Item 1 Financial Statements
ENZO BIOCHEM, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
|
|
January 31, 2021
|
|
|
|
|
ASSETS
|
|
(unaudited)
|
|
|
July 31,2020
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
44,536
|
|
|
$
|
47,865
|
|
Accounts receivable, net
|
|
|
12,095
|
|
|
|
9,141
|
|
Inventories
|
|
|
9,258
|
|
|
|
7,784
|
|
Prepaid expenses
|
|
|
3,994
|
|
|
|
3,975
|
|
Total current assets
|
|
|
69,883
|
|
|
|
68,765
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment, net
|
|
|
14,463
|
|
|
|
14,482
|
|
Right-of-use assets
|
|
|
18,459
|
|
|
|
19,916
|
|
Goodwill
|
|
|
7,452
|
|
|
|
7,452
|
|
Intangible assets, net
|
|
|
393
|
|
|
|
538
|
|
Other, including restricted cash of $750
|
|
|
1,381
|
|
|
|
1,385
|
|
Total assets
|
|
$
|
112,031
|
|
|
$
|
112,538
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable - trade
|
|
|
4,432
|
|
|
|
8,503
|
|
Accrued liabilities
|
|
|
14,589
|
|
|
|
12,833
|
|
Current portion of operating lease liabilities
|
|
|
3,680
|
|
|
|
4,121
|
|
Other current liabilities and finance leases short term
|
|
|
248
|
|
|
|
344
|
|
Other short term debt
|
|
|
7,000
|
|
|
|
7,000
|
|
Total current liabilities
|
|
|
29,949
|
|
|
|
32,801
|
|
|
|
|
|
|
|
|
|
|
Other liabilities and finance leases long term
|
|
|
155
|
|
|
|
192
|
|
Operating lease liabilities, non-current
|
|
|
15,710
|
|
|
|
16,679
|
|
Long term debt - net
|
|
|
4,428
|
|
|
|
4,485
|
|
Total liabilities
|
|
$
|
50,242
|
|
|
$
|
54,157
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies – see Note 12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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: 48,227,750 at January 31, 2021 and 47,895,050 at July 31, 2020
|
|
|
482
|
|
|
|
479
|
|
Additional paid-in capital
|
|
|
335,688
|
|
|
|
334,473
|
|
Accumulated deficit
|
|
|
(275,651
|
)
|
|
|
(278,252
|
)
|
Accumulated other comprehensive income
|
|
|
1,270
|
|
|
|
1,681
|
|
Total stockholders’ equity
|
|
|
61,789
|
|
|
|
58,381
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
112,031
|
|
|
$
|
112,538
|
|
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
January 31,
|
|
|
Six Months Ended
January 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Revenues
|
|
$
|
31,466
|
|
|
$
|
19,384
|
|
|
$
|
60,121
|
|
|
$
|
39,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
15,645
|
|
|
|
13,575
|
|
|
|
32,403
|
|
|
|
28,096
|
|
Research and development
|
|
|
806
|
|
|
|
1,065
|
|
|
|
1,552
|
|
|
|
2,119
|
|
Selling, general and administrative
|
|
|
11,013
|
|
|
|
10,693
|
|
|
|
21,027
|
|
|
|
21,832
|
|
Legal and related expense
|
|
|
2,292
|
|
|
|
2,060
|
|
|
|
2,932
|
|
|
|
3,756
|
|
Total operating costs and expenses
|
|
|
29,756
|
|
|
|
27,393
|
|
|
|
57,914
|
|
|
|
55,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
1,710
|
|
|
|
(8,009
|
)
|
|
|
2,207
|
|
|
|
(16,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
(49
|
)
|
|
|
171
|
|
|
|
(100
|
)
|
|
|
408
|
|
Other
|
|
|
16
|
|
|
|
72
|
|
|
|
33
|
|
|
|
199
|
|
Foreign exchange gain
|
|
|
625
|
|
|
|
79
|
|
|
|
461
|
|
|
|
270
|
|
Total other income (expense)
|
|
|
592
|
|
|
|
322
|
|
|
|
394
|
|
|
|
877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
2,302
|
|
|
|
(7,687
|
)
|
|
|
2,601
|
|
|
|
(15,335
|
)
|
Income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net income (loss)
|
|
$
|
2,302
|
|
|
$
|
(7,687
|
)
|
|
$
|
2,601
|
|
|
$
|
(15,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
|
|
$
|
(0.16
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.32
|
)
|
Diluted
|
|
$
|
0.05
|
|
|
$
|
(0.16
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
48,006
|
|
|
|
47,557
|
|
|
|
47,951
|
|
|
|
47,557
|
|
Diluted
|
|
|
48,053
|
|
|
|
47,557
|
|
|
|
47,973
|
|
|
|
47,557
|
|
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
January 31,
|
|
|
Six Months Ended
January 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net income (loss)
|
|
$
|
2,302
|
|
|
$
|
(7,687
|
)
|
|
$
|
2,601
|
|
|
$
|
(15,335
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(582
|
)
|
|
|
(83
|
)
|
|
|
(411
|
)
|
|
|
(354
|
)
|
Comprehensive income (loss)
|
|
$
|
1,720
|
|
|
$
|
(7,770
|
)
|
|
$
|
2,190
|
|
|
$
|
(15,689
|
)
|
The accompanying notes are an integral part
of these consolidated financial statements.
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Months Ended January 31, 2021 and 2020
(unaudited)
(in thousands, except share data)
|
|
Common Stock Shares Issued
|
|
|
Common Stock
Amount
|
|
|
Additional Paid-in Capital
|
|
|
Accumulated Deficit
|
|
|
Accumulated Other Comprehensive Income
|
|
|
Total
Stockholders’ Equity
|
|
Balance at October 31, 2020
|
|
|
47,895,050
|
|
|
$
|
479
|
|
|
$
|
334,640
|
|
|
$
|
(277,953
|
)
|
|
$
|
1,852
|
|
|
$
|
59,018
|
|
Net income for the period ended January 31, 2021
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,302
|
|
|
|
—
|
|
|
|
2,302
|
|
Share-based compensation
charges
|
|
|
—
|
|
|
|
—
|
|
|
|
176
|
|
|
|
—
|
|
|
|
—
|
|
|
|
176
|
|
Issuance of common stock for bonus payments
|
|
|
332,700
|
|
|
|
3
|
|
|
|
872
|
|
|
|
—
|
|
|
|
—
|
|
|
|
875
|
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(582
|
)
|
|
|
(582
|
)
|
Balance at January 31, 2021
|
|
|
48,227,750
|
|
|
$
|
482
|
|
|
$
|
335,688
|
|
|
$
|
(275,651
|
)
|
|
$
|
1,270
|
|
|
$
|
61,789
|
|
|
|
Common
Stock Shares Issued
|
|
|
Common
Stock
Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other Comprehensive Income
|
|
|
Total
Stockholders’ Equity
|
|
Balance
at October 31, 2019
|
|
|
47,556,807
|
|
|
$
|
476
|
|
|
$
|
332,923
|
|
|
$
|
(257,380
|
)
|
|
$
|
2,309
|
|
|
$
|
78,328
|
|
Net (loss) for the period
ended January 31, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,687
|
)
|
|
|
-
|
|
|
|
(7,687
|
)
|
Share-based
compensation charges
|
|
|
-
|
|
|
|
-
|
|
|
|
302
|
|
|
|
-
|
|
|
|
-
|
|
|
|
302
|
|
Vesting
of restricted stock
|
|
|
811
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(83
|
)
|
|
|
(83
|
)
|
Balance
at January 31, 2020
|
|
|
47,557,618
|
|
|
$
|
476
|
|
|
$
|
333,225
|
|
|
$
|
(265,067
|
)
|
|
$
|
2,226
|
|
|
$
|
70,860
|
|
The accompanying notes are an integral part
of these consolidated financial statements
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Six Months Ended January 31, 2021 and 2020
(unaudited)
(in thousands, except share data)
|
|
Common Stock Shares Issued
|
|
|
Common Stock
Amount
|
|
|
Additional Paid-in Capital
|
|
|
Accumulated Deficit
|
|
|
Accumulated Other Comprehensive Income
|
|
|
Total
Stockholders’ Equity
|
|
Balance at July 31, 2020
|
|
|
47,895,050
|
|
|
$
|
479
|
|
|
$
|
334,473
|
|
|
$
|
(278,252
|
)
|
|
$
|
1,681
|
|
|
$
|
58,381
|
|
Net income for the period ended January 31, 2021
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,601
|
|
|
|
-
|
|
|
|
2,601
|
|
Share-based compensation charges
|
|
|
-
|
|
|
|
-
|
|
|
|
343
|
|
|
|
-
|
|
|
|
-
|
|
|
|
343
|
|
Issuance of common stock for bonus payments
|
|
|
332,700
|
|
|
|
3
|
|
|
|
872
|
|
|
|
-
|
|
|
|
-
|
|
|
|
875
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(411
|
)
|
|
|
(411
|
)
|
Balance at January 31, 2021
|
|
|
48,227,750
|
|
|
$
|
482
|
|
|
$
|
335,688
|
|
|
$
|
(275,651
|
)
|
|
$
|
1,270
|
|
|
$
|
61,789
|
|
|
|
Common Stock Shares Issued
|
|
|
Common Stock
Amount
|
|
|
Additional Paid-in Capital
|
|
|
Accumulated Deficit
|
|
|
Accumulated Other Comprehensive Income
|
|
|
Total
Stockholders’ Equity
|
|
Balance at July 31, 2019
|
|
|
47,556,807
|
|
|
$
|
476
|
|
|
$
|
332,704
|
|
|
$
|
(249,732
|
)
|
|
$
|
2,580
|
|
|
$
|
86,028
|
|
Net (loss) for the period ended January 31, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,335
|
)
|
|
|
-
|
|
|
|
(15,335
|
)
|
Share-based compensation
charges
|
|
|
-
|
|
|
|
-
|
|
|
|
521
|
|
|
|
-
|
|
|
|
-
|
|
|
|
521
|
|
Vesting of restricted stock
|
|
|
811
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(354
|
)
|
|
|
(354
|
)
|
Balance at January 31, 2020
|
|
|
47,557,618
|
|
|
$
|
476
|
|
|
$
|
333,225
|
|
|
$
|
(265,067
|
)
|
|
$
|
2,226
|
|
|
$
|
70,860
|
|
The accompanying notes are an integral part
of these consolidated financial statements
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
|
|
Six Months Ended
January 31,
|
|
|
|
2021
|
|
|
2020
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,601
|
|
|
$
|
(15,335
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property, plant and equipment
|
|
|
1,144
|
|
|
|
1,142
|
|
Amortization of intangible assets
|
|
|
151
|
|
|
|
292
|
|
Share-based compensation charges
|
|
|
343
|
|
|
|
521
|
|
Accrual for share-based 401(k) employer match expense
|
|
|
423
|
|
|
|
413
|
|
Foreign exchange (gain)
|
|
|
(504
|
)
|
|
|
(319
|
)
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,892
|
)
|
|
|
1,848
|
|
Inventories
|
|
|
(1,392
|
)
|
|
|
368
|
|
Prepaid expenses and other assets
|
|
|
(62
|
)
|
|
|
98
|
|
Accounts payable – trade
|
|
|
(4,062
|
)
|
|
|
877
|
|
Accrued liabilities, other current liabilities and other liabilities
|
|
|
2,222
|
|
|
|
2,104
|
|
Total adjustments
|
|
|
(4,629
|
)
|
|
|
7,344
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(2,028
|
)
|
|
|
(7,991
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1,123
|
)
|
|
|
(434
|
)
|
Net cash used in investing activities
|
|
|
(1,123
|
)
|
|
|
(434
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayments under mortgage agreement and finance leases
|
|
|
(207
|
)
|
|
|
(229
|
)
|
Net cash used in financing activities
|
|
|
(207
|
)
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
29
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents and restricted cash
|
|
|
(3,329
|
)
|
|
|
(8,644
|
)
|
Cash and cash equivalents and restricted cash - beginning of period
|
|
|
48,615
|
|
|
|
60,896
|
|
Total cash and cash equivalents and restricted cash - end of period
|
|
$
|
45,286
|
|
|
$
|
52,252
|
|
|
|
|
|
|
|
|
|
|
The composition of total cash and cash equivalents and restricted cash is as follows:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
44,536
|
|
|
$
|
51,502
|
|
Restricted cash included in other assets
|
|
|
750
|
|
|
|
750
|
|
Total cash and cash equivalents and restricted cash
|
|
$
|
45,286
|
|
|
$
|
52,252
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of January 31, 2021
(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, Enzo
Realty LLC and Enzo Realty II LLC, collectively or with one or more of its subsidiaries referred to as the “Company”
or “Companies”. The Company has three reportable segments: Clinical Services, Products, and Therapeutics. The consolidated
balance sheet as of January 31, 2021, the consolidated statements of operations, comprehensive income (loss) and stockholders’
equity for the three and six months ended January 31, 2021, and the consolidated statements of cash flows for the six months ended
January 31, 2021 (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 fiscal year ended July 31, 2020 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, 2020 has been derived from the audited financial statements at that date. The results of operations for the six months
ended January 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2021.
A novel strain of coronavirus (“COVID-19”) continues
to spread and severely impact the economy of the United States and other countries around the world. Federal, state and local governmental
policies and initiatives designed to reduce the transmission of COVID-19 have resulted in, among other things, a significant reduction
in physician office visits, the cancellation of elective medical procedures, customers of our products closing or severely curtailing
their operations (voluntarily or in response to government orders), and the adoption of work-from-home or shelter-in-place policies.
The COVID-19 impact on the Company’s operations is consistent with the overall industry and publicly issued statements from
competitors, partners, and vendors.
The extent to which our businesses may be affected by the COVID-19
pandemic will largely depend on both current and future developments, including its duration, spread and the emergence of variants,
its treatment with authorized vaccines and vaccines in various stages of development and federal approval, and related work and
travel advisories and restrictions, all of which are highly uncertain and cannot be reasonably predicted at this time. Global supply
chain issues due to the pandemic hamper both the manufacturing of products within the life science division as well as testing
capabilities in the clinical laboratory.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
The extent to which the COVID-19 pandemic impacts the Company’s
business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration
of the COVID-19 pandemic, the extent to which it will impact worldwide macroeconomic conditions including, but not limited to,
employment rates and health insurance coverage, the speed of the anticipated recovery, and governmental and business reactions
to the pandemic. The Company assessed certain accounting matters that generally require consideration of forecasted financial information
in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of January 31,
2021 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s
patient self-pay revenue concessions and credit losses in the Clinical Services segment, accounts receivable, inventories and the
carrying value of goodwill and other long-lived assets. The Company’s future assessment of the magnitude and duration of
COVID-19, as well as other factors, could result in additional material impacts to the Company’s consolidated financial statements
in future reporting periods.
Effect of New Accounting Pronouncements
Pronouncements Issued but Not Yet Adopted
In June 2016, FASB issued ASU No. 2016-13 Financial Instruments
– Credit Losses (Topic 326). This standard, as amended, changes the impairment model for most financial instruments,
including trade receivables, from an incurred loss method to a new forward-looking approach, based on expected losses. The estimate
of expected credit losses will require entities to incorporate considerations of historical information, current information and
reasonable and supportable forecasts. Adoption of this standard is required for our annual and interim periods beginning August
1, 2023 as long as we continue to qualify as a smaller reporting company at the end of fiscal 2022, and must be adopted using a
modified retrospective transition approach. We are currently assessing the impact of the adoption of this standard on our results
of operations, financial position and cash flows.
In December 2019, the FASB issued ASU No. 2019-12 Income
Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The amendments in the ASU simplify the accounting for income
taxes by removing certain exceptions to the general principles of Topic 740. The amendments also improve consistent application
of and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU
are required for our annual and interim periods beginning August 1, 2021. The adoption of the amendments in this ASU is not expected
to have a material impact on our consolidated results of operations, financial position or cash flows
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.
Concentration Risk
Other than the Medicare program, two providers whose programs
are included in the “Third-party payers” and “Health Maintenance Organizations” (“HMO’s”)
categories represent approximately 35% and 34% of Clinical Services net revenue for the three and six month periods ended January
31, 2021. These two providers represent approximately 33% of Clinical Services net revenue for each of the three and six month
periods ended January 31, 2020
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, if any, 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.
We maintain a full valuation allowance on all tax assets and,
as a consequence, do not provide any tax benefit for the fiscal 2020 period loss or tax provision for the fiscal 2021 period pre-tax
income.
Fair Value Measurements
The Company determines fair value measurements used in its consolidated
financial statements based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants exclusive of any transaction costs, as determined by either the principal market or the
most advantageous market.
Inputs used in the valuation techniques to derive fair values
are classified based on a three-level hierarchy. The basis for fair value measurements for each level within the hierarchy is described
below with Level 1 having the highest priority and Level 3 having the lowest.
Level 1: Quoted prices in active markets
for identical assets or liabilities.
Level 2: Quoted prices for similar assets or liabilities
in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations
in which all significant inputs are observable in active markets.
Level 3: Valuations derived from valuation techniques
in which one or more significant inputs are unobservable.
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. For the three and six months ended January
31, 2021, approximately 47,000 and 23,000 weighted average stock options respectively were included in the calculation of diluted
weighted average shares outstanding. As a result of the net loss for the three and six months ended January 31, 2020, 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, unearned performance stock units and unvested restricted stock because to do so would be antidilutive. For
the three and six months ended January 31, 2020, approximately zero and 64,000 of potential common shares (“in the money
options”) and unvested restricted stock respectively, were excluded from the calculation of diluted earnings per share.
For the three and six months ended January 31, 2021, the effect
of approximately 2,264,000 and 2,122,000 of outstanding “out of the money” options to purchase common shares were excluded
from the calculation of diluted net income per share because their effect would be anti-dilutive. For the three and six months
ended January 31, 2020, the effect of approximately 1,897,000 and 1,606,000 of outstanding “out of the money” options
to purchase common shares were excluded from the calculation of diluted net income per share because their effect would be anti-dilutive.
Note 3 – Revenue Recognition
Clinical Services Revenue
Service revenues in the Company’s clinical services business
accounted for approximately 75% and 64% of the Company’s total revenues for the six months ended January 31, 2021 and 2020,
and are primarily comprised of a high volume of relatively low-dollar transactions. The services business, which provides clinical
testing services, satisfies its performance obligation and recognizes revenues upon completion of the testing process for a specific
patient and reporting to the ordering physician. The Company may also perform clinical testing services for other laboratories
and will recognize revenue from those services when reported to the ordering laboratory. The Company estimates the amount of consideration
it expects to receive from customer groups using the portfolio approach. These estimates of the expected consideration include
the impact of contractual allowances and price concessions on our customer group portfolios consisting of healthcare insurers,
government payers, client payers and patients as described below. Contracts with customers in our laboratory services business
do not contain a financing component, based on the typically limited period of time between performance of services and collection
of consideration. The transaction price includes variable consideration in the form of the contractual allowance and price concessions
as well as the collectability of the transaction based on patient intent and ability to pay. The Company uses the expected value
method in estimating the amount of the variability included in the transaction price.
The following are descriptions of our laboratory services business
portfolios:
Third party payers and Health Maintenance Organizations (HMO’s)
Reimbursements from third party payers, primarily healthcare
insurers and HMO’s are based on negotiated fee-for-service schedules and on capitated payment rates. Revenues consist of
amounts billed net of contractual allowances for differences between amounts billed and the estimated consideration the Company
expects to receive from such payers, which considers historical collection and denial experience and the terms of the Company’s
contractual arrangements. Adjustments to the allowances, based on actual receipts from the third-party payers, are recorded upon
settlement.
Collection of the consideration the Company expects to receive
is normally a function of providing complete and correct billing information to these third party payers within the various filing
deadlines, and typically occurs within 30 to 90 days of billing. Provided the Company has billed healthcare insurers accurately
with complete information prior to the established filing deadline, there has historically been little to no collection risk. If
there has been a delay in billing, the Company determines if the amounts in question will likely go past the filing deadline, and
if so, will reserve accordingly for the billing.
Third-party payers, including government programs, may decide
to deny payment or recoup payments for testing that they contend was improperly billed or not medically necessary, against their
coverage determinations, or for which they believe they have otherwise overpaid (including as a result of their own error), and
we may be required to refund payments already received. Our revenues may be subject to adjustment as a result of these factors
among others, including without limitation, differing interpretations of billing and coding guidance and changes by government
agencies and payers in interpretations, requirements, and “conditions of participation” in various programs.
Government Payer - Medicare
Reimbursements from Medicare are based on fee-for-service schedules
set by Medicare, which is funded by the government. Revenues consist of amounts billed net of contractual allowances for differences
between amounts billed and the estimated consideration the Company expects to receive from Medicare, which considers historical
collection and denial experience and other factors. Adjustments to the allowances, based on actual receipts from the government
payers, are recorded upon settlement.
Collection of consideration the Company expects to receive is
normally a function of providing the complete and correct billing information within the various filing deadlines and typically
occurs within 60 days of billing. Provided the Company has billed the government payer accurately with complete information prior
to the established filing deadline, there has historically been little to no collection risk. If there has been a delay in billing,
the Company determines if the amounts in question will likely go past the filing deadline, and, if so, it will reserve accordingly
for the billing.
Patient self pay
Uninsured patients are billed based on established patient fee
schedules or fees negotiated with physicians on behalf of their patients. Coinsurance and deductible responsibilities based on
fees negotiated with healthcare insurers are also billed to insured patients and included in this portfolio. Collection of billings
from patients is subject to credit risk and ability of the patients to pay. Revenues consist of amounts billed net of discounts
provided to uninsured patients in accordance with the Company’s policies and implicit price concessions. Implicit price concessions
represent differences between amounts billed and the estimated consideration the Company expects to receive from patients, which
considers historical collection experience and other factors including current market conditions. Adjustments to the estimated
allowances, based on actual receipts from the patients, are recorded upon settlement. Patient responsibility is invoiced and if
it reaches 91 days outstanding, the account is sent to a collection agency for further processing. After the account has been with
the collection agency for at least 105 days, and is determined to be uncollectable it is written off.
The following table represents clinical services net revenues
and percentages by type of customer:
|
|
Three months ended
January 31, 2021
|
|
|
Three months ended
January 31, 2020
|
|
Revenue category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party payer
|
|
$
|
15,023
|
|
|
|
63
|
%
|
|
$
|
6,404
|
|
|
|
51
|
%
|
Medicare
|
|
|
3,910
|
|
|
|
16
|
|
|
|
3,025
|
|
|
|
24
|
|
Patient self-pay
|
|
|
1,997
|
|
|
|
8
|
|
|
|
1,447
|
|
|
|
12
|
|
HMO’s
|
|
|
3,058
|
|
|
|
13
|
|
|
|
1,637
|
|
|
|
13
|
|
Total
|
|
$
|
23,988
|
|
|
|
100
|
%
|
|
$
|
12,513
|
|
|
|
100
|
%
|
|
|
Six months ended
January 31, 2021
|
|
|
Six months ended
January 31, 2020
|
|
Revenue category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party payer
|
|
$
|
27,503
|
|
|
|
61
|
%
|
|
$
|
12,796
|
|
|
|
51
|
%
|
Medicare
|
|
|
7,313
|
|
|
|
16
|
|
|
|
6,178
|
|
|
|
24
|
|
Patient self-pay
|
|
|
4,556
|
|
|
|
10
|
|
|
|
2,966
|
|
|
|
12
|
|
HMO’s
|
|
|
5,839
|
|
|
|
13
|
|
|
|
3,353
|
|
|
|
13
|
|
Total
|
|
$
|
45,211
|
|
|
|
100
|
%
|
|
$
|
25,293
|
|
|
|
100
|
%
|
For six months ended January 31, 2021 and 2020, all of the Company’s
clinical services revenues were generated within the United States.
Products Revenue
Products revenues consist of the sale of single-use products
used in the identification of genomic information and are recognized at a point in time following the transfer of control of such
products to the customer, which generally occurs upon shipment. Payment terms for shipments to end-user and distributor customers
may range from 30 to 90 days. Any claims for credit or return of goods may be made generally within 30 days of receipt. Revenues
are reduced to reflect estimated credits and returns, although historically these adjustments have not been material. Taxes collected
from customers relating to product sales and remitted to governmental authorities are excluded from revenue. Amounts billed to
customers for shipping and handling are included in revenue, while the related shipping and handling costs are reflected in cost
of products.
Products revenue by geography is as follows:
|
|
Three Months Ended
January 31
|
|
|
Six Months Ended
January 31
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
United States
|
|
$
|
3,524
|
|
|
$
|
3,807
|
|
|
$
|
7,469
|
|
|
$
|
8,331
|
|
Europe
|
|
|
2,635
|
|
|
|
2,066
|
|
|
|
5,066
|
|
|
|
3,975
|
|
Asia Pacific
|
|
|
1,319
|
|
|
|
998
|
|
|
|
2,375
|
|
|
|
1,992
|
|
Products revenue
|
|
$
|
7,478
|
|
|
$
|
6,871
|
|
|
$
|
14,910
|
|
|
$
|
14,298
|
|
Note 4 - Supplemental disclosure for statement of cash flows
In the six months ended January 31, 2021 and 2020, interest
paid by the Company was $123 and $136, respectively.
For the six months ended January 31, 2021 and 2020, the net
reductions in the measurement of right of use assets and liabilities included in cash flows from operating activities was $48 and
$91, respectively. The changes are included in changes in accrued liabilities, other current liabilities, and other liabilities
in the statement of cash flows.
In January 2021, the Company issued 332,700 shares of common
stock to two senior executives in settlement of their accrued bonuses totaling $875.
Note 5 – Inventories
Inventories consist of the following at January 31:
|
|
January 31,
2021
|
|
|
July 31,
2020
|
|
Raw materials
|
|
$
|
1,266
|
|
|
$
|
1,019
|
|
Work in process
|
|
|
2,561
|
|
|
|
2,587
|
|
Finished products
|
|
|
5,431
|
|
|
|
4,178
|
|
|
|
$
|
9,258
|
|
|
$
|
7,784
|
|
Note 6 – Goodwill and intangible assets
Goodwill
The Company’s net carrying amount of goodwill is in the
Clinical Laboratory Services segment and is $7,452 as of January 31, 2021 and 2020.
Intangible assets
The Company’s change in the net carrying amount of intangible
assets, all in the Life Sciences Products segment is as follows:
|
|
Gross
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
July 31, 2020
|
|
$
|
27,686
|
|
|
$
|
(27,148
|
)
|
|
$
|
538
|
|
Amortization expense
|
|
|
-
|
|
|
|
(151
|
)
|
|
|
(151
|
)
|
Foreign currency translation
|
|
|
168
|
|
|
|
(162
|
)
|
|
|
6
|
|
January 31, 2021
|
|
$
|
27,854
|
|
|
$
|
(27,461
|
)
|
|
$
|
393
|
|
Intangible assets, all finite-lived, consist of the following:
|
|
January 31, 2021
|
|
|
July 31, 2020
|
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Patents
|
|
$
|
11,027
|
|
|
$
|
(11,023
|
)
|
|
$
|
4
|
|
|
$
|
11,027
|
|
|
|
(11,014
|
)
|
|
$
|
13
|
|
Customer relationships
|
|
|
12,095
|
|
|
|
(11,706
|
)
|
|
|
389
|
|
|
|
12,003
|
|
|
|
(11,478
|
)
|
|
|
525
|
|
Website and acquired content
|
|
|
1,028
|
|
|
|
(1,028
|
)
|
|
|
-
|
|
|
|
1,022
|
|
|
|
(1,022
|
)
|
|
|
-
|
|
Licensed technology and other
|
|
|
492
|
|
|
|
(492
|
)
|
|
|
-
|
|
|
|
483
|
|
|
|
(483
|
)
|
|
|
-
|
|
Trademarks
|
|
|
3,212
|
|
|
|
(3,212
|
)
|
|
|
-
|
|
|
|
3,151
|
|
|
|
(3,151
|
)
|
|
|
-
|
|
Total
|
|
$
|
27,854
|
|
|
$
|
(27,461
|
)
|
|
$
|
393
|
|
|
$
|
27,686
|
|
|
|
(27,148
|
)
|
|
$
|
538
|
|
At January 31, 2021, information with respect to acquired intangibles is as follows:
|
|
Useful life assigned
|
|
Weighted average
remaining useful life
|
Customer relationships
|
|
8 -15 years
|
|
1 year
|
At January 31, 2021, the weighted average remaining useful life
of all intangible assets was approximately two years.
Note 7 – Long term debt
In connection with the purchase of our new facility in November
2018, a wholly-owned subsidiary (the “mortgagor subsidiary”) of the Company entered into a Fee Mortgage and Security
Agreement (the “mortgage agreement”) with Citibank, N.A. (the “mortgagee”). The mortgage agreement provides
for a loan of $4,500 for a term of 10 years, bears a fixed interest rate of 5.09% per annum and requires monthly mortgage payments
of principal and interest of $30. Debt issuance costs of $72 are being amortized over the life of the mortgage agreement. The balance
of unamortized debt issuance cost was $57 at January 31, 2021. At January 31, 2021, the balance owed by the subsidiary under the
mortgage agreement was $4.2 million. The Company’s obligations under the mortgage agreement are secured by the new facility
and by a $750 cash collateral deposit with the mortgagee as additional security. This restricted cash is included in other assets
as of January 31, 2021. We assumed from the seller an operating lease for a tenant at the facility which expired on June 30, 2020.
Rental income from the assumed lease for the three and six months ended January 31, 2020 is included in Other income.
The mortgage agreement includes affirmative and negative covenants
and events of default, as defined. Events of default include non-payment of principal and interest on debt outstanding, non-performance
of covenants, material changes in business, breach of representations, bankruptcy or insolvency, and changes in control. The mortgage
includes certain financial and liquidity covenants. As of January 31, 2021, the Company was in compliance with those covenants.
The liquidity covenant requires that we own and maintain at all times and throughout the remaining term of the loan at least $25
million of liquid assets, defined as time deposits, money market accounts, commercial paper and obligations issued by the U.S.
government or any of its agencies.
In April 2020, our subsidiary in Switzerland received a loan
of CHF 0.4 million ($0.4 million, based on the foreign exchange rate as of January 31, 2021) from the Swiss government under the
“Corona Krise” emergency loan program in response to the pandemic. This loan is uncollateralized, bears 0% interest,
is due in 5 years, and may be repaid at any time. This loan is included in long term debt – net as of January 31, 2021.
The CARES Act expanded the U.S. Small Business Administration’s
(SBA) business loan program to create the Paycheck Protection Program (PPP), which provides employers with uncollateralized loans
whose primary purpose is to retain or maintain workforce and salaries for a twenty four week period (“covered period”)
following receipt of the loan. Currently, PPP loans have a 1% fixed interest rate and are due from two to five years. The primary
features of the PPP loan program are to provide funding to companies to cover eligible expenses, and the potential for forgiveness
of that portion of the loan spent on payroll and other permitted operating expenses during the covered period, subject to reductions
if the borrower fails to maintain or restore employee and salary levels. We applied for the PPP loan based on the eligibility and
need requirements established when the program was announced and in April 2020 received $7,000 through Citibank N.A., the Company’s
existing lender, pursuant to the PPP (the “PPP Loan”).
The PPP Loan matures on April 17, 2022 (the “Maturity
Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are
due within the initial six months of the PPP Loan. Interest accrued during the initial six-month period is due and payable, together
with the principal, on the Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll
and make lease and utility payments to support business continuity throughout the COVID-19 pandemic. All or a portion of the PPP
Loan, including interest, could be forgiven by the SBA by applying for forgiveness and providing acceptable documentation that
demonstrates the funds were used as required by the terms of forgiveness and in accordance with the SBA’s requirements. Due
to complexities with respect to loan forgiveness calculations and government pronouncements with respect to expenditure eligibility,
we did not recognize any loan forgiveness as of January 31, 2021 and have classified the loan as other short term debt as we expect
to earn loan forgiveness on most, if not all of the loan in less than a year, and have accrued no interest. The SBA intends to
audit loans in excess of $2.0 million. The SBA also has announced its intention to require businesses that received loans in excess
of $2 million to complete a loan necessity questionnaire to evaluate the good faith certification made on their PPP applications
that economic uncertainty made their loan request necessary to support ongoing operations. No assurance can be given that we will
obtain forgiveness of the PPP loan in whole or in part. We expect to apply for PPP loan forgiveness with the SBA through our intermediary
lending bank in March 2021.
Minimum future annual principal payments under these agreements
as of January 31, 2021 are as follows:
July 31,
|
|
Total
|
|
2021
|
|
$
|
7,074
|
|
2022
|
|
|
152
|
|
2023
|
|
|
160
|
|
2024
|
|
|
167
|
|
2025
|
|
|
604
|
|
Thereafter
|
|
|
3,476
|
|
Total principal payments
|
|
|
11,633
|
|
Less: current portion, included in other current liabilities and other short term debt
|
|
|
(7,148
|
)
|
Unamortized mortgage cost
|
|
|
(57
|
)
|
Long term debt - net
|
|
$
|
4,428
|
|
Note 8 - Leases
The Company adopted ASU No. 2016-02 “Leases (Topic 842)”,
which requires leases with durations greater than twelve months to be recognized on the balance sheet, using the modified retrospective
approach as of August 1, 2019.
The Company determines if an arrangement is or contains a lease
at contract inception. The Company leases buildings, office space, patient service centers, and equipment primarily through operating
leases, and equipment through a limited number of finance leases. Generally, a right-of-use asset, representing the right to use
the underlying asset during the lease term, and a lease liability, representing the payment obligation arising from the lease,
are recognized on the balance sheet at lease commencement based on the present value of the payment obligation. For operating leases,
expense is recognized on a straight-line basis over the lease term. For finance leases, interest expense on the lease liability
is recognized using the effective interest method and amortization of the right-of-use asset is recognized on a straight-line basis
over the shorter of the estimated useful life of the asset or the lease term. Short-term leases with an initial term of 12 months
or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over
the lease term.
The Company primarily uses its incremental borrowing rate in
determining the present value of lease payments as the Company’s leases generally do not provide an implicit rate.
The Company has lease agreements with (i) right-of-use asset
payments and (ii) non-lease components (i.e. payments related to maintenance fees, utilities, etc.), which have generally been
combined and accounted for as a single lease component.
The Company’s leases have remaining terms of less than
1 year to 8 years, some of which include options to extend the leases for up to 5 years. The Company’s lease terms may include
renewal options that are reasonably certain to be exercised and termination options that are reasonably certain not to be exercised.
Certain of the Company’s lease agreements include rental
payments adjusted periodically for inflation or a market rate which are included in the lease liabilities.
Leases
|
|
Balance Sheet Classification
|
|
January 31, 2021
|
|
Assets
|
|
|
|
|
|
|
Operating
|
|
Right-of-use assets
|
|
$
|
18,459
|
|
Finance
|
|
Property, plant and equipment, net (a)
|
|
|
286
|
|
Total lease assets
|
|
|
|
$
|
18,745
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Operating
|
|
Current portion of operating lease liabilities
|
|
$
|
3,680
|
|
Finance
|
|
Finance leases short term
|
|
|
66
|
|
|
|
|
|
|
|
|
Non-current:
|
|
|
|
|
|
|
Operating
|
|
Operating lease liabilities, non-current
|
|
|
15,710
|
|
Finance
|
|
Other liabilities and finance leases long term
|
|
|
155
|
|
Total lease liabilities
|
|
|
|
$
|
19,611
|
|
|
(a)
|
Accumulated amortization of finance lease assets was approximately $1.1 million as of January 31, 2021.
|
Components of lease cost were as follows:
|
|
Three months ended
January 31,
|
|
|
Six months ended
January 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Operating lease cost
|
|
$
|
1,515
|
|
|
$
|
1,474
|
|
|
$
|
2,994
|
|
|
$
|
2,948
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets
|
|
|
33
|
|
|
|
60
|
|
|
|
99
|
|
|
|
115
|
|
Interest on lease liabilities
|
|
|
4
|
|
|
|
22
|
|
|
|
9
|
|
|
|
34
|
|
Total lease cost
|
|
$
|
1,552
|
|
|
$
|
1,556
|
|
|
$
|
3,102
|
|
|
$
|
3,097
|
|
The maturity of the Company’s lease liabilities as of
January 31, 2021 is as follows:
Maturity
of lease liabilities, years ending July 31,
|
|
Operating
leases
|
|
|
Finance
leases
|
|
|
Total
|
|
2021
|
|
$
|
2,436
|
|
|
$
|
44
|
|
|
$
|
2,480
|
|
2022
|
|
|
4,017
|
|
|
|
88
|
|
|
|
4,105
|
|
2023
|
|
|
3,318
|
|
|
|
88
|
|
|
|
3,406
|
|
2024
|
|
|
3,173
|
|
|
|
22
|
|
|
|
3,195
|
|
2025
|
|
|
3,145
|
|
|
|
—
|
|
|
|
3,145
|
|
Thereafter
|
|
|
6,370
|
|
|
|
—
|
|
|
|
6,370
|
|
Total lease payments
|
|
|
22,459
|
|
|
|
242
|
|
|
|
22,701
|
|
Less: Interest (a)
|
|
|
(3,069
|
)
|
|
|
(21
|
)
|
|
|
(3,090
|
)
|
Present value of lease liabilities
|
|
$
|
19,390
|
|
|
$
|
221
|
|
|
$
|
19,611
|
|
|
(a)
|
Primarily calculated using the Company’s incremental borrowing rate.
|
Lease term and discount rate for the six months ended January
31, 2021 were as follows:
Lease term and discount rate
|
|
|
|
Weighted-average remaining lease term (years):
|
|
|
|
|
Operating leases
|
|
|
5.9 years
|
|
Finance leases
|
|
|
2.9 years
|
|
|
|
|
|
|
Weighted-average discount rate:
|
|
|
|
|
Operating leases
|
|
|
4.95
|
%
|
Finance leases
|
|
|
9.02
|
%
|
See Note 4 for cash flow information on cash paid for amounts
included in the measurement of lease liabilities for the six months ended January 31, 2021.
Note 9 – Accrued Liabilities
At January 31, accrued liabilities consist of:
|
|
January 31,
2021
|
|
|
July 31,
2020
|
|
Payroll, benefits, and commissions
|
|
$
|
5,601
|
|
|
$
|
5,227
|
|
Professional fees
|
|
|
704
|
|
|
|
710
|
|
Legal
|
|
|
3,638
|
|
|
|
2,647
|
|
Deferred revenue – CARES Act Advance Payment
|
|
|
2,526
|
|
|
|
2,526
|
|
Other
|
|
|
2,120
|
|
|
|
1,723
|
|
|
|
$
|
14,589
|
|
|
$
|
12,833
|
|
Deferred revenue
In order to increase cash flow to providers of services and
suppliers impacted by the pandemic, the Centers for Medicare and Medicaid Services (CMS) expanded its Accelerated and Advance Payment
Program to a broader group of Medicare providers. We applied for and received a $2,526 payment advance from this program in April
2020. The recoupment by CMS of our advance payment had been scheduled to begin 120 days after the date of receipt, at which time
every claim we submit from that point would be automatically offset to repay the advance payment. Any unrecouped advance balance
remaining after 90 days of the recoupment process was to be repaid such that 210 days after receiving the advance it would be entirely
repaid. In October 2020, the Continuing Appropriations Act, 2021 and Other Extensions Act amended the repayment terms of the Advance
Payment Program. The recoupment period was extended and the automatic recoupment will begin one year after the date the advance
payment was received, which in our case means recoupment will start April 2021. During the first 11 months after recoupment begins,
the rate will be 25% of claims processed and repayment will occur through an automatic recoupment of our Medicare payments. We
expect the entire balance of the payment advance to be recouped by the end of the 11 month period. If the total amount of the advance
payment is not recovered within 29 months from the date the advance was received, a demand letter for the outstanding balance will
be issued. Since the Company has the right to repay the advance at any time, the entire balance is considered current.
Self-Insured Medical Plan
The Company self-funds medical insurance coverage for certain
of its U.S. based employees. The risk to the Company is believed to be limited through the use of individual and aggregate stop
loss insurance. As of January 31, 2021, the Company has established a reserve of $349, which is included in accrued liabilities,
for claims that have been reported but not paid and for claims that have been incurred but not reported. The reserve is based upon
the Company’s historical payment trends, claim history and current estimates.
Note 10 – Stockholders’ Equity
Controlled Equity Offering
The Company has a Controlled Equity OfferingSM 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.
In September 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 $19.2 million. A total of $150 million of securities may
be sold under this shelf registration, which was declared effective September 2017.
During the six months ended January 31, 2021 and 2020, the Company
did not sell any shares of Common Stock under the Sales Agreement.
Share-based compensation
In January 2011, the Company’s stockholders approved the
adoption of the 2011 Incentive Plan (the “2011 Plan”) for the issuance of equity awards, including, among others, options,
restricted stock and restricted stock units for up to 3,000,000 shares of common stock. On January 5, 2018, the Company’s
stockholders approved the amendment and restatement of the 2011 Plan (the “Amended and Restated 2011 Plan”) to increase
the number of shares of common stock available for grant under the 2011 Plan by 2,000,000 shares of common stock bringing the total
number of shares available for grant to 5,000,000 shares of common stock. On October 7, 2020, the Company’s Board of Directors
approved the amendment and restatement of the Amended and Restated 2011 Plan, with an effective date of October 7, 2020 and subject
to approval by the Company’s stockholders at the 2020 annual meeting of stockholders of the Company. The amendment and restatement
of the Amended and Restated 2011 Plan was for purposes of, among other things, (i) increasing the shares of common stock available
for grant under the Amended and Restated 2011 Plan by an additional 4,000,000 shares of common stock bringing the total number
of shares available for grant to 9,000,000 shares of common stock and (ii) extending the term of the Amended and Restated 2011
Plan until October 7, 2030. In January 2021, the Company’s stockholders approved the amendment and restatement of the Amended
and Restated 2011 Plan.
The exercise price of options granted under the Amended and
Restated 2011 Plan, as amended and restated, is equal to or greater than fair market value of the common stock on the date of grant.
The Amended and Restated 2011 Plan, as amended and restated, will terminate at the earliest of (a) such time as no shares of common
stock remain available for issuance under the plan, (b) termination of the plan by the Company’s Board of Directors, or (c)
October 7, 2030. Awards outstanding upon expiration of the Amended and Restated 2011 Plan, as amended and restated, will remain
in effect until they have been exercised or terminated, or have expired. As of January 31, 2021, there were approximately 4,623,000
shares of common stock available for grant under the Amended and Restated 2011 Plan, as amended and restated.
The amounts of share-based compensation expense recognized in
the periods presented are as follows:
|
|
Three months ended
January 31,
|
|
|
Six months ended
January 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Stock options
|
|
$
|
175
|
|
|
$
|
301
|
|
|
$
|
341
|
|
|
$
|
518
|
|
Restricted stock
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
|
$
|
176
|
|
|
$
|
302
|
|
|
$
|
343
|
|
|
$
|
521
|
|
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
January 31,
|
|
|
Six months ended
January 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Selling, general and administrative
|
|
$
|
162
|
|
|
$
|
302
|
|
|
$
|
316
|
|
|
$
|
521
|
|
Cost of revenues
|
|
|
14
|
|
|
|
-
|
|
|
|
27
|
|
|
|
-
|
|
|
|
$
|
176
|
|
|
$
|
302
|
|
|
$
|
343
|
|
|
$
|
521
|
|
No excess tax benefits were recognized during the six month
periods ended January 31, 2021 and 2020.
Stock Option Plans
The following table summarizes stock option activity during
the six month period ended January 31, 2021:
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value (000s)
|
|
Outstanding at July 31, 2020
|
|
|
2,636,496
|
|
|
$
|
4.05
|
|
|
|
|
|
|
|
|
|
Awarded
|
|
|
543,104
|
|
|
$
|
2.57
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Expired or forfeited
|
|
|
(408,539
|
)
|
|
$
|
2.91
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
2,771,061
|
|
|
$
|
3.80
|
|
|
|
3.0 years
|
|
|
$
|
114
|
|
Exercisable at end of period
|
|
|
1,566,259
|
|
|
$
|
|
|
|
|
1.9 years
|
|
|
$
|
|
|
As of January 31, 2021, the total future compensation cost related
to non-vested options, not yet recognized in the statements of operations, was $1,079 and the weighted average period over which
the remaining expense of these awards is expected to be recognized is approximately nineteen months.
The intrinsic value of in the money stock option awards 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.
Performance Stock Units
To better align the long-term interest of executives with growing
U.S. practices, beginning in fiscal 2018, the Company’s board of directors approved long-term incentive awards in the form
of performance-based stock units (“Performance Stock Units” or “PSUs”) in addition to time based stock
options. The PSUs earned will be determined over a three-year performance period. The primary performance metrics will be revenue
and Adjusted EBITDA growth. Payouts based on revenue and adjusted EBITDA goals will be modified based on Total Shareholder Return
(“TSR”) performance relative to Enzo’s peer group.
During the fiscal years ended 2020, 2019 and 2018, the
Company’s board of directors approved the award of PSUs to its executive officers, whose established grant dates are in
the table below. These awards provide for the grant of shares of our common stock at the end of a three–year period
based on the achievement of average revenue growth and adjusted EBITDA growth over that period. During the six months ended
January 31, 2021, one former executive forfeited a total of 6,000 PSUs. During the six months ended January 31, 2020, one
former executive forfeited a total of 14,500 PSUs. As of January 31, 2021, the Company did not accrue any compensation
expense for the outstanding PSU’s. There were no PSU
awards approved by the Company’s board of directors through the six months ended January 31, 2021.
The following table summarizes PSU’s granted and outstanding
as of January 31, 2021:
Grant Date
|
|
Total Grant
|
|
|
Forfeitures
|
|
|
Outstanding
|
|
|
Fair Market Value
At Grant Date (000s)
|
|
10/15/2018
|
|
|
32,000
|
|
|
|
(6,000
|
)
|
|
|
26,000
|
|
|
$
|
107
|
|
10/15/2019
|
|
|
80,500
|
|
|
|
(14,500
|
)
|
|
|
66,000
|
|
|
$
|
222
|
|
10/19/2020
|
|
|
98,600
|
|
|
|
-
|
|
|
|
98,600
|
|
|
$
|
207
|
|
Note 11 – Segment reporting
The Company has three reportable segments: Products, Clinical
Services and Therapeutics. The Company’s Products segment develops, manufactures, and markets products to research and pharmaceutical
customers. The Clinical Services segment provides diagnostic services to the health care community. The Company’s Therapeutics
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. All intersegment
activities are eliminated.
Legal and related expenses incurred to defend the Company’s
intellectual property, which may result in settlements recognized in another segment and other general corporate matters are considered
a component of the Other segment. Legal and related expenses specific to other segments’ activities are allocated to those
segments.
Legal settlements, net, represent activities for which royalties
would have been received in the Company’s Products segment. 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.
The following financial information represents the operating
results of the reportable segments of the Company:
Three months ended January 31, 2021
|
|
Clinical
Services
|
|
|
Products
|
|
|
Therapeutics
|
|
|
Other
|
|
|
Consolidated
|
|
Revenues – Services and Products
|
|
$
|
23,988
|
|
|
$
|
7,478
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
31,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
11,708
|
|
|
|
3,937
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,645
|
|
Research and development
|
|
|
160
|
|
|
|
633
|
|
|
$
|
13
|
|
|
|
-
|
|
|
|
806
|
|
Selling, general and administrative
|
|
|
6,425
|
|
|
|
2,593
|
|
|
|
16
|
|
|
$
|
1,979
|
|
|
|
11,013
|
|
Legal and related expenses
|
|
|
71
|
|
|
|
1
|
|
|
|
-
|
|
|
|
2,220
|
|
|
|
2,292
|
|
Total operating costs and expenses
|
|
|
18,364
|
|
|
|
7,164
|
|
|
|
29
|
|
|
|
4,199
|
|
|
|
29,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
5,624
|
|
|
|
314
|
|
|
|
(29
|
)
|
|
|
(4,199
|
)
|
|
|
1,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(4
|
)
|
|
|
8
|
|
|
|
-
|
|
|
|
(53
|
)
|
|
|
(49
|
)
|
Other
|
|
|
14
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
Foreign exchange gain
|
|
|
-
|
|
|
|
625
|
|
|
|
-
|
|
|
|
-
|
|
|
|
625
|
|
Net income (loss)
|
|
$
|
5,634
|
|
|
$
|
949
|
|
|
$
|
(29
|
)
|
|
$
|
(4,252
|
)
|
|
$
|
2,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization included above
|
|
$
|
381
|
|
|
$
|
188
|
|
|
$
|
-
|
|
|
$
|
66
|
|
|
$
|
635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation included in above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
10
|
|
|
|
16
|
|
|
|
-
|
|
|
|
136
|
|
|
|
162
|
|
Cost of revenues
|
|
|
14
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
Total
|
|
$
|
24
|
|
|
$
|
16
|
|
|
$
|
-
|
|
|
$
|
136
|
|
|
$
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
341
|
|
|
$
|
154
|
|
|
$
|
-
|
|
|
$
|
11
|
|
|
$
|
506
|
|
Three months ended January 31, 2020
|
|
Clinical
Services
|
|
|
Products
|
|
|
Therapeutics
|
|
|
Other
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
12,513
|
|
|
$
|
6,871
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
19,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
10,243
|
|
|
|
3,332
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,575
|
|
Research and development
|
|
|
373
|
|
|
|
503
|
|
|
|
189
|
|
|
|
-
|
|
|
|
1,065
|
|
Selling, general and administrative
|
|
|
5,895
|
|
|
|
2,530
|
|
|
|
-
|
|
|
|
2,268
|
|
|
|
10,693
|
|
Legal fee expense
|
|
|
38
|
|
|
|
1
|
|
|
|
-
|
|
|
|
2,021
|
|
|
|
2,060
|
|
Total operating costs and expenses
|
|
|
16,549
|
|
|
|
6,366
|
|
|
|
189
|
|
|
|
4,289
|
|
|
|
27,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(4,036
|
)
|
|
|
505
|
|
|
|
(189
|
)
|
|
|
(4,289
|
)
|
|
|
(8,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(10
|
)
|
|
|
16
|
|
|
|
-
|
|
|
|
165
|
|
|
|
171
|
|
Other
|
|
|
16
|
|
|
|
7
|
|
|
|
-
|
|
|
|
49
|
|
|
|
72
|
|
Foreign exchange gain
|
|
|
-
|
|
|
|
79
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79
|
|
Net (loss) income
|
|
$
|
(4,030
|
)
|
|
|
607
|
|
|
|
(189
|
)
|
|
|
(4,075
|
)
|
|
|
(7,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization included above
|
|
$
|
392
|
|
|
|
253
|
|
|
|
-
|
|
|
|
65
|
|
|
|
710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation included in above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
33
|
|
|
|
22
|
|
|
|
-
|
|
|
|
247
|
|
|
|
302
|
|
Total
|
|
$
|
33
|
|
|
|
22
|
|
|
|
-
|
|
|
|
247
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
142
|
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
160
|
|
Six months ended January 31, 2021
|
|
Clinical
Services
|
|
|
Products
|
|
|
Therapeutics
|
|
|
Other
|
|
|
Consolidated
|
|
Revenues – Services and Products
|
|
$
|
45,211
|
|
|
$
|
14,910
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
60,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
24,703
|
|
|
|
7,700
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,403
|
|
Research and development
|
|
|
281
|
|
|
|
1,225
|
|
|
$
|
46
|
|
|
|
-
|
|
|
|
1,552
|
|
Selling, general and administrative
|
|
|
12,523
|
|
|
|
5,038
|
|
|
|
33
|
|
|
$
|
3,433
|
|
|
|
21,027
|
|
Legal and related expenses
|
|
|
96
|
|
|
|
6
|
|
|
|
-
|
|
|
|
2,830
|
|
|
|
2,932
|
|
Total operating costs and expenses
|
|
|
37,603
|
|
|
|
13,969
|
|
|
|
79
|
|
|
|
6,263
|
|
|
|
57,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
7,608
|
|
|
|
941
|
|
|
|
(79
|
)
|
|
|
(6,263
|
)
|
|
|
2,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(10
|
)
|
|
|
18
|
|
|
|
-
|
|
|
|
(108
|
)
|
|
|
(100
|
)
|
Other
|
|
|
29
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33
|
|
Foreign exchange gain
|
|
|
|
|
|
|
461
|
|
|
|
-
|
|
|
|
-
|
|
|
|
461
|
|
Net income (loss)
|
|
$
|
7,627
|
|
|
$
|
1,424
|
|
|
$
|
(79
|
)
|
|
$
|
(6,371
|
)
|
|
$
|
2,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization included above
|
|
$
|
790
|
|
|
$
|
373
|
|
|
$
|
-
|
|
|
$
|
132
|
|
|
$
|
1,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation included in above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
19
|
|
|
|
32
|
|
|
|
-
|
|
|
|
265
|
|
|
|
316
|
|
Cost of revenues
|
|
|
27
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27
|
|
Total
|
|
$
|
46
|
|
|
$
|
32
|
|
|
$
|
-
|
|
|
$
|
265
|
|
|
$
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
881
|
|
|
$
|
198
|
|
|
$
|
-
|
|
|
$
|
44
|
|
|
$
|
1,123
|
|
Six months ended January 31, 2020
|
|
Clinical
Services
|
|
|
Products
|
|
|
Therapeutics
|
|
|
Other
|
|
|
Consolidated
|
|
Revenues – Services and Products
|
|
$
|
25,293
|
|
|
$
|
14,298
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
39,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
21,218
|
|
|
|
6,878
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,096
|
|
Research and development
|
|
|
723
|
|
|
|
1,019
|
|
|
$
|
377
|
|
|
|
-
|
|
|
|
2,119
|
|
Selling, general and administrative
|
|
|
12,110
|
|
|
|
5,287
|
|
|
|
-
|
|
|
$
|
4,435
|
|
|
|
21,832
|
|
Legal and related expenses
|
|
|
88
|
|
|
|
1
|
|
|
|
-
|
|
|
|
3,667
|
|
|
|
3,756
|
|
Total operating costs and expenses
|
|
|
34,139
|
|
|
|
13,185
|
|
|
|
377
|
|
|
|
8,102
|
|
|
|
55,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(8,846
|
)
|
|
|
1,113
|
|
|
|
(377
|
)
|
|
|
(8,102
|
)
|
|
|
(16,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(22
|
)
|
|
|
34
|
|
|
|
-
|
|
|
|
396
|
|
|
|
408
|
|
Other
|
|
|
19
|
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
185
|
|
|
|
199
|
|
Foreign exchange gain
|
|
|
-
|
|
|
|
270
|
|
|
|
-
|
|
|
|
-
|
|
|
|
270
|
|
Net income (loss)
|
|
$
|
(8,849
|
)
|
|
$
|
1,412
|
|
|
$
|
(377
|
)
|
|
$
|
(7,521
|
)
|
|
$
|
(15,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization included above
|
|
$
|
801
|
|
|
$
|
503
|
|
|
$
|
-
|
|
|
$
|
130
|
|
|
$
|
1,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation included in above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative.
|
|
|
67
|
|
|
|
44
|
|
|
|
-
|
|
|
|
410
|
|
|
|
521
|
|
Total
|
|
$
|
67
|
|
|
$
|
44
|
|
|
$
|
-
|
|
|
$
|
410
|
|
|
$
|
521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
289
|
|
|
$
|
145
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
434
|
|
Note 12 Contingencies
The Company has brought cases in the United States District
Court for the District of Delaware (“the Court”), alleging patent infringement against various companies. In 2017,
the Court ruled that the asserted claims of the ‘180 and ‘405 Patents are invalid for nonenablement in cases involving
Abbott, Becton Dickinson, Gen-Probe, Hologic, and Roche. That ruling was affirmed by the United States Court of Appeals for the
Federal Circuit (“Federal Circuit”) in June 2019. Enzo subsequently filed a petition for certiorari regarding the invalidity
ruling for the ‘180 and ‘405 Patents in February 2020; the Supreme Court denied Enzo’s petition on March 30,
2020. There are currently two cases that were originally brought by the Company in the Court. In those two cases, Enzo alleges
patent infringement against Becton Dickinson Defendants and Roche Defendants, respectively. The claims in those cases involve the
‘197 Patent. Both cases are stayed.
In separate inter partes review proceedings before the U.S.
Patent and Trademark Office involving, among others, Becton Dickinson, certain claims of the ‘197 Patent were found unpatentable
as anticipated or obvious and cancelled by the Patent Trial and Appeals Board (“Board”). Enzo appealed that decision
to the Federal Circuit. On August 16, 2019, the Federal Circuit affirmed the Board’s decision, finding that each of the challenged
claims is unpatentable. The Company filed a petition for rehearing and rehearing en banc on October 30, 2019, which the Federal
Circuit denied on December 4, 2019. The Company filed a petition for certiorari with the Supreme Court on March 3, 2020, which
was denied.
In April 2019, the Company entered into an agreement with Hologic
and Grifols, resolving litigation resulting from four cases originally brought by the Company in the Court. As a result,
Enzo dismissed (1) a stayed patent litigation regarding the ’180 and ’197 Patent against Hologic in the Court; (2)
the Consolidated Appeals against Gen-Probe and Hologic resulting from two cases filed in the Court, and (3) the Company’s
appeal in the litigation involving the ’581 Patent that involved both Hologic and Grifols. As a result of the agreement with
Hologic, Hologic withdrew from Enzo’s Federal Circuit appeal of the Board’s adverse rulings in the inter partes
review proceedings regarding the ’197 Patent filed by Hologic and joined by Becton Dickinson mentioned above.
On February 5, 2020, Harbert Discovery Fund, LP and Harbert
Discovery Co-Investment Fund I, LP (“Plaintiffs”) brought an action in the United States District Court for the Southern
District of New York against the Company and five of its present or former Directors, Dr. Elazar Rabbani, Barry W. Weiner, Dr.
Bruce A. Hanna, Dov Perlysky and Rebecca Fischer (“defendants”). On March 26, 2020, Plaintiffs filed an amended complaint
against the same defendants. Count I asserted the Company violated Section 14(a) of the Securities and Exchange Act of 1934 and
Rule 14a-9 thereunder by disseminating proxy materials that made two purportedly false statements: (a) a “January 28, 2020
Enzo press release [that purportedly] falsely stated that the Annual Meeting would be ‘delayed’ by action of the Board
to February 25, 2020 when, in fact, the Annual Meeting would convene as planned on January 31, 2020”, and (b) a “January
31 Enzo Proxy [that purportedly] falsely stated that the Proposed By-Law Amendment [to Article II, Section 9] would be approved
if it received…a majority of the votes….rather than the required Supermajority Vote as provided for in the Charter.
”Count II asserted a claim against the individual defendants under Section 20(a) of the Exchange Act premised on Enzo’s
purported violation of Section 14(a) and Rule 14a-9. Count III asserted the individual defendants breached their fiduciary duty,
based on the same conduct and by seeking to entrench themselves. Finally, Count IV purported to assert a derivative claim for a
declaration that any amendment to Article II, Section 2 requires the approval of 80% of Enzo’s shareholders. On July 16,
2020, the day before the defendant’s motion to dismiss was due, plaintiffs asked the Court to dismiss their claims without
prejudice. Defendants asked plaintiffs to dismiss the claims with prejudice, but they refused. On July 17, 2020, the Court dismissed
the claims without prejudice. If plaintiffs reassert the claims, defendants intend to vigorously defend against them.
On November 27, 2020, the Company brought an action in the United
States District Court for the Southern District of New York against Harbert Discovery Fund, LP, Harbert Discovery Co-Investment
Fund I, LP, Harbert Fund Advisors, Inc., Harbert Management Corp. and Kenan Lucas. The Company alleges the defendants made false
and misleading representations, or omitted to state material facts necessary to make their statements not misleading, in proxy
materials they disseminated seeking the election to the Company’s Board of Directors at its 2019 Annual Meeting of two candidates
they nominated, in violation of Section 14(a) of the 1934 Exchange Act and Rule 14a-9 thereunder. The Company seeks damages and
injunctive relief. Defendants have filed a motion to dismiss. The Company has filed its opposition to that motion.
There can be no assurance that the Company will be successful
in any of 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.
As described in Note 3, third-party payers, including government
programs, may decide to deny payment or recoup payments for testing that they contend was improperly billed or not medically necessary,
against their coverage determinations, or for which they believe they have otherwise overpaid (including as a result of their own
error), and we may be required to refund payments already received. During the third fiscal quarter of 2019, a significant third-party
payer informed us outside of their typical business practice that they believe it overpaid the Company during certain periods of
fiscal 2018. The Company disputed these claims and formally sent legal appeal letters to the payer. During the fiscal 2020 period,
we recorded $0.8 million in legal and related expenses as a result of reduced reimbursements this payer made to us. In April 2020,
we and the payer entered into a settlement agreement and release whereby the parties agreed that the $0.8 million previously withheld
by the payer shall fully and completely satisfy the dispute.
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,
impacts of the COVID-19 pandemic and measures we have taken in response, 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, 2020 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.
Impact of COVID-19 pandemic
A novel strain of coronavirus (“COVID-19”)
continues to spread and severely impact the economy of the United States and other countries around the world. Federal, state and
local governmental policies and initiatives designed to reduce the transmission of COVID-19 have resulted in, among other things,
a significant reduction in physician office visits, the cancellation of elective medical procedures, customers of our products
closing or severely curtailing their operations (voluntarily or in response to government orders), and the adoption of work-from-home
or shelter-in-place policies. The COVID-19 impact on the Company’s operations is consistent with the overall industry and
publicly issued statements from competitors, partners, and vendors.
Enzo was granted FDA Emergency Use Authorization (EUA) for its
molecular diagnostic and serological testing for COVID-19 and related antibody testing options. Enzo’s innovations include
virus-inactivating specimen collection media to lessen transmission risks for healthcare providers and clinical laboratory personnel,
the development of more relevant positive controls for the tests, and improved sensitivity.
In the second quarter of our fiscal year ending July 31, 2021,
while non-COVID-19 accessions did not return to prior year levels, we continued to see non-COVID-19 accession volume rebound. With
the addition of COVID-19 testing, total accession volume for the fiscal second quarter ended January 31, 2021 exceeded accession
volume in both the sequential or first fiscal quarter ended October 31, 2020 and the prior year fiscal second quarter ended January
31, 2020. However, it is too early to determine the long term significance of the positive impact from increased testing and the
Company’s proprietary product offerings on revenue, profitability and cash flow.
The extent to which our businesses may be affected by the COVID-19
pandemic will largely depend on both current and future developments, including its duration, spread and the emergence of variants,
its treatment with authorized vaccines and vaccines in various stages of development and federal approval, and related work and
travel advisories and restrictions, all of which are highly uncertain and cannot be reasonably predicted at this time. Global supply
chain issues due to the pandemic hamper both the manufacturing of products within the life science division as well as testing
capabilities in the clinical laboratory.
The Coronavirus Aid, Relief, and Economic Security Act
(CARES Act)
In March 2020, in response to the COVID-19 pandemic, the CARES
Act was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures. The CARES Act also includes
a number of benefits that are applicable to us and other healthcare providers including, but not limited to:
|
·
|
Providing clinical laboratories a one-year reprieve from the Centers
for Medicare and Medicaid Services (CMS) private payer prices reporting requirements under the Protecting Access to Medicare Act
(“PAMA”) as well as a one-year delay of a reimbursement rate reduction of 15% for clinical laboratory services provided
under Medicare that was scheduled to take place starting January 1, 2021. Further revisions of the Medicare Clinical Laboratory
Fee Schedule (CLFS) for calendar years after 2021 will be based on future surveys of private payer market rates. Medicare and Medicaid
reimbursement reduction for calendar years 2022-2024 is capped by PAMA at 15% annually, which we estimate could then negatively
impact our annualized Medicare and Medicaid revenues by $2.4 million. In this regard, the American Clinical Laboratory Association
(ACLA) has filed a federal civil action challenging the legal basis for the private payer data collection methodology CMS used
to derive the data from which median prices were calculated. ACLA continues to work with Congress on potential legislative reform
of PAMA, which if adopted could reduce the negative impact of PAMA as currently implemented by CMS. The long-term effect of these
efforts on Medicare CLFS rates is not determinable
|
|
·
|
Appropriating $100 billion to health care providers for related expenses
or lost revenues that are attributable to the COVID-19 pandemic. In April 2020, we received from Medicare a CARES Act Relief Payment
grant of approximately $750 from the initial tranche and in July 2020 we received a second grant of approximately $750.
|
|
·
|
Allocated $349 billion to small businesses as Payment Protection Program
(PPP) loans through the Small Business Administration (SBA). In April 2020, we received approximately $7.0 million from the initial
tranche of this program.
|
|
·
|
Providing an advance on testing services payments which can be either
paid back at any time or earned back starting one year from receipt. In April 2020 we applied for and received a Medicare advance
payment of $2.5 million.
|
|
·
|
Suspending Medicare sequestration from May 2020 to December 2020.
We estimate that the suspension of Medicare sequestration resulted in a small benefit to us in the form of higher reimbursement
rates for diagnostic testing services performed on behalf of Medicare beneficiaries.
|
Overview
Enzo Biochem, Inc. (the “Company” “we”,
“our” or “Enzo”) is an integrated diagnostics, clinical lab, and life sciences company focused on delivering
and applying advanced technology capabilities to produce affordable reliable products and services that enable our customers to
meet their clinical needs. Through a connection with the market, we provide advanced biotechnology solutions to the global community
as affordable and flexible quality products and services. We develop, manufacture and sell our proprietary technology solutions
and platforms to clinical laboratories, specialty clinics, researchers and physicians globally. Enzo’s structure and business
strategy represent the culmination of years of extensive planning and work. The Company has the unique ability to offer
low cost, high performance products and services for diagnostic testing, which ideally positions us 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 develops low cost diagnostic platform products and
related services. Our platform development includes automation-compatible reagent systems and associated products for sample collection
and processing through analysis. We develop affordable products and services to improve healthcare, one of the greatest challenges
today. Enzo combines over 40 years of expertise in technology development with assay development capabilities and diagnostic testing
services to create high performance, cost-effective, and open assay solutions. The ability to combine these assets in one company
is unique. With our strong intellectual property portfolio integrated with assay development know-how, production, distribution,
validation and services capabilities, we have enabled sustainable products and services for a market that is facing increasing
pressure in costs and reimbursement
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.
In the course of our research and development activities, we
have built a substantial portfolio of intellectual property assets, comprised of 495 issued patents worldwide and 71 pending patent
applications, along with extensive enabling technologies and platforms.
Below are brief descriptions of each of our operating segments
(See Note 11 in the Notes to Consolidated Financial Statements):
Enzo Clinical Services 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 Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certified and 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 Connecticut, two free standing “STAT” or rapid response laboratories in New York City and Connecticut,
an in-house logistics department, and an information technology department. Under our license in New York State, we are able to
offer testing services to clinical laboratories and physicians nationwide.
The Clinical Laboratory Services reporting unit is impacted
by various risk factors, including among others, reduced reimbursements from third party payers for testing performed and from
recent health care legislation. Despite the growth we have experienced in previous years, there can be no assurance future growth
can be achieved. The introduction of new molecular and esoteric tests is expected to increase our revenue per test and could offset
impacts from the above factors. The Company anticipates improved profitability with increased service volume.
Enzo Products manufactures, develops and markets
products and tools for 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. 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 also the life sciences markets 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 100 patents and patent applications. In December
2020, Enzo announced it will consider various avenues to unlock value in Enzo Therapeutics. Alternatives under consideration include
a possible spin-off, sale, joint venture or licensing of its intellectual property.
Results of Operations
Three months ended January 31, 2021
compared to January 31, 2020
(in 000s)
Comparative Financial Data for the Three Months Ended January
31,
|
|
2021
|
|
|
2020
|
|
|
Favorable (Unfavorable)
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
31,466
|
|
|
$
|
19,384
|
|
|
$
|
12,082
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
15,645
|
|
|
|
13,575
|
|
|
|
(2,070
|
)
|
|
|
(15
|
)
|
Research and development
|
|
|
806
|
|
|
|
1,065
|
|
|
|
259
|
|
|
|
24
|
|
Selling, general and administrative
|
|
|
11,013
|
|
|
|
10,693
|
|
|
|
(320
|
)
|
|
|
(3
|
)
|
Legal and related expenses
|
|
|
2,292
|
|
|
|
2,060
|
|
|
|
(232
|
)
|
|
|
(11
|
)
|
Total operating costs and expenses
|
|
|
29,756
|
|
|
|
27,393
|
|
|
|
(2,363
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
1,710
|
|
|
|
(8,009
|
)
|
|
|
9,719
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(49
|
)
|
|
|
171
|
|
|
|
(220
|
)
|
|
|
**
|
|
Other
|
|
|
16
|
|
|
|
72
|
|
|
|
(56
|
)
|
|
|
(78
|
)
|
Foreign currency gain
|
|
|
625
|
|
|
|
79
|
|
|
|
546
|
|
|
|
**
|
|
Total other income
|
|
|
592
|
|
|
|
322
|
|
|
|
270
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,302
|
|
|
$
|
(7,687
|
)
|
|
$
|
9,989
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.05
|
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
48,006
|
|
|
|
47,557
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
48,053
|
|
|
|
47,557
|
|
|
|
|
|
|
|
|
|
** not meaningful
Consolidated Results:
The “2021 period” and the “2020 period”
refer to the three months ended January 31, 2021 and January 31, 2020, respectively, which represent the second quarters of the
Company’s fiscal year ending July 31.
Impacts of COVID-19
In July 2020, Enzo was granted FDA Emergency Use Authorization
(EUA) for its molecular diagnostic and serological testing for COVID-19 and related antibody testing options. Enzo’s innovations
include virus-inactivating specimen collection media to lessen transmission risks for healthcare providers and clinical laboratory
personnel, the development of more relevant positive controls for the tests, and improved sensitivity. In the fourth quarter of
our fiscal year ended July 31, 2020, while accessions in our Clinical Services segment did not return to prior year levels, we
continued to see accession volume rebound. In that fourth quarter we partnered with pharmacies and state universities across New
York State to provide COVID-19 testing. Due to the continuing effects of the pandemic, accession volume in the 2021 period exceeded
accession volume in the sequential first fiscal quarter ended October 31, 2020 and the 2020 period due to COVID-19 testing, offsetting
reductions in non-COVID-19 accessions due to the restrictive effects of COVID-19. At this time it is too early to determine the
long term significance of the positive impact from increased COVID-19 testing and the Company’s proprietary product offerings
on revenue, profitability and cash flow.
Clinical Services revenues for the 2021 period were $24.0 million
compared to $12.5 million in the 2020 period, an increase of $11.5 million or 92% year-over-year. Due to COVID-19, diagnostic testing
volume measured by the total number of accessions for all our testing services increased 66% period over period, resulting in the
2021 period’s revenue increase. COVID-19 testing services have higher reimbursement rates than our core testing resulting
in an improvement in our overall liquidation rate for collections.
COVID-19 testing offset the impact of the period over period
decline in core testing volume as a result of the restrictive effects of COVID-19. Estimated collection amounts are subject to
the complexities and ambiguities of third party payer billing, reimbursement regulations and claims processing, as well as issues
unique to Medicare and Medicaid programs, and require us to consider the potential for adjustments when estimating variable consideration
in the recognition of revenue in the period that the related services are rendered. The effect of PAMA directly negatively impacted
reimbursements from Medicare and Medicaid in the 2021 and 2020 periods by approximately $0.4 million and $0.3 million, respectively.
Product revenues were $7.5 million in the 2021 period and $6.9
million in the 2020 period, an increase of $0.6 million or 9%. The negative effect of COVID-19 related government policies intended
to reduce the spread of the pandemic impacted our Products revenues in the U.S. markets more than in markets in the rest of the
world. In the 2021 period, the revenue decline in the U.S. market was fully offset by an increase in revenues sourced from markets
outside the U.S., due to their improvement in infections rates and a rebound in demand.
The cost of Clinical Services was $11.7 million in the 2021
period and $10.2 million in the 2020 period, an increase of $1.5 million from increased COVID-19 testing volume. Utilizing our
internal manufacturing capabilities we reduced some of our reliance on reagents sourced from third parties. The gross profit margin
on Clinical Services revenues in the 2021 period was 51% versus 18% in the 2020 period. In the 2021 period, liquidation rate improvements
and the high margin on COVID-19 testing offset the effect of reduced volumes of our genetics and core testing services.
The cost of Product revenues was $3.9 million in the 2021 period
and $3.3 million in the 2020 period, an increase of $0.6 million or 18%. The gross profit margin on Products was 47% in the 2021
period and 52% in the 2020 period, negatively impacted by a decline in the current period of higher margin sales in the U.S. market
due to COVID-19.
Research and development expenses were $0.8 million in the 2021
period and $1.1 million in the 2020 period, a decrease of $0.3 million or 24%. The decrease is attributable primarily to the Clinical
Services division, where many research and development resources were repurposed to testing services in the current period.
Selling, general and administrative expenses were $11.0 million
during the 2021 period versus $10.7 million during the 2020 period, an increase of $0.3 million or 3%. The Clinical Services expense
increased $0.5 million primarily due to higher sales commissions and other compensation paid primarily for higher revenues from
COVID-19, partially offset by the impact of cost savings initiatives undertaken throughout our fiscal year that ended July 31,
2020. The Life Sciences Products expense increased $0.1 million due to an increase in information technology costs. The Other segment
decreased $0.3 million primarily for lower self-insured healthcare benefit costs, compensation expense, and professional fees.
Legal and related expenses were $2.3 million during the 2021
period compared to $2.1 million in the 2020 period, an increase of $0.2 million or 11% year-over-year. There were contested proxy
activities in both periods, but the 2021 period also included activities related to identifying and appointing new directors to
the board and defending the Company in an action related to the board of directors.
Interest expense, net was $0.1 million in the 2021 period versus
income, net of $0.2 million in the 2020 period and represents interest on cash and cash equivalents net of interest expense, primarily
on a mortgage. During the 2021 period, the amount of investable cash was lower as were interest rates earned on deposits compared
to the 2020 period, due to the actions by the Federal Reserve to cut its target interest rates near zero in response to COVID-19.
The foreign currency revaluation gain recognized by the
Life Sciences Products segment during the 2021 period was $0.6 million compared to $0.1 million in the 2020 period, an
increase of $0.5 million. The larger revaluation gain was due to more significant appreciation of the British pound and Swiss
franc versus the U.S. dollar as of the end of the 2021 period. The appreciation of the British pound versus the U.S. dollar
was less significant as of the end of the 2020 period.
Results of Operations
Six months ended January 31, 2021
compared to January 31, 2020
(in 000s)
Comparative Financial Data for the Six Months Ended January
31,
|
|
2021
|
|
|
2020
|
|
|
Favorable (Unfavorable)
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
60,121
|
|
|
$
|
39,591
|
|
|
$
|
20,530
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
32,403
|
|
|
|
28,096
|
|
|
|
(4,307
|
)
|
|
|
(15
|
)
|
Research and development
|
|
|
1,552
|
|
|
|
2,119
|
|
|
|
567
|
|
|
|
27
|
|
Selling, general and administrative
|
|
|
21,027
|
|
|
|
21,832
|
|
|
|
805
|
|
|
|
4
|
|
Legal and related expenses
|
|
|
2,932
|
|
|
|
3,756
|
|
|
|
824
|
|
|
|
22
|
|
Total operating costs and expenses
|
|
|
57,914
|
|
|
|
55,803
|
|
|
|
(2,111
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
2,207
|
|
|
|
(16,212
|
)
|
|
|
18,419
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(100
|
)
|
|
|
408
|
|
|
|
(508
|
)
|
|
|
**
|
|
Other
|
|
|
33
|
|
|
|
199
|
|
|
|
(166
|
)
|
|
|
(83
|
)
|
Foreign currency gain
|
|
|
461
|
|
|
|
270
|
|
|
|
191
|
|
|
|
71
|
|
Total other income
|
|
|
394
|
|
|
|
877
|
|
|
|
(483
|
)
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,601
|
|
|
$
|
(15,335
|
)
|
|
$
|
17,936
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.05
|
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
47,895
|
|
|
|
47,557
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
47,905
|
|
|
|
47,557
|
|
|
|
|
|
|
|
|
|
** not meaningful
Consolidated Results:
The “2021 period” and the “2020 period”
refer to the six months ended January 31, 2021 and January 31, 2020, respectively, which represent the first two quarters of the
Company’s fiscal year ending July 31.
Clinical Services revenues for the 2021 period were $45.2
million compared to $25.3 million in the 2020 period, an increase of $19.9 million or 79% year-over-year. Due to COVID-19,
diagnostic testing volume measured by the total number of accessions for all our testing services increased 57% period over
period, resulting in the 2021 period’s revenue increase. COVID-19 testing services have higher reimbursement rates than
our core testing resulting in an improvement in our overall liquidation rate for collections. COVID-19 testing offset the
impact of the period over period decline in genetics and core testing volume as a result of the restrictive effects of
COVID-19. Estimated collection amounts are subject to the complexities and ambiguities of third party payer billing,
reimbursement regulations and claims processing, as well as issues unique to Medicare and Medicaid programs, and require us
to consider the potential for adjustments when estimating variable consideration in the recognition of revenue in the period
that the related services are rendered. The effect of PAMA directly negatively impacted reimbursements from Medicare and
Medicaid in the 2021 and 2020 periods by approximately $0.8 million and $0.7 million, respectively.
Product revenues were $14.9 million in the 2021 period and $14.3
million in the 2020 period, an increase of $0.6 million or 4%. The negative effect of COVID-19 related government policies intended
to reduce the spread of the pandemic impacted our Products revenues in the U.S. markets more than in markets in the rest of the
world. In the 2021 period, the revenue decline in the U.S. market was fully offset by an increase in revenues sourced from markets
outside the U.S., due to their improvement in infections rates and a rebound in demand.
The cost of Clinical Services was $24.7 million in the 2021
period and $21.2 million in the 2020 period, an increase of $3.5 million from increased COVID-19 testing volume. Utilizing our
internal manufacturing capabilities we reduced some of our reliance on reagents sourced from third parties. The gross profit margin
on Clinical Services revenues in the 2021 period was 45% versus 16% in the 2020 period. In the 2021 period, liquidation rate improvements
and the high margin on COVID-19 testing offset the effect of reduced volumes of our genetics and core testing services.
The cost of Product revenues was $7.7 million in the 2021 period
and $6.9 million in the 2020 period, an increase of $0.8 million or 12%. The gross profit margin on Products was 48% in the 2021
period and 52% in the 2020 period, negatively impacted by a decline in the current period of higher margin sales in the U.S. market
due to COVID-19.
Research and development expenses were $1.6 million in the 2021
period and $2.1 million in the 2020 period, a decrease of $0.5 million or 27%. The decrease is attributable primarily to the Clinical
Services division, where many research and development resources were repurposed to testing services in the current period.
Selling, general and administrative expenses were $21.0 million
during the 2021 period versus $21.8 million during the 2020 period, a decrease of $0.8 million or 4%. The Other segment decreased
$1.0 million primarily for lower self-insured healthcare benefit costs, share based compensation expense, and professional fees.
The Life Sciences Products expense decreased $0.2 million due to lower travel and other in person marketing expenses. The Clinical
Services expense increased $0.4 million primarily due to higher sales commissions and other compensation paid primarily for higher
revenues from COVID-19, partially offset by the impact of cost savings initiatives undertaken throughout our fiscal year that ended
July 31, 2020.
Legal and related expenses were $2.9 million during the 2021
period compared to $3.7 million in the 2020 period, a decrease of $0.8 million or 22%. There were contested proxy activities in
both periods, but we incurred legal expenses relating to the contested proxy throughout the 2020 period compared to only during
the latter half of the 2021 period.
Interest expense, net was $0.1 million in the 2021 period
versus interest income, net of $0.4 million in the 2020 period and represents interest on cash and cash equivalents net of
interest expense, primarily on a mortgage. During the 2021 period, the amount of investable cash was lower as were interest
rates earned on deposits compared to the 2020 period, due to the actions by the Federal Reserve to cut its target interest
rates to near zero in response to COVID-19.
The foreign currency revaluation gain recognized by the
Life Sciences Products segment during the 2021 period was $0.5 million compared to $0.3 million in the 2020 period, an
increase of $0.2 million. The larger revaluation gain was due to more significant appreciation of the British pound and Swiss
franc versus the U.S. dollar as of the end of the 2021 period. The appreciation of the British pound versus the U.S. dollar
was less significant as of the end of the 2020 period.
Liquidity and Capital Resources
At January 31, 2021, the Company had cash and cash equivalents
of $44.5 million of which $1.1 million was in foreign accounts, as compared to cash and cash equivalents of $47.9 million, of which
$0.9 million was in foreign accounts at July 31, 2020. It is the Company’s current intent to permanently reinvest these foreign
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 $39.9 million at January 31, 2021, an increase of $3.9 million, compared to $36.0
million at July 31, 2020. The increase in working capital during the six months ended January 31, 20201 was primarily due to increases
in current assets such as accounts receivable and inventories, partially offset by a decrease in cash, and a decrease in accounts
payable.
Net cash used in operating activities during the fiscal 2021
period was approximately $2.0 million as compared to $8.0 million during the fiscal 2020 period, an improvement of approximately
$6.0 million. The net cash used in the 2021 period was due primarily to net income of $2.6 million and non-cash expenses of approximately
$1.6 million which were more than offset by a net increase of $6.2 million in operating assets and liabilities including, but not
limited to, accounts receivable and inventories. The net cash used in the 2020 period was due primarily to a net loss of $15.3
million partially offset by non-cash expenses of $2.0 million and a net decrease of $5.3 million in operating assets and liabilities.
Net cash used in investing activities in fiscal 2021 was approximately
$1.1 million as compared to $0.4 million in the 2020 period, an increase of $0.7 million, all for capital expenditures.
Cash used in financing activities in both fiscal 2021 and fiscal 2020 was approximately $0.2 million for payments related
to a mortgage and finance leases.
As of January 31, 2021, we have a $7.0 million loan from the
Small Business Administration Paycheck Protection Program (PPP) received during the fiscal year ended July 31, 2020. The
PPP loan bears interest of 1% per annum. All or a portion of the PPP Loan, including interest, could be forgiven by the SBA by
applying for forgiveness and providing acceptable documentation that demonstrates the funds were used as required by the terms
of forgiveness and in accordance with the SBA’s requirements. Due to complexities with respect to loan forgiveness calculations
and government pronouncements with respect to expenditure eligibility, we did not recognize any loan forgiveness as of January
31, 2021 and have classified the loan as other short term debt as we expect to earn loan forgiveness on most, if not all of the
loan during the current fiscal year. See Note 7 in the notes to consolidated financial statements.
As of January 31, 2021 we have a mortgage principal
balance of $4.2 million entered into for the purchase of a building facility, which bears a fixed interest rate of 5.09% per
annum. It requires monthly mortgage payments of $30. The Company’s obligations under the mortgage agreement are secured
by the new facility and by a $750 cash collateral deposit with the mortgagee as additional security, which is included in
other assets as of January 31 2021. Effective October 19, 2020, the Company and the mortgagee agreed to a covenant
restructure whereby the mortgagee waived the Company’s financial ratio covenant for the fiscal period ended July 31,
2020 and modified the mortgage to replace that covenant with a liquidity covenant. The liquidity covenant requires that we
own and maintain at all times, and throughout the remaining term of the loan, at least $25 million of liquid assets, defined
as time deposits, money market accounts and commercial paper, and obligations issued by the U.S. government or any of its
agencies. The cash collateral agreement was also modified to require compliance with the liquidity covenant for two
consecutive fiscal years before the collateral is released back to us. As of January 31, 2021, the Company was in compliance
with financial and liquidity covenants related to this mortgage.
The Company believes that its current cash and cash equivalents
level, and utilization of the Controlled Equity Offering program if necessary, as disclosed in Note 10 in the Notes to Consolidated
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, 2020, 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, 2020. 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 12 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, 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, as permitted under rules promulgated by the Security and Exchange
Commission. 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, operating lease liabilities, goodwill 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.
Revenues – Clinical Services
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 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. We expect the efforts
to impose reduced reimbursement, more stringent payment policies, and utilization and cost controls by government and other payers
to continue. 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 January 31, 2021 and 2020, the
contractual adjustment percentages, determined using current and historical reimbursement statistics, were 81.7% and 88.8%, respectively,
of gross billings, respectively. During the six months ended January 31, 2021 and 2020, the contractual adjustment percentages,
determined using current and historical reimbursement statistics, were 82.7% and 88.5%, respectively, of gross billings, respectively.
The improvement in both periods is the result of COVID-19 testing reimbursements more closely matching our gross billing charges
and fewer payer denials than what we experience for our core testing services .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 services revenues of approximately
$2.6 million and $2.2 million for the six months periods ended January 31, 2021 and 2020 respectively, and a change in the net
accounts receivable of approximately $0.7 million as of January 31, 2021.
Our clinical services 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.
|
Government assistance grant income
Government assistance grants which are unconditional when received
and intended to compensate for expenses incurred or replace lost revenues are recognized when those expenses are incurred or during
the period that the lost revenues is experienced, and are included in revenues.
Accounts Receivable
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 services and by products. Net receivables for Clinical Services are detailed by billing category and as a percent
to its total net receivables. At January 31, 2021 and July 31, 2020, approximately 70% of the Company’s net accounts receivable
relates to its Clinical Laboratory Services business, which operates in the New York, New Jersey and Connecticut medical communities.
The accounts receivable balance for Life Science products includes
foreign receivables of $1.2 million or 32% and $1.0 million or 34% of its total receivables as of January 31, 2021 and July 31,
2020, respectively.
Net accounts receivable
Billing category
|
|
As of
January 31, 2021
|
|
|
As of
July 31, 2020
|
|
Clinical Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party payers
|
|
$
|
4,617
|
|
|
|
55
|
%
|
|
$
|
2,455
|
|
|
|
40
|
%
|
Patient self-pay
|
|
|
2,266
|
|
|
|
27
|
|
|
|
2,044
|
|
|
|
33
|
|
Medicare
|
|
|
1,482
|
|
|
|
17
|
|
|
|
884
|
|
|
|
14
|
|
HMO’s
|
|
|
50
|
|
|
|
1
|
|
|
|
797
|
|
|
|
13
|
|
Total Clinical Services
|
|
|
8,415
|
|
|
|
100
|
%
|
|
|
6,180
|
|
|
|
100
|
%
|
Total Life Sciences
|
|
|
3,680
|
|
|
|
|
|
|
|
2,961
|
|
|
|
|
|
Total accounts receivable - net
|
|
$
|
12,095
|
|
|
|
|
|
|
$
|
9,141
|
|
|
|
|
|
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 clinical 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 following table indicates the Clinical Services 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 January 31, 2021
|
|
Total
|
|
|
%
|
|
|
Third
Party Payers
|
|
|
%
|
|
|
Medicare
|
|
|
%
|
|
|
Self-Pay
|
|
|
%
|
|
|
HMO’s
|
|
|
%
|
|
1-30 days
|
|
$
|
24,595
|
|
|
|
35
|
|
|
$
|
16,655
|
|
|
|
35
|
|
|
$
|
4,106
|
|
|
|
36
|
|
|
$
|
1,671
|
|
|
|
21
|
|
|
$
|
2,163
|
|
|
|
72
|
|
31-60 days
|
|
|
8,106
|
|
|
|
12
|
|
|
|
5,475
|
|
|
|
11
|
|
|
|
949
|
|
|
|
8
|
|
|
|
1,474
|
|
|
|
19
|
|
|
|
208
|
|
|
|
7
|
|
61-90 days
|
|
|
5,786
|
|
|
|
8
|
|
|
|
3,725
|
|
|
|
8
|
|
|
|
831
|
|
|
|
7
|
|
|
|
1,159
|
|
|
|
15
|
|
|
|
71
|
|
|
|
2
|
|
91-120 days
|
|
|
6,068
|
|
|
|
9
|
|
|
|
3,889
|
|
|
|
8
|
|
|
|
874
|
|
|
|
8
|
|
|
|
1,149
|
|
|
|
15
|
|
|
|
156
|
|
|
|
5
|
|
121-150 days
|
|
|
6,164
|
|
|
|
9
|
|
|
|
4,103
|
|
|
|
9
|
|
|
|
1,097
|
|
|
|
10
|
|
|
|
804
|
|
|
|
10
|
|
|
|
160
|
|
|
|
5
|
|
Greater than 150 days
|
|
|
19,594
|
|
|
|
28
|
|
|
|
14,320
|
|
|
|
30
|
|
|
|
3,482
|
|
|
|
31
|
|
|
|
1,549
|
|
|
|
20
|
|
|
|
243
|
|
|
|
8
|
|
Totals
|
|
$
|
70,313
|
|
|
|
100
|
%
|
|
$
|
48,167
|
|
|
|
100
|
%
|
|
$
|
11,339
|
|
|
|
100
|
%
|
|
$
|
7,806
|
|
|
|
100
|
%
|
|
$
|
3,001
|
|
|
|
100
|
%
|
As
of July 31, 2020
|
|
Total
|
|
|
%
|
|
|
Third
Party Payers
|
|
|
%
|
|
|
Medicare
|
|
|
%
|
|
|
Self-Pay
|
|
|
%
|
|
|
HMO’s
|
|
|
%
|
|
1-30 days
|
|
$
|
21,074
|
|
|
|
44
|
|
|
$
|
13,620
|
|
|
|
46
|
|
|
$
|
3,897
|
|
|
|
42
|
|
|
$
|
1,769
|
|
|
|
27
|
|
|
$
|
1,788
|
|
|
|
94
|
|
31-60 days
|
|
|
7,080
|
|
|
|
15
|
|
|
|
4,588
|
|
|
|
15
|
|
|
|
1,081
|
|
|
|
12
|
|
|
|
1,307
|
|
|
|
20
|
|
|
|
104
|
|
|
|
5
|
|
61-90 days
|
|
|
3,616
|
|
|
|
8
|
|
|
|
2,358
|
|
|
|
9
|
|
|
|
618
|
|
|
|
7
|
|
|
|
632
|
|
|
|
10
|
|
|
|
8
|
|
|
|
1
|
|
91-120 days
|
|
|
1,474
|
|
|
|
3
|
|
|
|
940
|
|
|
|
3
|
|
|
|
243
|
|
|
|
3
|
|
|
|
284
|
|
|
|
4
|
|
|
|
7
|
|
|
|
—
|
|
121-150 days
|
|
|
2,614
|
|
|
|
6
|
|
|
|
1,594
|
|
|
|
5
|
|
|
|
367
|
|
|
|
4
|
|
|
|
649
|
|
|
|
10
|
|
|
|
4
|
|
|
|
—
|
|
Greater than 150 days
|
|
|
11,506
|
|
|
|
24
|
|
|
|
6,518
|
|
|
|
22
|
|
|
|
3,051
|
|
|
|
32
|
|
|
|
1,936
|
|
|
|
29
|
|
|
|
1
|
|
|
|
—
|
|
Totals
|
|
$
|
47,364
|
|
|
|
100
|
%
|
|
$
|
29,618
|
|
|
|
100
|
%
|
|
$
|
9,257
|
|
|
|
100
|
%
|
|
$
|
6,577
|
|
|
|
100
|
%
|
|
$
|
1,912
|
|
|
|
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.
Leases - right of use assets and operating lease liabilities
The Company determines if an arrangement is or contains a lease
at contract inception. The Company leases buildings, office space, patient service centers, and equipment primarily through operating
leases, and equipment through a limited number of finance leases. Generally, a right-of-use asset, representing the right to use
the underlying asset during the lease term, and a lease liability, representing the payment obligation arising from the lease,
are recognized on the balance sheet at lease commencement based on the present value of the payment obligation. For operating leases,
expense is recognized on a straight-line basis over the lease term. For finance leases, interest expense on the lease liability
is recognized using the effective interest method and amortization of the right-of-use asset is recognized on a straight-line basis
over the shorter of the estimated useful life of the asset or the lease term. Short-term leases with an initial term of 12 months
or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over
the lease term. The Company primarily uses its incremental borrowing rate in determining the present value of lease payments as
the Company’s leases generally do not provide an implicit rate. The Company has lease agreements with (i) right-of-use asset
payments and (ii) non-lease components (i.e. payments related to maintenance fees, utilities, etc.,) which have generally been
combined and accounted for as a single lease component.
On at least an annual basis, we perform a review of our business
to determine if events or changes in circumstances have occurred that indicate that it is more likely than not that the carrying
amount of an asset group, including long lived assets such as right of use assets, is not recoverable. If such events or changes
in circumstances were deemed to have occurred, we would perform an impairment test of such long lived assets and record any noted
impairment loss. Should the impact of the COVID-19 pandemic become significantly worse than currently expected, it is possible
that we could incur impairment charges on long lived assets in the future.
Goodwill
Goodwill represents the excess of the cost of an acquisition
over the fair value of the net assets acquired. 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 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 a quantitative test 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 its fair value, not to exceed
the total amount of goodwill and intangibles allocated to the reporting unit.
On at least an annual basis, we perform a review of our business
to determine if events or changes in circumstances have occurred that indicate that it is more likely than not that the fair value
of a reporting unit with goodwill is less than its carrying value. If such events or changes in circumstances were deemed to have
occurred, we would perform an impairment test of goodwill and record any noted impairment loss. Should the impact of the COVID-19
pandemic become significantly worse than currently expected, it is possible that we could incur impairment charges in the future.