Enzo Biochem(ENZ) - 2024 Q4 - Annual Report

FORM 10-K Filing Information This section presents the foundational filing information for Enzo Biochem's annual Form 10-K report Registrant Information Enzo Biochem, Inc. filed its FY2024 Form 10-K, detailing its New York incorporation, Farmingdale headquarters, NYSE listing, and filer status - Enzo Biochem, Inc. filed its annual report on Form 10-K for the fiscal year ended July 31, 2024[1] Registrant Information | Attribute | Value | | :--- | :--- | | State of Incorporation | New York | | Principal Executive Offices | 21 Executive Blvd. Farmingdale, NY 11735 | | Trading Symbol | ENZ | | Exchange | The New York Stock Exchange | | Well-known seasoned issuer | No | | Required to file reports | No | | Interactive Data File submission | Yes | | Filed all required reports | Yes | | Filer Status | Non-accelerated filer, Smaller reporting company | Market Value and Shares Outstanding This section details the aggregate market value of voting stock held by non-affiliates and common shares outstanding Stock Market Value and Shares Outstanding | Metric | Value | | :--- | :--- | | Aggregate market value of voting stock held by non-affiliates (as of Jan 31, 2024) | $57,494,000 | | Common stock outstanding (as of Oct 25, 2024) | 52,244,074 shares | Documents Incorporated by Reference Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders are incorporated by reference into Part III - Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders (on or before January 31, 2025) are incorporated by reference into Part III[4] Table of Contents This section provides a comprehensive listing of all chapters and items included in the annual report PART I This part provides an overview of the company's business, associated risks, operational infrastructure, and legal landscape Item 1. Business Enzo Biochem operates as a life sciences company, focusing on labeling and detection technologies after divesting its Clinical Labs business, with a global presence and strong R&D - Enzo Biochem, Inc. has operated as a life sciences company for over 45 years, with its primary business now focused on the Life Sciences division[7] - The Life Sciences division offers a comprehensive portfolio of thousands of high-quality products, including antibodies, genomic probes, assays, biochemicals, and proteins, playing central roles in translational research and drug development[7] - In July 2023, Enzo sold its Clinical Labs business for $113.25 million, with results reflected as discontinued operations[9] - The company's objective is to develop and manufacture high-value, reliable life sciences products and services, emphasizing sustainable, profitable revenue growth post-Clinical Labs exit[11] - Enzo holds a portfolio of patents in dye chemistry, core technologies for gene, protein, cell, and tissue analysis, gene analysis technology, amplification, and non-radioactive labeling and detection[16][20][21][23][26][27] Research and Development Expenses | Fiscal Year Ended July 31 | R&D Expenses (in millions) | | :--- | :--- | | 2024 | $2.6 | | 2023 | $3.9 | - The company's sales and marketing strategy involves direct sales to end-users, sales through the Axxora electronic marketplace, supply agreements with manufacturers, and distributors in major geographic markets[36] - Enzo operates globally through wholly-owned subsidiaries in the U.S., Switzerland, Benelux, Germany, and the UK, with a branch office in France and a network of third-party distributors[12][36] - In April 2023, the Company experienced a ransomware attack, primarily impacting its discontinued operations, leading to unauthorized access to clinical test information of approximately 2.47 million individuals and Social Security numbers of about 600,000 individuals[41] - As of July 31, 2024, Enzo employed 125 full-time and 11 part-time employees, with approximately 80% engaged in research, development, manufacturing, and marketing of research products[59] Overview This section provides a general description of Enzo Biochem's history, core business, and recent divestiture of its Clinical Labs business - Enzo Biochem, Inc. has operated as a life sciences company for over 45 years, with its primary business conducted through its Life Sciences division[7] - The Life Sciences division focuses on labeling and detection technologies, offering a comprehensive portfolio of thousands of high-quality products including antibodies, genomic probes, assays, biochemicals, and proteins[7] - The company sold its clinical lab business (Enzo Clinical Labs, Inc.) in July 2023 for $113.25 million, with its results now reflected as discontinued operations[9] Our Strategy This section outlines Enzo's strategic focus on innovation, profitable growth in life sciences, and global infrastructure for integrated solutions - Enzo's strategy is to empower scientists with innovations in research, drug discovery, development, and diagnostic solutions, focusing on exceptional life science products and services[10] - The company aims for sustainable, profitable revenue growth following its exit from the Clinical Labs business, leveraging proprietary technologies and a deep product portfolio[11] - Enzo's global infrastructure supports integrated solutions for researchers, drug developers, and clinical researchers in areas like Genomics, Cell Biology, and Biomarker Detection[12] Markets This section describes the growing global demand for biomedical and pharmaceutical research tools and Enzo's role in serving these markets - There is a large and growing global demand for biomedical and pharmaceutical research and diagnostic tools that facilitate and accelerate biological information generation[13] - The global life sciences market is expected to grow due to long-term research spending, development of commercial applications from research, and advancements in research and development tools[14] - Enzo manufactures cost-effective, high-quality solutions for drug discovery, development, and translational research, serving academic, clinical, biotechnology, pharmaceutical, and diagnostic manufacturers[15] Patents This section details Enzo's intellectual property strategy and its extensive patent portfolio in life sciences and therapeutics - Enzo has built a portfolio of intellectual property assets and scientific know-how, with a strategy of creating patent positions in life sciences and therapeutics[16][17] - The company was issued twenty-five patents in fiscal year 2024 and seven patents in fiscal year 2023[17] - Enzo's intellectual property portfolio includes patents in dye chemistry, core technologies for gene, protein, cell, and tissue analysis, gene analysis technology, amplification, and non-radioactive labeling and detection[20][21][23][26][27] Research and Development This section highlights Enzo's R&D efforts in developing innovative research platforms and expanding product lines, including related expenses - Enzo's R&D efforts focus on developing innovative research platforms and expanding product lines, leveraging over 45 years of expertise in life sciences[29] Research and Development Expenses | Fiscal Year Ended July 31 | R&D Expenses (in millions) | | :--- | :--- | | 2024 | $2.6 | | 2023 | $3.9 | - The company engages in internal research and collaborative relationships, continuously reviewing in-licensing opportunities for new technology[32][33] Sales and Marketing This section describes Enzo's global sales and marketing strategy, encompassing direct sales, e-commerce, supply agreements, and a broad distributor network - Enzo's sales and marketing strategy includes direct sales to end-users, sales through the Axxora electronic marketplace, supply agreements with manufacturers, and distributors in major geographic markets[36] - The company operates a worldwide customer support group staffed by scientists and has direct sales offices in six countries and a network of over 45 distributors[36] Competition This section addresses the intense competition Enzo faces from larger life science and biotechnology companies, highlighting key competitive factors - Enzo faces intense competition from other life science, biotechnology, pharmaceutical, chemical, and larger companies with more resources[38] - Key competitive factors include the ability to create scientifically advanced technology, offer quality products, timely commercialization, intellectual property rights, and attracting/retaining human resources[38] Regulations Affecting Our Products Business and Discontinued Operations This section details the various privacy, data security, environmental, and product-related regulations impacting Enzo's operations and discontinued businesses - Enzo is subject to various privacy and data security regulations, including HIPAA, federal and state laws (e.g., CCPA/CPRA), and international laws (e.g., GDPR), due to its self-insured health plan and past discontinued operations[40][43][44] - In April 2023, the company experienced a ransomware attack, primarily affecting discontinued operations, leading to unauthorized access of clinical test information for approximately 2.47 million individuals and Social Security numbers for about 600,000[41] - The company is subject to licensing and regulation under federal, state, and local laws regarding hazardous waste handling and disposal, and occupational safety regulations (OSHA)[47][48][49] - Enzo distributes products as 'Research Use Only' (RUO) in the United States, which are exempt from most FDA medical device regulatory requirements if not intended for clinical diagnostic use[52][53] Manufacturing and Research Facilities This section describes Enzo's primary manufacturing and research facilities in Farmingdale, NY, and its European logistics operations - Enzo's primary product development, manufacturing, and scientific efforts are conducted at two adjacent facilities in Farmingdale, New York, serving as global headquarters, research, and manufacturing[58] - The company also has European logistics operations in Lausen, Switzerland, and contracts with third-party manufacturers when appropriate[58] Employees This section provides details on Enzo's employee count and the expertise of its scientific staff as of July 31, 2024 Employee Count as of July 31, 2024 | Employee Type | Count | | :--- | :--- | | Full-time | 125 | | Part-time | 11 | | % in R&D, Manufacturing, Marketing | ~80% of full-time | - The scientific staff possesses a wide range of experience in recombinant DNA, nucleic acid chemistry, molecular biology, and immunology[59] Information Systems This section emphasizes the critical role of information systems in Enzo's operations and details the impact of the April 2023 ransomware attack - Information systems are used extensively across Enzo's businesses, and their continued performance is critical for success[60] - In April 2023, a ransomware attack impacted critical IT systems, primarily of the discontinued operation, leading to service curtailment, increased outsourcing costs, and ongoing expenses related to remediation and litigation[63] Forward-Looking and Cautionary Statements This section highlights the forward-looking nature of the report, subject to risks, and references publicly available SEC filings - This Annual Report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially from those described[64] - The company files annual, quarterly, and current reports, and proxy statements with the SEC, which are publicly available on the SEC's website and the company's website[65][66] Item 1A. Risk Factors This section details various business, intellectual property, regulatory, financial, operational, and market risks impacting Enzo Biochem's operations and financial performance - Operating results may vary significantly due to factors like customer demand, new product introductions, R&D timing, global economic conditions, and intellectual property defense costs[68] - A significant proportion of Products revenues come from academic centers (funded by government grants) and pharmaceutical/biotech companies, making the business vulnerable to changes in funding and R&D spending[69][71] - The company faces intense competition from larger life science and biotechnology companies, which could lead to price reductions, increased marketing efforts, and product obsolescence[79][80] - Enzo is subject to rigorous and evolving data privacy and security laws (HIPAA, CCPA, GDPR) in multiple jurisdictions, with non-compliance potentially leading to fines, litigation, and reputational damage[87][88][89] - Protecting proprietary rights is difficult and costly, with ongoing patent litigation and the risk of losing potential revenue from licensing and royalties[91][93] - The company incurred net losses from continuing operations of $9.8 million in FY2024 and $25.0 million in FY2023, resulting in cash usage from operations and an accumulated deficit of $294.4 million as of July 31, 2024[104][105] - A material weakness in internal control over financial reporting was identified in FY2023, though management believes it has been remediated as of July 31, 2024[110][112] - Cybersecurity risks, including ransomware attacks (like the April 2023 incident), pose threats of service disruption, data loss, regulatory investigations, lawsuits, and financial losses[113][116][119] - International operations, accounting for approximately 39% of FY2024 revenues, are subject to foreign currency fluctuations, complex regulatory requirements, trade protection measures, and geopolitical risks[131][137] - The company's stock price has been volatile, and anti-takeover provisions in its corporate documents could inhibit stockholders from realizing a premium. Failure to meet NYSE audit committee independence requirements could lead to delisting[140][144][148][150] Item 1B. Unresolved Staff Comments This item confirms the absence of any unresolved staff comments from regulatory bodies Item 1C. Cybersecurity This section details Enzo's cybersecurity risk management framework, including implemented processes, mitigation measures, and Board oversight - Enzo implements and maintains information security processes and technologies to identify, assess, and manage cybersecurity threats to its computer networks, hosted services, and critical data[152] - Risk identification and assessment methods include vulnerability assessments, network infrastructure scans, threat analysis, audits, and leveraging third-party managed detection and response services[153] - Mitigation measures include dedicated cybersecurity staff, an incident response plan, vulnerability management policy, access controls, encryption, penetration testing, and cybersecurity insurance[154] - The Board of Directors provides general oversight of cybersecurity risk management, with the Senior VP of Global IT and System Operations and IT Security Officer responsible for implementation and reporting to the Governance and Compliance Committee[160][161][162] Item 2. Properties This section details Enzo's principal owned and leased facilities, including manufacturing, research, and administrative offices in New York and Switzerland Principal Facilities as of July 31, 2024 | Location | Primary Use | Segments | Leased or Owned | Square Footage | | :--- | :--- | :--- | :--- | :--- | | Farmingdale, NY | Manufacturing, research, sales and administrative office | Products | Owned | 22,000 | | Farmingdale, NY | Manufacturing and administrative office | Products | Owned | 36,000 | | New York, NY | Administrative office | Corporate and Other | Leased | 11,300 (7,200 sublet) | | Lausen, Switzerland | Operational headquarters in Europe, including sales and distribution | Products | Leased | 9,626 | - The company also has a related party lease for a building formerly used by the clinical laboratory, expiring March 31, 2027[167] Item 3. Legal Proceedings This section outlines Enzo's ongoing legal proceedings, including data breach class actions, regulatory inquiries, patent infringement, and executive arbitrations - In April 2023, Enzo experienced a ransomware attack that exposed clinical test information of approximately 2.47 million individuals and Social Security numbers of about 600,000[167] - Regulatory inquiries from New York, Connecticut, and New Jersey Attorneys General regarding the ransomware attack have been resolved by agreements signed in August 2024[168] - Multiple class action lawsuits are pending in federal and state courts related to the data breach, with an agreement in principle to settle the federal case expected to be formalized by the end of 2024[170][171][173] - One patent infringement case against Becton Dickinson is pending and stayed due to ongoing ex parte reexamination proceedings concerning the '197 patent at the U.S. Patent and Trademark Office[176][177] - Arbitration with former CEO Elazar Rabbani regarding termination benefits is stayed, while a dispute with co-founder Barry Weiner was resolved in October 2023 with a $3.6 million payment[178][179] - Provisions for legal matters, including those from continuing and discontinued operations, totaled approximately $15.2 million at July 31, 2024[184] Item 4. Mine Safety Disclosures This item is not applicable to Enzo Biochem, Inc PART II This part details the company's common equity market, financial performance analysis, statements, and internal controls Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section provides information on Enzo Biochem's common stock market, stockholder count, and recent dividend declaration - Enzo Biochem's common stock is traded on the New York Stock Exchange[186] Stockholder and Dividend Information | Metric | Value | | :--- | :--- | | Stockholders of record (as of Oct 25, 2024) | ~685 | | Cash dividend declared (payable Dec 2, 2024) | $0.10 per share | | Prior cash dividends | None | Item 6. [Reserved] This item is reserved and currently not applicable to the report Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Enzo's financial condition and operating results, focusing on continuing operations, liquidity, and the impact of the Clinical Labs sale and ransomware attack - Enzo's primary business is now its Enzo Life Sciences division (Products segment), focusing on labeling and detection technologies[189] - The Clinical Labs business was sold in July 2023 for $113.25 million, with its results classified as discontinued operations for fiscal years 2024 and 2023[190] - The April 2023 ransomware attack primarily impacted the discontinued operations, leading to data exposure for millions of individuals and ongoing risks[193][194] Key Financial Data from Continuing Operations (in thousands) | Metric | FY2024 | FY2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $31,907 | $31,061 | $846 | 3% | | Total Operating Costs and Expenses | $44,272 | $55,797 | ($11,525) | (21%) | | Operating Loss | ($12,365) | ($24,736) | $12,371 | 50% | | Loss Before Income Taxes | ($9,817) | ($25,022) | $15,205 | 61% | | Net Loss from Continuing Operations | ($9,817) | ($25,022) | $15,205 | 61% | | Net Loss from Discontinued Operations | ($16,261) | ($37,321) | $21,060 | 56% | | Gain on Sale of Discontinued Operations, net of tax | — | $82,631 | ($82,631) | (100%) | | Total Net (Loss) Income | ($26,078) | $20,288 | ($46,366) | (228%) | - Product revenues increased by 3% in FY2024, driven by a 5% increase in the U.S. market and a 1% increase in the European market, offset by a 5% decrease in the Asia Pacific market[197] - Gross profit margin for Products improved to 46% in FY2024 from 42% in FY2023, due to a more profitable product mix, higher U.S. revenues, and lower input costs[198] - Research and development expenses decreased by 32% in FY2024 to $2.6 million, following the cessation of R&D activities into translation products after exiting the clinical reference laboratory business[200] - Selling, general and administrative expenses decreased by 20% in FY2024 to $21.7 million, primarily due to lower consulting fees, professional fees, salaries, and share-based compensation for senior officers[201] - Legal and related expenses decreased by 49% in FY2024 to $2.6 million, reflecting reduced need for expertise related to the Asset Purchase Agreement, credit facility, and ransomware attack[202] - Net cash used in operating activities decreased to $26.3 million in FY2024 from $37.0 million in FY2023, a favorable variance of $10.7 million[207] - Cash and cash equivalents and restricted cash decreased to $52.4 million at July 31, 2024, from $83.4 million at July 31, 2023, primarily due to net loss and repayment of convertible debentures and other liabilities[206] - Management believes current working capital is sufficient to meet operating requirements for at least the next twelve months[206] - The company adopted ASU 2020-06 (Convertible Instruments) and ASU 2016-13 (Credit Losses) in FY2023 and FY2024, respectively, with no material impact on financial position or results[214][215] - Critical accounting policies include estimates for credit losses, income taxes, inventory valuation, and long-lived assets impairment[220] Discontinued operations – Labcorp Asset Purchase Agreement This section details the sale of Enzo's Clinical Labs business to Labcorp and the classification of its results as discontinued operations - Effective July 24, 2023, Enzo completed the sale of certain assets and assigned certain liabilities of its Clinical Labs business to Laboratory Corporation of America Holdings for $113.25 million in cash[190] - All income and expenses attributable to the clinical services business, along with the gain from the sale and related income tax expense, are classified as discontinued operations for fiscal years 2024 and 2023[190] Discontinued Operations Carve Out and Expense Allocations This section explains the classification of clinical services results as discontinued operations and the reclassification of certain administrative expenses - Results from the clinical services business are classified as discontinued operations, with specific assets, liabilities, and operating expenses carved out[191] - Certain administrative and overhead expenses previously allocated to discontinued operations were reclassified to continuing operations, totaling $2.1 million in selling, general and administrative expenses for FY2023[191][192] Ransomware Attack This section details the April 2023 ransomware attack, its impact on data, and the company's response and ongoing risks - In April 2023, a ransomware attack impacted critical IT systems, primarily of the discontinued operation, leading to unauthorized access or exfiltration of clinical test information for approximately 2.47 million individuals and Social Security numbers for about 600,000[193] - The company deployed containment measures, launched an investigation, notified law enforcement, and adhered to its disaster recovery plan, with cybersecurity insurance covering up to $3 million of remediation costs[193] - Enzo remains subject to risks and uncertainties from the incident, including regulatory scrutiny and class action litigation exposure[194] Results of Operations from Continuing Operations This section presents comparative financial data for Enzo's continuing operations, highlighting revenues, costs, and operating loss for FY2024 and FY2023 Comparative Financial Data from Continuing Operations (in thousands) | Metric | FY2024 | FY2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $31,907 | $31,061 | $846 | 3% | | Cost of Revenues | $17,275 | $17,866 | $591 | 3% | | Cost of Revenue – Inventory Provision | — | $1,629 | $1,629 | 100% | | Research and Development | $2,642 | $3,904 | $1,262 | 32% | | Selling, General and Administrative | $21,723 | $27,202 | $5,479 | 20% | | Legal and Related Expenses | $2,632 | $5,196 | $2,564 | 49% | | Total Operating Costs and Expenses | $44,272 | $55,797 | $11,525 | 21% | | Operating Loss | ($12,365) | ($24,736) | $12,371 | 50% | | Interest, net | $3,341 | ($1,122) | $4,463 | ** | | Fair Value Adjustment | ($1,095) | ($824) | ($271) | (33%) | | Other Income | $494 | $380 | $114 | 30% | | Foreign Exchange (Loss) Gain | ($192) | $1,280 | ($1,472) | (115%) | | Loss Before Income Taxes | ($9,817) | ($25,022) | $15,205 | 61% | Consolidated Results This section analyzes the consolidated financial performance, including product revenue growth, gross profit margin, and changes in operating expenses and other income - Product revenues increased by $0.8 million (3%) to $31.9 million in FY2024, with U.S. revenues up 5% and European revenues up 1%, driven by increased marketing in drug development and cell and gene therapy markets[197] - Gross profit margin for Products improved to 46% in FY2024 from 42% in FY2023, due to a more profitable product mix, higher U.S. sourced revenues, and lower input costs[198] - Research and development expenses decreased by 32% to $2.6 million in FY2024, following the discontinuation of translation product R&D[200] - Selling, general and administrative expenses decreased by 20% to $21.7 million in FY2024, mainly due to lower consulting fees, professional fees, and compensation for senior officers[201] - Interest income, net, was $3.3 million in FY2024, a favorable variance of $4.5 million compared to a net interest expense of $1.1 million in FY2023, primarily from proceeds of the Asset Purchase Agreement[203] - A foreign exchange loss of $0.2 million was recognized in FY2024, compared to a gain of $1.3 million in FY2023, primarily due to the appreciation of the U.S. dollar against the Swiss franc and Euro[205] Liquidity and Capital Resources This section assesses Enzo's liquidity and capital resources, detailing changes in cash, working capital, and cash flow activities for operating, investing, and financing Cash and Working Capital (in thousands) | Metric | July 31, 2024 | July 31, 2023 | | :--- | :--- | :--- | | Cash and Cash Equivalents and Restricted Cash | $52,400 | $83,400 | | Working Capital | $45,200 | $58,500 | - The decrease in cash and cash equivalents was primarily due to the net loss and cash used to pay down convertible debentures, accounts payable, and accrued liabilities of discontinued operations[206] - Net cash used in operating activities was $26.3 million in FY2024, a $10.7 million favorable variance from $37.0 million in FY2023, due to a smaller net loss from continuing operations[207] - Net cash used in investing activities was $0.5 million in FY2024 (capital expenditures), compared to $99.0 million provided in FY2023 (primarily from the sale of discontinued operations)[208] - Net cash used in financing activities was $4.2 million in FY2024, mainly for repayment of convertible debentures[209] - Management believes current available working capital is sufficient for operating requirements for at least the next twelve months[206] Labcorp Asset Purchase Agreement and Cash in Escrow This section discusses Enzo's indemnification obligations to Labcorp under the Asset Purchase Agreement and the status of the associated escrow account - Enzo has indemnification obligations to Labcorp under the Asset Purchase Agreement, with a $5 million escrow account established to satisfy certain indemnity obligations[210][211] - The escrow funds are expected to be released in the first quarter of fiscal year 2025, as there are no material charges against them[211] Effect of New Accounting Pronouncements This section outlines the adoption of recent accounting standards and the evaluation of future pronouncements, noting their financial impact - The company adopted ASU No. 2020-06 (Accounting for Convertible Instruments) in FY2023 and ASU No. 2016-13 (Financial Instruments – Credit Losses) in FY2024, neither of which had a material impact on financial position or results[214][215] - New pronouncements, ASU 2023-09 (Income Tax Disclosures) and ASU 2023-07 (Segment Reporting), will be effective for fiscal years beginning August 1, 2025, and August 1, 2025 (interim) / July 31, 2026 (annual) respectively, with no expected material impact on consolidated financial statements[216][217] Critical Accounting Policies and Estimates This section describes Enzo's critical accounting policies and estimates, including those for credit losses, income taxes, inventory, and long-lived asset impairment - Critical accounting policies involve estimates and judgments related to allowance for current expected credit losses, income taxes, inventory valuation, and long-lived assets impairment[220] - Contingencies are recorded when probable and reasonably estimable, with gain contingencies not recognized until realizable[221] - Product revenues are recognized at a point in time upon transfer of control, generally at shipment, net of estimated credits and returns[222] - Inventory is valued at the lower of cost (FIFO) or net realizable value, with write-downs based on inventory quantities and sales forecasts[226] - Long-lived assets are reviewed for impairment if indicators exist, with carrying values adjusted to fair value if expected future undiscounted cash flows are less than book value[227] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to the company's current reporting requirements Item 8. Financial Statements and Supplementary Data This item refers to the consolidated financial statements and supplementary data presented in a separate section of the report - The financial statements and supplementary data are provided in a separate section of this report, as referenced in Item 15(a)(1) and (2)[228] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item confirms no changes in or disagreements with accountants regarding accounting and financial disclosure Item 9A. Controls and Procedures This section confirms the effectiveness of Enzo's disclosure controls and procedures, including the remediation of a material weakness in internal control over financial reporting - As of July 31, 2024, the company's disclosure controls and procedures were deemed effective by management[229] - A material weakness in internal control over financial reporting, identified in FY2023 due to a ransomware attack, has been fully remediated as of July 31, 2024[234][235][236] - Remedial actions included enhanced integration of multiple gating and monitoring tools, vulnerability alert systems, password monitoring, endpoint detection, and added control testing for network security[237] - Management concluded that internal control over financial reporting was effective as of July 31, 2024[236] Item 9B. Other Information This item indicates that no other information is required to be reported Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item confirms no disclosures regarding foreign jurisdictions that prevent inspections PART III This part incorporates by reference information on corporate governance, executive compensation, security ownership, and principal accountant fees Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive Proxy Statement, to be filed by November 29, 2024[239] Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the definitive Proxy Statement - Information on executive compensation is incorporated by reference from the definitive Proxy Statement, to be filed by November 29, 2024[239] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and related stockholder matters is incorporated by reference from the definitive Proxy Statement - Information on security ownership and related stockholder matters is incorporated by reference from the definitive Proxy Statement, to be filed by November 29, 2024[240] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the definitive Proxy Statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the definitive Proxy Statement, to be filed by November 29, 2024[240] Item 14. Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the definitive Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the definitive Proxy Statement, to be filed by November 29, 2024[241] PART IV This part lists exhibits, financial statements, and schedules, including the independent auditor's report and detailed financial notes Item 15. Exhibits, Financial Statement Schedules This section enumerates the consolidated financial statements, schedules, and exhibits included in the Form 10-K filing - This section details the consolidated financial statements, financial statement schedules, and exhibits included in the Form 10-K[243] - The consolidated financial statements include Balance Sheets, Statements of Operations, Comprehensive Income (Loss), Stockholders' Equity, and Cash Flows for the years ended July 31, 2024 and 2023[243] - A list of exhibits, such as the Restated Certificate of Incorporation, Amended and Restated Bylaws, various employment and purchase agreements, and certifications, is provided[244][245][246] SIGNATURES This section confirms the official signing of the Annual Report on Form 10-K by authorized officers and directors - The report is signed by Kara Cannon (Chief Executive Officer), Patricia Eckert (Chief Financial Officer), Bradley Radoff (Director), and Steven J. Pully (Chairman of the Board) on October 29, 2024[254][255] LIST OF CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE This section provides a detailed list of the consolidated financial statements and schedules included in Item 15(a) of the report - The list includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive Income (Loss), Stockholders' Equity, and Cash Flows[257] - Notes to Consolidated Financial Statements and Schedule II – Valuation and Qualifying Accounts are also part of the financial statements[257] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EisnerAmper LLP issued an unqualified opinion on the consolidated financial statements, identifying loss contingencies as a critical audit matter - EisnerAmper LLP provided an unqualified opinion on the consolidated financial statements for July 31, 2024 and 2023, affirming fair presentation in all material respects[260] - The assessment of loss contingencies related to legal claims, lawsuits, and regulatory inquiries was identified as a critical audit matter due to significant management judgment in estimating potential losses[265][266] - Audit procedures for contingencies included evaluating controls, obtaining audit inquiry letters from legal counsel, assessing management's estimates, and evaluating disclosure sufficiency[267] CONSOLIDATED BALANCE SHEETS This section presents Enzo Biochem's financial position, showing decreases in total assets, liabilities, and stockholders' equity from FY2023 to FY2024 Consolidated Balance Sheet Summary (in thousands) | Item | July 31, 2024 | July 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $52,371 | $82,373 | | Cash in escrow | $5,000 | — | | Accounts receivable, net | $3,988 | $4,808 | | Inventories, net | $6,832 | $7,939 | | Total current assets | $70,031 | $98,456 | | Total assets | $85,764 | $121,880 | | Accounts payable – trade | $1,376 | $3,575 | | Accrued liabilities | $5,714 | $11,743 | | Convertible debentures | — | $2,514 | | Current liabilities of discontinued operations, net | $16,787 | $21,102 | | Total current liabilities | $24,794 | $39,989 | | Total liabilities | $29,652 | $43,418 | | Total stockholders' equity | $56,112 | $78,462 | - The decrease in total assets is primarily driven by a reduction in cash and cash equivalents and the sale of discontinued operations assets[269] - Total liabilities decreased due to lower accounts payable, accrued liabilities, and the full repayment of convertible debentures[269] CONSOLIDATED STATEMENTS OF OPERATIONS This section presents Enzo Biochem's financial performance, showing improved operating loss from continuing operations but a consolidated net loss in FY2024 Consolidated Statements of Operations Summary (in thousands, except per share data) | Metric | FY2024 | FY2023 | | :--- | :--- | :--- | | Revenues | $31,907 | $31,061 | | Total Operating Costs and Expenses | $44,272 | $55,797 | | Operating Loss | ($12,365) | ($24,736) | | Loss Before Income Taxes | ($9,817) | ($25,022) | | Net Loss from Continuing Operations | ($9,817) | ($25,022) | | Net Loss from Discontinued Operations | ($16,261) | ($37,321) | | Gain on Sale of Discontinued Operations, net of tax | — | $82,631 | | Net (Loss) Income | ($26,078) | $20,288 | | Net (Loss) Income per Common Share – Basic and Diluted | ($0.51) | $0.41 | - Operating loss from continuing operations decreased by 50% in FY2024, reflecting significant reductions in operating costs and expenses[272] - The consolidated net loss in FY2024 is primarily due to the absence of the $82.6 million gain on sale of discontinued operations recorded in FY2023[272] CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) This section presents the consolidated comprehensive income (loss), showing a shift from income in FY2023 to a loss in FY2024 Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | FY2024 | FY2023 | | :--- | :--- | :--- | | Net (Loss) Income | ($26,078) | $20,288 | | Foreign Currency Translation Adjustments | $7 | ($1,273) | | Comprehensive (Loss) Income | ($26,071) | $19,015 | - The shift from comprehensive income in FY2023 to comprehensive loss in FY2024 is mainly attributable to the change in net income/loss[274] CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY This section details changes in stockholders' equity, showing a decrease from FY2023 to FY2024 primarily due to net loss and stock issuances Consolidated Statements of Stockholders' Equity Summary (in thousands, except share data) | Item | July 31, 2024 | July 31, 2023 | | :--- | :--- | :--- | | Common Stock Shares Issued | 52,244,074 | 49,997,631 | | Common Stock Amount | $521 | $499 | | Additional Paid-in Capital | $348,134 | $344,435 | | Accumulated Deficit | ($294,428) | ($268,350) | | Other Comprehensive Income | $1,885 | $1,878 | | Total Stockholders' Equity | $56,112 | $78,462 | - The decrease in total stockholders' equity from $78.5 million to $56.1 million is mainly attributable to the net loss of $26.1 million in FY2024[277] - Common stock issuances in FY2024 included 1,134,024 shares for Asset Purchase Agreement bonuses and 487,852 shares for employee 401(k) plan matches[277] CONSOLIDATED STATEMENTS OF CASH FLOWS This section presents the consolidated cash flows, detailing changes in cash from operating, investing, and financing activities for FY2024 and FY2023 Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity | FY2024 | FY2023 | | :--- | :--- | :--- | | Net (Loss) Income | ($26,078) | $20,288 | | Net Cash Used in Operating Activities | ($26,259) | ($36,976) | | Net Cash (Used in) Provided by Investing Activities | ($545) | $98,980 | | Net Cash Used in Financing Activities | ($4,193) | ($1,125) | | (Decrease) Increase in Cash and Cash Equivalents and Restricted Cash | ($31,002) | $60,770 | | Cash and Cash Equivalents and Restricted Cash - End of Year | $52,371 | $83,373 | - The $31.0 million decrease in cash and cash equivalents and restricted cash in FY2024 was primarily due to the net loss and cash used to pay down convertible debentures and other liabilities[280] - Net cash provided by investing activities in FY2023 was significantly higher due to the net proceeds from the sale of discontinued operations ($101.7 million)[280] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS This section provides detailed explanatory notes supporting the consolidated financial statements, covering organization, accounting policies, and specific financial items Note 1 - Organization and business This note describes Enzo Biochem's history as a life sciences company and the focus of its Enzo Life Sciences division - Enzo Biochem, Inc. has over 45 years of experience as a life sciences company, with its primary business now focused on the Enzo Life Sciences division[281] - The Life Sciences division specializes in labeling and detection technologies, offering a broad portfolio of products for translational research, drug development, and diagnostic solutions[281] Note 2 - Discontinued operations, sale of Clinical Labs business This note details the sale of the Clinical Labs business to Labcorp, the resulting gain, and the condensed operating results of discontinued operations - Effective July 24, 2023, Enzo completed the sale of its Clinical Labs business to Labcorp for $113.25 million in cash, ceasing its clinical services operations[282] - The sale resulted in a net gain of $82.6 million after income tax expense in FY2023[283] Condensed Operating Results of Discontinued Operations (in thousands) | Metric | FY2024 | FY2023 | | :--- | :--- | :--- | | Net Revenues | $0 | $30,087 | | Loss from Discontinued Operations | ($16,651) | ($37,321) | | Gain on Sale of Business – Before Taxes | — | $83,491 | | Income Tax Refund (Expense) on Gain | $390 | ($860) | | (Loss) Income from Discontinued Operations | ($16,261) | $45,310 | - Cash used in operating activities of discontinued operations was $15.0 million in FY2024 and $19.0 million in FY2023[287] Note 3 - Summary of significant accounting policies This note outlines Enzo's key accounting policies, including those for estimates, foreign currency, fair value, revenue recognition, and recent pronouncements - The consolidated financial statements are prepared in conformity with U.S. GAAP and include Enzo and its wholly-owned subsidiaries[288] - Key accounting policies cover use of estimates, contingencies, foreign currency translation, fair value measurements (Level 1, 2, 3 hierarchy), cash and cash equivalents, concentration of credit risks, accounts receivable, inventories, property/plant/equipment, impairment testing, comprehensive income, shipping/handling costs, R&D, advertising, income taxes, segment reporting, net income (loss) per share, and share-based compensation[289][290][291][292][293][295][296][297][298][299][300][301][304][305][308] - The company adopted ASU 2020-06 and ASU 2016-13, with no material impact, and is evaluating ASU 2023-09 and ASU 2023-07 for future periods[310][311][312][313] Note 4 - Revenue Recognition This note explains Enzo's revenue recognition policy for life sciences product sales and provides a breakdown of revenues by customer location - Revenue from life sciences product sales is recognized at a point in time when control is transferred to the customer, typically upon shipment or delivery[316] Products Revenue by Customer Location (in thousands) | Region | FY2024 | FY2023 | | :--- | :--- | :--- | | United States | $19,489 | $18,551 | | Europe | $8,560 | $8,448 | | Asia Pacific | $3,858 | $4,062 | | Total Products Revenue | $31,907 | $31,061 | Note 5 - Supplemental disclosure for statement of cash flows This note provides supplemental cash flow information, including interest paid, ROU asset reductions, state taxes, and common stock issuances Supplemental Cash Flow Information (in thousands) | Item | FY2024 | FY2023 | | :--- | :--- | :--- | | Interest Paid | $395 | $1,246 | | Net Reductions in ROU Assets and Liabilities | $366 | $38 | | State Taxes Paid on Clinical Labs Sale Gain | $730 | — | | Common Stock Issued for 401(k) Match | $615 | $1,079 | | Common Stock Issued for APA Bonuses | $1,404 | — | - $5 million of escrowed proceeds from the Clinical Labs sale are included in cash in escrow as of July 31, 2024[321] Note 6 - Inventories This note details the composition of Enzo's inventories, net, and the valuation method used as of July 31, 2024, and 2023 Inventories, Net (in thousands) | Category | July 31, 2024 | July 31, 2023 | | :--- | :--- | :--- | | Raw Materials | $1,794 | $2,206 | | Work in Process | $2,461 | $2,599 | | Finished Products | $2,577 | $3,134 | | Total Inventories, Net | $6,832 | $7,939 | - Inventory is valued at the lower of cost (FIFO) or net realizable value, with write-downs based on quantities and sales forecasts[296] Note 7 - Property, plant, and equipment This note provides a breakdown of Enzo's property, plant, and equipment, net, and the depreciation method applied Property, Plant, and Equipment, Net (in thousands) | Category | July 31, 2024 | July 31, 2023 | | :--- | :--- | :--- | | Building and Building Improvements | $11,696 | $12,501 | | Machinery and Equipment | $7,149 | $6,988 | | Office Furniture and Computer Equipment | $7,214 | $7,928 | | Leasehold Improvements | $1,040 | $887 | | Accumulated Depreciation and Amortization | ($16,794) | ($17,280) | | Land and Land Improvements | $2,062 | $2,062 | | Total Property, Plant, and Equipment, Net | $12,367 | $13,086 | - Property, plant, and equipment are stated at cost and depreciated on a straight-line basis over estimated useful lives[297] Note 8 - Income taxes This note details Enzo's income tax provisions, net deferred tax assets, valuation allowance, and net operating loss carryforwards - The company recorded no income tax benefit or provision for continuing operations in FY2024 and FY2023[325] Net Deferred Tax Assets (in thousands) | Item | July 31, 2024 | July 31, 2023 | | :--- | :--- | :--- | | Total Deferred Tax Assets | $31,145 | $30,006 | | Total Deferred Tax Liabilities | ($1,483) | ($3,321) | | Net Deferred Tax Assets before Valuation Allowance | $29,662 | $26,685 | | Less: Valuation Allowance | ($29,662) | ($26,685) | | Net Deferred Tax Assets | $0 | $0 | - A full valuation allowance was recorded against domestic and foreign net deferred tax assets due to uncertainties regarding future taxable income[326] - As of July 31, 2024, the company had U.S. federal net operating loss carryforwards of $78.1 million (some expiring, some not), state and local NOLs of $16.3 million and $7.3 million respectively, and R&D tax credit carryforwards of $1.6 million[327] Note 9 - Convertible debentures and other current debt This note describes the issuance and repayment of convertible debentures, associated warrants, and the repayment of a revolving line of credit - In May 2023, Enzo issued 10% Original Issue Discount Secured Convertible Debentures with an aggregate principal amount of $7.6 million and warrants to purchase up to 1 million shares of common stock for a total purchase price of $7.0 million[330] - The debentures were reported at fair value, with changes recorded in the consolidated statements of operations[331] - The company prepaid $4.0 million of the debentures in FY2023 and fully repaid the remaining $3.6 million balance in May 2024[332][333] - Warrants are exercisable for five years from May 19, 2023, at an exercise price of $2.31 per share[334] - A $8.0 million revolving line of credit with Gemino Healthcare Finance was repaid in July 2023 using proceeds from the Labcorp transaction, incurring a $240,000 prepayment penalty[335] Note 10 - Long term debt This note details the repayment of a mortgage loan and the status of an uncollateralized loan from the Swiss government - A $4.5 million mortgage loan for a Farmingdale, NY building was fully repaid in July 2023, and the $1.0 million cash collateral deposit was released in August 2023[336] - A CHF 400,000 (approx. $400,000) uncollateralized, 0% interest loan from the Swiss government (Corona Krise program) is being repaid in semi-annual installments, with a remaining principal of $189,000 as of July 31, 2024, due by September 2027[337][339] Note 11 - Leases This note describes Enzo's operating leases for buildings and equipment, including right-of-use assets, lease liabilities, and associated costs - Enzo leases buildings, office space, and equipment through operating leases, recognizing right-of-use assets and lease liabilities on the balance sheet[340] Lease Assets and Liabilities (in thousands) | Item | July 31, 2024 | July 31, 2023 | | :--- | :--- | :--- | | Right-of-use assets | $2,836 | $3,626 | | Current portion of operating lease liabilities | $841 | $980 | | Operating lease liabilities, non-current | $2,403 | $3,160 | | Total lease liabilities | $3,244 | $4,140 | Lease Cost (in thousands) | Item | FY2024 | FY2023 | | :--- | :--- | :--- | | Operating Lease Cost – Net | $548 | $689 | - The weighted-average remaining lease term for operating leases is 3.8 years (FY2024) and the weighted-average discount rate is 5.2% (FY2024)[345] Note 12 - Accrued Liabilities This note provides a breakdown of Enzo's accrued liabilities, including payroll, professional fees, legal expenses, and self-funded medical insurance reserves Accrued Liabilities (in thousands) | Category | July 31, 2024 | July 31, 2023 | | :--- | :--- | :--- | | Payroll, Benefits and Commissions | $3,459 | $7,421 | | Professional Fees | $405 | $610 | | Legal | $1,235 | $2,248 | | Other | $615 | $1,464 | | Total Accrued Liabilities | $5,714 | $11,743 | - The company self-funds medical insurance for certain U.S. employees, with reserves of $114,000 (FY2024) and $631,000 (FY2023) for reported and incurred but not reported claims[347] Note 13 - Other current liabilities This note specifies that other current liabilities primarily consist of the current portion of the Swiss government loan - Other current liabilities consist of the current portion of the Swiss government loan, amounting to $76,000 in FY2024 and $75,000 in FY2023[349] Note 14 - Stockholders' equity This note details changes in stockholders' equity, including common stock issuances, incentive plan activity, stock options, and restricted stock units - In May 2023, Enzo entered into a sales agreement with B. Riley Securities, Inc. to sell up to $30 million of common stock through an 'at-the-market' offering, selling 276,479 shares for $386,000 net proceeds in FY2023[349] - In FY2024, the company issued 487,852 shares of common stock for 401(k) matching contributions ($615,000) and 1,134,024 shares for Asset Purchase Agreement bonuses ($1,404,000)[349] - The 2011 Incentive Plan, as amended, allows for the issuance of up to 9,000,000 shares for equity awards, with approximately 4,701,000 shares available for grant as of July 31, 2024[350][351] Stock Option Activity Summary | Metric | FY2024 Options | FY2023 Options | | :--- | :--- | :--- | | Outstanding at beginning of year | 3,829,500 | 3,941,783 | | New Grants | 435,000 | 640,000 | | Expired or forfeited | (2,127,630) | (745,616) | | Outstanding at end of year | 2,136,870 | 3,829,500 | | Exercisable at end of year | 1,373,537 | 2,195,867 | - In FY2024, the company awarded 405,825 Restricted Stock Units (RSUs) to directors and the CEO, with a total unrecognized compensation cost of $256,000 remaining as of July 31, 2024[358][362] - No share-based compensation was recognized for Performance Stock Units (PSUs) in FY2024 as none were outstanding[363] Note 15 - Employee benefit plans This note describes Enzo's employee benefit plans, including the 401(k) plan with employer matching contributions and the Swiss defined benefit pension plan - The company offers a 401(k) Salary Reduction Profit Sharing Plan for U.S. employees, with employer matched contributions of 50% of employee contributions, payable in common stock[364] 401(k) Employer Expense (in thousands) | Fiscal Year | Expense | | :--- | :--- | | 2024 | $600 | | 2023 | $880 | - The Swiss operation provides a Pillar 2 defined benefit pension plan, with company contributions of $335,000 in FY2024 and $182,000 in FY2023[366] Note 16 - Commitments This note outlines Enzo's commitments, specifically a related party lease for a former clinical laboratory building with CPI-based annual rental increases - Enzo has a related party lease for a building formerly used by its discontinued operation, expiring March 3, 2027, with annual rentals subject to CPI-based increases (limited to 3%)[368] Minimum Annual Payments Under Related Party Lease (in thousands) | Fiscal Year Ending July 31 | Payment