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 October 31, 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.
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(Exact name of registrant as specified in its charter)
New York 13-2866202
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
60 Executive Blvd., Farmingdale, New York 11735
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(Address of Principal Executive office) (Zip Code)
(631-755-5500)
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(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
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(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 December 7, 2001 the Registrant had 27,085,000 shares of Common Stock
outstanding.
ENZO BIOCHEM, INC.
FORM 10-Q
October 31, 2001
INDEX
PAGE
NUMBER
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheet - October 31, 2001 - (unaudited)
and July 31, 2001 3
Consolidated Statement of Operations
For the three months ended October 31, 2001 and 2000 - (unaudited) 4
Consolidated Statement of Cash Flows
For the three months ended October 31, 2001 and 2000 - (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II - Other Information
Item 1. Legal Proceedings 9
2
ENZO BIOCHEM, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
October 31, July 31,
2001 2001
(unaudited)
-------------------------
(in Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 61,215 $ 58,671
Accounts receivable, less allowance for doubtful accounts 24,142 24,559
Inventories 2,045 2,020
Deferred taxes 1,708 1,708
Prepaid taxes --- 350
Other 984 1,132
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Total current assets 90,094 88,440
Property and equipment, at cost, less accumulated depreciation and amortization 2,561 2,671
Cost in excess of fair value of net tangible assets acquired, less accumulated
amortization 7,730 7,823
Deferred patent costs, less accumulated amortization 3,784 3,865
Other 134 132
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$ 104,303 $ 102,931
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 1,035 $ 2,040
Income taxes payable 964 ---
Accrued legal fees 55 251
Accrued payroll 328 322
Other accrued expenses 519 734
--------- ---------
Total current liabilities 2,901 3,347
Deferred taxes 1,392 1,392
Deferred liability 635 675
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; 27,084,400 shares at October 31, 2001 and
27,080,100, shares at July 31, 2001 271 271
Additional paid-in capital 133,169 133,136
Accumulated deficit (34,065) (35,890)
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Total stockholders' equity 99,375 97,517
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$ 104,303 $ 102,931
========= =========
See accompanying notes
3
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended October 31,
2001 2000
-------------------------------------
(In thousands, except per share data)
Revenues:
Research product revenues $ 6,103 $ 5,365
Clinical laboratory services 8,770 8,494
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Total operating revenues 14,873 13,859
Costs and expenses:
Cost of research product revenues 1,563 1,843
Cost of clinical laboratory services 2,767 2,075
Research and development expense 1,364 1,339
Selling expense 902 861
Provision for uncollectable accounts receivable 3,412 3,206
General and administrative expenses 2,221 2,399
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Total costs and expenses 12,229 11,723
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Income before interest income and provision for taxes on
income 2,644 2,136
Interest income 499 851
-------- --------
Income before provision for taxes on income 3,143 2,987
Provision for taxes on income (1,318) (1,314)
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Net income $ 1,825 $ 1,673
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Net income per common share:
Basic $ .07 $ .06
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Diluted $ .07 $ .06
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Denominator for per share calculation:
Basic 27,085 26,935
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Diluted 27,953 28,316
======== ========
See accompanying notes
4
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Three Months Ended October 31,
2001 2000
------------------------------
(In Thousands)
Cash flows from operating activities:
Net income $ 1,825 $ 1,673
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property
and equipment 249 251
Amortization of costs in excess of fair
value of tangible assets acquired 93 93
Amortization of deferred patent costs 195 180
Deferred income tax provision --- 506
Provision for uncollectable accounts receivable 3,412 3,206
Deferred liabilities (40) (32)
Changes in operating assets and liabilities:
Accounts receivable before provision for
uncollectable amounts (2,995) (2,783)
Inventories (25) 50
Other assets 500 68
Trade accounts payable and other accrued expenses (1,221) (597)
Income taxes payable 964 342
Accrued payroll 5 (44)
Accrued legal fees (196) (409)
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Total adjustments 941 831
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Net cash provided by operating activities 2,766 2,504
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Cash flows from investing activities:
Capital expenditures (139) (288)
Patent costs deferred (113) (128)
Security deposits (3) ---
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Net cash used in investing activities (255) (416)
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Cash flows from financing activities:
Proceeds from exercise of stock options 33 421
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Net cash provided by financing activities 33 421
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Net increase in cash and cash equivalents 2,544 2,509
Cash and cash equivalents at the beginning of the year 58,671 51,027
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Cash and cash equivalents at the end of the period $ 61,215 $ 53,536
======== ========
See accompanying notes
5
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2001
(Unaudited)
1. The consolidated balance sheet as of October 31, 2001, the consolidated
statements of operations for three months ended October 31, 2001 ("2002 Period")
and 2000 ("2001 Period") and the consolidated statements of cash flows for the
three months ended October 31, 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 October 31, 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 2001 Annual Report on Form 10-K. The
results of operations for the three months ended October 31, 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.
Three Months Ended October 31,
2001 2000
-------------------------------------
(In Thousands, except per share data)
Numerator:
Net income for numerator for basic and diluted earnings
per common share $ 1,825 $ 1,673
======= =======
Denominator:
Denominator for basic earnings per common equivalent
share during the period 27,085 26,935
Effect of dilutive securities
Employee and director stock options and warrants 868 1,381
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Denominator for diluted earnings per common equivalent share
and assumed conversions 27,953 28,316
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Basic earnings per share $ .07 $ .06
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Diluted earnings per share $ .07 $ .06
======= =======
6
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2001
(Unaudited)
Note 2 - Segment Information
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
Three Months Ended October 31, Three Months Ended October 31,
2001 2000 2001 2000
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Operating revenues:
Research product revenues $6,103 $5,365 --- ---
Clinical laboratory services --- --- $8,770 $8,494
Cost and expenses:
Cost of research product revenues 1,563 1,843 --- ---
Cost of clinical laboratory services --- 2,767 2,075
Research and development expense 1,364 1,339 --- ---
Interest income --- --- --- ---
Income (loss) before provision for
taxes on income $3,117 $1,903 $327 $1,052
====== ====== ==== ======
Other Consolidated
Three Months Ended October 31, Three Months Ended October 31,
2001 2000 2001 2000
---- ---- ---- ----
--------------------------------------------------------------------------
Operating revenues:
Research product revenues $6,103 $5,365
Clinical laboratory services $8,770 $8,494
Cost and expenses:
Cost of research product revenues 1,563 1,843
Cost of clinical laboratory services 2,767 2,075
Research and development expense 1,364 1,339
Interest income $499 $851 499 851
Income (loss) before provision for
taxes on income $(301) $32 $3,143 $2,987
====== ==== ====== ======
7
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2001
(Unaudited)
Item 2- Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
At October 31, 2001, our cash and cash equivalents totaled $61.2 million, an
increase of $2.5 million from July 31, 2001. We had working capital of $87.2
million at October 31, 2001 compared to $85.1 million at July 31, 2001.
Net cash provided by operating activities for the period ended October 31, 2001
was approximately $2.8 million and as compared to net cash provided by operating
activities of $2.5 million for the period ended October 31, 2000. The increase
in net cash provided by operating activities from 2000 to 2001 period was
primarily due to an increase in net income and a reduction in other assets.
Net cash used in investing activities decreased by approximately $.2 million
from 2001 period, primarily as a result of an decrease in capital expenditures.
Net cash provided by financing activities decreased by approximately $.4 million
from 2001 period primarily as a result of the decrease in proceeds from the
exercise of stock options.
We believe that our current cash position is sufficient for our foreseeable
liquidity and capital resource needs, although there can be no assurance that
future events will not alter such view.
Management is not aware of any material claims, disputes or settled matters
concerning third-party reimbursements that would have a material effect on our
financial statements
Results of Operations
Three months ended October 31, 2001 compared with three months ended October 31,
2000
Revenues from operations for the period ended October 31, 2001 were
$14.9 million which represents an increase of $1.0 million over revenues from
operations for the period ended October 31, 2000. This increase was due to an
increase of $.3 million in revenues from our clinical reference laboratory
operations and an increase of $.7 million in revenues from research product
sales over revenues for such activities. The increase in revenues from the
clinical laboratory operations resulted primarily from an increase in volume of
esoteric testing and from an increase in doctor accounts being serviced. The
increase in research product sales resulted primarily from and an increase in
direct sales of research products of labeling and detection reagents for the
genomics and sequencing markets.
The cost of clinical laboratory services increased by $.7 million primarily due
to an increase in direct operating expenses based on the increased sales volume
of testing. In addition, the cost of sales for research products decreased by
$.3 million as a result of a change in the revenue mix from two of the Company's
non-exclusive distribution agreements.
Our provision for uncollectible accounts receivable increased by $.2 million,
primarily due to an increase in revenue from the clinical reference laboratory.
8
General and Administrative expenses decreased by approximately $.2 million as a
result of a decrease in legal fees.
Interest income, decreased by $.4 million as a result of a decrease in interest
rates.
For the periods ending October 31, 2001 and 2000 we recorded a provision for
income taxes of $1.3 million which was based on the combined effective federal,
state and local income tax rates.
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. In September 1999, the U.S. Court of Appeals for the Federal Circuit
affirmed the decision of the district court. On August 10, 2001, the case was
dismissed pursuant to stipulation of the parties, with each party to bear its
own costs and attorneys' fees. No significant adverse monetary impact to the
Company occurred.
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.
9
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.
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(registrant)
Date: December 12, 2001 by: /s/ Shahram K. Rabbani
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Chief Operating Officer,
Secretary and Treasurer
10