UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)

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

For the quarterly period endedSeptember 30, 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	77-0397908
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
1263 East Arques Avenue
Sunnyvale, California	94085
(Address of principal executive offices)	(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 x   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 o   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):

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

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

oYes   x No

As of October 30, 2009, Registrant had outstanding 34,453,162 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 and Nine Months Ended September 30, 2009 and 2008	1
	Condensed Consolidated Balance Sheets at September 30, 2009 and December 31, 2008	2
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 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	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	28
Item 4T.	Controls and Procedures	28
	Part II: Other Information
Item 1A.	Risk Factors	29
Item 6.	Exhibits	40
	Signatures	41
	Exhibit Index	42

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 September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Revenue:
Service	$	16,776		$	18,382		$	50,722		$	57,137
Product		4,140			4,819			12,454			14,403
License fees, content and royalties		14,051			15,708			41,812			44,927
Total revenue		34,967			38,909			104,988			116,467
Costs:
Cost of service		6,447			5,044			19,225			14,884
Cost of products		1,899			2,079			6,186			6,378
Cost of license fees, content and royalties		1,353			1,410			4,103			4,328
Amortization of intangible assets arising from business combinations		1,328			1,864			4,749			5,431
Total costs		11,027			10,397			34,263			31,021
Gross profit		23,940			28,512			70,725			85,446
Operating expenses:
Research and development		12,764			18,814			39,673			59,230
Sales, general and administrative		10,397			12,375			32,867			41,896
Restructuring charges		710			-			918			-
Impairment of goodwill		284			-			284			-
Amortization of intangible assets arising from business combinations		1,448			1,476			4,340			4,432
Total operating expenses		25,603			32,665			78,082			105,558
Loss from operations		(1,663	)		(4,153	)		(7,357	)		(20,112	)
Gain from sale of equity interest in Ilypsa, Inc.		-			4,939			-			4,939
Interest and other income (expense), net		521			(1,692	)		(81	)		704
Loss before income tax benefits		(1,142	)		(906	)		(7,438	)		(14,469	)
Income tax benefits		2,632			161			4,583			5,407
Net income (loss)	$	1,490		$	(745	)	$	(2,855	)	$	(9,062	)
Basic net income (loss) per share	$	0.04		$	(0.02	)	$	(0.08	)	$	(0.27	)
Shares used in computing basic net income (loss) per share		34,423			33,788			34,236			33,684
Diluted net income (loss) per share	$	0.04		$	(0.02	)	$	(0.08	)	$	(0.27	)
Shares used in computing diluted net income (loss) per share		34,697			33,788			34,236			33,684

See accompanying notes to condensed consolidated financial statements

1

SYMYX TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

	September 30, 2009			December 31, 2008
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	80,552		$	66,415
Accounts receivable, net		7,311			11,993
Inventories		4,279			3,308
Deferred tax assets, current		3,908			1,449
Income tax receivable		1,056			6,549
Other current assets		6,786			6,351
Total current assets		103,892			96,065
Property, plant and equipment, net		18,946			18,447
Goodwill		39,799			39,979
Intangible assets, net		44,110			53,268
Long-term investments		15,147			15,147
Other assets		1,625			1,608
Total assets	$	223,519		$	224,514
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,225		$	3,056
Other accrued liabilities		8,204			9,947
Accrued compensation and employee benefits		8,473			9,377
Accrued royalties		3,310			3,628
Income taxes payable		866			567
Accrued restructuring costs		786			4,578
Deferred revenue		32,578			23,519
Total current liabilities		56,442			54,672
Long-term payable		3,630			4,457
Long-term deferred revenue		7,410			7,421
Noncurrent deferred tax liabilities		2,762			5,881
Total noncurrent liabilities		13,802			17,759
Commitments and contingencies (Note 1)
Stockholders' equity:
Common stock, $0.001 par value, 60,000 shares authorized and 34,452 and 34,015 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively		34			34
Additional paid-in capital		211,716			207,690
Accumulated other comprehensive income		2,627			2,606
Accumulated deficits		(61,102	)		(58,247	)
Total stockholders' equity		153,275			152,083
Total liabilities and stockholders’ equity	$	223,519		$	224,514

See accompanying notes to condensed consolidated financial statements

2

SYMYX TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2009			2008
Operating activities
Net loss	$	(2,855	)	$	(9,062	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Impairment of goodwill		284			-
Depreciation and amortization		4,040			8,344
Amortization of intangible assets arising from business combinations		9,089			9,863
Stock-based compensation		3,335			3,282
Gain from sale of equity interest in Ilypsa, Inc.		-			(4,939	)
Gain from sale of property, plant and equipment		-			(1,606	)
Deferred income taxes		(5,501	)		(3,341	)
Tax benefit (deficiency) from employee stock transactions		107			(1,144	)
Changes in operating assets and liabilities, excluding effects of business acquisitions:
Accounts receivable, net		4,675			11,142
Inventories		(994	)		(1,567	)
Other current assets		(345	)		(867	)
Other long-term assets		3			(97	)
Accounts payable		(833	)		617
Other accrued liabilities		(2,766	)		1,629
Accrued compensation and employee benefits		(970	)		(290	)
Accrued royalties		144			(262	)
Income taxes receivable and payable		5,717			(1,261	)
Accrued restructuring charges		(3,344	)		(1,818	)
Deferred revenue		8,981			18,226
Long-term payable		(827	)		-
Net cash provided by operating activities		17,940			26,849
Investing activities
Purchase of property, plant and equipment, net		(4,458	)		(4,616	)
Proceeds from sale of divested assets		-			694
Proceeds from maturities of marketable securities		-			8,400
Proceeds from sale of equity interest in Ilypsa, Inc.		-			4,778
Costs related to business acquisition, net of receipts from the seller of an acquired business		-			(5,101	)
Net cash provided by (used in) investing activities		(4,458	)		4,155
Financing activities
Proceeds from issuance of common stock under employee plans		1,044			875
Payment of employee withholding tax in lieu of issuing common stock upon vesting of restricted stock units		(460	)		(499	)
Net cash provided by financing activities		584			376
Effect of foreign exchange rate changes on cash and cash equivalents		71			(846	)
Net increase in cash and cash equivalents		14,137			30,534
Cash and cash equivalents at beginning of year		66,415			37,077
Cash and cash equivalents at end of period	$	80,552		$	67,611

See accompanying notes to condensed consolidated financial statements

3

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 the life sciences, chemical, energy, and consumer and industrial products industries 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 September 30, 2009, the unaudited condensed consolidated statements of operations for the three and nine month periods ended September 30, 2009 and 2008, respectively, and the unaudited condensed consolidated statements of cash flows for the nine month periods ended September 30, 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 September 30, 2009 and the results of its operations and cash flows for all periods presented have been made. The 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 and nine months ended September 30, 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.

The Company has evaluated subsequent events for recognition or disclosure through the time of filing these consolidated financial statements on Form 10-Q with the U.S. Securities and Exchange Commission on November 5, 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, write-downs 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)

Investments

As of December 31, 2008 and September 30, 2009, the Company maintained its cash in treasury-bill money market funds, classified as cash and cash equivalents.

The Company determines the accounting method used to account for investments in equity securities in which it does not have a controlling interest primarily based on the Company’s ownership of the investee and whether the Company has the ability to exercise significant influence over the strategic, operating, investing, and financing activities of the investee. Accordingly, the Company accounts for its investment in Intermolecular, Inc. (“Intermolecular”) using the cost method of accounting. At both September 30, 2009 and December 31, 2008, the carrying value of Intermolecular was $15,147,000, which equals the original total of the Company’s investments to date in Intermolecular. The Company estimates that the fair value of its investments in Intermolecular was approximately $23,535,000 as of December 31, 2008 and believes that there have not been identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment.

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 FASB Accounting Standards Codification (“ASC”) No. 952, Accounting for Franchise Fee Revenue (“ASC 952” and previously referred to as 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 September 30, 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 $6,277,000 using the foreign currency exchange rate in effect on September 30, 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 and would further consider for the capitalization and impairment of the additional acquisition cost. No additional consideration was recorded as of September 30, 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 $993,000 as compensation expense from date of acquisition through the period ended September 30, 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. As of September 30, 2009, the Company recorded $284,000 payable to the founder of IntegrityBio as additional purchase consideration. These payables and any future liabilities under this purchase agreement will be satisfied in connection with the Company’s exit of its Contract Development and Manufacturing Operations (“CDMO”) activities referenced in Note 11, “Subsequent Events,” below.

5

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Revenue Concentration

For the three and nine months ended September 30, 2009 and 2008, the following customers contributed more than 10% of the Company’s total revenue (dollars in thousands):

	Three Months Ended September 30,
	2009		As % of Total Revenue			2008		As % of Total Revenue
ExxonMobil	$	3,331		10	%	$	3,207		8	%
Dow		5,953		17	%		7,252		19	%
Total	$	9,284		27	%	$	10,459		27	%

	Nine Months Ended September 30,
	2009		As % of Total Revenue			2008		As % of Total Revenue
ExxonMobil	$	10,297		10	%	$	17,133		15	%
Dow		17,387		16	%		19,735		17	%
Total	$	27,684		26	%	$	36,868		32	%

The revenue from these customers has been included in the following reportable segments (see Note 6) for the three and nine months ended September 30, 2009 and 2008 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Symyx Software	$	1,858	$	2,713	$	5,721	$	7,496
Symyx HPR		7,426		7,746		21,963		29,372
Total	$	9,284	$	10,459	$	27,684	$	36,868

The revenue from these customers has been included in the unaudited condensed consolidated statements of operations as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Service	$	4,046	$	5,234	$	12,380	$	19,744
Product		1,571		2,194		3,940		5,143
License fees, content and royalties		3,667		3,031		11,364		11,981
Total	$	9,284	$	10,459	$	27,684	$	36,868

Research and Development (“R&D”)

The Company’s policy is to expense as incurred all costs of research and development, including direct and allocated expenses, related both to costs incurred on its own behalf and on behalf of its customers. The types of costs classified as research and development expense include salaries of technical staff, consultant costs, chemical and scientific supplies costs, facilities rental, and utilities costs related to laboratories and offices occupied by technical staff, depreciation on equipment and facilities used by technical staff and outside services, such as machining and third-party research and development costs.

6

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company provides both direct research services and collaborative research services to its customers and records research fundings from its customers as research service revenue. The Company records identifiable R&D expenses related to direct research services to cost of service. For R&D activities performed on behalf of some of the Company’s alliance partners, including Dow and ExxonMobil, that contribute to various revenue streams, such as research service revenue, software consulting revenue and product sales revenue, as the Company does not track fully burdened R&D costs or capital expenditures by project, it is not practical for the Company to accurately record these amounts into various categories of costs of revenue. Therefore, the Company retains these amounts in R&D expenses. However, based on hours spent on each project, the Company estimates the R&D efforts undertaken for various projects were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Customer-sponsored projects		32	%		40	%		33	%		41	%
Internally-funded projects		68	%		60	%		67	%		59	%
Total		100	%		100	%		100	%		100	%

Inventories

Raw materials inventory consists of purchased parts. Work-in-process inventory consists of purchased parts and fabricated sub-assemblies for product sales in the process of being built. Finished goods inventory consists of completed systems ready for shipment to customers. At each balance sheet date, the Company examines its ending inventories for possible excess quantities and obsolescence. This evaluation includes analysis of sales levels by product and projections of future demand. The Company writes down inventories on hand in excess of forecasted demand and writes off inventories that it considers obsolete. Additionally inventories are carried at the lower of cost or market, with cost determined on a specific identification basis. The Company’s inventory balances at September 30, 2009 and December 31, 2008 were as follows (in thousands):

	September 30, 2009		December 31, 2008
Raw Materials	$	-	$	20
Work-in-process		4,072		3,288
Finished goods		207		-
Total	$	4,279	$	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 country in which the transaction occurs. 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 product warranty expense accrual during the nine months ended September 30, 2009 and 2008 were as follows (in thousands):

7

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

	2009			2008
Balance at January 1	$	1,409		$	1,728
New warranties issued during the period		401			690
Costs incurred during the period on specific systems		(536	)		(456	)
Changes in liability for pre-existing warranties during the period, including expirations		(581	)		(466	)
Balance at September 30	$	693		$	1,496

Goodwill and Intangible Assets

The Company’s goodwill at September 30, 2009 and December 31, 2008 is reported as follows (in thousands):

	September 30, 2009		December 31, 2008
Symyx Software	$	39,347	$	39,539
Symyx HPR		452		440
Total	$	39,799	$	39,979

The Company’s goodwill balance decreased $180,000 during the nine months ended September 30, 2009, attributable to the $452,000 adjustment to restructuring costs related to the MDL Information Systems, Inc. (“MDL”) acquisition discussed in Note 10.  This was offset by 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 FASB ASC No. 350, Goodwill and Other Intangible Assets (“ASC 350” and previously referred to as Statement of Financial Accounting Standards (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 ASC No. 350. In determining the fair value of its reporting units in step one of its 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 FASB ASC No. 360, Accounting for the Impairment or Disposal of Long-Lived Assets (“ASC 360”), previously referred to as SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, 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 ASC No. 350 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.

8

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 in the fourth quarter of 2008. Additionally, in the three months ended September 30, 2009, the Company also recorded $284,000 of additional purchase consideration due the seller of IntegrityBio. The Company assessed the recoverability of this amount under the current circumstances and concluded that the goodwill resulted from this additional purchase consideration should be impaired in the third quarter of 2009.

No other indicators of impairment were noted for the nine months ended September 30, 2009.

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 in which 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 nine months ended September 30, 2009 and 2008, the Company’s allowance for doubtful accounts changed as follows (in thousands):

	2009			2008
Balance at January 1	$	356		$	53
New allowance accrued		-			336
Balances written off and other adjustments		(179	)		(3	)
Balance at September 30	$	177		$	386

Deferred Costs

Occasionally, the Company enters into certain software consulting service and tool product arrangements under which all revenue is deferred until elements of the arrangements are delivered in the future. 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 September 30, 2009 and December 31, 2008, the Company deferred approximately $1,297,000 and $2,162,000, respectively, of direct variable expenses related to software consulting service and tools product arrangements in which the revenue is deferred until future periods. The deferred amounts meet the definition of assets.  They are related to deliverable future elements of enforceable contracts and will result in positive margins when the company recognizes them.

To account for deferred costs for contracts for which revenue recognition falls within the scope of FASB ASC No. 605-10-S25, Revenue Recognition (previously referenced as Staff Accounting Bulletin 104), the Company has applied FASB ASC No. 310, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases (as amended),previously referred to as SFAS No. 91.

9

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For contracts for which revenue recognition falls within FASB ASC No. 605-35, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, previously referred to as AICPA Accounting Statements of Positions No. 81-1, the Company has applied the guidance under FASB ASC NO. 605-35 to account for the related deferred costs.

Fair Value Measurements

In September 2006, the FASB issued ASC No. 820, Fair Value Measurements (“ASC 820,” and previously referred to as Statement No. 157). The accounting pronouncement 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 in which there is little, if any, market activity for the asset or liability. Included in the cash and cash equivalent balances were the fair value of the Company’s cash equivalents of $72,793,000 and $51,999,000 at September 30, 2009 and December 31, 2008, respectively, based on Level 1 inputs.  Effective January 1, 2009, the Company adopted the provisions under ASC 820 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.

Effect of New Accounting Pronouncements

The following accounting pronouncements have been issued and will be effective for the Company in or after fiscal year 2009:

FASB ASC 105, Generally Accepted Accounting Principles (“ASC 105” and formerly referred to as SFAS 168) establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. ASC 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

FASB ASC No. 810, Amendments to FASB Interpretation No. 46(R) (“ASC 810,” and formerly referred to as SFAS No. 167), makes significant changes to the model for determining who should consolidate a variable interest entity, and also addresses how often this assessment should be performed. ASC 810 will be effective for the Company beginning in the first quarter of 2010. The Company does not expect the adoption will have a material impact on its consolidated financial statements.

FASB Accounting Standards Update ("ASU") No. 2009-13, Revenue Recognition: Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force, which eliminates the use of the residual method for allocating consideration, as well as the criteria that require objective and reliable evidence of fair value of undelivered elements in order to separate the elements in a multiple-element arrangement. By removing the criteria requiring the use of objective and reliable evidence of fair value in separately accounting for deliverables, the recognition of revenue will more closely align with certain revenue arrangements. The standard also will replace the term "fair value" in the revenue allocation guidance with "selling price" to clarify that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant. ASU No. 2009-13 is effective for revenue arrangements entered or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company is currently assessing the potential impact of this standard.

FASB ASU No. 2009-14, Software: Certain Revenue Arrangements that Include Software Elements—a consensus of the FASB Emerging Issues Task Force, which will significantly improve the reporting of certain transactions to more closely reflect the underlying economics of the transactions. By excluding from its scope certain software-enabled devices, multiple-element arrangements that include such software-enabled devices will now be evaluated for separation and allocation using the guidance in ASU No. 2009-13 (described above). ASU No. 2009-14 is effective for revenue arrangements entered or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently assessing the potential impact of this standard, but does not expect the adoption of the standard will have a material impact on the financial condition or results of operations of the Company.

10

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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. A total of 194,659 and 127,856 shares were purchased during the nine months ended September 30, 2009 and 2008 at weighted average purchase price of $4.07 and $6.38, respectively. The Company also registered an additional 1,005,793 shares authorized under the evergreen provision of its ESPP program. As of September 30, 2009, there were 2,046,444 shares of common stock available for future purchase under the ESPP. On May 4, 2009, Symyx’s Board of Directors amended and restated the Plan to eliminate the evergreen provision, effective after the January 1, 2009 increase in such reserved share pool, and to provide that the ESPP plan shall have an indefinite term. This amendment and restatement of the ESPP plan was not subject to shareholder approval.

The Company also has adopted various stock 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 and nine months ended September 30, 2009, the Company granted options to purchase 0 and 30,000 shares of common stock, respectively, under its stock plans. During the three and nine months ended September 30, 2008, the Company granted options to purchase 597,509 and 675,009 shares of common stock, respectively, under its stock plans, including the 394,509 shares of the replacement options from the stock option exchange program completed in the third quarter of 2008. The Company valued options granted in the three and nine months ended September 30, 2009 and 2008 using the Black-Scholes method with the following valuation assumptions:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2009		2008			2009			2008
	Weighted-Average		Weighted-Average			Weighted-Average			Weighted-Average
Expected dividend		n/a		0	%		0	%		0	%
Risk-free interest rate		n/a		2.6	%		1.7	%		2.7	%
Expected volatility		n/a		51	%		61	%		51	%
Expected life (in years)		n/a		3.0			4.3			3.9

During the three months ended September 30, 2009 and 2008, the Company granted restricted stock units of 0 and 6,611 shares, respectively. During the nine months ended September 30, 2009 and 2008, the Company granted restricted stock units of 68,646 and 40,033 shares, respectively. The fair value of each restricted stock unit equaled the closing sales price of the Company’s common stock on the grant date.

Stock-based compensation expense recognized in the Company’s results of operations for these periods was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Costs of revenue	$	69	$	50	$	286	$	184
Research and development		413		358		812		1,081
Sales, general and administrative		782		712		2,237		2,016
Total	$	1,264	$	1,120	$	3,335	$	3,281

11

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

During the nine months ended September 30, 2009, the Company issued common stock totaling 437,502 shares under the ESPP and upon the exercise of stock options and the vesting of restricted stock units. As of September 30, 2009, 4,865,679 shares were available for issuance under the Company’s various stock plans.

3. Earnings (Loss) per Share

The Company has computed basic net income per share using the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share has been calculated based on the shares used in the calculation of basic net income per share and the dilutive effect of stock options, restricted stock units and restricted stock. 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, less unvested restricted stock during the period. The computation of the basic and diluted income (loss) per share for the three and nine months ended September 30, 2009 and 2008 was (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2009		2008			2009			2008
Net income (loss)	$	1,490	$	(745	)	$	(2,855	)	$	(9,062	)
Weighted-average shares of common stock outstanding		34,423		33,788			34,236			33,708
Less: weighted-average restricted stock		-		-			-			(24	)
Weighted-average shares used in computing basic net income (loss) per share		34,423		33,788			34,236			33,684
Dilutive effect of employee stock options and restricted stock units, using the treasury method		274		-			-			-
Weighted-average shares used in computing diluted net income (loss) per share		34,697		33,788			34,236			33,684
Basic net income (loss) per share	$	0.04	$	(0.02	)	$	(0.08	)	$	(0.27	)
Diluted net income (loss) per share	$	0.04	$	(0.02	)	$	(0.08	)	$	(0.27	)

The following shares were excluded from the calculation of basic and diluted net income (loss) per share for the three and nine months ended September 30, 2009 and 2008, respectively, because all these shares were anti-dilutive for the respective periods (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Options		3,017		4,364		4,689		4,364
Restricted stock units		-		155		528		155
Total anti-dilutive shares		3,017		4,519		5,217		4,519

12

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. 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. As of September 30, 2009, the Company owned approximately 12% of Intermolecular’s outstanding shares. 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 September 30, 2009 and 2008, the Company recognized revenue from Intermolecular of $196,000 and $446,000, respectively. For the nine months ended September 30, 2009 and 2008, the Company recognized revenue from Intermolecular of $819,000 and $1,085,000, respectively. As of September 30, 2009, the Company recorded $8,000 of deferred revenue and a $77,000 customer deposit from Intermolecular. As of December 31, 2008, the Company recorded $32,000 of deferred revenue and a $77,000 customer deposit from Intermolecular. There was no outstanding account receivable from Intermolecular at September 30, 2009 or December 31, 2008.

5. Comprehensive Income (Loss)

The components of comprehensive income (loss) for the three and nine months ended September 30, 2009 and 2008 were as follows (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2009		2008			2009			2008
Net income (loss)	$	1,490	$	(745	)	$	(2,855	)	$	(9,062	)
Other comprehensive income (loss):
Unrealized losses on marketable securities, net of tax		-		-			-			(1	)
Foreign currency translation adjustment		474		(1,138	)		20			951
Other comprehensive income (loss)		474		(1,138	)		20			950
Comprehensive income (loss)	$	1,964	$	(1,883	)	$	(2,835	)	$	(8,112	)

6. Segment Disclosure

FASB ASC No. 280, Disclosures about Segments of an Enterprise and Related Information (“ASC 280” and formerly referred to as SFAS No. 131) requires disclosures of certain information regarding operating segments, products and services, geographic areas of operation and major customers. The method for determining what information to report under ASC 280 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 CODM is its Chief Executive Officer, 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.

13

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 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 (iv) system support services.

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 September 30,						Nine Months Ended September 30,
(in thousands)	2009			2008			2009			2008
Revenue:
Symyx Software
Service	$	10,816		$	11,693		$	31,678		$	32,933
License fees, content and royalties		11,211			13,888			32,874			36,749
Total Symyx Software revenue	$	22,027		$	25,581		$	64,552		$	69,682
Symyx HPR
Service	$	5,960		$	6,689		$	19,044		$	24,204
Product		4,140			4,819			12,454			14,403
License fees, content and royalties		2,840			1,820			8,938			8,178
Total Symyx HPR revenue	$	12,940		$	13,328		$	40,436		$	46,785
Total revenue	$	34,967		$	38,909		$	104,988		$	116,467
Operating income (loss):
Symyx Software	$	2,573			*		$	5,231			*
Symyx HPR		(465	)		*			(2,296	)		*
Other		(3,771	)		*			(10,292	)		*
Total operating loss	$	(1,663	)	$	(4,153	)	$	(7,357	)	$	(20,112	)

*           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 the current period presentation.

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 September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
United States	$	22,471	$	22,802	$	68,826	$	73,370
Europe		8,636		11,976		24,650		32,510
Asia		3,607		3,496		10,768		9,182
Rest of the World		253		635		744		1,405
Total	$	34,967	$	38,909	$	104,988	$	116,467

14

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 September 30, 2009 and 2008, the Company recorded amortization expenses of intangible assets of $2,803,000 and $3,412,000, respectively. In the nine months ended September 30, 2009 and 2008, the Company recorded amortization expenses of intangible assets of $9,170,000 and $10,076,000, respectively. In the fourth quarter of 2008, the Company evaluated the recoverability of intangible assets and recorded an impairment charge of $2,574,000. 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	$	2,667
2010		10,105
2011		8,073
2012		7,517
2013		6,988
Thereafter		8,760
Total	$	44,110

8. Income Taxes

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

	Nine Months Ended September 30,
	2009			2008
Expected benefit at federal statutory rate		35	%		35	%
State taxes, net of federal impact		-3	%		7	%
Research and development credits		6	%		0	%
Permanent difference related to stock-based compensation		-9	%		-2	%
Change in valuation allowance		27	%		0	%
Change in FIN48 liabilities		10	%		0	%
Other individually immaterial items		-4	%		-3	%
Net income tax benefit		62	%		37	%

During the three months ended September 30, 2009, the Company conducted a study of the tax depreciable lives for certain of its fixed assets placed in service after January 1, 2002. Using the result of the study, the Company reassessed the valuation allowance associated with certain deferred tax assets and released $1,976,000 of such  allowance.

15

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Upon the expiration of certain statutes of limitation, during the three months ended September 30, 2009, the Company recorded a $1,238,000 reduction in unrecognized tax benefits, of which $814,000 was recorded as an income tax benefit and the remaining $424,000 as an increase to additional paid-in capital. The Company also reduced interest accrual for the above uncertain tax positions in the amount of $345,000.

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 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. As amended and extended, the Credit Agreement will terminate and all amounts owing thereunder will be due and payable on March 1, 2010, unless the commitments are earlier terminated, either at the Company’s request or, if an event of default occurs, by the lenders.

As of September 30, 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

During the three months ended September 30, 2009, the Company recorded a $710,000 restructuring charge, which included $801,000 of severance and facility exit costs in the United Kingdom as part of the Company’s effort to consolidate its offshore software development activities (“2009 Plan”) and a reduction of $91,000 in estimated restructuring charges for its 2008 reorganization plan described below.

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 High Productivity Research (“HPR”). The 2008 Plan included a worldwide reduction in force of approximately 90 employees and the consolidation of certain facilities. In December 2008, the Company recorded total restructuring charges of $5,160,000 according to FASB ASC No. 420, Accounting for Costs Associated with Exit or Disposal Activities (“ASC 420,” and previously referred to as SFAS No. 146), consisting of severance and one-time benefits of approximately $3,897,000, facilities exit costs 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 estimated 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.

16

SYMYX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On October 1, 2007, the Company acquired 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. In October 2007, the Company recorded total estimated restructuring termination benefits of $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 ASC No. 805, Accounting for Business Combinations, previously referred to as SFAS No. 141. The remaining balance associated with the termination of employees of the acquiring company was recorded as part of the operating expenses according to FASB ASC 420, Accounting for Costs Associated with Exit or Disposal Activities, previously referred to as SFAS No. 146. During the three months ended September 30, 2009, the Company further reduced the estimated restructuring charges by $452,000, but estimates that up to $96,000 may yet be incurred in legal fees pertaining to the termination of certain former employees of MDL.

The following table illustrates the change in accrued restructuring costs during the nine months ended September 30, 2009 (in thousands):

	2007 Plan			2008 Plan			2009 Plan			Total
Balance at January 1, 2009	$	651		$	3,927		$	-		$	4,578
New charges accrued during the period		-			407			801			1,208
Payments made during the period		(96	)		(3,724	)		(581	)		(4,401	)
Adjustments to liabilities during the period, including foreign currency exchange rate effect		(459	)		(140	)		-			(599	)
Balance at September 30 , 2009	$	96		$	470		$	220		$	786

11. Subsequent Events

On October 23, 2009, the Board of Directors of Symyx committed the Company to a plan to restructure its HPR business unit. The restructuring plan will be implemented to address underperformance in the Company’s CDMO operation acquired as part of the IntegrityBio acquisition, and to address the anticipated decline in research services following year end as commitments from Dow and ExxonMobil expire.  As part of the restructuring plan:

§ the Company has exited its Camarillo CDMO facility and commenced a plan to reduce its overall HPR staffing by approximately 75 employees, representing a 15% reduction in the Company’s total current headcount; and

§ in connection with these actions, the Company expects restructuring costs totaling approximately $5 million, including approximately $1.5 million to $2.5 million of cash, $1.5 million to $2 million of noncash impairment charges to associated leasehold improvements and fixed assets, and approximately $1 million of loss from the sale of intangible and fixed assets.

The Company expects to complete the majority of these restructuring actions by December 31, 2009, and to substantially complete the remaining balance of these actions in the first quarter of 2010.

On October 28, 2009, the Company entered into an Asset Purchase Agreement with the founder of IntegrityBio to sell to him certain tangible and intangible assets of the CDMO business. Pursuant to the agreement (among other matters), the Company will pay a reduced amount to the founder to satisfy the contingent considerations under the original purchase agreement as discussed in the “Contingencies” section of Note 1.

17

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 Part II of this Report, 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 and nine months ended September 30, 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 the life sciences, chemical, energy, and consumer and industrial products industries 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 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.

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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 September 30, 2009 include:

· We announced the release of Symyx Notebook 6.3, a major version upgrade that significantly enhances Symyx’s vision of an enterprise electronic lab notebook (“ELN”) to support many scientific disciplines. Previous versions of Symyx Notebook had focused on biology, analytical and synthetic chemistry – version 6.3 rounds out the offering by adding parallel chemistry support for synthetic and medicinal chemistry.

· We released version 3.2 of the Symyx Isentris® decision support system, enabling scientists to explore, compare and report on information spanning multiple experiments captured in electronic lab notebooks, the Symyx Lab Execution and Analysis (LEA) software suite, laboratory information management systems (“LIMS”) and other information management systems.

· We announced the opening of a new software research and development center in Bangalore, India, which will collaborate with our other sites on our core scientific information management software solutions.

· Following the end of the third quarter, we commenced a restructuring in October 2009 (“October 2009 Restructuring”) focused on our HPR business unit. To address underperformance in our contract development and manufacturing operations ("CDMO") acquired as part of the IntegrityBio acquisition, and to address the anticipated decline in the demand for research services following 2009 year end, we are exiting our Camarillo CDMO facility and commencing a plan to reduce our HPR staffing by approximately 75 employees, representing a 15% reduction in our total current headcount. We estimate the associated restructuring costs, including losses on the sale of assets in connection with the CDMO exit, will be approximately $5 million, of which approximately $1.5 million to $2.5 million will be cash. We expect to complete the majority of these restructuring actions by December 31, 2009, and to substantially complete the remaining balance of these actions in the first quarter of 2010.

· Our net income was $1.5 million, or $0.04 per diluted share, for the quarter, improving from our net loss of $745,000, or $0.02 per share, in the same quarter of 2008, despite lower revenue in the current period. Net income for the current quarter included $2.7 million in discrete income tax benefits.  Our net loss for the nine months ended September 2009 was $2.9 million, or $0.08 per share, a substantial improvement over our net loss of $9.1 million, or $0.27 per share, for the same period of 2008, reflecting the benefits from our 2008 restructuring and the success of our continuing focus on controlling operating expenses.

· We ended the quarter with cash and cash equivalents totaling $80.6 million, a significant increase over our total cash and cash equivalents of $66.4 million at December 31, 2008.

· During the three months ended September 30, 2009, we have recorded discrete income tax benefits totaling $2.7 million as a result of changing our valuation allowance against certain deferred tax assets and recognizing tax benefits with the expiration of certain federal statutes of limitation.

· We secured a multi-million dollar commitment from another top-fifteen pharmaceutical company to deploy our Notebook solution across the enterprise.

Included in our results of operations for the three and nine month periods ended September 30, 2009 was stock-based compensation expense as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Costs of revenue	$	69	$	50	$	286	$	184
Research and development		413		358		812		1,081
Sales, general and administrative		782		712		2,237		2,016
Total	$	1,264	$	1,120	$	3,335	$	3,281

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”). In “Critical Accounting Policies” under Item 7, and in Note 1 of the Notes to the Consolidated Financial Statements included under Item 8, in each case of our Annual Report on Form 10-K for the year ended December 31, 2008, we describe 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.

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Deferred Costs

Occasionally we enter into certain software consulting service and tools product arrangements under which all the revenue is deferred until certain elements of the arrangements are delivered in the future.  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 and incremental variable expenses include direct labor costs and direct services contracts with third parties working on the software service arrangements. As of September 30, 2009 and December 31, 2008, we deferred approximately $1.3 million and $2.2 million, respectively, of direct and incremental variable expenses related to software consulting service and tools product arrangements where the revenue is deferred until future periods.

When we have deferred software costs, we consider the revenue recognition guidance under which the revenue falls to determine the cost recognition, as well as the realizability of the deferred cost (See “Deferred Costs” section in Note 1 above).

Results of Operations

Revenue

	Three Months Ended September 30,
	2009		2008		Change
(in thousands, except percentages)
Service	$	16,776	$	18,382	$	(1,606	)	(9	%)
Product		4,140		4,819		(679	)	(14	%)
License fees, content and royalties		14,051		15,708		(1,657	)	(11	%)
Total revenue	$	34,967	$	38,909	$	(3,942	)	(10	%)

	Nine Months Ended September 30,
	2009		2008		Change
(in thousands, except percentages)
Service	$	50,722	$	57,137	$	(6,415	)	(11	%)
Product		12,454		14,403		(1,949	)	(14	%)
License fees, content and royalties		41,812		44,927		(3,115	)	(7	%)
Total revenue	$	104,988	$	116,467	$	(11,479	)	(10	%)

Revenue for the three months ended September 30, 2009 decreased relative to the same period of 2008 due to a $1.8 million decrease in software license revenue, a $1.2 million net reduction in service revenue from ExxonMobil and Dow, lower software consulting revenue, content revenue and product sales, partially offset by higher maintenance revenue and materials royalties.

Revenue for the nine months ended September 30, 2009 decreased relative to the same period of 2008 due to a $5.4 million reduction in research service revenue following the May 2008 expiration of our primary alliance agreement with ExxonMobil, decreases in software licensing and consulting service revenue, and lower content revenue and Symyx HPR tools sales, partially offset by higher material royalties and maintenance revenue.

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Revenue by Segment

We segregate revenue into the following business units:

	Three Months Ended September 30,
	2009		2008		Change
(in thousands, except percentages)
Symyx Software	$	22,027	$	25,581	$	(3,554	)	(14	%)
Symyx HPR		12,940		13,328		(388	)	(3	%)
Total	$	34,967	$	38,909	$	(3,942	)	(10	%)

	Nine Months Ended September 30,
	2009		2008		Change
(in thousands, except percentages)
Symyx Software	$	64,552	$	69,682	$	(5,130	)	(7	%)
Symyx HPR		40,436		46,785		(6,349	)	(14	%)
Total	$	104,988	$	116,467	$	(11,479	)	(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. The Software revenue decreases in the three and nine months ended September 30, 2009 compared with the corresponding periods in 2008 reflect primarily difficult market conditions, our customers’ efforts to reduce costs, seat count reductions in connection with acquisition-related consolidations, and revenue deferrals associated with certain significant, multiple-element arrangements.  These decreases were partially offset by higher maintenance revenue from our increased installed base.

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 other intellectual property. The decrease in Symyx HPR revenue in the three months ended September 30, 2009 from the corresponding period of 2008 resulted largely from the decrease in product sales revenue. The decline in Symyx HPR revenue for the nine months ended September 30, 2009 compared with the same period of 2008 was primarily due to a $5.4 million reduction in service revenue from ExxonMobil due to the expiration of our primary agreement with ExxonMobil in May 2008 and lower product sales while our customers continued to constrain their capital expenditures.

Concentration of Revenue

ExxonMobil and The Dow Chemical Company (“Dow”) are the only two major customers that contributed more than 10% of our revenue for the periods addressed below. The aggregate revenue and corresponding percent of revenue by each revenue component from ExxonMobil and Dow are as follows (in thousands, except percentages):

	Three Months Ended September 30,
	2009				2008
Service	$	4,046	24	%	$	5,234	28	%
Product sales		1,571	38	%		2,194	46	%
License fees, content and royalties		3,667	26	%		3,031	19	%
Total	$	9,284	27	%	$	10,459	27	%

	Nine Months Ended September 30,
	2009				2008
Service	$	12,380	24	%	$	19,744	35	%
Product sales		3,940	32	%		5,143	36	%
License fees, content and royalties		11,364	27	%		11,981	27	%
Total	$	27,684	26	%	$	36,868	32	%

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With the MDL acquisition in October 2007, we have substantially broadened our customer base, but continue to expect that Dow and ExxonMobil will remain our two largest customers in 2009 based on existing commitments.

Cost of Revenue

	Three Months Ended September 30,
	2009		2008		Change
(in thousands, except percentages)
Costs of revenue:
Cost of service	$	6,447	$	5,044	$	1,403		28	%
Cost of products		1,899		2,079		(180	)	-9	%
Cost of license fees, content and royalties		1,353		1,410		(57	)	-4	%
Amortization of intangible assets arising from business combinations		1,328		1,864		(536	)	-29	%
Total costs of revenue	$	11,027	$	10,397	$	630		6	%

	Nine Months Ended September 30,
	2009		2008		Change
(in thousands, except percentages)
Costs of revenue:
Cost of service	$	19,225	$	14,884	$	4,341		29	%
Cost of products		6,186		6,378		(192	)	-3	%
Cost of license fees, content and royalties		4,103		4,328		(225	)	-5	%
Amortization of intangible assets arising from business combinations		4,749		5,431		(682	)	-13	%
Total costs of revenue	$	34,263	$	31,021	$	3,242		10	%

Total costs of revenue represented 32% and 27%, respectively, of total revenue for the three months ended September 30, 2009 and 2008. Total costs of revenue represented 33% and 27%, respectively, of total revenue for the nine months ended September 30, 2009 and 2008. The increase in costs of revenue as a percentage of total revenue was due to incremental expenses from the HPR formulations business resulting from our IntegrityBio acquisition which, as an service business not at scale, has substantially lower margins than our other business lines.  To address underperformance in CDMO, and to address the anticipated decline in research services following the December 2009 expiration of research commitments from Dow and ExxonMobil, we announced a restructuring plan in October 2009 as detailed in Note 11 of the Notes to the Condensed Consolidated Financial Statements..

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 28% and 29%, respectively, for the three and nine month periods ended September 30, 2009 over the same periods in 2008 due to the incremental costs from the acquisition of IntegrityBio in August 2008, increase in research service costs for new research contracts, partially offset by decrease in software service costs due to the deferral of costs as described under “Critical Accounting Policies and Use of Estimates.”

Gross product margin for the three months ended September 30, 2009 was 54%, compared with 57% in the corresponding period of 2008. Gross product margin for the nine month ended September 30, 2009 was 50%, compared with 55% in the corresponding period of 2008. The cost of products varies from period to period due to changes in product mix. In the three months ended September 30, 2009, we recognized revenue on a tool sale with low tool costs, resulting in an unusually high gross product margin on this sale. We do not anticipate that sales of tools with relatively low product costs will continue to contribute significantly to our gross product margin in the future. Additionally, write-downs to inventory for excess and obsolete items affect our margins; in the three months ended September 30, 2009 we recorded incremental write-downs of $414,000.

Cost of license fees, content and royalties consists of primarily royalties we pay for third-party content we include in our content subscription offerings, and remained consistently at approximately 20% of content revenue recognized.

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Other Operating Expenses

	Three Months Ended September 30,
	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	$	12,764		37	%		(32	%)	$	18,814		48	%
Sales, general and administrative		10,397		30	%		(16	%)		12,375		32	%
Restructuring charges		710		2	%	na				-		0	%
Impairment of goodwill		284		1	%	na				-		0	%
Amortization of intangible assets arising from business combinations		1,448		4	%		(2	%)		1,476		4	%
Total operating expenses	$	25,603		73	%		(22	%)	$	32,665		84	%

	Nine Months Ended September 30,
	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	$	39,673		38	%		(33	%)	$	59,230		51	%
Sales, general and administrative		32,867		31	%		(22	%)		41,896		36	%
Restructuring charges		918		1	%	na				-		0	%
Impairment of goodwill		284		*		na				-		0	%
Amortization of intangible assets arising from business combinations		4,340		4	%		(2	%)		4,432		4	%
Total operating expenses	$	78,082		74	%		(26	%)	$	105,558		91	%

* Less than 1%

Research and Development (“R&D”) Expenses

Our R&D expenses consist primarily of:

• salaries and other personnel-related expenses;

• facilities costs;

• supplies; and

• depreciation of owned facilities and laboratory equipment.

Total R&D expenses for the three and nine months ended September 30, 2009 decreased significantly in both dollar and percentage terms versus the same periods in 2008 due (i) to the significant workforce reduction we implemented in December 2008, (ii) to lower depreciation expenses following the write-down of certain fixed asset values in the fourth quarter of 2008, and (iii) to the fact that 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 in the current periods rather than R&D expense.

Research and development includes those activities performed on behalf of some of our alliance partners including Dow and ExxonMobil, as discussed in “Research and Development (“R&D”) section of Note 1 of Notes to the Condensed Consolidated Financial Statements. 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 September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Customer-sponsored projects		32	%		40	%		33	%		41	%
Internally-funded projects		68	%		60	%		67	%		59	%
Total		100	%		100	%		100	%		100	%

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The decrease in R&D hours spent on customer-sponsored projects from 2008 to 2009 was primarily due to the decline in our collaboration with ExxonMobil.

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

Our SG&A expenses consist primarily of (i) personnel costs for sales and marketing, general management, finance, legal and human resources, (ii) associated facilities and information technology expenses, (iii) commissions to our foreign sales agents, and (iv) professional expenses, such as outside legal and accounting fees. The decrease in SG&A expenses for the three and nine months ended September 30, 2009 compared to the same periods in 2008 was primarily due to reduction in workforce implemented in December 2008, decrease in depreciation expense following the write-down of fixed asset fair values in the fourth quarter of 2008 and tighter control of operating expenses. We expect to continue to invest in our sales and support teams and our marketing activities to capitalize on our market opportunities.

Restructuring Charges

In the three months ended September 30, 2009, we recorded $710,000 in restructuring charges consisting principally of severance and facilities exit costs of our UK office and related severance charges as part of a plan to consolidate our offshore software development activities. Total restructuring charges for the nine months ended September 30, 2009 were $918,000.

Impairment of Goodwill

In the three months ended September 30, 2009, we recorded a $284,000 payable to the founder of IntegrityBio, representing a portion of the earnout provided in the original acquisition agreement that is based on the revenue recognized in September 2009 from the IntegrityBio operation. This liability, if determinable at the time of acquisition, would have been recorded to goodwill as part of the purchase price and would have been impaired during our goodwill impairment analysis during the fourth quarter of 2008. We assessed the recoverability of these amounts under the current circumstances and concluded that the goodwill resulting from the additional payable should be impaired in the third quarter of 2009.

Amortization of Intangible Assets Arising from Business Combinations

We amortize intangible assets arising from business combinations on a straight-line basis over their estimated useful lives. The decrease in amortization of intangible assets from 2008 to 2009 was primarily due to the impairment to intangible assets as discussed in Note 1 of the Notes to the Condensed Consolidated Financial Statements, as well as the expiration of amortization periods for certain intangible assets. We expect to continue to report significant amortization expenses of intangible assets arising from business combinations in the next few years.

Gain from Sale of Equity Interest in Ilypsa, Inc.

We recorded gains of $4.9 million from the sale of our equity interest in Ilypsa, Inc. during the three months ended September 30, 2008. This represented the final escrow distribution from the sale of our equity interest in Ilypsa, Inc.

Interest and Other Income (Expense), Net

Interest and other income, net, for the three months ended September 30, 2009 included a $345,000 reversal of interest expenses accrued for uncertain tax positions and a $126,000 foreign currency gain, while Interest and other income, net, for the same period in 2008 included a $1.7 million foreign currency loss. Interest and other income, net, for the nine months ended September 30, 2009 significantly decreased from interest and other income in the same periods of 2008, which included a $1.6 million gain from the sale of our Occupational Health Service business.

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Income Tax Benefits

We recorded income tax benefits of $2.6 million and $4.6 million for the three and nine months ended September 30, 2009, respectively, compared to an income tax benefit of $161,000 and $5.4 million for the three and nine months ended September 30, 2008, respectively. The effective income tax benefit rate was 230% and 18% for the three month periods ended September 30, 2009 and 2008, respectively. The effective income tax benefit rate was 62% and 37% for the nine month periods ended September 30, 2009 and 2008, respectively. The effective income tax benefit rate for the three and nine months ended September 30, 2009 was significantly higher than our statutory rate of 35% primarily due to the release of a $2.0 million valuation allowance against federal deferred tax assets as discussed below, the $814,000 income tax benefit from the recognition of previously unrecognized tax benefits upon the expiration of certain statutes of limitation, partially offset by an  additional valuation allowance we recorded against certain state deferred tax assets generated in 2009. Our 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.

During the three months ended September 30, 2009, we completed a cost segregation study for our fixed assets placed in service after January 1, 2002. The study categorized certain fixed assets into classes with shorter tax lives and accelerated the tax depreciation of these assets. As a result, we reassessed the valuation allowance associated with certain deferred tax assets and released our valuation allowance by $2.0 million.

During the three months ended September 30, 2009, in connection with the expiration of certain federal statutes of limitation, we recorded a $1.2 million reduction in unrecognized tax benefits, of which $814,000 was recorded as an income tax benefit and the remaining $424,000 as an increase to additional paid-in capital. We also reduced interest accrual for the above uncertain tax positions in the amount of $345,000.

As of September 30, 2009, we do not anticipate that our gross unrecognized federal tax benefits will change significantly within the next twelve months.

Recent Accounting Pronouncements

See details under the same heading in Note 1 of Notes to Condensed Consolidated 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 September 30, 2009, we had cash and cash equivalents of approximately $80.6 million, an increase of $14.1 million from December 31, 2008 and a decrease of $4.3 million from June 30, 2009. A number of our content and maintenance agreements are renewed annually on January 1st of each year resulting in higher cash balances earlier in the year that are depleted as cash is used in funding our operations.

Our operating activities provided $17.9 million and $26.8 million of cash during the nine months ended September 30, 2009 and 2008, respectively. The change in operating cash flow was primarily due to the amounts and timing of customer payments for service and products delivered or to be delivered.

Net cash used in investing activities during the nine months ended September 30, 2009 was $4.5 million, all for the purchase of property and equipment. Net cash provided by investing activities during the nine months ended September 30, 2008 was $4.2 million, resulting from $8.4 million of proceeds from the maturity of marketable securities that were invested in securities that were considered cash equivalents, receipt of $5.5 million in proceeds from the sale of our interest in Ilypsa and of the OHS business, and the receipt of a $5.0 million working capital adjustment from the seller of MDL, net of cash outflows of $10.1 million and $4.6 million used for business acquisitions and for the purchase of property and equipment, respectively.

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Net cash provided by financing activities during the nine months ended September 30, 2009 and 2008 was from Employee Stock Purchase Plan (“ESPP”) purchases and option exercises of $1.0 million and $875,000, respectively, partially offset by the payment of employee withholding taxes in exchange for common stock upon the vesting of restricted stock units of $460,000 and $499,000, respectively.

Current liabilities as of September 30, 2009 increased by $1.7 million compared to December 31, 2008, reflecting an increase of $9.1 million in deferred revenue being partially offset by the reduction in accrued restructuring costs and other accrued liabilities.

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. In August 2009, we entered into the second amendment to the Credit Agreement in which the Agent consented to the consolidation of our U.S. operation. In September 2009, we entered into the third amendment to extend the term of the Credit Agreement until March 1, 2010. As of September 30, 2009, we were in compliance with the amended covenants in the Credit Agreement and had no borrowing under the Facility.

We believe our current cash and cash equivalents 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. However, we may choose 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. 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 may harm our business and operating results.

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

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. Our indemnification obligation in these arrangements is typically limited to no more than the amount paid by the customer. As of September 30, 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.

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 $6,277,000 using the foreign currency exchange rate in effect on September 30, 2009) upon achievement of the 2009 revenue target with respect to our 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 September 30, 2009, and we do not expect to record additional consideration during the remainder of fiscal 2009.

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In August 2008, we acquired 100% of the ownership of 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 have to date recorded $993,000 payable to the founder as of September 30, 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 recorded $284,000 payable to the seller as of September 30, 2009. These payables and any future liabilities under this purchase agreement will be satisfied in connection with our exit of the CDMO activities referenced in Note 11 of the Notes to the Condensed Consolidated Financial Statements.

Contractual Obligations

During the nine months ended September 30, 2009, there were no material changes to our commitments disclosures as set forth under the captions "Principal Commitments" and "Other Commitments" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the year ended December 31, 2008.

Off Balance Sheet Arrangements

We have not entered into any off-balance sheet financing arrangements and have not established any special purpose entities as of September 30, 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 September 30, 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. As of September 30, 2009, we owned approximately 12% of Intermolecular’s outstanding shares. 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 September 30, 2009, we recorded $196,000 of revenue from Intermolecular.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the nine months ended September 30, 2009, there were no material changes to our market risk disclosures as set forth 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

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.”

(b) Changes in Internal Control

There were no changes in our internal controls over financial reporting during the fiscal quarter ended September 30, 2009 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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, except for those marked with an asterisk (*).

*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 revenue, 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 ExxonMobil, Dow 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, and to $27.7 million for the first nine months of 2009, primarily due to the expiration of our alliance agreement with ExxonMobil in May 2008.  We expect 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 and certain research services extensions from ExxonMobil expire in December 2009. 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 have changed the focus and scope of our HPR business unit.  We can provide no assurances that the remaining HPR offerings will be successful.

Pursuant to the October 2009 Restructuring, we have exited our CDMO business and are exiting discovery research services, the latter the principal research service provided to Dow and ExxonMobil.  As a result of the October 2009 Restructuring, we will be focusing our efforts in HPR on the sale of products, or tools, and associated services.  We do not yet know customers’ reaction to these actions, and it is possible customers may view the October 2009 Restructuring negatively, and as a result, may decline to enter into new or renewal contracts for HPR products and services.  To the extent this occurs, our financial condition and operating results would be materially and adversely affected, and we might incur additional restructuring and other related charges.

*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. For example, our tools revenue has been affected by customer delays and cancellations and our software consulting service revenue declined in the past quarter as customers delay new projects and reduce staff. A global economic slowdown, or a particular slowdown in the life science and/or chemical industries, such as the one we are experiencing, will materially adversely impact our business, operating results and financial condition.

*Recent worldwide market turmoil adversely affects our customers, which in turn 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. Further, a number of our current and prospective customers have merged with others or been forced to raise significant amounts of capital. These market factors have, in turn, reduced customer demand for our software consulting services, reduced seat counts for our software and content at certain customers, and extended decision-making for major capital or software purchases. If we are unable to adequately respond to changes in demand resulting from these difficult market and economic conditions, our financial condition and operating results will be materially and adversely affected.

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* We are downsizing the staff in our HPR business, which also may lead to additional voluntary attrition, both of which may make it more difficult for our staff to manage our HPR business.

As part of the October 2009 Restructuring, we are downsizing the staff in our HPR business by 75 employees.  The October 2009 Restructuring will result in an additional burden on the remaining employees in our HPR business, and may result in additional voluntary attrition from our scientific staff. If the remaining employees in our HPR business are not able to fully compensate for the loss of the employees in the downsizing and such possible additional attrition, then we may not be able to perform to the expectations of our HPR customers, which would hurt our HPR business.

* We expect to be a smaller company in 2010, but may not be able to proportionately decrease our expenses of operating as a public company, which may adversely affect our ability to be profitable.

As a result of the expected decline in HPR revenue, we will be a smaller company in 2010.  However, we may not be able to decrease our expenses proportionately, as many expenses of operating as a public company are independent of the size of the company, such as the costs of compliance with the Sarbanes-Oxley Act of 2002.  Consequently, we expect our expenses of operating as a public company will comprise a greater percentage of our costs than previously, which will make it more challenging for our company to be profitable.

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, including the additional impact of the October 2009 Restructuring on customers’ decision-making processes;

· 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;

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· 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.

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 does not appear to have abated as of the date of this Report. 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. In addition, as noted above, the October 2009 Restructuring may negatively impact customers’ decisions with respect to the renewal of current contracts or entering into new contracts, with respect to our HPR business.

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*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 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 and may, in the short-term, significantly impact our margins and profitability. 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, 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. As an example, 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.

In addition, there is no guarantee that we will successfully integrate a given acquisition target into our product portfolio, after closing of such an acquisition.  For example, in October 2009 we decided to exit the CDMO business, which we acquired in July 2008 as part of Integrity Biosolution, Inc.

*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. 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.

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;

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• 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.

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.

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 September 30, 2009, the highest closing price for our common stock was $9.51 and the lowest closing price 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;

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• 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, and investors’ reaction to the new product portfolio resulting from the October 2009 Restructuring;

• 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.

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 grow our business and achieve profitability.

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, in the face of competition and the increasing availability of free content;

• 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.

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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.

*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 noted above, particularly with respect to our HPR business, in light of the October 2009 Restructuring, we will need personnel with specific skill sets that may be difficult to locate, attract and retain. 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 October 2009 Restructuring, 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.

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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.

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.

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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.

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.

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*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. While we are not bound by long-term arrangements with such suppliers, and have been able to find replacement vendors in prior instances, 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 in the event that a key transaction were to be impacted.

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.

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.

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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.

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.

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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.

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:  November 5, 2009	/s/ Isy Goldwasser
	Isy Goldwasser
	Chief Executive Officer
	(Principal Executive Officer)
Date:  November 5, 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
10.45(4)	Third amendment to Credit Agreement, dated as of September 25, 2009, between Symyx Technologies, Inc. and Bank of America, N.A. as administrative agent and L/C issuer
31.1(4)	Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2(4)	Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1(4)	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Management contracts or compensatory plans or arrangements

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

(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) Filed herewith.

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