-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EZQhDD+QHyJyu2p2PqJfqOfWNVHZyoBih+2U7l71cay9zqHEw5eFlZxW7vF/bqYe FXsKz0fTQqFIHv9BIH5eRg== 0000872610-97-000003.txt : 19970520 0000872610-97-000003.hdr.sgml : 19970520 ACCESSION NUMBER: 0000872610-97-000003 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVITRO INTERNATIONAL / CENTRAL INDEX KEY: 0000872610 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 330149560 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-19241 FILM NUMBER: 97608396 BUSINESS ADDRESS: STREET 1: 16632 MILLIKEN AVE CITY: IRVINE STATE: CA ZIP: 92714 BUSINESS PHONE: 7148518356 MAIL ADDRESS: STREET 1: 16632 MILLIKEN AVE CITY: IRVINE STATE: CA ZIP: 92914 FORMER COMPANY: FORMER CONFORMED NAME: ROPAK LABORATORIES DATE OF NAME CHANGE: 19600201 10QSB 1 ================================================================== ======= SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 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 -------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) California 33-0149560 -------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 16632 Millikan Avenue, Irvine, California 92606 -------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(714) 851-8356 (Not applicable) -------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Common Stock, without par value, outstanding as of May 14, 1997: 14,028,300 shares. Transitional Small Business Disclosure Format (check one): YES [ ] NO [X] ================================================================== ======= INVITRO INTERNATIONAL INDEX
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
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 - PART I. FINANCIAL INFORMATION INVITRO INTERNATIONAL CONSOLIDATED BALANCE SHEETS
March 31, September 30, 1997 1996 ------------ ------------ 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 ============ ============
See accompanying notes to financial statements. -1- INVITRO INTERNATIONAL CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months ended Six Months ended March 31, March 31, ------------------------ ---------------------- 1997 1996 1997 1996 ----------- ----------- ---------- ---------- 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 =========== =========== ========== ==========
See accompanying notes to financial statements. -2- INVITRO INTERNATIONAL CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED MARCH 31, 1997
Common Stock Common Stock Subscriptions Currency Total ------------------------ -------------------------- Accumulated translation Shareholders' Shares Amount Shares Amount deficit adjustments Equity ---------- ------------ ----------- ------------- ------------- ----------- ------------ 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 ========== ============ =========== ============= ============= =========== ============
See accompanying notes to consolidated financial statements. -3- INVITRO INTERNATIONAL CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months ended March 31, --------------------------- 1997 1996 ------------ ------------ 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 ============ ============
See accompanying notes to financial statements. -4- 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:
March 31, September 30, 1997 1996 ------------ ------------ Raw materials and work-in-process .. $ 57,000 $ 59,000 Finished goods ..................... 445,000 307,000 ------------ ------------ $ 503,000 $ 366,000 ============ ============
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- 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:
March 31, September 30, 1997 1996 ------------ ------------ 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 ============ ============
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: Fiscal 1997 .......................... $ 85,000 Fiscal 1998 .......................... 35,000 ----------- $ 121,000 ===========
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- 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- 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- 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- 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- 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.
Exhibit No. Description ------ ------------ 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.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the quarter ended March 31, 1997. -11- 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- EX-10.1 2 LETTER OF INTENT FOR PROPOSED MERGER WITH MIRAGEN INC. 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. 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; 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. 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 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. 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 EX-10.2 3 PRESS RELEASE DATED MAY 15, 1997 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- 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] #### EX-27 4 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 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. 0000872610 INVITRO INTERNATIONAL 1000 Sep-30-1997 Oct-01-1996 Mar-31-1997 6-MOS 383 0 167 10 503 1,088 1,043 861 1,414 259 0 0 0 25,036 (23,881) 1,414 423 423 289 1,346 (22) 0 0 (901) 0 (901) 0 0 0 (901) (.06) (.06)
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