To: scaram(o)uche who wrote (235 ) 4/17/2004 12:39:17 PM From: scaram(o)uche Respond to of 2355 Prolexys, last 10-K.....(9) Investment in Myriad Proteomics, Inc. In April 2001, the Company contributed technology to Myriad Proteomics, Inc. (Proteomics) in exchange for a 49% ownership interest and investors contributed a combined $82 million in cash in exchange for the remaining 51% ownership in Proteomics. The Company accounts for its investment in Proteomics using the equity method. Because the Company’s initial investment in Proteomics consisted of technology with a carrying value of $0 on the Company’s consolidated financial statements, and given the uncertainty of the realizability of the difference between the $82 million carrying amount and the Company’s proportionate share of the net assets of Proteomics, the Company’s initial investment in Proteomics was recorded as $0. The Company allocated $41 million of this difference to technology and this amount is being reduced as the related technology charges, including in-process research and development, are incurred at Proteomics. At June 30, 2003, the remaining technology basis difference is estimated to be $14 million. The remaining $41 million of unallocated basis difference is being accreted to income, offset by the Company’s share of Proteomics’ losses, over the period of expected benefit of 15 years. As part of the formation of Proteomics, the Company entered into administrative and scientific outsourcing agreements with Proteomics. The original terms of these agreements expired on December 31, 2001, but were extended until June 30, 2002 and again to June 30, 2003 at the option of Proteomics. Charges to Proteomics for services incurred related to the administrative and scientific outsourcing agreements are based on actual time and expenses incurred by the Company on behalf of Proteomics. During the years ended June 30, 2003 and 2002, the Company provided $2.0 million and $6.3 million, respectively, of administrative and scientific services to Proteomics. As of June 30, 2003, the Company has received all but $150,000 of payments from Proteomics for these outsourcing services, which are shown as related party receivables in the accompanying consolidated balance sheets. Summarized balance sheet information as of June 30, 2003 and 2002 for Proteomics is as follows: (In thousands) 2003 -------------------------------------------------------------------------------- 2002 -------------------------------------------------------------------------------- (Unaudited) Current assets $ 37,785 50,703 Noncurrent assets 58,897 62,301 Current liabilities 2,821 2,783 Noncurrent liabilities 19,169 18,575 Stockholders’ equity 74,692 91,646 Summarized statement of operations information for Proteomics for the years ended June 30, 2003, 2002, and 2001 is as follows: (In thousands) 2003 -------------------------------------------------------------------------------- 2002 -------------------------------------------------------------------------------- 2001 -------------------------------------------------------------------------------- (Unaudited) Total revenues $ 150 — — In-process research and development — — 46,316 Other operating costs and expenses 23,155 28,478 3,068 Net loss 19,756 24,288 48,205