10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on December 16, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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ENZO BIOCHEM, INC.
FORM 10-Q
October 31, 2024
INDEX
i
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ENZO BIOCHEM, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| October 31, 2024 (unaudited) |
July 31, 2024 |
|||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Cash in escrow | ||||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant, and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable – trade | $ | $ | ||||||
| Dividend payable | ||||||||
| Accrued liabilities | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Other current liabilities | ||||||||
| Current liabilities of discontinued operations, net | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Long term debt, net | ||||||||
| Non-current liabilities of discontinued operations, net | ||||||||
| Total liabilities | $ | $ | ||||||
| Contingencies – see Note 13 | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred Stock, $ |
||||||||
| Common Stock, $ |
||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
| Three Months Ended October 31, |
||||||||
| 2024 | 2023 | |||||||
| Revenues | $ | $ | ||||||
| Operating costs and expenses, net: | ||||||||
| Cost of revenues | ||||||||
| Cost of revenues – inventory provision | ||||||||
| Research and development | ||||||||
| Selling, general, and administrative | ||||||||
| Legal and related expenses | ||||||||
| Total operating costs and expenses | ||||||||
| Operating loss | ( |
) | ( |
) | ||||
| Other income (expense): | ||||||||
| Interest, net | ||||||||
| Change in fair value of convertible debentures | ( |
) | ||||||
| Other | ||||||||
| Foreign exchange loss | ( |
) | ( |
) | ||||
| Loss before income taxes | ( |
) | ( |
) | ||||
| Income taxes | ||||||||
| Net loss from continuing operations | $ | ( |
) | $ | ( |
) | ||
| Net loss from discontinued operations | ( |
) | ( |
) | ||||
| Net loss | ( |
) | ( |
) | ||||
| Net loss per common share – basic and diluted: | ||||||||
| Continuing operations | $ | ( |
) | $ | ( |
) | ||
| Discontinued operations | ( |
) | ( |
) | ||||
| Total net loss per basic and diluted common share | $ | ( |
) | $ | ( |
) | ||
| Weighted average common shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
(in thousands)
| Three Months Ended October 31, |
||||||||
| 2024 | 2023 | |||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Other comprehensive income: | ||||||||
| Foreign currency translation adjustments | ||||||||
| Comprehensive loss | $ | ( |
) | $ | ( |
) | ||
The accompanying notes are an integral part of these consolidated financial statements.
3
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Months Ended October 31, 2024 and 2023
(unaudited)
(in thousands, except share data)
| Common Stock Shares Issued |
Common Stock Amount |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income |
Total Stockholders’ Equity |
|||||||||||||||||||
| Balance at July 31, 2024 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Net loss for the three months ended October 31, 2024 | — | ( |
) | ( |
) | |||||||||||||||||||
| Cash dividend declared | — | ( |
) | ( |
) | |||||||||||||||||||
| Share-based compensation charges | — | |||||||||||||||||||||||
| Foreign currency translation adjustments | — | |||||||||||||||||||||||
| Balance at October 31, 2024 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Common Stock Shares Issued |
Common Stock Amount |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income |
Total Stockholders’ Equity |
|||||||||||||||||||
| Balance at July 31, 2023 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Net loss for the three months ended October 31, 2023 | — | ( |
) | ( |
) | |||||||||||||||||||
| Vested restricted stock unit issuances | ||||||||||||||||||||||||
| Common stock issued for Asset Purchase Agreement bonus payment | ||||||||||||||||||||||||
| Share-based compensation charges | — | |||||||||||||||||||||||
| Foreign currency translation adjustments | — | |||||||||||||||||||||||
| Balance at October 31, 2023 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Three Months Ended October 31, |
||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Change in fair value of convertible debentures | — | |||||||
| Depreciation and amortization of property, plant and equipment | ||||||||
| Share-based compensation charges | ||||||||
| Share-based 401(k) employer match expense | ||||||||
| Unrealized foreign exchange loss | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( |
) | ||||||
| Inventories | ||||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable – trade | ( |
) | ( |
) | ||||
| Accrued liabilities, other current liabilities and other liabilities | ( |
) | ( |
) | ||||
| Total adjustments | ( |
) | ( |
) | ||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash flows from investing activities: | ||||||||
| Release of escrowed cash from Asset Purchase Agreement | ||||||||
| Capital expenditures | ( |
) | ( |
) | ||||
| Net cash provided by (used in) investing activities | ( |
) | ||||||
| Cash flows from financing activities: | ||||||||
| Repayments under loan agreement and capital leases | ( |
) | ( |
) | ||||
| Cash payments for taxes related to net share settlements of equity awards | ( |
) | ( |
) | ||||
| Net cash used in financing activities | ( |
) | ( |
) | ||||
| Effect of exchange rate changes on cash and cash equivalents | ( |
) | ||||||
| Decrease in cash and cash equivalents | ( |
) | ( |
) | ||||
| Cash and cash equivalents - beginning of period | ||||||||
| Cash and cash equivalents - end of period | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of October 31, 2024
(unaudited)
(Dollars in thousands except share data)
Note 1 – Basis of Presentation
Enzo Biochem, Inc. (the “Company”, “we”, “our” or “Enzo”) has operated as a life sciences company for over 45 years. The primary business of Enzo today is conducted through its Enzo Life Sciences division (“Enzo Life Sciences”), which focuses on labeling and detection technologies from DNA to whole cell analysis, including a comprehensive portfolio of thousands of high-quality products, including antibodies, genomic probes, assays, biochemicals, and proteins. The Company’s proprietary products and technologies play central roles in translational research and drug development areas, including cell biology, genomics, assays, immunohistochemistry, and small molecule chemistry. Enzo strives to enable a healthier world using scientific innovation through drug discovery, development and diagnostic solutions.
The accompanying consolidated financial statements include the accounts of Enzo Biochem, Inc. and its wholly-owned subsidiaries, Enzo Life Sciences, Inc. (“Enzo Life Sciences”), Enzo Therapeutics, Inc. (“Enzo Therapeutics”), Enzo Realty LLC (“Enzo Realty”), and Enzo Realty II LLC (“Enzo Realty II”), collectively or with one or more of its subsidiaries referred to as the “Company” or “Companies.” The financial statements also include as discontinued operations the accounts of its wholly-owned subsidiary Enzo Clinical Labs, Inc. (“Enzo Clinical Labs”). Effective July 24, 2023, we completed the sale of certain assets used in our clinical services operations to Laboratory Corporation of America Holdings, a Delaware corporation (“Labcorp”), and thereby exited the clinical services business. See Note 2.
We have one reportable segment, Products. The consolidated balance sheet as of October 31, 2024, the consolidated statements of operations, comprehensive loss and stockholders’ equity for the three months ended October 31, 2024 and 2023, and the consolidated statements of cash flows for the three months ended October 31, 2024 and 2023 (the “interim statements”) are unaudited. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position and operating results for the interim periods have been made. Certain information and footnote disclosure, normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), have been condensed or omitted. The interim statements should be read in conjunction with the consolidated financial statements for the fiscal year ended July 31, 2024 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, 2024 has been derived from the audited financial statements at that date. The results of operations for the three months ended October 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2025.
Principles of consolidation
The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
6
Contingencies
Contingencies are evaluated and a liability is recorded when the matter is both probable and reasonably estimable. Gain contingencies are evaluated and not recognized until the gain is realizable or realized.
Foreign Currency Translation/Transactions
The Company has determined that the functional currency for its foreign subsidiaries is the local currency. For financial reporting purposes, assets and liabilities denominated in foreign currencies are translated at current exchange rates and profit and loss accounts are translated at weighted average exchange rates. Resulting foreign currency translation adjustments are recognized as other comprehensive income (loss) in the consolidated statements of comprehensive loss and are included as a separate component of stockholders’ equity as accumulated other comprehensive income. Gains or losses resulting from transactions entered into in other than the functional currency are recorded as foreign exchange gains and losses in the consolidated statements of operations.
Fair Value Measurements
The Company determines fair value measurements used in its consolidated financial statements based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy. The basis for fair value measurements for each level within the hierarchy is described below with Level 1 having the highest priority and Level 3 having the lowest.
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3 Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
Cash and cash equivalents
Cash and cash equivalents consist of demand deposits with banks and
highly liquid money market funds. At October 31, 2024 and July 31, 2024, the Company had cash and cash equivalents in foreign bank accounts
of $
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash and cash equivalents and accounts receivable. The Company believes the fair value of the aforementioned financial instruments approximates the cost due to the immediate or short-term nature of these items. At October 31, 2024 and July 31, 2024, the Company had cash deposited in certain financial institutions in excess of federally insured levels. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk in cash and cash equivalents or restricted cash.
Concentration of credit risk with respect to the Company’s Products segment is mitigated by the diversity of the Company’s customers and their dispersion across many different geographic regions. To reduce risk, the Company routinely assesses the financial strength of these customers and, consequently, believes that its accounts receivable credit exposure with respect to these customers is limited.
7
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 when it is more likely than not that the benefits may not be realized. 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.
Effect of New Accounting Pronouncements
Pronouncements Issued but Not Yet Adopted
In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amended guidance enhances income tax disclosures primarily related to the effective tax rate reconciliation and income taxes paid information. This guidance requires disclosure of specific categories in the effective tax rate reconciliation and further information on reconciling items meeting a quantitative threshold. In addition, the amended guidance requires disaggregating income taxes paid (net of refunds received) by federal, state, and foreign taxes. It also requires disaggregating individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than five percent of total income taxes paid (net of refunds received). The amended guidance will be effective for our fiscal year beginning August 1, 2025. The guidance can be applied either prospectively or retrospectively. We are currently in the process of evaluating the impact this amended guidance may have on the footnotes to our consolidated financial statements.
In November 2023, FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires an enhanced disclosure of significant segment expenses on an annual and interim basis. This guidance will be effective for our annual period ending July 31, 2026 and our interim periods beginning August 1, 2025. Early adoption is permitted. Upon adoption, we expect the guidance will be applied retrospectively to all prior periods presented in the consolidated financial statements. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
We reviewed all other recently issued accounting pronouncements and have concluded they are not applicable or not expected to be significant to the accounting for our operations.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on the reported results of operations or discontinued operations.
Note 2 – Discontinued operations
Prior to July 24, 2023, we operated a clinical laboratory, doing business
as Enzo Clinical Labs, which provided reference, molecular and esoteric diagnostic medical testing services in the New York, New Jersey,
and Connecticut medical communities. Effective July 24, 2023, we completed the sale of certain assets used in the operation of Enzo Clinical
Labs and the assignment of certain clinical lab liabilities to Laboratory Corporation of America (“Labcorp”) for an aggregate
purchase price of $
8
| 2024 | 2023 | |||||||
| General and administrative | ||||||||
| Other expense (income) | ( |
) | ||||||
| Loss from discontinued operations | $ | ( |
) | $ | ( |
) | ||
| October 31, 2024 |
July 31, 2024 |
|||||||
| Carrying amounts of major current assets included as part of discontinued operations: | ||||||||
| Prepaid and other current | $ | $ | ||||||
| Carrying amounts of major current liabilities included as part of discontinued operations: | ||||||||
| Accrued liabilities and trade payables | ||||||||
| Operating lease liabilities and other | ||||||||
| Total current liabilities | ||||||||
| Current liabilities of discontinued operations, net | $ | $ | ||||||
| Carrying amount of major non-current assets included as part of discontinued operations: | ||||||||
| Right-of-use assets | $ | $ | ||||||
| Other | ||||||||
| Total non-current assets | ||||||||
| Carrying amount of major non-current liabilities included as part of discontinued operations: | ||||||||
| Operating lease liabilities and other | ||||||||
| Non-current liabilities of discontinued operations, net | $ | $ | ||||||
During the three months ended October 31, 2024, the cash used in operating
activities of the discontinued operations was $
Note 3 – Net loss per share
Basic net loss per share represents net 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 units and performance stock units, is determined using the treasury stock method. As a result of the net loss for the three months ended October 31, 2024 and 2023, diluted weighted average shares outstanding are the same as basic weighted average shares outstanding, and do not include the potential common shares from stock options, restricted stock units, or warrants because to do so would be anti-dilutive.
9
For the three months ended October 31, 2024, the effect of approximately
For the three months ended October 31, 2023, the effect of approximately
Note 4 – Revenue Recognition
Products Revenue
The Company generates revenue from the sale of our single-use products used in the identification of genomic information. Revenue is recorded net of sales tax. The Company considers revenue to be earned when all of the following criteria are met: the Company has a contract with a customer that creates enforceable rights and obligations; promised products are identified; the transaction price is determinable; and the Company has transferred control of the promised items to the customer. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the contract. The transaction price for the contract is measured as the amount of consideration the Company expects to receive in exchange for the goods expected to be transferred. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, control of the distinct good or service is transferred. Transfer of control for the Company’s products is generally at shipment or delivery, depending on contractual terms, but occurs when title and risk of loss transfers to the customer which represents the point in time when the customer obtains the use of and substantially all of the remaining benefit of the product. As such, the Company’s performance obligation related to product sales is satisfied at a point in time. The Company recognizes a receivable when it has an unconditional right to payment, which represents the amount the Company expects to collect in a transaction and is most often equal to the transaction price in the contract. Payment terms for shipments to end-user and distributor customers may range from 30 to 90 days. Amounts billed to customers for shipping and handling are included in revenue, while the related shipping and handling costs are reflected in cost of revenues.
|
Three Months Ended October 31 |
||||||||
| 2024 | 2023 | |||||||
| United States | $ | $ | ||||||
| Europe | ||||||||
| Asia Pacific | ||||||||
| Products revenue | $ | $ | ||||||
As of August 1, 2024 and 2023, accounts receivable from continuing
operations was $
10
Note 5 – Supplemental disclosure for statement of cash flows
During the three months ended October 31, 2024 and 2023, interest paid
by the Company was $
For the three months ended October 31, 2024 and 2023, the net reductions
in the measurement of right-of-use assets and liabilities included in cash flows from operating activities was $
In connection with the completed sale of certain assets used in the
operation of Enzo Clinical Labs at the end of fiscal 2023, $
During the three months ended October 31, 2024, the Company disbursed
$
On October 29, 2024, the Board of Directors of the Company
declared a cash dividend of $
Note 6 – Inventories
| October 31, 2024 |
July 31, 2024 |
|||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished products | ||||||||
| $ | $ | |||||||
Note 7 – Convertible debentures
In May 2023, the Company consummated a Securities
Purchase Agreement (the “Purchase Agreement”) with the Purchasers, as defined in the Purchase Agreement, and JGB
Collateral, LLC, as collateral agent for the Purchasers (the “Agent”). Pursuant to the Purchase Agreement, the Company
agreed to sell to the Purchasers (i)
11
Debentures
The Debentures bore interest at a rate of
Warrants
The Warrants are exercisable for
Registration Rights Agreement
In connection with the Purchase Agreement, the Company was obligated to file a registration statement pursuant to which the Purchasers could sell the Common Stock issuable upon the conversion of the Debentures and the exercise of the warrants in a public offering. There is no right to a conversion of the Debentures into shares as the Debentures have been repaid in full.
Note 8 – Long term debt
In April 2020, the Company’s subsidiary in Switzerland received
a loan of CHF
| July 31, | Total | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total principal payments | ||||
| Less: current portion, included in other current liabilities | ( |
) | ||
| Long term debt – net | $ | |||
Note 9 – Leases
The Company determines if an arrangement is or contains a lease at contract inception. The Company leases buildings, office space, and equipment through operating leases. Generally, a right-of-use asset, representing the right to use the underlying asset during the lease term, and a lease liability, representing the payment obligation arising from the lease, are recognized on the balance sheet at lease commencement based on the present value of the payment obligation. For operating leases, expense is recognized on a straight-line basis over the lease term. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company primarily uses its incremental borrowing rate in determining the present value of lease payments as the Company’s leases generally do not provide an implicit rate.
The Company has lease agreements with (i) right-of-use asset payments
and (ii) non-lease components (e.g., payments related to maintenance fees, utilities, etc.) which have generally been combined and accounted
for as a single lease component. The Company’s leases have remaining terms of less than
12
| Leases | Balance Sheet Classification | October 31, 2024 |
July 31, 2024 |
|||||||
| Assets | ||||||||||
| Operating | Right-of-use assets | $ | $ | |||||||
| Total lease assets | $ | $ | ||||||||
| Liabilities | ||||||||||
| Current: | ||||||||||
| Operating | Current portion of operating lease liabilities | $ | $ | |||||||
| Non-current: | ||||||||||
| Operating | Operating lease liabilities, non-current | |||||||||
| Total lease liabilities | $ | $ | ||||||||
| Lease Cost | 2024 | 2023 | ||||||
| Operating lease cost – net (a) | $ | $ | ||||||
| (a) |
| Maturity of lease liabilities, years ending July 31, | Operating leases |
|||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total lease payments | ||||
| Less: Interest (a) | ( |
) | ||
| Present value of lease liabilities | $ | |||
| (a) |
| Lease term and discount rate | 2024 | 2023 | ||||||
| Weighted-average remaining lease term (years): | ||||||||
| Operating leases | ||||||||
| Weighted-average discount rate: | ||||||||
| Operating leases | % | % | ||||||
See Note 5 for cash flow information on cash paid for amounts included in the measurement of lease liabilities for the three months ended October 31, 2024 and 2023.
13
Note 10 – Accrued liabilities and current liabilities
| October 31, 2024 |
July 31, 2024 |
|||||||
| Payroll, benefits and commissions | $ | $ | ||||||
| Professional fees | ||||||||
| Legal | ||||||||
| Other | ||||||||
| $ | $ | |||||||
Self-Insured Medical Plan
The Company self-funds medical insurance coverage for certain of its
U.S. based employees. The risk to the Company is believed to be limited through the use of individual and aggregate stop loss insurance.
As of October 31, 2024 and July 31, 2024, the Company had established reserves of $
Dividend payable
On October 29, 2024, the Board of Directors of the Company declared
a cash dividend of $
Note 11 – Stockholders’ equity
Controlled Equity Offering
In May 2023, the Company entered into a sales agreement (the “Sales
Agreement”) with B. Riley Securities, Inc. as sales agent (“Riley”). Under the Sales Agreement, the Company may offer
and sell, from time to time, through Riley, shares of the Company’s common stock, par value $
Incentive stock plans
In January 2011, the Company’s stockholders approved the adoption
of the 2011 Incentive Plan (the “2011 Plan”) for the issuance of equity awards, including, among others, options, restricted
stock, restricted stock units and performance stock units for up to
14
The exercise price of options granted under the Amended and Restated
2011 Plan is equal to or greater than fair market value of the common stock on the date of grant. The Amended and Restated 2011 Plan will
terminate at the earliest of (a) such time as no shares of common stock remain available for issuance under the plan, (b) termination
of the plan by the Company’s Board of Directors, or (c) October 7, 2030. Awards outstanding upon expiration of the Amended and Restated
2011 Plan will remain in effect until they have been exercised or terminated, or have expired. As of October 31, 2024, there were approximately
The Company estimates the fair value of each stock option award on the measurement date using a Black-Scholes option pricing model or the fair value of our stock at the date of grant. The fair value of awards is amortized to expense on a straight-line basis over the requisite service period. The Company expenses restricted stock awards based on vesting requirements, primarily time elapsed.
| Three months ended October 31, |
||||||||
| 2024 | 2023 | |||||||
| Stock options | $ | |||||||
| Restricted stock units | ||||||||
| $ | ||||||||
| Three months ended October 31, |
||||||||
| 2024 | 2023 | |||||||
| Selling, general and administrative | $ | |||||||
| Cost of revenues | ||||||||
| $ | ||||||||
During the three months ended October 31, 2023, the Company recognized
in selling, general and administrative expense $
15
| Options | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value (000s) |
|||||||||||||
| Outstanding at July 31, 2024 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Cancelled or expired | ( |
) | $ | |||||||||||||
| Outstanding at end of period | $ |
|
||||||||||||||
| Exercisable at end of period | $ |
|
||||||||||||||
As of October 31, 2024, the total future compensation cost related
to non-vested options, not yet recognized in the statements of operations, was $
Restricted Stock Units
| Number of RSUs outstanding |
Weighted Average Fair Value per Unit at Date of Grant |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value (000s) |
|||||||||||
| Outstanding at beginning of fiscal year | $ |
|
||||||||||||
| Granted | $ | |||||||||||||
| Vested | $ | |||||||||||||
| Cancelled | $ | |||||||||||||
| Outstanding at end of period | $ |
|
$ | |||||||||||
| Expected to vest at end of period | $ |
|
$ | |||||||||||
During the three months ended October 31, 2024 and 2023, the Company
recognized shared based compensation expense for RSUs of $
Note 12 – Segment reporting
The Company has
16
Legal and related expenses incurred to defend the Company’s intellectual property, which may result in settlements recognized in another segment, and other general corporate matters are considered a component of the Corporate & Other segment. Legal and related expenses specific to the Products’ segment’s activities are allocated to that segment.
Three months ended October 31, 2024
| Products | Corporate & Other |
Consolidated | ||||||||||
| Revenues | $ | $ | $ | |||||||||
| Operating costs and expenses: | ||||||||||||
| Cost of revenues | ||||||||||||
| Cost of revenues – inventory provision | ||||||||||||
| Research and development | ||||||||||||
| Selling, general and administrative | ||||||||||||
| Legal and related expenses | ||||||||||||
| Total operating costs and expenses | ||||||||||||
| Operating loss | ( |
) | ( |
) | ( |
) | ||||||
| Other income (expense) | ||||||||||||
| Interest | ||||||||||||
| Other | ||||||||||||
| Foreign exchange loss | ( |
) | ( |
) | ||||||||
| Loss before taxes | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||
| Depreciation and amortization included above | $ | $ | $ | |||||||||
| Share-based compensation included above: | ||||||||||||
| Selling, general and administrative | ||||||||||||
| Cost of sales | ||||||||||||
| Total | $ | $ | $ | |||||||||
| Capital expenditures | $ | $ | $ | |||||||||
17
Three months ended October 31, 2023
| Products | Corporate & Other |
Consolidated | ||||||||||
| Revenues | $ | $ | ||||||||||
| Operating costs and expenses: | ||||||||||||
| Cost of revenues | ||||||||||||
| Research and development | $ | |||||||||||
| Selling, general and administrative | ||||||||||||
| Legal and related expenses | ||||||||||||
| Total operating costs and expenses | ||||||||||||
| Operating loss | ( |
) | ( |
) | ( |
) | ||||||
| Other income (expense) | ||||||||||||
| Interest | ||||||||||||
| Change in fair value of convertible debentures | ( |
) | ( |
) | ||||||||
| Other | ||||||||||||
| Foreign exchange loss | ( |
) | ( |
) | ||||||||
| Loss before taxes | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||
| Depreciation and amortization included above | $ | $ | $ | |||||||||
| Share-based compensation included above: | ||||||||||||
| Selling, general and administrative | ||||||||||||
| Cost of sales | ||||||||||||
| Total | $ | $ | $ | |||||||||
| Capital expenditures | $ | $ | $ | |||||||||
Note 13 – Contingencies
Ransomware Attack
In April 2023, the Company experienced a ransomware attack (the “ransomware
attack”) that impacted certain critical information technology systems, principally of the discontinued operations. The Company
later became aware that certain data, including names, test information, and Social Security numbers, was accessed, and in some instances,
exfiltrated from the Company’s information technology systems as part of this incident. The investigation identified unauthorized
access to or acquisition of clinical test information of approximately
As a result of the ransomware attack, Enzo was subject to regulatory inquiry from the New York Attorney General, a joint inquiry from the Connecticut and New Jersey Attorneys General and an inquiry from the Utah Attorney General. All inquiries asked questions about the ransomware attack, as well as the corrective actions taken in response. The Company responded to all such inquiries, and there have been no further inquiries from the Utah Attorney General. The matters with the New York, Connecticut and New Jersey Attorneys General are now closed, as they were resolved by agreements with each of the three states effective August 8, 2024. A provision was recorded in the consolidated financial statements as of July 31, 2024 based on the settlement terms of the agreements.
18
Enzo was also subject to regulatory inquiries from the U.S. Department of Health and Human Services Office for Civil Rights (the “Office for Civil Rights”) regarding the ransomware attack. The Company has responded to all requests. It is not known at this time whether the Office for Civil Rights will seek a penalty against the Company. We are unable to evaluate the likelihood of an outcome, favorable or unfavorable, to the Company or to estimate the amount or range of any potential liability, if any, at this time.
There is also pending class action litigation:
In re Enzo Biochem Data Breach Litigation, No. 2:23-cv-04282 (EDNY)
In the Eastern District of New York (“EDNY”), twenty putative class actions were consolidated alleging various harms stemming from the April 2023 data incident. Lead counsel was appointed and filed a Consolidated Amended Complaint on November 13, 2023. The complaint sought to certify a federal class as well as several state subclasses. The Consolidated Amended Complaint brings various statutory and common law claims, including negligence, negligence per se, breach of fiduciary duty, breach of implied contract, breach of the implied covenant of good faith and fair dealing, violation of the New York’s General Business Law § 349, Invasion of Privacy, violations of the Connecticut Unfair Trade Practices Act, and violations of the New Jersey Consumer Fraud Act. An agreement in principle to settle the case has been reached. The Company expects to have the agreement formalized before the end of the 2024 calendar year.
Maria Sgambati et al., v. Enzo Biochem, Inc., et al., Index No. 619511/2023 (N.Y. Sup. Ct.)
This is a putative class action pending in state court alleging various harms stemming from the April 2023 data incident. The complaint seeks to certify a class of New York residents. The complaint brings claims of negligence; negligence per se; breach of implied covenant and good faith and fair dealing; breach of duty; breach of implied contract; and violations of New York’s Deceptive Acts and Practices § 349. The Company has filed a motion to stay this action pending the resolution of the EDNY Federal Action, and the motion was granted by the court. The Company anticipates that the case will be dismissed once the settlement in the federal case receives final approval from the court, likely sometime in 2025.
Louis v. Enzo Biochem, Inc. et al., Index No. 653281/2023 (N.Y. Sup. Ct.)
This is a putative class action pending in state court alleging various harms stemming from the April 2023 data incident. The complaint seeks to certify a class of New York citizens. The complaint brings claims of negligence; negligence per se; breach of duty; breach of implied contract; breach of implied covenant of good faith and fair dealing; and violations of New York’s Deceptive Acts and Practices § 349. The Company has filed a motion to stay this action pending the resolution of the EDNY Federal Action, and the motion remains pending. The Company anticipates that the case will be dismissed once the settlement in the federal case receives final approval from the court, likely sometime in 2025.
A provision was made in the consolidated financial statements as of July 31, 2023 for the above class action litigation matters based on a reasonable estimate of loss and updated as applicable as of October 31, 2024 and July 31, 2024; however, the actual exposure may differ.
Patent Matters
The Company (as plaintiff) has brought cases in the United States District Court for the District of Delaware (“the Court”), alleging patent infringement against various companies. At this time, all of such cases have been resolved, except for one described below.
There is currently one case that was originally brought by the Company that is still pending in the Court. In that case, Enzo alleges patent infringement of the ‘197 patent against Becton Dickinson defendants. The claims in that case are stayed.
On September 2, 2021, the U.S. Patent and Trademark Office (“PTO”) issued a non-final office action in an ex parte reexamination concerning the ‘197 Patent. In the office action, the PTO rejected certain claims of the ‘197 Patent under 35 U.S.C. §§ 102 and 103, and for nonstatutory double-patenting. Enzo responded to the office action on January 3, 2022, and the proceeding remains pending. Becton Dickinson requested another ex parte reexamination concerning the ‘197 patent on July 26, 2022. On September 16, 2022, the PTO ordered that ex parte reexamination as to certain claims of the ‘197 patent. Enzo filed a petition to terminate that second reexamination proceeding on November 16, 2022, which was denied on July 26, 2024. The PTO merged the ex parte reexamination proceedings as of August 2, 2024. On September 17, 2024, the PTO issued an office action, rejecting the claims subject to the merged reexamination proceedings.
19
Arbitration with former executives
The Company terminated the employment of Elazar Rabbani, Ph.D., the
Company’s former Chief Executive Officer, effective April 21, 2022. Dr. Rabbani was a director of the Company until the Annual
Meeting on January 31, 2024, when his term expired. Dr. Rabbani was a party to an employment agreement with the Company that entitled
him to certain termination benefits, including severance pay, acceleration of vesting of share-based compensation, and continuation of
benefits. Based on the terms of his employment agreement, the Company estimated and accrued a charge of $
On February 25, 2022, Barry Weiner, the Company’s co-founder
and President, notified the Company that he was terminating his employment as President of the Company for “Good Reason,”
as defined in his employment agreement. The Company accepted Mr. Weiner’s termination, effective April 19, 2022, but disagreed with
Mr. Weiner’s assertion regarding “Good Reason.” On October 24, 2023, the Company and Mr. Weiner reached an agreement
resolving the dispute, and a provision was made in the financial consolidated statements as of July 31, 2023 based on the settlement agreement.
The Company paid Mr. Weiner $
Other Matters
On or about March 2, 2023, a Verified Complaint was filed in the Supreme Court of the State of New York, New York County captioned Elazar Rabbani (as plaintiff) v. Mary Tagliaferri, et al. (as defendants), Index No. 651120/2023. The Verified Complaint purports to assert causes of action for breach of fiduciary duty and corporate waste under N.Y.B.C.L. § 720, and seeks an accounting and certain injunctive relief. On August 4, 2023, defendants moved to dismiss all the causes of action asserted in the Verified Complaint. Plaintiff filed an amended complaint on or about October 4, 2023, adding, among other things, an additional cause of action for violation of N.Y.B.C.L. § 626. On October 23, 2023, defendants filed a reply in further support of their motion to dismiss. On November 6, 2023, plaintiff filed an opposition to defendants’ motion to dismiss. On November 17, 2023, defendants filed a reply brief in further support of their motion to dismiss the amended complaint. On or about July 17, 2024, the Court granted, in part, the defendants’ motion to dismiss the amended complaint. On or about August 16, 2024, plaintiff noticed an appeal from the order granting that dismissal. On or about September 18, 2024, plaintiff filed a Verified Second Amended Complaint. On October 11, 2024, the defendants filed a joint stipulation and letter requesting the court to extend the deadline to respond to the Second Amended complaint from October 18, 2024 to November 18, 2024. On November 15, 2024, the plaintiff discontinued the derivative case and the related appeal (without prejudice).
On or about September 26, 2023, James G. Wolf, individually and as the trustee of the Wolf Family Charitable Foundation, Barbaranne R. Wolf, Stephen Paul Wolf, and Preston M. Wolf (collectively the “Petitioners”) initiated an appraisal action against Enzo in the New York Supreme Court for Suffolk County. Petitioners seek an appraisal of the value of their shares in the Company. The amount of damages sought by the Petitioners is unspecified. On or about August 21, 2024, the Court dismissed the Company’s Second and Third Affirmative Defenses. On or about September 19, 2024, the Court granted the Company permission to move for leave to reargue the Court’s dismissal decision. This matter has been fully briefed by the parties. We do not anticipate a decision until sometime in the first quarter of 2025. The Company intends to vigorously litigate both (i) Petitioners’ alleged entitlement to dissenting shareholder appraisal rights and (ii) the correct valuation of Petitioners’ shares.
In our discontinued Clinical Labs operations, third-party payers,
including government programs, may decide to deny payment or recoup payments for testing that they contend was improperly billed or
not medically necessary, against their coverage determinations, or for which they believe they have otherwise overpaid (including as
a result of their own error), and we may be required to refund payments that we received. In April 2024, the Company engaged in
settlement negotiations for a government payer and reached a verbal settlement. The settlement was finalized in a formal written
settlement agreement on August 14, 2024. The settlement resolved allegations that Enzo Clinical Labs, Inc. overbilled the
Connecticut Medicaid program for testing services. The settlement was paid in August 2024 for $
20
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 (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)). All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q, including statements regarding the Company’s future financial condition, results of operations and products in research and development may include forward-looking statements. 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 typically 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. All forward-looking statements are subject to important factors, risks, uncertainties, and assumptions, including industry and economic conditions, that could cause actual results to differ materially from those described in the forward-looking statements.
Forward-looking statements may include, without limitation, 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 future financial results. We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. As a result, investors are cautioned not to place undue reliance on any of our forward-looking statements. Investors should bear this in mind as they consider forward-looking statements. We do not assume any obligation to update or revise any forward-looking statement that we make, even if new information becomes available or other events occur in the future. We are also affected by other factors that may be identified from time to time in our filings with the Securities and Exchange Commission, some of which are set forth in Item 1A - Risk Factors in our Form 10-K filing for the fiscal year ended July 31, 2024. You are advised to consult any further disclosures we make on related subjects in our periodic reports on Forms 10-Q, 8-K and 10-K filed with 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 has operated as a life sciences company for over 45 years. The primary business of Enzo today is conducted through its Enzo Life Sciences division, which focuses on labeling and detection technologies from DNA to whole cell analysis, including a comprehensive portfolio of thousands of high-quality products, including antibodies, genomic probes, assays, biochemicals, and proteins. The Company’s proprietary products and technologies play central roles in translational research and drug development areas, including cell biology, genomics, assays, immunohistochemistry, and small molecule chemistry. The Company monetizes its technology primarily via sales through our global distribution network and licensing. Enzo Life Sciences is operated through the Company’s wholly-owned subsidiary Enzo Life Sciences, Inc. and its wholly-owned domestic and foreign subsidiaries. Costs excluded from Enzo Life Sciences financial results consist of corporate general and administrative costs and minimal therapeutic research and development expenses. These costs are reported within the consolidated financial statements as “Corporate and Other” (see Note 12 in the Notes to Consolidated Financial Statements for further segment information).
Discontinued operations – sale of Clinical Services business to Labcorp
Prior to July 24, 2023, we operated a clinical laboratory, doing business as Enzo Clinical Labs, which provided reference, molecular and esoteric diagnostic medical testing services in the New York, New Jersey, and Connecticut medical communities. Effective July 24, 2023, we completed the sale of certain assets used in the operation of Enzo Clinical Labs and the assignment of certain clinical lab liabilities to Laboratory Corporation of America (“Labcorp”) for an aggregate purchase price of $113.25 million in cash. In accordance with the sale, we ceased our clinical services operations. Excluded from the sale of the clinical services assets were its cash and accounts receivable. As a consequence of the sale, we have classified as discontinued operations all income and expenses attributable to the clinical services business for all periods presented.
21
Ransomware attack
In April 2023, the Company experienced a ransomware attack that impacted certain critical information technology systems, principally of the discontinued operation. In response, we promptly deployed containment measures, including disconnecting our systems from the internet, launching an investigation with assistance from third-party cybersecurity experts, and notifying law enforcement. We adhered to our disaster recovery plan, which enabled us to maintain operations throughout the incident response process. The Company’s facilities remained open, and we continued to provide services to patients and partners. We later became aware that certain data, including names, test information, and Social Security numbers, was accessed, and in some instances, exfiltrated from the Company’s information technology systems as part of this incident. The investigation identified unauthorized access to or acquisition of clinical test information of approximately 2.5 million individuals. The Social Security numbers of approximately 600,000 of these individuals may also have been involved. Additionally, the Company determined that some employees’ information may have been involved. The Company provided notice to the individuals whose information may have been involved, as well as to regulatory authorities, in accordance with applicable law. The Company has incurred, and may continue to incur, related expenses. The Company’s cybersecurity insurance carrier covered up to $3 million of the remediation costs related to the incident and paid service providers from the policy proceeds.
The Company remains subject to risks and uncertainties as a result of the incident, including as a result of the data that was accessed or exfiltrated from the Company’s network as noted above. Additionally, security and privacy incidents have led to, and may continue to lead to, additional regulatory scrutiny and class action litigation exposure. See Note 13 of the consolidated financial statements for discussion of litigation in connection with this incident.
Results of Operations from Continuing Operations
Three months ended October 31, 2024 compared
to October 31, 2023
(in $000s)
Comparative Financial Data from Continuing Operations for the three months ended October 31,
| 2024 | 2023 | Favorable (Unfavorable) |
% Change |
|||||||||||||
| Revenues | $ | 6,213 | $ | 7,806 | $ | (1,593 | ) | (20 | ) | |||||||
| Operating costs and expenses: | ||||||||||||||||
| Cost of revenues | 3,681 | 4,351 | 670 | 15 | ||||||||||||
| Cost of revenues – inventory provision | 252 | — | (252 | ) | ** | |||||||||||
| Research and development | 562 | 849 | 287 | 34 | ||||||||||||
| Selling, general and administrative | 4,882 | 7,007 | 2,125 | 30 | ||||||||||||
| Legal and related expenses | 458 | 1,075 | 617 | 57 | ||||||||||||
| Total operating costs and expenses | 9,835 | 13,282 | 3,447 | 26 | ||||||||||||
| Operating loss | (3,622 | ) | (5,476 | ) | 1,854 | 34 | ||||||||||
| Other income (expense): | ||||||||||||||||
| Interest, net | 620 | 977 | (357 | ) | (37 | ) | ||||||||||
| Fair value adjustment | — | (328 | ) | 328 | 100 | |||||||||||
| Other | 123 | 158 | (35 | ) | (22 | ) | ||||||||||
| Foreign exchange loss | (192 | ) | (1,006 | ) | 814 | 81 | ||||||||||
| Loss before income taxes | $ | (3,071 | ) | $ | (5,675 | ) | $ | 2,604 | 46 | |||||||
| ** | not meaningful |
Consolidated Results:
The “2024 period” and the “2023 period” refer to the three months ended October 31, 2024 and 2023, respectively.
Revenues were $6.2 million in the 2024 period and $7.8 million in the 2023 period, a decrease of approximately $1.6 million or 20% due to a reduction in orders from certain large customers in the clinical market in the comparable periods and a large order from an industrial customer in the 2023 period which was not repeated in the 2024 period. Overall, we experienced a decline in all geographic areas of our customer base due to declining market demand related to general continued headwinds in the life sciences tools space.
The cost of revenues was $3.7 million in the 2024 period and $4.4 million in the 2023 period, a decrease of $0.7 million or 15% due to lower revenues. The gross profit margin was approximately 41% and 44% in the 2024 and 2023 periods, respectively. The 2024 period was negatively impacted by inventory disposals due to a portfolio optimization initiative. The 2023 period gross profit was positively impacted by a decrease in manufacturing headcount, other cost containment measures, and a more profitable mix of products sold.
22
The cost of revenues – inventory provision was $0.3 million for raw material inventory we intended to use in manufacturing and sell to laboratory customers which we fully reserved in the 2024 period. This expense represents 4% of the period’s revenues.
Research and development expenses were $0.5 million in the 2024 period and $0.8 million in the 2023 period, a decrease of $0.3 million or 34%. There was an emphasis on manufacturing effort in the 2024 period. During the 2023 period there was a greater investment in research and development resources and materials consumed.
Selling, general and administrative expenses were $4.9 million during the 2024 period versus $7.0 million during the 2023 period, a decrease of $2.1 million or 30%. The Corporate and Other segment expense decreased $2.2 million during the 2024 period primarily due to severance provisions and accelerated recognition of share-based compensation incurred during the 2023 period of approximately $1.5 million related to a former senior officer. The remainder of the decrease in the 2024 period is due to lower share based compensation for directors and officers and lower bonus accruals. The Products segment expense in the 2024 period increased $0.1 million compared to 2023 period due to investments in sales and marketing.
Legal and related expenses were $0.5 million during the 2024 period and $1.1 million in the 2023 period, a decrease of $0.6 million or 57%. During the 2023 period, we required significantly more legal expertise and assistance associated with the ransomware attack and matters related to two former senior executives’ arbitration, one of which was settled during the 2023 period and one of which is ongoing.
Interest income, net was $0.6 million in the 2024 period compared to $1.0 million in the 2023 period, a decrease of $0.4 million or 37% due to a decrease in the balance of cash held in a money market account and a decline in the interest rate earned due to Federal Reserve actions to lower discount rates.
We recorded a fair value adjustment charge of approximately $0.3 million for the Debentures based on their fair value as of October 31, 2023, which were due and fully repaid in May 2024.
Other income in both periods is primarily from the subletting of a portion of our office space in New York, NY.
The foreign exchange loss recognized by the Products segment during the 2024 period was $0.2 million compared to $1.0 million in the 2023 period, a favorable variance of $0.8 million.
The foreign exchange loss in the 2024 period was due to the revaluation of intercompany balances denominated in European currencies into Swiss francs, which appreciated slightly, by our Swiss subsidiary. The 2023 period revaluation loss was due to significant depreciation of the Swiss franc, Euro and British pound as compared to the U.S dollar, when intercompany balances were higher, especially those denominated in the U.S. dollar.
Liquidity and Capital Resources
Our aggregate cash and cash equivalents as of October 31, 2024 was $47.7 million and $52.3 million as of July 31, 2024. The decrease of $4.6 million in our cash and cash equivalents balance as of October 31, 2024 was primarily due to the period net loss and by cash used to pay down accrued liabilities, particularly those of the discontinued operations, partially offset by the release from escrow of $5.0 million, as discussed below. Based on the current available working capital, management believes the Company has sufficient funds to meet its operating requirements for at least the next twelve months from the date of the filing of this report. Our working capital was $36.3 million and $45.2 million as of October 31, 2024 and July 31, 2024, respectively.
Net cash used in operating activities during the 2024 period was $9.0 million, compared to $13.4 million during the 2023 period, a favorable variance of $4.4 million, due to the smaller net loss from continuing operations in the 2024 period.
23
Net cash provided by investing activities during the 2024 period was approximately $4.6 million and represents the release of cash held in escrow from the Labcorp Asset Purchase Agreement which closed in July 2023, partially offset by capital expenditures. Net cash used in investing activities during the 2023 period was approximately $0.3 million for capital expenditures.
Net cash used in financing activities in the 2024 and 2023 periods amounted to $0.2 million and $0.5 million primarily for taxes on bonuses paid in stock.
Labcorp Asset Purchase Agreement and release of Cash in Escrow
We had indemnification obligations to Labcorp under the Asset Purchase Agreement that could have required us to make payments to Labcorp and other related persons for any damages incurred by Labcorp or such related persons as a result of any breaches of our representations, warranties, covenants or agreements contained in the Asset Purchase Agreement, or arising from retained liabilities or certain third-party claims specified in the Asset Purchase Agreement. Generally, our representations and warranties survived for a period of 15 months from the closing date, which was July 24, 2023, other than certain fundamental representations, which survive until the expiration of the applicable statute of limitations. There is an indemnification cap with respect to a majority of the Company’s indemnification obligations under the Asset Purchase Agreement with the exception of claims for actual fraud, the breach of any fundamental representations and certain other items, which are subject to a higher indemnification cap (up to the purchase price).
Pursuant to the terms of the Asset Purchase Agreement, we, Labcorp, and an escrow agent entered into an Escrow Agreement at closing, pursuant to which Labcorp deposited $5 million of the aggregate purchase price of the clinical service business into an escrow account in order to satisfy, in whole or in part, certain of our indemnity obligations, if any, that arose under the Asset Purchase Agreement. Labcorp made no claims and required only a reimbursement of certain legal fees it had incurred, which were immaterial. On October 30, 2024, the escrowed funds of $5.0 million were released to the Company and are included in cash and cash equivalents as of October 31, 2024.
Off Balance Sheet Arrangements
The Company does not have any “off-balance sheet arrangements” as such term is described in Item 303 of Regulation S-K.
General and estimates
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 U.S. GAAP. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and judgments also affect related disclosure of contingent assets and liabilities.
On an on-going basis, we evaluate our estimates, including those related to contractual expense, allowance for expected credit losses, inventory, 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.
Contingencies
Contingencies are evaluated and a liability is recorded when the matter is both probable and reasonably estimable. Gain contingencies are evaluated and not recognized until the gain is realizable or realized.
24
Product revenues
Products revenues consist of the sale of single-use products used in the identification of genomic information and are recognized at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment. Payment terms for shipments to end-user and distributor customers may range from 30 to 90 days. Any claims for credit or return of goods may be made generally within 30 days of receipt. Revenues are reduced to reflect estimated credits and returns, although historically these adjustments have not been material. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue. Amounts billed to customers for shipping and handling are included in revenue, while the related shipping and handling costs are reflected in cost of products.
Accounts Receivable
Accounts receivable are reported at realizable value, net of expected credit losses, which is estimated and recorded in the period of the related revenue.
As of October 31, 2024 and July 31, 2024, Products accounts receivable, net were $3,842 and $3,988, respectively. As of October 31, 2024 and July 31, 2024, these totals include foreign receivables, net, of $847 and $1,185, respectively.
Inventory
The Company values inventory at the lower of cost (first-in, first-out) or net realizable value. Work-in-process and finished goods inventories consist of material, labor, and manufacturing overhead. Write downs of inventories to net realizable value are based on a review of inventory quantities on hand and estimated sales forecasts based on sales history and anticipated future demand. Unanticipated changes in demand could have a significant impact on the value of our inventory and require additional write downs of inventory which would impact our results of operations.
Long-Lived Assets
The Company reviews the recoverability of the carrying value of long-lived depreciable assets of an asset or asset group for impairment if indicators of potential impairment exist. Should indicators of impairment exist, the carrying values of the depreciable assets are evaluated in relation to the operating performance and future undiscounted cash flows of an asset or asset group. The net book value of the depreciable long lived asset is adjusted to fair value if its expected future undiscounted cash flow is less than its book value.
During the three months ended October 31, 2024 and 2023 there was no impairment of depreciable long-lived assets used in continuing operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
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 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 each of our principal executive officer and principal financial officer. Based on the evaluation of our Disclosure Controls, our principal executive officer and principal financial officer have concluded that, as of October 31, 2024, our Disclosure Controls were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period ended October 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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, 2024 filed with the Securities and Exchange Commission, other than as noted in Note 13 to these Consolidated Financial Statements as of October 31, 2024.
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in Part 1, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2024.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information00
Item 6. Exhibits
| Exhibit No. | Exhibit | |
| 31.1 | Certification of Kara Cannon pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of Patricia Eckert pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certification of Kara Cannon pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Certification of Patricia Eckert pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101. INS* | Inline XBRL Instance Document. | |
| 101. SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
| 101. CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | 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. |
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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: December 16, 2024 | by: | /s/ Patricia Eckert |
|
Chief Financial Officer and Principal Accounting Officer |
||
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