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, 1995
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 June 1, 1995 the Registrant had 19,953,800 shares of Common Stock
outstanding.
ENZO BIOCHEM, INC.
FORM 10-Q
April 30, 1995
INDEX
PAGE
NUMBER
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - April 30, 1995
and July 31, 1994 3
Consolidated Statement of Operations
For the nine months ended April 30, 1995 and 1994 5
Consolidated Statement of Operations
For the three months ended April 30, 1995 and 1994 6
Consolidated Statement of Cash Flows
For the nine months ended April 30, 1995 and 1994 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of 11
Financial Condition and Results of Operations
PART II - OTHER INFORMATION 13
2
ENZO BIOCHEM, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
April 30, July 31,
1995 1994
(unaudited)
----------------------
(in thousands)
A S S E T S
Current assets:
Cash and cash equivalents $11,744 $ 4,151
Accounts receivable, less
allowance for doubtful accounts 12,177 9,272
Current portion of note receivable --
litigation settlement 5,000 --
Research contract receivable -- 6,500
Inventories 2,263 2,103
Deferred income taxes -- 3,000
Prepaid expenses and other 695 724
------- -------
Total current assets 31,879 25,750
------- -------
Long term portion of note receivable --
litigation settlement 12,800 --
Property and equipment, at cost,
less accumulated depreciation and amortization 23,954 23,616
Cost in excess of fair value of net tangible assets
acquired, less accumulated amortization 10,114 10,391
Deferred patent costs, less accumulated
amortization 4,943 5,062
Other 166 224
------- -------
$83,856 $65,043
======= =======
See accompanying notes
3
ENZO BIOCHEM, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
April 30, July 31,
1995 1994
(unaudited)
------------------------
(in thousands)
Current liabilities:
Trade accounts payable $ 2,859 $ 4,447
Loan payable - bank -- 2,000
Accrued interest -- 30
Accrued legal fees 2,089 318
Other accrued expenses 1,693 1,648
Current portion of long-term debt 29 95
Current portion of obligations under capital leases 64 58
-------- --------
Total current liabilities 6,734 8,596
-------- --------
Long-term debt 114 135
Obligations under capital lease 4,336 4,243
Other deferred liabilities 797 824
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; 19,953,800
shares at April 30, 1995 and
19,822,200 shares at July 31, 1994 200 198
Additional paid-in capital 72,860 71,753
Accumulated deficit (1,185) (20,706)
-------- --------
Total stockholders' equity 71,875 51,245
-------- --------
$ 83,856 $ 65,043
======== ========
See accompanying notes
4
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Nine Months Ended April 30,
----------------------------
1995 1994
-------------------------------------
(In thousands, except per share data)
Revenues:
Operating revenues $ 23,286 $ 14,527
Costs and expenses:
Cost of sales and diagnostic services 10,563 5,896
Research and development expenses 1,559 1,086
Selling expenses 2,072 1,270
Provision for uncollectable accounts
receivable 2,178 1,283
General and administrative expenses 5,987 5,123
Litigation settlement, net of legal fees (21,000) --
-------- --------
1,359 14,658
-------- --------
Income (loss) before interest, provision for
income taxes and extraordinary gain 21,927 (131)
Interest income - net 639 52
-------- --------
Income (loss) before provision for income taxes
and extraordinary gain 22,566 (79)
Provision for income taxes (3,045) (40)
-------- --------
Income (loss) before extraordinary gain 19,521 (119)
Extraordinary gain -- 150
-------- --------
Net income $ 19,521 $ 31
======== ========
Income per share before extraordinary gain $ 0.93 $ (0.01)
Income per share on extraordinary gain -- 0.01
-------- --------
Net income per share $ 0.93 $ 0.00
======== ========
Weighted average common shares 20,904 19,367
======== ========
See accompanying notes
5
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended April 30,
-------------------------------------
1995 1994
-------------------------------------
(In thousands, except per share data)
Revenues:
Operating revenues $ 8,217 $ 4,877
Costs and expenses:
Cost of sales and diagnostic services 3,666 1,951
Research and development expenses 537 257
Selling expenses 741 492
Provision for uncollectable accounts
receivable 1,081 430
General and administrative expenses 2,266 1,896
-------- --------
8,291 5,026
-------- --------
(Loss) before interest and provision for
income taxes (74) (149)
Interest income - net 330 27
-------- --------
Income (loss) before provision for income taxes 256 (122)
Provision for income taxes (15) (15)
-------- --------
Net income (loss) 241 (137)
======== ========
Net income (loss) per share $ 0.01 ($ 0.01)
======== ========
Weighted average common shares 20,904 19,367
======== ========
See accompanying notes
6
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended April 30,
---------------------------
1995 1994
(In thousands)
------------------------
Cash flows from operating activities:
Net income $ 19,521 $ 31
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property
and equipment 643 544
Amortization of cost in excess of fair
value of tangible assets acquired 277 276
Amortization of deferred patent costs 360 270
Provision for uncollectable accounts receivable 2,178 1,283
Extraordinary gain on extinguishment of bank debt -- (150)
Legal expenses converted into stock -- 230
Miscellaneous operating expenses converted
into stock -- 16
Deferred income tax provision 3,000 --
-------- --------
Total non-cash adjustments to income 6,458 2,469
Change in assets and liabilities
Note receivable - litigation settlement (17,800)
Research contract receivable 6,500
Accounts receivable before provision for
uncollectable amounts (5,085) (3,620)
Inventories (160) (350)
Prepaid expense and other assets 62 (474)
Trade accounts payable and other accrued expenses (1,542) (616)
Accrued legal fees 1,771 (203)
Deferred liabilities (26) 71
Accrued interest payable (30) (56)
-------- --------
(9,852) (2,779)
-------- --------
Net cash (used)provided by operating activities $ 9,669 ($ 2,748)
-------- --------
7
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended April 30,
---------------------------
1995 1994
(In thousands)
--------------------------
Cash flows from investing activities:
Capital expenditures ($ 851) ($ 900)
Patent costs deferred (240) (195)
(Increase) decrease in other assets 58 (1)
-------- --------
Net cash used in investing activities (1,033) (1,096)
-------- --------
Cash flows from financing activities:
Proceeds from short and long term borrowing -- 2,000
Payment of bank debt (2,026) (1,410)
Payments of obligations under capital lease (63) (181)
Proceeds from stock options and warrants 1,108 391
Payment of Debenture Bonds (62) --
Payment for registration filing fees -- (110)
Proceeds from issuance of stock -- 7,520
-------- --------
Net cash (used) provided by financing activities (1,043) 8,210
-------- --------
Net increase in cash and cash equivalents 7,593 4,366
Cash and cash equivalents at the beginning of the period 4,151 654
-------- --------
Cash and cash equivalents at the end of the period $ 11,744 $ 5,020
======== ========
8
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995
(Unaudited)
1. The consolidated balance sheet as of April 30, 1995, the consolidated
statement of operations for nine months ended April 30, 1995 ("1995 Period") and
1994 ("1994 Period") and the consolidated statement of cash flows for the nine
months ended April 30, 1995 and 1994 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, 1995 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 1994 Annual Report on Form 10-K. The
results of operations for the nine months ended April 30, 1995 are not
necessarily indicative of the results that may be expected for the full year.
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, of which $6.5 million relates to
amounts due under certain research and development agreements and which was
included in research contracts receivable at July 31, 1994, 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. 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.
3. On January 13, 1995, the Company paid in full the $61,900 outstanding
balance of the 9% Convertible Subordinated Debentures originally issued in 1986.
4. 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 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 has 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 have been consolidated and were tried to the
Court in April 1995. The parties are awaiting the Court's decision. 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, alleging 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 subvert the Company's antisense patents
by improperly using
9
confidential information to challenge them in the Patent Office. The Complaint
further charges that Hutchinson is infringing and inducing Calgene to infringe
the Company's antisense patents. There can be no assurance that the Company will
be successful in any of the foregoing matters or that Calgene, Inc. 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.
5. Effective 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. During 1992 this lease was renegotiated. The Company
has recorded the fair market value of the real property in the amount of
$3,000,000 as a capital lease obligation due in installments through 2036.
Financing for the renovation and equipping of such facility came principally
from the Company's own funds. The Company is carrying the capital leasehold
interest at its estimated fair market value.
6. In April, 1994, the Company signed a non-exclusive worldwide
distribution and supply agreement with Boehringer Mannheim Biochemicals. In
February 1995 and in March 1995, the Company signed similar agreements with
Amersham International and Dako A/S, respectively. Under the terms of these
agreements, these companies will distribute to the global medical research
market, a broad range of biochemical products and reagents manufactured and
supplied by Enzo. The agreements include products based on nonradioactive DNA
probe technology and includes products that were developed and marketed by the
companies prior to the agreement, as well as products developed by the Enzo, all
of which are covered by Enzo patents.
7. The Company has net operating loss carryforwards at July 31, 1994 of
approximately $19,244,000 for income tax return purposes.
10
Item 2- Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased by approximately
$12,417,000 for the nine months ended April 30, 1995 as a result of an increase
in net income of approximately $19,490,000 primarily related to the J&J
settlement offset by changes in operating assets and liabilities.
The Company's internal source of cash generated by operations in
addition to the proceeds from the litigation settlement was sufficient to meet
the Company's needs for investing and other financing activities. At April 30,
1995 the Company had working capital of approximately $25,145,000.
On October 19, 1994 the Company executed a settlement agreement with
Johnson & Johnson, Inc. 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. 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.
In March, 1994 EnzoLabs entered into a $2.0 million line of credit with
a bank. Interest was being charged at a rate of 1% above the bank's prime rate.
In October, 1994 the Company paid in full the line of credit.
Effective 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. During 1992 this lease was renegotiated. The Company
has recorded the fair market value of the real property in the amount of
$3,000,000 as a capital lease obligation due in installments through 2036.
Financing for the renovation and equipping of such facility came principally
from the $10,000,000 industrial revenue bond financing completed on December 31,
1985 and the Company's own funds. The Company has decided to carry the capital
leasehold interest at its estimated fair market value.
11
RESULTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 1995 COMPARED WITH NINE MONTHS ENDED APRIL 30, 1994
Operating revenues for the nine months ended April 30, 1995 ("1995
period") increased by $8,759,000 over operating revenues for the nine months
ended April 30, 1994 ("1994 period"). This increase was due to a $3,538,000
increase in revenues from the clinical reference laboratory and an increase of
$5,221,000 of research product revenues as compared to the 1994 period. Revenues
at the clinical reference laboratory increased due to the increase in volume of
screening tests. Revenues from research products increased primarily from the
Company's non-exclusive contract with Boehringer Mannheim for distribution of
the Company's products.
Cost of sales increased by approximately $4,667,000 primarily due to
increased revenues from research products related to the Boehringer Mannheim
non-exclusive agreement.
Selling expenses increased by $802,000 due to an increase in marketing
programs and sales personnel for the clinical reference laboratory.
Interest income increased by $587,000 as a result of the investment of
the proceeds from the litigation settlement with Johnson & Johnson.
The increase in general and administrative expenses of $864,000 was
primarily due to the increased legal fees for the Calgene lawsuit.
The provision for bad debts increased by $895,000 due to an
increase in revenues from the clinical reference laboratory.
The provision for taxes increased approximately $3,005,000 primarily
due to the recognition of income resulting from the litigation settlement.
THREE MONTHS ENDED APRIL 30, 1995 COMPARED WITH THREE MONTHS
ENDED APRIL 30, 1994
Operating revenues for the three months ended April 30, 1995 ("1995
period") increased by $3,340,000 over revenues from operations for the three
months ended April 30, 1994 ("1994 period"). This increase was due to increases
of $1,440,000 in revenues from the clinical reference laboratory and an
increase in research product sales of $1,900,000 for the similar activity
in the 1994 period.
Cost of sales increased by $1,715,000 primarily as a result of
increased revenues by research product sales related to the Boehringer Mannheim
distribution agreement.
Selling expenses increased by $249,000 as a result of increased
personnel costs related to the clinical reference laboratory.
General and administrative expenses increased by approximately $370,000
as a result of an increase of legal fees related to the Calgene lawsuit.
12
ENZO BIOCHEM, INC.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) Reports on form 8-K - none
13
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENZO BIOCHEM, INC.
------------------
(registrant)
Date: June 12, 1995 by:/s/ Barry W. Weiner
-----------------------
Barry W. Weiner, Executive
Vice President-Secretary
14