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 March 31, 1999
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 (IRS Employer Identification No.)
incorporation or organization)
8505 SW 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 March 31,
1999: 14,054,571
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
PAGE NO.
--------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets at March 31, 1999 (unaudited)
and September 30, 1998................................................. 3
Consolidated Statements of Operations for the three months and
six months ended March 31, 1999 and 1998 (unaudited)................... 4
Consolidated Statements of Changes in Shareholders' Equity for the
three months and six months ended March 31, 1999 (unaudited)........... 5
Consolidated Statements of Cash Flows for the six months
ended March 31, 1999 and 1998 (unaudited).............................. 6
Condensed Notes to Consolidated Financial Statements (unaudited)........... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ................................................. 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............. 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................. 12
ITEM 5. OTHER INFORMATION...................................................... 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................... 13
</TABLE>
2
<PAGE>
EPITOPE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
3/31/99 9/30/98
(UNAUDITED)
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents.............................................. $ 525,311 $ 1,164,275
Marketable securities.................................................. 5,157,129 4,455,044
Trade accounts receivable, net ........................................ 1,066,950 1,519,652
Other receivables...................................................... 6,259 47,818
Inventories (Note 2) .................................................. 1,716,546 1,092,577
Prepaid expenses....................................................... 389,373 313,941
-------------- --------------
8,861,568 8,593,307
Property and equipment, net............................................ 925,827 819,095
Patents and proprietary technology, net ............................... 592,753 596,169
Other assets and deposits.............................................. 273,983 348,733
-------------- --------------
$ 10,654,131 $ 10,357,304
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable....................................................... $ 276,223 $ 566,894
Salaries, benefits and other accrued liabilities....................... 1,259,088 1,516,395
-------------- --------------
1,535,311 2,083,289
Commitments and contingencies.......................................... - -
Shareholders' equity (Note 4)
Contributed capital.................................................... 113,697,358 111,319,573
Accumulated deficit.................................................... (104,578,538) $ (103,045,558)
-------------- --------------
9,118,820 8,274,015
$ 10,654,131 $ 10,357,304
</TABLE>
3
<PAGE>
EPITOPE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
3/31/99 3/31/98 3/31/99 3/31/98
Revenues
<S> <C> <C> <C> <C>
Product sales .............................. $ 2,072,919 $ 2,102,905 $ 4,317,329 $ 3,694,347
Grants and contracts ....................... - - 59 11,381
------------ ------------ ------------ ------------
2,072,919 2,102,905 4,317,388 3,705,728
Costs and expenses
Product costs .............................. 682,875 930,485 1,512,321 1,586,254
Research and development costs ............. 1,048,899 617,898 1,751,013 1,297,745
Selling, general and administrative expenses 1,244,568 1,372,178 2,716,427 2,690,190
------------ ------------- ------------ ------------
2,976,342 2,920,561 5,979,761 5,574,189
Loss from operations ....................... (903,423) (817,656) (1,662,373) (1,868,461)
Other income (expense), net
Interest income............................. 75,281 86,332 140,516 201,227
Interest expense............................ (190) 257 (532) (7,416)
Other, net.................................. (4,670) (2,835) (10,591) (14,588)
------------ ------------- ------------ ------------
70,421 83,754 129,393 179,223
Net loss.................................... $ (833,002) $ (733,902) $ (1,532,980) $ (1,689,238)
Basic and diluted net loss per share........ $ (0.06) $ (0.05) $ (0.11)$ $ (0.13)
Weighted average number of shares outstanding 14,008,013 13,485,951 13,799,135 13,470,003
</TABLE>
4
<PAGE>
EPITOPE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
<TABLE>
COMMON STOCK ACCUMULATED
SHARES DOLLARS DEFICIT TOTAL
<S> <C> <C> <C> <C>
BALANCES AT SEPTEMBER 30, 1998................. 13,577,319 $ 111,319,573 $ (103,045,558) $ 8,274,015
Common stock issued upon
exercise of options.......................... 30,576 154,103 - 154,103
Common stock issued under Employee
Stock Purchase Plan.......................... 2,066 8,245 - 8,245
Common stock issued as matching
savings plan contributions................... 3,834 22,525 - 22,525
Compensation expense for
stock option grants.......................... - 77,242 - 77,242
Net loss for the quarter....................... - - (699,978) (699,978)
------------ ------------- -------------- -----------
BALANCES AT DECEMBER 31, 1998 (UNAUDITED)...... 13,613,795 $ 111,581,688 $ (103,745,536) $ 7,836,152
Common stock issued upon
exercise of options.......................... 436,944 2,016,440 - 2,016,440
Common stock issued as matching
savings plan contributions................... 3,832 19,160 - 19,160
Compensation expense for
stock option grants.......................... - 80,070 - 80,070
Net loss for the quarter....................... - - (833,002) (833,002)
------------ ------------- -------------- -----------
BALANCES AT MARCH 31, 1999 (UNAUDITED)......... 14,054,571 $ 113,697,358 $ (104,578,538) $ 9,118,820
</TABLE>
5
<PAGE>
EPITOPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
SIX MONTHS ENDED MARCH 31 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss .............................................................. $ (1,532,980) $ (1,689,238)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization ......................................... 311,553 346,314
Loss on disposition of assets.......................................... 10,590 -
Decrease in accounts receivable and other receivables ................. 494,261 101,576
(Increase) decrease in inventories .................................... (623,969) 140,196
Decrease (increase) in prepaid expenses ............................... 17,377 (338,727)
Decrease in accounts payable and accrued liabilities .................. (547,978) (45,108)
Common stock issued as compensation for services....................... 41,685 59,742
Compensation expense for stock option grants and
deferred salary increases .......................................... 157,312 180,787
Other, net ............................................................ - 8,448
------------ ------------
Net cash used by operating activities.................................. (1,672,149) (1,236,010)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in marketable securities ................................... (3,971,291) (7,663,044)
Proceeds from sale of marketable securities ........................... 3,269,206 9,373,294
Additions to property and equipment ................................... (325,971) (40,814)
Proceeds from sale of property and equipment........................... - 37,629
Expenditures for patents and proprietary technology ................... (99,488) (54,584)
(Investment in) earnings from affiliated companies..................... (18,059) 11,871
------------ ------------
Net cash (used) provided by investing activities....................... (1,145,603) 1,664,352
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock ................................ 2,178,788 313,721
Advances in connection with spin-off .................................. - (2,097,240)
------------ ------------
Net cash provided (used) by financing activities....................... 2,178,788 (1,783,519)
Net decrease in cash and cash equivalents ............................. (638,964) (1,355,177)
Cash and cash equivalents at beginning of period ...................... 1,164,275 1,934,480
------------ ------------
Cash and cash equivalents at end of period............................. $ 525,311 $ 579,303
</TABLE>
6
<PAGE>
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 THE COMPANY
Epitope, Inc. (Epitope or the Company), is an Oregon corporation incorporated in
1981. Epitope develops and markets oral specimen collection kits and related
diagnostic tests primarily for the detection of the Human Immunodeficiency Virus
(HIV), the cause of Acquired Immune Deficiency Syndrome (AIDS), and for the
detection of other medical conditions and analytes, including drugs of abuse.
Epitope's lead product, the patented OraSure(R) collection device, is used as
part of an oral specimen diagnostic system. The Company markets the device in
the United States and certain foreign countries for use in screening life
insurance applicants and for public health use, and plans to begin marketing for
drugs-of-abuse testing in late 1999. Epitope also markets HIV-1 Western blot
confirmatory test kits used to confirm positive results of initial screening
tests for HIV-1 infection.
The interim 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
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's 1998 Annual
Report on Form 10-K. Results of operations for the periods ended March 31, 1999
are not necessarily indicative of the results of operations expected for the
full fiscal year.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
<TABLE>
Inventories. Inventory components are summarized as follows: 3/31/99 9/30/98
(Unaudited)
<S> <C> <C>
Raw materials.......................................................... $ 321,964 $ 238,916
Work-in-process ....................................................... 656,230 627,503
Finished goods ........................................................ 738,352 211,703
Supplies .............................................................. - 14,455
----------- -----------
$ 1,716,546 $ 1,092,577
</TABLE>
Net Loss Per Share. Basic and diluted loss per share has been computed using the
weighted average number of shares of common stock and potential common stock
outstanding during the period. Potential common stock consists of the number of
shares issuable upon exercise of outstanding warrants and options less the
number of shares assumed to have been purchased for the treasury with the
proceeds from such exercise. Potential common stock is excluded from the
computation if its effect is anti-dilutive. Basic and diluted net income (loss)
per share are the same for the comparable periods ended March 31, 1999 and 1998.
Shares of potential common stock that were not included in the calculation of
diluted loss per share as they were anti-dilutive are as follows:
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
<S> <C> <C> <C> <C>
3/31/99 3/31/98 3/31/99 3/31/98
Number of Shares.......... 873,662 805,946 496,296 459,156
</TABLE>
Statement of Cash Flows. Cash paid for interest approximated interest expense in
the quarters ended March 31, 1999 and 1998. No cash was paid for income taxes in
fiscal 1999 or 1998. Compensation expense related to the issuance of
compensatory equity securities, which also represents non-cash transactions,
amounted to $157,312 and $180,786 for the six months ended March 31, 1999 and
1998, respectively.
7
<PAGE>
Management Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
relating to assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from these
estimates.
NOTE 3 SEGMENT INFORMATION - SFAS NO. 131
Effective for fiscal year 1999, the Company adopted Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131). The adoption of SFAS No. 131 is not
expected to have a material impact on the results of operations or shareholders'
equity for any periods presented. See Note 1 for a description of the Company's
business.
Geographic Areas. The Company's products are sold principally in the United
States, Canada, Asia and Latin America. Distribution to Epitope's primary
Canadian customer was taken over in 1999 by one of the Company's U.S. insurance
laboratory partners, and is no longer shown as a direct sale to Canada.
<TABLE>
FOR THE SIX MONTHS ENDED REVENUES IDENTIFIABLE ASSETS
MARCH 31, 1999 1998 1999 1998
<S> <C> <C> <C> <C>
United States............................ $ 4,086,762 $ 3,129,404 $ 10,654,131 $ 10,140,190
Canada................................... 1,750 407,400 - -
Asia..................................... 194,019 144,252 - -
Latin America............................ 4,407 1,027 - -
Europe................................... 28,450 23,645 - -
Other.................................... 2,000 - - -
----------- ----------- ------------ ------------
$ 4,317,388 $ 3,705,728 $ 10,654,131 $ 10,140,190
</TABLE>
Customer Concentration. In the second quarter of fiscal 1999 four customers
accounted for over 71 percent of product revenues as compared to 69 percent for
the same quarter of fiscal 1998. The Company believes that its relationship with
each of these customers is strong and believes that they will continue to
purchase comparable volumes of the Company's products. There can be no
assurance, however, that sales to these customers will not decrease or that
these customers will not choose to replace the Company's products with those of
competitors. The loss of any of these customers, or a significant decrease in
the volume of products purchased by them, would have a material adverse effect
on the Company.
NOTE 4 STOCK OPTION EXERCISES
During the second quarter of fiscal 1999, the Company received $2,016,000 in
cash from the exercise of options to purchase 436,944 shares of common stock at
an average exercise price of $4.61 per share and at an average market value of
$6.97 per share. Payroll taxes for the option exercises of $54,000 were included
in selling, general and administrative expenses during the quarter.
NOTE 5 SUBSEQUENT EVENT
A&W Lawsuit. On May 7, 1999, the Company entered into a settlement agreement
with Andrew and Williamson Sales, Co. (A&W) regarding the action filed by the
Company against A&W in Oregon state court (Multnomah County Circuit Court Civ.
No. 9810-07537) for breaching the 1997 settlement agreement between the
companies. A&W has agreed to pay an agreed upon amount to reimburse most of the
Company's costs of defending an action brought by A&W against former officers of
the Company that has been dismissed and to reimburse the Company for the costs
incurred in bringing the Oregon action. A&W has agreed to pay the settlement
amount in three installments during May 1999. Within three days after receipt of
full payment from A&W, the Company will obtain dismissal of its action against
A&W.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Statements below regarding future events or performance are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The Company's actual results could be quite different from those
expressed or implied by the forward-looking statements. Statements in this Form
10-Q about future sales levels or other future events or performance are
forward-looking statements. Factors that could affect results include the extent
of future use of oral fluid testing and OraSure in the insurance industry or
other key markets; loss or impairment of sources of capital; ability of the
Company to develop product distribution channels; the ability of the Company to
develop new products; development of competing products; changes in federal or
state law or regulations; uncertainties related to suppliers' and customers'
ability to achieve year 2000 compliance; and loss of key personnel. These and
other factors are discussed more fully in the Company's Annual Report on Form
10-K in Items 1 and 7 and under "Year 2000 Readiness" below. Although
forward-looking statements help to provide complete information about the
Company, readers should keep in mind that forward-looking statements are much
less reliable than historical information. Readers are cautioned not to place
undue reliance on the forward-looking statements.
RESULTS OF OPERATIONS
The table below shows the amount (in thousands) and percentage of Epitope's
total revenue contributed by each of its principal products and by grants and
contracts.
<TABLE>
THREE MONTHS ENDED MARCH 31 (IN THOUSANDS, EXCEPT %) 1999 1998
DOLLARS PERCENT DOLLARS PERCENT
Product Sales
<S> <C> <C> <C> <C>
Oral specimen collection devices....................... $ 1,486 72% $ 1,532 73%
Western blot HIV confirmatory tests.................... 499 24 479 23
Other product sales.................................... 88 4 92 4
------- --- ------- ---
2,073 100% 2,103 100%
Grants and contracts...................................... - - - -
------- --- ------- ---
$ 2,073 100% $ 2,103 100%
SIX MONTHS ENDED MARCH 31 (IN THOUSANDS, EXCEPT %) 1999 1998
DOLLARS PERCENT DOLLARS PERCENT
Product sales
Oral collection device................................. $ 3,005 70% $ 2,657 72%
Western blot HIV confirmatory test..................... 1,165 27 940 25
Other product sales.................................... 147 3 97 3
------- --- ------- ---
4,317 100 3,694 100
Grants and contracts...................................... - - 11 -
------- --- ------- ---
$ 4,317 100% $ 3,705 100%
</TABLE>
Revenues. Total product sales decreased by $30,000 or 1.4 percent in the current
quarter as compared to the second quarter of fiscal 1998, and increased by
$623,000 or 17 percent in the comparable six-month period. The 1999 second
quarter decrease was primarily a result of the timing of orders for Epitope's
lead product, the OraSure oral specimen collection device, which decreased by
$45,000 or 3 percent in the current quarter as compared to the second quarter of
1998.
OraSure device and Other product sales into the public health markets in the
quarter ended March 31, 1999 totaled $458,000 or 22 percent of product sales as
compared to $513,000 or 24 percent in the same period of fiscal 1998, and $1.0
million or 23 percent of product sales as compared to $867,000 or 23 percent in
the comparable six-month periods. The life insurance testing market in the
second quarter of fiscal 1999 contributed $988,000 or 48 percent of total
product sales for the period as compared to $986,000 or 47 percent in the second
quarter of fiscal 1998, and $1.9 million or 44 percent of product sales as
compared to $1.7 million or 46 percent in the comparable six-month periods.
Sales into international markets in the current quarter were $128,000 or 6
percent of product sales as compared to
9
<PAGE>
$125,000 or 6 percent of product sales in the same quarter of fiscal 1998, and
$231,000 or 5 percent of product sales as compared to $174,000 or 5 percent in
the comparable six-month periods.
Sales of the Company's Western blot HIV confirmatory test increased by $20,000
or 4 percent in the current quarter as compared to the second quarter of fiscal
1998, and increased by $225,000 or 24 percent in the comparable six-month
period.
Fiscal year sales are anticipated to rise in 1999, compared to fiscal year 1998.
However, sales may be affected by economic factors and seasonality of certain
market segments. Expectations for future sales are based primarily on forecasts
provided to the Company by individual customers rather than firm orders, as many
of the customers in the public health and international markets do not have
contractual arrangements with the Company.
Discussions are under way with potential partners who may provide R&D funding to
the Company. In addition, grant applications for additional funding are in
process.
Gross Margin on product sales was 67 percent in the second quarter of fiscal
1999 compared to 56 percent in the comparable period of fiscal 1998, and 65
percent and 57 percent, respectively in the comparable six-month periods. The
improvement in gross margin is attributable to increased production volumes.
Research and Development Expenses. Research and development expenses increased
by $431,000 or 70 percent in the current quarter as compared to last year's
second quarter, and by $453,000 or 35 percent in the comparable six-month
period. This increase was primarily related to the investment in the development
and pilot production of the new OraQuick(R) rapid assay device. R&D expenses for
remainder of fiscal 1999 are anticipated to be slightly higher than the 1998
level. If funding for additional R&D projects can be obtained from potential new
partners or from research grants, R&D spending will also increase.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the second quarter of fiscal 1999 decreased by
$128,000 or 9 percent as compared to last year's second quarter, and increased
by $26,000 or 1 percent in the comparable six-month period. The decrease in the
second quarter of fiscal 1999 was primarily a result of continued expense
control.
Year 2000 Readiness. The Company has completed over half of its planned systems
upgrades and replacements (as part of a regular ongoing upgrade program) during
the first half of fiscal 1999. Upgrades and replacement systems have all been
certified Year 2000 (Y2K) compliant. Responses to inquiries regarding Y2K
compliance have been received from substantially all vendors, suppliers, and
customers, the interruption of whose businesses would have a material effect on
the Company. Development of a detailed, systematic contingency plan is also in
process. The Company has not incurred any material costs to date and does not
anticipate incurring any material costs to resolve issues relating to the Y2K
problem internally. Such costs will be funded by available cash and cash
equivalents.
At the current time, the Company anticipates that all essential products and
internal systems and equipment are now, or will be timely made, Y2K compliant.
This belief is based on the progress to date and the assessed degree of
difficulty associated with the remaining phases to achieve Y2K readiness, the
representations made by vendors and, where possible, by testing. Significant
uncertainty exists, however, concerning the effects of the Y2K problem,
primarily with regards to assurances (or lack thereof) made by the Company's key
or significant vendors, suppliers, and customers. In addition, Epitope has not
investigated Y2K compliance of third parties that are either not critical or
significant to the Company's operations or are not currently vendors, suppliers,
or customers of the Company. Any failure of the Company or its vendors,
suppliers, customers, or any third party governmental or business entities to be
Y2K compliant could materially affect the business, results of operations,
financial conditions and prospects of Epitope, the impact of which cannot be
quantified at this time.
This section captioned "Year 2000 Readiness" as well as other statements in this
report relating to Y2K issues are "Year 2000 Readiness Disclosures" pursuant to
the Year 2000 Information and Readiness Disclosure Act.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
(IN THOUSANDS) 3/31/99 9/30/98
<S> <C> <C>
Cash and cash equivalents.............................................. $ 525 $ 1,164
Marketable securities.................................................. 5,157 4,455
Working capital........................................................ $ 7,326 $ 6,510
</TABLE>
Net cash used in operating activities increased by $703,000 or 170 percent in
the current quarter as compared to the second quarter of fiscal 1998, and
increased by $436,000 or 35 percent in the comparable six-month period. The
total of cash and cash equivalents plus marketable securities increased by
$63,000 since September 30, 1998. In addition to funding increased inventory,
spending was increased during the quarter to fund investment to improve
manufacturing processes and increase capacity for current products and for
development of the new OraQuick(R) device.
Proceeds from the exercise of options to purchase common stock represented the
primary sources of funds for meeting the Company's requirements for operations,
working capital and business expansion in the current quarter.
The Company received $2,016,000 from option exercises during the quarter.
The Company anticipates that it will continue to need funds to support ongoing
research and development projects, to provide additional manufacturing capacity,
and to increase working capital to support growth. The Company believes that its
operating liquidity requirements for the foreseeable future can be met by
existing resources, including marketable securities and cash generated by
operations. The Company may also receive funds through the exercise of
outstanding stock options and warrants as well as research grants. However,
there are no assurances that additional funding from these sources will be
available.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not hold material amounts of derivative financial instruments,
other financial instruments, or derivative commodity instruments, and
accordingly has no material market risk to report under this item.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Information about legal proceedings appears in Note 5 to the Consolidated
Financial Statements included in Part I, Item 1 of this report, and is
incorporated herein by reference. Information about the proceedings was
previously reported in the Company's Current Report on Form 10-Q for the quarter
ended December 31, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the 1999 annual meeting of shareholders of the Company on February 16, 1999,
the following individuals were elected by the votes indicated as Class 2
directors of the Company for terms expiring at the 2002 annual meeting of
shareholders:
VOTES VOTES
NOMINEE FOR WITHHELD
------- --- --------
Andrew S. Goldstein 12,419,249 207,261
G. Patrick Sheaffer 12,418,349 208,161
Robert J. Zollars 12,418,362 208,148
The other directors whose terms of office continued after the annual meeting
are: W. Charles Armstrong, Margaret H. Jordan, John W. Morgan, Michael J.
Paxton, and Roger L. Pringle.
ITEM 5. OTHER INFORMATION
REGULATORY APPROVAL IN EUROPE
During the quarter the Company announced that it had received approval for the
sale of the OraSure(R) oral specimen collection device in Europe.
Epitope received approval to use the CE mark, which is required to sell the
OraSure device in all fifteen countries of the European Economic Community
following an inspection of Epitope's facilities and processes by representatives
of the European Notified Body. OraSure has been registered under European
regulations as a Class III medical device, the classification requiring the
highest degree of scrutiny for CE mark approval. Epitope distributors are
actively marketing the device in England, Ireland and Greece. The Company has
begun shipments to Europe under the new CE mark approval.
FEDERAL SUPPLY SCHEDULE CONTRACT APPROVED
Epitope has also received approval to be listed in the General Services
Administration (GSA) Federal Supply Schedule. Government agencies are encouraged
to purchase from the Federal Supply Schedule, which offers the best pricing for
approved products. This schedule applies to various federal agencies, including
the Veteran's Administration, the military, the Federal Bureau of Prisons, Job
Corp, the Federal Aviation Administration, the National Institutes of Health,
and many others. Epitope will launch a direct marketing program in the near
future to capitalize on this new approval. Market studies indicate that the
number of HIV tests associated with GSA contracts is currently about 2 million
per year.
12
<PAGE>
CORPORATE OFFICER CHANGES
William D. Block was named Vice President of Sales and Marketing, effective May
16, 1999. Mr. Block was hired following a nationwide search to replace Edward V.
Collom, Jr. who resigned in March 1999 for health reasons. Prior to accepting
the position at Epitope, Mr. Block held a variety of sales and management
positions with companies in the medical field, including McKesson Automated
Pharmacy Solutions (a division of McKesson HBOC, Inc.), Allegiance Healthcare
Corp., Baxter Healthcare Corp., and Biotronics Enterprises, Inc.
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
None.
13
<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.
May 14, 1999 /s/ CHARLES E. BERGERON
Date Charles E. Bergeron
Chief Financial Officer
(Principal Financial Officer)
May 14, 1999 /s/ THEODORE R. GWIN
Date Theodore R. Gwin
Controller
(Principal Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
27. Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements included herein and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 525,311
<SECURITIES> 5,157,129
<RECEIVABLES> 1,142,734
<ALLOWANCES> 69,525
<INVENTORY> 1,716,546
<CURRENT-ASSETS> 8,861,568
<PP&E> 5,666,203
<DEPRECIATION> 4,740,376
<TOTAL-ASSETS> 10,654,131
<CURRENT-LIABILITIES> 1,535,311
<BONDS> 0
0
0
<COMMON> 113,697,358
<OTHER-SE> (104,578,538)
<TOTAL-LIABILITY-AND-EQUITY> 10,654,131
<SALES> 4,317,329
<TOTAL-REVENUES> 4,317,388
<CGS> 1,512,321
<TOTAL-COSTS> 5,979,761
<OTHER-EXPENSES> (129,393)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,532,980)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,532,980)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
