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 31,1997
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
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
60 EXECUTIVE BLVD., FARMINGDALE, NEW YORK 11735
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(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, $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 December 10, 1997 the Registrant had 23,348,830 shares of Common Stock
outstanding.
ENZO BIOCHEM, INC.
FORM 10-Q
October 31, 1997
INDEX
PAGE
NUMBER
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - October 31, 1997
and July 31, 1997 3
Consolidated Statement of Operations
For the three months ended October 31, 1997 and 1996 5
Consolidated Statement of Cash Flows
For the three months ended October 31,1997 and 1996 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
2
ENZO BIOCHEM, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
October 31, July 31,
1997 1997
(unaudited)
----------------------------
(in Thousands)
ASSETS
Current assets:
Cash and cash equivalents $30,024 $25,250
Accounts receivable, less allowance
for doubtful accounts 12,794 11,986
Current portion of note receivable -
litigation settlement 4,769 5,000
Inventories 1,593 1,559
Other 1,261 1,811
----- -----
Total current assets 50,441 45,606
Property and equipment, at cost, less accumulated
depreciation and amortization 2,864 2,910
Long term portion of note receivable - litigation
settlement ----- 4,689
Cost in excess of fair value of net tangible assets
acquired, less accumulated amortization 9,212 9,305
Deferred patent costs, less accumulated
amortization 4,645 4,757
Other 152 152
------- --------
$67,314 $67,419
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3
ENZO BIOCHEM, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
October 31, July 31,
1997 1997
(unaudited)
-------------------------
(in Thousands)
Current liabilities:
Trade accounts payable $826 $ 1,089
Accrued legal fees ----- 56
Other accrued expenses 750 1,162
Current portion of long-term debt 37 37
Current portion of obligations under capital lease 29 31
--- --
Total current liabilities 1,642 2,375
Long-term debt --- 9
Obligations under capital leases 32 37
Other deferred liabilities 990 990
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; 23,333,300 shares at October 233 233
31,1997 and 23,329,900 shares at July 31,1997
Additional paid-in capital 90,854 90,736
Accumulated deficit (26,437) (26,961)
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Total stockholders' equity 64,650 64,008
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$67,314 $ 67,419
======= ========
See accompanying notes
4
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended October 31,
1997 1996
-------------------------------------
(In thousands, except per share data)
Revenues:
Research product revenues $2,820 $3,173
Clinical laboratory services 6,494 4,832
----- -----
Total operating revenues 9,314 8,005
Costs and expenses:
Cost of research product revenues 1,608 1,924
Cost of clinical laboratory services 1,870 1,695
Research and development expense 1,082 908
Selling expense 636 599
Provision for uncollectable accounts
receivable 2,316 1,536
General and administrative expenses 1,673 1,682
----- -----
Total costs and expenses 9,185 8,344
Income (loss) before interest income and provision
for taxes on income 129 (339)
Interest income - net 439 478
--- ---
Income before provision for taxes on income 568 139
Provision for taxes on income (45) (17)
--- ---
Net income $523 $122
---- ----
Net income per common and common equivalent share $ .02 $.00
===== ====
Weighted average common shares 25,507 24,949
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See accompanying notes
5
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Three Months Ended October 31,
1997 1996
----------------------------
(In Thousands)
Cash flows from operating activities:
Net income $523 $122
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property
and equipment 214 212
Amortization of costs in excess of fair
value of tangible assets acquired 93 93
Amortization of deferred patent costs 180 150
Provision for uncollectable accounts receivable 2,316 1,536
Accretion of interest on note receivable (80) (250)
Other 38 8
Change in assets and liabilities:
Note receivable - J & J settlement 5,000 5,000
Accounts receivable before provision for (3,124) (949)
uncollectable amounts
Inventories (34) 74
Prepaid expense 550 228
Trade accounts payable and other accrued (675) (427)
expenses
Accrued legal fees (56) (18)
----- -----
4,422 5,657
----- -----
Net cash provided by operating activities $4,945 $5,779
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6
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Three Months Ended October 31,
1997 1996
------------------------------
(In Thousands)
Cash flows from investing activities:
Capital expenditures (168) (88)
Patent costs deferred (67) (50)
Security deposits 6
---- -----
Net cash provided from investing activities (235) (132)
Cash flows from financing activities: ---- -----
Payments of obligations under capital lease and
long term debt (16) (16)
Proceeds from exercise of stock options 80 94
---- -----
Net cash provided by used in financing activities 64 78
---- -----
Net increase in cash and cash equivalents 4,774 5,725
Cash and cash equivalents at the beginning of the year 25,250 17,793
------ ------
Cash and cash equivalents at the end of the period $30,024 $23,518
======= =======
7
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1997
(Unaudited)
1. The consolidated balance sheet as of October 31, 1997 the consolidated
statement of operations for three months ended October 31,1997("1998 Period")
and 1996 ("1997 Period") and the consolidated statement of cash flows for the
three months ended October 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 October 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 1997 Annual Report on Form 10-K. The
results of operations for the three months ended October 31, 1997 are not
necessarily indicative of the results that may be expected for the full year.
In February 1997, SAFS No. 128, "Earnings Per Share" was issued and it
is effective for both interim and annual financial statements for periods ending
after December 15, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and restate all periods.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and warrants will be excluded. The impact of
adopting SFAS No. 128 is not expected to be material.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131 "Disclosures about Segments of an Enterprise and Related Information" which
will be required to be adopted for fiscal year 1999. Under the statements'
"management approach", public companies will report financial and descriptive
information about their operating segments. Management does not expect that
adoption of SFAS No. 131 will have any impact on the companies determination of
its operating segments.
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
8
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINCIAL STATEMENTS
October 31, 1997
(Unaudited)
the Company's grants, licenses and intellectual property have been returned to
the Company in totality.
In March 1993, the Company filed suit in the United States District
Court of Delaware charging patent infringement and acts of unfair competition
against Calgene, Inc. and seeking a declaratory judgment of invalidity
concerning Calgene'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
belonging to the Company. Calgene filed a counterclaim in the second Delaware
action seeking a declaration of invalid on a third patent belonging to the
Company. 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, asserting 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 U.S. Patent Office. The complaint further charged
Hutchinson with infringing and inducing Calgene to infringe the Company's
antisense patents.
On February 2,1996, the Delaware Court issued an opinion ruling
against the Company and in favor of Calgene, finding certain claims infringed,
but the 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 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.
On April 3,1997, the European Patent Office rejected Calgene's
opposition that had been lodged against the Company's related European antisense
patent, thereby upholding the patent's validity. On May 23,1997, the Japanese
Patent Office issued a related antisense patent owned by the Company.
The company declared a 5% stock dividend on December 12, 1997 payable
January 23, 1998 to shareholders of record as of January 9, 1998.
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Item 2- Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Company at October 31, 1997, had cash and cash equivalents of
$30,024,000 an increase of $4,774,000 from July 31,1997. The Company had working
capital of $ 48,799,000 at October31, 1997 compared to $43,231,000 at July
31,1997.
The Company's income before taxes for the three months ended October
31,1997 was $568,000 which includes depreciation and amortization aggregating
approximately $487,000. 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 three month period
ended October 31,1997 was approximately $ 4,945,000 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
$5,779,000 for the 1996 period which also includes $ 5.0 million of cash
received in connection with the litigation settlement with Johnson & Johnson,
Inc. The decrease in net cash provided by operating activities from the 1996
period to the 1997 period was primarily due to the Company's decrease in trade
account payable and other accrued expanses, and a increase in the accounts
receivable offset by a decrease in the prepaid expenses and a increase in net
income.
Net cash used in investing activities increased by $102,000 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 $14,000 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, 1997 COMPARED WITH THREE MONTHS ENDED OCTOBER 31,
1996
Revenues from operations for the period ended October 31,1997 increased
by $ 1,309,000 compared to revenues from operations for the three month period
ended October 31, 1996. This increase was due to an increase of $1,662,000 in
revenue from the clinical reference laboratory operation offset by the decrease
of $353,000 in the mix of research products sales resulting primarily from the
Company's non-exclusive distribution agreements for the
10
Company's products. The increase in revenues from the clinical reference
laboratory operations resulted primarily from a an increase in higher priced
screening tests.
Cost of sales decreased by approximately $141,000 as a result of a
decrease of $ 316,000 in the cost of sales of research products from the
Company's distribution agreements activities offset by an increase in the cost
of clinical laboratory services of $ 175,000 .
Research and development expenses increased by approximately $174,000 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
$780,000 primarily due to the increased revenues at the clinical reference
laboratory and that additional reserves were needed during the three months
ended October 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 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 expenses increased approximately by $37,000, primarily due to an
increase in the marketing programs at the clinical reference laboratory.
11
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 11, 1997 by: /s/ Shahram K. Rabbani
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Chief Operating Officer,
Secretary and Treasurer
12