<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 January 31, 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.
- --------------------------------------------------------------------------------
(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 7, 1997 the Registrant had 23,176,400 shares of Common Stock
outstanding.
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ENZO BIOCHEM, INC.
FORM 10-Q
January 31, 1997
INDEX
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PAGE
NUMBER
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - January 31, 1997
and July 31, 1996 3
Consolidated Statements of Operations
For the six months ended January 31, 1997 and 1996 5
Consolidated Statement of Operations
For the three months ended January 31, 1997 and 1996 6
Consolidated Statement of Cash Flows
For the six months ended January 31, 1997 and 1996 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II
Item 2. Changes in Securities 14
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ENZO BIOCHEM, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
January 31, July 31,
1997 1996
(unaudited)
---------------------
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $23,209 $17,793
Accounts receivable, less allowance
for doubtful accounts 10,414 10,488
Current portion of note receivable -
litigation settlement 5,000 5,000
Inventories 1,791 1,810
Other 2,302 823
------- -------
Total current assets 42,716 35,914
Property and equipment, at cost, less accumulated
depreciation and amortization 2,945 3,107
Long term portion of note receivable - litigation
settlement 4,564 9,114
Cost in excess of fair value of net tangible assets
acquired, less accumulated amortization 9,490 9,675
Deferred patent costs, less accumulated
amortization 4,753 4,878
Other 152 150
------- -------
$64,620 $62,838
======= =======
3
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ENZO BIOCHEM, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 31, July 31,
1997 1996
(unaudited)
---------------------
(in thousands)
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 860 $ 1,281
Accrued legal fees 23 1,392
Accrued leasehold costs -- 2,950
Other accrued expenses 533 776
Current portion of long-term debt 36 35
Current portion of obligations under capital leases 27 29
-------- --------
Total current liabilities 1,479 6,463
Long-term debt 28 47
Obligations under capital leases 53 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; 23,168,000 shares at January
31, 1997 and 21,624,900 shares at July 31, 1996 232 216
Additional paid-in capital 89,913 83,450
Accumulated deficit (28,093) (28,413)
-------- --------
Total stockholders' equity 62,052 55,253
-------- --------
$ 64,620 $ 62,838
======== ========
</TABLE>
See accompanying notes
4
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ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Six Months Ended January 31,
--------------------------
1997 1996
--------------------------
(In thousands, except per share data)
Revenues:
Research product sales $ 6,116 $ 6,246
Clinical laboratory services 9,618 10,318
-------- --------
Total operating revenues 15,734 16,564
Costs and expenses:
Cost of research product sales 3,710 3,513
Cost of clinical laboratory services 3,383 3,545
Research and development expenses 1,857 1,275
Selling expenses 1,267 1,281
Provision for uncollectable accounts
receivable 2,566 1,354
General and administrative expenses 3,651 4,229
-------- --------
Total costs and expenses 16,434 15,197
Income (loss) before interest and provision
for income taxes (700) 1,367
Interest income net 1,038 764
-------- --------
Income before provision for income taxes 338 2,131
Provision for taxes on income (18) (670)
-------- --------
Net income $ 320 $ 1,461
======== ========
Net income per share $ 0.01 $ 0.06
======== ========
Weighted average common shares 23,926 23,549
======== ========
See accompanying notes
5
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ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended January 31,
-------------------------------------
1997 1996
-------------------------------------
(In thousands, except per share data)
Revenues:
Research product sales $ 2,943 $ 3,209
Clinical laboratory services 4,786 4,799
-------- --------
Total operating revenues 7,729 8,008
Costs and expenses:
Cost of research product sales 1,786 1,699
Cost of clinical laboratory services 1,688 1,678
Research and development expenses 949 690
Selling expenses 668 676
Provision for uncollectable accounts
receivable 1,030 584
General and administrative expenses 1,969 2,258
-------- --------
Total costs and expenses 8,090 7,585
Income (loss) before interest and provision
for income taxes (361) 423
Interest income net 560 387
-------- --------
Income before provision for income taxes 199 810
Provision for taxes on income (1) (253)
-------- --------
Net income $ 198 $ 557
======== ========
Net income per share $ 0.01 $ 0.02
======== ========
Weighted average common shares 23,902 23,518
======== ========
See accompanying notes
6
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ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended January 31,
-------------------------------------
1997 1996
-------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 320 $ 1,461
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property
and equipment 433 452
Amortization of costs in excess of fair
value of tangible assets acquired 185 186
Amortization of deferred patent costs 300 240
Provision for uncollectable accounts receivable 2,566 1,354
Expense related to leasehold -- 130
Accretion of interest on note receivable (450) (353)
Other 142 95
Change in assets and liabilities:
Note receivable - J & J settlement 5,000 5,000
Accounts receivable before provision for
uncollectable amounts (2,492) (2,989)
Inventories 20 (210)
Prepaid expense 220 47
Trade accounts payable and other accrued
expenses (615) (441)
Accrued legal fees (40) 60
Income taxes payable -- (598)
Deferred liabilities -- 80
------- -------
5,269 3,053
------- -------
Net cash provided by operating activities $ 5,589 $ 4,514
------- -------
</TABLE>
7
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ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended January 31,
-------------------------------------
1997 1996
-------------------------------------
(In Thousands)
<S> <C> <C>
Cash flows from investing activities:
Capital expenditures (272) (195)
Patent costs deferred (175) (137)
Security deposits (1) 3
-------- --------
Net cash used in investing activities (448) (329)
Cash flows from financing activities:
Payments of obligations under capital lease (32) (46)
Proceeds from exercise of stock options 307 1,162
-------- --------
Net cash provided by used in financing activities 275 1,116
Net increase in cash and cash equivalents 5,416 5,301
Cash and cash equivalents at the beginning of the year 17,793 11,068
-------- --------
Cash and cash equivalents at the end of the period $ 23,209 $ 16,369
======== ========
</TABLE>
8
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ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997
(Unaudited)
1. The consolidated balance sheet as of January 31, 1997, the consolidated
statement of operations for six months ended January 31, 1997 ("1997 Period")
and 1996 ("1996 Period") and the consolidated statement of cash flows for the
six months ended January 31, 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 January 31, 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 six months ended January 31, 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 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
9
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ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 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. 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
10
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ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997
(Unaudited)
shares of the Company's common stock in August 1996 in consideration of the
settlement amount. 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 January 31, 1997, had cash and cash equivalents of $23,209,000,
an increase of $5,416,000 from July 31, 1996. The Company had working capital of
$41,237,000 at January 31, 1997 compared to $29,451,000 at July 31, 1996.
The Company's income before taxes for the 6 month period ended January 31, 1997
was $338,000 which includes depreciation and amortization aggregating
approximately $918,000. 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 6 month period ended
January 31, 1997 was approximately $5,589,000 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 $4,514,000 for
the 1996 period which also includes $5.0 million of cash received in connection
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 January 31, 1997,
an increase provision for uncollectable
11
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accounts receivable of $1,212,000 offset by the decrease in accounts
receivable, and the decrease in income taxes payable.
Net cash used in investing activities increased by $119,000 from the 1996
period primarily as a result of an increase in capital expenditures.
Net cash provided by financing activities decreased by $841,000 from the 1996
period primarily as a result of the decrease in proceeds from the exercise of
stock options.
Results of Operations
Six months ended January 31, 1997 compared with six months ended January 31,
1996
Revenues from operations for the period ended January 31,1997 decreased by
$830,000 over revenues from operations for the period ended January 31,1996.
This decrease was due to a decrease of $130,000 in the mix of research products
sales resulting primarily from the Company's non-exclusive distribution
agreements for the Company's products and by a decrease of $700,000 in revenue
for the clinical reference laboratory operation. 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 approximately $35,000 as a result of an increase of
$ 197,000 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 $162,000. This decrease is primarily due to the improved
efficiencies of performing certain diagnostics screening tests. The increase in
the cost of research products is primarily due to the change in mix of products
distributed.
Research and development expenses increased by approximately $582,000 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 $1,212,000
primarily due to the fact that additional reserves were needed during the six
months entered January 31, 1997 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 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
12
<PAGE>
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 decreased by $592,000 primarily
due to a decrease in legal fees and the overall improved efficiencies at the
clinical reference laboratory.
Three months ended January 31, 1997 compared with three months ended January 31,
1996
Revenues from operations for the period ended January 31,1997 decreased by
$279,000 over revenues from operations for the period ended January 31,1996.
This decrease was due to a decrease of $266,000 in the mix of research products
sales primarily from the Company's non-exclusive distribution agreements and by
a decrease of $13,000 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 increased by approximately $97,000 as a result of an increase of
$87,000 in the cost of sales of research products from the Company's
distribution agreements activities and by a increase in the cost of clinical
laboratory services of $10,000.
Research and development expenses increased by approximately $259,000 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 $446,000
primarily due to the fact that additional reserves were needed during the three
months ended January 31, 1997 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.
Selling and general and administration expenses decreased by $297,000 primarily
due to a decrease in legal fees and the overall improved efficiencies at the
clinical reference laboratory.
13
<PAGE>
PART II
Item 2- Changes in Securities
The Company issued an aggregate of 416,521 shares of Common Stock in August
1996, in October 1996 and in December 1996 in exchange for the cancellation of
an aggregate of $6,171,871 owed or to be owed by the Company to certain
creditors of the Company. The shares were registered pursuant to a registration
statement declared effective in February 1997.
14
<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: March 13, 1997 by: /s/ Shahram K. Rabbani
-----------------------
Chief Operating Officer,
Secretary and Treasurer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000316253
<NAME> ENZO BIOCHEM, INC.
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<PERIOD-START> AUG-01-1996
<PERIOD-END> JAN-31-1997
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