Enzo Biochem(ENZ) - 2023 Q4 - Annual Report

Part I Business Enzo Biochem transitioned to a life sciences 'Products' segment, leveraging its IP, and addressing a significant 2023 ransomware data breach - In July 2023, the company sold its Enzo Clinical Labs assets for $113.25 million, shifting focus to the life sciences segment[12] - Post-divestiture, the company operates a single 'Products' segment, manufacturing tools for clinical and bioscience research[13][14] Products Segment Revenue | Fiscal Year | Revenue (in millions) | | :--- | :--- | | 2023 | $31.1 | | 2022 | $32.6 | - The company possesses a significant intellectual property portfolio with 457 owned patents and 59 pending applications globally[11][25] - An April 2023 ransomware attack led to unauthorized access of clinical test information for approximately 2.47 million individuals, including 600,000 Social Security numbers[51][76] Research and Development Expenses | Fiscal Year | R&D Costs (in millions) | | :--- | :--- | | 2023 | $3.9 | | 2022 | $2.4 | Risk Factors The company faces significant risks including a material weakness in internal controls due to a 2023 ransomware attack, litigation, funding dependency, intense competition, and IP protection challenges - Management identified a material weakness in internal control over financial reporting as of April 30, 2023, potentially leading to material financial misstatements[84][85] - The April 2023 ransomware attack poses significant risks including service disruption, data loss, increased costs, regulatory scrutiny, and class action litigation[116][117][118] - Product revenues are significantly dependent on government grants and pharmaceutical R&D funding, exposing the business to spending fluctuations[88][89] - Intense competition from larger, better-resourced firms could lead to price reductions, product obsolescence, and reduced revenues[93] - The company incurred significant losses from continuing operations, with a net loss before taxes of $25.0 million in FY 2023 and $20.3 million in FY 2022[113] - International operations, representing approximately 40% of FY 2023 revenues, expose the company to foreign currency, political, economic, and legal risks[129] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[142] Properties The company's principal facilities in Farmingdale, NY, New York, NY, and Lausen, Switzerland, support manufacturing, research, sales, and administration Principal Facilities | Location | Primary Use | Ownership | | :--- | :--- | :--- | | Farmingdale, NY | Manufacturing, research, sales, admin | Owned (2 facilities) | | Farmingdale, NY | Corporate headquarters | Leased | | New York, NY | Administrative office | Leased | | Lausen, Switzerland | European operational headquarters | Leased | Legal Proceedings Enzo Biochem faces multiple legal challenges including regulatory inquiries, class-action lawsuits from a 2023 data breach, patent infringement, and executive disputes - The company faces regulatory inquiries and multiple class-action lawsuits related to the April 2023 ransomware and data breach incident[146][147] - A financial contingency provision for data breach litigation has been made, though actual exposure may vary[150] - The company is defending a lawsuit by former CEO Elazar Rabbani alleging breach of fiduciary duty and corporate waste[151] - One patent infringement case against Becton Dickinson regarding the '197 patent remains pending and is currently stayed[153] - The company is in stayed arbitration with its former CEO, Dr Rabbani, concerning termination benefits and bonus claims[160] Mine Safety Disclosures This item is not applicable to the company - Not applicable[163] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE under ENZ, with no cash dividends paid or anticipated, as earnings are retained for business financing - The company's common stock trades on the NYSE under the symbol ENZ[165] - The company does not pay cash dividends and plans to retain earnings for operational financing[166] Management's Discussion and Analysis of Financial Condition and Results of Operations FY2023 continuing operations saw a 5% revenue decrease to $31.1 million and a widened operating loss to $24.7 million, while cash significantly improved to $83.4 million due to the $113.25 million clinical labs sale - The company sold its Enzo Clinical Labs assets for $113.25 million in cash, classifying the clinical services business as discontinued operations for FY2023 and FY2022[170] Financial Performance from Continuing Operations (FY 2023 vs. FY 2022) | Metric | FY 2023 (in millions) | FY 2022 (in millions) | Change | | :--- | :--- | :--- | :--- | | Revenues | $31.1 | $32.6 | -5% | | Gross Profit Margin | 42% | 41% | +1 ppt | | Operating Loss | $(24.7) | $(17.0) | -45% | | Loss Before Income Taxes | $(25.0) | $(20.3) | -23% | - SG&A expenses increased by $4.1 million (18%) to $27.2 million, driven by professional fees, severance, and share-based compensation[185] - Cash and cash equivalents increased by $60.8 million to $83.4 million at year-end, primarily from clinical labs sale proceeds[192] - In May 2023, the company issued $7.6 million in 10% convertible debentures and warrants, receiving $7.0 million cash, with $4.0 million prepaid by July 31, 2023[176][199] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to the company - Not applicable[216] Financial Statements and Supplementary Data This section refers to detailed financial statements and supplementary data provided elsewhere in the report, as specified in Item 15 - The response to this item is submitted in a separate section of this report, see Item 15(a) (1) and (2)[217] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[218] Controls and Procedures Management concluded the company's disclosure controls and procedures were ineffective as of July 31, 2023, due to a material weakness from the April 2023 ransomware attack - The principal executive and financial officers concluded that disclosure controls and procedures were not effective as of July 31, 2023[220] - A material weakness in internal control over financial reporting was identified due to the April 2023 ransomware attack, which interrupted systems and impaired control testing[225][226][227] - Management's COSO-based assessment concluded internal control over financial reporting was not effective as of July 31, 2023, due to unavailable data for testing in the fourth quarter[228] Other Information The company reports no other information for this item - None[230] Part III Directors, Executive Officers, Corporate Governance, Executive Compensation, and Other Matters Information for Items 10-14, covering governance, compensation, and related matters, is incorporated by reference from the company's definitive proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's proxy statement, expected to be filed on or before November 28, 2023[230][231][232][233][234] Part IV Exhibits, Financial Statement Schedules This section lists consolidated financial statements, schedules, and exhibits, including the Labcorp Asset Purchase Agreement and convertible debenture agreements - This item provides a list of all financial statements, schedules, and exhibits included with the Form 10-K filing[235] - Key exhibits include the Asset Purchase Agreement with Labcorp (10m), the Securities Purchase Agreement for convertible debentures (10q), and various employment and settlement agreements[236]