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UNITED STATES
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, 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.
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(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, $.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
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As of December 13, 1996 the Registrant had 23,085,016 shares of Common Stock
outstanding.
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ENZO BIOCHEM, INC.
FORM 10-Q
October 31, 1996
INDEX
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PAGE
NUMBER
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - October 31, 1996
and July 31, 1996 3
Consolidated Statement of Operations
For the three months ended October 31, 1996 and 1995 5
Consolidated Statement of Cash Flows
For the three months ended October 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
2
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ENZO BIOCHEM, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
October 31, July 31,
1996 1996
(unaudited)
_____________________
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 23,518 $ 17,793
Accounts receivable, less allowance
for doubtful accounts 9,901 10,488
Current portion of note receivable -
litigation settlement 5,000 5,000
Inventories 1,736 1,810
Other 2,204 823
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Total current assets 42,359 35,914
Property and equipment, at cost, less accumulated
depreciation and amortization 2,983 3,107
Long term portion of note receivable - litigation
settlement 4,364 9,114
Cost in excess of fair value of net tangible assets
acquired, less accumulated amortization 9,582 9,675
Deferred patent costs, less accumulated
amortization 4,778 4,878
Other 144 150
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$ 64,210 $ 62,838
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3
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ENZO BIOCHEM, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
October 31, July 31,
1996 1996
(unaudited)
________________________
(in thousands)
Current liabilities:
Trade accounts payable $ 1,010 $ 1,281
Accrued legal fees 1,064 1,392
Accrued leasehold costs -- 2,950
Other accrued expenses 569 776
Current portion of long-term debt 35 35
Current portion of obligations under
capital leases 27 29
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Total current liabilities 2,705 6,463
Long-term debt 38 47
Obligations under capital leases 60 67
Other deferred liabilities 1,009 1,008
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; 23,076,000 shares at October
31,1996 and 21,624,900 shares at July 31,1996 231 216
Additional paid-in capital 88,458 83,450
Accumulated deficit (28,291) (28,413)
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Total stockholders' equity 60,398 55,253
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$ 64,210 $ 62,838
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See accompanying notes
4
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ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended October 31,
_____________________________
1996 1995
____________________________________
(In thousands, except per share data)
Revenues:
Research product sales $ 3,173 $ 3,037
Clinical laboratory services 4,832 5,519
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Total operating revenues 8,005 8,556
Costs and expenses:
Cost of research product sales 1,924 1,814
Cost of clinical laboratory services 1,695 1,867
Research and development expenses 908 585
Selling expenses 599 605
Provision for uncollectable accounts
receivable 1,536 770
General and administrative expenses 1,682 1,971
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Total costs and expenses 8,344 7,612
Income (loss) before interest and provision
for income taxes (339) 944
Interest income (expense) net 478 377
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Income before provision for income taxes 139 1,321
Provision for taxes on income (17) (417)
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Net income $ 122 $ 904
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Net income per share $ 0.01 $ 0.04
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Weighted average common shares 23,809 23,647
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See accompanying notes
5
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ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Three Months Ended October 31,
__________________________
1996 1995
________________________________
(In thousands, except per share data)
Cash flows from operating activities:
Net income $ 122 $ 904
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property
and equipment 212 217
Amortization of costs in excess of fair
value of tangible assets acquired 93 92
Amortization of deferred patent costs 150 120
Provision for uncollectable accounts receivable 1,536 770
Accretion of interest on note receivable (250) (225)
Other 8 108
Change in assets and liabilities:
Note receivable - J & J settlement 5,000 5,000
Accounts receivable before provision for
uncollectable amounts (949) (1,705)
Inventories 74 (34)
Prepaid expense 228 242
Trade accounts payable and other accrued
expenses (427) (377)
Accrued legal fees (18) (66)
Income taxes payable -- (802)
Deferred liabilities -- 42
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5,657 3,382
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Net cash provided by operating activities $ 5,779 $ 4,286
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6
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ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Three Months Ended October 31,
__________________________
1996 1995
___________________________
(In Thousands)
Cash flows from investing activities:
Capital expenditures (88) (62)
Patent costs deferred (50) (48)
Security deposits 6 --
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Net cash used in investing activities (132) (110)
Cash flows from financing activities:
Payments of obligations under capital lease (16) (25)
Proceeds from exercise of stock options 94 246
______ ______
Net cash provided by used in financing activities 78 221
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Net increase in cash and cash equivalents 5,725 4,397
Cash and cash equivalents at the beginning of the year 17,793 11,068
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Cash and cash equivalents at the end of the period $ 23,518 $ 15,465
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7
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ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996
(Unaudited)
1. The consolidated balance sheet as of October 31, 1996, the consolidated
statement of operations for three months ended October 31, 1996 ("1997 Period")
and 1995 ("1996 Period") and the consolidated statement of cash flows for the
three months ended October 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 October 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 1996 Annual Report on Form 10-K. The results
of operations for the three months ended October 31, 1996 are not necessarily
indicative of the results that maybe expected for the full year.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". This standard is effective for the Company's financial statements beginning
in the first quarter of fiscal 1997. SFAS No. 121 establishes the accounting for
the impairment of long-lived assets, certain identifiable intangibles and the
excess of cost over net assets acquired, related to those assets to be held and
used in operations, whereby impairment losses are required to be recorded when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets and certain
identifiable intangibles that are expected to be disposed of. In the opinion of
the Company's management, the adoption of SFAS No. 121 did not have a material
effect on the consolidation results of operations or financial condition of the
Company.
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, 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
8
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ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996
(Unaudited)
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 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 were 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 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. On 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. In the fourth quarter of fiscal 1996, the Company negotiated a
settlement with the City of New York to relieve the Company from any further
obligations related to the lease and to return the building to the City and the
Company agreed to pay the City $2,950,000 in full settlement of all of the
City's claims for unpaid taxes and rent. The Company issued to the City 213,623
9
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shares of the Company's common stock in August 1996 in consideration of the
settlement amount. If the City has not received the net proceeds of $2,950,000
upon the sale of such stock by March 17, 1997, the City shall return the
remaining shares not sold, if any, and the Company shall pay the difference in
cash. As a result of this settlement with the City, the Company incurred a
charge against earnings in the amount of approximately $ 7.6 million in the
fourth quarter of fiscal 1996.
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 sell 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.
Item 2- Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Company at October 31,1996, had cash and cash equivalents of $ 23.5 million,
an increase of $ 5.7 million from July 31,1996. The Company had net working
capital of $ 39.7 million at October 31,1996 compared to $ 29.5 million at July
31,1996.
The Company's income before taxes was $ 139,000 which includes depreciation and
amortization aggregating approximately $ 455,000. 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 October 31, 1996 quarter was
approximately $ 5.8 million and includes $ 5.0 million of cash received in
connection with the litigation settlement with Johnson & Johnson, Inc. as
compared to net cash provided by operating activities of $ 4.3 million for the
prior period. The increase in net cash provided by operating activities from the
1996 period to the 1997 period was primarily due to the Company's decrease in
net income from October 31, 1996 and an increase provision for uncollectable
accounts receivable of $ 766,000, offset by the decrease in accounts receivable
and the decrease in income taxes payable.
10
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Net cash used by investing activities increased by $ 22,000 from the 1996 period
primarily as a result of an increase in capital expenditures.
Net cash provided by financing activities decreased by $ 143,000 from the 1996
period primarily as a result of the decrease in proceeds from the exercise of
stock options.
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 1996 COMPARED WITH THREE MONTHS ENDED OCTOBER 31,
1995
Revenues from operations for the period ended October 31,1996 decreased by
$ 551,000 over revenues from operations for the period ended October 31,1995.
This decrease was due to an increase of $ 136,000 in revenues from research
product sales resulting primarily from the Company's non-exclusive distribution
agreements for the Company's products offset by a decrease of $ 687,000 in
revenue for the clinical reference laboratory operation. The decrease in
revenues from the clinical laboratory operations resulted primarily from a
reduction in reimbursements rates from the Medicare program and to a lesser
extent, a decrease in volume from unprofitable diagnostic screening tests.
Cost of sales decreased by approximately $ 62,000 as a result of an increase of
110,000 in the cost of sales of research products from the Company's
distribution agreements activities offset by a decrease in the cost of
clinical laboratory services of $ 172,000. This decrease is primarily due to
the improved efficiencies of performing certain diagnostics screening tests.
Research and development expenses increased by approximately $ 323,000 as a
result of an increase in research programs and to a lesser extent the increase
in amortization of patent costs.
The provision for uncollectable accounts receivable increased by $ 766,000
primarily due to the fact that additional reserves were needed primarily to
cover lower collection rates under the Federal Medicare programs and other
third-party insurance carriers. The health care industry is undergoing
significant change as third-party payors, such as Medicare and insurers,
increase their efforts to control the cost, utilization and delivery of
health care services. In particular, the Company believes that reductions in
reimbursement for Medicare services will continue to be implemented from time
to time. Reductions in the reimbursement rates of other third-party payors
are likely to occur as well. Furthermore, the Company cannot predict the
effect health care reform, if enacted, would have on its business, and there
can be no assurance that such reforms, if enacted, would not have a material
adverse effect on the Company's business and operations.
11
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Selling and general and administration expenses decreased by $ 295,000 primarily
due to a decrease in legal fees and the overall improved efficiencies at the
clinical reference laboratory.
12
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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.
------------------
(registrant)
Date: December 13, 1996 by:/s/ Shahram K. Rabbani
----------------------
Chief Operating Officer,
Secretary and Treasurer
13
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<CIK> 0000316253
<NAME> ENZO BIOCHEM INC.
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