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Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2002
 
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: 000-30231
 
TANOX, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
  
76-0196733
(State or Other Jurisdiction of
  
(IRS Employer
Incorporation or Organization)
  
Identification No.)
10301 Stella Link, Suite 110
    
Houston, Texas
  
77025-5497
(Address of Principal Executive Offices)
  
(Zip Code)
 
(713) 578-4000
(Registrant’s Telephone Number, Including Area Code)
 
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 ¨             
 
As of November 5, 2002, the registrant had 44,301,641 shares of Common Stock issued and 43,746,941 shares of Common Stock outstanding.
 

Table of Contents
 
TANOX, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2002
 
INDEX
 
    
Page
Part I – Financial Information
     
Item 1 – Financial Statements
     
  
1
  
2
  
3
  
4
  
8
  
13
  
14
Part II – Other Information
     
  
15
  
16
  
17
  
18

i

Table of Contents
 
PART I
FINANCIAL INFORMATION
 
Item 1.    Financial Statements
 
TANOX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Shares and Per Share data)
 
    
September 30, 2002
     
December 31, 2001
  
    
(Unaudited)
         
ASSETS
              
CURRENT ASSETS:
                  
Cash and cash equivalents, including restricted amounts of $8,718 in 2002
   
$
27,799
 
   
$
142,883
 
Short-term investments
   
 
78,103
 
   
 
62,720
 
Interest receivable
   
 
2,912
 
   
 
2,722
 
Prepaid expenses and other
   
 
434
 
   
 
860
 
    
  
Total current assets
   
 
109,248
 
   
 
209,185
 
LONG-TERM INVESTMENTS – HELD-TO-MATURITY, including restricted amounts of $5,596 in 2002
   
 
128,873
 
   
 
55,499
 
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $8,511 and $7,024 in 2002 and 2001, respectively
   
 
19,231
 
   
 
11,598
 
OTHER ASSETS
   
 
155
 
   
 
1,252
 
    
  
TOTAL ASSETS
   
$
257,507
 
   
$
277,534
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
              
CURRENT LIABILITIES:
                  
Accounts payable and accrued liabilities
   
$
5,749
 
   
$
7,190
 
Accrued arbitration award
   
 
4,032
 
   
 
3,903
 
    
  
Total current liabilities
   
 
9,781
 
   
 
11,093
 
    
  
LONG–TERM LIABILITIES:
                  
Note payable to bank
   
 
5,000
 
   
 
—
 
Note payable to related party
   
 
10,000
 
   
 
10,000
 
    
  
Total long-term liabilities
   
 
15,000
 
   
 
10,000
 
    
  
STOCKHOLDERS’ EQUITY:
                  
Preferred stock, $.01 par value; 10,000,000 shares authorized; none outstanding
   
 
—
 
   
 
—
 
Common stock, $.01 par value; 120,000,000 shares authorized; 44,298,441 and 44,156,601 shares issued, and 43,743,741 and 44,076,601 shares outstanding in 2002 and 2001, respectively
   
 
443
 
   
 
442
 
Additional paid-in capital
   
 
310,037
 
   
 
309,892
 
Treasury stock, at cost; 554,700 and 80,000 shares in 2002 and 2001, respectively
   
 
(6,261
)
   
 
(1,009
)
Deferred compensation
   
 
(1
)
   
 
(83
)
Accumulated other comprehensive loss
   
 
85
 
   
 
84
 
Accumulated deficit
   
 
(71,577
)
   
 
(52,885
)
    
  
Total stockholders’ equity
   
 
232,726
 
   
 
256,441
 
    
  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
   
$
257,507
 
   
$
277,534
 
    
  
 
See accompanying notes to condensed consolidated financial statements.
 

1

Table of Contents
 
TANOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In Thousands, Except Shares and Per Share data)
 
    
Three Months Ended September 30,
     
Nine Months Ended September 30,
  
    
2002
     
2001
     
2002
     
2001
  
LICENSING FEE AND DEVELOPMENT AGREEMENT REVENUES
   
$
253
 
   
$
3
 
   
$
409
 
   
$
287
 
    
  
  
  
OPERATING EXPENSES:
                                    
Research and development
   
 
6,460
 
   
 
4,499
 
   
 
16,875
 
   
 
15,505
 
General and administrative
   
 
2,655
 
   
 
2,214
 
   
 
7,193
 
   
 
6,590
 
Restructuring charge
   
 
—
 
   
 
—
 
   
 
(89
)
   
 
3,876
 
    
  
  
  
Total operating expenses
   
 
9,115
 
   
 
6,713
 
   
 
23,979
 
   
 
25,971
 
    
  
  
  
LOSS FROM OPERATIONS
   
 
(8,862
)
   
 
(6,710
)
   
 
(23,570
)
   
 
(25,684
)
    
  
  
  
OTHER INCOME (EXPENSE):
                                    
Interest income
   
 
1,921
 
   
 
3,022
 
   
 
6,077
 
   
 
11,143
 
Interest expense
   
 
(146
)
   
 
(47
)
   
 
(422
)
   
 
(480
)
Other, net
   
 
(565
)
   
 
37
 
   
 
(777
)
   
 
37
 
    
  
  
  
Total other income
   
 
1,210
 
   
 
3,012
 
   
 
4,878
 
   
 
10,700
 
    
  
  
  
NET LOSS
   
$
(7,652
)
   
$
(3,698
)
   
$
(18,692
)
   
$
(14,984
)
    
  
  
  
NET LOSS PER BASIC and DILUTED SHARE
   
$
(0.17
)
   
$
(0.08
)
   
$
(0.43
)
   
$
(0.34
)
    
  
  
  
SHARES USED IN COMPUTING NET LOSS PER SHARE – BASIC AND DILUTED
   
 
43,743,000
 
   
 
44,153,000
 
   
 
43,602,000
 
   
 
43,988,000
 
    
  
  
  
COMPREHENSIVE LOSS:
                                    
Net loss
   
$
(7,652
)
   
$
(3,698
)
   
$
(18,692
)
   
$
(14,984
)
Foreign currency translation adjustment
   
 
—
 
   
 
41
 
   
 
—
 
   
 
(71
)
    
  
  
  
TOTAL COMPREHENSIVE LOSS
   
$
(7,652
)
   
$
(3,657
)
   
$
(18,692
)
   
$
(15,055
)
    
  
  
  
 
See accompanying notes to condensed consolidated financial statements.

2

Table of Contents
 
TANOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
 
    
Nine Months Ended September 30,
  
    
2002
     
2001
  
CASH FLOWS FROM OPERATING ACTIVITIES:
                  
Net loss
   
$
(18,692
)
   
$
(14,984
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
                  
Depreciation and amortization
   
 
1,509
 
   
 
1,127
 
Loss on available-for-sale investment
   
 
784
 
   
 
—
 
Compensation expense related to stock options
   
 
(113
)
   
 
307
 
Restructuring charge
   
 
(89
)
   
 
1,624
 
In-process research and development
   
 
—
 
   
 
1,066
 
Other, net
   
 
68
 
   
 
—
 
Changes in operating assets and liabilities:
                  
Decrease in receivables and other assets
   
 
253
 
   
 
237
 
(Decrease) increase in current liabilities
   
 
(1,223
)
   
 
4,125
 
    
  
Net cash used in operating activities
   
 
(17,503
)
   
 
(6,498
)
    
  
CASH FLOWS FROM INVESTING ACTIVITIES:
                  
Additions to property and equipment
   
 
(9,140
)
   
 
(4,282
)
Purchases of investments
   
 
(153,239
)
   
 
(44,123
)
Maturities and sales of investments
   
 
64,710
 
   
 
177,230
 
Other, net
   
 
(3
)
   
 
—
 
    
  
Net cash (used in) provided by investing activities
   
 
(97,672
)
   
 
128,825
 
    
  
CASH FLOWS FROM FINANCING ACTIVITIES:
                  
Proceeds from issuance of stock
   
 
342
 
   
 
2,932
 
Change in employee loans in connection with stock option exercises
            
 
229