The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes and other information included elsewhere in this Quarterly Report on Form 10-Q.

Forward-Looking Statements

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

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. As a result, investors are cautioned not to place undue reliance on any of our forward-looking statements. Investors should bear this in mind as they consider forward-looking statements.

We do not assume any obligation to update or revise any forward-looking statement that we make, even if new information becomes available or other events occur in the future. We are also affected by other factors that may be identified from time to time in our filings with the Securities and Exchange Commission, some of which are set forth in Item 1A - Risk Factors in our Form 10-K filing for the 2008 fiscal year. You are advised to consult any further disclosures we make on related subjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission. Although we have attempted to provide a list of important factors which may affect our business, investors are cautioned that other factors may prove to be important in the future and could affect our operating results. You should understand that it is not possible to predict or identify all such factors or to assess the impact of each factor or combination of factors on our business. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

Overview

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.

We are comprised of three operating companies that have evolved out of our core competence: the use of nucleic acids as informational molecules and the use of compounds for immune modulation. These wholly owned operating companies conduct their operations through three reportable segments. Below are brief descriptions of each of the three operating segments (see Note 13 in the notes to consolidated financial statements):

Enzo Life Sciences is a company that manufactures, develops and markets biomedical research products and tools to research and pharmaceutical customers around the world and has amassed a large patent and technology portfolio. The company's sources of revenue have been 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 and licensing fee income. The pioneering platforms developed by Enzo Life Sciences enable the development of a wide range of products in the research products marketplace.

Enzo Therapeutics is a biopharmaceutical company that has developed multiple novel approaches in the areas of gastrointestinal, infectious, ophthalmic and metabolic diseases, many of which are derived from the pioneering work of Enzo Life Sciences. The Company has focused its efforts on developing treatment regimens for diseases and conditions in which current treatment options are ineffective, costly, and/or cause unwanted side effects. This focus has generated a clinical and preclinical pipeline, as well as more than 40 patents and patent applications.

Enzo Clinical Labs is a regional clinical laboratory to the greater New York and New Jersey medical community. The Company believes having this capability allows us to capitalize firsthand on our extensive advanced molecular and cytogenetic capabilities and the broader trends in predictive diagnostics. We offer a menu of routine and esoteric clinical laboratory tests or procedures used in general patient care by physicians to establish or support a diagnosis, monitor treatment or medication, or search for an otherwise undiagnosed condition. We operate a full-service clinical laboratory in Farmingdale, New York, a network of 23 patient service centers, a stand alone "stat" or rapid response laboratory in New York City, and a full-service phlebotomy department. Payments for clinical laboratory testing services are made by the Medicare program, healthcare insurers and patients.

Recent Developments

Biomol International L.P.

On May 8, 2008, Enzo Life Sciences, Inc. acquired substantially all of the U.S. based assets and certain liabilities of Biomol International, LP ("Biomol LP") through a newly formed US subsidiary Biomol International, Inc. and all of the stock of Biomol's wholly-owned United Kingdom subsidiary, Affinity Limited, through Axxora UK, a wholly-owned subsidiary of Enzo Life Sciences, collectively referred to as "Biomol" for approximately $18.1 million in cash and stock, subject to adjustment, exclusive of acquisition costs of approximately $800,000 and contingent earn-out payments which will be accounted for as additional purchase consideration over the next two years if and when the contingencies are resolved beyond a reasonable doubt. At closing, the purchase price was satisfied as follows: $12.9 million in cash was paid to Biomol LP, issuance of 352,000 shares of Enzo common stock, at fair market value, to Biomol LP, $1.5 million in cash was paid to an escrow agent for the one-year period following the closing to satisfy any indemnification obligations of the sellers under the Agreement and $550,000 was paid to an escrow agent, for the 60 day period following the closing to satisfy any specified purchase price adjustments. The $550,000 was released by the escrow agent in August 2008. The earn-outs of $2.5 million on each of the next two anniversaries of the acquisition date will be based on attaining certain revenue and EBITDA targets, as defined. Biomol was a privately owned, closely held global manufacturer and marketer of specialty life sciences research products. Effective May 8, 2008, Biomol became a wholly-owned subsidiary of Enzo Life Sciences. The acquisition was financed with the Company's cash and cash equivalents and Enzo common stock. The consolidated financial statements include the results of operations for Biomol from the date of acquisition. Effective February 2, 2009, the names of Biomol International, Inc. and Affinity Limited were changed to Enzo Life Sciences International, Inc. and Enzo Life Sciences (UK) Ltd., respectively.

Comparative Financial Data for the Three Months Ended January 31,

(in thousands)

                                                                             Increase
                                                     2009        2008       (Decrease)     % Change
                                                   --------    --------    ------------    ---------
Revenues:
Product sales                                      $  9,497    $  6,028    $      3,469        58
Royalty and license fee income                        1,904       1,498             406        27
Clinical laboratory services                          9,515      10,700          (1,185 )     (11 )
                                                   - ------    - ------    -- ---------
Total revenues                                       20,916      18,226           2,690        15

Costs and expenses and other (income):
Cost of products                                      6,591       4,210           2,381        57
Cost of laboratory services                           5,989       4,969           1,020        21
Research and development                              2,218       2,449            (231 )      (9 )
Selling, general, and administrative                 10,908       9,603           1,305        14
Provision for uncollectible accounts receivable       1,376         964             412        43

Legal expenses                                        1,288       1,228              60         5
Interest income                                        (142 )    (1,086 )           944       (87 )
Other income                                           (118 )      (100 )           (18 )      18
Foreign currency loss                                   373           -             373        na
                                                   - ------    - ------    -- ---------
Total costs and expenses - net                       28,483      22,237           6,246        28
                                                   - ------    - ------    -- ---------

Loss before income taxes                           $ (7,567 )  $ (4,011 )  $     (3,556 )     (89 )
                                                   - ------    - ------    -- ---------

Consolidated Results:

The "2009 period" and the "2008 period" refer to the three months ended January 31, 2009 and 2008, respectively. The 2009 period includes the three months results of Biomol which was acquired on May 8, 2008.

Product revenues during the 2009 period were $9.5 million compared to $6.0 million in the year ago period, an increase of $3.5 million or 58%, of which acquisition growth represented 48% or $2.9 million, primarily from Biomol, organic growth of 13% or $0.8 million from and a 3% or $0.2 million negative effect from foreign currency.

Royalty and license fee income during the 2009 period was $1.9 million compared to $1.5 million in the 2008 period, an increase of $0.4 million or 27%. Royalties are earned from the reported net sales of Qiagen products subject to a license agreement and from a license agreement with Abbott. During the 2009 period, the Company recognized royalties of approximately $1.2 million from Qiagen, an increase of approximately $0.2 million over the prior year ago period, and royalties and license fees under the Abbott License Agreement of approximately $0.7 million, an increase of approximately $0.2 million over the year ago period. There are no direct expenses relating to royalty and license fee income.

Clinical laboratory revenues during the 2009 period were $9.5 million compared to $10.7 million in the 2008 period. The 2009 period's decrease over the prior year period was $1.2 million or 11%. During the 2009 period the decreased revenues were due to reduced service volume over the 2008 period and a continued shift in revenue mix to lower paying insurance payers.

The cost of product revenues during the 2009 period was $6.6 million compared to $4.2 million in the 2008 period, an increase of $2.4 million or 57%. The increase is primarily due to the impact of Biomol's cost of product revenues of approximately $2.0 million for the 2009 period. In accordance with purchase accounting rules, the acquired inventory is adjusted to fair value which increased the cost of product revenues by $0.4 million in the 2009 and 2008 periods. We believe that cost of product revenues for future periods will be affected by, among other things, the integration of acquired businesses in addition to sales volumes, competitive conditions and foreign currency rates.

Research and development expenses were approximately $2.2 million during the 2009 period, compared to $2.4 million in the 2008 period, a decrease of $0.2 million or 9%. The decrease was principally attributed to $0.4 million in lower clinical trial and related activities at the Therapeutics segment offset by additional costs of $0.2 million at Enzo Life Sciences related to Biomol.

Selling, general and administrative expenses were approximately $10.9 million during the 2009 period as compared to $9.6 million in the 2008 period, an increase of $1.3 million or 14%. The increase was primarily due to the increases at the Enzo Life Sciences segment of $0.8 million in the 2009 period which included approximately $0.7 million of selling, general and administrative expenses increases related to Biomol operations and $0.1 million in marketing costs in connection with the integration of our brands. The increase from the other segments' operations of approximately $0.5 million was primarily due to payroll and payroll related costs of $0.2 million, and consulting and professional fees of $0.2 million.

The provision for uncollectible accounts receivable, primarily relating to the Clinical Labs segment was $1.4 million for the 2009 period as compared to $1.0 million in the 2008 period an increase of 43%. The increase of $0.4 million was due to additional bad debts on the Clinical Labs legacy billing system that was replaced by a new comprehensive billing and accounts receivable system effective August 1, 2008 offset by favorable experience for uncollectible accounts on the new billing system. Outstanding receivables will remain on the legacy system until invoices are collected, all collection efforts are exhausted, or the balances are fully reserved and written off in accordance with our critical accounting policy.

Legal expense was $1.3 million during the 2009 period compared to $1.2 million in the 2008 period, an increase of $0.1 million or 5%, due to an increase in legal costs relating to establishing new and realigning existing Life Science global entities of $0.2 million in the current period offset by lower costs relating to patent litigation matters.

Interest income was $0.1 million during the 2009 period as compared to $1.1 million during the 2008 period. The Company earns interest by investing primarily in short term and liquid investments, US government instruments, and money market accounts. The interest income decrease during the 2009 period is attributed to the decline in interest rates in response to monetary policy actions taken by the U.S. Federal Reserve. Further, the Company had higher average invested balances during the 2008 period.

The loss on foreign currency was $0.4 million during the 2009 period. During the 2009 period, the Company's Life Sciences segment incurred a non-cash foreign currency loss of approximately $0.3 million on an intercompany term loan denominated in pounds sterling due to the strengthening of the US dollar.

The Company's effective tax rate provision for the 2009 period was 1.4% compared to 1.0% during the 2008 period. The tax provisions for the 2009 and 2008 periods were based on state and local taxes, domestic and foreign tax for tax deductible goodwill and indefinite lived intangibles, and book to tax differences for acquired inventory and differed from the expected net operating loss carry forward benefit at the U.S. federal statutory rate of 34% primarily due to the inability to recognize such benefit. The carry forward benefit cannot be recognized because of uncertainties relating to future taxable income, in terms of both its timing and its sufficiency.

Segment Results

The Life Sciences segment's income before taxes was $0.1 million for the 2009 and the 2008 period. Product revenues increased by $3.5 million in the 2009 period primarily due to the contribution of product revenues from the fiscal 2008 acquisitions and organic growth. Royalty and license fee income increased $0.4 million from the existing Qiagen agreement and the Abbott License Agreement. The segment's gross margin of $4.8 million was negatively impacted by $0.4 million representing the fair value adjustment attributed to the sale of inventory acquired from Biomol. The remaining fair value adjustment attributed to inventory acquired from Biomol of $0.4 million will negatively impact gross margins through the fourth quarter of fiscal 2009. Segment operating expenses, including selling, general and administrative, legal and research and development, increased by approximately $1.3 million during the 2009 period primarily due to the inclusion of Biomol's expenses, including the increase in amortization of intangibles of $0.2 million and $0.2 million in legal costs to establish new and realign existing global entities.

The Clinical Laboratory segment's loss before taxes was $2.3 million for the 2009 period as compared to income of $0.6 million in the 2008 period. The 2009 period was impacted by a decrease in laboratory service revenues of $1.2 million or 11%. Further, the 2009 period continued to be impacted by competitive pricing throughout the industry which has negatively impacted reimbursement rates for tests and an increase in revenue mix to lower paying insurance providers. The gross profit was negatively impacted by the increase in the cost of laboratory services of $1.0 million as compared to the 2008 period. In the 2009 period, the selling, general and administrative costs increased by approximately $0.2 million primarily due to increases in payroll and payroll related costs of $0.1 million and other operating costs of $0.1 million. The provision for uncollectible accounts receivables increased by $0.4 million. The interest earned in the 2009 period decreased $0.1 million due to declining interest rates.

The Therapeutics segment's loss before income taxes was approximately $1.0 million for the 2009 period as compared to a loss of $1.4 million for the 2008 period. The decrease in the segment loss of $0.4 million was primarily due to decreases in clinical trial activities of $0.4 million and salaries and related costs of $0.1 million offset by increases in patent related costs of $0.1 million.

The Other segment's loss before taxes for the 2009 period was approximately $4.4 million, an increase of $1.0 million as compared to $3.4 million in the 2008 period. The Other segment's 2009 period loss reflects an increase in consulting costs and public relations of $0.2 million and payroll and related costs of $0.1 million, offset by a decrease in legal expenses of $0.2 million due to decreases in patent litigation activity. Interest income declined of $0.9 million due to the decline in interest rates in response to monetary policy actions taken by the U.S. Federal Reserve and lower levels of cash available for investment and declining interest rates.

Comparative Financial Data for the Six Months Ended January 31,

(in thousands)

                                                                                Increase
                                                      2009         2008        (Decrease)     % Change
                                                   ----------    ---------    ------------    ---------
Revenues:
Product revenues                                    $  19,474     $ 11,890     $     7,584         64
Royalty and license fee income                          4,820        3,816           1,004         26
Clinical laboratory services                           17,687       21,965          (4,278 )      (19 )
                                                   -- -------    -- ------    --- --------
Total revenues                                         41,981       37,671           4,310         11

Costs and expenses and other (income):
Cost of products                                       13,396        8,644           4,752         55
Cost of laboratory services                            11,796       10,100           1,696         17
Research and development                                4,220        4,151              69          2
Selling, general, and administrative                   20,383       17,007           3,376         20
Provision for uncollectible accounts receivable         3,235        2,124           1,111         52
Legal expenses                                          2,498        3,677          (1,179 )      (32 )
Interest income                                          (552 )     (2,546 )         1,994        (78 )
Other income                                             (151 )       (126 )           (25 )       20
Foreign currency loss                                     955            -             955         na
                                                   -- -------    -- ------    --- --------
Total costs and expenses - net                         55,780       43,031          12,749         30
                                                   -- -------    -- ------    --- --------

Loss before income taxes                           $  (13,799 )  $  (5,360 )  $     (8,439 )     (157 )
                                                   -- -------    -- ------    --- --------

Consolidated Results:

The "2009 period" and the "2008 period" refer to the fiscal six months ended January 31, 2009 and 2008, respectively. The 2009 period includes the six months results of Biomol which was acquired on May 8, 2008.

Product revenues during the 2009 period were $19.5 million compared to $11.9 million in the 2008 period, an increase of $7.6 million or 64% of which 50% or $5.9 million is due to acquisition growth, primarily from Biomol, 16% or $1.8 million from organic growth offset by 1% or $0.1 million negative effect from foreign currency.

Royalty and license fee income during the 2009 period was $4.8 million compared to $3.8 million in the 2008 period, an increase of $1.0 million or 26%. Royalties are earned from net sales of Qiagen products subject to a license and from a License Agreement with Abbott. During the 2009 period, the Company recognized royalties of approximately $3.5 million from Qiagen, an increase of approximately $0.6 million over the prior year ago period, and royalties and license fees under the Abbott License Agreement of approximately $1.3 million, an increase of $0.4 million over the year ago period. There are no direct expenses relating to royalty and license fee income.

Clinical laboratory revenues during the 2009 period were $17.7 million compared to $22.0 million in the 2008 period, a decrease of $4.3 million or 19%. Revenues were adversely affected by lower service volume during the 2009 period and reduced payer reimbursement experience in the first quarter. This reduced payer reimbursement experience was caused by reduced billings on our legacy billing system, including the investigation of and rebilling of denials during the period, as a result of the realignment of certain billing personnel to implement our new comprehensive billing and accounts receivable system. This new system was effective for all laboratory services performed after August 1, 2008. We anticipate that the new billing and accounts receivable system will enhance our billing and reimbursement process.

The cost of clinical laboratory services during the 2009 period was $11.8 million as compared to $10.1 million in the prior period, an increase of $1.7 million or 17%. The Company incurred increased costs primarily relating to reagent costs of $0.3 million, laboratory personnel costs of $0.7 million, and outside testing labs of $0.4, and other related lab costs of $0.3 million.

Research and development expenses were approximately $4.2 million during the 2009 and 2008 periods. Research and development costs increased $0.6 at the Life Sciences segment, principally related to Biomol offset by decreases at the Therapeutic segment by $0.6 million principally due to decreases in clinical trial activities.

Selling, general and administrative expenses were approximately $20.4 million during the 2009 period as compared to $17.0 million in the 2008 period, an increase of $3.4 million or 20%. Life Sciences selling, general and administrative costs increased by $2.0 million over the 2008 period, of which approximately $1.5 million of selling, general and administrative expenses related to Biomol's operations. The increase in the other segments' operations of approximately $1.4 million was primarily due to payroll and related personnel costs approximating $0.3 million, consulting and professional fees of $0.5 million and other overhead cost of $0.5 million.

The provision for uncollectible accounts receivable, relating to the Clinical Labs segment was $3.2 million for the 2009 period as compared to $2.1 million in . . .