year ended December 31, 2000 $ 31,722 $ 71,340 2001 30,383 71,340 2002 19,685 8,918 2003 3,187 - --------------------------------------------- Total minimum payment required 84,977 $ 151,598 ======================= Less amount representing interest (18,951) ----------------------- Present value of future lease payments 66,026 Less current portion (24,686) ----------------------- Noncurrent obligations under capital leases $ 41,340 =======================
Rent expense under operating leases amounted to $32,509 in 1999. 4. NOTE PAYABLE The note payable of $49,002 relates to legal services performed. The note is payable in variable monthly installments ending in September 2000 and bears interest at approximately 8% per annum. 5. STOCKHOLDERS' EQUITY SHARES SUBJECT TO REPURCHASE Through December 31, 1999, the Company has issued 1,115,000 shares of restricted common stock to officers, employees, and consultants at fair value. Upon termination of employment, unvested shares are subject to repurchase by the Company at the original issuance price. Under terms of the stock purchase agreements, repurchase rights generally lapse over a four-year period. There are also shares subject to repurchase from the exercise of unvested stock options. The repurchase rights lapse in accordance with the vesting period. As of December 31, 1999, total shares subject to repurchase were 1,177,471. 1998 INCENTIVE STOCK PLAN The Company's 1998 Incentive Stock Plan (the "Plan") provides for (i) the grant of incentive stock options to employees, (ii) the grant of nonstatutory stock options to employees and consultants, and (iii) the grant of stock purchase rights. The option price shall be 100% of the fair value on the date of grant (110% in certain circumstances). Options granted under the Plan expire no later than ten years from the date of grant (five years in certain circumstances). A total of 3,350,000 shares of common stock have been authorized for issuance under the Plan. 16 Neomorphic, Inc. Notes to Financial Statements (continued) 5. STOCKHOLDERS' EQUITY (CONTINUED) 1998 INCENTIVE STOCK PLAN (CONTINUED) Under the terms of the Plan, the options and purchase rights granted generally vest 25% at the end of the first year with the remaining balance vesting in equal amounts over the next 36 months. As of December 31, 1999, the Company has reserved 2,032,125 shares of common stock for future issuance under the Plan. A summary of activity under the Plan is as follows:
OPTIONS OUTSTANDING ------------------------------------ SHARES SHARES WEIGHTED- AVAILABLE UNDER PRICE AVERAGE EXERCISE FOR GRANT OPTION PER SHARE PRICE ----------------------------------------------------------------------- Balance at December 31, 1998 2,164,700 185,300 $0.04 $0.04 Options granted (689,575) 689,575 $0.04-$1.50 $0.35 Options exercised - (317,875) $0.04-$0.47 $0.17 Options canceled 15,000 (15,000) $0.47 $0.47 ------------------------------------ Balance at December 31, 1999 1,490,125 542,000 $0.04-$1.50 $0.34 ====================================
All options and shares were granted with exercise prices equal to the fair value of the Company's common stock as determined by the Company's board of directors. All options outstanding are exercisable immediately, with unvested shares subject to the Company's lapsing right of repurchase.
WEIGHTED- AVERAGE NUMBER REMAINING CONTRACTUAL EXERCISE PRICES OF OPTIONS LIFE - -------------------------------------------------------------- (IN YEARS) $0.04 304,000 8.98 $0.47 178,000 9.65 $1.50 60,000 9.82 ----------------------- 542,000 9.29 =======================
17 Neomorphic, Inc. Notes to Financial Statements (continued) 5. STOCKHOLDERS' EQUITY (CONTINUED) 1998 INCENTIVE STOCK PLAN (CONTINUED) Pro forma information regarding net loss is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value of these options was estimated at the date of grant using the minimum value method with the following assumptions: risk-free interest rate of 6.5%, an expected option life of 5 years, and no dividends. The weighted-average fair value of the options granted in 1999 was $0.18. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period of the options. The Company's pro forma information is as follows:
YEAR ENDED DECEMBER 31, 1999 ----------------------- Net loss: As reported $ (503,635) Pro forma $ (517,539) Basic and diluted net loss per share: As reported $ (0.09) Pro forma $ (0.09)
6. INCOME TAXES The provision for income taxes for the year ended December 31, 1999 consists of the following:
DECEMBER 31, 1999 ---------- Federal: Current $ 193,000 Deferred (179,000) State: Current 12,000 Deferred - ---------- Total $ 26,000 ==========
The income tax expense differed from the amounts computed by applying the us statutory federal income tax rate (35%) to pretax loss as a result of the following:
DECEMBER 31, 1999 ---------- Computed expected tax (benefit) $(167,300) Current year net operating losses and/or temporary differences for which no tax benefit is recognized (140,000) Change in valuation allowance 342,500 State taxes 7,800 R&D credit (38,000) Other 21,000 ---------- Total income tax provision $ 26,000 ==========
Significant components of the company's deferred tax assets are as follows:
DECEMBER 31, 1999 ---------- Deferred tax assets: Credits $ 34,000 Deferred revenue 459,000 Compensation accrual - Other accruals/reserves not currently deductible 137,000 ---------- Total deferred tax assets 630,000 Valuation allowance (451,000) ---------- Net deferred tax assets 179,000 Deferred tax liabilities: Depreciation - Other - ---------- Net deferred tax assets $ 179,000 ==========
The Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Taxes" (SFAS 109), provides for the recognition of deferred tax assets if realization of such assets is more likely than not. The Company recorded a deferred tax asset at December 31, 1999 based on availability of taxable income in the carryback periods for federal purposes. Due to the uncertainty of future earnings and the lack of carryback provisions per state purposes, management has determined that the valuation allowance continues to be necessary. 18 Neomorphic, Inc. Notes to Financial Statements (continued) 7. SUBSEQUENT EVENTS In April 2000, the Company completed a private placement of 458,886 shares of Series A convertible preferred stock at $5.34 per share for net proceeds of $2,424,992. Concurrent with this private placement, one stockholder converted 1,000,000 shares of common stock into 166,667 shares of Series A preferred stock. In October 2000, the Company was acquired by Affymetrix, Inc. Affymetrix issued 1,285,655 shares of stock in exchange for all the outstanding common and preferred shares of Neomorphic and 122,796 options to purchase Affymetrix common stock in exchange for all the Neomorphic stock options outstanding. In addition, the preferred stockholders of Neomorphic received cash of $2.4 million. Affymetrix has agreed to register the resale of the Affymetrix stock issued in the transaction and at such time the aggregate number of shares of Affymetrix common stock that the Neomorphic stockholders will receive may be increased or decreased depending on Affymetrix' stock performance prior to the effective date of the registration statement. If the average fair value of Affymetrix common stock for a specified period prior to effectiveness of the registration statement is less than $49.70 per share then Affymetrix will issue additional shares of common stock. If the average fair value of Affymetrix is greater than $92.30 per share then Neomorphic's stockholders and option holders will return shares and options. In lieu of any such increase in the aggregate number of shares of Affymetrix stock to be issued in the transaction, Affymetrix has the option of paying cash in an aggregate amount not to exceed $20 million. The transaction is being accounted for as a purchase transaction. 19 Neomorphic, Inc. Index to Condensed Financial Statements
Condensed Balance Sheets.................................................................................21 Condensed Statements of Operations.......................................................................22 Condensed Statements of Cash Flows.......................................................................23 Notes to Condensed Financial Statements..................................................................24
20 Neomorphic, Inc. Condensed Balance Sheets
SEPTEMBER 30, DECEMBER 31, 2000 1999 --------------------------------------------- (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $ 486,368 $ 506,693 Accounts receivable 402,016 589,221 Prepaid expenses and other current assets 158,404 20,041 Income tax receivable 218,466 - Deferred tax asset - 179,000 --------------------------------------------- Total current assets 1,265,254 1,294,955 Property and equipment, net 184,028 141,026 --------------------------------------------- $ 1,449,282 $ 1,435,981 ============================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,854 $ 2,520 Accrued compensation 60,000 281,949 Other accrued liabilities 338,048 142,478 Income taxes payable - 204,000 Deferred revenue 92,877 1,475,445 Current portion of capital lease obligations 24,004 24,686 Note payable - 49,002 --------------------------------------------- Total current liabilities 516,783 2,180,080 Noncurrent portion of capital lease obligations 59,583 41,340 Stockholders' equity (deficit): Preferred stock - no par value; 10,000,000 shares authorized, 700,000 designated as Series A convertible; 625,553 Series A shares issued and outstanding in 2000 (none in 1999); aggregate liquidation preference of $3,339,827 2,424,992 - Common stock - no par value; 20,000,000 shares authorized; 7,629,650 shares issued and outstanding in 2000 (7,296,225 in 1999) 4,441,923 253,858 Notes receivable from stockholders (1,737,062) (97,298) Deferred stock compensation (2,333,463) - Accumulated deficit (1,923,474) (941,999) --------------------------------------------- Total stockholders' equity (deficit) 872,916 (785,439) --------------------------------------------- $ 1,449,282 $ 1,435,981 =============================================
Note: The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date. SEE ACCOMPANYING NOTES. 21 Neomorphic, Inc. Condensed Statements of Operations
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 --------------------------------------------- (Unaudited) Revenues: Software licenses and services $ 1,920,713 $ 925,855 Grant revenue 302,410 108,335 --------------------------------------------- 2,223,123 1,034,190 --------------------------------------------- Costs and expenses: Research and development 2,498,354 793,300 Selling, general and administration 701,749 349,510 --------------------------------------------- Total costs and expenses 3,200,103 1,142,810 --------------------------------------------- Loss from operations (976,980) (108,620) Other income (expense): Interest income 5,713 654 Interest expense (10,208) (8,080) --------------------------------------------- Net loss $ (981,475) $ (116,046) ============================================= Basic and diluted net loss per share $ (0.35) $ (0.02) ============================================= Weighted-average shares used in computing basic and diluted net loss per share 2,772,539 5,764,685 =============================================
SEE ACCOMPANYING NOTES. 22 Neomorphic, Inc. Condensed Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 --------------------------------------------- (UNAUDITED) OPERATING ACTIVITIES Net loss $ (981,475) $(116,046) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 60,196 25,301 Issuance of equity instruments for noncash benefits 160,796 104,503 Amortization of deferred stock compensation 54,042 - Changes in assets and liabilities: Accounts receivable 187,205 (553,690) Prepaid expenses and other current assets (138,363) 1,823 Income tax receivable (218,466) - Deferred tax asset 179,000 - Accounts payable (666) (52,299) Accrued compensation (221,949) 25,891 Other accrued liabilities 195,570 - Income taxes payable (204,000) - Deferred revenue (1,382,568) 773,781 --------------------------------------------- Net cash (used in) provided by operating activities (2,310,678) 209,264 --------------------------------------------- INVESTING ACTIVITIES Capital expenditures (103,198) (110,597) --------------------------------------------- Net cash used in investing activities (103,198) (110,597) --------------------------------------------- FINANCING ACTIVITIES Proceeds from new capital leases 36,008 54,805 Principal payments on capital lease obligations (18,447) (13,508) Repayment of long-term debt (49,002) (37,169) Net proceeds from issuance of convertible preferred stock 2,424,992 - --------------------------------------------- Net cash provided by financing activities 2,393,551 4,128 --------------------------------------------- Net (decrease) increase in cash and cash equivalents (20,325) 102,795 Cash and cash equivalents at beginning of period 506,693 84,164 --------------------------------------------- Cash and cash equivalents at end of period $ 486,368 $ 186,959 ============================================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 10,208 $ 8,080 ============================================= Income taxes paid $ 256,000 $ - ============================================= SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Promissory note issued for services $ - $ 107,505 ============================================= Notes receivable from stockholders for exercise of stock options $ 1,639,765 $ 8,540 ============================================= Deferred stock compensation $ 2,387,505 $ - =============================================
SEE ACCOMPANYING NOTES. 23 Neomorphic, Inc. Notes to Condensed Financial Statements September 30, 2000 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial statements include the accounts of Neomorphic, Inc. ("Neomorphic" or the "Company"). In the opinion of Neomorphic management, all adjustments (consisting of normal recurring entries) considered necessary for a fair presentation have been included. Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and notes for the year ended December 31, 1999. In October 2000, the Company was acquired by and became a wholly owned subsidiary of Affymetrix, Inc. (Seet Note 3). COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") requires components of other comprehensive income to be included in comprehensive income. At September 30, 2000 and 1999, comprehensive loss approximated net loss. NET LOSS PER SHARE Net loss per share has been computed according to the Financial Accounting Standards Board Statement No. 128, "Earnings Per Share," which requires disclosure of basic and diluted earnings per share. Basic net loss per share is calculated using the weighted-average number of common shares outstanding during the period less common shares subject to repurchase. Diluted net loss per share, which gives effect to the dilutive impact of stock options and convertible securities, is the same as basic net loss per share as the Company is in a net loss position. A reconciliation of shares used in the calculations is as follows:
Nine months ended September 30, 2000 1999 ----------------------------- Weighted-average shares of common stock outstanding 6,906,822 7,154,422 Less: weighted-average shares subject to repurchase (4,134,283) (1,389,737) Weighted-average shares used in computing basic and ---------------------------- diluted net loss per share 2,772,539 5,764,685 ============================
24 Neomorphic, Inc. Notes to Condensed Financial Statements (continued) (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED) NET LOSS PER SHARE (CONTINUED) Outstanding securities which could potentially dilute basic earnings per share in the future but were excluded from the computation of diluted net loss per share, as their effect would have been antidilutive, were as follows:
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 --------------------------------------------- Convertible preferred stock 625,553 - Outstanding options 689,500 228,700
2. PREFERRED STOCK The Company completed a private placement of 458,886 shares of its Series A convertible preferred stock on April 14, 2000 for net proceeds of $2,424,992. The Series A preferred stock is convertible at the stockholder's option into common stock on a one-for-one basis, subject to adjustment for antidilution. Preferred stockholders are entitled to the number of votes they would have upon conversion of their shares into common stock. Holders of Series A convertible preferred stock are entitled to cumulative dividends at $0.32 per share if and when declared by the board of directors. These dividends are to be paid in advance of any distribution to common stockholders. No dividends have been declared through September 30, 2000. 25 Neomorphic, Inc. Notes to Condensed Financial Statements (continued) (Unaudited) 2. PREFERRED STOCK (CONTINUED) In the event of a liquidation or winding up of the Company, holders of Series A convertible preferred stock shall have a liquidation preference equal to the greater of (i) $5.339 per share together with any declared but unpaid dividends and (ii) such amount per share that would have been payable if each share had been converted to common stock immediately prior to such liquidation or winding up. The sale of the Company or substantially all of its assets is defined as liquidation event. Concurrent with the private placement, one stockholder converted 1,000,000 shares of common stock into 166,667 shares of Series A preferred stock. 3. DEFERRED STOCK COMPENSATION The Company has recorded deferred stock compensation with respect to options granted to employees of approximately $2.4 million for the nine months ended September 30, 2000, representing the difference between the exercise price of the options and the deemed fair value of the common stock. These amounts are being amortized to operations over the vesting periods using the straight-line method. The amortization expense for the nine months ended September 30, 2000 amounted to $54,042. 4. SUBSEQUENT EVENT In October 2000, the Company was acquired by Affymetrix, Inc. ("Affymetrix"). Affymetrix issued 1,285,655 shares of stock in exchange for all the outstanding common and preferred shares of Neomorphic and 122,796 options to purchase Affymetrix common stock in exchange for all the Neomorphic stock options outstanding. In addition, the preferred stockholders of Neomorphic received cash of $2.4 million. Affymetrix has agreed to register the resale of the Affymetrix stock issued in the transaction and at such time the aggregate number of shares of Affymetrix common stock that the Neomorphic stockholders will receive may be increased or decreased depending on Affymetrix' stock performance prior to the effective date of the registration statement. If the average fair value of Affymetrix common stock for a specified period prior to effectiveness of the registration statement is less than $49.70 per share then Affymetrix will issue additional shares of common stock. If the average fair value of Affymetrix is greater than $92.30 per share then Neomorphic's stockholders and option holders will return shares and options. In lieu of any such increase in the aggregate number of shares of Affymetrix stock to be issued in the transaction, Affymetrix has the option of paying cash in an aggregate amount not to exceed $20 million. The transaction is being accounted for as a purchase transaction. 26 Item 7(b). Pro Forma Financial Information On October 30, 2000, Affymetrix, Inc. ("Affymetrix" or the "Company") acquired all the equity interests of Neomorphic, Inc. ("Neomorphic"). Prior to the acquisition, Neomorphic was a privately-held company. Neomorphic develops and licenses bioinformatics software products and has proprietary software algorithms and computing infrastructure to analyze, assemble and annotate genomic and expressed gene sequence data. Affymetrix issued 1,285,655 shares of stock in exchange for all the outstanding common and preferred shares of Neomorphic and the 122,796 options to purchase Affymetrix common stock in exchange for all the Neomorphic stock options outstanding. In addition, the preferred stockholders of Neomorphic received cash of $2.4 million. Affymetrix has agreed to register the resale of the Affymetrix stock issued in the transaction and at such time the aggregate number of shares of Affymetrix common stock that the Neomorphic stockholders will receive may be increased or decreased depending on Affymetrix' stock performance prior to the effective date of the registration statement. If the average fair value of Affymetrix common stock for a specified period prior to effectiveness of the registration statement is less than $49.70 per share then Affymetrix will issue additional shares of common stock. If the average fair value of Affymetrix is greater than $92.30 per share then Neomorphic's stockholders and option holders will return shares and options. In lieu of any such increase in the aggregate number of shares of Affymetrix stock to be issued in the transaction, Affymetrix has the option of paying cash in an aggregate amount not to exceed $20 million. The transaction is being accounted for as a purchase transaction. Affymetrix also incurred approximately $2.2 million of acquisition related costs. The purchase price, including liabilities assumed of $1.0 million, aggregated approximately $41.6 million, of which $1.8 million was allocated to tangible assets, approximately $15.0 million to acquired in-process research and development and $4.7 million to other identified intangibles and goodwill. The fair value of unvested common stock subject to restricted stock purchase agreements and the intrinsic value of the unvested options held by employees amounted to approximately $32.4 million and was deducted from the purchase price and allocated to deferred stock compensation. This amount will be amortized to compensation expenses over the remaining vesting terms of the shares and options. The fair value of options granted to nonemployees of $0.1 million was also deducted from the purchase price. These options will be periodically revalued as they vest. The allocation of the purchase price was done on the basis of a preliminary independent appraisal and may be subject to change. The Affymetrix consolidated statement of operations for the period in which the merger with Neomorphic occurs will include a significant charge for acquired in-process research and development, currently estimated to be approximately $15.0 million. This amount represents the value determined by management, using a discounted cash flow methodology, to be attributable to the in-process research and development of Neomorphic based on a valuation analysis of such research and development. The charge relates to specific on-going research and development. Management of Affymetrix believes that the allocation of the purchase price to in- process research and development is appropriate given the future potential of this research and development to contribute to the operations of Affymetrix. Assuming this research continues through all stages of development, Affymetrix expects to incur substantial future research and development expenditures related to this technology. If Affymetrix would have allocated less of the purchase price to in-process research and development, the value would have been recorded as goodwill on the balance sheet and amortized over the expected benefit period, resulting in increased amortization expense during that period. The following unaudited pro forma condensed combined financial information reflects the business combination between Affymetrix and Neomorphic accounted for using the purchase method of accounting. The pro forma condensed combined balance sheet combines Affymetrix's historical balance sheet with Neomorphic's historical balance sheet as of September 30, 2000 and reflects the combination as if it had occurred as of September 30, 2000. The pro forma condensed combined statements of operations combine Affymetrix's historical consolidated statements of operations with Neomorphic's historical statements of operations for the year ended December 31, 1999 and the nine months ended September 30, 2000 and reflect the combination as if it had occurred at the beginning of each period presented. The unaudited pro forma condensed combined statements of operations are not necessarily indicative of the operating results that would have been achieved had the transaction been effected as of the beginning of such period and should not be construed as representative of future operations. 27 AFFYMETRIX, INC. AND NEOMORPHIC, INC. UNAUDITED PRO FORMA CONDENSED BALANCE SHEET (IN THOUSANDS)
September 30, 2000 ------------------ PRO FORMA PRO FORMA AFFYMETRIX NEOMORPHIC ADJUSTMENTS COMBINED --------------------------------------------- --------------- ASSETS Current assets: Cash and cash equivalents................................. $ 3,770 $ 486 $ (2,400) (A) $ 1,856 Available-for-sale securities............................. 425,292 - - 425,292 Accounts receivable....................................... 47,697 402 - 48,099 Inventories............................................... 17,599 - - 17,599 Other current assets...................................... 2,893 159 - 3,052 Income tax receivable..................................... - 218 - 218 --------------------------------------------- --------------- Total current assets...................................... 497,251 1,265 (2,400) 496,116 Net property and equipment...................................... 52,730 184 - 52,914 Acquired technology rights...................................... 10,224 - - 10,224 Goodwill and other intangible assets............................ - - 24,059 (B) 24,059 Notes receivable from employees................................. 1,319 - - 1,319 Other assets.................................................... 47,759 - - 47,759 --------------------------------------------- --------------- $ 609,283 $ 1,449 $ 21,659 $ 632,391 ============================================= =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities.................. $ 41,534 $ 399 $ 2,662 (C) $ 44,595 Deferred revenue.......................................... 19,627 93 - 19,720 Current portion of capital lease obligation............... 68 24 - 92 --------------------------------------------- --------------- Total current liabilities................................. 61,229 516 2,662 64,407 Noncurrent portion of capital lease obligations................. - 59 - 59 Obligation to Beckman Coulter, Inc.............................. 5,000 - - 5,000 Convertible subordinated notes.................................. 375,000 - - 375,000 Common stock purchase rights.................................... 3,000 - - 3,000 Stockholders' equity: Preferred stock........................................... - 2,425 (2,425) - Common stock.............................................. 555 4,442 (4,429) (A) 568 Additional paid-in-capital................................ 270,485 - 69,015 (A) 339,500 Notes receivable from stockholders........................ - (1,737) 672 (A) (1,065) Deferred stock compensation............................... - (2,333) (30,770) (A) (33,103) Accumulated deficit....................................... (136,269) (1,923) (13,066) (A)(B) (151,258) Other..................................................... 30,283 - - 30,283 --------------------------------------------- --------------- Total stockholders' equity............................. 165,054 874 18,997 184,925 --------------------------------------------- --------------- $ 609,283 $ 1,449 $ 21,659 $ 632,391 ============================================= ===============
SEE ACCOMPANYING NOTES 28 AFFYMETRIX, INC. AND NEOMORPHIC, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Nine Months Ended ------------------ September 30, 2000 ------------------ PRO FORMA PRO FORMA AFFYMETRIX NEOMORPHIC ADJUSTMENTS COMBINED --------------------------------------------- --------------- Revenue: Product............................................. $ 122,227 $ - $ - $ 122,227 Research............................................ 4,729 - - 4,729 License fees and royalties.......................... 14,455 2,223 - 16,678 --------------------------------------------- --------------- Total revenue.................................... 141,411 2,223 - 143,634 --------------------------------------------- --------------- Costs and expenses: Cost of product revenue............................. 49,117 - - 49,117 Research and development............................ 38,890 2,498 - 41,388 Selling, general and administrative................. 68,334 702 - 69,036 Merger related costs................................ 2,395 - - 2,395 Amortization of deferred stock compensation (Note(i)) - - 8,276 (D) 8,276 Amortization of goodwill and acquired intangibles... - - 4,075 (E) 4,075 --------------------------------------------- --------------- Total costs and expenses.......................... 158,736 3,200 12,351 174,287 --------------------------------------------- --------------- Loss from operations....................................... (17,325) (977) (12,351) (30,653) Interest income (expense), net............................. 5,259 (4) - 5,255 --------------------------------------------- --------------- Net loss................................................... $ (12,066) $ (981) $ (12,351) $ (25,398) ============================================= =============== Basic and diluted net loss per common share................ $ (0.22) $ (0.35) $ (0.46) ============================== =============== Weighted-average shares used in computing basic and diluted net loss per common share........................... 54,928 2,773 (F) 55,772 ============================== ===============
Note (i): All of the amortization charge for deferred stock compensation relates to research and development costs. SEE ACCOMPANYING NOTES 29 AFFYMETRIX, INC. AND NEOMORPHIC, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended ---------- December 31, 1999 ----------------- PRO FORMA PRO FORMA AFFYMETRIX NEOMORPHIC ADJUSTMENTS COMBINED --------------------------------------------- --------------- Revenue: Product.................................................. $ 98,168 $ - $ - $ 98,168 Research................................................. 8,059 - - 8,059 License fees and royalties............................... 2,847 1,560 - 4,407 --------------------------------------------- --------------- Total revenue......................................... 109,074 1,560 - 110,634 --------------------------------------------- --------------- Costs and expenses: Cost of product revenue.................................. 42,219 - - 42,219 Research and development................................. 43,524 1,353 - 44,877 Selling, general and administrative...................... 53,590 677 - 54,267 Amortization of deferred stock compensation (Note(i)).... - - 11,034 (D) 11,034 Amortization of goodwill and acquired intangibles........ - - 5,434 (E) 5,434 --------------------------------------------- --------------- Total costs and expenses............................... 139,333 2,030 16,468 157,831 --------------------------------------------- --------------- Loss from operations............................................ (30,259) (470) (16,468) (47,197) Interest income (expense), net.................................. 4,755 (8) - 4,747 --------------------------------------------- --------------- Net loss before taxes........................................... (25,504) (478) (16,468) (42,450) Income taxes.................................................... - (26) - (26) --------------------------------------------- --------------- Net loss........................................................ (25,504) (504) (16,468) (42,476) Preferred stock dividends....................................... (2,055) - - (2,055) --------------------------------------------- --------------- Net loss attributable to common stockholders.................... $ (27,559) $ (504) $ (16,468) $ (44,531) ============================================= =============== Basic and diluted net loss per common share..................... $ (1.08) $ (0.09) $ (1.68) ============================== =============== Weighted-average shares used in computing basic and diluted net loss per common share................................ 25,583 5,725 (F) 26,505 ============================== ===============
Note (i): All of the amortization charge for deferred stock compensation relates to research and development costs. SEE ACCOMPANYING NOTES 30 AFFYMETRIX, INC. NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation Pro Forma Basis of Presentation The pro forma condensed combined financial statements reflect the acquisition by Affymetrix of all of the outstanding capital stock of Neomorphic accounted for under the purchase method as if it occurred on September 30, 2000 for balance sheet purposes and at the beginning of the periods presented in the statements of operations. (2) Merger Transaction Costs Affymetrix incurred direct transaction costs of approximately $2.2 million associated with the transaction, legal and other professional consulting fees, which are included in the calculation of the purchase price. There can be no assurance that Affymetrix will not incur additional charges in subsequent quarters to reflect costs associated with the transaction, including integration costs, or that management will be successful in their efforts to integrate the operations of Neomorphic. These acquisition costs are estimated and are subject to change. (3) Pro Forma Adjustments Note A Neomorphic common and preferred stockholders received 1,285,655 shares of Affymetrix common stock in exchange for all of their outstanding shares and Neomorphic option holders received 122,796 options to purchase Affymetrix common stock in exchange for their Neomorphic stock options. In addition, the preferred stockholders of Neomorphic received cash of $2.4 million. The fair value of the Affymetrix common stock issued in exchange for all of the outstanding shares of Neomorphic common and preferred stock was calculated in accordance with Emerging Issues Task Force Issue No. 97-15 and was based on a stock price of $49.70 which represented the lowest fair value of Affymetrix common stock at which no adjustment would occur to the number of shares and options issued by Affymetrix. The Affymetrix options issued in connection with the assumption of the Neomorphic options were valued using the Black-Sholes option pricing model assuming a volatility of 0.7, expected life of 3.5 years, risk-free interest rate of 6%, expected dividend yield of 0% and stock price of $49.70. In accordance with applicable accounting rules, the fair value of unvested common stock subject to restricted stock agreements and the intrinsic value of the unvested options held by employees was deducted from the purchase price and allocated to deferred stock compensation. The deferred stock compensation will be amortized to compensation expense over the remaining vesting term, principally three years. The fair value of unvested options held by nonemployees was also deducted from the purchase price. These options will be periodically revalued as they vest in accordance with applicable accounting guidance. A summary of the calculation of the purchase price is as follows (in thousands):
Fair value of common stock issued $ 63,897 Fair value of options assumed 5,254 Less intrinsic value of unvested options issued to employees at date of consummation (5,174) Less fair value of unvested options issued to nonemployees (123) -------- 63,854 Less fair value of unvested common stock at date of consummation (27,929) -------- 35,925 Cash paid 2,400 Liabilities assumed 1,026 Transaction costs 2,212 -------- $ 41,563 ========
The pro forma adjustment to stockholders' equity also reflects: the elimination of Neomorphic's preferred stock of $2.4 million, common stock of $4.4 million, deferred stock compensation of $2.3 million and accumulated deficit of $1.9 million. Note B The pro forma adjustment consists of goodwill of approximately $19.4 million, developed technology of $3.4 million and acquired workforce of $1.3 million. The goodwill will be amortized over five years and the existing technology and acquired workforce will be amortized over three years. In addition, accumulated deficit reflects a charge of approximately $15.0 million for the value of acquired in-process research and development. Note C Affymetrix has assumed liabilities of approximately $0.4 million for severance costs. In addition, Affymetrix has estimated that acquisition costs will be approximately $2.2 million. Note D The pro forma adjustment consists of the amortization of deferred stock compensation resulting from the assumption of unvested Neomorphic common stock and options held by employees. The amount will be amortized over the remaining vesting period of principally three years. Note E The pro forma adjustment consists of amortization of goodwill expected to be over a five year period and amortization of purchased intangibles expected to be over a three year period. Affymetrix is still evaluating the useful lives of the acquired intangibles. Note F Basic and diluted net loss per share has been adjusted to reflect the issuance of 1,285,655 shares of Affymetrix common stock in connection with the acquisition as if the shares had been outstanding for the entire periods presented, deducting the weighted-average number of shares subject to repurchase of 442,000 for the nine months ended September 30, 2000 and 364,000 for the year ended December 31, 1999. The effect of the Neomorphic options assumed by Affymetrix has not been included as their inclusion would be anti-dilutive. 31 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. AFFYMETRIX, INC. By: /s/ VERN NORVIEL ------------------------------------- Name: Vern Norviel Title: Senior Vice President, General Counsel and Secretary Date: January 12, 2001 32 EXHIBIT INDEX
Exhibit Number Description - -------------- ----------- 2.1 Agreement and Plan of Merger, dated as of September 29, 2000, by and among the Company, the Acquisition Subsidiary and Neomorphic (filed as Exhibit 2.1 to the Company's current report on Form 8-K filed on November 13, 2000 and incorporated herein by reference) 23.1 Consent of Ernst & Young LLP, Independent Auditors 99.1 Press Release Dated October 31, 2000 (filed as Exhibit 99.1 to the Company's current report on Form 8-K filed on November 13, 2000 and incorporated herein by reference)
33 EX-23.1 2 a2034831zex-23_1.txt EXHIBIT 23.1 Exhibit 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements Forms S-8 No. 333-11299, No. 333-35287, No. 333-85575, No. 333-34320 and No. 333-52804 and Forms S-3 No. 333-92577, No. 333-36790 and No. 333-51914 of our report dated December 12, 2000, with respect to the financial statements of Neomorphic, Inc. included in this current report on Form 8-K/A dated January 12, 2001. /s/ Ernst & Young LLP Palo Alto, California January 11, 2001 -----END PRIVACY-ENHANCED MESSAGE-----