ENZO BIOCHEM, INC.

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

06/11/2021 | 04:34pm EDT
The following discussion of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and
related notes and other information included elsewhere in this Quarterly Report
on Form 10-Q.



Forward-Looking Statements



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



In particular, these include statements relating to future actions, prospective
products or product approvals, future performance or results of current and
anticipated products, sales efforts, expenses, interest rates, foreign currency
rates, intellectual property matters, the outcome of contingencies, such as
legal proceedings, impacts of the COVID-19 pandemic and measures we have taken
in response, and financial results. We cannot guarantee that any forward-looking
statement will be realized, although we believe we have been prudent in our
plans and assumptions. Achievement of future results is subject to risks,
uncertainties and inaccurate assumptions. Should known or unknown risks or
uncertainties materialize, or should underlying assumptions prove inaccurate,
actual results could vary materially from past results and those anticipated,
estimated or projected. As a result, investors are cautioned not to place undue
reliance on any of our forward-looking statements. Investors should bear this in
mind as they consider forward-looking statements. We do not assume any
obligation to update or revise any forward-looking statement that we make, even
if new information becomes available or other events occur in the future. We are
also affected by other factors that may be identified from time to time in our
filings with the Securities and Exchange Commission, some of which are set forth
in Item 1A - Risk Factors in our Form 10-K filing for the July 31, 2020 fiscal
year. You are advised to consult any further disclosures we make on related
subjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and Exchange
Commission. Although we have attempted to provide a list of important factors
which may affect our business, investors are cautioned that other factors may
prove to be important in the future and could affect our operating results.



You should understand that it is not possible to predict or identify all such
factors or to assess the impact of each factor or combination of factors on our
business. Consequently, you should not consider any such list to be a complete
set of all potential risks or uncertainties.



Impact of COVID-19 pandemic



COVID-19 has severely impacted the economy of the United States and other
countries around the world. Federal, state and local governmental policies and
initiatives designed to reduce the transmission of COVID-19 have resulted in,
among other things, a significant reduction in physician office visits, the
cancellation of elective medical procedures, customers of our products closing
or severely curtailing their operations (voluntarily or in response to
government orders), and the adoption of work-from-home or shelter-in-place
policies. The COVID-19 impact on the Company's operations is consistent with the
overall industry and publicly issued statements from competitors, partners,
and
vendors.



Enzo was granted FDA Emergency Use Authorization (EUA) for our molecular
diagnostic and serological testing for COVID-19 and related antibody testing
options. We have also been granted an EUA for our sample collection kit, an
innovative virus-inactivating specimen collection media that lessens
transmission risks for healthcare providers and clinical laboratory personnel.
Other innovations include the development of more relevant positive controls for
the tests, and improved sensitivity.



                                       23





In the third quarter of our current fiscal year ending July 31, 2021, our
non-COVID-19 accessions returned to and slightly exceeded prior year period
levels. With the addition of COVID-19 testing, total accession volume for the
fiscal third quarter ended April 30, 2021 exceeded accession volume in both the
sequential or second fiscal quarter ended January 31, 2021 and the prior year
fiscal third quarter ended April 30, 2020. However, it is too early to determine
the long term significance of the positive impact from increased testing and the
Company's proprietary product offerings on revenue, profitability and cash flow.



The extent to which our businesses may continue to be affected by the COVID-19
pandemic will largely depend on both current and future developments, including
its duration, spread and emergence of variants, its treatment with authorized
vaccines and vaccines in various stages of development and federal approval, and
work and travel advisories and restrictions, and the timing of their easing, all
of which are highly uncertain and cannot be reasonably predicted at this time.



We fully expect COVID-19 volume to decline in the quarters ahead as the
percentage of Americans who are vaccinated increases. Global supply chain issues
due to the pandemic continue to hamper both the manufacturing of products within
the life science division as well as testing capabilities in the clinical
laboratory.



The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)




In March 2020, in response to the COVID-19 pandemic, the CARES Act was signed
into law. The CARES Act provides numerous tax provisions and other stimulus
measures. The CARES Act also includes a number of benefits that are applicable
to us and other healthcare providers including, but not limited to:



? Providing clinical laboratories a one-year reprieve from the Centers for

Medicare and Medicaid Services (CMS) private payer prices reporting

requirements under the Protecting Access to Medicare Act ("PAMA") as well as a

one-year delay of a reimbursement rate reduction of 15% for clinical laboratory

services provided under Medicare that was scheduled to take place starting

January 1, 2021. Further revisions of the Medicare Clinical Laboratory Fee

Schedule (CLFS) for calendar years after 2021 will be based on future surveys

of private payer market rates. Medicare and Medicaid reimbursement reduction

for calendar years 2022-2024 is capped by PAMA at 15% annually, which we

estimate could then negatively impact our annualized Medicare and Medicaid

revenues by approximately $2.3 million. In this regard, the American Clinical

Laboratory Association (ACLA) has filed a federal civil action challenging the

legal basis for the private payer data collection methodology CMS used to

derive the data from which median prices were calculated. ACLA continues to

work with Congress on potential legislative reform of PAMA, which if adopted

could reduce the negative impact of PAMA as currently implemented by CMS. The

long-term effect of these efforts on Medicare CLFS rates is not determinable

? Appropriating $100 billion to health care providers for related expenses or

lost revenues that are attributable to the COVID-19 pandemic. In April 2020, we

received from Medicare a CARES Act Relief Payment grant of approximately $750

from the initial tranche and in July 2020 we received a second grant of

   approximately $750.



? Allocated $349 billion to small businesses as Payment Protection Program (PPP)

loans through the Small Business Administration (SBA). In April 2020, we

received approximately $7.0 million from the initial tranche of this program.

? Providing an advance on testing services payments which can be either paid back

at any time or earned back starting one year from receipt. In April 2020 we

applied for and received a Medicare advance payment of $2.5 million.

? Suspended Medicare sequestration from May 2020 to December 2020. The

Consolidated Appropriations Act of 2021 extended the suspension period to March

31, 2021. An Act to Prevent Across-the-Board Direct Spending Cuts, and for

Other Purposes, signed into law on April 14, 2021, extended the suspension

period to December 31, 2021. We estimate that the suspension of Medicare

sequestration resulted in a small benefit to us in the form of higher

   reimbursement rates for diagnostic testing services performed on behalf of
   Medicare beneficiaries.




                                       24





Overview



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



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



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



In the course of our research and development activities, we have built a
substantial portfolio of intellectual property assets, comprised of over 495
issued patents worldwide and over 70 pending patent applications, along with
extensive enabling technologies and platforms.



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

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



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



                                       25





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



Enzo Therapeutics is a biopharmaceutical venture that has developed multiple
novel approaches in the areas of gastrointestinal, infectious, ophthalmic and
metabolic diseases, many of which are derived from the pioneering work of Enzo
Life Sciences. Enzo Therapeutics has focused its efforts on developing treatment
regimens for diseases and conditions for which current treatment options are
ineffective, costly, and/or cause unwanted side effects. This focus has
generated a clinical and preclinical pipeline, as well as more than 100 patents
and patent applications. In December 2020, Enzo announced it will consider
various avenues to unlock value in Enzo Therapeutics. Alternatives under
consideration include a possible spin-off, sale, joint venture or licensing of
its intellectual property.



                             Results of Operations

          Three months ended April 30, 2021 compared to April 30, 2020
                                   (in 000s)


Comparative Financial Data for the Three Months Ended April 30,



                                                                              Favorable
                                                2021          2020          (Unfavorable)        % Change
Revenues                                      $  32,797     $  16,903     $          15,894             94

Operating costs and expenses:
Cost of revenues                                 16,751        12,478                (4,273 )          (34 )
Research and development                            836         1,163                   327             28
Selling, general and administrative              12,082        11,061                (1,021 )           (9 )
Legal and related expenses                        1,061         1,925                   864             45
Total operating costs and expenses               30,730        26,627      
         (4,103 )          (15 )

Operating income (loss)                           2,067        (9,724 )              11,791             **

Other income (expense):
Interest                                             60            87                   (27 )          (31 )
Other                                               (88 )         135                  (223 )           **
Foreign currency loss                               (33 )        (358 )                 325             91
Total other income (expense)                        (61 )        (136 )    
             75             55

Net income (loss)                             $   2,006     $  (9,860 )   $          11,866             **

Net income (loss) per common share:
Basic                                         $    0.04     $   (0.21 )
Diluted                                       $    0.04     $   (0.21 )
Weighted average common shares outstanding:
Basic                                            48,391        47,780
Diluted                                          48,788        47,780






 ** not meaningful




                                       26





Consolidated Results:



The "2021 period" and the "2020 period" refer to the three months ended April
30, 2021 and April 30, 2020, respectively, which represent the third quarters of
the Company's fiscal year ending July 31.



Impacts of COVID-19



In July 2020, Enzo was granted FDA Emergency Use Authorization (EUA) for its
molecular diagnostic and serological testing for COVID-19 and related antibody
testing options. Enzo's innovations include virus-inactivating specimen
collection media to lessen transmission risks for healthcare providers and
clinical laboratory personnel, the development of more relevant positive
controls for the tests, and improved sensitivity. Due to the effects of the
pandemic, accession volume in the April 30, 2021 period exceeded accession
volume in the sequential second fiscal quarter ended January 31, 2021 and the
prior year third quarter ended April 30, 2020 period due to COVID-19 testing,
offsetting reductions in non-COVID-19 accessions due to the restrictive effects
of COVID-19. At this time, it is too early to determine the long term
significance of the positive impact from COVID-19 testing and the Company's
proprietary product offerings on revenue, profitability and cash flow. We fully
expect COVID-19 volume to decline in the quarters ahead as the percentage of
Americans who are vaccinated increases.



Clinical Services revenues for the 2021 period were $25.0 million compared to
$10.5 million in the 2020 period, an increase of $14.5 million or 139%
year-over-year. The 2020 period revenues include a CARES Act Relief Payment
grant of $0.7 million. Diagnostic testing volume measured by the total number of
accessions for all our testing services increased 140% period over period due to
the positive impact from COVID-19 testing, resulting in the 2021 period's
revenue increase. COVID-19 testing services have higher reimbursement rates than
our core testing resulting in an improvement in our overall liquidation rate for
collections. Excluding the impact of COVID-19 testing and the CARES Act grant,
revenues for the 2021 period were $0.7 million higher than the 2020 period.



Estimated collection amounts are subject to the complexities and ambiguities of
third party payer billing, reimbursement regulations and claims processing, as
well as issues unique to Medicare and Medicaid programs, and require us to
consider the potential for adjustments when estimating variable consideration in
the recognition of revenue in the period that the related services are rendered.
The effect of PAMA directly negatively impacted reimbursements from Medicare and
Medicaid in the 2021 and 2020 periods by approximately $0.3 million and $0.2
million, respectively.



Product revenues were $7.8 million in the 2021 period and $6.4 million in the
2020 period, an increase of $1.4 million or 21%. The 2020 period was negatively
affected by COVID-19 related government policies throughout the world intended
to reduce the spread of the pandemic. In the 2021 period, we saw a rebound in
all our geographic markets due to their improvement in infection rates resulting
in a rebound in demand.


The cost of Clinical Services was $12.7 million in the 2021 period and $9.1
million in the 2020 period, an increase of $3.6 million from increased COVID-19
testing volume. Utilizing our internal manufacturing capabilities, we reduced
some of our reliance on reagents sourced from third parties. The gross profit
margin on Clinical Services revenues in the 2021 period improved to 49% versus
12.9% in the 2020 period due to the high margin on COVID-19 testing and
liquidation rate improvements The 2020 period was negatively impacted by the
lower testing volumes because of the pandemic and its impact on fixed costs
coverage.



The cost of Product revenues was $4.0 million in the 2021 period and $3.3 million in the 2020 period, an increase of $0.7 million or approximately 20%. The gross profit margin on Products was 48% in the both the 2021 and 2020 periods. The gross margin in the 2021 period was impacted by the return of higher margin sales in the U.S market, tempered by intercompany COVID-19 sales.

Research and development expenses were $0.8 million in the 2021 period and $1.1
million in the 2020 period, a decrease of $0.3 million or 28%. The decrease is
attributable primarily to the Clinical Services division, where with the
increased commercialization of COVID-19 testing, certain research and
development resources transitioned to testing services in the current period.



                                       27




Selling, general and administrative expenses were $12.1 million during the 2021
period versus $11.1 million during the 2020 period, an increase of $1.0 million
or 9%. The Clinical Services expense increased $1.1 million primarily due to
higher sales commissions and support services compensation resulting from higher
revenues and activity from COVID-19, partially offset by the impact of cost
savings initiatives undertaken throughout our fiscal year that ended July 31,
2020. The Life Sciences Products expense increased $0.1 million due to an
increase in information technology costs. The Other segment decreased $0.3
million primarily due to lower self-insured healthcare benefit costs, partially
offset by higher consulting fees.



Legal and related expenses were $1.1 million during the 2021 period compared to $1.9 million in the 2020 period, a decrease of $0.8 million or 45% year-over-year. The 2020 period included costs related to contested proxy activities.

Interest income, net was $0.1 million in both the 2021 and 2020 periods. In the
2021 period we earned interest on marketable securities in bond funds made at
the beginning of the 2021 period. In the 2020 period we earned interest in money
market funds, which earned a significant yield prior to the Federal Reserve's
interest rate cuts as it targeted near zero interest rates in response to
COVID-19. Interest income, net is net of interest paid on a mortgage in both
periods.



The foreign currency revaluation loss recognized by the Life Sciences Products
segment during the 2021 period was $0.1 million compared to $0.4 million in the
2020 period, an improvement of $0.3 million. The larger revaluation loss in the
2020 period was due to significant depreciation of the British pound versus the
U.S. dollar at the end of that period compared to the start if the period. The
change in the exchange rates of our functional currencies versus the U.S. dollar
was less significant at the end of the 2021 period compared to the start.



                             Results of Operations

          Nine months ended April 30, 2021 compared to April 30, 2020
                                   (in 000s)


Comparative Financial Data for the Nine Months Ended April 30,



                                                                              Favorable
                                                2021          2020          (Unfavorable)        % Change
Revenues                                      $  92,918     $  56,494     $          36,424             64

Operating costs and expenses:
Cost of revenues                                 49,154        40,574                (8,580 )          (21 )
Research and development                          2,388         3,282                   894             27
Selling, general and administrative              33,109        32,893                  (216 )           (1 )
Legal and related expenses                        3,993         5,681                 1,688             30
Total operating costs and expenses               88,644        82,430      
         (6,214 )           (8 )

Operating income (loss)                           4,274       (25,936 )              30,210             **

Other income (expense):
Interest                                            (40 )         495                  (535 )           **
Other                                               (55 )         334                  (389 )           **
Foreign currency gain                               428           (88 )                 516             **
Total other income                                  333           741                  (408 )          (55 )

Net income (loss)                             $   4,607     $ (25,195 )   $          29,802             **

Net income (loss) per common share:
Basic                                         $    0.10     $   (0.53 )
Diluted                                       $    0.10     $   (0.53 )
Weighted average common shares outstanding:
Basic                                            48,097        47,668
Diluted                                          48,201        47,668






 ** not meaningful




                                       28





Consolidated Results:



The "2021 period" and the "2020 period" refer to the nine months ended April 30,
2021 and April 30, 2020, respectively, which represent the first three quarters
of the Company's fiscal year ending July 31.



Clinical Services revenues for the 2021 period were $70.2 million compared to
$35.8 million in the 2020 period, an increase of $34.4 million or 96%
year-over-year. The 2020 period revenues include a CARES Act Relief Payment
grant of $0.7 million. Due to COVID-19, diagnostic testing volume measured by
the total number of accessions for all our testing services increased
approximately 80% period over period, resulting in the 2021 period's revenue
increase. COVID-19 testing services have higher reimbursement rates than our
core testing resulting in an improvement in our overall liquidation rate for
collections. COVID-19 testing offset the impact of the period over period
decline in core testing volume as a result of the restrictive effects of
COVID-19.



Estimated collection amounts are subject to the complexities and ambiguities of
third party payer billing, reimbursement regulations and claims processing, as
well as issues unique to Medicare and Medicaid programs, and require us to
consider the potential for adjustments when estimating variable consideration in
the recognition of revenue in the period that the related services are rendered.
The effect of PAMA directly negatively impacted reimbursements from Medicare and
Medicaid in the 2021 and 2020 periods by approximately $1.1 million and $0.9
million, respectively.


Product revenues were $22.7 million in the 2021 period and $20.7 million in the
2020 period, an increase of $2.0 million or 10%. The negative effect of COVID-19
related government policies intended to reduce the spread of the pandemic
impacted our Products revenues in the U.S. markets more than in markets in the
rest of the world during the 2020 period. The 2021 period increase came mainly
from markets outside the U.S., due to their improvement in infection rates and a
rebound in demand. The U.S. market also increased slightly.



The cost of Clinical Services was $37.4 million in the 2021 period and $30.4
million in the 2020 period, an increase of $7.0 million from increased COVID-19
testing volume. Utilizing our internal manufacturing capabilities we reduced
some of our reliance on reagents sourced from third parties. The gross profit
margin on Clinical Services revenues in the 2021 period was approximately 47%
versus 15% in the 2020 period. In the 2021 period, the high margin on COVID-19
testing and liquidation rate improvements offset the effect of reduced volumes
of our core testing services.


The cost of Product revenues was $11.7 million in the 2021 period and $10.2 million in the 2020 period, an increase of $1.5 million or 15%. The gross profit margin on Products was 48% in the 2021 period and 51% in the 2020 period, negatively impacted by an increase in headcount and the cost of production materials.

Research and development expenses were $2.4 million in the 2021 period and $3.3
million in the 2020 period, a decrease of $0.9 million or 27%. The decrease is
attributable primarily to the Clinical Services division, where with the
increased commercialization of COVID-19 testing, certain research and
development resources transitioned to testing services in the current period.



Selling, general and administrative expenses were $33.1 million during the 2021
period versus $32.9 million during the 2020 period, an increase of $0.2 million
or 1%. The Clinical Services expense increased $1.5 million primarily due to
higher sales commissions and support services compensation resulting from higher
revenues and activity from COVID-19, partially offset by the impact of cost
savings initiatives undertaken throughout our fiscal year that ended July 31,
2020. The Other segment decreased $1.3 million primarily due to lower
self-insured healthcare benefit costs. The Life Sciences Products expense
decreased $0.1 million due to lower travel and other in person marketing
expenses.



Legal and related expenses were $4.0 million during the 2021 period compared to
$5.7 million in the 2020 period, a decrease of $1.7 million or 30%. There were
contested proxy activities in both periods, but we incurred legal expenses
relating to the contested proxy throughout the 2020 period compared to only
during the latter half of the 2021 period.



Interest expense, net was $0.1 million in the 2021 period versus interest
income, net of $0.5 million in the 2020 period, an unfavorable variance of $0.6
million, and represents interest on cash and cash equivalents and marketable
securities net of interest expense, primarily on a mortgage. During the latter
three months of the 2021 period, we began to earn interest on marketable
securities in bond funds as no interest was being earned on cash in money market
funds due to the actions by the Federal Reserve to cut its target interest rates
to near zero in response to COVID-19. During most of the 2020 period, we earned
interest in money market funds, which earned a significant yield prior to the
Federal Reserve's interest rate cuts as it targeted near zero interest rates.



                                       29





The foreign currency revaluation gain recognized by the Life Sciences Products
segment during the 2021 period was $0.4 million compared to a revaluation loss
$0.1 million in the 2020 period, a favorable variance of $0.5 million. The 2021
period revaluation gain was due to significant appreciation of the British pound
versus the U.S. dollar as of the end of the period compared to its start. The
change in the exchange rates of our functional currencies versus the U.S. dollar
was less significant at the end of the 2020 period compared to the start.



Liquidity and Capital Resources

At April 30, 2021, the Company had cash and cash equivalents and marketable
securities totaling $45.0 million of which $1.5 million was in foreign accounts,
as compared to cash and cash equivalents of $47.9 million, of which $0.9 million
was in foreign accounts at July 31, 2020. It is the Company's current intent to
permanently reinvest these foreign funds outside of the United States, and its
current plans do not demonstrate a need to repatriate them to fund its United
States operations. The Company had working capital of $42.1 million at April 30,
2021, an increase of $6.1 million, compared to $36.0 million at July 31, 2020.
The increase in working capital during the nine months ended April 30, 2021 was
primarily due to increases in current assets such as accounts receivable and
inventories, partially offset by a decrease in cash, and a decrease in accounts
payable.


Net cash provided by operating activities during the fiscal 2021 period was
approximately $0.3 million, compared to cash used in operations of $12.1 million
during the fiscal 2020 period, an improvement of approximately $12.4 million.
The net cash provided in the 2021 period was due primarily to net income of $4.6
million and non-cash expenses of approximately $2.8 million which were offset by
a net increase of $7.1 million in operating assets and liabilities including,
but not limited to, accounts receivable and inventories. The net cash used in
the 2020 period was due to a net loss of $25.2 million partially offset by
non-cash expenses of $3.5 million and a net decrease of $9.6 million in
operating assets and liabilities.



Net cash used in investing activities during the fiscal 2021 period was
approximately $32.9 million as compared to $0.7 million in the 2020 period, an
increase of $32.2 million. During the 2021 period, we purchased marketable
securities totaling $30.0 million. Capital expenditures during the 2021 period
also increased $2.2 million compared to the 2020 period. Cash used in financing
activities in fiscal 2021 was $0.2 million for payments related to a mortgage
and finance leases. Cash provided by financing activities in fiscal 2020 was
$7.1 million net, and was due to the PPP and Corona Krise loans.



As of April 30, 2021, we have a $7.0 million loan from the Small Business
Administration Paycheck Protection Program (PPP) received during the fiscal year
ended July 31, 2020. The PPP loan bears interest of 1% per annum. All or a
portion of the PPP Loan, including interest, could be forgiven by the SBA by
applying for forgiveness and providing acceptable documentation that
demonstrates the funds were used as required by the terms of forgiveness and in
accordance with the SBA's requirements. In April 2021 we submitted our PPP loan
forgiveness application and the loan necessity questionnaire to the SBA through
Citibank N.A. our intermediary lending bank. According to the SBA, its review
may take up to 90 calendar days from the receipt of the loan forgiveness
application and loan necessity questionnaire. Due to complexities with respect
to loan forgiveness calculations and government pronouncements with respect to
expenditure eligibility, we did not recognize any loan forgiveness as of April
30, 2021 and have classified the loan as other short term debt as we expect to
earn loan forgiveness on most, if not all of the loan during the current fiscal
year. See Note 7 in the notes to consolidated financial statements. No assurance
can be given that we will obtain forgiveness of the PPP loan in whole or in
part
by July 31, 2021



As of April 30, 2021 we have a mortgage principal balance of $4.2 million
entered into for the purchase of a building facility, which bears a fixed
interest rate of 5.09% per annum. It requires monthly mortgage payments of $30.
Our obligations under the mortgage agreement are secured by the new facility and
by a $750 cash collateral deposit with the mortgagee as additional security,
which is included in other assets as of April 30 2021. Effective October 19,
2020, the Company and the mortgagee agreed to a covenant restructure whereby the
mortgagee waived the Company's financial ratio covenant for the fiscal period
ended July 31, 2020 and modified the mortgage to replace that covenant with a
liquidity covenant. The liquidity covenant requires that we own and maintain at
all times, and throughout the remaining term of the loan, at least $25 million
of liquid assets, defined as time deposits, money market accounts and commercial
paper, and obligations issued by the U.S. government or any of its agencies. The
cash collateral agreement was also modified to require compliance with the
liquidity covenant for two consecutive fiscal years before the collateral is
released back to us. As of April 30, 2021, the Company was in compliance with
financial and liquidity covenants related to this mortgage.



                                       30





We believe that our current cash and cash equivalents level, marketable
securities, and utilization of the Controlled Equity Offering program if
necessary, as disclosed in Note 10 in the Notes to Consolidated Financial
Statements are sufficient for its foreseeable liquidity and capital resource
needs over at least the next twelve (12) months, although there can be no
assurance that future events will not alter such view. Although there can be no
assurances, in the event additional capital is required, we believe we have the
ability to raise additional funds through equity offerings or other sources. Our
liquidity plans are subject to a number of risks and uncertainties, including
those described in the Item 1A. "Risk Factors" section of our Form 10-K for the
year ended July 31, 2020, some of which are outside our control. Macroeconomic
conditions could limit our ability to successfully execute our business plans
and therefore adversely affect our liquidity plans.



Contractual Obligations



There have been no material changes to our Contractual Obligations as reported
in our Form 10-K for the fiscal year ended July 31, 2020. Management is not
aware of any material claims, disputes or settled matters concerning third party
reimbursement that would have a material effect on our financial statements,
except as disclosed in Note 12 to the Consolidated Financial Statements.



Off-Balance Sheet Arrangements

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



Critical Accounting Policies



The Company's discussion and analysis of its financial condition and results of
operations are based upon Enzo Biochem, Inc.'s consolidated financial
statements, certain information and footnote disclosure, normally included in
annual financial statements prepared in accordance with accounting principles
generally accepted in the United States, have been condensed or omitted, as
permitted under rules promulgated by the Security and Exchange Commission. The
preparation of these financial statements requires the Company to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses. These estimates and judgments also affect related disclosure of
contingent assets and liabilities.



Estimates


On an on-going basis, we evaluate our estimates, including those related to contractual expense, allowance for uncollectible accounts, inventory, operating lease liabilities, goodwill and income taxes.




The Company bases its estimates on experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.



Revenues - Clinical Services



Contractual Adjustment



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



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



                                       31





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



During the three months ended April 30, 2021 and 2020, the contractual
adjustment percentages, determined using current and historical reimbursement
statistics, were 81.2% and 87.1%, respectively, of gross billings, respectively.
During the nine months ended April 30, 2021 and 2020, the contractual adjustment
percentages, determined using current and historical reimbursement statistics,
were 82.2% and 88.2%, respectively, of gross billings, respectively. The
improvement in both periods is the result of COVID-19 testing reimbursements
more closely matching our gross billing charges and fewer payer denials than
what we experience for our core testing services. In general, the Company
believes a decline in reimbursement rates or a shift to managed care or similar
arrangements may be offset by the positive impact of an increase in the number
of molecular tests we perform. However, there can be no assurance that we can
increase the number of tests we perform or that if we do increase the number of
tests we perform, that we can maintain that higher number of tests performed, or
that an increase in the number of tests we perform would result in increased
revenue.


The Company estimates (by using a sensitivity analysis) that each 1% point
change in the contractual adjustment percentage could result in a change in
clinical services revenues of approximately $3.9 million and $3.0 million for
the nine months periods ended April 30, 2021 and 2020 respectively, and a change
in the net accounts receivable of approximately $0.6 million as of April 30,
2021.


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



  ? an analysis of industry reimbursement trends;




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



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

    reimbursement experience statistics with payers; and




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



Government assistance grant income




Government assistance grants which are unconditional when received and intended
to compensate for expenses incurred or replace lost revenues are recognized when
those expenses are incurred or during the period that the lost revenues is
experienced, and are included in revenues.



Accounts Receivable


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




The following is a table of the Company's net accounts receivable by services
and by products. Net receivables for Clinical Services are detailed by billing
category and as a percent to its total net receivables. At April 30, 2021 and
July 31, 2020, approximately 69% of the Company's net accounts receivable
relates to its Clinical Laboratory Services business, which operates in the New
York, New Jersey and Connecticut medical communities.



                                       32




The accounts receivable balance for Life Science products includes foreign receivables of $1.0 million or 28% and $1.0 million or 34% of its total receivables as of April 30, 2021 and July 31, 2020, respectively.



Net accounts receivable



                                         As of                  As of
Billing category                    April 30, 2021          July 31, 2020
Clinical Services
Third party payers                $   4,236        53 %   $  2,455        40 %
Patient self-pay                      1,800        23        2,044        33
Medicare                              1,200        15          884        14
HMO's                                   679         9          797        13
Total Clinical Services               7,915       100 %      6,180       100 %
Total Life Sciences                   3,560                  2,961
Total accounts receivable - net   $  11,475               $  9,141




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



The Company believes that the collectability of its receivables is directly
linked to the quality of its billing processes, most notably, those related to
obtaining the accurate patient information in order to bill effectively for the
services provided. Should circumstances change (e.g. shift in payer mix, decline
in economic conditions or deterioration in aging of receivables), our estimates
of net realizable value of receivables could be reduced by a material amount.



Billing for clinical services is complicated because of many factors,
especially: the differences between our standard gross fee schedule for all
payers and the reimbursement rates of the various payers we deal with, disparity
of coverage and information requirements among the various payers, and disputes
with payers as to which party is responsible for reimbursement.



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



                                                  Third
                                                  Party
As of April 30, 2021     Total         %          Payers         %         Medicare        %         Self-Pay        %         HMO's         %
1-30 days               $ 20,751         32     $   10,458         28     $    2,522         36     $    1,481         19     $  6,289         52
31-60 days                 7,422         12          3,913         10            731         10          1,538         20        1,240         10
61-90 days                 5,457          8          3,114          8            555          8          1,057         13          731          6
91-120 days                5,159          8          3,050          8            712         10            907         12          490          4
121-150 days               4,181          6          2,678          7            346          5            740          9          417          3
Greater than 150 days     21,437         34         14,213         39          2,142         31          2,131         27        2,950         25
Totals                  $ 64,408        100 %   $   37,426        100 %   $    7,008        100 %   $    7,854        100 %   $ 12,117        100 %






                                                  Third
                                                  Party
As of July 31, 2020      Total         %          Payers         %         Medicare        %         Self-Pay        %         HMO's        %
1-30 days               $ 21,074         44     $   13,620         46     $    3,897         42     $    1,769         27     $ 1,788         94
31-60 days                 7,080         15          4,588         15          1,081         12          1,307         20         104          5
61-90 days                 3,616          8          2,358          9            618          7            632         10           8          1
91-120 days                1,474          3            940          3            243          3            284          4           7          -
121-150 days               2,614          6          1,594          5            367          4            649         10           4          -
Greater than 150 days     11,506         24          6,518         22          3,051         32          1,936         29           1          -
Totals                  $ 47,364        100 %   $   29,618        100 %   $    9,257        100 %   $    6,577        100 %   $ 1,912        100 %




                                       33





Income Taxes



The Company accounts for income taxes under the liability method of accounting
for income taxes. Under the liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. The liability method requires
that any tax benefits recognized for net operating loss carry forwards and other
items be reduced by a valuation allowance where it is not more likely than not
the benefits will be realized in the foreseeable future. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under the liability method, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.



It is the Company's policy to provide for uncertain tax positions and the
related interest and penalties based upon management's assessment of whether a
tax benefit is more likely than not to be sustained upon examination by tax
authorities. To the extent the Company prevails in matters for which a liability
for an unrecognized tax benefit is established or is required to pay amounts in
excess of the liability, the Company's effective tax rate in a given financial
statement period may be affected.



Inventory


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



Leases - right of use assets and operating lease liabilities

The Company determines if an arrangement is or contains a lease at contract
inception. The Company leases buildings, office space, patient service centers,
and equipment primarily through operating leases, and equipment through a
limited number of finance leases. Generally, a right-of-use asset, representing
the right to use the underlying asset during the lease term, and a lease
liability, representing the payment obligation arising from the lease, are
recognized on the balance sheet at lease commencement based on the present value
of the payment obligation. For operating leases, expense is recognized on a
straight-line basis over the lease term. For finance leases, interest expense on
the lease liability is recognized using the effective interest method and
amortization of the right-of-use asset is recognized on a straight-line basis
over the shorter of the estimated useful life of the asset or the lease term.
Short-term leases with an initial term of 12 months or less are not recorded on
the balance sheet; the Company recognizes lease expense for these leases on a
straight-line basis over the lease term.



The Company primarily uses its incremental borrowing rate in determining the
present value of lease payments as the Company's leases generally do not provide
an implicit rate. The Company has lease agreements with (i) right-of-use asset
payments and (ii) non-lease components (i.e. payments related to maintenance
fees, utilities, etc.,) which have generally been combined and accounted for as
a single lease component.



On at least an annual basis, we perform a review of our business to determine if
events or changes in circumstances have occurred that indicate that it is more
likely than not that the carrying amount of an asset group, including long lived
assets such as right of use assets, is not recoverable. If such events or
changes in circumstances were deemed to have occurred, we would perform an
impairment test of such long lived assets and record any noted impairment loss.
Should the impact of the COVID-19 pandemic become significantly worse than
currently expected, it is possible that we could incur impairment charges on
long lived assets in the future.



                                       34





Goodwill


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



On at least an annual basis, we perform a review of our business to determine if
events or changes in circumstances have occurred that indicate that it is more
likely than not that the fair value of a reporting unit with goodwill is less
than its carrying value. If such events or changes in circumstances were deemed
to have occurred, we would perform an impairment test of goodwill and record any
noted impairment loss. Should the impact of the COVID-19 pandemic become
significantly worse than currently expected, it is possible that we could incur
impairment charges in the future.

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Financials (USD)
Sales 2021 118 M - -
Net income 2021 7,88 M - -
Net cash 2021 20,8 M - -
P/E ratio 2021 20,4x
Yield 2021 -
Capitalization 116 M 116 M -
EV / Sales 2020 1,30x
EV / Sales 2021 1,17x
Nbr of Employees 483
Free-Float 77,6%
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Hamid Erfanian Chief Executive Officer & Director
David A. Bench CFO, Secretary, Treasurer & Senior Vice President
Mary Tagliaferri Chairman
Dieter Schapfel Chief Medical Director & VP-Medical Affairs
Kara Cannon Chief Operating Officer
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