<PAGE> 1
================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
[ ] Transition Report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended: March 31, 1996.
Commission File No. 0-19241
INVITRO INTERNATIONAL
- -----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
California 33-0149560
- ----------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16632 Millikan Avenue, Irvine, California 92714
- ----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(714) 851-8356
(Not applicable)
- ----------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 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 [ ]
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
Common Stock, without par value, outstanding as of April 30,
1996: 11,979,015 shares.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
================================================================
<PAGE> 2
INVITRO INTERNATIONAL
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Page
Number
Part I. FINANCIAL INFORMATION ............................ 3
Item 1. Financial Statements:
Balance Sheets at March 31, 1996
and September 30, 1995 ....................... 3
Statements of Operations
for the Three Months and Six Months
ended March 31, 1996 and 1995 ................ 5
Statements of Cash Flows for the
Six Months ended March 31, 1996
and 1995 ..................................... 6
Statement of Changes in Shareholders' Equity
for the Six Months ended March 31, 1996 ...... 7
Notes to Unaudited Financial Statements
at March 31, 1996 ............................ 8
Item 2. Management's Discussion and Analysis or
Plan of Operation:
Management's Discussion and Analysis of
Financial Condition and Results
of Operations ................................. 10
Part II. Other Information ................................ 14
Item 5. Other Information ..................... 14
Item 6. Exhibits and Reports on Form 8-K ...... 18
Signatures ................................................ 18
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
INVITRO INTERNATIONAL
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.......... $ 1,239,000 $ 1,165,000
Marketable securities.............. -- 991,000
Accounts receivable -- less
allowance for doubtful accounts
of $15,000 at March 31, 1996 and
$15,000 at September 30, 1995 ... 188,000 190,000
Inventories........................ 170,000 192,000
Prepaid expenses................... 62,000 68,000
----------- -----------
Total Current Assets............... 1,659,000 2,606,000
----------- -----------
Furniture, equipment and
leasehold improvements, at cost.... 1,010,000 1,243,000
Less accumulated depreciation
and amortization................... (764,000) (921,000)
----------- -----------
Net property and equipment........... 246,000 322,000
----------- -----------
Deposits and other assets............ 208,000 225,000
----------- -----------
Total Assets......................... $ 2,113,000 $ 3,153,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
INVITRO INTERNATIONAL
BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
------------ ------------
<S> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable................... $ 147,000 $ 179,000
Accrued payroll and
employee benefits................ 92,000 102,000
Other accrued liabilities.......... 70,000 74,000
----------- -----------
Total current liabilities............ 309,000 355,000
----------- -----------
Shareholders' Equity:
Preferred stock, no par value;
1,000,000 shares authorized,
no shares issued or outstanding
Common stock, no par value;
40,000,000 shares authorized,
11,969,682 shares issued
and outstanding at
March 31, 1996 and
September 30, 1995 ............ 23,864,000 23,864,000
Accumulated deficit................ (22,119,000) (21,129,000)
Currency translation adjustment.... 59,000 63,000
----------- -----------
Total shareholders' equity........... 1,804,000 2,798,000
----------- -----------
Total liabilities and
shareholders' equity............... $ 2,113,000 $ 3,153,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
INVITRO INTERNATIONAL
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months ended Six Months ended
March 31, March 31,
------------------------ ----------------------
1996 1995 1996 1995
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES ....................... $ 260,000 $ 214,000 $ 485,000 $ 543,000
----------- ----------- ---------- ----------
COSTS AND EXPENSES:
Costs of revenues ............ 167,000 127,000 333,000 332,000
Selling, general and
administrative expenses .... 493,000 600,000 1,037,000 1,287,000
Research and development ..... 73,000 214,000 143,000 410,000
----------- ----------- ---------- ----------
Total costs and expenses ... 733,000 941,000 1,513,000 2,029,000
----------- ----------- ---------- ----------
Operating loss ................. (473,000) (727,000) (1,028,000) (1,486,000)
----------- ----------- ---------- ----------
Nonoperating income (expense):
Investment income ............ 6,000 51,000 39,000 110,000
----------- ----------- ---------- ----------
Net loss ....................... $ (467,000) $ (676,000) $ (989,000) $(1,376,000)
=========== =========== ========== ==========
Net loss per common share ...... $(0.04) $(0.05) $(0.08) $(0.11)
=========== =========== ========== ==========
Weighted average
common shares outstanding .... 11,969,682 11,969,682 11,969,682 11,969,682
=========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
INVITRO INTERNATIONAL
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months ended March 31,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ............................ $ (989,000) $(1,376,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization .... 77,000 106,000
Changes in operating assets
and liabilities:
Accounts receivable ............ 2,000 123,000
Inventories .................... 22,000 59,000
Prepaid expenses and
other assets ................. 20,000 4,000
Accounts payable and
accrued expenses ............. (46,000) (410,000)
----------- -----------
Net Cash Provided By (Used In)
Operating Activities ............. (914,000) (1,494,000)
----------- -----------
INVESTING ACTIVITIES:
Capital expenditures ................ (26,000) (18,000)
Proceeds from marketable securities.. 991,000
Proceeds from sale of equipment ..... 40,000 --
Additions to capitalized patent costs (13,000) (21,000)
----------- -----------
Net Cash Provided By (Used In)
Investing Activities ............. 992,000 (39,000)
----------- -----------
FINANCING ACTIVITIES:
Net Cash Provided By (Used In)
Financing Activities ............. -- --
----------- -----------
Effect of exchange rate changes
on cash .......................... (4,000) 6,000
----------- -----------
Net increase (decrease) in cash
and cash equivalents ............. 74,000 (1,527,000)
Cash and cash equivalents at
beginning of period .............. 1,165,000 2,945,000
----------- -----------
Cash and cash equivalents at
end of period .................... $ 1,239,000 1,418,000
=========== ===========
Supplemental disclosures
of cash flow information:
Cash paid during the period for:
Interest ...................... $ -- $ --
Income taxes .................. $ -- $ 1,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 7
INVITRO INTERNATIONAL
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Currency Total
Common stock Accumulated translation Shareholders'
Shares Amount deficit adjustment Equity
---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at
September 30,
1995......... 11,969,682 $23,864,000 $(21,129,000) $63,000 $2,798,000
Net loss for
the six
months ended
March 31,
1996......... (989,000) (989,000)
Currency
translation
adjustments.. (4,000) (4,000)
---------- ----------- ------------ ---------- ----------
Balance at
March 31,
1996......... 11,969,682 $23,864,000 $(22,119,000) $59,000 $1,804,000
========== =========== ============ ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 8
INVITRO INTERNATIONAL
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 -- INTERIM FINANCIAL INFORMATION.
The accompanying unaudited financial statements of InVitro
International, a California corporation (the "Company") at
March 31, 1996, and for the three months and six months periods ended
March 31, 1996 and 1995 have been prepared by the Company pursuant to
the rules of the Securities and Exchange Commission. Such unaudited
financial statements, in the opinion of the Company's management,
include all adjustments necessary for a fair presentation of financial
position, results of operations and cash flows for the interim periods
covered by such statements. 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 the Commission's rules. Reference is
made to Note 1 of the Notes to Consolidated Financial Statements
contained in the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995 for a summary of significant accounting
policies utilized by the Company. It is suggested that the financial
statements at March 31, 1996 be read in conjunction with the audited
consolidated financial statements and notes thereto included in the
Company's latest Annual Report on Form 10-K.
Results of operations for the three months and six months ended
March 31, 1996 and 1995 may not necessarily be indicative of results
for the full fiscal year.
NOTE 2 -- CASH EQUIVALENTS
Cash equivalents consist of money market fund accounts and all
other highly liquid investments with a maturity of 90 days or less
when purchased.
NOTE 3 -- MARKETABLE SECURITIES
Marketable securities at September 30, 1995 were comprised of
U.S. government and investment grade corporate obligations rated "A"
or better, each of which had a maturity of 18 months or less when
purchased. These securities are stated at cost, which approximated
market at the statement date.
<PAGE> 9
NOTE 4 -- INVENTORIES
Inventories consist of the following at March 31, 1996 and
September 30, 1995:
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
------------ ------------
<S> <C> <C>
Raw materials and work-in-process $ 66,000 $ 81,000
Finished goods 104,000 111,000
------------ ------------
$ 170,000 $ 192,000
============ ============
</TABLE>
NOTE 5 -- FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the
following at March 31, 1996 and September 30, 1995:
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
------------ ------------
<S> <C> <C>
Furniture and equipment $ 804,000 $ 1,037,000
Leasehold improvements 206,000 206,000
------------ ------------
1,010,000 1,243,000
Less accumulated depreciation (764,000) (921,000)
------------ ------------
$ 246,000 $ 322,000
============ ============
</TABLE>
In December 1995, the Company sold a large capacity freeze dryer
for $40,000 which had been used by the Company to manufacture reagent
powder for certain of its test kits. The Company has subcontracted
with the purchaser of the freeze dryer to supply the Company's future
requirements for reagent materials. The Company recorded a provision
of $145,000 in September 1995 to write this equipment down to its net
realizable value and to reserve for the estimated disposal costs.
NOTE 6 -- EARNINGS PER SHARE
Net income (loss) per common and common equivalent share is based
upon the weighted average number of common shares outstanding during
the periods presented. No effect has been given to exercise of common
stock purchase warrants or stock options since the effect would be
antidilutive.
<PAGE> 10
INVITRO INTERNATIONAL
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
REVENUES: For the six months ended March 31, 1996 (the "1996
Period"), revenues were $485,000, a decrease of approximately 10.7%
compared to revenues of $543,000 in the six months ended March 31,
1995 (the "1995 Period"). Higher revenues in the 1995 Period were
due in part to $41,000 in revenues realized in the prior 1995 Period
under a nonrecurring consulting contract. Other revenue changes in
the 1996 Period, compared to the 1995 Period, included declines of
$13,000 in sales of CORROSITEX (R) test kits and $126,000 in sales of
EYTEX (R) and SKINTEX (TM) dermal and ocular irritation test kits,
partially offset by $71,000 in sales of the Company's newly configured
IRRITECTION (TM) Assay System for dermal and ocular irritation and a
$52,000 increase in laboratory services revenues.
Revenues of $260,000 for the three months ended March 31, 1996
reflect an increase of $35,000, or 15.6%, compared to $225,000 in
revenues for the immediately preceding fiscal quarter ended December
31, 1995 and an increase of $46,000, or 21.5%, compared to $214,000 in
revenues for the three months ended March 31, 1995. The Company's
management believes that adverse sales trends experienced in prior
periods have been reversed as discussed in more detail below.
The Company has encountered difficulty in increasing sales of
CORROSITEX test kits to determine Packing Group classification of
corrosive substances because of a continuing high level of industry
noncompliance with U.S. Department of Transportation Packing Group
regulations. The Company also believes that certain CORROSITEX
customers previously purchased the product to satisfy a one-time
testing need, and have not made repeat purchases because they do not
have ongoing testing requirements. However, the Company anticipates
that sales of CORROSITEX will benefit in the future by a proposed
addition to the U.S. Environmental Protection Agency ("EPA") manual of
solid waste test methods, which lists CORROSITEX as a method of
characterizing dermal corrosivity (EPA Publication SW-846, Method
1120). Management anticipates that EPA Method 1120 will lead to more
routine use of CORROSITEX than has been previously realized.
During April 1996, the Company entered into agreements with five
companies that will represent the Company in Europe for its
IRRITECTION Assay System for dermal and ocular irritation and
CORROSITEX tests to determine Packing Group classification. Vel N.V.,
a unit of Merck & Co., will distribute these products in Belgium and
Luxembourg; Transia Gmbh Industriediagnostika will represent the
Company's products in Germany; Tecal Quimica will represent the
Company in Spain; Argo Prodotti Chimici will distribute products in
Italy; and G&S Pharmaceutical Consultants will handle the Company's
products in Switzerland.
<PAGE> 11
On March 11, 1996, the Company entered into an exclusive
distributorship agreement to market the Guardian-DNA (TM)
identification system supplied by Miragen Inc., Irvine, California,
to hospitals, birthing and other institutional obstetric markets.
Guardian DNA is a unique system for DNA identification of humans
consisting of a DNA sample acquisition kit, annually updated emergency
information package, a child safety video tape and a mailer for a
precoded sample tube. If there is a need for identification after
notification by a law enforcement agency, DNA tests may be performed
on the stored sample and a current sample to determine if there is a
positive identification. One primary advantage of the Guardian DNA
system is a significant reduction in the cost of performing a DNA
profile on each sample. The Company expects to launch test marketing
of the Guardian DNA system in selected beta site hospitals in the U.S.
during June and July 1996, followed by full marketing launch in major
metropolitan area hospitals. See also Item 5 in Part II of this
Report.
COSTS OF GOODS SOLD: Cost of revenues for the 1996 Period were
$333,000, or approximately 68.7% of sales, compared to $332,000, or
61.1% of sales, for the 1995 Period, resulting in gross profit margins
of 31.3% for the 1996 Period compared to 38.9% in the 1995 Period.
The decline in gross profit margin in the 1996 Period resulted
primarily from a combination of the absence of revenues realized in
the prior 1995 Period under a nonrecurring consulting contract and
fixed manufacturing costs that were largely unabsorbed due to lower
revenues. Gross margins are expected to remain at or near present
levels until sales growth necessary to absorb fixed costs is attained,
as to which there can be no assurance.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general
and administrative expenses were $1,037,000 in the 1996 Period, a
reduction of approximately $250,000 compared to $1,287,000 in selling,
general and administrative expenses for the 1995 Period. This
decrease is primarily due to lower marketing expenses and a reduction
in administrative staff in the 1996 Period compared to the 1995 Period
as a result of management's continuing program to eliminate all
nonessential costs and expenses. The Company anticipates selling
expenses will increase in the second half of the current fiscal year
ending September 30, 1996, primarily in support of the marketing
launch of the Guardian DNA product line discussed above.
<PAGE> 12
RESEARCH AND DEVELOPMENT. Research and development expenses for
the 1996 Period were $143,000, a $267,000 decrease from $410,000 in
research and development expenses for the 1995 Period. This decline
is primarily attributable to reductions in personnel and decreased
expenditures for research materials and supplies. During February
1996, the Company announced the formation of strategic development
alliances with Celsis International and Tanks Inc. The alliance with
Celsis will assess the effectiveness of the Company's Irritection
assay system in markets for animal testing, and the Tanks Inc.
alliance will assess the effectiveness of the CORROSITEX system in
conjunction with Tanks' Barrier product in petrochemical and other
corrosion removal markets. As discussed above, the Company also
acquired exclusive distribution rights to the Guardian DNA product for
specified market applications. These agreements collectively offer
the potential of expanding the Company's markets without adding
significant expense to Company funded research and development.
OTHER INCOME. Investment income was $39,000 in the 1996 Period,
a decline of $71,000 compared to the 1995 Period. The decrease in
investment income was primarily attributable to a lower amount of
average invested funds during the 1995 Period compared to the prior
1995 Period and secondarily to lower yields on interest-bearing
investments.
NET LOSS. The Company s net losses of $989,000 for the 1996
Period declined by approximately $387,000 compared to net losses of
$1,376,000 for the 1995 Period, notwithstanding lower revenues. The
net loss of $467,000 for the three months ended March 31, 1996 also
reflects a reduction in loss compared to $522,000 in net loss for the
immediately preceding quarter ended December 31, 1995 and the $676,000
in net loss for the three months ended March 31, 1995. Net loss
reductions are primarily attributable to reductions in selling,
general and administrative expenses and research and development
expenses discussed above.
Management anticipates that the Company will continue to incur
losses at this or a lower rate for the immediate near term due to the
Company's current level of fixed expenses for manufacturing overhead
and selling, general and administrative expenses. Losses are expected
to continue until such time as sales increase to a level necessary to
absorb fixed costs. No assurances can be given as to whether or when
sales increases may be achieved. Sales increases will be dependent in
part upon expanding use of the Company's products and services by
customers and in part upon sales and marketing of new products by the
Company.
<PAGE> 13
Although there can be no assurance of future growth in revenues
or profitability, the Company's management anticipates that a
successful launch of the Guardian DNA product line, combined with
gradual anticipated growth in its core IRRITECTION and CORROSITEX
assay systems, will lead to a turn-around in financial performance and
significant progress toward management's goal of attaining a
profitable level of operations by the end of calendar 1996. If
successful, the Company's early market research indicates that its
market launch of Guardian DNA during the balance of calendar 1996 will
expose the Guardian DNA system to nearly 25% of expectant mothers in
the United States.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's principal capital requirements include working
capital to finance sales and marketing activities, other general and
administrative expenses and product development. The Company has no
significant pending commitments for capital expenditures, and capital
equipment additions are not expected to be material in amount for the
foreseeable future.
At March 31, 1996, the Company's cash and marketable securities
totalled $1,239,000 and its working capital was $1,305,000. During
the six months ended March 31, 1996, the Company's cash and marketable
securities decreased by $917,000, due primarily to cash outflows used
by operating activities of $914,000, partially offset by proceeds from
the sale of equipment of $40,000.
Management is actively pursuing strategies to increase the
Company's sales volume and reduce its negative cash flow. Based on
currently planned activities and assuming reasonable revenue
increases, management believes that its cash and marketable securities
at March 31, 1996 are sufficient to fund the Company's operations for
at least the next 12 months.
The Company is also negotiating to raise additional capital
through the sale of common equity or convertible securities. Although
negotiations currently in process appear promising, there can be no
assurance the Company will be successful in efforts to raise
additional capital.
TAX LOSS AND CREDIT CARRYFORWARDS:
The Company had federal and state net operating loss
carryforwards at September 30, 1995 of approximately $17,600,000 and
$9,000,000, respectively, and research and development tax credits of
approximately $323,000 for federal income tax purposes. The federal
and state operating loss carryforwards begin to expire in 2000 and
1999, respectively. Additionally, due to ownership changes which
occurred during fiscal 1991 and 1993, the utilization of approximately
$8,000,000 of federal net operating loss carryforwards is subject to
annual limitations in future periods. The research and development tax
credits begin to expire in 2006.
<PAGE> 14
PART II -- OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
DISTRIBUTORSHIP AGREEMENT WITH MIRAGEN INC.
On March 11, 1996, the Company entered into an exclusive
Distributorship Agreement to market the Guardian-DNA (TM)
identification system supplied by Miragen Inc., Irvine, California,
to hospitals, birthing and other institutional obstetric markets.
Guardian DNA is a unique system for DNA identification of humans
consisting of a DNA sample acquisition kit, annually updated emergency
information package, a child safety video tape and a mailer for a
precoded sample tube. A DNA sample is extracted from the inside of a
child's mouth with a cotton swab and placed in the pre-coded tube.
The tube with the sample is then stored by Miragen in a preservative
solution for up to 16 years. Anonymity of the sample is ensured
because no names or social security numbers are used. The child's
parents retain the matching code number. If there is a need for an
identification after notification by a law enforcement agency, a DNA
test may be performed to determine if there is a positive
identification. Guardian DNA is a trademark of Miragen Inc. One
primary advantage of the Guardian DNA system is a significant
reduction in the cost of performing a DNA profile on each sample.
The Company expects to launch test marketing of the Guardian DNA
system in selected beta site hospitals in the U.S. during June and
July 1996, followed by full marketing launch in major metropolitan
area hospitals. If successful, the Company's early market research
indicates that its market launch of Guardian DNA during the balance of
calendar 1996 will expose the Guardian DNA system to nearly 25% of
expectant mothers in the United States. There are approximately 4
million births annually in the U.S., and the Company's research to
date indicates that Guardian DNA will appeal to a majority of new
mothers.
The Company holds exclusive distribution rights for marketing
Guardian DNA products to institutional obstetric markets in the U.S.
and abroad for an initial three year term, renewable annually
thereafter. To maintain exclusive marketing rights under the
Distributorship Agreement, the Company is required to attain minimum
purchase quotas in various periods during the term of the agreement,
ranging from 3,333 units per month during the initial six months up to
50,000 units per month in the last six months of the third year.
Two of the Company's officers, directors and shareholders,
Messrs. Irwin J. Gruverman and William M. Curtis, are also officers,
directors and shareholders of Miragen Inc., which was founded in March
1993. Messrs. Gruverman and Curtis both abstained from participating
in the negotiation of the Company's Distributorship Agreement with
Miragen Inc., and the agreement was approved by all disinterested
members of the Company's Board of Directors.
<PAGE> 15
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
InVitro International desires to take advantage of the new "safe
harbor" provisions of the Private Securities Litigation Reform Act of
1995 (the "Act"). The Act became law in late December 1995 and,
except for the Congressional Conference Report, no official
interpretation of the Act's provisions have been published. Many of
the following factors have been discussed in previous filings of the
Company with the Securities and Exchange Commission ("SEC"). The
Company sets forth the following important risk factors that could
cause the Company's actual results to differ materially from results
projected in forward looking statements made by, or on behalf of, the
Company, if any:
An investment in the securities of the Company is speculative in
nature, involves a high degree of risk, and should not be made by an
investor who cannot afford the loss of his or her investment.
Investors should carefully consider the following risk factors
associated with an investment in the Company's securities.
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT AND OPERATING
LOSSES. The Company commenced operations in September 1985, was
engaged primarily in research and development until 1989 and
accordingly has a limited operating history. The Company has incurred
substantial losses from operations since inception and has not been
profitable during the last five years, resulting in an accumulated
deficit of $22,119,000 at March 31, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operation" and the consolidated financial statements elsewhere in this
Report and in prior filings with the SEC. Results of operations in
the future will be influenced by numerous factors, including market
acceptance of the Company's products, the ability of the Company to
develop and manage the introduction of new products, competition, and
the ability of the Company to control costs. There can be no
assurance that revenue growth or profitability on a quarterly or
annual basis will be attained. The Company therefore is subject to
all the risks incident to the creation of a new business and a limited
history of operations including, among others, the possibility of
unforeseen expenses, difficulties, complications and delays.
FUTURE CAPITAL REQUIREMENTS. The Company's working capital was
$1,305,000 at March 31, 1996, and management anticipates the Company
may be required to seek additional equity financing in the future to
sustain its operations. There can be no assurance the Company will be
successful in efforts to raise additional capital.
DEPENDENCE UPON KEY PERSONNEL. The Company is substantially
dependent upon the active participation of its President and Chief
Executive Officer, W. Richard Ulmer, and its Senior Vice President,
Dennis E. Chenoweth. If the Company were to lose the services of
either of these individuals, the continuing and planned future
operations of the Company might be materially adversely affected.
<PAGE> 16
UNCERTAINTY OF MARKET; LACK OF GOVERNMENTAL ACCEPTANCE. Market
acceptance of new products and methodology, such as those represented
by the Company's products, requires substantial time and effort and is
subject to various risks. To date the Company has achieved revenues
that are insufficient to cover its operating costs and expenses.
There can be no assurance that sales levels will be increased. A
significant education effort and validation testing normally is
required to convince prospective customers who utilize conventional
animal testing that the Company's in vitro safety testing products are
efficacious. Although the Company has received favorable indications
in preliminary market research for the Guardian DNA system, this
represents a new product introduction to the market and there can be
no assurances of future sales levels.
Various governmental agencies, such as the U.S. Food and
Drug Administration ("FDA"), the U.S. Department of Transportation and
the U.S. Environmental Protection Agency, rely upon the results of a
multiple number of tests in order to determine the safety, labeling,
transport and/or disposal of consumer and industrial products. The
FDA has historically considered the conventional Draize rabbit test to
be the most conclusive for evaluating ocular irritancy and
conventional animal and human skin tests for evaluating skin
irritancy. The Company has been advised by the FDA that products such
as in vitro tests sold by the Company are not regulated by the FDA
since the manufacturer itself is responsible for assuring and
verifying the confidence of its testing methods. Although sale and
use of the Company's products do not require pre-market approval by
the FDA, acceptance of the Company's tests by regulatory agencies as
an efficacious alternative to conventional animal testing could
enhance the marketability of, and markets for, the Company's products.
There can be no assurance that such acceptance by regulatory agencies
can or will be attained for any one or more of the Company's tests or
that the efficacy of the Company's testing alternatives will be
preferred by customers to other forms of testing.
CONFLICTS OF INTEREST. The Company in the past has engaged in a
number of material transactions with its directors and executive
officers and/or their affiliates, and may engage in such transactions
in the future. All such transactions have been in the past, and will
be in the future, approved by a majority of the Company's
disinterested directors.
TECHNOLOGICAL CHANGE AND INCREASED COMPETITION. Modern
biotechnology has undergone, and continues to undergo, rapid and
significant technological change. The Company's success will depend
on its ability to maintain a competitive position with respect to its
proprietary technology and to continue to attract and retain qualified
personnel. There can be no assurance that future technological
developments will not render products of the Company uneconomical or
obsolete or that the Company will not be adversely affected by
competition or by the future development of products by others.
<PAGE> 17
DEPENDENCE UPON SUPPLIERS AND SINGLE SOURCES OF SUPPLY. Certain
components and materials used in the Company's safety testing products
are purchased from single sources and the Guardian DNA system will be
purchased solely from Miragen Inc. While the Company believes that
components and materials for its safety testing products are available
from alternate sources on reasonable terms, an interruption of supply
of these components or of Guardian DNA products from Miragen Inc.
could materially adversely affect the Company prospects.
NO ASSURANCE AS TO PROTECTION OF PATENTS AND PROPRIETARY RIGHTS;
RELIANCE ON TRADE SECRETS. The Company holds or is licensed under
various U.S. patents covering certain features of its safety testing
products and certain aspects of the Guardian DNA system is covered by
patent rights of Miragen licensed for sales and marketing use by the
Company. There can be no assurance that any issued patent will
provide significant competitive advantages, or that challenges will
not be instituted against the enforceability of patents owned or
licensed by the Company. The cost of litigation to uphold the
validity of a patent and prevent infringement can be substantial even
if the Company prevails. In certain cases, the Company relies upon
trade secrets to protect proprietary technology and formulations which
it has developed or may develop in the future. There can be no
assurance that secrecy obligations will be honored or that others have
or will not independently develop similar or superior technology.
UNDETERMINED EFFECT OF BLANK CHECK PREFERRED STOCK; POTENTIAL FOR
SUBSTANTIAL DILUTION. The Company's articles of incorporation
authorize the issuance of up to 40 million shares of common stock and
up to one million shares of "blank check preferred stock" with such
rights, preferences, privileges and limitations as may be determined
from time to time by its board of directors. Accordingly, the Board
has the power without prior shareholder approval to issue additional
shares of common stock and/or one or more series of preferred stock
with such rates of dividends, redemption provisions, liquidation
preferences, voting rights, conversion privileges and any other
characteristics as the Board may deem necessary. Any such additional
issuances of common stock and/or preferred stock may result in
substantial and material dilution to existing holders of the Company's
securities. In addition, the existence of a substantial amount of
authorized and unissued common stock and blank check preferred stock
could discourage, delay or prevent a takeover of the Company if any
such transaction were to be proposed.
RISK OF PRODUCT LIABILITY. The testing, marketing and sale of
diagnostic products entails an inherent risk of product liability and
there can be no assurance that product liability claims will not be
asserted against the Company. Although the Company carries a
$1,000,000 product liability insurance policy, there can be no
assurance that it will be able to maintain the same or that any claims
will not exceed the amount of such coverage. To the extent product
liability claims exceed the amount of insurance coverage, if any, the
Company may suffer adverse materials effects.
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
Exhibit
Number Description
- ------ ---------------------------------------------------
10.39 Distributorship Agreement dated March 11, 1996 between the
Registrant and Miragen Inc.
27 Financial Data Schedule at March 31, 1996.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter ended March
31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) 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.
Date: May 10, 1996
INVITRO INTERNATIONAL
(Registrant)
By: /s/ W. RICHARD ULMER
- -----------------------------
W. Richard Ulmer, President,
Chief Executive Officer and
Chief Financial Officer
By: /s/ KRISTINA PARKER
- -----------------------------
Kristina Parker,
Chief Accounting Officer
<PAGE> 1
DISTRIBUTORSHIP AGREEMENT
This Agreement (the "Agreement") is made and entered into this
11th day of March, 1996, by and among INVITRO INTERNATIONAL, a
California corporation ("INVITRO") having its principal office at
16632 Millikan Avenue, Irvine, California 92714, and MIRAGEN INC., a
California corporation ("MIRAGEN") having its principal office at
10005 Muirlands, Suite O, Irvine, California 92718.
RECITALS AND CERTAIN DEFINITIONS
A. MIRAGEN has developed and owns proprietary rights to a
product line named the "Guardian DNA system(TM)" (such system,
including future modifications and/or improvements made by either of
the parties hereto, is called the "Guardian DNA Product Line" and such
products are herein called the "Guardian DNA Products"). As currently
configured, the Guardian DNA system consists of a DNA sample
acquisition kit, annually updated emergency information package, a
child safety video tape and a mailer for a precoded sample tube. A
buccal sample (epithelial cells extracted from the inside of the
mouth) is collected from a child with a cotton swab and placed in the
pre-coded tube. The tube with the sample is then mailed to MIRAGEN,
where it is stored in a preservative solution in MIRAGEN's secure
freezer for up to 16 years. Anonymity of the sample is ensured
because no names or social security numbers are used. The child's
parents retain the matching code number. If there is a need for an
identification after notification by a law enforcement agency, MIRAGEN
will perform a DNA test to determine if there is a positive
identification.
B. INVITRO is engaged in the marketing and sale of products
relating to human health care and wishes to act as an exclusive
distributor of the Guardian DNA product line to Institutions
throughout the world on a basis demonstrating to MIRAGEN that INVITRO
has the capacity to sell the Guardian DNA Product Line in significant
volumes and in a manner that will preserve and enhance the reputation
and goodwill associated with the Guardian DNA Product Line. For the
purposes of this Agreement, the term "Institutional Markets" shall
mean Institutions, birthing facilities, and all similar obstetric
facilities providing for delivery of newborn infants. The term
"Territory" shall mean all geographic markets throughout the world.
C. MIRAGEN desires to appoint INVITRO as the exclusive
distributor, upon the terms and conditions set forth herein, to market
and sell the Guardian DNA Product Line to Institutional Markets
throughout the Territory.
NOW, THEREFORE, in consideration of the mutual promises below,
the parties agree as follows:
<PAGE> 2
SECTION 1. APPOINTMENT AS DISTRIBUTOR AND TRADEMARK LICENSE
1.1. DISTRIBUTION RIGHTS. MIRAGEN appoints INVITRO as the
exclusive distributor for sale of the Guardian DNA Product Line to
Institutional Markets in the Territory as long as performance
standards set forth in Section 8 of this Agreement are met by INVITRO,
and INVITRO accepts such appointment subject to the terms and
conditions set forth herein. For the term of this Agreement, MIRAGEN
further grants INVITRO a nonexclusive right and license to use the
trade name and trademark "Guardian DNA" and to use the patent rights
of MIRAGEN in connection with the marketing, sale and distribution of
Guardian DNA Products by INVITRO to the Institutional Markets.
1.2. INDEPENDENT DISTRIBUTOR. Each party is an independent
contractor under this Agreement and neither has, nor will have, any
power, right or authority, nor will it represent that it has any
power, right or authority, to bind the other party, or to assume or to
create any obligations or responsibility, express or implied, on
behalf of the other party. Nothing stated in this Agreement shall be
construed as constituting INVITRO and MIRAGEN as partners, joint
venturers or as creating relations of employer and employee, master
and servant, or principal and agent between the parties to this
Agreement.
1.3. RIGHT TO PURCHASE DISTRIBUTE THE PRODUCT LINE. This
Agreement gives INVITRO the right to purchase the MIRAGEN Product Line
from MIRAGEN, and to resell the MIRAGEN Product Line to purchasers and
customers in Institutional Markets within the Territory in accordance
with the terms of this Agreement. INVITRO's compensation will come
from the margin between the price it pays MIRAGEN for the products
covered hereby and the price at which INVITRO sells those products to
customers in the Institutional Markets, and MIRAGEN shall not be
obligated to pay any compensation to INVITRO. Collection of accounts
receivable for Guardian DNA Products sold by INVITRO to customers in
the Institutional Market shall be at the sole risk of INVITRO and
failure to collect the same shall not alter the obligation of INVITRO
to make payment for said Guardian DNA Products to MIRAGEN under the
terms of this Agreement.
SECTION 2. TERM
2.1. This Agreement shall take effect on the date first written
above and shall be for a term of three (3) years from the date written
above unless earlier terminated pursuant to Sections 5.1.2, 8 or 11.
This Agreement shall automatically renew for additional consecutive
one (1) year terms unless at least 90 days before the end of any term
either party notifies the others of its decision not to renew due to:
<PAGE> 3
(a) a failure to establish prices to be effective for the
following year pursuant to the provisions of Section 5.1.2,
or
(b) a failure by INVITRO to order and purchase minimum purchase
quotas required by Section 8, or
(c) a material default by the other party of one or more of its
obligations under this Agreement.
INVITRO shall not be entitled to any payments or any kind due to
expiration of the term of this Agreement, termination of this
Agreement pursuant to Sections 5.1.2, 8 or 11, or failure to renew or
extend this Agreement.
SECTION 3. INVITRO'S OBLIGATIONS
3.1. BEST EFFORTS. INVITRO agrees to use its best efforts to
sell the Guardian DNA Products to customers in the Institutional
Markets and to encourage the purchase of Guardian DNA Products by
INVITRO's Institutional Market customers in the Territory. INVITRO
shall use the Guardian DNA trade name and trademark in promoting the
sale and marketing of the Guardian DNA Products and shall not use any
other trade name or trademarks in such activities without first
obtaining the prior written consent of MIRAGEN, which may be granted
or withheld by MIRAGEN for any reason. INVITRO acknowledges that the
Guardian DNA trade name and trademarks are the property of MIRAGEN and
INVITRO shall discontinue the use of such trade name and trademarks in
the event this Agreement is terminated for any reason.
3.2. SALES FORCE. INVITRO agrees to employ and maintain
knowledgeable full-time sales and distribution personnel to market,
sell and distribute Guardian DNA Products hereunder throughout the
United States and in such other areas as INVITRO shall determine.
INVITRO's sales staff will obtain and maintain knowledge and expertise
concerning the Guardian DNA Product Line that is reasonably
satisfactory to MIRAGEN and INVITRO.
3.3. REGULATORY APPROVAL. INVITRO shall be responsible for
determining whether any governmental regulatory approvals are required
for it to market and sell the Guardian DNA Products in any
jurisdiction within the Territory and to determine all packaging and
labeling requirements imposed by governmental prescriptions for the
state, province and country of destination designated by INVITRO for
sale and delivery of the Guardian DNA Products. MIRAGEN agrees that it
will comply with any and all instructions and specifications provided
to MIRAGEN in writing by INVITRO concerning the packaging and labeling
of Guardian DNA Products sold by MIRAGEN to INVITRO hereunder.
<PAGE> 4
3.4. PRIOR APPROVAL OF ADVERTISING AND MARKETING MATERIALS.
INVITRO shall submit to MIRAGEN for its approval in advance, which
shall not be unreasonably withheld, samples of all advertising,
promotional materials and protocols that INVITRO desires to use to
promote the Guardian DNA Products that have not been prepared or
previously approved by MIRAGEN, including without limitation,
translations of materials into the English language where applicable.
3.5. COSTS OF ADVERTISING. All costs of advertising Guardian DNA
Products for Institutional Markets throughout the Territory incurred
by INVITRO shall be borne by INVITRO.
3.6. INITIAL STOCKING ORDER. Upon execution of this Agreement
and as a condition precedent to the effectiveness of this Agreement,
INVITRO shall place an initial purchase order for at least 10,000
units of the Guardian DNA Product Line for the Institutional Markets,
to be delivered to INVITRO by MIRAGEN within two months of the date of
this Agreement.
3.7. REQUIREMENTS. During the term of this Agreement, INVITRO
agrees to purchase from MIRAGEN all of INVITRO's requirements of all
components included in the Guardian DNA Product Line, including
without limitation all of INVITRO's requirements of DNA sample
acquisition kits, emergency information packages, child safety video
tapes and mailers for precoded sample tubes. All Guardian DNA
Products sold by INVITRO shall include a specification that samples
are to be returned by mail to MIRAGEN for storage at MIRAGEN.
3.8. ACTIVITIES OUTSIDE INSTITUTIONAL MARKET. INVITRO shall not
solicit orders for Guardian DNA Products from customers outside the
Institutional Markets, and shall not compete with the activities of
MIRAGEN or its distributors and sales representatives for the sale of
Guardian DNA Products to markets and through channels of distribution
other than the Institutional Markets. In the event INVITRO receives
unsolicited orders for Guardian DNA Products from customers outside
the Institutional Markets, INVITRO agrees to promptly refer the same
to MIRAGEN.
3.9. NO COMPETITION. During the term of this Agreement, INVITRO
shall not, nor shall it permit any of its affiliates to, engage in the
marketing, promotion, sale, distribution, development or manufacturing
of any products which are competitive with the Guardian DNA Product
Line except for any improvements or modifications to Guardian DNA
Products developed by INVITRO for which all right, title and interest
are transferred by INVITRO to MIRAGEN. For a period of twelve (12)
months following any termination of this Agreement, INVITRO covenants
and agrees that it shall not, nor shall it permit any of its
affiliates to, engage in the marketing, promotion, sale, distribution,
development or manufacturing of any products which are competitive
with the Guardian DNA Product Line in the Institutional Markets.
<PAGE> 5
SECTION 4. OBLIGATIONS OF MIRAGEN
4.1. SALE OF PRODUCTS AND PRESERVATION OF SAMPLES.
(a) During the term of this Agreement, MIRAGEN agrees to
sell Guardian DNA Products to INVITRO pursuant to orders MIRAGEN
receives from INVITRO for the Institutional Markets in the Territory
in accordance with this Agreement.
(b) During the term of this Agreement and after the
expiration of this Agreement, MIRAGEN further covenants and agrees to
maintain and preserve in its secure freezer all samples mailed or
otherwise delivered to MIRAGEN resulting from the sale and use of
Guardian DNA Products sold by INVITRO for a period of at least 16
years from and after the date each such sample was first received by
MIRAGEN.
4.2. TECHNICAL SUPPORT. MIRAGEN agrees to provide INVITRO with
reasonable technical support and advice for marketing the Guardian DNA
Product Line and to provide INVITRO's staff with training necessary to
demonstrate use of the Guardian DNA Product Line.
SECTION 5. PRICES AND SHIPMENT
5.1. PRICES.
5.1.1. FIRST YEAR. During the first year of this
Agreement, MIRAGEN will sell the Guardian DNA Products to INVITRO, at
the unit prices stipulated in EXHIBIT "A" attached to this Agreement.
5.1.2. SECOND AND SUCCESSIVE YEARS. At least 120 days
before each anniversary of the date of this Agreement unless it shall
have been earlier terminated pursuant to other provisions hereof,
MIRAGEN will provide INVITRO with the prices for all products in the
Guardian DNA Product Line for the following year of this Agreement
which shall include an adjustment for any increases in costs incurred
by MIRAGEN after the date hereof and a profit margin to MIRAGEN
consistent with its initial product margin hereunder. In the event
INVITRO objects to any of such prices, the parties shall negotiate in
good faith in order to determine the prices to apply for such
following year. If the parties are unable to reach agreement at least
90 days prior to the anniversary of the date of this Agreement as to
the prices to apply to purchases of Guardian DNA Products by INVITRO
under this Agreement during the following year, this Agreement shall
automatically terminate on such anniversary date. In the event of
termination of this Agreement pursuant to the terms of the preceding
sentence, MIRAGEN shall not, within twelve (12) months after the
termination of this Agreement, enter into agreements for the sale and
distribution of the Guardian DNA Product Line in the Institutional
Market if such agreements provide for prices to be paid to MIRAGEN
that are less than the last prices offered to INVITRO in negotiations
pursuant to this Section 5.1.2.
<PAGE> 6
5.2. PRICING TERMS. All prices are F.O.B. Irvine, California,
U.S.A., and are stated and payable in United States Dollars. Unit
prices for any particular product within the Guardian DNA Product Line
are those stipulated in EXHIBIT "A" attached to this Agreement as the
same may be amended from time to time in accordance with Section 5.1.2
above and the agreement of the parties.
5.3. SHIPPING TERMS. INVITRO will normally request MIRAGEN to
ship the Guardian DNA Products to INVITRO's warehouse facilities in
Irvine, California. At the election of INVITRO, the parties
acknowledge that INVITRO from time to time may elect to request that
MIRAGEN send shipments of Guardian DNA Products directly to INVITRO's
customers in the Institutional Markets or to warehouse locations in
INVITRO's distribution network designated by INVITRO, in which event
freight, insurance in transit and other shipping costs shall be
reimbursed by INVITRO to MIRAGEN. Drop shipments made at INVITRO's
request shall be made on INVITRO's behalf and at INVITRO's expense,
and INVITRO authorizes MIRAGEN under such circumstances to chose a
carrier, arrange for transport of the goods to INVITRO's customer or
INVITRO's marketing network in the appropriate country within the
Territory where the use of the Guardian DNA Products is expected to
occur, and to insure the goods during shipment for the account of
INVITRO. The risk of loss on all shipments is with INVITRO upon
delivery by MIRAGEN to a carrier F.O.B. Irvine, California, U.S.A.
SECTION 6. PURCHASE ORDERS; FORECASTS
6.1. PURCHASE ORDERS. All orders must be made in writing and
shall be effected by INVITRO's issuance of purchase order forms
designated by MIRAGEN, which shall be subject to the terms and
conditions of this Agreement, sent by mail, courier delivery, personal
delivery, telex or facsimile transmission. Each purchase order shall
contain the quantity of Guardian DNA Products for the Institutional
Market purchased, delivery date(s), dating, routing instructions,
destination, country of intended use and sale, and confirmation of
price. For accounting convenience, each purchase order shall bear a
separate number having no numerical relationship to this Agreement.
Each purchase order, however, shall make specific reference to this
Agreement and thereby incorporate the terms of this Agreement. No
term or condition contained in any such purchase order shall alter,
amend, modify or supplement the obligations of MIRAGEN hereunder
unless specifically agreed to in writing by MIRAGEN. All orders are
subject to acceptance by MIRAGEN at its headquarters, and MIRAGEN
promptly will send INVITRO a written acknowledgment of all accepted
orders. MIRAGEN reserves the right to charge INVITRO a change or
cancellation fee for any change or cancellation of 25% or more in a
previously accepted order. MIRAGEN shall not be deemed to be in
breach of this Agreement for failure to fill an order due to economic
or other factors beyond its direct control including strikes, lack of
raw material, or substantial cost increases therefor.
<PAGE> 7
6.2. QUANTITIES. INVITRO agrees that all orders shall be placed
no less than 30 days in advance of the requested delivery date.
6.3. FORECASTS. INVITRO shall provide MIRAGEN every three months
with a six-month rolling forecast for units of the Guardian DNA
Product Line for the Institutional Market in order that MIRAGEN may
organize its inventories.
SECTION 7. PAYMENT.
7.1. INVITRO shall pay MIRAGEN the full purchase price and any
costs MIRAGEN incurs on INVITRO's behalf for an order within 30 days
after shipment by MIRAGEN.
SECTION 8. MINIMUM PURCHASE QUOTAS
8.1. FIRST THREE YEARS. So long as this Agreement has not been
terminated, and as a condition to maintaining exclusive distribution
rights to the Institutional Market, INVITRO will purchase the
following minimum quantities of the Guardian DNA Products from MIRAGEN
during the time periods indicated:
Period - First Year of this Agreement:
- --------------------------------------
Each month during the First Three Months
of this Agreement 3,333 Units
Each month during the Second Three Months
of this Agreement 3,333 Units
Each month during the Third Three Months
of this Agreement 10,000 Units
Each month during the Fourth Three Months
of this Agreement 20,000 Units
Period - Second Year of this Agreement:
- ---------------------------------------
Each month during the First Six Months of the
Second Year of this Agreement 25,000 Units
Each month during the Last Six Months of the
Second Year of this Agreement 30,000 Units
Period - Third Year of this Agreement:
- --------------------------------------
Each month during the First Six Months of the
Third Year of this Agreement 40,000 Units
Each month during the Last Six Months of the
Third Year of this Agreement 50,000 Units
In the event INVITRO shall fail to purchase the minimum number of
Units required hereunder for a period of two consecutive months or for
any three months within a period of 12 consecutive months, MIRAGEN
shall have the right of terminating this Agreement upon 90 days' prior
written notice to INVITRO.
However, in the event that any order placed with MIRAGEN is not
delivered within the period required by this Agreement, INVITRO will
have an opportunity to deliver a new forecast with new minimums for
the foregoing time periods in which INVITRO is required to purchase
minimum quotas.
<PAGE> 8
8.2. SUBSEQUENT YEARS. INVITRO shall establish minimum purchase
quotas for subsequent years after the third year of this Agreement for
the Institutional Markets within the Territory by agreement with
MIRAGEN. If the parties are unable to reach agreement at least 30
days prior to the anniversary of the date of this Agreement as to the
minimum quotas to apply to purchases of product by INVITRO under this
Agreement during the following year, this Agreement shall
automatically terminate on such anniversary date, and MIRAGEN shall
not, within twelve (12) months after the termination of this
Agreement, enter into any agreements for the distribution and sale of
Guardian DNA Products to Institutional Markets in the Territory if
such agreements provide for prices and minimum quantities that are
less than the last prices and minimum quantities offered to INVITRO in
negotiations pursuant to this Section 8.2 and Section 5.1.2 of this
Agreement.
SECTION 9. PATENT AND TRADEMARK PROTECTION
9.1. INVITRO acknowledges that trade names, trademarks, patents
and patent applications of MIRAGEN applicable to products in the
Guardian DNA Product Line are the sole property of MIRAGEN. INVITRO
shall not use the trademark "Guardian DNA" or any other trademarks of
MIRAGEN except in the normal course of advertising or selling the
Guardian DNA Product Line pursuant to this Agreement and then only in
a manner approved by MIRAGEN. During the term of this Agreement,
INVITRO will immediately inform MIRAGEN by written notice of any
infringement of the trademarks or patent rights of MIRAGEN that
INVITRO becomes aware of and, at MIRAGEN's request and expense, will
cooperate with MIRAGEN in any action it deems necessary to protect its
trademarks and patent rights against such infringement.
SECTION 10. WARRANTY AND DISCLAIMER
10.1. MIRAGEN WARRANTS THAT GUARDIAN DNA PRODUCTS DELIVERED
BY IT PURSUANT TO THIS AGREEMENT WILL BE (i) MANUFACTURED, ASSEMBLED,
LABELED AND PACKAGED IN ACCORDANCE WITH WRITTEN SPECIFICATIONS
MUTUALLY ACCEPTABLE TO MIRAGEN AND INVITRO, (ii) FREE FROM
COMMERCIALLY UNACCEPTABLE CONTAMINATES IN MATERIALS RESULTING FROM
MANUFACTURING AND ASSEMBLY OPERATIONS, (iii) FREE FROM MATERIAL
DEFECTS IN WORKMANSHIP, AND (iv) OF GOOD AND MERCHANTABLE QUALITY AND
SAFE AND FIT FOR THEIR INTENDED USE AND PURPOSE AS DNA IDENTIFICATION
TESTS.
Guardian DNA Products that do not conform will be replaced by MIRAGEN
without charge to INVITRO.
10.2. THE ABOVE WARRANTIES ARE EXPRESSLY MADE IN LIEU OF ALL
OTHER WARRANTIES OR OBLIGATIONS, EXPRESS OR IMPLIED, BY MIRAGEN AS TO
PRODUCTS DELIVERED IN ACCORDANCE WITH THIS AGREEMENT. MIRAGEN
DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH ABOVE.
<PAGE> 9
SECTION 11. TERMINATION
11.1. TERMINATION FOR CAUSE. Any party may terminate this
Agreement for just cause: (a) upon any material breach of this
Agreement by the other party if the breach is not cured within forty-
five (45) days' written notice of the breach or; (b) immediately upon
the other party's insolvency, bankruptcy, suspension of business,
assignment of assets for the benefit of creditors, voluntary
dissolution, or appointment of a trustee for all or a substantial
portion of the other party's assets.
11.2. FAILURE TO MEET MINIMUM QUOTAS OR PAYMENT. MIRAGEN
may terminate this Agreement immediately upon INVITRO's failure to
make the minimum purchases required by Section 8, or if INVITRO shall
fail to make any payments due under this Agreement if payment is not
cured within thirty (30) days' written notice of default.
11.3. FAILURE TO RENEW. This Agreement may be terminated
pursuant to the provisions of Section 5.1.2.
11.4. SURVIVAL. Upon termination or expiration of the term
of this Agreement, the rights and obligations of the parties under
this Agreement shall end, and neither party shall have any claim,
including any claim for termination damages, against the other;
provided, however, that obligations which by their terms are
continuing obligations of this Agreement shall survive termination of
this Agreement and shall be binding on the parties thereafter.
12. TAXES, DUTIES, IMPORT PERMITS, COMPLIANCE WITH LAW, APPROVALS
12.1. TAXES, DUTIES, PERMITS, APPROVALS. INVITRO shall have
the sole responsibility to pay all import duties and fees, taxes and
other charges levied by government authorities in the Territory upon
or in connection with any transaction covered by this Agreement,
including, without limitation, taxes on sales, use, transactions or
inventory, and value added taxes. INVITRO shall have the sole
responsibility to obtain all permits, licenses and approvals from
governmental authorities necessary to import and sell the Guardian DNA
Products in various jurisdictions in the Territory. If any government
authority or judicial body invalidates any portion of this Agreement,
MIRAGEN shall have the option to terminate this Agreement immediately,
by written notice to INVITRO, for such jurisdiction only where
governmental or judicial invalidation shall have occurred.
12.2. COMPLIANCE WITH LAW. INVITRO shall comply, and cause
its sales personnel to comply, with all applicable laws and
regulations in the Territory, including advertising laws. In order for
INVITRO to obtain and maintain any and all permits, certificates or
licenses necessary for the proper conduct of INVITRO's duties and
obligations under this Agreement, MIRAGEN shall fully comply with
labeling prescriptions and laws applicable in the Territory where
products in the Product
<PAGE> 10
Line are destined for use and consumption, as from time to time
communicated by INVITRO to MIRAGEN.
SECTION 13. CONFIDENTIAL INFORMATION
13.1. ACCESS TO INFORMATION. INVITRO acknowledges that
during the term of this Agreement it may have access to proprietary
information, trade secrets, and other confidential information of
MIRAGEN, that such information is a valuable asset of MIRAGEN, and
that its disclosure or unauthorized use will cause substantial harm to
MIRAGEN. As used in this Agreement, the term "Confidential
Information" means: (a) proprietary information of MIRAGEN; (b)
information marked or designated by MIRAGEN as confidential; (c)
information, whether or not in written form and whether or not
designated as confidential, which is known to INVITRO as being treated
by MIRAGEN as confidential; and (d) information provided to MIRAGEN by
third parties which MIRAGEN is obligated to keep confidential.
13.2. NONDISCLOSURE AND NON-USE. INVITRO agrees that it will
not disclose to others or use any Confidential Information, unless and
until, and then only to the extent that, such items become available
to the public, other than by any act or failure on the part of INVITRO
to prevent accidental or negligent loss or release to any unauthorized
person of the Confidential Information.
13.3. REMEDIES. Notwithstanding the provisions of Section 14
requiring arbitration of disputes, in the event of the breach by
INVITRO of the terms of this Section 13, MIRAGEN shall be entitled to
specific performance, including immediate issuance of a temporary
restraining order or preliminary injunction, and to any other remedies
provided by applicable law in the event of a breach by INVITRO of the
provisions of this Section 13.
13.4. DURATION. The obligations set forth in this Section 13
will continue beyond the term of this Agreement for a period of three
(3) years.
<PAGE> 11
SECTION 14. GENERAL PROVISIONS
14.1. NON-ASSIGNMENT. INVITRO will not assign, transfer, or
sell the rights under this Agreement, or delegate its duties
hereunder, without the prior written consent of MIRAGEN. A transfer
of a controlling interest in INVITRO shall constitute an assignment
for this purpose. MIRAGEN will not assign, transfer, or sell its
rights to this Agreement or delegate its duties hereunder without the
prior written consent of INVITRO except to a successor in connection
with the sale of substantially all of its assets, merger or
consolidation of MIRAGEN with another corporate entity. This
Agreement shall inure to the benefit of the successors of the
respective parties hereto.
14.2. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement
contains the entire agreement between the parties as to the subject
matter hereof, and unless otherwise provided in this Agreement, no
modification or waiver of any of the provisions, or any future
representation, promise, or addition shall be binding upon the parties
unless made in writing and signed by the parties affected. The terms
and conditions of this Agreement will prevail over any inconsistent or
additional terms contained in INVITRO's purchase orders to products or
any other documents.
14.3. WAIVER. MIRAGEN may waive in writing any obligation
INVITRO has under this Agreement, but such a waiver will not affect
its right to require strict compliance with this Agreement in the
future.
14.4. INDEMNIFICATION BY INVITRO. INVITRO shall indemnify
and hold MIRAGEN, its officers, directors, agents, and employees
harmless from any claims, demands, loss, damage, liability, or
expenses, including attorney's fees at trial, on appeal, and on any
petition for review, arising out of the wrongful acts or omissions of
INVITRO, its agents or employees.
14.5. INDEMNIFICATION BY MIRAGEN. MIRAGEN shall indemnify
and hold INVITRO, its officers, directors, agents, and employees
harmless from any claims, demands, loss, damage, liability, or
expenses, including attorney's fees at trial, on appeal, and on any
petition for review, arising out of the acts or omissions of MIRAGEN,
its agents or employees.
In addition to its express product warranty and other obligations
under this Agreement, MIRAGEN agrees to indemnify and hold INVITRO
harmless from and against any and all costs and expenses incurred by
INVITRO hereunder in the event MIRAGEN fails to provide product
documentation in response to reasonable INVITRO requests for support
in applying for regulatory approval required in the Territory or in
INVITRO's required responses to other inquires as to the Guardian DNA
Products.
<PAGE> 12
14.6. FORCE MAJEURE. Neither party shall be liable to the
other party for any loss, damage, detention, delay or failure of
performance, other than a failure timely to pay money (and provided
further, this paragraph shall not excuse INVITRO's failure to meet
minimum purchase obligations) resulting directly or indirectly from
any cause beyond its reasonable control, including without limitation,
declared or undeclared war, fire, flood, interruption of
transportation, embargo, accident, explosion, inability to procure or
shortage of supply of materials, equipment or production facilities,
prohibition of import or export, governmental orders, regulations, or
restrictions, rationing, strike, lockout or other labor troubles
interfering with production or transportation, or insurrection or
riots.
14.7. NOTICES. Any notice or report shall be deemed given if
delivered personally or by confirmed facsimile transmission addressed
as follows, and in the case of facsimile transmission, to the
appropriate facsimile number shown below:
To MIRAGEN: MIRAGEN INC.
Attention: Chief Financial Officer
10005 Muirlands, Suite O
Irvine, CA 92718
Facsimile No. (714) 454-1557
To INVITRO: INVITRO INTERNATIONAL
Attention: President
16632 Millikan Avenue
Irvine, California 92714
Facsimile No. (714) 851-4985
or to such other address or facsimile number as from time to time may
be given in the manner permitted above.
14.8. GOVERNING LAW AND CHOICE OF FORUM. This Agreement
shall be construed and governed in accordance with internal laws of
the State of California and the federal laws of the United States of
America. The parties agree that the United Nations Convention on
Contracts for the International Sale of Goods shall not apply to this
Agreement. In the event any legal action becomes necessary to enforce
or interpret the terms of this Agreement, the parties agree that such
action will be brought in the Orange County Superior Court, and the
parties hereby submit to the exclusive jurisdiction of said courts.
14.9. ARBITRATION. The parties hereby submit all
controversies, claims and matters of difference arising as a result of
this Agreement or the transactions contemplated hereby to binding
arbitration conducted in accordance with the rules of the American
Arbitration Association ("AAA") and the arbitration shall take place
in Orange County, California. The arbitration shall be heard and
determined by three arbitrators. The award shall include interest from
the date of any breach or other violation to the date when the award
is paid in full at the prime rate of interest of Bank America in
effect from time to time. The parties agree that the award of the
arbitral tribunal will be the sole and
<PAGE> 13
exclusive remedy between them regarding any and all claims and
counterclaims presented to the tribunal.
14.10. CAPTIONS. The captions and headings appearing in this
Agreement are inserted for convenience of reference only and shall not
affect the interpretation of this Agreement.
14.11. WAIVER OF CONFLICT OF INTEREST. The parties
acknowledge that the first draft of this Agreement has been prepared
by corporate counsel who acts as counsel for both parties and who is a
director and stockholder of both parties. Each party waives any and
all claims against each other or against such counsel as a result of
the inherent conflict of interest of such counsel hereby acknowledged.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
MIRAGEN INC.
By: /s/ KEVIN B. MORTON 3-11-96
--------------------------------------
INVITRO INTERNATIONAL
By: /s/ W. RICHARD ULMER 3-11-96
--------------------------------------
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information
extracted from the Statements of Operations and
Balance Sheets of InVitro International and is
qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000872610
<NAME> INVITRO INTERNATIONAL
<MULTIPLIER> 1000
<S> <C>
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-START> Oct-01-1995
<PERIOD-END> Mar-31-1996
<PERIOD-TYPE> 6-MOS
<CASH> 1,239
<SECURITIES> 0
<RECEIVABLES> 203
<ALLOWANCES> 15
<INVENTORY> 188
<CURRENT-ASSETS> 170
<PP&E> 1,010
<DEPRECIATION> 764
<TOTAL-ASSETS> 2,113
<CURRENT-LIABILITIES> 309
<BONDS> 0
0
0
<COMMON> 23,864
<OTHER-SE> (22,060)
<TOTAL-LIABILITY-AND-EQUITY> 2,113
<SALES> 485
<TOTAL-REVENUES> 485
<CGS> 333
<TOTAL-COSTS> 941
<OTHER-EXPENSES> (39)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (989)
<INCOME-TAX> 0
<INCOME-CONTINUING> (989)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (989)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
