<PAGE>
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 April 30, 1997
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)
- ---------------------------------------------------
(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 June 10, 1997 the Registrant had 23,309,823 shares of Common Stock
outstanding.
<PAGE>
ENZO BIOCHEM, INC.
FORM 10-Q
April 30, 1997
INDEX
PAGE
NUMBER
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - April 30, 1997
and July 31, 1996 3
Consolidated Statements of Operations
For the nine months ended April 30, 1997 and 1996 5
Consolidated Statements of Operations
For the three months ended April 30, 1997 and 1996 6
Consolidated Statements of Cash Flows
For the nine months ended April 30, 1997 and 1996 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
2
<PAGE>
ENZO BIOCHEM, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
April 30, July 31,
1997 1996
(unaudited)
---------------------
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $23,665 $17,793
Accounts receivable, less allowance
for doubtful accounts 11,527 10,488
Current portion of note receivable -
litigation settlement 5,000 5,000
Inventories 1,720 1,810
Other 2,026 823
------- -------
Total current assets 43,938 35,914
Property and equipment, at cost, less accumulated
depreciation and amortization 2,893 3,107
Long term portion of note receivable - litigation
settlement 4,764 9,114
Cost in excess of fair value of net tangible assets
acquired, less accumulated amortization 9,398 9,675
Deferred patent costs, less accumulated
amortization 4,743 4,878
Other 152 150
------- -------
$65,888 $62,838
======= =======
3
<PAGE>
ENZO BIOCHEM, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
April 30, July 31,
1997 1996
(unaudited)
--------------------
(in thousands)
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 933 $ 1,281
Accrued legal fees 23 1,392
Accrued leasehold costs -- 2,950
Other accrued expenses 771 776
Current portion of long-term debt 36 35
Current portion of obligations under capital leases 27 29
-------- --------
Total current liabilities 1,790 6,463
Long-term debt 19 47
Obligations under capital leases 47 67
Other deferred liabilities 1,008 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; 23,180,000 shares at April
30, 1997 and 21,624,900 shares at July 31, 1996 232 216
Additional paid-in capital 90,271 83,450
Accumulated deficit (27,479) (28,413)
-------- --------
Total stockholders' equity 63,024 55,253
-------- --------
$ 65,888 $ 62,838
======== ========
</TABLE>
See accompanying notes
4
<PAGE>
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Nine Months
Ended April 30,
-----------------------
1997 1996
-----------------------
(In thousands, except
per share data)
Revenues:
Research product sales $ 9,542 $ 9,355
Clinical laboratory services 15,079 15,762
------ ------
Total operating revenues 24,621 25,117
Costs and expenses:
Cost of research product sales 5,716 5,652
Cost of clinical laboratory services 5,248 5,273
Research and development expenses 2,694 1,975
Selling expenses 1,978 2,010
Provision for uncollectable accounts
receivable 3,802 2,496
General and administrative expenses 5,775 6,100
------ ------
Total costs and expenses 25,213 23,506
Income (loss) before interest and provision
for income taxes (592) 1,611
Interest income - net 1,551 1,154
------ ------
Income before provision for income taxes 959 2,765
Provision for taxes on income (25) (865)
------ ------
Net income $ 934 $ 1,900
====== =======
Net income per share $ 0.04 $ 0.08
====== =======
Weighted average common shares 23,989 23,852
====== =======
See accompanying notes
5
<PAGE>
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months
Ended April 30,
-----------------------
1997 1996
-----------------------
(In thousands, except
per share data)
Revenues:
Research product sales $ 3,426 $ 3,108
Clinical laboratory services 5,461 5,445
-------- --------
Total operating revenues 8,887 8,553
Costs and expenses:
Cost of research product sales 2,006 2,139
Cost of clinical laboratory services 1,865 1,727
Research and development expenses 837 700
Selling expenses 711 729
Provision for uncollectable accounts
receivable 1,236 1,142
General and administrative expenses 2,123 1,872
-------- --------
Total costs and expenses 8,778 8,309
Income before interest and provision for income
taxes 109 244
Interest income - net 511 390
-------- --------
Income before provision for income taxes 620 634
Provision for taxes on income (6) (195)
-------- --------
Net income $ 614 $ 439
======== ========
Net income per share $ 0.03 $ 0.02
======== ========
Weighted average common shares 23,989 23,852
======== ========
See accompanying notes
6
<PAGE>
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months
Ended April 30,
-----------------------
1997 1996
-----------------------
(In thousands, except
per share data)
Cash flows from operating activities:
Net income $ 934 $ 1,900
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property
and equipment 644 669
Amortization of costs in excess of fair
value of tangible assets acquired 278 278
Amortization of deferred patent costs 450 374
Provision for uncollectable accounts receivable 3,802 2,496
Accretion of interest on note receivable (650) (600)
Other 271 156
Change in assets and liabilities:
Note receivable - J & J settlement 5,000 5,000
Accounts receivable before provision for
uncollectable amounts (4,841) (5,263)
Inventories 90 (36)
Prepaid expense 494 172
Trade accounts payable and other accrued
expenses (301) (855)
Accrued legal fees (40) (66)
Deferred liabilities -- 120
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5,197 2,445
------- -------
Net cash provided by operating activities $ 6,131 $ 4,345
------- -------
7
<PAGE>
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended April 30,
------------------------
1997 1996
------------------------
(In Thousands)
<S> <C> <C>
Cash flows from investing activities:
Capital expenditures (430) (319)
Patent costs deferred (315) (235)
Security deposits (2) (23)
Proceeds from insurance recovery -- 42
--------- --------
Net cash used in investing activities (747) (535)
Cash flows from financing activities:
Payments of obligations under capital lease (47) (66)
Proceeds from exercise of stock options 344 1,212
Proceeds from stock sale 286 --
Payment of security registration fees (95) --
--------- --------
Net cash provided by used in financing activities 488 1,146
--------- --------
Net increase in cash and cash equivalents 5,872 4,956
Cash and cash equivalents at the beginning of the year 17,793 11,068
--------- --------
Cash and cash equivalents at the end of the period $ 23, 665 $ 16,024
========= ========
</TABLE>
8
<PAGE>
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997
(Unaudited)
1. The consolidated balance sheet as of April 30, 1997, the consolidated
statement of operations for nine months ended April 30, 1997 ("1997 Period") and
1996 ("1996 Period") and the consolidated statement of cash flows for the nine
months ended April 30, 1997 and 1996 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, 1997 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 nine months ended April 30, 1997 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 consolidated 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
9
<PAGE>
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997
(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. Following trial, the Court issued a decision
that was adverse to Enzo but subsequently withdrew that decision. Both sides
have submitted additional materials and motions. The Court has not issued any
further decision or ruled on the motions. The Company intends to appeal from any
adverse judgment. There can be no assurance that the Company will be successful
in this matter or that Calgene will not be successful. However, even if the
Company is not successful, management does not believe there will be a
significant monetary impact.
4. 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 a former lease. The Company paid the City $ 2,950,000 in shares of
stock in full settlement of all of the City's claims for unpaid taxes and rent.
Such shares of stock were subsequently sold by the City of New York. 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.
Item 2- Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Company at April 30, 1997, had cash and cash equivalents of $ 23,665,000 an
increase of $ 5,872,000 from July 31,1996. The Company had working capital of $
42,148,000 at April 30, 1997 compared to $ 29,451,000 at July 31,1996.
10
<PAGE>
The Company's income before taxes for the nine months ended April 30, 1997 was
$959,000 which includes depreciation and amortization aggregating approximately
$1,372,000. 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, 1997 was approximately $ 6,131,000 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 $ 4,345,000 for
the 1996 period which also includes $ 5.0 million of cash received in connecting
with the litigation settlement with Johnson & Johnson, Inc. 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 April 30, 1997,
an increase provision for uncollectable accounts receivable of $ 1,306,000
offset by the decrease in trade accounts payable and other accrued expenses.
Net cash used in investing activities increased by $ 212,000 from the 1996
period primarily as a result of an increase in capital expenditures and patent
costs.
Net cash provided by financing activities decreased by $ 658,000 from the 1996
period primarily as a result of the decrease in proceeds from the exercise of
stock options.
Results of Operations
Nine months ended April 30, 1997 compared with nine months ended April 30, 1996
Revenues from operations for the period ended April 30,1997 decreased by
$496,000 compared to revenues from operations for the nine month period ended
April 30,1996. This decrease was due to a decrease of $ 683,000 in revenue from
the clinical reference laboratory operation offset by the increase of $ 187,000
in the mix of research products sales resulting primarily from the Company's
non-exclusive distribution agreements for the Company's products. The decrease
in revenues from the clinical laboratory operations resulted primarily from a
reduction in reimbursement rates from the Medicare program and, to a lesser
extent, a decrease in volume from unprofitable diagnostic screening tests.
Cost of sales increased by $ 39,000 as a result of an increase of $ 64,000 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 $ 25,000.
11
<PAGE>
Research and development expenses increased by $ 719,000 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 $ 1,306,000
primarily due to the fact that additional reserves were needed during the nine
months ended April 30, 1997 primarily to cover lower collection rates under the
Federal Medicare program and other third-party insurance carriers. The health
care industry is undergoing significant change as third-party payors, such as
Medicare and other 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.
General and administration expenses decreased by $325,000 primarily due to a
decrease in legal fees and the overall improved efficiencies at the clinical
reference laboratory.
Three months ended April 30, 1997 compared with three months ended April 30,
1996
Revenues from operations for the three month period ended April 30, 1997
increased by $ 334,000 compared to revenues from operations for the three month
period ended April 30,1996. This increase was due to a increase of $ 318,000 in
the mix of research products sales primarily from the company's non-exclusive
distribution agreements and by a increase of $ 16,000 in revenue for the
clinical reference laboratory operation.
Cost of sales increased by approximately $ 5,000 as a result of an decrease of
$133,000 in the cost of sales of research products from the Company's
distribution agreements activities, due to the increase in profit margins on the
mix of research products sold. Offset by an increase in the cost of clinical
laboratory services of $ 138,000, due to the costs associated with the
performing of higher priced esoteric tests.
Research and development expenses increased by approximately $ 137,000 as a
result of an increase in research programs and to a lesser extent the increase
in amortization of patent costs.
12
<PAGE>
The provision for uncollectable accounts receivable increased by $ 94,000
primarily due to the fact that additional reserves were needed during the three
months ended April 30, 1997 primarily to cover lower collection rates under the
Federal Medicare program 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.
Selling and general and administration expenses increased by $ 233,000 primarily
due to an increase of $ 104,000 in costs associated with the marketing programs
of the research activities and the costs incurred related to the 401K employer
match of $ 129,000.
13
<PAGE>
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: June 10, 1997 by: /s/ Shahram K . Rabbani
-----------------------
Chief Operating Officer,
Secretary and Treasurer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FOR THE QUARTERLY
PERIOD ENDED APRIL 30, 1997 AND IS QUALIFIED BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000316253
<NAME> ENZO BIOCHEM, INC.
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<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> APR-30-1997
<CASH> 23,665
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