On August 1, 2018, the Company adopted a new accounting standard issued by FASB which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Adoption of this ASU is not expectedstandard requires amendments in the update applied prospectively to have a materialan award modified on or after the adoption date. For the foreseeable future, any excess income tax benefits or deficiencies from stock-based compensation, which would be recognized as discrete items within income tax expense rather than additional paid in capital, will be offset by an equivalent adjustment to the deferred tax valuation allowance. Accordingly, adoption of this standard had no impact on our financial position or cash flows.reported operations.

Pronouncements Issued but Not Yet Adopted

In February 2016, FASB issued ASU No. 2016-02 –Leases (Topic 842),.as amended. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for our fiscal year beginning August 1, 2019 including interim periods within that fiscal year. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. As amended in July 2018, an additional and optional transition method to adopt the new leases standard was established. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic 840, Leases).

We

believe the adoption of this standard will materially impact our consolidated financial statements by significantly increasing our non-current assets and non-current liabilities on our consolidated balance sheets in order towhen we record the right of use assets and related lease liabilities for our existing operating leases.

We will recognize expense in the consolidated statement of operations similar to current lease accounting, in the cost of sales and selling, general and administrative.

In May 2017, theJune 2016, FASB issued ASU 2017-09,No. 2016-13CompensationFinancial Instruments – Stock CompensationCredit Losses (Topic 708) Scope326). This standard changes the impairment model for most financial instruments, including trade receivables, from an incurred loss method to a new forward-looking approach, based on expected losses. The estimate of Modification Accounting which provides guidance about which changesexpected credit losses will require entities to the terms or conditionsincorporate considerations of a share-based payment award require an entity to apply modification accounting in Topic 718.historical information, current information and reasonable and supportable forecasts. Adoption of the Standardthis standard is required for our annual and interim periods beginning August 1, 2018 with the amendments in the update applied prospectively to an award2020 and must be adopted using a modified on or after the adoption date. Early adoption is permitted.retrospective transition approach. We are currently evaluatingassessing the impact of the adoption of this new standard will have on the consolidatedour results of operations, financial statements.position and cash flows.

We reviewed all other recently issued accounting pronouncements and have concluded they are not applicable or not expected to be significant to the accounting for our operations.

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on the reported results of operations.

Concentration Risk

OneOther than the Medicare program, one provider whose programs are included in the “Third-party payer”payers” and “Health Maintenance Organizations” (“HMO’s”) categories represents approximately 38%41% and 39%40% of the Clinical Labs segment laboratory servicesServices net revenue for the three months ended JanuaryOctober 31, 2018 and 2017 respectively,respectively. Other than the Medicare program, three providers whose programs are included in either “Third-party payers” and/or “Health Maintenance Organizations” (“HMO’s”) categories represent approximately 37% and 39% and 37%47% of Clinical Services net receivables for the sixthree months ended JanuaryOctober 31, 2018 and 2017 respectively.

Note 2 – Net income (loss) per share

Basic net income (loss) per share represents net income (loss) divided by the weighted average number of common shares outstanding during the period. As a result of the net loss for the three and six months ended JanuaryOctober 31, 2018 and 2017 diluted weighted average shares outstanding are the same as basic weighted average shares outstanding, and do not include the potential common shares from stock options and unvested restricted stock because to do so would be antidilutive.

For the three and six months ended JanuaryOctober 31, 2018 and 2017, the number of potential common shares (“in the money options”) and unvested restricted stock excluded from the calculation of diluted earnings per share was 719,000,135,000 and 825,000, respectively.931,000, respectively, because their effect would be antidilutive. For the three and six months ended JanuaryOctober 31, 2017, approximately 888,000 and 804,000 weighted average stock options were excluded from the calculation of diluted weighted average shares outstanding.

For the three and six months ended January 31, 2018, there were no outstanding “out of the money” options to purchase common shares. For the three and six months ended January 31, 2017, the effect of approximately 494,000 and 247,0001,330,000 of outstanding “out of the money” options to purchase common shares were excluded from the calculation of diluted net income per share because their effect would be anti-dilutive. For the three months ended October 31, 2017, there were no outstanding “out of the money” options to purchase common shares.

Note 3 – Revenue Recognition

Clinical Services Revenue

Net revenues in the Company’s clinical services business accounted for 67% and 73% of the Company’s total net revenues for the three months ended October 31, 2018 and 2017, respectively and are primarily comprised of a high volume of relatively low-dollar transactions. The services business, which provides clinical testing services, satisfies its performance obligation and recognizes revenues upon completion of the testing process for a specific patient and reporting to the ordering physician. The Company may also perform clinical testing services for other laboratories and will recognize revenue from those services when reported to the ordering laboratory. The Company estimates the amount of consideration it expects to receive from customer groups using the portfolio approach. These estimates of the expected consideration include the impact of contractual allowances and price concessions on our customer group portfolios consisting of healthcare insurers, government payers, client payers and patients as described below. Contracts with customers in our laboratory services business do not contain a financing component, based on the typically limited period of time between performance of services and collection of consideration. The transaction price includes variable consideration in the form of the contractual allowance and price concessions as well as the collectability of the transaction based on the patient intent and ability to pay. The Company uses the expected value method in estimating the amount of the variability included in the transaction price.

The following are descriptions of our laboratory services business portfolios:

Third party payers and Health Maintenance Organizations (HMO’s)

Reimbursements from third party payers, primarily healthcare insurers, and HMO’s are based on negotiated fee-for-service schedules and on capitated payment rates. Revenues consist of amounts billed net of contractual allowances for differences between amounts billed and the estimated consideration the Company expects to receive from such payers, which considers historical collection and denial experience and the terms of the Company’s contractual arrangements. Adjustments to the allowances, based on actual receipts from the third-party payers, are recorded upon settlement.

Collection of the consideration the Company expects to receive is normally a function of providing complete and correct billing information to these third party payers within the various filing deadlines, and typically occurs within 60 to 90 days of billing. Provided the Company has billed healthcare insurers accurately with complete information prior to the established filing deadline, there has historically been little to no collection risk. If there has been a delay in billing, the Company determines if the amounts in question will likely go past the filing deadline, and if so, will reserve accordingly for the billing.

Government Payer - Medicare

Reimbursements from Medicare are based on fee-for-service schedules set by Medicare, which is funded by the government. Revenues consist of amounts billed net of contractual allowances for differences between amounts billed and the estimated consideration the Company expects to receive from Medicare, which considers historical collection and denial experience and other factors. Adjustments to the allowances, based on actual receipts from the government payers, are recorded upon settlement.

Collection of consideration the Company expects to receive is normally a function of providing the complete and correct billing information within the various filing deadlines and typically occurs within 60 days of billing. Provided the Company has billed the government payer accurately with complete information prior to the established filing deadline, there has historically been little to no collection risk. If there has been a delay in billing, the Company determines if the amounts in question will likely go past the filing deadline, and, if so, it will reserve accordingly for the billing.

Patient self pay

Uninsured patients are billed based on established patient fee schedules or fees negotiated with physicians on behalf of their patients. Coinsurance and deductible responsibilities based on fees negotiated with healthcare insurers are also billed to insured patients and included in this portfolio. Collection of billings from patients is subject to credit risk and ability of the patients to pay. Revenues consist of amounts billed net of discounts provided to uninsured patients in accordance with the Company’s policies and implicit price concessions. Implicit price concessions represent differences between amounts billed and the estimated consideration the Company expects to receive from patients, which considers historical collection experience and other factors including current market conditions. Adjustments to the estimated allowances, based on actual receipts from the patients, are recorded upon settlement. Patient billings are generally fully reserved for when the related billing reaches 210 days outstanding. Balances are automatically written off when they are sent to collection agencies. Allowances are further adjusted for estimated recoveries of amounts sent to collection agencies based on historical collection experience, which is regularly monitored. Collection of consideration the Company expects to receive typically occurs within 180 days of billing.

The following table represents clinical services net revenues and percentages by type of customer:

For the three months ended October 31, 2018 and 2017, all of the Company’s services were provided within the United States.

Products Revenue and royalty income

Products revenues consist of the sale of single-use products used in the identification of genomic information and are recognized at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment. Payment terms for shipments to end-user and distributor customers may range from 30 to 90 days. Any claims for credit or return of goods may be made generally within 30 days of receipt. Revenues are reduced to reflect estimated credits and returns, although historically these adjustments have not been material. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue. Amounts billed to customers for shipping and handling are included in revenue, while the related shipping and handling costs are reflected in cost of products.

Royalty income is based on net sales of the Company’s licensed products by a third party. We recognize royalty income in the period the sales occur based on third party evidence received. During the three months ended October 31, 2018 and 2017, royalty income was zero and $261, respectively.

Product revenue by geography is as follows:

Note 34 - Supplemental disclosure for statement of cash flows

For the sixthree months ended JanuaryOctober 31, 2018 and 2017, income taxes paid by the Company were $15$0 and $996,$15, respectively. 

For the sixthree months ended JanuaryOctober 31, 2018 and 2017, interest paid by the Company was $45$12 and $77,$25, respectively.

For the sixthree months ended JanuaryOctober 31, 2018 and 2017, the Company financed $0 and $69 respectively, indid not finance any machinery andor transportation equipment under installment loans. 

During the six months ended January 31, 2018 and 2017, the Company did not enter into any capital lease agreements.

During the six months ended January 31, 2018 certain officers of the Company exercised 340,898 stock options in non-cash transactions. The officers surrendered 106,911 shares of the Company’s common stock to exercise the stock options. The Company recorded approximately $1,014, the market value of the surrendered shares, as treasury stock.

Note 45 – Inventories

Inventories consist of the following:

Note 56 – Goodwill and intangible assets

At JanuaryOctober 31, 2018 and July 31, 2017,2018, the Company’s carrying amount of goodwill, related to the Clinical Labs segment,Services is $7,452.

The Company’s change in the carrying amount of intangible assets, all in the Life SciencesProducts segment is as follows:

Intangible assets, all finite lived, consist of the following:

At JanuaryOctober 31, 2018, information with respect to intangibles assets acquired is as follows:

At JanuaryOctober 31, 2018, the weighted average remaining useful life of intangible assets is approximately two years.

Note 6 - Loan Payable

In June 2013, the Company entered into a secured Revolving Loan and Security Agreement (the “Credit Agreement”) among the Company and certain of its subsidiaries, with Enzo Therapeutics as a guarantor, and MidCap Financial LLC. (formerly Healthcare Finance Group, LLC). The Credit Agreement, which expired in December 2016, provided for borrowings against eligible US receivables, as defined, of the Clinical Lab and Life Science segments up to $8.0 million at defined eligibility percentages and provided for additional borrowings of $4.0 million for increased eligible assets. Debt issuance costs of $281 were amortized over the life of the Credit Agreement. The Credit Agreement expired and was repaid in full on December 7, 2016.

Note 7 – Accrued Liabilities

Accrued liabilities consist of the following:

At January 31, 2018, other accrued liabilities primarily include $400 for a legal settlement.

Note 8 – Other Liabilities

Other liabilities consist of the following:

As of January 31, 2018, future minimum payments under the capital leases, net of interest of $89 aggregates $661 including a short term debt portion of $173 included in other current liabilities. Future minimum payments under the installment loans aggregate $67, including a short term portion of $60 included in other current liabilities.

Note 98 – Stockholders’ Equity

Controlled Equity Offering

The Company has a Controlled Equity Offering^SM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”). Under the Sales Agreement, the Company may offer and sell, from time to time, through Cantor, shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”). The Company pays Cantor a commission of 3.0% of the aggregate gross proceeds received under the Sale Agreement. The Company is not obligated to make any sales of the shares under the Sales Agreement. The offering of shares pursuant to the Sales Agreement will terminate upon the earlier of (a) the sale of all of the shares subject to the Sales Agreement or (b) the termination of the Sales Agreement by Cantor or the Company, as permitted therein. The initial agreement contemplated the sale of shares of the Company’s common stock having an aggregate offering price of up to $20.0 million. In December 2014, the Sales Agreement was amended in order for the Company to offer and sell additional shares of Common Stock having an aggregate offering price of $20.0 million.

On September 1, 2017, the Company filed with the SEC a “shelf” registration and sales agreement prospectus covering the offering, issuance and sale of our Common Stock that may be issued and sold under the existing Sales Agreement in an aggregate amount of up to $19.15 million. A total of $150 million of securities may be sold under this shelf registration, which was declared effective September 15, 2017.

During the sixthree months ended JanuaryOctober 31, 2018 and during fiscal 2017, the Company did not sell any shares of Common Stock under the Sales Agreement.

Treasury stock

During the six months ended January 31, 2018, certain officers of the Company exercised 340,898 stock options in non-cash transactions. The officers surrendered 106,911 shares of the Company’s common stock to exercise the stock options. The Company recorded approximately $1,014, the market value of the surrendered shares, as treasury stock.

Share-based compensation

The Company has an incentiveOn January 14, 2011, the Company’s stockholders approved the adoption of the 2011 Incentive Plan (the “2011 Plan”) which provides for the issuance of equity awards, including among others, options, restricted stock option and restricted stock award plan (the “2005 Plan”),units for up to 3,000,000 Common Shares. The exercise price of options granted under the 2011 Plan, and a long term incentive share award plan, (the “2011 Plan”), which are more fully described in Note 10consistent with other Plans, is equal to or greater than fair market value of the consolidated financial statements included inCommon Stock on the date of grant. Unless terminated earlier by the Board of Directors, the 2011 Plan will terminate at the earliest of; (a) such time as no shares of Common Stock remain available for issuance under the 2011 Plan or (b) tenth anniversary of the effective date of the 2011 Plan. On January 5, 2018, the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2017. The 2011 Incentive Plan, which is the only plan from which awards may now be granted, provides for the award to eligible employees, officers, directors, consultants and other persons of stock options, stock appreciation rights (SARs), restricted stock, restricted stock units, performance awards, and other stock-based awards.

At the 2017 annual meeting, shareholdersstockholders approved the amendment and restatement of the 2011 Plan including anto increase in the number of shares available for issuance by 2,000,000 bringing the total number of common stock authorizedshares available for grantaward under the 2011 Plan from 3 million shares to 5 million shares.5,000,000. Awards outstanding upon expiration of the 2011 Plan shall remain in effect until they have been exercised, terminated, or have expired.

The amounts of share-based compensation expense recognized in the periods presented are as follows:

The following table sets forth the amount of expense related to share-based payment arrangements included in specific line items in the accompanying statements of operations:

No excess tax benefits were recognized during the sixthree month periods ended JanuaryOctober 31, 2018 and 2017.

Stock Option Plans

The following table summarizes stock option activity during the sixthree month period ended JanuaryOctober 31, 2018:

As of JanuaryOctober 31, 2018, the total future compensation cost related to non-vested options, not yet recognized in the statements of operations, was $1.0$0.9 million and the weighted average period over which the remaining expense of these awards is expected to be recognized is fifteentwelve months.

The intrinsic value of in the money stock option awards at the end of the period represents the Company’s closing stock price on the last trading day of the period in excess of the exercise price multiplied by the number of options.

Restricted Stock Awards

A summary of the activity pursuant to the Company’s unvested restricted stock awards for the sixthree months ended JanuaryOctober 31, 2018 is as follows:

The fair value of a restricted stock award is determined based on the closing stock price on the award date. As of JanuaryOctober 31, 2018, there was approximately $0.1 million of unrecognized compensation cost related to unvested restricted stock-based compensation to be recognized over a weighted average remaining period of approximately twenty twotwenty-seven months.

The fair value of the awards that vested during the sixthree months ended JanuaryOctober 31, 2018 and 2017 was $21$1 and $8,$10, respectively.

The total number of shares available for grant as equity awards from the 2011 Incentive Plan is approximately 2,263,4001,933,000 shares as of JanuaryOctober 31, 2018.

Note 10 – Income taxesPerformance Stock Units

To better align the long-term interest of executives with growing U.S. practices, beginning in fiscal 2018, the Company granted long-term incentive awards in the form of time based stock options and performance-based restricted stock units (“Performance Stock Units” or “PSUs”). The PSUs earned will be determined over a three-year performance period. The primary performance metrics will be revenue and Adjusted EBITDA growth. Payouts based on revenue and adjusted EBITDA goals will be modified based on Total Shareholder Return (“TSR”) performance relative to Enzo’s peer group.

On December 22, 2017, legislation commonly known asDuring fiscal year 2018, the Tax Cuts and Jobs ActCompany awarded a total of 2017 (the “Act”) was signed into law making significant changes32,000 PSUs to its executive officers, this award provides for the Internal Revenue Code. Changes include, but are not limited to,grant of shares of our common stock at the end of a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition taxthree–year period based on the mandatory deemed repatriationachievement of cumulative foreign earnings asaverage revenue growth and adjusted EBITDA growth over that period. As of December 31, 2017.

The Company calculated its best estimate of the impact of the Act in accordance with its understanding of the Act and guidance available as of the date of this filing and recorded $1.1 million as an income tax benefit in the three months ended JanuaryOctober 31, 2018, the Company did not accrue any compensation expense for these PSU’s as the three-year performance period in which the legislation was enacted, related to a credit for alternative minimum taxes (AMT) paid in prior periods. A provisional amount related to the remeasurement of certain deferred tax assetshas just begun and liabilities based on the rates at which they are expected to reverse in the future was fully offset by an equivalent adjustment to the deferred tax valuation allowance. No provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was deemed necessary.

On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effectsachievement of the Act. In accordance with SAB 118,growth goals is currently not probable. At the Company has determined thatgrant date, the $1.1 million income tax benefit, which relates to the AMT credit, is a provisional amount and a reasonable estimate at January 31, 2018.

The Company’s effective tax rate benefit for the three and six months ended January 31, 2018fair value of this award was 54.9% and 41.6%, respectfully and was based on the refundable federal AMT credit. There was no tax provision for the 2017 periods. The Company’s effective tax rate for all periods differed from the expected net operating loss carryforward benefit at the U.S. federal statutory rate 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.$141.

Note 119 – Segment reporting

The Company has three reportable segments: Products, Clinical Labs, Life Sciences,Services and Therapeutics. The Clinical Labs segment provides diagnostic services to the health care community. The Life SciencesCompany’s Products segment develops, manufactures, and markets products to research and pharmaceutical customers. The TherapeuticClinical Services segment provides diagnostic services to the health care community. The Company’s Therapeutics segment conducts research and development activities for therapeutic drug candidates.

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.

Legal fee expense incurred to defend the Company’s intellectual property, which may result in settlements recognized in another segment and other general corporate matters isare considered a component of the Other segment. Legal fee expense specific to other segments’ activities hashave been allocated to those segments. When recognized, legal

Legal settlements, net, representsrepresent activities for which royalties would have been received byin the Company’s Life Sciences

Products segment hadand expenses related to an investigation within the Company had agreements in place with plaintiffs for the patents or products covered by the settlements.

Clinical Services segment. 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 significant accounting policies contained in the Company’s Annual Report on Form 10-K for the year ended July 31, 2017.policies.

The following financial information represents the operating results of the reportable segments of the Company:

Three months ended October 31, 2018

Three months ended January 31, 2018

Three months ended JanuaryOctober 31, 2017