Item
1 Financial Statements
ENZO
BIOCHEM, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
|
|
April 30,
2021
|
|
|
July 31,
2020
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,089
|
|
|
$
|
47,865
|
|
Marketable securities
|
|
|
29,932
|
|
|
|
—
|
|
Accounts receivable, net
|
|
|
11,475
|
|
|
|
9,141
|
|
Inventories
|
|
|
11,007
|
|
|
|
7,784
|
|
Prepaid expenses
|
|
|
3,838
|
|
|
|
3,975
|
|
Total current assets
|
|
|
71,341
|
|
|
|
68,765
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment, net
|
|
|
15,625
|
|
|
|
14,482
|
|
Right-of-use assets
|
|
|
17,411
|
|
|
|
19,916
|
|
Goodwill
|
|
|
7,452
|
|
|
|
7,452
|
|
Intangible assets, net
|
|
|
315
|
|
|
|
538
|
|
Other, including restricted cash of $750
|
|
|
1,479
|
|
|
|
1,385
|
|
Total assets
|
|
$
|
113,623
|
|
|
$
|
112,538
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable - trade
|
|
|
6,014
|
|
|
|
8,503
|
|
Accrued liabilities
|
|
|
12,528
|
|
|
|
12,833
|
|
Current portion of operating lease liabilities
|
|
|
3,442
|
|
|
|
4,121
|
|
Other current liabilities and finance leases short term
|
|
|
230
|
|
|
|
344
|
|
Other short term debt
|
|
|
7,000
|
|
|
|
7,000
|
|
Total current liabilities
|
|
|
29,214
|
|
|
|
32,801
|
|
|
|
|
|
|
|
|
|
|
Other liabilities and finance leases long term
|
|
|
136
|
|
|
|
192
|
|
Operating lease liabilities, non-current
|
|
|
14,916
|
|
|
|
16,679
|
|
Long term debt - net
|
|
|
4,390
|
|
|
|
4,485
|
|
Total liabilities
|
|
$
|
48,656
|
|
|
$
|
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: 48,471,771 at April 30, 2021 and 47,895,050 at July 31, 2020
|
|
|
485
|
|
|
|
479
|
|
Additional paid-in capital
|
|
|
336,859
|
|
|
|
334,473
|
|
Accumulated deficit
|
|
|
(273,645
|
)
|
|
|
(278,252
|
)
|
Accumulated other comprehensive income
|
|
|
1,268
|
|
|
|
1,681
|
|
Total stockholders’ equity
|
|
|
64,967
|
|
|
|
58,381
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
113,623
|
|
|
$
|
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
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Revenues
|
|
$
|
32,797
|
|
|
$
|
16,903
|
|
|
$
|
92,918
|
|
|
$
|
56,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
16,751
|
|
|
|
12,478
|
|
|
|
49,154
|
|
|
|
40,574
|
|
Research and development
|
|
|
836
|
|
|
|
1,163
|
|
|
|
2,388
|
|
|
|
3,282
|
|
Selling, general and administrative
|
|
|
12,082
|
|
|
|
11,061
|
|
|
|
33,109
|
|
|
|
32,893
|
|
Legal and related expense
|
|
|
1,061
|
|
|
|
1,925
|
|
|
|
3,993
|
|
|
|
5,681
|
|
Total operating costs and expenses
|
|
|
30,730
|
|
|
|
26,627
|
|
|
|
88,644
|
|
|
|
82,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
2,067
|
|
|
|
(9,724
|
)
|
|
|
4,274
|
|
|
|
(25,936
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
60
|
|
|
|
87
|
|
|
|
(40
|
)
|
|
|
495
|
|
Other
|
|
|
(88
|
)
|
|
|
135
|
|
|
|
(55
|
)
|
|
|
334
|
|
Foreign exchange (loss) gain
|
|
|
(33
|
)
|
|
|
(358
|
)
|
|
|
428
|
|
|
|
(88
|
)
|
Total other income (expense)
|
|
|
(61
|
)
|
|
|
(136
|
)
|
|
|
333
|
|
|
|
741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
2,006
|
|
|
|
(9,860
|
)
|
|
|
4,607
|
|
|
|
(25,195
|
)
|
Income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss)
|
|
$
|
2,006
|
|
|
$
|
(9,860
|
)
|
|
$
|
4,607
|
|
|
$
|
(25,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
(0.21
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.53
|
)
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
(0.21
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
48,391
|
|
|
|
47,780
|
|
|
|
48,097
|
|
|
|
47,668
|
|
Diluted
|
|
|
48,788
|
|
|
|
47,780
|
|
|
|
48,201
|
|
|
|
47,668
|
|
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
April 30,
|
|
|
Nine Months Ended
April 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net income (loss)
|
|
$
|
2,006
|
|
|
$
|
(9,890
|
)
|
|
$
|
4,607
|
|
|
$
|
(25,195
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(2
|
)
|
|
|
284
|
|
|
|
(413
|
)
|
|
|
(70
|
)
|
Comprehensive income (loss)
|
|
$
|
2,004
|
|
|
$
|
(9,576
|
)
|
|
$
|
4,194
|
|
|
$
|
(25,265
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements.
ENZO
BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Months Ended April 30, 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 January 31, 2021
|
|
|
48,227,750
|
|
|
$
|
482
|
|
|
$
|
335,688
|
|
|
$
|
(275,651
|
)
|
|
$
|
1,270
|
|
|
$
|
61,789
|
|
Net income for the period ended April 30, 2021
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,006
|
|
|
|
—
|
|
|
|
2,006
|
|
Share-based compensation charges
|
|
|
—
|
|
|
|
—
|
|
|
|
297
|
|
|
|
—
|
|
|
|
—
|
|
|
|
297
|
|
Exercise of stock options
|
|
|
34,667
|
|
|
|
1
|
|
|
|
96
|
|
|
|
—
|
|
|
|
—
|
|
|
|
97
|
|
Vesting of restricted stock
|
|
|
817
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Issuance of common stock for employee 401(k) plan match
|
|
|
208,537
|
|
|
|
2
|
|
|
|
778
|
|
|
|
—
|
|
|
|
—
|
|
|
|
780
|
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Balance at April 30, 2021
|
|
|
48,471,771
|
|
|
$
|
485
|
|
|
$
|
336,859
|
|
|
$
|
(273,645
|
)
|
|
$
|
1,268
|
|
|
$
|
64,967
|
|
|
|
Common Stock
Shares Issued
|
|
|
Common Stock
Amount
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated Other Comprehensive
Income
|
|
|
Total
Stockholders’
Equity
|
|
Balance at January 31, 2020
|
|
|
47,557,618
|
|
|
$
|
476
|
|
|
$
|
333,225
|
|
|
$
|
(265,067
|
)
|
|
$
|
2,226
|
|
|
$
|
70,860
|
|
Net (loss) for the period ended April 30, 2020
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,860
|
)
|
|
|
—
|
|
|
|
(9,860
|
)
|
Share-based compensation charges
|
|
|
—
|
|
|
|
—
|
|
|
|
209
|
|
|
|
—
|
|
|
|
—
|
|
|
|
209
|
|
Issuance of common stock for employee 401(k) plan match
|
|
|
333,265
|
|
|
|
3
|
|
|
|
834
|
|
|
|
—
|
|
|
|
—
|
|
|
|
837
|
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
284
|
|
|
|
284
|
|
Balance at April 30, 2020
|
|
|
47,890,883
|
|
|
$
|
479
|
|
|
$
|
334,268
|
|
|
$
|
(274,927
|
)
|
|
$
|
2,510
|
|
|
$
|
62,330
|
|
The
accompanying notes are an integral part of these consolidated financial statements
ENZO
BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Nine Months Ended April 30, 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 April 30, 2021
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,607
|
|
|
|
—
|
|
|
|
4,607
|
|
Exercise of stock options
|
|
|
34,667
|
|
|
|
1
|
|
|
|
96
|
|
|
|
—
|
|
|
|
—
|
|
|
|
97
|
|
Share-based compensation charges
|
|
|
—
|
|
|
|
—
|
|
|
|
640
|
|
|
|
—
|
|
|
|
—
|
|
|
|
640
|
|
Vesting of restricted stock
|
|
|
817
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Issuance of common stock for bonus payments
|
|
|
332,700
|
|
|
|
3
|
|
|
|
872
|
|
|
|
—
|
|
|
|
—
|
|
|
|
875
|
|
Issuance of common stock for employee 401(k) plan match
|
|
|
208,537
|
|
|
|
2
|
|
|
|
778
|
|
|
|
—
|
|
|
|
—
|
|
|
|
780
|
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(413
|
)
|
|
|
(413
|
)
|
Balance at April 30, 2021
|
|
|
48,471,771
|
|
|
$
|
485
|
|
|
$
|
336,859
|
|
|
$
|
(273,645
|
)
|
|
$
|
1,268
|
|
|
$
|
64,967
|
|
|
|
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 April 30, 2020
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(25,195
|
)
|
|
|
—
|
|
|
|
(25,195
|
)
|
Share-based compensation charges
|
|
|
—
|
|
|
|
—
|
|
|
|
728
|
|
|
|
—
|
|
|
|
—
|
|
|
|
728
|
|
Vesting of restricted stock
|
|
|
811
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Issuance of common stock for employee 401(k) plan match
|
|
|
333,265
|
|
|
|
3
|
|
|
|
836
|
|
|
|
—
|
|
|
|
—
|
|
|
|
839
|
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(70
|
)
|
|
|
(70
|
)
|
Balance at April 30, 2020
|
|
|
47,890,883
|
|
|
$
|
479
|
|
|
$
|
334,268
|
|
|
$
|
(274,927
|
)
|
|
$
|
2,510
|
|
|
$
|
62,330
|
|
The
accompanying notes are an integral part of these consolidated financial statements
ENZO
BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
|
|
Nine Months Ended
April 30,
|
|
|
|
2021
|
|
|
2020
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,607
|
|
|
$
|
(25,195
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property, plant and equipment
|
|
|
1,724
|
|
|
|
1,700
|
|
Amortization of intangible assets
|
|
|
244
|
|
|
|
451
|
|
Share-based compensation charges
|
|
|
640
|
|
|
|
728
|
|
Accrual for share-based 401(k) employer match expense
|
|
|
559
|
|
|
|
631
|
|
Unrealized loss on marketable securities
|
|
|
91
|
|
|
|
—
|
|
Foreign exchange (gain)/loss
|
|
|
(494
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,292
|
)
|
|
|
3,942
|
|
Inventories
|
|
|
(3,159
|
)
|
|
|
(147
|
)
|
Prepaid expenses and other assets
|
|
|
29
|
|
|
|
223
|
|
Accounts payable – trade
|
|
|
(2,473
|
)
|
|
|
1,211
|
|
Accrued liabilities, other current liabilities and other liabilities
|
|
|
803
|
|
|
|
4,330
|
|
Total adjustments
|
|
|
(4,328
|
)
|
|
|
13,077
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
279
|
|
|
|
(12,118
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2,870
|
)
|
|
|
(719
|
)
|
Purchases of marketable securities
|
|
|
(30,023
|
)
|
|
|
—
|
|
Net cash used in investing activities
|
|
|
(32,893
|
)
|
|
|
(719
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under government programs and mortgage agreement
|
|
|
—
|
|
|
|
7,412
|
|
Proceeds from exercise of stock options
|
|
|
97
|
|
|
|
—
|
|
Repayments under mortgage agreement and finance leases
|
|
|
(283
|
)
|
|
|
(321
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(186
|
)
|
|
|
7,091
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
24
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents and restricted cash
|
|
|
(32,776
|
)
|
|
|
(5,739
|
)
|
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
|
|
$
|
15,839
|
|
|
$
|
55,157
|
|
|
|
|
|
|
|
|
|
|
The composition of total cash and cash equivalents and restricted cash is as follows:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,089
|
|
|
$
|
54,407
|
|
Restricted cash included in other assets
|
|
|
750
|
|
|
|
750
|
|
Total cash and cash equivalents and restricted cash
|
|
$
|
15,839
|
|
|
$
|
55,157
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
ENZO
BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of April 30, 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 April 30, 2021, the consolidated statements of operations, comprehensive income
(loss) and stockholders’ equity for the three and nine months ended April 30, 2021, and the consolidated statements of cash flows
for the nine months ended April 30, 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 nine months ended April
30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2021.
While
the rate of transmission of COVID-19 is declining in the US and Europe, it continues to spread in other parts of the world and negatively
impact the world economy. 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 remaining closed or continuing to severely curtail their operations (voluntarily or in response to government
orders), and the continuation 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 continue to be affected by the COVID-19 pandemic will largely depend on both current and future developments,
including its duration, the emergence and spread of variants, its treatment with authorized vaccines and vaccines in various stages of
development and federal approval, work and travel advisories and restrictions, and the timing of their easing, all of which are highly
uncertain and cannot be reasonably predicted at this time. Global supply chain issues due to the pandemic continue to 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.
COVID
19
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 April 30, 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. We fully expect COVID-19 volume to decline in the quarters ahead as the percentage of Americans
who are vaccinated increases.
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 36% and 35% of Clinical Services net revenue for
the three and nine month periods ended April 30, 2021. Other than the Medicare program, one provider whose programs are included in those
categories represents approximately 21% of Clinical Services net revenue for both the three and nine month periods ended April 30, 2020.
As of April 30, 2021, the Medicare program represents 15%, a provider in the third party category represents 13%, and a government payer
in the patient self-pay category represents 10% of Clinical Services net receivables.
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.
Due
to our tax net operating loss carryforwards, we do not provide for an income tax provision on pre-tax income in the fiscal 2021 periods.
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
losses.
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.
|
Marketable
securities
The
Company limits its credit risk associated with investments by investing in a mutual fund and an exchange traded fund (ETF) which hold
highly rated corporate bonds, asset backed securities, municipal bonds, mortgage obligations and government obligations. These investments
are classified as trading securities and are Level 1 fair value investments. As of April 30, 2021, the fair value of these investments
was $29,932 and the cost basis was $30,023. We recognized unrealized losses of $91 for the three and nine months ended April 30, 2021.
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 nine months ended April 30, 2021, approximately 397,000 and 104,000 weighted average stock options and performance
stock units respectively were included in the calculation of diluted weighted average shares outstanding. As a result of the net loss
for the three and nine month periods ended April 30, 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 and performance stock units because to
do so would be antidilutive. For the three and nine months ended April 30, 2020, approximately 40,000 and 56,000 respectively, of potential
common shares (“in the money options”) were excluded from the calculation of diluted earnings per share.
For
the three and nine months ended April 30, 2021, the effect of approximately 814,000 and 1,686,000 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 nine months ended April 30, 2020, the effect of approximately 2,201,000 and 1,805,000 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 76% of the Company’s total revenues for
the three and nine months ended April 30, 2021 and 58% of the Company’s total revenues for the three and nine months ended April
30, 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
April 30,
2021
|
|
|
Three months ended
April 30,
2020
|
|
Revenue category
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party payer
|
|
$
|
16,135
|
|
|
|
64
|
%
|
|
$
|
5,082
|
|
|
|
52
|
%
|
Medicare
|
|
|
2,952
|
|
|
|
12
|
|
|
|
1,870
|
|
|
|
19
|
|
Patient self-pay
|
|
|
2,468
|
|
|
|
10
|
|
|
|
1,655
|
|
|
|
17
|
|
HMO’s
|
|
|
3,463
|
|
|
|
14
|
|
|
|
1,132
|
|
|
|
12
|
|
Total
|
|
$
|
25,018
|
|
|
|
100
|
%
|
|
$
|
9,739
|
|
|
|
100
|
%
|
|
|
Nine months ended
April 30,
2021
|
|
|
Nine months ended
April 30,
2020
|
|
Revenue category
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party payer
|
|
$
|
44,138
|
|
|
|
63
|
%
|
|
$
|
17,878
|
|
|
|
51
|
%
|
Medicare
|
|
|
10,265
|
|
|
|
15
|
|
|
|
8,048
|
|
|
|
23
|
|
Patient self-pay
|
|
|
6,524
|
|
|
|
9
|
|
|
|
4,621
|
|
|
|
13
|
|
HMO’s
|
|
|
9,302
|
|
|
|
13
|
|
|
|
4,485
|
|
|
|
13
|
|
Total
|
|
$
|
70,229
|
|
|
|
100
|
%
|
|
$
|
35,032
|
|
|
|
100
|
%
|
For
nine months ended April 30, 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
April 30
|
|
|
Nine
Months Ended
April 30
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
United States
|
|
$
|
3,941
|
|
|
$
|
3,520
|
|
|
$
|
11,410
|
|
|
$
|
11,854
|
|
Europe
|
|
|
2,732
|
|
|
|
1,802
|
|
|
|
7,798
|
|
|
|
5,777
|
|
Asia Pacific
|
|
|
1,106
|
|
|
|
1,095
|
|
|
|
3,481
|
|
|
|
3,084
|
|
Products revenue
|
|
$
|
7,779
|
|
|
$
|
6,417
|
|
|
$
|
22,689
|
|
|
$
|
20,715
|
|
Note
4 – Supplemental disclosure for statement of cash flows
In
the nine months ended April 30, 2021 and 2020, interest paid by the Company was $177 and $204, respectively.
For
the nine months ended April 30, 2021 and 2020, the net reductions in the measurement of right of use assets and liabilities included
in cash flows from operating activities was $67 and $127, 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. During the nine months ended April 30, 2021 and 2020, the Company issued 208,537 and 333,265 shares of common stock in connection
with its share based 401(k) employer match in the amount of $780 and $836, respectively.
Note
5 – Inventories
Inventories
consist of the following at April 30:
|
|
April 30,
2021
|
|
|
July 31,
2020
|
|
Raw materials
|
|
$
|
1,287
|
|
|
$
|
1,019
|
|
Work in process
|
|
|
2,489
|
|
|
|
2,587
|
|
Finished products
|
|
|
7,231
|
|
|
|
4,178
|
|
|
|
$
|
11,007
|
|
|
$
|
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 April 30, 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
|
|
|
—
|
|
|
|
(244
|
)
|
|
|
(244
|
)
|
Foreign currency translation
|
|
|
88
|
|
|
|
(67
|
)
|
|
|
21
|
|
April 30, 2021
|
|
$
|
27,774
|
|
|
$
|
(27,459
|
)
|
|
$
|
315
|
|
Intangible
assets, all finite-lived, consist of the following:
|
|
April 30, 2021
|
|
|
July 31, 2020
|
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Patents
|
|
$
|
11,027
|
|
|
$
|
(11,027
|
)
|
|
$
|
—
|
|
|
$
|
11,027
|
|
|
|
(11,014
|
)
|
|
$
|
13
|
|
Customer relationships
|
|
|
12,058
|
|
|
|
(11,743
|
)
|
|
|
315
|
|
|
|
12,003
|
|
|
|
(11,478
|
)
|
|
|
525
|
|
Website and acquired content
|
|
|
1,025
|
|
|
|
(1,025
|
)
|
|
|
—
|
|
|
|
1,022
|
|
|
|
(1,022
|
)
|
|
|
—
|
|
Licensed technology and other
|
|
|
494
|
|
|
|
(494
|
)
|
|
|
—
|
|
|
|
483
|
|
|
|
(483
|
)
|
|
|
—
|
|
Trademarks
|
|
|
3,170
|
|
|
|
(3,170
|
)
|
|
|
—
|
|
|
|
3,151
|
|
|
|
(3,151
|
)
|
|
|
—
|
|
Total
|
|
$
|
27,774
|
|
|
$
|
(27,459
|
)
|
|
$
|
315
|
|
|
$
|
27,686
|
|
|
|
(27,148
|
)
|
|
$
|
538
|
|
At April 30, 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
April 30, 2021, the weighted average remaining useful life of all intangible assets was approximately one year.
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 $55 at April 30, 2021. At April 30, 2021, the balance owed by the subsidiary
under the mortgage agreement was approximately $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 April 30, 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 nine months ended April 30, 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 April 30, 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
April 30, 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 April 30, 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 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 April 30, 2021 and have classified the loan as other short term debt as the loan matures
in less than one year. We expect to earn loan forgiveness on all of the loan proceeds and have accrued no interest. The SBA intends to
audit loans in excess of $2.0 million. The SBA also required 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. In April 2021 we submitted our PPP loan forgiveness application and the loan necessity
questionnaire to the SBA through Citibank N.A., our intermediary lending bank. According to the SBA, its review may take up to 90 calendar
days from the receipt of the loan forgiveness application and loan necessity questionnaire. No assurance can be given that we will obtain
forgiveness of the PPP loan in whole or in part by July 31, 2021.
Minimum
future annual principal payments under these agreements as of April 30, 2021 are as follows:
July 31,
|
|
Total
|
|
2021
|
|
$
|
7,037
|
|
2022
|
|
|
152
|
|
2023
|
|
|
160
|
|
2024
|
|
|
167
|
|
2025
|
|
|
603
|
|
Thereafter
|
|
|
3,476
|
|
Total principal payments
|
|
|
11,595
|
|
Less: current portion, included in other current liabilities and other short term debt
|
|
|
(7,150
|
)
|
Unamortized mortgage cost
|
|
|
(55
|
)
|
Long term debt - net
|
|
$
|
4,390
|
|
Note
8 - Leases
The
Company follows ASU No. 2016-02 “Leases (Topic 842)”, which requires leases with durations greater than twelve months to
be recognized on the balance sheet.
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
|
|
April 30, 2021
|
|
Assets
|
|
|
|
|
|
|
Operating
|
|
Right-of-use assets
|
|
$
|
17,411
|
|
Finance
|
|
Property, plant and equipment, net (a)
|
|
|
267
|
|
Total lease assets
|
|
|
|
$
|
17,678
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Operating
|
|
Current portion of operating lease liabilities
|
|
$
|
3,442
|
|
Finance
|
|
Finance leases short term
|
|
|
72
|
|
|
|
|
|
|
|
|
Non-current:
|
|
|
|
|
|
|
Operating
|
|
Operating lease liabilities, non-current
|
|
|
14,916
|
|
Finance
|
|
Other liabilities and finance leases long term
|
|
|
136
|
|
Total lease liabilities
|
|
|
|
$
|
18,566
|
|
(a)
|
Accumulated amortization
of finance lease assets was approximately $1.1 million as of April 30, 2021.
|
Components
of lease cost were as follows:
|
|
Three months ended
April 30,
|
|
|
Nine months ended
April 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Operating lease cost
|
|
$
|
1,271
|
|
|
$
|
1,466
|
|
|
$
|
4,265
|
|
|
$
|
4,414
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets
|
|
|
19
|
|
|
|
61
|
|
|
|
118
|
|
|
|
177
|
|
Interest on lease liabilities
|
|
|
3
|
|
|
|
7
|
|
|
|
12
|
|
|
|
29
|
|
Total lease cost
|
|
$
|
1,293
|
|
|
$
|
1,534
|
|
|
$
|
4,395
|
|
|
$
|
4,620
|
|
The
maturity of the Company’s lease liabilities as of April 30, 2021 is as follows:
Maturity of lease liabilities, years ending July 31,
|
|
Operating leases
|
|
|
Finance leases
|
|
|
Total
|
|
2021
|
|
$
|
1,181
|
|
|
$
|
22
|
|
|
$
|
1,203
|
|
2022
|
|
|
4,017
|
|
|
|
88
|
|
|
|
4,105
|
|
2023
|
|
|
3,318
|
|
|
|
88
|
|
|
|
3,406
|
|
2024
|
|
|
3,173
|
|
|
|
31
|
|
|
|
3,204
|
|
2025
|
|
|
3,145
|
|
|
|
—
|
|
|
|
3,145
|
|
Thereafter
|
|
|
6,370
|
|
|
|
—
|
|
|
|
6,370
|
|
Total lease payments
|
|
|
21,204
|
|
|
|
229
|
|
|
|
21,433
|
|
Less: Interest (a)
|
|
|
(2,846
|
)
|
|
|
(18
|
)
|
|
|
(2,864
|
)
|
Present value of lease liabilities
|
|
$
|
18,358
|
|
|
$
|
211
|
|
|
$
|
18,569
|
|
(a)
|
Primarily calculated using
the Company’s incremental borrowing rate.
|
Lease
term and discount rate for the nine months ended April 30, 2021 were as follows:
Lease term and discount rate
|
|
|
|
Weighted-average remaining lease term (years):
|
|
|
|
|
Operating leases
|
|
|
5.8 years
|
|
Finance leases
|
|
|
2.7 years
|
|
|
|
|
|
|
Weighted-average discount rate:
|
|
|
|
|
Operating leases
|
|
|
4.97
|
%
|
Finance leases
|
|
|
8.25
|
%
|
See
Note 4 for cash flow information on cash paid for amounts included in the measurement of lease liabilities for the nine months ended
April 30, 2021.
Note
9 – Accrued Liabilities
At
April 30, accrued liabilities consist of:
|
|
April 30,
2021
|
|
|
July 31,
2020
|
|
Payroll, benefits, and commissions
|
|
$
|
4,273
|
|
|
$
|
5,227
|
|
Professional fees
|
|
|
627
|
|
|
|
710
|
|
Legal
|
|
|
2,909
|
|
|
|
2,647
|
|
Deferred revenue – CARES Act Advance Payment
|
|
|
2,414
|
|
|
|
2,526
|
|
Other
|
|
|
2,305
|
|
|
|
1,723
|
|
|
|
$
|
12,528
|
|
|
$
|
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.
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 begins one year after the date the advance payment was received. CMS
began recoupment of our advance in April 2021. During the next 11 months, the recoupment rate will be 25% of claims processed and repayment
occurs through an automatic recoupment of our Medicare payments. 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. We expect the entire balance
of the payment advance to be recouped by the end of the 11 month period and include the remaining balance in accrued liabilities at April
30, 2021.
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 April 30, 2021, the Company has established a reserve of $243,
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 Form S-3 “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. The Form S-3 expired in October 2020 but may be refiled at any time at the discretion of the Company.
During
the nine months ended April 30, 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, restricted stock units and performance 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 April 30, 2021,
there were approximately 4,834,000 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
April 30,
|
|
|
Nine months ended
April 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Stock options and performance stock units
|
|
$
|
297
|
|
|
$
|
206
|
|
|
$
|
638
|
|
|
$
|
724
|
|
Restricted stock
|
|
|
—
|
|
|
|
1
|
|
|
|
2
|
|
|
|
4
|
|
|
|
$
|
297
|
|
|
$
|
207
|
|
|
$
|
640
|
|
|
$
|
728
|
|
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
April 30,
|
|
|
Nine months ended
April 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Selling, general and administrative
|
|
$
|
258
|
|
|
$
|
207
|
|
|
$
|
574
|
|
|
$
|
728
|
|
Cost of revenues
|
|
|
39
|
|
|
|
—
|
|
|
|
66
|
|
|
|
—
|
|
|
|
$
|
297
|
|
|
$
|
207
|
|
|
$
|
640
|
|
|
$
|
728
|
|
No
excess tax benefits were recognized during the nine month periods ended April 30, 2021 and 2020.
Stock
Option Plans
The
following table summarizes stock option activity during the nine month period ended April 30, 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
|
|
|
(34,667
|
)
|
|
|
2.80
|
|
|
|
|
|
|
$
|
|
|
Expired or forfeited
|
|
|
(619,371
|
)
|
|
$
|
3.40
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
2,525,562
|
|
|
$
|
3.76
|
|
|
|
2.6 years
|
|
|
$
|
957
|
|
Exercisable at end of period
|
|
|
1,581,326
|
|
|
$
|
|
|
|
|
1.6 years
|
|
|
$
|
|
|
As
of April 30, 2021, the total future compensation cost related to non-vested options, not yet recognized in the statements of operations,
was $916 and the weighted average period over which the remaining expense of these awards is expected to be recognized is approximately
sixteen 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 fiscal 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 nine months ended April 30, 2021, one former executive forfeited a total of 6,000 PSUs. During the nine months ended April 30, 2020,
one former executive forfeited a total of 14,500 PSUs. During both the three and nine months ended April 30, 2021 and 2020, the Company
recorded $162 and $0, respectively as compensation expense for the outstanding PSU’s. There were no PSU awards approved by the
Company’s board of directors through the nine months ended April 30, 2021.
The
following table summarizes PSU’s granted and outstanding as of April 30, 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 April 30, 2021
|
|
Clinical Services
|
|
|
Products
|
|
|
Therapeutics
|
|
|
Other
|
|
|
Consolidated
|
|
Revenues – Services and Products
|
|
$
|
25,018
|
|
|
$
|
7,779
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
32,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
12,733
|
|
|
|
4,018
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,751
|
|
Research and development
|
|
|
173
|
|
|
|
643
|
|
|
$
|
20
|
|
|
|
—
|
|
|
|
836
|
|
Selling, general and administrative
|
|
|
7,029
|
|
|
|
2,810
|
|
|
|
17
|
|
|
$
|
2,226
|
|
|
|
12,082
|
|
Legal and related expenses
|
|
|
95
|
|
|
|
10
|
|
|
|
—
|
|
|
|
956
|
|
|
|
1,061
|
|
Total operating costs and expenses
|
|
|
20,030
|
|
|
|
7,481
|
|
|
|
37
|
|
|
|
3,182
|
|
|
|
30,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
4,988
|
|
|
|
298
|
|
|
|
(37
|
)
|
|
|
(3,182
|
)
|
|
|
2,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(4
|
)
|
|
|
11
|
|
|
|
—
|
|
|
|
53
|
|
|
|
60
|
|
Other
|
|
|
1
|
|
|
|
2
|
|
|
|
—
|
|
|
|
(91
|
)
|
|
|
(88
|
)
|
Foreign exchange gain
|
|
|
—
|
|
|
|
(33
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(33
|
)
|
Net income (loss)
|
|
$
|
4,985
|
|
|
$
|
278
|
|
|
$
|
(37
|
)
|
|
$
|
(3,220
|
)
|
|
$
|
2,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization included above
|
|
$
|
399
|
|
|
$
|
208
|
|
|
$
|
—
|
|
|
$
|
66
|
|
|
$
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation included
in above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
9
|
|
|
|
41
|
|
|
|
—
|
|
|
|
208
|
|
|
|
258
|
|
Cost of revenues
|
|
|
39
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39
|
|
Total
|
|
$
|
48
|
|
|
$
|
41
|
|
|
$
|
—
|
|
|
$
|
208
|
|
|
$
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
1,544
|
|
|
$
|
180
|
|
|
$
|
—
|
|
|
$
|
23
|
|
|
$
|
1,747
|
|
Three months ended April 30, 2020
|
|
Clinical Services
|
|
|
Products
|
|
|
Therapeutics
|
|
|
Other
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
9,739
|
|
|
$
|
6,417
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
16,156
|
|
Grant income
|
|
|
747
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
747
|
|
Total
|
|
|
10,486
|
|
|
|
6,417
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
9,133
|
|
|
|
3,345
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,478
|
|
Research and development
|
|
|
395
|
|
|
|
580
|
|
|
|
188
|
|
|
|
—
|
|
|
|
1,163
|
|
Selling, general and administrative
|
|
|
5,902
|
|
|
|
2,667
|
|
|
|
—
|
|
|
|
2,492
|
|
|
|
11,061
|
|
Legal fee expense
|
|
|
52
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,873
|
|
|
|
1,925
|
|
Total operating costs and expenses
|
|
|
15,482
|
|
|
|
6,592
|
|
|
|
188
|
|
|
|
4,365
|
|
|
|
26,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(4,996
|
)
|
|
|
(175
|
)
|
|
|
(188
|
)
|
|
|
(4,365
|
)
|
|
|
(9,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(7
|
)
|
|
|
11
|
|
|
|
—
|
|
|
|
83
|
|
|
|
87
|
|
Other
|
|
|
1
|
|
|
|
4
|
|
|
|
—
|
|
|
|
130
|
|
|
|
135
|
|
Foreign exchange loss
|
|
|
—
|
|
|
|
(358
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(358
|
)
|
Net loss
|
|
$
|
(5,002
|
)
|
|
|
(518
|
)
|
|
|
(188
|
)
|
|
|
(4,152
|
)
|
|
|
(9,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization included above
|
|
$
|
373
|
|
|
|
278
|
|
|
|
—
|
|
|
|
66
|
|
|
|
717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation included in above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
21
|
|
|
|
14
|
|
|
|
—
|
|
|
|
172
|
|
|
|
207
|
|
Total
|
|
$
|
21
|
|
|
|
14
|
|
|
|
—
|
|
|
|
172
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
225
|
|
|
|
60
|
|
|
|
—
|
|
|
|
—
|
|
|
|
285
|
|
Nine months ended April 30, 2021
|
|
Clinical Services
|
|
|
Products
|
|
|
Therapeutics
|
|
|
Other
|
|
|
Consolidated
|
|
Revenues – Services and Products
|
|
$
|
70,229
|
|
|
$
|
22,689
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
92,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
37,436
|
|
|
|
11,718
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49,154
|
|
Research and development
|
|
|
454
|
|
|
|
1,868
|
|
|
$
|
66
|
|
|
|
—
|
|
|
|
2,388
|
|
Selling, general and administrative
|
|
|
19,552
|
|
|
|
7,848
|
|
|
|
50
|
|
|
$
|
5,659
|
|
|
|
33,109
|
|
Legal and related expenses
|
|
|
191
|
|
|
|
16
|
|
|
|
—
|
|
|
|
3,786
|
|
|
|
3,993
|
|
Total operating costs and expenses
|
|
|
57,633
|
|
|
|
21,450
|
|
|
|
116
|
|
|
|
9,445
|
|
|
|
88,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
12,596
|
|
|
|
1,239
|
|
|
|
(116
|
)
|
|
|
(9,445
|
)
|
|
|
4,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(14
|
)
|
|
|
29
|
|
|
|
—
|
|
|
|
(55
|
)
|
|
|
(40
|
)
|
Other
|
|
|
30
|
|
|
|
6
|
|
|
|
—
|
|
|
|
(91
|
)
|
|
|
(55
|
)
|
Foreign exchange gain
|
|
|
|
|
|
|
428
|
|
|
|
—
|
|
|
|
—
|
|
|
|
428
|
|
Net income (loss)
|
|
$
|
12,612
|
|
|
$
|
1,702
|
|
|
$
|
(116
|
)
|
|
$
|
(9,591
|
)
|
|
$
|
4,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization included above
|
|
$
|
1,189
|
|
|
$
|
581
|
|
|
$
|
—
|
|
|
$
|
198
|
|
|
$
|
1,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation included in above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
28
|
|
|
|
73
|
|
|
|
—
|
|
|
|
473
|
|
|
|
574
|
|
Cost of revenues
|
|
|
66
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
66
|
|
Total
|
|
$
|
94
|
|
|
$
|
73
|
|
|
$
|
—
|
|
|
$
|
473
|
|
|
$
|
640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
2,425
|
|
|
$
|
378
|
|
|
$
|
—
|
|
|
$
|
67
|
|
|
$
|
2,870
|
|
Nine months ended April 30, 2020
|
|
Clinical Services
|
|
|
Products
|
|
|
Therapeutics
|
|
|
Other
|
|
|
Consolidated
|
|
Revenues – Services and Products
|
|
$
|
35,032
|
|
|
$
|
20,715
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
55,747
|
|
Grant income
|
|
|
747
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
747
|
|
Total
|
|
|
35,779
|
|
|
|
20,715
|
|
|
|
|
|
|
|
|
|
|
|
56,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
30,351
|
|
|
|
10,223
|
|
|
|
—
|
|
|
|
—
|
|
|
|
40,574
|
|
Research and development
|
|
|
1,118
|
|
|
|
1,599
|
|
|
$
|
565
|
|
|
|
—
|
|
|
|
3,282
|
|
Selling, general and administrative
|
|
|
18,012
|
|
|
|
7,954
|
|
|
|
—
|
|
|
$
|
6,927
|
|
|
|
32,893
|
|
Legal and related expenses
|
|
|
140
|
|
|
|
1
|
|
|
|
—
|
|
|
|
5,540
|
|
|
|
5,681
|
|
Total operating costs and expenses
|
|
|
49,621
|
|
|
|
19,777
|
|
|
|
565
|
|
|
|
12,467
|
|
|
|
82,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(13,842
|
)
|
|
|
938
|
|
|
|
(565
|
)
|
|
|
(12,467
|
)
|
|
|
(25,936
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(29
|
)
|
|
|
45
|
|
|
|
—
|
|
|
|
479
|
|
|
|
495
|
|
Other
|
|
|
20
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
315
|
|
|
|
334
|
|
Foreign exchange loss
|
|
|
—
|
|
|
|
(88
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(88
|
)
|
Net income (loss)
|
|
$
|
(13,851
|
)
|
|
$
|
894
|
|
|
$
|
(565
|
)
|
|
$
|
(11,673
|
)
|
|
$
|
(25,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization included above
|
|
$
|
1,174
|
|
|
$
|
781
|
|
|
$
|
—
|
|
|
$
|
196
|
|
|
$
|
2,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation included in above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative.
|
|
|
88
|
|
|
|
58
|
|
|
|
—
|
|
|
|
582
|
|
|
|
728
|
|
Total
|
|
$
|
88
|
|
|
$
|
58
|
|
|
$
|
—
|
|
|
$
|
582
|
|
|
$
|
728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
514
|
|
|
$
|
205
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
719
|
|
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. 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 defendants’ 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. On February 15, 2021, Defendants filed a motion to dismiss. On March 8, 2021, the Company
filed its opposition to that motion. On March 18, 2021 defendants filed their reply in further support of the motion. The motion is sub
judice.
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
COVID-19
has severely impacted 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 our molecular diagnostic and serological testing for COVID-19 and related antibody
testing options. We have also been granted an EUA for our sample collection kit, an innovative virus-inactivating specimen collection
media that lessens transmission risks for healthcare providers and clinical laboratory personnel. Other innovations include the development
of more relevant positive controls for the tests, and improved sensitivity.
In
the third quarter of our current fiscal year ending July 31, 2021, our non-COVID-19 accessions returned to and slightly exceeded prior
year period levels. With the addition of COVID-19 testing, total accession volume for the fiscal third quarter ended April 30, 2021 exceeded
accession volume in both the sequential or second fiscal quarter ended January 31, 2021 and the prior year fiscal third quarter ended
April 30, 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 continue to be affected by the COVID-19 pandemic will largely depend on both current and future developments,
including its duration, spread and emergence of variants, its treatment with authorized vaccines and vaccines in various stages of development
and federal approval, and work and travel advisories and restrictions, and the timing of their easing, all of which are highly uncertain
and cannot be reasonably predicted at this time.
We
fully expect COVID-19 volume to decline in the quarters ahead as the percentage of Americans who are vaccinated increases. Global supply
chain issues due to the pandemic continue to 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 approximately $2.3 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.
|
|
●
|
Suspended
Medicare sequestration from May 2020 to December 2020. The Consolidated Appropriations Act
of 2021 extended the suspension period to March 31, 2021. An Act to Prevent Across-the-Board
Direct Spending Cuts, and for Other Purposes, signed into law on April 14, 2021, extended
the suspension period to December 31, 2021. 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 over 495 issued patents worldwide and over 70 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 April 30, 2021 compared to April 30, 2020
(in 000s)
Comparative
Financial Data for the Three Months Ended April 30,
|
|
2021
|
|
|
2020
|
|
|
Favorable (Unfavorable)
|
|
|
% Change
|
|
Revenues
|
|
$
|
32,797
|
|
|
$
|
16,903
|
|
|
$
|
15,894
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
16,751
|
|
|
|
12,478
|
|
|
|
(4,273
|
)
|
|
|
(34
|
)
|
Research and development
|
|
|
836
|
|
|
|
1,163
|
|
|
|
327
|
|
|
|
28
|
|
Selling, general and administrative
|
|
|
12,082
|
|
|
|
11,061
|
|
|
|
(1,021
|
)
|
|
|
(9
|
)
|
Legal and related expenses
|
|
|
1,061
|
|
|
|
1,925
|
|
|
|
864
|
|
|
|
45
|
|
Total operating costs and expenses
|
|
|
30,730
|
|
|
|
26,627
|
|
|
|
(4,103
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
2,067
|
|
|
|
(9,724
|
)
|
|
|
11,791
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
60
|
|
|
|
87
|
|
|
|
(27
|
)
|
|
|
(31
|
)
|
Other
|
|
|
(88
|
)
|
|
|
135
|
|
|
|
(223
|
)
|
|
|
**
|
|
Foreign currency loss
|
|
|
(33
|
)
|
|
|
(358
|
)
|
|
|
325
|
|
|
|
91
|
|
Total other income (expense)
|
|
|
(61
|
)
|
|
|
(136
|
)
|
|
|
75
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,006
|
|
|
$
|
(9,860
|
)
|
|
$
|
11,866
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
48,391
|
|
|
|
47,780
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
48,788
|
|
|
|
47,780
|
|
|
|
|
|
|
|
|
|
Consolidated
Results:
The
“2021 period” and the “2020 period” refer to the three months ended April 30, 2021 and April 30, 2020, respectively,
which represent the third 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. Due to the effects of the pandemic, accession volume in the April 30, 2021 period exceeded accession volume in
the sequential second fiscal quarter ended January 31, 2021 and the prior year third quarter ended April 30, 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 COVID-19 testing and the Company’s proprietary product offerings
on revenue, profitability and cash flow. We fully expect COVID-19 volume to decline in the quarters ahead as the percentage of Americans
who are vaccinated increases.
Clinical
Services revenues for the 2021 period were $25.0 million compared to $10.5 million in the 2020 period, an increase of $14.5 million or
139% year-over-year. The 2020 period revenues include a CARES Act Relief Payment grant of $0.7 million. Diagnostic testing volume measured
by the total number of accessions for all our testing services increased 140% period over period due to the positive impact from COVID-19
testing, 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. Excluding the impact of COVID-19 testing and the
CARES Act grant, revenues for the 2021 period were $0.7 million higher than the 2020 period.
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 $0.3 million and
$0.2 million, respectively.
Product
revenues were $7.8 million in the 2021 period and $6.4 million in the 2020 period, an increase of $1.4 million or 21%. The 2020 period
was negatively affected by COVID-19 related government policies throughout the world intended to reduce the spread of the pandemic. In
the 2021 period, we saw a rebound in all our geographic markets due to their improvement in infection rates resulting in a rebound in
demand.
The
cost of Clinical Services was $12.7 million in the 2021 period and $9.1 million in the 2020 period, an increase of $3.6 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 improved to 49% versus 12.9% in the 2020
period due to the high margin on COVID-19 testing and liquidation rate improvements The 2020 period was negatively impacted by the lower
testing volumes because of the pandemic and its impact on fixed costs coverage.
The
cost of Product revenues was $4.0 million in the 2021 period and $3.3 million in the 2020 period, an increase of $0.7 million or approximately
20%. The gross profit margin on Products was 48% in the both the 2021 and 2020 periods. The gross margin in the 2021 period was impacted
by the return of higher margin sales in the U.S market, tempered by intercompany COVID-19 sales.
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 28%.
The decrease is attributable primarily to the Clinical Services division, where with the increased commercialization of COVID-19 testing,
certain research and development resources transitioned to testing services in the current period.
Selling,
general and administrative expenses were $12.1 million during the 2021 period versus $11.1 million during the 2020 period, an increase
of $1.0 million or 9%. The Clinical Services expense increased $1.1 million primarily due to higher sales commissions and support services
compensation resulting from higher revenues and activity 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 due to lower self-insured healthcare benefit costs,
partially offset by higher consulting fees.
Legal
and related expenses were $1.1 million during the 2021 period compared to $1.9 million in the 2020 period, a decrease of $0.8 million
or 45% year-over-year. The 2020 period included costs related to contested proxy activities.
Interest
income, net was $0.1 million in both the 2021 and 2020 periods. In the 2021 period we earned interest on marketable securities in bond
funds made at the beginning of the 2021 period. In the 2020 period we earned interest in money market funds, which earned a significant
yield prior to the Federal Reserve’s interest rate cuts as it targeted near zero interest rates in response to COVID-19. Interest
income, net is net of interest paid on a mortgage in both periods.
The
foreign currency revaluation loss recognized by the Life Sciences Products segment during the 2021 period was $0.1 million compared to
$0.4 million in the 2020 period, an improvement of $0.3 million. The larger revaluation loss in the 2020 period was due to significant
depreciation of the British pound versus the U.S. dollar at the end of that period compared to the start if the period. The change in
the exchange rates of our functional currencies versus the U.S. dollar was less significant at the end of the 2021 period compared to
the start.
Results
of Operations
Nine
months ended April 30, 2021 compared to April 30, 2020
(in 000s)
Comparative
Financial Data for the Nine Months Ended April 30,
|
|
2021
|
|
|
2020
|
|
|
Favorable (Unfavorable)
|
|
|
% Change
|
|
Revenues
|
|
$
|
92,918
|
|
|
$
|
56,494
|
|
|
$
|
36,424
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
49,154
|
|
|
|
40,574
|
|
|
|
(8,580
|
)
|
|
|
(21
|
)
|
Research and development
|
|
|
2,388
|
|
|
|
3,282
|
|
|
|
894
|
|
|
|
27
|
|
Selling, general and administrative
|
|
|
33,109
|
|
|
|
32,893
|
|
|
|
(216
|
)
|
|
|
(1
|
)
|
Legal and related expenses
|
|
|
3,993
|
|
|
|
5,681
|
|
|
|
1,688
|
|
|
|
30
|
|
Total operating costs and expenses
|
|
|
88,644
|
|
|
|
82,430
|
|
|
|
(6,214
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
4,274
|
|
|
|
(25,936
|
)
|
|
|
30,210
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(40
|
)
|
|
|
495
|
|
|
|
(535
|
)
|
|
|
**
|
|
Other
|
|
|
(55
|
)
|
|
|
334
|
|
|
|
(389
|
)
|
|
|
**
|
|
Foreign currency gain
|
|
|
428
|
|
|
|
(88
|
)
|
|
|
516
|
|
|
|
**
|
|
Total other income
|
|
|
333
|
|
|
|
741
|
|
|
|
(408
|
)
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,607
|
|
|
$
|
(25,195
|
)
|
|
$
|
29,802
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.10
|
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.10
|
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
48,097
|
|
|
|
47,668
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
48,201
|
|
|
|
47,668
|
|
|
|
|
|
|
|
|
|
Consolidated
Results:
The
“2021 period” and the “2020 period” refer to the nine months ended April 30, 2021 and April 30, 2020, respectively,
which represent the first three quarters of the Company’s fiscal year ending July 31.
Clinical
Services revenues for the 2021 period were $70.2 million compared to $35.8 million in the 2020 period, an increase of $34.4 million or
96% year-over-year. The 2020 period revenues include a CARES Act Relief Payment grant of $0.7 million. Due to COVID-19, diagnostic testing
volume measured by the total number of accessions for all our testing services increased approximately 80% 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 $1.1 million and
$0.9 million, respectively.
Product
revenues were $22.7 million in the 2021 period and $20.7 million in the 2020 period, an increase of $2.0 million or 10%. 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 during the 2020 period. The 2021 period increase came mainly from markets outside
the U.S., due to their improvement in infection rates and a rebound in demand. The U.S. market also increased slightly.
The
cost of Clinical Services was $37.4 million in the 2021 period and $30.4 million in the 2020 period, an increase of $7.0 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 approximately 47% versus 15% in the
2020 period. In the 2021 period, the high margin on COVID-19 testing and liquidation rate improvements offset the effect of reduced volumes
of our core testing services.
The
cost of Product revenues was $11.7 million in the 2021 period and $10.2 million in the 2020 period, an increase of $1.5 million or 15%.
The gross profit margin on Products was 48% in the 2021 period and 51% in the 2020 period, negatively impacted by an increase in headcount
and the cost of production materials.
Research
and development expenses were $2.4 million in the 2021 period and $3.3 million in the 2020 period, a decrease of $0.9 million or 27%.
The decrease is attributable primarily to the Clinical Services division, where with the increased commercialization of COVID-19 testing,
certain research and development resources transitioned to testing services in the current period.
Selling,
general and administrative expenses were $33.1 million during the 2021 period versus $32.9 million during the 2020 period, an increase
of $0.2 million or 1%. The Clinical Services expense increased $1.5 million primarily due to higher sales commissions and support services
compensation resulting from higher revenues and activity from COVID-19, partially offset by the impact of cost savings initiatives undertaken
throughout our fiscal year that ended July 31, 2020. The Other segment decreased $1.3 million primarily due to lower self-insured healthcare
benefit costs. The Life Sciences Products expense decreased $0.1 million due to lower travel and other in person marketing expenses.
Legal
and related expenses were $4.0 million during the 2021 period compared to $5.7 million in the 2020 period, a decrease of $1.7 million
or 30%. 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 $0.5 million in the 2020 period, an unfavorable variance
of $0.6 million, and represents interest on cash and cash equivalents and marketable securities net of interest expense, primarily on
a mortgage. During the latter three months of the 2021 period, we began to earn interest on marketable securities in bond funds as no
interest was being earned on cash in money market funds due to the actions by the Federal Reserve to cut its target interest rates to
near zero in response to COVID-19. During most of the 2020 period, we earned interest in money market funds, which earned a significant
yield prior to the Federal Reserve’s interest rate cuts as it targeted near zero interest rates.
The
foreign currency revaluation gain recognized by the Life Sciences Products segment during the 2021 period was $0.4 million compared to
a revaluation loss $0.1 million in the 2020 period, a favorable variance of $0.5 million. The 2021 period revaluation gain was due to
significant appreciation of the British pound versus the U.S. dollar as of the end of the period compared to its start. The change in
the exchange rates of our functional currencies versus the U.S. dollar was less significant at the end of the 2020 period compared to
the start.
Liquidity
and Capital Resources
At
April 30, 2021, the Company had cash and cash equivalents and marketable securities totaling $45.0 million of which $1.5 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 $42.1
million at April 30, 2021, an increase of $6.1 million, compared to $36.0 million at July 31, 2020. The increase in working capital during
the nine months ended April 30, 2021 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 provided by operating activities during the fiscal 2021 period was approximately $0.3 million, compared to cash used in operations
of $12.1 million during the fiscal 2020 period, an improvement of approximately $12.4 million. The net cash provided in the 2021 period
was due primarily to net income of $4.6 million and non-cash expenses of approximately $2.8 million which were offset by a net increase
of $7.1 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 to a net loss of $25.2 million partially offset by non-cash expenses of $3.5 million and a net decrease
of $9.6 million in operating assets and liabilities.
Net
cash used in investing activities during the fiscal 2021 period was approximately $32.9 million as compared to $0.7 million in the 2020
period, an increase of $32.2 million. During the 2021 period, we purchased marketable securities totaling $30.0 million. Capital expenditures
during the 2021 period also increased $2.2 million compared to the 2020 period. Cash used in financing activities in fiscal 2021 was
$0.2 million for payments related to a mortgage and finance leases. Cash provided by financing activities in fiscal 2020 was $7.1 million
net, and was due to the PPP and Corona Krise loans.
As
of April 30, 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. In April 2021 we submitted our PPP loan
forgiveness application and the loan necessity questionnaire to the SBA through Citibank N.A. our intermediary lending bank. According
to the SBA, its review may take up to 90 calendar days from the receipt of the loan forgiveness application and loan necessity questionnaire.
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 April 30, 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. No assurance can be given that we will obtain forgiveness of the PPP loan in whole or in part by July 31, 2021
As
of April 30, 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. Our 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 April 30 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 April 30,
2021, the Company was in compliance with financial and liquidity covenants related to this mortgage.
We
believe that our current cash and cash equivalents level, marketable securities, 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, we believe we have 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.
Estimates
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 April 30, 2021 and 2020, the contractual adjustment percentages, determined using current and historical
reimbursement statistics, were 81.2% and 87.1%, respectively, of gross billings, respectively. During the nine months ended April
30, 2021 and 2020, the contractual adjustment percentages, determined using current and historical reimbursement statistics, were
82.2% and 88.2%, 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 $3.9 million and $3.0 million for the nine months periods ended April 30, 2021
and 2020 respectively, and a change in the net accounts receivable of approximately $0.6 million as of April 30, 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 April 30, 2021 and July 31, 2020, approximately 69%
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 $1.0 million or 28% and $1.0 million or 34% of
its total receivables as of April 30, 2021 and July 31, 2020, respectively.
Net
accounts receivable
Billing
category
|
|
As of
April 30, 2021
|
|
|
As of
July 31, 2020
|
|
Clinical Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party payers
|
|
$
|
4,236
|
|
|
|
53
|
%
|
|
$
|
2,455
|
|
|
|
40
|
%
|
Patient self-pay
|
|
|
1,800
|
|
|
|
23
|
|
|
|
2,044
|
|
|
|
33
|
|
Medicare
|
|
|
1,200
|
|
|
|
15
|
|
|
|
884
|
|
|
|
14
|
|
HMO’s
|
|
|
679
|
|
|
|
9
|
|
|
|
797
|
|
|
|
13
|
|
Total Clinical Services
|
|
|
7,915
|
|
|
|
100
|
%
|
|
|
6,180
|
|
|
|
100
|
%
|
Total Life Sciences
|
|
|
3,560
|
|
|
|
|
|
|
|
2,961
|
|
|
|
|
|
Total accounts receivable - net
|
|
$
|
11,475
|
|
|
|
|
|
|
$
|
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 April 30, 2021
|
|
Total
|
|
|
%
|
|
|
Third Party Payers
|
|
|
%
|
|
|
Medicare
|
|
|
%
|
|
|
Self-Pay
|
|
|
%
|
|
|
HMO’s
|
|
|
%
|
|
1-30 days
|
|
$
|
20,751
|
|
|
|
32
|
|
|
$
|
10,458
|
|
|
|
28
|
|
|
$
|
2,522
|
|
|
|
36
|
|
|
$
|
1,481
|
|
|
|
19
|
|
|
$
|
6,289
|
|
|
|
52
|
|
31-60 days
|
|
|
7,422
|
|
|
|
12
|
|
|
|
3,913
|
|
|
|
10
|
|
|
|
731
|
|
|
|
10
|
|
|
|
1,538
|
|
|
|
20
|
|
|
|
1,240
|
|
|
|
10
|
|
61-90 days
|
|
|
5,457
|
|
|
|
8
|
|
|
|
3,114
|
|
|
|
8
|
|
|
|
555
|
|
|
|
8
|
|
|
|
1,057
|
|
|
|
13
|
|
|
|
731
|
|
|
|
6
|
|
91-120 days
|
|
|
5,159
|
|
|
|
8
|
|
|
|
3,050
|
|
|
|
8
|
|
|
|
712
|
|
|
|
10
|
|
|
|
907
|
|
|
|
12
|
|
|
|
490
|
|
|
|
4
|
|
121-150 days
|
|
|
4,181
|
|
|
|
6
|
|
|
|
2,678
|
|
|
|
7
|
|
|
|
346
|
|
|
|
5
|
|
|
|
740
|
|
|
|
9
|
|
|
|
417
|
|
|
|
3
|
|
Greater than 150 days
|
|
|
21,437
|
|
|
|
34
|
|
|
|
14,213
|
|
|
|
39
|
|
|
|
2,142
|
|
|
|
31
|
|
|
|
2,131
|
|
|
|
27
|
|
|
|
2,950
|
|
|
|
25
|
|
Totals
|
|
$
|
64,408
|
|
|
|
100
|
%
|
|
$
|
37,426
|
|
|
|
100
|
%
|
|
$
|
7,008
|
|
|
|
100
|
%
|
|
$
|
7,854
|
|
|
|
100
|
%
|
|
$
|
12,117
|
|
|
|
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.