Basis of Presentation
|3 Months Ended|
Oct. 31, 2022
|Accounting Policies [Abstract]|
|Basis of Presentation||
Note 1 – Basis of Presentation
The accompanying consolidated financial statements include the accounts of Enzo Biochem, Inc. and its wholly-owned subsidiaries, Enzo Life Sciences, Enzo Clinical Labs, Enzo Therapeutics, Enzo Realty LLC and Enzo Realty II LLC, collectively or with one or more of its subsidiaries referred to as the “Company” or “Companies”. The Company has two reportable segments: Clinical Services and Products. The consolidated balance sheet as of October 31, 2022, the consolidated statements of operations, comprehensive (loss) income and stockholders’ equity for the three months ended October 31, 2022 and 2021, and the consolidated statements of cash flows for the three months ended October 31, 2022 and 2021 (the “interim statements”) are unaudited. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position and operating results for the interim periods have been made. Certain information and footnote disclosure, normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), have been condensed or omitted. The interim statements should be read in conjunction with the consolidated financial statements for the year ended July 31, 2022 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, 2022 has been derived from the audited financial statements at that date. The results of operations for the three months ended October 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2023.
Change in segment reporting
Historically, we engaged in the research and development of therapeutic candidates through Enzo Therapeutics, a biopharmaceutical venture that was developing multiple novel approaches in the areas of gastrointestinal, infectious, ophthalmic and metabolic diseases, many of which were derived from the pioneering work of Enzo Life Sciences. Enzo Therapeutics focused its efforts on researching treatment regimens for diseases and conditions for which treatment options were ineffective, costly, and/or caused unwanted side effects. This focus generated a clinical and preclinical pipeline, as well as numerous patents and patent applications with Enzo Therapeutics as the assignee. At the beginning of fiscal 2023, we determined we would redirect our research resources and efforts to our two operating segments, Enzo Life Sciences and Enzo Clinical Labs, and no longer consider Enzo Therapeutics a segment. The operating results of Enzo Therapeutics are now included in the “Other” segment. The prior period segment information for the three months ended October 31, 2021 reported in Note 11 has been restated to be included in the “Other” segment. The operating expenses of Enzo Therapeutics for the three months ended October 31, 2022 and 2021 now included in the “Other” segment were $9 and $5, respectively.
During the three months ended October 31, 2022, the Company incurred a net loss of $10,635 and used cash in operating activities of $8,693. The Company believes that based on its fiscal 2023 forecast, its current cash and cash equivalents level is sufficient for its foreseeable liquidity and capital resource needs over at least the next twelve (12) months. However, should these net loss and use of cash trends continue, the Company may need to raise additional capital during the current fiscal year. Although there can be no assurances, in the event additional capital is required, the Company believes it has the ability to raise additional funds, either through securing debt or the reactivation and utilization of the Controlled Equity Offering Program, or other sources. That program’s Form S-3 expired in October 2020 but may be refiled at any time at the discretion of the Company, as disclosed in Note 10 in the Notes to the Consolidated Financial Statements. Our liquidity plans are subject to a number of risks and uncertainties, some of which are outside our control. Macroeconomic conditions could limit our ability to successfully execute our business plans and therefore adversely affect our liquidity plans.
Impact of COVID-19
We made substantial investments to expand and maintain the amount of COVID-19 testing available in the communities we serve since the start of the pandemic in March 2020. Enzo applied its technical expertise in molecular diagnostics to develop next generation COVID-19 diagnostic and antibody testing options which were approved under the FDA Emergency Use Authorization (EUA). During the fiscal year ended July 31, 2022, the Company generated substantial COVID-19 related services revenues, representing 44% of all services revenues. This testing had a significantly positive impact on the profitability and cash flow of our Clinical services segment for most of fiscal 2022. Revenues from COVID-19 testing during the three months ended October 31, 2022 represented 7% of all services revenues.
In March 2022, the U.S. Health Resources and Services Administration (“HRSA”) informed providers that, after March 22, 2022, it would stop accepting claims for testing and treatment for uninsured individuals under the HRSA COVID-19 Uninsured Program and that claims submitted prior to that date would be subject to eligibility and availability of funds. Although we believe that our estimates for contractual allowances and patient price concessions are appropriate, actual results could differ from those estimates. If the HRSA receives additional funding, it might again accept claims under the Uninsured Program.
The rate of transmission of COVID-19 and the severity of its variants have dramatically declined in the US. However, federal, state and local governmental policies and initiatives designed to reduce the transmission of COVID-19 resulted in, among other things, a significant reduction in physician office visits, the cancellation of elective medical procedures, and the continuation of work-from-home policies. The COVID-19 impact on the Company’s operations is consistent with the overall industry and our competitors, partners, and vendors. While we anticipate that COVID-19 will continue to impact our business into the future, increases in vaccination rates and booster shots, the development of new therapeutics and greater availability of rapid COVID-19 tests has resulted in a continued, significant decline in demand for our COVID-19 testing. As a result, volume, revenues, profitability, and cash flow from COVID-19 testing during the current period were all substantially and materially lower than the prior year period levels. At this time, COVID-19 testing is no longer a material part of our Services business.
We expect volume and revenues from COVID-19 testing will remain less significant in the periods ahead as the percentage of Americans who are vaccinated increases, the severity of its variants declines, and the general increase in the use of “at home” testing. However, the emergence and spread of potentially more serious variants may cause our COVID-19 testing volume to increase again. With respect to our non-COVID-19 operations, even after the COVID-19 pandemic impact has greatly moderated, we may continue to experience similar adverse effects to our businesses, consolidated results of operations, financial position and cash flows resulting from a recessionary economic environment, including inflation and actions by the Federal Reserve to increase interest rates.
The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 and the recessionary economic environment, including inflation and actions by the Federal Reserve to increase interest rates as of October 31, 2022 and through the date of this Quarterly Report. The accounting matters assessed included, but were not limited to, the Company’s patient self-pay revenue concessions and credit losses in the Clinical Services segment, accounts receivable, inventories and the carrying value of goodwill and other long-lived assets. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other economic factors, could result in additional material adverse impacts to the Company’s consolidated financial statements in future reporting periods.
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.
Effect of New Accounting Pronouncements
Pronouncements Issued but Not Yet Adopted
In June 2016, FASB issued ASU No. 2016-13 Financial Instruments – Credit Losses (Topic 326). This standard changes the impairment model for most financial instruments, including trade receivables, from an incurred loss method to a new forward-looking approach, based on expected losses.
The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. Adoption of this standard is required for our annual and interim periods beginning August 1, 2023, as we qualify as a smaller reporting company at the end of fiscal 2022 and must be adopted using a modified retrospective transition approach. We are currently assessing the impact of the adoption of this standard on our results of operations, financial position and cash flows.
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.
Other than the Medicare program, one provider whose programs are included in the “Third-party payers” and “Health Maintenance Organizations” (“HMO’s”) categories represents approximately 15% of Clinical Services net revenue for the three months ended October 31, 2022 and 16% of the Clinical Services net accounts receivable as of October 31, 2022. Other than the Medicare program, two providers whose programs are included in the “Third-party payers” and “Health Maintenance Organizations” (“HMO’s”) categories represent approximately 36% of Clinical Services net revenue for the three months ended October 31, 2021.
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.
The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef