UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark one
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 31, 2006
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number 001-09974
ENZO BIOCHEM, INC.
--------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-2866202
-------------------- ------------
(State or Other Jurisdiction (IRS. Employer
of Incorporation or Organization) Identification No.)
527 Madison Ave, New York, New York 10022
------------------------------------ -------
(Address of Principal Executive office) (Zip Code)
212-583-0100
--------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 Par Value New York Stock Exchange
----------------------------- -------------------------------------------
(Title of Class) (Name of Each Exchange on which Registered)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant has
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non- accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
Large accelerated filer |_| Accelerated filer |X| Non- accelerated filer |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.)
Yes |_| No |X|
As of December 1, 2006 the Registrant had approximately 32,285,500 shares of
Common Stock outstanding.
ENZO BIOCHEM, INC.
FORM 10-Q
October 31, 2006
INDEX
-----------------
PART I - FINANCIAL INFORMATION
------------------------------------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
October 31, 2006 (unaudited) and July 31, 2006 3
Consolidated Statements of Operations
For the three months ended October 31, 2006 and 2005 (unaudited) 4
Consolidated Statements of Cash Flows
For the three months ended October 31, 2006 and 2005 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Item 4. Controls and Procedures 22
PART II - OTHER INFORMATION
------------------------------------
Item 1. Legal Proceedings 23
Item 1A. Risk Factors 23
Item 6. Exhibits 23
Signatures 23
2
PART 1 - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ENZO BIOCHEM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS October 31, July 31,
2006 2006
Current assets: (unaudited) (Note 1)
----------- --------
Cash and cash equivalents $71,960 $69,854
Accounts receivable, net of allowances 10,092 10,447
Inventories 2,364 2,401
Prepaid expenses 1,024 1,465
Recoverable and prepaid income taxes 1,807 1,931
-------- --------
Total current assets 87,247 86,098
Property, plant, and equipment, net of accumulated
depreciation and amortization 5,755 5,848
Goodwill 7,452 7,452
Patent costs, net of accumulated amortization 1,237 1,257
Other 1,024 869
-------- --------
Total assets $102,715 $101,524
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $1,392 $1,304
Accrued liabilities 6,134 4,403
Other current liabilities 390 230
-------- --------
Total current liabilities 7,916 5,937
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value; authorized 25,000,000 shares; no
shares issued or outstanding - -
Common Stock, $.01 par value; authorized 75,000,000 shares; shares
issued: 32,852,200 at October 31, 2006 and 32,844,200 at July 31, 2006 329 328
Additional paid-in capital 236,459 236,002
Less treasury stock at cost: 569,700 shares at October 31, 2006
and July 31, 2006 (8,499) (8,499)
Accumulated deficit (133,490) (132,244)
-------- --------
Total stockholders' equity 94,799 95,587
-------- --------
Total liabilities and stockholders' equity $102,715 $101,524
======== ========
The accompanying notes are an integral part of these consolidated financial
statements
3
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
October 31,
2006 2005
-------- --------
Revenues:
Product revenues and royalty income $2,389 $2,147
Clinical laboratory services 8,053 8,018
------- -------
10,442 10,165
Costs and expenses and other (income):
Cost of product revenues 555 541
Cost of clinical laboratory services 3,496 3,481
Research and development expense 1,862 1,550
Selling, general, and administrative expense 5,571 5,456
Provision for uncollectible accounts receivable 914 1,145
Legal expense 2,156 1,862
Interest income (911) (707)
Gain on patent litigation settlement (2,000) -
------- -------
11,643 13,328
------- -------
Loss before income taxes (1,201) (3,163)
Provision for income taxes (45) (123)
------- -------
Net loss ($1,246) ($3,286)
======= =======
Net loss per common share:
Basic ($0.04) ($0.10)
======= =======
Diluted ($0.04) ($0.10)
======= =======
Weighted average common shares outstanding:
Basic 32,279 32,158
======= =======
Diluted 32,279 32,158
======= =======
The accompanying notes are an integral part of these consolidated financial
statements
4
ENZO BIOCHEM, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
Three Months Ended
October 31,
2006 2005
-------- ---------
OPERATING ACTIVITIES
Net loss ($1,246) ($3,286)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization of property, plant and equipment 251 263
Amortization of patent costs 20 18
Provision for uncollectible accounts receivable 914 1,145
Deferred taxes - 640
Share based compensation charges 370 420
Other 9 -
Changes in operating assets and liabilities:
Accounts receivable (559) 162
Inventories 37 109
Prepaid expenses 441 794
Recoverable and prepaid income taxes 124 (545)
Accounts payable - trade 88 (582)
Accrued liabilities 1,731 (671)
Other current liabilities 160 (509)
------- -------
Adjustments 3,586 1,244
------- -------
Net cash provided by (used in) operating activities 2,340 (2,042)
------- -------
INVESTING ACTIVITIES
Capital expenditures (158) (197)
Sales of marketable securities - 577
Purchases of marketable securities - (53)
Increase in cash surrender values (146) (98)
Increase in other assets (9) -
------- -------
Net cash (used in) provided by investing activities (313) 229
------- -------
FINANCING ACTIVITIES
Proceeds from the exercise of stock options 79 74
------- -------
Net cash provided by financing activities 79 74
------- -------
Net increase (decrease) in cash and cash equivalents 2,106 (1,739)
Cash and cash equivalents at the beginning of period 69,854 76,981
------- -------
Cash and cash equivalents at the end of period $71,960 $75,242
======= =======
The accompanying notes are an integral part of these consolidated financial
statements
5
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of October 31, 2006
and for the three month periods ended
October 31, 2006 and 2005
(Unaudited)
Note 1 - Basis of Presentation
------------------------------
The accompanying unaudited consolidated financial statements include the
accounts of Enzo Biochem, Inc. (the "Company") and its wholly owned
subsidiaries, Enzo Clinical Labs, Enzo Life Sciences, Enzo Therapeutics and Enzo
Realty LLC. The consolidated balance sheet as of October 31, 2006 and the
consolidated statements of operations and statements of cash flows for the three
month periods ended October 31, 2006 and 2005 are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The consolidated
financial statements should be read in conjunction with the consolidated
financial statements for the year ended July 31, 2006 and notes thereto
contained in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission. The consolidated balance sheet at July 31, 2006 has
been derived from the audited financial statements at that date. The results of
operations for the three months ended October 31, 2006 are not necessarily
indicative of the results to be expected for the entire fiscal year ending July
31, 2007.
Recent Accounting Pronouncements
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections ("SFAS 154"), a replacement of APB Opinion No. 20, Accounting
Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements". SFAS 154 changes the requirements for the accounting for
and reporting of a change in accounting principle. Previously, most voluntary
changes in accounting principles required recognition via a cumulative effect
adjustment within net income for the period of the change. SFAS 154 requires
retrospective application to prior periods' financial statements, unless it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change. SFAS 154 is effective for accounting changes made in
fiscal years beginning after December 15, 2005; however, SFAS 154 does not
change the transition provisions of any existing accounting pronouncements. The
adoption of SFAS 154 did not have a material impact on the Company's financial
condition or results of operations.
In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109,
Accounting for Income Taxes" ("SFAS 109")", to clarify the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements
in accordance with SFAS 109. This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. The
provisions of FIN 48 are effective for fiscal years beginning after December 15,
2006. The Company has not evaluated the impact of FIN 48 on its financial
statements at this time.
6
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". This
Statement defines fair value, establishes a framework for measuring fair value
and expands disclosure about fair value measurements, and is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The Company has not evaluated the
effect that the adoption of this Statement will have on its consolidated results
of operations and financial condition.
In September 2006, the SEC released Staff Accounting Bulletin No. 108
"Considering the Effects of Prior Year Misstatements When Quantifying
Misstatements in Current Year Financial Statements" ("SAB 108"). SAB 108
provides interpretative guidance on how public companies quantify financial
statement misstatements. There have been two common approaches used to quantify
such errors. Under an income statement approach, the "roll-over" method, the
error is quantified as the amount by which the current year income statement is
misstated. Alternatively, under a balance sheet approach, the "iron curtain"
method, the error is quantified as the cumulative amount by which the current
year balance sheet is misstated. In SAB 108, the SEC established an approach
that requires quantification of financial statement misstatements based on the
effects of the misstatements on each of the company's financial statements and
the related financial statement disclosures. This model is commonly referred to
as a "dual approach" because it requires quantification of errors under both the
roll-over and iron curtain methods. SAB 108 is effective for the Company as of
August 1, 2007. The adoption of SAB 108 is not expected to have a material
impact on the Company's consolidated financial statements.
Reclassifications
Certain balances in the prior period have been reclassified to conform with the
presentation in the current period.
Note 2 - Net loss per share
---------------------------
Basic net loss per common share is computed using the weighted average number of
common shares outstanding during the three months ended October 31, 2006 and
2005. Diluted net loss per common shares is computed using the weighted average
number of shares outstanding during the three months ended October 31, 2006 and
2005, and excludes the effect of dilutive potential common shares (consisting of
employee stock options and unvested restricted stock awards in the 2006 period)
as their inclusion would be antidilutive. Accordingly, basic and diluted net
loss per share is the same during these periods.
The following table summarizes the potential number of shares issued from
exercise of "in the money" stock options, net of shares repurchased with the
option exercise proceeds, and potential shares from restricted stock awards,
which are excluded from the computation of diluted net loss per share.
(In thousands) Three months ended October 31,
2006 2005
---- ----
Potential net shares, issued from exercise of "in the 443 625
money" employee and director stock options and restricted === ===
stock awards in the 2006 period, excluded from diluted net
loss per share calculation
7
The following table summarizes the number of "out of the money" options excluded
from the computation of diluted net loss per share because the effect of their
potential exercise is anti-dilutive.
(IN THOUSANDS) OCTOBER 31, OCTOBER 31,
-------------- ----------- -----------
2006 2005
---- ----
"Out of the money" employee and director stock options 1,082 818
===== ===
Note 3 - Share-based compensation
---------------------------------
The Company adopted SFAS No. 123(R), "Share-Based Payment" ("SFAS 123(R)") and
related interpretations effective August 1, 2005. Compensation costs recognized
in the three-month periods ended October 31, 2006 and 2005 include compensation
costs for all share-based payments granted prior to, but not yet vested as of
July 31, 2005, based on the grant date fair value estimated in accordance with
the original provisions of SFAS No. 123, and compensation costs for all
share-based payments granted subsequent to August 1, 2005, based on the grant
fair value estimated in accordance with the provisions of SFAS 123R.
The following table sets forth the amount of share based compensation expense
upon vesting and per share data related to share-based payment arrangements
included in the accompanying statements of operations:
Three months ended October 31,
IN THOUSANDS, EXCEPT PER SHARE DATA 2006 2005
----------------------------------- ---- ----
Stock options $309 $420
Restricted stock awards 61 -
-- -
Total $370 $420
==== ====
Impact on basic and diluted net loss per common share $0.01 $0.01
===== =====
AS INCLUDED IN THE STATEMENTS OF OPERATIONS
-------------------------------------------
Cost of product revenues $ 3 $ 8
Research and development 47 71
Selling, general and administrative 320 341
--- ---
$370 $420
==== ====
No excess tax benefits were recognized during the three month periods ended
October 31, 2006 and 2005.
8
STOCK OPTION PLANS
A summary of the activity relating to the Company's stock option plans for the
three month period ended October 31, 2006 is as follows:
Weighted Average Aggregate
Options Exercise Price Intrinsic Value
--------- ---------------- ---------------
Outstanding at August 1, 2006 2,877,727 $13.20 $3,700,000
==========
Granted - -
Exercised (7,975) $9.89
Cancelled (3,176) $12.90
---------
Outstanding at end of period 2,866,576 $13.20 $7,383,000
========= ==========
Exercisable at end of period 2,671,893 $13.25 $7,075,000
========= ==========
Available for grant at October 31, 2006 630,000
=======
The Company did not grant stock options during the three months ended October
31, 2006. As of October 31, 2006, there was approximately $971,000 of total
unrecognized compensation cost related to nonvested stock option-based
compensation, which will be recognized over a weighted average life of
approximately one and a half years.
During the three months ended October 31, 2006 and 2005, the Company received
cash proceeds of approximately $79,000 and $74,000, respectively, from the
exercise of 7,975 and 6,700 stock options, respectively. The aggregate intrinsic
value of stock options exercised during the three months ended October 31, 2006
and 2005, including the non-cash transactions (Note 4) was approximately $0.1
million and $0.6 million, respectively.
During the year ended July 31, 2006, the Company granted 100,000 options to a
consultant with an exercise price of $24.84, which vested over six months and
have a two year term. The fair value of these options on September 6, 2006 (the
vesting date) was $89,000. The fair value of the options, which was accounted
for as a variable instrument, was fair valued and recognized as expense over the
six month vesting term. The assumptions used to fair value this option grant
were as follows: risk free interest rate of 4.97%, expected term of 2 years,
expected volatility of 49%, and no dividend yield. In connection with the
options issued to this consultant, the Company recognized an expense of
approximately $9,000 in selling, general and administrative expense in the
accompanying statement of operations for the three months ended October 31,
2006.
RESTRICTED STOCK AWARDS
During the three months ended October 31, 2006, the compensation committee of
the Company's board of directors approved grants of restricted stock-based
compensation awards (the "Awards") of 9,400 shares to certain officers and
employees. The Company did not grant restricted stock awards during the three
months ended October 31, 2005.
A summary of the activity pursuant to the Company's Awards for the three months
ended October 31, 2006 is as follows:
Weighted Average
Awards Award Price
--------- ------------
Nonvested at August 1, 2006 77,450 $12.21
Granted 9,400 $13.82
Vested - -
Forfeited (6,800) $13.41
-------
Nonvested at end of period 80,050 $12.30
=======
9
The fair value of nonvested shares is determined based on the closing stock
price on the grant date. As of October 31, 2006, there was approximately
$719,000 of total unrecognized compensation cost related to nonvested restricted
stock-based compensation to be recognized over a weighted average period of two
years.
Note 4 - Supplemental disclosure for statement of cash flows
-------------------------------------------------------------
Supplemental information with respect to the Company's consolidated statements
of cash flows is as follows:
(In thousands) Three months ended October 31,
2006 2005
---- ----
Taxes (refunded) paid - net $(124) $28
===== ===
During the three months ended October 31, 2005, certain officers of the Company
exercised 221,116 stock options in a non-cash transaction. The officers
surrendered 180,411 shares of previously acquired common stock to exercise the
stock options. The Company recorded approximately $2.4 million, the market value
of the surrendered shares, as treasury stock.
Note 5 - Comprehensive loss
---------------------------
During the three months ended October 31, 2006 and 2005, total comprehensive
loss was approximately $1.2 million and $3.3 million, respectively. The
components of comprehensive loss are net loss, and for the quarter ended October
31, 2005, includes the change in unrealized losses on marketable securities, net
of tax, of approximately $22,000.
Note 6 - Inventories
--------------------
Inventories, net of reserves of $129,000 and $238,000, respectively, consist of
the following, as of:
(In thousands) October 31, 2006 July 31, 2006
-------------- ---------------- -------------
Raw Materials $26 $38
Work in process 1,413 1,518
Finished products 925 845
------ ------
$2,364 $2,401
====== ======
10
Note 7 - Accrued liabilities and other current liabilities
-------------------------------------------------------------
Accrued liabilities consist of:
In 000's October 31, 2006 July 31, 2006
-------- ---------------- -------------
Legal $3,761 $1,974
Payroll, benefits, and commissions 1,134 868
Research and development 286 408
Professional fees 313 369
Outside reference lab testing 30 122
Other 610 662
------ ------
$6,134 $4,403
====== ======
Other current liabilities consist of:
In 000's October 31, 2006 July 31, 2006
-------- ---------------- -------------
Installment payable $150 $150
Deferred revenue 240 80
---- ----
$390 $230
==== ====
Note 8 - Income taxes
---------------------
At the end of each interim reporting period, the Company estimates its effective
income tax rate expected to be applicable for the full year. This estimate is
used to determine the income tax provision or benefit on a year-to-date basis
and may change in subsequent interim periods.
The tax provision for the three months ended October 31, 2006 was based on state
and local taxes, and differed from the expected net operating loss carryforward
benefit at the U.S. federal statutory rate of 34% primarily due to the inability
to recognize such benefit. The carryforward benefit cannot be recognized because
of uncertainties relating to future taxable income, in terms of both its timing
and its sufficiency, which would enable the Company to realize the carryforward
benefit.
The tax provision for the three months ended October 31, 2005 differed from the
expected net operating loss carryforward benefit at the U.S. federal statutory
rate of 34% primarily due to limitations on the timing of the recognition of the
Company's federal tax carryback benefit for taxes paid in prior years, and the
recording of a valuation allowance equal to its deferred tax assets as of that
date, including the federal net operating loss carryforward benefit generated
during the period. The Company recorded the valuation allowance as it concluded
that it was not more likely than not that its net deferred tax assets would be
realized in the foreseeable future based on positive and negative evidence
available at the time. The conclusion was reached because of uncertainties
relating to future taxable income, in terms of both its timing and its
sufficiency, which would enable the Company to realize the deferred tax assets.
In November 2005, the FASB issued FSP FAS 123(R)-3, "Transition Election Related
to Accounting for the Tax Effects of Share-Based Payment Awards", to provide an
alternate transition method for the implementation of SFAS 123(R). Because some
entities do not have, and may not be able to re-create, information about the
net excess tax benefits that would have qualified as such had those entities
adopted SFAS 123(R) for recognition purposes, this FSP provides an elective
alternative transition method. The method comprises (a) a computational
component that establishes a beginning balance of the additional paid in capital
pool ("APIC pool") related to employee compensation and (b) a simplified method
to determine the subsequent impact on the APIC pool of employee awards that are
fully vested and outstanding upon the adoption of SFAS 123(R). The Company
adopted the principles set forth in this FSP to determine its APIC pool.
11
Note 9 - Gain on patent litigation settlement
---------------------------------------------
The Company as plaintiff and Sigma Aldrich ("Sigma") entered into a Settlement
Agreement and Release effective September 15, 2006 (the "Settlement"). Pursuant
to the Settlement, the Company's litigation with Sigma was dismissed and the
Company recognized a $2 million gain on patent litigation settlement in the
accompanying consolidated statement of operations for the three months ended
October 31, 2006.
Note 10 - License agreement and royalty income
----------------------------------------------
In fiscal 2005, the Company as plaintiff finalized and executed a settlement and
license agreement with Digene Corporation to settle a patent litigation lawsuit
(the "Agreement"). Subsequent to the settlement, the Agreement provides for the
Company to receive quarterly running royalties on the net sales of Digene
products subject to the license until the expiration of the patent in April
2018.
The following table summarizes total royalty income, arising from the Digene
Agreement, and included in the Life Sciences segment (see Note 11):
Three months ended
October 31,
(In thousands) 2006 2005
-------------- ---- ----
Royalty income $1,298 $859
====== ====
Note 11 - Segment reporting
---------------------------
The Company has three reportable segments: Life Sciences, Therapeutics, and
Clinical Labs. The Company's Life Sciences segment develops, manufactures, and
markets products to research and pharmaceutical customers. The Company's
Therapeutic segment conducts research and development activities for therapeutic
drug candidates. The Clinical Labs segment provides diagnostic services to the
health care community. Prior to the fourth quarter ended July 31, 2006, the Life
Sciences and Therapeutics segments were reported together as the Research and
Development segment. The October 31, 2005 segment information has been restated
to reflect this change. The Company evaluates segment performance based on
segment income (loss) before taxes. Costs excluded from segment income (loss)
before taxes and reported as other consist of corporate general and
administrative costs which are not allocable to the three reportable segments.
Management of the Company assesses assets on a consolidated basis only and
therefore, assets by reportable segment have not been included in the reportable
segments below. The accounting policies of the reportable segments are the same
as those described in the summary of critical accounting policies.
12
The following financial information (in thousands) represents the operating
results of the reportable segments of the Company:
THREE MONTHS ENDED OCTOBER 31, 2006
REVENUES: Life Sciences Therapeutics Clinical Labs Other Consolidated
------------- ------------ ------------- ----- ------------
Product revenues and royalty income $2,389 -- -- -- $2,389
Clinical laboratory services -- -- $8,053 -- 8,053
----- ------- ------ ------- -----
2,389 -- 8,053 -- 10,442
COST AND EXPENSES AND OTHER (INCOME):
Cost of products 555 -- -- -- 555
Cost of clinical laboratory services -- -- 3,496 -- 3,496
Research and development 830 $1,032 -- -- 1,862
Provision for uncollectible accounts -- -- 914 -- 914
Selling, general and administrative and legal 498 -- 3,276 $3,953 7,727
Interest income -- -- -- (911) (911)
(Gain) on patent litigation settlement (2,000) -- -- -- (2,000)
------- ------- ------- ------- -------
Income (loss) before income taxes $2,506 ($1,032) $367 $(3,042) $(1,201)
====== ======= ====== ======= =======
Depreciation and amortization included above $48 $3 $211 $9 $271
====== ======= ====== ======= =======
SHARE-BASED COMPENSATION INCLUDED IN ABOVE:
Cost of products $3 -- -- -- $3
Research and development 13 $29 -- -- 42
Selling, general and administrative and legal 13 -- $86 $226 325
------ ------ ------- ------- -------
Total $29 $29 $86 $226 $370
====== ====== ======= ======= =======
Capital expenditures $43 $8 $107 $ - $158
====== ====== ======= ======= =======
THREE MONTHS ENDED OCTOBER 31, 2005
REVENUES: Life Sciences Therapeutics Clinical Labs Other Consolidated
------------- ------------ ------------- ----- ------------
Product revenues and royalty income $2,147 -- -- -- $2,147
Clinical laboratory services -- -- $8,018 -- 8,018
------- ------ ------ ------- -------
2,147 -- 8,018 -- 10,165
COST AND EXPENSES AND OTHER (INCOME):
Cost of products 541 -- -- -- 541
Cost of clinical laboratory services -- -- 3,481 -- 3,481
Research and development 989 $561 -- -- 1,550
Provision for uncollectible accounts -- -- 1,145 -- 1,145
Selling, general and administrative and legal 525 -- 3,330 $3,463 7,318
Interest income -- -- -- (707) (707)
------- ------ ------ ------- -------
Income (loss) before income taxes $92 ($561) $62 $(2,756) $(3,163)
======= ====== ====== ====== =======
Depreciation and amortization included above $46 $3 $221 $11 $281
======= ====== ====== ====== =======
SHARE-BASED COMPENSATION INCLUDED IN ABOVE:
Cost of products $8 -- -- -- $8
Research and development 35 $36 -- -- 71
Selling, general and administrative and legal 18 -- $153 $170 341
------- ------ ------ ------- -------
Total $61 $36 $153 $170 $420
======= ====== ====== ====== =======
Capital expenditures $4 $ - $193 $ - $197
======= ====== ====== ====== =======
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations
should be read in conjunction with our financial statements and related notes.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements. See "Forward-Looking and Cautionary
Statements" in our Form 10-K for the year ended July 31, 2006. Because of those
factors, you should not rely on past financial results as an indication of
future performance. We believe that period-to-period comparisons of our
financial results to date are not necessarily meaningful and expect that our
results of operations might fluctuate from period to period in the future.
The Company is a life sciences and biotechnology company focused on harnessing
genetic processes to develop research tools and therapeutics and the provision
of diagnostic services to the medical community. Since its founding in 1976,
Enzo's strategic focus has been on the development, for commercial purposes, of
enabling technologies in the life sciences field. Enzo's pioneering work in
genomic analysis coupled with its extensive patent estate and enabling platforms
have strategically positioned Enzo to play a crucially important role in the
rapidly growing life sciences and molecular medicine marketplaces.
The Company is comprised of three interconnected operating companies that have
evolved out of Enzo's core competence: the use of nucleic acids as informational
molecules and the use of compounds for immune response modulation. These wholly
owned operating companies conduct their operations through three segments (see
Note 11 in the notes to consolidated financial statements).
The Company's sources of revenue from the Life Sciences segment is from the
direct sales of products consisting of labeling and detection reagents for the
genomics and sequencing markets, as well as through non-exclusive distribution
agreements with other companies and royalty income. The Company's other source
of revenue is from the clinical laboratory service market. Payments for clinical
laboratory testing services are made by the Medicare program, healthcare
insurers and patients. Fees billed to patients, Medicare, and third party payers
are billed on the laboratory's standard gross fee schedule, subject to any
limitations on fees negotiated with the third party payers or with the ordering
physicians on behalf of their patients.
The Company incurs additional costs as a result of our participation in the
Medicare programs, as billing and reimbursement for clinical laboratory testing
is subject to considerable and complex federal regulations. Compliance with
applicable laws and regulations, as well as internal compliance policies and
procedures, adds further complexity and costs to our operations. Government
payers such as Medicare, as well as healthcare insurers have taken steps and may
continue to take steps to control the costs, utilizations and delivery of
healthcare services, including clinical laboratory services. Despite the added
cost and complexity of participating in the Medicare program, we continue to
participate because we believe that our other business may depend, in part, on
continued participation in Medicare since certain ordering physicians may want a
single laboratory capable of performing all of their clinical laboratory testing
services, regardless of who pays for such services.
Information systems are used extensively in virtually all aspects of the
clinical laboratory operations, including testing, billing, customer service,
logistics, and management of medical data. Our success depends, in part, on the
continued and uninterrupted performance of our information technology systems.
Through maintenance, staffing, and investments in our information technology
system, we expect to limit the risk associated with our heavy reliance on these
systems.
14
The clinical laboratory is subject to seasonal fluctuations in operating results
and cash flows. Typically, testing volume declines during the summer months,
year end holiday periods and other major holidays, reducing net revenues and
operating cash flows. Testing volume is also subject to declines in winter
months due to inclement weather, which varies in severity from year to year.
For the three months ended October 31, 2006 and 2005, respectively,
approximately 23% and 21% of the Company's operating revenues were derived from
product sales and royalty income and approximately 77% and 79% were derived from
clinical laboratory services.
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 2006 AS COMPARED TO OCTOBER 31, 2005
COMPARATIVE FINANCIAL DATA FOR THE THREE MONTHS ENDED OCTOBER 31,
(in 000's) Increase
Revenues: 2006 2005 (Decrease) % Change
--------- -------- ------- ------------- -------------
Product sales and royalties $ 2,389 $ 2,147 $242 11%
Clinical laboratory services 8,053 8,018 35 -
------- ------- -----
Total revenues 10,442 10,165 277 3
COSTS AND EXPENSES AND OTHER (INCOME):
Cost of products 555 541 14 3
Cost of laboratory services 3,496 3,481 15 -
Research & development 1,862 1,550 312 20
Selling, general and administrative 5,571 5,456 115 2
Provision for uncollectible A/R 914 1,145 (231) (20)
Legal expenses 2,156 1,862 294 16
Interest income (911) (707) (204) 29
Gain on patent litigation settlement (2,000) - (2,000) -
-------- -------- ------
Total Costs and expenses - net 11,643 13,328 (1,685) (13)
-------- -------- ------
Loss before income taxes ($1,201) ($3,163) $1,962 (62)%
======= ======= ======
CONSOLIDATED RESULTS
Product revenues and royalty income during the three months ended October 31,
2006 was $2.4 million compared to $2.2 million in the year ago quarter, an
increase of $0.2 million or 11% due to an increase in royalty income of $0.4
million, offset by a decrease in shipments of products of $0.2 million.
Clinical laboratory revenues during both the three month periods ended October
31, 2006 and 2005 were comparable at approximately $8.0 million. The contractual
adjustment expense, which reduces gross billings, increased to 76.9% of gross
billing as compared to 75.1% in the prior period, due to continued competitive
pricing throughout the industry. Although the Company experienced an increase in
gross billings, the increase in services to lower reimbursement providers
reduced net revenues.
The cost of products during both the three month periods ended October 31, 2006
and 2005 was comparable at $0.5 million despite a decline in shipments of
products.
The cost of clinical laboratory services during both the three month periods
ended October 31, 2006 and 2005 was comparable at approximately $3.5 million.
15
Research and development expenses were approximately $1.9 million during the
three months ended October 31, 2006, compared to $1.6 million in the year ago
quarter, an increase of $0.3 million or 20%. The increase was primarily due to
an increase in clinical trial activities of $0.5 million partially offset by a
decline in the cost of research supplies of $0.1 million in the Life Sciences
segment.
Selling, general and administrative expenses of approximately $5.6 million
during the three months ended October 31, 2006 are comparable to $5.5 million in
the year ago period.
The provision for uncollectible accounts receivable relating to the clinical
laboratory segment for the three months ended October 31, 2006 was $0.9 million,
compared to $1.1 million during the year ago period, a decrease of $0.2 million
or 20%. The provision declined due to improved billing and collection
procedures.
Legal expense was $2.2 million during the three months ended October 31, 2006
compared to $1.9 million in the year ago period, an increase of $0.3 million or
16%, due to an increase in ongoing patent and other litigation activities.
Interest income increased by $0.2 million or 29% to $0.9 million during the
three months ended October 31, 2006 compared to $0.7 million during the 2005
period, due to higher interest rates earned partially offset by less available
cash for investment. The Company earns interest by investing primarily in short
term (30 to 90 days) commercial paper and money market funds with high credit
ratings.
The Company as plaintiff and Sigma Aldrich ("Sigma") entered into a Settlement
Agreement and Release effective September 15, 2006 (the "Settlement"). Pursuant
to the Settlement, the Company's litigation with Sigma was dismissed and the
Company recognized a $2 million gain on patent litigation settlement during the
three months ended October 31, 2006.
The tax provision for the three months ended October 31, 2006 was based on state
and local taxes, and differed from the expected net operating loss carryforward
benefit at the U.S. federal statutory rate of 34% primarily due to the inability
to recognize such benefit. The carryforward benefit cannot be recognized because
of uncertainties relating to future taxable income, in terms of both its timing
and its sufficiency, which would enable the Company to realize the federal
carryforward benefit.
The tax provision for the three months ended October 31, 2005 differed from the
expected net operating loss carryforward benefit at the U.S. federal statutory
rate of 34% primarily due to limitations on the timing of the recognition of the
Company's federal tax carryback benefit for taxes paid in prior years, and the
recording of a valuation allowance equal to its deferred tax assets as of
October 31, 2005, including the federal net operating loss carryforward benefit
generated during the period. The Company recorded the valuation allowance as it
concluded that it was not more likely than not that its net deferred tax assets
would be realized in the foreseeable future based on positive and negative
evidence available at the time. The conclusion was reached because of
uncertainties relating to future taxable income, in terms of both its timing and
its sufficiency, which would enable the Company to realize the deferred tax
assets.
16
SEGMENT RESULTS
The Life Sciences segment's income before taxes was approximately $2.5 million
for the three months ended October 31, 2006 as compared to $0.1 million in the
year ago quarter. Segment operating income increased primarily as a result of
the Company's $2 million patent litigation settlement with Sigma Aldrich.
Product and royalty revenue during the three months ended October 31, 2006
period was $2.4 million as compared to $2.2 million in the 2005 period, an
increase of $0.2 million or 11%. The increase was primarily due to an increase
in royalty income of $0.4 million offset by a decrease in product sales of
approximately $0.2 million. Segment operating expenses (research and development
and selling, general and administrative) decreased in the 2006 period by
approximately $0.2 million primarily due to a reduction in the cost of research
supplies.
The Therapeutics segment's loss was approximately $1.0 million for the three
months ended October 31, 2006 as compared to a loss of $0.6 million for the
earlier quarter. The 2006 increase in the net loss was primarily due to an
increase in overall clinical trial activities of $0.5 million.
The Clinical Laboratory segment's income before taxes was $0.4 million for the
period ended October 31, 2006 as compared to $0.1 million in the year ago
quarter. The 2006 period was positively impacted by a reduction of $0.2 million
in the provision for uncollectible accounts due to continued improved billing
and collection procedures.
The Other segment's loss for the three months ended October 31, 2006 was
approximately $3.0 million as compared to a loss of $2.8 million in the year ago
quarter. The increased loss was primarily due to increased legal fees of $0.3
million due to ongoing patent litigation and an increase in share based
compensation under SFAS123(R) of $0.1 million. The increase in expenses was
partially offset by higher interest income of $0.2 million.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2006, our cash and cash equivalents were $72.0 million, an
increase of $2.1 million from cash and cash equivalents at July 31, 2006. The
increase in cash during the three months ended October 31, 2006 was primarily
due to the $2 million settlement gain on patent litigation and cash flow impacts
discussed below. The Company had working capital of $79.3 million at October 31,
2006 compared to $80.2 million at July 31, 2006. The decrease in working capital
was primarily the result of an increase in current liabilities of approximately
$2.0 million, due to the timing of disbursements, which was partially offset by
other changes in current assets during the three month period.
Net cash provided by operating activities for the three months ended October 31,
2006 was approximately $2.3 million as compared to net cash used in operating
activities of $2.0 million for the three months ended October 31, 2005. The
increase in net cash provided by operating activities in the 2006 period over
the 2005 period of $4.3 million was primarily due to the decreased net loss of
$2 million resulting from the $2 million gain on patent litigation settlement in
the 2006 period and by the positive net changes of approximately $2.3 million in
operating assets and liabilities, primarily due to the increase in accrued
liabilities.
In the quarter ended October 31, 2006, net cash used in investing activities was
approximately $0.3 million versus net cash provided by investing activities of
$0.2 million in the year ago period, primarily due to a decline in the sales of
marketable securities of approximately $0.6 million. During fiscal 2006, all
investments in marketable securities were sold and reinvested in cash
equivalents.
17
The Company believes that its current cash position is sufficient for its
foreseeable liquidity and capital resource needs over the next 12 months,
although there can be no assurance that future events will not alter such view.
CONTRACTUAL OBLIGATIONS
There were no significant changes to the Contractual Obligations disclosed in
the Annual Report on Form 10-K for the 2006 fiscal year.
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.
CRITICAL ACCOUNTING POLICIES
General
--------
The Company's discussion and analysis of its financial condition and results of
operations are based upon Enzo Biochem, Inc.'s consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses; these estimates
and judgments also affect related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those
related to contractual adjustments, allowance for uncollectible accounts,
inventory, intangible assets 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.
Product Revenues
----------------
Revenues from product sales are recognized when the products are shipped, the
sales price is fixed or determinable and collectibility is reasonably assured.
Royalties
----------
Royalty revenues are recorded in the period earned. Royalties received in
advance of being earned are recorded as deferred revenues.
Revenues - Clinical laboratory services
----------------------------------------
Revenues from the clinical laboratory are recognized upon completion of the
testing process for a specific patient and reported to the ordering physician.
These revenues and the associated accounts receivable are based on gross amounts
billed or billable for services rendered, net of a contractual adjustment, which
is the difference between amounts billed to payers and the expected approved
reimbursable settlements from such payers.
18
The following are tables of the clinical laboratory segment's net revenues and
percentages by revenue category for the three months ended October 31, 2006 and
2005:
Net revenues Three months ended Three months ended
October 31, 2006 October 31, 2005
---------------- ----------------
Revenue Category (In 000's) (In %) (In 000's) (In %)
---------------- ---------- ------ ---------- ------
Medicare $1,954 24 $1,835 23
Third party carriers 5,011 62 4,713 59
Patient self-pay 632 8 1,003 12
HMO's 456 6 467 6
------ ---- ------ ----
Total $8,053 100% $8,018 100%
====== ==== ====== ====
The Company provides services to certain patients covered by various third-party
payers, including the Federal Medicare program. Revenue, net of contractual
adjustments, from direct billings under the Federal Medicare program during the
three months ended October 31, 2006 and 2005 were approximately 24% and 23%,
respectively, of the clinical lab segment's revenue. Laws and regulations
governing Medicare are complex and subject to interpretation for which action
for noncompliance includes fines, penalties and exclusion from the Medicare
programs. The Company believes that it is in compliance with all applicable laws
and regulations and is not aware of any pending or threatened investigations
involving allegations of potential wrongdoing.
Contractual Adjustments
-----------------------
The Company's estimate of contractual adjustments is based on significant
assumptions and judgments, such as its interpretation of the applicable payer's
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. The Company adjusts the contractual adjustment estimate
periodically, based on its evaluation of historical settlement experience with
payers, industry reimbursement trends, and other relevant factors.
During the three months ended October 31, 2006 and 2005, the contractual
adjustment percentages, determined using average historical reimbursement
statistics, were 76.9% and 75.1%, respectively, of gross billings. The Company
estimates (by using a sensitivity analysis) that each 1% point change in the
contractual adjustment percentage could have resulted in a change in clinical
laboratory services revenues of approximately $349,000 for the three months
ended October 31, 2006, and could have resulted in a change in the net accounts
receivable of approximately $92,000 as of October 31, 2006.
Accounts Receivable and Allowance for Doubtful Accounts
-------------------------------------------------------
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.
For the clinical laboratory segment, the allowance for doubtful accounts
represents amounts that the Company does not expect to collect after the Company
has exhausted its collection procedures. The Company estimates its allowance for
doubtful accounts in the period the related services are billed and adjusts the
estimate in future accounting periods as necessary. It bases the estimate for
the allowance on the evaluation of historical collection experience, the aging
profile of accounts receivable, the historical doubtful account write-off
percentages, payer mix, and other relevant factors.
19
The allowance for doubtful accounts includes the balances, after receipt of the
approved settlements from third party payers for the insufficient diagnosis
information received from the ordering physician, which result in denials of
payment, and the uncollectible portion of receivables from self payers,
including deductibles and copayments, which are subject to credit risk and
patients' ability to pay. During the three months ended October 31, 2006 and
2005, the Company determined an allowance for doubtful accounts less than 210
days and wrote off 100% of accounts receivable (for all payers) over 210 days,
as it assumed those accounts are uncollectible. The Company adjusts the
historical collection analysis for recoveries, if any, on an ongoing basis.
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 collectibility
of its receivables is directly linked to the quality of its billing processes,
most notably, those related to obtaining the correct 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.
The following is a table of the Company's net accounts receivable by segment.
The clinical laboratory segment's net receivables are detailed by billing
category and as a percent to its total net receivables. At October 31, 2006 and
July 31, 2006, approximately 83% and 88%, respectively, of the Company's net
accounts receivable relates to its clinical laboratory business, which operates
in the New York and New Jersey Metropolitan area.
Net accounts receivable As of As of
October 31, 2006 July 31, 2006
---------------- -------------
BILLING CATEGORY (In 000's) (In %) (In 000's) (In %)
---------------- ---------- ------ ---------- ------
Clinical laboratory
Medicare $1,487 18% $1,367 15%
Third party carriers 4,390 53 4,025 44
Patient self-pay 2,035 24 3,294 36
HMO's 449 5 475 5
------- ---- ------- ----
Total Clinical laboratory $8,361 100% $9,161 100%
==== ====
Total Life Sciences 1,731 1,286
------- -------
Total accounts receivable $10,092 $10,447
======= =======
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 of a change in tax
rates on deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date.
20
Inventory
----------
The Company values inventory at the lower of cost (first-in, first-out) or
market. Work-in-process and finished goods inventories consist of material,
labor, and manufacturing overhead. On a quarterly basis, we review inventory
quantities on hand and analyze the provision for excess and obsolete inventory
based on our estimate of sales forecasts based on sales history and anticipated
future demand. Our estimate of future product demand may not be accurate and we
may understate or overstate the provision for excess and obsolete inventory.
Accordingly, unanticipated changes in demand could have a significant impact on
the value of our inventory and results of operations. At October 31, 2006 and
July 31, 2006, respectively, the reserve for excess and obsolete inventory was
$129,000 and $238,000.
Recent Accounting Pronouncements
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections ("SFAS 154"), a replacement of APB Opinion No. 20, Accounting
Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements". SFAS 154 changes the requirements for the accounting for
and reporting of a change in accounting principle. Previously, most voluntary
changes in accounting principles required recognition via a cumulative effect
adjustment within net income for the period of the change. SFAS 154 requires
retrospective application to prior periods' financial statements, unless it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change. SFAS 154 is effective for accounting changes made in
fiscal years beginning after December 15, 2005; however, SFAS 154 does not
change the transition provisions of any existing accounting pronouncements. The
adoption of SFAS 154 did not have a material impact on the Company's financial
condition or results of operations.
In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109,
Accounting for Income Taxes" ("SFAS 109")", to clarify the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements
in accordance with SFAS 109. This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. The
provisions of FIN 48 are effective for fiscal years beginning after December 15,
2006. The Company has not evaluated the impact of FIN 48 on its financial
statements at this time.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". This
Statement defines fair value, establishes a framework for measuring fair value
and expands disclosure about fair value measurements, and is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The Company is currently
evaluating the effect that the adoption of this Statement will have on its
consolidated results of operations and financial condition.
21
In September 2006, the SEC released Staff Accounting Bulletin No. 108
"Considering the Effects of Prior Year Misstatements When Quantifying
Misstatements in Current Year Financial Statements" ("SAB 108"). SAB 108
provides interpretative guidance on how public companies quantify financial
statement misstatements. There have been two common approaches used to quantify
such errors. Under an income statement approach, the "roll-over" method, the
error is quantified as the amount by which the current year income statement is
misstated. Alternatively, under a balance sheet approach, the "iron curtain"
method, the error is quantified as the cumulative amount by which the current
year balance sheet is misstated. In SAB 108, the SEC established an approach
that requires quantification of financial statement misstatements based on the
effects of the misstatements on each of the company's financial statements and
the related financial statement disclosures. This model is commonly referred to
as a "dual approach" because it requires quantification of errors under both the
roll-over and iron curtain methods. SAB 108 is effective for the Company as of
August 1, 2007. The adoption of SAB 108 is not expected to have a material
impact on the Company's consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have an exposure to market risk from changes in foreign
currency exchange rates, commodity price risk or other market risk. We do not
engage in any hedging or market risk management tools. The Company does not have
interest risk with respect to interest rates on cash and cash equivalents that
could impact our results of operations and financial position since the
investments are in highly liquid corporate debt instruments with maturities of
three months or less. There have been no material changes with respect to market
risk previously disclosed in our Annual Report on Form 10-K for our 2006 fiscal
year.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company's management
conducted an evaluation (as required under Rules 13a-15(b) and 15d-15(b) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of the
Company's "disclosure controls and procedures" (as such term is defined under
the Exchange Act), under the supervision and with the participation of the
principal executive officer and the principal financial officer. Based on this
evaluation, the principal executive officer and the principal financial officer
concluded that the Company's disclosure controls and procedures are effective as
of the end of the period covered by this report. Notwithstanding the foregoing,
a control system, no matter how well designed and operated can provide only
reasonable, not absolute, assurance that it will detect or uncover failures
within the Company to disclose material information otherwise required to be set
forth in the Company's periodic reports.
(b) Changes in Internal Controls over Financial Reporting
There was no change in the Company's internal controls over financial reporting
during the Company's most recently completed fiscal period that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
------------------
There have been no material developments with respect to previously reported
legal proceedings except as noted in Note 9. See the annual report on Form 10-K
for the fiscal year ended July 31, 2006 filed with the Securities and Exchange
Commission for a discussion of the Company's ongoing legal proceedings.
Item 1A. Risk Factors
-----------------
Risk and uncertainties that, if they were to occur, could materially adversely
affect our business or that could cause our actual results to differ materially
from the results contemplated by the forward-looking statements contained in
this Report and other public statements we make were set forth in the "Item 1A.
- Risk Factors" section of our Annual Report on Form 10-K for the year ended
July 31, 2006. There have been no material changes from the risk factors
disclosed in that Form 10-K.
Item 6. Exhibits
--------
Exhibit No. Exhibit
------------ ---------
31(a) Certification of Elazar Rabbani,
Ph.D. pursuant to Section 302 of the Sarbanes
-Oxley Act of 2002.
31(b) Certification of Barry Weiner pursuant to
Section 302 of the Sarbanes-Oxley Act of
2002.
32(a) Certification of Elazar Rabbani, Ph.D.
pursuant to 18 U.S.C. ss. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32(b) Certification of Barry Weiner pursuant to 18
U.S.C. ss.1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENZO BIOCHEM, INC.
--------------------
(Registrant)
Date: December 8, 2006 by: /s/BARRY WEINER
------------------------
Chief Financial Officer
23