XNYS:ENZ Enzo Biochem Inc Quarterly Report 10-Q Filing - 4/30/2012

Effective Date 4/30/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q


 

 

Mark one

 

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended April 30, 2012

 

 

or

 

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period from ___________________ to ___________________

Commission File Number 001-09974


 

ENZO BIOCHEM, INC.


(Exact name of registrant as specified in its charter)


 

 

 

New York

 

13-2866202


 


(State or Other Jurisdiction

 

(IRS. Employer

of Incorporation or Organization)

 

Identification No.)

 

 

 

527 Madison Ave, New York, New York

 

10022


 


(Address of Principal Executive office)

 

(Zip Code)

 

 

 

212-583-0100

 

 


 

 

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant has required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 45 of Regulation S-T (§232.405 of that chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

 

 

 

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes o No x

As of June 1, 2012 the Registrant had approximately 38,927,700 shares of common stock outstanding.


ENZO BIOCHEM, INC.
FORM 10-Q
April 30, 2012

INDEX

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

3

 

 

 

 

 

Consolidated Balance Sheets - April 30, 2012 (unaudited) and July 31, 2011 (audited)

 

3

 

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended April 30, 2012 and 2011 (unaudited)

 

4

 

 

 

 

 

Consolidated Statement of Stockholders’ Equity and Comprehensive Income (Loss) for the nine months ended April 30, 2012 (unaudited)

 

5

 

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended April 30, 2012 and 2011 (unaudited)

 

6

 

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

17

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

 

 

 

Item 4.

Controls and Procedures

 

32

 

 

 

 

Part II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

 

33

 

 

 

 

Item 1A.

Risk Factors

 

33

 

 

 

 

Item 6.

Exhibits

 

33

 

 

 

 

Signatures

 

33

2



 

Part 1 Financial Information

Item 1 Financial Statements

ENZO BIOCHEM, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

April 30,
2012
(unaudited)

 

July 31,
2011
(audited)

 

 

 


 


 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,247

 

$

14,161

 

Short term investments

 

 

10,000

 

 

10,000

 

Accounts receivable, net of allowances

 

 

13,891

 

 

15,245

 

Inventories

 

 

9,396

 

 

9,260

 

Prepaid expenses

 

 

2,338

 

 

2,733

 

 

 



 



 

Total current assets

 

 

40,872

 

 

51,399

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

9,184

 

 

10,335

 

Goodwill

 

 

26,684

 

 

27,373

 

Intangible assets, net

 

 

18,349

 

 

19,985

 

Other

 

 

434

 

 

382

 

 

 



 



 

Total assets

 

$

95,523

 

$

109,474

 

 

 



 



 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable – trade

 

$

7,204

 

$

7,858

 

Accrued liabilities

 

 

8,626

 

 

8,188

 

Other current liabilities

 

 

495

 

 

1,683

 

 

 



 



 

Total current liabilities

 

 

16,325

 

 

17,729

 

 

 

 

 

 

 

 

 

Deferred taxes

 

 

2,688

 

 

2,934

 

Other

 

 

101

 

 

96

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred Stock, $.01 par value; authorized 25,000,000 shares; no shares issued or outstanding

 

 

 

 

 

Common Stock, $.01 par value; authorized 75,000,000 shares; shares issued: 39,141,353 at April 30, 2012 and 39,045,837 at July 31, 2011

 

 

391

 

 

390

 

Additional paid-in capital

 

 

303,764

 

 

305,833

 

Less treasury stock at cost: 216,556 shares at April 30, 2012 and 450,014 at July 31, 2011

 

 

(3,074

)

 

(6,387

)

Accumulated deficit

 

 

(227,040

)

 

(214,914

)

Accumulated other comprehensive income

 

 

2,368

 

 

3,793

 

 

 



 



 

Total stockholders’ equity

 

 

76,409

 

 

88,715

 

 

 



 



 

Total liabilities and stockholders’ equity

 

$

95,523

 

$

109,474

 

 

 



 



 

The accompanying notes are an integral part of these consolidated financial statements.

3


ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
April 30,

 

Nine Months Ended
April 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 


 


 


 


 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical laboratory services

 

$

15,242

 

$

13,809

 

$

43,552

 

$

38,477

 

Product revenues

 

 

9,574

 

 

10,935

 

 

28,819

 

 

31,356

 

Royalty and license fee income

 

 

1,133

 

 

1,083

 

 

4,302

 

 

5,380

 

 

 



 



 



 



 

Total revenues

 

 

25,949

 

 

25,827

 

 

76,673

 

 

75,213

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of clinical laboratory services

 

 

9,204

 

 

8,268

 

 

26,728

 

 

23,333

 

Cost of product revenues

 

 

4,689

 

 

5,195

 

 

14,511

 

 

15,708

 

Research and development

 

 

1,588

 

 

2,053

 

 

4,916

 

 

5,831

 

Selling, general, and administrative

 

 

11,854

 

 

10,877

 

 

35,727

 

 

33,450

 

Provision for uncollectible accounts receivable

 

 

1,193

 

 

1,005

 

 

3,648

 

 

3,037

 

Legal

 

 

943

 

 

695

 

 

2,835

 

 

2,767

 

 

 



 



 



 



 

Total operating expenses

 

 

29,471

 

 

28,093

 

 

88,365

 

 

84,126

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(3,522

)

 

(2,266

)

 

(11,692

)

 

(8,913

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

(18

)

 

2

 

 

(6

)

 

10

 

Other

 

 

15

 

 

71

 

 

94

 

 

147

 

Foreign currency gain (loss)

 

 

80

 

 

191

 

 

(243

)

 

135

 

 

 



 



 



 



 

Loss before income taxes

 

 

(3,445

)

 

(2,002

)

 

(11,847

)

 

(8,621

)

Benefit (provision) for income taxes

 

 

34

 

 

(108

)

 

(279

)

 

(316

)

 

 



 



 



 



 

Net loss

 

$

(3,411

)

$

(2,110

)

$

(12,126

)

$

(8,937

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.09

)

$

(0.05

)

$

(0.31

)

$

(0.23

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

38,825

 

 

38,478

 

 

38,676

 

 

38,279

 

 

 



 



 



 



 

The accompanying notes are an integral part of these consolidated financial statements.

4


ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME (LOSS)
Nine months ended April 30, 2012
(UNAUDITED)
(Dollars In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common
Stock
Shares

 

Treasury
Stock
Shares

 

Common
Stock
Amount

 

Additional
Paid-in
Capital

 

Treasury
Stock
Amount

 

Accumulated
Deficit

 

Accumulated
Other
Comprehensive
Income

 

Total
Stockholders’
Equity

 

Comprehensive
Loss

 

 

 


 


 


 


 


 


 


 


 


 

Balance at July 31, 2011

 

 

39,045,837

 

 

450,014

 

$

390

 

$

305,833

 

$

(6,387

)

$

(214,914

)

$

3,793

 

$

88,715

 

 

 

 

Net loss for the period ended April 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

(12,126

)

 

 

 

(12,126

)

$

(12,126

)

Vesting of restricted stock

 

 

95,516

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

1

 

 

 

Stock based compensation charges

 

 

 

 

 

 

 

 

595

 

 

 

 

 

 

 

 

595

 

 

 

Issuance of treasury stock for employee 401(k) plan match

 

 

 

 

(233,458

)

 

 

 

(2,664

)

 

3,313

 

 

 

 

 

 

649

 

 

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,425

)

 

(1,425

)

 

(1,425

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(13,551

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 



 



 



 



 



 



 



 



 

 

 

 

Balance at April 30, 2012

 

 

39,141,353

 

 

216,556

 

$

391

 

$

303,764

 

$

(3,074

)

$

(227,040

)

$

2,368

 

$

76,409

 

 

 

 

 

 



 



 



 



 



 



 



 



 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

5


ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended
April 30,

 

 

 

2012

 

2011

 

 

 


 


 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(12,126

)

$

(8,937

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization of property, plant and equipment

 

 

2,155

 

 

2,133

 

Amortization of intangible assets

 

 

1,131

 

 

1,138

 

Provision for uncollectible accounts receivable

 

 

3,648

 

 

3,037

 

Income tax benefit

 

 

(89

)

 

(126

)

Share based compensation charges

 

 

595

 

 

870

 

Share based 401(k) employer match expense

 

 

453

 

 

500

 

Deferred revenue recognized

 

 

 

 

(38

)

Foreign currency transaction loss (gain)

 

 

148

 

 

(183

)

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,398

)

 

(3,697

)

Inventories

 

 

(260

)

 

(660

)

Prepaid expenses

 

 

379

 

 

215

 

Accounts payable – trade

 

 

(713

)

 

736

 

Accrued liabilities

 

 

609

 

 

(178

)

Other current liabilities

 

 

(14

)

 

23

 

Other liabilities

 

 

86

 

 

1

 

 

 



 



 

Total adjustments

 

 

5,730

 

 

3,771

 

 

 



 



 

Net cash used in operating activities

 

 

(6,396

)

 

(5,166

)

 

 



 



 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of short term investments

 

 

(30,000

)

 

(136,837

)

Maturities of short term investments

 

 

30,000

 

 

143,836

 

Capital expenditures

 

 

(979

)

 

(1,021

)

Security deposits and other

 

 

(52

)

 

(105

)

Earn-out payment

 

 

(1,150

)

 

 

 

 



 



 

Net cash (used in) provided by investing activities

 

 

(2,181

)

 

5,873

 

 

 



 



 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Installment loan payments

 

 

(105

)

 

 

 

 



 



 

Net cash used in financing activities

 

 

(105

)

 

 

 

 



 



 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(232

)

 

243

 

 

 



 



 

 

 

 

 

 

 

 

 

(Decrease) increase in cash and cash equivalents

 

 

(8,914

)

 

950

 

Cash and cash equivalents - beginning of period

 

 

14,161

 

 

8,759

 

 

 



 



 

Cash and cash equivalents - end of period

 

$

5,247

 

$

9,709

 

 

 



 



 

The accompanying notes are an integral part of these consolidated financial statements.

6


ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of April 30, 2012
and for the three and nine months ended
April 30, 2012 and 2011
(Unaudited)
(Dollars in thousands, except share data)

Note 1 – Basis of Presentation

The accompanying consolidated financial statements include the accounts of Enzo Biochem, Inc. and its wholly-owned subsidiaries, Enzo Life Sciences, Enzo Clinical Labs, Enzo Therapeutics and Enzo Realty LLC, collectively referred to as the “Company” or “Companies”. The consolidated balance sheet as of April 30, 2012, the consolidated statement of stockholders’ equity and comprehensive income (loss) for the nine months ended April 30, 2012, the consolidated statements of cash flows for the nine months ended April 30, 2012 and 2011, and the consolidated statements of operations for the three and nine months ended April 30, 2012 and 2011, 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 consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended July 31, 2011 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, 2011 has been derived from the audited financial statements at that date. The results of operations for the three and nine months ended April 30, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2012.

Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”. This standard results in a common requirement between the FASB and the International Accounting Standards Board (IASB) for measuring fair value and for disclosing information about fair value measurements. This amendment was effective prospectively for the Company’s interim reporting period ended April 30, 2012.  The adoption of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Presentation of Comprehensive Income” (ASU No. 2011-05), which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income (OCI) by eliminating the option to present components of OCI as part of the statement of changes in stockholders’ equity. The amendments in this standard require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Subsequently in December 2011, the FASB issued Accounting Standards Update No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income” (ASU No. 2011-12), which indefinitely defers the requirement in ASU No. 2011-05 to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented. The amendments in these standards do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components of OCI gross or net of the effect of income taxes. The amendments in ASU No. 2011-05 and ASU No. 2011-12 are effective for interim and annual periods beginning with the first quarter of the Company’s fiscal year beginning on August 1, 2012 and are to be applied retrospectively. The adoption of the provisions of ASU No. 2011-05 and ASU No. 2011-12 will not have a material impact on the Company’s consolidated financial position or results of operations.

In July 2011, the FASB issued ASU No. 2011-07 “Health Care Entities (Topic 954) - Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities”. This update was issued to provide greater transparency relating to accounting practices used for net patient service revenue and related bad debt allowances by health care entities. Some health care entities recognize patient service revenue at the time the services are rendered regardless of whether the entity expects to collect that amount or has assessed the patient’s ability to pay. These prior accounting practices used by some health care entities resulted in a gross-up of patient service revenue and the provision for bad debts, causing difficulty for users of financial statements to make accurate comparisons and analyses of financial statements among entities. ASU No. 2011-07 requires certain healthcare entities to change the presentation of the statement of operations, reclassifying the provision for bad debts

7


associated with patient service revenue from an operating expense to a deduction from patient service revenue and also requires enhanced quantitative and qualitative disclosures relevant to the entity’s policies for recognizing revenue and assessing bad debts. This update is not designed to change and will not change the net income reported by healthcare entities. This update is effective for fiscal years beginning after December 15, 2011 with early adoption permitted. The Company will adopt this update in the fiscal year beginning August 1, 2012. The Company is currently evaluating the impact the update will have on the presentation of its financial statements.

In September 2011, the FASB issued Accounting Standards Update No. 2011-08 “Testing Goodwill for Impairment” (ASU No. 2011-08) which is intended to reduce the complexity and costs to test goodwill for impairment. The amendment allows an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity will no longer be required to calculate the fair value of a reporting unit unless the entity determines, based on its qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The ASU also expands upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendment becomes effective for annual and interim goodwill impairment tests performed for the Company’s fiscal year beginning August 1, 2012. The Company does not expect the adoption of ASU 2011-04 to have a material impact on its consolidated financial statements.

Note 2 – Short-term Investments

At April 30, 2012 and July 31, 2011, the Company’s short-term investments, whose fair value approximates cost, are in U.S. Treasury bills, which are purchased at discounts with remaining maturities of under ninety days.

The authoritative guidance for fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the guidance are described below:

Level 1: Valuations based on quoted market prices in active markets for identical assets or liabilities.

Level 2: Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3: Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

At April 30, 2012 and July 31, 2011 the Company’s short-term investments are classified as Level 1 assets.

8


Note 3 – Net 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. The dilutive effect of potential common shares, consisting of outstanding stock options and unvested restricted stock, is determined using the treasury stock method. Diluted weighted average shares outstanding for the three and nine months ended April 30, 2012 and 2011 do not include the potential common shares from stock options and unvested restricted stock because to do so would have been antidilutive. Accordingly, basic and diluted net loss per share is the same during these periods.

The following table summarizes the potential number of shares issued from exercise of “in the money” stock options, net of shares repurchased with the option exercise proceeds and potential shares from restricted stock awards, which are excluded from the computation of diluted net loss per share.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended
April 30,

 

Nine months ended
April 30,

 

 

 

2012

 

2011

 

2012

 

2011

 


 


 


 


 


 

Potential net shares, issued from exercise of “in the money” employee and director stock options and restricted stock awards, excluded from diluted net loss per share calculation

 

 

31,000

 

 

 

 

55,000

 

 

 

 

 



 



 



 



 

The following table summarizes the number of “out of the money” options excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended
April 30,

 

Nine months ended
April 30,

 

 

 

2012

 

2011

 

2012

 

2011

 


 


 


 


 


 

“Out of the money” employee and director stock options

 

 

776,000

 

 

840,000

 

 

779,000

 

 

997,000

 

 

 



 



 



 



 

Note 4 – Share-based compensation

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,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 


 


 


 


 

Cost of clinical laboratory services

 

$

3

 

$

2

 

$

8

 

$

8

 

Research and development

 

 

1

 

 

6

 

 

4

 

 

16

 

Selling, general and administrative

 

 

164

 

 

216

 

 

583

 

 

846

 

 

 



 



 



 



 

 

 

$

168

 

$

224

 

$

595

 

$

870

 

 

 



 



 



 



 

No excess tax benefits were recognized during the nine month periods ended April 30, 2012 and 2011.

Stock option plans

A summary of the activity relating to the Company’s stock option plans for the nine month period ended April 30, 2012 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Options

 

Weighted
Average
Exercise Price

 

Aggregate
Intrinsic Value

 

 

 


 


 


 

Outstanding at July 31, 2011

 

 

785,124

 

$

14.53

 

$

 

 

 

 

 

 

 

 

 



 

Exercised

 

 

 

 

 

 

 

 

Cancelled

 

 

(9,549

)

$

17.67

 

 

 

 

 

 



 

 

 

 

 

 

 

Outstanding and exercisable at end of period

 

 

775,575

 

$

14.49

 

$

 

 

 



 

 

 

 



 

As of April 30, 2012, there were no unvested stock options.

9


Restricted Stock Awards

A summary of the activity pursuant to the Company’s restricted stock awards for the nine months ended April 30, 2012 is as follows:

 

 

 

 

 

 

 

 

 

 

Awards

 

Weighted
Average
Award Price

 

 

 


 


 

Unvested at July 31, 2011

 

 

311,952

 

$

4.84

 

Awarded

 

 

140,143

 

$

2.53

 

Vested

 

 

(95,516

)

$

5.61

 

Forfeited

 

 

(8,250

)

$

4.41

 

 

 



 



 

Unvested at end of period

 

 

348,329

 

$

3.71

 

 

 



 



 

The fair value of a restricted stock award is determined based on the closing stock price on the award date. As of April 30, 2012, there was approximately $0.8 million of unrecognized compensation cost related to unvested restricted stock-based compensation to be recognized over a weighted average remaining period of one and a half years.

The total number of shares available for grant as equity awards is approximately 2,678,000 as of April 30, 2012.

Note 5 – Supplemental disclosure for statement of cash flows

Supplemental information with respect to the Company’s consolidated statements of cash flows is as follows:

 

 

 

 

 

 

 

 

 

 

Nine months ended
April 30,

 

 

 

2012

 

2011

 

 

 


 


 

Taxes paid – net

 

$

62

 

$

104

 

 

 



 



 

Note 6 – Comprehensive loss and Accumulated Other Comprehensive Income

During the three months ended April 30, 2012 and 2011, total comprehensive loss was approximately $3.3 million and $1.1 million, respectively. During the nine months ended April 30, 2012 and 2011, total comprehensive loss was approximately $13.6 million and $6.9 million, respectively. At April 30, 2012 and July 31, 2011, the accumulated other comprehensive income relates to foreign currency translation adjustments.

Note 7- Inventories

Inventories consist of the following:

 

 

 

 

 

 

 

 

 

 

April 30,
2012

 

July 31,
2011

 

 

 


 


 

Raw materials

 

$

1,172

 

$

1,063

 

Work in process

 

 

2,966

 

 

2,517

 

Finished products

 

 

5,258

 

 

5,680

 

 

 



 



 

 

 

$

9,396

 

$

9,260

 

 

 



 



 

10


Note 8 – Goodwill and intangible assets

The Company’s change in the net carrying amount of goodwill by business segment is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Enzo Life
Sciences

 

Enzo
Clinical
Labs

 

Total

 

 

 


 


 


 

Balance August 1, 2011

 

$

19,921

 

$

7,452

 

$

27,373

 

Foreign currency translation

 

 

(689

)

 

 

 

(689

)

 

 



 



 



 

Balance April 30, 2012

 

$

19,232

 

$

7,452

 

$

26,684

 

 

 



 



 



 

Intangible assets, all of which are included in the Life Sciences segment, consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 30, 2012

 

July 31, 2011

 

 

 


 


 

 

 

Gross

 

Accumulated
Amortization

 

Net

 

Gross

 

Accumulated
Amortization

 

Net

 

 

 


 


 


 


 


 


 

Finite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patents

 

$

11,027

 

$

(10,372

)

$

655

 

$

11,027

 

$

(10,278

)

$

749

 

Customer relationships

 

 

12,530

 

 

(4,191

)

 

8,339

 

 

12,789

 

 

(3,472

)

 

9,317

 

Website and acquired content

 

 

1,035

 

 

(855

)

 

180

 

 

1,063

 

 

(748

)

 

315

 

Licensed technology and other

 

 

493

 

 

(281

)

 

212

 

 

649

 

 

(355

)

 

294

 

Indefinitely-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks

 

 

8,963

 

 

 

 

8,963

 

 

9,310

 

 

 

 

9,310

 

 

 



 



 



 



 



 



 

Total

 

$

34,048

 

$

(15,699

)

$

18,349

 

$

34,838

 

$

(14,853

)

$

19,985

 

 

 



 



 



 



 



 



 

At April 30, 2012, the weighted average useful life of finite-lived intangible assets was approximately eight years.

For financial reporting purposes, useful lives for intangibles acquired through acquisitions in the Life Sciences segment have been assigned as follows:

 

 

Customer relationships

5-15 years

Trademarks

Indefinite

Other intangibles

4-5 years

Note 9 – Accrued Liabilities and Other Current Liabilities

At April 30, 2012 and July 31, 2011, accrued liabilities consist of:

 

 

 

 

 

 

 

 

 

 

April 30,
2012

 

July 31,
2011

 

 

 


 


 

Legal

 

$

1,377

 

$

610

 

Payroll, benefits, and commissions

 

 

3,579

 

 

4,286

 

Professional fees

 

 

976

 

 

782

 

Research and development

 

 

696

 

 

709

 

Other

 

 

1,998

 

 

1,801

 

 

 



 



 

 

 

$

8,626

 

$

8,188

 

 

 



 



 

Other current liabilities consist of the following as of:

 

 

 

 

 

 

 

 

 

 

April 30,
2012

 

July 31,
2011

 

 

 


 


 

Liability for purchase price consideration (see Note 13)

 

$

 

$

1,150

 

Deferred revenue

 

 

385

 

 

396

 

Other

 

 

110

 

 

137

 

 

 



 



 

 

 

$

495

 

$

1,683

 

 

 



 



 

11


Note 10 - Income taxes

At the end of each interim reporting period, the Company estimates its effective income tax rate expected to be applicable for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods.

The Company’s effective tax rate benefit (provision) for the three months ended April 30, 2012 was a benefit of 1.0% compared to a provision of (5.4%) during the three months ended April 30, 2011. The tax benefit (provision) for the periods were based on state and local taxes and domestic and foreign tax for tax deductible goodwill and indefinite lived intangibles. The Company’s effective tax rate (provision) for the nine months ended April 30, 2012 was (2.4%) compared to (3.7%) during the nine months ended April 30, 2011. The tax provision for the periods were based on state and local taxes and domestic and foreign tax for tax deductible goodwill and indefinite lived intangibles.

The Company’s effective tax rate for both periods differed from the expected net operating loss carryforward benefit at the U.S. federal statutory rate of 34% primarily due to the inability to recognize such benefit. The carryforward benefit cannot be recognized because of uncertainties relating to future taxable income in terms of both its timing and its sufficiency, which would enable the Company to realize the federal carryforward benefit.

The Company files a consolidated Federal income tax return. The Company files combined returns with California, Michigan and New York State and City for certain subsidiaries. Other subsidiaries file separate state and foreign tax returns. With few exceptions, the periods that remain subject to examination are fiscal years ended July 31, 2009 through fiscal 2011.

Note 11 – Royalty and licensing income

The Company has a license agreement with QIAGEN Gaithersburg Inc. (“Qiagen”) that began in 2005, whereby the Company earns quarterly running royalties on the net sales of Qiagen products subject to the license until the expiration of the patent on April 24, 2018. During the three months ended April 30, 2012 and 2011, the Company recorded royalty income under the Agreement of approximately $1.1 million. During the nine months ended April 30, 2012 and 2011, the Company recorded royalty income under the Agreement of approximately $4.3 million and $4.8 million, respectively.

On April 27, 2007 (the “Effective Date”) Enzo Life Sciences, Inc. (“Life Sciences”) and Abbott Molecular Inc. (“Abbott”) entered into a 5 year agreement, covering the supply of certain of Enzo Life Sciences products to Abbott for use in their product line. The parties also entered into a limited non-exclusive royalty bearing cross-licensing agreement (“Licensing Agreement”) for various patents. The Licensing Agreement requires each party to pay royalties, as defined through the lives of the related non-expired patents. During the nine months ended April 30, 2011, the Company recorded royalty income of $0.5 million under the Licensing Agreement. In January 2011, Abbott notified the Company that they have made a final royalty payment because they are unaware of any non-expired patents.

Note 12 – Segment reporting

The Company has three reportable segments: Clinical Labs, Life Sciences, and Therapeutics. The Clinical Labs segment provides diagnostic services to the health care community. The Company’s Life Sciences segment develops, manufactures, and markets products to research and pharmaceutical customers. The Company’s Therapeutic segment conducts research and development activities for therapeutic drug candidates. The Company evaluates segment performance based on segment income (loss) before taxes. Costs excluded from segment income (loss) before taxes and reported as “Other” consist of corporate general and administrative costs which are not allocable to the three reportable segments.

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.

12


The following financial information represents the operating results of the reportable segments of the Company:

Three months ended April 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical
Labs

 

Life
Sciences

 

Therapeutics

 

Other

 

Consolidated

 

 

 


 


 


 


 


 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical laboratory services

 

$

15,242

 

 

 

 

 

 

 

$

15,242

 

Product revenues

 

 

 

$

9,574

 

 

 

 

 

 

9,574

 

Royalty and license fee income

 

 

 

 

1,133

 

 

 

 

 

 

1,133

 

 

 



 



 



 



 



 

 

 

 

15,242

 

 

10,707

 

 

 

 

 

 

25,949

 

 

 



 



 



 



 



 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of clinical laboratory services

 

 

9,204

 

 

 

 

 

 

 

 

9,204

 

Cost of product revenues

 

 

 

 

4,689

 

 

 

 

 

 

4,689

 

Research and development

 

 

109

 

 

940

 

$

539

 

 

 

 

1,588

 

Selling, general and administrative

 

 

5,301

 

 

4,369

 

 

 

$

2,184

 

 

11,854

 

Provision for uncollectible accounts receivable

 

 

1,153

 

 

40

 

 

 

 

 

 

1,193

 

Legal

 

 

102

 

 

27

 

 

 

 

814

 

 

943

 

 

 



 



 



 



 



 

Total operating expenses

 

 

15,869

 

 

10,065

 

 

539

 

 

2,998

 

 

29,471

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

(627

)

 

642

 

 

(539

)

 

(2,998

)

 

(3,522

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

(2

)

 

(16

)

 

 

 

 

 

(18

)

Other

 

 

9

 

 

 

 

 

 

6

 

 

15

 

Foreign currency gain

 

 

 

 

80

 

 

 

 

 

 

80

 

 

 



 



 



 



 



 

Income (loss) before income taxes

 

$

(620

)

$

706

 

$

(539

)

$

(2,992

)

$

(3,445

)

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization included above

 

$

275

 

$

710

 

$

11

 

$

31

 

$

1,027

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation included in above:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of clinical laboratory services

 

$

3

 

 

 

 

 

 

 

$

3

 

Research and development

 

 

 

$

1

 

 

 

 

 

 

1

 

Selling, general and administrative

 

 

16

 

 

10

 

 

 

$

138

 

 

164

 

 

 



 



 



 



 



 

Total

 

$

19

 

$

11

 

 

 

$

138

 

$

168

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

264

 

$

177

 

$

 

$

 

$

441

 

 

 



 



 



 



 



 

13


Three months ended April 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical
Labs

 

Life
Sciences

 

Therapeutics

 

Other

 

Consolidated

 

 

 


 


 


 


 


 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical laboratory services

 

$

13,809

 

 

 

 

 

 

 

$

13,809

 

Product revenues

 

 

 

$

10,935

 

 

 

 

 

 

10,935

 

Royalty and license fee income

 

 

 

 

1,083

 

 

 

 

 

 

1,083

 

 

 



 



 



 



 



 

 

 

 

13,809

 

 

12,018

 

 

 

 

 

 

 

 

25,827

 

 

 



 



 



 



 



 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of clinical laboratory services

 

 

8,268

 

 

 

 

 

 

 

 

8,268

 

Cost of product revenues

 

 

 

 

5,195

 

 

 

 

 

 

5,195

 

Research and development

 

 

 

 

1,544

 

$

509

 

 

 

 

2,053

 

Selling, general and administrative

 

 

4,526

 

 

4,280

 

 

 

$

2,071

 

 

10,877

 

Provision for uncollectible accounts receivable

 

 

1,005

 

 

 

 

 

 

 

 

1,005

 

Legal

 

 

79

 

 

109

 

 

 

 

507

 

 

695

 

 

 



 



 



 



 



 

Total operating expenses

 

 

13,878

 

 

11,128

 

 

509

 

 

2,578

 

 

28,093

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

(69

)

 

890

 

 

(509

)

 

(2,578

)

 

(2,266

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

(1

)

 

(1

)

 

 

 

4

 

 

2

 

Other

 

 

7

 

 

(8

)

 

 

 

72

 

 

71

 

Foreign currency gain

 

 

 

 

191

 

 

 

 

 

 

191

 

 

 



 



 



 



 



 

Income (loss) before income taxes

 

$

(63

)

$

1,072

 

$

(509

)

$

(2,502

)

$

(2,002

)

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization included above

 

$

256

 

$

810

 

$

11

 

$

32

 

$

1,109

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation included in above:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of clinical laboratory services

 

$

2

 

 

 

 

 

 

 

$

2

 

Research and development

 

 

 

$

6

 

 

 

 

 

 

6

 

Selling, general and administrative

 

 

18

 

 

25

 

 

 

$

173

 

 

216

 

 

 



 



 



 



 



 

Total

 

$

20

 

$

31

 

 

 

$

173

 

$

224

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

340

 

$

108

 

 

 

$

 

$

448

 

 

 



 



 



 



 



 

14


The following financial information represents the operating results of the reportable segments of the Company:

Nine months ended April 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical
Labs

 

Life
Sciences

 

Therapeutics

 

Other

 

Consolidated

 

 

 


 


 


 


 


 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical laboratory services

 

$

43,552

 

 

 

 

 

 

 

$

43,552

 

Product revenues

 

 

 

$

28,819

 

 

 

 

 

 

28,819

 

Royalty and license fee income

 

 

 

 

4,302

 

 

 

 

 

 

4,302

 

 

 



 



 



 



 



 

 

 

 

43,552

 

 

33,121

 

 

 

 

 

 

76,673

 

 

 



 



 



 



 



 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of clinical laboratory services

 

 

26,728

 

 

 

 

 

 

 

 

26,728

 

Cost of product revenues

 

 

 

 

14,511

 

 

 

 

 

 

14,511

 

Research and development

 

 

224

 

 

3,125

 

$

1,567

 

 

 

 

4,916

 

Selling, general and administrative

 

 

15,322

 

 

13,824

 

 

 

$

6,581

 

 

35,727

 

Provision for uncollectible accounts receivable

 

 

3,571

 

 

77

 

 

 

 

 

 

3,648

 

Legal

 

 

214

 

 

529

 

 

 

 

2,092

 

 

2,835

 

 

 



 



 



 



 



 

Total operating expenses

 

 

46,059

 

 

32,066

 

 

1,567

 

 

8,673

 

 

88,365

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income (loss)

 

 

(2,507

)

 

1,055

 

 

(1,567

)

 

(8,673

)

 

(11,692

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

(3

)

 

(3

)

 

 

 

 

 

(6

)

Other

 

 

33

 

 

42

 

 

 

 

19

 

 

94

 

Foreign currency loss

 

 

 

 

(243

)

 

 

 

 

 

(243

)

 

 



 



 



 



 



 

Income (loss) before income taxes

 

$

(2,477

)

$

851

 

$

(1,567

)

$

(8,654

)

$

(11,847

)

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization included above

 

$

810

 

$

2,350

 

$

33

 

$

93

 

$

3,286

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation included in above:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of clinical laboratory services

 

$

8

 

 

 

 

 

 

 

 

8

 

Research and development

 

 

 

$

4

 

 

 

 

 

$

4

 

Selling, general and administrative

 

 

41

 

 

51

 

 

 

$

491

 

 

583

 

 

 



 



 



 



 



 

Total

 

$

49

 

$

55

 

 

 

$

491

 

$

595

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

695

 

$

284

 

$

 

$

 

$

979

 

 

 



 



 



 



 



 

15


Nine months ended April 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical
Labs

 

Life
Sciences

 

Therapeutics

 

Other

 

Consolidated

 

 

 


 


 


 


 


 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical laboratory services

 

$

38,477

 

 

 

 

 

 

 

$

38,477

 

Product revenues

 

 

 

$

31,356

 

 

 

 

 

 

31,356

 

Royalty and license fee income

 

 

 

 

5,380

 

 

 

 

 

 

5,380

 

 

 



 



 



 



 



 

 

 

 

38,477

 

$

36,736

 

 

 

 

 

 

75,213

 

 

 



 



 



 



 



 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of clinical laboratory services

 

 

23,333

 

 

 

 

 

 

 

 

23,333

 

Cost of product revenues

 

 

 

 

15,708

 

 

 

 

 

 

15,708

 

Research and development

 

 

 

 

4,301

 

$

1,530

 

 

 

 

5,831

 

Selling, general and administrative

 

 

13,618

 

 

12,833

 

 

 

$

6,999

 

 

33,450

 

Provision for uncollectible accounts receivable

 

 

3,037

 

 

 

 

 

 

 

 

3,037

 

Legal

 

 

241

 

 

303

 

 

 

 

2,223

 

 

2,767

 

 

 



 



 



 



 



 

Total operating expenses

 

 

40,229

 

 

33,145

 

 

1,530

 

 

9,222

 

 

84,126

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

(1,752

)

 

3,591

 

 

(1,530

)

 

(9,222

)

 

(8,913

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

(4

)

 

(2

)

 

 

 

16

 

 

10

 

Other

 

 

17

 

 

(4

)

 

 

 

134

 

 

147

 

Foreign currency gain

 

 

 

 

135

 

 

 

 

 

 

135

 

 

 



 



 



 



 



 

Income (loss) before income taxes

 

$

(1,739

)

$

3,720

 

$

(1,530

)

$

(9,072

)

$

(8,621

)

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization included above

 

$

748

 

$

2,391

 

$

35

 

$

97

 

$

3,271

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation included in above:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of clinical laboratory services

 

$

8

 

$

 

 

 

 

 

$

8

 

Research and development

 

 

 

 

16

 

 

 

 

 

 

16

 

Selling, general and administrative

 

 

51

 

 

71

 

 

 

$

724

 

 

846

 

 

 



 



 



 



 



 

Total

 

$

59

 

$

87

 

 

 

$

724

 

$

870

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

717

 

$

304

 

 

 

$

 

$

1,021

 

 

 



 



 



 



 



 

16


Note 13 - Contingencies

On or about September 22, 2010, Mayflower Partners, L.P. f/k/a Biomol International, L.P. (“Mayflower”) filed an action against Enzo Biochem, Inc. and Enzo Life Sciences, Inc. (together “Enzo”) in the United States District Court for the Southern District of New York, alleging breach of the stock and asset purchase agreement dated as of May 8, 2008 between Enzo and Mayflower (the “Agreement”). Pursuant to the Agreement, the Company acquired the assets of Mayflower, and agreed, among other things, to make certain contingent earn-out payments to Mayflower, accounted for as additional purchase price consideration, if certain performance thresholds were met for each of the two annual periods following the closing. Mayflower alleges that Enzo breached the Agreement by allegedly failing to operate the acquired business in good faith during the second earn-out period and engaging in conduct the primary purpose of which was to avoid making a second earn-out period payment under the Agreement. In addition, Mayflower claims that Enzo breached the Agreement by allegedly failing to provide the documentation appropriate to support the calculation of defined financial criteria for the second earn-out period as required under the Agreement. As part of the litigation, Mayflower moved by Order to Show cause to enjoin the accounting procedure specified under the Agreement. Mayflower’s motion was heard by a U.S. District Court Judge on September 27, 2010, who directed that the parties first go forward with the accounting procedure, as provided under the Agreement, before moving further with the litigation. The parties were unable to resolve the dispute through the accounting procedure. On January 27, 2011, Mayflower filed an amended complaint. On February 25, 2011, Enzo filed an answer to the amended complaint and on March 4, 2011 filed an amended counterclaim seeking fees and expense of the suit as provided under the Agreement. As provided under the Agreement, Mayflower’s maximum contingent earn-out was $2.5 million payable in either Enzo common stock or cash. On November 3, 2011, the Company and Mayflower entered into an Earn-Out Dispute Settlement Agreement in which the Company paid $1.1 million in cash in full settlement of the second and final earn-out under the Agreement. The settlement, which was accrued for at July 31, 2011, was recorded in Goodwill as additional purchase price consideration.

The Company is party to other claims, legal actions, complaints, and contractual disputes that arise in the ordinary course of business. The Company believes that any liability that may ultimately result from the resolution of these matters will not, individually or in the aggregate, have a material adverse effect on its financial position or results of operations.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes and other information included elsewhere in this Quarterly Report on Form 10-Q.

Forward-Looking Statements

Our disclosure and analysis in this report, including but not limited to the information discussed in this Item 2, contain forward-looking information about our Company’s financial results and estimates, business prospects and products in research and development that involve substantial risks and uncertainties. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as anticipate,” estimate,” expect,” project,” intend,” plan,” believe,” will,” and other words and terms of similar meaning in connection with any discussion of future operations or financial performance. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, interest rates, foreign currency rates, intellectual property matters, the outcome of contingencies, such as legal proceedings, and financial results.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. As a result, investors are cautioned not to place undue reliance on any of our forward-looking statements. Investors should bear this in mind as they consider forward-looking statements.

17


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 2011 fiscal year. You are advised to consult any further disclosures we make on related subjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission. Although we have attempted to provide a list of important factors which may affect our business, investors are cautioned that other factors may prove to be important in the future and could affect our operating results. You should understand that it is not possible to predict or identify all such factors or to assess the impact of each factor or combination of factors on our business. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

Overview

The Company is a growth-oriented integrated life sciences and biotechnology company focused on harnessing biological processes to develop research tools, diagnostics and therapeutics and serves as a provider of test services, including esoteric tests, to the medical community. Since our founding in 1976, our strategic focus has been on the development of enabling technologies in research, development, manufacture, licensing and marketing of innovative health care products, platforms and services based on molecular and cellular technologies. Our pioneering work in genomic analysis coupled with its extensive patent estate and enabling platforms have strategically positioned the Company to play an important role in the rapidly growing life sciences and molecular medicine marketplaces.

We are comprised of three wholly owned operating segments that have evolved out of our core competencies: the use of nucleic acids as informational molecules and the use of compounds for immune modulation. Below are brief descriptions of each of the three operating segments (see Note 12 in the Notes to Consolidated Financial Statements):

Enzo Clinical Labs is a regional clinical laboratory serving the greater New York, New Jersey and Eastern Pennsylvania medical communities. The Company believes having clinical diagnostic services allows us to capitalize firsthand on our extensive advanced molecular and cytogenetic capabilities and the broader trends in predictive and personalized diagnostics. We offer a menu of routine and esoteric clinical laboratory tests or procedures used in general patient care by physicians to establish or support a diagnosis, monitor treatment or medication, or search for an otherwise undiagnosed condition. We operate a full-service clinical laboratory in Farmingdale, New York, a network of 30 patient service centers throughout greater New York, New Jersey and Eastern Pennsylvania, a stand alone “stat” or rapid response laboratory in New York City, and a full-service phlebotomy and logistics department.

Enzo Life Sciences manufactures, develops and markets functional biology and cellular biochemistry products and tools to life sciences, pharmaceutical and clinical research customers world-wide and has amassed a large patent and technology portfolio. Enzo Life Sciences, Inc. is a recognized leader in labeling and detection technologies across research and diagnostic markets. Our portfolio of proteins, antibodies, peptides, small molecules, labeling probes, dyes and kits provides life science researchers tools for target identification/validation, high content analysis, gene expression analysis, nucleic acid detection, protein biochemistry and detection, and cellular analysis. We are internationally recognized and acknowledged as a leader in manufacturing, in-licensing, and commercialization of approximately 9,000 of our own products and in addition distribute over 30,000 products made by over 40 other original manufacturers.

Our strategic focus is directed to innovative high quality research reagents and kits in the primary key research areas of protein homeostasis, epigenetics, live cell analysis, molecular biology and immunoassays. The segment is an established source for a comprehensive panel of products to scientific experts in the fields of Natural Products/Antibiotics, Autophagy, Cancer, Cell Cycle, Cell Death, Cell Signaling, Cellular Analysis, Endocrinology/Hormones, DNA regulation, Compound Screening, Genomics/Molecular Biology, GPCRs, Immunology, Inflammation, Metabolism, Neuroscience, Nitric Oxide pathway, Obesity/Adipokines, Oxidative Stress, Proteases and Proteosomes, Protein Expression and modification, Signal Transduction, Stress/Heat Shock proteins and Ubiquitin/Ubl signaling.

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. The Company has focused its efforts on developing treatment regimens for diseases and conditions in 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 45 patents and patent applications.

18


Results of Operations
Three months ended April 30, 2012 as compared to April 30, 2011

Comparative Financial Data for the Three Months Ended April 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

2011

 

Increase
(Decrease)

 

% Change

 

 

 


 


 


 


 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical laboratory services

 

$

15,242

 

$

13,809

 

$

1,433

 

 

10

%

Product revenues

 

 

9,574

 

 

10,935

 

 

(1,361

)

 

(12

)

Royalty and license fee income

 

 

1,133

 

 

1,083

 

 

50

 

 

5

 

 

 



 



 



 

 

 

 

Total revenues

 

 

25,949

 

 

25,827

 

 

122

 

 

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of clinical laboratory services

 

 

9,204

 

 

8,268

 

 

936

 

 

11

 

Cost of product revenues

 

 

4,689

 

 

5,195

 

 

(506

)

 

(10

)

Research and development

 

 

1,588

 

 

2,053

 

 

(465

)

 

(23

)

Selling, general, and administrative

 

 

11,854

 

 

10,877

 

 

977

 

 

9

 

Provision for uncollectible accounts receivable

 

 

1,193

 

 

1,005

 

 

188

 

 

19

 

Legal

 

 

943

 

 

695

 

 

248

 

 

36

 

 

 



 



 



 

 

 

 

Total operating expenses

 

 

29,471

 

 

28,093

 

 

1,378

 

 

5

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(3,522

)

 

(2,266

)

 

(1,256

)

 

55

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

(18

)

 

2

 

 

(20

)

 

 

Other

 

 

15

 

 

71

 

 

(56

)

 

(79

)

Foreign currency gain

 

 

80

 

 

191

 

 

(111

)

 

(58

)

 

 



 



 



 

 

 

 

Loss before income taxes

 

$

(3,445

)

$

(2,002

)

$

(1,443

)

 

72

 

 

 



 



 



 

 

 

 

Consolidated Results:

The “2012 period” and the “2011 period” refer to the three months ended April 30, 2012 and 2011, respectively.

Clinical laboratory services revenues during the 2012 period were $15.2 million compared to $13.8 million in the 2011 period. The 2012 period’s increase over the 2011 period was $1.4 million or 10% due to organic growth.

Product revenues decreased by $1.4 million or 12% in the 2012 period to $9.6 million as compared to the 2011 period. During the period we experienced a decline attributed to certain distributed products for certain customer types and declines in resale products due to market softness in academia.

Royalty and license fee income during the 2012 and 2011 periods was $1.1 million. Royalties were earned from the reported sales of Qiagen products subject to a license agreement. There are no direct expenses relating to royalty and licensing income.

The cost of clinical laboratory services during the 2012 period was $9.2 million as compared to $8.3 million in the 2011 period, an increase of $0.9 million or 11%. The Company incurred increased costs due to higher reagent costs and supplies of $0.3 million, higher laboratory personnel costs of $0.3 million, higher outside reference lab costs of $0.1 million and other lab support costs of $0.2 million, all attributed to the increased service volume. In the 2012 period the gross profit margin was 40% which is comparable to the 2011 period.

The cost of product revenues during the 2012 period was $4.7 million compared to $5.2 million in the 2011 period, a decrease of $0.5 million or 10%. The decrease is attributed to lower product revenue volume and the impact of product mix.

19


Research and development expenses were approximately $1.6 million during the 2012 period, compared to $2.1 million in the 2011 period, a decrease of $0.5 million or 23%. The decrease was principally attributed to lower costs of $0.6 million at the Enzo Life Sciences segment due to lower payroll and related costs of $0.3 million and overhead costs of $0.3 million. In connection with molecular and esoteric test development at Clinical Labs research and development costs increased $0.1 million. The clinical trial and related activities at the Therapeutics segment was comparable to the 2011 period.

The Company’s selling, general and administrative expenses were approximately $11.9 million during the 2012 period and $10.9 million during the 2011 period, an increase of $1.0 million. The Clinical Lab segment selling general and administrative increased by $0.8 million primarily due to an increase in sales commissions of $0.1 million, an increase in other sales support expenses of $0.4 million, including among others, rent and repairs and maintenance for patient collection centers, supplies, phones and billing support, principally related to the increased revenue volume and the remaining $0.3 million in other administrative costs and increase in salaries and related costs. The Enzo Life Sciences segment selling, general and administrative increased by $0.1 million due to a greater focus on marketing with increases in salaries, travel and marketing materials of $0.3 million partially offset by lower general and administrative compensation of $0.2 million. The Other selling general and administrative increased by $0.1 million, primarily due to an increase of $0.2 million in compensation and related expenses offset by a decrease in other costs of $0.1 million.

The provision for uncollectible accounts receivable, primarily relating to the Clinical Labs segment was $1.2 million for the 2012 period as compared to $1.0 million in the 2011 period, an increase of $0.2 million due to the increase in service volume. As a percentage of revenues the provision for uncollectible accounts receivable increased to 7.6% from 7.3% in the 2011 period.

Legal expense was $0.9 million during the 2012 period compared to $0.7 million in the 2011 period, an increase of $0.2 million due to overall increases in legal services in the 2012 period for general matters and litigation related matters.

During the 2012 period, the gain on foreign currency transactions was $0.1 million compared to $0.2 million in the 2011 period. The gains in both periods were due to the strengthening of foreign currencies relative to the US dollar.

20


Segment Results

Clinical Labs

The Clinical Labs segment’s loss before taxes was $0.6 million for the 2012 period as compared to a loss of $0.1 million in the 2011 period, an increase of $0.5 million resulting from increased operating costs partially offset by increased service volume. The revenue from laboratory services increased in the 2012 period by $1.4 million or 10% due to organic growth. The 2012 period gross profit of $6.0 million increased over the 2011 period by $0.5 million or 9% due to an increase in service revenues offset by increases in cost of lab services. Selling, general and administrative expense increased by approximately $0.8 million primarily due to increases in sales commissions directly the result of increased service revenues and other costs associated with the increased volume. The provision for uncollectible accounts receivables increased by $0.1 million as compared to the 2011 period due to the increase in service volume and as a percentage of revenues increased to 7.6% from 7.3% in the 2011 period.

Life Sciences

The Life Sciences segment’s income before taxes was $0.7 million for the 2012 period as compared to $1.1 million for the 2011 period. The segment’s gross profit was $6.0 million in the 2012 period, as compared $6.8 million in the 2011 period. Gross profit was negatively impacted by the decline in product revenues, partially offset by product mix and lower headcount from cost containment. Product revenues decreased by $1.4 million or 12% in the 2012 period primarily due to declines in sales of certain distributed products for certain customer types and declines in resale products due to market softness in academia. Royalty and license fee income of $1.1 million was comparable to the 2011 period and is from the reported sales of Qiagen products subject to a license agreement. The segment’s other operating expenses, including selling, general and administrative, legal and research and development, decreased by approximately $0.6 million during the 2012 period primarily due to reduced research and development expenses. Due to the slight strengthening of foreign currencies during the 2012 period as compared to the 2011 period, the foreign currency gain decreased $0.1 million in the 2012 period.

Therapeutics

Therapeutics loss before income taxes was approximately $0.5 million for the 2012 and 2011 periods.

Other

The Other loss before taxes for the 2012 period was approximately $3.0 million as compared to $2.5 million for the 2011 period, an increase of $0.5 million. In the 2012 period legal expenses increased by $0.3 million due to overall increases in general legal services and litigation related matters and general and administrative costs increased due to increased compensation and related costs of $0.1 million.

21


Results of Operations
Nine months ended April 30, 2012 as compared to April 30, 2011

Comparative Financial Data for the Nine Months Ended April 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

2011

 

Increase
(Decrease)

 

% Change

 

 

 


 


 


 


 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical laboratory services

 

$

43,552

 

$

38,477

 

$

5,075

 

 

13

%

Product revenues

 

 

28,819

 

 

31,356

 

 

(2,537

)

 

(8

)

Royalty and license fee income

 

 

4,302

 

 

5,380

 

 

(1,078

)

 

(20

)

 

 



 



 



 

 

 

 

Total revenues

 

 

76,673

 

 

75,213

 

 

1,460

 

 

2

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of clinical laboratory services

 

 

26,728

 

 

23,333

 

 

3,395

 

 

15

 

Cost of product revenues

 

 

14,511

 

 

15,708

 

 

(1,197

)

 

(8

)

Research and development

 

 

4,916

 

 

5,831

 

 

(915

)

 

(16

)

Selling, general, and administrative

 

 

35,727

 

 

33,450

 

 

2,277

 

 

7

 

Provision for uncollectible accounts receivable

 

 

3,648

 

 

3,037

 

 

611

 

 

20

 

Legal

 

 

2,835

 

 

2,767

 

 

68

 

 

2

 

 

 



 



 



 

 

 

 

Total operating expenses

 

 

88,365

 

 

84,126

 

 

4,239

 

 

5

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(11,692

)

 

(8,913

)

 

(2,779

)

 

31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

(6

)

 

10

 

 

(16

)

 

(160

)

Other

 

 

94

 

 

147

 

 

(53

)

 

(36

)

Foreign currency (loss) gain

 

 

(243

)

 

135

 

 

(378

)

 

(280

)

 

 



 



 



 

 

 

 

Loss before income taxes

 

$

(11,847

)

$

(8,621

)

$

(3,226

)

 

37

 

 

 



 



 



 

 

 

 

Consolidated Results:

The “2012 period” and the “2011 period” refer to the nine months ended April 30, 2012 and 2011, respectively.

Clinical laboratory service revenues during the 2012 period were $43.6 million compared to $38.5 million in the 2011 period. The 2012 period’s increase over the 2011 period was $5.1 million or 13% due to organic growth.

Product revenues decreased by $2.5 million or 8% in the 2012 period to $28.8 million as compared to the 2011 period due to a decline in organic sales. During the period we experienced a decline attributed to certain distributed products for certain customer types and declines in resale products due to market softness in academia.

Royalty and license fee income during the 2012 period was $4.3 million compared to $5.4 million in the 2011 period, a decrease of $1.1 million or 20%. Royalties were earned from the reported sales of Qiagen products subject to a license agreement. During the 2012 period the Qiagen royalties decreased by $0.6 million as compared to the 2011 period, to $4.3 million as a result of lower reported sales from Qiagen. The 2012 period decrease is also due to Abbott’s notification in the 2011 period that they had made a final payment under a license agreement, which aggregated $0.5 million, since they were not aware of any non-expired patents covered under the license agreement. There are no direct expenses relating to royalty and licensing income.

22


The cost of clinical laboratory services during the 2012 period was $26.7 million as compared to $23.3 million in the 2011 period, an increase of $3.4 million or 15%. The Company incurred increased costs in the 2012 period due to higher reagent costs and supplies of $1.2 million, higher laboratory personnel costs and related costs of $1.0 million, higher outside reference lab costs of $0.8 million and other lab costs of $0.4 million, all attributed to the increased service volume. In the 2012 period the gross profit margin was 39% which is comparable to the 2011 period.

The cost of product revenues during the 2012 period was $14.5 million compared to $15.7 million in the 2011 period, a decrease of $1.2 million or 8%. The decrease is primarily due to lower revenues and decreases to costs attributed to product mix.

Research and development expenses were approximately $4.9 million during the 2012 period, compared to $5.8 million in the 2011 period, a decrease of $0.9 million or 16%. The decrease was attributed to lower costs of $1.2 million at Enzo Life Sciences principally due to lower payroll of $0.6 million, overhead costs of $0.2 million due to integration of facilities, lower patent related costs of $0.2 million and other decreases of $0.2 million. Research and development for the Clinical Labs segment, which commenced in the 2012 period, was $0.2 million. The clinical trial and related activities at the Therapeutics segment was comparable to the 2011 period.

Selling, general and administrative expenses were approximately $35.7 million during the 2012 period as compared to $33.4 million in the 2011 period, an increase of $2.3 million or 7%. The Clinical Lab segment’s selling general and administrative increased by $1.7 million primarily due to an increase in sales commissions of $0.4 million, an increase in other expenses of $1.3 million, including among others payroll and related benefits, rent and repairs and maintenance for patient collection centers, stationery, phones, and billing support, all related to the increased revenue volume. The Enzo Life Sciences segment selling general and administrative increased by $1.0 million due to a $0.7 million increase in compensation costs for existing personnel and for new hires of senior level marketing personnel in the latter half of fiscal 2011, an increase in amortization of intangibles, travel and consulting of approximating $0.3 million, and other costs of $0.2 million, partially offset by a decrease of $0.2 million in compensation costs for administrative personnel due to headcount reduction. The Other selling general and administrative decreased by $0.4 million, primarily due to decreases of $0.3 million in compensation and related costs relating to the transition from the discretionary bonus program to the non-equity incentive compensation plan implemented in January 2011 and lower restricted stock costs and other costs of $0.1 million partially offset by increased professional fees of $0.1 million.

The provision for uncollectible accounts receivable, primarily relating to the Clinical Labs segment was $3.6 million for the 2012 period as compared to $3.0 million in the 2011 period, an increase of $0.6 million due to the increase in service volume. As a percentage of revenues the provision for uncollectible accounts approximated 8% in both periods.

Legal expense was $2.8 million during the 2012 and 2011 periods relating to general legal services and litigation related matters.

During the 2012 period, the loss on foreign currency transactions was $0.2 million compared to income of $0.1 million in the 2011 period. The loss in the 2012 period was due to the weakening of foreign currencies during the period relative to the US dollar.

23


Segment Results

Clinical Labs

The Clinical Labs segment’s loss before taxes was $2.5 million for the 2012 period as compared to a loss of $1.7 million in the 2011 period, an increase of $0.8 million. The revenue from laboratory services increased in the 2012 period by $5.1 million or 13% due to organic growth. The 2012 period gross profit of $16.8 million increased over the 2011 period by $1.7 million or 11% due to increases in service revenues and cost of lab services. Selling, general and administrative expense increased by approximately $1.7 million primarily due to increases in sales commissions directly the result of increased service revenues and other costs associated with the increased volume. The provision for uncollectible accounts receivables increased by $0.5 million as compared to the 2011 period due to the increase in service volume but as a percentage of revenues was approximately 8% in both the 2012 and 2011 periods. Research and development, which commenced in the 2012 period, was $0.2 million.

Life Sciences

The Life Sciences segment’s income before taxes was $0.9 million for the 2012 period as compared to $3.7 million for the 2011 period. Product revenues decreased by $2.5 million or 8% in the 2012 period primarily due to a decline in sales of certain distributed products for certain customer types and declines in resale products due to market softness in academia. Further, royalty and license fee income decreased by $1.1 million in the 2012 period attributed to a decrease in royalties of $0.6 million from the reported sales of Qiagen products subject to a license agreement, as previously discussed, and in addition, no royalty payments were received under the Abbott license agreement after the first quarter of the 2011 period. The segment’s gross profit of $18.6 million in the 2012 period, as compared $21.0 million in the 2011 period, was negatively impacted by the previously discussed changes in revenues, partially offset by a decrease in cost of product revenues. The segment’s gross profit percentage was 56.2% in the 2012 period versus 57.2% in the 2011 period. The segment’s other operating expenses, including selling, general and administrative, legal and research and development, increased by approximately $0.1 million during the 2012 period primarily due to higher compensation to existing personnel and for new hires of senior level marketing personnel in the latter half of fiscal 2011 and higher legal costs related to litigation matters, offset by reduced administrative and research and development personnel expenses.

Therapeutics

The Therapeutics segment’s loss before income taxes was approximately $1.5 million for the 2012 and 2011 periods.

Other

The Other loss before taxes for the 2012 period was approximately $8.7 million compared to $9.1 million in the 2011 period, a decrease of $0.4 million. In the 2012 period legal expenses decreased by $0.1 million due to overall decreases in legal services, payroll costs decreased by $0.3 million primarily due to the transition from a discretionary to the new non-equity incentive compensation plan and other costs decreased by $0.1 million as compared to the 2011 period, offset by an increase in professional fees of $0.1 million.

24


Liquidity and Capital Resources

At April 30, 2012, the Company had cash and cash equivalents of $5.2 million and short-term investments of $10.0 million, or $15.2 million in aggregate, including cash of $2.2 million in banks outside the United States as compared to cash and cash equivalents of $14.2 million and short-term investments of $10.0 million, or $24.2 million in aggregate at July 31, 2011, including cash of $1.7 million in banks outside the United States. Short-term investments are in US Government Treasury bills. The Company had working capital of $24.5 million at April 30, 2012 compared to $33.7 million at July 31, 2011. The decrease in working capital of $9.2 million was primarily the result of the net loss during the 2012 period, funding capital expenditures, and the settlement of the final earn-out under a prior acquisition offset by changes in net operating assets and liabilities.

Net cash used in operating activities for the nine months ended April 30, 2012 was approximately $6.4 million as compared to $5.2 million for the nine months ended April 30, 2011. The increase in net cash used in operating activities in the 2012 period over the 2011 period of approximately $1.2 million was primarily attributed to the increase in the net loss of $3.2 million offset by a $1.3 million change in operating assets and liabilities which primarily relate to accounts receivable, inventory, accounts payable and accrued liabilities and an increase in non-cash adjustments in the 2012 period over the 2011 period of $0.7 million.

Net cash used in investing activities was approximately $2.2 million compared to cash provided by investing activities of $5.9 million in the year ago period, a decrease of $8.1 million. The decrease is primarily due to net maturities of short term investments in US Government instruments of $7.0 million in the 2011 period as compared to $0 million in the 2012 period and the use of cash for an earn-out payment of approximately $1.1 million in the 2012 period in connection with a prior acquisition.

Net cash used in financing activities in 2012 was $0.1 million. There were no financing activities in 2011.

Despite the challenging global economic environment and impacts of healthcare reform regulations affecting providers and plan sponsors and the funding of research, the Company believes that its current cash and short-term investment level is sufficient for its foreseeable liquidity and capital resource needs over 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, the Company believes on a longer term basis, in the event additional capital is required, it has the ability to raise funds through equity offerings, secure asset-based borrowings, or other sources of funds.

See our Form 10-K for the fiscal year ended July 31, 2011 for Forward Looking Cautionary Statements and Risk Factors.

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, 2011.

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.

Off Balance Sheet Arrangements

The Company does not have any “off balance sheet arrangements” as such term is defined in Item 303(a)(4) of Regulation S-K.

Critical Accounting Policies

The Company’s discussion and analysis of its financial condition and results of operations are based upon Enzo Biochem, Inc.’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses; these estimates and judgments also affect related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to contractual adjustments, allowance for uncollectible accounts, inventory, intangible assets and income taxes. The Company bases its estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

25


Product revenues

Revenues from product sales are recognized when the products are shipped and title transfers, the sales price is fixed or determinable and collectibility is reasonably assured.

Royalties

Royalty revenues are recorded in the period earned. Royalties received in advance of being earned are recorded as deferred revenues.

Revenues – Clinical laboratory services

Revenues from Clinical Labs are recognized upon completion of the testing process for a specific patient and reported to the ordering physician. These revenues and the associated accounts receivable are based on gross amounts billed or billable for services rendered, net of a contractual adjustment, which is the difference between amounts billed to payers and the expected approved reimbursable settlements from such payers.

The following are tables of the Clinical Labs segment’s net revenues and percentages by revenue category for the three and nine months ended April 30, 2012 and 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended
April 30, 2012

 

Three months ended
April 30, 2011

 

 

 


 


 

Revenue category

 

 

 

 

 

 

 

 

 

 

 

 

 

Medicare

 

$

3,292

 

 

22

%

$

3,237

 

 

23

%

Third-party payer

 

 

7,659

 

 

50

 

 

6,375

 

 

46

 

Patient self-pay

 

 

2,989

 

 

20

 

 

2,966

 

 

21

 

HMO’s

 

 

1,302

 

 

8

 

 

1,231

 

 

10

 

 

 



 



 



 



 

Total

 

$

15,242

 

 

100

%

$

13,809

 

 

100

%

 

 



 



 



 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended
April 30, 2012

 

Nine months ended
April 30, 2011

 

 

 


 


 

Revenue category

 

 

 

 

 

 

 

 

 

 

 

 

 

Medicare

 

$

9,340

 

 

21

%

$

8,862

 

 

23

%

Third-party payer

 

 

21,717

 

 

50

 

 

17,699

 

 

46

 

Patient self-pay

 

 

8,622

 

 

20

 

 

8,167

 

 

21

 

HMO’s

 

 

3,873

 

 

9

 

 

3,749

 

 

10

 

 

 



 



 



 



 

Total

 

$

43,552

 

 

100

%

$

38,477

 

 

100

%

 

 



 



 



 



 

The Company provides services to certain patients covered by various third-party payers, including the Federal Medicare program. Laws and regulations governing Medicare are complex and subject to interpretation for which action for noncompliance includes fines, penalties and exclusion from the Medicare programs. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing.

Other than the Medicare program, one provider whose programs are included in the Third-party payer and Health Maintenance Organizations (“HMO’s”) categories represented 21% of the Clinical Labs net revenues for the three months ended April 30, 2012 and 2011, and 21% and 22% for the nine months ended April 30, 2012 and 2011, respectively. Another provider, whose programs are included in the Third-party payer category represented 13% and 12% of Clinical Labs net revenues for the three months ended April 30, 2012 and 2011, respectively, and 13% for the nine months ended April 30, 2012 and 2011.

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.

26


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, 3) the growth of in-network provider arrangements and managed care plans specific to our Company.

Our clinical laboratory business is primarily dependent upon reimbursement from third-party payers, such as Medicare (which principally serves patients 65 and older) and insurers. We are subject to variances in reimbursement rates among different third-party payers, as well as constant changes of reimbursement rates. Changes that decrease reimbursement rates or coverage would negatively impact our revenues. The number of individuals covered under managed care contracts or other similar arrangements has grown over the past several years and may continue to grow in the future. In addition, Medicare and other government healthcare programs continue to shift to managed care. These trends will continue to reduce our revenues.

During the three months ended April 30, 2012 and 2011, the contractual adjustment percentages, determined using current and historical reimbursement statistics, were 84.8% and 84.3%, respectively, of gross billings. During the nine months ended April 30, 2012 and 2011, the contractual adjustment percentages, determined using current and historical reimbursement statistics, were 84.7% and 84.1%. The Company believes the negative impact on revenues from the decline in reimbursement rates or the shift to managed care, other primary third party payers, or similar arrangements may be offset by the positive impact of the number of tests we perform. However, there can be no assurance that we can increase the number of tests we perform or that if we do increase the number of tests we perform, that we can maintain that higher number of tests performed, or that an increase in the number of tests we perform would result in increased revenue.

The Company estimates (by using a sensitivity analysis) that each 1% point change in the contractual adjustment percentage could result in a change in clinical laboratory services revenues of approximately $2.8 million and $2.4 million for the nine months ended April 30, 2012 and 2011, respectively, and a change in the net accounts receivable of approximately $0.5 million as of April 30, 2012.

Our clinical laboratory financial billing system records gross billings using a standard fee schedule for all payers and does not record contractual adjustment by payer at the time of billing. Adjustments to our standard fee schedule will impact the contractual adjustment recorded. Therefore, we are unable to quantify the effect of contractual adjustment recorded during the current period that relates to revenue recorded in a previous period. However, we can reasonably estimate our 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;

 

 

 

 

an analysis of current gross billings and receivables by payer.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are reported at realizable value, net of allowances for doubtful accounts, which is estimated and recorded in the period of the related revenue.

The following is a table of the Company’s net accounts receivable by segment. The Clinical Labs segment’s net receivables are detailed by billing category and as a percent to its total net receivables. At April 30, 2012 and July 31, 2011, approximately 56% and 51%, respectively, of the Company’s net accounts receivable relates to its Clinical Labs business, which operates in the New York, New Jersey, and Eastern Pennsylvania medical communities.

The Life Sciences segment’s accounts receivable, of which $2.5 million or 41% and $2.5 million or 33% represents foreign receivables as of April 30, 2012 and July 31, 2011 respectively, includes royalty receivables of $1.1 million and $2.0 million, as of April 30, 2012 and July 31, 2011, respectively, from Qiagen (Note 11).

27


Net accounts receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Billing category

 

As of
April 30, 2012

 

As of
July 31, 2011

 


 


 


 

Clinical Labs

 

 

 

 

 

 

 

 

 

 

 

 

 

Medicare

 

$

1,274

 

 

16

%

$

1,434

 

 

19

%

Third party payers

 

 

3,544

 

 

46

 

 

3,087

 

 

40

 

Patient self-pay

 

 

2,606

 

 

34

 

 

2,865

 

 

37

 

HMO’s

 

 

321

 

 

4

 

 

314

 

 

4

 

 

 



 



 



 



 

Total Clinical Labs

 

 

7,745

 

 

100

%

 

7,700

 

 

100

%

 

 

 

 

 



 

 

 

 



 

Total Life Sciences

 

 

6,146

 

 

 

 

 

7,545

 

 

 

 

 

 



 

 

 

 



 

 

 

 

Total accounts receivable

 

$

13,891

 

 

 

 

$

15,245

 

 

 

 

 

 



 

 

 

 



 

 

 

 

Changes in the Company’s allowance for doubtful accounts are as follows:

 

 

 

 

 

 

 

 

 

 

Nine months
ended
April 30,
2012

 

Twelve months
ended
July 31,
2011

 

 

 


 


 

Beginning balance

 

$

3,488

 

$

2,839

 

Provision for doubtful accounts

 

 

3,648

 

 

4,431

 

Write-offs, net

 

 

(3,704

)

 

(3,782

)

 

 



 



 

Ending balance

 

$

3,432

 

$

3,488

 

 

 



 



 

For the Clinical Labs segment, the allowance for doubtful accounts represents amounts that the Company does not expect to collect after the Company has exhausted its collection procedures. The Company estimates its allowance for doubtful accounts in the period the related services are billed and adjusts the estimate in future accounting periods as necessary. It bases the estimate for the allowance on the evaluation of historical collection experience, the aging profile of accounts receivable, the historical doubtful account write-off percentages, payer mix, and other relevant factors.

The allowance for doubtful accounts includes the balances, after receipt of the approved settlements from third party payers for the insufficient diagnosis information received from the ordering physician, which result in denials of payment and the uncollectible portion of receivables from self payers, including deductibles and copayments, which are subject to credit risk and patients’ ability to pay.

During the nine months ended April 30, 2012 and 2011, the Company determined an allowance for doubtful accounts less than 210 days and wrote off 100% of accounts receivable over 210 days, as it assumed those accounts are uncollectible, except for certain fully reserved balances, principally related to Medicare. These accounts have not been written off because the payer’s filing date deadline has not occurred or the collection process has not been exhausted. The Company’s collection experience on Medicare receivables beyond 210 days has been insignificant. The Company adjusts the historical collection analysis for recoveries, if any, on an ongoing basis.

The Company’s ability to collect outstanding receivables from third party payers is critical to its operating performance and cash flows. The primary collection risk lies with uninsured patients or patients for whom primary insurance has paid but a patient portion remains outstanding. The Company also assesses the current state of its billing functions in order to identify any known collection or reimbursement issues in order to assess the impact, if any, on the allowance estimates, which involves judgment.

The Company believes that the collectibility of its receivables is directly linked to the quality of its billing processes, most notably, those related to obtaining the correct 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.

28


The following table indicates the Clinical Labs aged gross receivables by payer group which is prior to adjustment to gross receivables for: 1) contractual adjustment, 2) fully reserved balances not yet written off, and 3) other revenue adjustments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of April 30, 2012

 

Total
Amount

 

%

 

Medicare
Amount

 

%

 

Third
Party
Payers
Amount

 

%

 

Self-pay
Amount

 

%

 

HMO
Amount

 

%

 


 


 


 


 


 


 


 


 


 


 


 

1-30 days

 

$

26,528

 

 

52

%

$

4,327

 

 

54

%

$

15,414

 

 

54

%

$

3,192

 

 

34

%

$

3,595

 

 

78

%

31-60 days

 

 

8,920

 

 

18

%

 

771

 

 

10

%

 

4,810

 

 

17

%

 

2,862

 

 

30

%

 

477

 

 

10

%

61-90 days

 

 

5,113

 

 

10

%

 

536

 

 

6

%

 

2,342

 

 

8

%

 

2,036

 

 

21

%

 

199

 

 

4

%

91-120 days

 

 

4,333

 

 

9

%

 

961

 

 

12

%

 

1,893

 

 

7

%

 

1,396

 

 

15

%

 

83

 

 

2

%

121-150 days

 

 

2,256

 

 

4

%

 

371

 

 

5

%

 

1,825

 

 

6

%

 

 

 

0

%

 

60

 

 

1

%

Greater than 150 days*

 

 

3,397

 

 

7

%

 

1,060

 

 

13

%

 

2,109

 

 

8

%

 

18

 

 

0

%

 

210

 

 

5

%

 

 



 



 



 



 



 



 



 



 



 



 

Totals

 

$

50,547

 

 

100

%

$

8,026

 

 

100

%

$

28,393

 

 

100

%

$

9,504

 

 

100

%

$

4,624

 

 

100

%

 

 



 

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of July 31, 2011

 

Total
Amount

 

%

 

Medicare
Amount

 

%

 

Third
Party
Payers
Amount

 

%

 

Self-pay
Amount

 

%

 

HMO’s
Amount

 

%

 


 


 


 


 


 


 


 


 


 


 


 

1-30 days

 

$

29,880

 

 

60

%

 

5,843

 

 

60

%

 

13,851

 

 

56

%

 

6,173

 

 

55

%

 

4,013

 

 

95

%

31-60 days

 

 

7,012

 

 

14

%

 

791

 

 

8

%

 

3,441

 

 

14

%

 

2,687

 

 

24

%

 

93

 

 

2

%

61-90 days

 

 

4,029

 

 

8

%

 

566

 

 

6

%

 

2,522

 

 

10

%

 

890

 

 

8

%

 

51

 

 

1

%

91-120 days

 

 

3,826

 

 

8

%

 

917

 

 

9

%

 

1,819

 

 

7

%

 

1,046

 

 

9

%

 

44

 

 

1

%

121-150 days

 

 

2,085

 

 

4

%

 

375

 

 

4

%

 

1,385

 

 

6

%

 

288

 

 

3

%

 

37

 

 

1

%

Greater than 150 days**

 

 

3,050

 

 

6

%

 

1,234

 

 

13

%

 

1,717

 

 

7

%

 

94

 

 

1

%

 

5

 

 

0

%

 

 



 



 



 



 



 



 



 



 



 



 

Totals

 

$

49,882

 

 

100

%

 

9,726

 

 

100

%

 

24,735

 

 

100

%

 

11,178

 

 

100

%

 

4,243

 

 

100

%

 

 



 

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 


 

 

*

Total includes $664 fully reserved over 210 days as of April 30, 2012.

 

 

**

Total includes $800 fully reserved over 210 days as of July 31, 2011.

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.

Inventory

The Company values inventory at the lower of cost (first-in, first-out) or market. Work-in-process and finished goods inventories consist of material, labor, and manufacturing overhead. Write downs of inventories to market value are based on a review of inventory quantities on hand and estimated sales forecasts based on sales history and anticipated future demand. Unanticipated changes in demand could have a significant impact on the value of our inventory and require additional write downs of inventory which would impact our results of operations.

Goodwill and Indefinite-Lived Intangibles

Goodwill, representing the cost of acquired businesses in excess of the fair value of net assets acquired, and indefinite-lived intangibles are not amortized, but are evaluated annually for impairment. The Company performs its annual impairment test as of the first day of its fiscal fourth quarter or if indicators of potential impairment exist. Goodwill is considered impaired if the carrying amount of the reporting unit exceeds its estimated fair value. In assessing the recoverability of goodwill, the Company reviews both quantitative as well as qualitative factors to support its assumptions with regard to fair value. The fair value of a reporting unit is estimated using both a discounted cash flow model and market approach model. In determining fair value, the Company makes certain judgments on the assumptions included in the discounted cash flow such as forecasted revenue, gross profit margins, working capital cash flow, the identification of reporting units and the selection of comparable companies for the market approach. Trademarks are considered impaired if the carrying amount exceeds their estimated fair value. To date, there has been no impairment charges recorded.

29


Intangible Assets

Intangible assets (exclusive of patents), arose primarily from acquisitions and primarily consist of customer relationships, trademarks, licenses, employment and non-compete agreements, and website and database content. Finite-lived intangible assets are amortized according to their estimated useful lives, which range from 4 to 15 years. The Company has capitalized certain legal costs directly incurred in pursuing patent applications as patent costs. When such applications result in an issued patent, the related costs are amortized over a ten year period or the life of the patent, whichever is shorter, using the straight-line method. The Company reviews its issued patents and pending patent applications, and if it determines to abandon a patent application or that an issued patent no longer has economic value, the unamortized balance in deferred patent costs relating to that patent is immediately expensed.

Accrual for Self-funded Medical

Accruals for self-funded medical insurance are determined based on a number of assumptions and factors, including historical payment trends, claims history and current estimates. These estimated liabilities are not discounted. If actual trends differ from these estimates, the financial results could be impacted.

Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”. This standard results in a common requirement between the FASB and the International Accounting Standards Board (IASB) for measuring fair value and for disclosing information about fair value measurements. This amendment was effective prospectively for the Company’s interim reporting period ended April 30, 2012.  The adoption of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Presentation of Comprehensive Income” (ASU No. 2011-05), which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income (OCI) by eliminating the option to present components of OCI as part of the statement of changes in stockholders’ equity. The amendments in this standard require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Subsequently in December 2011, the FASB issued Accounting Standards Update No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income” (ASU No. 2011-12), which indefinitely defers the requirement in ASU No. 2011-05 to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented. The amendments in these standards do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components of OCI gross or net of the effect of income taxes. The amendments in ASU No. 2011-05 and ASU No. 2011-12 are effective for interim and annual periods beginning with the first quarter of the Company’s fiscal year beginning on August 1, 2012 and are to be applied retrospectively. The adoption of the provisions of ASU No. 2011-05 and ASU No. 2011-12 will not have a material impact on the Company’s consolidated financial position or results of operations.

In July 2011, the FASB issued ASU No. 2011-07 “Health Care Entities (Topic 954) - Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities”. This update was issued to provide greater transparency relating to accounting practices used for net patient service revenue and related bad debt allowances by health care entities. Some health care entities recognize patient service revenue at the time the services are rendered regardless of whether the entity expects to collect that amount or has assessed the patient’s ability to pay. These prior accounting practices used by some health care entities resulted in a gross-up of patient service revenue and the provision for bad debts, causing difficulty for users of financial statements to make accurate comparisons and analyses of financial statements among entities. ASU No. 2011-07 requires certain healthcare entities to change the presentation of the statement of operations, reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from patient service revenue and also requires enhanced quantitative and qualitative disclosures relevant to the entity’s policies for recognizing revenue and assessing bad debts. This update is not designed to change and will not change the net income reported by healthcare entities. This update is effective for fiscal years beginning after December 15, 2011 with early adoption permitted. The Company will adopt this update in the fiscal year beginning August 1, 2012. The Company is currently evaluating the impact the update will have on the presentation of its financial statements.

30


In September 2011, the FASB issued Accounting Standards Update No. 2011-08 “Testing Goodwill for Impairment” (ASU No. 2011-08) which is intended to reduce the complexity and costs to test goodwill for impairment. The amendment allows an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity will no longer be required to calculate the fair value of a reporting unit unless the entity determines, based on its qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The ASU also expands upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendment becomes effective for annual and interim goodwill impairment tests performed for the Company’s fiscal year beginning August 1, 2012. The Company does not expect the adoption of ASU 2011-04 to have a material impact on its consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from changes in foreign currency exchange rates and, to a much lesser extent, interest rates on investments in short-term instruments, which could impact our results of operations and financial position. We do not currently engage in any hedging or market risk management tools. There have been no material changes with respect to market risk previously disclosed in our Annual Report on Form 10-K for our 2011 fiscal year.

Foreign Currency Exchange Rate Risk

The financial reporting of our non-U.S. subsidiaries is denominated in currencies other than the U.S. dollar. Since the functional currency of our non-U.S. subsidiaries is the local currency, foreign currency translation adjustments are accumulated as a component of accumulated other comprehensive income in stockholders’ equity. Assuming a hypothetical aggregate change of 10% in the exchange rates of foreign currencies against the U.S. dollar at April 30, 2012, our assets and liabilities would increase or decrease by $1.9 million and $0.8 million, respectively, and our net sales and net (loss) or earnings would increase or decrease by $1.6 million and $0.1 million, respectively, on an annual basis.

We also maintain intercompany balances and loans receivable with subsidiaries with different local currencies. These amounts are at risk of foreign currency losses if exchange rates fluctuate. Assuming a hypothetical aggregate change of 10% in the exchange rates of foreign currencies against the U.S. dollar at April 30, 2012, our pre-tax earnings would be favorably or unfavorably impacted by approximately $0.4 million, on an annual basis.

Interest Rate Risk

Our excess cash is invested in highly liquid short term money market funds and short term investments in U.S. Treasury bills. Changes in interest rates may affect the investment income we earn on money market funds and short term investments and therefore affect our cash flows and results of operations. As of April 30, 2012, we were exposed to interest rate change market risk with respect to our money market accounts and short term investments totaling $11.4 million. The money market accounts and short-term investments yield or bear interest rates ranging from 0% to 0.25%. As of April 30, 2012, based on the investments held, it is determined we have no material interest rate risk.

As of April 30, 2012, we have fixed interest rate financing on transportation and equipment leases.

31


Item 4. Controls and Procedures

          (a) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company’s management conducted an evaluation (as required under Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of the Company’s “disclosure controls and procedures” (as such term is defined under the Exchange Act), under the supervision and with the participation of the principal executive officer and the principal financial officer. Based on this evaluation, the principal executive officer and the principal financial officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

          (b) Changes in Internal Controls over Financial Reporting

There was no change in the Company’s internal controls over financial reporting during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

32


PART II – OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

There have been no other material developments with respect to previously reported legal proceedings discussed in the annual report on Form 10-K for the fiscal year ended July 31, 2011 filed with the Securities and Exchange Commission. See Note 13.

 

 

Item 1A.

Risk Factors

There have been no material changes from the risk factors disclosed in Part 1, Item 1, of the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2011.

 

 

Item 6.

Exhibits


 

 

 

Exhibit No.

 

Exhibit


 


31.1

 

Certification of Elazar Rabbani, Ph.D. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of Barry Weiner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of Elazar Rabbani, Ph.D. pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of Barry Weiner pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101. INS*

 

XBRL Instance Document

 

 

 

101. SCH*

 

XBRL Taxonomy Extension Schema Document

 

 

 

101. CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF*

 

XBRL Taxonomy Extension Definitions Linkbase Document

 

 

 

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document

*XBRL (Extensible Business Reporting Language) information is being furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

ENZO BIOCHEM, INC.

 

 


 

 

(Registrant)

 

 

 

 

 

Date: June 11, 2012

by:

/s/ Barry Weiner

 

 


 

 

President, Chief Financial Officer, Principal Accounting

 

 

Officer, Treasurer and Director


33


XNYS:ENZ Enzo Biochem Inc Quarterly Report 10-Q Filling

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XNYS:ENZ Enzo Biochem Inc Quarterly Report 10-Q Filing - 4/30/2012
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