ENZO BIOCHEM INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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



Forward-Looking Statements



Our disclosure and analysis in this report, including but not limited to the
information discussed in this Item 2, contain forward-looking information about
our Company's financial results and estimates, business prospects and products
in research and development that involve substantial risks and uncertainties.
From time to time, we also may provide oral or written forward-looking
statements in other materials we release to the public. Forward-looking
statements give our current expectations or forecasts of future events. You can
identify these statements by the fact that they do not relate strictly to
historic or current facts. They use words such as "anticipate", "estimate",
"expect", "project", "intend", "plan", "believe", "will", and other words and
terms of similar meaning in connection with any discussion of future operations
or financial performance.



In particular, these include statements relating to future actions, prospective
products or product approvals, future performance or results of current and
anticipated products, sales efforts, expenses, interest rates, foreign currency
rates, intellectual property matters, the outcome of contingencies, such as
legal proceedings, impacts of the COVID-19 pandemic and measures we have taken
in response, and financial results. We cannot guarantee that any forward-looking
statement will be realized, although we believe we have been prudent in our
plans and assumptions. Achievement of future results is subject to risks,
uncertainties and inaccurate assumptions. Should known or unknown risks or
uncertainties materialize, or should underlying assumptions prove inaccurate,
actual results could vary materially from past results and those anticipated,
estimated or projected. As a result, investors are cautioned not to place undue
reliance on any of our forward-looking statements. Investors should bear this in
mind as they consider forward-looking statements. We do not assume any
obligation to update or revise any forward-looking statement that we make, even
if new information becomes available or other events occur in the future. We are
also affected by other factors that may be identified from time to time in our
filings with the Securities and Exchange Commission, some of which are set forth
in Item 1A - Risk Factors in our Form 10-K filing for the July 31, 2022 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.



                                       22





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
represented 7% of all services revenues during the three months ended October
31, 2022.



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.



                                       23





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.



Overview

Enzo Biochem, Inc. (the "Company", "we", "our", or "Enzo") is an integrated
diagnostics, clinical lab, and life sciences company focused on delivering and
applying advanced technology capabilities to produce affordable reliable
products and services that enable our customers to meet their clinical needs.
Through a connection with the market, we provide advanced biotechnology
solutions to the global community as affordable and flexible quality products
and services. We develop, manufacture and sell our proprietary technology
solutions and platforms to clinical laboratories, specialty clinics, researchers
and physicians globally. Enzo's structure and business strategy represent the
culmination of years of extensive planning and work.  The Company has the
ability to offer low cost, high performance products and services for diagnostic
testing, which ideally positions us to capitalize on the reimbursement pressures
facing diagnostic labs. Our pioneering work in genomic analysis coupled with our
extensive patent estate and enabling platforms have positioned the Company to
continue to play an important role in the rapidly growing molecular medicine
marketplaces.



Enzo develops low cost diagnostic platform products and related services. Our
platform development includes automation-compatible reagent systems and
associated products for sample collection and processing through analysis. We
develop affordable products and services to improve healthcare, one of the
greatest challenges today. Enzo combines over 40 years of expertise in
technology development with assay development capabilities and diagnostic
testing services to create high performance, cost-effective, and open assay
solutions. The ability to combine these assets in one company is unique. With
our strong intellectual property portfolio integrated with assay development
know-how, production, distribution, validation and services capabilities, we
have enabled sustainable products and services for a market that is facing
increasing pressure in costs and reimbursement.



                                       24





Enzo technology solutions and platforms and unique operational structure are
designed to reduce overall healthcare costs for both government and private
insurers. Our proprietary technology platforms reduces our customers' need for
multiple, specialized instruments, and offer a variety of high throughput
capabilities together with a demonstrated high level of accuracy and
reproducibility. Our genetic test panels are focused on large and growing
markets primarily in the areas of personalized medicine, women's health,
infectious diseases and genetic disorders.

In the course of our research and development activities, we have built a substantial portfolio of intellectual property assets, comprised of approximately 472 issued patents worldwide and over 64 pending patent applications, along with extensive enabling technologies and platforms.

Below are brief descriptions of each of our two operating segments (See Note 11 in the Notes to Consolidated Financial Statements):

Enzo Clinical Services is a clinical reference laboratory providing a wide range
of clinical services to physicians, medical centers, other clinical labs and
pharmaceutical companies. The Company believes having a Clinical Laboratory
Improvement Amendments of 1988 ("CLIA") certified and College of American
Pathologists ("CAP") accredited medical laboratory located in New York provides
us the opportunity to more rapidly introduce cutting edge products and services
to the clinical marketplace. Enzo Clinical Labs offers an extensive menu of
molecular and other clinical laboratory tests and procedures used in patient
care by physicians to establish or support a diagnosis, monitor treatment or
medication, and search for an otherwise undiagnosed condition. Our laboratory is
equipped with state-of-the-art communication and connectivity solutions enabling
the rapid transmission, analysis and interpretation of generated data. We
operate a full service clinical laboratory in Farmingdale, New York, a network
of over 30 patient service centers throughout New York, New Jersey and
Connecticut, two free standing "STAT" or rapid response laboratories in New York
City and Connecticut, an in-house logistics department, and an information
technology department. Under our license in New York State, we are able to offer
testing services to clinical laboratories and physicians nationwide.



The Clinical Laboratory Services reporting unit is impacted by various risk
factors, including among others, reduced reimbursements from third party payers
for testing performed and from recent health care legislation. Despite the
growth we have experienced in previous years, there can be no assurance future
growth can be achieved. The introduction of new molecular and esoteric tests is
expected to increase our revenue per test and could offset impacts from the
above factors. The Company anticipates improved profitability with increased
service volume.



Enzo Products manufactures, develops and markets products and tools for clinical
research, drug development and bioscience research customers worldwide.
Underpinned by broad technological capabilities, Enzo Life Sciences has
developed proprietary products used in the identification of genomic information
by laboratories around the world. Information regarding our technologies can be
found in the "Core Technologies" section of our most recently filed Form 10-K.
We are internationally recognized and acknowledged as a leader in the
development, manufacturing validation and commercialization of numerous products
serving not only the clinical research market, but also the life sciences
markets in the fields of cellular analysis and drug discovery, among others. Our
operations are supported by global operations allowing for the efficient
marketing and delivery of our products around the world.



                                       25





                             Results of Operations

        Three months ended October 31, 2022 compared to October 31, 2021
                                   (in 000s)

Comparative Financial Data for the Three Months Ended October 31,

                                                                          Favorable
                                             2022          2021         (Unfavorable)       % Change

Revenues                                   $  18,276     $  26,519     $        (8,243 )          (31 )

Operating costs and expenses:
Cost of revenues                              14,671        15,273                 602              4
Research and development                         996           744                (252 )          (34 )
Selling, general and administrative           11,451        11,052                (399 )           (4 )
Legal and related expenses                     1,071         1,282                 211             16
Total operating costs and expenses            28,189        28,351         

       162              1

Operating loss                                (9,913 )      (1,832 )            (8,081 )           **

Other income (expense):
Interest                                          70            39                  31             79
Other                                              5          (145 )               150             **
Foreign currency loss                           (797 )        (381 )              (416 )         (109 )
Loss before income taxes                   $ (10,635 )   $  (2,319 )   $        (8,316 )           **




** not meaningful




Consolidated Results:

The "2023 period" and the "2022 period" refer to the three months ended October 31, 2022 of fiscal year 2023 and October 31, 2021 of the fiscal year 2022, respectively.

Impacts 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.



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 has
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
2023 period were all substantially and materially lower than the 2022 period
levels. At this time, COVID-19 testing is no longer a material part of our

Services business.



                                       26





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 impact of the
COVID-19 pandemic greatly moderated and the business and social distancing
restrictions have eased, 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.



Clinical services revenues for the 2023 period were $11.2 million compared to
$19.7 million in the 2022 period, a decrease of $8.5 million or 43%. Revenues
from COVID-19 testing represented 7% and 47% of Clinical revenues in the 2023
and 2022 periods, respectively as COVID-19 accessions declined 92% in the 2023
period versus the 2022 period. Accessions from all other testing was down 2%.



Estimated collection amounts are subject to the complexities and ambiguities of
third party payer billing, reimbursement regulations and claims processing, as
well as issues unique to Medicare and Medicaid programs, and require us to
consider the potential for adjustments when estimating variable consideration in
the recognition of revenue in the period that the related services are rendered.
Furthermore, the current recessionary environment, including inflation and
actions by the Federal Reserve to increase interest rates, have, in part,
resulted in longer lag periods between the time when we perform and report on
our clinical services and when we are ultimately paid. While we believe this to
be a timing issue, any changes in our estimates of collections could have a
material adverse impact on our consolidated financial statements.



In 2014, Congress passed the U.S. Protecting Access to Medicare Act of 2014
(PAMA), which included substantial changes to the way in which clinical
laboratory services are paid under Medicare. Beginning in 2018, Medicare
payments for clinical laboratory services are paid based upon the
volume-weighted median of private payer rates as reported by certain clinical
laboratories across the US, replacing the previous system which was based upon
fee schedules derived from historical charges for clinical laboratory tests. We
estimate that the effect of PAMA directly negatively impacted reimbursements
from Medicare and Medicaid in the 2023 and 2022 periods by $0.2 million and

$0.3
million, respectively.



Product revenues were $7.1 million in the 2023 period and $6.8 million in the
2022 period, an increase of $0.3 million or 5%. Increased revenues in the United
States and Asia Pacific regions were partially offset by a decrease of revenues
in Europe. During the 2022 period, we closed our manufacturing and distribution
center in Ann Arbor, MI and moved the operations to our Farmingdale, NY campus.
As a result we experienced some disruption in the manufacture and distribution
of our products during the period, and experienced delays in product
availability and fulfillment. This primarily impacted customers in Europe and to
a lesser extent the Asia Pacific region. Revenues in the United States were
unchanged.



The cost of Clinical Services was $10.1 million in the 2023 period and $11.2
million in the 2022 period, a decrease of $1.1 million or 10%. Due to the
decline in revenues in the 2023 period versus 2022, we decreased our reagent
costs by $0.7 million, our outside reference testing by $0.3 million, and
salaries by $0.1 million. During the 2022 period, we significantly reduced our
outside reference testing costs for COVID-19 by utilizing our internal
manufacturing capabilities, thereby reducing some of our reliance on testing and
reagents sourced from third parties. The gross profit margin on Clinical
Services revenues in the 2023 period was approximately 10% versus 43% in the
2022 period, due to the magnitude of the decline in high margin COVID-19
testing.



The cost of Product revenues was $4.6 million in the 2023 period and $4.1
million in the 2022 period, an increase of $0.5 million or 13%, driven by higher
revenues, the impact of inflation on materials, and market adjustment salary
increases at our Farmingdale, NY manufacturing facility as compared to the 2022
period. As a result of those increases, the gross profit margin on Products was
35% in the 2023 period and 40% in the 2022 period . During the 2022 period, we
closed our manufacturing and distribution center in Ann Arbor, MI and moved the
operations to our Farmingdale, NY campus. As a result there was a temporary
increase and overlap in manufacturing headcount and overhead costs during the
transition in the 2022 period.



                                       27

Research and development expenses were $1.0 million in the 2023 period and $0.7
million in the 2022 period, an increase of $0.3 million or 34%. Research
activities include but are not limited to lab developed tests (LDTs) for
sexually transmitted infection (STI) panels and the detection of COVID-19 and
its variants.

Selling, general and administrative expenses were $11.5 million during the 2023
period versus $11.1 million during the 2022 period, an increase of $0.4 million
or 4%. The Clinical Services expense increased $0.5 million primarily due to
increased facility costs and market adjustment salary increases in billing,
information technology and administrative operations departments, partially
offset by lower sales commissions. The Other segment expense increased $0.5
million during the 2023 period compared to 2022 primarily due to consulting fees
of $0.9 million related to advisory services including the evaluation of
strategic alternatives for the Company. Additionally share based compensation
increased $0.2 million. These increases were partially offset by a decrease in
executive salaries and bonus accruals of $0.5 million. The Life Sciences
Products expense decreased $0.6 million during the 2023 period, of which $0.4
million was due to the 2022 period expense for employee severance expenses
associated with the closure of the facility in Ann Arbor, MI and the cost of
moving its operations to our Farmingdale, NY campus. The segment also
experienced a decrease in sales & marketing headcount and other marketing
expenses such as website ads, promotions and campaigns and trade shows totaling
$0.2 million.

Legal and related expenses were $1.1 million on a net basis during the 2023
period compared to $1.3 million on a net basis in the 2022 period, a decrease of
$0.2 million or 16%. During the 2022 period, we incurred higher legal activities
associated with strategic initiatives and other corporate matters but recognized
a credit of $1.0 million associated with a fee settlement and release agreement
with a former legal services provider.



Interest income, net was less than $0.1 million in the 2023 and 2022 periods.
The 2023 period's income was higher due to higher interest earned on cash in a
money market fund. In the 2022 period, we also earned some interest on
marketable securities in bond funds. In both periods we had interest expense
primarily on a mortgage.



Other income (expense) in the 2023 and 2022 period was nil and ($0.1) million
respectively, a favorable variance of approximately $0.1 million. During the
2022 period, the primary component of the expense was unrealized losses on
marketable securities in bond funds held at that time as trading securities.



The foreign currency revaluation loss recognized by the Life Sciences Products
segment during the 2023 period was $0.8 million compared to $0.4 million in the
2022 period, an unfavorable variance of $0.4 million. The 2023 period
revaluation loss was due to depreciation of the British pound and Swiss franc
versus the U.S. dollar as of the end of the period compared to its start. The
revaluation loss in the 2022 period was smaller due to less significant
depreciation of the British pound and Swiss franc versus the U.S. dollar as of
the end of that period compared to its start.

Liquidity and Capital Resources

At October 31, 2022, the Company had cash and cash equivalents totaling $12.1
million of which $0.6 million was in foreign accounts, as compared to cash and
cash equivalents of $21.6 million, of which $0.6 million was in foreign accounts
at July 31, 2022. It is the Company's current intent to permanently reinvest
these foreign funds outside of the United States, and its current plans do not
demonstrate a need to repatriate them to fund its United States operations.



The Company had working capital of $20.3 million at October 31, 2022, compared
to $29.8 million at July 31, 2022, a decrease of $9.5 million. The decrease in
working capital was due to the use of cash and cash equivalents to fund
operations and capital expenditures.



                                       28





Net cash used in operating activities during the 2023 period was $8.7 million,
compared to $6.0 million during the 2022 period, an unfavorable variance of $2.6
million. The net cash used in the 2023 period was due to the net loss of $10.6
million and a net decrease of $0.5 million in operating liabilities, primarily
accounts payable. These uses were partially offset by non-cash expense
adjustments of $2.2 million and a net decrease of $0.2 million in operating
assets, primarily prepaid assets. The net cash used in the 2022 period was due
to the net loss of $2.3 million, a net increase of $2.2 million in operating
assets, (primarily accounts receivable and inventories), and a net decrease of
$3.1 million in operating liabilities, primarily accounts payable and accrued
expenses. These uses were partially offset by net non-cash adjustments of $1.6
million.



Net cash used in investing activities during the 2023 period was approximately
$0.7 million as compared to $1.1 million in the 2022 period. Capital
expenditures in the 2023 and 2022 periods were $0.7 million and $1.0 million,
respectively and represent expenditures to support and grow our existing
operations, including investments in laboratory equipment, information
technology, and the buildout of our Farmingdale campus. During the 2022 period,
we also purchased marketable securities in bond funds, representing reinvestment
of income, of less than $0.1 million.



Cash used in financing activities in both the 2023 and 2022 periods approximated
$0.1 million for payments related to a long term debt including a mortgage

and
finance leases.

As of October 31, 2022 we had a mortgage principal balance of $3.9 million
entered into for the purchase of a building facility at our Farmingdale campus,
which bears a fixed interest rate of 5.09% per annum. It requires monthly
mortgage payments totaling $0.4 million annually. Our obligations under the
mortgage agreement are secured by the facility and by a $1.0 million cash
collateral deposit with the mortgagee as additional security, which is included
in other assets as of October 31, 2022.



Effective October 19, 2020, the Company and the mortgagee agreed to a covenant
restructure whereby the mortgagee waived the Company's financial ratio covenant
for the fiscal period ended July 31, 2020 and modified the mortgage to replace a
financial ratio covenant with a liquidity covenant. The liquidity covenant
required that we own and maintain at all times, and throughout the remaining
term of the loan, at least $25 million of liquid assets, defined as time
deposits, money market accounts and commercial paper, and obligations issued by
the U.S. government or any of its agencies. The cash collateral agreement was
also modified to require compliance with the liquidity covenant for two
consecutive fiscal years before the collateral is released back to us. As of
July 31, 2021, the Company was in compliance with the financial and liquidity
covenants in effect at that time related to this mortgage. Effective September
29, 2021, the Company and the mortgagee agreed to further covenant restructuring
whereby (a) the liquidity covenant was reduced to 150% of the loan principal (or
approximately $5.8 million at October 31, 2022) from $25 million previously, and
(b) the collateral requirement would be increased from $0.75 million to $1.0
million. The Company increased the collateral deposit to $1.0 million in
November 2021 and was in compliance with the liquidity covenant as of October
31, 2022 and July 31, 2022.



The Company believes based on its fiscal 2023 forecast that its current cash and
cash equivalents level are sufficient for its foreseeable liquidity and capital
resource needs over at least the next twelve (12) months. However, should the
net loss and use of cash trends continue through fiscal 2023, 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, including those
described in the Item 1A. "Risk Factors" section of this Form 10-K for the year
ended July 31, 2022, 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.



                                       29

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.

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 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 on-going basis, we evaluate our estimates, including those related to
contractual expense, allowance for uncollectible accounts, inventory, intangible
assets, goodwill and income taxes. The Company bases its estimates on experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

Revenues - Clinical Services

Contractual Adjustment



The Company's estimate of contractual adjustment is based on significant
assumptions and judgments, such as its interpretation of payer reimbursement
policies, and bears the risk of change. The estimation process is based on the
experience of amounts approved as reimbursable and ultimately settled by payers,
versus the corresponding gross amount billed to the respective payers. The
contractual adjustment is an estimate that reduces gross revenue, based on gross
billing rates, to amounts expected to be approved and reimbursed.



Gross billings are based on a standard fee schedule we set for all third party
payers, including Medicare, HMO's and managed care. The Company adjusts the
contractual adjustment estimate quarterly, based on its evaluation of current
and historical settlement experience with payers, industry reimbursement trends,
and other relevant factors. The other relevant factors that affect our
contractual adjustment include the monthly and quarterly review of: 1) current
gross billings and receivables and reimbursement by payer, 2) current changes in
third party arrangements and 3) the growth of in-network provider arrangements
and managed care plans specific to our Company.



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



For the three months ended October 31, 2022 and 2021, the contractual adjustment
percentages, determined using current and historical reimbursement statistics,
was 87.6% and 83.7% respectively, of gross billings. The Company estimates (by
using a sensitivity analysis) that each 1% point change in the contractual
adjustment percentage could result in a change in clinical services revenues of
approximately $0.9 million and $1.2 million for the three months periods ended
October 31, 2022 and 2021 respectively, and a change in the net accounts
receivable of approximately $0.4 million as of October 31, 2022.



                                       30

Our clinical services financial billing system records gross billings using a
standard fee schedule for all payers and does not record contractual adjustment
by payer at the time of billing. Therefore, we are unable to quantify the effect
contractual adjustments recorded during the current period have on revenue
recorded in a previous period. However, we can reasonably estimate our monthly
contractual adjustment to revenue on a timely basis based on our quarterly
review process, which includes:



  ? an analysis of industry reimbursement trends;

  ? an evaluation of third-party reimbursement rates changes and changes in
    reimbursement arrangements with third-party payers;

? a rolling monthly analysis of current and historical claim settlement and

    reimbursement experience statistics with payers; and

  ? an analysis of current gross billings and receivables by payer.




Accounts Receivable

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

The following is a table of the Company's net accounts receivable by segment.
The Clinical Laboratory Services segment's net receivables are detailed by
billing category and as a percent to its total net receivables. As of October
31, 2022 and July 31, 2022, approximately 62% and 59%, respectively of the
Company's net accounts receivable relates to its Clinical Laboratory Services
business, which operates in the New York, New Jersey and Connecticut medical
communities. The Life Sciences products segment's accounts receivable includes
approximately $1.0 million or 22% and $1.1 million or 24% of foreign receivables
as of October 31, 2022 and July 31, 2022, respectively.

Net accounts receivable (in thousands)

October 31, 2022          July 31, 

2022

Net accounts receivable by segment Amount % Amount

%

Clinical Labs (by billing category)
Third party payers                    $     3,054        43     $  2,647        40
Patient self-pay                            2,758        39        2,779        41
Medicare                                      765        11          768        11
HMO's                                         519         7          560         8
Total Clinical Labs                         7,096       100 %      6,754       100 %
Total Life Sciences                         4,419                  4,762
Total accounts receivable - net       $    11,515               $ 11,516




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 assesses the current
state of its billing functions in order to identify any known collection or
reimbursement issues. The Company assesses the impact, if any, on the allowance
estimates, which involves Company's management judgment. It is important to note
that the collection of these receivables is not guaranteed from Third Party
Payers. The Company believes that the collectability of its receivables is
directly linked to the quality of its billing processes, most notably, those
related to obtaining the accurate patient information to effectively bill 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. As of October 31, 2022, approximately 16% of Clinical Labs receivables
are from one payer other than Medicare and as of July 31, 2022, approximately
23%, of Clinical Labs receivables are from two payers other than Medicare.



Billing for laboratory services is complicated due to several factors,
including, but not limited to, the differences between our standard gross fee
schedule for all payers and the reimbursement rates of the various payers we
deal with, disparity of coverage and information requirements among the various
payers, and disputes with payers as to which party is responsible for
reimbursement.



                                       31





Income Taxes



The Company accounts for income taxes under the liability method of accounting
for income taxes. Under the liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. The liability method requires
that any tax benefits recognized for net operating loss carry forwards and other
items be reduced by a valuation allowance where it is not more likely than not
the benefits will be realized in the foreseeable future. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under the liability method, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. It is the Company's policy to provide
for uncertain tax positions, if any, and the related interest and penalties
based upon management's assessment of whether a tax benefit is more likely than
not to be sustained upon examination by tax authorities. To the extent the
Company prevails in matters for which a liability for an unrecognized tax
benefit is established or is required to pay amounts in excess of the liability,
the Company's effective tax rate in a given financial statement period may

be
affected.



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.



Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired.

The Company tests goodwill annually as of the first day of the fourth quarter,
or more frequently if indicators of potential impairment exist. In assessing
goodwill for impairment, the Company has the option to first perform a
qualitative assessment to determine whether the existence of events or
circumstances leads to a determination that it is more likely than not that the
fair value of a reporting unit is less than its carrying amount. If the Company
determines that it is not more likely than not that the fair value of a
reporting unit is less than its carrying amount, the Company is not required to
perform any additional tests in assessing goodwill for impairment. However, if
the Company concludes otherwise or elects not to perform the qualitative
assessment, then it identifies the reporting units and compares the fair value
of each of these reporting units to their respective carrying amount. If the
carrying amount of the reporting unit is less than its fair value, no impairment
exists. If the carrying amount of the reporting unit is higher than its fair
value, the impairment charge is the amount by which the carrying amount exceeds
its fair value, not to exceed the total amount of goodwill allocated to the
reporting unit.



The Company reviews the recoverability of the carrying value of long-lived
assets of an asset or asset group for impairment annually as of the end of the
fiscal year, or more frequently if indicators of potential impairment exist.
Should indicators of impairment exist, the carrying values of the 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 long lived asset is
adjusted to fair value if its expected future undiscounted cash flow is less
than its book value.



                                       32

© Edgar Online, source Glimpses