UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

 (Mark One)

ý QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedMarch 31, 2009

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number:  000-27765

SYMYX TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization)	77-0397908 (I.R.S. Employer Identification No.)
1263 East Arques Avenue Sunnyvale, California (Address of principal executive offices)	94085 (Zip Code)
(408) 764-2000 (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and, (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232-405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.   Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one).

o Large accelerated filer	ý Accelerated filer
o Non-accelerated filer (Do not check if a smaller reporting company)	o Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 oYes ý No 

As of April 30, 2009, Registrant had outstanding 34,076,919 shares of Common Stock, $0.001 par value.

TABLE OF CONTENTS

		PAGE
	Part I: Financial Information
Item 1.	Financial Statements:
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2008	1
	Condensed Consolidated Balance Sheets at March 31, 2009 and December 31, 2008	2
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
Item 4T.	Controls and Procedures	25
	Part II: Other Information
Item 1A.	Risk Factors	26
Item 6.	Exhibits	37
	Signatures	38
	Exhibit Index	39

PART I:  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SYMYX TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2009			2008
Revenue:
Service	$	16,700		$	18,515
Product		2,719			4,568
License fees, content and royalties		13,975			13,824
Total revenue		33,394			36,907
Costs:
Cost of service		6,513			4,666
Cost of products		1,163			2,187
Cost of license fees, content and royalties		1,281			1,603
Amortization of intangible assets arising from business combinations		1,787			1,781
Total costs		10,744			10,237
Gross profit		22,650			26,670
Operating expenses:
Research and development		13,566			20,687
Sales, general and administrative		11,097			15,233
Restructuring charges		208			-
Amortization of intangible assets arising from business combinations		1,445			1,477
Total operating expenses		26,316			37,397
Loss from operations		(3,666	)		(10,727	)
Interest and other income (expense), net		(1,047	)		(396	)
Loss before income tax benefits		(4,713	)		(11,123	)
Income tax benefits		1,606			4,331
Net loss	$	(3,107	)	$	(6,792	)
Basic and diluted net loss per share	$	(0.09	)	$	(0.20	)
Shares used in computing basic and diluted net loss per share		34,044			33,542

See accompanying notes to condensed consolidated financial statements

1

SYMYX TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands except per share amounts)

	March 31, 2009			December 31, 2008
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	81,849		$	66,415
Accounts receivable, net		9,959			11,993
Inventories		3,861			3,308
Deferred tax assets, current		1,828			1,449
Income tax receivable		4,727			6,549
Other current assets		7,993			6,351
Total current assets		110,217			96,065
Property, plant and equipment, net		18,343			18,447
Goodwill		39,179			39,979
Intangible assets, net		49,898			53,268
Long-term investments		15,147			15,147
Other assets		1,620			1,608
Total assets	$	234,404		$	224,514
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,544		$	3,056
Other accrued liabilities		8,905			9,947
Accrued compensation and employee benefits		7,027			9,377
Accrued royalty		2,664			3,628
Income taxes payable		638			567
Accrued restructuring costs		1,409			4,578
Deferred revenue		46,272			23,519
Total current liabilities		68,459			54,672
Long-term payable		4,722			4,457
Long-term deferred revenue		7,501			7,421
Noncurrent deferred tax liabilities		4,933			5,881
Total noncurrent liabilities		17,156			17,759
Commitments and contingencies (Note 1)
Stockholders' equity:
Common stock, $0.001 par value, 60,000 shares authorized and 34,077 and 34,015 shares issued and outstanding at March 31, 2009 and December 31, 2008, respectively		34			34
Additional paid-in capital		208,112			207,690
Accumulated other comprehensive gain		1,997			2,606
Accumulated deficits		(61,354	)		(58,247	)
Total stockholders' equity		148,789			152,083
Total liabilities and stockholders’ equity	$	234,404		$	224,514

See accompanying notes to condensed consolidated financial statements

2

SYMYX TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2009			2008
Operating activities
Net loss	$	(3,107	)	$	(6,792	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		1,336			3,051
Amortization of intangible assets arising from business combinations		3,232			3,258
Stock-based compensation		880			1,144
Deferred income taxes		(1,367	)		(2,151	)
Tax (deficiency) from employee stock transactions		(385	)		(870	)
Changes in operating assets and liabilities, excluding effects of business acquisitions:
Accounts receivable, net		2,016			7,380
Inventories		(594	)		(14	)
Other current assets		(1,765	)		(363	)
Other long-term assets		(51	)		142
Accounts payable		(1,505	)		1,244
Other accrued liabilities		(765	)		568
Accrued compensation and employee benefits		(2,269	)		(2,534	)
Accrued royalties		(642	)		(1,079	)
Income taxes receivable and payable		1,878			(2,114	)
Accrued restructuring charges		(3,169	)		(1,359	)
Deferred revenue		23,176			21,800
Long-term payable		265			-
Net cash provided by operating activities		17,164			21,311
Investing activities
Purchase of property, plant and equipment, net		(1,205	)		(1,027	)
Proceeds from maturities of marketable securities		-			8,400
Receivable from the seller of an acquired business and costs related to business acquisition		-			4,484
Net cash provided by (used in) investing activities		(1,205	)		11,857
Financing activities
Proceeds from issuance of common stock		27			3
Payment of employee withholding tax in lieu of issuing common stock upon vesting of restricted stock units		(100	)		(479	)
Net cash used in financing activities		(73	)		(476	)
Effect of foreign exchange rate changes on cash and cash equivalents		(452	)		1,493
Net increase in cash and cash equivalents		15,434			34,185
Cash and cash equivalents at beginning of year		66,415			37,077
Cash and cash equivalents at end of year	$	81,849		$	71,262

See accompanying notes to condensed consolidated financial statements

3

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 

1.        Summary of Significant Accounting Policies

Business and Basis of Presentation

Symyx Technologies, Inc. (together with its wholly-owned subsidiaries, the “Company” or “Symyx”) enables global leaders in life sciences, chemical, energy, and consumer and industrial products to optimize and accelerate their scientific research and development (“R&D”). Through its abilities in scientific informatics management, workflow optimization, and micro-scale, parallel experimentation, Symyx helps companies transform their R&D operations to minimize the time their scientists spend on routine, repetitive tasks and to maximize their return on R&D investments.

Symyx incorporated in California on September 20, 1994 and reincorporated in Delaware in February 1999. Symyx’s headquarters are in Sunnyvale, California.

Management has prepared the accompanying unaudited condensed consolidated balance sheet as of March 31, 2009, the unaudited condensed consolidated statements of operations for the three month periods ended March 31, 2009 and 2008, respectively, and the unaudited condensed consolidated statements of cash flows for the three month periods ended March 31, 2009 and 2008, respectively, in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). In management’s opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position of Symyx at March 31, 2009 and the results of operations and cash flows for all periods presented have been made. The unaudited condensed consolidated balance sheet at December 31, 2008 was derived from the audited financial statements at that date, but does not include all of the disclosures required by GAAP for complete financial statements.

Because all of the disclosures required by GAAP in complete financial statements are not included herein, these unaudited condensed consolidated financial statements and the notes accompanying them should be read in conjunction with the Company's audited financial statements and the notes thereto included in the Company's 2008 Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed with the SEC. The consolidated results of operations for the three months ended March 31, 2009 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending December 31, 2009.

Principles of Consolidation

These unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Symyx accounts for equity investments in companies over which Symyx has the ability to exercise significant influence, but does not hold a controlling interest, under the equity method.  Accordingly, Symyx records its proportionate share of income or losses in the unaudited condensed consolidated statements of operations. Symyx has eliminated all significant intercompany accounts and transactions.

Use of Estimates

Preparing financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts in Symyx’s consolidated financial statements and accompanying notes. Estimates include the assumptions used in determining the implied fair value of goodwill, the forfeiture rates for stock-based awards, the collectability of outstanding accounts receivable, reserve for excess and/or obsolete inventory, future warranty expenditures, and assumptions such as the elements comprising a revenue arrangement, including the distinction between software upgrades/enhancements and new products, when the Company’s products achieve technological feasibility, the potential outcome of future tax consequences of events recognized in the Company’s financial statements or tax returns, and the value of acquired intangible assets. Actual results and outcomes may differ from management’s estimates and assumptions.

4

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Customer Indemnification

From time to time, the Company agrees to indemnify its customers against certain third party liabilities, including liability if its products infringe a third party’s intellectual property rights. The Company accounts for such indemnification provisions in accordance with the Financial Accounting Standards Board (FASB) Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Other than for limited exceptions (e.g., intellectual property indemnity or bodily harm), the Company’s indemnification obligation in these arrangements is typically limited to no more than the amount paid by the customer. As of March 31, 2009, the Company was not subject to any pending intellectual property-related litigation. The Company has not received any requests for and has not been required to make any payments under these indemnification provisions during any periods covered in these unaudited condensed consolidated financial statements.

Contingencies

In July 2006, the Company acquired all of the outstanding shares of Autodose SA (Autodose).  Pursuant to the terms of the merger agreement the Company entered into with Autodose, the former stockholders of Autodose are eligible to receive additional purchase price consideration of up to 6,500,000 Swiss Franc (equivalent to $5,657,000 using the foreign currency exchange rate in effect on March 31, 2009) upon achievement of the 2009 revenue target with respect to the Company’s Autodose product line. The Company evaluates the likelihood of achieving this target from time to time. If the 2009 revenue target is met, the Company would record the fair value of any additional consideration as an additional cost of the acquisition. No additional consideration was recorded as of March 31, 2009.

In August 2008, the Company acquired 100% of the ownership of Integrity Biosolution, LLC (“IntegrityBio”), a privately held research service company based in Camarillo, California. Pursuant to the terms of the purchase agreement, the founder of IntegrityBio will earn an additional $1.75 million in cash, so long as the founder serves as an employee of the Company or its affiliates continuously for 24 months from the acquisition date. The Company has determined it is probable the amounts will be earned and paid and has recorded $555,000 related to this payable to the founder as of March 31, 2009. The Company also agreed to pay 46% of total revenue generated by IntegrityBio during the one-year period starting from September 1, 2009 to the founder as additional consideration pursuant to the terms of the purchase agreement, for which the Company cannot yet estimate the total liability.

Revenue Concentration

For the three months ended March 31, 2009 and 2008, the following customers contributed more than 10% of the Company’s total revenue (dollars in thousands):

	Three Months Ended March 31,
	2009		As % of Total Revenue			2008		As % of Total Revenue
ExxonMobil	$	3,414		10	%	$	7,709		21	%
Dow		5,481		17	%		5,834		16	%
Total	$	8,895		27	%	$	13,543		37	%

5

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The revenue from these customers has been included in the following reportable segments (see Note 6) for the three months ended March 31, 2009 and 2008 (in thousands):

	Three Months Ended March 31,
	2009		2008
Symyx Software	$	2,027	$	2,211
Symyx HPR		6,868		11,332
Total	$	8,895	$	13,543

The revenue from these customers has been included in the Condensed Consolidated Statements of Operations as follows (in thousands):

	Three Months Ended March 31,
	2009		2008
Service	$	4,000	$	7,153
Product		858		1,102
License fees, content and royalties		4,037		5,288
Total	$	8,895	$	13,543

Inventories

Raw material inventories consist of purchased parts. Work-in-process inventory consists of purchased parts and fabricated sub-assemblies for Symyx tools in the process of being built. Finished goods inventory consists of customized systems that have been finished but are pending shipment to customers. Inventories are carried at the lower of cost or market, with cost determined on a specific identification basis. The Company’s inventory balances at March 31, 2009 and December 31, 2008 were as follows (in thousands):

	March 31, 2009		December 31, 2008
Raw Materials	$	-	$	20
Work-in-process		3,756		3,288
Finished goods		105		-
Total	$	3,861	$	3,308

Accrued Warranty

The Company offers a warranty on each Symyx Tools system sold to a customer. Warranty terms vary depending upon the product sold and the country in which the transaction takes place. However, warranties typically include parts and labor and software bug fixes for a specified period (typically one year). The Company estimates warranty costs to be incurred under its basic limited warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company’s warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts, as necessary.

Changes in the Company’s accrued product warranty during the three months ended March 31, 2009 and 2008 were as follows (in thousands):

6

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

	2009			2008
Balance as of January 1	$	1,406		$	1,728
New warranties issued during the period		109			257
Costs incurred during the period on specific systems		(195	)		(184	)
Changes in liability for pre-existing warranties during the period, including expirations		(294	)		(130	)
Balance as of March 31	$	1,026		$	1,671

Goodwill and Intangible Assets

The Company’s goodwill at March 31, 2009 and December 31, 2008 is reported as follows (in thousands):

	March 31, 2009		December 31, 2008
Symyx Software	$	38,749	$	39,539
Symyx HPR		430		440
Total	$	39,179	$	39,979

The Company’s goodwill balance decreased $800,000 during the three months ended March 31, 2009, primarily due to the effect of foreign currency exchange rate fluctuation on the goodwill recorded by the Company’s subsidiaries in foreign currencies.

Intangible assets are amortized using the straight-line method over their estimated periods of benefit, ranging from one to seven years.

The Company accounts for goodwill in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). As required by SFAS No. 142, the Company tests goodwill of its reporting units for impairment annually during its fourth quarter or whenever events occur or circumstances change, such as an adverse change in business climate or a decline in the overall industry, that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company allocated goodwill into three reporting units: Symyx Software, Symyx Research and Symyx Tools.

Testing goodwill for impairment requires a two-step approach under SFAS No. 142. In determining the fair value of its reporting units in step one of its SFAS No. 142 impairment analysis, the Company uses a combination of the income approach, which is based on the present value of discounted cash flows and terminal value projected for the reporting unit, and the market approach, which estimates fair value based on an appropriate valuation multiple of revenue or earnings derived from comparable companies, adjusted by an estimated control premium. These calculations are dependent on several subjective factors including the timing of future cash flows, future growth rates, the discount rate, and a selection of peer market transactions. The discount rate that the Company uses in the income approach of valuation represents the weighted average cost of capital that the Company believes is reflective of the relevant risk associated with the projected cash flows.

If the estimated fair value of a reporting unit’s goodwill exceeds its net book value, the Company concludes that its goodwill is not impaired. Otherwise, the Company performs step two of the above test to compare the estimated implied fair value of goodwill to its carrying value. The excess carrying value of goodwill as compared to the implied is recorded as a goodwill impairment. In the fourth quarter of 2008, the Company performed an impairment test of each reporting unit’s goodwill. As a result of this analysis, the Company concluded that the carrying amounts of goodwill exceeded the implied fair value of goodwill in the Symyx Software and Symyx Research reporting units and recorded an impairment charge.

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (SFAS No. 144), the Company tests other long-lived assets, including property, equipment and leasehold improvements and other intangible assets subject to amortization, for recoverability whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable. The Company assesses the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, the Company will estimate the fair value of the asset group using the same approaches indicated above for SFAS No. 142 step two and compare it to its carrying value. The excess of the carrying value over the fair value is allocated pro rata to derive the adjusted carrying value. The adjusted carrying value of each asset in the asset group is not reduced below its fair value. In the fourth quarter of 2008, due to the significant decline of its market capitalization, the Company also performed an impairment test of long-lived assets. As a result of this analysis, the Company concluded that the carrying amounts of intangibles and other long-lived assets in Symyx Research and Symyx Tools reporting units exceeded their implied fair values and recorded an impairment charge.

7

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Based on the impairment analysis conducted in the fourth quarter of 2008, the Company recorded impairment charges of $76,489,000 to goodwill, $2,574,000 to intangible assets and $11,267,000 to property, plant and equipment.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest.

The Company assesses its allowance for doubtful accounts based on a combination of factors. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations to us, the Company records a specific allowance against amounts due and thereby reduces the net recognized receivable to the amount it reasonably believes will be collected. For all other customers, the Company records allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment and its historical experience. For the three months ended March 31, 2009 and 2008, the Company’s allowance for doubtful accounts changed as follows (in thousands):

	2009			2008
Balance as of January 1	$	356		$	53
New allowance accrued					336
Adjustments written-off and other adjustments		(20	)		-
Balance as of March 31	$	336		$	389

Deferred Costs

The Company entered into some software service arrangements under which all revenue is deferred until certain specified functionality is delivered. In these cases, the direct variable expenses, not exceeding the expected revenue, are deferred and included in other current assets on the balance sheet until the revenue is recognized. Direct variable expenses include direct labor costs and direct services contracts with third parties working on the software service arrangements. As of March 31, 2009, the Company deferred approximately $311,000 of direct variable expenses related to software service arrangements where the revenue is deferred until future periods.

Fair Value Measurements

In September 2006, the FASB issued Statement No. 157 (“SFAS 157”), Fair Value Measurements. SFAS No. 157 establishes a three-level hierarchy which prioritizes the inputs used in measuring fair value. In general, fair value determined by Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability. The fair value of the Company’s cash equivalents were $62,055,000 and $51,999,000 at March 31, 2009 and December 31, 2008, respectively, based on Level 1 inputs.  Effective January 1, 2009, the Company adopted the provisions under SFAS No. 157 for valuation of nonfinancial assets and nonfinancial liabilities. The adoption of such provisions did not impact the Company’s financial position, results of operations or cash flows.

8

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Effect of New Accounting Pronouncements

In April 2009, the FASB issued the following new accounting standards:

· FASB Staff Position FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” (“FSP FAS 107-1” and “APB 28-1”). FSP FAS 107-1 and APB 28-1, amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments in interim as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in all interim financial statements.

· FASB Staff Position FAS 157-4, “Determining Whether a Market Is Not Active and a Transaction Is Not Distressed,” (“FSP FAS 157-4”). FSP FAS 157-4 provides guidelines for making fair value measurements more consistent with the principles presented in SFAS 157. FSP FAS 157-4 provides additional authoritative guidance in determining whether a market is active or inactive, and whether a transaction is distressed, is applicable to all assets and liabilities (i.e. financial and nonfinancial) and will require enhanced disclosures.

· FASB Staff Position FAS 115-2, FAS 124-2, and EITF 99-20-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” (“FSP FAS 115-2,” “FAS 124-2,” and “EITF 99-20-2”).  FSP FAS 115-2, FAS 124-2, and EITF 99-20-2 provides additional guidance to provide greater clarity about the credit and noncredit component of an other-than-temporary impairment event and to more effectively communicate when an other-than-temporary impairment event has occurred. This FSP applies to debt securities.

These standards are effective for periods ending after June 15, 2009. The Company is evaluating the impact that these standards will have on its financial statements.

2.      Stock-Based Benefit Plans

The Company has an Employee Stock Purchase Plan (“ESPP”) that permits eligible employees to purchase Symyx common stock at a discount, but only through payroll deductions, during concurrent 12-month offering periods. Each offering period is divided into two consecutive six-month purchase periods. On the last day of each purchase period, eligible employees can purchase shares under the plan at 85% of the fair market value of Symyx’s common stock on the first day of the offering period or the last day of the purchase period, whichever was lower. The two purchase dates per year under the ESPP are April 30 and October 31. Accordingly, no shares were purchased during the three months ended March 31, 2009 or 2008. As of March 31, 2009, there were 1,235,310 shares of common stock available for future purchase under the ESPP. Subsequently on May 4, 2009, the Company’s Board of Directors approved an amendment and restatement of the ESPP to eliminate the “evergreen” increase of the shares reserved pursuant to Section 13(a) of the ESPP, effective after the January 1, 2009 increase in such reserved share pool; and second, to provide that the ESPP shall have an indefinite term. This amendment and restatement of the ESPP is not subject to shareholder approval. On May 6, 2009, the Company filed a registration statement on Form S-8 to register additional 1,005,793 shares of common stock available for future purchase under the ESPP pursuant to the “evergreen” increase for 2007, 2008 and 2009.

The Company also has adopted various stock option plans that provide for the grant to employees of stock-based awards, including stock options, restricted stock units, and restricted stock. Certain of these plans permit the grant of nonstatutory stock-based awards to outside consultants and members of the Company’s Board of Directors. During the three months ended March 31, 2009 and 2008, the Company granted options to purchase 30,000 and 57,500 shares of common stock, respectively, under its stock option plans. As of March 31, 2009, 4,864,714 shares were available for issuance under the Company’s various stock option plans.

9

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company valued options granted in the three months ended March 31, 2009 and 2008 using the Black-Scholes method with the following valuation assumptions:

	Three Months Ended March 31,
	2009						2008
	Range			Weighted-Average			Range			Weighted-Average
Expected dividend		0%-0	%		0	%		0% - 0	%		0	%
Risk-free interest rate		1.7%-1.7	%		1.7	%		3.5% - 3.5	%		3.5	%
Expected volatility		61%-61	%		61	%		46% - 47	%		47	%
Expected life (in years)		4.3-4.3			4.3			4.1 – 5.1			4.7

During the three months ended March 31, 2009 and 2008, the Company granted restricted stock units of 4,000 shares and 3,000 shares, respectively. The fair value of each share of restricted stock units equaled to the close stock price of the Company’s common stock on the grant date.

The Company recognized stock-based compensation expense related to all of its share-based awards of $880,000 and $1,144,000 during the three months ended March 31, 2009 and 2008, respectively, in the Company’s results of operations as follows (in thousands):

	Three Months Ended March 31,
	2009		2008
Costs of revenue	$	148	$	60
Research and development		14		370
Sales, general and administrative		718		714
Total	$	880	$	1,144

3.      Loss Per Share

Basic and diluted net loss per share has been computed by dividing the net loss for the period by the weighted-average number of shares of common stock outstanding during the period. The computation of the weighted-average number of shares outstanding for the three months ended March 31, 2009 and 2008 was (in thousands):

	Three Months Ended March 31,
	2009		2008
Weighted-average shares of common stock outstanding		34,044		33,615
Less: weighted-average restricted stock		-		(73	)
Weighted-average shares used in computing basic and diluted net loss per share		34,044		33,542

The following shares were excluded from the calculation of basic and diluted net loss per share for the three months ended March 31, 2009 and 2008, respectively, because all were anti-dilutive due to the net loss for the respective periods (in thousands):

	As of March 31,
	2009		2008
Options		4,887		6,716
Restricted stock units		662		160
Total anti-dilutive shares		5,549		6,876

10

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4.      Related Party Transactions

The Company entered into a Collaborative Development and License Agreement in March 2005 and an Alliance Agreement in December 2005 with Intermolecular, Inc. (Intermolecular). Under these agreements, the two companies worked together to conduct research and development and other activities with respect to materials and high-throughput technology for use in semiconductor applications. Each party bore its own expenses. In November 2007, following the conclusion of the joint research and development activities, these agreements were amended. Under the amended agreements, the Company has an ongoing obligation to provide two employees to modify and integrate certain Symyx software with and into Intermolecular products and to provide Intermolecular access to certain Symyx equipment for development purposes. In August 2006, the Company invested $13,500,000 in exchange for approximately 13% of Intermolecular’s outstanding shares, and in December 2008 invested an additional $1,647,000, maintaining the Company’s 13% interest in Intermolecular. The Company accounts for its ownership interest in Intermolecular using the cost method, because the Company does not have the ability to exercise significant influence over Intermolecular’s strategic, operating, investing and financing activities. Isy Goldwasser, the Company’s chief executive officer, is a director of Intermolecular. For the three months ended March 31, 2009 and 2008, the Company recognized royalty revenue from Intermolecular of $83,000 and $52,000, respectively. As of March 31, 2009 and December 31, 2008, the Company recorded $32,000 of deferred revenue and a $77,000 customer deposit from Intermolecular.

5.      Comprehensive Loss

The components of comprehensive loss for the three months ended March 31, 2009 and 2008 were as follows (in thousands):

	Three Months Ended March 31,
	2009			2008
Net loss	$	(3,107	)	$	(6,792	)
Other comprehensive income (loss):
Unrealized losses on marketable securities, net of tax		-			(1	)
Foreign currency translation adjustment		(610	)		4,077
Other comprehensive income (loss)		(610	)		4,076
Comprehensive loss	$	(3,717	)	$	(2,716	)

6.      Segment Disclosure

SFAS No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and Related Information, requires disclosures of certain information regarding operating segments, products and services, geographic areas of operation and major customers. The method for determining what information to report under SFAS 131 is based upon the "management approach," or the way that management organizes the operating segments within a company for which separate financial information is available and evaluated regularly by the Chief Operating Decision Maker (“CODM”) when deciding how to allocate resources and in assessing performance. The Company’s Chief Executive Officer is its CODM, who allocates resources to and assesses the performance of each business unit using information about the business unit’s revenue and operating income (loss). The Company’s CODM generally does not review the Company’s assets by business segment.

Revenue is defined as revenue from external customers and is disaggregated into:

· Symyx Software – (i) license of electronic laboratory notebook, lab execution and experiment analysis, logistics and decision support software, and subscriptions to scientific content, and (ii) provision of associated support, maintenance and consulting services.

· Symyx High Productivity Research ("HPR") – (i) research services, (ii) license fees and royalties associated with the Company’s patents, trade secrets and other intellectual property, including materials discovered in the Company’s research collaborations, (iii) sale of laboratory automation systems and supporting consumables, and (iv) system support services.

11

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The disaggregated financial information reviewed by the CODM in 2009 and 2008 is listed in the table below. The Company has research and development, manufacturing, sales and marketing, and general and administrative groups. Expenses for these groups are generally allocated to the business units. Certain corporate-level operating expenses and charges were not allocated to each business unit and were included in the “other” category. These expenses and charges include, but not limited to:

· Acquisition-related costs, including in-progress research and development, amortization and any impairment of acquisition-related intangibles and goodwill;

· Amounts included within restructuring and asset impairment charges; and

· Results of operations of venture businesses supporting the Company’s initiatives.

	Three Months Ended March 31,
	2009			2008
Revenue:
Symyx Software
Service	$	10,708		$	9,502
License fees, content and royalties		11,042			10,522
Total Symyx Software revenue	$	21,750		$	20,024
Symyx HPR
Service	$	5,992		$	9,013
Product		2,719			4,568
License fees, content and royalties		2,933			3,302
Total Symyx HPR revenue	$	11,644		$	16,883
Total revenue	$	33,394		$	36,907
Operating income (loss):
Symyx Software	$	1,926			*
Symyx HPR		(2,125	)		*
Other		(3,467	)		*
Total operating loss	$	(3,666	)	$	(10,727	)

* The Company did not implement a reporting system prior to 2009 to segregate operating expenses by business segment. It is impracticable to restate prior periods to be consistent with current period presentation.

12

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Geographic Area Data

The table below shows revenue by physical location of the Company’s customers based on the ship-to address (in thousands).

	Three Months Ended March 31,
	2009		2008
United States	$	21,613	$	22,392
Europe		7,840		11,760
Asia		3,724		2,305
Rest of the World		217		450
Total	$	33,394	$	36,907

7.      Intangible Assets

The Company acquired certain patent rights and know-how from third parties. It also obtained certain intangible assets in various business acquisitions. These intangible assets are being amortized on a straight-line basis over the estimated useful lives of the assets. In the three months ended March 31, 2009 and 2008, the Company recorded amortization expenses of intangible assets of $3,259,000 and $3,331,000, respectively. Assuming no subsequent impairment of the underlying assets, the amortization expense of total intangible assets is expected to be as follows (in thousands):

Years ending December 31,	Amount
Remainder of 2009	$	8,554
2010		10,055
2011		8,039
2012		7,504
2013		6,987
Thereafter		8,759
Total	$	49,898

8.      Income Taxes

The reconciliation of the federal statutory income tax rate to the Company’s effective income tax benefit rate is as follows:

	Three Months Ended March 31,
	2009			2008
Expected benefit at federal statutory rate		35	%		35	%
State taxes, net of federal impact		-1	%		7	%
Research and development credits		5	%		0	%
Permanent difference related to stock-based compensation		-4	%		-2	%
Other individually immaterial items		-1	%		-1	%
Effective income tax benefit rate		34	%		39	%

U.S. income taxes were not provided on undistributed earnings from investments in certain non-U.S. subsidiaries. Determination of the amount of unrecognized deferred tax liability for temporary differences related to investments in these non-U.S. subsidiaries that are essentially permanent in duration is not practicable. The Company currently intends to reinvest these earnings in operations outside the U.S.

13

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.        Bank Credit Facility

On September 28, 2007, the Company entered into a Credit Agreement (the “Credit Agreement”) with Bank of America, N.A., as Administrative Agent and L/C Issuer (the “Agent”), and each lender from time to time a party thereto. Under the Credit Agreement, the Agent has agreed to provide a $25 million aggregate commitment for a two-year revolving credit facility and issuances of letters of credit for the Company’s account (the “Facility”), secured by substantially all of the Company’s assets excluding intellectual property.

Loans under the Credit Agreement bear interest at either (i) for Eurodollar rate loans, the rate per annum equal to the British Bankers Association LIBOR plus a margin ranging from 0.25 percent to 0.50 percent or (ii) a formula based on the Agent’s prime rate and the federal funds effective rate.  Subject to certain conditions stated in the Credit Agreement, the Company may borrow, pre-pay and re-borrow amounts under the Facility at any time during the term of the Credit Agreement.  The Credit Agreement will terminate and all amounts owing thereunder will be due and payable on September 28, 2009, unless the commitments are earlier terminated, either at the Company’s request or, if an event of default occurs, by the lenders. The Company may also, upon the agreement of either the Agent or additional banks not currently a party to the Credit Agreement, increase the commitments under the Facility up to an additional $50 million. The Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including financial covenants and events of default.  The negative covenants set forth in the Credit Agreement include restrictions on additional indebtedness and liens, fundamental changes and entering into burdensome agreements. The financial covenants require the Company to meet quarterly financial tests with respect to consolidated net worth and consolidated interest coverage ratio, and financial tests with respect to a consolidated leverage ratio.

Due to the non-cash impairment charges and valuation allowances recorded in the fourth quarter of 2008, the Company did not meet the Consolidated Net Worth covenant related to the Facility (“Existing Default”) as of December 31, 2008. In March 2009, the Company and the Agent executed an amendment to the Facility which provided a waiver with respect to the Existing Default and lowered the Consolidated Net Worth covenant amount for future measurement dates.

 As of March 31, 2009, the Company had no outstanding borrowings under the Facility and was in compliance with all financial covenants related to the Facility.

10.      Restructuring Charges

In order to realign its operations to drive performance and improve operating efficiency, on December 3, 2008, the Company initiated a reorganization plan (“2008 Plan”) to combine Symyx Tools and Symyx Research to create Symyx HPR. The 2008 Plan included a worldwide reduction in force of approximately 90 employees and the consolidation of certain facilities. The Company recorded total restructuring charges of $5,160,000, according to FASB Statement No. 146 (“FAS 146”), consisting of severance and one-time benefits of approximately $3,897,000, exit costs of facilities of approximately $526,000, write-off of related fixed assets of approximately $583,000, and associated legal costs of approximately $154,000.

The Company estimated the cost of exiting and terminating facility leases or acquired leases by referring to the contractual terms of the agreements and by evaluating the current real estate market conditions. In addition, the Company has estimated sublease income by evaluating the current real estate market conditions or, where applicable, by referring to amounts being negotiated. The ability to generate this amount of sublease income, as well as the ability to terminate lease obligations at estimated amounts, is highly dependent upon the commercial real estate market conditions in certain geographies at the time the evaluations and negotiations are performed.

14

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On October 1, 2007, the Company acquired MDL Information Systems, Inc. (“MDL”), a company providing technical R&D software solutions to more than 1,000 life sciences companies. On October 2, 2007, in connection with the acquisition of MDL, the Company announced a restructuring plan (“2007 Plan”) to terminate approximately 120 employees of the Company, comprised of approximately 100 positions in the United States and approximately 20 positions internationally. Total estimated restructuring termination benefits were $7,040,000, consisting primarily of involuntary employee termination benefits. Of the total restructuring charges, $6,823,000 was associated with the former MDL employees and therefore was accrued as part of the liabilities assumed at the time of MDL acquisition according to FASB Statement No. 141, Accounting for Business Combinations, as well as EITF Consensus No. 95-3. The remaining balance associated with the termination of employees of the acquiring company was recorded as part of the operating expenses according to FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. As of March 31, 2009, the Company completed the majority of the restructuring plan but estimates that up to $641,000 may yet be incurred pertaining to the termination of certain former employees of MDL.

 The following table illustrates the change in accrued restructuring costs during the three months ended March 31, 2009 (in thousands):

	2007 Plan			2008 Plan			Total
Balance as of January 1, 2009	$	651		$	3,927		$	4,578
New charges accrued during the period		-			407			407
Payments made during the period		(10	)		(3,366	)		(3,376	)
Adjustments to liabilities during the period, including foreign currency exchange rate effect					(200	)		(200	)
Balance as of March 31, 2009	$	641		$	786		$	1,409

15

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q (”Report”), including the "Management’s Discussion and Analysis of Financial Condition and Results of Operation," contains forward-looking statements that involve risks and uncertainties, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. These statements typically may be identified by the use of forward-looking words or phrases such as "may," "will," "believe," "expect," "plan," "intend," "goal," "anticipate," "should," "planned," "estimated," "potential," and "continue," or the negative thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future. The cautionary statements made in this Report should be read as being applicable to all related forward-looking statements whenever they appear in this Report. Forward-looking statements include, without limitation, statements regarding: our intentions, beliefs and expectations regarding our future financial performance and operating results; anticipated trends in our business; our belief that our cash and cash equivalents will be sufficient to satisfy our anticipated cash requirements for at least the next twelve months; and our expectations regarding our customers.

Among the factors that could cause actual results to differ materially are the factors detailed in Item 1A, "Risk Factors," of our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 13, 2009 (SEC File No. 000-27765), which readers should review.  Given these uncertainties, readers are cautioned not to place undue reliance on the forward-looking statements.

Any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Report. The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this Report and the audited consolidated financial statements and accompanying notes included in our annual report on Form 10-K for the year ended December 31, 2008.

All percentage amounts and ratios were calculated using the underlying data in thousands. Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for any subsequent quarter or for the full fiscal year.

Overview

Symyx Technologies, Inc. enables global leaders in life sciences, chemical, energy, and consumer and industrial products to optimize and accelerate their scientific research and development (“R&D”). Through our expertise in scientific informatics management, workflow optimization, and micro-scale, parallel experimentation, we help companies transform their R&D operations to minimize the time their scientists spend on routine, repetitive tasks and to maximize the return on their R&D investments. Symyx software, tools, and research services enable scientists to design, execute, analyze, and report experimental results faster, easier and less expensively.

Symyx Software provides a suite of scientific software, content and technology to support R&D information lifecycle management across the enterprise, improving scientists’ ability to search, develop, manage, manipulate and store research data and to manage intellectual property. Symyx Software is the larger of our business units, accounting for 65% of our first quarter 2009 revenue.

Symyx HPR provides various ways for customers to access our proprietary high-throughput technologies for parallel (versus serial) experimentation, enabling greater speed and breadth of research. Symyx HPR develops and applies high-throughput technologies that empower customers to engage in faster, broader experimentation by working with small amounts of materials in an automated fashion and utilizing parallel, or array-based testing. Our customers can bring some of the capabilities of our laboratories into their own organizations by purchasing our tools to integrate and automate laboratory experimentation to increase research productivity. Customers can also leverage our expertise and infrastructure through the purchase of research services, with programs that range from directed research to strategic collaborative relationships. The reorganization of services, along with the combination of tools and research into HPR are intended to leverage the expertise and experience of our technical staff and sales team, and provide new revenue opportunities to replace the expected continued decline in research-related revenue.

16

Through software licensing, automated workflow sales and research services, we provide customers multiple ways to begin working with us. Our goal is to leverage and integrate all of our offerings so that, over time, our customers can easily access our entire technology platform to improve their R&D productivity and reduce program risk.

Highlights for the quarter ended March 31, 2009 include:

· At $33.4 million, revenue for the quarter was down approximately 10% compared to the first quarter of 2008.  Symyx Software increased 9%, but this gain was offset by the decline in Symyx HPR revenue resulting from the expiration of our primary agreement with ExxonMobil in May 2008 and lower revenue for Symyx tools.

· We exited the quarter with $81.8 million in cash and cash equivalents.

· Our net loss per share for the quarter was $0.09, compared with net loss per share of $0.20 in the first quarter of 2008. Despite lower revenue in the current quarter, we narrowed our loss by significantly reducing our operating expenses. These reductions were primarily driven by our December 2008 restructuring efforts, lower depreciation due to certain one-time charges we took in the fourth quarter of 2008 and generally lower capital expenditures, and expense management in the current quarter.

· We made significant progress against our technology roadmap. We released Symyx Notebook 6.1 in January 2009, enabling scientist to capture query and report on methods and data specifically encountered by analytical chemists and biologists; and we released Symyx Notebook 6.2 in March 2009, enabling scientists from different departments to collaborate effectively using a single, flexible enterprise ELN platform.

Due to the expiration of our primary contract with ExxonMobil in May 2008, we expect our research services revenues in the second quarter of 2009 to be significantly below our research revenues in the second quarter of 2008, and therefore for our total second quarter 2009 revenue to be below our results in the same quarter of last year.  Further, the current macroeconomic environment has caused our customers to delay, and in some cases cancel, major expenditures with us, including purchases of tools, investments in software consulting services, and significant research services engagements. Though we continue to develop and progress our pipeline of new sales opportunities, we cannot predict with certainty if and when these opportunities will convert to bookings or revenue.

We recognized stock-based compensation expense of $880,000 and $1.1 million, respectively, during the three months ended March 31, 2009 and 2008, impacting our results of operations for the respective periods as follows (in thousands):

	Three Months Ended March 31,
	2009		2008
Costs of revenue	$	148	$	60
Research and development		14		370
Sales, general and administrative		718		714
Total	$	880	$	1,144

17

Critical Accounting Policies and Use of Estimates

We prepare our financial statements and accompanying notes in accordance with generally accepted accounting principles in the United States (GAAP). Note 1 of the Notes to the Consolidated Financial Statements included under Item 8 in our Annual Report on Form 10-K for the year ended December 31, 2008 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Preparing financial statements and related disclosures requires management to exercise judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Estimates include the assumptions used in determining the implied fair value of goodwill, the forfeiture rates for stock-based awards, the collectability of outstanding accounts receivables, reserve for excess or obsolete inventory, future warranty expenditures, assumptions such as the elements comprising a revenue arrangement, including the distinction between software upgrades/enhancements and new products, when our products achieve technological feasibility, the potential outcome of future tax consequences of events recognized in the our financial statements or tax returns and the fair value of acquired intangible assets. We evaluate our estimates, including those mentioned above, on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates under different assumptions or conditions. We have not materially changed these policies from those reported in our Annual Report on Form 10-K for the year ended December 31, 2008, except for the following additional critical accounting policy regarding deferred costs.

Deferred Costs

We entered into some software service arrangements under which all the revenue is deferred until certain specified functionality is delivered In these cases, the direct variable expenses, not exceeding the expected revenue, are deferred and included in other current assets on the balance sheet until the revenue is recognized. Direct variable expenses include direct labor costs and direct services contracts with third parties working on the software service arrangements. As of March 31, 2009, we deferred approximately $311,000 of direct variable expenses related to software service arrangements where the revenue is deferred until future periods.

Results of Operations

Revenue

	Three Months Ended March 31,
	2009		2008		Change
	(in thousands, except percentages)
Service	$	16,700	$	18,515	$	(1,815	)	(10	%)
Product		2,719		4,568		(1,849	)	(40	%)
License fees, content and royalties		13,975		13,824		151		1	%
Total revenue	$	33,394	$	36,907	$	(3,513	)	(10	%)

The decrease in service revenue for the three months ended March 31, 2009 was primarily due to reduced research service revenue from ExxonMobil, partially offset by the additional software maintenance and license revenue generated by Symyx Software. Product sales for the quarter ended March 31, 2009 decreased compared with the same quarter last year due to lower shipments of Symyx tools systems. License fees, content and royalties increased slightly in the quarter ended March 31, 2009 compared to the same quarter last year due to additional software license fees and content subscription revenue.

ExxonMobil and The Dow Chemical Company (Dow) accounted for $3.4 million and $5.5 million of total revenue, respectively, for the three months ended March 31, 2009, and for $7.7 million and $5.8 million of total revenue, respectively, for the same period in 2008. With the MDL acquisition in October 2007, we have decreased the concentration of our revenue as it becomes distributed across a larger base of customers. We believe Dow will continue to be a major contributor to our 2009 revenue, but expect Symyx HPR revenue to be lower in 2009 as a result of the expiration of our main alliance agreement with ExxonMobil on May 31, 2008.

18

The revenue, and corresponding percent of revenue by each revenue component, from ExxonMobil and Dow, collectively, are as follows (in thousands, except percentages):

	Three Months Ended March 31,
	2009				2008
Service	$	4,000	24	%	$	7,153	39	%
Product sales		858	32	%		1,102	24	%
License fees, content and royalties		4,037	29	%		5,288	38	%
Total	$	8,895	27	%	$	13,543	37	%

Revenue by Segment

We segregate revenue into the following business units (in thousands):

	Three Months Ended March 31,
	2009		2008		Change
	(in thousands, except percentages)
Symyx Software	$	21,750	$	20,024	$	1,726		9	%
Symyx HPR		11,644		16,883		(5,239	)	(31	%)
Total	$	33,394	$	36,907	$	(3,513	)	(10	%)

Symyx Software generates revenue primarily from the licensing of software, including the Isentris platform and our lab execution and analysis software (“LEA”) and Electronic Laboratory Notebook (“ELN”) products, content subscriptions, and providing associated support, maintenance and consulting services. Symyx Software revenue increased slightly from 2008 to 2009 driven by higher maintenance revenue and slightly higher license revenue, which offset lower consulting services revenue in the current quarter.

Symyx HPR generates revenue primarily from providing directed and collaborative research services and selling tools and associated services, and to a lesser extent, licensing materials and intellectual property. The decrease in Symyx HPR revenue in 2009 from 2008 resulted largely from the decrease of service revenue from ExxonMobil by $3.7 million.  The balance of the decline was due to lower tools sales in the first quarter of 2009.

Costs of Revenue

	Three Months Ended March 31,
	2009		2008		Change
	(in thousands, except percentages)
Costs of revenue:
Cost of service	$	6,513	$	4,666	$	1,847		40	%
Cost of products		1,163		2,187		(1,024	)	-47	%
Cost of license fees, content and royalties		1,281		1,603		(322	)	-20	%
Amortization of intangible assets arising from business combinations		1,787		1,781		6		*
Total costs of revenue	$	10,744	$	10,237	$	507		5	%
* Less than 1%

19

Total costs of revenue represented 32% and 28%, respectively, of total revenue for the three months ended March 31, 2009 and 2008. The increase in costs of revenue as a percentage of total revenue was the result of incremental expenses from our new HPR formulations business from our IntegrityBio acquisition which, as a service business, has lower margins than our other business lines.  Also, as we expand our research services activities, personnel expenses currently in our R&D line will be increasingly included in cost of revenue.  Accordingly, over time, our gross margin percentage may decline, but we would expect a corresponding decrease in our research and development expenses.

Cost of service includes certain operating expenses related to software consulting and software and hardware maintenance and costs associated with research services for life science and chemical and energy industries. Cost of service increased 40% in the first quarter of 2009 over the same period in 2008 primarily due to the incremental costs from the acquisition of IntegrityBio in August 2008.

The decrease of cost of product sold in the first quarter of 2009 compared to the same period of 2008 was proportional to the decrease in product sales in the comparative periods.

Operating Expenses

	Three Months Ended March 31,
	2009								2008
	Amount (in 000’s)		As a Percentage of Total Revenue			Change over Previous Year			Amount (in 000’s)		As a Percentage of Total Revenue
Research and development	$	13,566		41	%		(34	%)	$	20,687		56	%
Sales, general and administrative		11,097		33	%		(27	%)		15,233		41	%
Restructuring charges		208		1	%	na				-		0	%
Amortization of intangible assets arising from business combinations		1,445		4	%		(2	%)		1,477		4	%
Total operating expenses	$	26,316		79	%		(30	%)	$	37,397		101	%

Research and Development (“R&D”) Expenses

Our R&D expenses consist primarily of:

• salaries and other personnel-related expenses;

• facility costs;

• supplies; and

• depreciation of facilities and laboratory equipment.

Total R&D expenses for the three months ended March 31, 2009 decreased 34% from the same period in 2008 due primarily to the significant workforce reduction we implemented in December 2008, and to lower depreciation expenses following the write-down of fixed asset values in the fourth quarter of 2008.

R&D expenses represented 41% and 56% of total revenue in the three months ended March 31, 2009 and 2008, respectively. As discussed under the “Costs of Revenue” caption above, an increasing amount of personnel and other associated expenses related to research services provided to life science and chemical and energy industries have been recorded as cost of service, contributing partially to the decrease in R&D expenses in dollars and as a percentage of revenue.

The innovations and advances generated by our research laboratories support our Symyx HPR and Symyx Software operations, and generate intellectual property and discovered materials. We believe our market opportunity is significant and that continued investment across our business segments is necessary for long-term success. Accordingly, we expect to continue to devote significant resources to R&D.

20

Research and development includes those activities performed on behalf of some of our alliance partners including Dow and ExxonMobil. As we do not track fully burdened R&D costs or capital expenditures by project, these amounts are not included in costs of service. However, based on hours spent on each project, we estimate the R&D efforts undertaken for various projects were as follows:

	Three Months Ended March 31,
	2009			2008
Customer-sponsored projects		32	%		41	%
Internally-funded projects		68	%		59	%
Total		100	%		100	%

The significant shift in percentage terms from 2008 to 2009 reflects the fact that our workforce reduction in the fourth quarter of 2008 was focused primarily on our HPR business and on our general and administrative functions.  With respect to the former, the reduction disproportionately impacted personnel focused on customer projects as opposed to those engaged in internal development (e.g., development activities for Symyx Software), thus shifting percentages as shown above.

Sales, General and Administrative (“SG&A”) Expenses

Our SG&A expenses consist primarily of personnel costs for business development, sales, legal, general management, finance and human resources, as well as payment of commissions to our foreign sales agents and professional expenses, such as outside legal and accounting fees. SG&A expenses for the three months ended March 31, 2009 decreased 27% from $15.2 million for the same period in 2008, and represented 33% and 41% of total revenue for the three months ended March 31, 2009 and 2008, respectively. The decrease was primarily due to the restructuring and cost control efforts we commenced in December 2008, expense management in the current quarter, lower depreciation due to fixed asset write downs in the fourth quarter of 2008, and the fact that SG&A expenses for the first quarter of 2008 were incrementally higher due to certain one-time transition costs following the MDL acquisition. We expect our SG&A expenses for the remainder of 2009 will continue to be lower than that of the same period of 2008.

Interest and Other Income (Expense), Net

Interest and other income (expense), net, for the three months ended March 31, 2009 consisted primarily of $993,000 net loss from foreign currency exchange. Interest and other income (expense), net, for the three months ended March 31, 2008 consisted of $226,000 net interest income and $622,000 net loss from foreign currency exchange.

Income Tax Benefits

We recorded income tax benefits of $1.6 million and $4.3 million, respectively, for the three months ended March 31, 2009 and 2008. The effective income tax benefit rate was 34% and 39% for the three-month periods ended March 31, 2009 and 2008, respectively. The effective income tax benefit rate in the three-month period ended March 31, 2009 was lower due to the additional valuation allowance we recorded against certain state deferred tax assets generated in 2009. The valuation allowance reflects that portion of deferred tax assets which management believes will not be realized on a more likely than not basis. If the actual results differ from these estimates or these estimates are adjusted in future periods, the valuation allowance may be adjusted, which could materially impact our financial position and results of operations.

We are subject to taxation in the U.S. and various state and foreign jurisdictions. We are not currently under audit by any tax authorities.  Because we used some of the tax attributes carried forward from previous years to tax years that are still open, statutes of limitation remain open for all tax years to the extent of the attributes carried forward into tax years starting from 2005 for federal and California tax purposes.

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Fair Value Measurements

In September 2006, the FASB issued Statement No. 157 (“SFAS 157”), Fair Value Measurements. SFAS No. 157 establishes a three-level hierarchy which prioritizes the inputs used in measuring fair value. In general, fair value determined by Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability. The fair value of our cash equivalents were $62,055,000 and $51,999,000 at March 31, 2009 and December 31, 2008, respectively, based on Level 1 inputs.  Effective January 1, 2009, we adopted the provisions under SFAS No. 157 for valuation of nonfinancial assets and nonfinancial liabilities. The adoption of such provisions did not impact our financial position, results of operations, or cash flows.

Recent Accounting Pronouncements

In April 2009, the FASB issued the following new accounting standards:

●  FASB Staff Position FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” (“FSP FAS 107-1” and “APB 28-1”). FSP FAS 107-1 and APB 28-1, amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments in interim as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in all interim financial statements.

●  FASB Staff Position FAS 157-4, “Determining Whether a Market Is Not Active and a Transaction Is Not Distressed,” (“FSP FAS 157-4”). FSP FAS 157-4 provides guidelines for making fair value measurements more consistent with the principles presented in SFAS 157. FSP FAS 157-4 provides additional authoritative guidance in determining whether a market is active or inactive, and whether a transaction is distressed, is applicable to all assets and liabilities (i.e. financial and nonfinancial) and will require enhanced disclosures.

●  FASB Staff Position FAS 115-2, FAS 124-2, and EITF 99-20-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” (“FSP FAS 115-2,” “FAS 124-2,” and “EITF 99-20-2”).  FSP FAS 115-2, FAS 124-2, and EITF 99-20-2 provides additional guidance to provide greater clarity about the credit and noncredit component of an other-than-temporary impairment event and to more effectively communicate when an other-than-temporary impairment event has occurred. This FSP applies to debt securities.

These standards are effective for periods ending after June 15, 2009. We are evaluating the impact that these standards will have on our financial statements.

Liquidity and Capital Resources

This section discusses the effects of the changes in our balance sheets, cash flows and commitments on our liquidity and capital resources.

Balance Sheet and Cash Flows

At March 31, 2009, we had cash and cash equivalents of approximately $81.8 million, an increase of $15.4 million from December 31, 2008. The significant increase in the current period was primarily due to timely collections against annual renewals of recurring maintenance and content revenue streams in our Symyx Software business, more than half of which occur in the first calendar quarter, and to collections against Symyx tools sales (which are typically seasonally highest in the fourth quarter). Given these factors, we expect our cash balance will typically be highest in the first quarter of each year.

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Our operating activities provided $17.2 million and $21.3 million of cash during the three months ended March 31, 2009 and 2008, respectively. The decrease in cash provided by operating activities in the first quarter of 2009 compared with the same period of 2008 was due to (a) tools sales in the fourth quarter of 2008 being lower than in the fourth quarter of 2007, resulting in lower collections in the first quarter of 2009 than in the first quarter of 2008; and (b) cash payments made for restructuring costs in the first quarter of 2009 associated with the restructuring plan commenced in December 2008.

Net cash used in investing activities during the three months ended March 31, 2009 was $1.2 million for purchases of property and equipment. Net cash provided by investing activities during the three months ended March 31, 2008 was $11.9 million, primarily due to the fact that proceeds from the maturities of marketable securities during the quarter had been invested in securities that were considered cash equivalents as well as the receipt of a $5.0 million working capital adjustments from the seller of MDL, partially offset by additional payments of transaction costs associated with this acquisition.

Net cash used in financing activities during the three months ended March 31, 2009 and 2008 was $73,000 and $476,000, respectively, primarily due to the payment of employee withholding taxes in lieu of issuing common stock upon the vesting of restricted stock units.

Current liabilities as of March 31, 2009 increased by $13.8 million compared to December 31, 2008 primarily due to the increase in deferred revenue, reflecting the seasonally highest first quarter renewals of maintenance and content subscriptions in our Symyx Software business.

On September 28, 2007, we entered into a Credit Agreement (the “Credit Agreement”) with Bank of America, N.A., as Administrative Agent and L/C Issuer (the “Agent”), and each lender from time to time a party thereto. Under the Credit Agreement, the Agent has agreed to provide a $25 million aggregate commitment for a two-year revolving credit facility and issuances of letters of credit for Symyx (the “Facility”), secured by substantially all of our assets excluding intellectual property. In March 2009, we entered into an amendment to the Facility with the Agent which lowered the Consolidated Net Worth covenant amount for future measurement dates. As of March 31, 2009, we were in compliance with the amended covenants and had no borrowing under the Facility.

We believe our current cash, cash equivalents and marketable securities, the Facility, and the cash flows generated by operations will be sufficient to satisfy our anticipated cash needs for working capital, capital expenditures, investment requirements, and other liquidity requirements associated with our existing operations for at least the next twelve months. Nonetheless, we may be required to raise additional funds through public or private financing, collaborative relationships or other arrangements. We cannot provide assurance that additional funding, if sought, will be available or be on terms favorable to us. Further, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants which may restrict our business. Collaborative arrangements and licensing may require us to relinquish our rights to some of our technologies or products. Our failure to raise capital when needed, or on terms favorable to us, may harm our business and operating results.

Customer Indemnification

From time to time, we agree to indemnify our customers against certain third party liabilities, including liability if our products infringe a third party’s intellectual property rights. Such indemnification provisions are accounted for in accordance with Financial Accounting Standards Board Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Our indemnification obligation in these arrangements is typically limited to no more than the amount paid by the customer. As of March 31, 2009, we were not subject to any pending intellectual property-related litigation. We have not received any requests for and have not been required to make any payments under these indemnification provisions. We are not able to estimate the maximum potential impact of these indemnification provisions on our future results of operations since the liabilities associated with those types of claims are dependent on various factors that are not known until an action is commenced or the claim is made.

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Contingencies

In July 2006, we acquired all of the outstanding shares of Autodose SA (Autodose).  Pursuant to the terms of the merger agreement, the former stockholders of Autodose are eligible to receive additional purchase price consideration of up to 6,500,000 Swiss Franc (equivalent to $5,657,000 using the foreign currency exchange rate in effect on March 31, 2009) upon achievement of the 2009 revenue target with respect to the Company’s Autodose product line. We do not expect to pay additional consideration with respect to 2009 sales.  However, we will continue to evaluate the likelihood of achieving this target from time to time. If the 2009 revenue target is met, we would record the fair value of any additional consideration as an additional cost of the acquisition. No additional consideration was recorded as of March 31, 2009. We do not expect to pay additional consideration with respect to 2009 revenue target.

In August 2008, we acquired 100% of the ownership of Integrity Biosolution, LLC (“IntegrityBio”), a privately held research service company based in Camarillo, California. Pursuant to the terms of the purchase agreement, the founder of IntegrityBio will earn an additional $1.75 million in cash, so long as the founder serves as an employee of Symyx or its affiliates continuously for 24 months from the acquisition date. We have determined it is probable the amounts will be earned and paid and has recorded $555,000 related to this payable to the founder as of March 31, 2009. We also agreed to pay 46% of total revenue generated by IntegrityBio during the one-year period starting from September 1, 2009 to the founder as additional consideration pursuant to the terms of the purchase agreement, for which we cannot yet estimate the total liability.

Off Balance Sheet Financing

We have not entered into any off-balance sheet financing arrangements and have not established any special purpose entities as of March 31, 2009. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

Related Party Transactions

Transactions between Symyx and related parties during the three months ended March 31, 2009 were as follows:

· We entered into a Collaborative Development and License Agreement with Intermolecular in March 2005 and an Alliance Agreement in December 2005. In accordance with these agreements, the two companies agreed to work together to conduct research and development and other activities with respect to materials and high-throughput technology for use in semiconductor applications.  Each party bears its own expenses. In November 2007, following the conclusion of the joint research and development activities, these agreements were amended. Under the amended agreements, we have an ongoing obligation to provide two employees to modify and integrate certain Symyx software with and into Intermolecular products and to provide Intermolecular access to certain Symyx equipment for development purposes. Furthermore, in August 2006, we invested $13,500,000 in exchange for approximately 13% of Intermolecular’s outstanding shares, and in December 2008 invested an additional $1,647,000, maintaining our 13% interest in Intermolecular. We account for our ownership interest in Intermolecular using the cost method as we do not have the ability to exercise significant influence over Intermolecular’s strategic, operating, investing and financing activities. Isy Goldwasser, our chief executive officer, is a director of Intermolecular. During the three months ended March 31, 2009, we recorded $83,000 in royalty revenue from Intermolecular.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the three months ended March 31, 2009, there were no material changes to the market risk disclosures reported in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2008.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

As required by Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934, our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2009.

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 (b) Changes in Internal Control

There were no changes in our internal controls over financial reporting during the fiscal quarter ended March 31, 2009 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

(c) Limitations on the Effectiveness of Internal Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls are met.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.  Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. As set forth above, our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this Report, that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.

ITEM 4T. CONTROLS AND PROCEDURES

Not applicable.

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PART II: OTHER INFORMATION

ITEM 1A. RISK FACTORS

In evaluating Symyx’s business, you should carefully consider the risks described below, as well as other information contained in this Report.  If any of those risks actually occurs, our business, financial condition and operating results could be harmed.  The risks and uncertainties listed are not the only risks and uncertainties facing Symyx.  Additional risks and uncertainties Symyx has not anticipated or are currently seen as immaterial also may materially and adversely impair our business operations. The risks described below have not changed materially from the risks described in Symyx’s Annual Report on Form 10-K for the year ended December 31, 2008.

We depend on a small number of key customers for a large portion of our revenues, particularly in our HPR Business Unit.  If we are unable to replace the expected decline in certain key customer contracts with new collaboration partners, or if any of our other key customers eliminates or significantly reduces its business with us, our business, financial condition and results of operations would be adversely affected.

We have depended on a relatively small number of key customers for a large portion of our revenues, in particular with respect to our HPR business unit, and expect Dow, Exxonmobil and a select list of other companies will, in the aggregate, continue to account for a substantial portion of our revenues for the foreseeable future.  Given this customer concentration, the loss of any of our key customers or a material reduction in business from one or more of these customers would materially harm our business, financial condition and operating results. For example, our revenue from ExxonMobil and Dow declined from $71.8 million in 2007 to $53.2 million in 2008, primarily due to the expiration of our alliance agreement with ExxonMobil in May 2008.  We expect aggregate revenue from these historically two largest customers to be substantially lower in 2009 compared to 2008, and to decline further in 2010 as our primary research agreement with Dow expires in December 2009. We have launched research services for the chemical, energy and life science industries, and are seeking to form partnerships or new ventures in these areas intended to address this decline, but can provide no assurances these initiatives will be successful. If we are not able to replace these anticipated decreases in fiscal 2009-2010 with new revenue, our business, operating results and financial condition will be materially and adversely affected. 

We are exposed to general global economic and market conditions.

Our business is subject to the effects of general economic conditions in the United States, Europe, Asia, and globally, and, in particular, market conditions in the life science and chemical industries. A global economic slowdown, such as that resulting from the current disruption in domestic and international credit and financial markets which contributed to a 42% decline in the Nasdaq Composite Index between January 2, 2008 and December 31, 2008, or a particular slowdown in the life science and/or chemical industries resulting in decreased sales of our products and services, may materially adversely impact our business, operating results and financial condition.

Recent worldwide market turmoil may adversely affect our customers which directly impacts our business and results of operations.

Our operations and performance depend on our customers having adequate resources to purchase our products and services. The unprecedented turmoil in the global markets and the global economic downturn generally continues to adversely impact our customers and potential customers. These market and economic conditions have continued to deteriorate despite government intervention globally, and may remain volatile and uncertain for the foreseeable future. Customers have altered and may continue to alter their purchasing and payment activities in response to deterioration in their businesses, lack of credit, economic uncertainty and concern about the stability of markets in general, and these customers may reduce, delay or terminate purchases of, and payment for, our products and services. Recently, a number of our current and prospective customers have merged with others, been forced to raise significant amounts of capital, or received loans or equity investments from the government, which actions may result in less demand for our products and services. If we are unable to adequately respond to changes in demand resulting from deteriorating market and economic conditions, our financial condition and operating results may be materially and adversely affected.

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We expect 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.  In particular, third and fourth quarter revenue is often heavily dependent on closing sales for a few high-value tools to specific customers. The timing or occurrence of these sales is difficult to predict. Quarterly fluctuations also result from our customers’ budgetary cycles, as our customers typically expend their remaining capital budgets for the year in the fourth quarter.As a result, the fourth quarter historically has been our strongest quarter. These fluctuations could cause our stock price to fluctuate significantly or decline, as was the case when we reported revised projections for the balance of fiscal 2008 in October 2008. Revenue in future fiscal periods may be greater or less than revenue in the immediately preceding period or in the comparable period of the prior year. Some of the factors that could cause our operating results to fluctuate include:

· general and industry-specific economic and financial uncertainties, which may affect our customers' capital investment levels and research and development investment decisions;

· expiration of or reduction in revenue derived from research contracts with major collaborative partners, which may not be renewed or replaced with contracts with other companies;

· the size and timing of customer orders for, shipments of, and payments related to Symyx tools;

· the concentration of Symyx tools sales in the second half of the year, with the majority of those sales occurring  in the fourth quarter;

· the sale of integrated workflows including software and tools that may cause our tools revenue to be recognized ratably over future periods under our revenue recognition policy;

· customers’ willingness to renew annual right to use software or content licenses or maintenance and support agreements;

· the technical risks associated with the delivery of Symyx tools and the timing of customer acceptance of Symyx tools;

· the size and timing of both software and intellectual property licensing agreements we may enter into;

· the timing and willingness of partners to commercialize our discoveries that would result in royalties;

· the amount and timing of royalties we receive from third parties, including those who license Symyx tools and Symyx Software for resale;

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

· special charges related to completed or potential acquisitions;

· the size and timing of research and development programs we undertake on an internally funded basis;

· developments or disputes concerning patent or other proprietary rights;

· the structure, timing and integration of acquisitions of businesses, products and technologies and related disruption of our current business;

· fluctuations in the market values of our cash equivalents and short and long-term investments and in interest rates, including any gains or losses arising on the sale of these investments;

· changes in accounting rules and regulations, including those related to revenue recognition, stock-based compensation and accounting for uncertainty in income taxes; and

· general and industry-specific economic and financial uncertainties, which may affect our customers' capital investment levels and research and development investment decisions.

A large portion of our expenses, including expenses for facilities, equipment and personnel, are relatively fixed in nature, which could contribute to adverse fluctuations in quarterly operating results. Accordingly, if our revenue declines or does not grow as anticipated due to the expiration of research contracts, failure to obtain new contracts, or other factors, we may not be able to correspondingly reduce our operating expenses. Failure to achieve anticipated levels of revenue would significantly harm our operating results.

We depend upon the research and development activities of companies in the life science, chemical, energy, and consumer and industrial products industries, among others, and declines or reductions in the research and development activities of these industries could harm our business.

The market for our research services, tools, and software within the life science, chemical, energy, and consumer and industrial products industries depends on our customers' ability and willingness to invest in research and development. If we cannot renew existing contracts or enter into new arrangements at the pace we expect, our business and operating results will be harmed.

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In particular, many companies in the life science and chemical industries have, in the past several years, experienced declining profitability, and in many cases, losses, and this negative trend appeared to be accelerating in the fourth quarter of 2008. There also has been considerable consolidation and restructuring among many companies in the life sciences industry. In addition, many chemical products have become commodity products that compete primarily on the basis of price. As a result, some chemical and life science companies have reduced their research and development activities and/or delayed investments in new technologies. If commoditization of chemical products and other pressures affecting the profitability of the industry, including governmental regulations and governmental spending, continue in the future, more companies could adopt strategies that involve significant reductions in their research and development programs. Although we believe our technologies can help life science, chemical, energy, and consumer and industrial products companies increase the efficiency of their research and development activities, our efforts to convince them of this value may be unsuccessful. To the extent these companies reduce their research and development activities or external investments, they will be less likely to do business with us. As a result of current industry consolidation, a number of our pharmaceutical companies have recently reduced or postponed decisions relative to research and development spending. Decisions by these companies to reduce or postpone their research and development activities could result in fewer or smaller scale collaborations with us, fewer or smaller scale intellectual property and software licenses, fewer sales of our tools, or choosing not to work with us, any of which could reduce our revenue and harm our business and operating results.

Difficulties we may encounter developing a new line of business, integrating acquisitions or growing through other means may divert resources, disrupt our business, and limit our ability to successfully expand our operations.

If we develop a new line of business or pursue a partnership or venture, our management’s attention may be diverted from normal daily operations of the business. Furthermore, acquisitions, such as our recent acquisition of Integrity Biosolution, or other growth initiatives, such as our introduction of contract services in the life science market, places strain on our research, administrative and operational infrastructure. As our operations expand domestically and internationally, and as we continue to acquire new businesses, we will need to continue to manage multiple locations and additional relationships with various collaborative partners, suppliers and other third parties. Our ability to manage our operations and further growth effectively requires us to continue improving our reporting systems and procedures and our operational, financial and management controls. In addition, recent SEC rules and regulations have increased the internal control and regulatory requirements under which we operate. We may not be able to successfully improve our management information and control systems to a level necessary to manage our acquisition activity or growth and we may discover deficiencies in existing systems and controls that we may not be able to remediate in an efficient or timely manner.

We have acquired a number of businesses in the past. In the future, we may engage in additional acquisitions and expand our business focus in order to exploit technology or market opportunities.  In the event of any future acquisitions or business expansions, we may issue stock that would dilute our current stockholders’ percentage ownership, pay cash, incur debts or assume liabilities. Our success depends upon our ability to successfully integrate the products, people, and systems we acquired in these transactions. We may not be able to successfully integrate our acquired businesses into our existing business in a timely and non-disruptive manner or at all. In addition, acquisitions could result in, among other things, large one-time charges associated with acquired in-process research and development, amortization of acquisition-related intangible assets, future write-offs of goodwill and other acquisition-related intangible assets that are deemed to be impaired, restructuring charges related to consolidation of operations, charges associated with unknown or unforeseen liabilities of acquired businesses, increased general and administrative expenses, and the loss of key employees. Specifically in December 2008, with the recent decrease in our market capitalization, we recorded a $76.5 million impairment charge to our goodwill associated with our acquisitions.

Fluctuation in foreign currency exchange rates may materially affect our financial condition and results of operations.

A significant portion of our business is now denominated in currencies other than our functional currencies or our reporting currency for consolidated financial statements. In the first quarter of 2009, we recorded a foreign currency loss of approximately $1.0 million. We are in the process of reducing monetary assets denominated in foreign currencies but expect to continue to have a significant balance to support our foreign operations. Material changes in foreign currency exchange rates may materially and adversely affect our financial condition and results of operations.

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The sales cycle for our tools and a number of our software products is long and complex, and requires us to invest substantial resources in a potential sale before we know whether the sale will occur.

We have a limited number of contracts for our tools and our software product offerings that are not database subscriptions.  Our sales efforts require us to educate our potential customers about the full benefits of our solutions, which often requires significant time and expense. Our sales cycle is typically from 12 to 18 months, and we incur significant expenses, and in many cases begin to build customer-specific tools prior to obtaining contractual commitments, as part of this process, without any assurance of resulting revenue. Investment of time and expense in the sales cycle that does not ultimately result in sales hurts our business. Factors impacting sales and the length of our sales cycle include, but are not limited to, the following:

• complexity and cost of our tools systems and difficulties we may encounter in meeting individual customer specifications and commitments;

• our ability to build new tools systems, develop software and design workflows to meet our customers’ demands;

• limited number of customers that are willing to purchase our larger tools systems or enter into licensing agreements with us; and

• customers' budgetary constraints and internal acceptance review procedures.

We have launched new service offerings and a new unified HPR business unit.  We can provide no assurances these new offerings or business structure will be successful.

We have established a range of new service offerings for our HPR business, including both large molecule and small molecule formulation services offerings in the life sciences area.  We also have created a joint sales force covering both tools and research services, divided between life sciences and chemical industries.  These services, and the combination of tools and research, are intended to leverage the expertise and experience of our technical staff and sales team, and provide new revenue opportunities to replace the expected continued decline in research-related revenues from ExxonMobil and Dow in 2009. We have not yet proven the scalability of these service offerings, and certain of these areas (e.g. large molecule formulation) are areas where the company is still expanding its expertise and reputation.  If we are unable to achieve significant sales from these new offerings, we will have expended a significant amount of time and resources without obtaining the benefits we anticipated, which may result in us incurring restructuring and other related charges, and our financial condition and results of operations would be materially and adversely affected.

Failure to successfully commercialize our discoveries, either independently or in collaboration with our customers and licensees, would reduce our long-term revenue and profitability.

In order for us to commercialize materials we discover and patent in our collaborations and internal research programs, we need to develop, or obtain through outsourcing arrangements, the capability to manufacture, market and sell products. Currently, we do not have these capabilities and we may not be able to develop or otherwise obtain them.   Most of our commercialization efforts are currently being done through collaborations with our customers and licensees.  We typically receive royalties on sales of products by our partners only if their products containing materials developed by us or if the products are produced using our methods. Commercialization of discovered materials is a long, uncertain and expensive process and we cannot control our partners’ activities in this regard. The failure of our partners to commercialize development candidates resulting from our research efforts could reduce our future revenue and would harm our business and operating results. In addition, our partners may delay or cancel commercialization of development candidates which may harm our business and operating results.  If we are unable to successfully commercialize products resulting from our proprietary research efforts, our future revenue and operating results would decline.

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Strategic investment projects such as royalty-bearing programs, spin-offs and joint ventures may affect our operating results and financial condition and distract our management team. 

We are constantly assessing strategic investment projects with potential to deliver significant value creation opportunity for our shareholders. These projects include, but are not limited to, royalty-bearing programs, spin-offs and joint ventures. The process of investigating and implementing these projects is risky, may create unforeseen operating difficulties and expenditures, may involve significant additional operating expenses or investments, and may distract our management team. Failure of any such investment project, if pursued, would have a material adverse effect on our operating results and financial condition.

Our stock price has been and may continue to be volatile.

The market price of our common stock has been highly volatile since our initial public offering. For example, during the 12 months ended March 31, 2009, the highest closing price for our common stock was $12.24 and the lowest closing for our common stock was $2.45.  Volatility in the market price for our common stock can be affected by a number of factors, including, but not limited to, the following:

• failure to achieve operating results within the guidance our senior management provides, as occurred in the quarter ended September 30, 2008, or downward revisions in guidance relative to previous forecasts as occurred in October 2008;

• changes in our growth rates;

• 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;

• changes in investors’ beliefs as to the appropriate valuation ratios for us and our competitors;

• changes in investors’ acceptable levels of risk;

• decisions by significant stockholders to acquire or divest their stock holdings, given the relatively low average daily trading volumes we have historically experienced;

• changes in management;

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

• speculation in the press or analyst community;

• developments in our industry; and

• general market conditions, political influences, and other factors, including factors unrelated to our operating performance or the operating performance of our competitors, such as global economic slowdown resulting from the current disruptions in the credit and financial markets. Particularly given the current economic downturn, we are concerned that market conditions may temper customer activity on major capital purchases such as Symyx tools, and significant enterprise investment in software.

These factors and fluctuations may materially and adversely affect the market price of our common stock.  Securities class action litigation is often brought against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation, whether with or without merit, could result in substantial costs and divert management’s attention and resources, which could harm our business and financial condition, as well as the market price of our common stock. Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key employees, most of whom have been granted stock options or restricted stock units, or to use our stock to acquire other companies or technologies at a time when cash or financing for such acquisitions may not be available.

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If we revise the projections we give to our stockholders regarding our anticipated financial results, and the revised projections are not well received by our stockholders, market analysts or investors, our stock price may be adversely affected.

Due to the possibility of fluctuations in our revenue and expenses, it is difficult for our management to predict or estimate our quarterly or annual operating results and to give accurate projections. Our operating results in some quarters may not meet the expectations of stock market analysts and investors.  In addition, as in the case of the revised projections for the balance of fiscal 2008 communicated in October 2008, we may update the financial projections we communicate to our stockholders from time to time to address recent developments, though we undertake no obligation to do so. In cases in which we lower our projections, our stock price will likely decline, and investors will experience a decrease in the value of their investment.

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

Our ability to grow our business and achieve profitability is dependent on our ability to:

• extend current research and development relationships and add new ones;

• secure customers for the company’s new life sciences offerings;

• secure new Symyx tools customers;

• enter new partnerships or ventures with third parties that would use our technology and expertise to further develop and commercialize products;

• add additional licensees of our software, discovered materials, and intellectual property;

• Maintain renewal rates for our database content business;

• convince existing customers to upgrade to products with greater functionality and increase the number of users within our existing customer base; and

• make discoveries that our customers choose to commercialize that generate a substantial stream of royalties and other revenue.

Our ability to achieve our objectives and maintain or increase the profitability of our business will depend, in large part, on potential customers accepting our high-throughput screening technologies and methodologies as effective tools in the discovery of new materials. Historically, life science and chemical companies have conducted materials research and discovery activities internally using traditional manual discovery methods. In order for us to achieve our business objectives, we must convince these companies that our technology and capabilities justify outsourcing part of their basic research and discovery programs. We cannot assure you we will achieve the levels of customer acceptance necessary for us to maintain and grow a profitable business. Failure to achieve the necessary customer acceptance, extend current research relationships and add new ones, secure new tools customers, and add additional licensees of our software, discovered materials, and intellectual property would adversely affect our revenue and profitability and may cause our stock price to decrease.

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

The market for our products is characterized by continuing technological development, evolving industry standards and changing customer requirements. Due to increasing competition in our field, it is likely that the pace of innovation and technological change will increase. Our success depends upon our ability to enhance existing products and services and to respond to changing customer requirements. Failure to develop and introduce new products and services, or enhancements to existing products, in a timely manner in response to changing market conditions, industry standards or other customer requirements would harm our future revenue and our business and operating results.

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We depend on skilled and experienced personnel to operate our business effectively. If we are unable to recruit, hire and retain these employees, our ability to manage and expand our business will be harmed, which would impair our future revenue and operating performance.

Our success will depend on our ability to retain our current management and to attract and retain qualified personnel, including key scientific and highly skilled personnel. The hiring of qualified scientific and technical personnel is generally difficult because the number of people with experience in high-throughput materials science is limited. We encounter competition for qualified professionals, especially in the San Francisco Bay Area where we are headquartered. Further, as we form new alliances with other collaborative partners or expand on our Symyx Software and Symyx HPR relationships, we may need personnel with specific skill sets that may be difficult to locate or attract. Although we have entered into employment contracts with most of our senior management, any of them may terminate their employment at any time.  In addition, we do not maintain “key person” life insurance policies covering any of our employees.  Competition for senior management personnel, as well as key scientific and other highly skilled personnel, is intense and we may not be able to retain our personnel.  The loss of the services of members of our senior management, as well as key scientific and other highly skilled personnel, could prevent the implementation and completion of our objectives.   Upon joining or promotion, new senior personnel must spend a significant amount of time learning our business model and management systems or their new roles, in addition to performing their regular duties. Accordingly, until new senior personnel become familiar with our business model and systems or with their new roles, we may experience some disruption to our ongoing operations.  Moreover, the loss of a member of our senior management or our professional staff would require the remaining executive officers to divert immediate and substantial attention to seeking a replacement.

Our ability to retain our skilled labor force and our success in attracting and hiring new skilled employees will be a critical factor in determining whether we will be successful in the future.  The recent decline in our market value of our common stock, as well as the Reorganization, may complicate this effort by reducing the perceived value of equity compensation awards to our employees and candidates for employment. We may not be able to meet our future hiring needs or retain existing personnel.  We will face particularly significant challenges and risks in hiring, training, managing and retaining engineering and sales and marketing employees, as well as independent distributors, most of whom are geographically dispersed and must be trained in the use and benefits of our products. Failure to attract and retain personnel, particularly scientific and technical personnel, would impair our ability to grow our business.

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

The field of high-throughput materials science is increasingly competitive. We are aware of companies that may apply their expertise in high-throughput chemistry to their internal materials research and development programs. There are also companies focusing on aspects of high-throughput chemistry for the discovery of materials on behalf of third parties. In addition, academic and research institutions may seek to develop technologies that would be competitive with our technologies for materials discovery. Because high-throughput materials science is an emerging field, competition from additional entrants and pricing pressure may increase. Both business units are facing increasing competition from a number of instrument manufacturing and software companies. To the extent these companies develop competing technologies, our own technologies, methodologies, systems and workflows, and software could be rendered obsolete or noncompetitive. We would then experience a decline in our revenue and operating results.

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

Our strategy includes conducting research programs for our own account as well as for collaborative partners. We believe our collaborative agreements are structured in a manner to enable us to minimize conflicts with our collaborators relating to rights to potentially overlapping leads developed through programs for our own account and through programs funded by a collaborator, or through programs funded by different collaborators. However, conflicts between a collaborator and us, or between or among collaborators, could potentially arise. In this event, we may become involved in a dispute with our collaborators regarding the material, including possible litigation. Disputes of this nature could harm the relationship between us and our collaborators, and concerns regarding our proprietary research programs could also affect our ability to enter into new collaborative relationships and cause our revenue and operating results to decline.

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

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

The patent positions of technology companies, including our patent positions, are often uncertain and involve complex legal and factual questions. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. We apply for patents covering our technologies and products as we deem appropriate. However, we may not obtain patents on all inventions for which we seek patents, and any patents we obtain may be challenged and may be narrowed in scope or extinguished as a result of such challenges. We also have defended certain U.S. patents in multiple reexaminations, and may be forced to do so again. In addition, we are involved in several administrative proceedings (such as opposition proceedings in the European Patent Office) that challenge the validity of the patents we have obtained there. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. In that case, our revenue and operating results could decline.

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

Failure to adequately enforce our intellectual property rights could harm our competitive position and have a material adverse effect on our business.

Our success depends on our ability to enforce our intellectual property rights through either litigation or licensing. To be successful in enforcing our intellectual property through litigation or licensing there are several aspects to consider, including maintaining the validity of our intellectual property, proving that others are infringing, and obtaining a commercially significant outcome as a result of such infringement. Intellectual property litigation can succeed if our intellectual property withstands close scrutiny. If it does not withstand this scrutiny, we can lose part or all of our intellectual property position. In addition, we are involved in several administrative proceedings (such as opposition proceedings in the European Patent Office) that challenge the validity of the patents we have obtained there. We also have begun the process of defending certain U.S. patents in a reexamination. If we lose part or all of our intellectual property position, whether through litigation or opposition proceedings, our business and operating results may be harmed.

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

Our intellectual property must protect our overall business structure by allowing us to obtain commercially significant results from litigation, including compensation and/or relevant injunctions, without resulting in undue cost and expense. Enforcement of our intellectual property through litigation can result in significant expenses, distractions, and risks that might cause us to lose focus or may otherwise harm our profitability and weaken our intellectual property position. Enforcement proceedings can adversely affect our intellectual property while causing us to spend resources on the enforcement proceedings. As our licensing activities have matured, we have become involved in arbitration, litigation and similar administrative proceedings to assert and defend our intellectual property. These matters may become material and more such matters may arise. Successful conclusion of these matters will assist our business, while unsuccessful conclusion of these matters will cost us time and money and possibly loss of rights. Our ability to manage the costs of these proceedings to obtain a successful result cannot be predicted.

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Our business may be harmed if we are found to infringe proprietary rights of others.

Our commercial success also depends in part on ensuring we do not infringe patents or other proprietary rights of third parties. Others have filed, and in the future are likely to file, patent applications covering technologies that we may wish to utilize with our proprietary technologies, or products that are similar to products developed with the use of our technologies. If these patent applications result in issued patents and we wish to use the claimed technology, we would need to obtain a license from the third party and this would increase our costs of operations and harm our operating results.

Third parties may assert that we are employing their proprietary technology without authorization. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes these patents. We could incur substantial costs and diversion of the time and attention of management and technical personnel in defending ourselves against any such claims. Furthermore, parties making claims against us may be able to obtain injunctive or other equitable relief that could effectively block our ability to further develop, commercialize and sell products, and such claims could result in the award of substantial damages against us. In the event of a successful claim of infringement against us, we may be required to pay damages and obtain one or more licenses from third parties. We may not be able to obtain these licenses at a reasonable cost, if at all. In that event, we could encounter delays in product introductions while we attempt to develop alternative methods or products, or be required to cease commercializing affected products, which would harm our operating results.

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

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

Even if alternative sources of supply are available, it could be time-consuming and expensive for us to qualify new vendors and integrate their components into our tools. In addition, we depend upon our vendors to provide components of appropriate quality and reliability. Consequently, if supplies from these vendors were delayed or interrupted for any reason, we could be delayed in our ability to develop and deliver products; these delays would materially and adversely affect our business.

Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

Each year we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our Independent Registered Public Accounting Firm addressing these assessments and the effectiveness of internal control over financial reporting.  During the course of our testing we may identify deficiencies that we are required to remediate in order to comply with the requirements of Section 404. In addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time; we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Furthermore, there are certain areas of accounting such as income tax that involve extremely complex rules that vary by country, where an inadvertent error, not misconduct, could be deemed a material weakness in our internal controls. Failure to maintain an effective internal control environment could have a material adverse effect on our stock price.

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If our products contain defects, it could expose us to litigation and harm our revenue.

The products we offer are complex and, despite extensive testing and quality control, may contain errors or defects, especially when we first introduce them. We may need to issue corrective releases of our software products to fix any defects or errors, and to perform warranty repairs for our tools. Any defects or errors could also cause injury to personnel and/or damage to our reputation and result in increased costs, loss of revenue, product returns or order cancellations, or lack of market acceptance of our products. Accordingly, any defects or errors could have a material and adverse effect on our business, results of operations and financial condition.

Our license agreements with our customers typically contain provisions designed to limit our exposure to potential product liability claims. It is possible, however, that the limitation of liability provisions contained in our license agreements may not be effective as a result of existing or future federal, state, or local laws or ordinances or unfavorable judicial decisions. Although we have not experienced any product liability claims to date, sale and support of our products entails the risk of such claims, which could be substantial in light of our customers’ use of such products in mission-critical applications. If a claimant brings a product liability claim against us, it could have a material adverse effect on our business, results of operations, and financial condition. Our products interoperate with many parts of complicated computer systems, such as mainframes, servers, personal computers, application software, databases, operating systems, and data transformation software. Failure of any one of these parts could cause all or large parts of computer systems to fail. In such circumstances, it may be difficult to determine which part failed, and it is likely that customers will bring a lawsuit against several suppliers. Even if our software is not at fault, we could suffer material expense and material diversion of management time in defending any such lawsuits.

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

We have established operations in certain parts of Europe and Asia and may continue to expand our international presence in order to increase our export sales. Export sales to international customers and maintaining operations in foreign countries entail a number of risks, including, but not limited to:

• obtaining and enforcing intellectual property rights under a variety of foreign laws;

• unexpected changes in, or impositions of, legislative or regulatory requirements;

• delays resulting from difficulty in obtaining export licenses for certain technology, and tariffs, quotas, and other trade barriers and restrictions;

• longer payment cycles and greater difficulty in accounts receivable collection;

• potentially adverse taxes;

• currency exchange fluctuations;

• greater difficulties in maintaining and enforcing United States accounting and public reporting standards;

• greater difficulties in staffing and managing foreign operations; and

• the burdens of complying with a variety of foreign laws.

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

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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. We cannot completely eliminate the risk of accidental contamination or injury from the handling, disposal or storage of these materials. In the event of an improper or unauthorized release of, or exposure of individuals to, hazardous materials, we could be subject to civil damages due to personal injury or property damage caused by the release or exposure and the resulting liability could exceed our resources. 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.

Compliance with current and future environmental regulations may be costly, which could impact our future earnings.

We are subject to environmental and other regulations due to our production and marketing of products in certain states and countries. We also face increasing complexity in our product design and procurement operations as we adjust to new and upcoming requirements relating to the materials composition of our products, including the restrictions on lead and certain other substances in electronics that apply to specified electronics products put on the market in the European Union as of July 1, 2006 (Restriction of Hazardous Substances in Electrical and Electronic Equipment Directive (EU RoHS)). The European Union has also finalized the Waste Electrical and Electronic Equipment Directive (WEEE), which makes producers of electrical goods financially responsible for specified collection, recycling, treatment and disposal of past and future covered products. Other countries, such as the United States, China and Japan, have enacted or may enact laws or regulations similar to the EU RoHS or WEEE Legislation. These and other environmental regulations may require us to reengineer certain of our existing policies and procedures to comply with environmental regulations.

Our primary facilities are located near known earthquake fault zones, and the occurrence of an earthquake or other disaster could cause damage to our facilities and equipment, could cause us to cease or curtail our operations.

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

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 that prohibits our stockholders from acting by written consent without a meeting;

• a provision authorizing the issuance of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt;

• a provision that permits only the Board of Directors, the President or the Chairman to call special meetings of stockholders; and

• a provision that requires advance notice of items of business to be brought before stockholders meetings.

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

ITEM 6. EXHIBITS

See the Exhibit Index which follows the signature page of this Quarterly Report on  Form 10-Q, which is incorporated here by reference.

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SIGNATURES

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

	SYMYX TECHNOLOGIES, INC.
	(Registrant)
Date:  May 8, 2009	/s/ Isy Goldwasser
	Isy Goldwasser
	Chief Executive Officer
	(Principal Executive Officer)
Date:  May 8, 2009	/s/ Rex S. Jackson
	Rex S. Jackson
	Executive Vice President,
	Chief Financial Officer
	(Principal Financial Officer)

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EXHIBIT INDEX

Exhibit Number	Description of Document
3.1(1)	Amended and Restated Certificate of Incorporation
3.2(2)	Amended and Restated Bylaws
4.1(3)	Specimen Common Stock Certificate
10.1(4)	Amendment to Credit Agreement, dated as of March 12, 2009, among Symyx Technologies, Inc., each lender from time to time party thereto, and Bank of America, N.A. as administrative agent and L/C issuer
*10.2(5)	Named Executive Officers 2008 Bonuses and 2009 Cash Compensation Arrangements
*10.3(7)	Symyx Technologies, Inc.’s Offer Letter to Richard Rosenthal Dated December 4, 2007
*10.4(6)	1999 Employee Stock Purchase Plan, as amended
*10.5(7)	Symyx Technologies, Inc.’s Offer Letter to Gerard Abraham Dated June 14, 2007
*10.6(7)	Symyx Technologies, Inc.’s Offer Letter to Trevor Heritage Dated October 1, 2007
*10.7(7)	Symyx Technologies, Inc.’s Offer Letter to Charley Haley Dated August 12, 2008
31.1(7)	Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
31.2(7)	Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
32.1(7)	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*Management contract or compensatory plan or arrangement.

(1) Incorporated by reference to the same number exhibit filed with Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2003.

(2) Incorporated by reference to the same number exhibit filed with Registrant’s Current Report on Form 8-K on December 1, 2008.

(3) Incorporated by reference to the same number exhibit filed with Registrant’s Registration Statement on Form S-1 (File No. 333-87453), as amended.

(4) Incorporated by reference to Exhibit 10.44 filed with Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008.

(5) Incorporated by reference to Item 5.02 of Registrant’s Current Report on Form 8-K filed on February 24, 2009.

(6) Incorporated by reference to the same number exhibit filed with Registrant’s Registration Statement on Form S-8 (File No. 333-159019)

(7) Filed here within.

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