<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 MARCH 31, 2000
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 April 27, 2000 there were 23,397,555 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>
MARCH 31, DECEMBER 31,
--------- ------------
2000 1999
ASSETS (UNAUDITED) (AUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ................................................... $ 265,411 $ 102,221
Accounts receivable, net of allowance for doubtful accounts of $835 ......... 13,909 11,335
Note receivable from officer ................................................ 183 183
Inventories ................................................................. 7,536 7,490
Deferred income taxes ....................................................... 11,923 3,561
Prepaid expenses and other current assets ................................... 3,771 5,547
--------- ---------
Total current assets ...................................................... 307,732 130,337
Property and Equipment, net .................................................... 22,833 21,581
Intangible Assets, net ......................................................... 4,124 4,199
Deferred income taxes .......................................................... 117 117
Other Assets ................................................................... 5,859 440
--------- ---------
Total assets .............................................................. $ 335,665 $ 156,675
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable to bank ........................................................ $ -- $ 2,169
---------
Current portion of long term obligations .................................... 813 4,457
Accounts payable ............................................................ 2,456 4,300
Accrued expenses ............................................................ 7,055 5,181
Income taxes payable ........................................................ 766 1,681
--------- ---------
Total current liabilities ................................................. 11,090 17,788
--------- ---------
Long term obligations .......................................................... 3,024 7,695
--------- ---------
5.5% Convertible subordinated notes due March 1, 2007 .......................... 172,500 --
--------- ---------
Commitments and contingencies
Stockholders' Equity:
Common stock; $0.01 par value, 50,000,000 shares authorized; 23,297,420 and
22,271,140 shares issued and outstanding at March 31, 2000 and December 31,
1999, respectively ........................................................ 233 223
Additional paid-in-capital ................................................. 140,937 121,269
Deferred compensation ...................................................... (595) (746)
Accumulated other comprehensive loss ........................................ (730) (520)
Retained earnings ........................................................... 9,206 10,966
--------- ---------
Total stockholders' equity ................................................ 149,051 131,192
--------- ---------
Total liabilities and stockholders' equity ................................ $ 335,665 $ 156,675
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
2
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
2000 1999
<S> <C> <C>
Revenues ................................................................... $ 27,286 $ 21,585
Cost of Revenues ........................................................... 9,090 8,097
-------- --------
Gross margin ............................................................ 18,196 13,488
Operating Expenses:
Sales and marketing ...................................................... 4,778 3,995
General and administrative ............................................... 3,595 3,036
Research and development ................................................. 3,521 3,455
Merger costs ............................................................. 6,427 --
-------- --------
Total operating expenses .............................................. 18,321 10,486
-------- --------
Income (loss) from operations ....................................... (125) 3,002
-------- --------
Other Income (Expense):
Net losses on foreign currency transactions .............................. (157) (61)
Interest and other expense ............................................... (1036) (182)
Interest and other income ................................................ 2,005 229
-------- --------
812 (15)
-------- --------
Income before provision for income taxes ................................... 687 2,987
Provision for income taxes ................................................. 2,447 1,093
-------- --------
Net income (loss) .......................................................... (1,760)
1,894
Less: Preferred stock dividends ........................................ -- (163)
Accretion of non-voting redeemable common stock ................ -- (56)
Adjustment to beneficial conversion feature related to convertible
preferred stock ................................................ -- 985
Net income (loss) applicable to common shares ....................... $ (1,760) $ 2,660
======== ========
Earnings (loss) per share:
Basic .................................................................... $ (0.08) $ 0.16
======== ========
Diluted .................................................................. $ (0.08) $ 0.14
======== ========
Weighted average shares used in per share calculation:
Basic .................................................................... 22,776 16,628
Diluted .................................................................. 22,776 18,914
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................................... $ (1,760) $ 1,894
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization .............................................. 1,240 954
Amortization of deferred compensation ...................................... 46 131
Deferred income taxes ...................................................... 3,298 (25)
Non-cash merger related costs .............................................. 2,208 --
Other non-cash adjustments ................................................. 21 (266)
Changes in operating assets and liabilities:
Accounts receivable ....................................................... (2,857) (2,356)
Inventories ............................................................... (132) 16
Prepaid expenses and other current assets ................................. 1,762 (552)
Other assets .............................................................. 81 236
Accounts payable .......................................................... (1,819) (624)
Accrued expenses .......................................................... 2,082 333
Income taxes payable ...................................................... (899) 458
--------- ---------
Net cash provided by operating activities .............................. 3,271 199
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment received on note receivable from officer ........................... -- (500)
Purchases of property and equipment ........................................ (2,445) (1,247)
Payments for intangible assets ............................................. (96) (312)
Investment in related party ................................................ (3) --
--------- ---------
Net cash used in investing activities .................................. (2,544) (2,059)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances (principal payments) on lines of credit, net ...................... (2,169) 2,003
Proceeds from long term obligations ........................................ 166,999 --
Principal payments on long term obligations ................................ (7,887) (288)
Proceeds from sale of common stock ......................................... 5,476 48,569
Redemption of preferred and common stock and payment of accrued dividends .. -- (15,553)
Net cash provided by financing activities .............................. 162,419 34,731
Effect of exchange rate changes on cash .................................... 44 (33)
--------- ---------
Net increase in cash and cash equivalents .............................. 163,190 32,838
Cash and cash equivalents, beginning of period ............................. 102,221 6,543
--------- ---------
Cash and cash equivalents, end of period ................................... $ 265,411 $ 39,381
========= =========
</TABLE>
(CONTINUED ON NEXT PAGE)
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
2000 1999
<S> <C> <C>
NONCASH INVESTING AND FINANCING ACTIVITIES:
Stock issued for merger costs ................................................ $ 2,208 $ --
========= =========
Conversion of Convertible Redeemable Preferred Stock into Redeemable Preferred
Stock ...................................................................... $ -- $ 14,015
========= =========
Conversion of Redeemable Preferred Stock into Common Stock ................... $ -- $ 751
========= =========
Preferred dividends declared ................................................. $ -- $ 163
========= =========
Accretion of redemption value for redeemable common stock .................... $ -- $ 56
========= =========
Accretion of beneficial conversion feature of convertible preferred stock .... $ -- $ 985
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ....................................................... $ 171 $ 141
========= =========
Cash paid for income taxes ................................................... $ 74 $ 706
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<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., Invitrogen
Export Company, Ltd., NOVEX Electrophoresis GmbH (formerly known as Anamed
GmbH), Serva GmbH, NOVEX International Sales Corporation, and Research Genetics,
Inc. 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 our form 10-K,
filed with the Securities and Exchange Commission on March 14, 2000.
1. INVENTORIES
Inventories include material, labor and overhead costs and consist of the
following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and components Inc. ................ $1,563 $2,186
Work in process .................................. 1,948 1,175
Finished goods ................................... 4,025 4,129
------ ------
$7,536 $7,490
====== ======
</TABLE>
2. ACCUMULATED DEPRECIATION AND AMORTIZATION
Accumulated depreciation and amortization of property, plant and equipment was
$14.8 million and $13.8 million at March 31, 2000 and December 31, 1999,
respectively. Accumulated amortization of intangible assets was $1.1 million and
$.9 million at March 31, 2000 and December 31, 1999.
3. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
INCOME (LOSS) SHARES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
------------- ------------- ------
<S> <C> <C> <C>
Basic and Diluted EPS:
Income (loss) available to common stockholders ....................... $ (1,760) 22,776 $ (0.08)
============= ============= =======
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
INCOME SHARES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
------------- ------------- ------
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders .............................. $ 2,660 16,628 $ 0.16
Stock options......................................................... -- 2,286 --
------------- ------------- ------
Diluted EPS:
Income available to common stockholders plus assumed conversions...... $ 2,660 18,914 $ 0.14
============= ============= ======
</TABLE>
6
<PAGE>
4. COMPREHENSIVE INCOME (LOSS)
Total comprehensive loss for the three months ended March 31, 2000 was $2.0
million and total comprehensive income for the three months ended March 31, 1999
was $1.7 million, respectively. The adjustments to income or loss to arrive at
total comprehensive income or loss for the three months ended March 31, 2000 and
1999 were $209,865, and $212,260, respectively, and represent foreign currency
translation adjustments.
5. RESEARCH GENETICS MERGER
On February 2, 2000, the Company completed a merger with Research Genetics, a
privately held U.S. company that supplies products and services for functional
genomics and gene-based drug discovery research. The Company issued 3.2 million
shares of common stock for all of the outstanding common stock of Research
Genetics. The merger has been accounted for as a pooling of interests and is
intended to qualify as a tax-free exchange. Costs incurred as a result of the
merger and related integration are expected to be $6.4 million and are subject
to change. These costs were expensed in February 2000 upon completion of the
merger. As of March 31, 2000 the company had $.5 million remaining in accrued
merger related costs.
The combined financial information is presented to show the combined results of
operations of Invitrogen and Research Genetics as if the merger had occurred at
the beginning of the periods presented.
6. ISSUANCE OF CONVERTIBLE SUBORDINATED DEBT
In March 2000, we issued $172.5 million principal amount of 5.5% convertible
subordinated notes (the "Convertible Notes") due March 1, 2007. After expenses,
the company received net proceeds of $167.0 million. Interest on the Convertible
Notes is payable semi-annually on March 1st and September 1st, commencing in
September 2000. The notes were issued at 100% of principal value, and are
convertible into 2,024,648 shares of stock at the option of the holder at any
time at a price of $85.20 per share. The notes may be redeemed, in whole or in
part, at our option on or after March 1, 2003 at a premium of 103.143% of par
value which declines annually to par value at maturity date.
Costs incurred to issue the debt have been deferred and are included in other
assets in the consolidated balance sheet. These costs are being amortized over
the term of the related debt using the effective interest method.
The Convertible Notes are subordinate to substantially all of the current and
future outstanding debt of Invitrogen, including all our secured debt and all
debts and liabilities of our subsidiaries. The Convertible Notes are not
subordinate to amounts we owe for employee compensation, goods or services we
purchase or to amounts we may owe to our subsidiaries.
7
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
We develop, manufacture and market research tools in kit form and
provide other research products and services to corporate, academic and
government entities. Our research kits simplify and improve gene cloning, gene
expression and gene analysis techniques as well as other molecular biology
activities. Substantially all of our revenue to date has come from the sale of
these 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 and other products in
our manufacturing facilities in Carlsbad and San Diego, California. In addition,
we purchase products from third party manufacturers. We also have a
manufacturing facility in Heidelberg, Germany for formulating and packaging fine
chemicals.
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 facilities 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 may choose in the future
to establish a direct sales organization in these and 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, we have obtained over 85 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 are using this
technology to rapidly clone and patent full-length genes which we are licensing
and selling. In addition, we use our Invitrogenomics technology to provide gene
cloning and expression services on a contract basis to pharmaceutical,
biotechnology and agricultural companies.
Invitrogenomics products and services have generated limited revenues to date.
Our revenues have increased significantly since our inception, and from
1995 to 1999, we have experienced compound annual revenue growth of 29%. The
increase in our revenues has been due to several factors, including the
continued growth of the market for gene identification, cloning, expression and
analysis kits and products, increasing market acceptance of these kits and
products, our introduction of new research kits and products for gene
identification, 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.
We have acquired a significant number of patent rights from third
parties as part of our business activities. These patent rights are used as a
basis for the development of our research kits and 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;
8
<PAGE>
- 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;
- Our ability to control or adjust research and development, marketing,
sales and general and administrative expenses in response to changes
in revenues; and
- Currency rate fluctuations.
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.
RESULTS OF OPERATIONS
REVENUES. Revenues for the three months ended March 31 increased $5.7
million, or 26%, from $21.6 million in 1999 to $27.3 million for 2000. For these
same periods, revenues in North America increased $5.2 million, or 31%, from
$16.5 million to $21.7 million, and revenues outside of North America increased
$.5 million, or 10%, from $5.1 million to $5.6 million. The overall increase in
revenue was primarily attributable to continued market growth and increased
market penetration for DNA microarrays, sequence-verified gene clones and gene
cloning, expression and analysis kits. European revenues, when reported in U.S.
Dollars, were adversely affected by changes in currency rates. The change in
currency rates accounted for a decrease in U.S. Dollar denominated revenues of
$.8 million, or 4%. European revenues also reflect a $.3 million decline in
sales of the fine chemicals product line acquired with the NOVEX merger last
year. The fine chemicals product line is a slow to no-growth business. Holding
currency conversion rates constant with those in 1999 and excluding revenues
from the fine chemicals product line, European revenues increased 38% and
worldwide revenues increased 30%.
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. Our gross margin for the three months ended March 31
increased from $13.5 million in 1999 to $18.2 million in 2000. Gross margin as a
percentage of revenues increased from 62.5% to 66.7% for these periods. Gross
margin improvements during the period were primarily a result of increased sales
of our higher margin gene cloning and expression kits, DNA microarrays and
sequence-verified gene clones.
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. The functional currency of our Netherlands
subsidiary, Invitrogen B.V., is the Netherlands Guilder (NLG) and for our German
subsidiaries, NOVEX GmbH and Serva GmbH, is the Deutsche Mark. The translation
from NLG and the Deutsche Mark to the U.S. Dollar 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. All three European subsidiaries conduct
their European business in the currencies of their 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 for the three months
ended March 31 increased 20% from $4.0 million in 1999 to $4.8 million in 2000.
As a percentage of revenues, sales and marketing expenses decreased from 18.5%
to 17.5% for these periods as our revenue growth continued to outpace spending
on sales and marketing.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
three months ended March 31 increased 18% from $3.0 million in 1999 to $3.6
million in 2000. As a percentage of revenues, general and administrative
expenses decreased from 14.1% to 13.2% for these periods. The absolute increase
resulted from the continued expansion of administrative resources to support our
growth and the completion of our first full year as a 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.
RESEARCH AND DEVELOPMENT. Research and development expenses for the
three months ended March 31 remained relatively flat at $3.5 million for both
1999 and 2000. As a percentage of revenues, research and development expenses
decreased from 16.0% in 1999 to 12.9% in 2000 as our revenue growth continues to
exceed our spending for research and development.
9
<PAGE>
OTHER INCOME (EXPENSE). Other income and expense, net, for the three
months ended March 31 increased $0.8 million, from zero in 1999, to net other
income of $.8 million in 2000. This increase resulted mainly from higher
interest income earned on larger average balances of cash and cash equivalents
during the period, partially offset by interest expense on higher debt balances.
PROVISION FOR INCOME TAXES. The provision for income taxes for the
three months ended March 31, 2000 was higher than our pre-tax income due to
certain merger related costs incurred in February 2000 that are not deductible
for tax purposes. Excluding the impact of the merger related costs, net of tax,
our effective tax rate increased from 33.1% for all of 1999 to 36.7% for 2000.
Higher taxable income in 2000 lessens the impact of our tax credits which
effectively increases our rate. Company holdings in tax-deductible investments
have also been reinvested in fully taxable investments due to our net operating
loss carryforward for tax purposes, which also increases our effective rate.
LIQUIDITY AND CAPITAL RESOURCES
Net cash from operating activities generated $3.3 million during the
first quarter of 2000. Net cash generated from financing activities totaled
$162.4 million and reflects $167.0 million in net proceeds from the issuance of
convertible subordinated debt, $5.5 million in net proceeds from stock issued
under employee stock plans, reduced by $9.4 million that was used to pay off
debt acquired in the Research Genetics merger. Capital expenditures and payments
for intangible assets during the first quarter of 2000 totaled $2.4 million and
$.1 million, respectively.
During the first quarter of 2000 we recorded a current deferred tax
asset of $12.1 million representing amounts deductible for income tax purposes
for non-qualified stock option exercises and disqualifying dispositions of our
common stock by employees during the quarter. This benefit is reflected as
additional paid-in capital in the March 31, 2000 balance sheet.
On February 2, 2000 we completed our merger with Research Genetics. As
consideration for the merger, we issued 3,200,000 shares of our common stock for
all of the outstanding common stock of Research Genetics. Costs incurred as a
result of the merger and related integration are expected to be $6.4 million,
which includes $2.4 million paid by a Research Genetics shareholder, and are
subject to change. These costs were expensed in February 2000, after the merger
was completed.
In March 2000 we issued $172,500,000 in 5 1/2% Convertible Subordinated
Notes due 2007. The notes were priced on February 24, 2000 at 100% of their
principal amount and are convertible into 2,024,648 shares of Invitrogen's
common stock. Interest is payable semiannually on March 1 and September 1. The
Notes may be redeemed, in whole or in part, at the option of Invitrogen on or
after March 1, 2003.
As of March 31, 2000 we had cash and cash equivalents totaling $265.4
million and working capital of $296.6 million. Our funds are currently invested
in U.S. Treasury and government agency obligations, tax exempt and taxable
municipal bonds, commercial paper and dividend-bearing securities. We have an
available bank line of credit facility totaling $3.0 million that expires in
October 2001, and at March 31, 2000 no amounts were outstanding. Due to our
sufficient cash balances in February 2000 we terminated the $1.2 million line of
credit facility that we acquired in the NOVEX merger. In February we assumed
Research Genetics' bank line of credit facility totaling $1.5 million. In March
2000 we fully paid the outstanding balance on this line and terminated the
facility.
We expect that our cash and cash equivalents, 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
We conduct business transactions with our subsidiaries in the
Netherlands and with our foreign distributors, including those in Asia, in U.S.
Dollars. Transactions with our German subsidiary, NOVEX GmbH, are denominated in
Deutsche Marks. We have not taken any action to reduce our exposure to changes
in foreign currency exchange rates, such as options or futures contracts with
respect to transactions with our subsidiaries or transactions with our foreign
customers. However, 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 March 31, 2000 outstanding
options totaled $2.1 million and mature on various dates through December 2000.
10
<PAGE>
NLG is the functional currency for Invitrogen B.V. and the Deutsche
Mark is the functional currency for NOVEX GmbH and Serva GmbH. The translation
from NLG and the Deutsche Mark to the U.S. Dollar for balance sheet accounts is
done using the current exchange rate in effect at the balance sheet date and for
revenue and expense accounts using the average exchange rate during the period.
The effects of translation are recorded as a separate component of stockholders'
equity. Invitrogen B.V., NOVEX GmbH and Serva GmbH conduct their 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 and are included in the Consolidated
Statements of Income in the respective period incurred.
ISSUES RELATED TO THE EUROPEAN MONETARY CONVERSION
On January 1, 1999, certain member states of the European Economic
Community (EEC), 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 Euro and
the existing national currency, such as the Netherlands Guilder, French Franc or
Deutsche Mark. 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 have tested our internal systems and are able to process orders
and invoices in the Euro as well as the local currency for the members of the
monetary union. To date we have spent immaterial amounts to comply with these
statutory requirements. These assessments have not been independently verified.
However, we have not determined the costs related to any problems that may arise
in the future due to the inability of any of our customers or vendors to comply
with the statutory requirements. 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 "Risk Factors that May Affect Future Results" as well
as other risks and uncertainties detailed in our Form 10-K, filed with the
Securities and Exchange Commission on March 14, 2000.
The above Management's Discussion and Analysis should be read in
conjunction with the consolidated financial statements and notes thereto
included in Invitrogen's Form 10-K, filed with the Securities and Exchange
Commission on March 14, 2000.
RISK FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
FAILURE TO SUCCESSFULLY INTEGRATE RESEARCH GENETICS OR NOVEX INTO OUR OPERATIONS
COULD REDUCE OUR PROFITABILITY
We closed our merger with NOVEX in August 1999 and our merger with
Research Genetics on February 2, 2000. Both are now our wholly owned
subsidiaries. Our integration of the operations of these companies is ongoing
and will require significant efforts from each company, including the
coordination of research and development and sales and marketing efforts. We may
find it difficult to integrate the operations of these acquired companies.
Personnel may leave or be terminated because
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of the mergers. In September 1999 we reduced the size of our U.S. workforce by
approximately 14% and we recently announced the closing of our Frankfurt,
Germany manufacturing facility in connection with the integration of NOVEX. Such
employee terminations or resignations or facility closures may require us to
make severance or other payments and may result in related litigation.
Research Genetics' operations are located in Huntsville, Alabama, while
our U.S. headquarters and the bulk of our other operations are located in
Carlsbad, California. This physical separation of facilities could make it
difficult for us to effectively communicate with, manage and integrate Research
Genetics' staff and operations with the rest of Invitrogen. Such difficulties
could significantly hurt our operations and consequently our financial results.
NOVEX or Research Genetics customers, distributors or suppliers may
terminate their arrangements with us, or demand amended terms to these
arrangements, because of the merger. Invitrogen management may have their
attention diverted while trying to integrate the companies. Such diversion of
management's attention or difficulties in the transition process could have a
material adverse impact on us. If we are not able to successfully integrate the
operations of Research Genetics or NOVEX, our expectations of future results of
operations may not be met. Factors which will determine the success of the
mergers include:
- Changes in the favorable market reaction to NOVEX's, Research
Genetics' 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 us more effectively;
- The ability of the combined company to increase sales of all three
companies' products; and
- The ability of the combined company to operate efficiently and achieve
cost savings.
Even if the companies are able to integrate operations, there can be no
assurance that synergies will be achieved. The failure to achieve synergies
could have a material adverse effect on the business, results of operations and
financial condition of the combined company.
FAILURE TO MANAGE GROWTH COULD IMPAIR OUR BUSINESS
Our business has grown rapidly. Our net revenues increased from $44.6
million in 1996 to $92.9 million in 1999. During that same period we
significantly expanded our operations in the United States and in Europe. We
have recently acquired two companies and the number of our employees has
increased significantly.
It is very difficult to manage this rapid growth, and our future
success depends on our ability to implement:
- Research and product development;
- Sales and marketing programs;
- Customer support programs;
- Operational and financial control systems; and
- Recruiting and training of new personnel.
Our ability to successfully offer products and services and implement
our business plan in a rapidly evolving market requires an effective planning
and management process. We expect that we will need to continue to improve our
financial and managerial controls, reporting systems and procedures and to
expand and train our workforce worldwide.
We have developed a high-throughput gene cloning and expression system
by scaling up our TOPO TA Cloning technology. We are commercializing this
technology under the name Invitrogenomics. Our future business growth depends in
part on the success of our Invitrogenomics products and services. In order to
succeed in this business we may need to hire additional senior managers.
Moreover, operation of Invitrogenomics may present unfamiliar management
challenges that we might not successfully address. We 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
our business.
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Our recent mergers with NOVEX and Research Genetics will require
additional investments in operations, product research and development and sales
and marketing which are significant expenses. Failure to successfully manage and
coordinate the growth of the combined company could adversely impact our revenue
and profits.
REDUCTION IN RESEARCH AND DEVELOPMENT BUDGETS AND GOVERNMENT FUNDING MAY IMPACT
SALES
Our 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 our
products. Research and development budgets fluctuate due to changes in available
resources, spending priorities and institutional budgetary policies. Our
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.
In recent years, the United States pharmaceutical industry has
undergone substantial downsizing and consolidation. Further mergers or corporate
consolidations in the pharmaceutical industry could cause us to lose existing
customers and potential future customers, which could have a material adverse
effect on our business, financial condition and results of operations.
A significant portion of our 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 (NIH) and similar domestic and international agencies.
Also, a portion of our direct revenues comes from NIH Small Business Innovation
Research grant funds. Although the level of research funding has increased
during the past several years, we 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. Our revenues may
be adversely affected if our customers delay purchases as a result of
uncertainties surrounding the approval of government budget proposals. Also,
government proposals 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 our business.
Our 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 our customers
and, as a result, can cause fluctuations in our sales and operating results.
FAILURE TO LICENSE NEW TECHNOLOGIES COULD IMPAIR OUR NEW PRODUCT DEVELOPMENT
Our business model of providing products to researchers working on a
variety of genetic projects requires us to develop a wide spectrum of products.
To generate broad product lines it is advantageous to sometimes license
technologies from the scientific community at large rather than depending
exclusively on our own employees. As a result, we believe our ability to
in-license new technologies from third parties is and will continue to be
critical to our ability to offer new products. Over 40% of our revenues are from
products manufactured or sold under licenses from third parties.
From time to time we are notified or become aware of patents held by
third parties which are related to technologies we are selling or may sell in
the future. After a review of these patents, we may decide to obtain a license
for these technologies from such third parties. We are currently in the process
of negotiating several such licenses and expect that we will also negotiate
these types of licenses in the future. There can be no assurances that we will
be able to negotiate such licenses on favorable terms, or at all.
Our ability to gain access to technologies needed for new products and
services depends in part on our ability to convince inventors that we can
successfully commercialize their inventions. We cannot assure you that we will
be able to continue to identify new technologies developed by others. Even if we
are able to identify new technologies of interest, we may not be able to
negotiate a license on favorable terms, or at all.
LOSS OF LICENSES COULD HURT OUR PERFORMANCE
Some of our licenses do not run for the length of the underlying
patent. We may not be able to renew our existing licenses on favorable terms, or
at all. If we lose the rights to a patented technology, we may need to stop
selling certain of our
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products or redesign our products or lose a competitive advantage. Potential
competitors could in-license technologies that we fail to license and
potentially erode our market share for certain products.
Our licenses typically subject us to various commercialization,
sublicensing and other obligations. If we fail to comply with these requirements
we could lose important rights under a license, such as the right to exclusivity
in a certain market. In some cases, we could also lose all rights under a
license. In addition, certain rights granted under the license could be lost for
reasons out of our control. For example, the licensor could lose patent
protection for a number of reasons, including invalidity of the licensed patent.
We typically do not receive significant indemnification from a licensor against
third party claims of intellectual property infringement.
OUR MARKET SHARE DEPENDS ON NEW PRODUCT INTRODUCTIONS AND ACCEPTANCE
The market for our 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. Our future success will depend in part on
continuous, timely development and introduction of new products that address
evolving market requirements. We believe 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 we fail to introduce new and innovative
products, we may lose market share to our 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 our growth rate or
damage our business.
We have 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. We cannot be sure that Invitrogenomics will achieve any
commercial success or that revenues will equal or exceed the cost of our
investment.
In the past we have experienced, and are likely to experience in the
future, delays in the development and introduction of products. We cannot assure
you that we will keep pace with the rapid rate of change in life sciences
research, or that our new products will adequately meet the requirements of the
marketplace or achieve market acceptance. Some of the factors affecting market
acceptance of new products include:
- Availability, quality and price relative to competitive products;
- The timing of introduction of the product relative to competitive
products;
- Scientists' opinion of the product's utility;
- Citation of the product in published research; and
- General trends in life sciences research.
The expenses or losses associated with unsuccessful product development
activities or lack of market acceptance of our new products could materially
adversely affect our business, operating results and financial condition.
LOSS OF KEY PERSONNEL COULD HURT OUR BUSINESS
Our products and services are highly technical in nature. In general
only highly qualified and trained scientists have the necessary skills to
develop and market our products and provide our services. We face intense
competition for these professionals from our competitors and our customers,
marketing partners and companies throughout our industry. Any failure on our
part to hire, train and retain a sufficient number of qualified professionals
would seriously damage our business. We do not generally enter into employment
agreements requiring these employees to continue in our employment for any
period of time.
COMPETITION IN THE LIFE SCIENCES RESEARCH MARKET COULD REDUCE SALES
The markets for our products are very competitive and price sensitive.
Many other life science research product suppliers have greater financial,
operational, sales and marketing resources, and more experience in research and
development
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than we do. These and other companies may have developed or could in the future
develop new technologies that compete with our products or even render our
products obsolete. If a competitor develops superior technology or
cost-effective alternatives to our kits and other products, our business,
operating results and financial condition could be materially adversely
affected.
The market for our electrophoresis products is also subject to specific
competitive risks. This market is highly price competitive. Our competitors have
in the past and may in the future compete by lowering prices on certain
products. In certain cases, we may respond by lowering our prices which would
reduce revenues and profits. Conversely, failure to anticipate and respond to
price competition may hurt our market share.
We believe that customers in our 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 we are unable to be the first to develop and supply
new products, our competitive position will suffer.
DISTRIBUTORS MAY FORCE US TO USE MORE EXPENSIVE MARKETING AND DISTRIBUTION
CHANNELS
Certain of our 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 us to supply the large
distributors with our products at a discount to reach those customers. For
similar reasons many larger customers, including the federal government, have
requested and may in the future request special pricing arrangements, including
blanket purchase agreements. These agreements may limit our pricing flexibility,
especially with respect to our electrophoresis products, which could adversely
impact our business, financial condition and results of operations. Currently we
do not have the capability to accept and process orders through our website.
Accordingly, we may implement sales through Internet vendors. Internet sales
through third parties may negatively impact our gross margins as the commission
paid on Internet sales would be an additional cost not incurred through the use
of non-Internet vendors.
WE RELY ON THIRD PARTY MANUFACTURERS TO MANUFACTURE SOME OF OUR PRODUCTS AND
COMPONENTS
We rely on third party manufacturers to supply many of our raw
materials, product components and in some cases, entire products. In particular,
we purchase all of the cassettes used in our pre-cast electrophoresis gels from
a single third party manufacturer. Also, we recently contracted with an outside
vendor for the production of our PowerEase instrument products. Manufacturing
problems may occur with these and other outside sources. If such problems occur,
there can be no assurance that we will be able to manufacture our products
profitably or on time.
INTERNATIONAL UNREST OR FOREIGN CURRENCY FLUCTUATIONS COULD ADVERSELY AFFECT OUR
RESULTS
Including subsidiaries and distributors, our products are currently
marketed in over 30 countries throughout the world. Our international revenues,
which include revenues from our Netherlands and Germany subsidiaries and export
sales, represented 35% of our product revenues in 1999 and 1998 and 29% in 1997.
We expect that international revenues will continue to account for a significant
percentage of our revenues for the foreseeable future, in part because we intend
to expand our international operations.
There are a number of risks arising from our 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
fully adopted;
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- 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; and
- Import and export licensing requirements.
A significant portion of our business is conducted in currencies other
than the U.S. dollar, which is our reporting currency. We recognize foreign
currency gains or losses arising from our operations in the period incurred. As
a result, currency fluctuations among the U.S. dollar and the currencies in
which we do business have caused and will continue to cause foreign currency
transaction gains and losses. We cannot predict the effects of exchange rate
fluctuations upon our future operating results because of the number of
currencies involved, the variability of currency exposures and the potential
volatility of currency exchange rates. We engage in foreign exchange hedging
transactions to manage certain foreign currency exposures, but we cannot assure
you that our strategies will adequately protect our operating results from the
effects of exchange rate fluctuations. For more information see above
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Currency Hedging and Foreign Currency Translation."
The Asia/Pacific region in the past has 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 our 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, our business could be damaged.
INABILITY TO PROTECT OUR TECHNOLOGIES COULD AFFECT OUR ABILITY TO COMPETE
Our success depends to a significant degree upon our ability to develop
proprietary products and technologies. However, we cannot assure you that
patents will be granted on any of our patent applications. We also cannot assure
you that the scope of any of our issued patents will be sufficiently broad to
offer meaningful protection. We only have patents issued in selected countries.
Therefore, third parties can make, use and sell products covered by our patents
in any country in which we do not have patent protection. In addition, our
issued patents or patents we license could be successfully challenged,
invalidated or circumvented so that our patent rights would not create an
effective competitive barrier. The right to use our products is given to our
customers under label licenses that are for research purposes only. These
licenses could be contested and no assurances can be made that we would either
be aware of an unauthorized use or be able to enforce the restrictions in a
cost-effective manner. See "Business-Patents and Proprietary Technologies" for
more information regarding our existing and pending patents.
PUBLICITY OF TRADE SECRETS COULD AID OUR COMPETITORS
We attempt to protect our 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 us. If our trade secrets become known we may lose
our competitive position.
INTELLECTUAL PROPERTY OR OTHER LITIGATION COULD HARM OUR BUSINESS
Litigation regarding patents and other intellectual property rights is
extensive in the biotechnology industry. We are aware that patents have been
applied for and in some cases issued to others claiming technologies which are
closely related to ours. As a result, and in part due to the ambiguities and
evolving nature of intellectual property law, we periodically receive notices of
potential infringement of patents held by others. Although we have to date
successfully resolved these types of claims, we may not be able to do so in the
future.
In the event of an intellectual property dispute we 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
we not prevail, could seriously harm our business.
If a third party claimed an intellectual property right to technology
we use, we might need to discontinue an important product or product line, alter
our products and processes, pay license fees or cease certain activities.
Although we might under
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these circumstances attempt to obtain a license to such intellectual property,
we may not be able to do so on favorable terms, or at all.
In addition to intellectual property litigation, other substantial,
complex or extended litigation could result in large expenditures by us and
distraction of our management. For example, lawsuits by employees, stockholders,
collaborators or distributors could be very costly and substantially disrupt our
business. Disputes from time to time with such companies or individuals are not
uncommon and we cannot assure you that we will always be able to resolve them
out of court.
THE MARKET PRICE OF OUR STOCK COULD BE VOLATILE, WHICH MAY IMPAIR YOUR
INVESTMENT
The market price of our common stock has been subject to volatility
and, in the future, the market price of our common stock may fluctuate
substantially due to a variety of factors, including:
- Quarterly fluctuations in our operating and earnings per share
results;
- Technological innovations or new product introductions by us or our
competitors;
- Economic conditions;
- Disputes concerning patents or proprietary rights;
- Changes in earnings estimates by market research analysts;
- Sales of common stock by existing holders;
- Loss of key personnel; and
- Securities class action or other litigation.
The market price for our common stock may also be affected by our
ability to meet analyst's expectations. Any failure to meet such expectations,
even slightly, could have an adverse effect on the market price of our common
stock and the convertible notes. In addition, the stock market is subject to
extreme price and volume fluctuations. This volatility has had a significant
effect on the market prices of securities issued by many companies for reasons
unrelated to the operating performance of these companies. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against that
company. If similar litigation were instituted against us, it could result in
substantial costs and a diversion of our management's attention and resources,
which could have an adverse effect on our business, results of operations and
financial condition.
ACCIDENTS RELATED TO HAZARDOUS MATERIALS COULD ADVERSELY AFFECT OUR BUSINESS
Portions of our operations require the controlled use of hazardous and
radioactive materials. Although we believe our safety procedures comply with the
standards prescribed by federal, state and local regulations, the risk of
accidental contamination of property or injury to individuals from these
materials cannot be completely eliminated. In the event of such an accident, we
could be liable for any damages that result, which could seriously damage our
business. Additionally, any accident could partially or completely shut down our
research and manufacturing facilities and operations.
POTENTIAL PRODUCT LIABILITY CLAIMS COULD AFFECT OUR EARNINGS AND FINANCIAL
CONDITION
We face a potential risk of liability claims based on our products or
services. We carry product liability insurance coverage which is limited in
scope and amount but which we believe to be adequate. We cannot assure you,
however, that we will be able to maintain this insurance at reasonable cost and
on reasonable terms. We also cannot assure you that this insurance will be
adequate to protect us against a product liability claim, should one arise.
FUTURE SALES OF CURRENTLY OUTSTANDING SHARES COULD ADVERSELY AFFECT OUR STOCK
PRICE
The market price of our common stock could drop as a result of sales of
a large number of shares in the market in the future or in response to the
perception that such sales could occur. As of March 31, 2000, we had outstanding
23,297,420 shares
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of common stock. Of these shares, approximately 14,050,698 are registered and
freely tradable. All of the remaining approximately 9,246,722 shares are
unregistered but may be sold in accordance with Rule 144 and Rule 701 of the
Securities Act of 1933, as amended. Approximately 4,795,364 registered and
unregistered shares are subject to 90-day lock-up agreements which expire on May
30, 2000, subject to certain exceptions. After expiration of the lock-up period,
all of such shares will be eligible for immediate sale, in certain instances
subject to the volume limitations of Rule 144. Donaldson, Lufkin & Jenrette can
release shares from one or more of the lock-up agreements without our approval.
Holders of 4,082,942 shares of common stock have the right to request that we
register their shares for sale in the public market.
CONTROL OF INVITROGEN BY EXECUTIVE OFFICERS AND DIRECTORS MAY IMPEDE CHANGES TO
INVITROGEN OR ITS POTENTIAL SALE
As of March 31, 2000, the President of our Research Genetics subsidiary
and his family, our executive officers and directors collectively beneficially
owned approximately 35.1% of our outstanding common stock. These officers and
directors may therefore be able to exercise effective control of Invitrogen.
Such a concentration of ownership may have the effect of delaying or preventing
transactions resulting in a change of control of Invitrogen, including
transactions where stockholders might otherwise receive a premium for their
shares over current market prices.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to interest rate risk. Our investment portfolio is
maintained in accordance with our investment policy which defines allowable
investments, specifies credit quality standards and limits the credit exposure
of any single issuer. We do not utilize any form of interest rate swap
agreements to manage our exposure to fluctuations in earnings due to changes in
interest rates. At March 31, 2000, cash and cash equivalents are invested
primarily in securities with maturities of less than 90 days. Since the fair
value of the Invitrogen's cash and cash equivalents approximated carrying value
due to the short-term nature of the investments, any increase in interest rates
would not have had a material impact on the ending fair value of our cash
equivalents. We would, however, be at risk for lower earnings should interest
rates decline unexpectedly.
See also the discussion under "Currency Hedging and Foreign Currency
Translation" for additional quantitative and qualitative disclosures about
market risk.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 2, 2000 we completed our merger with Research Genetics. As
consideration for the merger, we issued 3,200,000 shares of our common stock
for all of the outstanding common stock of Research Genetics. Costs incurred
as a result of the merger and related integration are expected to be $6.4
million and are subject to change. These costs were expensed in February
2000, after the merger was completed.
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:
* 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
* 10.10 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)
(b) A Form 8-K dated February 2, 2000 was filed on February 16, 2000 to report
the completion of the merger agreement between Invitrogen Corporation and
Research Genetics and to report the following financial statements:
Research Genetics audited (i) Balance Sheets as of December 31, 1998
and 1997; (ii) Statements of Income for the years ended December 31,
1998 and 1997; (iii) Statements of Stockholders' Equity for the years
ended December 31, 1998 and 1997; (iv) Statements of Cash Flows for the
years ended December 31, 1998 and 1997; and related Notes to Financial
Statements.
Research Genetics unaudited (i) Balance Sheets as of September 30, 1999
and December 31, 1998; (ii) Statements of Income for the nine months
ended September 30, 1999 and 1998; and (iii) Statements of Cash Flows
for the nine months ended September 30, 1999 and 1998.
Invitrogen Corporation and Research Genetics Unaudited Pro Forma (i)
Combined Balance Sheet as of September 30, 1999; (ii) Combined
Statements of Income for the nine months ended September 30, 1999 and
1998 and for the years ended December 31, 1998, 1997 and 1996; and
(iii) related Notes to Combined Financial Statements.
A Form 8-K/A dated February 2, 2000 was filed on February 17, 2000 to
report the following financial statements:
Research Genetics audited (i) Balance Sheets as of December 31, 1999
and 1998; (ii) Statements of Income for the years ended December 31,
1999 and 1998; (iii) Statements of Stockholders' Equity for the years
ended December 31, 1999 and 1998; (iv) Statements of Cash Flows for the
years ended December 31, 1999 and 1998; and related Notes to Financial
Statements.
Research Genetics audited (i) Balance Sheets as of December 31, 1998
and 1997; (ii) Statements of Income for the years ended December 31,
1998 and 1997; (iii) Statements of Stockholders' Equity for the years
ended December 31,
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1998 and 1997; (iv) Statements of Cash Flows for the years ended
December 31, 1998 and 1997; and related Notes to Financial Statements.
Incorporated by reference to Invitrogen Corporation's filing on Form
8-K dated February 16, 2000.
Invitrogen Corporation and Research Genetics Unaudited Pro Forma (i)
Combined Balance Sheet as of December 31, 1999; (ii) Combined
Statements of Income for the years ended December 31, 1999, 1998 and
1997; and (iii) related Notes to Combined Financial Statements.
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: MAY 2, 2000 By: /s/ James R. Glynn
----------- ------------------
James R. Glynn
Senior Vice President and
Chief Financial Officer
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INVITROGEN'S
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDING MARCH 31, 2000.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 265,411 35,960
<SECURITIES> 0 3,421
<RECEIVABLES> 14,744 11,230
<ALLOWANCES> 835 350
<INVENTORY> 7,536 5,885
<CURRENT-ASSETS> 307,732 59,818
<PP&E> 37,645 30,464
<DEPRECIATION> 14,812 11,475
<TOTAL-ASSETS> 335,665 81,927
<CURRENT-LIABILITIES> 11,090 13,085
<BONDS> 172,500 0
0 0
0 0
<COMMON> 233 163
<OTHER-SE> 148,818 58,754
<TOTAL-LIABILITY-AND-EQUITY> 335,665 81,927
<SALES> 26,796 21,248
<TOTAL-REVENUES> 27,286 21,585
<CGS> 9,090 8,097
<TOTAL-COSTS> 9,090 8,097
<OTHER-EXPENSES> 18,321 10,486
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,036 182
<INCOME-PRETAX> 687 2,987
<INCOME-TAX> 2,447 1,093
<INCOME-CONTINUING> (1,760) 1,894
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,760) 1,894
<EPS-BASIC> (0.08) 0.16
<EPS-DILUTED> (0.08) 0.14
</TABLE>
