SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  ------------

                                 Amendment No. 2
                                   FORM 10-K/A
                                   (Mark one)

       [X] Annual report pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934 for the fiscal year ended September 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 No. 1-10492

                                  EPITOPE, INC.
             (Exact name of registrant as specified in its charter)


              Oregon                                       93-07479127
  (State or other jurisdiction of               (I.R.S. employer identification
   incorporation or organization)                            number)

                            8505 S.W. Creekside Place
                             Beaverton, Oregon 97008
               (Address of principal executive offices) (Zip code)


                                 (503) 641-6115
              (Registrant's telephone number, including area code)

               Securities registered pursuant to Section 12(g) of
                                    the Act:

                           Common Stock, no par value
                                (Title of class)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

         State the aggregate market value of voting stock held by non-affiliates
of the registrant, as of January 31, 1997: $195,522,605.

         Indicate the number of shares  outstanding of each of the  registrant's
classes of common stock,  as of January 31, 1997:  Common  Stock,  no par value,
13,713,939.

                      Documents Incorporated by Reference:

                                      None


<PAGE>



<TABLE>
<CAPTION>
                                                 Table of Contents


                                                      PART I
                                                                                                               Page
                                                                                                               ----

<S>                                                                                                            <C>
ITEM 1.           Business                                                                                        3

ITEM 2.           Properties                                                                                     21

ITEM 3.           Legal Proceedings                                                                              21

ITEM 4.           Submission of Matters to a Vote of Security Holders                                            21


                                                      PART II


ITEM 5.           Market for the Registrant's Common Stock and Related Stockholder Matters                       22

ITEM 6.           Selected Financial Data                                                                        22

ITEM 7.           Management's Discussion and Analysis of Financial Condition and Results of Operations          25

ITEM 8.           Financial Statements and Supplementary Data                                                    35

ITEM 9.           Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           38


                                                     PART III

ITEM 10.          Directors and Executive Officers of the Registrant                                             38

ITEM 11.          Executive Compensation                                                                         43

ITEM 12.          Security Ownership of Certain Beneficial Owners and Management                                 45

ITEM 13.          Certain Relationships and Related Transactions                                                 46


                                                      PART IV


ITEM 14.          Exhibits, Financial Statement Schedules, and Reports on Form 8-K                               47

                                      - 2 -

<PAGE>



                                     PART I

         ITEM 1.           Business.

         Epitope,  Inc.  ("Epitope" or the "Company"),  is an Oregon corporation
incorporated  in 1981.  Its Epitope  Medical  Products group  ("Epitope  Medical
Products")  develops  and  markets  oral  specimen  collection  kits and related
diagnostic tests 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.  Epitope  Medical  Products'  oral
specimen  HIV  testing  system  is  marketed  by  the  Company  under  the  name
EpiScreen(TM)  and by SmithKline  Beecham plc ("SB") under the name  OraSure(R).
The Company's Agritope group  ("Agritope")  historically has focused its efforts
on  the  development  of  novel   agricultural   products  using  plant  genetic
engineering  and other modern  methods.  Through its  acquisition  of Andrew and
Williamson Sales, Co. ("A&W") on December 12, 1996 and its majority ownership of
Vinifera,  Inc.  ("Vinifera"),  Agritope now conducts operations in each step of
the production and  distribution  chain for a broad range of fruits,  vegetables
and  plants  and  has  an  established   infrastructure   that  will  facilitate
commercialization of the Company's genetically engineered agricultural products.

                            Epitope Medical Products

         Epitope Medical  Products' lead product,  a patented  collection device
used as  part  of an oral  fluid  diagnostic  system  ("EpiScreen/OraSure"),  is
designed  for use in the  detection  of HIV and  other  medical  conditions  and
analytes.  The Company  markets the device under the brand name EpiScreen in the
United States for use in screening  life  insurance  applicants,  and in certain
foreign countries for use in professional markets. In February 1995, the Company
entered into a Development, License and Supply Agreement with SB, under which SB
is marketing the device in the U.S. and certain foreign  countries as part of an
integrated   test  system  to   physicians,   hospitals  and  other   healthcare
professionals  under the brand  name  OraSure.  Subject  to  obtaining  required
regulatory   approvals,   the   Company   intends   to  market  the  system  for
over-the-counter  sale  through SB in the United  States and through SB or other
distributors in international markets.

         The EpiScreen/OraSure  device consists of a small, treated cotton-fiber
pad on a nylon handle that is placed in the patient's mouth for two minutes. The
device collects oral mucosal  transudate  ("OMT"),  a serum-derived  fluid that,
unlike saliva, contains high concentrations of HIV antibodies in people infected
with the  virus.  As a result,  OMT  testing  is a highly  accurate  method  for
detecting  HIV  infection.   Because   EpiScreen/OraSure   uses  a  noninvasive,
needle-free  collection method, the Company believes that oral fluid testing has
several  significant  advantages  over  blood-based  testing  systems  for  both
healthcare professionals and patients.

         Epitope Medical  Products also markets HIV-1 Western blot  confirmatory
test kits used to confirm positive results of initial  screening tests for HIV-1
infection.  Its OraSure  HIV-1  Western  blot  confirmatory  test kit is used in
conjunction with oral-fluid  based screening  tests,  while its EPIBlot(R) HIV-1
Western  blot  confirmatory  test kit is used in  conjunction  with  blood-based
screening tests. The kits are distributed worldwide under an exclusive agreement
with  Organon  Teknika  Corporation  ("Organon  Teknika"),  a member of the Akzo
Pharma group of Akzo Nobel, NV.

         The  EpiScreen/OraSure  HIV-1 device and the OraSure HIV-1 Western blot
and EPIBlot  confirmatory  tests have all received  clearance from the U.S. Food
and Drug Administration  ("FDA") for sale to professional  markets in the United
States.

Background

         Acquired   Immune   Deficiency   Syndrome   is   caused  by  the  Human
Immunodeficiency  Virus.  HIV attacks the immune  system,  slowly  weakening the
body's  ability to ward off infection  and certain  forms of cancer.  When these
complications  develop, the HIV infection has progressed to clinically diagnosed
AIDS. HIV is spread through sexual contact,  blood transfusions,  the sharing of
intravenous  needles,  accidental needle sticks, or contact between a mother and
her child during gestation, childbirth, or breast-feeding. There is currently no
known cure for

                                      - 3 -

<PAGE>



HIV/AIDS.  However,  the recent  introduction  of a new class of anti-HIV  drugs
called protease  inhibitors,  when used in combination  with nucleoside  analogs
(e.g.,  AZT), has shown  promising  results in slowing  progress of the disease.
Clinical studies have demonstrated that the early detection and treatment of HIV
can help to curb the effects of the disease and  significantly  prolong the life
of  the  patient.  Other  studies  have  shown  that  treatment  with  AZT of an
HIV-infected  pregnant woman may prevent the transmission of HIV from the mother
to her child.

         According to the World  Health  Organization  ("WHO"),  an estimated 24
million  adults and 1.5 million  children have been infected with HIV worldwide,
and approximately  10,000 new infections occur each day. WHO also estimates that
over 6 million cases of AIDS have occurred  worldwide to date. In North America,
an estimated  1.3 million  people have been infected with HIV. AIDS is currently
the leading  cause of death for  Americans  between the ages of 25 and 44. It is
estimated that approximately 800,000 people in the United States are living with
the HIV virus.  According  to the  Centers for  Disease  Control and  Prevention
("CDC"),  total  federal  funding  budgeted  for  HIV/AIDS in 1995 was over $2.7
billion.

         Based on industry estimates, the Company believes that approximately 60
million  HIV  tests  were  performed  in the  U.S.  in  1995.  Of  these  tests,
approximately   30  million  were  performed  in  connection  with  blood  donor
screening,  20 million were  performed in healthcare  settings such as hospitals
and  clinics,  5 million  were  performed  in  connection  with  life  insurance
applications,  and the balance were performed by public health  departments  and
the military. Currently,  substantially all HIV tests are performed by testing a
patient's  blood.  There are a number of blood tests for HIV, the most common of
which is the enzyme-linked immunosorbent assay ("ELISA"). In order to reduce the
possibility that an individual without HIV will be diagnosed as having the virus
(a false  positive),  most  countries  require the retesting of the blood sample
using a second,  more specific test to confirm an initial  positive test result.
The most commonly used confirmatory test is the Western blot.

         The Company  believes that blood testing has a number of  disadvantages
which  increase  healthcare  costs  and  patient  inconvenience,  pose a risk of
infection to healthcare professionals and make testing uneconomic or unavailable
in certain applications or settings. The disadvantages of blood testing include:

         Risk of HIV  Infection.  Blood  tests  involve  the use of  needles  or
lancets to obtain blood from the patient.  Healthcare  professionals  collecting
blood risk contracting HIV if accidentally stuck by the needle or lancet used to
obtain blood from an infected patient.

         Limited   Access.   Because   blood  must  be   collected   by  trained
professionals,  its collection is often difficult or prohibitively  expensive in
certain  settings.  For example,  community-based  outreach  programs,  homeless
shelters,  rural  communities,  and other remote  settings often lack healthcare
professionals trained in blood collection.
As a result, blood testing may not be available in some of these settings.

         Higher Overall Cost. The cost of collecting a blood specimen represents
a significant  component of the total cost of HIV testing.  Furthermore,  when a
healthcare professional must travel to the subject's office or home to collect a
blood sample, as is often the case with life insurance  applicant  testing,  the
cost of collecting the blood specimen is substantially increased.

         Patient  Discomfort.  Blood tests require the use of needles or lancets
that are uncomfortable for patients. In addition, patients with small or damaged
veins,  such as  intravenous  drug users,  the elderly and young  children,  may
require multiple needle sticks in order to obtain an adequate blood sample.

Epitope Oral Specimen Collection Technology

         In  order  to  address  the  significant   drawbacks   associated  with
blood-based tests, Epitope developed and patented a device to collect oral fluid
instead of blood. The EpiScreen/OraSure  device, shaped like a small toothbrush,
consists of a cotton-fiber  pad treated with a proprietary  salt  solution.  The
pad,  which is  mounted  on a nylon  handle,  is placed in the  patient's  mouth
between the lower cheek and gum for two minutes.  The pad collects  oral mucosal
transudate,   a  serum-derived   fluid  that,   unlike  saliva,   contains  high
concentrations of antibodies.  OMT contains  approximately four times the amount
of antibodies found in ordinary whole saliva. Following

                                      - 4 -

<PAGE>



collection,  the pad is sealed  in a  specimen  vial  containing  a  proprietary
preservative  solution.  The  treated  pad  enhances  the  collection,  and  the
preservative  solution  enhances  the  stabilization,  of  antibodies  and other
analytes  originating from the oral mucosae.  The specimen in the vial is stable
for three weeks at room temperature,  although in most cases laboratory  testing
takes  place  within  one  to  three  days.  See  "Epitope,   Inc.--Patents  and
Proprietary Information."

         A schematic  representation  of the oral fluid collection  procedure is
shown below.

         [Graphic  material   demonstrating   specimen   collection   procedure,
         containing illustrations and the following captions:

                  Peel open package.
                  Place pad  between  lower  cheek  and gum.  Rub back and forth
                  until  moist.  Keep the pad in place for 2 minutes  (maximum 5
                  minutes) while timing.
                  Open vial in upright position.
                  Insert pad to bottom of vial.
                  Break the pad handle by  snapping  it against  the side of the
                  vial.
                  Replace the cap with a snap.]

Products

         EpiScreen/OraSure.  In December  1994, the Company  received  clearance
from the FDA to sell  EpiScreen/OraSure  to  professional  markets for the ELISA
screening of HIV-1  antibodies.  The device is marketed  directly by the Company
under the trade name EpiScreen for use by the U.S. life  insurance  industry and
in certain  international  markets,  and is  marketed by SB under the trade name
OraSure to healthcare  professionals  in the United States and a number of other
countries. See "Epitope Medical Products--Marketing."

         The EpiScreen/OraSure oral specimen collection and HIV-1 testing system
is easily  administered  and involves  three steps:  (i)  collection  of an oral
specimen using the EpiScreen/OraSure  collection device, (ii) ELISA screening of
the  specimen  for  HIV  antibodies  at  a  laboratory,   and  (iii)  laboratory
confirmation  of positive  screening test results with the  FDA-cleared  OraSure
Western blot kit. A trained  healthcare  professional  then conveys test results
and provides appropriate counseling to the patient.

         The EpiScreen/OraSure HIV-1 testing system represents a highly accurate
alternative to traditional  blood tests. In clinical  trials,  EpiScreen/OraSure
provided the correct result or triggered  appropriate follow-up testing in 3,569
out of 3,570 cases (99.97 percent).  The Company believes  EpiScreen/OraSure has
several advantages over blood tests, as outlined in the following table.



</TABLE>
<TABLE>
<CAPTION>
<S>                                         <C>                                              <C>
Feature                                     Blood Test                                       EpiScreen/OraSure

Safety                                      Poses risk of HIV                                Eliminates risk of
                                            infection through                                needle-stick accidents
                                            accidental needle sticks

Invasiveness                                Requires use of a                                Uses noninvasive
                                            needle or lancet                                 collection technique

Ease of use                                 Requires blood                                   Sample collection
                                            collection by a                                  requires minimal
                                            trained healthcare                               training
                                            professional


                                      - 5 -

<PAGE>



Portability                                 Generally performed in                           Can be used rapidly and
                                            a physician's office                             efficiently in almost
                                            or other healthcare                              any setting
                                            setting

Cost                                        Requires a nurse or                              Eliminates the need for
                                            other trained healthcare                         and costs associated
                                            professional                                     with a trained
                                                                                             healthcare professional
</TABLE>

         Oral-based and Serum-based  Western Blot  Confirmatory  Tests.  Epitope
Medical Products has also developed,  and in June 1996 received FDA clearance to
market, an oral-based HIV-1 Western blot  confirmatory  test. This test uses the
original oral specimen to confirm positive results of initial  EpiScreen/OraSure
HIV-1 ELISA screening tests. Epitope Medical Products has also marketed EPIblot,
a serum-based  Western blot HIV-1  confirmatory test kit, since 1987. The kit is
used to confirm the positive results of initial blood-based  screening tests for
HIV-1 infection.

Markets

         Insurance  Industry.  Epitope  Medical  Products  believes  there  is a
significant  need in the  life  insurance  industry  for an  easy-to-administer,
noninvasive  and  cost-effective  HIV testing  system such as EpiScreen.  In the
United States,  approximately  5 million HIV tests were  administered in 1995 by
the life insurance industry in connection with the issuance of new policies.  In
addition,  data from the  American  Council  of Life  Insurance  and the  Health
Insurance Association of America indicate that over $1.5 billion in AIDS-related
death benefits were paid in 1994. These  organizations  also cautioned that, due
to difficulty in identifying all AIDS-related claims, the data may significantly
understate the financial impact of AIDS on the insurance industry.

         Current HIV testing of life insurance  applicants involves the use of a
paramedic or other trained healthcare professional to obtain a blood sample. The
cost to the insurance company for an HIV test includes the cost of the paramedic
as well as the cost of the collection kit and laboratory testing services. These
costs average  approximately  $55 to $70, of which $35 to $50 is the cost of the
paramedic.  As a result,  insurance companies have generally limited HIV testing
to policies with face amounts of $100,000 or more. Based on industry statistics,
Epitope  Medical  Products  estimates that in 1994 over 9 million  policies were
issued for face amounts of less than  $100,000,  representing  68 percent of all
policies issued. Epitope Medical Products believes that the use of EpiScreen can
significantly  reduce the cost of HIV testing to the insurance  industry because
collection  of an oral fluid  specimen can be  performed by insurance  agents or
other persons without professional medical training, eliminating the cost of the
paramedic and making  testing at policy levels below  $100,000 a  cost-effective
practice.  Moreover,  the Company  believes that  insurance  companies may adopt
EpiScreen for use in connection with  applications  for insurance  policies with
face amounts at and above $100,000. The Company is, however, in the early stages
of rolling out its product and believes it is too early to predict the degree to
which its product will be utilized by insurance companies.

         Epitope  Medical  Products also believes that the use of EpiScreen will
allow the insurance industry to address "anti-selection."  Anti-selection occurs
when an individual  who knows that he or she is infected with HIV  intentionally
applies for one or more life insurance  policies that do not entail HIV testing.
Epitope Medical Products believes that the availability of two recently approved
over-the-counter   ("OTC")  HIV  blood  tests  may  increase  the  incidence  of
anti-selection.  By allowing  insurance  companies  to lower the policy level at
which HIV testing is  cost-effective,  the use of EpiScreen may allow  insurance
companies to reduce their exposure to losses from  anti-selection and thereby to
lower overall claims costs.

         An  additional  advantage of the EpiScreen  testing  system is that the
oral  specimen  used for HIV testing  can also be used to  identify  smokers and
users of cocaine.  Cotinine,  a metabolite  of nicotine,  can be detected  using
OraSure/EpiScreen.  The FDA has advised Epitope Medical  Products that EpiScreen
may be  used  for  cocaine  testing  for the  purpose  of  life  insurance  risk
assessment while a 510(k) notice is undergoing final review, and may be used

                                      - 6 -

<PAGE>



for cotinine testing generally. In a presentation at the 105th annual meeting of
The  American  Academy of Insurance  Medicine,  a major life  insurance  company
reported results of the use of the EpiScreen testing system in Canada and in the
Bahamas  from 1992 to 1995.  The life  insurance  company  reported  that  agent
collection  reduced  its  testing  costs  by $65  per  application.  During  the
four-year  study  period,  the insurer found that it saved $1.7 million by using
EpiScreen for HIV and cocaine testing.  In addition,  the life insurance company
determined  that it realized  $1.6 million in increased  premiums as a result of
identifying smokers who claimed on their applications that they were nonsmokers.

         Physician and Clinical Market.  Through SB, Epitope Medical Products is
marketing  its oral HIV  testing  system to the  physician,  hospital  and other
professional  healthcare provider markets under the brand name OraSure.  OraSure
is now offered to  physicians  and  hospitals in the United States by over 3,300
sales  representatives  in the SB distribution  network.  In connection with the
introduction  of OraSure to the  physician  community in August 1996, SB created
the OraSure  Confidential Testing Network, a nationwide network for consumers to
identify doctors in their area who offer  confidential HIV testing with OraSure.
The  Network  is   accessible   to   consumers   through  a   toll-free   number
(1-800-OraSure) and on the Internet (www.OraSure.com). The SB product launch was
accompanied  by an  advertising  campaign  featuring  two-page  spreads in major
medical professional publications. The OraSure brand was also a major sponsor of
the 1996 AIDS  Candlelight  March in Washington,  D.C.,  conducted in connection
with the display of the National AIDS Quilts.

         OTC Market.  A recent  study  published  in the New England  Journal of
Medicine  reported  that 44 percent of Americans  age 18 to 24 and 33 percent of
Americans   age  25  to  44  were  "very  or   somewhat   likely"  to   purchase
over-the-counter  home-collection  HIV tests.  According  to the  United  States
Census Bureau, as of July 1996 there were 24.7 million Americans in the 18 to 24
age group and 83.7 million in the 25 to 44 age group.  Thus, based on the study,
the number of people "very or somewhat  likely" to purchase OTC  home-collection
HIV tests in the U.S. exceeds 35 million individuals.

         Epitope  Medical  Products  and SB are  currently  conducting  clinical
trials to support an  application  for FDA clearance to market OraSure as a home
collection  testing  system.  If FDA  clearance  is  obtained,  Epitope  Medical
Products  and SB plan to market  the  OraSure  device for OTC sale as part of an
integrated system including  laboratory testing and counseling.  Epitope Medical
Products  believes  the  noninvasiveness  and ease of use of  OraSure  represent
significant  benefits  to the home user over  traditional  blood-based  methods.
There can be no  assurance  that  Epitope  Medical  Products  will  receive  FDA
clearance to market OraSure to the OTC market on a timely basis,  if at all. See
"Epitope Medical Products--Government Regulation."

         If Epitope Medical Products  receives FDA clearance of the OraSure home
collection  system,  a consumer could purchase OraSure at retail outlets such as
pharmacies, drug stores, and other commercial facilities or through a mail order
program.  The  consumer  would  collect  the  specimen  and mail it in a postage
prepaid envelope to an SB laboratory for testing.  The consumer would obtain his
or her test results and counseling by calling a toll-free number and providing a
confidential identification number included with the test.

         International.  In light of the  worldwide  scope of the HIV  epidemic,
Epitope Medical Products  believes there are significant  opportunities for sale
of EpiScreen/OraSure in international markets. Epitope Medical Products believes
that the ease of use, portability, increased safety and lower cost of oral fluid
testing will provide  significant  advantages over blood tests in  international
markets.  Epitope  Medical  Products has  initiated an  international  marketing
program that offers a complete  EpiScreen  testing system.  The program features
direct  assistance  to  distributors  in  establishing  EpiScreen  programs that
include laboratory services, cooperation from screening test manufacturers,  and
provision  of  Western  blot  confirmatory  kits in  each  country.  Epitope  is
currently marketing EpiScreen to distributors in Canada, Thailand, Argentina and
South Africa for use in  professional  markets.  SB also markets  OraSure to the
professional  market in several Latin American and African countries through its
network of distributors. See "Epitope Medical Products--Marketing."


                                      - 7 -

<PAGE>



Products Under Development

         EpiScreen/OraSure.  Oral mucosal transudate  contains many constituents
found  in  blood  serum.   Because  of  this  feature,   the  Company   believes
EpiScreen/OraSure  is a platform  technology  with a wide  variety of  potential
applications beyond HIV testing. For example, the  EpiScreen/OraSure  device may
be useful for the diagnosis of a variety of  infectious  diseases in addition to
HIV,  such as viral  hepatitis and a number of childhood  diseases.  The Company
recently applied for regulatory  clearance in Canada to market EpiScreen for the
detection of measles,  mumps and rubella. In addition, the Company believes that
the use of oral specimens may allow physicians to diagnose diseases more readily
in children without subjecting them to the discomfort of drawing a blood sample,
thereby increasing the frequency of testing for diseases.

         The Company  believes the  EpiScreen/OraSure  device also has potential
application  in the  detection  of drugs of  abuse,  such as  cocaine.  A 510(k)
notification  for this use is currently  undergoing FDA review and, if approved,
will allow Epitope Medical Products to market  EpiScreen/OraSure to professional
markets in addition to the life insurance industry.  Under an agreement with STC
Technologies,  Inc., Epitope Medical Products is conducting U.S. clinical trials
for  other  drugs of  abuse.  Physicians  may also find the  device  useful  for
monitoring levels and adjusting dosages of therapeutic drugs, such as those that
are toxic at levels only slightly  above the level at which they are  effective.
Monitoring of these drugs currently  requires  frequent blood tests to determine
drug concentration.  The Company believes oral fluid testing would eliminate the
discomfort and inconvenience associated with this frequent blood testing.

         OraQuick.  Epitope Medical Products is currently developing OraQuick(R)
HIV, a one-step, rapid-format oral fluid testing system designed to provide test
results within ten minutes.  Epitope Medical Products believes that OraQuick has
significant  potential  as a  rapid  laboratory-based  HIV  test  and  as an OTC
home-based HIV test. Like  EpiScreen/OraSure,  OraQuick is a platform technology
with  a  variety  of  potential   applications   in  addition  to  HIV  testing.
Modifications  of the basic  OraQuick  technology may allow use of this approach
for detection of antibodies  against the  ulcer-causing  bacterium  Helicobacter
pylori, as well as for a variety of infectious diseases such as syphilis,  viral
hepatitis,  and  childhood  infections.  There can be no assurance  that Epitope
Medical  Products will complete  development of any of these products or, in the
event of successful  development,  will receive applicable regulatory clearances
or will profitably market the products.

Marketing

         Life Insurance Industry. Epitope Medical Products currently markets its
EpiScreen  device  for use in  screening  life  insurance  applicants  for  HIV,
cocaine,  and nicotine.  The Company  maintains a six-member  direct sales force
that markets and sells EpiScreen to the main insurance  testing  laboratories in
the  United  States  and  Canada.  The major  laboratories  currently  using the
EpiScreen  device  include  LabOne,  Inc.,  Osborn  Laboratories,  and  Clinical
Reference  Laboratory,  Inc.  Epitope  Medical  Products also markets the use of
EpiScreen directly to life insurance companies.

         U.S.  Professional and OTC. In February 1995,  Epitope Medical Products
entered  into  a  Development,   License  and  Supply  Agreement  with  SB  (the
"Agreement") for the OraSure HIV-1 oral specimen  collection  device and certain
future diagnostic products. Under the Agreement, SB will sell the OraSure device
to the  professional  markets in the United  States.  In  addition,  if and when
regulatory clearance is received,  SB will market the OraSure device to the U.S.
OTC  market.  SB paid  Epitope  Medical  Products a one-time  license  fee of $5
million for the rights granted under the Agreement.

         The  Agreement  provides  that  SB  generally  has  responsibility  for
advertising,  promotion,  distribution,  and regulatory approval expenses in its
markets. Epitope Medical Products will initially manufacture the OraSure devices
for  sale to SB at  predetermined  transfer  prices  and  will  receive  certain
royalties  on SB  product  sales.  A  portion  of SB's  costs in  obtaining  and
maintaining  regulatory  approvals will be credited against royalties payable to
Epitope Medical Products.


                                      - 8 -

<PAGE>



         The  Agreement  permits SB to fund Epitope  Medical  Products'  ongoing
development of diagnostic  products and technology for its term, which lasts for
a minimum of 15 years,  subject to earlier  termination on 60 days' notice if SB
elects to stop  marketing  the  products  in all  markets.  SB has the option to
market those products  developed  with SB funding,  which Epitope will initially
manufacture for agreed-upon prices and royalties.

         International.  Epitope  Medical  Products  also employs a direct sales
force for the marketing and sale of EpiScreen in certain international  markets.
The Company  complements  its direct sales  efforts  through the use of selected
international  distributors who have the expertise and capabilities  appropriate
for marketing EpiScreen.  In addition,  SB will act as exclusive director of the
OraSure HIV-1 oral specimen  collection  device in the  professional  markets in
certain  Latin  American and African  countries.  Epitope  Medical  Products has
retained all rights to distribute  products in markets other than those reserved
to SB.

         Western Blot  Distribution.  Epitope Medical  Products has entered into
supply and distribution agreements with Organon Teknika Corporation, a member of
the  Pharma  Division  of  Akzo  Nobel,  NV,  an   international   chemical  and
pharmaceutical  manufacturer  based  in  Arnhem,  The  Netherlands.  The  supply
agreement  provides  that Organon  Teknika will supply the HIV-1 antigen used to
manufacture  Western blot  confirmatory  test kits. The  distribution  agreement
grants Organon Teknika the exclusive right to purchase Western blot confirmatory
test kits from Epitope Medical  Products and to market them  worldwide.  Epitope
Medical  Products and Organon Teknika are  negotiating  terms for continuing the
supply and  distribution  arrangement  after the existing  agreements  expire on
March 31, 1997.

Manufacturing

         Epitope Medical Products  manufactures  Western blot confirmatory tests
at the Company's  Beaverton,  Oregon,  facility.  The Western blot  operation is
presently producing current requirements with a one shift operating schedule. If
additional Western blot production is required, the Company can expand operating
hours or add an additional shift. The  EpiScreen/OraSure  device is manufactured
by a contract  manufacturer which also  manufacturers  medical devices for other
firms. Recent increases in demand for the EpiScreen/OraSure device have been met
by increasing the frequency of production cycles and number of production shifts
while  continuing to use the  equipment  purchased by the Company for use in the
manufacturing process. The Company believes that it will reach full capacity for
its present equipment  configuration during 1997.  Additional equipment has been
acquired and will be placed into service as required to meet increased demand.

         Company  quality  control   personnel  inspect  products  and  maintain
documentation for compliance with the FDA's current Good Manufacturing Practices
("GMP") and other government manufacturing regulations.  Epitope's manufacturing
facilities  are subject to periodic  inspection by regulatory  authorities.  See
"Epitope Medical  Products--Government  Regulation."  Contract  manufacturing is
overseen by an on-site employee of the Company who is responsible for monitoring
compliance   with  Company   standard   operating   procedures,   reviewing  the
manufacturing process and assuring that the manufacture of Company product is in
compliance with GMP. The Company  conducts  further quality control tests in its
Beaverton, Oregon, facility.

Competition

         Competition  in the  emerging  market for HIV testing is intense and is
expected to increase.  The Company believes that the principal  competition will
come from existing  blood-based HIV assays and from urine-based assays.  Epitope
Medical Products' competitors include specialized biotechnology firms as well as
pharmaceutical  companies with  biotechnology  divisions and medical  diagnostic
companies,  many of which have considerably  greater financial,  technical,  and
marketing resources than Epitope Medical Products.  Competition may intensify as
technological  advances  are made and become more  widely  known and as products
reach the market in greater  numbers.  Furthermore,  new  testing  methodologies
could  be  developed  in  the  future  that  render  Epitope  Medical  Products'
oral-based  HIV test  impractical,  uneconomical  or  obsolete.  There can be no
assurance  that  Epitope  Medical  Products'  competitors  will not  succeed  in
developing or marketing  technologies  and products that are more effective than
those  developed  by  Epitope   Medical   Products  or  that  would  render  its
technologies or products  obsolete or otherwise  commercially  unattractive.  In
addition, there can be no assurance that competitors will not succeed in

                                      - 9 -

<PAGE>



obtaining  regulatory  approval  for  these  products,   or  in  introducing  or
commercializing  them before Epitope Medical Products.  Such developments  could
have a material  adverse effect on the Company's and Epitope  Medical  Products'
business, financial condition and results of operations.

         Three  companies  have  submitted  applications  to the FDA for OTC HIV
blood testing: Direct Access Diagnostics, Home Access Health Corp., and ChemTrak
Incorporated.  The FDA has approved a home  collection kit for HIV blood testing
developed by Direct Access  Diagnostics  and another home collection kit for HIV
blood testing developed by Home Access Health Corp.

         Cambridge Biotech Corporation and BioRad Laboratories, Inc. manufacture
HIV Western blot  confirmatory  tests, and Waldheim  Pharmazeutika  manufactures
immunofluorescent  HIV  confirmatory  tests,  which compete with Epitope Medical
Products'  EPIblot HIV-1  Western blot  serum-based  confirmatory  test kits. In
addition,  Abbott Laboratories  provides in-house testing services for customers
of its HIV screening products.

         Several other  companies  market or have announced plans to market oral
specimen  collection  devices  and tests  outside  the  United  States  and have
announced plans to seek FDA approval of such tests in the United States. Epitope
Medical   Products   expects   the   number  of  devices   competing   with  its
EpiScreen/OraSure  device to  increase as the  benefits  of oral  specimen-based
testing become more widely  accepted.  Epitope Medical Products expects that FDA
approval of the EpiScreen  device will also encourage  potential  competitors to
develop oral diagnostic products.  No such devices have yet been approved by the
FDA for HIV testing. See "Epitope Medical Products--Government Regulation."

         The FDA  recently  approved  an HIV ELISA  screening  test for use with
urine.  However, no Western blot or other confirmatory test using urine has been
approved  by  the  FDA  to  date.  The  Company  believes  that  absence  of  an
FDA-approved  confirmatory  test for urine poses a significant  disadvantage  to
urine  testing  because a patient  who  receives an initial  positive  screening
result  must  return  to give a  second,  blood-based  sample  for  confirmatory
testing.  The Company also  believes  that urine  collection  can be  difficult,
inconvenient and potentially  embarrassing for the patient, and that privacy and
chain-of-custody  issues are further  impediments  to routine use of urine-based
HIV tests.

Government Regulation

         General.  Many of  Epitope  Medical  Products'  proposed  and  existing
diagnostic products are subject to regulation by the FDA, other federal,  state,
and local agencies, and comparable bodies in foreign countries.  Such regulation
governs  almost  all  aspects  of  development  and  marketing,   including  the
introduction,   advertising,   promotion,   manufacturing  practices,  labeling,
distribution,  and  record  keeping  for the  products.  In the  United  States,
different types of diagnostic products are regulated  differently by the FDA, as
discussed below. As part of the FDA clearance process,  Epitope Medical Products
often must  demonstrate  that its  products  are both safe and  effective  for a
particular indication or application.

         Drugs and Biological Products. Generally, drugs and biological products
require FDA  approval  before  marketing.  The steps  required  before a drug or
biological product may be marketed in the United States include: (1) preclinical
laboratory  and  animal  tests;   (2)  submission  of  an  application   for  an
investigational  new drug or  biological  product,  which must become  effective
before human  clinical  trials may  commence;  (3) human  clinical  trials;  (4)
submission of a Product License  Application  ("PLA") for the biological product
or a New Drug  Application  ("NDA")  for most other new drug  products;  and (5)
approval of the PLA or NDA.

         Preclinical  safety and initial efficacy testing is usually  undertaken
in animals. Results of such preclinical and other laboratory tests are submitted
to the FDA before human clinical trials can begin. Clinical trials are typically
conducted in three phases.  Phase I uses human subjects to determine  safety and
tolerance. Phase II uses a limited patient population to determine effectiveness
and dosage and to identify side effects.  Compounds  found effective and safe in
Phase II are further tested in Phase III with an expanded patient  population at
geographically  dispersed  clinical study sites. Each phase may last from one to
two years or more.


                                     - 10 -

<PAGE>



         Most  products are not approved  because of the failure to  demonstrate
safety, effectiveness,  or both. The FDA may suspend clinical trials at any time
if it is felt that  subjects or patients  are being  exposed to an  unacceptable
health risk.  Obtaining FDA approval requires substantial time and effort. There
can be no  assurance  that any  approval  will be  granted  to  Epitope  Medical
Products on a timely basis, if at all. As part of the approval process,  the FDA
may  require  Epitope  Medical  Products  to  initiate  post-approval  marketing
studies.

         Medical  Devices.  Medical  devices are  classified  either in Class I,
Class II, or Class III.  Class I devices  are  subject  only to general  control
provisions  of the Federal  Food,  Drug,  and Cosmetic Act, as amended (the "FDC
Act"). These provisions include requirements that a device not be adulterated or
misbranded.   Class  II  devices  are  those  for  which  general  controls  are
insufficient  to provide a  reasonable  assurance of safety and efficacy and for
which  a  "generic"   performance   standard  or  other  special   controls  are
appropriate.  Devices that do not meet the criteria for Class I or II are placed
in Class III. Class I and II devices, those Class III devices initially marketed
prior to passage of the  Medical  Device  Amendments  of 1976  ("MDA") for which
premarket  approval  applications  ("PMAs")  are not yet  required,  and devices
substantially  equivalent to such devices, may be marketed upon FDA clearance of
a section 510(k)  notification (a "510(k) Notice").  Other Class III devices may
be  commercially  marketed  only after FDA  approval  of a PMA.  Generally,  the
process of  obtaining  FDA  approval  of a PMA is similar to that for  obtaining
approval of a biological or other drug product.

         Based upon the  information  provided in a 510(k) Notice  regarding the
device's intended use and technological features, the FDA will determine whether
the device is "substantially  equivalent" to a predicate device,  i.e., a device
legally  marketed  which  did not  require  a PMA.  If a  device  is found to be
substantially equivalent to a predicate device, it may be freely marketed in the
United States so long as the device is otherwise in compliance with the FDC Act.
If it is not so found, it will be considered a Class III device requiring a PMA.
Substantial  equivalence  means  that the FDA has found  that the device has the
same intended use as the predicate device, and either has the same technological
characteristics  or has different  characteristics,  but there is information in
the  510(k)  Notice  that  shows  the  device  is as safe and  effective  as the
predicate and does not present different questions of safety and effectiveness.

         EpiScreen/OraSure  Collection  Device.  Use  of  the  EpiScreen/OraSure
collection device for applications  involving the detection of antibodies to HIV
is regulated by the FDA as use of a Class III medical device requiring a PMA. In
December 1994,  the FDA approved  Epitope  Medical  Products' PMA for use of the
Episcreen/Orasure  device in HIV screening.  Post-approval marketing studies are
under way as  required as part of the FDA's  approval  of the  EpiScreen/OraSure
device.  In June 1996,  the FDA  approved  the PMA for use of the  OraSure  oral
specimen-based Western blot confirmatory test kit for HIV-1 diagnosis.

         In February 1995,  Epitope Medical  Products  submitted a 510(k) Notice
for use of EpiScreen for cocaine testing. The submission is currently undergoing
FDA    review.     See     "Epitope     Medical     Products--Products     Under
Development--EpiScreen/OraSure."  In the meantime,  the FDA has advised  Epitope
Medical Products that EpiScreen may be used for cocaine testing for the purposes
of life insurance risk assessment.

         Western Blot Test Kits.  Epitope  Medical  Products' HIV-1 Western blot
serum-based  confirmatory test kits are used to confirm whether  individuals are
infected  with HIV-1.  They are  regulated  by the FDA as  biological  products,
unlike most other diagnostic  tests which are regulated as medical  devices.  In
March 1991, the FDA cleared the EPIblot HIV-1 serum-based  confirmatory test kit
for commercial distribution.  As noted above, a PMA seeking permission to market
the OraSure oral  specimen-based  Western blot  confirmatory  test kit for HIV-1
diagnosis was approved by the FDA in June 1996.

         Manufacturing  Regulations.  Every  company  that  manufactures  drugs,
biological  products,  or medical  devices  distributed  in the United States is
subject to  inspections  by the FDA and must comply with the FDA's  current Good
Manufacturing  Practices  regulations.  These  regulations  govern,  among other
matters,   manufacture,   testing,   release,   packaging,   distribution,   and
documentation.

         Other.  Epitope  Medical  Products is also subject to regulation by the
Occupational  Safety and Health  Administration and may be subject to regulation
by the U.S. Environmental Protection Agency ("EPA") under the

                                     - 11 -

<PAGE>



Toxic Substances  Control Act ("TSCA"),  the Resource  Conservation and Recovery
Act, and other legislation.  Epitope Medical Products is also subject to foreign
regulations  governing,  for example,  human clinical  trials and marketing with
respect to products  distributed  outside the United States.  Approval processes
vary from country to country, and the length of time required for approval or to
obtain other  clearances may in some cases be longer than that required for U.S.
governmental   approvals.   The  extent  of  potentially  adverse   governmental
regulation  affecting  Epitope  Medical  Products  that might  arise from future
legislative or administrative action cannot be predicted.

                                    Agritope

         Historically,   Agritope   has   focused   on   the   development   and
commercialization of novel agricultural products using plant genetic engineering
and other  modern  methods.  Through  its  acquisition  of A&W and its  majority
ownership  of  Vinifera,  Agritope  is  positioned  as a  vertically  integrated
agribusiness  with the  production,  distribution  and marketing  infrastructure
necessary to realize better the value of its proprietary technology.  Agritope's
products  now include a broad range of fruits,  vegetables  and plants  produced
using technologically advanced farming and plant propagation techniques designed
to incorporate advances in biotechnology, plant breeding, and crop production.

         Agritope   consists  of  three  major  units:   Agritope  Research  and
Development,  A&W, and Vinifera.  Agritope Research and Development  contributes
biotechnology and product  development efforts to A&W and Vinifera as well as to
its  other  business  partners.   Through  A&W,  Agritope   produces,   markets,
distributes and sells a wide variety of fruits and vegetables  throughout  North
America.  Through  Vinifera,  Agritope  believes  that it offers one of the most
technically  advanced  grapevine  plant  propagation  and disease  screening and
elimination  programs available to the worldwide wine and table grape production
industry.

Agritope Research and Development

         Agritope's biotechnology research and development program is focused on
using the tools and  techniques  of plant  genetic  engineering  to regulate the
synthesis of ethylene in ripening fruits and vegetables. Ethylene gas is a plant
hormone  which in higher plant  species is  responsible  for fruit  ripening and
vegetable senescence as well as numerous other physiological  effects.  Agritope
has  identified  and patented a single gene that can be inserted into plants and
expressed  to regulate  the plant's  ability to produce  ethylene.  In addition,
Agritope  is  conducting  research  in the area of  disease  control,  including
screening plants for the presence of disease and creating genetically engineered
plants with resistance to pathogens.

         Ripening  Control.  The fresh  produce  industry is based  largely upon
rapid harvesting,  processing and distribution of fruits and vegetables in order
to  prevent  spoilage  and ensure  the  arrival of product at retail  outlets in
acceptable  condition for consumer purchase and use. The postharvest  period for
most fruits and  vegetables is one of  continuous  ripening and  senescence,  as
evidenced by rapid changes in color,  texture,  flavor,  nutrient  content,  and
other quality attributes. Product losses due to perishability during harvesting,
processing, packing, shipping and distribution can reach substantial portions of
overall  crop  yield.   Growers  frequently  incur  losses  resulting  from  the
abandonment  of crops in the  field or having  shipments  refused  by  receivers
because the produce is overripe.  In addition,  wholesalers and retailers may be
forced  either to  discard  or sell  overripe  produce  at  reduced  prices  and
consumers  often must use produce  shortly  after  purchase  to avoid  spoilage.
Studies  published  in the United  States  Department  of  Agriculture  ("USDA")
Marketing Research Report have estimated postharvest losses of 30 percent and 40
percent,  respectively, for strawberries shipped from Florida to the Chicago and
New York markets.  In the U.S. fruit and vegetable  markets,  postharvest losses
are estimated to amount to several billion dollars annually.

         Postharvest losses are largely attributable to the effects of ethylene.
Because  ethylene is a gas, it not only affects the plant producing it, but also
surrounding  plants as well.  The  physiological  effects  of  ethylene  include
initiation  and  enhancement  of  ripening,   senescence,  leaf  abscission  and
drooping,  and flower fading and wilting.  Common examples  include the ripening
and  subsequent  rotting of tomatoes  and apples,  discoloration  in lettuce and
broccoli, and the short bloom life of cut flowers.


                                     - 12 -

<PAGE>



         The  importance of controlling  ethylene  production in plants has been
recognized  for decades,  and has been  addressed  primarily  through the use of
controlled  atmosphere  storage,  chemical  treatment,  and  special  packaging.
Conventional   techniques  for  controlling  ethylene  production  have  serious
disadvantages that include high cost,  time-critical  handling  requirements and
lack of consistent  ripening.  For example,  the majority of product sold in the
fresh tomato market today is composed of  "gas-green"  tomatoes.  These tomatoes
are picked and packed while still green and firm. Prior to shipping to wholesale
customers,  green  tomatoes  are  exposed to  ethylene  gas in order to initiate
ripening of the  product.  In  general,  gas-green  tomatoes  are  perceived  by
consumers to have less desirable taste and texture than vine ripened tomatoes.

         Agritope believes the ability to regulate ethylene and control ripening
through  genetic  engineering  represents an  opportunity  to provide a superior
product  to  consumers  while  also  improving  profitability  for  growers  and
distributors.  Growers may achieve higher  marketable yields due to fewer losses
to  overripe  product  in the  field  and may lower  labor  costs by  decreasing
frequency  of  harvest.   For   packers/shippers,   better  control  of  product
perishability may result in improved inventory flexibility and control, and more
uniform product quality.

         Agritope Technology.  Agritope's ethylene control technology is focused
on the use of a  patented  gene  known as SAMase.  The  expression  of SAMase in
plants  produces an enzyme that acts to degrade one of the  important  precursor
compounds  (S-adenosylmethionine  or  "SAM")  necessary  for the  production  of
ethylene.  Agritope has genetically engineered plants to express the SAMase gene
only when certain levels of rising  ethylene  concentrations  are reached in the
tissues of the fruit or plant.  This feature  causes the  production  of greater
levels of the enzyme that degrades SAM in response to a  correspondingly  higher
level of ethylene.  Agritope  believes that this  technology thus offers a major
advantage  over other  approaches to ripening  control in that the production of
ethylene may be specifically  reduced to levels that allow for the initiation of
ripening but delay the spoiling effects of excess ethylene. Therefore, the fruit
can be  maintained  at an optimal  level of ripeness  for an extended  period of
time. An additional benefit of Agritope's technology is that the enzyme produced
by the  SAMase  gene  degrades  SAM into  compounds  normally  found in  plants.
Agritope  believes  its SAMase  technology  can be  utilized  for the control of
ethylene in any plant species where ethylene affects ripening or senescence.

         Agritope's  ripening  control  technology is protected by a U.S. patent
covering the use of any gene that encodes  S-adenosylmethionine  hydrolase  (the
enzyme  expressed by the SAMase gene) in any plant  species.  In addition to the
patent on the SAMase gene, utility claims have been allowed on the promoter/gene
combination used by Agritope in applications currently under development as well
as potential  applications  in all other  fruit-bearing  plants.  In the area of
regulated  ripening  control,  Agritope has additional  U.S. and foreign patents
pending. In addition,  Agritope has U.S. and foreign patent applications pending
in related areas. See "Epitope, Inc.--Patents and Proprietary Information."

         Development Programs.  Agritope's research and development programs are
directed  toward several highly  perishable  fruit and vegetable crops described
below. The development program comprises five stages,  including gene isolation,
transformation, product evaluation, seed/plant production and commercialization.



                                     - 13 -

<PAGE>



         The following chart shows the approximate progress Agritope has made to
date with various crops, which are described in more detail below.

         [Chart titled "Agritope Product Development Program" listing the stages
         of development  (gene isolation,  transformation,  product  evaluation,
         seed/plant  production,  and product launch).  The chart shows that the
         following products are in the stages indicated:

                  Tomato                             Product Evaluation
                  Raspberry                          Product Evaluation
                  Melon                              Transformation
                  Brassica                           Transformation
                  Additional Crops                   Gene Isolation]






                  Gene Isolation: The initial stage of genetic engineering. Gene
         isolation involves the identification and characterization of genes and
         gene  promoters  for  use in  Agritope's  development  programs.  These
         genetic  elements are then combined for use in  genetically  engineered
         plants.

                  Transformation: The stage at which the new genetic material is
         introduced into the plant. The transgenic  plants which result are then
         available for product evaluation.

                  Product Evaluation:  The analysis of transgenic plants in both
         laboratory and field  settings to determine  commercial  utility.  This
         stage also involves the plant breeding and selection process to develop
         commercially  competitive  new varieties that  incorporate the Agritope
         technology.  Regulatory  data are also  collected and submitted at this
         stage.

                  Seed/Plant Production:  Propagation of selected plant material
         (either seed or plants) in quantities needed for commercial production.

                  Product  Launch:  Commercial  production  and sale,  following
         regulatory clearance.

         Tomato.  The annual U.S.  wholesale  fresh  market  tomato  business is
estimated at $1.7 billion. In order to facilitate the  commercialization  of its
ethylene control  technology into this market,  Agritope and A&W formed Superior
Tomato Associates,  L.L.C.  ("STA"), a joint venture with Sunseeds Company,  the
developer and producer of several leading fresh market tomato varieties.

         Agritope  provides  genetic   engineering   technology  and  regulatory
expertise,  has  responsibility  for  managing  the  joint  venture,  and owns a
two-thirds  equity  ownership  interest in STA.  Sunseeds  provides elite tomato
germplasm and breeding expertise in the development of transgenic varieties. A&W
contributes  testing and production  acreage and will oversee the production and
wholesale distribution of fresh tomatoes to the fresh produce industry.

         STA is currently in the process of  developing  and testing  transgenic
cherry,  roma,  and large  fruited  vine ripe  tomato  varieties.  Agritope  has
developed  lines of elite tomato  germplasm  provided by Sunseeds.  Recent field
trials have successfully demonstrated the transfer of Agritope's SAMase ripening
control  technology to a number of Sunseeds' elite breeding  lines.  Sunseeds is
conducting  further breeding and field trials of these transgenic  lines.  These
trials will be followed by production  scale trials to be conducted by A&W that,
if successful, will lead to regulatory submissions and, if regulatory clearances
are received, commercial-scale seed production. Subsequently, A&W would commence
commercial tomato production and sales to the industry.


                                     - 14 -

<PAGE>



         Prior to the formation of STA, Agritope submitted safety,  nutritional,
and environmental  information on a prototype transgenic tomato line to both the
USDA and the FDA. In March 1996,  the USDA issued its finding that this line has
no  significant  environmental  impact  and  would no  longer  be  considered  a
regulated article. During the same month the FDA determined that the variety did
not raise  issues  that would  require  pre-market  review or  approval  by that
agency. In addition to receiving these U.S. regulatory  clearances,  Agritope is
also conducting field evaluations of SAMase tomato lines in Mexico under permits
granted by the Mexican  Ministry of  Agriculture.  In order to commence  sale of
selected varieties,  Agritope will be required to make supplemental  submissions
to the USDA and FDA that  establish  that such  varieties are  comparable to the
previously cleared lines.

         Raspberry.  The wholesale  raspberry  market,  estimated at $48 million
annually in the United  States,  has  experienced  limited growth because of the
extreme  perishability  of the  fruit.  Agritope  believes  that the  successful
development of  raspberries  containing its ethylene  control  technology  could
permit a significant expansion of the fresh raspberry market.

         In a collaboration with Sweetbriar  Development,  Inc.  ("Sweetbriar"),
the largest  fresh  raspberry  producer  in the U.S.,  Agritope  has  engineered
several of Sweetbriar's  proprietary  commercial  raspberry varieties to contain
the SAMase gene.  Initial field trials of transgenic  raspberries  are currently
underway at  Sweetbriar  facilities  in  California  and Agritope  facilities in
Woodburn,  Oregon.  Agritope  has  already  demonstrated  the  ability to reduce
ethylene  synthesis  in  the  fruit.  Successful  development  of  a  commercial
transgenic  raspberry will require further  demonstration of improved shelf life
as  well as  additional  field  trials  to  obtain  the  appropriate  regulatory
clearances.  If these  conditions  are met,  Sweetbriar  would  produce  the new
raspberries for  distribution and marketing by Driscoll  Strawberry  Associates,
the  largest  distributor  of fresh  raspberries  and  strawberries  in the U.S.
Agritope would receive royalties on wholesale product sales.

         Separately,  Agritope has  integrated its ripening  control  technology
into  commercially  successful  public  domain  varieties.  A&W would  undertake
commercial  production  and  distribution  of any  improved  raspberry  products
resulting from this program.

         Melon.  The U.S.  wholesale  fresh melon  market is  estimated  at $282
million annually. As with tomatoes, perishability results in substantial product
losses  during  the  processes  of  production,  harvesting,  and  distribution.
Agritope  believes that melons  represent a substantial  market  opportunity for
implementation of its ripening control  technology.  Recent  scientific  reports
have demonstrated a dramatic increase in shelf life for specialty type melons in
which the ability to produce ethylene has been impaired.  Using proprietary seed
varieties  supplied by two units of the French seed  company  Limagrain,  Clause
Semences,  and its U.S.  affiliate Harris Moran Seed Company  ("Harris  Moran"),
Agritope is developing  commercial melon varieties with controlled  ripening and
increased  postharvest  product life.  Transgenic melons  containing  Agritope's
ethylene control gene are currently being evaluated  jointly by Harris Moran and
Agritope technicians.  If successfully developed, the melons will be distributed
by A&W and third party distributors.

         Brassica. Agritope has an agreement with Sakata Seed America ("Sakata")
to develop new varieties of certain Brassica species (broccoli and cauliflower).
Sakata is the leading hybrid broccoli and cauliflower  seed supplier in the U.S.
Sakata provided  Agritope with germplasm from selected  breeding lines and funds
to develop broccoli and cauliflower plants integrating Agritope ripening control
technology.   Agritope  received  payment  from  Sakata  upon  the  transfer  of
genetically  engineered plants to be used for the production of hybrid seeds. If
the seeds are  commercialized,  Agritope will receive a royalty on sales made by
Sakata.

         Additional  Crops.  Agritope is also pursuing  research and development
programs  to  incorporate   its  SAMase   technology   into  other  crops  where
perishability  causes  significant  losses in the  production  and  distribution
process.  These include  strawberries,  lettuce,  bananas,  peaches,  pears, and
apples.  The estimated  U.S.  wholesale  markets for these crops range from $325
million for pears to $2.4 billion for bananas.


                                     - 15 -

<PAGE>



Andrew and Williamson Sales, Co.

         As part of its vertical integration strategy,  Agritope acquired A&W on
December  12,  1996.  A&W is a wholly owned  operating  subsidiary  based in San
Diego,  California with sales offices in San Diego and  Bakersfield,  California
and Nogales,  Arizona.  A&W, founded in 1986, produces fruits and vegetables and
provides  sales and  distribution  services for growers  from both  mainland and
Baja,  Mexico  and the San  Joaquin  Valley  in  California.  A&W  produces  and
distributes a diversified mix of fresh fruits and vegetables including vine ripe
cherry, roma and fresh market tomatoes, strawberries,  raspberries, melons, tree
fruits, table grapes, cucumbers, squash, green, red and yellow peppers, Brussels
sprouts and  asparagus.  In addition to fresh  strawberries,  A&W  processes and
sells frozen strawberry products.  A&W ships fresh produce every day of the year
from its facilities in San Diego and ships  seasonally from its other sites. A&W
is one of the United States' largest  distributors of vine ripe cherry and fresh
market tomatoes.  It is also a major shipper of fresh  strawberries,  melons and
cucumbers   throughout  North  America.  In  connection  with  its  distribution
operations,  A&W also provides technical support and short-term loans to certain
growers. See Note 13 to Financial Statements included herein.

         The  Company  acquired  A&W  pursuant  to  an  Acquisition  and  Merger
Agreement with A&W and its shareholders, under which a subsidiary of the Company
was merged  into A&W.  The  Company  issued  520,000  shares of common  stock of
Epitope, Inc., in exchange for all the outstanding common stock of A&W. A&W also
repaid certain loans due to its shareholders.  The acquisition was accounted for
as a pooling of interests and qualifies as a tax-free  reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.

         The Company has agreed to register for resale the shares  issued to the
shareholders of A&W, who have represented that they have no present intention to
sell the shares.  Fifteen  percent of the shares will bear a legend  prohibiting
sale without the  Company's  consent.  The  shareholders  have agreed that these
shares  will be  returned  to the  Company  to  satisfy  claims  for  breach  of
representations  and/or warranties  arising within  approximately one year after
closing.

         The four principals of A&W have entered into three-year  employment and
five-year  noncompetition  agreements  with  the  Company.  Fred L.  Williamson,
president of A&W, is an executive officer of the Company.

Vinifera, Inc.

         Vinifera, Inc. was incorporated in 1993 to participate in the grapevine
nursery business. Through proprietary processes,  Vinifera propagates and grafts
grape  plants for sale to  vineyards  and to growers of table  grapes.  Industry
sources have estimated  that 44 million  grafted wine grape plants were produced
in California in 1996.  This number is expected to increase to between 70 and 90
million by the year 2000.

         Traditionally,  grapevine  plants for sale to  vineyards  are  produced
seasonally using field grown,  dormant  cuttings that are grafted.  In contrast,
Vinifera uses year-round greenhouse propagation and a herbaceous grafting method
that employs very young,  actively growing  cuttings.  As a result of greenhouse
propagation,  Vinifera  is able to develop in two years a quantity of new plants
that is  approximately  ten times larger than can be produced  with  traditional
techniques.  In addition,  herbaceous grafting with green cuttings could allow a
vineyard to begin commercial  production of grapes from a newly planted vineyard
a year sooner than would  otherwise  be  possible.  This  grafting  process also
produces  sturdier  unions than dormant  grafting,  resulting  in  significantly
higher yields of successful  grafts,  both at the  propagation  stage and in the
survival of actual  plantings in the field.  Agritope  Research and  Development
provides disease testing services for Vinifera.

         Vinifera is  headquartered  in Napa,  California,  with  facilities  in
Woodburn, Oregon, and Petaluma, California. Its library of grape plants includes
32 different phylloxera-resistant types of rootstock, 88 different wine varietal
clones,  and ten different  table grape varietal  clones.  In addition,  several
French and Italian varietals are currently passing through  quarantine and, when
released,  will be available to the U.S. market  exclusively  through  Vinifera.
Vinifera  believes that this collection of different  grapevine clones is one of
the largest in the world.  Vinifera's  U.S.  customer  base  consists of over 80
vineyards in California,  Washington and Oregon. In 1995, Vinifera established a
joint venture in Argentina (Vinifera Sudamericana S.A.) to begin the propagation
of plant

                                     - 16 -

<PAGE>



material in that  country.  The first vines  produced are expected to be sold in
1997.  Vinifera is currently in the process of establishing  similar ventures in
other countries with large grape and wine production industries.

         Vinifera was formed in 1993 as a wholly owned  subsidiary  of Agritope,
Inc. In June 1995, Agritope, Inc. agreed to sell its equity interest in Vinifera
to VF Holdings,  Inc., an affiliate of a Swiss  investment  group. The purchaser
subsequently failed to make scheduled payments of the purchase price. As part of
a settlement of claims based on the purchaser's  default, the purchaser retained
a four  percent  minority  interest in Vinifera  and  relinquished  the majority
interest to Agritope, Inc. in August 1996.

Competition

         The   agribusiness   and  plant   biotechnology   industry   is  highly
competitive.  Competitors  include  independent  companies  that  specialize  in
agribusiness or biotechnology;  chemical, pharmaceutical and food companies that
have biotechnology laboratories;  universities;  and public and private research
organizations.  Agritope believes that many companies  including  companies with
significantly  greater financial  resources,  such as Monsanto Company,  Calgene
Inc., DNAP Holding and Zeneca Seeds are engaged in the development of mechanisms
to  control  the  ripening  and  senescence  of fruit  and  vegetable  products.
Technological   advances  by  others  could  render  Agritope's   products  less
competitive. The Company believes that, despite barriers to new competitors such
as  patent  positions  and  substantial  research  and  development  lead  time,
competition will intensify,  particularly from agricultural  biotechnology firms
and major agrichemical, seed and food companies with biotechnology laboratories.
Agritope  believes  that it can compete  successfully  with  companies  in these
markets by developing  products that offer unique and desirable  attributes with
superior quality.

         The produce  markets in which  Agritope  sells its  products are highly
competitive.  For example, competition in the fresh tomato market is expected to
intensify as other companies introduce tomatoes developed through  biotechnology
and as existing "gas green" tomato  producers react to competitive  pressures by
growing and marketing traditionally developed vine ripe tomatoes.

         In other crops, competition may intensify as technological developments
occur within the  agricultural  biotechnology  industry.  In competing with such
companies,  Agritope relies primarily on the experience of its production, sales
and marketing staff at A&W, the  qualifications of its scientific staff, and its
technological capabilities.

Government Regulation

         Regulation by federal,  state and local  government  authorities in the
U.S. and by foreign governmental authorities will be a significant factor in the
future production and marketing of Agritope's  genetically  engineered fruit and
vegetable products.

         The federal  government  has  implemented a coordinated  policy for the
regulation of biotechnology  research and products. The USDA has primary federal
authority  for the  regulation of specific  research,  product  development  and
commercial  applications  of  certain  genetically  engineered  plants and plant
products.  The FDA has principal  jurisdiction over plant products that are used
for human or animal food.  The EPA has  jurisdiction  over the field testing and
commercial  application of plants genetically  engineered to contain pesticides.
Other federal agencies have  jurisdiction over certain other classes of products
or laboratory research.

         The USDA regulates the growing and  transportation  of most genetically
engineered  plants and plant  products.  In March 1996  following a request from
Agritope,  the USDA issued a determination  that allows the growing and shipping
of its prototype  variety of ripening  controlled  cherry tomato anywhere in the
U.S. in the same manner as conventionally developed tomatoes.

         In May 1992,  the FDA announced its policy on foods  developed  through
genetic  engineering  (the "FDA Policy").  The FDA Policy  provides that the FDA
will apply the same  regulatory  standards to foods  developed  through  genetic
engineering as applied to foods developed  through  traditional  plant breeding.
Under the FDA Policy,  the FDA will not ordinarily  require  premarket review of
genetically engineered plant varieties of traditional foods

                                     - 17 -

<PAGE>



unless  their  characteristics  raise  significant  safety  questions,  such  as
elevated levels of toxicants or the presence of allergens, or they are deemed to
contain a food additive.

         In March 1996, the FDA announced its determination, based on its review
of food  safety  data  submitted  by  Agritope,  that its  prototype  variety of
ripening  controlled  cherry  tomato  expressing  the  SAMase  gene has not been
significantly  altered  with  respect  to food  safety or  nutritive  value when
compared to conventional tomatoes.

         The FDA has also issued a food additive  regulation  permitting the use
of the kanr selectable marker gene, which encodes for the enzyme  APH(3')II,  in
genetically  engineering tomatoes,  cotton and canola.  Agritope tomato products
will fall  under  this  regulation.  It is  uncertain  whether  additional  food
additive  regulations  will  need to be  issued  to cover  additional  fruit and
vegetable products which use the kanr selectable marker gene.

         Currently,  the FDA Policy does not require that genetically engineered
products be labeled as such,  provided  that such  products are as safe and have
the same  nutritional  characteristics  as  conventionally  developed  products.
However,  there  can be no  assurance  that  the FDA  will  not  reconsider  its
position,  or that  local,  state or  international  authorities  will not enact
labeling  requirements,  any of which  could have a material  adverse  effect on
marketing  of  products  derived  using  the  tools and  techniques  of  genetic
engineering.

         The  FDA  is  currently  considering  modifying  its  policy  on  foods
developed  through  genetic  engineering  to  include a  Premarket  Notification
("PMN") procedure. This policy modification could require companies that develop
genetically  engineered  foods to inform the FDA that its safety  evaluation  is
complete  and that  the  company  intends  to  commercialize  the  product.  The
objective  of the  PMN is to  make  the FDA  and  the  public  aware  of all new
genetically engineered food products entering the market. Agritope believes that
any future  requirement  for a PMN should not delay plans to  commercialize  its
genetically engineered fruit and vegetable products.

         Agritope's  complete  range of  agribusiness  and  plant  biotechnology
activities  is subject  to  general  FDA food  regulations  and are,  or may be,
subject to regulation  under various other laws and  regulations.  These include
but are not  limited  to the  Occupational  Safety  and  Health  Act,  the Toxic
Substances  Control Act, the National  Environmental  Policy Act,  other federal
water,  air  and   environmental   quality   statutes,   import/export   control
legislation,  and other  laws.  At the present  time most  states are  generally
deferring  to federal  agencies  (USDA or EPA) for the  approval of  genetically
engineered  plant field  trials,  although  states are provided a review  period
prior to the issuance of a field trial permit. Failure to comply with applicable
regulatory requirements could result in enforcement action, including withdrawal
of marketing  approval,  seizure or recall of products,  injunction  or criminal
prosecution.

         The federal  regulatory  agencies most involved in the business of A&W,
the production and marketing of fresh fruit and vegetables, are the USDA and the
FDA.  The USDA sets  standards  for raw produce and governs its  inspection  and
certification.  Under the Perishable  Agricultural and Commodities Act ("PACA"),
the USDA  exercises  broad control over the marketing of produce in domestic and
foreign commerce,  sets standards of fair conduct as to representations,  sales,
delivery,  shipment and payment for goods and regulates the licensing of produce
merchants and brokers.

         Almost every aspect of federal  regulation is accompanied by regulation
on the state level. In addition, in its Mexican operations, A&W must comply with
the  requirements  of  Mexican  law,  most  importantly  Mexico's  environmental
protection law.

         International regulatory policies for genetically engineered plants and
plant products are not complete.  Consequently,  it is possible that  additional
data,  labeling  or other  requirements  will be  required  in  countries  where
Agritope  intends  to  grow  and/or  commercialize  its  genetically  engineered
products.  Foreign regulatory agencies could require Agritope to conduct further
safety  assessments  and  potentially  delay  product  development  programs  or
commercialization of resulting products.

         To  date,  Agritope  to the  best  of its  knowledge  has  successfully
functioned within the scope of applicable laws and regulations,  including rules
administered by the USDA, the FDA and the Mexican Ministry of Agriculture.

                                     - 18 -

<PAGE>



Agritope  believes it is in compliance  with all applicable laws and regulations
pertaining to the development and commercialization of its products.

                                                   Epitope, Inc.
Supplies

         The HIV-1  antigen  needed to  manufacture  Epitope  Medical  Products'
Western blot HIV confirmatory  test kits is available from only a limited number
of sources.  Organon  Teknika,  the exclusive  distributor  of the test kits, is
required to supply Epitope Medical  Products'  requirements  for antigen for the
term of its distribution agreement with Epitope Medical Products,  which ends in
March  1997.  The  parties  are  negotiating  terms for  continuing  the  supply
arrangement.  If for any  reason  Organon  Teknika  should  no longer be able to
supply Epitope Medical  Products'  antigen needs,  management  believes  Epitope
Medical Products would be able to obtain or produce its own supply of antigen at
a competitive  cost.  Epitope  Medical  Products has obtained a license from the
National Technical  Information  Service which is required for the production of
the HIV-1 antigen  currently used in Epitope Medical Products' Western blot test
kits.

         Other  materials  used by  Agritope  and  Epitope  Medical  Products in
manufacturing,  production,  and research and development  operations are widely
available from a variety of sources.

Grants and Contracts

         The Company  participates  in United States Small  Business  Innovation
Research  ("SBIR")  programs  sponsored by either the  Department  of Health and
Human  Services or the  Department  of  Agriculture.  The SBIR programs have two
phases.  Phase I covers a  six-month  project  period  and a total  award not to
exceed $100,000. Phase II covers a two-year project period and a total award not
to exceed $750,000. Epitope Medical Products has received funds in the past from
the National Institute of Allergy and Infectious Diseases for work in developing
a rapid  test to detect HIV  antibodies  in oral  fluid  specimens  and from the
National  Cancer  Institute  to fund  research  for the  treatment  of cancer by
exploiting a deficiency of certain compounds in cancer cells.

         Agritope  was awarded  from the USDA a Phase I grant of $50,000 in 1994
and a Phase II grant of $200,000 in 1995 for development of diagnostic tests for
the  detection  of grapevine  leafroll  virus.  Agritope has been awarded  grant
support in the past from the Oregon  Strawberry  Commission and Oregon Raspberry
and Blackberry Commission for antifungal biocontrol research.

         The Company also receives funds for research and  development  programs
from its strategic  partners.  The Company intends to continue to participate in
the SBIR programs,  similar grant programs and projects with strategic partners,
as it deems  appropriate.  The  Company  regularly  makes  applications  for new
grants, but there is no assurance that grant support will be continued.

Patents and Proprietary Information

         Epitope Medical  Products has obtained patents in the United States and
certain foreign  countries for the  EpiScreen/OraSure  and OraQuick  devices and
certain related technology.  Epitope Medical Products has applied for additional
patents,  both in the United  States and in certain  foreign  countries,  on the
EpiScreen/OraSure  collection  device  and a number  of other  technologies  and
products.  In 1995,  Agritope  received a U.S.  patent  relating to its ethylene
control gene.  Agritope has also applied for additional  U.S. and foreign patent
protection  for  its  ethylene  control   technology.   Agritope's   ability  to
commercialize products depends in part on the ownership or right to use relevant
enabling  technology as well as the ownership or right to use genes of interest.
The Company  anticipates  filing patent  applications  for  protection on future
products and technology.  United States patents generally have a maximum term of
20 years  from  the date an  application  is  filed or 17 years  from  issuance,
whichever is longer.

         Much  of  the  technology  developed  by  the  Company,  including  its
proprietary  preservative  solution,  is subject to trade secret protection.  To
reduce  the risk of loss of trade  secret  protection  through  disclosure,  the
Company  requires its employees and  consultants  to enter into  confidentiality
agreements. The Company believes

                                     - 19 -

<PAGE>



that patent and trade secret  protection is important to its business.  However,
the issuance of a patent or existence  of trade  secret  protection  does not in
itself ensure the Company's success. Competitors may be able to produce products
competing with a patented  Company product  without  infringing on the Company's
patent  rights.  Issuance of a patent in one country  generally does not prevent
manufacture or sale of the patented product in other countries.  The issuance of
a patent to the Company or to a licensor is not  conclusive as to validity or as
to the  enforceable  scope of the patent.  The validity or  enforceability  of a
patent can be challenged by litigation  after its issuance,  and, if the outcome
of such  litigation  is adverse to the owner of the patent,  the owner's  rights
could be  diminished  or  withdrawn.  Trade secret  protection  does not prevent
independent discovery and exploitation of the secret product or technique.

Personnel

         At  September  30,  1996,  the  Company  and its  subsidiaries  had 113
full-time  employees,  including 66 persons in Epitope Medical  Products,  29 in
Agritope,  and 18 in  corporate  administration  and  support.  Epitope  Medical
Products  employees  included  18 persons in research  and product  development,
eight in administration and marketing,  29 in manufacturing and production,  and
ten in regulatory affairs and quality assurance.  Agritope employees included 19
in  research  and  development  and  ten at the  Vinifera  grape  plant  nursery
operation which also employs seasonal part-time employees as needed. The Company
considers  its  relations  with  its  employees  to be  excellent.  None  of its
employees are represented by labor unions.

         The Company  employs nine persons  holding Ph.D.  or M.D.  degrees with
specialties in the following disciplines: analytical chemistry, bacteriology and
public  health,  biochemistry,  biophysics,  hematology  and internal  medicine,
immunology,  molecular  biology,  organic  chemistry,  plant  biology  and plant
pathology.  From  time to  time,  the  Company  also  engages  the  services  of
scientists as consultants to augment the skills of its scientific staff.

Scientific Advisory Board

         The Company also utilizes the services of a Scientific  Advisory Board.
The  Scientific  Advisory  Board  meets  periodically  to review  the  Company's
research  and  development  efforts  and to apprise  the  Company of  scientific
developments  pertinent to the Company's business. The Scientific Advisory Board
comprises  chair Eugene W. Nester,  Ph.D.,  Professor  and Chair,  Department of
Microbiology,  University of Washington; Roger N. Beachy, Ph.D., Member, Scripps
Family  Chair,  and  Head,  Division  of Plant  Biology,  The  Scripps  Research
Institute, and Co-Director of International Laboratory for Tropical Agricultural
Biotechnology; Peter R. Bristow, Ph.D., Associate Plant Pathologist,  Washington
State University; J. Richard George, Ph.D., Vice President of Scientific Affairs
of Epitope  Medical  Products;  Lesley M.  Hallick,  Ph.D.,  Vice  President for
Academic  Affairs,  Oregon Health Sciences  University;  Daniel Malamud,  Ph.D.,
Professor and Chair,  Department  of  Biochemistry,  University of  Pennsylvania
School  of  Dental  Medicine;   and  James  I.  Mullins,   Ph.D.,  Professor  of
Microbiology and Medicine, University of Washington.


                                     - 20 -

<PAGE>



         ITEM 2. Properties.

         The  Company  leases   approximately  35,600  square  feet  of  office,
manufacturing,  and laboratory space in Beaverton, Oregon, under two leases that
terminate January 31, 2000. Each lease calls for fixed monthly payments over its
term.  The Company  also entered into a five-year  lease,  effective  October 1,
1996,  for 2,265  square feet of  warehouse  space used to store  inventory  and
equipment.

         Agritope  owns a 15-acre  farm which it leases to  Vinifera  for use in
connection with Vinifera's  grapevine  micropropagation  operations.  Greenhouse
capacity at the farm currently  totals 60,000 square feet.  Agritope also uses a
portion of the Company's office space and research and development facilities in
Beaverton, Oregon.

         In addition to leasing Agritope's Oregon farm and greenhouse,  Vinifera
leases 250,000 square feet of greenhouse  space in Petaluma,  California under a
lease that expires  January 31,  2001.  The Vinifera  California  greenhouse  is
currently  in the  final  stages  of being  upgraded  to  provide  the  capacity
necessary to meet anticipated 1997 and 1998 production requirements.

         A&W leases its main  distribution  facility  in San Diego,  California,
from Fred Andrew and Fred L. Williamson, under a lease agreement expiring August
31, 2001,  with an option to extend the lease term for an additional five years.
A&W also leases a 1,000 square foot sales office in Bakersfield,  California, on
a  month-to-month  basis.  A&W  utilizes  10,000  square feet of a cold  storage
facility in San Diego, California, for its frozen strawberry operations. A&W has
the right to use the cold storage space through January 18, 1998.

         The Company  believes that its present  facilities are adequate to meet
current requirements. See Item 1, "Epitope Medical Products--Manufacturing."

         ITEM 3. Legal Proceedings.

         None.

         ITEM 4. Submission of Matters to a Vote of Security Holders.

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of the fiscal year covered by this Report.



                                     - 21 -

<PAGE>



                                     PART II

         ITEM  5.  Market  for  the   Registrant's   Common  Stock  and  Related
Stockholder Matters.

         The Company's Common Stock is traded on the national market tier of The
Nasdaq Stock  Market (the "Nasdaq  National  Market")  under the symbol  "EPTO."
Prior to January 1, 1997,  the  Common  Stock was traded on the  American  Stock
Exchange  ("AMEX").  High and low sales  prices  reported  by AMEX or the Nasdaq
National Market during the periods indicated are shown below.

<TABLE>
<CAPTION>
Year ended September 30                       1997                         1996                           1995
--------------------------------------------------------------------------------------------------------------

Sales price per share                      High          Low         High         Low           High          Low

<S>                                       <C>          <C>          <C>        <C>             <C>          <C>    
First Quarter ......................      $16-3/8      $10-7/8      $18        $  9-1/2        $26          $18-1/2

Second Quarter......................       17-3/8*      10-3/4*      19-1/2      13-7/8         21-7/8       13-5/8

Third Quarter.......................         -            -          22-7/8      15-1/2         18-3/8       13-5/8

Fourth Quarter......................         -            -          16-1/8      11-3/4         18           13-3/4

----------
*  Through February 28, 1997.
</TABLE>

         On February 28, 1997,  there were 1,074 holders of record of the Common
Stock,  and the  closing  price of the Common  Stock as  reported  on the Nasdaq
National Market was $12-7/8. The Company has never paid any cash dividends,  and
the  Board of  Directors  does  not  anticipate  paying  cash  dividends  in the
foreseeable future. The Company intends to retain any future earnings to provide
funds for the operation and expansion of its business.

         ITEM 6. Selected Financial Data.

                      Historical Comparative Financial Data
                      (In thousands, except per share data)

         The following table sets forth selected historical  consolidated income
and  balance  sheet  data  of  Epitope,  Inc.  and  its  subsidiaries;  selected
historical  combined income and balance sheet data of Epitope Medical  Products;
and selected historical combined income and balance sheet data of Agritope.  The
balance sheet data at September 30, 1996 and 1995 and the operating results data
for the years ended  September 30, 1996,  1995,  and 1994 have been derived from
audited  consolidated  financial  statements and notes thereto  included in this
Annual Report on Form 10-K.  The balance sheet data at September 30, 1994,  1993
and 1992 and operating  results data for the years ended  September 30, 1993 and
1992 are unaudited,  but, in the opinion of management,  include all adjustments
necessary for fair presentation. Net income (loss) per share for Epitope Medical
Products  and  Agritope  is  presented  on a proforma  basis  assuming  that the
distribution of Agritope Common Stock and  redesignation  of the Common Stock as
Epitope  Medical  Products  Common  Stock had  occurred on October 1, 1991.  The
following historical financial  information has not been restated to give effect
to the merger with Andrew and Williamson Sales,


                                     - 22 -

<PAGE>



Co. on December  12,  1996.  The merger has been  accounted  for as a pooling of
interests. See "Supplemental Comparative Financial Data" below.

<TABLE>
<CAPTION>
Year ended September 30                       1996             1995            1994           1993            1992
Epitope Medical Products
Combined operating results
<S>                                       <C>              <C>             <C>            <C>             <C>     
Revenues..................................$  5,594         $  2,856        $  2,605       $  2,759        $  2,985
Operating costs and expenses .............  10,881           14,463           8,890          9,376           8,311
Other income (expense), net ..............   6,027              756             236         (1,276)            221
Net profit (loss) ........................     739          (10,851)         (6,048)        (7,893)         (5,106)
Proforma net profit (loss) per share .....     .06             (.91)           (.60)          (.89)           (.59)
Proforma shares used in per share
calculations .............................  13,440           11,886          10,050          8,828           8,628
Combined balance sheet data
Working capital ..........................$ 20,366        $  15,449       $  13,474       $  7,029        $  5,255
Total assets .............................  24,350           21,831          17,183         10,381           7,954
Accumulated deficit ...................... (41,705)         (42,444)        (31,593)       (25,545)        (17,652)
Group equity .............................  22,532           18,035          15,661          9,280           7,178

Agritope
Combined operating results
Revenues .................................$    585         $  2,110         $ 2,213       $    524         $    58
Operating costs and expenses .............   2,821            9,920          11,703          7,331           2,790
Other income (expense), net ..............      97              166             (94)           (29)             72
Net loss .................................  (2,139)          (7,645)         (9,584)        (6,836)         (2,660)
Proforma net loss per share ..............    (.34)           (1.29)          (1.91)         (1.55)           (.62)
Proforma shares used in per share
calculations .............................   6,331            5,943           5,025          4,414           4,314
Combined balance sheet data
Working capital ..........................$  1,264         $  5,082         $ 3,710        $ 1,673         $ 4,368
Total assets .............................  10,097            8,303           7,372          3,764           6,177
Long-term debt ...........................       -               22              38             57               -
Convertible notes, due 1997 ..............   3,620            3,620           4,070          4,630           5,495
Accumulated deficit ...................... (31,280)         (29,141)        (21,497)       (11,912)         (5,076)
Group equity (deficit) ...................   5,435            4,312           2,810         (1,310)            482

Epitope, Inc. and Subsidiaries
Consolidated operating results
Revenues ................................. $ 6,179         $  4,965        $  4,819       $  3,283        $  3,043
Operating costs and expenses .............  13,702           24,383          20,593         16,707          11,102
Other income (expense), net ..............   6,123              922             141         (1,305)            293
Net loss .................................  (1,400)         (18,496)        (15,633)       (14,729)         (7,765)
Net loss per share .......................    (.11)           (1.56)          (1.56)         (1.67)           (.90)
Shares used in per share calculations ....  12,661           11,886          10,050          8,828           8,628
Consolidated balance sheet data
Working capital ..........................$ 21,630         $ 20,532        $ 17,184       $  8,703        $  9,623
Total assets .............................  34,447           30,134          24,555         14,145          14,130
Long-term debt ...........................       -               22              38             57               -
Convertible notes, due 1997 ..............   3,620            3,620           4,070          4,630           5,495
Accumulated deficit ...................... (72,985)         (71,585)        (53,090)       (37,457)        (22,728)
Shareholders' equity .....................  27,967           22,347          18,470          7,970           7,660
</TABLE>

                                     - 23 -

<PAGE>



                     Supplemental Comparative Financial Data
                      (In thousands, except per share data)

         The  following  table sets  forth  selected  supplemental  consolidated
income and balance sheet data of Epitope,  Inc. and its  subsidiaries;  selected
supplemental combined income and balance sheet data of Epitope Medical Products;
and selected  supplemental  combined  income and balance sheet data of Agritope.
The balance sheet data at September 30, 1996 and 1995 and the operating  results
data for the years ended  September 30, 1996,  1995,  and 1994 have been derived
from audited  consolidated  financial  statements and notes thereto  included in
this Annual  Report on Form 10-K.  The balance sheet data at September 30, 1994,
1993 and 1992 and operating  results data for the years ended September 30, 1993
and  1992  are  unaudited,  but,  in the  opinion  of  management,  include  all
adjustments  necessary  for fair  presentation.  Net income (loss) per share for
Epitope Medical  Products and Agritope is presented on a proforma basis assuming
that the  distribution of Agritope Common Stock and  redesignation of the Common
Stock as Epitope Medical  Products Common Stock had occurred on October 1, 1991.
The  following  supplemental  financial  information  has been  restated to give
effect to the merger with Andrew and Williamson Sales, Co. on December 12, 1996.
The merger has been accounted for as a pooling of interests.

<TABLE>
<CAPTION>
Year ended September 30                         1996           1995            1994           1993            1992
Epitope Medical Products
Combined operating results
<S>                                         <C>            <C>             <C>            <C>             <C>     
Revenues .................................  $  5,594       $  2,856        $  2,605       $  2,759        $  2,985
Operating costs and expenses .............    10,881         14,463           8,890          9,376           8,311
Other income (expense), net ..............     6,027            756             236         (1,276)            221
Net profit (loss) ........................       739        (10,851)         (6,048)        (7,893)         (5,106)
Proforma net profit (loss) per share .....       .05           (.87)           (.57)          (.84)           (.56)
Proforma shares used in per share
  calculations ...........................    13,960         12,406          10,570          9,348           9,148
Combined balance sheet data
Working capital ..........................  $ 20,366      $  15,449       $  13,474       $  7,029        $  5,255
Total assets .............................    24,350         21,831          17,183         10,381           7,954
Accumulated deficit ......................   (41,705)       (42,444)        (31,593)       (25,545)        (17,652)
Group equity .............................    22,532         18,035          15,661          9,280           7,178

Agritope
Combined operating results
Revenues .................................  $ 63,057       $ 54,289        $ 62,918       $ 39,796         $30,348
Operating costs and expenses .............    63,390         62,059          71,024         45,503          32,745
Other expense, net .......................      (671)          (252)           (444)          (184)            (76)
Net loss .................................    (1,004)        (8,022)         (8,550)        (5,891)         (2,473)
Proforma net loss per share ..............      (.15)         (1.29)          (1.62)         (1.26)           (.54)
Proforma dividends per share .............       .20            .05             .10            .15             .03
Proforma shares used in per share
  calculations ...........................     6,591          6,203           5,285          4,674           4,574
Combined balance sheet data
Working capital ..........................  $    754       $  5,765         $ 5,185        $ 2,553         $ 4,845
Total assets .............................    20,861         15,597          11,500          9,554          10,103
Long-term debt ...........................       528          1,648           1,714          1,648           1,080
Convertible notes, due 1997 ..............     3,620          3,620           4,070          4,630           5,495
Accumulated deficit ......................   (30,585)       (28,255)        (19,900)       (10,809)         (4,219)
Group equity (deficit) ...................     6,152          5,219           4,429           (186)          1,360

Epitope, Inc. and Subsidiaries
Consolidated operating results
Revenues .................................   $68,650       $ 57,144        $ 65,523       $ 42,554        $ 33,333
Operating costs and expenses .............    74,271         76,522          79,913         54,878          41,057
Other income (expense), net ..............     5,356            504            (208)        (1,460)            145
Net loss .................................      (265)       (18,874)        (14,598)       (13,784)         (7,578)
Net loss per share .......................      (.02)         (1.52)          (1.38)         (1.47)           (.83)
Dividends per share ......................       .10            .03             .05            .07             .02
Shares used in per share calculations ....    13,181         12,406          10,570          9,348           9,148
Consolidated balance sheet data
Working capital ..........................  $ 21,120       $ 21,214        $ 18,659       $  9,583        $ 10,100
Total assets .............................    45,211         37,427          28,682         19,935          18,056
Long-term debt ...........................       528          1,648           1,714          1,648           1,080
Convertible notes, due 1997 ..............     3,620          3,620           4,070          4,630           5,495
Accumulated deficit ......................   (72,290)       (70,700)        (51,492)       (36,354)        (21,871)
Shareholders' equity .....................    28,684         23,254          20,089          9,095           8,539
</TABLE>

                                     - 24 -

<PAGE>



         ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

The following discussion of operations and financial condition should be read in
conjunction with the Financial  Statements and Notes thereto included  elsewhere
in this Annual Report on Form 10-K.  Special Note:  Certain statements set forth
below constitute "forward-looking  statements" within the meaning of the Private
Securities  Litigation  Reform Act of 1995. See "Note Regarding  Forward-Looking
Statements" on page 34 for additional factors relating to such statements.

At the 1997 annual meeting,  shareholders  will vote on a proposal to create two
new  classes  of common  stock,  one that  will  track  the  performance  of the
Company's agricultural operations and one that will track the performance of the
Company's medical products  business.  The accompanying  consolidated  financial
statements  have been  prepared to reflect the  operating  results and financial
condition of the Company and its  subsidiaries.  In addition,  combined proforma
financial  statements  have been  prepared  to  reflect,  on a  separate  basis,
assuming  shareholder  approval  of the  proposal,  the  operating  results  and
financial condition of the two business groups.

Under the proposed  plan, a new class of common  stock  called  Agritope  Common
Stock will be distributed to Epitope shareholders in the ratio of one-half share
of Agritope  stock for each  outstanding  share of  existing  common  stock.  In
addition,  Epitope  shareholders  will retain their existing  common stock which
will  be   redesignated   as  Epitope   Medical   Products  Common  Stock  on  a
share-for-share  basis. The approval of the distribution  will not result in any
transfer  of  assets  or  liabilities  of  the  Company.  The  Company  and  its
subsidiaries  will  continue to hold title to all its assets and be  responsible
for all its  liabilities.  Holders of the Epitope Medical  Products and Agritope
common  stock will have no  specific  claim  against the assets  attributed  for
financial  statement  presentation  purposes to the group whose  performance  is
associated with the class of stock they hold.  Liabilities or  contingencies  of
either group that affect the Company's  resources or financial  condition  could
affect the financial condition or results of operations of both groups.

The combined operating statements include the cost of certain corporate overhead
services  which are  provided  on a  centralized  basis for the  benefit of both
groups (Shared Services).  Such expenses have been allocated to each group using
activity indicators which, in the opinion of management,  represent a reasonable
measure of the  respective  group's  utilization  of or benefit from such Shared
Services.  Interest  earned on  investments  has been allocated to each group in
direct proportion to the allocation of Shared Services. See Note 2 to Historical
Financial Statements.

On December 12, 1996, the Company merged with Andrew and Williamson  Sales,  Co.
(A&W) in a transaction  accounted  for as a pooling of  interests.  Accordingly,
this Annual Report on Form 10-K includes both  historical  financial  statements
and  supplemental  financial  statements  which  are  restated  to  include  the
financial  position  and  results  of  operations  of A&W as if the  merger  had
occurred  on the  first day of the  earliest  period  presented.  See Note 13 to
Supplemental Financial Statements.

The  following  discussion  is a summary  of key  factors  management  considers
necessary  in  reviewing  the  results  of  operations,  liquidity  and  capital
resources of the Company and its Epitope Medical Products and Agritope groups.



                                     - 25 -

<PAGE>



                         Historical Financial Statements

                            Epitope Medical Products

Results of Operations

Revenues.  The table below shows the  percentage  of Epitope  Medical  Products'
total revenue  contributed  by each of its principal  products and by grants and
contracts.

<TABLE>
<CAPTION>

Fiscal Year                                                        1996              1995            1994
Percentage of Revenues from:
<S>                                                                 <C>               <C>             <C>
Oral Specimen Collection Devices. . .                               59%               34%             34%
HIV Confirmatory Tests. . . . . . . . .                             28%               64%             65%
Grants and Contracts. . . . . . . . . . .                           13%                2%              1%
</TABLE>

Epitope  Medical  Products'  product sales increased 73 percent in 1996, to $4.9
million,  and 9 percent in 1995 as a result of expanded sales volume of its lead
product, the EpiScreen/OraSure oral specimen collection device. Approximately 39
percent of 1996 sales were  attributable  to  shipments  in the fourth  quarter.
Grant and  contract  revenues  amounted  to  $729,000  in 1996 due to funding of
research projects by the group's marketing partner, SmithKline Beecham plc (SB).

The oral  specimen  collection  device,  which is sold by the Company  under the
trade name  EpiScreen(TM)  and by SB under the trade name OraSure(R),  accounted
for  revenues of $3.3  million in 1996,  as  compared  to $981,000 in 1995,  and
$833,000 in 1994. The significant increase in 1996 sales resulted from increased
sales volume  following the June FDA  clearance of the OraSure  Western blot HIV
confirmatory   test.  For  the  quarter  ended  December  31,  1996,   sales  of
EpiScreen/OraSure  amounted to $1.9 million,  primarily  due to increased  sales
volumes to the insurance  testing market.  The Company believes that at least 12
U.S. insurance companies currently use EpiScreen for underwriting risk analyses,
including  three firms in the top 20 life  underwriters,  and it  believes  that
additional  companies  plan to commence use of  EpiScreen  in fiscal  1997.  The
Company  believes  that such  adoptions  of  EpiScreen  will result in increased
sales, but it does not know the magnitude of such increases.

Epitope  Medical  Products'  Western blot HIV  confirmatory  test produced sales
revenues of $1.5 million for 1996, 15 percent  below prior year levels.  Reduced
sales to  international  markets  accounted  for the  decline.  In 1995,  on the
strength of increased  market  share in the U.S.,  confirmatory  tests  produced
revenues  of $1.8  million,  representing  a 7 percent  increase  over the prior
fiscal year.

As of September 30, 1996, Epitope Medical Products had firm orders totaling $1.8
million and $450,000, respectively, for delivery within 90 days of oral specimen
collection  devices and HIV  confirmatory  tests,  as  compared to $488,000  and
$329,000,  respectively,  of  firm  orders  for  delivery  within  90 days as of
September 30, 1995.

Gross Margins.  Gross margins on product sales improved to 44.9 percent of sales
in 1996 as a result of  increased  sales  volume of  EpiScreen/Orasure  devices.
Margins on  EpiScreen/OraSure  sales  were  negative  in 1995 and 1994.  For the
fourth quarter of fiscal 1996,  gross margins for product sales were 53 percent.
The Company expects gross margins to increase if EpiScreen/OraSure sales volumes
increase.

Research and Development Expenses. Research and development expenses declined 31
percent to $3.2 million in 1996 as a result of cost  reductions  associated with
the Company's  September 1995  restructuring  program as well as lower levels of
clinical trials activity.  Research and development expenses increased from $3.7
million in 1994 to $4.6 million in 1995.  The increase  resulted  primarily from
increased research projects and clinical trial activities.


                                     - 26 -

<PAGE>



Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  declined 25 percent to $5.0 million in 1996  primarily
due to cost  reductions  implemented  in the  Company's  restructuring  program.
Selling,  general and administrative  expenses increased by $3.6 million to $6.7
million in 1995 as a result of increased sales and marketing expenses associated
with  product   launch   following   the  December  1994  FDA  approval  of  the
EpiScreen/OraSure  device  for  use  in  HIV  screening.  Selling,  general  and
administrative  expenses for 1995 included  approximately $607,000 for severance
payments and other costs associated with implementing the restructuring program.
Selling,  general and administrative  expenses also included $3.0 million,  $3.6
million and $1.9 million for the allocation of Shared Services in 1996, 1995 and
1994, respectively.

Other  Income  (Expense),  Net.  Other  income for 1996  included a $5.0 million
license  fee and  $200,000  interest  income  earned  from SB as a result of FDA
approval of an extension of dating for the  EpiScreen/OraSure  device.  Interest
income increased from $236,000 in 1994 to $756,000 in 1995 due to an increase in
funds available for investment.

Liquidity and Capital Resources

Cash, cash  equivalents and marketable  securities  allocated to Epitope Medical
Products as of year-end totaled $19.6 million in 1996 and $17.1 million in 1995.
At September 30, 1996,  Epitope  Medical  Products had working  capital of $20.4
million, as compared to $15.4 million at September 30, 1995.

Cash flows from operating activities increased  significantly in 1996 due to the
receipt of a non-recurring $5 million licensing fee from SB, as well as improved
operating  results from product sales and research  contracts.  Fluctuations  in
working capital components were primarily the result of timing differences.  The
Company invests its excess cash in marketable  securities,  and liquidates these
securities as cash is needed. 1995 additions to property and equipment reflected
investments to expand manufacturing and administrative facilities.

Proceeds  from the issuance of equity  securities  of the Company,  augmented by
funding from strategic partners and other research grants,  have represented the
primary sources of funds for meeting Epitope Medical Products'  requirements for
operations, working capital and business expansion.

Epitope  Medical  Products  anticipates  that it will  continue to need funds to
support its operations and ongoing research and development  projects as well as
to provide  additional  manufacturing  capacity and related increases in working
capital.  Epitope  Medical  Products  intends to  utilize  cash  reserves,  cash
generated  from  sales  of  products  and  research  funding  from SB and  other
strategic  partners to provide the  necessary  funds.  Epitope may also  receive
additional  funds from the sale of equity  securities  or from the  exercise  of
outstanding stock options and warrants.

Epitope  Medical  Products  may also  receive  funds from or  transfer  funds to
Agritope.  Such  transfers  will be either  considered  as  borrowings  or as an
increase or decrease in an  Inter-Group  Interest as  determined by the Board of
Directors,  who will also determine the amount of compensatory  charges for such
transfers, if any.



                                     - 27 -

<PAGE>



                         Historical Financial Statements

                                    Agritope

Results of Operations

Revenues.  The table below shows the  percentage  of  Agritope's  total  revenue
contributed by each of its principal products and by grants and contracts:
<TABLE>
<CAPTION>

Fiscal Year                                                      1996                   1995              1994
Percentage of Revenues from:
<S>                                                                <C>                    <C>                 <C>
Grape Plants.........................................               --%                    4%                  1%
Packaged Fresh Flowers...............................               --%                   91%                 97%
Grants and Contracts.................................              100%                    5%                  2%

Revenues  declined  from $2.1 million in 1995 to $585,000 in 1996.  Revenues for
1994 were $2.2 million. Revenues in 1995 and 1994 included product sales of $2.0
and $2.2 million,  respectively,  from Agritope's  unprofitable  wholesale fresh
flower  packaging and distribution  operations  (Agrimax) which were divested in
the  third  quarter  of  fiscal  1995.  A grant  from  the  U.S.  Department  of
Agriculture  and grants from  strategic  partners  accounted for the increase of
grant and contract revenues from $94,000 in 1995 to $585,000 in 1996.

Research and Development  Expenses.  Research and development  expenses in 1996,
1995 and 1994 totaled $1.3 million, $2.2 million and $2.4 million, respectively.
The decrease  from 1995 to 1996 resulted  from the  divestiture  of two Agritope
business units. See Note 3 to Historical Financial Statements.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses in 1996, 1995, and 1994 were $1.5 million, $4.5 million
and $4.8 million, respectively. Costs in 1995 and 1994 included $2.8 million and
$4.1 million, respectively, of costs incurred in Agritope's Agrimax and Vinifera
business units, which were divested in 1995. Selling, general and administrative
expenses include $1.1 million,  $1.9 million and $1.7 million for the allocation
of Shared Services in 1996, 1995 and 1994, respectively. The amount of allocated
Shared Services  decreased in 1996 as a result of the disposition of Agrimax and
Vinifera.  With the  reacquisition  of  Vinifera in August  1996,  the amount of
allocated  Shared  Services  is  expected  to  increase  slightly  in  1997  and
subsequent years.

Other Income (Expense),  Net. Interest income increased from $217,000 in 1994 to
$408,000 in 1995 due to an increase in funds available for investment.

Liquidity and Capital Resources

Cash  allocated to Agritope  totaled $4.9 million at September 30, 1996 and $4.2
million at September  30,  1995.  At  September  30, 1996,  Agritope had working
capital of $1.3 million,  as compared to $5.1 million at September 30, 1995. The
decrease in working capital was principally attributable to the reclassification
to current  liabilities of $3.6 million of convertible  notes which are due June
30, 1997. In November 1996, the Company  accepted an offer from a representative
of the holders of $3.4  million  principal  amount of such notes to convert them
into 250,367 shares of common stock of the Company at a reduced conversion price
of $13.50  per  share.  Accordingly,  the  Company  will  recognize  a charge of
approximately  $1.2 million  representing  the  conversion  expense in the first
quarter of fiscal year 1997. See Note 13 to Historical Financial Statements.

Cash flows from operating activities improved  significantly in 1996 largely due
to the  divestiture  of Agrimax and Vinifera.  Fluctuations  in working  capital
components  were  primarily  the  result of  timing  differences.  Additions  to
property and equipment  decreased in 1995  primarily due to the  divestiture  of
Agrimax  and  Vinifera  and  increased  in  1996 as a  result  of  expansion  of
greenhouse   capacity  at  Vinifera,   which  was  reacquired  in  August  1996.
Expenditures for patents and proprietary  technology increased in 1996 primarily
related to the Company's ethylene control technology.


                                     - 28 -

<PAGE>



Proceeds  from the issuance of equity  securities  of the Company,  augmented by
funding from strategic partners and other research grants,  have represented the
primary  sources of funds for meeting  Agritope's  requirements  for operations,
working capital and business expansion.

Agritope  expects to continue to require  funds to support  its  operations  and
research activities.  Agritope intends to utilize cash reserves,  cash generated
from sales of products and research  funding from  strategic  partners and other
research  grants to provide  the  necessary  funds.  Agritope  may also  receive
additional  funds  from  the  sale  of  equity  securities  or the  exercise  of
outstanding stock options and warrants.

Agritope  may also  receive  funds from or  transfer  funds to  Epitope  Medical
Products.  Such  transfers  will be either  considered  as  borrowings  or as an
increase or decrease in an  Inter-Group  Interest as  determined by the Board of
Directors,  who will also determine the amount of compensatory  charges for such
transfers, if any.

Agritope's  investments  include  the  book  value  of  the  investment  in  two
affiliates. Agritope holds an equity interest of approximately 9 percent in UAF,
Limited  Partnership,  a fresh flower  distributor in Tampa,  Florida and a 19.5
percent  interest in Petals USA, Inc.,  which operates a similar business in St.
Paul,  Minnesota.  These equity  interests were obtained in connection  with the
divestiture of Agrimax.  Recent events have caused the Company to determine that
the value of such investments has been permanently  impaired.  Accordingly,  the
Company  anticipates a non-cash charge to results of operations of approximately
$1.9  million  in the  first  quarter  of  fiscal  1997.  See  Notes 3 and 13 to
Historical Financial Statements.

                         Historical Financial Statements

                         Epitope, Inc. and Subsidiaries

Results of Operations

The Company  reported  revenues of $6.2 million,  $5.0 million and $4.8 million,
respectively,  for the years ended  September 30, 1996,  1995 and 1994.  Product
sales in 1996 increased due to higher sales volume for Epitope Medical Products,
which more than offset a $2.0 million  reduction in product  sales for Agritope.
Grant and contract revenues  increased $681,000 for Epitope Medical Products due
to  research  funding  received  from SB and  $491,000  for  Agritope  which was
attributable primarily to a Phase II SBIR grant.

Net losses for 1996,  1995 and 1994 amounted to $1.4 million,  $18.5 million and
$15.6 million, respectively. The significant improvement in operating results in
1996 was due to (1)  increased  sales  volumes and  improved  gross  margins for
Epitope Medical Products' EpiScreen/OraSure oral specimen collection device, (2)
a $5.2 million fee and accrued interest from SB to Epitope Medical Products, (3)
cost reductions realized as a result of a September 1995 restructuring  program,
and (4)  reduced  operating  losses as a result of  divestiture  of Agrimax  and
Vinifera.

The Company incurred expenses of $4.1 million,  $5.5 million and $3.6 million in
1996, 1995 and 1994, respectively, to provide Shared Services to Epitope Medical
Products  and  Agritope.  The  decrease in such costs in 1996  represented  cost
savings realized from the restructuring  program  implemented in September 1995.
Such costs  increased  in 1995 over 1994  levels as the  Company  increased  its
infrastructure  to respond to current growth and anticipated  levels of activity
for both groups. See Note 2 to Historical Financial Statements.

Liquidity and Capital Resources

Cash,  cash  equivalents  and marketable  securities on hand as of September 30,
1996 and 1995 totaled  $24.5 million and $21.3  million.  At September 30, 1996,
the Company had working  capital of $21.6 million,  as compared to $20.5 million
at September 30, 1995.

In the financial  statements,  cash equal to 20 percent of the  Company's  cash,
cash  equivalents  and  marketable  securities  has been  allocated to Agritope.
Historically,  cash was  transferred  to the Agritope  operations in the form of
intercompany  loans.  For the purpose of preparing  the separate  statements  of
Epitope Medical Products and

                                     - 29 -

<PAGE>



Agritope, such transfers and intercompany balances have been reflected as equity
investments  in  Agritope.  If the creation of a second class of common stock is
approved,  the Company will  allocate  $7.0 million of total cash to Agritope as
contributed capital.

Cash flows from operating  activities improved  significantly in 1996 due to the
receipt of a non-recurring $5 million licensing fee from SB, as well as improved
operating  results from product sales and research  contracts.  Fluctuations  in
working capital components were primarily the result of timing differences.  The
Company invests its excess cash in marketable  securities,  and liquidates these
securities as cash is needed.  Additions to property and equipment  decreased in
1995  primarily  due  to  the  divestiture  of  two  Agritope   business  units.
Expenditures for patents and proprietary  technology increased in 1996 primarily
related to the Company's ethylene control technology.

Proceeds  from the issuance of equity  securities  of the Company,  augmented by
funding from strategic partners and other research grants,  have represented the
primary sources of funds for meeting the Company's  requirements for operations,
working  capital and  business  expansion.  During  1996,  the Company  received
proceeds of $5.9  million  from the exercise of warrants and options to purchase
common stock, as compared to $21.1 million in 1995.

The Company  anticipates  that it will continue to need funds to support ongoing
research and development projects as well as to provide additional manufacturing
capacity  and related  increases  in working  capital.  The  Company  intends to
utilize  cash  reserves,  cash  generated  from sales of products  and  research
funding from SB and other strategic partners to provide the necessary funds. The
Company may also receive  additional funds from the sale of equity securities or
the exercise of  outstanding  stock options and warrants.  The Company  believes
that  it has  sufficient  capital  resources  to  fund  operations  and  capital
expenditures for at least the next two years based on currently  expected future
cash requirements, although no assurance to that effect can be given.




                                     - 30 -

<PAGE>



                        Supplemental Financial Statements

                            Epitope Medical Products

The only modification to the Historical  Financial Statements of Epitope Medical
Products appearing in the Supplemental  Financial  Statements are those required
to reflect  the  issuance  of 520,000  shares of common  stock of the Company in
connection with the merger with A&W. The Supplemental  Financial  Statements are
presented  as if the shares were  outstanding  on the first day of the  earliest
period  presented.   See  "Historical  Financial   Statements--Epitope   Medical
Products."

                        Supplemental Financial Statements

                                    Agritope
    (merged with Andrew and Williamson Sales, Co. in a pooling of interests)

Results of Operations

Revenues.  The table below shows the  percentage  of  Agritope's  total  revenue
contributed by each of its principal products and by grants and contracts:

</TABLE>
<TABLE>
<CAPTION>

Fiscal Year                                                    1996                 1995                1994
Percentage of Revenues from:
<S>                                                                 <C>                 <C>                 <C>
Fresh or Frozen Produce..............................               99%                 96%                 97%
Packaged Fresh Flowers...............................               --%                  4%                  3%
Grants and Contracts.................................                1%                 --%                 --%
</TABLE>

Revenues increased to $63.1 million in 1996 as compared to $54.3 million in 1995
and $62.9 in 1994, primarily attributable to produce sales of A&W. Produce sales
increased  20  percent  in 1996  due to  increased  sales  volume  of vine  ripe
tomatoes, peppers and strawberries. For 1995, produce sales declined as compared
to 1994 as a result of scaling back volume of vine ripe  tomatoes,  coupled with
the  loss of one  contract  grower.  Revenues  in 1995 and  1994  also  included
packaged  fresh  flower  sales  of $2.0  and $2.2  million,  respectively,  from
Agritope's  unprofitable  wholesale  fresh  flower  packaging  and  distribution
operations  (Agrimax) which were divested in the third quarter of fiscal 1995. A
grant from the U.S. Department of Agriculture and grants from strategic partners
accounted  for the increase of grant and contract  revenues from $94,000 in 1995
to $585,000 in 1996.

Gross  Profits.  Gross  profits  in 1995 and 1994  were  adversely  affected  by
negative margins of $1.2 million and $2.4 million, respectively,  experienced by
Agritope's former fresh flower packaging  operations.  A&W realized gross profit
margins  of 8  percent,  6  percent,  and 8  percent  in 1996,  1995,  and 1994,
respectively.  Gross profits for A&W in 1995 declined by $1.8 million, primarily
due to reduced sales volume as well as a tomato crop failure  experienced by one
of A&W's contract growers.  A&W gross profits were adversely affected by charges
for costs in excess  of the  estimated  market  value of  growing  crops of $1.8
million,  $2.5 million and $2.1 million for 1996,  1995 and 1994,  respectively,
representing  3 percent,  5 percent,  and 3 percent of A&W sales,  respectively.
Such  losses  arose  primarily  from crop  failures  due to  disease  or weather
conditions.  A&W  attempts  to  mitigate  the risk of such  losses  by (1) using
contract  growers who assume the primary  risk of loss,  (2) closely  monitoring
crops in the field, (3) providing technical assistance to growers, (4) spreading
its risk over a variety of crops grown at various times throughout the year, (5)
establishing  limitations on advances for growing crops to a given grower, based
on past performance and current  financial  condition,  and (6) diversifying its
risk by using a number of different  growers  located in different  geographical
locations.  However,  it is difficult to completely  mitigate such risks and the
Company expects to incur such losses in the future.

Research and Development  Expenses.  Research and development  expenses in 1996,
1995 and 1994 totaled $1.3 million, $2.2 million and $2.4 million, respectively.
The decrease from 1995 to 1996 resulted from the  divestiture of the Agrimax and
Vinifera business units. See Note 3 to Supplemental Financial Statements.


                                     - 31 -

<PAGE>



Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses in 1996, 1995 and 1994 were $4.8 million,  $7.5 million
and $8.3 million, respectively. Costs in 1995 and 1994 included $2.8 million and
$4.1 million, respectively, of costs incurred at Agritope's Agrimax and Vinifera
business units, which were divested in 1995. Selling, general and administrative
expenses include $1.1 million,  $1.9 million and $1.7 million for the allocation
of Shared Services in 1996, 1995 and 1994, respectively. The amount of allocated
Shared Services  decreased in 1996 as a result of the disposition of Agrimax and
Vinifera.  With the  reacquisition  of  Vinifera in August  1996,  the amount of
allocated  Shared  Services  is  expected  to  increase  slightly  in  1997  and
subsequent  years.  The Company does not expect to allocate  significant  Shared
Services  costs  to A&W in 1997  since  A&W  currently  performs  many of  these
services on a stand alone basis.

Other Income (Expense),  Net. Interest income increased from $217,000 in 1994 to
$408,000 in 1995 due to an increase in funds available for investment.  Interest
expense in 1996 increased  primarily due to an increase in borrowings  under the
A&W bank credit line.

Liquidity and Capital Resources

Cash  allocated to Agritope  totaled $4.9 million at September 30, 1996 and $4.2
million at September  30,  1995.  At  September  30, 1996,  Agritope had working
capital of $0.8 million,  as compared to $5.8 million at September 30, 1995. The
decrease   in   working   capital   was   principally    attributable   to   the
reclassifications  to current  liabilities of $3.6 million of convertible  notes
which are due June 30, 1997,  and $2.2 million of  subordinated  notes which A&W
repaid in fiscal 1997. In November 1996,  the Company  entered into an agreement
with holders of $3.4 million of  convertible  notes to convert them into 250,367
shares of common  stock of the Company at a reduced  conversion  price of $13.50
per share.  Accordingly,  the Company will  recognize a charge of  approximately
$1.2 million  representing the conversion expense in the first quarter of fiscal
1997. See Note 13 to Supplemental Financial Statements.

Cash flows from operating activities improved  significantly in 1996 largely due
to the  divestiture  of Agrimax and Vinifera.  Fluctuations  in working  capital
components were primarily the result of timing  differences  and, in 1995, lower
sales  volume at A&W.  Additions  to property  and  equipment  decreased in 1995
primarily due to the  divestiture  of Agrimax and Vinifera and increased in 1996
as a  result  of  expansion  of  greenhouse  capacity  at  Vinifera,  which  was
reacquired in August 1996.  Expenditures for patents and proprietary  technology
increased  in  1996  primarily   related  to  the  Company's   ethylene  control
technology.

Proceeds  from the  issuance  of equity  securities  of the Company and A&W bank
borrowings,  augmented by funding  from  strategic  partners and other  research
grants,  have  represented the primary  sources of funds for meeting  Agritope's
requirements for operations, working capital and business expansion.

Agritope  expects to continue to require  funds to support  its  operations  and
research activities. Agritope intends to utilize bank borrowings, cash reserves,
cash  generated  from sales of products  and  research  funding  from  strategic
partners and other research grants to provide the necessary funds.  Agritope may
also receive additional funds from the sale of equity securities or the exercise
of outstanding stock options and warrants.

Agritope  may also  receive  funds from or  transfer  funds to  Epitope  Medical
Products.  Such  transfers  will be either  considered  as  borrowings  or as an
increase or  decrease in  Inter-Group  Interest  as  determined  by the Board of
Directors who will also  determine the amount of  compensatory  charges for such
transfers, if any.

Agritope's  investments  include  the  book  value  of  the  investment  in  two
affiliates. Agritope holds an equity interest of approximately 9 percent in UAF,
Limited  Partnership,  a fresh flower  distributor in Tampa,  Florida and a 19.5
percent  interest in Petals USA, Inc.,  which operates a similar business in St.
Paul,  Minnesota.  These  equity  interests  were  obtained in  connection  with
divestiture of Agrimax's fresh flower distribution business.  Recent events have
caused the  Company to  determine  that the value of such  investments  has been
permanently impaired.  Accordingly, the Company anticipates a non-cash charge to
results of  operations  of  approximately  $1.9 million in the first  quarter of
fiscal 1997. See Notes 3 and 13 to Supplemental Financial Statements.

                                     - 32 -

<PAGE>



                        Supplemental Financial Statements

                         Epitope, Inc. and Subsidiaries
    (merged with Andrew and Williamson Sales, Co. in a pooling of interests)

Results of Operations

The Company reported revenues of $68.7 million, $57.1 million and $65.5 million,
respectively,  for the years  ended  September  30,  1996,  1995 and  1994.  A&W
recorded sales of $62.5 million,  $52.2 million and $60.7 million,  respectively
for such periods.  Grant and contract  revenues  increased  $681,000 for Epitope
Medical  Products  due to research  funding  received  from SB and  $491,000 for
Agritope which was attributable primarily to a Phase II SBIR grant.

Net losses for 1996,  1995 and 1994 amounted to $0.3 million,  $18.9 million and
$14.6 million, respectively. The significant improvement in operating results in
1996 was due to (1)  increased  sales  volumes and  improved  gross  margins for
Epitope Medical Products' EpiScreen/OraSure oral specimen collection device, (2)
a $5.2 million fee and accrued interest from SB to Epitope Medical Products, (3)
cost reductions realized as a result of a September 1995 restructuring  program,
(4) reduced  operating losses as a result of divestiture of Agrimax and Vinifera
and (5)  operating  profits  from A&W.  The  Company  incurred  expenses of $4.1
million, $5.5 million and $3.6 million in 1996, 1995 and 1994, respectively,  to
provide Shared Services to Epitope Medical  Products and Agritope.  The decrease
in such costs in 1996 represented  costs savings realized from the restructuring
program  implemented in September  1995.  Such costs increased in 1995 over 1994
levels as the Company increased its  infrastructure to respond to current growth
and anticipated  levels of activity for both groups.  See Note 2 to Supplemental
Financial Statements.

Liquidity and Capital Resources

Cash,  cash  equivalents  and marketable  securities on hand as of September 30,
1996 and 1995 totaled  $24.5 million and $21.3  million.  At September 30, 1996,
the Company had working  capital of $21.1 million,  as compared to $21.2 million
at September 30, 1995.

In the financial  statements,  cash equal to 20 percent of the  Company's  cash,
cash  equivalents  and  marketable  securities  has been  allocated to Agritope.
Historically,  cash was  transferred  to the Agritope  operations in the form of
intercompany  loans.  For the purpose of preparing  the separate  statements  of
Epitope Medical Products and Agritope,  such transfers and intercompany balances
have been  reflected as equity  investments  in  Agritope.  If the creation of a
second class of common stock is approved, the Company will allocate $7.0 million
of total cash to Agritope as contributed capital.

Cash flows from operating  activities improved  significantly in 1996 due to the
receipt of a non-recurring $5 million licensing fee from SB, as well as improved
operating  results from product sales and research  contracts.  Fluctuations  in
working capital  components were primarily the result of timing differences and,
in 1995,  lower  sales  volume at A&W.  The  company  invests its excess cash in
marketable  securities,  and  liquidates  these  securities  as cash is  needed.
Additions  to property and  equipment  decreased  in 1995  primarily  due to the
divestiture of Agrimax and Vinifera.  Expenditures  for patents and  proprietary
technology increased in 1996 primarily related to the Company's ethylene control
technology.

Proceeds  from the  issuance  of equity  securities  of the Company and A&W bank
borrowings,  augmented by funding  from  strategic  partners and other  research
grants,  have represented the primary sources of funds for meeting the Company's
requirements  for  operations,  working capital and business  expansion.  During
1996,  the  Company  received  proceeds  of $5.9  million  from the  exercise of
warrants and options to purchase  common stock,  as compared to $21.1 million in
1995.

The Company  anticipates  that it will continue to need funds to support ongoing
research and development projects as well as to provide additional manufacturing
capacity  and related  increases  in working  capital.  The  Company  intends to
utilize  cash  reserves,  cash  generated  from sales of products  and  research
funding from SB and other strategic partners to provide the necessary funds. The
Company may also receive additional funds from the sale

                                     - 33 -

<PAGE>



of equity  securities or the exercise of outstanding stock options and warrants.
The Company believes that it has sufficient capital resources to fund operations
and  capital  expenditures  for at least the next two years  based on  currently
expected future cash  requirements,  although no assurance to that effect can be
given.


                    NOTE REGARDING FORWARD-LOOKING STATEMENTS

      Certain statements contained in this Annual Report on Form 10-K, including
without limitation  statements  containing the words "believes,"  "anticipates,"
"intends,"  "expects" and words of similar import,  constitute  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995.  The  forward-looking  statements  involve  known  and  unknown  risks,
uncertainties  and other factors that may cause the actual results,  performance
or  achievements of the Company or industry  results to be materially  different
from any future results, performance or achievements expressed or implied by the
forward-looking  statements.  These factors with respect to the Company  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 or  changes in the  Company's  business
strategy,  adverse  growing  conditions  affecting  crops,  and other  risks and
uncertainties  described  in this Annual  Report on Form 10-K.  Certain of these
factors are discussed in more detail in the Company's  Registration Statement on
Form S-4 (File No.  333-15705),  under the caption "Risk Factors" and elsewhere.
Given  these  uncertainties,  shareholders  are  cautioned  not to  place  undue
reliance on the forward-looking statements.


                                     - 34 -

<PAGE>



        ITEM 8.   Financial Statements and Supplementary Data.

               Information  with respect to this Item is (i) set forth below and
(ii) contained in the Company's  Consolidated  Financial  Statements included in
Item 14 of this Annual Report on Form 10-K.


                                     - 35 -

<PAGE>



                   HISTORICAL QUARTERLY RESULTS OF OPERATIONS
                  (UNAUDITED) (In thousands, except net income
                                (loss) per share)

The  following  table  presents  summarized   historical  quarterly  results  of
operations for each of the fiscal  quarters in the Company's  fiscal years ended
September 30, 1996 and 1995. These quarterly results are unaudited,  but, in the
opinion of  management,  have been  prepared on the same basis as the  Company's
audited  financial  information and include all adjustments  (consisting only of
normal  recurring   adjustments)  necessary  for  a  fair  presentation  of  the
information set forth therein.  The summarized  historical  quarterly results of
operations  have not been  restated  to give  effect to the merger with Andrew &
Williamson Sales, Co. on December 12, 1996. The merger has been accounted for as
a pooling of interests.  See Supplemental Quarterly Results of Operations below.
The data should be read in conjunction with the Financial Statements and related
notes included in Item 14 of this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                       First          Second            Third           Fourth
Epitope Medical Products             Quarter         Quarter          Quarter          Quarter             Total
Year ended September 30, 1996
<S>                                   <C>             <C>              <C>              <C>              <C>    
Revenues...........................   $1,225          $1,207           $1,107           $2,055           $ 5,594
Operating costs and expenses.......    2,510           2,819            2,507            3,045            10,881
Other income, net..................      224             218            5,345              240             6,027
Net income (loss)..................   (1,061)         (1,394)           3,945             (751)              739
Proforma net income (loss) per share.   (.08)           (.11)             .29             (.06)              .06

Year ended September 30, 1995
Revenues...........................   $  715          $  722           $  873           $  546           $ 2,856
Operating costs and expenses.......    2,679           3,288            3,823            4,673            14,463
Other income, net..................      101             149              277              229               756
Net loss...........................   (1,863)         (2,417)          (2,673)          (3,898)          (10,851)
Proforma net loss per share........     (.17)           (.21)            (.22)            (.31)             (.91)

                                       First          Second            Third           Fourth
Agritope                             Quarter         Quarter          Quarter          Quarter             Total
Year ended September 30, 1996
Revenues............................    $ 87            $263             $165             $ 70            $  585
Operating costs and expenses........     675             690              690              766             2,821
Other income (expense), net.........      (3)              5               79               16                97
Net loss............................    (591)           (423)            (446)            (679)           (2,139)
Proforma net loss per share.........    (.09)           (.07)            (.06)            (.11)             (.34)

Year ended September 30, 1995
Revenues............................  $  419          $  953           $  695          $    43            $2,110
Operating costs and expenses........   2,891           3,433            2,201            1,395             9,920
Other income, net...................      33              65               31               37               166
Net loss............................  (2,439)         (2,415)          (1,475)          (1,316)           (7,645)
Proforma net loss per share.........    (.44)           (.41)            (.24)            (.21)            (1.29)

                                       First          Second            Third           Fourth
Epitope, Inc. and Subsidiaries       Quarter         Quarter          Quarter          Quarter             Total
Year ended September 30, 1996
Revenues............................  $1,311          $1,470           $1,272           $2,126            $6,179
Operating costs and expenses........   3,185           3,510            3,197            3,810            13,702
Other income, net...................     222             223            5,425              253             6,123
Net income (loss)...................  (1,652)         (1,817)           3,500           (1,431)           (1,400)
Net income (loss) per share.........    (.13)           (.14)             .25             (.11)             (.11)

Year ended September 30, 1995
Revenues............................  $1,135          $1,675           $1,569           $  586            $4,965
Operating costs and expenses........   5,571           6,721            6,025            6,066            24,383
Other income, net...................     134             214              308              266               922
Net loss............................  (4,302)         (4,832)          (4,148)          (5,214)          (18,496)
Net loss per share..................    (.39)           (.41)            (.34)            (.42)            (1.56)
</TABLE>



                                     - 36 -

<PAGE>



                  SUPPLEMENTAL QUARTERLY RESULTS OF OPERATIONS
                  (UNAUDITED) (In thousands, except net income
                                (loss) per share)

The  following  table  presents  summarized  supplemental  quarterly  results of
operations for each of the fiscal  quarters in the Company's  fiscal years ended
September 30, 1996 and 1995. These quarterly results are unaudited,  but, in the
opinion of  management,  have been  prepared on the same basis as the  Company's
audited  financial  information and include all adjustments  (consisting only of
normal  recurring   adjustments)  necessary  for  a  fair  presentation  of  the
information set forth therein. The summarized  supplemental quarterly results of
operations  have been  restated  to give  effect to the merger  with  Andrew and
Williamson Sales, Co. on December 12, 1996. The merger has been accounted for as
a  pooling  of  interests.  The  data  should  be read in  conjunction  with the
Financial Statements and related notes included in Item 14 of this Annual Report
on Form 10-K.
<TABLE>
<CAPTION>

                                       First          Second            Third           Fourth
Epitope Medical Products             Quarter         Quarter          Quarter          Quarter             Total
Year ended September 30, 1996
<S>                                   <C>             <C>              <C>              <C>               <C>   
Revenues............................  $1,225          $1,207           $1,107           $2,055            $5,594
Operating costs and expenses........   2,510           2,819            2,507            3,045            10,881
Other income, net...................     224             218            5,345              240             6,027
Net income (loss)...................  (1,061)         (1,394)           3,945             (751)              739
Proforma net income (loss) per share.   (.08)           (.11)             .27             (.06)              .05

Year ended September 30, 1995
Revenues............................  $  715          $  722           $  873           $  546           $ 2,856
Operating costs and expenses........   2,679           3,288            3,823            4,673            14,463
Other income net....................     101             149              277              229               756
Net loss............................  (1,863)         (2,417)          (2,673)          (3,898)          (10,851)
Proforma net loss per share.........    (.16)           (.20)            (.21)            (.30)             (.87)

                                       First          Second            Third           Fourth
Agritope                             Quarter         Quarter          Quarter          Quarter             Total
Year ended September 30, 1996
Revenues............................ $12,978         $10,291          $26,658          $13,130           $63,057
Operating costs and expenses........  13,671           9,917           26,323           13,479            63,390
Other expense, net..................    (132)           (189)            (181)            (169)             (671)
Net income (loss)...................    (825)            184              154             (517)           (1,004)
Proforma net income (loss) per share.   (.13)            .03              .02             (.08)             (.15)

Year ended September 30, 1995
Revenues............................ $15,120         $ 9,682          $17,080          $12,407           $54,289
Operating costs and expenses........  18,217          11,499           18,912           13,431            62,059
Other expense, net..................     (78)            (19)             (77)             (78)             (252)
Net loss............................  (3,175)         (1,836)          (1,909)          (1,102)           (8,022)
Proforma net loss per share.........    (.55)           (.30)            (.30)            (.17)            (1.29)

                                       First          Second            Third           Fourth
Epitope, Inc. and Subsidiaries       Quarter         Quarter          Quarter          Quarter             Total
Year ended September 30, 1996
Revenues............................ $14,202         $11,498          $27,765          $15,185           $68,650
Operating costs and expenses........  16,181          12,737           28,830           16,523            74,271
Other income, net...................      93              29            5,165               69             5,356
Net income (loss)...................  (1,886)         (1,210)           4,100           (1,269)             (265)
Net income (loss) per share.........    (.14)           (.09)             .29             (.09)             (.02)

Year ended September 30, 1995
Revenues............................ $15,836         $10,404          $17,954          $12,950           $57,144
Operating costs and expenses........  20,896          14,788           22,736           18,102            76,522
Other income, net...................      22             130              200              152               504
Net loss............................  (5,038)         (4,253)          (4,582)          (5,001)          (18,874)
Net loss per share..................    (.44)           (.35)            (.36)            (.39)            (1.52)
</TABLE>

                                     - 37 -

<PAGE>



     ITEM 9.       Changes  in  and   Disagreements   with   Accountants  on
                   Accounting and Financial Disclosure.

     None.

                                                     PART III

     ITEM 10.      Directors and Executive Officers of the Registrant.

Directors

     The  following  table  presents  the name,  age as of  February  28,  1997,
principal occupation,  period of service, and term of office of each director of
the Company.
<TABLE>
<CAPTION>

                                                                                                        DIRECTOR
NAME                                      PRINCIPAL OCCUPATION                     AGE                   SINCE
----                                      --------------------                     ---                   -----

Class I (Directors Whose Terms of Office Expire in 1997):

<S>                                       <C>                                      <C>                   <C> 
W. Charles Armstrong                      Private Investor                         52                    1989

Adolph J. Ferro, Ph.D.                    President and Chief Executive            54                    1990
                                          Officer of the Company

Roger L. Pringle                          President of The Pringle Company,        56                    1989
                                          a management consulting firm,
                                          Portland, Oregon

Class II (Directors Whose Terms of Office Expire in 1999):

Andrew S. Goldstein                       Senior Vice President of Advanced        48                    1981
                                          Technology Development -
                                          Epitope Medical Products

R. Douglas Norby                          Executive Vice President and Chief       61                    1989
                                          Financial Officer of LSI
                                          Logic Corporation, a designer and
                                          producer of advanced custom
                                          semiconductors,
                                          Milpitas, California

G. Patrick Sheaffer                       Chairman, President and Chief            57                    1983
                                          Executive Officer of Riverview
                                          Savings Bank, Camas, Washington

Class III (Directors Whose Terms of Office Expire in 1998):

Richard K. Donahue                        Vice Chairman of NIKE, Inc., a           69                    1991
                                          sporting goods manufacturer,
                                          Beaverton, Oregon

Margaret H. Jordan                        President and Chief Executive            54                    1995
                                          Officer of Dallas Medical
                                          Resource, a not-for-profit
                                          medical referral firm,
                                          Dallas, Texas

                                     - 38 -

<PAGE>




Michael J. Paxton                         Chairman, President and Chief            50                    1995
                                          Executive Officer of
                                          O'Cedar Holdings, Inc., a
                                          manufacturer of household
                                          cleaning products,
                                          Springfield, Ohio
</TABLE>


         W. Charles  Armstrong is a director of Pacificorp.  He was Chairman and
Chief  Executive  Officer of Bank of America  Oregon from  September  1992 until
September  1996.  From  April to  September  1992,  he was  Chairman  and  Chief
Executive  Officer of Bank of America Idaho.  Mr.  Armstrong served as President
and Chief Operating  Officer of Honolulu Federal Savings Bank from February 1989
to April 1992.  Prior to February  1989, he was  President  and Chief  Executive
Officer of West One Bank, Oregon.

         Richard K.  Donahue  has been Vice  Chairman of NIKE,  Inc.  since June
1994. Mr. Donahue served as President and Chief Operating  Officer of NIKE, Inc.
from 1990 to June 1994 and has served as a director of that company  since 1977.
Mr.  Donahue is also a partner  in the law firm of  Donahue &  Donahue,  Lowell,
Massachusetts, and a director of Courier Corp.

         Adolph J. Ferro,  Ph.D., has been President and Chief Executive Officer
of the Company  since  April 1990.  Dr.  Ferro was Senior  Vice  President  from
November 1988 until April 1990.  From July 1987 until November 1988, he was Vice
President  of  Research  and  Development.  He was a cofounder  of  Agricultural
Genetic Systems,  Inc., which the Company acquired in 1987. Prior to joining the
Company,  he was a Professor in the Department of  Microbiology  at Oregon State
University ("OSU"). From 1981 to 1986, he was an Associate Professor at OSU, and
from 1978 to 1981,  he was an Assistant  Professor at OSU. From 1975 to 1978, he
was  Assistant  Professor  at the  University  of  Illinois  at  Chicago  in the
Department of Biological  Sciences.  Dr. Ferro  received a B.A.  degree from the
University  of  Washington  in 1965,  an M.S.  degree in  biology  from  Western
Washington  University in 1970,  and a Ph.D. in  bacteriology  and public health
from Washington State University in 1973.

         Andrew S. Goldstein is a Senior Vice President of the Company's Epitope
Medical  Products  group, a position he has held since June 1990.  Prior to that
time, he had been Vice President of Product Development from December 1988, Vice
President  of  Scientific  Affairs  from July 1987 to  December  1988,  and Vice
President of Research  and  Development  from 1981 until July 1987.  He also has
served as Secretary  from  December 1988 to February 1993 and from November 1995
to the present and served as  Treasurer  until March  1991.  Mr.  Goldstein  was
Research  Associate and supervisor of the  Histocompatibility  Laboratory at the
Oregon Health Sciences  University  ("OHSU"),  where he was engaged in paternity
testing  and  transplantation  immunology,  from  1974 to  1981.  Mr.  Goldstein
received a B.S.  degree in microbiology  from Cornell  University in 1969 and an
M.S. degree in cytology from Fordham University in 1973.

         Margaret H. Jordan joined Dallas Medical  Resource ("DMR") as President
and Chief Executive  Officer in February 1996. DMR is a not-for-profit  alliance
of major  medical  organizations  of Dallas,  Texas,  created  to make  Dallas a
regional,  national and international  center for medical referrals.  Ms. Jordan
had  been  Vice  President  of  Health  Care &  Employee  Services  at  Southern
California  Edison Co. since  December  1992.  She had been a Vice President and
Regional Manager with the Kaiser Foundation Health Plan of Texas, Inc. beginning
in 1986, and was an Associate  Regional Manager of Kaiser Foundation Health Plan
of Georgia, Inc. from 1984 to 1986. Ms. Jordan received a B.S. degree in Nursing
from Georgetown  University in 1964 and an M.S. degree in Public Health from the
University of  California,  Berkeley,  in 1972.  She also serves on the board of
directors of Eckerd Corporation.

         R. Douglas Norby became  Executive Vice  President and Chief  Financial
Officer of LSI Logic  Corporation in October 1996. From July 1993 until assuming
his present  position,  he was Senior Vice President and Chief Financial Officer
of Mentor Graphics Corporation. Prior to joining Mentor Graphics Corporation, he
had been  President and Chief  Executive  Officer of Pharmetrix  Corporation,  a
biopharmaceutical  company in Menlo Park, California,  since July 1992. Prior to
that time, he had been  President of Lucasfilm,  Ltd.,  since 1985 and President
and Chief Executive Officer of LucasArts Entertainment Company since 1990.

                                     - 39 -

<PAGE>



Prior to joining Lucasfilm,  Ltd., Mr. Norby was Senior Vice President and Chief
Financial Officer of Syntex Corporation from 1979 to 1985. Mr. Norby also serves
on the board of directors of LSI Logic Corporation.

         Michael  J.  Paxton  became  Chairman,  President  and Chief  Executive
Officer of O'Cedar Holdings, Inc. in January 1996. From March 1992 until joining
O'Cedar  Holdings,  Inc., he was President  and Chief  Executive  Officer of The
Haagen-Dazs  Company,  Inc.  Prior to that he was  President  of the Baked Goods
Division of The Pillsbury  Company.  Both  companies are  subsidiaries  of Grand
Metropolitan PLC. He has been a director of Agritope,  Inc. since September 1992
and is also a director of Transport Corporation of America, Inc.

         Roger L.  Pringle has been  Chairman of the Board of the Company  since
April 1990,  and is also a director of  Agritope,  Inc. He is  President  of The
Pringle  Company,  a management  consulting firm in Portland,  Oregon,  which he
founded in 1975.

         G.  Patrick  Sheaffer has been  President of Riverview  Savings Bank in
Camas,  Washington,  since 1979,  and has served as a director of the bank since
1983. In 1993, Mr. Sheaffer also became Chairman and Chief Executive  Officer of
Riverview  Savings Bank and Riverview  Mutual  Holding  Company,  a bank holding
company. He has been a director of the Washington Savings League since 1980.



                                     - 40 -

<PAGE>



Executive Officers

         The  following  table  presents  the names,  ages and  positions of the
Company's executive officers at February 28, 1997:

<TABLE>
<CAPTION>
NAME OF
EXECUTIVE OFFICER                                    AGE               POSITION

<S>                                                  <C>               <C>                                   
Adolph J. Ferro, Ph.D.                               54                President, Chief Executive Officer and
                                                                       Director(1)

Gilbert N. Miller                                    55                Executive Vice President, Chief Financial
                                                                       Officer and Treasurer(1)

John H. Fitchen, M.D.                                51                Senior Vice President and Chief Operating
                                                                       Officer--Epitope Medical Products(1)

Andrew S. Goldstein                                  48                Senior Vice President of Advanced
                                                                       Technology Development--Epitope
                                                                       Medical                   Products, Secretary and
                                                                       Director

Richard K. Bestwick, Ph.D.                           43                Senior Vice President and Chief Operating
                                                                       Officer--Agritope(1)

Joseph A. Bouckaert                                  56                President and Chief Executive Officer--
                                                                       Vinifera, Inc.(1)

Byron A. Allen, Jr.                                  65                Vice President of Corporate
                                                                       Communications(1)

Fred L. Williamson                                   60                President and Chief Executive Officer--
                                                                       Andrew and Williamson Sales, Co.(1)
---------------
(1)  Member of the Company's Business Policy Committee.
</TABLE>

         Officers of the Company hold office at the discretion of the Board.

         For  biographical  summaries  of  Dr.  Ferro  and  Mr.  Goldstein,  see
"Directors" above.

         Gilbert N.  Miller  joined the Company in June 1989 as  Executive  Vice
President and Chief Financial Officer and has served as the Company's  Treasurer
since March 1991.  He has also been a Senior Vice  President of  Agritope,  Inc.
since September 1992 and its Chief  Financial  Officer since December 1991. From
1987 to 1989, he was Executive Vice President,  Finance and  Administration,  of
Northwest Marine Iron Works, a privately held ship repair contractor  located in
Portland,  Oregon.  From 1986 to 1987, he was Vice  President/Controller  of the
Manufacturing Group of Morgan Products,  Ltd., a manufacturer and distributor of
specialty  building  products  based in  Oshkosh,  Wisconsin.  He also  held the
position of Senior Vice  President/Finance  of Nicolai Company,  a Portland wood
door  manufacturing  concern  which became a wholly owned  subsidiary  of Morgan
Products,  Ltd., in 1986.  Mr. Miller  received a B.S.  degree from Oregon State
University  and a Master of Business  Administration  degree from  University of
Oregon. He is a certified public accountant.

         John  H.  Fitchen,  M.D.,  joined  the  Company  in  July  1990 as Vice
President  of  Research  and  Clinical  Activities,  was  appointed  Senior Vice
President  in  September  1993,  and  assumed the  additional  position of Chief
Operating  Officer-Epitope  Medical  Products in November 1994. Prior to joining
the  Company,  Dr.  Fitchen  was  Associate  Chief of Staff for  Research at the
Portland Veterans Administration Medical Center in Portland,

                                     - 41 -

<PAGE>



Oregon,  and Professor of Medicine at OHSU. Dr. Fitchen received his M.D. degree
from the  University  of  Rochester  School of Medicine  and a B.A.  degree from
Amherst College. He completed his clinical training in Internal Medicine at OHSU
in 1976 and in Hematology/Oncology at the University of California, Los Angeles,
in 1978.

         Richard K.  Bestwick,  Ph.D.,  joined  Epitope  in August  1987 and was
appointed  Senior Vice  President of Agritope,  Inc. in September  1992.  He was
appointed to the  additional  position of Chief  Operating  Officer of Agritope,
Inc. in October  1996.  Prior to joining  Epitope,  he was a Research  Assistant
Professor  in the  Department  of  Biochemistry  at the Oregon  Health  Sciences
University,  where he also completed his  postdoctoral  training.  Dr.  Bestwick
received a Ph.D. in Biochemistry and Biophysics from Oregon State University and
a B.S. degree from Evergreen State College.

         Joseph A. Bouckaert  joined  Vinifera,  Inc. as its President and Chief
Executive  Officer at the  inception of the Company in March 1993.  From 1988 to
1991 he was Vice Chairman of DNA Plant Technology  Corporation,  a publicly held
agricultural biotechnology company with offices in Cinnaminson,  New Jersey, and
Oakland,  California.  He also  was a  co-founder  and  member  of the  board of
directors of Florigene,  B.V., an agricultural  biotechnology company focused on
the flower business and located in the Netherlands. From 1985 to 1988, he served
as President and Chief  Executive  Officer of Advanced  Genetic  Sciences Inc. a
publicly held biotechnology company located in Oakland, California. In 1982, Mr.
Bouckaert co-founded Plant Genetic Systems,  N.V., a privately held agricultural
biotechnology  company  located in  Brussels,  Belgium,  and served as its first
Managing Director from 1982 through 1986. Mr. Bouckaert  received a Juris Doctor
degree  from the  University  of Leuven in Belgium and  postgraduate  degrees in
Business  Administration  from  the  University  of Ghent  in  Belgium,  and the
University of Kentucky in Lexington, Kentucky.

         Byron A. Allen,  Jr., joined the Company in July 1995. Prior to joining
the  Company,  from 1993 to 1995,  Mr. Allen was Senior Vice  President,  Equity
Portfolio Manager, for C.J.  Lawrence/Deutsche Bank Securities Corporation,  New
York.  From 1978 to 1993,  he was  Director of Retail  Brokerage  Service,  C.J.
Lawrence,  Incorporated.  Mr. Allen holds an A.B. degree from Dartmouth  College
and a Master of  Business  Administration  degree  from the Amos Tuck  School of
Business Administration.

         Fred L.  Williamson has been President of Andrew and Williamson  Sales,
Co.,  which  produces,  markets,  distributes  and sells a wide variety of fresh
fruits and vegetables throughout North America,  since 1987. A&W was acquired by
the Company in December 1996.  Mr.  Williamson has been involved in the business
of marketing and shipping fresh produce since 1962.

         There  are  no  family  relationships  between  any  of  the  Company's
directors or executive officers.

Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the Exchange Act requires the  Company's  officers and
directors  and persons who own more than 10 percent of the Epitope  Common Stock
(collectively,  "Reporting Persons") to file reports of ownership and changes in
ownership  with the  Securities  and  Exchange  Commission  (the  "Commission").
Reporting  persons are required by the  Commission's  regulations to furnish the
Company with copies of all Section 16(a) forms they file.

         Based  solely on its  review of the  copies of such  forms and  written
representations  regarding  the absence of a filing  requirement  received  from
Reporting  Persons,  the Company  believes  that with respect to the 1996 fiscal
year, all Reporting  Persons complied with all applicable  filing  requirements,
except that T. J. Paulsen,  the  Company's  principal  accounting  officer until
November 11, 1996, filed one report relating to one transaction after the filing
deadline;  Richard K. Bestwick, Ph.D., Senior Vice President and Chief Operating
Officer--Agritope,  and  Joseph A.  Bouckaert,  President  and  Chief  Executive
Officer--Vinifera, Inc., each filed his initial report of his stockholdings upon
becoming an executive officer of Epitope after the filing deadline; and Byron A.
Allen,  Jr.,  Vice  President of Corporate  Communications  of the Company,  and
Richard K.  Donahue,  a  director  of the  Company,  each filed one report of an
option grant after the filing deadline.



                                     - 42 -

<PAGE>



         ITEM 11.          Executive Compensation.

                           SUMMARY COMPENSATION TABLE

         The following  table  summarizes  the  compensation  for the last three
fiscal  years of the Chief  Executive  Officer  and the four other  most  highly
compensated  executive officers of the Company  (together,  the "Named Executive
Officers") during the 1996 fiscal year.
<TABLE>
<CAPTION>

                                                                                        Long-Term
                                                                                        Compensation
                                                                                        Awards

                                                       Annual Compensation              Securities          All Other
                                                                                        Underlying        Compen-
Name and Principal Position          Year            Salary              Bonus          Options (#)(1)    sation(2)

<S>                                 <C>                <C>              <C>                <C>             <C>  
Adolph J. Ferro, Ph.D.              1996              $214,183         $ 50,000                 -          $ 4,237
President and Chief Executive       1995               200,769          113,245            74,000            5,390
Officer                             1994               135,000                -                 -            3,375

Gilbert N. Miller                   1996               128,510           33,075                 -            3,206
Executive Vice President,           1995               130,962                -            34,000            5,021
Chief Financial Officer,            1994               120,000                -                 -            3,000
and Treasurer

John H. Fitchen, M.D.               1996               147,548           37,200                 -            3,540
Senior Vice President and           1995               148,606                -            43,000            3,578
Chief Operating Officer--           1994               131,250                -                 -            3,057
Epitope Medical Products

Andrew S. Goldstein                 1996               128,510           30,000                 -            3,206
Senior Vice President of            1995               126,923                -            34,000            3,182
Advanced Technology                 1994               105,000                -                 -            2,625
Development--Epitope Medical
Products

Richard K. Bestwick, Ph.D.(3)       1996                91,385           20,160                 -            2,280
Senior Vice President and
Chief Operating Officer--
Agritope

(1)      Represents the number of shares for which options were awarded. No SARs
         have been  granted  to any Named  Executive  Officer  during  the years
         indicated.

(2)      Represents  amounts  contributed to the Company's 401(k) Profit Sharing
         Plan as employer  matching  contributions in the form of Epitope Common
         Stock.

(3)      Dr. Bestwick was not an executive officer of Epitope during fiscal 1995
         or 1994.
</TABLE>


                                     - 43 -

<PAGE>


<TABLE>
<CAPTION>

AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES(1)

                              Number of Securities
                                                     Underlying Unexercised          Value of Unexercised In-the-Money
                       Shares                        Options at Fiscal Year-End      Options at Fiscal Year-End(2)
                       Acquired On      Value
Name                   Exercise         Realized   Exercisable  Unexercisable             Exercisable Unexercisable

<S>                       <C>         <C>            <C>             <C>                <C>                <C>    
Adolph J. Ferro, Ph.D.    20,000      $173,722       496,061         60,143             $2,800,693         $69,583
Gilbert N. Miller         16,000       141,440       181,299         27,805              1,024,121             642
John H. Fitchen, M.D.          -             -       160,133         28,667              1,001,375               -
Andrew S. Goldstein       25,000       188,034       165,444         28,556              1,092,090          37,910
Richard K. Bestwick, Ph.D. 2,750        32,313        57,632         18,472                 31,058             642

</TABLE>
--------------------

(1)      The Named  Executive  Officers did not hold any SARs at  September  30,
         1996.

(2)      In-the-money  stock options are options for which the exercise price is
         less than the  market  value of the  underlying  stock on a  particular
         date. The values shown in the table are based on the difference between
         $15.0625, which was the average of the high and low sales prices of the
         Epitope  Common  Stock  on the  AMEX on  September  30,  1996,  and the
         applicable exercise price.

Compensation of Directors

         Under the terms of the Epitope,  Inc. 1991 Stock Award Plan (the "Award
Plan") in effect  during the 1996  fiscal  year,  nonemployee  directors  of the
Company  were  eligible  to  receive  nonqualified  stock  options  granted on a
nondiscretionary basis, as described below.

         Initial  Options.  Upon  becoming  a  nonemployee  director,  each such
director has been granted a stock  option to purchase  50,000  shares of Epitope
Common Stock (an "Initial  Option").  A newly-elected  Chairman of the Board has
been  entitled to receive an Initial  Option to purchase  an  additional  25,000
shares (75,000 shares if not previously a nonemployee director).  Until December
1994,  Initial  Options were granted at an exercise price equal to 75 percent of
the fair market  value of a share of Epitope  Common Stock on the date of grant;
beginning  in December  1994,  Initial  Options have been granted at an exercise
price equal to the fair  market  value of a share on the date of grant minus the
lesser of (a) $2.00 or (b) 25 percent of the fair  market  value.  Each  Initial
Option becomes  exercisable in annual installments based on continued service as
a  director  and  expires  at the end of five  years  following  the  director's
retirement or one year following the director's  death,  disability or cessation
of service as a director for any other reason.  An Initial Option will generally
become  fully   exercisable  by  the  date  of  the  fourth  annual  meeting  of
shareholders through which the director has served on the Board. Initial Options
become exercisable in full immediately upon the happening of a change in control
of the Company.  A change in control of the Company would occur on the happening
of such events as the beneficial ownership by a person or group of 30 percent or
more of the  outstanding  common  stock,  certain  changes  in Board  membership
affecting a majority of positions, certain mergers or consolidations,  a sale or
other transfer of all or substantially  all the Company's assets, or approval by
the shareholders of a plan of liquidation or dissolution of the Company, as well
as any change in control  required to be reported by the proxy  disclosure rules
of the Commission.

         Payment of the  exercise  price may be made in cash or by  delivery  of
previously  acquired  shares of common stock having a fair market value equal to
the aggregate  exercise  price. To the extent that payment is made in previously
acquired shares, the director is automatically granted a replacement  ("reload")
option for a number of shares equal to the number  delivered  upon exercise with
an exercise  price equal to the fair market  value of a share of common stock on
the date of exercise. Reload options become exercisable in full six months after
the grant date.

         Renewal Options. Additional nonqualified stock options are also granted
to each  nonemployee  director to purchase 15,000 shares of Epitope Common Stock
("Renewal Options") as of the December 15 prior to the

                                     - 44 -

<PAGE>



annual meeting of shareholders at which the options most recently granted to the
nonemployee  director  fully vest.  Renewal  Options  vest in three equal annual
installments  beginning with the second annual meeting of shareholders following
the date of grant,  subject to  acceleration of vesting upon the occurrence of a
change in  control  of the  Company.  The other  terms of  Renewal  Options  are
comparable  to those of Initial  Options,  except  that  Renewal  Options do not
provide for reload options.

         Agritope Options. Mr. Paxton and Mr. Pringle, as nonemployee  directors
of  Agritope,  were each  awarded  nonqualified  options  for  50,000  shares of
Agritope  common  stock under the  Agritope,  Inc.  1992 Stock  Award Plan.  The
options  have an  exercise  price of  $5.625  per  share,  which was equal to 75
percent of the fair market value of Agritope,  Inc.  common stock on the date of
grant,  September 14, 1992,  based on a good faith  determination of fair market
value by the Agritope,  Inc.  board of directors.  The options are fully vested.
Until  Agritope,  Inc.  ceases to be a wholly owned  subsidiary  of the Company,
shares of Agritope,  Inc.  common stock  received upon exercise of the foregoing
options must be exchanged for shares of Epitope Common Stock based on a ratio of
2.433 shares of  Agritope,  Inc.  common stock for each share of Epitope  Common
Stock.  Accordingly,  upon  exercise of the foregoing  options in full,  Messrs.
Paxton and Pringle would each receive a total of 20,552 shares of Epitope Common
Stock,  or a  corresponding  number  of  shares of  Medical  Products  Stock and
Agritope Stock if the Agritope Stock Proposal is approved.

Employment Agreements

         Pursuant to written employment  agreements with the Company,  the Named
Executive  Officers each are entitled to receive one year of salary in the event
of  termination  without cause (two years in the case of Dr. Ferro) or two years
of salary if  terminated  without  cause within 12 months  following a change in
control  (within the meaning of the Exchange Act) or sale of  substantially  all
the assets of the Company (three years in the case of Dr. Ferro). The agreements
in each case prohibit the officer from  competing  with the Company for one year
unless the officer elects to waive the right to amounts otherwise  payable.  The
agreements do not expire by their terms and are  terminable by the Company on 90
days' notice with cause or, subject to payment of the salary  amounts  described
above, without cause.

         ITEM  12.  Security   Ownership  of  Certain   Beneficial   Owners  and
                    Management.

         The following  table sets forth  information  as of September 30, 1996,
regarding the  beneficial  ownership of Epitope  Common Stock by (a) each person
who is known to the Company to be the beneficial owner of more than 5 percent of
Epitope Common Stock outstanding,  (b) each director and nominee for election as
director,  (c) each of the Named Executive  Officers,  and (d) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>

                                                              Amount and Nature                Percent
5% Shareholders, Directors and                                    of Beneficial                     of
Officers                                                        Ownership(1)(2)                  Class

<S>                                                        <C>                                   <C> 
Groupe des Assurances Nationales                              1,242,108(3)                        9.1%
61 Rue Monceau
Paris 75008 France

W. Charles Armstrong                                             59,540(4)                           *

Richard K. Bestwick, Ph.D.                                         67,382                            *

Richard K. Donahue                                               57,000(4)                           *

Adolph J. Ferro, Ph.D.                                          496,901(5)                         3.7

John H. Fitchen, M.D.                                           164,461(4)                         1.3

Andrew S. Goldstein                                             427,921(5)                         3.3

                                     - 45 -

<PAGE>




Margaret H. Jordan                                                 10,000                            *

Gilbert N. Miller                                               182,961(5)                         1.4

R. Douglas Norby                                                   58,750                            *

Michael J. Paxton                                                  30,552                            *

Roger L. Pringle                                                  114,677                            *

G. Patrick Sheaffer                                                80,000                            *

All directors and executive
  officers as a group
  (15 persons)                                             1,794,545(4)(5)                        12.5
</TABLE>


*Less than 1%

(1)      Subject  to  community  property  laws  where  applicable,   beneficial
         ownership  consists  of sole  voting  and  investment  power  except as
         otherwise indicated.

(2)      Includes shares subject to options and warrants  exercisable  within 60
         days of September  30, 1996,  by directors  and  executive  officers as
         follows:  Mr.  Armstrong,  55,000 shares;  Dr. Bestwick,  67,382 shares
         (including  options for 9,750  shares held by his wife);  Mr.  Donahue,
         50,000 shares; Dr. Ferro, 496,061 shares; Dr. Fitchen,  160,133 shares;
         Dr. Goldstein,  165,444 shares; Ms. Jordan,  10,000 shares; Mr. Miller,
         181,299 shares; Mr. Norby,  55,000 shares;  Mr. Paxton,  30,552 shares;
         Mr.  Pringle,  100,552 shares;  Mr.  Sheaffer,  67,500 shares;  and all
         directors and executive officers as a group, 1,454,173 shares.

(3)      Includes 595,000 shares subject to warrants  exercisable within 60 days
         of September 30, 1996 and 128,008  shares  issuable upon  conversion of
         convertible notes.

(4)      Includes  shares as to which  the  individual  has  shared  voting  and
         dispositive power as follows:  Mr. Armstrong,  165 shares; Mr. Donahue,
         1,000 shares; Dr. Fitchen,  100 shares; and all directors and executive
         officers as a group, 2,265 shares.

(5)      Does not  include  17,035  shares of Epitope  Common  Stock held in the
         401(k) Plan,  as to which  Messrs.  Ferro,  Goldstein  and Miller share
         voting power as trustees of the 401(k) Plan. Messrs.  Ferro,  Goldstein
         and Miller  disclaim  any economic  beneficial  interest in such shares
         other than the 798,  636,  and 711 shares,  respectively,  allocated to
         their individual accounts under the 401(k) Plan.

         ITEM 13.          Certain Relationships and Related Transactions.

         In  connection  with the December 1987 merger of  Agricultural  Genetic
Systems, Inc. ("AGS"),  with and into Agritope,  Inc. Dr. Ferro, as an executive
officer and  principal  shareholder  of AGS,  was  granted a royalty  equal to 4
percent of net sales of products  resulting from the  technology  transferred to
Agritope pursuant to the merger;  royalties with respect to a particular product
were to be paid for a period  equal to the life of the patent on the  product or
an equivalent  period if a patent is not issued. On November 11, 1996, Dr. Ferro
agreed to accept a one-time  payment of $590,000 in lieu of the  royalties  that
would otherwise be due him.

         In September 1996, the Company  extended the expiration date of certain
warrants issued in private  placement  transactions in September 1991,  December
1992,  and July and August 1993, to purchase  Epitope  Common Stock at prices of
$16.00,  $16.00, $20.00 and $18.50 per share,  respectively.  The warrants would
have otherwise  expired in September 1996 and March 1997, if not exercised.  The
Company extended the

                                     - 46 -

<PAGE>



expiration  date of the  warrants to  September  30,  1997.  The  warrants  were
extended  because they  represent a significant  potential  source of additional
capital.

         Holders  of the  warrants  included  Groupe des  Assurances  Nationales
("GAN"), which beneficially owns more than 5 percent of the Epitope Common Stock
outstanding.  As of September  30, 1996,  GAN held  September  1991  warrants to
purchase  80,000  shares of Epitope  Common  Stock,  December  1992  warrants to
purchase 270,000 shares of Epitope Common Stock,  July 1993 warrants to purchase
195,000  shares of Epitope  Common  Stock,  and August 1993 warrants to purchase
50,000 shares of Epitope Common Stock.

         On  November  14,  1996,  the  Company  agreed to  exchange  $3,380,000
principal amount of Agritope 4% Convertible Notes Due 1997 for 250,367 shares of
Epitope  Common  Stock at a reduced  exchange  price of $13.50  per  share.  The
original  terms of the notes  permitted the holders to exchange them for Epitope
Common Stock at an exchange price of $19.53 per share.  Holders exchanging their
notes at the reduced  exchange price included GAN,  which  exchanged  $2,500,000
principal amount of notes for 185,185 shares of Epitope Common Stock.

         In connection  with the  acquisition  of A&W on December 12, 1996,  the
Company  renegotiated the terms of a $6.5 million line of credit extended to A&W
by Wells Fargo Bank,  National  Association.  The line of credit had  previously
been  guaranteed  by the four  former  shareholders  of A&W,  including  Fred L.
Williamson,  now an  executive  officer of the Company.  Under the  renegotiated
terms of the line of credit,  Epitope,  Inc. will  guarantee  A&W's  obligations
under the line of credit and the guarantees of the former  shareholders  will be
released. See Note 13 to Historical Financial Statements included in Annex III.

         A&W leases its main  distribution  facility  in San Diego,  California,
from Fred Andrew and Fred L. Williamson, under a lease agreement expiring August
31, 2001,  with an option to extend the lease term for an additional five years.
The lease calls for rent  payments of $11,000 per month during the initial term.
See Item 2, Properties.

                                                      PART IV

         ITEM 14.        Exhibits, Financial Statement Schedules, and Reports on
                         Form 8-K.

         (a)(1) and (a)(2)  Consolidated Financial Statements and Schedules.



                                     - 47 -

<PAGE>



<TABLE>
<CAPTION>
Index to Financial Statements
                                                                                                                     Page
                                                                                                                     ----
Historical Financial Statements

<S>                                                                                                                   <C>
Report of Independent Accountants......................................................................................49

Epitope Medical Products
Combined Balance Sheets at September 30, 1996 and 1995.................................................................50
Combined Statements of Operations for years ended September 30, 1996, 1995, and 1994...................................51
Combined Statements of Changes in Group Equity for years ended September 30, 1996, 1995, and 1994......................52
Combined Statements of Cash Flows for years ended September 30, 1996, 1995, and 1994...................................53

Agritope
Combined Balance Sheets at September 30, 1996 and 1995.................................................................54
Combined Statements of Operations for years ended September 30, 1996, 1995, and 1994...................................55
Combined Statements of Changes in Group Equity for years ended September 30, 1996, 1995, and 1994......................56
Combined Statements of Cash Flows for years ended September 30, 1996, 1995, and 1994...................................57

Epitope, Inc. and Subsidiaries
Consolidated Balance Sheets at September 30, 1996 and 1995.............................................................58
Consolidated Statements of Operations for years ended September 30, 1996, 1995, and 1994...............................59
Consolidated Statements of Changes in Shareholders' Equity for years ended September 30, 1996, 1995,
  and 1994.............................................................................................................60
Consolidated Statements of Cash Flows for years ended September 30, 1996, 1995, and 1994...............................61

Notes to Historical Financial Statements...............................................................................62


Supplemental Financial Statements

Report of Independent Accountants......................................................................................77

Report of Independent Auditors.........................................................................................78

Epitope Medical Products
Combined Balance Sheets at September 30, 1996 and 1995.................................................................79
Combined Statements of Operations for years ended September 30, 1996, 1995, and 1994 ..................................80
Combined Statements of Changes in Group Equity for years ended September 30, 1996, 1995, and 1994......................81
Combined Statements of Cash Flows for years ended September 30, 1996, 1995, and 1994...................................82

Agritope (merged with Andrew and Williamson Sales, Co. in a pooling of interests)
Combined Balance Sheets at September 30, 1996 and 1995.................................................................83
Combined Statements of Operations for years ended September 30, 1996, 1995, and 1994 ..................................84
Combined Statements of Changes in Group Equity for years ended September 30, 1996, 1995, and 1994......................85
Combined Statements of Cash Flows for years ended September 30, 1996, 1995, and 1994...................................86

Epitope, Inc. and Subsidiaries (merged with Andrew and Williamson Sales, Co. in a pooling of interests)
Consolidated Balance Sheets at September 30, 1996 and 1995.............................................................87
Consolidated Statements of Operations for years ended September 30, 1996, 1995, and 1994 ..............................88
Consolidated Statements of Changes in Shareholders' Equity for years ended September 30, 1996, 1995,
  and 1994.............................................................................................................89
Consolidated Statements of Cash Flows for years ended September 30, 1996, 1995, and 1994...............................90

Notes to Supplemental Financial Statements.............................................................................91
</TABLE>

                                     - 48 -

<PAGE>



                         Historical Financial Statements

Report of Independent Accountants

To the Board of Directors and Shareholders of Epitope, Inc.

In our opinion,  the accompanying  balance sheets and the related  statements of
operations, of changes in shareholders'/group  equity, and of cash flows present
fairly,  in all material  respects,  the financial  position of Epitope  Medical
Products  group and Agritope  group (as  described in Note 1 to these  financial
statements)  and Epitope,  Inc. and its  subsidiaries  at September 30, 1996 and
1995,  and the results of their  operations and their cash flows for each of the
three years in the period ended September 30, 1996, in conformity with generally
accepted   accounting   principles.   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 of these  statements  in  accordance  with  generally  accepted  auditing
standards which require that we plan and perform the audit 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,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Portland, Oregon
October 28, 1996,  except for Note 13 as to which the date is November 14, 1996,
November 25, 1996, December 12, 1996, and December 26, 1996.


                                     - 49 -

<PAGE>



<TABLE>
<CAPTION>
Historical Financial Statements
Epitope Medical Products
Combined Balance Sheets
September 30                                                                            1996                      1995

Assets
Current assets
<S>                                                                               <C>                       <C>         
Cash and cash equivalents (Note 2)....................................            $    795,787              $     13,210
Marketable securities (Note 2)........................................              18,818,120                17,080,246
Trade accounts receivable, net (Note 2)...............................               1,147,599                   231,621
Other accounts receivable.............................................                 174,083                   382,753
Inventories (Note 2)..................................................               1,157,930                 1,433,746
Prepaid expenses......................................................                  89,518                   103,399
                                                                                  ------------             -------------
Total current assets..................................................              22,183,037                19,244,975

Property and equipment, net (Notes 2 and 4)...........................               1,542,757                 1,989,769
Patents and proprietary technology, net (Note 2)......................                 601,234                   415,010
Investments in affiliated companies...................................                       -                   142,510
Other assets and deposits (Note 5)....................................                  22,758                    38,328
                                                                                 -------------             -------------
                                                                                   $24,349,786               $21,830,592

Liabilities and Group Equity
Current liabilities
Accounts payable......................................................            $    449,170              $    819,424
Salaries, benefits and other accrued liabilities
  (Notes 2 and 9).....................................................               1,368,166                 2,976,167
                                                                                   -----------               -----------
Total current liabilities.............................................               1,817,336                 3,795,591

Commitments and Contingencies (Notes 6,8,9,10 and 11).................                       -                         -

Group equity (Note 6)
Contributed capital...................................................              64,237,350                60,479,315
Accumulated deficit...................................................             (41,704,900)              (42,444,314)
                                                                                  -------------             -------------
                                                                                    22,532,450                18,035,001

                                                                                   $24,349,786               $21,830,592
</TABLE>

The accompanying notes are an integral part of these statements.


                                     - 50 -

<PAGE>



<TABLE>
<CAPTION>
Historical Financial Statements
Epitope Medical Products
Combined Statements of Operations
For the Year Ended September 30                                    1996                     1995                   1994

Revenues
<S>                                                         <C>                      <C>                    <C>        
Product sales........................................       $ 4,864,378              $ 2,806,850            $ 2,580,798
Grants and contracts ................................           729,271                   48,672                 24,560
                                                           ------------             ------------            -----------
                                                              5,593,649                2,855,522              2,605,358

Costs and expenses
Product costs........................................         2,681,429                3,163,012              2,141,319
Research and development costs.......................         3,165,838                4,617,246              3,681,326
Selling, general and administrative expenses.........         5,033,491                6,682,860              3,066,896
                                                           ------------            -------------          -------------
                                                             10,880,758               14,463,118              8,889,541

Loss from operations.................................        (5,287,109)             (11,607,596)            (6,284,183)

Other income (expense), net
Interest income......................................         1,025,030                  756,743                237,467
License fee..........................................         5,000,000                        -                      -
Other, net ..........................................             1,493                     (319)                (1,541)
                                                           ------------            --------------         --------------
                                                              6,026,523                  756,424                235,926

Net income (loss)....................................       $   739,414             $(10,851,172)           $(6,048,257)

Proforma net income (loss) per share.................     $         .06          $          (.91)         $        (.60)

Proforma weighted average number of shares
 outstanding.........................................        13,440,396               11,886,234             10,050,129

The accompanying notes are an integral part of these statements.
</TABLE>



                                     - 51 -

<PAGE>



<TABLE>
<CAPTION>
Historical Financial Statements
Epitope Medical Products
Combined Statements of Changes in Group Equity
                                                            Contributed              Accumulated
                                                                capital                  deficit                  Total

<S>                                                         <C>                     <C>                    <C>         
Balances at September 30, 1993.....................         $34,167,582             $(25,544,885)          $  8,622,697
Common stock issued upon
  exercise of options..............................             636,293                        -                636,293
Common stock issued as
  compensation.....................................             318,386                        -                318,386
Compensation expense for
  stock option grants..............................             823,350                        -                823,350
Common stock issued upon
  exercise of warrants.............................           9,718,259                        -              9,718,259
Common stock issued in
  private placement................................          17,057,563                        -             17,057,563
Equity issuance costs..............................          (3,335,261)                       -             (3,335,261)
Net cash to Agritope...............................         (12,132,173)                       -            (12,132,173)
Net loss for the year..............................                   -               (6,048,257)            (6,048,257)
                                                        ---------------            --------------         --------------
Balances at September 30, 1994.....................          47,253,999              (31,593,142)            15,660,857

Common stock issued upon
  exercise of options..............................           2,145,673                        -              2,145,673
Common stock issued as
  compensation.....................................             196,802                        -                196,802
Compensation expense for
  stock option grants..............................           1,056,335                        -              1,056,335
Common stock issued upon
  exercise of warrants.............................          18,892,750                        -             18,892,750
Equity issuance costs..............................            (735,390)                       -               (735,390)
Net cash to Agritope...............................          (8,330,854)                       -             (8,330,854)
Net loss for the year..............................                   -              (10,851,172)           (10,851,172)
                                                          -------------           ---------------         --------------
Balances at September 30, 1995.....................          60,479,315              (42,444,314)            18,035,001

Common stock issued upon
  exercise of options..............................           4,886,118                        -              4,886,118
Common stock issued as compensation................             249,086                        -                249,086
Compensation expense for stock
  option grants....................................             815,019                        -                815,019
Common stock issued upon
  exercise of warrants.............................             826,600                        -                826,600
Equity issuance costs..............................                (152)                       -                   (152)
Net cash to Agritope...............................          (3,018,636)                       -             (3,018,636)
Net income for the year............................                   -                  739,414                739,414
                                                         --------------          ---------------        ---------------
Balances at September 30, 1996.....................         $64,237,350             $(41,704,900)           $22,532,450

The accompanying notes are an integral part of these statements.
</TABLE>


                                     - 52 -

<PAGE>



<TABLE>
<CAPTION>
Historical Financial Statements
Epitope Medical Products
Combined Statements of Cash Flows
For the Year Ended September 30                                    1996                     1995                   1994

Cash flows from operating activities
<S>                                                         <C>                     <C>                    <C>          
Net income (loss) ........................................  $   739,414             $(10,851,172)          $ (6,048,257)
Adjustments to reconcile net income (loss)
  to net cash used in operating activities:
Depreciation and amortization ............................      792,885                  795,295                651,076
(Gain) loss on disposition of property ...................       (1,098)                     319                  1,541
Increase in accounts receivable and
  other receivables ......................................     (707,308)                 (76,549)              (180,767)
Increase (decrease) in inventories .......................      275,816                 (375,640)              (272,279)
Decrease in prepaid expenses .............................       13,881                   38,031                 43,354
Decrease (increase) in other assets and deposits..........       15,570                  (42,658)                (6,227)
Increase (decrease) in accounts payable and
 accrued liabilities .....................................   (2,151,110)               2,273,364                329,875
Common stock issued as compensation for services..........      249,086                  196,802                318,386
Compensation expense for stock option grants and
 deferred salary increases ...............................      815,019                1,056,335                915,351
                                                             ----------             ------------            -----------
Net cash provided by (used in) operating activities ......       42,155               (6,985,873)            (4,247,947)

Cash flows from investing activities
Investment in marketable securities ......................  (47,608,270)             (16,194,994)            (5,603,414)
Proceeds from sale of marketable securities ..............   45,870,396                4,718,162                     -
Additions to property and equipment ......................     (180,112)              (1,112,292)              (461,914)
Proceeds from sale of property ...........................        7,432                    1,085                  1,000
Expenditures for patents and proprietary
 technology ..............................................     (358,319)                (126,927)              (185,805)
Investment in affiliated companies .......................      142,510                   42,552                 64,938
                                                            -----------             ------------            -----------
Net cash used in investing activities ....................   (2,126,363)             (12,672,414)            (6,185,195)

Cash flows from financing activities
Proceeds from issuance of common stock ...................    5,885,573               21,060,912             24,387,702
Cost of common stock issuance ............................         (152)                (757,877)              (310,849)
Cash to Agritope .........................................   (3,018,636)              (8,330,854)           (12,132,173)
                                                            ------------            -------------          -------------
Net cash provided by financing activities ................    2,866,785               11,972,181             11,944,680

Net increase (decrease) in cash and cash equivalents .....      782,577               (7,686,106)             1,511,538
Cash and cash equivalents at beginning of year ...........       13,210                7,699,316              6,187,778
                                                            -----------            -------------           ------------
Cash and cash equivalents at end of year .................  $   795,787           $       13,210           $  7,699,316

The accompanying notes are an integral part of these statements.
</TABLE>

                                     - 53 -

<PAGE>



<TABLE>
<CAPTION>
Historical Financial Statements
Agritope
Combined Balance Sheets
September 30                                                          1996                  1995                   1996
                                                                                                            Proforma (1)
Assets
Current assets
<S>                                                           <C>                   <C>                    <C>         
Cash and cash equivalents (Note 2) .........................  $  4,903,476          $  4,246,687           $  4,903,476
Trade accounts receivable, net (Note 2) ....................       264,986               135,866                264,986
Other accounts receivable ..................................        32,337               993,790                 32,337
Inventories (Note 2) .......................................       509,745                     -                509,745
Prepaid expenses ...........................................           812                56,064                    812
                                                             -------------         -------------           ------------
Total current assets .......................................     5,711,356             5,432,407              5,711,356

Property and equipment, net (Notes 2 and 4) ................     1,286,196               555,003              1,286,196
Patents and proprietary technology, net (Note 2) ...........       510,244               140,757                510,244
Investment in affiliated companies (Note 3) ................     2,448,623             1,974,833              2,448,623
Other assets and deposits (Note 5) .........................       140,513               200,430                 54,379
                                                             -------------         -------------          -------------
                                                              $ 10,096,932          $  8,303,430           $ 10,010,798

Liabilities and Group Equity
Current liabilities
Current portion of installment notes payable ...............$              -       $      17,758       $              -
Convertible notes, due 1997 (Notes 5 and 13) ...............     3,620,003                     -                240,003
Accounts payable ...........................................        91,474               125,971                 91,474
Salaries, benefits and other accrued liabilities
  (Notes 2 and 9) ..........................................       735,478               206,349                735,478
                                                             -------------          ------------           ------------
Total current liabilities ..................................     4,446,955               350,078              1,066,955

Long-term portion of installment notes payable .............             -                21,749                      -
Convertible notes, due 1997 (Notes 5 and 13) ...............             -             3,620,003                      -
Commitments and contingencies (Notes 6,8,9, and 10) ........             -                     -                      -
Minority interest ..........................................       215,407                     -                215,407

Group equity (Note 6)
Contributed capital ........................................    36,714,932            33,452,632             41,225,452
Accumulated deficit ........................................   (31,280,362)          (29,141,032)           (32,497,016)
                                                              -------------         -------------         --------------
                                                                 5,434,570             4,311,600              8,728,436

                                                              $ 10,096,932          $  8,303,430           $ 10,010,798
</TABLE>

(1) Reflects the proforma effect of conversion of $3,380,000 principal amount of
Agritope  notes into  250,367  shares of common  stock of Epitope at an exchange
price of $13.50 per share (see Note 13).

The accompanying notes are an integral part of these statements.



                                     - 54 -

<PAGE>



<TABLE>
<CAPTION>
Historical Financial Statements
Agritope
Combined Statements of Operations
For the Year Ended September 30                                       1996                  1995                   1994

Revenues
<S>                                                         <C>                      <C>                    <C>        
Product sales ............................................. $            -           $ 2,015,318            $ 2,179,742
Grants and contracts ......................................        585,485                94,370                 33,642
                                                              ------------          ------------           ------------
                                                                   585,485             2,109,688              2,213,384

Costs and expenses
Product costs .............................................              -             3,235,675              4,575,149
Research and development costs ............................      1,338,703             2,204,993              2,368,880
Selling, general and administrative expenses...............      1,482,694             4,479,498              4,759,219
                                                               -----------           -----------            -----------
                                                                 2,821,397             9,920,166             11,703,248

Loss from operations ......................................     (2,235,912)           (7,810,478)            (9,489,864)

Other income (expense), net
Interest income............................................        361,938               408,097                216,934
Interest expense...........................................       (265,356)             (241,775)              (236,121)
Other, net.................................................              -                  (500)               (75,280)
                                                            --------------           ------------          -------------
                                                                    96,582               165,822                (94,467)

Net loss .................................................     $(2,139,330)          $(7,644,656)           $(9,584,331)

Proforma net loss per share ..............................   $        (.34)        $       (1.29)         $       (1.91)

Proforma weighted average number of shares
  outstanding ............................................       6,330,710             5,943,117              5,025,064


The accompanying notes are an integral part of these statements.
</TABLE>



                                     - 55 -

<PAGE>



<TABLE>
<CAPTION>
Historical Financial Statements
Agritope
Combined Statements of Changes in Group Equity
                                                               Contributed           Accumulated
                                                                   capital               deficit                 Total
<S>                                                            <C>                  <C>                   <C>          
Balances at September 30, 1993 ..............................  $11,259,717          $(11,912,045)         $   (652,328)
Common stock issued as
  compensation ..............................................       50,392                     -                50,392
Compensation expense for
  stock option grants .......................................      343,922                     -               343,922
Common stock issued upon
  exchange of convertible notes .............................      559,964                     -               559,964
Equity issuance costs .......................................      (40,267)                    -               (40,267)
Net cash from Epitope Medical Products ......................   12,132,173                     -            12,132,173
Net loss for the year .......................................              -          (9,584,331)           (9,584,331)
                                                             ---------------       --------------        --------------
Balances at September 30, 1994 ..............................   24,305,901           (21,496,376)            2,809,525

Common stock issued as compensation .........................       69,998                     -                69,998
Compensation expense for stock option grants ................      318,375                     -               318,375
Common stock issued upon exchange of convertible
  notes .....................................................      449,991                     -               449,991
Equity issuance costs .......................................      (22,487)                    -               (22,487)
Net cash from Epitope Medical Products ......................    8,330,854                     -             8,330,854
Net loss for the year .......................................              -          (7,644,656)           (7,644,656)
                                                             ---------------         ------------           -----------
Balances at September 30, 1995 ..............................   33,452,632           (29,141,032)            4,311,600

Common stock issued as compensation .........................       14,500                     -                14,500
Compensation expense for stock
  option grants .............................................      229,164                     -               229,164
Net cash from Epitope Medical Products ......................    3,018,636                     -             3,018,636
Net loss for the year .......................................              -          (2,139,330)           (2,139,330)
                                                             ---------------         ------------          ------------
Balances at September 30, 1996 ..............................  $36,714,932          $(31,280,362)         $  5,434,570


The accompanying notes are an integral part of these statements.
</TABLE>



                                     - 56 -

<PAGE>



<TABLE>
<CAPTION>
Historical Financial Statements
Agritope
Combined Statements of Cash Flows
For the Year Ended September 30                                       1996                  1995                   1994

Cash flows from operating activities
<S>                                                            <C>                   <C>                    <C>         
Net loss ..................................................    $(2,139,330)          $(7,644,656)           $(9,584,331)
Adjustments to reconcile net loss to net cash
  used in operating activities:
Depreciation and amortization .............................        294,045               663,380                505,135
Loss on disposition of property ...........................              -                   500                 74,130
Decrease (increase) in accounts receivable and
  other receivables .......................................        832,333              (945,501)              (140,268)
Decrease (increase) in inventories ........................       (509,745)               88,737               (385,928)
Decrease (increase) in prepaid expenses ...................         55,252               (55,639)                36,965
Decrease (increase) in other assets and deposits...........        (36,219)                9,137                  6,562
Increase (decrease) in accounts payable and
 accrued liabilities ......................................        494,632              (104,680)                67,457
Common stock issued as compensation for services...........         14,500                69,998                 50,392
Compensation expense for stock option grants and
 deferred salary increases ................................        229,164               318,375                343,922
                                                               -----------           -----------            -----------
Net cash used in operating activities .....................       (765,368)           (7,600,349)            (9,025,964)

Cash flows from investing activities
Additions to property and equipment .......................       (886,646)             (238,558)            (2,128,835)
Proceeds from sale of property ............................                               13,258
Expenditures for patents and proprietary
 technology ...............................................       (411,943)             (178,208)                   135
Investment in affiliated companies ........................       (473,790)              610,146
Minority Interest in affiliated companies .................        215,407                     -                      -
                                                               -----------         -------------          -------------
Net cash (used in) provided by investing activities .......     (1,556,972)              206,638             (2,128,700)

Cash flows from financing activities
Principal payments under installment purchase
 and capital lease obligations ............................        (39,507)              (16,137)               (20,726)
Cash from Epitope Medical Products ........................      3,018,636             8,330,854             12,132,173
                                                               -----------           -----------            -----------
Net cash provided by financing activities .................      2,979,129             8,314,717             12,111,447

Net increase in cash and cash equivalents .................        656,789               921,006                956,783
Cash and cash equivalents at beginning of year ............      4,246,687             3,325,681              2,368,898
                                                               -----------           -----------            -----------
Cash and cash equivalents at end of year ..................    $ 4,903,476           $ 4,246,687            $ 3,325,681

The accompanying notes are an integral part of these statements.
</TABLE>



                                     - 57 -

<PAGE>



<TABLE>
<CAPTION>
Historical Financial Statements
Epitope, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30                                                          1996                  1995                   1996
                                                                                                            Proforma (1)
Assets
Current assets
<S>                                                           <C>                  <C>                    <C>          
Cash and cash equivalents (Note 2) ........................   $  5,699,263         $   4,259,897          $   5,699,263
Marketable securities (Note 2) ............................     18,818,120            17,080,246             18,818,120
Trade accounts receivable, net (Note 2) ...................      1,412,585               367,487              1,412,585
Other accounts receivable .................................        206,420             1,376,543                206,420
Inventories (Note 2) ......................................      1,667,675             1,433,746              1,667,675
Prepaid expenses ..........................................         90,330               159,463                 90,330
                                                              ------------          ------------           ------------
Total current assets ......................................     27,894,393            24,677,382             27,894,393

Property and equipment, net (Notes 2 and 4) ...............      2,828,953             2,544,772              2,828,953
Patents and proprietary technology, net (Note 2) ..........      1,111,478               555,767              1,111,478
Investment in affiliated companies (Note 3) ...............      2,448,623             2,117,343              2,448,623
Other assets and deposits (Note 5) ........................        163,271               238,758                 77,137
                                                              ------------         -------------          -------------
                                                              $ 34,446,718          $ 30,134,022           $ 34,360,584

Liabilities and Shareholders' Equity
Current liabilities
Current portion of installment notes payable ..............$              -       $       17,758       $              -
Convertible notes, due 1997 (Notes 5 and 13) ..............      3,620,003                     -                240,003
Accounts payable ..........................................        540,644               945,395                540,644
Salaries, benefits and other accrued liabilities
(Notes 2 and 9) ...........................................      2,103,644             3,182,516              2,103,644
                                                               -----------           -----------            -----------
Total current liabilities .................................      6,264,291             4,145,669              2,884,291

Long-term portion of installment notes payable ............              -                21,749                      -
Convertible notes, due 1997 (Notes 5 and 13) ..............              -             3,620,003                      -
Commitments and contingencies (Notes 6, 8, 9, 10 and 11)                 -                     -                      -
Minority Interest .........................................        215,407                     -                215,407

Shareholders' equity (Note 6)
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; 12,937,383 and 12,485,130 shares issued and
  outstanding, respectively ...............................    100,952,282            93,931,947            105,462,802
Accumulated deficit .......................................    (72,985,262)          (71,585,346)           (74,201,916)
                                                              -------------         -------------         --------------
                                                                27,967,020            22,346,601             31,260,886

                                                              $ 34,446,718          $ 30,134,022           $ 34,360,584
</TABLE>

(1) Reflects the proforma effect of conversion of $3,380,000 principal amount of
Agritope  notes into  250,367  shares of common  stock of Epitope at an exchange
price of $13.50 per share (see Note 13).

The accompanying notes are an integral part of these statements.

                                     - 58 -

<PAGE>



<TABLE>
<CAPTION>
Historical Financial Statements
Epitope, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Year Ended September 30                                       1996                  1995                   1994

Revenues
<S>                                                            <C>                  <C>                   <C>          
Product sales ...............................................  $ 4,864,378          $  4,822,168          $   4,760,540
Grants and contracts ........................................    1,314,756               143,042                 58,202
                                                              ------------          ------------           ------------
                                                                 6,179,134             4,965,210              4,818,742
Costs and expenses
Product costs ..............................................     2,681,429             6,398,687              6,716,468
Research and development costs .............................     4,504,541             6,822,239              6,050,206
Selling, general and administrative expenses................     6,516,185            11,162,358              7,826,115
                                                               -----------           -----------            -----------
                                                                13,702,155            24,383,284             20,592,789

Loss from operations........................................    (7,523,021)          (19,418,074)           (15,774,047)

Other income (expense), net
Interest income ............................................     1,386,968             1,164,840                454,401
Interest expense ...........................................      (265,356)             (241,775)              (236,121)
License fee.................................................     5,000,000                     -                      -
Other, net..................................................         1,493                  (819)               (76,821)
                                                              ------------           ------------           ------------
                                                                 6,123,105               922,246                141,459

Net loss ...................................................   $(1,399,916)         $(18,495,828)          $(15,632,588)

Net loss per share ......................................... $        (.11)       $        (1.56)        $        (1.56)

Weighted average number of shares
  outstanding ..............................................    12,661,420            11,886,234             10,050,129

The accompanying notes are an integral part of these statements.
</TABLE>



                                     - 59 -

<PAGE>



<TABLE>
<CAPTION>
Historical Financial Statements
Epitope, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
                                                                                Common Stock        Accumulated
                                                               Shares           Dollars         deficit           Total
<S>                                                         <C>            <C>             <C>              <C>        
Balances at September 30, 1993 .........................    9,091,922      $ 45,427,299    $(37,456,930)    $ 7,970,369
Common stock issued upon
  exercise of options ..................................       52,488           636,293               -         636,293
Common stock issued as
  compensation .........................................       19,678           368,778               -         368,778
Compensation expense for
  stock option grants ..................................            -         1,167,272               -       1,167,272
Common stock issued upon
  exercise of warrants .................................      618,291         9,718,259               -       9,718,259
Common stock issued upon
  exchange of convertible notes ........................       28,672           559,964               -         559,964
Common stock issued in
  private placement ....................................    1,115,500        17,057,563               -       7,057,563
Equity issuance costs ..................................            -        (3,375,528)              -      (3,375,528)
Net loss for the year ..................................              -               -     (15,632,588)    (15,632,588)
                                                        --------------- ---------------    -------------   -------------
Balances at September 30, 1994 .........................   10,926,551        71,559,900     (53,089,518)     18,470,382

Common stock issued upon
  exercise of options ..................................      183,525         2,145,673               -       2,145,673
Common stock issued as
  compensation .........................................       16,013           266,800               -         266,800
Compensation expense for
  stock option grants ..................................            -         1,374,710               -       1,374,710
Common stock issued upon
  exercise of warrants .................................    1,336,000        18,892,750               -      18,892,750
Common stock issued upon
  exchange of convertible notes ........................       23,041           449,991               -         449,991
Equity issuance costs ..................................            -          (757,877)              -        (757,877)
Net loss for the year ..................................              -               -     (18,495,828)    (18,495,828)
                                                        -------------------------------    -------------   -------------
Balances at September 30, 1995 .........................   12,485,130        93,931,947     (71,585,346)     22,346,601

Common stock issued upon
  exercise of options ..................................      386,550         4,886,118               -       4,886,118
Common stock issued as compensation ....................       19,353           263,586               -         263,586
Compensation expense for stock
  option grants ........................................            -         1,044,183               -       1,044,183
Common stock issued upon
  exercise of warrants .................................       46,350           826,600               -         826,600
Equity issuance costs ..................................            -              (152)              -            (152)
Net loss for the year ..................................              -                -     (1,399,916)     (1,399,916)
                                                        --------------------------------  --------------   -------------
Balances at September 30, 1996 .........................   12,937,383      $100,952,282    $(72,985,262)    $27,967,020


The accompanying notes are an integral part of these statements.
</TABLE>

                                     - 60 -

<PAGE>



<TABLE>
<CAPTION>
Historical Financial Statements
Epitope, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Year Ended September 30                                       1996                  1995                   1994

Cash flows from operating activities
<S>                                                           <C>                   <C>                    <C>          
Net loss ...................................................  $ (1,399,916)         $(18,495,828)          $(15,632,588)
Adjustments to reconcile net loss to net cash
  used in operating activities:
Depreciation and amortization ..............................     1,086,930             1,458,675              1,156,211
(Gain) loss on disposition of property .....................        (1,098)                  819                 75,671
Decrease (increase) in accounts receivable and
  other receivables ........................................       125,025            (1,022,050)              (321,035)
Increase in inventories ....................................      (233,929)             (286,903)              (658,207)
Decrease (increase) in prepaid expenses ....................        69,133               (17,608)                80,319
Decrease (increase) in other assets and deposits ...........        20,649               (33,521)                   335
Increase in accounts payable and accrued
  liabilities ..............................................    (1,656,478)            2,168,684                397,332
Common stock issued as compensation for services............       263,586               266,800                368,778
Compensation expense for stock option grants and
  deferred salary increases ................................     1,044,183             1,374,710              1,259,273
                                                               -----------           -----------            -----------
Net cash used in operating activities ......................      (723,213)          (14,586,222)           (13,273,911)

Cash flows from investing activities
Investment in marketable securities ........................   (47,608,270)          (16,194,994)            (5,603,414)
Proceeds from sale of marketable securities ................    45,870,396             4,718,162                      -
Additions to property and equipment ........................    (1,066,758)           (1,350,850)            (2,590,751)
Proceeds from sale of property .............................         7,432                14,343                  1,000
Expenditures for patents and proprietary
  technology ...............................................      (770,262)             (305,135)              (185,670)
Investment in affiliated companies .........................      (331,280)              652,698                 64,938
Minority interest in affiliated companies ..................       215,407                     -                      -
                                                                ----------         -------------           ------------
Net cash used in investing activities ......................    (3,683,335)          (12,465,776)            (8,313,897)

Cash flows from financing activities
Principal payments under installment purchase and
  capital lease obligations ................................       (39,507)              (16,137)               (20,724)
Proceeds from issuance of common stock .....................     5,885,573            21,060,912             24,387,702
Cost of common stock issuance ..............................          (152)             (757,877)              (310,849)
                                                                -----------       ---------------          -------------
Net cash provided by financing activities ..................     5,845,914            20,286,898             24,056,129

Net increase (decrease) in cash and cash equivalents .......     1,439,366            (6,765,100)             2,468,321
Cash and cash equivalents at beginning of year .............     4,259,897            11,024,997              8,556,676
                                                             -------------         -------------           ------------
Cash and cash equivalents at end of year ...................  $  5,699,263         $   4,259,897           $ 11,024,997


The accompanying notes are an integral part of these statements.
</TABLE>


                                     - 61 -

<PAGE>



Notes to Historical Financial Statements

Note 1   The Company

Epitope,  Inc.  (the  Company or  Epitope)  is an Oregon  corporation  utilizing
biotechnology  to develop and market  medical  diagnostic  products  through its
Epitope  Medical  Products  group  (Epitope  Medical  Products) and superior new
plants and related products through its Agritope group (Agritope). Upon approval
of the  proposal  to create a new  class of common  stock  (the  Agritope  Stock
Proposal),  the  capital  structure  of Epitope  will be modified to include two
classes of common  stock,  Epitope  Medical  Products  Common Stock and Agritope
Common Stock. The Epitope Medical Products group (Epitope Medical Products) will
include the medical  products  business  conducted by the Company.  The Agritope
group (Agritope) will include the  agribusiness  and agricultural  biotechnology
operations of the Company.

Note 2   Summary of Significant Accounting Policies

Basis  of  Presentation.  The  accompanying  consolidated  financial  statements
include  the  accounts of the Company  and its wholly  owned  subsidiaries.  All
significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.   Assets  and  liabilities  of  majority-owned  subsidiaries  are
included in these statements.  Minority-owned investments and joint ventures are
accounted for using the equity  method.  Investments of less than 20 percent are
carried at cost.

The accompanying  combined financial  statements of the Epitope Medical Products
and  Agritope  groups  have been  prepared  using the  amounts  included  in the
consolidated financial statements of the Company. Assets, liabilities,  revenues
and expenses of each group are included in the respective  financial  statements
of the applicable group.  Cash, cash equivalents and marketable  securities have
been  allocated  80  percent  to  Epitope  Medical  Products  and 20  percent to
Agritope.  Cash advanced and  allocated by the Company to business  units of the
Agritope  group has been reflected as  contributed  capital in the  accompanying
combined financial statements.

Certain  corporate  overhead  services  such  as  accounting,  finance,  general
management, human resources, investor relations, information systems and payroll
are  provided  by the  Company on a  centralized  basis for the  benefit of both
groups  (Shared  Services).  Such expenses have been allocated  between  Epitope
Medical Products and Agritope in the accompanying  combined financial statements
using  activity  indicators  which,  in the opinion of  management,  represent a
reasonable  measure  of  the  respective  group's  utilization  of  such  shared
services.  These activity  indicators,  which will be reviewed  periodically and
adjusted to reflect changes in utilization,  include number of employees, number
of computers,  and level of expenditures.  The accompanying  combined  financial
statements  also include an adjustment to allocate  interest  income in the same
proportion as the allocation of Shared Services  between the two groups.  Future
interest  income will be based on amounts earned by each group.  Shared Services
are included under the caption "Selling, general and administrative expenses" as
follows:

<TABLE>
<CAPTION>
Year Ended September 30                                   1996                          1995                       1994
<S>                                                   <C>                         <C>                         <C>       
Epitope Medical Products ..........................   $3,028,181                  $3,575,069                  $1,899,969
Agritope ..........................................    1,069,249                   1,892,370                   1,735,688
                                                    ------------                ------------                ------------
Consolidated ......................................   $4,097,430                  $5,467,439                  $3,635,657
</TABLE>


If the Agritope Stock Proposal is approved,  the Company will provide holders of
Epitope Medical Products and Agritope common stock separate financial statements
prepared  in  accordance   with  generally   accepted   accounting   principles,
management's  discussion  and  analysis of  financial  condition  and results of
operations,  descriptions of businesses and other relevant  information for each
group.  Notwithstanding  the  attribution of assets and  liabilities  (including
contingent  liabilities)  to each  group for the  purposes  of  preparing  their
respective historical and future financial statements,  this attribution and the
change in  capitalization  contemplated  in the Agritope Stock Proposal will not
affect legal title to such assets or responsibility  for such liabilities of the
Company or any of its  subsidiaries.  Holders of each class of common stock will
be common  shareholders of the Company and would be subject to risks  associated
with  an  investment  in  the  Company  and  all  its  businesses,  assets,  and
liabilities. Liabilities or contingencies

                                     - 62 -

<PAGE>



Notes to Historical Financial Statements, Continued


of either group that affect the Company's resources or financial condition could
affect the financial  condition and results of operations of either group. Under
the Agritope Stock Proposal, dividends to be paid to the holders of either class
of common  stock will be limited to the lesser of funds of the  Company  legally
available  for the  payment  of  dividends  or the  Available  Medical  Products
Dividend  Amount  or  Available  Agritope  Dividend  Amount  as  defined  in the
Company's  Articles  of  Incorporation.  The  Company  has  never  paid any cash
dividends on shares of Epitope common stock.  The Company  currently  intends to
retain any of its earnings to finance  future  growth and,  therefore,  does not
anticipate  paying any cash  dividends  on either  class of common  stock in the
foreseeable future.

Except  as stated in the  amended  Articles  of  Incorporation,  the  accounting
policies  applicable to preparation of financial  statements of either group may
be modified or rescinded at the sole discretion of the Board of Directors of the
Company without the approval of shareholders,  although there is no intention to
do so. In addition,  generally accepted  accounting  principles require that any
change in accounting  policy be preferable (in accordance with such  principles)
to the previous policy.

Cash  and  Cash  Equivalents;   Marketable  Securities.   For  purposes  of  the
consolidated  balance sheets and statements of cash flows, the Company considers
all highly  liquid  investments  with  maturities  at time of  purchase of three
months  or  less to be cash  equivalents.  At  September  30,  1996,  marketable
securities  consisted of commercial paper and U.S.  Treasury  securities with an
original  maturity period greater than three months,  but generally less than 12
months.  The Company's  policy is to invest its excess cash in  securities  that
maximize (a) safety of principal,  (b) liquidity  for operating  needs,  and (c)
after-tax yields.

Effective  October 1, 1994, the Company adopted Financial  Accounting  Standards
Board Statement No. 115 (SFAS 115),  Accounting for Certain  Investments in Debt
and Equity Securities.  Pursuant to SFAS 115, the Company has categorized all of
its investments as available-for-sale  securities and,  accordingly,  unrealized
gains and losses on such investments, if material, will be carried as a separate
component  of  shareholders'  equity.  Such  unrealized  gains and  losses  were
immaterial as of September 30, 1996 and 1995.

Inventories.  Inventories  are  recorded  at the lower of  standard  cost (which
approximates actual cost on a first-in,  first- out basis) or market.  Inventory
components are summarized as follows:

<TABLE>
<CAPTION>
September 30                                                                 1996                                   1995
Epitope Medical Products
<S>                                                                    <C>                                    <C>       
Raw materials.................................................         $  522,824                             $  657,568
Work-in-process...............................................            389,642                                379,470
Finished goods ...............................................            192,882                                295,032
Supplies .....................................................             52,582                                101,676
                                                                      -----------                            -----------
                                                                       $1,157,930                             $1,433,746
Agritope
Work-in-process ..............................................         $  471,208                          $           -
Finished goods ...............................................             38,537                                      -
                                                                      -----------                         --------------
                                                                       $  509,745                          $           -
Consolidated
Raw materials ................................................         $  522,824                             $  657,568
Work-in-process ..............................................            860,850                                379,470
Finished goods ...............................................            231,419                                295,032
Supplies .....................................................             52,582                                101,676
                                                                      -----------                            -----------
                                                                       $1,667,675                             $1,433,746
</TABLE>


                                     - 63 -

<PAGE>



Notes to Historical Financial Statements, Continued


Depreciation and Capitalization  Policies.  Property and equipment are stated at
cost less accumulated depreciation. Expenditures for repairs and maintenance are
charged  to  operating  expense  as  incurred.  Expenditures  for  renewals  and
betterments  are  capitalized.  Depreciation  and  amortization  of property and
equipment  are  calculated  primarily  under the  straight-line  method over the
estimated  lives  of the  related  assets  (three  to  seven  years).  Leasehold
improvements  are  amortized  over the shorter of estimated  useful lives or the
terms of related leases.  When assets are sold or otherwise  disposed,  cost and
related  accumulated  depreciation or amortization are removed from the accounts
and any resulting gain or loss is included in operations.

Accounting for Long-Lived  Assets. The Company reviews its long-lived assets for
impairment periodically or as events or circumstances indicate that the carrying
amount of long-lived  assets may not be  recoverable.  If the estimated net cash
flows are less than the carrying  amount of the long-lived  assets,  the Company
recognizes an impairment  loss in an amount  necessary to write down  long-lived
assets to fair value as determined from expected  discounted  future cash flows.
This  accounting  policy is consistent  with  Statement of Financial  Accounting
Standards No. 121,  Accounting for the  Impairment of Long-Lived  Assets and for
Long-Lived Assets to be Disposed of. There has been no significant impact to the
Company's  financial position or results of operations as the carrying amount of
all long-lived assets is considered recoverable.

Patents  and  Proprietary  Technology.   Direct  costs  associated  with  patent
submissions  and acquired  technology are  capitalized  and amortized over their
minimum estimated economic useful lives, generally five years.

In August 1996, the Company  amended an agreement  pursuant to which it acquired
Agritope's  patented  ethylene control  technology in 1987. A co-inventor of the
technology relinquished all rights to future compensation under the agreement in
exchange  for  a  one-time  cash  payment,   a  research  grant  and  a  limited
non-exclusive   license  to  use  the   technology   for  one  crop.  The  total
consideration of $365,000 is included in Agritope's combined balance sheet under
the caption "Patents and proprietary  technology" and is being amortized over 15
years, the remaining life of the related patent.

Amortization and accumulated amortization are summarized as follows:

<TABLE>
<CAPTION>

                                                              1996                       1995                       1994
Amortization for the year ended
   September 30,
<S>                                                      <C>                        <C>                        <C>      
Epitope Medical Products ............................    $ 172,095                  $ 130,313                  $ 101,339
Agritope ............................................       42,456                     23,964                     13,487
                                                       -----------                 ----------                 ----------
Consolidated.........................................    $ 214,551                  $ 154,277                  $ 114,826

Accumulated Amortization at
  September 30,
Epitope Medical Products ............................    $ 621,110                  $ 449,015                  $ 318,702
Agritope ............................................       79,907                     37,451                     13,487
                                                        ----------                 ----------                 ----------
Consolidated.........................................    $ 701,017                  $ 486,466                  $ 332,189
</TABLE>

Fair Value of Financial  Instruments.  The carrying amount for cash equivalents,
marketable  securities,  accounts  receivable,  borrowings  under  bank  line of
credit, subordinated notes, and accounts payable approximates fair value because
of the  immediate or short-term  maturity of these  financial  instruments.  The
carrying amount for long-term debt and convertible notes approximates fair value
because the related  interest rates are comparable to rates currently  available
to the Company for debt with similar terms and maturities.


                                     - 64 -

<PAGE>



Notes to Historical Financial Statements, Continued


Revenue  Recognition.  Product revenues are recognized when the related products
are shipped.  Grant and contract  revenues include funds received under research
and  development  agreements with various  entities.  These grants and contracts
generally  provide for  progress  payments as expenses  are incurred and certain
research  milestones are achieved.  Revenue related to such grants and contracts
is recognized as research milestones are achieved.

Accounts  receivable  are stated net of an allowance  for  doubtful  accounts as
follows:

<TABLE>
<CAPTION>
September 30                                                               1996                                     1995
<S>                                                                    <C>                                      <C>     
Epitope Medical Products .....................................         $  6,872                                 $  6,872
Agritope .....................................................           19,571                                   65,172
                                                                      ---------                                ---------
Consolidated .................................................         $ 26,443                                 $ 72,044
</TABLE>


Research and Development. Research and development expenditures are comprised of
those costs  associated with the Company's own ongoing  research and development
activities  including  the costs to prepare  for,  obtain and  compile  clinical
studies  and  other   information  to  support  product  license   applications.
Expenditures  for research and  development  also include costs  incurred  under
contracts to develop certain  products,  including those contracts  resulting in
grant and contract revenues.  All research and development costs are expensed as
incurred.

Income  taxes.  The  Company  accounts  for certain  revenue  and expense  items
differently for income tax purposes than for financial reporting purposes. These
differences  arise principally from methods used in accounting for stock options
and depreciation rates. Deferred tax assets and liabilities are recognized based
on temporary  differences  between the financial  statement and the tax bases of
assets and  liabilities  using enacted tax rates in effect for the year in which
the temporary differences are expected to reverse.

To date, both Epitope Medical Products and Agritope have  experienced  operating
losses.  Actual tax payment is a liability  of Epitope as a whole.  The Agritope
Stock  Proposal  provides  that either group may be allocated the tax benefit of
such losses and future losses to reduce current or deferred tax expense and that
such losses will not be carried  forward to reduce the losses of the group which
incurred such losses.  Accordingly,  either group may report lower earnings than
if such losses had been  retained  for the  benefit of the group which  incurred
such losses.

Net Income (Loss) Per Share. Net income (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  assumed to have been purchased for
the treasury with the proceeds from the exercise of such.  Net income (loss) per
share for Epitope Medical Products and Agritope is presented on a proforma basis
assuming that the  distribution  of Agritope common stock and  redesignation  of
Epitope,  Inc. common stock as Epitope Medical Products common stock pursuant to
the Agritope Stock Proposal had occurred on October 1, 1993.

Common stock  equivalents  are excluded from the  computation if their effect is
anti-dilutive.  Primary and fully  diluted  net income  (loss) per share are the
same.


                                     - 65 -

<PAGE>



Notes to Historical Financial Statements, Continued


Supplemental Cash Flow Information.  Non-cash financing and investing activities
not included in the  consolidated  statements  of cash flows are  summarized  as
follows:

<TABLE>
<CAPTION>
Year Ended September 30                                           1996                  1995                       1994
Epitope Medical Products
<S>                                                            <C>                <C>                        <C>       
Discount on private placement of common stock ............     $     -            $        -                 $3,024,413

Agritope
Conversion of notes to equity (Note 5) ...................     $     -            $  427,496                 $  600,231
Investment in nonconsolidated subsidiary .................           -             2,584,979                          -
</TABLE>

Supplemental  Profit  and  Loss  Information.   In  September  1995,  management
announced a  company-wide  reduction  in work force  whereby 48  employees  were
terminated.  The Company charged $607,000 to results of operations for severance
payments and related  expenses for this  program.  As of September  30, 1996 and
1995,  $55,000 and $475,000,  respectively,  of these charges remain accrued and
are  included  in the  accompanying  balance  sheets of the  Company and Epitope
Medical  Products  under the  caption  "Salaries,  benefits  and  other  accrued
liabilities."

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   Investment in Affiliated Companies

In June 1995,  Agritope agreed to sell its wholly owned grape plant  propagation
subsidiary,  Vinifera,  Inc. to VF Holdings,  Inc. (VF), an affiliate of a Swiss
investment group, pursuant to a stock purchase agreement. VF subsequently failed
to  make  all  the  payments  required  under  the VF  Agreement.  As  part of a
settlement  of claims based on VF's  default,  VF retained a 4 percent  minority
interest in  Vinifera  and  relinquished  the  majority  interest to Agritope in
August 1996.

The  reacquisition  of Vinifera in August 1996 has been  accounted for under the
purchase  method.  The net  purchase  price of $916,000  has been  allocated  to
tangible  net assets.  Vinifera's  results of  operations  are  including in the
Agritope Combined Statements of Operations and in the Consolidated Statements of
Operations  through May 1995, and for the month of September 1996. The following
summarized  proforma results of operations are presented as if the reacquisition
had occurred on the first day of each period shown.

<TABLE>
<CAPTION>
Year Ended September 30                       1996                                                1995
                                          Proforma                                            Proforma
                          Historical   Adjustments         Proforma       Historical       Adjustments         Proforma
Agritope
<S>                      <C>            <C>              <C>              <C>                 <C>           <C>        
Revenues.................   585,485        833,949        1,419,434        2,109,688           276,588        2,386,276
Net loss.................(2,139,330)    (1,464,002)      (3,603,332)      (7,644,656)         (460,296)      (8,104,952)
Proforma loss per share..     (0.34)         (0.23)           (0.57)           (1.29)            (0.08)           (1.36)

Consolidated
Revenues................. 6,179,134        833,949        7,013,083        4,965,210           276,588        5,241,798
Net loss.................(1,399,916)    (1,464,002)      (2,863,918)     (18,495,828)         (460,296)     (18,956,124)
Loss per share...........     (0.11)         (0.12)           (0.23)           (1.56)            (0.04)           (1.59)
</TABLE>


                                     - 66 -

<PAGE>



Notes to Historical Financial Statements, Continued


In May 1995, Agritope's wholly owned subsidiary,  Agrimax Floral Products,  Inc.
(Agrimax),  ceased operations as an independent entity. UAF, Limited Partnership
(UAF), in which Agrimax obtained an 18 percent  interest,  was formed to combine
the Agrimax  operations in Charlotte,  North  Carolina,  with those of Universal
American Flowers, Inc. in Tampa, Florida and Hammond,  Louisiana.  In connection
with the UAF transaction,  Agrimax contributed  inventory,  operating assets and
the right to use its proprietary floral preservative and certain trademarks.  In
May 1996, the equity  interest of Agrimax was reduced to 9 percent as the result
of a recapitalization of UAF.

The St. Paul, Minnesota,  facility of Agrimax ceased operations in June 1995. In
June 1996,  Agrimax  contributed  inventory and operating  assets to Petals USA,
Inc.  (Petals),  a newly formed affiliate of a Canadian fresh flower wholesaler,
in return for a 19.5 percent equity interest in Petals.

The investments by Agrimax are included in the accompanying consolidated balance
sheets of the Company and combined  balance sheets of Agritope under the caption
"Investment in affiliated companies." See Note 13.

For the years ended  September 30, 1995,  1994  respectively,  the  accompanying
financial  statements  of the  Company  and  Agritope  include  revenues of $2.0
million and $2.2 million, and operating losses of $3.8 million, and $6.4 million
attributable  to the Agrimax  and  Vinifera  business  units.  The  accompanying
statements  of  operations  of the  Company  and  Agritope  for the  year  ended
September  30, 1995,  includes the results of operations of Agrimax and Vinifera
through May and also includes a charge of $500,000 primarily attributable to the
disposition of Agrimax.




                                     - 67 -

<PAGE>



Notes to Historical Financial Statements, Continued


Note 4   Property and Equipment

Property and equipment are summarized as follows:

<TABLE>
<CAPTION>
September 30                                                                  1996                                 1995
Epitope Medical Products
<S>                                                                    <C>                                  <C>        
Research and development laboratory equipment ................         $ 1,056,883                          $   898,716
Manufacturing equipment ......................................           1,291,546                            1,296,416
Office furniture and equipment ...............................           1,899,948                            2,041,897
Leasehold improvements .......................................           1,084,660                            1,084,660
Construction in progress .....................................             134,557                               70,961
                                                                       -----------                          -----------
                                                                         5,467,594                            5,392,650
Less accumulated depreciation and amortization ...............          (3,924,837)                          (3,402,881)
                                                                       ------------                         ------------
                                                                       $ 1,542,757                          $ 1,989,769

Agritope
Land .........................................................        $     30,020                         $     30,020
Buildings and improvements ...................................             717,508                              717,508
Research and development laboratory equipment ................             220,919                              196,255
Manufacturing equipment ......................................             351,538                                    -
Office furniture and equipment ...............................             140,452                               95,338
Leasehold improvements........................................              23,962                               23,962
Construction in progress .....................................             499,980                               34,650
                                                                       -----------                          -----------
                                                                         1,984,379                            1,097,733
Less accumulated depreciation and amortization ...............            (698,183)                            (542,730)
                                                                       ------------                         ------------
                                                                       $ 1,286,196                          $   555,003
Consolidated
Land .........................................................        $     30,020                          $    30,020
Buildings and improvements ...................................             717,508                              717,508
Research and development laboratory equipment ................           1,277,802                            1,094,971
Manufacturing equipment ......................................           1,643,084                            1,296,416
Office furniture and equipment ...............................           2,040,400                            2,137,235
Leasehold improvements .......................................           1,108,622                            1,108,622
Construction in progress .....................................             634,537                              105,611
                                                                       -----------                          -----------
                                                                         7,451,973                            6,490,383
Less accumulated depreciation and amortization ...............          (4,623,020)                          (3,945,611)
                                                                       ------------                         ------------
                                                                       $ 2,828,953                          $ 2,544,772
</TABLE>

Note 5   Long-Term Debt

On June 30, 1992,  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 percent 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. The notes are convertible into common stock of the Company at a conversion
price of  $19.53  per  share.  In the event of an  initial  public  offering  of
Agritope common stock, the notes would be  automatically  converted to shares of
Agritope common stock at 90 percent of the public offering price.


                                     - 68 -

<PAGE>



Notes to Historical Financial Statements, Continued


During the years  ended  September  30, 1995 and 1994,  respectively,  investors
exchanged  $449,991 and $559,964  principal amount of convertible  notes for the
Company's  common stock at a price of $19.53 per share. In conjunction  with the
exchanges,  unamortized  debt issuance  costs of $22,487 and $40,267  related to
such  notes were  recognized  as equity  issuance  costs  during  1995 and 1994,
respectively.  Debt  issuance  costs are  included in other assets and are being
amortized  over the five-year  life of the notes.  Amortization  expense of debt
issuance  costs  for  the  years  ended  September  30,  1996,  1995  and  1994,
respectively,  totaled  $108,257,  $96,136 and $91,715,  leaving an  unamortized
balance of $88,821 and  $197,077 at September  30, 1996 and 1995,  respectively.
See Note 13.

Note 6   Shareholders' Equity

Authorized  Capital  Stock.  The  Company's  amended  articles of  incorporation
authorize  1,000,000  shares of preferred stock and 30,000,000  shares of common
stock. The Company's Board of Directors has authority to determine  preferences,
limitations and relative rights of the preferred stock.

Common  Stock  Reserved for Future  Issuance.  As of  September  30,  1996,  the
following  shares  of the  Company's  common  stock  were  reserved  for  future
issuance, as more fully described below:
<TABLE>
<CAPTION>

Purpose                                                                                                           Shares
<S>                                                                                                            <C>      
Outstanding warrants ...................................................................                       2,000,640
Outstanding stock options ..............................................................                       3,365,726
Employee Stock Purchase Plan subscriptions .............................................                          42,820
Conversion of notes (Note 5) ...........................................................                         185,356
                                                                                                               ---------
                                                                                                               5,594,542
</TABLE>

If the  Agritope  Stock  Proposal is  approved,  the  Company  will issue to the
holders of the above  rights to purchase  shares of Epitope  common  stock or to
convert  notes into such  shares,  as  applicable,  the  equivalent  rights with
respect to  Agritope  common  stock on the basis of  one-half  share of Agritope
common stock for each right to purchase one share of Epitope common stock.

Common Stock  Warrants.  As of September  30, 1996,  the  following  warrants to
purchase shares of common stock were outstanding:

<TABLE>
<CAPTION>

Date of Issuance                               Shares                     Price                          Expiration Date
<S>                                        <C>                        <C>                             <C>
September 26, 1991 .......................    159,150                    $16.00                       September 30, 1997
December 23, 1992 ........................    988,390                     18.50                       September 30, 1997
July 20, 1993 ............................    375,000                     20.00                       September 30, 1997
August 1, 1993 ...........................    200,000                     18.50                       September 30, 1997
October 17, 1994 .........................     50,000                     18.50                       September 30, 1997
November 22, 1994 ........................    228,100                     18.50                       September 30, 1997
                                           ----------
                                            2,000,640
</TABLE>

Stock  Award  Plans.  The  Company's  1991 Stock  Award Plan (the 1991 Plan) was
approved by the  shareholders  during 1991,  replacing the  Company's  Incentive
Stock  Option Plan (ISOP).  The 1991 Plan  provides  for  stock-based  awards to
employees,  outside directors and members of scientific  advisory  committees or
other  consultants.  Awards  which may be  granted  under the 1991 Plan  include
qualified   incentive   stock  options,   nonqualified   stock  options,   stock
appreciation rights, restricted awards, performance awards and other stock-based
awards.


                                     - 69 -

<PAGE>



Notes to Historical Financial Statements, Continued


Under the terms of the 1991 Plan, qualified incentive stock options on shares of
common stock may be granted to eligible employees,  including  officers,  of the
Company at an exercise price not less than the fair market value of the stock on
the date of grant.  The maximum term during which any option may be exercised is
ten years  from the date of grant.  To date,  options  have  been  granted  with
four-year vesting schedules.

Options  issued to employees  under the Incentive  Stock Option Plan (ISOP) were
issued at prices not less than the fair market  value of a share of common stock
on the date of grant.  The options are exercisable  after one year from the date
of grant at the rate of 25 percent  per year  cumulatively  and expire ten years
from the date of grant.

The Agritope, Inc. 1992 Stock Award Plan (the 1992 Plan) was adopted by Agritope
and approved by the Company in 1992. The 1992 Plan, which has provisions similar
to those of the Company's 1991 Plan,  authorizes issuance of 2,000,000 shares of
Agritope common stock.  Until Agritope is no longer a wholly owned subsidiary of
the Company,  shares issued  pursuant to exercise of options under the 1992 Plan
will be converted  into shares of the Company's  common stock based on the ratio
of the fair market value of the Company's  common stock to the fair market value
of Agritope common stock on the date of the grant.

The 1991  Plan and 1992 Plan  also  provide  that  nonqualified  options  may be
granted at a price not less than 75 percent of the fair market  value of a share
of common  stock on the date of grant.  The option term and vesting  schedule of
such awards may either be unlimited or have a specified  period in which to vest
and be exercised.  For the discounted  nonqualified  options issued, the Company
amortizes,  on a straight-line basis over the vesting period of the options, the
difference  between the  exercise  price and the fair market value of a share of
stock on the date of grant. As of September 30, 1996,  197,181 shares of Epitope
common stock remain available for grant under the Company's stock award plans.

In October  1995,  the  Financial  Accounting  Standards  Board issued SFAS 123,
Accounting for Stock-Based  Compensation.  SFAS 123 allows  companies which have
stock-based compensation arrangements with employees to adopt a fair-value basis
of accounting  for stock options and other equity  instruments or to continue to
apply the existing  accounting rules under APB Opinion 25,  Accounting for Stock
Issued to Employees,  but with additional  financial statement  disclosure.  The
Company plans to elect the disclosure-only alternative commencing in fiscal 1997
and therefore does not anticipate  that SFAS 123 will have a material  impact on
its financial position or results of operations.

Options  granted and  outstanding  under the  Company's  stock  option plans are
summarized as follows:
<TABLE>
<CAPTION>

                                         1996                            1995                            1994
                                  Shares        Price         Shares             Price         Shares             Price
<S>                            <C>          <C>              <C>             <C>              <C>            <C>         
Outstanding at
 beginning of period.......    3,636,103    $ 1.09-24.94     3,483,432       $ 1.09-24.94     3,052,653      $ 1.09-24.94
Granted....................      901,379      9.81-18.13       802,050        14.94-18.88       589,850       14.38-22.94
Exercised..................     (386,550)     1.09-17.13      (183,525)        1.84-22.50       (52,488)      12.43-22.50
Canceled...................     (785,206)    14.38-24.00      (465,854)        7.38-22.94      (106,583)       8.50-22.94
                                ---------                  ------------                     ------------
Outstanding at
 end of period.............    3,365,726    $ 3.50-24.94     3,636,103       $ 1.09-24.94     3,483,432      $ 1.09-24.94

Exercisable................    2,302,212    $ 3.50-24.94     2,002,925       $ 1.09-24.94     1,557,505      $ 1.09-24.94
</TABLE>


Pursuant to the 1991 Plan,  973,  3,680 and 11,741  shares of common  stock were
also awarded to  consultants  and members of the Company's  scientific  advisory
committees during 1996, 1995, and 1994, respectively.


                                     - 70 -

<PAGE>



Notes to Historical Financial Statements, Continued


Employee Stock Purchase Plans. In 1991, the shareholders  approved the Company's
adoption of the 1991 Employee Stock Purchase Plan (1991 ESPP) covering a maximum
of 100,000 shares of common stock for  subscription  over two offering  periods.
The purchase price for stock  purchased  under the 1991 ESPP for each of the two
24-month  subscription  periods  was the lesser of 85 percent of the fair market
value of a share of common stock at the commencement of the subscription  period
or the fair market value at the close of each  subscription  period. An employee
may also  elect to  withdraw  at any time  during  the  subscription  period and
receive the amounts  paid plus  interest at the rate of 6 percent.  During April
1994,  676  shares,  at a purchase  price of $14.00 per  share,  were  issued to
employees for the second 1991 ESPP purchase period which closed March 31, 1994.

The 1993  Employee  Stock  Purchase  Plan (1993  ESPP),  as amended and restated
effective  February 1, 1993,  covers a maximum of 250,000 shares of common stock
for  subscription  over  established  offering  periods.  The Company's Board of
Directors was granted authority to determine the number of offering periods, the
number of shares offered,  and the length of each period,  provided that no more
than three  offering  periods  (other than  Special  Offering  Subscriptions  as
described  below) may be set  during  each  fiscal  year of the  Company.  Other
provisions of the 1993 ESPP are similar to the 1991 ESPP.  During  April,  1996,
10,106  shares were issued at a price of $11.90 per share.  As of September  30,
1996,  42,820  shares of common stock were  subscribed  for during two offerings
under the 1993 ESPP.  Shares  subscribed for under these 1993 ESPP offerings may
be purchased over 24 months and have initial  subscription  prices of $12.33 and
$8.77 per share for the various offerings.

The 1993 ESPP was amended to allow the Company,  at its  discretion,  to provide
Special  Offering   Subscriptions  whereby  an  employee's  annual  increase  in
compensation could be deferred for a one-year period. At the end of the one-year
period,  the employee can elect to receive the deferred  compensation  amount in
the form of cash or shares of the Company's common stock. The purchase price for
stock issued under a Special  Offering  Subscription is the lesser of 85 percent
of the fair  market  value of a share of  common  stock on the  first day of the
calendar month the employee's increase was effective or the fair market value at
the  close  of  the  one-year   subscription  period.   During  1995  and  1994,
respectively,  5,569 and 2,314 Special Offering  Subscription shares were issued
to employees at an average price of $15.26 and $15.24 per share.

Note 7   Income Taxes

As of September 30, 1996,  the Company had net operating loss  carryforwards  of
approximately $66.7 million and $50.0 million,  respectively,  to offset federal
and state taxable income.  These net operating loss carryforwards will generally
expire from 2001  through 2011 if not used by the  Company.  Approximately  $6.9
million of the Company's net operating  loss  carryforwards  were generated as a
result of deductions  related to the exercise of stock  options.  When utilized,
such  carryforwards,  as tax  effected,  will  be  reflected  in  the  Company's
financial  statements  as an  increase  in  shareholders'  equity  rather than a
reduction of the provision for income taxes.

Significant  components of the Company's  deferred tax asset were as follows (in
thousands):

<TABLE>
<CAPTION>
September 30                                                                1996                                   1995
<S>                                                                     <C>                                    <C>     
Net operating loss carryforwards..........................              $ 24,489                               $ 26,110
Deferred compensation.....................................                 1,997                                  1,665
Research & experimentation credit carryforwards...........                 1,151                                  1,151
Accrued expenses..........................................                   317                                    238
Other.....................................................                   495                                    384
                                                                        --------                              ---------
Gross deferred tax assets.................................                28,449                                 29,548
Valuation allowance.......................................               (28,449)                               (29,548)
                                                                         --------                              ---------
Net deferred tax asset....................................                     -                                      -
</TABLE>


                                     - 71 -

<PAGE>



Notes to Historical Financial Statements, Continued


No benefit for the  Company's  deferred  tax assets has been  recognized  in the
accompanying  financial  statements  as  they  do not  satisfy  the  recognition
criteria set forth in SFAS 109. The valuation  allowance  decreased $1.1 million
in 1996, increased $7.5 million in 1995, and increased $6.2 million in 1994. The
research and development  tax credit  carryforwards  will generally  expire from
2001 through 2010 if not used by the Company.

The expected  federal  statutory tax benefit of  approximately  $476,000 for the
year ended  September  30, 1996 is  increased by  approximately  $61,000 for the
effect of state and local taxes (net of federal  impact),  $1.1  million for the
effect of the  decrease in valuation  allowance,  and $840,000 for the effect of
stock option  deductions  included in the valuation  allowance and is reduced by
approximately  $2.5 million for the effect of Vinifera Inc.'s net operating loss
carryforwards and certain state net operating loss  carryforwards  being removed
from the consolidated tax group.

Note 8   Research and Development Arrangements

In February  1995, the Company  entered into a  Development,  License and Supply
Agreement with SmithKline  Beecham,  plc (SB) pursuant to which the Company will
conduct research and development  projects funded by SB. Agritope also performed
research work in 1996 and 1995 with respect to  raspberries  which was partially
funded by Sweetbriar  Development,  Inc. under a License Agreement dated October
18, 1994 and with respect to  grapevine  disease  diagnostics  funded by a grant
from the U.S.  Department of  Agriculture  under the Small  Business  Innovation
Research Program.

During 1994, the Company  participated  in a National Cancer  Institute  program
whereby the  Company  received  funding for  research  toward the  treatment  of
cancer.  Agritope has also received  grant  support from the U.S.  Department of
Agriculture,  Oregon  Strawberry  Commission,  and Oregon Raspberry & Blackberry
Commission  for  antifungal  biocontrol  research  and  from  several  strategic
partners.

Revenues  from  research  and  development  arrangements  are  included  in  the
accompanying consolidated statements of operations under the caption "Grants and
contracts." Expenses related to such arrangements are included under the caption
"Research and development  costs." The activity related to these arrangements is
summarized as follows:

<TABLE>
<CAPTION>
Year Ended September 30                                          1996             1995              1994
Epitope Medical Products
<S>                                                           <C>                <C>                <C>   
SB research projects......................................      712,000           40,000                 -
Other.....................................................       17,271            8,672            24,560
                                                              ---------         --------          --------
                                                                729,271           48,672            24,560

Project related expenses..................................    1,087,713          108,645            46,493

Agritope
Government research grants................................      144,987           16,358            33,642
Research projects with strategic partners.................      326,462           40,000                 -
Other.....................................................      114,036           38,012                 -
                                                              ---------         --------       -----------
                                                                585,485           94,370            33,642

Project related expenses..................................      461,460          318,401            35,728
</TABLE>

Note 9  Distribution and Supply Contracts

The Company has entered into several contractual  arrangements,  including those
discussed  in the  following  paragraphs,  for  distribution  of  certain of its
products to customers.

The  Company  continues  to maintain  supply and  distribution  agreements  with
Organon Teknika Corporation (Organon Teknika),  whereby Organon Teknika supplies
the Company's antigen requirements and exclusively distributes the

                                     - 72 -

<PAGE>



Notes to Historical Financial Statements, Continued


Company's  EPIblot HIV confirmatory  tests (EPIblot) on a worldwide basis. As of
April 1,  1994,  the  Company  renewed  the  agreements  which  have an  initial
termination  date of March 31, 1997 (with  successive  one-year  renewal periods
thereafter) and include pricing incentives based on volumes purchased by Organon
Teknika  and  penalties  for  failure to purchase  specified  minimum  quarterly
volumes.  For the years ended September 30, 1996,  1995 and 1994,  respectively,
revenues  generated  from sales of EPIblot to Organon  Teknika were  $1,539,164,
$1,808,431,  and  $1,688,200,  including  export  sales of $62,539,  $72,369 and
$320,700.  The Company has notified Organon Teknika that it intends to renew the
agreements  on mutually  acceptable,  but revised,  terms prior to the scheduled
termination date.

LabOne, Inc. (previously Home Office Reference Laboratory,  Inc.) purchases oral
specimen  devices  from the Company for use in  insurance  testing in return for
non-exclusive  distribution  rights in the United  States  and  Canada  under an
agreement which expires on March 13, 2000, with an automatic  five-year renewal,
unless either party  notifies the other of intent not to renew at least 180 days
prior to the initial  expiration  date. For the years ended  September 30, 1996,
1995 and 1994,  respectively,  revenue  generated  from product sales to LabOne,
Inc. was $1,327,544,  $525,628 and $477,186  including export sales of $394,747,
$58,500 and $110,933.

SB has an exclusive  agreement to market the Company's oral specimen  collection
device  worldwide,  except in several  foreign  countries  and to the  insurance
industry in the U.S., Canada and Japan.

In 1995, SB made an initial license fee payment of $1 million to the Company. SB
also placed $5 million in escrow for future payment to the Company,  of which $1
million was designated for  reimbursement of future research project work and $4
million was designated as an additional license fee to be paid upon FDA approval
of a pending  request  to amend the  labeling  of the  Company's  oral  specimen
collection  device to  indicate a two-year  shelf  life.  The initial $1 million
license  fee was  included  as deferred  revenue  under the  caption  "Salaries,
benefits and other accrued liabilities" in the accompanying consolidated balance
sheets as of September  30, 1995.  The escrowed  funds are not  reflected in the
Company's  financial  statements.  When such  funds are  disbursed  they will be
recognized  as revenue in  accordance  with the  Company's  revenue  recognition
policy. See Note 2.

In April 1996, the FDA granted the Company's  request for extended dating and SB
disbursed  $4  million  plus  interest  from  escrow.  Accordingly  the  Company
recognized income of $5 million in 1996 operating results.


Note 10     Commitments

The Company leases office,  manufacturing,  warehouse and laboratory  facilities
under  operating  lease  agreements  which require  minimum  annual  payments as
follows:
<TABLE>
<CAPTION>

                                     Epitope
                                     Medical
Year Ending September 30                                Products                  Agritope                   Consolidated
<C>                                                   <C>                         <C>                          <C>       
1997 ..............................................   $  345,577                  $189,551                     $  535,128
1998 ..............................................      345,576                   185,394                        530,970
1999 ..............................................      346,356                   150,000                        496,356
2000 ..............................................      109,992                   150,000                        259,992
2001...............................................            -                    50,000                         50,000
                                                     -----------                ----------                     ----------
                                                      $1,147,501                  $724,945                     $1,872,446
</TABLE>

Under the agreements for the lease of its office and laboratory facilities,  the
Company is obligated to the lessor for its share of certain  expenses related to
the use, operation,  maintenance and insurance of the property.  These expenses,
payable  monthly in addition to the base rent,  are not  included in the amounts
shown above.  Rent expense  aggregated  $538,665,  $749,530 and $616,750 for the
years ended September 30, 1996, 1995 and 1994, respectively.

                                     - 73 -

<PAGE>



Notes to Historical Financial Statements, Continued



The Company is also  contingently  liable for a lease which has been assigned to
UAF and the  lease  of  property  which  has been  subleased  to  Petals  in the
following amounts:

<TABLE>
<CAPTION>
Year Ending September 30
<C>                                                                                                           <C>       
1997.............................................................................................             $  328,953
1998.............................................................................................                341,304
1999.............................................................................................                347,184
                                                                                                              ----------
                                                                                                              $1,017,441
</TABLE>

Note 11  Profit Sharing and Savings Plan

The Company  established a profit  sharing and deferred  salary  savings plan in
1986 and restated the plan in 1991. All employees are eligible to participate in
the plan. In addition, the plan permits certain voluntary employee contributions
to be excluded from the employees'  current  taxable income under the provisions
of  Internal  Revenue  Code  Section  401(k)  and  the  regulations  thereunder.
Effective  October 1, 1991, the Company replaced a discretionary  profit sharing
provision with a matching contribution (either in cash, shares of Epitope common
stock,  or partly in both  forms)  equal to 50  percent of an  employee's  basic
contribution, not to exceed 2.5 percent of an employee's compensation. The Board
of Directors  has the  authority to increase or decrease the 50 percent match at
any time.  During 1996,  1995 and 1994,  respectively,  the Company  contributed
$73,315  (4,653  shares  totaling  $73,279 and the  remainder in cash),  $97,631
(5,562 shares  totaling  $97,607 and the remainder in cash),  and $79,981 (4,632
shares  totaling  $79,807 and the remainder in cash to the plan. As of September
30, 1996, 17,035 shares are held by the plan.




                                     - 74 -

<PAGE>



Notes to Historical Financial Statements, Continued


Note 12   Geographic Area Information

The  Company's  products are included in the medical  products and  agricultural
products  industry  segments.  (See Note 1 for a  description  of the  Company's
business.)  The Company's  products are sold  principally  in the United States,
Canada and Europe.  Operating loss represents  revenues less operating expenses.
In computing operating loss,  allocated corporate  administration  expenses have
been included; however, other income and expense items such as interest expense,
miscellaneous  income, and other charges have not been added or deducted.  Other
assets primarily represent cash and cash equivalents, marketable securities, and
prepaid insurance.

Epitope Medical Products
In thousands

<TABLE>
<CAPTION>
Geographic
 Areas                      Revenues                         Operating Loss                Identifiable Assets
                    1996      1995       1994        1996        1995       1994       1996       1995         1994
<S>               <C>       <C>        <C>        <C>        <C>         <C>         <C>        <C>          <C>   
United
 States ......... $4,903    $2,630     $2,062     $(5,287)   $(11,608)   $(6,284)    $4,604     $3,768       $3,464
Canada ..........    404        78        111           -           -          -          -          -            -
Latin
 America ........    100         -          -           -           -          -          -          -            -
Europe ..........     65        72        329           -           -          -          -          -            -
Other ...........    122        76        103           -           -          -          -          -            -
                 -------  --------    -------  ----------  ----------  --------- ----------  ---------     --------
                  $5,594    $2,856     $2,605     $(5,287)   $(11,608)   $(6,284)    $4,604     $3,768       $3,464

Agritope
In thousands

Geographic
 Areas                      Revenues                        Operating Loss                 Identifiable Assets
                    1996      1995       1994        1996        1995       1994       1996       1995         1994
United
 States ..........$  585    $2,110     $2,213     $(2,236)    $(7,810)   $(9,490)    $5,351     $3,923       $4,050
                   -----     -----      -----      -------     -------    -------     -----      -----        -----
                  $  585    $2,110     $2,213     $(2,236)    $(7,810)   $(9,490)    $5,351     $3,923       $4,050

Consolidated
In thousands

Geographic
 Areas                      Revenues                        Operating Loss                 Identifiable Assets
                    1996      1995       1994        1996        1995       1994       1996       1995         1994
United
 States ..........$5,488    $4,739     $4,276     $(7,523)   $(19,418)  $(15,774)    $9,955     $7,691       $7,514
Canada ...........   404        78        111           -           -          -          -          -            -
Latin
 America .........   100         -          -           -           -          -          -          -            -
Europe ...........    65        72        329           -           -          -          -          -            -
Other ............    122       76        103           -           -          -          -          -            -
                  -------  -------    -------  ----------   --------- ---------- ----------  ---------    ---------
                  $6,179    $4,965     $4,819     $(7,523)   $(19,418)  $(15,774)    $9,955     $7,691       $7,514
</TABLE>



                                     - 75 -

<PAGE>



Notes to Historical Financial Statements, Continued


Note 13 Subsequent Events

On October  25, the  Company  received  an offer  from a  representative  of the
holders of the $3.6 million  convertible  notes due June 30,  1997,  whereby the
holders  proposed to convert  such notes into  common  stock of the Company at a
reduced  exchange  price.  On November 14, 1996,  the Company agreed to exchange
$3,380,000 principal amount of Agritope notes for 250,367 shares of common stock
of the  Company  at an  exchange  price of $13.50 per  share.  Accordingly,  the
Company  will  recognize  a charge  to  income  of  approximately  $1.2  million
representing the conversion expense in the first quarter of fiscal 1997.

On November 25, 1996,  the Company  negotiated  an extension to the bank line of
credit previously  maintained by Andrew and Williamson  Sales, Co. (A&W).  Under
terms of the commitment  letter,  the $6.5 million revolving credit line will be
extended  until  February 5, 1998, and will bear interest at prime or LIBOR plus
2.5  percent  at the  Company's  option.  The new line will be  secured by A&W's
accounts receivable,  inventory and equipment and will be guaranteed by Epitope,
Inc.  The new line will  also  contain  various  financial  covenants  including
minimum  working  capital and  tangible net worth levels and maximum debt to net
worth ratios.

On December  12,  1996,  the  Company  merged  with A&W.  A&W is a producer  and
wholesale  distributor of fruits and vegetables based in San Diego,  California.
Under the terms of the merger, the Company issued 520,000 shares of common stock
of Epitope, Inc. in exchange for all of the outstanding common stock of A&W. The
merger has been  accounted  for as a pooling of interests  and will qualify as a
tax-free  reorganization  (see  supplemental  financial  statements).  Based  on
information  available  on December 26,  1996,  and due to  continued  operating
losses  at UAF in the  four  months  ended  October  31,  1996,  coupled  with a
shortfall  in sales and larger  operating  loss than  expected  at Petals in the
fourth  quarter of calendar  1996,  the Company  believes  that the value of its
investment in affiliated  companies has more than  temporarily  declined as both
companies are now expected to show operating losses in fiscal 1997. Accordingly,
the  Company   anticipates  a  non-cash  charge  to  results  of  operations  of
approximately  $1.9 million in the first quarter of fiscal 1997,  reflecting the
permanent impairment in the value of its investment in affiliated companies.



                                     - 76 -

<PAGE>



                        Supplemental Financial Statements

Report of Independent Accountants

To the Board of Directors and Shareholders of
Epitope, Inc.

In our opinion,  the accompanying  balance sheets and the related  statements of
operations, of changes in shareholders'/group  equity, and of cash flows present
fairly,  in all material  respects,  the financial  position of Epitope  Medical
Products  group and Agritope  group (as  described in Note 1 to these  financial
statements)  and Epitope,  Inc. and its  subsidiaries  at September 30, 1996 and
1995,  and the results of their  operations and their cash flows for each of the
three years in the period ended September 30, 1996, in conformity with generally
accepted   accounting   principles.   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 of these  statements  in  accordance  with  generally  accepted  auditing
standards which require that we plan and perform the audit 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,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.

As described in Note 13, on December 12, 1996, Epitope,  Inc. merged with Andrew
and  Williamson  Sales,  Co. in a  transaction  accounted  for as a  pooling  of
interests.  The accompanying  supplemental financial statements give retroactive
effect to the merger.

In our  opinion,  based upon our audits  and the report of other  auditors,  the
accompanying supplemental balance sheets and the related supplemental statements
of  operations,  of  changes  in  shareholders'/group  equity  and of cash flows
present  fairly,  in all material  respects,  the financial  position of Epitope
Medical Products group, Agritope group and Epitope, Inc. and its subsidiaries at
September 30, 1996 and 1995, and the results of their  operations and their cash
flows for each of the three years in the period ended  September  30,  1996,  in
conformity  with  generally  accepted  accounting  principles.  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 did not audit the financial  statements of Andrew and Williamson
Sales, Co., which statements  reflect total assets of $10,774,100 and $7,293,256
at September 30, 1996 and 1995, respectively, and total revenues of $62,471,119,
$52,178,973  and  $62,704,601  for the years ended  September 30, 1996, 1995 and
1994, respectively. Those statements were audited by other auditors whose report
thereon has been furnished to us, and our opinion expressed  herein,  insofar as
it related to the amounts  included  for Andrew and  Williamson  Sales,  Co., is
based solely on the report of the other  auditors.  We  conducted  our audits of
these  financial  statements  in accordance  with  generally  accepted  auditing
standards which require that we plan and perform the audit 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,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits  and the  report of other  auditors  provide a  reasonable  basis for the
opinion expressed above.

PRICE WATERHOUSE LLP

Portland, Oregon
October 28, 1996,  except for Note 13 as to which the date is November 14, 1996,
November 25, 1996, December 12, 1996, and December 26, 1996.


                                     - 77 -

<PAGE>



                        Supplemental Financial Statements

Report of Independent Auditors

To the Board of Directors of
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 shareholders' 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 presently 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




                                     - 78 -

<PAGE>



<TABLE>
<CAPTION>
Supplemental Financial Statements
Epitope Medical Products
Combined Balance Sheets
September 30                                                                        1996                          1995

Assets
Current assets
<S>                                                                         <C>                           <C>         
Cash and cash equivalents (Note 2) .......................                  $    795,787                  $     13,210
Marketable securities (Note 2) ...........................                    18,818,120                    17,080,246
Trade accounts receivable, net (Note 2) ..................                     1,147,599                       231,621
Other accounts receivable ................................                       174,083                       382,753
Inventories (Note 2) .....................................                     1,157,930                     1,433,746
Prepaid expenses .........................................                        89,518                       103,399
                                                                            ------------                  ------------
Total current assets .....................................                    22,183,037                    19,244,975

Property and equipment, net (Notes 2 and 4) ..............                     1,542,757                     1,989,769
Patents and proprietary technology, net (Note 2) .........                       601,234                       415,010
Investments in affiliated companies ......................                             -                       142,510
Other assets and deposits (Note 5) .......................                        22,758                        38,328
                                                                             -----------                   -----------
                                                                             $24,349,786                   $21,830,592

Liabilities and Group Equity
Current liabilities
Accounts payable ..........................................                 $    449,170                  $    819,424
Salaries, benefits and other accrued liabilities
  (Notes 2 and 9) .........................................                    1,368,166                     2,976,167
                                                                             -----------                   -----------
 Total current liabilities ................................                    1,817,336                     3,795,591

Commitments and contingencies (Notes 6, 8, 9,
  10 and 11)...............................................                            -                             -

Group equity (Note 6)
Contributed capital .......................................                   64,237,350                    60,479,315
Accumulated deficit .......................................                  (41,704,900)                  (42,444,314)
                                                                            -------------                 -------------
                                                                              22,532,450                    18,035,001

                                                                             $24,349,786                   $21,830,592


</TABLE>
The accompanying notes are an integral part of these statements.



                                     - 79 -

<PAGE>



<TABLE>
<CAPTION>
Supplemental Financial Statements
Epitope Medical Products
Combined Statements of Operations
For the Year Ended September 30                                            1996              1995                  1994

Revenues
<S>                                                                 <C>              <C>                   <C>        
Product sales .......................................               $ 4,864,378       $ 2,806,850           $ 2,580,798
Grants and contracts ................................                   729,271            48,672                24,560
                                                                     ----------       -----------           -----------
                                                                      5,593,649         2,855,522             2,605,358

Costs and expenses
Product costs .......................................                 2,681,429         3,163,012             2,141,319
Research and development costs ......................                 3,165,838         4,617,246             3,681,326
Selling, general and administrative expenses.........                 5,033,491         6,682,860             3,066,896
                                                                     ----------       -----------           -----------
                                                                     10,880,758        14,463,118             8,889,541

Loss from operations ................................                (5,287,109)      (11,607,596)           (6,284,183)

Other income (expense), net
Interest income......................................                 1,025,030           756,743               237,467
License fee..........................................                 5,000,000                 -                     -
Other, net...........................................                     1,493              (319)               (1,541)
                                                                     ----------        -----------          ------------
                                                                      6,026,523           756,424               235,926

Net income (loss) ...................................               $   739,414      $(10,851,172)          $(6,048,257)

Proforma net income (loss) per share ................               $       .05      $       (.87)          $      (.57)

Proforma weighted average number of shares
  outstanding .......................................                13,960,396        12,406,234            10,570,129
</TABLE>

  The accompanying notes are an integral part of these statements.



                                     - 80 -

<PAGE>



<TABLE>
<CAPTION>
Supplemental Financial Statements
Epitope Medical Products
Combined Statements of Changes in Group Equity
                                                           Contributed             Accumulated
                                                               capital                 deficit                     Total
<S>                                                        <C>                    <C>                       <C>         
Balances at September 30, 1993 ......................      $34,167,582            $(25,544,885)             $  8,622,697
Common stock issued upon
  exercise of options ...............................          636,293                       -                   636,293
Common stock issued as
  compensation ......................................          318,386                       -                   318,386
Compensation expense for
  stock option grants ...............................          823,350                       -                   823,350
Common stock issued upon
  exercise of warrants ..............................        9,718,259                       -                 9,718,259
Common stock issued in
  private placement .................................       17,057,563                       -                17,057,563
Equity issuance costs ...............................       (3,335,261)                      -                (3,335,261)
Net cash to Agritope ................................      (12,132,173)                      -               (12,132,173)
Net loss for the year ...............................                -              (6,048,257)               (6,048,257)
                                                        --------------            -------------             -------------
Balances at September 30, 1994 ......................       47,253,999             (31,593,142)               15,660,857

Common stock issued upon
  exercise of options ...............................        2,145,673                       -                 2,145,673
Common stock issued as
  compensation.......................................          196,802                       -                   196,802
Compensation expense for
  stock option grants ...............................        1,056,335                       -                 1,056,335
Common stock issued upon
  exercise of warrants...............................       18,892,750                       -                18,892,750
Equity issuance costs ...............................         (735,390)                      -                  (735,390)
Net cash to Agritope ................................       (8,330,854)                      -                (8,330,854)
Net loss for the year ...............................                -             (10,851,172)              (10,851,172)
                                                         -------------            -------------             -------------
Balances at September 30, 1995 ......................       60,479,315             (42,444,314)               18,035,001

Common stock issued upon
  exercise of options ...............................        4,886,118                       -                 4,886,118
Common stock issued as compensation .................          249,086                       -                   249,086
Compensation expense for stock
  option grants .....................................          815,019                       -                   815,019
Common stock issued upon
  exercise of warrants ..............................          826,600                       -                   826,600
Equity issuance costs ...............................             (152)                      -                      (152)
Net cash to Agritope ................................       (3,018,636)                      -                (3,018,636)
Net income for the year .............................                -                 739,414                   739,414
                                                         -------------           -------------              ------------
Balances at September 30, 1996 ......................      $64,237,350            $(41,704,900)              $22,532,450
</TABLE>

The accompanying notes are an integral part of these statements.


                                     - 81 -

<PAGE>



<TABLE>
<CAPTION>
Supplemental Financial Statements
Epitope Medical Products
Combined Statements of Cash Flows
For the Year Ended September 30                                     1996                  1995                   1994

Cash flows from operating activities
<S>                                                            <C>                    <C>                    <C>         
Net income (loss) .......................................      $   739,414            $(10,851,172)          $(6,048,257)
Adjustments to reconcile net income (loss)
  to net cash used in operating activities:
Depreciation and amortization ...........................          792,885                 795,295               651,076
(Gain) loss on disposition of property ..................           (1,098)                    319                 1,541
Increase in accounts receivable and
  other receivables .....................................         (707,308)                (76,549)             (180,767)
Increase (decrease) in inventories ......................          275,816                (375,640)             (272,279)
Decrease in prepaid expenses ............................           13,881                  38,031                43,354
Decrease (increase) in other assets and deposits.........           15,570                 (42,658)               (6,227)
Increase (decrease) in accounts payable and
 accrued liabilities ....................................       (2,151,110)              2,273,364               329,875
Common stock issued as compensation for services.........          249,086                 196,802               318,386
Compensation expense for stock option grants and
 deferred salary increases ..............................          815,019               1,056,335               915,351
                                                                ----------             -----------            ----------
Net cash provided by (used in) operating activities .....           42,155              (6,985,873)           (4,247,947)

Cash flows from investing activities
Investment in marketable securities .....................      (47,608,270)            (16,194,994)           (5,603,414)
Proceeds from sale of marketable securities .............       45,870,396               4,718,162                     -
Additions to property and equipment .....................         (180,112)             (1,112,292)             (461,914)
Proceeds from sale of property ..........................            7,432                   1,085                 1,000
Expenditures for patents and proprietary
  technology ............................................         (358,319)               (126,927)             (185,805)
Investment in affiliated companies ......................          142,510                  42,552                64,938
                                                                ----------             -----------           -----------
Net cash used in investing activities ...................       (2,126,363)            (12,672,414)           (6,185,195)

Cash flows from financing activities
Proceeds from issuance of common stock ..................        5,885,573              21,060,912            24,387,702
Cost of common stock issuance ...........................             (152)               (757,877)             (310,849)
Cash to Agritope ........................................       (3,018,636)             (8,330,854)          (12,132,173)
                                                              -------------           -------------         -------------
Net cash provided by financing activities ...............        2,866,785              11,972,181            11,944,680

Net increase (decrease) in cash and cash equivalents ....          782,577              (7,686,106)            1,511,538
Cash and cash equivalents at beginning of year ..........           13,210               7,699,316             6,187,778
                                                             -------------            ------------          ------------
Cash and cash equivalents at end of year ................      $   795,787           $      13,210           $ 7,699,316

The accompanying notes are an integral part of these statements.
</TABLE>

                                     - 82 -

<PAGE>



<TABLE>
<CAPTION>
Supplemental Financial Statements
Agritope
Combined Balance Sheets
September 30                                                   1996                  1995                   1996
                                                                                                        Proforma (1)
  Assets
  Current assets
<S>                                                        <C>                   <C>                    <C>        
  Cash and cash equivalents (Note 2) ................      $ 4,903,476           $ 4,246,687            $ 4,903,476
  Trade accounts receivable, net (Note 2) ...........        3,123,172             1,995,244              3,123,172
  Other accounts receivable .........................           32,337             1,249,554                 32,337
  Inventories (Note 2) ..............................        6,570,187             3,239,441              6,570,187
  Prepaid expenses ..................................           90,656               143,792                 90,656
                                                         -------------          ------------           ------------
  Total current assets ..............................       14,719,828            10,874,718             14,719,828

  Property and equipment, net (Notes 2 and 4) .......        2,658,655             2,068,931              2,658,655
  Patents and proprietary technology, net (Note 2) ..          510,244               140,757                510,244
  Investment in affiliated companies (Note 3) .......        2,651,294             2,185,630              2,651,294
  Other assets and deposits (Note 5) ................          321,011               326,650                234,877
                                                         -------------         -------------           ------------
                                                           $20,861,032           $15,596,686            $20,774,898
  Liabilities and Group Equity
  Current liabilities
  Borrowings under bank line of credit (Note 5) .....      $ 4,125,000           $ 3,150,000            $ 4,125,000
  Subordinated notes (Note 5) .......................        2,236,628                     -              2,236,628
  Current portion of long-term debt (Note 5) ........           98,368               196,134                 98,368
  Convertible notes, due 1997 (Notes 5 and 13) ......        3,620,003                     -                240,003
  Accounts payable ..................................        2,677,881             1,488,940              2,677,881
  Salaries, benefits and other accrued liabilities
    (Notes 2 and 9) .................................        1,208,136               274,959              1,208,136
                                                          ------------          ------------           ------------
  Total current liabilities .........................       13,966,016             5,110,033             10,586,016

  Long-term debt, less current portion (Note 5) .....          527,973               632,515                527,973
  Convertible notes, due 1997 (Notes 5 and 13) ......                -             3,620,003                      -
  Subordinated notes (Note 5) .......................                -             1,015,461                      -
  Commitments and contingencies (Notes 6, 8, 9,
    10 and 11).......................................                -                     -                      -
  Minority interest .................................          215,407                     -                215,407

  Group equity (Note 6)
  Contributed capital ...............................       36,736,343            33,474,043             41,246,863
  Accumulated deficit ...............................      (30,584,707)          (28,255,369)           (31,801,361)
                                                          -------------          ------------           ------------
                                                             6,151,636             5,218,674              9,445,502

                                                           $20,861,032           $15,596,686            $20,774,898
</TABLE>

(1) Reflects the proforma effect of conversion of $3,380,000 principal amount of
Agritope  notes into  250,367  shares of common  stock of Epitope at an exchange
price of $13.50 per share (see Note 13).

The accompanying notes are an integral part of these statements.

                                     - 83 -

<PAGE>



<TABLE>
<CAPTION>
Supplemental Financial Statements
Agritope
Combined Statements of Operations
For the Year Ended September 30                                   1996                    1995                    1994

Revenues
<S>                                                        <C>                     <C>                     <C>        
Product sales .......................................      $62,471,119             $54,194,291             $62,884,343
Grants and contracts ................................          585,485                  94,370                  33,642
                                                         -------------           -------------             -----------
                                                            63,056,604              54,288,661              62,917,985

Costs and expenses
Product costs........................................       57,262,340              52,337,266              60,374,171
Research and development costs ......................        1,338,703               2,204,993               2,368,880
Selling, general and administrative expenses.........        4,789,096               7,516,458               8,280,756
                                                          ------------            ------------             -----------
                                                            63,390,139              62,058,717              71,023,807

Loss from operations ................................         (333,535)             (7,770,056)             (8,105,822)

Other income (expense), net
Interest income......................................          361,938                 408,097                216,934
Interest expense.....................................         (829,231)               (681,859)              (657,059)
Other, net ..........................................         (203,510)                 21,356                 (3,837)
                                                          -------------          -------------           -------------
                                                              (670,803)               (252,406)              (443,962)

Net loss ............................................      $(1,004,338)            $(8,022,462)           $(8,549,784)

Proforma net loss per share .........................      $      (.15)            $     (1.29)           $     (1.62)

Proforma weighted average number of shares
 outstanding ........................................        6,590,710               6,203,117              5,285,064

The accompanying notes are an integral part of these statements.
</TABLE>



                                     - 84 -

<PAGE>



<TABLE>
<CAPTION>
Supplemental Financial Statements
Agritope
Combined Statements of Changes in Group Equity
                                                           Contributed             Accumulated
                                                               capital                 deficit                   Total
<S>                                                        <C>                    <C>                     <C>         
Balances at September 30, 1993 ......................      $11,281,128            $(10,809,123)           $    472,005
Common stock issued as
  compensation ......................................           50,392                       -                  50,392
Compensation expense for
  stock option grants  ..............................          343,922                       -                 343,922
Common stock issued upon
  exchange of convertible notes .....................          559,964                       -                 559,964
Equity issuance costs ...............................          (40,267)                      -                 (40,267)
Net cash from Epitope Medical Products...............       12,132,173                       -              12,132,173
Distributions to S-corporation shareholders..........                -                (540,000)               (540,000)
Net loss for the year ...............................                -              (8,549,784)             (8,549,784)
                                                         -------------            -------------           -------------
Balances at September 30, 1994 ......................       24,327,312             (19,898,907)              4,428,405

Common stock issued as
  compensation ......................................           69,998                       -                  69,998
Compensation expense for
  stock option grants ...............................          318,375                       -                 318,375
Common stock issued upon
  exchange of convertible notes .....................          449,991                       -                 449,991
Equity issuance costs ...............................          (22,487)                      -                 (22,487)
Net cash from Epitope Medical Products ..............        8,330,854                       -               8,330,854
Distributions to S-corporation shareholders .........                -                (334,000)               (334,000)
Net loss for the year ...............................                -              (8,022,462)             (8,022,462)
                                                         -------------            -------------           -------------
Balances at September 30, 1995 ......................       33,474,043             (28,255,369)              5,218,674

Common stock issued as compensation..................           14,500                       -                  14,500
Compensation expense for stock
  option grants .....................................          229,164                       -                 229,164
Net cash from Epitope Medical Products ..............        3,018,636                       -               3,018,636
Distributions to S-corporation shareholders .........                -              (1,325,000)             (1,325,000)
Net loss for the year ...............................                -              (1,004,338)             (1,004,338)
                                                         -------------            -------------           -------------
Balances at September 30, 1996 ......................      $36,736,343            $(30,584,707)            $ 6,151,636
</TABLE>

The accompanying notes are an integral part of these statements.


                                     - 85 -

<PAGE>



<TABLE>
<CAPTION>
Supplemental Financial Statements
Agritope
Combined Statements of Cash Flows
For the Year Ended September 30                                      1996                    1995                 1994

Cash flows from operating activities
<S>                                                           <C>                     <C>                  <C>         
Net loss ................................................     $(1,004,338)            $(8,022,462)         $(8,549,784)
Adjustments to reconcile net loss to net cash
  used in operating activities:
Depreciation and amortization ...........................         474,256                 859,641              714,420
Loss on disposition of property and investments .........          64,126                  29,560               74,130
Decrease (increase) in accounts receivable and
  other receivables .....................................        (166,475)               (630,054)           1,306,977
Decrease (increase) in inventories ......................      (3,330,746)                222,991           (5,260,547)
Decrease (increase) in prepaid expenses .................          53,136                (100,940)              31,402
Decrease (increase) in other assets and deposits.........         (36,219)                  9,137                6,562
Increase (decrease) in accounts payable and
  accrued liabilities ...................................       2,122,118                 (12,991)           1,678,494
Common stock issued as compensation for services.........          14,500                  69,998               50,392
Compensation expense for stock option grants and
  deferred salary increases .............................         229,164                 318,375              343,922
                                                              -----------             -----------          -----------
Net cash used in operating activities ...................      (1,580,478)             (7,256,745)          (9,604,032)

Cash flows from investing activities
Additions to property and equipment .....................        (925,388)               (308,136)          (2,240,743)
Proceeds from sale of property ..........................               -                  13,258                    -
Expenditures for patents and proprietary
  technology ............................................        (411,943)               (178,208)                 135
Investment in affiliated companies ......................        (529,790)                548,876              (81,750)
Other investments .......................................         (54,278)                 48,990              (99,122)
Minority Interest in affiliated companies ...............         215,407                       -                    -
                                                             ------------            ------------         ------------
Net cash (used in) provided by investing activities .....      (1,705,992)                124,780           (2,421,480)

Cash flows from financing activities
Net borrowings under bank line of credit ................         975,000                 500,000            1,075,000
Issuance of long-term debt ..............................          15,575                  83,034               78,760
Principal payments on long-term debt ....................        (217,883)               (166,955)            (116,020)
Borrowings from shareholders ............................         255,764                   8,365              410,741
Principal payments on borrowings from
  shareholders...........................................        (103,833)               (368,327)             (58,359)
Distributions to S-corporation shareholders..............               -                (334,000)            (540,000)
Cash from Epitope Medical Products ......................       3,018,636               8,330,854           12,132,173
                                                              -----------             -----------          -----------
Net cash provided by financing activities ...............       3,943,259               8,052,971           12,982,295

Net increase in cash and cash equivalents ...............         656,789                 921,006              956,783
Cash and cash equivalents at beginning of year ..........       4,246,687               3,325,681            2,368,898
                                                              -----------             -----------          -----------
Cash and cash equivalents at end of year ................      $4,903,476              $4,246,687           $3,325,681

The accompanying notes are an integral part of these statements.
</TABLE>

                                     - 86 -

<PAGE>



<TABLE>
<CAPTION>
Supplemental Financial Statements
Epitope, Inc. and Subsidiaries
Consolidated Balance Sheets

September 30                                                      1996                    1995                    1996
                                                                                                           Proforma (1)
   Assets
   Current assets
<S>                                                       <C>                     <C>                     <C>         
   Cash and cash equivalents (Note 2) ...............     $  5,699,263            $  4,259,897            $  5,699,263
   Marketable securities (Note 2) ...................       18,818,120              17,080,246              18,818,120
   Trade accounts receivable, net (Note 2) ..........        4,270,771               2,226,865               4,270,771
   Other accounts receivable ........................          206,420               1,632,307                 206,420
   Inventories (Note 2) .............................        7,728,117               4,673,187               7,728,117
   Prepaid expenses .................................          180,174                 247,191                 180,174
                                                          ------------            ------------            ------------
   Total current assets .............................       36,902,865              30,119,693              36,902,865

   Property and equipment, net (Notes 2 and 4) ......        4,201,412               4,058,700               4,201,412
   Patents and proprietary technology, net
    (Note 2) ........................................        1,111,478                 555,767               1,111,478
   Investment in affiliated companies (Note 3) ......        2,651,294               2,328,140               2,651,294
   Other assets and deposits (Note 5) ...............          343,769                 364,978                 257,635
                                                           -----------             -----------             -----------
                                                           $45,210,818             $37,427,278             $45,124,684
   Liabilities and Shareholders' Equity
   Current liabilities
   Borrowings under bank line of credit (Note 5) ....      $ 4,125,000             $ 3,150,000             $ 4,125,000
   Subordinated notes (Note 5) ......................        2,236,628                       -               2,236,628
   Current portion of long-term debt ................           98,368                 196,134                  98,368
   Convertible notes, due 1997 (Notes 5 and 13) .....        3,620,003                       -                 240,003
   Accounts payable .................................        3,127,051               2,308,364               3,127,051
   Salaries, benefits and other accrued liabilities
     (Notes 2 and 9) ................................        2,576,302               3,251,126               2,576,302
                                                           -----------            ------------             -----------
   Total current liabilities ........................       15,783,352               8,905,624              12,403,352

   Long-term debt, less current portion (Note 5) ....          527,973                 632,515                 527,973
   Convertible notes, due 1997 (Notes 5 and 13) .....                -               3,620,003                       -
   Subordinated notes (Note 5) ......................                -               1,015,461                       -
   Commitments and contingencies (Notes 6, 8, 9,
    10 and 11).......................................                -                       -                       -
   Minority Interest ................................          215,407                       -                 215,407

   Shareholders' equity (Note 6)
   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; 13,457,383 and 13,085,130 shares issued
    and outstanding, respectively ...................      100,973,693              93,953,358             105,484,213
   Accumulated deficit ..............................      (72,289,607)            (70,699,683)            (73,506,261)
                                                          -------------           -------------           -------------
                                                            28,684,086              23,253,675              31,977,952

                                                           $45,210,818             $37,427,278             $45,124,684
</TABLE>

 (1) Reflects the proforma effect of conversion of $3,380,000  principal  amount
 of Agritope notes into 250,367 shares of common stock of Epitope at an exchange
 price of $13.50 per share (see Note 13).

 The accompanying notes are an integral part of these statements.

                                     - 87 -

<PAGE>



<TABLE>
<CAPTION>
Supplemental Financial Statements
Epitope, Inc. and Subsidiaries
Consolidated Statements of Operations
   For the Year Ended September 30                                1996                    1995                    1994

   Revenues
<S>                                                       <C>                     <C>                     <C>         
   Product sales ....................................     $ 67,335,497            $ 57,001,141            $ 65,465,141
   Grants and contracts .............................        1,314,756                 143,042                  58,202
                                                          ------------            ------------            ------------
                                                            68,650,253              57,144,183              65,523,343
   Costs and expenses
   Product costs ....................................       59,943,769              55,500,278              62,515,490
   Research and development costs ...................        4,504,541               6,822,239               6,050,206
   Selling, general and administrative expenses......        9,822,587              14,199,318              11,347,652
                                                          ------------            ------------            ------------
                                                            74,270,897              76,521,835              79,913,348

   Loss from operations..............................       (5,620,644)            (19,377,652)            (14,390,005)

   Other income (expense), net
   Interest income...................................        1,386,968               1,164,840                 454,401
   Interest expense..................................         (829,231)               (681,859)               (657,059)
   License fee.......................................        5,000,000                       -                       -
   Other, net........................................         (202,017)                 21,037                  (5,378)
                                                           ------------            -----------              -----------
                                                             5,355,720                 504,018                (208,036)

   Net loss .........................................     $   (264,924)           $(18,873,634)           $(14,598,041)

   Net loss per share ...............................   $         (.02)         $        (1.52)         $        (1.38)

   Weighted average number of shares
    outstanding .....................................       13,181,420              12,406,234              10,570,129

 The accompanying notes are an integral part of these statements.
</TABLE>



                                     - 88 -

<PAGE>



<TABLE>
<CAPTION>
Supplemental Financial Statements
Epitope, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity

                                                                                Common Stock         Accumulated
                                                               Shares           Dollars         deficit           Total
<S>                                                         <C>            <C>            <C>                <C>       
Balances at September 30, 1993..........................    9,611,922      $ 45,448,710   $ (36,354,008)     $9,094,702
Common stock issued upon exercise of options ...........       52,488           636,293               -         636,293
Common stock issued as
 compensation ..........................................       19,678           368,778               -         368,778
Compensation expense for
 stock option grants ...................................            -         1,167,272               -       1,167,272
Common stock issued upon
 exercise of warrants ..................................      618,291         9,718,259               -       9,718,259
Common stock issued upon
 exchange of convertible notes .........................       28,672           559,964               -         559,964
Common stock issued in
 private placement .....................................    1,115,500        17,057,563               -      17,057,563
Equity issuance costs ..................................            -        (3,375,528)              -      (3,375,528)
Distributions to S-corporation shareholders.............            -                 -        (540,000)       (540,000)
Net loss for the year ..................................            -                 -     (14,598,041)    (14,598,041)
                                                          -----------     -------------    -------------   -------------
Balances at September 30, 1994 .........................   11,446,551        71,581,311     (51,492,049)     20,089,262

Common stock issued upon
 exercise of options ...................................      183,525         2,145,673               -       2,145,673
Common stock issued as
 compensation ..........................................       16,013           266,800               -         266,800
Compensation expense for
 stock option grants ...................................            -         1,374,710               -       1,374,710
Common stock issued upon
 exercise of warrants ..................................    1,336,000        18,892,750               -      18,892,750
Common stock issued upon
 exchange of convertible notes .........................       23,041           449,991               -         449,991
Equity issuance costs ..................................            -          (757,877)              -        (757,877)
Distributions to S-corporation shareholders.............            -                 -        (334,000)       (334,000)
Net loss for the years .................................            -                 -     (18,873,634)    (18,873,634)
                                                         ------------      ------------    -------------   -------------
Balances at September 30, 1995 .........................   13,005,130        93,953,358     (70,699,683)     23,253,675

Common stock issued upon
 exercise of options ...................................      386,550         4,886,118               -       4,886,118
Common stock issued as compensation.....................       19,353           263,586               -         263,586
Compensation expense for stock
 option grants .........................................            -         1,044,183               -       1,044,183
Common stock issued upon
 exercise of warrants ..................................       46,350           826,600               -         826,600
Equity issuance costs ..................................            -              (152)              -            (152)
Distributions to S-corporation shareholders.............            -                 -      (1,325,000)     (1,325,000)
Net loss for the year ..................................            -                 -        (264,924)       (264,924)
                                                         ------------      ------------    -------------   -------------
Balances at September 30, 1996 .........................   13,457,383     $ 100,973,693    $(72,289,607)   $ 28,684,086

The accompanying notes are an integral part of these statements.
</TABLE>

                                     - 89 -

<PAGE>



<TABLE>
<CAPTION>
Supplemental Financial Statements
Epitope, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Year Ended September 30                                   1996                    1995                    1994

Cash flows from operating activities
<S>                                                        <C>                    <C>                     <C>          
Net loss ...............................................   $  (264,924)           $(18,873,634)           $(14,598,041)
Adjustments to reconcile net loss to net cash
  used in operating activities:
Depreciation and amortization ..........................     1,267,141               1,654,936               1,365,496
Loss on disposition of property ........................        63,028                  29,879                  75,671
Decrease (increase) in accounts receivable and
  other receivables ....................................      (873,783)               (706,603)              1,126,210
Increase in inventories ................................    (3,054,930)               (152,649)             (5,532,826)
Decrease (increase) in prepaid expenses ................        67,017                 (62,909)                 74,756
Decrease (increase) in other assets and deposits........       (20,649)                (33,521)                    335
Increase in accounts payable and accrued
  liabilities ..........................................       (28,992)              2,260,373               2,008,369
Common stock issued as compensation for
  services..............................................       263,586                 266,800                 368,778
Compensation expense for stock option grants and
  deferred salary increases ............................     1,044,183               1,374,710               1,259,273
                                                           -----------             -----------             -----------
Net cash used in operating activities ..................    (1,538,323)            (14,242,618)            (13,851,979)

Cash flows from investing activities
Investment in marketable securities ....................   (47,608,270)            (16,194,994)             (5,603,414)
Proceeds from sale of marketable securities ............    45,870,396               4,718,162                       -
Additions to property and equipment ....................    (1,105,500)             (1,420,428)             (2,702,657)
Proceeds from sale of property .........................         7,432                  14,343                   1,000
Expenditures for patents and proprietary
  technology ...........................................      (770,262)               (305,135)               (185,670)
Investment in affiliated companies .....................      (387,280)                591,428                 (16,812)
Other investments ......................................       (54,278)                 48,990                 (99,122)
Minority interest in affiliated companies ..............       215,407                       -                       -
                                                          ------------             -----------             -----------
Net cash used in investing activities ..................    (3,832,355)            (12,547,634)             (8,606,675)

Cash flows from financing activities
Net borrowings under bank line of credit ...............       975,000                 500,000               1,075,000
Issuance of long-term debt .............................        15,575                  83,034                  78,760
Principal payments on long-term debt ...................      (217,883)               (166,955)               (116,020)
Proceeds from issuance of common stock .................     5,885,573              21,060,912              24,387,702
Cost of common stock issuance ..........................          (152)               (757,877)               (310,849)
Borrowings from shareholders ...........................       255,764                   8,365                 410,741
Principal payments on borrowings from
  shareholders .........................................      (103,833)               (368,327)                (58,359)
Distributions to S-corporation shareholders.............             -                (334,000)               (540,000)
                                                          ------------             ------------            ------------
Net cash provided by financing activities ..............     6,810,044              20,025,152              24,926,975

Net increase (decrease) in cash and cash equivalents ...     1,439,366              (6,765,100)              2,468,321
Cash and cash equivalents at beginning of year .........     4,259,897              11,024,997               8,556,676
                                                          ------------            ------------            ------------
Cash and cash equivalents at end of year ...............   $ 5,699,263             $ 4,259,897            $ 11,024,997

The accompanying notes are an integral part of these statements.
</TABLE>

                                     - 90 -

<PAGE>



Notes to Supplemental Financial Statements

Note 1     The Company

Epitope,  Inc.  (the  Company or  Epitope)  is an Oregon  corporation  utilizing
biotechnology  to develop and market  medical  diagnostic  products  through its
Epitope  Medical  Products  group  (Epitope  Medical  Products) and superior new
plants and related products through its Agritope group  (Agritope).  Agritope is
also in the business of growing, marketing,  selling, and distributing fresh and
frozen  produce,  primarily  tomatoes  and  strawberries.  Upon  approval of the
proposal to create a new class of common stock (the  Agritope  Stock  Proposal),
the  capital  structure  of Epitope  will be  modified to include two classes of
common stock,  Epitope Medical  Products Common Stock and Agritope Common Stock.
The Epitope Medical Products group (Epitope  Medical  Products) will include the
medical  products  business  conducted  by  the  Company.   The  Agritope  group
(Agritope)  will  include  the  agribusiness   and  agricultural   biotechnology
operations of the Company.

Note 2     Summary of Significant Accounting Policies

Basis  of  Presentation.  The  accompanying  consolidated  financial  statements
include  the  accounts of the Company  and its wholly  owned  subsidiaries.  All
significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.   Assets  and  liabilities  of  majority-owned  subsidiaries  are
included in these statements.  Minority-owned investments and joint ventures are
accounted for using the equity  method.  Investments of less than 20 percent are
carried at cost.

The accompanying  combined financial  statements of the Epitope Medical Products
and  Agritope  groups  have been  prepared  using the  amounts  included  in the
consolidated financial statements of the Company. Assets, liabilities,  revenues
and expenses of each group are included in the respective  financial  statements
of the applicable group.  Cash, cash equivalents and marketable  securities have
been  allocated  80  percent  to  Epitope  Medical  Products  and 20  percent to
Agritope.  Cash advanced and  allocated by the Company to business  units of the
Agritope  group has been reflected as  contributed  capital in the  accompanying
combined financial statements.

On  November  6, 1996 the  Company  agreed to merge with  Andrew and  Williamson
Sales, Co. (A&W) in a transaction to be accounted for as a pooling of interests.
See Note 13. The accompanying consolidated financial statements and the combined
financial  statements  of the Agritope  Group have been  restated to reflect the
merger as if it had occurred at the beginning of the earliest period presented.

Certain  corporate  overhead  services  such  as  accounting,  finance,  general
management, human resources, investor relations, information systems and payroll
are  provided  by the  Company on a  centralized  basis for the  benefit of both
groups  (Shared  Services).  Such expenses have been allocated  between  Epitope
Medical Products and Agritope in the accompanying  combined financial statements
using  activity  indicators  which,  in the opinion of  management,  represent a
reasonable  measure  of  the  respective  group's  utilization  of  such  shared
services.  These activity  indicators,  which will be reviewed  periodically and
adjusted to reflect changes in utilization,  include number of employees, number
of computers,  and level of expenditures.  The accompanying  combined  financial
statements  also include an adjustment to allocate  interest  income in the same
proportion as the allocation of Shared Services  between the two groups.  Future
interest  income will be based on amounts earned by each group.  Shared Services
are included under the caption "Selling, general and administrative expenses" as
follows:


<TABLE>
<CAPTION>
Year Ended September 30                                      1996                      1995                         1994
<S>                                                    <C>                       <C>                          <C>       
Epitope Medical Products ..........................    $3,028,181                $3,575,069                   $1,899,969
Agritope ..........................................     1,069,249                 1,892,370                    1,735,688
                                                      -----------                ----------                   ----------
Consolidated ......................................    $4,097,430                $5,467,439                   $3,635,657
</TABLE>


                                     - 91 -

<PAGE>



Notes to Supplemental Financial Statements, Continued



If the Agritope Stock Proposal is approved,  the Company will provide holders of
Epitope Medical Products and Agritope common stock separate financial statements
prepared  in  accordance   with  generally   accepted   accounting   principles,
management's  discussion  and  analysis of  financial  condition  and results of
operations,  descriptions of businesses and other relevant  information for each
group.  Notwithstanding  the  attribution of assets and  liabilities  (including
contingent  liabilities)  to each  group for the  purposes  of  preparing  their
respective historical and future financial statements,  this attribution and the
change in  capitalization  contemplated  in the Agritope Stock Proposal will not
affect legal title to such assets or responsibility  for such liabilities of the
Company or any of its  subsidiaries.  Holders of each class of common stock will
be common  shareholders of the Company and would be subject to risks  associated
with  an  investment  in  the  Company  and  all  its  businesses,  assets,  and
liabilities.  Liabilities  or  contingencies  of either  group  that  affect the
Company's  resources or financial condition could affect the financial condition
and results of operations of either group.  Under the Agritope  Stock  Proposal,
dividends  to be paid to the  holders  of either  class of common  stock will be
limited to the lesser of funds of the Company legally  available for the payment
of dividends or the  Available  Medical  Products  Dividend  Amount or Available
Agritope Dividend Amount as defined in the Company's  Articles of Incorporation.
The Company has never paid any cash dividends on shares of Epitope common stock.
The Company  currently  intends to retain any of its earnings to finance  future
growth and,  therefore,  does not anticipate paying any cash dividends on either
class of common stock in the  foreseeable  future.  The  dividends  reflected in
these  financial  statements were paid by A&W to its  shareholders  prior to the
merger of A&W with the Company.

Except  as stated in the  amended  Articles  of  Incorporation,  the  accounting
policies  applicable to preparation of financial  statements of either group may
be modified or rescinded at the sole discretion of the Board of Directors of the
Company without the approval of shareholders,  although there is no intention to
do so. In addition,  generally accepted  accounting  principles require that any
change in accounting  policy be preferable (in accordance with such  principles)
to the previous policy.

Cash  and  Cash  Equivalents;   Marketable  Securities.   For  purposes  of  the
consolidated  balance sheets and statements of cash flows, the Company considers
all highly  liquid  investments  with  maturities  at time of  purchase of three
months  or  less to be cash  equivalents.  At  September  30,  1996,  marketable
securities  consisted of commercial paper and U.S.  Treasury  securities with an
original  maturity period greater than three months,  but generally less than 12
months.  The Company's  policy is to invest its excess cash in  securities  that
maximize (a) safety of principal,  (b) liquidity  for operating  needs,  and (c)
after-tax yields.

Effective  October 1, 1994, the Company adopted Financial  Accounting  Standards
Board Statement No. 115 (SFAS 115),  Accounting for Certain  Investments in Debt
and Equity Securities.  Pursuant to SFAS 115, the Company has categorized all of
its investments as available-for-sale  securities and,  accordingly,  unrealized
gains and losses on such investments, if material, will be carried as a separate
component  of  shareholders'  equity.  Such  unrealized  gains and  losses  were
immaterial as of September 30, 1996 and 1995.

Inventories.  Medical products inventories are recorded at the lower of standard
cost (which approximates actual cost on a first-in,  first-out basis) or market.
Growing  crops  (included  in  work-in-process)  are valued at the lower of cost
(representing  direct  and  indirect  production  costs)  or  estimated  market.
Harvested crops and frozen strawberry  inventories  (included in finished goods)
are valued at the lower of  average  cost or market.  Inventory  components  are
summarized as follows:

                                     - 92 -

<PAGE>



Notes to Supplemental Financial Statements, Continued



<TABLE>
<CAPTION>

September 30                                                                1996                                    1995
Epitope Medical Products
<S>                                                                   <C>                                     <C>       
Raw materials.................................................        $  522,824                              $  657,568
Work-in-process ..............................................           389,642                                 379,470
Finished goods ...............................................           192,882                                 295,032
Supplies .....................................................            52,582                                 101,676
                                                                     -----------                             -----------
                                                                      $1,157,930                              $1,433,746
Agritope
Work-in-process...............................................        $4,466,880                              $2,201,073
Finished goods ...............................................         1,740,689                                 741,424
Supplies .....................................................           362,618                                 296,944
                                                                     -----------                             -----------
                                                                      $6,570,187                              $3,239,441
Consolidated
Raw materials ................................................        $  522,824                              $  657,568
Work-in-process ..............................................         4,856,522                               2,580,543
Finished goods ...............................................         1,933,571                               1,036,456
Supplies .....................................................           415,200                                 398,620
                                                                     -----------                             -----------
                                                                      $7,728,117                              $4,673,187
</TABLE>

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 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.

Depreciation and Capitalization  Policies.  Land is stated at cost. Property and
equipment are stated at cost less  accumulated  depreciation.  Expenditures  for
repairs  and  maintenance   are  charged  to  operating   expense  as  incurred.
Expenditures for renewals and betterments are capitalized.

Depreciation and amortization of property and equipment are calculated primarily
under the  straight-line  method over the estimated  lives of the related assets
(three to seven years). Leasehold improvements are amortized over the shorter of
estimated  useful lives or the terms of related leases.  When assets are sold or
otherwise disposed,  cost and related  accumulated  depreciation or amortization
are removed  from the  accounts  and any  resulting  gain or loss is included in
operations.

Accounting For Long-Lived  Assets. The Company reviews its long-lived assets for
impairment periodically or as events or circumstances indicate that the carrying
amount of long-lived  assets may not be  recoverable.  If the estimated net cash
flows are less than the carrying  amount of the long-lived  assets,  the Company
recognizes an impairment  loss in an amount  necessary to write down  long-lived
assets to fair value as determined from expected  discounted  future cash flows.
This  accounting  policy is consistent  with  Statement of Financial  Accounting
Standards No. 121,  Accounting for the  Impairment of Long-Lived  Assets and for
Long-Lived Assets to be Disposed of. There has been no significant impact to the
Company's  financial position or results of operations as the carrying amount of
all long-lived assets is considered recoverable.

Patents  and  Proprietary  Technology.   Direct  costs  associated  with  patent
submissions  and acquired  technology are  capitalized  and amortized over their
minimum estimated economic useful lives, generally five years.


                                     - 93 -

<PAGE>



Notes to Supplemental Financial Statements, Continued



In August 1996, the Company  amended an agreement  pursuant to which it acquired
Agritope's  patented  ethylene control  technology in 1987. A co-inventor of the
technology relinquished all rights to future compensation under the agreement in
exchange  for  a  one-time  cash  payment,   a  research  grant  and  a  limited
non-exclusive   license  to  use  the   technology   for  one  crop.  The  total
consideration of $365,000 is included in Agritope's combined balance sheet under
the caption "Patents and proprietary  technology" and is being amortized over 15
years, the remaining life of the related patent.

Amortization and accumulated amortization are summarized as follows:
<TABLE>
<CAPTION>

                                                          1996          1995              1994
 Amortization for the year ended
   September 30,
<S>                                                  <C>           <C>               <C>      
 Epitope Medical Products                            $ 172,095     $ 130,313         $ 101,339
 Agritope                                               42,456        23,964            13,487
                                                     ---------     ---------         ---------
 Consolidated                                        $ 214,551     $ 154,277         $ 114,826

 Accumulated Amortization at
   September 30,
 Epitope Medical Products                            $ 621,110     $ 449,015         $ 318,702
 Agritope                                               79,907        37,451            13,487
                                                     ---------    ----------        ----------
 Consolidated                                        $ 701,017     $ 486,466         $ 332,189
</TABLE>

Fair Value of Financial  Instruments.  The carrying amount for cash equivalents,
marketable  securities,  accounts  receivable,  borrowings  under  bank  line of
credit, subordinated notes, and accounts payable approximates fair value because
of the  immediate or short-term  maturity of these  financial  instruments.  The
carrying amount for long-term debt and convertible notes approximates fair value
because the related  interest rates are comparable to rates currently  available
to the Company for debt with similar terms and maturities.

Revenue  Recognition.  Product revenues are recognized when the related products
are shipped.  Grant and contract  revenues include funds received under research
and  development  agreements with various  entities.  These grants and contracts
generally  provide for  progress  payments as expenses  are incurred and certain
research  milestones are achieved.  Revenue related to such grants and contracts
is recognized as research milestones are achieved.

Accounts  receivable  are stated net of an allowance  for  doubtful  accounts as
follows:
<TABLE>
<CAPTION>

September 30                                              1996                         1995
<S>                                                   <C>                          <C>     
Epitope Medical Products                              $  6,872                     $  6,872
Agritope                                                64,571                      119,172
                                                      --------                    ---------
Consolidated                                          $ 71,443                     $126,044
</TABLE>

Research and Development. Research and development expenditures are comprised of
those costs  associated with the Company's own ongoing  research and development
activities  including  the costs to prepare  for,  obtain and  compile  clinical
studies  and  other   information  to  support  product  license   applications.
Expenditures  for research and  development  also include costs  incurred  under
contracts to develop certain  products,  including those contracts  resulting in
grant and contract revenues.  All research and development costs are expensed as
incurred.


                                     - 94 -

<PAGE>



Notes to Supplemental Financial Statements, Continued



Income  Taxes.  The  Company  accounts  for certain  revenue  and expense  items
differently for income tax purposes than for financial reporting purposes. These
differences  arise principally from methods used in accounting for stock options
and depreciation rates. Deferred tax assets and liabilities are recognized based
on temporary  differences  between the financial  statement and the tax bases of
assets and  liabilities  using enacted tax rates in effect for the year in which
the temporary differences are expected to reverse.

As a separate  company,  A&W had  elected  S-Corporation  tax  treatment.  As an
S-Corporation,  income or losses passed  through to A&W's  shareholders,  and no
provision for federal  income taxes was  reflected in the financial  statements.
State  income  taxes  applicable  to A&W were  provided at a reduced  rate under
S-Corporation status. Following the merger (see Note 13), A&W will be taxed as a
C-Corporation  and will join with the Company in filing a  consolidated  federal
income tax return.  The termination of the S-Corporation  status is not expected
to have a material  impact on future results of operations.  As of September 30,
1996,  the Company  had net  operating  losses of  approximately  $66.7  million
available to offset future federal and state taxable income,  including  taxable
income of A&W. See Note 7.

To date, both Epitope Medical Products and Agritope have  experienced  operating
losses.  Actual tax payment is a liability  of Epitope as a whole.  The Agritope
Stock  Proposal  provides  that either group may be allocated the tax benefit of
such losses and future losses to reduce current or deferred tax expense and that
such losses will not be carried  forward to reduce the losses of the group which
incurred such losses.  Accordingly,  either group may report lower earnings than
if such losses had been  retained  for the benefit of then group which  incurred
such losses.

Net Income (Loss) Per Share. Net income (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  assumed to have been purchased for
the treasury with the proceeds from the exercise of such.  The weighted  average
number of shares has been adjusted to reflect the issuance of 520,000 additional
shares issued in conjunction  with the merger with A&W (see Note 13). Net income
(loss) per share for Epitope  Medical  Products  and  Agritope is presented on a
proforma  basis  assuming  that the  distribution  of Agritope  common stock and
redesignation  of Epitope,  Inc. common stock as Epitope Medical Products common
stock pursuant to the Agritope Stock Proposal had occurred on October 1, 1993.

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 and investing activities
not included in the  consolidated  statements  of cash flows are  summarized  as
follows:

<TABLE>
<CAPTION>
Year Ended September 30                                  1996                     1995                           1994
Epitope Medical Products
<S>                                                <C>                       <C>                             <C>       
Discount on private placement of common stock......$          -              $        -                      $3,024,413

Agritope
Conversion of notes to equity (Note 5).............$          -              $   427,496                     $  600,231
Investment in nonconsolidated subsidiary...........           -                2,584,979                               -
Distributions to S-corporation shareholders
  declared but not paid............................   1,325,000                        -                               -

</TABLE>
In addition, Agritope paid $568,835; $455,783; and $407,929, for interest during
the years ended September 30 1996, 1995, and 1994, respectively.

                                     - 95 -

<PAGE>



Notes to Supplemental Financial Statements, Continued




Supplemental  Profit  and  Loss  Information.   In  September  1995,  management
announced a  company-wide  reduction  in work force  whereby 48  employees  were
terminated.  The Company charged $607,000 to results of operations for severance
payments and related  expenses for this  program.  As of September  30, 1996 and
1995,  $55,000 and $475,000,  respectively,  of these charges remain accrued and
are  included  in the  accompanying  balance  sheets of the  Company and Epitope
Medical  Products  under the  caption  "Salaries,  benefits  and  other  accrued
liabilities."

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   Investment in Affiliated Companies

In June 1995,  Agritope agreed to sell its wholly owned grape plant  propagation
subsidiary,  Vinifera,  Inc. to VF Holdings,  Inc. (VF), an affiliate of a Swiss
investment group, pursuant to a stock purchase agreement. VF subsequently failed
to  make  all  the  payments  required  under  the VF  Agreement.  As  part of a
settlement  of claims based on VF's  default,  VF retained a 4 percent  minority
interest in  Vinifera  and  relinquished  the  majority  interest to Agritope in
August 1996.

The  reacquisition  of Vinifera in August 1996 has been  accounted for under the
purchase  method.  The net  purchase  price of $916,000  has been  allocated  to
tangible  net assets.  Vinifera's  results of  operations  are  including in the
Agritope Combined Statements of Operations and in the Consolidated Statements of
Operations  through May 1995, and for the month of September 1996. The following
summarized  proforma results of operations are presented as if the reacquisition
had occurred on the first day of each period shown.
<TABLE>
<CAPTION>

Year Ended September 30                              1996                                           1995
                                                     Proforma                                       Proforma
                                 Supplemental    Adjustments      Proforma     Supplemental     Adjustments    Proforma
<S>                                <C>            <C>           <C>              <C>               <C>      <C>        
Agritope
Revenues                           63,056,604        833,949    63,890,553       54,288,661         276,588  54,565,249
Net loss                           (1,004,338)    (1,464,002)   (2,468,340)      (8,022,462)       (460,296) (8,482,758)
Proforma loss per share                 (0.15)         (0.22)        (0.37)           (1.29)          (0.07)      (1.37)

Consolidated
Revenues                           68,650,253        833,949    69,484,202       57,144,183         276,588  57,420,771
Net loss                             (264,924)    (1,464,002)   (1,728,926)     (18,873,634)       (460,296)(19,333,930)
Loss per share                          (0.02)         (0.11)        (0.13)           (1.52)          (0.04)      (1.56)


In May 1995, Agritope's wholly owned subsidiary,  Agrimax Floral Products,  Inc.
(Agrimax),  ceased operations as an independent entity. UAF, Limited Partnership
(UAF), in which Agrimax obtained an 18 percent  interest,  was formed to combine
the Agrimax  operations in Charlotte,  North  Carolina,  with those of Universal
American Flowers, Inc. in Tampa, Florida and Hammond,  Louisiana.  In connection
with the UAF transaction,  Agrimax contributed  inventory,  operating assets and
the right to use its proprietary floral preservative and certain trademarks.  In
May 1996, the equity  interest of Agrimax was reduced to 9 percent as the result
of a recapitalization of UAF.

The St. Paul, Minnesota,  facility of Agrimax ceased operations in June 1995. In
June 1996,  Agrimax  contributed  inventory and operating  assets to Petals USA,
Inc.  (Petals),  a newly formed affiliate of a Canadian fresh flower wholesaler,
in return for a 19.5 percent equity interest in Petals.


                                     - 96 -

<PAGE>



Notes to Supplemental Financial Statements, Continued



The investments by Agrimax are included in the accompanying consolidated balance
sheets of the Company and combined  balance sheets of Agritope under the caption
"Investment in affiliated companies." See Note 13.

For the years ended  September 30, 1995,  1994  respectively,  the  accompanying
financial  statements  of the  Company  and  Agritope  include  revenues of $2.0
million and $2.2 million, and operating losses of $3.8 million, and $6.4 million
attributable  to the Agrimax  and  Vinifera  business  units.  The  accompanying
statements  of  operations  of the  Company  and  Agritope  for the  year  ended
September  30, 1995,  includes the results of operations of Agrimax and Vinifera
through May and also includes a charge of $500,000 primarily attributable to the
disposition of Agrimax.

Note 4     Property and Equipment

Property and equipment are summarized as follows:


</TABLE>
<TABLE>
<CAPTION>
September 30                                                              1996                                  1995
Epitope Medical Products
<S>                                                                  <C>                                   <C>        
Research and development laboratory equipment.............           $ 1,056,883                           $   898,716
Manufacturing equipment ..................................             1,291,546                             1,296,416
Office furniture and equipment ...........................             1,899,948                             2,041,897
Leasehold improvements ...................................             1,084,660                             1,084,660
Construction in progress .................................               134,557                                70,961
                                                                     -----------                           -----------
                                                                       5,467,594                             5,392,650
Less accumulated depreciation and amortization ...........            (3,924,837)                           (3,402,881)
                                                                    -------------                         -------------
                                                                    $  1,542,757                           $ 1,989,769

Agritope
Land .....................................................          $    420,817                           $   420,817
Buildings and improvements ...............................               717,508                               717,508
Research and development laboratory equipment ............               220,919                               196,255
Manufacturing and transportation equipment ...............             2,088,669                             1,789,933
Office furniture and equipment ...........................               188,251                               196,119
Leasehold improvements ...................................               166,398                               173,262
Construction in progress .................................               499,980                                34,650
                                                                    ------------                           -----------
                                                                       4,302,542                             3,528,544
Less accumulated depreciation and amortization............            (1,643,887)                           (1,459,613)
                                                                    -------------                         -------------
                                                                    $  2,658,655                           $ 2,068,931

Consolidated
Land .....................................................          $    420,817                           $   420,817
Buildings and improvements ...............................               717,508                               717,508
Research and development laboratory equipment ............             1,277,802                             1,094,971
Manufacturing and transportation equipment ...............             3,380,215                             3,086,349
Office furniture and equipment ...........................             2,088,199                             2,238,016
Leasehold improvements ...................................             1,251,058                             1,257,922
Construction in progress .................................               634,537                               105,611
                                                                    ------------                           -----------
                                                                       9,770,136                             8,921,194
Less accumulated depreciation and amortization............            (5,568,724)                           (4,862,494)
                                                                    -------------                         -------------
                                                                     $ 4,201,412                           $ 4,058,700
</TABLE>


                                     - 97 -

<PAGE>



Notes to Supplemental Financial Statements, Continued



Note 5     Debt

Bank Line of Credit.  At September 30, 1996, A&W had a bank line of credit which
provided for  borrowings of up to  $6,500,000  and was to expire in August 1997.
Borrowings  under the line bore interest at the bank's prime  interest rate plus
 .5 percent;  were  collateralized by substantially all of the assets of A&W; and
were  guaranteed  by A&W's  shareholders.  The Company had the option to fix the
interest rate for a specified  period of time at the LIBOR rate for such period.
See Note 13.

Convertible Notes. On June 30, 1992, 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 percent  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. The notes are convertible into common stock of the
Company at a  conversion  price of $19.53 per share.  In the event of an initial
public  offering  of Agritope  common  stock,  the notes would be  automatically
converted  to  shares of  Agritope  common  stock at 90  percent  of the  public
offering price.

During the years  ended  September  30, 1995 and 1994,  respectively,  investors
exchanged  $449,991 and $559,964  principal amount of convertible  notes for the
Company's  common stock at a price of $19.53 per share. In conjunction  with the
exchanges,  unamortized  debt issuance  costs of $22,487 and $40,267  related to
such  notes were  recognized  as equity  issuance  costs  during  1996 and 1995,
respectively.  Debt  issuance  costs are  included in other assets and are being
amortized  over the five-year  life of the notes.  Amortization  expense of debt
issuance  costs  for  the  years  ended  September  30,  1996,  1995  and  1994,
respectively,  totaled  $108,257,  $96,136 and $91,715,  leaving an  unamortized
balance of $88,821 and  $197,077 at September  30, 1996 and 1995,  respectively.
See Note 13.

Long-term Debt.  Long-term debt is summarized as follows:
<TABLE>
<CAPTION>

September 30                                                                  1996                                1995
Agritope
<S>                                                                   <C>                                    <C>      
Note payable, interest at 7%,
 due on demand, unsecured .........................................   $          -                           $  50,000
Installment notes, interest at 5.9% to 12.75%
 due various, secured by equipment ................................         59,824                             138,976
Installment note, interest at 9.25%,
 due June 1997, secured by equipment ..............................        263,717                             319,973
Note payable, interest at prime,
 due October 1997, unsecured ......................................        100,000                             100,000
Bank installment note, interest at prime plus
 1.25%, due March 1998, secured by property .......................        202,800                             219,700
                                                                        ----------                          ----------
                                                                           626,341                             828,649
Less current portion ..............................................        (98,368)                           (196,134)
                                                                        -----------                        ------------
                                                                         $ 527,973                           $ 632,515
</TABLE>

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  intent and ability to refinance
this  borrowing  on a  long-term  basis.  Certain  of the notes  above have been
guaranteed by the  shareholders of A&W.  Certain of the note agreements  provide
various financial and other covenants  including minimum working capital and net
worth levels and restricted capital expenditures.


                                     - 98 -

<PAGE>



Notes to Supplemental Financial Statements, Continued



<TABLE>
<CAPTION>
As of September 30, 1996, maturities for long-term debt are as follows:

Year Ending September 30
<C>                                                                                                              <C>     
1997....................................................................................................         $ 98,368
1998 ...................................................................................................          525,532
1999 ...................................................................................................            2,441
                                                                                                                ---------
                                                                                                                 $626,341
</TABLE>

Subordinated  Notes.  The Company has notes  payable to  shareholders  which are
subordinated  to the claims of its bank.  These notes are due on demand and bear
interest at 10 percent. The Company intends to pay these notes in full following
the effective date of the merger. See Note 13.

Note 6     Shareholders' Equity

Authorized  Capital  Stock.  The  Company's  amended  articles of  incorporation
authorize  1,000,000  shares of preferred stock and 30,000,000  shares of common
stock. The Company's Board of Directors has authority to determine  preferences,
limitations and relative rights of the preferred stock.

Common  Stock  Reserved for Future  Issuance.  As of  September  30,  1996,  the
following  shares  of the  Company's  common  stock  were  reserved  for  future
issuance, as more fully described below:

<TABLE>
<CAPTION>
Purpose                                                                                                            Shares
<S>                                                                                                             <C>      
Outstanding warrants ...........................................................................                2,000,640
Outstanding stock options ......................................................................                3,365,726
Employee Stock Purchase Plan subscriptions .....................................................                   42,820
Conversion of notes (Notes 5 and 13) ...........................................................                  185,356
                                                                                                               ----------
                                                                                                                5,594,542
</TABLE>

If the  Agritope  Stock  Proposal is  approved,  the  Company  will issue to the
holders of the above  rights to purchase  shares of Epitope  common  stock or to
convert  notes into such  shares,  as  applicable,  the  equivalent  rights with
respect to  Agritope  common  stock on the basis of  one-half  share of Agritope
common stock for each right to purchase one share of Epitope common stock.

Common Stock  Warrants.  As of September  30, 1996,  the  following  warrants to
purchase shares of common stock were outstanding:

<TABLE>
<CAPTION>
Date of Issuance                                         Shares                  Price                    Expiration Date
<S>                                                  <C>                     <C>                          <C>
September 26, 1991 ..................................   159,150                 $16.00                    September 30, 1997
December 23, 1992 ...................................   988,390                  18.50                    September 30, 1997
July 20, 1993 .......................................   375,000                  20.00                    September 30, 1997
August 1, 1993 ......................................   200,000                  18.50                    September 30, 1997
October 17, 1994 ....................................    50,000                  18.50                    September 30, 1997
November 22, 1994 ...................................   228,100                  18.50                    September 30, 1997
                                                     ----------
                                                      2,000,640
</TABLE>


                                     - 99 -

<PAGE>



Notes to Supplemental Financial Statements, Continued



Stock  Award  Plans.  The  Company's  1991 Stock  Award Plan (the 1991 Plan) was
approved by the  shareholders  during 1991,  replacing the  Company's  Incentive
Stock  Option Plan (ISOP).  The 1991 Plan  provides  for  stock-based  awards to
employees,  outside directors and members of scientific  advisory  committees or
other  consultants.  Awards  which may be  granted  under the 1991 Plan  include
qualified   incentive   stock  options,   nonqualified   stock  options,   stock
appreciation rights, restricted awards, performance awards and other stock-based
awards.

Under the terms of the 1991 Plan, qualified incentive stock options on shares of
common stock may be granted to eligible employees,  including  officers,  of the
Company at an exercise price not less than the fair market value of the stock on
the date of grant.  The maximum term during which any option may be exercised is
ten years  from the date of grant.  To date,  options  have  been  granted  with
four-year vesting schedules.

Options  issued to employees  under the Incentive  Stock Option Plan (ISOP) were
issued at prices not less than the fair market  value of a share of common stock
on the date of grant.  The options are exercisable  after one year from the date
of grant at the rate of 25 percent  per year  cumulatively  and expire ten years
from the date of grant.

The Agritope, Inc. 1992 Stock Award Plan (the 1992 Plan) was adopted by Agritope
and approved by the Company in 1992. The 1992 Plan, which has provisions similar
to those of the Company's 1991 Plan,  authorizes issuance of 2,000,000 shares of
Agritope common stock.  Until Agritope is no longer a wholly owned subsidiary of
the Company,  shares issued  pursuant to exercise of options under the 1992 Plan
will be converted  into shares of the Company's  common stock based on the ratio
of the fair market value of the Company's  common stock to the fair market value
of Agritope common stock on the date of the grant.

The 1991  Plan and 1992 Plan  also  provide  that  nonqualified  options  may be
granted at a price not less than 75 percent of the fair market  value of a share
of common  stock on the date of grant.  The option term and vesting  schedule of
such awards may either be unlimited or have a specified  period in which to vest
and be exercised.  For the discounted  nonqualified  options issued, the Company
amortizes,  on a straight-line basis over the vesting period of the options, the
difference  between the  exercise  price and the fair market value of a share of
stock on the date of grant. As of September 30, 1996,  197,181 shares of Epitope
common stock remain available for grant under the Company's stock award plans.

In October  1995,  the  Financial  Accounting  Standards  Board issued SFAS 123,
Accounting for Stock-Based  Compensation.  SFAS 123 allows  companies which have
stock-based compensation arrangements with employees to adopt a fair-value basis
of accounting  for stock options and other equity  instruments or to continue to
apply the existing  accounting rules under APB Opinion 25,  Accounting for Stock
Issued to Employees,  but with additional  financial statement  disclosure.  The
Company plans to elect the disclosure-only alternative commencing in fiscal 1997
and therefore does not anticipate  that SFAS 123 will have a material  impact on
its financial position or results of operations.

Options  granted and  outstanding  under the  Company's  stock  option plans are
summarized as follows:
<TABLE>
<CAPTION>

                                       1996                            1995                               1994
                             Shares            Price         Shares             Price           Shares            Price
<S>                       <C>           <C>               <C>            <C>                 <C>           <C>         
Outstanding at
 beginning of period ..   3,636,103     $ 1.09-24.94      3,483,432      $ 1.09-24.94        3,052,653     $ 1.09-24.94
Granted ...............     901,379       9.81-18.13        802,050       14.94-18.88          589,850      14.38-22.94
Exercised .............    (386,550)      1.09-17.13       (183,525)       1.84-22.50          (52,488)     12.43-22.50
Canceled ..............    (785,206)     14.38-24.00       (465,854)       7.38-22.94         (106,583)      8.50-22.94
                         -----------                     -----------                        -----------
Outstanding at
 end of period ........   3,365,726     $ 3.50-24.94      3,636,103      $ 1.09-24.94        3,483,432     $ 1.09-24.94

Exercisable ...........   2,302,212     $ 3.50-24.94      2,002,925      $ 1.09-24.94        1,557,505     $ 1.09-24.94
</TABLE>

                                     - 100 -

<PAGE>



Notes to Supplemental Financial Statements, Continued




Pursuant to the 1991 Plan,  973,  3,680 and 11,741  shares of common  stock were
also awarded to  consultants  and members of the Company's  scientific  advisory
committees during 1996, 1995, and 1994, respectively.

Employee Stock Purchase Plans. In 1991, the shareholders  approved the Company's
adoption of the 1991 Employee Stock Purchase Plan (1991 ESPP) covering a maximum
of 100,000 shares of common stock for  subscription  over two offering  periods.
The purchase price for stock  purchased  under the 1991 ESPP for each of the two
24-month  subscription  periods  was the lesser of 85 percent of the fair market
value of a share of common stock at the commencement of the subscription  period
or the fair market value at the close of each  subscription  period. An employee
may also  elect to  withdraw  at any time  during  the  subscription  period and
receive the amounts  paid plus  interest at the rate of 6 percent.  During April
1994,  676  shares,  at a purchase  price of $14.00 per  share,  were  issued to
employees for the second 1991 ESPP purchase period which closed March 31, 1994.

The 1993  Employee  Stock  Purchase  Plan (1993  ESPP),  as amended and restated
effective  February 1, 1993,  covers a maximum of 250,000 shares of common stock
for  subscription  over  established  offering  periods.  The Company's Board of
Directors was granted authority to determine the number of offering periods, the
number of shares offered,  and the length of each period,  provided that no more
than three  offering  periods  (other than  Special  Offering  Subscriptions  as
described  below) may be set  during  each  fiscal  year of the  Company.  Other
provisions of the 1993 ESPP are similar to the 1991 ESPP.  During  April,  1996,
10,106  shares were issued at a price of $11.90 per share.  As of September  30,
1996,  42,820  shares of common stock were  subscribed  for during two offerings
under the 1993 ESPP.  Shares  subscribed for under these 1993 ESPP offerings may
be purchased over 24 months and have initial  subscription  prices of $12.33 and
$8.77 per share for the various offerings.

The 1993 ESPP was amended to allow the Company,  at its  discretion,  to provide
Special  Offering   Subscriptions  whereby  an  employee's  annual  increase  in
compensation  could be deferred  for a one-year  period.  At the end of the one-
year period, the employee can elect to receive the deferred  compensation amount
in the form of cash or shares of the Company's  common stock. The purchase price
for stock  issued  under a Special  Offering  Subscription  is the  lesser of 85
percent of the fair market  value of a share of common stock on the first day of
the calendar  month the  employee's  increase  was  effective or the fair market
value at the close of the one-year  subscription  period.  During 1995 and 1994,
respectively,  5,569 and 2,314 Special Offering  Subscription shares were issued
to employees at an average price of $15.26 and $15.24 per share.

Note 7   Income Taxes

As of September 30, 1996,  the Company had net operating loss  carryforwards  of
approximately $66.7 million and $50.0 million,  respectively,  to offset federal
and state taxable income.  These net operating loss carryforwards will generally
expire from 2001  through 2011 if not used by the  Company.  Approximately  $6.9
million of the Company's net operating  loss  carryforwards  were generated as a
result of deductions  related to the exercise of stock  options.  When utilized,
such  carryforwards,  as tax  effected,  will  be  reflected  in  the  Company's
financial  statements  as an  increase  in  shareholders'  equity  rather than a
reduction of the provision for income taxes.


                                     - 101 -

<PAGE>



Notes to Supplemental Financial Statements, Continued



Significant  components of the Company's  deferred tax asset were as follows (in
thousands):

<TABLE>
<CAPTION>
September 30                                                                1996                                   1995
<S>                                                                     <C>                                    <C>     
Net operating loss carryforwards..............................          $ 24,489                               $ 26,110
Deferred compensation.........................................             1,997                                  1,665
Research & experimentation credit carryforwards...............             1,151                                  1,151
Accrued expenses..............................................               317                                    238
Other.........................................................               495                                    384
                                                                       ---------                               --------
Gross deferred tax assets.....................................            28,449                                 29,548
Valuation allowance...........................................           (28,449)                               (29,548)
                                                                       ---------                               --------
Net deferred tax asset........................................                 -                                      -
</TABLE>

No benefit for the  Company's  deferred  tax assets has been  recognized  in the
accompanying  financial  statements  as  they  do not  satisfy  the  recognition
criteria set forth in SFAS 109. The valuation  allowance  decreased $1.1 million
in 1996, increased $7.5 million in 1995, and increased $6.2 million in 1994. The
research and development  tax credit  carryforwards  will generally  expire from
2001 through 2010 if not used by the Company.

The expected  federal  statutory tax benefit of  approximately  $476,000 for the
year ended  September  30, 1996 is  increased by  approximately  $61,000 for the
effect of state and local taxes (net of federal  impact),  $1.1  million for the
effect of the  decrease in valuation  allowance,  and $840,000 for the effect of
stock option  deductions  included in the valuation  allowance and is reduced by
approximately  $2.5 million for the effect of Vinifera Inc.'s net operating loss
carryforwards and certain state net operating loss  carryforwards  being removed
from the consolidated tax group.

Note 8     Research and Development Arrangements

In February  1995, the Company  entered into a  Development,  License and Supply
Agreement with SmithKline  Beecham,  plc (SB) pursuant to which the Company will
conduct research and development  projects funded by SB. Agritope also performed
research work in 1996 and 1995 with respect to  raspberries  which was partially
funded by Sweetbriar  Development,  Inc. under a License Agreement dated October
18, 1994 and with respect to  grapevine  disease  diagnostics  funded by a grant
from the U.S.  Department of  Agriculture  under the Small  Business  Innovation
Research Program.

During 1994, the Company  participated  in a National Cancer  Institute  program
whereby the  Company  received  funding for  research  toward the  treatment  of
cancer.  Agritope has also received  grant  support from the U.S.  Department of
Agriculture,  Oregon  Strawberry  Commission,  and Oregon Raspberry & Blackberry
Commission  for  antifungal  biocontrol  research  and  from  several  strategic
partners.

Revenues  from  research  and  development  arrangements  are  included  in  the
accompanying consolidated statements of operations under the caption "Grants and
contracts." Expenses related to such arrangements are included under the caption
"Research and development  costs." The activity related to these arrangements is
summarized as follows:

<TABLE>
<CAPTION>
Year Ended September 30
<S>                                                           <C>                <C>                <C>   
Epitope Medical Products                                           1996             1995              1994
SB research projects......................................      712,000           40,000                 -
Other.....................................................       17,271            8,672            24,560
                                                              ---------         --------          --------
                                                                729,271           48,672            24,560

Project related expenses..................................    1,087,713          108,645            46,493
</TABLE>


                                     - 102 -

<PAGE>



Notes to Supplemental Financial Statements, Continued



<TABLE>
<CAPTION>
Agritope                                                          1996             1995              1994
<S>                                                             <C>              <C>                <C>   
Government research grants................................      144,987           16,358            33,642
Research projects with strategic partners.................      326,462           40,000                 -
Other.....................................................      114,036           38,012                 -
                                                              ---------         --------       -----------
                                                                585,485           94,370            33,642

Project related expenses..................................      461,460          318,401            35,728
</TABLE>

Note 9     Distribution and Supply Contracts

The Company has entered into several contractual  arrangements,  including those
discussed  in the  following  paragraphs,  for  distribution  of  certain of its
products to customers.

The  Company  continues  to maintain  supply and  distribution  agreements  with
Organon Teknika Corporation (Organon Teknika),  whereby Organon Teknika supplies
the Company's  antigen  requirements  and exclusively  distributes the Company's
EPIblot HIV  confirmatory  tests (EPIblot) on a worldwide  basis. As of April 1,
1994, the Company renewed the agreements which have an initial  termination date
of March 31, 1997 (with  successive  one-year  renewal  periods  thereafter) and
include  pricing  incentives  based on volumes  purchased by Organon Teknika and
penalties for failure to purchase specified minimum quarterly  volumes.  For the
years ended September 30, 1996, 1995 and 1994, respectively,  revenues generated
from sales of  EPIblot  to Organon  Teknika  were  $1,539,164,  $1,808,431,  and
$1,688,200, including export sales of $62,539, $72,369 and $320,700. The Company
has notified Organon Teknika that it intends to renew the agreements on mutually
acceptable, but revised, terms prior to the scheduled termination date.

LabOne, Inc. (previously Home Office Reference Laboratory,  Inc.) purchases oral
specimen  devices  from the Company for use in  insurance  testing in return for
non-exclusive  distribution  rights in the United  States  and  Canada  under an
agreement which expires on March 13, 2000, with an automatic  five-year renewal,
unless either party  notifies the other of intent not to renew at least 180 days
prior to the initial  expiration  date. For the years ended  September 30, 1996,
1995 and 1994,  respectively,  revenue  generated  from product sales to LabOne,
Inc. was $1,327,544,  $525,628 and $477,186  including export sales of $394,747,
$58,500 and $110,933.

SB has an exclusive  agreement to market the Company's oral specimen  collection
device  worldwide,  except in several  foreign  countries  and to the  insurance
industry in the U.S., Canada and Japan.

In 1995, SB made an initial license fee payment of $1 million to the Company. SB
also placed $5 million in escrow for future payment to the Company,  of which $1
million was designated for  reimbursement of future research project work and $4
million was designated as an additional license fee to be paid upon FDA approval
of a pending  request  to amend the  labeling  of the  Company's  oral  specimen
collection  device to  indicate a two-year  shelf  life.  The initial $1 million
license  fee was  included  as deferred  revenue  under the  caption  "Salaries,
benefits and other accrued liabilities" in the accompanying consolidated balance
sheets as of September  30, 1995.  The escrowed  funds are not  reflected in the
Company's  financial  statements.  When such funds are  disbursed,  they will be
recognized  as revenue in  accordance  with the  Company's  revenue  recognition
policy. See Note 2.

In April 1996, the FDA granted the Company's  request for extended dating and SB
disbursed  $4  million  plus  interest  from  escrow.  Accordingly  the  Company
recognized income of $5 million in 1996 operating results.

Note 10    Commitments and Contingencies

The Company leases office,  manufacturing,  warehouse and laboratory facilities,
and equipment  under  operating  lease  agreements  which require minimum annual
payments as follows:

                                     - 103 -

<PAGE>



Notes to Supplemental Financial Statements, Continued



<TABLE>
<CAPTION>

                                                         Epitope
                                                         Medical
Year Ending September 30                                 Products                     Agritope               Consolidated
<S>                                                    <C>                          <C>                        <C>       
1997 ..............................................    $  345,577                   $  399,731                 $  745,308
1998 ..............................................       345,576                      317,394                    662,970
1999 ..............................................       346,356                      282,000                    628,356
2000 ..............................................       109,992                      282,000                    391,992
2001 ..............................................             -                      182,000                    182,000
                                                     ------------                    ---------                 ----------
                                                       $1,147,501                   $1,463,125                 $2,610,626
</TABLE>

Under the agreements for the lease of its office and laboratory facilities,  the
Company is obligated to the lessor for its share of certain  expenses related to
the use, operation,  maintenance and insurance of the property.  These expenses,
payable  monthly in addition to the base rent,  are not  included in the amounts
shown above. The Company also incurs rent expense for the short-term  storage of
produce. Rent expense aggregated  $1,466,368,  $1,336,021 and $1,441,940 for the
years ended  September 30, 1996, 1995 and 1994,  respectively.  Rent expense and
the future minimum lease commitments above include rent of $132,000 per year for
facilities leased from certain shareholders.

The Company is also  contingently  liable for a lease which has been assigned to
UAF and the  lease  of  property  which  has been  subleased  to  Petals  in the
following amounts:

<TABLE>
<CAPTION>
Year Ending September 30
<C>                                                                                                          <C>       
1997 ............................................................................................            $  328,953
1998 ............................................................................................               341,304
1999 ............................................................................................               347,184
                                                                                                              ---------
                                                                                                             $1,017,441
</TABLE>

Certain  produce  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.

Note 11    Profit Sharing and Savings Plan

The Company  established a profit  sharing and deferred  salary  savings plan in
1986 and restated the plan in 1991. All employees are eligible to participate in
the plan. In addition, the plan permits certain voluntary employee contributions
to be excluded from the employees'  current  taxable income under the provisions
of  Internal  Revenue  Code  Section  401(k)  and  the  regulations  thereunder.
Effective  October 1, 1991, the Company replaced a discretionary  profit sharing
provision with a matching contribution (either in cash, shares of Epitope common
stock,  or partly in both  forms)  equal to 50  percent of an  employee's  basic
contribution, not to exceed 2.5 percent of an employee's compensation. The Board
of Directors  has the  authority to increase or decrease the 50 percent match at
any time.  During 1996,  1995 and 1994,  respectively,  the Company  contributed
$73,315  (4,653  shares  totaling  $73,279 and the  remainder in cash),  $97,631
(5,562 shares  totaling  $97,607 and the remainder in cash),  and $79,981 (4,632
shares  totaling  $79,807 and the remainder in cash to the plan. As of September
30, 1996, 17,035 shares are held by the plan.



                                     - 104 -

<PAGE>



Notes to Supplemental Financial Statements, Continued



Note 12   Geographic Area Information

The  Company's  products are included in the medical  products and  agricultural
products  industry  segments.  (See Note 1 for a  description  of the  Company's
business.)  The Company's  products are sold  principally  in the United States,
Canada and Europe.  Operating loss represents  revenues less operating expenses.
In computing operating loss,  allocated corporate  administration  expenses have
been included; however, other income and expense items such as interest expense,
miscellaneous  income, and other charges have not been added or deducted.  Other
assets primarily represent cash and cash equivalents, marketable securities, and
prepaid insurance.

Epitope Medical Products
In thousands

<TABLE>
<CAPTION>
Geographic
 Areas              Revenues                             Operating Loss                     Identifiable Assets
                    1996      1995       1994        1996        1995       1994       1996       1995         1994
United
<S>               <C>       <C>        <C>        <C>        <C>         <C>         <C>        <C>          <C>   
 States . . . .   $4,903    $2,630     $2,062     $(5,287)   $(11,608)   $(6,284)    $4,604     $3,768       $3,464
Canada . . . .       404        78        111           -           -          -          -          -            -
Latin
 America . . .       100         -          -           -           -          -          -          -            -
Europe . . . .        65        72        329           -           -          -          -          -            -
Other . . . . .      122        76        103           -           -          -          -          -            -
                --------  --------   --------   ---------   ---------  ---------   --------   --------     --------
                  $5,594    $2,856     $2,605     $(5,287)   $(11,608)   $(6,284)    $4,604     $3,768       $3,464


Agritope
In thousands
Geographic
 Areas              Revenues                            Operating Loss                     Identifiable Assets
                    1996      1995       1994        1996        1995       1994       1996       1995         1994
United
 States . . . .  $63,057   $54,289    $62,918      $ (333)    $(7,770)   $(8,106)   $16,875    $13,396      $ 8,197
Latin
 America . . .         -         -          -           -           -          -      3,996      2,201        3,303
              -------------------- ----------    --------    --------   --------   --------   --------     --------
                 $63,057   $54,289    $62,918      $ (333)    $(7,770)   $(8,106)   $20,871    $15,597      $11,500


Epitope, Inc. Consolidated
In thousands
Geographic
 Areas              Revenues                            Operating Loss                     Identifiable Assets
                    1996      1995       1994        1996        1995       1994       1996       1995         1994
United
 States . . . .  $67,959   $56,918    $64,981     $(5,621)   $(19,377)  $(14,390)   $41,825    $35,226      $25,379
Canada . . . .       404        78        111           -           -          -          -          -            -
Latin
 America . . .       100         -          -           -           -          -      3,396      2,201        3,303
Europe . . . .        65        72        329           -           -          -          -          -            -
Other . . . . .      122        76        103           -           -          -          -          -            -
                -------- ---------  --------- -----------  --------------------- ---------- ----------   ----------
                 $68,650   $57,144    $65,523     $(5,621)   $(19,377)  $(14,390)   $45,221    $37,427      $28,682

                                     - 105 -
</TABLE>

<PAGE>



Notes to Supplemental Financial Statements, Continued



Note 13 Subsequent Events

On October  25, the  Company  received  an offer  from a  representative  of the
holders of the $3.6 million  convertible  notes due June 30,  1997,  whereby the
holders  proposed to convert  such notes into  common  stock of the Company at a
reduced  exchange  price.  On November 14, 1996,  the Company agreed to exchange
$3,380,000 principal amount of Agritope notes for 250,367 shares of common stock
of the  Company  at an  exchange  price of $13.50 per  share.  Accordingly,  the
Company  will  recognize  a charge  to  income  of  approximately  $1.2  million
representing the conversion expense in the first quarter of fiscal 1997.

On November 25, 1996,  the Company  negotiated  an extension to the bank line of
credit previously  maintained by A&W. Under terms of the commitment  letter, the
$6.5 million  revolving credit line will be extended until February 5, 1998, and
will bear interest at prime or LIBOR plus 2.5 percent at the  Company's  option.
The new  line  will be  secured  by A&W's  accounts  receivable,  inventory  and
equipment and will be guaranteed by Epitope, Inc. The new line will also contain
various financial  covenants  including minimum working capital and tangible net
worth levels and maximum debt to net worth ratios.

On December 12,  1996,  the Company  merged with A&W, a producer  and  wholesale
distributor of fruits and vegetables based in San Diego,  California.  Under the
terms of the  merger,  the  Company  issued  520,000  shares of common  stock of
Epitope,  Inc. in exchange for all of the  outstanding  common stock of A&W. The
merger has been  accounted  for as a pooling of  interests  in the  accompanying
financial  statements  which have been restated as if the merger occurred on the
first day of the  earliest  period  presented.  The  merger  will  qualify  as a
tax-free reorganization for income tax purposes.

Based on  information  available  on December  26,  1996,  and due to  continued
operating losses at UAF in the four months ended October 31, 1996,  coupled with
a shortfall in sales and larger  operating  loss than  expected at Petals in the
fourth  quarter of calendar  1996,  the Company  believes  that the value of its
investment in affiliated  companies has more than  temporarily  declined as both
companies are now expected to show operating losses in fiscal 1997. Accordingly,
the  Company   anticipates  a  non-cash  charge  to  results  of  operations  of
approximately  $1.9 million in the first quarter of fiscal 1997,  reflecting the
permanent impairment in the value of its investment in affiliated companies.



                                     - 106 -

<PAGE>



No schedules are included with the foregoing  financial  statements  because the
required information is inapplicable or is presented in the financial statements
or related notes thereto.

         (a)(3) Exhibits.

         See Index to Exhibits following the signature page of this report.

         (b)    Reports on Form 8-K.

         None.

                                     - 107 -

<PAGE>



                                   SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the Registrant has duly caused this amendment to this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 12, 1997.


                                  EPITOPE, INC.



                                  By /s/ GILBERT N. MILLER
                                  Gilbert N. Miller
                                  Executive Vice President and 
                                    Chief Financial Officer


                                     - 108 -

<PAGE>



                                INDEX TO EXHIBITS

Exhibit
Number            Exhibit
-------           -------

2.1               Stock Purchase Agreement among Vinifera, Inc., Agritope, Inc.,
                  Epitope,  Inc.,  and VF  Holding,  Inc.,  dated May 31,  1995.
                  Incorporated  by reference to Exhibit 2.1 to the  Registrant's
                  Current Report on Form 8-K dated June 1, 1995.

2.2               Operating and  Transition  Agreement  dated as of May 1, 1995,
                  among Agrimax Floral Products,  Inc., William C. McClure, Gary
                  W. Butler,  Dorothea J. Owens, Timothy C. Finn, John W. Suber,
                  and Anthony J.  Wright.  Incorporated  by reference to Exhibit
                  2.2 to the Registrant's  Current Report on Form 8-K dated June
                  1, 1995.

2.3               Agreement and Plan of  Reorganization  dated as of October 27,
                  1995, by and among Fresche Blossoms L.L.C., UAF, L.P., Agrimax
                  Floral  Products,  Inc.,  Universal  American  Flowers,  Inc.,
                  William C. McClure, Gary W. Butler, Dorothea J. Owens, Timothy
                  C. Finn, John W. Suber,  Jr.,  Anthony J. Wright,  Doug Bauer,
                  and Roxanne E.  Bakula.  Incorporated  by reference to Exhibit
                  2.3 to the  Registrant's  Annual  Report  on Form 10-K for the
                  fiscal year ended September 30, 1995 (the "1995 10-K").

2.4               Acquisition  and  Merger   Agreement   among  Epitope,   Inc.,
                  Thamscoe,  Inc.,  Andrew and  Williamson  Sales,  Co., and the
                  shareholders  of  Andrew  and  Williamson  Sales,  Co.,  dated
                  November 6, 1996.  Incorporated  by  reference to Exhibit 2 to
                  the  Company's  Current  Report on Form 8-K dated  November 6,
                  1996.

3.1               Restated Articles of Incorporation, as amended, of Registrant.
                  Incorporated  by reference to Exhibit 3.1 to the  Registrant's
                  Current Report on Form 8-K dated May 29, 1991.

3.2               Restated Bylaws of Registrant.**

4.1               Stock  Purchase  Agreement  dated  November  9, 1990,  between
                  certain  investors and  Registrant.  Copies of the  agreements
                  with  individual  investors shall be filed with the Commission
                  upon  request  pursuant  to  Instruction  2  of  Item  601  of
                  Regulation S-K ("Item 601,  Instruction  2").  Incorporated by
                  reference to Exhibit 4.2 to the Registrant's  Annual Report on
                  Form 10-K for the year  ended  September  30,  1994 (the "1994
                  10-K").

4.2               Unit Purchase  Agreement  dated September 1991 between certain
                  investors  and  Registrant.  Copies  of  the  agreements  with
                  individual  investors  shall be filed with the Commission upon
                  request pursuant to Item 601,  Instruction 2.  Incorporated by
                  reference to Exhibits 4.1 and 4.2 to the Registrant's  Current
                  Report on Form 8-K dated September 17, 1991.

4.3               Note Purchase  Agreement dated June 10, 1992,  among Agritope,
                  Inc.,  Registrant,  and  certain  investors.   Copies  of  the
                  agreements with  individual  investors shall be filed with the
                  Commission upon request  pursuant to Item 601,  Instruction 2.
                  Incorporated  by reference to Exhibit 4.2 to the  Registrant's
                  Quarterly  Report on Form 10-Q for the fiscal quarterly period
                  ended June 30, 1992.

4.4               Warrant  Purchase  Agreement  dated as of November  25,  1992,
                  between  certain  investors  and  Registrant.  Copies  of  the
                  agreements with  individual  investors shall be filed with the
                  Commission upon request  pursuant to Item 601,  Instruction 2.
                  Incorporated  by reference to Exhibit 4.5 to the  Registrant's
                  Annual  Report on Form 10-K for the year ended  September  30,
                  1992 (the "1992 10-K").


                                     - 109 -

<PAGE>



4.5               1993 Technology  Transfer Warrant Issuance  Agreement dated as
                  of June 15, 1993,  between  certain  investors and Registrant.
                  Copies of the agreements  with  individual  investors shall be
                  filed with the Commission  upon request  pursuant to Item 601,
                  Instruction 2. Incorporated by reference to Exhibit 4.3 to the
                  Registrant's Registration Statement on Form S-3 (No. 33-68510)
                  ("Registration Statement No. 33-68510").

4.6               Form of Letter dated August 1, 1993, from Registrant regarding
                  modification  of the  terms  of the 1993  Technology  Transfer
                  Warrants.   Incorporated   by  reference  to  Exhibit  4.5  to
                  Registration Statement No. 33-68510.

4.7               1993  Warrant  Purchase  Agreement  dated as of July 6,  1993,
                  between  certain  investors  and  Registrant.  Copies  of  the
                  agreements with  individual  investors shall be filed with the
                  Commission upon request  pursuant to Item 601,  Instruction 2.
                  Incorporated  by  reference  to  Exhibit  4.6 to  Registration
                  Statement No. 33-68510.

4.8               Forms of  Notice to  Warrantholders  and  Agreement  Regarding
                  Extension of  Expiration  Date.  Incorporated  by reference to
                  Exhibit  4.1 to the  Registrant's  Current  Report on Form 8-K
                  dated March 29, 1995.

4.9               Notice  to   warrantholders   and  current   form  of  warrant
                  certificate  for warrants  issued in September  1991 offering,
                  reflecting  extension  of  expiration  date.  Incorporated  by
                  reference to Exhibit 4.1 to the Registrant's Current Report on
                  Form 8-K dated September 17, 1996.

4.10              Notice  to   warrantholders   and  current   form  of  warrant
                  certificate  for warrants  issued in December  1992  offering,
                  reflecting  extension  of  expiration  date.  Incorporated  by
                  reference to Exhibit 4.2 to the Registrant's Current Report on
                  Form 8-K dated September 17, 1996.

4.11              Notice  to   warrantholders   and  current   form  of  warrant
                  certificate   for  warrants  issued  in  July  1993  offering,
                  reflecting  extension  of  expiration  date.  Incorporated  by
                  reference to Exhibit 4.3 to the Registrant's Current Report on
                  Form 8-K dated September 17, 1996.

4.12              Notice  to   warrantholders   and  current   form  of  warrant
                  certificate  for  warrants  issued  in August  1993  offering,
                  reflecting  extension  of  expiration  date.  Incorporated  by
                  reference to Exhibit 4.4 to the Registrant's Current Report on
                  Form 8-K dated September 17, 1996.

10.1              Incentive  Stock  Option  Plan  of  Registrant,   as  amended.
                  Incorporated by reference to Exhibit 10.1 to the 1994 10-K.*

10.2              Amended and  Restated  Epitope,  Inc.,  1991 Stock Award Plan.
                  Incorporated by reference to Exhibit 10.2 to the 1994 10-K.*

10.3              Agritope,   Inc.,  1992  Stock  Award  Plan.  Incorporated  by
                  reference to Exhibit 10.3 to the 1992 10-K.*

10.4              Form of  Nonqualified  Stock Option  Agreement to be issued to
                  certain  officers  and  directors  of  Registrant  pursuant to
                  Agritope,   Inc.,  1992  Stock  Award  Plan.  Incorporated  by
                  reference to Exhibit 10.4 to the 1992 10-K.*

10.5              Lease dated July 17, 1990,  among  Registrant,  Koll  Woodside
                  Associates,  a  California  general  partnership,  and  Petula
                  Associates,   Ltd.,  an  Iowa  corporation.   Incorporated  by
                  reference to Exhibit 10.5 to the 1994 10-K.

10.6              Fourth  Amendment  dated May 20, 1994, to Lease dated July 17,
                  1990, among Registrant, Koll Woodside Associates, a California
                  general partnership, and Petula Associates, Ltd., an Iowa

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<PAGE>



                  corporation.  Incorporated by reference to Exhibit 10.1 to the
                  Registrant's  Quarterly  Report  on Form  10-Q for the  fiscal
                  quarterly period ended June 30, 1994 ("June 1994 10-Q").

10.7              Business Park Lease dated May 5, 1994, among Registrant,  Koll
                  Woodside  Associates,  a California general  partnership,  and
                  Petula Associates, Ltd., an Iowa corporation.  Incorporated by
                  reference to Exhibit 10.2 to the June 1994 10-Q.

10.8              Business  Park Lease  dated as of  December  16,  1994,  among
                  Registrant,  Petula Associates Ltd., an Iowa corporation,  and
                  Koll Portland  Associates,  a California general  partnership.
                  Incorporated by reference to Exhibit 10.1 to the  Registrant's
                  Quarterly  Report on Form 10-Q for the fiscal quarterly period
                  ended December 31, 1994.

10.9              Lease Agreement dated as of October 15, 1993, between Kathryne
                  L. Brown and Agrimax Floral  Products,  Inc.  Incorporated  by
                  reference to Exhibit 10.1 to the Registrant's Quarterly Report
                  on Form 10-Q for the fiscal  quarterly  period ended  December
                  31, 1993 ("December 1993 10-Q").

10.10             Lease  dated  as  of  August  25,  1994,   between  Tonka  Bay
                  Associates as agent for M Corp. of Illinois and Agrimax Floral
                  Products,  Inc.  Incorporated by reference to Exhibit 10.10 to
                  the 1994 10-K.

10.11             Office/Warehouse  lease dated as of December 12, 1996, between
                  Williamson and Andrew and Andrew and Williamson Sales, Co.*

10.12             Agreement  dated  December  9, 1987,  between  Registrant  and
                  Adolph Ferro,  Ph.D.  Incorporated by reference to Exhibit 4.3
                  to the 1988 S-1.*

10.13             Amendment to Agreement of December 9, 1987, dated November 11,
                  1996, between Registrant and Adolph J. Ferro, Ph.D.*

10.14             Agreement dated October 3, 1989,  between Sakata Seed America,
                  Inc. and Agritope,  Inc.  Incorporated by reference to Exhibit
                  10.13 to the 1994 10-K.

10.15             Distribution  Agreement  dated as of April  1,  1994,  between
                  Registrant and Organon  Teknika  Corporation.  Incorporated by
                  reference to Exhibit 10.3 to the June 1994 10-Q.

10.16             Supply Agreement dated as of April 1, 1994, between Registrant
                  and Organon Teknika Corporation.  Incorporated by reference to
                  Exhibit 10.4 to the June 1994 10-Q.

10.17             Superior Tomato Associates,  L.L.C.  Operating Agreement dated
                  as of February 19, 1996,  among Sunseeds  Company,  Andrew and
                  Williamson Sales, Co., and Agritope, Inc.**

10.18             Development  and Marketing  Agreement dated as of February 19,
                  1996,  among Superior  Tomato  Associates,  L.L.C.,  Agritope,
                  Inc., Sunseeds Company, and Andrew and Williamson Sales, Co.**

10.19             Form of Indemnification  Agreement for directors and officers.
                  Incorporated by reference to Exhibit 10.4 to the  Registrant's
                  Registration Statement on Form S-4 (No. 333-15705).*

10.20             Amended and Restated  Employment  Agreement  dated  January 8,
                  1991 between Andrew S. Goldstein and Registrant.  Incorporated
                  by  reference  to  Exhibit  10.28 to the  Registrant's  Annual
                  Report on Form 10-K for the year ended September 30, 1991 (the
                  "1991 10-K").*

10.21             Amended and Restated  Employment  Agreement  dated  January 9,
                  1991,   between  Adolph  J.  Ferro,   Ph.D.,  and  Registrant.
                  Incorporated by reference to Exhibit 10.29 to the 1991 10-K.*

10.22             Employment  Agreement dated January 28, 1990,  between Gilbert
                  N. Miller and Registrant. Incorporated by reference to Exhibit
                  10.19 to the 1994 10-K.*

                                     - 111 -

<PAGE>



10.23             Employment  Agreement  dated  July 1,  1990,  between  John H.
                  Fitchen,  M.D. and  Registrant.  Incorporated  by reference to
                  Exhibit 10.20 to the 1994 10-K.*

10.24             Employment  Agreement  dated July 15, 1995,  between  Byron A.
                  Allen,  Jr.,  and  Registrant.  Incorporated  by  reference to
                  Exhibit 10.23 to the 1995 10-K.*

10.25             Employment Agreement dated August 17, 1992, between Richard K.
                  Bestwick,  Ph.D., and Agritope, Inc. Incorporated by reference
                  to Exhibit  10.21 to  Registrant's  Registration  Statement on
                  Form S-4 (No. 333-15705).*

10.26             Employment  Agreement  dated May 31, 1995,  between  Joseph A.
                  Bouckaert  and  Vinifera,  Inc.  Incorporated  by reference to
                  Exhibit 10.20 to Registrant's  Registration  Statement on Form
                  S-4 (No. 333-15705).*

10.27             Employment  Agreement dated December 12, 1996, between Fred L.
                  Williamson and Andrew and Williamson Sales, Co.* **

10.28             Credit  Agreement  dated August 5, 1996,  between  Wells Fargo
                  Bank,  National  Association and Andrew and Williamson  Sales,
                  Co.**

10.29             Development,  License and Supply Agreement between  Registrant
                  and  SmithKline  Beecham  plc  dated  February  24,  1995,  as
                  amended.   Portions  of  this   agreement  have  been  granted
                  confidential  treatment.  Incorporated by reference to Exhibit
                  10.1 to Amendment No. 2 to the  Registrant's  Quarterly Report
                  on Form 10-Q for the fiscal  quarterly  period  ended June 30,
                  1995.

21.               The Registrant's  subsidiaries  are Agritope,  Inc., an Oregon
                  corporation, Vinifera, Inc., an Oregon corporation, Andrew and
                  Williamson Sales, Co., a California  corporation,  and Agrimax
                  Floral Products, Inc., a Minnesota corporation. The Registrant
                  also owns a 67 percent interest in Superior Tomato Associates,
                  L.L.C., a Delaware limited liability company, and a 60 percent
                  interest in Epitope KK, a Japanese limited liability company.

23.1              Consent of Price Waterhouse LLP.

23.2              Consent of Boros and Farrington, APC.

24.               Powers of Attorney.**

*        Management contract or compensatory plan or arrangement.
**       Previously filed.

                                     - 112 -