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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549







FORM 10-K



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|    |  |                                                                                     
|--- |  | ------------------------------------------------------------------------------------
|(X) |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

or

|     |  |                                                                                                           
|---- |  | ----------------------------------------------------------------------------------------------------------
|(  ) |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from ___________ to ___________

Commission file number 000-27765

SYMYX TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 77-0397908
(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, $0.001 Par Value

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

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

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

The approximate aggregate market value of the registrants common stock
held by non-affiliates as of June 30, 2003 (the last business day of the
registrants most recently completed second fiscal quarter) was $512,194,967,
based on the closing price for the common stock on the Nasdaq National Market
on such date.

As of March 1, 2004, 31,820,271 shares of Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the Proxy Statement to be filed in connection with the
2004 Annual Meeting of Stockholders are incorporated by reference into Part III
of this Annual Report on Form 10-K where indicated.



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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                                 
|              | ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT                                               
|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 OF OPERATION
|              | 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
|              | ITEM 9A. CONTROLS AND PROCEDURES                                                            
|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. PRINCIPAL ACCOUNTING FEES AND SERVICES                                             
|PART IV      
|              | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                   
|SIGNATURES   
|EXHIBIT INDEX
|EXHIBIT 3.2  
|EXHIBIT 14   
|EXHIBIT 21   
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 



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TABLE OF CONTENTS

|           |  |                                                                                      |  |     
|---------- |  | ------------------------------------------------------------------------------------ |  | ----
|           |  |                                                                                      |  | PAGE
|ITEM       |  |                                                                                      |  |     
|           |  | Part I                                                                               |  |     
|1.         |  | Business                                                                             |  | 1   
|2.         |  | Properties                                                                           |  | 15  
|3.         |  | Legal Proceedings                                                                    |  | 15  
|4.         |  | Submission of Matters to a Vote of Security Holders                                  |  | 15  
|4A.        |  | Executive Officers of the Registrant                                                 |  | 15  
|           |  | Part II                                                                              |  |     
|5.         |  | Market for Registrants Common Equity and Related Stockholder Matters                |  | 17  
|6.         |  | Selected Financial Data                                                              |  | 19  
|7.         |  | Managements Discussion and Analysis of Financial
Condition and Results of Operation |  | 21  
|7A.        |  | Quantitative and Qualitative Disclosures about Market Risk                           |  | 33  
|8.         |  | Financial Statements and Supplementary Data                                          |  | 34  
|9.         |  | Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure |  | 62  
|9A.        |  | Controls and Procedures                                                              |  | 62  
|           |  | Part III                                                                             |  |     
|10.        |  | Directors and Executive Officers of the Registrant                                   |  | 63  
|11.        |  | Executive Compensation                                                               |  | 63  
|12.        |  | Security Ownership of Certain Beneficial Owners and Management                       |  | 63  
|13.        |  | Certain Relationships and Related Transactions                                       |  | 63  
|14.        |  | Principal Accounting Fees and Services                                               |  | 63  
|           |  | Part IV                                                                              |  |     
|15.        |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                     |  | 64  
|Signatures |  |                                                                                      |  | 67  

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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 Operation, 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 continue relationships and 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-throughput experimentation to the discovery of innovative materials for
chemical, life science, electronics, consumer goods and automotive industries.
We work together with companies seeking to transform their search for better
products and processes through research collaborations, Discovery Tools® sales,
and the license of materials, intellectual property, and software.

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 of high-throughput materials discovery and have
developed broad proprietary technologies to increase research productivity for
ourselves and our customers. Through our innovation, we have built a
comprehensive intellectual property portfolio of 160 issued patents and over
400 patent applications covering methodology, composition of matter,
instrumentation and software.

Our diversified business model provides complementary ways for us to work
with our customers and to further our innovation and growth. In our Industry
Collaborations business, we perform research for clients typically in exclusive
fields, for which we receive profitable research funding and royalties or other
payments from the commercialization of materials we discover. In these
collaborations and in our internal research efforts, we seek to discover a
broad range of materials, including catalysts for the manufacturing of
chemicals and plastics, polymers for life science and industrial applications,
and phosphors and other electronic materials.

Our Discovery Tools business focuses on providing instruments and software
to automate processes in pharmaceutical pre-clinical testing and in chemical
research. Our Intellectual Property Licensing business reflects revenue from
license fees and royalties received from license of our discovered materials,
our patents and technology, and our software.

Industry Background

Materials and their diverse properties contribute in vital ways 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.

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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 todays growth expectations and the trend to
shorter product life cycles.

We believe that we can transform chemical, life science, electronics,
consumer goods and automotive companies by discovering break-through new
materials faster and more cost-effectively than by using traditional methods.

Symyx Solution

Our technologies include the rapid creation of large directed libraries of
materials that are then synthesized and tested using our fully integrated
high-throughput primary and secondary screens. In conventional terms, creating
and testing a single material is considered one experiment. 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 successful 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 and to discover a new polymer we need to screen for physical
and mechanical properties such as molecular weight and toughness.

As a pioneer in high-throughput 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

We are committed to retaining our position as the leading company using
and supplying high-throughput technologies for the discovery of new materials
with commercially valuable properties. We have developed several complementary
businesses in support of that objective, including Industry Collaborations,
Discovery Tools, and Intellectual Property Licensing.

Industry Collaborations

Our Industry Collaborations business contributes greatly toward the

development of our intellectual property, including patents covering
methodology, composition of matter, instrumentation and software. In our
Industry Collaborations, we perform research for customers typically in
exclusive fields, for which we receive profitable research funding and
downstream royalties or other payments on materials we discover.

We provide the platform technologies and effort, and our partners have
rights to develop and commercialize resulting materials within their defined
field of license. 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 we apply proprietary high-throughput technologies aimed at making
break-through discoveries leading to improved commercial processes and
materials. Our technology innovations can help chemical companies address the
rising costs and manufacturing challenges from low-cost producers overseas. We
are working with BP, Celanese, The Dow Chemical Company, ExxonMobil, 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

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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 typically through
quarterly research payments. These payments are made over the term of the
research contract, which is generally one to five years. If a new material is
discovered and commercialized, we typically receive royalties or other
payments.

Under the typical collaborative arrangement, we own all inventions
conceived and reduced to practice solely by us in connection with activities
under the agreements and all know-how and intellectual property rights related
thereto; and we and the collaborative partner jointly own all inventions made,
conceived, reduced to practice, or otherwise developed jointly by our employees
or consultants and those of the collaborative partner in connection with
activities under the agreement and all know-how and intellectual property
rights related thereto. Our collaborative partner typically receives exclusive
rights in the defined field of the collaborative agreement. The agreements are
typically cancelable only in the event of breach by either party or for other
defined, limited reasons.

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 partners extending current programs and
undertaking new research initiatives as well as from new partners.

Discovery Tools

Through our Discovery Tools business, we leverage the power of our
inventions by selling integrated instruments and software to pharmaceutical
companies to speed and improve preclinical testing of drug candidates, and to
chemical companies for catalyst and other research. Our Discovery Tools may
include high-throughput reactors, screening systems, robots and analytical
equipment, all integrated with our Renaissance® software, a suite of software
designed to facilitate the process of designing, executing, and evaluating
chemical and material research and development.

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

We primarily sell our Discovery Tools systems and workflows to
pharmaceutical and chemical companies. Pharmaceutical companies use our
instrumentation and workflows to automate and improve pre-clinical research
including drug polymorph, solubility studies and process optimization. The
systems we sell to pharmaceutical companies include pre-formulation workflows,
solubility workflows, high pressure or HiP reactors, and Parallel Pressure
Reactors, or PPR®. Chemical companies use our Discovery Tools systems and
workflows to automate and integrate their material discovery and research and
development processes. The systems we sell to chemical companies include our
PPR system, fixed bed reactors and high-temperature rapid GPC system as well as
a variety of workflows designed to test polymer physical properties.

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 of new materials. Our discoveries demonstrate the ability of
our high-throughput research technologies to address a range of materials for
use in a variety of chemical and other industrial applications. As a result, we
have created a growing pipeline of materials that have emerged from our
discovery platform. As of the end of 2003, our discoveries include one
commercialized material, 12 development candidates and 12 emerging development
candidates. Going forward, we expect that royalties from the commercialization
of Symyx-discovered materials should play an increasing role in our overall
financial success.

Licensing: Patents

Launched in mid-2002, our patent licensing program leverages Symyxs
established leadership in the field of high-throughput materials discovery,
including our broad-based research capabilities, validated instruments and

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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 high-throughput materials research on a smaller scale -
generally increasing their research productivity by approximately 10-fold.
Because our patent licenses typically 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.

Licensing: Technology

Symyxs Technology Licensing program licenses know-how, methods, reactors,
instrumentation, sensors, and software throughout a diverse set of markets and
industries. For instance, Symyxs Parallel Pressure Reactor (PPR) technology is
licensed to Argonaut Technologies, Inc. and commercialized as the
Endeavor®
system to perform parallel synthesis of large and small molecules in the
chemical and pharmaceutical industry. Outside the laboratory environment, Symyx
has licensed a unique solid-state mechanical resonator (sensor) technology to
Hella KG, a leading supplier to the automotive industry. Hella KG is now
beginning to commercialize this novel sensor technology for in-situreal-time
monitoring of motor oil quality in automobiles.

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 seek to
discover materials that match these criteria.

Synthesis

The materials research process begins with chemists theories about what
elements from the periodic table of elements might be combined to create new
materials with desired properties. However, while chemists working in
traditional labs have to choose the few experiments they will perform on a
given day, our chemists have the ability to perform hundreds or thousands of
experiments 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.

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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-throughput 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.

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 high-throughput approach:



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

During 2003, we were issued 71 patents. Our patent portfolio as of year
end 2003 consisted of 160 issued patents, including 141 U.S. patents and 11
European patents, and more than 400 patent applications pending worldwide.
These patents and applications cover composition of matter, instruments, and
methodology, and include issued patents with broad claims in high-throughput
combinatorial methodologies. We co-own with Lawrence Berkeley National
Laboratory, on behalf of The Regents of the University of California, 8 of the
issued United States patents and 4 of the issued patents in other countries. 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.

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Markets

Symyx provides chemical, life sciences, technology, consumer goods and
automotive customers with materials and chemical solutions to increase their
R&D productivity by achieving better results with shorter timelines and lower
costs. We realize value through collaborative research, the sale of Discovery
Tools and the license of intellectual property, software and materials. Our
businesses market opportunities fall into two areas: our customers R&D
expenditures and the market for sales of materials.

R&D Expenditures

Our customers in the various industries we serve have an aggregate R&D
expenditure in excess of $10 billion annually and need to achieve an increased
return on their R&D investments. These investments include personnel costs in
basic research and discovery, purchases of instruments, workflows and tools,
and deployment of supporting informatics and software environments.

Material markets

The materials we discover cover a broad range of applications; including
catalysts for the manufacture of plastics and commodity chemicals, polymers for
industrial, consumer goods and life science applications and diverse electronic
materials. Each of these materials typically can generate annual worldwide
sales in excess of $100 million, and in many cases in excess of $500 million.
An example of the market for catalytic materials is catalysts for the
production of certain plastic materials, polypropylenes, of which more than 70
billion pounds - approximately $25-35 billion - are sold worldwide each year
for applications ranging from packaging and microwave cookware to clothing.
Example of electronic materials include phosphors, materials used in color
televisions and more recently in such products as flat panel displays,
light-emitting diodes for indoor/outdoor lighting, and computed radiography
systems. Phosphors are a fast-growing $400 million global business.

Competition

We are aware of some chemical companies with internal high-throughput
materials discovery programs. In addition, two European based companies,
Avantium Technologies and HTE may also use high-throughput approaches to
materials discovery. Furthermore, certain instrument manufacturers, including
Chemspeed, Zinsser and others, offer instruments that may compete with our
Discovery Tools business. Because high-throughput materials experimentation is
an emerging field, competition for our Industry Collaborations and Discovery
Tools businesses could increase. In addition, other companies may be addressing
the same materials targets as Symyx and would represent competition for our
discovered materials.

Backlog of Committed Revenue

As of December 31, 2003, our customers have contractually committed to
2004 funding of approximately $60 million for the purchase by customers of
Discovery Tools systems, licenses to our intellectual property and for research
and development with existing collaborative partners.

Employees

As of December 31, 2003, we had a total of 235 employees, including 167
scientific and technical employees and 68 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 us. Additional risks and uncertainties not presently known
to us or that we currently deem immaterial also may impair our business
operations.

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We may not be able to maintain and grow a profitable business

Our ability to maintain or increase our rate of profitability and grow our
business is dependent on our ability to:



| |  |  | make discoveries that our partners or we choose to commercialize
and generate an ongoing revenue stream;
| | - |  | --------------------------------------------------------------------------------------------------------
|
| |  |  | extend current collaboration research and development arrangements and add new ones;                    
|
| |  |  | secure new Discovery Tools customers; and                                                               
|
| |  |  | add additional licensees of both our software and intellectual property.                                

Our ability to achieve our objectives and maintain or increase the
profitability of our business will depend in large part on 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. 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. A failure to achieve the necessary customer
acceptance and extend current collaborations and add new ones, secure new
Discovery Tools customers, and add additional licensees of our software and
intellectual property will adversely affect our revenue and profitability and
may cause our stock price to decrease.

Failure to successfully commercialize our discoveries would reduce our revenues
and profitability and harm our business

For us to achieve and sustain a significant level of profitability, we
must make discoveries with significant commercial potential.

If we license our discovered materials or methodologies to other
companies, we typically do not receive royalties on sales of products by our
partners until they have commenced commercial sales of products containing our
materials or produced using our methods. 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.

In order for us to commercialize development candidates ourselves, 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.

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

Over time we have expanded our base of customers and collaborative
partners, however, substantial portions of our revenues are generated from a
small number of companies. In particular, ExxonMobil accounted for 34% of our
revenue in the year ended December 31, 2003, and our largest three customers
accounted for 58% of our revenue for the year ended December 31, 2003. We
expect that ExxonMobil and a select list of other 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
cancellation of the ExxonMobil strategic alliance or loss of another
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 are dependent on the research and development activities of companies in the
chemical, life science, electronics, consumer goods and automotive 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 science, electronics, consumer goods and automotive industries
depends on our customers ability and willingness to invest in research and
development. A majority of our revenues are attributable to our collaborative
arrangements with chemical, life science, electronics, consumer goods and
automotive companies. These contracts generally expire after a fixed period of
time. If we cannot renew existing contracts or enter into new collaborative
arrangements, our business and operating results may be harmed.

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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 chemical, life science,
electronics, consumer goods and automotive 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 these 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 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, which our partners or we choose to commercialize.
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. As of
December 31, 2003, our partners had successfully commercialized only one of our
discovered materials. 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 our discovered materials would likely decline and
harm our business and operating results.

We conduct research programs for our own account and for a number of
collaborative partners, and any conflicts between these programs would harm our
business

Our strategy includes conducting research programs for our own account as
well as for collaborative partners. 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 programs for our own account and through programs funded by a
collaborator, or through programs funded by different collaborators. However,
conflicts between a collaborator and us, or between collaborators, could
potentially arise, particularly if we were to discover a material in one of our
own programs that was a potential target of one of our collaborative programs.
In this event, we may become involved in a dispute with our collaborators
regarding the material. Disputes of this nature could harm the relationship
between us and our collaborators, and concerns regarding our proprietary
research programs could also affect our ability to enter into new collaborative
relationships and cause our revenues and operating results to decline.

We have a limited number of contracts for the sale of Discovery Tools systems
and for the licensing of intellectual property, software, technologies 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, software, technologies 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,
software, technologies 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;
| | - |  | ---------------------------------------------------------------------------

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| |  |  | 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 high-throughput
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 and design software and workflows
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
Discovery Tools and Intellectual Property Licensing, or if the sales or build
cycles for Discovery Tools systems lengthen unexpectedly, our revenues may
decline or not grow as anticipated and our results from operations may be
harmed.

Although we believe that our Industry Collaborations, Discovery Tools and
Intellectual Property 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 aspects 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:



| |  |  | obtaining and enforcing intellectual property rights under a variety of foreign laws;                                                               
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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;
|
| |  |  | longer payment cycles and greater difficulty in accounts receivable collection;                                                                     
|
| |  |  | potentially adverse taxes;                                                                                                                          
|
| |  |  | 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 have a material
adverse effect on our business, financial condition and operating results or
require us to modify our current business practices.

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

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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 certain of 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.

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 our patent portfolio is enforced,
intellectual property litigation can result in significant expenses,
distractions and risks that might cause us to lose focus or may otherwise 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 and
obtaining a commercially significant outcome as a result of such infringement.

Intellectual property litigation can be successful 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, with validity maintained during enforcement.

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. Also,
our intellectual property must protect our overall business structure by
allowing us to obtain commercially significant results from litigation,
including compensation and/or relevant injunctions.

Enforcement proceedings can adversely affect our intellectual property
while causing us to spend resources on the enforcement proceeding. As our
licensing activities matured, we have become involved in arbitration and
litigation to assert and defend our intellectual property. These matters may
become material and more such matters may arise. Successful conclusion of
these matters will assist our business, while unsuccessful conclusion of these
matters will cost us time and money and possibly loss of rights. Our ability to
manage the costs of these proceedings, while obtaining a successful result,
cannot be predicted.

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.

Our commercial success also depends in part on ensuring we do not infringe
patents or other 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

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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 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, which would harm our operating results.

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 that 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,
including those 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;                                                                                       
|
| |  |  | the size and timing of intellectual property 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

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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. As a result of these possible
fluctuations, it is difficult for our management to predict or estimate our
quarterly or annual operating results and to give accurate guidance. 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 2003, we established Symyx Therapeutics, Inc., or STI, to focus the use
of our existing technologies on the discovery and development of new
therapeutics. Isy Goldwasser, our President and Chief Operating Officer, has
also been appointed as a director of STI. In the future, we may also 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 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. Although 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.

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 encouraging 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 the
additional expense associated with these grants 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.

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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. As we seek to expand our operations, the hiring of qualified
scientific and technical personnel will be difficult, as the number of people
with experience in high-throughput materials science is limited and we may face
competition for qualified professionals. 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 high-throughput materials science is increasingly
competitive. We are aware of companies that may apply their expertise in
high-throughput chemistry to their internal materials research and development
programs. In addition, there are companies focusing on aspects of
high-throughput 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 high-throughput
materials science is an emerging field, competition from additional entrants
may increase. Our Discovery Tools business is facing increasing competition
from a number of instrument manufacturing companies. To the extent these
companies develop competing technologies, our own technologies, methodologies,
systems and workflows could be rendered obsolete or noncompetitive. 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. 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, industry standards or other customer
requirements would harm our future revenues and our business and operating
results.

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.

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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. We do not carry earthquake insurance on the property that we own and
the insurance we do 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.

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;                                                                                     
|
| |  |  | 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 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.

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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. In March 2003, we exercised our option
to purchase for $3.9 million the land and the 32,800 square foot building at
3100 Central Expressway, Santa Clara, CA. We lease the remaining office spaces
under lease agreements that expire from April 2006 to September 2010.




ITEM 3. LEGAL PROCEEDINGS

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

We may become subject to legal proceedings, claims, and litigation arising
in the ordinary course of business. Although 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 our
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 had alleged that Applied
Biosystems owes us certain payments and related obligations pursuant to the
Agreement. Applied Biosystems raised certain counter claims against us to also
be resolved in the arbitration. This proceeding concluded in December 2003 with
the claims of both parties being dismissed.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None




ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is information regarding our executive officers as of
March 1, 2004:

|                          |  |     |    |                           |  |                                                  
|------------------------- |  | --- | -- | ------------------------- |  | -------------------------------------------------
|Name of Executive Officer |  | Age |    | Position with the Company
|                          |  |     |    |                          
|Steven D. Goldby (1)      |  |     | 63 |                           |  | Chairman of the Board and Chief Executive Officer
|Jeryl L. Hilleman (2)     |  |     | 46 |                           |  | Senior Vice President and Chief Financial Officer
|Isy Goldwasser (3)        |  |     | 34 |                           |  | President and Chief Operating Officer            
|W. Henry Weinberg (4)     |  |     | 59 |                           |  | Senior Vice President and Chief Technical Officer

15



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---

(1)  Before joining Symyx in 1998, Mr. Goldby served as Chief Executive
Officer for more than ten years at MDL Information Systems, Inc., the
enterprise software company that pioneered scientific information management.
Earlier, Mr. Goldby held various management positions at ALZA Corporation,
including President of Alza Pharmaceuticals. Mr. Goldby received a B.S. degree
in chemistry from the University of North Carolina and a law degree from
Georgetown University Law Center.

(2)  Prior to joining Symyx in 1997, Ms. Hilleman served as Vice President
Finance and Chief Financial Officer with two public biotechnology companies,
Geron Corporation and Cytel Corporation. Ms. Hilleman received her A.B. degree
from Brown University and an M.B.A. from the Wharton Graduate School of
business. She was selected as a 1999 Crown Fellow by the Aspen Institute.

(3)  Mr. Goldwasser has been with Symyx since its founding and was
appointed President and Chief Operating Officer in 1998. He is responsible for
Symyxs business development efforts. Mr. Goldwasser received a B.S. degree in
chemical engineering from the Massachusetts Institute of Technology and an M.S.
degree in chemical engineering from Stanford University.

(4)  Dr. Weinberg joined Symyx in 1996, and also remains an Adjunct
Professor at the University of California, Santa Barbara. Dr. Weinberg is a
member of the National Academy of Engineering and is widely known for his work
on aspects of surface chemistry and physics, heterogeneous catalysis, and
combinatorial materials science. Dr. Weinberg obtained a B.S. degree in
chemical engineering from the University of South Carolina, and a Ph.D. in
chemical engineering from the University of California, Berkeley.

There is no family relationship between any of the foregoing executive
officers or between any of such executive officers and any of the members of
our Board of Directors. Our executive officers serve at the discretion of the
Board.

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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
|               |  |     |       |     
|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 | 
|2003           |  |     |       |      |  |   |       | 
|First Quarter  |  | $   | 11.57 |      |  | $ | 15.53 | 
|Second Quarter |  | $   | 14.38 |      |  | $ | 18.01 | 
|Third Quarter  |  | $   | 16.00 |      |  | $ | 25.63 | 
|Fourth Quarter |  | $   | 17.50 |      |  | $ | 23.50 | 

As of March 1, 2004, there were approximately 161 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.

Equity Compensation Plan Information

The following table provides information as of December 31, 2003 with
respect to our shares of common stock that may be issued under our existing
equity compensation plans.

|                                                           |       |         |                         |           |  |  |    |         |                   |                        |                           |       |  |  |                      |           |  |  |    |   | 
|---------------------------------------------------------- | ----- | ------- | ----------------------- | --------- |  |  | -- | ------- | ----------------- | ---------------------- | ------------------------- | ----- |  |  | -------------------- | --------- |  |  | -- | - | 
|                                                           |       |         |                         |           |  |  |    |         |                   |                        |                           |       |  |  | C                    |           |  |  |   
|                                                           |       |         |                         |           |  |  |    |         |                   |                        |                           |       |  |  | Number of Securities |           |  |  |   
|                                                           |       |         | A                       |           |  |  |    |         | B                 |                        | Remaining Available for   |       |  |  |                     
|                                                           |       |         | Number of Securities to |           |  |  |    |         | Weighted Average  |                        | Future Issuance Under     |       |  |  |                     
|                                                           |       |         | Be Issued Upon          |           |  |  |    |         | Exercise Price of |                        | Equity Compensation Plans |       |  |  |                     
|                                                           |       |         | Exercise of Outstanding |           |  |  |    |         | Outstanding       |                        | (Excluding Securities     |       |  |  |                     
|Plan Category                                              |       | Options |                         |           |  |  |    | Options |                   | Reflected in Column A) |                           |       |  | 
|                                                           |       |         |                         |           |  |  |    |         |                   |                        |                           |       |  | 
|Equity Compensation Plans Approved by
Shareholders (1)     |       |         | 6,527,000               |           |  |  | (3 | )       |                   | $                      | 23.33                     |       |  |  | 1,644,165            |           |  |  | (4 | )
|Equity Compensation Plans Not Approved by
Shareholders (2) |       |         |                        |           |  |  |    |         |                   | $                      |                          |       |  |  | 1,000,000            |           |  |  |    |  
|                                                           |       |         |                         |           |  |  |    |         |                   |                        |                           |       |  |  |                      |           |  |  |    |  
|                                                           | Total |         |                         | 6,527,000 |  |  |    |         |                   |                        | $                         | 23.33 |  |  |                      | 2,644,165 |  |  |    |   | 
|                                                           |       |         |                         |           |  |  |    |         |                   |                        |                           |       |  |  |                      |           |  |  |    |  



---

|(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, 2003, no options have been granted under this Plan.

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##### Table of Contents



|(3) |  | Excludes purchase rights accruing under our 1999 Employee Stock
Purchase Plan which has a stockholder approved reserve of 1,207,961
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, 2003, an aggregate of 1,207,961
shares of common stock were available for issuance under the 1999
Employee Stock Purchase Plan and 436,204 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.

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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, 2003 and 2002 and for each of the three years in the period ended
December 31, 2003 are derived from audited financial statements included
elsewhere in this Annual Report on Form 10-K. The table should be read in
conjunction with Item 7, Managements Discussion and Analysis of Financial
Condition and Results of Operation, and Item 8, Financial Statements and
Supplementary Data.

|                                                             |                                              |                          |        |                                  |        |      |        |                                       |        |      |        |        |        |   |        |        |        |   |        |        |        | 
|------------------------------------------------------------ | -------------------------------------------- | ------------------------ | ------ | -------------------------------- | ------ | ---- | ------ | ------------------------------------- | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                             |                                              |                          |        | For the Years Ended December 31,
|                                                             |                                              |                          |        |                                 
|                                                             |                                              |                          |        | 1999                             |        | 2000 |        | 2001                                  |        | 2002 |        | 2003  
|                                                             |                                              |                          |        |                                  |        |      |        |                                       |        |      |        |       
|                                                             |                                              |                          |        |                                  |        |      |        | (In thousands, except per share data) |        |      |        |       
|Consolidated Statements of Operations Data:                  |                                              |                          |        |                                  |        |      |        |                                       |        |      |        |        |        |   |        |        |        |   |        |       
|Revenue:                                                     |                                              |                          |        |                                  |        |      |        |                                       |        |      |        |        |        |   |        |        |        |   |        |       
|                                                             | Service revenue from research collaborations |                          | $      | 30,497                           |        |      | $      | 34,999                                |        |      | $      | 42,629 |        |   | $      | 35,397 |        |   | $      | 37,018 |       
|                                                             | Service revenue  related party              |                          |        |                                 |        |      |        |                                      |        |      |        |       |        |   |        |       |        |   |        | 1,671  |       
|                                                             | Product sales                                |                          |        |                                 |        |      |        | 5,919                                 |        |      |        | 14,216 |        |   |        | 25,877 |        |   |        | 14,458 |       
|                                                             | License fees and royalties                   |                          |        |                                 |        |      |        | 2,400                                 |        |      |        | 3,175  |        |   |        | 3,547  |        |   |        | 9,816  |       
|                                                             |                                              |                          |        |                                  |        |      |        |                                       |        |      |        |        |        |   |        |        |        |   |        |       
|                                                             |                                              | Total Revenue            |        |                                  | 30,497 |      |        |                                       | 43,318 |      |        |        | 60,020 |   |        |        | 64,821 |   |        |        | 62,963 | 
|Operating expenses:                                          |                                              |                          |        |                                  |        |      |        |                                       |        |      |        |        |        |   |        |        |        |   |        |       
|                                                             | Cost of products sold                        |                          |        |                                 |        |      |        | 2,775                                 |        |      |        | 6,591  |        |   |        | 6,239  |        |   |        | 2,937  |       
|                                                             | Research and development                     |                          |        | 26,628                           |        |      |        | 35,898                                |        |      |        | 38,718 |        |   |        | 39,307 |        |   |        | 38,387 |       
|                                                             | Research and development  related party     |                          |        |                                 |        |      |        |                                      |        |      |        |       |        |   |        |       |        |   |        | 1,671  |       
|                                                             | Sales, general and administrative            |                          |        | 7,624                            |        |      |        | 11,798                                |        |      |        | 12,524 |        |   |        | 14,592 |        |   |        | 14,933 |       
|                                                             |                                              |                          |        |                                  |        |      |        |                                       |        |      |        |        |        |   |        |        |        |   |        |       
|                                                             |                                              | Total operating expenses |        |                                  | 34,252 |      |        |                                       | 50,471 |      |        |        | 57,833 |   |        |        | 60,138 |   |        |        | 57,928 | 
|                                                             |                                              |                          |        |                                  |        |      |        |                                       |        |      |        |        |        |   |        |        |        |   |        |       
|Income (loss) from operations                                |                                              |                          | (3,755 | )                                |        |      | (7,153 | )                                     |        |      | 2,187  |        |        |   | 4,683  |        |        |   | 5,035  |       
|Interest income                                              |                                              |                          | 2,542  |                                  |        |      | 7,155  |                                       |        |      | 6,117  |        |        |   | 3,269  |        |        |   | 1,996  |       
|Interest and other expense                                   |                                              |                          | (934   | )                                |        |      | (924   | )                                     |        |      | (660   | )      |        |   | (9     | )      |        |   |       |       
|                                                             |                                              |                          |        |                                  |        |      |        |                                       |        |      |        |        |        |   |        |        |        |   |        |       
|Income (loss) before income tax expense                      |                                              |                          | (2,147 | )                                |        |      | (922   | )                                     |        |      | 7,644  |        |        |   | 7,943  |        |        |   | 7,031  |       
|Income tax expense                                           |                                              |                          |       |                                  |        |      |       |                                       |        |      | 1,306  |        |        |   | 2,657  |        |        |   | 1,290  |       
|                                                             |                                              |                          |        |                                  |        |      |        |                                       |        |      |        |        |        |   |        |        |        |   |        |       
|Net income (loss)                                            |                                              | $                        | (2,147 | )                                |        | $    | (922   | )                                     |        | $    | 6,338  |        |        | $ | 5,286  |        |        | $ | 5,741  |       
|                                                             |                                              |                          |        |                                  |        |      |        |                                       |        |      |        |        |        |   |        |        |        |   |        |       
|Basic net income (loss) per share                            |                                              | $                        | (0.27  | )                                |        | $    | (0.03  | )                                     |        | $    | 0.21   |        |        | $ | 0.17   |        |        | $ | 0.18   |       
|                                                             |                                              |                          |        |                                  |        |      |        |                                       |        |      |        |        |        |   |        |        |        |   |        |       
|Shares used in computing basic net income (loss) per share   |                                              |                          | 8,087  |                                  |        |      | 28,873 |                                       |        |      | 29,904 |        |        |   | 30,647 |        |        |   | 31,199 |       
|                                                             |                                              |                          |        |                                  |        |      |        |                                       |        |      |        |        |        |   |        |        |        |   |        |       
|Diluted net income (loss) per share                          |                                              | $                        | (0.27  | )                                |        | $    | (0.03  | )                                     |        | $    | 0.20   |        |        | $ | 0.17   |        |        | $ | 0.18   |       
|                                                             |                                              |                          |        |                                  |        |      |        |                                       |        |      |        |        |        |   |        |        |        |   |        |       
|Shares used in computing diluted net income (loss) per share |                                              |                          | 8,087  |                                  |        |      | 28,873 |                                       |        |      | 31,196 |        |        |   | 31,638 |        |        |   | 32,470 |       
|                                                             |                                              |                          |        |                                  |        |      |        |                                       |        |      |        |        |        |   |        |        |        |   |        |       

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|                                                         |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|-------------------------------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                         |  | December 31,  
|                                                         |  |               
|                                                         |  | 1999           |         | 2000 |  | 2001 |         | 2002 |  | 2003
|                                                         |  |                |         |      |  |      |         |      |  |     
|                                                         |  | (In thousands)
|Consolidated Balance Sheet Data:                         |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Cash, cash equivalents and available-for-sale securities |  | $              | 119,270 |      |  | $    | 111,040 |      |  | $    | 113,326 |  |  | $ | 118,020 |  |  | $ | 138,698 | 
|Working capital                                          |  |                | 102,093 |      |  |      | 98,139  |      |  |      | 101,925 |  |  |   | 118,363 |  |  |   | 131,154 | 
|Total assets                                             |  |                | 148,305 |      |  |      | 146,221 |      |  |      | 151,070 |  |  |   | 157,368 |  |  |   | 177,536 | 
|Long-term obligations, less current portion              |  |                | 6,729   |      |  |      | 3,010   |      |  |      |        |  |  |   |        |  |  |   |        | 
|Total stockholders equity                               |  |                | 119,943 |      |  |      | 123,651 |      |  |      | 134,497 |  |  |   | 145,483 |  |  |   | 159,438 | 

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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Forward Looking Statement

This Managements Discussion and Analysis of Financial Condition and
Results of Operation and other parts of this Annual Report on 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
Risk Factors.

All percentage amounts and ratios were calculated using the underlying
data in thousands. Operating results for the year ended December 31, 2003, 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 Annual
Report on Form 10-K.

Overview

We have been a public company for four years, and have built upon our
broad technology platform to establish ourselves as a profitable company with
several complementary operating businesses. Since our initial public offering
in 1999, our revenue has increased at a compounded average annual rate of 20%,
and we have been profitable since the first quarter of 2001.

Since our inception, 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. We believe we are now well positioned to capitalize on this
investment. We believe that the drivers of our near term growth and
profitability are already in place, namely:



| |  |  | the credibility and commitment afforded by our alliance with ExxonMobil
| | - |  | -----------------------------------------------------------------------
|
| |  |  | a visible improvement in industry spending levels                      
|
| |  |  | the near-term growth potential of our royalty income stream; and       
|
| |  |  | expansion of our software business.                                    

Our 2003 financial results were mixed. On the positive side, the
ExxonMobil alliance provides a high level of committed revenue for a 5-year
period across all of our businesses. We saw some growth in our collaborations
business, through ExxonMobil and the addition of BP, Univation and 2
undisclosed partners. Our revenue from licenses and royalties grew 177% through
a variety of intellectual property, technology and software licenses. However,
in Discovery Tools, we did not sell and deliver polymorph systems to
pharmaceutical customers who were affected by reduced capital spending in the
pharmaceutical industry in 2003. Looking forward to 2004, we will be delivering
a polymorph system to Pfizer in the first quarter, we believe that
pharmaceutical capital spending is improving, and we have adopted a modular
approach to selling Discovery Tools to facilitate more timely customer
purchases.

Our businesses combined to generate total revenue for the 2003 year of $63
million, with operating income of $5 million and diluted earnings per share of
$0.18. Our earnings continue to be impacted by decreases in interest income and
variability in our effective income tax rate. For 2003, we had an effective
income tax rate of 18% versus 33% in 2002 resulting from the recognition in the
fourth quarter of 2003 of just over $1 million in benefits from

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certain of our deferred tax assets, which previously had been reserved.
Based on our current forecast for 2004, we anticipate an effective income tax
rate of approximately 40%.

During 2003, we generated positive cash flow from operations and ended the
year with $138.7 million in cash, cash equivalents and available-for-sale
securities.

Our total headcount increased from 204 employees at the end of 2001 to 213
employees at the end of 2002 to 235 employees at the end of 2003, to meet the
mix and level of staffing promised to ExxonMobil in particular.

As of December 31, 2003, our accumulated deficit was approximately $2.6
million. We may incur additional operating losses as we continue to expand
staffing, equipment and facilities. See Risk Factors.

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s financial statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United States
(GAAP). Note 1 to the Consolidated Financial Statements included under Item 8
in this Annual Report on Form 10-K, 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 Revenue and Revenue Recognition Policy

We generate revenue from services provided under research collaborations,
the sale of products, license of associated software, and provision of support
and maintenance services and the license of intellectual property. It is
possible for our customers to work with us in multiple areas of our business
and contracts may include multiple elements of service revenue, product revenue
and license revenue. In determining the basis for revenue recognition, we
first determine the fair value of any extended warranty services and defer this
revenue to be recognized over the service period. For those contracts that
involve multiple element deliverables, we identify all deliverables and
allocate revenue between the units of accounting in accordance with the
Emerging Issues Task Force consensus on Issue 00-21, or EITF 00-21,
Multiple-Deliverable Revenue Arrangements. In multiple element arrangements,
we use the residual method to allocate revenue to delivered elements once we
have established fair value for all undelivered elements.

Service revenue consists of research and development funding received from
collaborative partners as well as support and maintenance or extended warranty
agreements. Product revenue consists of payments from customers for Discovery
Tools systems, comprising hardware, associated software and intellectual
property licenses and consumables. Royalties and license fees include fees for
licensing of our software, intellectual property, proprietary materials and
technology license payments and royalties on laboratory instruments and
software sold under license by third parties.

Service Revenue

We recognize revenue from research collaboration agreements and support
and maintenance agreements 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.

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.

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Product Sales

We recognize revenue from the sale of Discovery Tools, and all related
costs of products sold are expensed, once delivery has occurred and 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. Payments received in
advance under these arrangements are recorded as deferred revenue until earned.

Software License Fees

For software licensed on an annual right to use basis, revenue is
recognized straight line over the term of the license. For revenue allocable to
the software portion of a multiple element arrangement or licensed on a
perpetual basis, we recognize revenue upon delivery of the software product to
the end-user and commencement of the license, unless we have ongoing
obligations for which fair value cannot be established or the fee is not fixed
or determinable or collectibility is not probable, in which case we recognize
revenue only when each of these criteria has been met. We consider all
arrangements with payment terms longer than twelve months not to be fixed or
determinable. If the fee is not fixed or determinable, revenue is recognized as
payments become due from the customer.

Revenue allocable to support and maintenance is recognized on a
straight-line basis over the period the support and maintenance is provided.
Our 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.

Intellectual Property License Fees and Royalties

We recognize license fee revenue 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 revenue based on reported sales by third party
licensees of products containing our materials, software and intellectual
property. If there are extended payment terms, royalty revenues are recognized
as these payments become due. Non-refundable royalties, for which there are no
further performance obligations, are recognized when due under the terms of the
agreements.

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.

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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 and establishes the accrual based, in part, by reference to actual
warranty costs incurred on similar systems. 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

We account 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, we expense all research and development costs when incurred.

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.

Accounting for Income Taxes

Income taxes have been provided using the liability method. Our effective
income tax rate for 2003 is based, in part, on the recognition of deferred tax
assets that we expect will be realized in the next year and on our projections
of future taxable income. Fluctuations in the actual outcome of these
projections 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 because 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. We review
our need for a valuation allowance on a quarterly basis and adjust our
estimated annual effective income tax rate at that time.

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 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.

Stock-Based 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.

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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 $43,000 in 2003, $168,000 in 2002, and $411,000 in 2001 in
connection with options awarded to employees. See Note 4 of Notes to
Consolidated Financial Statements for a breakdown between operating expense
categories.

We also recorded compensation expense of approximately $94,000 in 2003, $0
in 2002, and $0 in 2001 for options granted to consultants.

RESULTS OF OPERATIONS

Comparison of Years Ended December 31, 2003 and 2002

Revenue

Our total revenue in 2003 was $63.0 million, a decrease of 3% from $64.8
million in 2002. This decrease was primarily due to the decrease in our product
revenue caused by lower sales of Discovery Tools systems. Our service revenue
from research collaborations increased from $35.4 million in 2002 to $38.7
million in 2003 (including $1.7 million from a related party in 2003). Our
revenue from license fees and royalties increased 177% from $3.5 million in
2002 to $9.8 million in 2003 due to the expansion of our customer base in
licensing of materials, software and technology, in particular ExxonMobil.

ExxonMobil, Merck and an Undisclosed Partner accounted for 34%, 13%, and
11%, respectively, of total revenue for the year ended December 31, 2003.
ExxonMobil, Merck and an Undisclosed Partner accounted for 18%, 9%, and 10%,
respectively, of revenue for the same period in 2002.

We segregate revenue by: Industry Collaborations, Discovery Tools and
Intellectual Property Licensing (in thousands).

|                                        |       |   |                          |        |      |   |        |        | 
|--------------------------------------- | ----- | - | ------------------------ | ------ | ---- | - | ------ | ------ | 
|                                        |       |   | Years Ended December 31,
|                                        |       |   |                         
|                                        |       |   | 2003                     |        | 2002
|                                        |       |   |                          |        |     
|Industry Collaborations                 |       | $ | 36,125                   |        |      | $ | 28,889 |       
|Industry Collaborations  related party |       |   | 1,671                    |        |      |   |       |       
|Discovery Tools                         |       |   | 20,088                   |        |      |   | 32,621 |       
|Intellectual Property Licensing         |       |   | 5,079                    |        |      |   | 3,311  |       
|                                        |       |   |                          |        |      |   |        |       
|                                        | Total |   | $                        | 62,963 |      |   | $      | 64,821 | 
|                                        |       |   |                          |        |      |   |        |       

The reconciliation of segment revenue above to the revenue disclosed in
the Consolidated Statement of Operations is provided in Note 6, Segment
Disclosure, of Notes to the Consolidated Financial Statements.

Industry Collaboration Revenue

Industry collaboration revenue increased from $28.9 million in 2002 to
$36.1 million in 2003. The increase in industry collaboration revenue in 2003
was primarily attributable to the funding received under the new alliance
agreement we entered into with ExxonMobil effective April 2003. The increase in
industry collaboration revenue from ExxonMobil was partially offset by a
decrease in the level of funding received from Celanese.

We expect to receive over $200 million in revenue from ExxonMobil during
the 5-year term of the alliance, through our research collaborations, Discovery
Tools, and license of software and intellectual property. We believe this will
greatly contribute to our expected growth in industry collaboration revenue in
2004.

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Industry Collaboration Revenue  Related Party

In January 2003, the Company formed Symyx Therapeutics, Inc. (STI) as a
wholly owned subsidiary. In connection with the formation of STI, the Company
licensed to STI exclusive rights to certain of the Companys intellectual
property within a specific field with no cost basis to the Company, while
retaining the rights to use and commercialize certain data generated by STI
outside its field. From STIs inception through May 6, 2003, the operating
results of STI were consolidated into the Companys financial statements. On
May 6, 2003, STI completed a private financing with outside investors led by
The Sprout Group and 5am Ventures, raising an aggregate of $8 million, which
reduced the Companys ownership position in STI to approximately 46% of shares
outstanding. In November 2003, STI completed a second closing of its Series A
financing, raising an additional $2,350,000 and diluting the Companys
ownership position in STI to approximately 39% of shares outstanding.

The Company accounts for its ownership interest in STI on the equity
method as the Company and its affiliates do not control the strategic,
operating, investing and financing activities of STI. As the Companys
investment in STI has no cost basis for accounting purposes under generally
accepted accounting principles, the Company has not recorded any proportionate
share of STIs operating losses in its financial statements since the
completion of STIs initial financing.

On May 6, 2003, the Company also entered into an 18 month Collaborative
Research and License Agreement with STI. Under the terms of this Agreement, STI
pays research funding to the Company in consideration for direct costs incurred
by the Company specifically attributable to, or specifically used in
furtherance of, the research program. Research funding payments are due to the
Company at the start of each month, with an adjustment at the end of each month
for the difference between forecast and actual costs incurred. Revenue
resulting from work performed under this Research Agreement during the year
ended December 31, 2003 amounted to $1.7 million, and has been classified as
related party revenue.

Discovery Tools Revenue

The decrease in Discovery Tools revenue in 2003 was primarily due to there
being no shipments of Polymorph Discovery Tools systems in 2003.

During year 2003, we shipped Discovery Tools systems to Merck, North
Dakota State University, Battelle Memorial Institute and several other
customers. Discovery Tools revenue included $14,458,000 of product sales,
$4,775,000 of service revenue, and $855,000 of software license revenue for the
year ended December 31, 2003 and $25,877,000 of product sales, $6,659,000 of
service revenue and $85,000 of software license revenue for the year ended
December 31, 2002.

In 2004, we expect to ship a biocatalysis workflow to Merck and a
Polymorph system to Pfizer. We are currently negotiating with other chemical
and pharmaceutical companies for the sale of Discovery Tools systems. We have
also initiated separate software licensing discussions with other chemical and
pharmaceutical companies. We believe our expanding customer base will
contribute to our expected growth of Discovery Tools revenue in 2004.

Intellectual Property Licensing Revenue

Intellectual Property Licensing revenue increased 53% from $3.3 million in
2002 to $5.1 million in 2003. The increase in licensing revenue in 2003 was
primarily due to payments received from ExxonMobil and Hella KG. We believe
that the demonstrated acceptance of our high-throughput experimentation
technology by our customers will lead to the expected growth in our license fee
revenue in 2004.

In the final quarter of 2003, we received our first royalty payments from
Agfa for the sale of our commercialized material.

Cost of Products Sold

Cost of products sold was $2.9 million, or 20% of product sales revenue
for the year ended December 31, 2003, compared to $6.2 million, or 24% of
product sales revenue for the year ended December 31, 2002. The decrease in the
cost of products sold was due to the change in the product mix shipped in the
respective years.

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We have had limited sales of Discovery Tools systems and consumables to
date and the systems are often built to the customer specifications. Therefore,
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 2003,
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 current collaborative efforts             
|                    |  |                  |  |                                                            
|Dow Chemical        |  | 6/30/2004        |  | Catalysts for Polyolefins                                  
|ExxonMobil          |  | 5/31/2008        |  | Catalysts for certain commodity chemicals including olefins
|Undisclosed Partner |  | 4/30/2004        |  | Catalysts for automotive applications                      

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 65% of research & development efforts in
2003 were undertaken for collaborative projects funded by our partners, and
approximately 35% of research effort was on our own internally funded research
including development costs related to our Discovery Tools business. This
compares with approximately 63% of research & development efforts being
undertaken for collaborative projects funded by our partners, and approximately
37% of research effort on our own internally funded research including
development costs related to our Discovery Tools business during 2002. 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 2003 were $40.1 million, including
$1.7 million of direct costs of research services provided to a related party,
compared with $39.3 million in 2002, an increase of $751,000 or 2%. The
increase in 2003 was due primarily to increases in salary related expenses due
to the hiring of additional scientific and technical staff to work on research
and development projects for ExxonMobil and our related party, STI.

Research and development expenses represented 64% of total revenues in
2003 and 61% of total revenues in 2002. 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 2003 were $14.9 million, compared with $14.6 million
in 2002, an increase of $341,000 or 2%. The increase was primarily due to the
addition of a number of business development staff and their associated costs
to manage and support our growth.

Sales, general and administrative expenses represented 24% of total
revenues in 2003 and 23% of total revenues in 2002. 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.

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Net Interest Income

Net interest income represents interest income earned on our cash, cash
equivalent and available-for-sale securities. Interest income was $2.0 million
in 2003, compared with $3.3 million in 2002. This decrease was due to lower
interest rates in 2003. Interest expense was nil in 2003, compared with $9,000
in 2002.

Provision for Income Taxes

We recorded an income tax expense of $1.3 million in 2003 and $2.7 million
in 2002. Our effective income tax rate was 18.3% for fiscal year 2003 and 33.5%
for fiscal year 2002. The decrease in our effective income tax rate in 2003 was
due to the fact that we recognized approximately $1.3 million of income tax
benefits from certain of our deferred tax assets in 2003, which had previously
been reserved. We do not have a sufficient history of profitability to fully
benefit all of 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, 2003, 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, partially offset
by accelerated income tax deductions for insurance and property tax. At
December 31, 2003, we had federal net operating loss carryforwards of
approximately $3.2 million, the majority of which were attributable to stock
option deductions and whose benefit, if realized, will be recognized directly
to equity. The net operating loss carryforwards will start to expire in 2020,
if not utilized. 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, 2002 and 2001

Revenue

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 of product sales to $25.9
million in 2002, up from $14.2 million in 2001. Our service revenue from
research collaborations decreased from $42.6 million in 2001 to $35.4 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.

We segregate revenue by: Industry Collaborations, Discovery Tools and
Intellectual Property Licensing (in thousands).

|                                |       |   |                          |        |      |   |        |        | 
|------------------------------- | ----- | - | ------------------------ | ------ | ---- | - | ------ | ------ | 
|                                |       |   | Years Ended December 31,
|                                |       |   |                         
|                                |       |   | 2002                     |        | 2001
|                                |       |   |                          |        |     
|Industry Collaborations         |       | $ | 28,889                   |        |      | $ | 44,629 |       
|Discovery Tools                 |       |   | 32,621                   |        |      |   | 14,466 |       
|Intellectual Property Licensing |       |   | 3,311                    |        |      |   | 925    |       
|                                |       |   |                          |        |      |   |        |       
|                                | Total |   | $                        | 64,821 |      |   | $      | 60,020 | 
|                                |       |   |                          |        |      |   |        |       

The reconciliation of segment revenue above to the revenue disclosed in
the Consolidated Statement of Operations is provided in Note 6, Segment
Disclosure, of Notes to the Consolidated Financial Statements.

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Industry Collaboration Revenue

The decrease in industry collaboration 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, a reduction in the level of funding received from Dow and
Celanese in 2002, the conclusion of the Applied Biosystems collaboration at
December 31, 2001, the expiration of the BASF and ICI collaborations in 2001
and the conclusion of the funding received from Merck under the Polymorph
Systems development collaboration during 2002. These reductions in funding
received were partially offset by the increase in funding received under the
ExxonMobil collaboration in 2002, an increase in funding attributable to a
research collaboration with an undisclosed partner and a number of new smaller
collaborations.

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, $6,659,000 of service revenues, and
$85,000 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.

Intellectual Property Licensing Revenue

The increase in Intellectual Property 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.

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.

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.

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 and 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 and 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.

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.

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

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primarily due to the addition of a number of business development staff
and their 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.

Net Interest Income (Expense)

Net interest income (expense) represents interest income earned on our
cash, cash equivalent 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. The net operating loss utilized in fiscal 2001 was not
related to stock option deductions.

Recent Accounting Pronouncements

Multiple-Deliverable Revenue Arrangements

In November 2002, the Emerging Issues Task Force reached a consensus on
Issue 00-21, Multiple-Deliverable Revenue Arrangements. EITF 00-21 addresses
how to account for arrangements that may involve the delivery or performance of
multiple products, services and/or rights to use assets. The consensus mandates
how to identify whether goods or services or both which are to be delivered
separately in a bundled sales arrangement should be accounted for separately
because they are separate units of accounting. The guidance can affect the
timing of revenue recognition for such arrangements, even though it does not
change rules governing the timing or patterns of revenue recognition of
individual items accounted for separately. The final consensus is applicable to
agreements entered into in periods beginning after June 15, 2003 with early
adoption permitted. Additionally, companies will be permitted to apply the
consensus guidance to all existing arrangements as the cumulative effect of a
change in accounting principle in accordance with Accounting Principles Board
Opinion No. 20, Accounting Changes. There was no material effect upon our
financial position or results of operations from the adoption of the provisions
of EITF 00-21.

Applicability of AICPA Statement of Position 97-2, Software Revenue
Recognition, to Non-Software Deliverables in an Arrangement Containing
More-Than-Incidental Software

The Emerging Issues Task Force reached a consensus on Issue 03-5,
Applicability of AICPA Statement of Position 97-2, Software Revenue
Recognition, to Non-Software Deliverables in an Arrangement Containing
More-Than-Incidental Software. Issue 03-5 is applicable to arrangements
entered into after September 30, 2003. There was no material effect upon our
financial position or results of operations from the adoption of the provisions
of EITF 03-5

Consolidation of Variable Interest Entities

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 ending after December 15, 2003, to variable
interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003 in an entity known as a special purpose
entity. FIN 46 applies to public enterprises as of the beginning of the
applicable interim or annual period ending after March 15, 2004 for all other
variable interest entities. There was no impact upon our financial condition or
results from

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operations from the adoption of the initial provisions of FIN 46 and no
impact is expected upon adoption of the remaining provisions in 2004.

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 from operating activities for the year ended
December 31, 2003 and finished the year with cash, cash equivalents and
available-for-sale securities of approximately $138.7 million, an increase of
$20.7 million from December 31, 2002. The $20.7 million increase in cash, cash
equivalents and available-for-sale securities during 2003, was influenced
significantly by a $4.1 million decrease in outstanding accounts receivable and
a $4.7 million increase in deferred revenue, both of which were attributable
largely to the timing of payments for Discovery Tools systems.

As of December 31, 2003, Symyx had no long-term liabilities.

Our operating activities provided $27.2 million, $9.7 million and $16.7
million of cash in 2003, 2002 and 2001, 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 licensing,
partially offset by operating expenses. We expect that we will continue to
generate positive cash flow from our operating activities in the near future.

Net cash used in investing activities was $43.1 million, $1.6 million and
$8.6 million, respectively, in 2003, 2002 and 2001. The fluctuations from
period to period are due primarily to the timing of purchases, sales and
maturity of our available-for-sale securities. Cash used in purchases of
property and equipment was $9.7 million, $4.5 million and $11.0 million,
respectively, in 2003, 2002 and 2001. 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 $7.4 million and $2.0 million in
2003 and 2002, respectively and used cash of $3.2 million in 2001. 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 2001. The increase from 2002 to 2003 is due primarily to the fact
that employees more actively exercised stock options as our stock price
increased in 2003.

Current liabilities increased by approximately $6.2 million at December
31, 2003 as compared to December 31, 2002. The increase was due primarily to a
$4.7 million increase in deferred revenue at December 31, 2003, attributable
largely to advanced deposits on Discovery Tools Systems to be delivered in
2004.

Backlog

As of December 31, 2003, our customers have contractually committed to
2004 funding of approximately $60 million for the purchase by customers of
Discovery Tools systems, licenses to our intellectual property and for research
and development with existing collaborative partners.

Commitments

As of December 31, 2003 and 2002, our principal commitments were $11.8
million and $15.2 million, respectively. Principal commitments consisted of our
obligations under operating leases and our commitments to purchase inventory.
We will satisfy these obligations as they become due over the next seven years.

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Future commitments under the operating leases for our facilities and
purchase commitments for inventory as of December 31, 2003 are as follows (in
thousands):

|                     |       |   |        |        |        |   |           |       |           |   |                   |       |  |   |       |       |  |   |       |       | 
|-------------------- | ----- | - | ------ | ------ | ------ | - | --------- | ----- | --------- | - | ----------------- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                     |       |   | Total  |        | 1 Year |   | 2-3 Years |       | 4-5 Years |   | More Than 5 Years
|                     |       |   |        |        |        |   |           |       |           |   |                  
|Facility Commitments |       | $ | 11,653 |        |        | $ | 1,733     |       |           | $ | 3,648             |       |  | $ | 3,586 |       |  | $ | 2,686 |      
|Purchase Commitments |       |   | 101    |        |        |   | 101       |       |           |   |                  |       |  |   |      |       |  |   |      |      
|                     |       |   |        |        |        |   |           |       |           |   |                   |       |  |   |       |       |  |   |       |      
|                     | Total |   | $      | 11,754 |        |   | $         | 1,834 |           |   | $                 | 3,648 |  |   | $     | 3,586 |  |   | $     | 2,686 | 
|                     |       |   |        |        |        |   |           |       |           |   |                   |       |  |   |       |       |  |   |       |      

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

We may become subject to legal proceedings, claims, and litigation arising
in the ordinary course of business. Although 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 our
consolidated financial position, results of operations, or cash flows.

We carry insurance with coverage 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, 2003.
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 2003 were:



| |  |  | Research and development service provided to Symyx Therapeutics,
Inc.                                                                                                                                                                                                    
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Loans originally provided to certain employees and executive
officers for the exercise of stock options prior to our initial public
offering in 1999; and                                                                                                                
|
| |  |  | 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.

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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 limit the amount of credit exposure to any one issue, issuer or
type of instrument. At December 31, 2003 our investment portfolio comprised
approximately $17.1 million in money market funds and $121.6 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, 2003 levels, the fair value of our portfolio would
decline by approximately $1,051,000. 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
|                              |  | 2004 |        | 2005 |  | Total |        | December 31, 2003
|                              |  |      |        |      |  |       |        |                  
|Available-for-sale securities |  | $    | 65,986 |      |  | $     | 55,532 |                   |  | $ | 121.5 |   |  | $          | 121.6 | 
|Average interest rate         |  |      | 1.52   | %    |  |       | 1.87   | %                 |  |   | 1.68  | % |  |            |       | 

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

|                                                                                                    |  |      |    | 
|--------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|Index to Consolidated Financial Statements                                                          |  | Page
|                                                                                                    |  |     
|Report of Ernst & Young LLP, Independent Auditors                                                   |  |      | 35 | 
|Consolidated Balance Sheets at December 31, 2003 and 2002                                           |  |      | 36 | 
|Consolidated Statements of Operations for the Years
Ended December 31, 2003, 2002 and 2001          |  |      | 37 | 
|Consolidated Statement of Stockholders Equity for
the Years Ended December 31, 2003, 2002 and 2001 |  |      | 38 | 
|Consolidated Statements of Cash Flows for the Years
Ended December 31, 2003, 2002 and 2001          |  |      | 40 | 
|Notes to Consolidated Financial Statements                                                          |  |      | 41 | 

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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, 2003 and 2002, and the related
consolidated statements of operations, stockholders equity, and cash flows for
each of the three years in the period ended December 31, 2003. 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, 2003 and 2002, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States.



| | /s/ Ernst & Young LLP
| | ---------------------

Palo Alto, California
January 22, 2004

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SYMYX TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share information)

|                              |                                                                                                                                                                   |                                      |                                            |         |   |              |        |         |   |         |  | 
|----------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------------------------------------------ | ------- | - | ------------ | ------ | ------- | - | ------- |  | 
|                              |                                                                                                                                                                   |                                      |                                            |         |   | December 31,
|                              |                                                                                                                                                                   |                                      |                                            |         |   |             
|                              |                                                                                                                                                                   |                                      |                                            |         |   | 2003         |        | 2002   
|                              |                                                                                                                                                                   |                                      |                                            |         |   |              |        |        
|                              |                                                                                                                                                                   |                                      |                                            | ASSETS  |   |              |        |         |   |         |  | 
|Current assets:               |                                                                                                                                                                   |                                      |                                            |         |   |              |        |        
|                              | Cash and cash equivalents                                                                                                                                         |                                      | $                                          | 17,110  |   |              | $      | 25,629  |  
|                              | Available-for-sale securities                                                                                                                                     |                                      |                                            | 121,588 |   |              |        | 92,391  |  
|                              | Accounts receivable                                                                                                                                               |                                      |                                            | 2,617   |   |              |        | 6,697   |  
|                              | Inventories                                                                                                                                                       |                                      |                                            | 3,743   |   |              |        | 2,240   |  
|                              | Interest receivable and other current assets                                                                                                                      |                                      |                                            | 4,194   |   |              |        | 3,291   |  
|                              |                                                                                                                                                                   |                                      |                                            |         |   |              |        |        
|                              |                                                                                                                                                                   |                                      | Total current assets                       |         |   | 149,252      |        |         |   | 130,248 | 
|Property and equipment, net   |                                                                                                                                                                   |                                      | 25,681                                     |         |   |              | 24,196 |        
|Deferred tax and other assets |                                                                                                                                                                   |                                      | 2,603                                      |         |   |              | 2,924  |        
|                              |                                                                                                                                                                   |                                      |                                            |         |   |              |        |        
|                              |                                                                                                                                                                   |                                      | Total assets                               |         | $ | 177,536      |        |         | $ | 157,368 | 
|                              |                                                                                                                                                                   |                                      |                                            |         |   |              |        |        
|                              |                                                                                                                                                                   | LIABILITIES AND STOCKHOLDERS EQUITY |                                            |         |   |              |        |         |   |        
|Current liabilities:          |                                                                                                                                                                   |                                      |                                            |         |   |              |        |        
|                              | Accounts payable and other accrued liabilities                                                                                                                    |                                      | $                                          | 4,697   |   |              | $      | 4,511   |  
|                              | Accrued compensation and employee benefits                                                                                                                        |                                      |                                            | 2,142   |   |              |        | 1,205   |  
|                              | Income taxes payable                                                                                                                                              |                                      |                                            | 1,055   |   |              |        | 253     |  
|                              | Deferred rent                                                                                                                                                     |                                      |                                            | 681     |   |              |        | 1,003   |  
|                              | Deferred revenue                                                                                                                                                  |                                      |                                            | 7,723   |   |              |        | 3,014   |  
|                              | Warranty expense accrual                                                                                                                                          |                                      |                                            | 1,800   |   |              |        | 1,899   |  
|                              |                                                                                                                                                                   |                                      |                                            |         |   |              |        |        
|                              |                                                                                                                                                                   |                                      | Total current liabilities                  |         |   | 18,098       |        |         |   | 11,885  | 
|                              |                                                                                                                                                                   |                                      |                                            |         |   |              |        |        
|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, 60,000,000 shares
authorized; 31,610,108 and 30,920,499 shares issued and
outstanding at December 31, 2003 and 2002, respectively |                                      |                                            | 32      |   |              |        | 31      |  
|                              | Additional paid-in capital                                                                                                                                        |                                      |                                            | 162,160 |   |              |        | 154,213 |  
|                              | Stockholder notes receivable                                                                                                                                      |                                      |                                            | (134    | ) |              |        | (404    | )
|                              | Deferred stock compensation                                                                                                                                       |                                      |                                            | (7      | ) |              |        | (92     | )
|                              | Accumulated other comprehensive income                                                                                                                            |                                      |                                            | 31      |   |              |        | 120     |  
|                              | Accumulated deficit                                                                                                                                               |                                      |                                            | (2,644  | ) |              |        | (8,385  | )
|                              |                                                                                                                                                                   |                                      |                                            |         |   |              |        |        
|                              |                                                                                                                                                                   |                                      | Total stockholders equity                 |         |   | 159,438      |        |         |   | 145,483 | 
|                              |                                                                                                                                                                   |                                      |                                            |         |   |              |        |        
|                              |                                                                                                                                                                   |                                      | Total liabilities and stockholders equity |         | $ | 177,536      |        |         | $ | 157,368 | 
|                              |                                                                                                                                                                   |                                      |                                            |         |   |              |        |        

See accompanying notes.

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SYMYX TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

|                                                      |                                              |                          |        |                          |        |      |        |        |        |   |        |        |        | 
|----------------------------------------------------- | -------------------------------------------- | ------------------------ | ------ | ------------------------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                      |                                              |                          |        | Years Ended December 31,
|                                                      |                                              |                          |        |                         
|                                                      |                                              |                          |        | 2003                     |        | 2002 |        | 2001  
|                                                      |                                              |                          |        |                          |        |      |        |       
|Revenues:                                             |                                              |                          |        |                          |        |      |        |        |        |   |        |       
|                                                      | Service revenue from research collaborations |                          | $      | 37,018                   |        |      | $      | 35,397 |        |   | $      | 42,629 |       
|                                                      | Service revenue - related party              |                          |        | 1,671                    |        |      |        |       |        |   |        |       |       
|                                                      | Product sales                                |                          |        | 14,458                   |        |      |        | 25,877 |        |   |        | 14,216 |       
|                                                      | License fees and royalties                   |                          |        | 9,816                    |        |      |        | 3,547  |        |   |        | 3,175  |       
|                                                      |                                              |                          |        |                          |        |      |        |        |        |   |        |       
|                                                      |                                              | Total revenues           |        |                          | 62,963 |      |        |        | 64,821 |   |        |        | 60,020 | 
|                                                      |                                              |                          |        |                          |        |      |        |        |        |   |        |       
|Operating expenses:                                   |                                              |                          |        |                          |        |      |        |        |        |   |        |       
|                                                      | Cost of products sold                        |                          |        | 2,937                    |        |      |        | 6,239  |        |   |        | 6,591  |       
|                                                      | Research and development                     |                          |        | 38,387                   |        |      |        | 39,307 |        |   |        | 38,718 |       
|                                                      | Research and development - related party     |                          |        | 1,671                    |        |      |        |       |        |   |        |       |       
|                                                      | Sales, general and administrative            |                          |        | 14,933                   |        |      |        | 14,592 |        |   |        | 12,524 |       
|                                                      |                                              |                          |        |                          |        |      |        |        |        |   |        |       
|                                                      |                                              | Total operating expenses |        |                          | 57,928 |      |        |        | 60,138 |   |        |        | 57,833 | 
|                                                      |                                              |                          |        |                          |        |      |        |        |        |   |        |       
|Income from operations                                |                                              |                          | 5,035  |                          |        |      | 4,683  |        |        |   | 2,187  |       
|Interest income                                       |                                              |                          | 1,996  |                          |        |      | 3,269  |        |        |   | 6,117  |       
|Interest and other expense                            |                                              |                          |       |                          |        |      | (9     | )      |        |   | (660   | )     
|                                                      |                                              |                          |        |                          |        |      |        |        |        |   |        |       
|Income before income tax expense                      |                                              |                          | 7,031  |                          |        |      | 7,943  |        |        |   | 7,644  |       
|Income tax expense                                    |                                              |                          | 1,290  |                          |        |      | 2,657  |        |        |   | 1,306  |       
|                                                      |                                              |                          |        |                          |        |      |        |        |        |   |        |       
|Net income                                            |                                              | $                        | 5,741  |                          |        | $    | 5,286  |        |        | $ | 6,338  |       
|                                                      |                                              |                          |        |                          |        |      |        |        |        |   |        |       
|Basic net income per share                            |                                              | $                        | 0.18   |                          |        | $    | 0.17   |        |        | $ | 0.21   |       
|                                                      |                                              |                          |        |                          |        |      |        |        |        |   |        |       
|Shares used in computing basic net income per share   |                                              |                          | 31,199 |                          |        |      | 30,647 |        |        |   | 29,904 |       
|                                                      |                                              |                          |        |                          |        |      |        |        |        |   |        |       
|Diluted net income per share                          |                                              | $                        | 0.18   |                          |        | $    | 0.17   |        |        | $ | 0.20   |       
|                                                      |                                              |                          |        |                          |        |      |        |        |        |   |        |       
|Shares used in computing diluted net income per share |                                              |                          | 32,470 |                          |        |      | 31,638 |        |        |   | 31,196 |       
|                                                      |                                              |                          |        |                          |        |      |        |        |        |   |        |       

See accompanying notes.

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SYMYX TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(In thousands)



|                                                            |                                                                                      |                      |                      |   |                 |  |              |   |            |  |        |   |         |   |    |   |  |   |         |   |  |  | 
|----------------------------------------------------------- | ------------------------------------------------------------------------------------ | -------------------- | -------------------- | - | --------------- |  | ------------ | - | ---------- |  | ------ | - | ------- | - | -- | - |  | - | ------- | - |  |  | 
|                                                            |                                                                                      |                      |                      |   | Preferred Stock |  | Common Stock |   | Additional
|                                                            |                                                                                      |                      |                      |   |                 |  |              |   | Paid-In   
|                                                            |                                                                                      |                      |                      |   | Shares          |  | Amount       |   | Shares     |  | Amount |   | Capital
|                                                            |                                                                                      |                      |                      |   |                 |  |              |   |            |  |        |   |        
|Balance at December 31, 2000                                |                                                                                      |                      |                     |   |                 |  |             |   |            |  | 30,139 |   |         | $ | 30 |   |  | $ | 144,748 |  
|Repurchase of common stock                                  |                                                                                      |                      |                     |   |                 |  |             |   |            |  | (12    | ) |         |   |   |   |  |   | (2      | )
|Issuance of common stock on
exercise of options             |                                                                                      |                      |                     |   |                 |  |             |   |            |  | 387    |   |         |   | 1  |   |  |   | 2,093   |  
|Issuance of common stock
under employee share
purchase plan |                                                                                      |                      |                     |   |                 |  |             |   |            |  | 100    |   |         |   |   |   |  |   | 1,267   |  
|Repayment of notes
receivable                               |                                                                                      |                      |                     |   |                 |  |             |   |            |  |       |   |         |   |   |   |  |   |        |  
|Amortization of deferred stock
compensation                 |                                                                                      |                      |                     |   |                 |  |             |   |            |  |       |   |         |   |   |   |  |   |        |  
|Deferred stock compensation
related to terminated employees |                                                                                      |                      |                     |   |                 |  |             |   |            |  |       |   |         |   |   |   |  |   | (76     | )
|Tax benefit from employee stock
option plans                |                                                                                      |                      |                     |   |                 |  |             |   |            |  |       |   |         |   |   |   |  |   | 336     |  
|Comprehensive income:                                       |                                                                                      |                      |                      |   |                 |  |              |   |            |  |        |   |         |   |    |   |  |   |         |  
|                                                            | Net income for the year
ended December 31, 2001                                      |                      |                      |  |                 |  |              |  |            |  |        |  |         |   |    |  |  |   |         |  | 
|                                                            | Unrealized gain (loss) on
foreign currency translation                               |                      |                      |  |                 |  |              |  |            |  |        |  |         |   |    |  |  |   |         |  | 
|                                                            | Unrealized gain (loss) on
available-for-sale securities, net of income taxes of 336  |                      |                      |  |                 |  |              |  |            |  |        |  |         |   |    |  |  |   |         |  | 
|                                                            |                                                                                      |                      | Comprehensive income |   |                 |  |              |   |            |  |        |   |         |   |    |   |  |   |         |   |  |  | 
|                                                            |                                                                                      |                      |                      |   |                 |  |              |   |            |  |        |   |         |   |    |   |  |   |         |  
|Balance at December 31, 2001                                |                                                                                      |                      |                     |   |                 |  |             |   |            |  | 30,614 |   |         |   | 31 |   |  |   | 148,366 |  
|Repurchase of common stock                                  |                                                                                      |                      |                     |   |                 |  |             |   |            |  | (2     | ) |         |   |   |   |  |   | (1      | )
|Issuance of common stock on
exercise of options             |                                                                                      |                      |                     |   |                 |  |             |   |            |  | 216    |   |         |   |   |   |  |   | 905     |  
|Issuance of common stock
under employee share
purchase plan |                                                                                      |                      |                     |   |                 |  |             |   |            |  | 92     |   |         |   |   |   |  |   | 1,055   |  
|Repayment of notes
receivable                               |                                                                                      |                      |                     |   |                 |  |             |   |            |  |       |   |         |   |   |   |  |   |        |  
|Amortization of deferred stock
compensation                 |                                                                                      |                      |                     |   |                 |  |             |   |            |  |       |   |         |   |   |   |  |   |        |  
|Deferred stock compensation
related to terminated employees |                                                                                      |                      |                     |   |                 |  |             |   |            |  |       |   |         |   |   |   |  |   | (75     | )
|Tax benefit from employee stock
option plans                |                                                                                      |                      |                     |   |                 |  |             |   |            |  |       |   |         |   |   |   |  |   | 3,963   |  
|Comprehensive income:                                       |                                                                                      |                      |                      |   |                 |  |              |   |            |  |        |   |         |   |    |   |  |   |         |  
|                                                            | Net income for the year
ended December 31, 2002                                      |                      |                      |  |                 |  |              |  |            |  |        |  |         |   |    |  |  |   |         |  | 
|                                                            | Unrealized gain (loss) on
foreign currency translation                               |                      |                      |  |                 |  |              |  |            |  |        |  |         |   |    |  |  |   |         |  | 
|                                                            | Unrealized gain (loss) on
available-for-sale securities, net of income taxes of $247 |                      |                      |  |                 |  |              |  |            |  |        |  |         |   |    |  |  |   |         |  | 
|                                                            |                                                                                      | Comprehensive income |                      |   |                 |  |              |   |            |  |        |   |         |   |    |   |  |   |         |   |  | 
|                                                            |                                                                                      |                      |                      |   |                 |  |              |   |            |  |        |   |         |   |    |   |  |   |         |  
|Balance at December 31, 2002 (carried forward)              |                                                                                      |                      |                     |   |                 |  |             |   |            |  | 30,920 |   |         |   | 31 |   |  |   | 154,213 |  
|                                                            |                                                                                      |                      |                      |   |                 |  |              |   |            |  |        |   |         |   |    |   |  |   |         |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                            |                                                                                      |                      |                      |   |             |   |              |   |               |   |             |      |               |   |         |       |  |   |         |       |       |       | 
|----------------------------------------------------------- | ------------------------------------------------------------------------------------ | -------------------- | -------------------- | - | ----------- | - | ------------ | - | ------------- | - | ----------- | ---- | ------------- | - | ------- | ----- |  | - | ------- | ----- | ----- | ----- | 
|                                                            |                                                                                      |                      |                      |   |             |   |              |   |               |   |             |      | Accumulated   |   |         |       |  |   |         |       |      
|                                                            |                                                                                      |                      |                      |   | Stockholder |   | Deferred     |   | Other         |   |             |      |               |   | Total  
|                                                            |                                                                                      |                      |                      |   | Notes       |   | Stock        |   | Comprehensive |   | Accumulated |      | Stockholders
|                                                            |                                                                                      |                      |                      |   | Receivable  |   | Compensation |   | Income (Loss) |   | Deficit     |      | Equity       
|                                                            |                                                                                      |                      |                      |   |             |   |              |   |               |   |             |      |              
|Balance at December 31, 2000                                |                                                                                      | $                    | (621                 | ) |             | $ | (822         | ) |               | $ | 325         |      |               | $ | (20,009 | )     |  | $ | 123,651 |      
|Repurchase of common stock                                  |                                                                                      |                      |                     |   |             |   |             |   |               |   |            |      |               |   |        |       |  |   | (2      | )    
|Issuance of common stock on
exercise of options             |                                                                                      |                      |                     |   |             |   |             |   |               |   |            |      |               |   |        |       |  |   | 2,094   |      
|Issuance of common stock
under employee share
purchase plan |                                                                                      |                      |                     |   |             |   |             |   |               |   |            |      |               |   |        |       |  |   | 1,267   |      
|Repayment of notes
receivable                               |                                                                                      |                      | 211                  |   |             |   |             |   |               |   |            |      |               |   |        |       |  |   | 211     |      
|Amortization of deferred stock
compensation                 |                                                                                      |                      |                     |   |             |   | 411          |   |               |   |            |      |               |   |        |       |  |   | 411     |      
|Deferred stock compensation
related to terminated employees |                                                                                      |                      |                     |   |             |   | 76           |   |               |   |            |      |               |   |        |       |  |   |        |      
|Tax benefit from employee stock
option plans                |                                                                                      |                      |                     |   |             |   |             |   |               |   |            |      |               |   |        |       |  |   | 336     |      
|Comprehensive income:                                       |                                                                                      |                      |                      |   |             |   |              |   |               |   |             |      |               |   |         |       |  |   |         |      
|                                                            | Net income 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 income taxes of 336  |                      |                      |  |             |   |              |  |               |   |             | 203  |               |   |         |      |  |   |         | 203   |      
|                                                            |                                                                                      |                      |                      |   |             |   |              |   |               |   |             |      |               |   |         |       |  |   |         |      
|                                                            |                                                                                      |                      | Comprehensive income |   |             |   |              |   |               |   |             |      |               |   |         |       |  |   |         |       |       | 6,529 | 
|                                                            |                                                                                      |                      |                      |   |             |   |              |   |               |   |             |      |               |   |         |       |  |   |         |      
|Balance at December 31, 2001                                |                                                                                      |                      | (410                 | ) |             |   | (335         | ) |               |   | 516         |      |               |   | (13,671 | )     |  |   | 134,497 |      
|Repurchase of common stock                                  |                                                                                      |                      |                     |   |             |   |             |   |               |   |            |      |               |   |        |       |  |   | (1      | )    
|Issuance of common stock on
exercise of options             |                                                                                      |                      |                     |   |             |   |             |   |               |   |            |      |               |   |        |       |  |   | 905     |      
|Issuance of common stock
under employee share
purchase plan |                                                                                      |                      |                     |   |             |   |             |   |               |   |            |      |               |   |        |       |  |   | 1,055   |      
|Repayment of notes
receivable                               |                                                                                      |                      | 6                    |   |             |   |             |   |               |   |            |      |               |   |        |       |  |   | 6       |      
|Amortization of deferred stock
compensation                 |                                                                                      |                      |                     |   |             |   | 168          |   |               |   |            |      |               |   |        |       |  |   | 168     |      
|Deferred stock compensation
related to terminated employees |                                                                                      |                      |                     |   |             |   | 75           |   |               |   |            |      |               |   |        |       |  |   |        |      
|Tax benefit from employee stock
option plans                |                                                                                      |                      |                     |   |             |   |             |   |               |   |            |      |               |   |        |       |  |   | 3,963   |      
|Comprehensive income:                                       |                                                                                      |                      |                      |   |             |   |              |   |               |   |             |      |               |   |         |       |  |   |         |      
|                                                            | Net income for the year
ended December 31, 2002                                      |                      |                      |  |             |   |              |  |               |   |             |     |               |   |         | 5,286 |  |   |         | 5,286 |      
|                                                            | Unrealized gain (loss) on
foreign currency translation                               |                      |                      |  |             |   |              |  |               |   |             | (1   | )             |   |         |      |  |   |         | (1    | )    
|                                                            | Unrealized gain (loss) on
available-for-sale securities, net of income taxes of $247 |                      |                      |  |             |   |              |  |               |   |             | (395 | )             |   |         |      |  |   |         | (395  | )    
|                                                            |                                                                                      |                      |                      |   |             |   |              |   |               |   |             |      |               |   |         |       |  |   |         |      
|                                                            |                                                                                      | Comprehensive income |                      |   |             |   |              |   |               |   |             |      |               |   |         |       |  |   |         |       | 4,890 |      
|                                                            |                                                                                      |                      |                      |   |             |   |              |   |               |   |             |      |               |   |         |       |  |   |         |      
|Balance at December 31, 2002 (carried forward)              |                                                                                      |                      | (404                 | ) |             |   | (92          | ) |               |   | 120         |      |               |   | (8,385  | )     |  |   | 145,483 |      
|                                                            |                                                                                      |                      |                      |   |             |   |              |   |               |   |             |      |               |   |         |       |  |   |         |      

38



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SYMYX TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (CONTINUED)
(In thousands)



|                                                            |                                                                                     |                      |   |                 |  |              |   |            |  |        |        |         |  |   |    |   |  |   |         |   |  | 
|----------------------------------------------------------- | ----------------------------------------------------------------------------------- | -------------------- | - | --------------- |  | ------------ | - | ---------- |  | ------ | ------ | ------- |  | - | -- | - |  | - | ------- | - |  | 
|                                                            |                                                                                     |                      |   | Preferred Stock |  | Common Stock |   | Additional
|                                                            |                                                                                     |                      |   |                 |  |              |   | Paid-In   
|                                                            |                                                                                     |                      |   | Shares          |  | Amount       |   | Shares     |  | Amount |        | Capital
|                                                            |                                                                                     |                      |   |                 |  |              |   |            |  |        |        |        
|Balance at December 31, 2002 (brought forward)              |                                                                                     |                      |  |                 |  |              |  |            |  |        | 30,920 |         |  | $ | 31 |   |  | $ | 154,213 |  
|Repurchase of common stock                                  |                                                                                     |                      |  |                 |  |              |  |            |  |        | (2     | )       |  |   |   |   |  |   | (2      | )
|Issuance of common stock on
exercise of options             |                                                                                     |                      |  |                 |  |              |  |            |  |        | 579    |         |  |   | 1  |   |  |   | 6,006   |  
|Issuance of common stock
under employee share
purchase plan |                                                                                     |                      |  |                 |  |              |  |            |  |        | 113    |         |  |   |   |   |  |   | 1,115   |  
|Repayment of notes
receivable                               |                                                                                     |                      |  |                 |  |              |  |            |  |        |       |         |  |   |   |   |  |   |        |  
|Issuance of options to consultants for services received    |                                                                                     |                      |  |                 |  |              |  |            |  |        |       |         |  |   |   |   |  |   | 94      |  
|Amortization of deferred stock
compensation                 |                                                                                     |                      |  |                 |  |              |  |            |  |        |       |         |  |   |   |   |  |   |        |  
|Deferred stock compensation
related to terminated employees |                                                                                     |                      |  |                 |  |              |  |            |  |        |       |         |  |   |   |   |  |   | (42     | )
|Tax benefit from employee stock
option plans                |                                                                                     |                      |  |                 |  |              |  |            |  |        |       |         |  |   |   |   |  |   | 776     |  
|Comprehensive income:                                       |                                                                                     |                      |   |                 |  |              |   |            |  |        |        |         |  |   |    |   |  |   |         |  
|                                                            | Net income for the year
ended December 31, 2003                                     |                      |   |                |  |              |   |           |  |        |        |        |  |   |    |  |  |   |         |  | 
|                                                            | Unrealized gain (loss) on
foreign currency translation                              |                      |   |                |  |              |   |           |  |        |        |        |  |   |    |  |  |   |         |  | 
|                                                            | Unrealized gain (loss) on
available-for-sale securities, net of income taxes of $61 |                      |   |                |  |              |   |           |  |        |        |        |  |   |    |  |  |   |         |  | 
|                                                            |                                                                                     |                      |   |                 |  |              |   |            |  |        |        |         |  |   |    |   |  |   |         |  
|                                                            |                                                                                     | Comprehensive income |   |                 |  |              |   |            |  |        |        |         |  |   |    |   |  |   |         |   |  | 
|                                                            |                                                                                     |                      |   |                 |  |              |   |            |  |        |        |         |  |   |    |   |  |   |         |  
|Balance at December 31, 2003                                |                                                                                     |                      |  |                 |  |              |  |            |  |        | 31,610 |         |  | $ | 32 |   |  | $ | 162,160 |  
|                                                            |                                                                                     |                      |   |                 |  |              |   |            |  |        |        |         |  |   |    |   |  |   |         |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                            |                                                                                     |                      |      |             |  |              |     |               |  |             |     |               |   |       |        |       |  |   |         |       |       | 
|----------------------------------------------------------- | ----------------------------------------------------------------------------------- | -------------------- | ---- | ----------- |  | ------------ | --- | ------------- |  | ----------- | --- | ------------- | - | ----- | ------ | ----- |  | - | ------- | ----- | ----- | 
|                                                            |                                                                                     |                      |      |             |  |              |     |               |  |             |     | Accumulated   |   |       |        |       |  |   |         |      
|                                                            |                                                                                     |                      |      | Stockholder |  | Deferred     |     | Other         |  |             |     |               |   | Total
|                                                            |                                                                                     |                      |      | Notes       |  | Stock        |     | Comprehensive |  | Accumulated |     | Stockholders
|                                                            |                                                                                     |                      |      | Receivable  |  | Compensation |     | Income (Loss) |  | Deficit     |     | Equity       
|                                                            |                                                                                     |                      |      |             |  |              |     |               |  |             |     |              
|Balance at December 31, 2002 (brought forward)              |                                                                                     | $                    | (404 | )           |  | $            | (92 | )             |  | $           | 120 |               |   | $     | (8,385 | )     |  | $ | 145,483 |      
|Repurchase of common stock                                  |                                                                                     |                      |     |             |  |              |    |               |  |             |    |               |   |       |       |       |  |   | (2      | )    
|Issuance of common stock on
exercise of options             |                                                                                     |                      |     |             |  |              |    |               |  |             |    |               |   |       |       |       |  |   | 6,007   |      
|Issuance of common stock
under employee share
purchase plan |                                                                                     |                      |     |             |  |              |    |               |  |             |    |               |   |       |       |       |  |   | 1,115   |      
|Repayment of notes
receivable                               |                                                                                     |                      | 270  |             |  |              |    |               |  |             |    |               |   |       |       |       |  |   | 270     |      
|Issuance of options to consultants for services received    |                                                                                     |                      |     |             |  |              |    |               |  |             |    |               |   |       |       |       |  |   | 94      |      
|Amortization of deferred stock
compensation                 |                                                                                     |                      |     |             |  |              | 43  |               |  |             |    |               |   |       |       |       |  |   | 43      |      
|Deferred stock compensation
related to terminated employees |                                                                                     |                      |     |             |  |              | 42  |               |  |             |    |               |   |       |       |       |  |   |        |      
|Tax benefit from employee stock
option plans                |                                                                                     |                      |     |             |  |              |    |               |  |             |    |               |   |       |       |       |  |   | 776     |      
|Comprehensive income:                                       |                                                                                     |                      |      |             |  |              |     |               |  |             |     |               |   |       |        |       |  |   |         |      
|                                                            | Net income for the year
ended December 31, 2003                                     |                      |      |            |  |              |     |              |  |             |     |              |   |       |        | 5,741 |  |   |         | 5,741 |      
|                                                            | Unrealized gain (loss) on
foreign currency translation                              |                      |      |            |  |              |     |              |  |             |     | 2             |   |       |        |      |  |   |         | 2     |      
|                                                            | Unrealized gain (loss) on
available-for-sale securities, net of income taxes of $61 |                      |      |            |  |              |     |              |  |             |     | (91           | ) |       |        |      |  |   |         | (91   | )    
|                                                            |                                                                                     |                      |      |             |  |              |     |               |  |             |     |               |   |       |        |       |  |   |         |      
|                                                            |                                                                                     | Comprehensive income |      |             |  |              |     |               |  |             |     |               |   |       |        |       |  |   |         |       | 5,652 | 
|                                                            |                                                                                     |                      |      |             |  |              |     |               |  |             |     |               |   |       |        |       |  |   |         |      
|Balance at December 31, 2003                                |                                                                                     | $                    | (134 | )           |  | $            | (7  | )             |  | $           | 31  |               |   | $     | (2,644 | )     |  | $ | 159,438 |      
|                                                            |                                                                                     |                      |      |             |  |              |     |               |  |             |     |               |   |       |        |       |  |   |         |      

See accompanying notes.

39



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SYMYX TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) Years Ended December 31,2003
    
    2002
    
    2001OPERATING ACTIVITIESNet income
    
    $
    5,741
    
    
    $
    5,286
    
    
    $
    6,338Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    11,925
    
    
    
    11,067
    
    
    
    9,807Stock-based compensation
    
    
    137
    
    
    
    168
    
    
    
    411Deferred income taxes
    
    
    103
    
    
    
    558
    
    
    
    (2,046
    )Tax benefit from employee stock options
    
    
    776
    
    
    
    3,963
    
    
    
    336Changes in assets and liabilities:Accounts receivable
    
    
    4,080
    
    
    
    (6,243
    )
    
    
    539Inventories
    
    
    (1,503
    )
    
    
    (48
    )
    
    
    571Interest receivable and other current assets
    
    
    (881
    )
    
    
    (306
    )
    
    
    377Other long-term assets
    
    
    142
    
    
    
    (325
    )
    
    
    4Accounts payable and other accrued liabilities
    
    
    186
    
    
    
    577
    
    
    
    267Accrued compensation and employee benefits
    
    
    937
    
    
    
    87
    
    
    
    (278
    )Income taxes payable
    
    
    863
    
    
    
    (2,568
    )
    
    
    2,732Deferred rent
    
    
    119
    
    
    
    161
    
    
    
    238Deferred revenue
    
    
    4,709
    
    
    
    (3,623
    )
    
    
    (3,097
    )Warranty expense accrual
    
    
    (99
    )
    
    
    925
    
    
    
    534Net cash provided by operating activities
    
    
    27,235
    
    
    
    9,679
    
    
    
    16,733INVESTING ACTIVITIESPurchases of property and equipment, net
    
    
    (9,723
    )
    
    
    (4,482
    )
    
    
    (10,980
    )Purchases of available-for-sale securities
    
    
    (145,198
    )
    
    
    (76,148
    )
    
    
    (89,901
    )Proceeds from maturities of available-for-sale securities
    
    
    112,090
    
    
    
    78,995
    
    
    
    77,839Proceeds from sales of available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    14,727Acquisition of technology
    
    
    (315
    )
    
    
    
    
    
    
    (250
    )Net cash used in investing activities
    
    
    (43,146
    )
    
    
    (1,635
    )
    
    
    (8,565
    )FINANCING ACTIVITIESProceeds from issuance of common stock, net of repurchases
    
    
    7,390
    
    
    
    1,965
    
    
    
    3,570Principal payments on equipment and facility loans
    
    
    
    
    
    
    
    
    
    
    (6,729
    )Net cash provided by financing activities
    
    
    7,390
    
    
    
    1,965
    
    
    
    (3,159
    )Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    2
    
    
    
    (1
    )
    
    
    (12
    )Net increase in cash and cash equivalents
    
    
    (8,519
    )
    
    
    10,008
    
    
    
    4,997Cash and cash equivalents at beginning of period
    
    
    25,629
    
    
    
    15,621
    
    
    
    10,624Cash and cash equivalents at end of period
    
    $
    17,110
    
    
    $
    25,629
    
    
    $
    15,621SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONIncome taxes paid (refunded)
    
    $
    (474
    )
    
    $
    791
    
    
    $
    366
 See accompanying notes. 40




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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-throughput experimentation to the discovery of innovative materials for
chemical, life science, electronics, consumer goods and automotive industries.
Symyx works with companies seeking to transform their search for better
products and processes through research collaborations, Discovery Tools sales,
and the license of materials, intellectual property, and software. Principles of consolidation These consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Symyx Discovery Tools, incorporated
in California, and 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
periods as product and license revenue is now reported separately as revenue
from product sales and revenue from royalties and license fees. A portion of
deferred tax assets reported as non-current assets in the previous period have
been reclassified as current assets. Segment revenues for prior periods have
been reclassified to conform to the current period presentations. 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, 2003, 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
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. 41




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following is a summary of the fair value of cash, cash equivalents and
available-for-sale securities (in thousands): December 31,2003
    
    2002Cash and money market funds
    
    $
    17,110
    
    
    $
    24,135U.S. corporate debt securities
    
    
    120,544
    
    
    
    88,835U.S. Treasury securities
    
    
    1,044
    
    
    
    5,050Total
    
    $
    138,698
    
    
    $
    118,020
 Above amounts are included in the following: December 31,2003
    
    2002Cash and cash equivalents
    
    $
    17,110
    
    
    $
    25,629Available-for-sale securities
    
    
    121,588
    
    
    
    92,391Total
    
    $
    138,698
    
    
    $
    118,020
 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 31,2003
    
    2002Due in less than 1 year
    
    $
    65,971
    
    
    $
    87,080Due in 1 to 2 years
    
    
    55,617
    
    
    
    6,805Total
    
    $
    121,588
    
    
    $
    93,885
 Property and Equipment Property and equipment are stated at cost. Depreciation of equipment 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. Depreciation of buildings is computed on the straight-line method
using a life of thirty years for financial reporting purposes. Leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful life of the assets for financial reporting purposes. 42




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Property and equipment consists of the following (in thousands): December 31,2003
    
    2002Machinery and equipment
    
    $
    19,057
    
    
    $
    17,919Computers and software
    
    
    3,435
    
    
    
    3,194Land and building
    
    
    3,551
    
    
    
    Leasehold improvements
    
    
    23,785
    
    
    
    23,405Construction in progress
    
    
    1,406
    
    
    
    169Furniture and fixtures
    
    
    970
    
    
    
    98552,204
    
    
    
    45,672Less accumulated depreciation and amortization
    
    
    (26,523
    )
    
    
    (21,476
    )Property and equipment, net
    
    $
    25,681
    
    
    $
    24,196
 At December 31, 2003, no property and equipment was pledged as collateral
against borrowings. Amortization of leasehold improvements is included in
depreciation expense. Depreciation expense was $7,797,000, $8,818,000 and
$8,825,000 in 2003, 2002, and 2001, 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 The Company generates revenue from services provided under research
collaborations, the sale of products, license of associated software, and
provision of support and maintenance services and the license of intellectual
property. It is possible for our customers to work with us in multiple areas
of our business and contracts may include multiple elements of service revenue,
product revenue and license revenue. In determining the basis for revenue
recognition, the Company first determines the fair value of any extended
warranty services and defers this revenue to be recognized over the service
period. For those contracts that involve multiple element deliverables, the
Company identifies all deliverables, determines the units of accounting and
allocates revenue between the units of accounting in accordance with the
Emerging Issues Task Force consensus on Issue 00-21, Multiple-Deliverable
Revenue Arrangements. (EITF 00-21). Service Revenue The Company recognizes service revenue from research collaboration
agreements and support and maintenance agreements 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 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. 43




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Product Sales Product sales revenue includes sales of Discovery Tools hardware and the
license of associated software. The Companys Discovery Tools systems are
typically delivered under multi-element arrangements, which include hardware,
software and intellectual property licenses, and maintenance. A determination
is made for each system delivered as to whether software is incidental to the
System as a whole. If software is not incidental to the Discovery Tools system
as a whole, revenue from these arrangements is recognized in accordance with
American Institute of Certified Public Accountants Statement of Position 97-2,
Software Revenue Recognition (SOP 97-2), as amended. If software is
incidental to the Discovery Tools system, revenue from the sale of the
Discovery Tools system is earned and recognized 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. 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. 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. Software License Fees Amounts received from third parties for licenses to the Companys software
are recognized when earned under the terms of the agreements. For software
licensed on an annual right to use basis, the revenue is recognized straight
line over the term of the license. For revenue allocable to the software
portion of a multiple element arrangement or licensed on a perpetual basis, the
Company recognizes revenue upon delivery of the software product to the
end-user and commencement of the license, unless the Company has ongoing
obligations for which fair value cannot be established or the fee is not fixed
or determinable or collectibility is not probable. The Company considers all
arrangements with payment terms longer than twelve months not to be fixed or
determinable. If the fee is not fixed or determinable, revenue is recognized as
payments become due from the customer, provided all the other revenue
recognition criteria have been met. 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. Revenue allocable to support and maintenance is recognized on a
straight-line basis over the period the support and maintenance is provided.
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. Intellectual Property License Fees and Royalties 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 revenue is recorded based on reported sales by third party
licensees of products containing the Companys software and intellectual
property. If there are extended payment terms, royalty revenues are recognized
as these payments become due. Non-refundable royalties, for which there are no
further performance obligations, are recognized when due under the terms of the
agreements. 44




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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, 2003, 2002 and 2001 the following
customers contributed more than 10% of the Companys total revenue for the year
(in thousands): Years Ended December 31,2003
    
    2002
    
    2001Applied Biosystems
    
    $
    
    
    
    $
    
    
    
    $
    4,400Bayer AG
    
    
    400
    
    
    
    300
    
    
    
    7,535Celanese Ltd.
    
    
    2,308
    
    
    
    4,437
    
    
    
    5,204Eli Lilly and Company
    
    
    275
    
    
    
    10,300
    
    
    
    ExxonMobil
    
    
    21,675
    
    
    
    11,884
    
    
    
    7,309The Dow Chemical Company
    
    
    4,316
    
    
    
    8,600
    
    
    
    8,425Merck
    
    
    8,246
    
    
    
    5,835
    
    
    
    5,006Undisclosed Partner
    
    
    6,637
    
    
    
    6,705
    
    
    
    3,433
 The revenue from the above customers has been included in the following
reportable segments for the years ended December 31, 2003, 2002 and 2001 (in
thousands): Years Ended December 31,2003
    
    2002
    
    2001Industry Collaborations
    
    $
    29,039
    
    
    $
    22,733
    
    
    $
    35,123Discovery Tools
    
    
    11,568
    
    
    
    25,028
    
    
    
    5,889Intellectual Property Licensing
    
    
    3,250
    
    
    
    300
    
    
    
    300
 The revenue from the above customers has been included in the Consolidated
Statement of Operations as follows (in thousands): Years Ended December 31,2003
    
    2002
    
    2001Service revenue from research collaborations
    
    $
    27,605
    
    
    $
    27,573
    
    
    $
    33,123Product sales
    
    
    7,862
    
    
    
    20,102
    
    
    
    5,639License fees and royalties
    
    
    8,390
    
    
    
    386
    
    
    
    2,550
 Inventory Work in process inventory comprises customized Discovery Tools systems in
the process of being built. Finished goods inventory comprises customized
Discovery Tools systems that have been finished but are pending shipment to
customers. Inventories are carried at the lower of cost or market, determined
on a specific identification basis. The following table summarizes the
components of our inventory balance (in thousands): December 31,2003
    
    2002Work in Process
    
    $
    1,960
    
    
    $
    2,240Finished Goods
    
    
    1,783
    
    
    
    Total
    
    $
    3,743
    
    
    $
    2,240
 45




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED) 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 warranty accrual during the year ended December
31, 2003 are as follows (in thousands): Balance as of December 31, 2002
    
    $
    1,899New warranties issued during the period
    
    
    587Costs incurred during the period on specific systems
    
    
    (386
    )Changes in liability for pre-existing warranties during the
period, including expirations
    
    
    (300
    )Balance as of December 31, 2003
    
    $
    1,800
 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,
December 2001 and October 2003. 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. The remaining useful life of acquired technology was
reassessed in October 2003 upon the grant of the first European Patent, with
the remaining unamortized balance of the acquired technology being amortized
over a 5 year period from the date of issuance of the European Patent. An
additional patent was acquired from a third party in May 2003 for $65,000 and
is being amortized over a five year period, representing the estimated
remaining useful life of this acquired technology. Based on acquired technology
cost at December 31, 2003 and assuming no subsequent impairment of the
underlying assets and no additional milestone payments, the annual amortization
expense, is expected to be approximately $181,000 in 2004 through 2007, and
$132,000 in 2008. Acquired technology consists of the following (in thousands): December 31,2003
    
    2002Acquired technology, at cost
    
    $
    2,380
    
    
    $
    2,065Less accumulated amortization
    
    
    (1,524
    )
    
    
    (1,155
    )Acquired technology, net
    
    $
    856
    
    
    $
    910Amortization expense recorded
    
    $
    369
    
    
    $
    425
 Research and Development Symyxs policy is to expense as incurred all costs of research and
development, including direct and allocated expenses, related both to costs
incurred on its own behalf and on behalf of its customers. The types of costs
classified as research and development expense include salaries of technical
staff, consultant costs, chemical and scientific supplies costs, facilities
rental and utilities costs related to laboratories and offices occupied by
technical staff, depreciation on 46




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) equipment and facilities used by technical staff and outside services such
as machining and third-party research and development costs. Income Taxes Income taxes have been provided using the liability method. Deferred tax
assets or liabilities are 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. 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 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. 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. Accordingly, 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. Stock compensation expense for options granted to non-employees has been
determined in accordance with SFAS 123 and EITF 96-18 using the Black-Scholes
option pricing model. Stock compensation expense for options granted to
non-employees is periodically re-measured as the underlying options vest. 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 was estimated at the date of
grant 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 0.67 in 2003, 0.74 in 2002 and 0.84
in 2001. Other valuation assumptions are as follows: 2003
    
    2002
    
    2001Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    2.2
    %
    
    
    3.7
    %
    
    
    4.6
    %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 2003, 2002 and 2001. 2003
    
    2002
    
    2001Expected stock price volatility
    
    
    0.48
    
    
    
    0.55
    
    
    
    0.84Risk-free interest rate
    
    
    1.5
    %
    
    
    2.12
    %
    
    
    4.70
    %Expected life (years)
    
    
    0.75
    
    
    
    0.71
    
    
    
    0.62
 47




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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, except per share data): Years Ended December 31,2003
    
    2002
    
    2001Net income (loss):As reported
    
    $
    5,741
    
    
    $
    5,286
    
    
    $
    6,338Add: Stock-based employee compensation expense included in reported net income
    
    
    43
    
    
    
    168
    
    
    
    411Deduct: Total stock-based employee
compensation expense
determined under fair value
method for all awards, net of
related tax effects
    
    
    (15,171
    )
    
    
    (22,269
    )
    
    
    (25,108
    )Pro forma
    
    $
    (9,387
    )
    
    $
    (16,815
    )
    
    $
    (18,359
    )Basic net income (loss) per share:As reported
    
    $
    0.18
    
    
    $
    0.17
    
    
    $
    0.21Pro forma
    
    $
    (0.30
    )
    
    $
    (0.55
    )
    
    $
    (0.61
    )Diluted net income (loss) per share:As reported
    
    $
    0.18
    
    
    $
    0.17
    
    
    $
    0.20Pro forma
    
    $
    (0.30
    )
    
    $
    (0.55
    )
    
    $
    (0.61
    )
 Net Income Per Share Basic net income 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 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. 48




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table presents the calculation of basic, diluted net income
per share (in thousands, except per share data): Years Ended December 31,2003
    
    2002
    
    2001Net income
    
    $
    5,741
    
    
    $
    5,286
    
    
    $
    6,338Weighted-average shares of common stock outstanding
    
    
    31,213
    
    
    
    30,798
    
    
    
    30,413Less: weighted-average shares subject to repurchase
    
    
    (14
    )
    
    
    (151
    )
    
    
    (509
    )Weighted-average shares used in computing basic net income per share
    
    
    31,199
    
    
    
    30,647
    
    
    
    29,904Dilutive effect of employee stock options, using the treasury stock method
    
    
    1,257
    
    
    
    840
    
    
    
    783Weighted-average shares subject to repurchase
    
    
    14
    
    
    
    151
    
    
    
    509Weighted-average shares used in computing diluted net income per share
    
    
    32,470
    
    
    
    31,638
    
    
    
    31,196Basic net income per share
    
    $
    0.18
    
    
    $
    0.17
    
    
    $
    0.21Diluted net income per share
    
    $
    0.18
    
    
    $
    0.17
    
    
    $
    0.20
 The Company has excluded 2,768,000, 3,699,000 and 2,891,000 shares of
outstanding stock options from the calculation of diluted net income per share
in 2003, 2002 and 2001, respectively, because all such securities are
anti-dilutive for the respective periods. 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. Comprehensive Income The components of other comprehensive income consist of unrealized gains
and losses on available-for-sale securities and a foreign currency translation
adjustment, both net of tax. Comprehensive income has been disclosed in the
statement of stockholders equity for all periods presented. 49




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The components of accumulated other comprehensive income at December 31,
2003, 2002 and 2001 are as follows (in thousands): Foreign
    
    Unrealized GainCurrency
    
    (Loss) OnTranslation
    
    Available-For-SaleAdjustments
    
    Securities
    
    TotalBalance at December 31, 2000
    
    $
    
    
    
    $
    325
    
    
    $
    325Foreign currency translation adjustment
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )Unrealized
gain on available-for-sale securities, net of $336 taxes
    
    
    
    
    
    
    203
    
    
    
    203Balance at December 31, 2001
    
    
    (12
    )
    
    
    528
    
    
    
    516Foreign currency translation adjustment
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Unrealized loss on available-for-sale securities, net of $247
taxes
    
    
    
    
    
    
    (395
    )
    
    
    (395
    )Balance at December 31, 2002
    
    
    (13
    )
    
    
    133
    
    
    
    120Foreign currency translation adjustment
    
    
    2
    
    
    
    
    
    
    
    2Unrealized loss on available-for-sale securities, net of $61 taxes
    
    
    
    
    
    
    (91
    )
    
    
    (91
    )Balance at December 31, 2003
    
    $
    (11
    )
    
    $
    42
    
    
    $
    31
 Effect of New Accounting Pronouncements Multiple-Deliverable Revenue Arrangement In November 2002, the Emerging Issues Task Force reached a consensus on
Issue 00-21, Multiple-Deliverable Revenue Arrangements. EITF 00-21 addresses
how to account for arrangements that may involve the delivery or performance of
multiple products, services and/or rights to use assets. The consensus mandates
how to identify whether goods or services or both which are to be delivered
separately in a bundled sales arrangement should be accounted for separately
because they are separate units of accounting. The guidance can affect the
timing of revenue recognition for such arrangements, even though it does not
change rules governing the timing or patterns of revenue recognition of
individual items accounted for separately. The final consensus is applicable to
agreements entered into in periods beginning after June 15, 2003 with early
adoption permitted. Additionally, companies will be permitted to apply the
consensus guidance to all existing arrangements as the cumulative effect of a
change in accounting principle in accordance with Accounting Principles Board
Opinion No. 20, Accounting Changes. There was no material effect upon the
Companys financial position or results of operations from the adoption of the
provisions of EITF 00-21. Applicability of AICPA Statement of Position 97-2, Software Revenue
Recognition, to Non-Software Deliverables in an Arrangement Containing
More-Than-Incidental Software The Emerging Issues Task Force reached a consensus on Issue 03-5,
Applicability of AICPA Statement of Position 97-2, Software Revenue
Recognition, to Non-Software Deliverables in an Arrangement Containing
More-Than-Incidental Software. Issue 03-5 is applicable to arrangements
entered into after September 30, 2003. There was no material effect upon the
Companys financial position or results of operations from the adoption of the
provisions of EITF 03-5 50




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Consolidation of Variable Interest Entities 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 ending after December 15, 2003, to variable
interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003 in an entity known as a special purpose
entity. FIN 46 applies to public enterprises as of the beginning of the
applicable interim or annual period ending after March 15, 2004 for all other
variable interest entities. There was no impact upon the Companys financial
condition or results from operations from the adoption of the initial
provisions of FIN 46 and no impact is expected upon adoption of the remaining
provisions in 2004. 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. The table below indicates some of the significant collaborative partners
for whom the Company conducted research and development in 2003, 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 2003: Current ResearchPartner
    
    Contract Ends
    
    Primary focus of current collaborative effortsBP
    
    12/31/2004
    
    Catalysts for certain commodity chemicalsDow Chemical
    
    6/30/2004
    
    Catalysts for PolyolefinsExxonMobil
    
    5/31/2008
    
    Catalysts for certain commodity chemicals including olefinsUndisclosed Partner
    
    4/30/2004
    
    Catalysts for automotive applications
 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 exclusive
rights in the defined field of the collaborative agreement. The agreements are typically cancelable only in the event of breach by
either party or certain other conditions. As of December 31, 2003, the Company
had committed funding from existing collaborative partners, excluding milestone
payments which are contingent upon the success of the research, of
approximately $35.4 million. Revenue from collaborative partners who
individually comprised more than 10% of revenue is included within Note 1 -
Concentration of Revenue. In 2003, Symyx entered into an Alliance, Technology Transfer and License
Agreement effective April 1, 2003 with ExxonMobil Research and Engineering
Company under which the Company will provide research services, develop and
sell Discovery Tools Systems, and license its software and intellectual
property. The ExxonMobil alliance provides Symyx
with an expected five-year revenue stream of over $200 million from
currently planned alliance activities, purchases of Discovery Tools, and
licensing fees. In addition, Symyx is entitled to receive royalties from the
commercialization of materials, processes and products based on discoveries
made in the fields of agreement. The broad scope of this alliance 51




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) will enable Symyx to strengthen its technology base in chemicals and expand
high throughput technology into lubricants and refining. 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,
2003, approximately 65% 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 35% of research effort was on Symyx
funded research and development. The focus of the Symyx funded programs in 2003
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 2002 and 2001 approximately 63% and 78%,
respectively, of the Companys research effort was for collaborative projects
funded by our partners with approximately 37% and 22%, respectively, being
Symyx funded research. 3. Facility Lease and Other Commitments 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. In May 2003,
the Company entered into an agreement to lease a storage facility for a period
of two years. Rent expense, which is being recognized on a straight-line basis over the
lease terms, was approximately $1,996,000, $2,248,000 and $2,230,000 for the
years ended December 31, 2003, 2002, and 2001, respectively. As of December 31, 2003 and 2002, the Companys principal commitments were
$11.8 million and $15.2 million, respectively. Principal commitments consisted
of the Companys obligations under operating leases and its commitments to
purchase inventory. The Company will satisfy these obligations as they become
due over the next seven years. Future commitments under the operating leases for the Companys facilities
as of December 31, 2003 are as follows (in thousands): Years ending
December 31,2004
    
    $
    1,7332005
    
    
    1,7982006
    
    
    1,8502007
    
    
    1,9112008
    
    
    1,675Thereafter
    
    
    2,686Total
    
    $
    11,653
 As of December 31, 2003, the Company had purchase commitments for
inventory of approximately $101,000. As of December 31, 2003 the Company had no amounts due under loan
agreements and had no lines of credit or other finance facilities in place.
Interest expense for the years ended December 31, 2003, 2002 and 2001 was $0,
$9,000 and $660,000, 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. Common Stock At the Companys annual meeting in May 2003, the stockholders approved an
amendment to the Companys Certificate of Incorporation to reduce the number of
authorized shares of common stock from 100,000,000 to 60,000,000 shares. 52




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Included in the common shares outstanding at December 31, 2003, 2002 and
2001 are 2,154, 48,755 and 283,727 shares, respectively, 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, which began in February 2003 and end in August 2004 - see Note 7 Related
Party Transactions. As of December 31, 2003, the Company has reserved 7,963,204 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, 2003, shares of
common stock available for future issue under the Stock Purchase Plan are
1,207,961. 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 10,199,019 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. 53




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) No options have been granted under the 2001 NSO Plan as of December 31,
2003. A summary of activity under the 1996 and 1997 Stock Option Plans is as
follows: Outstanding Stock OptionsWeighted-AverageNumber of
    
    Exercise
    
    ExerciseShares
    
    Price
    
    PriceBalance at December 31, 2000
    
    
    3,881,706
    
    
    $
    0.01-$62.63
    
    
    $
    26.57Options granted
    
    
    1,705,387
    
    
    $
    12.13-$31.25
    
    
    $
    22.64Options exercised
    
    
    (386,910
    )
    
    $
    0.19-$25.50
    
    
    $
    5.16Options cancelled
    
    
    (400,864
    )
    
    $
    0.19-$62.63
    
    
    $
    30.28Balance at December 31, 2001
    
    
    4,799,319
    
    
    $
    0.19-$58.25
    
    
    $
    26.59Options granted
    
    
    1,143,925
    
    
    $
    8.42-$21.74
    
    
    $
    15.32Options exercised
    
    
    (216,460
    )
    
    $
    0.19-$16.70
    
    
    $
    4.18Options cancelled
    
    
    (349,803
    )
    
    $
    0.39-$57.00
    
    
    $
    24.81Balance at December 31, 2002
    
    
    5,376,981
    
    
    $
    0.19-$58.25
    
    
    $
    25.21Options granted
    
    
    1,983,750
    
    
    $
    11.97-$30.00
    
    
    $
    14.47Options exercised
    
    
    (578,572
    )
    
    $
    0.19-$22.68
    
    
    $
    10.38Options cancelled
    
    
    (255,159
    )
    
    $
    0.96-$57.00
    
    
    $
    23.35Balance at December 31, 2003
    
    
    6,527,000
    
    
    $
    0.19-$58.25
    
    
    $
    23.33
 At December 31, 2003, 2002 and 2001, vested and outstanding options for
4,287,355, 3,067,521 and 2,056,819 shares were exercisable at weighted-average
exercise prices of $25.75, $20.35 and $13.33, respectively. The
weighted-average grant date fair value of options granted during the years
ended December 31, 2003, 2002 and 2001 was $7.44, $8.33 and $13.62,
respectively. At December 31, 2003, options for shares of common stock
available for future grants under the 1997 Stock Option Plan are 436,204 and
under the 2001 NSO Plan are 1,000,000. An analysis of options outstanding at December 31, 2003 is as follows: Weighted-
    
    
    Options VestedOptions
    
    Average
    
    OptionsOutstanding
    
    Remaining
    
    Weighted-
    
    Vested at
    
    Weighted-at December
    
    Contractual Life
    
    Average
    
    December 31,
    
    AverageExercise Price
    
    31, 2003
    
    (in years)
    
    Exercise Price
    
    2003
    
    Exercise Price$0.19 - $0.39
    
    
    85,459
    
    
    
    3.9
    
    
    $
    0.39
    
    
    
    85,459
    
    
    $
    0.39$0.96 - $0.96
    
    
    225,908
    
    
    
    5.0
    
    
    $
    0.96
    
    
    
    225,908
    
    
    $
    0.96$1.93 - $3.86
    
    
    122,680
    
    
    
    5.3
    
    
    $
    3.00
    
    
    
    122,680
    
    
    $
    3.00$6.43 - $8.42
    
    
    124,147
    
    
    
    6.8
    
    
    $
    7.22
    
    
    
    90,478
    
    
    $
    6.78$10.10 - $14.75
    
    
    2,256,886
    
    
    
    8.3
    
    
    $
    12.85
    
    
    
    951,991
    
    
    $
    12.55$15.22 - $22.60
    
    
    1,111,494
    
    
    
    8.5
    
    
    $
    17.25
    
    
    
    708,765
    
    
    $
    16.90$23.11 - $34.63
    
    
    1,420,966
    
    
    
    7.0
    
    
    $
    26.46
    
    
    
    1,082,805
    
    
    $
    26.54$36.50 - $58.25
    
    
    1,179,460
    
    
    
    6.2
    
    
    $
    55.13
    
    
    
    1,019,269
    
    
    $
    55.466,527,000
    
    
    
    7.4
    
    
    $
    23.33
    
    
    
    4,287,355
    
    
    $
    25.75
 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, 2003, 2002 and 2001, the Company recorded amortization of deferred
stock compensation expense of approximately $43,000, $168,000 and $411,000,
respectively. At December 31, 2003, the Company had a total of approximately
$7,000 remaining to be amortized over the corresponding vesting period of each
respective option. 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): 54




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Years Ended December 31,2003
    
    2002
    
    2001Research & development
    
    $
    51
    
    
    $
    125
    
    
    $
    308Sales, general & administrative
    
    
    (8
    )
    
    
    43
    
    
    
    103Total
    
    $
    43
    
    
    $
    168
    
    
    $
    411
 5. Income Taxes The provision for income taxes consisted of the following (in thousands): Years Ended December 31,2003
    
    2002
    
    2001Current:Federal
    
    $
    1,255
    
    
    $
    1,952
    
    
    $
    2,437State
    
    
    (78
    )
    
    
    119
    
    
    
    905Foreign
    
    
    10
    
    
    
    28
    
    
    
    10Total
    
    
    1,187
    
    
    
    2,099
    
    
    
    3,352Deferred:Federal
    
    
    235
    
    
    
    558
    
    
    
    (2,046
    )State
    
    
    (132
    )
    
    
    
    
    
    
    Total
    
    
    103
    
    
    
    558
    
    
    
    (2,046
    )Provision for income taxes
    
    $
    1,290
    
    
    $
    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 $776,000 in 2003,
$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 to the Companys
effective income tax is as follows (in thousands): Years Ended December 31,2003
    
    2002
    
    2001Expected provision at federal statutory rate
    
    $
    2,461
    
    
    $
    2,780
    
    
    $
    2,676State taxes, net of federal impact
    
    
    (210
    )
    
    
    119
    
    
    
    588Research and development credits
    
    
    (125
    )
    
    
    (50
    )
    
    
    (207
    )Valuation allowance utilized
    
    
    (798
    )
    
    
    (338
    )
    
    
    (1,990
    )Other individually immaterial items
    
    
    (38
    )
    
    
    146
    
    
    
    239Provision for income taxes
    
    $
    1,290
    
    
    $
    2,657
    
    
    $
    1,306
 55




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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 31,2003
    
    2002Deferred tax assets:Net operating loss carry-forwards
    
    $
    1,271
    
    
    $
    238Deferred revenue
    
    
    288
    
    
    
    897Capitalized research and development
    
    
    596
    
    
    
    719Depreciation
    
    
    2,960
    
    
    
    3,101Warranty reserve
    
    
    734
    
    
    
    773R&D and other credits
    
    
    995
    
    
    
    719Other individually immaterial items
    
    
    1,528
    
    
    
    1,582Total deferred tax assets
    
    
    8,372
    
    
    
    8,029Valuation allowance for deferred tax assets
    
    
    (6,522
    )
    
    
    (6,541
    )Total deferred tax assets
    
    
    1,850
    
    
    
    1,488Deferred tax liabilities:Investment holdings
    
    
    (28
    )
    
    
    (89
    )Prepaid insurance and property tax
    
    
    (465
    )
    
    
    Total deferred tax liabilities
    
    
    (493
    )
    
    
    (89
    )Net deferred tax assets
    
    $
    1,357
    
    
    $
    1,399
 Deferred tax assets are recognized 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, 2003. The net valuation allowance decreased by approximately $19,000, $1,908,000
and $1,998,000 during the years ended December 31, 2003, 2002 and 2001,
respectively. Included in the valuation allowance balance is $2,829,000 related to the
exercise of stock options which is not reflected as an expense for financial
reporting purposes. Accordingly, any future reduction in the valuation
allowance relating to this amount will be credited directly to equity and not
reflected as an income tax benefit in the statement of operations. As of December 31, 2003, the Company had a federal net operating loss
carryforward of approximately $3,179,000. The net operating loss carryforward
will start to expire in 2020, if not utilized. As of December 31, 2003, the Company had federal research and development
tax credits of $730,000 and state manufacturers investment credit of $408,000.
The federal research and development tax credits will begin to expire in 2011,
while the state MIC credit will begin to expire in 2008. 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. 56




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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s CODM is the Chief Executive Officer. The CODM evaluates the performance
of the Company based on consolidated profit or loss from operations before
income 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
Intellectual Property Licensing business. The disaggregated financial information reviewed by the CODM is as follows
(in thousands): Years Ended December 31,2003
    
    2002
    
    2001Industry Collaborations
    
    $
    36,125
    
    
    $
    28,889
    
    
    $
    44,629Industry Collaborations  Related Party
    
    
    1,671
    
    
    
    
    
    
    
    Discovery Tools
    
    
    20,088
    
    
    
    32,621
    
    
    
    14,466Intellectual Property Licensing
    
    
    5,079
    
    
    
    3,311
    
    
    
    925Total
    
    $
    62,963
    
    
    $
    64,821
    
    
    $
    60,020
 The disaggregated financial information reviewed by the CODM can be
reconciled to the revenue disclosed in the Consolidated Statement of Operations
as follows (in thousands): Year Ended December 31, 2003Service
    
    
    
    
    
    License Fees
    
    TotalRevenue
    
    Product sales
    
    and Royalties
    
    RevenueIndustry Collaborations
    
    $
    31,625
    
    
    $
    
    
    
    $
    4,500
    
    
    $
    36,125Industry Collaborations -
Related Party
    
    
    1,671
    
    
    
    
    
    
    
    
    
    
    
    1,671Discovery Tools
    
    
    4,775
    
    
    
    14,458
    
    
    
    855
    
    
    
    20,088Intellectual Property Licensing
    
    
    618
    
    
    
    
    
    
    
    4,461
    
    
    
    5,079Total
    
    $
    38,689
    
    
    $
    14,458
    
    
    $
    9,816
    
    
    $
    62,963
 57




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Year Ended December 31, 2002Service
    
    
    
    
    
    License Fees
    
    TotalRevenue
    
    Product sales
    
    and Royalties
    
    RevenueIndustry Collaborations
    
    $
    28,738
    
    
    $
    
    
    
    $
    151
    
    
    $
    28,889Discovery Tools
    
    
    6,659
    
    
    
    25,877
    
    
    
    85
    
    
    
    32,621Intellectual Property Licensing
    
    
    
    
    
    
    
    
    

    
    3,311
    
    
    
    3,311Total
    
    $
    35,397
    
    
    $
    25,877
    
    
    $
    3,547
    
    
    $
    64,821
 Year Ended December 31, 2001Service
    
    
    
    
    
    License Fees
    
    TotalRevenue
    
    Product sales
    
    and Royalties
    
    RevenueIndustry Collaborations
    
    $
    42,629
    
    
    $
    
    
    
    $
    2,000
    
    
    $
    44,629Discovery Tools
    
    
    
    
    
    
    14,216
    
    
    
    250
    
    
    
    14,466Intellectual Property Licensing
    
    
    
    
    
    
    
    
    
    
    925
    
    
    
    925Total
    
    $
    42,629
    
    
    $
    14,216
    
    
    $
    3,175
    
    
    $
    60,020
 Geographic Area Data 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s customers (in thousands). Years Ended December 31,2003
    
    2002
    
    2001United States
    
    $
    53,074
    
    
    $
    56,872
    
    
    $
    34,926Japan
    
    
    7,200
    
    
    
    6,525
    
    
    
    5,618Mexico
    
    
    704
    
    
    
    117
    
    
    
    3,221Germany
    
    
    1,391
    
    
    
    316
    
    
    
    13,222Europe (excluding Germany)
    
    
    594
    
    
    
    991
    
    
    
    3,033Total
    
    $
    62,963
    
    
    $
    64,821
    
    
    $
    60,020
 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 which began in February 2003 and end 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 2003, 2002 and 2001,
$270,000, $5,000 and $211,000 of these promissory notes were repaid,
respectively. The remaining balances of these loans were repaid in full in
January 2004. 58




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In January 2003, the Company formed Symyx Therapeutics, Inc. (STI) as a
wholly owned subsidiary. In connection with the formation of STI, the Company
licensed to STI exclusive rights to certain of the Companys intellectual
property within a specific field with no cost basis to the Company, while
retaining the rights to use and commercialize certain data generated by STI
outside its field. From STIs inception through May 6, 2003, the operating
results of STI were consolidated into the Companys financial statements. On
May 6, 2003, STI completed a private financing with outside investors led by
The Sprout Group and 5am Ventures, raising an aggregate of $8 million, which
reduced the Companys ownership position in STI to approximately 46% of shares
outstanding. In connection with STIs financing, the Company retained the right
to designate one of three members of STIs Board of Directors. The Companys
current designee to STIs Board is our President, Isy Goldwasser, who also
currently serves as STIs Treasurer. In November 2003, STI completed a second
closing of its Series A financing, raising an additional $2,350,000 and
diluting the Companys ownership position in STI to approximately 39% of shares
outstanding. The Companys President and Chief Operating Officer, Isy
Goldwasser and one of its Directors, Peter Schultz, each participated in the
Series A Financing and hold approximately 0.9% and 0.6% respectively of STIs
shares outstanding. The Company accounts for its ownership interest in STI on the equity
method as the Company and its affiliates do not control the strategic,
operating, investing and financing activities of STI. As the Companys
investment in STI has no cost basis for accounting purposes under generally
accepted accounting principles, the Company has not recorded any proportionate
share of STIs operating losses in its financial statements since the
completion of STIs initial financing. On February 6, 2003, the Company loaned $265,000 to STI pursuant to a Loan
and Security Agreement. STI repaid the loan in full, together with
approximately $1,000 of interest, on May 6, 2003. On May 6, 2003, the Company also entered into an 18 month Collaborative
Research and License Agreement with STI. Under the terms of this Agreement, STI
pays research funding to the Company in consideration for direct costs incurred
by the Company specifically attributable to, or specifically used in
furtherance of, the research program. Research funding payments are due to the
Company at the start of each month, with an adjustment at the end of each month
for the difference between forecast and actual costs incurred. Revenue
resulting from work performed under this Research Agreement during the year
ended December 31, 2003 amounted to $1,671,000 and has been classified as
related party revenue. The Company has no repurchase rights with respect to either the licensed
technology or the results of research conducted under the Collaborative
Research and License Agreement. 8. Financial Instruments The Company has not entered into any derivative contracts at December 31,
2003. 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. 59




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Accounts receivable and accounts payable: The carrying amounts reported in
the balance sheet for accounts receivable and accounts payable approximate
their fair value. 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 are included in Note 1 to these financial statements. 9. Quarterly Results of Operations (Unaudited) The following is a summary of the quarterly results of operations for the
years ended December 31, 2003 and 2002 (in thousands, except per share
amounts). Three Months EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31 (b),2003Total revenues
    
    $
    14,859
    
    
    $
    14,997
    
    
    $
    14,469
    
    
    $
    18,638Operating expenses:Cost of products sold
    
    
    1,078
    
    
    
    800
    
    
    
    154
    
    
    
    905Research and development
    
    
    9,380
    
    
    
    10,148
    
    
    
    10,411
    
    
    
    10,119Sales, general and administrative
    
    
    3,792
    
    
    
    3,579
    
    
    
    3,485
    
    
    
    4,077Total operating expenses
    
    
    14,250
    
    
    
    14,527
    
    
    
    14,050
    
    
    
    15,101Interest income (expense), net
    
    
    580
    
    
    
    487
    
    
    
    439
    
    
    
    490Income before income tax expense
    
    
    1,189
    
    
    
    957
    
    
    
    858
    
    
    
    4,027Income tax expense
    
    
    476
    
    
    
    339
    
    
    
    206
    
    
    
    269Net income
    
    $
    713
    
    
    $
    618
    
    
    $
    652
    
    
    $
    3,758Basic net income per share (a)
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.12Diluted net income per share (a)
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.11
 Three Months EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31 (b),2002Total revenues
    
    $
    14,512
    
    
    $
    13,985
    
    
    $
    14,441
    
    
    $
    21,883Operating expenses:Cost of products sold
    
    
    645
    
    
    
    794
    
    
    
    1,209
    
    
    
    3,591Research and development
    
    
    10,231
    
    
    
    9,630
    
    
    
    9,617
    
    
    
    9,829Sales, general and administrative
    
    
    3,461
    
    
    
    3,232
    
    
    
    3,422
    
    
    
    4,477Total operating expenses
    
    
    14,337
    
    
    
    13,656
    
    
    
    14,248
    
    
    
    17,897Interest income (expense), net
    
    
    1,019
    
    
    
    871
    
    
    
    705
    
    
    
    665Income before income tax expense
    
    
    1,194
    
    
    
    1,200
    
    
    
    898
    
    
    
    4,651Income tax expense
    
    
    585
    
    
    
    516
    
    
    
    54
    
    
    
    1,502Net income
    
    $
    609
    
    
    $
    684
    
    
    $
    844
    
    
    $
    3,149Basic net income per share (a)
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    0.10Diluted net income per share (a)
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    0.10
 60




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SYMYX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (a) Earning per share, or EPS, for each quarter is computed using the weighted-average number of shares
outstanding during that quarter, while EPS for the fiscal year is computed using the weighted-average number
of shares outstanding during the year. Thus, the sum of the EPS for each of the four quarters may not equal
the EPS for the fiscal year. (b) In the last quarter of both fiscal years 2003 and 2002, delivery of high dollar value Discovery Tools
systems to the Companys customers resulted in significantly higher product sales revenue and earnings per
share in those respective quarters when compared with the other quarters in each of those two year periods. 61




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 
 ITEM 9A. CONTROLS AND PROCEDURES  (a)
    
    Evaluation of disclosure controls and proceduresBased 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 controlsThere 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. 62




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##### Table of Contents



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 2004 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. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item is incorporated by reference to the
information under the caption Principal Auditor Fees and Services in the
Proxy Statement. 63




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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, independent auditors, have been filed as part of this
Annual Report on 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, 2003 and 2002
Consolidated Statements of Operations for the Years Ended December 31,
2003, 2002 and 2001
Consolidated Statement of Stockholders Equity for the Years Ended
December 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows for the Years Ended December 31,
2003, 2002 and 2001
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 On October 23, 2003, Symyx filed a Current Report on Form 8-K furnishing
under Item 12 of Form 8-K a press release issued by Symyx announcing revenue,
earnings and certain other information related to the third quarter ended
September 30, 2003, financial guidance pertaining to 2003 and 2004, and Ed F.
Gambrell joining the Board of Directors. 64




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(C) EXHIBITS ExhibitNumber
    
    
    
    
    
    Description of Document3.1
    
    
    (1
    )
    
    Amended and Restated Certificate of Incorporation3.2
    
    
    (7
    )
    
    Amended Bylaws of Symyx4.1
    
    
    (2
    )
    
    Specimen Common Stock Certificate5.1
    
    
    (2
    )
    
    Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation10.1
    
    
    (2
    )
    
    Restated Investors Rights Agreement dated March 27, 199810.2
    
    
    (2
    )
    
    1996 Stock Plan and forms of agreements thereunder10.3
    
    
    (2
    )
    
    1997 Stock Plan and forms of agreements thereunder10.4
    
    
    (2
    )
    
    1999 Employee Stock Purchase Plan10.5
    
    
    (2
    )
    
    Form of Director and Executive Officer Indemnification Agreement10.6
    
    
    (2
    )
    
    Form of Change of Control Agreement between Symyx and the following
individuals: Steven D. Goldby, Isy Goldwasser, Jeryl L. Hilleman, and
W. Henry Weinberg10.7
    
    
    (2
    )
    
    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 thereto10.7(a)
    
    
    (2
    )
    
    First Amendment to Lease between Symyx and Patrick and Bette Ng,
Co-Trustees for The Ng Living Trust10.8
    
    
    (2
    )
    
    Collaboration Agreement dated March 1, 1998 between Symyx and Bayer AG10.8(a)
    
    
    (2
    )
    
    Amendment No. 1 dated May 1, 1998 to Collaboration Agreement between
Symyx and Bayer AG10.8(b)
    
    
    (2
    )
    
    Amendment No. 2 dated November 1, 1998 to Collaboration Agreement
between Symyx and Bayer AG10.8(c)
    
    
    (2
    )
    
    Amendment No. 3 dated January 1, 1999 to Collaboration Agreement
between Symyx and Bayer AG10.8(d)
    
    
    (2
    )
    
    Amendment No. 4 dated September 15, 1999 to Collaboration Agreement
between Symyx and Bayer AG10.9
    
    
    (2
    )
    
    Celanese-Symyx Collaboration Agreement dated August 1, 1998 between
Symyx and Celanese Ltd.10.10
    
    
    (2
    )
    
    Collaborative Research and License Agreement dated January 1, 1999
between Symyx and The Dow Chemical Company10.11
    
    
    (2
    )
    
    License Agreement dated June 22, 1995 between Symyx and Lawrence
Berkeley Laboratory, on behalf of The Regents of the University of
California10.12
    
    
    (2
    )
    
    License and Supply Agreement effective August 6, 1999 between Symyx
and Argonaut Technologies, Inc.10.13
    
    
    (3
    )
    
    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 thereto10.14
    
    
    (4
    )
    
    2001 Nonstatutory Stock Option Plan*10.15
    
    
    (5
    )
    
    License Agreement dated February 21, 2003 between Symyx Technologies,
Inc. and Symyx Therapeutics, Inc.*10.16
    
    
    (6
    )
    
    Alliance, Technology Transfer, and License Agreement effective April
1, 2003 between Symyx Technologies, Inc., Symyx Discovery Tools, Inc.
and ExxonMobil Research and Engineering Company.14
    
    
    (7
    )
    
    Symyx Technologies, Inc. Code of Conduct and Ethics21
    
    
    (7
    )
    
    List of Subsidiaries23.1
    
    
    (7
    )
    
    Consent of Ernst & Young LLP, Independent Auditors
 65




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ExhibitNumber
    
    
    
    
    
    Description of Document31.1
    
    
    (7
    )
    
    Certification of Chief Executive Officer pursuant to Rules 13a-14(a)
and 15d-14(a) promulgated under the Securities Exchange Act of 1934,
as amended, as adopted pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002.31.2
    
    
    (7
    )
    
    Certification of Chief Financial Officer pursuant to Rules 13a-14(a)
and 15d-14(a) promulgated under the Securities Exchange Act of 1934,
as amended, as adopted pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002.32.1
    
    
    (7
    )
    
    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.
 * Confidential treatment has been requested for portions of these exhibits.   (1) Incorporated by reference to the same number exhibit filed with
Registrants Quarterly Report on Form 10-Q for the period ended June 30, 2003. (2) Incorporated by reference to the same number exhibit filed with
Registrants Registration Statement on Form S-1 (File No. 333-87453), as
amended. (3) 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. (4) Incorporated by reference to exhibit 4.1 filed with Registrants
Registration Statement on Form S-8 (File No. 333-82166). (5) Incorporated by reference to the same number exhibit filed with
Registrants Quarterly Report on Form 10-Q for the period ended June 30, 2003. (6) Incorporated by reference to the same number exhibit filed with
Registrants Quarterly Report on Form 10-Q for the period ended September 30,
2003. (7) 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)Date: March 8, 2004/s/ Steven D. GoldbySteven D. GoldbyChairman of the Board,Chief Executive Officer(Principal Executive Officer)Date: March 8, 2004/s/ Jeryl L. HillemanJeryl L. HillemanSenior Vice President,Chief Financial Officer(Principal Financial and Accounting Officer)
 67




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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 Annual Report on 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
    
    DateBy
    
    /s/ STEVEN D. GOLDBY

Steven D. Goldby
    
    Chief Executive Officer
and Chairman of the
Board (Principal
Executive Officer)
    
    March 8, 2004By
    
    /s/ JERYL L. HILLEMAN

Jeryl L. Hilleman
    
    Senior Vice President
and Chief Financial
Officer(Principal
Financial and
Accounting Officer)
    
    March 8, 2004By
    
    /s/ THOMAS R. BARUCH

Thomas R. Baruch
    
    Director
    
    March 8, 2004By
    
    /s/ SAMUEL D. COLELLA

Samuel D. Colella
    
    Director
    
    March 8, 2004By
    
    /s/ EDWIN F. GAMBRELL

Edwin F. Gambrell
    
    Director
    
    March 8, 2004By
    
    /s/ MARTIN S. GERSTEL

Martin S. Gerstel
    
    Director
    
    March 8, 2004By
    
    /s/ KENNETH J. NUSSBACHER

Kenneth J. Nussbacher
    
    Director
    
    March 8, 2004By
    
    /s/ MARIO M. ROSATI

Mario M. Rosati
    
    Director
    
    March 8, 2004By
    
    /s/ PETER G. SCHULTZ

Peter G. Schultz
    
    Director
    
    March 8, 2004
 68




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EXHIBIT INDEX ExhibitNumber
    
    
    
    
    
    Description of Document3.1
    
    
    (1
    )
    
    Amended and Restated Certificate of Incorporation3.2
    
    
    (7
    )
    
    Amended Bylaws of Symyx4.1
    
    
    (2
    )
    
    Specimen Common Stock Certificate5.1
    
    
    (2
    )
    
    Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation10.1
    
    
    (2
    )
    
    Restated Investors Rights Agreement dated March 27, 199810.2
    
    
    (2
    )
    
    1996 Stock Plan and forms of agreements thereunder10.3
    
    
    (2
    )
    
    1997 Stock Plan and forms of agreements thereunder10.4
    
    
    (2
    )
    
    1999 Employee Stock Purchase Plan10.5
    
    
    (2
    )
    
    Form of Director and Executive Officer Indemnification Agreement10.6
    
    
    (2
    )
    
    Form of Change of Control Agreement between Symyx and the following
individuals: Steven D. Goldby, Isy Goldwasser, Jeryl L. Hilleman, and
W. Henry Weinberg10.7
    
    
    (2
    )
    
    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 thereto10.7(a)
    
    
    (2
    )
    
    First Amendment to Lease between Symyx and Patrick and Bette Ng,
Co-Trustees for The Ng Living Trust10.8
    
    
    (2
    )
    
    Collaboration Agreement dated March 1, 1998 between Symyx and Bayer AG10.8(a)
    
    
    (2
    )
    
    Amendment No. 1 dated May 1, 1998 to Collaboration Agreement between
Symyx and Bayer AG10.8(b)
    
    
    (2
    )
    
    Amendment No. 2 dated November 1, 1998 to Collaboration Agreement
between Symyx and Bayer AG10.8(c)
    
    
    (2
    )
    
    Amendment No. 3 dated January 1, 1999 to Collaboration Agreement
between Symyx and Bayer AG10.8(d)
    
    
    (2
    )
    
    Amendment No. 4 dated September 15, 1999 to Collaboration Agreement
between Symyx and Bayer AG10.9
    
    
    (2
    )
    
    Celanese-Symyx Collaboration Agreement dated August 1, 1998 between
Symyx and Celanese Ltd.10.10
    
    
    (2
    )
    
    Collaborative Research and License Agreement dated January 1, 1999
between Symyx and The Dow Chemical Company10.11
    
    
    (2
    )
    
    License Agreement dated June 22, 1995 between Symyx and Lawrence
Berkeley Laboratory, on behalf of The Regents of the University of
California10.12
    
    
    (2
    )
    
    License and Supply Agreement effective August 6, 1999 between Symyx
and Argonaut Technologies, Inc.10.13
    
    
    (3
    )
    
    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 thereto10.14
    
    
    (4
    )
    
    2001 Nonstatutory Stock Option Plan*10.15
    
    
    (5
    )
    
    License Agreement dated February 21, 2003 between Symyx Technologies,
Inc. and Symyx Therapeutics, Inc.*10.16
    
    
    (6
    )
    
    Alliance, Technology Transfer, and License Agreement effective April
1, 2003 between Symyx Technologies, Inc., Symyx Discovery Tools, Inc.
and ExxonMobil Research and Engineering Company.14
    
    
    (7
    )
    
    Symyx Technologies, Inc. Code of Conduct and Ethics21
    
    
    (7
    )
    
    List of Subsidiaries23.1
    
    
    (7
    )
    
    Consent of Ernst & Young LLP, Independent Auditors




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ExhibitNumber
    
    
    
    
    
    Description of Document31.1
    
    
    (7
    )
    
    Certification of Chief Executive Officer pursuant to Rules 13a-14(a)
and 15d-14(a) promulgated under the Securities Exchange Act of 1934,
as amended, as adopted pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002.31.2
    
    
    (7
    )
    
    Certification of Chief Financial Officer pursuant to Rules 13a-14(a)
and 15d-14(a) promulgated under the Securities Exchange Act of 1934,
as amended, as adopted pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002.32.1
    
    
    (7
    )
    
    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.
 * Confidential treatment has been requested for portions of these exhibits.   (1) Incorporated by reference to the same number exhibit filed with
Registrants Quarterly Report on Form 10-Q for the period ended June 30, 2003. (2) Incorporated by reference to the same number exhibit filed with
Registrants Registration Statement on Form S-1 (File No. 333-87453), as
amended. (3) 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. (4) Incorporated by reference to exhibit 4.1 filed with Registrants
Registration Statement on Form S-8 (File No. 333-82166). (5) Incorporated by reference to the same number exhibit filed with
Registrants Quarterly Report on Form 10-Q for the period ended June 30, 2003. (6) Incorporated by reference to the same number exhibit filed with
Registrants Quarterly Report on Form 10-Q for the period ended September 30,
2003. (7) Filed herewith.