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, 1996
/ / 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
- ----------------------------------
(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, 1996 the Registrant had 21,511,500 shares of Common Stock
outstanding.
ENZO BIOCHEM, INC.
FORM 10-Q
April 30, 1996
INDEX
PAGE
NUMBER
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - April 30, 1996
and July 31, 1995 3
Consolidated Statement of Operations
For the nine months ended April 30, 1996 and 1995 5
Consolidated Statement of Operations
For the three months ended April 30, 1996 and 1995 6
Consolidated Statement of Cash Flows
For the nine months ended April 30, 1996 and 1995 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II - OTHER INFORMATION 14
2
ENZO BIOCHEM, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
April 30, July 31,
1996 1995
(unaudited)
------------------------
(in thousands)
A S S E T S
Current assets:
Cash and cash equivalents $16,024 $11,068
Accounts receivable, less
allowance for doubtful accounts 13,682 10,914
Current portion of note receivable -
litigation settlement 5,000 5,000
Inventories 2,234 2,198
Other 771 1,077
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Total current assets 37,711 30,257
------- -------
Property and equipment, at cost,
less accumulated depreciation and amortization 13,500 13,892
Long term portion of note receivable --
litigation settlement 8,721 13,121
Cost in excess of fair value of net tangible assets
acquired, less accumulated amortization 9,768 10,046
Deferred patent costs, less accumulated
amortization 4,904 4,971
Other 195 171
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$74,799 $72,458
------- -------
------- -------
See accompanying notes
3
ENZO BIOCHEM, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
April 30, July 31,
1996 1995
(unaudited)
------------------------
(in thousands)
Current liabilities:
Trade accounts payable $ 1,175 $ 1,580
Accrued legal fees 856 922
Income taxes payable 706 1,074
Other accrued expenses 2,065 2,147
Current portion of long-term debt 34 32
Current portion of obligations under capital leases 32 53
------- -------
Total current liabilities 4,868 5,808
------- -------
Long-term debt 56 81
Obligations under capital lease 4,595 4,617
Other deferred liabilities 960 840
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;
21,511,500 shares at April 30, 1996 and
21,334,600 shares at July 31, 1995 215 213
Additional paid-in capital 82,911 81,605
Accumulated deficit (18,806) (20,706)
------- -------
Total stockholders' equity 64,320 61,112
------- -------
$74,799 $72,458
------- -------
------- -------
See accompanying notes
4
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Nine Months Ended April 30,
----------------------------
1996 1995
-------------------------------------
(In thousands, except per share data)
Revenues:
Operating revenues $25,117 $23,286
Costs and expenses:
Cost of sales and diagnostic services 10,925 10,563
Research and development expenses 1,975 1,559
Selling expenses 2,010 2,072
Provision for uncollectable accounts
receivable 2,496 2,178
General and administrative expenses 6,100 5,987
Litigation settlement, net of legal fees -- (21,000)
------- -------
23,506 1,359
------- -------
Income before interest and provision for
income taxes 1,611 21,927
Interest income - net 1,154 639
------- -------
Income before provision for income taxes 2,765 22,566
Provision for income taxes (865) (3,045)
------- -------
Net income $ 1,900 $19,521
------- -------
------- -------
Net income per common and common
equivalent share $ 0.08 $ 0.89
------- -------
------- -------
Weighted average common shares 22,716 21,949
------- -------
------- -------
See accompanying notes
5
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended April 30,
----------------------------
1996 1995
-------------------------------------
(In thousands, except per share data)
Revenues:
Operating revenues $ 8,553 $ 8,217
Costs and expenses:
Cost of sales and diagnostic services 3,866 3,666
Research and development expenses 700 537
Selling expenses 729 741
Provision for uncollectable accounts receivable 1,142 1,081
General and administrative expenses 1,872 2,266
------- -------
8,309 8,291
------- -------
Income (loss) before interest and provision for
income taxes 244 (74)
Interest income - net 390 330
------- -------
Income before provision for income taxes 634 256
Provision for income taxes (195) (15)
------- -------
Net income 439 241
------- -------
------- -------
Net income per common and common $ 0.02 $ 0.01
equivalent share
------- -------
------- -------
Weighted average common shares 22,716 21,949
------- -------
------- -------
See accompanying notes
6
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended April 30,
---------------------------
1996 1995
(In thousands)
---------------------------
Cash flows from operating activities:
Net income $ 1,900 $19,521
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property
and equipment 669 643
Amortization of cost in excess of fair
value of tangible assets acquired 278 277
Amortization of deferred patent costs 374 360
Provision for uncollectable accounts receivable 2,496 2,178
Prepaid expenses converted into legal fees from
previously issued stock 61 --
Issuance of stock for employee pension contribution 95 --
Deferred income tax provision -- 3,000
-------- --------
Total non-cash adjustments to income 3,973 6,458
Change in operating assets and liabilities
Note receivable - litigation settlement 4,400 (17,800)
Research contract receivable -- 6,500
Accounts receivable before provision for
uncollectable amounts (5,263) (5,085)
Inventories (36) (160)
Other assets 172 62
Trade accounts payable, income taxes payable and
other accrued expenses (855) (1,542)
Accrued legal fees (66) 1,771
Deferred liabilities 120 (26)
Accrued interest payable -- (30)
-------- --------
2,445 (9,852)
-------- --------
Net cash provided by operating activities $4,345 $9,669
-------- --------
7
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended April 30,
---------------------------
1996 1995
(In thousands)
---------------------------
Cash flows from investing activities:
Capital expenditures ($319) ($851)
Patent costs deferred (235) (240)
(Increase) decrease in other assets (23) 58
Proceeds from insurance recovery 42 --
------- ------
Net cash used in investing activities (535) (1,033)
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Cash flows from financing activities:
Payment of bank debt -- (2,026)
Payments of obligations under capital lease (66) (63)
Proceeds from stock options and warrants 1,212 1,108
Payment of Debenture Bonds -- (62)
Net cash provided (used) by financing activities 1,146 (1,043)
------- ------
Net increase in cash and cash equivalents 4,956 7,593
Cash and cash equivalents at the beginning of the period 11,068 4,151
------- ------
Cash and cash equivalents at the end of the period $16,024 $11,744
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8
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996
(Unaudited)
1. The consolidated balance sheet as of April 30, 1996, the consolidated
statement of operations for three and nine months ended April 30, 1996 ("1996
Period") and 1995 ("1995 Period") and the consolidated statement of cash flows
for the nine months ended April 30, 1996 and 1995 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, 1996 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 1995 Annual Report on Form 10-K. The results
of operations for the three and nine months ended April 30, 1996 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 related 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. 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 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 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. 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 damage the Company's antisense patents by improperly using
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. On February 2, 1996 the Delaware Court issued
an
9
opinion ruling against Enzo and in favor of Calgene, finding certain Enzo claims
infringed, but the patent as a whole not infringed, and finding the claims at
issue invalid for lack of enablement. Calgene's 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, 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.
4. 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.
5. In April, 1994, the Company signed a non-exclusive worldwide distribution
and supply agreement with Boehringer Mannheim Biochemicals. During fiscal 1995
similar agreements were signed with Amersham International and with Dako A/S. In
September 1995, a fourth agreement was concluded with VWR Scientific Products
(acquired from Baxter Healthcare). Under the terms of these agreements, the
distributor companies sells 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
include products that were developed and marketed by these companies prior to
the agreement, as well as products developed by Enzo, all of which are covered
by Enzo patents. The agreements extend for the life of the last patent to
expire for products involved.
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 was $4,345,000 for the nine
months ended April 30, 1996, compared with $9,669,000 for the nine months ended
April 30, 1995. This decrease was a result of a decrease in proceeds from the
J&J settlement offset by changes in operating assets and liabilities.
Net cash provided from financing activities was approximately $1,146,000
for the nine months ended April 30, 1996 primarily as a result of $1,212,000
from proceeds of exercised stock options, as compared to net cash used from
financing activities of approximately $1,043,000 for the nine months ended April
30, 1995 which was primarily used for repayment of bank debt.
Net cash used in investing activities was approximately $535,000 for the
nine months ended April 30, 1996, compared with $1,033,000 for the nine months
ended April 30, 1995. This decrease was the result of a reduction in capital
expenditures.
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, 1996
the Company had working capital of approximately $32,843,000.
The Company has a $5,000,000 line of credit with a bank at an interest rate
of prime. As of April 30, 1996, the Company did not have amounts outstanding
under this line of credit.
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. 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 grants, licenses and intellectual property have
been returned to the Company in totality.
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 has decided to carry the capital leasehold
interest at its estimated fair market value.
11
RESULTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 1996 COMPARED WITH NINE MONTHS ENDED APRIL 30, 1995
Operating revenues for the nine months ended April 30, 1996 ("1996 period")
increased by $1,831,000 over operating revenues for the nine months ended April
30, 1995 ("1995 period"). This increase was due to an increase of $2,619,000 of
research product revenues offset by a $788,000 decrease in revenues from the
clinical reference laboratory as compared to the 1995 period. Revenues at the
laboratory were impacted by a reduced number of billing days due to unusually
bad weather, as well as a change in the test mix of services provided. Revenues
from the sale of research products increased as a result of the Company's
distribution agreements.
Cost of sales increased by approximately $362,000 primarily due to
increased sales of research products related to the distribution agreements.
Research and development expenses increased by $416,000 due to expanded
research and development and clinical programs.
Selling expenses decreased by $62,000 due to a decrease in marketing
programs and sales personnel for the clinical reference laboratory.
The increase in general and administrative expenses of $113,000 was
primarily due to increased legal expenses.
The provision for bad debts increased by $318,000 due to an adjustment in
reimbursement rates from insurance carriers for the clinical reference
laboratory.
Interest income increased by $515,000 as a result of the proceeds from
investment of the Company's cash equivalents.
The provision for taxes decreased approximately $2,180,000 primarily due to
a reduction of income resulting from the recognition last year of the litigation
settlement.
THREE MONTHS ENDED APRIL 30, 1996 COMPARED WITH THREE MONTHS ENDED
APRIL 30, 1995
Operating revenues for the three months ended April 30, 1996 ("1996
period") increased by $336,000 over revenues from operations for the three
months ended April 30, 1995 ("1995 period"). This increase was due to an
increase in research product sales of $626,000 offset by decreases of $290,000
in revenues from the clinical reference laboratory for the similar activity in
the 1995 period.
Cost of sales increased by $200,000 primarily as a result of increased
sales of research products.
Research and development expenses increased by $163,000 due to expanded
research and development and clinical programs.
12
Selling expenses decreased by $12,000 as a result of a decrease in
personnel costs related to the clinical reference laboratory.
General and administrative expenses decreased by approximately $394,000 as
a result of a decrease of legal expenses.
13
ENZO BIOCHEM, INC.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
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 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. 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 damage the Company's antisense patents by improperly using
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. On February 2, 1996 the Delaware Court issued
an opinion ruling against Enzo and in favor of Calgene, finding certain Enzo
claims infringed, but the patent as a whole not infringed, and finding the
claims at issue invalid for lack of enablement. Calgene's 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, 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.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) Reports on form 8-K - none
14
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, 1996 by:/s/ Barry W. Weiner
-----------------------
Barry W. Weiner, Executive
Vice President-Secretary
15