10-Q/A 1 form_10qsba063002.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB/A (Mark One) [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 ------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE ACT For the transition period from to --------- --------- Commission File Number 1-11055 ------- Epigen, Inc. (Exact name of small business issuer as specified in its charter) Delaware 04-3120172 ---------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 69 North Tower Hill Road, PO Box L, Millbrook, NY 12545 (Address of principal executive offices) (Zip Code) (845) 677-5317 --------------- (Issuer's telephone number including area code) (Former name, former address and former fiscal year, if changed since last report): n/a Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] The number of shares outstanding of the issuer's Common Stock, par value $.01 per share, at August 13, 2002 was 1,443,154. Transitional Small Business Disclosure Format (check one): Yes [ X ] No [ ] EPIGEN, INC. (Formerly COD Associates, L.P.) (A Development Stage Company) INDEX

EPIGEN, INC. (Formerly COD Associates, L.P.) (A Development Stage Company) BALANCE SHEETS

The accompanying notes are an integral part of these financial statements. 1 EPIGEN, INC. (Formerly COD Associates, L.P.) (A Development Stage Company) STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements. 2 EPIGEN, INC. (Formerly COD Associates, L.P.) (A Development Stage Company) STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements. 3 EPIGEN, INC. (Formerly COD Associates, L.P.) (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS 1. Basis of Presentation: The financial statements as of June 30, 2002 are unaudited, but include all adjustments (consisting of normal, recurring adjustments), which the Company considers necessary for a fair presentation of such interim financial statements. The results of operations for the six month periods ended June 30, 2002 and June 30, 2001, and the three month periods ended June 30, 2002 and June 30, 2001 are not necessarily indicative of the results for the entire year. The financial statements and notes are presented as permitted by Form 10-QSB and do not contain certain information included in the Company's annual financial statements and notes. 2. Cash and Cash Equivalents: Cash and cash equivalents include all funds held in checking and money market bank accounts. 3. Net Loss per Share: Net loss per share is based on the weighted average number of shares of Common Stock outstanding during the period adjusted for the 1 for 10 reverse stock split effective November 8, 2001. All outstanding warrants and options have been excluded from the calculation, as they are antidilutive. 4. Licensing Agreements: The Company's technology was originally licensed from Boston Biomedical Research Institute ("BBRI"). In 1993, BBRI transferred ownership of all licensed technology to Epigen, Inc. Conditions in the transfer of ownership provide, among other things, for royalty payments to BBRI. Currently, royalty payments to BBRI are capped at 3% of the net selling price of products containing Human Carcinoma Antigen or epiglycanin. The licensing agreement also provides for the indemnification of BBRI by the Company against product liability claims incurred. During 1992, the Company entered into a contract with the University of Oslo (the "University") in close collaboration with BBRI for the characterization of the Human Carcinoma Antigen. The agreement calls for payment to the University of 1% of net sales for any human therapeutic product utilizing these patent or biological material rights sold to third parties. During 1993, the Company entered into an agreement with Massachusetts General Hospital ("MGH") to license certain antibodies for use in developing the in-vitro diagnostic test, the in-vivo imaging agent and the therapeutic vaccine. Under the agreement, the Company is required to pay royalties ranging from 2% to 5% of the net sales price, as defined, depending on the country in which the product is sold. The term of the agreement expires, on a country-by-country basis, eight years after the first commercial sale or for the life of a valid patent in a country, whichever occurs first. 4 EPIGEN, INC. (Formerly COD Associates, L.P.) (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS 4. Licensing Agreements (continued) Pursuant to the Company's agreement with BBRI, if royalties are to be paid to both BBRI and MGH, the aggregate royalty payable to BBRI and MGH shall not exceed 6% of the net selling price of any licensed product or process. On June 12, 1995, MGH agreed to reduce royalty payments due pursuant to the June 1, 1993 agreement by 50% to between 1% and 2.5%. The Company entered into an agreement dated as of March 31, 1999 with Vacold, LLC for the creation of an IgG antibody. In lieu of cash, Vacold received 43,371 shares of the Company's common stock. In addition, Vacold is to receive a 3% royalty on Epigen's sales that include any IgG antibodies developed in Vacold's laboratory. A second contract was negotiated with Vacold for ongoing R&D. Vacold was to be responsible for the optimization and demonstration of the new assay to prospective strategic partners. The Agreements with Vacold were terminated on October 1, 2000 by mutual consent. The Company has opened a new laboratory at the University of Rochester in Rochester, NY, to continue the development of diagnostics. 5. Related Party Transactions: Due to Officers: Amounts due to officers as of June 30, 2002 and December 31, 2001 were approximately as follows: June 30, December 31, 2002 2001 ---- ---- Donald Fresne, Chairman of the Board and Chief Executive Officer $789,891 $ 730,123 Richard Kent, Vice Chairman of the Board and 72,000 55,400 Secretary ------ ------ Total $861,891 $785,523 ======== ======== These amounts are principally due from accrued salary and life insurance premiums pursuant to current and prior employment agreements. In addition, accrued interest related to these amounts totaled $49,459 at June 30, 2002 and $40,551 at December 31, 2001. Due from Officers: Amounts receivable from Donald Fresne, Chairman of the Board and Chief Executive Officer at June 30, 2002 were as follows: Loan receivable $ 52,07 Interest receivable 385 Travel advance and other receivable 6,335 --------- Balance June 30, 2002 $ 58,791 ======== 5 EPIGEN, INC. (Formerly COD Associates, L.P.) (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS 5. Related Party Transactions (continued) Per agreement between the Chairman and the Company, 50% of the loan receivable on June 1, 2002 was offset against the loan payable. In addition, all interest receivable on June 1, 2002 was offset against interest payable. Leased Office Space: Since 1994 the Company has leased (and continues to lease) office space from a company wholly owned by the Chairman of the Board of Directors. Total rent paid through 1997 totaled $184,573. In 1998, this lease was renewed at a rate of $3,000 per month for a term of three years, expiring May 2001. In 2001, this lease was renewed at a rate of $3,000 per month for a term of three years, expiring in May 2004. Rent expense was $9,000 for the three months ended June 30, 2002 and 2001, respectively. 6. Equity Transactions During the Three Months Ended June 30, 2002: During the quarter ended June 30, 2002, the Company received $747,697 as proceeds of a private placement of Bridge Units arranged through Investec Ernst & Company (the "Placement Agent"). The terms and conditions governing these notes have not been finalized at the date of this report. As a result, the notes and warrants have not been issued. The final terms are expected to be as follows: The Bridge Units will comprise a (a) 6% Convertible Promissory Note ("Bridge Note") and (b) three-year warrants ("Bridge Warrants") to purchase shares of common stock. Bridge Note - Each Bridge Note will pay interest, in cash, at the rate of 6% per annum through the date of conversion of the Bridge Note. Upon an issuance or sale of equity securities by the Company through (i) the Placement Agent or (ii) an offering which results in gross proceeds of not less than $5,000,000 (an "Equity Placement"), including proceeds of this offering and $1,100,000 of previous bridge financing, each Bridge Note shall be automatically converted into shares of Common Stock at 10% discount to the actual price of the equity securities issued by the Company pursuant to such Equity Placement. If not previously converted pursuant to an Equity Placement by December 31, 2002, each Bridge Note shall be automatically converted into a number of shares of common stock and warrants to purchase shares of common stock at a discount of 20% to the projected price of the equity securities to be issued in such Equity Placement. Bridge Warrant - For each $100,000 in Bridge Notes, an investor will receive a Bridge Warrant entitling such holder to purchase approximately 11,654 shares of common stock at an exercise price per share of $7.96. The number of shares and exercise price will be subject to adjustment for events subsequent to the issuance, as provided in the actual Bridge Warrant. 6 EPIGEN, INC. (Formerly COD Associates, L.P.) (A Development Stage Company) The Company has recorded a liability of $16,640 for the interest expense to June 30, 2002. The fee paid to the Placement Agent was 10% of the proceeds. In addition, they were also paid 2% of the proceeds as a non-accountable reimbursement for out of pocket expenses. By mutual agreement between the investors and the Company, the automatic conversion of previously issued Bridge Notes into common stock expected to occur on March 31, 2002 was postponed to December 31, 2002. 7 EPIGEN, INC. (Formerly COD Associates, L.P.) (A Development Stage Company) PART I FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis or Plan of Operation ---------------------------------------------------------- The Company presently is insolvent and unable to pay its debts as they become due. Certain of the officers have agreed temporarily to allow part of their salaries and other benefits to accrue. Currently, liabilities exceed assets. Should a sufficient number of the Company's creditors pursue the obligations owed them, the Company might be forced into a voluntary or involuntary bankruptcy proceeding. During the period from June 28, 2000 through August 2, 2000, however, the Company completed a series of conversions of debt to stock, primarily with existing stockholders and the Company's officers, which reduced its outstanding liabilities by an aggregate of $2,966,415 from $4,607,906 to $1,641,491. As a result of such conversions, the Company issued an aggregate of 2,393,114 shares of its Common Stock, and 1,493,306 shares of its Series A Preferred Stock. The Company is continuing its efforts to reduce its liabilities through equity conversions as appropriate opportunities are presented. In addition to debt reduction, the Company continues to pursue funding from a variety of sources. Effective July 12, 2001, the Company entered into a letter of intent for the private placement of up to $7,000,000 of the Company's securities. There can be no assurance that such private placement will be successful, or that the Company will be successful in its efforts otherwise to raise additional capital. The Company continues to pursue its business plan to the extent resources permit. The Company believes that it has produced enough data indicating that the HCA Test can be used as a confirmatory test for prostate cancer. The Company does not presently have the resources to complete the development of, or conduct prospective clinical trials on, new products. It has never been part of the Company's strategy to market any of its products. The Company is focusing on the optimum financial opportunity this technology should afford and is presently negotiating a license agreement with a major biopharmaceutical company to distribute the products upon FDA approval. No assurance can be made that the Company will be successful in negotiating a definitive license agreement or that, upon execution, the Company will be able to complete development of the HCA Test in order to receive FDA approval or to commence its manufacture and distribution. Upon funding, the Company intends to complete the development of and conduct prospective clinical trials on its confirmatory test for prostate cancer, a prerequisite for seeking FDA approval. The Company has hired Paul Schnipelsky, Ph.D., former Vice President of Research from Ortho-Clinical Diagnostics, John L. Daiss, Ph.D., former Fellow, John C. Mauck, Ph.D., and several technicians formerly employed by Ortho- Clinical Diagnostics, Inc. The Company also has retained Terry Platt, Ph.D., as a consultant. The Company opened a laboratory at the 8 EPIGEN, INC. (Formerly COD Associates, L.P.) (A Development Stage Company) Item 2. Management's Discussion and Analysis or Plan of Operation (continued) ----------------------------------------------------------- University of Rochester in Rochester, New York in February 2001 where such persons continue the development of the Company's products. The Company, through collaborations with hospitals in the Northeast and a major biopharmaceutical company, has completed a large clinical study on over 400 prostate cancer patients. The Company believes that the results demonstrate the viability of the HCA Test as a diagnostic aid. The study reveals the following results in a comparison between its HCA and PSA: Parameter HCA PSA --------- --- --- Sensitivity 96.4% (94%, 99%) 81.5% Specificity 92.2% (89%, 96%) 51.6% PPV(1) 90.9% (87%, 95%) 57.5% NPV(2) 97% (95%, 99%) 77.6% (1) Positive Predictive Value (2) Negative Predictive Value Sensitivity is a measure of true positive or false negative. If there are 100 lesions and a test identifies 80 of these, the sensitivity is 80%. True (+) 80, false negative (20). Specificity is a measure of true negative or false positive. If there are 100 patients with no lesions and a test identifies 20 lesions, the specificity is 80%. True (-) 80, false (+) 20. The above table was developed in collaboration with a major biopharmaceutical company. Based on the above study, the Company believes that once the HCA Test is fully developed, it should serve as a highly accurate means for the detection of the absence or presence of prostate cancer. In addition, the HCA Test should eliminate many unnecessary painful biopsies and saving the health care industry in excess of one billion dollars per year. The study was conducted using IgM antibodies. The industry prefers IgG antibodies because of their smaller size and faster reactivity. The Company has successfully raised IgG antibodies that are 20% of the size of IgM antibodies. These antibodies have faster reactivity and avoid problems indigenous to IgM antibodies. The Company is now optimizing its assay by testing the various combinations of IgG and IgM antibodies to determine which combination gives the best results. The Company has also entered into collaborations with hospitals to develop a confirmatory test for breast cancer. One of the collaborators has collected serum samples from 500 patients who have had positive mammograms and subsequent biopsies. This will allow the Company to demonstrate the ability of the HCA Test to differentiate between cancer and normals and confirm the presence of a carcinoma. It is generally accepted that mammograms have a 95% false positive rate. The Company believes that the HCA Test should drop this false positive rate to 5 - 10%. The Company believes from in-house preliminary data that the HCA Test should also be an effective confirmatory test for breast cancer. As soon as these data are available, a 9 EPIGEN, INC. (Formerly COD Associates, L.P.) (A Development Stage Company) Item 2. Management's Discussion and Analysis or Plan of Operation (continued) --------------------------------------------------------- presentation will be made to prospective strategic partners with the intent to license the technology. If successful, the Company believes that the HCA Test will eliminate the need for unnecessary sonograms and biopsies, reduce stress experienced by patients who have false positives, and result in substantial savings to the health care industry. In October 2000, the Company entered into a Memorandum of Understanding ("MOU") with Medarex, Inc., a biopharmaceutical company, to jointly develop and market a human monoclonal antibody therapeutic utilizing the Company's patented antigen. A definitive agreement was signed effective August 10, 2001. Preliminary in-vitro testing regarding the Company's therapeutic has shown that the vaccine kills cancer cells within an hour without harm to normal cells. Research on the Company's vaccine at Columbia Presbyterian has been deferred until funding is available. On June 6, 2001, the Company signed an MOU with AltaRex Corp. The MOU calls for the Company to create a joint collaboration with AltaRex to develop a therapeutic for epithelial cancers that will incorporate Epigen's monoclonal antibodies and the HCA antigen in AltaRex's unique and proprietary immunization strategy. AltaRex's technology combines the elevated levels of tumor-associated antigens frequently observed in the blood of cancer patients with low levels of non-human antibodies to form highly immunogenic circulating immune complexes that can induce the patient's own potent immune response against the tumor. Specifically, combinations of Epigen's anti-HCA antibodies and HCA will be evaluated for immunogenic potential in AltaRex's Dendritic Cell Assay System. Potent immunogenic combinations will be selected for further investigation and rapid development for Phase I clinical trials. 10 EPIGEN, INC. (Formerly COD Associates, L.P.) (A Development Stage Company) PART II OTHER INFORMATION Item 2(c) Information Regarding the Sale of Unregistered Securities During ---------------------------------------------------------------- the Three Month Period Ended June 30, 2002 ------------------------------------------ During April and June 2002, Registrant issued an aggregate of$750,000 principal amount of its 6% unsecured promissory notes with detachable warrants through a private placement arranged through Investec Ernst & Company, Inc. to a group of investors. Such notes are automatically convertible into shares of Registrant's Common Stock in the event the proposed private placement for an aggregate of up to $7,000,000 occurs at a rate of $5.36 per share, or an aggregate of 139,925 shares of Common Stock. In addition, upon such conversion the holders of such notes will receive warrants for an aggregate of 139,925 shares of Common Stock exercisable during the three year period following conversion at a rate of $5.36 per share. The detachable warrants may be exercised through the period of April 25, through June 20, 2005 for an aggregate of 87,623 shares of Common Stock at a rate of $7.96 per share. In the event the closing of the proposed private placement for an aggregate of $7,000,000 doesnot close by January 28, 2003, such notes shall be automatically converted into shares of Common Stock and warrants to purchase Common Stock at a rate equal to 20% less than the projected price of the securities intended to be sold in such private placement. In May 2002, Registrant issued to an affiliate of the University of Rochester 653 shares of the Registrant's Common Stock in lieu of a portion of the rent owed by Registrant to the University of Rochester for the lease of laboratory space. The issuance of such shares in lieu of cash is required pursuant to Registrant's lease for such space. Registrant valued such shares at $11.50 per share. Also, Registrant issued seven year options to purchase up to 3,700 shares of its Common Stock to Richard Kent, Vice Chairman of the Board of Directors and Secretary of the Company, at an exercise price of $5.00 per share. Such options were issued pursuant to Mr. Kent's employment agreement with the Company. The issuance of the securities of Registrant in the above transactions was deemed to be exempt from registration under the Act by virtue of Section 4(2) thereof, as transactions not involving a public offering. The recipients of such securities either received adequate information about Registrant or had access, through other relationships with Registrant, to such information. Item 5. Other Information - None ------------------------ Item 6. Exhibits and Reports on Form 8-K - None --------------------------------------- 11 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 14, 2002 EPIGEN, INC. By: /s/: Donald C. Fresne ---------------------- Donald C. Fresne, Chief Executive Officer, Chairman of the Board of Directors and President By: /s/: L. Courtney Schroder -------------------------- L. Courtney Schroder, Treasurer and Chief Financial Officer 12 CERTIFICATE PURSUANT TO TITLE 18 UNITED STATES CODE SECTION 1350: The undersigned, Chief Executive Officer and Treasurer of Epigen, Inc. ("Issuer"), hereby certify that the periodic report on Form 10-QSB to which this Certificate is attached containing financial statements filed by Issuer with the Securities and Exchange Commission pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and that the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Issuer. Date: August 14, 2002 /s/: Donald C. Fresne --------------------------------- Donald C. Fresne, Chief Executive Officer Date: August 14, 2002 /s/: L. Courtney Schroder --------------------------------- L. Courtney Schroder, Treasurer (Chief Financial Officer) 13

EPIGEN INC /DE 10-Q/A