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". Because of the foregoing 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.

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 17 in the notes to consolidated financial statements):

Enzo Life Sciences is a company that manufactures, develops and markets functional biology and cellular biochemistry products and tools to research and pharmaceutical customers world-wide 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.

The division is internationally recognized and acknowledged as a leader in manufacturing, in-licensing, and commercialization of over 12,000 innovative high quality research reagents in the primary key research areas of epigenetics, live cell analysis, protein degradation pathways and metabolism. The division is an established source for a comprehensive panel of products to scientific experts in the fields of Antibiotics, Autophagy, Cancer, Cell Cycle, Cell Death, Cell Signaling, Cell trafficking, Genomics/Molecular Biology, Immunology, Inflammation, Lipid Signaling, Neurobiology, Protein Degradation, ROS/RNS and Stress/Heat Shock.

Enzo Clinical Labs is a regional clinical laboratory serving the greater New York and New Jersey medical community. The Company believes having clinical diagnostic services allows us to capitalize firsthand on our extensive advanced molecular and cytogenetic capabilities and the broader trends in predictive and personalized 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 30 patient service centers throughout greater New York and New Jersey, 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.

The following table summarizes the sources of revenues for the fiscal years ended July 31, 2009, 2008 and 2007, (in $000's and percentages):

  Fiscal year ended July 31,           2009               2008               2007

  Product revenues               $ 40,592      45 % $ 28,087      36 % $  6,658      13 %
  Royalty and license fees          9,376      11      7,630      10      5,820      11
  Clinical laboratory services     39,604      44     42,078      54     40,430      76

  Total                          $ 89,572     100 % $ 77,795     100 % $ 52,908     100 %

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. Principally as a result of reimbursement reductions and measures adopted by the Centers for Medicare & Medicaid Services, or CMS, which establishes procedures and continuously evaluates and implements changes in the reimbursement process to control utilization. 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 we believe certain ordering physicians may want a single laboratory capable of performing their entire 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.

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.

On March 12, 2009, Enzo Life Sciences, Inc. and Enzo Life Sciences Acquisition, Inc., a newly formed wholly owned subsidiary of Enzo Life Sciences, Inc. ("Acquisition Sub"), entered into an asset purchase agreement ("Purchase Agreement") dated as of March 12, 2009 with Assay Designs, Inc. ("Assay Designs"). Assay Designs, a privately owned company with annual sales of approximately $11 million, was engaged in researching, developing, manufacturing, distributing, marketing and selling specialty immunological and biochemical protein detection kits, assays, reagents, antibodies, recombinant proteins and related products and providing related services for use in the biotechnology, pharmaceutical and life sciences research industries ("Business"). Under the terms of the Purchase Agreement, Acquisition Sub purchased from Assay Designs substantially all of its assets, including trade accounts receivable, inventory, fixed assets, and intellectual property, used in or related to the Business and assumed certain of Assay Designs' liabilities, including trade accounts payable, capital lease obligations and certain other current liabilities.

The execution of the Purchase Agreement and the closing of the transaction occurred simultaneously on March 12, 2009. The purchase price consisted of $12,228,000 in cash, exclusive of acquisition costs of approximately $540,000, and was subject to an upward or downward post-closing purchase price adjustment based on Assay Designs' working capital as of the closing date and $328,000 representing estimated costs to consolidate an acquired facility and involuntary termination of certain employees, of which $184,000 is outstanding and included in accrued liabilities in the accompanying balance sheet at July 31, 2009.

At the closing, $100,000 was held in escrow to secure the payment of any downward post-closing purchase price adjustment and $750,000 was held in escrow for 12 months to secure the payment of any indemnification obligations of Assay Designs under the Purchase Agreement.

The acquisition was funded with the Company's cash. Effective March 12, 2009, Assay Designs became a wholly-owned subsidiary of Enzo Life Sciences. The consolidated financial statements include the results of operations for Assay Designs from the date of acquisition.

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 two contingent earn-out payments accounted for as additional purchase consideration 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.

In June 2009, the conditions for the first annual earn-out of $2.5 million were met and the Company recorded $2.5 million of additional goodwill. The Company issued 202,196 shares of Enzo common stock at fair value and paid $1.5 million in cash to satisfy the $2.5 million earn-out liability.

Comparative Financial Data for the Fiscal Years Ended July 31,

                                                                                Increase         %
                                                      2009         2008        (Decrease)     Change

Revenues:
Product revenues                                    $  40,592    $  28,087          12,505       45
Royalty and license fee income                          9,376        7,630           1,746       23
Clinical laboratory services                           39,604       42,078          (2,474 )     (6 )

Total revenues                                         89,572       77,795          11,777       15

Costs and expenses and other (income):
Cost of product revenues                               26,766       19,159           7,607       40
Cost of laboratory services                            26,295       22,209           4,086       18
Research and development                                9,220        8,637             583        7
Selling, general, and administrative                   41,314       33,272           8,042       24
Provision for uncollectible accounts receivable         5,189        3,716           1,473       40
Legal expenses                                          4,195        5,588          (1,393 )    (25 )
Interest income                                          (581 )     (3,696 )         3,115      (84 )
Other loss (income)                                       (74 )       (171 )            97      (57 )
Foreign currency loss (gain)                              725          (27 )           752        -

Total costs and expenses - net                        113,049       88,687          24,362       27

Loss before income taxes                              (23,477 )    (10,892 )        12,585      116
(Provision) benefit for income taxes                      (87 )        239             326        -

Net loss                                            $ (23,564 )  $ (10,653 )  $     12,911      121

Fiscal 2009 compared to Fiscal 2008

The "2009 period" and the "2008 period" refer to the fiscal years ended July 31, 2009 and 2008, respectively. The 2009 period includes the full year results of Biomol which was acquired on May 8, 2008 and the results of Assay Designs from March 12, 2009, the date of acquisition, to July 31, 2009.

Product revenues during the 2009 period were $40.6 million compared to $28.1 million in the 2008 period, an increase of $12.5 million or 45%. Acquisition growth represented $12.1 million or a 43% increase over product revenues in the 2008 period, primarily from Biomol and Assay Designs, $1.4 million or 5% was from organic growth, offset by $1.0 million or 4% negative effect from foreign currency.

Royalty and license fee income during the 2009 period was $9.4 million compared to $7.6 million in the 2008 period, an increase of $1.7 million or 23%. Royalties are primarily 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 $6.7 million from Qiagen, an increase of approximately $1.2 million over the 2008 period, and royalties and license fees under the Abbott License Agreement of approximately $2.7 million, an increase of $0.5 million over the 2008 period. There are no direct expenses relating to royalty and license fee income.

Clinical laboratory revenues during the 2009 period were $39.6 million compared to $42.1 million in the 2008 period, a decrease of $2.5 million or 6%. Revenues were adversely affected by contractual adjustments of $2.3 million. These immaterial adjustments related to computational errors that affected the calculated expected reimbursement rate in fiscal 2008, 2007 and 2006 and for periods prior to August 1, 2005 for the majority of payers and credits issued which were not accrued for timely. The reduced service volume was partially impacted by reduced billings on our legacy billing system in fiscal 2009, 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 believe that the new billing and accounts receivable system enhances our billing and collection process.

The cost of product revenues during the 2009 period was $26.8 million compared to $19.2 million in the 2008 period, an increase of $7.6 million or 40%. The increase is principally due to the inclusion of Biomol and Assay Designs cost of product revenues of approximately $7.4 million in the 2009 period, which includes the impact of an inventory fair value adjustment of $2.2 million related to sales of inventory acquired from Biomol and Assay Designs.

Research and development expenses were approximately $9.2 million during the 2009 period compared to $8.6 million in the 2008 period an increase of $0.6 million or 7%. Research and development costs increased $2.4 million at the Life Sciences segment, principally related to the inclusion of Biomol and Assay Designs, offset by a decrease at the Therapeutic segment of $1.8 million due to a decrease in clinical trial activities.

Selling, general and administrative expenses were approximately $41.3 million during the 2009 period as compared to $33.3 million in the 2008 period, an increase of $8.0 million or 24%. Life Sciences selling, general and administrative costs increased by $5.2 million over the 2008 period, which principally related to the inclusion of Biomol and Assays Designs. The increase in the Company's other segments' selling, general and administrative expenses of approximately $2.9 million was primarily due to payroll and related personnel costs approximating $0.5 million, consulting and professional fees of $1.2 million, other overhead costs of $1.0 million and information technology costs of $0.3 million.

The provision for uncollectible accounts receivable, primarily relating to the Clinical Labs segment, was $5.2 million for the 2009 period as compared to $3.7 million in the 2008 period. The increase in the 2009 period of $1.5 million or 40% was attributed to 1) increased provisions for the Clinical Labs legacy billing system, which was replaced in August 2008, due to reduced collection efforts relating to the legacy billing system, 2) the correction of the immaterial $0.6 million error in the allowance for doubtful accounts determined relating to 2008, and 3) increased provisions required based on changes in payer
mix. Outstanding receivables, which are fully reserved, will remain on the legacy system until the earlier of: all invoices are collected, all collection efforts are exhausted, or all invoices are written off in accordance with our critical accounting policy.

Legal expense was $4.2 million during the 2009 period compared to $5.6 million in the 2008 period, a decrease of $1.4 million or 25%, primarily due to a decrease in patent litigation activity in the current period of $2.6 million offset by increases in the Life Science segment of $0.2 million for realignment of existing and establishment of new global operating units and increases in other legal costs of $1.0 million.

Interest income decreased by $3.1 million or 84% to $0.6 million during the 2009 period compared to $3.7 million during the 2008 period. Interest income decreased during the 2009 period due to the decline in interest rates in response to monetary policy actions taken by the U.S. Federal Reserve and lower invested balances. The Company earns interest by investing primarily in short term and liquid U.S. government instruments and money market accounts.

Other income was $0.1 million during the 2009 period versus $0.2 million in the year ago period.

The loss on foreign currency was $0.7 million during the 2009 period. During the 2009 period, the Company's Life Sciences segment incurred a non-cash foreign currency loss of approximately $0.7 million on an intercompany term loan denominated in pounds sterling due to the strengthening of the US dollar as at July 31, 2009 versus July 31, 2008.

The Company's effective income tax rate (provision) benefit for the 2009 period was (0.4%), compared to 2.2% during the 2008 period. The tax provision for both periods was based on state and local taxes and book to tax differences for inventory acquired from Biomol 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.

The Life Sciences segment's income before taxes was approximately $1.7 million for the 2009 period and $3.4 million for the 2008 period. Revenues from product shipments increased by $12.5 million primarily due to the inclusion of products sales of $12.1 million from Biomol and Assay Designs in the 2009 period. Royalty and license fee income increased $1.7 million primarily from the existing Qiagen and Abbott licensing and royalty agreements.

The segment's gross margin of $23.2 million increased $6.6 over the prior year period, after being negatively impacted by a $2.2 million fair value adjustment attributed to the sale of inventory acquired from Biomol and Assay Designs. Segment operating expenses, including selling, general and administrative and legal of $14.9 million and research and development of $5.9 million, increased by approximately $7.5 million during the 2009 period primarily due to the inclusion of Biomol and Assay Designs expenses of $7.5 million. The 2009 expenses include amortization of intangibles of $1.2 million, $0.4 million in legal costs to establish new and realign existing global entities, and marketing costs of $0.2 million relating to the integration of our brands. The segment experienced a non-cash foreign currency loss of $0.7 million resulting from an intercompany loan denominated in pounds sterling. In aggregate, the inventory fair value adjustment, amortization of intangibles, the one-time legal and marketing costs and the non-cash foreign currency loss, negatively impacted the segment operating results by $4.7 million.

The Clinical Labs segment's loss before taxes was $7.3 million for the 2009 period as compared to income before taxes of $2.0 million in the 2008 period. The 2009 results were negatively impacted by lower service volume of $2.5 million partially due to a charge of $2.3 million relating to contractual adjustments discussed above, The decrease in the 2009 period's gross margin of $6.6 million was due to the decreased service revenues, change in fiscal 2009 payer mix and increased cost of laboratory services. Selling, general and administrative increased approximately $1.1 million primarily due to increases in office support salaries and operational costs to maintain the facility. The provision for uncollectible accounts increased by $1.5 million primarily due to an increased provision related to the legacy billing system and the correction of the previously noted immaterial error $0.6 million in the allowance for doubtful accounts related to fiscal 2008. The segment earned interest in the 2009 period of $0.1 million and $0.2 million in the 2008 period.

The Therapeutics segment's loss before income taxes was approximately $3.4 million for the 2009 period as compared to a loss of $5.1 million for the 2008 period. The decrease in the loss of $1.7 million was primarily due to a decrease in clinical trial activities of $1.8 million offset by a non-recurring government grant of $0.1 million which was recognized in the 2008 period.

The Other segment's loss before taxes for the 2009 period was approximately $14.6 million compared to $11.3 million in the 2008 period, an increase of $3.3 million. Selling, general, and administrative and legal increased by $0.3 million as the result of a $1.6 million decrease in legal expenses due to decreased patent litigation activity, partially offset by increases in professional and consulting fees of $1.2 million, and payroll and related costs of $0.7 million. The decrease in interest income of $2.9 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.

     Results of Operations

         Comparative Financial Data for the Fiscal Years Ended July 31,
                                   (in 000's)


                                                                                Increase
                                                      2008         2007        (Decrease)     % Change

Revenues:
Product revenues                                    $  28,087    $   6,658    $     21,429       322
Royalty and license fee income                          7,630        5,820           1,810        31
Clinical laboratory services                           42,078       40,430           1,648         4

Total revenues                                         77,795       52,908          24,887        47

Costs and expenses and other (income):
Cost of product revenues                               19,159        5,034          14,125       281
Cost of laboratory services                            22,209       19,151           3,058        16
Research and development                                8,637        9,393            (756 )      (8 )
Selling, general, and administrative                   33,272       25,348           7,924        31
Provision for uncollectible accounts receivable         3,716        4,653            (937 )     (20 )
Legal expenses                                          5,588       10,295          (4,707 )     (46 )
Interest income                                        (3,696 )     (5,092 )         1,396       (27 )
Other loss (income)                                      (171 )     (2,699 )         2,528       (94 )
Foreign currency (gain)                                   (27 )          -             (27 )       -

Total costs and expenses - net                         88,687       66,083          22,604        34


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