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 and development 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 currency 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 2012 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.

The Company is a growth-oriented integrated life sciences and biotechnology company focused on harnessing biological processes to develop research tools, diagnostics and therapeutics and serves as a provider of test services, including esoteric tests, to the medical community. Since our founding in 1976, our strategic focus has been on the development of enabling technologies in research, development, manufacture, licensing and marketing of innovative health care products, platforms and services based on molecular and cellular technologies. Our pioneering work in genomic analysis coupled with its extensive patent estate and enabling platforms have strategically positioned the Company to play an important role in the rapidly growing life sciences and molecular medicine marketplaces.

In the course of our research and development activities, we have built a substantial portfolio of intellectual property assets, comprising 114 key issued patents worldwide, and over 250 pending patent applications, along with extensive enabling technologies and platforms.

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 our operating segments (see note 10 in the Notes to Consolidated Financial Statements):

Enzo Clinical Labs is a regional clinical laboratory serving the greater New York, New Jersey and Eastern Pennsylvania medical communities. 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 approximately 30 patient service centers throughout greater New York, New Jersey and Eastern Pennsylvania, a standalone "stat" or rapid response laboratory in New York City, and a full-service phlebotomy and an in-house logistics department. Payments for clinical laboratory testing services are made by the Medicare program, healthcare insurers and patients.

Enzo Life Sciences manufactures, develops and markets products and tools to life sciences, drug development and clinical research customers world-wide and has amassed a large patent and technology portfolio. Enzo Life Sciences, Inc. is a recognized leader in labeling and detection technologies across research and diagnostic markets. Our strong portfolio of proteins, antibodies, peptides, small molecules, labeling probes, dyes and kits provides life science researchers tools for target identification/validation, high content analysis, gene expression analysis, nucleic acid detection, protein biochemistry and detection, and cellular analysis. We are internationally recognized and acknowledged as a leader in manufacturing, in-licensing, and commercialization of over 7,500 of our own products and in addition distribute over 30,000 products made by over 40 other original manufacturers. Our strategic focus is directed to innovative high quality research reagents and kits in the primary key research areas of genomics, cellular analysis, small molecule chemistry, protein homeostasis and epigenetics and immunoassays and assay development. The segment is an established source for a comprehensive panel of products to scientific experts in the fields of cancer, cardiovascular disease, neurological disorders, diabetes and obesity, endocrine disorders, infectious and autoimmune disease, hepatotoxicity and renal injury.

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 130 patents and patent applications.

Comparative Financial Data for the Three Months Ended October 31,

                                                                          Increase
Revenues:                                           2012       2011      (Decrease)     % Change

Clinical laboratory services                      $ 15,177   $ 14,187   $        990            7 %
Product revenues                                     8,434      9,704         (1,270 )        (13 )
Royalty and license fee income                       2,019      1,862            157            8

Total revenues                                      25,630     25,753           (123 )          -

Operating expenses:
Cost of clinical laboratory services                 9,710      8,814            896           10
Cost of product revenues                             4,184      5,137           (953 )        (19 )
Research and development                             1,011      1,625           (614 )        (38 )
Selling, general, and administrative                11,415     12,385           (970 )         (8 )
Provision for uncollectible accounts receivable      1,594      1,286            308           24
Legal                                                1,700        868            832           96

Total operating expenses                            29,614     30,115           (501 )         (2 )


Operating loss                                      (3,984 )   (4,362 )          378            9

Other income (expense):
Interest                                                (9 )       (2 )           (7 )       (350 )
Other                                                    9          9              -            -
Foreign currency gain                                  229         29            200          690

Loss before income taxes                          $ (3,755 ) $ (4,326 ) $        571           13

Consolidated Results:

The "2013 period" and the "2012 period" refer to the three months ended October 31, 2012 and 2011, respectively.

Clinical laboratory services revenues for the 2013 period were $15.2 million compared to $14.2 million in the 2012 period. The 2013 period's increase over the 2012 period was $1.0 million or 7% due to organic growth. During the 2013 period the increase in revenues was negatively impacted by a severe storm affecting our service area in the last three days in the quarter and reduced reimbursements from a third party payer, collectively approximately $1.1 million.

Product revenues decreased by $1.3 million or 13% in the 2013 period to $8.4 million as compared to $9.7 million in the 2012 period due to a decline in organic sales. During the 2013 period we continue to experience a decline attributed to certain distributed products for certain customer types and declines in resale products due to market softness in research reagent products.

Royalty and license fee income during the 2013 period was $2.0 million compared to $1.8 million in the 2012 period an increase of $0.2 million or 8%. Royalties are primarily earned from the reported sales of Qiagen products subject to a license agreement. There are no direct expenses relating to royalty and licensing income.

The cost of clinical laboratory services during the 2013 period was $9.7 million as compared to $8.8 million in the 2012 period, an increase of $0.9 million or 10%. The Company incurred increased costs due to higher reagent costs and supplies of $0.3 million, higher laboratory personnel costs of $0.1 million, higher outside reference lab costs of $0.3 million and other lab support costs of $0.2 million, all attributed to the increased service volume. In the 2013 period the gross profit margin was 36% as compared to 38% in the 2012 period.

The cost of product revenues during the 2013 period was $4.2 million compared to $5.2 million in the 2012 period, a decrease of $1.0 million or 19%. The decrease is attributed to lower payroll costs of $0.5 million due to the business realignments during fiscal 2012, and $0.5 million due to lower product revenue.

The Company's selling, general and administrative expenses were approximately $11.4 million during the 2013 period and $12.4 million during the 2012 period, a decrease of $1.0 million or 8%. The Enzo Life Sciences segment selling, general and administrative decreased by $1.0 million due to the positive effects from the business realignments in the last three quarters of fiscal 2012 resulting in lower payroll and related costs of $0.7 million, rent and facility costs of $0.1 million and $0.2 million in other operating costs. The Other selling general and administrative decreased by $0.1 million, primarily due to a decrease of $0.2 million in compensation and related expenses offset by an increase in other costs of $0.1 million. The Clinical Lab segment selling general and administrative increased by $0.1 million primarily due to an increase in sales support expenses related to the increased revenue volume.

The provision for uncollectible accounts receivable, primarily related to the Clinical Labs segment, was $1.6 million for the 2013 period as compared to $1.3 million in the 2012 period, primarily due to the increase in service volume. As a percentage of revenues the provision for uncollectible accounts receivable for the Clinical Lab segment increased to 10.2% from 9.0% in the 2012 period.

Legal expense was $1.7 million during the 2013 period compared to $0.9 million in the 2012 period, an increase of $0.8 million due to overall increases in legal services in the 2013 period for a patent litigation trial that occurred in the quarter and other litigation related matters.

During the 2013 period, the gain on foreign currency transactions increased by $0.2 million as compared to the 2012 period. The gain in the period was due to the strengthening of foreign currencies relative to the US dollar and Swiss franc.

Segment Results

Clinical Labs

The Clinical Labs segment's loss before taxes was $1.2 million for the 2013 period as compared to a loss of $0.8 million in the 2012 period, an increase of $0.4 million resulting from increased operating costs partially offset by increased service volume. The revenue from laboratory services increased in the 2013 period by $1.0 million or 7% due to organic growth. The 2013 period gross profit of $5.5 million increased over the 2012 period by $0.1 million or 2%. The increase in service revenues was offset by increases in cost of lab services and the negative impact from a severe storm affecting our service area in the last week of the quarter and lower reimbursement rates from a payer. Selling, general and administrative expense increased by approximately $0.1 million primarily due to increases in costs directly the result of increased service revenues. The provision for uncollectible accounts receivable increased by $0.3 million as compared to the 2012 period due to the increase in service volume and as a percentage of revenues increased to 10.2% from 9.0% in the 2012 period.

Life Sciences

The Life Sciences segment's income before taxes was $1.6 million for the 2013 period as compared to a loss of $0.2 million for the 2012 period. The segment's gross profit was $6.3 million in the 2013 period, as compared $6.4 million in the 2012 period. Gross profit was negatively impacted by the decline in product revenues, offset by reduced payroll, facility and other costs resulting from realignments during the last three quarters of fiscal 2012. Product revenues decreased by $1.3 million or 13% in the 2013 period to $8.4 million as compared to $9.7 million in the 2012 period due to a decline in organic sales. During the 2013 period we continue to experience a decline attributed to certain distributed products for certain customer types and declines in resale products due to market softness in research reagent products. Royalty and license fee income of $2.0 million represented an increase of $0.2 million as compared to the 2012 period and is primarily from the reported sales of Qiagen products subject to a license agreement. The segment's other operating expenses, including selling, general and administrative, legal and research and development, decreased by approximately $1.8 million during the 2013 period due to reduced research and development and selling, general and administrative of $1.4 million and lower legal of $0.4 million. Due to the slight strengthening of foreign currencies during the 2013 period as compared to the 2012 period, the foreign currency gain increased by $0.2 million in the 2013 period.

Therapeutics loss before income taxes was approximately $0.3 million for the 2013 period as compared to the $0.5 million in 2012 period due to lower payroll costs and lower clinical trial activities.

Other

The Other loss before taxes for the 2013 period was approximately $3.8 million as compared to $2.8 million for the 2012 period, an increase of $1.0 million. In the 2013 period legal expenses increased by $1.1 million due to overall increases in legal services directly related to a patent litigation trial that occurred in the quarter and other legal activities. General and administrative costs decreased due to lower compensation and related costs by $0.1 million.

Liquidity and Capital Resources

At October 31, 2012, the Company had cash and cash equivalents of $13.4 million of which $3.3 million was in foreign accounts, as compared to cash and cash equivalents of $15.1 million, of which $2.5 million was in foreign accounts at July 31, 2012. It is the Company's current intent to permanently reinvest these funds outside of the United States, and its current plans do not demonstrate a need to repatriate them to fund its United States operations. The Company had working capital of $18.3 million at October 31, 2012 compared to $21.4 million at July 31, 2012. The decrease in working capital of $3.1 million was primarily the result of the net loss and funding capital expenditures offset by changes in net operating assets and liabilities.

Net cash used in operating activities for the three months ended October 31, 2012 was approximately $1.5 million as compared to $2.3 million for the three months ended October 31, 2011. The decrease in net cash used in operating activities in the 2013 period over the 2012 period of approximately $0.8 million was primarily due to a decrease in the net loss, net of non-cash charges, of $0.6 million, and by changes in operating assets and liabilities of $0.2 million, relating primarily to a decrease in accounts receivable and increases in current liabilities.

Net cash used in investing activities was approximately $0.3 million as compared to cash used of $0.4 million in the year ago period. The decrease in the 2013 period of $0.1 million is primarily due to a decrease in security deposits.

As previously disclosed in the Company's Form 10-K for the year ended July 31, 2012 filed on October 15, 2012, in the fourth quarter of fiscal 2012 the Company completed a review of all operating units and expects to reduce annual cash expenditures by $6.0 million in fiscal 2013 based on actions completed by September 1, 2012 which included, among other items, a realignment of our workforce, final integration of the acquired businesses at Life Sciences, rationalization of low margin products, a refocus of our research and development program toward higher value diagnostic platforms and the reduction in outside consulting costs. The Company anticipates a reduction in cash used as a result of the aforementioned actions taken. In addition, the Company anticipates, but there can be no assurance, that it will be able increase its revenue in the Life Sciences reporting unit and that it will continue to see growth in its Clinical Lab reporting unit. Further, despite the challenging global economic environment, declining revenues in the Life Sciences reporting unit in fiscal 2013 and impacts of healthcare reform regulations affecting providers and plan sponsors and the funding of research, the Company believes that its current cash and cash equivalents level is sufficient for its foreseeable liquidity and capital resource needs over the next twelve (12) months, although there can be no assurance that future events will not alter such view. Although there can be no assurances in the event additional capital is required, the Company believes it has the ability to raise funds through equity offerings, secure asset-based borrowings, or other sources of funds. Our liquidity plans are subject to a number of risks and uncertainties, including those described in the Item 1A. "Risk Factors" section of the Form 10-K for the year ended July 31, 2012 referred to above are unchanged, some of which are outside our control. Macroeconomic conditions could limit our ability to successfully execute our business plans and therefore adversely affect our liquidity plans.

See our Form 10-K for the fiscal year ended July 31, 2012 for Forward Looking Cautionary Statements and Risk Factors.

There have been no material changes to our Contractual Obligations as reported in our Form 10-K for the fiscal year ended July 31, 2012, except as noted in Note 7 Other Liabilities.

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.

Off Balance Sheet Arrangements

The Company does not have any "off balance sheet arrangements" as such term is defined in Item 303(a)(4) of Regulation S-K.

Critical Accounting Policies

The Company's discussion and analysis of its financial condition and results of operations are based upon Enzo Biochem, Inc. 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 expense, 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 and title transfers, 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 Clinical Labs 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.

The following table represents the clinical laboratory segment's net revenues and percentages by revenue category:

                      Three months ended       Three months ended
                       October 31, 2012         October 31, 2011

Revenue category
Medicare            $      3,280        22 % $      3,020        21 %
Third-party payer          7,149        47          6,942        49
Patient self-pay           3,420        23          2,915        21
HMO's                      1,328         8          1,310         9

Total               $     15,177       100 % $     14,187       100 %

The Company provides services to certain patients covered by various third-party payers, including the Federal Medicare program. 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 Adjustment

The Company's estimate of contractual adjustment is based on significant assumptions and judgments, such as its interpretation of payer 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. Gross billings are based on a standard fee schedule we set for all third party payers, including Medicare, HMO's and managed care. The Company adjusts the contractual adjustment estimate quarterly, based on its evaluation of current and historical settlement experience with payers, industry reimbursement trends, and other relevant factors.

The other relevant factors that affect our contractual adjustment include the monthly and quarterly review of: 1) current gross billings and receivables and reimbursement by payer, 2) current changes in third party arrangements and 3) the growth of in-network provider arrangements and managed care plans specific to our Company.

Our clinical laboratory business is primarily dependent upon reimbursement from third-party payers, such as Medicare (which principally serves patients 65 and older) and insurers. We are subject to variances in reimbursement rates among different third-party payers, as well as constant changes of reimbursement rates. Changes that decrease reimbursement rates or coverage would negatively impact our revenues. The number of individuals covered under managed care contracts or other similar arrangements has grown over the past several years and may continue to grow in the future. In addition, Medicare and other government healthcare programs continue to shift to managed care. These trends will continue to reduce our revenues.

During the three months ended October 31, 2012 and 2011, the contractual adjustment percentages, determined using current and historical reimbursement statistics, were 84.8% and 84.5%, respectively, of gross billings. The Company . . .