SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark one
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number 1-9974
ENZO BIOCHEM, INC.___________
(Exact name of registrant as specified in its charter)
New York 13-2866202
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
60 Executive Blvd., Farmingdale, New York 11735
(Address of Principal Executive office) (Zip Code)
(631-755-5500)
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value New York Stock Exchange
(Title of Class) (Name of Each Exchange on which Registered)
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 has
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
As of June 1, 2001 the Registrant had 26,982,100 shares of Common Stock
outstanding.
ENZO BIOCHEM, INC.
FORM 10-Q
April 30, 2001
INDEX
PAGE
NUMBER
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - April 30, 2001
and July 31, 2000 3
Consolidated Statement of Operations
For the nine months ended April 30, 2001 and 2000 4
Consolidated Statement of Operations
For the three months ended April 30, 2001 and 2000 5
Consolidated Statement of Cash Flows
For the nine months ended April 31, 2001 and 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II - Other Information
Item 1. Legal Proceedings 11
2
ENZO BIOCHEM, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
April 30, July 31,
2001 2000
(unaudited)
----------------------
(in Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 56,484 $ 51,027
Accounts receivable, less allowance for doubtful accounts 22,782 20,211
Inventories 1,839 1,799
Deferred taxes 800 3,008
Other 1,077 1,071
--------- ---------
Total current assets 82,982 77,116
Property and equipment, at cost, less accumulated depreciation and
amortization
2,723 2,801
Cost in excess of fair value of net tangible assets acquired, less
accumulated amortization 7,915 8,193
Deferred patent costs, less accumulated amortization 3,935 4,048
Other 137 127
--------- ---------
$ 97,692 $ 92,285
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 1,336 $ 1,470
Income taxes payable 247 376
Accrued legal fees 175 665
Accrued payroll 240 301
Other accrued expenses 725 812
--------- ---------
Total current liabilities 2,723 3,624
Deferred liability 706 796
Deferred taxes 689 689
Stockholders' equity:
Preferred Stock, $ .01 par value; authorized 25,000,000 shares; no
shares issued or outstanding
Common Stock, $ .01 par value; authorized 75,000,000 shares;
shares issued and outstanding; 26,974,900 shares at April 30, 2001
and 25,583,700, shares at July 31, 2000 270 255
Additional paid-in capital 130,908 97,350
Accumulated deficit (37,604) (10,429)
--------- ---------
Total stockholders' equity 93,574 87,176
--------- ---------
$ 97,692 $ 92,285
========= =========
See accompanying notes
3
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Nine Months Ended April 30,
2001 2000
---------------------------
(In thousands, except per
share data)
Revenues:
Research product revenues $16,710 $13,204
Clinical laboratory services 26,226 22,551
----------- -----------
Total operating revenues 42,936 35,755
Costs and expenses:
Cost of research product revenues 4,947 5,386
Cost of clinical laboratory services 7,310 6,206
Research and development expense 4,688 3,917
Selling expense 2,798 2,202
Provision for uncollectable accounts receivable 9,234 8,144
General and administrative expenses 7,251 6,485
----------- -----------
Total costs and expenses 36,228 32,340
----------- -----------
Income before interest income and provision for taxes on
income
6,708 3,415
Interest income - net 2,415 1,807
----------- -----------
Income before provision for taxes on income 9,123 5,222
Provision for taxes on income (4,024) (182)
----------- -----------
Net income $5,099 $5,040
=========== ===========
Net income per common share:
Basic $.19 $.19
=========== ===========
Diluted $.18 $.18
=========== ===========
Denominator for per share calculation:
Basic 26,969 26,359
=========== ===========
Diluted 28,079 27,895
=========== ===========
See accompanying notes
4
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended April 30,
----------------------------
2001 2000
----------------------------
(In thousands, except per share data)
Revenues:
Research product revenues $6,104 $4,717
Clinical laboratory services 9,097 7,862
---------- ----------
Total operating revenues 15,201 12,579
Costs and expenses:
Cost of research product revenues 1,492 1,781
Cost of clinical laboratory services 2,810 2,206
Research and development expense 1,749 1,403
Selling expense 1,028 739
Provision for uncollectable accounts receivable 3,038 2,933
General and administrative expenses 2,451 2,119
---------- ----------
Total costs and expenses 12,568 11,181
---------- ----------
Income before interest income and provision for taxes on income
2,633 1,398
Interest income - net 702 635
---------- ----------
Income before provision for taxes on income 3,335 2,033
Provision for taxes on income (1,474) (30)
---------- ----------
Net income $1,861 $2,003
========== ==========
Net income per common share:
Basic $.07 $.08
========== ==========
Diluted $.07 $.07
========== ==========
Denominator for per share calculation:
Basic 26,999 26,338
========== ==========
Diluted 27,899 27,854
========== ==========
See accompanying notes
5
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended April 30,
2001 2000
---------------------------
(In Thousands)
Cash flows from operating activities:
Net income $ 5,099 $ 5,040
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property
and equipment 820 608
Amortization of costs in excess of fair
value of tangible assets acquired 278 278
Amortization of deferred patent costs 540 517
Deferred tax 2,208
Issuance of warrants as compensation for services
performed -- 90
Provision for uncollectable accounts receivable 9,234 8,144
Provision for 401k expense - Paid in company stock 150 140
Other 194 (3)
Changes in operating assets and liabilities:
Accounts receivable before provision for
uncollectable amounts (11,805) (12,628)
Inventories (40) (145)
Other assets (5) (37)
Trade accounts payable and other accrued expenses (358) (183)
Income taxes payable (129) (300)
Accrued payroll (61) --
Accrued legal fees (490) --
---------- ----------
Total adjustments 536 (3,519)
---------- ----------
Net cash provided by operating activities $ 5,635 $ 1,521
---------- ----------
Cash flows from investing activities:
Capital expenditures (756) (568)
Patent costs deferred (427) (351)
Security deposit (10) (2)
---------- ----------
Net cash used in investing activities (1,193) (921)
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock options 1,015 3,842
---------- ----------
Net cash provided by financing activities 1,015 3,842
---------- ----------
Net increase in cash and cash equivalents 5,457 4,442
Cash and cash equivalents at the beginning of the year 51,027 43,218
---------- ----------
Cash and cash equivalents at the end of the period $ 56,484 $ 47,660
========== ==========
6
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2001
(Unaudited)
1. The consolidated balance sheet as of April 30, 2001, the consolidated
statements of operations for the three and nine months ended April 30, 2001
("2001 Period") and 2000 ("2000 Period") and the consolidated statements of cash
flows for the nine months ended April 30, 2001 and 2000 have been prepared by
the Company without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at April 30, 2001 and
for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's 2000 Annual Report on Form 10-K. The
results of operations for the nine months ended April 30, 2001 are not
necessarily indicative of the results that may be expected for the full year.
The Company follows the provisions of SFAS No. 128, "Earnings Per
Share". The following table sets forth the computation of basic and diluted
earnings per share pursuant to SFAS 128.
Nine Months Ended April 30, Three Months Ended April 30,
2001 2000 2001 2000
--------------------------- ----------------------------
(In Thousands, except per share data)
Numerator:
Net income for numerator for basic and
diluted earnings per common share $5,099 $5,040 $1,861 $2,003
Denominator:
Denominator for basic earnings per common
equivalent share during the period 26,969 26,359 26,999 26,338
Effect of dilutive securities
Employee and director stock options and
warrants 1,110 1,536 900 1,516
--------- --------- --------- ---------
Denominator for diluted earnings per common
equivalent share and assumed conversions 28,079 27,895 27,899 27,854
========= ========= ========= =========
Basic earnings per share $.19 $.19 $.07 $.08
========= ========= ========= =========
Diluted earnings per share $.18 $.18 $.07 $.07
========= ========= ========= =========
The Company declared a 5% stock dividend on January 16, 2001 payable
March 20, 2001 to shareholders of record as of February 27, 2001. The shares and
per share data have been adjusted to retroactively reflect this stock dividend.
The Company recorded a charge to accumulated deficit and a credit to common
stock and additional paid in capital in the amount of $32,274,000, which
reflects the fair value of the dividend on the date of declaration.
7
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2001
(Unaudited)
Note 2 - Segment Information
The Company follows the provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131"). The Company has two
reportable segments: research and development and clinical reference
laboratories. The Company's research and development segment conducts research
and development activities as well as selling products derived from these
activities. The clinical reference laboratories provide diagnostic services to
the health care community. The Company evaluates performance based on income
before (provision) for taxes on income. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. Costs excluded from income before (provision)
for taxes on income and reported as other consist of corporate general and
administrative costs which are not allocable to the two reportable segments.
Management of the Company assesses assets on a consolidated basis only and
therefore, assets by reportable segment has not been included in the reportable
segments below.
The following financial information (in thousands) represents the reportable
segments of the Company:
Research and Development Clinical Reference Laboratories
Nine Months Ended April 30, Nine Months Ended April 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
---------------------------------------------------------
Operating revenues:
Research product revenues $ 16,710 $ 13,204 -- --
Clinical laboratory services -- -- $ 26,226 $ 22,551
Cost and expenses:
Cost of research product revenues 4,947 5,386 -- --
Cost of clinical laboratory services -- -- 7,310 6,206
Research and development expense 4,688 3,917 -- --
Interest income -- --
Income before provision for taxes on
income $ 5,711 $ 2,838 $ 3,124 $ 2,287
============ ============ ============ ============
Other Consolidated
Nine Months Ended April 30, Nine Months Ended April 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
---------------------------------------------------------
Operating revenues:
Research product revenues -- -- $ 16,710 $ 13,204
Clinical laboratory services -- -- 26,226 22,551
Cost and expenses:
Cost of research product revenues -- -- 4,947 5,386
Cost of clinical laboratory services -- -- 7,310 6,206
Research and development expense -- -- 4,688 3,917
Interest income 2,485 1,807 2,485 1,807
Income before provision for taxes on
income $ 288 $ 97 $ 9,123 $ 5,222
============ ============ ============ ============
Research and Development Clinical Reference Laboratories
Three Months Ended April 30, Three Months Ended April 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Operating revenues:
Research product revenues $ 6,104 $ 4,717 -- --
Clinical laboratory services -- $ 9,097 $ 7,862
Cost and expenses:
Cost of research product revenues 1,492 1,781 -- --
Cost of clinical laboratory services -- -- 2,810 2,206
Research and development expense 1,749 1,403 -- --
Interest income -- -- -- --
Income before provision for taxes on
income $ 2,310 $ 1,283 $ 998 $ 777
============ ============ ============ ============
Other Consolidated
Three Months Ended April 30, Three Months Ended April 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Operating revenues:
Research product revenues -- -- $ 6,104 $ 4,717
Clinical laboratory services -- -- 9,097 7,862
Cost and expenses:
Cost of research product revenues -- -- 1,492 1,781
Cost of clinical laboratory services -- -- 2,810 2,206
Research and development expense -- -- 1,749 1,403
Interest income 772 635 772 635
Income before provision for taxes on
income $ 27 $ (27) $ 3,335 $ 2,033
============ ============ ============ ============
8
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2001
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The Company at April 30, 2001, had cash and cash equivalents of $56.5
million an increase of $5.5 million from July 31, 2000. The Company had working
capital of $80.3 million at April 30, 2001 compared to $73.5 million at July 31,
2000.
The Company's net income for the nine months ended April 30, 2001 was
$5.1 million which includes depreciation and amortization aggregating
approximately $1.6 million. The Company's positive cash flow from operations was
sufficient to meet its current cash needs for the research and development
programs and other investing activities.
Net cash provided by operating activities for the nine month period
ended April 30, 2001 was approximately $5.6 million and as compared to net cash
provided by operating activities of $1.5 million for the 2000 period. The
increase in net cash provided by operating activities from the 2000 to the 2001
period was primarily due to a deferred income tax provision, a net decrease in
the change in accounts receivable offset by a decrease in other accrued
liabilities.
Net cash used in investing activities increased by approximately
$272,000 as a result of an increase in capital expenditures and patent costs
deferred.
Net cash provided by financing activities decreased by approximately
$2.8 million from the 2000 period primarily as a result of the decrease in
proceeds from the exercise of stock options.
Results of Operations
Nine months ended April 30, 2001 compared with nine months ended April 30, 2000
Revenues from operations for the nine months period ended April 30,
2001 increased by $7.2 million compared to revenues from operations for the nine
month period ended April 30, 2000. This increase was due to an increase of $3.7
million in revenue from the clinical reference laboratory operation and an
increase of $3.5 million of research product sales. The increase in research
product sales resulted primarily from an increase in the sales from the
Company's sales of labeling and detection reagents for the genomics and
sequencing markets. The increase in revenues from the clinical reference
laboratory operations resulted primarily from an increase in esoteric testing
revenue and from an increase in accounts being serviced.
Cost of sales increased by approximately $665,000 as a result of an
increase of $1,104,000 in the expenses related to the services of the
clinical laboratory offset by a decrease of $439,000 in the cost of sales of
research products from the Company's distribution agreements activities.
Research and development expenses increased by approximately $771,000
as a result of an increase in expenses associated with the research programs.
Selling expenses increased by approximately $596,000 primarily due to
an increase in costs associated with the increase in revenue.
9
Provision for uncollectable accounts receivable increased due to the
increase in revenue at the clinical reference laboratory.
General and Administrative expenses increased by approximately $766,000
primarily due to an increase in legal fees.
The provision for income taxes for the nine months ended April 30, 2001
were based on the combined effective federal, state and local income tax rates
of 44%. The provision for income taxes for the nine months ended April 30, 2000
are based on the alternative minimum tax method and current state and local
income taxes provided relate primarily to taxes computed based upon capital.
Results of Operations
Three months ended April 30, 2001 compared with three months ended April 30,
2000
Revenues from operations for the three month period ended April 30,
2001 increased by $2.6 million compared to revenues from operations for the nine
month period ended April 30, 2000. This increase was due to an increase of $1.2
million in revenue from the clinical reference laboratory operation and an
increase of $1.4 million of research product sales. The increase in research
product sales resulted primarily from an increase in the sales from the
Company's sales of labeling and detection reagents for the genomics and
sequencing markets. The increase in revenues from the clinical reference
laboratory operations resulted primarily from an increase in esoteric testing
revenue and from an increase in accounts being serviced.
Cost of sales increased by approximately $315,000 as a result of an
increase of $604,000 in the expenses related to the services of the clinical
laboratory offset by a decrease of $289,000 in the cost of sales of research
products from the Company's distribution agreements activities.
Research and development expenses increased by approximately $346,000
as a result of an increase in expenses associated with the research programs.
Selling expenses increased by approximately $289,000 primarily due to
an increase in costs associated with the increase in revenue.
Provision for uncollectable accounts receivable increased due to the
increase in revenue at the clinical reference laboratory.
General and Administrative expenses increased by approximately $332,000
primarily due to an increase in legal fees.
The provision for income taxes for the three months ended April 30,
2001 were based on the combined effective federal, state and local income taxes
rates of 44%. The provision for income taxes for the three months ended April
30, 2000 are based on the alternative minimum tax method and current state and
local income taxes provided relate primarily to taxes computed based upon
capital.
10
PART II - Other Information
Item 1. Legal Proceedings
In 1993, the Company filed suit in U.S. district court against Calgene, Inc.,
alleging that Calgene's "Flavr Savr" tomato infringed several of the Company's
patents concerning antisense technology. After a trial, the district court ruled
against the Company, ruling that claims of these patents were invalid and not
infringed. The Company appealed from the district court's decision in this
regard, and Calgene cross-appealed from the district court's denial of Calgene's
request for attorneys fees it incurred in defending the Company's suit. In
September 1999, the U.S. Court of Appeals for the Federal Circuit issued a
decision in the appeal. Among other aspects of its decision, the Court of
Appeals remanded the case to the District Court for a determination of whether
the case was exceptional, which related to Calgene's claim for attorney fees.
There can be no assurance that the Company will be successful in connection with
Calgene's claim that the case is exceptional. However, even if the Company is
not successful, management does not believe there will be a significant adverse
monetary impact.
In June 1999, the Company filed suit in the United States District Court for the
Southern District of New York against Gen-Probe Incorporated, Chugai Pharma
U.S.A., Inc., Chugai Pharmaceutical Co., Ltd., bioMerieux, Inc., bioMerieux SA,
and Becton Dickinson and Company, charging them with infringing the Company's
U.S. Patent 4,900,659, which concerns probes for the detection of the bacteria
that causes gonorrhea. On January 26, 2001, the court granted the defendants'
motion for summary judgment that the Company's patent is invalid. The grant of
summary judgment is being appealed to the Court of Appeals for the Federal
Circuit. The appeal proceedings are at an early stage. There can be no assurance
that the Company will be successful in these proceedings. However, even if the
Company is not successful, management does not believe that there will be a
significant adverse monetary impact.
11
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENZO BIOCHEM, INC.
------------------
(registrant)
Date: June 1, 2001 by: /s/ Shahram K. Rabbani
---------------------------
Chief Operating Officer,
Secretary and Treasurer