<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark one
/ / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1996
/ / 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
- ---------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value The American 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 March 1, 1996 the Registrant had 21,504,500 shares of Common Stock
outstanding.
<PAGE>
ENZO BIOCHEM, INC.
FORM 10-Q
January 31, 1996
INDEX
PAGE
NUMBER
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - January 31, 1996
and July 31, 1995 3
Consolidated Statement of Operations
For the six months ended January 31, 1996 and 1995 5
Consolidated Statement of Operations
For the three months ended January 31, 1996 and 1995 6
Consolidated Statement of Cash Flows
For the six months ended January 31, 1996 and 1995 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of 11
Financial Condition and Results of Operations
PART II - OTHER INFORMATION 14
2
<PAGE>
ENZO BIOCHEM, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
January 31, July 31,
1996 1995
(unaudited)
----------------------
(in thousands)
A S S E T S
<S> <C> <C>
Current assets:
Cash and cash equivalents $16,369 $11,068
Accounts receivable, less
allowance for doubtful accounts 12,550 10,914
Current portion of note receivable -
litigation settlement 5,000 5,000
Inventories 2,408 2,198
Other 935 1,077
--- -----
Total current assets 37,262 30,257
------ ------
Property and equipment, at cost,
less accumulated depreciation and amortization 13,635 13,892
Long term portion of note receivable --
litigation settlement 8,521 13,121
Cost in excess of fair value of net tangible assets
acquired, less accumulated amortization 9,860 10,046
Deferred patent costs, less accumulated
amortization 4,916 4,971
Other 168 171
----- -------
$74,362 $72,458
------- -------
------- -------
</TABLE>
See accompanying notes
3
<PAGE>
ENZO BIOCHEM, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 31, July 31,
1996 1995
(unaudited)
----------------------
(in thousands)
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 1,445 $ 1,580
Accrued legal fees 982 922
Income taxes payable 476 1,074
Other accrued expenses 1,841 2,147
Current portion of long-term debt 33 32
Current portion of obligations under capital leases 39 53
-- --
Total current liabilities 4,816 5,808
----- -----
Long-term debt 65 81
Obligations under capital lease 4,730 4,617
Other deferred liabilities 920 840
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;
21,499,500 shares at January 31, 1996 and
21,334,600 shares at July 31, 1995 215 213
Additional paid-in capital 82,861 81,605
Accumulated deficit (19.245) (20,706)
------- -------
Total stockholders' equity 63,831 61,112
------ ------
$74,362 $72,458
------- -------
------- -------
</TABLE>
See accompanying notes
4
<PAGE>
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended January 31,
----------------------------
1996 1995
-------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Revenues:
Operating revenues $16,564 $15,069
Costs and expenses:
Cost of sales and diagnostic services 7,058 6,897
Research and development expenses 1,275 1,022
Selling expenses 1,281 1,331
Provision for uncollectable accounts
receivable 1,354 1,097
General and administrative expenses 4,229 3,721
Litigation settlement, net of legal fees -- (21,000)
----- -------
15,197 (6,932)
------ ------
Income before interest and provision for
income taxes 1,367 22,001
Interest income - net of expense 764 309
--- ---
Income before provision for income taxes 2,131 22,310
Provision for income taxes (670) (3,030)
---- ------
Net income $ 1,461 $19,280
------- -------
------- -------
Net income per common and equivalent share $.07 $.88
---- ----
---- ----
Weighted average common shares 22,428 21,848
------ ------
------ ------
</TABLE>
See accompanying notes
5
<PAGE>
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended January 31,
------------------------------
1996 1995
-------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Revenues:
Operating revenues $8,008 $7,041
Costs and expenses:
Cost of sales and diagnostic services 3,377 3,347
Research and development expenses 690 562
Selling expenses 676 731
Provision for uncollectable accounts
receivable 584 565
General and administrative expenses 2,258 1,587
----- -----
7,585 6,792
----- -----
Income before interest and provision for
income taxes 423 249
Interest income - net of expense 387 311
--- ---
Income before provision for income taxes 810 560
Provision for income taxes (253) (15)
---- ---
Net income $557 $545
---- ----
---- ----
Net income per common and equivalent share $0.02 $0.02
----- -----
----- -----
Weighted average common shares 22,398 21,815
------ ------
------ ------
</TABLE>
See accompanying notes
6
<PAGE>
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended January 31,
----------------------------
1996 1995
(In thousands)
------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,461 $19,280
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property
and equipment 452 433
Amortization of cost in excess of fair
value of tangible assets acquired 186 185
Amortization of deferred patent costs 240 240
Provision for uncollectable accounts receivable 1,354 1,097
Expenses related to leasehold 130 --
Prepaid expenses converted into legal fees
from previously issued stock 47 --
Issuance of stock for employee pension contribution 95 --
Deferred income tax provision -- 3,000
Change in assets and liabilities:
Note receivable - litigation settlement 4,600 (17,650)
Research contract receivable -- 6,500
Accounts receivable before provision for
uncollectable amounts (2,989) (2,327)
Inventories (210) (115)
Prepaid expense and other assets 47 133
Trade accounts payable and other accrued expenses (441) (2,087)
Accrued legal fees 60 2,453
Income taxes payable (598) --
Deferred liabilities 80 (68)
Accrued interest payable -- (30)
------ ----
3,053 (8,236)
----- ------
Net cash provided by operating activities $4,514 $11,044
------ -------
</TABLE>
<PAGE>
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended January 31,
---------------------------
1996 1995
(In thousands)
---------------------------
<S> <C> <C>
Cash flows from investing activities:
Capital expenditures (195) ($727)
Patent costs deferred (137) (173)
Decrease in security deposit 3 52
------ ------
Net cash used in investing activities (329) (848)
------ ------
Cash flows from financing activities:
Payment of bank debt -- (2,020)
Payments of obligations under capital lease (46) (44)
Proceeds from stock options 1,162 55
Payment of Debenture Bonds -- (62)
------ ------
Net cash (used) provided by financing activities 1,116 (2,071)
------ ------
Net increase in cash and cash equivalents 5,301 8,125
Cash and cash equivalents at the beginning of the year 11,068 4,151
------ ------
Cash and cash equivalents at the end of the period $16,369 $12,276
------- -------
------- -------
</TABLE>
8
<PAGE>
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996
(Unaudited)
1. The consolidated balance sheet as of January 31, 1996, the consolidated
statement of operations for six months ended January 31, 1996 ("1996 Period")
and 1995 ("1995 Period") and the consolidated statement of cash flows for the
six months ended January 31, 1996 and 1995 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 January 31, 1996 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 1995 Annual Report on Form 10-K. The results
of operations for the six months ended January 31, 1996 are not necessarily
indicative of the results that may be expected for the full year.
2. On October 19, 1994 the Company executed a settlement agreement with
Johnson & Johnson, Inc. in the aggregate amount of $35.0 million pursuant to
which the Company received $15.0 million, of which $6.5 million relates to
amounts due under certain research and development agreements and which was
included in research contracts receivable at July 31, 1994, and a promissory
note requiring Johnson & Johnson and its subsidiary, Ortho Diagnostics, Inc., to
pay $5.0 million a year for each of the four successive anniversaries of said
date. These future payments are recorded at net present value discounted using
an interest rate of 5.25%. Pursuant to the terms of the settlement, all of the
Company's grants, licenses and intellectual property have been returned to the
Company in totality.
3. 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, Inc.'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 has 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
9
<PAGE>
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. Enzo intends to
appeal from any adverse judgment. There can be no assurance that the Company
will be successful in any of the foregoing matters or that Calgene, Inc. and/or
Hutchinson will not be successful. However, even if the Company is not
successful management does not believe there will be a significant monetary
impact.
4. Effective December 1, 1985, the Company entered into an agreement with the
City of New York to lease, over a fifty-year term, a six-story building located
in New York City. During 1992 this lease was renegotiated. The Company has
recorded the fair market value of the real property in the amount of $3,000,000
as a capital lease obligation due in installments through 2036. Financing for
the renovation and equipping of such facility came principally from the
Company's own funds. The Company is carrying the capital leasehold interest at
its estimated fair market value.
5. In April, 1994, the Company signed a non-exclusive worldwide distribution
and supply agreement with Boehringer Mannheim Biochemicals. During fiscal 1995
similar agreements were signed with Amersham International and with Dako A/S. In
September 1995, a fourth agreement was concluded with VWR Scientific Products
(acquired from Baxter Healthcare). Under the terms of these agreements, the
distributor companies sells to the global medical research market, a broad range
of biochemical products and reagents manufactured and supplied by Enzo. The
agreements include products based on nonradioactive DNA probe technology and
include products that were developed and marketed by these companies prior to
the agreement, as well as products developed by Enzo, all of which are covered
by Enzo patents. The agreements extend for the life of the last patent to
expire for products involved.
10
<PAGE>
Item 2- Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $4,514,000 for the six months
ended January 31, 1996, compared with $11,044,000 for the six months ended
January 31, 1995. This decrease was a result of a decrease in proceeds from the
J&J settlement offset by changes in operating assets and liabilities.
Net cash provided from financing activities was approximately $1,116,000
for the six months ended January 31, 1996 primarily as a result of $1,162,000
from proceeds of exercised stock options, as compared to net cash used from
financing activities of approximately $2,071,000 for the six months ended
January 31, 1995 which was primarily used for repayment of bank debt.
The Company's internal source of cash generated by operations in addition
to the proceeds from the litigation settlement was sufficient to meet the
Company's needs for investing and other financing activities. At January 31,
1996 the Company had working capital of approximately $32,446,000.
The Company has a $5,000,000 line of credit with a bank at an interest rate
of prime. As of January 31, 1996, the Company did not use the line of credit.
On October 19, 1994 the Company executed a settlement agreement with
Johnson & Johnson, Inc. pursuant to which the Company received $15.0 million and
a promissory note requiring Johnson & Johnson and its subsidiary, Ortho
Diagnostics, Inc., to pay $5.0 million a year for each of the four successive
anniversaries of said date. These future payments are recorded at net present
value discounted using an interest rate of 5.25%. Pursuant to the terms of the
settlement, all of the Company's grants, licenses and intellectual property have
been returned to the Company in totality.
Effective December 1, 1985, the Company entered into an agreement with the
City of New York to lease, over a fifty-year term, a six-story building located
in New York City. During 1992 this lease was renegotiated. The Company has
recorded the fair market value of the real property in the amount of $3,000,000
as a capital lease obligation due in installments through 2036. Financing for
the renovation and equipping of such facility came principally from the
Company's own funds. The Company has decided to carry the capital leasehold
interest at its estimated fair market value.
11
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1996 COMPARED WITH SIX MONTHS ENDED JANUARY 31,
1995
Operating revenues for the six months ended January 31, 1996 ("1996
period") increased by $1,495,000 over operating revenues for the six months
ended January 31, 1995 ("1995 period"). This increase was due to an increase of
$1,992,000 of research product revenues offset by a $497,000 decrease in
revenues from the clinical reference laboratory as compared to the 1995 period.
Revenues at the laboratory were impacted by a reduced number of billing days due
to unusually bad weather, as well as a change in the test mix of services
provided. Revenues from the sale of research products increased as a result of
the Company's distribution agreements.
Cost of sales increased by approximately $161,000 primarily due to
increased revenues from research products related to the distribution
agreements.
Research and development expenses increased by $253,000 due to expanded
research and development and clinical programs.
Selling expenses decreased by $50,000 due to a decrease in marketing
programs and sales personnel for the clinical reference laboratory.
The increase in general and administrative expenses of $508,000 was
primarily due to increased legal expenses.
The provision for bad debts increased by $257,000 due to an adjustment in
reimbursement rates from insurance carriers for the clinical reference
laboratory.
Interest income increased by $455,000 as a result of the proceeds from
investment of the Company's cash equivalents.
The provision for taxes decreased approximately $2,360,000 primarily due to
a reduction of income resulting from the prior year litigation settlement.
THREE MONTHS ENDED JANUARY 31, 1996 COMPARED WITH THREE MONTHS ENDED JANUARY 31,
1995
Operating revenues for the three months ended January 31, 1996 ("1996
period") increased by $967,000 over revenues from operations for the three
months ended January 31, 1995 ("1995 period"). This increase was due to an
increase in research product sales of $1,576,000 offset by decreases of $609,000
in revenues from the clinical reference laboratory for the similar activity in
the 1995 period.
Cost of sales increased by $30,000 primarily as a result of increased
revenues by research product sales.
Research and development expenses increased by $128,000 due to expanded
research and development and clinical programs.
12
<PAGE>
Selling expenses decreased by $55,000 as a result of a decrease in
personnel costs related to the clinical reference laboratory.
General and administrative expenses increased by approximately $671,000 as
a result of an increase of legal expenses.
13
<PAGE>
ENZO BIOCHEM, INC.
PART II - OTHER INFORMATION
Item 1 - 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, Inc.'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 has 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. Enzo intends to
appeal from any adverse judgment. There can be no assurance that the Company
will be successful in any of the foregoing matters or that Calgene, Inc. and/or
Hutchinson will not be successful. However, even if the Company is not
successful management does not believe there will be a significant monetary
impact.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) Reports on form 8-K - none
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENZO BIOCHEM, INC.
------------------
(registrant)
Date: March 12, 1996 by: /s/ Barry W.Weiner
---------------------
Barry W. Weiner, Executive
Vice President-Secretary
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000316253
<NAME> ENZO BIOCHEM, INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 16,369
<SECURITIES> 0
<RECEIVABLES> 22,338
<ALLOWANCES> (4,788)
<INVENTORY> 2,408
<CURRENT-ASSETS> 37,262
<PP&E> 18,838
<DEPRECIATION> (5,203)
<TOTAL-ASSETS> 74,362
<CURRENT-LIABILITIES> 4,816
<BONDS> 0
0
0
<COMMON> 215
<OTHER-SE> 63,616
<TOTAL-LIABILITY-AND-EQUITY> 74,362
<SALES> 16,564
<TOTAL-REVENUES> 16,564
<CGS> 7,058
<TOTAL-COSTS> 8,139
<OTHER-EXPENSES> 6,785
<LOSS-PROVISION> 1,354
<INTEREST-EXPENSE> (764)
<INCOME-PRETAX> 2,131
<INCOME-TAX> 670
<INCOME-CONTINUING> 1,461
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,461
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
