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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K





|   |  |                                                                                                                   
|-- |  | ------------------------------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934                          
|  
|   |  | For the Fiscal Year ended December 31,
    2002                                                                   
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE
    REQUIRED)
|  
|   |  | For the Transition Period
    from           to                                                                   

Commission File Number 0-27765

Symyx Technologies, Inc.


(Exact name of registrant as specified in its
charter)


|                                                                                                                          |  |                                                                           
|------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------
|Delaware                                                                                                                  |  | 77-0397908                                                                
|(State or other jurisdiction of
    incorporation or organization)                                                        |  | (IRS Employer
    Identification Number)                                  
|3100 Central Expressway,
    Santa Clara, California 95051(Address of principal executive
    offices including zip code) |  | (408) 764-2000(Registrants telephone
    number,
    including area code)

SECURITIES REGISTERED PURSUANT TO SECTION
12(b) OF THE ACT:

None


SECURITIES REGISTERED PURSUANT TO SECTION
12(g) OF THE ACT:

Common Stock, $0.01 Par Value


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days.
Yes þ          No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K. o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).
Yes þ          No o

The aggregate market value of voting Common Stock
held by non-affiliates of the registrant (based on the closing
price for the Common Stock on the Nasdaq National Market on
March 7, 2003) was approximately $451 million. As of
March 7, 2003, 30,972,984 shares of Common Stock were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the Proxy Statement to be
filed in connection with the 2003 Annual Meeting of Stockholders
are incorporated by reference into Part III of this
Form 10-K Report where indicated.



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TABLE OF CONTENTS



|                  |                                                                                                 |  |  |  |  |  |  | 
|----------------- | ----------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|TABLE OF CONTENTS
|PART I           
|                  | Item 1. Business                                                                               
|                  | Item 2. Properties                                                                             
|                  | Item 3. Legal Proceedings                                                                      
|                  | Item 4. Submission of Matters to a Vote of Security Holders                                    
|PART II          
|                  | Item 5. Market for Registrants Common Equity and Related Stock Matters                        
|                  | Item 6. Selected Financial Data                                                                
|                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results from Operations
|                  | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                            
|                  | Item 8. Financial Statements and Supplementary Data                                            
|                  | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   
|PART III         
|                  | Item 10. Directors and Executive Officers of the Registrant                                    
|                  | Item 11. Executive Compensation                                                                
|                  | Item 12. Security Ownership of Certain Beneficial Owners and Management                        
|                  | Item 13. Certain Relationships and Related Transactions                                        
|                  | Item 14. Controls and Procedures                                                               
|PART IV          
|                  | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      
|SIGNATURES       
|EXHIBIT 21       
|EXHIBIT 23.1     



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INDEX






TABLE OF CONTENTS


|           |  |                                                                                             |    |      |    | 
|---------- |  | ------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|Item       |  |                                                                                             |    | Page
|           |  |                                                                                             |    |     
|PART I    
|1.         |  | Business                                                                                    |    |      | 2  | 
|2.         |  | Properties                                                                                  |    |      | 18 | 
|3.         |  | Legal Proceedings                                                                           |    |      | 18 | 
|4.         |  | Submission of Matters to a Vote of Security
    Holders                                     |    |      | 19 | 
|PART II   
|5.         |  | Market for Registrants Common Equity and
    Related Stock Matters                         |    |      | 20 | 
|6.         |  | Selected Financial Data                                                                     |    |      | 21 | 
|7.         |  | Managements Discussion and Analysis of
    Financial Condition and Results From Operations |    |      | 22 | 
|7A.        |  | Quantitative and Qualitative Disclosures about
    Market Risk                              |    |      | 35 | 
|8.         |  | Financial Statements and Supplementary Data                                                 |    |      | 36 | 
|9.         |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure    |    |      | 64 | 
|PART III  
|10.        |  | Directors and Executive Officers of the Registrant                                          |    |      | 64 | 
|11.        |  | Executive Compensation                                                                      |    |      | 64 | 
|12.        |  | Security Ownership of Certain Beneficial Owners
    and Management                          |    |      | 64 | 
|13.        |  | Certain Relationships and Related Transactions                                              |    |      | 64 | 
|14.        |  | Controls and Procedures                                                                     |    |      | 64 | 
|PART IV   
|15.        |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                        |    |      | 65 | 
|Signatures |  |                                                                                             | 67 |     

1



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PART I






|        |         
|------- | --------
|Item 1. | Business

This discussion and other parts of this Annual
Report on Form 10-K (Report), including the
Managements Discussion and Analysis of Financial
Condition and Results of Operations, contain
forward-looking statements that involve risks and uncertainties.
These statements typically may be identified by the use of
forward-looking words or phrases such as believe,
expect, intend, anticipate,
should, planned, estimated,
and potential, among others. All forward-looking
statements included in this document are based on our current
expectations, and we assume no obligation to update any such
forward-looking statements. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for such
forward-looking statements. In order to comply with the terms of
the safe harbor, we note that a variety of factors could cause
actual results and experience to differ materially from the
anticipated results or other expectations expressed in such
forward-looking statements. The risks and uncertainties that may
affect the operations, performance, development, and results of
our businesses include but are not limited to (1) market
acceptance of our products and services; (2) uncertainties
relating to the pace, quality or number of discoveries of new
materials; (3) the dependence on collaborators to
successfully commercialize products; (4) uncertainties of
patent protection and litigation; (5) future growth
strategy; (6) general economic conditions in the United
States and in major European and Asian markets;
(7) exposure to risks associated with export sales and
operations; (8) natural disasters, power failures and other
disasters; and (9) other factors that might be described
from time to time in periodic filings with the Securities and
Exchange Commission and include those set forth in this Annual
Report on Form 10-K as Risk Factors.

General

Symyx Technologies, Inc. (the Company
or Symyx) develops and applies high-speed
combinatorial technologies to the discovery of materials for
chemical, life science and electronics applications. We provide
research services to our partners through our Industry
Collaborations business, offer access to select instruments and
software through our Discovery Tools® business, and license
our discovered materials and methodology patents through our
Licensing business.

Symyx® was incorporated in California on
September 20, 1994 and completed a reincorporation in the
state of Delaware in February 1999. Symyx headquarters and
mailing address is 3100 Central Expressway, Santa Clara,
California, 95051, and the telephone number at that location is
(408) 764-2000. Our SEC filings are available free of charge
through our website at www.symyx.com. Our Common Stock trades on
the Nasdaq National Market under the symbol SMMX.

We are the pioneer and leader in high-throughput
materials discovery, and have built an unparalleled platform for
increasing research productivity in the chemical, life science,
and electronics industries. Through our innovation, we have
developed a comprehensive portfolio of intellectual property,
encompassing more than 90 issued patents and over 390 patent
applications covering our methods, our technologies and our
discoveries.

We are applying our technology to discover
materials for industrial customers in the chemicals, life
sciences and electronics industries. Our discovery efforts
encompass a broad range of materials, including catalysts for
the manufacturing of chemicals, polymers for life science
applications and phosphors and other materials for electronics
uses.

Our diversified business model provides multiple
sources of revenue both to support innovation and to fuel
growth. In our Industry Collaborations business, we perform
research for clients in exclusive fields, for which we receive
profitable research funding and downstream royalties or other
payments on the commercialization of materials we discover. Our
collaborators receive rights to commercialize discovered
materials within the designated field of the collaboration. Our
Discovery Tools business focuses on providing instruments and
software to automate processes in pharmaceutical preclinical
testing and in catalysis research. Our Licensing business
reflects revenue from royalties and license fees received from
license of our patents and from commercialization of licensed
materials discovered in our Collaborations and internal research
programs. These businesses provide complementary ways for us to
work with customers, by performing research in our

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laboratories with access to our full range of our
technologies, by providing select instruments and software for
customers to use in their own efforts, and by enabling licensees
to perform relatively low levels of experimentation under
license of our intellectual property.




| |                    
| | -------------------
| | Industry Background

Materials and their diverse properties contribute
in a vital way to many of the products we use every day.
Examples include the catalysts used in the manufacture of major
chemicals, pharmaceuticals, plastics and rubbers, the plastics
in many of our household and office goods, and luminescent
materials in lighting and computer and television screens.
Traditional materials discovery relies on an expensive and
time-consuming process of trial and error: making one material;
testing it; then making a different material; testing it and so
on. Traditional discovery methods are not fast enough to keep
pace with product life cycles and growth expectations.

We believe that we can assist chemical, life
science and electronics companies by discovering new materials
in a more productive and cost-effective manner than by using
traditional methods.

The development of combinatorial synthesis and
rapid screening methods has the potential to cost-effectively
accelerate materials discovery and fundamentally change the way
materials are discovered. We believe combinatorial technologies
leverage the full potential of personnel by increasing their
experimental productivity by a factor of 100 or more. This
promise of a far more efficient discovery method combined with a
greater opportunity for product innovation is attracting
increased attention from the chemical and electronics
industries. We believe that few chemical and electronics
companies employ combinatorial synthesis techniques or have the
necessary specialized equipment available for such activities.



| |               
| | --------------
| | Symyx Solution

Our technology provides complete platforms for
materials discovery. Using our miniaturized, automated
technology to execute hundreds to thousands of experiments at a
time, our scientists can dramatically increase the probability
of success and reduce the time and costs per experiment to
discover new materials. For example, using traditional trial and
error methods, a team consisting of a chemist plus a technician
could perform 500 to 1,000 experiments per year. In our
labs, that same team could perform up to 50,000 experiments per
year. As a result, our scientists would generate significantly
more data, increase the possibility of discoveries within that
timeframe, and reduce the associated costs per experiment
dramatically.

To achieve these efficiencies, we require
extensive capabilities in materials synthesis, screening and
data analysis. A particular challenge is the ability to screen
materials for a wide range of properties. For example, to
discover a new catalyst we need to screen how well it performs a
specific chemical reaction, to discover a new polymer we need to
screen for physical and mechanical properties such as molecular
weight and toughness.

As a pioneer in combinatorial materials science,
we found no existing technology capable of meeting our
synthesis, screening and data analysis requirements. To address
this challenge, we assembled a team of people who have expertise
in the fields of inorganic, physical, polymer and organic
chemistries, physics, engineering and software programming. This
team has successfully designed, built and validated a powerful
array of highly specialized proprietary instruments and
software. Our scientists can synthesize a wide range of
materials and screen for properties including catalytic,
chemical, physical, mechanical, electronic and optical
properties. In addition, we continue to expand our capabilities
through the development of new instruments and software and
enhanced versions of existing systems.



| |                 
| | ----------------
| | Symyx Businesses

Our objective is to be the leading company using
high-speed technologies for the discovery of new materials with
commercially valuable properties. We have developed a strategy
of three business approaches that we intend to follow in pursuit
of our objective, including Industry Collaborations, Discovery
Tools, and Licensing of patents and materials.

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| |                        
| | -----------------------
| | Industry Collaborations

Our Industry Collaborations business contributes
greatly toward the development of our intellectual property,
including patents covering methods, hardware, software and
discovered materials. In our Industry Collaborations, we perform
research for customers in exclusive fields, for which we receive
profitable research funding and downstream royalties or other
payments on materials we discover. In collaboration with major
chemical, life science and other industrial companies, we seek
to discover new polymers, catalysts, phosphors and other
materials for industrial applications.

We provide the platform technologies and effort,
and our partners have rights to develop and commercialize
resulting materials within their predefined field of
exclusivity. Typically, we enter into collaborative arrangements
to discover materials that require considerable investment in
product development and manufacturing, as well as extensive
marketing efforts. Our collaborative partners have already
developed the infrastructure to support these requirements, and
may therefore be in a strong position to commercialize our
discoveries.

Much of our collaborative research is focused on
the chemicals industry, where companies turn to us for
technology innovations to help them address rising costs and
manufacturing challenges from low-cost producers overseas. In
these collaborations, we apply proprietary high-speed
technologies to make breakthrough discoveries leading to
improved commercial processes and materials. We are working with
Celanese, The Dow Chemical Company, ExxonMobil Chemical, and
other leading companies to discover catalysts for the
manufacture of polyolefins and a variety of other commodity
chemicals. The range of new technologies developed in these
research collaborations  including instruments,
software, methods and materials  results in a growing
portfolio of intellectual property that creates downstream value
for Symyx.

We receive funding from our collaborative
partners through quarterly research payments. These payments are
made over the term of the research contract, which is generally
one to three years. If a new material is discovered and
commercialized, we will receive either royalties or milestone
payments.

In order to expand our technologies and grow our
product pipeline, we intend to continue to enter into new
collaborative arrangements. As a result of these new
arrangements, and the conclusion of existing collaborations, our
portfolio of collaborations will change over time. We expect
that new collaborations will come from existing collaborative
partners extending current programs and undertaking new research
initiatives as well as new collaborative partners.



| |                
| | ---------------
| | Discovery Tools

Through our Discovery Tools business, we leverage
the power of our inventions by selling complete workflow systems
to pharmaceutical companies to speed and improve pre-clinical
drug development, and to chemical companies for polyolefin and
chemical research. These instrument systems include
instrumentation, such as reactors, screening systems, robots and
analytical equipment, all integrated into workflows via
Symyx proprietary software, enabling smooth,
bottleneck-free library design and synthesis, screening and
analysis of the resulting data.

Companies that purchase Discovery Tools systems
from Symyx are able to implement combinatorial and
high-throughput methods at a great time and cost savings
compared to developing and building a system internally and
taking a license to operate from Symyx. These complete
workflows, aimed at accelerating discovery research as well as
product optimization and process development, enable scientists
to increase their research productivity up to 100-fold.

Revenues from our Discovery Tools business
increased significantly in 2002, as we increased our installed
base of systems among customers interested in using our
proprietary instrumentation, software and methods to speed their
research efforts. A growing part of our Discovery Tools business
is focused on the pharmaceutical industry, where we offer
high-throughput systems to accelerate the preclinical testing of
drugs. To meet the need of pharmaceutical companies to advance
drug candidates through the development process and into the
clinic, we have developed the Discovery Tools Polymorph System,
the Discovery Tools Solubility System and the Discovery Tools
Parallel Pressure Reactor (PPR®) System. These systems are
designed to determine the

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optimal physical form of a drug candidate for
clinical trials and the best manufacturing process to use for
that candidate  critical steps in the drug
development process. Our initial customers for these systems
include Merck & Co., Eli Lilly and Company, and Amgen.
We have also entered into polymorph testing collaborations with
several other pharmaceutical and biotechnology companies with
the goal that these relationships may lead to additional
Discovery Tools system sales. In addition, we continue to expand
our Discovery Tools business in the chemical field, with recent
sales to Dow Chemical Company, ExxonMobil Chemical, North Dakota
State University and an undisclosed company.




| |                     
| | --------------------
| | Licensing: Materials

We discover and patent a range of materials in
our Industry Collaborations and internal research programs,
providing the foundation for potential future royalties.

Our growing portfolio of discovered materials
provides us with a broad array of licensing opportunities, and
offers a significant path to commercialization. From polymers
for proteomics and genomics research to phosphors for X-ray
storage to polyolefin catalysts, our discoveries demonstrate the
ability of our high-speed research technologies to address a
range of attractive markets in the life sciences, electronics
and chemical fields. As a result, we have established a growing
pipeline of materials that have emerged from our discovery
platform. Going forward, we expect that royalties from the
commercialization of Symyx-discovered materials should play an
increasing role in the companys overall financial success.



| |                   
| | ------------------
| | Licensing: Patents

Launched in mid-2002, our patent licensing
program leverages Symyx established leadership in the
field of high-speed materials discovery, including our
broad-based research capabilities, validated instruments and
software, and extensive know-how. Created to give companies
selective access to our broad methodology patents, this program
offers a constructive way to uphold the value of our
intellectual property portfolio while expanding the ways in
which we can work with potential customers.

We developed our patent licensing program to
accommodate companies that want to implement combinatorial
materials research on a smaller scale  generally
increasing their research productivity by 10-fold. Since our
patents licenses are for a limited number of experiments or for
a limited number of scientists use, this licensing
approach complements our other businesses by targeting research
programs that are generally too small to warrant investment in
Industry Collaborations or Discovery Tools. In this manner,
companies can benefit from our inventions by licensing our
patents and patent applications for a fee.

This licensing program has already demonstrated
its ability to generate near-term revenues, as well as to
provide an additional means to attract new customers. Symyx has
signed several patent licensing agreements with major industrial
companies. In addition, we have patent licensing agreements,
including patents, patent applications and know-how, with
several instrumentation companies that manufacture and sell some
of our proprietary high-throughput instrumentation and software.
These strategic partners include Argonaut Technologies
(Endeavor® parallel pressure reactor), Kurt J. Lesker
Company (thin film deposition tools), Polymer Laboratories, Ltd.
(high-throughput polymer measurement technologies), Zinsser
Analytic GmbH (Symyx Technologies Library® Studio
software), and Zeton Altamira (CeleroTM multi-channel fixed bed
reactor).



| |           
| | ----------
| | Technology

Our scientists begin the discovery process by
working with our collaborative partners or our own business
development staff to define the research objective in terms of
the specific properties a new material should have to meet the
needs of a given application. We then apply the components of
our combinatorial process, synthesis, screening and informatics,
to discover materials that match these criteria.



| |          
| | ---------
| | Synthesis

The materials research process begins with
chemists theories about what elements from the periodic
table of elements might be combined to create new materials with
desired properties. However, while chemists

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working in traditional labs have to choose the
few experiments they will perform on a given day, our chemists
have the ability to perform hundreds or thousands of experiments
during the same time frame. Our chemists are therefore able to
pursue their theories both broadly  across a wide
range of elements  and comprehensively 
creating materials with the same components in different ratios.


A Symyx chemist initiates the synthesis process
by using Library Studio®, a computer software package
created by our programmers to design the group, or
library, of materials to be synthesized. These
instructions, or recipes, are then relayed to
automated synthesis instruments. These instruments create the
library on a single substrate such as a three-inch diameter
silicon wafer or a 96-well plate. The quantity of each compound
synthesized is very small, generally ranging from micrograms to
hundreds of milligrams. This contrasts dramatically with
traditional synthesis, where grams to kilogram quantities of a
material are usually necessary. Libraries synthesized on silicon
wafers may range from a few hundred different candidate
materials to several thousand, depending on the type of material
and the type of analysis to be done.

Each material synthesized represents a unique
experiment and potential discovery. The desired end result of
these experiments is defined at the outset of the experiment as
a target material having specific performance properties. Our
scientists, in conjunction with our collaborative partners, or
independently for our proprietary discovery programs, set the
specific performance properties and define the desired
performance attributes of the target material for a given
application or applications. Generally, these criteria are well
beyond the performance attributes of currently used materials.



| |          
| | ---------
| | Screening

Once created, the library is analyzed for desired
properties. As with synthesis, our technical staff has designed
and built a broad array of instruments and software to evaluate
different properties under a wide variety of process conditions.
These properties include catalytic, physical, mechanical,
thermal, chemical, electronic and optical properties. In
general, a Symyx chemist can design, synthesize and screen a
library in a single day.

To reach the point of commercialization, a
candidate material must progress through an increasingly
stringent set of requirements, progressing from a hit to a lead
to a development candidate. First, we screen materials to
identify those materials that have a limited set of properties
defined for the target discovery, called hits. Hits
are subjected to additional testing and optimization, to find a
larger number of desired properties. Hits may also identify
areas that merit further exploration, and new libraries are
created using this information. Candidate materials that
continue to meet or exceed the defined criteria are then
classified as leads. Leads are then transferred to a
partner or processed internally for additional testing and scale
up. Leads are tested on a larger scale, as bulk samples of, e.g.
1 to 100 grams, to confirm that the materials still perform at
this bench scale level. Once a lead has passed this
bench scale testing by either a collaborative partner or Symyx,
it may become a development candidate. Finally, if all is
successful, the decision may be made to commercialize the
material. Once a material has been identified as a development
candidate, the time to the first sale or commercial usage may be
as short as 1 to 2 years. Industrial catalysts to produce
high volume commodity chemicals, on the other hand, may require
5 to 7 or more years to reach the market because of the
extensive process development, customer evaluation and capital
investment involved.



| |            
| | -----------
| | Informatics

A critical factor in our discovery process is the
ability to retain and access the huge amounts of data generated
by our synthesis and screening activities. Given the broad
acceptance of high-speed combinatorial discovery in
pharmaceuticals, a number of software applications exist to
support organic chemistry. However, those software applications
were not sufficient to address the storage and retrieval needs
of our diverse array of inorganic, organometallic and polymer
chemistries. To that end, we have devoted considerable resources
to build a proprietary database capable of addressing our unique
needs. Our chemists can query this database to identify
materials screened in the past that possess the property or
properties specified. We believe that this database will emerge
as a powerful tool in accelerating materials discovery by
enabling our scientists to benefit from the cumulative effect of
all of our research.

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Intellectual Property and Other Proprietary
Rights

Our success depends upon our proprietary
technology. The risks associated with patents and intellectual
property are more fully discussed in the Risk
Factors section contained in Item 1 of this report.
There are five general areas that may be patented using our
combinatorial approach:



| |   |                                       
| | - | --------------------------------------
| |  | library synthesis methods;            
|
| |  | the libraries themselves;             
|
| |  | screening or characterization methods;
|
| |  | equipment and software; and           
|
| |  | new materials and their uses.         

During 2002, we were issued 49 patents. Our
patent portfolio as of year end 2002 consisted of 89 issued
patents, including 82 U.S. patents and 7 European
patents, and more than 390 patent applications pending
worldwide. These patents and applications cover composition of
matter, instruments, and methodology, and include issued patents
with broad claims in combinatorial methodologies. We co-own with
Lawrence Berkeley National Laboratory, on behalf of The Regents
of the University of California, 7 of the issued United States
patents and 7 of the pending patent applications. We have an
exclusive license to these patents and patent applications from
Lawrence Berkeley National Laboratory, which was agreed to upon
formation of the Company. In addition to patents, we rely on
copyright, trademark and trade secret rights, confidentiality
procedures and licensing arrangements to establish and protect
our proprietary rights.

As part of our confidentiality and trade secret
protection procedures, we enter into non-disclosure agreements
with our employees, consultants and potential collaborative
partners. Despite these precautions, third parties could obtain
and use our products or technology without authorization, or
develop similar technology independently. It is difficult for us
to police unauthorized use of our methods. In addition,
effective protection of intellectual property rights is
unavailable or limited in some foreign countries. The protection
of our proprietary rights may be inadequate and our competitors
could independently develop similar technology, duplicate our
products or design around any patents or other intellectual
property rights we hold.

Markets

Symyx high-speed research approach is
revolutionizing materials discovery in three dynamic industries:
chemicals, life sciences, and electronics. A single discovery
can transform these industries, representing extremely large
markets of over a billion dollars in annual sales.



| |          
| | ---------
| | Chemicals

Catalysts and other chemical materials have
demonstrated the opportunities for success, such as
DuPonts nylon, which revolutionized the household,
automotive and clothing industries, and UOP LLCs
platforming catalyst, which eliminated the need for lead in
gasoline and allowed the production of high-octane gasoline. Our
Industry Collaborations business focuses primarily on the
discovery of catalysts for the manufacture of polyolefins and
commodity chemicals with large potential markets.



| |              
| | -------------
| | Life Sciences

With drug development costs approaching
one billion dollars per drug and development timelines
nearing a decade, pharmaceutical companies are under intense
pressure to accelerate their processes and increase their
probability of success. Through our Discovery Tools business, we
are offering these companies the first high-throughput systems
that automate a critical step of the drug development
process  determining the optimal crystalline form, or
polymorph, of a compound. Choosing the right salt and
polymorphic form of a drug can enhance its bioavailability,
solubility, shelf life, formulation properties, and even patent
status.

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| |            
| | -----------
| | Electronics

New discoveries in electronic materials can open
the doors not just to new products, but also to new industries,
such as Nichias discovery of a blue light-emitting diode
for novel optical and lighting applications. We are focusing on
discovering a range of electronic materials for markets as
diverse as lighting, semiconductor manufacturing, and battery
materials in our research partnerships with electronics
companies and in some of our internal programs.

Competition

We are aware of some chemical companies with
internal combinatorial programs. In addition, two European based
companies, Avantium Technologies and HTE may also use
combinatorial approaches to materials discovery. Furthermore,
academic and research institutions may seek to develop
technologies that would be competitive with our systems for
materials discovery. Because combinatorial materials science is
an emerging field, competition from additional entrants may
increase.

Some of our competitors may be addressing the
same materials targets as Symyx or our collaborative partners.
Many of our current and potential competitors, either alone or
together with their collaborative partners, have greater
financial, manufacturing, marketing and sales resources than we
do. Accordingly, our competitors may succeed in obtaining patent
protection or commercializing products before us. If we commence
commercial product sales, we will be competing against companies
with greater marketing, sales and manufacturing capabilities,
areas in which we have limited or no experience.

Backlog of Committed Revenue

Our backlog of committed revenue based on
contracts signed at December 31, 2002 was approximately
$20.9 million, compared with a backlog of approximately
$43.7 million at December 31, 2001. This number varies
from quarter to quarter based on the status of Discovery Tools
orders and deliveries, and the stage of multi-year collaboration
contracts.

Employees

As of December 31, 2002, we had a total of
213 employees, including 148 scientific and technical employees
and 65 people in business development, legal and general
and administrative services. None of our employees are
represented by a labor union, and we consider our employee
relations to be good. We believe that our future success depends
in part upon our continued ability to hire and retain qualified
personnel. To date, we believe that we have been successful in
recruiting qualified employees, but there is no assurance that
we will continue to be successful in the future.

RISK FACTORS

Set forth below and elsewhere in this Report and
in other documents we file with the SEC are risks and
uncertainties that could cause actual results to differ
materially from the results contemplated by the forward-looking
statements contained in this Report. These are not the only
risks and uncertainties facing Symyx. Additional risks and
uncertainties not presently known to us or that we currently
deem immaterial also may impair our business operations.

We may not be able to achieve continued or
sustained profitability

Our ability to continue profitability is
dependent on our ability to extend current collaborations and
add new ones, to secure new Discovery Tools customers, to add
additional licensees of our intellectual property and to make
discoveries that our partners or we choose to commercialize. We
rely on our existing partners and potential new customers to
provide a market for our businesses and our materials. To date,
our partners have successfully commercialized only one of our
discovered materials. In addition, we have only sold and
installed a limited number of Discovery Tools systems and have
only recently initiated our intellectual property licensing
business. Our ability to achieve our objectives and maintain a
profitable business will depend in large

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part on acceptance by customers of the products
and services offered by our businesses, including materials we
discover. We cannot assure you that we will achieve the levels
of customer acceptance that will be necessary for us to maintain
and grow a profitable business. In addition, current negative
economic conditions affecting our current and prospective
collaboration partners and other potential customers have caused
many of these customers to reduce or curtail both internal and
external research and development activities. Sustained
reductions in research and development activities of our current
and potential customers would harm our business and adversely
affect our ability to maintain profitability.


We are dependent on the development activities
of companies in the chemical, life sciences and electronics
industries, and declines or reductions in research and
development activities in these industries could harm our
business

The market for our discovery services and
instrumentation within the chemical, life sciences and
electronics industries depends on our customers ability
and willingness to invest in research and development. A
majority of our revenues are attributable to our research
collaborations. Our future revenues are dependent on funding of
our research collaborations, licensing of intellectual property
and proprietary materials and sales of Discovery Tools.

In particular, many companies in the chemical and
pharmaceutical industries have, in the past several years,
experienced declining profitability or even losses. As a result,
some chemical and pharmaceutical companies have reduced their
research and development activities. In addition, many chemical
products have become commodity products that compete primarily
on the basis of price. If commoditization of chemical products
and other pressures affecting the industry continue in the
future, more companies could adopt strategies that involve
significant reductions in their research and development
programs. Although we believe that our approach can help life
science, chemical and electronics companies increase the
efficiency of their research and development activities, our
efforts to convince them of this value may be unsuccessful. To
the extent that life science, chemical and electronics companies
reduce their research and development activities, they would be
less likely to do business with us. As a result of current
negative economic conditions, a number of these companies have
recently both reduced the size of their research and development
budgets as well as the size of their workforces. Decisions by
these companies to reduce their research and development
activities could result in fewer or smaller scale collaborations
with us, fewer or smaller scale intellectual property licenses,
fewer sales of our Discovery Tools systems and related licenses
and products, or choosing not to work with Symyx, any of which
could reduce our revenues and harm our business and operating
results.

We are dependent upon acceptance of our
technology and approach by customers, and if we cannot achieve
market acceptance from potential customers, we will be unable to
develop a sustainable or profitable business

Our ability to succeed is also dependent upon the
acceptance by potential customers of our high throughput
screening technology and methodology as an effective tool in the
discovery of new materials. Historically, life science and
chemical companies have conducted materials research and
discovery activities internally using traditional manual
discovery methods. In order for us to achieve our business
objectives, we must convince these companies that our technology
and capabilities justify outsourcing part of their basic
research and discovery programs. If we cannot convince other
companies of the effectiveness of our automated discovery
methods, we may be unable to keep our existing customers or
attract additional customers on acceptable terms or develop a
sustainable, profitable business.

Balancing our need to protect our intellectual
property is the need for the chemical and materials industries
to adopt our technologies. Our growth will depend in part on our
ability to convince the research community to adopt our
technologies and in turn pay us for such use by obtaining
services, products and/or licenses from us under our
intellectual property portfolio. Companies may become concerned
about the scope and importance of our intellectual property
portfolio and thus slow or stop their adoption of our
technologies. This also may cause them to challenge our
intellectual property portfolio.

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We cannot predict the pace, quality or number
of discoveries we may generate, and any inability of ours to
generate a significant number of discoveries would reduce our
revenues and harm our business

Our future revenues and profitability are
dependent upon our ability to achieve discoveries, whether
through collaborations with customers or through our own
proprietary research. Because of the inherently uncertain nature
of research activities, we cannot predict with a high level of
precision the pace with which we may generate discoveries or the
quality of any discoveries that we may generate. Due to the
uncertain nature of materials discovery, in which several
hundred thousand compounds must often be screened to identify a
single development candidate, we may not generate the number of
discoveries that we would expect to generate from a given number
of experiments. In addition, our development candidates may not
result in products having the commercial potential our
collaborators or we anticipate. If this happens, our existing
and potential new customers may not renew or enter into new
agreements with us. Consequently, our future revenues from our
research collaborations and from commercialization of products
would likely decline and harm our business and operating results.

We conduct proprietary research programs, and
any conflicts with our collaborators or any inability to
commercialize development candidates resulting from this
research would harm our business

Our strategy involves conducting proprietary
research programs. We believe that our collaborative agreements
are structured in a manner to enable us to minimize conflicts
with our collaborators relating to rights to potentially
overlapping leads developed through our proprietary programs and
through programs funded by a collaborator. However, conflicts
between a collaborator and us could potentially arise,
particularly if we were to discover a material in one of our
proprietary programs that was a potential target of one of our
collaborative programs. In this event, we may become involved in
a dispute with our collaborator regarding the material. Disputes
of this nature could harm the relationship between us and our
collaborator, and concerns regarding our proprietary research
programs could also affect our ability to enter into new
collaborative relationships. If circumstances surrounding our
proprietary research programs were to affect our existing
collaborative relationships or our ability to enter into new
relationships, our revenues and operating results would decline.

In addition, we will either commercialize
development candidates resulting from our proprietary programs
directly or through licensing to other companies. In order for
us to commercialize these development candidates directly, we
would need to develop, or obtain through outsourcing
arrangements, the capability to manufacture, market and sell
products. We do not have this capability, and we may not be able
to develop or otherwise obtain the requisite manufacturing,
marketing and sales capabilities. If we are unable to
successfully commercialize products resulting from our
proprietary research efforts, our revenues and operating results
would decline.

We are dependent on our collaborations with
major companies, and the failure of our collaborative partners
to successfully commercialize products would reduce our revenues
and harm our business

To date, the majority of our revenues have come
from collaborative arrangements with chemical, life science, and
electronics companies. These contracts generally expire after a
fixed period of time. If they are not renewed or if we do not
enter into new collaborative arrangements, our business and
operating results may be harmed.

For us to achieve and sustain a significant level
of profitability, we must make discoveries with significant
commercial potential, and our collaborators must successfully
commercialize products based on our discoveries. Typically, we
do not receive royalties on sales of products by our
collaborators until the collaborator has commenced commercial
sales of a product resulting from the collaboration. The failure
of our partners to commercialize development candidates
resulting from our research efforts would reduce our revenues
and would harm our business and operating results.

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The loss of a key customer or collaborative
partner could substantially reduce our revenues and be perceived
as a loss of momentum in our business

Although we have expanded our base of customers
and collaborative partners, substantial portions of our revenues
are generated from a small number of chemical, life science and
electronics companies. We expect that these companies will in
aggregate continue to account for a substantial portion of our
revenues for the foreseeable future and the loss of one or more
of these customers or collaborative partners would harm our
business and operating results. The loss of a significant
customer or collaborative partner could also be perceived as a
loss of momentum in our business and this may cause the market
price of our common stock to fall.

We have a limited number of contracts for the
sale of Discovery Tools systems and for the licensing of
intellectual property and materials to date, and we cannot
assure you that we will be able to build a sustainable business
related to either the sale of additional systems or the
licensing of intellectual property and materials

To date, we have a limited number of contracts
for our Discovery Tools systems. Because of the high cost and
complexity of these systems, the sales cycle for them has been
and is likely to continue to be long. Sales of these systems
will require us to educate our potential customers about the
full benefits of these systems, which may require significant
time.

Sales of Discovery Tools systems and licensing of
intellectual property and materials will be subject to a number
of significant risks over which we have little or no control,
including:



| |   |                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | customers budgetary constraints and
    internal acceptance review procedures;                                                                                                                                             
|
| |  | customers willingness to acknowledge the
    validity of our patent portfolio and their need to obtain a
    license to our intellectual property in order to undertake
    research using combinatorial chemistry methods;
|
| |  | complexity of our systems and difficulties we may
    encounter in meeting individual customer specifications and
    commitments on a timely basis;                                                                        
|
| |  | our ability to build new systems to meet the
    demands of our customers;                                                                                                                                                  
|
| |  | the fact that there may be only a limited number
    of customers that are willing to purchase our larger systems or
    enter into licensing agreements with us;                                                           
|
| |  | a long sales cycle that involves substantial
    human and capital resources; and                                                                                                                                           
|
| |  | potential downturns in general or in industry
    specific economic conditions.                                                                                                                                             

If we are unable to continue to build the
infrastructure to support our Discovery Tools and Licensing
businesses, or if the sales or build cycles for Discovery Tools
systems lengthens unexpectedly, our revenues may decline or not
grow as anticipated and our results from operations may be
harmed.

While we believe that all of our Industry
Collaborations, Discovery Tools and Licensing businesses
complement each other, it is possible that these individual
business lines could become competitive with one another or
negatively impact one anothers revenue streams. This could
harm our ability to grow particular arms of our business and
harm our business and operating results.

We are exposed to risks associated with export
sales and operations that may limit our ability to generate
revenue from our products and intellectual property

We intend to continue to expand our international
presence in order to increase our export sales. Export sales to
international customers entail a number of risks, including:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | unexpected changes in, or impositions of,
    legislative or regulatory requirements;                                                                       
|
| |  | delays resulting from difficulty in obtaining
    export licenses for certain technology, and tariffs, quotas and
    other trade barriers and restrictions;

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| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | longer payment cycles and greater difficulty in
    accounts receivable collection;      
|
| |  | potentially adverse taxes;                                                               
|
| |  | obtaining and enforcing intellectual property
    rights under a variety of foreign laws;
|
| |  | currency exchange fluctuations;                                                          
|
| |  | the burdens of complying with a variety of
    foreign laws; and                         
|
| |  | other factors beyond our control.                                                        

We are also subject to general geopolitical risks
in connection with international operations, such as political,
social and economic instability, terrorism, potential
hostilities and changes in diplomatic and trade relationships.
Although we have not to date experienced any material adverse
effect on our operations as a result of such regulatory,
geopolitical and other factors, we cannot assure investors that
such factors will not adversely affect our operations in the
future or require us to modify our current business practices.
We cannot assure investors that one or more of the foregoing
factors will not have a material adverse effect on our business,
financial condition and operating results or require us to
modify our current business practices.

We depend on a limited number of suppliers and
will be delayed in our manufacture or unable to manufacture our
Discovery Tools if shipments from these suppliers are delayed or
interrupted

Key parts of our Discovery Tools systems are
currently available only from a single source or a limited
number of sources. In addition, components of our capital
equipment are available from one or only a few suppliers. In the
event that supplies from these vendors were delayed or
interrupted for any reason, we may not be able to get equipment
or components for Discovery Tools systems or our own research
efforts in a timely fashion or in sufficient quantities or under
acceptable terms.

Even if alternative sources of supply are
available, it could be time consuming and expensive for us to
qualify new vendors and integrate their components into our
Discovery Tools systems. In addition, we are dependent on our
vendors to provide components of appropriate quality and
reliability. Consequently, in the event that supplies from these
vendors were delayed or interrupted for any reason, we could be
delayed in our ability to develop and deliver products to our
customers.

We expect that our quarterly results of
operations will fluctuate, and this fluctuation could cause our
stock price to decline, causing investor losses

Our quarterly operating results have fluctuated
in the past and are likely to do so in the future. These
fluctuations could cause our stock price to fluctuate
significantly or decline. Revenues in future fiscal periods may
be greater or less than revenues in the immediately preceding
period or in the comparable period of the prior year. Some of
the factors that could cause our operating results to fluctuate
include:



| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | expiration of research contracts with major
    collaborative partners, which may not be renewed or replaced
    with contracts with other companies;
|
| |  | the success rate of our discovery efforts
    associated with milestones and royalties;                                                              
|
| |  | the timing and willingness of partners to
    commercialize our discoveries which would result in royalties;                                         
|
| |  | developments or disputes concerning patent or
    other proprietary rights;                                                                          
|
| |  | the size and timing of customer orders for
    shipments of, and payments related to Discovery Tools
    instrumentation;                            
|
| |  | the size and timing of license fees we receive
    from third parties who license our intellectual property;                                         
|
| |  | the size and timing of royalties we receive from
    third parties who license our laboratory instruments and
    software for resale;               
|
| |  | the size and timing of internal research and
    development programs we undertake on an un-funded basis;                                            

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| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the size and timing of Proprietary Materials
    licensing agreements we may enter into;                                                                                                                
|
| |  | changes in estimates and underlying assumptions
    related to our warranty expense accrual, inventory valuation
    reserve, and income tax valuation allowance;                                       
|
| |  | fluctuations in the market values of our cash
    equivalents and short-and long-term investments and in interest
    rates, including any gains or losses arising on the sale of
    these investments;
|
| |  | changes in accounting rules and regulations,
    including those related to revenue recognition and accounting
    for stock options granted to employees; and                                          
|
| |  | general and industry specific economic
    conditions, which may affect our customers capital
    investment levels and research and development investment
    decisions.                             

A large portion of our expenses, including
expenses for facilities, equipment and personnel, are relatively
fixed in nature. Accordingly, in the event revenues decline or
do not grow as anticipated due to expiration of research
contracts, failure to obtain new contracts or other factors, we
may not be able to correspondingly reduce our operating
expenses. Failure to achieve anticipated levels of revenues
could therefore significantly harm our operating results.

Due to the possibility of fluctuations in our
revenues and expenses, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication
of our future performance. Our operating results in some
quarters may not meet the expectations of stock market analysts
and investors. In that case, our stock price would probably
decline, and investors would experience a decline in the value
of their investment.

Future business activities such as the
development of a new line of business or the acquisition of a
company or technology could disrupt our business and distract
our management team.

In the future, we may engage in acquisitions or
expand our business focus in order to exploit technology or
market opportunities. In the event that we acquire another
company or business, we may not be able to successfully
integrate the acquired business into our existing business in a
timely and non-disruptive manner or at all. In the event that we
develop a new line of business, our managements attention
from normal daily operations of the business may be diverted.
Furthermore, an acquisition or business expansion may not
produce the revenues, earnings or business synergies that we
anticipate. The time, capital management and other resources
spent on an acquisition or business expansion that fails to meet
our expectations could cause our business and financial
condition to be materially and adversely affected.

Our investments could lose market value and
consequently harm our ability to fund continuing
operations.

The primary objective of our investment
activities is to preserve principal while at the same time
maximizing yields without significantly increasing risk. To
achieve this objective, we maintain our portfolio of cash
equivalents, short-term and long-term investments in a variety
of securities, including government and corporate obligations
and money market funds. These securities are generally
classified as available for sale and consequently are recorded
on the balance sheet at fair value with unrealized gains or
losses reported as a separate component of accumulated other
comprehensive income (loss), net of estimated tax. The market
values of these investments may fluctuate due to market
conditions and other conditions over which we have no control.
Fluctuations in the market price and valuations of these
securities may require us to record losses due to an impairment
in the value of the securities underlying our investment. This
could result in future charges on our earnings. All securities
are held in U.S. currency.

Investments in both fixed rate and floating rate
interest earning instruments carry varying degrees of interest
rate risk. Fixed rate securities may have their fair market
value adversely impacted due to a rise in interest rates. In
general, securities with longer maturities are subject to
greater interest rate risk than those with shorter maturities.
While floating rate securities generally are subject to less
interest rate risk than fixed rate securities, floating rate
securities may produce less income than expected if interest
rates decrease. Due in part to these factors, our investment
income may fall short of expectations or we may suffer losses in
principal if securities are sold that have declined in market
value due to changes in interest rates.

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Changes in accounting standards regarding
stock option plans could limit the desirability of granting
stock options, which could harm our ability to attract and
retain employees, and could also reduce our
profitability.

The Financial Accounting Standards Board is
considering whether to require all companies to treat the value
of stock options granted to employees as an expense. The
U.S. Congress and other governmental and regulatory
authorities have also considered requiring companies to expense
stock options. If this change were to become mandatory, we and
other companies would be required to record a compensation
expense equal to the value of each stock option granted. This
expense would likely be recognized over the vesting period of
the stock option. Currently, we are generally not required to
record compensation expenses in connection with stock option
grants. If we are required to expense stock option grants, it
would reduce the attractiveness of granting stock options
because of the additional expense associated with these grants,
which would reduce our profitability. However, stock options are
an important employee recruitment and retention tool, and we may
not be able to attract and retain key personnel if we reduce the
scope of our employee stock option program. Accordingly, in the
event we are required to expense stock option grants, our
profitability would be reduced, as would our ability to use
stock options as an employee recruitment and retention tool.

We are exposed to general global economic and
market conditions

Our business is subject to the effects of general
economic conditions in the United States, Europe, Asia and
globally, and, in particular, market conditions in the life
science and chemical industries. In recent quarters, our ability
to conclude Discovery Tools sale agreements and research and
development collaborative arrangements have been adversely
affected as a result of unfavorable economic conditions and
reduced capital spending in the United States, Europe, and Asia.
If the economic conditions in the United States and globally do
not improve, or if we experience a worsening in the global
economic slowdown, we may experience material adverse impacts on
our business, operating results, and financial condition.

The loss of key personnel or the inability to
attract and retain additional personnel could have a material
adverse effect on our results of operations

We believe our future success will depend upon
our ability to attract and retain highly skilled personnel,
including key scientific and managerial personnel. We do not
have any key-person life insurance relating to our key
personnel. All our employees are at-will and not subject to
employment contracts. We may not be successful in attracting and
retaining key personnel in the future.

As we seek to expand our operations, the hiring
of qualified scientific and technical personnel will be
difficult due to the limited availability of qualified
professionals. The number of people with experience in the
fields of combinatorial materials science and combinatorial
chemistry is limited, and we may face intense competition for
these types of employees. We have in the past experienced
difficulty in recruiting qualified personnel. Failure to attract
and retain personnel, particularly scientific and technical
personnel, would impair our ability to grow our business and
pursue new discovery initiatives and collaborative arrangements.

Competition could increase, and competitive
developments could render our technologies obsolete or
noncompetitive, which would reduce our revenues and harm our
business

The field of combinatorial materials science is
increasingly competitive. We are aware of companies that may
apply their expertise in combinatorial chemistry to their
internal materials research and development programs. In
addition, there are companies focusing on aspects of
combinatorial chemistry for the discovery of materials. In
addition, academic and research institutions may seek to develop
technologies that would be competitive with our systems for
materials discovery. Because combinatorial materials science is
an emerging field, competition from additional entrants may
increase. Our Discovery Tools business may face increasing
competition from a number of instrument manufacturing companies.
To the extent these companies develop competing technologies,
our own systems and workflows could be rendered obsolete or
noncompetitive.

Our current and potential competitors may have
greater financial, manufacturing, marketing and sales resources
than we do. In addition, some of our existing competitors may,
individually or together with companies affiliated with them,
have greater human and scientific resources than we do. Our
competitors

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could develop technologies and methods for
materials research and discovery that render our technologies,
methodologies, workflows and systems obsolete or less
competitive. Accordingly, if our competitors introduce new
materials discovery technologies that are faster or more
cost-effective than our technologies, customers may switch to
these new technologies. We would then experience a decline in
our revenues and operating results.


Any inability of ours to keep pace with
technological advances and evolving industry standards would
harm our business

The market for our products is characterized by
continuing technological development, evolving industry
standards and changing customer requirements. Due to increasing
competition in our field, it is likely that the pace of
innovation and technological change will increase. The
introduction of products by our direct competitors or others
embodying new technologies, the emergence of new industry
standards or changes in customer requirements could render our
existing products obsolete, unmarketable or less competitive.
Our success depends upon our ability to enhance existing
products and services and to respond to changing customer
requirements. Failure to develop and introduce new products and
services, or enhancements to existing products, in a timely
manner in response to changing market conditions or customer
requirements would harm our future revenues and our business and
operating results.

Our inability to adequately protect our
proprietary technologies could harm our competitive position and
have a material adverse effect on our business.

The success of our business depends, in part, on
our ability to obtain patents and maintain adequate protection
of our intellectual property for our technologies and products
in the U.S. and other countries. The laws of some foreign
countries do not protect proprietary rights to the same extent
as the laws of the U.S., and many companies have encountered
significant problems in protecting their proprietary rights in
these foreign countries. These problems can be caused by, for
example, a lack of rules and processes allowing for meaningfully
defending intellectual property rights. If we do not adequately
protect our intellectual property, competitors may be able to
practice our technologies and erode our competitive advantage,
and our business and operating results could be harmed.

The patent positions of technology companies,
including our patent positions, are often uncertain and involve
complex legal and factual questions. We will be able to protect
our proprietary rights from unauthorized use by third parties
only to the extent that our proprietary technologies are covered
by valid and enforceable patents or are effectively maintained
as trade secrets. We apply for patents covering our technologies
and products as we deem appropriate. However, we may not obtain
patents on all inventions for which we seek patents, and any
patents we obtain may be challenged and may be narrowed in scope
or extinguished as a result of such challenges. Our existing
patents and any future patents we obtain may not be sufficiently
broad to prevent others from practicing our technologies or from
developing competing products. Others may independently develop
similar or alternative technologies or design around our
patented technologies or products. These companies would then be
able to offer research services and develop, manufacture and
sell products, which compete directly with our research services
and products. In that case, our revenues and operating results
would decline.

We rely upon trade secret protection for our
confidential information. We have taken measures to protect our
confidential information. These measures may not provide
adequate protection for our trade secrets or other confidential
information. We seek to protect our confidential information by
entering into confidentiality agreements with employees,
collaborators and consultants. Nevertheless, employees,
collaborators or consultants may still disclose or misuse our
confidential information, and we may not be able to meaningfully
protect our trade secrets. In addition, others may independently
develop substantially equivalent information or techniques or
otherwise gain access to our trade secrets. Disclosure or misuse
of our confidential information would harm our competitive
position and could cause our revenues and operating results to
decline.

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Litigation or other proceedings or third party
claims of intellectual property infringement could require us to
spend time and money.

Our success depends on our ability to enforce our
intellectual property through either litigation or licensing. As
we become more involved in licensing, there is a greater
likelihood of intellectual property litigation. See
Item 3 - Legal Proceedings elsewhere in this report
for examples of such litigation. Should such litigation occur,
expenses and distractions associated with the litigation could
cause us to lose focus, harm our profitability and weaken our
intellectual property position. To be successful in enforcing
our intellectual property through litigation or licensing there
are several aspects to consider, including maintaining the
validity of our intellectual property, proving that others are
infringing on our intellectual property and obtaining
commercially significant compensation for such infringement.

With regard to maintaining the validity of our
intellectual property, intellectual property litigation can be
successful only if our intellectual property withstands close
scrutiny. If it does not withstand this scrutiny, we can lose
part or all of our intellectual property position. Also, we are
involved in several administrative proceedings, such as
opposition proceedings in the European Patent Office, that
challenge the validity of the patents we have obtained there.
Our success depends on securing valid patents of commercially
significant scope. Also, we are involved in some enforcement
proceedings that are not material, but which are a distraction
related to a market that is not commercially significant. Such
non-material proceedings nonetheless place the validity of our
intellectual property at risk and our success will depend upon
the ability to successfully conclude such non-material
proceedings. Additional proceedings such as this can adversely
affect our intellectual property while causing us to spend
resources on the enforcement proceeding without significant
commercial advantage.

With regard to proving infringement of our
intellectual property, our success depends in part on obtaining
useable knowledge of what technologies others are practicing. If
others do not publish or disclose the technologies that they are
using, our ability to discover infringing uses and enforce our
intellectual property will diminish. In this case our revenues
from intellectual property licensing and our operating results
may decline.

With regard to obtaining commercially significant
compensation for infringement, our success depends in part on
others adopting our technology and being successful while using
our technology. For example, should we attempt to obtain a per
use royalty for use of our intellectual property, our success
will depend on others using our intellectual property
significantly. However, if they are not successful in their use,
then our per use royalty may not be commercially significant and
our operating results would decline.

Moreover, even if we defend and enforce our
intellectual property rights, others may independently develop
alternative technologies, or design around or invalidate our
patented technologies. These developments would reduce the value
of our intellectual property assets. Additional litigation
regarding our intellectual property rights could consume
substantial portions of our financial and managerial resources
and our operating results would be harmed.

Our commercial success also depends in part on
ensuring we neither infringe patents nor proprietary rights of
third parties. Others have filed, and in the future are likely
to file, patent applications covering technologies that we may
wish to utilize with our proprietary technologies, or products
that are similar to products developed with the use of our
technologies. If these patent applications result in issued
patents and we wish to use the claimed technology, we would need
to obtain a license from the third party and this would increase
our costs of operations and harm our operating results.

Third parties may assert that we are employing
their proprietary technology without authorization. In addition,
third parties may obtain patents in the future and claim that
use of our technologies infringes these patents. We could incur
substantial costs and diversion of the time and attention of
management and technical personnel in defending ourselves
against any such claims. Furthermore, parties making claims
against us may be able to obtain injunctive or other equitable
relief that could effectively block our ability to further
develop, commercialize and sell products, and such claims could
result in the award of substantial damages against us. In the
event of a successful claim of infringement against us, we may
be required to pay damages and obtain

16



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##### Table of Contents



one or more licenses from third parties. We may
not be able to obtain these licenses at a reasonable cost, if at
all. In that event, we could encounter delays in product
introductions while we attempt to develop alternative methods or
products or be required to cease commercializing affected
products and our operating results would be harmed.


We use hazardous materials in our business,
and any claims relating to improper handling, storage or
disposal of these materials could subject us to significant
liabilities

Our business involves the use of a broad range of
hazardous chemicals and materials. Environmental laws impose
stringent civil and criminal penalties for improper handling,
disposal and storage of these materials. In addition, in the
event of an improper or unauthorized release of, or exposure of
individuals to, hazardous materials, we could be subject to
civil damages due to personal injury or property damage caused
by the release or exposure. A failure to comply with
environmental laws could result in fines and the revocation of
environmental permits, which could prevent us from conducting
our business. Accordingly, any violation of environmental laws
or failure to properly handle, store or dispose of hazardous
materials could result in restrictions on our ability to operate
our business and could require us to incur potentially
significant costs for personal injuries, property damage and
environmental cleanup and remediation.

Our facilities are located near known
earthquake fault zones, and the occurrence of an earthquake or
other disaster could cause damage to our facilities and
equipment and harm our business

Our facilities are located in the Silicon Valley
near known earthquake fault zones and are vulnerable to damage
from earthquakes. In October 1989, a major earthquake that
caused significant property damage and a number of fatalities
struck this area. We are also vulnerable to damage from other
types of disasters, including fire, floods, power outages or
losses, communications failures and similar events. If any
disaster were to occur, our ability to operate our business at
our facilities would be seriously, or potentially completely,
impaired. In addition, the unique nature of our research
activities and of much of our equipment could make it difficult
for us to recover from a disaster. The insurance we maintain may
not be adequate to cover our losses resulting from disasters or
other business interruptions. Accordingly, an earthquake or
other disaster could harm our business and operating results.

Other Risk Factors

Some of our existing stockholders can exert
control over us, and may not make decisions that are in the best
interests of all stockholders

Our officers, directors and principal
stockholders (greater than 5% stockholders) together control a
significant percentage of our outstanding common stock. As a
result, these stockholders, if they act together, will be able
to exert a significant degree of influence over our management
and affairs and over matters requiring stockholder approval,
including the election of directors and approval of significant
corporate transactions. This concentration of ownership may have
the effect of delaying or preventing a change in control of
Symyx and might affect the market price of our common stock,
even when such a change may be in the best interests of all
stockholders.

Our stock price has been and may continue to
be volatile

The market price of our common stock since our
initial public offering has been highly volatile. Volatility in
the market price for our common stock will be affected by a
number of factors, including the following:



| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | decisions by significant stockholders to acquire
    or divest their stock holdings, given the relatively low average
    daily trading volumes we have historically experienced;
|
| |  | the announcement of new products or services by
    us or our competitors;                                                                                                       
|
| |  | quarterly variations in our or our
    competitors results of operations;                                                                                                       
|
| |  | failure to achieve operating results projected by
    securities analysts;                                                                                                       
|
| |  | failure to achieve operating results within
    guidance provided by our senior management;                                                                                      

17



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##### Table of Contents





| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in earnings estimates or recommendations
    by securities analysts;                                                                                                        
|
| |  | changes in management;                                                                                                                                                              
|
| |  | changes in investors beliefs as to the
    appropriate valuation ratios for us and our competitors;                                                                                
|
| |  | speculation in the press or analyst community;                                                                                                                                      
|
| |  | developments in our industry;                                                                                                                                                       
|
| |  | changes in our revenue growth rates; and                                                                                                                                            
|
| |  | general market conditions, political influences
    and other factors, including factors unrelated to our operating
    performance or the operating performance of our competitors.

These factors and fluctuations, as well as
general economic, political and market conditions, may
materially adversely affect the market price of our common
stock. Securities class action litigation is often brought
against a company following periods of volatility in the market
price of its securities. We may in the future be the target of
similar litigation. Securities litigation, whether with or
without merit, could result in substantial costs and divert
managements attention and resources, which could harm our
business and financial condition, as well as the market price of
our common stock.

Additionally, volatility or a lack of positive
performance in our stock price may adversely affect our ability
to retain key employees, all of whom have been granted stock
options.

Provisions of our charter documents may have
anti-takeover effects that could prevent a change in our
control, even if this would be beneficial to
stockholders

Provisions of our amended and restated
certificate of incorporation, bylaws and Delaware law could make
it more difficult for a third party to acquire us, even if doing
so would be beneficial to our stockholders. These provisions
include:



| |   |                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a classified board of directors, in which our
    board is divided into three classes with three year terms with
    only one class elected at each annual meeting of stockholders,
    which means that a holder of a majority of our common stock will
    need two annual meetings of stockholders to gain control of the
    board;
|
| |  | a provision which prohibits our stockholders from
    acting by written consent without a meeting;                                                                                                                                                                                                                                     
|
| |  | a provision which permits only the board of
    directors, the president or the chairman to call special
    meetings of stockholders; and                                                                                                                                                                                             
|
| |  | a provision which requires advance notice of
    items of business to be brought before stockholders meetings.                                                                                                                                                                                                                         

These provisions can be amended only with the
vote of the holders of 66 2/3% of our outstanding capital
stock.






|        |           
|------- | ----------
|Item 2. | Properties

Our facilities currently consist of an aggregate
of approximately 104,300 square feet of office, research and
laboratory space in several locations in Santa Clara and
Sunnyvale, California, pursuant to leases that expire from
January 2003 to September 2010.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We are currently not a party to any legal
proceedings that we believe to be material.

The Company may become subject to legal
proceedings, claims, and litigation arising in the ordinary
course of business. While the outcome of these matters is
currently not determinable, management does not expect that the
ultimate costs to resolve these matters will have a material
adverse effect on the Companys consolidated financial
position, results of operations, or cash flows.

18



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##### Table of Contents



In April 2002, Symyx sent a letter to Hazard
Evaluation Laboratories, Inc. and Hazard Evaluation Laboratory
Limited (collectively HEL) demanding that HEL remove
certain HEL products from the U.S. market and that their
customers discontinue use of such products. In response, HEL
filed an action on May 17, 2002, seeking a declaratory
judgment that certain HEL products do not infringe Symyx
U.S. Patent No. 6,306,658. HEL also asserts that the
658 patent is invalid. Symyx has answered the
complaint and counterclaimed for infringement of the
658 patent as well as infringement of newly issued
U.S. Patent No. 6,455,316. The parties have agreed to
participate in a mediated settlement. Symyx intends to enforce
its patent rights in the lawsuit if a favorable mediated
settlement is not reached. Management does not expect that the
ultimate cost of resolving this matter will have a material
adverse effect on the Companys consolidated financial
position, results of operations, or cash flows.

In January 2000 we entered into a License and
Joint Development Agreement with Applied Biosystems (formerly
PE Biosystems Group). In February 2003, we initiated a
binding arbitration proceeding in which we have alleged that
Applied Biosystems owes us certain payments and related
obligations pursuant to the Agreement. This proceeding was
initiated only recently and we cannot make any assessment as to
its probable outcome. The dates for the arbitration proceedings
have not yet been set.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

None

19



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##### Table of Contents






PART II








|        |                                                                    
|------- | -------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stock Matters

The Companys Common Stock is traded on the
Nasdaq National Market System under the symbol of SMMX. The
following table sets forth, for the period indicated, the low
and high bid prices per share for the Companys Common
Stock as reported by the Nasdaq National Market.

|               |  |     |       |      |  |   |       | 
|-------------- |  | --- | ----- | ---- |  | - | ----- | 
|               |  | Low |       | High
|               |  |     |       |     
|2001           |  |     |       |      |  |   |       | 
|First Quarter  |  | $   | 11.81 |      |  | $ | 40.13 | 
|Second Quarter |  | $   | 11.75 |      |  | $ | 28.33 | 
|Third Quarter  |  | $   | 11.66 |      |  | $ | 25.10 | 
|Fourth Quarter |  | $   | 14.11 |      |  | $ | 21.83 | 
|2002           |  |     |       |      |  |   |       | 
|First Quarter  |  | $   | 16.20 |      |  | $ | 27.20 | 
|Second Quarter |  | $   | 12.02 |      |  | $ | 24.79 | 
|Third Quarter  |  | $   | 7.50  |      |  | $ | 14.25 | 
|Fourth Quarter |  | $   | 9.32  |      |  | $ | 13.08 | 

As of February 28, 2003, there were
approximately 192 holders of record of the Companys Common
Stock.

No dividends have been paid on the Common Stock
since the Companys inception and the Company currently
intends to retain all future earnings, if any, for use in its
business and does not anticipate paying any cash dividends in
the foreseeable future.

20



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following selected historical information has
been derived from the audited financial statements of the
Company. The financial information as of December 31, 2002
and 2001 and for each of the three years in the period ended
December 31, 2002 are derived from audited financial
statements included elsewhere in this Form 10-K. The table
should be read in conjunction with Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations and Item 8.
Financial Statements and Supplementary Data.

|                                                                 |                                   |                                       |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |        |        | 
|---------------------------------------------------------------- | --------------------------------- | ------------------------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                 |                                   |                                      
|                                                                 |                                   | For the Years Ended December 31,     
|                                                                 |                                   |                                      
|                                                                 |                                   | 1998                                  |        | 1999   |        | 2000 |        | 2001   |        | 2002
|                                                                 |                                   |                                       |        |        |        |      |        |        |        |     
|                                                                 |                                   |                                      
|                                                                 |                                   | (In thousands, except per share data)
|Consolidated Statements of Operations
    Data:                  |                                   |                                       |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Revenues:                                                        |                                   |                                       |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                 | Service revenues                  |                                       | $      | 13,787 |        |      | $      | 30,497 |        |      | $      | 34,999 |        |   | $      | 42,629 |        |   | $      | 35,397 |       
|                                                                 | Product sales                     |                                       |        |       |        |      |        |       |        |      |        | 5,919  |        |   |        | 14,216 |        |   |        | 25,877 |       
|                                                                 | Royalties and license fees        |                                       |        |       |        |      |        |       |        |      |        | 2,400  |        |   |        | 3,175  |        |   |        | 3,547  |       
|                                                                 |                                   |                                       |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                 |                                   | Total Revenues                        |        |        | 13,787 |      |        |        | 30,497 |      |        |        | 43,318 |   |        |        | 60,020 |   |        |        | 64,821 | 
|Operating expenses:                                              |                                   |                                       |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                 | Cost of products sold             |                                       |        |       |        |      |        |       |        |      |        | 2,775  |        |   |        | 6,591  |        |   |        | 6,239  |       
|                                                                 | Research and development          |                                       |        | 17,813 |        |      |        | 26,628 |        |      |        | 35,898 |        |   |        | 38,718 |        |   |        | 39,307 |       
|                                                                 | Sales, general and administrative |                                       |        | 4,515  |        |      |        | 7,624  |        |      |        | 11,798 |        |   |        | 12,524 |        |   |        | 14,592 |       
|                                                                 |                                   |                                       |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                 |                                   | Total operating expenses              |        |        | 22,328 |      |        |        | 34,252 |      |        |        | 50,471 |   |        |        | 57,833 |   |        |        | 60,138 | 
|                                                                 |                                   |                                       |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Income (loss) from operations                                    |                                   |                                       | (8,541 | )      |        |      | (3,755 | )      |        |      | (7,153 | )      |        |   | 2,187  |        |        |   | 4,683  |       
|Interest income                                                  |                                   |                                       | 1,117  |        |        |      | 2,542  |        |        |      | 7,155  |        |        |   | 6,117  |        |        |   | 3,269  |       
|Interest and other expense                                       |                                   |                                       | (731   | )      |        |      | (934   | )      |        |      | (924   | )      |        |   | (660   | )      |        |   | (9     | )     
|                                                                 |                                   |                                       |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Income (loss) before income tax expense                          |                                   |                                       | (8,155 | )      |        |      | (2,147 | )      |        |      | (922   | )      |        |   | 7,644  |        |        |   | 7,943  |       
|Income tax expense                                               |                                   |                                       |       |        |        |      |       |        |        |      |       |        |        |   | 1,306  |        |        |   | 2,657  |       
|                                                                 |                                   |                                       |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Net income (loss)                                                |                                   | $                                     | (8,155 | )      |        | $    | (2,147 | )      |        | $    | (922   | )      |        | $ | 6,338  |        |        | $ | 5,286  |       
|                                                                 |                                   |                                       |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Basic net income (loss) per share                                |                                   | $                                     | (2.13  | )      |        | $    | (0.27  | )      |        | $    | (0.03  | )      |        | $ | 0.21   |        |        | $ | 0.17   |       
|                                                                 |                                   |                                       |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Shares used in computing basic net income
    (loss) per share   |                                   |                                       | 3,829  |        |        |      | 8,087  |        |        |      | 28,873 |        |        |   | 29,904 |        |        |   | 30,647 |       
|                                                                 |                                   |                                       |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Diluted net income (loss) per share                              |                                   | $                                     | (2.13  | )      |        | $    | (0.27  | )      |        | $    | (0.03  | )      |        | $ | 0.20   |        |        | $ | 0.17   |       
|                                                                 |                                   |                                       |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Shares used in computing diluted net income
    (loss) per share |                                   |                                       | 3,829  |        |        |      | 8,087  |        |        |      | 28,873 |        |        |   | 31,196 |        |        |   | 31,638 |       
|                                                                 |                                   |                                       |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       

|                                                             |  |                |        |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|------------------------------------------------------------ |  | -------------- | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                             |  |               
|                                                             |  | December 31,  
|                                                             |  |               
|                                                             |  | 1998           |        | 1999 |  | 2000 |         | 2001 |  | 2002
|                                                             |  |                |        |      |  |      |         |      |  |     
|                                                             |  |               
|                                                             |  | (In thousands)
|Consolidated Balance Sheet Data:                             |  |                |        |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Cash, cash equivalents and available-for-sale
    securities |  | $              | 35,121 |      |  | $    | 119,270 |      |  | $    | 111,040 |  |  | $ | 113,326 |  |  | $ | 118,020 | 
|Working capital                                              |  |                | 15,701 |      |  |      | 102,093 |      |  |      | 98,139  |  |  |   | 101,925 |  |  |   | 117,904 | 
|Total assets                                                 |  |                | 52,903 |      |  |      | 148,305 |      |  |      | 146,221 |  |  |   | 151,070 |  |  |   | 157,368 | 
|Long-term obligations, less current portion                  |  |                | 7,591  |      |  |      | 6,729   |      |  |      | 3,010   |  |  |   |        |  |  |   |        | 
|Total stockholders equity                                   |  |                | 36,166 |      |  |      | 119,943 |      |  |      | 123,651 |  |  |   | 134,497 |  |  |   | 145,483 | 

21



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|        |                                                                                            
|------- | -------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results from Operations

Forward Looking Statement

This Managements Discussion and Analysis
of Financial Condition and Results of Operations and other parts
of this Form 10-K contain forward-looking statements that
involve risks and uncertainties. These statements typically may
be identified by the use of forward-looking words or phrases
such as believe, expect,
intend, anticipate, should,
planned, estimated, and
potential, among others. All forward-looking
statements included in this document are based on our current
expectations, and we assume no obligation to update any such
forward-looking statements. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for such
forward-looking statements. In order to comply with the terms of
the safe harbor, we note that a variety of factors could cause
actual results and experience to differ materially from the
anticipated results or other expectations expressed in such
forward-looking statements. The risks and uncertainties that may
affect the operations, performance, development, and results of
our businesses include but are not limited to (1) market
acceptance of our products and services; (2) uncertainties
relating to the pace, quality or number of discoveries of new
materials; (3) the dependence on collaborators to
successfully commercialize products; (4) uncertainties of
patent protection and litigation; (5) future growth
strategy; (6) general economic conditions in the United
States and in major European and Asian markets;
(7) exposure to risks associated with export sales and
operations; (8) natural disasters, power failures and other
disasters; and (9) other factors that might be described
from time to time in our periodic filings with the Securities
and Exchange Commission and include those set forth in this
Annual Report on Form 10-K as Factors Affecting
Future Results and Other Risk
Factors.

All percentage amounts and ratios were
calculated using the underlying data in thousands. Operating
results for the year ended December 31, 2002, are not
necessarily indicative of the results that may be expected for
future fiscal years. The following discussion and analysis
should be read in conjunction with our historical financial
statements and the notes to those financial statements that are
included in Item 8. of Part II of this
Form 10-K.

Overview

To date, our revenues and cash flows from
operations have come from research collaborations with large
chemical, life science and electronics companies, sale of
instruments, and licensing of intellectual property, materials
and software, and government grants. Approximately 25 leading
chemical, life science and electronics companies are among our
base of worldwide partners, customers and licensees. We expect
that our cash flows and revenue for 2003 will be comprised in
large part of payments to be made and revenue to be earned under
research and development collaborations together with product
revenue from our Discovery Tools business and license fees from
our Intellectual Property and Materials Licensing business.

We have invested heavily in establishing the
technology, instrumentation and informatics necessary to pursue
high throughput discovery of materials. These materials include
catalysts to manufacture commodity chemicals and polyolefins,
polymers and phosphors for life science and industrial
applications, and specialized materials for electronics
applications.

Despite challenges in the overall business
climate, we generated revenues of $64.8 million, an
increase of 8% over 2001. We ended the year with net income of
$5.3 million, or $0.17 per share on a diluted basis. In
addition, we generated positive cash flow, ending the year with
$118.0 million in cash, cash equivalents and
available-for-sale securities.

Our revenue increased from $43.3 million in
2000 to $60.0 million in 2001 to $64.8 million in
2002. Operating expenses increased from $50.5 million in
2000 to $57.8 million in 2001 to $60.1 million in
2002. Our total headcount increased from 193 employees at the
end of 2000 and to 204 employees at the end of 2001 to 213
employees at the end of 2002.

As of December 31, 2002, our accumulated
deficit was approximately $8.4 million. We may incur
additional operating losses as we continue to expand staffing,
equipment and facilities. See Factors Affecting Future
Results.

22



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##### Table of Contents



We expect to continue to make significant
investments in research and development to enhance our
technologies, including for the development of new instruments
and software. In addition, our strategy is to expand our
operations and to continue to build our research and
development, business development and marketing efforts.

Critical Accounting Policies

Symyx financial statements and accompanying
notes are prepared in accordance with generally accepted
accounting principles in the United States (GAAP).
Note 1 to the Consolidated Financial Statements included
under Item 8 in this Annual Report, describes 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
are used for, but not limited to, revenue recognition,
establishing the warranty expense accrual, establishing
slow-moving, obsolete and excess inventory reserves, determining
when technical feasibility for our software products has been
achieved and accounting for income taxes. The following critical
accounting policies, among others, are impacted significantly by
judgments, estimates and assumptions used in the preparation of
the Consolidated Financial Statements.



| |                                                      
| | -----------------------------------------------------
| | Source of Revenues and Revenue Recognition
    Policy

Service revenue consists of research and
development funding received from collaborative partners as well
as government grants received for proprietary materials
research. Product revenue consists of payments from customers
for Discovery Tools systems and consumables. Royalties and
license fees include fees for licensing of our intellectual
property, proprietary materials and technology license payments
and royalties on laboratory instruments and software sold under
license by third parties.

We recognize revenue from research collaboration
agreements and government grants as earned upon performance of
the services specified in the agreements. Payments received that
are related to future performance are deferred and recognized as
revenue as the performance requirements are fulfilled. As of
December 31, 2002, we had deferred revenues of
approximately $3.0 million, compared with $6.6 million
at December 31, 2001. The terms of our collaboration
agreements generally require us to perform minimum levels of
research.

We recognize revenue from the sale of Discovery
Tools, and all related costs of products sold are expensed, once
customer acceptance has been achieved. A warranty expense
accrual is established at the time of customer acceptance. If
there are extended payment terms, we recognize product revenue
as these payments become due. We consider all arrangements with
payment terms extending beyond 12 months not to be fixed or
determinable. Accordingly, the cost of products sold as a
percentage of product revenue will fluctuate from one period to
the next based on the timing of when extended payments are due
as well as the mix of products sold.

We recognize license fee revenues for licenses to
our intellectual property when earned under the terms of the
agreements. Generally, revenue is recognized upon transfer of
the license unless we have continuing obligations for which fair
value cannot be established, in which case the revenue is
recognized over the period of the obligation. If there are
extended payment terms, we recognize license fee revenue as
these payments become due. We consider all arrangements with
payment terms extending beyond 12 months not to be fixed or
determinable. In certain licensing arrangements there is
provision for a variable fee as well as a non-refundable minimum
amount. In such arrangements, the amount of the non-refundable
minimum guarantee is recognized upon transfer of the license
unless we have continuing obligations for which fair value
cannot be established and the amount of the variable fee in
excess of the guaranteed minimum is recognized as revenue when
it is fixed and determinable.

We recognize royalty revenues based on reported
sales by third party licensees of products containing our
materials, software and intellectual property.

23



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##### Table of Contents



Our sources of potential revenue for the next
several years are likely to be:



| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | payments under existing and possible future
    collaborative arrangements;                                        
|
| |  | royalties from our partners based on revenues
    received from any products commercialized under those agreements;
|
| |  | sales of Discovery Tools, other instruments and
    associated services; and                                       
|
| |  | licensing of software and intellectual property.                                                                   

See Note 1 of Notes to Consolidated
Financial Statements for a further discussion of our revenue
recognition policies.



| |            
| | -----------
| | Inventories

We carry our inventories at the lower of cost or
market, cost being determined on a specific identification
basis. We apply judgment in determining the provisions for
slow-moving, excess and obsolete inventories based on historical
experience and anticipated product demand.



| |                         
| | ------------------------
| | Warranty Expense Accrual

A warranty expense accrual is established at the
time of customer acceptance of a Discovery Tool system and is
included as a cost of product sold. Management is required to
exercise judgment in establishing the appropriate level of
warranty expense accrual for each Discovery Tool system
delivered. The actual results with regard to warranty
expenditures could have a material unfavorable impact on us if
system failures or the costs to repair systems are greater than
our estimates.



| |                                   
| | ----------------------------------
| | Research and Development
    Costs

Symyx accounts for research and development costs
in accordance with several accounting pronouncements, including
SFAS 2, Accounting for Research and Development
Costs, and SFAS 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise
Marketed. SFAS 86 specifies that costs incurred internally
in creating a computer software product should be charged to
expense when incurred as research and development until
technological feasibility has been established for the product.
Once technological feasibility is established, all software
costs should be capitalized until the product is available for
general release to customers. Judgment is required in
determining when the technological feasibility of a product is
established. Symyx has determined that technological feasibility
for its software products is reached shortly before the products
are released to manufacturing. Costs incurred after
technological feasibility is established are not material, and
accordingly, the Company expenses all research and development
costs when incurred.



| |                            
| | ---------------------------
| | Accounting for Income Taxes

Income taxes have been provided using the
liability method. Our effective tax rate for fiscal year 2002 is
based on our projection of the estimated future tax consequences
of events that have been recognized in our financial statements
or tax returns. Fluctuations in the actual outcome of these
future tax consequences could materially impact our financial
position or results of operations. A deferred tax asset or
liability is determined based on the difference between the
financial statement and tax basis of assets and liabilities as
measured by the enacted tax rates that will be in effect when
these differences reverse. We provide a valuation allowance
against net deferred tax assets unless, based upon the available
evidence, it is more likely than not that the deferred tax
assets will be realized. Establishing this valuation allowance
involves significant judgment, since we have a limited history
of profitability and the period over which the potential future
benefit from the deferred tax assets may be realized is quite
long.



| |                       
| | ----------------------
| | Employee Stock Options

We generally grant stock options to our employees
for a fixed number of shares with an exercise price equal to the
fair value of the shares on the date of grant. As allowed under
the Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation
(SFAS 123), we have

24



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elected to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and related
interpretations in accounting for stock awards to employees.
Accordingly, no compensation expense is recognized in our
financial statements in connection with stock options granted to
employees with exercise prices not less than fair value.
Deferred compensation for options granted to employees is
determined as the difference between the deemed fair market
value of the Companys common stock on the date options
were granted and the exercise price.


Deferred Compensation

Deferred compensation for options granted to
employees has been determined as the difference between the
deemed fair market value of our common stock on the date options
were granted and the exercise price. Deferred compensation for
options granted to consultants has been determined in accordance
with Statement of Financial Accounting Standards No. 123 as
the fair value of the equity instruments issued. Deferred
compensation for options granted to consultants is periodically
remeasured as the underlying options vest.

In connection with the grant of stock options to
employees and consultants, prior to our initial public offering
in 1999 we recorded deferred stock compensation of approximately
$5.4 million. This amount was initially recorded as a
component of stockholders equity and is being amortized by
charges to operations over the vesting period of the underlying
options using the graded vesting method. We recorded
amortization of deferred compensation of approximately $168,000
in 2002, $411,000 in 2001, and $760,000 in 2000. The
amortization expense relates to options awarded to employees in
all operating expense categories. See Note 4 of Notes to
Consolidated Financial Statements.

RESULTS OF OPERATIONS

Comparison of Years Ended December 31,
2002 and 2001



| |         
| | --------
| | Revenues

Our total revenue in 2002 was $64.8 million,
an increase of 8% from $60.0 million in 2001. This increase
was due to the growth in our Discovery Tools business which
generated $27.6 million of revenue in 2002 up from
$14.5 million in 2001. Our revenue from research
collaborations decreased from $42.6 million in 2001 to
$33.8 million in 2002 due mainly to the expiration of a
number of technology access fees in 2001 and the expiration and
non-renewal of other contracts due largely to budget constraints
being faced by our collaborative partners.

ExxonMobil Chemical Company, Eli Lilly and The
Dow Chemical Company, accounted for 18%, 16%, and 13%,
respectively, of total revenue for the year ended
December 31, 2002. ExxonMobil Chemical Company, The Dow
Chemical Company and Bayer accounted for 12%, 14%, and 13%,
respectively, of revenue for the same period in 2001.

25



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##### Table of Contents



We segregate revenue by: Industry Collaborations,
Discovery Tools and Licensing of Patents and Materials. Industry
Collaborations revenue is further segregated into four
categories for purposes of internal management reporting:
Chemicals, Electronic Materials, Life Sciences and Industrial
Polymers.

|                                   |                      |                |        |        |  |  |        |        | 
|---------------------------------- | -------------------- | -------------- | ------ | ------ |  |  | ------ | ------ | 
|                                   |                      |               
|                                   |                      | Years Ended   
|                                   |                      | December 31,  
|                                   |                      |               
|                                   |                      | 2002           |        | 2001  
|                                   |                      |                |        |       
|                                   |                      |               
|                                   |                      | (In thousands)
|Industry Collaborations:           |                      |                |        |        |  |  |        |       
|                                   | Chemicals            |                | $      | 19,446 |  |  | $      | 25,900 | 
|                                   | Electronic Materials |                |        | 5,933  |  |  |        | 3,604  | 
|                                   | Life Science         |                |        | 5,520  |  |  |        | 7,606  | 
|                                   | Industrial Polymers  |                |        | 2,900  |  |  |        | 5,519  | 
|                                   |                      |                |        |        |  |  |        |       
|                                   |                      |                | 33,799 |        |  |  | 42,629 |       
|Discovery Tools                    |                      |                | 27,561 |        |  |  | 14,466 |       
|Licensing of Patents and Materials |                      |                | 3,461  |        |  |  | 2,925  |       
|                                   |                      |                |        |        |  |  |        |       
|                                   | Total                |                | $      | 64,821 |  |  | $      | 60,020 | 
|                                   |                      |                |        |        |  |  |        |       



| |                               
| | ------------------------------
| | Industry Collaboration Revenue

The decrease in Chemicals revenue in 2002 was
largely attributable to the conclusion of the technology access
fees paid under the 1999 Bayer and Dow collaboration contracts
and recognized over the life of those contracts and a reduction
in the level of funding received from Dow and Celanese in 2002.
The reduction in funding received in Chemicals due to the end of
the Bayer Collaboration in December 2001 was offset by the
increase in funding received under the ExxonMobil collaboration
in 2002. The increase in Electronic Materials revenue in 2002
was mainly attributable to a research collaboration with an
undisclosed partner. The decrease in Life Science revenue in
2002 resulted primarily from the conclusion of the Applied
Biosystems collaboration at December 31, 2001 and the
conclusion of the funding received from Merck under the
Polymorph Systems development collaboration during 2002,
partially offset by the addition of a number of new smaller
collaborations. The decrease in Industrial Polymers revenue in
2002 resulted primarily from the expiration of the BASF and ICI
collaborations in 2001.

Service revenue from research collaborations
exceeded research and development costs for the years ended
December 31, 2002 and 2001 primarily because of continued
research contract profitability.



| |                        
| | -----------------------
| | Discovery Tools Revenue

The increase in Discovery Tools revenue in 2002
was attributable mainly to the shipment of Discovery Tools
Polymorph Systems to Merck and Eli Lilly and Discovery
Tools Solubility Systems to Merck, Lilly and Amgen during
2002. We also shipped Discovery Tools Systems to North Dakota
State University, an unnamed customer and Dow Chemical Company
in 2002. Discovery Tools revenue included $25,877,000 of product
sales, $1,598,000 of service revenues, and $86,000 of software
license revenue for the year ended December 31, 2002 and
$14,216,000 of product sales and $250,000 of software license
revenue for the year ended December 31, 2001.



| |                                   
| | ----------------------------------
| | Licensing of Patents and Materials

The increase in Licensing revenue in 2002 was due
to the licensing of patents to General Electric, Bayer and an
undisclosed licensee, together with a fully paid up license fee
received from Argonaut Technologies, Inc. Licensing revenue for
the year ended December 31, 2001 included advance royalty
payments received under the ABI collaboration that expired on
December 31, 2001.

26



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##### Table of Contents





| |                      
| | ---------------------
| | Cost of Products Sold

Cost of products sold was $6.2 million, or
24% of Product sales revenue for the year ended
December 31, 2002, compared to $6.6 million, or 46% of
Product sales revenue for the year ended December 31, 2001.
The decrease in the cost of products sold was due to the change
in the product mix shipped in the respective years.

We have had limited sales of Discovery Tools
systems and consumables to date, and the cost of products sold
is expected to fluctuate from period to period and will be
driven by the variability of product mix and sales volumes in
each period.



| |                                      
| | -------------------------------------
| | Research and Development
    Expenses

Our research and development expenses consist
primarily of salaries and other personnel-related expenses,
facility costs, supplies, and depreciation of facilities and
laboratory equipment.

The table below indicates the major collaborative
partners, defined as those contributing greater than 10% of
collaborative research revenue in 2002, for whom Symyx conducted
research and development, together with the primary focus of the
collaborations and the date upon which the current contract
ends. Contracts may only be extended by mutual agreement between
Symyx and the collaborative partner.

|             |  |                  |            |                                        |  |                                             
|------------ |  | ---------------- | ---------- | -------------------------------------- |  | --------------------------------------------
|             |  | Current Research |            |                                       
|Partner      |  | Contract Ends    |            | Primary focus of collaborative efforts
|             |  |                  |            |                                       
|ExxonMobil   |  |                  | 12/31/2003 |                                        |  | Production of olefins                       
|Dow Chemical |  |                  | 6/30/2004  |                                        |  | Polyolefins and pharmaceutical intermediates

We do not track fully burdened research and
development costs or capital expenditures by project. However,
we estimate based on Full Time Equivalent (FTE)
effort, that approximately 63% of research &
development efforts in 2002 were undertaken for collaborative
projects funded by our partners, and approximately 37% of
research effort was on our own internally funded research
including development costs related to our Discovery Tools
business. This compares with approximately 78% of research &
development efforts being undertaken for collaborative projects
funded by our partners, and approximately 22% of research effort
on our own internally funded research including development
costs related to our Discovery Tools business during 2001. Due
to the nature of our research and our dependence on our
collaborative partners to commercialize the results of the
research, we cannot predict with any certainty whether any
particular collaboration or research effort will ultimately
result in a commercial product and therefore whether we will
achieve future milestones or royalty payments under our various
collaborations.

Research and development expenses in 2002 were
$39.3 million, compared with $38.7 million in 2001, an
increase of $589,000 or 2%. The increase in 2002 was due
primarily to increases in salaries and other personnel related
costs, to support our additional collaborative and internal
research efforts and development of Discovery Tools Systems.

Research and development expenses represented 61%
of total revenues in 2002 and 65% of total revenues in 2001. The
decrease as a percentage of revenue was due primarily to the
increase in product sales revenue from our Discovery Tools
business. Our core businesses are research to discover new
materials, the sale of instruments and licensing of related
software and licensing of intellectual property and materials
discovered in our collaborative and internal research programs.
Accordingly, we expect to continue to devote substantial
resources to research and development, and we expect that
research and development expenses will continue to increase in
absolute dollars.



| |                                               
| | ----------------------------------------------
| | Sales, General and Administrative
    Expenses

Our sales, general and administrative expenses
consist primarily of personnel costs for business development,
legal, general management, finance and human resources, as well
as payments of commissions to our sales agents and professional
expenses, such as legal and accounting. Sales, general and
administrative expenses in 2002 were $14.6 million,
compared with $12.5 million in 2001, an increase of
$2.1 million or 17%. These increases were primarily due to
the addition of a number of business development staff and their

27



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##### Table of Contents



associated costs to manage and support our
growth, increased salaries and benefit costs and the payments of
commissions on the sales of Discovery Tool systems in Japan and
on the licensing of intellectual property.


Sales, general and administrative expenses
represented 23% of total revenues in 2002 and 21% of total
revenues in 2001. We expect that our sales, general and
administrative expenses will increase in absolute dollar amounts
as we continue to expand our business development and
administrative staff, support existing and expanded laboratory
and engineering facilities, and incur escalating insurance and
other administrative costs.



| |                              
| | -----------------------------
| | Net Interest Income (Expense)

Net interest income (expense) represents interest
income earned on our cash and available-for-sale securities net
of interest expense on equipment financing loans. Interest
income was $3.3 million in 2002, compared with
$6.1 million in 2001. This decrease was due to lower
interest rates in 2002. Amounts owed under equipment financing
loans used to partially fund our initial acquisition of
equipment were fully repaid at December 31, 2001, resulting
in interest expense decreasing to $9,000 in 2002 from $660,000
in 2001.



| |                           
| | --------------------------
| | Provision for Income Taxes

We recorded an income tax expense of
$2.7 million in 2002 and $1.3 million in 2001. The
effective tax rate was 33.5% for fiscal year 2002 and 17.1% for
fiscal year 2001. The increase in our effective tax rate in 2002
is due to the fact that we had largely utilized our net
operating loss carryforwards as of December 31, 2001. We do
not have a sufficient history of profitability to fully benefit
all our deferred tax assets at this time. The largest component
of our unbenefited deferred tax assets arises because our
depreciation expense for accounting purposes is substantially
higher than our tax depreciation expense. Until we have a more
established history of profitability, we will not be
sufficiently confident of receiving the full benefit of these
future income tax deductions.

As of December 31, 2002, we had net deferred
tax assets of approximately $1.4 million. Our net deferred
tax assets primarily relate to revenue that has been recognized
for income tax purposes but deferred for financial reporting
purposes together with reserves and accruals that have been
recognized for financial reporting purposes but not for income
tax purposes. At December 31, 2002, we had federal net
operating loss carryforwards of approximately $144,000. The net
operating loss carryforwards will expire in 2020, if not
utilized. The valuation allowance for deferred tax assets
includes approximately $352,000 attributable to stock option
deductions, the benefit of which will be credited to
stockholders equity upon realization. Utilization of the
net operating loss and tax credit carryforwards may be subject
to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as
amended, and similar state provisions. The annual limitation may
result in the expiration of net operating loss and tax credit
carryforwards before utilization.

Comparison of Years Ended December 31,
2001 and 2000



| |         
| | --------
| | Revenues

Our total revenues in 2001 was
$60.0 million, an increased of 39% from $43.3 million
in 2000. This increase was due mainly to the growth in our
Discovery Tools business which generated $14.5 million of
revenue in 2001 up from $5.9 million in 2000. The remainder
of the increase in revenue was attributable to the addition of
new and expanded research collaborations with companies in the
Chemicals industry.

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##### Table of Contents



Applied Biosystems, Bayer, Celanese, ExxonMobil
and The Dow Chemical Company accounted for 7%, 13%, 9%, 12% and
14% of total revenue for the 12 months ended
December 31, 2001, and 11%, 20%, 11%, 0% and 22% of revenue
for the same period in 2000.

|                                   |                      |                |        |        |        |  |        |        |        | 
|---------------------------------- | -------------------- | -------------- | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|                                   |                      |               
|                                   |                      | Years Ended   
|                                   |                      | December 31,  
|                                   |                      |               
|                                   |                      | 2001           |        | 2000  
|                                   |                      |                |        |       
|                                   |                      |               
|                                   |                      | (In thousands)
|Industry Collaborations:           |                      |                |        |        |        |  |        |       
|                                   | Chemicals            |                | $      | 25,900 |        |  | $      | 21,124 |       
|                                   | Electronic Materials |                |        | 3,604  |        |  |        | 3,350  |       
|                                   | Life Science         |                |        | 7,606  |        |  |        | 3,560  |       
|                                   | Industrial Polymers  |                |        | 5,519  |        |  |        | 6,965  |       
|                                   |                      |                |        |        |        |  |        |       
|                                   |                      |                | 42,629 |        |        |  | 34,999 |       
|Discovery Tools                    |                      |                | 14,466 |        |        |  | 5,919  |       
|Licensing of Patents and Materials |                      |                | 2,925  |        |        |  | 2,400  |       
|                                   |                      |                |        |        |        |  |        |       
|                                   |                      | Total          |        | $      | 60,020 |  |        | $      | 43,318 | 
|                                   |                      |                |        |        |        |  |        |       



| |                               
| | ------------------------------
| | Industry Collaboration Revenue

The increase in Industry Collaboration revenue
for the year ended December 31, 2001 compared to 2000 was
largely attributable to new research collaborations initiated
with Chemical companies such as ExxonMobil and Life Science
companies such as Merck.

Service revenue from research collaborations
exceeded research and development costs for the year ended
December 31, 2001 primarily because of increasing research
contract profitability. The excess of research and development
costs over research revenue during the year ended
December 31, 2000 was primarily due to the research costs
associated with internal projects in our Proprietary Materials
business and the development costs associated with the
initiation of our Discovery Tools business.



| |                        
| | -----------------------
| | Discovery Tools Revenue

The increase in Discovery Tools revenue for the
year ended December 31, 2001 compared to 2000 was
attributable mainly to the shipment of a Discovery Tools
Polyolefins System to ExxonMobil Chemical Company, a Discovery
Tools Polymerization System to Sumitomo, a Discovery
Tools Polymerization System to GIRSA and a Discovery Tools
RapidLGPC System to GIRSA. Discovery Tools revenue
included $14,216,000 of product sales and $250,000 of software
license revenue for the year ended December 31, 2001.



| |                                   
| | ----------------------------------
| | Licensing of Patents and Materials

The increase in Licensing revenue for the year
ended December 31, 2001 compared to 2000 was due to the
licensing fee received from Zeton and Argonaut Technologies, Inc
and licensing of intellectual property to Bayer.



| |                      
| | ---------------------
| | Cost of Products Sold

Cost of products sold was $6.6, or 46% of Product
sales revenue for the year ended December 31, 2001,
compared to $2.8 million, or 47% of Product sales revenue
for the year ended December 31, 2000.

The increase in cost of products sold in the year
ended December 31, 2001 was largely attributable to the
Discovery Tools Polyolefins systems delivered to ExxonMobil
Chemical Company, the Discovery Tools RapidLGPC system
delivered to GIRSA and the Discovery Tools Polymerization
systems delivered to both GIRSA and Sumitomo Chemical Company,
Ltd.

29



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##### Table of Contents





| |                                      
| | -------------------------------------
| | Research and Development
    Expenses

Our research and development expenses consist
primarily of salaries and other personnel-related expenses,
facility costs, supplies, and depreciation of facilities and
laboratory equipment.

Research and development expenses in 2001 were
$38.7 million, compared with $35.9 million in 2000, an
increase of $2.8 million or 8%. The increase in 2001 was
due primarily to increases in salaries and other personnel
related costs, facilities costs and chemical and scientific
supplies costs to support our additional collaborative and
internal research efforts. These increases were partially offset
by decreases in the use of consultants, outside research
services and the deferred compensation charge.

Research and development expenses represented 65%
of total revenues in 2001 and 83% of total revenues in 2000. The
decrease as a percentage of revenue was due primarily to revenue
increases associated with the addition of significant contracts
and a reduction in outside research and consultant costs in
2001. Our core businesses are research to discover new materials
and the sale of instruments and related software licenses.
Accordingly, we expect to continue to devote substantial
resources to research and development, and we expect that
research and development expenses will continue to increase in
absolute dollars.



| |                                               
| | ----------------------------------------------
| | Sales, General and Administrative
    Expenses

Our sales, general and administrative expenses
consist primarily of personnel costs for business development,
legal, general management, finance and human resources, as well
as professional expenses, such as legal and accounting. Sales,
general and administrative expenses in 2001 were
$12.5 million, compared with $11.8 million in 2000, an
increase of $726,000 or 6%. This increase was primarily due to
increased salaries and the addition of a number of business
development staff and their associated costs to manage and
support our growth. This increase was partially offset by a
decrease in the deferred compensation charge.

Sales, general and administrative expenses
represented 21% of total revenues in 2001 and 27% of total
revenues in 2000.



| |                              
| | -----------------------------
| | Net Interest Income (Expense)

Net interest income (expense) represents interest
income earned on our cash and available-for-sale securities net
of interest expense on equipment financing loans. Interest
income was $ 6.1 million in 2001, compared with
$7.2 million in 2000. This decrease was due to lower
interest rates in 2001. Interest expense decreased to $660,000
in 2001 from $924,000 in 2000. This decrease was due to a
reduction in the outstanding balances of equipment financing
loans used to partially fund our original acquisition of
equipment. At December 31, 2001 we had fully repaid amounts
owed under these equipment-financing loans.



| |                           
| | --------------------------
| | Provision for Income Taxes

We recorded an income tax provision of
$1.3 million in 2001. The provision differs from the
expected tax liability at a statutory rate primarily due to the
realization of previously unbenefited deferred tax assets.

There was no provision for income taxes for the
year ended December 31, 2000 due to operating losses.

As of December 31, 2001, we had net deferred
tax assets of approximately $2.0 million. Our net deferred
tax assets primarily relate to revenue that has been recognized
for income tax purposes but deferred for financial reporting
purposes. At December 31, 2001, we had federal net
operating loss carryforwards of approximately $6.3 million.
The net operating loss carryforwards will expire in 2020, if not
utilized. The valuation allowance for deferred tax assets
includes approximately $2.4 million attributable to stock
option deductions, the benefit of which will be credited to
stockholders equity upon realization. Utilization of the
net operating loss and tax credit carryforwards may be subject
to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as
amended, and similar state provisions. The annual limitation may
result in the expiration of net operating loss and tax credit
carryforwards before utilization.

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##### Table of Contents



Equity Compensation Plan Information

The following table provides information as of
December 31, 2002 with respect to our shares of common
stock that may be issued our existing equity compensation plans.

|                                                              |  |                      |           |                   |  |                                |       |  |  |  |           |    
|------------------------------------------------------------- |  | -------------------- | --------- | ----------------- |  | ------------------------------ | ----- |  |  |  | --------- | ---
|                                                              |  | A                    |           |                   |  | C                             
|                                                              |  | Number of Securities |           | B                 |  | Number of Securities Remaining
|                                                              |  | to be Issued upon    |           | Weighted Average  |  | Available for Future Issuance 
|                                                              |  | Exercise of          |           | Exercise Price of |  | Under Equity Compensation     
|                                                              |  | Outstanding          |           | Outstanding       |  | Plans (Excluding Securities   
|Plan Category                                                 |  | Options              |           | Options           |  | Reflected in Column A)        
|                                                              |  |                      |           |                   |  |                               
|Equity Compensation Plans Approved by
    Stockholders(1)     |  |                      | 5,376,981 | (3)               |  | $                              | 25.21 |  |  |  | 1,939,714 | (4)
|Equity Compensation Plans Not Approved by
    Stockholders(2) |  |                      |          |                   |  | $                              |      |  |  |  | 1,000,000 |    
|                                                              |  |                      |           |                   |  |                                |       |  |  |  |           |    
|Total                                                         |  |                      | 5,376,981 |                   |  | $                              | 25.21 |  |  |  | 2,939,714 |    
|                                                              |  |                      |           |                   |  |                                |       |  |  |  |           |    



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists of the 1996 Stock Option Plan, 1997
    Stock Option Plan and the 1999 Employee Stock Purchase Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(2) | Consists solely of the 2001 Non-statutory Stock
    Option Plan. At December 31, 2002, no options have been
    granted under this Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(3) | Excludes purchase rights accruing under our 1999
    Employee Stock Purchase Plan which has a stockholder approved
    reserve of 1,011,739 shares. Under the 1999 Employee Stock
    Purchase Plan, each eligible employee may purchase up to a
    maximum of 10,000 shares per annum of common stock at
    semi-annual intervals on the last U.S. business day of
    April and October each year at a purchase price per share equal
    to 85% of the lower of (i) the closing selling price per
    share of common stock on the employees entry date into the
    two-year offering period in which that semi-annual purchase date
    occurs or (ii) the closing selling price per share on the
    semi-annual purchase date. Eligible employees may defer up to
    10% of their salary, but not to exceed $25,000 worth of stock in
    any calendar year, to purchase shares under this Plan.                                                                                                                                                                                                                                                   
|   
|(4) | Consists of shares available for future issuance
    under our 1996 Stock Option Plan, 1997 Stock Option Plan and the
    1999 Employee Stock Purchase Plan. As of December 31, 2002,
    an aggregate of 1,011,739 shares of common stock were available
    for issuance under the 1999 Employee Stock Purchase Plan and
    927,975 shares of common stock were available for issuance under
    the 1996 Stock Option Plan and 1997 Stock Option Plan. The 1999
    Employee Stock Purchase Plan provides for annual increases in
    the number of shares available for issuance under the Plan on
    the first day of each fiscal year, equal to the lesser of 1% of
    the outstanding shares of common stock on the first day of the
    fiscal year, 350,000 shares, or a lesser amount as determined by
    our board of directors. The 1997 Stock Option Plan provides for
    an annual increase in the number of shares of common stock
    reserved for issuance equal to the lesser of 1,500,000 shares,
    4% of the outstanding shares on the date of the annual increase,
    or a lesser amount as determined by our board of directors.

Recent Developments

In January 2003, we incorporated, under the laws
of the State of California, a wholly owned subsidiary, Symyx
Discovery Tools, Inc. Symyx Discovery Tools, Inc. has been
established for the purpose of handling all sales, distribution
and after sales support and maintenance functions relating to
our existing Discovery Tools business.

In January 2003, we incorporated, under the laws
of the State of Delaware, a wholly owned subsidiary, Symyx
Therapeutics, Inc. Symyx Therapeutics, Inc. has been established
for the purpose of exploiting our technology for certain
therapeutic applications.

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Recent Accounting Pronouncements

In November 2002, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables, which provides
guidance on the timing and method of revenue recognition for
sales arrangements that include the delivery of more than one
product or service. EITF 00-21 is effective prospectively
for arrangements entered into in fiscal periods beginning after
June 15, 2003. We do not expect that the adoption of
EITF 00-21 will have a significant impact on our
consolidated financial statements.

In June 2002, the Financial Accounting Standards
Board (FASB) issued Statement No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. The
standard addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). Statement No. 146
states that a liability for a cost associated with an exit or
disposal activity shall be recognized and measured initially at
its fair value in the period in which the liability is incurred,
except for a liability for one-time termination benefits that
are incurred over a period of time. The standard will apply to
us effective for exit or disposal activities initiated after
December 31, 2002. We do not believe there will be a
material effect from the adoption of this new standard.

On December 31, 2002, FASB issued SFAS
No. 148, Accounting for Stock-Based Compensation-Transition
and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 148
requires accounting policy note disclosures to provide the
method of stock option accounting for each year presented in the
financial statements and, for each year until all years
presented in the financial statements recognize the fair value
of stock-based compensation. Also, SFAS No. 148 provides
two additional transition methods that eliminate the ramp-up
effect resulting from applying the expense recognition
provisions of SFAS No. 123. The transition provisions and
annual statement disclosure requirements of SFAS No. 148
are effective for fiscal years ending after December 15,
2002. The interim statement disclosure requirements are
effective for the first interim statement that includes
financial information after December 15, 2002. We do not
believe there will be a material financial effect from the
adoption of this new standard unless we were to make a change in
our accounting policy and account for stock option grants as
compensation expense.

In November 2002, the FASB issued FASB
Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, an interpretation of FASB Statements No. 5, 57 and
107 and Rescission of FASB Interpretation No. 34.
FIN 45 clarifies the requirements of SFAS No. 5,
Accounting for Contingencies, relating to the
guarantors accounting for, and disclosure of, the issuance
of certain types of guarantees. The disclosure provisions of FIN
45 are effective for financial statements of periods that end
after December 15, 2002. However, the provisions for
initial recognition and measurement are effective on a
prospective basis for guarantees that are issued or modified
after December 31, 2002. We have no guarantees of
indebtedness that would be affected by FIN 45. FIN 45
also incorporates accounting for indemnities given in connection
with licensing of intellectual property and we are still
assessing the potential impact this may have on our future
results from operations.

In January 2003, the FASB issued FASB
Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46
clarifies the application of Accounting Research Bulletin
No. 51, Consolidated Financial Statements, to
certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
from other parties. FIN 46 applies immediately to variable
interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an
interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003.
FIN 46 applies to public enterprises as of the beginning of
the applicable interim or annual period. We

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do not believe there will be a material effect
upon our financial condition or results from operations from the
adoption of the provisions of FIN 46.


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

We had positive cash flow for the year ended
December 31, 2002 and finished the year with cash, cash
equivalents and available-for-sale securities of approximately
$118.0 million, an increase of $4.7 million from
December 31, 2001.

In prior years, we had financed our operations
primarily through research and development funding from
collaborative partners, net proceeds from our initial public
offering of $81.4 million and, prior to the initial public
offering, private placements of preferred stock totaling
$52.2 million, and to a lesser extent, equipment financing
loans. During 2001, we completely paid off the remaining
$6.7 million of debt that was incurred to fund capital
expenditures in the early stages of operation. As of
December 31, 2002, Symyx had no long-term liabilities.

Our operating activities provided
$9.7 million, $16.7 million and $1.7 million of
cash in 2002, 2001 and 2000, respectively. The sources of cash
for the three years were primarily the receipt of research and
development funding from collaborative partners and revenue from
product sales and intellectual property licensing, partially
offset by operating expenses.

Net cash used in investing activities was
$1.6 million, $8.6 million and $19.2 million in
2002, 2001 and 2000, respectively. The fluctuations from period
to period are due primarily to the timing of purchases, sales
and maturity securities and purchases of property and equipment.
We expect to continue to make significant investments in the
purchase of property and equipment to support our expanding
operations.

Financing activities provided cash of
$2.0 million in 2002 and used cash of $3.2 million and
$806,000 in 2001 and 2000, respectively. These amounts are
primarily the proceeds from the exercise of stock options and
sale of stock under the Employee Share Purchase Plan in each of
the three years, offset by partial repayments of equipment and
leasehold improvement loan financing in each of 2001 and 2000.
The fluctuations from year to year are due primarily to the fact
that during the fourth quarter of 2001 we repaid all remaining
amounts outstanding under loan financings.

Current liabilities decreased by approximately
$4.7 million at December 31, 2002 as compared to
December 31, 2001. The decrease was due primarily to a
decrease in deferred revenue and income tax payable partially
offset by an increase in the warranty reserve at
December 31, 2002. Deferred revenue decreased at
December 31, 2002 as compared to December 31, 2001 due
to the timing of the receipt of advance deposits for Discovery
Tools systems. Deferred revenue at December 31, 2001
included a significant deposit toward a Discovery Tools
Polymorph system that was delivered to the customer in the final
quarter of 2002. Income taxes payable decreased at
December 31, 2002 compared to December 31, 2001 as the
benefit relating to stock option deductions was reclassified
from income taxes payable to equity. Our warranty expense
accrual at December 31, 2002 is higher than
December 31, 2001, reflecting an increase in our installed
base of Discovery Tools Systems subject to warranty.



| |        
| | -------
| | Backlog

As of December 31, 2002, our customers have
contractually committed to future funding of approximately
$20.9 million for the purchase by customers of Discovery
Tools systems, licenses to our intellectual property and for
research and development with existing collaborative partners,
excluding milestone payments which are contingent upon the
success of the research.

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| |            
| | -----------
| | Commitments

As of December 31, 2002 and 2001, our
principal commitments were $15.2 million and
$17.2 million, respectively. Principal commitments
consisted of our obligations under operating leases. We will
satisfy these obligations as they become due over the next eight
years.

Future commitments under the operating leases for
our facilities are as follows (in thousands):

|                          |  |   |        | 
|------------------------- |  | - | ------ | 
|Years ending December 31, |  |  
|                          |  |  
|2003                      |  |   | 1,991  | 
|2004                      |  |   | 2,063  | 
|2005                      |  |   | 2,146  | 
|2006                      |  |   | 2,232  | 
|2007                      |  |   | 2,321  | 
|Thereafter                |  |   | 4,430  | 
|                          |  |   |        | 
|                          |  | $ | 15,183 | 
|                          |  |   |        | 

In March 2003, we exercised our option to
purchase for $3.9 million the land and building at
3100 Central Expressway, Santa Clara, CA which houses our
head office.

As of December 31, 2002, we have purchase
commitments for inventory of approximately $388,000.

We believe that our current cash,
available-for-sale securities balances and the cash flows
generated by operations will be sufficient to satisfy our
anticipated cash needs for working capital, capital
expenditures, investment requirements, stock repurchases and
other liquidity requirements associated with our existing
operations for at least the coming year. Nonetheless, we may
raise additional funds through public or private financing,
collaborative relationships or other arrangements. We cannot
assure you that additional funding, if sought, will be available
on terms favorable to us. Further, any additional equity
financing may be dilutive to stockholders, and debt financing,
if available, may involve restrictive covenants. Collaborative
arrangements may require us to relinquish our rights to some of
our technologies or products. Our failure to raise capital when
needed may harm our business and operating results.

A portion of our cash may be used to acquire or
invest in complementary businesses or products or to obtain the
right to use complementary technologies. From time to time, in
the ordinary course of business, we may evaluate potential
acquisitions of such businesses, products or technologies.



| |              
| | -------------
| | Contingencies

We are a party to a legal proceeding that has
arisen in the ordinary course of business (see
Item 3  Legal Proceedings). While the outcome of
these proceedings cannot be predicted with certainty, management
does not expect this matter to have a material adverse effect on
our consolidated financial position, results from operations or
cash flows.

We carry insurance with coverages and coverage
limits that we believe to be adequate. Although there can be no
assurance that such insurance is sufficient to protect us
against all contingencies, management believes that our
insurance protection is reasonable in view of the nature and
scope of our operations.



| |                                                               
| | --------------------------------------------------------------
| | Off Balance Sheet Financing and Related
    Party Transactions

Symyx has not entered into any off-balance sheet
financing arrangements and has not established any special
purpose entities as of December 31, 2002. Symyx has not
guaranteed any debt or commitments of other entities or entered
into any options on non-financial assets. The only transactions
between Symyx and related parties during 2002 were:



| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | loans originally provided to certain employees
    and executive officers for the exercise of stock options prior
    to our initial public offering in 1999; and

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| |   |                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Mario M. Rosati, one of our directors, is
    also a member of Wilson Sonsini Goodrich & Rosati,
    Professional Corporation, which has served as our outside
    corporate counsel since our formation and has received
    compensation at normal commercial rates for these services.

Dividend Policy

We have never declared or paid any dividends on
our capital stock. We currently expect to retain future
earnings, if any, to support the development of our business and
do not anticipate paying any cash dividends in the foreseeable
future.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    about Market Risk

Our exposure to market risk is principally
confined to our cash, cash equivalents and investments which
have maturities of less than two years. We maintain a
non-trading investment portfolio of investment grade, liquid
debt securities that limits the amount of credit exposure to any
one issue, issuer or type of instrument. At December 31,
2002 our investment portfolio comprised approximately
$24.1 million in money market funds and $93.9 million
in U.S. corporate debt and U.S. treasury securities.
The securities in our investment portfolio are not leveraged,
are classified as available for sale and are therefore subject
to interest rate risk. We currently do not hedge interest rate
exposure. If market interest rates were to increase by 100 basis
points, or 1%, from December 31, 2002 levels, the fair
value of our portfolio would decline by approximately $494,000.
The modeling technique used measures the change in fair values
arising from an immediate hypothetical shift in market interest
rates and assumes ending fair values include principal plus
accrued interest.

Interest Rate Sensitivity:

Principal Amount by Expected Maturity (in
thousands)


Average Interest Rate


|                              |  |      |        |      |  |       |       |            |  |   |        |   |  |   |        | 
|----------------------------- |  | ---- | ------ | ---- |  | ----- | ----- | ---------- |  | - | ------ | - |  | - | ------ | 
|                              |  |      |        |      |  |       |       | Fair Value
|                              |  | 2003 |        | 2004 |  | Total |       | 12/31/02  
|                              |  |      |        |      |  |       |       |           
|Available-for-sale securities |  | $    | 87,932 |      |  | $     | 6,808 |            |  | $ | 94,740 |   |  | $ | 93,885 | 
|Average interest rate         |  |      | 2.55   | %    |  |       | 2.39  | %          |  |   | 2.54   | % |  |   |        | 

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|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

|                                                                                                     |  |      |    | 
|---------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|Index to Consolidated Financial Statements                                                           |  | Page
|                                                                                                     |  |     
|Report of Ernst & Young LLP, Independent
    Auditors                                                |  |      | 37 | 
|Consolidated Balance Sheets at December 31,
    2002 and 2001                                        |  |      | 38 | 
|Consolidated Statements of Operations for the
    Three Years Ended December 31, 2002, 2001 and 2000 |  |      | 39 | 
|Consolidated Statement of Stockholders
    Equity for the Three Year Period Ended December 31, 2002 |  |      | 40 | 
|Consolidated Statements of Cash Flows for the
    Three Years Ended December 31, 2002, 2001 and 2000 |  |      | 42 | 
|Notes to Consolidated Financial Statements                                                           |  |      | 43 | 

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REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS

The Board of Directors and Stockholders

Symyx Technologies, Inc.


We have audited the accompanying consolidated
balance sheets of Symyx Technologies, Inc. as of
December 31, 2002 and 2001, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
December 31, 2002. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Symyx Technologies, Inc. at
December 31, 2002 and 2001, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Palo Alto, California

January 23, 2003


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SYMYX TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share
information)


|                                         |                                                                                                                                                                            |                                            |        |         |         |  |        |         |         | 
|---------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------- | ------- |  | ------ | ------- | ------- | 
|                                         |                                                                                                                                                                            |                                           
|                                         |                                                                                                                                                                            | December 31,                              
|                                         |                                                                                                                                                                            |                                           
|                                         |                                                                                                                                                                            | 2002                                       |        | 2001   
|                                         |                                                                                                                                                                            |                                            |        |        
|ASSETS                                  
|Current assets:                          |                                                                                                                                                                            |                                            |        |         |         |  |        |        
|                                         | Cash and cash equivalents                                                                                                                                                  |                                            | $      | 25,629  |         |  | $      | 15,621  |        
|                                         | Available-for-sale securities                                                                                                                                              |                                            |        | 92,391  |         |  |        | 97,705  |        
|                                         | Accounts receivable                                                                                                                                                        |                                            |        | 6,697   |         |  |        | 454     |        
|                                         | Inventories                                                                                                                                                                |                                            |        | 2,240   |         |  |        | 2,192   |        
|                                         | Interest receivable and other current assets                                                                                                                               |                                            |        | 2,832   |         |  |        | 2,526   |        
|                                         |                                                                                                                                                                            |                                            |        |         |         |  |        |        
|                                         |                                                                                                                                                                            | Total current assets                       |        |         | 129,789 |  |        |         | 118,498 | 
|Property and equipment, net              |                                                                                                                                                                            |                                            | 24,196 |         |         |  | 28,532 |        
|Deferred tax and other assets            |                                                                                                                                                                            |                                            | 3,383  |         |         |  | 4,040  |        
|                                         |                                                                                                                                                                            |                                            |        |         |         |  |        |        
|                                         |                                                                                                                                                                            | Total assets                               |        | $       | 157,368 |  |        | $       | 151,070 | 
|                                         |                                                                                                                                                                            |                                            |        |         |         |  |        |        
|                                        
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                                                            |                                            |        |         |         |  |        |        
|                                         | Accounts payable and other accrued liabilities                                                                                                                             |                                            | $      | 4,511   |         |  | $      | 3,934   |        
|                                         | Accrued compensation and employee benefits                                                                                                                                 |                                            |        | 1,205   |         |  |        | 1,118   |        
|                                         | Income taxes payable                                                                                                                                                       |                                            |        | 253     |         |  |        | 3,068   |        
|                                         | Deferred rent                                                                                                                                                              |                                            |        | 1,003   |         |  |        | 842     |        
|                                         | Deferred revenue                                                                                                                                                           |                                            |        | 3,014   |         |  |        | 6,637   |        
|                                         | Warranty expense accrual                                                                                                                                                   |                                            |        | 1,899   |         |  |        | 974     |        
|                                         |                                                                                                                                                                            |                                            |        |         |         |  |        |        
|                                         |                                                                                                                                                                            | Total current liabilities                  |        |         | 11,885  |  |        |         | 16,573  | 
|Commitments                              |                                                                                                                                                                            |                                            |        |         |         |  |        |        
|Stockholders equity:                    |                                                                                                                                                                            |                                            |        |         |         |  |        |        
|                                         | Preferred stock, $0.001 par value, 10,000,000
    shares authorized, issuable in series; no shares issued and
    outstanding                                              |                                            |        |        |         |  |        |        |        
|                                         | Common stock, $0.001 par value, 100,000,000
    shares authorized; 30,920,499 and 30,613,967 shares issued and
    outstanding at December 31, 2002 and 2001, respectively |                                            |        | 31      |         |  |        | 31      |        
|                                         | Additional paid-in capital                                                                                                                                                 |                                            |        | 154,213 |         |  |        | 148,366 |        
|                                         | Stockholder notes receivable                                                                                                                                               |                                            |        | (404    | )       |  |        | (410    | )      
|                                         | Deferred stock compensation                                                                                                                                                |                                            |        | (92     | )       |  |        | (335    | )      
|                                         | Accumulated other comprehensive income                                                                                                                                     |                                            |        | 120     |         |  |        | 516     |        
|                                         | Accumulated deficit                                                                                                                                                        |                                            |        | (8,385  | )       |  |        | (13,671 | )      
|                                         |                                                                                                                                                                            |                                            |        |         |         |  |        |        
|                                         |                                                                                                                                                                            | Total stockholders equity                 |        |         | 145,483 |  |        |         | 134,497 | 
|                                         |                                                                                                                                                                            |                                            |        |         |         |  |        |        
|                                         |                                                                                                                                                                            | Total liabilities and stockholders equity |        | $       | 157,368 |  |        | $       | 151,070 | 
|                                         |                                                                                                                                                                            |                                            |        |         |         |  |        |        

See accompanying notes.

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SYMYX TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands, except per share
amounts)


|                                                                 |                                   |                          |        |        |        |      |        |        |        |   |        |        |        | 
|---------------------------------------------------------------- | --------------------------------- | ------------------------ | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                 |                                   |                         
|                                                                 |                                   | Years Ended December 31,
|                                                                 |                                   |                         
|                                                                 |                                   | 2002                     |        | 2001   |        | 2000
|                                                                 |                                   |                          |        |        |        |     
|Revenues:                                                        |                                   |                          |        |        |        |      |        |        |        |   |        |       
|                                                                 | Service revenues                  |                          | $      | 35,397 |        |      | $      | 42,629 |        |   | $      | 34,999 |       
|                                                                 | Product sales                     |                          |        | 25,877 |        |      |        | 14,216 |        |   |        | 5,919  |       
|                                                                 | Royalties and license fees        |                          |        | 3,547  |        |      |        | 3,175  |        |   |        | 2,400  |       
|                                                                 |                                   |                          |        |        |        |      |        |        |        |   |        |       
|                                                                 |                                   | Total revenues           |        |        | 64,821 |      |        |        | 60,020 |   |        |        | 43,318 | 
|Operating expenses:                                              |                                   |                          |        |        |        |      |        |        |        |   |        |       
|                                                                 | Cost of products sold             |                          |        | 6,239  |        |      |        | 6,591  |        |   |        | 2,775  |       
|                                                                 | Research and development          |                          |        | 39,307 |        |      |        | 38,718 |        |   |        | 35,898 |       
|                                                                 | Sales, general and administrative |                          |        | 14,592 |        |      |        | 12,524 |        |   |        | 11,798 |       
|                                                                 |                                   |                          |        |        |        |      |        |        |        |   |        |       
|                                                                 |                                   | Total operating expenses |        |        | 60,138 |      |        |        | 57,833 |   |        |        | 50,471 | 
|                                                                 |                                   |                          |        |        |        |      |        |        |        |   |        |       
|Income (loss) from operations                                    |                                   |                          | 4,683  |        |        |      | 2,187  |        |        |   | (7,153 | )     
|Interest income                                                  |                                   |                          | 3,269  |        |        |      | 6,117  |        |        |   | 7,155  |       
|Interest and other expense                                       |                                   |                          | (9     | )      |        |      | (660   | )      |        |   | (924   | )     
|                                                                 |                                   |                          |        |        |        |      |        |        |        |   |        |       
|Income (loss) before income tax expense                          |                                   |                          | 7,943  |        |        |      | 7,644  |        |        |   | (922   | )     
|Income tax expense                                               |                                   |                          | 2,657  |        |        |      | 1,306  |        |        |   |       |       
|                                                                 |                                   |                          |        |        |        |      |        |        |        |   |        |       
|Net income (loss)                                                |                                   | $                        | 5,286  |        |        | $    | 6,338  |        |        | $ | (922   | )     
|                                                                 |                                   |                          |        |        |        |      |        |        |        |   |        |       
|Basic net income (loss) per share                                |                                   | $                        | 0.17   |        |        | $    | 0.21   |        |        | $ | (0.03  | )     
|                                                                 |                                   |                          |        |        |        |      |        |        |        |   |        |       
|Shares used in computing basic net income (loss)
    per share   |                                   |                          | 30,647 |        |        |      | 29,904 |        |        |   | 28,873 |       
|                                                                 |                                   |                          |        |        |        |      |        |        |        |   |        |       
|Diluted net income (loss) per share                              |                                   | $                        | 0.17   |        |        | $    | 0.20   |        |        | $ | (0.03  | )     
|                                                                 |                                   |                          |        |        |        |      |        |        |        |   |        |       
|Shares used in computing diluted net income
    (loss) per share |                                   |                          | 31,638 |        |        |      | 31,196 |        |        |   | 28,873 |       
|                                                                 |                                   |                          |        |        |        |      |        |        |        |   |        |       

See accompanying notes.

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SYMYX TECHNOLOGIES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY

(In thousands)


|                                                                 |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |        |  |   |      |   |  |   |        |   |  |   |      |     |   |   |         |       |   |   |         |       |  
|---------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | --------------- | - | ------------ |  | ---------- | - | ----------- |  | -------- | ------ | ------------- |  | ------------ | -- | ------------- |  | ------- | ------- | ------ |  | - | ---- | - |  | - | ------ | - |  | - | ---- | --- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                                                 |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    | Accumulated   |  |         |         |       
|                                                                 |                                                                                                      |                 |   |              |  |            |   |             |  |          |        | Other         |  |              |    |              
|                                                                 |                                                                                                      | Preferred Stock |   | Common Stock |  | Additional |   | Stockholder |  | Deferred |        | Comprehensive |  |              |    | Total        
|                                                                 |                                                                                                      |                 |   |              |  | Paid-in    |   | Notes       |  | Stock    |        | Income        |  | Accumulated  |    | Stockholders
|                                                                 |                                                                                                      | Shares          |   | Amount       |  | Shares     |   | Amount      |  | Capital  |        | Receivable    |  | Compensation |    | (Loss)        |  | Deficit |         | Equity
|                                                                 |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |       
|Balance at January 1, 2000                                       |                                                                                                      |                 |  |              |  |            |  |             |  |          | 29,639 |               |  | $            | 30 |               |  | $       | 142,048 |        |  | $ | (731 | ) |  | $ | (2,128 | ) |  | $ | (189 | )   |   | $ | (19,087 | )     |   | $ | 119,943 |      
|Repurchase of common stock                                       |                                                                                                      |                 |  |              |  |            |  |             |  |          | (43    | )             |  |              |   |               |  |         | (50     | )      |  |   | 42   |   |  |   |       |   |  |   |     |     |   |   |        |       |   |   | (8      | )    
|Issuance of common stock on exercise of options                  |                                                                                                      |                 |  |              |  |            |  |             |  |          | 436    |               |  |              |   |               |  |         | 1,356   |        |  |   |     |   |  |   |       |   |  |   |     |     |   |   |        |       |   |   | 1,356   |      
|Issuance of common stock under employee share
    purchase plan  |                                                                                                      |                 |  |              |  |            |  |             |  |          | 91     |               |  |              |   |               |  |         | 1,125   |        |  |   |     |   |  |   |       |   |  |   |     |     |   |   |        |       |   |   | 1,125   |      
|Issuance of common stock in exchange for acquired
    technology |                                                                                                      |                 |  |              |  |            |  |             |  |          | 16     |               |  |              |   |               |  |         | 815     |        |  |   |     |   |  |   |       |   |  |   |     |     |   |   |        |       |   |   | 815     |      
|Repayment of notes receivable                                    |                                                                                                      |                 |  |              |  |            |  |             |  |          |       |               |  |              |   |               |  |         |        |        |  |   | 68   |   |  |   |       |   |  |   |     |     |   |   |        |       |   |   | 68      |      
|Amortization of deferred stock compensation                      |                                                                                                      |                 |  |              |  |            |  |             |  |          |       |               |  |              |   |               |  |         |        |        |  |   |     |   |  |   | 760    |   |  |   |     |     |   |   |        |       |   |   | 760     |      
|Deferred stock compensation related to terminated
    employees  |                                                                                                      |                 |  |              |  |            |  |             |  |          |       |               |  |              |   |               |  |         | (546    | )      |  |   |     |   |  |   | 546    |   |  |   |     |     |   |   |        |       |   |   |        |      
|Comprehensive income (loss):                                     |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |        |  |   |      |   |  |   |        |   |  |   |      |     |   |   |         |       |   |   |         |      
|                                                                 | Net income (loss) for the year ended
    December 31, 2000                                           |                 |   |             |  |            |   |            |  |          |        |              |  |              |    |              |  |         |         |       |  |   |      |  |  |   |        |  |  |   |      |    |   |   |         | (922  | ) |   |         | (922  | )
|                                                                 | Unrealized gain (loss) on available- for-sale
    securities                                         |                 |   |             |  |            |   |            |  |          |        |              |  |              |    |              |  |         |         |       |  |   |      |  |  |   |        |  |  |   |      | 514 |   |   |         |      |   |   |         | 514   |  
|                                                                 |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |        |  |   |      |   |  |   |        |   |  |   |      |     |   |   |         |       |   |   |         |      
|Comprehensive loss                                               |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |        |  |   |      |   |  |   |        |   |  |   |      |     |   |   |         |       |   |   | (408    | )    
|                                                                 |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |        |  |   |      |   |  |   |        |   |  |   |      |     |   |   |         |       |   |   |         |      
|Balance at December 31, 2000                                     |                                                                                                      |                 |  |              |  |            |  |             |  |          | 30,139 |               |  | $            | 30 |               |  |         | 144,748 |        |  |   | (621 | ) |  |   | (822   | ) |  |   | 325  |     |   |   | (20,009 | )     |   |   | 123,651 |      
|Repurchase of common stock                                       |                                                                                                      |                 |  |              |  |            |  |             |  |          | (12    | )             |  |              |   |               |  |         | (2      | )      |  |   |     |   |  |   |       |   |  |   |     |     |   |   |        |       |   |   | (2      | )    
|Issuance of common stock on exercise of options                  |                                                                                                      |                 |  |              |  |            |  |             |  |          | 387    |               |  |              | 1  |               |  |         | 2,093   |        |  |   |     |   |  |   |       |   |  |   |     |     |   |   |        |       |   |   | 2,094   |      
|Issuance of common stock under employee share
    purchase plan  |                                                                                                      |                 |  |              |  |            |  |             |  |          | 100    |               |  |              |   |               |  |         | 1,267   |        |  |   |     |   |  |   |       |   |  |   |     |     |   |   |        |       |   |   | 1,267   |      
|Repayment of notes receivable                                    |                                                                                                      |                 |  |              |  |            |  |             |  |          |       |               |  |              |   |               |  |         |        |        |  |   | 211  |   |  |   |       |   |  |   |     |     |   |   |        |       |   |   | 211     |      
|Amortization of deferred stock compensation                      |                                                                                                      |                 |  |              |  |            |  |             |  |          |       |               |  |              |   |               |  |         |        |        |  |   |     |   |  |   | 411    |   |  |   |     |     |   |   |        |       |   |   | 411     |      
|Deferred stock compensation related to terminated
    employees  |                                                                                                      |                 |  |              |  |            |  |             |  |          |       |               |  |              |   |               |  |         | (76     | )      |  |   |     |   |  |   | 76     |   |  |   |     |     |   |   |        |       |   |   |        |      
|Tax benefit from employee stock option plans                     |                                                                                                      |                 |  |              |  |            |  |             |  |          |       |               |  |              |   |               |  |         | 336     |        |  |   |     |   |  |   |       |   |  |   |     |     |   |   |        |       |   |   | 336     |      
|Comprehensive income (loss):                                     |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |        |  |   |      |   |  |   |        |   |  |   |      |     |   |   |         |       |   |   |         |      
|                                                                 | Net income (loss) for the year ended
    December 31, 2001                                           |                 |   |             |  |            |   |            |  |          |        |              |  |              |    |              |  |         |         |       |  |   |      |  |  |   |        |  |  |   |      |    |   |   |         | 6,338 |   |   |         | 6,338 |  
|                                                                 | Unrealized gain (loss) on foreign currency
    translation                                           |                 |   |             |  |            |   |            |  |          |        |              |  |              |    |              |  |         |         |       |  |   |      |  |  |   |        |  |  |   |      | (12 | ) |   |         |      |   |   |         | (12   | )
|                                                                 | Unrealized gain (loss) on available- for-sale
    securities, net of applicable income taxes of $336 |                 |   |             |  |            |   |            |  |          |        |              |  |              |    |              |  |         |         |       |  |   |      |  |  |   |        |  |  |   |      | 203 |   |   |         |      |   |   |         | 203   |  
|                                                                 |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |        |  |   |      |   |  |   |        |   |  |   |      |     |   |   |         |       |   |   |         |      
|Comprehensive income                                             |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |        |  |   |      |   |  |   |        |   |  |   |      |     |   |   |         |       |   |   | 6,529   |      
|                                                                 |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |        |  |   |      |   |  |   |        |   |  |   |      |     |   |   |         |       |   |   |         |      
|Balance at December 31, 2001                                     |                                                                                                      |                 |  |              |  |            |  |             |  |          | 30,614 |               |  | $            | 31 |               |  | $       | 148,366 |        |  | $ | (410 | ) |  | $ | (335   | ) |  | $ | 516  |     |   | $ | (13,671 | )     |   | $ | 134,497 |      
|                                                                 |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |        |  |   |      |   |  |   |        |   |  |   |      |     |   |   |         |       |   |   |         |      

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SYMYX TECHNOLOGIES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY (CONTINUED)

(In thousands)


|                                                                |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |        |  |   |      |   |  |   |      |   |  |   |     |      |   |   |         |       |  |   |         |       |  
|--------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | --------------- | - | ------------ |  | ---------- | - | ----------- |  | -------- | ------ | ------------- |  | ------------ | -- | ------------- |  | ------- | ------- | ------ |  | - | ---- | - |  | - | ---- | - |  | - | --- | ---- | - | - | ------- | ----- |  | - | ------- | ----- | -
|                                                                |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    | Accumulated   |  |         |         |       
|                                                                |                                                                                                      |                 |   |              |  |            |   |             |  |          |        | Other         |  |              |    |              
|                                                                |                                                                                                      | Preferred Stock |   | Common Stock |  | Additional |   | Stockholder |  | Deferred |        | Comprehensive |  |              |    | Total        
|                                                                |                                                                                                      |                 |   |              |  | Paid-in    |   | Notes       |  | Stock    |        | Income        |  | Accumulated  |    | Stockholders
|                                                                |                                                                                                      | Shares          |   | Amount       |  | Shares     |   | Amount      |  | Capital  |        | Receivable    |  | Compensation |    | (Loss)        |  | Deficit |         | Equity
|                                                                |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |       
|Balance at December 31, 2001                                    |                                                                                                      |                 |  |              |  |            |  |             |  |          | 30,614 |               |  | $            | 31 |               |  | $       | 148,366 |        |  | $ | (410 | ) |  | $ | (335 | ) |  | $ | 516 |      |   | $ | (13,671 | )     |  | $ | 134,497 |      
|Repurchase of common stock                                      |                                                                                                      |                 |  |              |  |            |  |             |  |          | (2     | )             |  |              |   |               |  |         | (1      | )      |  |   |     |   |  |   |     |   |  |   |    |      |   |   |        |       |  |   | (1      | )    
|Issuance of common stock on exercise of options                 |                                                                                                      |                 |  |              |  |            |  |             |  |          | 216    |               |  |              |   |               |  |         | 905     |        |  |   |     |   |  |   |     |   |  |   |    |      |   |   |        |       |  |   | 905     |      
|Issuance of common stock under employee share
    purchase plan |                                                                                                      |                 |  |              |  |            |  |             |  |          | 92     |               |  |              |   |               |  |         | 1,055   |        |  |   |     |   |  |   |     |   |  |   |    |      |   |   |        |       |  |   | 1,055   |      
|Repayment of notes receivable                                   |                                                                                                      |                 |  |              |  |            |  |             |  |          |       |               |  |              |   |               |  |         |        |        |  |   | 6    |   |  |   |     |   |  |   |    |      |   |   |        |       |  |   | 6       |      
|Amortization of deferred stock compensation                     |                                                                                                      |                 |  |              |  |            |  |             |  |          |       |               |  |              |   |               |  |         |        |        |  |   |     |   |  |   | 168  |   |  |   |    |      |   |   |        |       |  |   | 168     |      
|Deferred stock compensation related to terminated
    employees |                                                                                                      |                 |  |              |  |            |  |             |  |          |       |               |  |              |   |               |  |         | (75     | )      |  |   |     |   |  |   | 75   |   |  |   |    |      |   |   |        |       |  |   |        |      
|Tax benefit from employee stock option plans                    |                                                                                                      |                 |  |              |  |            |  |             |  |          |       |               |  |              |   |               |  |         | 3,963   |        |  |   |     |   |  |   |     |   |  |   |    |      |   |   |        |       |  |   | 3,963   |      
|Comprehensive income (loss):                                    |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |        |  |   |      |   |  |   |      |   |  |   |     |      |   |   |         |       |  |   |         |      
|                                                                | Net income (loss) for the year ended
    December 31, 2001                                           |                 |   |             |  |            |   |            |  |          |        |              |  |              |    |              |  |         |         |       |  |   |      |  |  |   |      |  |  |   |     |     |   |   |         | 5,286 |  |   |         | 5,286 |  
|                                                                | Unrealized gain (loss) on foreign currency
    translation                                           |                 |   |             |  |            |   |            |  |          |        |              |  |              |    |              |  |         |         |       |  |   |      |  |  |   |      |  |  |   |     | (1   | ) |   |         |      |  |   |         | (1    | )
|                                                                | Unrealized gain (loss) on available- for-sale
    securities, net of applicable income taxes of $247 |                 |   |             |  |            |   |            |  |          |        |              |  |              |    |              |  |         |         |       |  |   |      |  |  |   |      |  |  |   |     | (395 | ) |   |         |      |  |   |         | (395  | )
|                                                                |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |        |  |   |      |   |  |   |      |   |  |   |     |      |   |   |         |       |  |   |         |      
|Comprehensive income                                            |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |        |  |   |      |   |  |   |      |   |  |   |     |      |   |   |         |       |  |   | 4,890   |      
|                                                                |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |        |  |   |      |   |  |   |      |   |  |   |     |      |   |   |         |       |  |   |         |      
|Balance at December 31, 2002                                    |                                                                                                      |                 |  |              |  |            |  |             |  |          | 30,920 |               |  | $            | 31 |               |  | $       | 154,213 |        |  | $ | (404 | ) |  | $ | (92  | ) |  | $ | 120 |      |   | $ | (8,385  | )     |  | $ | 145,483 |      
|                                                                |                                                                                                      |                 |   |              |  |            |   |             |  |          |        |               |  |              |    |               |  |         |         |        |  |   |      |   |  |   |      |   |  |   |     |      |   |   |         |       |  |   |         |      

See accompanying notes.

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SYMYX TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)


|                                                                                                       |                                         |                                                |         |        |        |      |         |        |        |   |         |       |        |  
|------------------------------------------------------------------------------------------------------ | --------------------------------------- | ---------------------------------------------- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ----- | ------ | -
|                                                                                                       |                                         |                                               
|                                                                                                       |                                         | Years Ended December 31,                      
|                                                                                                       |                                         |                                               
|                                                                                                       |                                         | 2002                                           |         | 2001   |        | 2000
|                                                                                                       |                                         |                                                |         |        |        |     
|OPERATING ACTIVITIES                                                                                   |                                         |                                                |         |        |        |      |         |        |        |   |         |      
|Net income (loss)                                                                                      |                                         | $                                              | 5,286   |        |        | $    | 6,338   |        |        | $ | (922    | )    
|Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities: |                                         |                                                |         |        |        |      |         |        |        |   |         |      
|                                                                                                       | Depreciation and amortization           |                                                |         | 11,067 |        |      |         | 9,807  |        |   |         | 6,477 |       
|                                                                                                       | Deferred compensation amortization      |                                                |         | 168    |        |      |         | 411    |        |   |         | 760   |       
|                                                                                                       | Deferred tax benefit                    |                                                |         | 558    |        |      |         | (2,046 | )      |   |         |      |       
|                                                                                                       | Tax benefit from employee stock options |                                                |         | 3,963  |        |      |         | 336    |        |   |         |      |       
|                                                                                                       | Changes in assets and liabilities:      |                                                |         |        |        |      |         |        |        |   |         |       |       
|                                                                                                       |                                         | Accounts receivable                            |         |        | (6,243 | )    |         |        | 539    |   |         |       | (31    | )
|                                                                                                       |                                         | Inventories                                    |         |        | (48    | )    |         |        | 571    |   |         |       | (2,301 | )
|                                                                                                       |                                         | Interest receivable and other current assets   |         |        | (306   | )    |         |        | 377    |   |         |       | 129    |  
|                                                                                                       |                                         | Other long-term assets                         |         |        | (325   | )    |         |        | 4      |   |         |       | 27     |  
|                                                                                                       |                                         | Accounts payable and other accrued liabilities |         |        | 577    |      |         |        | 267    |   |         |       | (1,284 | )
|                                                                                                       |                                         | Accrued compensation and employee benefits     |         |        | 87     |      |         |        | (278   | ) |         |       | 685    |  
|                                                                                                       |                                         | Income taxes payable                           |         |        | (2,568 | )    |         |        | 2,732  |   |         |       |       |  
|                                                                                                       |                                         | Deferred rent                                  |         |        | 161    |      |         |        | 238    |   |         |       | 126    |  
|                                                                                                       |                                         | Deferred revenue                               |         |        | (3,623 | )    |         |        | (3,097 | ) |         |       | (2,455 | )
|                                                                                                       |                                         | Warranty expense accrual                       |         |        | 925    |      |         |        | 534    |   |         |       | 440    |  
|                                                                                                       |                                         |                                                |         |        |        |      |         |        |        |   |         |      
|Net cash provided by (used in) operating
    activities                                                |                                         |                                                | 9,679   |        |        |      | 16,733  |        |        |   | 1,651   |      
|                                                                                                       |                                         |                                                |         |        |        |      |         |        |        |   |         |      
|INVESTING ACTIVITIES                                                                                   |                                         |                                                |         |        |        |      |         |        |        |   |         |      
|Purchases of property and equipment, net                                                               |                                         |                                                | (4,482  | )      |        |      | (10,980 | )      |        |   | (8,824  | )    
|Purchases of available-for-sale securities                                                             |                                         |                                                | (76,148 | )      |        |      | (89,901 | )      |        |   | (63,165 | )    
|Proceeds from maturities of available-for-sale
    securities                                          |                                         |                                                | 78,995  |        |        |      | 77,839  |        |        |   | 53,825  |      
|Proceeds from sales of available-for-sale
    securities                                               |                                         |                                                |        |        |        |      | 14,727  |        |        |   |        |      
|Acquisition of technology                                                                              |                                         |                                                |        |        |        |      | (250    | )      |        |   | (1,000  | )    
|                                                                                                       |                                         |                                                |         |        |        |      |         |        |        |   |         |      
|Net cash provided by (used in) investing
    activities                                                |                                         |                                                | (1,635  | )      |        |      | (8,565  | )      |        |   | (19,164 | )    
|                                                                                                       |                                         |                                                |         |        |        |      |         |        |        |   |         |      
|FINANCING ACTIVITIES                                                                                   |                                         |                                                |         |        |        |      |         |        |        |   |         |      
|Proceeds from issuance of common stock, net of
    repurchases                                         |                                         |                                                | 1,965   |        |        |      | 3,570   |        |        |   | 2,498   |      
|Principal payments on equipment and facility loans                                                     |                                         |                                                |        |        |        |      | (6,729  | )      |        |   | (3,304  | )    
|                                                                                                       |                                         |                                                |         |        |        |      |         |        |        |   |         |      
|Net cash provided by (used in) financing
    activities                                                |                                         |                                                | 1,965   |        |        |      | (3,159  | )      |        |   | (806    | )    
|                                                                                                       |                                         |                                                |         |        |        |      |         |        |        |   |         |      
|Effect of foreign exchange rate changes on cash
    and cash equivalents                               |                                         |                                                | (1      | )      |        |      | (12     | )      |        |   |        |      
|                                                                                                       |                                         |                                                |         |        |        |      |         |        |        |   |         |      
|Net increase (decrease) in cash and cash
    equivalents                                               |                                         |                                                | 10,008  |        |        |      | 4,997   |        |        |   | (18,319 | )    
|Cash and cash equivalents at beginning of period                                                       |                                         |                                                | 15,621  |        |        |      | 10,624  |        |        |   | 28,943  |      
|                                                                                                       |                                         |                                                |         |        |        |      |         |        |        |   |         |      
|Cash and cash equivalents at end of period                                                             |                                         | $                                              | 25,629  |        |        | $    | 15,621  |        |        | $ | 10,624  |      
|                                                                                                       |                                         |                                                |         |        |        |      |         |        |        |   |         |      
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                                       |                                         |                                                |         |        |        |      |         |        |        |   |         |      
|Interest paid                                                                                          |                                         | $                                              |        |        |        | $    | 611     |        |        | $ | 925     |      
|                                                                                                       |                                         |                                                |         |        |        |      |         |        |        |   |         |      
|Income taxes paid                                                                                      |                                         | $                                              | 791     |        |        | $    | 366     |        |        | $ |        |      
|                                                                                                       |                                         |                                                |         |        |        |      |         |        |        |   |         |      

See accompanying notes.

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##### Table of Contents



SYMYX TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1. Summary of Significant Accounting
Policies



| |                                       
| | --------------------------------------
| | Business and Basis of
    Presentation

Symyx Technologies, Inc. (the Company
or Symyx) develops and applies high-speed
combinatorial technologies to the discovery of materials for
chemical, life science and electronics applications. We provide
research services to our partners through our Industry
Collaborations business, seek to license discovered materials
through our Propriety Materials programs, offer access to select
instruments and software through our Discovery Tools®
business, and license certain of our patented apparatus and
research methodologies through our Intellectual Property
Licensing business.



| |                            
| | ---------------------------
| | Principles of consolidation

These consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary,
Symyx Technologies AG, incorporated in Switzerland. All
significant intercompany balances and transactions have been
eliminated on consolidation.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to exercise judgment in making
estimates and assumptions that affect the amounts reported in
the financial statements. Actual results could differ from these
estimates.

The actual results with regard to warranty
expenditures could have a material unfavorable impact on the
Company if system failures or the cost to repair a system is
greater than what the Company has used in estimating the
warranty expense accrual.



| |                  
| | -----------------
| | Reclassifications

Certain reclassifications have been made to prior
period amounts to conform to the current period presentations.
Revenue reported in previous quarters as product and license
revenue is now reported separately as revenue from product sales
and revenue from royalties and license fees.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

The Company considers all highly liquid
investments, with maturities of three months or less on the date
of purchase, to be cash equivalents. Cash equivalents are
carried at cost, which approximates fair value.



| |                                   
| | ----------------------------------
| | Available-For-Sale
    Investments

Management determines the appropriate
classification of debt securities at the time of purchase and
reevaluates such determination as of each balance sheet date.
Through December 31, 2002, the Company has classified its
entire investment portfolio as available-for-sale.
Available-for-sale securities are stated at fair value, with the
unrealized gains and losses, net of tax, reported in other
comprehensive income. Realized gains and losses and declines in
value judged to be other-than-temporary on available-for-sale
securities are included in interest income. The estimated fair
value amounts have been determined by the Company using
available market information.

The amortized cost of debt securities is adjusted
for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in interest income. The
cost of securities sold is based on the specific identification
method. Interest and dividends are included in interest income.

The Company invests its excess cash primarily in
deposits with banks and short-term and medium-term marketable
securities. These investments primarily include corporate notes,
money market funds and U.S. treasury notes. By policy, the
Company restricts its investments to long-term bank obligations
rated A

43



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##### Table of Contents



SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

or higher and short-term obligations rated
P1 or higher by Moodys or A1 or
higher by Standard & Poors (S&P), and
corporate obligations, including intermediate term notes rated
A or higher and commercial paper rated
P1 or higher by Moodys, or A1 or
higher by S&P. By policy, the Company restricts its
investments to instruments with maturities of less than
twenty-four months.

The following is a summary of the fair value of
cash, cash equivalents and available-for-sale securities (in
thousands):

|                               |  |              |         |      |  |   |         | 
|------------------------------ |  | ------------ | ------- | ---- |  | - | ------- | 
|                               |  |             
|                               |  | December 31,
|                               |  |             
|                               |  | 2002         |         | 2001
|                               |  |              |         |     
|Money market funds             |  | $            | 24,135  |      |  | $ | 15,621  | 
|U.S. corporate debt securities |  |              | 88,835  |      |  |   | 75,773  | 
|U.S. Treasury securities       |  |              | 5,050   |      |  |   | 21,932  | 
|                               |  |              |         |      |  |   |         | 
|Total                          |  | $            | 118,020 |      |  | $ | 113,326 | 
|                               |  |              |         |      |  |   |         | 

Above amounts are included in the following:

|                              |  |              |         |      |  |   |         | 
|----------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                              |  |             
|                              |  | December 31,
|                              |  |             
|                              |  | 2002         |         | 2001
|                              |  |              |         |     
|Cash and cash equivalents     |  | $            | 25,629  |      |  | $ | 15,621  | 
|Available-for-sale securities |  |              | 92,391  |      |  |   | 97,705  | 
|                              |  |              |         |      |  |   |         | 
|Total                         |  | $            | 118,020 |      |  | $ | 113,326 | 
|                              |  |              |         |      |  |   |         | 

Unrealized gains and losses are not material, and
have, therefore, not been shown separately; however, they have
been included as a separate component in the statement of
stockholders equity. Gross realized gains and losses on
sales of available-for-sale securities were immaterial.

The fair value of the Companys investment
in debt securities, by contractual maturity, is as follows (in
thousands):

|                        |  |              |        |      |  |   |        | 
|----------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                        |  |             
|                        |  | December 31,
|                        |  |             
|                        |  | 2002         |        | 2001
|                        |  |              |        |     
|Due in less than 1 year |  | $            | 87,080 |      |  | $ | 74,271 | 
|Due in 1 to 2 years     |  |              | 6,805  |      |  |   | 23,434 | 
|                        |  |              |        |      |  |   |        | 
|Total                   |  | $            | 93,885 |      |  | $ | 97,705 | 
|                        |  |              |        |      |  |   |        | 



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are stated at cost.
Depreciation is computed on the straight-line method using a
life of three to five years for financial reporting purposes and
by accelerated methods for income tax purposes. Leasehold
improvements are amortized over the shorter of the lease term or
the estimated useful life of the assets.

44



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##### Table of Contents



SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Property and equipment consists of the following
(in thousands):

|                                               |  |              |         |      |  |   |         |  
|---------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                               |  |             
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2002         |         | 2001
|                                               |  |              |         |     
|Machinery and equipment                        |  | $            | 17,919  |      |  | $ | 16,855  |  
|Computers and software                         |  |              | 3,194   |      |  |   | 3,510   |  
|Leasehold improvements                         |  |              | 23,405  |      |  |   | 21,182  |  
|Construction in progress                       |  |              | 169     |      |  |   | 2,392   |  
|Furniture and fixtures                         |  |              | 985     |      |  |   | 1,005   |  
|                                               |  |              |         |      |  |   |         |  
|                                               |  |              | 45,672  |      |  |   | 44,944  |  
|Less accumulated depreciation and amortization |  |              | (21,476 | )    |  |   | (16,412 | )
|                                               |  |              |         |      |  |   |         |  
|Property and equipment, net                    |  | $            | 24,196  |      |  | $ | 28,532  |  
|                                               |  |              |         |      |  |   |         |  

At December 31, 2002, no property and
equipment was pledged as collateral against borrowings.
Amortization of leasehold improvements is included in
depreciation expense. Depreciation expense was $8,818,000,
$8,825,000 and $6,399,000 in 2002, 2001, and 2000, respectively.



| |                  
| | -----------------
| | Long-Lived Assets

The Company routinely evaluates the carrying
value of its long-lived assets. The Company records impairment
losses on long-lived assets used in operations when events and
circumstances indicate that assets may be impaired and the
undiscounted cash flows estimated to be generated by the assets
are less than the carrying amount of those assets. To date, no
impairment charges have been recognized.



| |                    
| | -------------------
| | Revenue Recognition



| |                 
| | ----------------
| | Service Revenues

The Company recognizes service revenues from
research collaboration agreements and government grants as
earned based upon the performance requirements of the
agreements. Payments received prior to performance are deferred
and recognized as revenue when earned over future performance
periods. Collaboration agreements generally specify minimum
levels of research effort required to be performed by the
Company. Payments received under research collaboration
agreements are not refundable if the research effort is not
successful. Direct costs associated with these contracts and
grants are reported as research and development expense.

Non-refundable up-front payments received in
connection with research and development collaboration
agreements, including technology access fees, are deferred and
recognized on a straight-line basis over the relevant periods
specified in the agreement, generally the research term. Revenue
from milestone payments, which are substantially at risk until
the milestones are completed, is recognized upon completion of
these milestone events. Milestone payments to date have been
immaterial.



| |              
| | -------------
| | Product Sales

Product sales revenues include sales of Discovery
Tools hardware and associated software licenses. Revenue from
the sale of Discovery Tools systems is recognized when earned.
Revenue is earned when persuasive evidence of an arrangement
exists, delivery of the product has occurred, no significant
obligations with regard to implementation remain, the fee is
fixed or determinable, and collectibility is probable. This is
generally upon shipment, transfer of title to and acceptance by
the customer of the hardware and associated software and
licenses to intellectual property, unless there are extended
payment terms. The Company considers all arrangements with
payment terms extending beyond 12 months not to be fixed or
determinable.

45



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##### Table of Contents



SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

If the fee is not fixed or determinable, revenue
is recognized as payments become due from the customer. In
multiple element arrangements, the Company uses the residual
method to allocate revenue to delivered elements once it has
established fair value for all undelivered elements. Payments
received in advance under these arrangements are recorded as
deferred revenue until earned.

The Companys product related software
licenses may provide for technical support, bug fixes and rights
to unspecified upgrades on a when-and-if-available basis for
periods defined within the contract. Revenue related to this
post contract customer support is deferred and recognized over
the term of the contracted support.

An accrual is established for warranty expenses
at the time the associated revenue is recognized. Shipping and
insurance costs associated with the sale of discovery tools
systems are not material and are included in sales, general and
administrative costs.



| |                         
| | ------------------------
| | Royalty and License Fees

Amounts received from third parties for licenses
to the Companys intellectual property are recognized when
earned under the terms of the agreements. Generally revenue is
recognized upon transfer of the license unless the Company has
continuing obligations for which fair value cannot be
established, in which case the revenue is recognized over the
period of the obligation. If there are extended payment terms,
license fee revenue is recognized as these payments become due.
The Company considers all arrangements with payment terms
extending beyond 12 months not to be fixed or determinable.
If there is a provision in the licensing agreement for a
variable fee in addition to a non-refundable minimum amount, the
amount of the non-refundable minimum guarantee is recognized
upon transfer of the license unless the Company has continuing
obligations for which fair value cannot be established and the
amount of the variable fee in excess of the guaranteed minimum
is recognized as revenue when it is fixed and determinable.

Royalty revenues are recorded based on reported
sales by third party licensees of products containing the
Companys software and intellectual property.

Amounts received from third parties for options
to license certain technology or enter collaborative
arrangements upon specified terms are deferred until either the
option is exercised or the option right expires.



| |                         
| | ------------------------
| | Concentration of Revenue

During the years ended December 31, 2002,
2001 and 2000 the following customers contributed more than 10%
of the Companys total revenue for the year (in thousands):

|                            |  |                          |        |      |  |      |       |  |  |   |       | 
|--------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ----- |  |  | - | ----- | 
|                            |  |                         
|                            |  | Years Ended December 31,
|                            |  |                         
|                            |  | 2002                     |        | 2001 |  | 2000
|                            |  |                          |        |      |  |     
|Applied Biosystems          |  | $                        |       |      |  | $    | 4,400 |  |  | $ | 4,600 | 
|Bayer AG                    |  |                          | 300    |      |  |      | 7,535 |  |  |   | 8,607 | 
|Celanese Ltd.               |  |                          | 4,437  |      |  |      | 5,204 |  |  |   | 4,621 | 
|Eli Lilly and Company       |  |                          | 10,300 |      |  |      |      |  |  |   |      | 
|ExxonMobil Chemical Company |  |                          | 11,884 |      |  |      | 7,309 |  |  |   | 118   | 
|The Dow Chemical Company    |  |                          | 8,600  |      |  |      | 8,425 |  |  |   | 9,520 | 
|Undisclosed Partner         |  |                          | 6,705  |      |  |      | 3,433 |  |  |   |      | 

46



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##### Table of Contents



SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The revenue from the above customers has been
included in the following reportable segments for the years
ended December 31, 2002, 2001 and 2000 (in thousands):

|                                |  |                          |        |      |  |      |        |  |  |   |        | 
|------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                |  |                         
|                                |  | Years Ended December 31,
|                                |  |                         
|                                |  | 2002                     |        | 2001 |  | 2000
|                                |  |                          |        |      |  |     
|Industry Collaborations         |  | $                        | 24,923 |      |  | $    | 28,487 |  |  | $ | 22,396 | 
|Discovery Tools                 |  |                          | 16,957 |      |  |      | 5,819  |  |  |   | 3,070  | 
|Intellectual Property Licensing |  |                          | 346    |      |  |      | 2,000  |  |  |   | 2,000  | 



| |            
| | -----------
| | Inventories

Work in process is the only component of
inventories for all periods presented and comprises customized
Discovery Tool systems in the process of being built.
Inventories are carried at the lower of cost or market,
determined on a specific identification basis.



| |                          
| | -------------------------
| | Acquisition of Technology

In February 2000, the Company exercised an option
to license certain patent rights and know-how relating to
synthesis and screening of diverse materials in connection with
combinatorial materials science research. Symyx paid $750,000
and also issued 16,262 shares of common stock to acquire
these rights. The License Agreement also provides for Symyx to
pay up to an additional $1,500,000 subject to the achievement of
certain milestones. Subsequently milestone payments of $250,000
were made in each of July 2000 and December 2001. The
exercise of this option and the subsequent milestone payments
have been accounted for as an acquisition of technology and the
associated costs are being amortized over the expected remaining
useful life of the technology. Based on acquired technology cost
at December 31, 2002 and assuming no subsequent impairment
of the underlying assets and no additional milestone payments,
the annual amortization expense, is expected to be approximately
$425,000 in 2003, $425,000 in 2004, and $60,000 in 2005.

Acquired technology consists of the following (in
thousands):

|                              |  |              |        |      |  |   |       |  
|----------------------------- |  | ------------ | ------ | ---- |  | - | ----- | -
|                              |  |             
|                              |  | December 31,
|                              |  |             
|                              |  | 2002         |        | 2001
|                              |  |              |        |     
|Acquired technology, at cost  |  | $            | 2,065  |      |  | $ | 2,065 |  
|Less accumulated amortization |  |              | (1,155 | )    |  |   | (730  | )
|                              |  |              |        |      |  |   |       |  
|Acquired technology, net      |  | $            | 910    |      |  | $ | 1,335 |  
|                              |  |              |        |      |  |   |       |  
|Amortization expense recorded |  | $            | 425    |      |  | $ | 395   |  
|                              |  |              |        |      |  |   |       |  



| |                         
| | ------------------------
| | Research and Development

Symyx 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.



| |                           
| | --------------------------
| | Software development costs

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. As the
Companys business model has evolved, it

47



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##### Table of Contents



SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

has commenced bundling with the Discovery Tools
it sells, licenses to software that was originally developed for
internal research & development purposes. Due to the
unique nature of the Discovery Tool systems, and the required
product development process, technological feasibility is
established only upon the completion of a working model. Costs
incurred by the Company between the completion of the working
model and the point at which the product is ready for general
release have been insignificant. Accordingly, the Company has
charged all such costs to research and development expense in
the period incurred.



| |                         
| | ------------------------
| | Warranty expense accrual

The Company offers a warranty on each Discovery
Tool System shipped. The specific terms and conditions of these
warranties vary depending upon the product sold and country in
which the Company does business, however they typically include
coverage for parts and labor and software bug fixes, for a
specified period (typically 1 year). The Company estimates
the costs that may 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 liability
during the year ended December 31, 2002 are as follows (in
thousands):

|                                                                                              |  |   |       |  
|--------------------------------------------------------------------------------------------- |  | - | ----- | -
|Balance as of January 1, 2002                                                                 |  | $ | 974   |  
|New warranties issued during the period                                                       |  |   | 1,055 |  
|Costs incurred during the period on specific
    Systems                                      |  |   | (130  | )
|Changes in liability for pre-existing warranties
    during the period, including expirations |  |   |      |  
|                                                                                              |  |   |       |  
|Balance as of December 31, 2002                                                               |  | $ | 1,899 |  
|                                                                                              |  |   |       |  



| |                             
| | ----------------------------
| | Foreign Currency Translation

The financial statements of the Companys
wholly owned subsidiary, Symyx Technologies AG, are
measured using the local currency as the functional currency.
Assets and liabilities of the subsidiary are translated at the
rates of exchange at the balance sheet date. The resultant
translation adjustments are recorded as a separate component of
stockholders equity as other comprehensive income and have
not been significant to date. Income and expense items are
translated at average monthly rates of exchange.



| |             
| | ------------
| | Income Taxes

Income taxes have been provided using the
liability method in accordance with FASB Statement 109,
Accounting for Income Taxes. In accordance with FASB
Statement 109, a deferred tax asset or liability is
determined based on the difference between the financial
statement and tax basis of assets and liabilities as measured by
the enacted tax rates which will be in effect when these
differences reverse. The Company provides a valuation allowance
against net deferred tax assets unless, based upon the available
evidence, it is more likely than not that the deferred tax
assets will be realized.



| |                         
| | ------------------------
| | Stock-Based Compensation

The Company generally grants stock options to its
employees for a fixed number of shares with an exercise price
equal to the fair value of the shares on the date of grant. As
allowed under the Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based
Compensation (SFAS 123), the Company has
elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees (APB 25) and related
interpretations in accounting for stock awards to employees.
Accord-

48



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##### Table of Contents



SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

ingly, no compensation expense is recognized in
the Companys financial statements in connection with stock
options granted to employees with exercise prices not less than
fair value. Deferred compensation for options granted to
employees is determined as the difference between the deemed
fair market value of the Companys common stock on the date
options were granted and the exercise price. For purposes of
this pro-forma disclosure, the estimated fair value of the
options is assumed to be amortized to expense over the
options vesting periods.

Compensation expense for options granted to
non-employees has been determined in accordance with SFAS 123 as
the fair value of the consideration received or the fair value
of the equity instruments issued, whichever is more reliably
measured. Compensation expense for options granted to
non-employees is periodically re-measured as the underlying
options vest (in thousands, except per share data).

|                                     |                                                                                                                                               |                          |   |         |   |      |   |         |   |  |   |         |  
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | - | ------- | - | ---- | - | ------- | - |  | - | ------- | -
|                                     |                                                                                                                                               |                         
|                                     |                                                                                                                                               | Years Ended December 31,
|                                     |                                                                                                                                               |                         
|                                     |                                                                                                                                               | 2002                     |   | 2001    |   | 2000
|                                     |                                                                                                                                               |                          |   |         |   |     
|Net income (loss):                   |                                                                                                                                               |                          |   |         |   |      |   |         |   |  |   |        
|                                     | As reported                                                                                                                                   |                          | $ | 5,286   |   |      | $ | 6,338   |   |  | $ | (922    | )
|                                     | Add: Stock-based employee compensation expense
    included in reported net income (loss), net of related tax
    effects                     |                          |   | 168     |   |      |   | 411     |   |  |   | 760     |  
|                                     | Deduct: Total stock-based employee compensation
    expense determined under fair value method for all awards, net
    of related tax effects |                          |   | (22,269 | ) |      |   | (25,108 | ) |  |   | (19,257 | )
|                                     |                                                                                                                                               |                          |   |         |   |      |   |         |   |  |   |        
|                                     | Pro forma                                                                                                                                     |                          | $ | (16,815 | ) |      | $ | (18,359 | ) |  | $ | (19,419 | )
|                                     |                                                                                                                                               |                          |   |         |   |      |   |         |   |  |   |        
|Basic net income (loss) per share:   |                                                                                                                                               |                          |   |         |   |      |   |         |   |  |   |        
|                                     | As reported                                                                                                                                   |                          | $ | 0.17    |   |      | $ | 0.21    |   |  | $ | (0.03   | )
|                                     |                                                                                                                                               |                          |   |         |   |      |   |         |   |  |   |        
|                                     | Pro forma                                                                                                                                     |                          | $ | (0.55   | ) |      | $ | (0.61   | ) |  | $ | (0.67   | )
|                                     |                                                                                                                                               |                          |   |         |   |      |   |         |   |  |   |        
|Diluted net income (loss) per share: |                                                                                                                                               |                          |   |         |   |      |   |         |   |  |   |        
|                                     | As reported                                                                                                                                   |                          | $ | 0.17    |   |      | $ | 0.20    |   |  | $ | (0.03   | )
|                                     |                                                                                                                                               |                          |   |         |   |      |   |         |   |  |   |        
|                                     | Pro forma                                                                                                                                     |                          | $ | (0.55   | ) |      | $ | (0.61   | ) |  | $ | (0.67   | )
|                                     |                                                                                                                                               |                          |   |         |   |      |   |         |   |  |   |        



| |                            
| | ---------------------------
| | Net Income (Loss) Per Share

Basic net income (loss) per share has been
computed using the weighted-average number of shares of common
stock outstanding during the period, less shares subject to
repurchase. Diluted net income (loss) per share has been
calculated based on the shares used in the calculation of basic
net income per share plus the dilutive effect of stock options
and shares subject to repurchase by the Company.

49



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##### Table of Contents



SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table presents the calculation of
basic, diluted net income (loss) per share (in thousands, except
per share data):

|                                                                                  |  |                          |        |      |  |      |        |   |  |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                                  |  |                         
|                                                                                  |  | Years Ended December 31,
|                                                                                  |  |                         
|                                                                                  |  | 2002                     |        | 2001 |  | 2000
|                                                                                  |  |                          |        |      |  |     
|Net income (loss)                                                                 |  | $                        | 5,286  |      |  | $    | 6,338  |   |  | $ | (922   | )
|                                                                                  |  |                          |        |      |  |      |        |   |  |   |        |  
|Weighted-average shares of common stock
    outstanding                           |  |                          | 30,798 |      |  |      | 30,413 |   |  |   | 29,884 |  
|Less: weighted-average shares subject to
    repurchase                           |  |                          | (151   | )    |  |      | (509   | ) |  |   | (1,011 | )
|                                                                                  |  |                          |        |      |  |      |        |   |  |   |        |  
|Weighted-average shares used in computing basic
    net income (loss) per share   |  |                          | 30,647 |      |  |      | 29,904 |   |  |   | 28,873 |  
|Dilutive effect of employee stock options, using
    the treasury stock method    |  |                          | 840    |      |  |      | 783    |   |  |   |       |  
|Shares subject to repurchase                                                      |  |                          | 151    |      |  |      | 509    |   |  |   |       |  
|                                                                                  |  |                          |        |      |  |      |        |   |  |   |        |  
|Weighted-average shares used in computing diluted
    net income (loss) per share |  |                          | 31,638 |      |  |      | 31,196 |   |  |   | 28,873 |  
|                                                                                  |  |                          |        |      |  |      |        |   |  |   |        |  
|Basic net income (loss) per share                                                 |  | $                        | 0.17   |      |  | $    | 0.21   |   |  | $ | (0.03  | )
|                                                                                  |  |                          |        |      |  |      |        |   |  |   |        |  
|Diluted net income (loss) per share                                               |  | $                        | 0.17   |      |  | $    | 0.20   |   |  | $ | (0.03  | )
|                                                                                  |  |                          |        |      |  |      |        |   |  |   |        |  

The Company has excluded all outstanding stock
options and shares subject to repurchase from the calculation of
diluted loss per common share in 2000 because all such
securities are anti-dilutive for that periods. The total number
of shares excluded from the calculations of diluted net loss per
share, prior to application of the treasury stock method for
options, was 5,083,787 for the year ended December 31,
2000. See Note 4 for further information on these
securities.



| |                            
| | ---------------------------
| | Comprehensive Income (Loss)

The Company has adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive
Income. The only components of other comprehensive income
(loss) are unrealized gains and losses on available-for-sale
securities and a foreign currency translation adjustment.
Comprehensive income (loss) has been disclosed in the statement
of stockholders equity for all periods presented.

50



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##### Table of Contents



SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of accumulated other comprehensive
income at December 31, 2002, 2001 and 2000 are as follows
(in thousands):

|                                                                         |  |             |     |                 |  |       |      |   |  |   |      |  
|------------------------------------------------------------------------ |  | ----------- | --- | --------------- |  | ----- | ---- | - |  | - | ---- | -
|                                                                         |  | Foreign     |     | Unrealized      |  |      
|                                                                         |  | Currency    |     | Gains On        |  |      
|                                                                         |  | Translation |     | Available-For-  |  |      
|                                                                         |  | Adjustments |     | Sale Securities |  | Total
|                                                                         |  |             |     |                 |  |      
|Balance at January 1, 2000                                               |  | $           |    |                 |  | $     | (189 | ) |  | $ | (189 | )
|Unrealized gains on available-for-sale securities                        |  |             |    |                 |  |       | 514  |   |  |   | 514  |  
|                                                                         |  |             |     |                 |  |       |      |   |  |   |      |  
|Balance at December 31, 2000                                             |  |             |    |                 |  |       | 325  |   |  |   | 325  |  
|Foreign currency translation adjustment                                  |  |             | (12 | )               |  |       |     |   |  |   | (12  | )
|Unrealized gains on available-for-sale
    securities, net of $336 taxes |  |             |    |                 |  |       | 203  |   |  |   | 203  |  
|                                                                         |  |             |     |                 |  |       |      |   |  |   |      |  
|Balance at December 31, 2001                                             |  |             | (12 | )               |  |       | 528  |   |  |   | 516  |  
|Foreign currency translation adjustment                                  |  |             | (1  | )               |  |       |     |   |  |   | (1   | )
|Unrealized gain on available-for-sale securities,
    net of $247 taxes  |  |             |    |                 |  |       | (395 | ) |  |   | (395 | )
|                                                                         |  |             |     |                 |  |       |      |   |  |   |      |  
|Balance at December 31, 2002                                             |  | $           | (13 | )               |  | $     | 133  |   |  | $ | 120  |  
|                                                                         |  |             |     |                 |  |       |      |   |  |   |      |  



| |                                            
| | -------------------------------------------
| | Effect of New Accounting
    Pronouncements

In November 2002, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables, which provides
guidance on the timing and method of revenue recognition for
sales arrangements that include the delivery of more than one
product or service. EITF 00-21 is effective prospectively
for arrangements entered into in fiscal periods beginning after
June 15, 2003. The Company does not expect that the
adoption of EITF 00-21 will have a significant impact on
its consolidated financial statements.

In June 2002, the Financial Accounting Standards
Board (FASB) issued Statement No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. The
standard addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). Statement No. 146
states that a liability for a cost associated with an exit or
disposal activity shall be recognized and measured initially at
its fair value in the period in which the liability is incurred,
except for a liability for one-time termination benefits that
are incurred over a period of time. The standard will apply to
the Company effective for exit or disposal activities initiated
after December 31, 2002. The Company does not believe there
will be a material effect from the adoption of this new standard.

On December 31, 2002, FASB issued SFAS
No. 148, Accounting for Stock-Based Compensation-Transition
and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 148
requires accounting policy note disclosures to provide the
method of stock option accounting for each year presented in the
financial statements and, for each year until all years
presented in the financial statements recognize the fair value
of stock-based compensation. Also, SFAS No. 148 provides
two additional transition methods that eliminate the ramp-up
effect resulting from applying the expense recognition
provisions of SFAS No. 123. The transition provisions and
annual statement disclosure requirements of SFAS No. 148
are effective for fiscal years ending after December 15,
2002. The interim statement disclosure requirements are
effective for the first interim statement that includes
financial information after December 15, 2002. The Company
does not believe there will be a material financial effect from
the adoption

51



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SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of this new standard unless it were to make a
change in its accounting policy and account for stock option
grants as compensation expense.

In November 2002, the FASB issued FASB
Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, an interpretation of FASB Statements No. 5, 57 and
107 and Rescission of FASB Interpretation No. 34.
FIN 45 clarifies the requirements of SFAS No. 5,
Accounting for Contingencies, relating to the
guarantors accounting for, and disclosure of, the issuance
of certain types of guarantees. The disclosure provisions of
FIN 45 are effective for financial statements of periods
that end after December 15, 2002. However, the provisions
for initial recognition and measurement are effective on a
prospective basis for guarantees that are issued or modified
after December 31, 2002. The Company has no guarantees of
indebtedness that would be affected by FIN 45. FIN 45
also incorporates accounting for indemnities given in connection
with licensing of intellectual property and the Company is still
assessing the potential impact this may have on its future
results from operations. The disclosure provision related to
product warranties is included elsewhere in this footnote.

In January 2003, the FASB issued FASB
Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities.
FIN 46 clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which equity investors
do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated
financial support from other parties. FIN 46 applies
immediately to variable interest entities created after
January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. It
applies in the first fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which
an enterprise holds a variable interest that it acquired before
February 1, 2003. FIN 46 applies to public enterprises
as of the beginning of the applicable interim or annual period.
The Company does not believe there will be a material effect
upon its financial condition or results from operations from the
adoption of the provisions of FIN 46.

2. Research and Development
Arrangements

The Company has entered into a number of
multi-year research and development collaborations to perform
research for partners in exclusive fields over multiple years.
The major collaborative arrangements all have similar
contractual terms and are non-cancelable other than for material
breach or certain other conditions. Under the collaborative
arrangements, the Company is responsible for performing research
at levels defined in the agreement, including synthesis,
screening and informatics. The partner, in turn, is entitled to
develop and commercialize materials discovered in or under
collaboration within the defined field. The Company typically
receives research and development funding at specified amounts
per full time equivalent employee working on the project and is
entitled to receive royalties on the sale of any products
commercialized under the agreement or payments on the
achievement of specified research milestones. The agreements
also contain procedures by which the Company and the partner
will determine royalty rates for the sale or license of products
under the agreements.

52



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##### Table of Contents



SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The table below indicates some of the significant
collaborative partners for whom the Company conducted research
and development in 2002, together with the primary focus of the
collaborations. In addition to these partners we have a number
of other undisclosed partners, none of which individually
constituted more than 5% of total revenue in 2002:

|                            |  |                                                                                                                                             
|--------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|Partner                     |  | Primary focus of collaborative efforts                                                                                                      
|                            |  |                                                                                                                                             
|Celanese Ltd.               |  | Catalysts for commodity chemicals                                                                                                           
|The Dow Chemical Company    |  | Polyolefins and pharmaceutical intermediates                                                                                                
|Eli Lilly and Company       |  | Identify optimal crystalline salt and polymorphic
    form of drug candidates                                                               
|Eveready                    |  | Battery materials                                                                                                                           
|ExxonMobil Chemical Company |  | Production of olefins                                                                                                                       
|Merck & Co., Inc.           |  | Workflow for rapid discovery, identification and
    characterization of novel crystalline salt and polymorphic forms
    of drug candidates
|Rhodia S.A.                 |  | Specialty chemicals                                                                                                                         
|Unilever                    |  | Polymers for product formulations used in home
    and personal care products                                                               
|Undisclosed Partner         |  | Electrocatalysts                                                                                                                            

Under the typical collaborative arrangement, the
Company owns all inventions conceived and reduced to practice
solely by the Company in connection with activities under the
agreements and all know-how and intellectual property rights
related thereto; and the Company and the collaborative partner
jointly own all inventions made, conceived, reduced to practice,
or otherwise developed jointly by employees or consultants of
the Company and those of the collaborative partner in connection
with activities under the agreement and all know-how and
intellectual property rights related thereto. The Companys
collaborative partner typically receives an exclusive license in
the defined field of the collaborative agreement.

The agreements are typically cancelable only in
the event of breach by either party. As of December 31,
2002, the Company had committed funding from existing
collaborative partners, excluding milestone payments which are
contingent upon the success of the research, of approximately
$14.9 million. Revenue from collaborative partners who
individually comprised more than 10% of revenue are included
within Note 1  Concentration of Revenue.

During 1999, the Company was awarded grants from
the U.S. Office of Naval Research Defense Advanced Research
Projects Agency (DARPA) and the U.S. Department of Energy.
During 2000, an extension to the 1999 grant was awarded to the
Company. Under these grants, the Company was reimbursed for
research costs over various periods as specified in the awards.
During the years ended December 31, 2002, 2001 and 2000,
revenue recognized under these grants was approximately $0, $0
and $1,596,000, respectively.

The Company does not track or allocate actual
costs by collaboration or project, as the requirement from its
collaborative partners is to staff the various projects on a
full-time-equivalent (FTE) employee basis.
Accordingly, the Company tracks the assignment of these
FTEs to each project over time. Based on the analysis of
these FTEs, for the twelve months ended December 31,
2002, approximately 63% of the Companys research effort,
determined based on employee hours charged to a project, was on
research for collaborative projects funded by our partners. The
remaining 37% of research effort was on Symyx funded research
and development. The focus of the Symyx funded programs in 2002
was largely on life sciences, such as materials for genomics and
pharmaceutical development, and on industrial polymer
applications as well as the next generation of Discovery Tools.
In 2001 and 2000 approximately 78% and 75%, respectively, of the
Companys research effort was for collaborative projects
funded by our partners with approximately 22% and 25%,
respectively, being Symyx funded research.

53



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##### Table of Contents



SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

3. Facility Lease and Other
Commitments

The Company entered into an 11 year
operating lease agreement for a facility commencing
February 1, 1997, with rent payments commencing
July 1, 1998. In May 1999, the Company entered into an
eight-and-a-half-year operating lease agreement for an
additional facility commencing October 1999. In
February 2000, the Company entered into an agreement to
lease a third facility. The lease commenced on October 1,
2000 and has an initial term of ten years with an option to
extend the initial term for an additional five years.

Rent expense, which is being recognized on a
straight-line basis over the lease terms, was approximately
$2,248,000 million, $2,230,000 and $1,160,000 for the years
ended December 31, 2002, 2001, and 2000, respectively.
Future commitments under the operating leases for the facilities
are as follows (in thousands):

|                          |  |  |       |  |  |   |        | 
|------------------------- |  |  | ----- |  |  | - | ------ | 
|Years ending December 31, |  |  |       | 
|                          |  |  |       | 
|2003                      |  |  | 1,991 | 
|2004                      |  |  | 2,063 | 
|2005                      |  |  | 2,146 | 
|2006                      |  |  | 2,232 | 
|2007                      |  |  | 2,321 | 
|Thereafter                |  |  | 4,430 | 
|                          |  |  |       | 
|                          |  |  |       |  |  | $ | 15,183 | 
|                          |  |  |       |  |  |   |        | 

In December 1998, the Company entered into loan
and security arrangements for up to $10,000,000 with
Transamerica Business Credit and LMSI Venture Finance. Amounts
drawn under the loans bore interest rates of approximately 8.5%
to 10.0%, had a term of 48 months, and were secured by
equipment financed by proceeds under the agreements. Under these
agreements, $5,624,000 was drawn in 1998 and an additional
$2,715,000 was drawn in 1999. No additional amounts were
available for draw down under these loan and security
arrangements as they expired during 2000. As of
December 31, 2001 all principal and interest owing under
these loan agreements had been repaid in full. Interest expense
for the years ended December 31, 2002, 2001 and 2000 was
$9,000, $660,000, and $924,000, respectively.

4. Stockholders Equity



| |                            
| | ---------------------------
| | Convertible Preferred Stock

In September 1999, the board of directors
approved an amendment to the Companys articles of
incorporation to authorize 10,000,000 shares of undesignated
preferred stock, for which the board of directors is authorized
to fix the designation, powers, preferences and rights and an
increase in the authorized number of shares of common stock to
100,000,000 shares.



| |             
| | ------------
| | Common Stock

Included in the common shares outstanding at
December 31, 2002 and 2001 are 48,755 and 283,727 shares of
common stock subject to repurchase rights, which generally
expire ratably over four or five years from date of issuance.
Certain of these shares were issued pursuant to full-recourse
notes receivable, which bear interest at rates between 4.6% and
6.0% per annum and are due and payable on the earlier of
120 days after termination of the participants
employment with the Company, or on various dates beginning in
February 2003 and ending in August 2004  see
Note 7 Related Party Transactions. In 1998, the Company
sold 525,000 shares of common stock to its Chief Executive
Officer concurrent with the commencement of his employment. The
shares are subject to the Companys right of repurchase at
the original purchase price, in the event of termination, which
lapses over a four year period and unvested shares have been
included above in the reported common stock subject to
repurchase rights at December 31, 2002 and 2001.

54



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##### Table of Contents



SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 31, 2002, the Company has
reserved 7,304,956 shares of common stock for future issuance in
relation to the Companys Stock Option Plans.



| |                    
| | -------------------
| | Stock Purchase Plan

In October 1999, the Companys shareholders
approved the adoption of the 1999 Employee Stock Purchase Plan
(the Purchase Plan). A total of 300,000 shares of
the Companys common stock were initially reserved for
issuance under the Purchase Plan. The Purchase Plan permits
eligible employees to purchase common stock at a discount, but
only through payroll deductions, during concurrent 24-month
offering periods. Each offering period will be divided into four
consecutive six-month purchase periods. The price at which stock
is purchased under the Purchase Plan is equal to 85% of the fair
market value of the common stock on the first or last day of the
offering period, whichever is lower. In addition, the Purchase
Plan provides for annual increases in the number of shares
available for issuance under the Purchase Plan on the first day
of each fiscal year, equal to the lesser of 1% of the
outstanding shares of common stock on the first day of the
fiscal year, 350,000 shares, or a lesser amount as determined by
the board of directors. At December 31, 2002, shares of
common stock available for future issue under the Stock Purchase
Plan are 1,011,739.



| |                   
| | ------------------
| | Stock Option Plans

The Companys 1996 Stock Option Plan was
adopted in March 1996 and provided for the issuance of options
for up to 1,153,444 shares of common stock to employees,
directors and consultants.

During 1997, the Companys board of
directors approved the adoption of the 1997 Stock Option Plan
with terms and conditions the same as those of the 1996 Stock
Option Plan (collectively, the Qualified Plans). The
1997 Stock Option Plan provides for the issuance of options for
up to 8,962,199 shares of common stock to employee and
consultants. The Qualified Plan provides for an annual increase
in the number of shares of common stock reserved for issuance
equal to the lesser of 1,500,000 shares, 4% of the
outstanding shares on the date of the annual increase, or a
lesser amount as determined by the board of directors.

In October 2001, the Companys board of
directors approved the adoption of the 2001 Nonstatutory Stock
Option Plan (the NSO Plan). The NSO Plan provides
for the issuance of options for up to 1,000,000 shares of
common stock to non-executive employees and consultants.

Stock options granted under the Qualified Plans
may be either incentive stock options or nonstatutory stock
options, whereas stock options granted under the NSO Plan are
nonstatutory stock options. Options are generally granted with
exercise prices equal to the fair value of the common stock on
the grant date, as determined by the board of directors. The
options expire no more than 10 years after the date of
grant or earlier if employment or relationship as a director or
consultant is terminated. The board of directors shall determine
the times during the term when the options may be exercised and
the number of shares for which an option may be granted. Options
may be granted with different vesting terms from time to time
but will provide for annual vesting of at least 20% of the total
number of shares subject to the option. The Company allows early
exercise of options, subject to repurchase rights until such
options are fully vested.

55



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##### Table of Contents



SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

No options have been granted under the 2001 NSO
Plan as of December 31, 2002. A summary of activity under
the 1996 and 1997 Stock Option Plans is as follows:

|                             |  |                           |           |                |  |                |                |  |  |   |       | 
|---------------------------- |  | ------------------------- | --------- | -------------- |  | -------------- | -------------- |  |  | - | ----- | 
|                             |  |                          
|                             |  | Outstanding Stock Options
|                             |  |                          
|                             |  |                           |           | Weighted-     
|                             |  | Number of                 |           |                |  | Average       
|                             |  | Shares                    |           | Exercise Price |  | Exercise Price
|                             |  |                           |           |                |  |               
|Balance at January 1, 2000   |  |                           | 2,838,498 |                |  | $              | 0.01 - $33.00  |  |  | $ | 5.80  | 
|Options granted              |  |                           | 2,054,105 |                |  | $              | 24.13 - $62.63 |  |  | $ | 47.83 | 
|Options exercised            |  |                           | (418,669  | )              |  | $              | 0.19 - $31.88  |  |  | $ | 3.24  | 
|Options canceled             |  |                           | (592,228  | )              |  | $              | 0.19 - $57.00  |  |  | $ | 17.23 | 
|                             |  |                           |           |                |  |                |                |  |  |   |       | 
|Balance at December 31, 2000 |  |                           | 3,881,706 |                |  | $              | 0.01 - $62.63  |  |  | $ | 26.57 | 
|Options granted              |  |                           | 1,705,387 |                |  | $              | 12.13 - $31.25 |  |  | $ | 22.64 | 
|Options exercised            |  |                           | (386,910  | )              |  | $              | 0.19 - $25.50  |  |  | $ | 5.16  | 
|Options canceled             |  |                           | (400,864  | )              |  | $              | 0.19 - $62.63  |  |  | $ | 30.28 | 
|                             |  |                           |           |                |  |                |                |  |  |   |       | 
|Balance at December 31, 2001 |  |                           | 4,799,319 |                |  | $              | 0.19 - $58.25  |  |  | $ | 26.59 | 
|Options granted              |  |                           | 1,143,925 |                |  | $              | 8.42 - $21.74  |  |  | $ | 15.32 | 
|Options exercised            |  |                           | (216,460  | )              |  | $              | 0.19 - $16.70  |  |  | $ | 4.18  | 
|Options canceled             |  |                           | (349,803  | )              |  | $              | 0.39 - $57.00  |  |  | $ | 24.81 | 
|                             |  |                           |           |                |  |                |                |  |  |   |       | 
|Balance at December 31, 2002 |  |                           | 5,376,981 |                |  | $              | 0.19 - $58.25  |  |  | $ | 25.21 | 
|                             |  |                           |           |                |  |                |                |  |  |   |       | 

At December 31, 2002, 2001 and 2000, vested
and outstanding options for 3,067,521, 2,056,819 and
2,200,389 shares were exercisable at weighted-average
exercise prices of $20.35, $13.33 and $9.95, respectively. The
weighted-average grant date fair value of options granted during
the years ended December 31, 2002, 2001 and 2000 was $8.33,
$13.62 and $28.77, respectively. At December 31, 2002,
options for shares of common stock available for future grants
under the 1997 Stock Option Plan are 927,975 and under the 2001
NSO Plan are 1,000,000.

An analysis of options outstanding at
December 31, 2002 is as follows:

|                |  |                |           |                  |  |                |     |                |  |                |       |  |  |  |           |  |  |   |       | 
|--------------- |  | -------------- | --------- | ---------------- |  | -------------- | --- | -------------- |  | -------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |  |                |           |                  |  |                |     |               
|                |  |                |           | Weighted-        |  |                |     | Options Vested
|                |  | Options        |           | Average          |  | Options        |     |               
|                |  | Outstanding at |           | Remaining        |  | Weighted-      |     | Vested at      |  | Weighted-     
|                |  | December 31,   |           | Contractual Life |  | Average        |     | December 31,   |  | Average       
|Exercise Price  |  | 2002           |           | (in years)       |  | Exercise Price |     | 2002           |  | Exercise Price
|                |  |                |           |                  |  |                |     |                |  |               
|$ 0.19 - $ 0.39 |  |                | 145,911   |                  |  |                | 4.5 |                |  | $              | 0.33  |  |  |  | 145,911   |  |  | $ | 0.33  | 
|$ 0.96 - $ 0.96 |  |                | 277,132   |                  |  |                | 5.9 |                |  | $              | 0.96  |  |  |  | 277,132   |  |  | $ | 0.96  | 
|$ 1.93 - $ 3.86 |  |                | 189,964   |                  |  |                | 6.3 |                |  | $              | 3.09  |  |  |  | 189,964   |  |  | $ | 3.09  | 
|$ 6.42 - $ 8.42 |  |                | 195,114   |                  |  |                | 8.4 |                |  | $              | 7.65  |  |  |  | 75,114    |  |  | $ | 6.43  | 
|$10.10 - $14.75 |  |                | 927,965   |                  |  |                | 7.4 |                |  | $              | 12.08 |  |  |  | 701,557   |  |  | $ | 12.13 | 
|$15.30 - $22.68 |  |                | 1,004,769 |                  |  |                | 9.1 |                |  | $              | 16.99 |  |  |  | 474,117   |  |  | $ | 16.83 | 
|$23.50 - $34.63 |  |                | 1,415,266 |                  |  |                | 8.0 |                |  | $              | 26.57 |  |  |  | 763,200   |  |  | $ | 27.06 | 
|$36.50 - $51.50 |  |                | 143,999   |                  |  |                | 7.5 |                |  | $              | 40.95 |  |  |  | 81,240    |  |  | $ | 41.80 | 
|$55.38 - $58.25 |  |                | 1,076,861 |                  |  |                | 7.2 |                |  | $              | 57.01 |  |  |  | 359,286   |  |  | $ | 57.06 | 
|                |  |                |           |                  |  |                |     |                |  |                |       |  |  |  |           |  |  |   |       | 
|                |  |                | 5,376,981 |                  |  |                | 7.7 |                |  | $              | 25.21 |  |  |  | 3,067,521 |  |  | $ | 20.35 | 
|                |  |                |           |                  |  |                |     |                |  |                |       |  |  |  |           |  |  |   |       | 

Pro forma net loss information is required by
SFAS 123, computed as if the Company had accounted for its
employee stock options granted under the fair value method of
that Statement. The fair value for options granted prior to the
Companys initial public offering in November 1999 were
estimated at the date of grant

56



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##### Table of Contents



SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

using the minimum value method. Options granted
following the Companys November 1999 initial public
offering have been valued using the Black-Scholes method with an
expected stock volatility of 0.74 in 2002, 0.84 in 2001 and 0.84
in 2000. Other valuation assumptions are as follows:

|                        |  |      |     |      |  |      |     |   |  |  |     |  
|----------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                        |  | 2002 |     | 2001 |  | 2000
|                        |  |      |     |      |  |     
|Expected dividend yield |  |      | 0   | %    |  |      | 0   | % |  |  | 0   | %
|Risk-free interest rate |  |      | 3.7 | %    |  |      | 4.6 | % |  |  | 6.4 | %
|Expected life (years)   |  |      | 3.5 |      |  |      | 3.5 |   |  |  | 3.5 |  

The fair value of issuances under the Employee
Stock Purchase Plan is estimated on the issuance date using the
Black-Scholes model assuming no expected dividends and the
following weighted average assumptions for issuance made in
2002, 2001 and 2000.

|                                |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                |  | 2002 |      | 2001 |  | 2000
|                                |  |      |      |      |  |     
|Expected stock price volatility |  |      | 0.55 |      |  |      | 0.84 |   |  |  | 0.84 |  
|Risk-free interest rate         |  |      | 2.12 | %    |  |      | 4.70 | % |  |  | 6.40 | %
|Expected life (years)           |  |      | 0.71 |      |  |      | 0.62 |   |  |  | 0.50 |  

Had the Company valued its stock options and
stock purchase rights according to the fair value provisions of
SFAS 123, pro forma net income (loss) and pro forma net income
(loss) per share would have been as follows (in thousands):

|                                     |                        |                          |   |         |   |      |   |         |   |  |   |         |  
|------------------------------------ | ---------------------- | ------------------------ | - | ------- | - | ---- | - | ------- | - |  | - | ------- | -
|                                     |                        |                         
|                                     |                        | Years Ended December 31,
|                                     |                        |                         
|                                     |                        | 2002                     |   | 2001    |   | 2000
|                                     |                        |                          |   |         |   |     
|Net income (loss):                   |                        |                          |   |         |   |      |   |         |   |  |   |        
|                                     | As reported            |                          | $ | 5,286   |   |      | $ | 6,338   |   |  | $ | (922    | )
|                                     |                        |                          |   |         |   |      |   |         |   |  |   |        
|                                     | Pro forma for SFAS 123 |                          | $ | (16,815 | ) |      | $ | (18,359 | ) |  | $ | (19,419 | )
|                                     |                        |                          |   |         |   |      |   |         |   |  |   |        
|Basic net income (loss) per share:   |                        |                          |   |         |   |      |   |         |   |  |   |        
|                                     | As reported            |                          | $ | 0.17    |   |      | $ | 0.21    |   |  | $ | (0.03   | )
|                                     |                        |                          |   |         |   |      |   |         |   |  |   |        
|                                     | Pro forma for SFAS 123 |                          | $ | (0.55   | ) |      | $ | (0.61   | ) |  | $ | (0.67   | )
|                                     |                        |                          |   |         |   |      |   |         |   |  |   |        
|Diluted net income (loss) per share: |                        |                          |   |         |   |      |   |         |   |  |   |        
|                                     | As reported            |                          | $ | 0.17    |   |      | $ | 0.20    |   |  | $ | (0.03   | )
|                                     |                        |                          |   |         |   |      |   |         |   |  |   |        
|                                     | Pro forma for SFAS 123 |                          | $ | (0.55   | ) |      | $ | (0.61   | ) |  | $ | (0.67   | )
|                                     |                        |                          |   |         |   |      |   |         |   |  |   |        

During the years ended December 31, 1999 and
1998, in connection with the grant of certain share options to
employees, the Company recorded deferred stock compensation of
$4,070,000 and $605,000, respectively, representing the
difference between the exercise price and the deemed fair value
of the Companys common stock on the date such stock
options were granted. Deferred compensation is included as a
reduction of stockholders equity and is being amortized to
expense on a graded vesting method. During the years ended
December 31, 2002, 2001 and 2000, the Company recorded
amortization of deferred stock compensation expense of
approximately $168,000, $411,000 and $760,000, respectively. At
December 31, 2002, the Company had a total of approximately
$92,000 remaining to be amortized over the corresponding vesting
period of each respective option.

57



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SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The amortization of deferred stock compensation,
combined with the expense associated with stock options granted
to non-employees, has been included in the following items in
the accompanying statements of operations (in thousands):

|                                |       |                          |     |      |  |      |     |     |  |   |     |     | 
|------------------------------- | ----- | ------------------------ | --- | ---- |  | ---- | --- | --- |  | - | --- | --- | 
|                                |       |                         
|                                |       | Years Ended December 31,
|                                |       |                         
|                                |       | 2002                     |     | 2001 |  | 2000
|                                |       |                          |     |      |  |     
|Research & development          |       | $                        | 125 |      |  | $    | 308 |     |  | $ | 588 |    
|Sales, general & administrative |       |                          | 43  |      |  |      | 103 |     |  |   | 172 |    
|                                |       |                          |     |      |  |      |     |     |  |   |     |    
|                                | Total |                          | $   | 168  |  |      | $   | 411 |  |   | $   | 760 | 
|                                |       |                          |     |      |  |      |     |     |  |   |     |    

5.   Income Taxes

The provision for (benefit from) income taxes
consisted of the following (in thousands):

|                           |         |                          |       |       |       |      |       |        |       |   |   |   |   | 
|-------------------------- | ------- | ------------------------ | ----- | ----- | ----- | ---- | ----- | ------ | ----- | - | - | - | - | 
|                           |         |                         
|                           |         | Years Ended December 31,
|                           |         |                         
|                           |         | 2002                     |       | 2001  |       | 2000
|                           |         |                          |       |       |       |     
|Current:                   |         |                          |       |       |       |      |       |        |       |   |   |  
|                           | Federal |                          | $     | 1,952 |       |      | $     | 2,437  |       |   | $ |  |  
|                           | State   |                          |       | 119   |       |      |       | 905    |       |   |   |  |  
|                           | Foreign |                          |       | 28    |       |      |       | 10     |       |   |   |  |  
|                           |         |                          |       |       |       |      |       |        |       |   |   |  
|                           |         | Total                    |       |       | 2,099 |      |       |        | 3,352 |   |   |   |  | 
|Deferred:                  |         |                          |       |       |       |      |       |        |       |   |   |  
|                           | Federal |                          |       | 558   |       |      |       | (2,046 | )     |   |   |  |  
|                           |         |                          |       |       |       |      |       |        |       |   |   |  
|Provision for income taxes |         | $                        | 2,657 |       |       | $    | 1,306 |        |       | $ |  |  
|                           |         |                          |       |       |       |      |       |        |       |   |   |  

Tax benefits resulting from the exercise of
nonqualified stock options and the disqualifying dispositions of
shares issued under the Companys stock-based compensation
plans reduced taxes payable by approximately $3,963,000 in 2002
and $336,000 in 2001. Such benefits were credited to additional
paid-in capital.

The reconciliation of federal statutory income
tax rate to the Companys effective income tax rate is as
follows (in thousands):

|                                                           |  |                          |       |      |  |      |        |   |  |   |      |  
|---------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ------ | - |  | - | ---- | -
|                                                           |  |                         
|                                                           |  | Years Ended December 31,
|                                                           |  |                         
|                                                           |  | 2002                     |       | 2001 |  | 2000
|                                                           |  |                          |       |      |  |     
|Expected provision (benefit) at federal statutory
    rate |  | $                        | 2,780 |      |  | $    | 2,676  |   |  | $ | (323 | )
|State taxes, net of federal benefit                        |  |                          | 119   |      |  |      | 588    |   |  |   |     |  
|Research & development credits                             |  |                          | (50   | )    |  |      | (207   | ) |  |   |     |  
|Valuation allowance (utilized)/provided                    |  |                          | (338  | )    |  |      | (1,990 | ) |  |   | 323  |  
|Other individually immaterial items                        |  |                          | 146   |      |  |      | 239    |   |  |   |     |  
|                                                           |  |                          |       |      |  |      |        |   |  |   |      |  
|Provision for income taxes                                 |  | $                        | 2,657 |      |  | $    | 1,306  |   |  | $ |     |  
|                                                           |  |                          |       |      |  |      |        |   |  |   |      |  

58



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SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax assets and liabilities are as
follows (in thousands):

|                                            |                                     |                           |        |       |       |   |        |       |       | 
|------------------------------------------- | ----------------------------------- | ------------------------- | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|                                            |                                     |                          
|                                            |                                     | December 31,             
|                                            |                                     |                          
|                                            |                                     | 2002                      |        | 2001 
|                                            |                                     |                           |        |      
|Deferred tax assets:                        |                                     |                           |        |       |       |   |        |      
|                                            | Net operating loss carryforwards    |                           | $      | 53    |       |   | $      | 2,213 |      
|                                            | Research & development tax credits  |                           |        |      |       |   |        | 480   |      
|                                            | Deferred revenue                    |                           |        | 897   |       |   |        | 2,046 |      
|                                            | Capitalized research & development  |                           |        | 719   |       |   |        | 367   |      
|                                            | Depreciation                        |                           |        | 3,101 |       |   |        | 2,988 |      
|                                            | Warranty reserve                    |                           |        | 773   |       |   |        | 399   |      
|                                            | Other individually immaterial items |                           |        | 1,582 |       |   |        | 1,098 |      
|                                            |                                     |                           |        |       |       |   |        |      
|                                            |                                     | Total deferred tax assets |        |       | 7,125 |   |        |       | 9,591 | 
|Valuation allowance for deferred tax assets |                                     |                           | (5,637 | )     |       |   | (7,545 | )    
|                                            |                                     |                           |        |       |       |   |        |      
|Total deferred tax assets                   |                                     |                           | 1,488  |       |       |   | 2,046  |      
|Deferred tax liabilities:                   |                                     |                           |        |       |       |   |        |      
|                                            | Investment holdings                 |                           |        | (89   | )     |   |        | (336  | )    
|                                            |                                     |                           |        |       |       |   |        |      
|Net deferred tax assets                     |                                     | $                         | 1,399  |       |       | $ | 1,710  |      
|                                            |                                     |                           |        |       |       |   |        |      

SFAS No. 109 provides for the recognition of
deferred tax assets if realization of such assets is more likely
than not. Based upon the weight of available evidence, which
includes the Company historical operating performance, the
Company has provided a valuation allowance against deferred tax
assets that it determined may not be realizable as of
December 31, 2002.

The net valuation allowance decreased by
approximately $1,908,000 and $1,998,000, and increased by
approximately $2,200,000 during the years ended
December 31, 2002, 2001 and 2000, respectively.

The valuation allowance for deferred tax assets
includes approximately $352,000 attributable to stock option
deductions, the benefit of which will be credited to
stockholders equity upon realization.

As of December 31, 2002, the Company had a
federal net operating loss carryforward of approximately
$144,000. The net operating loss carryforward will expire in
2020, if not utilized.

Utilization of the net operating loss
carryforwards and credits may be subject to an annual limitation
due to the ownership change limitations provided by the Internal
Revenue Code of 1986, as amended, and similar state provisions.
The annual limitation may result in the expiration of net
operating losses and credits before utilization.



|   |                   
|-- | ------------------
|6. | Segment Disclosure

Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and
Related Information (SFAS 131), 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 that is evaluated regularly by the Chief Operating
Decision Maker (CODM) in deciding how to allocate resources and
in assessing performance. Symyx CODM is the Chief
Executive Officer. The CODM evaluates the performance of the
Company based on consolidated profit or loss from operations
before income

59



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SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

taxes. For the purpose of making operating
decisions, the CODM primarily considers financial information
presented on a consolidated basis accompanied by disaggregated
information about revenues. Revenue is defined as revenues from
external customers.

Symyx allocates research personnel time to each
collaboration arrangement on a full-time-equivalent basis but
does not allocate actual research and development expenses to
each collaboration or business segment. The Company does not
assess segment performance below the revenue level or allocate
sales, general or administrative expenses or assets to the
individual segments and, therefore, financial performance
including depreciation and amortization and capital expenditures
is not reported on a segment basis.

Symyx provides research services to its partners
through its Industry Collaborations business, offers access to
select proprietary instruments and associated software and
intellectual property, through its Discovery Tools business and
licenses discovered materials and methodology patents through
its Licensing business.

The disaggregated financial information reviewed
by the CODM is as follows. The Company segregates Industry
Collaboration revenue into four categories for purposes of
internal management reporting: Chemicals, Industrial Polymers,
Electronic Materials, and Life Sciences. The CODM reviews this
revenue information on an industry basis as well as by Business
Unit (in thousands).

|                                   |                      |                          |        |        |        |      |        |        |        |  |        |        |        | 
|---------------------------------- | -------------------- | ------------------------ | ------ | ------ | ------ | ---- | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|                                   |                      |                         
|                                   |                      | Years Ended December 31,
|                                   |                      |                         
|                                   |                      | 2002                     |        | 2001   |        | 2000
|                                   |                      |                          |        |        |        |     
|Industry Collaborations:           |                      |                          |        |        |        |      |        |        |        |  |        |       
|                                   | Chemicals            |                          | $      | 19,446 |        |      | $      | 25,900 |        |  | $      | 21,124 |       
|                                   | Electronic Materials |                          |        | 5,933  |        |      |        | 3,604  |        |  |        | 3,350  |       
|                                   | Life Science         |                          |        | 5,520  |        |      |        | 7,606  |        |  |        | 3,560  |       
|                                   | Industrial Polymers  |                          |        | 2,900  |        |      |        | 5,519  |        |  |        | 6,965  |       
|                                   |                      |                          |        |        |        |      |        |        |        |  |        |       
|                                   |                      |                          | 33,799 |        |        |      | 42,629 |        |        |  | 34,999 |       
|Discovery Tools                    |                      |                          | 27,561 |        |        |      | 14,466 |        |        |  | 5,919  |       
|Licensing of Patents and Materials |                      |                          | 3,461  |        |        |      | 2,925  |        |        |  | 2,400  |       
|                                   |                      |                          |        |        |        |      |        |        |        |  |        |       
|                                   |                      | Total                    |        | $      | 64,821 |      |        | $      | 60,020 |  |        | $      | 43,318 | 
|                                   |                      |                          |        |        |        |      |        |        |        |  |        |       

Discovery Tools revenue included $25,877,000 of
product sales, $1,598,000 of service revenues, and $86,000 of
software license revenue for the year ended December 31,
2002 and $14,216,000 of product sales and $250,000 of software
license revenue for the year ended December 31, 2001.

All significant long-lived assets were
geographically located in the United States for all periods
presented. All revenue is generated in the United States for all
periods presented, but is presented in the table below based on
the physical location of Symyx customers (in thousands).

60



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##### Table of Contents



SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                         
| | ------------------------
| | Geographic
    Area Data

|               |       |                          |        |        |  |      |        |        |  |   |        |        | 
|-------------- | ----- | ------------------------ | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|               |       |                         
|               |       | Years Ended December 31,
|               |       |                         
|               |       | 2002                     |        | 2001   |  | 2000
|               |       |                          |        |        |  |     
|United States  |       | $                        | 56,872 |        |  | $    | 34,926 |        |  | $ | 17,510 |       
|Japan          |       |                          | 6,525  |        |  |      | 5,618  |        |  |   | 2      |       
|France         |       |                          | 800    |        |  |      | 1,000  |        |  |   |       |       
|Germany        |       |                          | 316    |        |  |      | 13,222 |        |  |   | 17,277 |       
|Mexico         |       |                          | 117    |        |  |      | 3,221  |        |  |   | 2,712  |       
|Netherlands    |       |                          | 112    |        |  |      |       |        |  |   |       |       
|United Kingdom |       |                          | 79     |        |  |      | 2,033  |        |  |   | 4,717  |       
|Switzerland    |       |                          |       |        |  |      |       |        |  |   | 1,100  |       
|               |       |                          |        |        |  |      |        |        |  |   |        |       
|               | Total |                          | $      | 64,821 |  |      | $      | 60,020 |  |   | $      | 43,318 | 
|               |       |                          |        |        |  |      |        |        |  |   |        |       

7. Related Party Transactions

Prior to its initial public offering, the Company
implemented a program under which directors, executive officers
and certain other employees were permitted to purchase
restricted stock or to exercise stock options pursuant to full
recourse promissory notes. The notes bear interest between 4.6%
and 6.0% per annum and are due and payable on the earlier of
120 days after termination of employment or on various
dates beginning in February 2003 and ending in August 2004. In
1999 and 1998, loans were made in the amount of $361,000 and
$398,000, respectively, pursuant to this program. During 2002,
2001 and 2000, $5,000, $211,000 and $68,000 of these promissory
notes were repaid, respectively and $0, $0, and $42,000
respectively, were cancelled due to repurchase of the underlying
stock.

8. Financial Instruments

The Company has not entered into any derivative
contracts at December 31, 2002. The following is a summary
of the Companys risk management strategies and the effect
of these strategies on the Companys consolidated financial
statements.



| |                              
| | -----------------------------
| | Concentrations of credit risk

Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist
principally of cash and investments. The Company does not carry
a significant trade accounts receivable balance. The Company
maintains cash and cash equivalents and available-for-sale
investments in various corporate debt securities, money market
funds and U.S. Treasury notes. The Companys policy is
designed to limit exposure to any one institution or company.
The relative credit standing of the note holders is monitored to
ensure compliance with the Companys investment strategy.
The Company does not require collateral on these financial
instruments.



| |            
| | -----------
| | Investments

The following methods and assumptions were used
by the Company in estimating its fair value disclosures for
financial instruments:

Cash and cash
equivalents:The carrying amount
reported in the balance sheet for cash and cash equivalents
approximates its fair value.

Accounts receivable and accounts
payable:The carrying amounts reported
in the balance sheet for accounts receivable and accounts
payable approximate their fair value.

61



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SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Available-for-sale
securities:The fair values for
available-for-sale equity securities are based on quoted market
prices. The fair values for available-for-sale securities
together with information in relation to their maturity dates is
included in Note 1 to these financial statements.

9. Subsequent Events

In January 2003, the Company incorporated, under
the laws of the State of California, a wholly owned subsidiary,
Symyx Discovery Tools, Inc. Symyx Discovery Tools, Inc. has been
established for the purpose of handling all sales, distribution
and after sales support and maintenance functions relating to
the Companys existing Discovery Tools business.

In January 2003, the Company incorporated, under
the laws of the State of Delaware, a wholly owned subsidiary,
Symyx Therapeutics, Inc. Symyx Therapeutics, Inc. has been
established for the purpose of exploiting the Companys
technology for certain therapeutic applications.



|    |                                                
|--- | -----------------------------------------------
|10. | Quarterly Results of Operations
    (Unaudited)

The following is a summary of the quarterly
results of operations for the years ended December 31, 2002
and 2001 (in thousands, except per share amounts).

|                                 |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |       |        | 
|-------------------------------- | --------------------------------- | ------------------------ | ------ | -------- | ------ | --------- | ------ | -------- | ------ | - | ------ | ----- | ------ | - | ------ | ----- | ------ | 
|                                 |                                   |                         
|                                 |                                   | Three Months Ended      
|                                 |                                   |                         
|                                 |                                   | Mar. 31,                 |        | Jun. 30, |        | Sept. 30, |        | Dec. 31,
|                                 |                                   |                          |        |          |        |           |        |         
|2002                             |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |      
|Total revenues                   |                                   | $                        | 14,512 |          |        | $         | 13,985 |          |        | $ | 14,441 |       |        | $ | 21,883 |      
|Operating expenses:              |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |      
|                                 | Cost of products sold             |                          |        | 645      |        |           |        | 794      |        |   |        | 1,209 |        |   |        | 3,591 |       
|                                 | Research and development          |                          |        | 10,231   |        |           |        | 9,630    |        |   |        | 9,617 |        |   |        | 9,829 |       
|                                 | Sales, general and administrative |                          |        | 3,461    |        |           |        | 3,232    |        |   |        | 3,422 |        |   |        | 4,477 |       
|                                 |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |      
|                                 |                                   | Total operating expenses |        |          | 14,337 |           |        |          | 13,656 |   |        |       | 14,248 |   |        |       | 17,897 | 
|Interest income (expense), net   |                                   |                          | 1,019  |          |        |           | 871    |          |        |   | 705    |       |        |   | 665    |      
|                                 |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |      
|Income before income tax expense |                                   |                          | 1,194  |          |        |           | 1,200  |          |        |   | 898    |       |        |   | 4,651  |      
|Income tax expense               |                                   |                          | 585    |          |        |           | 516    |          |        |   | 54     |       |        |   | 1,502  |      
|                                 |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |      
|Net income                       |                                   | $                        | 609    |          |        | $         | 684    |          |        | $ | 844    |       |        | $ | 3,149  |      
|                                 |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |      
|Basic net income per share       |                                   | $                        | 0.02   |          |        | $         | 0.02   |          |        | $ | 0.03   |       |        | $ | 0.10   |      
|                                 |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |      
|Diluted net income per share     |                                   | $                        | 0.02   |          |        | $         | 0.02   |          |        | $ | 0.03   |       |        | $ | 0.10   |      
|                                 |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |      

62



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SYMYX TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                 |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |       |        | 
|-------------------------------- | --------------------------------- | ------------------------ | ------ | -------- | ------ | --------- | ------ | -------- | ------ | - | ------ | ----- | ------ | - | ------ | ----- | ------ | 
|                                 |                                   |                         
|                                 |                                   | Three Months Ended      
|                                 |                                   |                         
|                                 |                                   | Mar. 31,                 |        | Jun. 30, |        | Sept. 30, |        | Dec. 31,
|                                 |                                   |                          |        |          |        |           |        |         
|2001                             |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |      
|Total revenues                   |                                   | $                        | 14,013 |          |        | $         | 15,370 |          |        | $ | 15,856 |       |        | $ | 14,781 |      
|Operating expenses:              |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |      
|                                 | Cost of products sold             |                          |        | 2,286    |        |           |        | 1,829    |        |   |        | 1,609 |        |   |        | 867   |       
|                                 | Research and development          |                          |        | 10,305   |        |           |        | 9,998    |        |   |        | 9,752 |        |   |        | 8,663 |       
|                                 | Sales, general and administrative |                          |        | 2,874    |        |           |        | 3,003    |        |   |        | 3,306 |        |   |        | 3,341 |       
|                                 |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |      
|                                 |                                   | Total operating expenses |        |          | 15,465 |           |        |          | 14,830 |   |        |       | 14,667 |   |        |       | 12,871 | 
|Interest income (expense), net   |                                   |                          | 1,667  |          |        |           | 1,426  |          |        |   | 1,468  |       |        |   | 896    |      
|                                 |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |      
|Income before income tax expense |                                   |                          | 215    |          |        |           | 1,966  |          |        |   | 2,657  |       |        |   | 2,806  |      
|Income tax expense               |                                   |                          | 35     |          |        |           | 259    |          |        |   | 457    |       |        |   | 555    |      
|                                 |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |      
|Net income                       |                                   | $                        | 180    |          |        | $         | 1,707  |          |        | $ | 2,200  |       |        | $ | 2,251  |      
|                                 |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |      
|Basic net income per share       |                                   | $                        | 0.01   |          |        | $         | 0.06   |          |        | $ | 0.07   |       |        | $ | 0.07   |      
|                                 |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |      
|Diluted net income per share     |                                   | $                        | 0.01   |          |        | $         | 0.05   |          |        | $ | 0.07   |       |        | $ | 0.07   |      
|                                 |                                   |                          |        |          |        |           |        |          |        |   |        |       |        |   |        |      

63



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##### Table of Contents








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

None




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The information required by this item is hereby
incorporated by reference from the information under the
captions Election of Directors and Executive
Officers contained in the Companys definitive Proxy
Statement, to be filed with the Securities and Exchange
Commission no later than 120 days from the end of the
Companys last fiscal year in connection with the
solicitation of proxies for its 2003 Annual Meeting of
Stockholders (the Proxy Statement). The information
required by Section 16(a) is incorporated by reference from
the information under the caption Compliance with
Section 16(a) of the Securities Exchange Act of 1934
in the Proxy Statement.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information required by this item is
incorporated by reference from the information under the caption
Executive Officer Compensation in the Proxy
Statement.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

The information required by this item is
incorporated by reference to the information under the caption
Security Ownership of Certain Beneficial Owners and
Management in the Proxy Statement.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information required by this item is
incorporated by reference to the information under the caption
Certain Relationships and Related Transactions in
the Proxy Statement.






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures



|    |                                                     
|--- | ----------------------------------------------------
|(a) | Evaluation of disclosure controls and
    procedures



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Based on an evaluation of the Companys
    disclosure controls and procedures as of a date within
    90 days of the filing date of this Annual Report on
    Form 10-K, the Companys Chief Executive Officer and
    Chief Financial Officer have concluded that the Companys
    disclosure controls and procedures (as defined in
    Rules 13a-14(c) and 15d-14(c) under the Securities Exchange
    Act of 1934 (the Exchange Act)) are effective to
    ensure that information required to be disclosed by the Company
    in reports that it files or submits under the Exchange Act is
    recorded, processed, summarized and reported within the time
    periods specified in Securities and Exchange Commission rules
    and forms.



|    |                             
|--- | ----------------------------
|(b) | Changes in internal controls



| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There have been no significant changes in our
    internal controls or in other factors that could significantly
    affect internal controls subsequent to the date we carried out
    this evaluation.

64



---



##### Table of Contents






PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(A)1. Financial Statements

The following Financial Statements of Symyx
Technologies, Inc. and Report of Ernst & Young LLP, have
been filed as part of this Form 10-K. See index to
Financial Statements under Item 8, above:



| |                                               
| | ----------------------------------------------
| | Index to Consolidated Financial
    Statements

Report of Ernst & Young LLP, Independent
Auditors

Consolidated Balance Sheets at December 31,
2002 and 2001


Consolidated Statements of Operations for the
Three Years Ended December 31, 2002, 2001 and 2000


Consolidated Statement of Stockholders
Equity for the Three Year Period Ended December 31, 2002


Consolidated Statements of Cash Flows for the
Three Years Ended December 31, 2002, 2001 and 2000


Notes to Consolidated Financial Statements


(A)2. Financial Statement
Schedules

All schedules are omitted because they are not
applicable or the required information is shown in the Financial
Statements or the notes thereto.

(A)3. Exhibits

Refer to (C) below.

(B) Reports on Form 8-K

The Company did not file any reports on
Form 8-K during the period covered by this report.

65



---



##### Table of Contents



(C) Exhibits

|        |            |                         |  |                                                                                                                                                                                                                                                                                       
|------- | ---------- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |            |                        
|Number  |            | Description of Document
|        |            |                        
|        | 3.1(1)     |                         |  | Amended and Restated Certificate of Incorporation                                                                                                                                                                                                                                     
|        | 3.2(2)     |                         |  | Bylaws of Symyx                                                                                                                                                                                                                                                                       
|        | 4.1(3)     |                         |  | Specimen Common Stock Certificate                                                                                                                                                                                                                                                     
|        | 5.1(3)     |                         |  | Opinion of Wilson Sonsini Goodrich & Rosati,
    Professional Corporation                                                                                                                                                                                                             
|        | 10.1(3)    |                         |  | Restated Investors Rights Agreement dated
    March 27, 1998                                                                                                                                                                                                                          
|        | 10.2(3)    |                         |  | 1996 Stock Plan and forms of agreements thereunder                                                                                                                                                                                                                                    
|        | 10.3(3)    |                         |  | 1997 Stock Plan and forms of agreements thereunder                                                                                                                                                                                                                                    
|        | 10.4(3)    |                         |  | 1999 Employee Stock Purchase Plan                                                                                                                                                                                                                                                     
|        | 10.5(3)    |                         |  | Form of Director and Executive Officer
    Indemnification Agreement                                                                                                                                                                                                                  
|        | 10.6(3)    |                         |  | Form of Change of Control Agreement between Symyx
    and the following individuals: Steven D. Goldby,
    Isy Goldwasser, Jeryl L. Hilleman, and W. Henry
    Weinberg                                                                                                               
|        | 10.7(3)    |                         |  | Standard Industrial/ Commercial Single-Tenant
    Lease dated November 15, 1996 between Symyx and Patrick and
    Bette Ng, Co-Trustees for The Ng Living Trust, for office
    space located at 3100 Central Expressway, Santa Clara,
    California, and addenda and inserts thereto
|        | 10.7(a)(3) |                         |  | First Amendment to Lease between Symyx and
    Patrick and Bette Ng, Co-Trustees for The Ng Living Trust                                                                                                                                                                              
|        | 10.8(3)    |                         |  | Collaboration Agreement dated March 1, 1998
    between Symyx and Bayer AG                                                                                                                                                                                                            
|        | 10.8(a)(3) |                         |  | Amendment No. 1 dated May 1, 1998 to
    Collaboration Agreement between Symyx and Bayer AG                                                                                                                                                                                           
|        | 10.8(b)(3) |                         |  | Amendment No. 2 dated November 1, 1998
    to Collaboration Agreement between Symyx and Bayer AG                                                                                                                                                                                      
|        | 10.8(c)(3) |                         |  | Amendment No. 3 dated January 1, 1999
    to Collaboration Agreement between Symyx and Bayer AG                                                                                                                                                                                       
|        | 10.8(d)(3) |                         |  | Amendment No. 4 dated September 15,
    1999 to Collaboration Agreement between Symyx and Bayer AG                                                                                                                                                                                    
|        | 10.9(3)    |                         |  | Celanese-Symyx Collaboration Agreement dated
    August 1, 1998 between Symyx and Celanese Ltd.                                                                                                                                                                                       
|        | 10.10(3)   |                         |  | Collaborative Research and License Agreement
    dated January 1, 1999 between Symyx and The Dow Chemical
    Company                                                                                                                                                                 
|        | 10.11(3)   |                         |  | License Agreement dated June 22, 1995
    between Symyx and Lawrence Berkeley Laboratory, on behalf of The
    Regents of the University of California                                                                                                                                
|        | 10.12(3)   |                         |  | License and Supply Agreement effective
    August 6, 1999 between Symyx and Argonaut Technologies, Inc.                                                                                                                                                                               
|        | 10.13(4)   |                         |  | Lease by and between East Arques Sunnyvale, LLC
    and Symyx Technologies, Inc. for the premises at
    1263 E. Arques, Sunnyvale, California, and addenda and
    inserts thereto                                                                                                   
|        | 10.14(5)   |                         |  | 2001 Nonstatutory Stock Option Plan                                                                                                                                                                                                                                                   
|        | 21 (6)     |                         |  | List of Subsidiaries                                                                                                                                                                                                                                                                  
|        | 23.1(6)    |                         |  | Consent of Ernst & Young LLP,
    Independent Auditors                                                                                                                                                                                                                                



---



|    |                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to exhibit 3.1(b)
    filed with Registrants Registration Statement on
    Form S-1 (File No. 333-87453), as amended.                                     
|   
|(2) | Incorporated by reference to the same number
    exhibit filed with Registrants Quarterly Report on
    Form 10-Q for the three and nine month periods ended
    September 30, 2002.
|   
|(3) | Incorporated by reference to the same number
    exhibit filed with Registrants Registration Statement on
    Form S-1 (File No. 333-87453), as amended.                            
|   
|(4) | Incorporated by reference to the same number
    exhibit filed with Registrants Annual Report on
    Form 10-K for the year ended December 31, 2000.                                
|   
|(5) | Incorporated by reference to exhibit 4.1
    filed with Registrants Registration Statement on
    Form S-8 (File No. 333-82166).                                                    
|   
|(6) | Filed herewith                                                                                                                                                                       

66



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.



| |                                               
| | ----------------------------------------------
| | SYMYX TECHNOLOGIES, INC.                      
| | (Registrant)                                  
|
| | /s/ STEVEN D. GOLDBY                          
| |                                               
| | Steven D. Goldby                              
| | Chairman of the Board, Chief Executive Officer
| | (Principal Executive Officer)                 

Date: March 11, 2003



| |                                               
| | ----------------------------------------------
| | /s/ JERYL L. HILLEMAN                         
| |                                               
| | Jeryl L. Hilleman                             
| | Senior Vice President, Chief Financial Officer
| | (Principal Financial and Accounting Officer)  

Date: March 11, 2003

67



---



##### Table of Contents



CERTIFICATION OF CHIEF EXECUTIVE
OFFICER

PURSUANT TO SECTION 302(a) OF THE
SARBANES-OXLEY ACT OF 2002

I, Steven D. Goldby, Chief Executive Officer of
Symyx Technologies, Inc., certify that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this annual report on
    Form 10-K of Symyx Technologies, Inc.;                                                                                                                                                                                                                                                            
|  
|2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                       



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about effectiveness of the disclosure controls and procedures
    based on our evaluation as of the Evaluation Date;                                                                                                                                    



|   |                                                                                                                                                                                                                                                                
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent functions):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officers
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



| |     |                     
| | --- | --------------------
| | By: | /s/ STEVEN D. GOLDBY

| |                        
| | -----------------------
| |                        
| | Steven D. Goldby       
| | Chairman of the Board, 
| | Chief Executive Officer

Date: March 11, 2003

68



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##### Table of Contents



CERTIFICATION OF CHIEF FINANCIAL
OFFICER

PURSUANT TO SECTION 302(a) OF THE
SARBANES-OXLEY ACT OF 2002

I, Jeryl L. Hilleman, Senior Vice President and
Chief Financial Officer of Symyx Technologies, Inc., certify
that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this annual report on
    Form 10-K of Symyx Technologies, Inc.;                                                                                                                                                                                                                                                            
|  
|2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                       



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      



| |    |                                                                                                                                                                         
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c) | presented in this annual report our conclusions
    about effectiveness of the disclosure controls and procedures
    based on our evaluation as of the Evaluation Date;



|   |                                                                                                                                                                                                                                                                
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent functions):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officers
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



| |     |                      
| | --- | ---------------------
| | By: | /s/ JERYL L. HILLEMAN

| |                        
| | -----------------------
| |                        
| | Jeryl L. Hilleman      
| | Senior Vice President, 
| | Chief Financial Officer

Date: March 11, 2003

69



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##### Table of Contents



CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002

I, Steven D. Goldby, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report of Symyx Technologies, Inc. on Form 10-K for
the period ending December 31, 2002 fully complies with the
requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that information contained in such
Annual Report on Form 10-K fairly presents in all material
respects the financial condition and results of operations of
Symyx Technologies, Inc.



| |     |                     
| | --- | --------------------
| | By: | /s/ STEVEN D. GOLDBY

| |                        
| | -----------------------
| |                        
| | Steven D. Goldby       
| | Chairman of the Board, 
| | Chief Executive Officer

I, Jeryl L. Hilleman, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report of Symyx Technologies, Inc. on Form 10-K for
the period ending December 31, 2002 fully complies with the
requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that information contained in such
Annual Report on Form 10-K fairly presents in all material
respects the financial condition and results of operations of
Symyx Technologies, Inc.



| |     |                      
| | --- | ---------------------
| | By: | /s/ JERYL L. HILLEMAN

| |                        
| | -----------------------
| |                        
| | Jeryl L. Hilleman      
| | Senior Vice President, 
| | Chief Financial Officer

70



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##### Table of Contents



POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
Steven D. Goldby and Jeryl L. Hilleman, or either of them, each
with the power of substitution, his attorney-in-fact, to sign
any amendments to this Form 10-K (including post-effective
amendments), and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|          |  |                                                |  |                                                                                                               |  |               
|--------- |  | ---------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | --------------
|          |  |                                                |  |                                                                                                              
|Signature |  | Title                                          |  | Date                                                                                                         
|          |  |                                                |  |                                                                                                              
|         
|         
|By        |  | /s/ STEVEN D. GOLDBYSteven D. Goldby           |  | Chief Executive Officer
    and Chairman of the
    Board (Principal
    Executive Officer)                   |  | March 11, 2003
|         
|By        |  | /s/ JERYL L. HILLEMANJeryl L. Hilleman         |  | Senior Vice President
    and Chief Financial
    Officer(Principal
    Financial and
    Accounting Officer) |  | March 11, 2003
|         
|By        |  | /s/ THOMAS R. BARUCHThomas R. Baruch           |  | Director                                                                                                      |  | March 11, 2003
|         
|By        |  | /s/ SAMUEL D. COLELLASamuel D. Colella         |  | Director                                                                                                      |  | March 11, 2003
|         
|By        |  | /s/ MARTIN S. GERSTELMartin S. Gerstel         |  | Director                                                                                                      |  | March 11, 2003
|         
|By        |  | /s/ KENNETH J. NUSSBACHERKenneth J. Nussbacher |  | Director                                                                                                      |  | March 11, 2003
|         
|By        |  | /s/ MARIO M. ROSATIMario M. Rosati             |  | Director                                                                                                      |  | March 11, 2003
|         
|By        |  | /s/ PETER G. SCHULTZPeter G. Schultz           |  | Director                                                                                                      |  | March 11, 2003

71



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##### Table of Contents



INDEX TO EXHIBITS

|        |            |                         |  |                                                                                                                                                                                                                                                                                       
|------- | ---------- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |            |                        
|Number  |            | Description of Document
|        |            |                        
|        | 3.1(1)     |                         |  | Amended and Restated Certificate of Incorporation                                                                                                                                                                                                                                     
|        | 3.2(2)     |                         |  | Bylaws of Symyx                                                                                                                                                                                                                                                                       
|        | 4.1(3)     |                         |  | Specimen Common Stock Certificate                                                                                                                                                                                                                                                     
|        | 5.1(3)     |                         |  | Opinion of Wilson Sonsini Goodrich &
    Rosati, Professional Corporation                                                                                                                                                                                                             
|        | 10.1(3)    |                         |  | Restated Investors Rights Agreement dated
    March 27, 1998                                                                                                                                                                                                                          
|        | 10.2(3)    |                         |  | 1996 Stock Plan and forms of agreements thereunder                                                                                                                                                                                                                                    
|        | 10.3(3)    |                         |  | 1997 Stock Plan and forms of agreements thereunder                                                                                                                                                                                                                                    
|        | 10.4(3)    |                         |  | 1999 Employee Stock Purchase Plan                                                                                                                                                                                                                                                     
|        | 10.5(3)    |                         |  | Form of Director and Executive Officer
    Indemnification Agreement                                                                                                                                                                                                                  
|        | 10.6(3)    |                         |  | Form of Change of Control Agreement between Symyx
    and the following individuals: Steven D. Goldby,
    Isy Goldwasser, Jeryl L. Hilleman, and W. Henry
    Weinberg                                                                                                               
|        | 10.7(3)    |                         |  | Standard Industrial/ Commercial Single-Tenant
    Lease dated November 15, 1996 between Symyx and Patrick and
    Bette Ng, Co-Trustees for The Ng Living Trust, for
    office space located at 3100 Central Expressway, Santa
    Clara, California, and addenda and inserts thereto
|        | 10.7(a)(3) |                         |  | First Amendment to Lease between Symyx and
    Patrick and Bette Ng, Co-Trustees for The Ng Living
    Trust                                                                                                                                                                          
|        | 10.8(3)    |                         |  | Collaboration Agreement dated March 1, 1998
    between Symyx and Bayer AG                                                                                                                                                                                                            
|        | 10.8(a)(3) |                         |  | Amendment No. 1 dated May 1, 1998 to
    Collaboration Agreement between Symyx and Bayer AG                                                                                                                                                                                           
|        | 10.8(b)(3) |                         |  | Amendment No. 2 dated November 1, 1998
    to Collaboration Agreement between Symyx and Bayer AG                                                                                                                                                                                      
|        | 10.8(c)(3) |                         |  | Amendment No. 3 dated January 1, 1999
    to Collaboration Agreement between Symyx and Bayer AG                                                                                                                                                                                       
|        | 10.8(d)(3) |                         |  | Amendment No. 4 dated September 15,
    1999 to Collaboration Agreement between Symyx and Bayer AG                                                                                                                                                                                    
|        | 10.9(3)    |                         |  | Celanese-Symyx Collaboration Agreement dated
    August 1, 1998 between Symyx and Celanese Ltd.                                                                                                                                                                                       
|        | 10.10(3)   |                         |  | Collaborative Research and License Agreement
    dated January 1, 1999 between Symyx and The Dow Chemical
    Company                                                                                                                                                                 
|        | 10.11(3)   |                         |  | License Agreement dated June 22, 1995
    between Symyx and Lawrence Berkeley Laboratory, on behalf of The
    Regents of the University of California                                                                                                                                
|        | 10.12(3)   |                         |  | License and Supply Agreement effective
    August 6, 1999 between Symyx and Argonaut Technologies, Inc.                                                                                                                                                                               
|        | 10.13(4)   |                         |  | Lease by and between East Arques Sunnyvale, LLC
    and Symyx Technologies, Inc. for the premises at
    1263 E. Arques, Sunnyvale, California, and addenda and
    inserts thereto                                                                                                   
|        | 10.14(5)   |                         |  | 2001 Nonstatutory Stock Option Plan                                                                                                                                                                                                                                                   
|        | 21 (6)     |                         |  | List of Subsidiaries                                                                                                                                                                                                                                                                  
|        | 23.1(6)    |                         |  | Consent of Ernst & Young LLP,
    Independent Auditors                                                                                                                                                                                                                                



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|    |                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to exhibit 3.1(b)
    filed with Registrants Registration Statement on
    Form S-1 (File No. 333-87453), as amended.                                     
|   
|(2) | Incorporated by reference to the same number
    exhibit filed with Registrants Quarterly Report on
    Form 10-Q for the three and nine month periods ended
    September 30, 2002.
|   
|(3) | Incorporated by reference to the same number
    exhibit filed with Registrants Registration Statement on
    Form S-1 (File No. 333-87453), as amended.                            
|   
|(4) | Incorporated by reference to the same number
    exhibit filed with Registrants Annual Report on
    Form 10-K for the year ended December 31, 2000.                                
|   
|(5) | Incorporated by reference to exhibit 4.1
    filed with Registrants Registration Statement on
    Form S-8 (File No. 333-82166).                                                    
|   
|(6) | Filed herewith