<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended December 31, 1995
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to ________
Commission File No. 1-10492
EPITOPE, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0779127
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8505 S.W. Creekside Place
Beaverton, Oregon 97008
(Address of principal executive offices) (Zip Code)
(503) 641-6115
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, no par value American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of December 31, 1995: Common Stock,
no par value 12,524,890
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Page No.
--------
Condensed Consolidated Balance Sheets at December 31, 1995 and
September 30, 1995 3
Condensed Consolidated Statements of Operations for the three months
ended December 31, 1995 and 1994 4
Condensed Consolidated Statement of Changes in Shareholders' Equity for
the three months ended December 31, 1995 5
Condensed Consolidated Statements of Cash Flows for the three months ended
December 31, 1995 and 1994 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
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EPITOPE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
12/31/95 9/30/95
(Unaudited)
- -----------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents . . . . . . . . . . . $ 3,714,423 $ 4,259,897
Marketable securities . . . . . . . . . . . . . 15,589,968 17,080,246
Trade accounts receivable, net of
allowance for doubtful accounts
of $26,386 and $72,044, respectively. . . . . 530,000 367,487
Other accounts receivable . . . . . . . . . . . 1,014,135 1,376,543
Inventories (Note 2). . . . . . . . . . . . . . 1,467,077 1,433,746
Prepaid expenses. . . . . . . . . . . . . . . . 413,008 159,463
___________ ___________
Total current assets. . . . . . . . . . . . . . 22,728,611 24,677,382
Property and equipment, net . . . . . . . . . . 2,329,177 2,544,772
Patents and proprietary technology, net . . . . 641,226 555,767
Investment in nonconsolidated subsidiaries. . . 2,207,762 2,117,343
Other assets and deposits (Note 3). . . . . . . 211,814 238,758
___________ ___________
$28,118,590 $30,134,022
Liabilities and Shareholders' Equity
Current liabilities
Current portion of installment notes payable. . $ 17,758 $ 17,758
Accounts payable. . . . . . . . . . . . . . . . 441,149 945,395
Salaries, benefits and other accrued liabilities 2,687,322 3,182,516
___________ ___________
Total current liabilities . . . . . . . . . . . 3,146,229 4,145,669
Long-term portion of installment notes payable. 20,281 21,749
Convertible notes, due 1997 (Note 3). . . . . . 3,620,003 3,620,003
Commitments and contingencies . . . . . . . . . - -
Shareholders' equity (Note 3)
Preferred stock, no par value -
1,000,000 shares authorized;
no shares issued or outstanding . . . . . . . - -
Common stock, no par value -
30,000,000 shares authorized; 12,524,890 and
12,485,130 shares issued and
outstanding, respectively . . . . . . . . . . 94,569,785 93,931,947
Accumulated deficit . . . . . . . . . . . . . . (73,237,708) (71,585,346)
___________ ___________
21,332,077 22,346,601
___________ ___________
$28,118,590 $30,134,022
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EPITOPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended December 31 1995 1994
- -----------------------------------------------------------------------------
Revenues
Product sales . . . . . . . . . . . . $ 834,878 $ 1,115,113
Grants and contracts . . . . . . . . 476,261 19,659
___________ ___________
1,311,139 1,134,772
Costs and expenses
Product costs . . . . . . . . . . . . 485,959 1,773,549
Research and development costs. . . . 1,045,553 1,544,711
Selling, general and administrative expenses 1,653,643 2,252,539
___________ ___________
3,185,155 5,570,799
Loss from operations . . . . . . . . (1,874,016) (4,436,027)
Other income, net . . . . . . . . . . 221,654 133,816
Net loss . . . . . . . . . . . . . . $(1,652,362) $(4,302,211)
Net loss per share. . . . . . . . . . $(.13) $(.39)
Weighted average number of shares
outstanding. . . . . . . . . . . . . 12,492,379 11,031,368
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EPITOPE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Common Stock
Accumulated
Shares Dollars deficit Total
- ------------------------------------------------------------------------------
Balances at
September 30, 1995 . . 12,485,130 $93,931,947 $(71,585,346) $22,346,601
Common stock issued upon
exercise of options . 38,527 271,067 - 271,067
Common stock issued as
compensation . . . . 1,233 20,190 - 20,190
Compensation expense on
stock option grants . . - 346,733 - 346,733
Equity issuance costs . . - (152) - (152)
Net loss for the period . - - (1,652,362) (1,652,362)
___________ ____________ _____________ ____________
Balances at
December 31, 1995 . . 12,524,890 $94,569,785 $(73,237,708) $21,332,077
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EPITOPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three months ended December 31 1995 1994
- ----------------------------------------------------------------------------
Cash flows from operating activities
Net loss . . . . . . . . . . . . . . . $(1,652,362) $(4,302,211)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization . . . . 307,986 376,631
Loss on disposition of property . . . . - 420
(Increase) decrease in accounts
receivable . . . . . . . . . . . . . 199,895 (247,800)
Increase in inventories . . . . . . . . (33,331) (509,916)
Increase in prepaid expenses . . . . . (253,545) (330,410)
(Increase) decrease in other assets and
deposits . . . . . . . . . . . . . . 3,351 (1,958)
Increase (decrease) in accounts payable
and accrued liabilities . . . . . . . (999,440) 354,004
Common stock issued as compensation for
services . . . . . . . . . . . . . . 20,190 86,336
Compensation expense for stock option
grants and deferred salary increases. 346,733 277,460
___________ ___________
Net cash used in operating activities . (2,060,523) (4,297,444)
Cash flows from investing activities
Investment in marketable securities . . (11,943,849) (971,109)
Proceeds from sale of marketable
securities . . . . . . . . . . . . . 13,434,127 2,467,967
Additions to property and equipment . . (20,097) (343,761)
Proceeds from sale of property . . . . 9,580
Expenditures for patents and
proprietary technology . . . . . . . (134,160) (35,934)
Investment in affiliated companies . . (90,419) 1,966
___________ ___________
Net cash provided by investing
activities . . . . . . . . . . . . . 1,245,602 1,128,709
Cash flows from financing activities
Principal payments under installment
purchase and capital lease obligations (1,468) (4,435)
Proceeds from issuance of common stock 271,067 2,586,721
Cost of equity issuance . . . . . . . . (152) (87,339)
__________ ___________
Net cash provided by financing
activities . . . . . . . . . . . . . 269,447 2,494,947
Net decrease in cash and cash
equivalents . . . . . . . . . . . . . (545,474) (673,788)
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . 4,259,897 11,024,997
__________ ___________
Cash and cash equivalents at end of
period . . . . . . . . . . . . . . . $ 3,714,423 $10,351,209
<PAGE>
EPITOPE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - The Company
Epitope, Inc. (the Company or Epitope) is an Oregon corporation utilizing
biotechnology to develop and market medical diagnostic products and, through
its agricultural unit, superior new plants and related products.
Note 2 - Summary of Significant Accounting Policies
CONSOLIDATION
The interim condensed consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries.
The interim condensed consolidated financial statements included herein are
unaudited; however, in the opinion of the Company, the interim data includes
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair statement of the results of operations for the interim periods.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's 1995 Annual Report on Form 10-K. Results of operations for the
period ended December 31, 1995 are not necessarily indicative of the results
of operations for the full fiscal year.
INVENTORIES
December 31, 1995 September 30, 1995
- --------------------------------------------------------------------------
Raw materials . . . . . . . . . $ 810,794 $ 657,568
Work-in-process . . . . . . . . 403,132 379,470
Finished goods . . . . . . . . 183,120 295,032
Supplies . . . . . . . . . . . 70,031 101,676
__________ __________
$1,467,077 $1,433,746
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares of
common stock outstanding during the period. Unexercised stock options and
warrants are excluded from such computations because their effect on net loss
per share would be anti-dilutive.
Note 3 - Long-Term Debt
On June 30, 1992, Agritope, Inc. (Agritope), a wholly owned subsidiary of the
Company, completed a private placement with several European institutional
investors pursuant to which $5,495,000 of convertible notes were issued. The
notes are unsecured, mature on June 30, 1997 and bear interest at the rate of
4% per annum which is payable on each June 30 and December 31 until all
outstanding principal and interest on the notes have been paid in full. Since
July 1, 1993, the notes have been convertible into common stock of the Company
at a conversion price of $19.53 per share. In the event of an initial public
offering of Agritope common stock, the notes would be automatically converted
to shares of Agritope common stock at 90% of the public offering price.
There were no conversions of convertible notes, into the Company's common
stock, during the three months ended December 31, 1995 and 1994. Debt
issuance costs are included in other assets and are being amortized over the
five-year life of the notes. Amortization expense of debt issuance costs for
the three months ended December 31, 1995 and 1994, respectively, totaled
$23,594 and $24,868, leaving an unamortized balance of $173,484 and $290,840
at December 31, 1995 and 1994, respectively.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company recorded revenues of $1.3 million for the first quarter of fiscal
1996, a 16% increase as compared to revenues of $1.1 million for the
corresponding quarter of fiscal 1995. Product sales accounted for 64% and 98%
of revenues for the respective periods.
Revenues for EPIblot(R), the Company's Western blot HIV confirmatory test,
totaled $342,000 for the current quarter as compared to $580,000 for the
comparable quarter of the prior year. Shipments of EPIblot to Organon Teknika
Corporation (Organon Teknika), the Company's exclusive distributor for
EPIblot, decreased as Organon Teknika reduced excess inventory safety stock
levels. During the quarter, 96% of EPIblot product sales were made in the
U.S., up from 90% for the corresponding quarter of the prior year. As of
December 31, 1995, the Company had firm orders for EPIblot totaling $402,000
scheduled for shipment through March 1996.
The Company's oral specimen collection device accounted for revenues of
$491,000 during the current quarter as compared to $117,000 for the
corresponding quarter of the prior year. The increase was due to increased
use of the device for life insurance risk assessment following the December
1994 U.S. Food and Drug Administration approval of the Company's Premarket
Approval application (PMA) for permission to market the device for the
detection of antibodies to the AIDS virus. Prior to FDA approval, sales of
the collection device were limited to use for testing for cotinine, a
nicotine derivative, in the U.S. and for pre-insurance testing for HIV in
foreign countries approved for export by the FDA. As of December 31, 1995,
the Company had firm orders for its oral specimen collection device totaling
$417,000 scheduled for shipment through March 1996.
Product sales resulted in a gross profit of 42% in the current quarter, an
improvement from negative margins experienced in the first quarter of fiscal
1995. Increased sales volumes and higher average sales prices for the
Company's oral specimen collection device were a significant component of the
improvement in margins. In addition, the Company divested its fresh flower
operations in the third quarter of fiscal 1995. Those operations experienced
a negative gross profit in the first quarter of fiscal 1995.
The Company's medical products division reduced its operating loss as compared
to the prior year first quarter by approximately $1 million due to improved
profitability of products, contract revenues from SmithKline Beecham, and cost
reductions as a result of the company's restructuring program. Consolidated
operating losses in the first quarter of the prior fiscal year included $1.6
million related to two agricultural operations which were divested late in the
prior fiscal year.
Other income, net, for the first quarters of fiscal 1996 and 1995 consisted
primarily of interest income on temporary investments of excess funds, less
interest expense on Agritope long-term debt.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities on hand as of December 31,
1995 totaled $19.3 million as compared to $21.3 million at the Company's
September 30, 1995 fiscal year-end. As of December 31, 1995 the Company had
working capital of $19.6 million, which compares to $20.5 million at September
30, 1995.
Proceeds from the issuance of equity securities represent the primary sources
of funds for meeting the Company's requirements for operations, working
capital and business expansion. During the current quarter, the Company
received $271,000 in proceeds from the exercise of employee stock options and
purchases of stock under the Company's employee stock purchase plan.
Trade accounts receivable increased in the quarter by $163,000 due to
increased sales of medical products, while other accounts receivable decreased
due to collection of a short-term line of credit extended to an affiliated
company in connection with the divestiture of certain fresh flower packaging
operations. Prepaid expenses increased $254,000 due to the Company's annual
renewal of insurance coverage.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits are listed on the attached exhibit index following the
signature page of this report.
(b) Reports on Form 8-K
On October 13, 1995, the Company filed, on a current report on
Form 8-K under Item 5, a letter to shareholders regarding events occurring
during the calendar year.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EPITOPE, INC., an Oregon corporation
February 9, 1996 ADOLPH J. FERRO, Ph.D.
Date Adolph J. Ferro, Ph.D.
President, Chief Executive Officer
and
Director
(Principal Executive Officer)
February 9, 1996 GILBERT N. MILLER
Date Gilbert N. Miller
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
February 9, 1996 TERRY J. PAULSEN
Date Terry J. Paulsen
Accounting Manager
(Principal Accounting Officer)
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EXHIBIT INDEX
27. Financial Data Schedule.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the condensed
consolidated financial statements included
herein and is qualified in its entirety by
reference to such financial statements.
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<PERIOD-TYPE> 3-MOS
<S> <C>
<CASH> 3,714,423
<SECURITIES> 15,589,968
<RECEIVABLES> 555,386
<ALLOWANCES> 26,386
<INVENTORY> 1,467,077
<CURRENT-ASSETS> 22,728,611
<PP&E> 6,138,837
<DEPRECIATION> 3,809,660
<TOTAL-ASSETS> 28,118,590
<CURRENT-LIABILITIES> 3,146,229
<BONDS> 0
0
0
<COMMON> 94,559,785
<OTHER-SE> (73,237,708)
<TOTAL-LIABILITY-AND-EQUITY> 28,119,590
<SALES> 834,878
<TOTAL-REVENUES> 1,311,139
<CGS> 485,959
<TOTAL-COSTS> 3,185,155
<OTHER-EXPENSES> (221,654)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,652,362)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,652,362)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> 0
</TABLE>
