SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
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, 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.
---------------------------------------------------
(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)
(516-755-5500)
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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
- ----------------------------- -------------------------------------------
(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 7, 2000 the Registrant had 25,514,200 shares of Common Stock
outstanding.
ENZO BIOCHEM, INC.
FORM 10-Q
April 30, 2000
INDEX
PAGE
NUMBER
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - April 30, 2000
and July 31, 1999 3
Consolidated Statement of Operations
For the nine months ended April 30, 2000 and 1999 4
Consolidated Statement of Operations
For the three months ended April 30, 2000 and 1999 5
Consolidated Statement of Cash Flows
For the nine months ended April 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
2
ENZO BIOCHEM, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
April 30, July 31,
2000 1999
(unaudited)
---------------------
(in Thousands)
ASSETS
Current assets:
Cash and cash equivalents $47,660 $43,218
Accounts receivable, less allowance for doubtful accounts 19,492 15,007
Inventories 1,572 1,427
Deferred taxes 1,186 1,186
Other 937 847
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Total current assets 70,847 61,685
Property and equipment, at cost, less accumulated depreciation and
amortization 2,803 2,824
Cost in excess of fair value of net tangible assets acquired, less
accumulated amortization 8,285 8,563
Deferred patent costs, less accumulated amortization 4,145 4,312
Deferred taxes 1,389 1,389
Other 129 127
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$87,598 $78,900
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $1,139 $1,196
Income taxes payable -- 300
Other accrued expenses 951 866
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Total current liabilities 2,090 2,362
Deferred liabilities 830 890
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; 25,454,200 shares at April 30,
2000 and 24,957,700, shares at July 31, 1999 255 250
Additional paid-in capital 96,437 92,452
Accumulated deficit (12,014) (17,054)
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Total stockholders' equity 84,678 75,648
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$87,598 $78,900
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See accompanying notes
3
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Nine Months Ended April 30,
2000 1999
-------------------------------------
(In thousands, except per share data)
Revenues:
Research product revenues $13,204 $12,275
Clinical laboratory services 22,551 21,443
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Total operating revenues 35,755 33,718
Costs and expenses:
Cost of research product revenues 5,386 6,039
Cost of clinical laboratory services 6,206 6,186
Research and development expense 3,917 3,380
Selling expense 2,202 2,039
Provision for uncollectable accounts receivable 8,144 7,885
General and administrative expenses 6,485 5,806
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Total costs and expenses 32,340 31,335
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Income before interest income and provision for taxes on income 3,415 2,383
Interest income - net 1,807 1,475
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Income before provision for taxes on income 5,222 3,858
Provision for taxes on income (182) (153)
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Net income $ 5,040 $ 3,705
======= =======
Net income per common share:
Basic $.20 $.15
==== ====
Diluted $.19 $.15
==== ====
Denominator for per share calculation:
Basic 25,104 24,901
====== ======
Diluted 26,567 25,520
====== ======
See accompanying notes
4
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended April 30,
2000 1999
-------------------------------------
(In thousands, except per share data)
Revenues:
Research product revenues $ 4,717 $ 4,928
Clinical laboratory services 7,862 7,265
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Total operating revenues 12,579 12,193
Costs and expenses:
Cost of research product revenues 1,781 2,315
Cost of clinical laboratory services 2,206 2,133
Research and development expense 1,403 1,083
Selling expense 739 640
Provision for uncollectable accounts receivable 2,933 2,927
General and administrative expenses 2,119 1,834
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Total costs and expenses 11,181 10,932
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Income before interest income and provision for taxes on income 1,398 1,261
Interest income - net 635 458
------- -------
Income before provision for taxes on income 2,033 1,719
Provision for taxes on income (30) (37)
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Net income $ 2,003 $ 1,682
======= =======
Net income per common share:
Basic $.08 $.07
==== ====
Diluted $.08 $.07
==== ====
Denominator for per share calculation:
Basic 25,084 24,907
======= =======
Diluted 26,528 25,530
======= =======
See accompanying notes
5
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended April 30,
2000 1999
---------------------------
(In Thousands)
Cash flows from operating activities:
Net income $ 5,040 $ 3,705
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property
and equipment 608 645
Amortization of costs in excess of fair
value of tangible assets acquired 278 278
Amortization of deferred patent costs 517 499
Issuance of warrants as compensation for services
performed 90 50
Provision for uncollectable accounts receivable 8,144 7,785
Provision for 401k expense 140 --
Issuance of stock for officers life insurance 57 --
Deferred liabilities (60) --
Accretion of interest on note receivable -- (58)
Changes in operating assets and liabilities:
Note receivable - J & J settlement -- 5,000
Accounts receivable before provision for
uncollectable amounts (12,628) (8,066)
Inventories (145) --
Other (37) (21)
Trade accounts payable and other accrued expenses (183) (501)
Income taxes payable (300) (114)
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Total adjustments (3,519) 5,497
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Net cash provided by operating activities $1,521 $9,202
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6
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended April 30,
2000 1999
---------------------------
(In Thousands)
Cash flows from investing activities:
Capital expenditures (568) (694)
Patent costs deferred (351) (325)
Security deposits (2) 29
------- -------
Net cash used in investing activities (921) (990)
------- -------
Cash flows from financing activities:
Payments of obligations under capital lease
and long term debt -- (9)
Proceeds from exercise of stock options 3,842 117
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Net cash provided by financing activities 3,842 108
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Net increase in cash and cash equivalents 4,442 8,320
Cash and cash equivalents at the beginning of the year 43,218 33,543
------- -------
Cash and cash equivalents at the end of the period $47,660 $41,863
======= =======
7
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
(Unaudited)
1. The consolidated balance sheet as of April 30, 2000, the consolidated
statements of operations for three and nine months ended April 30, 2000 ("2000
Period") and 1999 ("1999 Period") and the consolidated statements of cash flows
for the nine months ended April 30, 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 April 30, 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 1999 Annual Report on Form 10-K. The results
of operations for the nine months ended April 30, 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.
Nine Months Ended April 30, Three Months Ended April 30,
2000 1999 2000 1999
-------------------------- ---------------------------
(In Thousands, except per share data)
Numerator:
Net income for numerator for basic and
diluted earnings per common share $5,040 $3,705 $2,003 $1,682
====== ====== ====== ======
Denominator:
Denominator for basic earnings per common
equivalent share during the period 25,104 24,901 25,084 24,907
Effect of dilutive securities
Employee and director stock options and
warrants 1,463 619 1,444 623
------ ------ ------ ------
Denominator for diluted earnings per common
equivalent share and assumed conversions 26,567 25,520 26,528 25,530
====== ====== ====== ======
Basic earnings per share $.20 $.15 $.08 $.07
==== ==== ==== ====
Diluted earnings per share $.19 $.15 $.08 $.07
==== ==== ==== ====
8
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
(Unaudited)
Note 2 - Segment Information
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS No. 131") and retroactively
applied it to fiscal 1998. The adoption of SFAS No. 131 had no impact on the
Company's reported net income or shareholders' equity. 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,
2000 1999 2000 1999
---- ---- ---- ----
----------------------------------------------------------------------
Operating revenues:
Research product revenues $13,204 $12,275 -- --
Clinical laboratory services -- -- $22,551 $21,443
Cost and expenses:
Cost of research product revenues 5,386 6,039 -- --
Cost of clinical laboratory services -- -- 6,206 6,186
Research and development expense 3,917 3,380 -- --
Interest income -- -- -- --
Income before provision for taxes on
income $2,838 $1,892 $2,287 $1,726
====== ====== ====== ======
Three Months Ended April 30, Three Months Ended April 30,
2000 1999 2000 1999
---- ---- ---- ----
----------------------------------------------------------------------
Operating revenues:
Research product revenues $4,717 $4,928 -- --
Clinical laboratory services $7,862 $7,265
Cost and expenses:
Cost of research product revenues 1,781 2,315 -- --
Cost of clinical laboratory services -- -- 2,206 2,133
Research and development expense 1,403 1,083 -- --
Interest income -- -- -- --
Income before provision for taxes on
income $1,283 $1,215 $777 $320
====== ====== ==== ====
Other Consolidated
Nine Months Ended April 30, Nine Months Ended April 30,
2000 1999 2000 1999
---- ---- ---- ----
---------------------------------------------------------------------
Operating revenues:
Research product revenues -- -- $13,204 $12,275
Clinical laboratory services -- -- 22,551 21,443
Cost and expenses:
Cost of research product revenues -- -- 5,386 6,039
Cost of clinical laboratory services -- -- 6,206 6,186
Research and development expense -- -- 3,917 3,380
Interest income 1,807 1,475 1,807 1,475
Income before provision for taxes on
income $97 $239 $5,222 $3,858
=== ==== ====== ======
Three Months Ended April 30, Three Months Ended April 30,
2000 1999 2000 1999
---- ---- ---- ----
---------------------------------------------------------------------
Operating revenues:
Research product revenues -- -- $4,717 $4,928
Clinical laboratory services -- -- 7,862 7,265
Cost and expenses:
Cost of research product revenues -- -- 1,781 2,315
Cost of clinical laboratory services -- -- 2,206 2,133
Research and development expense -- -- 1,403 1,083
Interest income 635 458 635 458
Income before provision for taxes on
income $(27) $184 $2,033 $1,719
===== ==== ====== ======
9
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
(Unaudited)
Note 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 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.
10
Item 2- Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The Company at April 30, 2000, had cash and cash equivalents of
$47,660,100 an increase of $4,442,000 from July 31,1999. The Company had working
capital of $68.8 million at April 30, 2000 compared to $59.3 million at July
31,1999.
The Company's net income before taxes for the nine months ended April
30, 2000 was $5,222,000 which includes depreciation and amortization aggregating
approximately $1,403,000. 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, 2000 was approximately $1,521,000 and as compared to net cash
provided by operating activities of $9,202,000 for the 1999 period which
included $5.0 million of cash received in connection with the litigation
settlement with Johnson & Johnson, Inc. The decrease in net cash provided by
operating activities from the 1999 period to the 2000 period was primarily due
to the payment in full of the Johnson & Johnson litigation settlement during the
1999 period and an increase in accounts receivables.
Net cash used in investing activities decreased by $69,000 from the
1999 period primarily as a result of a decrease in capital expenditures.
Net cash provided by financing activities increased by $3.7 million
from the 1999 period primarily as a result of the increase in proceeds from the
exercise of stock options.
Results of Operations
Nine months ended April 30, 2000 compared with nine months ended April 30, 1999
Revenues from operations for the period ended April 30, 2000 increased
by $2,037,000 compared to revenues from operations for the nine month period
ended April 30, 1999. This increase was due to an increase of $1,108,000 in
revenue from the clinical reference laboratory operation and by the increase of
$929,000 of research products 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.
Cost of sales decreased by approximately $633,000 as a result of a
decrease of $653,000 in the cost of sales of research products from the
Company's distribution agreements activities and an increase in the cost of
clinical laboratory services of $20,000.
Research and development expenses increased by approximately $537,000
as a result of an increase in expenses associated with the research programs.
General and administrative expenses increased by approximately
$679,000, primarily due to an increase in legal fees and listing fees for the
New York Stock Exchange.
11
The provision for income taxes for the nine months ended April 30, 2000
and 1999 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, 2000 compared with three months ended April 30,
1999
Revenues from operations for the three month period ended April 30,2000
increased by $386,000 compared to revenues from operations for the three month
period ended April 30, 1999. This increase was due to an increase of $597,000 in
revenue from the clinical reference laboratory operation and offset by a
decrease of $211,000 of research product sales. The decrease in research product
sales resulted primarily from a decrease in the sales from the Company's
distribution agreements. 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 $461,000 as a result of a
decrease of $534,000 in the cost of sales of research products from the
Company's distribution agreements activities and an increase in the cost of
clinical laboratory services of $73,000.
Research and development expenses increased by approximately $320,000
as a result of an increase in expenses associated with the research programs.
General and Administrative expenses increased by approximately $285,000
primarily due to an increase in legal fees.
The provision for income taxes for the three months ended April 30,
2000 and 1999 are based on the alternative minimum tax method and current state
and local income taxes provided relate primarily to taxes computed based upon
capital.
12
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: July 20, 2000 by: /s/ Shahram K. Rabbani
----------------------
Chief Operating Officer,
Secretary and Treasurer
13