<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 June 30, 1996
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 Number 1-10492
EPITOPE, INC.
(Exact name of registrant as specified in its charter)
OREGON NO. 93-0779127
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8505 S.W. Creekside Place
Beaverton, Oregon 97008-7108
(Address of principal executive offices) (Zip code)
(503) 641-6115
(Registrant's telephone number, including area code)
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 [ ]
Number of shares of Common Stock, no par value, outstanding as of
June 30, 1996: 12,882,906
<PAGE>
Page No.
- - - -
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1996 and
September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the three months
and nine months ended June 30, 1996 and 1995 . . . . . . . . . . . . . 4
Condensed Consolidated Statement of Changes in Shareholders' Equity for
the nine months ended June 30, 1996. . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows for the nine months ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 11
<PAGE>
<TABLE>
<CAPTION>
EPITOPE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
6/30/96 9/30/95
(Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - -
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents . . . . . . . . . . . $ 7,908,271 $ 4,259,897
Marketable securities . . . . . . . . . . . . . 17,321,322 17,080,246
Accounts receivable, net of allowance for
doubtful accounts of $26,386 and $72,044,
respectively . . . . . . . . . . . . . . . . 823,686 367,487
Other receivables . . . . . . . . . . . . . . . 1,323,896 1,376,543
Inventories (Note 2) . . . . . . . . . . . . . 1,257,893 1,433,746
Prepaid expenses . . . . . . . . . . . . . . . 242,908 159,463
- - - - - - - - - -
Total current assets . . . . . . . . . . . . . 28,877,976 24,677,382
Property and equipment, net . . . . . . . . . . 2,055,656 2,544,772
Patents and proprietary technology, net . . . . 734,339 555,767
Investment in nonconsolidated
subsidiaries . . . . . . . . . . . . . . . . 2,302,383 2,117,343
Other assets and deposits (Note 3) . . . . . . 163,904 238,758
- - - - - - - - - -
$34,134,258 $30,134,022
Liabilities and Shareholders' Equity
Current liabilities
Current portion of installment notes payable $ - $ 17,758
Accounts payable . . . . . . . . . . . . . . . 313,032 945,395
Salaries, benefits and other accrued
liabilities . . . . . . . . . . . . . . . . . 1,675,852 3,182,516
- - - - - - - - - -
Total current liabilities . . . . . . . . . . . 1,988,884 4,145,669
Long-term portion of installment notes payable - 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; 12,882,906 and 12,485,130 shares
issued and outstanding, respectively . . . . 100,080,667 93,931,947
Accumulated deficit . . . . . . . . . . . . . . (71,555,296) (71,585,346)
- - - - - - - - - - -
28,525,371 22,346,601
$34,134,258 $30,134,022
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EPITOPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Nine months ended
6/30/96 6/30/95 6/30/96 6/30/95
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C> <C> <C> <C>
Revenues
Product sales . . . . . . . .$1,065,916 $1,527,004 $2,953,612 $4,314,954
Grants and contracts . . . . 206,110 41,518 1,099,459 62,983
- - - - - - - - - - - - - - - - - - - -
1,272,026 1,568,522 4,053,071 4,377,937
Costs and expenses
Product costs . . . . . . . . 623,966 1,651,710 1,792,520 5,627,348
Research and development
costs . . . . . . . . . . . 1,078,526 1,779,307 3,199,499 5,016,535
Selling, general, and
administrative expenses . . 1,494,732 2,593,588 4,900,192 7,672,697
- - - - - - - - - - - - - - - - - - - -
3,197,224 6,024,605 9,892,211 18,316,580
Loss from operations . . . (1,925,198) (4,456,083) (5,839,140) (13,938,643)
Other income, net . . . . . . 5,424,747 307,822 5,869,190 655,690
- - - - - - - - - - - - - - - - - - - -
Net profit (loss) . . . . . .$3,499,549 $(4,148,261) $ 30,050 $(13,282,953)
Net profit (loss) per share .$ .25 $ (.34) $ - $ (1.14)
Weighted average number of
shares outstanding. . . . .13,840,132 12,339,314 13,413,493 11,697,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EPITOPE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Common Stock
Accumulated Shares Dollars Deficit Total
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C> <C> <C> <C>
Balances at September 30,
1995 . . . . . . . . . 12,485,130 $93,931,947 $(71,585,346) $22,346,601
Common stock issued upon
exercise of options . . 327,066 4,426,007 - 4,426,007
Common stock issued as
compensation . . . . . 4,360 73,245 - 73,245
Compensation expense on
stock option grants . . - 823,020 - 823,020
Common stock issued upon
exercise of warrants . 46,350 826,600 - 826,600
Equity issuance costs . - (152) - (152)
Net profit for the period - - 30,050 30,050
- - - - - - - - - - - - - - - - -
Balances at June 30, 1996 12,862,906 $100,080,667 $(71,555,296) $28,525,371
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EPITOPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months ended June 30 1996 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C> <C>
Cash flows from operating activities
Net profit (loss) . . . . . . . . . . . . . . . . $ 30,050 $(13,282,953)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . 837,389 1,157,180
Gain on disposition of property . . . . . . . . . (1,932) (24)
Increase in accounts receivable and other
receivables . . . . . . . . . . . . . . . . . . (403,552) (827,848)
(Increase) decrease in inventories . . . . . . . 175,853 (483,214)
Increase in prepaid expenses . . . . . . . . . . (83,445) (235,334)
(Increase) decrease in other assets and
deposits . . . . . . . . . . . . . . . . . . . 3,351 (12,781)
Increase (decrease) in accounts payable and
accrued liabilities . . . . . . . . . . . . . . (2,139,027) 1,026,122
Common stock issued as compensation for
services . . . . . . . . . . . . . . . . . . . 73,245 235,660
Compensation expense on stock option grants and
deferred salary increases . . . . . . . . . . . 823,020 914,820
- - - - - - - - - -
Net cash used in operating activities . . . . . . (685,048) (11,508,372)
Cash flows from investing activities
Investment in marketable securities . . . . . . (35,078,490) (7,777,437)
Proceeds from sale of marketable securities . . . 34,837,414 3,441,162
Additions to property and equipment . . . . . . . (125,074) (1,249,364)
Proceeds from sale of property . . . . . . . . . 5,717 10,080
Expenditures for patents and proprietary
technology . . . . . . . . . . . . . . . . . . (334,053) (209,705)
Investment in nonconsolidated subsidiaries . . . (185,040) -
- - - - - - - - - -
Net cash used in investing activities . . . . . . (879,526) (5,785,264)
Cash flows from financing activities
Principal payments under installment purchase
obligations . . . . . . . . . . . . . . . . . . (39,507) (12,698)
Proceeds from issuance of common stock . . . . . 5,252,607 20,651,230
Cost of equity issuance . . . . . . . . . . . . . (152) (746,677)
- - - - - - - - - -
Net cash provided by financing activities . . . . 5,212,948 19,891,855
Net increase in cash and cash equivalents . . . . 3,648,374 2,598,219
Cash and cash equivalents at beginning of
period . . . . . . . . . . . . . . . . . . . . 4,259,897 11,024,997
- - - - - - - - - -
Cash and cash equivalents at end of period . . . $7,908,271 $13,623,216
</TABLE>
<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 units, superior new plants and related products.
Note 2 - Summary of Significant Accounting Policies
CONSOLIDATION
The interim condensed consolidated financial statements include the accounts
of Epitope 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 include
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 June 30, 1996 are not necessarily
indicative of the results of operations for the full fiscal year.
INVENTORIES
June 30, 1996 September 30, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Raw materials . . . . . . . . . . . . $ 641,682 $ 657,568
Work-in-process . . . . . . . . . . . 442,978 379,470
Finished goods . . . . . . . . . . . . 120,651 295,032
Supplies . . . . . . . . . . . . . . . 52,582 101,676
- - - - - - - - - -
$1,257,893 $1,433,746
NET PROFIT (LOSS) PER SHARE
Net profit (loss) per share has been computed using the weighted average
number of shares of common stock and common stock equivalents outstanding
during the period. Common stock equivalents consist of the number of shares
issuable upon exercise of outstanding warrants, options and convertible notes
less the number of shares to have been purchased for the treasury with the
proceeds from the exercise of such securities.
Common stock equivalents are excluded from the computation if their effect is
anti-dilutive. Primary and fully diluted earnings per share are the same.
SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash financing activities not included in the Consolidated Statements of
Cash Flows for the nine months ended June 30, 1996 and 1995 are as follows:
1996 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Conversion of notes to equity (Note 3) . . . . . $ - $ 427,496
Inventory contributed to Fresche Blossoms, L.L.C $ - $ 565,303
Equipment contributed to Fresche Blossoms, L.L.C $ - $2,109,676
Investment in unconsolidated subsidiary . . . . $ - $2,584,979
<PAGE>
EPITOPE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)
Note 3 - Long-Term Debt
On June 30, 1992, a wholly owned subsidiary of the Company, Agritope, Inc.
(Agritope), 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. 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. Costs incurred in connection with the debt
issuance 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 nine months ended June 30, 1996 amounted to $71,502, leaving an
unamortized balance of $125,576.
During the nine months ended June 30, 1995, investors exchanged $449,991
principal amount of convertible notes for Epitope common stock at a conversion
price of $19.53 per share. In conjunction with the exchanges, unamortized
debt issuance costs of $22,495 related to such notes were recognized as equity
issuance costs. No convertible notes were exchanged for the Company's common
stock during the nine months ended June 30, 1996.
<PAGE>
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 and $4.1 million, respectively,
for the quarter and nine-month period ended June 30, 1996, as compared to
revenues of $1.6 million and $4.4 million for the respective periods of fiscal
1995. Product sales were $1.1 million and $3.0 million for the respective
1996 periods.
Sales of the Company's Western Blot Kit HIV confirmatory test, EPIblot(R), for
the current quarter totaled $369,000, 24% lower than the revenues for the
third quarter of fiscal 1995. For the nine months ended June 30, 1996,
EPIblot sales of $1.1 million were 29% below sales for the comparable period
of the prior year. For the nine-month period, 2% of EPIblot sales were made
in the U.S. as compared to 5% for the comparable 1995 period. As of June 30,
1996, firm orders for EPIblot amounted to $522,000, including $385,450
scheduled for shipment during the upcoming quarter.
The Company's oral specimen collection device produced revenues of $695,000
for the current quarter as compared to $388,000 for the third quarter of
fiscal 1995. Sales of the device for the nine-month period ended June 30,
1996 were $1.8 million, an increase of $1.1 million over the first nine months
of fiscal 1995. The increase in sales is attributable to increased use of the
device for insurance testing purposes. As of June 30, 1996, the Company had
firm orders for the device totaling $1.3 million scheduled for shipment before
September 30, 1996. Orders for shipment of the device in the upcoming quarter
increased 260% from current quarter levels due to orders placed in response to
increased adoption of the use of the device for insurance testing purposes as
well as orders placed by SmithKline Beecham, plc (SB) to support its August
1996 launch of the product to healthcare professional markets (See Item 5 -
Other Information).
Gross margins on product sales were 42% for the current quarter and 39% for
the nine months ended June 30, 1996. Gross margins on product sales were
negative for both the third quarter and for the first nine-months of fiscal
1995. Increased volume of sales of the Company's oral specimen collection
device accounted for the improved margins for medical products. The Company's
fresh flower operations, which were divested in the third quarter of fiscal
1995, experienced negative margins in 1995.
The loss from operations amounted to $1.9 million and $5.8 million for the
quarter and nine months ended June 30, 1996, respectively, as compared to $4.5
million and $13.9 million for the same periods in fiscal 1995. The Company's
two agricultural operations which were divested in the third quarter of fiscal
1995 accounted for $728,000 and $3.7 million of operating losses in the third
quarter and first nine months of fiscal 1995, respectively. The medical
products division accounted for reduced operating losses of $1.1 million and
$3.2 million for the current quarter and nine-month periods, respectively, as
compared to the same periods in fiscal 1995, due to increased product sales
volumes, contract revenues from SB and cost savings from a September 1995
restructuring program.
Other income, net for the current quarter includes a $5 million license fee
from SB which was earned when the FDA approved an extension of shelf-life
dating for the Company's oral specimen collection device from nine months to
two years. In addition to the license fee, Other income, net, for the nine-
months ended June 30, 1996 and 1995 is comprised principally of interest
income on the Company's investment of excess funds less interest expense on
convertible notes (see Note 3 to the Condensed Consolidated Financial
Statements). Interest income increased in fiscal 1996 due to higher levels of
funds available for investment and, during the current quarter, interest
income realized on SB funds held in escrow pending receipt of extended dating
as noted above.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and marketable securities as of June 30, 1996
amounted to $25.2 million as compared to $21.3 million at September 30, 1995.
At June 30, 1996, the Company had working capital of $26.9 million as compared
to $20.5 million at September 30, 1995.
Proceeds from the issuance of equity securities and revenues from product
sales represent the primary sources of funds for meeting the Company's
requirements for operations, working capital, and business expansion. During
the nine-months ended June 30, 1996, the Company received $4.4 million from
the exercise of employee stock options.
<PAGE>
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION
In April 1996, the FDA approved the Company's application to extend the
expiration date on the Company's oral specimen device from nine months to two
years. Achievement of this milestone resulted in a payment to the Company of
$4.2 million cash from an escrow account established in April 1995 by its
marketing partner, SmithKline Beecham, plc (SB). The FDA decision also
eliminated certain contingencies affecting a $1 million license fee received
in 1995. As a result, the Company recognized a license fee of $5 million plus
interest income of approximately $200,000 as Other income for the quarter
ending June 30, 1996.
The Company's oral specimen collection device was approved for use in
screening for antibodies to HIV-1 in December 1994. In June 1996, the FDA
approved the Company's application seeking permission to market its Western
blot confirmatory test for use in HIV-1 testing on oral specimens collected
with the device. SB commenced marketing the Company's oral specimen
collection device to healthcare professionals on August 5, 1996.
In June 1995, VF Holding, Inc. (VF) agreed to purchase all of the common stock
of Vinifera, Inc. (Vinifera) for $5.9 million and up to $5 million in
contingent earnout payments. VF also agreed to contribute $4 million of
operating funds to Vinifera. VF paid $830,000 to Vinifera, but made no other
payments. The Company and VF have reached an agreement in principal for
Vinifera to retain payments made in consideration of a release of claims under
the purchase agreement and issuance to VF of 200,000 shares of Vinifera stock,
representing four percent of the stock outstanding.
The Company has conducted a private offering to provide additional financing
for Vinifera. The Company has received commitments to purchase 19.6 percent
of outstanding Vinifera stock for $1,225,000. The sale is expected to close
within the next 30 days.
Statements other than historical information in this report are forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 and are subject to factors that could cause actual results
to differ materially. These factors include unexpected interruption of supply
or manufacturing operations, changes in marketing partners' and customers'
strategy or emphasis, development of competing products, market acceptance of
oral testing, changes in insurance industry practices, unexpected delays in
obtaining state approvals, changes in federal or state law or regulations, and
changes in the Company's business strategy, and other risks and uncertainties
described in the Company's Annual Report on Form 10-K for the year ended
September 30, 1995, its Quarterly Reports on Form 10-Q for the first and
second quarters of fiscal 1996, and other documents filed with the Securities
and Exchange Commission. The Company disclaims any obligation to publicly
announce future events or developments that affect these forward-looking
statements.
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 June 17, 1996, the Company filed, on a current report on Form 8-K
under Item 5, a press release regarding U.S. Food and Drug Administration
approval of the Company's application to market its OraSure (R) HIV-1 Western
blot confirmatory test kit, a memorandum to the investment community regarding
the approval and comments of the Company's President and Chief Executive
Officer regarding the approval and its impact on the Company's current and
future operations.
<PAGE>
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
August 13, 1996 ADOLPH J. FERRO, PH.D.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Date Adolph J. Ferro, Ph.D.
President, Chief Executive Officer
and Director
(PRINCIPAL EXECUTIVE OFFICER)
August 13, 1996 GILBERT N. MILLER
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Date Gilbert N. Miller
Executive Vice President, Chief
Financial Officer
(PRINCIPAL FINANCIAL OFFICER)
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- - - - - - - - - -
11 Statement re computation of per share earnings
27 Financial data schedule
99 Memorandum to Epitope Long-Time Supporters dated
August 7, 1996
<PAGE>
Exhibit 11
<TABLE>
<CAPTION>
Epitope Inc.
Weighted Average Shares used for EPS Calculation
Third Quarter 1996
Three Months Ended
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
June 30, 1996 June 30, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - -
COMMON AND ASSUMING FULL COMMON AND ASSUMING FULL
COMMON DILUTION COMMON DILUTION
EQUIVALENT EQUIVALENT
SHARE SHARE
<S> <C> <C> <C> <C>
Common stock outstanding, beginning of
period . . . . . . . . . . . . . . . . 12,567,441 12,567,441 12,083,706 12,083,706
Weighted average common stock issued
during the period. . . . . . . . . . . 126,768 126,768 255,608 255,608
Weighted average common stock assuming
exercise of options. . . . . . . . . . 1,124,624 1,131,983 * *
Weighted average common stock assuming
exercise of warrants . . . . . . . . . 21,299 21,299 * *
Weighted average common stock assuming
conversion of 4% Convertible Notes . . * * * *
Weighted average number of shares - - - - - - - - - - - - - - - - - - - - - - - -
outstanding. . . . . . . . . . . . . . 13,840,132 13,847,491 12,339,314 12,339,314
Nine Months Ended
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
June 30, 1996 June 30, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - -
COMMON AND ASSUMING FULL COMMON AND ASSUMING FULL
COMMON DILUTION COMMON DILUTION
EQUIVALENT EQUIVALENT
SHARE SHARE
<S> <C> <C> <C> <C>
Common stock outstanding, beginning of
period . . . . . . . . . . . . . . . . 12,485,130 12,485,130 10,926,551 10,926,551
Weighted average common stock issued
during the period. . . . . . . . . . . 93,131 93,131 770,449 770,449
Weighted average common stock assuming
exercise of options. . . . . . . . . . 835,232 862,025 * *
Weighted average common stock assuming
exercise of warrants . . . . . . . . . * * * *
Weighted average common stock assuming
conversion of 4% Convertible Notes . . * * * *
Weighted average number of shares - - - - - - - - - - - - - - - - - - - - - - - -
outstanding. . . . . . . . . . . . . . 13,413,493 13,440,286 11,697,000 11,697,000
<FN>
* The effect of conversion/exercise is antidilutive.
</TABLE>
<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> JUN-30-1996
<PERIOD-TYPE> 9-MOS
<S> <C>
<CASH> 7,908,201
<SECURITIES> 17,321,322
<RECEIVABLES> 850,072
<ALLOWANCES> 26,386
<INVENTORY> 1,257,893
<CURRENT-ASSETS> 28,877,976
<PP&E> 6,228,577
<DEPRECIATION> 4,172,921
<TOTAL-ASSETS> 34,134,258
<CURRENT-LIABILITIES> 1,988,884
<BONDS> 3,620,003
0
0
<COMMON> 100,080,667
<OTHER-SE> (71,555,296)
<TOTAL-LIABILITY-AND-EQUITY> 34,134,258
<SALES> 2,953,612
<TOTAL-REVENUES> 4,053,071
<CGS> 1,792,520
<TOTAL-COSTS> 9,892,211
<OTHER-EXPENSES> (5,869,190)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 192,103
<INCOME-PRETAX> 30,050
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
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<NET-INCOME> 30,050
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</TABLE>
<PAGE>
Exhibit 99
August 7, 1996
TO: Epitope's Long-Time Supporters
RE: Conference Call Remarks
We thought it might be helpful to you if we summarized and updated the remarks
that were made in the conference call on August 1, 1996.
- SmithKline Beecham (SB) began nationwide marketing of our oral
specimen collection device for HIV testing under the OraSure(R) brand name
Monday, August 5. Involved are 1,500 sales people from their pharmaceutical
division, 1,800 from physician supply houses with whom SB works, and a smaller
specialized sales force from Organon Teknika, who will call on public health
organizations.
- SB has established a hotline (1-800-ORASURE) to answer questions
about OraSure. Advertising will begin once reps have had time to call on
physicians and are prepared to handle inquiries from patients.
- Several developments have combined to induce life insurance
companies to speed up their plans for using EpiScreen(TM), the oral
specimen collection brand name which we use for devices sold to markets
served exclusively by Epitope: 1) In June, the OraSure Western blot
confirmatory test received FDA approval. 2) At the July Vancouver
International AIDS Conference, studies were released involving the
combined use of three drug therapies that had produced very promising
results in extending the lives of patients with AIDS. 3) FDA approved the
second blood-based home collection system for HIV-1 testing. To better
service the life insurance market, we are in the process of hiring two
salesmen, one for the Northeast and one for the Midwest.
- The level of firm orders for delivery of products in the final
quarter of fiscal 1996 is currently $1.7 million.
- Over the past two weeks we have been shipping product to SB; we
recently completed the first shipment on a substantial SB foreign order.
- SB has committed to funding eight R&D projects, expected to be
conducted during the next year or so.
- Epitope has the rights for OTC HIV testing outside the U.S. and is
currently in discussions with the Canadian government on setting up a
program. In addition, Epitope has made application to Canada's Health
Protection Bureau (their FDA) for professional use of EpiScreen.
- A large South American country is showing serious interest in an OTC
HIV testing system.
- While not ready for commercialization in the short-term, we have made
encouraging advances in development of OraQuick(R), a rapid point-of-care oral
specimen testing system.
- After a thorough search, we have engaged the institutional research
and investment banking firm, Vector Securities International, one of the
premier healthcare and life sciences firms. Vector was founded about eight
years ago by Peter Drake, one of the best-known biotechnology analysts, and
several others who had previously been with Kidder, Peabody. Vector's efforts
are limited to healthcare and life sciences fields. They have managed or
co-managed more than $1.6 billion of financings and advise over seventy client
companies.
We are very enthusiastic about these developments. We have never before had
so many opportunities open to us and trust that you share this enthusiasm with
us.
I will be making a presentation at the Medical Investments Northwest
conference Monday morning August 12. About an hour before my presentation, I
am scheduled to be interviewed by the Dow Jones Investor Network.
LATE BREAKING NEWS
As expected, Calypte Biomedical Corp. received FDA approval for their urine
based HIV-1 screening test. It is noteworthy that they did NOT RECEIVE
APPROVAL FOR THEIR WESTERN BLOT CONFIRMATORY TEST. You remember the problems
we experienced trying to sell OraSure without an approved OraSure Western blot
confirmatory test. According to this morning's New York Times article,
Calypte's test will be labeled with a caution that it is not as accurate as
blood and therefore will require the drawing of a blood sample to confirm
screening results!
Gus Allen
