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 30,1999
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.
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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, $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 7, 1999 the Registrant had 24,925,000 shares of Common Stock
outstanding.
ENZO BIOCHEM, INC.
FORM 10-Q
April 30, 1999
INDEX
PAGE
NUMBER
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - April 30, 1999
and July 31, 1998 3
Consolidated Statement of Operations
For the nine months ended April 30, 1999 and 1998 5
Consolidated Statement of operations
For the three months ended April 30, 1999 and 1998 6
Consolidated Statement of Cash Flows
For the nine months ended April 30,1999 and 1998 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
2
ENZO BIOCHEM, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
April 30, July 31,
1999 1998
(unaudited)
---------------------
(in Thousands)
ASSETS
Current assets:
Cash and cash equivalents $41,863 $33,543
Accounts receivable, less allowance
for doubtful accounts 14,477 14,195
Current portion of note receivable -
litigation settlement -- 4,942
Inventories 1,393 1,393
Deferred taxes 471 471
Other 865 844
------- -------
Total current assets 59,069 55,388
Property and equipment, at cost, less accumulated
depreciation and amortization 2,619 2,570
Cost in excess of fair value of net tangible assets
acquired, less accumulated amortization 8,656 8,934
Deferred patent costs, less accumulated
Amortization 4,384 4,559
Deferred taxes 554 554
Other 119 148
------- -------
$75,401 $72,153
======= =======
3
ENZO BIOCHEM, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
April 30, July 31,
1999 1998
(unaudited)
-----------------------
(in Thousands)
Current liabilities:
Trade accounts payable $ 1,016 $ 1,439
Income taxes payable 50 164
Other accrued expenses 725 803
Current portion of long-term debt -- 9
-------- --------
Total current liabilities 1,791 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; 24,906,600 shares at April
30,1999 and 24,905,300, shares at July 31,1998 249 249
Additional paid-in capital 92,270 92,103
Accumulated deficit (19,864) (23,569)
-------- --------
Total stockholders' equity 72,655 68,783
-------- --------
$ 75,401 $ 72,153
======== ========
See accompanying notes
4
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Nine Months Ended April 30,
1999 1998
-------------------------------------
(In thousands, except per share data)
Revenues:
Research product revenues $ 12,275 $ 9,457
Clinical laboratory services 21,443 20,880
-------- --------
Total operating revenues 33,718 30,337
Costs and expenses:
Cost of research product revenues 6,039 5,442
Cost of clinical laboratory services 6,186 6,048
Research and development expense 3,380 2,931
Selling expense 2,039 2,039
Provision for uncollectable accounts
Receivable 7,885 7,658
General and administrative expenses 5,806 5,537
-------- --------
Total costs and expenses 31,335 29,655
-------- --------
Income before interest income and provision for
taxes on income 2,383 682
Interest income - net 1,475 1,403
-------- --------
Income before provision for taxes on income 3,858 2,085
Provision for taxes on income (153) (101)
-------- --------
Net income $ 3,705 $ 1,984
======== ========
Net income per common share:
Basic $ .15 $ .08
======== ========
Diluted $ .15 $ .08
======== ========
Denominator for per share calculation:
Basic 24,901 24,483
======== ========
Diluted 25,520 25,550
======== ========
See accompanying notes
5
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended April 30,
1999 1998
-------------------------------------
(In thousands, except per share data)
Revenues:
Research product revenues $ 4,928 $ 3,441
Clinical laboratory services 7,265 7,256
-------- --------
Total operating revenues 12,193 10,697
Costs and expenses:
Cost of research product revenues 2,315 2,082
Cost of clinical laboratory services 2,133 2,086
Research and development expense 1,083 809
Selling expense 640 685
Provision for uncollectable accounts
Receivable 2,927 2,675
General and administrative expenses 1,834 1,912
-------- --------
Total costs and expenses 10,932 10,249
-------- --------
Income before interest income and provision for
taxes on income 1,261 448
Interest income - net 458 508
--- ---
Income before provision for taxes on income 1,719 956
Provision for taxes on income (37) (53)
-------- --------
Net income $ 1,682 $ 903
======== ========
Net income per common share:
Basic $ .07 $ .04
======== ========
Diluted $ .07 $ .04
======== ========
Denominator for per share calculation:
Basic 24,907 24,463
======== ========
Diluted 25,530 25,530
======== ========
See accompanying notes
6
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended April 30,
1999 1998
---------------------------
(In Thousands)
Cash flows from operating activities:
Net income $ 3,705 $ 1,984
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property
and equipment 645 638
Amortization of costs in excess of fair
value of tangible assets acquired 278 278
Amortization of deferred patent costs 499 510
Issuance of warrants as compensation for services
performed
50 --
Provision for uncollectable accounts receivable 7,785 7,658
Accretion of interest on note receivable (58) (215)
Other -- 119
Change in assets and liabilities:
Note receivable - J & J settlement 5,000 5,000
Accounts receivable before provision for
uncollectable amounts (8,066) (9,270)
Inventories -- 75
Other (21) 780
Trade accounts payable and other accrued
Expenses (501) (212)
Income taxes payable (114) --
Accrued legal fees -- (45)
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Total adjustments 5,497 5,316
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Net cash provided by operating activities $ 9,202 $ 7,300
------- -------
7
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended April 30,
1999 1998
---------------------------
(In Thousands)
Cash flows from investing activities:
Capital expenditures (694) (322)
Patent costs deferred (325) (334)
Security deposits 29 4
-------- --------
Net cash used in investing activities (990) (652)
-------- --------
Cash flows from financing activities:
Payments of obligations under capital lease
and long term debt (9) (37)
Proceeds from exercise of stock options 117 163
-------- --------
Net cash provided by financing activities 108 126
-------- --------
Net increase in cash and cash equivalents 8,320 6,774
Cash and cash equivalents at the beginning of the year 33,543 25,250
-------- --------
Cash and cash equivalents at the end of the period $ 41,863 $ 32,024
======== ========
8
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1999
(Unaudited)
1. The consolidated balance sheet as of April 30, 1999, the consolidated
statement of operations for three and nine months ended April 30,1999 ("1999
Period") and 1998 ("1998 Period") and the consolidated statement of cash flows
for the nine months ended April 30, 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 April 30, 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 nine months ended April 30, 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
April 30, 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.
Nine Months Ended April 30, Three Months Ended April 30,
1999 1998 1999 1998
------------------------- -----------------
(In Thousands, except per share data)
Numerator:
Net income for numerator
for basic and diluted earnings
per common share $ 3,705 $ 1,984 $ 1,682 $ 903
=========== =========== ======= =======
Denominator:
Denominator for basic earnings
per common share
during the period 24,901 24,483 24,907 24,463
Effect of dilutive securities
Employee and director stock
options and warrants 619 1,067 623 1,067
----------- ----------- ------- -------
Denominator for diluted earnings per
common equivalent share and
assumed conversions 25,520 25,550 25,530 25,530
=========== =========== ======= =======
Basic earnings per share $ .15 $ .08 $ .07 $ .04
=========== =========== ======= =======
Diluted earnings per share $ .15 $ .08 $ .07 $ .04
=========== =========== ======= =======
10
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1999
(Unaudited)
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. As of April 30, 1999
all four payments have been received. Pursuant to the terms of the settlement,
all of the Company's grants, licenses and intellectual property have been
returned to the Company in totality.
On June 1, 1998, the U.S. District Court for the District of Delaware
issued its final decision in a case filed by the Company against Calgene in
March 1993 and a second case filed by the Company against Calgene in February
1994. Both cases involved claims by the Company that Calgene had infringed
patents held by the Company concerning genetic antisense. Calgene filed a
counterclaim in the second Delaware action seeking a declaration of invalid on a
third patent belonging to the Company. In its decision the court held two of the
Company's three antisense patents were invalid, and not infringed. The court
declined to act on Calgene's claim that the Company's third antisense patent was
invalid citing lack of evidence. The court further held that the Calgene
antisense patent was not invalid. The Company has appealed the district court's
judgement to the U.S. court of appeals for the Federal Circuit, and Calgene
cross-appealed as to the Company's third patent. Oral argument on the appeal was
heard on May 4, 1999. A decision is expected by the by the end of 1999. There
can be no assurance that the company will be successful in its appeal. If the
Company is successful in its appeal, it expects that the case would be remanded
for further proceedings before the district court, and there can be no assurance
that the Company will be successful in such further proceedings. However, even
if the Company is not successful, management does not believe there will be a
significant monetary impact.
Item 2- Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Company at April 30, 1999, had cash and cash equivalents of
$41,863,000 an increase of $8,320,000 from July 31,1998. The Company had working
capital of $57,278,000 at April 30, 1999 compared to $52,973,000 at July
31,1998.
The Company's net income before taxes for the nine months ended April
30,1999 was $3,858,000 which includes depreciation and amortization aggregating
approximately $1,422,000. The Company's positive cash flow from
11
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, 1999 was approximately $9,202,000 and included $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
$7,300,000 for the 1998 period which also included $ 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 1998
period to the 1999 period was primarily due to the Company's increase in net
income.
Net cash used in investing activities increased by $338,000 from the
1998 period primarily as a result of an increase in capital expenditures.
Net cash provided by financing activities decreased by $18,000 from the
1998 period primarily as a result of the decrease in proceeds from the exercise
of stock options.
RESULTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30,1999 COMPARED WITH NINE MONTHS ENDED APRIL 30, 1998
Revenues from operations for the nine month period ended April 30,1999
increased by $3,381,000 compared to revenues from operations for the nine month
period ended April 30, 1998. This increase was due to an increase of $563,000 in
revenue from the clinical reference laboratory operation and by the increase of
$2,818,000 of research product sales. The increase in research product sales
resulted primarily from an increase in the sales from the Company's
non-exclusive distribution agreements. The increase in revenues from the
clinical reference laboratory operations resulted primarily from an increase in
higher priced screening tests and an increase in esoteric testing revenue.
Cost of sales increased by approximately $735,000 as a result of a
increase in the cost of clinical laboratory services of $138,000 and an increase
of $597,000 in the cost of sales of research products from the Company's
distribution agreements activities.
The provision for uncollectable accounts receivable increased by
$227,000 primarily due to a decrease in reimbursement rates from 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 form 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 inacted, would not have a material adverse effect on the Company's
business and operations.
12
Research and development expenses increased by approximately $449,000
as a result of an increase in expenses associated with the research programs.
General and Administrative expenses increased approximately by
$269,000, primarily due to an increase in legal fees.
The provision for income taxes for the nine months ended April 30, 1999
and 1998 are based on the alternative minimum tax method and current state and
local income taxes provided relate primarily to taxes computed based upon
capital.
THREE MONTHS ENDED APRIL 30,1999 COMPARED WITH THREE MONTHS ENDED APRIL 30, 1998
Revenues from operations for the three month period ended April 30,1999
increased by $1,496,000 compared to revenues from operations for the three month
period ended April 30, 1998. This increase was due primarily to an increase of
$1,487,000 of research products sales. The increase in research product sales
resulted primarily from an increase in the sales from the Company's
non-exclusive distribution agreements.
Cost of sales increased by approximately $280,000 as a result of an
increase in the cost of clinical laboratory services of $47,000 and an increase
of $233,000 in the cost of sales of research products from the Company's
distribution agreements activities.
Research and development expenses increased by approximately $274,000
as a result of an increase in expenses associated with the research programs.
The provision for uncollectable accounts receivable increased by
$252,000 primarily due to a decrease in reimbursement rates from 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 Administrative expenses decreased by approximately $78,000,
primarily due to a decrease in legal fees.
The provision for income taxes for the three months ended April 30,
1999 and 1998 are based on the alternative minimum tax method and current state
and local income taxes provided relate primarily to taxes computed based upon
capital.
13
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 11, 1999 by: /s/ SHAHRAM K. RABBANI
----------------------------
Chief Operating Officer,
Secretary and Treasurer