Exhibit 99.2
DISCOVERY PARTNERS INTERNATIONAL, INC.
Unaudited Pro Forma Condensed
Consolidated Financial Statements
On October 7, 2005, Discovery Partners International, Inc. (“Discovery Partners”) entered into an Asset Purchase Agreement with IRORI Discovery, Inc., now known as Nexus Biosystems (“Nexus”), pursuant to which Discovery Partners agreed to sell certain assets and liabilities to Nexus, including the IRORI® chemical synthesis systems business, the Crystal Farm® automated protein crystallization business, and the Universal Store™ compound storage systems business for proceeds of $1,500,000 plus a purchase price adjustment to be determined based on the cash cost of operations of the assets sold through the closing date. The unaudited pro forma condensed consolidated financial information herein assumes the transaction occurred as of January 1, 2004 and January 1, 2005 adjusting the consolidated statement of operations to exclude the direct operating results of the assets sold for the twelve months ended December 31, 2004 and six months ended June 30, 2005, respectively. In addition, the pro forma adjustments are based on the value of the related assets and liabilities on June 30, 2005 where such values may differ from those on the close date of the transaction. The gain on sale of the net assets as presented below are based on estimates of the working capital and cash flow results from the period of September 1, 2005 through the close date of the transaction.
Discovery Partners International, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheets
As of June 30, 2005
| | Consolidated | | Pro Forma Adjustments | | Pro Forma | |
| | | | | | | |
ASSETS | | | | | | | |
| | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 28,915,127 | | $ | 1,785,000 | (a) | $ | 30,700,127 | |
Short-term investments | | 51,058,685 | | — | | 51,058,685 | |
Accounts receivable, net | | 9,824,667 | | (334,819 | )(b) | 9,489,848 | |
Inventories, net | | 2,664,768 | | (845,217 | )(b) | 1,819,551 | |
Prepaid and other current assets | | 2,073,601 | | (19,237 | )(c) | 2,054,364 | |
| | | | | | | |
Total current assets | | 94,536,848 | | 585,727 | | 95,122,575 | |
| | | | | | | |
Property and equipment, net | | 9,105,681 | | (126,243 | )(c) | 8,979,438 | |
| | | | | | | |
Restricted cash | | 1,165,238 | | — | | 1,165,238 | |
| | | | | | | |
Prepaid royalty | | 4,224,252 | | — | | 4,224,252 | |
| | | | | | | |
Patent and license rights, net | | 1,130,830 | | (345,833 | )(d) | 784,997 | |
| | | | | | | |
Other assets, net | | 176,561 | | — | | 176,561 | |
| | | | | | | |
Total assets | | $ | 110,339,410 | | $ | 113,651 | | $ | 110,453,061 | |
| | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | |
| | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable & accrued expenses | | 2,563,569 | | (89,683 | )(e) | 2,473,886 | |
Accrued compensation | | 1,827,581 | | — | | 1,827,581 | |
Restructuring accrual | | 147,660 | | — | | 147,660 | |
Obligations under capital leases, less non-current portion | | 104,313 | | — | | 104,313 | |
Deferred revenue | | 2,615,630 | | (10,000 | )(f) | 2,605,630 | |
| | | | | | | |
Total current liabilities | | 7,258,753 | | (99,683 | ) | 7,159,070 | |
| | | | | | | |
Obligations under capital leases, less current portion | | 116,344 | | — | | 116,344 | |
| | | | | | | |
Deferred rent | | 294,430 | | — | | 294,430 | |
| | | | | | | |
Stockholders’ equity: | | | | | | | |
Common stock | | 26,191 | | — | | 26,191 | |
Common stock issuable | | 2,848,600 | | (201,700 | )(g) | 2,646,900 | |
Treasury Stock | | (916,913 | ) | — | | (916,913 | ) |
Additional paid-in capital | | 208,144,801 | | — | | 208,144,801 | |
Deferred compensation | | (1,873,952 | ) | 201,700 | (g) | (1,672,252 | ) |
Accumulated other comprehensive income | | 86,177 | | — | | 86,177 | |
Accumulated deficit | | (105,645,021 | ) | 213,334 | (h) | (105,431,687 | ) |
| | | | | | | |
Total stockholders’ equity | | 102,669,883 | | 213,334 | | 102,883,217 | |
| | | | | | | |
Total liabilities and stockholders’ equity | | $ | 110,339,410 | | $ | 113,651 | | $ | 110,453,061 | |
Pro forma adjustments to the consolidated balance sheet relate to the sale of certain assets and related liabilities to
Nexus Biosystems (formerly IRORI Discovery):
(a) Cash paid for net assets of $1.5M plus an estimated additional $285,000 of cash consideration related to a purchase price adjustment.
(b) Represents accounts receivable and inventories related to the Discovery Systems business.
(c ) Represents prepaid balances and fixed assets related to the Discovery Systems business.
(d) Represents capitalized patent costs related to the product lines of the Discovery Systems business.
(e) Represents accounts payable, accrued liabilities and warranty obligations related to the Discovery Systems business offset by an accrual of $150,000 of estimated costs directly related to the sale transaction.
(f) Represents unearned revenues related to product lines of the Discovery Systems business.
(g) Represents deferred compensation related to unvested rights to purchase common stock of a terminated employee of the Discovery Systems business.
(h) Represents the estimated gain on the sale of the net assets of the Discovery Systems business.
The following table reconciles the accumulated deficit as originally reported as of June 30, 2005 for Discovery Partners
International to the pro forma accumulated deficit:
Accumulated Deficit Reconciliation
Accumulated Deficit as reported at June 30, 2005 | | | | $ | (105,645,021 | ) |
Disposition of Discovery Systems business: | | | | | |
Cash consideration (inclusive of estimated working capital adjustment) | | 1,785,000 | | | |
Less assets sold net of liabilities assumed by buyer | | (1,421,666 | ) | | |
Less estimated expenses related to sale | | (150,000 | ) | | |
Net gain on sale of Discovery Systems business | | | | 213,334 | |
Pro forma Accumulated Deficit as of June 30, 2005 | | | | $ | (105,431,687 | ) |
Discovery Partners International, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Six Months Ended June 30, 2005
| | Consolidated | | Pro Forma
Adjustments | | Pro forma | |
| | | | | | | |
Revenues | | $ | 18,429,124 | | $ | (691,793 | )(j) | $ | 17,737,331 | |
| | | | | | | |
Cost of revenues | | 13,074,431 | | (463,387 | )(j) | 12,611,044 | |
| | | | | | | |
Gross margin | | 5,354,693 | | (228,406 | ) | 5,126,287 | |
| | | | | | | |
Operating expenses: | | | | | | | |
| | | | | | | |
Research and development | | 2,856,191 | | (958,201 | )(k) | 1,897,990 | |
| | | | | | | |
Selling, general & administrative | | 7,670,419 | | (324,724 | )(l) | 7,345,695 | |
| | | | | | | |
Restructuring | | 129,672 | | — | | 129,672 | |
| | | | | | | |
Amortization of stock-based compensation | | 598,346 | | (34,640 | )(m) | 563,706 | |
| | | | | | | |
Impairment of goodwill and other intangibles | | 1,000,000 | | — | | 1,000,000 | |
| | | | | | | |
Total operating expenses | | 12,254,628 | | (1,317,565 | ) | 10,937,063 | |
| | | | | | | |
Income (loss) from operations | | (6,899,935 | ) | 1,089,159 | | (5,810,776 | ) |
| | | | | | | |
Interest income | | 877,992 | | — | | 877,992 | |
Other income, net | | 58,257 | | — | | 58,257 | |
Foreign currency gains | | 50,314 | | — | | 50,314 | |
| | | | | | | |
Income (loss) from operations before income taxes | | (5,913,372 | ) | 1,089,159 | | (4,824,213 | ) |
| | | | | | | |
Income tax | | 3,094 | | — | | 3,094 | |
| | | | | | | |
Net income (loss) | | $ | (5,916,466 | ) | $ | 1,089,159 | | $ | (4,827,307 | ) |
Net income (loss) per share, basic and diluted | | $ | (0.23 | ) | | | $ | (0.19 | ) |
Weighted average shares outstanding, basic and diluted | | 25,847,616 | | | | 25,847,616 | |
Discovery Partners International, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2004
| | Consolidated | | Pro Forma
Adjustments | | Pro forma | |
| | | | | | | |
Revenues | | $ | 51,564,048 | | $ | (7,284,832 | )(i) | $ | 44,279,216 | |
| | | | | | | |
Cost of revenues | | 29,439,096 | | (4,012,170 | )(i) | 25,426,926 | |
| | | | | | | |
Gross margin | | 22,124,952 | | (3,272,662 | ) | 18,852,290 | |
| | | | | | | |
Operating expenses: | | | | | | | |
| | | | | | | |
Research and development | | 4,304,835 | | (2,281,678 | )(j) | 2,023,157 | |
| | | | | | | |
Selling, general & administrative | | 14,103,569 | | (517,890 | )(k) | 13,585,679 | |
| | | | | | | |
Amortization of stock-based compensation | | 1,001,489 | | (50,121 | )(l) | 951,368 | |
| | | | | | | |
Total operating expenses | | 19,409,893 | | (2,849,689 | ) | 16,560,204 | |
| | | | | | | |
Income (loss) from operations | | 2,715,059 | | (422,973 | ) | 2,292,086 | |
| | | | | | | |
Interest income | | 1,424,860 | | — | | 1,424,860 | |
Interest expense | | (6,136 | ) | — | | (6,136 | ) |
Other income, net | | 89,219 | | — | | 89,219 | |
Foreign currency losses | | (264,646 | ) | — | | (264,646 | ) |
| | | | | | | |
Income (loss) from operations before income taxes | | 3,958,356 | | (422,973 | ) | 3,535,383 | |
| | | | | | | |
Income tax | | 55,584 | | — | | 55,584 | |
| | | | | | | |
Net income (loss) | | $ | 3,902,772 | | $ | (422,973 | ) | $ | 3,479,799 | |
Net income per share, basic | | $ | 0.15 | | | | $ | 0.14 | |
Weighted average shares outstanding, basic | | 25,318,937 | | | | 25,318,937 | |
Net income per share, diluted | | $ | 0.15 | | | | $ | 0.13 | |
Weighted average shares outstanding, diluted | | 26,271,625 | | | | 26,271,625 | |
Pro forma adjustments to the statement of operations related to the sale of certain assets and related liabilities to Nexus
Biosystems (formerly IRORI Discovery):
(i) Represents direct revenues and cost of sales related to the Discovery Systems business.
(j) Represents direct cost of research and development activities on behalf of the Discovery Systems business.
(k) Represents direct selling, general and administrative expenses related to the Discovery Systems business.
(l) Represents stock compensation costs related to an employee of the Discovery Systems business.
