U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB

         (Mark One)
          X       Annual report under Section 13 or 15(d) of the Securities
         -----    Exchange Act of 1934. For the fiscal year ended June 30, 2004.

                                   OR

         -----    Transition report under Section 13 or 15(d) of the
                  Securities Exchange Act of 1934 for the transition period from
                  ________________ to ________________.

                     Commission File Number: 0-18299

                            BIOENVISION, INC.
                            -----------------
             (Name of Small Business Issuer in Its Charter)

                        Delaware                    13-4025857
              ------------------------------       ------------
              (State or Other Jurisdiction of     (IRS Employer
              Incorporation or Organization)    Identification No.)

                 509 Madison Avenue
                      Suite 404
                 New York, New York                   10022
             -------------------------               -------
        (Address of Principal Executive Offices)    (Zip Code)

       Registrant's telephone number, including area code: (212) 750-6700

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $0.001
par value

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 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

Check if there is no  disclosure of  delinquent  filers  pursuant to Item 405 of
Regulation S-B is contained in this form,  and no disclosure  will 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-KSB or any
amendment to this Form 10-KSB. [ ]

The issuer's revenues for its most recent fiscal year were $3,102,214.

The aggregate market value of the voting stock held by  non-affiliates  computed
by reference to the last price at which the stock was sold,  as of September 16,
2004, was  $223,271,190.  The number of shares of common stock outstanding as of
September 16, 2004 was 28,597,172.

Part III  incorporates  information  by reference  from the issuer's  definitive
proxy statement to be filed with the Commission  within 120 days after the close
of the registrant's fiscal year.

Transitional Small Business Disclosure Format (check one): Yes       No   X
                                                               -----     -----


<PAGE>


                                     PART I

         Except for historical  information contained herein, this annual report
on Form 10-KSB  contains  forward-looking  statements  within the meaning of the
Section 21E of the  Securities  and  Exchange  Act of 1934,  as  amended,  which
involve certain risks and uncertainties. Forward-looking statements are included
with  respect to, among other  things,  the  Company's  current  business  plan,
"Factors that May Effect our Business",  and Managements Discussion and Analysis
of Results of Operations".  These  forward-looking  statements are identified by
their use of such terms and phrases as "intends," "intend,"  "intended," "goal,"
"estimate,"    "estimates,"    "expects,"   "expect,"   "expected,"   "project,"
"projected,"  "projections,"  "plans," "anticipates,"  "anticipated,"  "should,"
"designed to," "foreseeable  future," "believe,"  "believes" and "scheduled" and
similar  expressions.  The  Company's  actual  results  or  outcomes  may differ
materially  from those  anticipated.  Readers are  cautioned  not to place undue
reliance on these  forward-looking  statements,  which speak only as of the date
the statement was made. The Company  undertakes no obligation to publicly update
or  revise  any  forward-looking   statements,   whether  as  a  result  of  new
information, future events or otherwise.

Item 1.  Description of Business

         Bioenvision  is an  emerging  biopharmaceutical  company.  Our  primary
business focus is the development and distribution of drugs to treat cancer.  We
have a broad range of products and technologies under  development,  but our two
lead drugs are clofarabine and Modrenal(R).

         We believe that our two lead products  have the  following  competitive
advantages over existing products at market:

Modrenal(R) (emerging endocrine           Clofarabine (purine nucleoside
resistance technology)                    anti-metabolite technology)

o     Novel mode of action on estrogen  o     Next generation,
      receptors                               halogenated-purine nucleoside
o     Increases estrogen binding to           analogue, designed to overcome
      ER(beta) resulting in decreased         the limitations and incorporate
      cancer cell proliferation               the best qualities of both
o     35% overall clinical benefit            fludarabine (Fludara(R)) and
      rate in multi-center clinical           cladribine (Leustatin(R)).
      trial:    meta-analysis of 714    o     Multiple Mechanisms of Action:
      patients with advanced                    o   Potent inhibition of DNA
      progressive post-menopausal                   synthesis and repair
      breast cancer                                 (active in dividing cancer
o     55% clinical benefit rate in                  cells).
      patients who have become                  o   Induces apoptotic (cell
      resistant to tamoxifen therapy                death) pathway (active in
o     Phase II clinical trial                       non-dividing cancer cells).
      commenced in prostate cancer in   o     Potent ability to kill cancer
      Q3 of calendar 2004                     cells in a wide range of cell
o     Phase II pre-menopausal breast          lines, including leukemia,
      cancer trial commencing Q3 of           non-small cell lung, colon,
      calendar 2004                           melanoma, ovarian, renal,
o     Phase II neo-adjuvent,                  prostate, pancreatic and breast
      pre-operative breast cancer             cancer lines.
      study commencing Q3 of calendar   o     Significant clinical benefit
      2004                                    demonstrated in both pediatric
o     Phase IV post-menopausal breast         and adult leukemias:
      cancer trial commencing Q3 of             o   Overall response rates in
      calendar 2004                                 relapsed/refractory
o     Mutual recognition filings to be              pediatric acute leukemias
      made in large European markets                of between 26% and 31%.
      by Q2 of calendar 2005                    o   Overall response rates in
o     Product reformulation to be                   relapsed/refractory adult
      completed by Q1 of calendar                   acute myeloid leukemia
      2005                                          (AML) and chronic myeloid
                                                    leukemia in blast crisis
                                                    (CML-BP) of between 55%
                                                    and 64%.
                                        o     Solid tumor studies initiated with
                                              both the oral and intravenous
                                              formulations of clofarabine.



                                       -1-
<PAGE>


Products and Technologies

PRODUCT PIPELINE


<TABLE>
<CAPTION>
                                                                                    MARKETING RIGHTS
                                                                                    ----------------
CANDIDATE            TARGET             INDICATION            STATUS                U.S.             EX-U.S.
---------            ------             ----------            ------                ----             -------
<S>                  <C>                     <C>              <C>                     <C>            <C>
Clofarabine          DNA, Mitochondria  Hematologic Cancers   Phase II completed    ILEX(1)          Bioenvision(2)
                                                              or ongoing
                     DNA,               Solid Tumors          Phase I (IV)          ILEX(1)          Bioenvision(2)
                     Mitochondria
                     DNA,               Solid tumors          Phase I (oral)        ILEX(1)          Bioenvision(2)
                     Mitochondria
Modrenal(R)          Estrogen           Breast Cancer         Phase IV,II           Bioenvision      Bioenvision
                     receptor beta
                                        Prostate Cancer       Phase II              Bioenvision      Bioenvision
Velostan             Cancer cell        Bladder cancer        Phase I               Bioenvision      Bioenvision
                     proliferation
Virostat             Viral replication  Hepatitis C,          Phase II              Bioenvision      Bioenvision
                                        WNV
OLIGON               Antimicrobial      Catheter related      At Market             Bioenvision,     Bioenvision,
                                        sepsis                                      Edwards(3)
Gene Therapy         Myosin enhancer    Hypoalbuminemia,                            Bioenvision
                                        liver failure
</TABLE>

 ---------------------

    (1)     ILEX Oncology,  Inc.  sub-licenses  marketing rights in the U.S. and
            Canada  in  cancer  indications  only.   Bioenvision  maintains  the
            clofarabine  marketing  rights in the U.S.  and Canada for all other
            disease indications, including autoimmune diseases.

    (2)     Bioenvision   maintains   an   exclusive,   irrevocable   option  to
            manufacture,   market  and  distribute   clofarabine  in  Japan  and
            Southeast  Asia  in all  indications  and  maintains  the  right  to
            manufacture, market and distribute clofarabine in all other areas of
            the world outside of the U.S. and Canada.

    (3)     Bioenvision has licensed the marketing  rights for certain  vascular
            access catheters to Edwards Lifesciences.

Anti-Cancer Product Portfolio
-----------------------------

         Our anti-cancer product portfolio includes: three products, Modrenal(R)
(trilostane),  clofarabine and Velostan(R) (l-gossypol), which are used or which
may have  clinical  utility in a wide  variety of cancers;  and one Gene Therapy
technology platform, which may be useful in several indications.

         Clofarabine

         We have the  exclusive  right to  manufacture,  market  and  distribute
clofarabine  for all human  applications  in all areas of the world except Japan
and Southeast  Asia. We have an exclusive,  irrevocable  option to  manufacture,
market and distribute  clofarabine in Japan and Southeast  Asia. In the U.S. and
Canadian  cancer market,  we sublicensed  the right to  manufacture,  market and
distribute  clofarabine  to  ILEX  Oncology,  Inc.  We  maintain  the  right  to
manufacture,  market and  distribute  clofarabine  in the U.S. and Canada in all
non-cancer indications, including auto-immune diseases, e.g. multiple sclerosis.
We maintain our exclusive rights until the last to expire of the patents used or
useful in our  development  and marketing  efforts,  which we expect to occur in
March 2021.

         Currently,  a New Drug  Application  (NDA) has been  filed with FDA for
approval of clofarabine in the U.S. in pediatric acute  leukemias.  Further,  we
submitted a Common Technical  Document,  the European  equivalent of a NDA, with
European  Medicines  Evaluation Agency (EMEA) in July 2004 for European approval
of clofarabine in pediatric acute leukemias.  Because clofarabine received "fast
track"  designation by FDA, an FDA opinion is expected by the end of Q4 calendar
2004 or early January 2005. Further, we expect an opinion from the


                                      2
<PAGE>


EMEA by Q2 of calendar  2005. As indicated in the previous  paragraph,  ILEX has
the rights to market clofarabine in the cancer market in the U.S. and Canada and
we would receive a royalty on U.S. and Canadian annual net sales.

         In Europe,  we facilitated  an  Investigator  Sponsored  Trial (IST) of
clofarabine,  as first line therapy for older adult  patients with Acute Myeloid
Leukemia  (AML).  The IST was  closed to  recruitment  in August  2004  ahead of
schedule  due to the studies'  objective  response  rates having been  exceeded.
Building  upon  these  results,   the  European,   Pivotal  Phase  II  study  of
clofarabine, as a first-line treatment for older adult patients, newly diagnosed
with AML,  has been  initiated  and we expect to complete  the Pivotal  Phase II
trial by mid 2005.

         Additionally, clofarabine is currently being evaluated in several Phase
II clinical trials for a range of  hematological  cancers.  Both the intravenous
and oral  formulations are also being evaluated in Phase I clinical trials for a
variety of solid tumors.

         Clofarabine  has received orphan drug status in the U.S. and in Europe,
which  provides ten years of marketing  exclusivity in Europe and seven years of
marketing  exclusivity  in the U.S.  Further,  in  August  2004,  FDA  granted a
six-month  extension  of  the  marketing  exclusivity  for  clofarabine  in  the
pediatric  acute leukemia  indication  (ALL and AML) as an incentive to increase
therapeutic research in children.

         ILEX is obligated  to pay us royalties on U.S. and Canadian  annual net
sales of  clofarabine  on a sliding  scale  from 5.25% to  11.25%.  The  minimum
royalty of 5.25%  applies to annual net sales of up to $30  million per year and
the maximum  11.25%  royalty  rate  applies to annual net sales at or above $500
million per year.  SRI  receives  royalties on the same scale of US and Canadian
annual net sales  from 3.5% to 7.5% from each of  Bioenvision  and ILEX.  We pay
royalties on our European annual net sales to each of SRI and ILEX in the amount
of 3.5% to 7.5% on the  same  scale  as  applies  to the  ILEX  royalty  payment
obligations  noted above.  ILEX also is responsible  for 50% of our research and
development  costs  associated  with  clofarabine  development  in the Territory
(worldwide outside of Japan and Southeast Asia) other than the US and Canada. We
are  entitled  to offset any  royalties  otherwise  due to ILEX if ILEX fails to
reimburse us for all of its 50% share of  clofarabine  research and  development
costs outside the U.S. and Canada.

         Under the terms of the agreement with Southern Research  Institute,  we
were granted the  exclusive  worldwide  license,  excluding  Japan and Southeast
Asia, to make,  use and sell products  derived from the  technology in all human
applications  for a term  expiring on the date of  expiration of the last patent
covered  by  the  license   (subject  to  earlier   termination   under  certain
circumstances),  and to utilize technical  information related to the technology
to obtain patent and other proprietary rights to products developed by us and by
Southern  Research   Institute  from  the  technology.   The  current  projected
expiration  date of the license is March 2021.  Together with ILEX, we currently
are  developing  clofarabine  for the treatment of leukemia,  lymphoma and solid
tumors.

         In August  2003,  SRI granted us an  irrevocable,  exclusive  option to
make,  use and  sell  clofarabine  in Japan  and  Southeast  Asia for all  human
applications.  We intend to convert  the option to a license  upon  sourcing  an
appropriate  co-marketing partner to develop these rights in Japan and Southeast
Asia.

         In Q4 calendar 2003 and Q1 calendar 2004, we and ILEX jointly developed
an oral  formulation for  clofarabine,  the rights and related costs to which we
share equally with ILEX.  Clofarabine has demonstrated good oral bioavailability
in clinical testing performed to date.

         Pre-clinical and clinical testing of clofarabine  demonstrated that the
drug has  anti-tumor  activity  against  a range of human  and  animal  cancers,
including hematological malignancies and several solid tumors. Approximately 420
cancer  patients have  participated  in clinical  testing to date.  Results from
clinical  studies  indicate that  clofarabine may be an effective  treatment for
relapsed  acute  leukemias  in adult and  pediatric  patients,  as well as acute
leukemias  in adult and  pediatric  patients  that  have  become  resistant,  or
refractory,  to prior  treatments.  According to  researchers  at M.D.  Anderson
Cancer  Center,  interim Phase II study  results  showed that 45% of adults with
acute  myelogenous  leukemia (AML) achieved a complete  remission (CR) rate, and
acute  lymphocytic  leukemia (ALL) patients  achieved a 20% CR rate when treated
with clofarabine as a single agent. Data from a separate Phase I dose-escalation
study  demonstrated  a 25% CR rate,  and an  overall  response  rate of 40%,  in
children with acute leukemias who were refractory to previous therapy. Trials in
pediatric  acute  leukemias  are  currently  ongoing in the U.S.  and in Europe.
Complete  remission,  in this context,  means complete clearance of all leukemic
cells  from the blood and  normalization  of the blood  count,  sustained  for a
period of more  than  four  weeks.  In this  context,  a  response,  or  partial
response,  has largely the same  meaning,  except that the bone marrow may still
contain more than five percent but less than 25% blast cells  (leukemic  cells).
CRp means,  in this context,  complete  clearance of all leukemic cells from the
blood in the  absence  of  platelet  recovery.  In the  U.S.,  Pivotal  Phase II
Clinical Trials were completed for the treatment of relapsed or refractory acute
leukemia in children and a NDA was filed with the FDA in March 2004,  based upon
the  results of 70 patients  enrolled  in these two  trials.  In August of 2004,
clinical  data on an  additional  cohort of 14 patients was submitted to the FDA
and of the aggregate


                                       3
<PAGE>


ALL group (n=49),  a 31% overall  response  rate was achieved (6 CRs,  4CRps and
5PRs) and of the  aggregate AML group  (n=35),  a 26% overall  response rate was
achieved (1CRp and 8PRs).

         Clofarabine appears to attack cancer cells in at least four ways:


         (1) damaging DNA in cancer cells;

         (2) preventing DNA repair by damaged cancer cells;

         (3) damaging  the  cancer  cell's  important  control   structures--the
             mitochondria; and

         (4) initiating  the process of  programmed  cell death  (apoptosis)  in
             cancer cells.

         Clofarabine  combines many of the favorable  properties of the two most
commonly used nucleoside analog drugs, fludarabine(R) and cladribine(R), but has
several-fold greater potency,  when compared to fludarabine(R),  at damaging the
DNA of leukemia cells.  Clofarabine appears to achieve this greater potency by a
process  of  breaking   DNA  chains  and   inhibiting   an   important   enzyme,
ribonucleotide  reductase.  Clofarabine distinguishes itself from other drugs by
its broader  activity;  in particular,  the manner in which it damages the cells
mitochondria and initiates the process of (apoptosis).  (See Blood 2000;  volume
96, page 3537).

         Purine  Nucleoside--Solid  Tumor. In pre-clinical  and Phase I clinical
tests,  clofarabine has shown anti-tumor activity against several human cancers,
including  cancers of the  colon,  kidney  and  prostate,  as well as its action
against  leukemic  cells.  This  activity  against  solid  tumors  distinguishes
clofarabine  from other  drugs in its class which have shown  relatively  little
activity against solid tumors.  We intend to develop  clofarabine as a potential
drug for the  treatment  of certain  solid  tumors,  such as colon and  prostate
cancer. The development strategy for clofarabine as a solid tumor agent will run
in conjunction with the program for  hematological  cancers,  but is expected to
take longer to complete  clinical trials and will require a different  marketing
approach.  Currently,  we  anticipate  the initial  Phase I clinical  trials for
clofarabine in solid tumors will be completed by end of Q4 calendar 2004.

         Cancer of the colon is one of the most  common  cancers in the  Western
world  with  approximately  200,000  new cases in the United  States  each year.
Surgery is the most successful  treatment for the primary tumor. Once the cancer
has spread the results of chemotherapy are disappointing and long-term  survival
figures have changed very little in the past 50 years. There is a great need for
an effective  chemotherapeutic  agent to treat this  disease,  and a huge market
potential  exists for any drug that can induce tumor regression in patients with
metastatic  colon cancer.  Prostate  cancer affects  181,000 new patients in the
United States each year.  Initial  treatment is directed at hormonal  control of
the disease,  but in the event control is not achieved,  chemotherapy usually is
required. We intend to develop clofarabine, or a derivative of clofarabine, as a
potential drug for the treatment of advanced colon and prostate cancer.

Modrenal(R)

         We have  the  exclusive  right to  market  and  distribute  Modrenal(R)
(trilostane)  throughout  the world for all human  applications.  Our  exclusive
license  expires  upon the last to  expire  of the  patents  used or  useful  in
connection  with the  marketing  of  Modrenal(R).  Given that we have new patent
applications  filed,  which are subject to  issuance,  we expect the last of our
underlying patents to expire in 2020.

         Modrenal(R)  is  currently  at market  in the  United  Kingdom  for the
treatment  of women  with  advanced,  post  menopausal  breast  cancer  who have
relapsed on prior endocrine  therapy.  We currently have a small commercial team
selling and marketing  Modrenal(R) in the United Kingdom, and we record revenues
accordingly.  In the  U.S.,  Modrenal(R)  is in Phase  II  clinical  studies  in
prostate cancer, and in Q4 calendar 2004, we intend to commence a Phase IV study
in  post-menopausal  breast cancer,  a Phase II study in  pre-menopausal  breast
cancer and a neo-adjuvent,  pre-operative  breast cancer study, in each case, in
the U.K. In Europe,  in the large  commercial  markets  outside of the U.K.,  we
intend  to  file  for  mutual  recognition  for  approval  of  Modrenal(R)  on a
country-by-country basis by Q2 of calendar 2005. Each such approval, if granted,
would  be  based  upon   Modrenal's(R)   approval  in  the  U.K.   for  advanced
post-menopausal  breast cancer.  The Company  anticipates such approval would be
granted within nine to twelve months  following  each such filing,  but grant of
such  approval  is  entirely  within the  control of the  individual  regulatory
authorities.

         Modrenal(R) has been  extensively  studied in controlled  trials in the
United States, Europe and Australia,  and almost 800 patients with breast cancer
have been treated with Modrenal(R). Of these 800 patients, 87 of them


                                       4
<PAGE>


were given the drug in the United States as part of an FDA-approved  trial.  Its
anti-tumor  activity  has been well  documented  and the drug has been  shown to
produce tumor response rates (i.e.  arrest the growth of the tumor) of up to 55%
in women with  hormone-sensitive  breast  cancer.  In a sub-set  analysis of the
clinical  trial data,  patients  with  hormone-sensitive  breast  cancer who had
responded to one or more hormonal  therapies were given Modrenal(R) upon relapse
of the cancer.  The response rate was above 40% in this group of patients.  This
compares very  favorably to currently  marketed  aromatase  inhibitors and other
agents,  such  as  herceptin,   given  as  second  line  therapy.   Furthermore,
Modrenal(R) has an acceptable  side-effect  profile. On the basis of these data,
Modrena(R)l  was  granted  a  product  license  in the  United  Kingdom  for the
treatment  of   post-menopausal   breast   cancer.   Modrenal(R)   is  currently
manufactured by third-party  contractors in accordance  with good  manufacturing
practices.  We have no plans to  establish  our own  manufacturing  facility for
Modrenal(R), but will continue to use third-party contractors.

         Our marketing launch for Modrenal(R) occurred in May 2003 in the United
Kingdom for use in the treatment of advanced  post-menopausal  breast cancer. We
also intend to seek regulatory  approval for Modrenal(R) in the United States as
salvage  therapy for  hormone-sensitive  breast cancers and hormone  independent
prostate cancers, but this strategy is dependent upon the results of the ongoing
clinical trials and the resource capability of the Company. The ongoing clinical
trials   in   breast   cancer   with   Modrenal   target   patients   that  have
hormone-sensitive   cancers  and  have  become   refractory   to  prior  hormone
treatments, such as Tamoxifen(R) or any of the aromatase inhibitors. The results
of 11  clinical  trails to date,  with a total of 783  patients  tested,  in the
United States, Europe and Australia with Modrenal(R) show that it is at least as
effective in second line or third line  treatment of advanced  breast  cancer as
the currently  available  hormonal  treatments,  such as the selective  estrogen
receptor modulators,  or SERMs, and aromatase inhibitors. In the view of several
clinicians  and  investigators  familiar  with  Modrenal's(R)  mode  of  action,
Modrenal(R) is most effective in certain specific  patient types,  such as those
who have become Tamoxifen(R)-refractory.  The ongoing Phase II clinical trial of
Modrenal  in  prostate  cancer  in the U.S.  targets  patients  who have  become
androgen independent and have a rising PSA level.

Non-Cancer Product Portfolio
----------------------------

Our non-cancer product portfolio is as follows:

      OLIGON(R) Technology

         With the acquisition of Pathagon in February 2002, we acquired patents,
technology  and  technology   patents   relating  to  OLIGON(R)   anti-infective
technology,  and have licensed rights from Oklahoma Medical Research  Foundation
to the use of thiazine dyes,  including methylene blue, for other anti-infective
uses.

         The OLIGON(R)  technology is based on the  antimicrobial  properties of
silver  ions.  The broad  spectrum  activity  of silver ions  against  bacteria,
including  antibiotic-resistant  strains, has been known for decades.  OLIGON(R)
materials have  application  in a wide range of devices and products,  including
vascular access  devices,  urology  catheters,  pulmonary  artery  catheters and
thoracic devices, renal dialysis catheters, orthopedic devices and several other
medical and consumer  product  applications.  One  application  of the OLIGON(R)
technology has been licensed to a third party, which is currently  marketing the
technology in its line of short-term vascular access catheters.

         Six U.S.  patents for the  OLIGON(R)  technology  have been granted and
additional  patents  have been filed.  In  addition,  patents have been filed in
Europe, Canada and Japan.

         The  OLIGON(R)  technology   specifically   targets   hospital-acquired
infections  which are occurring on an  ever-increasing  rate.  Hospital-acquired
infections  were the  eleventh  leading  cause  of  death  in 2000  and  related
treatment  costs to the health care industry  exceeded  $5.5 billion.  Infection
rates  are  comparable  in  Europe  and even  higher  in  developing  countries.
According to the U.S. Center for Disease  Control,  the U.S.  healthcare  system
spends an estimated $5 billion per year  treating  hospital-acquired  infections
resulting from medical devices,  approximately 87% of which is spent just on the
treatment of infections caused by infected catheters.  OLIGON(R) devices will be
marketed as next generation products into large existing markets.

         Methylene Blue Technology

         We have licensed from Oklahoma Medical  Research  Foundation the rights
to use a range of thiazine dyes, the most well known of which is methylene blue,
for the in vitro and in vivo  inactivation  of pathogens in  biological  fluids.
Methylene  blue,  especially  when  irradiated  by  light,  acts  by  preventing
replication  of nucleic acid (DNA and RNA) in  pathogens.  Currently,  we do not
derive any revenues from its commercial use.


                                       5
<PAGE>


         Blood   transfusions  are  required  to  treat  a  variety  of  medical
conditions  and, to meet that need,  over 90 million blood  donations occur each
year.  Of these,  approximately  39 million  donations  occur in North  America,
Western Europe and Japan.  Methylene blue is currently used in several  European
countries to inactivate  pathogens in fresh frozen  plasma  (FFP).  We intend to
work closely with international  blood collection agencies to maximize the value
of our intellectual property position.

      Gene Therapy Technology

         Our product  portfolio also includes a variety of gene therapy products
which, we believe,  may offer  advancements in the field of cancer treatment and
may  have  additional  applications  in  certain  non-cancer  diseases  such  as
diabetes,  cystic  fibrosis  and  other  auto-immune  disorders.  Pursuant  to a
co-development  agreement  with the Royal Free and  University  College  Medical
School and a Canadian  biotechnology  company,  we are  developing  gene  vector
technologies  which,  based on pre-clinical  research and early Phase I clinical
trials,  we believe have  potential in a wide array of clinical  conditions.  To
date, the technology has undergone small-scale clinical testing with the albumin
and  thrombopoietin  genes.  The  results  showed the  technology  is capable of
producing a prolonged  elevation in serum albumin levels in cancer and cirrhosis
patients with  hypo-albuminemia,  a serious  physiological  disorder. We believe
this has  considerable  market potential since low albumin levels are considered
to be very  dangerous  consequences  of many diseases,  including  cirrhosis and
liver cancer.

      Cytostatic Technology

         We have  acquired a license to  develop a distinct  group of  compounds
that we believe could play an important role in  controlling  the rate of growth
of cancer cells. In some cancers,  such as cancer of the bladder and skin, drugs
that stop cell growth  (cytostatics)  can be as effective as drugs that kill the
cell by direct toxicity (cytotoxics). The cytostatic drugs we are developing are
believed to work by blocking cell  division and reversing the malignant  process
in the cancer cell. The first compound is a drug derived from a naturally  grown
plant, which has been widely tested for a variety of clinical  indications.  The
results of this  testing  have been  published  in the  medical  literature.  In
particular,  the drug has  shown  efficacy  against  certain  cancers  by, it is
believed,  preventing  cell division and  promoting  cell  differentiation.  The
isomer is more active and, we believe,  less toxic, than the  racemic  compound,
and the planned Phase I trial will be conducted with the optical isoform.

         We plan to develop  more potent  analogs and to study their role in the
process  of cell  differentiation  and the  prevention  of the  spread of cancer
cells. The first compound derived from this technology is currently approved for
a Phase I clinical trial at a leading United Kingdom cancer center.

      Animal Health Products

         We also have one animal health  product,  Veteryl(R),  at market in the
United Kingdom for the treatment of Cushing's disease in dogs. In November 2001,
we granted to Arnolds Ltd., a major distributor of animal products in the United
Kingdom,  the right to market the drug for a six-month trial period, after which
time,  if the  results  were  satisfactory  to  Arnolds,  we would  enter into a
licensing  arrangement  whereby  Arnolds would pay royalties to us on sales from
April 2002 onward. During the trial period, Arnolds posted more than $400,000 of
sales of the drug.  Arnolds has licensed the drug from us for sale in the United
Kingdom  market  in  consideration  of  a  payment  of a 5%  royalty  on  sales.
Separately, in May 2003, we granted to Dechra Pharmaceuticals, PLC, an affiliate
of Arnolds Ltd., the exclusive right to market the drug in the United States for
$5.5 million of total consideration (including milestone payments) and a royalty
of 2%-4% of annual net sales.

Patents and Proprietary Rights

         Our  success  will  depend,  in part,  upon our  ability  to obtain and
enforce  protection for our products under United States and foreign patent laws
and other intellectual  property laws, preserve the confidentiality of our trade
secrets and operate without  infringing the proprietary rights of third parties.
Our policy is to file patent  applications  in the United States and/or  foreign
jurisdictions  to  protect  technology,   inventions  and  improvements  to  our
inventions  that are  considered  important to the  development of our business.
Also,  we will rely  upon  trade  secrets,  know-how,  continuing  technological
innovations and licensing opportunities to develop a competitive position.

         Through our current license  agreements,  we have acquired the right to
utilize  the   technology   covered  by  several   issued   patents  and  patent
applications,  as well as  additional  intellectual  property and know-how  that
could be the subject of further patent  applications in the future.  We evaluate
the desirability of seeking patent or other forms of protection for our products
in  foreign  markets  based on the  expected  costs  and  relative  benefits  of


                                       6
<PAGE>


attaining  this  protection.  There can be no assurance that any patents will be
issued from any  applications  or that any issued  patents will afford  adequate
protection to us.  Further,  there can be no assurance  that any issued  patents
will not be  challenged,  invalidated,  infringed  or  circumvented  or that any
rights granted thereunder will provide competitive advantages to us. Parties not
affiliated  with us have obtained or may obtain United States or foreign patents
or possess or may possess proprietary rights relating to our products. There can
be no assurance that patents now in existence or hereafter issued to others will
not adversely  affect the  development or  commercialization  of our products or
that our planned activities will not infringe patents owned by others.

         As a result  of the  licenses  described  above,  we are the  exclusive
licensee or sublicensee of three United States  patents  expiring in 2005,  2008
and 2014 relating to compounds,  pharmaceutical  compositions and methods of use
encompassing   clofarabine.   We  have  also  filed  two  United  States  patent
applications relating to the use of clofarabine in autoimmune diseases. Although
the  composition  of matter  patents  to  trilostane  have  expired,  we are the
exclusive  licensee of several  United  States and foreign  patent  applications
relating to the use of trilostane alone or in combination with anticancer agents
and the exclusive licensee to a manufacturing process patent for trilostane.

         We could incur substantial costs in defending ourselves in infringement
suits  brought  against  us  or  any  of  our  licensors  or  in  asserting  any
infringement  claims  that we may  have  against  others.  We could  also  incur
substantial  costs in connection with any suits relating to matters for which we
have agreed to indemnify our licensors or  distributors.  An adverse  outcome in
any  litigation  could  have a  material  adverse  effect  on our  business  and
prospects. In addition, we could be required to obtain licenses under patents or
other proprietary rights of third parties. No assurance can be given that any of
these licenses would be made available on terms  acceptable to us, or at all. If
we are  required  to,  and do not  obtain  any  required  licenses,  we could be
prevented from, or encounter delays in,  developing,  manufacturing or marketing
one or more of our products.

         We also rely upon trade  secret  protection  for our  confidential  and
proprietary  information.  There  can  be no  assurance  that  others  will  not
independently  develop  substantially  equivalent  proprietary  information  and
techniques  or  otherwise  gain  access to our trade  secrets or  disclose  this
technology or that we can meaningfully protect our trade secrets.

         It is our policy to require our employees,  consultants, members of the
Scientific  Advisory  Board and parties to  collaborative  agreements to execute
confidentiality  agreements  upon the  commencement  of employment or consulting
relationships  or a  collaboration  with us. These  agreements  provide that all
confidential  information  developed  or made  known  during  the  course of the
relationship  with us is to be kept  confidential  and not  disclosed  to  third
parties  except  in  specific  circumstances.  In the  case  of  employees,  the
agreements  provide that all  inventions  resulting  from work performed for us,
utilizing our property or relating to our business and conceived or completed by
the individual during  employment shall be our exclusive  property to the extent
permitted by applicable law.

Sales and Marketing

         We intend to establish strategic partnerships for the marketing,  sales
and distribution of our products in certain  countries in Europe. As of the date
of this annual report on Form 10-KSB, we have one such arrangement in place with
Ilex for the  co-development  and marketing of one of our initial lead products,
clofarabine, and another arrangement with Edwards Lifesciences for the marketing
of short-term vascular access catheters using the OLIGON(R) technology.  We have
also  engaged in our own  marketing  and sales  efforts in  connection  with the
marketing  and sale of  Modrenal(R)  in the United  Kingdom and upon  regulatory
authorities'  granting mutual  recognition  with which we intend to apply during
calendar 2004 and 2005,  throughout Europe.  However,  in order to market any of
our  products  effectively,  we would need to  establish a much more  integrated
marketing and sales force with technical  expertise and distribution  capability
or  contract  with  other  pharmaceutical  and/or  health  care  companies  with
distribution systems and direct sales forces.

         Our marketing policy will be to generate  awareness of our products and
target the two key audiences  for our products - doctors and  patients.  Medical
education will be a priority,  with the use of  peer-opinion  leaders,  clinical
trials at major centers, satellite symposia and conferences, product advertising
in specific scientific  journals and trained sales personnel.  Patient education
is carefully  controlled  and is important to our  marketing  approach.  Patient
education is particularly  important because Modrenal(R),  our first product for
which we have obtained regulatory approval (in the United Kingdom) for marketing
for  use  in a  type  of  cancer  treatment,  is  effective  for  patients  with
post-menopausal  breast  cancer,  one of the most  common  cancers in women.  In
particular,  the drug is approved as follow-on  treatment  for patients who have
previously responded to hormonal therapy.


                                       7
<PAGE>


         If the trials of trilostane  in prostate  cancer prove  successful,  we
will have a drug for treating a cancer found in  approximately  180,000 men each
year in the United  States.  We will work with  patient  help  organizations  to
inform the lay public through consumer journals and television.

Manufacturing

         We do not have and do not  intend to  establish  any  internal  product
testing,  manufacturing or distribution  capabilities.  Our strategy is to enter
into  collaborative  arrangements with other companies for the clinical testing,
manufacture and distribution of the products. Manufacturers of our products will
be subject to Good Manufacturing  Practices prescribed by the FDA or other rules
and regulations prescribed by foreign regulatory authorities.

Research and Development

         In developing new products, we consider a variety of factors including:
(i) existing or potential marketing  opportunities for these products;  (ii) our
capability  to arrange for these  products to be  manufactured  on a  commercial
scale;  (iii) whether or not these products  complement  our existing  products;
(iv) the  opportunities  to leverage  these  products  with the  development  of
additional products;  and (v) the ability to develop co-marketing  relationships
with  pharmaceutical  and/or other  companies  with respect to the products.  We
intend to fund future research and development activities at a number of medical
and scientific  centers in Europe and the United States.  Costs related to these
activities are expected to include:  clinical trial  expenses;  drug  production
costs; salaries and benefits of scientific, clinical and other personnel; patent
protection  costs;  analytical and other testing costs;  professional  fees; and
insurance and other administrative  expenses. We currently have three scientists
currently  working  on a  full-time  basis  who are  involved  in  research  and
development activities. We have spent approximately $4,883,000 and $1,689,000 on
research and development activities in 2004 and 2003, respectively.

Government Regulation

         The  FDA  and  comparable   regulatory  agencies  in  state  and  local
jurisdictions and in foreign countries impose substantial  requirements upon the
clinical  development,  manufacture  and marketing of  pharmaceutical  products.
These agencies and other federal, state and local entities regulate research and
development activities and the testing,  manufacture,  quality control,  safety,
effectiveness,  labeling,  storage,  record keeping,  approval,  advertising and
promotion of our drug delivery products.

         The process  required by the FDA under the new drug  provisions  of the
Federal Food,  Drug and Cosmetics Act before our products may be marketed in the
United States generally  involves the following:

         o   pre-clinical laboratory and animal tests;

         o   submission to the FDA of an  investigational  new drug application,
             or IND,  which must become  effective  before  clinical  trials may
             begin;

         o   adequate and well-controlled human clinical trials to establish the
             safety and efficacy of the proposed  pharmaceutical in our intended
             use;

         o   submission to the FDA of a new drug application; and

         o   FDA review and approval of the new drug application.

         The testing and approval process requires substantial time, effort, and
financial  resources  and we cannot be certain that any approval will be granted
on a timely basis, if at all.

         Pre-clinical  tests include laboratory  evaluation of the product,  its
chemistry,  formulation  and stability,  as well as animal studies to assess the
potential  safety and efficacy of the product.  The results of the  pre-clinical
tests,  together  with  manufacturing   information  and  analytical  data,  are
submitted to the FDA as part of an IND,  which must become  effective  before we
may begin human clinical trials. The IND automatically becomes effective 30 days
after receipt by the FDA, unless the FDA, within the 30-day time period,  raises
concerns or questions about the conduct of the trials as outlined in the IND and
imposes  a  clinical  hold.  In such a case,  the IND  sponsor  and the FDA must
resolve any outstanding  concerns before clinical trials can begin.  There is no
certainty  that  pre-clinical  trials will result in the submission of an IND or
that submission of an IND will result in FDA  authorization to commence clinical
trials.


                                       8
<PAGE>


         Clinical  trials  involve  the  administration  of the  investigational
product  to human  subjects  under  the  supervision  of a  qualified  principal
investigator.  Clinical  trials are conducted in accordance  with protocols that
detail the objectives of the study,  the parameters to be used to monitor safety
and the efficacy  criteria to be  evaluated.  Each protocol must be submitted to
the FDA as part of the IND. Further, each clinical study must be conducted under
the auspices of an  independent  institutional  review board at the  institution
where the study will be conducted. The institutional review board will consider,
among  other  things,  ethical  factors,  the safety of human  subjects  and the
possible liability of the institution.

         Human  clinical  trials are  typically  conducted  in three  sequential
         phases which may overlap:

         o   PHASE  I: The  drug is  initially  introduced  into  healthy  human
             subjects  or  patients  and tested for  safety,  dosage  tolerance,
             absorption, metabolism, distribution and excretion;

         o   PHASE II: Studies are conducted in a limited patient  population to
             identify  possible short term adverse  effects and safety risks, to
             determine  the  efficacy  of  the  product  for  specific  targeted
             diseases and to determine dosage tolerance and optimal dosage;

         o   PHASE  III:  Phase III trials are  undertaken  to further  evaluate
             clinical  efficacy  and to further  test for safety in an  expanded
             patient  population,  often at  geographically  dispersed  clinical
             study sites.  Phase III or IIb/III  trials are often referred to as
             pivotal  trials,  as they  are  used for the  final  approval  of a
             product.

         In the case of products for  life-threatening  diseases such as cancer,
the initial  human testing is often  conducted in patients  with disease  rather
than in healthy  volunteers.  Since these  patients  already  have the  targeted
disease or  condition,  these studies may provide  initial  evidence of efficacy
traditionally  obtained  in Phase II trials and so these  trials are  frequently
referred to as Phase I/II trials. We cannot be certain that we will successfully
complete Phase I, Phase II or Phase III testing of our product candidates within
any specific time period, if at all. Furthermore, we, the FDA, the institutional
review board or the sponsor may suspend  clinical  trials at any time on various
grounds,  including a finding that the subjects or patients are being exposed to
an unacceptable health risk.

         The results of product  development,  pre-clinical studies and clinical
studies are submitted to the FDA as part of a new drug  application for approval
of the marketing and commercial shipment of the product.  The FDA may deny a new
drug application if the applicable  regulatory criteria are not satisfied or may
require additional clinical data. Even if the additional data is submitted,  the
FDA may  ultimately  decide that the new drug  application  does not satisfy the
criteria for approval.  Once issued,  the FDA may withdraw  product  approval if
compliance  with  regulatory  standards for production and  distribution  is not
maintained or if safety problems occur after the product reaches the market.  In
addition,  the FDA requires  surveillance  programs to monitor approved products
which have been commercialized,  and the agency has the power to require changes
in labeling or to prevent further marketing of a product based on the results of
these post-marketing programs.

         The FDA has a Fast Track program intended to facilitate the development
and expedite the review of drugs that demonstrate the potential to address unmet
medical needs for  treatment of serious or  life-threatening  conditions.  Under
this program,  if the FDA determines  from a preliminary  evaluation of clinical
data that a fast track product may be effective,  the FDA can review portions of
a new drug application for a Fast Track product before the entire application is
complete, and undertakes to complete its review process within six months of the
filing of the new drug application. The FDA approval of a Fast Track product can
include restrictions on the product's use or distribution such as permitting use
only for specified medical procedures or limiting  distribution to physicians or
facilities  with special  training or expertise.  The FDA may grant  conditional
approval of a product  with Fast Track  status and require  additional  clinical
studies following approval.

         Satisfaction  of FDA  requirements  or similar  requirements  of state,
local and foreign  regulatory  agencies  typically  takes  several years and the
actual time required may vary substantially, based upon the type, complexity and
novelty  of the  pharmaceutical  product.  Government  regulation  may  delay or
prevent  marketing of potential  products for a considerable  period of time and
impose costly  procedures upon our activities.  Success in pre-clinical or early
stage clinical  trials does not assure  success in later stage clinical  trials.
Data from pre-clinical and clinical  activities is not always conclusive and may
be susceptible to varying  interpretations  which could delay,  limit or prevent
regulatory  approval.  Even  if a  product  receives  regulatory  approval,  the
approval may be significantly  limited to specific  indications.  Further,  even
after the FDA approves a product, later discovery of previously unknown problems
with a product  may  result in  restrictions  on the  product  or even  complete
withdrawal of the product from the market.


                                       9
<PAGE>


         Any  products  manufactured  or  distributed  under FDA  clearances  or
approvals  are  subject  to  pervasive  and  continuing  regulation  by the FDA,
including record-keeping  requirements and reporting of adverse experiences with
the  products.  Drug  manufacturers  and their  subcontractors  are  required to
register  with  the  FDA  and  state  agencies,  and  are  subject  to  periodic
unannounced  inspections by the FDA and state agencies for compliance  with good
manufacturing practices,  which impose procedural and documentation requirements
upon manufacturers and their third party manufacturers

         We are subject to numerous other federal, state and local laws relating
to  such  matters  as  safe   working   conditions,   manufacturing   practices,
environmental  protection,  fire hazard  control,  and  disposal of hazardous or
potentially hazardous substances.  We may incur significant costs to comply with
such laws and regulations now or in the future.  In addition,  we cannot predict
what adverse  governmental  regulations  may arise from future  United States or
foreign governmental action.

         We also are subject to foreign regulatory  requirements governing human
clinical trials and marketing approval for pharmaceutical products which we sell
outside the United States.  The  requirements  governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country.  Whether or not we obtain FDA  approval,  we must obtain  approval of a
product by the comparable  regulatory  authorities of foreign  countries  before
manufacturing or marketing the product in those countries.  The approval process
varies from  country to country and the time  required for these  approvals  may
differ  substantially from that required for FDA approval.  We cannot assure you
that  clinical  trials  conducted  in one  country  will be  accepted  by  other
countries  or that  approval in one country will result in approval in any other
country.  For clinical trials conducted outside the United States,  the clinical
stages   generally  are  comparable  to  the  phases  of  clinical   development
established by the FDA.

Competition

         Product Development

         The  pharmaceutical  industry  is  characterized  by  rapidly  evolving
technology and intense  competition.  Many  companies of all sizes,  including a
number  of  large  pharmaceutical  companies  as  well  as  several  specialized
biotechnology  companies, are developing cancer drugs similar to ours. There are
products on the market that will compete  directly with the products that we are
seeking to develop. In addition, colleges, universities, government agencies and
other public and private research institutions will continue to conduct research
and are  becoming  more  active  in  seeking  patent  protection  and  licensing
arrangements  to collect  license  fees,  milestone  payments  and  royalties in
exchange for license rights to technologies  that they have  developed,  some of
which  may  directly  compete  with  our   technologies.   These  companies  and
institutions also compete with us in recruiting qualified scientific  personnel.
Many of our  competitors  have  substantially  greater  financial,  research and
development,   human  and  other  resources  than  we  do.  Furthermore,   large
pharmaceutical  companies  have  significantly  more  experience  than  we do in
preclinical  testing,  human clinical trials and regulatory approval procedures.
Our competitors may develop safer or more effective  products than ours,  obtain
patent  protection  or  intellectual  property  rights that limit our ability to
commercialize products, or commercialize products more quickly than we can.

         We expect technology  developments in our industry to continue to occur
at a rapid pace.  Commercial  developments by our competitors may render some or
all  of  our  potential  products  obsolete  or  non-competitive,   which  would
materially harm our business and financial condition.

Employees

         As of June 30, 2004, we had nine full-time employees and four dedicated
professionals,  three of which are  contracted  to an academic  institution.  Of
these,  three  are in  management,  two  are  in  sales/marketing,  four  are in
administration  and  four  are in  research  and  development.  We  believe  our
relationships with our employees are satisfactory.

Corporate History

         We were  incorporated  as Express  Finance,  Inc. under the laws of the
State of Delaware on August 16, 1996, and changed our name to Ascott Group, Inc.
in August 1998 and further to Bioenvision,  Inc. in December 1998, at which time
the Company merged with Bioenvision,  Inc, a development stage Company primarily
engaged in the research and  development  of products and  technologies  for the
treatment of cancer.


                                       10
<PAGE>


         On February 1, 2002, we completed the acquisition of Pathagon Inc., the
successor in interest to Bridge Blood  Technologies  L.L.C.,  d/b/a Pathagon,  a
non-public company focused on the development of novel  anti-infective  products
and technologies.  Pathagon's principal products,  OLIGON(R) and methylene blue,
are ready for market.  Affiliates  of SCO Capital  Partners  LLC,  formerly  our
financial   advisor  and  consultant,   owned  82%  of  Pathagon  prior  to  the
acquisition.  We acquired 100% of the outstanding shares of Pathagon in exchange
for 7,000,000 shares of our common stock. The acquisition has been accounted for
as a  purchase  business  combination  in  accordance  with SFAS  141.  With the
acquisition,  we added rights to  OLIGON(R)  and  methylene  blue to our product
portfolio.

Factors that May Affect Our Business

         You should carefully  consider the following risks before you decide to
buy our common stock. Our business, financial condition or operating results may
suffer if any of the events  described in the  following  risk factors  actually
occur. All known risks are presented in this annual report on Form 10-KSB. These
risks may  adversely  affect our  business,  financial  condition  or  operating
results. If any of the events we have identified occur, the trading price of our
common stock could  decline,  and you may lose all or part of the money you paid
to buy our common stock.

The price of our common stock is likely to be volatile and subject to wide
fluctuations

         The market price of the securities of biotechnology  companies has been
especially volatile.  Thus, the market price of our common stock is likely to be
subject to wide  fluctuations.  For the twelve month period ended  September 16,
2004,  our  closing  stock  price has  ranged  from a high of $11.75 to a low of
$3.00.  If our revenues do not grow or grow more slowly than we anticipate,  or,
if  operating  or capital  expenditures  exceed our  expectations  and cannot be
adjusted  accordingly,  or if some other event adversely  affects us, the market
price of our  common  stock  could  decline.  In  addition,  if the  market  for
pharmaceutical  and  biotechnology   stocks  or  the  stock  market  in  general
experiences a loss in investor  confidence or otherwise  fails, the market price
of our common stock could fall for reasons unrelated to our business, results of
operations  and  financial  condition.  The market price of our stock also might
decline in reaction to events that affect other  companies in our industry  even
if these  events do not  directly  affect us. In the past,  companies  that have
experienced  volatility in the market price of their stock have been the subject
of  securities  class  action  litigation.  If we were to become the  subject of
securities class action  litigation,  it could result in substantial costs and a
diversion of management's attention and resources.

Certain events could result in a dilution of your ownership of our common stock

         As of  June  30,  2004,  we  had  28,316,163  shares  of  common  stock
outstanding,   3,341,666   shares  of  Series  A  Convertible   Preferred  Stock
outstanding  which are currently  convertible  into  6,683,332  shares of common
stock and  common  stock  equivalents,  including  warrants  and stock  options,
convertible  or  exercisable  into  13,674,242  shares of our common stock.  The
exercise and conversion  prices of the common stock equivalents range from $0.74
to $8.25 per share. We have also reserved for issuance an aggregate of 3,000,000
shares of common stock for a stock option plan for our employees.  Historically,
from time to time,  we have awarded our common stock to officers of the Company,
in lieu of cash compensation,  although we do not expect to do so in the future.
As of June 30, 2004, (i) we have  37,750,699  shares of common stock  registered
under  the  Securities  Act on Form  SB-2 and (ii) the sale of  shares of common
stock  underlying  4,500,000  options are registered under the Securities Act on
Form S-8. The future resale of these shares and shares  underlying stock options
and  warrants  will result in a dilution  to your  percentage  ownership  of our
common stock and could adversely affect the market price of our common stock.

         The  terms  of  our  Series  A  Convertible   Preferred  Stock  include
antidilution  protection  upon the occurrence of sales of our common stock below
certain   prices,   stock  splits,   redemptions,   mergers  and  other  similar
transactions.  If one or more of these events occurs the number of shares of our
common stock that may be acquired upon conversion or exercise would increase. If
converted  or  exercised,  these  securities  will  result in a dilution to your
percentage  ownership of our common  stock.  The resale of many of the shares of
common stock which underlie these options and warrants are registered under this
prospectus and the sale of such shares may adversely  affect the market price of
our common stock.


                                       11
<PAGE>


The provisions of our charter and Delaware law may inhibit potential acquisition
bids that  stockholders  may believe are desirable,  and the market price of our
common stock may be lower as a result

Section 203 of the Delaware corporate statute

         We are subject to the  anti-takeover  provisions  of Section 203 of the
Delaware corporate statute, which regulates corporate acquisitions.  Section 203
may  affect  the  ability of an  "interested  stockholder"  to engage in certain
business  combinations,  including  mergers,  consolidation  or  acquisitions of
additional  shares,  for a period  of three  years  following  the time that the
stockholder becomes an "interested stockholder".  An "interested stockholder" is
defined to include  persons  owning  directly or  indirectly  15% or more of the
outstanding  voting stock of a corporation.  These  provisions  could discourage
potential  acquisition  proposals and could delay or prevent a change in control
transaction.  They could also have the effect of discouraging others from making
tender offers for our common stock.  As a result,  these  provisions may prevent
our stock price from increasing  substantially  in response to actual or rumored
takeover attempts. These provisions may also prevent changes in our management.

Issuance of Preferred Stock Without Common Stockholder Approval.

         Our charter  authorizes our board of director to increase the number of
shares of preferred stock we may issue without approval of common  stockholders.
Preferred  stock may be issued in one or more series,  the terms of which may be
determined  without  further  action by  common  stockholders.  These  terms may
include preferences,  conversion or other rights,  voting powers,  restrictions,
limitations  as  to  dividends,   qualifications   or  terms  or  conditions  of
redemption.  The  issuance of any  preferred  stock could  materially  adversely
affect the rights of holders of our common stock, and therefore could reduce its
value. In addition, specific rights granted to future holders of preferred stock
could be used to restrict our ability to merge with,  or sell assets to, a third
party.  The power of the board of directors to issue  preferred stock could make
it more difficult, delay, discourage,  prevent or make it more costly to acquire
or effect a change in control,  thereby  preserving  the  current  stockholders'
control.

We have a limited  operating  history,  which makes it difficult to evaluate our
business and to predict our future operating results

         Since our inception,  August of 1996, we have been primarily engaged in
organizational  activities,  including  developing a strategic  operating  plan,
entering into various  collaborative  agreements for the development of products
and technologies,  hiring personnel and developing and testing our products.  We
have not  generated  any  material  revenues  to date.  Accordingly,  we have no
relevant  operating  history upon which an  evaluation  of our  performance  and
prospects can be made.

We have incurred net losses since commencing business and expect future losses

         To date, we have incurred significant net losses,  including net losses
of  approximately  $11,574,000  for the fiscal year ended June 30, 2004. At June
30,  2004,  we had an  accumulated  deficit  of  approximately  $41,082,000.  We
anticipate that we may continue to incur  significant  operating  losses for the
foreseeable   future.  We  may  never  generate  material  revenues  or  achieve
profitability  and,  if we do  achieve  profitability,  we may  not be  able  to
maintain profitability.

Clinical  trials for our products will be expensive  and may be time  consuming,
and their outcome is uncertain,  but we must incur substantial expenses that may
not result in viable products

         Before  obtaining  regulatory  approval  for the  commercial  sale of a
product,  we must demonstrate through  pre-clinical  testing and clinical trials
that a product  candidate is safe and  effective  for use in humans.  Conducting
clinical  trials is a lengthy,  time-consuming  and expensive  process.  We will
incur  substantial  expense  for,  and  devote a  significant  amount of time to
pre-clinical  testing  and  clinical  trials.  Even with  Modrenal(R),  which is
approved  and  marketed  by us in  the  U.K.  for  the  treatment  of  advanced,
post-menopausal  breast  cancer,  we are conducting a Phase II Clinical Trial in
the U.S. in prostate  cancer and a Phase II Clinical  Trial in the U.K.  for the
treatment of  pre-menopausal  breast  cancer,  each of which is a new  potential
indication for this approved drug.

         Historically,  the results from pre-clinical testing and early clinical
trials have often not been  predictive  of results  obtained  in later  clinical
trials.  A number of new drugs have shown promising  results in clinical trials,
but  subsequently  failed to establish  sufficient  safety and efficacy  data to
obtain  necessary  regulatory  approvals.  Data obtained from  pre-clinical  and
clinical activities are susceptible to varying interpretations, which may delay,
limit or


                                       12
<PAGE>


prevent regulatory approval.  Regulatory delays or rejections may be encountered
as a result of many factors,  including  changes in regulatory policy during the
period of product  development.  Regulatory  authorities may require  additional
clinical  trials,   which  could  result  in  increased  costs  and  significant
development  delays.  Clofarabine  currently  is  at  a  pivotal  stage  of  its
development, but many of our other products and technologies are at various less
mature  stages  of  development  including  l-gossypol  for  which we have  just
commenced  a Phase I  clinical  trial in the  U.K.  and  gene  therapy  which is
currently in pre-clinical and phase I clinical testing.

         Completion of clinical trials for any product may take several years or
more. The length of time generally varies  substantially  according to the type,
complexity,  novelty and intended use of the product candidate. Our commencement
and rate of  completion  of  clinical  trials may be  delayed  by many  factors,
including:

          o    inability  of vendors to  manufacture  sufficient  quantities  of
               materials for use in clinical trials;

          o    slower than expected rate of patient  recruitment  or variability
               in the number and types of patients in a study;

          o    inability  to  adequately  follow  patients  after  treatment;

          o    unforeseen safety issues or side effects;

          o    lack of efficacy during the clinical  trials;  or

          o    government or regulatory delays.

If our development agreement with ILEX does not proceed as planned we may incur
delay in the commercialization of clofarabine, which would delay our ability to
generate sales and cash flow from the sale of Clofarabine

         ILEX,  and any third party to which ILEX may grant a  sublicense  or in
any way transfer its  obligations,  has primary  responsibility  for  conducting
clinical trials and administering  regulatory compliance and approval matters in
the  United  States  and  Canada  pursuant  to the  terms of our  co-development
agreement with ILEX. While there are target dates for completion, that agreement
allows  ILEX  time  to  continue   working  beyond  those  dates  under  certain
circumstances.  For  example,  under  the  co-development  agreement,  ILEX  was
required to complete  Pivotal  Phase II Trials not later than December 31, 2002,
but  ILEX  failed  to do so.  In this  situation  the  co-development  agreement
provides that the milestone  shall be adjusted such that ILEX receives more time
to complete  the pivotal  trials if the trials are ongoing at December  31, 2002
and progressing to completion within a reasonable time thereafter. Further, ILEX
was  required  under  the  co-development  agreement  to have  filed a New  Drug
Application  by August 31, 2003,  subject to extension if ILEX  continues to use
its  reasonable  efforts to promptly  complete the filing after August 31, 2003.
ILEX continued to use its reasonable efforts to complete the filing after August
31, 2003 and in October 2003,  Ilex filed the first part of a "rolling NDA" with
the FDA.

         If  ILEX  fails  to  meet  its  obligations  under  the  co-development
agreement,   we  could  lose  valuable  time  in  developing   clofarabine   for
commercialization  both in the U.S. and in Europe.  We can not provide assurance
that  ILEX  will not  fail to meet  its  obligations  under  the  co-development
agreement.  Development of compounds to the stage of approval  includes inherent
risk at each stage of development  that FDA, in its  discretion,  will mandate a
requirement not foreseeable by us or by ILEX. There would also be testing delays
if, for example, our sources of drug supply could not produce enough clofarabine
to support the then ongoing  clinical  trials being  conducted.  If this were to
occur,  it could  have a  material  adverse  effect on our  ability  to  develop
clofarabine,  obtain necessary regulatory approvals, and generate sales and cash
flow from the sale of clofarabine.

         If  delays  in  completion  constitute  a breach  by ILEX or there  are
certain other  breaches of the  co-development  agreement by ILEX,  then, at our
discretion,  the primary  responsibility  for completion would revert to us, but
there is no assurance that we would have the financial,  managerial or technical
resources to complete such tasks in timely fashion or at all.

We have limited experience in developing products and may be unsuccessful in our
efforts to develop products

         To  achieve  profitable  operations,  we,  alone or with  others,  must
successfully  develop,  clinically  test,  market and sell our products.  We are
developing clofarabine with ILEX Oncology, our U.S.  co-development partner, but
on February  26,  2004,  Genzyme  announced a merger  pursuant to which  Genzyme
intends  to  acquire


                                       13
<PAGE>


ILEX in a merger transaction.  If this transaction is consummated,  no assurance
can be given that the  operational  and  managerial  relations with Genzyme will
proceed  favorably or that the timeline for development of clofarabine  will not
be  elongated.  If  the  U.S.  regulatory  timeline  is  elongated,  this  could
materially  and  adversely  affect  the  European  regulatory  timeline  for the
approval of clofarabine.

         With respect to our co-lead  drug,  Modrenal(R),  we currently  have an
Investigational  New  Drug  Application  filed  with FDA to  conduct  a Phase II
Clinical  Trial in the U.S. to  determine  efficacy of  Modrenal(R)  in prostate
cancer  patients.  This Phase II Clinical  Trial is being  conducted at the Mass
General  Hospital  in Boston,  MA. To our  knowledge,  Modrenal(R)  has not been
tested  in this  indication  in the  past and  there  can be no  assurance  that
Modrenal(R)  will be an  effective  therapy in  prostate  cancer.  Further,  our
long-term drug development objectives for Modrenal(R) include attempting to test
the drug and get approval in the U.S. for treatment of advanced  post-menopausal
breast cancer patients. These trials will take significant time and resource and
no  assurance  can be given that  developing  the drug in this  indication  will
result in a U.S.  approval for  Modrenal(R) in advanced  post-menopausal  breast
cancer patients.

         Generally,  most  products  resulting  from  our or  our  collaborative
partners' product  development efforts are not expected to be available for sale
for at least  several  years,  if at all.  Potential  products that appear to be
promising at early stages of  development  may not reach the market for a number
of reasons, including:

o    discovery during pre-clinical  testing or clinical trials that the products
     are ineffective or cause harmful side effects;

o    failure to receive necessary regulatory approvals;

o    inability to manufacture on a large or economically feasible scale;

o    failure to achieve market acceptance; or

o    preclusion from commercialization by proprietary rights of third parties.

         Most of the existing and future products and technologies  developed by
us will require extensive additional development, including pre-clinical testing
and   clinical   trials,   as   well   as   regulatory   approvals,   prior   to
commercialization. Our product development efforts may not be successful. We may
fail to receive required  regulatory  approvals from U.S. or foreign authorities
for any  indication.  Any products,  if introduced,  may not be capable of being
produced in  commercial  quantities at  reasonable  costs or being  successfully
marketed.  The failure of our research and  development  activities to result in
any  commercially  viable products or technologies  would  materially  adversely
affect our future prospects.

Our  industry is subject to  extensive  government  regulation  and our products
require other regulatory  approvals which makes it more expensive to operate our
business

         Regulation  in  General.  Virtually  all  aspects of our  business  are
regulated by federal and state statutes and governmental  agencies in the United
States and other  countries.  Failure to comply  with  applicable  statutes  and
government  regulations  could have a material  adverse effect on our ability to
develop and sell products  which would have a negative  impact on our cash flow.
The development, testing, manufacturing,  processing, quality, safety, efficacy,
packaging, labeling,  record-keeping,  distribution,  storage and advertising of
pharmaceutical  products,  and  disposal of waste  products  arising  from these
activities,  are subject to  regulation by one or more federal  agencies.  These
activities are also regulated by similar state and local agencies and equivalent
foreign  authorities.  In our  material  contracts  with vendors  providing  any
portion of these types of services,  we seek  assurances that our vendors comply
and  will  continue  to  maintain  compliance  with  all  applicable  rules  and
regulations.  This is the case, for example,  with respect to our contracts with
Ferro  Pfanstiehl and Penn  Pharmaceuticals.  No assurance can be given that our
most  significant   vendors  will  continue  to  comply  with  these  rules  and
regulations.

         FDA Regulation.  All pharmaceutical  manufacturers in the United States
are subject to  regulation  by the FDA under the  authority of the Federal Food,
Drug,  and Cosmetic  Act.  Under the Act, the federal  government  has extensive
administrative   and  judicial   enforcement   powers  over  the  activities  of
pharmaceutical  manufacturers to ensure  compliance with FDA regulations.  Those
powers include, but are not limited to the authority to:

o    initiate court action to seize unapproved or non-complying products;


                                       14
<PAGE>


o    enjoin non-complying activities;

o    halt manufacturing  operations that are not in compliance with current good
     manufacturing practices prescribed by the FDA;

o    recall products which present a health risk; and

o    seek civil monetary and criminal penalties.

         Other  enforcement   activities  include  refusal  to  approve  product
applications  or  the  withdrawal  of  previously  approved  applications.   Any
enforcement  activities,  including the  restriction  or prohibition on sales of
products marketed by us or the halting of manufacturing  operations of us or our
collaborators,  would have a material  adverse  effect on our ability to develop
and sell  products  which  would  have a negative  impact on our cash  flow.  In
addition, product recalls may be issued at our discretion or by the FDA or other
domestic  and  foreign  government  agencies  having  regulatory  authority  for
pharmaceutical product sales. Recalls may occur due to disputed labeling claims,
manufacturing   issues,   quality   defects   or  other   reasons.   Recalls  of
pharmaceutical  products  marketed  by us may occur in the  future.  Any product
recall could have a material adverse effect on our revenue and cash flow.

         FDA Approval Process.  We have a variety of products under development,
including  line  extensions  of existing  products,  reformulations  of existing
products  and  new  products.  All  "new  drugs"  must  be  the  subject  of  an
FDA-approved  new drug  application  before  they may be  marketed in the United
States. All generic equivalents to previously approved drugs or new dosage forms
of existing drugs must be the subject of an  FDA-approved  abbreviated  new drug
application before they may by marketed in the United States. In both cases, the
FDA has the authority to determine what testing procedures are appropriate for a
particular  product  and, in some  instances,  has not  published  or  otherwise
identified  guidelines  as to  the  appropriate  procedures.  The  FDA  has  the
authority to withdraw existing new drug application and abbreviated  application
approvals and to review the  regulatory  status of products  marketed  under the
enforcement  policy.  The FDA may require an approved  new drug  application  or
abbreviated  application  for any drug product  marketed  under the  enforcement
policy  if  new  information  reveals  questions  about  the  drug's  safety  or
effectiveness.  All drugs must be  manufactured  in conformity with current good
manufacturing practices and drugs subject to an approved new drug application or
abbreviated  application must be  manufactured,  processed,  packaged,  held and
labeled in accordance with information  contained in the new drug application or
abbreviated application.

         The required  product testing and approval process can take a number of
years and require  the  expenditure  of  substantial  resources.  Testing of any
product  under  development  may not  result in a  commercially-viable  product.
Further,  we may decide to modify a product in testing,  which could  materially
extend the test  period and  increase  the  development  costs of the product in
question.  Even after time and expenses,  regulatory approval by the FDA may not
be obtained for any products we develop.  In addition,  delays or rejections may
be  encountered  based upon  changes in FDA policy  during the period of product
development and FDA review.  Any regulatory  approval may impose  limitations in
the indicated use for the product.  Even if regulatory  approval is obtained,  a
marketed product, its manufacturer and its manufacturing  facilities are subject
to continual review and periodic inspections. Subsequent discovery of previously
unknown  problems  with a  product,  manufacturer  or  facility  may  result  in
restrictions on the product or manufacturer, including withdrawal of the product
from the market.

         Foreign  Regulatory  Approval.  Even if required  FDA approval has been
obtained  with respect to a product,  foreign  regulatory  approval of a product
must also be obtained  prior to marketing the product  internationally.  Foreign
approval  procedures  vary from  country to country  and the time  required  for
approval  may  delay or  prevent  marketing.  In  certain  instances,  we or our
collaborative partners may seek approval to market and sell some of our products
outside of the United States before  submitting an  application  for approval to
the FDA.  The  clinical  testing  requirements  and the time  required to obtain
foreign  regulatory  approvals  may differ from that  required for FDA approval.
Although there is now a centralized  European  Union approval  mechanism for new
pharmaceutical  products in place,  each European Union country may  nonetheless
impose its own procedures and requirements, many of which are time consuming and
expensive,  and some European Union countries  require price approval as part of
the  regulatory  process.  Thus,  there can be  substantial  delays in obtaining
required approval from both the FDA and foreign regulatory authorities after the
relevant applications are filed.

         Changes in Requirements.  The regulatory requirements applicable to any
product may be modified in the future.  We cannot  determine what effect changes
in regulations or statutes or legal  interpretations may have on our business in
the future. Changes could require changes to manufacturing methods,  expanded or
different  labeling,  the  recall,  replacement  or  discontinuation  of certain
products, additional record keeping and expanded documentation of the properties
of  certain  products  and  scientific   substantiation.   Any  changes  or  new
legislation


                                       15
<PAGE>


could have a material adverse effect on our ability to develop and sell products
and, therefore, generate revenue and cash flow.

         The products under development by us may not meet all of the applicable
regulatory  requirements needed to receive regulatory  marketing approval.  Even
after we expend substantial resources on research,  clinical development and the
preparation  and  processing of regulatory  applications,  we may not be able to
obtain  regulatory  approval  for  any of  our  products.  Moreover,  regulatory
approval for marketing a proposed pharmaceutical product in any jurisdiction may
not result in similar approval in other jurisdictions. Our failure to obtain and
maintain  regulatory  approvals  for  products  under  development  would have a
material  adverse  effect on our  ability  to  develop  and sell  products  and,
therefore, generate revenue and cash flow.

         We may not be successful in receiving orphan drug status for certain of
our  products  or, if that status is  obtained,  fully  enjoying the benefits of
orphan drug status

         Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a rare disease or condition. A disease or condition that
affects  populations of fewer than 200,000 people in the United States generally
constitutes a rare disease or  condition.  We may not be successful in receiving
orphan drug status for certain of our products.  Orphan drug designation must be
requested before submitting a new drug application.  After the FDA grants orphan
drug  designation,  the  generic  identity  of the  therapeutic  agent  and  its
potential  orphan use are publicized by the FDA. Under current law,  orphan drug
status is conferred upon the first company to receive FDA approval to market the
designated  drug for the designated  indication.  Orphan drug status also grants
marketing exclusivity in the United States for a period of seven years following
approval  of the new drug  application,  subject  to  limitations.  Orphan  drug
designation  does not provide any  advantage in, or shorten the duration of, the
FDA regulatory  approval  process.  Although  obtaining FDA approval to market a
product with orphan drug status can be advantageous,  the scope of protection or
the level of marketing  exclusivity  that is  currently  afforded by orphan drug
status and marketing approval may not remain in effect in the future.

         Our business  strategy  involves  obtaining orphan drug designation for
certain of the oncology products we have under development. Although clofarabine
has  received  orphan  drug  designation  with the FDA and EMEA,  we do not know
whether  any of our other  products  will  receive an orphan  drug  designation.
Orphan drug designation does not prevent other  manufacturers from attempting to
develop  similar  drugs for the  designated  indication  or from  obtaining  the
approval of a new drug  application  for their drug prior to the approval of our
new drug application.  If another sponsor's new drug application for a competing
drug in the same  indication  is  approved  first,  that  sponsor is entitled to
exclusive  marketing rights if that sponsor has received orphan drug designation
for its drug. In that case,  the FDA would refrain from approving an application
by us to market our competing  product for seven years,  subject to limitations.
Competing  products  may receive  orphan  drug  designations  and FDA  marketing
approval before the products under development by us.

         New  drug  application   approval  for  a  drug  with  an  orphan  drug
designation  does  not  prevent  the FDA  from  approving  the  same  drug for a
different  indication,  or a molecular  variation  of the same drug for the same
indication.  Because  doctors are not restricted by the FDA from  prescribing an
approved drug for uses not approved by the FDA, it is also possible that another
company's drug could be prescribed for indications for which products  developed
by us have received orphan drug  designation and new drug  application  approval
and the same is true with the EMEA in Europe.  Prescribing of approved drugs for
unapproved  uses,  commonly  referred to as "off label" sales,  could  adversely
affect the  marketing  potential of products  that have  received an orphan drug
designation and new drug application approval. In addition, new drug application
approval  of a drug  with an  orphan  drug  designation  does  not  provide  any
marketing exclusivity in foreign markets.

         The  possible  amendment  of the Orphan  Drug Act by the United  States
Congress has been the subject of frequent  discussion.  Although no  significant
changes to the Orphan Drug Act have been made for a number of years,  members of
Congress  have from  time to time  proposed  legislation  that  would  limit the
application of the Orphan Drug Act. The precise scope of protection  that may be
afforded by orphan drug  designation  and  marketing  approval may be subject to
change in the future.

The use of our products may be limited or eliminated by professional guidelines
which would decrease our sales of these products and, therefore, our revenue and
cash flows

         In addition to government agencies,  private health/science foundations
and  organizations  involved in various diseases may also publish  guidelines or
recommendations  to  the  healthcare  and  patient  communities.  These  private
organizations may make recommendations that affect the usage of therapies, drugs
or procedures,  including


                                       16
<PAGE>


products  developed by us. These  recommendations  may relate to matters such as
usage,  dosage,  route  of  administration  and  use of  concomitant  therapies.
Recommendations  or  guidelines  that are  followed by patients  and  healthcare
providers and that result in, among other things,  decreased use or  elimination
of products  developed by us could have a material adverse effect on our revenue
and cash flows.  For example,  if  clofarabine  is  definitively  determined  in
clinical trials to be an active agent to treat solid tumor cancer patients,  but
the  required  dose  is  high,  private  healthcare/science   foundations  could
recommend  various other regimens of treatment  which may from time to time show
activity at lower doses.

Generic  products  which  third  parties  may  develop  may render our  products
noncompetitive or obsolete

         An increase in competition from generic  pharmaceutical  products could
have a material adverse effect on our ability to generate revenue and cash flow.
For example,  many of the indications in which clofarabine and Modrenal(R),  our
co-lead drugs, have demonstrated activity are areas of unmet clinical need, such
as clofarabine's  application to pediatric acute leukemias in which,  initially,
the drug will be used as a salvage  therapy,  after other  regimens of treatment
have failed. Our lead  investigators,  who have assisted with the development of
Modrenal(R),  envision,  initially,  that Modrenal(R) would be used as second or
third line therapy,  only after  patients with advanced  post-menopausal  breast
cancer receive  regimens of tamoxifen  and/or  aromatase  inhibitors (or similar
drug)  treatments.  If generic drug  companies  develop a compound which is more
effective  than  either  clofarabine  or  Modrenal(R)  in  these  areas of unmet
clinical  need, or equally as effective but at lower doses,  it could  adversely
affect our market and/or render our drugs obsolete.

Because many of our competitors  have  substantially  greater  capabilities  and
resources,  they may be able to  develop  products  before  us or  develop  more
effective products or market them more effectively which would limit our ability
to generate revenue and cash flow

         Competition  in our industry is intense.  Potential  competitors in the
United States and Europe are numerous and include  pharmaceutical,  chemical and
biotechnology  companies,  most of  which  have  substantially  greater  capital
resources, marketing experience,  research and development staffs and facilities
than us.  Potential  competitors  for  certain  indications  of our  lead  drugs
include,  with respect to clofarabine,  Schering AG, which markets  fludarabine,
and certain generic drug companies in Europe which could market fludarabine upon
expiry of the patent  protections held by Schering.  Potential  competitors with
respect to Modrenal(R) include Astra-zeneca and Novartis, which market tamoxifen
and other aromatase  inhibitors,  which could be used by clinicians as first and
second  line   therapies   in  patients   with  hormone   sensitive,   advanced,
post-menopausal  breast cancer prior to a Modrenal(R)  regimen of treatment.  No
assurance can be given that the ongoing  business  activities of our competitors
will  not  have  a  material  adverse  effect  on  our  business  prospects  and
projections going forward.

         Although  we  seek  to  limit  potential   sources  of  competition  by
developing  products that are eligible for orphan drug  designation and new drug
application  approval or other forms of protection,  our competitors may develop
similar  technologies  and  products  more  rapidly  than us or market them more
effectively.  Competing technologies and products may be more effective than any
of those that are being or will be developed by us. The generic drug industry is
intensely   competitive   and  includes   large  brand  name  and   multi-source
pharmaceutical companies. Because generic drugs do not have patent protection or
any other market  exclusivity,  our competitors may introduce  competing generic
products,  which may be sold at lower prices or with more aggressive  marketing.
Conversely,  as we introduce branded drugs into our product  portfolio,  we will
face  competition  from  manufacturers of generic drugs which may claim to offer
equivalent  therapeutic  benefits  at a  lower  price.  The  aggressive  pricing
activities of our generic  competitors  could have a material  adverse effect on
our operations, revenue and cash flow.

If we fail to keep up with rapid  technological  change and evolving  therapies,
our technologies and products could become less competitive or obsolete

         The  pharmaceutical  industry is characterized by rapid and significant
technological change. We expect that pharmaceutical  technology will continue to
develop  rapidly,  and our future  success will depend on our ability to develop
and maintain a competitive  position.  Technological  development  by others may
result in products developed by us, branded or generic, becoming obsolete before
they are marketed or before we recover a significant  portion of the development
and  commercialization   expenses  incurred  with  respect  to  these  products.
Alternative  therapies or new medical  treatments could alter existing treatment
regimes,  and thereby reduce the need for one or more of the products  developed
by us,  which  would  adversely  affect  our  revenue  and cash  flow.  See also
"--Generic  products  which third  parties  may develop may render our  products
noncompetitive or obsolete" Above.


                                       17
<PAGE>


We depend on others for clinical  testing of our products  which could delay our
ability to develop products

         We do not currently have any internal product testing capabilities. Our
inability  to retain  third  parties  for the  clinical  testing of  products on
acceptable  terms would adversely  affect our ability to develop  products.  Any
failures by third parties to adequately perform their responsibilities may delay
the  submission  of  products  for  regulatory  approval,  impair our ability to
deliver products on a timely basis or otherwise impair our competitive position.
Our  dependence on third parties for the  development  of products may adversely
affect our  potential  profit  margins  and our  ability to develop  and deliver
products on a timely basis.

We depend on others to manufacture our products and have not  manufactured  them
in significant quantities

         We have never manufactured any products in commercial  quantities,  and
the  products  being  developed  by  us  may  not  be  suitable  for  commercial
manufacturing in a cost-effective manner. Manufacturers of products developed by
us will be subject to current good manufacturing practices prescribed by the FDA
or other rules and regulations prescribed by foreign regulatory authorities.  We
may not be able to enter into or maintain  relationships  either domestically or
abroad  with  manufacturers  whose  facilities  and  procedures  comply  or will
continue to comply with  current  good  manufacturing  practices  or  applicable
foreign  requirements.  Failure by a manufacturer of our products to comply with
current good manufacturing  practices or applicable  foreign  requirements could
result in significant  time delays or our inability to commercialize or continue
to market a product  and could  have a material  adverse  effect on our sales of
products and, therefore,  our cash flow. In the United States, failure to comply
with current good manufacturing practices or other applicable legal requirements
can lead to federal seizure of violative products, injunctive actions brought by
the federal  government,  and potential criminal and civil liability on the part
of a company and our officers and employees.

We have limited  sales and  marketing  capability,  and may not be successful in
selling or marketing our products

         The creation of infrastructure to commercialize  oncology products is a
difficult, expensive and time-consuming process. We may not be able to establish
direct or indirect  sales and  distribution  capabilities  or be  successful  in
gaining market  acceptance for proprietary  products or for other  products.  We
currently  have very  limited  sales and  marketing  capabilities.  We currently
employ one full-time  sales employee and one full-time  marketing  employee.  To
market any products  directly,  we will need to develop a more fulsome marketing
and sales force with technical expertise and distribution capability or contract
with other pharmaceutical and/or health care companies with distribution systems
and direct sales forces.  To the extent that we enter into co-promotion or other
licensing  arrangements,  any revenues to be received by us will be dependent on
the  efforts  of  third  parties.  The  efforts  of  third  parties  may  not be
successful.  Our failure to establish marketing and distribution capabilities or
to enter into marketing and distribution  arrangements  with third parties could
have a material adverse effect on our revenue and cash flows.

If we lose key management our business will suffer

         We are highly  dependent on our Chief Executive  Officer to develop our
lead drug. Dr. Wood has an employment agreement with the Company, dated December
31,  2002,  for an initial term of one year which  automatically  extends for an
additional one year periods until either party gives the other written notice of
termination  at least 90 days prior to the end of the current term.  Dr. Wood is
not near  retirement age and he does not, to our knowledge,  plan on leaving the
Company in the near  future.  Dr. Wood is one of the founders of the company and
he is  intimately  familiar  with the science that  underlies our lead drugs and
ancillary  technologies.  He  also  maintains  a  position  on  the  clofarabine
management team that is responsible for all drug development activities relating
to that lead drug, and has been  instrumental in the development and maintenance
of our key relationships within the scientific research and medical communities,
and those with our vendors, inventors, co-development partners and licensors. If
Dr. Wood was no longer  employed by the company,  the  development  of our drugs
would be significantly delayed and otherwise would be adversely impacted, and we
may be unable to maintain and develop these important relationships.

Need for additional personnel

         The Company will be required to hire  additional  qualified  scientific
and technical personnel, as well as personnel with expertise in clinical testing
and government  regulation to expand our research and  development  programs and
pursue our product development and marketing plans. There is intense competition
for qualified personnel in the areas of the Company's activities,  and there can
be no  assurance  that  the  Company  will be able to  attract  and  retain  the
qualified personnel  necessary for the development of its business.  The Company
faces


                                       18
<PAGE>


competition  for  qualified   individuals  from  numerous   pharmaceutical   and
biotechnology companies,  universities and research institutions. The failure to
attract and retain key scientific,  marketing and technical personnel would have
a material  adverse effect on the development of the Company's  business and our
ability to develop,  market and sell our  products.  See also "- We have limited
sales  and  marketing  capability,  and  may not be  successful  in  selling  or
marketing our products" above.

Our management and internal  systems might be inadequate to handle our potential
growth

         Our success  will depend in  significant  part on the  expansion of our
operations  and the  effective  management  of growth.  This growth has and will
continue to place a significant strain on our management and information systems
and resources and  operational  and financial  systems and resources.  To manage
future  growth,  our  management  must continue to improve our  operational  and
financial  systems and expand,  train,  retain and manage our employee base. Our
management  may not be able to manage our growth  effectively.  If our  systems,
procedures,  controls,  and resources are inadequate to support our  operations,
our expansion  would be halted or delayed and we could lose our  opportunity  to
gain  significant  market share or the timing with which we would otherwise gain
significant  market share.  Any inability to manage growth  effectively may harm
our  ability  to  institute  our  business  plan.  The  strain  on our  systems,
procedures,  controls and  resources is further  heightened by the fact that our
executive office and operational  development facilities are located in separate
time zones (New York, New York and Edinburgh, Scotland, respectively).

We  depend  on  patent  and  proprietary  rights  to  develop  and  protect  our
technologies and products, which rights may not offer us sufficient protection

         The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and processes.
Our success  will depend on our  ability to obtain and  enforce  protection  for
products that we develop  under United States and foreign  patent laws and other
intellectual  property laws,  preserve the  confidentiality of our trade secrets
and operate without infringing the proprietary rights of third parties.  Through
our  current  license  agreements,  we have  acquired  the right to utilize  the
technology  covered  by  issued  patents  and  patent  applications,  as well as
additional  intellectual  property  and  know-how  that could be the  subject of
further patent  applications in the future.  Several of the original  patents to
Modrenal(R)  have expired in the United States and foreign  countries.  Thus, we
and our licensors are pursuing patent applications to specific uses, combination
therapy and dosages or  formulations of  Modrenal(R).  We cannot  guarantee that
such  applications  will result in issued patents or that such patents if issued
will provide adequate protection against competitors.  Patents may not be issued
from these  applications and issued patents may not give us adequate  protection
or a  competitive  advantage.  Issued  patents may be  challenged,  invalidated,
infringed or circumvented,  and any rights granted thereunder may not provide us
with competitive advantages. Parties not affiliated with us have obtained or may
obtain  United States or foreign  patents or possess or may possess  proprietary
rights  relating to products  being  developed or to be developed by us. Patents
now in  existence  or  hereafter  issued  to others  may  adversely  affect  the
development or commercialization of products developed or to be developed by us.
Our planned  activities  may infringe  patents  owned by others.  Our patents to
clofarabine are licensed from Southern Research Institute. The current projected
expiration date of the license is March 2021. These patents cover pharmaceutical
compositions  and methods of using  clofarabine.  We cannot guarantee that these
patents  would  survive an attack on their  validity or that they will provide a
competitive  advantage over our competitors.  Moreover, we cannot guarantee that
Southern Research  Institute was the first to invent the subject matter of these
patents. In addition,  we are aware of a third party patent which is directed to
the  treatment of chronic  myeloid  leukemia  ("CML")  using  specific  doses of
clofarabine. We do not believe that we will infringe this patent. If this patent
is asserted  against us, even though we may be successful  in defending  against
such an assertion,  our defense would  require  substantial  financial and human
resources.  And, we may need a license to this patent to use the claimed dose in
the treatment of CML. However,  we do not know if such a license is available at
commercially reasonable terms, if at all.

         We could  incur  substantial  costs  in  defending  infringement  suits
brought  against us or any of our  licensors  or in asserting  any  infringement
claims that we may have against others. We could also incur substantial costs in
connection  with any suits  relating  to  matters  for  which we have  agreed to
indemnify our licensors or  distributors.  An adverse  outcome in any litigation
could have a material  adverse  effect on our  ability to sell  products  or use
patents in the future.  In  addition,  we could be  required to obtain  licenses
under patents or other proprietary  rights of third parties.  These licenses may
not be made  available on terms  acceptable to us, or at all. If we are required
to, and do not obtain any  required  licenses,  we could be prevented  from,  or
encounter  delays  in,  developing,  manufacturing  or  marketing  one  or  more
products.


                                       19
<PAGE>


         We also rely upon trade  secret  protection  for our  confidential  and
proprietary   information.   Others  may  independently   develop  substantially
equivalent  proprietary  information  and techniques or gain access to our trade
secrets or disclose our technology.  We may not be able to meaningfully  protect
our trade secrets which could limit our ability to exclusively produce products.

         We  require  our  employees,  consultants,  members  of the  scientific
advisory   board  and   parties   to   collaborative   agreements   to   execute
confidentiality  agreements  upon the  commencement  of employment or consulting
relationships  or a  collaboration  with us.  These  agreements  may not provide
meaningful  protection of our trade secrets or adequate remedies in the event of
unauthorized use or disclosure of confidential and proprietary information.

Because  we have  international  operations,  we will be  subject  to  risks  of
conducting business in foreign countries

         We have the right to manufacture, market and distribute our lead drugs,
clofarabine  and  Modrenal(R),  in  territories  outside of the  United  States.
Specifically,  we currently  market  Modrenal(R)  in the United Kingdom and upon
receiving  European  approval  for  clofarabine,  we intend  to market  the drug
throughout  Europe.  Further,  nearly  half of our  employees  are  employed  by
Bioenvision  Limited,  our  wholly-owned  subsidiary  with offices in Edinburgh,
Scotland.

         Because  we  have  international  operations  in  the  conduct  of  our
business,  we are  subject  to the  risks  of  conducting  business  in  foreign
countries, including:

o    difficulty in establishing or managing distribution relationships;

o    different  standards  for the  development,  use,  packaging,  pricing  and
     marketing of our products and technologies;

o    our inability to locate qualified local employees,  partners,  distributors
     and suppliers;

o    the potential  burden of complying  with a variety of foreign  laws,  trade
     standards  and  regulatory   requirements,   including  the  regulation  of
     pharmaceutical products and treatment; and

o    general  geopolitical  risks,  such as political and economic  instability,
     changes in diplomatic and trade relations, and foreign currency risks.

         We do not engage in forward  currency  transactions  which means we are
susceptible to fluctuations  in the U.S. dollar against foreign  currencies such
as the pound  sterling.  Accordingly,  as the value of the dollar becomes weaker
against the pound  sterling,  ongoing  services  provided  by our UK  employees,
Cancer Research  Organizations and other service providers become more expensive
to us. No  assurance  can be given that the U.S.  dollar  will not  continue  to
weaken which could have a material  adverse effect on the costs  associated with
our drug development activities.

We cannot  predict  our  future  capital  needs and we may not be able to secure
additional  financing  which  could  affect  our  ability  to operate as a going
concern

         We  consummated  a private  placement  transaction  on March 22,  2004,
pursuant to which we raised  $12.8  million and issued  2,044,514  shares of our
common stock and warrants to purchase an additional 408,903 shares of our common
stock at a conversion  price of $7.50 per share. We consummated a second closing
for this  financing on May 13, 2004 in order to comply with certain  contractual
obligations  of the  Company to its  holders of Series A  Convertible  Preferred
Stock which hold  preemptive  rights for equity  offerings of the  Company.  The
Company  raised an  additional  $3.5  million in the second  trance  closing and
issued an additional 558,384 shares of our common stock and warrants to purchase
111,677  shares of our common  stock at a  conversion  price of $7.50 per share.
However,  we may need additional  financing to continue to fund the research and
development and marketing  programs for our products and to generally expand and
grow our business.  For example,  we will need to employ a European  sales force
within the next twelve  months to  capitalize  on the  commercial  potential for
clofarabine and Modrenal(R) if and to the extent our lead drugs are at market in
Europe by mid- 2005.  To the extent that we will be  required to fund  operating
losses, our financial position would deteriorate. There can be no assurance that
we will be able to find  significant  additional  financing  at all or on  terms
favorable to us. If equity securities are issued in connection with a financing,
dilution to our  stockholders  would result,  and if additional funds are raised
through  the  incurrence  of debt,  we may be  subject  to  restrictions  on our
operations  and finances.  Furthermore,  if we do incur debt, we may be limiting
our ability to  repurchase  capital  stock,  engage in mergers,  consolidations,
acquisitions  and asset  sales,  or alter our lines of  business  or  accounting
methods,  even though these


                                       20
<PAGE>


actions  would  otherwise  benefit our  business.  As of June 30,  2004,  we had
stockholders'  equity of  approximately  $27,383,000  and net working capital of
approximately $18,828,000.

         If adequate  financing is not  available,  we may be required to delay,
scale back or  eliminate  some of our  research  and  development  programs,  to
relinquish  rights to certain  technologies  or  products,  or to license  third
parties to  commercialize  technologies or products that we would otherwise seek
to develop.  Any inability to obtain additional  financing,  if required,  would
have a material  adverse  effect on our ability to continue our  operations  and
implement our business plan.

The prices we charge for our products and the level of third-party reimbursement
may decrease and our revenues could decrease

         Our ability to commercialize  products  successfully depends in part on
the price we may be able to charge for our  products  and on the extent to which
reimbursement  for the  cost  of our  products  and  related  treatment  will be
available from  government  health  administration  authorities,  private health
insurers and other third-party payors. We believe that Government  officials and
private  health  insurers  are  increasingly  challenging  the price of  medical
products  and  services.  Significant  uncertainty  exists  as  to  the  pricing
flexibility  which  distributors will have with respect to newly approved health
care products as well as the reimbursement  status for such approved  healthcare
products.

         Third-party  payors may attempt to control  costs  further by selecting
exclusive providers of their pharmaceutical products. If third-party payors were
to make this type of arrangement with one or more of our competitors, they would
not reimburse patients for purchasing our competing products.  For example, if a
third-party  payor in the U.K.  were to pay  patients  for regimens of aromatase
inhibitor  treatment  but not  treatments  of  Modrenal(R),  this would  cause a
decline in sales of Modrenal(R).  This lack of reimbursement  would diminish the
market for products  developed by us and would have a material adverse effect on
us.

Our products may be subject to recall

         Product  recalls may be issued at our discretion or by the FDA, the FTC
or other  government  agencies  having  regulatory  authority for product sales.
Product recalls,  if any in the future,  may harm our reputation and cause us to
lose development  opportunities,  or customers or pay refunds. Products may need
to be recalled due to disputed labeling claims,  manufacturing  issues,  quality
defects,  or other  reasons.  We do not carry any insurance to cover the risk of
potential  product  recall.  Any product  recall  could have a material  adverse
effect on us, our prospects, our financial condition and results of operations.

We may face  exposure  from  product  liability  claims  and  product  liability
insurance  may not be  sufficient  to cover  the costs of our  liability  claims
related to technologies or products

         We  face  exposure  to  product  liability  claims  if  the  use of our
technologies  or products or those we license  from third  parties is alleged to
have resulted in adverse  effects to users of such products.  Product  liability
claims may be brought by clinical trial participants,  although to date, no such
claims have been brought against us. If any such claims were brought against us,
the cost of defending such claims may adversely affect our business.  Regulatory
approval for commercial sale of our products does not mitigate product liability
risks.  Any  precautions  we take may not be  sufficient  to  avoid  significant
product  liability  exposure.  Although we have obtained  product  liability and
clinical trial insurance on our  technologies  and products at levels with which
management deems reasonable,  no assurance can be given that this insurance will
cover any  particular  claim or that we have  obtained an  appropriate  level of
liability  insurance  coverage  for our  development  activities.  We  currently
maintain three million dollars per year, claims made product liability insurance
coverage which we believe is adequate.  Existing coverage may not be adequate as
we further develop our products.  In the future,  adequate insurance coverage or
indemnification  by  collaborative  partners may not be available in  sufficient
amounts, or at acceptable costs, if at all. To the extent that product liability
insurance, if available, does not cover potential claims, we will be required to
self-insure the risks associated with those claims. The successful  assertion of
any  uninsured  product  liability  or other  claim  against us could  limit our
ability to sell our  products  or could cause  monetary  damages.  In  addition,
future product  labeling may include  disclosure of additional  adverse effects,
precautions and contra  indications,  which may adversely  impact product sales.
The pharmaceutical industry has experienced increasing difficulty in maintaining
product  liability  insurance  coverage at reasonable  levels,  and  substantial
increases in insurance  premium  costs,  in many cases,  have rendered  coverage
economically impractical.


                                       21
<PAGE>


Where You Can Find More Information

         We file annual,  quarterly and special  reports,  proxy  statements and
other  information  with the SEC.  This  information  is  available at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain  information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports,
proxy and information  statements,  and other  information about Bioenvision and
other issuers that file electronically with the SEC at http://www.sec.gov.

Item 2.  Description of Property

Facilities

         As of the  date of this  report  we do not  own  any  interest  in real
property.  We currently lease 3,229 square feet of office space at our principal
executive offices at 509 Madison Avenue, Suite 404, New York, New York 10022 for
approximately  $13,000 per month. These facilities are the center for all of our
administrative functions in the United States. Also, we rent on a month-to-month
basis approximately 1,000 square feet of office space in Edinburgh, Scotland for
approximately  $5,000 per month. To date, most of our drug development  programs
have been  conducted  at  scientific  institutions  around the world.  It is our
policy to continue development at leading scientific  institutions in the United
States and Europe. We do not plan to conduct  laboratory  research in any of our
facilities  in the  near  future,  rather,  we  will  conduct  research  through
collaborative  arrangements with Southern Research Institute,  M.D. Anderson and
others.

Investment Policies

         We do not currently have any investments in real estate or interests in
real  estate;  investments  or  interests  in real  estate  mortgages  or in the
securities  of or interests  in persons  primarily  engaged in real  estate.  We
generally  acquire  our assets for the  purpose of  ultimately  producing  sales
revenues  from  the  exploitation  of  such  assets  in the  development  of our
biopharmaceutical   business.   We   currently   invest  our  surplus   cash  in
interest-bearing deposit accounts and short-term certificates of deposit.

Item 3.  Legal Proceedings

         On April 1, 2003,  RLB  Capital,  Inc.  filed a  complaint  against the
Company in the Supreme Court of the State of New York (Index No. 601058/03). The
Complaint  alleged a breach of contract by the  Company  and  demanded  judgment
against the Company for $112,500 and  warrants to acquire  75,000  shares of the
Company's  common stock.  The Company  submitted its Verified Answer on June 25,
2003 and, in pertinent part, denied RLB's allegations and asserted counterclaims
based on negligence.  In September  2003, the Company filed a motion for summary
judgment and RLB filed its  response on October 27, 2003.  On November 12, 2003,
the Supreme Court granted the motion for summary  judgment and the complaint was
dismissed.  In March 2004, the complaint and two  counterclaims  asserted by the
Company were dismissed with prejudice.

              On December 19, 2003,  the Company  filed a complaint  against Dr.
Deidre Tessman and Tessman  Technology  Ltd. (the "Tessman  Defendants")  in the
Supreme  Court  of the  State  of  New  York,  County  of New  York  (Index  No.
03-603984). An amended complaint alleges, among other things, breach of contract
and negligence by Tessman and Tessman  Technology and demands  judgment  against
Tessman and Tessman  Technology in an amount to be determined by the Court.  The
Tessman  Defendants removed the case to federal court, then remanded it to state
court and served an answer with  several  purported  counterclaims.  The Company
denies the  allegations  in the  counterclaims  and intends to pursue its claims
against the Tessman Defendants vigorously.

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

         None.


                                       22
<PAGE>


                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

         Market Information

         The following  represents  the range of reported high and low bid sales
prices for our common stock on a quarterly  basis since July 1, 2002 as reported
on the OTC  Bulletin  Board and the American  Stock  Exchange.  Throughout  this
period and up to September 5, 2003, our trading  symbol was "BIOV".  Our trading
symbol was changed to "BIV" on  September 8, 2003 upon  commencement  of listing
our  shares of common  stock on the  American  Stock  Exchange.  Our  symbol was
changed  again to "BIVN" on August 20,  2004 upon  commencement  of listing  our
shares of common stock on the NASDAQ Stock Market.  The quotations  also reflect
inter-dealer prices,  without retail mark-up,  mark-down or commission,  and may
not represent actual transactions.

                                               High              Low
                                               ----              ---

Fiscal Year Ended June 30, 2003
First Quarter                                  $2.55             $1.35
Second Quarter                                 $2.25             $1.10
Third Quarter                                  $1.55             $0.39
Fourth Quarter                                 $2.89             $0.77

Fiscal Year Ended June 30, 2004
First Quarter                                  $4.97             $1.70
Second Quarter                                 $5.10             $3.35
Third Quarter                                  $10.01            $4.09
Fourth Quarter                                 $12.00            $8.25

         Holders

         On June 30, 2004, we had 189 stockholders of record.

         Dividends

         We have never declared or paid cash dividends on our common stock,  and
our board of  directors  does not intend to declare or pay any  dividends on the
common stock in the foreseeable future. Our earnings, if any, are expected to be
retained for use in expanding our business.  The  declaration and payment in the
future  of any  cash or  stock  dividends  on the  common  stock  will be at the
discretion  of the board of directors and will depend upon a variety of factors,
including  our ability to service our  outstanding  indebtedness  and to pay our
dividend  obligations  on securities  ranking  senior to the common  stock,  our
future earnings,  if any,  capital  requirements,  financial  condition and such
other factors as our board of directors may consider to be relevant from time to
time. However, the Company is required to accrue for and pay a dividend of 5% in
April,  July,  October  and  January,   subject  to  certain  circumstances  and
adjustments,  on its cumulative  Series A Convertible  Preferred  Stock. We have
paid these accrued  dividends on our cumulative  Series A Convertible  Preferred
Stock in cash through July 30, 2004.



                                       23
<PAGE>


         Equity Compensation Plan Information

         The  following   table  provides   information   about  the  securities
authorized for issuance under the Company's equity compensation plans as of June
30, 2004:

<TABLE>
<CAPTION>
                                      Number of securities to                                Number of securities remaining
                                          be issued upon             Weighted-average        available for future issuance
                                      exercise of outstanding       exercise price of          under equity compensation
                                      options, warrants and        outstanding options,       plans (excluding securities
                                              rights               warrants and rights         reflected in column (a))

           Plan category                       (a)                         (b)                           (c)
------------------------------------ -------------------------   -------------------------  --------------------------------
<S>                                         <C>                           <C>                           <C>
Equity compensation plans approved
   by security holders                      2,105,000                     $2.57                         895,000

Equity compensation plans not
approved by security holders                5,328,624                     $1.55                           --

Total                                       7,433,624                       --                          895,000
</TABLE>

   Equity Compensation Plans Approved by Security Holders.

         The Board of Directors adopted, and our stockholders  approved our 2003
Stock Incentive Plan at the Annual Meeting held in January of 2004. The plan was
adopted  to  recognize  the  contributions  made  by  our  employees,  officers,
consultants,  and  directors,  to  provide  those  individuals  with  additional
incentive to devote  themselves to our future success and to improve our ability
to attract,  retain and motivate  individuals upon whom our growth and financial
success depends. There are 3,000,000 shares reserved for grants of options under
the plan and at June 30, 2004, 2,105,000 of these options had been issued.

   Equity Compensation Plans Not Approved by Security Holders.

         The  5,328,624  securities  to be issued  upon  exercise of options and
warrants consist of warrants and options issued to the co-founders,  early round
investors and certain former  consultants and advisors for services  rendered to
or on behalf of us.


                                       24
<PAGE>


Item 6.  Management's Discussion and Analysis or Plan of Operation

         The  following  discussion  and  analysis  provides  information  which
management  believes is  relevant  to an  assessment  and  understanding  of our
results of operations and financial  condition.  The  discussion  should be read
together with our audited  consolidated  financial statements and notes included
under Item 7 of this annual report on Form 10-KSB, which consolidated  financial
statements are presented beginning at page F-1.

         Summary of Significant Accounting Policies

         Financial  Reporting  Release  No. 60,  which was  released by the SEC,
requires all companies to include a discussion of critical  accounting  policies
or methods used in the preparation of the consolidated financial statements.  In
addition,  Financial  Reporting  Release No. 61 was  released by the SEC,  which
requires all companies to include a discussion  to address,  among other things,
liquidity,   off-balance  sheet   arrangements,   contractual   obligations  and
commercial  commitments.  The following discussion is intended to supplement the
summary of significant  accounting  policies as described in Note 1 of the Notes
To Consolidated  Financial  Statements for the year ended June 30, 2004 included
under Item 7 in this annual report on Form 10-KSB, which are presented beginning
at page F-1.

         These   policies  were  selected   because  they   represent  the  more
significant  accounting  policies  and methods  that are broadly  applied in the
preparation of the consolidated financial statements.

         Revenue  Recognition - Revenue under research  contracts is recorded as
earned under the  contracts,  as services are provided.  In accordance  with SEC
Staff Accounting  Bulletin No. 104, upfront  nonrefundable  fees associated with
license and development  agreements where the Company has continuing involvement
in the  agreement,  are  recorded as deferred  revenue and  recognized  over the
period of involvement. If the estimated service period is subsequently modified,
the  period  over  which  the  up-front  fee is  recognized  would  be  modified
accordingly on a prospective  basis.  Revenues from the  achievement of research
and  development  milestones,  which  represent the achievement of a significant
step in the research and  development  process,  are recognized  when and if the
milestones are achieved.

         Stock  Based  Compensation  - In  accordance  with  the  provisions  of
Statement of Financial  Accounting  Standards  ("SFAS") No. 123,  Accounting for
Stock-Based  Compensation,  we apply Accounting  Principles Board Opinion 25 and
related   interpretations   in  accounting   for  our  stock  option  plan  and,
accordingly, we do not recognize compensation expense for employee stock options
granted  with  exercise  prices  equal to or  greater  than fair  market  value.
Non-employee  stock-based   compensation   arrangements  are  accounted  for  in
accordance  with the  provisions of SFAS No. 123 and Emerging  Issues Task Force
No.  96-18,  Accounting  for  Equity  Instruments  That Are Issued to Other Than
Employees for  Acquiring,  or in  Conjunction  with Selling,  Goods or Services.
Under EITF No. 96-18, as amended,  where the fair value of the equity instrument
is more  reliably  measurable  than the fair value of  services  received,  such
services will be valued based on the fair value of the equity instrument.

         Use  of  Estimates  -  The  preparation  of  financial   statements  in
conformity with generally  accepted  accounting  principles of the United States
requires  management to make estimates and assumptions  that affect the reported
amounts of assets and  liabilities  and the disclosure of contingent  assets and
liabilities  at the date of the  financial  statements  as well as the  reported
amounts of revenues and expenses  during the reporting  period.  Actual  results
could differ from those  estimates,  and such differences may be material to the
financial statements.

Overview

         We are an emerging  biopharmaceutical company that develops and markets
drugs to treat  cancer.  Our two lead  drugs are  clofarabine  and  Modrenal(R),
although we have several other products and technologies under  development.  As
of June 30,  2004,  our internal  staff  consisted  of nine  full-time  and four
part-time employees based in New York, New York and Edinburgh, Scotland.

         Our  primary   business   strategy  relates  to  our  two  lead  drugs,
clofarabine and Modrenal(R).  With clofarabine, our strategy is to complete drug
development  in Europe  and obtain  marketing  authorization  from the  European
regulatory authorities to market and distribute clofarabine for the treatment of
pediatric  and adult acute  leukemias  (ALL and AML).  We  anticipate  launching
clofarabine in Europe in mid-2005,  subject to our obtaining the approval of the
regulatory  authorities.  We will continue  clinical trials in other indications
with the intention of


                                       25
<PAGE>


aggressively  seeking  label  extensions  after  clofarabine's  first  approval,
including our Pivotal Phase II trial of clofarabine in adults with Acute Myeloid
Leukemia  (AML) which  commenced in August 2004 and is ongoing.  Following  this
strategy,  throughout the world, approximately two-thirds of the cancer patients
dosed with  clofarabine to date fall outside of the pediatric  acute  leukemias,
which we expect to be the  indication  first  approved by the U.S.  and European
regulatory authorities.

         With Modrenal(R), our strategy is to expand sales in the United Kingdom
and apply for mutual  recognition  to obtain the right to market and  distribute
Modrenal(R)  in the major  European  markets.  We  anticipate  receiving  mutual
recognition from major European  Community member states by Q3 of calendar 2005.
We intend to further  U.S.  development  of  Modrenal(R)  in prostate and breast
cancer indications, subject to the ongoing results of our clinical trials we are
currently conducting in the U.S. and Europe.

         Our secondary business strategy is to continue to develop our portfolio
of ancillary products and technologies. We anticipate that revenues derived from
clofarabine  and  Modrenal(R)  and  milestone  payments and  royalties  from the
ancillary  products will permit us to further develop our portfolio of ancillary
products and technologies.

         Over the next 12 months,  we intend to  continue  our  internal  growth
strategy to provide the necessary regulatory,  sales and marketing  capabilities
which  will  be  required  to  pursue  the  expanded  development  programs  for
clofarabine and Modrenal(R) described above.

         Clofarabine is a small molecule,  purine nucleoside analogue,  which we
believe is effective in the  treatment of leukemia,  based upon our own clinical
studies and studies  conducted by others on our behalf.  Clofarabine may also be
an effective  agent to treat  patients with solid tumors,  based on  preclinical
studies and Phase I clinical trials performed to date.

         In July 2004, we filed for approval of  clofarabine  in Europe to treat
children with pediatric acute leukemia (ALL and AML). Further, we are conducting
a Pivotal Phase II clinical trial of clofarabine,  as first line therapy for the
treatment of adults with Acute Myeloid  Leukemia (AML).  Also in Europe,  at our
direction,  an Investigator Sponsored Trial of clofarabine as first-line therapy
for adults  with AML was  completed  ahead of schedule  and an interim  analysis
indicates a 64% complete response rate observed in this patient population.

         In the U.S., ILEX Oncology, Inc., our sub-licensor of U.S. and Canadian
cancer marketing  rights,  filed a New Drug Application  (NDA) in March 2004 for
approval of clofarabine to treat children with acute leukemias (ALL or AML). The
NDA was based upon results of two Pivotal Phase II clinical trials  completed by
ILEX prior to the NDA filing. In connection with the NDA, the United States Food
and Drug  Administration  (the " FDA" has set a  Prescription  Drug User Fee Act
(PDUFA) response date at December 30, 2004.

         In January,  2002,  the  European  orphan drug  application  for use of
clofarabine  to treat  acute  leukemia  in  adults  was  approved.  Orphan  Drug
Designation  provides the Company with ten years of market exclusivity in Europe
for clofarabine,  upon grant of marketing authorization.  The drug has also been
granted orphan drug status and "fast track"  treatment by the FDA.  Further,  in
July  2004,  the FDA  granted  six  months of  extended  market  exclusivity  to
clofarabine under the Best Pharmaceuticals for Children Act.

         In August 2003, we obtained the exclusive,  irrevocable option to sell,
market and distribute  clofarabine in Japan and Southeast Asia from the inventor
of clofarabine.  These rights were not previously  granted by Southern  Research
Institute and fall outside the scope of the Company's then current licensing and
development  contracts with respect to  clofarabine.  We originally  obtained an
exclusive  license  from  Southern  Research   Institute  to  sell,  market  and
distribute  clofarabine  throughout  the world,  except for Japan and  Southeast
Asia, for all human applications,  pursuant to a co-development agreement, dated
August 31, 1998, between the Company and Southern Research  Institute.  On March
12,  2001,  we  granted  an  exclusive  option to sell,  market  and  distribute
clofarabine  in the U.S. and Canada to ILEX Oncology,  Inc. We converted  ILEX's
option to an exclusive sublicense on December 30, 2003.  Accordingly,  we do not
possess  the  rights to sell,  market  and  distribute  clofarabine  for  cancer
indications in the U.S.

         Modrenal(R)  is a hormonal agent with a novel mode of action that makes
it an effective  agent in patients with advanced breast cancer who have acquired
resistance to other hormonal agents. We launched  Modrenal(R) in May 2003 in the
United Kingdom,  where we have received  regulatory  approval for its use in the
treatment of  post-menopausal  breast cancer. In Q2 2005, we intend to apply for
mutual recognition in another four large European


                                       26
<PAGE>


territories  in an  effort  to  gain  approval  for  Modrenal(R)  in  each  such
territory.  We  anticipate  receiving  approval  in each such  territory  during
calendar  2005,  but such  approval  is  subject to the  appropriate  regulatory
decisions.

         In the U.S., we filed an IND to conduct Modrenal(R) clinical trials for
prostate  cancer in  February  2004 and  commenced  enrolling  patients  in this
clinical trial in July 2004.  Further, we intend to seek regulatory approval for
Modrenal(R) in the United States as salvage therapy for hormone-sensitive breast
cancer upon completion of additional clinical studies.

         We   originally    obtained   an   exclusive   license   from   Stegram
Pharmaceuticals Ltd. to sell, market and distribute  Modrenal(R)  throughout the
world,  except for South Africa,  for all human and animal health  applications,
pursuant to a co-development agreement dated July 15, 1998.

         Company Status

         We have made significant  progress in developing our product  portfolio
over the past twelve months,  and have multiple  products in clinical trials. We
have incurred losses during this emerging stage. Our management believes that we
have the opportunity to become a leading oncology-focused pharmaceutical company
in the next four years if we  successfully  bring  clofarabine  to market and if
mutual recognition is granted for Modrenal(R) in the largest European countries.

         We anticipate that revenues derived from the two lead drugs will permit
us to further develop the other products  currently in our product pipeline.  We
anticipate  the  launch  of  clofarabine  in  Europe  by  mid-2005  and  further
anticipate  reaching  profitability  within 12 months  following  the  marketing
launch for clofarabine in Europe.

         We commenced marketing one of our lead products,  Modrenal(R),  in June
2003 and  anticipate  building  out our  internal  infrastructure  of sales  and
marketing  professionals  to  sell  Modrenal(R)  and  to  conduct  pre-marketing
activities  for  clofarabine  in  Europe.  Management  believes  it  can  create
synergies  through internal growth by developing a sales and marketing  presence
which  will be in  position  to sell both  lead  drugs at lead  European  cancer
centers across a broad range of cancer indications.

         Further,  we  intend  to  continue  developing  our  existing  platform
technologies  with a  primary  business  focus on drugs  to  treat  cancer,  and
commercializing  products  derived  from such  technologies.  As a result of the
acquisition  of Pathagon Inc. in February  2002, we have several  anti-infective
technologies.  These include the OLIGON(R)  technology,  an advanced biomaterial
that has been approved for certain  indications  by the FDA in the U.S.,  and is
being sold by a product  co-development  partner,  and the use of thiazine dyes,
such as methylene blue, which are used for in vitro and in vivo  inactivation of
pathogens  (viruses,  bacteria and fungus) in biological  fluids.  It is not the
Company's strategy to sell devices or to expand into the  anti-infective  market
per se, but the  technology  obtained in the Pathagon  acquisition  has specific
application  for support of the cancer patient and oncology  treatment.  We have
had  discussions  with potential  product  co-development  partners from time to
time, and plan to continue to explore the possibilities for  co-development  and
sub-licensing  in order to implement  our  development  plans.  In addition,  we
believe that some of our products may have  applications in treating  non-cancer
conditions  in humans and in  animals.  Those  conditions  are  outside our core
business focus and we do not presently intend to devote a substantial portion of
our resources to  addressing  those  conditions.  In May 2003, we entered into a
License and Sub-License Agreement with Dechra  Pharmaceuticals,  plc ("Dechra"),
pursuant to which Bioenvision  sub-licensed the marketing and development rights
to vetoryl(R) trilostane,  solely with respect to animal health applications, in
the United  States and Canada,  to Dechra.  We received  $1.25  million in cash,
together with future  milestone and royalty  payments which are contingent  upon
the occurrence of certain events. We intend to continue to try and exploit these
types of opportunities as they arise.

         You should  consider the  likelihood of our future success to be highly
speculative in light of our limited  operating  history,  as well as the limited
resources, problems, expenses, risks and complications frequently encountered by
similarly  situated  companies.  To address  these risks,  we must,  among other
things:

o  satisfy  our  future  capital  requirements  for  the  implementation  of our
   business plan;

o  commercialize  our  existing  products;

o  complete  development  of  products  presently  in our  pipeline  and  obtain
   necessary  regulatory approvals for use;


                                       27
<PAGE>


o  implement and  successfully  execute our business and  marketing  strategy to
   commercialize  products;

o  establish  and  maintain  our client base;

o  continue to develop new products and upgrade our existing products;

o  respond to industry and competitive developments; and

o  attract, retain, and motivate qualified personnel.

         We may not be successful in addressing  these risks.  If we were unable
to do so, our business prospects,  financial condition and results of operations
would be materially  adversely  affected.  The likelihood of our success must be
considered in light of the development cycles of new pharmaceutical products and
technologies and the competitive and regulatory environment in which we operate.

Results of Operations

Year Ended June 30, 2004 Compared to Year Ended June 30, 2003

         We reported  revenues of approximately  $3,102,000 and $505,000 for the
years ended June 30, 2004 and 2003,  respectively.  Revenues reflect recognition
of consideration  received  pursuant to our agreements with  co-development  and
sub-licensing   partners  in   connection   with  our   platform  of  drugs  and
technologies.  Of the  revenues  recorded  for the year  ended  June  30,  2004,
approximately   $2,100,000   was   recognized   from  ILEX,   pursuant   to  the
Co-Development Agreement, and approximately $600,000 was recognized from Stegram
Pharmaceuticals under the Stegram Co-Development Agreement.

         Research  and  development  costs for the years ended June 30, 2004 and
2003 were approximately $4,883,000 and $1,689,000 and respectively, representing
an increase of $3,194,000.

         Our research and  development  costs include costs  associated with six
projects of which the Company devotes significant time and resource. Clofarabine
research  and  development  costs for the year ended June 30, 2004 and 2003 were
approximately $2,651,000 and $871,000, respectively, representing an increase of
approximately  $1,780,000.  The  increase  primarily  reflects  costs  which are
associated with our increased  development  activities and clinical trials being
conducted in Europe.

         Modrenal(R)  research and development costs for the year ended June 30,
2004  and  2003  were  approximately  $2,026,000  and  $913,000,   respectively,
representing  an  increase  of  $1,113,000.   The  increase  primarily  reflects
increased  development  activities  associated with the Modrenal(R)  development
plan,  including costs  associated with the U.S.  prostate cancer trial which is
ongoing.

         Gossypol research and development costs were approximately $152,000 and
$30,000,  respectively,  representing  an increase  of  $122,000.  The  increase
primarily reflects preparation of a protocol and other preparatory activities in
advance of the Phase I Clinical Trial intended to be commenced in Q3 of calendar
2004.

         Gene Therapy research and development costs for the year ended June 30,
2004 and 2003  were  approximately  $0 and  ($130,000),  respectively.  The 2003
amount  primarily  reflects a reversal  of an accrued  expense in the year ended
2002 of $200,000  which was determined to be less than  originally  estimated by
the Company in the year ended June 30, 2003.

         The clinical  trials and  development  strategy for the clofarabine and
Modrenal(R)  projects,  in each case,  is  anticipated  to cost several  million
dollars  and will  continue  for  several  years based on the number of clinical
indications within which we plan to develop these drugs.  Currently,  management
cannot estimate the timing or costs  associated with these projects because many
of the variables,  such as interaction with regulatory  authorities and response
rates in various clinical trials,  are not predictable.  Total costs to date for
each of  these  four  projects  is as  follows:  (i)  clofarabine  research  and
development  costs  have  been  approximately  $5.6  million;  (ii)  Modrenal(R)
research and  development  costs have been  approximately  $4.4  million;  (iii)
Gossypol research and development costs have been  approximately  $302,000;  and
(iv) Gene  Therapy  research  and  development  costs  have  been  approximately
$450,000.  Our other two  research  and  development  projects  involve  our two
ancillary  technologies;  OLIGON and Methylene Blue. We do not currently  devote
any significant  time or resources to these research and


                                       28
<PAGE>


development  projects,  but  we  intend  to  do so  if  and  to  the  extent  we
successfully commercialize our lead drugs, clofarabine and Modrenal(R), over the
next two years.

         Selling,  general and  administrative  expenses for the year ended June
30, 2004 and 2003 were  approximately  $9,082,000 and $4,567,000,  respectively,
representing an increase of $4,515,000. Of this amount, approximately $2,400,000
of this  increase was due to the  re-pricing  of 380,000  options  granted to an
employee  pursuant to the terms of his  Employment  Agreement (see Note 7 to the
Financial  Statements);  approximately  $1,000,000 of the increase was due to an
increase in sales and marketing  expenses  related to  pre-marketing  activities
with   clofarabine  and  marketing  costs  associated  with   Modrenal(R);   and
approximately  $1,100,000 of the increase was due to increases in our consulting
and legal expenses as the result of our recent growth.

         We reported  interest and finance charges of $0 for the year ended June
30, 2004, representing a decrease of $325,000 from the year ended June 30, 2003.
This decrease reflects the retirement of our credit facility in May 2002 and the
fact that we carried no long term debt during the year ended June 30, 2004.

         Depreciation and amortization expense totaled approximately  $1,348,000
for the year ended June 30,  2004,  representing  an increase of $3,100 from the
year ended June 30, 2003. The increase is primarily due to the  amortization  of
certain  intangible  assets we acquired  in the  Pathagon  transaction  which we
acquired during the year ended June 30, 2002.

 Year Ended June 30, 2003 Compared to Year Ended June 30, 2002

         We reported  revenues of  approximately  $505,000  and $803,000 for the
years ended June 30, 2003 and 2002,  respectively.  Revenues reflect recognition
of consideration  received  pursuant to our agreements with  co-development  and
sub-licensing   partners  in   connection   with  our   platform  of  drugs  and
technologies.  Of the  revenues  recorded  for the year  ended  June  30,  2003,
approximately  $370,000 was recognized from ILEX pursuant to the  Co-Development
Agreement  and  $100,000  was   recognized  as  royalty   revenue  from  Edwards
Lifesciences.

         Research  and  development  costs for the years ended June 30, 2003 and
2002 were approximately $1,689,000 and $1,912,000, respectively,  representing a
decrease of $223,000.

         Our research and  development  costs include costs  associated with six
projects of which the Company devotes significant time and resource. Clofarabine
research  and  development  costs for the year ended June 30, 2003 and 2002 were
approximately $871,000 and $596,000,  respectively,  representing an increase of
$275,000.  The increase  primarily reflects the costs associated with our having
commenced clinical trials in Europe to develop clofarabine.

         Modrenal(R)  research and development costs for the year ended June 30,
2003  and  2002  were   approximately   $913,000  and  $923,000,   respectively,
representing a decrease of $10,000.

         Gossypol research and development costs were approximately  $30,000 and
$90,000,  respectively,   representing  a  decrease  of  $60,000.  The  decrease
primarily  reflects a decrease in the amount of resource  devoted by the Company
to this compound while the Company focused on developing its lead drugs.

         Gene Therapy research and development costs for the year ended June 30,
2003 were approximately  $(130,000) and $303,000,  respectively,  representing a
decrease of $433,000.  The decrease primarily reflects an accrued expense in the
year ended 2002 of  $200,000  which was  determined  to be less than  originally
estimated by the Company in the year ended June 30, 2003.

         The clinical  trials and  development  strategy for the clofarabine and
Modrenal(R)  projects,  in each case,  is  anticipated  to cost several  million
dollars  and will  continue  for  several  years based on the number of clinical
indications within which we plan to develop these drugs.  Currently,  management
cannot estimate the timing or costs  associated with these projects because many
of the variables,  such as interaction with regulatory  authorities and response
rates in various clinical trials, are not predictable.  Estimated total costs to
date for each of these four projects is as follows: (i) clofarabine research and
development  costs  have  been  approximately  $3.0  million;  (ii)  Modrenal(R)
research and  development  costs have been  approximately  $2.35 million;  (iii)
Gossypol research and development costs have been  approximately  $150,000;  and
(iv) Gene  Therapy  research  and  development  costs  have  been  approximately
$450,000.  Our other two  research  and  development  projects  involve  our two
ancillary  technologies;  OLIGON and Methylene Blue. We do not currently  devote
any significant  time or resources to these


                                       29
<PAGE>


research and development  projects,  but we intend to do so if and to the extent
we successfully commercialize our lead drugs, clofarabine and Modrenal(R),  over
the next two years.

         Administrative  expenses for the year ended June 30, 2003 and 2002 were
approximately $4,567,000 and $2,128,000, respectively,  representing an increase
of $2,439,000. Of this amount, approximately $1,600,000 of this increase was due
to the expansion of the internal  management team from one full time employee to
eight full time  employees;  approximately  $150,000 of this increase was due to
lease expenses and office supplies  /equipment for the newly opened New York and
Edinburgh,   Scotland  offices,  both  of  which  we  opened  during  the  year;
approximately  $300,000 of the  increase  was due to an increase in investor and
public relations  expenses related to pre-marketing  activities with clofarabine
and marketing costs associated with Modrenal(R);  approximately  $200,000 of the
increase  was related to  increases in related  travel  expense to  successfully
manage  our drug  development  activities;  and  approximately  $150,000  of the
increase was due to increases in our consulting and legal expenses as the result
of our recent growth.

         We reported interest and finance charges of $325,000 for the year ended
June 30, 2003,  representing  a decrease of $1,848,000  from the year ended June
30, 2002.  This decrease  reflects the retirement of our credit  facility in May
2002 and the fact that we carried  no long term debt  during the year ended June
30, 2003.

         Depreciation and amortization expense totaled approximately  $1,345,000
for the year ended June 30, 2003,  representing an increase of $766,000 from the
year ended June 30, 2002. The increase is primarily due to the  amortization  of
certain  intangible  assets we acquired  in the  Pathagon  transaction  which we
consummated in February 2002.

Liquidity and Capital Resources

         We  anticipate  that we may  continue  to incur  significant  operating
losses for the fiscal year ended June 30, 2005.  There can be no assurance as to
whether  or  when we will  generate  material  revenues  or  achieve  profitable
operations.

         The Company  received a nonrefundable  upfront payment of $1.35 million
when it entered  into the  co-development  agreement  with ILEX and  received an
additional  $3.5  million in December  2003 when it converted  ILEX's  option to
market  clofarabine  in the U.S.  into a  sublicense.  The  Company  received an
additional $2 million in April 2004 upon ILEX's filing the New Drug  Application
for  clofarabine  with FDA and the Company  expects to receive an  additional $2
million from ILEX in October 2004 in connection with ILEX having  completed such
NDA filing.  The Company  deferred the upfront  payment and recognized  revenues
ratably,  on a  straight-line  basis over the related  service  period,  through
December 2002. The Company has deferred the milestone  payments received to date
and  recognizes  revenues  ratably,  on a straight  line basis over the  related
service period,  through March 2021. For the years ended June 30, 2004 and 2003,
respectively,  the Company  recognized  revenues of  approximately  $161,000 and
$370,000 in connection with the upfront and milestone payments received to date.

         Deferred costs included royalty payments that became due and payable to
SRI upon the Company's execution of the co-development  agreement with ILEX. The
Company  defers all  royalty  payments  made to SRI and  recognizes  these costs
ratably, on a straight-line basis, concurrent with revenue that is recognized in
connection  with the ILEX  agreement.  Research and  Development  costs  include
approximately  $81,000 and  $207,000 for the years ended June 30, 2004 and 2003,
respectively, related to such charges.

         The Company  received a nonrefundable  upfront payment of $1.25 million
when  it  entered  into  the  License  and  Sublicense   Agreement  with  Dechra
Pharmaceuticals  in May 2003.  The  Company  deferred  the  upfront  payment and
recognizes  revenues ratably,  on a straight-line basis over the related service
period,  through May 2014.  The  Company  recognized  revenues of  approximately
$114,000 and $12,000 in connection  with the upfront payment from Dechra for the
years ended June 30, 2004 and 2003, respectively.

         Deferred costs include royalty  payments that became due and payable to
Stegram  Pharmaceuticals  Ltd. upon the  Company's  execution of the License and
Sub-License  Agreement  with Stegram in May 2003. The Company defers all royalty
payments made to Stegram and recognizes these costs ratably,  on a straight-line
basis  concurrent  with revenue that is recognized in connection with the Dechra
agreement.  Research and  Development  costs include  approximately  $23,000 and
$2,000 for the years ended June 30, 2004 and 2003, respectively.

         On May 7, 2002 we  authorized  the issuance and sale of up to 5,920,000
shares  of  Series A  Convertible  Preferred  Stock.  The  Series A  Convertible
Preferred  Stock may be  converted  into  shares of common  stock at an


                                       30
<PAGE>


initial  conversion  price of  $1.50  per  share of  common  stock,  subject  to
adjustment for stock splits, stock dividends,  mergers, issuances of cheap stock
and other similar transactions.  Holders of Series A Convertible Preferred Stock
also received,  in respect of each share of Series A Convertible Preferred Stock
purchased in a private  placement  which took place in May 2002,  one warrant to
purchase  one share of our common  stock at an initial  exercise  price of $2.00
subject to adjustment.

         Through May 16, 2002 we have sold an aggregate  of 5,916,666  shares of
Series A Convertible Preferred Stock in the May 2002 private placement for $3.00
per share and warrants to purchase an  aggregate  of 5,916,666  shares of common
stock,  resulting in aggregate gross proceeds of  approximately  $17,750,000.  A
portion of the  proceeds  were used to repay in full the Jano  Holdings  and SCO
Capital  obligations  upon which such  facilities  were terminated as well as to
repay fees amounting to $1,610,000 related to the transaction.

         On March 22, 2004,  we  consummated  a private  placement  transaction,
pursuant to which we raised  $12.8  million and issued  2,044,514  shares of our
common stock and warrants to purchase an additional 408,903 shares of our common
stock  at a  conversion  price of $7.50  per  share.  We  recorded  proceeds  of
$11,792,801  net of all legal,  professional  and  financing  fees  incurred  in
connection with the offering. We consummated a second closing for this financing
on May 13, 2004 in order to comply with certain  contractual  obligations to our
holders of Series A Convertible Preferred Stock which hold preemptive rights for
equity offerings.  We raised an additional $3.2 (net of all legal,  professional
and financial  services  incurred) million from the second closing and issued an
additional  558,384 shares of our common stock and warrants to purchase  111,677
shares of our common stock at a conversion price of $7.50 per share.

         On June 30, 2004, we have cash and cash  equivalents  of  approximately
$19,166,000 and working capital of $18,828,000 which management believes will be
sufficient to continue  currently planned operations over the next 12 months. We
can not ensure additional funds will not be raised during the next twelve months
because  of the  significant  scale up of our  operating  activities,  including
clofarabine  development and the launch of Modrenal(R).  However, if required or
desirable, there can be no assurance that suitable debt or equity financing will
be available  for the Company.  Further,  although we do not  currently  plan to
acquire or obtain licenses for new technologies,  if any such opportunity arises
and we deem it to be in our  interests  to  pursue  such an  opportunity,  it is
possible that additional financing would be required for such a purpose.

         We  anticipate  that we may  continue  to incur  significant  operating
losses for the fiscal year ended June 30, 2005.  There can be no assurance as to
whether  or where we will  generate  material  revenues  or  achieve  profitable
operations.

         The Company has the following commitments as of June 30, 2004:


<TABLE>
<CAPTION>
                                                  Payments Due in

                                              Total              2005             2006          2007
<S>                                            <C>                <C>             <C>          <C>
Employee Contracts                             474,539            474,539              -            -
Occupancy Lease and Automobiles                278,673            205,569         62,919       10,185
Total                                          753,212            680,108         62,919       10,185
</TABLE>


         The Company has a  commitment  under its  operating  lease with the New
York office.  The Company leases 3,229 square feet under a lease that expires on
September  30,  2005.  The Company  leases  approximately  1,000  square feet in
Edinburgh, Scotland under lease agreement for its subsidiary,  Bioenvision, Ltd.
which expire on August 31, 2004.

Plan of Operation

         We are an emerging  biopharmaceutical  company with a primary  business
focus on the development and distribution of drugs to treat cancer. We intend to
seek approval for  clofarabine  as a treatment for relapsed or refractory  acute
leukemia in children and,  subsequently,  as first-line  therapy for adults with
Acute  Myeloid  Leukemia  (AML).  Further  Phase I Clinical  Trials are  ongoing
testing  clofarabine  in solid  tumors  and  chronic  leukemia  and we intend to
aggressively pursue label extensions in these and other areas from and after the
date we receive the first license to market clofarabine.

         Further,  we intend to seek  approval  of  Modrenal(R)  in the  largest
European countries and commence marketing this drug outside of the U.K. where it
is approved  for  treatment  of advanced  post-menopausal  breast


                                       31
<PAGE>


cancer and to complete Phase II trials in the U.S. for prostate cancer and Phase
II and IV pre-menopausal and post-menopausal breast cancer trials in the U.K. We
expect our third product, gossypol, to enter Phase I Clinical Trials in the U.K.
in Q4 of calendar 2004.

         Our secondary business strategy is to continue to develop our portfolio
of ancillary products and technologies. We anticipate that revenues derived from
clofarabine and  Modrenal(R)  will permit us to further develop our portfolio of
ancillary products and technologies.

         Once a product is  launched  into the market for a  particular  disease
indication, we plan to work with numerous collaborators, both pharmaceutical and
clinical,  in the oncology community to extend the permitted uses of the product
to other indications.  In order to market our products effectively, we intend to
develop  marketing  alliances with strategic  partners and may co-promote and/or
co-market in certain territories.

         We plan to continue to use a major portion of the proceeds of the March
and May 2004  private  placement to complete our  currently  conducted  clinical
trials for  clofarabine  and  Modrenal(R)  described  above and to initiate  new
clinical trials for our lead drugs in Europe.  Further, over the next 12 months,
we intend  to use such  proceeds,  in part,  to  continue  our  internal  growth
strategy to provide the necessary regulatory,  sales and marketing  capabilities
which  will  be  required  to  pursue  the  expanded  development  programs  for
clofarabine and Modrenal(R) described above.

         We plan to identify  licensing  partners for  OLIGON(R) and to continue
developing new aspects of the technology.  We also plan to continue  development
of methylene blue and other products in our pipeline.

         With  respect  to  our  gene  therapy  technology,  we  have  completed
laboratory  research  which  confirms  proof of  principal  of our gene  therapy
technology  and has added to the  pre-clinical  data which will be important for
any subsequent regulatory  submission.  This laboratory research was required to
allow the Company and the  research  departments  of the  relevant  universities
assisting  with this  technology  to file  patents  for which  the  Company  has
licensing rights. We now plan to perform additional clinical trials with the two
lead products related to this technology.

Recent Accounting Pronouncements

         On December 31,  2002,  the FASB issued SFAS No. 148,  "Accounting  for
Stock Based  Compensation  Transition  and  Disclosure"  ("SFAS 148").  SFAS 148
amends FASB Statement No. 123,  "Accounting  for Stock Based  Compensation,"  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 and APB Opinion No. 28,  "Interim  Financial
Reporting,"  to require  disclosure  on 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 and earnings per share
in annual and interim financial  statements.  While SFAS 148 does not amend SFAS
123 to require  companies to account for employee  stock  options using the fair
value  method,  the  disclosure  provisions  of SFAS 148 are  applicable  to all
companies with  stock-based  employee  compensation,  regardless of whether they
account  for the  compensation  using the fair  value  method of SFAS 123 or the
intrinsic  value  method of APB  Opinion 25. The  Company  adopted the  required
disclosure provisions of SFAS 148 as described under accounting policy footnote,
"Stock Based Compensation."

         In May  2003,  the  Emerging  Issues  Task  Force  ("EITF")  reached  a
consensus  on  EITF  Issue  No.  00-21,   "Revenue  Arrangements  with  Multiple
Deliverables"  ("EITF 00-21").  EITF 00-21 provides guidance on how to determine
when an  arrangement  that involves  multiple  revenue-generating  activities or
deliverables  should be divided into separate  units of  accounting  for revenue
recognition  purposes,  and if this  division is required,  how the  arrangement
consideration  should be allocated  among the separate units of accounting.  The
guidance in the consensus is effective for revenue  arrangements entered into in
quarters  beginning  after June 15,  2003.  The  adoption  of EITF 00-21 did not
impact the Company's  consolidated  financial position or results of operations,
but could  affect  the  timing or  pattern  of  revenue  recognition  for future
collaborative research and/or license agreements.

Subsequent Events

         In July 2004,  the Company filed for approval of  clofarabine in Europe
for the treatment of relapsed or refractory acute leukemia in children. The EMEA
accepted  and   validated  the   application   and  has  commenced  a  marketing
authorization review for clofarabine.


                                       32
<PAGE>


         In July 2004, the Company hired a new employee to serve in the capacity
as Vice  President,  Corporate  Compliance and Associate  General Counsel of the
Company.

         In July 2004, the Company  commenced  enrollment of patients in a Phase
II clinical study of Modrenal(R) in androgen independent prostate cancer.

         In August 2004,  shares of the Company's common stock commenced trading
on the NASDAQ National Market.

         In August 2004,  the Company  commenced  enrollment  of patients in its
Pivotal Phase II study to evaluate the use of clofarabine as first-line  therapy
for the treatment of adults with Acute Myeloid Leukemia.

Item 7.  Financial Statements

         The  consolidated  financial  statements of  Bioenvision,  Inc. and its
subsidiaries  including the notes thereto and the report  thereon,  is presented
beginning at page F-1.

Item 8.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

         None.

Item 8a.   Controls and Procedures

         Evaluation of Disclosure Controls and Procedures

         Our principal  executive  officer and principal  financial officer have
evaluated  the  effectiveness  of the design  and  operation  of our  disclosure
controls and procedures (as defined in Rules  13a-15(e) and 15d-15(e)  under the
Securities Exchange Act of 1934, as amended) as of the end of the period covered
by this annual report on Form 10-KSB.  Based on this  evaluation,  our principal
executive   officer  and  principal   financial  officer  concluded  that  these
disclosure controls and procedures are effective and designed to ensure that the
information required to be disclosed in our reports filed or submitted under the
Securities Exchange Act of 1934, as amended, is recorded, processed,  summarized
and reported within the requisite time periods.

         In connection with its review of the Company's  consolidated  financial
statements  for and as of the three month  period  ended March 31,  2004,  Grant
Thornton LLP ("Grant Thornton"), the Company's independent accountants,  advised
the Audit  Committee and  management  of certain  significant  internal  control
deficiencies that they considered to be, in the aggregate,  a material weakness,
including,   inadequate   staffing  and  supervision  leading  to  the  untimely
identification and resolution of certain accounting matters;  failure to perform
timely reviews,  substantiation and evaluation of certain general ledger account
balances;  lack of  procedures  or  expertise  needed to  prepare  all  required
disclosures; and evidence that employees lack the qualifications and training to
fulfill their assigned functions.  Grant Thornton indicated that they considered
these  deficiencies  to be a material  weakness  as that term is  defined  under
standards established by the American Institute of Certified Public Accountants.
A material  weakness is a significant  deficiency in one or more of the internal
control components that alone or in the aggregate precludes our internal control
from reducing to an appropriately low level the risk that material misstatements
in our financial statements will not be prevented or detected on a timely basis.
The Company  considered these matters in connection with the quarter end closing
of accounts and preparation of related quarterly financial  statements at and as
of March 31, 2004 and determined that no prior period financial  statements were
materially affected by such matters.

         In response to the  observations  made by Grant  Thornton,  the Company
will proceed more  expeditiously with its existing plan to enhance the Company's
internal  controls  and  procedures,  which it  believes  addresses  each of the
matters raised by Grant Thornton.

         Changes in Internal Controls

         We enhanced our internal  control  procedures in March 2004 by adding a
full-time dedicated accountant with more than seven years work experience to the
staff in our principal  executive  offices in New York, New York. Our accountant
works  directly  for our  outsourced  accounting  firm  which  assists us in the
preparation  and   finalization  of  our  accounts  on  an  ongoing  basis.  Her
responsibilities  include preparation of the Company's


                                       33
<PAGE>


financial  statements  on a  quarterly  and  annual  basis  and  preparation  of
budget-to-actual analyses on a quarterly basis. Our management intends to expand
her  responsibilities  on our behalf to include preparation of monthly financial
statements  and monthly  and annual  budget-to-actual  analyses.  We believe the
addition of this dedicated  resource will further enhance the Company's internal
control  over  financial  reporting  in the near  term,  which  management  will
continue to monitor on a regular basis.

         In June 2004,  we hired a new employee to serve as our Vice  President,
Corporate  Compliance and Associate General Counsel.  This new employee has five
years of corporate law experience with a full-service  internationally based law
firm in the office located in New York, New York.  She has  represented  several
public  companies  and is  knowledgeable  with  respect  to  contract  law,  the
requirements  under the Sarbanes-Oxley Act and other areas of public disclosure.
We intend to continue to streamline the  responsibilities of our Chief Financial
Officer and General  Counsel to permit him to focus more of his time and effort,
as needed, on the accounting and financial reporting needs of the Company.

         Further, in July 2004, the Company adopted, and management implemented,
a comprehensive set if internal accounting controls,  which were approved by the
audit committee.


                                       34
<PAGE>


                                    PART III

         The  information  required  for Part III in this Annual  Report on Form
10-KSB  is  incorporated  by  reference  from  the  Company's  definitive  proxy
statement for the Company's 2004 Annual Meeting of Stockholders.


Item 13.  Exhibits and Reports on Form 10-KSB


Exhibit
Number                                     Description
-------                                    -----------
2.1               Acquisition Agreement between Registrant and Bioenvision, Inc.
                  dated December 21, 1998 for the acquisition of 7,013,897
                  shares of Registrant's Common Stock by the stockholders of
                  Bioenvision, Inc. (1)

2.2               Amended and Restated Agreement and Plan of Merger, dated as of
                  February 1, 2002, by and among Bioenvision, Inc., Bioenvision
                  Acquisition Corp. and Pathagon, Inc. (5)

3.1               Certificate of Incorporation of Registrant. (2)

3.1(a)            Amendment to Certificate of Incorporation filed January 29,
                  1999. (3)

3.1(b)            Certificate of Correction to the Certificate of Incorporation,
                  filed March 15, 2002 (6)

3.1(c)            Certificate of Amendment to the Certificate of Incorporation,
                  filed April 30, 2002 (6)

3.1(d)            Certificate of Designations, Preferences and Rights of series
                  A Preferred Stock (6)

3.1(e)            Certificate of Amendment to the Certificate of Incorporation,
                  filed January 14, 2004 (15)

3.2               Amended and Restated By-Laws of the Registrant. (13)

4.1               Registration Rights Agreement, dated as of February 1, 2002,
                  by and among Bioenvision, Inc., the former shareholders of
                  Pathagon, Inc. party thereto, Christopher Wood, Bioaccelerate
                  Limited, Jano Holdings Limited and Lifescience Ventures
                  Limited. (8)

4.2               Stockholders Lock-Up Agreement, dated as of February 1, 2002,
                  by and among Bioenvision, Inc., the former shareholders of
                  Pathagon, Inc. party thereto, Christopher Wood, Bioaccelerate
                  Limited, Jano Holdings Limited and Lifescience Ventures
                  Limited. (8)

4.3               Form of Securities Purchase Agreement by and among
                  Bioenvision, Inc. and certain purchasers, dated as of May 7,
                  2002. (6)

4.4               Form of Registration Rights Agreement by and among
                  Bioenvision, Inc. and certain purchasers, dated as of May 7,
                  2002. (6)

4.5               Form of Warrant (6)

4.6               Registration Rights Agreement, dated April 2, 2003, by and
                  between Bioenvision, Inc. and RRD International, LLC (14)



                                       35
<PAGE>


4.7               Warrant, dated April 2, 2003, made by Bioenvision, Inc. in
                  favor of RRD International, LLC (14)

4.8               Common Stock and Warrant Purchase Agreement, dated as of March
                  22, 2004, by and among Bioenvision, Inc. and the Investors set
                  forth on Schedule I thereto (16)

4.9               Registration Rights Agreement, dated March 22, 2004, by and
                  between Bioenvision, Inc. and the Investors set forth on
                  Schedule I thereto (16)

4.10              Form of Warrant (16)

4.11              Bioenvision, Inc. 2003 Stock Incentive Plan (17)

10.1              Pharmaceutical Development Agreement, dated as of June 10,
                  2003, by and between Bioenvision, Inc. and Ferro Pfanstiehl
                  Laboratories, Inc.

10.2              Co-Development Agreement between Bioheal, Ltd. and Christopher
                  Wood dated May 19, 1998. (3)

10.3              Master Services Agreement, dated May 14, 2003, by and between
                  PennDevelopment Pharmaceutical Services Limited and
                  Bioenvision, Inc.

10.4              Co-Development Agreement between Stegram Pharmaceuticals, Ltd.
                  and Bioenvision, Inc. dated July 15, 1998. (3)

10.5              Co-Development Agreement between Southern Research Institute
                  and Eurobiotech Group, Inc. dated August 31, 1998. (3)

10.5(a)           Agreement to Grant License from Southern Research Institute to
                  Eurobiotech Group, Inc. dated September 1, 1998. (3)

10.6              License and Sub-License Agreement, dated as of May 13, 2003,
                  by and between Bioenvision, Inc. and Dechra Pharmaceuticals,
                  plc

10.7              Employment Agreement between Bioenvision, Inc. and Christopher
                  B. Wood, M.D., dated December 31, 2002 (3)

10.8              Employment Agreement between Bioenvision, Inc. and David P.
                  Luci, dated March 31, 2003 (14)

10.9              Securities Purchase Agreement with Bioaccelerate Inc dated
                  March 24, 2000. (4)

10.10             Engagement Letter Agreement, dated as of November 16, 2001, by
                  and between Bioenvision, Inc. and SCO Securities LLC. (7)

10.11             Security Agreement, dated as of November 16, 2001, by
                  Bioenvision, Inc. in favor of SCO Capital Partners LLC. (7)

10.12             Commitment Letter, dated November 16, 2001, by and between SCO
                  Capital Partners LLC and Bioenvision, Inc. (7)

10.13             Senior Secured Grid Note, dated November 16, 2001, by
                  Bioenvision, Inc. in favor of SCO Capital Partners LLC. (7)

10.14             Exclusive License Agreement by and between Baxter Healthcare
                  Corporation, acting through its Edwards Critical-Care
                  division, and Implemed, dated as of May 6, 1997. (12)

10.15             License Agreement by and between Oklahoma Medical Research



                                       36
<PAGE>


                  Foundation and bridge Therapeutic Products, Inc., dated as of
                  January 1, 1998. (12)

10.16             Amendment No. 1 to License Agreement by and among Oklahoma
                  Medical Research Foundation, Bioenvision, Inc. and Pathagon,
                  Inc., dated May 7, 2002. (12)

10.17             Inter-Institutional Agreement between Sloan-Kettering
                  Institute for Cancer Research and Southern Research Institute,
                  dated as of August 31, 1998. (12)

10.18             License Agreement between University College London and
                  Bioenvision, Inc., dated March 1, 1999. (12)

10.19             Research Agreement between Stegram Pharmaceuticals Ltd., Queen
                  Mary and Westfield College and Bioenvision, Inc., dated June
                  8, 1999 (12)

10.20             Research and License Agreement between Bioenvision, Inc.,
                  Velindre NHS Trust and University College Cardiff Consultants,
                  dated as of January 9, 2001. (12)

10.21             Co-Development Agreement, between Bioenvision, Inc. and ILEX
                  Oncology, Inc., dated March 9, 2001. (12)

10.22             Amended and Restated Agreement and Plan of Merger, dated as of
                  February 1, 2002, among Bioenvision, Inc., Bioenvision
                  Acquisition Corp. and Pathagon Inc. (5)

10.23             Master Services Agreement, dated as of April 2, 2003, by and
                  between Bioenvision, Inc. and RRD International, LLC. (14)

10.24             Employment Agreement between Bioenvision Limited and Hugh
                  Griffith, made effective as of October 23, 2002 (18)

10.25             Employment Agreement between Bioenvision Limited and Ian
                  Abercrombie, made effective as of January 6, 2003 (18)

14.1              Bioenvision Inc.'s Code of Business Conduct and Ethics

16.1              Letter from Graf Repetti & Co., LLP to the Securities and
                  Exchange Commission, dated September 30, 1999. (9)

16.2              Letter from Ernst & Young LLP to the Securities and Exchange
                  Commission, dated July 6, 2001. (10)

16.3              Letter from Ernst & Young LLP to the Securities and Exchange
                  Commission, dated August 16, 2001. (11)

21.1              Subsidiaries of the registrant (4)

23.1              Consent Of Independent Registered Public Accounting Firm

24.1              Power of Attorney (appears on signature page)

31.1              Certification of Christopher B. Wood, Chief Executive Officer,
                  as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
                  of 2002.

31.2              Certification of David P. Luci, Chief Accounting Officer, as
                  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.

32.1              Certification of Chief Executive Officer pursuant to 18 U.S.C.
                  Section 1350, as adopted


                                       37
<PAGE>

                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2              Certification of Chief Accounting Officer pursuant to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.

-----------------------
(1)     Incorporated by reference and filed as an Exhibit to Registrant's
        Current Report on Form 8-K filed with the SEC on January 12, 1999.

(2)     Incorporated by reference and filed as an Exhibit to Registrant's
        Registration Statement on Form 10-12g filed with the SEC on September 3,
        1998.

(3)     Incorporated by reference and filed as an Exhibit to Registrant's Form
        10-KSB/A filed with the SEC on October 18, 1999.

(4)     Incorporated by reference and filed as an Exhibit to Registrant's Form
        10-KSB filed with the SEC on November 13, 2000.

(5)     Incorporated by reference and filed as an Exhibit to Registrant's
        Current Report on Form 8-K filed with the SEC on April 16, 2002.

(6)     Incorporated by reference and filed as an Exhibit to Registrant's
        Current Report on Form 8-K, filed with the SEC on May 28, 2002.

(7)     Incorporated by reference and filed as an Exhibit to Registrant's
        Current Report on Form 8-K, filed with the SEC on January 8, 2002.

(8)     Incorporated by reference and filed as an Exhibit to Registrant's
        Current Report on Form 8-K, filed with the SEC on February 21, 2002.

(9)     Incorporated by reference and filed as an Exhibit to Registrant's
        Current Report on Form 8-K, filed with the SEC on October 1, 1999.

(10)    Incorporated by reference and filed as an Exhibit to Registrant's
        Current Report on Form 8-K/A, filed with the SEC on July 26, 2001.

(11)    Incorporated by reference and filed as an Exhibit to Registrant's
        Current Report on Form 8-K, filed with the SEC on December 6, 2001.

(12)    Incorporated by reference and filed as an Exhibit to Registrant's
        Current Report on Form 8-K, filed with the SEC on June 24, 2002.

(13)    Incorporated by reference and filed as an Exhibit to Registrant's
        Quarterly Report on Form 10-QSB for the three-month period ended
        December 31, 2002.

(14)    Incorporated by reference and filed as an Exhibit to Registrant's
        Quarterly Report on Form 10-QSB for the three-month period ended March
        31, 2003.

(15)    Incorporated by reference and filed as an Exhibit to Registrant's
        Quarterly Report on Form 10-QSB for the three- month period ended
        December 31, 2004.

(16)    Incorporated by reference and filed as an Exhibit to Registrant's
        Current Report on Form 8-K, filed with the SEC on March 24, 2004.

(17)    Registrant's definitive proxy statement on Schedule 14-A, filed in
        connection with the annual meeting held on January 14, 2004.

(18)    Incorporated by reference and filed as an Exhibit to Registrant's
        Quarterly Report on Form 10-QSB for the three-month period ended
        September 30, 2003.


                                       38
<PAGE>





(b) Reports on Form 8-K. No Current Reports on Form 8-K were filed by the
registrant during the last quarter of the period covered by this report.


                                       39
<PAGE>


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>

<S>                                                                                           <C>
Report of Independent Registered Public Accounting Firm                                       F-1

Consolidated Balance Sheets as of June 30, 2004 and 2003                                      F-2

Consolidated Statements of Operations for years ended June 30, 2004 and 2003                  F-3

Consolidated  Statements of Stockholders' Equity (Deficit) for years ended June 30, 2004      F-4
and 2003

Consolidated Statements of Cash Flows for years ended June 30, 2003 and 2002                  F-5

Notes to Consolidated Financial Statements                                                    F-6
</TABLE>






<PAGE>



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Stockholders of Bioenvision, Inc. and Subsidiaries

We have audited the  accompanying  consolidated  balance sheets of  Bioenvision,
Inc. and Subsidiaries as of June 30, 2004 and 2003 and the related  consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements 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 Bioenvision,  Inc.
and Subsidiaries as of June 30, 2004 and 2003, and the  consolidated  results of
their  operations  and cash flows for the years then  ended in  conformity  with
accounting principles generally accepted in the United States of America.


/s/ Grant Thornton LLP

GRANT THORNTON LLP
New York, New York
September 16, 2004


                                      F-1
<PAGE>


                       Bioenvision, Inc. and Subsidiaries
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                      June 30,                    June 30,
                                                                                        2004                        2003
                                                                                   ------------                  -----------
                                  ASSETS
<S>                                                                                <C>                           <C>
Current assets
    Cash and cash equivalents                                                      $ 18,875,675                  $ 7,929,686
    Restricted cash                                                                     290,000                      290,000
    Deferred costs - current                                                            241,824                       22,727
    Accounts receivable                                                               2,627,773                       25,000
    Other assets                                                                        253,311                      105,976
                                                                                   ------------                  -----------
        Total current assets                                                         22,288,583                    8,373,389

  Property and equipment, net                                                            47,857                       49,265
  Deferred costs - long term                                                          3,651,471                      224,937
  Intangible assets, net                                                             14,563,660                   15,779,399
  Goodwill                                                                            3,902,705                    3,902,705
  Security deposits                                                                      79,111                       79,111
  Other long term assets                                                                  -                          126,869
                                                                                   -------------                 -----------

        Total assets                                                               $ 44,533,387                  $28,535,675
                                                                                    ===========                  ===========

                    LIABILITIES AND STOCKHOLDERS' EQUITY

  Current liabilities
    Accounts payable                                                               $  1,495,866                  $   411,392
    Accrued expenses                                                                  1,322,584                      730,722
    Accrued dividends payable                                                            90,141                    1,009,146
    Deferred revenue - current                                                          551,828                      113,636
                                                                                   ------------                  -----------
        Total current liabilities                                                     3,460,419                    2,264,896

  Deferred revenue - long term                                                        7,909,598                    1,124,685
  Deferred tax liability - non-current                                                5,780,799                    6,317,702
                                                                                   ------------                  -----------
        Total liabilities                                                            17,150,816                    9,707,283
                                                                                   ------------                   ----------


  Stockholders' equity
    Preferred stock - $0.001 par value; 20,000,000 and 5,920,000 shares
    authorized and 3,341,666 and 5,916,666 shares issued and
    outstanding at June 30, 2004 and June 30, 2003, respectively
    (liquidation preference $10,024,998 and $17,749,998 at
    June 30, 2004 and June 30, 2003, respectively)                                        3,342                        5,917
    Common stock - $0.001 par value; 70,000,000 and 50,000,000 shares
    authorized and  28,316,163 and 17,122,739 shares issued
    and outstanding at June 30, 2004 and June 30, 2003, respectively                     28,316                       17,123
    Additional paid-in capital                                                       68,517,702                   47,304,449
    Deferred compensation                                                              (223,990)                           -
    Accumulated deficit                                                             (41,082,397)                 (28,651,443)
    Accumulated other comprehensive income                                              139,598                      152,346
                                                                                   ------------                  -----------
         Stockholders' equity                                                        27,382,571                   18,828,392
                                                                                   ------------                  -----------

         Total liabilities and stockholders' equity                                $ 44,533,387                  $28,535,675
                                                                                   ============                  ===========
</TABLE>


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


                                      F-2
<PAGE>


                       Bioenvision, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                                                  Year ended
                                                                                                   June 30,
                                                                                   -----------------------------------------
                                                                                        2004                        2003
                                                                                   ------------                  -----------
<S>                                                                                <C>                           <C>
     License and royalty revenue                                                   $  1,187,212                  $   504,857
     Research and development contract revenue                                        1,915,002                         -
                                                                                   ------------                  -----------

Total revenue                                                                         3,102,214                      504,857

Costs and expenses
    Research and development                                                          4,882,574                    1,689,278
    Selling, general and administrative                                               9,082,420                    4,567,413
         (includes stock based compensation expense of $3,491,252
         and $1,812,894 for the twelve months ended June 30, 2004 and 2003,
         respectively. )
    Depreciation and amortization                                                     1,348,064                    1,344,969
                                                                                     ----------                  -----------

Total costs and expenses                                                             15,313,058                    7,601,660
                                                                                    -----------                  -----------

Loss from operations                                                                (12,210,844)                  (7,096,803)

Interest income (expense)
    Interest and finance charges                                                              -                     (325,000)
    Interest income                                                                      99,763                      138,574
                                                                                     ----------                  -----------


Net loss before income tax benefit                                                  (12,111,081)                  (7,283,229)

Income tax benefit                                                                      536,903                      536,903
                                                                                    -----------                  -----------

Net loss                                                                            (11,574,178)                  (6,746,326)

Cumulative preferred stock dividend                                                    (856,776)                    (877,818)
                                                                                       --------                  -----------

Net loss available to common stockholders                                          $(12,430,954)                 $(7,624,144)
                                                                                   ============                  ===========

Basic and diluted net loss per share of common stock                               $      (0.61)                 $      (.45)
                                                                                   ============                  ===========

Weighted-average shares used in
    computing basic and diluted
    net loss per share                                                               20,257,482                   16,920,939
                                                                                   ============                  ===========

</TABLE>

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


                                      F-3
<PAGE>


                       Bioenvision, Inc. and Subsidiaries
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>

                                                                                       Additional
                                        Preferred  Stock         Common Stock           Paid In       Deferred
                                       -----------------------------------------
                                        Shares        $     Shares            $         Capital     Compensation
                                       ---------------------------------------------------------------------------
<S>                                    <C>         <C>       <C>           <C>        <C>             <C>
         Balance at June 30, 2002      5,916,666   $5,917    16,887,786    $16,888    $45,491,554


Net loss for the year
Cumulative preferred stock
dividend
Shares issued to consultants for
services                                                        234,953        235      1,258,080
Warrants issued in connection
with services                                                                             182,350


Repricing of options                                                                      372,465
                                       ---------   ------    ----------     ------     ----------   -----------
         Balance at June 30, 2003      5,916,666    5,917    17,122,739     17,123     47,304,449



Net loss for the year
Cumulative preferred stock
dividend

Currency translation adjustment


Deferred compensation                                                                                  $(223,990)
Shares issued in connection with
private placement                                            2,602,898       2,603     16,265,495
Costs related to  private
placement                                                                             (1,301,035)
Preferred stock converted to
common stock                          (2,575,000)  (2,575)   5,150,000       5,150        (2,575)
Expense related to repricing of
options                                                                                 2,381,066
Cashless exercises of options to
shares                                                       2,122,682       2,122        (2,122)
Warrants issued in connection
with services                                                                             671,601
Shares issued to consultants for
services                                                        14,510          15        305,972

Shares issued to employee                                       20,000          20         28,380
Options issued in connection
with services                                                                              93,987
Options issued to employees                                                               262,601

Shares issued from warrant
conversions                                                   1,283,334       1,283      2,509,883
                                       ----------   ------    ----------     ------     ----------   ------------

         Balance at June 30, 2004     $3,341,666   $3,342    28,316,163    $28,316    $68,517,702     $(223,990)
                                      ==========   ======    ==========    =======    ===========   ============

The accompanying notes are an integral part of this financial statement.
</TABLE>


<TABLE>
<CAPTION>
                                                       Accumulated          Total
                                                         Other           Stockholders'
                                        Accumulated    Comprehensive       Equity

                                           Deficit       Income          (Deficit)
                                      -----------------------------      ------------
<S>                                   <C>                <C>              <C>
         Balance at June 30, 2002     $(21,027,299)      $152,346        $24,639,405


Net loss for the year                   (6,746,326)                       (6,746,326)
Cumulative preferred stock
dividend                                  (877,818)                         (877,818)
Shares issued to consultants for
services                                                                    1,258,080
Warrants issued in connection
with services                                                                 182,350


Repricing of options                                                          372,465
                                       ------------     ---------          ----------
         Balance at June 30, 2003      (28,651,443)       152,346          18,828,392



Net loss for the year                  (11,574,178)                      (11,574,178)
Cumulative preferred stock
dividend                                  (856,776)                         (856,776)

Currency translation adjustment                          (12,748)            (12,748)


Deferred compensation                                                       (223,990)
Shares issued in connection with
private placement                                                          16,268,098
Costs related to  private
placement                                                                 (1,301,035)
Preferred stock converted to
common stock
Expense related to repricing of
options                                                                     2,381,066
Cashless exercises of options to
shares
Warrants issued in connection
with services                                                                 671,601
Shares issued to consultants for
services                                                                      305,987

Shares issued to employee                                                      28,400
Options issued in connection
with services                                                                  93,987
Options issued to employees                                                   262,601

Shares issued from warrant
conversions                                                                 2,511,166
                                      -------------     ---------          ----------

         Balance at June 30, 2004     $(41,082,397)      $139,598         $27,382,571
                                      =============     =========         ===========

The accompanying notes are an integral part of this financial statement.
</TABLE>



                                      F-4
<PAGE>




                       Bioenvision, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                                  Year ended
                                                                                                   June 30,
                                                                                   -----------------------------------------
                                                                                        2004                        2003
                                                                                   ------------                  -----------
<S>                                                                                <C>                           <C>
 Cash flows from operating activities
     Net loss                                                                      $(11,574,178)                 $(6,746,326)
                                                                                   ------------                   ----------
     Adjustments to reconcile net loss to net
        cash used in operating activities
          Depreciation and amortization                                               1,348,064                    1,344,969
          Deferred tax benefit                                                         (536,903)                    (536,903)
          Compensation costs-shares and warrants issued to non-employees              1,071,575                    1,440,429
          Compensation costs-re-pricing of options                                    2,381,066                      372,465
          Compensation costs-options issued to employees                                 38,611
          Changes in assets and liabilities
              Deferred costs                                                         (3,645,631)                     (63,573)
              Deferred revenue                                                        7,223,105                      870,139
              Accounts payable                                                        1,084,474                      (22,924)
              Other current assets                                                     (147,335)                    (105,976)
              Other long term assets                                                    126,870                     (126,869)
              Accounts receivable                                                    (2,602,773)                      25,000
              Security deposits                                                                                      (79,111)
              Other accrued expenses and liabilities                                    591,862                     (782,901)
                                                                                   ------------                  -----------
                     Net cash used in operating activities                           (4,641,193)                  (4,411,581)
                                                                                   ------------                  -----------

 Cash flows from investing activities
     Purchase of intangible assets                                                     (112,580)                    (191,848)
     Capital expenditures                                                               (18,337)                     (59,406)
     Restricted cash                                                                       -                        (290,000)
                                                                                   ------------                  -----------
                     Net cash used in investing activities                             (130,917)                    (541,254)
                                                                                   ------------                  -----------

 Cash flows from financing activities
     Proceeds from issuance of common stock                                          14,967,064
     Proceeds from exercise of options, warrants and other convertible
     securities                                                                       2,539,565

     Cash dividend paid                                                              (1,775,782)
                                                                                   ------------                  -----------

                     Net cash provided by financing activities                       15,730,847
                                                                                   ------------                  -----------
 Effect of exchange rate on cash                                                        (12,748)

                     Net increase (decrease) in cash and cash
                     equivalents                                                     10,945,989                   (4,952,835)


 Cash and cash equivalents, beginning of year                                         7,929,686                   12,882,521
                                                                                   ------------                  -----------

 Cash and cash equivalents, end of year                                            $ 18,875,675                   $7,929,686
                                                                                   ============                  ===========

The accompanying notes are an integral part of these financial statements.
</TABLE>


                                      F-5
<PAGE>



                       BIOENVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003

Note 1 - Organization and significant accounting policies

Description of business

Bioenvision, Inc. ("Bioenvision" or the "Company") is an emerging
biopharmaceutical company whose primary business focus is the acquisition,
development and distribution of drugs to treat cancer. The Company has a broad
range of products and technologies under development, but its two lead drugs are
clofarabine and Modrenal(R). Modrenal(R) is approved for marketing in the U.K.
for advanced breast cancer. The Company's plan is to bring Modrenal(R) into the
U.S. to perform further clinical trials and to access the U.S. market. Most of
the Company's other drugs are now in clinical trials in various stages of
development.

The Company was incorporated as Express Finance, Inc. under the laws of the
State of Delaware on August 16, 1996, and changed its name to Ascot Group, Inc.
in August 1998 and further to Bioenvision, Inc. in December 1998.

On February 1, 2002, the Company completed the acquisition of Pathagon Inc.
("Pathagon"), a privately held company focused on the development of novel
anti-infective products and technologies. Pathagon's principal products are
OLIGON(R) and methylene blue. Affiliates of SCO Capital Partners LLC, the
Company's financial advisor and consultant, owned 82% of Pathagon prior to the
acquisition. The Company acquired 100% of the outstanding shares of Pathagon in
exchange for 7,000,000 shares of the Company's common stock. The acquisition has
been accounted for as a purchase business combination in accordance with SFAS
141.

Basis of presentation

Prior to the acquisition of Pathagon and the May 2002 private placement in which
the Company raised gross proceeds of $17.7 million (see Note 6), the Company
devoted most of its efforts to establishing a new business (raising capital,
research and development, etc.) and had been a development stage enterprise.
Management believes they now have the financial resources to market some of the
Company's late-stage products which can lead to significant revenues from
royalty payments and drug sales. Accordingly, effective June 30, 2002, the
financial statements do not reflect the required disclosure for a Development
Stage Enterprise.

Principles of consolidation

The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Inter-company accounts and
transactions have been eliminated.

Use of estimates

The preparation of financial statements in conformity with generally accepted
accounting principles of the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates, and such differences may be material to the financial statements.


                                      F-6
<PAGE>


                       BIOENVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003

Note 1 - Organization and significant accounting policies - continued

Revenue Recognition

In accordance with SEC Staff Accounting Bulletin No. 104, upfront nonrefundable
fees associated with research and development collaboration agreements where the
Company has continuing involvement in the agreement, are recorded as deferred
revenue and recognized over the estimated research and development period using
the straight-line method. If the estimated period is subsequently modified, the
period over which the up-front fee is recognized is modified accordingly on a
prospective basis using the straight-line method. Revenues from the achievement
of research and development milestones, which represent the achievement of a
significant step in the research and development process, are recognized when
and if the milestones are achieved. Continuation of certain contracts and grants
are dependent upon the Company and/or its co-development partners' achieving
specific contractual milestones; however, none of the payments received to date
are refundable regardless of the outcome of the project.

Upfront nonrefundable fees associated with licensing arrangements are recorded
as deferred revenue and recognized over the licensing arrangement using the
straight line method, which approximates the life of the patent.

In May 2003, the Emerging Issues Task Force ("EITF") reached a consensus on EITF
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF
00-21"). EITF 00-21 provides guidance on how to determine when an arrangement
that involves multiple revenue-generating activities or deliverables should be
divided into separate units of accounting for revenue recognition purposes, and
if this division is required, how the arrangement consideration should be
allocated among the separate units of accounting. The guidance in the consensus
is effective for revenue arrangements entered into in quarters beginning after
June 15, 2003. The adoption of EITF 00-21 did not impact the Company's
consolidated financial position or results of operations, but could affect the
timing or pattern of revenue recognition for future collaborative research
and/or license agreements.

Research and development

Research and development costs are charged to expense as incurred.

Stock based compensation

At June 30, 2004, the Company has stock based compensation plans which are
described more fully in Note 6. As permitted by SFAS No. 123, "Accounting for
Stock Based Compensation", the Company accounts for stock based compensation
arrangements with employees in accordance with provisions of Accounting
Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to
Employees". Compensation expense for stock options issued to employees is based
on the difference on the date of grant, between the fair value of the Company's
stock and the exercise price of the option. For year ended June 30, 2004, the
Company recognized stock based employee compensation cost of $2,381,066 as a
result of the re-pricing of 380,000 options granted to an employee pursuant to
the terms of his Employment Agreement (see Note 9). The Company also recognized
a compensation expense of $38,611 for the year ended June 30, 2004 as a result
of 505,000 options granted to certain employees on January 20, 2004.

The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS 123 and Emerging Issues Task Force no.
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling Goods or Services," as
amended by EITF 00-27. Under EITF No. 96-18, where the fair value of the equity
instrument is more reliably measurable than the fair value of services received,
such services will be valued based on the fair value of the equity instrument.
The Company expects to continue applying the provisions of APB 25 for equity
issuances to employees.


                                      F-7
<PAGE>


                       BIOENVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003

Note 1 - Organization and significant accounting policies - continued


The following table illustrates the effect on net loss and loss per share as if
the fair value based method had been applied to all outstanding and unvested
awards in each period.


<TABLE>
<CAPTION>
                                                                              Year Ended June 30,
                                                                             -------------------------
                                                                              2004          2003
                                                                             -------      -------
      <S>                                                                 <C>              <C>
      Net loss available to common stockholders, as reported              $(12,430,954)    $(7,624,144)
      Add:  Stock based employee compensation expense
           included in reported net loss, net of tax effects                 2,419,677         372,465
      Deduct:  Total stock based employee compensation
           expense determined under fair value based method
           for all awards, net of related tax effects                         (449,936)     (1,214,723)
                                                                         --------------   -------------
      Pro forma net loss available to common stockholders                 $(10,461,213)    $(8,466,402)
                                                                         ==============   =============

      Loss per share

           Basic and diluted - as reported                                  $(0.61)          $(0.45)

           Basic and diluted - pro forma                                    $(0.52)          $(0.50)
      </TABLE>

      The fair value of options at the date of grant was established using the
      Black-Scholes model with the following assumptions:

                                                         2004             2003
                                                         ----             ----

        Expected average life (years)                    4.00             4.00

        Risk free interest rate                          3.00%            3.00%

        Expected volatility                                80%              80%

        Expected dividend yield                          0.00             0.00

Income taxes

The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under FAS 109,
deferred tax assets and liabilities are determined based on the differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates that will be in effect when the differences
are expected to reverse. The Company records a valuation allowance for certain
temporary differences for which it is more likely than not that it will not
receive future tax benefits.

Net loss per share

Basic net loss per share is computed using the weighted average number of common
shares outstanding during the periods. Diluted net loss per share is computed
using the weighted average number of common shares and potentially dilutive
common shares outstanding during the periods. Options and warrants to purchase
13,674,242 and 15,749,543 shares of common stock have not been included in the
calculation of net loss per share for the years ended June 30, 2004 and 2003,
respectively, as their effect would have been anti-dilutive.


                                      F-8
<PAGE>


                       BIOENVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003

Note 1 - Organization and significant accounting policies - continued

Foreign currency translation

         Through June 30, 2001, the functional currency of the Company was the
Pound Sterling and its reporting currency was the United States dollar.
Translation adjustments arising from differences in exchange rates from these
transactions were reported as accumulated other comprehensive income in
stockholders' equity (deficit). Effective July 1, 2001, the functional and
reporting currency is the United States dollar. The functional currency of
Bioenvision Limited, the Company's wholly-owned subsidiary with offices in
Edinburgh, Scotland, is the Pound Sterling.

Cash and cash equivalents

The Company considers all highly liquid financial instruments with a maturity of
three months or less when purchased to be cash equivalents. The Company invests
all its funds with a single financial institution which provides for FDIC
insurance of $100,000. The Company has invested $13 million in certificates of
deposit which bear interest at a rate of 1.34% per annum, all of which will come
due in December 2004. All funds invested in the Certificate of Deposit may be
withdrawn at any time without penalty and therefore are classified as cash
equivalents.

Accounts Receivable

Accounts receivable are concentrated in that of the approximately $2,628,000 of
accounts receivable, $2,244,000 (85%) are due from ILEX and an additional
$334,000 (13%) are due from Stegram Pharmaceuticals. To limit credit risk, the
Company periodically evaluates the financial condition and payment history of
each of these parties.

Advertising costs

Costs related to advertising and other promotional expenditures are expensed as
incurred.

Deferred costs

Deferred costs represent royalty payments that became due and payable to SRI and
to Stegram Pharmaceutical Ltd, which relate to milestone payments received in
connection with the Ilex Co-Development Agreement and the Dechra Sub-License
Agreement, respectively. These costs have been presented together with research
and development costs on the statement of operations for the years ended June
30, 2004 and 2003.

Property and equipment

Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Property and equipment are depreciated on a straight-line basis
over their estimated useful lives, which range from 3 to 7 years.

Fair Value of Financial Instruments

The Company has estimated the fair value of financial instruments using
available market information and other valuation methodologies in accordance
with Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments." Management of the Company believes that
the fair value of financial instruments, consisting of cash, accounts
receivable, accounts payable and accrued liabilities, approximates carrying
value due to the immediate or short-term maturity associated with these
instruments.


                                      F-9
<PAGE>


                       BIOENVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003

Note 1 - Organization and significant accounting policies - continued

Goodwill and Other Intangible Assets

 Goodwill represents the excess of costs over the fair value of identifiable net
assets of Pathagon. Intangible assets include patents and licensing rights
acquired in connection with the acquisition of Pathagon. The Company accounts
for these assets in accordance with Statement of Financial Accounting Standards
("SFAS") No. 142, Goodwill and Other Intangible Assets. Goodwill and intangible
assets acquired in a purchase business combination and determined to have an
indefinite useful life are not amortized, but instead tested for impairment at
least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142
also requires that intangible assets with estimable useful lives be amortized
over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with SFAS No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"). The Company does
not have any intangible assets with an indefinite useful life.

Long-Lived Assets

The Company adopted the provisions of SFAS No. 144 on July 1, 2003. In
accordance with SFAS No. 144, long-lived assets, such as property and equipment
and intangible assets subject to amortization are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset.

Prior to the adoption of SFAS No. 144, the Company accounted for long-lived
assets in accordance with SFAS No. 121, Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of.


                                      F-10
<PAGE>


                       BIOENVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003

NOTE 2 - Acquisition of Pathagon

On February 1, 2002, the Company completed the acquisition of Pathagon. The
acquisition was accounted for as a purchase business combination in accordance
with SFAS 141. The Company issued 7,000,000 shares of common stock to complete
the acquisition, which was valued at $12,600,000 based on the 5-day average
trading price of the stock ($1.80) surrounding November 22, 2001, the day of the
Company's announcement of the agreed upon acquisition. The acquired patents and
licensing rights of OLIGON(R) and methylene blue (collectively referred to as
"Purchased Technologies"), were recorded at their fair market value which was
approximately $17,576,000. The patent and licensing rights acquired are being
amortized over 13 years, which is the estimated remaining contractual life of
these assets. Since the estimated fair value of the Purchased Technologies was
at least equal to the amount paid, the purchase price, net of assumed
liabilities, was allocated to Purchased Technologies. The transaction qualified
as a tax-free merger which resulted in a difference between the tax basis value
of the assets acquired and the fair market value of the patents and licensing
rights. As a result, a deferred tax liability was recorded for approximately
$7,909,000. The purchase price exceeded the fair market value of the net assets
acquired resulting in the recording of Goodwill of $4,704,100. The Company
recorded a charge to goodwill of $801,395 for fiscal year ended June 30, 2003 as
a result of a change in tax rates used to compute the deferred tax liability
arising as a result of this acquisition. Pathagon had no operations other than
holding the patents and licenses acquired. As Pathagon had no operations, its
pro-forma financials would not be meaningful and thus are not presented.

         The Company now has the worldwide rights to the use of thiazine dyes,
including methylene blue, for in vitro and in vivo inactivation of pathogens in
biological fluids. Methylene blue is one of only two compounds used commercially
to inactivate pathogens in blood products, and is currently used in many
European countries to inactivate pathogens in fresh frozen plasma. The Company
believes that, as a result of the mechanism of action of its proprietary
technology, its systems also have the potential to inactivate many new pathogens
before they are identified and before tests have been developed to detect their
presence in the blood supply. Because the Company's systems are being designed
to inactivate rather than merely test for pathogens, the Company's systems also
have the potential to reduce the risk of transmission of pathogens that would
remain undetected by testing.

The OLIGON(R) technology is a patented anti-microbial technology that can be
incorporated into the manufacturing process of many implantable devices. The
patented process, involving two dissimilar metals (silver and platinum) creates
an electrochemical reaction that releases silver ions that destroy bacteria,
fungi and other pathogens. The Company intends to commercialize the technology
in partnership with leading medical devices manufacturers.

On May 6, 1997, Baxter Healthcare Corporation acting through its Edwards
Clinical-Care Division ("Edwards") entered into an Exclusive License Agreement
with Implemed, Inc. ("Implemed"), a predecessor in interest to the Pathagon and,
by virtue of the acquisition of Pathagon, a predecessor in interest to the
Company. Pursuant to the terms of the License Agreement, among other things,
Edwards licensed certain intellectual property technology relating to the
manufacture of anti-microbial polymers from Implemed.

On May 7, 2002, the Company executed an amendment to the original license
agreement between Oklahoma Medical Research Foundation ("OMRF") and Bridge
Therapeutic Products, Inc. ("BTP"), a predecessor of Pathagon, relating to the
licensing of methylene blue. Under the terms of the amendment, OMRF agreed to
the assignment of the original license agreement by BTP to Pathagon. Pursuant to
the amendment, the Company paid OMRF $100,000 and issued 200,000 shares of the
Company's common stock and a five-year warrant to purchase an additional 200,000
shares of common stock. The exercise price of the warrant is $2.33 per share,
subject to adjustment. The Company capitalized the costs of approximately
$1,145,600 related to this amendment as an intangible asset and will amortize
this asset over the remaining life of the methylene blue license agreement.


                                      F-11
<PAGE>


                       BIOENVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003


NOTE 3 - Intangible Assets

Intangible assets consist of the following:      June 30, 2004   June 30, 2003

Patents and licensing rights                      $17,757,101     $17,644,521
Less:  accumulated amortization                    (3,193,441)     (1,865,122)
                                                  -----------     -----------
                                                  $14,563,660     $15,779,399
                                                  ===========     ===========

Amortization of patents and licensing rights amounted to $1,328,318 and
$1,334,241 for the years ended June 30, 2004 and June 30, 2003, respectively.
Other intangible assets are recorded at cost and amortized over periods
generally ranging from 10-20 years. Amortization for each of the next five
fiscal years will amount to approximately $1,355,000 annually.

NOTE 4 - License and Co-Development Agreements

                                   Clofarabine

We have a license from Southern Research Institute ("SRI"), Birmingham, Alabama,
to develop and market purine nucleoside analogs which, based on third-party
studies conducted to date, may be effective in the treatment of leukemia and
lymphoma. The lead compound of these purine-based nucleosides is known as
clofarabine. Under the terms of the agreement with SRI, we were granted the
exclusive worldwide license, excluding Japan and Southeast Asia, to make, use
and sell products derived from the technology for a term expiring on the date of
expiration of the last patent covered by the license (subject to earlier
termination under certain circumstances), and to utilize technical information
related to the technology to obtain patent and other proprietary rights to
products developed by us and by SRI from the technology. We plan to develop
clofarabine initially for the treatment of leukemia and lymphoma and to study
its potential role in treatment of solid tumors.

In August 2003, SRI granted us an irrevocable, exclusive option to make, use and
sell products derived from the technology in Japan and Southeast Asia. We intend
to convert the option to a license upon sourcing an appropriate co-marketing
partner to develop these rights in such territory.

To facilitate the development of clofarabine, we entered into a co-development
agreement with ILEX Oncology, Inc. ("ILEX") in March 2001. Under the terms of
the co-development agreement, ILEX is required to pay all development costs in
the United States and Canada, and 50% of approved development costs worldwide
outside the U.S. and Canada (excluding Japan and Southeast Asia). ILEX is
responsible for conducting all clinical trials and the filing and prosecution of
applications with applicable regulatory authorities in the United States and
Canada. The Company retains the right to handle those matters in all territories
outside the United States and Canada (excluding Japan and Southeast Asia). The
Company retained the exclusive manufacturing and distribution rights in Europe
and elsewhere worldwide, except for the United States, Canada, Japan and
Southeast Asia. Under the co-development agreement, ILEX will have certain
rights if it performs its development obligations in accordance with that
agreement. The Company would be required to pay ILEX a royalty on sales outside
the U.S., Canada, Japan and Southeast Asia. In turn, ILEX, which would have U.S.
and Canadian distribution rights, would pay the Company a royalty on sales in
the U.S. and Canada. In addition, the Company is entitled to certain milestone
payments. Under the terms of the co-development agreement, ILEX also pays
royalties to Southern Research Institute based on certain milestones. The
Company also is obligated to milestones and royalties to Southern Research
Institute in respect to clofarabine.


                                      F-12
<PAGE>


                       BIOENVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003

Note 4 - License and Co-Development Agreements - continued

The Company received a nonrefundable upfront payment of $1.35 million when it
entered into the co-development agreement with ILEX and received an additional
$3.5 million in December 2003 when it converted ILEX's option to market
clofarabine in the U.S. into a sublicense. The Company received an additional $2
million in April 2004 upon ILEX's filing the New Drug Application for
clofarabine with FDA and the Company expects to receive an additional $2 million
from ILEX in October 2004 in connection with the achievement of the NDA filing.
The Company deferred the upfront payment and recognized revenues ratably, on a
straight-line basis over the related service period, through December 2002. The
Company has deferred the milestone payments received to date and recognizes
revenues ratably, on a straight line basis over the related service period,
through March 2021. For the years ended June 30, 2004 and 2003, respectively,
the Company recognized revenues of approximately $161,000 and $370,000 in
connection with the upfront and milestone payments received to date.

Deferred costs include royalty payments that became due and payable to SRI upon
the Company's execution of the co-development agreement with Ilex Oncology. The
Company defers all royalty payments made to SRI and recognizes these costs
ratably, on a straight-line basis concurrent with revenue that is recognized in
connection with research and development costs including approximately $81,000
and $207,000 for the years ended June 30, 2004 and 2003, respectively, related
to such charges.

                                   Modrenal(R)

The Company holds an exclusive license, until the expiration of existing and new
patents related to Modrenal(R), to market Modrenal(R) in major international
territories, and an agreement with a United Kingdom company to co-develop
Modrenal(R) for other therapeutic indications. Management believes that
Modrenal(R) currently is manufactured by third-party contractors in accordance
with good manufacturing practices. The Company has no plans to establish its own
manufacturing facility for Modrenal(R), but will continue to use third-party
contractors.

The Company received a nonrefundable upfront payment of $1.25 million when it
entered into the License and Sublicense Agreement with Dechra Pharmaceuticals in
May 2003. The Company deferred the upfront payment and recognizes revenues
ratably, on a straight-line basis over the related service period, through May
2014. The Company recognized revenues of approximately $114,000 and $12,000 in
connection with the upfront payment from Dechra for the years ended June 30,
2004 and 2003, respectively.

Deferred costs include royalty payments that became due and payable to Stegram
Pharmaceuticals Ltd. upon the Company's execution of the License and Sub-License
Agreement with Stegram in May 2003. The Company defers all royalty payments made
to Stegram and recognizes these costs ratably, on a straight-line basis
concurrent with revenue that is recognized in connection with the Dechra
agreement. Research and Development costs include approximately $23,000 and
$2,000 for the years ended June 30, 2004 and 2003, respectively.

Anti-Estrogen Prostate. We received Institutional Review Board approval from the
Dana Faber Cancer Institute for a Phase II study of trilostane for the treatment
of androgen independent prostate cancer. The study is being conducted by The
Dana Faber Cancer Institute and commenced in July 2004.

                            Operational Developments

In June 2003, we entered into a supply agreement with Ferro-Pfanstiehl
Laboratories ("Ferro"), pursuant to which Ferro has agreed to manufacture and
supply 100% of Bioenvision's global requirements for clofarabine-API. Subject to
certain circumstances, this agreement will expire on the fifth anniversary date
of the first regulatory approval of clofarabine drug product.

In June 2003, the Company entered into a development agreement with Ferro,
pursuant to which Ferro agreed to perform certain development activities to
scale up, develop, finalize, and supply CTM and GMP supplier qualifications of
the API- clofarabine. Subject to certain circumstances, this agreement expires
upon the completion of the development program. The development agreement is
milestone based and payments are to be paid upon completion of each milestone.
If Ferro has not completed the development agreement by December 2007, the
development agreement will automatically terminate without further action by
either party.


                                      F-13
<PAGE>


                       BIOENVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003

Note 4 - License and Co-Development Agreements - continued

In May 2003, we entered into a sub-license agreement with Dechra, pursuant to
which Dechra has been granted a sub-license for all of Bioenvision's rights and
entitlements to market and distribute Modrenal(R) in the United States and
Canada solely in connection with animal health applications. Subject to certain
circumstances, this agreement expires upon expiration of the last patent related
to Modrenal(R) or the completion of the last royalty set forth in the agreement.
Through June 30, 2003, we have recognized deferred revenue and deferred costs
related to this agreement as described below in this Note 4. The Company
received an upfront non-refundable payment of $1.25 million upon execution of
this agreement and may receive up to an additional $3.75 million upon the
achievement by Dechra of certain milestones set forth in the agreement.

In May 2003, we entered into a master services agreement with
Penn-Pharmaceutical Services Limited ("Penn"), pursuant to which Penn has agreed
to label, package and distribute clofarabine on behalf of and at our request.
The services to be performed by Penn also include regulatory support and the
manufacture, quality control, packaging and distribution of proprietary
medicinal products including clinical trials supplies and samples Subject to
certain circumstances, the term of this agreement is twelve months and renews
for subsequent twelve month periods unless either party tenders notice of
termination upon no less than three month prior written notice.

In April 2003, we entered into an exclusive license agreement with CLL-Pharma
("CLL"), pursuant to which CLL has agreed to perform certain development works
and studies to create a new formulation of Modrenal(R). CLL intends to use its
proprietary MIDDS.-patented technology to perform this service on behalf of the
Company. This new formulation, once in hand, will allow the Company to apply for
necessary authorization, as required by applicable European health authorities,
to sell Modrenal(R) throughout Europe. Through June 30, 2003, the Company paid
an advance of $175,000 related to development services to be provided by CLL
over an eighteen month period, which advance was initially recorded as a prepaid
development cost by the Company.


                                      F-14
<PAGE>


                       BIOENVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003
Note 5 - Income taxes

The components of the income tax benefit are as follows:

                                           June 30,
                                  ---------------------
                                    2004         2003
                                  -------      -------
Current:
   Federal                        $   --       $   --
                                  -------      -------
   State                              --           --
                                  -------      -------

Deferred:
   Federal                      (404,000)    (404,000)
   State                        (133,000)    (133,000)
                                 --------     --------
                                (537,000)    (537,000)
                                 --------     --------
Total benefit                  $(537,000)   $(537,000)
                               ==========   ==========

Significant components of the company's deferred tax assets and liability at
June 30 are as follows:


                                                        June 30,
                                          ---------------------------
                                               2004          2003
                                             -------       -------
Deferred tax liability
       Acquired intangibles              $(5,781,000)    $(6,318,000)
       Deferred costs                     (1,577,000)       (100,000)
       Amortization                          (20,000)              -
                                           ---------     -----------
       Total deferred tax liability       (7,378,000)     (6,418,000)

Deferred tax assets
        Net operating loss                 9,431,000       5,512,000
        Options, warrants and shares
          issued to non-employees            352,000               -
        Options issued to employees           16,000               -
        Deferred revenue                     455,000         501,000
        Amortization                               -           1,000
        Depreciation                          10,000          11,000
        Other                                 40,000          65,000
                                          ----------     -----------
        Total deferred tax assets         10,304,000       6,090,000
        Valuation allowance for deferred
        tax assets                        (8,707,000)     (5,990,000)
                                          ----------     -----------
                 Net deferred tax asset   1,587,000          100,000
                                          ----------     -----------
Net deferred tax liability                (5,781,000)     (6,318,000)
                                          ==========     ===========


                                      F-15
<PAGE>


                       BIOENVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003

Note 5 - Income taxes - continued

At June 30, 2004, the Company had approximately $23,287,000 of net operating
loss carryforwards for U.S. Federal and state income tax purposes that expire
fiscal year ending 2019, with a tax value of $9,431,000. A full valuation
allowance has been established for the deferred tax assets due to the
uncertainty of the utilization of such deferred tax asset.

The Tax Reform Act of 1986 enacted a complex set of rules (Internal Revenue Code
Section 382) limiting the utilization of NOLs to offset future taxable income
following a corporate "ownership change." Generally, this occurs when there is a
greater than 50 percentage point change in ownership. Accordingly, such change
could limit the amount of NOLs available in a given year, which could ultimately
cause NOLs to expire prior to utilization.

The income tax benefit as recognized differs from the benefit that would be
recognized at the Federal statutory rate on the pre-dividend net loss primarily
due to certain permanent items and the valuation allowance established against
the net operating loss deferred tax assets.

NOTE 6 - Stockholders' transactions

            Common Stock and Securities Convertible into Common Stock

The Board of Directors adopted, and the stockholders approved the 2003 Stock
Incentive Plan at the Annual Meeting held in January of 2004. The plan was
adopted to recognize the contributions made by the Company's employees,
officers, consultants, and directors, to provide those individuals with
additional incentive to devote themselves to our future success and to improve
the Company's ability to attract, retain and motivate individuals upon whom the
Company's growth and financial success depends. Under the plan, stock options
may be granted as approved by the Board of Directors or the Compensation
Committee. There are 3,000,000 shares reserved for grants of options under the
plan and at June 30, 2004, options to purchase 2,105,000 shares of common stock
had been issued. Stock options vest pursuant to individual stock option
agreements. No options granted under the plan are exercisable after the
expiration of ten years (or less in the discretion of the Board of Directors or
the Compensation Committee) from the date of the grant. The plan will continue
in effect until terminated or amended by the Board of Directors or until
expiration of the plan on November 17, 2013.

In June 2002, the Company granted options to an officer of the Company to
purchase 380,000 shares of common stock at an exercise price of $1.95 per share,
which equaled the stock price on the date of the grant. Of this amount, 50,000
options vested on June 28, 2002 and the remaining 330,000 options vest ratably
over a three-year period on each anniversary date. On March 31, 2003 the Company
entered into an Employment Agreement with such officer of the Company, pursuant
to which, among other things, the exercise price for all 380,000 options were
changed to $0.735 per share, which equaled the stock price on that date. In
addition, the Company issued an additional 120,000 options at an exercise price
of $0.735 per share which vested immediately. As a result of the re-pricing of
380,000 options, the Company will re-measure the intrinsic value of these
options at the end of each reporting period and will adjust compensation expense
based on changes in the stock price. Compensation expense recognized as a result
of this re-pricing amounted to $2,381,066 and $372,465 for the year ended June
30, 2004 and 2003, respectively.

On October 23, 2002, the Company granted options to purchase 300,000 shares of
common stock at an exercise price of $1.45 per share to the Commercial Director
(Europe) of the Company. Of these options, options to purchase 100,000 shares of
common stock vest and become exercisable on each of the first, second and third
anniversary of October 23, 2002, the grant date.

On October 23, 2002, the Company granted options to purchase 50,000 shares of
common stock at an exercise price of $1.45 per share to another employee of the
Company. Of these options, options to purchase 50,000 shares of common stock
vest and become exercisable on each of the first and second anniversary of
October 23, 2002, the grant date.

On December 31, 2002 the Company issued options to purchase 500,000 shares of
common stock at an exercise price equal to $1.45 per share (average of the high
and low bid price on the grant date), to its Chairman and Chief Executive
Officer, Dr. Christopher B. Wood. Of these options, subject to certain
circumstances, options to purchase 166,666 shares of common stock vest on each
of the first, second and third anniversary of the grant date.


                                      F-16
<PAGE>


                       BIOENVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003

Note 6 - Stockholders' transactions - continued

On January 9, 2003 the Company issued to an employee of the Company, options to
purchase 20,000 shares of common stock at an exercise price of $1.42 per share,
which equaled the stock price on the date of grant. Of these options, subject to
certain circumstances, options to purchase 10,000 shares of common stock vest
and become exercisable on the first anniversary of the grant date and the
remaining options to purchase 10,000 shares of common stock vest and become
exercisable on the second anniversary of the grant date.

In January 2003, we entered into an agreement with RRD International LLC
("RRD"), pursuant to which RRD serves as the global product development
consultant to the Company in connection with the development of clofarabine,
Modrenal(R) and OLIGON and assists with designing and managing our clinical
development program for our products. On April 2, 2003, the Company and RRD
further memorialized their agreement pursuant to a formal Master Services
Agreement and Registration Rights Agreement and, in connection therewith, the
Company issued a Warrant to RRD pursuant to which RRD has the right to acquire
175,000 shares of our common stock at an exercise price of $2.00 per share,
which warrant includes registration rights under certain circumstances.
Compensation expense of $672,000 and $182,000 was recorded as consulting fees
for the years ended June 30, 2004 and June 2003, respectively.

During the three months ended December 31, 2003, the Company issued options to
another employee to purchase 25,000 shares of common stock at an exercise price
of $3.53 per share. Of this amount, 12,500 options vest on November 11, 2004 and
the remaining 12,500 will vest on November 11, 2005.

During the year ended June 30, 2004, certain holders of 2,575,900 shares of the
Company's preferred stock converted such shares into 5,150,000 shares of the
Company's common stock. In addition, during the year ended June 30, 2004,
certain warrant holders of the Company exercised their warrants to acquire
1,283,334 shares of the Company's common stock. The Company received proceeds of
approximately $2,509,882 during the year ended June 30, 2004, respectively from
the exercise of these warrants.

During the year ended June 30, 2004, certain non-employee holders of options
exercised pursuant to the cashless exercise feature available to such option
holders and the Company issued approximately 2,122,682 shares of its common
stock in connection therewith.

On January 3, 2004, the Company issued 14,510 restricted shares of its common
stock to a consultant to the Company for certain executive placement services
rendered to the Company. The Company recorded compensation expense of
approximately $60,637 for the year ended June 30, 2004 in connection with such
issuance.

On January 14, 2004, a majority of the Company's stockholders authorized an
amendment to the Company's certificate of incorporation, approved by the
Company's Board of Directors, to increase the number of authorized shares of
common stock from 50,000,000 to 70,000,000 and to increase the number of
authorized shares of the Company's preferred stock from 10,000,000 to
20,000,000. The shareholder action became effective, and the amendment was filed
and became effective, on January 14, 2004.

On January 20, 2004, the Company granted 25,000 options to Dr. Michael Kauffman,
for serving as a member of the Board of Directors, at an exercise price of $4.55
per share which vest ratably on the first and second anniversaries of the grant
date. The Company recognized $20,988 as consulting expenses for the year ended
June 30, 2004.

The Company recorded a compensation expense of $38,611 for the year ended June
30, 2004 as a result of 505,000 options granted to certain employees on January
20, 2004.

On February 4, 2004, the Company issued 20,000 shares of its common stock to an
employee of the Company in connection with the exercise of options issued prior
to that date which had an exercise price of $1.42.

On March 11, 2004, the Company issued options to another employee to purchase
50,000 shares of common stock at an exercise price of $6.50 per share. Of this
amount, 16,666.66 options vest on March 11, 2005 and the remaining 33,332.33
will vest on March 11, 2006.

On March 22, 2004, the Company consummated a private placement transaction,
pursuant to which it raised $12.8 million and issued 2,044,514 shares of its
common stock and warrants to purchase an additional 408,903 shares of its common
stock at an exercise price of $7.50 per share. The Company recorded proceeds of
$12,151,240 net of all legal, professional and financing fees incurred in
connection.


                                      F-17
<PAGE>


                       BIOENVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003

Note 6 - Stockholders' transactions - continued

with the offering. The Company consummated a second closing for this financing
on May 13, 2004 in order to comply with certain contractual obligations of the
Company to its holders of Series A Convertible Preferred Stock which hold
preemptive rights for equity offerings of the Company. The Company raised an
additional $3.2 million (net of all legal, professional and financial services
incurred) from the second closing and issued an additional 558,384 shares of its
common stock and warrants to purchase 111,677 shares of its common stock at an
exercise price of $7.50 per share.

On June 22, 2004, the Company issued options to a new employee to purchase
140,000 shares of common stock at an exercise price of $8.25 per share. Of this
amount, 30,000 options vested on June 22, 2004 and the remaining 110,000 will
vest ratably on June 22, 2005 and 2006 respectively.

On June 22, 2004 the Company entered into a consulting agreement pursuant to
which consultant will provide certain investor relation services on behalf of
the Company. In connection therewith, the Company issued a warrant to said
consultant pursuant to which said consultant has the right to purchase 50,000
shares of Company's common stock at a price of $8.25 per share upon the
completion of certain milestones, as set forth in such agreement. No
compensation expense of was recorded for the fiscal year ended June 30, 2004 as
no such milestones had been met yet at that time.

         A summary of the Company's stock option activity for options issued to
employees and related information follows:

                                                                 Weighted Avg.
                                               No. of Shares     Exercise Price
                                              ----------------------------------

Balance - June 30, 2002                          2,200,000          1.25


              Granted during 2003                1,370,000          1.19

              Exercised during 2003                   -               -

              Forfeiture during 2003                  -               -
                                              ----------------------------------
Balance - June 30, 2003                          3,570,000      $   1.23

              Granted during 2004                  720,000      $   5.02
              Exercised during 2004                 20,000      $   1.42
              Forfeiture during 2004                    -             -
                                              ---------------------------------=
Balance - June 30, 2004                          4,270,000      $   1.87
                                              ==================================


<TABLE>
<CAPTION>
                                       Stock Options Outstanding
              ------------------------------------------------------------------------------------
                                                                     Weighted
                                                                     Average
                                       Weighted                      Remaining      Number of
                                       Average         Number of     Contractual    Stock Options
              Exercise Price Range     Exercise price  Options       Life           Exercisable
              ------------------------------------------------------------------------------------

<S>           <C>                      <C>             <C>               <C>           <C>
              $0.74                    $    0.74       500,000           8.12          390,000
              $1.25 - $2.75            $    1.29     3,050,000           6.58        2,491,000
              $2.76 - $6.00            $    4.03       530,000           9.55                0
              $6.01 - $8.25            $    8.12       190,000           9.90           30,000
                                                  --------------                   ------------

                                                     4,270,000                       2,911,000
                                                  ==============                 ==============
</TABLE>


                                      F-18
<PAGE>


                       BIOENVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003

NOTE 6 - Stockholders' transactions - continued

                                 Preferred Stock

On May 7, 2002 the Company authorized the issuance and sale of up to 5,920,000
shares of Series A Convertible Preferred Stock, par value $0.001 per share
("Series A Preferred Stock"). Series A Preferred Stock may be converted into two
shares of common stock at an initial conversion price of $1.50 per share of
common stock, subject to adjustment for stock splits, stock dividends, mergers,
issuances of cheap stock and other similar transactions. In May 2002, the
Company consummated a Private Placement of Series A Preferred Stock and received
gross proceeds of $17.7 million. Holders of Series A Preferred Stock also
received, in respect of each share of Series A Preferred Stock purchased in the
May 2002 Private Placement by the Company, one warrant to purchase one share of
the Company's common stock at an initial exercise price of $2.00, subject to
adjustment. The purchasers of Series A Preferred Stock also received certain
registration rights. The preferred stock generally carries rights to vote with
the holders of common stock as one class on a two-for-one basis. The preferred
stock is convertible into the Company's common stock on a two-for-one basis
subject to certain adjustments at the earlier to occur of (i) at the election of
each holder from and after the issuance date, or (ii) the date at any time after
the one year anniversary of the issuance date upon which both (x) the average of
the market price for a share of common stock for thirty consecutive trading days
exceeds $10.00 per share, subject to certain adjustments, and (y) the average of
the trading volume for the Company's common stock during such period exceeds
150,000, subject to certain adjustments.

The Company is required to accrue for and pay a dividend of 5%, subject to
certain adjustments, on its cumulative Series A Convertible Preferred Stock. The
Company has paid the dividend in cash to holders of Series A Convertible
Preferred Stock through July 30, 2004.

In the event of a voluntary or involuntary liquidation or dissolution of the
Company, before any distribution of assets shall be made to the holders of the
Company's securities which are junior to the preferred stock (such as the common
stock), holders of the preferred stock shall be paid out of the assets of the
Company legally available for distribution to the Company's stockholders an
amount per share equal to the initial original issue price ($3.00) subject to
certain adjustments plus all accrued but unpaid dividends on such preferred
stock.

NOTE 7 - Related party transactions

On November 16, 2001, we entered into an engagement letter with SCO Financial
Group, pursuant to which SCO would act as our financial advisor. In connection
with the engagement letter, we issued a warrant to purchase 100,000 shares of
common stock at an exercise price of $1.25 per share, subject to certain
anti-dilution adjustments. The warrants expire five years from the date of
issuance. The issuance of these shares was capitalized as deferred financing
costs and was amortized over a twelve-month period.

In connection with securing a credit facility with SCO Capital, we issued
warrants to purchase 1,500,000 shares of our common stock at a strike price of
$1.25 per share, subject to certain anti-dilution adjustments. The warrants
expire five years from the date of issuance. The credit facility with SCO
Capital was terminated in May 2002 at which time the Company received a payoff
letter evidencing such termination.

On February 5, 2002, we completed the acquisition of Pathagon Inc. Affiliates of
SCO Capital owned 82% of Pathagon prior to the acquisition. In connection
therewith, on February 1, 2002 we issued 7,000,000 shares of common stock to the
former stockholders of Pathagon Inc.

In May 2002, the Company completed a private placement pursuant to which we
issued an aggregate of 5,916,666 shares of Series A Convertible Preferred Stock
for $3.00 per share and warrants to purchase an aggregate of 5,916,666 shares of
common stock and in March of 2004 the Company consummated a private placement
pursuant to which we raised $12.8 million with a second closing in May 2004 in
which it raised an additional $3.5 million (See "Note 6-Stockholder
Transactions" above). SCO Financial Group served as financial advisor to the
Company in connection with these financings and earned a placement fee of
approximately $1.2 million in connection with May 2002 private placement and a
placement fee of $1.1 million and warrants to purchase 260,291 shares of common
stock for $6.25 per share for the March and May 2004 financings.

Mr. Jeffrey B. Davis, President of SCO Financial Group LLC, has served on the
Company's board of directors since February of 2002. Mr. Davis resigned from the
Board of Directors of the Company effective June 14, 2004.


                                      F-19
<PAGE>


                       BIOENVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003


NOTE 8 - Commitments and Contingencies

Leases

The Company leases 3,229 square feet of office space for its New York
headquarters under a non-cancelable operating lease expiring on September 30,
2005 and approximately 1,000 square feet in Edinburgh, Scotland under a lease
agreement for its subsidiary Bioenvision Ltd. which expires August 31, 2004.
Rent expense for both facilities in the aggregate in 2004, was approximately
$241,000. Further , the Company leases two vehicles under leases which expire
November 29, 2005 and February 28, 2007. Lease expense in 2004 and 2003, in the
aggregate, was approximately $37,000 and $30,000, respectively. At June 30,
2004, total minimum rentals under operating leases with initial or remaining
non-cancelable lease terms of more than one year were approximately:

                           Year ended June 30,

                            2005     $206,000

                            2006       63,000

                            2007       10,000

                            2008       ______

                                    $ 279,000

Employment Agreements

On September 1, 1999, we entered into an employment agreement with Christopher
B. Wood, M.D. under which he serves as our Chairman and Chief Executive Officer.
The initial term of Dr. Wood's employment agreement is two years with automatic
one-year extensions thereafter unless either party gives written notice to the
contrary. On December 31, 2002, we entered into a new employment agreement with
Dr. Wood, under which he continues to serve as our Chairman and Chief Executive
Officer. Under this contract, the term is one year, with automatic one-year
extensions thereafter unless either party provides written notice to the
contrary. Dr. Wood's new employment agreement provides for an initial base
salary of $225,000, a bonus as determined by the Board of Directors, health
insurance and other benefits currently or in the future provided to key
employees of the Company. If Dr. Wood's employment is terminated other than for
cause or if he resigns for good reason or if a change of control occurs, he will
receive a lump sum payment in an amount equal to his then current annual base
salary and any and all unvested options will vest and immediately become
exercisable.

On October 23, 2002, we entered into an employment agreement with Hugh S.
Griffith, pursuant to which he agrees to serve as our Commercial Director
(Europe). The initial term of Mr. Griffith's employment agreement is one-year,
with automatic six month extensions thereafter unless either party provides
written notice to the contrary. If Mr. Griffith's employment is terminated other
than for cause or if he resigns for good reason or if a change of control
occurs, he will receive a lump sum payment in an amount equal to 0.5 multiplied
by the sum of his then current annual base salary plus a payment equal to six
(6) months of his then current base salary in complete satisfaction of the
Company's obligation to provide no less than six (6) months prior written notice
as set forth in the employment agreement.

On January 6, 2003, we entered into an employment agreement with Ian
Abercrombie, pursuant to which he agrees to serve as our Sales Manager (Europe).
The initial term of Mr. Abercrombie's employment agreement is one-year, with
automatic six month extensions thereafter unless either party provides written
notice to the contrary. If Mr. Abercrombie's employment is terminated other than
for cause or if he resigns for good reason or if a change of control occurs, he
will receive a payment equal to six (6) months of his then current base salary
in complete satisfaction of the Company's obligation to provide no less than six
(6) months prior written notice as set forth in the employment agreement.


                                      F-20
<PAGE>


                       BIOENVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003


Note 8 - Commitments and Contingencies - continued

On March 31, 2003, we entered into an employment agreement with David P. Luci,
pursuant to which he serves as our Director of Finance, General Counsel and
Corporate Secretary. The initial term of Mr. Luci's employment agreement is
one-year, with automatic one-year extensions thereafter unless either party
provides written notice to the contrary. If Mr. Luci's employment is terminated
other than for cause or if he resigns for good reason or if a change of control
occurs, he will receive a lump sum payment in an amount equal to 1.5 multiplied
by the sum of (i) his then current annual base salary plus (ii) his then average
annual bonus for the preceding two years and any and all unvested options will
vest and immediately become exercisable.

Litigation
----------

 On April 1, 2003, RLB Capital, Inc. filed a complaint against the Company in
the Supreme Court of the State of New York (Index No. 601058/03). The Complaint
alleged a breach of contract by the Company and demanded judgment against the
Company for $112,500 and warrants to acquire 75,000 shares of the Company's
common stock. The Company submitted its Verified Answer on June 25, 2003 and, in
pertinent part, denied RLB's allegations and asserted counterclaims based on
negligence. In September 2003, the Company filed a motion for summary judgment
and RLB filed its response on October 27, 2003. On November 12, 2003, the
Supreme Court granted the motion for summary judgment and the complaint was
dismissed. In March 2004, the complaint and two counterclaims asserted by the
Company were dismissed with prejudice.

 On December 19, 2003, the Company filed a complaint against Dr. Deidre Tessman
and Tessman Technology Ltd. (the "Tessman Defendants") in the Supreme Court of
the State of New York, County of New York (Index No. 03-603984). An amended
complaint alleges, among other things, breach of contract and negligence by
Tessman and Tessman Technology and demands judgment against Tessman and Tessman
Technology in an amount to be determined by the Court. The Tessman Defendants
removed the case to federal court, then remanded it to state court and served an
answer with several purported counterclaims. The Company denies the allegations
in the counterclaims and intends to pursue its claims against the Tessman
Defendants vigorously.


                                      F-21
<PAGE>



                                   SIGNATURES


         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned on
September 24, 2004, thereunto duly authorized.


                    BIOENVISION, INC.


                    By  /s/ Christopher B. Wood, M.D.
                        -------------------------------------------------
                        Christopher B. Wood, M.D.
                        Chairman and Chief Executive Officer
                           (Principal Executive Officer)


                    By  /s/ David P. Luci
                        -------------------------------------------------
                         David P. Luci
                         Chief Financial Officer, General Counsel and Corporate
                         Secretary
                             (Principal Financial and Accounting Officer)

         Each person whose signature appears below hereby constitutes and
appoints either Christopher B. Wood, M.D. or David P. Luci his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this report, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying all that said attorney-in-fact and agent or his
substitute or substitutes, or any of them, may lawfully do or cause to be done
by virtue hereof. In accordance with the requirements of the Exchange Act, this
report has been signed by the following persons in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>

               Signature                                  Title                               Date

<S>                                       <C>                                          <C>
/s/ Christopher B. Wood, M.D.             Chairman and Chief Executive Officer and     September 24, 2004
-----------------------------
Christopher B. Wood, M.D.                 Director
                                          (Principal Executive Officer)

/s/ David P. Luci                         Chief Financial Officer, General Counsel     September 24, 2004
-----------------
David P. Luci                             and Corporate  Secretary
                                          (Principal Financial and Accounting
                                          Officer)

/s/ Thomas S. Nelson                      Director                                     September 24, 2004
--------------------
Thomas S. Nelson, C.A.

/s/  Michael Kaufmann
Michael Kauffman                          Director                                     September 24, 2004


/s/ Andrew N. Schiff                      Director                                     September 24,  2004
--------------------
Andrew N. Schiff
                                          Director                                     September 24,  2004
/s/ Steven A. Elms
Steven A. Elms
</TABLE>