SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
December 12, 1996
____________________
EPITOPE, INC.
(Exact name of registrant as specified in its charter)
Oregon
(State or other jurisdiction of incorporation)
1-10492
(Commission File No.)
93-0779127
(IRS Employer Identification No.)
8505 S.W. Creekside Place
Beaverton, Oregon 97008
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code:
(503) 641-6115
Item 2. Acquisition or Disposition of Assets.
Acquisition of Andrew and Williamson Sales, Co.
On December 12, 1996, Epitope, Inc. (the "Company") acquired the
outstanding capital stock of Andrew and Williamson Sales, Co. ("A&W"), a
California corporation engaged in the production and distribution of fruits
and vegetables. The acquisition involved the merger of a Company subsidiary
with and into A&W, as a result of which the former shareholders of A&W
received 520,000 shares of Epitope common stock and A&W became a wholly owned
subsidiary of the Company. Upon completion of the acquisition, A&W repaid
outstanding loans from its former shareholders in the amount of $902,160. The
terms of the acquisition, set forth in an Acquisition and Merger Agreement
dated as of November 6, 1996, were determined by arm's length negotiation
between the parties.
The former A&W shareholders, Fred L. Williamson, Fred Andrew, Fred
M. Williamson, and Keith Andrew, each entered three-year employment and five-
year noncompetition agreements with A&W in connection with the acquisition.
The Company plans for the former shareholders to continue to have a primary
role in the management of A&W.
A&W produces and distributes a diversified mix of fresh fruits and
vegetables, as well as frozen strawberries. It is based in San Diego,
California, and has sales offices in San Diego and Bakersfield, California,
and Nogales, Arizona. As a distribution agent, A&W markets the products of
growers from the mainland and Baja, Mexico, and the San Joaquin Valley in
California, many of whom obtain seasonal financing from A&W for crop
production.
The Company has negotiated an extension of the existing line of
credit provided to A&W by Wells Fargo Bank, National Association and has
agreed to a guaranty in connection with the line of credit.
The Company and A&W have been members of Superior Tomato
Associates, L.L.C., a joint venture formed to produce and market genetically
engineered tomatoes, since February 1996.
The Company has accounted for the acquisition as a pooling of
interests. The transaction will be treated as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code.
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 changes in
marketing partners' and customers' strategy or emphasis, changes in the
Company's business strategy, changes in or differing interpretations of
federal or state law or regulations and accounting principles, and other risks
and uncertainties described in the Company's Annual Report on Form 10-K for
the year ended September 30, 1996, its Registration Statement on Form S-4
(No. 333-15705) 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 7. Financial Statements and Exhibits.
(a) Financial statements of A&W.
Index to Financial Statements of A&W.
Independent Auditors' Report 3
Audited Financial Statements:
Balance Sheets at September 30, 1996, and 1995. 4
Statements of Operation for the years ended September 30, 1996,
1995, and 1994. 5
Statements of Changes in Stockholders' Equity for the years ended
September 30, 1996, 1995, and 1994. 6
Statements of Cash Flows for the years ended September 30, 1996,
1995, and 1994 7
Notes to Financial Statements 8
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Andrew and Williamson Sales, Co.
We have audited the accompanying balance sheets of Andrew and Williamson
Sales, Co. as of September 30, 1996, and 1995, and the related statements of
operations, changes in stockholders' equity, and cash flows for the three
years in the period ended September 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Andrew and Williamson Sales,
Co. at September 30, 1996, and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended September 30, 1996,
in conformity with generally acceptable accounting principles.
Boros & Farrington, APC
San Diego, California
November 6, 1996
ANDREW & WILLIAMSON SALES, CO.
Balance Sheets
September 30, 1996 and 1995
ASSETS
1996 1995
---------- ----------
Current assets
Accounts receivable (note 2) $ 2,858,186 $1,859,378
Due from stockholder 255,764
Inventories (note 3) 6,060,442 3,239,441
Deferred income taxes (note 9) 10,000
Prepaid expenses and other 89,844 87,728
----------- ----------
Total current assets 9,018,472 5,442,311
Property, net (note 4) 1,372,459 1,513,928
Cash surrender value of life insurance 180,498 126,220
Investments (note 10) 202,671 210,797
----------- ----------
$10,774,100 $7,293,256
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Borrowings under bank line of credit (note 5) $ 4,125,000 $3,150,000
Current portion of long-term debt (note 8) 98,368 128,376
Accounts payable 2,586,407 1,362,969
Accrued expenses 330,658 68,610
Income taxes payable (note 9) 142,000
Note payable (note 6) 50,000
----------- ----------
Total current liabilities 7,282,433 4,759,955
Deferred income taxes (note 9) 185,000
Long-term debt, less current portion (note 8) 527,973 610,766
Subordinated notes payable to stockholders (note 7) 2,236,628 1,015,461
----------- ----------
Total liabilities 10,232,034 6,386,182
=========== ==========
Commitments and contingencies (note 10)
Stockholders' equity
Common stock, 100,000 shares authorized;
20,000 shares outstanding 1,000 1,000
Paid-in capital 20,411 20,411
Retained earnings 520,655 885,663
----------- ----------
Total stockholders' equity 542,066 907,074
----------- ----------
$10,774,100 $7,293,256
=========== ==========
SEE NOTES TO FINANCIAL STATEMENTS.
ANDREW & WILLIAMSON SALES, CO.
Statements of Operations
Years Ended September 30, 1996, 1995, and 1994
1996 1995 1994
----------- ----------- -----------
Sales $62,471,119 $52,178,973 $60,704,601
Cost of sales 57,262,340 49,101,591 55,799,022
---------- ---------- ----------
Gross profit 5,208,779 3,077,382 4,905,579
---------- ---------- ----------
Operating expenses
Selling and distribution 1,678,536 1,669,250 2,072,743
General and administrative 1,627,866 1,367,710 1,448,794
----------- ----------- -----------
3,306,402 3,036,960 3,521,537
Operating income 1,902,377 40,422 1,384,042
----------- ----------- -----------
Other income (expense)
Interest, net (563,875) (440,084) (420,938)
Loss from investments (64,126) (29,060)
Other 2,616 54,916 79,443
----------- ----------- -----------
(625,385) (414,228) (341,495)
----------- ----------- -----------
Income (loss) before income taxes 1,276,992 (373,806) 1,042,547
Income taxes (note 9) 317,000 4,000 8,000
----------- ----------- -----------
Net income (loss) $959,992 $(377,806) $1,034,547
========== =========== ===========
Earnings (loss) per share data (note 1)
Earnings (loss) per share $48.00 $(18.89) $51.73
====== ====== ======
Weighted average shares 20,000 20,000 20,000
====== ====== ======
SEE NOTES TO FINANCIAL STATEMENTS.
ANDREW & WILLIAMSON SALES, CO.
Statements of Changes in Stockholders' Equity
Years Ended September 30, 1996, 1995, and 1994
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ------- ---------- ----------
Balance, October 1, 1993 20,000 $1,000 $20,411 $1,102,922 $1,124,333
Distributions (540,000) (540,000)
Net income 1,034,547 1,034,547
------ ------ ------- ---------- ----------
Balance, September 30, 1994 20,000 1,000 20,411 1,597,469 1,618,880
Distributions (334,000) (334,000)
Net loss (377,806) (377,806)
------ ------ ------- ---------- ----------
Balance, September 30, 1995 20,000 1,000 20,411 885,663 907,074
Distributions (1,325,000) (1,325,000)
Net income 959,992 959,992
------ ------ ------- ---------- ----------
Balance, September 30, 1996 20,000 $1,000 $20,411 $520,655 $542,066
====== ====== ======= ======== ========
SEE NOTES TO FINANCIAL STATEMENTS,
ANDREW & WILLIAMSON SALES, CO.
Statements of Cash Flows
Years Ended September 30, 1996, 1995, and 1994
1996 1995 1994
---------- --------- ----------
Cash flows from operating activities
Net income (loss) $ 959,992 $(377,806) $1,034,547
Adjustments to reconcile net income (loss)
to net cash from operating activities
Loss from investments 64,126 29,060
Increase in cash surrender value (54,278) (20,229) (29,903)
Depreciation 180,211 196,261 209,285
Deferred income taxes 175,000
Changes in operating assets and liabilities
Accounts receivable (998,808) 315,447 1,447,245
Inventories (2,821,001) 134,254 (4,874,619)
Prepaid expenses and other (2,116) (45,301) (5,563)
Accounts payable 1,223,438 64,881 1,619,300
Accrued expenses 262,048 26,808 (8,263)
Income taxes payable 142,000
---------- --------- ----------
Net cash from operating activities (869,388) 323,375 (607,971)
---------- --------- ----------
Cash flows from investing activities
Investments (56,000) (61,270) (81,750)
Due from stockholder 255,764 (255,764)
Note receivable 69,219 (69,219)
Capital expenditures (38,742) (69,578) (111,908)
---------- --------- ----------
Net cash from investing activities 161,022 (317,393) (262,877)
---------- --------- ----------
Cash flows from financing activities
Distributions (1,325,000) (334,000) (540,000)
Net borrowings under bank line of credit 975,000 500,000 1,075,000
Net borrowings under short-term note payable (50,000) 50,000
Net borrowings from stockholders 1,221,167 (104,198) 352,382
Issuance of long term debt 15,575 83,034 28,760
Repayment of long-term debt (128,376) (150,818) (95,294)
---------- --------- ----------
Net cash from financing activities $708,366 $ (5,982) $870,848
========== ========= ==========
Supplemental disclosure of cash flow information:
Interest paid $568,835 $455,783 $407,929
========== ========= ==========
Income taxes paid $4,000 $8,000
========== ========= ==========
SEE NOTES TO FINANCIAL STATEMENTS.
ANDREW & WILLIAMSON SALES, CO.
Notes to Financial Statements
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY. Andrew & Williamson Sales, Co. (the "Company") is
generally in the business of growing, marketing, selling, and
distributing fresh produce, primarily tomatoes and strawberries. The
produce is grown primarily in Mexico and is sold throughout the United
States. In addition, the Company operates a cannery for the processing
of frozen strawberries.
ACCOUNTING ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results may differ from those estimates.
INVENTORIES. Frozen strawberry inventories are valued at the lower of
average cost or estimated market. Growing crops are valued at the lower
of cost (accumulated by growing area) or estimated market. Agricultural
supplies and materials are valued at the lower of cost (first-in, first-
out) or market.
PROPERTY. Land is stated at cost. Depreciable assets are stated at
cost less accumulated depreciation. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets
(generally 3-7 years).
INVESTMENTS. The equity method is used to account for investments in
partnerships.
REVENUE RECOGNITION. Revenue is generally recognized when the related
goods are shipped.
ADVERTISING COSTS. The Company expenses all advertising and promotion
costs as incurred. During fiscal 1996, 1995, and 1994, the Company
incurred advertising and promotion costs of approximately $51,000,
$61,000, and $93,000, respectively.
EARNINGS (LOSS) PER SHARE. Earnings (loss) per share is computed based
on the weighted average number of common shares outstanding during each
period.
CONCENTRATION OF CREDIT RISK. The Company uses any excess cash to
reduce the borrowings on its bank line of credit. The Company has not
experienced any losses on its cash accounts. The Company sells its
products to customers primarily in the United States. The Company
maintains a reserve for potential credit losses and such losses are
minimal.
ANDREW & WILLIAMSON SALES, CO.
Notes to Financial Statements (Continued)
2. ACCOUNTS RECEIVABLE
September 30,
1996 1995
---------- ----------
Accounts receivable $2,903,186 $1,913,378
Allowance for doubtful accounts (45,000) 54,000)
---------- ----------
$2,858,186 $1,859,378
========== ==========
Year Ended September 30,
1996 1995 1994
---------- ---------- --------
Allowance for doubtful accounts
Balance at beginning of period $(54,000) $(54,000) $(54,000)
Charges to costs and expenses (39,965) (36,711) (40,784)
Write-offs 48,965 36,711 40,784
---------- ---------- --------
Balance at end of period $(45,000) ($54,000) $(54,000)
3. INVENTORIES
The Company grows crops primarily in Mexico in cooperation with various
Mexican farmers. Under the agreements, the Company generally shares in
the costs of growing, picking, packing, and distribution. The Company
recovers its costs plus a gross profit percentage of approximately ten
percent from the sale of the crops in the United States. Cost of sales
is charged for costs in excess of estimated market. During fiscal 1996,
1995, and 1994, the Company charged to cost of sales growing costs in
excess of estimated market of approximately $1,811,000, $2,544,037, and
$2,106,181, respectively. Significant components of inventories are as
follows:
September 30,
1996 1995
---------- ----------
Growing crops $3,995,672 $2,201,073
Frozen strawberries 1,702,152 741,424
Supplies and materials 362,618 296,944
---------- ----------
$6,060,442 $3,239,441
========== ==========
4. PROPERTY
September 30,
1996 1995
---------- ----------
Land $390,797 $390,797
Airplane 726,340 726,340
Vehicles 360,127 355,105
Equipment 650,664 708,488
Furniture and fixtures 47,799 100,781
Leasehold improvements 142,436 149,300
---------- ----------
2,318,163 2,430,811
Less accumulated depreciation (945,704) (916,883)
---------- ----------
$1,372,459 $1,513,928
========== ==========
ANDREW & WILLIAMSON SALES, CO.
Notes to Financial Statements (Continued)
5. BANK LINE OF CREDIT
At September 30, 1996, the Company has a bank line of credit which
provides for borrowings of up to $6,500,000 and expires in August 1997.
Borrowings under the line bear interest at the bank's prime interest
rate plus 0.5%; are collateralized by substantially all assets of the
Company; and are guaranteed by the Company's stockholders. The Company
has the option to fix the interest rate for a specified period of time
at the LIBOR rate for such period.
6. SHORT-TERM NOTE PAYABLE
At September 30, 1995, the Company had a note payable of $50,000 which
was due on demand with interest at 7%. During May 1996 the Company
repaid the note.
7. SUBORDINATED NOTES PAYABLE TO STOCKHOLDERS
The Company has notes payable to stockholders which are subordinated to
the claims of its bank. These notes are due on demand and bear interest
at 10%. Under the subordination agreements, the Company may make
scheduled payments of interest and principal provided that such payments
do not result in a default as defined in the borrowing agreements with
the bank.
8. LONG-TERM DEBT
September 30,
1996 1995
-------- --------
Bank installment notes payable,
prime plus 1.25%, collateralized
by equipment $ 5,100
Installment notes payable, 5.9%-
9%, collateralized by vehicles
and equipment $ 59,824 94,369
Bank installment note payable,
prime plus 0.5%, balance due
in March 1998, collateralized
by property 202,800 219,700
Note payable, prime interest rate,
principle due in October 1997,
uncollatered 100,000 100,000
Installment note payable, 9.25%,
balance due in June 1997,
collateralized by airplane 263,717 319,973
-------- --------
626,341 739,142
Less current portion 98,368 128,376
-------- --------
$527,973 $610,766
======== ========
ANDREW & WILLIAMSON SALES, CO.
Notes to Financial Statements (Continued)
The installment note payable of $263,717 at September 30, 1996 has a balloon
payment of $217,989 due in June 1997. The amount of the balloon payment has
been classified as long-term based on the Company's intention to refinance
these borrowings on a long-term basis.
Maturities of long-term debt are as follows:
Year ending September 30:
1997 $ 98,368
1998 525,532
1999 2,441
------------
$626,341
The Company's stockholders have guaranteed the above notes that are payable to
a bank. The bank loan agreements provide, among other requirements and
covenants, that the Company shall maintain minimum working capital of
$1,750,000, maintain minimum tangible net worth of $2,250,000 (including
subordinated liabilities), and limit annual capital expenditures to an
aggregate of $150,000.
9. INCOME TAXES
The accompanying financial statements reflect a change in income tax
status from S corporation to C corporation, effective April 30, 1996.
As an S corporation, income or losses pass through to the Company's
stockholders, and no provision for federal income taxes is reflected in
the accompanying financial statements. State income taxes are provided
at a reduced rate applicable to S corporations. As a C corporation,
income taxes and benefits are recognized at the corporate level.
As a C corporation, the Company has adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS No.
109). SFAS No. 109 requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary
differences between the financial statements and tax basis of assets and
liabilities at the applicable enacted rates. The components of income
tax expense are as follows:
1996 1995 1994
Current
State $ 47,000 $4,000 $8,000
Federal 95,000
-------- -------- ------
Total 142,000
-------- -------- ------
Deferred
Federal (3,000)
Change in tax status 178,000
-------- -------- ------
Total 175,000
-------- -------- ------
Total income tax expense $317,000 $4,000 $8,000
======== ======== ======
ANDREW & WILLIAMSON SALES, CO.
Notes to Financial Statements (Continued)
The Company recognized a deferred tax liability of $178,000 relating to its
change in income tax status from S corporation to C corporation. The Company
has assumed from its stockholders a liability to pay future income taxes on
certain income that was recognized previously for financial reporting purposes
but not for statutory purposes. Under SFAS No. 109, the amount of liability
recognized is charged against income from current operations.
The following is a reconciliation from the expected statutory federal income
tax expense to the Company's accrual income tax expense:
1996 1995 1994
------ ------ ------
Provision at statutory rate $434,177 $(127,094) $354,466
State income tax 47,000 4,000 8,000
Change in tax status 178,000
Income tax assumed by stockholders
under S corporation status (342,177) 127,094 (354,466)
-------- --------- --------
Total income tax expense $317,000 $4,000 $ 8,000
======== ========= ========
At September 30, 1996, the Company had net deferred tax assets and
liabilities as follows:
Accrued vacation $ 10,000
--------
Deferred tax asset - current $10,000
========
Cost basis of assets $117,000
Depreciation 68,000
--------
Deferred tax liability -
long-term $185,000
========
10. COMMITMENTS AND CONTINGENCIES
LITIGATION. The Company is a defendant in a lawsuit arising in the
normal course of its business. The suit is being vigorously defended.
Although it is not possible to determine the final outcome of this
matter, the Company believes that any liability will not have a material
adverse effect on its operations or financial position.
ANTI-DUMPING REGULATIONS. Certain growers in the United States have
alleged that Mexican growers of tomatoes are illegally dumping their
crops into United States markets. United States regulatory authorities
are investigating the allegations. Although it is not possible to
determine the final outcome of this matter, the Company believes that its
resolution will not have a material adverse effect on its operations or
financial position.
PURCHASE COMMITMENT. The Company has agreements with Weyerhaeuser
Company and a grower located in Mexico whereby Weyerhaeuser has provided
the grower with packing machinery which will be paid for out of the
future purchases of shipping containers from Weyerhaeuser.
ANDREW & WILLIAMSON SALES, CO.
Notes to Financial Statements (Continued)
LEASES. The Company leases its primary facilities under non-cancelable
operating leases which expire through 2001. Under these leases, the
Company pays taxes, insurance, and maintenance expenses. In addition,
the Company leases other facilities and equipment under short-term
operating leases. Future minimum lease commitments under the long-term
non-cancelable operating leases are as follows:
YEAR ENDING SEPTEMBER 30:
1997 $210,180
1998 132,000
1999 132,000
2000 132,000
2001 132,000
--------
$738,180
========
INVESTMENTS. The Company has a 50% limited partnership interest Triple
B Ranch, Ltd. which is primarily engaged in the growing and sale of
peaches in California; a 33.3% interest in Superior Tomato Associates,
LLC which is engaged in the development of tomato seed; and a 1.5%
interest in Georgian Wines, LLC which is engaged in the production and
distribution of Georgian wine.
11. RELATED PARTY TRANSACTIONS
The Company leases a warehouse and office facility from an affiliate
under an agreement that expires in 2001 and provides for annual rentals
of $132,000 (see note 10). The Company has borrowed funds from its
stockholders under notes payable that are subordinated to bank borrowings
(see note 7).
12. SUBSEQUENT EVENT
The Company has agreed, pursuant to an Acquisition and Merger Agreement
(the "Agreement") dated November 6, 1996, to be acquired by Epitope, Inc.
("Epitope"). 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. Subject to
the terms and conditions of the Agreement, Epitope shall merge a wholly
owned subsidiary into the Company and the Company shall be the surviving
corporation in the merger and shall continue its existence. The separate
corporate existence of the wholly owned subsidiary shall cease. By
virtue of the merger, each outstanding share of the Company's common
stock shall be converted into 26 shares of Epitope common stock; each
share of the Company's common stock shall be canceled and cease to exist;
and each outstanding share of the wholly owned subsidiary shall be
converted, on a pro rata basis, into an aggregate of 100 shares of the
common stock of the surviving corporation.
(b) Pro Forma Financial Information.
Pro forma financial information will be filed by amendement within 60
days after the date on which this report is filed.
(c) Exhibits. The exhibits filed herewith are listed in the exhibit index,
which follows the signature page to this report.
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 hereunto duly authorized.
EPITOPE, INC.
(Registrant)
By /s/Gilbert N. Miller
Gilbert N. Miller
Executive Vice President and
Chief Financial Officer
Dated: December 26, 1996
EXHIBIT INDEX
2 Acquisition and Merger Agreement dated November 6, 1996, among
Epitope, Inc., Thamscoe, Inc., Andrew and Williamson Sales, Co., and the
shareholders of Andrew and Williamson Sales, Co. Incorporated by
reference to Exhibit 2 to the Registrant's Current Report on Form 8-K
dated November 6, 1996.
23 Consent of Boros and Farrington, APC
99 Press release of the Registrant dated December 13, 1996.