<PAGE>
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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
For the Quarterly Period Ended: MARCH 31, 1997
--------------
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-19241
INVITRO INTERNATIONAL
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(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
(Not applicable)
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(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 May 14, 1997: 14,028,300 shares.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
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<PAGE>
INVITRO INTERNATIONAL
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Page
Number
------
Part I FINANCIAL INFORMATION:
Item 1. Financial Statements:
Balance Sheets at March 31, 1997
and September 30, 1996 ................................. 1
Statements of Operations for the Six Months and
Three Months ended March 31, 1997 and 1996 ............. 2
Statement of Changes in Shareholders' Equity
for the Six Months ended March 31, 1997 ................ 3
Statements of Cash Flows for the Six Months
ended March 31, 1997 and 1996 .......................... 4
Notes to Unaudited Financial Statements
at March 31, 1997 ...................................... 5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION:
Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 8
PART II OTHER INFORMATION:
Item 5. Other Information ................................ 10
Item 6. Exhibits and Reports on Form 8-K ................. 11
SIGNATURES .......................................................... 12
</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 products, economic, competitive, governmental and
technological factors affecting the Company's operations, markets, services
and prices, and other factors described in this Report and in prior filings
with the Securities and Exchange Commission. The Company's actual results
could differ materially from those suggested or implied by any
forward-looking statements as a result of such risks.
CAUTIONARY STATEMENTS
In connection with the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995, the Company has filed cautionary
statements identifying important factors that could cause the Company's
actual results to differ materially from those projected in forward-looking
statements made by, or on behalf of, the Company. Reference is made to
Exhibit 99.1 filed with the Company's Annual Report on Form 10-KSB for the
fiscal year ended September 30, 1996.
- i -
<PAGE>
PART I. FINANCIAL INFORMATION
INVITRO INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents .................... $ 383,000 $ 1,209,000
Accounts receivable - net of allowance for
doubtful accounts of $10,000 at
March 31, 1997 and $10,000 at
September 30, 1996 ......................... 157,000 146,000
Stock subscription receivable ................ -- 250,000
Inventories .................................. 503,000 366,000
Prepaid expenses ............................. 45,000 57,000
------------ ------------
Total current assets ..................... 1,088,000 2,028,000
Furniture, equipment and leasehold
improvements, net ........................... 182,000 221,000
Deposits and other assets ..................... 144,000 166,000
------------ ------------
Total Assets .................................. $ 1,414,000 $ 2,415,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable ............................ $ 130,000 $ 174,000
Accrued payroll and employee benefits ....... 70,000 82,000
Accrued restructuring costs ................. 51,000 51,000
Accrued private placement costs ............. -- 25,000
Other accrued liabilities ................... 8,000 19,000
------------ ------------
Total current liabilities ............... 259,000 351,000
------------ ------------
Commitments and Contingencies
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, 14,028,300 shares
at Mar 31, 1997 and 13,228,365 shares
at Sept 30, 1996 ........................ 25,036,000 24,811,000
Subscribed but not paid for and not issued,
799,935 shares at Sept 30, 1996 ......... -- 225,000
Accumulated deficit ......................... (23,929,000) (23,028,000)
Currency translation adjustment ............. 48,000 56,000
------------ ------------
Total shareholders' equity .............. 1,155,000 2,064,000
------------ ------------
Total Liabilities and Shareholders' Equity .... $ 1,414,000 $ 2,415,000
============ ============
</TABLE>
See accompanying notes to financial statements.
-1-
<PAGE>
INVITRO INTERNATIONAL
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months ended Six Months ended
March 31, March 31,
------------------------ ----------------------
1997 1996 1997 1996
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES ....................... $ 164,000 $ 260,000 $ 423,000 $ 485,000
----------- ----------- ---------- ----------
COSTS AND EXPENSES:
Costs of revenues ............ 105,000 167,000 289,000 333,000
Selling, general and
administrative expenses .... 433,000 493,000 1,019,000 1,037,000
Research and development ..... 29,000 73,000 38,000 143,000
----------- ----------- ---------- ----------
Total costs and expenses ... 567,000 733,000 1,346,000 1,513,000
----------- ----------- ---------- ----------
Operating loss ................. (403,000) (473,000) (923,000) (1,028,000)
----------- ----------- ---------- ----------
Nonoperating income (expense):
Investment income ............ 8,000 6,000 22,000 39,000
----------- ----------- ---------- ----------
Net loss ....................... $ (395,000) $ (467,000) $ (901,000) $ (989,000)
=========== =========== ========== ==========
Net loss per common share ...... $(0.02) $(0.04) $(0.06) $(0.08)
=========== =========== ========== ==========
Weighted average
common shares outstanding .... 14,028,300 11,969,682 14,028,300 11,969,682
=========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE>
INVITRO INTERNATIONAL
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Common Stock Common Stock Subscriptions
Currency Total
------------------------ -------------------------- Accumulated translation
Shareholders'
Shares Amount Shares Amount deficit
adjustments Equity
---------- ------------ ----------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
<C>
Balances at
September 30,
1996 ........... 13,228,365 $ 24,811,000 799,935 $ 225,000 $ (23,028,000) $
56,000 $ 2,064,000
Payment of
of common
stock
subscription.... 799,935 225,000 (799,935) (225,000) -- --
--
Net loss for
the six
months ended
Mar 31, 1997.... -- -- -- -- (901,000) --
(901,000)
Currency
translation
adjustments .... -- -- -- -- -- (8,000)
(8,000)
---------- ------------ ----------- ------------- ------------- ----------- ------------
Balances at
March 31,
1997 ........... 14,028,300 $ 25,036,000 -0- $ -0- $ (23,929,000) $
48,000 $ 1,155,000
========== ============ =========== =============
============= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
INVITRO INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months ended
March 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ....................................... $ (901,000) $ (989,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization .............. 52,000 77,000
Changes in operating assets and liabilities:
Accounts receivable ...................... (11,000) 2,000
Inventories .............................. (137,000) 22,000
Prepaid expenses and other assets ........ 20,000 20,000
Accounts payable and accrued expenses .... (67,000) (46,000)
------------ ------------
Net Cash Provided By (Used In)
Operating Activities ......................... (1,044,000) (914,000)
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of equipment ................ -- 40,000
Proceeds from marketable securities ............ -- 991,000
Capital expenditures ........................... (2,000) (26,000)
Additions to capitalized patent costs .......... (2,000) (13,000)
------------ ------------
Net Cash Provided By (Used In)
Investing Activities ......................... (4,000) 992,000
------------ ------------
FINANCING ACTIVITIES:
Net cash provided by sale of common stock ...... 225,000 --
------------ ------------
Effect of exchange rate changes on cash ........ (3,000) (4,000)
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ......................... (826,000) 74,000
Cash and cash equivalents at beginning of year . 1,209,000 1,165,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..... $ 383,000 $
1,239,000
============ ============
Supplemental disclosures
of cash flow information:
Cash paid during the period for:
Income taxes ............................. $ -- $ 1,000
============ ============
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
INVITRO INTERNATIONAL
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1 -- INTERIM FINANCIAL INFORMATION.
The accompanying unaudited financial statements of InVitro International, a
California corporation (the "Company") at March 31, 1997 and for the six
months and three month periods ended March 31, 1997 and 1996 have been
prepared by the Company pursuant to the rules of the Securities and
Exchange Commission and, 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-KSB for the fiscal year ended September 30, 1996
for a summary of significant accounting policies utilized by the Company.
It is suggested that the financial statements at March 31, 1997 be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's latest Annual Report on Form 10-KSB.
Results of operations for the six months and three months ended March 31,
1997 and 1996 may not necessarily be indicative of results for the full
fiscal year.
NOTE 2 -- CASH EQUIVALENTS. For financial reporting purposes, cash
equivalents consist of money market fund accounts and all other highly
liquid investments with a maturity of three months or less when purchased.
At March 31, 1997, the Company had approximately $343,000 on deposit in a
money-market mutual fund.
NOTE 3 -- INVENTORIES. Inventories consist of the following at March 31,
1997 and September 30, 1996:
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
------------ ------------
<S> <C> <C>
Raw materials and work-in-process .. $ 57,000 $ 59,000
Finished goods ..................... 445,000 307,000
------------ ------------
$ 503,000 $ 366,000
============ ============
</TABLE>
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Management has recorded reserves that they believe are appropriate
for obsolete inventory. However, the Company has purchased inventories of
Guardian DNA in anticipation of future sales and adjustments to the
inventory reserve would be required if such sales are not generated.
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 -- FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS.
Furniture,
equipment and leasehold improvements consist of the following at March 31,
1997 and September 30, 1996:
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
------------ ------------
<S> <C> <C>
Furniture and equipment ............ $ 837,000 $ 840,000
Leasehold improvements ............. 206,000 206,000
------------ ------------
1,043,000 1,046,000
Less accumulated depreciation ...... (861,000) (825,000)
------------ ------------
$ 182,000 $ 221,000
============ ============
</TABLE>
NOTE 5 -- EARNINGS PER SHARE. Earnings per share were computed by
dividing net loss for the period by the weighted average number of shares
of common stock and dilutive common stock equivalents. All common stock
equivalents (stock options and warrants) have been excluded from earnings
per share for the periods ended March 31, 1997 and 1996, as the effect of
these common stock equivalents is antidilutive.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES.
The Company leases its facility in Irvine, California for $6,400 per month
under a two year lease which expires on February 28, 1998.
The Company has entered into equipment leases which are accounted for as
operating leases. Future commitments under all of the Company's
noncancelable equipment lease agreements are as follows:
<TABLE>
<S> <C>
Fiscal 1997 .......................... $ 85,000
Fiscal 1998 .......................... 35,000
-----------
$ 121,000
===========
</TABLE>
The Company is a defendant in a wrongful termination lawsuit which arose
when the Company determined to liquidate its European subsidiary.
Management, based in part on consultation with legal counsel, believes this
suit is without substantial merit and should not result in a judgment which
in the aggregate would have a material adverse effect on the Company s
financial statements.
A restructuring reserve was established when the Company liquidated its
European subsidiary. Management has elected to retain this accrual until
all matters related to the liquidation have been settled.
-6-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 -- PROPOSAL TO MERGE WITH ANOTHER BUSINESS.
Due to the Company's limited revenues and declining cash resources,
resulting from a reduced customer base for its proprietary in vitro safety
testing products and the lack of endorsement of the Company's products by
governmental agencies, the Company's board of directors has authorized
management to explore and negotiate a merger of the Company with another
business enterprise. This strategy is intended to provide for survival of
the Company and realization of shareholder value by a business combination
with another entity offering the potential of adding revenues. Any such
transaction will be subject to approval of the Company's board of directors
and is also anticipated to require approval by a majority of the Company's
shareholders. A transaction of this nature anticipates the acquisition of
additional assets or business operations in exchange for a controlling
interest in the Company via the issuance of additional equity securities.
Any such transaction is expected to involve substantial dilution to the
equity interests of the Company's shareholders.
On May 13, 1997, the Company entered into a letter of intent to merge
with Miragen Inc. in a transaction expected to provide current Company
shareholders with approximately 20% of the surviving corporation's common
stock, subject to possible adjustments based on business developments prior
to execution of a definitive agreement. The proposed merger with Miragen
Inc. followed termination, by mutual agreement, of negotiations relating to
a previously announced Company proposal to merge with Shenyang
International Inc. The proposed merger with Miragen Inc. is subject, among
other conditions, to completion of due diligence investigations, approval
by the board of directors for each of the parties, preparation and
execution of a definitive merger agreement, filing appropriate materials
with the Securities and Exchange Commission and approval by the majority
vote of InVitro shareholders. Miragen Inc., based in Irvine, California,
develops, manufactures and sells proprietary biological identification and
testing products used in hospital and medical laboratories and for animal
identification and forensic applications. InVitro currently acts as a
distributor for Guardian DNA child identification and safety products
supplied by Miragen under a prior agreement executed in 1996. Founded in
1993, Miragen's revenues for its fiscal year ended March 31, 1997 were
approximately $68,000 excluding Miragen sales of Guardian DNA products to
InVitro. Two of the Company's officers, directors and shareholders,
Messrs. Irwin J. Gruverman and William M. Curtis, are also founders,
officers, directors and shareholders of Miragen Inc. Messrs. Gruverman and
Curtis both abstained from participating in negotiations relating to the
Company's letter of intent with Miragen Inc. and will abstain from voting
on the proposed merger as members of the Company's Board of Directors.
-7-
<PAGE>
INVITRO INTERNATIONAL
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing elsewhere in
this Report.
RESULTS OF OPERATIONS:
REVENUES: For the six months ended March 31, 1997 (the "1997
Period") revenues were $423,000, an decrease of 13% from revenues of
$485,000 in the six months ended March 31, 1996 (the "1996 Period"). The
decrease was due to an overall decline in sales of the Company's safety
testing products during the second quarter ended March 31, 1997. Revenues
for the quarter ended March 31, 1997 were $164,000, a decline of $96,000
compared to revenues of $260,000 for the comparable quarter ended March 31,
1996 in the prior fiscal year. To date, the marketing of Guardian DNA
child safety and identification products through distribution of sales
materials in hospital gift packs to new mothers have not generated sales of
consequence.
The Company's management believes that sales of its IRRITECTION Assay
System and CORROSITEX test kits to determine Packing Group classification
of corrosive substances will either remain relatively stable or continue to
decline. Various efforts to obtain governmental agency endorsement for use
of the Company's products have proven unsuccessful, as exemplified by the
U.S. Department of Transportation ("DOT") recent endorsement of animal
testing methods for use by its regional operations, notwithstanding a DOT
regulatory exemption permitting use of CORROSITEX for packing group
classification and the fact that CORROSITEX offers significantly lower
costs and faster results than are available by animal testing methods.
Other marketing strategies employed by the Company have failed to increase
commercial interest in the Company's safety testing products.
To take advantage of its internal sales force and distribution
capabilities, the Company entered into an exclusive distributorship
agreement in March 1996 to market the Guardian-DNA child identification
system to and through hospitals, birthing and other institutional obstetric
markets. During October 1996, the Company entered into an agreement
providing for the distribution of Guardian DNA literature and discount
coupons in hospital gift packs to approximately 300,000 new mothers per
month commencing in January 1997. The response to this program has been
minimal, and the Company intends to discontinue this program. The Company
will reduce its staff during May 1997 to lower operating costs, and sales
and marketing activities will be focused almost exclusively on efforts to
sell and distribute Guardian DNA directly to one or more affiliated
hospital chains. Although preliminary indications for obtaining orders
from two hospital chains appear promising, there can be no assurance that
these efforts will be successful.
COSTS OF GOODS SOLD: Cost of revenues for the 1997 Period were
$289,000, or approximately 68.3% of sales, compared to $333,000, or 68.7%
of sales, for the 1996 Period, resulting in gross profit margins of 31.7%
for the 1997 Period compared to 31.3% in the 1996 Period. Due to fixed
manufacturing costs, a portion of which are unabsorbed due to low revenues,
gross margins for the Company's proprietary in vitro 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. Gross margins in future periods are
expected to show improvement only if the Company's introduction of Guardian
DNA products at a favorable price per unit proves successful, since the
Company's cost of revenues for Guardian DNA is limited to the purchase of
finished kits from a supplier and a limited amount of warehouse space to
store Guardian DNA inventories.
-8-
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $1,019,000 in the 1997 Period, an decrease of
approximately $18,000 compared to $1,037,000 in selling, general and
administrative expenses for the 1996 Period. Reductions in staff and
facilities expense during the 1997 Period were largely offset by increased
marketing expenses associated with the introduction of Guardian DNA
products. Due to further reductions in staff and abandonment of the
hospital gift pack marketing program, management expects that selling,
general and administrative expense will be reduced in future periods.
RESEARCH AND DEVELOPMENT. Research and development expenses for
the 1997 Period were $38,000, a $105,000 decrease from $143,000 in research
and development expenses in the 1996 Period. To conserve capital
resources, the Company previously 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.
OTHER INCOME. Interest income was $22,000 in the 1997 Period, a
decline of $17,000 compared to the 1996 Period. The decrease in interest
income was attributable to a reduction in average cash balances compared to
the 1996 Period.
NET LOSS. The Company's net loss of $901,000 during the 1997
Period declined by approximately $88,000, a 9% decrease compared to the
$989,000 net loss for the 1996 Period. The Company's management
anticipates the Company will continue to incur losses, but at a lower rate
based on cost reductions noted above, due to the Company's declining
revenues and 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.
The Company's operating management currently believes that a
profitable level of operations cannot be attained unless the Company
acquires or is merged with another business that can generate additional
revenues. See Note 7 of the Notes to Consolidated Financial Statements
included earlier in this Report. There can be no assurance of future
growth in revenues, or that the Company will achieve revenue increases in
an amount necessary to attain profitable operations or that the Company
will successfully complete a merger with another business entity.
LIQUIDITY AND CAPITAL RESOURCES:
At March 31, 1997, the Company's cash resources totalled $383,000 and
its working capital was $829,000. Included in the Company's working
capital are $503,000 in inventories, much of which represents Guardian DNA
products that are dependent upon the successful introduction of this
product line for the Company to realize the value of these inventories.
During the six months ended March 31, 1997, the Company's cash and cash
equivalents securities decreased by $826,000, due primarily to cash
outflows used by operating activities of $1,044,000, partially offset by
the collection of $225,000 in net proceeds from the sale of common stock.
The Company's principal capital requirements include working capital
to finance sales and marketing activities and general and administrative
expenses. The Company has no significant pending commitments for capital
expenditures or new product development, and capital equipment additions
are not expected to be material in amount for the foreseeable future.
During the six months ended March 31, 1997, the Company's inventories
increased by $137,000 primarily as the result of increases in quantities of
Guardian DNA to support the market launch of that product line.
Based on currently planned activities, management believes that its
cash resources at March 31, 1997 are sufficient to fund the Company's
operations at least through September 30, 1997.
-9-
<PAGE>
PART II -- OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
ABANDONMENT OF PROPOSED MERGER WITH SHENYANG INTERNATIONAL
On March 3, 1997, the Company announced it had signed a letter of
intent to merge with Shenyang International Inc. in a transaction where the
Company's shareholders would retain 20% of the combined entity's common
stock. Due to delays on the part of Shenyang International, that merger
proposal was not presented to the Company's board of directors for
consideration and the proposed merger with Shenyang International has been
abandoned by mutual consent of the parties.
PROPOSAL TO MERGE WITH MIRAGEN INC.
Due to the Company's limited revenues and declining cash resources,
resulting from a reduced customer base for its proprietary in vitro safety
testing products and the lack of endorsement of the Company's products by
governmental agencies, the Company's board of directors has authorized
management to explore and negotiate a merger of the Company with another
business enterprise. This strategy is intended to provide for survival of
the Company and realization of shareholder value by a business combination
with another entity offering the potential of adding revenues. Any such
transaction will be subject to approval of the Company's board of directors
and is also anticipated to require approval by a majority of the Company's
shareholders. A transaction of this nature anticipates the acquisition of
additional assets or business operations in exchange for a controlling
interest in the Company via the issuance of additional equity securities.
Any such transaction is expected to involve substantial dilution to the
equity interests of the Company's shareholders.
On May 13, 1997, the Company entered into a letter of intent to merge
with Miragen Inc. in a transaction expected to provide current Company
shareholders with approximately 20% of the surviving corporation's common
stock, subject to possible adjustments based on business developments prior
to execution of a definitive agreement. The proposed merger with Miragen
Inc. is subject, among other conditions, to completion of due diligence
investigations, approval by the board of directors for each of the parties,
preparation and execution of a definitive merger agreement, filing
appropriate materials with the Securities and Exchange Commission and
approval by the majority vote of InVitro shareholders.
Miragen Inc., based in Irvine, California, develops, manufactures and
sells proprietary biological identification and testing products used in
hospital and medical laboratories and for animal identification and
forensic applications. InVitro currently acts as a distributor for
Guardian DNA child identification and safety products supplied by Miragen
under a prior agreement executed in 1996. Founded in 1993, Miragen's
revenues for its fiscal year ended March 31, 1997 were approximately
$68,000 excluding Miragen's sales of Guardian DNA products to InVitro.
Two of the Company's officers, directors and shareholders, Messrs.
Irwin J. Gruverman and William M. Curtis, are also founders, officers,
directors and shareholders of Miragen Inc. Messrs. Gruverman and Curtis
both abstained from participating in negotiations relating to the Company's
letter of intent with Miragen Inc. and will abstain from voting on the
proposed merger as members of the Company's Board of Directors.
LOSS OF NASDAQ SMALL-CAP MARKET LISTING
The Company was recently advised that its common stock will be
delisted from The Nasdaq SmallCap Market at the close of business on May
14, 1997 for failure to satisfy minimum standards for continued listing.
The Company expects that its common stock will remain actively traded in
the over-the-counter market and quoted under the symbol "INVI" on the NASD
Electronic Bulletin Board.
-10-
<PAGE>
A consequence of delisting from The Nasdaq SmallCap Market is that
the Company's common stock may be deemed subject to rules of the Securities
and Exchange Commission applicable to "penny stocks". The Securities
Enforcement and Penny Stock Reform Act of 1990 requires additional
disclosure relating to the market for "penny stocks", as defined. A "penny
stock" is generally defined as any equity security that has a market price
of less than $5.00 per share, subject to certain exceptions. Such
exceptions include any equity security listed on Nasdaq and any equity
security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for three (3)
years; (ii) net tangible assets of at least $5,000,000 if such issuer has
been in continuous operation for less than three (3) years; or (iii)
average annual revenue of at least $6,000,000 if such issuer has been in
continuous operation for less than three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
through a broker-dealer involving a penny stock, of a disclosure schedule
explaining the penny stock market and associated risks.
In addition, so long as the Company's securities are not quoted on
Nasdaq or the Company does not have $2,000,000 in net tangible assets,
trading in the Common Stock would be covered by Rule 15c2-6 promulgated
under the Securities Exchange Act of 1934 for non-Nasdaq and non-exchange
listed securities. Under that rule, broker/dealers who recommend such
securities to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser and receive each purchaser's written agreement to a transaction
prior to sale. Securities also are exempt from this rule if the market
price is at least $5.00 per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
No. Description
------ ------------
<S> <C>
10.1 Letter of Intent dated May 7, 1997 accepted on May 13, 1997
between the Registrant and Miragen Inc. relating to proposed
merger.
10.2 Press release issued by the Registrant on May 15, 1997 relating
to the letter of intent for a proposed merger with Miragen Inc.
27 Financial Data Schedule at March 31, 1997.
</TABLE>
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the
quarter ended March 31, 1997.
-11-
<PAGE>
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 15, 1997
INVITRO INTERNATIONAL
(Registrant)
By: /s/ W. Richard Ulmer
-----------------------------
W. Richard Ulmer, President,
Chief Executive Officer and
Chief Financial Officer
By: /s/ Kristina A. Parker
-----------------------------
Kristina A. Parker,
Chief Accounting Officer
-12-
M I R A G E N
May 7, 1997
InVitro International
16632 Millikan Avenue
Irvine, CA 92714
Dear Sirs:
This letter, upon your acceptance, will evidence our mutual intention
to enter into a definitive agreement providing for a merger, in which all
of the outstanding capital stock or all of the assets, business,
contractual and proprietary rights of Miragen Inc. ("Miragen"), a
California corporation (the target company), will be acquired by InVitro
International ("InVitro"), a California corporation (the acquiring
company).
The form of the transaction, whether an exchange of capital stock,
statutory merger, or transfer of assets between Miragen and InVitro
(hereinafter the anticipated transaction is referred to as the "Merger"),
will be mutually determined by Miragen and InVitro after both companies
have received the advice and recommendations of their respective
accountants and professional advisors. The assets and business of Miragen
to be acquired by InVitro in the Merger shall include all of Miragen's
existing assets and proprietary rights relating to human and animal
identification products and related technologies.
This letter is also an expression of the intention of Miragen and
InVitro to proceed expeditiously to negotiate, draft, and execute a
definitive agreement for the Merger (hereinafter referred to as the
"Agreement"). The Agreement, when executed will reflect the terms of this
letter and such other terms and conditions as are typical to a transaction
of this nature (which shall include appropriate representations and
warranties as to the business, assets, liabilities, capitalization,
material contracts, proprietary rights, financial condition and other
matters relevant to the business and operations of the parties) and such
additional terms and conditions as shall be mutually agreed upon. The
parties to the Agreement shall include InVitro, Miragen, and any other
party who, in the opinion of InVitro or Miragen, is necessary to the
transactions.
<PAGE>
2
1. CERTAIN TERMS OF MERGER AGREEMENT. The material terms and
conditions of the Merger to be included in the Agreement are as follows:
1.1 The Agreement shall provide for the Merger which shall be
consummated on or before September 15, 1997 (the "Closing"). On the
Closing Date, all of the issued and outstanding Miragen capital stock or
substantially all of the business, assets and proprietary rights of Miragen
shall be acquired by InVitro.
1.2 At the Closing, InVitro shall issue and deliver to the
shareholders of Miragen previously authorized and unissued shares of
InVitro common stock in an amount equal to 80% of the outstanding shares of
the InVitro (after giving effect to the closing of the Merger) calculated
on a fully diluted basis. In calculating the outstanding shares of Miragen
for this purpose, it will be assumed that outstanding Miragen options,
warrants and convertible securities are exercised immediately prior to the
closing, and that number of shares of InVitro common stock necessary to
account for Miragen options, warrants and convertible securities will be
reserved in lieu of being issued. At the Closing, InVitro will substitute
options, warrants and convertible securities to purchase shares of the
InVitro's common stock for each outstanding option, warrant and other
convertible security to acquire shares of Miragen, each such option or
warrant to represent the right to purchase that number of InVitro shares as
if the Miragen option, warrant or convertible security had been exercised
immediately prior to the Merger and exercisable for the same aggregate
consideration, and on substantially the same other terms and conditions,
that would apply if all of such Miragen options, warrant or convertible
security had been fully exercised.
1.3 Upon the Closing of the Merger, each of the officers,
directors and 10% shareholders of InVitro shall execute an agreement with
Miragen and InVitro in which each of such officer, director and 10%
shareholder shall release InVitro from any and all claims arising as a
result of any prior events (except as permitted by the Agreement) and
further covenant and agree that they will not compete with InVitro and
Miragen for a period of five (5) years after the Closing in any business
engaged in by Miragen as of the Closing Date including, without limitation,
the business of human and animal identification technology.
1.4 Until the Closing, each of InVitro and Miragen shall
continue to operate its business in the ordinary course and shall not,
without the prior written consent of the other party, do any of the
following:
(i) Incur any material obligations or commitments other
than in the ordinary course of business;
<PAGE>
3
(ii) Grant any salary increases (other than as required
by existing contracts or consistent with current
practices), unscheduled promotions or enter into
any new employment or benefit contracts;
(iii) Solicit, induce or otherwise engage in discussions
or negotiations relating to or proposed to lead to
the acquisition or merger of sale of substantially
all of the assets or shares of Miragen by or with
any party other than InVitro;
(iv) Sell or dispose of any material assets or
properties, except in the ordinary course of
business or with the prior consent of the other
party hereto; or,
(v) Sell any additional shares of its capital stock or
grant any additional rights or options to acquire
its capital stock, with the except of Miragen's
current private placement offering.
1.5 Miragen shall provide InVitro, on or prior to the Closing
Date, with audited financial statements required in connection with the
acquisition of a "significant subsidiary" by InVitro as that term is
defined by rules and regulations promulgated by the Securities and Exchange
Commission and such other information as is required for InVitro to prepare
and file appropriate documents relating to the Merger with the Securities
and Exchange Commission. Such financial statements will include, among
other items, an audited balance sheet of Miragen as of a recent date,
statements of income for each of its last two fiscal years, and related
statements of shareholder's equity, statements of cash flows and the
appropriate notes to such financial statements, together with the report of
an independent certified public accounting firm. If required by InVitro as
a condition to Closing, InVitro shall have received a "cold-comfort" letter
from a firm of independent certified public accountants selected by InVitro
as to the financial statements required by this paragraph and the financial
condition of Miragen as of the Closing Date.
1.6 As a condition to the consummation of the Merger, there
shall have been no material adverse change in the assets, business or
prospects of either Miragen or InVitro except as contemplated by the
Agreement. All financial statements provided by the parties to each other
pursuant to the Agreement shall be represented to fairly present the
financial condition of such party at the date of such financial statements
and their results of operations for the periods covered thereby, and shall
be prepared in accordance with generally accepted accounting principles.
<PAGE>
4
1.7 InVitro and Miragen will exert their best efforts to
obtain such consents or approvals, and to make such filings as in the
opinion of their respective counsel may be necessary or advisable to effect
the transactions contemplated herein. At the request of InVitro, Miragen
shall obtain the consent of any third party which is necessary for the
transfer of any asset, right or contract of Miragen pertaining to the
Merger contemplated herein, if any.
1.8 As a condition to the consummation of the Agreement,
InVitro and its counsel and Miragen and its counsel must each be satisfied
as to the validity and legality of all aspects of the Merger, including all
activities undertaken in relation to the Agreement. Each of the parties to
the Merger will pay their own expenses incurred in connection with the
Agreement and all other events required for the Closing.
1.9 The Agreement will provide that any claims or disputes
arising thereunder or as a result of the transactions contemplated therein
which cannot be resolved by the parties will be referred to alternative
dispute resolution by binding arbitration in the State of California.
2. DUE DILIGENCE. Upon the execution of this letter of intent
by the parties, Miragen and InVitro, and each of their duly authorized
representatives, will be provided with full access to the projections,
financial records and supervisory management personnel of the other party,
which shall include copies of all material agreements, corporate
proceedings, access to the chief executive officer and chief financial
officer, marketing, product development and manufacturing supervisors, and
other records and information which each party deems of significance in an
due diligence investigation of the other party hereto. The disclosure of
any such information shall be subject to the provisions of Section 3 of
this letter agreement.
3. CONFIDENTIALITY. In connection with the foregoing matters,
each party hereto has or will be furnishing to the other from time to time
with oral and written information as to its proprietary products, marketing
strategy and business plans, significant portions of which each of the
parties considers to be proprietary and confidential information (herein
called the "Confidential Information"). Each party acknowledges that
"Confidential Information," as used herein, does not include any
information which (i) was or becomes generally available to the public
other than as a result of an improper disclosure by the other party hereto,
or (ii) was or becomes information available to the other party on a
non-confidential basis from a third party source that is not bound by a
confidentiality obligation to either of the parties hereto.
Each party agrees that Confidential Information will be used
solely for the purpose of evaluating the Merger, investigating market
information and potential markets, and for InVitro to pursue due diligence
and legal disclosure requirements in connection with proposed financing
activities by InVitro, and will not be used in the business or operations
of the party to which such information has been disclosed or
<PAGE>
5
used in any other way, directly or indirectly, that may detrimental to the
interests of the party that owns such Confidential Information.
Confidential Information may be disclosed to representatives of the party
receiving the same who need to know such Confidential Material for the
purposes described above, it being understood that such representatives
shall be informed of the confidential nature of the Confidential
Information and shall be directed to treat the Confidential Information
confidentially and as proprietary information of the party that owns the
same. Each party shall notify the other as to the identity of such
representatives. If either party receives a request, including a subpoena
or similar legal inquiry, to disclose any of the Confidential Material, it
shall provide the party that owns such Confidential Information with prompt
notice so that the owner may seek appropriate protective relief.
If the Agreement is not executed or the Closing thereunder shall fail
to occur for any reason, each party shall promptly deliver and return all
copies of Confidential Information to the party which owns the same, and
without retaining any copy, notes or extracts thereof.
Although each party understands that they will endeavor to include in
the Confidential Information all materials which it believes to be relevant
for the purposes of this letter agreement and the Merger, each party
further understands that no representation or warranty as to the accuracy
or completeness of the Confidential Information has or will be made except
as provided by separate written agreement-
4. NO SOLICITATION OF EMPLOYEES. Without the prior written
consent of Miragen or InVitro, for a period of eighteen (18) months from
the date of this letter, neither of them nor any of their affiliates will
directly or indirectly solicit for employment, employ, or otherwise
contract for the services of any person who is now employed (either as an
employee or consultant) by the other party unless the Closing under the
Agreement has been completed or unless such individual currently acts as a
consultant to both of the parties.
5. PRESS RELEASE. Upon your acceptance and approval hereof, each
of us are authorized by the other to issue a press release for the purpose
of publicly announcing the transactions contemplated by this letter.
InVitro and Miragen each agree to consult with the other as to the form and
substance of any press release or other public disclosure of the matters
covered in this letter, provided that this shall not be deemed to prohibit
InVitro or Miragen from making any disclosure which its respective counsel
deems necessary to comply with applicable law.
6. SURVIVAL OF CERTAIN PROVISIONS. The provision of Sections 3,
4 and 5 of this letter agreement are for the benefit of the respective
parties hereto, shall survive any termination of this letter agreement, and
shall be governed by and construed in accordance with the laws of the State
of California.
<PAGE>
6
This letter reflects an expression of our mutual intent only, and
shall not constitute a binding legal obligation for the transactions
described herein (except as expressly set forth in Sections 3, 4 and 5
above) until such time as the Agreement has been executed and the Merger
has been approved by the Board of Directors and shareholders of InVitro and
the Board of Directors of Miragen. It is our desire to move expeditiously
towards the completion of these transactions on the basis of the terms and
conditions contained herein. To help accomplish this goal, if you are in
agreement with the foregoing, would you please indicate your approval of
the contents of this letter by signing the attached copy in the space
provided and returning it to us at your earliest convenience.
The parties acknowledge that they were initially introduced to each
other by, and currently share, two common directors and common outside
corporate counsel who will have an inherent and unavoidable conflict of
interest as to the Merger. Each of the parties agrees to engage the
services of their own independent counsel for purposes of advising them in
connection with this letter of intent, the Agreement, the Closing and other
matters relevant to the Merger. Each of the parties will require approval
of the Merger by a majority or more of their independent directors who are
not affiliated with the other party.
Very truly yours,
MIRAGEN INC.
By: /s/ Kevin B. Morton
-------------------------
Kevin B. Morton, President
and Chief Executive Officer
ACCEPTED AND AGREED TO THIS
13th DAY OF MAY, 1997
INVITRO INTERNATIONAL
By: /s/ W. Richard Ulmer
-------------------------------------
W. Richard Ulmer,
President and Chief Executive Officer
INVITRO INTERNATIONAL REPORTS SECOND QUARTER RESULTS
COMPANY SIGNS MERGER LETTER OF INTENT WITH MIRAGEN
Irvine, CA, May 15, 1997 -- InVitro International (Symbol INVI) today
reported results for its second quarter ended March 31, 1997. Revenues for
the quarter were $164,000 compared to $260,000 for the same quarter in
fiscal 1996. The net loss for the quarter declined by 15% to $395,000
($0.02 per share), compared To $467,000 ($0.04 per share) reported for the
same period last year.
"Despite disappointing core business sales results, we remain
encouraged by the prospects for Guardian DNA (TM)," said W. Richard Ulmer,
president and CEO for InVitro International. Guardian DNA is the new
three-part infant/child safety system that is visioned as a hospital
replacement for newborn footprinting; it combines education, documentation
and ultimately identification using DNA technology. "Several healthcare
institutions are in the process of reviewing Guardian, and/or obtaining the
necessary internal approvals, for possible implementation at their
respective facilities," Ulmer added.
On Tuesday, May 13, 1997, the Company signed a letter of intent to
merge with Miragen, Inc. (Irvine, CA) in a transaction anticipated to
provide current InVitro shareholders with 20% of the combined company's
common stock subject to certain adjustments based on business developments
prior to a definitive agreement. The new merger opportunity immediately
follows the end of negotiations with Shenyang International as a potential
merger partner and is contingent upon due diligence examination (already in
process), filing of the appropriate materials with the Securities and
Exchange Commission and approval by the majority of InVitro shareholders,
among other conditions. Assuming the proposed merger is successfully
completed, the assets and business of Miragen will be acquired by InVitro
and will include all of Miragen's existing assets and proprietary rights
relating to human and animal identification products and related
technologies. "The synergy between the two companies is both financially
and market-driven," said Ulmer. "We believe that InVitro's core technology
combined with Miragen's biological and identification products, which
include Guardian DNA, address unique marketplaces, and allow us to provide
better pricing opportunities to customers and prospects."
-more-
<PAGE>
INVITRO REPORTS SECOND QUARTER RESULTS / Page 2
At the close of business on Wednesday, May 14, 1997, InVitro's
securities were removed from The Nasdaq SmallCap Market for non-compliance
with NASDAQ listing standards. The Company's common stock will continue to
be traded in the over-the-counter market and quoted on the NASD Electronic
Bulletin Board.
Miragen develops, manufactures and sells biological identification and
testing technologies used in hospitals, medical laboratories, animal
identification, and forensics.
InVitro International is engaged in the development, manufacture and
sale of quality, proprietary preventive products and services to ensure the
safekeeping of humans and the environment, and to minimize animal testing
in commercial and academic enterprise.
The statements made in this press release contain certain forward
looking statements within the meaning of section 27a of the Securities Act
of 1933 and section 21E of the Securities Exchange Act of 1934 that involve
a number of risks and uncertainties, including the risk that InVitro may be
unable to complete the proposed transaction. Actual events or results may
differ from InVitro's expectations. In addition, investors should be
apprised of risk factors discussed from time to time in the Company's
filings with the Securities and Exchange Commission, including without
limitation information set forth in Exhibit 99.1 filed with the Company's
Annual Report on Form 10-KSB for the fiscal year ended September 30, 1996.
[Table of Financial Results Omitted]
####
<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-30-1997
<PERIOD-START> Oct-01-1996
<PERIOD-END> Mar-31-1997
<PERIOD-TYPE> 6-MOS
<CASH> 383
<SECURITIES> 0
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<ALLOWANCES> 10
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<CURRENT-ASSETS> 1,088
<PP&E> 1,043
<DEPRECIATION> 861
<TOTAL-ASSETS> 1,414
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<BONDS> 0
0
0
<COMMON> 25,036
<OTHER-SE> (23,881)
<TOTAL-LIABILITY-AND-EQUITY> 1,414
<SALES> 423
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<OTHER-EXPENSES> (22)
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<NET-INCOME> (901)
<EPS-PRIMARY> (.06)
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</TABLE>
