<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[_] 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: 0-25317
INVITROGEN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0373077
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1600 FARADAY AVENUE, CARLSBAD, CA 92008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 760-603-7200
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ].
As of July 27, 1999 there were 13,431,450 shares of Common Stock outstanding.
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
ASSETS (UNAUDITED) (AUDITED)
------------------- -------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................................................... $ 36,094 $ 1,797
Short-term investments........................................................ 2,439 4,214
Accounts receivable, net of allowance for doubtful accounts of $122 and $124.. 3,966 3,189
Note receivable officer....................................................... 150 150
Inventories................................................................... 2,823 2,848
Deferred income taxes......................................................... 595 611
Prepaid expenses and other current assets..................................... 1,539 1,194
------------------- -------------------
Total current assets........................................................ 47,606 14,003
Property and Equipment, net...................................................... 7,182 7,090
Intangible Assets, net........................................................... 3,192 1,319
Other Assets..................................................................... 171 403
------------------- -------------------
Total assets................................................................ $ 58,151 $ 22,815
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long term obligations...................................... $ 438 $ 54
Accounts payable.............................................................. 1,742 2,257
Accrued expenses.............................................................. 1,697 1,378
Income taxes payable.......................................................... 631 718
------------------- -------------------
Total current liabilities................................................... 4,508 4,407
------------------- -------------------
Obligations under capital leases, less current portion........................... 64 83
------------------- -------------------
Note payable..................................................................... 600 -
------------------- -------------------
Non-voting Redeemable Common Stock of Invitrogen B.V; Subsidiary common stock,
18,000 shares authorized; no shares issued or outstanding on June 30, 1999
and 18,000 shares issued and outstanding on December 31, 1998................. - 1,599
------------------- -------------------
Convertible Redeemable Preferred stock, $0.01 par value; 4,202,942 shares
authorized; no shares issued or outstanding on June 30, 1999
and 2,202,942 shares issued and outstanding on December 31, 1998.............. - 16,141
------------------- -------------------
Stockholders' Equity:
Common stock; $0.01 par value, 50,000,000 shares authorized; 13,430,650 and
7,421,268 shares issued and outstanding at June 30,
1999 and December 31, 1998, respectively...................................... 134 74
Additional paid-in-capital....................................................... 51,081 1,598
Deferred compensation............................................................ (766) (962)
Value of common stock designated pursuant to Employee Stock Ownership
Plan.......................................................................... - 100
Foreign currency translation adjustment.......................................... (191) (33)
Retained earnings (deficit)...................................................... 2,721 (192)
------------------- -------------------
Total stockholders' equity.................................................. 52,979 585
------------------- -------------------
Total liabilities and stockholders' equity.................................. $ 58,151 $ 22,815
=================== ===================
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
2
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................................................... $ 10,287 $ 7,719 $ 19,888 $ 14,873
Cost of Revenues....................................................... 2,547 2,164 5,087 4,065
--------- --------- --------- ---------
Gross margin........................................................ 7,740 5,555 14,801 10,808
Operating Expenses:
Sales and marketing.................................................. 1,905 1,820 3,878 3,438
General and administrative........................................... 1,212 982 2,498 2,098
Research and development............................................. 2,055 1,851 3,963 3,306
--------- --------- --------- ---------
Total operating expenses.......................................... 5,172 4,653 10,339 8,842
--------- --------- --------- ---------
Income from operations.......................................... 2,568 902 4,462 1,966
---------- ---------- ---------- ----------
Other Income (Expense):
Gain (loss) on foreign currency transactions......................... (149) (52) (206) 3
Interest and other expense........................................... (5) (8) (13) (18)
Interest and other income............................................ 407 63 602 184
--------- --------- --------- ---------
253 3 383 169
---------- ---------- ---------- ----------
Income before provision for income taxes............................... 2,821 905 4,845 2,135
Provision for income taxes............................................. 984 322 1,696 761
--------- --------- --------- ---------
Net income............................................................. 1,837 583 3,149 1,374
Less: Preferred stock dividends.................................... - (225) (163) (450)
Accretion of non-voting redeemable common stock............ (18) (50) (74) (98)
Adjustment to beneficial conversion feature related to
convertible preferred stock................................. - - 985 -
--------- --------- --------- ---------
Income available to common stockholders......................... $ 1,819 $ 308 $ 3,897 $ 826
========== ========== ========= =========
Earnings per share:
Basic................................................................ $ 0.14 $ 0.03 $ 0.32 $ 0.09
========== ========= ========= =========
Diluted.............................................................. $ 0.12 $ 0.03 $ 0.27 $ 0.08
========== ========= ========= =========
Weighted average shares used in per share calculation:
Basic................................................................ 13,333 9,635 12,116 9,632
Diluted.............................................................. 15,596 11,074 14,230 10,996
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $ 3,149 $ 1,374
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.......................................... 754 415
Amortization of deferred compensation.................................. 202 108
Employee stock ownership plan contribution............................. - 50
Deferred income taxes.................................................. 11 (151)
Changes in operating assets and liabilities:
Accounts receivable................................................... (936) (865)
Inventories........................................................... (44) (285)
Prepaid expenses and other current assets............................. (429) (908)
Other assets.......................................................... 16 (43)
Accounts payable...................................................... (440) 1,230
Accrued expenses...................................................... 359 (3)
Income taxes payable.................................................. (67) 233
------------------ ------------------
Net cash provided by operating activities.......................... 2,575 1,155
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in short term investments....................................... 1,776 (658)
Purchases of property and equipment.................................... (1,042) (3,231)
Payments for intangible assets......................................... (974) (260)
------------------ ------------------
Net cash used in investing activities.............................. (240) (4,149)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from line of credit, net...................................... - 76
Principal payments on capital lease obligations........................ (36) (64)
Redemption of preferred and common stock and payment of accrued
dividends............................................................ (17,060) -
Proceeds from sale of common stock..................................... 48,902 2
------------------ ------------------
Net cash provided by financing activities.......................... 31,806 14
Effect of exchange rate changes on cash................................ 156 (13)
------------------ ------------------
Net increase (decrease) in cash and cash equivalents................... 34,297 (2,993)
Cash and cash equivalents, beginning of period......................... 1,797 5,375
------------------ ------------------
Cash and cash equivalents, end of period............................... $ 36,094 $ 2,382
================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes............................................. $ 907 $ 630
================== ==================
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Convertible Redeemable Preferred Stock into Redeemable
Preferred Stock...................................................... $ 14,015 $ -
================== ==================
Conversion of Redeemable Preferred Stock into Common Stock............. $ 751 $ -
================== ==================
Adjustment to beneficial conversion feature related to Convertible
Redeemable Preferred Stock........................................... $ 985 $ -
================== ==================
Note issued for patent rights.......................................... $ 1,000 $ -
================== ==================
Preferred dividends declared........................................... $ 163 $ 450
================== ==================
Contribution of common stock to ESOP................................... $ 100 $ -
================== ==================
Accretion of redemption value for Redeemable Common Stock.............. $ 74 $ 98
================== ==================
Deferred compensation.................................................. $ - $ 563
================== ==================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
The consolidated financial statements include the accounts of Invitrogen
Corporation and its 100% controlled subsidiaries, Invitrogen B.V. and Invitrogen
Export Company, Ltd. All significant intercompany accounts and transactions have
been eliminated in consolidation. The interim financial statements have been
prepared by Invitrogen, without audit, according to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, the
accompanying unaudited financial statements contain all adjustments, which
include only normal recurring adjustments, necessary to state fairly the
financial position, results of operations and cash flows as of and for the
periods indicated.
It is suggested that these financial statements be read in conjunction with the
audited financial statements and the notes thereto included in the Prospectus,
as amended, filed with the Securities and Exchange Commission on February 26,
1999.
1. INVENTORIES
Inventories include material, labor and overhead costs and consist of the
following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(IN THOUSANDS) 1999 1998
------------------ ------------------
<S> <C> <C>
Raw materials and components......................... $ 544 $ 574
Work in process...................................... 573 636
Finished goods....................................... 1,706 1,638
------------------ ------------------
$ 2,823 $ 2,848
================== ==================
</TABLE>
2. ACCUMULATED DEPRECIATION AND AMORTIZATION
Accumulated depreciation and amortization of property, plant and equipment was
$4.3 million and $3.7 million at June 30, 1999 and December 31, 1998,
respectively. Accumulated amortization of intangible assets was $.4 million and
$.3 million at June 30, 1999 and December 31, 1998, respectively.
3. INITIAL PUBLIC OFFERING, CONVERSION AND REDEMPTION OF PREFERRED STOCK
In February 1999, the Company completed its initial public offering and issued
3,525,000 newly issued shares of its Common Stock at a price of $15.00 per
share. The Company received $48.2 million in cash, net of underwriting
discounts, commissions and other offering costs.
Simultaneously with the closing of the initial public offering, each of the
2,202,942 outstanding shares of Series A Cumulative Convertible Preferred Stock
was automatically converted into 2,202,942 shares of Common Stock and 2,202,942
shares of Series A Redeemable Preferred Stock (RPS). At the closing of the IPO,
the RPS was redeemed for $14,015,000 and accumulated dividends on the Series A
Cumulative Convertible Preferred Stock of $1,538,000 were paid. In 1997, when
the stock was issued, a charge to equity of $15 million was recorded to reflect
the beneficial conversion feature of the convertible preferred stock. Upon
determination of the final redemption price of $14,015,000 at the IPO a credit
to equity of $985,000 was recorded which has been reported as an adjustment to
Income Available to Common Stockholders in the income statement for the quarter
ended March 31, 1999.
5
<PAGE>
4. EARNINGS PER SHARE
Earnings per share is calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
INCOME SHARES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
------------------- ------------------- -------------------
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders..................... $ 1,819 13,333 $ 0.14
Stock options............................................... - 2,263 -
------------------- ------------------- -------------------
Diluted EPS:
Income available to common stockholders plus assumed
conversions.............................................. $ 1,819 15,596 $ 0.12
=================== =================== ===================
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
INCOME SHARES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
------------------- ------------------- -------------------
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders..................... $ 308 9,635 $ 0.03
Stock options............................................... - 1,439 -
------------------- ------------------- -------------------
Diluted EPS:
Income available to common stockholders plus assumed
conversions.............................................. $ 308 11,074 $ 0.03
=================== =================== ===================
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
INCOME SHARES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
------------------- ------------------- -------------------
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders..................... $ 3,897 12,116 $ 0.32
Stock options............................................... - 2,114 -
------------------- ------------------- -------------------
Diluted EPS:
Income available to common stockholders plus assumed
conversions.............................................. $ 3,897 14,230 $ 0.27
=================== =================== ===================
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
INCOME SHARES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
------------------- ------------------- -------------------
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders..................... $ 826 9,632 $ 0.09
Stock options............................................... - 1,364 -
------------------- ------------------- -------------------
Diluted EPS:
Income available to common stockholders plus assumed
conversions.............................................. $ 826 10,996 $ 0.08
=================== =================== ===================
</TABLE>
In accordance with SAB Topic 4D, the Company considers any common stock issuable
upon the occurrence of an IPO for little or no consideration as a nominal
issuance. In accordance with the above bulletin, the Company has considered
2,202,942 common shares issuable in connection with the conversion of
convertible preferred stock to be a nominal issuance and outstanding for all
periods since the original issuance of the underlying security until the
conversion into common stock upon the IPO in February 1999.
6
<PAGE>
5. COMPREHENSIVE INCOME
Total comprehensive income is determined as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(IN THOUSANDS) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income............................................................. $ 1,837 $ 583 $ 3,149 $ 1,374
Foreign currency translation adjustments............................... 48 97 (158) 67
--------- --------- ---------- ---------
Total comprehensive income........................................... $ 1,885 $ 680 $ 2,991 $ 1,441
========== ========= ========= =========
</TABLE>
6. SUBSEQUENT EVENT
In June 1999 the Company signed a definitive agreement to acquire NOVEX, a
privately held U.S. company that supplies pre-cast electrophoresis gels and
related instruments to molecular biology customers in the U.S. and Europe. The
Company will issue approximately 2.5 million shares of common stock for all of
the outstanding common stock of NOVEX and assume the outstanding options of
NOVEX which will be converted into options to purchase approximately 500,000
shares of common stock of the Company. The transaction is intended to be
accounted for as a pooling of interests and qualified as a tax-free exchange.
Consummation of the transaction is subject to usual and customary closing
conditions and approvals, including the approval of both companies'
stockholders, and is expected to close in August 1999. Costs incurred as a
result of the merger and the related integration are expected to be
approximately $2.8 million and are subject to change. These costs will be
expensed after the merger is completed.
7
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Invitrogen is engaged primarily in the development, manufacturing and marketing
of research kits used to conduct molecular biology research. Substantially all
of our revenue to date has come from the sale of research kits and related
products used by a variety of scientific researchers to conduct gene cloning,
expression and analysis experiments. Our research kits are sold primarily in the
United States, Europe and Japan. Our products are used for research purposes and
their use is not regulated by the United States Food and Drug Administration or
by any comparable international organization.
We manufacture the majority of our research kits in our manufacturing facility
in Carlsbad, California. In addition, we maintain selected arrangements with
third party manufacturers.
The majority of our sales activities are conducted through a dedicated direct
sales organization located in the United States and Europe. We also conduct
marketing and distribution activities at our facility in the United States and
at a facility we own in the Netherlands. A small proportion of our sales are to
international distributors who resell Invitrogen kits to researchers. These
distributors are located in selected territories in Europe, as well as in Japan
and other territories in Asia. We currently have no plans to establish a direct
sales force in these territories, although we may choose in the future to
establish a direct sales organization in additional territories.
We conduct research activities in the United States and business development
activities in the United States and Europe. As part of these activities we
actively seek to license intellectual property from academic, government and
commercial institutions relating to gene cloning, expression and analysis
technologies. To date, Invitrogen has obtained over 80 licenses, which provide
us with access to over 200 patents covering gene cloning, expression and
analysis materials and techniques.
In June 1998, we began using our high-throughput cloning and expression
technologies, which we market under the name Invitrogenomics. We will provide
licenses to our full-length clones to corporate development partners, as well as
sell selected clones as part of new research kits. In addition, we will use our
Invitrogenomics technology to provide large-scale, high-throughput gene cloning
and expression services to corporate customers. Invitrogenomics products and
services have generated limited revenues to date.
Our revenues have increased significantly since our inception, and from 1995 to
1998, Invitrogen has experienced compound annual revenue growth of 28%. The
increase in our revenues has been due to several factors, including the
continued growth of the market for gene cloning and expression kits, increasing
market acceptance of our gene cloning and expression kits, our introduction of
new research kits for gene cloning, expression and analysis, and the expansion
of our direct sales and marketing efforts. We plan to continue to introduce new
research kits, as we believe continued new product development and rapid product
introduction is a critical competitive factor in the market for molecular
biology research kits. In order to support increased levels of sales and to
augment our long-term competitive position, we anticipate that we will continue
to increase expenditures in sales and marketing, manufacturing and research and
development.
We currently manufacture products for inventory and ship products shortly after
the receipt of orders, and anticipate that we will do so in the future.
Accordingly, we have not developed a significant backlog and do not anticipate
we will develop a material backlog in the future.
Invitrogen has acquired a significant number of patent rights from third parties
as part of its business activities. These patent rights are used as a basis for
the development of our research kits and the Invitrogenomics technologies. We
have historically paid and are obligated to pay in the future to such third
parties royalties relating to sales of some of our research kits and selected
services. Royalty expense is recognized as a cost of revenue as the related
royalties are incurred.
We anticipate that our results of operations may fluctuate from quarter to
quarter and will be difficult to predict. The timing and degree of fluctuation
will depend upon several factors, including:
- - Changes in customer research budgets which are influenced by the
timing of their research and commercialization efforts and their
receipt of government grants
- - Competitive product introductions
- - Our ability to successfully introduce or transition the market to new
products
- - Market acceptance of existing or new products
- - Our ability to manufacture our products efficiently
8
<PAGE>
- - Our ability to control or adjust research and development, marketing,
sales and general and administrative expenses in response to changes
in revenues
In addition, our results of operations could be affected by the timing of orders
from distributors and the mix of sales among distributors and our direct sales
force. Although we have experienced growth in recent years, there can be no
assurance that, in the future, we will sustain revenue growth or remain
profitable on a quarterly or annual basis or that our growth will be consistent
with predictions made by securities analysts. Additionally, quarter to quarter
comparisons of operating results are not necessarily indicative of future
results.
RESULTS OF OPERATIONS
REVENUES
Revenues for the quarter ended June 30 increased $2.6 million, or 33%, from $7.7
million in 1998 to $10.3 million for 1999. For these same periods, revenues in
the United States increased $1.8 million, or 35%, from $5.1 million to $6.9
million, and revenues outside of the United States increased $.8 million, or
29%, from $2.6 million to $3.4 million.
For the six months ended June 30, revenues increased $5 million, or 34%, from
$14.9 million in 1998 to $19.9 million in 1999. Revenues in the United States
increased $3.5 million, or 36%, from $9.7 million in 1998 to $13.1 million in
1999 and revenues outside of the United States increased $1.5 million, or 30%,
from $5.2 million in 1998 to $6.7 million in 1999.
The overall increase in revenues was primarily attributable to continued market
growth for gene cloning and expression kits and increased market penetration of
Invitrogen's gene cloning and gene expression product lines. We expect that
future revenues will be affected by new product introductions, competitive
conditions, customer research budgets, and the rate of expansion of our customer
base.
GROSS MARGIN
Gross margins as a percentage of revenues for the quarter ended June 30, 1999
increased to 75% from 72% reported for the same period in 1998. This improvement
resulted from general price increases, higher grant revenue and lower shipping
costs. Also contributing to higher gross margins is the absence of royalty
expense on our TA Cloning(R) products which was discontinued this quarter upon
our acquisition of sole ownership of the patents that cover the technologies
used in these products. The acquisition gives Invitrogen exclusive worldwide
royalty-free rights as the sole assignee through 2013, the life of the patents.
On a year-to-date basis, gross margins increased from 72.7% in 1998 to 74.4% in
1999. The increase resulted from the improvements during the second quarter
discussed above.
We believe that gross margin for future periods could be affected by sale
volumes, competitive conditions, royalty payments on licensed technologies, and
foreign exchange factors. Foreign currency fluctuations had a negligible impact
during both periods. The functional currency of Invitrogen B.V. is the
Netherlands Guilder (NLG). The translation from Guilders to Dollars for revenue
and expenses is based on the average exchange rate during the period; large
increases or decreases in the spread between currencies have affected and may
continue to affect gross margin and reported income. Invitrogen B.V. conducts
its European business in the currencies of its significant customers. Exchange
gains or losses arising from transactions denominated in these currencies are
recorded using the actual exchange differences on the date of the transaction.
Large increases or decreases in these currency fluctuations could also impact
gross margin and reported profits.
SALES AND MARKETING
Sales and marketing expenses increased $.1 million from $1.8 million for the
second quarter in 1998 to $1.9 million in 1999. As a percentage of revenues,
sales and marketing expenses decreased from 24% to 19% for these periods as our
revenue growth continued to outpace spending for sales and marketing.
For the six month period, sales and marketing expenses increased $.5 million
from $3.4 million in 1998 to 3.9 million in 1999 and as a percentage of sales
declined from 23% in 1998 to 20% in 1999.
We anticipate that sales and marketing will comprise 22% to 23% of revenues over
the next few years as we continue the expansion of our field sales forces in
both the United States and Europe.
9
<PAGE>
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the second quarter increased $.2 million
from $1 million in 1998 to $1.2 million in 1999. As a percentage of revenues for
the same periods, general and administrative expenses decreased from 13% to 12%.
On a year-to-date basis, general and administrative expenses increased $.4
million from $2.1 million, or 14% of revenues, in 1998 to $2.5 million, or 13%
of revenues in 1999
The absolute increase resulted from the continued expansion of administrative
resources to support our growth and requirements as a newly public company. The
decline as a percentage of revenues occurred as a fixed portion of our general
and administrative expenses was spread over a larger revenue base. We expect our
aggregate general and administrative expenses for the remainder of 1999 to be
consistent with that of the first half of 1999.
RESEARCH AND DEVELOPMENT
Research and development expenses increased $.2 million from $1.9 million for
the second quarter in 1998 to $2.1 million in 1999. As a percentage of revenues,
research and development expenses decreased from 24% in 1998 to 20% in 1999.
For the first half of 1999, research and development expenses increased $.7
million to $4 million, or 20% of revenues, from $3.3 million for the same period
in 1998, or 22% of revenues.
We believe that our research and development expenditures as a percentage of
revenues will gradually decline to approximately 15% of revenues over the next
few years. There can be no assurance that our research and development efforts
will produce products or services that achieve market acceptance or that produce
acceptable margins.
OTHER INCOME (EXPENSE)
Other income and expense, on a net basis, increased $.3 million for the second
quarter in 1999 from 1998. The increase was mainly attributable to higher
interest and other income, resulting primarily from the larger balances of cash
and investments during the period.
On a year-to-date basis, higher interest income of $.4 million in 1999 compared
to 1998 was offset by $.2 million in higher foreign currency transaction costs.
PROVISION FOR INCOME TAXES
Our effective tax rate decreased slightly from 36% for the three and six months
ended June 30, 1998 to 35% for the same periods in 1999. We currently receive
tax credits on certain R&D expenditures; in the past, these tax credits have
been authorized by the U.S. Congress on a year by year basis and we have no
assurance they will be available in future years. Assuming that the U.S.
Congress renews the R&D tax credit legislation, we anticipate that our effective
rate for 1999 will be approximately 35%.
LIQUIDITY AND CAPITAL RESOURCES
Net cash from operating activities generated $2.6 million during the first half
of 1999. Net cash generated from financing activities totaled $31.8 million and
represents $48.9 million in net proceeds from the sale of common stock offset by
$17.1 million used to redeem preferred and non-voting common stock and pay
accrued dividends. Capital expenditures and payments for intangible assets for
the first six months of 1999 each totaled $1.0 million.
Our subsidiary, Invitrogen B.V., previously issued shares of non-voting
redeemable common stock which were redeemed in April 1999 for $1.5 million.
In June 1999 the Company signed a definitive agreement to acquire NOVEX, a
privately held U.S. company, and, upon shareholder approval, expects to issue
approximately 2.5 million shares of common stock for all of the outstanding
common stock of NOVEX and assume the outstanding options of NOVEX which will be
converted into options to purchase approximately 500,000 shares of common stock
of the Company. The transaction is expected to close in August 1999. Costs
incurred as a result of the merger and the related integration are expected to
be approximately $2.8 million.
As of June 30, 1999 we had cash, cash equivalents and short-term investments of
totaling $38.5 million and working capital of $43.1 million. We have an
available bank line of credit facility totaling $3 million that expires
September 30, 1999, of which none was utilized at June 30, 1999. Our funds are
currently invested in U.S. Treasury and government agency obligations,
investment-grade commercial paper and interest and dividend-bearing securities.
10
<PAGE>
We expect that our cash, cash equivalents, short term investments, funds from
operations and interest income earned thereon, will be sufficient to fund our
operations for at least two years. Our future capital requirements and the
adequacy of our available funds will depend on many factors, including
scientific progress in our research and development programs, the magnitude of
those programs, our ability to establish collaborative and licensing
arrangements, the cost involved in preparing, filing, prosecuting, maintaining
and enforcing patent claims, competing technological and market developments and
future business acquisitions.
CURRENCY HEDGING AND FOREIGN CURRENCY TRANSLATION
In the normal course of business, Invitrogen B.V. from time to time purchases
exchange-traded put options on U.S. Dollars and U.K. Pounds sterling to mitigate
foreign currency exposure. At June 30, 1999 outstanding options totaled $.8
million and mature on various dates through December 1999.
Invitrogen conducts business transactions with its subsidiary in the Netherlands
and with its foreign distributors, including those in Asia, in U.S. Dollars. The
functional currency for Invitrogen B.V. is the Netherlands Guilder (NLG). The
translation from NLG to the U.S. Dollar is translated for balance sheet accounts
using the current exchange rate in effect at the balance sheet date and for
revenues and expense accounts using the average exchange rate during the period.
The effects of translation are recorded as a separate component of stockholder's
equity. Invitrogen B.V. conducts its business with significant customers in
their local European currencies; exchange gains and losses arising from these
transactions are recorded using the actual exchange differences on the date of
the transaction.
YEAR 2000 EFFECT ON COMPUTER SYSTEMS
Many currently installed computer systems are not capable of distinguishing 21st
century dates from 20th century dates. As a result, in less than one year,
computer systems and/or software used by many companies in a very wide variety
of applications will experience operating difficulties unless they are modified
or upgraded to adequately process information involving, related to or dependent
upon the century change. Some businesses may be financially affected by such
computer problems.
We believe our existing manufacturing, financial and accounting systems will be
year 2000 compliant, meaning that they will be capable of distinguishing 21st
century dates from 20th century dates. We are in the process of replacing our
existing computer system with a new system that will also be year 2000 compliant
and expect to complete implementation of the new system in the first half of
2000.
We are in the process of testing our other internal systems, including embedded
control systems in our manufacturing and storage equipment. We currently believe
these systems are year 2000 compliant. We have made inquiries of our suppliers
to attempt to assess their readiness for the year 2000. The failure of systems
maintained by our customers, distributors, and suppliers could reduce our
revenues, cause us to incur significant expenses to remedy any problems, or
otherwise seriously damage our business.
To date we have spent immaterial amounts to comply with accounting and statutory
requirements regarding the year 2000. We believe that we will spend minimal
additional amounts for year 2000 issues in the foreseeable future.
These assessments have not been independently verified.
If we discover year 2000 errors or defects in our internal systems, we may have
to spend substantial amounts in making repairs. These errors may result in the
temporary failure of our manufacturing, accounting and financial systems, which
in turn would delay the taking and processing of orders for perhaps 3-5 days. In
case of such errors we plan to rely upon our current computer systems which we
will maintain as a backup system after our new system is installed.
ISSUES RELATED TO THE EUROPEAN MONETARY CONVERSION
On January 1, 1999, certain member states of the European Economic Community,
including the Netherlands, fixed their respective currencies to a new currency,
the Euro. On that day, the Euro became a functional legal currency within these
countries. During the three years beginning on January 1, 1999, business in
these EEC member states will be conducted in both the existing national
currency, such as the Netherlands Guilder, French Franc or Deutsche Mark, and
the Euro. Businesses will be required to complete transition to the Euro and
begin reporting and conducting their transactions in the Euro by January 1,
2002. On July 1, 2002 the existing national currencies will be withdrawn and
will no longer be considered legal tender.
Companies operating in or conducting business in EEC member states will need to
ensure that their financial and other software systems are capable of processing
transactions and properly handling the existing currencies, as well as the Euro.
We are still assessing the impact that the Euro will have on our internal
systems and products. While we believe our enterprise-wide financial and
manufacturing information systems will be Euro compliant, we have not tested
these systems. We have not
11
<PAGE>
determined the costs related to any problems that may arise in the future. Any
such problems may materially adversely affect our business, operating results
and financial condition.
FORWARD-LOOKING STATEMENTS
The Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, such as statements relating to trends
in revenues, expenses and net income, and are therefore prospective. You can
identify these statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate," "project," and "continue" or
similar words. You should read statements that contain these words carefully
because they:
- - Discuss our future expectations
- - Contain projections of our future results of operations or of our
financial condition
- - State other "forward-looking" information
Such forward-looking statements are subject to a number of risks, uncertainties
and other factors that could cause actual results to differ materially from
future results expressed or implied by such forward-looking statements.
Potential risks and uncertainties include, but are not limited to, those listed
below under "Risks Factors That May Affect Future Results" as well as other
risks and uncertainties detailed in our Registration Statement, as amended,
filed with the Securities and Exchange Commission on July 16, 1999.
The above Management's Discussion and Analysis should be read in conjunction
with the consolidated financial statements and notes thereto included in
Invitrogen's Prospectus, as amended, filed with the Securities and Exchange
Commission on February 26, 1999.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
FAILURE TO MANAGE GROWTH COULD IMPAIR INVITROGEN'S BUSINESS
Invitrogen's business has grown rapidly. Invitrogen's net revenues increased
from $19.1 million in 1996 to $31.4 million in 1998. During that same period
Invitrogen significantly expanded its operations in the United States and in the
Netherlands, headquarters for its European operations. The number of Invitrogen
employees has increased from approximately 100 at December 31, 1996 to
approximately 221 as of December 31, 1998.
It is very difficult to manage this rapid growth, and Invitrogen's future
success depends on its ability to implement:
- - Research and product development;
- - Sales and marketing programs;
- - Customer support programs;
- - Operational and financial control systems; and
- - Recruiting and training new personnel.
Invitrogen's ability to successfully offer products and services and implement
its business plan in a rapidly evolving market requires an effective planning
and management process. Invitrogen expects that it will need to continue to
improve its financial and managerial controls, reporting systems and procedures
and to expand and train its work force worldwide.
Invitrogen is in the process of implementing a new, enterprise-wide financial
and manufacturing information system. It expects to begin using its new system
sometime in the first half of 2000. If Invitrogen fails to successfully complete
implementation of its new system it could experience manufacturing and shipping
delays which, in turn, could cause increased manufacturing costs and deferred or
lost sales.
Invitrogen has recently developed a high-throughput gene cloning and expression
system by scaling up its TOPO TA Cloning technology. It is commercializing this
technology under the name Invitrogenomics. Invitrogen's future business growth
depends in part on the success of its Invitrogenomics products and services. In
order to succeed in this business Invitrogen may
12
<PAGE>
need to hire additional senior managers. Moreover, operation of Invitrogenomics
may present unfamiliar management challenges that it might not successfully
address. Invitrogen may not be able to locate or hire the necessary managers or
successfully address the potentially unfamiliar management issues that may occur
in Invitrogenomics or other areas of its business.
REDUCTION IN RESEARCH AND DEVELOPMENT BUDGETS AND GOVERNMENT FUNDING MAY IMPACT
OUR SALES
Invitrogen's customers include researchers at pharmaceutical and biotechnology
companies, academic institutions and government and private laboratories.
Fluctuations in the research and development budgets of these researchers and
their organizations could have a significant effect on the demand for
Invitrogen's products. Research and development budgets fluctuate due to changes
in available resources, spending priorities and institutional budgetary
policies. Invitrogen's business could be seriously damaged by any significant
decrease in life sciences research and development expenditures by
pharmaceutical and biotechnology companies, academic institutions or government
and private laboratories.
A significant portion of Invitrogen's sales have been to researchers,
universities, government laboratories and private foundations whose funding is
dependent upon grants from government agencies such as the U.S. National
Institutes of Health and similar domestic and international agencies. Also, a
portion of Invitrogen's direct revenues comes from NIH Small Business Innovation
Research grant funds. Although the level of research funding has increased
during the past several years, Invitrogen cannot assure you that this trend will
continue. Government funding of research and development is subject to the
political process, which is inherently fluid and unpredictable. Also, government
proposals aiming to reduce or eliminate budgetary deficits have sometimes
included reduced allocations to the NIH and other government agencies that fund
research and development activities. A reduction in government funding for the
NIH or other government research agencies could seriously damage Invitrogen's
business.
Invitrogen's customers generally receive funds from approved grants at
particular times of the year, as determined by the federal government. Grants
have, in the past, been frozen for extended periods or have otherwise become
unavailable to various institutions without advance notice. The timing of the
receipt of grant funds affects the timing of purchase decisions by Invitrogen's
customers and, as a result, can cause fluctuations in its sales and operating
results
FAILURE TO LICENSE NEW TECHNOLOGIES COULD IMPAIR OUR NEW PRODUCT DEVELOPMENT
Invitrogen's business model of providing products to researchers working on a
variety of genetic projects requires it to develop a wide spectrum of products.
To generate broad product lines it is advantageous to license technologies from
the scientific community at large rather than depending exclusively on its own
employees. As a result Invitrogen believes its ability to in-license new
technologies from third parties is and will continue to be critical to its
ability to offer new products. About 90% of Invitrogen's products are
manufactured or sold under license agreements.
Invitrogen's ability to develop new products and services depends in part on its
ability to convince inventors that it can successfully commercialize their new
technologies. Further, Invitrogen cannot assure you that it will be able to
continue to identify new technologies developed by others. Even if Invitrogen is
able to identify new technologies of interest, Invitrogen may not be able to
negotiate a license on favorable terms, or at all.
LOSS OF LICENSES COULD HURT OUR PERFORMANCE
Some of Invitrogen's licenses do not run for the length of the patent.
Invitrogen may not be able to renew its existing licenses on favorable terms, or
at all. If Invitrogen loses the rights to a patented technology, Invitrogen may
need to stop selling certain of its products or redesign its products or lose a
competitive advantage. Potential competitors could in-license technologies that
Invitrogen fails to license and potentially erode its market share for certain
products.
Invitrogen's licenses typically subject it to various commercialization,
sublicensing and other obligations. If Invitrogen fails to comply with these
requirements Invitrogen could lose important rights under a license, such as the
right to exclusivity in a certain market. In some cases, Invitrogen could also
lose all rights under a license. In addition, certain rights granted under the
license could be lost for reasons out of Invitrogen's control. For example, the
licensor could lose patent protection for a number of reasons, including
invalidity of the licensed patent. Invitrogen typically does not receive
significant indemnification from a licensor against third party claims of
intellectual property infringement.
13
<PAGE>
OUR MARKET SHARE DEPENDS ON NEW PRODUCT INTRODUCTIONS AND ACCEPTANCE
The market for Invitrogen's products and services is only about fifteen years
old. Rapid technological change and frequent new product introductions are
typical for the market. For example, prepackaged kits to perform research in
particular cell lines and already-isolated genetic material are only now coming
into widespread use among researchers. Invitrogen's future success will depend
in part on continuous, timely development and introduction of new products that
address evolving market requirements. Invitrogen believes successful new product
introductions provide a significant competitive advantage because customers make
an investment of time in selecting and learning to use a new product, and are
reluctant to switch thereafter. To the extent Invitrogen fails to introduce new
and innovative products Invitrogen will probably lose market share to its
competitors, which will be difficult or impossible to regain. An inability, for
technological or other reasons, to successfully develop and introduce new
products could reduce Invitrogen's growth rate or damage its business.
Invitrogen has made a substantial investment in developing the technology
underlying Invitrogenomics products and services. The products portion of
Invitrogenomics was launched commercially in 1998, and has not achieved
significant revenues. Invitrogen expects to launch the services portion of the
business in the near future. Invitrogen cannot be sure that Invitrogenomics will
achieve any commercial success or that revenues will equal or exceed the cost of
its investment.
In the past Invitrogen has experienced, and it is likely to experience in the
future, delays in the development and introduction of products. Invitrogen
cannot assure you that it will keep pace with the rapid rate of change in life
sciences research, or that its new products will adequately meet the
requirements of the marketplace or achieve market acceptance. Factors affecting
the market acceptance of its new products include:
- - Citation of the product in published research
- - The timing of introduction of the product relative to competitive
products
- - General trends in life sciences research
LOSS OF KEY PERSONNEL COULD HURT OUR BUSINESS
Invitrogen's products and services are highly technical in nature. In general
only highly qualified and trained scientists have the necessary skills to
develop and market Invitrogen's products and provide its services. Invitrogen
faces intense competition for these professionals from its competitors and its
customers, marketing partners and companies throughout its industry. Any failure
on Invitrogen's part to hire, train and retain a sufficient number of qualified
professionals would seriously damage its business. Invitrogen does not generally
enter into employment agreements requiring these employees to continue in its
employment for any period of time.
COMPETITION IN THE LIFE SCIENCES RESEARCH MARKET COULD REDUCE SALES
The markets for Invitrogen's products are very competitive. Many other life
sciences research products suppliers have greater financial, operational, sales
and marketing resources, and more experience in research and development than
Invitrogen. These and other companies may have developed or could in the future
develop new technologies that compete with Invitrogen's products or even render
its products obsolete.
Invitrogen believes that customers in its markets display a significant amount
of loyalty to their initial supplier of a particular product. Therefore, it may
be difficult to generate sales to customers who have purchased products from
competitors. To the extent Invitrogen is unable to be the first to develop and
supply new products, its competitive position will suffer.
LARGE DISTRIBUTORS MAY FORCE US TO USE MORE EXPENSIVE MARKETING AND DISTRIBUTION
CHANNELS
Certain of Invitrogen's academic and commercial customers have developed
purchasing initiatives to reduce the number of vendors they purchase from in
order to lower their supply costs. In some cases these accounts have established
agreements with large distributors, which include discounts and the
distributors' direct involvement with the purchasing process. These activities
may force Invitrogen to supply the large distributors with its products at a
discount to reach those customers.
INTERNATIONAL UNREST OR FOREIGN CURRENCY FLUCTUATIONS COULD ADVERSELY AFFECT OUR
RESULTS
Invitrogen's products are currently marketed in over 30 countries throughout the
world. Invitrogen's international revenues, which include revenues from its
Netherlands subsidiary and export sales, represented 37% of product revenues in
1998, 35% in
14
<PAGE>
1997 and 33% in 1996. Invitrogen expects that international revenues will
continue to account for a significant percentage of its revenues for the
foreseeable future, in part because it intends to expand its international
operations.
There are a number of risks arising from Invitrogen's international business,
including:
- - General economic and political conditions in the markets in which we
operate
- - Potential increased costs associated with overlapping tax structures
- - Potential trade restrictions and exchange controls
- - More limited protection for intellectual property rights in some
countries
- - Difficulties and costs associated with staffing and managing foreign
operations
- - Uncertain effects of the movement in Europe to a unified currency
- - Slower growth in the European market before the unified currency is
adopted
- - Unexpected changes in regulatory requirements
- - The difficulties of compliance with a wide variety of foreign laws and
regulations
- - Longer accounts receivable cycles in certain foreign countries
- - Import and export licensing requirements
A significant portion of Invitrogen's business is conducted in currencies other
than the U.S. dollar, which is its reporting currency. Invitrogen recognizes
foreign currency gains or losses arising from its operations in the period
incurred. As a result, currency fluctuations among the U.S. dollar and the
currencies in which it does business have caused and will continue to cause
foreign currency transaction gains and losses. Invitrogen cannot predict the
effects of exchange rate fluctuations upon its future operating results because
of the number of currencies involved, the variability of currency exposures and
the potential volatility of currency exchange rates. Invitrogen engages in
foreign exchange hedging transactions to manage its foreign currency exposure,
but Invitrogen can not assure you that its strategies will adequately protect
its operating results from the effects of exchange rate fluctuations. For more
information see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Currency Hedging and Foreign Currency Translation".
The Asia/Pacific region has recently experienced unstable economic conditions
and significant devaluation in its currencies. The economic situation in the
region may result in slower payments of outstanding receivable balances. To date
this region has not represented a significant portion of Invitrogen's revenues.
However, to the extent the Asia/Pacific region becomes increasingly important,
or to the extent the factors affecting the region begin to affect other
geographic locations, its business could be damaged.
OUR LIFE SCIENCE PATENTS AND PROPRIETARY TECHNOLOGIES COULD AFFECT OUR ABILITY
TO COMPETE
Invitrogen's success depends to a significant degree upon its ability to develop
proprietary products and technologies. However, Invitrogen cannot assure you
that patents will be granted on any of its patent applications. Invitrogen also
cannot assure you that the scope of any of its issued patents will be
sufficiently broad to offer meaningful protection. In addition, Invitrogen's
issued patents or patents licensed to Invitrogen could be successfully
challenged, invalidated or circumvented so that its patent rights would not
create an effective competitive barrier.
PUBLICITY OF OUR TRADE SECRETS COULD AID COMPETITORS
Invitrogen attempts to protect its trade secrets by entering into
confidentiality agreements with third parties, employees and consultants.
However, these agreements can be breached and, if they are, there may not be an
adequate remedy available to Invitrogen. If Invitrogen's trade secrets become
known it may lose its competitive position.
INTELLECTUAL PROPERTY LITIGATION COULD HARM OUR BUSINESS
Litigation regarding patents and other intellectual property rights is extensive
in the biotechnology industry. Invitrogen is aware that patents have been
applied for and in some cases issued to others claiming technologies which are
closely related to Invitrogen's. As a result, and in part due to the ambiguities
and evolving nature of intellectual property law, Invitrogen
15
<PAGE>
periodically receives notices of potential infringement of patents held by
others. Although Invitrogen has to date successfully resolved these types of
claims, it may not be able to do so in the future.
In the event of an intellectual property dispute Invitrogen may be forced to
litigate. Such litigation could involve proceedings declared by the U.S. Patent
and Trademark Office or the International Trade Commission, as well as
proceedings brought by affected third parties. Intellectual property litigation
can be extremely expensive, and such expense, as well as the consequences should
Invitrogen not prevail, could seriously harm its business.
If a third-party claimed an intellectual property right to technology Invitrogen
uses, Invitrogen might need to discontinue an important product or product line,
alter its products and processes, pay license fees or cease certain activities.
Although Invitrogen might under these circumstances attempt to obtain a license
to such intellectual property, it may not be able to do so on favorable terms,
or at all.
YEAR 2000 COMPLICATIONS MAY DISRUPT OUR OPERATIONS AND HARM OUR BUSINESS
We are aware that many currently installed information technology systems, such
as computer systems and software products, as well as non-information technology
systems that include imbedded technology, were not designed to correctly process
dates after December 31, 1999.
Invitrogen is heavily dependent upon the proper functioning of its own computer
and data dependent systems. Invitrogen cannot assure you that Invitrogen will
successfully identify and address all Year 2000 issues. Any failure on the part
of these or other systems could materially adversely affect Invitrogen's
business in ways Invitrogen cannot anticipate. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
ACCIDENTS RELATED TO HAZARDOUS MATERIALS COULD ADVERSELY AFFECT OUR BUSINESS
Portions of Invitrogen's operations require the controlled use of hazardous and
radioactive materials. Although Invitrogen believes its safety procedures comply
with the standards prescribed by federal, state and local regulations, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, Invitrogen could be liable for any
damages that result, which could seriously damage its business. Additionally, an
accident could damage Invitrogen's research and manufacturing facilities and
operations.
POTENTIAL PRODUCT LIABILITY CLAIMS COULD AFFECT OUR EARNINGS AND FINANCIAL
CONDITION
Invitrogen faces a potential risk of liability claims based on its products or
services. Invitrogen carries product liability insurance coverage which is
limited in scope and amount but which it believes to be adequate. Invitrogen
cannot assure you, however, that it will be able to maintain this insurance at
reasonable cost and on reasonable terms. Invitrogen also cannot assure you that
this insurance will be adequate to protect it against a product liability claim,
should one arise.
RISKS RELATING TO THE MERGER
In June 1999 the Company signed a definitive agreement to acquire NOVEX, a
privately held U.S. company. The transaction is intended to be accounted for as
a pooling of interests and qualified as a tax-free exchange. Consummation of the
transaction is subject to usual and customary closing conditions and approvals,
including the approval of both companies' stockholders, and is expected to close
in August 1999. Following are risks relating to the potential merger.
THE ABILITY OF INVITROGEN AND NOVEX TO SUCCESSFULLY INTEGRATE THEIR BUSINESSES
IS UNCERTAIN
After the merger, Invitrogen and NOVEX, each of which previously operated
independently, will have to integrate their operations. The integration will
require significant efforts from each company, including the coordination of
their research and development and sales and marketing efforts. Invitrogen may
find it difficult to integrate the operations of NOVEX. NOVEX personnel may
leave NOVEX because of the merger. NOVEX customers, distributors or suppliers
may terminate their arrangements with NOVEX, or demand amended terms to these
arrangements. Invitrogen management may have their attention diverted while
trying to integrate the two companies. Such diversion of management's attention
or difficulties in the transition process could have an adverse impact on
Invitrogen. If Invitrogen is not able to successfully integrate the operations
of NOVEX, Invitrogen's expectations of its future results of operations may not
be met.
16
<PAGE>
FAILURE TO ACHIEVE BENEFICIAL SYNERGIES COULD RESULT IN INCREASED FUTURE
OPERATING COSTS
Invitrogen and NOVEX have entered into the merger agreement with the expectation
that the merger will result in beneficial synergies. Achieving these anticipated
synergies and the potential benefits underlying the two companies' reasons for
the merger will depend on a number of factors, some of which include:
- - Changes in the favorable market reaction to NOVEX's and Invitrogen's
significant products;
- - Competitive factors, including technological advances attained by
competitors and patents granted to or contested by competitors, which would
result in their ability to compete against the companies more effectively;
- - The expiration of patents with respect to the companies' products;
- - Changes in economic conditions such as inflation, interest rates and
foreign currency exchange rates in the global marketplace where Invitrogen
and NOVEX have significant businesses;
- - Significant litigation adverse to NOVEX and Invitrogen, including,
particularly, product liability litigation, antitrust litigation and
patent and trademark litigation;
- - The ability of the combined company to increase sales of NOVEX products;
and
- - The ability of the combined company to increase sales of Invitrogen's
products.
Even if the two companies are able to integrate operations, there can be no
assurance that the anticipated synergies will be achieved. The failure to
achieve such synergies could have a material adverse effect on the business,
results of operations and financial condition of the combined company.
INVITROGEN MAY BE REQUIRED TO SPEND MORE OF ITS CASH RESERVES BECAUSE OF THE
MERGER THAN IT ANTICIPATED
Even if Invitrogen is able to integrate the operations of NOVEX successfully,
there is no assurance that such integration will result in the realization of
the full benefits of the cost savings, efficiencies or revenue enhancements that
Invitrogen currently anticipates. The cost savings and other benefits of the
merger may be offset by costs incurred in integrating NOVEX's operations, as
well as by increases in other expenses, or by problems in the business unrelated
to the merger.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See discussion under Currency Hedging and Foreign Currency Translation in the
Management Discussion and Analysis for quantitative and qualitative disclosures
about market risk.
17
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
** 2.1 The Agreement and Plan of Merger, dated as of June 14,
1999, by and among NOVEX, Invitrogen Corporation, and Invo
Merger Corporation
* 3.1 Restated Certificate of Incorporation of the Company, as amended
* 3.2 Amended and Restated Bylaws of the Company
* 4.1 Specimen Common Stock Certificate
** 10.12 Assignment of Intellectual Property Conditional on Payment
dated as of May 31, 1999, by and between Molecular Biology
Resources, Inc. and Invitrogen Corporation
* 10.10 Stock Purchase and Stockholders Agreement dated June
20, 1997 among Invitrogen, Lyle C. Turner, Joseph
Fernandez, T/A Advent VIII L.P., Advent Atlantic and
Pacific III, L.P. and TA Venture Investors L.P.
27.01 Financial Data Schedule
- ------------------------------------
* Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (File NO. 333-68665)
** Incorporated by reference to the Registrant's Registration Statement
on Form S-4 (File NO. 333-82593)
(b) There were no reports on Form 8-K filed during the quarter ended June 30,
1999
18
<PAGE>
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.
INVITROGEN CORPORATION
Date: JULY 29, 1999 By: /s/ James R. Glynn
--------------------------
James R. Glynn
Senior Vice President and
Chief Financial Officer
19
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INVITROGEN
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AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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