<PAGE> 1
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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: June 30, 1996.
------------------
Commission File No. 0-19241
INVITRO INTERNATIONAL
- ------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
California 33-0149560
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16632 Millikan Avenue, Irvine, California 92606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 851-8356
--------------------------
Former Zip Code was 92714, Address is otherwise unchanged
- ------------------------------------------------------------------------------
(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 July 23, 1996: 13,228,365 shares.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
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<PAGE>
<PAGE> 2
INVITRO INTERNATIONAL
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
Part I. FINANCIAL INFORMATION ......................................... 3
Item 1. Financial Statements:
Balance Sheets at June 30, 1996 and September 30, 1995 ...... 3
Statements of Operations for the Three Months
and Nine Months ended June 30, 1996 and 1995 .............. 5
Statements of Cash Flows for the Nine Months
ended June 30, 1996 and 1995 .............................. 6
Statement of Changes in Shareholders' Equity for the
Nine Months ended June 30, 1996 ........................... 7
Notes to Unaudited Financial Statements at June 30, 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 Events ....................................... 14
Item 6. Exhibits and Reports on Form 8-K ................... 16
Signatures ............................................................. 16
</TABLE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Report under the caption "Management's
Discussion and Analysis or Plan of Operation" and elsewhere constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results or performance of the Company to be materially different from future
results or performance expressed or implied by such forward-looking
statements. Such factors, include, among others: market acceptance of new
technologies and products; the Company's dependence on a single supplier for a
new product line; uncertainty of governmental regulations and the enforcement
of regulations that may benefit the Company's products; availability of
capital; dependence upon key personnel; risk of technological change;
competition; risk of product liability; changes in business strategy or
development plans; and other factors described in this Report or in the
Company's prior filings with the Securities and Exchange Commission. (In
addition to the Company's prior filings with the Securities and Exchange
Commission, see Item 5 in Part II of this Report.)
<PAGE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
INVITRO INTERNATIONAL
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents ................. $ 1,719,000 $ 1,165,000
Marketable securities ..................... -- 991,000
Accounts receivable - net of allowance
for doubtful accounts of $15,000 at
at June 30, 1996 and September 30, 1995 . 207,000 190,000
Inventories ............................... 331,000 192,000
Prepaid expenses .......................... 49,000 68,000
------------ ------------
Total current assets .................. 2,306,000 2,606,000
------------ ------------
Furniture, equipment and
leasehold improvements, at cost ........... 1,038,000 1,243,000
Less: accumulated depreciation
and amortization .......................... (793,000) (921,000)
------------ ------------
Net property and equipment ............ 245,000 322,000
------------ ------------
Deposits and other assets ................... 190,000 225,000
------------ ------------
Total Assets ................................ $ 2,741,000 $ 3,153,000
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<PAGE> 4
INVITRO INTERNATIONAL
BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable .......................... $ 207,000 $ 179,000
Accrued payroll and employee benefits ..... 85,000 102,000
Other accrued liabilities ................. 70,000 74,000
------------ ------------
Total current liabilities ............. 362,000 355,000
------------ ------------
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,
issued and outstanding,
13,228,365 shares at June 30, 1996 and
11,969,682 shares at September 30, 1995 24,782,000 23,864,000
Accumulated deficit ....................... (22,460,000) (21,129,000)
Currency translation adjustment ........... 57,000 63,000
------------ ------------
Total shareholders' equity ............ 2,379,000 2,798,000
------------ ------------
Total Liabilities and Shareholders' Equity .. $ 2,741,000 $ 3,153,000
============ ============
</TABLE>
See accompanying notes to financial statements.<PAGE>
<PAGE> 5
INVITRO INTERNATIONAL
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
June 30, June 30,
-------------------------- -----------------------
1996 1995 1996 1995
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES ...................... $ 327,000 $ 263,000 $ 812,000 $ 806,000
----------- ----------- ---------- ----------
COSTS AND EXPENSES:
Costs of revenues ........... 178,000 197,000 511,000 529,000
Selling, general and
administrative expenses ... 478,000 644,000 1,515,000 1,931,000
Research and development .... 28,000 104,000 171,000 514,000
----------- ----------- ---------- ----------
Total costs and expenses .. 684,000 945,000 2,197,000 2,974,000
----------- ----------- ---------- ----------
Operating loss ................ (357,000) (682,000) (1,385,000) (2,168,000)
----------- ----------- ---------- ----------
Nonoperating income (expense):
Investment income ........... 16,000 45,000 55,000 155,000
----------- ----------- ---------- ----------
Net loss ...................... $ (341,000) $ (637,000) $(1,330,000) $(2,013,000)
=========== =========== ========== ==========
Net loss per common share ..... $ (0.03) $ (0.06) $ (0.11) $ (0.17)
=========== =========== ========== ==========
Weighted average
common shares outstanding ... 12,372,922 11,969,682 12,103,605 11,969,682
=========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.<PAGE>
<PAGE> 6
INVITRO INTERNATIONAL
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months ended June 30,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ....................................... $(1,330,000) $(2,013,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ............. 124,000 163,000
Changes in operating assets
and liabilities:
Accounts receivable ..................... (17,000) 117,000
Inventories ............................. (139,000) 64,000
Prepaid expenses and other assets ....... 42,000 (61,000)
Accounts payable and accrued expenses ... 7,000 (375,000)
----------- -----------
Net Cash Provided By (Used In)
Operating Activities ........................ (1,313,000) (2,105,000)
----------- -----------
INVESTING ACTIVITIES:
Proceeds from marketable securities ............ 991,000 --
Proceeds from sale of equipment ................ 40,000 --
Capital expenditures ........................... (63,000) (22,000)
Additions to capitalized patent costs .......... (13,000) (49,000)
----------- -----------
Net Cash Provided By (Used In)
Investing Activities ........................ 955,000 (71,000)
----------- -----------
FINANCING ACTIVITIES:
Net proceeds from sale of common stock ......... 918,000 --
----------- -----------
Net Cash Provided By (Used In)
Financing Activities ........................ 918,000 --
----------- -----------
Effect of foreign exchange rate
changes on cash ............................. (6,000) 7,000
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ........................ 554,000 (2,169,000)
Cash and cash equivalents at
beginning of period ......................... 1,165,000 2,945,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..... $ 1,719,000 $ 776,000
=========== ===========
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>
<PAGE> 7
INVITRO INTERNATIONAL
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Common Stock Currency Total
----------------------- Accumulated translation Shareholders'
Shares Amount deficit adjustments 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
Exercise of
stock
options ........ 9,333 9,000 -- -- 9,000
Common stock
issued for cash
in private
placements ..... 1,249,350 909,000 -- -- 909,000
Net loss for
the nine
months ended
June 30, 1996 .. -- -- (1,330,000) -- (1,330,000)
Currency
translation
adjustments .... -- -- -- (6,000) (6,000)
Rounding
adjustments .... -- -- (1,000) -- (1,000)
---------- ----------- ------------ ---------- ----------
Balance at
June 30, 1996 .. 13,228,365 $24,782,000 $(22,460,000) $57,000 $2,379,000
========== =========== ============ ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<PAGE> 8
INVITRO INTERNATIONAL
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1 -- INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements of InVitro
International, a California corporation (the "Company" or "InVitro") at June
30, 1996, and for the three months and nine months periods ended June 30, 1996
and 1995 have been prepared by the Company pursuant to the rules of the
Securities and Exchange Commission (the "Commission"). In the opinion of the
Company's management, such unaudited financial statements 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
June 30, 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 nine months ended June
30, 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.
NOTE 4 -- INVENTORIES
Inventories consist of the following at June 30, 1996 and September 30,
1995:
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------ ------------
<S> <C> <C>
Raw materials and work-in-process....... $ 59,000 $ 81,000
Finished goods ......................... 272,000 111,000
----------- -----------
$ 331,000 $ 192,000
=========== ===========
</TABLE>
During the nine months ended June 30, 1996, the Company's inventories
increased primarily as the result of a $131,000 increase in Guardian DNA
finished goods resulting from an initial stocking order to support the market
launch of this product line in late June and early July 1996.
<PAGE> 9
NOTE 5 -- FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the following
at June 30, 1996 and September 30, 1995:
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------ ------------
<S> <C> <C>
Furniture and equipment .................. $ 832,000 $ 1,037,000
Leasehold improvements ................... 206,000 206,000
----------- -----------
1,038,000 1,243,000
Less accumulated depreciation ............ (793,000) (921,000)
----------- -----------
$ 245,000 $ 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 the exercise of common stock purchase
warrants or stock options since the effect would be antidilutive.
<PAGE>
<PAGE> 10
INVITRO INTERNATIONAL
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
REVENUES: For the nine months ended June 30, 1996 (the "1996 Period"),
revenues were $812,000, an increase of approximately 1% compared to revenues
of $806,000 in the nine months ended June 30, 1995 (the "1995 Period").
Revenues in the prior 1995 Period benefitted in part from $44,000 received
under a nonrecurring consulting contract. Therefore, revenues from recurring
sales of InVitro's proprietary safety testing kits and related internal
laboratory testing services increased by 6.6% in the 1996 Period compared to
the 1995 Period. As noted below, revenues in the quarter ended June 30, 1996
reversed declining sales trends previously experienced by InVitro. Apart from
the absence of nonrecurring consulting services received in the prior 1995
Period, revenue changes in the 1996 Period compared to the 1995 Period were
attributable to (i) $109,000 in sales of the Company's newly configured
IRRITECTION(TM) Assay System for dermal and ocular irritation and a $93,000
increase in laboratory services, offset by a $161,000 decline in sales of
EYTEX(R) and SKINTEX(TM) dermal and ocular irritation test kits replaced by
the IRRITECTION Assay System; (ii) a $5,000 increase in sales of CORROSITEX(R)
test kits; and (iii) a $4,000 increase in other revenues.
Revenues of $327,000 for the three months ended June 30, 1996 reflect
(i) an increase of $67,000, or 25.8%, compared to $260,000 in revenues for the
immediately preceding fiscal quarter ended March 31, 1996, and (ii) an
increase of $64,000, or 24.3%, compared to $263,000 in revenues for the three
months ended June 30, 1995 in the prior year. The Company's management
believes that these improved sales, compared to both the prior year's
comparable quarter and the immediately preceding quarter of the current fiscal
year, reflect the beginning of a reversal in previously experienced adverse
sales trends for reasons discussed in more detail below.
To take advantage of its internal sales force and distribution
capabilities, on March 11, 1996 the Company entered into an exclusive
distributorship agreement to market the Guardian-DNA(TM)* child identification
system to hospitals, birthing and other institutional obstetric markets.
Guardian DNA, supplied by Miragen Inc. of Irvine, California, is a unique
system for identification of humans consisting of a DNA sample acquisition
kit, a regularly updated infant/child passport, a child safety video tape and
a prepaid 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 that it significantly reduces the cost of performing a DNA profile
on each sample. The Company began test marketing the Guardian DNA system in
selected U.S. beta sites commencing in late June and early July 1996, which
will be followed by a full marketing launch in major metropolitan areas later
in the fourth quarter ending September 30, 1996. Revenues for the quarter
ended June 30, 1996 included initial unbudgeted Guardian DNA sales of $1,000,
and management anticipates that this product line will add significant
revenues in future quarters.
The Company recognized in 1995 that sales of the Company's EYTEX and
SKINTEX dermal and ocular irritation test kits experienced declining sales in
1994 and 1995. Therefore, InVitro reformatted these tests into a newly
configured IRRITECTION Assay System, which included an automated plate reader
system, and also started to emphasize use of the Company's internal laboratory
- ---------------------------
* Guardian DNA(TM) is a trademark of Miragen Inc. All other trademarks
referenced in this Report are trademarks of InVitro International.
<PAGE> 11
services for smaller accounts and isolated testing requirements. These steps
have resulted in a gradual overall increase of revenues attributable to the
Company's proprietary core technologies and services for in vitro safety
testing. This trend is expected to continue.
Reduced sales of CORROSITEX test kits to determine Packing Group
classification of corrosive substances were experienced during calendar 1995
because of a continuing high level of industry noncompliance with U.S.
Department of Transportation Packing Group regulations and the absence of
reorders from certain customers that purchased CORROSITEX to satisfy a one-
time testing need. Due to an $18,000 increase in CORROSITEX sales in the
quarter ended June 30, 1996 compared to the comparable prior year's quarter
ended June 30, 1995, revenues from CORROSITEX have recovered in the nine month
1996 Period to exceed CORROSITEX sales by $5,000 for the 1995 Period. 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 believes that EPA Method 1120 ultimately will lead to more routine
use of CORROSITEX than has been realized to date.
During April 1996, the Company entered into agreements with five
companies in Europe to represent InVitro's IRRITECTION Assay System for dermal
and ocular irritation and its CORROSITEX products for determining Packing
Group classification. Vel N.V., a unit of Merck & Co., distributes these
products in Belgium and Luxembourg; Transia Gmbh Industriediagnostika
represents the Company's products in Germany; Tecal Quimica represents the
Company in Spain; Argo Prodotti Chimici distributes products in Italy; and G&S
Pharmaceutical Consultants handles the Company's products in Switzerland.
Management believes that these additional channels of distribution in Europe
will contribute to future revenue increases.
COSTS OF GOODS SOLD: Cost of revenues for the 1996 Period were
$511,000, or approximately 62.9% of sales, compared to $529,000, or 65.6% of
sales, for the 1995 Period, resulting in gross profit margins of 37.1% for the
1996 Period compared to 34.4% in the 1995 Period. The increase in gross
profit margin for the 1996 Period resulted primarily from increased sales
discussed above. Due to fixed manufacturing costs, a portion of which are
unabsorbed due to low revenues, gross margins for the Company's proprietary
in vitro safety testing products and services are expected to remain at or
near present levels until sales growth necessary to absorb a higher percentage
of fixed costs is attained, as to which there can be no assurance. However,
the Company anticipates that gross margins in the immediate future will show
continued improvement as a result of InVitro's introduction of the Guardian
DNA product line since the Company's only cost of revenues for these products
will be the purchase of Guardian DNA kits from its supplier.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $1,515,000 in the 1996 Period, a reduction of
approximately $416,000, or 21.5%, compared to $1,931,000 in selling, general
and administrative expenses for the 1995 Period. The decrease is primarily
due to cost containment, reduced advertising expenses and a reduction in
administrative staff in the 1996 Period resulting from management's program to
eliminate all nonessential costs and expenses. The Company anticipates
selling, marketing and advertising expenses will increase commencing in the
quarter ended September 30, 1996 in support of the marketing launch of
Guardian DNA discussed above.
RESEARCH AND DEVELOPMENT. Research and development expenses for the
1996 Period were $171,000, a $343,000 decrease, or 66.7%, from $514,000 in
research and development expenses for the 1995 Period. To conserve capital
<PAGE> 12
resources, InVitro has elected to outsource as much of its research and
development requirements for the near term as is possible. Consistent with
this policy, the decline in research and development expenses 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 CORROSITEX in conjunction
with Tanks' Barrier products in petrochemical and other corrosion removal
markets. As discussed above, the Company has 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 expense to the Company's internally
funded research and development.
OTHER INCOME. Investment income was $55,000 in the 1996 Period, a
decline of $100,000 compared to the 1995 Period. The decrease in investment
income was attributable to a lower amount of cash equivalent resources and
marketable securities during the 1996 Period compared to the prior 1995
Period.
NET LOSS. The Company s net loss of $1,330,000 for the 1996 Period
declined by approximately $683,000, a significant 34% decrease compared to
$2,013,000 in net loss for the 1995 Period.
The net loss of $341,000 for the quarter ended June 30, 1996 also
reflects a substantial reduction in loss of 46% and 27%, respectively,
compared to (i) $637,000 in net loss for the three months ended June 30, 1995
of the prior year and (ii) $467,000 in net loss for the immediately preceding
quarter ended March 31, 1996. Notwithstanding inventory and equipment write-
downs in the first quarter of the current fiscal year, the quarter ended June
30, 1996 marked the sixth consecutive quarter in which InVitro has recorded
reduced losses. Net loss reductions are primarily attributable to
management's success in halting declining sales trends experienced in prior
periods and cost containment programs discussed above.
InVitro's operating management anticipates the Company will continue to
incur losses, but at a lower rate based on expectations of continuing sales
growth noted above, 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.
Although there can be no assurance of future growth in revenues or
profitability, the Company's operating 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 and
services, 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 could make the Guardian DNA system known to nearly
25% of expectant mothers in the United States.
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES:
At June 30, 1996, the Company's cash resources totalled $1,719,000 and
its working capital was $1,944,000. During the nine months ended June 30,
1996, the Company's cash and marketable securities decreased by $437,000, due
primarily to cash outflows used by operating activities of $1,313,000,
partially offset by proceeds from the sale of common stock for net proceeds of
$918,000.
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. During the nine
months ended June 30, 1996, the Company's inventories increased by $139,000
primarily as the result of an increase of $131,000 for initial quantities of
Guardian DNA from a stocking order to support the market launch of this
product line in late June and early July 1996.
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 projected by the
Company's strategic plan, management believes that its cash resources at June
30, 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. 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>
<PAGE> 14
PART II -- OTHER INFORMATION
ITEM 5. OTHER EVENTS.
SALE OF COMMON STOCK DURING THE QUARTER ENDED JUNE 30, 1996
As previously reported in Form 8-K Reports dated as of May 16, 1996 and
June 18, 1996, the Company issued and sold additional shares of Common Stock
in two separate offshore private placement transactions exempt from
registration under the Securities Act of 1933 by virtue of Regulation S
promulgated thereunder. On May 16, 1996, 600,000 shares of the Company's
Common Stock were sold to two investors for net proceeds of $458,188 after
payment by the Company of $53,687 in offering expenses. On June 18, 1996,
649,350 shares were sold to one investor for net proceeds of $450,000 after
payment of $50,000 in offering expenses.
After giving effect to these transactions, the issued and outstanding
shares of the Company's common stock at June 30, 1996 was 13,228,365 shares.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company notes that 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 risk of loss of his or her investment.
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 in this Report or elsewhere by or on behalf of
the Company:
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 $22,460,000 at June 30, 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 Securities and Exchange Commission. 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.
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.
UNCERTAINTY OF MARKET; LACK OF GOVERNMENTAL ACCEPTANCE. Market
acceptance of new products and methodology requires substantial time and
effort and is subject to various risks. Although the Company has received
favorable indications in preliminary market research for its distribution of
the Guardian DNA product line, this represents a new product introduction to
the market and there can be no assurances of future sales levels. The Company
has only recently reversed adverse sales trends for its in vitro safety
<PAGE> 15
testing products and continued growth will be dependent upon levels of market
acceptance that have not been achieved to date. To date the Company's
revenues have been insufficient to cover its operating costs and expenses.
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.
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 are covered by patent rights of its
supplier, Miragen Inc. There can be no assurance that patent rights will
provide significant competitive advantages, or that challenges will not be
instituted against the enforceability of such patents. 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 per occurrence
/$2,000,000 total coverage 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
material adverse effects.
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS: The following exhibits are filed with this Report or, as
indicated below, are incorporated by reference to the Company's prior filings
with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ ---------------------------------------------------
<S> <C>
10.39 Distributorship Agreement dated March 11, 1996 between the
Registrant and Miragen Inc. (incorporated by reference to Exhibit
10.39 filed with Registrant's Quarterly Report on Form 10-QSB for
the Period ended March 31, 1996).
10.40 Form of Regulation S Offshore Transaction Subscription Agreement
executed by the Registrant in connection with the sale of 600,000
shares of Common Stock on May 16, 1996 (incorporated by reference
to Exhibit 10.40 filed with Registrant's Report on Form 8-K dated
as of May 16, 1996).
10.41 Regulation S Offshore Transaction Subscription Agreement between
the Registrant and Angelina Panvini as to the sale of 649,350
shares of Common Stock on June 18, 1996 (incorporated by reference
to Exhibit 10.41 filed with Registrant's Report on Form 8-K dated
as of June 18, 1996).
27 Financial Data Schedule at June 30, 1996.
</TABLE>
(b) REPORTS ON FORM 8-K: Reports on Form 8-K dated as of May 16, 1996 and
June 18, 1996 were filed during the quarter ended June 30, 1996 concerning the
sale of 600,000 shares and 649,350 shares, respectively, of the Company's
common stock in two separate Regulation S private placement offshore financing
transactions.
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: July 23, 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
<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> Jun-30-1996
<PERIOD-TYPE> 9-MOS
<CASH> 1,719
<SECURITIES> 0
<RECEIVABLES> 222
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<CURRENT-ASSETS> 2,306
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0
0
<COMMON> 24,782
<OTHER-SE> (22,403)
<TOTAL-LIABILITY-AND-EQUITY> 2,741
<SALES> 812
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<CGS> 511
<TOTAL-COSTS> 2,197
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<INTEREST-EXPENSE> (55)
<INCOME-PRETAX> (1,330)
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