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 31,1999 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 5, 1999 the Registrant had 24,924,000 shares of Common Stock outstanding. ENZO BIOCHEM, INC. FORM 10-Q January 31, 1999 INDEX PAGE NUMBER ------ PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet - January 31, 1999 and July 31, 1998 3 Consolidated Statement of Operations For the six months ended January 31, 1999 and 1998 5 Consolidated Statement of Operations For the six months ended January 31, 1999 and 1998 6 Consolidated Statement of Cash Flows For the six months ended January 31,1999 and 1998 7 Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 4. Submission of Matters to a Vote of Security Holders 15 2 ENZO BIOCHEM, INC. PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements CONSOLIDATED BALANCE SHEET January 31, July 31, 1999 1998 (unaudited) --------------------- (in Thousands) ASSETS Current assets: Cash and cash equivalents $40,241 $33,543 Accounts receivable, less allowance for doubtful accounts 14,656 14,195 Current portion of note receivable - litigation settlement -- 4,942 Inventories 1,323 1,393 Deferred taxes 471 471 Other 881 844 ------- ------- Total current assets 57,572 55,388 Property and equipment, at cost, less accumulated depreciation and amortization 2,485 2,570 Cost in excess of fair value of net tangible assets acquired, less accumulated amortization 8,749 8,934 Deferred patent costs, less accumulated amortization 4,421 4,559 Deferred taxes 554 554 Other 125 148 ------- ------- $73,906 $72,153 ======= ======= 3 ENZO BIOCHEM, INC. LIABILITIES AND STOCKHOLDERS' EQUITY January 31, July 31, 1999 1998 (unaudited) --------------------- (in Thousands) Current liabilities: Trade accounts payable $ 1,200 $ 1,439 Income taxes payable 72 164 Other accrued expenses 774 803 Current portion of long-term debt -- 9 -------- -------- Total current liabilities 2,046 2,415 Other deferred liabilities 955 955 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; 24,905,800 shares at January 31, 1999 and 24,905,300, shares at July 31, 1998 249 249 Additional paid-in capital 92,202 92,103 Accumulated deficit (21,546) (23,569) -------- -------- Total stockholders' equity 70,905 68,783 -------- -------- $ 73,906 $ 72,153 ======== ======== See accompanying notes 4 ENZO BIOCHEM, INC. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Six Months Ended January 31, 1999 1998 ------------------------------------- (In thousands, except per share data) Revenues: Research product revenues $ 7,347 $ 6,016 Clinical laboratory services 14,178 13,624 -------- -------- Total operating revenues 21,525 19,640 Costs and expenses: Cost of research product revenues 3,724 3,360 Cost of clinical laboratory services 4,053 3,962 Research and development expense 2,297 2,122 Selling expense 1,399 1,354 Provision for uncollectable accounts receivable 4,958 4,983 General and administrative expenses 3,972 3,625 -------- -------- Total costs and expenses 20,403 19,406 -------- -------- Income before interest income and provision for taxes on income 1,122 234 Interest income - net 1,017 895 -------- -------- Income before provision for taxes on income 2,139 1,129 Provision for taxes on income (116) (48) -------- -------- Net income $ 2,023 $ 1,081 ======== ======== Net income per common share: Basic $ .08 $ .04 ======== ======== Diluted $ .08 $ .04 ======== ======== Denominator for per share calculation: Basic 24,899 24,422 ======== ======== Diluted 25,715 25,476 ======== ======== See accompanying notes 5 ENZO BIOCHEM, INC. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Three Months Ended January 31, 1999 1998 ------------------------------------- (In thousands, except per share data) Revenues: Research product revenues $ 3,849 $ 3,196 Clinical laboratory services 7,152 7,130 -------- -------- Total operating revenues 11,001 10,326 Costs and expenses: Cost of research product revenues 1,707 1,752 Cost of clinical laboratory services 1,936 2,092 Research and development expense 1,227 1,040 Selling expense 742 718 Provision for uncollectable accounts receivable 2,520 2,667 General and administrative expenses 2,000 1,952 -------- -------- Total costs and expenses 10,132 10,221 -------- -------- Income before interest income and provision for taxes on income 869 105 Interest income - net 507 456 -------- -------- Income before provision for taxes on income 1,376 561 Provision for taxes on income (58) (3) -------- -------- Net income $ 1,318 $ 558 ======== ======== Net income per common share: Basic $ .05 $ .02 ======== ======== Diluted $ .05 $ .02 ======== ======== Denominator for per share calculation: Basic 24,906 24,438 ======== ======== Diluted 25,722 25,521 ======== ======== See accompanying notes 6 ENZO BIOCHEM, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Six Months Ended January 31, 1999 1998 ---------------------------- (In Thousands) Cash flows from operating activities: Net income $ 2,023 $ 1,081 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 440 433 Amortization of costs in excess of fair value of tangible assets acquired 185 185 Amortization of deferred patent costs 330 360 Issuance of warrants as compensation for services performed 37 -- Provision for uncollectable accounts receivable 4,958 4,983 Accretion of interest on note receivable (58) (120) Other -- 82 Change in assets and liabilities: Note receivable - J & J settlement 5,000 5,000 Accounts receivable before provision for uncollectable amounts (5,417) (6,289) Inventories 70 (100) Other (37) 444 Trade accounts payable and other accrued expenses (269) 44 Income Taxes payable (92) -- Accrued legal fees -- (50) ------- ------- Total adjustments 5,147 4,972 ------- ------- Net cash provided by operating activities $ 7,170 $ 6,053 ------- ------- 7 ENZO BIOCHEM, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Six Months Ended January 31, 1999 1998 ------------------- (In Thousands) Cash flows from investing activities: Capital expenditures (355) (235) Patent costs deferred (193) (183) Security deposits 23 9 -------- -------- Net cash used in from investing activities (525) (409) -------- -------- Cash flows from financing activities: Payments of obligations under capital lease and long term debt (9) (27) Proceeds from exercise of stock options 62 143 -------- -------- Net cash provided by financing activities 53 116 -------- -------- Net increase in cash and cash equivalents 6,698 5,760 Cash and cash equivalents at the beginning of the year 33,543 25,250 -------- -------- Cash and cash equivalents at the end of the period $ 40,241 $ 31,010 ======== ======== 8 ENZO BIOCHEM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 31, 1999 (Unaudited) 1. The consolidated balance sheet as of January 31, 1999 the consolidated statement of operations for three and six months ended January 31,1999 ("1999 Period") and 1998 ("1998 Period") and the consolidated statement of cash flows for the six months ended January 31, 1999 and 1998 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, 1999 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 1998 Annual Report on Form 10-K. The results of operations for the six months ended January 31, 1999 are not necessarily indicative of the results that may be expected for the full year. In fiscal 1997, the Financial Accounting Standards Board issued SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" which is effective for years beginning after December 15, 1997. SFAS No. 131 established standards for the way the public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographical areas, and major customers. Since SFAS No. 131 is not required to be applied to interim financial statements in the initial year of adoption, the Company is not required to disclose segment information in accordance with SFAS No. 131 until the fiscal year ended July 31, 1999, if applicable. In the Company's first quarter of fiscal 2000 report, and in subsequent quarters, it would present the interim disclosures required by SFAS No. 131 for both fiscal 2000 and 1999, if applicable. Management does not expect that adoption of SFAS No. 131 will have a significant impact on the Companies determination of its operating segments. In fiscal 1997, the Company adopted 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". 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 9 ENZO BIOCHEM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 31, 1999 (Unaudited) than the assets carrying amount. SFAS No. 121 also addresses the accounting of long-lived assets and certain identifiable intangibles that are expected to be disposed of. The adoption of SFAS No. 121 did not have a material effect on the consolidated results of operations or financial condition of the Company. In fiscal 1998, the Company adopted the provisions of SFAS No. 128, "Earnings Per Share", which was effective for both interim and annual financial statements for periods ending after December 15, 1997. SFAS 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options and warrants. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where necessary, restated to conform to SFAS 128 requirements. The following table sets forth the computation of basic and diluted earnings per share pursuant to SFAS 128.