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, 2006

                                       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.)

         527 Madison Avenue
         New York, New York                                      10022
-------------------------------------                           -------
 (Address of principal executive offices)                      (Zip Code)

                                 (212) 583-0100
                                 --------------
              (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

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act.
          Yes |_| No |X|

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act.
          Yes |_|  No |X|

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. Yes |_| No |X|

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large accelerated filer |_|    Accelerated filer |X|   Non-accelerated filer |_|

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Securities Exchange Act of 1934).
Yes |_|  No |X|

The  aggregate   market  value  of  the   registrant's   voting  stock  held  by
non-affiliates  of the registrant was  approximately  $355,971,000 as of January
31, 2006.

The number of shares of the Company's common stock, $.01 par value,  outstanding
at September 30, 2006 was approximately 32,274,500.

                       DOCUMENTS 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 on
or about January 22, 2007 are  incorporated  by reference  into Part III of this
annual report.
<PAGE>

                                TABLE OF CONTENTS



<TABLE>
<CAPTION>
PART I                                     DESCRIPTION                                       PAGE

<S>        <C>                                                                                 <C>
Item 1.    Business                                                                              2

Item 1A.   Risk Factors                                                                          24

Item 1B.   Unresolved Staff Comments                                                             32

Item 2.    Properties                                                                            32

Item 3.    Legal Proceedings                                                                     33

Item 4.    Submission of Matters to a Vote of Security Holders                                   34


PART II


Item 5.    Market for Registrant's Common Stock, Related Stockholder Matters and Issuer          34
             Purchases of Equity Securities

Item 6.    Selected Financial Data                                                               35

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of            36
           Operations

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk                            46

Item 8.    Financial Statements and Supplementary Data                                           46

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial             46
           Disclosure

Item 9A.   Controls and Procedures                                                               47

Item 9B.   Other Information                                                                     49


PART III


Item 10.   Directors and Executive Officers                                                      49

Item 11.   Executive Compensation                                                                49

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related            49
           Stockholders' Matters

Item 13.   Certain Relationships and Related Transactions                                        49

Item 14.   Principal Accountant Fees and Services                                                49


PART IV


Item 15.   Exhibits and Financial Statement Schedules                                            49

           Financial Statements Index                                                           F-1

           Report of Independent Registered Public Accounting Firm                              F-2

           Consolidated Financial Statements and Related Notes                                  F-3

           Schedule II - Valuation Accounts and Qualifying Accounts                             S-1
</TABLE>

                                       i

<PAGE>

PART I

         Item 1.  BUSINESS

OVERVIEW

         Enzo  Biochem,  Inc.  (the  "Company" or "Enzo") is a life sciences and
biotechnology  company  focused  on  harnessing  genetic  processes  to  develop
research  tools,  diagnostics  and  therapeutics  and a provider  of  diagnostic
services to the medical community.  Since its founding in 1976, Enzo's strategic
focus  has  been  on the  development,  for  commercial  purposes,  of  enabling
technologies  in the life  sciences  field.  Enzo's  pioneering  work in genomic
analysis  coupled with its extensive  patent estate and enabling  platforms have
strategically  positioned  Enzo to play an important role in the rapidly growing
life sciences and molecular medicine marketplaces.

         In the course of the  Company's  research and  development  activities,
Enzo has built a substantial portfolio of intellectual property assets, with 211
issued patents worldwide,  and more than 185 pending patent applications,  along
with extensive enabling technologies and platforms.

         Enzo is comprised of three interconnected operating companies that have
evolved out of Enzo's core competence: the use of nucleic acids as informational
molecules  and the use of compounds  for immune  modulation.  These wholly owned
operating  companies  conduct their operations  through three segments (see Note
13 in the notes to consolidated financial statements).

         Below are brief descriptions of each of the three operating segments:

         ENZO  LIFE  SCIENCES  is a company  that  manufacturers,  develops  and
markets  biomedical  research products and tools to research and  pharmaceutical
customers  around  the  world  and has  amassed a large  patent  and  technology
portfolio.  The pioneering  platforms developed by Enzo Life Sciences enable the
development of a wide range of products in the research products marketplace.

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

         ENZO CLINICAL LABS is a regional clinical laboratory to the greater New
York  and New  Jersey  medical  community.  The  Company  believes  having  this
capability allows us to capitalize firsthand on our extensive advanced molecular
and cytogenetic  capabilities and the broader trends in predictive  diagnostics.
We offer a menu of routine and esoteric clinical  laboratory tests or procedures
used in general  patient care by physicians to establish or support a diagnosis,
monitor  treatment  or  medication,  or  search  for  an  otherwise  undiagnosed
condition.  We operate a full-service  clinical  laboratory in Farmingdale,  New
York,  a network of 19 patient  service  centers,  a stand alone "stat" or rapid
response laboratory in New York City, and a full-service phlebotomy department.

         The Company's  primary sources of revenue have  historically  been from
sales and royalties of Life Sciences' products utilized in life science research
and from the clinical laboratory services provided to the healthcare  community.
For the  fiscal  years  ended  July  31,  2006,  2005  and  2004,  respectively,
approximately 20%, 24% and 31% of the Company's  operating revenues were derived
from product sales and royalties and approximately 80%, 76% and 69% were derived
from clinical laboratory services.

MARKETS

         BACKGROUND

         Deoxyribonucleic  Acid ("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  well over 30,000 genes,  has been  identified by
genome research,  including the Human Genome Project. 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.

                                       2
<PAGE>

         TOOLS FOR BIOMEDICAL AND PHARMACEUTICAL RESEARCH

         There  is  an  increasing  demand  by  biomedical  and   pharmaceutical
researchers  for  diagnostics  tools that both  facilitate  and  accelerate  the
generation  of  biological  information.  This  demand can be met by  gene-based
diagnostics and 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  and  systems,  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 that have been identified by genome research;

         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.

         CLINICAL DIAGNOSTICS

         The clinical diagnostics market has currently been reported by industry
sources to be greater  than $20 billion  annually.  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  months,
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  the  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 is now more than $3 billion per year
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.


                                       3
<PAGE>


         THERAPEUTICS

         Many diseases result from either the expression of foreign genes,  such
as those residing in viruses and pathogenic  organisms,  or from 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.  In  addition,  a number of
diseases  result  from the body's  failure  to  adequately  regulate  its immune
system.

          Recent advancements in gene analysis have provided the information and
tools  necessary to develop drugs that  intervene in the disease  process at the
genetic  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,  ribonucleic acid ("RNA") produced by a specific 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 therapy involves the insertion of a gene into
a cell. The inserted gene  biologically  manufactures  the  therapeutic  product
within  the cell 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,  the
inserted gene may code for a molecule that would deactivate either an overactive
gene or a gene  producing an unwanted  protein.  As a permanent  addition to the
cellular DNA, the inserted gene produces RNA and/or proteins where needed.

         A major  challenge in  designing  gene  therapy  medicines  has been to
enable 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 nucleic  acid of the vector not produce  proteins or antigens
that can trigger an adverse immune response.

         Other diseases may be the consequence of an  inappropriate  reaction of
the body's immune system,  either to a foreign  antigen,  such as a bacterium or
virus, or, in the case of an autoimmune condition, to the body's own components.
In recent  years,  several new  strategies  of  medication  for the treatment of
immune-based   diseases  such  as  Crohn's  disease,   uveitis,  and  rheumatoid
arthritis,  have been  developed.  These  treatments are all based on a systemic
suppression of certain  aspects of the immune system and can lead to significant
side effects. Thus, there continues to be a need for a therapeutic strategy that
is more specific and less global in its effect on the immune system.

STRATEGY

         Our  objective is to be a leading  developer  and provider of the tools
and  diagnostics  used to study and detect  disease at the  molecular  level and
provider  of  therapeutic  approaches  to  various  diseases.  There  can  be no
assurance that our objective will be met. Key elements of our strategy include:

         APPLY OUR INNOVATIVE TECHNOLOGY TO THE INFECTIOUS AND IMMUNE MEDIATED
         DISEASE MARKETS

         We believe our core  technologies have broad diagnostic and therapeutic
applications. We have initially focused our efforts on the infectious and immune
mediated disease markets. 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.  Many viral
diseases  such as  hepatitis  have an  immune  component.  It is known  that the
cytopathic  effect on the liver in patients  infected with  hepatitis is caused,
not by the virus  itself,  but by a reaction  of the immune  system  against the
virus. Although the cause of disorders such as Crohn's disease, certain forms of
uveitis  and  non-alcoholic  steatohepatitis  (NASH)  remains  unknown,  various
features suggest immune system involvement in their pathogenesis.


                                       4
<PAGE>


         We  continue  to develop  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 continue to capitalize 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  relating  to  our  immune  regulation  technology  and  the
University of California  at San  Francisco for the  application  of our genetic
antisense technology against HIV.

         During  fiscal 2005 the Company  acquired  the rights and  intellectual
property to a candidate drug and technology intended for use in the treatment of
autoimmune  uveitis.  We  also  entered  into  a  collaboration  agreement  with
scientists  at  Ludwig-Maximilians  University  in Munich,  Germany to  evaluate
certain of Enzo's proprietary technology for treating uveitis in an animal model
system.  In fiscal  2004,  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  if  any,  emanating  from  this
technology could provide  potential  therapy for bone disorders,  including bone
loss,  fractures,  abnormalities,  diseases,  and other applications.  In fiscal
2004,  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.  There can be no assurance that any of
these collaborative projects will be successful.

         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  fiscal  2004 Enzo
acquired the assets of OraGen  Corporation,  Moorestown,  New Jersey a privately
owned biotechnology company specializing in immune regulation technologies. This
acquisition  is  expected  to  broaden  our  capabilities  in the area of immune
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 2006,  Enzo Life Sciences  continued to develop the sales
and  marketing  infrastructure  to more  directly  service its end users,  while
simultaneously  positioning the Company for product line expansion.  The program
has evolved into strategic  initiatives to develop direct key  relationships and
collaborations  with end  users,  sustaining  a  marketing  campaign,  increased
attendance at top industry trade meetings, as well as the continued updating and
enhancement  of the  interactive  web site. In addition to our direct sales,  we
distribute  our  research  products  through  other life  sciences  companies in
foreign markets.

         EXPAND AND PROTECT 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. During fiscal 2006 we increased
our intellectual  property estate with several new patents including two patents
covering  nucleic  acid  labeling  and another  patent  covering  processes  for
producing large quantities of therapeutic  proteins of RNAs within living target
cells as follows:


                                       5
<PAGE>


         U.S.  Patent  No.  6,992,180,   "Oligo-or  polynucleotides   comprising
phosphate-moiety labeled nucleotides," among other aspects, covers, nucleic acid
labeling  molecules  that are  attached  through  the  phosphate  portion of the
nucleic acid, either directly or indirectly. Among the labeling elements covered
by this  patent  are  fluorescent,  chemiluminescent,  and  chemical  molecules,
including  biotin.  These are the  labeling  components  most  commonly  used in
medical research and diagnostic products.

         U.S. Patent No. 7,074,197,  "System, array and non-porous solid support
comprising  fixed or immobilized  nucleic  acids," covers nucleic acids that are
fixed  or  immobilized  to  non-porous   solid  supports  and  includes  systems
containing  such supports and arrays with fixed or  immobilized  nucleic  acids.
These  compositions  are  useful  for  nucleic  acid  analyses  and  a  host  of
applications,   including,  for  example,  detection,  mutational  analysis  and
quantification.

         U.S. Patent No. 6,986,985, "Process for producing multiple nucleic acid
copies in vivo using a protein  nucleic acid  construct,"  covers  processes for
producing large quantities of therapeutic  proteins or RNAs within living target
cells. An important application of this technology may be to deliver therapeutic
proteins  to  particular  target  cells  in  animals  and  humans.  It may  also
facilitate  delivery  of  regulatory  RNA  molecules,  including  antisense  RNA
molecules for the management of medically important  diseases.  As such it could
represent a potentially safer and a more efficient  strategy for gene expression
and protein production in mammals, including humans.

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  which is
supported by our significant proprietary position in these fields.

         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
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.

         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.

                                       6
<PAGE>


         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.

         THERAPEUTIC TECHNOLOGY PLATFORMS

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

         GENE  REGULATION.  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, IN a process  called  transduction,  we have
developed proprietary vector technology. Our vector technology has the following
strengths:

      o  EFFICIENT  TRANSDUCTION.  A  principal  problem  of many  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.

      o  IMMUNOLOGICALLY   "QUIET."   Transduced  or  engineered   cells  (cells
         containing  the gene that was  delivered by the vector)  often  produce
         non-essential  proteins  that may 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  are  designed to 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 transduces the
         intended cell type. This may ultimately  permit us to develop a genetic
         antisense product that is administered directly to the patient.

      o  SAFETY COMPONENTS. Certain retroviral vectors have been shown to insert
         within  the cell in  regions of the  cellular  DNA that could  activate
         genes that  cause  cells to grow or  multiply.  This  insertional  gene
         activation may cause  uncontrolled cell division resulting in a cancer.
         Enzo's vector has been designed to prevent  insertional gene activation
         by inactivation of the viral promoters.

         We  believe,  though  there  can  be  no  assurance,  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; and

      o  nuclear localization.

         IMMUNE REGULATION.

      o  ORAL  IMMUNE   REGULATION.   We  are  exploring  a  potentially   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 as 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.


                                       7
<PAGE>


         We have filed patent applications relating to this technology,  as well
as to our therapeutics  platforms and protocols under  development,  relating to
areas of infectious  diseases and  immunological  adjustments  and  enhancements
characteristic of this reaction.  There can be no assurance that we will be able
to secure patents or that these programs will be successful. We are applying our
expertise  in  immune  regulation  to  develop  proprietary  therapies  for  the
treatment  of  a  variety  of  diseases,   including  chronic  active  hepatitis
autoimmune  uveitis,  and inflammatory bowel disease,  including Crohn's Disease
and ulcerative colitis.  During fiscal 2005, the Company acquired the rights and
intellectual property to a candidate drug and technology intended for use in the
treatment of autoimmune uveitis, a chronic inflammation of the eye that can lead
to blindness.

         SMALL MOLECULE DEVELOPMENT

      o  EGS21.  We  have  developed  a  new  immunomodulator  agent,  EGS21,  a
         beta-D-glucosylceramide  (GC) compound,  as a potential therapeutic for
         treating  immune mediated  disorders.  GC is a glycolipid that has been
         shown   by   Enzo   scientists   and   collaborators   to   act  as  an
         anti-inflammatory agent in animal model systems, and therefore is being
         evaluated as an important  candidate  drug in the  treatment of various
         immune  mediated   diseases,   such  as  Crohn's  disease,   hepatitis,
         non-alcoholic steatohepatitis (NASH) or fatty liver and HIV. We believe
         that GC might 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.

      o  PROTEIN-PROTEIN   INTERACTIONS.   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 PRODUCTS

         We are a  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.

         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 is marketed  under the
BIOARRAY(R) brand name. This product line also includes a new kit, BIOSCORE(TM),
for amplifying small quantities of genetic material from  pathological  samples,
as well as providing a quality score for that sample, thus saving the researcher
precious time and money that would have  otherwise  been wasted on continuing to
process that sample.


                                       8
<PAGE>

         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)

         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 more than 60
million individuals  worldwide living with HIV infection during 2005. There were
over 5 million  new  infections  and 3 million  deaths from HIV during that same
year. Over 20 million have died since the first cases of AIDS were identified in
1981. At present,  two classes of products have received FDA marketing  approval
for HIV-1 infection:  reverse transcriptase  inhibitors and protease inhibitors.
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 a vehicle designed to carry and deliver  anti-HIV-1
antisense  RNA genes.  These genes produce  antisense  RNA 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  long-term  safety  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
showed 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 72 months to date.

         o    all   subjects   tolerated   the   procedure   -  there   were  no
              treatment-related  adverse events during the study and no evidence
              for expansion of the inserted  transgenes in any subjects  tested,
              nor was any evidence of leukemia seen by standard hematology.

         o    anti  HIV-1  antisense  RNA was  detected  in the  circulation  of
              subjects,  the  longest  at 72  months

         o    purified  CD4+ cells from  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
have  commenced 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.


                                       9
<PAGE>


         The Phase I/II study is being conducted at University of California San
Francisco  (UCSF)  the site of the Phase I study.  This  study  will  focus on a
strategy  designed to increase the percentage of engineered  CD4+ cells.  Enzo's
protocol for this phase of the study successfully  passed review by the National
Institutes  of  Health  Recombinant  DNA  Advisory  Committee  (RAC),  the  UCSF
Committee on Human Research (CHR) and the U.S. FDA. We have begun the process of
enrolling  subjects.   A  similar  study  initiated  at  New  York  Presbyterian
Hospital-Cornell  Medical Center has not enrolled subjects pending completion of
manufacturing protocols.

         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.

         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; and

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

         Based on these results, the Company is exploring improved manufacturing
processes and pharmaceutical partnerships are being explored. A master cell bank
for manufacture of the HBV specific protein (EHT899) is under construction.

         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.

         UVEITIS.  Posterior uveitis,  which results from inflammation of a part
of the eye known as the uvea,  is  believed  to result  from an immune  reaction
against  some of the  antigens in the eye,  specifically  the S antigen  protein
(Sag) and the  interphotoreceptor  retinoid-binding  protein (IRBP). There is no
known cure for uveitis,  which in the United  States,  according to the American
Uveitis Society,  is diagnosed in approximately  38,000 people every year. While
there are steps that can be taken to  preserve  sight and slow the  progress  of
vision loss,  individuals  with uveitis are also at increased risk of developing
cataracts, glaucoma or retinal detachment.

         In fiscal  2005,  we  acquired  rights and  intellectual  property to a
candidate drug and technology intended for use in the treatment of uveitis.  The
drug is the result of a discovery by  scientists at the eye clinic of the Ludwig
Maximilians  University in Munich,  Germany, who found a small peptide that when
fed to rats with experimental allergic uveitis promoted their recovery. Based on
favorable preclinical studies, the developers conducted a small Phase I clinical
trial in Germany with encouraging results.

         Using its immune  regulation  platform and the recently acquired rights
to the  candidate  drug,  B27PD,  Enzo is currently  developing a protocol for a
multi-center  Phase I/II  clinical  trial to be carried out in the United States
and in Germany.  The study drug has been granted  orphan status in Europe and we
will apply for the same in the U.S.  Orphan status  designation  can confer both
financial  and  marketing  benefits.  B27PD  has been  manufactured  and  animal
toxicology studies were successfully carried out. The protocol will be submitted
for  approval  to both the  U.S.  FDA and the  central  regulatory  agencies  in
Germany.


                                       10
<PAGE>


         INFLAMMATORY   BOWEL  DISEASES.   We  believe  our  immune   regulation
technology  may be used 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.

         Patients  are managed  during  short-term  episodes  through the use of
anti-inflammatory medications, or immunosuppressants,  which 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 has 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.  An expanded study to
broaden the diversity of the patient population is ongoing at Hadassah Hospital.
Enzo plans to continue the study at additional sites in the United States and is
currently  conducting a selection  review  process to determine the  appropriate
site at which to expand the study.

         This latest 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.

         Enzo is  also  investigating  the  use of  EGS21  in  managing  Crohn's
disease. The compound has been shown by Enzo scientists and collaborators to act
as an  anti-inflammatory  agent in animal  model  systems.  EGS21 was tested for
safety 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.  A Phase II randomized  double blind study is currently being
carried out at Hadassah.

         NON-ALCOHOLIC STEATOHEPATITIS (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.

         Following  the  successful  safety study of EGS21,  an open label pilot
study was recently conducted at  Hadassah-Hebrew  University Medical Center. The
results  suggested  that  EGS21  may be  efficacious  in  treating  NASH and its
associated  metabolic syndrome in human subjects.  A Phase II double blind study
was approved by the  regulatory  authorities  in Israel and is  currently  being
conducted. This study is being partially funded by a $1.0 million grant from the
Israel-U.S. Binational Industrial Research and Development Foundation (BIRD).

         OSTEOPOROSIS AND CERTAIN BONE DISORDERS.

         Enzo has a number of new  compounds  in  preclinical  development  that
could provide therapy for treating bone disorders including  osteoporosis,  bone
loss, fractures, abnormalities, diseases, and other applications.


                                       11
<PAGE>

         CLINICAL LABORATORY SERVICES

         We operate a regional  clinical  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 and may be performed less frequently than routine tests.  The Company does
not perform certain low-volume esoteric tests in-house;  generally many of these
tests are referred to an esoteric  clinical testing  laboratory that specializes
in performing these more complex 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.

         Our full  service  clinical  laboratory  in  Farmingdale,  NY  contains
infrastructure that includes a comprehensive information technology,  logistics,
client  service and  billing  departments.  Also,  we have a network of nineteen
patient  service  centers  and a full  service  phlebotomy  department.  Patient
service  centers  collect the  specimens  as requested  by  physicians.  We also
operate a STAT  laboratory  in New York City. 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  laboratory  facilities by our
logistics department  accompanied by a test requisition form. These forms, which
are completed by the ordering physician,  indicate the tests to be performed and
demographic  patient  information.  Once this  information  is entered  into the
laboratory  computer  system the tests are performed and the results are entered
primarily through an interface from the laboratory  testing equipment or in some
instances, manually into the laboratory computer system. 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  electronically via
our EnzoDirect(TM)  system or delivered by the logistic  department  directly to
the ordering  physicians'  offices.  Physicians  who request that they be called
with a result are so notified.

         For fiscal years ended July 31, 2006, 2005, and 2004 respectively, 80%,
76%,  and  69%  of  the  Company's  revenues  were  derived  from  the  clinical
laboratory.  At July 31, 2006 and 2005, respectively,  approximately 88% and 94%
of the  Company's  net  accounts  receivable  were  derived  from  its  clinical
laboratory business.  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 various numbers of third party insurance carriers,  the Federal
Medicare Program and the numerous individual patient accounts.  Revenue,  net of
contractual adjustments, from direct billings under the Federal Medicare program
during the years ended July 31, 2006, 2005 and 2004 were approximately 23%, 21%,
and 26%,  respectively,  of the clinical laboratory segment's total revenue. The
clinical  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
payers 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 and the Federal Medicare  Program,  all of which
have different  requirements.  In New York State,  the law prohibits the Company
from  billing  the  ordering  physician.  Compliance  with  applicable  laws and
regulations as well as, internal compliance policies and procedures adds further
complexity  to the  billing  process.  We depend on the  ordering  physician  to
provide timely,  accurate billing  demographic and diagnostic coding information
to us. 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.


                                       12
<PAGE>

         We believe that most of our bad debt expense is primarily the result of
missing or incorrect  billing  information  on  requisitions  received  from the
ordering  physician rather than credit related issues.  We perform the requested
tests and report test results  regardless  of whether the billing or  diagnostic
coding information is incorrect or missing.  We subsequently  attempt to contact
the ordering  physician to obtain any missing  information and rectify incorrect
billing  information.  Missing or  incorrect  information  on  requisition  adds
complexity  to and slows the  billing  process,  creates  backlogs  of  unbilled
requisitions, and generally increases the aging of accounts receivable. When all
issues  relating to the missing or incorrect  information  are not resolved in a
timely manner,  the related  receivables are fully reserved to the allowance for
doubtful accounts or written off.

         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.

         The  permitted  Medicare  reimbursement  rate for  clinical  laboratory
services  has been  reduced by the Federal  government  in a number of instances
over the past  several  years to a present  level  equal to 74% of the  national
median of laboratory  charges.  Clinical Labs have been subjected to a five-year
freeze (ending in 2008) on Laboratory  fee updates,  as required by the Medicare
Modernization  Act of 2003. A number of proposals for legislation or regulation,
such as competitive  bidding on laboratory  services are under  discussion which
could have the  effect of  substantially  reducing  Medicare  reimbursements  to
clinical  laboratories  through reduction of the present allowable percentage or
through  other  means.  In  addition,  the  structure  and  nature  of  Medicare
reimbursement for laboratory services is also under discussion and we are unable
to  predict  the  outcome  of these  discussions.  Depending  upon the nature of
congressional  and/or regulatory  action, if any, which is taken and the content
of  legislation,  if any,  which is adopted,  we could  experience a significant
decrease in revenue from Medicare, which could have a material adverse effect on
us.

RESEARCH & DEVELOPMENT

         Our  principal  research and  development  efforts are directed  toward
expanding  our research  product  lines,  as well as developing  innovative  new
therapeutic  products to meet unmet market  needs.  We have  developed  our core
research  expertise  in the  life  science  field  as a  result  of 30  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,  2006,  2005 and 2004,  the Company  incurred
costs of approximately $7,896,000, $8,452,000, and $8,078,000, respectively, for
research and development activities.

INTERNAL RESEARCH PROGRAMS

         Our  professional  staff  of 31  scientists,  including  28  with  post
doctorate  degrees,  performs our internal research and development  activities.
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.

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 life science  products
through three distinct channels: (i) direct sales to end-users;  and (ii) supply
agreements with manufacturers and (iii) through distributors in major geographic
markets.  We market the clinical  laboratory  services to ordering physicians in
the metro  New York and New  Jersey  region  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.

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<PAGE>


DIRECT SALES AND MARKETING EFFORT

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

DISTRIBUTION ARRANGEMENTS

         We also distribute our life science products  internationally through a
network of distributors. Through these arrangements, we are able to leverage the
established marketing and distribution  infrastructure of these companies.  Enzo
Life Sciences is focused on a strategic  initiative to expand its  international
network of distributors.  Prior to fiscal 2005, the Company  distributed through
leading life science  companies and is currently  evaluating new  relationships.
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.  Many of these  companies are  performing  research  targeting the same
technology,   applications   and  markets.   Some  of  these   competitors   are
significantly larger than we are and have more 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,  regional,  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,  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 2006 we owned or licensed 44 U.S.  and 167 foreign
patents relating to products, methods and procedures resulting from our internal
or sponsored research  projects.  During fiscal 2006, the following key enabling
patents were issued to Enzo:

         U.S.  Patent  No.  6,992,180,   "Oligo-or  polynucleotides   comprising
phosphate-moiety  labeled nucleotides," among other aspects, covers nucleic acid
labeling  molecules  that are  attached  through  the  phosphate  portion of the
nucleic acid, either directly or indirectly. Among the labeling elements covered
by this  patent  are  fluorescent,  chemiluminescent,  and  chemical  molecules,
including  biotin.  These are the  labeling  components  most  commonly  used in
medical research and diagnostic products.

         U.S. Patent No. 7,074,197,  "System, array and non-porous solid support
comprising  fixed or immobilized  nucleic  acids," covers nucleic acids that are
fixed  or  immobilized  to  non-porous   solid  supports  and  includes  systems
containing  such supports and arrays with fixed or  immobilized  nucleic  acids.
These  compositions  are  useful  for  nucleic  acid  analyses  and  a  host  of
applications,   including,  for  example,  detection,  mutational  analysis  and
quantification.

         U.S. Patent No. 6,986,985  "Process for producing multiple nucleic acid
copies in vivo using a protein  nucleic acid  construct,"  covers  processes for
producing large quantities of therapeutic  proteins or RNAs within living target
cells. An important application of this technology may be to deliver therapeutic
proteins  to  particular  target  cells  in  animals  and  humans.  It may  also
facilitate  delivery  of  regulatory  RNA  molecules,  including  antisense  RNA
molecules for the management of medically important  diseases.  As such it could
represent a potentially safer and a more efficient  strategy for gene expression
and protein production in mammals, including humans.

         There can be no  assurance  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.


                                       14
<PAGE>

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

         In August of 2006, Enzo was granted  interference  against patents held
by Princeton  University  (now  licensed to Abbott Labs) and Chiron  Diagnostics
(now Bayer Diagnostics).  In this action, Enzo has been designated as the senior
party  because  the  Company's  filing of its patent  application  preceded  the
others.  In  addition,  the  relevant  claims for this patent were  published in
Europe before the Princeton and Chiron  applications  were even filed.  Based on
this management  believes that that Enzo will prevail,  and as such,  would have
the rights to the technology.

         During fiscal 2005, several patents relating to the BioProbe(R) nucleic
acid probe system expired,  while additional patents were issued in the U.S. and
Europe.  During fiscal 2006 we increased our  intellectual  property estate with
several new patents  including  two patents  covering  nucleic acid labeling and
another patent covering  processes for producing large quantities of therapeutic
proteins of RNAs within living target cells.

         Enzo's intellectual property portfolio can be divided into patents that
provide claims in three primary categories, as described below:

         NUCLEIC ACID CHEMISTRY

         We  currently  have broad  patent  coverage in the area of nucleic acid
chemistry.  The Company has done extensive work on the labeling of nucleic acids
for the purpose of generating a signal that dates back over twenty  years.  Enzo
has multiple  issued patents  covering the  modification of nucleic acids at all
three potential modification sites (sugar, base and phosphate).

         The  claims   contained  in  these   patents  cover  any  product  that
incorporates  a signaling  moiety into a nucleic acid for the purpose of nucleic
acid sequence detection or quantification

         SIGNAL DELIVERY

         We also  have a long  history  of  innovation  in the  area of  analyte
detection using  non-radioactive  signaling  entities.  At the signaling  entity
itself,  there  are  several  Enzo  patents  that  cover the  formation  of this
structure.  A patent  which  was  allowed  in 2006,  covers  the  attachment  of
signaling molecules through the phosphate moiety of a nucleic acid, which is how
the  signal-generating  enzyme  is  bound.  Additionally,   the  allowed  claims
contained in Enzo's signal delivery patents cover any product that  incorporates
either of the following:

         o    A  first  part  which   comprises  a  molecular   bridging  entity
              comprising of a first portion that  hybridizes to an analyte and a
              second portion comprising of nucleic acid sequences or segments.

         o    A  second  part  which  comprises  one  or  more   non-radioactive
              signaling  entities  incapable  of binding  to the  aforementioned
              bridging entity second portion, and or more signaling portions.

         NUCLEIC ACID ANALYSIS FORMAT

         We also have patents with issued  claims  covering the use of arrays of
single-stranded  nucleic acids fixed or  immobilized in  hybridizable  form to a
non-porous  solid  support.  These patents cover any product that uses arrays of
nucleic acids for molecular analysis.

         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.  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.  In
fiscal  2006,  the  Enzo  Life  Sciences  entered  into an  agreement  with  the
Children's Mercy Hospital and Clinics  ("Mercy") in Kansas City, MO whereby Enzo
licensed from Mercy two patents in the area of single copy genomic hybridization
probes.  The Company plans to utilize this  technology in its plans to develop a
line of products and services designed specifically for the cytogenetics market.

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



                                       15
<PAGE>

by us or our collaborators will be regulated either as biological products or as
new drugs.  Both statutes and the  regulations  promulgated  thereunder  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  therapeutics  products  that we develop  will  require  regulatory
review before  clinical  trials,  and additional  regulatory  clearances  before
commercialization. New human gene medicine products as well as immune regulation
products,  as therapeutics,  are subject to regulation by the FDA and comparable
agencies in other countries.  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  therapeutics  protocols.  In addition,  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  (GLP).  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,  Good Clinical Practices (GCP) 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.

         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.


                                       16
<PAGE>



         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 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


                                       17
<PAGE>

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 by 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.

         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.

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<PAGE>

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  payers, 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  payers,
commercial insurer and health  maintenance  organizations are likely 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.


                                       19
<PAGE>

         Furthermore,  Medicare  has  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
payers, 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  have  had  an  impact  or the  utilization  of the
Company's services.


                                       20
<PAGE>


         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
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.
The Company is unaware of any material violations.

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 deadline for  providers to
obtain and  implement use of the National  Provider  Identifier is May 23, 2007.
The National  Provider  Identifier is an identifier  that will replace all other
identifiers  that are currently used for healthcare  transactions  (e.g.,  UPIN,
Medicaid provider numbers;  identifiers assigned by commercial insurers).  Those
providers who do not have their  National  Provider  Number by May 23, 2007 will
not be able to conduct common healthcare transactions, such as claims submission
and  eligibility  verification.  Even though  there is no cost  associated  with
obtaining a National Provider Identifier, there could be a significant financial
impact for  failure  to obtain  the  National  Provider  Identifier  in a timely
fashion. Enzo has submitted the application for its National Provider Identifier
and is waiting for it to be assigned.  It is anticipated  that Enzo will receive
its National Provider Identifier well in advance of the deadline.

         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 in February  2003 and
went into effect April 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.

         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.


                                       21
<PAGE>



         The   implementation   of  the   Health   Insurance   Portability   and
Accountability  Act of 1996 (HIPAA)  regulations  impacts electronic billing and
the  security  and privacy of patient  identifiable  health  information  by all
health  providers,  including Enzo Clinical Labs. In response to this challenge,
we have  implemented  an  approach  to  identify,  assess  and plan for  changes
required  by the HIPAA  regulations.  A HIPAA  Oversight  Committee  ("Oversight
Committee), was formed to coordinate this task. The Oversight Committee consists
of members from management and a designated HIPAA Compliance Officer. We have in
place a framework for activities in this area.

         As the HIPAA rules are released  and their  impact upon our  operations
are analyzed, our response to HIPAA is reviewed and revised as necessary.

MEDICAL REGULATED WASTE

         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,  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 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.

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
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  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  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

         Most of the manufacturing and scientific efforts for our three segments
take place at our leased 43,000 square feet facility in  Farmingdale,  New York.
We have a completely  integrated  laboratory and  manufacturing  facility,  with
special handling capabilities and clean rooms suitable for our operations.

         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.

                                       22
<PAGE>


         In June 2006, we acquired a 22,000 square foot facility adjacent to our
Farmingdale,  New York  facility  that  will be  utilized,  upon  completion  of
renovations  for the Life Science and  Therapeutics  research and  manufacturing
operations.

EMPLOYEES

         As of July  31,  2006,  we  employed  285  full-time  and 55  part-time
employees. Of the full-time employees, 35 were engaged in research, development,
manufacturing,  and marketing of research products, 10 in therapeutics research,
225 in the clinical  laboratories  and 15 in finance,  legal and  administrative
functions. Our  scientific  staff, including 28  individuals  with post doctoral
degrees,  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  clinical  laboratory  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 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.  Over the past two
fiscal years,  we have invested  heavily in the upgrade of our  information  and
telecommunications  systems to improve the quality,  efficiency  and security of
our  businesses.  In addition,  we have  developed  and  currently  maintain,  a
proprietary physician connectivity solution,  Enzo Direct TM, which provides the
clinical laboratory clients with the ability to electronically  laboratory teats
and receive patient results.

          Despite  the  precautionary  measures  that we have  taken to  prevent
unanticipated  problems that could affect our  information  technology  systems,
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  laboratory  tests to be of
critical  importance,  and,  therefore,  we  maintain  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.


                                       23
<PAGE>


         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.

         The  Company  files  annual,   quarterly  and  current  reports,  proxy
statements and other  information  with the  Securities and Exchange  Commission
(the "SEC").  These  filings are available to the public via the Internet at the
SEC's  website  located  at  http://www.sec.gov.  You may also read and copy any
document  the  Company  files with the SEC at the SEC's  public  reference  room
located at 100 F Street,  N.E.,  Washington,  D.C. 20549. For more  information,
please call the SEC at 1-800-SEC-0330.

         The  Company's  website is located at  www.enzo.com.  You may request a
copy of the Company's  filings with the SEC  (excluding  exhibits) at no cost by
writing or telephoning us at the following address or telephone number:

Enzo Biochem, Inc.
527 Madison Avenue
New York, New York 10022
Tel: (212) 583-0100
Attn: Investor Relations


Item 1A - RISK FACTORS

         Risks Relating to our Company and our industries

                  WE HAVE  EXPERIENCED  SIGNIFICANT  LOSSES  IN OUR LAST  FISCAL
         YEAR.  IF SUCH LOSSES  CONTINUE,  THE VALUE OF YOUR  ENTIRE  INVESTMENT
         COULD DECLINE SIGNIFICANTLY.

         We  incurred a net loss of  $15,667,000  for the fiscal year ended July
         31,  2006.  We cannot  assure you that we will be able to  achieve  net
         income on a quarterly or annual basis. If our revenues do not increase,
         or if our operating expenses exceed  expectations or cannot be reduced,
         we will  continue  to suffer  substantial  losses  which  could have an
         adverse effect on our business and adversely  affect your investment in
         our Company


                  WE FACE INTENSE COMPETITION,  WHICH COULD CAUSE US TO DECREASE
         THE  PRICES  FOR OUR  PRODUCTS  OR  SERVICES  OR  RENDER  OUR  PRODUCTS
         UNECONOMICAL  OR  OBSOLETE,  ANY OF WHICH COULD REDUCE OUR REVENUES AND
         LIMIT OUR GROWTH.

                  Our  competitors in the  biotechnology  industry in the United
         States  and abroad  are  numerous  and  include  major  pharmaceutical,
         energy,  food and chemical  companies,  as well as specialized  genetic
         engineering firms. Many of our large competitors in genetic engineering
         have substantially greater resources than us and have the capability of
         developing  products which compete directly with our products.  Many of
         these companies are performing research in the same areas as we are.

                  Our  clinical  laboratory  business is highly  fragmented  and
         intensely competitive,  and we compete with numerous national and local
         companies.  Some of  these  entities  are  larger  than we are and have
         greater  resources than we do. We compete primarily on the basis of the
         quality  of  our  testing,  reporting  and  information  services,  our
         reputation  in the medical  community,  the pricing of our services and
         our ability to employ qualified laboratory personnel.


                                       24
<PAGE>


         These competitive conditions could, among other things:

                  o    Require us to reduce our prices to retain market share;

                  o    Require us to increase our marketing  efforts which could
                       reduce our profit margins;

                  o    Increase   our  cost  of  labor  to   attract   qualified
                       laboratory personnel;

                  o    Render  our   biotechnology   products   uneconomical  or
                       obsolete; or

                  o    Reduce our revenue.

                  WE ARE REQUIRED TO EXPEND  SIGNIFICANT  RESOURCES FOR RESEARCH
         AND  DEVELOPMENT FOR OUR PRODUCTS IN DEVELOPMENT AND THESE PRODUCTS MAY
         NOT BE DEVELOPED  SUCCESSFULLY.  FAILURE TO SUCCESSFULLY  DEVELOP THESE
         PRODUCTS  MAY  PREVENT  US FROM  EARNING A RETURN ON OUR  RESEARCH  AND
         DEVELOPMENT EXPENDITURES.

                  The  products  we are  developing  are at  various  stages  of
         development and clinical  evaluations and may require further technical
         development and investment to determine whether commercial  application
         is practicable.  There can be no assurance that our efforts will result
         in  products   with   valuable   commercial   applications.   Our  cash
         requirements  may vary  materially  from current  estimates  because of
         results of our  research  and  development  programs,  competitive  and
         technological advances and other factors. In any event, we will require
         substantial  funds to conduct  development  activities and pre-clinical
         and clinical trials,  apply for regulatory  approvals and commercialize
         products, if any, that are developed. We do not have any commitments or
         arrangements  to  obtain  any  additional  financing  and  there  is no
         assurance that required financing will be available to us on acceptable
         terms, if at all. Even if we spend substantial  amounts on research and
         development,  our potential products may not be developed successfully.
         If our product candidates on which we have expended significant amounts
         for research and development are not commercialized, we will not earn a
         return on our research and development expenditures, which may harm our
         business.

                  PROTECTING OUR PROPRIETARY  RIGHTS IS DIFFICULT AND COSTLY. IF
         WE FAIL TO ADEQUATELY  PROTECT OR ENFORCE OUR  PROPRIETARY  RIGHTS,  WE
         COULD LOSE REVENUE.

                  Our  success  depends in large  part on our  ability to obtain
         maintain  and enforce our  patents.  Our ability to  commercialize  any
         product  successfully  will largely depend on our ability to obtain and
         maintain  patents of  sufficient  scope to prevent  third  parties from
         developing  similar or competitive  products.  In the absence of patent
         protection,  competitors  may impact our  business  by  developing  and
         marketing substantially equivalent products and technology.

                  Patent   disputes   are   frequent   and  can   preclude   the
         commercialization of products. We have in the past been, are currently,
         and may in the future be, involved in material patent litigation,  such
         as the matters  discussed under "Part I--Item 3. Legal  Proceedings" in
         this report.  Patent litigation is time-consuming and costly in its own
         right and could subject us to significant liabilities to third parties.
         In  addition,  an  adverse  decision  could  force us to either  obtain
         third-party  licenses at a material cost or cease using the  technology
         or product in dispute.

                  We have  filed  applications  for United  States  and  foreign
         patents  covering  certain aspects of our  technology,  but there is no
         assurance  that  pending  patents  will  issue or as to the  degree  of
         protection  which any  issued  patent  might  afford.  We also  utilize
         certain unpatented proprietary technology.

                  LAWSUITS IN THE BIOTECHNOLOGY INDUSTRY ARE NOT UNCOMMON. IF WE
         BECOME  INVOLVED IN ANY  SIGNIFICANT  LITIGATION,  WE WOULD SUFFER AS A
         RESULT OF THE DIVERSION OF OUR MANAGEMENT'S  ATTENTION,  THE EXPENSE OF
         LITIGATION AND ANY JUDGMENTS AGAINST US.

                  In  addition  to  intellectual   property  litigation,   other
         substantial,  complex  or  extended  litigation  could  result in large
         expenditures  by us and  distraction  of our  management.  For example,
         lawsuits by  employees,  stockholders,  collaborators  or  distributors
         could be very costly and substantially  disrupt our business.  Disputes
         from time to time with companies or individuals are not uncommon in the
         biotechnology industry, and we cannot assure you that we will always be
         able to resolve them out of court.

                                       25
<PAGE>


                  WE MAY BE UNABLE TO OBTAIN OR  MAINTAIN  REGULATORY  APPROVALS
         FOR OUR  PRODUCTS,  WHICH  COULD  REDUCE OUR REVENUE OR PREVENT US FROM
         EARNING A RETURN ON OUR RESEARCH AND DEVELOPMENT EXPENDITURES.

                  Our  research,   preclinical  development,   clinical  trials,
         product  manufacturing  and  marketing are subject to regulation by the
         FDA and similar health authorities in foreign  countries.  FDA approval
         is required for our products,  as well as the  manufacturing  processes
         and  facilities,  if any, used to produce our products that may be sold
         in the United States.  The process of obtaining  approvals from the FDA
         is costly,  time consuming and often subject to  unanticipated  delays.
         Even if  regulatory  approval is  granted,  such  approval  may include
         significant  limitations on indicated uses for which any products could
         be marketed. Further, even if such regulatory approvals are obtained, a
         marketed product and its manufacturer are subject to continued  review,
         and later  discovery  of  previously  unknown  problems  may  result in
         restrictions on such product or manufacturer,  including  withdrawal of
         the product from the market.

                  New  government  regulations  in the United  States or foreign
         countries  also  may  be  established   that  could  delay  or  prevent
         regulatory approval of our products under development. Further, because
         gene  therapy  is  a  relatively   new  technology  and  has  not  been
         extensively  tested in humans,  the regulatory  requirements  governing
         gene therapy  products are uncertain and may be subject to  substantial
         further review by various  regulatory  authorities in the United States
         and  abroad.  This  uncertainty  may  result  in  extensive  delays  in
         initiating clinical trials and in the regulatory approval process.  Our
         failure  to obtain  regulatory  approval  of their  proposed  products,
         processes or  facilities  could have a material  adverse  effect on our
         business,  financial condition and results of operations.  The proposed
         products  under  development  may  also be  subject  to  certain  other
         federal,  state and local government  regulations,  including,  but not
         limited to, the Federal Food, Drug and Cosmetic Act, the  Environmental
         Protection  Act,  and  Occupational  Safety and Health Act,  and state,
         local and foreign counterparts to certain of such acts.

                  We  cannot  be sure that we can  obtain  necessary  regulatory
         approvals on a timely basis,  if at all, for any of the products we are
         developing  or  manufacturing   or  that  we  can  maintain   necessary
         regulatory  approvals  for  our  existing  products,  and  all  of  the
         following could have a material adverse effect on our business:

                  o    Significant  delays in  obtaining  or  failing  to obtain
                       required approvals;

                  o    Loss of, or changes to, previously obtained approvals;

                  o    Failure  to comply  with  existing  or future  regulatory
                       requirements; and

                  o    Changes to manufacturing processes, manufacturing process
                       standards  or  Good  Manufacturing   Practices  following
                       approval or changing interpretations of these factors.

                  OUR  CLINICAL  LABORATORY  BUSINESS  IS SUBJECT  TO  EXTENSIVE
         GOVERNMENT  REGULATION AND OUR LOSS OF ANY REQUIRED  CERTIFICATIONS  OR
         LICENSES COULD REQUIRE US TO CEASE OPERATING THIS PART OF OUR BUSINESS,
         WHICH WOULD REDUCE OUR REVENUE AND INJURE OUR REPUTATION.

                  The  clinical  laboratory  industry is subject to  significant
         governmental  regulation at the Federal,  state and local levels. Under
         the  Clinical  Laboratory  Improvement  Act of 1967  and  the  Clinical
         Laboratory  Improvement  Amendments of 1988 (collectively,  as amended,
         "CLIA")  virtually all clinical  laboratories,  including ours, must be
         certified by the Federal  government.  Many clinical  laboratories also
         must meet governmental  standards,  undergo proficiency testing and are
         subject to inspection.  Certifications or licenses are also required by
         various state and local laws. The failure of our clinical laboratory to
         obtain or maintain  such  certifications  or licenses  under these laws
         could interrupt our ability to operate our clinical laboratory business
         and injure our reputation.

                  REGULATIONS  REQUIRING THE USE OF "STANDARD  TRANSACTIONS" FOR
         HEALTHCARE  SERVICES ISSUED UNDER THE HEALTH INSURANCE  PORTABILITY AND
         ACCOUNTABILITY  ACT OF  1996,  OR  HIPAA,  MAY  NEGATIVELY  IMPACT  OUR
         PROFITABILITY AND CASH FLOWS.

                  Pursuant   to   the   Health    Insurance    Portability   and
         Accountability  Act of 1996, or HIPAA,  the Secretary of the Department
         of Health and Human  Services,  or HHS,  has issued  final  regulations
         designed to improve the efficiency and  effectiveness of the healthcare
         system by  facilitating  the  electronic  exchange  of  information  in
         certain financial and administrative  transactions while protecting the
         privacy and  security of the  information


                                       26
<PAGE>

         exchanged.  Three principal regulations have been issued in final form:
         standards for electronic transactions, security regulations and privacy
         regulations.

                  The HIPAA  transaction  standards are complex,  and subject to
         differences in interpretation by payers. For instance,  some payers may
         interpret  the  standards  to require us to  provide  certain  types of
         information,  including demographic information not usually provided to
         us by physicians. While most of our transactions are submitted and / or
         received  in  ANSI  standard   format,   inconsistent   application  of
         transaction  standards  by some  remaining  payers or our  inability to
         obtain  certain  billing  information  not  usually  provided  to us by
         physicians  could increase our costs and the complexity of billing.  In
         addition, new requirements for additional standard  transactions,  such
         as   claims   attachments,    could   prove   technically    difficult,
         time-consuming  or expensive to implement.  We are working closely with
         our payers to establish acceptable protocols for claims submissions and
         with our  industry  trade  association  and an  industry  coalition  to
         present issues and problems as they arise to the appropriate regulators
         and standards setting organizations.

                  COMPLIANCE  WITH THE HIPAA  SECURITY  REGULATIONS  AND PRIVACY
         REGULATIONS MAY INCREASE OUR COSTS.

                  The HIPAA privacy and security regulations, which became fully
         effective  in  April  2003  and  April  2005,  respectively,  establish
         comprehensive   federal   standards   with  respect  to  the  uses  and
         disclosures of protected health information by health plans, healthcare
         providers  and  healthcare  clearinghouses,   in  addition  to  setting
         standards to protect the confidentiality, integrity and availability of
         protected  health  information.  The  regulations  establish  a complex
         regulatory framework on a variety of subjects, including:

                  o    the  circumstances  under which uses and  disclosures  of
                       protected  health  information  are permitted or required
                       without  a  specific   authorization   by  the   patient,
                       including   but  not  limited  to   treatment   purposes,
                       activities to obtain  payments for our services,  and our
                       healthcare operations activities;

                  o    a  patient's  rights  to  access,  amend and  receive  an
                       accounting  of certain  disclosures  of protected  health
                       information;

                  o    the content of notices of privacy practices for protected
                       health information; and

                  o    administrative,   technical   and   physical   safeguards
                       required of entities that use or receive protected health
                       information.

                  We have implemented  practices to meet the requirements of the
         HIPAA privacy and security regulations, as required by law. The privacy
         regulations  establish a "floor" and do not  supersede  state laws that
         are more  stringent.  Therefore,  we are  required  to comply with both
         federal  privacy   regulations  and  varying  state  privacy  laws.  In
         addition,  for healthcare data transfers from other countries  relating
         to citizens of those  countries,  we must comply with the laws of those
         other countries.  The federal privacy regulations  restrict our ability
         to  use  or  disclose  patient-identifiable  laboratory  data,  without
         patient  authorization,  for purposes other than payment,  treatment or
         healthcare operations (as defined by HIPAA), except for disclosures for
         various public policy purposes and other permitted purposes outlined in
         the privacy  regulations.  The privacy and security regulations provide
         for  significant   fines  and  other  penalties  for  wrongful  use  or
         disclosure of protected health  information,  including potential civil
         and  criminal  fines and  penalties.  Although  the HIPAA  statute  and
         regulations do not expressly provide for a private right of damages, we
         also could incur  damages  under state laws to private  parties for the
         wrongful use or disclosure of confidential  health information or other
         private personal information.

                  Compliance  with all of the HIPAA  regulations,  including new
         standard  transactions,  requires ongoing resources from all healthcare
         organizations,  not just  clinical  laboratories.  While we believe our
         total costs to comply with HIPAA will not be material to our operations
         or cash  flows,  new  standard  transactions  and  additional  customer
         requirements  resulting from different  interpretations  of the current
         regulations could impose additional costs on us.

                  REIMBURSEMENTS   FROM  THIRD-PARTY   PAYERS,  UPON  WHICH  OUR
         CLINICAL LABORATORY BUSINESS IS DEPENDENT,  ARE SUBJECT TO INCONSISTENT
         RATES AND COVERAGE AND LEGISLATIVE  REFORM THAT ARE BEYOND OUR CONTROL.
         THIS  INCONSISTENCY  AND ANY REFORM THAT  DECREASES  COVERAGE AND RATES
         COULD REDUCE OUR EARNINGS AND HARM OUR BUSINESS.

                                       27
<PAGE>

                  Our clinical  laboratory  business is primarily dependent upon
         reimbursement  from  third-party   payers,   such  as  Medicare  (which
         principally serves patients 65 and older) and insurers.  We are subject
         to variances in reimbursement rates among different third-party payers,
         as well as constant  renegotiation of reimbursement  rates. We also are
         subject to audit by Medicare which can result in the return of payments
         made to us under  these  programs.  These  variances,  rates  and audit
         results could reduce our margins and thus our earnings.

                  The health  care  industry  continues  to undergo  significant
         change as  third-party  payers'  increase  their efforts to control the
         cost, utilization and delivery of health care services. In an effort 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.  Some of the proposals include managed competition,  global
         budgeting and price controls. Changes that decrease reimbursement rates
         or coverage, or increase  administrative burdens on billing third-party
         payers could reduce our revenues and increase our expenses.

                  FDA REGULATION OF LABORATORY-DEVELOPED TESTS, ANALYTE SPECIFIC
         REAGENTS,  OR GENETIC  TESTING COULD LEAD TO INCREASED COSTS AND DELAYS
         IN INTRODUCING NEW GENETIC TESTS.

                  The FDA has regulatory  responsibility over instruments,  test
         kits,  reagents and other devices used to perform diagnostic testing by
         clinical  laboratories.  In the past,  the FDA has  claimed  regulatory
         authority   over   laboratory-developed   tests,   but  has   exercised
         enforcement  discretion  in not  regulating  tests  performed  by  high
         complexity  CLIA-certified  laboratories.  In  December  2000,  the HHS
         Secretary's  Advisory Committee on Genetic Testing recommended that the
         FDA be the lead federal  agency to regulate  genetic  testing.  In late
         2002, a new HHS Secretary's Advisory Committee on Genetics,  Health and
         Society,  or  SACGHS,  was  appointed  to  replace  the prior  Advisory
         Committee. Ultimately, SACGHS decided that it would continue to monitor
         the  progress  of the  federal  agencies  in the  oversight  of genetic
         technologies, but it did not believe that further action was warranted.
         In the meantime,  the FDA is  considering  revising its  regulations on
         analyte  specific  reagents,  which  are  used in  laboratory-developed
         tests, including  laboratory-developed genetic testing. FDA interest in
         or  actual  regulation  of  laboratory-developed   tests  or  increased
         regulation of the various medical devices used in  laboratory-developed
         testing  could  lead  to  periodic  inquiry  letters  from  the FDA and
         increased costs and delays in introducing new tests,  including genetic
         tests.

                  THE  CONTINUED  GROWTH OF MANAGED CARE MAY REDUCE OUR REVENUES
         AND INCREASE OUR LOSS OR REDUCE OUR NET EARNINGS.

                  The number of individuals covered under managed care contracts
         or other similar arrangements has grown over the past several years and
         may  continue to grow in the future.  In  addition,  Medicare and other
         government  healthcare  programs may continue to shift to managed care.
         Entities  providing  managed care  coverage  have reduced  payments for
         medical services,  including clinical laboratory services,  in numerous
         ways such as  entering  into  arrangements  under  which  payments to a
         service   provider  are  capitated,   limiting   testing  to  specified
         procedures,  denying  payment  for  services  performed  without  prior
         authorization  and refusing to increase  fees for  specified  services.
         These  trends  reduce our  revenues  and limit our ability to pass cost
         increases  to our  customers.  Also,  if these or  other  managed  care
         organizations do not select us as a participating provider, we may lose
         some or all of that business, which could have an adverse effect on our
         business, financial condition and results of operations.

                  COMPLIANCE WITH MEDICARE  ADMINISTRATIVE  POLICIES,  INCLUDING
         THOSE  PERTAINING TO CERTAIN  AUTOMATED BLOOD CHEMISTRY  PROFILES,  MAY
         REDUCE THE REIMBURSEMENTS WE RECEIVE.

                  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.  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, Medicare
         has mandated use of the Physicians Current Procedural  Terminology,  or
         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

                                       28
<PAGE>

         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.

                  WE DEPEND ON KEY EMPLOYEES IN A COMPETITIVE MARKET FOR SKILLED
         PERSONNEL,  AND THE LOSS OF THE  SERVICES OF ANY OF OUR KEY  EMPLOYEES,
         INCLUDING  OUR  SENIOR   MANAGEMENT,   COULD  DELAY  OUR  RESEARCH  AND
         DEVELOPMENT  PROGRAMS AND WOULD ADVERSELY AFFECT OUR ABILITY TO DEVELOP
         OUR BUSINESS.

                  The specialized  scientific nature of our business requires us
         to  attract  and retain  personnel  with a wide  variety of  scientific
         capabilities.   There  is  intense  competition  in  the  biotechnology
         industry for qualified scientific and technical  personnel.  To a large
         extent, our success in developing  proprietary  technological  products
         has been the result of the effective efforts of our internal scientific
         staff  and  our   experience   and  talent.   Since  our  inception  an
         insignificant  number  of key  employees  have left us. We have key man
         life insurance on Dr. Elazar Rabbani,  our Chief Executive Officer,  in
         the  amount  of  $3,000,000.  There  can be no  assurance  that we will
         continue to attract and retain personnel of high scientific caliber. If
         we lose the services of our  management  and  scientific  personnel and
         fail to recruit other scientific and technical personnel,  our research
         and development programs could be materially and adversely delayed.

                  NEGATIVE  PUBLICITY AND NEWS COVERAGE ABOUT US OR THE CLINICAL
         LABORATORY INDUSTRY MAY HARM OUR BUSINESS AND OPERATING RESULTS.

                  In the past,  the  clinical  laboratory  industry has received
         negative  publicity.  This publicity has led to increased  legislation,
         regulation,  and  review  of  industry  practices.  These  factors  may
         adversely  affect our  ability to market  our  services,  require us to
         change our services and increase the regulatory  burdens under which we
         operate,  further  increasing the costs of doing business and adversely
         affecting our operating results.

                  ADVERSE PERCEPTION AND INCREASED  REGULATORY  SCRUTINY OF GENE
         MEDICINE  AND GENETIC  RESEARCH  MIGHT LIMIT OUR ABILITY TO CONDUCT OUR
         BUSINESS.

                  Ethical,  social  and  legal  concerns  about  gene  medicine,
         genetic  testing  and  genetic  research  could  result  in  additional
         regulations  restricting  or  prohibiting  the  technologies  we or our
         collaborators may use. Recently,  gene medicine studies have come under
         increasing  scrutiny,  which has delayed ongoing and could delay future
         clinical trials and regulatory  approvals.  Federal and state agencies,
         congressional   committees  and  foreign   governments  have  expressed
         interest  in  further   regulating   biotechnology.   More  restrictive
         regulations  or claims  that our  products  are unsafe or pose a hazard
         could prevent us from commercializing any products.

                  OUR FUTURE  SUCCESS  WILL  DEPEND IN PART UPON OUR  ABILITY TO
         ENHANCE EXISTING PRODUCTS AND TO DEVELOP AND INTRODUCE NEW PRODUCTS.

                  The  market  for our  products  is  characterized  by  rapidly
         changing  technology,  evolving  industry  standards  and  new  product
         introductions,  which  may make our  existing  products  obsolete.  Our
         future success will depend in part upon our ability to enhance existing
         products and to develop and introduce new products.

                  The  development of new or enhanced  products is a complex and
         uncertain process requiring the accurate  anticipation of technological
         and  market  trends  as well as  precise  technological  execution.  In
         addition, the successful development of new products will depend on the
         development  of new  technologies.  We will be  required  to  undertake
         time-consuming and costly development activities and to seek regulatory
         approval for these new products.  We may experience  difficulties  that
         could delay or prevent the  successful  development,  introduction  and
         marketing of these new  products.  Regulatory  clearance or approval of
         any new  products  may not be granted by the FDA or foreign  regulatory
         authorities on a timely basis,  or at all, and the new products may not
         be successfully commercialized.

                  OUR  INABILITY TO CARRY OUT OUR CERTAIN OF OUR  MARKETING  AND
         SALES  PLANS  MAY  MAKE IT  DIFFICULT  FOR US TO GROW OR  MAINTAIN  OUR
         BUSINESS.

                                       29
<PAGE>


                  During fiscal 2006, Enzo Life Sciences  continued to implement
         an aggressive  marketing  program designed to more directly service its
         end  users,  while  simultaneously  positioning  us  for  product  line
         expansion.  The  program  involves  continuing  to expand  the reach of
         companies  by  the  direct   field  sales  force,   develop  a  focused
         advertising  campaign,  continued  attendance  at  top  industry  trade
         meetings,  and publications in leading scientific journals,  as well as
         the on-going  enhancement of our  interactive  web site. In addition to
         our direct sales, we distribute our products through our  international
         distribution network. If we are unable to successfully  implement these
         programs, we may be unable to grow and our business could suffer.

                  BECAUSE  OF  COMPETITIVE  PRESSURES  AND  THE  COMPLEXITY  AND
         EXPENSE OF THE BILLING PROCESS IN OUR CLINICAL LABORATORY BUSINESS,  WE
         MUST OBTAIN NEW CUSTOMERS WHILE MAINTAINING  EXISTING CUSTOMERS TO GROW
         OUR BUSINESS.

                  Intense  competition  in  the  clinical  laboratory  business,
         increasing  administrative  burdens upon the reimbursement  process and
         reduced  coverage and payments by insurers  make it necessary for us to
         increase our volume of  laboratory  services.  To do so, we must obtain
         new  customers  while  retaining  existing  customers.  Our  failure to
         attract new customers or the loss of existing  customers or a reduction
         in  business  from  those  customers  could  significantly  reduce  our
         revenues and impede our ability to grow.

                  WE DEPEND ON  SUPPLIERS  FOR  MATERIALS  THAT COULD IMPAIR OUR
         ABILITY TO MANUFACTURE OUR PRODUCTS.

                  Outside  vendors provide key components and raw materials used
         in  the   manufacture  of  our  products.   Although  we  believe  that
         alternative   sources  for  these  components  and  raw  materials  are
         available,  any  supply  interruption  in  a  limited  or  sole  source
         component or raw  material  would harm our ability to  manufacture  our
         products until a new source of supply is identified  and qualified.  In
         addition,  an uncorrected defect or supplier's variation in a component
         or  raw  material,  either  unknown  to us  or  incompatible  with  our
         manufacturing  process, could harm our ability to manufacture products.
         We might not be able to find a  sufficient  alternative  supplier  in a
         reasonable time period, or on commercially reasonable terms, if at all.
         If we fail to obtain a supplier for the components of our products, our
         operations could be disrupted.

                  WE  USE  HAZARDOUS  MATERIALS  IN  OUR  BUSINESS.  ANY  CLAIMS
         RELATING TO IMPROPER  HANDLING,  STORAGE OR DISPOSAL OF THESE MATERIALS
         COULD BE COSTLY AND TIME-CONSUMING.

                  Our  manufacturing,   clinical  laboratory  and  research  and
         development   processes  involve  the  storage,  use  and  disposal  of
         hazardous   substances,   including  hazardous  chemicals,   biological
         hazardous  materials  and  radioactive  compounds.  We are  subject  to
         federal,  state and local regulations  governing the use,  manufacture,
         storage,  handling  and  disposal  of  materials  and  waste  products.
         Although  we  believe  that our  safety  and  environmental  management
         practices and procedures for handling and disposing of these  hazardous
         materials are in accordance with good industry practice and comply with
         applicable  laws,  permits,  licenses  and  regulations,  the  risk  of
         accidental  environmental  or human  contamination  or injury  from the
         release  or  exposure  of  hazardous  materials  cannot  be  completely
         eliminated.  In the event of an  accident,  we could be held liable for
         any  damages  that   result,   including   environmental   clean-up  or
         decontamination  costs,  and any such liability could exceed the limits
         of, or fall outside the coverage of, our insurance.  We may not be able
         to  maintain  insurance  on  acceptable  terms,  or at all. We could be
         required to incur  significant  costs to comply with  current or future
         environmental  and public  and  workplace  safety  and health  laws and
         regulations.

                  WE PURCHASE INSURANCE TO COVER OUR POTENTIAL BUSINESS RISK.

                  Although  we believe  that our present  insurance  coverage is
         sufficient to cover our current estimated  exposures,  we cannot assure
         that we will not incur  liabilities in excess of our policy limits.  In
         addition,  although we believe  that will be able to continue to obtain
         adequate  coverage,  we cannot  assure that we will be able to do so at
         acceptable costs.

         RISKS RELATING TO OUR COMMON STOCK

                  OUR  STOCK  PRICE HAS BEEN  VOLATILE,  WHICH  COULD  RESULT IN
         SUBSTANTIAL LOSSES FOR INVESTORS.

                  Our common stock is quoted on the New York Stock Exchange, and
         there has been historical  volatility in the market price of our common
         stock. The trading price of our common stock has been, and is likely to
         continue to be, subject to significant fluctuations due to a variety of
         factors, including:

                                       30
<PAGE>


                  o    fluctuations in our quarterly  operating and earnings per
                       share results;

                  o    the gain or loss of significant contracts;

                  o    loss of key personnel;

                  o    announcements   of   technological   innovations  or  new
                       products by us or our competitors;

                  o    delays  in  the  development  and   introduction  of  new
                       products;

                  o    legislative or regulatory changes;

                  o    general trends in the industry;

                  o    recommendations and/or changes in estimates by equity and
                       market research analysts;

                  o    biological or medical discoveries;

                  o    disputes  and/or  developments   concerning  intellectual
                       property, including patents and litigation matters;

                  o    public concern as to the safety of new technologies;

                  o    sales of common stock of existing holders;

                  o    securities class action or other litigation;

                  o    developments in our relationships  with current or future
                       customers and suppliers; and

                  o    general  economic  conditions,  both in the United States
                       and abroad.

                  In  addition,  the stock  market in  general  has  experienced
         extreme  price and volume  fluctuations  that have  affected the market
         price of our common  stock,  as well as the stock of many  companies in
         our industries.  Often,  price  fluctuations are unrelated to operating
         performance of the specific companies whose stock is affected.

                  In the past,  following  periods of  volatility  in the market
         price of a company's  stock,  securities  class action  litigation  has
         occurred against the issuing  company.  If we were subject to this type
         of litigation  in the future,  we could incur  substantial  costs and a
         diversion of our  management's  attention and resources,  each of which
         could have a material  adverse effect on our revenue and earnings.  Any
         adverse  determination in this type of litigation could also subject us
         to significant liabilities.

                  BECAUSE WE DO NOT INTEND TO PAY CASH  DIVIDENDS  ON OUR COMMON
         STOCK,  AN  INVESTOR  IN OUR  COMMON  STOCK  WILL  BENEFIT  ONLY  IF IT
         APPRECIATES IN VALUE.

                  We currently intend to retain our retained earnings and future
         earnings,  if any, to finance the  expansion of our business and do not
         expect to pay any cash dividends on our common stock in the foreseeable
         future.  As a result,  the success of an investment in our common stock
         will  depend  entirely  upon  any  future  appreciation.  There  is  no
         guarantee  that  our  common  stock  will  appreciate  in value or even
         maintain the price at which an investor purchased her shares.

                  IT MAY BE  DIFFICULT  FOR A THIRD PARTY TO ACQUIRE  US,  WHICH
         COULD  INHIBIT  STOCKHOLDERS  FROM  REALIZING  A PREMIUM ON THEIR STOCK
         PRICE.

                  We are subject to the New York  anti-takeover  laws regulating
         corporate takeovers. These anti-takeover laws prohibit certain business
         combinations  between  a  New  York  corporation  and  any  "interested
         shareholder"  (generally,  the  beneficial  owner of 20% or more of the
         corporation's voting shares) for five years following the time that the
         shareholder became an interested shareholder,  unless the corporation's
         board of directors  approved the  transaction  prior to the  interested
         shareholder becoming interested.

                                       31
<PAGE>


                  Our  certificate  of  incorporation,  as amended,  and by-laws
         contain provisions that could have the effect of delaying, deferring or
         preventing  a change in control of us that  stockholders  may  consider
         favorable  or  beneficial.  These  provisions  could  discourage  proxy
         contests and make it more difficult for stockholders to elect directors
         and take other corporate actions. These provisions could also limit the
         price that  investors  might be willing to pay in the future for shares
         of our common stock. These provisions include:

                  o    a  staggered  board of  directors,  so that it would take
                       three   successive   annual   meetings   to  replace  all
                       directors; and

                  o    advance  notice   requirements   for  the  submission  by
                       stockholders  of nominations for election to the board of
                       directors  and for  proposing  matters  that can be acted
                       upon by stockholders at a meeting.

                  FUTURE  SALES OF SHARES OF OUR COMMON STOCK OR THE ISSUANCE OF
         SECURITIES  SENIOR TO OUR  COMMON  STOCK  COULD  ADVERSELY  AFFECT  THE
         TRADING PRICE OF OUR COMMON STOCK AND OUR ABILITY TO RAISE FUNDS IN NEW
         EQUITY OFFERINGS.

                  We are not restricted  from issuing  additional  common stock,
         preferred  stock or securities  convertible  into or  exchangeable  for
         common  stock.  Future sales of a  substantial  number of our shares of
         common  stock or  equity-related  securities  in the  public  market or
         privately,  or the  perception  that  such  sales  could  occur,  could
         adversely  affect  prevailing  trading prices of our common stock,  and
         could impair our ability to raise capital  through future  offerings of
         equity or  equity-related  securities.  No prediction can be made as to
         the effect,  if any, that future sales of shares of common stock or the
         availability  of shares of common stock for future  sale,  will have on
         the trading price of our common stock.

                  THERE IS NO ASSURANCE  THAT WE WILL REMAIN LISTED ON AN ACTIVE
         TRADING MARKET.

         Although  our common  stock is quoted on the New York  Stock  Exchange,
there can be no assurance  that we will, in the future,  be able to meet all the
requirements  for  continued  quotation on that  exchange.  In the absence of an
active  trading  market or if our common  stock cannot be traded on the New York
Stock  Exchange,  our common  stock could  instead be traded on the OTC Bulletin
Board or in the Pink Sheets. In such event, the liquidity and stock price in the
secondary market may be adversely affected. In addition, in the event our common
stock was de-listed; broker-dealers have certain regulatory burdens imposed upon
them which may discourage  them from effecting  transactions in our common stock
and hence, could further limit the liquidity of our common stock.

         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 1B - UNRESOLVED STAFF COMMENTS
         None.

         Item 2.  PROPERTIES

         The following are the principal facilities of the Company:
<TABLE>
<CAPTION>


<S>                               <C>                                    <C>            <C>            <C>
                                                                         Approximate                   Lease expiration
         Location                 Principal Operations                   Area (Sq. Ft.)  Base Rent     Date
         --------                 --------------------                   --------------  ---------     ----
         60 Executive Blvd        Clinical laboratory, research          43,000          $1,193,000    March 31, 2017
         Farmingdale, N.Y.        and manufacturing facilities
                                  (See Note 11 of Notes to
                                  Consolidated Financial Statements)
         10 Executive Blvd        Note 1 below                           22,000          Owned         N/A
         Farmingdale, NY
         527 Madison Ave          Corporate headquarters                 6,400           $367,000      December 31, 2013
         New York, NY
</TABLE>

         In March 2005,  the  Company  amended  and  extended  the lease for its
Farmingdale laboratory and headquarters for a period of 12 years. We believe the
current facilities are suitable and adequate for the Company's current operating
needs for its clinical laboratories, life science and therapeutics segments, and
that the production capacity in the Farmingdale  facility is being substantially
utilized.

         Note 1 - In June  2006,  we  acquired  a 22,000  square  foot  facility
adjacent to our  Farmingdale,  New York  facility  that will be  utilized,  upon
completion of renovations,  for the Life Science and  Therapeutics  research and
manufacturing operations. The new facility will be used to manage the additional
space required for the anticipated growth.


                                       32
<PAGE>


         Item 3.  LEGAL PROCEEDINGS

         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.  The defendants have answered the individual  Complaints
and asserted a variety of affirmative defenses and counterclaims. Fact discovery
is ongoing.  The Court issued a claim construction opinion on July 10, 2006. The
Company and Sigma  Aldrich  ("Sigma")  entered into a Settlement  Agreement  and
Release  effective  September  15,  2006  (the  "Agreement").  Pursuant  to  the
Agreement,  the  Company's  litigation  with Sigma was dismissed and the Company
will  recognize $2 million on settlement in the first quarter ending October 31,
2006.  There can be no assurance  that the Company will be  successful  with the
remaining  outstanding   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. The Company has not recorded revenue under these
agreements in fiscal 2006. The Company  recorded  revenue from only Perkin Elmer
in fiscal 2005.

         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 Affymetrix 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.
Initial  pleadings have been  completed and discovery has  commenced.  The Court
issued a Marksman (claim construction) opinion on July 10, 2006. The Company did
not record any revenue  from  Affymetrix  during the fiscal years ended July 31,
2006, 2005 and 2004.

         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 (the
"'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.
Enzo filed an Answer and  Counterclaims  on November 3, 2004  alleging  multiple
breaches of the 1994 Agreement and related  infringement  of Enzo's `373 patent.
Discovery has  commenced.  The Court issued a Markman  opinion on July 10, 2006.
The Company did not record any revenue  from Roche  during the fiscal year ended
July 31, 2006.

         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 Glaser v. Hyman Gross,  Barry Weiner,  Enzo  Biochemical  Inc.,  Elazar
Rabbani,  Shahram Rabbani, John


                                       33
<PAGE>

Delucca,  Dean Engelhardt,  Richard Keating, Doug Yates, and Does I-50, Case No.
CA-02-1242-A (the "Glasser Action"),  in the U.S. District Court for the Eastern
District of Virginia. This complaint was filed by an investor in the Company who
had filed for  bankruptcy  protection  and his  family.  The  complaint  alleged
securities fraud, breach of fiduciary duty, conspiracy, and common law fraud and
sought 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.  Plaintiffs thereafter appealed the decision to
the United  States Court of Appeals for the Fourth  Circuit.  On March 21, 2005,
the Fourth  Circuit  affirmed the lower  Court's  prior  dismissal of all claims
asserted in the action,  with the sole  exception  of a portion of the claim for
common law fraud and remanded that  remaining  portion of the action to the U.S.
District Court for the Eastern District of Virginia. On May 20, 2005, defendants
again moved the District Court to dismiss the sole remaining claim before it. On
July 14, 2005, the District Court granted defendants' renewed motion to dismiss.
On July 29, 2005, Plaintiffs moved to amend their Complaint for reconsideration.
On August 19,  2005,  the Court denied  Plaintiffs'  motion to amend and entered
final judgment  dismissing the complaint.  Thereafter,  Plaintiffs  appealed the
order and  judgment to the Fourth  Circuit.  On September  16, 2006,  the United
States Court of Appeals for the Fourth  Circuit  affirmed  the  dismissal of the
Complaint relating to the Glasser Action.  Although the Glasser plaintiffs still
have the  option  of  requesting  a  rehearing  before  the  Fourth  Circuit  or
petitioning  for a writ of  certiorari  from the United  States  Supreme  Court,
absent  such  further  relief,  the Glasser  Action will be closed.  The Company
continues to believe that the Glasser Action and the remaining  complaint has no
merit whatsoever and intends to continue to defend the actions vigorously.

         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,  estoppels  and laches and asserts
counterclaims of non-infringement  and invalidity.  Fact discovery is ongoing. A
one-day  Markman  hearing was held on May 25, 2006 and the parties are currently
waiting  for a Markman  ruling.  Dispositive  motions due dates are based on the
Markman ruling date. The trial date is currently scheduled for December 1, 2006.
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, 2006.

         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.

         2005 Fiscal Year (August 1, 2004 to July 31, 2005):

                                                     HIGH              LOW
         1st Quarter                                 $17.69            $11.15
         2nd Quarter                                 $20.40            $17.27
         3rd Quarter                                 $19.27            $13.62
         4th Quarter                                 $18.24            $14.08

         2006 Fiscal Year (August 1, 2005 to July 31, 2006):

         1st Quarter                                 $17.30            $12.92
         2nd Quarter                                 $14.10            $12.40
         3rd Quarter                                 $13.55            $11.67
         4th Quarter                                 $15.08            $9.30

                                       34
<PAGE>


         As  of  September  30,  2006,  the  Company  had  approximately   1,070
stockholders of record of its Common Stock.

         The  Company  has not paid a cash  dividend  on its  Common  Stock  and
intends to  continue a policy of  retaining  earnings  to finance  and build its
operations.  Accordingly,  the Company does not  anticipate  the payment of cash
dividends to holders of Common Stock in the  foreseeable  future.  During fiscal
2005, the Company's  board of directors  declared a 5% stock dividend on October
5, 2004 payable  November 15, 2004 to  shareholders  of record as of October 25,
2004. The fiscal 2004 per share data was adjusted  retroactively  to reflect the
stock  dividend  declared on October 5, 2004.  The Company  recorded a charge to
accumulated  deficit and offsetting  credits to both common stock and additional
paid-in capital of  approximately  $23,433,400 in fiscal 2005 which reflects the
fair value of the stock dividends on the dates of declaration

         Item 6.          SELECTED FINANCIAL DATA

         The  following  table,  which is derived from the audited  consolidated
financial  statements  of the Company  for the fiscal  years 2002  through  2006
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.

<TABLE>
<CAPTION>
                                                                For the fiscal year ended July 31,
                                                                (In thousands, except per share amounts)
                                                       ---------------------------------------------------------
OPERATING RESULTS                                        2006        2005        2004        2003        2002
                                                       --------    --------    --------    --------    --------
<S>                                                    <C>         <C>         <C>         <C>         <C>
Operating revenues                                     $ 39,826    $ 43,403    $ 41,644    $ 52,767    $ 54,015
Gain on patent litigation settlement                         --      14,000          --          --          --
Interest income                                           3,144       1,523       1,152       1,355       1,350

(Loss) Income  before income taxes                      (17,009)      5,217     (11,080)      5,725      10,340
Benefit (provision) for income taxes                      1,342      (2,213)      4,848      (1,881)     (3,417)
                                                       --------    --------    --------    --------    --------
Net (loss) income                                       (15,667)      3,004      (6,232)      3,844       6,923
                                                       ========    ========    ========    ========    ========

Basic net (loss) income per common share:              $  (0.49)   $   0.09    $  (0.20)   $   0.12    $   0.22
                                                       ========    ========    ========    ========    ========
Diluted net (loss) income per common share:            $  (0.49)   $   0.09    $  (0.20)   $   0.12    $   0.21
                                                       ========    ========    ========    ========    ========

Weighted average common shares
  Basic                                                  32,215      32,097      31,700      31,399      31,359
  Diluted                                                32,215      32,763      31,700      32,175      32,327

                                                                             July 31,
                                                       ---------------------------------------------------------
FINANCIAL POSITION (IN 000'S):                           2006        2005        2004        2003        2002
                                                       --------    --------    --------    --------    --------
Working capital                                        $ 80,161    $ 96,280    $ 92,259    $ 97,723    $ 92,772
Total assets                                            101,524     116,466     110,334     115,878     109,291
Long term obligations                                        --         150         300          --          --
Stockholders' equity                                     95,587     108,267     104,166     109,380     104,733
</TABLE>



                                       35
<PAGE>


         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.

         The Company is a life  sciences and  biotechnology  company  focused on
harnessing  genetic processes to develop research tools and therapeutics and the
provision of diagnostic services to the medical community. Since its founding in
1976,  Enzo's  strategic  focus  has  been on the  development,  for  commercial
purposes, of enabling technologies in the life sciences field. Enzo's pioneering
work in genomic  analysis  coupled with its extensive patent estate and enabling
platforms have strategically  positioned Enzo to play a crucially important role
in the rapidly growing life sciences and molecular medicine marketplaces

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

         ENZO  LIFE  SCIENCES  is a company  that  manufacturers,  develops  and
markets  biomedical  research products and tools to research and  pharmaceutical
customers  around  the  world  and has  amassed a large  patent  and  technology
portfolio.  The pioneering  platforms developed by Enzo Life Sciences enable the
development of a wide range of products in the research products marketplace.

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

         ENZO CLINICAL LABS is a regional clinical laboratory to the greater New
York  and New  Jersey  medical  community.  The  Company  believes  having  this
capability allows us to capitalize firsthand on our extensive advanced molecular
and cytogenetic  capabilities and the broader trends in predictive  diagnostics.
We offer a menu of routine and esoteric clinical  laboratory tests or procedures
used in general  patient care by physicians to establish or support a diagnosis,
monitor  treatment  or  medication,  or  search  for  an  otherwise  undiagnosed
condition.  We operate a full-service  clinical  laboratory in Farmingdale,  New
York,  a network of 19 patient  service  centers,  a stand alone "stat" or rapid
response laboratory in New York City, and a full-service phlebotomy department.

         The Company's  sources of revenue from the Life  Sciences  segment have
been from the direct  sales of products  consisting  of labeling  and  detection
reagents  for  the  genomics  and  sequencing   markets,   as  well  as  through
non-exclusive  distribution  agreements with other companies and royalty income.
Another source of revenue has been from the clinical  laboratory service market.
Payments  for  clinical  laboratory  testing  services  are made by the Medicare
program,  healthcare insurers and patients.  Fees billed to patients,  Medicare,
and third  party  payers  are  billed  on the  laboratory's  standard  gross fee
schedule,  subject to any  limitations on fees  negotiated  with the third party
payers or with the ordering physicians on behalf of their patients.


                                       36
<PAGE>



         The Company incurs additional costs as a result of our participation in
the Medicare  programs,  as billing and  reimbursement  for clinical  laboratory
testing is subject to considerable and complex federal  regulations.  Compliance
with applicable laws and regulations,  as well as internal  compliance  policies
and procedures, adds further complexity and costs to our operations.  Government
payers such as Medicare, as well as healthcare insurers have taken steps and may
continue  to take  steps to control  the costs,  utilizations  and  delivery  of
healthcare services,  including clinical laboratory  services.  Principally as a
result of  reimbursement  reductions  and  measures  adopted by the  Centers for
Medicare  &  Medicaid  Services,  or  CMS,  which  establishes   procedures  and
continuously  evaluates and implements  changes in the reimbursement  process to
control  utilization.  Despite the added cost and complexity of participating in
the Medicare  program,  we continue to  participate  because we believe that our
other business may depend, in part, on continued participation in Medicare since
certain ordering  physicians may want a single laboratory  capable of performing
all of their clinical  laboratory  testing services,  regardless of who pays for
such services.

         Information  systems are used  extensively  in virtually all aspects of
the  clinical  laboratory  operations,   including  testing,  billing,  customer
service,  logistics,  and  management of medical data. Our success  depends,  in
part,  on  the  continued  and  uninterrupted  performance  of  our  information
technology  systems.  Through  maintenance,  staffing,  and  investments  in our
information  technology  system, we expect to limit the risk associated with our
heavy reliance on these systems.

         The  clinical  laboratory  is  subject  to  seasonal   fluctuations  in
operating results and cash flows. Typically,  testing volume declines during the
summer months,  year end holiday periods and other major holidays,  reducing net
revenues and operating cash flows. Testing volume is also subject to declines in
winter  months due to inclement  weather,  which varies in severity from year to
year.

         For the fiscal years ended July 31, 2006, 2005, and 2004  respectively,
approximately 20%, 24%, and 31% of the Company's operating revenues were derived
from product sales and royalty income and  approximately  80%, 76%, and 69% were
derived from clinical laboratory services.

                                       37
<PAGE>


         RESULTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                COMPARATIVE FINANCIAL DATA FOR THE FISCAL YEARS ENDED JULY 31,
                                                                          (in 000's)

                                                                Increase                            Increase
                                                    2006       (Decrease)   % Change    2005      (Decrease)    % Change     2004
                                                    -----      ----------   --------   -----      ----------    --------     ----
         Revenues:
<S>                                               <C>           <C>            <C>    <C>         <C>              <C>    <C>
         Product sales and royalties              $  7,900      (2,646)        (25)   $ 10,546    $ (2,426)        (19)   $ 12,972
         Clinical laboratory services               31,926        (931)         (3)     32,857       4,185          15      28,672
                                                  --------     -------                --------    --------                --------
         Total revenue                              39,826      (3,577)         (8)     43,403       1,759          (4)     41,644

         Costs and expenses and other (income):

         Cost of products                            2,174         (23)         (1)      2,197        (321)        (13)      2,518
         Cost of laboratory services                13,917       1,369          11      12,548       1,962          19      10,586
         Research & development                      7,896        (556)         (7)      8,452         374           5       8,078
         Selling, general and administrative        24,971       4,902          24      20,069       5,702          40      14,367
         Provision for uncollectible A/R             3,633      (1,334)        (27)      4,967      (7,020)        (59)     11,987
         Legal expenses                              7,388       1,912          35       5,476        (864)        (14)      6,340
         Interest income                            (3,144)     (1,621)        106      (1,523)       (371)         32      (1,152)
         Gain on patent litigation settlement           --      14,000        (100)    (14,000)    (14,000)         --          --
                                                  --------     -------                --------    --------                --------
         Costs and expenses                         56,835      18,649                  38,186     (14,538)                 52,724
                                                  --------     -------                --------    --------                --------

         Operating (loss) income                  $(17,009)    (22,226)               $  5,217    $ 16,297                $(11,080)
                                                  ========     =======                ========    ========                ========
</TABLE>



         FISCAL 2006 COMPARED TO FISCAL 2005

         CONSOLIDATED RESULTS

         Fiscal  2006  product  revenues  and  royalty  income was $7.9  million
compared to $10.5 million in fiscal 2005, a decrease of $2.6 million or 25%. The
decrease in product revenue and royalty income was primarily due to the decrease
in the volume of shipments  of research  products of $2.6 million and a decrease
in  revenue  from a  former  distributor  of $1.5  million  (see  Item 3.  Legal
Proceedings).  This  decrease  was  partially  offset by an  increase in royalty
income of $1.5 million.

         Fiscal 2006 clinical laboratory revenues were $31.9 million compared to
$32.9  million in fiscal 2005, a decrease of  approximately  $0.9 million or 3%.
The contractual adjustment expense,  which reduces gross billings,  increased to
75.2%  of gross  billing  as  compared  to 72.5%  in the  prior  period,  due to
competitive   pricing  throughout  the  industry.   In  addition,   the  Company
experienced a decrease in gross billing due to decreased  reimbursement rates on
certain tests.

         The cost of  products  during both fiscal 2006 and fiscal 2005 was $2.2
million.  The cost of product revenues was negatively impacted in fiscal 2006 by
the  write-off or reserve of  approximately  $0.4 million for excess or obsolete
inventory due to an evaluation made of the current and estimated demand for such
product offerings.

                                       38
<PAGE>


         The cost of clinical  laboratory  services during fiscal 2006 was $13.9
million compared to $12.5 million in fiscal 2005, an increase of $1.4 million or
11%.  The  increase is  primarily  due to an  increase  in the  overall  cost of
performing testing services,  including  increased reagent costs of $0.8 million
and outside  testing costs for certain  esoteric  tests of $0.1 million,  and an
increase  of  hiring  additional  phlebotomists  for the New  Jersey  market  of
approximately $0.3 million.

         Research  and  development  expenses  were $7.9  million in fiscal 2006
compared to $8.5  million in fiscal  2005, a decrease of $0.6 million or 7%. The
decrease was primarily due to a reduction of $1.4 million in patent  expense and
the  amortization  of patent  costs and a decrease in  compensation  expense for
executive officers due to the realignment of  responsibilities  to other expense
categories of $0.6 million.  The decrease was partially offset by an increase in
clinical  trial  study  activities  of  $1.0  million  and  the  recognition  of
share-based compensation charges required by the adoption of SFAS 123(R) of $0.2
million during the 2006 period.  Research and development expenses include costs
of scientific personnel, supplies, consultants,  allocated facility costs, costs
related to pre-clinical and clinical trials, amortization of patent expense, and
other patent related costs.

         Selling,  general and administrative expenses were $25.0 million during
fiscal  2006,  compared  to $20.1  million in fiscal  2005,  an increase of $4.9
million  or 24%.  The  increase  in the 2006  period  was  primarily  due to the
recognition of share-based compensation charges required by the adoption of SFAS
123(R) of $1.5 million,  increases in  expenditures  for  corporate  governance,
consulting,  accounting and other professional fees of $1.2 million, an increase
in compensation  expense of executive officers  previously  included in research
and  development due to the  realignment of  responsibilities,  of $0.7 million,
increases in compensation of $0.5 million and other increased costs.

         The provision for  uncollectible  accounts  receivable  relating to the
clinical  laboratory  segment  during fiscal 2006 was $3.6 million,  compared to
$5.0  million  during  fiscal  2005,  a decrease  of $1.3  million  or 27%.  The
provision  declined due to improved  billing and  collection  procedures  and an
overall increase in collections.

         Legal  expense was $7.4  million  during  fiscal 2006  compared to $5.5
million in fiscal  2005,  an increase of $1.9 million or 35%, due to an increase
in ongoing patent litigation activities.

         Interest  income  increased $1.6 million or 106% to $3.2 million during
fiscal 2006 compared to $1.5 million during fiscal 2005, due to higher  interest
rates  earned  offset  by lower  investments.  The  Company  earns  interest  by
investing  primarily  in short  term (30 - 90 days)  commercial  paper and money
market funds with high credit ratings.

         For the year ended July 31, 2006,  the Company's net benefit for income
taxes was $1.3  million or an effective  rate of 8%,  comprised of a federal tax
carryback  benefit of $2.0  million for taxes paid in the fiscal year ended July
31, 2005 and other adjustments,  offset by a valuation  allowance charge of $0.6
million  equal to net deferred tax assets as of July 31, 2005,  and by state and
local taxes of $0.1 million, based on capital.  Pursuant to SFAS 109 "Accounting
for Income Taxes", the Company recorded a valuation  allowance charge during the
year ended July 31, 2006 equal to its net  deferred  tax assets at July 31, 2005
and has applied a full valuation allowance against increases in its net deferred
tax assets generated during the 2006 period. The benefit for income taxes, at an
effective  rate of 8% was different  from the U.S.  statutory rate of 34% due to
state  and  local  taxes,  net of  federal  tax  benefit,  of 5%,  expenses  not
deductible for income taxes of 4%, and the effect of the valuation  allowance of
28%. The Company believes that the valuation allowance is necessary as it is not
more  likely  than not that net  deferred  tax assets  will be  realized  in the
foreseeable  future based on positive and  negative  evidence  available at this
time. This conclusion was reached  because of  uncertainties  relating to future
taxable  income,  in terms of both its timing and its  sufficiency,  which would
enable the Company to realize the net  deferred  tax assets.  For the year ended
July 31, 2005, the Company's (provision) for income taxes was $2.2 million which
was based on the effective federal,  state and local income tax rates applied to
2005 period's taxable income,  which was primarily  comprised of the $14 million
gain from the Digene agreement.  The provision for income taxes, at an effective
rate of 42%, was different  from the U.S.  federal  statutory rate of 34% due to
state income taxes net of federal tax deduction,  of approximately  6%, expenses
not deductible for income tax return purposes of 2%, a benefit for foreign sales
of (1%) and other of 1%.

         Fiscal  2006 net loss was $15.7  million as  compared  to net income of
$3.0  million in fiscal  2005.  Fiscal 2005  results  included the gain from the
patent litigation settlement from Digene Corp. of $14 million. Fiscal 2006's net
loss was impacted by  decreased  revenues  and  increased  expenses as discussed
above.


                                       39
<PAGE>



         SEGMENT RESULTS

         The life sciences  segment's loss before income taxes was approximately
$0.2 million for the year ended July 31, 2006,  compared to income before income
taxes of  approximately  $14.6  million in the fiscal 2005  period.  Fiscal 2006
product  revenues and royalty income was $7.9 million  compared to $10.5 million
in fiscal  2005,  a decrease  of $2.6  million or 25%.  The  decrease in product
revenue and royalty  income was  primarily  due to the decrease in the volume of
shipments of research  products of $2.6 million and a decrease in revenue from a
former  distributor  of $1.5  million  (see  Item 3.  Legal  Proceedings).  This
decrease was partially  offset by an increase in royalty income of $1.5 million.
The 2005  period's  income  included the $14 million gain from a settlement  and
license  agreement  with Digene Corp.  The decline in the gross profit margin on
product sales and royalties in fiscal 2006 compared to fiscal 2006 was partially
due to the  write-off  or reserve  of  approximately  $0.4  million of excess or
obsolete inventory due to an evaluation made of the current and estimated demand
for  such   product   offerings,   decline   in  sales   volumes   and   pricing
competitiveness.  Segment  operating  expenses  (research  and  development  and
selling,   general  and   administrative)   decreased  in  the  2006  period  by
approximately  $1.8 million  primarily due to a decrease in the  amortization of
deferred  patent  expenses  of  approximately  $1.2  million,  and a decrease in
compensation   expense  for  executive   officers  due  to  the  realignment  of
responsibilities of $0.6 million.

         The therapeutics  segment's loss before income taxes was  approximately
$4.2 million for the year ended July 31, 2006 as compared to $3.1 million in the
year ago  period.  The  increase  in the net loss was due to an increase of $1.0
million  in  clinical  trial  studies  expenditures.

         The clinical  laboratory  segment's income before income taxes was $0.1
million for the year ended July 31, 2006 period versus income of $2.8 million in
fiscal 2005.  The 2006 period was impacted by lower revenue of $0.9 million,  an
increase  in  cost  of  laboratory  services  of  $1.4  million,  as  previously
explained, and a net increase in operating expenses (provision for uncollectible
accounts and selling,  general and administrative) of $0.5 million primarily due
to recognition of share-based  compensation  charges required by the adoption of
SFAS 123(R) of $0.5 million, the inclusion of compensation expense for executive
officers of $0.6  million  previously  included in the other  segment due to the
realignment  of  responsibilities,  and  compensation  and related costs of $0.4
million relating to increased  personnel,  offset by a decrease in the provision
for uncollectible accounts of $1.3 million.

         The other  segment's loss before income taxes was $12.6 million for the
year ended July 31, 2006 versus $9.1 million in fiscal 2005.  The increased loss
in  fiscal  2006  of  approximately  $3.5  million  was  primarily  due  to  the
recognition of share-based compensation charges required by the adoption of SFAS
123(R) of $0.9 million,  increases in  expenditures  for  corporate  governance,
consulting,  accounting and other professional fees of $1.3 million, an increase
in legal fees of $1.9 million due to ongoing patent litigation,  and an increase
in  compensation  expense for  executive  officers  previously  included in life
sciences and therapeutics  segments due to the realignment of  responsibilities,
of $0.7 million. These increases were partially offset by higher interest income
earned of $1.6 million.

         FISCAL 2005 COMPARED TO FISCAL 2004

         CONSOLIDATED RESULTS

         Fiscal  2005  Product  Revenue  and  royalty  income was $10.5  million
compared to $13.0 million in fiscal 2004, a decrease of $2.4 million or 19%. The
decrease  was  primarily  due to the  Company not  recording  revenue due to the
ongoing  dispute  with  certain  distributors  on the sales of certain  licensed
products,  partially  offset by the increase in direct sales of our products and
royalty  income from Digene  Corp.  The  decline in the gross  profit  margin on
product sales and royalties in fiscal 2005 compared to fiscal 2004 is due to the
decline  in  revenues  from  distributors  with whom we had  supply  agreements.
Revenues from these  distributors  were net of  manufacturing  costs.  See Legal
Proceedings.

         Fiscal 2005 clinical laboratory revenues were $32.9 million compared to
$28.7 million in fiscal 2004, an increase of $4.2 million or 15%,  primarily due
to the increase in the number of customer accounts being serviced. This increase
in new  customer  accounts  is due to the  expansion  into  the New  Jersey  and
Westchester market that commenced in the fourth quarter of fiscal 2004.

         The cost of products  revenues in fiscal 2005 was $2.2 million compared
to $2.5 million in fiscal 2004, a decrease of $0.3 million or 13%, primarily due
to lower royalty costs because of the expiration of a licensed patent  agreement
with Yale University.


                                       40
<PAGE>

         The cost of  clinical  laboratory  services  in  fiscal  2005 was $12.5
million compared to $10.6 million in fiscal 2004, an increase of $1.9 million or
19%,  primarily due to the increased  number of tests performed and higher costs
incurred to perform certain  esoteric tests.  The increase in tests performed is
due to the new accounts  being  serviced  through the expansion  into New Jersey
markets.

         Fiscal  2005  research  and  development  expenses  were  $8.5  million
compared to $8.1  million in fiscal  2004,  an  increase  of $0.4  million or 5%
primarily due to increases in clinical trial study costs for the  development of
therapeutic products.

         Fiscal 2005  selling,  general and  administrative  expenses were $20.1
million compared to $14.4 million in fiscal 2004, an increase of $5.7 million or
40%.  The  increase  was  primarily  due  to  an  increase  in  direct   selling
expenditures for our clinical laboratory and life science divisions, an increase
in information  technology costs for the expansion of the information technology
connectivity  system and data center  personnel costs  including  infrastructure
expenses and accounting  related fees for the compliance with the Sarbanes-Oxley
Act of 2002.

         The  fiscal  2005  provision  for  uncollectible  accounts  in the life
sciences  division  was $0 versus $1.8  million in the 2004  period,  due to the
write off of a receivable from a former  distributor.  The fiscal 2005 provision
for uncollectible  accounts  receivable in the clinical  laboratory  segment was
$5.0 million,  compared to $10.2 million in the 2004 period,  a decrease of $5.2
million or 51%. The  percentage  of the  provision  for  uncollectible  accounts
receivable as a proportion of clinical laboratory services revenues decreased to
15.0% in fiscal 2005  compared to 36% for the 2004  period.  This  decrease  was
primarily due to improved collection procedures and due to the change in the mix
of the demographics of the patients from the New Jersey new customer accounts.

         Fiscal 2005 legal  expenses were $5.5 million  compared to $6.3 million
in fiscal 2004, a decrease of $0.8 million or 14%. The decrease is primarily due
to the  reduction  of legal  activities  because of the  settlement  with Digene
Corporation during fiscal 2005's first quarter ended October 31, 2004.

         Fiscal  2005  interest  income  increased  $0.4  million or 32% to $1.5
million compared to $1.2 million during fiscal 2004, due to the increased amount
of cash  available for  investment and the increase in interest rates offered on
debt securities.. The Company earns interest on its cash and cash equivalents by
investing   primarily  in  short  term  (90  days  or  less)  diverse  financial
instruments with high credit ratings.

         On October 14, 2004, the Company as plaintiff  finalized and executed a
settlement  and license  agreement  with Digene  Corporation  to settle a patent
litigation lawsuit (the "Digene  agreement").  Under the terms of the agreement,
the Company  received  an initial  payment of $16.0  million,  would earn in the
first "annual period"  (October 1, 2004 to September 30, 2005) a minimum royalty
payment of $2.5 million,  and receive a minimum  royalty of $3.5 million in each
of the next four annual  periods.  In addition,  the agreement  provides for the
Company  to  receive  quarterly  running  royalties  on the net  sales of Digene
products  subject to the license until the expiration of the patent on April 24,
2018. These quarterly  running  royalties will be fully  creditable  against the
minimum  royalty  payments  due in the first  five years of the  agreement.  The
balance,  if any, of the minimum royalty payment will be recognized in the final
quarter of the applicable annual royalty period.

         As a result of the above  settlement,  the  Company  recorded a gain on
patent  litigation  settlement  of $14.0  million in the first quarter of fiscal
2005,  and  deferred  $2  million  which  would be earned  from net sales of the
Company's  licensed  products  covered by the agreement  during the first annual
period.  As of July 31,  2005,  the  balance of the  revenue  deferred  from the
settlement was approximately $359,000.

         In fiscal  2005,  the  Company's  provision  for income  taxes was $2.2
million  which was based on the  effective  federal,  state and local income tax
rates  applied to the fiscal  year's  taxable  income.  The provision for income
taxes,  at an  effective  rate of 42%,  was  different  from  the  U.S.  federal
statutory rate of 34% due to state income taxes, net of federal tax deduction of
approximately  6%, expenses not deductible for income tax return purposes of 2%,
a benefit for foreign  sales(-1%)  and other  adjustments of 1%. In fiscal 2004,
the  Company's  benefit for income taxes was $4.8 million which was based on the
effective federal, state and local income tax rates applied to the fiscal year's
taxable  income.  The benefit for income taxes, at an effective rate of 44%, was
different  from the U.S.  federal  statutory rate of 34% due to state income tax
benefit,  net of federal, of approximately 4%, a benefit for foreign sales of 2%
and other benefits, net, of 4%.


                                       41
<PAGE>



         SEGMENT RESULTS

         The life science segment's income before income taxes was $14.6 million
in fiscal 2005 compared to $1.1 million in fiscal 2004. The fiscal 2005 increase
resulted from the $14 million gain and related earned  royalties from the Digene
agreement. The gain was partially offset by a decline in product revenues due to
the ongoing dispute with certain  distributors on the sales of certain  licensed
products.

         The therapeutics  segment's loss before income taxes was  approximately
$3.1 million for the year ended July 31, 2005 as compared to $2.4 million in the
year ago  period.  The  increase  in the net loss was due to an increase of $0.7
million in clinical trial studies expenditures.

         The clinical  laboratory  segment's income before income taxes was $2.8
million  versus a loss of $1.5  million in fiscal  2004.  The increase is due to
higher  revenues,  due to the increase in the number of customer  accounts being
serviced, and a lower provision for uncollectible accounts, due to the change in
the mix of payers and the expansion into the New Jersey markets.

         The other segment's  (loss) before income taxes was $9.1 million versus
$8.3  million in fiscal  2004,  primarily  due to  accounting  related  fees for
compliance with the Sarbanes-Oxley Act of 2002 not incurred in the 2004 period.

         LIQUIDITY AND CAPITAL RESOURCES

         At July 31, 2006, our cash and cash equivalents  were $69.9 million,  a
decrease  of  $13.8  million  from  cash  and cash  equivalents  and  marketable
securities at July 31, 2005. We had working capital of $80.2 million at July 31,
2006 compared to $96.3 million at July 31, 2005.  The decrease was the result of
the use of cash to fund operations  arising from the net loss in fiscal 2006. In
fiscal 2005, as a result of the Digene agreement, the Company recorded a gain on
patent  litigation  settlement  of $14.0  million in the first quarter of fiscal
2005.

         Net cash used in operating  activities for the year ended July 31, 2006
was  approximately  $10.1  million as compared to net cash provided by operating
activities  of $13.0  million for the year ended July 31, 2005.  The decrease in
net cash  provided by operating  activities  in fiscal 2006 of $23.1 million was
primarily  due to the fiscal  2006 net loss of $15.7  million as compared to net
income in fiscal 2005 of $3.0 million and by the net change in operating  assets
and  liabilities compared to the prior year and the impact of non cash items. In
fiscal 2006, net cash provided by investing activities  decreased  approximately
$6.6  million  from  fiscal  2005,  primarily  due  to an  increase  in  capital
expenditures  of  approximately  $3.0  million,  and a  decline  in the sales of
marketable  securities of  approximately  $3.8 million.  During fiscal 2006, all
investments  in  marketable   securities   were  sold  and  reinvested  in  cash
equivalents. In fiscal 2006, the Company used cash of approximately $3.2 million
for the  purchase of land and building  which will be primarily  utilized as the
Life  Sciences and  Therapeutics  research  and  development  and  manufacturing
facility.  In fiscal 2006, net cash provided by financing  activities  increased
approximately  $0.1  million  from  fiscal  2005  primarily  as a result  of the
increase in proceeds from the exercise of stock options.

         Accounts receivable, net of $10.4 million and $13.4 million represented
109  days  and 119  days of  operating  revenues  at July  31,  2006  and  2005,
respectively.  The change in net  accounts  receivable  is due to a decrease  in
accounts receivable at the clinical laboratory of approximately $3.4 million and
an increase of life science accounts  receivable of approximately  $0.4 million.
The  decrease  in  the  clinical  laboratory  receivable  is  primarily  due  to
improvements  in the  collection  process.  The  increase  in the life  sciences
accounts receivable is primarily due to the increase in royalty income partially
offset by a decrease  in product  revenues.  Net  accounts  receivable  from our
clinical laboratory  operations of $9.2 million and $12.5 million represented an
average of 124 days and 147 days of  clinical  laboratory  services  revenues at
July 31, 2006 and 2005, respectively.

         We  believe  that our  current  cash  position  is  sufficient  for our
foreseeable  liquidity  and  capital  resource  needs  over the next 12  months,
although there can be no assurance that future events will not alter such view.


                                       42
<PAGE>


         EFFECT OF NEW PRONOUNCEMENTS

         In June 2005,  the FASB issued SFAS No.  154,  "Accounting  Changes and
Error Corrections,  a replacement of APB Opinion No. 20, Accounting Changes, and
FASB  Statement  No.  3,  Reporting  Accounting  Changes  in  Interim  Financial
Statements."  SFAS No. 154 changes the  requirements  for the accounting for and
reporting  of a change  in  accounting  principle.  Previously,  most  voluntary
changes in accounting  principles  required  recognition via a cumulative effect
adjustment within net income for the period of the change. SFAS No. 154 requires
retrospective  application to prior periods' financial statements,  unless it is
impracticable to determine either the period-specific  effects or the cumulative
effect of the change.  SFAS No. 154 is effective for accounting  changes made in
fiscal years beginning after December 15, 2005;  however,  SFAS No. 154 does not
change the transition provisions of any existing accounting pronouncements.  The
adoption  of SFAS No.  154 is not  expected  to have a  material  impact  on the
Company's financial condition or results of operations.

         In June 2006,  the FASB issued FASB  Interpretation  No. 48 ("FIN 48"),
"Accounting  for  Uncertainty  in  Income  Taxes  - an  interpretation  of  FASB
Statement No. 109 ("FAS 109")",  to clarify the  accounting  for  uncertainty in
income taxes  recognized in an enterprise's  financial  statements in accordance
with FAS 109,  "Accounting for Income Taxes". This  Interpretation  prescribes a
recognition  threshold and  measurement  attribute  for the financial  statement
recognition and measurement of a tax position taken or expected to be taken in a
tax  return.  This  Interpretation  also  provides  guidance  on  derecognition,
classification,   interest  and  penalties,   accounting  in  interim   periods,
disclosure,  and  transition.  The provisions of FIN 48 are effective for fiscal
years  beginning  after  December 15, 2006.  The Company has not  evaluated  the
impact of FIN 48 on its financial statements at this time.

         CONTRACTUAL OBLIGATIONS

         The  Company  has  entered  into  various  real  estate  and  equipment
operating leases and has employment  agreements with certain executive officers.
The real  estate  lease for the  Company's  Farmingdale  headquarters  is with a
related  party.  See  Note 11 to the  Consolidated  Financial  Statements  for a
further description of these various leases.

         The  following  is a summary  of future  payments  under the  Company's
contractual obligations as of July 31, 2006:
<TABLE>
<CAPTION>
                                                                           PAYMENTS DUE BY PERIOD
                                                                     Less than
         In 000'S                                       Total          1 Year       1-3 Years     4-5 Years     Over 5 Years
         --------                                      -------         ------       ---------     ---------     ------------
<S>                                                    <C>             <C>            <C>          <C>              <C>
         Real estate and equipment leases              $20,362         $2,662         $4,889       $4,382           $8,429
         Employment agreements                           2,358          1,483            875           --               --
                                                       -------         ------         ------       ------           ------
         Total contractual cash obligations            $22,720         $4,145         $5,764       $4,382           $8,429
                                                       =======         ======         ======       ======           ======
</TABLE>

         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.

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


         CRITICAL ACCOUNTING POLICIES

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  adjustments,  allowance  for  uncollectible  accounts,
inventory,  intangible  assets and income taxes. The Company bases its estimates
on  experience  and  on  various  other  assumptions  that  are  believed  to be
reasonable  under the  circumstances,  the  results  of which form the basis for
making  judgments about the carrying  values of assets and liabilities  that are
not readily  apparent from other  sources.  Actual results may differ from these
estimates under different assumptions or conditions.

PRODUCT REVENUES

         Revenues  from  product  sales are  recognized  when the  products  are
shipped,  the  sales  price is  fixed  or  determinable  and  collectibility  is
reasonably  assured.   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 Company  did not  recognize  any
revenue from these distributors  during the year ended July 31, 2006. During the
fiscal years ended July 31, 2005,  and 2004,  the  manufacturing  and processing
cost of these  products sold was $0.7 million,  and $7.4 million,  respectively.
The revenue from these non-exclusive distribution agreements are recognized when
shipments are made to their respective customers and reported to the Company.

                                       43
<PAGE>

ROYALTIES

         Royalty revenues are recorded in the period earned.  Royalties received
in advance of being earned are recorded as deferred revenues.

REVENUES - CLINICAL LABORATORY SERVICES

         Revenues from the clinical laboratory are recognized upon completion of
the  testing  process  for a  specific  patient  and  reported  to the  ordering
physician.  These revenues and the associated  accounts  receivable are based on
gross  amounts  billed or billable for services  rendered,  net of a contractual
adjustment,  which is the  difference  between  amounts billed to payers and the
expected approved reimbursable settlements from such payers.

         The  following  are tables of the  clinical  laboratory  segment's  net
revenues and  percentages by revenue  category for the years ended July 31, 2006
and 2005:

Net revenues                    Year ended                    Year ended
                              July 31, 2006                  July 31, 2005
                              -------------                  -------------
Revenue Category           (In 000'S)      (in %)        (In 000'S)     (in %)
----------------           ----------      ------        ----------     ------
Medicare                       $7,462          23            $6,906         21
Third party carriers           17,680          56            17,528         53
Patient self-pay                4,925          15             6,904         21
HMO's                           1,859           6             1,519          5
                                -----           -             -----          -
Total                         $31,926        100%           $32,857       100%
                              =======        ====           =======       ====

         The Company  provides  services to certain  patients covered by various
third-party  payers,  including the Federal Medicare  program.  Revenue,  net of
contractual adjustments, from direct billings under the Federal Medicare program
during the years ended July 31, 2006, 2005 and 2004 were  approximately 23%, 21%
and  26%,  respectively,  of  the  clinical  lab  segment's  revenue.  Laws  and
regulations  governing  Medicare are complex and subject to  interpretation  for
which action for noncompliance  includes fines, penalties and exclusion from the
Medicare  programs.  The  Company  believes  that it is in  compliance  with all
applicable  laws and  regulations  and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing.

         CONTRACTUAL ADJUSTMENTS

         The  Company's   estimate  of  contractual   adjustments  is  based  on
significant  assumptions  and  judgments,  such  as  its  interpretation  of the
applicable  payer's  reimbursement  policies,  and bears the risk of change. The
estimation   process  is  based  on  the  experience  of  amounts   approved  as
reimbursable and ultimately  settled by payers,  versus the corresponding  gross
amount  billed  to the  respective  payers.  The  contractual  adjustment  is an
estimate that reduces gross revenue,  based on gross billing  rates,  to amounts
expected to be approved  and  reimbursed.  The Company  adjusts the  contractual
adjustment  estimate  periodically,   based  on  its  evaluation  of  historical
settlement  experience with payers,  industry  reimbursement  trends,  and other
relevant factors.

         During the years ended July 31, 2006,  2005 and 2004,  the  contractual
adjustment  percentages,   determined  using  average  historical  reimbursement
statistics, were 75.2%,and 72.5% and 70.9%, respectively, of gross billings. The
Company estimates (by using a sensitivity analysis) that each 1% point change in
the  contractual  adjustment  percentage  could  have  resulted  in a change  in
clinical laboratory services revenues of approximately $1,288,000,  for the year
ended  July 31,  2006,  and could  have  resulted  result in a change in the net
accounts receivable of approximately $373,000 as of July 31, 2006.


                                       44
<PAGE>



ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

         Accounts receivable are reported at realizable value, net of allowances
for  doubtful  accounts,  which is  estimated  and recorded in the period of the
related revenue.

         For  the  clinical  laboratory  segment,  the  allowance  for  doubtful
accounts  represents  amounts that the Company does not expect to collect  after
the Company has exhausted its collection  procedures.  The Company estimates its
allowance  for doubtful  accounts in the period the related  services are billed
and adjusts the estimate in future accounting periods as necessary. It bases the
estimate  for  the  allowance  on  the   evaluation  of  historical   collection
experience,  the aging profile of accounts  receivable,  the historical doubtful
account write-off percentages, payer mix, and other relevant factors.

         The  allowance  for  doubtful  accounts  includes the  balances,  after
receipt  of  the  approved   settlements   from   third  party  payers  for  the
insufficient  diagnosis information received from the ordering physician,  which
result in denials of payment, and the uncollectible  portion of receivables from
self payers,  including deductibles and copayments,  which are subject to credit
risk and  patients'  ability to pay.  During the years  ended July 31,  2006 and
2005,  the Company  determined an allowance for doubtful  accounts less than 210
days and wrote off 100% of accounts  receivable  (for all payers) over 210 days,
as it  assumed  those  accounts  are  uncollectible.  The  Company  adjusts  the
historical collection analysis for recoveries, if any, on an ongoing basis.

         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  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 allowance 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.
Should  circumstances  change  (e.g.  shift in payer mix,  decline  in  economic
conditions  or  deterioration  in aging of  receivables),  our  estimates of net
realizable value of receivables could be reduced by a material amount.

         The following is a table of the  Company's  net accounts  receivable by
segment.  The clinical  laboratory  segment's  net  receivables  are detailed by
billing category and as a percent to its total net receivables: At July 31, 2006
and 2005, approximately 88% and 94%, respectively, of the Company's net accounts
receivable relates to its clinical  laboratory  business,  which operates in the
New York and New Jersey Metropolitan area.

Net accounts receivable                As of                     As of
                                   July 31, 2006             July 31, 2005
                                   -------------             -------------
Billing Category               (In 000'S)   (In %)      (In 000'S)     (In %)
----------------               ----------   ------      ----------     ------
Clinical laboratory
  Medicare                         $1,367       15          $1,594         13
  Third party carriers              4,025       44           6,742         54
  Patient self-pay                  3,294       36           3,819         30
  HMO's                               475        5             394          3
                                      ---        -             ---          -
Total clinical laboratory          $9,161     100%         $12,549       100%
                                              ====                       ====
Total life sciences                 1,286                      872
                                    -----                      ---
Total accounts receivable         $10,447                  $13,421
                                  =======                  =======

Changes in the Company's allowance for doubtful accounts are as follows:

In 000'S                                   July 31, 2006          July 31, 2005
--------                                   -------------          -------------
Beginning balance                                 $2,292                 $2,770
Provision for doubtful accounts                    3,633                  4,967
Write-offs                                        (4,892)                (5,445)
                                                 -------                -------
Ending balance                                    $1,033                 $2,292
                                                  ======                 ======


                                       45
<PAGE>



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 not more likely than not
the benefits will be realized in the foreseeable future. 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.

INVENTORY
       The Company values  inventory at the lower of cost (first-in,  first-out)
or market.  Work-in-process  and finished goods inventories consist of material,
labor,  and  manufacturing  overhead.  On a quarterly basis, we review inventory
quantities on hand and analyze the  provision for excess and obsolete  inventory
based on our estimate of sales  forecasts based on sales history and anticipated
future demand.  Our estimate of future product demand may not be accurate and we
may  understate or overstate  the  provision for excess and obsolete  inventory.
Accordingly,  unanticipated changes in demand could have a significant impact on
the value of our inventory and results of operations. At July 31, 2006 and 2005,
our reserve for excess and obsolete inventory was $238,000 and $0, respectively.

         Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company  does not have an  exposure to market risk from  changes in
foreign currency  exchange rates,  commodity price risk or other market risk. We
do not engage in any hedging or market risk management  tools.  The Company does
not  have  interest  risk  with  respect  to  interest  rates  on cash  and cash
equivalents  that could impact our results of operations and financial  position
since the  investments  are in highly liquid  corporate  debt  instruments  with
maturities  of three  months or less.  There have been no material  changes with
respect to market risk  previously  disclosed in our Annual  Report on Form 10-K
for our 2005 fiscal year.

         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.



                                       46
<PAGE>
         Item 9A. CONTROLS AND PROCEDURES

         EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         As required by Rule 13a-15(e) of the  Securities  Exchange Act of 1934,
as amended (the "Exchange Act"), we conducted an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures as of July
31,  2006.  This  evaluation  was  carried  out under the  supervision  and with
participation of our Chief Executive Officer and Chief Financial Officer.  There
are  inherent  limitations  to the  effectiveness  of any  system of  disclosure
controls and procedures. Therefore, effective disclosure controls and procedures
can only provide  reasonable  assurance of achieving  their control  objectives.
Based upon our  evaluation,  our Chief  Executive  Officer  and Chief  Financial
Officer  concluded that our disclosure  controls and procedures are effective as
of June 3, 2006, to provide reasonable assurance that information required to be
disclosed  in the  reports  that we file  under the  Exchange  Act is  recorded,
processed,  summarized  and reported in a timely manner and is  accumulated  and
communicated  to  management,  including our Chief  Executive  Officer and Chief
Financial Officer,  as appropriate to allow timely decisions  regarding required
disclosure.

         CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

         There was no change in our internal  control over  financial  reporting
during the fourth quarter ended July 31, 2006 that has materially  affected,  or
is reasonably likely to materially  affect,  our internal control over financial
reporting.

         MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

         Our management is responsible for establishing and maintaining adequate
internal  control  over  financial  reporting,  as such term is defined in Rules
13a-15(f) under the Exchange Act.

         Our internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with generally  accepted  accounting  principles and includes those policies and
procedures  that:

         o     pertain to the  maintenance of records that in reasonable  detail
               accurately and fairly reflect the  transactions  and dispositions
               of our assets;

         o     provide  reasonable  assurance that  transactions are recorded as
               necessary  to  permit  preparation  of  financial  statements  in
               accordance with generally  accepted  accounting  principles,  and
               that  our  receipts  and  expenditures  are  being  made  only in
               accordance with  authorizations  of management and our directors;
               and

         o     provide  reasonable  assurance  regarding  prevention  and timely
               detection of unauthorized acquisition,  use or disposition of our
               assets  that  could  have a  material  effect  on  our  financial
               statements.

         Internal  control systems,  no matter how well designed,  have inherent
limitations.  Therefore,  even those systems that are determined to be effective
provide  only   reasonable   assurance  with  respect  to  financial   statement
preparation   and   presentation.   Also,   projections  of  any  evaluation  of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

         Management  assessed the  effectiveness  of our  internal  control over
financial  reporting  based on criteria  for  effective  internal  control  over
financial reporting described in Internal  Control--Integrated  Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission.

         Based  on its  assessment,  management  concluded  that  we  maintained
effective  internal control over financial  reporting as of July 31, 2006. Ernst
and Young LLP, our independent  registered public accounting firm, has issued an
attestation  report  on  management's  assessment  of the  effectiveness  of our
internal control over financial  reporting as of July 31, 2006. This report,  in
which Ernst and Young has expressed an unqualified opinion, appears in this Item
9A.



                                       47
<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                  ON INTERNAL CONTROL OVER FINANCIAL REPORTING

             Report of Independent Registered Public Accounting Firm

    The Board of Directors and Shareholders of
    Enzo Biochem, Inc.

         We have audited management's assessment, included in Item 9A, that Enzo
Biochem,  Inc.  (the  "Company")  maintained  effective  internal  control  over
financial  reporting  as of July 31,  2006,  based on  criteria  established  in
Internal  Control-Integrated  Framework  issued by the  Committee of  Sponsoring
Organizations  of the Treadway  Commission  (the COSO  criteria).  Enzo Biochem,
Inc.'s management is responsible for maintaining effective internal control over
financial  reporting  and for its  assessment of the  effectiveness  of internal
control over financial reporting. Our responsibility is to express an opinion on
management's  assessment  and an opinion on the  effectiveness  of the company's
internal control over financial reporting based on our audit.

         We conducted our audit in  accordance  with the 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
effective  internal  control over  financial  reporting  was  maintained  in all
material  respects.  Our audit included  obtaining an  understanding of internal
control over financial reporting,  evaluating management's  assessment,  testing
and evaluating the design and operating  effectiveness of internal control,  and
performing   such  other   procedures   as  we   considered   necessary  in  the
circumstances.  We believe that our audit  provides a  reasonable  basis for our
opinion.

         A company's  internal  control  over  financial  reporting is a process
designed to provide reasonable  assurance regarding the reliability of financial
reporting and the preparation of financial  statements for external  purposes in
accordance with generally accepted accounting  principles.  A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the  transactions  and dispositions of the assets of the company;
(2) provide reasonable  assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

         Because of its inherent  limitations,  internal  control over financial
reporting  may not prevent or detect  misstatements.  Also,  projections  of any
evaluation  of  effectiveness  to future  periods  are  subject to the risk that
controls may become  inadequate  because of changes in  conditions,  or that the
degree of compliance with the policies or procedures may deteriorate.

         In  our  opinion,  management's  assessment  that  Enzo  Biochem,  Inc.
maintained  effective  internal control over financial  reporting as of July 31,
2006, is fairly stated,  in all material  respects,  based on the COSO criteria.
Also, in our opinion, Enzo Biochem,  Inc. maintained,  in all material respects,
effective  internal control over financial  reporting as of July 31, 2006, based
on the COSO criteria.

         We also have audited,  in  accordance  with the standards of the Public
Company  Accounting  Oversight Board (United States),  the consolidated  balance
sheets of Enzo Biochem,  Inc. (the  "Company") as of July 31, 2006 and 2005, and
the related consolidated  statements of operations,  consolidated  statements of
stockholders'   equity  and  comprehensive   (loss)  income,   and  consolidated
statements  of cash flows for each of the three  years in the period  ended July
31, 2006 of Enzo Biochem, Inc. and our report dated October 5, 2006 expressed an
unqualified opinion thereon.

/s/ Ernst & Young LLP

Melville, New York
October 5, 2006


                                       48
<PAGE>


         ITEM 9B. OTHER INFORMATION

         None

         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  28,  2006  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  28,  2006  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  28,  2006  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  28,  2006  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  expected to be filed with the Securities and Exchange
Commission  on or  before  November  28,  2006  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, 2006 and 2005
                  Consolidated Statements of Operations- Years ended July 31,
                    2006, 2005 and 2004
                  Consolidated Statements of Stockholders' Equity and
                    Comprehensive (Loss) Income - Years ended July 31, 2006,
                    2005 and 2004
                  Consolidated Statements of Cash Flows - Years ended July 31,
                    2006, 2005 and 2004
                  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.



                                       49
<PAGE>

         (3)  Exhibits

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

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

  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. (3)

  3(d)       Bylaws. (1)

  10(c)      Employment Agreements 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)

  10(s)      Settlement and License Agreement with Digene Corporation effective
             as of September 30, 2004 (10) (12)

  10(t)      Joint Stipulation and Order of Dismissal with Prejudice dated
             October 14, 2004 (10) (12).

  10(u)      2005 Equity Compensation Incentive Plan (11)

  10(v)      Lease agreement with Pari Management (13)

  10(w)      Settlement and Release Agreement between the Company and
             Sigma Aldrich (14)

  14(a)      Code of Ethics (10)


                                       50
<PAGE>



  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.
                  Enzo Realty, LLC, 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.

             Notes to exhibits

  (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.

  (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)       This exhibit was filed with the Company's Annual Report on Form
             10-K for the year ended July 31, 2004 and is incorporated herein by
             reference.

  (11)       This exhibit was filed as an exhibit to the Company's Proxy
             Statement of Schedule 14A filed on January 19, 2005 and is
             incorporated herein by reference.

  (12)       These exhibits are subject to a confidential treatment request
             pursuant to securities exchange act rules. (13) This exhibit was
             filed with the Company's Annual Report on Form 10-K for the year
             ended July 31, 2006 and is incorporated herein by reference.

  (14)       This exhibit was filed with the Company's current report on Form
             8-K on September 21, 2006 and is incorporated herein by reference.

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

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


                                       51
<PAGE>


         SIGNATURES

                  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 12, 2006             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 12, 2006
   -----------------------------
   Elazar Rabbani
   Chairman of Board of Directors
   (Principal Executive Officer)

   By: /s/ Shahram K. Rabbani                                 October 12, 2006
   --------------------------
   Shahram K. Rabbani,
   Chief Operating Officer, Secretary and Director

   By: /s/ Barry W. Weiner                                    October 12, 2006
   -----------------------
   Barry W. Weiner,
   President, Chief Financial Officer, and Director

   By: /s/ John B. Sias                                       October 12, 2006
   --------------------
   John B. Sias, Director

   By: /s/ John J. Delucca                                    October 12, 2006
   -----------------------
   John J. Delucca, Director

   By: /s/ Irwin Gerson                                       October 12, 2006
   --------------------
   Irwin Gerson, Director

   By: /s/ Melvin F. Lazar                                    October 12, 2006
   -----------------------
   Melvin F. Lazar, Director



                                       52
<PAGE>
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 Independent Registered Public Accounting Firm                      F-2

Consolidated Balance Sheets -- July 31, 2006 and 2005                        F-3

Consolidated Statements of Operations --
         Years ended July 31, 2006, 2005 and 2004                            F-4

Consolidated Statements of Stockholders' Equity and Comprehensive
         (Loss) Income -- Years ended July 31, 2006, 2005 and 2004           F-5

Consolidated Statements of Cash Flows --
         Years ended July 31, 2006, 2005 and 2004                            F-6

Notes to Consolidated Financial Statements                                   F-7

Schedule II - Valuation and Qualifying Accounts --
         Years ended July 31, 2006, 2005 and 2004                            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
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders of
Enzo Biochem, Inc

We have audited the  accompanying  consolidated  balance sheets of Enzo Biochem,
Inc. (the "Company") as of July 31, 2006, and 2005, and the related consolidated
statements of operations,  consolidated  statements of stockholders'  equity and
comprehensive  (loss) income and consolidated  statements of cash flows for each
of the three years in the period ended July 31, 2006.  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 the 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 financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of Enzo Biochem, Inc.
at July 31, 2006 and 2005, and the consolidated  results of their operations and
their cash flows for each of the three years in the period  ended July 31, 2006,
in conformity with U.S. generally accepted accounting  principles.  Also, in our
opinion,  the related financial statement schedule,  when considered in relation
to the  basic  financial  statements  taken as a whole,  present  fairly  in all
material respects the information set forth therein.

We also have  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States),  the effectiveness of Enzo Biochem,
Inc.'s internal  control over financial  reporting as of July 31, 2006, based on
criteria  established  in Internal  Control-Integrated  Framework  issued by the
Committee of Sponsoring  Organizations of the Treadway Commission and our report
dated October 5, 2006, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Melville, New York
October 5, 2006


                                      F-2
<PAGE>

                               ENZO BIOCHEM, INC.
                           CONSOLIDATED BALANCE SHEETS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
ASSETS
                                                                                                                July 31,
                                                                                                       -----------------------------
Current assets:                                                                                           2006               2005
                                                                                                       ---------          ---------
<S>                                                                                                    <C>                <C>
   Cash and cash equivalents .................................................................         $  69,854          $  76,981
   Marketable securities .....................................................................              --                6,714
   Accounts receivable, net of allowance for doubtful accounts of $1,033
      in 2006 and $2,292 in 2005 .............................................................            10,447             13,421
   Inventories ...............................................................................             2,401              2,876
   Prepaid expenses ..........................................................................             1,465              1,848
   Recoverable and prepaid income taxes ......................................................             1,931              1,329
   Deferred taxes ............................................................................              --                  900
                                                                                                       ---------          ---------
Total current assets .........................................................................            86,098            104,069

Property, plant, and equipment, net of accumulated depreciation
    and amortization of $8,247 in 2006 and $7,279 in 2005 ....................................             5,848              2,670
Goodwill .....................................................................................             7,452              7,452
Patent costs, net of accumulated amortization of $9,770 in 2006
   and $9,695 in 2005 ........................................................................             1,257              1,333
Other ........................................................................................               869                942
                                                                                                       ---------          ---------
Total assets .................................................................................         $ 101,524          $ 116,466
                                                                                                       =========          =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable - trade ..................................................................             1,304              2,414
   Accrued liabilities .......................................................................             4,403              4,866
   Other current liabilities .................................................................               230                509
                                                                                                       ---------          ---------
Total current liabilities ....................................................................             5,937              7,789

Deferred taxes ...............................................................................              --                  260
Long term installment payable, net of current portion ........................................              --                  150

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: 32,844,200 at July 31, 2006 and 32,526,800 at July 31, 2005 ...................               328                325
   Additional paid-in capital ................................................................           236,002            230,644
   Less treasury stock at cost: 569,700 shares at July 31, 2006
       and 384,400 shares at July 31, 2005 ...................................................            (8,499)            (5,994)
   Accumulated deficit .......................................................................          (132,244)          (116,577)
   Accumulated other comprehensive loss ......................................................              --                 (131)
                                                                                                       ---------          ---------
Total stockholders' equity ...................................................................            95,587            108,267
                                                                                                       ---------          ---------
Total liabilities and stockholders' equity ...................................................         $ 101,524          $ 116,466
                                                                                                       =========          =========

</TABLE>


                                       F-3

                 The accompanying notes are an integral part of
                     these consolidated financial statements



<PAGE>

                               ENZO BIOCHEM, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>



                                                                                                 Years ended July 31,
                                                                                   ------------------------------------------------
                                                                                     2006                2005                2004
                                                                                   --------            --------            --------
Revenues:
<S>                                                                                <C>                 <C>                 <C>
   Product revenues and royalty income .................................           $  7,900            $ 10,546            $ 12,972
   Clinical laboratory services ........................................             31,926              32,857              28,672
                                                                                   --------            --------            --------
                                                                                     39,826              43,403              41,644

Costs and expenses and other (income):
   Cost of product revenues ............................................              2,174               2,197               2,518
   Cost of clinical laboratory services ................................             13,917              12,548              10,586
   Research and development expense ....................................              7,896               8,452               8,078
   Selling, general, and administrative expense ........................             24,971              20,069              14,367
   Provision for uncollectible accounts receivable .....................              3,633               4,967              11,987
   Legal expense .......................................................              7,388               5,476               6,340
   Interest income .....................................................             (3,144)             (1,523)             (1,152)
   Gain on patent litigation settlement ................................               --               (14,000)               --
                                                                                   --------            --------            --------
                                                                                     56,835              38,186              52,724

(Loss) income before income taxes ......................................            (17,009)              5,217             (11,080)
Benefit (provision) for income taxes ...................................              1,342              (2,213)              4,848
                                                                                   --------            --------            --------
Net (loss) income ......................................................           ($15,667)           $  3,004            ($ 6,232)
                                                                                   ========            ========            ========

Net (loss) income per common share:
   Basic ...............................................................           ($  0.49)           $   0.09            ($  0.20)
                                                                                   ========            ========            ========
   Diluted .............................................................           ($  0.49)           $   0.09            ($  0.20)
                                                                                   ========            ========            ========

Weighted average common shares outstanding:
   Basic ...............................................................             32,215              32,097              31,700
                                                                                   ========            ========            ========
   Diluted .............................................................             32,215              32,763              31,700
                                                                                   ========            ========            ========
</TABLE>






                                       F-4

                 The accompanying notes are an integral part of
                     these consolidated financial statements


<PAGE>
                                ENZO BIOCHEM, INC
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                         AND COMPREHENSIVE (LOSS) INCOME
                    YEARS ENDED JULY 31, 2006, 2005 AND 2004
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                   COMMON  TREASURY   COMMON    ADDITIONAL  TREASURY
                                                                    STOCK     STOCK    STOCK       PAID-IN     STOCK   ACCUMULATED
                                                                   SHARES    SHARES   AMOUNT       CAPITAL    AMOUNT       DEFICIT
                                                                   ------    ------   ------       -------    ------       -------
<S>                                                            <C>          <C>         <C>       <C>        <C>          <C>
Balance at July 31, 2003.................................      29,975,100       ---     $300      $199,082       ---      ($89,916)

Net (loss) for the year ended July 31, 2004..............             ---       ---      ---           ---       ---        (6,232)
Unrealized loss on available-for-sale
    securities, net of tax...............................             ---       ---      ---           ---       ---           ---
Surrender of common stock for exercise of stock options..             ---   349,900      ---           ---   ($5,669)          ---
Exercise of stock options (see Note 2)...................         873,900       ---        9         6,556       ---           ---
Issuance of stock for employee 401(k) plan match.........          15,800       ---      ---           282       ---           ---
Comprehensive (loss).....................................             ---       ---      ---           ---       ---           ---
                                                           -----------------------------------------------------------------------
Balance at July 31, 2004.................................      30,864,800   349,900      309       205,920    (5,669)      (96,148)

Net income for the year ended July 31, 2005..............             ---       ---      ---           ---       ---        $3,004
Unrealized gain on available-for-sale
    securities, net of tax...............................             ---       ---      ---           ---       ---           ---
Reclassification adjustment for net loss
realized and reported in net income......................             ---       ---      ---           ---       ---           ---
Valuation reserve........................................
5% stock dividend (fair value on date declared)..........       1,543,600    17,500       15        23,418       ---       (23,433)
Surrender of common stock for exercise of stock options..             ---    17,000      ---                    (325)          ---
Tax benefit for stock options exercised..................             ---       ---      ---           124       ---           ---
Exercise of stock options (see Note 2)...................         100,300       ---        1           830       ---           ---
Issuance of stock for employee 401(k) plan match.........          18,100       ---        0           352       ---           ---
Comprehensive income.....................................             ---       ---      ---           ---       ---           ---
                                                           -----------------------------------------------------------------------
Balance at July 31, 2005.................................      32,526,800   384,400      325       230,644    (5,994)     (116,577)

Net (loss) for the year ended July 31, 2006..............             ---       ---      ---           ---       ---       (15,667)
Realized loss on available-for-sale
    securities, net of tax...............................             ---       ---      ---           ---       ---           ---
Surrender of common stock for exercise of stock options..             ---   185,300      ---           ---    (2,505)          ---
Exercise of stock options (see Note 2)...................         285,030       ---        3         3,113       ---           ---
Issuance of stock for employee 401(k) plan match.........          32,370       ---      ---           402       ---           ---
Share based compensation charges.........................             ---       ---      ---         1,763       ---           ---
Stock options issued for consulting services.............             ---       ---      ---            80       ---           ---
Comprehensive (loss).....................................             ---       ---      ---           ---       ---           ---
                                                           ------------------------------------------------------------------------
Balance at July 31, 2006.................................      32,844,200   569,700     $328      $236,002   ($8,499)    ($132,244)
                                                           =======================================================================

<CAPTION>
                                                                ACCUMULATED
                                                                      OTHER           TOTAL
                                                              COMPREHENSIVE    STOCKHOLDERS'    COMPREHENSIVE
                                                              (LOSS) INCOME          EQUITY     (LOSS) INCOME
                                                              -------------          ------     -------------
<S>                                                                   <C>          <C>             <C>
Balance at July 31, 2003.................................             ($85)        $109,381

Net (loss) for the year ended July 31, 2004..............               ---          (6,232)          ($6,232)
Unrealized loss on available-for-sale
    securities, net of tax...............................              (161)           (161)             (161)
Surrender of common stock for exercise of stock options..               ---          (5,669)              ---
Exercise of stock options (see Note 2)...................               ---           6,565               ---
Issuance of stock for employee 401(k) plan match.........               ---             282               ---
                                                                                                     --------
Comprehensive (loss).....................................               ---             ---           ($6,393)
                                                           --------------------------------          ========
Balance at July 31, 2004.................................              (246)        104,166

Net income for the year ended July 31, 2005..............               ---           3,004            $3,004
Unrealized gain on available-for-sale
    securities, net of tax...............................                43              43                43
Reclassification adjustment for net loss
realized and reported in net income......................               122             122               122
Valuation reserve........................................               (50)            (50)              (50)
5% stock dividend (fair value on date declared)..........               ---             ---               ---
Surrender of common stock for exercise of stock options..               ---            (325)              ---
Tax benefit for stock options exercised..................               ---             124               ---
Exercise of stock options (see Note 2)...................               ---             831               ---
Issuance of stock for employee 401(k) plan match.........               ---             352               ---
                                                                                                     --------
Comprehensive income.....................................               ---             ---            $3,119
                                                           --------------------------------          ========
Balance at July 31, 2005.................................              (131)        108,267

Net (loss) for the year ended July 31, 2006..............               ---         (15,667)         $(15,667)
Realized loss on available-for-sale
    securities, net of tax...............................               131             131               131
Surrender of common stock for exercise of stock options..               ---          (2,505)              ---
Exercise of stock options (see Note 2)...................               ---           3,116               ---
Issuance of stock for employee 401(k) plan match.........               ---             402               ---
Share based compensation charges.........................               ---           1,763               ---
Stock options issued for consulting services.............               ---              80               ---
                                                                                                     --------
Comprehensive (loss).....................................               ---             ---          ($15,536)
                                                           --------------------------------          ========
Balance at July 31, 2006.................................               ---         $95,587
                                                           ================================
</TABLE>

                                       F-5

                 The accompanying notes are an integral part of
                     these consolidated financial statements




<PAGE>

                                ENZO BIOCHEM, INC
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                                   Years ended July 31,
                                                                                           -----------------------------------
                                                                                           2006            2005           2004
                                                                                           ----            ----           ----
OPERATING ACTIVITIES
<S>                                                                                       <C>           <C>           <C>
Net (loss) income ...................................................................     ($15,667)     $  3,004      ($ 6,232)

Adjustments  to  reconcile  net (loss)  income to net cash (used in) provided by
operating activities:
       Depreciation and amortization of property, plant and equipment ...............        1,049         1,020         1,076
       Amortization of patent costs .................................................           75         1,312         1,286
       Provision for uncollectible accounts receivable ..............................        3,633         4,967        11,987
       Write-off and/or reserve for obsolete inventory ..............................          596          --            --
       Deferred taxes ...............................................................          640           891        (1,651)
       Share based compensation charges .............................................        1,763          --            --
       Options issued to consultant .................................................           80          --            --
       Issuance of stock for 401(k) employer match ..................................          402           352           282
       Deferred rent ................................................................         --             (87)         (233)
       Realized loss on sales of marketable securities ..............................          154           200          --
       Tax benefit on stock option exercises ........................................         --             124          --
       Other ........................................................................         --             (51)            2

Changes in operating assets and liabilities:
        Accounts receivable .........................................................         (659)       (3,593)       (9,515)
        Inventories .................................................................         (120)          558           (13)
        Prepaid expenses ............................................................          383          (747)          400
        Recoverable and prepaid income taxes ........................................         (602)        2,578        (3,365)
        Accounts payable - trade ....................................................       (1,110)          322           771
        Accrued liabilities .........................................................         (463)        1,620          (377)
        Other current liabilities ...................................................         (279)          509          --
                                                                                          ------------------------------------
 Adjustments ........................................................................        5,542         9,975           650

           Net cash (used in) provided by operating activities ......................      (10,125)       12,979        (5,582)

INVESTING ACTIVITIES
    Capital expenditures ............................................................       (4,227)       (1,276)       (1,304)
    Patent costs ....................................................................         --             (20)         (444)
    Sales of marketable securities ..................................................        6,760        10,692        (2,349)
    Purchases of marketable securities ..............................................          (69)         (249)         --
    Security deposits and other .....................................................           73          --            --
                                                                                          ------------------------------------
           Net cash provided by (used in) investing activities ......................        2,537         9,147        (4,097)

FINANCING ACTIVITIES
    Proceeds from the exercise of stock options .....................................          611           506           896
    Payment of long term installment payable ........................................         (150)         (150)         --
    Other ...........................................................................         --            --              14
                                                                                          ------------------------------------
           Net cash provided by financing activities ................................          461           356           910

Net (decrease) increase in cash and cash equivalents ................................       (7,127)       22,482        (8,769)
Cash and cash equivalents at the beginning of year ..................................       76,981        54,499        63,268
                                                                                          ------------------------------------
Cash and cash equivalents at the end of year ........................................     $ 69,854      $ 76,981      $ 54,499
                                                                                          ====================================
</TABLE>







                                       F-6

                 The accompanying notes are an integral part of
                     these consolidated financial statements


<PAGE>
                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005


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 and are distributed
in the United States and internationally. 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  laboratory that offers and provides diagnostic
medical  testing  services to the health care  community in the greater New York
and New Jersey area. The Company operates in three segments (see Note 13).

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying  consolidated  financial statements include the accounts of the
Company  and its  wholly  owned  subsidiaries,  Enzo  Clinical  Labs,  Enzo Life
Sciences,  Enzo Therapeutics and Enzo Realty LLC ("Realty") Realty was formed in
fiscal 2006 to acquire a building  (see Note 5). All  intercompany  transactions
and balances have been eliminated.

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.


CONCENTRATION OF CREDIT RISK

Financial  instruments that potentially subject the Company to concentrations of
credit risk primarily consist of cash and cash equivalents, accounts receivable,
accounts  payable and accrued  liabilities.  The Company's cash  equivalents are
invested in diverse financial  instruments with high credit ratings. The Company
believes the fair value of the aforementioned financial instruments approximates
the current value due to the immediate or short-term nature of these items.

Concentration of credit risk with respect to the Company's life sciences segment
is mitigated  by the  diversity of the  Company's  clients and their  dispersion
across many different  geographic regions. To reduce risk, the Company routinely
assesses the financial strength of these customers and,  consequently,  believes
that its accounts  receivable credit exposure,  with respect to these customers,
is limited.

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, the number of insurance  carriers it deals with, and its
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. The Company also provides services to certain patients covered
by various  third-party  payers,  including the Federal  Medicare  program.  The
clinical  laboratory  industry  is  characterized  by a  significant  amount  of
uncollectible  accounts  receivable  resulting  from the  inability  to  receive
accurate  and  timely  billing  information  in order to forward it to the third
party payers for reimbursement, and the inaccurate information received from the
covered individual patients for unreimbursed unpaid amounts.



                                      F-7
<PAGE>

                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005


REVENUE RECOGNITION

Product revenues

Revenues from product sales are  recognized  when the products are shipped,  the
sales price is fixed or determinable and  collectibility is reasonably  assured.
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 product revenues.
The Company did not  recognize  any revenue from these  distributors  during the
year ended July 31, 2006.  During the years ended July 31, 2005,  and 2004,  the
manufacturing  and processing cost of these products sold was $0.7 million,  and
$7.4 million,  respectively.  The revenue from these non-exclusive  distribution
agreements are recognized when shipments are made to their respective  customers
and reported to the Company.

Royalties

Royalty  revenues  are  recorded  in the period  earned.  Royalties  received in
advance of being earned are recorded as deferred revenues.

Clinical laboratory services

Revenues from the clinical  laboratory  are  recognized  upon  completion of the
testing process for a specific  patient and reported to the ordering  physician.
These revenues and the associated accounts receivable are based on gross amounts
billed or billable for services rendered, net of a contractual adjustment, which
is the difference  between  amounts  billed to payers and the expected  approved
reimbursable settlements from such payers.

The following are tables of the clinical  laboratory  segment's net revenues and
revenue  percentages  by revenue  category for the years ended July 31, 2006 and
2005:

<TABLE>
<CAPTION>
Net revenues                                       Year ended                     Year ended
                                                 July 31, 2006                   July 31, 2005
                                                 -------------                   -------------
Revenue Category                            (In 000'S)           (In %)        (In 000'S)       (In %)
----------------                            ----------           ------        ----------       ------
<S>                                             <C>                  <C>           <C>            <C>
Medicare                                        $7,462               23            $6,906           21
Third party carriers                            17,680               56            17,528           53
Patient self-pay                                 4,925               15             6,904           21
HMO's                                            1,859                6             1,519            5
                                                 -----                -             -----            -
Total                                          $31,926             100%           $32,857         100%
                                               =======             ====           =======         ====
</TABLE>

The Company provides services to certain patients covered by various third-party
payers,  including the Federal  Medicare  program.  Revenue,  net of contractual
expense,  from direct  billings  under the Federal  Medicare  program during the
years ended July 31, 2006,  2005 and 2004 were  approximately  23%, 21% and 26%,
respectively,  of the  Clinical  Lab  segment's  revenue.  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.




                                      F-8
<PAGE>

                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005


CONTRACTUAL ADJUSTMENTS

The  Company's  estimate  of  contractual  adjustments  is based on  significant
assumptions and judgments,  such as its interpretation of the applicable payer's
reimbursement  policies, and bears the risk of change. The estimation process is
based on the  experience  of amounts  approved as  reimbursable  and  ultimately
settled  by  payers,  versus  the  corresponding  gross  amount  billed  to  the
respective  payers.  The  contractual  expense is an estimate that reduces gross
revenue,  based on gross billing rates,  to amounts  expected to be approved and
reimbursed.  The Company adjusts the contractual expense estimate  periodically,
based  on its  evaluation  of  historical  settlement  experience  with  payers,
industry reimbursement trends, and other relevant factors.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts  receivable  are reported at realizable  value,  net of allowances  for
doubtful accounts,  which is estimated and recorded in the period of the related
revenue.

For the Clinical Labs segment,  the allowance for doubtful  accounts  represents
amounts  that the  Company  does not expect to  collect  after the  Company  has
exhausted its  collection  procedures.  The Company  estimates its allowance for
doubtful  accounts in the period the related services are billed and adjusts the
estimate in future  accounting  periods as necessary.  It bases the estimate for
the allowance on the evaluation of historical collection  experience,  the aging
profile of  accounts  receivable,  the  historical  doubtful  account  write-off
percentages, payer mix, and other relevant factors.

The allowance for doubtful accounts includes the balances,  after receipt of the
approved  settlements  from third party  payers for the  insufficient  diagnosis
information  received  from the  ordering  physician  which result in denials of
payment,  and  the  uncollectible  portion  of  receivables  from  self  payers,
including  deductibles  and  copayments,  which are  subject to credit  risk and
patients'  ability to pay.  During the years ended July 31,  2006 and 2005,  the
Company  determined  an allowance  for doubtful  accounts less than 210 days and
wrote off 100% of  accounts  receivable  (for all payers)  over 210 days,  as it
assumed those  accounts are  uncollectible.  The Company  adjusts the historical
collection analysis for recoveries, if any, on an ongoing basis.

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 also assesses the
current state of its billing functions in order to identify any known collection
issues in order to assess the impact,  if any, on the allowance  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.  Should  circumstances change (e.g. shift
in payer mix,  decline  in  economic  conditions  or  deterioration  in aging of
receivables),  our estimates of net  realizable  value of  receivables  could be
reduced by a material amount.


                                      F-9
<PAGE>

                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005


The following is a table of the  Company's  net accounts  receivable by segment.
The Clinical Labs segment's net receivables are detailed by billing category and
as a  percent  to its  total  net  receivables:  At  July  31,  2006  and  2005,
approximately  88%  and  94%,  respectively,   of  the  Company's  net  accounts
receivable relates to its clinical labs business,  which operates in the greater
New York and New Jersey area.

<TABLE>
<CAPTION>
Net accounts receivable                                 As of                             As of
                                                    July 31, 2006                     July 31, 2005
                                                    -------------                     -------------
Billing  Category                               (In 000'S)           (In %)      (In 000'S)            (In %)
-----------------                               ----------           ------      ----------            ------
Clinical Labs
-------------
<S>                                                 <C>                  <C>         <C>                   <C>
   Medicare                                         $1,367               15          $1,594                13
   Third party carriers                              4,025               44           6,742                54
   Patient self-pay                                  3,294               36           3,819                30
   HMO's                                               475                5             394                 3
                                                       ---                -             ---                 -
Total Clinical Labs                                  9,161             100%          12,549              100%
                                                                       ====                              ====
Total Life Sciences                                  1,286                              872
                                                     -----                              ---
Total accounts receivable                          $10,447                          $13,421
                                                   =======                          =======
</TABLE>

Changes in the Company's allowance for doubtful accounts are as follows:

In 000's                             July 31, 2006               July 31, 2005
--------                             -------------               -------------
Beginning balance                           $2,292                      $2,770
Provision for doubtful accounts              3,633                       4,967
Write-offs                                  (4,892)                     (5,445)
                                            ------                      ------
Ending balance                              $1,033                      $2,292
                                            ======                      ======

CASH AND CASH EQUIVALENTS

Cash and cash equivalents  include highly liquid corporate debt instruments with
maturities of three months or less at the time acquired by the Company.

MARKETABLE SECURITIES

Investments  with a maturity  greater  than three months at the date of purchase
are  designated as marketable  securities.  During the year ended July 31, 2006,
the Company sold all investments  designated as marketable securities and had no
investments in marketable securities as of July 31, 2006.

At July  31,  2005,  management  designated  marketable  securities  held by the
Company as  available-for-sale  securities,  in accordance  with of Statement of
Financial   Accounting  Standards  ("SFAS")  No.  115  "Accounting  for  Certain
Investments in Debt and Equity Securities".  Available-for-sale  securities were
carried at fair value  with the  unrealized  losses  reported  in  stockholders'
equity under the caption  "Accumulated  other  comprehensive  loss". The Company
periodically  reviewed  its  investment  portfolio  to determine if there was an
impairment that is other than temporary. In testing for impairment,  the Company
considers,  among  other  factors,  the  length  of  time  and the  extent  of a
security's  unrealized loss, the financial  condition and near term prospects of
the  issuer,  economic  forecasts  and market or  industry  trends.  The cost of
marketable  securities  sold  was  based on the  original  cost  basis  plus any
reinvested dividends.

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 and
manufacturing overhead.


                                      F-10
<PAGE>

                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005


PROPERTY, PLANT AND EQUIPMENT

Property,  plant  and  equipment  is  stated  at cost,  and  depreciated  on the
straight-line  basis  over  the  estimated  useful  lives of the  various  asset
classes.  The useful  life for the  building  is 30 years.  The useful  life for
laboratory  machinery and equipment and office furniture and computer  equipment
ranges from 3-5 years. Leasehold improvements are amortized over the term of the
related leases or estimated useful lives of the assets, whichever is shorter.

GOODWILL

Goodwill  represents the cost of acquired businesses in excess of the fair value
of assets acquired,  including separately recognized intangible assets, less the
fair value of liabilities assumed in the business acquisition.  The Company uses
a  non-amortization  approach  to account  for  purchased  goodwill.  Under this
approach, goodwill is not amortized, but instead is reviewed for impairment. All
of the Company's goodwill is related to its clinical laboratory  segment.  Prior
to adopting SFAS No. 142,  "Goodwill and Other  Intangibles"  ("SFAS 142"),  the
Company  recorded  amortization  of  goodwill  aggregating   approximately  $9.8
million.

Under the  non-amortization  provisions  of SFAS 142,  goodwill is subject to at
least an annual  assessment for impairment by applying a fair-value  based test.
The Company performs the annual impairment  testing during the fourth quarter of
its fiscal year. Based on this testing, there has been no impairment to Goodwill
recorded on the accompanying balance sheets as of July 31, 2006 and 2005.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company  reviews the  recoverability  of the  carrying  value of  long-lived
assets,  primarily property, plant and equipment, for impairment whenever events
or changes in  circumstances  indicate that the carrying  amount of an asset may
not be fully  recoverable.  Should  indicators of impairment exist, the carrying
values of the assets are evaluated in relation to the operating  performance and
future undiscounted cash flows of the underlying business. The net book value of
an asset is adjusted to fair value if its expected future undiscounted cash flow
is less than its book value.  No impairment  losses were  identified  during the
years ended July 31, 2006, 2005 or 2004.

PATENT COSTS

The Company capitalizes certain legal costs directly incurred in pursuing patent
applications as patent costs. When such applications result in an issued patent,
the  related  costs  are  amortized  over a ten year  period  or the life of the
patent,  whichever  is  shorter,  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.  The Company estimates amortization for patent costs at
July 31,  2006 to be at  approximately  $79,000 in each of the next five  fiscal
years.

COMPREHENSIVE (LOSS) INCOME

SFAS No. 130, "Reporting  Comprehensive  Income" (SFAS 130"), requires reporting
and displaying of comprehensive loss and its components. In accordance with SFAS
130,  the  Accumulated  Other  Comprehensive  Loss,  which is  comprised  of net
unrealized losses on marketable securities, is disclosed as a separate component
of stockholders' equity.

SHIPPING AND HANDLING COSTS

Product revenue shipping and handling costs included in selling expense amounted
to approximately $226,000, $299,000, and $384,000 for years ended July 31, 2006,
2005, and 2004, respectively.

RESEARCH AND DEVELOPMENT

Research and development costs are charged to expense as incurred.


                                      F-11
<PAGE>
                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005



ADVERTISING

All costs  associated  with  advertising  are expensed as incurred.  Advertising
expense,  included in Selling,  general and administrative  expense approximated
$128,000,  $57,000 and $18,000 for the years ended July 31, 2006, 2005 and 2004,
respectively.

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  when 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.

SEGMENT REPORTING

The Company follows SFAS No. 131,  "Disclosures  About Segments of an Enterprise
and Related Information" ("SFAS 131") which establishes  standards for reporting
information on operating segments in interim and annual financial statements. An
enterprise is required to separately  report  information  about each  operating
segment  that  engages in  business  activities  from which the segment may earn
revenues and incur  expenses,  whose  separate  operating  results are regularly
reviewed by the chief operating decision maker regarding allocation of resources
and  performance  assessment and which exceed specific  quantitative  thresholds
related to revenue and profit or loss.  The Company's  operating  activities are
reported in three segments (see Note 13).

NET (LOSS) INCOME PER SHARE

The Company applies SFAS No. 128,  "Earnings per  Share."("SFAS  128"). SFAS 128
establishes standards for computing and presenting earnings per share. Basic net
income (loss) per share  represents  net income  (loss)  divided by the weighted
average  number of common  shares  outstanding  during the period.  The dilutive
effect of potential common shares,  consisting of outstanding stock options,  is
determined  using the treasury stock method in accordance with SFAS 128. Diluted
weighted  average  shares  outstanding  for  2006 and  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 in
fiscal  2006 and 2004.  The number of  potential  common  shares  ("in the money
options") excluded from the calculation of diluted earnings per share during the
years ended July 31,  2006,  2005 and 2004 was 423,000,  0, and 798,000  shares,
respectively.


                                      F-12
<PAGE>
                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005



The following  table sets forth the  computation of basic and diluted net (loss)
income per share pursuant to SFAS 128 for the years ended July 31:

<TABLE>
<CAPTION>
IN 000'S                                                                      2006              2005             2004
--------                                                                      ----              ----             ----
<S>                                                                      <C>                  <C>            <C>
Numerator:
    Net (loss) income                                                    $(15,667)            $3,004         $(6,232)
                                                                         =========            ======         ========

Denominator:
    Weighted-average common shares outstanding- Basic
                                                                            32,215            32,097           31,700

    Effect of dilutive stock options                                           - -               666              - -
                                                                               ---               ---              ---

    Weighted-average common shares outstanding -  Diluted
                                                                            32,215            32,763           31,700
                                                                            ======            ======           ======

Net (loss) income per share
    Basic                                                                   $(.49)              $.09           $(.20)
                                                                            ======              ====           ======

    Diluted                                                                 $(.49)              $.09           $(.20)
                                                                            ======              ====           ======
</TABLE>

For the years ended July 31, 2006,  2005 and 2004,  the effect of  approximately
1,916,000,  818,000, and 554,000 respectively, of outstanding "out of the money"
options to purchase  common shares were excluded from the calculation of diluted
net (loss) income per share because their effect would be anti-dilutive.

SHARE-BASED COMPENSATION

Effective  August 1, 2005,  the Company  adopted SFAS No.  123(R),  "Share-Based
Payment"  ("SFAS  123(R)")  and related  interpretations  which  superseded  the
provisions of Accounting  Principles  Board ("APB") Opinion No. 25,  "Accounting
for Stock  Issued to  Employees"  ("APB 25") and related  interpretations.  SFAS
123(R) requires that all share-based compensation be recognized as an expense in
the financial statements and that such cost be measured at the fair value of the
award.  SFAS 123(R) was adopted  using the modified  prospective  method,  which
requires the Company to recognize  compensation  expense on a prospective basis.
Therefore,  prior period financial statements have not been restated. Under this
method,  in  addition to  reflecting  compensation  expense for new  share-based
awards,  expense is also  recognized to reflect the remaining  service period of
awards that had been included in pro-forma disclosures in prior periods.

With the  adoption  of SFAS  123(R),  the Company is required to record the fair
value of share-based  compensation  awards as an expense.  In order to determine
the fair value of stock options on the date of grant,  the Company  utilizes the
Black-Scholes  option-pricing  model.  Inherent  in this  model are  assumptions
related to expected stock-price volatility, option life, risk-free interest rate
and dividend  yield.  While the risk-free  interest rate and dividend  yield are
less subjective assumptions, typically based on factual data derived from public
sources, the expected stock-price volatility and option life assumptions require
a greater level of judgment which make them critical accounting  estimates.  The
Company uses an expected  stock-price  volatility  assumption  that is primarily
based on historical  realized volatility of the underlying stock during a period
of time.  No employee or director  stock  options were  granted  during the year
ended July 31, 2006.



                                      F-13
<PAGE>
                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005


In November 2005, the FASB issued FSP FAS 123(R)-3, "Transition Election Related
to Accounting for the Tax Effects of Share-Based  Payment Awards", to provide an
alternate  transition method for the implementation of SFAS No. 123(R).  Because
some entities do not have, and may not be able to re-create,  information  about
the net excess tax benefits that would have qualified as such had those entities
adopted SFAS No. 123(R) for recognition purposes,  this FSP provides an elective
alternative   transition  method.  The  method  comprises  (a)  a  computational
component that establishes a beginning balance of the additional paid in capital
pool ("APIC pool") related to employee  compensation and (b) a simplified method
to determine the subsequent  impact on the APIC pool of employee awards that are
fully vested and outstanding  upon the adoption of SFAS No. 123(R).  The Company
is evaluating  the  principles set forth in this FSP to determine its APIC pool.
The  implementation  date is one year from the later of the initial  adoption of
SFAS No. 123(R) or the effective date of FSP FAS 123(R)-3.

Prior to August 1, 2005,  the Company  accounted for employee stock option plans
under the  intrinsic  value  method  in  accordance  with APB 25.  Under APB 25,
generally no compensation  expense is recorded when terms of the award are fixed
and the exercise  price of employee and director stock options equals or exceeds
the fair value of the underlying stock on the date of the grant.

As a result of adopting  SFAS 123(R),  the Company's net loss for the year ended
July 31, 2006 was  approximately  $1.6 million  higher,  than if the Company had
continued to account for  share-based  compensation  under APB No. 25. Basic and
diluted loss per share for the year ended July 31, 2006 were  increased by $0.05
per share as a result of adopting  SFAS 123(R).  SFAS 123(R) also  requires that
excess tax benefits  related to stock option exercises be reflected as financing
cash inflows  instead of  operating  cash  inflows.  For the year ended July 31,
2006, no excess tax benefits were  recognized.  Other  share-based  compensation
expense  relating to the fair value of restricted  shares and  restricted  stock
units  issued and vested  during the year ended July 31, 2006 was  approximately
$172,000 (see Note 8).

The  following  table sets forth the  amount of expense  related to  share-based
payment  arrangements  included  in  specific  line  items  in the  accompanying
Statement of operations for the year ended July 31, 2006:

  In 000's
  --------
  Cost of products                                                      $21
  Research and development                                              249
  Selling, general and administrative                                 1,493
                                                                     ------
                                                                     $1,763
                                                                     ======

As of July 31, 2006, there was $2.0 million of total  unrecognized  compensation
cost related to nonvested  share-based  compensation  arrangements granted under
the Company's stock option and restricted stock plans,  which will be recognized
over a weighted average remaining life of approximately one and a half years.

During  the  years  ended  July 31,  2005 and 2004,  the  Company  followed  the
provisions of FASB Statement No. 148 ("SFAS 148"),  "Accounting  for Stock-Based
Compensation  -  Transition  and  Disclosure."  SFAS 148  amends  SFAS No.  123,
"Accounting for Stock-Based  Compensation,"  ("SFAS 123") to provide alternative
methods  of  transition  to SFAS  123's  fair  value  method of  accounting  for
stock-based  employee   compensation.   SFAS  148  also  amends  the  disclosure
provisions  of SFAS 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 148 did
not amend SFAS 123 to require  companies to account for employee  stock  options
using the fair value method,  as SFAS 123(R) did, the  disclosure  provisions of
SFAS 148 are applicable to all companies with share-based employee  compensation
method of SFAS 123 or the intrinsic value method of APB 25.



                                      F-14
<PAGE>
                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005



On June 3, 2005, the Board of Directors  approved the acceleration of vesting of
unvested "out of the money" stock options held by employees, including executive
officers and  directors.  The stock options  considered as out of the money were
those with an exercise  price that was $1.50 or more than the  closing  price of
the  Company's  common  stock on June 3, 2005 of  $14.82.  All  other  terms and
conditions of these "out of the money" options remain unchanged.  As a result of
the  acceleration,  options  to  purchase  approximately  666,000  shares of the
Company's  common stock (which  represented  approximately  21% of the Company's
then outstanding stock options) became exercisable immediately.  The accelerated
options ranged in exercise prices from $16.39 to $19.02 and the weighted average
exercise price of the accelerated options was $17.55 per share. The total number
of options subject to acceleration  included  options to purchase 575,000 shares
held by executive  officers and directors of the Company.  This action was taken
to avoid expense  recognition in future  financial  statements  upon adoption of
SFAS 123(R).  The accelerated  vesting of the "out of the money" options did not
result in a charge in the Company's  statement of operations  for the year ended
July 31,  2005  based on U.S.  generally  accepted  accounting  principles.  The
Company reported  approximately $10.1 million of pro forma compensation  expense
for the year ended July 31, 2005,  of which $6.0 million was  applicable  to the
accelerated "out of the money" options.

Pro  forma  information   regarding  net  income  (loss)  applicable  to  common
stockholders is required under SFAS 123, as if the Company has accounted for its
stock  options  under  the  fair  value  method.   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,  2005 and 2004:  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 71% and 74%,
respectively, for all grants.

The following  table  illustrates the effect on net income (loss) if the Company
had applied the fair value recognition  provisions of SFAS 123 (in 000's, except
per share):

Years Ended July 31,                                 2005                 2004
--------------------                                 ----                 ----
Reported net income (loss)                         $3,004              $(6,232)

Pro forma compensation expense                    (10,129)              (3,239)
                                                 --------              -------

Pro forma net (loss)                              $(7,125)             $(9,471)
                                                 ========              =======

Pro forma net (loss) per share:
Basic                                               $(.22)               $(.30)

Diluted                                             $(.22)               $(.30)

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

In June 2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections  ("SFAS  154"),  a  replacement  of APB Opinion  No. 20,  Accounting
Changes,  and FASB  Statement  No. 3,  Reporting  Accounting  Changes in Interim
Financial  Statements." SFAS 154 changes the requirements for the accounting for
and reporting of a change in accounting  principle.  Previously,  most voluntary
changes in accounting  principles  required  recognition via a cumulative effect
adjustment  within net income for the period of the  change.  SFAS 154  requires
retrospective  application to prior periods' financial statements,  unless it is
impracticable to determine either the period-specific  effects or the cumulative
effect of the change.  SFAS 154 is  effective  for  accounting  changes  made in
fiscal years  beginning  after  December 15,  2005;  however,  SFAS 154 does not
change the transition provisions of any existing accounting pronouncements.  The
adoption of SFAS 154 is not expected to have a material  impact on the Company's
financial condition or results of operations.


                                      F-15
<PAGE>
                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005



In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes - an  interpretation  of FASB Statement No. 109,
"Accounting  for Income  Taxes" ("SFAS  109")",  to clarify the  accounting  for
uncertainty in income taxes recognized in an enterprise's  financial  statements
in  accordance  with SFAS 109.  This  Interpretation  prescribes  a  recognition
threshold and measurement  attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48  also  provides  guidance  on  derecognition,  classification,  interest  and
penalties,  accounting  in interim  periods,  disclosure,  and  transition.  The
provisions of FIN 48 are effective for fiscal years beginning after December 15,
2006.  The  Company  has not  evaluated  the  impact of FIN 48 on its  financial
statements at this time.

RECLASSIFICATIONS

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

NOTE 2 - SUPPLEMENTAL DISCLOSURE FOR STATEMENT OF CASH FLOWS

In the years ended July 31,  2006,  2005 and 2004,  net income  taxes paid by or
(refunded to) the Company  approximated  ($1,374,000),  $3,566,000  and $219,000
respectively.

In fiscal 2006,  certain officers of the Company exercised 227,800 stock options
in a non-cash transaction. The officers surrendered 185,300 shares of previously
owned shares of the Company's  common stock to exercise the stock  options.  The
Company recorded approximately $2.5 million, the market value of the surrendered
shares, as treasury stock.

In fiscal 2005, a director of the Company  exercised  31,660 stock  options in a
non-cash transaction. The director surrendered 17,000 previously owned shares of
the Company's  common stock to exercise the stock options.  The Company recorded
approximately  $325,000,  the market value of  surrendered  shares,  as treasury
stock.

In fiscal 2004,  certain officers of the Company exercised 769,300 stock options
in a non-cash transaction.  The officers surrendered 349,900 of previously owned
shares of the Company's common stock to exercise the stock options.  The Company
recorded approximately $5.7 million, the market value of the surrendered shares,
as treasury stock.

In fiscal 2004, the Company purchased the assets of a privately held company for
$650,000,  of which  $350,000 was paid during  fiscal 2004 and  $150,000  during
fiscal  2006.  The  remaining  $150,000  is to be  paid  in  fiscal  2007 on the
thirty-sixth month anniversary date of the acquisition.

NOTE 3 - MARKETABLE SECURITIES

Marketable securities are recorded at fair value. The Company had no investments
in  marketable  securities  at July 31,  2006.  The  following  is a summary  of
available-for-sale securities at July 31, 2005:

<TABLE>
<CAPTION>
In 000's                                                           Fair Value          Unrealized Holding (Loss)
--------                                                           ----------          -------------------------
<S>                                                                    <C>                                <C>
Income bond mutual fund                                                $5,639                             $(126)
Marketable debt securities:
 U.S. Government and agency securities                                    449                                 -
 Corporate debt securities                                                626                                (5)
                                                                          ---                                 -
(Average of remaining maturity of debt                                 $6,714                             $(131)
securities was approximately four months at                            ======                             ======
July 31, 2005)
</TABLE>


                                      F-16
<PAGE>
                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005



During fiscal 2006, the Company realized proceeds of approximately  $6.8 million
from maturities and sales of marketable securities,  on which it realized a loss
of approximately  $154,000,  based on the average cost.  During fiscal 2005, the
Company  realized  proceeds of  approximately  $10.7 million from maturities and
sales of  marketable  securities,  on which it realized a loss of  approximately
$200,000,  based on the average cost.  There were no realized gains or losses on
marketable security transactions during fiscal 2004. The Company's cost basis in
marketable securities as of July 31, 2005 was approximately $6.8 million.

The following is a summary of accumulated other  comprehensive loss, relating to
the Company's  investments  in marketable  securities  which were  classified as
available for sale securities:

<TABLE>
<CAPTION>
In 000's                                                Accumulated Loss        Tax (Expense)          Accumulated Loss
--------                                                      Before Tax           or Benefit                Net of Tax
                                                              ----------           ----------                ----------
<S>                                                               <C>                     <C>                    <C>
Fiscal 2003 - unrealized losses                                   $(139)                  $54                    $(85)
                                                                  ------                  ---                    -----
Balance - July 31, 2003                                           $(139)                  $54                    $(85)
Fiscal 2004 - unrealized losses                                    (262)                  101                    (161)
                                                                   -----                  ---                    -----
Balance - July 31, 2004                                           $(401)                 $155                   $(246)
Fiscal 2005 - realized losses                                       200                   (78)
Fiscal 2005 - unrealized gain
and valuation allowances                                             70                   (77)                    115
                                                                     --                  ----                     ---
Balance - July 31, 2005                                            (131)                   --                    (131)
Fiscal 2006 - realized losses, net                                  131                    --                     131
                                                                    ---                    --                     ---
Balance - July 31, 2006                                            $--                    $--                     $--
                                                                   ====                  ====                     ===
</TABLE>

NOTE 4 - INVENTORIES

At July 31, 2006 and 2005  inventories  - net of  reserves  of $238,000  and $0,
respectively, consist of:

In 000's                                                  2006            2005
--------                                                  ----            ----
Raw materials                                              $38             $52
Work in process                                          1,518           1,767
Finished products                                          845           1,057
                                                           ---           -----
                                                        $2,401          $2,876
                                                        ======          ======

NOTE 5 - PROPERTY, PLANT, AND EQUIPMENT

At July 31, 2006 and 2005 property, plant, and equipment consist of:

In 000's                                                  2006            2005
--------                                                  ----            ----
Building                                                $2,470              --
Laboratory machinery                                     2,242          $2,098
Office furniture and computer equipment                  5,696           5,080
Leasehold improvements                                   2,975           2,771
                                                         -----           -----
                                                        13,383           9,949
Accumulated depreciation and amortization              (8,247)         (7,279)
                                                       -------         -------
                                                         5,136          $2,670
Land and land improvements                                 712              --
                                                           ---              --
                                                        $5,848          $2,670
                                                        ======          ======

In June 2006,  the Company  acquired land and building  aggregating  $3,182,000,
which upon completion of improvements,  will be primarily used for the Company's
Life  Sciences and  Therapeutics  research  and  development  and  manufacturing
operations.


                                      F-17
<PAGE>
                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005



NOTE 6 - INCOME TAXES

The Company  accounts  for income  taxes under the  provisions  of SFAS 109. The
benefit (provision) for income taxes is as follows:

<TABLE>
<CAPTION>
Fiscal Year Ended July 31, (In 000's)                                2006                  2005                    2004
-------------------------------------                                ----                  ----                    ----
<S>                                                                <C>                 <C>                       <C>
Current benefit (provision):
  Federal                                                          $2,047              $(1,386)                  $3,287
  State and local                                                     (65)                  64                     (191)
Deferred (provision) benefit                                         (640)                (891)                   1,752
                                                                    -----                 -----                   -----
Benefit (provision) for income taxes                               $1,342              $(2,213)                  $4,848
                                                                   ======              ========                  ======
</TABLE>

Deferred tax assets and liabilities arise from temporary differences between the
tax basis of assets and liabilities and their reported  amounts in the financial
statements.  The components of deferred tax assets  (liabilities) as of July 31,
2006 and 2005 are as follows:

<TABLE>
<CAPTION>
In 000's                                                                           July 31, 2006          July 31, 2005
--------                                                                           -------------          -------------
<S>                                                                                       <C>                      <C>
Deferred tax assets:
  Federal tax carryforward losses                                                         $3,315                     --
  Provision for uncollectible accounts receivable                                            404                   $889
  State and local tax carry forward losses                                                 1,080                    245
  Depreciation                                                                                14                     33
  Research and development and other tax credit carryforwards                                405                      -
  Realized and unrealized losses on marketable securities                                    138                    129
                                                                                             ---                    ---
          Gross deferred tax assets                                                        5,356                  1,296
                                                                                           -----                  -----

Deferred tax liabilities:
  Deferred patent costs                                                                    (280)                  (293)
  Other, net                                                                               (220)                  (234)
                                                                                           -----                  -----
           Gross deferred tax liabilities                                                  (500)                  (527)
                                                                                           -----                  -----

Net deferred tax assets - before valuation allowance                                      $4,856                   $769
Less: valuation allowance                                                                 (4,856)                  (129)
                                                                                         -------                 -----
Deferred tax assets, net                                                                     --                    $640
                                                                                             ==                    ====
</TABLE>

Pursuant to SFAS 109, the Company recorded a valuation allowance during the year
ended July 31,  2006 equal to its net  deferred  tax assets at July 31, 2005 and
for net deferred tax assets  generated in fiscal 2006. The Company believes that
the valuation  allowance is necessary as it is not more likely than not that the
deferred tax assets will be realized in the foreseeable future based on positive
and  negative  evidence  available  at this time.  This  conclusion  was reached
because of uncertainties relating to future taxable income, in terms of both its
timing  and its  sufficiency,  which  would  enable the  Company to realize  the
deferred tax assets.  During fiscal 2005, the Company determined that it was not
more likely than not that it would  generate  taxable  income  against which the
deferred  tax  asset  for the  realized  and  unrealized  losses  on  marketable
securities  could be applied.  Therefore,  the Company  established  a valuation
reserve against that deferred tax asset.

As of  July  31,  2006,  the  Company  had a U.S.  federal  net  operating  loss
carryforward of approximately $9.7 million. The U.S. federal tax loss expires in
2024 if not fully  utilized by then.  Utilization  is  dependent  on  generating
sufficient  taxable  income prior to  expiration  of the tax loss  carryforward.
There was no U.S.  federal net operating loss  carryforward as of July 31, 2005.
As of July 31, 2006 and 2005,  the Company has state and local tax carry forward
losses of approximately $21.1 million and $5.1 million, respectively.



                                      F-18
<PAGE>
                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005


The  benefit  (provision)  for income  taxes were at rates  different  from U.S.
federal statutory rates for the following reasons:

<TABLE>
<CAPTION>
Year Ended July 31,                                                                 2006            2005           2004
-------------------                                                                 ----            ----           ----
<S>                                                                                  <C>           <C>              <C>
Federal statutory rate                                                               34%           (34%)            34%
Expenses not deductible for income tax return purposes                               (4%)           (2%)            (3%)
State income taxes, net of (benefit) of federal tax deduction.                        5%            (6%)             4%
Change in valuation allowance                                                       (28%)            --             --
Benefit of foreign sales                                                             --              1%              2%
Fixed asset basis difference                                                         --              --              8%
Other                                                                                 1%            (1%)            (1%)
                                                                                      --            ----           ----
                                                                                      8%           (42%)            44%
                                                                                      ==           =====            ===
</TABLE>

NOTE 7 - ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES

At July 31, 2006 and 2005, Accrued liabilities consist of:

<TABLE>
<CAPTION>
In 000's                                                                                            2006           2005
--------                                                                                            ----           ----
<S>                                                                                               <C>            <C>
Legal                                                                                             $1,974         $2,717
Payroll, benefits, and commissions                                                                   868            652
Research and development                                                                             408            286
Professional fees                                                                                    369            413
Outside reference lab testing                                                                        122             30
Other                                                                                                662            768
                                                                                                     ---            ---
                                                                                                  $4,403         $4,866
                                                                                                  ======         ======
At July 31, 2006 and 2005 other current liabilities consist of:

In 000's                                                                                            2006           2005
--------                                                                                            ----           ----
Installment payable                                                                                 $150           $150
Deferred revenue                                                                                      80            359
                                                                                                      --            ---
                                                                                                    $230           $509
                                                                                                    ====           ====
</TABLE>

NOTE 8 - STOCKHOLDERS' EQUITY

TREASURY STOCK

In fiscal 2006,  certain officers of the Company exercised 227,800 stock options
in a non-cash transaction. The officers surrendered 185,300 shares of previously
owned shares of the Company's  common stock to exercise the stock  options.  The
Company recorded approximately $2.5 million, the market value of the surrendered
shares, as treasury stock.

In fiscal 2005, a director of the Company  exercised  31,660 stock  options in a
non-cash transaction. The director surrendered 17,000 previously owned shares of
the Company's  common stock to exercise the stock options.  The Company recorded
approximately  $325,000,  the market value of  surrendered  shares,  as treasury
stock.

In fiscal 2004,  certain officers of the Company exercised 769,300 stock options
in a non-cash transaction.  The officers surrendered 349,900 of previously owned
shares of the Company's common stock to exercise the stock options.  The Company
recorded approximately $5.7 million, the market value of the surrendered shares,
as treasury stock.


                                      F-19
<PAGE>
                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005


INCENTIVE STOCK OPTION PLANS

The Company has incentive stock option plans ("1994  plan","1999 plan" and "2005
plan")  under  which the Company may grant  options for up to  1,336,745  shares
(1994 plan), up to 2,312,356 shares (1999 plan) and up to 1,000,000 shares (2005
plan) of common stock. No additional options may be granted under the 1994 plan.
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 non
statutory  options.  Stock options generally become  exercisable at 25% per year
after  one year and  expire  ten years  after  the date of grant.  The 2005 plan
provide for the issuance of restricted  stock and  restricted  stock unit awards
which generally vest over a two to four year period.

A summary of the  information  pursuant to the Company's  stock option plans for
the years ended July 31, 2006, 2005 and 2004 is as follows:

<TABLE>
<CAPTION>
                                             2006                      2005                        2004
                               -------------------------------------------------------------------------------
                                             Weighted -                Weighted -                  Weighted -
                                             Average                   Average                     Average
                                             Exercise                  Exercise                    Exercise
                               Options       Price      Options        Price        Options        Price
                               ---------     ---------- -------        ----------   -------        ----------
<S>                            <C>           <C>        <C>            <C>          <C>            <C>
Outstanding at
beginning of year              3,154,125     $12.61     2,856,801      $11.86       3,397,087       $9.88
Granted                          100,000     $24.84       431,975      $16.57         428,925      $17.02
Exercised                       (285,030)    $10.93      (100,332)      $7.39        (917,539)       7.16
Cancelled                        (91,368)    $12.61       (34,319)     $11.64         (51,672)     $10.13
                               ---------                ---------                  ----------
Outstanding at
end of year                    2,877,727     $13.20     3,154,125      $12.61       2,856,801      $11.86
                               =========                =========                  ==========

Exercisable at
end of year                    2,554,148     $12.78     2,126,442      $11.28       1,770,492      $10.54
                               =========                =========                  ==========

Weighted average fair  value of
options
granted during year                           $1.01                    $11.76                      $12.40
                                             ======                    ======                      ======
</TABLE>

The aggregate  intrinsic value of stock options exercised during the years ended
July 31, 2006 and 2005,  including  the non-cash  transactions  (see Note 2) was
$0.7 million and $0.9 million,  respectively.  The aggregate  intrinsic value of
options both outstanding and exercisable at July 31, 2006 is approximately  $3.7
million.

The following table summarizes information for stock options outstanding at July
31, 2006:

<TABLE>
<CAPTION>
                                         Options outstanding                   Options exercisable
                                         -------------------              --------------------------
                                   Weighted-Average      Weighted-                    Weighted-
 Range of Exercise                    Remaining       Average Exercise             Average Exercise
     prices              Shares    Contractual Life        Price         Shares         Price
     -----               ------    ----------------        -----         ------         -----
<S>                   <C>               <C>                <C>         <C>             <C>
    $5.45-8.08          289,020         2.2 years           $5.64        289,020        $5.64
   $8.33-12.25        1,502,111         4.4 years          $11.09      1,378,906       $10.91
  $12.93-19.02          906,719         7.4 years          $16.82        806,345       $16.60
  $20.20-24.84          161,644         2.9 years          $23.02         61,644       $21.42
        $36.05           18,233         3.4 years          $36.05         18,233       $36.05
                      ---------                                           ------
                      2,877,727                                        2,554,148
                      =========                                        =========
</TABLE>


                                      F-20
<PAGE>

                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005

During the year ended July 31, 2006, the Company  granted  100,000  options to a
consultant with an exercise price of $24.84, which vest over six months and have
a two year term.  The fair value of these  options at July 31, 2006 is $101,000.
The  fair  value of the  options,  which  will be  accounted  for as a  variable
instrument,  will be fair valued and  recognized  as expense  over the six month
vesting term.  The  assumptions  used to fair value this option grant as of July
31, 2006 were as follows:  risk free interest rate of 4.97%,  expected term of 2
years, expected volatility of 49%, and no dividend yield. In connection with the
options  issued  to this  consultant,  the  Company  recognized  an  expense  of
approximately  $80,000 in  selling,  general and  administrative  expense in the
accompanying statements of operations for the year ended July 31, 2006.

RESTRICTED STOCK AWARDS

During  fiscal  2006,  the  compensation  committee  of the  Company's  board of
directors  approved grants of 84,950  restricted stock and restricted stock unit
awards (the "Awards") under the 2005 Plan to the Company's directors and certain
officers and employees.  The Awards vest in full upon the recipient's  continued
employment or director service over either two, three or four years. Share-based
compensation  expense is  recorded  over the vesting  period on a  straight-line
basis. The Awards will be forfeited if the recipient ceases to be employed by or
serve as a director of the Company,  as defined in the Award grants.  The Awards
settle in shares of the  Company's  common stock on a one-for-one  basis.  As of
July 31, 2006, all Awards were unvested.

A summary of the information pursuant to the Company's Awards for the year ended
July 31, 2006 is as follows:

                                                              Weighted - Average
                                                     Awards       Award Price
                                                     ------       -----------
Outstanding at
beginning of year                                        --                --
Awarded                                              84,950            $12.29
Forfeited                                            (7,500)           $13.13
                                                     ------            ------
Outstanding at end of year                           77,450            $12.21
                                                     ======            ======

Weighted average market value of Awards
granted during year                                                    $12.29
                                                                       ======

As of July 31, 2006, there were approximately 629,000 shares available for grant
under the Company's stock option plans.

STOCK DIVIDENDS

During  fiscal  2005,  the  Company's  board of  directors  declared  a 5% stock
dividend on October 5, 2004 payable  November 15, 2004 to shareholders of record
as  of  October  25,  2004.   The  fiscal  2004  per  share  data  was  adjusted
retroactively  to reflect the stock  dividend  declared on October 5, 2004.  The
Company recorded a charge to accumulated  deficit and offsetting credits to both
common stock and additional paid-in capital of $23,433,400 in fiscal 2005, which
reflects the fair value of the stock dividends on the dates of declaration.

NOTE 9 - 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, 2006,  2005 and 2004,  the Company  authorized  employer  matched
contributions of 50% of the employees'  contribution up to 10% of the employees'
compensation,  payable in Enzo Biochem,  Inc. common stock.  The 401(k) employer
matched  contributions expense was $402,300,  $351,600,  and $282,200, in fiscal
years 2006, 2005, and 2004, respectively.

                                      F-21
<PAGE>

                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005

NOTE 10 - GAIN ON PATENT LITIGATION SETTLEMENT, LICENSE AGREEMENT AND ROYALTY
INCOME

In fiscal 2005, the Company as plaintiff finalized and executed a settlement and
license agreement with Digene  Corporation to settle a patent litigation lawsuit
(the  "Agreement").  Under the terms of the Agreement,  the Company  received an
initial  payment  of $16.0  million,  would  earn in the first  "annual  period"
(October  1, 2004 to  September  30,  2005) a minimum  royalty  payment  of $2.5
million,  and receive a minimum royalty of $3.5 million in each of the next four
annual periods.  In addition,  the Agreement provides for the Company to receive
quarterly  running  royalties on the net sales of Digene products subject to the
license until the  expiration of the patent on April 24, 2018.  These  quarterly
running royalties are fully creditable  against the minimum royalty payments due
in the first five years of the  Agreement.  The balance,  if any, of the minimum
royalty  payment is  recognized in the final  quarter of the  applicable  annual
royalty period.

As a result of the  Digene  Agreement,  the  Company  recorded  a gain on patent
litigation  settlement of $14.0 million  during the year ended July 31, 2005 and
deferred $2 million,  which was earned from net sales of the Company's  licensed
products  covered by the Agreement  during the first annual  period.  During the
years ended July 31, 2006 and 2005,  the Company  recorded  royalty income under
the  Agreement of  approximately  $3.1 million and $1.6  million,  respectively,
which is included in the Life Sciences segment.

NOTE 11 - COMMITMENTS

LEASES

The  Company  leases  equipment,  office  and  laboratory  space  under  several
non-cancelable operating leases that expire between January 2007 and March 2017.
An entity owned by certain executive  officers/directors of the Company owns the
building that the Company leases as its main facility for laboratory,  research,
and  manufacturing  operations.  In March 2005, the Company amended and extended
the lease for another 12 years.  In addition  to the minimum  annual  rentals of
space,  the lease is subject to annual  increases,  based on the consumer  price
index.  Annual increases are limited to 3% per year. Rent expense,  inclusive of
real estate  taxes,  under this renewed  lease and the prior lease  approximated
$1,337,000, $1,289,000, and $1,370,000 during fiscal years 2006, 2005, and 2004,
respectively.

Total  consolidated  rent expense  incurred by the Company  during  fiscal 2006,
2005,  and  2004  was  approximately  $2,257,000,   $2,140,000,  and  $1,801,000
respectively.  Minimum  future  annual  rentals under  non-cancelable  operating
leases as of July 31, 2006, are as follows:

                Years ended July 31,                         In 000's
                --------------------                         --------
                2007                                         $2,663
                2008                                          2,505
                2009                                          2,384
                2010                                          2,337
                2011                                          2,044
                Thereafter                                    8,429
                                                              -----
                                                            $20,362
                                                            =======

Employment Agreements

The Company has employment  agreements with certain executive  officers that are
cancelable  at any time but provide for  severance pay in the event an executive
officer  is  terminated  by  the  Company  without  cause,  as  defined  in  the
agreements.  Unless  cancelled  earlier,  the contracts expire through May 2008.
Aggregate  minimum   compensation   commitments,   exclusive  of  any  severance
provisions,  for the  years  ended  July 31,  2007 and 2008 are  $1,490,000  and
$870,000, respectively


                                      F-22
<PAGE>

                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005

NOTE 12- CONTINGENCES

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.
The defendants have answered the individual Complaints and asserted a variety of
affirmative  defenses and  counterclaims.  Fact discovery is ongoing.  The Court
issued a claim  construction  opinion on July 10,  2006.  The  Company and Sigma
Aldrich  ("Sigma")  entered into a Settlement  Agreement  and Release  effective
September 15, 2006 (the "Agreement").  Pursuant to the Agreement,  the Company's
litigation with Sigma was dismissed and the Company will recognize $2 million on
settlement  in the  first  quarter  ending  October  31,  2006.  There can be no
assurance  that the Company will be successful  with the  remaining  outstanding
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.
The Company has not recorded  revenue  under these  distribution  agreements  in
fiscal 2006. The Company recorded revenue from only Perkin Elmer in fiscal 2005.

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 Affymetrix 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.
Initial  pleadings have been  completed and discovery has  commenced.  The Court
issued a Markman (claim construction)  opinion on July 10, 2006. The Company did
not record any revenue  from  Affymetrix  during the fiscal years ended July 31,
2006, 2005 and 2004.

                                      F-23
<PAGE>

                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005

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 (the
"'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.
Enzo filed an Answer and  Counterclaims  on November 3, 2004  alleging  multiple
breaches of the 1994 Agreement and related  infringement  of Enzo's `373 patent.
Discovery has  commenced.  The Court issued a Markman  opinion on July 10, 2006.
The Company did not record any revenue  from Roche  during the fiscal year ended
July 31, 2006. The Roche agreement remains in force to date.

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
Glaser v. Hyman Gross,  Barry Weiner,  Enzo  Biochemical  Inc.,  Elazar Rabbani,
Shahram Rabbani, John Delucca, Dean Engelhardt, Richard Keating, Doug Yates, and
Does I-50, Case No.  CA-02-1242-A (the "Glasser  Action"),  in the U.S. District
Court for the  Eastern  District of  Virginia.  This  complaint  was filed by an
investor in the Company who had filed for bankruptcy  protection and his family.
The complaint alleged  securities fraud,  breach of fiduciary duty,  conspiracy,
and common law fraud and sought 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. Plaintiffs thereafter appealed the
decision to the United States Court of Appeals for the Fourth Circuit.  On March
21, 2005, the Fourth Circuit  affirmed the lower Court's prior  dismissal of all
claims asserted in the action, with the sole exception of a portion of the claim
for common law fraud and remanded  that  remaining  portion of the action to the
U.S.  District  Court for the Eastern  District of  Virginia.  On May 20,  2005,
defendants  again moved the District Court to dismiss the sole  remaining  claim
before it. On July 14, 2005,  the District  Court  granted  defendants'  renewed
motion to dismiss.  On July 29, 2005,  Plaintiffs moved to amend their Complaint
for reconsideration.  On August 19, 2005, the Court denied Plaintiffs' motion to
amend  and  entered  final  judgment   dismissing  the  complaint.   Thereafter,
Plaintiffs  appealed the order and judgment to the Fourth Circuit.  On September
16, 2006, the United States Court of Appeals for the Fourth Circuit affirmed the
dismissal of the Complaint relating to the Glasser Action.  Although the Glasser
plaintiffs  still have the option of  requesting  a rehearing  before the Fourth
Circuit or petitioning  for a writ of certiorari  from the United States Supreme
Court,  absent  such  further  relief,  the Glasser  Action will be closed.  The
Company continues to believe that the Glasser Action and the remaining complaint
have no  merit  whatsoever  and  intends  to  continue  to  defend  the  actions
vigorously.

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,  estoppels  and laches and asserts
counterclaims of non-infringement  and invalidity.  Fact discovery is ongoing. A
one-day  Markman  hearing was held on May 25, 2006 and the parties are currently
waiting  for a Markman  ruling.  Dispositive  motions due dates are based on the
Markman ruling date.

                                      F-24
<PAGE>

                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005

The trial date is  currently  scheduled  for  December 1, 2006.  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.

NOTE 13 - SEGMENT REPORTING

The Company has three  reportable  segments:  Life Sciences,  Therapeutics,  and
Clinical Labs. The Company's Life Sciences segment develops,  manufactures,  and
markets  products  to  research  and  pharmaceutical  customers.  The  Company's
Therapeutic segment conducts research and development activities for therapeutic
drug candidates.  The Clinical Labs segment provides  diagnostic services to the
health care community.  Prior to fiscal 2006, the Life Sciences and Therapeutics
segments were reported  together as the Research and  Development  segment.  The
fiscal 2005 and 2004  segment  information  has been  restated  to reflect  this
change. The Company evaluates segment performance based on segment income (loss)
before  taxes.  Costs  excluded  from  segment  income  (loss)  before taxes and
reported as other consist of corporate  general and  administrative  costs which
are not allocable to the three reportable segments.

Management  of the  Company  assesses  assets on a  consolidated  basis only and
therefore, assets by reportable segment have not been included in the reportable
segments below. The accounting  policies of the reportable segments are the same
as those described in the summary of significant accounting policies.

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

 YEAR ENDED JULY 31, 2006

<TABLE>
<CAPTION>
Revenues:                                             Life Sciences     Therapeutics  Clinical Labs        Other    Consolidated
--------                                              -------------     ------------  -------------        -----    ------------
<S>                                                          <C>            <C>             <C>        <C>             <C>
Product revenues and royalty income                          $7,900               --             --           --          $7,900
Clinical laboratory services                                     --               --        $31,926           --          31,926
                                                             ------         --------        -------    ---------       ---------
                                                              7,900               --         31,926           --          39,826

Cost and expenses and other (income):
-------------------------------------
Cost of products                                              2,174               --             --           --           2,174
Cost of clinical laboratory services                             --               --         13,917           --          13,917
Research and development                                      3,659           $4,237             --           --           7,896
Provision for uncollectible accounts                             --               --          3,633           --           3,633
Selling, general and administrative and legal                 2,260               --         14,322       15,777          32,359
Interest income                                                  --               --             --       (3,144)         (3,144)
                                                             ------         --------        -------    ---------       ---------
(Loss) income before income taxes                             ($193)         ($4,237)           $54     $(12,633)       $(17,009)
                                                             ======         ========            ===    =========       =========

Depreciation and amortization included above                   $180              $12           $897          $35          $1,124
                                                               ====              ===           ====          ===          ======

Share-based compensation included in above:
-------------------------------------------
Cost of products                                                $21               --             --           --             $21
Research and development                                        106             $143             --           --             249
Selling, general and adminstrative and legal                     87               --           $539         $867           1,493
                                                                 --               --           ----         ----           -----
               Total                                           $214             $143           $539         $867          $1,763
                                                               ====             ====           ====         ====          ======

Capital expenditures                                         $3,332               $6           $860          $29          $4,227
                                                             ======               ==           ====          ===          ======
</TABLE>


                                      F-25
<PAGE>

                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005

YEAR ENDED JULY 31, 2005
<TABLE>
<CAPTION>
                                                      Life Sciences       Therapeutics    Clinical Labs  Other       Consolidated
                                                      -------------       ------------    -------------  -----       ------------
<S>                                                        <C>              <C>             <C>        <C>             <C>
REVENUES:
Product revenues and royalty income                         $10,546               --             --         --          $10,546
Clinical laboratory services                                     --               --        $32,857         --           32,857
                                                           --------         --------         ------   --------          -------
                                                             10,546               --         32,857         --           43,403

Cost and expenses and other (income):
-------------------------------------
Cost of products                                              2,197               --             --         --            2,197
Cost of clinical laboratory services                             --               --         12,548         --           12,548
Research and development                                      5,340           $3,112             --         --            8,452
Provision for uncollectible accounts                             --               --          4,967         --            4,967
Selling, general and administrative and legal                 2,405               --         12,505    $10,635           25,545
Interest income                                                  --               --             --     (1,523)          (1,523)
Gain on patent litigation settlement                        (14,000)              --             --         --          (14,000)
                                                           --------         --------         ------   --------          -------
Income (loss) before income taxes                           $14,604         ($3,112)         $2,837   ($9,112)           $5,217
                                                            =======         ========         ======   ========           ======

Depreciation and amortization included above                 $1,382              $13           $887        $50           $2,332
                                                             ======              ===           ====        ===           ======
Capital expenditures                                           $126              $40         $1,100        $10           $1,276
                                                             ======              ===         ======        ===           ======
</TABLE>

YEAR ENDED JULY 31, 2004
<TABLE>
<CAPTION>
                                                      Life Sciences       Therapeutics    Clinical Labs  Other       Consolidated
                                                      -------------       ------------    -------------  -----       ------------
<S>                                                        <C>              <C>             <C>        <C>             <C>
REVENUES:
Product revenues                                            $12,972               --             --         --          $12,972
Clinical laboratory services                                     --               --        $28,672         --           28,672
                                                           --------          -------       --------    -------         --------
                                                             12,972               --         28,672         --           41,644

Cost and expenses and other (income):
-------------------------------------
Cost of products                                              2,518               --             --         --            2,518
Cost of clinical laboratory services                             --               --         10,586         --           10,586
Research and development                                      5,661           $2,417             --         --            8,078
Provision for uncollectible accounts                          1,753               --         10,234         --           11,987
Selling, general and administrative and legal                 1,922               --          9,331     $9,454           20,707
Interest income                                                  --               --             --     (1,152)          (1,152)
                                                           --------          -------       --------    -------         --------
(Loss) income before income taxes                            $1,118          $(2,417)       ($1,479)   ($8,302)        ($11,080)
                                                             ======          =======        =======    =======         ========

Depreciation and amortization included above                 $1,397              $17           $903        $45           $2,362
                                                             ======              ===           ====        ===           ======
Total capital expenditures                                      $70               $7         $1,142        $85           $1,304
                                                             ======              ===         ======        ===           ======
</TABLE>

The  Company's  reportable  segments are  determined  based on the services they
perform,  the  products  they sell,  and the  royalties  they  earn,  not on the
geographic  area in which they  operate.  The  Company's  Clinical  Labs segment
operates 100% in the United  States with all revenue  derived from this country.
The Life Sciences  segment  earns product  revenue both in the United States and
foreign  countries and royalty income in the United  States.  The following is a
summary of the Life Sciences segment revenues  attributable to customers located
in the United States and foreign countries:

In 000's                            2006       2005         2004
--------                            ----       ----         ----
United States                     $6,361     $7,985       $8,029
Foreign countries                  1,539      2,561        4,943
                                   -----      -----        -----
                                  $7,900    $10,546      $12,972
                                  ======    =======      =======


                                      F-26
<PAGE>

                               ENZO BIOCHEM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2006 AND 2005

NOTE 14 - SUMMARY OF SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The  following  table  contains  statement of  operations  information  for each
quarter of the years ended July 31, 2006 and 2005. 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.

Unaudited quarterly financial data (in thousands,  except per share amounts) for
fiscal 2006 and 2005 is summarized as follows:

<TABLE>
<CAPTION>
                                                                                 Quarter Ended
                                                     ---------------------------------------------------------------------------
                    FISCAL 2006                         OCTOBER 31,          JANUARY 31,      APRIL 30,           JULY 31,
                                                               2005                 2006           2006               2006
                                                               ----                 ----           ----               ----
<S>                                                         <C>                  <C>            <C>                <C>
Total revenues                                              $10,165              $10,116         $9,630             $9,915
Gross profit                                                  6,143                6,300          5,658              5,634
Loss before income taxes                                    (3,163)              (5,098)        (3,793)            (4,955)
Net loss                                                    (3,286)              (4,439)        (3,436)            (4,506)
Basic loss per common share                                 ($0.10)              ($0.14)        ($0.11)            ($0.14)
Diluted loss per common share                               ($0.10)              ($0.14)        ($0.11)            ($0.14)
</TABLE>

<TABLE>
<CAPTION>
                                                                                 Quarter Ended
                                                     ---------------------------------------------------------------------------
                    FISCAL 2005                         OCTOBER 31,          JANUARY 31,      APRIL 30,           JULY 31,
                                                               2004                 2005           2005               2005
                                                               ----                 ----           ----               ----
<S>                                                         <C>                  <C>            <C>                <C>
Total revenues                                              $10,301              $11,235        $11,000            $10,867
Gross profit                                                  6,812                7,820          7,035              6,991
Income (loss) before income taxes                            12,173                (944)        (2,553)            (3,459)
Net income (loss)                                             7,021                (528)        (1,497)            (1,992)
Basic income (loss) per common share                          $0.22              ($0.02)        ($0.05)            ($0.06)
Diluted income (loss) per common share                        $0.22              ($0.02)        ($0.05)            ($0.06)
</TABLE>

                                      F-27
<PAGE>

                                ENZO BIOCHEM, INC
                             SCHEDULE II - VALUATION
                             AND QUALIFYING ACCOUNTS
                    Years ended July 31, 2006, 2005 and 2004
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                        Charged     Charged
                                                        Balance at    (credited)    to other
Year ended                                              Beginning      to costs     accounts-  Deductions-        Balance at
 July 31,  Description                                  of period   and expenses    describe   describe          end of period
 --------  -----------                                  ---------   ------------    ---------  -----------       -------------
<S>        <C>                                           <C>              <C>          <C>       <C>               <C>
   2006    Allowance for doubtful accounts receivable    $2,292           $3,633       ---       $4,892 (1)        $1,033

   2005    Allowance for doubtful accounts receivable     2,770            4,967       ---        5,445 (1)         2,292

   2004    Allowance for doubtful accounts receivable     2,257           11,987       ---       11,474 (1)         2,770

   2006    Deferred tax asset valuation allowance           129            4,727       ---            -             4,856

   2005    Deferred tax asset valuation allowance             -              129       ---            -               129

   2006    Reserve for obsolete inventory                     -              596       ---          358 (2)           238
</TABLE>





       (1) Write-off of uncollectible accounts receivable.

       (2) Write-off of obsolete inventory.


                                      S-1