ENZO BIOCHEM INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended July 31, 2004

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ___________________

Commission File Number 001-09974

ENZO BIOCHEM, INC.
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)

New York 13-2866202
- ------------------------------------------ ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

60 Executive Boulevard,
Farmingdale, New York 11735
- ------------------------------------------ -------
(Address of principal executive offices) (Zip Code)

(631) 755-5500
--------------
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

(Title of Each Class) (Name of Each Exchange on Which Registered)
Common Stock, $.01 par value the New York Stock Exchange
- ---------------------------- ---------------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

[ ]

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).

Yes [X] No [ ]

The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold as of January 31, 2004, the last business of the
registrant's most recently completed second fiscal quarter, was approximately
$461,771,000. As of October 7, 2004, the Registrant had 30,864,800 shares of
Common Stock outstanding.

Document Incorporated by Reference

Portions of the definitive Proxy Statement to be delivered to
shareholders in connection with the Annual Meeting of Shareholders to be held
January 20, 2005 are incorporated by reference into Part III.

PART I

Item 1. BUSINESS

OVERVIEW

Enzo Biochem, Inc. (the "Company" or "Enzo") is a leading life sciences
and biotechnology company focused on harnessing genetic processes to develop
research tools, diagnostics and therapeutics. Enzo also provides diagnostic
services to the medical community. Since our formation in 1976, we have
concentrated on developing enabling technologies for detecting and identifying
genes and for modifying gene expression. These technologies are generally
applicable to the diagnosis of infectious and other diseases and form the basis
for a portfolio of over 300 products marketed to the biomedical and
pharmaceutical research markets. We are further using these technologies as
platforms for our planned entry into the clinical diagnostics market. In
addition, our work in gene analysis has led to the development of significant
therapeutic product candidates, several of which are currently in clinical
trials, and several are in preclinical studies. In the course of our research
and development activities, we have built what we believe is a significant
patent position (comprised of 42 issued U.S. patents, over 190 issued foreign
patents and various pending applications worldwide) around our core
technologies.

The business activities of the Company are performed by one of the
Company's three wholly owned subsidiaries--Enzo Life Sciences, Inc., Enzo
Therapeutics, Inc., and Enzo Clinical Labs, Inc. These activities are: (1)
research and development, manufacturing and marketing of biomedical research
products and tools through Enzo Life Sciences and research and development of
therapeutic products through Enzo Therapeutics, and (2) the operation of a
clinical reference laboratory through Enzo Clinical Labs. For information
relating to the Company's business segments, see Note 15 of the Notes to
Consolidated Financial Statements.

The Company's primary sources of revenue have historically been from
sales of research products utilized in life science research and from the
clinical laboratory services provided to the healthcare community. For the
fiscal years ended July 31, 2004 and 2003, respectively, approximately 31% and
44% of the Company's operating revenues were derived from product sales and
approximately 69% and 56% were derived from clinical reference laboratory
services.

MARKETS

BACKGROUND

DNA is the source of biological information that governs the molecular
mechanisms underlying life. This information is stored in the linear sequences
of nucleotides that comprise DNA. The sequence of the human genome, comprising
over 30,000 genes, has been identified. The challenge for the next decade will
be the determination of the function and relevance of each gene. This
information will facilitate the understanding of biological mechanisms and how
variations and mutations in such mechanisms result in disease, enabling more
rapid and accurate detection of specific diseases and the development of new
therapeutics to treat them.

TOOLS FOR BIOMEDICAL AND PHARMACEUTICAL RESEARCH

There is an increasing demand by biomedical and pharmaceutical
researchers for tools that both facilitate and accelerate the generation of
biological information. In response to this demand, a variety of formats, or
tools, have been developed that allow researchers to study biological pathways
and to identify mutations in gene sequences and variations in gene expression
levels that can lead to disease. These tools include DNA sequencing instruments,
microarrays, biochips, microspheres, and microfluidic chips. Common among these
formats is the need for reagents that allow the identification, quantification
and characterization of specific genes or nucleic acid sequences.

We believe this market will grow as a result of:

o research spending by academic, government and private organizations to
determine the function and clinical relevance of the gene sequences
identified by the Human Genome Project;

o development of commercial applications based on information derived
from this research; and

o ongoing advancements in tools that accelerate these research and
development activities.

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CLINICAL DIAGNOSTICS

The clinical diagnostics market currently has been reported by industry
sources to be greater than $20 billion. It is comprised of a broad range of
tests such as clinical chemistry, microbiology, immunoassay, blood banking and
cancer screening. Many of these tests employ traditional technologies, such as
immunoassays and cell culture technologies, for the detection of diseases.
Immunoassays are based on the use of antibodies directed against a specific
target, or antigen, to detect that antigen in a patient sample. Cell culturing
techniques involve the growth, isolation and visual detection of the presence of
microorganisms.

There are several drawbacks to these technologies. Immunoassays do not
allow for early detection of diseases because they require minimum levels of
antigens to be produced by the microorganism for detection. These levels vary by
microorganism, and the delay involved could be several days or several years, as
seen in HIV/AIDS. Cell cultures are slow, labor intensive and not amenable to
all microorganisms. For example, gonorrhea and chlamydia are difficult to
culture.

Gene-based diagnostics have many advantages over traditional
technologies. Since gene-based diagnostics focus on the identification of
diseases at the gene level, they can identify the presence of the disease at its
earliest stage of manifestation in the body. These tests provide results more
rapidly, are applicable to a broad spectrum of microorganisms and can easily be
automated in a multiplex platform.

Several advances in technology are accelerating the adoption of
gene-based diagnostics in clinical laboratories. These advances include high
throughput automated formats that minimize labor costs, non-radioactive probes
and reagents that are safe to handle, and amplification technologies that
improve the sensitivity of such diagnostics.

According to recognized industry sources, the market for molecular
diagnostic tools, assays and other products was estimated at $1.9 billion in
2002, and is forecast to grow to at least to $3.1 billion in 2005 as a result
of:

o rising number of diagnostic tests being developed from discoveries in
genome research;

o advances in formats and other technologies that automate and accelerate
gene-based diagnostic testing;

o growing emphasis by the health care industry on early diagnosis and
treatment of disease; and

o application of gene-based diagnostics as tools to match therapies to
specific patient genetics commonly referred to as pharmacogenomics.

THERAPEUTICS

Most diseases are the consequence of the expression of foreign genes,
such as those residing in viruses and pathogenic organisms, or the abnormal or
unregulated expression of the body's own genes. In other cases, it is the
failure to express a gene that causes the disease. Recent advancements in gene
analysis have provided the information and tools necessary to develop drugs that
intervene in the disease process at the gene level. For a broad spectrum of
diseases, this approach can be more precise and effective than intervening in
the downstream molecular processes of the disease. Therapies targeting genetic
processes are called gene medicines. There are two fundamental approaches to
gene medicines, synthetic and genetic.

Synthetic gene medicine involves the administration of synthetic
nucleic acid sequences called "oligos" that are designed to bind to, and thus
deactivate, RNA produced by a gene. To date, this approach has demonstrated
limited success. Since a single cell may contain thousands of strands of RNA,
large amounts of oligos are necessary to shut down the production of unwanted
proteins. Also, since oligos are synthetic, they are quickly metabolized or
eliminated by the body. As a result, large quantities of oligos must be
delivered in multiple treatments, which can be both toxic to the body as well as
costly.

Genetic medicine or gene therapies involve the insertion of a gene into
a cell. The inserted gene biologically manufactures the therapy on an ongoing
basis. This gene may be inserted to enable a beneficial effect or to disable a
pathological mechanism within the cell. For example, the gene may be inserted to
replace a missing or malfunctioning gene responsible for synthesizing an
essential protein. On the other hand, a gene coding for a molecule to deactivate
either an overactive gene or a gene producing an unwanted protein may be
inserted. As a permanent addition to the cellular DNA, the inserted gene
produces RNA and/or proteins where needed.

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A major challenge in designing gene therapy medicines has been the
efficient and safe delivery of the gene to the appropriate target cell. Gene
delivery is often accomplished using a delivery vehicle known as a vector. A
critical quality of the vector is its ability to bind to the target cell and
effectively deliver, or transduce, the gene into the cell. It is also critical
that the DNA of the vector not produce proteins or antigens that can trigger an
adverse immune response.

STRATEGY

Our objective is to be A leading developer and provider of medicines,
as well as a leading developer and provider of the tools and diagnostics used to
study and detect disease at the molecular level. There can be no assurance that
our objective will be met. Key elements of our strategy include:

APPLY OUR INNOVATIVE TECHNOLOGY TO THE INFECTIOUS DISEASE MARKET

Our core technologies have broad diagnostic and therapeutic
applications. We have initially focused our efforts on the infectious disease
market. Infectious diseases are among the largest contributors to healthcare
costs worldwide. Generally, there are no long-term effective treatments for
viral pathogens as there are for bacterial pathogens. We have developed novel
technologies we believe can serve as enabling platforms for developing medicines
that genetically target and inhibit viral functions, as well as medicines that
regulate the immune response. In addition to such therapeutic products, we have
capitalized on our nucleic acid labeling, amplification and detection
technologies to develop diagnostic and monitoring tests for infectious agents.

MAXIMIZE OUR RESOURCES BY COLLABORATING WITH OTHERS IN RESEARCH AND
COMMERCIALIZATION ACTIVITIES

We enter into research collaborations with leading academic and other
research centers to augment our core expertise on specific programs. We have
research collaborations with, among others, Hadassah University Hospital in
Jerusalem, Israel regarding immune regulation and Cornell University regarding
the application of our genetic antisense technology to HIV. During the current
fiscal year Enzo, through Enzo Therapeutics, entered into two agreements with
the University of Connecticut Health Center at Farmington, CT, to license and
cooperatively develop novel therapeutics for the stimulation and enhancement of
bone formation. The products emanating from this technology could provide
therapy for bone disorders, including bone loss, fractures, abnormalities,
diseases, and other applications. We also entered into a licensing agreement
with Thomas Jefferson University, Philadelphia, PA for certain patents relating
to the development of products within our therapeutic program.

Similarly, we seek to fully exploit the commercial value of our
technology by partnering with for-profit enterprises in areas in order to act on
opportunities that can be accretive to our efforts in accelerating our
development program. In line with this strategy, during the past fiscal year
Enzo acquired the assets of OraGen Corporation, Moorestown, New Jersey and a
privately owned biotechnology company specializing in immune regulation
technologies. This acquisition is expected to broaden our capabilities in the
area of immunological regulation, particularly as it relates to the treatment of
infectious diseases.

APPLY OUR BIOMEDICAL RESEARCH PRODUCTS TO THE CLINICAL DIAGNOSTICS
MARKET

We intend to apply our gene-based tests to the clinical diagnostics
market. We currently offer over 25 gene-based tests for the research market, for
the identification of such viruses as human papillomavirus, cytomegalovirus, and
Epstein-Barr virus. We also have an extensive library of probes for the
detection of various diseases. We have developed a standardized testing format
that permits multiple diagnoses to be performed on the same specimen and are in
discussions with third parties to develop instrumentation for this purpose.

LEVERAGE MARKETING AND DISTRIBUTION INFRASTRUCTURE OF LEADING LIFE
SCIENCES COMPANIES

During fiscal 2004, Enzo Life Sciences continued to implement an
aggressive marketing program designed to more directly service its end users,
while simultaneously positioning the Company for product line expansion. The
program involves continued increases in the direct field sales force, a
comprehensive advertising campaign, increased attendance at top industry trade
meetings, and publications in leading scientific journals, as well as the
development of a new interactive web site. In addition to our direct sales, we
distribute our research products through leading producers of gene analysis
formats and other life sciences companies. By partnering with these industry
leaders, we are able to leverage their established marketing and distribution
infrastructure to expand the market for our products. During fiscal 2004,
distribution agreements were in effect with, among others, Roche Diagnostic
Systems, Amersham PLC, Perkin-Elmer Life Sciences and Affymetrix, Inc. The
Company gave notice on October 28, 2003 that it was terminating its agreement
with Affymetrix effective November 12, 2003. The Company received notice in the
first quarter of 2004 that Amersham PLC was terminating its agreement with the
Company. See Item 3. Legal Proceedings.

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Research product revenue from Affymetrix represented approximately 0 %,
22% and 23% of the consolidated revenues in fiscal 2004, 2003 and 2002,
respectively, under a non-exclusive distribution and supply agreement. Research
product revenue from this major distributor accounted for approximately 0 % and
50% of the Company's total research product revenue in fiscal 2004 and 2003,
respectively. At July 31, 2004 and 2003, of the Company's net accounts
receivable no monies were included from this one major distributor. Research
product revenue from Amersham represented approximately 0%, 1% and 1% of the
consolidated revenues in fiscal 2004, 2003 and 2002, respectively, under a
non-exclusive distribution and supply agreement. At July 31, 2004 and 2003, 0%
and 2%, respectively, of the Company's net accounts receivable relate to amounts
due from this distributor. Research product revenue from Perkin-Elmer
represented approximately 8%, 4% and 6% of the consolidated revenues in fiscal
2004, 2003 and 2002, respectively, under a non-exclusive distribution and supply
agreement. At July 31, 2004 and 2003, 5% and 3%, respectively, of the Company's
net accounts receivable relate to amounts due from this distributor. Research
product revenue from Roche represented approximately 8%, 6% and 5% of the
consolidated revenues in fiscal 2004, 2003 and 2002, respectively, under a
non-exclusive distribution and supply agreement. At July 31, 2004 and 2003, 0%
and 6% respectively of the Company's net accounts receivable relate to amounts
due from the this distributor. At July 31, 2004, the Company had written off
$1.8 million against the amount due from this distributor. See Item 3. Legal
Proceedings.

EXPANDING AND PROTECTING OUR INTELLECTUAL PROPERTY ESTATE

Since our inception, we have followed a strategy to create a broad
encompassing patent position in the life sciences and therapeutics areas. We
have made obtaining patent protection a central strategic policy, both with
respect to our proprietary platform technologies and products, as well as
broadly in the areas of our research activities.

CORE TECHNOLOGIES

We have developed a portfolio of proprietary technologies with a
variety of research, diagnostic and therapeutic applications.

GENE ANALYSIS TECHNOLOGY

All gene-based testing is premised on the knowledge that DNA forms a
double helix comprised of two complementary strands that match and bind to each
other. If a complementary piece of DNA (a probe) is introduced into a sample
containing its matching DNA, it will bind to, or hybridize, to form a double
helix with that DNA. Gene-based testing is carried out by:

o amplification of the target DNA sequence (a process that is essential
for the detection of very small amounts of nucleic acid);

o labeling the probe with a marker that generates a detectable signal
upon hybridization;

o addition of the probe to the sample containing the DNA; and

o binding or hybridization of the probe to the target DNA sequence, if
present, to generate a detectable signal.

We have developed a broad technology base for the labeling, detection,
amplification and formatting of nucleic acids for gene analysis. We believe we
have a significant proprietary position in these fields.

NON-RADIOACTIVE LABELING AND DETECTION. Traditionally, nucleic acid
probes were labeled with radioactive isotopes. However, radioactively labeled
probes have a number of shortcomings. They are unstable and consequently have a
limited shelf life. They are potentially hazardous, resulting in restrictive
licensing requirements and safety precautions for preparation, use and disposal.
Finally, radioactive components are expensive. Our technologies permit gene
analysis without the problems associated with radioactively labeled probes and
are adaptable to a wide variety of formats.

FORMATS. There are various processes, or formats, for performing
probe-based tests. In certain formats, the probe is introduced to a target
sample affixed to a solid matrix; in others the probe is combined with the
sample in solution (homogeneous assay). Solid matrix assays include: IN SITU
assays in which the probe reaction takes place directly on a microscope slide;
dot blot assays in which the target DNA is fixed to a membrane; and microplate
and microarray assays in which the DNA is fixed on a solid surface, and the
reaction can be quantified by instrumentation.

AMPLIFICATION. In the early stages of infection, a pathogen may be
present in very small amounts and consequently may be difficult to detect. Using
DNA amplification, samples can be treated to cause a pathogen's DNA to be
replicated, or amplified, to detectable levels. We have developed a proprietary
amplification process for multicopy production of nucleic acid, as well as

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proprietary techniques for amplifying the signals of our probes to further
improve sensitivity. Our amplification technologies are particularly useful for
the early detection of very small amounts of target DNA and, unlike PCR,
(currently the most commonly used method of amplification,) we have developed
isothermal amplification procedures that can be performed at constant
temperatures and thus do not require expensive heating and cooling systems or
specialized heat-resistant enzymes.

THERAPEUTIC TECHNOLOGY PLATFORMS

We have developed proprietary technologies in the areas of genetic
antisense (antisense RNA) and immune regulation that we are using as a platform
for a portfolio of novel therapeutics.

GENE REGULATION TECHNOLOGY. We are pursuing a novel approach to gene
regulation known as genetic antisense or antisense RNA. Our technology involves
the introduction into cellular DNA of a gene that codes for an RNA molecule that
binds to, and thus deactivates, RNA produced by a specific gene. To deliver our
antisense gene to the target cell, we have developed proprietary vector
technology. Our vector technology has the following three strengths:

oEFFICIENT TRANSDUCTION. A principal problem to date of most gene
therapy programs has been inefficient transduction, or an unacceptably low rate
of delivery of operating genes to the target cells. We have achieved
transduction rates significantly higher than those reported by other
researchers.

oIMMUNOLOGICALLY "QUIET." Transduced cells often produce non-essential
proteins that trigger an immune response, causing such cells to be cleared from
the body before they can produce a therapeutic effect. Cells transduced with our
Stealth Vectors(TM) have not expressed extraneous proteins.

o"SMART" VECTORS. We incorporate into the surface of our vectors
proteins that have an affinity for the surface of the cell types intended to be
transduced. By including this targeting mechanism, we create in essence "smart"
vectors that preferentially transduce the intended cell type. This may
ultimately permit us to develop a genetic antisense product that is administered
directly to the patient.

We believe that our vector technology has broad applicability in the
field of gene medicine. This can be attributed to the following properties of
our construct:

o the viral promoters are inactivated;

o insertional gene activation is prevented - a major safety factor;

o chromosomal integration;

o nuclear localization

IMMUNE REGULATION.

oORAL IMMUNE REGULATION. We have developed a novel therapeutic approach
based on immune regulation. Our immune regulation technology seeks to control an
individual's immune response to a specific antigen in the body. An antigen is a
substance that the body perceives is foreign and, consequently, against which
the body mounts an immune response. We are developing our technology to treat
immune-mediated diseases, infectious diseases and complications arising from
transplantation. Our technology utilizes oral administration of known proteins
to regulate the subject's immune response against the antigen. Specific
formulations of the protein are administered orally to the patient according to
precise dosing protocols.

We have filed patent applications relating to this technology, as well
as to our therapeutics and protocols under development, relating to areas of
infectious diseases and immunological adjustments and enhancements
characteristic of this reaction. We are applying our expertise in immune
regulation to develop proprietary therapeutics for the treatment of a variety of
diseases, including HIV-1 infection, chronic active hepatitis caused by HBV and
HCV infection, graft versus host disease and inflammatory bowel disease,
including Crohn's Disease and ulcerative colitis.

oIMMUNE POTENTIATION. We have developed a new immunomodulator agent,
EGS21, a beta-D-glucosylceramide (GC) compound, as a potential therapeutic for
treating immune mediated diseases. GC is a glycolipid that has been shown by
Enzo scientists and collaborators to modulate specific immune responses by
acting on certain immune regulatory cells, and therefore is an important
candidate drug in the treatment of various immune mediated diseases, such as
Crohn's disease, hepatitis B, hepatitis C, non-alcoholic steatohepatitis (NASH)
or fatty liver and HIV. We believe that GC could be utilized either as a
separate therapeutic or as an adjunct or combination treatment with our other
platforms for the management of immune mediated disorders.

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SMALL MOLECULE DEVELOPMENT

Enzo's newest therapeutic platform involves the development as
pharmaceutical agents, of protein factors or associated peptides, as well as
small molecules that interfere with protein-protein interactions. It has been
shown recently that bone density is dependent on a homeostatic mechanism
requiring the interaction of several protein factors. The interference of
factor-factor interactions by small molecules can lead to significant increases
in bone mass. Enzo is developing these observations to yield new pharmaceutical
products for the management of osteoporosis and certain periodontal disorders.

PRODUCTS AND SERVICES

We are applying our core technologies to develop novel therapeutics as
well as research tools for the life sciences and clinical diagnostics markets.
In addition, we provide clinical laboratory services to physicians and other
health care providers in the greater New York area.

RESEARCH AND DIAGNOSTIC PRODUCTS

We are a leading developer and marketer of novel research tools for
gene analysis. We manufacture over 300 products that may be sold individually or
combined in a kit to meet the specific needs of the researcher. We market these
products to biomedical and pharmaceutical firms worldwide. We have summarized
our products into the following major categories:

PRE-FORMATTED IN SITU KITS. Our pre-formatted IN SITU kits include all
of the components necessary to identify or detect a gene in a cell or tissue on
a glass slide. These components include specific labeled non-radioactive nucleic
acid probes on a glass slide, signaling reagents and buffers. We offer probes
that will detect a variety of infectious agents, such as human papillomavirus
(HPV), HBV, cytomegalovirus (CMV) and chlamydia. We market these kits under the
PATHOGENE(R) brand name. These kits target the pathology market.

MEMBRANE KITS. Our membrane kits include all of the reagents and
buffers necessary to perform a gene analysis on a membrane. The researcher will
supply the probe required for their individual needs. Membrane technology is
broadly used in life sciences research. We market these kits under the
MAXSENSE(R) brand name.

LABELED PROBES. We have developed a line of non-radioactive nucleic
acid probes that have been chemically-labeled to allow detection of infectious
agents. We offer labeled probes that can detect such infectious agents as
adenovirus, HBV, cytomegalovirus (CMV), herpes simplex virus (HSV) and
chlamydia, as well as certain oncogenes. These probes can be used in
hybridization and detection assays in the format chosen by the researcher. These
probes are broadly sold into the life sciences research market under the
BIOPROBE(R) brand name.

LABELING AND SIGNALING REAGENTS. We have developed an extensive line of
nucleic acid labeling and detections reagent and kits that are designed for the
life sciences research market. The products are used by scientists to detect and
identify genes in certain specific formats. Our line of kits for the labeling of
nucleic acids for the study of specific gene expression are marketed under the
BIOARRAY(R) brand name. This product line also includes a new kit for amplifying
small quantities of genetic material as well as our new GENEBEAM(TM) system for
gene detection and identification.

THERAPEUTIC DEVELOPMENT PROGRAMS

We have a number of therapeutic products in various stages of
development that are based on our proprietary genetic antisense and immune
regulation technologies. Our therapeutic programs are described below.

HUMAN IMMUNODEFICIENCY VIRUS (HIV-1). We are developing complementary
HIV-1 therapeutics utilizing both our genetic antisense and immune regulation
technologies.

HIV-1 is a human pathogenic virus. After infection it runs a slow
course in which certain of the cells in the immune system (CD4+ cells)
progressively disappear from the body. This results in a state in which the
infected person can no longer mount an immune response. This loss of immune
responsiveness is the cause of the complex of diseases known as AIDS and
ultimately of death.

According to the World Health Organization, there were 35-42 million
individuals worldwide living with HIV infection during 2003. There were 5
million new infections and 3 million deaths from HIV during that same year. At
present, two classes of products have received FDA marketing approval for HIV-1
infection: reverse transcriptase inhibitors and protease inhibitors. These

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drugs are typically used in combination and may require more than a dozen
tablets to be taken at specific times each day. The cost for treatment of HIV
infected individuals, once the disease has progressed to AIDS, is estimated to
exceed $38,000 per person annually.

While combination therapy slows the progression of disease, it is not a
cure. HIV's rapid rate of mutation results in the development of viral strains
that no longer respond to these medications. This problem is often exacerbated
by interruptions in dosing, as non-compliance is common in patients on
combination therapies. Moreover, currently approved drugs produce toxic
side-effects in many patients, affecting a variety of organs and tissues,
including the peripheral nervous system and gastrointestinal tract, which
side-effects also often result in patients interrupting or discontinuing
therapy.

HGTV43(TM) GENE MEDICINE. Enzo's proprietary Stealth Vector(TM)
HGTV43(TM) gene construct is the vehicle designed to carry and deliver
anti-HIV-1 antisense RNA genes directed against the genes responsible for viral
replication. HGTV43 is designed to deliver the antisense genes to targeted blood
cells of subjects infected with HIV-1. These genes are incorporated into the DNA
of the blood cells, and subsequent production of the antisense RNA prevents
replication of the virus, providing resistance to the virus.

Preclinical IN VITRO studies, performed in conjunction with our
academic collaborators, demonstrated resistance to HIV-1 in human immune cells
into which the antisense genes had been inserted. Our Phase I clinical trial of
the HIV-1 gene medicine is in the follow up phase. In this study, white blood
cell precursors, known as stem cells, were collected from the subjects. These
stem cells were then treated EX VIVO with our Stealth Vector(R) HGTV43(TM)
transducing vector and infused into the subject. Results of the trial have shown
that all subjects tolerated the procedure and that anti-HIV-1 antisense RNA
continued to be expressed in the subjects' circulating white blood cells, the
longest running subject at 54 months to date.

o all subjects tolerated the procedure;

o anti HIV-1 antisense RNA was detected in the circulation of
subjects, the longest at 54 months to date;

o purified CD4+ cells from all evaluable subjects were tested
for the presence of anti HIV-1 antisense RNA and these cells
contained the antisense RNA;

o CD34+ cells from the bone marrow of all subjects were tested
for the presence of anti HIV-1 antisense RNA between 6 months
and 20 months after infusion and these cells contained the
antisense RNA.

Based on these Phase I trial results demonstrating long-term survival
and functioning of antisense RNA in white blood cells, including CD4+ cells, we
are preparing for the next phase of the study in which we will test strategies
to increase the percentage of CD4+ cells that contain the anti-HIV-1 antisense
genes.

One arm of the next phase of clinical trials to be conducted at New
York Presbyterian Hospital-Cornell Medical Center was initiated early this year.
Enzo's protocol for this phase of the study was successfully presented to and
approved by the National Institutes of Health Recombinant DNA Advisory Committee
(RAC) and Cornell's Institutional Review Board ("IRB".) The Cornell site will
focus on a strategy to increase the percentage of engineered CD4+ cells by using
a combination of radiation and immune conditioning. We anticipate beginning
expanded studies of the trial at additional sites.

IMMUNE REGULATION PRODUCT. We are developing a complementary approach
to treat HIV infection and the related autoimmune aspect of the disease. It is
suggested that this autoimmune aspect may lead to depletion of CD4+ cells. This
therapeutic approach utilizes our immune regulation technology to adjust and
enhance the body's immune response to the virus. This treatment, consisting of
oral administration of an HIV protein, is designed to reduce or eliminate the
autoimmune aspect of HIV infection. In addition, it enhances the antiviral
immune response, which may increase the population of CD4+ cells in the patient.
This program is currently in pre-clinical development.

HEPATITIS B VIRUS (HBV). We are developing HBV therapeutics utilizing
our proprietary immune regulation technology.

HBV is a viral pathogen that can lead to a condition in which the body
destroys its own liver cells through an immune response. This condition is
commonly referred to as chronic active hepatitis. According to the latest
figures published by the World Health Organization, approximately 2 billion
people are infected by HBV, of whom an estimated 350 million are chronically
infected and therefore at risk of death from liver disease.

Chronic active hepatitis is generally treated with interferon or
lamivudine. Both of these drugs, however, are toxic, and many patients cannot
tolerate their side effects. These treatments have a limited success rate
(5-15%).

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EHT899 IMMUNE REGULATION PRODUCT. EHT899 is a proprietary formulation
of an HBV viral protein designed to eliminate the undesirable immune response
elicited by the HBV infection. It also apparently enhances a secondary immune
response to clear the viral infection, resulting in reduction in liver damage
and decrease in viral load.

In a clinical trial, conducted at the Liver Unit of Hadassah-Hebrew
University Medical Center, in Jerusalem, Israel, a formulation of EHT899 was
administered orally to a total of 42 subjects with chronic active hepatitis.
Subjects received the medication three times a week for 20 - 30 weeks and were
followed for an additional 20 weeks. Results of the trial have shown that:

o the drug was well tolerated in all subjects;

o 46% of subjects showed a decrease in HBV viral load and improvement in
liver function tests;

o 33% of subjects showed a decrease in inflammation seen on liver biopsy;

Based on these results, the Company is going forward to bring the
manufacturing in house preparing to begin a multi-center Phase II random-label
double blind clinical study.

Preclinical animal studies with EHT899 showed that this medication was
able to achieve complete suppression of HBV-associated human liver cancer and
significantly reduced mortality in laboratory mice. These studies may have
significant potential application for treatment of liver and other cancers in
humans.

HEPATITIS C VIRUS (HCV).

EHC18 IMMUNE REGULATION PRODUCT. We are using our proprietary immune
regulation technology in the development of a treatment for HCV. This disease
affects approximately 170 million people worldwide, including 3.9 million in the
U.S., of which approximately 69%, or 2.7 million, are chronically infected,
according to the National Center for Infectious Diseases. Approximately 30,000
new infections are recorded each year in the U.S. About 85% of people infected
with HCV are reported to develop chronic hepatitis, and about 20% develop
cirrhosis, an incurable disease, with approximately half of these cases
progressing to end-stage liver disease, including liver cancer. It has been
predicted that HCV-related deaths in the U.S. may soon overtake the number of
AIDS-related deaths in the U.S.

The Phase I clinical trial conducted by physicians at the Liver Unit of
Hadassah University Medical Center in Jerusalem, Israel has met its safety
endpoints. Enzo is currently looking to the next level of study.

EGS21 IMMUNE POTENTIATION PRODUCT. EGS21, our immune potentiation
product was tested for safety in a Phase I study in healthy human volunteers at
the Hadassah-Hebrew University Medical Center. All subjects were followed by
complete blood analysis and standard blood chemistries. All laboratory results
were within normal limits and no treatment-related adverse events were observed
during the treatment period or during the follow-up period. We are currently in
the regulatory process at Hadassah Hospital for approval to begin a clinical
study to test EGS21 for treatment of HCV infection.

NON-ALCOHOLIC STATOHEPATITIS (NASH)

Enzo is evaluating the use of EGS21 as a potential product for
treatment of fatty liver or non alcoholic steatohepatitis (NASH). Fatty liver,
often associated with a metabolic syndrome defined by hyperlipidemia, insulin
resistance and obesity, can be demonstrated by imaging studies in 25% of the
general population. Recent studies have suggested an immunologic basis for NASH.
This condition is presently considered to be a risk factor for the development
of non-alcoholic steatohepatitis (NASH), one of the top three causes of liver
disease in the USA and a form of chronic hepatitis that is increasingly
recognized as a predisposing condition for the development of liver cirrhosis.
NASH is present in 20% of obese individuals and in 2.5% of the general
population. Using experimental animal model systems, we showed that EGS21 had a
beneficial effect on NASH and its associated metabolic syndrome in these
experimental animals.

INFLAMMATORY BOWEL DISEASES. We are applying our immune regulation
technology to treat inflammatory bowel disease (IBD), including ulcerative
colitis and Crohn's Disease. According to the Inflammatory Bowel Disease
Foundation, approximately one million persons in the United States suffer from
IBD. Although the cause of these disorders remains unknown, various features
suggest immune system involvement in their pathogenesis.

9

There is currently no effective treatment for these diseases. Human
subjects are managed during short-term episodes through the use of
anti-inflammatory medications, or immunosuppressants, that provide symptomatic
relief over short periods of time, but do not provide a cure. These drugs are
all based on a generalized suppression of the immune response and are
non-specific. As such, they have considerable side effects and cannot be used
for long periods of time because of their inherent toxicity.

Enzo recently completed a Phase II randomized double-blind clinical
trial of ALEQUEL(TM) our innovative immune regulation medicine for treatment of
Crohn's Disease. In this study, subjects were evaluated using the Crohn's
Disease Activity Index (CDAI), a standard measure of the severity of the
disease, with higher scores indicating more severe disease activity. The data
showed that of the 58% of the evaluable subjects who had received the drug
reached clinical remission (defined as a decrease to a CDAI of 150 or lower in 2
consecutive visits during the study period.) In comparison, 29% of evaluable
subjects who had received the placebo reached clinical remission. Enzo plans to
expand this study to broaden the diversity of the patient population.

This current trial followed a successful open label Phase I study and
was based on successful preclinical results achieved in an animal model system.
The preclinical study results showed that when laboratory animals with
experimentally induced colitis were given specific proteins by oral
administration, a remission of the condition was seen. The experimental animals
exhibited a marked amelioration of the symptoms, including significant reduction
in tissue inflammation, as well as a decrease in the levels of gamma interferon
in the serum, both indicative of remission.

GRAFT VERSUS HOST DISEASE. We are applying our immune regulation
technology to treat graft versus host disease. Graft versus Host Disease (GvHD)
is a major complication of bone marrow and stem cell transplantation accounting
for many of the failures of these transplant procedures. GvHD is characterized
by an immune response mounted by the immune cells within the engrafted tissue
against the recipient that leads to a wasting syndrome and occasionally death.
It is estimated that there are only 15,000 bone marrow transplants performed
annually worldwide due, in part, to GvHD. It is assumed that the elimination of
GvHD would lead to a dramatic rise in the number of these procedures. GvHD is
currently treated by immunosuppressant drugs, which are toxic and only reduce
the extent of the wasting reaction.

We are conducting pre-clinical and animal studies at Hadassah
University Hospital. The results of these studies have demonstrated that our
immune regulation technology could be effective in treating GvHD. Currently,
clinical studies are in development.

CLINICAL LABORATORY SERVICES

We operate a regional clinical reference laboratory that offers full
diagnostic services to the greater New York and New Jersey medical community.
The Company's clinical laboratory testing is utilized by physicians as an
essential element in the delivery of healthcare services. Physicians use
laboratory tests to assist in the detection, diagnoses, evaluation, monitoring
and treatment of diseases and other medical conditions. Clinical laboratory
testing is generally categorized as clinical testing and anatomic pathology
testing. Clinical testing is performed on body fluids, such as blood and urine.
Anatomic pathology testing is performed on tissues and other samples, such as
human cells. Most clinical laboratory tests are considered routine and can be
performed by most commercial clinical laboratories. Tests that are not routine
and that require more sophisticated equipment and highly skilled personnel are
considered esoteric tests.

The Company offers a comprehensive menu of routine and esoteric
clinical laboratory tests or procedures. These tests are frequently used in
general patient care by physicians to establish or support a diagnosis, to
monitor treatment or medication, or search for an otherwise undiagnosed
condition.

We operate a clinical reference laboratory on Farmingdale, N.Y. and
eighteen satellite patient service centers in the greater New York and New
Jersey area. Patient service centers collect the specimens as requested by
physicians. The specimens are sent through our in-house logistics department our
main laboratory facility in Farmingdale, N.Y. for testing. We also operate a
STAT laboratory in Manhattan. A "STAT" lab is a laboratory that has the ability
to perform certain routine tests quickly and report results to the physician
immediately.

Patient specimens are delivered to our facilities accompanied by a test
requisition form. These forms, which are completed by the physician, indicate
the tests to be performed and provide the necessary billing information. Once
this information is entered into the computer system, the tests are performed
and the results are entered primarily through a computer interface or in some
instances, manually. Most routine testing is completed by early the next
morning, and test results are reported to the ordering physician. These test
results are either delivered by the Company's Logistic department or some
physicians have computers and or

10

local printer capabilities to have reports printed out directly in their
offices. Physicians who request that they be called with a result are so
notified.

We utilize our clinical reference laboratory to evaluate and
demonstrate the benefits of our internally developed gene-based diagnostic
products. In addition, our laboratory is currently performing gene-based tests
in support of our HIV-1 clinical studies.

Approximately 89% at July 31, 2004 and 83% at July 31, 2003, of the
Company's net accounts receivable relates to its clinical reference laboratory
business, which operates in the New York Metropolitan area. The Company believes
that the concentration of credit risk with respect to clinical laboratory's
accounts receivable is limited due to the diversity of the Company's client base
and to the various numbers of insurance carriers and the numerous individual
patient accounts. As is standard in the health care industry, substantially all
of the Company's clinical laboratory's accounts receivable are with numerous
third party insurance carriers and individual patient accounts. However, the
Company provides services to certain patients covered by various third-party
payors, including the Federal Medicare program. Revenue, net of contractual
allowances, from direct billings under the Federal Medicare program during the
years ended July 31, 2004, 2003 and 2002 were approximately 19%, 11% and 10%,
respectively, of the Company's total revenue. The clinical reference laboratory
industry is characterized by a significant amount of uncollectible accounts
receivable related to the inability to receive accurate and timely billing
information in order to forward it on to the third party payors for
reimbursement, and the inaccurate information received from the covered
individual patients for unreimbursed unpaid amounts. The Company's provision for
uncollectible accounts receivable is within historical expectations.

Billing for laboratory services is complicated. Depending on the
billing arrangement and applicable law, we must bill various payers, such as
patients, insurance companies, Medicare and employer groups, all of which have
different requirements. Auditing for compliance with applicable laws and
regulations as well as, internal compliance policies and procedures adds further
complexity to the billing process. We depend on healthcare providers to provide
billing information to us. When this information is missing or the incorrect
billing information is provided on our requisitions we perform the tests and
attempt to obtain any missing information and correct the billing information
received from the healthcare provider. This slows the invoicing process and
generally increases the aging of our accounts receivable. Additional factors
complicating the billing process include:

o pricing differences between our fee schedules and the
reimbursement rates of the payers;

o disputes with payers as to which party is responsible for
payment; and

o disparity in coverage and information requirements among
various payers.

We incur significant additional costs as a result of our participation
in Medicare, as billing and reimbursement for clinical laboratory testing is
subject to considerable and complex federal and state regulations. These
additional costs include those related to: (1) complexity added to our billing
processes; (2) training and education of our employees and customers; (3)
compliance and legal costs; and (4) costs related to, among other factors,
medical necessity denials and advance beneficiary notices. The Centers for
Medicare & Medicaid Services, or CMS (formerly the Health Care Financing
Administration), establishes procedures and continuously evaluates and
implements changes in the reimbursement process.

RESEARCH & DEVELOPMENT

Our principal research and development efforts are directed toward
expanding our research and diagnostic product lines, as well as developing
innovative new therapeutic products to meet unmet market needs. We have
developed our core research expertise in genomics through 25 years of dedicated
focus in this area. We conduct our research and other product development
efforts through internal research and collaborative relationships. In the fiscal
years ended July 31, 2004, 2003 and 2002, the Company incurred costs of
$8,078,000, $8,311,000 and $6,179,000, respectively, for research and
development activities.

INTERNAL RESEARCH PROGRAMS

A staff of 33 professionals and scientists performs our internal
research and development activities, centered in Farmingdale, New York. Our
product development programs incorporate various scientific areas of expertise,
including recombinant DNA, monoclonal antibody development, enzymology,
microbiology, biochemistry, molecular biology, organic chemistry, and
fermentation. In addition, we continuously review in-licensing opportunities in
connection with new technology.

11

EXTERNAL RESEARCH COLLABORATIONS

We have and continue to explore collaborative relationships with
prominent companies and leading-edge research institutions in order to maximize
the application of our technology in areas where we believe such relationship
will benefit the development of our technology.

SALES AND MARKETING

Our sales and marketing strategy is to sell our products through two
distinct channels: (i) direct sales to end-users; and (ii) supply agreements
with manufacturers and distributors. We market the clinical laboratory services
to our customers through our direct sales force, customer service and patient
service representatives.

We focus our sales efforts on obtaining and retaining profitable
accounts. We also have an active account management process to evaluate the
profitability of all of our accounts. Where appropriate, we change the service
levels and terminate accounts that are not profitable.

DIRECT SALES AND MARKETING EFFORT

We internally market our products through our catalogue and direct
field sales and a professional sales management team as well as through our
e-commerce web site. Our worldwide marketing efforts also consist of
advertisements in major scientific journals, direct mailings to researchers',
presentations at scientific seminars and exhibitions at scientific meetings.

SUPPLY AND DISTRIBUTION ARRANGEMENTS

We also distribute our products through leading life sciences
companies. These companies include manufacturers of instruments for gene
analysis, where our reagents are critical for the identification and detection
of genes and nucleic acid sequences. Through these arrangements, we are able to
leverage the established marketing and distribution infrastructure of these
companies. During fiscal 2004, we have distribution agreements with Perkin-Elmer
Life Sciences & Roche Diagnostics Systems, among other companies. Enzo Life
Sciences is focusing on a strategic initiative to expand its direct sales to the
end user. See Item 3. Legal Proceedings.

COMPETITION

We compete with other life science and biotechnology companies, as well
as pharmaceutical, chemical and other companies. Competition in our industry is
intense and is expected to increase. Many of these companies are performing
research in the same areas as we are. Some of these competitors are larger than
we are and have more significant financial resources than we do. The primary
competitive factors in our industry are the ability to create scientifically
advanced technology, successfully develop and commercialize products on a timely
basis, establish and maintain intellectual property rights and attract and
retain a breadth and depth of human resources.

Our clinical laboratory services business competes with numerous
national and local entities, some of which are larger than we are and have
greater financial resources than we do. Our laboratory competes primarily on the
basis of the quality and specialized nature of its testing, reporting and
information services, its reputation in the medical community, the pricing of
its services, its reliability and speed in performing diagnostic tests, and its
ability to employ qualified laboratory personnel.

INTELLECTUAL PROPERTY

We consider our intellectual property program to be a key asset and a
major strategic component to the execution of our business strategy. A broad
portfolio of issued patents and pending patent applications supports our core
technology platforms. Our policy is to seek patent protection for our core
technology platforms, as well as for ancillary technologies that support these
platforms and provide a competitive advantage.

At the end of fiscal 2004 we owned or licensed 42 U.S. and over 190
foreign patents relating to products, methods and procedures resulting from our
internal or sponsored research projects. Patents relating to the BioProbe(R)
nucleic acid probe system have issued in the U.S. and Europe. There can be no
assurance; however, that patents will be issued on pending applications or that
any issued patents will have commercial benefit. We do not intend to rely on
patent protection as the sole basis for protecting our proprietary technology.
We also rely on our trade secrets and continuing technological innovation. We
require each of our employees

12

to sign a confidentiality agreement that prohibits the employee from disclosing
any confidential information about us, including our technology or trade
secrets.

In some instances, we may enter into royalty agreements with
collaborating research parties in consideration for the commercial use by us of
the developments of their joint research. In other instances the collaborating
party might obtain a patent, but we receive the license to use the patented
subject matter. In such cases, we will seek to secure exclusive licenses. In
other instances, we might have an obligation to pay royalties to, or reach a
royalty arrangement with, a third party in consideration of our use of
developments of such third party. We have an exclusive licensing agreement with
Yale University for the technology used in nucleic acid probe products. That
agreement covers licensed patents owned by Yale and licensed to us for the life
of the patents, which expire not earlier than 2004. The Research Foundation of
the State University of New York has granted us the exclusive rights to a
genetic engineering technology using antisense nucleic acid control
methodologies.

REGULATION OF PHARMACEUTICAL PRODUCTS

New drugs and biological drug products are subject to regulation under
the Federal Food, Drug and Cosmetic Act, and biological products are also
regulated under the Public Health Service Act. We believe that products
developed by us or our collaborators will be regulated either as biological
products or as new drugs. Both statutes and the regulations promulgated there
under govern, among other things, the testing, licensing, manufacturing,
marketing, distributing, safety, and efficacy requirements, labeling, storage,
exporting, record keeping, advertising and other promotional practices involving
biologics or new drugs, as the case may be. FDA review or approval or other
clearances must be obtained before clinical testing, and before manufacturing
and marketing, of biologics and drugs. At the FDA, the Center for Biological
Evaluation and Research ("CBER") is responsible for the regulation of biological
drugs and the Center for Drug Evaluation and Research ("CDER") is responsible
for the regulation of non-biological drugs. Biological drugs are licensed and
other drugs are approved before commercialization.

Any gene medicine products that we develop will require regulatory
review before clinical trials, and additional regulatory clearances before
commercialization. New human gene medicine products, as therapeutics, are
subject to regulation by the FDA and comparable agencies in other countries. The
precise regulatory requirements with which we will have to comply are uncertain
at this time because of the novelty of the human gene therapies currently under
development. The FDA on a case-by-case basis currently reviews each protocol.
The FDA has published "Points to Consider" guidance documents with respect to
the development of gene medicine protocols. The National Institutes of Health
("NIH") is also involved in the oversight of gene therapies and the FDA has
required compliance with certain NIH requirements.

Obtaining FDA approval has historically been a costly and
time-consuming process. Generally, to gain FDA approval, a developer first must
conduct pre-clinical studies in the laboratory evaluating product chemistry,
formulation and stability and, if appropriate, in animal model systems, to gain
preliminary information on safety and efficacy. Pre-clinical safety tests must
be conducted by laboratories that comply with FDA regulations governing Good
Laboratory Practices. The results of those studies are submitted with
information characterizing the product and its manufacturing process and
controls as a part of an investigational new drug ("IND") application, which the
FDA must review and declare effective before human clinical trials of an
investigational drug can start. The IND application includes a detailed
description of the clinical investigations to be undertaken in addition to other
pertinent information about the product, including descriptions of any previous
human experience and the company's future plans for studying the drug.

In order to commercialize any products, we (as the sponsor) file an IND
and will be responsible for initiating and overseeing the clinical studies to
demonstrate the safety and efficacy necessary to obtain FDA marketing approval
of any such products. For INDs that we sponsor, we will be required to select
qualified clinical sites (usually physicians affiliated with medical
institutions) to supervise the administration of the products, and ensure that
the investigations are conducted and monitored in accordance with FDA
regulations and the general investigational plan and protocols contained in the
IND. Each clinical study is reviewed and approved by an Institutional Review
Board (IRB). The IRB will consider, among other things, ethical factors and the
safety of human subjects. Clinical trials are normally conducted in three
phases, although the phases might overlap. Phase I trials, concerned primarily
with the safety and tolerance of the drug, and its pharmacokinetics (or how it
behaves in the body including its absorption and distribution) involve fewer
than 100 subjects. Phase II trials normally involve a few hundred patients and
are designed primarily to demonstrate preliminary effectiveness and the most
suitable dose or exposure level for treating or diagnosing the disease or
condition for which the drug is intended, although short-term side effects and
risks in people whose health is impaired may also be examined. Phase III trials
are expanded, adequate and well-controlled clinical trials with larger numbers
of patients and are intended to gather the additional information for proper
dosage and labeling of the drug. Clinical trials generally take two to five
years, but the period may vary. Certain regulations promulgated by the FDA may
shorten the time periods and reduce the number of patients required to be tested
in the case of certain life-threatening diseases, which lack available
alternative treatments.

13

The FDA receives reports on the progress of each phase of clinical
testing, and it may require the modification, suspension or termination of
clinical trials if an unwarranted risk is presented to patients. Human gene
medicine products are a new category of therapeutics. There can be no assurance
regarding the length of the clinical trial period, the number of patients that
the FDA will require to be enrolled in the clinical trials in order to establish
the safety, purity and potency of human gene medicine products, or that the
clinical and other data generated will be acceptable to the FDA to support
marketing approval.

After completion of clinical trials of a new product, FDA marketing
approval must be obtained before the product can be sold in the United States.
If the product is regulated as a new biologic, CBER requires the submission and
approval of a Biologics License Application (BLA) before commercial marketing of
the biologic product. If the product is classified as a new drug, we must file a
New Drug Application ("NDA") with CDER and receive approval before commercial
marketing of the drug. The NDA or BLA must include results of product
development, pre-clinical studies and clinical trials. The testing and approval
processes require substantial time and effort and there can be no assurance that
any approval will be granted on a timely basis, if at all. The median time to
obtain new product approvals after submission to the FDA is approximately 12
months. If questions arise during the FDA review process, approval can take
longer. Before completing its review, the FDA may seek guidance from an Advisory
Committee of outside experts at a public or closed meeting. While the advice of
these committees is not binding on the FDA, it is often followed.
Notwithstanding the submission of relevant data, the FDA might ultimately decide
that the NDA or BLA does not satisfy its regulatory criteria for approval and,
thus, reject the application, refuse to approve it, or require additional
clinical, preclinical or chemistry studies. Even after FDA regulatory approval
or licensure, a marketed drug product is subject to continual review by the FDA.
In addition, if previously unknown problems are discovered or we fail to comply
with the applicable regulatory requirements, we might be restricted from
marketing a product, we might be required to withdraw the product from the
market, and we might possibly become subject to seizures, injunctions, voluntary
recalls, or civil, monetary or criminal sanctions. In addition, the FDA may
condition marketing approval on the conduct of specific post-marketing studies
to further evaluate safety and effectiveness.

For commercialization of our biological or other drug products, the
manufacturing processes described in our NDA or BLA must receive FDA approval
and the manufacturing facility must successfully pass an inspection prior to
approval or licensure of the product for sale within the United States. The
pre-approval inspection assesses whether, for example, the facility complies
with the FDA's current good manufacturing practices (cGMP) regulations. These
regulations elaborate testing, control, documentation, personnel, record keeping
and other quality assurance procedure requirements that must be met. Once the
FDA approves our biological or other drug products for marketing, we must
continue to comply with the cGMP regulations. The FDA periodically inspects
biological and other drug manufacturing facilities to ensure compliance with
applicable cGMP requirements. Failure to comply with the statutory and
regulatory requirements subjects the manufacturer to possible legal or
regulatory action, such as suspension of manufacturing, seizure of product or
voluntary recall of a product.

If a developer obtains designations by the FDA of a biologic or other
drug as an "orphan" for a particular use, the developer may request grants from
the federal government to defray the costs of qualified testing expenses in
connection with the development of such drug. Orphan drug designation is
possible for drugs for rare diseases, including many genetic diseases, which
means the drug is for a disease that has a prevalence of less than 200,000
patients in the United States. The first applicant who receives an orphan drug
designation and who obtains approval of a marketing application for such drug
acquires the exclusive marketing rights to that drug for that use for a period
of seven years unless the subsequent drug can be shown to be clinically
superior. Accordingly, no other company would be allowed to market an identical
orphan drug with the same active ingredient for the use approved by the FDA for
seven years after the approval.

REGULATION OF DIAGNOSTICS

The diagnostic products that are developed by our collaborators or us
are likely to be regulated by the FDA as medical devices. Unless an exemption
applies, medical devices must receive either "510(k) clearance" or pre-market
approval ("PMA") from the FDA before marketing them in the United States. The
FDA's 510(k) clearance process usually takes from four to 12 months, but it can
last longer. The process of obtaining PMA approval is much more costly, lengthy
and uncertain. It generally takes from one to three years or even longer. We
cannot be sure that 510(k) clearance or PMA approval will ever be obtained for
any product we propose to market.

The FDA decides whether a device must undergo either the 510(k)
clearance or PMA approval process based upon statutory criteria. These criteria
include the level of risk that the agency perceives is associated with the
device and a determination whether the product is a type of device that is
similar to devices that are already legally marketed. Devices deemed to pose
relatively less risk are placed in either class I or II, which requires the
manufacturer to submit a premarket notification requesting 510(k) clearance,
unless an exemption applies. The pre-market notification must demonstrate that
the proposed device is "substantially equivalent" in

14

intended use and in safety and effectiveness to a legally marketed "predicate
device" that is either in class I, class II, or is a "pre-amendment" class III
device (i.e., one that was in commercial distribution before May 28, 1976) for
which the FDA has not yet called for submission of a PMA application.

After a device receives 510(k) clearance, any modification that could
significantly affect its safety or effectiveness, or that would constitute a
major change in its intended use, requires a new 510(k) clearance or could
require a PMA approval. The FDA requires each manufacturer to make this
determination in the first instance, but the FDA can review any such decision.
If the FDA disagrees with a manufacturer's decision not to seek a new 510(k)
clearance, the agency may retroactively require the manufacturer to seek 510(k)
clearance or PMA approval. The FDA also can require the manufacturer to cease
marketing and/or recall the modified device until 510(k) clearance or PMA
approval is obtained.

Devices deemed by the FDA to pose the greatest risk, such as
life-sustaining, life-supporting or implantable devices, or deemed not
substantially equivalent to a legally marketed class I or class II predicate
device, or to a preamendment class III device for which PMAs have not been
called, are placed in class III. Such devices are required to undergo the PMA
approval process in which the manufacturer must prove the safety and
effectiveness of the device to the FDA's satisfaction. A PMA application must
provide extensive preclinical and clinical trial data and also information about
the device and its components regarding, among other things, device design,
manufacturing and labeling. After approval of a PMA, a new PMA or PMA supplement
is required in the event of a modification to the device, it's labeling or its
manufacturing process.

Although clinical investigations of most devices are subject to the
investigational device exemption ("IDE") requirements, clinical investigations
of in vitro diagnostic ("IVDs") tests are exempt from the IDE requirements,
including the need to obtain the FDA's prior approval, provided the testing is
noninvasive, does not require an invasive sampling procedure that presents a
significant risk, does not introduce energy into the subject, and is not used as
a diagnostic procedure without confirmation by another medically established
test or procedure. In addition, the IVD must be labeled for Research Use Only
(RUO) or Investigational Use Only (IUO), and distribution controls must be
established to assure that IVDs distributed for research or investigation are
used only for those purposes. The FDA expressed its intent to exercise
heightened enforcement with respect to IUO and RUO devices improperly
commercialized prior to receipt of FDA clearance or approval.

We have developed products that we currently distribute in the United
States on a RUO basis. There can be no assurance that the FDA would agree that
our distribution of these products meets the requirements for RUO distribution.
Furthermore, failure of us or recipients of our RUO products to comply with the
regulatory limitations on the distribution and use of such devices could result
in enforcement action by the FDA, including the imposition of restrictions on
our distribution of these products.

Any devices that we manufacture or distribute will be subject to a host
of regulatory requirements, including the Quality System Regulation (which
requires manufacturers to follow elaborate design, testing, control,
documentation and other quality assurance procedures), the Medical Device
Reporting regulation (which requires that manufacturers report to the FDA
certain types of adverse events involving their products), labeling regulations,
and the FDA's general prohibition against promoting products for unapproved or
"off label" uses. Class II devices also can have special controls such as
performance standards, post market surveillance, patient registries, and FDA
guidelines that do not apply to class I devices. Unanticipated changes in
existing regulatory requirements or adoption of new requirements could hurt our
business, financial condition and results of operations.

We are subject to inspection and market surveillance by the FDA to
determine compliance with regulatory requirements. If the FDA finds that we have
failed to comply, the agency can institute a wide variety of enforcement
actions, ranging from a public warning letter to more severe sanctions such as
fines, injunction, civil penalties, recall or seizure of our products, the
issuance of public notices or warnings, operating restrictions, partial
suspension or total shutdown of production, refusal of our requests for 510(k)
clearance or PMA approval of new products, withdrawal of 510(k) clearance or PMA
approvals already granted, and criminal prosecution.

The FDA also has the authority to request repair, replacement or refund
of the cost of any medical device manufactured or distributed by us. Our failure
to comply with applicable requirements could lead to an enforcement action that
may have an adverse effect on our financial condition and results of operations.

Unanticipated changes in existing regulatory requirements, our failure
to comply with such requirements or adoption of new requirements could have a
material adverse effect on us.

15

We have employees to expedite the preparation and filing of
documentation necessary for FDA clearances and approvals, patent issuances and
licensing agreements.

We cannot assure you that future clinical diagnostic products developed
by us or our collaborators will not be required to be reviewed by FDA under the
more expensive and time consuming pre-market approval process.

CLINICAL LABORATORY REGULATIONS

The clinical laboratory industry is subject to significant federal and
state regulation, including inspections and audits by governmental agencies.
Governmental authorities may impose fines or criminal penalties or take other
actions to enforce laws and regulations, including revoking a clinical
laboratory's federal certification to operate a clinical laboratory operation.
Changes in regulation may increase the costs of performing clinical laboratory
tests, increase the administrative requirements of claims or decrease the amount
of reimbursement. Our Clinical Laboratory and (where applicable) patient service
centers are licensed and accredited by the appropriate federal and state
agencies. CLIA (The Clinical Laboratory Improvement Act of 1967, and the
Clinical Laboratory Improvement Amendments of 1988) regulates virtually all
clinical laboratories by requiring that they be certified by the federal
government and comply with various operational, personnel and quality
requirements intended to ensure that their clinical laboratory testing services
are accurate, reliable and timely. CLIA does not preempt state laws that are
more stringent than federal laws. Many clinical laboratories must meet other
governmental standards, undergo proficiency testing, and are subject to
inspection. Clinical laboratory certificates or licenses are also required by
various state and local laws.

CLIA places all tests into one of three categories of complexity
(waived, moderate complexity and high complexity) and establishes varying
requirements depending upon the complexity category of the test performed. A
laboratory that performs high complexity tests must meet more stringent
requirements than a laboratory that performs only moderate complexity tests,
while those that perform only waived tests may apply for a certificate of waiver
from most of the requirements of CLIA. Our facility is certified to perform
highly complex tests. In general, the Secretary of Health and Human Services
("HHS") regulations require laboratories that perform high or moderate
complexity tests to implement systems that ensure the accurate performance and
reporting of test results, establish quality control and quality assurance
systems ensure hiring of personnel that meet specified standards, engage in
proficiency testing by approved agencies and undergo biennial inspections.

Clinical laboratories also are subject to state regulation. CLIA
provides that a state may adopt different or more stringent regulations than
Federal law, and permits states to apply for exemption from CLIA if HHS
determines that the state's laboratory laws are equivalent to, or more stringent
than, CLIA. The State of New York's clinical laboratory regulations contain
provisions that are more stringent than Federal law, and New York has received
exemption from CLIA. Therefore, as long as New York maintains its CLIA-exempt
status, laboratories in New York, including our laboratory, are regulated under
New York law rather than CLIA. Our laboratory is licensed in New York and has
continuing programs to ensure that its operations meet all applicable regulatory
requirements.

The sanction for failure to comply with these regulations may be
suspension, revocation, or limitation of a laboratory's CLIA certificate
necessary to conduct business, significant fines and criminal penalties. The
loss of, or adverse action against, a license, the imposition of a fine, or
future changes in Federal, state and local laboratory laws and regulations (or
in the interpretation of current laws and regulations) could have a material
adverse effect on our business.

CLINICAL LABORATORY REIMBURSEMENT

Billing and reimbursement for clinical laboratory testing is subject to
significant and complex federal and state regulation. Penalties for violations
of laws relating to billing federal healthcare programs and for violations of
federal fraud and abuse laws include: (1) exclusion from participation in
Medicare/Medicaid programs; (2) asset forfeitures; (3) civil and criminal fines
and penalties; and (4) the loss of various licenses, certificates and
authorizations necessary to operate some or all of a clinical laboratory's
business. The Company is not aware of any material violations.

The health care industry has been undergoing significant change because
third-party payors, such as Medicare (serving primarily patients 65 and older),
Medicaid serving primarily indigent patients, health maintenance organizations
and commercial insurers, have increased their efforts to control the cost,
utilization and delivery of health care services. To address the problem of
increasing health care costs, legislation has been proposed or enacted at both
the Federal and state levels to regulate health care delivery in general and
clinical laboratories in particular. Additional health care reform efforts are
likely to be proposed in the future. In particular, we believe that reductions
in reimbursement for Medicare services will continue to be implemented from time
to time. Reductions in the reimbursement rates of other third-party payors,
commercial insurer and health maintenance organizations are likely

16

to occur as well. We cannot predict the effect that health care reform, if
enacted, would have on our business, and there can be no assurance that such
reforms, if enacted, would not have a material adverse effect on our business
and operations.

Containment of health care costs, including reimbursement for clinical
laboratory services, has been a focus of ongoing governmental activity. In 1984,
Congress established the Medicare fee schedule for clinical laboratory services,
which is applicable to patients covered under Part B of the Medicare program as
well as patients receiving Medicaid. Clinical laboratories must bill Medicare
directly for the services provided to Medicare beneficiaries and may only
collect the amounts permitted under this fee schedule. Reimbursement to clinical
laboratories under the Medicare Fee Schedule has been steadily declining since
its inception. Furthermore, and Medicare have mandated use of the Physicians
Current Procedural Terminology ("CPT") for coding of laboratory services which
has altered the way we bill these programs for some of our services, thereby
reducing the reimbursement that we receive.

In March 1996, HCFA (now, the Center for Medicare and Medicaid Services
or CMS) implemented changes in the policies used to administer Medicare payments
to clinical laboratories for the most frequently performed automated blood
chemistry profiles. Among other things, the changes established a consistent
standard nationwide for the content of the automated chemistry profiles. Another
change requires laboratories performing certain automated blood chemistry
profiles to obtain and provide documentation of the medical necessity of tests
included in the profiles for each Medicare beneficiary. Reimbursements have been
reduced as a result of this change. Because a significant portion of our costs
is fixed, these Medicare reimbursement reductions and changes have a direct
adverse effect on our net earnings and cash flows.

Future changes in federal, state and local regulations (or in the
interpretation of current regulations) affecting governmental reimbursement for
clinical laboratory testing could have a material adverse effect on our
business. We cannot predict, however, whether and what type of legislation will
be enacted into law. In addition, reimbursement disapprovals by the third party
payors, commercial insures and health maintenance organizations, reductions or
delays in the establishment of reimbursement rates, and carrier limitations on
the insurance coverage of the Company's services or the use of the Company as a
service provider could have a negative effect on the Company's future revenues.

ANTI FRAUD AND ABUSE LAWS

Existing Federal laws governing Medicare, as well as state laws, also
regulate certain aspects of the relationship between healthcare providers,
including clinical laboratories and their referral sources such as physicians,
hospitals and other laboratories. One provision of these laws, known as the
"Anti-Kickback Law," contains extremely broad proscriptions. Violation of this
provision may result in criminal penalties, exclusion from Medicare, and
significant civil monetary penalties. Under another Federal law, known as the
"Stark" law or "self-referral prohibition," physicians who have an investment or
compensation relationship with an entity furnishing clinical laboratory services
(including anatomic pathology and clinical chemistry services) may not, subject
to certain exceptions, refer clinical laboratory testing for Medicare patients
to that entity. Similarly, laboratories may not bill Medicare or Medicaid or any
other party for services furnished pursuant to a prohibited referral. Violation
of these provisions may result in disallowance of Medicare for the affected
testing services, as well as the imposition of civil monetary penalties. New
York State also has laws similar to the Federal Stark and Anti-Kickback laws.

The Federal Stark laws, and New York State law, have also placed
restrictions on the supplies and other items that laboratories may provide to
their clients. These laws specify that laboratories may only provide clients
with items or devices that are used solely to collect, transport or store
specimens for the laboratory or to communicate results or tests. Items such as
biopsy needles, snares and reusable needles are specifically prohibited from
being supplied by laboratories to their clients. These laws represent a
significant deviation from practices that previously occurred throughout the
industry. The Company has put in place procedures to ensure compliance with
these laws and restrictions and believes that it is in compliance with these
laws.

In February 1997, the OIG released a model compliance plan for
laboratories. One key aspect of the model compliance plan is an emphasis on the
responsibilities of laboratories to notify physicians that Medicare covers only
medically necessary services. These requirements, and their likely effect on
physician test ordering habits, focus on chemistry tests, especially routine
tests, rather than on anatomic pathology services or the non-automated tests,
which make up the majority of the Company's business measured in terms of net
revenues. Nevertheless, they potentially could affect physicians test ordering
habits more broadly. The Company is unable to predict whether, or to what
extent, these developments may have an impact or the utilization of the
Company's services.

The Company seeks to structure its arrangements with physicians and
other customers to be in compliance with the anti-kickback, Stark and state
laws, and to keep up-to-date on developments concerning their application by
various means, including consultation with legal counsel. In addition, in order
to address these various Federal and state laws, the Company has developed its

17

own Corporate Compliance Program based upon the OIG' model program. The
Company's Program focuses on establishing clear standards, training and
monitoring of the Company's billing and coding practices. Furthermore, as part
of this Program, the Company's Corporate Compliance Committee meets on a regular
basis to review various operations and relationships as well as to adopt
policies addressing these issues.

However, the Company is unable to predict how the laws described above
will be applied in the future, and no assurances can be given that its
arrangements or processes will not become subject to scrutiny under these laws.

CONFIDENTIALITY OF HEALTH INFORMATION

The Health Insurance Portability and Accountability Act of 1996
("HIPAA") was signed into law on August 21, 1996, and it includes
"administrative simplification" provisions designed to standardize common
electronic transactions in health care and to protect the security and privacy
of health information. Congress' purpose in promulgating HIPAA was to increase
the efficiency of health care transactions while, at the same time, protecting
the confidentiality of patient information. Final regulations have been adopted
for electronic transaction, privacy and security standards. Further, final
regulations adopting a national employer identifier to be used in electronic
health care transactions have been finalized. These provisions have very broad
applicability and they specifically apply to health care providers, which
include physicians and clinical laboratories.

The electronic transaction standards regulations create guidelines for
certain common health care transactions. With certain exceptions, these
standards require that when we conduct certain transactions electronically with
another provider, clearinghouse or health plan we must comply with the standards
set forth in the regulations. The regulations establish standard data content
and format for submitting electronic claims and other administrative health
transactions. All health care providers will be able to use the electronic
format to bill for their services and all health plans and providers will be
required to accept standard electronic claims, referrals, authorizations, and
other transactions. The Company believes it is in compliance with these
standards. Despite the initial costs, the use of uniform standards for all
electronic transactions could lead to greater efficiency in processing claims
and in handling health care information.

The privacy regulations, which went into effect in April 2003, create
specific requirements for the use and disclosure of protected health information
("PHI"). We are required to maintain numerous policies and procedures in order
to comply with these requirements. Furthermore, we need to continuously ensure
that there mechanisms to safeguard the PHI, which is used or maintained in any
format (E.G., oral, written, or electronic). Failure to comply with these
requirements can result in criminal and civil penalties.

The security regulations, which were finalized on February 20, 2003 and
go into effect in April 20, 2005, require us to ensure the confidentiality,
integrity and availability of all electronic protected health information
("EPHI") that we create, receive, maintain, or transmit. We have some
flexibility to fashion our own security measures to accomplish these goals, but,
in general, the starting point is to determine what security measures we need to
take. The security regulations strongly emphasize that we must conduct an
accurate and thorough assessment of the potential risks and vulnerabilities of
the confidentiality, integrity and availability of our EPHI and then document
our response to the various security regulations on the basis of that
assessment. We will also be required to create additional policies and
procedures in order to comply with these requirements.

Complying with the electronic transaction, privacy and security rules
will require significant effort and expense for virtually all entities that
conduct health care transactions electronically and handle patient health
information. We have already implemented almost all of the requirements of the
privacy and electronic transactions standards and will now focus on the security
regulations; however, at this time, because we have not yet completed the
required security risk assessment, we are unable to estimate the total cost or
impact of the regulations.

INFECTIOUS WASTES AND RADIOACTIVE MATERIALS

We are subject to licensing and regulation under federal, state and
local laws relating to the handling and disposal of medical specimens,
infectious and hazardous waste and radioactive materials, as well as to the
safety and health of laboratory employees. All our laboratories are required to
operate in accordance with applicable federal and state laws and regulations
relating to biohazard disposal of all facilities specimens and we use outside
vendors to dispose such specimens. Although we believe that we comply in all
material respects with such federal, state and local laws, our failure to comply
with those laws could subject us to denial of the right to conduct business,
fines, criminal penalties and/or other enforcement actions.

18

OCCUPATIONAL SAFETY

In addition to its comprehensive regulation of safety in the workplace,
the Federal Occupational Safety and Health Administration ("OSHA") has
established extensive requirements relating to workplace safety for health care
employers, including clinical laboratories, whose workers may be exposed to
blood-borne pathogens such as HIV and the hepatitis B virus. These regulations,
among other things, require work practice controls, protective clothing and
equipment, training, medical follow-up, vaccinations and other measures designed
to minimize exposure to, and transmission of, blood-borne pathogens. The Federal
Drug Enforcement Administration regulates the use of controlled substances in
testing for drugs of abuse. We are also subject to OSHA's requirement that
employers using hazardous chemicals communicate the properties and hazards
presented by those chemicals to their employees. We believe that we are in
material compliance with these OSHA requirements. Our failure to comply with
those regulations and requirements could subject us to tort liability, civil
fines, criminal penalties and/or other enforcement actions.

OTHER REGULATION

Our business is and will continue to be subject to regulation under
various state and federal environmental, safety and health laws, including the
Occupational Safety and Health Act, the Resource Conservation and Recovery Act,
and the Atomic Energy Act or their state law analogs. These and other laws
govern our use, handling and disposal of various biological, chemical and
radioactive substances used in our operations and wastes generated by our
operations. We are required to possess licenses under, or are otherwise subject
to federal and state regulations pertaining to, the handling and disposal of
medical specimens, infectious and hazardous waste and radioactive materials.

We believe that we are in material compliance with applicable
environmental, safety and health laws and that our continual compliance with
these laws will not have a material adverse effect on our business. All of our
laboratories are operated in accordance with applicable federal and state laws
and regulations relating to hazardous substances and wastes, and we use
qualified third-party vendors to dispose of biological specimens and other
hazardous wastes. Although we believe that we comply in all material respects
with such federal, state and local laws, our failure to comply with those laws
could subject us to denial of the right to conduct business, civil fines,
criminal penalties and/or other enforcement actions. Environmental contamination
resulting from spills or disposal of hazardous substances generated by our
operations, even if caused by a third-party contractor or occurring at a remote
location could result in material liability.

MANUFACTURING AND FACILITIES

We manufacture the majority of our products internally. Most of our
production and clinical laboratory operations take place at our 43,000 square
feet facilities in Farmingdale, New York. We have a completely integrated
manufacturing facility, with special handling facilities and clean rooms.

We also contract with qualified third-party contractors to manufacture
our products in cases where we deem it appropriate, for example, when it is not
cost-effective to produce a product ourselves or where we seek to leverage the
expertise of another manufacturer in a certain area.

EMPLOYEES

As of July 31, 2004, we employed 238 full-time and 24 part-time
employees. Of the full-time employees, 33 were engaged in research, development,
manufacturing, administrative support and marketing of research products and 189
at the clinical reference laboratories. Our scientific staff possesses a wide
range of experience and expertise in the areas of recombinant DNA, nucleic acid
chemistry, molecular biology and immunology. We believe that the relationships
we have established with our employees are good.

INFORMATION SYSTEMS

Information systems are used extensively in virtually all aspects of
our business, including laboratory 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, or IT
systems. Computer systems are vulnerable to damage from a variety of sources,
including telecommunications or network failures, malicious human acts and
natural disasters. Moreover, despite network security measures, some of our
servers are potentially vulnerable to physical or electronic break-ins, computer
viruses and similar disruptive problems. Despite the precautionary measures that
we have taken to prevent unanticipated problems that could affect our IT
systems,

19

sustained or repeated system failures that interrupt our ability to process test
orders, deliver test results or perform tests in a timely manner could adversely
affect our reputation and result in a loss of customers and net revenues.

QUALITY ASSURANCE

We consider the quality of our clinical reference laboratory tests to
be of critical importance, and, therefore, we established a comprehensive
quality assurance program designed to help assure accurate and timely test
results. In addition to the compulsory external inspections and proficiency
programs demanded by the Medicare program and other regulatory agencies, our
clinical laboratory has in place systems to emphasize and monitor quality
assurance.

In addition to our own internal quality control programs, our
laboratory participates in numerous externally administered, blind quality
surveillance programs, including on-site evaluation by the College of American
Pathologies ("CAP") proficiency testing program and the New York State survey
program. The blind programs supplement all other quality assurance procedures
and give our management the opportunity to review our technical and service
performance from the client's perspective.

The CAP accreditation program involves both on-site inspections of our
laboratory and participation in the CAP's proficiency testing program for all
categories in which our laboratory is accredited by the CAP. The CAP is an
independent nongovernmental organization of board certified pathologists, which
offers an accreditation program to which laboratories can voluntarily subscribe.
A laboratory's receipt of accreditation by the CAP satisfies the Medicare
requirement for participation in proficiency testing programs administered by an
external source. Our clinical laboratory facilities are accredited with
distinction, by the CAP.

AVAILABLE INFORMATION

We make available free of charge on or through our Internet website our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and all amendments to those reports, if any, filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as
soon as reasonably practicable after they are electronically filed with, or
furnished to, the Securities and Exchange Commission. Our Internet website
address is www.enzo.com and you can find these reports under "Investor
Information - SEC Filings." The SEC also maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC, which may be accessed
at http://www.sec.gov. The public may read and copy any materials we file with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington,
DC 20549. To obtain information on the operation of the Public Reference Room,
you may call the SEC at 1-800-SEC-0330.

DIRECTORS AND EXECUTIVE OFFICERS

The following sets forth certain information with regard to directors
and executive officers of the Company.

Directors - The following sets forth certain information regarding
directors of the Company who are not executive officers of the Company.
Information with respect to directors of the Company who are also executive
officers of the Company appears below under the sub caption "Executive
Officers." The Company has a classified Board of Directors consisting of three
classes.

JOHN B. SIAS (age 77) has been a Director of the Company since January
1982. Mr. Sias had been President and Chief Executive Officer of Chronicle
Publishing Company from April 1993 to September 2000. From January 1986 until
April 1993, Mr. Sias was President of ABC Network Division, Capital Cities/ABC,
Inc. From 1977 until January 1986, he was the Executive Vice President,
President of the Publishing Division (which includes Fairchild Publications) of
Capital Cities Communications, Inc.

JOHN J. DELUCCA (age 61) has been a Director of the Company since
January 1982. From 2003 to 2004, Mr. Delucca was Executive Vice President and
Chief Financial Officer of REL Consulting Group. Mr. Delucca had been the Chief
Financial Officer & Executive Vice President, Finance & Administration of Coty,
Inc., from January 1999 to January 2002. From October 1993 until January 1999,
he was Senior Vice President and Treasurer of RJR Nabisco, Inc. From January
1992 until October 1993, he was managing director and Chief Financial Officer of
Hascoe Associates, Inc. From October 1, 1990 to January 1992, he was President
of The Lexington Group. From September 1989 until September 1990, he was Senior
Vice President-Finance of the Trump Group. From May 1986 until August 1989, he
was senior Vice President-Finance at International Controls Corp. From February
1985 until May 1986, he was a Vice President and Treasurer of Textron, Inc.
Before that, he was a Vice President and Treasurer of the Avco Corporation,
which was acquired by Textron.

20

IRWIN C. GERSON (age 74) has been a Director of the Company since May
8, 2001. From 1995 until December 1998, Mr. Gerson served as Chairman of Lowe
McAdams Healthcare and prior thereto had been, since 1986, Chairman and Chief
Executive Officer of William Douglas McAdams, Inc., one of the largest
advertising agencies in the U.S. specializing in pharmaceutical marketing and
communications to healthcare professionals. In February 2000, he was inducted
into the Medical Advertising Hall of Fame. Mr. Gerson has a Bachelor of Science
in Pharmacy from Fordham University and an MBA from the NYU Graduate School of
Business Administration. He is a director of Andrx Corporation, a NASDAQ listed
company which specializes in proprietary drug delivery technologies. From
1990-1999, he was Chairman of the Council of Overseers of the Arnold and Marie
Schwartz College of Pharmacy and has served as a trustee of The Albany College
of Pharmacy and Long Island University.

MELVIN F. LAZAR, CPA (age 65) has been a Director of the Company since
August 1, 2002. Mr. Lazar was a founding partner of the public accounting firm
of Lazar, Levine & Felix (LLP) from 1969 until October 2002. Mr. Lazar and his
firm served the business and legal communities for over 30 years. He is an
expert on the topic of business valuations and merger and acquisition
activities. Mr. Lazar is a board member and chairman of the audit committee of
Arbor Realty Trust, Inc. (ABR:NYSE). Arbor is a real estate investment trust
(REIT) formed to invest in real estate related bridge and mezzanine loans,
preferred equity investments and other real estate related assets. Mr. Lazar is
a board member and serves as the Chairman of the Audit Committee of privately
owned Active Media Services, Inc., the largest corporate barter company in the
nation. Mr. Lazar is also a board member and serves as the Chairman of the Audit
Committee of Ceco Environmental Corp., which is a provider of innovative
solutions to industrial ventilating and air quality problems. Mr. Lazar holds a
Bachelor of Business Administration degree from The City College of New York
(Baruch College).

MARCUS A. CONANT, M.D. (age 68) was appointed to the board as of July
1, 2004. Dr. Conant, received his B.S. and M.D. degrees from Duke University. He
was an exchange student at Hammersmith Hospital in London, England and held an
Elective Fellowship in Biochemistry at the London Hospital. Dr. Conant has been
the recipient of numerous awards, and has served as a member of or consultant to
a broad array of scientific societies and associations, community organizations
and government committees and has authored or co-authored more than 70 published
papers. Dr. Conant is a Clinical Professor at the University of California San
Francisco (UCSF) and has been on the faculty of UCSF since 1967. He currently
serves as Chairman of the Board of the Conant Foundation, an HIV/AIDS education
and research foundation based in San Francisco. Dr. Conant served as principal
investigator for Enzo's Phase I clinical trial of its gene medicine for HIV-1
infection.

Executive Officers - The following table sets forth the names and
positions of all of the current executive officers of the Company:

NAME POSITION
---- --------

Elazar Rabbani, Ph.D. Chief Executive Officer, Chairman of the Board of Directors
Shahram K. Rabbani Chief Operating Officer, Secretary, Treasurer
Barry W. Weiner President, Chief Financial Officer
Dean Engelhardt, Ph.D. Executive Vice President
Norman E. Kelker, Ph.D. Senior Vice President
Herbert B. Bass Vice President of Finance
Barbara E. Thalenfeld, Ph.D. Vice President, Corporate Development
David C. Goldberg Vice President, Business Development

DR. ELAZAR RABBANI (age 60) Enzo Biochem's founder has served as the
Company's Chairman of the Board of Directors and Chief Executive Officer since
its inception in 1976. Dr. Rabbani has authored numerous scientific publications
in the field of molecular biology, in particular, nucleic acid labeling and
detection. He is also the lead inventor of many of the company's pioneering
patents covering a wide range of technologies and products. Dr. Rabbani received
his Bachelor of Arts degree from New York University in Chemistry and his Ph.D.
in Biochemistry from Columbia University. He is a member of the American Society
for Microbiology.

SHAHRAM K. RABBANI (age 52) Chief Operating Officer, Treasurer,
Secretary and Director, is a founder and has been with the Company since its
inception. He is also President of Enzo Clinical Labs. Mr. Rabbani serves on the
New York State Clinical Laboratory Association, a professional board. Mr.
Rabbani is a trustee of Adelphi University and serves as Chairman of its audit
committee. He received a Bachelor of Arts Degree in Chemistry from Adelphi
University, located in Long Island, New York.

BARRY W. WEINER (age 54) President, Chief Financial Officer and
Director, is a founder of Enzo Biochem, Inc. He has served as the Company's
President since 1996, and previously held the position of Executive Vice
President. Before his employment with Enzo, he worked in several managerial and
marketing positions at the Colgate Palmolive Company. Mr. Weiner is a Director
of

21

the New York Biotechnology Association. He received his Bachelor of Arts degree
in Economics from New York University and a Master of Business Administration in
Finance from Boston University.

DR. DEAN ENGELHARDT (age 64) Executive Vice President has held this
position since July 2000. Since joining the Company in 1981, Dr. Engelhardt has
held several other executive and scientific positions within Enzo Biochem. In
addition, Dr. Engelhardt has authored many papers in the area of nucleic acid
synthesis and protein production and has been a featured presenter at numerous
scientific conferences and meetings. He holds a Ph.D. degree in Molecular
Genetics from Rockefeller University.

DR. NORMAN E. KELKER (age 65) Senior Vice President has held this
position since 1989. Before this, he was the Company's Vice President for
Scientific Affairs. Dr. Kelker has authored numerous scientific papers and
presentations in the biotechnology field. He is a member of American Society of
Microbiology and the American Association of the Advancement of Science. Dr.
Kelker received his Ph.D. in Microbiology and Public Health from Michigan State
University.

HERBERT B. BASS (age 56) Vice President of Finance for the Company and
is also Senior Vice President of Enzo Clinical Labs. Before his promotion in
1989 to Vice President of Finance, Mr. Bass served as the Corporate Controller
of the Company. Mr. Bass has been with The Company since 1986. From 1977 to
1986, Mr. Bass held various positions at Danziger and Friedman, Certified Public
Accountants, the most recent of which was audit manager. For the preceding seven
(7) years, he held various positions at Berenson & Berenson, Certified Public
Accountants. Mr. Bass received a Bachelor of Business Administration degree in
Accounting from Bernard M. Baruch College, in New York City.

DR. BARBARA E. THALENFELD (age 64) Vice President of Corporate
Development for Enzo Biochem and Vice President of Clinical Affairs for Enzo
Therapeutics. Dr. Thalenfeld has been employed with the Company since 1982. She
has authored over 20 scientific papers in the areas of molecular biology and
genetics, and is a member of the American Society of Gene Therapy, the
Association of Clinical Research Professionals, and the Drug Development
Association. Dr. Thalenfeld received her Ph.D. at the Institute of Microbiology
at Hebrew University in Jerusalem, Israel and a Master of Science degree in
Molecular Biology from Yale University. She also completed a Post Doctoral
Fellowship in the Department of Biological Sciences at Columbia University.

DAVID C. GOLDBERG (age 47) Vice President of Business Development for
Enzo Biochem and Senior Vice President of Enzo Clinical Labs has been employed
with the company since 1985. He has held several managerial positions within
Enzo Biochem. Mr. Goldberg also held management and marketing positions with
DuPont-NEN and Gallard Schlesinger Industries before joining the Company. He
received a Master of Science degree in Microbiology from Rutgers University and
a Master of Business Administration in Finance from New York University.

Dr. Elazar Rabbani and Shahram K. Rabbani are brothers and Barry W.
Weiner is their brother-in-law.

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

This Annual Report contains "forward-looking statements" as defined in
the Private Securities Litigation Reform Act of 1995. All statements other than
statements of historical fact, including, without limitation, the statements
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" are "forward-looking statements." Forward-looking statements may
include the words "believes," "expects," "plans," "intends," "anticipates,"
"continues" or other similar expressions. These statements are based on the
Company's current expectations of future events and are subject to a number of
risks and uncertainties that may cause the Company's actual results to differ
materially from those described in the forward-looking statements. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected. These factors and uncertainties include,
among others:

(a) Heightened competition, including the intensification of price
competition.

(b) Impact of changes in payor mix, including the shift from traditional,
fee-for-service medicine to managed-cost health care.

(c) Adverse actions by governmental or other third-party payors, including
unilateral reduction of fee schedules payable to the Company.

(d) The impact upon the Company's collection rates or general or
administrative expenses resulting from compliance with Medicare
administrative policies including specifically the HCFA's recent
requirement that laboratories performing certain automated blood
chemistry profiles obtain and provide documentation of the medical
necessity of tests included in the profiles for each Medicare
beneficiary.

22

(e) Failure to obtain new customers, retain existing customers or reduction
in tests ordered or specimens submitted by existing customers.

(f) Adverse results in significant litigation matters.

(g) Denial of certification or licensure of any of the Company's clinical
laboratories under CLIA, by Medicare programs or other Federal, state
or local agencies.

(h) Adverse publicity and news coverage about the Company or the clinical
laboratory industry.

(i) Inability to carry out marketing and sales plans.

(j) Loss or retirement of key executives.

(k) Impact of potential patent infringement by others or the Company.

(l) Inability to obtain patent protection or secure and maintain
proprietary positions on its technology.

(m) Dependence on new technologies for our product development and
dependence on product candidates in early stages of development.

(n) Clinical trials for our products will be expensive and their outcome is
uncertain. We incur substantial expenses that might not result in
viable products.

(o) May need additional capabilities in the future, if additional capital
is not available, we may need to curtail or cease operations.

(p) Fluctuations in quarterly results resulting from uneven customer order
flow.

These and other risks and uncertainties are disclosed from time to time
in the Company's filings with the Securities and Exchange Commission, in the
Company's press releases and in oral statements made by or with the approval of
authorized personnel. The Company assumes no obligation to update any
forward-looking statements as a result of new information or future events or
developments.

Item 2. PROPERTIES

The following are the principal facilities of the Company:

Location Principal Approximate Floor Approximate Expiration
- -------- Operations Area (sq. ft.) Annual Date
---------- -------------- Base Rent ----
---------

60 Executive Blvd Corporate 43,000 $1,138,000 November 30, 2004
Farmingdale, N.Y. headquarters,
clinical
laboratory,
research and
manufacturing
facilities (See note
6 of Notes to
Consolidated
Financial
Statements)
527 Madison Ave Executive office 6,400 $367,000 December 31, 2008
New York, NY

We believe that the current facilities are suitable and adequate for
the Company's current operating needs and the production capacity in such
facilities is substantially being utilized.

23

Item 3. LEGAL PROCEEDINGS

In June 1999, the Company filed suit in the United States District Court for the
Southern District of New York against Gen-Probe Incorporated, Chugai Pharma
U.S.A., Inc., Chugai Pharmaceutical Co., Ltd., bioMerieux, Inc., bioMerieux SA,
and Becton Dickinson and Company, charging them with infringing the Company's
U.S. Patent 4,900,659, which concerns probes for the detection of the bacteria
that causes gonorrhea. On January 26, 2001, the court granted the defendants'
motion for summary judgment that the Company's patent is invalid. On July 15,
2002, the Court of Appeals for the Federal Circuit reversed the judgment of
invalidity and remanded the case to the district court for further proceedings.
In March 2003, settlements were reached with bioMerieux and Chugai; the
settlements did not have a material monetary impact on the Company. In July
2004, the district court again granted another motion by the remaining
defendants (Gen-Probe and Becton Dickinson) that all claims of the Company's
patent are invalid. The Company has filed an appeal of that judgment. There can
be no assurance that the Company will be successful in the on-going proceedings.
However, even if the Company is not successful, management does not believe that
there will be a significant adverse monetary impact to the Company.

On March 6, 2002, the Company was named, along with certain of its officers and
directors among others, in a complaint entitled Lawrence F. Glaser and Maureen
Glaser, individually and on behalf of Kimberly, Erin, Hannah, and Benjamin
Glasser v. Hyman Gross, Barry Weiner, Enzo Biochemical Inc., Elazar Rabbani,
Shahram Rabbani, John Delucca, Dean Engelhardt, Richard Keating, Doug Yates and
Docs 1-50, in the U.S. District Court for the Eastern District of Virginia. The
complaint was filed by an investor in the Company who has filed for bankruptcy
protection and his family. The complaint alleged securities and common law fraud
and breach of fiduciary duty and seeks in excess of $150 million in damages. On
August 22, 2002, the complaint was voluntarily dismissed; however a new
substantially similar complaint was filed at the same time. On October 21, 2002,
the Company and the other defendants filed a motion to dismiss the complaint,
and the plaintiffs responded by amending the complaint and dropping their claims
against defendants Keating and Yates. On November 18, 2002, the Company and the
other defendants again moved to dismiss the Amended Complaint. On July 16, 2003,
the Court issued a Memorandum Opinion dismissing the Amended Complaint in its
entirety with prejudice. Plaintiffs thereafter moved for reconsideration but the
Court denied the motion on September 8, 2003. The plaintiffs subsequently
appealed to the Fourth Circuit and that appeal is presently pending. The Company
does not believe that the complaint has any merit and was correctly dismissed,
and intends to continue to defend the complaint vigorously in any event.

In March 2002, Enzo Life Sciences, a subsidiary of the Company, filed suit (the
"Litigation") in the United States District Court for the District of Delaware
against Digene Corp., charging it with infringing the Company's U.S. Patent No.
6,221,581, (the "581 Patent") which concerns a novel process for detecting
nucleic acids of interest. On May 31, 2002, Digene filed counterclaims in that
suit against Enzo Life Sciences and the Company, including business tort
counterclaims relating to the `581 patent. On October 13, 2004, the Company, its
wholly owned subsidiary Enzo Life Sciences, Inc. ("Enzo Life Sciences") and
Digene Corporation ("Digene") entered into a Settlement and License Agreement
(the "Agreement") and a Joint Stipulation and Order of Dismissal with Prejudice
(the "Stipulation"). The Agreement provides for (i) the full and final
settlement of the Litigation and (ii) the grant to Digene of a non-exclusive,
worldwide, royalty-bearing license with respect to such `581 Patent and the
remaining patents in the '581 patents global family. The '581 patent is set to
expire on April 24, 2018. Pursuant to the Agreement Digene is irrevocably
required to pay Enzo Life Sciences an aggregate of $30.5 million of which Life
Sciences received U.S. $16 million (the "First Payment") from Digene on October
14, 2004. Digene will pay to Enzo U.S. $16.5 million (subject to the $2 million
credit discussed below) ("Additional Irrevocable Payments"); $2.5 million of
which shall be paid by November 14, 2005 and $3.5 million per year by November
14 of each of 2006, 2007, 2008 and 2009. In addition, Digene shall pay Enzo Life
Sciences Running Royalties on Net Sales of Licensed Products. Each Additional
Irrevocable Payment is fully creditable by Digene against the Running Royalties
that are due under the Agreement. Digene at its discretion may credit $2 million
of the First Payment against either the payment required to be paid by Digene by
November 14, 2005 or the Running Royalties due Enzo Life Sciences under the
Agreement. The Stipulation which will be filed with the Court by October 15,
2004 dismisses with prejudice all claims, counterclaims and defenses brought or
raised by any party to the Litigation.

In October 2002, the Company filed suit in the United States District Court of
the Southern District of New York against Amersham plc, Amersham Biosciences,
Perkin Elmer, Inc., Perkin Elmer Life Sciences, Inc., Sigma-Aldrich Corporation,
Sigma Chemical Company, Inc., Molecular Probes, Inc. and Orchid Biosciences,
Inc. In January 2003, the Company amended its complaint to include defendants
Sigma Aldrich Co. and Sigma Aldrich, Inc. The counts set forth in the suit are
for breach of contract; patent infringement; unfair competition under state law;
unfair competition under federal law; tortious interference with business
relations; and fraud in the inducement of contract. The complaint alleges that
these counts arise out of the defendants' breach of distributorship agreements
with the Company concerning labeled nucleotide products and technology, and the
defendants' infringement of patents covering the same. In April, 2003, the Court
directed that individual complaints be filed separately against each defendant.
A number of the defendants have answered the individual complaints and asserted
a variety of affirmative defenses and counterclaims. Fact discovery is currently

24

scheduled to close on May 6, 2005. The Court will conduct a claim construction
hearing on June 28, 2005. There can be no assurance that the Company will be
successful in this litigation. However, even if the Company is not successful,
management does not believe that there will be a significant adverse monetary
impact to the Company.

On October 28, 2003, the Company and Enzo Life Sciences, Inc., a subsidiary of
the Company, filed suit in the United States District Court of the Eastern
District of New York against Affymetrix, Inc. The Complaint alleges that
Affymetrix improperly transferred or distributed substantial business assets of
the Company to third parties, including portions of the Company's proprietary
technology, reagent systems, detection reagents and other intellectual property.
The Complaint also charges that Affymetrix failed to account for certain
shortfalls in sales of the Company's products, and that Affymetrix improperly
induced collaborators and customers to use the Company's products in
unauthorized fields or otherwise in violation of the agreement. The Complaint
seeks full compensation from Affymetrix to the Company for its substantial
damages, in addition to injunctive and declaratory relief to prohibit, among
other things, Affymetrix's unauthorized use, development, manufacture, sale,
distribution and transfer of the Company's products, technology, and/or
intellectual property, as well as to prohibit Affymetrix from inducing
collaborators, joint venture partners, customers and other third parties to use
the Company's products in violation of the terms of the agreement and the
Company's rights. Subsequent to the filing of the Complaint against Affymetrix,
Inc. referenced above, on or about November 10, 2003, Affymetrix, Inc. filed its
own complaint against the Company and its subsidiary, Enzo Life Sciences, Inc.,
in the United States District Court for the Southern District of New York,
seeking among other things, declaratory relief that Affymetrix, Inc., has not
breached the parties' agreement, that it has not infringed certain of Enzo's
Patents, and that certain of Enzo's patents are invalid. The Affymetrix
complaint also seeks damages for alleged breach of the parties' agreement,
unfair competition, and tortuous interference, as well as certain injunction
relief to prevent alleged unfair competition and tortuous interference. The
Company does not believe that the complaint has any merit and intends to defend
vigorously. Affymetrix also moved to transfer venue of Enzo's action to the
Southern District of New York, where other actions commenced by Enzo were
pending as well as Affymetrix's subsequently filed action. On January 30, 2004,
Affymetrix's motion to transfer was granted. Accordingly, the Enzo and
Affymetrix actions are now both pending in the Southern District of New York.
Pleadings have not been completed and discovery has not commenced.

On June 2, 2004 Roche Diagnostic GmbH and Roche Molecular Systems, Inc.
(collectively "Roche") filed suit in the U.S. District Court of the Southern
District of New York against Enzo Biochem, Inc. and Enzo Life Sciences, Inc.
(collectively "Enzo"). The complaint was filed after Enzo rejected Roche's
latest cash offer to settle Enzo's claims for, INTER ALIA, alleged breach of
contract and misappropriation of Enzo's assets. The complaint seeks declaratory
judgment (i) of patent invalidity with respect to Enzo's 4,994,373 patent, (ii)
of no breach by Roche of its 1994 Distribution and Supply Agreement with Enzo
(the "1994 Agreement"), (iii) that non-payment by Roche to Enzo for certain
sales of Roche products does not constitute a breach of the 1994 Agreement, and
(iv) that Enzo's claims of ownership to proprietary inventions, technology and
products developed by Roche are without basis. In addition, the suit claims
tortious interference and unfair competition. The Company does not believe that
the complaint has merit and intends to vigorously respond to such action with
appropriate affirmative defenses and counterclaims.

On June 7, 2004, the Company and its wholly-owned subsidiary, Enzo Life
Sciences, Inc., filed suit in the United States District Court for the District
of Connecticut against Applera Corporation and its wholly-owned subsidiary
Tropix, Inc. The complaint alleges infringement of six patents (relating to DNA
sequencing systems, labelled nucleotide products, and other technology). Yale
University is the owner of four of the patents and the Company is the exclusive
licensee. Accordingly, Yale is also a plaintiff in the lawsuit. Yale and Enzo
are aligned in protecting the validity and enforceability of the patents. Enzo
Life Sciences is the owner of the remaining two patents. The complaint seeks
permanent injunction and damages (including treble damages for wilful
infringement). Defendants answered the complaint on July 29, 2004. The answer
pleads affirmative defences of invalidity, estoppel and laches and asserts
counterclaims of non-infringement and invalidity. A trial date has not been set.
Discovery commences on September 15, 2004. There can be no assurance that the
Company will be successful in this litigation. Even if the Company is not
successful, management does not believe that there will be a significant adverse
monetary impact on the Company.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were brought to a vote of the Company's stockholders in the fourth
fiscal quarter ended July 31, 2004.

25

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The common stock of the Company is traded on the New York Stock
Exchange (Symbol:ENZ). The following table sets forth the high and low price of
the Company's Common Stock for the periods indicated as reported on the New York
Stock Exchange.

High Low
---- ---
2003 Fiscal Year (August 1, 2002
to July 31, 2003):
1st Quarter $16.40 $11.64
2nd Quarter $15.86 $12.76
3rd Quarter $15.23 $11.50
4th Quarter $30.10 $14.78

2004 Fiscal Year (August 1, 2003
to July 31, 2004):
1st Quarter $22.45 $17.35
2nd Quarter $20.95 $15.85
3rd Quarter $19.88 $14.20
4th Quarter $15.69 $12.57

As of October 7, 2004, the Company had approximately 1,171 record
holders of its Common Stock.

The Company has not paid a cash dividend on its Common Stock and
intends to continue to follow a policy of retaining future earnings to finance
its operations. Accordingly, the Company does not anticipate the payment of cash
dividends to holders of Common Stock in the foreseeable future. The Company
declared a 5% stock dividend on October 5, 2004 payable November 15, 2004 to
shareholders of record as of October 25, 2004. The Company declared a 5% stock
dividend on June 10, 2003 payable July 14, 2003 to shareholders of record as of
June 30, 2003. The Company declared a 5% stock dividend on January 23, 2002
payable February 27, 2002 to shareholders of record as of February 2, 2002. The
per share data has been adjusted retroactively to reflect the stock dividend
declared on October 5, 2004. The consolidated balance sheet and consolidated
statement of stockholders' equity do not give retroactive effect to the dividend
declared October 5, 2004. The shares and per share data have been adjusted to
retroactively reflect the stock dividends in fiscal 2003 and 2002. The Company
recorded a charge to accumulated deficit and a credit to common stock and
additional paid-in capital in the amounts of approximately $37,709,000 and
$26,988,000 in fiscal 2003 and fiscal 2002 and fiscal 2001, respectively, which
reflects the fair value of the dividends on the dates of declaration.

EQUITY COMPENSATION PLAN DISCLOSURE

The following table summarizes equity compensation plans approved by
security holders and equity compensation plans that were not approved by
security holders as of July 31, 2004:

Number of securities
Number of Securities remaining available for
To be Issued Upon Weighted-Average future issuance under equity
Exercise of outstanding Exercise Price of compensation plans (excluding
options, warrants and outstanding options, securities
Plan category rights warrants and rights reflected in column (a)
- ----------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
- ----------------------------------------------------------------------------------------------------------------------------------

Equity compensation plans
(stock options) approved by
security holders 2,856,801 $11.86 238,780

Equity compensation plans not
Approved by security holders --- --- ---
--------- ------ -------

Total 2,856,801 $11.86 238,780
========= ====== =======

26

Item 6. SELECTED FINANCIAL DATA

The selected operating results for the years ended July 31, 2004, 2003
and 2002 and the financial position data as of July 31, 2004 and 2003, have been
derived from the Company's audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K. The selected operating results for
the years ended July 31, 2001 and 2000, and the selected financial position data
as of July 31, 2002, 2001 and 2000 are derived from the Company's audited
consolidated financial statements which are not included in this Annual Report
on Form 10-K.

The following tables summarize the Company's consolidated statement of
operations and balance sheet data. This information should be read together with
the discussion in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
and notes to those statements included elsewhere in this Annual Report on Form
10-K.

For the Years Ended July 31,
--------------------------------------------------------------------
(In thousands, except per share data)

2004 2003 2002 2001 2000
---- ---- ---- ---- ----

OPERATING RESULTS:

Operating revenues $41,644 $52,767 $54,015 $52,266 $42,847

Interest income 1,152 1,355 1,350 3,003 2,585

(Loss) income before benefit (provision)
for taxes on income (11,080) 5,725 10,340 12,231 7,668

Benefit (provision) for taxes on income 4,848 (1,881) (3,417) (5,418) (1,044)

Net (loss) income $(6,232) $3,844 $6,923 $6,813 $6,624
======= ====== ====== ====== ======

Basic net (loss) income per common share: $(.20) $0.12 $0.22 $0.22 $0.22
===== ===== ===== ===== =====

Diluted net (loss) income per common share: $(.20) $0.12 $0.21 $0.21 $0.20
===== ===== ===== ===== =====

Denominator for per share calculation:
Basic 31,700 31,399 31,359 31,254 30,789
Diluted 31,700 32,175 32,327 32,558 32,802

FINANCIAL POSITION:
Working capital $92,259 $97,723 $92,772 $85,094 $74,094
Total assets $110,334 $115,878 $109,291 $102,931 $92,886
Stockholders' equity $104,166 $109,380 $104,733 $97,517 $87,176

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion of our financial condition and results of
operations should be read in conjunction with our financial statements and
related notes. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements. See "Forward-Looking and
Cautionary Statements." 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.

Enzo Biochem, Inc. (the "Company" or "Enzo") is a leading life sciences
and biotechnology company focused on harnessing genetic processes to develop
research tools, diagnostics and therapeutics. Enzo also provides clinical
laboratory services to the medical community. In addition, our work in gene
analysis has led to our development of significant therapeutic product
candidates, several of which are currently in clinical trials, and several are
in preclinical studies.

27

The business activities of the Company are performed by the Company's
three wholly owned subsidiaries. These activities are: (1) research and
development, manufacturing and marketing of biomedical research products and
tools through Enzo Life Sciences and research and development of therapeutic
products through Enzo Therapeutics, and (2) the operation of a clinical
reference laboratory through Enzo Clinical Labs. For information relating to the
Company's business segments, see Note 15 of the Notes to Consolidated Financial
Statements.

The Company's source of revenue has been from the direct sales of
research products of labeling and detection reagents for the genomics and
sequencing markets, as well as through non-exclusive distribution agreements
with other companies. Another source of revenue has been from the clinical
laboratory service market. Clinical laboratory services are provided to patients
covered by various third party insurance programs, including Medicare and self
payors for the services provided. The clinical laboratory is subject to seasonal
fluctuations in operating results. Volume of testing generally declines during
the summer months, the year-end holiday periods and other major holidays. In
addition, volume declines due to inclement weather may reduce net revenues.
Therefore, comparison of the results of successive quarters may not accurately
reflect trends or results for the full year. For the fiscal years ended July 31,
2004 and 2003, respectively, approximately 31% and 44% of the Company's
operating revenues were derived from research product sales and approximately
69% and 56% were derived from clinical laboratory services. Research product
revenue from Affymetrix represented approximately 0 %, 22% and 23% of the
consolidated revenues in fiscal 2004, 2003 and 2002, respectively, under a
non-exclusive distribution and supply agreement. Research product revenue from
this major distributor accounted for approximately 0 % and 50% of the Company's
total research product revenue in fiscal 2004 and 2003, respectively. At July
31, 2004 and 2003, of the Company's net accounts receivable no monies were
included from this one major distributor. Research product revenue from Amersham
represented approximately 0%, 1% and 1% of the consolidated revenues in fiscal
2004, 2003 and 2002, respectively, under a non-exclusive distribution and supply
agreement. At July 31, 2004 and 2003, 0% and 2%, respectively, of the Company's
net accounts receivable relate to amounts due from this distributor. Research
product revenue from Perkin-Elmer represented approximately 8%, 4% and 5% of the
consolidated revenues in fiscal 2004, 2003 and 2002, respectively, under a
non-exclusive distribution and supply agreement. At July 31, 2004 and 2003, 5%
and 3%, respectively, of the Company's net accounts receivable relate to amounts
due from this distributor. Research product revenue from Roche represented
approximately 8%, 6% and 8% of the consolidated revenues in fiscal 2004, 2003
and 2002, respectively, under a non-exclusive distribution and supply agreement.
At July 31, 2004 and 2003, 0% and 6% respectively of the Company's net accounts
receivable relate to amounts due from the this distributor. At July 31, 2004,
the Company had written off $1.8 million against the amount due from this
distributor. See Item 3. Legal Proceedings. The following is a table outlining
the above for the respective consolidated fiscal years:

% of Revenue % of Accounts Receivable
2004 2003 2002 2004 2003
-------------------------------------------- ----------------------------

Affymetrix 0% 22% 23% 0% 0%

Perkin-Elmer 8% 4% 6% 5% 3%

Amersham 0% 1% 1% 0% 2%

Roche 8% 6% 5% 0% 6%

LIQUIDITY AND CAPITAL RESOURCES

At July 31, 2004, our cash and cash equivalents of $54.5 million and
marketable securities of $17.2 million totaled $71.7 million, a decrease of $6.7
million from July 31, 2003. We had working capital of $92.3 million at July 31,
2004 compared to $97.7 million at July 31, 2003. On October 14, 2004 the Company
received $16 million from Digene Corporation in connection with execution of a
settlement and license agreement. See Item 3. Legal Proceeding.

Net cash used in operating activities for the year ended July 31, 2004
was approximately $5.6 million as compared to net cash provided by operating
activities of $12.1 million for the year ended July 31, 2003. The decrease in
net cash provided by operating activities from fiscal 2003 to fiscal 2004 was
primarily due to a net loss in the current year offset by the net change in
operating assets and liabilities compared to the prior year.

Net cash used in investing activities decreased approximately $12.5
million from fiscal 2003, primarily as a result of a decrease in the purchase of
marketable securities in the current year.

Net cash provided by financing activities increased by $.3 million from
fiscal 2003 primarily as a result of the increase in proceeds from the exercise
of stock options.

28

Net accounts receivable of $14.8 million and $17.3 million represented
130 days and 119 days of operating revenues at July 31, 2004 and 2003,
respectively. The change in net accounts receivable is due to a decrease in
accounts receivable at the clinical reference laboratory of approximately $1.3
million and a decrease of research products accounts receivable of approximately
$1.2 million. The decrease in the clinical laboratory receivable is primarily
due to the decrease in revenue. The decrease in the research products accounts
receivable is primarily due to the decrease in revenue from one specific
distributor of research products. The Company had written off $1.8 million
against the open accounts receivable due from this one distributor in the fourth
quarter of 2004.

The Company has entered into various real estate operating leases with
both related and unrelated parties. See Note 6 to the Consolidated Financial
Statements for a further description of these various leases.

The Company has an exclusive licensing agreement to an invention
covered by licensed patents. Under this agreement, the Company is required to
make certain minimum royalty payments of $200,000 per year through the life of
the patents. See Note 10 to the Consolidated Financial Statement.

The total future payments under the Company's contractual obligations
as of July 31, 2004 are as follows:

Payments Due by Period
----------------------

Total Less Than 1 Year 1-3 Years 4-5 Years
----- ---------------- --------- ---------

Operating Leases $1,393,000 $705,000 $498,000 $190,000
---------- -------- -------- --------
Total Contractual Cash Obligations $1,393,000 $705,000 $498,000 $190,000
========== ======== ======== ========

We believe that our current cash position is sufficient for our
foreseeable liquidity and capital resource needs, although there can be no
assurance that future events will not alter such view.

Management is not aware of any material claims, disputes or settled
matters concerning third-party reimbursements that would have a material effect
on our financial statements.

CRITICAL ACCOUNTING POLICIES

GENERAL

The Company's discussion and analysis of its financial condition and
results of operations are based upon Enzo Biochem, Inc. 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 allowance, allowance for uncollectible accounts,
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.

REVENUE RECOGNITION

Revenues from the clinical laboratory are recognized as services are
rendered upon completion of the testing process for a specific patient and
reported to the ordering physician. The Company's revenue is based on amounts
billed or billable for services rendered, net of contractual adjustments and
other arrangements made with third-party payors to provide services at less than
established billing rates. Revenues from research product sales, exclusive of
certain non-exclusive distribution agreements, are recognized when the products
are shipped.

The Company has certain non-exclusive distribution agreements, which
provide for consideration to be paid to the distributors for the manufacture of
certain products. The Company records such consideration provided to
distributors under these non-exclusive distribution agreements as a reduction to
research product revenues. The revenue from these non-exclusive distribution
agreements are recognized when shipments are made to their respective customers
and reported to the Company.

29

CONTRACTUAL ALLOWANCES

The percentage of the Company's revenues derived from Medicare, third
party payers, commercial insurers and managed care patients continue to
increase. The Medicare regulations and various managed care contracts are often
complex and may include multiple reimbursement mechanisms for different types of
services provided in our clinical laboratory. We estimate the allowance for
contractual allowances on a payer-specific basis given our interpretation of the
applicable regulations and historical calculations. However, the services
authorized and provided and related reimbursement are often subject to
interpretation that could result in payments that differ from our estimates.
Additionally, updated regulations occur frequently necessitating continual
review and assessment of the estimation process by management.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company's ability to collect outstanding receivables from third
party payers is critical to its operating performance and cash flows. The
primary collection risk lies with uninsured patients or patients for whom
primary insurance has paid but a patient portion remains outstanding. The
Company estimates the allowance for doubtful accounts primarily based upon the
age of the accounts since invoice date. The Company continually monitors its
accounts receivable balances and utilizes cash collections data to support the
basis for its estimates of the provision for doubtful accounts. Significant
changes in payer mix or regulations could have a significant impact on the
Company's results of operations and cash flows. In addition, the Company has
implemented a process to estimate and review the collectibles of its receivables
based on the period they have been outstanding. Historical collection and payor
reimbursement experience is an integral part of the estimation process related
to reserves for doubtful accounts. The Company also assesses the current state
of its billing functions in order to identify any known collection or
reimbursement issues in order to assess the impact, if any, on the reserve
estimates, which involves judgment. The Company believes that the collectibility
of its receivables is directly linked to the quality of its billing processes,
most notably, those related to obtaining the correct information in order to
bill effectively for the services provided. Revisions in reserve for doubtful
accounts estimates are recorded as an adjustment to bad debt expense. The
Company believes that its collection and reserves processes, along with the
close monitoring of its billing processes, helps reduce the risk associated with
material revisions to reserve estimates resulting from adverse changes in
collection and reimbursement experience and billing operations.

INCOME TAXES

The Company accounts for income taxes under the liability method of
accounting for income taxes. Under the liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. The liability method requires
that any tax benefits recognized for net operating loss carry forwards and other
items be reduced by a valuation allowance where it is more likely than not the
benefits may not be realized. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
the liability method, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company evaluates the requirement to recognize impairment losses on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Company management believes that no
impairment to its long-lived assets has occurred.

30

RESULTS OF OPERATIONS

Comparative financial data for the years ended July 31,
-------------------------------------------------------

Increase Increase
2004 (Decrease) 2003 (Decrease) 2002
---------------------------------------------------------------
(in thousands)

Revenues:
Research product sales $12,972 ($10,281) $23,253 ($2,710) $25,963
Clinical laboratory services 28,672 (842) 29,514 1,462 28,052
------ ---- ------ ----- ------
Total revenue $41,644 (11,123) $52,767 (1,248) $54,015
------- ------- ------- ------ -------

Costs and expenses:
Cost of research products 2,518 (871) 3,389 1,552 1,837
Cost of laboratory services 10,586 993 9,593 (516) 10,109
Research & development 8,078 (233) 8,311 2,132 6,179
Selling expense 4,335 829 3,506 263 3,243
General & administrative 10,032 1,441 8,591 1,233 7,358
Provision for uncollectible A/R 11,987 2,642 9,345 (4,843) 14,188
Legal expenses 6,340 679 5,661 3,550 2,111
----- --- ----- ----- -----
Total costs and expenses $53,876 5,480 $48,396 3,371 $45,025
------- ----- ------- ----- -------

Operating (loss) income $(12,232) $(16,603) $4,371 $(4,619) $8,990
======== ======== ====== ======= ======

FISCAL 2004 COMPARED TO FISCAL 2003

Revenues from operations for the fiscal year ended July 31, 2004 were
$41.6 million a decrease of $11.1 million over revenues from operations for the
fiscal year ended July 31, 2003. This decrease was due to a decrease of $10.3
million in revenues from our research product sales operations and decrease of
$.8 million in revenues from clinical reference laboratory operation over
revenues for such activities in fiscal 2004.

The decrease in research product sales resulted primarily from a
decrease in direct sales of research products of labeling and detection reagents
for the genomics and sequencing markets related to shipments to Affymetrix a
major distributor. Research product revenue from this one major distributor
accounted for approximately 0% and 50% of the Company's total research product
revenues in fiscal 2004 and 2003, respectively. See Item 3. Legal Proceedings.

The decrease of clinical laboratory services revenue was due primarily
to the recent downward trends that had indicated a decrease in the
reimbursements rates from the Medicare Program, certain third party payors and
HMO's. Clinical laboratory services are provided to patients covered by various
third party payor programs, including Medicare and health maintenance
organizations ("HMO's"). Billings for services are included in revenue net of
allowances for contractual discounts and allowances paid for differences between
the amounts billed and the estimated amount to be paid. The effect of such
reduced reimbursement rates have been reflected in fiscal 2004. The clinical
laboratory is subject to seasonal fluctuations in operating results. Volume of
testing generally declines during the summer months, the year-end holiday
periods and other major holidays. In addition, volume declines due to inclement
weather may reduce net revenues. Therefore, comparison of the results of
successive quarters may not accurately reflect trends or results for the full
year.

The cost of research products sold decreased by $.9 million from the
prior fiscal year. This decrease was primarily due to the decrease in research
product revenue based on the termination of a contract with one major
distributor.

The cost of clinical laboratory services increased by $1.0 million
during this period primarily due to an increase in costs with certain esoteric
tests and costs related to performing more testing in house.

Research and development expenses decreased by approximately $.2
million as a result of a decrease in the expenses related to the clinical trial
activities and other research projects.

Selling expenses increased by $.8 million during this fiscal year, as
compared to the prior year's fiscal year. This increase was primarily due to an
increase in both the sales personnel and marketing expenditures for research
product sales and clinical laboratory services.

The Company's provision for uncollectible accounts receivable increased
by $2.6 million to $11.9 million from $9.3 million as compared to last year. At
the clinical laboratory division the percentage of the provision for
uncollectible accounts receivable as a relationship to revenue increased to
35.7% this fiscal year as compared to 29.6% for last year. These increases were
primarily due to

31

the change in the mix of payors during the current fiscal year. The company
wrote off $1.8 million of an uncollectible receivable from one of its
distributors at the Life Science division this fiscal year. See Item 3. Legal
Proceedings.

The Company's legal expenses increased by $.6 million to $6.3 million
from $5.7 million as compared to the previous year. This increase is primarily
due to the increase in patent infringement proceedings and the increase in the
overall legal activities on these infringement proceedings.

General and administrative expenses increased by $1.4 million due to an
increase at the clinical lab in the information technology expenditures and the
in-house legal patent costs.

Interest income was comparable to the prior fiscal year.

In fiscal 2004, we recorded a benefit for income taxes of $4.8 million,
based upon an $11.1 million loss before benefit for taxes on income in the
current year as compared to a provision for income taxes of $1.9 million in
fiscal 2003, which were based on the combined effective federal, state and local
income tax rates.

Net accounts receivable from our clinical laboratory operations of
$13.1 million and $14.4 million represented an average of 167 days and 174 days
of operating revenues at July 31, 2004 and 2003, respectively.

Loss before provision for taxes on income from the research and
development segment activities and related costs was $1.3 million in fiscal
2004, as compared to income before provision for taxes on income of $9.4 million
in fiscal 2003. The decrease in the profit resulted primarily from a decrease in
direct sales of research products of labeling and detection reagents for the
genomics and sequencing markets to Affymetrix a major distributor. Loss before
provision for taxes on income from the clinical reference laboratories segment
amounted to a $1.5 million for fiscal 2004, as compared to income of $3.0
million for fiscal 2003. The decrease in income before taxes for the clinical
laboratory segment was primarily due to the reduction in reimbursement rates
from third party payors. Loss before provision for taxes on income at the other
segment amounted to a loss of $8.3 million for fiscal 2004, as compared to a
loss of $6.7 million for fiscal 2003, due to the increase in legal expenses in
fiscal 2004.

FISCAL 2003 COMPARED TO FISCAL 2002

Revenues from operations for the fiscal year ended July 31, 2003 were
$52.8 million a decrease of $1.2 million over revenues from operations for the
fiscal year ended July 31, 2002. This decrease was due to a decrease of $2.7
million in revenues from our research product sales operations offset by an
increase of $1.5 million in revenues from clinical reference laboratory
operation over revenues for such activities in fiscal 2003.

The decrease in research product sales resulted primarily from a
decrease in direct sales of research products of labeling and detection reagents
for the genomics and sequencing markets related to shipments to one major
distributor. Research product revenue from this one major distributor accounted
for approximately 50% and 49% of the Company's total research product revenues
in fiscal 2003 and 2002, respectively.

The increase of clinical laboratory services revenue was due primarily
to increase volume of higher priced esoteric tests. Clinical laboratory services
are provided to patients covered by various third party payor programs,
including Medicare and health maintenance organizations ("HMO's"). Billings for
services are included in revenue net of allowances for contractual discounts and
allowances paid for differences between the amounts billed and the estimated
amount to be paid. Recent trends had indicated a decrease in the collection
rates from the Medicare Program, certain third party payors and HMO's. The
effect of such reduced collection rates have been reflected in fiscal 2003. The
clinical laboratory is subject to seasonal fluctuations in operating results.
Volume of testing generally declines during the summer months, the year-end
holiday periods and other major holidays. In addition, volume declines due to
inclement weather may reduce net revenues. Therefore, comparison of the results
of successive quarters may not accurately reflect trends or results for the full
year.

Although, research product revenue decreased for the fiscal year, the
cost of research products sold increased by $1.6 million to $3.4 million from
the prior fiscal year. This increase was primarily due to the increase in
reagent costs, the expansion of the manufacturing, processing capabilities and
an increase in headcount in these areas, due to the unusually high volume of the
orders shipped in the first quarter of fiscal 2003 to one major distributor that
did not continue for the balance of fiscal 2003.

The cost of clinical laboratory services decreased by $.5 million
during this period primarily due to a reduction in personnel costs and the
improved efficiency of performing certain esoteric tests in-house that reduced
certain other expenses.

32

Research and development expenses increased by approximately $2.1
million as a result of an increase in the expenses related to the clinical trial
activities and other research projects.

Selling expenses increased by $.3 million during this fiscal year, as
compared to the prior year's fiscal year. This increase was primarily due to
costs associated with the unusually high volume of the orders shipped in the
first quarter of fiscal 2003 to one major distributor of research products.

General and administrative expenses increased by $1.2 million due to
the increase in overall insurance costs of professional, directors & officers,
liability insurance premiums and an increase in data processing personnel costs.

The Company's legal expenses increased by $3.6 million to $5.7 million
from $2.1 million as compared to the previous year. This increase is primarily
due to the increase in patent infringement proceedings and the increase in the
overall legal activities on these infringement proceedings.

The Company's provision for uncollectible accounts receivable decreased
by $5.5 million to $8.7 million from $14.2 million as compared to last year at
the clinical laboratory division. The percentage of the provision for
uncollectible accounts receivable as a relationship to revenue decreased to
30.8% this fiscal year as compared to 50.6% for last year. These decreases were
primarily due to the change in the mix of payors and improved collection
procedures and the effect of the canceled HMO contract last year. In addition,
during the current fiscal year, the Company wrote off $.6 million as an
uncollectible receivable from one of its distributors at the Life Science
division.

Interest income was comparable to the prior fiscal year.

In fiscal 2003 and 2002, we recorded a provision for income taxes of
$1.8 and $3.4 million, respectively, which was based on the combined effective
federal, state and local income tax rates.

Net accounts receivable from our clinical laboratory operations of
$14.4 million and $13.8 million represented an average of 174 days and 180 days
of operating revenues at July 31, 2003 and 2002, respectively.

Income before provision for taxes on income from the research and
development segment activities and related costs was $9.4 million in fiscal
2003, as compared to income before provision for taxes on income of $16.6
million in fiscal 2002. The decrease in the profit resulted primarily from a
decrease in direct sales of research products of labeling and detection reagents
for the genomics and sequencing markets to one specific customer. Income before
provision for taxes on income from the clinical reference laboratories segment
amounted to a $3.0 million for fiscal 2003, as compared to a loss of $3.8
million for fiscal 2002. The increase in income before taxes for the clinical
laboratory segment was primarily due to the increase in revenue from an increase
in higher gross margin reimbursement and an increase in volume of esoteric tests
being ordered by physicians. These esoteric tests have higher pricing levels as
compared to the regular tests performed at the laboratory.

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

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company believes that it does not have any material exposure to
market risk associated with interest rate risk, foreign currency exchange rate
risk, commodity price risk, equity price risk, or other market risks.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted in a separate section of this
report. See Item 15(a) (1) and (2)

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

33

Item 9A. CONTROLS AND PROCEDURES

Quarterly Evaluation of the Company's Disclosure Controls and Internal Controls.
As of the end of the period covered by this Annual Report on Form 10-K, the
Company evaluated the effectiveness of the design and operation of its
"disclosure controls and procedures" ("Disclosure Controls"), and its "internal
controls and procedures for financial reporting" ("Internal Controls"). This
evaluation (the "Controls Evaluation") was done under the supervision and with
the participation of our chief executive officer ("CEO") and chief financial
officer ("CFO"). Rules adopted by the Securities and Exchange Commission ("SEC")
require that in this section of the Annual Report we present the conclusions of
the CEO and the CFO about the effectiveness of our Disclosure Controls and
Internal Controls based on and as of the date of the Controls Evaluation.

Disclosure Controls and Internal Controls. As provided in Rule 13a-14 of the
General Rules and Regulations under the Securities and Exchange Act of 1934, as
amended, Disclosure Controls are defined as meaning controls and procedures that
are designed with the objective of insuring that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), is recorded, processed, designed and reported
within the time periods specified by the SEC's rules and forms. Disclosure
Controls include, within the definition under the Exchange Act, and without
limitation, controls and procedures to insure that information required to be
disclosed by us in our reports is accumulated and communicated to our
management, including our CEO and CFO, as appropriate to allow timely decisions
regarding disclosure. Internal Controls are procedures which are designed with
the objective of providing reasonable assurance that (1) our transactions are
properly authorized; (2) our assets are safeguarded against unauthorized or
improper use; and (3) our transactions are properly recorded and reported, all
to permit the preparation of our financial statements in conformity with
generally accepted accounting principles.

Scope of the Controls Evaluation. The evaluation made by our CEO and CFO of our
Disclosure Controls and our Internal Controls included a review of the controls'
objectives and design, the controls' implementation by the Company and the
effect of the controls on the information generated for use in this Annual
Report. In the course of the Controls Evaluation, we sought to identify data
errors, control problems or acts of fraud and to confirm that appropriate
corrective action, including process improvements, were being undertaken. This
type of evaluation will be done on a quarterly basis so that the conclusions
concerning controls effectiveness can be reported in our Quarterly Reports on
Form 10-Q and Annual Report on Form 10-K. The overall goals of these various
evaluation activities are to monitor our Disclosure Controls and our Internal
Controls and to make modifications as necessary; our intent in this regard is
that the Disclosure Controls and the Internal Controls will be maintained as
dynamic systems that change (including with improvements and corrections) as
conditions warrant.

Among other matters, we sought in our evaluation to determine whether there were
any "significant deficiencies" or "material weaknesses" in the Company's
Internal Controls, or whether the Company had identified any acts of fraud
involving personnel who have a significant role in the Company's Internal
Controls. In the professional auditing literature, "significant deficiencies"
are referred to as "reportable conditions"; these are control issues that could
have a significant adverse effect on the ability to record, process, summarize
and report financial data in the financial statements. A "material weakness" is
defined in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce to a relatively low level
the risk that misstatements caused by error or fraud may occur in amounts that
would be material in relation to the financial statements and not be detected
within a timely period by employees in the normal course of performing their
assigned functions. We also sought to deal with other controls matters in the
Controls Evaluation, and in each case if a problem was identified, we considered
what revision, improvement and/or correction to make in accord with our on-going
procedures. In fiscal 2004, we have established an internal "Hotline" for
employees to report to the audit committee acts of fraud in the financial
reporting process.

In accord with SEC requirements, our CEO and CFO each have confirmed that,
during the most recent fiscal quarter and since the date of the Controls
Evaluation to the date of this Annual Report, there have been no significant
changes in Internal Controls or in other factors that have materially affected,
or are reasonably likely to materially affect, the Company's Internal Controls,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

Conclusions. Based upon the Controls Evaluation, our CEO and CFO have each
concluded that, our Disclosure Controls are effective to ensure that material
information relating to the Company and its consolidated subsidiaries is made
known to management, including the CEO and CFO, particularly during the period
when our periodic reports are being prepared, and that our Internal Controls are
effective to provide reasonable assurance that our financial statements are
fairly presented in conformity with generally accepted accounting principles.

34

Item 9B. OTHER INFORMATION

On October 13, 2004, the Company, its wholly owned subsidiary Enzo Life
Sciences, Inc. ("Enzo Life Sciences") and Digene Corporation ("Digene") entered
into a Settlement and License Agreement (the "Agreement") and a Joint
Stipulation and Order of Dismissal with Prejudice (the "Stipulation"). The
Agreement provides for (i) the full and final settlement of the Litigation and
(ii) the grant to Digene of a non-exclusive, worldwide, royalty-bearing license
with respect to such `581 Patent and the remaining patents in the '581 patents
global family. The '581 patent is set to expire on April 24, 2018. Pursuant to
the Agreement Digene is irrevocably required to pay Enzo Life Sciences an
aggregate of $30.5 million of which Life Sciences received U.S. $16 million (the
"First Payment") from Digene on October 14, 2004. Digene will pay to Enzo U.S.
$16.5 million (subject to the $2 million credit discussed below) ("Additional
Irrevocable Payments"); $2.5 million of which shall be paid by November 14, 2005
and $3.5 million per year by November 14 of each of 2006, 2007, 2008 and 2009.
In addition, Digene shall pay Enzo Life Sciences Running Royalties on Net Sales
of Licensed Products. Each Additional Irrevocable Payment is fully creditable by
Digene against the Running Royalties that are due under the Agreement. Digene at
its discretion may credit $2 million of the First Payment against either the
payment required to be paid by Digene by November 14, 2005 or the Running
Royalties due Enzo Life Sciences under the Agreement. The Stipulation which will
be filed with the Court by October 15, 2004 dismisses with prejudice all claims,
counterclaims and defenses brought or raised by any party to the Litigation.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS

The information required under this item will be set forth in
the Company's proxy statement to be filed with the Securities and Exchange
Commission on or before November 26, 2004 and is incorporated herein by
reference.

Item 11. EXECUTIVE COMPENSATION

The information required under this item will be set forth in
the Company's proxy statement to be filed with the Securities and Exchange
Commission on or before November 26, 2004 and is incorporated herein by
reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required under this item will be set forth in
the Company's proxy statement to be filed with the Securities and Exchange
Commission on or before November 26, 2004 and is incorporated herein by
reference.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required under this item will be set forth in
the Company's proxy statement to be filed with the Securities and Exchange
Commission on or before November 26, 2004 and is incorporated herein by
reference.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required under this item will be set forth in
the Company's proxy statement to be filed with the Securities and Exchange
Commission on or before November 26, 2004 and is incorporated herein by
reference.

PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K

(a) (1) Consolidated Financial Statements
Consolidated Balance Sheets - July 31, 2004 and 2003
Consolidated Statements of Operations-
Years ended July 31, 2004, 2003 and 2002
Consolidated Statements of Stockholders' Equity-

35

Years ended July 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows-
Years ended July 31, 2004, 2003 and 2002 Notes to Consolidated
Financial Statements.

(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts

All other schedules have been omitted because the required
information is included in the consolidated financial statements or the notes
thereto or because they are not required.

(3) Exhibits

The following documents are filed as Exhibits to this Annual Report
on Form 10-K:

Exhibit Description
No -----------
--

3(a) Certificate of Incorporation, as amended March 17, 1980. (1)

3(b) June 16, 1981 Certificate of Amendment of the Certificate of
Incorporation. (2)

3(c) Certificate of Amendment to the Certificate of
Incorporation. (11)

3(d) Bylaws. (1)

10(a) 1983 Incentive Stock Option Plan. (4)

10(b) 1993 Incentive Stock Option Plan. (5)

10(c) Employment Agreement with Elazar Rabbani. (5)

10(d) Employment Agreement with Shahram Rabbani. (5)

10(e) Employment Agreement with Barry Weiner. (5)

10(f) 1994 Stock Option Plan. (6)

10(g) Agreement with Corange International Limited (Boehringer
Mannheim) effective April 1994. (19) (7)

10(h) Agreement with Amersham International effective February
1995. (7)

10(i) Agreement with Dako A/S effective May 1995. (7)

10(j) Agreement with Baxter Healthcare Corporation (VWR Scientific
Products) effective September 1995. (7)

10(k) Agreement with Yale University and amendments thereto. (7)

10(l) Agreement with The Research Foundation of the State of New
York effective May 1987. (7)

10(m) 1999 Stock Option Plan filed. (8)

10(n) Amendment to Elazar Rabbani's employment agreement. (9)

10(o) Amendment to Shahram Rabbani's employment agreement. (9)

10(p) Amendment to Barry Weiner's employment agreement. (9)

36

10(q) Lease Addendum (9)

10(r) Code of Ethics filed herewith.

10(s) Settlement and License Agreement with Digene Corporation
effective as of September 30, 2004 filed herewith (10)

10(t) Joint Stipulation and Order of Dismissal with Prejudice
dated October , 2004 filed herewith (10).

21 Subsidiaries of the registrant:
Enzo Clinical Labs, Inc., a New York corporation.
Enzo Life Sciences, Inc., a New York corporation.
Enzo Therapeutics, Inc., a New York corporation.

23 Consent of Independent Registered Public Accounting Firm
filed herewith.

31(a) Certification of CEO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 filed herewith.

31(b) Certification of CFO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 filed herewith.

32(a) Certification of CEO Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 filed herewith.

32(b) Certification of CFO Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 filed herewith.

(1) The exhibits were filed as exhibits to the Company's Registration Statement
on Form S-18 (File No. 2-67359) and are incorporated herein by reference.

(2) This exhibit was filed as an exhibit to the Company's Form 10-K for the year
ended July 31, 1981 and is incorporated herein by reference.

(3) This exhibit was filed with the Company's Annual Report on Form 10-K for the
year ended July 31, 1989 and is incorporated herein by reference.

(4) This exhibit was filed with the Company's definitive proxy statement dated
February 4, 1983 and is incorporated herein by reference.

(5) This exhibit was filed with the Company's Annual Report on Form 10-K for the
year ended July 31, 1994 and is incorporated herein by reference.

(6) This exhibit was filed with the Company's Annual Report on Form 10-K for the
year ended July 31, 1995 and is incorporated herein by reference.

(7) This exhibit was filed with the Company's Annual Report on Form 10-K for the
year ended July 31, 1996 or previously filed amendment thereto and is
incorporated herein by reference.

(8) This exhibit was filed with the Company's Registration Statement on Form S-8
(333-87153) and is incorporated herein by reference.

(9) This exhibit was filed with the Company's Annual Report on Form 10-K for the
year ended July 31, 2000 and is incorporated herein by reference.

(10) These exhibits are subject to a confidential treatment request pursuant to
the Securities Exchange Act Rule 24b-2.

(b) See Item 15(a)(3), above.
(c) See Item 15(a)(2), above.

*************

37

S I G N A T U R E S

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

ENZO BIOCHEM, INC.

Date: October 14, 2004 By: /s/ Elazar Rabbani Ph.D.
------------------------
Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

By: /s/ Elazar Rabbani Ph.D. October 14, 2004
- ----------------------------
Elazar Rabbani
Chairman of Board of Directors
(Principal Executive Officer)

By: /s/ Shahram K. Rabbani October 14, 2004
- --------------------------
Shahram K. Rabbani,
Chief Operating Officer, Secretary
and Director

By: /s/ Barry W. Weiner October 14, 2004
- -----------------------
Barry W. Weiner,
President, Chief Financial Officer, and Director

By: /s/ John B. Sias October 14, 2004
- --------------------
John B. Sias, Director

By: /s/ John J. Delucca October 14, 2004
- -----------------------
John J. Delucca, Director

By: /s/ Irwin Gerson October 14, 2004
- --------------------
Irwin Gerson, Director

By: /s/ Melvin F. Lazar October 14, 2004
- -----------------------
Melvin F. Lazar, Director

- ------------------------
Marcus A. Conant, Director

38

FORM 10-K, ITEM 15(a) (1) and (2)
ENZO BIOCHEM, INC.

LIST OF CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE

The following consolidated financial statements and financial statement schedule
of Enzo Biochem, Inc. are included in Item 15(a):

Report of Registered Public Accounting Firm F-2

Consolidated Balance Sheets -- July 31, 2004 and 2003 F-3

Consolidated Statements of Operations --
Years ended July 31, 2004, 2003 and 2002 F-4

Consolidated Statements of Stockholders' Equity --
Years ended July 31, 2004, 2003 and 2002 F-5

Consolidated Statements of Cash Flows --
Years ended July 31, 2004, 2003 and 2002 F-6

Notes to Consolidated Financial Statements F-7

Schedule II - Valuation and Qualifying
Accounts --Years ended July 31, 2004, 2003 and 2002 S-1

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

F-1

Report of Registered Public Accounting Firm

Board of Directors and Stockholders
Enzo Biochem, Inc.

We have audited the accompanying consolidated balance sheets of Enzo Biochem,
Inc. (the "Company") as of July 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended July 31, 2004. Our audits also included the
financial statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Enzo
Biochem, Inc. at July 31, 2004 and 2003 and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
July 31, 2004, in conformity with United States generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

/s/ Ernst & Young LLP
Melville, New York
October 7, 2004, except for Note 14
and the third paragraph of Note 7,
as to which the date is October 14, 2004

F-2

ENZO BIOCHEM, INC
CONSOLIDATED BALANCE SHEETS

JULY 31, 2004 AND 2003

ASSETS 2004 2003
---- ----

Current assets:
Cash and cash equivalents ........................................ $54,499,100 $63,267,600
Marketable securities ............................................ 17,241,500 15,154,100
Accounts receivable, less allowance for doubtful accounts of
$5,503,000 in 2004 and $4,900,000 in 2003 ................... 14,794,400 17,266,400
Income tax receivable ............................................ 3,906,900 542,300
Inventories ...................................................... 3,434,300 3,421,800
Prepaid expenses ................................................. 1,832,500 2,232,900
Deferred taxes ................................................... 1,974,800 1,013,800
--------- ---------
Total current assets ................................................ 97,683,500 102,898,900
Property and equipment, at cost less accumulated depreciation
and amortization ................................................ 2,414,600 2,199,800
Goodwill ............................................................ 7,452,000 7,452,000
Deferred patent costs, less accumulated amortization of $8,383,600
in 2004 and $7,097,200 in 2003 .................................. 2,624,500 3,166,200
Other ............................................................... 159,600 161,000
------- -------
$110,334,200 $115,877,900
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Trade accounts payable ........................................... $2,092,300 $1,321,000
Accrued legal fees ............................................... 2,050,500 1,915,200
Other accrued expenses ........................................... 711,600 551,000
Accrued research and development expenses ........................ 225,000 453,400
Accrued payroll .................................................. 258,100 703,000
Deferred rent .................................................... 86,700 232,300
------ -------
Total current liabilities ........................................... 5,424,200 5,175,900

Deferred taxes ...................................................... 444,200 1,234,800
Deferred rent ....................................................... --- 87,000
Long term payable ................................................... 300,000 ---
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value; authorized 25,000,000 shares; no
shares issued or outstanding
Common Stock, $.01 par value; authorized 75,000,000 shares; shares
issued and outstanding: 30,864,800 in 2004 and 29,975,100
in 2003 ...................................................... 308,600 299,800
Additional paid-in capital ....................................... 205,920,000 199,081,800
Less treasury stock at cost, 349,900 shares ...................... (5,668,900) ---
Accumulated deficit .............................................. (96,148,000) (89,916,400)
Accumulated other comprehensive loss ............................. (245,900) (85,000)
----------- -----------
Total stockholders' equity .......................................... 104,165,800 109,380,200
----------- -----------
$110,334,200 $115,877,900
============ ============

F-3

See accompanying notes.

ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS

YEARS ENDED JULY 31, 2004, 2003 AND 2002

2004 2003 2002

Revenues:
Research product revenues ........................................ $12,972,200 $23,253,100 $25,963,400
Clinical laboratory services ..................................... 28,672,200 29,513,900 28,051,700
---------- ---------- ----------
41,644,400 52,767,000 54,015,100

Costs and expenses:
Cost of research product revenues ................................ 2,517,800 3,388,900 1,837,100
Cost of clinical laboratory services ............................. 10,586,200 9,592,900 10,109,500
Research and development expense ................................. 8,078,300 8,311,200 6,178,600
Selling expense .................................................. 4,334,900 3,506,100 3,242,800
Provision for uncollectible accounts receivable .................. 11,986,500 9,345,300 14,188,400
Legal expense .................................................... 6,339,900 5,661,000 2,111,000
General and administrative expense ............................... 10,032,300 8,591,300 7,358,200
---------- --------- ---------
53,875,900 48,396,700 45,025,600
---------- ---------- ----------
(Loss) income before interest income and benefit
(provision) for taxes on income ................................. (12,231,500) 4,370,300 8,989,500
Interest income ..................................................... 1,151,800 1,355,000 1,350,400
--------- --------- ---------
(Loss) income before benefit (provision) for taxes on income......... (11,079,700) 5,725,300 10,339,900
Benefit (provision) for taxes on income ............................. 4,848,100 (1,881,300) (3,417,100)
--------- ---------- ----------
Net (loss) income ................................................... ($6,231,600) $3,844,000 $6,922,800
=========== ========== ==========
Net (loss) income per common share:
Basic ............................................................ $(0.20) $0.12 $0.22
====== ===== =====
Diluted .......................................................... $(0.20) $0.12 $0.21
====== ===== =====
Denominator for per share calculation:
Basic ............................................................ 31,700,000 31,399,000 31,359,000
========== ========== ==========
Diluted .......................................................... 31,700,000 32,175,000 32,327,000
========== ========== ==========

F-4

See accompanying notes

ENZO BIOCHEM, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED JULY 31, 2004, 2003 AND 2002

Accumulated
Other Total
Common Treasury Common Treasury Additional Compre- Stock-
Stock Stock Stock Stock Paid-in Accumulated hensive holders'
Shares Shares Amount Amount Capital Deficit Loss Equity
------ ------ ------ ------ ------- ------- ---- ------

Balance at July 31, 2001 ......... 27,080,100 --- $270,700 --- $133,136,100 $(35,889,800) --- $97,517,000
Net income for the year ended
July 31, 2002 .................. --- --- --- --- --- 6,922,800 --- 6,922,800
5% stock dividend (fair value on
date declared).................. 1,353,500 --- 13,600 --- 26,974,000 (26,987,600) --- ---
Payment of cash for fractional
shares for the 5% stock
dividend ....................... --- --- --- --- --- (96,600) --- (96,600)
Increase in common stock and
paid-in capital due to exercise
of stock options ............... 15,200 --- 200 --- 127,800 --- --- 128,000
Tax benefit from stock options
exercised ...................... --- --- --- --- 15,000 --- --- 15,000
Issuance of stock for employee
401(k) plan .................... 11,000 --- 100 --- 246,900 --- --- 247,000
---------- ------- -------- ----------- ------------ ------------ --------- ------------
Balance at July 31, 2002 ......... 28,459,800 --- 284,600 --- 160,499,800 (56,051,200) --- 104,733,200
Net income for the year ended
July 31, 2003 .................. --- --- --- --- --- 3,844,000 --- 3,844,000
Net unrealized loss on available
for-sale securities, net of
tax ............................ --- --- --- --- --- --- ($85,000) (85,000)
-------
Comprehensive income ............. 3,759,000
=========
5% stock dividend (fair value on
date declared).................. 1,423,600 --- 14,300 --- 37,694,900 (37,709,200) --- ---
Increase in common stock and
paid-in capital due to exercise
of stock options ............... 73,300 --- 700 --- 630,100 --- --- 630,800
Issuance of stock for employee
401(k) plan .................... 18,400 --- 200 --- 257,000 --- --- 257,200
---------- ------- -------- ----------- ------------ ------------ --------- ------------
Balance at July 31, 2003 ......... 29,975,100 --- 299,800 --- 199,081,800 (89,916,400) (85,000) 109,380,200
Net loss for the year ended
July 31, 2004 .................. --- --- --- --- --- (6,231,600) --- (6,231,600)
Net unrealized loss on available
for-sale securities, net of
tax ............................ --- --- --- --- --- --- (160,900) (160,900)
--------
Comprehensive loss ............... (6,392,500)
==========
Purchase of treasury stock ....... --- 349,900 --- $(5,668,900) --- --- --- (5,668,900)
Increase in common stock and
paid-in capital due to exercise
of stock options ............... 873,900 --- 8,700 --- 6,556,100 --- --- 6,564,800
Issuance of stock for employee
401(k) plan .................... 15,800 --- 100 --- 282,100 --- --- 282,200
---------- ------- -------- ----------- ------------ ------------ --------- ------------
Balance at July 31, 2004 ......... 30,864,800 349,900 $308,600 $(5,668,900) $205,920,000 $(96,148,000) $(245,900) $104,165,800
========== ======= ======== =========== ============ ============ ========= ============

F-5

See accompanying notes

ENZO BIOCHEM, INC
CONSOLIDATED STATEMENT OF CASH FLOWS

YEARS ENDED JULY 31, 2004, 2003 AND 2002

2004 2003 2002
---- ---- ----

Cash flows from operating activities:
Net (loss) income ............................................ ($6,231,600) $3,844,000 $6,922,800
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization of property and
equipment ............................................... 1,076,000 1,058,000 989,900
Amortization of costs in excess of fair value of net
tangible assets acquired ................................ --- 370,700
Amortization of deferred patent costs ...................... 1,285,500 750,000 793,600
Provision for uncollectible accounts receivable ............ 11,986,500 9,345,300 14,188,400
Deferred income tax provision .............................. (1,650,700) (128,100) 720,000
Issuance of stock for employee 401(k) plan ................. 282,200 257,200 247,000
Tax benefit from stock options exercised ................... --- --- 15,000
Deferred rent .............................................. (232,600) (195,400) (160,300)
Changes in operating assets and liabilities:
Accounts receivable before provision for
uncollectible amounts ................................ (9,514,500) (6,344,200) (9,896,900)
Inventories ............................................. (12,500) 768,400 (2,170,400)
Prepaid expenses ........................................ 400,400 (741,900) (358,700)
Income taxes receivable ................................. (3,364,600) 1,426,300 (1,618,400)
Trade accounts payable and accrued expenses ............. 931,900 (374,700) (527,200)
Accrued research and development expenses ............... (228,400) 453,400 ---
Accrued legal fees ...................................... 135,300 1,775,200 (111,000)
Accrued payroll ......................................... (444,900) 227,100 153,600
-------- ------- -------
Total adjustments ....................................... 649,600 8,276,600 2,635,300
------- --------- ---------
Net cash (used in) provided by operating activities.. (5,582,000) 12,120,600 9,558,100
---------- ---------- ---------
Cash flows from investing activities:
Capital expenditures ......................................... (1,303,800) (956,700) (620,400)
Patent costs deferred ........................................ (443,800) (353,900) (490,700)
Purchase of marketable securities ............................ (2,349,000) (15,293,400) ---
Security deposits ............................................ 1,400 (14,800) (14,400)
----- ------- -------
Net cash used in investing activities ...................... (4,095,200) (16,618,800) (1,125,500)
---------- ----------- ----------
Cash flows from financing activities:
Payment for fractional shares of stock dividend .............. --- --- (96,600)
Proceeds from the exercise of stock options .................. 895,700 630,800 128,000
Proceeds from insurance loss ................................. 13,000 --- ---
------ ---------- ------
Net cash provided by financing activities .................. 908,700 630,800 31,400
------- ---------- ------
Net (decrease) increase in cash and cash equivalents ............ (8,768,500) (3,867,400) 8,464,000
Cash and cash equivalents at the beginning of the year .......... 63,267,600 67,135,000 58,671,000
---------- ------------ ----------
Cash and cash equivalents at the end of the year ................ $54,499,100 $63,267,600 $67,135,000
=========== =========== ===========

F-6

See accompanying notes

ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2004, 2003 AND 2002

NOTE 1 - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

Enzo Biochem, Inc. (the "Company") is engaged in research, development,
manufacturing and marketing of diagnostic and research products based on genetic
engineering, biotechnology and molecular biology. These products are designed
for the diagnosis of and/or screening for infectious diseases, cancers, genetic
defects and other medically pertinent diagnostic information. The Company is
conducting research and development activities in the development of therapeutic
products based on the Company's technology platform of genetic modulation and
immune modulation. The Company also operates a clinical reference laboratory
that offers and provides diagnostic medical testing services to the health care
community.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All intercompany transactions and
balances have been eliminated.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid debt instruments purchased with
maturities of three months or less to be cash equivalents. Cash equivalents
consist of short-term debt securities of domestic companies that the Company
intends to hold to maturity through October 2004. The market values of these
securities, as determined by quoted sources, aggregated $54,449,100 and
$63,267,600 at July 31, 2004 and 2003, respectively, and approximated cost at
the respective dates.

MARKETABLE SECURITIES

The Company invests funds that are not required for immediate operating
needs both in income bond mutual funds and in a diversified portfolio of debt
securities. Management determines the appropriate classification of these
marketable securities at the time of purchase and reevaluates such designation
as of each balance sheet date. The Company classifies its marketable securities
as "available for sale" and, accordingly, carries these investments at their
aggregate fair values. Unrealized gains or losses, net of tax, on these
marketable securities are included as a separate component of stockholders'
equity. Realized gains & losses and declines in value judged to be
other-than-temporary on the marketable securities are included in investment
income. The cost of securities sold is based on the specific identification
method.

CONCENTRATION OF CREDIT RISK

Financial instruments that subject the Company to significant
concentrations of credit risk primarily consist of cash and cash equivalents,
marketable securities and the net accounts receivable. The Company's cash
equivalents and marketable securities are invested in financial instruments with
high credit ratings.

Approximately 89% at July 31, 2004 and 83% at July 31, 2003, of the
Company's net accounts receivable relates to its clinical reference laboratory
business, which operates in the New York Metropolitan area. The Company believes
that the concentration of credit risk with respect to clinical laboratory's
accounts receivable is limited due to the diversity of the Company's client base
and to the various numbers of insurance carriers and the numerous individual
patient accounts. As is standard in the health care industry, substantially all
of the Company's clinical laboratory's accounts receivable is with numerous
third party insurance carriers and individual patient accounts. However, the
Company provides services to certain patients covered by various third-party
payors, including the Federal Medicare program. Revenue, net of contractual
allowances, from direct billings under the Federal Medicare program during the
years ended July 31, 2004, 2003 and 2002 were approximately 19%, 11% and 10%,
respectively, of the Company's total revenue. The clinical reference laboratory
industry is characterized by a significant amount of uncollectible accounts
receivable related to the inability to receive accurate and timely billing
information in order to forward it to the third party payors for reimbursement,
and the inaccurate information received from the covered individual patients for
unreimbursed unpaid amounts. The Company's provision for uncollectible accounts
receivable is within historical expectations.

F-7

ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2004, 2003 AND 2002

NOTE 1 - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

Research product revenue from one major distributor represented
approximately 0%, 22% and 23% of the consolidated revenues in fiscal 2004, 2003
and 2002, respectively, under a non-exclusive distribution and supply agreement.
Research product revenue from this one major distributor accounted for
approximately 0% and 50% of the Company's total research product revenues in
fiscal 2004 and 2003, respectively.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or
market. Work-in-process and finished goods inventories consist of material,
labor, outside processing costs and manufacturing overhead.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost, and depreciated on the
straight-line basis over the estimated useful lives of the assets. Leasehold
improvements are amortized over the term of the related leases or estimated
useful lives of the assets, whichever is shorter.

PATENT COSTS

The Company capitalizes certain legal costs directly incurred in pursuing
patent applications as deferred patent costs under its research and development
segment. When such applications result in an issued patent, the related costs
are amortized over a ten year period, using the straight-line method. The
Company reviews its issued patents and pending patent applications, and if it
determines to abandon a patent application or that an issued patent no longer
has economic value, the unamortized balance in deferred patent costs relating to
that patent is immediately expensed.

REVENUE RECOGNITION

The Company has certain non-exclusive distribution agreements, which
provide for consideration to be paid to the distributors for the manufacture of
certain products. In accordance with EITF 00-25 and EITF 01-09, the Company
records such consideration provided to distributors under these non-exclusive
distribution agreements as a reduction to research product revenues. The revenue
from these non-exclusive distribution agreements are recognized when shipments
are made from the distributors to their respective customers and reported to the
Company.

Revenues from services from the clinical reference laboratory are
recognized when services are provided. The Company's revenue is based on amounts
billed or billable for services rendered, net of contractual adjustments and
other arrangements made with third-party payors to provide services at less than
established billing rates. Revenues from research product sales, excluding
certain non-exclusive distribution agreement revenues, are recognized when the
products are shipped.

REIMBURSEMENT CONTINGENCIES

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.

SHIPPING AND HANDLING COSTS

Research product revenue shipping and handling costs included in selling
expense amounted to approximately $384,000, $414,000 and $325,000 for fiscal
years ended July 31, 2004, 2003 and 2002, respectively.

F-8

ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2004, 2003 AND 2002

NOTE 1 - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.

INCOME TAXES

The Company accounts for income taxes under the liability method of
accounting for income taxes. Under the liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. The liability method requires
that any tax benefits recognized for net operating loss carryforwards and other
items be reduced by a valuation allowance where it is more likely than not that
the benefits may not be realized. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under the liability method, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

RECLASSIFICATIONS

Certain amounts in prior years have been reclassified to conform to current
year presentation.

GOODWILL AND OTHER INTANGIBLES

The Company follows the provisions of the Financial Accounting Standards
Board ("FASB") Statement No. 142 ("SFAS 142"), Goodwill and Other Intangibles.
Under SFAS 142, goodwill is no longer subject to amortization over its estimated
useful life. Rather, goodwill is subject to at least an annual assessment for
impairment by applying a fair-value based test. Additionally, an acquired
intangible asset should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights, or if
intangible asset can be sold, transferred, licensed, rented or exchanged,
regardless of the acquirer's intent to do so. All of the Company's goodwill is
related to their clinical reference laboratory segment. The Company adopted SFAS
No. 142 as of August 1, 2002 and has performed the requisite impairment testing.
The Company has performed their annual impairment testing on the first day of
the fourth quarter of their fiscal year. Based on this testing, there is no
impairment to the goodwill recorded on the accompanying balance sheet.

SFAS 142 requires the disclosure of net income and earning per share
computed on a pro forma basis by reversing the goodwill amortized in the periods
presented. Such pro forma disclosures are required in the period of adoption and
thereafter until all periods presented reflect goodwill accounted for in
accordance with SFAS 142. The goodwill amortized in the year ended July 31, 2002
was $370,700. Therefore, had SFAS 142 been effective prior to August 1, 2002,
the Company's net income would have been $7,293,500 for the year ended July 31,
2002. Basic net income per share would have been $.24 for the year ended July
31, 2002. Diluted net income per share would have been $.24 for the year ended
July 31, 2002.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company accounts for its investments in long-lived assets in accordance
with FASB Statement No. 144 ("SFAS No. 144"), Accounting for the Impairment or
Disposal of Long-Lived Assets and Long-Lived Assets. The Company adopted SFAS
No. 144 on August 1, 2002. SFAS No. 144 requires a company to review its
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Factors
the Company considers important, which could trigger an impairment review,
include, among others, the following:

o a significant adverse change in the extent or manner in which a
long-lived asset is being used;

o a significant adverse change in the business climate that could affect
the value of a long-lived asset; and

o a significant decrease in the market value of assets.

F-9

ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2004, 2003 AND 2002

NOTE 1 - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

If the Company determines that the carrying value of long-lived assets may
not be recoverable, based upon the existence of one or more of the above
indicators of impairment, the Company compares the carrying value of the asset
group to the undiscounted cash flows expected to be generated by the group. If
the carrying value exceeds the undiscounted cash flows, an impairment charge may
be needed. To determine the amount of the impairment charge, the Company
compares the carrying value of the applicable asset group to its fair value. If
the fair value is less than the carrying value, such amount is recognized as an
impairment charge. As of July 31, 2004 the Company has not recorded an
impairment charge.

STOCK DIVIDEND

The Company declared a 5% stock dividend on October 5, 2004 payable
November 15, 2004 to shareholders of record as of October 25, 2004. The Company
declared a 5% stock dividend on June 10, 2003 payable July 14, 2003 to
shareholders of record as of June 30, 2003. The Company declared a 5% stock
dividend on January 23, 2002 payable February 27, 2002 to shareholders of record
as of February 2, 2003. The per share data has been adjusted retroactively to
reflect the stock dividend declared on October 5, 2004. The consolidated balance
sheet and consolidated statement of stockholders' equity do not give effect to
the dividend declared October 5, 2004. The shares and per share data have been
adjusted to retroactively reflect the stock dividends in fiscal 2003 and 2002.
The Company recorded a charge to accumulated deficit and a credit to common
stock and additional paid-in capital in the amounts of approximately $37,709,000
and $26,988,000 in fiscal 2003 and fiscal 2002, respectively, which reflects the
fair value of the dividends on the dates of declaration.

NET (LOSS) INCOME PER SHARE

The Company applies SFAS No. 128, "Earnings per Share." SFAS No. 128
establishes standards for computing and presenting earnings per share. Basic net
(loss) income per share represents net (loss) income divided by the weighted
average number of common shares outstanding during the period. The dilutive
effect of potential common shares, consisting of outstanding stock options, is
determined using the treasury stock method in accordance with SFAS No. 128.
Diluted weighted average shares outstanding for 2004 do not include the
potential common shares from stock options because to do so would have been
antidilutive. Accordingly, basic and diluted net loss per share is the same. The
number of potential common shares excluded from the calculation of diluted
earnings per share during the year ended July 31, 2004 was 798,349 shares.

The following table sets forth the computation of basic and diluted net
(loss) income per share pursuant to SFAS No. 128.

2004 2003 2002
---- ---- ----

Numerator:
Net (loss) income for numerator for basic
and diluted net income per common share $(6,231,600) $3,844,000 $6,922,800
=========== ========== ==========
Denominator:
Denominator for basic net income per
common share-weighted-average shares 31,700,000 31,399,000 31,359,000

Effect of dilutive employee and director
stock options and warrants --- 776,000 968,000
---------- ---------- ----------
Denominator for diluted net income per
share-adjusted weighted-average shares 31,700,000 32,175,000 32,327,000
========== ========== ==========

Basic net (loss) income per share $(.20) $.12 $.22
===== ==== ====

Diluted net (loss) income per share $(.20) $.12 $.21
===== ==== ====

F-10

ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2004, 2003 AND 2002

NOTE 1 - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

Basic earnings per share have been computed using the weighted-average
number of shares of common stock outstanding. Diluted earnings per share has
been computed using the basic weighted-average shares of common stock issued
plus outstanding stock options, in the periods in which such options have a
dilutive effect under the treasury stock method.

STOCK COMPENSATION PLANS

The Company accounts for stock option grants to employees under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations. Under APB No. 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recorded.

Pro forma information regarding net (loss) income applicable to common
stockholders is required by FASB Statement No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation," which also requires that the information be
determined as if the Company has accounted for its stock options under the fair
value method of that statement. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options'
vesting period. The fair value for these options was estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for all grants in the years ended July 31, 2004, 2003, and
2002: no dividend yield, weighted-average expected life of the option of seven
years, risk-free interest rate ranges of 3% to 6.88% and a volatility of .74,
..77 and .78 for all grants.

The Company follows the provisions of FASB Statement No. 148 ("SFAS 148"),
"Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS No.
148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition to SFAS No. 123's fair value method of
accounting for stock-based employee compensation. SFAS No. 148 also amends the
disclosure provisions of SFAS No. 123 to require disclosure in the summary of
significant accounting policies of the effects of an entity's accounting policy
with respect to stock-based employee compensation on reported net income. While
SFAS No. 148 does not amend SFAS No. 123 to require companies to account for
employee stock options using the fair value method, the disclosure provisions of
SFAS No. 148 are applicable to all companies with stock-based employee
compensation, method of SFAS No. 123 or the intrinsic value method of APB No.
25. The Company adopted SFAS No. 148 effective January 31, 2004.

The following table illustrates the effect on net (loss) income if the
Company had applied the fair value recognition provisions of SFAS No. 123 to
stock-based (loss) compensation:

Year ended July 31, 2004 2003 2002
---- ---- ----

Reported net (loss) income..................... ($6,231,600) $3,844,000 $6,922,800
Stock compensation expense included in net
income...................................... --- --- ---

Pro forma compensation expense................. (3,239,800) (3,010,900) (2,597,800)
---------- ---------- ----------

Pro forma net (loss) income.................... ($9,471,400) $833,100 $4,325,000
=========== ======== ==========
Pro forma (loss) earnings per share:
Basic ...................................... ($.30) $.03 $.14

Diluted..................................... ($.30) $.03 $.14

F-11

ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2004, 2003 AND 2002

NOTE 2 - SUPPLEMENTAL DISCLOSURE FOR STATEMENT OF CASH FLOWS

In the years ended July 31, 2004, 2003 and 2002, the Company paid cash for
income taxes of approximately $219,000, $583,000 and $4,300,000 respectively.

In fiscal 2004, certain officers exercised 769,290 shares of incentive
stock options. The officers surrendered 349,932 of previously owned shares of
the Company's common stock to be utilized to exercise the stock options. The
Company recorded the 349,932 of surrendered shares as treasury stock of
approximately $5.6 million as a non cash transaction.

In fiscal 2004, the Company purchased the assets of a privately held
company for $650,000, of which 350,000 was paid in cash during fiscal 2004 and
the remaining $300,000 is to be paid in two $150,000 installments on the 18 and
36 month anniversary date of the acquisition. The $300,000 is a non-cash
transaction at July 31, 2004.

NOTE 3 - MARKETABLE SECURITIES

The following is a summary of available for-sale securities at July 31, 2004 and
2003:

Unrealized Holding
Fiscal Years Ended July 31, Gain (Loss)
Years Ended July 31,

2004 2003 2004 2003
---- ---- ---- ----

Income bond mutual fund $15,401,300 $15,154,100 $(132,300) $(139,300)

Marketable securities
U.S. Government and agency securities 1,063,100 --- --- ---
Corporate and other debt securities 777,100 (129,400) ---
----------- ----------- ---------- ----------
(Average of remaining maturity of approximately
four months at July 31, 2004) $17,241,500 $15,154,100 $(261,700) ($139,300)
=========== =========== ========= =========

There were no realized gains during fiscal 2004 and 2003 on the Company's
marketable securities.

The following is a summary of income tax effects relating to other comprehensive
income (loss):

Before-Tax Amount Tax (Expense) Net-of-Tax
----------------- or Benefit Amount
---------- ------

Fiscal 2004 unrealized loss .......... ($261,700) $100,800 ($160,900)
Fiscal 2003 unrealized loss .......... (139,300) 54,300 (85,000)
-------- ------ -------
Cumulative balance at July 31, 2004... ($401,000) $155,100 ($245,900)
========= ======== =========

NOTE 4 - INVENTORIES

At July 31, 2004 and 2003 inventories consist of:

2004 2003
---- ----
Raw materials........................ $124,900 $167,900
Work in process...................... 2,188,000 2,057,900
Finished products.................... 1,121,400 1,196,000
--------- ---------
$3,434,300 $3,421,800
========== ==========

F-12

ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2004, 2003 AND 2002

NOTE 5 - PROPERTY AND EQUIPMENT

At July 31, 2004 and 2003 property and equipment consist of:

2004 2003
---- ----

Laboratory machinery and equipment............. $1,901,900 $1,866,700
Leasehold improvements......................... 2,543,400 2,327,400
Office furniture and equipment................. 5,650,300 4,896,500
--------- ---------
10,095,600 9,090,600
Accumulated depreciation and amortization...... 7,681,000 6,890,800
--------- ---------
$2,414,600 $2,199,800
========== ==========

NOTE 6 - LEASE OBLIGATIONS

The Company leases its office and laboratory space under several leases
that expire between November 30, 2004 and December 2008. Certain officers /
directors of the Company own the building that the Company uses as its main
facility for laboratories and research and manufacturing. In addition to the
minimum annual rentals of space, this lease is subject to an escalation clause.
Rent expense under this lease approximated $1,370,000, $1,302,000 and $1,238,000
in fiscal 2004, 2003 and 2002, respectively.

The Company has various other operating leases for office and laboratory
space, which expire through fiscal 2009.

Total consolidated rent expense incurred by the Company during fiscal 2004,
2003 and 2002 was approximately $1,801,000, $1,742,000 and $1,710,000
respectively. Minimum annual rentals under operating lease commitments for
fiscal years ending July 31 are as follows:

2005 $705,000
2006 $288,000
2007 $210,000
2008 $169,000
2009 $21,000
-------
$1,393,000
==========

NOTE 7 - LITIGATION

PATENT INFRINGEMENT

In June 1999, the Company filed suit in the United States District Court for the
Southern District of New York against Gen-Probe Incorporated, Chugai Pharma
U.S.A., Inc., Chugai Pharmaceutical Co., Ltd., bioMerieux, Inc., bioMerieux SA,
and Becton Dickinson and Company, charging them with infringing the Company's
U.S. Patent 4,900,659, which concerns probes for the detection of the bacteria
that causes gonorrhea. On January 26, 2001, the court granted the defendants'
motion for summary judgment that the Company's patent is invalid. On July 15,
2002, the Court of Appeals for the Federal Circuit reversed the judgment of
invalidity and remanded the case to the district court for further proceedings.
In March 2003, settlements were reached with bioMerieux and Chugai; the
settlements did not have a material monetary impact on the Company. In July
2004, the district court again granted another motion by the remaining
defendants (Gen-Probe and Becton Dickinson) that all claims of the Company's
patent are invalid. The Company has filed an appeal of that judgment. There can
be no assurance that the Company will be successful in the on-going proceedings.
However, even if the Company is not successful, management does not believe that
there will be a significant adverse monetary impact to the Company.

F-13

ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2004, 2003 AND 2002

NOTE 7 - LITIGATION (CON'T)

On March 6, 2002, the Company was named, along with certain of its officers and
directors among others, in a complaint entitled Lawrence F. Glaser and Maureen
Glaser, individually and on behalf of Kimberly, Erin, Hannah, and Benjamin
Glasser v. Hyman Gross, Barry Weiner, Enzo Biochemical Inc., Elazar Rabbani,
Shahram Rabbani, John Delucca, Dean Engelhardt, Richard Keating, Doug Yates and
Docs 1-50, in the U.S. District Court for the Eastern District of Virginia. The
complaint was filed by an investor in the Company who has filed for bankruptcy
protection and his family. The complaint alleged securities and common law fraud
and breach of fiduciary duty and seeks in excess of $150 million in damages. On
August 22, 2002, the complaint was voluntarily dismissed; however a new
substantially similar complaint was filed at the same time. On October 21, 2002,
the Company and the other defendants filed a motion to dismiss the complaint,
and the plaintiffs responded by amending the complaint and dropping their claims
against defendants Keating and Yates. On November 18, 2002, the Company and the
other defendants again moved to dismiss the Amended Complaint. On July 16, 2003,
the Court issued a Memorandum Opinion dismissing the Amended Complaint in its
entirety with prejudice. Plaintiffs thereafter moved for reconsideration but the
Court denied the motion on September 8, 2003. The plaintiffs subsequently
appealed to the Fourth Circuit and that appeal is presently pending. The Company
does not believe that the complaint has any merit and was correctly dismissed,
and intends to continue to defend the complaint vigorously in any event.

In March 2002, Enzo Life Sciences, a subsidiary of the Company, filed suit in
the United States District Court for the District of Delaware against Digene
Corp., charging it with infringing the Company's U.S. Patent No. 6,221,581 B1,
which concerns a novel process for detecting nucleic acids of interest. On May
31, 2002, Digene filed counterclaims in that suit against Enzo Life Sciences and
the Company, including business tort counterclaims relating to the `581 patent.
On October 13, 2004, the Company, its wholly owned subsidiary Enzo Life
Sciences, Inc. ("Enzo Life Sciences") and Digene Corporation ("Digene") entered
into a Settlement and License Agreement (the "Agreement") and a Joint
Stipulation and Order of Dismissal with Prejudice (the "Stipulation"). The
Agreement provides for (i) the full and final settlement of the Litigation and
(ii) the grant to Digene of a non-exclusive, worldwide, royalty-bearing license
with respect to such `581 Patent and the remaining patents in the '581 patents
global family. The '581 patent is set to expire on April 24, 2018. Pursuant to
the Agreement Digene is irrevocably required to pay Enzo Life Sciences an
aggregate of $30.5 million of which Life Sciences received U.S. $16 million (the
"First Payment") from Digene on October 14, 2004. In addition, Digene has
irrevocable agreed to pay to Enzo U.S. $16.5 million (subject to the $2 million
credit discussed below) ("Additional Irrevocable Payments"); $2.5 million of
which shall be paid by November 14, 2005 and $3.5 million per year by November
14 of each of 2006, 2007, 2008 and 2009. Digene will pay to Enzo Life Sciences
Running Royalties on Net Sales of Licensed Products. Each Additional Irrevocable
Payment is fully creditable by Digene against the Running Royalties that are due
under the Agreement. Digene at its discretion may credit $2 million of the First
Payment against either the payment required to be paid by Digene by November 14,
2005 or the Running Royalties due Enzo Life Sciences under the Agreement. The
Stipulation which will be filed with the Court by October 15, 2004 dismisses
with prejudice all claims, counterclaims and defenses brought or raised by any
party to the Litigation.

In October 2002, the Company filed suit in the United States District Court of
the Southern District of New York against Amersham plc, Amersham Biosciences,
Perkin Elmer, Inc., Perkin Elmer Life Sciences, Inc., Sigma-Aldrich Corporation,
Sigma Chemical Company, Inc., Molecular Probes, Inc. and Orchid Biosciences,
Inc. In January 2003, the Company amended its complaint to include defendants
Sigma Aldrich Co. and Sigma Aldrich, Inc. The counts set forth in the suit are
for breach of contract; patent infringement; unfair competition under state law;
unfair competition under federal law; tortious interference with business
relations; and fraud in the inducement of contract. The complaint alleges that
these counts arise out of the defendants' breach of distributorship agreements
with the Company concerning labeled nucleotide products and technology, and the
defendants' infringement of patents covering the same. In April, 2003, the Court
directed that individual complaints be filed separately against each defendant.
A number of the defendants have answered the individual complaints and asserted
a variety of affirmative defenses and counterclaims. Fact discovery is currently
scheduled to close on May 6, 2005. The Court will conduct a claim construction
hearing on June 28, 2005. There can be no assurance that the Company will be
successful in this litigation. However, even if the Company is not successful,
management does not believe that there will be a significant adverse monetary
impact to the Company.

F-14

ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2004, 2003 AND 2002

NOTE 7 - LITIGATION (CON'T)

On October 28, 2003, the Company and Enzo Life Sciences, Inc., a subsidiary of
the Company, filed suit in the United States District Court of the Eastern
District of New York against Affymetrix, Inc. The Complaint alleges that
Affymetrix improperly transferred or distributed substantial business assets of
the Company to third parties, including portions of the Company's proprietary
technology, reagent systems, detection reagents and other intellectual property.
The Complaint also charges that Affymetrix failed to account for certain
shortfalls in sales of the Company's products, and that Affymetrix improperly
induced collaborators and customers to use the Company's products in
unauthorized fields or otherwise in violation of the agreement. The Complaint
seeks full compensation from Affymetrix to the Company for its substantial
damages, in addition to injunctive and declaratory relief to prohibit, among
other things, Affymetrix's unauthorized use, development, manufacture, sale,
distribution and transfer of the Company's products, technology, and/or
intellectual property, as well as to prohibit Affymetrix from inducing
collaborators, joint venture partners, customers and other third parties to use
the Company's products in violation of the terms of the agreement and the
Company's rights. Subsequent to the filing of the Complaint against Affymetrix,
Inc. referenced above, on or about November 10, 2003, Affymetrix, Inc. filed its
own complaint against the Company and its subsidiary, Enzo Life Sciences, Inc.,
in the United States District Court for the Southern District of New York,
seeking among other things, declaratory relief that Affymetrix, Inc., has not
breached the parties' agreement, that it has not infringed certain of Enzo's
Patents, and that certain of Enzo's patents are invalid. The Affymetrix
complaint also seeks damages for alleged breach of the parties' agreement,
unfair competition, and tortuous interference, as well as certain injunction
relief to prevent alleged unfair competition and tortuous interference. The
Company does not believe that the complaint has any merit and intends to defend
vigorously. Affymetrix also moved to transfer venue of Enzo's action to the
Southern District of New York, where other actions commenced by Enzo were
pending as well as Affymetrix's subsequently filed action. On January 30, 2004,
Affymetrix's motion to transfer was granted. Accordingly, the Enzo and
Affymetrix actions are now both pending in the Southern District of New York.
Pleadings have not been completed and discovery has not commenced.

On June 2, 2004 Roche Diagnostic GmbH and Roche Molecular Systems, Inc.
(collectively "Roche") filed suit in the U.S. District Court of the Southern
District of New York against Enzo Biochem, Inc. and Enzo Life Sciences, Inc.
(collectively "Enzo"). The complaint was filed after Enzo rejected Roche's
latest cash offer to settle Enzo's claims for, INTER ALIA, alleged breach of
contract and misappropriation of Enzo's assets. The complaint seeks declaratory
judgment (i) of patent invalidity with respect to Enzo's 4,994,373 patent, (ii)
of no breach by Roche of its 1994 Distribution and Supply Agreement with Enzo
(the "1994 Agreement"), (iii) that non-payment by Roche to Enzo for certain
sales of Roche products does not constitute a breach of the 1994 Agreement, and
(iv) that Enzo's claims of ownership to proprietary inventions, technology and
products developed by Roche are without basis. In addition, the suit claims
tortious interference and unfair competition. The Company does not believe that
the complaint has merit and intends to vigorously respond to such action with
appropriate affirmative defenses and counterclaims.

On June 7, 2004, the Company and its wholly-owned subsidiary, Enzo Life
Sciences, Inc., filed suit in the United States District Court for the District
of Connecticut against Applera Corporation and its wholly-owned subsidiary
Tropix, Inc. The complaint alleges infringement of six patents (relating to DNA
sequencing systems, labelled nucleotide products, and other technology). Yale
University is the owner of four of the patents and the Company is the exclusive
licensee. Accordingly, Yale is also a plaintiff in the lawsuit. Yale and Enzo
are aligned in protecting the validity and enforceability of the patents. Enzo
Life Sciences is the owner of the remaining two patents. The complaint seeks
permanent injunction and damages (including treble damages for wilful
infringement). Defendants answered the complaint on July 29, 2004. The answer
pleads affirmative defences of invalidity, estoppel and laches and asserts
counterclaims of non-infringement and invalidity. A trial date has not been set.
Discovery commences on September 15, 2004. There can be no assurance that the
Company will be successful in this litigation. Even if the Company is not
successful, management does not believe that there will be a significant adverse
monetary impact on the Company.

F-15

ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2004, 2003 AND 2002

NOTE 8 - INCOME TAXES

The Company accounts for income taxes under the provisions of SFAS No. 109
"Accounting for Income Taxes".

2004 2003 2002
---- ---- ----

Current
Federal ............................ ($3,288,000) $1,828,000 $2,211,600
State and local .................... 191,500 181,400 485,500
Deferred .............................. (1,751,600) (128,100) 720,000
----------- --------- -------

(Benefit) provision for income taxes... $(4,848,100) $1,881,300 $3,417,100
============ ========== ==========

Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. The components of deferred income taxes are as follows:

2004 2003
---- ----

Current deferred tax assets:
Provision for uncollectible accounts receivable... $1,072,500 $837,100
State and local taxes carry forward losses ....... 720,900 ---
Other ............................................ 181,400 176,700
------- -------
Current deferred tax assets ................... 1,974,800 1,013,800

Non current deferred tax liability:
Deferred patent costs ............................ (906,800) (1,234,800)

Non current deferred tax asset:
Depreciation ..................................... 462,000 ---
------- -------
Non current deferred tax liability, net .......... (444,800) (1,234,800)
-------- ----------
Net deferred tax asset (liability) .................. $1,530,600 ($221,000)
========== ==========

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or the entire deferred tax
asset will be realized. The ultimate realization of the deferred tax asset is
dependent upon the generation of future taxable income. Management considers
scheduled reversals of deferred tax liabilities, projected future taxable income
and tax planning strategies that can be implemented by the Company in making
this assessment.

The provisions for income taxes were at rates different from U.S. federal
statutory rates for the following reasons:

2004 2003 2002
---- ---- ----

Federal statutory rate .............................................. (34%) 34% 34%
Expenses not deductible for income
tax return purposes .............................................. 3% 2% 2%
State income taxes, net (benefit) of federal tax deduction .......... (4%) 3% 5%
Benefit of foreign sales ............................................ (2%) (4%) (4%)
Fixed asset basis difference......................................... (8%) --- ---
Benefit of tax credits .............................................. --- --- (4%)
Other ............................................................... 1% (2%) ---
--- --- ---
(44%) 33% 33%
=== === ===

NOTE 9 - STOCKHOLDERS' EQUITY

TREASURY STOCK

In fiscal 2004, certain officers exercised 769,290 shares of incentive
stock options. The officers surrendered 349,932 of previously owned shares of
the Company's common stock to be utilized to exercise the stock options. The
Company recorded the 349,932 of surrendered shares as treasury stock of
approximately $5.6 million as a non cash transaction.

F-16

ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2004, 2003 AND 2002

NOTE 9 - STOCKHOLDERS' EQUITY (CON'T)

INCENTIVE STOCK OPTION PLAN

The Company has incentive stock option plans ("1993 plan" and "1994 plan") under
which the Company may grant options for up to 2,110,650 shares (1993 plan) and
up to 1,336,745 shares (1994 plan) of common stock. No additional options may be
granted under the 1993 plan or the 1994 plan. In fiscal 1999, the Company set up
a new incentive stock options plan ("1999 plan") under which the Company may
grant up to 2,202,244 shares of common stock. The exercise price of options
granted under such plans is equal to or greater than fair market value of the
common stock on the date of grant. The options granted pursuant to the plans may
be either incentive stock options or no statutory options. To date, the Company
has only granted incentive stock options under these plans.

A summary of the information pursuant to the Company's stock option plan for the
years ended July 31, 2004, 2003 and 2002 under SFAS No. 123 is as follows:

2004 2003 2002
----------------------------- ----------------------------- ------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
------- -------------- ------- -------------- ------- --------------

Outstanding at
beginning of
year 3,397,087 $9.88 2,841,401 $9.38 2,864,595 $8.85
Granted 428,925 $17.02 661,225 $11.76 26,046 $20.20
Exercised (917,539) $7.16 (79,838) $6.85 (17,630) $7.33
Terminated (51,672) $10.13 (25,701) $12.51 (31,611) $10.69
--------- --------- ---------

Outstanding at
end of year 2,856,801 $11.86 3,397,087 $9.88 2,841,401 $9.38
========= ========= =========

Exercisable at
end of year 1,770,492 $10.54 2,490,003 $8.98 2,297,908 $8.81
========= ========= =========

Weighted average
fair value of
options granted
during year $12.40 $8.49 $14.18
====== ===== ======

The following table summarizes information for stock options outstanding at
July 31, 2004:

Options Outstanding Options Exercisable
----------------------------------------------- ---------------------------
Weighted-Average
Range of Exercise Remaining Weighted-average Weighted-average
Prices Shares Contractual Life Exercise Price Shares Exercise Price
------ ------ ---------------- -------------- ------ --------------

$5.42-8.08 390,660 3.32 years $6.00 390,660 $6.00
$8.32-12.25 1,741,557 5.52 years $11.09 1,168,734 $11.08
$12.93-14.36 644,708 1.98 years $15.92 135,563 $15.92
$20.20-24.42 61,643 7.00 years $21.42 57,302 $21.42
$36.05 18,232 5.45 years $36.05 18,232 $36.05
------ ------
2,856,801 1,770,492
========= =========

Incentive stock options generally become exercisable at 25% per year after
one year and expire ten years after the date of grant.

F-17

ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2004, 2003 AND 2002

NOTE 9 - STOCKHOLDERS' EQUITY (CON'T)

RESTRICTED STOCK INCENTIVE PLAN

The Company has a restricted stock incentive plan whereby the Company may
award up to 281,420 shares of its common stock. Under the terms of the plan, any
shares issued are restricted in regard to sales and transfers for a period of
five years after award. Such restrictions begin to expire at 25% per year after
the second year of ownership. As of July 31, 2004, the Company has not awarded
any shares of common stock under this plan.

**********

As of July 31, 2004, the Company has reserved 3,640,359 shares under the
arrangements described above.

NOTE 10 - COMMITMENTS

The Company has an exclusive licensing agreement to an invention covered by
licensed patents. Under this agreement, the Company is required to make certain
minimum royalty payments of $200,000 per year through the life of the patents.

NOTE 11 - ACQUISITIONS

In fiscal 2004, the Company purchased the assets of a privately held
company for $650,000, of which $350,000 was paid in cash during fiscal 2004 and
the remaining $300,000 is to be paid in two $150,000 installments on the 18 and
36 month anniversary date of the acquisition. The Company has allocated the
entire purchase price to patents as of July 31, 2004.

NOTE 12 - EMPLOYEE BENEFIT PLAN

The Company has a qualified Salary Reduction Profit Sharing Plan (the
"Plan") for eligible employees under Section 401(k) of the Internal Revenue
Code. The Plan provides for voluntary employee contributions through salary
reduction and voluntary employer contributions at the discretion of the Company.
For the years ended July 31, 2004, 2003 and 2002, the Company has authorized
employer contributions of 50% of the employees' contribution up to 10% of the
employees' compensation in Enzo Biochem, Inc. common stock. The 401(k) employer
contributions expense was $282,300, $257,200, and $247,000 in fiscal years 2004,
2003 and 2002, respectively.

NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table contains statement of operations information for each
quarter of fiscal 2004 and 2003. The Company believes that the following
information reflects all normal recurring adjustments necessary for a fair
presentation of the information for the periods presented. The operating results
for any quarter are not necessarily indicative of results for any future period.

F-18

ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2004, 2003 AND 2002

Unaudited quarterly financial data (in thousands, except per share amounts)
for fiscal 2004 and 2003 is summarized as follows:

Three Months Ended
------------------
October 31, 2003 January 31, 2004 April 30, 2004 July 31, 2004
---------------- ---------------- -------------- -------------

Revenues $10,273 $11,028 $11,765 $8,578

Gross profit 7,567 8,099 8,705 4,167

Loss before benefit for taxes
on income ($816) ($2,755) ($891) ($6,618)
===== ======= ===== =======

Net loss ($323) ($1,455) ($460) ($3,994)
===== ======= ===== =======

Basic loss per common share ($.01) ($0.05) ($0.02) ($0.12)
===== ====== ====== ======

Diluted loss per common share ($.01) ($0.05) ($0.02) ($0.12)
===== ====== ====== ======

Three Months Ended
------------------
October 31, 2002 January 31, 2003 April 30, 2003 July 31, 2003
---------------- ---------------- -------------- -------------

Revenues $17,356 $13,112 $11,640 $10,659

Gross profit 13,966 10,340 8,923 6,556

Income (loss) before provision
for taxes on income 6,047 2,370 2,022 (4,714)

Net income (loss) $3,688 $1,446 $1,233 ($2,523)
====== ====== ====== =======

Basic income (loss) per common
share $.12 $.04 $.04 ($.08)
==== ==== ==== =====

Diluted income (loss) per common
share $.12 $.04 $.04 ($.08)
==== ==== ==== =====

NOTE 14 - SUBSEQUENT EVENT

On October 13, 2004, the Company, its wholly owned subsidiary Enzo Life
Sciences, Inc. ("Enzo Life Sciences") and Digene Corporation ("Digene") entered
into a Settlement and License Agreement (the "Agreement") and a Joint
Stipulation and Order of Dismissal with Prejudice (the "Stipulation"). The
Agreement provides for (i) the full and final settlement of the litigation
involving Life Sciences' U.S. Patent No. 6,221,581 (the "581 Patent") which is
the subject matter of a lawsuit in the U.S. District Court for the District of
Delaware, in a case entitled ENZO LIFE SCIENCES V. DIGENE CORP. (the
"Litigation") and (ii) the grant to Digene of a non-exclusive, worldwide,
royalty-bearing license with respect to such `581 Patent and the remaining
patents in the '581 patents global family. The '581 patent is set to expire on
April 24, 2018. Pursuant to the Agreement Digene is irrevocably required to pay
Enzo Life Sciences and aggregate of $30.5 million of which Life Sciences
received U.S. $16 million (the "First Payment") from Digene on October 13, 2004.
In addition, Digene has irrevocable agreed to pay to Enzo U.S. $16.5 million
(subject to the $2 million credit discussed below) ("Additional Irrevocable
Payments"); $2.5 million of which shall be paid by November 14, 2005 and $3.5
million per year by November 14 of each of 2006, 2007, 2008 and 2009. Digene
will pay to Enzo Life Sciences Running Royalties on Net Sales of Licensed
Products. Each Additional Irrevocable Payment is fully creditable by Digene
against the Running Royalties that are due under the Agreement. Digene at its
discretion may credit $2 million of the First Payment against either the payment
required to be paid by Digene by November 14, 2005 or the Running Royalties due
Enzo Life Sciences under the Agreement. The Stipulation which will be filed with
the Court by October 14, 2004 dismisses with prejudice all claims, counterclaims
and defenses brought or raised by any party to the Litigation.

F-19

ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2004, 2003 AND 2002

Note 15--Segment Reporting

The Company applies SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about products and services and
geographic areas. The chief operating decision maker, or decision-making group,
in making decision how to allocate resources and assess performance, identifies
operating segments as components of an enterprise about which separate discrete
financial information is available for evaluation.

The Company has two reportable segments: research and development and
clinical reference laboratories. The Company's research and development segment
conducts research and development activities as well as selling products derived
from these activities. The clinical reference laboratories provide diagnostic
services to the health care community. The Company evaluates performance based
on (loss) income before (benefit) provision for taxes on income. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies. Costs excluded from income before
provision for taxes on income and reported as other consist of corporate general
and administrative costs that are not allocable to the two reportable segments.
Management of the Company assesses assets on a consolidated basis only and
therefore, assets by reportable segment have not been included in the reportable
segments below.

The following financial information (in thousands) represents the
reportable segments of the Company:

RESEARCH AND DEVELOPMENT CLINICAL REFERENCE LABORATORIES
-------------------------- -------------------------------
FISCAL YEAR ENDED JULY 31, FISCAL YEAR ENDED JULY 31,
-------------------------- --------------------------
2004 2003 2002 2004 2003 2002
---- ---- ---- ---- ---- ----

Operating revenues:
Research product revenues ..................................... $12,972 $23,253 $25,963 --- --- ---
Clinical laboratory services .................................. --- --- $28,672 $29,514 $28,052

Cost and expenses:
Cost of research product revenues ............................. 2,518 3,389 1,837 --- --- ---
Cost of clinical laboratory services .......................... --- --- 10,586 9,593 10,110
Research and development expense .............................. 8,078 8,311 6,179 --- --- ---
Depreciation and amortization ................................. 1,414 881 923 902 893 1,231
Provision for uncollectible accounts .......................... 1,753 616 --- 10,234 8,729 14,188
Other costs and expenses ...................................... 508 609 420 8,429 7,294 6,279
Interest income ............................................... --- --- --- --- --- ---
----- ----- ----- ----- ----- -----
(Loss) income before (benefit) provision for income
Taxes on income ............................................ $(1,299) $9,447 $16,604 $(1,479) $3,005 $(3,756)
======== ====== ======= ======== ====== ========

OTHER CONSOLIDATED
---------------------------- --------------------------
FISCAL YEAR ENDED JULY 31, FISCAL YEAR ENDED JULY 31,
---------------------------- --------------------------
2004 2003 2002 2004 2003 2002
---- ---- ---- ---- ---- ----

Operating revenues:
Research product revenues ................................... --- --- --- $12,972 $23,253 $25,963
Clinical laboratory services ................................ --- --- --- 28,672 29,514 28,052

Cost and expenses:
Cost of research product revenues ........................... --- --- --- 2,518 3,389 1,837
Cost of clinical laboratory services ........................ --- --- --- 10,586 9,593 10,110
Research and development expense ............................ --- --- --- 8,078 8,311 6,179
Depreciation and amortization ............................... $45 $34 --- 2,361 1,808 2,154
Provision for uncollectible accounts ........................ --- --- --- 11,987 9,345 14,188
Other costs and expenses .................................... 9,409 8,048 $3,858 18,346 15,951 10,557
Interest income ............................................. 1,152 1,355 1,350 1,152 1,355 1,350
----- ----- ----- ----- ----- -----
(Loss) income before (benefit) provision for income
Taxes on income .......................................... $(8,302) ($6,727) ($2,508) $(11,080) $5,725 $10,340
======== ======== ======== ========= ====== =======

The Company's reportable segments are determined based on the services they
performed and the products they sell, not on the geographic area in which they
operate. The Company's clinical reference laboratories segment operates 100% in
the United States with all revenue derived from this country. The research and
development segment earns revenue both in the United States and foreign
countries. The following is a summary of research and development revenues
attributable to customers located in the United States and foreign countries:

2004 2003 2002
---- ---- ----

United States .............. $8,029 $19,492 $21,431
Foreign Countries........... 4,943 3,761 4,532
----- ----- -----
$12,972 $23,253 $25,963
======= ======= =======

F-20

ENZO BIOCHEM, INC
SCHEDULE II - VALUATION
AND QUALIFYING ACCOUNTS
Years ended July 31, 2004, 2003 and 2002

Additions
---------

Balance at Charged Charged
Beginning (credited) to costs to other (Additions) Balance at
Description of period and expenses accounts Deductions end of period
- ----------- --------- ------------ -------- ---------- -------------

2004
- ----
Allowance for doubtful accounts receivable $4,900,000 $11,986,500 --- $11,383,500 (1) $5,503,000

2003
- ----
Allowance for doubtful accounts receivable $4,445,000 $9,345,000 --- $8,890,000 (1) $4,900,000

2002
- ----
Allowance for doubtful accounts receivable $6,526,000 $14,188,000 --- $16,269,000 (1) $4,445,000

(1) Write-off of uncollectible accounts receivable.

S-1