Item 1
Financial Statements
ENZO BIOCHEM, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
|
|
October 31,
2017
(unaudited)
|
|
|
July 31,
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
66,849
|
|
|
$
|
64,167
|
|
Accounts receivable, net of allowances
|
|
|
14,443
|
|
|
|
15,180
|
|
Inventories
|
|
|
7,210
|
|
|
|
7,047
|
|
Prepaid expenses and other
|
|
|
2,481
|
|
|
|
2,690
|
|
Total current assets
|
|
|
90,983
|
|
|
|
89,084
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
7,837
|
|
|
|
7,901
|
|
Goodwill
|
|
|
7,452
|
|
|
|
7,452
|
|
Intangible assets, net
|
|
|
2,647
|
|
|
|
2,895
|
|
Other assets
|
|
|
337
|
|
|
|
333
|
|
Total assets
|
|
$
|
109,256
|
|
|
$
|
107,665
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable – trade
|
|
$
|
9,558
|
|
|
$
|
10,350
|
|
Accrued liabilities
|
|
|
9,313
|
|
|
|
6,720
|
|
Other current liabilities
|
|
|
670
|
|
|
|
740
|
|
Total current liabilities
|
|
|
19,541
|
|
|
|
17,810
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
533
|
|
|
|
983
|
|
Total liabilities
|
|
$
|
20,074
|
|
|
$
|
18,793
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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: 46,994,283 and outstanding: 46,913,532 at October 31, 2017 and shares issued: 46,506,176 at July 31,
2017
|
|
|
470
|
|
|
|
465
|
|
Additional paid-in capital
|
|
|
329,971
|
|
|
|
328,294
|
|
Less: Treasury stock at cost 80,751 shares at October 31, 2017 and -0- at July 31, 2017
|
|
|
(815
|
)
|
|
|
—
|
|
Accumulated deficit
|
|
|
(242,540
|
)
|
|
|
(241,900
|
)
|
Accumulated other comprehensive income
|
|
|
2,096
|
|
|
|
2,013
|
|
Total stockholders’ equity
|
|
|
89,182
|
|
|
|
88,872
|
|
Total liabilities and stockholders’ equity
|
|
$
|
109,256
|
|
|
$
|
107,665
|
|
The accompanying notes are an integral
part of these consolidated financial statements.
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
|
|
Three Months Ended
October 31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Clinical laboratory services
|
|
$
|
20,334
|
|
|
$
|
18,558
|
|
Product revenues
|
|
|
7,081
|
|
|
|
7,426
|
|
Royalty and license fee income
|
|
|
261
|
|
|
|
300
|
|
Total revenues
|
|
|
27,676
|
|
|
|
26,284
|
|
|
|
|
|
|
|
|
|
|
Operating costs, expenses:
|
|
|
|
|
|
|
|
|
Cost of clinical laboratory services
|
|
|
12,042
|
|
|
|
10,896
|
|
Cost of product revenues
|
|
|
3,389
|
|
|
|
3,309
|
|
Research and development
|
|
|
747
|
|
|
|
822
|
|
Selling, general, and administrative
|
|
|
10,891
|
|
|
|
11,494
|
|
Provision for uncollectible accounts receivable
|
|
|
814
|
|
|
|
669
|
|
Legal fee expense
|
|
|
431
|
|
|
|
372
|
|
Total operating costs, expenses
|
|
|
28,314
|
|
|
|
27,562
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(638
|
)
|
|
|
(1,278
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest
|
|
|
157
|
|
|
|
46
|
|
Other
|
|
|
36
|
|
|
|
119
|
|
Foreign exchange loss
|
|
|
(195
|
)
|
|
|
(361
|
)
|
Loss before income taxes
|
|
|
(640
|
)
|
|
|
(1,474
|
)
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
$
|
(640
|
)
|
|
$
|
(1,474
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
46,914
|
|
|
|
46,272
|
|
Diluted
|
|
|
46,914
|
|
|
|
46,272
|
|
The accompanying notes are an integral
part of these consolidated financial statements.
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in thousands)
|
|
Three Months Ended
October 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net loss
|
|
$
|
(640
|
)
|
|
$
|
(1,474
|
)
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
83
|
|
|
|
254
|
|
Comprehensive loss
|
|
$
|
(557
|
)
|
|
$
|
(1,220
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements.
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Three Months Ended October 31, 2017
(UNAUDITED)
(in thousands, except share data)
|
|
Common
Stock
Shares
Issued
|
|
|
Treasury
Stock
Shares
|
|
|
Common
Stock
Amount
|
|
|
Additional
Paid-in
Capital
|
|
|
Treasury
Stock
Amount
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Total
Stockholders’
Equity
|
|
Balance at July 31, 2017
|
|
|
46,506,176
|
|
|
|
—
|
|
|
$
|
465
|
|
|
$
|
328,294
|
|
|
$
|
—
|
|
|
$
|
(241,900
|
)
|
|
$
|
2,013
|
|
|
$
|
88,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period ended October 31, 2017
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(640
|
)
|
|
|
—
|
|
|
|
(640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
—
|
|
|
|
80,751
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(815
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(815
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of restricted stock
|
|
|
1,001
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
487,106
|
|
|
|
—
|
|
|
|
5
|
|
|
|
1,472
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation charges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
205
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
83
|
|
|
|
83
|
|
Balance at October 31, 2017
|
|
|
46,994,283
|
|
|
|
80,751
|
|
|
$
|
470
|
|
|
$
|
329,971
|
|
|
$
|
(815
|
)
|
|
$
|
(242,540
|
)
|
|
$
|
2,096
|
|
|
$
|
89,182
|
|
The accompanying notes are an integral part of
these consolidated financial statements
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
|
|
Three Months Ended
October 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(640
|
)
|
|
$
|
(1,474
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property, plant and equipment
|
|
|
521
|
|
|
|
515
|
|
Amortization of intangible assets
|
|
|
228
|
|
|
|
412
|
|
Provision for uncollectible accounts receivable
|
|
|
814
|
|
|
|
669
|
|
Share-based compensation charges
|
|
|
205
|
|
|
|
151
|
|
Accrual for share-based 401(k) employer match expense
|
|
|
177
|
|
|
|
177
|
|
Foreign exchange loss
|
|
|
198
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(101
|
)
|
|
|
(150
|
)
|
Inventories
|
|
|
(198
|
)
|
|
|
(298
|
)
|
Prepaid expenses and other
|
|
|
207
|
|
|
|
137
|
|
Accounts payable – trade
|
|
|
(819
|
)
|
|
|
(522
|
)
|
Accrued liabilities, other current liabilities and other liabilities
|
|
|
2,003
|
|
|
|
(299
|
)
|
Total adjustments
|
|
|
3,235
|
|
|
|
1,141
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
2,595
|
|
|
|
(333
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(461
|
)
|
|
|
(514
|
)
|
Net cash used in investing activities
|
|
|
(461
|
)
|
|
|
(514
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under Credit Agreement
|
|
|
—
|
|
|
|
24,297
|
|
Repayments under Credit Agreement
|
|
|
—
|
|
|
|
(23,854
|
)
|
Installment loan and capital lease obligation payments
|
|
|
(101
|
)
|
|
|
(146
|
)
|
Proceeds from the exercise of stock options
|
|
|
658
|
|
|
|
6
|
|
Net cash provided by financing activities
|
|
|
557
|
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(9
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
2,682
|
|
|
|
(563
|
)
|
Cash and cash equivalents - beginning of period
|
|
|
64,167
|
|
|
|
67,777
|
|
Cash and cash equivalents - end of period
|
|
$
|
66,849
|
|
|
$
|
67,214
|
|
The accompanying notes are an integral part of
these consolidated financial statements.
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of October 31, 2017
(Unaudited)
(Dollars in thousands, except share data)
Note 1 – Basis of Presentation
The accompanying consolidated financial statements include the accounts
of Enzo Biochem, Inc. and its wholly-owned subsidiaries, Enzo Life Sciences, Enzo Clinical Labs, Enzo Therapeutics and Enzo Realty
LLC, collectively or with one or more of its subsidiaries referred to as the “Company” or “Companies”.
The consolidated balance sheet as of October 31, 2017, the consolidated statements of operations, comprehensive income (loss),
and cash flows for the three months ended October 31, 2017 and 2016, and the consolidated statement of stockholders’ equity
for the three months ended October 31, 2017 (the “interim statements”) are unaudited. In the opinion of management,
all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position and operating results
for the interim periods have been made. Certain information and footnote disclosure, normally included in annual financial statements
prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted. The
interim statements should be read in conjunction with the consolidated financial statements for the year ended July 31, 2017 and
notes thereto contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. The
consolidated balance sheet at July 31, 2017 has been derived from the audited financial statements at that date. The results of
operations for the three months ended October 31, 2017 are not necessarily indicative of the results that may be expected for the
fiscal year ending July 31, 2018.
Effect of New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee
Share-Based Payment Accounting
, which requires all excess tax benefits or deficiencies to be recognized as income tax expense
or benefit in the income statement. In addition, excess tax benefits should be classified along with other income tax cash flows
as an operating activity in the statement of cash flows. The adoption of this new standard did not have a material impact on our
consolidated financial statements. We adopted this standard as of August 1, 2017.
Pronouncements Issued but Not Yet Adopted
In May 2014, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09,
Revenue from Contracts with
Customers: Topic 606
. ASU 2014-09 and its amendments supersede the current revenue recognition guidance, including
industry-specific guidance. The new standard introduces a five-step model to achieve its core principle of the entity
recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services, and on transfer of control, as opposed to
transfer of risk and rewards. The standard also expands the required financial statement disclosures regarding revenue
recognition. ASU 2014-09 will be effective for our interim periods and the fiscal year beginning August 1, 2018, and we are
not early adopting. We expect to use retrospective application upon adoption. Based on our preliminary assessment, we expect
the adoption of this ASU may result in some portion of the amounts that have historically been classified as bad debt
expense, primarily related to patient responsibility, could be reflected as a reduction of the transaction price and
therefore as a reduction in revenue; and increased disclosure, including qualitative and quantitative disclosure about the
nature, amount, timing and uncertainty of revenue and cash flows arising from contracts from customers. However, the adoption
of this ASU is not expected to have a material impact on our financial position or cash flows.
In February 2016, the FASB issued Accounting Standards Update (“ASU”)
No. 2016-02 –
Leases (Topic 842)
. The new standard establishes a right-of-use (ROU) model that requires a lessee to
record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified
as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new
standard is effective for our fiscal year beginning August 1, 2019 including interim periods within that fiscal year. A modified
retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.
We believe the adoption of this standard will materially impact our consolidated financial statements by significantly increasing
our non-current assets and non-current liabilities on our consolidated balance sheets in order to record the right of use assets
and related lease liabilities for our existing operating leases.
We will recognize expense in the Statement of Operations similar
to current lease accounting, in the cost of sales and selling, general and administrative.
In May 2017, the FASB issued ASU 2017-09,
Compensation –
Stock Compensation (Topic 708) Scope of Modification Accounting
which provides guidance about which changes to the terms or
conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Adoption of the Standard
is required for our annual and interim periods beginning August 1, 2018 with the amendments in the update applied prospectively
to an award modified on or after the adoption date. Early adoption is permitted. We are currently evaluating the impact this new
standard will have on the consolidated financial statements.
We reviewed all other recently issued accounting pronouncements and
have concluded they are not applicable or not expected to be significant to the accounting for our operations.
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on the reported results of operations.
Concentration Risk
One provider whose programs are included in the “Third-party
payer” and “Health Maintenance Organizations” (“HMO’s”) categories represents approximately
40% and 36% of the Clinical Labs segment net revenue for the three months ended October 31, 2017 and 2016, respectively.
Note 2 – Net income (loss) per share
Basic net income (loss) per share represents net income (loss) divided
by the weighted average number of common shares outstanding during the period. As a result of the net loss for the three months
ended October 31, 2017 and 2016 diluted weighted average shares outstanding are the same as basic weighted average shares outstanding,
and do not include the potential common shares from stock options and unvested restricted stock because to do so would be antidilutive.
For the three months ended October 31, 2017 and 2016, the number
of potential common shares (“in the money options”) and unvested restricted stock excluded from the calculation of
diluted earnings per share was 931,000, and 720,000, respectively.
For the three months ended October 31, 2017 and 2016 there were no
outstanding “out of the money” options to purchase common shares.
Note 3 - Supplemental disclosure for statement of cash flows
For the three months ended October 31, 2017 and 2016, income taxes
paid by the Company were $15 and $954, respectively
.
For the three months ended October 31, 2017 and 2016, interest paid
by the Company was $25 and $58, respectively.
For the three months ended October 31, 2017 and 2016, the Company
financed $0 and $69 respectively, in machinery and transportation equipment under installment loans.
During the three months ended October 31, 2017 and 2016, the Company
did not enter into any capital lease agreements.
During the three months ended October 31, 2017 certain officers of
the Company exercised 271,591 stock options in non-cash transactions. The officers surrendered 80,751 shares of the Company’s
common stock to exercise the stock options. The Company recorded approximately $815, the market value of the surrendered shares,
as treasury stock.
Note 4 - Inventories
Inventories consist of the following:
|
|
October 31,
2017
|
|
|
July 31,
2017
|
|
Raw materials
|
|
$
|
878
|
|
|
$
|
852
|
|
Work in process
|
|
|
1,881
|
|
|
|
1,905
|
|
Finished products
|
|
|
4,451
|
|
|
|
4,290
|
|
|
|
$
|
7,210
|
|
|
$
|
7,047
|
|
Note 5 – Goodwill and intangible assets
At October 31, 2017 and July 31, 2017, the Company’s carrying
amount of goodwill, related to the Clinical Labs segment, is $7,452.
The Company’s change in the carrying amount of intangible assets,
all in the Life Sciences segment is as follows:
|
|
Gross
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
July 31, 2017
|
|
$
|
27,436
|
|
|
$
|
(24,541
|
)
|
|
$
|
2,895
|
|
Amortization expense
|
|
|
—
|
|
|
|
(228
|
)
|
|
|
(228
|
)
|
Foreign currency translation
|
|
|
(118
|
)
|
|
|
98
|
|
|
|
(20
|
)
|
October 31, 2017
|
|
$
|
27,318
|
|
|
$
|
(24,671
|
)
|
|
$
|
2,647
|
|
Intangible assets, all finite lived, consist of the following:
|
|
October 31, 2017
|
|
|
July 31, 2017
|
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Patents
|
|
$
|
11,026
|
|
|
$
|
(10,957
|
)
|
|
$
|
69
|
|
|
$
|
11,027
|
|
|
$
|
(10,951
|
)
|
|
$
|
76
|
|
Customer relationships
|
|
|
11,823
|
|
|
|
(9,260
|
)
|
|
|
2,563
|
|
|
|
11,881
|
|
|
|
(9,083
|
)
|
|
|
2,798
|
|
Website and acquired content
|
|
|
1,007
|
|
|
|
(1,007
|
)
|
|
|
—
|
|
|
|
1,011
|
|
|
|
(1,011
|
)
|
|
|
—
|
|
Licensed technology and other
|
|
|
485
|
|
|
|
(470
|
)
|
|
|
15
|
|
|
|
484
|
|
|
|
(463
|
)
|
|
|
21
|
|
Trademarks
|
|
|
2,977
|
|
|
|
(2,977
|
)
|
|
|
—
|
|
|
|
3,033
|
|
|
|
(3,033
|
)
|
|
|
—
|
|
Total
|
|
$
|
27,318
|
|
|
$
|
(24,671
|
)
|
|
$
|
2,647
|
|
|
$
|
27,436
|
|
|
$
|
(24,541
|
)
|
|
$
|
2,895
|
|
At October 31, 2017, information with respect to intangibles assets
acquired is as follows:
|
|
Useful life
assigned
|
|
Weighted average
remaining useful life
|
Customer relationships
|
|
8 -15 years
|
|
3 years
|
Other intangibles
|
|
10 years
|
|
2 years
|
At October 31, 2017, the weighted average useful life of intangible
assets is approximately two years.
Note 6 - Loan Payable
In June 2013, the Company entered into a secured Revolving Loan and
Security Agreement (the “Credit Agreement”) among the Company and certain of its subsidiaries, with Enzo Therapeutics
as a guarantor, and MidCap Financial LLC. (formerly Healthcare Finance Group, LLC). The Credit Agreement, which expired in December
2016, provided for borrowings against eligible US receivables, as defined, of the Clinical Lab and Life Science segments up to
$8.0 million at defined eligibility percentages and provided for additional borrowings of $4.0 million for increased eligible assets.
Debt issuance costs of $281 were amortized over the life of the Credit Agreement. The Credit Agreement expired and was repaid in
full on December 7, 2016.
Note 7 – Accrued Liabilities
Accrued liabilities consist of the following:
|
|
October 31,
2017
|
|
|
July 31,
2017
|
|
Payroll, benefits, and commissions
|
|
$
|
6,437
|
|
|
$
|
4,092
|
|
Professional fees
|
|
|
554
|
|
|
|
442
|
|
Legal fee expense
|
|
|
327
|
|
|
|
599
|
|
Research and development
|
|
|
143
|
|
|
|
143
|
|
Other
|
|
|
1,852
|
|
|
|
1,444
|
|
|
|
$
|
9,313
|
|
|
$
|
6,720
|
|
Note 8 – Other Liabilities
Other liabilities consist of the following:
|
|
October 31,
2017
|
|
|
July 31,
2017
|
|
Capital lease obligations, net of short term
|
|
$
|
520
|
|
|
$
|
551
|
|
Accrued legal settlement
|
|
|
—
|
|
|
|
410
|
|
Installment loans, net of short term
|
|
|
13
|
|
|
|
22
|
|
|
|
$
|
533
|
|
|
$
|
983
|
|
As of October 31, 2017, future minimum payments under the capital
leases, net of interest of $105 aggregates $699 including a short term debt portion of $179 included in other current liabilities.
Future minimum payments under the installment loans aggregate $102, including a short term portion of $89 included in other current
liabilities. A total of $400 is included in other current liabilities at October 31, 2017 as accrued legal settlement which is
further discussed in Note 11 - Contingencies.
Note 9 – Stockholders’ Equity
Controlled Equity Offering
The Company has a Controlled Equity Offering
SM
Sales Agreement
(the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”). Under the Sales Agreement,
the Company may offer and sell, from time to time, through Cantor, shares of the Company’s common stock, par value $0.01
per share (the “Common Stock”). The Company pays Cantor a commission of 3.0% of the aggregate gross proceeds received
under the Sale Agreement. The Company is not obligated to make any sales of the shares under the Sales Agreement. The offering
of shares pursuant to the Sales Agreement will terminate upon the earlier of (a) the sale of all of the shares subject to the Sales
Agreement or (b) the termination of the Sales Agreement by Cantor or the Company, as permitted therein. The initial agreement contemplated
the sale of shares of the Company’s common stock having an aggregate offering price of up to $20.0 million. In December 2014,
the Sales Agreement was amended in order for the Company to offer and sell additional shares of Common Stock having an aggregate
offering price of $20.0 million.
On September 1, 2017, the Company filed with the SEC a “shelf”
registration and sales agreement prospectus covering the offering, issuance and sale of our Common Stock that may be issued and
sold under the existing Sales Agreement in an aggregate amount of up to $19.15 million. A total of $150 million of securities may
be sold under this shelf registration, which was declared effective September 15, 2017.
During the three months ended October 31, 2017 and during fiscal
2017, the Company did not sell any shares of Common Stock under the Sales Agreement.
Treasury stock
During the three months ended October 31, 2017 certain officers of
the Company exercised 271,591 stock options in non-cash transactions. The officers surrendered 80,751 shares of the Company’s
common stock to exercise the stock options. The Company recorded approximately $815, the market value of the surrendered shares,
as treasury stock.
Share-based compensation
The Company has an incentive stock option and restricted stock award
plan (the “2005 Plan”), and a long term incentive share award plan, (the “2011 Incentive Plan”), which
are more fully described in Note 10 to the consolidated financial statements included in the Company’s Annual Report on Form
10-K for the fiscal year ended July 31, 2017. The 2011 Plan, which is the only plan from which awards may now be granted, provides
for the award to eligible employees, officers, directors, consultants and other persons of stock options, stock appreciation rights
(SARs), restricted stock, restricted stock units, performance awards, and other stock-based awards.
The amounts of share-based compensation expense recognized in the
periods presented are as follows:
|
|
Three months ended
October 31,
|
|
|
|
2017
|
|
2016
|
|
Stock options
|
|
$
|
202
|
|
$
|
146
|
|
Restricted stock
|
|
|
3
|
|
|
5
|
|
|
|
$
|
205
|
|
$
|
151
|
|
The following table sets forth the amount of expense related to share-based
payment arrangements included in specific line items in the accompanying statements of operations:
|
|
Three months ended
October 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cost of clinical laboratory services
|
|
$
|
—
|
|
|
$
|
2
|
|
Selling, general and administrative
|
|
|
205
|
|
|
|
149
|
|
|
|
$
|
205
|
|
|
$
|
151
|
|
No excess tax benefits were recognized during the three month periods
ended October 31, 2017 and 2016.
Stock Option Plans
The following table summarizes stock option activity during the three
month period ended October 31, 2017:
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value (000s)
|
|
Outstanding at July 31, 2017
|
|
|
2,130,995
|
|
|
$
|
4.26
|
|
|
|
|
|
|
|
|
|
Awarded
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(487,106
|
)
|
|
$
|
3.03
|
|
|
|
|
|
|
$
|
4,940
|
|
Cancelled or expired
|
|
|
(19,334
|
)
|
|
$
|
5.92
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
1,624,555
|
|
|
$
|
4.62
|
|
|
|
2.8 years
|
|
|
$
|
12,313
|
|
Exercisable at end of period
|
|
|
903,868
|
|
|
$
|
3.39
|
|
|
|
1.6 years
|
|
|
$
|
5,838
|
|
As of October 31, 2017, the total future compensation cost related
to non-vested options, not yet recognized in the statements of operations, was $1.0 million and the weighted average period over
which the remaining expense of these awards is expected to be recognized is fourteen months.
The intrinsic value of in the money stock option awards that are
vested at the end of the period represents the Company’s closing stock price on the last trading day of the period in excess
of the exercise price multiplied by the number of options vested.
Restricted Stock Awards
A summary of the activity pursuant to the Company’s unvested
restricted stock awards for the three months ended October 31, 2017 is as follows:
|
|
Awards
|
|
|
Weighted
Average
Award Price
|
|
Outstanding at July 31, 2017
|
|
|
7,436
|
|
|
$
|
4.45
|
|
Awarded
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(1,001
|
)
|
|
$
|
(4.84
|
)
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Unvested at end of period
|
|
|
6,435
|
|
|
$
|
3.85
|
|
The fair value of a restricted stock award is determined based on
the closing stock price on the award date. As of October 31, 2017, there was approximately $0.1 million of unrecognized compensation
cost related to unvested restricted stock-based compensation to be recognized over a weighted average remaining period of approximately
twenty five months.
The fair value of the awards that vested during the three months
ended October 31, 2017 and 2016 was $10 and $8, respectively.
The total number of shares available for grant as equity awards from
the 2011 Incentive Plan is approximately 349,600 shares as of October 31, 2017.
Note 10 – Segment reporting
The Company has three reportable segments: Clinical Labs, Life Sciences,
and Therapeutics. The Clinical Labs segment provides diagnostic services to the health care community. The Life Sciences segment
develops, manufactures, and markets products to research and pharmaceutical customers. The Therapeutic segment conducts research
and development activities for therapeutic drug candidates.
The Company evaluates segment performance based on segment income
(loss) before taxes. Costs excluded from segment income (loss) before taxes and reported as “Other” consist of corporate
general and administrative costs which are not allocable to the three reportable segments. Legal fee expense incurred to defend
the Company’s intellectual property and other general corporate matters is considered a component of the Other segment. Legal
fee expense specific to other segments’ activities has been allocated to those segments. When recognized, legal settlements,
net represents activities for which royalties would have been received by the Company’s Life Sciences segment had the Company
had agreements in place with plaintiffs for the patents or products covered by the settlements.
Management of the Company assesses assets on a consolidated basis
only and, therefore, assets by reportable segment have not been included in the reportable segments below. The accounting policies
of the reportable segments are the same as those described in the summary of significant accounting policies contained in the Company’s
Annual Report on Form 10-K for the year ended July 31, 2017.
The following financial information represents the operating results
of the reportable segments of the Company:
Three months ended October 31, 2017
|
|
Clinical
Labs
|
|
|
Life
Sciences
|
|
|
Therapeutics
|
|
|
Other
|
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical laboratory services
|
|
$
|
20,334
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
20,334
|
|
Product revenues
|
|
|
—
|
|
|
$
|
7,081
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,081
|
|
Royalty and license fee income
|
|
|
—
|
|
|
|
261
|
|
|
|
—
|
|
|
|
—
|
|
|
|
261
|
|
|
|
|
20,334
|
|
|
|
7,342
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27,676
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of clinical laboratory services
|
|
|
12,042
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,042
|
|
Cost of product revenues
|
|
|
—
|
|
|
|
3,389
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,389
|
|
Research and development
|
|
|
—
|
|
|
|
523
|
|
|
$
|
224
|
|
|
|
—
|
|
|
|
747
|
|
Selling, general and administrative
|
|
|
6,095
|
|
|
|
2,614
|
|
|
|
—
|
|
|
$
|
2,182
|
|
|
|
10,891
|
|
Provision for uncollectible accounts receivable
|
|
|
800
|
|
|
|
14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
814
|
|
Legal fee expense
|
|
|
13
|
|
|
|
3
|
|
|
|
—
|
|
|
|
415
|
|
|
|
431
|
|
Total operating costs and expenses
|
|
|
18,950
|
|
|
|
6,543
|
|
|
|
224
|
|
|
|
2,597
|
|
|
|
28,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
1,384
|
|
|
|
799
|
|
|
|
(224
|
)
|
|
|
(2,597
|
)
|
|
|
(638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(25
|
)
|
|
|
12
|
|
|
|
—
|
|
|
|
170
|
|
|
|
157
|
|
Other
|
|
|
14
|
|
|
|
7
|
|
|
|
—
|
|
|
|
15
|
|
|
|
36
|
|
Foreign exchange loss
|
|
|
—
|
|
|
|
(195
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(195
|
)
|
Income (loss) before income taxes
|
|
$
|
1,373
|
|
|
$
|
623
|
|
|
$
|
(224
|
)
|
|
$
|
(2,412
|
)
|
|
$
|
(640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization included above
|
|
$
|
404
|
|
|
$
|
326
|
|
|
$
|
—
|
|
|
$
|
19
|
|
|
$
|
749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation included in above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
32
|
|
|
$
|
23
|
|
|
|
—
|
|
|
$
|
150
|
|
|
|
205
|
|
Total
|
|
$
|
32
|
|
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
150
|
|
|
$
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
418
|
|
|
$
|
43
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
461
|
|
Three months ended October 31, 2016
|
|
Clinical
Labs
|
|
|
Life
Sciences
|
|
|
Therapeutics
|
|
|
Other
|
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical laboratory services
|
|
$
|
18,558
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
18,558
|
|
Product revenues
|
|
|
—
|
|
|
$
|
7,426
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,426
|
|
Royalty and license fee income
|
|
|
—
|
|
|
|
300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
300
|
|
|
|
|
18,558
|
|
|
|
7,726
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,284
|
|
Operating costs, expenses and legal settlements, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of clinical laboratory services
|
|
|
10,896
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,896
|
|
Cost of product revenues
|
|
|
—
|
|
|
|
3,309
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,309
|
|
Research and development
|
|
|
—
|
|
|
|
627
|
|
|
$
|
195
|
|
|
|
—
|
|
|
|
822
|
|
Selling, general and administrative
|
|
|
5,952
|
|
|
|
2,946
|
|
|
|
—
|
|
|
$
|
2,596
|
|
|
|
11,494
|
|
Provision for uncollectible accounts receivable
|
|
|
666
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
669
|
|
Legal fee expense
|
|
|
52
|
|
|
|
12
|
|
|
|
—
|
|
|
|
308
|
|
|
|
372
|
|
Total operating costs, expenses and legal settlements, net
|
|
|
17,566
|
|
|
|
6,897
|
|
|
|
195
|
|
|
|
2,904
|
|
|
|
27,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
992
|
|
|
|
829
|
|
|
|
(195
|
)
|
|
|
(2,904
|
)
|
|
|
(1,278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(29
|
)
|
|
|
10
|
|
|
|
—
|
|
|
|
65
|
|
|
|
46
|
|
Other
|
|
|
102
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17
|
|
|
|
119
|
|
Foreign exchange loss
|
|
|
—
|
|
|
|
(361
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(361
|
)
|
Income (loss) before income taxes
|
|
$
|
1,065
|
|
|
$
|
478
|
|
|
$
|
(195
|
)
|
|
$
|
(2,822
|
)
|
|
$
|
(1,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization included above
|
|
$
|
401
|
|
|
$
|
508
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
$
|
927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation included in above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
17
|
|
|
$
|
11
|
|
|
|
—
|
|
|
$
|
121
|
|
|
|
149
|
|
Total
|
|
$
|
19
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
121
|
|
|
$
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
412
|
|
|
$
|
102
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
514
|
|
Note 11 – Contingencies
As of August 1, 2014, the Company was engaged in litigation in the
United States District Court for the Southern District of New York against Roche Diagnostic GmbH and its related company Roche
Molecular Systems, Inc. (“Roche”), as declaratory judgment defendant. This case was commenced in May 2004. Roche seeks
a declaratory judgment of non-breach of contract and patent invalidity against the Company. Roche has also asserted tort claims
against the Company. The Company has asserted breach of contract and patent infringement causes of action against Roche. There
has been extensive discovery in the case. In 2011, Roche moved for summary judgment of non-infringement regarding the Company’s
patent claims. In 2012, the motion was granted in part and denied in part. In December 2012, Roche moved for summary judgment on
the Company’s non-patent claims. Additional discovery was taken and the Company responded to the motions in May 2013. In
December 2013, the Court granted in part and denied in part Roche’s summary judgment motion. In October 2014, the Court ordered
that damages discovery concerning the Company’s remaining contract and patent claims and Roche’s claims should be completed
by the end of January 2015, and expert discovery should be completed following the Court’s not-yet-issued claim construction
ruling concerning the Company’s patent infringement claim against Roche. Roche dropped its tort claims during damages discovery.
On October 2, 2017, the Court issued its claim construction ruling. On October 20, 2017, the Court issued a scheduling order which
requires the completion of expert discovery by February 28, 2018 and schedules a conference on April 5, 2018 that will function
as a pre-trial conference or a pre-motion conference. The Company and Enzo Life Sciences intend to vigorously press their remaining
claims and contest the claims against them.
As of October 31, 2017, there are seven pending cases originally
brought by the Company in the United States District Court for the District of Delaware (“the Court”) alleging patent
infringement against various companies. On June 28, 2017, the Court issued an opinion in the Gen-Probe case, granting Gen-Probe’s
motion for summary judgment that the asserted claims of the ’180 patent are invalid for nonenablement. The Court entered
final judgment of invalidity of the asserted claims of the ‘180 patent on July 19, 2017 in the Gen-Probe and Hologic cases.
The Court entered partial final judgment of invalidity of the asserted claims of the ‘180 patent and stayed the remainder
of the cases in the Becton Dickinson and Roche cases on July 31, 2017 and August 2, 2017, respectively. The Company filed
notices of appeal in each of the Gen-Probe, Hologic, Becton Dickinson, and Roche cases, which were docketed by the United States
Court of Appeals for the Federal Circuit (“Federal Circuit”). In the Abbott case, the parties agreed that the
Court’s summary judgment ruling in the Gen-Probe case invalidated all of the ’180 patent claims asserted against the
Abbott Defendants. On August 15, 2017, the Court granted Abbott’s motion for summary judgment that the asserted claims
of the ’405 patent are invalid for nonenablement. On September 1, 2017, the Court entered final judgment of invalidity
of the asserted claims of the ‘180 and ‘405 patents for nonenablement in the Abbott case. Enzo subsequently filed
a notice of appeal in the Abbott case on September 14, 2017. The Federal Circuit docketed the appeal on September 15, 2017.
The Federal Circuit consolidated the appeals from the Abbott, Becton Dickinson, Gen-Probe, Hologic, and Roche litigations (“Consolidated
Appeals”). We disagree with the Court’s invalidity decisions regarding the ‘180 and ‘405 patents
in the pending cases as set forth in our opening brief in the Consolidated Appeals pending in the Federal Circuit filed on November
28, 2017. In the Consolidated Appeals, we have asked the Federal Circuit to reverse the Court’s grants of final and
summary judgment of invalidity of the asserted claims of the ‘180 and ‘405 patents and to remand the cases against
Abbott, Becton Dickinson, Gen-Probe, Hologic, and Roche to the Court. In the other two cases involving Hologic, one of the
cases is stayed, while the other case is proceeding under the Court’s scheduling order with fact and expert discovery deadlines
through September 2018, a summary judgment hearing date in February 2019, and a trial date in May 2019. The Court granted
Enzo’s motion to amend its complaint to add two new defendants to that case.
There can be no assurance that the Company will be successful in
these litigations. Even if the Company is not successful, management does not believe that there will be a significant adverse
monetary impact on the Company.
The Company is party to other claims, legal actions, complaints,
and contractual disputes that arise in the ordinary course of business. The Company believes that any liability that may ultimately
result from the resolution of these matters will not, individually or in the aggregate, have a material adverse effect on its financial
position or results of operations
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial statements and related notes and other information included
elsewhere in this Quarterly Report on Form 10-Q.
Forward-Looking Statements
Our disclosure and analysis in this report, including but not limited
to the information discussed in this Item 2, contain forward-looking information about our Company’s financial results and
estimates, business prospects and products in research and development that involve substantial risks and uncertainties. From time
to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Forward-looking
statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they
do not relate strictly to historic or current facts. They use words such as “anticipate”, “estimate”, “expect”,
“project”, “intend”, “plan”, “believe”, “will”, and other words and
terms of similar meaning in connection with any discussion of future operations or financial performance.
In particular, these include statements relating to future actions,
prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses,
interest rates, foreign currency rates, intellectual property matters, the outcome of contingencies, such as legal proceedings,
and financial results. We cannot guarantee that any forward-looking statement will be realized,
although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties
and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove
inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. As a result,
investors are cautioned not to place undue reliance on any of our forward-looking statements. Investors should bear this in mind
as they consider forward-looking statements. We do not assume any obligation to update or revise any forward-looking statement
that we make, even if new information becomes available or other events occur in the future. We are also affected by other factors
that may be identified from time to time in our filings with the Securities and Exchange Commission, some of which are set forth
in Item 1A - Risk Factors in our Form 10-K filing for the July 31, 2017 fiscal year. You are advised to consult any further disclosures
we make on related subjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission. Although we have
attempted to provide a list of important factors which may affect our business, investors are cautioned that other factors may
prove to be important in the future and could affect our operating results.
You should understand that it is not possible to predict or identify
all such factors or to assess the impact of each factor or combination of factors on our business. Consequently, you should not
consider any such list to be a complete set of all potential risks or uncertainties.
Overview
Enzo Biochem, Inc. (the “Company” “we”, “our”
or “Enzo”) is an integrated diagnostic bioscience company focusing on delivering and applying advanced technology capabilities
to produce affordable reliable products and services to allow our customers to meet their clinical needs. We develop, manufacture
and sell our proprietary technology solutions and platforms to clinical laboratories, specialty clinics and researchers and physicians
globally. Enzo’s structure and business strategy represent the culmination of years of extensive planning and work.
The Company now has the unique ability to offer low cost, high performance products and services in molecular diagnostics,
which ideally positions it to capitalize on the reimbursement pressures facing diagnostic labs. Our pioneering work in
genomic analysis coupled with our extensive patent estate and enabling platforms have positioned the Company to continue to play
an important role in the rapidly growing molecular medicine marketplaces.
Enzo technology solutions and platforms and unique operational structure
are designed to reduce overall healthcare costs for both government and private insurers.
Our proprietary
technology platforms reduces our customers' need for multiple, specialized instruments, and offer a variety of high throughput
capabilities together with a demonstrated high level of accuracy and reproducibility. Our genetic test panels are focused on large
and growing markets primarily in the areas of personalized medicine, women's health, infectious diseases and genetic disorders.
For example, our AMPIPROBE® technology platform can lead to the
development of an entire line of nucleic acid clinical products that can allow laboratories to offer a complete menu of services
at a cost that allows them to enjoy an acceptable margin. Our technology solutions provide tools to physicians, clinicians and
other health care providers to improve detection, treatment and monitoring of a broad spectrum of diseases and conditions.
In addition, reduced patient to physician office visits translates into lower healthcare processing costs and greater patient
services.
In the course of our research and development activities, we have
built a substantial portfolio of intellectual property assets, comprised of 336 issued patents worldwide, and over 151 pending
patent applications, along with extensive enabling technologies and platforms.
Below are brief descriptions of each of our operating segments (See
Note 10 in the Notes to Consolidated Financial Statements):
Enzo Clinical Labs
is a clinical reference laboratory
providing a wide range of clinical services to physicians, medical centers, other clinical labs and pharmaceutical companies. The
Company believes having a CLIA-certified and a College of American Pathologists (“CAP”) accredited medical laboratory
located in New York provides us the opportunity to more rapidly introduce cutting edge products and services to the clinical marketplace.
Enzo Clinical Labs offers an extensive menu of molecular and other clinical laboratory tests and procedures used in patient care
by physicians to establish or support a diagnosis, monitor treatment or medication, and search for an otherwise undiagnosed condition.
Our laboratory is equipped with state-of-the-art communication and connectivity solutions enabling the rapid transmission, analysis
and interpretation of generated data. We operate a full service clinical laboratory in Farmingdale, New York, a network of over
30 patient service centers throughout New York, New Jersey and expanding into Connecticut, a free standing “STAT” or
rapid response laboratory in New York City and a full service phlebotomy, in-house logistics department, and an information technology
department. Given our license in New York State, we are able to offer testing services to clinical laboratories and physicians
in the majority of states nationwide.
Enzo Life Sciences
manufactures, develops and markets
products and tools to clinical research, drug development and bioscience research customers worldwide. Underpinned by broad technological
capabilities, Enzo Life Sciences has developed proprietary products used in the identification of genomic information by laboratories
around the world. Information regarding our technologies can be found in the “Core Technologies” section (See Form
10K for the fiscal year ended July, 31, 2017). We are internationally recognized and acknowledged as a leader in the development,
manufacturing validation and commercialization of numerous products serving not only the clinical research market but life sciences
researchers in the fields of cellular analysis and drug discovery, among others. Our operations are supported by global operations
allowing for the efficient marketing and delivery of our products around the world.
Enzo Therapeutics
is a biopharmaceutical
venture that has developed multiple novel approaches in the areas of gastrointestinal, infectious, ophthalmic and metabolic diseases,
many of which are derived from the pioneering work of Enzo Life Sciences. Enzo Therapeutics has focused its efforts on developing
treatment regimens for diseases and conditions for which current treatment options are ineffective, costly, and/or cause unwanted
side effects. This focus has generated a clinical and preclinical pipeline, as well as more than 101 patents and patent applications.
Results of Operations
Three months ended October 31, 2017
compared to October 31, 2016
(in 000s)
Comparative Financial Data for the Three Months Ended October
31,
|
|
2017
|
|
|
2016
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical laboratory services
|
|
$
|
20,334
|
|
|
$
|
18,558
|
|
|
$
|
1,776
|
|
|
|
10
|
|
Product revenues
|
|
|
7,081
|
|
|
|
7,426
|
|
|
|
(345
|
)
|
|
|
(5
|
)
|
Royalty and license fee income
|
|
|
261
|
|
|
|
300
|
|
|
|
(39
|
)
|
|
|
(13
|
)
|
Total revenues
|
|
|
27,676
|
|
|
|
26,284
|
|
|
|
1,392
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs, expenses and legal settlements, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of clinical laboratory services
|
|
|
12,042
|
|
|
|
10,896
|
|
|
|
1,146
|
|
|
|
11
|
|
Cost of product revenues
|
|
|
3,389
|
|
|
|
3,309
|
|
|
|
80
|
|
|
|
2
|
|
Research and development
|
|
|
747
|
|
|
|
822
|
|
|
|
(75
|
)
|
|
|
(9
|
)
|
Selling, general and administrative
|
|
|
10,891
|
|
|
|
11,494
|
|
|
|
(603
|
)
|
|
|
(5
|
)
|
Provision for uncollectible accounts receivable
|
|
|
814
|
|
|
|
669
|
|
|
|
145
|
|
|
|
22
|
|
Legal fee expense
|
|
|
431
|
|
|
|
372
|
|
|
|
59
|
|
|
|
16
|
|
Total costs, expenses and legal settlements, net
|
|
|
28,314
|
|
|
|
27,562
|
|
|
|
752
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(638
|
)
|
|
|
(1,278
|
)
|
|
|
640
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
157
|
|
|
|
46
|
|
|
|
111
|
|
|
|
**
|
|
Other
|
|
|
36
|
|
|
|
119
|
|
|
|
(83
|
)
|
|
|
(70
|
)
|
Foreign currency loss
|
|
|
(195
|
)
|
|
|
(361
|
)
|
|
|
166
|
|
|
|
(46
|
)
|
(Loss) before income taxes
|
|
$
|
(640
|
)
|
|
$
|
(1,474
|
)
|
|
$
|
834
|
|
|
|
57
|
|
** not meaningful
Consolidated Results:
The “2018 period” and the “2017 period”
refer to the three months ended October 31, 2017 and 2016, respectively.
Clinical laboratory services revenues for the 2018 period were
$20.3 million compared to $18.6 million in the 2017 period, an increase of $1.8 million or 10%. The increase is attributed to molecular
and women’s health testing volume in women’s health markets, the addition of new accounts, and expansion of the service
area versus the 2017 period.
Product revenues for the 2018 period were $7.1 million compared
to $7.4 million in the 2017 period, a decrease of $0.3 million or 5%. The decrease resulted from lower product order volume due
to lower research funding and lower pricing due to competition in the United States, which was partially offset by organic growth
in foreign markets and the positive impact of foreign currency translation.
The cost of clinical laboratory services during the 2018 period
was $12.0 million as compared to $10.9 million in the 2017 period, an increase of $1.1 million or 11% due to the volume increase
in clinical laboratory services revenue from molecular testing.
The cost of product revenues was $3.4 million in the 2018 period
and $3.3 million in the 2017 period, an increase of $0.1 million or 2% due to the sale of lower margin items. The gross profit
margin was 52% in the 2018 period and 55% in the 2017 period, and negatively impacted by the sale of lower margin products and
price discounting.
Research and development expenses were $0.7 million versus $0.8
million in the 2017 period, a decrease of $0.1 million or 9%. The expense for the Life Sciences segment decreased $0.1 million
due to lower compensation and patent expenses. The expense for the Therapeutics segment was unchanged in both periods.
Selling, general and administrative expenses were approximately
$10.9 million during the 2018 period versus $11.5 million during the 2017 period, a decrease of $0.6 million or 5%. The Clinical
Lab segment expense increased $0.1 million comprised of a $0.4 million increase in selling salaries, office and IT expenses, and
billing and collection expenses for self-pay patient receivables, partially offset by a decrease of $0.3 million in commissions,
information technology support and office salaries, and bank fees. The Life Sciences segment expense decreased $0.3 million due
to a decrease of $0.2 for intangibles amortization and a decrease in web based advertising of $0.1 million. The Other segment expense
decreased $0.4 million, comprised of a decrease in compensation related expenses of $0.3 million and decrease of $0.1 million in
professional fees and office expense.
The provision for uncollectible accounts receivable, primarily
related to the Clinical Labs segment, was approximately $0.8 million in the 2018 period and $0.7 million in the 2017 period, an
increase of approximately $0.1 million. As a percentage of Clinical laboratory services, the provision for uncollectible accounts
receivable relating to the Clinical Labs segment was 3.9% in the 2018 period and 3.6% in the 2017 period.
Legal fee expense was just over $0.4 million during the 2018 period
compared to just under $0.4 million in the 2017 period, an increase of $0.1 million or 16% due to the timing of legal activity
and related costs associated with on-going patent litigation where the Company is plaintiff.
Segment Results:
Clinical Labs
Revenue from laboratory services for the 2018 period were $20.3
million compared to $18.6 million in the 2017 period. The increase of $1.8 million or 10% is attributed to increased molecular
and women’s health testing volume and the addition of new accounts and expansion of the service area. Cost of sales during
the 2018 period was $12.0 million as compared to $10.9 million in the 2017 period, an increase of $1.1 million or 11% due to higher
testing volume. Gross profit margin was 41% in the 2018 period and 41% in the 2017 period both attributed to higher margin molecular
testing. As a percentage of revenues, the provision for uncollectable accounts, primarily for self-pay patient accounts, was 3.9%
for the 2018 period and 3.6% for the 2017 period. Income before taxes was $1.4 million for 2018 period as compared to $1.1 million
in the 2017 period, an increase of $0.3 million.
Life Sciences
Product revenues for the 2018 period were $7.1 million compared
to $7.4 million in the 2017 period, a decrease of $0.3 million or 5%. The decrease resulted from lower product order volume due
to lower research funding and lower pricing due to competition in the United States, which was partially offset by organic growth
in foreign markets and the positive impact of foreign currency translation. The segment’s gross profit was $4.0 million in
the 2018 period and $4.4 million in the 2017 period. The gross profit margin was 52% in the 2018 period and 55% in the 2017 period
and negatively impacted by the sales of lower margin products and price discounting. In the 2018 period, selling general and administrative
expenses decreased $0.3 million and research and development decreased $0.1 million compared to the 2017 period. Due to smaller
depreciation of foreign currencies versus the US dollar during the 2018 period compared to the 2017 period, in particular the British
pound, the foreign currency loss was $0.2 million compared to a loss of $0.4 million in the 2017 period, a favorable change of
$0.2 million. Income before taxes was $0.6 million for the 2018 period as compared to $0.5 million for the 2017 period, an increase
of $0.1 million.
Therapeutics
The Therapeutics segment’s operating loss before income
taxes was approximately $0.2 million in each of the 2018 and 2017 periods.
Other
The Other segment’s operating loss before taxes for the
2018 period was approximately $2.4 million compared to $2.8 million for the 2017 period, an improvement of $0.4 million. The 2018
period selling general and administrative expense declined $0.4 million compared to the 2017 period due to decreases in compensation
related expense, professional fees, and office expense. Interest income increased $0.1 million due to the impact of a higher interest
rate earned on cash and cash equivalents during the 2018 period and because of interest expense incurred in the
2017 period on the loan payable then outstanding. The loan was
repaid during the second quarter of 2017 period. During the 2018 period, legal fee expense associated with on-going patent litigation
increased $0.1 million.
Liquidity and Capital Resources
At October
31
,
2017, the Company had cash and cash equivalents of $66.8 million of which $0.6 million was in foreign accounts, as compared to
cash and cash equivalents of $64.2 million, of which $0.5 million was in foreign accounts at July 31, 2017. It is the Company’s
current intent to permanently reinvest these funds outside of the United States, and its current plans do not demonstrate a need
to repatriate them to fund its United States operations. The Company had working capital of $71.4 million at October
31
,
2017 compared to $71.3 million at July 31, 2017. The increase in working capital of $0.1 million was primarily due to the period
loss and net changes in operating assets and liabilities.
Net cash provided by operating activities
as of October
31
, 2017 was approximately $2.6 million as compared to cash used in operating
activities of $0.3 million in fiscal 2017, an increase of approximately $2.9 million. The increase is due to net changes in assets
and liabilities of $2.4 million and decrease in net loss of $0.8 million offset by $0.3 million in non-cash adjustments.
Net cash used in investing activities in fiscal 2018 and 2017
was approximately $0.5 million, which consists primarily of capital expenditures.
Net cash provided by financing activities in fiscal 2018 was approximately
$0.6 million as compared to $0.3 million in fiscal 2017. The change of $0.3 million is mainly due to the exercise of stock options.
The Company continued to review all operating units to further
reduce annual operating expenditures in fiscal 2018. Revenues and operating results at the Clinical Labs segment improved, but
revenues for the Life Sciences segment decreased slightly versus fiscal 2017. If Life Sciences segment revenues were to significantly
decline, it could be required to record impairments of its intangible assets, which last occurred in fiscal 2012. The Company believes
that its current cash and cash equivalents level, and utilization of the Controlled Equity Offering program if necessary, as disclosed
in Form 10-K Note 10 to the financial statements are sufficient for its foreseeable liquidity and capital resource needs over at
least the next twelve (12) months, although there can be no assurance that future events will not alter such view. Although there
can be no assurances, in the event additional capital is required, the Company believes it has the ability to raise additional
funds through equity offerings or other sources. Our liquidity plans are subject to a number of risks and uncertainties, including
those described in the Item 1A. “Risk Factors” section of our Form 10-K for the year ended July 31, 2017, some of which
are outside our control. Macroeconomic conditions could limit our ability to successfully execute our business plans and therefore
adversely affect our liquidity plans.
Contractual Obligations
There have been no material changes to our Contractual Obligations
as reported in our Form 10-K for the fiscal year ended July 31, 2017.
Management is not aware of any material claims, disputes or settled
matters concerning third party reimbursement that would have a material effect on our financial statements, except as disclosed
in Note 11 to the Consolidated Financial Statements.
Off-Balance Sheet Arrangements
The Company does not have any “off-balance sheet arrangements”
as such term is defined in Item 303(a)(4) of Regulation S-K.
Critical Accounting Policies
The Company’s discussion and analysis of its financial condition
and results of operations are based upon Enzo Biochem, Inc.’s consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.
These estimates and judgments also affect related disclosure of contingent assets and liabilities.
On an on-going basis, we evaluate our estimates, including those
related to contractual expense, allowance for uncollectible accounts, inventory, intangible assets and income taxes. The Company
bases its estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Product revenues
Revenues from product sales are recognized when the products are
shipped and title transfers, the sales price is fixed or determinable and collectability is reasonably assured.
Royalties
Royalty revenues are recorded in the period earned. Royalties
received in advance of being earned are recorded as deferred revenues.
Revenues – Clinical laboratory services
Revenues from Clinical Labs are recognized upon completion of
the testing process for a specific patient and reported to the ordering physician. These revenues and the associated accounts receivable
are based on gross amounts billed or billable for services rendered, net of a contractual adjustment, which is the difference between
amounts billed to payers and the expected approved reimbursable settlements from such payers.
The following table represents the clinical laboratory segment’s
net revenues and percentages by revenue category:
|
|
Three months ended
October 31, 2017
|
|
|
Three months ended
October 31, 2016
|
|
Revenue category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party payer
|
|
$
|
11,660
|
|
|
|
57
|
%
|
|
$
|
10,193
|
|
|
|
55
|
%
|
Patient self-pay
|
|
|
2,859
|
|
|
|
14
|
|
|
|
3,103
|
|
|
|
17
|
|
Medicare
|
|
|
2,985
|
|
|
|
15
|
|
|
|
2,835
|
|
|
|
15
|
|
HMO’s
|
|
|
2,830
|
|
|
|
14
|
|
|
|
2,427
|
|
|
|
13
|
|
Total
|
|
$
|
20,334
|
|
|
|
100
|
%
|
|
$
|
18,558
|
|
|
|
100
|
%
|
The Company provides services to certain patients covered by various
third-party payers, including the Federal Medicare program. Laws and regulations governing Medicare are complex and subject to
interpretation for which action for noncompliance includes fines, penalties and exclusion from the Medicare programs.
Other than the Medicare program, one provider whose programs are
included in the “Third-party payer” and “Health Maintenance Organizations” (“HMO’s”)
categories represents approximately 40% and 36% of the Clinical Labs segment net revenue for the three months ended October 31,
2017 and 2016, respectively.
Contractual Adjustment
The Company’s estimate of contractual adjustment is based
on significant assumptions and judgments, such as its interpretation of payer reimbursement policies, and bears the risk of change.
The estimation process is based on the experience of amounts approved as reimbursable and ultimately settled by payers, versus
the corresponding gross amount billed to the respective payers. The contractual adjustment is an estimate that reduces gross revenue,
based on gross billing rates, to amounts expected to be approved and reimbursed. Gross billings are based on a standard fee schedule
we set for all third party payers, including Medicare, HMO’s and managed care. The Company adjusts the contractual adjustment
estimate quarterly, based on its evaluation of current and historical settlement experience with payers, industry reimbursement
trends, and other relevant factors.
The other relevant factors that affect our contractual adjustment
include the monthly and quarterly review of: 1) current gross billings and receivables and reimbursement by payer, 2) current changes
in third party arrangements and 3) the growth of in-network provider arrangements and managed care plans specific to our Company.
Our clinical laboratory business is primarily dependent upon reimbursement
from third-party payers, such as Medicare (which principally serves patients 65 and older) and insurers. We are subject to variances
in reimbursement rates among different third-party payers, as well as constant changes of reimbursement rates. Changes that decrease
reimbursement rates or coverage would negatively impact our revenues. The number of individuals covered under managed care contracts
or other similar arrangements has grown over the past several years and may continue to grow in the future. In addition, Medicare
and other government healthcare programs continue to shift to managed care. These trends will continue to reduce our revenues from
these programs.
During the three months ended October 31, 2017 and 2016, the contractual
adjustment percentages, determined using current and historical reimbursement statistics, were 85.0% and 83.7%, respectively, of
gross billings. In general, the Company believes a decline in reimbursement rates or a shift to managed care or similar arrangements
may be offset by the positive impact of an increase in the number of molecular tests we perform. However, there can be no assurance
that we can increase the number of tests we perform or that if we do increase the number of tests we perform, that we can maintain
that higher number of tests performed, or that an increase in the number of tests we perform would result in increased revenue.
The Company estimates (by using a sensitivity analysis) that each
1% point change in the contractual adjustment percentage could result in a change in clinical laboratory services revenues of approximately
$1.4 million and $1.1 million for the three months ended October 31, 2017 and 2016, and a change in the net accounts receivable
of approximately $0.6 million as of October 31, 2017.
Our clinical laboratory financial billing system records gross
billings using a standard fee schedule for all payers and does not record contractual adjustment by payer at the time of billing.
Therefore, we are unable to quantify the effect contractual adjustments recorded during the current period have on revenue recorded
in a previous period. However, we can reasonably estimate our monthly contractual adjustment to revenue on a timely basis based
on our quarterly review process, which includes:
|
•
|
an analysis of industry reimbursement
trends;
|
|
|
|
|
•
|
an evaluation of third-party reimbursement
rates changes and changes in reimbursement arrangements with third-party payers;
|
|
|
|
|
•
|
a rolling monthly analysis of current
and historical claim settlement and reimbursement experience statistics with payers; and
|
|
|
|
|
•
|
an analysis of current gross billings
and receivables by payer.
|
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are reported at realizable value, net of allowances
for doubtful accounts, which is estimated and recorded in the period of the related revenue.
The following is a table of the Company’s net accounts receivable
by segment. The Clinical Labs segment’s net receivables are detailed by billing category and as a percent to its total net
receivables. At October 31, 2017, and July 31, 2017, approximately 75%, of the Company’s net accounts receivable relates
to its Clinical Labs business, which operates in the New York, New Jersey and Connecticut medical communities.
The Life Sciences segment’s accounts receivable, of which
$1.2 million or 34% and $1.1 million or 29% represents foreign receivables as of October 31, 2017 and July 31, 2017, includes royalty
receivables of $0.1 and $0.4 million, as of October 31, 2017 and July 31, 2017, respectively, from Qiagen Corporation.
Net accounts receivable
Billing category
|
|
As of
October 31, 2017
|
|
|
As of
July 31, 2017
|
|
Clinical Labs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party payers
|
|
$
|
7,557
|
|
|
|
70
|
%
|
|
$
|
7,256
|
|
|
|
64
|
%
|
Medicare
|
|
|
1,335
|
|
|
|
12
|
|
|
|
1,385
|
|
|
|
12
|
|
HMO’s
|
|
|
1,050
|
|
|
|
10
|
|
|
|
1,169
|
|
|
|
10
|
|
Patient self-pay
|
|
|
916
|
|
|
|
8
|
|
|
|
1,591
|
|
|
|
14
|
|
Total Clinical Labs
|
|
|
10,858
|
|
|
|
100
|
%
|
|
|
11,401
|
|
|
|
100
|
%
|
Total Life Sciences
|
|
|
3,585
|
|
|
|
|
|
|
|
3,779
|
|
|
|
|
|
Total accounts receivable
|
|
$
|
14,443
|
|
|
|
|
|
|
$
|
15,180
|
|
|
|
|
|
Changes in the Company’s allowance for doubtful accounts
are as follows:
|
|
Three months ended
October 31, 2017
|
|
|
Fiscal year ended
July 31, 2017
|
|
Beginning balance
|
|
$
|
3,576
|
|
|
$
|
3,517
|
|
Provision for doubtful accounts
|
|
|
814
|
|
|
|
2,775
|
|
Write-offs, net
|
|
|
(824
|
)
|
|
|
(2,716
|
)
|
Ending balance
|
|
$
|
3,566
|
|
|
$
|
3,576
|
|
For the Clinical Labs segment, the allowance for doubtful accounts
represents amounts that the Company does not expect to collect after the Company has exhausted its collection procedures. The Company
estimates its allowance for doubtful accounts in the period the related services are billed and reduces the allowance in future
accounting periods based on write-offs during those periods. It bases the estimate for the allowance on the evaluation of historical
experience of accounts going to collections and the net amounts not received. Accounts going to collection include the balances,
after receipt of the approved settlements from third party payers, for the insufficient diagnosis information received from the
ordering physician which result in denials of payment and our estimate of the uncollected portion of receivables from self-payers,
including deductibles and copayments, which are subject to credit risk and patients’ ability to pay. The Company fully reserves
through its contractual allowances amounts that have not been written off because the payer’s filing date deadline has not
occurred or the collection process has not been exhausted. The Company adjusts the historical collection analysis for recoveries,
if any, on an on-going basis.
The Company’s ability to collect outstanding receivables
from third party payers is critical to its operating performance and cash flows. The primary collection risk lies with uninsured
patients or patients for whom primary insurance has paid but a patient portion remains outstanding. The Company also assesses the
current state of its billing functions in order to identify any known collection or reimbursement issues in order to assess the
impact, if any, on the allowance estimates, which involves judgment.
The Company believes that the collectability of its receivables
is directly linked to the quality of its billing processes, most notably, those related to obtaining the accurate patient information
in order to bill effectively for the services provided. Should circumstances change (e.g. shift in payer mix, decline in economic
conditions or deterioration in aging of receivables), our estimates of net realizable value of receivables could be reduced by
a material amount.
Billing for laboratory services is complicated because of many
factors, especially: the differences between our standard gross fee schedule for all payers and the reimbursement rates of the
various payers we deal with, disparity of coverage and information requirements among the various payers, and disputes with payers
as to which party is responsible for reimbursement. The allowance for doubtful accounts as a percentage of total accounts receivable
at October 31, 2017 and July 31, 2017 was 19.8% and 19.1%, respectively.
The following table indicates the Clinical Labs aged gross receivables
by payer group which is prior to adjustment to gross receivables for: 1) contractual adjustment, 2) fully reserved balances not
yet written off, and 3) other revenue adjustments.
As of October 31, 2017
|
|
Total
|
|
|
%
|
|
|
Third Party Payers
|
|
|
%
|
|
|
Self-Pay
|
|
|
%
|
|
|
Medicare
|
|
|
%
|
|
|
HMO’s
|
|
|
%
|
|
1-30 days
|
|
$
|
26,025
|
|
|
|
45
|
|
|
$
|
17,138
|
|
|
|
43
|
|
|
$
|
1,240
|
|
|
|
18
|
|
|
$
|
4,004
|
|
|
|
64
|
|
|
$
|
3,643
|
|
|
|
88
|
|
31-60 days
|
|
|
7,680
|
|
|
|
13
|
|
|
|
5,251
|
|
|
|
13
|
|
|
|
1,173
|
|
|
|
17
|
|
|
|
900
|
|
|
|
14
|
|
|
|
356
|
|
|
|
8
|
|
61-90 days
|
|
|
5,100
|
|
|
|
9
|
|
|
|
3,578
|
|
|
|
9
|
|
|
|
932
|
|
|
|
14
|
|
|
|
512
|
|
|
|
8
|
|
|
|
78
|
|
|
|
2
|
|
91-120 days
|
|
|
3,899
|
|
|
|
7
|
|
|
|
2,720
|
|
|
|
6
|
|
|
|
777
|
)
|
|
|
11
|
|
|
|
349
|
|
|
|
5
|
|
|
|
53
|
|
|
|
1
|
|
121-150 days
|
|
|
3,311
|
|
|
|
6
|
|
|
|
2,295
|
|
|
|
6
|
|
|
|
647
|
|
|
|
10
|
|
|
|
349
|
|
|
|
5
|
|
|
|
20
|
|
|
|
—
|
|
Greater than 150 days
|
|
|
11,601
|
|
|
|
20
|
|
|
|
9,272
|
|
|
|
23
|
|
|
|
2,026
|
)
|
|
|
30
|
|
|
|
255
|
|
|
|
4
|
|
|
|
48
|
|
|
|
1
|
|
Totals
|
|
$
|
57,616
|
|
|
|
100
|
%
|
|
$
|
40,254
|
|
|
|
100
|
%
|
|
$
|
6,795
|
|
|
|
100
|
%
|
|
$
|
6,369
|
|
|
|
100
|
%
|
|
$
|
4,198
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2017
|
|
Total
|
|
|
%
|
|
|
Third Party Payers
|
|
|
%
|
|
|
Self-Pay
|
|
|
%
|
|
|
Medicare
|
|
|
%
|
|
|
HMO’s
|
|
|
%
|
|
1-30 days
|
|
$
|
25,357
|
|
|
|
42
|
|
|
$
|
16,683
|
|
|
|
40
|
|
|
$
|
1,082
|
|
|
|
16
|
|
|
$
|
4,022
|
|
|
|
60
|
|
|
$
|
3,570
|
|
|
|
82
|
|
31-60 days
|
|
|
8,732
|
|
|
|
15
|
|
|
|
5,723
|
|
|
|
14
|
|
|
|
1,183
|
|
|
|
17
|
|
|
|
1,294
|
|
|
|
19
|
|
|
|
532
|
|
|
|
12
|
|
61-90 days
|
|
|
5,703
|
|
|
|
10
|
|
|
|
4,208
|
|
|
|
10
|
|
|
|
927
|
|
|
|
14
|
|
|
|
529
|
|
|
|
9
|
|
|
|
39
|
|
|
|
1
|
|
91-120 days
|
|
|
3,749
|
|
|
|
6
|
|
|
|
2,732
|
|
|
|
6
|
|
|
|
701
|
|
|
|
10
|
|
|
|
288
|
|
|
|
4
|
|
|
|
28
|
|
|
|
1
|
|
121-150 days
|
|
|
3,689
|
|
|
|
6
|
|
|
|
2,772
|
|
|
|
7
|
|
|
|
672
|
|
|
|
10
|
|
|
|
228
|
|
|
|
3
|
|
|
|
17
|
|
|
|
—
|
|
Greater than 150 days
|
|
|
12,455
|
|
|
|
21
|
|
|
|
9,652
|
|
|
|
23
|
|
|
|
2,270
|
|
|
|
33
|
|
|
|
379
|
|
|
|
6
|
|
|
|
154
|
|
|
|
4
|
|
Totals
|
|
$
|
59,685
|
|
|
|
100
|
%
|
|
$
|
41,770
|
|
|
|
100
|
%
|
|
$
|
6,835
|
|
|
|
100
|
%
|
|
$
|
6,740
|
|
|
|
100
|
%
|
|
$
|
4,340
|
|
|
|
100
|
%
|
Income Taxes
The Company accounts for income taxes under the liability method
of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. The liability method requires that any tax benefits recognized for net operating loss carry forwards
and other items be reduced by a valuation allowance where it is not more likely than not the benefits will be realized in the foreseeable
future. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. Under the liability method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
It is the Company’s policy to provide for uncertain tax
positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely
than not to be sustained upon examination by tax authorities. To the extent the Company prevails in matters for which a liability
for an unrecognized tax benefit is established or is required to pay amounts in excess of the liability, the Company’s effective
tax rate in a given financial statement period may be affected.
Inventory
The Company values inventory at the lower of cost (first-in, first-out)
or net realizable value, which approximates market. Work-in-process and finished goods inventories consist of material, labor,
and manufacturing overhead. Write downs of inventories to net realizable value are based on a review of inventory quantities on
hand and estimated sales forecasts based on sales history and anticipated future demand. Unanticipated changes in demand could
have a significant impact on the value of our inventory and require additional write downs of inventory which would impact our
results of operations.
Goodwill and Intangible Assets
Goodwill represents the excess of the cost of an acquisition over
the fair value of the net assets acquired. Intangible assets, arose primarily from acquisitions, and primarily consist of customer
relationships, trademarks, licenses, and website and database content. Finite-lived intangible assets are amortized according to
their estimated useful lives, which range from 4 to 15 years.
The Company tests goodwill and long-lived assets annually as of
the first day of the fourth quarter, or more frequently if indicators of potential impairment exist. In assessing goodwill and
long-lived assets for impairment, the Company has the option to first perform a qualitative assessment to determine whether the
existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. If the Company determines that it is not more likely than not that the fair value of a reporting
unit is less than its carrying amount, the Company is not required to perform any additional tests in assessing goodwill and long-lived
assets for impairment. However, if the Company concludes otherwise or elects not to perform the qualitative assessment, then it
identifies the reporting units and compares the fair value of each of these reporting units to their respective carrying amount.
If the carrying amount of the reporting unit is less than its fair value, no impairment exists. If the carrying amount of the reporting
unit is higher than its fair value, the impairment charge is the amount by which the carrying amount exceeds the reporting unit’s
fair value, not to exceed the total amount of goodwill and intangibles allocated to the reporting unit.