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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, 2000
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 6, 2000 the Registrant had 25,687,400 shares of Common Stock
outstanding.
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ENZO BIOCHEM, INC.
FORM 10-Q
October 31, 2000
INDEX
PAGE
NUMBER
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheet - October 31, 2000
and July 31, 2000 3
Consolidated Statement of Operations
For the three months ended October 31, 2000 and 1999 4
Consolidated Statement of Cash Flows
For the three months ended October 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
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ENZO BIOCHEM, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
October 31, July 31,
2000 2000
(unaudited)
---------------------------
(in Thousands)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $53,536 $51,027
Accounts receivable, less allowance for doubtful accounts 19,788 20,211
Inventories 1,749 1,799
Deferred taxes 2,502 3,008
Other 1,004 1,071
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Total current assets 78,579 77,116
Property and equipment, at cost, less accumulated depreciation and
amortization 2,838 2,801
Cost in excess of fair value of net tangible assets acquired, less
accumulated amortization 8,100 8,193
Deferred patent costs, less accumulated amortization 3,996 4,048
Other 126 127
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$93,639 $92,285
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $884 $1,470
Income taxes payable 718 376
Accrued legal fees 256 665
Accrued payroll 257 301
Other accrued expenses 801 812
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Total current liabilities 2,916 3,624
Deferred liability 764 796
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; 25,655,800 shares at October
31, 2000 and 25,583,700, shares at July 31, 2000 256 255
Additional paid-in capital 97,770 97,350
Accumulated deficit (8,756) (10,429)
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Total stockholders' equity 89,270 87,176
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$93,639 $92,285
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</TABLE>
See accompanying notes
3
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ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended October 31,
2000 1999
-------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Revenues:
Research product revenues $5,365 $4,332
Clinical laboratory services 8,494 7,280
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Total operating revenues 13,859 11,612
Costs and expenses:
Cost of research product revenues 1,843 1,921
Cost of clinical laboratory services 2,075 2,057
Research and development expense 1,339 1,253
Selling expense 861 699
Provision for uncollectable accounts receivable 3,206 2,486
General and administrative expenses 2,399 2,146
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Total costs and expenses 11,723 10,562
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Income before interest income and (provision) for taxes on
income
2,136 1,050
Interest income 851 564
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Income before (provision) for taxes on income 2,987 1,614
(Provision) for taxes on income (1,314) (97)
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Net income $1,673 $1,517
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Net income per common share:
Basic $.07 $.06
==== ====
Diluted $.06 $.06
==== ====
Denominator for per share calculation:
Basic 25,652 25,079
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Diluted 26,968 26,679
====== ======
</TABLE>
See accompanying notes
4
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ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended October 31,
2000 1999
-------------------------------------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $1,673 $1,517
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property
and equipment 251 198
Amortization of costs in excess of fair
value of tangible assets acquired 93 93
Amortization of deferred patent costs 180 171
Deferred income tax provision 506 ---
Issuance of warrants as compensation for services
performed 30
Provision for uncollectable accounts receivable 3,206 2,486
Deferred liabilities (32) (30)
Changes in operating assets and liabilities:
Accounts receivable before provision for
uncollectable amounts (2,783) (4,540)
Inventories 50 (45)
Other assets 68 227
Trade accounts payable and other accrued expenses (597) 257
Income taxes payable 342 ---
Accrued payroll (44) ---
Accrued legal fees (409) ---
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Net cash provided by operating activities 2,504 364
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Cash flows from investing activities:
Capital expenditures (288) (339)
Patent costs deferred (128) (108)
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Net cash used in investing activities (416) (447)
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Cash flows from financing activities:
Proceeds from exercise of stock options 421 1,142
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Net cash provided by financing activities 421 1,142
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Net increase in cash and cash equivalents 2,509 1,059
Cash and cash equivalents at the beginning of the year 51,027 43,218
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Cash and cash equivalents at the end of the period $53,536 $44,277
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</TABLE>
See accompanying notes
5
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ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2000
(Unaudited)
1. The consolidated balance sheet as of October 31, 2000, the consolidated
statements of operations for three months ended October 31, 2000 ("2001 Period")
and 1999 ("2000 Period") and the consolidated statements of cash flows for the
three months ended October 31, 2000 and 1999 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, 2000 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 three months ended October 31, 2000 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.
<TABLE>
<CAPTION>
Three Months Ended October 31,
2000 1999
-----------------------------------
(In Thousands, except per share data)
<S> <C> <C>
Numerator:
Net income for numerator for basic and diluted earnings
per common share $1,673 $1,517
====== ======
Denominator:
Denominator for basic earnings per common equivalent
share during the period 25,652 25,079
Effect of dilutive securities
Employee and director stock options and warrants 1,316 1,600
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Denominator for diluted earnings per common equivalent share
and assumed conversions 26,968 26,679
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Basic earnings per share $.07 $.06
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Diluted earnings per share $.06 $.06
==== ====
</TABLE>
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ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2000
(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:
<TABLE>
<CAPTION>
Research and Development Clinical Reference Laboratories
Three Months Ended October 31, Three Months Ended October 31,
2000 1999 2000 1999
---- ---- ---- ----
---------------------------------------------------------------------------
Operating revenues:
<S> <C> <C> <C> <C>
Research product revenues $5,365 $4,332 --- ---
Clinical laboratory services --- --- $8,494 $7,280
Cost and expenses:
Cost of research product revenues 1,843 1,921 --- ---
Cost of clinical laboratory services --- --- 2,075 2,057
Research and development expense 1,339 1,253 --- ---
Interest income --- --- --- ---
Income before (provision for) taxes on income $1,903 $851 $1,052 $702
====== ==== ====== ====
<CAPTION>
Other Consolidated
Three Months Ended October 31, Three Months Ended October 31,
2000 1999 2000 1999
---- ---- ---- ----
------------------------------------------------------------------
Operating revenues:
<S> <C> <C> <C> <C>
Research product revenues --- --- $5,365 $4,332
Clinical laboratory services --- --- $8,494 7,280
Cost and expenses:
Cost of research product revenues --- --- 1,843 1,921
Cost of clinical laboratory services --- --- 2,075 2,057
Research and development expense --- --- 1,339 1,253
Interest income $851 $564 851 564
Income before (provision for) taxes on income $32 $61 $2,987 $1,614
=== === ====== ======
</TABLE>
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ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2000
(Unaudited)
Item 3. Legal Proceedings
In March 1993, the Company filed suit in the United States District Court for
the District of Delaware charging patent infringement and acts of unfair
competition against Calgene, Inc. and seeking a declaratory judgment of
invalidity concerning Calgene's plant antisense patent. On February 9, 1994, the
Company filed a second suit in the United States District Court for the District
of Delaware charging Calgene with infringement of a second antisense patent
owned by the Company. Calgene filed a counterclaim in the second Delaware action
seeking a declaration that a third patent belonging to the Company is invalid.
The two Delaware actions have been consolidated and were tried to the Court in
April 1995. In addition, the Company filed suit on March 22, 1994 in the United
States District Court for the Western District of Washington against Calgene and
the Fred Hutchinson Cancer Research Center, alleging that the defendants had
conspired to issue a false and misleading press release regarding a supposed
"patent license" from Hutchinson to Calgene, and conspired to damage the
Company's antisense patents by improperly using confidential information to
challenge them in the Patent Office. The Complaint further charges that
Hutchinson is infringing and inducing Calgene to infringe the Company's
antisense patents. On February 2, 1996, the Delaware Court issued an opinion
ruling against Enzo and in favor of Calgene, finding certain Enzo claims
infringed, but the patent, as a whole not infringed, and finding the claims at
issue invalid for lack of enablement. Calgene's patent was found valid
(non-obvious) over the prior art. On February 29, 1996, the Delaware Court
issued an Order withdrawing its February 2, 1996 Opinion. On April 3, 1997, the
European Patent Office rejected Calgene's opposition that had been lodged
against the Company's related European antisense patent, thereby upholding the
patent's validity. On May 23, 1997, the Japanese Patent Office issued a related
antisense patent owned by the Company.
On June 1, 1998, the U.S. District Court for the District of Delaware issued its
final decision in the case. In its decision the District Court held two of the
Company's three antisense patents invalid and not infringed. The District Court
declined to act on Calgene's claim that the Company's third antisense patent was
invalid, citing lack of evidence. The District Court further held that the
Calgene antisense patent was not invalid. Enzo appealed the District Court's
judgment to the U.S. Court of Appeals for the Federal Circuit and Calgene
cross-appealed. On September 24, 1999, the Court of Appeals issued its decision,
rejecting Calgene's effort to invalidate Enzo's patent in genetic antisense
technology, U.S. Patent No. 5,272,065, thus leaving it valid and standing. The
Court of Appeals also clarified the District Court's judgment regarding two
other of Enzo's genetic antisense patents (5,190,931 and 5,208,149), limiting
judgment of invalidity only to the claims of the two patents which had been
asserted against Calgene. The Court of Appeals remanded the case to the District
Court for determination of whether the case was exceptional, which related to
Calgene's claim for attorney fees. On October 7, 1999, Calgene filed a petition
for rehearing directed to the Court of Appeal's disposition of Calgene's
cross-appeal as to Enzo's `065 patent. The petition was denied on December 1,
1999. There can be no assurance that the Company will be successful in
connection with Calgene's claim that the case is exceptional, which will be the
subject of further proceedings in the District Court. However, even if the
Company is not successful, management does not believe there will be a
significant 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
8
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probes for the detection of the bacteria that causes gonorrhea. The case remains
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 monetary impact.
Item 2- Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Company at October 31, 2000, had cash and cash equivalents of $53.5
million an increase of $2.5 from July 31, 2000. The Company had working capital
of $75.7 million at October 31, 2000 compared to $73.5 million at July 31, 2000.
The Company's net income before taxes for the three months ended
October 31, 2000 was $3.0 million which includes depreciation and amortization
aggregating approximately $.5 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. 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 decrease in accounts receivable offset
by a decrease in trade accounts payable and other accrued expenses.
Net cash provided by operating activities for the three month period
ended October 31, 2000 was approximately $2.5 million and as compared to net
cash provided by operating activities of $.4 million for the 2000 period. The
increase in net cash provided by operating activities from the 2000 period to
the 2001 period was primarily due to deferred income tax provision, a decrease
in accounts receivable offset by a decrease in trade accounts payable and
other accrued expenses.
Net cash provided by financing activities decreased by approximately
$.7 million from the 2000 period primarily as a result of the decrease in
proceeds from the exercise of stock options.
Results of Operations
Three months ended October 31, 2000 compared with three months ended October 31,
1999
Revenues from operations for the three month period ended October 31,
2000 increased by $2.2 million compared to revenues from operations for the
three month period ended October 31, 1999. This increase was due to an increase
of $1.2 million in revenue from the clinical reference laboratory operation and
an a increase of $1.0 million of research product sales. The increase in
research product sales resulted primarily from a increase in the sales from the
Company's sales of labeling and detection regents 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.
Cost of sales decreased by approximately $60,000 as a result of a
decrease of $78,000 in the cost of sales of research products from the Company's
distribution agreements activities offset by an increase in the cost of clinical
laboratory services of $18,000.
Research and development expenses increased by approximately $86,000 as
a result of an increase in expenses associated with the research programs.
Selling expenses increased by approximately $162,000 primarily due to
an increase in expenses associated with the increase in revenues.
General and Administrative expenses increased by approximately $253,000
primarily due to an increase in legal fees.
The provision for income taxes for the three months ended October 31,
2000 are based on the effective federal, state and local income taxes rates. The
provision for income taxes for the three months ended October 31, 1999 are based
on the alternative minimum tax method
9
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and current state and local income taxes provided relate primarily to taxes
computed based upon capital.
10
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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, 2000 by: /s/ Shahram K. Rabbani
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Chief Operating Officer,
Secretary and Treasurer
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