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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                            ------------------------

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

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

           FOR THE TRANSITION PERIOD FROM __________ TO __________ .

                         COMMISSION FILE NUMBER ______

                            SYMYX TECHNOLOGIES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<CAPTION>
                          DELAWARE                                                    77-0397908
<S>                                                          <C>
              (STATE OR OTHER JURISDICTION OF                                       (IRS EMPLOYER
               INCORPORATION OR ORGANIZATION)                                   IDENTIFICATION NUMBER)
</TABLE>

<TABLE>
<CAPTION>
                  3100 CENTRAL EXPRESSWAY
               SANTA CLARA, CALIFORNIA 95051                                        (408) 764-2000
<S>                                                          <C>
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)                (REGISTRANT'S TELEPHONE NUMBER,
                                                                                 INCLUDING AREA CODE)
</TABLE>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                         COMMON STOCK, $0.01 PAR VALUE

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

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

     The aggregate market value of voting Common Stock held by non-affiliates of
the registrant (based on the closing price for the Common Stock on the Nasdaq
National Market on March 3, 2000) was approximately $1,286 million. As of March
3, 2000, 29,701,014 shares of Common Stock were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     CERTAIN SECTIONS OF THE PROXY STATEMENT TO BE FILED IN CONNECTION WITH THE
2000 ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III
OF THIS FORM 10-K REPORT WHERE INDICATED.

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<PAGE>   2

                                     INDEX

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM                                                                 PAGE
----                                                                 ----
<S>    <C>                                                           <C>
                                 PART I
1.     Business....................................................    3
2.     Properties..................................................   17
3.     Legal Proceedings...........................................   17
4.     Submission of Matters to a Vote of Security Holders.........   18

                                 PART II
5.     Market for Registrant's Common Equity and Related Stock
       Matters.....................................................   19
6.     Selected Financial Data.....................................   20
7.     Management's Discussion and Analysis of Financial Condition
       and Results from Operations.................................   21
7A.    Quantitative and Qualitative Disclosures about Market
       Risk........................................................   26
8.     Financial Statements and Supplementary Data.................   26
9.     Changes in and Disagreements with Accountants on Accounting
       and Financial Disclosure....................................   44

                                PART III
10.    Directors and Executive Officers of the Registrant..........   44
11.    Executive Compensation......................................   44
12.    Security Ownership of Certain Beneficial Owners and
       Management..................................................   44
13.    Certain Relationships and Related Transactions..............   44

                                 PART IV
14.    Exhibits, Financial Statement Schedules, and Reports on Form
       8-K.........................................................   45
       Signatures..................................................   47
</TABLE>

                                        2
<PAGE>   3

                                     PART I

ITEM 1. BUSINESS

     All statements in this discussion that are not historical are
Forward-Looking Statements within the meaning of Section 21e of the Securities
Exchange Act, including statements regarding the Company's "Expectations",
"Beliefs", "Hopes", "Intentions", "Strategies", or the like. Such statements are
based on management's current expectations and are subject to a number of
factors and uncertainties that could cause actual results to differ materially
from those descried in the Forward-Looking Statements. The Company cautions
investors that there can be no assurance that actual results or business
conditions will not differ materially from those projected or suggested in such
Forward-Looking Statement as a result of various factors, including, but not
limited to, the risk factors discussed in this Annual Report on Form 10-K. Symyx
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any Forward-Looking Statements contained herein to
reflect any change in Symyx' expectations with regard thereto or any change in
events, conditions, or circumstances on which any such statements are based.

     We are a pioneer of high-speed technologies for the discovery of new
materials. Our proprietary technologies, including instruments, software and
methods, represent complete processes designed to cost-effectively accelerate
and fundamentally change materials discovery. We are able to generate hundreds
to thousands of unique materials at a time and screen those materials rapidly
and automatically for desired properties. We believe our approach is up to 100
times faster than traditional research methods and reduces the cost per
experiment to as low as 1% of traditional research methods.

     We are applying our technology to discover materials for industrial
customers in the life science, chemicals and electronic industries. Our
discovery efforts encompass a broad range of materials, from x-ray storage
phosphors for mammography to polymers to speed DNA separation, thermoelectric
materials for cooling computers and telecommunications equipment, and catalysts
for the manufacture of pharmaceuticals, commodity chemicals, plastics and
rubbers.

     Our commercialization strategy is to apply our proprietary technologies to
discover materials under our Industry Collaboration and Symyx Proprietary
Materials businesses, and to commercialize select instruments and software
through our Discovery Tools(TM) Technology Access business.

     To support these business areas, we also continue to build our product
development pipeline. In 1999, Company scientists screened over 1 million
different materials and through that process identified ten development
candidates. Six of these candidates are in Symyx Proprietary Materials programs,
in fine chemicals, specialty polymers and electronic materials, and four are in
Industry Collaboration programs, in catalysis and phosphors.

     During 1999, we added four major new Industry Collaboration agreements,
including the addition of partnerships with BASF AG and the Dow Chemical
Company, and the second and third expansion of our collaboration with Bayer AG.
To date, our total committed research funding from collaborations and government
contracts is over $90 million of which we have recognized revenue of $49 million
through December 31, 1999.

     One of our most advanced discovery efforts is the discovery of new x-ray
phosphors for mammography, achieved in our Agfa program. These materials have
been transferred to Agfa and it is their objective to have products based on
these materials on the market in 2001.

     In January 2000, we signed a joint development and licensing agreement with
PE Biosystems to develop our proprietary polymer synthesis materials and methods
for use in the analysis of DNA. This collaboration was the first to result from
our internal efforts to discover, develop and commercialize proprietary
materials. Symyx and PE Biosystems will jointly design polymers as well as the
methods and instrumentation for screening those polymers. We will make and
screen the polymers for use in nucleic acid separations. PE Biosystems will
develop and commercialize successful polymer candidates. Under the terms of the
two-year agreement, we will receive payments for development funding and
royalties on any products commercial-

                                        3
<PAGE>   4

ized as a result of this collaboration. In addition, we received a payment in
January 2000 for the transfer of existing development compounds.

     We executed sale agreements in November 1999 with the Dow Chemical Company
for a polyolefins Discovery Tools system and, in December 1999, with the
Instituto Mexicano del Petroleo for an initial module of our Discovery Tools
Heterogeneous Catalysis System. The first of these systems was shipped to
Instituto Mexicano del Petroleo in February 2000.

     In August 1999, we established a manufacturing and commercialization
agreement with Argonaut Technologies, Inc. to manufacture and commercialize
small, manual instruments capable of performing 5 to 10 experiments a day. The
first product offering of this collaboration is Endeavor(TM), an 8-cell
continuous-stirred parallel pressure reactor. We will earn royalties on the
sales of products by Argonaut which incorporate our technology.

     During 2000, we expect to continue to identify new materials for
development and commercialization under our Industry Collaborations and our
Symyx Proprietary Materials businesses, to add additional Industry
Collaborations and licensing agreements for proprietary materials, and to grow
our Discovery Tools business.

INDUSTRY BACKGROUND

     Materials and their diverse properties contribute in a vital way to many of
the products we use everyday. Examples include the catalysts used in the
manufacture of major chemicals, pharmaceuticals, plastics and rubbers, the
plastics in many of our household goods, phosphorescent materials in x-rays and
computer screens, and polymers on the bottom of sneakers. The life science,
chemical and electronic companies that produce these materials often face
heightened pressure to achieve growth targets and increase profitability.
Traditional materials discovery relies on an expensive and time-consuming
process of trial and error: making one material; testing it; then making a
different material; testing it and so on. Traditional discovery methods are not
fast enough to keep pace with product life cycles and growth expectations within
the chemicals, life science and electronics industries. As a result, these
companies need to reduce costs, increase innovation, and create new businesses
based on proprietary materials. We believe that we can assist life science,
chemical and electronics companies by discovering new materials in a more
productive and cost-effective manner than by using traditional methods.

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

     Dr. Alejandro Zaffaroni and Dr. Peter Schultz founded Symyx in 1994. Dr.
Zaffaroni is also a founder of ALZA, Affymax, Affymetrix, Maxygen and DNAX
Research Institute. The conceptual basis for Symyx draws from Affymax and
Affymetrix, which commercialized the use of high-speed combinatorial methods for
pharmaceutical and genetic research, respectively.

SYMYX SOLUTION

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

                                        4
<PAGE>   5

result, our scientists would generate significantly more data, increase the
possibility of discoveries within that timeframe, and reduce the associated
costs per experiment dramatically.

<TABLE>
<CAPTION>
                                          TRADITIONAL                     SYMYX
                                       RESEARCH APPROACH         DISCOVERY TECHNOLOGIES
                                   -------------------------    -------------------------
<S>                                <C>                          <C>
Team.............................  1 chemist + 1 technician     1 chemist + 1 technician
Cost/year........................          $500,000                     $500,000
Experiments/year.................         500 - 1,000                20,000 - 50,000
Cost/experiment..................        $500 - $1,000                  $10 - $25
</TABLE>

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

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

     We have focused as well on building a strong competitive position through
our intellectual property position. We have over 90 patent applications pending
in the United States and over 50 foreign patent applications pending covering
combinatorial methodologies, instruments and software and novel materials. In
addition, we have 8 issued United States patents and an additional 2 patent
applications allowed in the United States.

SYMYX STRATEGY

     Our objective is to be the leading company using high-speed technologies
for the discovery of new materials with commercially valuable properties. We
have developed a strategy of three business approaches that we intend to follow
in pursuit of our objective:

     - Industry Collaborations, in which we enter into collaborative research
       and early-stage licensing agreements with corporate partners that provide
       funding for research and discovery efforts, commercialize our materials
       and pay royalties on commercial sales;

     - Symyx Proprietary Materials, where we invest in our own materials
       research efforts to discover materials with near-term commercial
       potential and then enter into late-stage licensing arrangements or
       commercialize materials directly; and

     - Discovery Tools Technology Access, in which we sell and license selected
       equipment and software to chemical and other industrial companies for
       their own use.

INDUSTRY COLLABORATIONS

     In collaboration with major chemical and other industrial companies, we
seek to discover new polymer formulations, catalysts, pigments and phosphors for
industrial applications.

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

                                        5
<PAGE>   6

the infrastructure to support these requirements, and may therefore be in a
strong position to commercialize our discoveries.

     We receive funding from our collaborative partners through annual research
payments. These payments are made over the term of the research contract, which
is generally two to three years. If a new material is discovered and
commercialized, we will receive either royalties or milestone payments. We
believe that we have the potential for royalties ranging from 3% to 7% on sales
of products incorporating our materials, such as pigments, phosphors and
polymers and 1% to 3% on sales of end products manufactured using our catalysts,
such as high-volume commodity chemicals and polyolefins.

     We currently have nine industry collaboration partners, including Bayer
which has expanded our collaboration three times to date. The table below
indicates, for each of our currently active collaborations, the collaborative
partner, date and field.

<TABLE>
<CAPTION>
        PARTNER           DATE(S) OF ALLIANCE                     FIELD(S)
        -------           -------------------                     --------
<S>                       <C>                  <C>
Agfa                      March 1998           X-ray phosphors for radiography
BASF                      March 1999           Specialty polymers for industrial formulations
Bayer                     March 1998,          Polyolefins, commodity chemicals
                          May 1998,
                          January 1999,
                          September 1999
Celanese                  August 1998          Commodity chemicals
Ciba Specialty Chemicals  April 1998           Pigments
Dow Chemical              January 1999         Polyolefins
Osram OS*                 December 1998        Phosphors for lighting
PE Biosystems             January 2000         Polymers for nucleic acid separations
Unilever                  December 1998        Polymers for product formulations
</TABLE>

---------------
  * an affiliate of Siemens

     Our collaborations, together with government grants, provide for over $90
million in aggregate commitments for research payments. Through December 31,
1999, we had recognized revenue of $49 million under these agreements with the
remaining amounts scheduled to be paid through 2003. In order to maintain and
grow our research and product pipelines, we intend to continue to enter into new
collaborative arrangements. As a result of these new arrangements, and the
conclusion of existing collaborations upon completion of research or transfer of
development candidates to our collaborative partners for commercialization, our
portfolio of collaborations will change over time. We expect that new
collaborations will come from existing collaborative partners undertaking new
research initiatives as well as new collaborative partners.

     One of our most advanced discovery efforts to date has resulted from our
collaboration with Agfa in the area of discovery of new x-ray phosphors for
radiography. Many groups have worked over the past fifteen years to find
alternative materials that perform better than existing materials. Under our
collaboration, we have made and screened over 50,000 phosphors, and we
discovered several that have shown the potential to provide higher resolution,
be easier to manufacture and have a longer shelf life than existing materials.
These materials have been transferred to Agfa, and we have been advised by Agfa
that their objective is to have products based on these materials on the market
during 2001.

SYMYX PROPRIETARY MATERIALS

     We believe that the assets resulting from our investment in proprietary
research programs will be a significant contributor of future value. Our
proprietary research efforts are focused on discovery of products for specialty
markets with well-defined materials needs and short-term development and
commercialization cycles. To date, our efforts to develop Symyx Proprietary
Materials are in specialty polymers for life science applications, catalysts for
the manufacture of fine chemicals such as pharmaceutical intermediates, and
electronic materials.

                                        6
<PAGE>   7

     Our first agreement for Symyx Proprietary Materials is with PE Biosystems
for polymers to increase resolution and speed DNA separation. Under this
agreement, PE Biosystems made a payment for the transfer of development
candidates, and will also pay us advance royalties and royalties upon
commercialization of materials.

     Another Proprietary Materials program seeks to discover polymers to enhance
the sensitivity of biological assays by creating three-dimensional polymer
surfaces to increase probe surface area and allow precise engineering of those
surfaces.

     We also have several programs in electronic materials, funded by ourselves
and by the U.S. Office of Naval Research Defense Advanced Research Projects
Agency (known as DARPA) and the United States Department of Energy. One 1999
DARPA program funded research relates to thermoelectric materials used for
refrigeration and applications requiring precise active cooling devices. These
applications include computer chips and missile guidance systems. A second 1999
DARPA program also funded research for magnetic materials used as permanent
magnets in applications including electro-magnetic motors. Our program with the
Department of Energy is funding research relating to materials for fuel cells
for potential use in automobiles. Funding under the DARPA and Department of
Energy programs is structured as grants, and we own the rights to commercialize
materials discovered under these programs.

     We expect to commercialize development candidates discovered through our
proprietary materials programs either by manufacturing, marketing, and selling
the product ourselves or through late-stage licensing arrangements. We expect to
be able to obtain significantly higher royalty rates under these late-stage
licenses than under our collaborative agreements because we will have completed
essentially all development work at the time we license the product.

     For fine chemicals, we also have developed a "quick-strike" licensing model
in which we would assume the research risk during a short, well-defined,
research period of approximately three months in exchange for the customer's
agreement to make milestone payments and enter into a license agreement upon
completion of research and technical validation. We expect that royalty rates
under these licenses will be in a range of 4% to 7% of sales, which is
attractive to us due to the breadth and number of projects which we believe we
can successfully complete annually.

DISCOVERY TOOLS TECHNOLOGY ACCESS

     Our scientific and technical team has spent considerable time and resources
developing a broad array of instruments, software and know-how in support of our
research. In addition to our alliances, we are seeking to meet the growing
demand for combinatorial technologies by offering access to some of our
equipment and technology. We believe that these programs will enhance, not
detract from, our collaborative arrangement efforts by reinforcing our position
as the leading source for combinatorial technology in materials science.
To-date, we have executed purchase orders for Discovery Tools with the Dow
Chemical Company and the Instituto Mexicano Del Petroleo.

     The Dow Chemical Company is the first customer of our Discovery Tools
business. Dow, an existing collaborative partner, has placed an order for a
system that provides capabilities to make and test polyolefin catalysts. We sell
our Discovery Tools together with a license to associated software, know-how and
patents. Our first offering, purchased by Dow, is a combination of a
multi-channel polymer reactor system together with two screening instruments.
Under the terms of Dow's purchase, Dow will pay us between $5.0 million and $8.5
million over three years for the manufacture, delivery and use of the system.

     The Instituto Mexicano Del Petroleo has purchased an initial module of our
Discovery Tools(TM) Heterogeneous Catalysis System, which we shipped in February
2000. This purchase will provide IMP with the capability to increase
experimental throughput significantly within its laboratories, and will be
directed to the development of refinery catalysts and other materials.

     We have designed the Discovery Tools that we initially plan to sell to
perform an average of 100 experiments per day. We do not expect that our sale of
Discovery Tools will affect our ability to enter into new research
collaborations. Companies enter into collaborations with us to access all of our
technologies
                                        7
<PAGE>   8

including our highest throughput screening equipment designed for new materials
discovery, as well as the expertise of our scientific and technical staff and
our libraries of catalysts and materials. We do not plan to offer access to
these resources as part of our Discovery Tools program.

     In addition to the sale of Discovery Tools, we also believe that there is
significant commercial value in the nonautomated laboratory instruments that we
developed to perform small scale parallel synthesis of materials. We have formed
a collaboration with Argonaut Technologies, Inc. to capture this opportunity.
Argonaut is an instrument company that develops and commercializes synthesizers,
instruments, software and chemical resins and reagents to accelerate and
automate chemical synthesis. Argonaut will refine our designs for manual
benchtop instruments, manufacture the instruments and sell them worldwide. In
return, we will receive a portion of the profits from the sale of these
instruments. Our first product, sold with both the Argonaut and Symyx
trademarks, was introduced for sale in August 1999. This instrument, the
Endeavor, is an eight-channel manual reactor used to synthesize polymers and
other chemicals under high pressure. This instrument has a sale price of
approximately $60,000. We expect other manual bench instruments developed by us
and commercialized by Argonaut to have similar sales prices.

TECHNOLOGY

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

SYNTHESIS

     The materials research process begins with chemists' theories about what
elements from the periodic table of elements might be combined to create new
materials with desired properties. However, while chemists working in
traditional labs have to choose the few experiments they will perform on a given
day, our chemists have the ability to perform hundreds or thousands of
experiments at once. Our chemists are therefore able to pursue their theories
both broadly -- across a wide range of elements -- and
comprehensively -- creating materials with the same components in different
ratios.

     A Symyx chemist initiates the synthesis process by using Library Studio, a
computer software package created by our programmers to design the group, or
"library," of materials to be synthesized. These instructions, or "recipes," are
then relayed to automated synthesis instruments. These instruments create the
library on a single substrate such as a three-inch diameter silicon wafer or a
96-well plate. The quantity of each compound synthesized is very small,
generally ranging from micrograms to hundreds of milligrams. This contrasts
dramatically with traditional synthesis, where gram to kilogram quantities of a
material are usually necessary. Libraries synthesized on silicon wafers may
range from a few hundred different candidate materials to as many as 25,000,
depending on the type of material and the type of analysis to be done.

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

SCREENING

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

                                        8
<PAGE>   9

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

INFORMATICS

     A critical factor in our discovery process is the ability to retain and
access the huge amounts of data generated by our synthesis and screening
activities. Given the broad acceptance of high-speed combinatorial discovery in
pharmaceuticals, a number of applications exist to support organic chemistry.
However, those solutions were not sufficient to address the storage and
retrieval needs of our diverse array of inorganic, organometallic and polymer
chemistries. To that end, we have devoted considerable resources to build a
proprietary database capable of addressing our unique needs. Our chemists can
query this database to identify materials screened in the past that possess the
property or properties specified. We believe that this database will emerge as a
powerful tool in accelerating materials discovery by enabling our scientists to
benefit from the cumulative effect of all of our research. Although we typically
cannot use leads and development candidates identified in one collaborative
program for other collaborative programs or for our proprietary research,
materials screened in one program without success may have properties that make
them useful in other programs.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

     Our success depends upon our proprietary technology. There are five general
areas that may be patented using our combinatorial approach:

     - library synthesis methods;

     - the libraries themselves;

     - screening or characterization methods;

     - equipment and software; and

     - new materials.

     We have over 90 patent applications pending in the United States, and over
50 foreign patent applications pending. In addition, we have 8 issued United
States patents and an additional 2 patent applications allowed in the United
States. We co-own 3 of the issued United States patents and some of the pending
patent applications with Lawrence Berkeley National Laboratory, on behalf of The
Regents of the University of California. We have an exclusive license to these
patents and patent applications from Lawrence Berkeley National Laboratory,
which was agreed to upon formation of the Company. In addition to patents, we
rely on copyright, trademark and trade secret rights, confidentiality procedures
and licensing arrangements to establish and protect our proprietary rights.

     As part of our confidentiality and trade secret protection procedures, we
enter into non-disclosure agreements with our employees, consultants and
potential collaborative partners. Despite these precautions,

                                        9
<PAGE>   10

third parties could obtain and use our products or technology without
authorization, or develop similar technology independently. It is difficult for
us to police unauthorized use of our methods. Effective protection of
intellectual property rights is unavailable or limited in some foreign
countries. The protection of our proprietary rights may be inadequate and our
competitors could independently develop similar technology, duplicate our
products or design around any patents or other intellectual property rights we
hold.

COMPETITION

     We are aware of several companies that have stated interest in applying
their expertise in combinatorial chemistry to materials research and
development. We are also aware of some chemical companies with internal
combinatorial programs participating in materials research and development
consortiums. In addition, Shell Chemicals is participating in a consortium in
The Netherlands and BASF is funding a start-up company in Heidelberg, Germany
named HTE. BASF is also one of our collaborative partners. In addition, academic
and research institutions may seek to develop technologies that would be
competitive with our systems for materials discovery. Because combinatorial
materials science is an emerging field, competition from additional entrants may
increase.

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

EMPLOYEES

     As of December 31, 1999, we had a total of 170 employees, including 136
scientific and technical employees and 34 people in business development, legal
and general and administrative services. Of our scientific and technical staff,
124 have masters or doctorate degrees. None of our employees is represented by a
labor union, and we consider our employee relations to be good.

RISK FACTORS

     All statements in this annual report that do not discuss past results are
forward-looking statements. Forward-looking statements are based on management's
current expectations and are therefore subject to certain risks and
uncertainties. Any of the following risks could seriously harm our business,
financial condition or results of operations. As a result, these risks could
cause the decline of the trading price of our Common Stock. The risks described
below, however, are not he only ones that we face. You should also refer to the
other information set forth in this annual report, including our financial
statements and the related notes.

WE ARE DEPLOYING NEW TECHNOLOGY IN A NEW BUSINESS AND, AS A RESULT, WE MAY NOT
BE ABLE TO ACHIEVE PROFITABILITY

     Our combinatorial materials discovery technologies and processes are new.
To date, our partners have not successfully commercialized as products any
materials that we have discovered using these technologies and processes.
Discovery and development of new materials is a highly uncertain process.
Accordingly, because of these uncertainties, our discovery process may not
result in the identification of development candidates we or our partners will
commercialize. If we are not able to use our technologies to discover new
materials with significant commercial potential, we will be unable to achieve
our objectives or build a sustainable or profitable business.

                                       10
<PAGE>   11

WE ARE DEPENDENT UPON ACCEPTANCE OF OUR TECHNOLOGY AND APPROACH BY CUSTOMERS,
AND IF WE CANNOT ACHIEVE MARKET ACCEPTANCE FROM POTENTIAL CUSTOMERS, WE WILL BE
UNABLE TO BUILD A SUSTAINABLE OR PROFITABLE BUSINESS

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

WE ARE DEPENDENT ON THE RESEARCH AND DEVELOPMENT ACTIVITIES OF COMPANIES IN THE
LIFE SCIENCE AND CHEMICAL INDUSTRIES, AND DECLINES OR REDUCTIONS IN RESEARCH AND
DEVELOPMENT ACTIVITIES IN THESE INDUSTRIES COULD HARM OUR BUSINESS

     The market for our discovery services and instrumentation within the life
science and chemical industries depends on our customers' ability and
willingness to invest in research and development. Substantially all of our
revenues are attributable to our research collaborations. Our future revenues
will also be dependent on sales of Discovery Tools and other instrumentation
primarily to chemical companies.

     In particular, many companies in the chemical industry have, in the past
several years, experienced declining profitability. In addition, many chemical
products have become commodity products which compete primarily on the basis of
price. As a result, some chemical companies have reduced their research and
development activities. If commoditization of chemical products and other
pressures affecting the industry continue in the future, more companies could
adopt strategies that involve significant reductions in their research and
development programs. Although we believe that our approach can help life
science and chemical companies increase the efficiency of their research and
development activities, our efforts to convince them of this value may be
unsuccessful. To the extent that life science and chemical companies reduce
their research and development activities, they would be less likely to do
business with us. Decisions by these companies to reduce their research and
development activities could therefore reduce our revenues and harm our business
and operating results.

WE CANNOT PREDICT THE PACE, QUALITY OR NUMBER OF DISCOVERIES WE MAY GENERATE,
AND ANY INABILITY OF OURS TO GENERATE A SIGNIFICANT NUMBER OF DISCOVERIES WOULD
REDUCE OUR REVENUES AND HARM OUR BUSINESS

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

WE ARE DEPENDENT ON OUR COLLABORATIONS WITH MAJOR COMPANIES, AND THE FAILURE OF
OUR COLLABORATIVE PARTNERS TO SUCCESSFULLY COMMERCIALIZE PRODUCTS WOULD REDUCE
OUR REVENUES AND HARM OUR BUSINESS

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

                                       11
<PAGE>   12

be harmed. For example, our contracts with the B.F. Goodrich Company and Hoechst
AG were terminated by mutual agreement as these companies shifted their business
away from chemicals.

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

WE INTEND TO CONDUCT PROPRIETARY RESEARCH PROGRAMS, AND ANY CONFLICTS WITH OUR
COLLABORATORS OR ANY INABILITY TO COMMERCIALIZE DEVELOPMENT CANDIDATES RESULTING
FROM THIS RESEARCH WOULD HARM OUR BUSINESS

     Our strategy involves conducting proprietary research programs. These
programs are focused on discovery of products for specialty markets that have
fewer barriers to entry for an emerging company. In general, our collaborative
research programs are focused on commodity chemical markets, which are larger
than fine chemical and specialty chemical markets that are the focus of our
proprietary programs. We believe that this differentiation of focus will enable
us to minimize conflicts with our collaborators relating to rights to
potentially overlapping leads developed through our proprietary programs and
through programs funded by a collaborator. However, conflicts between us and a
collaborator could potentially arise, particularly if we were to discover a
material in one of our proprietary programs that was a potential target of one
of our collaborative programs. In this event, we may become involved in a
dispute with our collaborator regarding the material. Disputes of this nature
could harm the relationship between us and our collaborator, and concerns
regarding our proprietary research programs could also affect our ability to
enter into new collaborative relationships. If circumstances surrounding our
proprietary research programs were to affect our existing collaborative
relationships or our ability to enter into new relationships, our revenues and
operating results would decline.

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

WE HAVE CONTRACTS FOR ONLY TWO DISCOVERY TOOLS SYSTEMS, AND WE CANNOT ASSURE YOU
THAT WE WILL BE ABLE TO BUILD A SUSTAINABLE BUSINESS RELATED TO THE SALE OF
ADDITIONAL SYSTEMS

     We have contracts for only two of our Discovery Tools systems. Because of
the high cost and complexity of these systems, the sales cycle for them is
likely to be long. Sales of these systems will require us to educate our
potential customers about the full benefits of these systems, which may require
significant time. Due to these factors, sales of Discovery Tools systems will be
subject to a number of significant risks over which we have little or no
control, including:

     - customers' budgetary constraints and internal acceptance review
       procedures; and

     - potential downturns in general or in industry specific economic
       conditions.

     If the cycle for Discovery Tools systems lengthens unexpectedly, it could
adversely affect the timing of our revenues.

                                       12
<PAGE>   13

WE WILL NEED TO DEVELOP MANUFACTURING, SALES AND MARKETING CAPABILITIES FOR
DISCOVERY TOOLS, AND IF WE ARE UNABLE TO DO SO, WE WILL BE UNABLE TO BUILD OUR
DISCOVERY TOOLS BUSINESS

     In order to successfully market and sell these systems, we will need to
develop the capability to manufacture, market and sell large capital equipment
items. Although we have several business development professionals with
experience in this area, we may need to hire additional personnel. We may not be
able to develop the necessary manufacturing capability or to sell additional
systems and we may not be able to build a sustainable business related to the
sale of these systems. Factors that could impact our ability to manufacture and
commercialize our Discovery Tools include:

     - manufacturing difficulties involving quality control, quality assurance
       and shortage of qualified personnel;

     - complexity of our systems and difficulties we may encounter in meeting
       individual customer specifications and commitments on a timely basis;

     - the fact that there may be only a limited number of customers that are
       willing to pay several million dollars for our systems; and

     - a long sales cycle that involves substantial human and capital resources.

     If we are not able to build the business infrastructure to support our
Discovery Tools business, we will be unable to expand this business. Because we
expect future revenue growth from the sale of Discovery Tools, our revenues may
decline or not grow as anticipated if we are unable build the infrastructure to
support this business.

WE INTEND TO COMMERCIALIZE OUR MANUAL LABORATORY INSTRUMENTS THROUGH A THIRD
PARTY ARRANGEMENT, AND IF THIS THIRD PARTY DOES NOT PERFORM EFFECTIVELY, OUR
ABILITY TO GENERATE REVENUE FROM THE SALE OF THESE PRODUCTS WILL BE HARMED

     We intend to commercialize our manual laboratory instruments through our
relationship with Argonaut Technologies. The commercial success of these
instruments will depend in large part on their features and price as compared to
competing products and on their ability to achieve market acceptance. In
addition, our ability to realize significant commercial sales of these
instruments will also depend on the efforts of Argonaut in promoting, marketing
and selling these instruments. Argonaut's efforts in this regard will be outside
of our control. Accordingly, to the extent that Argonaut fails to effectively
promote, market and sell our manual instruments, our revenues from the sales of
these instruments, and therefore our operating results, would be harmed.

WE EXPECT THAT OUR QUARTERLY RESULTS OF OPERATIONS WILL FLUCTUATE, AND THIS
FLUCTUATION COULD CAUSE OUR STOCK PRICE TO DECLINE, CAUSING INVESTOR LOSSES

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

     - expiration of research contracts with major chemical companies, which may
       not be renewed or replaced with contracts with other companies;

     - the success rate of our discovery efforts associated with milestones and
       royalties;

     - the timing and willingness of partners to commercialize our discoveries
       which would result in royalties;

     - the size and timing of customer orders for, and shipments of, Discovery
       Tools instrumentation; and

     - general and industry specific economic conditions, which may affect our
       customers' capital investment levels.

     A large portion of our expenses, including expenses for facilities,
equipment and personnel, are relatively fixed in nature. Accordingly, in the
event revenues decline or do not grow as anticipated due to expiration of
research contracts, failure to obtain new contracts or other factors, we may not
be able to correspondingly reduce our operating expenses. In addition, we plan
to significantly increase operating expenses in 2000.
                                       13
<PAGE>   14

Failure to achieve anticipated levels of revenues could therefore significantly
harm our operating results for a particular fiscal period.

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

THE LOSS OF KEY PERSONNEL OR THE INABILITY TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS

     We believe our future success will depend upon our ability to attract and
retain highly skilled personnel, including W. Henry Weinberg, our Senior Vice
President and Chief Technical Officer, and other key scientific and managerial
personnel. We do not have any key-person life insurance relating to our key
personnel. These employees are at-will and not subject to employment contracts.
We may not be successful in attracting and retaining key personnel in the
future.

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

COMPETITION COULD INCREASE, AND COMPETITIVE DEVELOPMENTS COULD RENDER OUR
TECHNOLOGIES OBSOLETE OR NONCOMPETITIVE, WHICH WOULD REDUCE OUR REVENUES AND
HARM OUR BUSINESS

     The field of combinatorial materials science is increasingly competitive.
We are aware of several companies that are applying their expertise in
combinatorial chemistry to materials research and development. We are also aware
of some chemical companies that have internal combinatorial programs. For
example, Shell Chemicals is participating in a consortium in The Netherlands and
BASF is funding a new start-up company in Heidelberg, Germany named HTE. BASF is
also one of our collaborative partners. In addition, academic and research
institutions may seek to develop technologies that would be competitive with our
systems for materials discovery. Because combinatorial materials science is an
emerging field, competition from additional entrants may increase.

     Many of our current and potential competitors have greater financial,
manufacturing, marketing and sales resources than we do. In addition, some of
our existing competitors may, individually or together with companies affiliated
with them, have greater human and scientific resources than we do. Our
competitors could develop technologies and methods for materials research and
discovery that render our technologies and systems obsolete or less competitive.
Any competitive developments of this nature would make our technologies and
methodologies less competitive. Accordingly, if competitors introduce new
materials discovery technologies that are faster or more cost-effective than our
technologies, customers may switch to these new technologies. We would then
experience a decline in our revenues and operating results.

ANY INABILITY OF OURS TO KEEP PACE WITH TECHNOLOGICAL ADVANCES AND EVOLVING
INDUSTRY STANDARDS WOULD HARM OUR BUSINESS

     The market for our products is characterized by continuing technological
development, evolving industry standards and changing customer requirements. Due
to increasing competition in our field, it is likely that the pace of innovation
and technological change will increase. The introduction of products by our
direct competitors or others embodying new technologies, the emergence of new
industry standards or changes in customer requirements could render our existing
products obsolete, unmarketable or less competitive. Our success depends upon
our ability to enhance existing products and services and to respond to changing
customer requirements. Failure to develop and introduce new products and
services, or enhancements to existing products, in a timely manner in response
to changing market conditions or customer requirements will harm our future
revenues and our business and operating results.
                                       14
<PAGE>   15

OUR INABILITY TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS

     The success of our business depends on our ability to protect our
intellectual property portfolio and obtain patents without infringing the
proprietary rights of others. If we do not effectively protect our intellectual
property, our business and operating results could be harmed.

     Patents may not issue from our applications. Even if we are able to obtain
patents covering our technology, the patents may be challenged, circumvented,
invalidated or unenforceable. Competitors may develop similar technology or
design around any patents issued to us or our other intellectual property
rights. Our competitors would then be able to offer research services and
develop, manufacture and sell products which compete directly with our research
services and products. In that case, our revenues and operating results would
decline.

     We also seek to protect our technology and processes in part by
confidentiality agreements with our collaborators, employees and consultants. We
also do not provide broad access to our proprietary technologies and processes
to collaborators. However, confidentiality agreements might be breached by
collaborators, former employees or others, and in that event, we might not have
adequate remedies for the breach. Further, our trade secrets might otherwise
become known or be independently discovered by competitors. Unauthorized
disclosure of our trade secrets could enable competitors to use some of our
proprietary technologies. This would harm our competitive position and could
cause our revenues and operating results to decline.

LITIGATION OR OTHER PROCEEDINGS OR THIRD PARTY CLAIMS OF INFRINGEMENT COULD
REQUIRE US TO SPEND TIME AND MONEY AND COULD SHUT DOWN SOME OF OUR OPERATIONS

     We may receive communications from others in the future asserting that our
business or technologies infringe their intellectual property rights. If we
became involved in litigation or interference proceedings declared by the United
States Patent and Trademark Office, or oppositions or other intellectual
property proceedings outside of the United States, to defend our intellectual
property rights or as the result of alleged infringement of the rights of
others, we might have to spend significant amounts of money. The litigation or
proceedings could divert our management's time and efforts. An adverse ruling,
including an adverse decision as to the priority of our inventions, would
undercut or invalidate our intellectual property position. An adverse ruling
could also subject us to significant liability for damages or prevent us from
using or marketing systems, processes or products. Any of these events would
have a negative impact on our business and operating results. Even unsuccessful
claims could result in significant legal fees and other expenses, diversion of
management's time and disruptions in our business. Uncertainties resulting from
the initiation and continuation of any patent or related litigation could harm
our ability to compete, pending resolution of the disputed matter.

     We believe we have taken adequate measures to assess the validity of our
intellectual property rights. We are not currently involved in any disputes with
third parties regarding intellectual property rights. However, we may become
involved in intellectual property disputes or receive communications from others
in the future asserting that our business or technologies infringe their
intellectual property rights. To settle these disputes, we may need to obtain
licenses to patents or other proprietary rights held by others. However, these
licenses might not be available on acceptable terms, or at all. In that event,
we could encounter delays in system, process or product introductions while we
attempt to design around the patents. Our redesigned systems, processes or
products may be inferior to our original designs or we may be unable to continue
system, process or product development in the particular field. In either case,
our competitive position, business, revenues and operating results would likely
suffer.

WE USE HAZARDOUS MATERIALS IN OUR BUSINESS, AND ANY CLAIMS RELATING TO IMPROPER
HANDLING, STORAGE OR DISPOSAL OF THESE MATERIALS COULD SUBJECT US TO SIGNIFICANT
LIABILITIES

     Our business involves the use of a broad range of hazardous chemicals and
materials. Environmental laws impose stringent civil and criminal penalties for
improper handling, disposal and storage of these materials. In addition, in the
event of an improper or unauthorized release of, or exposure of individuals to,
hazardous materials, we could be subject to civil damages due to personal injury
or property damage caused by the
                                       15
<PAGE>   16

release or exposure. A failure to comply with environmental laws could result in
fines and the revocation of environmental permits, which could prevent us from
conducting our business. Accordingly, any violation of environmental laws or
failure to properly handle, store or dispose of hazardous materials could result
in restrictions on our ability to operate our business and could require us to
incur potentially significant costs for personal injuries, property damage and
environmental cleanup and remediation.

WE HAVE EXPERIENCED SIGNIFICANT GROWTH, AND WE MUST IMPROVE OUR OPERATIONAL,
FINANCIAL AND MANAGEMENT CONTROLS AND SYSTEMS TO KEEP PACE WITH OUR GROWTH

     We have experienced a period of rapid and substantial growth that has
placed and, if such growth continues, will continue to place a strain on our
human and capital resources. If we are unable to manage this growth effectively,
our business, results of operations or financial condition may be materially
adversely affected. We increased the number of our employees from 28 at December
31, 1996 to 170 at December 31, 1999. Our revenues increased from $4.8 million
in 1997 to $13.8 million in 1998 and $30.5 million in 1999. Our ability to
manage our operations and growth effectively requires us to continue to improve
our operational, financial and management controls, reporting systems and
procedures and hiring programs. Due to the pace of our growth, we may be unable
to successfully implement improvements to our management information and control
systems in an efficient or timely manner and may discover deficiencies in
existing systems and controls.

SOME OF OUR EXISTING STOCKHOLDERS CAN EXERT CONTROL OVER US, AND MAY NOT MAKE
DECISIONS THAT ARE IN THE BEST INTERESTS OF ALL STOCKHOLDERS

     Our officers, directors and principal stockholders (greater than 5%
stockholders) together control approximately 33.0% of our outstanding common
stock. As a result, these stockholders, if they act together, will be able to
exert a significant degree of influence over our management and affairs and over
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may have the effect of delaying or preventing a change in control of Symyx and
might affect the market price of our common stock, even when such a change may
be in the best interests of all stockholders.

OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE

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

     - the announcement of new products or services by us or our competitors;

     - quarterly variations in our or our competitors' results of operations;

     - failure to achieve operating results projected by securities analysts;

     - changes in earnings estimates or recommendations by securities analysts;

     - developments in our industry; and

     - general market conditions and other factors, including factors unrelated
       to our operating performance or the operating performance of our
       competitors.

     These factors and fluctuations, as well as general economic, political and
market conditions, may materially adversely affect the market price of our
common stock.

OUR FACILITIES ARE LOCATED NEAR KNOWN EARTHQUAKE FAULT ZONES, AND THE OCCURRENCE
OF AN EARTHQUAKE OR OTHER CATASTROPHIC DISASTER COULD CAUSE DAMAGE TO OUR
FACILITIES AND EQUIPMENT AND HARM OUR BUSINESS

     Our facilities are located in the Silicon Valley near known earthquake
fault zones and are vulnerable to damage from earthquakes. In October 1989, a
major earthquake that caused significant property damage and

                                       16
<PAGE>   17

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

POTENTIAL SALES OF SHARES ELIGIBLE FOR FUTURE SALE AFTER OUR INITIAL PUBLIC
OFFERING COULD CAUSE OUR STOCK PRICE TO DECLINE

     If our stockholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market, the market price of our common stock could fall. These sales also
might make it more difficult for us to sell equity or equity-related securities
in the future at a time and price that we deem appropriate. On the 181st day
after completion of our initial public offering a significant number of shares
of our common stock held by existing stockholders will be freely tradable,
subject in some instances to the volume and other limitations of Rule 144. Sales
of these shares and other shares of common stock held by existing stockholders
could cause the market price of our common stock to decline.

PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD
PREVENT A CHANGE IN OUR CONTROL, EVEN IF THIS WOULD BE BENEFICIAL TO
STOCKHOLDERS

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

     - a classified board of directors, in which our board is divided into three
       classes with three year terms with only one class elected at each annual
       meeting of stockholders, which means that a holder of a majority of our
       common stock will need two annual meetings of stockholders to gain
       control of the board;

     - a provision which prohibits our stockholders from acting by written
       consent without a meeting;

     - a provision which permits only the board of directors, the president or
       the chairman to call special meetings of stockholders; and

     - a provision which requires advance notice of items of business to be
       brought before stockholders meetings.

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

ITEM 2. PROPERTIES

     Our facilities currently consist of an aggregate of approximately 104,300
square feet of office, research and laboratory space in several locations in
Santa Clara, California, pursuant to leases that expire from 2002 to 2010. These
facilities include a building of approximately 36,500 square feet, which we
expect will be ready for occupancy during the fourth quarter of 2000.

ITEM 3. LEGAL PROCEEDINGS

     We are not a party to any material pending legal proceedings.

                                       17
<PAGE>   18

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

     The Annual Meeting of Stockholders of Symyx was held on October 22, 1999.
The following is a brief description of each matter voted upon at the meeting
and the number of votes cast for, against or withheld, as well the number of
abstentions as to each matter. The share numbers below represent both common and
preferred stock outstanding at the record date for the meeting on an
as-converted basis and do not reflect the 7-for-9 reverse stock split of our
common stock that our stockholders approved at this meeting.

(a) Our stockholders elected the following persons as directors of Symyx, with
    votes for, votes against and abstentions listed below for each nominee:

<TABLE>
<CAPTION>
                                                                   VOTES
                     NOMINEE                        VOTES FOR     AGAINST    ABSTENTIONS
                     -------                        ----------    -------    -----------
<S>                                                 <C>           <C>        <C>
Thomas R. Baruch..................................  25,083,660      5,000      179,538
Samuel D. Colella.................................  25,088,660         --      179,538
Martin Gerstel....................................  25,015,660     73,000      179,538
Steven D. Goldby..................................  25,103,660         --      164,538
Baron Gaulthaus Kraijenhoff.......................  24,714,660     67,000      486,538
Francois A. L'Eplattenier, Ph.D. .................  24,775,660      6,000      486,538
Kenneth J. Nussbacher.............................  24,716,660     72,000      479,538
Mario M. Rosati...................................  25,016,660     72,000      179,538
Peter G. Schultz, Ph.D............................  24,901,952     81,708      284,538
Isaac Stein.......................................  24,774,952    376,708      179,538
</TABLE>

(b) Our stockholders approved an amendment to the Symyx Certificate of
    Incorporation to effect a 7-for-9 reverse stock split of the outstanding
    common stock. There were 24,385,915 votes in favor of, and 795,892 votes
    cast against, the proposal. There were 86,391 abstentions.

(c) Our stockholders approved the adoption of our 1999 Employee Stock Purchase
    Plan and the reservation of 300,000 shares of common stock for issuance
    under this plan, plus an annual increase to be added in fiscal 2000, equal
    to the lesser of (i) 350,000 shares, (ii) 1% of the outstanding shares on
    such date or (iii) a lesser amount determined by our board of directors.
    There were 24,426,607 votes in favor of, and 455,200 votes cast against, the
    proposal. There were 386,391 abstentions.

(d) Our stockholders approved various amendments to our 1997 Stock Plan,
    including amendments to (i) provide that all shares reserved for future
    issuance under our 1996 Stock Plan and all outstanding stock options
    returned to our 1996 Stock Plan shall be deemed to be shares reserved for
    future issuance under our 1997 Stock Plan, (ii) commencing in 2000, an
    annual increase in the number of shares of common stock reserved for
    issuance under our 1997 Stock Plan equal to the lesser of 1,500,000 shares,
    4% of our outstanding capitalization or a lesser amount determined by the
    board of directors, (iii) automatic grants of stock options to our outside
    directors upon their re-election at each of our annual meeting of
    stockholders, (iv) modify the requirements for stockholder approval of
    future amendments in order to conform to current applicable federal
    securities laws and regulations and (v) bring such our plan into compliance
    with revised Rule 16b-3 under the Securities Exchange Act of 1934. There
    were 24,370,742 votes in favor of, and 53,747 votes cast against, the
    proposal. There were 843,709 abstentions.

(e) Our stockholders approved our post initial public offering Amended and
    Restated Certificate of Incorporation. There were 24,507,982 votes in favor
    of, and 225,747 votes cast against, the proposal. There were 534,469
    abstentions.

(f)  Our stockholders approved our post initial public offering Amended and
     Restated Bylaws. There were 24,551,982 votes in favor of, and 181,747 votes
     cast against, the proposal. There were 534,469 abstentions.

(g) Our stockholders ratified the appointment of Ernst & Young LLP as
    independent auditors of Symyx for the fiscal year ending December 31, 1999.
    There were 24,756,062 votes in favor of, and 6,667 votes cast against, the
    proposal. There were 505,469 abstentions.

                                       18
<PAGE>   19

                                    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.

<TABLE>
<CAPTION>
                                              LOW       HIGH
                                             ------    ------
<S>                                          <C>       <C>
Fourth Quarter 1999........................  $18.00    $35.81
</TABLE>

     As of March 3, 2000, there were approximately 510 holders of record of the
Company's Common Stock.

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

USE OF PROCEEDS

     On November 18, 1999, a Registration Statement on Form S-1 (No. 333-87453)
was declared effective by the Securities and Exchange Commission, pursuant to
which 6,368,700 shares of the Company's Common Stock, no par value, were offered
and sold for the account of the Company at a price of $14.00 per share,
generating gross offering proceeds of $89.2 million for the account of the
Company. The managing underwriters for the offering were Credit Suisse First
Boston, Donaldson, Lufkin & Jenrette, Invemed Associates & Schroder & Co. Inc.

     From the effective date of the Registration Statement to December 31, 1999,
the Company incurred $6.3 million in underwriting discounts and commissions and
$1.5 million in other related expenses. Total expenses incurred in connection
with the offering were $7.8 million. The net proceeds of the offering, after
deducting the foregoing expenses, were $81.4 million. No direct or indirect
payments were made to directors, officers, or general partners of the Company or
their associates, or to persons owning 10% or more of any class of equity
securities of the Company and its affiliates.

     From the effective date of the Registration Statement to December 31, 1999,
the Company estimates that it has used a portion of the net proceeds of the
offering as follows: (i) temporary investment in marketable debt securities,
$78.0 million; and (ii) working capital, $3.4 million.

                                       19
<PAGE>   20

ITEM 6. SELECTED FINANCIAL DATA

     The following selected historical information has been derived from the
audited financial statements of the Company. The financial information as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999 are derived from audited financial statements and are included
elsewhere in this Form 10-K. The table should be read in conjunction with Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Item 8. "Financial Statements and Supplementary Data."

<TABLE>
<CAPTION>
                                                           FOR THE YEARS ENDED DECEMBER 31,
                                                    ----------------------------------------------
                                                     1995     1996      1997      1998      1999
                                                    ------   -------   -------   -------   -------
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                 <C>      <C>       <C>       <C>       <C>
STATEMENTS OF OPERATIONS DATA:
Revenue from collaborations.......................  $   --   $    --   $ 4,806   $13,787   $30,497
Operating expenses:
  Research and development........................      27     2,483     8,764    17,640    23,964
  General and administrative......................     481       567     2,129     4,500     6,494
  Amortization of deferred Compensation...........      --        --        --       188     3,794
                                                    ------   -------   -------   -------   -------
          Total operating expenses................     508     3,050    10,893    22,328    34,252
                                                    ------   -------   -------   -------   -------
Loss from operations..............................    (508)   (3,050)   (6,087)   (8,541)   (3,755)
Interest income...................................      --       375       843     1,117     2,542
Interest and other expense........................      --        (6)     (352)     (731)     (934)
                                                    ------   -------   -------   -------   -------
Net loss..........................................  $ (508)  $(2,681)  $(5,596)  $(8,155)  $(2,147)
                                                    ======   =======   =======   =======   =======
Basic and diluted net loss per share..............  $(0.40)  $ (1.24)  $ (1.97)  $ (2.13)  $ (0.27)
                                                    ======   =======   =======   =======   =======
Shares used in computing basic and diluted net
  loss per share..................................   1,269     2,168     2,845     3,829     8,087
                                                    ======   =======   =======   =======   =======
</TABLE>

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                    ----------------------------------------------
                                                    1995     1996      1997      1998       1999
                                                    -----   -------   -------   -------   --------
                                                                    (IN THOUSANDS)
<S>                                                 <C>     <C>       <C>       <C>       <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments............  $  15   $ 9,349   $20,614   $35,121   $119,270
Working capital (deficit).........................   (510)    8,789     9,860    15,701     33,299
Total assets......................................     19    10,674    34,861    52,903    148,305
Long-term obligations, net of current portion.....     --        --     4,455     7,591      6,729
Total stockholders' equity........................   (506)   10,283    25,030    36,166    119,943
</TABLE>

                                       20
<PAGE>   21

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
FROM OPERATIONS

     The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements based upon current
expectations that involve risks and uncertainties. When used in this Annual
Report on Form 10-K, the words "intend," "anticipate," "believe," "estimate,"
"plan" and "expect" and similar expressions are included to identify
forward-looking statements. Our actual results and the timing of events could
differ materially from those anticipated in these forward-looking statements as
a result of many factors, including those set forth under "Risk Factors" and
elsewhere in this Annual Report on Form 10-K.

OVERVIEW

     Symyx was founded in September 1994 and began significant operations in
April 1996. To date, our revenues and cash flow have come from research
collaborations with large chemical and electronics companies and government
grants. Our current corporate collaborators are Agfa-Gevaert N.V., BASF AG,
Bayer AG, Celanese Ltd., Ciba Specialty Chemicals, Inc., The Dow Chemical
Company, Osram Opto Semiconductors GmbH & Co. OHG, PE Corporation, Inc. through
its PE Biosystems Group and Unilever UK Central Resources Ltd. These agreements
are generally for a two to three year guaranteed term. Four of our research
contracts commenced in 1999, representing approximately half of our committed
revenue. We expect that our revenues and cash flows for 2000 and 2001 will be
comprised in large part of payments to be made under these agreements. Four of
our research contracts may end by their terms in 2000.

     We have invested heavily in establishing the technology, instrumentation
and informatics necessary to pursue high throughput discovery for proprietary
materials. These materials include catalysts to manufacture commodity chemicals
and polyolefins, catalysts and polymers for life sciences applications, and new
electronic materials.

     These investments contributed to revenue increases from $4.8 million in
1997 to $13.8 million in 1998 to $30.5 million in 1999. Operating expenses
increased from $10.9 million in 1997 to $22.3 million in 1998 to $34.3 million
in 1999. Our total headcount increased from 76 employees at the end of 1997 to
108 employees at the end of 1998 and to 170 employees at the end of 1999.

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

     We have incurred significant losses since our inception. As of December 31,
1999, our accumulated deficit was approximately $19.0 million. We expect to
incur additional operating losses over at least the next year as we continue to
expand staffing, equipment and facilities.

SOURCE OF REVENUES AND REVENUE RECOGNITION POLICY

     We recognize revenues from research collaboration agreements and government
grants as earned upon achievement of the performance requirements of the
agreements and grants. Payments received that are related to future performance
are deferred and recognized as revenue as the performance requirements are
achieved. As of December 31, 1999, we have deferred revenues of approximately
$12.2 million. The terms of our collaboration agreements generally require us to
perform minimum levels of research. Our sources of potential revenue for the
next several years are likely to be:

     - payments under existing and possible future collaborative arrangements;

     - government research grants;

     - royalties from our partners based on revenues received from any products
       commercialized under those agreements;

                                       21
<PAGE>   22

     - sales of Discovery Tools and other instruments; and

     - sales of any products discovered in our internal research programs.

See Note 2 of Notes to Financial Statements.

DEFERRED COMPENSATION

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

     In connection with the grant of stock options to employees and consultants,
we recorded deferred stock compensation of approximately $5.4 million in the
year ended December 31, 1999 and $760,000 in the year ended December 31, 1998.
These amounts were initially recorded as a component of stockholders' equity and
are being amortized by charges to operations over the vesting period of the
options. We recorded amortization of deferred compensation of approximately $3.8
million for 1999 and $188,000 in 1998. The amortization expense relates to
options awarded to employees and consultants in all operating expense
categories. See Note 4 of Notes to Financial Statements.

                             RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1998 AND 1999

REVENUES

     Our total revenues increased to $30.5 million in 1999, up 121% from $13.8
million in 1998. This increase was due primarily to the addition of new research
collaborations and the expansion of existing government grants. Bayer, Celanese
and The Dow Chemical Company accounted for 38%, 35% and no amount of total
revenue in 1998, and 32%, 12% and 18% of revenue in 1999, respectively. B.F.
Goodrich accounted for 6% of revenue in 1999. Our collaboration with B.F.
Goodrich was terminated by mutual agreement in April 1999 after B.F. Goodrich
merged with another company and changed its business focus from chemicals to
aerospace. B.F. Goodrich has returned to us all of the intellectual property
that was the subject of the collaboration agreement and has made termination
payments through December 1999 amounting to $1.3 million, which have been
recognized as revenue in 1999.

     Revenue from research collaborations exceeded research and development
expense for the year ended December 31, 1999. This increase in revenue was
primarily due to Technology Access Fees, which are being recognized over the
term of the agreements, and higher reimbursement rates under certain
collaboration agreements.

RESEARCH AND DEVELOPMENT EXPENSES

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

     Research and development expenses increased 36% from $17.6 million in 1998
to $24.0 million in 1999. The increase was due primarily to an increase in
salaries and other personnel costs to support our additional collaborative and
internal research efforts.

     Research and development expenses represented 128% of total revenues in
1998 and 79% of total revenues in 1999. The decrease as a percentage of total
revenues was due primarily to the addition of significant contracts in 1999. Our
core business is research and development. Accordingly, we expect to continue to
devote substantial resources to research and development, and we expect that
research and development expenses will continue to increase in absolute dollars.

                                       22
<PAGE>   23

GENERAL AND ADMINISTRATIVE EXPENSES

     Our general and administrative expenses consist primarily of personnel
costs for finance, human resources, business development, legal and general
management, as well as professional expenses, such as legal and accounting.
General and administrative expenses increased 44% from $4.5 in 1998 to $6.5
million in 1999. Expenses increased primarily due to increased staffing
necessary to manage and support our growth.

     General and administrative expenses represented 33% of total revenues in
1998 and 21% of total revenues in 1999. The decrease as a percentage of our
total revenues was due primarily to the growth in our total revenues. We expect
that our general and administrative expenses will increase in absolute dollar
amounts as we expand our business development and administrative staff, add
facilities and incur additional costs related to being a public company,
including directors' and officers' insurance, investor relations programs and
increased professional fees.

NET INTEREST INCOME (EXPENSE)

     Net interest income (expense) represents interest income earned on our cash
and cash equivalents net of interest expense on equipment financing loans.
Interest income increased from $1.1 million in 1998 to $2.5 million in 1999.
This increase was due to higher average cash balances. Interest expense
increased from $731,000 in 1998 to $934,000 in 1999. This increase was due to
additional equipment financing loans used to partially fund our acquisition of
equipment.

PROVISION FOR INCOME TAXES

     Due to operating losses and the inability to recognize the benefits
therefrom, there is no provision for income taxes for the years ended December
31, 1998 and 1999.

     As of December 31, 1999, we had a federal net operating loss carryforward
of approximately $11.3 million. We also had federal research and development
credit carryforwards of approximately $600,000. If not utilized, the net
operating losses and credit carryforwards will expire at various dates beginning
in 2010 through 2019. Utilization of the net operating losses and credits may be
subject to a substantial annual limitation due to the "change in the ownership"
provisions of the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in the expiration of net operating
losses and credit before utilization. See Note 5 of Notes to Financial
Statements.

YEARS ENDED DECEMBER 31, 1997 AND 1998

REVENUES

     Our total revenues for 1997 were $4.8 million and our total revenues for
1998 were $13.8 million. The increase was due primarily to the addition of new
research collaborations. Bayer, Hoechst, including its wholly-owned subsidiary
Celanese, and B.F. Goodrich accounted for 22%, 76% and 1% of revenue in 1997 and
38%, 35% and 12% of total revenue in 1998, respectively. Our collaboration with
Hoechst was terminated by mutual agreement in October 1998 following a change in
Hoechst's business focus away from chemicals. One project that was the subject
of the Hoechst collaboration agreement was transferred to Celanese, Hoechst's
wholly-owned subsidiary. Hoescht has returned to us all of the intellectual
property that was the subject of the collaboration agreement in the polyolefin
field. That field is the subject of subsequent agreements with Dow Chemical and
Bayer.

RESEARCH AND DEVELOPMENT EXPENSES

     Research and development expenses increased from $8.8 million in 1997 to
$17.6 million in 1998. The increase was due primarily to an increase in
personnel-related costs. Research and development expenses represented 182% of
total revenues in 1997 and 128% of total revenues in 1998. The decrease as a
percentage of total revenues was due primarily to the growth in our total
revenues.

                                       23
<PAGE>   24

GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses increased from $2.1 million in 1997 to
$4.5 million in 1998. Expenses increased due primarily to increased
personnel-related costs resulting from additional staffing necessary to manage
and support our growth. General and administrative expenses represented 44% of
total revenues for 1997 and 33% of total revenues for 1998. The decrease as a
percentage of our total revenues was due primarily to the growth in our total
revenues.

NET INTEREST INCOME (EXPENSE)

     Interest income was $843,000 in 1997 and $1.1 million in 1998. Changes in
interest income were due primarily to changes in our cash balance during these
periods. Interest expense increased from $352,000 in 1997 to $731,000 in 1998
due to additional equipment financing loans used to partially fund leasehold
improvements and acquisition of equipment.

PROVISION FOR INCOME TAXES

     We incurred net operating losses in 1997 and 1998 and consequently we did
not pay any federal, state or foreign income taxes.

LIQUIDITY AND CAPITAL RESOURCES

     Since 1996, we have financed our operations primarily through net proceeds
from our initial public offering of $81.4 million and, prior to the initial
public offering, private placements of preferred stock totaling $52.2 million,
research and development funding from collaborative partners and, to a lesser
extent, equipment financing loans. As of December 31, 1999, we had $119.3
million in cash, cash equivalents and investments and $3.7 million available
under an equipment financing line of credit.

     Our operating activities provided $14.0 million of cash in 1999. The source
of cash for 1999 was primarily the receipt of research and development funding
from collaborative partners, partially offset by operating expenses. Cash used
in our operating activities was $2.9 million and $1.3 million for 1998 and 1997,
respectively. Uses of cash in operating activities were primarily to fund net
operating losses.

     Net cash used in investing activities was $81.2 million in 1999, $10.2
million in 1998 and $24.0 million in 1997. The fluctuations from period to
period are due primarily to the timing of purchases, sales and maturity of
investment securities and the purchase of property and equipment. Purchases of
property and equipment were $11.5 million in 1999, $5.8 million in 1998 and
$13.2 million in 1997. We expect to continue to make significant investments in
the purchase of property and equipment to support our expanding operations.

     Financing activities provided cash of $82.1 million in 1999, $23.3 million
in 1998 and $25.9 million in 1997. These amounts are primarily the proceeds we
received from our initial public offering and the sale of preferred stock, net
of issuance costs, equipment and leasehold improvement loan financings and
proceeds from the exercise of stock options. We will repay loan financings over
the next four years as follows: $3.3 million in 2000, $3.7 million in 2001, $2.5
million in 2002 and $534,000 in 2003.

     Accounts receivable and other current assets increased significantly at
December 31, 1999 as compared to December 31, 1998. The increase in accounts
receivable was due to an increase in government sponsored research funding. The
increase in other current assets was primarily due to an increase in interest
receivable from investments resulting from the timing of interest payments.
Deferred revenue also increased significantly at December 31, 1999 as compared
to December 31, 1998. This increase was due to the timing of the receipt of
several advance payments under collaborative research programs.

     As of December 31, 1999 and 1998, our principal commitments were $6.6
million and $3.0 million, respectively. Principal commitments consisted of our
obligations under operating leases. We will satisfy these obligations over the
next ten years.

     We believe that our current cash balances and the cash flows generated by
operations will be sufficient to satisfy our anticipated cash needs for working
capital and capital expenditures for at least the next 18 months.
                                       24
<PAGE>   25

However, we may seek additional financing within this timeframe. We may raise
additional funds through public or private financing, collaborative
relationships or other arrangements. We cannot assure you that additional
funding, if sought, will be available on terms favorable to us. Further, any
additional equity financing may be dilutive to stockholders, and debt financing,
if available, may involve restrictive covenants. Collaborative arrangements may
require us to relinquish our rights to some of our technologies or products. Our
failure to raise capital when needed may harm our business and operating
results.

     A portion of our cash may be used to acquire or invest in complementary
businesses or products or to obtain the right to use complementary technologies.
From time to time, in the ordinary course of business, we may evaluate potential
acquisitions of such businesses, products or technologies. We have no current
plans, agreements or commitments, and are not currently engaged in any
negotiations with respect to any such transaction.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which will be effective for the year
ending 2001. This Statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments imbedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The Statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. In July 1999, the FASB issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133." ("SFAS 137"). SFAS No. 137 deferred the effective date of
SFAS No. 133 until fiscal years beginning after June 15, 2000. We will adopt
SFAS No. 133 during our year ending December 31, 2001. To date, we have not
engaged in derivative or hedging activities. We are unable to predict the impact
of adopting SFAS No. 133 if we were to engage in derivative and hedging activity
in the future.

     In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. The adoption of SOP 98-1, as required in 1999,
resulted in the Company capitalizing $595,000 of software development costs
during the year ended December 31, 1999. We expense as incurred the costs
associated with developing software for use in research and development
activities in accordance with Statement of Financial Accounting Standards No. 2,
"Accounting for Research and Development Costs" and related interpretations.

     In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 "Revenue Recognition" ("SAB 101"), which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. We believe that our revenue recognition
policy is in compliance with the provisions of SAB 101 and that the impact of
SAB 101 will have no material effect on the financial position or results of
operations.

DIVIDEND POLICY

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

IMPACT OF YEAR 2000

     In late 1999, we completed our Year 2000 remediation efforts and testing of
our systems. As a result of those planning and implementation efforts, we did
not experience any disruptions in mission critical information technology and
non-information technology systems. We therefore believe that these systems
                                       25
<PAGE>   26

successfully responded to the Year 2000 date change. We incurred expenses of
approximately $50,000 during 1999 in connection with remediating our systems. We
are not aware of any material problems resulting from Year 2000 issues, either
with our products, internal systems, or the products and services of third
parties upon whom we are dependent. We intend to continue monitoring our mission
critical computer applications and those of our suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly. At this time, we do not anticipate incurring additional
expenditures related to Year 2000 problems.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our exposure to market risk is principally confined to our cash, cash
equivalents and investments which have maturities of less than two years. We
maintain a non-trading investment portfolio of investment grade, liquid debt
securities that limits the amount of credit exposure to any one issue, issuer or
type of instrument. The securities in our investment portfolio are not
leveraged, are classified as available for sale and are therefore subject to
interest rate risk. We currently do not hedge interest rate exposure. If market
interest rates were to increase by 100 basis points, or 1%, from December 31,
1999 levels, the fair value of our portfolio would decline by approximately
$706,000. The modeling technique used measures the change in fair values arising
from an immediate hypothetical shift in market interest rates and assumes ending
fair values include principal plus accrued interest.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
               INDEX TO FINANCIAL STATEMENTS                  PAGE
               -----------------------------                  ----
<S>                                                           <C>
Report of Ernst & Young LLP, Independent Auditors...........   27
Balance Sheets at December 31, 1999 and 1998................   28
Statements of Operations for the years ended December 31,
  1999, 1998 and 1997.......................................   29
Statement of Stockholders' Equity for the three year period
  ended December 31, 1999...................................   30
Statements of Cash Flows for the years ended December 31,
  1999, 1998 and 1997.......................................   31
Notes to Financial Statements...............................   32
</TABLE>

                                       26
<PAGE>   27

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Symyx Technologies, Inc.

     We have audited the accompanying balance sheets of Symyx Technologies, Inc.
as of December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Symyx Technologies, Inc. at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.

                                          /s/  Ernst & Young LLP

Palo Alto, California
January 28, 2000.

                                       27
<PAGE>   28

                            SYMYX TECHNOLOGIES, INC.

                                 BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT SHARE INFORMATION)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1999        1998
                                                              --------    --------
<S>                                                           <C>         <C>
Current assets:
  Cash and cash equivalents.................................  $ 28,943    $ 14,043
  Short-term investments....................................    21,533       9,339
  Accounts receivable.......................................       962         626
  Prepaid expenses..........................................     1,555         288
  Other current assets......................................     1,939         551
                                                              --------    --------
Total current assets........................................    54,932      24,847
Property and equipment, net.................................    23,879      16,110
Long-term investments.......................................    68,794      11,739
Other assets................................................       700         207
                                                              --------    --------
                                                              $148,305    $ 52,903
                                                              ========    ========

                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and other accrued liabilities............  $  4,951    $  1,676
  Accrued compensation and employee benefits................       711         416
  Deferred rent.............................................       478         446
  Deferred revenue..........................................    12,189       4,172
  Current portion of equipment and facility loans...........     3,304       2,436
                                                              --------    --------
Total current liabilities...................................    21,633       9,146
Equipment and facility loans................................     6,729       7,591
Commitments
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 and 23,650,000
  shares authorized at December 31, 1999 and 1998,
  respectively, issuable in series; no shares and 20,561,156
  shares issued and outstanding at December 31, 1999 and
  1998, respectively........................................        --          21
Common stock, $0.001 par value, 100,000,000 and 50,000,000
  shares authorized at December 31, 1999 and 1998,
  respectively; 29,638,562 and 6,225,475 shares issued and
  outstanding at December 31, 1999 and 1998, respectively...        30           6
Additional paid-in capital..................................   142,048      54,093
Stockholder notes receivable................................      (731)       (398)
Deferred stock compensation.................................    (2,128)       (572)
Accumulated other comprehensive income......................      (189)        (44)
Accumulated deficit.........................................   (19,087)    (16,940)
                                                              --------    --------
Total stockholders' equity..................................   119,943      36,166
                                                              --------    --------
Total liabilities and stockholders' equity..................  $148,305    $ 52,903
                                                              ========    ========
</TABLE>

                            See accompanying notes.
                                       28
<PAGE>   29

                            SYMYX TECHNOLOGIES, INC.

                            STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                              -----------------------------
                                                               1999       1998       1997
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Revenue from collaborations and grants......................  $30,497    $13,787    $ 4,806
Operating costs and expenses:
  Research and development..................................   23,964     17,640      8,764
  General and administrative................................    6,494      4,500      2,129
  Amortization of deferred compensation.....................    3,794        188         --
                                                              -------    -------    -------
Total operating expenses....................................   34,252     22,328     10,893
                                                              -------    -------    -------
Income (loss) from operations...............................   (3,755)    (8,541)    (6,087)
Interest income.............................................    2,542      1,117        843
Interest and other expense..................................     (934)      (731)      (352)
                                                              -------    -------    -------
Net income (loss)...........................................  $(2,147)   $(8,155)   $(5,596)
                                                              =======    =======    =======
Basic and diluted net loss per share........................  $ (0.27)   $ (2.13)   $ (1.97)
                                                              =======    =======    =======
Shares used in computing basic and diluted net loss per
  share.....................................................    8,087      3,829      2,845
                                                              =======    =======    =======
</TABLE>

                            See accompanying notes.
                                       29
<PAGE>   30

                            SYMYX TECHNOLOGIES, INC.

                       STATEMENT OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                                                 UNREALIZED
                                  PREFERRED STOCK     COMMON STOCK     ADDITIONAL   STOCKHOLDER     DEFERRED        GAIN
                                  ----------------   ---------------    PAID-IN        NOTES         STOCK        (LOSS) ON
                                  SHARES    AMOUNT   SHARES   AMOUNT    CAPITAL     RECEIVABLE    COMPENSATION   INVESTMENTS
                                  -------   ------   ------   ------   ----------   -----------   ------------   -----------
<S>                               <C>       <C>      <C>      <C>      <C>          <C>           <C>            <C>
Balance at December 31, 1996....    9,601    $ 10     3,425    $ 3      $ 13,459       $  --        $    --         $  --
Issuance of common stock........       --      --       471      1           103          --             --            --
Issuance of Series C preferred
  stock for cash, net of
  issuance costs of $19.........    6,750       7        --     --        20,225          --             --            --
Repurchase of common stock......       --      --       (43)    --            (1)         --             --            --
Comprehensive income (loss):
  Net income (loss) for the year
    ended December 31, 1997.....       --      --        --     --            --          --             --            --
  Unrealized gain (loss) on
    available-for-sale
    securities..................       --      --        --     --            --          --             --             8
Comprehensive loss..............
                                  -------    ----    ------    ---      --------       -----        -------         -----
Balance at December 31, 1997....   16,351      17     3,853      4        33,786          --             --             8
Issuance of Series D preferred
  stock for cash, net of
  issuance costs of $36.........    4,143       4        --     --        18,606          --             --            --
Issuance of common stock........       --      --     1,532      1           642        (398)            --            --
Conversion of Class B common
  stock to common stock on a
  1:10 basis....................       --      --       840      1            (1)         --             --            --
Issuance of Series D preferred
  stock as consideration for
  technology rights.............       67      --        --     --           300          --             --            --
Deferred stock compensation.....       --      --        --     --           760          --           (760)           --
Amortization of deferred stock
  compensation..................       --      --        --     --            --          --            188            --
Comprehensive income (loss):
  Net income (loss) for the year
    ended December 31, 1998.....       --      --        --     --            --          --             --            --
  Unrealized gain (loss) on
    available-for-sale
    securities..................       --      --        --     --            --          --             --           (52)
Comprehensive loss..............
                                  -------    ----    ------    ---      --------       -----        -------         -----
Balance at December 31, 1998....   20,561      21     6,225      6        54,093        (398)          (572)          (44)
Issuance of common stock net of
  issuance costs of $7,741......       --      --     7,440      8        82,413        (361)            --            --
Repurchase of common stock......       --      --       (43)    --           (35)         28             --            --
Issuance of common stock in
  exchange for services.........       --      --        25     --           222          --             --            --
Conversion of preferred stock to
  common stock on a 7 for 9
  basis.........................  (20,561)    (21)   15,992     16             5          --             --            --
Deferred stock compensation.....       --      --        --     --         5,350          --         (5,350)           --
Amortization of deferred stock
  compensation..................       --      --        --     --            --          --          3,794            --
Comprehensive income (loss):
  Net income (loss) for the year
    ended December 31, 1999.....       --      --        --     --            --          --             --            --
  Unrealized gain (loss) on
    available-for-sale
    securities..................       --      --        --     --            --          --             --          (145)
Comprehensive loss..............
                                  -------    ----    ------    ---      --------       -----        -------         -----
Balance at December 31, 1999....       --    $ --    29,639    $30      $142,048       $(731)       $(2,128)        $(189)
                                  =======    ====    ======    ===      ========       =====        =======         =====

<CAPTION>

                                                    TOTAL
                                  ACCUMULATED   STOCKHOLDERS'
                                    DEFICIT        EQUITY
                                  -----------   -------------
<S>                               <C>           <C>
Balance at December 31, 1996....   $ (3,189)      $ 10,283
Issuance of common stock........         --            104
Issuance of Series C preferred
  stock for cash, net of
  issuance costs of $19.........         --         20,232
Repurchase of common stock......         --             (1)
Comprehensive income (loss):
  Net income (loss) for the year
    ended December 31, 1997.....     (5,596)        (5,596)
  Unrealized gain (loss) on
    available-for-sale
    securities..................         --              8
                                                  --------
Comprehensive loss..............                    (5,588)
                                   --------       --------
Balance at December 31, 1997....     (8,785)        25,030
Issuance of Series D preferred
  stock for cash, net of
  issuance costs of $36.........         --         18,610
Issuance of common stock........         --            245
Conversion of Class B common
  stock to common stock on a
  1:10 basis....................         --             --
Issuance of Series D preferred
  stock as consideration for
  technology rights.............         --            300
Deferred stock compensation.....         --             --
Amortization of deferred stock
  compensation..................         --            188
Comprehensive income (loss):
  Net income (loss) for the year
    ended December 31, 1998.....     (8,155)        (8,155)
  Unrealized gain (loss) on
    available-for-sale
    securities..................         --            (52)
                                                  --------
Comprehensive loss..............                    (8,207)
                                   --------       --------
Balance at December 31, 1998....    (16,940)        36,166
Issuance of common stock net of
  issuance costs of $7,741......         --         82,060
Repurchase of common stock......         --             (7)
Issuance of common stock in
  exchange for services.........         --            222
Conversion of preferred stock to
  common stock on a 7 for 9
  basis.........................         --             --
Deferred stock compensation.....         --             --
Amortization of deferred stock
  compensation..................         --          3,794
Comprehensive income (loss):
  Net income (loss) for the year
    ended December 31, 1999.....     (2,147)        (2,147)
  Unrealized gain (loss) on
    available-for-sale
    securities..................         --           (145)
                                                  --------
Comprehensive loss..............                    (2,292)
                                   --------       --------
Balance at December 31, 1999....   $(19,087)      $119,943
                                   ========       ========
</TABLE>

                            See accompanying notes.
                                       30
<PAGE>   31

                            SYMYX TECHNOLOGIES, INC.

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
OPERATING ACTIVITIES
Net income (loss)...........................................  $ (2,147)  $ (8,155)  $ (5,596)
Adjustments to reconcile net loss to net cash provided by
  (used in) operating activities:
  Depreciation and amortization.............................     4,248      3,091      1,031
  Deferred compensation amortization........................     3,794        188         --
  Issuance of preferred stock as consideration for
     technology rights......................................        --        300         --
  Changes in assets and liabilities:
     Accounts receivable....................................      (336)      (626)        --
     Prepaid expenses.......................................    (1,267)       (16)      (153)
     Other current assets...................................    (1,388)        42       (462)
     Accounts payable and other current liabilities.........     3,275       (212)     1,540
     Deferred revenue.......................................     8,017      2,288      1,884
     Accrued compensation and employee benefits.............       295        213        160
     Deferred rent..........................................        31        159        287
     Other long-term assets.................................      (492)      (146)        (7)
                                                              --------   --------   --------
Net cash provided by (used in) operating activities.........    14,030     (2,874)    (1,316)
                                                              --------   --------   --------
INVESTING ACTIVITIES
Purchase of property and equipment, net.....................   (11,535)    (5,809)   (13,218)
Purchase of investments.....................................   (84,204)   (20,053)   (35,036)
Proceeds from sales of investments..........................        --      1,275     12,917
Proceeds from maturities of investments.....................    14,550     14,350     11,333
                                                              --------   --------   --------
Net cash provided by (used in) investing activities.........   (81,189)   (10,237)   (24,004)
                                                              --------   --------   --------
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock, net of issuance
  costs.....................................................        --     18,610     20,231
Proceeds from issuance of common stock, net of repurchases
  and issuance costs........................................    82,053        245        103
Principal payments on equipment and facility loans..........    (2,709)    (1,166)      (430)
Proceeds from equipment and facility loans..................     2,715      5,624      6,000
                                                              --------   --------   --------
Net cash provided by financing activities...................    82,059     23,313     25,904
                                                              --------   --------   --------
Net increase (decrease) in cash and cash equivalents........    14,900     10,202        584
Cash and cash equivalents at beginning of period............    14,043      3,841      3,257
                                                              --------   --------   --------
Cash and cash equivalents at end of period..................  $ 28,943   $ 14,043   $  3,841
                                                              ========   ========   ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid...............................................  $  1,090   $    733   $    406
                                                              ========   ========   ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
  ACTIVITIES
Exercise of stock options for notes receivable..............  $    333   $    398   $     --
                                                              ========   ========   ========
Common shares issued and contribution of capital in
  consideration of services rendered........................  $    222   $     --   $     --
                                                              ========   ========   ========
</TABLE>

                            See accompanying notes.
                                       31
<PAGE>   32

                            SYMYX TECHNOLOGIES, INC.

                         NOTES TO FINANCIAL STATEMENTS

 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business

     Symyx Technologies, Inc. (the "Company"), was incorporated on September 20,
1994 in the state of California to research, develop, manufacture and market
products through the application of combinatorial technologies in the area of
materials science. In February 1999, the Company completed a reincorporation in
the state of Delaware. As a result, the accompanying financial statements have
been retroactively adjusted to reflect the issuance of $.001 par value preferred
stock and common stock. To date, the Company's operations have involved research
and development activities, a significant portion of which has been funded by
collaborative partners. The Company has had no revenues from product sales
through December 31, 1999.

     On November 18, 1999, the Company completed an initial public offering of
its shares pursuant to which it issued 6,368,700 common shares for net proceeds
of approximately $81,420,000. Immediately prior to the closing of the initial
public offering, each outstanding share of preferred stock was converted to
common stock on a seven-for-nine shares basis.

     On October 22, 1999, the stockholders approved a seven-for-nine reverse
split of the Company's common stock. All share and per share amounts in the
accompanying financial statements have been adjusted retroactively.

Use of Estimates

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

Cash and Cash Equivalents, Short-Term and Long-Term Investments

     The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents; investments with
maturities between three and twelve months from the date of purchase are
considered to be short-term investments; investments with maturities greater
than twelve months from the date of purchase are considered to be long-term
investments. By policy, the Company restricts its investments to instruments
with maturities of less than twenty-four months.

     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.

     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, 1999, the Company has classified its entire
investment portfolio as available-for-sale. Available-for-sale securities are
carried at fair value with unrealized gains and losses reported as a separate
component of stockholders' equity. The estimated fair value amounts have been
determined by the Company using available market information and commonly used
valuation methodologies.

     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. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are also included in
interest income. The cost of securities sold is based on the specific
identification method. Interest and dividends are included in interest income.

                                       32
<PAGE>   33
                            SYMYX TECHNOLOGIES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                            1999       1998
                                                          --------    -------
<S>                                                       <C>         <C>
Money market funds......................................  $  9,994    $11,242
U.S. corporate debt securities..........................   107,745     21,268
                                                          --------    -------
          Total.........................................  $117,739    $32,510
                                                          ========    =======
</TABLE>

     Above amounts are included in the following:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                            1999       1998
                                                          --------    -------
<S>                                                       <C>         <C>
Cash and cash equivalents...............................  $ 27,412    $11,432
Short-term investments..................................    21,533      9,339
Long-term investments...................................    68,794     11,739
                                                          --------    -------
          Total.........................................  $117,739    $32,510
                                                          ========    =======
</TABLE>

     Following is a reconciliation of cash and cash equivalents:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            1999       1998
                                                           -------    -------
<S>                                                        <C>        <C>
Available-for-sale securities............................  $27,412    $11,432
Cash and bank accounts...................................    1,531      2,611
                                                           -------    -------
          Total cash and cash equivalents................  $28,943    $14,043
                                                           =======    =======
</TABLE>

     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.

Property and Equipment

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

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

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            1999       1998
                                                           -------    -------
<S>                                                        <C>        <C>
Machinery and equipment..................................  $10,699    $ 7,128
Computers and software...................................    2,736      1,469
Leasehold improvements...................................   11,030     10,413
Construction in progress.................................    5,981        347
Furniture and fixtures...................................      689        461
                                                           -------    -------
                                                            31,135     19,818
Less accumulated depreciation and amortization...........   (7,256)    (3,708)
                                                           -------    -------
Property and equipment, net..............................  $23,879    $16,110
                                                           =======    =======
</TABLE>

     At December 31, 1999 and 1998, property and equipment collateralized was
$15,938,000 and $13,180,000 with accumulated depreciation of $6,102,000 and
$3,060,000, respectively.

                                       33
<PAGE>   34
                            SYMYX TECHNOLOGIES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Revenue Recognition

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

     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.

Research and Development

     Research and development expenditures, including direct and allocated
expenses, are charged to operations as 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.

     Deferred compensation for options granted to non-employees has been
determined in accordance with SFAS 123 as the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measured. Deferred compensation for options granted to non-employees is
periodically re-measured as the underlying options vest.

Net Loss Per Share

     Basic and diluted net loss per common share are presented in conformity
with the Statement of Financial Accounting Standards No. 128, "Earnings per
Share," ("SFAS 128"), for all periods presented. Following the guidance given by
the Securities and Exchange Commission Staff Accounting Bulletin No. 98, common
stock and convertible preferred stock that has been issued or granted for
nominal consideration prior to the anticipated effective date of the initial
public offering must be included in the calculation of basic and diluted net
loss per common share as if these shares had been outstanding for all periods
presented. To date, the Company has not issued or granted shares for nominal
consideration.

     In accordance with SFAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock outstanding
during the period, less shares subject to repurchase. Pro forma basic and
diluted net loss per common share, as presented in the following table, has been
computed for the years ended December 31, 1999 and 1998 as described above, and
also gives effect to the conversion of the convertible preferred stock, which
converted to common stock immediately prior to the completion of the Company's
initial public offering, (using the if-converted method) from the original date
of issuance.

                                       34
<PAGE>   35
                            SYMYX TECHNOLOGIES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                         1999       1998       1997
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Net loss..............................................  $(2,147)   $(8,155)   $(5,596)
                                                        =======    =======    =======
Basic and diluted:
  Weighted-average shares of common stock
     outstanding......................................    9,599      4,659      3,474
  Less: weighted-average shares subject to
     repurchase.......................................   (1,512)      (830)      (629)
                                                        -------    -------    -------
  Weighted-average shares used in computing basic and
     diluted net loss per share.......................    8,087      3,829      2,845
                                                        =======    =======    =======
Basic and diluted net loss per share..................  $ (0.27)   $ (2.13)   $ (1.97)
                                                        =======    =======    =======
Pro forma:
  Net loss............................................  $(2,147)   $(8,155)
                                                        =======    =======
  Shares used above...................................    8,087      3,829
  Pro forma adjustment to reflect weighted effect of
     conversion of convertible preferred stock........   14,080     13,908
                                                        -------    -------
  Shares used in computing pro forma basic and diluted
     net loss per share...............................   22,167     17,737
                                                        =======    =======
Pro forma basic and diluted net loss per share........  $ (0.10)   $ (0.46)
                                                        =======    =======
</TABLE>

     The Company has excluded all convertible preferred stock, outstanding stock
options, and shares subject to repurchase from the calculation of diluted loss
per common share because all such securities are anti-dilutive for all
applicable periods presented. The total number of shares excluded from the
calculations of diluted net loss per share, prior to application of the treasury
stock method for options, was 4,218,304, 18,862,072 and 15,558,813 for the years
ended December 31, 1999, 1998 and 1997, respectively. Such securities, had they
been dilutive, would have been included in the computations of diluted net loss
per share. See Note 4 for further information on these securities.

Comprehensive Income (Loss)

     The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income". The only component of other comprehensive
income (loss) is unrealized gains and losses on available-for-sale securities.
Comprehensive loss has been disclosed in the statement of stockholders' equity
for all periods presented.

Segment Reporting

     Effective January 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
The Company has determined that it operates in only one segment. Accordingly,
the adoption of this Statement had no impact on the Company's financial
statements.

Effect of New Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which will be effective for the year
ending 2001. This Statement establishes accounting and reporting standards

                                       35
<PAGE>   36
                            SYMYX TECHNOLOGIES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

requiring that every derivative instrument, including certain derivative
instruments imbedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The Statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. In July 1999, the FASB issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133." ("SFAS 137"). SFAS No. 137 deferred the effective date of
SFAS No. 133 until fiscal years beginning after June 15, 2000. We will adopt
SFAS No. 133 during our year ending December 31, 2001. To date, we have not
engaged in derivative or hedging activities. We are unable to predict the impact
of adopting SFAS No. 133 if we were to engage in derivative and hedging activity
in the future.

     In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. The adoption of SOP 98-1, as required in 1999,
resulted in the Company capitalizing $595,000 of software development costs
during the year ended December 31, 1999. The Company expenses as incurred the
costs associated with developing software for use in research and development
activities in accordance with Statement of Financial Accounting Standards No. 2,
"Accounting for Research and Development Costs" and related interpretations.

     In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 "Revenue Recognition" ("SAB 101"), which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. Management believes that the Company's
revenue recognition policy is in compliance with the provisions of SAB 101 and
that the adoption of SAB 101 will have no material effect on the financial
position or results of operations of the Company.

 2. RESEARCH AND DEVELOPMENT ARRANGEMENTS

     In March 1998, the Company entered into a collaboration agreement with
Bayer AG that was subsequently expanded in May 1998, January 1999 and September
1999. The January 1999 portion of the expanded collaboration is a new three year
agreement. The September 1999 amendment expands the term of the March 1998
agreement through December 2000. The agreements are noncancellable other than
for material breach or certain other conditions. The collaboration is focused on
the discovery of catalysts, polymers, and electronic materials, including x-ray
phosphors. The Company is responsible for performing research at levels defined
in the agreement, including synthesis, screening and informatics. Bayer is
entitled to develop and commercialize materials discovered in or under the
collaboration within the defined field. Under the terms of the expanded
agreement, the Company will receive $36,000,000 in guaranteed research funding
and up to $60,000,000 if extended through mutual agreement. Bayer makes
quarterly research payments to the Company in accordance with the collaboration
agreement. In addition, in 1998 Bayer Innovation, a corporate venture fund of
Bayer AG, made an investment of $5,000,000 in the Company's Series D convertible
preferred stock on the same terms as other financial investors. The Company will
also receive royalties or milestone payments on the sale of any products
developed out of the collaboration. The agreement contains procedures by which
the Company and Bayer will determine royalty rates for the sale or license of
products produced under the agreement. During the years ending December 31, 1999
and 1998, the Company recognized net revenue of $9,650,000 and $5,242,000,
respectively, in connection with this collaboration. Revenue in 1997 included
$1,042,000 earned under a related interim agreement with Bayer.

     In September 1998, the Company entered into a three-year collaborative
research agreement with Celanese Ltd. ("Celanese"). The agreement is
noncancellable other than for material breach or in certain

                                       36
<PAGE>   37
                            SYMYX TECHNOLOGIES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

other conditions. With sufficient notice, Celanese has the right to extend its
period of exclusivity with respect to the field of research covered by the
agreement. Symyx may receive up to $20,000,000 of research funding under the
terms of this agreement. The collaboration is focused on heterogeneous catalysis
for commodity chemical applications, a program that began as part of a February
1997 broad research collaboration with Hoechst AG. The program was transferred
from Hoechst to its chemical and acetate products subsidiary, Celanese, in
keeping with Hoechst's decision to focus exclusively on life sciences. The
Company is responsible for performing research at levels defined in the
agreement, including synthesis, screening and informatics. Celanese is entitled
to develop and commercialize materials discovered in or under collaboration
within the defined field. The Company will receive royalties on the sale of any
products commercialized under this agreement. The agreement contains procedures
by which the Company and Celanese will determine royalty rates for the sale or
license or products under the agreement. During the year ended December 31, 1999
and 1998, the Company recognized net revenue of $3,688,000 and $4,783,000,
respectively, in connection with the Celanese/Hoechst collaboration. The Company
previously had a collaboration with Hoechst pursuant to which approximately
$3,667,000 of research revenue was earned in 1997. Separately, in 1998 Hoechst's
subsidiary, Aventis Research and Technologies, made an equity investment of
$1,800,000 in the Company's Series D convertible preferred stock on the same
terms as other financial investors. Included in this amount was 51,993 shares of
Series D convertible preferred stock valued at $300,000 that was granted in
consideration for the transfer of certain rights to technology, the value of
which was included in research and development expense.

     During 1998, the Company was awarded grants from the U.S. Office of Naval
Research Defense Advanced Research Projects Agency (DARPA) and the U.S.
Department of Energy. During the year ended December 31, 1999, the Company was
awarded one additional grant from both the U.S. Office of Naval Research Defense
Advanced Research Projects Agency (DARPA) and the U.S. Department of Energy.
Under these collaboration arrangements, the Company will be reimbursed for
research costs over various periods as specified in the agreements. During the
years ended December 31, 1999, 1998 and 1997, revenue recognized in the
aggregate under these grants was approximately $2,811,000, $1,011,000 and,
$60,000, respectively.

     In January 1999, the Company entered into a three-year collaboration
agreement with the Dow Chemical Company to develop polyolefin catalysts
primarily directed toward the identification of new catalyst systems for the
production of a wide range of plastic products. The agreement is noncancellable
other than for material breach or in certain other conditions. The Company is
responsible for performing research at levels defined in the agreement,
including synthesis screening and information. Dow is entitled to develop and
commercialize materials discovered in or under the collaboration within the
defined field. Under the terms of the agreement, the Company will receive
$18,000,000 in guaranteed research payments and fees, as well as royalties from
polyolefin products sales resulting from the collaboration. During the year
ended December 31, 1999, the Company has recognized $5,500,000 in connection
with this collaboration.

     In December 1997, the Company entered into a six-month interim research
funding agreement with The B.F. Goodrich Company to research polymers. The
Company received $1,005,000 of research funding under the terms of this
agreement. In August 1998, the interim agreement was expanded to a two-year
collaborative research agreement. Under the terms of the expanded agreement, the
Company would receive $3,810,000 of research funding of which $1,417,000 was
received. The collaboration agreement was terminated by mutual agreement in
April 1999. In consideration of the early termination of the agreement, the
Company received $1,273,000 in three payments through December 1999, which were
recognized as revenue during the year ended December 31, 1999. During the years
ended December 31, 1999 and December 31, 1998 the Company recognized $1,935,000
and $1,722,000 respectively, in connection with the interim, collaboration and
termination agreements.

                                       37
<PAGE>   38
                            SYMYX TECHNOLOGIES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     During 1998 and 1999, the Company entered into multiyear research
agreements with several additional corporations. Under these collaboration
agreements, the Company will receive research funding over various periods and
would be entitled to milestone payments or royalties for any products developed
out of the collaboration. Revenue recognized in aggregate under these
collaborations was approximately $6,913,000 and $1,029,000 during the years
ended December 31, 1999 and 1998, respectively.

 3. FACILITY LEASE AND OTHER COMMITMENTS

     The Company entered into an 11 year operating lease agreement for its
facility commencing February 1, 1997, with rent payments commencing July 1,
1998. In May 1999, the Company entered into an eight-and-a-half-year operating
lease agreement for an additional facility commencing October 1999.

     Rent expense, which is being recognized on a straight-line basis over the
lease terms, was approximately $426,000, $308,000, and $348,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. Future commitments under
the operating leases for the facilities are as follows (in thousands):

<TABLE>
<CAPTION>
                                  DECEMBER 31,
                                      1999
                                  ------------
<S>                               <C>
2000............................     $  684
2001............................        718
2002............................        752
2003............................        786
2004............................        820
Thereafter......................      2,873
                                     ------
                                     $6,633
                                     ======
</TABLE>

     In connection with the build out of the Company's facility, the Company
entered into a loan and security agreement in January 1997 for up to $6,000,000
(of which $5,000,000 may be used for leasehold improvements). Amounts drawn
under the loan bear a weighted-average interest rate of 13.9%, have a term of 48
months and are secured by the building improvements financed. The Company issued
155,555 shares of common stock to the lender at $0.19 per share in January 1997
in connection with this arrangement. As of December 31, 1999, the Company has
drawn the full amount available under the arrangement.

     In December 1998, the Company entered into loan and security arrangements
for up to $10,000,000 with Transamerica Business Credit and LMSI Venture
Finance. Amounts drawn under the loans will bear interest rates of approximately
8.5% to 10.0%, have a term of 48 months, and are secured by equipment financed
by proceeds under the agreements. Under these agreements, $5,624,000 was drawn
in 1998 and an additional $2,715,000 was drawn in 1999. Due to a partial
repayment of these loans during 1998 and 1999, the Company had available an
additional $3,740,000 at December 31, 1999.

     Future principal payments under the loan agreements are as follows as of
December 31, 1999 (in thousands):

<TABLE>
<CAPTION>
                                  DECEMBER 31,
                                      1999
                                  ------------
<S>                               <C>
2000............................    $ 3,305
2001............................      3,720
2002............................      2,468
2003............................        534
                                    -------
Total principal payments........    $10,027
                                    =======
</TABLE>

                                       38
<PAGE>   39
                            SYMYX TECHNOLOGIES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     The carrying value of these loans approximates their fair value based on a
comparison to debt arrangements with similar terms and conditions.

 4. STOCKHOLDERS' EQUITY

Convertible Preferred Stock

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

     Immediately prior to closing of the initial public offering in November
1999, all 20,561,156 outstanding shares of Series A, B, C and D Convertible
preferred stock of the Company were converted into 15,991,849 shares of common
stock.

Common Stock

     Included in the common shares outstanding at December 31, 1999 and 1998 are
1,379,806 and 1,141,539 shares of common stock subject to repurchase rights,
which generally expire ratably over four or five years from date of issuance.
Certain of these shares were issued pursuant to full-recourse notes receivable,
which bear interest at rates between 4.6% and 6.0% per annum and are due and
payable on the earlier of 120 days after termination of the participant's
employment with the Company, or on various dates beginning in February 2003. In
1998, the Company sold 525,000 shares of common stock to its Chief Executive
Officer concurrent with the commencement of his employment. The shares are
subject to the Company's right of repurchase, in the event of termination, which
lapses over a four year period.

     As of December 31, 1999, the Company has reserved 3,711,353 shares of
common stock for future issuance in relation to the Company's Stock option
plans.

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 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 "Plans"). The 1997 Stock Option Plan
provides for the issuance of options for up to 5,346,556 shares of common stock
to employee and consultants. In October 1999, the Company's stockholders
approved an annual increase, beginning in fiscal year 2000, in the number of
shares of common stock reserved for issuance under the 1997 Stock Plan 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.

     Stock options granted under the Plans may be either incentive stock options
or nonstatutory stock options. Incentive stock options may be granted to
employees with exercise prices of no less than the fair value and nonstatutory
options may be granted to employees or consultants at exercise prices of no less
than 85% of 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. If, at the time the Company grants an option, the
optionee owns stock representing more than 10% of the total combined voting
power of all classes of stock of the Company, the option price shall be at least
110% of the fair value on the date of grant and shall not be exercisable more
than five years after the date of grant. 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

                                       39
<PAGE>   40
                            SYMYX TECHNOLOGIES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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.

     A summary of activity under the Stock Option Plans is as follows:

<TABLE>
<CAPTION>
                                                               OUTSTANDING STOCK OPTIONS
                                                       -----------------------------------------
                                                                                       WEIGHTED-
                                                                                        AVERAGE
                                                       NUMBER OF        EXERCISE       EXERCISE
                                                         SHARES          PRICE           PRICE
                                                       ----------    --------------    ---------
<S>                                                    <C>           <C>               <C>
Balance at December 31, 1996.........................     892,218    $0.01 - $ 0.19      $0.19
Options granted......................................   1,611,997    $0.19 - $ 0.39      $0.32
Options exercised....................................    (315,643)   $0.01 - $ 0.39      $0.23
Options canceled.....................................     (46,988)           $ 0.19      $0.19
                                                       ----------
Balance at December 31, 1997.........................   2,141,584    $0.01 - $ 0.39      $0.28
Options granted......................................   1,205,430    $0.39 - $ 0.96      $0.71
Options exercised....................................  (1,162,909)   $0.19 - $ 0.96      $0.28
Options canceled.....................................    (229,885)   $0.19 - $ 0.58      $0.26
                                                       ----------
Balance at December 31, 1998.........................   1,954,220    $0.19 - $ 0.96      $0.54
Options granted......................................   2,209,817    $0.96 - $33.00      $7.50
Options exercised....................................  (1,071,580)   $0.19 - $12.00      $0.93
Options canceled.....................................    (253,959)   $0.19 - $ 1.93      $0.64
                                                       ----------
Balance at December 31, 1999.........................   2,838,498    $0.01 - $33.00      $5.80
                                                       ==========
</TABLE>

     At December 31, 1999 and 1998, vested and outstanding options for 580,476,
and 282,412 shares were exercisable at weighted-average exercise prices of
$1.84, and $0.35, respectively. The weighted-average grant date fair value of
options granted during the years ended December 31, 1999, 1998 and 1997 was
$4.01, $0.35, and $0.16, respectively. At December 31, 1999, options for shares
of common stock available for future grants under the 1997 Stock Option Plan are
872,855.

     An analysis of options outstanding at December 31, 1999 is as follows:

<TABLE>
<CAPTION>
                                     WEIGHTED-                                 OPTIONS VESTED
                    OPTIONS           AVERAGE            OPTIONS        -----------------------------
                 OUTSTANDING AT      REMAINING          WEIGHTED-        VESTED AT       WEIGHTED-
   EXERCISE       DECEMBER 31,      CONTRACTUAL          AVERAGE        DECEMBER 31,      AVERAGE
     PRICE            1999              LIFE          EXERCISE PRICE        1999       EXERCISE PRICE
   --------      --------------   ----------------   ----------------   ------------   --------------
                                     (IN YEARS)
<S>              <C>              <C>                <C>                <C>            <C>
$ 0.19 - $ 0.39      556,900            7.40              $ 0.32          175,223          $ 0.28
$ 0.58 - $ 0.96      542,286            8.66              $ 0.96          296,484          $ 0.96
$ 1.93 - $ 6.43      695,268            9.24              $ 3.73           67,051          $ 3.50
$11.57 - $12.00    1,003,156            9.66              $11.97           41,718          $11.96
$23.50 - $33.00       40,888            9.78              $28.59               --          $28.59
                   ---------                                              -------
                   2,838,498            8.92              $ 5.80          580,476          $ 1.84
                   =========                                              =======
</TABLE>

     Pro forma net loss information is required by SFAS 123, computed as if the
Company had accounted for its employee stock options granted under the fair
value method of that Statement. The fair value for options granted prior to the
Company's initial public offering in November 1999 were estimated at the date of
grant using the minimum value method with the following weighted-average
assumptions listed below. Options

                                       40
<PAGE>   41
                            SYMYX TECHNOLOGIES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

granted following the Company's November 1999 initial public offering have been
valued using the Black-Scholes method with an expected stock volatility of 0.7
and the weighted-average assumptions:

<TABLE>
<CAPTION>
                                                  1999        1998       1997
                                                ---------    -------    -------
<S>                                             <C>          <C>        <C>
Expected dividend yield.......................          0%         0%         0%
Risk-free interest rate.......................       5.50%      5.25%      6.11%
Expected life.................................  3.5 years    5 years    5 years
</TABLE>

     Had the Company valued its stock options 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):

<TABLE>
<CAPTION>
                                                  YEARS ENDED DECEMBER 31,
                                                -----------------------------
                                                 1999       1998       1997
                                                -------    -------    -------
<S>                                             <C>        <C>        <C>
Net income (loss):
  As reported.................................  $(2,147)   $(8,155)   $(5,596)
                                                =======    =======    =======
  Pro forma for SFAS 123......................  $(3,031)   $(8,226)   $(5,640)
                                                =======    =======    =======
Basic and diluted net income (loss) per share:
  As reported.................................  $ (0.27)   $ (2.13)   $ (1.97)
                                                =======    =======    =======
  Pro forma for SFAS 123......................  $ (0.37)   $ (2.15)   $ (1.98)
                                                =======    =======    =======
</TABLE>

     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. During the years ended
December 31, 1999 and 1998, the Company also recorded deferred compensation with
respect to stock options granted to consultants totaling $1,502,000 and
$155,000, respectively. Options granted to consultants are generally variable
awards and are revalued at the end of each accounting period in accordance with
SFAS 123 and EITF 96-18 using a Black-Scholes model and the following
weighted-average assumptions for 1998 and 1999: estimated volatility between 0.5
and 0.7, risk-free interest rate of 5.0%, no dividend yield; and an expected
life of the option equal to the full term, generally ten years from the date of
grant. The resulting values are charged to expense as they are earned. 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, 1999 and 1998, the Company recorded amortization of deferred stock
compensation expense of approximately $3,794,000 and $188,000, respectively. At
December 31, 1999, the Company had a total of approximately $2.1 million
remaining to be amortized over the corresponding vesting period of each
respective option, generally five years.

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

<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                                                      -------------------------
                                                       1999      1998     1997
                                                      -------    -----    -----
<S>                                                   <C>        <C>      <C>
Research and Development............................  $2,664     $173     $ --
General and Administrative..........................   1,130       15       --
                                                      ------     ----     ----
          Total.....................................  $3,794     $188     $ --
                                                      ======     ====     ====
</TABLE>

Stock Purchase Plan

     In October 1999, the Company's stockholders 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 have been reserved for issuance under the
Purchase Plan. The Purchase Plan permits eligible employees to purchase

                                       41
<PAGE>   42
                            SYMYX TECHNOLOGIES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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. The initial offering period commenced on November 18, 1999. 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, beginning with fiscal 2000, equal to the lessor 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.

 5. INCOME TAXES

     Due to operating losses and the inability to recognize the benefits
therefrom, there is no provision for income taxes for the years ended December
31, 1999, 1998 and 1997.

     As of December 31, 1999, the Company had a federal net operating loss carry
forward of approximately $11.3 million. The Company also had federal research
and development credit carryforwards of approximately $600,000 The net operating
loss and credit carryforwards will expire at various dates beginning in 2010
through 2019, if not utilized.

     Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.

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

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            1999       1998
                                                           -------    -------
<S>                                                        <C>        <C>
Deferred tax assets:
Net operating loss carryforwards.........................  $ 4,000    $ 5,800
Tax credit carryforwards.................................    1,500        800
Deferred revenue.........................................      600         --
Capitalized research and development.....................      200        300
Other....................................................      700        500
                                                           -------    -------
Total deferred tax assets................................    7,000      7,400
Valuation allowance for deferred tax assets..............   (7,000)    (7,400)
                                                           -------    -------
Net deferred tax assets..................................  $    --    $    --
                                                           =======    =======
</TABLE>

     SFAS No. 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. Based upon the weight of
available evidence, which includes the Company's historical operating
performance and the reported cumulative net losses in all prior year, the
Company has provided a full valuation allowance against its net deferred tax
assets.

     The net valuation allowance increased by $4,000,000 and $1,200,000 during
the years ended December 31, 1998 and 1997, respectively.

 6. RELATED PARTY TRANSACTIONS

     The Company has implemented a program under which directors, executive
officers and certain other employees are permitted to purchase restricted stock
or to exercise stock options pursuant to full recourse

                                       42
<PAGE>   43
                            SYMYX TECHNOLOGIES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

promissory notes. The notes bear interest between 4.6% and 6.0% per annum and
are due and payable on the earlier of 120 days after termination of employment
or on various dates beginning February 2003. In 1999 and 1998, loans were made
in the amount of $333,600 and $397,750, respectively, pursuant to this program.
In addition, in 1998, the Company loaned $300,000 to an officer in connection
with certain relocation expenses. The loan was repaid in full in July 1999.

 7. SUBSEQUENT EVENTS (UNAUDITED)

     In January 2000, the Company signed a strategic collaboration with PE
Biosystems, a PE Corporation business, to develop Symyx's proprietary polymer
synthesis materials and methods for use in the analysis of DNA. This
collaboration is the first to result from the Company's internal efforts to
discover, develop and commercialize proprietary materials in the areas of
specialty polymers, fine chemical catalysts and electronic materials. Under the
collaboration agreement, the Company and PE Biosystems will jointly design
polymers as well as the methods and instrumentation for screening those
polymers. Also, under the terms of the two year agreement, the Company will
receive payments for development funding and late stage licensing royalties on
any products commercialized as a result of this collaboration. In addition, the
Company received a payment for the transfer of existing development compounds.

     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 an amount
of $750,000 and 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. The exercise of
this option will be accounted for as an acquisition of technology and the
associated costs will be amortized over the expected useful life of the
technology.

     In February 2000, the Company entered into an agreement to lease an
additional approximately 36,500 square feet of office space in Sunnyvale,
California. The lease will commence 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. The base rent will commence at approximately $91,000 per month and
escalate to approximately $130,000 per month over the initial term of the lease.

                                       43
<PAGE>   44

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this item is hereby incorporated by reference
from the information under the captions "Election of Directors" and "Executive
Officers" contained in the Company's definitive Proxy Statement, to be filed
with the Securities and Exchange Commission no later than 120 days from the end
of the Company's last fiscal year in connection with the solicitation of proxies
for its 1999 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.

                                       44
<PAGE>   45

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)1. FINANCIAL STATEMENTS

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

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                           <C>
Report of Ernst & Young LLP, Independent Auditors
Balance Sheets at December 31, 1999 and 1998
Statements of Operations for the years ended December 31,
  1999, 1998 and 1997
Statement of Stockholders' Equity for the three year period
  ended December 31, 1999
Statements of Cash Flows for the years ended December 31,
  1999, 1998 and 1997
Notes to Financial Statements
</TABLE>

(a)2. FINANCIAL STATEMENT SCHEDULES

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

(a)3. EXHIBITS

     Refer to (C) below.

(b) REPORTS ON FORM 8-K

     The Company was not required to and did not file any reports on Form 8-K
during the period from December 31, 1999 to date of filing.

(c) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                       DESCRIPTION OF DOCUMENT
-------                       -----------------------
<C>         <S>
 #3.1       Amended and Restated Certificate of Incorporation
 @3.2       Bylaws of Symyx
 *4.1       Specimen Common Stock Certificate
 *5.1       Opinion of Wilson Sonsini Goodrich & Rosati, Professional
            Corporation
*10.1       Restated Investors Rights Agreement dated March 27, 1998
*10.2       1996 Stock Plan and forms of agreements thereunder
*10.3       1997 Stock Plan and forms of agreements thereunder
*10.4       1999 Employee Stock Purchase Plan
*10.5       Form of Director and Executive Officer Indemnification
            Agreement
*10.6       Form of Change of Control Agreement between Symyx and the
            following individuals: Steven D. Goldby, Isy Goldwasser,
            Jeryl L. Hilleman, and W. Henry Weinberg
*10.7       Standard Industrial/Commercial Single-Tenant Lease dated
            November 15, 1996 between Symyx and Patrick and Bette Ng,
            Co-Trustees for The Ng Living Trust, for office space
            located at 3100 Central Expressway, Santa Clara, California,
            and addenda and inserts thereto
*10.7(a)    First Amendment to Lease between Symyx and Patrick and Bette
            Ng, Co-Trustees for The Ng Living Trust
*10.8       Collaboration Agreement dated March 1, 1998 between Symyx
            and Bayer AG
</TABLE>

                                       45
<PAGE>   46

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                       DESCRIPTION OF DOCUMENT
-------                       -----------------------
<C>         <S>
*10.8(a)    Amendment No. 1 dated May 1, 1998 to Collaboration Agreement
            between Symyx and Bayer AG
*10.8(b)    Amendment No. 2 dated November 1, 1998 to Collaboration
            Agreement between Symyx and Bayer AG
*10.8(c)    Amendment No. 3 dated January 1, 1999 to Collaboration
            Agreement between Symyx and Bayer AG
*10.8(d)    Amendment No. 4 dated September 15, 1999 to Collaboration
            Agreement between Symyx and Bayer AG
*10.9       Celanese-Symyx Collaboration Agreement dated August 1, 1998
            between Symyx and Celanese Ltd.
*10.10      Collaborative Research and License Agreement dated January
            1, 1999 between Symyx and The Dow Chemical Company
*10.11      License Agreement dated June 22, 1995 between Symyx and
            Lawrence Berkeley Laboratory, on behalf of The Regents of
            the University of California
*10.12      License and Supply Agreement effective August 6, 1999
            between Symyx and Argonaut Technologies, Inc.
 27.1       Financial Data Schedule
</TABLE>

---------------
# Incorporated by reference to exhibit 3.1(b) filed with our Registration
  Statement on Form S-1 (File No. 333-87453), as amended.
@ Incorporated by reference to exhibit 3.2(b) filed with our Registration
  Statement on Form S-1 (File No. 333-87453), as amended.
 * Incorporated by reference to the same number exhibit filed with our
   Registration Statement on Form S-1 (File No. 333-87453), as amended.

                                       46
<PAGE>   47

                                   SIGNATURES

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

                                          SYMYX TECHNOLOGIES, INC.
                                          (Registrant)

March 14, 2000                            By:     /s/ STEVEN D. GOLDBY
                                            ------------------------------------
                                                      Steven D. Goldby
                                                  Chief Executive Officer
                                                 and Chairman of the Board

March 14, 2000                            By:     /s/ JERYL L. HILLEMAN
                                            ------------------------------------
                                                     Jeryl L. Hilleman
                                                 Senior Vice President and
                                                  Chief Financial Officer

                               POWER OF ATTORNEY

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

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

<TABLE>
<CAPTION>
                       SIGNATURE                                      TITLE                   DATE
                       ---------                                      -----                   ----
<S>                                                       <C>                            <C>
By: /s/ STEVEN D. GOLDBY                                   Chief Executive Officer and   March 14, 2000
                                                              Chairman of the Board
--------------------------------------------------------  (Principal Executive Officer)
    Steven D. Goldby

By: /s/ JERYL L. HILLEMAN                                   Senior Vice President and    March 14, 2000
                                                                 Chief Financial
--------------------------------------------------------   Officer(Principal Financial
    Jeryl L. Hilleman                                        and Accounting Officer)

By: /s/ THOMAS R. BARUCH                                            Director             March 14, 2000
--------------------------------------------------------
    Thomas R. Baruch

By:                                                                 Director
--------------------------------------------------------
    Samuel D. Colella

By: /s/ MARTIN GERSTEL                                              Director             March 14, 2000
--------------------------------------------------------
    Martin Gerstel

By: /s/ BARON GAULTHAUS KRAIJENHOFF                                 Director             March 14, 2000
--------------------------------------------------------
    Baron Gaulthaus Kraijenhoff

By: /s/ FRANCOIS A. L'EPLATTENIER                                   Director             March 14, 2000
--------------------------------------------------------
    Francois A. L'Eplattenier
</TABLE>

                                       47
<PAGE>   48

<TABLE>
<CAPTION>
                       SIGNATURE                                      TITLE                   DATE
                       ---------                                      -----                   ----
<S>                                                       <C>                            <C>
By: /s/ KENNETH J. NUSSBACHER                                       Director             March 14, 2000
----------------------------------------------------
Kenneth J. Nussbacher

By: /s/ MARIO M. ROSATI                                             Director             March 14, 2000
--------------------------------------------------------
    Mario M. Rosati

By: /s/ PETER G. SCHULTZ                                            Director             March 14, 2000
--------------------------------------------------------
    Peter G. Schultz

By: /s/ ISAAC STEIN                                                 Director             March 14, 2000
--------------------------------------------------------
    Isaac Stein
</TABLE>

                                       48
<PAGE>   49

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
    EXHIBIT
     NUMBER                       DESCRIPTION OF DOCUMENT
    --------                      -----------------------
    <C>         <S>
     #3.1       Amended and Restated Certificate of Incorporation
     @3.2       Bylaws of Symyx
     *4.1       Specimen Common Stock Certificate
     *5.1       Opinion of Wilson Sonsini Goodrich & Rosati, Professional
                Corporation
    *10.1       Restated Investors Rights Agreement dated March 27, 1998
    *10.2       1996 Stock Plan and forms of agreements thereunder
    *10.3       1997 Stock Plan and forms of agreements thereunder
    *10.4       1999 Employee Stock Purchase Plan
    *10.5       Form of Director and Executive Officer Indemnification
                Agreement
    *10.6       Form of Change of Control Agreement between Symyx and the
                following individuals: Steven D. Goldby, Isy Goldwasser,
                Jeryl L. Hilleman, and W. Henry Weinberg
    *10.7       Standard Industrial/Commercial Single-Tenant Lease dated
                November 15, 1996 between Symyx and Patrick and Bette Ng,
                Co-Trustees for The Ng Living Trust, for office space
                located at 3100 Central Expressway, Santa Clara, California,
                and addenda and inserts thereto
    *10.7(a)    First Amendment to Lease between Symyx and Patrick and Bette
                Ng, Co-Trustees for The Ng Living Trust
    *10.8       Collaboration Agreement dated March 1, 1998 between Symyx
                and Bayer AG
    *10.8(a)    Amendment No. 1 dated May 1, 1998 to Collaboration Agreement
                between Symyx and Bayer AG
    *10.8(b)    Amendment No. 2 dated November 1, 1998 to Collaboration
                Agreement between Symyx and Bayer AG
    *10.8(c)    Amendment No. 3 dated January 1, 1999 to Collaboration
                Agreement between Symyx and Bayer AG
    *10.8(d)    Amendment No. 4 dated September 15, 1999 to Collaboration
                Agreement between Symyx and Bayer AG
    *10.9       Celanese-Symyx Collaboration Agreement dated August 1, 1998
                between Symyx and Celanese Ltd.
    *10.10      Collaborative Research and License Agreement dated January
                1, 1999 between Symyx and The Dow Chemical Company
    *10.11      License Agreement dated June 22, 1995 between Symyx and
                Lawrence Berkeley Laboratory, on behalf of The Regents of
                the University of California
    *10.12      License and Supply Agreement effective August 6, 1999
                between Symyx and Argonaut Technologies, Inc.
     27.1       Financial Data Schedule
</TABLE>

---------------
# Incorporated by reference to exhibit 3.1(b) filed with our Registration
  Statement on Form S-1 (File No. 333-87453), as amended.
@ Incorporated by reference to exhibit 3.2(b) filed with our Registration
  Statement on Form S-1 (File No. 333-87453), as amended.
 * Incorporated by reference to the same number exhibit filed with our
   Registration Statement on Form S-1 (File No. 333-87453), as amended.