**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM10-K**

** (Mark One)**
| **x**                                        | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
|----------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                         |                                                                                          |
| **For the  fiscal year ended June 30, 2007** |
| ** **                                   |
| **or**                                       |
|                                         |                                                                                          |
| **o**                                        | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from                            to                            **

**Commission file number 001-31787**

**BIOENVISION,INC.**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                     |   | **13-4025857**                     |
|------------------------------------------------------------------|--------|------------------------------------|
| (State or other  jurisdiction of incorporation or  organization) |   | (IRS Employer  Identification No.) |
|                                                             |   |                               |
| **345  Park Avenue, 41****st Floor, New York, NY**          |   | **10154**                          |
| (Address of  principal executive offices)                        |   | (Zip Code)                         |

 

Registrant’stelephone number, including area code:**(212) 750-6700**

**Securities registered pursuant to Section 12(b) ofthe Act:**

** **

|            | **Title of  Each Class**                        |   | **Name of  Exchange on Which Registered** | ** ** |
|------------|-------------------------------------------------|--------|-------------------------------------------|------------|
| ** ** | **Bioenvision  common stock, $0.001 par value** |   | **The  NASDAQ Stock Market LLC**          | ** ** |
| ** ** | ** **                                      |   | **(NASDAQ  Global Market)**               | ** ** |

 

Securities registered pursuant to 12(g) of the Act:

**None**

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act.  Yes o   No x

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or 15(d)of the Act.  Yes o   No x

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes x   No o

Indicate by checkmark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of  “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

| Large accelerated filer  o |   | Accelerated filer   x |   | Non-accelerated filer  o |
|---------------------------------|--------|----------------------------|--------|-------------------------------|

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes o   No x

The aggregate market value of voting common stock heldby non-affiliates of the registrant as of December 29, 2006:  $188,144,251

The number of shares of the registrant’s common stockoutstanding as of September 5, 2007: 55,037,771

**Documents Incorporated by Reference**

Portions of our definitive Proxy Statement to be filedwith the Securities and Exchange Commission within 120 days after the end ofthe our fiscal year are incorporated by reference into Part III of this AnnualReport on Form 10-K.

 

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**BIOENVISION, INC.**

**ANNUAL REPORT ON FORM 10-K**

**FISCAL YEAR ENDED JUNE 30, 2007**

**INDEX**
| **PART I**                                                                                                  |   |
|-------------------------------------------------------------------------------------------------------------|--------|
| ITEM 1. BUSINESS                                                                                            | 1      |
| ITEM 1A. RISK FACTORS                                                                                       | 10     |
| ITEM 1B.  UNRESOLVED STAFF COMMENTS                                                                         | 25     |
| ITEM 2.  PROPERTIES                                                                                         | 25     |
| ITEM 3. LEGAL  PROCEEDINGS                                                                                  | 25     |
| ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                | 27     |
|                                                                                                        |   |
| **PART II**                                                                                                 |   |
| ITEM  5.MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER  PURCHASES OF EQUITY SECURITIES | 27     |
| ITEM 6. SELECTED  FINANCIAL DATA                                                                            | 29     |
| ITEM  7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATION          | 30     |
| ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                        | 42     |
| ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                        | 42     |
| ITEM  9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL  DISCLOSURE              | 42     |
| ITEM 9A.  CONTROLS AND PROCEEDURES                                                                          | 42     |
| ITEM 9B. OTHER  INFORMATION                                                                                 | 45     |
|                                                                                                        |   |
| **PART III**                                                                                                |   |
| ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                            | 45     |
| ITEM 11.  EXECUTIVE COMPENSATION                                                                            | 45     |
| ITEM  12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND  RELATED STOCKHOLDER MATTERS   | 45     |
| ITEM  13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE                           | 45     |
| ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                            | 45     |
|                                                                                                        |   |
| **PART IV**                                                                                                 |   |
| ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                           | 46     |

 

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**PART I**

*Except for historical  information contained herein, this annual report on Form 10-K contains  forward-looking  statements within the meaning of the Section21E of the  Securities and Exchange Actof 1934, as amended,  which involve  certain risks and  uncertainties.  Forward-looking statements are included withrespect to, among other things, the Company’s current business plan, “RiskFactors “, and “Managements Discussion and Analysis of Financial Condition andResults of Operation”.  These forward-looking  statements are  identified by their use of such terms andphrases 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 fromthose anticipated. Readers are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date the statement wasmade.  The Company undertakes noobligation to publicly update or revise any forward-looking statements, whetheras a result of new information, future events or otherwise.*

**Item 1. Business**

Unless the context otherwise requires, as used in thisannual report, the terms “Bioenvision,” “Company,” “our,” or “we” refer toBioenvision, Inc. and its subsidiaries.

***Overview***

We are aproduct-orientated biopharmaceutical company primarily focused upon the acquisition,development, and marketing of compounds and technologies for the treatment ofcancer. Our product pipeline includes Evoltra® (clofarabine) which has marketing approval inboth the European Union (“E.U.”) and United States (“U.S.”) for the treatmentof pediatric relapsed or refractory acute lymphoblastic leukemia, Modrenal® (trilostane), which has marketing approval inthe United Kingdom (“U.K.”) for the treatment of post-menopausal breast cancerfollowing relapse to initial hormone therapy, and other products.

On May 29, 2007, we entered into an Agreement and Planof Merger (the “Merger Agreement”) with Genzyme Corporation, our NorthAmerican co-development partner for clofarabine (“Genzyme”) andWichita Bio Corporation, a wholly-owned subsidiary of Genzyme (“WichitaBio”).  We are holding a special meetingof our stockholders to vote on this proposed merger, ****which is currentlyscheduled for October 4, 2007****.  The merger is the second and final step inthe proposed acquisition of Bioenvision by Genzyme.  The first step wasthe tender offer for all of the outstanding common stock and all of theoutstanding preferred stock of Bioenvision, which expired on July 10,2007.  Pursuant to the tender offer, Wichita Bio purchased 8,398,098shares of common stock, representing approximately 15.3% of the outstandingshares of our common stock as of the date hereof, and 2,250,000 shares ofpreferred stock, representing 100% of the outstanding shares of our preferredstock as of the date hereof.   Followingthe tender offer and as of the date hereof, Genzyme beneficially ownsapproximately 22 % of the outstanding shares of Bioenvision common stock on anas-converted basis, including all outstanding shares of Bioenvision preferredstock.  If the merger is completed,Wichita Bio, will be merged with and into Bioenvision, we will become awholly-owned subsidiary of Genzyme and each share of our common stock issuedand outstanding immediately before the merger, other than treasury shares,shares for which appraisal rights have been perfected and shares held byGenzyme or Wichita Bio, will automatically be canceled and will cease to existand will be converted into the right to receive $5.60 in cash, withoutinterest. *** *******See *"FactorsRelating to the Proposed Merger with Genzyme"*********beginning on page 10***.***

## ***Our Products***

## *Evoltra**®** (Clofarabine)*

Evoltra® isour lead product.  In May 2006 theEuropean Medicines Agency (the “EMEA”) approved Evoltra® forthe treatment of acute lymphoblastic leukemia (ALL) in pediatric patients whohave relapsed or are refractory to at least two prior regimens.  The licensed indication includes patients whowere less than 21 years of age at the time of initial diagnosis of theirleukemia.  Evoltra® hasbeen granted orphan drug designation (ODD), providing marketing exclusivity for10 years in Europe, which 10-year period commenced in May 2006 upon our receiptof E.U. marketing approval.  We have adirect sales force in the U.K. and a dedicated sales force through Innovex, anaffiliate of Quintiles Corporation, in several other countries within the E.U.  Subject to the outcome of the merger, we planto increase either our direct sales force or our dedicated sales force throughInnovex as we continue to work through reimbursement procedures and expand ourmarketing initiatives to exploit new commercial opportunities within the E.U.

OnFebruary 7, 2007, we announced that we filed with the EMEA to expand theEvoltra® (clofarabine) label to include the treatment of acute myeloid leukemia(AML) in patients who are greater than or equal to 65-years-old and have one ormore of the following: adverse cytogenetics, secondary AML, aged greater thanor equal to 70 years, or have one or more significant comorbidity. Thisnew target indication, if approved, represents a 

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significant increase inthe size of the potential market available to Evoltra®. In addition, we haveODD in this new target indication may provide further market exclusivity in theEU.

On August 16,2007, we announced that, in connection with the status of our application tothe EMEA to include a new indication for clofarabine for the treatment of adultAML in****elderly****patientswho have one or more of the following: adverse cytogenetics, secondary AML, >70 years old or significant co-morbidities and who are therefore not consideredsuitable for intensive chemotherapy, the EMEA has agreed to accept supplementalinformation from us by November 16, 2007.  This timeframe will enable usto prepare a more comprehensive response to the EMEA, including interim datafrom the ongoing, multicenter AML-16 trials that have been initiated by theNational Cancer Research Institute (“NCRI”).  We currently anticipate thatin December 2007 the Rappasteur will provide its assessment report and that inJanuary 2008 the EMEA will either provide us with an opinion on whether or notwe will be granted marketing authorization of clofarabine for this newindication or provide us with a second Request for Supplemental Information.

It should be notedthat the foregoing may be subject to change and the EMEA’s assessment reportand opinion may require us to provide further data and/or to attend an oralexplanation. The opinion of the EMEA is also required to be adopted by theEuropean Commission as a pre-condition to the grant of marketing authorizationof clofarabine for the treatment of adult AML.  In addition, inrelation to our variation application to include this new indication, the EMEAhas requested that data from the ongoing AML-16 trials be provided.  TheAML-16 trials, sponsored by the NCRI, randomize clofarabine against thestandard of care (low-dose cytarabine) for the treatment of elderly patientswith adult AML who are not considered suitable for intensive chemotherapy. We believe we will be able to make data from these trials available tothe EMEA by November 2007.  There can be no assurances, however, that thisdata will be made available to us for its application.  The AML-16 trialswill not be fully enrolled at the time of submission of our response to theEMEA and there can be no assurances that interim data will be satisfactory, orthat the data itself will be supportive of our application.  Further, ifthe EMEA does not accept this data, we may have to run an additional randomizedstudy.

In March 2006, we entered into a Marketing andDistribution Agreement with Mayne Pharma Limited (“Mayne”), a public company inAustralia, pursuant to which we have granted and Mayne has received certainmarketing rights to sell, market and distribute Evoltra® (clofarabine) in Australia and New Zealand incertain cancer indications.  ****Mayne was acquired byHospira, Inc. (NYSE:HSP) in February of 2007.****** ** The opportunity exists for us to enter intosimilar arrangements around the world, from time to time, with other marketingand distribution partner(s) who have a fully integrated sales and marketingforce in each such territory to further capitalize on the commercial potentialof Evoltra®.

In September 2006, we executed a License Agreementwith SRI, pursuant to which we successfully licensed the manufacturing,marketing and distribution rights to clofarabine in Japan and Southeast Asia(the “Japan License”).  Since taking onthese rights, we have organized Bioenvision JapanCo., Ltd., a wholly-ownedsubsidiary of Bioenvision, Inc (“JapanCo”), and appointed a director in chargeof corporate and product development for JapanCo.

In addition to developing Evoltra® for the treatmentof adult AML as first-line therapy in elderly patients considered unsuitablefor intensive chemotherapy, we are also developing Evoltra® for use incombination with other agents as induction therapy for patients with AMLconsidered suitable for intensive chemotherapy.

Also, in conjunction with our North Americanco-development partner, Genzyme, clofarabine (Evoltra®) is in clinicaldevelopment for the treatment of myelodysplastic syndrome (MDS), chroniclymphocytic leukemia (CLL), non-Hodgkin’s lymphoma (NHL), solid tumors and as apreconditioning regimen for transplantation. Although we are currently notdirectly involved with these programs, Genzyme is required to share the datagenerated thereunder in accordance with the terms of our co-developmentagreement.

We have completedpreclinical development of a gel formulation of Evoltra® and have completed enrollmentof two Phase I clinical studies of the gel in healthy volunteers and inpatients with severe psoriasis. We are planning further worldwide developmentof Evoltra® in autoimmune diseases.

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We have an exclusive worldwide license forclofarabine. We granted an exclusive sublicense to Genzyme to co-developclofarabine for certain cancer indications in the US and Canada.  Genzyme is commercializing clofarabine forcertain cancer indications in the US and Canada under the brand name Clolar®.  We hold an exclusive license in the US andCanada for all non-cancer indications. We originally obtained clofarabine development and commercializationrights under patents held by Southern Research Institute under a co-developmentagreement dated August 31, 1998.  On May24, 2007, we entered into an amendment to that agreement, pursuant to which theparties agreed to modify and/or clarify certain of the economic terms of theirarrangement including, without limitation, terms related to royalties,milestones, profit sharing and assignability provisions.

In the U.S., in December 2004, the Food and DrugAdministration, or FDA, approved clofarabine for the treatment of pediatricacute lymphoblastic leukemia, or ALL, in patients who are relapsed orrefractory to at least two prior regimens of treatment.  We believe clofarabine was the first newmedicine initially approved in the U.S. for children with leukemia in more thana decade.  Our U.S. partner, Genzyme receivedOrphan Drug Designation status for clofarabine in the U.S., providing marketingexclusivity for 71⁄2 years, expiring in 2012.

Clofarabine is a purine nucleoside analog, which is asmall molecule, that we are developing with Genzyme, our co-developmentpartner, for the treatment of acute and chronic leukemias, lymphomas and solidtumors.  Clofarabine attacks cancer cellsby damaging DNA in cancer cells, preventing DNA repair by damaged cancer cells,damaging the cancer cell’s important control structures, and initiating theprocess of programmed cell death, or apoptosis, in cancer cells.  Clofarabine appears to combine many of thefavorable properties of the two most commonly used purine nucleoside analogdrugs, fludarabine and cladribine, but appears to have greater potency atdamaging the DNA of leukemia cells and a broader range of clinical activity.

In Europe, we facilitated an investigator sponsoredtrial, or an IST, of clofarabine as first line therapy for older adult patientswith AML who were unsuitable for intensive chemotherapy. The IST was closed torecruitment in August 2004 because a 67% overall response rate was achieved.This response rate was more than three times greater than the expected responserate under the current standard of care for this patient population and theinvestigator determined that these positive results warranted acceleratedinitiation of the Phase II regulatory study of clofarabine as a first-linetreatment for older adult patients newly diagnosed with AML.  We completed enrollment of thisBioenvision-sponsored Phase II regulatory trial (BIOV-121) in February 2006 andwe submitted an application for label extension to the EMEA in February of 2007based in large part upon this clinical data.

In the U.S. clofarabine is currently being evaluatedin numerous ISTs for the treatment of a variety of hematological cancersincluding AML, ALL, MDS, CLL and NHL. In addition, commencing in calendar 2007and 2008, we hope to further investigate clofarabine in European clinicaltrials for MDS, AML, CLL, NHL and solid tumor cancer indications. Inpre-clinical studies, clofarabine has shown anti-tumor activity against severalhuman cancers, including cancers of the lung, colon, kidney, breast, pancreasand prostate, as well as its action against numerous leukemia cells. We believethe initial data from the Phase I clinical trials indicate sufficient possibleactivity for clofarabine in certain solid tumor types to warrant furtherclinical development.

Pursuant to the terms of our co-development agreementwith Genzyme, the successor-in-interest to ILEX Oncology, Inc. following themerger consummated between Genzyme and Ilex in December 2004, both parties arerequired to share promptly all information, including clinical data, generatedunder the co-development program and Genzyme is obligated to pay all of theU.S. and Canadian research and development costs and 50% of all approvedex-U.S. and Canada research and development costs (except for Japan andSoutheast Asia and except for non-cancer indications).  If additional resources are required above theagreed upon costs, we may elect to pay these additional costs and certain ofthese payments will be credited against future royalty payments to Genzyme atthe rate of $1.50 for every $1.00 of additional expenditures. Under theco-development agreement with Genzyme, we receive royalties on Genzyme’s annualnet sales on a sliding scale based on the level of annual net sales.  Similarly, we pay a royalty to Genzyme andSouthern Research Institute, or SRI, the inventor of clofarabine, on ourEuropean annual net sales.  Although wehave not received payment from Genzyme for our development costs incurred sincethe Genzyme’s acquisition of Ilex, we are actively discussing thesereimbursements with Genzyme in an ongoing dialogue and are actively working ondeveloping a consensus with Genzyme management for a development plan andbudget going forward.

During the performance of the co-developmentagreement, we have disagreed with Genzyme from time to time on the interpretationof certain of the parties’ respective rights and obligations under theco-development agreement. Some of these disagreements have been resolved by theparties in the ordinary course of business. In some instances, the parties havecontinued to perform their obligations under the co-development agreement whilereserving their rights with respect to disagreements that they were not able toresolve.  For example, the parties havedisagreed as to the proper interpretation of the language in Section 3.6 of theco-development agreement. Section 3.6 provides that if Genzyme fails to file anew drug application for chronic leukemia or solid tumors within a prescribedperiod of time, then we shall have the right to make such filing. If weprepared and filed a new drug application for the treatment of chronic leukemiaor solid tumors, and if that application were to be approved, the parties donot agree as to whether we would then have the right to market and sellclofarabine in North America for those indications or whether Genzyme wouldretain those rights under Section 6.1 of the co-development agreement. Giventhe disagreement as to the interpretation of the parties’ rights under theco-development agreement, and given the challenges of developing clofarabinefor the treatment of chronic leukemia or solid tumors and preparing and filinga new drug application for those uses, we have elected at this time to focusour resources and efforts on the development and commercialization ofclofarabine outside of the United States while reserving our rights underSection 3.6 of the co-development agreement.

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Pursuant to theterms of our co-development agreement with SRI, we have the exclusive licenseto market and distribute clofarabine throughout the world for all humanapplications except for certain U.S. and Canadian cancer indications.  Our exclusive license expires upon the lastto expire of the patents used or useful in connection with the development andmarketing of clofarabine, which we currently expect to expire in 2021.

To date, themajority of our development activities and resulting R&D expenditures haverelated to the development of clofarabine. Our primary business strategy has included taking clofarabine to marketin the E.U. and using the proceeds from our resulting marketing efforts, inpart, to progress the other products and technologies in our pipeline.

*Modrenal®*

We currently market Modrenal® (trilostane) in the U.K.for the treatment of post-menopausal advanced breast cancer following relapseto initial hormone therapy.  We have ateam of six sales specialists and a marketing executive selling and marketingModrenal® (and Evoltra®) in the U.K.

Modrenal’s® approved indication enables us to promoteModrenal® for use immediately after relapse to initial hormone therapy such astamoxifen or one of a class of drugs known as aromatase inhibitors (includingFaslodex and Arimidex).  However, we areinitially positioning Modrenal® as a third or fourth line treatment option inpost-menopausal advanced breast cancer.

Modrenal® has been extensively studied in clinicaltrials in the U.S., Europe and Australia, and an analysis, known as ameta-analysis, of a series of these clinical studies, that together included714 patients with post-menopausal advanced breast cancer who received Modrenal®has been conducted. Overall, a clinical benefit rate of 35% was achieved inpatients with both hormone-sensitive and hormone-insensitive breastcancers.  Generally, a clinical benefit isachieved when a patient’s disease disappears, is decreased by greater thanfifty percent or is stabilized for at least six months. In a sub-set analysisof these clinical trial data, a clinical benefit rate of 46% was achieved for351 patients with hormone-sensitive breast cancer who had responded to one ormore prior hormonal therapies and were given Modrenal® upon relapse of thecancer.  In one of the studies which wasconducted in Australia, a clinical benefit rate of 55% was achieved for 64patients who received Modrenal® having previously responded to tamoxifen andsubsequently relapsed.  We believe thesedata compare favorably to currently marketed aromatase inhibitors and otheragents given as second line or subsequent therapies.  Furthermore, Modrenal® has an acceptableside-effect profile.  On the basis ofthese data, Modrenal® was granted a product license in the U.K. for thetreatment of post-menopausal advanced breast cancer following relapse toinitial hormone therapy.

We began marketing Modrenal® in May 2004 in the U.K.for the treatment of post-menopausal advanced breast cancer following relapseto initial hormone therapy.  We have theexclusive right to market and distribute Modrenal® throughout the world for allhuman applications, except for South Africa and Japan where the drug ismarketed for the treatment of low-renin hypertension.  Our exclusive license expires upon the lastto expire of the patents used or useful in connection with the marketing ofModrenal®.  Given that we have new patentapplications filed, which are subject to issuance, we expect the last of ourunderlying patents to expire in 2020.

## ***Other Products and Technologies***

We anticipate thatrevenues derived from Evoltra® and Modrenal® willpermit us to further develop the other products currently in our product pipeline.The work to date on these compounds has been limited because of the need toconcentrate on Evoltra® and Modrenal® but management believes thesecompounds have potential value.

### *Suvus*®

Suvus®, especiallywhen photo-sensitized by light, acts by preventing replication of nucleic acid(DNA and RNA) in pathogens.  Investigatorsponsored Phase II clinical trials have been completed in the Middle East tostudy Suvus’® use in treating relapsed/refractory, chronic hepatitis C virusinfection.  Suvus® was given to 25patients with genotype 4 hepatitis C who had failed a prior treatment,including interferon in many of the patients. Sixteen (64%) 

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of the patients hadcirrhosis.  Suvus® was given orally for100 days and measurement of the viral load was made at 50 days.  At 50 days, 22 (88%) patients had shown areduction in viral load of greater than 70%. Of these responders, 14 (64%) had a clearance of greater than 90%, withfour responders having complete viral clearance.

Seven of the 25patients have had viral load measured at 100 days.  Six of these patients show continuedreduction in viral load and the seventh patient, who had been one of the threenon-responders at 50 days, had a greater than 90% reduction in viral load.  No major adverse events were noted.

Methyleneblue, the parent compound in Suvus®, is currently used in several Europeancountries to inactivate pathogens, notably certain viruses, in fresh frozenplasma.  In December of 2005, wesubmitted to the Egyptian Ministry of Health (“Ministry”) a protocol for aninvestigator sponsored clinical trial in Egypt for refractory genotype IVHepatitis C.   Concurrent with thesubmission of the protocol, we filed a marketing authorization with theMinistry for the use of methylene blue in hepatitis C based on the Phase IIdata.  Our plan was to attain productapproval (then anticipated to be received by the end of calendar 2006) and thencommence with further investigator sponsored clinical trials in Egypt intowhich we would sell methylene blue at a price discounted to the currenttreatments available.  The trials wereintended to be performed whether marketing approval was received or not.

InSeptember of 2006, the Ministry provided feedback on our filing and requestedthat, among other things, an Egyptian-based company be added to ourdistribution process.   We responded tothe Ministry in January of 2007.  InMarch of 2007, we received another request from the Egyptian authoritiesrelating again to the manufacturing process and we submitted our responses inApril 2007.  Separately, in February of2007, we hired a third party to assist us in performing a strategic review ofour asset portfolio which was completed during the fourth quarter of fiscal2007.  In conjunction with this analysis,our board of directors determined that we would no longer devote any furtherresources to the development of methylene blue, unless and until a securerevenue source could be identified as a pre-condition to the use of methyleneblue in a clinical trial.  As a result ofour inability to obtain a secure source to fund further development ofmethylene blue, along with the the inability to commence a clinical study intowhich we could sell the product, we re-evaluated the intangible asset at June30, 2007.  We recognized a non-cashimpairment loss equal to its carrying value of approximately $3,311,000.

## *OLIGON**® Technology*

With the acquisition ofPathagon in February 2002, we acquired patents, technology and technologypatents relating to OLIGON® anti-infective technology, and have licensed rightsfrom Oklahoma Medical Research Foundation for the use of thiazine dyes,including methylene blue, for other anti-infective uses.

The OLIGON® technology isbased on the antimicrobial properties of silver ions.  The broad spectrum activity of silver ionsagainst bacteria, including antibiotic-resistant strains, has been known fordecades.  OLIGON® materials haveapplication in a wide range of devices and products, including vascular access devices,urology catheters, pulmonary artery catheters and thoracic devices, renaldialysis catheters, orthopedic devices and several other medical and consumerproduct applications.  One application ofthe OLIGON® technology has been licensed to a third party, which is currentlymarketing the technology in its line of short-term vascular accesscatheters.  Six U.S. patents for theOLIGON® technology have been granted and additional patents have beenfiled.  In addition, patents have beenfiled in Europe, Canada and Japan.

In January 2007, we enteredinto a licensing agreement with Foster Corporation, a Connecticut-basedcompounder of biomedical materials (“Foster”) to license out exclusive rightsto manufacture, market and distribute our proprietary anti-microbial OLIGON®technology.  Under the terms of thelicense agreement, we will have a revenue sharing agreement on futuresublicenses and a royalty on all sales by Foster.  Foster is required to comply with annualminimum marketing and research and development expenditures within the first 3years of the term of the license.

At June 30, 2007, wecompleted an analysis of this intangible asset which confirmed that suchestimated future cash flows continued to be worth more than the carrying valueof OLIGON® and, therefore, no impairment was deemed to be required.

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### *GeneTherapy Technology*

Our product portfolio also includes a variety of genetherapy products that, we believe, may offer advancements in the field ofcancer treatment and may have additional applications in certain non-cancerdiseases such as diabetes, cystic fibrosis and other auto-immunedisorders.  Pursuant to a co-developmentagreement with the Royal Free and University College Medical School and aCanadian biotechnology company, we are developing gene vector technologieswhich, based on pre-clinical research and early Phase I clinical trials, webelieve have potential in a wide array of clinical conditions. To date, thetechnology has undergone small-scale clinical testing with the albumin andthrombopoietin genes. The results showed the technology is capable of producinga prolonged elevation in serum albumin levels in cancer and cirrhosis patientswith hypo-albuminemia, a serious physiological disorder.  The gene therapy technology has been allocatedlimited resources for development because of the emphasis on the commercialdevelopment of clofarabine.

*Animal Health Products*

We also have one animal health product, Vetoryl®(trilostane), at market in the United Kingdom for the treatment of Cushing’sdisease in dogs.  In November 2001, wegranted to Arnolds Ltd., a major distributor of animal products in the U.K.,the right to market trilostane for a six-month trial period, after which time,if the results were satisfactory to Arnolds, we would enter into a licensingarrangement whereby Arnolds would pay royalties to us on sales from April 2002onward.  During the trial period, Arnoldsposted more than $400,000 of sales of the drug. Arnolds has licensed the drug from us for sale in the U.K. market inconsideration of a payment of a 5% royalty on sales.  Separately, in May 2003, we granted to DechraPharmaceuticals, PLC, an affiliate of Arnolds Ltd., the exclusive right tomarket the drug in the U.S. for $5,500,000 of total consideration (including milestonepayments) and a royalty of 2% - 4% of annual net sales.

***Patentsand Proprietary Rights***

Our success will depend, in part, upon our ability toobtain and enforce protection for our products under U.S. and foreign patentlaws and other intellectual property laws, preserve the confidentiality of ourtrade secrets and operate without infringing the proprietary rights of thirdparties.  Our policy is to file patentapplications in the U.S. and/or foreign jurisdictions to protect technology,inventions and improvements to our inventions that are considered important tothe development of our business.  Also,we will rely upon trade secrets, know-how, continuing technological innovationsand licensing opportunities to develop a competitive position.

Through our current license agreements, we haveacquired the right to utilize the technology covered by several issued patentsand patent applications, as well as additional intellectual property andknow-how that could be the subject of further patent applications in thefuture.  We evaluate the desirability ofseeking patent or other forms of protection for our products in foreign marketsbased on the expected costs and relative benefits of attaining thisprotection.  There can be no assurancethat any patents will be issued from any applications or that any issuedpatents will afford adequate protection to us. Further, there can be no assurance that any issued patents will not bechallenged, invalidated, infringed or circumvented or that any rights grantedthereunder will provide competitive advantages to us.  Parties not affiliated with us have obtainedor may obtain U.S. or foreign patents or possess or may possess proprietaryrights relating to our products.  Therecan be no assurance that patents now in existence or hereafter issued to otherswill not adversely affect the development or commercialization of our productsor that our planned activities will not infringe patents owned by others.

As a result of the licenses described above, we arethe exclusive licensee or sublicensee of three U.S. patents one of whichexpired in 2005 and two of which expire in 2008 and 2014 relating to compounds,pharmaceutical compositions and methods of use encompassing clofarabine.  We have also filed two U.S. patentapplications relating to the use of clofarabine in autoimmune diseases.Although the composition of matter patents to trilostane have expired, we arethe exclusive licensee of several U.S. and foreign patent applications relatingto the use of trilostane alone or in combination with anticancer agents and theexclusive licensee to a manufacturing process patent for trilostane. **  **In addition, forGene Therapy we have international process and use patent applications filedwhich, if patents are issued, will expire in April 2018 and for OLIGON® we haveprocess, use and composition of matter patents in the U.S. and internationallywhich expire on or before April 2019 and a patent application in Japan whichexpires in October 2018.

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We could incur substantial costs in defending ourselvesin infringement suits brought against us or any of our licensors or inasserting any infringement claims that we may have against others.  We could also incur substantial costs inconnection with any suits relating to matters for which we have agreed to indemnifyour licensors or distributors.  Anadverse outcome in any litigation could have a material adverse effect on ourbusiness and prospects.  In addition, wecould be required to obtain licenses under patents or other proprietary rightsof third parties.  No assurance can begiven that any of these licenses would be made available on terms acceptable tous, or at all.  If we are required to,and do not obtain any required licenses, we could be prevented from, orencounter delays in, developing, manufacturing or marketing one or more of ourproducts.

We also rely upon trade secret protection for ourconfidential and proprietary information. There can be no assurance that others will not independently developsubstantially equivalent proprietary information and techniques or otherwisegain access to our trade secrets or disclose this technology or that we canmeaningfully protect our trade secrets.

## ***Sales and Marketing***

Currently we have anarrangement in place with Genzyme for the co-development and marketing ofclofarabine in the US.  We have enteredinto arrangements with Innovex for the sales and marketing of Evoltra®(clofarabine) in certain E.U. countries. However, in order to market Evoltra® effectively and independently, we needto establish a much more integrated marketing and sales force with distributioncapability or contract with other pharmaceutical and/or health care companieswith distribution systems and direct sales forces.  We have been considering the most appropriatelong term strategy to capitalize on the commercial value of Evoltra®.  In this regard, in March 2006, we enteredinto a Marketing and Distribution Agreement with Mayne Pharma Limited, a publiccompany in Australia, to develop, market and distribute Evoltra® (Clofarabine)in Australia and New Zealand in certain cancer indications.

We have also engaged inour own marketing and sales efforts in connection with the marketing and saleof Modrenal®in theU.K.

## ***Manufacturing***

Our strategy is to enterinto collaborative arrangements with other companies for the clinical testing,manufacture and distribution of the products. Manufacturers of our products are subject to Good ManufacturingPractices prescribed by the FDA or other rules and regulations prescribed byforeign regulatory authorities, which may change from time to time.  We do not have and do not intend to establishany internal product testing, manufacturing or distribution capabilities;rather, we will rely solely and exclusively on third party providers of theseservices for the foreseeable future.

## ***Research and Development***

In developing newproducts, we consider a variety of factors including: (i) existing or potentialmarketing opportunities for these products; (ii) our capability to arrange forthese products to be manufactured on a commercial scale; (iii) whether or notthese products complement our existing products; (iv) the opportunities toleverage these products with the development of additional products; and (v)the ability to develop co-marketing relationships with pharmaceutical and/orother companies with respect to the products. We intend to fund future research and development activities at a numberof medical and scientific centers in Europe and the United States.  Costs related to these activities areexpected to include: clinical trial expenses; drug production costs; salariesand benefits of scientific, clinical and other personnel; analytical and othertesting costs; professional fees; and insurance and other administrative expenses.  We have spent approximately $21,065,000 and$11,727,000 on research and development activities for the fiscal years endedJune 30, 2007 and 2006, respectively.

***GovernmentRegulation***

The FDA and comparable regulatory agencies in stateand local jurisdictions and in foreign countries impose substantialrequirements upon the clinical development, manufacture and marketing ofpharmaceutical 

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products.  These agencies and other federal, state andlocal entities regulate research and development activities and the testing,manufacture, quality control, safety, effectiveness, labeling, storage, recordkeeping, approval, advertising and promotion of our drug delivery products.

The process required by the FDA under the new drugprovisions of the Federal Food, Drug and Cosmetics Act before our products maybe marketed in the U.S. generally involves the following:

·              pre-clinical laboratory and animaltests;

·                                          submissionto the FDA of an investigational new drug application, or IND, which must becomeeffective before clinical trials may begin;

·                                          adequateand well-controlled human clinical trials to establish the safety and efficacyof the proposed pharmaceutical in our intended use;

·                                          submissionto the FDA of a new drug application; and

·                                          FDAreview and approval of the new drug application.

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

Pre-clinical testsinclude laboratory evaluation of the product, its chemistry, formulation andstability, as well as animal studies to assess the potential safety andefficacy of the product.  The results ofthe pre-clinical tests, together with manufacturing information and analyticaldata, are submitted to the FDA as part of an IND, which must become effectivebefore we may begin human clinical trials. The IND automatically becomes effective 30 days after receipt by theFDA, unless the FDA, within the 30-day time period, raises concerns orquestions about the conduct of the trials as outlined in the IND and imposes aclinical hold.  In such a case, the INDsponsor and the FDA must resolve any outstanding concerns before clinicaltrials can begin.  There is no certaintythat pre-clinical trials will result in the submission of an IND or thatsubmission of an IND will result in FDA authorization to commence clinicaltrials.

Clinical trials involvethe administration of the investigational product to human subjects under thesupervision of a qualified principal investigator.  Clinical trials are conducted in accordancewith protocols that detail the objectives of the study, the parameters to beused to monitor safety and the efficacy criteria to be evaluated.  Each protocol must be submitted to the FDA aspart of the IND.  Further, each clinicalstudy must be conducted under the auspices of an independent institutionalreview 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 thepossible liability of the institution.

In the case of productsfor life-threatening diseases such as cancer, the initial human testing isoften conducted in patients with disease rather than in healthyvolunteers.  Since these patients alreadyhave the targeted disease or condition, these studies may provide initialevidence of efficacy traditionally obtained in Phase II trials and so thesetrials are frequently referred to as Phase I/II trials.  We cannot be certain that we willsuccessfully complete Phase I, Phase II or Phase III testing of our productcandidates within any specific time period, if at all.

Furthermore, we, the FDA,the institutional review board or the sponsor may suspend clinical trials atany time on various grounds, including a finding that the subjects or patientsare being exposed to an unacceptable health risk.

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The results of productdevelopment, pre-clinical studies and clinical studies are submitted to the FDAas part of a new drug application for approval of the marketing and commercialshipment of the product.  The FDA maydeny a new drug application if the applicable regulatory criteria are notsatisfied or may require additional clinical data.  Even if the additional data is submitted, theFDA may ultimately decide that the new drug application does not satisfy thecriteria for approval. Once issued, the FDA may withdraw product approval ifcompliance with regulatory standards for production and distribution is notmaintained or if safety problems occur after the product reaches themarket.  In addition, the FDA requiressurveillance programs to monitor approved products which have beencommercialized, and the agency has the power to require changes in labeling orto prevent further marketing of a product based on the results of thesepost-marketing programs.

The FDA has a Fast Trackprogram intended to facilitate the development and expedite the review of drugsthat demonstrate the potential to address unmet medical needs for treatment ofserious or life-threatening conditions.  Under this program, if the FDA determines from a preliminary evaluationof clinical data that a fast track product may be effective, the FDA can reviewportions of a new drug application for a Fast Track product before the entireapplication is complete, and undertakes to complete its review process withinsix months of the filing of the new drug application.   The FDA approval of a Fast Track product caninclude restrictions on the product’s use or distribution such as permittinguse only for specified medical procedures or limiting distribution tophysicians or facilities with special training or expertise.  The FDA may grant conditional approval of aproduct with Fast Track status and require additional clinical studiesfollowing approval.

Satisfaction of FDArequirements or similar requirements of state, local and foreign regulatoryagencies typically takes several years and the actual time required may varysubstantially, based upon the type, complexity and novelty of thepharmaceutical product. Government regulation may delay or prevent marketing ofpotential products for a considerable period of time and impose costlyprocedures upon our activities.  Successin pre-clinical or early stage clinical trials does not assure success in laterstage clinical trials.  Data frompre-clinical and clinical activities is not always conclusive and may besusceptible to varying interpretations which could delay, limit or preventregulatory approval.  Even if a productreceives regulatory approval, the approval may be significantly limited tospecific indications. Further, even after the FDA approves a product, laterdiscovery of previously unknown problems with a product may result inrestrictions on the product or even complete withdrawal of the product from themarket.

Any products manufacturedor distributed under FDA clearances or approvals are subject to pervasive andcontinuing regulation by the FDA, including record-keeping requirements andreporting of adverse events with the products. Drug manufacturers and theirsubcontractors are required to register with the FDA and state agencies, andare subject to periodic unannounced inspections by the FDA and state agenciesfor compliance with good manufacturing practices, which impose procedural anddocumentation requirements upon manufacturers and their third partymanufacturers.

We are subject tonumerous other federal, state, local and foreign laws relating to such mattersas safe working conditions, manufacturing practices, environmental protection,fire hazard control, and disposal of hazardous or potentially hazardoussubstances. We may incur significant costs to comply with such laws andregulations now or in the future.  Inaddition, we cannot predict what adverse governmental regulations may arisefrom future U.S. or foreign governmental action.

We also are subject toforeign regulatory requirements governing human clinical trials and marketingapproval for pharmaceutical products which we sell outside the U.S.  The requirements governing the conduct ofclinical trials, product licensing, pricing and reimbursement vary widely fromcountry to country.  Whether or not weobtain FDA approval, we must obtain approval of a product by the comparableregulatory authorities of foreign countries before manufacturing or marketingthe product in those countries.  Theapproval process varies from country to country and the time required for theseapprovals may differ substantially from that required for FDA approval.  We cannot be assured that clinical trialsconducted in one country will be accepted by other countries or that approvalin one country will result in approval in any other country.  For clinical trials conducted outside theU.S., the clinical stages generally are comparable to the phases of clinicaldevelopment established by the FDA.

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## ***Competition***

The pharmaceuticalindustry is characterized by rapidly evolving technology and intensecompetition.  Many companies of allsizes, including a number of large pharmaceutical companies as well as severalspecialized biotechnology companies, are developing cancer drugs similar toours.  There are products on the marketthat will compete directly with the products that we are seeking todevelop.  In addition, colleges,universities, government agencies and other public and private researchinstitutions will continue to conduct research and are becoming more active inseeking patent protection and licensing arrangements to collect license fees,milestone payments and royalties in exchange for license rights to technologiesthat they have developed, some of which may directly compete with ourtechnologies.  These companies andinstitutions also compete with us in recruiting qualified scientificpersonnel.  Many of our competitors havesubstantially greater financial, research and development, human and otherresources than we do.  Furthermore, largepharmaceutical companies have significantly more experience than we do inpreclinical testing, human clinical trials and regulatory approvalprocedures.  Our competitors may developsafer or more effective products than ours, obtain patent protection orintellectual property rights that limit our ability to commercialize products,or commercialize products more quickly than we can.

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

## ***Employees***

As of the date hereof, wehad 32 full-time employees based in New York, Edinburgh, Scotland and Tokyo,Japan.

***FinancialStatements***

Financial informationabout segments and geographic areas is incorporated herein by reference to Note7 “Geographic Information” of the Notes to the Consolidated FinancialStatements that appears in Item 8 of this Form 10-K.

## ***Corporate Information***

We were incorporated asExpress Finance, Inc. under the laws of the State of Delaware on August 16,1996, and changed our name to Ascot Group, Inc. in August 1998 and further toBioenvision, Inc. in January 1999. Our principal executive offices are locatedat 345 Park Avenue, 41st Floor, New York, New York 10154. Our telephone numberis (212) 750-6700 and our fax number is (212) 750-6777. Our website iswww.bioenvision.com. Information included or referred to on our website is notincorporated by reference in or otherwise a part of this annual report. Ourwebsite address is included in this annual report as an inactive textualreference only.  Our Annual Reports onForm 10-K, Quarterly Reports on Form 10-Q, Current Reports onForm 8-K and all amendments to those reports are available free of chargethrough the Investor Relations section of our web site as soon as reasonablypracticable after such material is electronically filed with or furnished tothe Securities and Exchange Commission.  The public may read and copy any materials filed by us with the SEC atthe SEC’s Public Reference Room at 100 F Street, NW, Washington, D.C.20549.  The public may obtain informationon the operation of the Public Reference Room by calling the SEC at1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) thatcontains reports, proxy and information statements, and other informationregarding issuers that file electronically with the SEC.

**Item1A.  Risk Factors**

You should carefully consider the following risksbefore you decide to buy our common stock. Our business, financial condition or operating results may suffer if anyof the events described in the following risk factors actually occur.  All known risks are presented in this annualreport on Form 10-K.  These risks mayadversely affect our business, financial condition or operating results.  If any of the events we have identifiedoccur, the trading price of our common stock could decline, and you may loseall or part of the money you paid to buy our common stock.

**Factors Relating to the Proposed Merger withGenzyme**

Our ability to complete the merger with Genzyme issubject to risks and uncertainties, including, but not limited to, the failureto obtain stockholder approval, the occurrence of any event, change or othercircumstances 

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that could give rise to the termination of the MergerAgreement and other risks to consummation of the transaction.  Additional risk factors associated with theproposed merger with Genzyme are as follows.

***Our business could be adversely impactedby uncertainty related to the proposed merger with Genzyme.***

Whether or not the merger is completed, theannouncement and pendency of the merger could impact or cause disruptions inour business and operations, which with Genzyme could have an adverse effect onour results of operations and financial condition, including, but not limitedto:

·                                          ourcurrent business partners may experience uncertainty associated with the mergerand may attempt to negotiate changes in existing business relationships, decideto delay, defer, or cancel purchases of our products pending completion of themerger or termination of the Merger Agreement and/or consider entering intobusiness relationships with parties other than us, either before or aftercompletion of the merger, and we may face additional challenges in competingfor new and renewal business;

·                                          ouremployees may experience uncertainty about their future roles with the combinedcompany, which might adversely affect our ability to retain and hire keymanagers and other employees;

·                                          theattention of our management may be directed toward the completion of the mergerand transaction-related considerations and may be diverted from theday-to-day business operations of our business;

·                                          wehave incurred and will continue to incur significant expenses related to themerger;

·                                          incertain ways our ability to operate our business freely might be restricted byparticular restrictions in the Merger Agreement;

·                                          theuncertainty of retaining business with our suppliers and vendors can be furtherexacerbated by the merger, and delay in the completion of the merger ortermination of the Merger Agreement could have an adverse effect on ourbusiness, financial condition, results of operations or prospects if the mergeris not completed; and

·                                          we may be unableto respond effectively to competitive pressures, industry developments andfuture opportunities.

***Our stock price and financial resultscould be adversely impacted by uncertainty related to the proposed merger withGenzyme.***

Our stock price may beadversely affected as a result of the fact that we have incurred and willcontinue to incur significant expenses related to the proposed merger that willnot be recovered if it is not completed. As a consequence of the failure of the merger to be completed, ourbusiness could be materially and adversely affected. 

If the merger isapproved, we will become a wholly-owned subsidiary of Genzyme and our commonstock will cease to be listed on The NASDAQ Global Market and no longer will bepublicly traded.

***We are subjectto litigation that could have an adverse effect upon our business, financialcondition, results of operations or reputation.***

We are a defendantin multiple putative class action lawsuits that have been filed in connectionwith the merger against us, our directors, Genzyme and Wichita Bio, the Genzymesubsidiary which will merge with and into us resulting in us becoming a whollyowned subsidiary of Genzyme. Among other things, the lawsuits seek to enjointhe completion of the merger. We have contacted the plaintiffs’ counsel todetermine whether a settlement can be reached. If an acceptable settlementcannot be reached, we expect to contest the plaintiffs’ claims vigorously.  

On or about August22, 2007, David P. Luci, our former general counsel, filed an action in NewYork State Supreme Court, New York County purporting to assert claims againstus, our chief financial officer and certain of our current and formerdirectors.  The complaint purports toallege, among other things, that we breached contractual and other obligationsallegedly owed to him in connection with the termination of his employment withus, and purports to demand damages, in the aggregate, of $108,400,000.  We believe that the action is without meritand intend to mount a vigorous defense.

While it is notfeasible to predict the outcome of these lawsuits, their ultimate resolutioncould have an adverse effect upon our business, financial condition, results ofoperations or reputation.  

Information aboutlegal proceedings is incorporated herein by reference to Item 3 of this Form10-K.

***Certain personshave substantial control over us, which could impede stockholder approval ofcertain transactions.***

Pursuant to theterms of tender and voting agreements made in connection with the MergerAgreement, on July 10, 2007, our directors and executive officers tendered toWichita Bio all shares of our common stock and 

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preferred stock owned bythem on that date.  Under the terms ofthe tender and voting agreements, our directors and executive officers haveagreed to vote any shares of our common stock owned by them as of the recorddate in favor of the proposal to approve the Merger Agreement.

Additionally, as a result of these tender and votingagreements and other shares of common stock acquired pursuant to the terms ofthe Merger Agreement, Genzyme and Wichita Bio beneficially own approximately21.7% of the outstanding shares of Bioenvision common stock on an as-convertedbasis, including approximately 15.3% of the voting power of all outstandingshares of our capital stock and 100% of the voting power of all outstandingshares of our preferred stock.  Under theterms of the Merger Agreement, absent Genzyme’s consent we are required, untilconsummation of the merger, to preserve our personnel and our business, tomaintain insurance policies and to protect our intellectual property rights,among other actions. We are also required to obtain Genzyme’s consent prior to,among other things, disposing of assets, making capital expenditures orincurring indebtedness greater than a set amount, changing compensation payableto our officers, directors or employees, making any material acquisitionsoutside the ordinary course of business, or entering into any extraordinarytransactions.  

As Genzyme and Wichita Bio are the sole beneficialowners of our outstanding shares of preferred stock, we are required to obtainGenzyme’s consent prior to taking any of the following actions: (i) theauthorization, issuance or agreement to authorize or issue any new class orseries of parity or senior securities or rights of any kind convertible into orexercisable or exchangeable therefor, or the offering, sale or issuance of anyexisting parity or senior securities or rights of any kind convertible into orexercisable or exchangeable therefor; (ii) the purchase, repurchase or redemption of shares of our commonstock, securities or rights of any kind convertible into or exercisable for ourcommon stock or any other of our securities (except in the case of atermination of an employee; (iii) an increase or decrease in the number ofmembers constituting the size of our board of directors; (iv) an increase inthe authorized number of shares of our common stock or preferred stock; (v) theeffecting of any merger, combination, reorganization, or sale of all orsubstantially all of our assets; (vi) the declaration or payment of dividendsor any other distribution on shares of our common stock or other capital stock;(vii) the amendment of our certificate of incorporation or bylaws or thealteration or change to the rights, preferences or privileges of our preferredstock or any parity or senior securities, in each case so as to affectadversely the rights, preferences or privileges of our preferred stock; or(viii) an increase in the number of shares of our common stock reserved for theemployee option pool by more than 5% per year.

These consent rights could have the effect of delayingor preventing a third party from acquiring control over us and could affect themarket price of our common stock. In addition, the interests of certain largestockholders may not always coincide with our interests or the interests ofother stockholders, and, accordingly, these stockholders could impedetransactions or agreements that would otherwise be approved by otherstockholders generally.

***As a result ofthe purchase of our common stock under the terms of the Merger Agreement,trading in our common stock may be more difficult.***

The purchase ofour common stock and preferred stock under the terms of the Merger Agreementhas reduced the number of holders of our common stock and the number of sharesof our common stock that might otherwise trade publicly, which could adverselyaffect the liquidity and market value of the remaining common stock held bystockholders other than Genzyme. We cannot predict whether the reduction in thenumber of shares of our common stock that might otherwise trade publicly willhave an adverse or beneficial effect on the market price for, or marketabilityof, our common stock or whether such reduction will cause future market pricesto be greater or less than the offer price of $5.60 per share of common stock.

**Factors Relating to our Business**

***We have limitedexperience in developing products and may be unsuccessful in our efforts todevelop and commercialize our products, including our application for E.U. approval in adult AML****.*

To achieveprofitable operations, we, alone or with others, must successfully develop,clinically test, market and sell our products. In particular, we have submitted a filing for approval in patients withadult AML with the EMEA, and we are susceptible to the risk that our recentEMEA filing submission, which we announced we filed in February 2007 for the treatment of adult patients with AML,will not be approved or will not be approved on a timely basis in accordancewith our expectations. No assurance can be given that management’s developmentefforts and/or commercial expectations will be successful and accurate.

We are developingclofarabine in conjunction with Genzyme, our U.S. co-development partner sinceits acquisition of ILEX Oncology, which occurred on December 21, 2004. Noassurance can be given that the operational and managerial relations withGenzyme will proceed favorably or that the timeline for development ofclofarabine will not be elongated since Genzyme has replaced ILEX as our U.S.cancer-indication marketing partner. No assurance can be given that we orGenzyme have the oncology experience required to work successfully with theapplicable regulatory authorities to build upon the licensed indications forclofarabine.

With respect toModrenal®, our long-term drug development objectives for Modrenal® may includeattempting to test the drug and get approval in the U.S. for treatment ofadvanced post-menopausal breast cancer patients. These trials would takesignificant time and resources and no assurance can be given that developingthe drug in this indication will result in a U.S. approval for Modrenal® inadvanced post-menopausal breast cancer patients.

Certain of ourunapproved compounds or potential new indications for our approved drugs arenot 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 developmentmay not reach the market for a number of reasons, including:

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·              discovery during pre-clinicaltesting or clinical trials that the products are ineffective or cause harmfulside effects;

·              failure to receive necessaryregulatory approvals;

·              inability to manufacture on alarge or economically feasible scale;

·              failure to achieve marketacceptance; or

·              preclusion from commercializationby proprietary rights of third parties.

Most of theexisting and future products and technologies developed by us will requireextensive additional development, including pre-clinical testing and clinicaltrials, as well as regulatory approvals, prior to commercialization. Ourproduct development efforts may not be successful. We may fail to receiverequired regulatory approvals from U.S. or foreign authorities for any indication.Any products, if introduced, may not be capable of being produced in commercialquantities at reasonable costs or being successfully marketed. The failure ofour research and development activities to result in any commercially viableproducts or technologies would materially adversely affect our futureprospects.

### ***We depend on our co- development agreementwith Genzyme and if it does not proceed as planned, we may incur delay in thecommercial value realized from Evoltra® ( clofarabine), which may delay ourability to generate significant revenues and cash flow from the sale ofEvoltra®.***

We have aco-development agreement with Genzyme, and pursuant to that agreement, Genzymeand any third party to which Genzyme grants a sublicense or transfer its obligations,has primary responsibility for conducting clinical trials and administeringregulatory compliance and approval matters in certain cancer indications in theU.S. and Canada.

If Genzyme fails tomeet its obligations under the co-development agreement including itsobligation to cooperate and share data with us, we could lose valuable time infurther developing clofarabine and further commercializing the drug both in theU.S. and in Europe.  We can not provideassurance that Genzyme will cooperate with us or that Genzyme will meet itsobligations under the co-development agreement. Development of compounds to the stage of approval includes inherent riskat each stage of development that the FDA, in its discretion, will mandate arequirement not foreseeable by us or by Genzyme.  There would also be testing delays if, forexample, our sources of drug supply could not produce enough Evoltra® tosupport the then ongoing clinical trials being conducted.  If this were to occur, it could have a materialadverse effect on our ability to develop and/or market Evoltra®, obtainnecessary regulatory approvals, and generate sales and cash flow from the saleof Evoltra®.

If delays in completion constitute a breach by Genzyme or there arecertain other breaches of the co-development agreement by Genzyme, then, at ourdiscretion, the primary responsibility for completion would revert to us, butthere is no assurance that we would have the financial, managerial or technicalresources to successfully complete such responsibilities or, if successfullycompleted, to complete such tasks in timely fashion.

***Wehave disagreed with Genzyme with respect to certain provisions of theco-development agreement, which may affect our ability to generate significantrevenues and cash flow from the sale of Evoltra®.***

During theperformance of the co-development agreement, we have disagreed with Genzymefrom time to time on the interpretation of certain of the parties’ respectiverights and obligations under the co-development agreement. Some of thesedisagreements have been resolved by the parties in the ordinary course ofbusiness. In some instances, the parties have continued to perform theirobligations under the co-development agreement while reserving their rightswith respect to disagreements that they were not able to resolve.  For example, the parties have disagreed as tothe proper interpretation of the language in Section 3.6 of the co-developmentagreement.  Section 3.6 provides that ifGenzyme fails to file a new drug application for chronic leukemia or solidtumors within a prescribed period of time, then we shall have the right to makesuch filing. If we prepared and filed a new drug application for the treatmentof chronic leukemia or solid tumors, and if that application were to beapproved, the parties do not agree as to whether we would then have the rightto market and sell clofarabine in North America for those indications orwhether Genzyme would retain those rights under Section 6.1 of theco-development agreement. Given the disagreement as to the interpretation ofthe parties’ rights under the co-development agreement, and given thechallenges of developing clofarabine for the treatment of chronic leukemia orsolid tumors and preparing and filing a new drug application for those uses, wehave elected at this time to focus our resources and efforts on the developmentand commercialization of clofarabine outside of the United States whilereserving our rights under Section 3.6 of the co-development agreement.  While it is not feasible to predict theoutcome of these disagreements, their ultimate resolution could have a materialadverse effect on our ability to develop and/or market Evoltra®, obtainnecessary regulatory approvals, and generate sales and cash flow from the saleof Evoltra®.

### ***We have a limited operating history, whichmakes it difficult to evaluate our business and to predict our future operatingresults.***

Since ourinception in August of 1996, we have been primarily engaged in organizationalactivities, including developing a strategic operating plan, raising capital,entering into various collaborative agreements for the in-licensing and/ordevelopment of products and technologies, hiring personnel and developing andtesting our products.  We have not generatedany substantial revenues to date and we are not profitable. Accordingly, wehave a limited operating history upon which an evaluation of our performanceand prospects can be made.

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***We have incurred significant net losses sincecommencing business and expect future losses.***

To date, we haveincurred significant net losses, including net loss applicable to commonstockholders of approximately $36,242,000 for the fiscal year ended June 30,2007.  At June 30, 2007, we had anaccumulated deficit of approximately $122,809,000.  We anticipate that we may continue to incuroperating losses for the foreseeable future.** **We may never generate substantialrevenues or achieve profitability and, if we do achieve profitability, we maynot be able to maintain profitability.

### ***Clinical trials for our products areexpensive and time consuming, and may not result in viable products.***

Before obtainingregulatory approval for the commercial sale of a product, we must demonstratethrough pre-clinical testing and clinical trials that a product candidate issafe and effective for use in humans. Conducting clinical trials is a lengthy, time-consuming and expensiveprocess.  We will incur substantial expensefor, and devote a significant amount of time to pre-clinical testing and clinicaltrials.  Even with our lead drugs,Evoltra® and Modrenal®, each of which has received at least one regulatoryapproval, additional pre-clinical and clinical studies are required in oureffort to seek further approved indications for these drugs.

The results frompre-clinical testing and early clinical trials have often not been predictiveof results obtained in later clinical trials as a number of new drugs haveshown promising results in clinical trials, but subsequently failed toestablish sufficient safety and efficacy data to obtain necessary regulatoryapprovals.  Data obtained frompre-clinical and clinical activities are susceptible to varyinginterpretations, which may delay, limit or prevent regulatory approval.  Regulatory delays or rejections may beencountered as a result of many factors, including changes in regulatory policyduring the period of product development. Regulatory authorities may require additional clinical trials, whichcould result in increased costs and significant development delays.

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

·                                          inability of vendors to manufacturesufficient quantities of materials for use in clinical trials;

·                                          slower than expected rate of patientrecruitment or variability in the number and types of patients in a study;

·                                          inability to adequately follow patientsafter treatment;

·                                          unforeseen safety issues or sideeffects;

·                                          lack of efficacy during the clinicaltrials; or

·                                          government or regulatory delays.

### ***A significant portion of our assets relate toancillary products, which may not be successfully commercialized.***

Our ancillary products includeOLIGON®, an anti-microbial compound, and Suvus®, an anti-viral agent,respectively, which we acquired in February 2002 in the Pathagon acquisition. As a result of the loss of certain aspects of patent protection, were-evaluated the alternative future uses of methylene blue in humanindications.  Methylene blue demonstratedeffectiveness in the treatment of hepatitis-C through an Investigator SponsoredPhase II clinical trial conducted in the Middle East.  In December of 2005, we submitted to the Ministrya protocol for an investigator sponsored clinical trial in Egypt for refractorygenotype IV Hepatitis C.   Concurrentwith the submission of the protocol, we filed a marketing authorization withthe Ministry for the use of methylene blue in Hepatitis C based on the Phase IIdata.  Our plan was to attain productapproval (then anticipated to be received by the end of calendar 2006) and thencommence with further investigator sponsored clinical trials in Egypt intowhich we would sell methylene blue 

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at a pricediscounted to the current treatments available. The trials were intended to be performed whether marketing approval wasreceived or not.

AtJune 30, 2006, we completed an analysis of methylene blue which confirmed thatsuch estimated future cash flows continued to be worth more than the carryingvalue of methylene blue.  In September of2006, the Ministry provided feedback on our filing and requested that, amongother things, an Egyptian-based company be added to our distributionprocess.   We responded to the Ministryin January of 2007.  In March of 2007, wereceived another request from the Egyptian authorities relating again to themanufacturing process and we submitted our responses in April 2007.  Separately, in February of 2007, we hired athird party to assist us in performing a strategic review of our assetportfolio which was completed during the fourth quarter of 2007.  In conjunction with this analysis, our boardof directors determined that we would no longer devote any further resources tothe development of methylene blue, unless and until a secure revenue sourcecould be identified as a pre-condition to the use of methylene blue in aclinical trial.  As a result of ourinability to obtain a secure source to fund further development of methyleneblue, along with the inability to commence a clinical study into which we couldsell the product, we re-evaluated the intangible asset at June 30, 2007.  We recognized a non-cash impairment lossequal to its carrying value of approximately $3,311,000.  Making the determinations of impairment andthe amount of impairment requires significant judgment by management andassumptions with respect to the future cash flows of the assets.

In January 2007, we entered into a licensing agreementwith Foster to license out exclusive rights to manufacture, market anddistribute our proprietary anti-microbial OLIGON® technology.  Under the terms of the license agreement, wewill have a revenue sharing agreement on future sublicenses and a royalty onall sales by Foster.  At June 30, 2007,we completed an analysis of our OLIGON® intangible asset which confirmed thatsuch estimated future cash flows continued to be worth more than the carryingvalue of OLIGON®, and, therefore, no impairment was deemed to be required.  The net intangible asset associated withOLIGON® at June 30, 2007 amounted to approximately $2,786,000.

Based on theremaining estimated useful life of OLIGON® of approximately 12 years and marketconsiderations, no assurance can be given that there will not be an impairmentof this asset in the future, which could result in a material impact on ourfuture results of operations. Changes in events or circumstances that mayaffect long-lived assets, particularly in the pharmaceutical industry, makejudgments and assumptions with respect to the future cash flows highlysubjective and may include, but are not limited to, cancellations orterminations of license agreements or the risk of competition that could renderour products noncompetitive or obsolete.

***We rely on compounds and technology licensed from third parties andtermination of any of those licenses would result in the loss of significantrights***

We hold an exclusiveworldwide license for clofarabine.  We granted an exclusive sublicense toGenzyme to develop and commercialize clofarabine for cancer indications in theUS and Canada. We hold an exclusive license in the US and Canada for allnon-cancer indications. We originally obtained clofarabine development andcommercialization rights under patents held by SRI.

Our licenses generally maybe terminated by SRI under the co-development agreement under certaincircumstances.  If any of our licenses are terminated, we may lose certainrights to manufacture, sell, market and distribute clofarabine or other productcandidates which would significantly reduce our actual and potential revenuesand have a material and negative impact on our operations.

***If weare unsuccessful in developing and commercializing our products, our business,financial condition and results of operations could be materially adverselyaffected which could have a negative impact on the value of our securities****.*

Many of ourproducts and processes are in the early or mid-stages of research, developmentand/or commercialization and, therefore, will require the commitment ofsubstantial financial resources, extensive research, development, sales andmarketing activities prior to being ready for sale or marketing in significantquantities.  All of our commerciallyavailable products will require further development, clinical testing andregulatory approvals as we seek approvals in new indications and geographicmarkets.  If it becomes too expensive tosustain our present commitment of resources on a long-term basis, we will beunable to continue certain necessary research and 

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developmentactivities.  Furthermore, we cannot becertain that our clinical testing will render satisfactory results, or that wewill receive required regulatory approvals for our new products or newindications.  If any of our products,even if developed and approved, cannot be successfully commercialized, ourbusiness, financial condition, results of operations and liquidity could bematerially adversely affected which could have a negative impact on the valueof our common stock or debt securities obligations.

***Duringthe next several years, we will be very dependent on the commercial success ofEvoltra®.***

At our present andanticipated level of operations, we may not be able to achieve and maintainprofitability without continued growth in our revenues. The growth of ourbusiness during the next several years will be largely dependent on thecommercial success of Evoltra® and our other products. We do not have long-termdata on the use of the product and cannot predict whether Evoltra® will gainwidespread acceptance, which will mostly depend on the acceptance ofregulators, physicians, patients and other key opinion leaders as a relativelysafe and effective drug that has certain advantages as compared to existing orfuture therapies.

## ***Our industry issubject to extensive government regulation and our products require otherregulatory approvals which makes it more expensive to operate our business.***

*Regulationin General*.  Virtually all aspects of our business areregulated by federal, state and local statutes and governmental agencies in theU.S. and other countries. Failure to comply with applicable statutes andgovernment regulations could have a material adverse effect on our ability todevelop and sell products which would have a negative impact on our cashflow.  The development, testing,manufacturing, processing, quality, safety, efficacy, packaging, labeling,record-keeping, distribution, storage and advertising of pharmaceuticalproducts, and disposal of waste products arising from these activities, aresubject to regulation by one or more federal agencies.  These activities are also regulated by similarstate and local agencies and equivalent foreign authorities.  In our material contracts with vendorsproviding any portion of these types of services, we seek assurances that ourvendors comply and will continue to maintain compliance with all applicablerules and regulations.  This is the case,for example, with respect to our contracts with Ferro Pfanstiehl and PennPharmaceuticals**.** No assurance can be given that our most significant vendors willcontinue to comply with these rules and regulations.

*FDARegulation*.  All pharmaceutical manufacturers in the U.S.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 powersover the activities of pharmaceutical manufacturers to ensure compliance withFDA regulations.  Those powers include,but are not limited to the authority to:

·                                         initiate court action to seizeunapproved or non-complying products;

·                                         enjoin non-complying activities;

·                                         halt manufacturing operations that arenot in compliance with current good manufacturing practices prescribed by theFDA;

·                                         recall products which present a healthrisk; and

·                                         seek civil monetary and criminalpenalties.

Other enforcementactivities include refusal to approve product applications or the withdrawal ofpreviously approved applications.  Anyenforcement activities, including the restriction or prohibition on sales ofproducts marketed by us or the halting of manufacturing operations of us or ourcollaborators, would have a material adverse effect on our ability to developand sell products which would have a negative impact on our cash flow.  In addition, product recalls may be issued atour discretion or by the FDA or other domestic and foreign government agencieshaving regulatory authority for pharmaceutical product sales.  Recalls may occur due to disputed labelingclaims, manufacturing issues, quality defects or other reasons.  Recalls of pharmaceutical products marketedby us may occur in the future.  Anyproduct recall could have a material adverse effect on our revenue and cashflow.

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*FDAApproval Process*.  We have a variety of products underdevelopment, including line extensions of existing products, reformulations ofexisting products and new products.  All “newdrugs” must be the subject of an FDA-approved new drug application before theymay be marketed in the U.S.  All genericequivalents to previously approved drugs or new dosage forms of existing drugsmust be the subject of an FDA-approved abbreviated new drug application beforethey may by marketed in the U.S.  In bothcases, the FDA has the authority to determine what testing procedures areappropriate for a particular product and, in some instances, has not publishedor otherwise identified guidelines as to the appropriate procedures.  The FDA has the authority to withdrawexisting new drug application and abbreviated application approvals and toreview the regulatory status of products marketed under the enforcementpolicy.  The FDA may require an approvednew drug application or abbreviated application for any drug product marketedunder the enforcement policy if new information reveals questions about thedrug’s safety or effectiveness.  Alldrugs must be manufactured in conformity with current good manufacturingpractices and drugs subject to an approved new drug application or abbreviatedapplication must be manufactured, processed, packaged, held and labeled inaccordance with information contained in the new drug application orabbreviated application.

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

*ForeignRegulatory Approval*.  Even if required FDA approval has beenobtained with respect to a product, foreign regulatory approval of a productmust also be obtained prior to marketing the product internationally.  Foreign approval procedures vary from countryto country and the time required for approval may delay or preventmarketing.  In certain instances, we orour collaborative partners may seek approval to market and sell some of ourproducts outside of the U.S. before submitting an application for approval tothe FDA.  The clinical testingrequirements and the time required to obtain foreign regulatory approvals maydiffer from that required for FDA approval. Although there is now a centralized E.U. approval mechanism for newpharmaceutical products in place, each E.U. country may nonetheless impose itsown procedures and requirements, many of which are time consuming and expensive.In addition, many E.U. countries require pricing and reimbursement approvalsfollowing marketing authorization.  Thus,there can be substantial delays in obtaining required approval from both theFDA and foreign regulatory authorities after the relevant applications arefiled. In connection with the status of our application to the EMEA to includea new indication for clofarabine for the treatment of adult AML in elderlypatients who have one or more of the following: adverse cytogenetics, secondaryAML, ≥ 70 years old or significant co-morbidities and who are thereforenot considered suitable for intensive chemotherapy, the EMEA has agreed toaccept supplemental information from us by November 16, 2007.  We currently anticipate that in December 2007the Rapporteur will provide its assessment report and that in January 2008 theEMEA will either provide us with an opinion on whether or not we will begranted marketing authorization of clofarabine for this new indication orprovide us with a second Request for Supplemental Information.  Any changes to this anticipated timeframecould have a material adverse effect on our ability to develop and sell productsand, therefore, generate revenue and cash flow. See also “*Our Products – Evoltra® (Clofarabine)*”above.

*Changesin Requirements*.  The regulatory requirements applicable to anyproduct may be modified in the future. We cannot determine what effect changes in regulations or statutes or legalinterpretations may have on our business in the future.  Changes could require changes tomanufacturing methods, expanded or different labeling, the recall, replacementor discontinuation of certain products, additional record keeping and expandeddocumentation of the properties of certain products and scientificsubstantiation.  Any changes or newlegislation could have a material adverse effect on our ability to develop andsell products and, therefore, generate revenue and cash flow.

The products underdevelopment by us may not meet all of the applicable regulatory requirementsneeded to receive regulatory marketing approval.  Even after we expend substantial resources onresearch, clinical development and the preparation and processing of regulatoryapplications, we may not be able to obtain regulatory approval for any of ourproducts.  Moreover, regulatory approvalfor marketing a proposed pharmaceutical product in any jurisdiction may notresult in similar approval in other jurisdictions.  Our failure to obtain and maintain regulatoryapprovals for products under development would have a material adverse effecton our ability to develop and sell products and, therefore, generate revenueand cash flow.

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***We may not be successful in receiving orphan drugstatus for certain of our products or, if that status is obtained, fullyenjoying the benefits of orphan drug status.***

Under the Orphan DrugAct, the FDA may grant orphan drug designation to drugs intended to treat arare disease or condition.  A disease orcondition that affects populations of fewer than 200,000 people in the U.S.generally constitutes a rare disease or condition.  We may not be successful in receiving orphandrug status for certain of our products. Orphan drug designation must be requested before submitting a new drugapplication.  After the FDA grants orphandrug designation, the generic identity of the therapeutic agent and itspotential orphan use are publicized by the FDA. Under current law, orphan drug status is conferred upon the firstcompany to receive FDA approval to market the designated drug for thedesignated indication.  Orphan drugstatus also grants marketing exclusivity in the U.S. for a period of sevenyears following approval of the new drug application, subject tolimitations.  Orphan drug designationdoes not provide any advantage in, or shorten the duration of, the FDAregulatory approval process.  Althoughobtaining FDA approval to market a product with orphan drug status can beadvantageous, the scope of protection or the level of marketing exclusivitythat is currently afforded by orphan drug status and marketing approval may notremain in effect in the future.

Our business strategyinvolves obtaining orphan drug designation for certain of the oncology productswe have under development.  Althoughclofarabine has received orphan drug designation with the FDA and EMEA, we donot know whether any of our other products will receive an orphan drugdesignation.  Orphan drug designationdoes not prevent other manufacturers from attempting to develop similar drugsfor the designated indication or from obtaining the approval of a new drugapplication for their drug prior to the approval of our new drug application.  If another sponsor’s new drug application fora competing drug in the same indication is approved first, that sponsor isentitled to exclusive marketing rights if that sponsor has received orphan drugdesignation for its drug.  In that case,the FDA would refrain from approving an application by us to market ourcompeting product for seven years, subject to limitations.  Competing products may receive orphan drugdesignations and FDA marketing approval before the products under developmentby us.

New drug application approvalfor a drug with an orphan drug designation does not prevent the FDA fromapproving the same drug for a different indication, or a molecular variation ofthe same drug for the same indication. Because doctors are not restricted by the FDA from prescribing anapproved drug for uses not approved by the FDA, it is also possible thatanother company’s drug could be prescribed for indications for which productsdeveloped by us have received orphan drug designation and new drug applicationapproval, and the same is true with the EMEA in Europe.  Prescribing of approved drugs for unapproveduses, commonly referred to as “off label” sales, could adversely affect themarketing potential of products that have received an orphan drug designationand new drug application approval.  Inaddition, new drug application approval of a drug with an orphan drugdesignation does not provide any marketing exclusivity in foreign markets.

The possible amendmentof the Orphan Drug Act by the United States Congress has been the subject offrequent discussion.  Although nosignificant changes to the Orphan Drug Act have been made for a number ofyears, members of Congress have from time to time proposed legislation thatwould limit the application of the Orphan Drug Act.  The precise scope of protection that may beafforded by orphan drug designation and marketing approval may be subject tochange in the future.

### ***The use of our products may be limited oreliminated by professional guidelines which would decrease our sales of theseproducts and, therefore, our revenue and cash flows.***

In addition togovernment agencies, private health/science foundations and organizationsinvolved in various diseases may also publish guidelines or recommendations tothe healthcare and patient communities. These private organizations may make recommendations that affect theusage of therapies, drugs or procedures, including products developed byus.  These recommendations may relate tomatters such as usage, dosage, route of administration and use of concomitanttherapies.  Recommendations or guidelinesthat are followed by patients and healthcare providers and that result in,among other things, decreased use or elimination of products developed by uscould have a material adverse effect on our revenue and cash flows.  For example, if clofarabine is definitivelydetermined in clinical trials to be an active agent to treat solid tumor cancerpatients, but the required dose is high, private healthcare/science foundationscould recommend various other regimens of treatment which may from time to timeshow activity at lower doses.

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### ***Competitor products which third parties maydevelop may render our products noncompetitive or obsolete.***

An increase incompetition from pharmaceutical products could have a material adverse effecton our ability to generate revenue and cash flow.  For example, many of the indications in whichEvoltra® and Modrenal®, our co-lead drugs, have demonstrated activity are areasof unmet clinical need, such as Evoltra’s® application to pediatric acuteleukemias 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 ofModrenal®, envision, initially, that Modrenal® would be used as second or thirdline therapy, only after patients with advanced post-menopausal breast cancerreceive regimens of tamoxifen and/or aromatase inhibitors (or similar drug)treatments.  If drug companies develop acompound which is more effective than either Evoltra® or Modrenal® in these therapeuticareas, or equally as effective but at lower prices, it could adversely affectour market and/or render our drugs obsolete.

### ***Because many of our competitors havesubstantially greater capabilities and resources than us, they may be able todevelop products before us or develop more effective products or market themmore effectively, which would adversely affect our ability to generate revenueand cash flow.***

Competition in ourindustry is intense.  Potentialcompetitors in the U.S. and Europe are numerous and include pharmaceutical,chemical and biotechnology companies, many of which have substantially greatercapital resources, marketing, research and development staffs and facilitiesthan us.  Potential competitors forcertain indications of our lead drugs include, with respect to Evoltra®,Schering AG, which markets fludarabine, and certain generic drug companies inEurope which could market fludarabine upon expiry of the patent protectionsheld by Schering AG.  Potentialcompetitors with respect to Modrenal® include Astra-Zeneca and Novartis, whichmarket tamoxifen and other aromatase inhibitors, which could be used byclinicians as first and second line therapies in patients with hormonesensitive, advanced, post-menopausal breast cancer prior to a Modrenal® regimenof treatment.  No assurance can be giventhat the ongoing business activities of our competitors will not have amaterial adverse effect on our business prospects and projections goingforward.

Although we seek tolimit potential sources of competition by developing products that are eligiblefor orphan drug designation and new drug application approval or other forms ofprotection, our competitors may develop similar technologies and products morerapidly than us or market them more effectively.  Competing technologies and products may bemore effective than any of those that are being or will be developed byus.  The drug industry is intenselycompetitive and includes large brand name and multi-source pharmaceuticalcompanies.  Because generic drugs do nothave patent protection or any other market exclusivity, our competitors mayintroduce competing generic products, which may be sold at lower prices or withmore aggressive marketing.  Conversely,as we introduce branded drugs into our product portfolio, we will facecompetition from manufacturers of generic drugs which may claim to offerequivalent therapeutic benefits at a lower price.  The aggressive pricing activities of ourgeneric competitors could have a material adverse effect on our operations,revenue and cash flow.

### ***If we are unable to respond to rapidtechnological change and evolving therapies, our technologies and productscould become less competitive or obsolete and our revenues and results ofoperations will be adversely affected.***

The pharmaceuticalindustry is characterized by rapid and significant technological change.  We expect that pharmaceutical technology willcontinue to develop rapidly, and our future success will depend on our abilityto develop and maintain a competitive position. Technological development by others may result in products developed byus, branded or generic, becoming obsolete before they are marketed or before werecover a significant portion of the development and commercialization expensesincurred with respect to these products. Alternative therapies or new medical treatments could alter existingtreatment regimes, and thereby reduce the need for one or more of the productsdeveloped by us, which would adversely affect our revenue and cash flow.  See also “—competitor products which thirdparties may develop may render our products noncompetitive or obsolete” above.

### ***We depend on others for clinical testing ofour products which could delay our ability to develop products.***

We do not currentlyhave any internal product testing capabilities. Our inability to retain third parties for the clinical testing ofproducts on acceptable terms would adversely affect our ability to developproducts.  Any 

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failures by third parties to adequately perform their responsibilitiesmay delay the submission of products for regulatory approval, impair ourability to deliver products on a timely basis or otherwise impair ourcompetitive position.  Our dependence onthird parties for the development of products may adversely affect ourpotential profit margins and our ability to develop and deliver products on atimely basis.

### ***We have limited sales and marketingcapability, and may not be successful in selling or marketing our products.***

The creation ofinfrastructure to commercialize oncology products is a difficult, expensive andtime-consuming process.  We may not beable to further establish direct or indirect sales and distributioncapabilities outside of the UK or be successful in gaining market acceptancefor proprietary products or for other products. We currently have very limited sales and marketing capabilities outsideof the UK.  We currently employ sixfull-time sales employees and two full-time marketing employees. We havealso entered into arrangements with Innovex, an affiliate of QuintilesCorporation, for the sales and marketing of Evoltra® (clofarabine) in certainE.U. countries.** ** To market any products directly, we will needto develop a more fulsome marketing and sales force with technical expertiseand distribution capability or contract with other pharmaceutical and/or healthcare companies with distribution systems and direct sales forces. To the extentthat we enter into co-promotion or other licensing arrangements, any revenuesto 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 anddistribution capabilities or to enter into marketing and distributionarrangements with third parties could have a material adverse effect on ourrevenue and cash flows.

***Werely heavily on our management team and the unexpected loss of any of thosepersonnel could adversely affect our operations; we depend on our ability toattract and retain key personnel.***

We rely heavily onthe skills and abilities of our management team. We have entered intoemployment agreements with our management team. The existence of suchagreements, however, does not necessarily assure that we will be able tocontinue to retain their services. The unexpected loss of any of our keyemployees could have a material adverse effect on our business.

In addition, dependingon the outcome of the proposed merger, we will be required to hire additionalqualified scientific and technical personnel, as well as personnel withexpertise in clinical testing and government regulation to expand our researchand development programs and pursue our product development and marketingplans. There is intense competition for qualified personnel in the areas of ouractivities, and there can be no assurance that we will be able to attract andretain the qualified personnel necessary for the development of its business.We face competition for qualified individuals from numerous pharmaceutical andbiotechnology companies, universities and research institutions. The failure toattract and retain key scientific, marketing and technical personnel would havea material adverse effect on the development of our business and our ability todevelop, market and sell our products. See also “- We have limited sales and marketing capability, and may notbe successful in selling or marketing our products” above.

### ***Our management and internal systems might beinadequate to handle our potential growth.***

Our success will dependin significant part on the expansion of our operations and the effectivemanagement of growth.  This growth hasand will continue to place a significant strain on our management andinformation systems and resources and operational and financial systems andresources.  To manage future growth, ourmanagement must continue to improve our operational and financial systems andexpand, train, retain and manage our employee base.  Our management may not be able to manage ourgrowth 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 togain significant market share or the timing with which we would otherwise gainsignificant market share.  Any inabilityto manage growth effectively may harm our ability to institute our businessplan.  The strain on our systems,procedures, controls and resources is further heightened by the fact that ourexecutive office and operational development facilities are located in separatetime zones (New York, New York, Edinburgh, Scotland and Tokyo, Japan,respectively).

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### ***We depend on patent and proprietary rights todevelop and protect our technologies and products, which rights may not offerus sufficient protection.***

The pharmaceuticalindustry places considerable importance on obtaining patent and trade secretprotection for new technologies, products and processes. Our success willdepend on our ability to obtain and enforce protection for products that wedevelop under U.S. and foreign patent laws and other intellectual propertylaws, preserve the confidentiality of our trade secrets and operate withoutinfringing the proprietary rights of third parties. Through our current licenseagreements, we have acquired the right to utilize the technology covered byissued patents and patent applications, as well as additional intellectualproperty and know-how that could be the subject of further patent applicationsin the future.

Several of the originalpatents to Modrenal® have expired in the U.S. and foreign countries. Thus, weand our licensor, Stegram Pharmaceutical Ltd., are pursuing patent applications tospecific uses, combination therapy and dosages or formulations of Modrenal®. Wecannot guarantee that such applications will result in issued patents or thatsuch patents if issued will provide adequate protection against competitors.  Patents may not be issued from theseapplications and issued patents may not give us adequate protection or acompetitive advantage. Issued patents may be challenged, invalidated, infringedor circumvented, and any rights granted thereunder may not provide us with competitiveadvantages. Parties not affiliated with us have obtained or may obtain U.S. orforeign patents or possess or may possess proprietary rights relating toproducts being developed  or to bedeveloped by us. Patents now in existence or hereafter issued to others mayadversely affect the development or commercialization of products developed orto be developed by us.

Our planned activitiesmay infringe patents owned by others. Our patents to clofarabine are licensedfrom SRI. The current projected expiration date of the license is March 2021.These patents cover pharmaceutical compositions and methods of usingclofarabine. We cannot guarantee that these patents would survive an attack ontheir validity or that they will provide a competitive advantage over ourcompetitors. Moreover, we cannot guarantee that SRI was the first to invent thesubject matter of these patents. In addition, we are aware of a third partyU.S. patent which is directed to the treatment of chronic myeloid leukemia, orCML, using specific doses of clofarabine. We believe that our development and marketing of clofarabine fortreatment of acute leukemias will not infringe any of the claims of this U.S.patent.  Further, we believe that ourdevelopment and potential marketing of clofarabine for treatment of chroniclymphocytic leukemia will not infringe any of the claims of this U.S.patent.  If this patent is assertedagainst us, even though we may be successful in defending against such anassertion, our defense would require substantial financial and human resources.In addition, we may need a license to this patent to use the claimed dose inthe treatment of CML.  However, we do notknow if such a license is available at commercially reasonable terms, if atall.

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

We also rely upon tradesecret protection for our confidential and proprietary information. Others mayindependently develop substantially equivalent proprietary information andtechniques or gain access to our trade secrets or disclose our technology. Wemay not be able to meaningfully protect our trade secrets which could limit ourability to exclusively produce products.

***Ourinternational operations subject us to social, political and economic risks ofdoing business in foreign countries.***

We have the right tomanufacture, market and distribute our lead drugs, Evoltra**®** and Modrenal®, in territories outsideof the U.S.  Specifically, we currentlymarket Modrenal® in the U.K. and Evoltra® 

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throughout Europe.  Further, morethan half of our employees are employed by Bioenvision Limited, ourwholly-owned subsidiary with offices in Edinburgh, Scotland and we haverecently opened an office in Tokyo, Japan.

Because we haveinternational operations in the conduct of our business, we are subject to therisks of conducting business in foreign countries, including:

·                                         difficulty in establishing or managingdistribution relationships;

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

·                                         our inability to locate qualified localemployees, partners, distributors and suppliers;

·                                         the potential burden of complying with avariety of foreign laws, trade standards and regulatory requirements, includingthe regulation of pharmaceutical products and treatment;

·                                         general geopolitical risks, such aspolitical and economic instability, changes in diplomatic and trade relations,and foreign currency risks; and

·                                         risks related to the fluctuation incurrency exchange rates.

We do not engage inforward currency transactions which means we are susceptible to fluctuations inthe U.S. dollar against foreign currencies such as the pound sterling, Euro andYen.  Accordingly, as the value of thedollar becomes weaker against the pound sterling, Euro and Yen, ongoingservices provided by our U.K. employees, clinical research organizations andother 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 effecton the costs associated with our drug development activities.

### ***We cannot predict our future capital needsand we may not be able to secure additional financing which could affect ourability to operate as a going concern.***

As of June 30, 2007, wehad stockholders’ equity of approximately $50,008,000 and working capital ofapproximately $47,811,000.  However,depending on the outcome of the proposed merger, we may need additionalfinancing to continue to fund the research and development and marketingprograms for our products and to generally expand and grow our business.  Because we will be required to fundadditional operating losses in the foreseeable future, our financial positionwill continue to deteriorate.  There canbe no assurance that we will be able to find significant additional financingat all or on terms favorable to us.  Ifequity securities are issued in connection with a financing, dilution to ourstockholders would result, and if additional funds are raised through theincurrence of debt, we may be subject to restrictions on our operations andfinances.  As Genzyme and Wichita Bio arethe sole beneficial owners of our outstanding shares of preferred stock, we arerequired to obtain Genzyme’s consent prior to any such issuance of equitysecurities in connection with a financing. Furthermore, if we do incur debt, we may be limiting our ability torepurchase capital stock, engage in mergers, consolidations, acquisitions andasset sales, or alter our lines of business or accounting methods, even thoughthese actions would otherwise benefit our business.  See also “— *Certainpersons have substantial control over us, which could impede stockholderapproval of certain transactions.*”

If adequate financing isnot available, we may be required to delay, scale back or eliminate some of ourresearch and development programs, to relinquish rights to certain technologiesor products, or to license third parties to commercialize technologies orproducts 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 continueour operations and implement our business plan.

### ***The prices we charge for our products and thelevel of third-party reimbursement may decrease and our revenues coulddecrease.***

Our ability tocommercialize products successfully depends in part on the price we may be ableto charge for our products and on the extent to which reimbursement for thecost of our products and related treatment will be available from governmenthealth administration authorities, private health insurers and otherthird-party payors.  We believe thatGovernment officials and private health insurers are increasingly challengingthe price of medical 

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products and services. Significant uncertainty exists as to the pricing flexibility whichdistributors will have with respect to newly approved health care products aswell as the reimbursement status for such approved healthcare products.

Third-party payors mayattempt to control costs further by selecting exclusive providers of theirpharmaceutical products.  If third-partypayors were to make this type of arrangement with one or more of our competitors,they would not reimburse patients for purchasing our competing products.  This lack of reimbursement would diminish themarket for products developed by us and would have a material adverse effect onus.

### ***Our products may be subject to recall.***

Product recalls may beissued at our discretion or by the EMEA, FDA, the FTC or other governmentagencies having regulatory authority for product sales.  Product recalls, if any in the future, mayharm our reputation and cause us to lose development opportunities, orcustomers or pay refunds.  Products mayneed to be recalled due to disputed labeling claims, manufacturing issues,quality defects, or other reasons.  Anyproduct recall could have a material adverse effect on us, our prospects, ourfinancial condition and results of operations.

### ***We may face exposure from product liabilityclaims and product liability insurance may not be sufficient to cover the costsof our liability claims related to technologies or products.***

We face exposure toproduct liability claims if the use of our technologies or products or those welicense from third parties is alleged to have resulted in adverse effects tousers of such products.  Productliability claims may be brought by clinical trial participants, although todate, 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 ourproducts does not mitigate product liability risks.  Any precautions we take may not be sufficientto avoid significant product liability exposure.  Although we have obtained product liabilityand clinical trial insurance on our technologies and products at levels withwhich management deems reasonable, no assurance can be given that thisinsurance will cover any particular claim or that we have obtained anappropriate level of liability insurance coverage for our developmentactivities.  We currently maintain claimsmade product liability insurance coverage in an amount which we believe iscommercially reasonable.  Existingcoverage may not be adequate as we further develop our products.  In the future, adequate insurance coverage orindemnification by collaborative partners may not be available in sufficientamounts, or at acceptable costs, if at all. To the extent that product liability insurance, if available, does notcover potential claims, we will be required to self-insure the risks associatedwith those claims.  The successfulassertion of any uninsured product liability or other claim against us couldlimit our ability to sell our products or could cause monetary damages.  In addition, future product labeling mayinclude disclosure of additional adverse effects, precautions and contraindications, which may adversely impact product sales.  The pharmaceutical industry has experiencedincreasing difficulty in maintaining product liability insurance coverage atreasonable levels, and substantial increases in insurance premium costs, in manycases, have rendered coverage economically impractical.

### ***The price of our common stock is likely to bevolatile and subject to wide fluctuations.***

The market price of thesecurities of biotechnology companies has been especially volatile. Thus, themarket price of our common stock is likely to be subject to widefluctuations.  For the twelve monthperiod ended June 30, 2007, our stock price has ranged from a high of $6.41 toa low of $3.23.  If our revenues do notgrow or grow more slowly than we anticipate, or, if operating or capitalexpenditures exceed our expectations and cannot be adjusted accordingly, or ifsome other event adversely affects us, the market price of our common stockcould decline.  In addition, if themarket for pharmaceutical and biotechnology stocks or the stock market ingeneral experiences a loss in investor confidence or otherwise fails, themarket price of our common stock could fall for reasons unrelated to ourbusiness, results of operations and financial condition.  The market price of our stock also mightdecline in reaction to events that affect other companies in our industry evenif these events do not directly affect us. In the past, companies that have experienced volatility in the marketprice of their stock have been the 

23

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subject of securities class action litigation.  If we were to become the subject ofsecurities class action litigation, it could result in substantial costs and adiversion of management’s attention and resources.

### ***Anti-takeover laws, our shareholder rightsplan, and provisions of our certificate of incorporation may discourage, delay,or prevent a merger or acquisition that our stockholders may considerfavorable.***

Section 203 of theDelaware General Corporation Law contains provisions that may delay or preventa third party from acquiring control of us, even if doing so might bebeneficial to our stockholders by providing them an opportunity to sell theirshares at a premium to the then current market price. In general, Section 203prohibits designated types of business combinations, including mergers, for aperiod of three years between us and any third party who owns 15% or more ofour common stock.  This provision doesnot apply if:

·                                         our board of directors approves thetransaction before the third party acquires 15% of our common stock;

·                                         the third party acquires at least 85% ofour common stock at the time its ownership exceeds the 15% level; or

·                                         our board of directors and two-thirds ofthe shares of our common stock not held by the third party vote in favor of thetransaction.

We also adopted ashareholder rights plan on November 17, 2004 to deter hostile or coerciveattempts to acquire us.  Under the plan,if any person or group acquires more than 15% of our common stock withoutapproval of the board of directors under specified circumstances, our otherstockholders have the right to purchase shares of our common stock, or sharesof the acquiring company, at a substantial discount to the public market price.This plan makes an acquisition much more costly to a potential acquirer, whichmay deter a potential acquisition.

Our certificate ofincorporation also authorizes us to issue up to 20,000,000 shares of preferredstock in one or more different series with terms fixed by the board ofdirectors.  Stockholder approval is notnecessary to issue preferred stock in this manner. Thus, our board of directorscan authorize and issue shares of preferred stock with voting or conversionrights that could adversely affect the voting or other rights of holders of ourcommon stock and thereby reduce its value. These rights could have the effect of making it more difficult for aperson or group to acquire control of us, as well as prevent or frustrate anyattempt by stockholders to change our direction or management.  While our board of directors has no currentintention to issue any preferred stock, the issuance of these shares may deterpotential acquirors.

***Genzyme’s rights as the sole beneficialowners of our outstanding shares of preferred stock could prevent anacquisition of our business.***

### As Genzyme and Wichita Bio are the sole beneficial owners of ouroutstanding shares of preferred stock, we are required to obtain Genzyme’sconsent prior to the effecting of any merger, combination, reorganization, orsale of all or substantially all of our assets. This could have the effect of discouraging, delaying or preventing athird party from acquiring control over us at a premium price or at all, andcould affect the market price of our common stock.  Genzyme could impede transactions oragreements that would otherwise be approved by other stockholders generally.****** See also “— *Certainpersons have substantial control over us, which could impede stockholderapproval of certain transactions.*”

### ***Certain events could result in a dilution ofholders of our common stock.***

As of June 30, 2007, wehad 55,035,739 shares of common stock outstanding, 2,250,000 shares of Series AConvertible Participating Preferred Stock outstanding which are currentlyconvertible into 4,500,000 shares of common stock and common stock equivalents,and warrants and stock options, convertible or exercisable into 6,739,732shares of our common stock.  The exerciseand conversion prices of the common stock equivalents range from $1.25 to $8.87per share.  We have also reserved forissuance an aggregate of 6,750,000 shares of common stock for a stock optionplan for our employees.  Historically,from time to time, we have awarded our common stock to our officers, in lieu ofcash compensation, although we do not expect to do so in the future.  As of June 30, 2007, we have the sale ofshares of common stock underlying 8,250,000 options are registered under theSecurities Act on Form S-8.  The futureresale of these shares underlying stock options will result in a dilution toyour percentage ownership of our common stock and could adversely affect themarket price of our common stock.

The terms of ourcumulative Series A Convertible Participating Preferred Stock includeantidilution protection upon the occurrence of sales of our common stock belowcertain prices, stock splits, redemptions, mergers and other similartransactions.  If one or more of theseevents occurs the number of shares of our common stock that may be acquiredupon conversion or exercise would increase. If converted or exercised, these securities will result in a dilution tothe holder’s percentage ownership of our common stock.  The resale of many of the shares of commonstock which underlie these options and warrants are registered under thisprospectus and the sale of such shares may adversely affect the market price ofour common stock.

24

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**Item 1B. Unresolved Staff Comments**

None.

**Item 2. Description of Property**

As of the date of thisreport we do not own any interest in real property.  We currently lease 5,549 square feet ofoffice space at our principal executive offices at 345 Park Avenue, 41st Floor,New York, New York 10154 for base rent of $26,351 per month. ** **Thesefacilities are the center for all of our administrative functions in the U.S.  We rent 2,437 square feet of office space inEdinburgh, Scotland for ₤15,120 per month.  In September of 2006 we began leasingadditional space of 1,004 square feet for an additional ₤6,600 per month.  Also, we rent office space in Tokyo, Japanfor approximately 788,000 JPY per month. To date, most of our drug development programs have been conducted atscientific institutions around the world. It is our policy to continue development at leading scientificinstitutions in the U.S. and Europe.  Wedo not plan to conduct laboratory research in any of our facilities in the nearfuture.

**Item 3. Legal Proceedings**

We are a defendant inmultiple putative class action lawsuits that have been filed in connection withthe merger against us, our directors, Genzyme and Wichita Bio, the Genzymesubsidiary which will merge with and into us resulting in us becoming a whollyowned subsidiary of Genzyme. Among other things, the lawsuits seek to enjointhe completion of the merger. While it is not feasible to predict the outcome ofthese lawsuits, their ultimate resolution could have an adverse effect upon ourbusiness, financial condition, results of operations or reputation.

We have contacted theplaintiffs’ counsel to determine whether a settlement can be reached. If anacceptable settlement cannot be reached, we expect to contest the plaintiffs’claims vigorously. We cannot predict or determine the outcome of thelitigation.

On June 7, 2007,three purported stockholders of Bioenvision filed a purported class actionlawsuit in the Court of Chancery in the State of Delaware, New Castle Countyagainst us, each of our directors, Genzyme and Wichita Bio: *Trombley v. Bioenvision, Inc., et al.*, Civ. A.No. 3008.  The *Trombley*lawsuitpurports to be brought individually and on behalf of all holders of shares ofour common stock.  The *Trombley*lawsuitalleges that our then directors breached their fiduciary duties to ourstockholders in connection with the tender offer and that Genzyme aided andabetted such alleged breach of our directors’ fiduciary duties.  Based onthese allegations, the *Trombley*lawsuitseeks, among other relief, injunctive relief preliminarily and permanentlyenjoining each of us, our directors, Genzyme and Wichita Bio from consummatingthe merger, directing our directors to exercise their fiduciary duties toobtain a transaction that is in the best interests of our stockholders, andrescinding, to the extent already implemented, the merger or any of the termsthereof.  Our board of directors and we believe the allegations in the *Trombley*lawsuit are without merit.

On June 8, 2007 and June13, 2007, we were named as a defendant in two purported class action lawsuitsfiled in the Court of Chancery in the State of Delaware, New Castle County,against us, each of our directors, Genzyme and Wichita Bio.  These actionsare docketed as *Ortsman v. Wood, et. al.*,Civ. A. No. 3009 and *Gerstle v. Bioenvision,Inc., et. al.*, Civ. A. No. 3019.  Both the *Ortsman*lawsuit and the *Gerstle*lawsuit purport to bebrought individually and on behalf of all holders of our common stock. Both lawsuits also allege that our then directors breached their fiduciaryduties to our stockholders in connection with the tender offer and that Genzymeaided and abetted such alleged breach of our directors’ fiduciary duties. Based on these allegations, the *Ortsman* lawsuitand the *Gerstle*lawsuit seek, among otherrelief, injunctive relief preliminarily and permanently enjoining each us, ourdirectors, Genzyme and Wichita Bio from consummating the merger, awardingdamages, and rescinding, to the extent already implemented, the merger or anyof the terms thereof.  We and our board of directors believe theallegations in the *Ortsman* lawsuitand the *Gerstle*lawsuit are without merit.

In addition, on June 13, 2007,the plaintiff in the*Trombley*lawsuitfiled an amended complaint, which expands upon the allegations made in thatplaintiff’s original complaint filed on June 7, 2007.  On June 13, 2007, this purported stockholderalso filed a preliminary injunction motion, seeking to enjoin the merger inadvance of the 

25

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date it is scheduled toclose, and an expedited proceedings motion, seeking to proceed with discoveryon an expedited basis and to set June 28, 2007 as the date for hearingplaintiff’s application for a preliminary injunction.

On June 14, 2007, apurported stockholder of Bioenvision filed a purported class action lawsuit inthe Court of Chancery in the State of Delaware, New Castle County against us,each of our directors, Genzyme and Wichita Bio: *Albstein v. Bioenvision, Inc., et. al.*, Civ. A. No. 3025.  The *Albstein*lawsuit purports to be brought individually and onbehalf of all holders of our common stock.  The lawsuit alleges that ourthen directors breached their fiduciary duties to our stockholders inconnection with the tender offer and that Genzyme aided and abetted suchalleged breach of our directors’ fiduciary duties.  Based on theseallegations, the *Albstein*lawsuit seeks, amongother relief, injunctive relief preliminarily and permanently enjoining each ofthe us, our directors, Genzyme and Wichita Bio from consummating the merger,directing the director defendants to exercise their fiduciary duties to obtaina transaction that is in the best interests of our stockholders, andrescinding, to the extent already implemented, the merger or any of the termsthereof.  We and our board of directors believe the allegations in the *Albstein*lawsuit are without merit.

On June 20, 2007, apurported stockholder of Bioenvision filed a purported class action lawsuit inthe Court of Chancery in the State of Delaware, New Castle County against us,each of our directors, Genzyme and Wichita Bio: *Oppenheim Asset Management, et. al. v. Bioenvision, Inc., et al.*, Civ. A. No. 3040-VCP.  The *Oppenheim Asset Management* lawsuit purports to be broughtindividually and on behalf of all holders of our common stock.  Thelawsuit alleges that our then directors breached their fiduciary duties to ourstockholders in connection with the tender offer and that Genzyme aided andabetted such alleged breach of our directors’ fiduciary duties.  Based onthese allegations, the *Oppenheim Asset Management*lawsuit seeks, among other relief, injunctive relief enjoining each of us, ourdirectors, Genzyme and Wichita Bio from consummating the merger, rescinding, tothe extent already implemented, the merger or any of the terms thereof,declaring that the defendants have committed or participated in a breach oftheir fiduciary duty to the purported stockholder and other members of theclass, and awarding plaintiff the costs and disbursements of this *Oppenheim Asset Management* lawsuit including a reasonableallowance for plaintiff’s attorneys and experts’ fees.  The purportedstockholder also filed an expedited proceedings motion, seeking to proceed withdiscovery on an expedited basis. We and our board of directors believe theallegations in the *Oppenheim Asset Management*lawsuit are without merit.

On June 20, 2007, theCourt of Chancery in the State of Delaware, New Castle County entered an orderthat consolidated all Delaware actions filed as of that date into the *Trombley* proceeding (*BrianTrombley et al. v. Bioenvision, Inc. et al.*, Consolidated Civ. A.3008-VCP).  On June 26, 2007, in connection with this consolidatedproceeding, plaintiffs voluntarily withdrew their motion for a preliminaryinjunction and removed the hearing thereon scheduled for June 28, 2007 from thecalendar of the Court of Chancery.  Plaintiffs’ claims remain pendingbefore the Court of Chancery.

On June 22, 2007, we wereserved with a purported class action lawsuit filed on June 7, 2007 by apurported stockholder of Bioenvision in the Supreme Court of the State of NewYork, New York County: *Bert Vladimir v.Bioenvision, Inc. et al.,* Index No. 650163-2007.  The *Vladimir*lawsuit purports to be brought individually and onbehalf of all holders of our common stock against us and each of our thendirectors.  The lawsuit alleges that our directors breached theirfiduciary duties to our stockholders in connection with the tender offer. Based on these allegations, the *Vladimir*lawsuitseeks, among other relief, injunctive relief preliminarily and permanentlyenjoining us and our directors from consummating the merger, rescinding, to theextent already implemented, the merger or any of the terms thereof, declaringthat the defendants have committed a breach of their fiduciary duties to thepurported stockholder and other members of the class, and awarding plaintiffthe costs and disbursements of the *Vladimir*lawsuitincluding a reasonable allowance for plaintiff’s attorneys and experts’fees.  The purported stockholder also filed an expedited discoveryproceedings motion, seeking to proceed with discovery on an expedited basis,and a memorandum of law in support of expedited discovery proceedings.  Weand our board of directors believe the allegations in the *Vladimir*lawsuitare without merit.

On or about August 22,2007, David P. Luci, our former General Counsel, filed an action in New YorkState Supreme Court, New York County purporting to assert claims against us,our Chief Financial Officer and certain of our current and former Directors.The Complaint purports to allege, among other things, that we breachedcontractual and other obligations allegedly owed to him in connection with thetermination of his employment with us, and purports to demand damages, in theaggregate, of $108,400,000. We believe that the action is without merit andintend to mount a vigorous defense.  Theaction is entitled David P. Luci v. Bioenvision, Inc., Joseph Cooper, MichaelKauffman, James Scibetta, Steven A. Elms, Andrew N, Schiff and Thomas ScottNelson (Index No. 07/111478).

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**Item 4.  Submission of Matters to a Vote of SecurityHolders**

None

**PART II**

**Item 5. Market for Common Equity and Related Stockholder Matters and IssuerPurchases of Equity Securities**

** ***Market Information*

Our common stock trades on the NASDAQ Global Marketunder the symbol “BIVN”. The following table sets forth the high and low salesof our common stock for the periods indicated, as reported by NASDAQ:
|                                     | ** ** | **High**   | ** ** | **Low**    | ** ** |
|-------------------------------------|------------|------------|------------|------------|------------|
| **Fiscal year ended June 30, 2006** | ** ** | ** ** | ** ** | ** ** | ** ** |
| First Quarter                       |       | $          | 9.18       |       | $          | 6.60 |   |
| Second Quarter                      |       | 8.22       |       | 5.42       |       |
| Third Quarter                       |       | 8.95       |       | 6.35       |       |
| Fourth Quarter                      |       | 7.55       |       | 4.76       |       |
|                                |       |       |       |       |       |
| **Fiscal year ended June 30, 2007** | ** ** | ** ** | ** ** | ** ** | ** ** |
| First Quarter                       |       | $          | 6.41       |       | $          | 4.08 |   |
| Second Quarter                      |       | 6.11       |       | 4.30       |       |
| Third Quarter                       |       | 5.24       |       | 3.91       |       |
| Fourth Quarter                      |       | 5.99       |       | 3.23       |       |

 

The last reported saleprice of our common stock on the NASDAQ Global Market on September 5, 2007 was$5.38.

As of September 5, 2007there were approximately 128 holders of record of our common stock.

# *Dividendpolicy*

We have never declaredor paid cash dividends on our common stock, and our board of directors does notintend to declare or pay any dividends on the common stock in the foreseeablefuture.  However, we are required toaccrue for and pay a dividend of 5%, subject to certain adjustments, on ourcumulative Series A Convertible Participating Preferred Stock.  Our earnings, if any, are expected to beretained for use in expanding our business. The declaration and payment in the future of any cash or stock dividendson the common stock will be at the discretion of the board of directors andwill depend upon a variety of factors, including our ability to service ouroutstanding indebtedness and to pay our dividend obligations on securitiesranking senior to the common stock, our future earnings, if any, capital  requirements, financial condition and suchother factors as our Board of Directors may consider to be relevant from timeto time.

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*EquityCompensation Plan Information*

The following tableprovides information about the securities authorized for issuance under our equitycompensation plans as of June 30, 2007:
| ** **                                                    | ** ** | **Number of securities to   be issued upon exercise   of outstanding options** | ** ** | **Weighted-average   exercise price of   outstanding options** | ** ** | **Number of securities   remaining available for future   issuance under equity   compensation plans (excluding   securities reflected in column   (a))** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Plan category**                                        | ** ** | **(a)**                                                                                                                          | ** ** | **(b)**                                                                                 | ** ** | **(c)**                                                                                                                                                                                                                                        | ** ** |
| Equity compensation plans approved by security holders        |       | 4,457,250                                                                                                                        |       | $                                                                                       | 5.39       |                                                                                                                                                                                                                                           | 1,449,417  |   |
| Equity compensation plans not approved by security holders(1) |       | 1,500,000                                                                                                                        |       | $                                                                                       | 1.25       |                                                                                                                                                                                                                                           | 3⁄4     |   |
|                                                          |       |                                                                                                                             |       |                                                                                    |       |                                                                                                                                                                                                                                           |       |
| Total                                                         |       | 5,957,250                                                                                                                        |       | 3⁄4                                                                                  |       | 1,449,417                                                                                                                                                                                                                                      |       |

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(1)                      These1,500,000 options were issued to Dr. Wood in April of 2001 as a retention grantbefore we had an approved stock incentive plan.

The Board of Directorsadopted, and our stockholders approved our 2003 Stock Incentive Plan at theAnnual Meeting held in January of 2004**. **The plan was adopted to recognizethe contributions made by our employees, officers, consultants, and directors,to provide those individuals with additional incentive to devote themselves toour future success and to improve our ability to attract, retain and motivateindividuals upon whom our growth and financial success depends.  There are6,750,000 shares reserved for grants of options and rights under the plan andat June 30, 2007, 5,300,583 of these options and rights had been issued.

*IssuerPurchases of Equity Securities*

None.

*PerformanceGraph*

The following line graph compares cumulative totalstockholder returns for the last five fiscal years, from June 30, 2002through June 30, 2007 for (1) our common stock; (2) the NASDAQComposite Index; and (3) a peer group consisting of the following publiclytraded companies within our industry: Enzon Pharmaceuticals Inc., Genzyme Corp. and Vion Pharmaceuticals Inc.(“Peer Group”).  The graph assumes aninvestment of $100 on June 30, 2002 and includes the reinvestment ofdividends, if any.  The performance shownis not necessarily indicative of future performance.
| ** **            | ** ** | **6/02**   | ** ** | **6/03**   | ** ** | **6/04**   | ** ** | **6/05**   | ** ** | **6/06**   | ** ** | **6/07**   | ** ** |
|-----------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| ** **            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Bioenvision  Inc**  | ** ** | **100.00** | ** ** | **111.00** | ** ** | **438.00** | ** ** | **364.00** | ** ** | **266.50** | ** ** | **289.00** | ** ** |
| **NASDAQ  Composite** | ** ** | **100.00** | ** ** | **108.54** | ** ** | **139.90** | ** ** | **140.79** | ** ** | **151.46** | ** ** | **182.66** | ** ** |
| **Peer Group**        | ** ** | **100.00** | ** ** | **183.03** | ** ** | **207.02** | ** ** | **252.07** | ** ** | **255.95** | ** ** | **269.47** | ** ** |

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**Item 6. Selected Financial Data.**

The followingSelected Consolidated Financial Data should be read in conjunction with ourConsolidated Financial Statements and the related Notes thereto, Management’sDiscussion and Analysis of Financial Condition and Results of Operations andother financial information included elsewhere in this Annual Report. The dataset forth below with respect to our Consolidated Statements of Operations forthe years ended June 30, 2007, 2006 and 2005, the Consolidated Balance Sheetsas of June 30, 2007 and 2006 and the Consolidated Statements of Cash Flows Datafor the years ended June 30, 2007, 2006 and 2005  are derived from our Consolidated FinancialStatements which are included elsewhere in this Annual Report and are qualifiedby reference to such Consolidated Financial Statements and related Notesthereto.

The data set forthbelow with respect to our Consolidated Statements of Operations for the yearsended June 30, 2004 and 2003, the Consolidated Balance Sheets as of June 30,2005, 2004 and 2003 and the Consolidated Statements of Cash Flows Data for theyears ended June 30, 2004 and 2003 are derived from our Consolidated FinancialStatements, which are not included elsewhere in this Annual Report. Ourhistorical results are not necessarily indicative of future results ofoperations.
| ** **                                                              | ** ** | **Year ended**         | ** **  | **Year ended**         | ** ** | **Year ended**         | ** ** | **Year ended**         | ** **  | **Year ended**         | ** ** |
|-------------------------------------------------------------------------|------------|-----------------------------|-------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|-------------|-----------------------------|------------|
| **Consolidated Statement of Operations Data**       | ** ** | **June 30, 2007** | ** **  | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** **  | **June 30, 2003** | ** ** |
| * *                                                                | * *   | * *                    | * *    | * *                    | * *   | * *                    | * *   | * *                    | * *    | * *                    | * *   |
| Revenue                                                                 |       | $                           | 19,069,597  |                        | $          | 5,309,072                   |       | $                           | 4,651,174   |                        | $          | 3,102,214 |   | $ | 504,857 |   |
|                                                                    |       |                        |        |                        |       |                        |       |                        |        |                        |       |
| Cost of products  sold                                                  |       | 3,450,279                   |        | 1,662,975                   |       | 921,262                     |       | —                      |        | —                      |       |
| Operating  expenses                                                     |       |                        |        |                        |       |                        |       |                        |        |                        |       |
| Research and development                                                |       | 21,065,263                  |        | 11,726,981                  |       | 10,894,925                  |       | 4,882,574                   |        | 1,689,278                   |       |
| Selling, general and administrative                                     |       | 27,701,740                  |        | 16,562,770                  |       | 10,181,711                  |       | 9,082,420                   |        | 4,567,413                   |       |
| Depreciation and amortization                                           |       | 1,021,427                   |        | 974,440                     |       | 1,438,517                   |       | 1,348,064                   |        | 1,344,969                   |       |
| Provision for bad debts                                                 |       | 160,740                     |        | 24,564                      |       | 869,220                     |       | —                      |        | —                      |       |
| Loss on impairment                                                      |       | 3,310,905                   |        | —                      |       | 5,276,162                   |       | —                      |        | —                      |       |
| Total operating  expenses                                               |       | 56,710,354                  |        | 30,951,730                  |       | 29,581,797                  |       | 15,313,058                  |        | 7,601,660                   |       |
|                                                                    |       |                        |        |                        |       |                        |       |                        |        |                        |       |
| Loss from  operations                                                   |       | (37,640,757                 | )           | (25,642,658                 | )          | (24,930,623                 | )          | (12,210,844                 | )           | (7,096,803                  | )          |
| Other income  (expense), net                                            |       | 1,736,176                   |        | 1,743,895                   |       | 667,838                     |       | 99,763                      |        | (186,426                    | )          |
| Loss before  income taxes                                               |       | (35,904,581                 | )           | (23,898,763                 | )          | (24,262,785                 | )          | (12,111,081                 | )           | (7,283,229                  | )          |
| Income tax  benefit                                                     |       | —                      |        | —                      |       | —                      |       | 1,459,814                   |        | 2,117,103                   |       |
| Net Loss                                                                |       | (35,904,581                 | )           | (23,898,763                 | )          | (24,262,785                 | )          | (10,651,267                 | )           | (5,166,126                  | )          |
| Cumulative  preferred stock dividend                                    |       | (337,500                    | )           | (337,500                    | )          | (404,079                    | )          | (856,776                    | )           | (877,818                    | )          |
| Net loss  applicable to common stockholders                             |       | $                           | (36,242,081 | )                           | $          | (24,236,263                 | )          | $                           | (24,666,864 | )                           | $          | (11,508,043 | ) | $ | (6,043,944 | ) |
| Basic and  diluted common shares outstanding                            |       | 45,033,991                  |        | 40,865,384                  |       | 34,042,391                  |       | 20,257,482                  |        | 16,920,939                  |       |
| Basic and diluted net  loss applicable to common stockholders per share |       | $                           | (0.80       | )                           | $          | (0.59                       | )          | $                           | (0.72       | )                           | $          | (0.57 | ) | $ | (0.36 | ) |

 
| ** **                                         | ** ** | **Year ended**         | ** ** | **Year ended**         | ** ** | **Year ended**         | ** ** | **Year ended**         | ** ** | **Year ended**         | ** ** |
|----------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Consolidated Balance Sheet Data** | ** ** | **June 30, 2007** | ** ** | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** ** | **June 30, 2003** | ** ** |
|                                               |       |                        |       |                        |       |                        |       |                        |       |                        |       |
| Cash and cash  equivalents                         |       | $                           | 43,682,624 |                        | $          | 3,377,937                   |       | $                           | 31,407,533 |                        | $          | 18,875,675 |   | $ | 7,929,686 |   |
| Short-term  investments                            |       | 5,488,646                   |       | 41,637,106                  |       | 32,746,948                  |       | —                      |       | —                      |       |
| Intangible  assets, net                            |       | 3,355,992                   |       | 7,549,520                   |       | 8,252,936                   |       | 14,563,660                  |       | 15,779,399                  |       |
| Total assets                                       |       | 69,793,349                  |       | 62,250,464                  |       | 80,790,135                  |       | 42,170,844                  |       | 26,173,132                  |       |
| Total current  liabilities                         |       | 13,228,368                  |       | 8,592,018                   |       | 6,738,722                   |       | 3,460,419                   |       | 2,264,896                   |       |
| Total stockholders’  equity                   |       | 50,007,929                  |       | 46,587,721                  |       | 66,613,815                  |       | 30,800,827                  |       | 21,323,737                  |       |
|                                                    |            |                             |            |                             |            |                             |            |                             |            |                             |            |  |  |  |  |  |

 
| ** **                                                             | ** ** | **Year ended**         | ** **  | **Year ended**         | ** ** | **Year ended**         | ** ** | **Year ended**         | ** **  | **Year ended**         | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------|-------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|-------------|-----------------------------|------------|
| **Consolidated Statement of Cash Flows Data** | ** ** | **June 30, 2007** | ** **  | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** **  | **June 30, 2003** | ** ** |
|                                                                   |       |                        |        |                        |       |                        |       |                        |        |                        |       |
| Net cash used in  operating activities                                 |       | $                           | (32,150,510 | )                           | $          | (20,794,013                 | )          | $                           | (13,417,438 | )                           | $          | (4,641,193 | ) | $ | (4,411,581 | ) |
| Net cash  provided by (used in) investing activities                   |       | 36,929,061                  |        | (7,463,820                  | )          | (33,384,403                 | )          | (130,917                    | )           | (541,254                    | )          |
| Net cash provided by  financing activities                             |       | 35,564,621                  |        | 433,370                     |       | 59,296,122                  |       | 15,730,847                  |        | —                      |       |
|                                                                        |            |                             |             |                             |            |                             |            |                             |             |                             |            |  |  |  |  |  |

 

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**Item7.  Management’s Discussion and Analysisof Financial Condition and Results of Operation.**

The following discussion and analysis providesinformation which management believes is relevant to an assessment andunderstanding of our results of operations and financial condition.  The discussion should be read together withour audited consolidated financial statements and notes included under Item 8of this Annual Report on Form 10-K, which are presented beginning at page F-1.

**Summary of Critical Accounting Policies**

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, 2007 included under Item 8 in this Annual Report on Form 10-K, which are presented beginning at page F-1.  These policies were selected because they represent the critical accounting policies and methods that are broadly applied in the preparation of the consolidated financial statements.

*Revenue Recognition*

In accordance with SEC Staff Accounting Bulletin No.104 “Revenue Recognition”, or “SAB 104”, upfront nonrefundable fees associatedwith research and development collaboration agreements in which the Company hascontinuing involvement in the agreement, are recorded as deferred revenue andrecognized over the estimated research and development period using thestraight-line method. If the estimated period is subsequently modified, theperiod over which the up-front fee is recognized is modified accordingly on aprospective basis using the straight-line method.  Continuation of certain contracts and grantsare dependent upon the Company and/or its co-development partners’ achievingspecific contractual milestones; however, none of the payments received to dateare refundable regardless of the outcome of the project.  Upfront nonrefundable fees associated withlicensing arrangements are recorded as deferred revenue and recognized over theperiod of the licensing arrangement using the straight-line method, which approximatesthe life of the last to expire of the underlying patents.

Royalty revenue from product licenses is recorded asearned.

We currently sells our products to hospitals, clinicaltrial centers and our co-development partners. Revenue from product sales is recognized when the risk of loss is passedto the customer, the sales price is fixed and determinable, and collectibilityis reasonably assured.  We record productsales net of any allowances for sales returns. We estimate our return reserves based on our experience of return rateson historical sales.  Our allowance forsales return reserves may increase in the future if our history of productreturns changes.

Research and development contract revenue includessales in our pre-commercial stage named patient program for Evoltra® as well ascertain payments due from our co-development partner relating to thereimbursement of 50% for certain of our ongoing research costs in thedevelopment of Evoltra® outside the United States.

We follow the guidance of Emerging Issues Task Force99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent” in thepresentation of revenue and direct costs of revenue. This guidance requires us toassess whether we acts as a principal in the transaction or as an agent actingon behalf of others. We records revenue transactions gross in our statements ofoperations if we are deemed the principal in the transaction, which includesbeing the primary obligor and having the risks and rewards of ownership.

*Research and Development*

Research and developmentcosts are charged to expense as incurred. Research and development costs consist primarily of costs associatedwith determining feasibility, licensing and pre-clinical and clinical testing ofour products, including salaries and related personnel costs, fees paid toconsultants and outside service providers for drug development, the cost ofEvoltra® sold prior to product approval through our named patient program andother expenses.  Also included inresearch and development costs is the financial support provided to Cardiff forthe AML 16 trials.  This financialsupport is tied to the number of patients enrolled on clofarabine.  We estimate our 

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expense for the AML 16trials each reporting period based on data regarding patient enrollmentreceived from Cardiff.

*Stock-BasedCompensation*

We account for stock-based compensation in accordancewith SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123 (R)”) andutilize the Black-Scholes model to measure the value of an employee option. TheBlack-Scholes model is a trading options-pricing model that neither considersthe non-traded nature of employee stock options, nor the restrictions on suchtrading, the lack of transferability or the ability of employees to forfeit theoptions prior to expiry. If the model adequately permitted consideration of theunique characteristics of employee stock options, the resulting estimate of thefair value of the stock options could be different.   Our estimates of employee stock optionvalues rely on estimates of factors we input into the Black-Scholes model. Thekey factors involve an estimate of future uncertain events.  We determine expected volatility based onhistorical activity.  We believe thatthese market-based inputs provide a better estimate of our future stock pricemovements.  We use historical exercisepatterns as our best estimate of the expected term of the options.  We utilize historical turnover rates inestimating expected forfeitures separately for executives andnon-executives.  The risk-free rate isbased upon the U.S. Treasury yield curve in effect at the time of grant.

*Impairmentof Long-Lived Assets*

In accordance with SFAS No. 144, we review forimpairment our intangible assets that are subject to amortization wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. Recoverability of assets to be held and used is measured by a comparisonof the carrying amount of an asset to estimated undiscounted future cash flowsexpected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cashflows, an impairment charge is recognized by the amount by which the carrying amountof the asset exceeds the fair value of the asset.  We believe that the accounting estimaterelating to impairment of our intangible assets involves a critical accountingestimation methodology.  The estimate is highlysusceptible to change from period to period because it requires management tomake significant judgments and assumptions about future revenue, operatingcosts and development expenditures.  Someof the more significant estimates and assumptions inherent in the intangibleasset impairment estimation process include: the timing and amount of projectedfuture cash flows; the discount rate selected to measure the risks inherent inthe future cash flows; and the competitive trends impacting the asset,including consideration of any technical, legal, regulatory, or economic barriersto entry as well as expected changes in standard of practice for indicationsaddressed by the asset. Changes in events or circumstances  that may affect long-lived assets,particularly in the pharmaceutical industry, makes judgments and assumptionswith respect to the future cash flows highly subjective and may include, butare not limited to, cancellations or terminations of license agreements or therisk of competition that could render our products noncompetitive or obsolete.

**Overview and Company Status**

We are aproduct-orientated biopharmaceutical company primarily focused upon the acquisition,development, and marketing of compounds and technologies for the treatment ofcancer. Our product pipeline includes Evoltra® (clofarabine) which hasmarketing approval in both the E.U. and U.S. for the treatment of pediatricrelapsed or refractory acute lymphoblastic leukemia, Modrenal® (trilostane),which has marketing approval in the U.K. for the treatment of post-menopausalbreast cancer following relapse to initial hormone therapy, and other products.

On May 29, 2007, we entered into an Agreement and Planof Merger (the “Merger Agreement”) with Genzyme Corporation, our North Americanco-development partner for clofarabine (“Genzyme”) and Wichita BioCorporation, a wholly-owned subsidiary of Genzyme (“Wichita Bio”).  We are holding a special meeting of ourstockholders to vote on this proposed merger, ****which is currently scheduled for October4, 2007****.  Themerger is the second and final step in the proposed acquisition of Bioenvisionby Genzyme.  The first step was the tender offer for all of theoutstanding common stock and all of the outstanding preferred stock ofBioenvision, which expired on July 10, 2007.  Pursuant to the tenderoffer, Wichita Bio purchased 8,398,098 shares of common stock, representingapproximately 15.3% of the outstanding shares of our common stock as of thedate hereof, and 2,250,000 shares of preferred stock, representing 100% of theoutstanding shares of our preferred stock as of the date hereof.   Following the tender offer and as of thedate hereof, Genzyme beneficially owns approximately 22% of the outstandingshares of Bioenvision common stock on an as-converted basis, including alloutstanding shares of Bioenvision preferred stock.  If the merger is completed, Wichita Bio, willbe merged with and into Bioenvision, we will become a wholly-owned subsidiaryof Genzyme and each share of our common stock issued and outstandingimmediately before the merger, other than treasury shares, shares for whichappraisal rights have been perfected and shares held by Genzyme or Wichita Bio,will automatically be canceled and will cease to exist and will be convertedinto the right to receive $5.60 in cash, without interest.  ****See********“*FactorsRelating to the Proposed Merger with Genzyme*” beginning on page 10.****

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Evoltra® isour lead product.  In May 2006 the EMEAapproved Evoltra® for the treatment of acute lymphoblasticleukemia (ALL) in pediatric patients who have relapsed or are refractory to atleast two prior regimens.  The licensedindication includes patients who were less than 21 years of age at thetime of initial diagnosis of their leukemia. Evoltra® hasbeen granted orphan drug designation (ODD), providing marketing exclusivity for10 years in Europe, which 10-year period commenced in May 2006 upon ourreceipt of E.U. marketing approval.  Wehave a direct sales force in the U.K. and a dedicated sales force throughInnovex, an affiliate of Quintiles Corporation, in several other countrieswithin the E.U..  Subject to the outcomeof the merger, we plan to increaseeither our direct sales force or our dedicated sales force through Innovex aswe continue to work through reimbursement procedures and expand our marketinginitiatives to exploit new commercial opportunities within the E.U.

On February 7, 2007, we announced that we filedwith the EMEA to expand the Evoltra® (clofarabine) label to include the treatmentof acute myeloid leukemia (AML) in patients who are greater than or equal to65-years-old and have one or more of the following: adverse cytogenetics,secondary AML, aged greater than or equal to 70 years, or have one or moresignificant comorbidity. This new target indication, if approved, represents asignificant increase in the size of the potential market available to Evoltra®.In addition, we have ODD in this new target indication which may providefurther market exclusivity in the E.U.

On August 16, 2007, we announced that, in connection with the statusof our application to the EMEA to include a new indication for clofarabine forthe treatment of adult AML in****elderly****patients who have one or more of the following: adversecytogenetics, secondary AML, 3 70 years old or significantco-morbidities and who are therefore not considered suitable for intensivechemotherapy, the EMEA has agreed to accept supplemental information from us byNovember 16, 2007.  This timeframe will enable us to prepare a morecomprehensive response to the EMEA, including interim data from the ongoing,multicenter AML-16 trials that have been initiated by the NCRI in the U.K. We currently anticipate that in December 2007 the Rapporteur will provide itsassessment report and that in January 2008 the EMEA will either provide us withan opinion on whether or not we will be granted marketing authorization ofclofarabine for this new indication or provide us with a second Request forSupplemental Information.

It should be noted thatthe foregoing may be subject to change and the EMEA’s assessment report andopinion may require us to provide further data and/or to attend an oralexplanation. The opinion of the EMEA is also required to be adopted by theEuropean Commission as a pre-condition to the grant of marketing authorizationof clofarabine for the treatment of adult AML.  In addition, inrelation to our variation application to include this new indication, the EMEAhas requested that data from the ongoing AML-16 trials be provided.  The AML-16trials, sponsored by the NCRI, randomize clofarabine against the standard ofcare (low-dose cytarabine) for the treatment of elderly patients with adult AMLwho are not considered suitable for intensive chemotherapy.  We believe wewill be able to make data from these trials available to the EMEA by November2007.  There can be no assurances, however, that this data will be madeavailable to us for its application.  The AML-16 trials will not be fullyenrolled at the time of submission of our response to the EMEA and there can beno assurances that interim data will be satisfactory, or that the data itselfwill be supportive of our application.  Further, if the EMEA does notaccept this data, we may have to run an additional randomized study.

In March 2006, we entered into a Marketing andDistribution Agreement with Mayne Pharma Limited (“Mayne”), a public company inAustralia, pursuant to which we have granted and Mayne has received certainmarketing rights to sell, market and distribute Evoltra® (clofarabine) in Australia and New Zealand incertain cancer indications.  ****Mayne was acquired byHospira, Inc. (NYSE:HSP) in February of 2007.****** ** The opportunity exists for us to enter intosimilar arrangements around the world, from time to time, with other marketingand distribution partner(s) who have a fully integrated sales and marketingforce in each such territory to further capitalize on the commercial potentialof Evoltra®.

In September 2006, we executed a License Agreementwith SRI, pursuant to which we successfully licensed the manufacturing,marketing and distribution rights to clofarabine in Japan and Southeast Asia(the “Japan License”).  Since taking onthese rights, we have organized JapanCo., and appointed a director in charge ofcorporate and product development for JapanCo.

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In addition to developing Evoltra® for the treatmentof adult AML as first-line therapy in elderly patients considered unsuitablefor intensive chemotherapy, we are also developing Evoltra® for use incombination with other agents as induction therapy for patients with AMLconsidered suitable for intensive chemotherapy.

Also, in conjunction with Genzyme clofarabine(Evoltra®) is in clinical development for the treatment of myelodysplasticsyndrome (MDS), chronic lymphocytic leukemia (CLL), non-Hodgkin’s lymphoma(NHL), solid tumors and as a preconditioning regimen for transplantation. Althoughwe are currently not directly involved with these programs, Genzyme is requiredto share the data generated thereunder in accordance with the terms of ourco-development agreement.

We have completed preclinical development of a gelformulation of Evoltra® andhave completed enrollment of two Phase I clinical studies of the gel in healthyvolunteers and in patients with severe psoriasis. We are planning furtherworldwide development of Evoltra® in autoimmune diseases.

We have an exclusive worldwide license forclofarabine. We granted an exclusive sublicense to Genzyme to co-developclofarabine for certain cancer indications in the US and Canada.  Genzyme is commercializing clofarabine forcertain cancer indications in the US and Canada under the brand name Clolar®.  We hold an exclusive license in the US andCanada for all non-cancer indications. We originally obtained clofarabine development and commercializationrights under patents held by Southern Research Institute under a co-developmentagreement dated August 31, 1998.  On May24, 2007, we entered into an amendment to that agreement, pursuant to which theparties agreed to modify and/or clarify certain of the economic terms of theirarrangement including, without limitation, terms related to royalties,milestones, profit sharing and assignability provisions.

In the U.S., in December 2004, the Food and DrugAdministration, or FDA, approved clofarabine, for the treatment of pediatricacute lymphoblastic leukemia, or ALL, in patients who are relapsed orrefractory to at least two prior regimens of treatment.  We believe clofarabine was the first newmedicine initially approved in the U.S., for children with leukemia in morethan a decade.  Our U.S. partner, Genzymereceived Orphan Drug Designation status for clofarabine in the U.S., providingmarketing exclusivity for 71⁄2 years, expiring in 2012.

In the U.S. clofarabine is currently being evaluatedin numerous ISTs for the treatment of a variety of hematological cancersincluding AML, ALL MDS, CLL and NHL. In addition, commencing in calendar 2007and 2008, we hope to further investigate clofarabine in European clinicaltrials for MDS, AML, CLL, NHL and solid tumor cancer indications. Inpre-clinical studies, clofarabine has shown anti-tumor activity against severalhuman cancers, including cancers of the lung, colon, kidney, breast, pancreasand prostate, as well as its action against numerous leukemia cells. We believethe initial data from the Phase I clinical trials indicate sufficient possibleactivity for clofarabine in certain solid tumor types to warrant furtherclinical development.

Pursuant to the terms ofour co-development agreement with SRI, we have the exclusive license to marketand distribute clofarabine throughout the world for all human applicationsexcept for certain U.S. and Canadian cancer indications.  Our exclusive license expires upon the lastto expire of the patents used or useful in connection with the development andmarketing of clofarabine, which we currently expect to expire in 2021.

To date, the majority ofour development activities and resulting R&D expenditures have related tothe development of clofarabine.  Ourprimary business strategy has included taking clofarabine to market in the E.U.and using the proceeds from our resulting marketing efforts, in part, toprogress the other products and technologies in our pipeline.

We currently market Modrenal® (trilostane) in the U.K.for the treatment of post-menopausal advanced breast cancer following relapseto initial hormone therapy.  We have ateam of six sales specialists and a marketing executive selling and marketingModrenal® (and Evoltra®) in the U.K.

We anticipate thatrevenues derived from Evoltra® will permit us to further develop the otherproducts currently in our product pipeline. In addition to clofarabine and Modrenal®, we have performed developmentwork with Suvus® for the treatment of chronic hepatitis C.  We have had discussions with potentialproduct partners from time to time and plan to continue to explore thepossibilities for co-development and sub-licensing in order to 

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implement our developmentplans.  In addition, we believe that some of our products may haveapplications in treating non-cancer conditions in humans and in animals. Those conditions are outside our core business focus and we do not presentlyintend to devote a substantial portion of our resources to addressing thoseconditions.   The work to date onthese compounds has been limited because of the need to concentrate onEvoltra®, but management believes these compounds have potential value.

In May 2003, we enteredinto a License and Sub-License Agreement with Dechra Pharmaceuticals, plc, orDechra, pursuant to which we sub-licensed to Dechra the marketing anddevelopment rights to Vetoryl® (trilostane), solely with respect to animalhealth applications, in the U.S. and Canada.  We received $1,250,000 incash, together with future milestone and royalty payments which are contingentupon the occurrence of certain events.  We intend to continue to try andcapitalize on these types of opportunities as they arise.   We alsoown rights to OLIGON® technology.  InJanuary 2007, we entered into a licensing arrangement with FosterCorporation (“Foster”) to license out exclusive rights to manufacture, marketand distribute our proprietary anti-microbial OLIGON® technology. Under theterms of the license agreement, we will have a revenue sharing arrangement onfuture sublicenses and a royalty on all sales by Foster, a Connecticut-basedcompounder of biomedical materials. Foster is required to comply with annualminimum marketing and research and development expenditures within the firstthree years of the term of the license.

Over the next 12 months,subject to the outcome of the Genzyme merger, we intend to continue ourinternal growth strategy to provide the necessary capabilities which will berequired to pursue the expanded development programs described above.

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

**·**                  satisfy our future capital requirements for theimplementation of our business plan;

**·**                  commercialize our existing products;

**·**                  complete development of products presently in ourpipeline and obtain necessary regulatory approvals for use;

**·**                  implement and successfully execute our businessstrategy to commercialize products;

**·**                  establish and maintain our client base;

**·**                  continue to develop new products and upgrade ourexisting products;

**·**                  continue to establish and maintain relationshipswith manufacturers for our products;

**·**                  respond to industry and competitive developments;and

**·**                  attract, retain, and motivate qualified personnel.

**We may not be successful inaddressing these or any other risks associated with our business and/orproducts.  If we were unable to do so,our business prospects, financial condition and results of operations would bematerially adversely affected.  Thelikelihood of our success must be considered in light of the development cyclesof new pharmaceutical products and technologies and the competitive andregulatory environment in which we operate.**

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**Results of Operations**

**Year Ended June 30, 2007 Comparedto Year Ended June 30, 2006**

**We recorded revenue for the yearsended June 30, 2007 and 2006 of approximately $19,070,000 and $5,309,000,respectively, representing an increase of approximately $13,761,000.  This increase is primarily due to increasedproduct sales of $14,760,000 as a result of Evoltra’s® approval in Europe.  Prior to the approval, all product salesthrough the named patient program were reflected as research and development contractrevenue.  License and royalty revenuealso increased $1,711,000 primarily due to increased royalties on US salesreceived from our co-development partner.**

**The cost of products sold for theyears ended June 30, 2007 and 2006 were approximately $3,450,000 and$1,663,000, respectively, representing an increase of approximately$1,787,000.  The cost of products soldreflects the direct costs associated with our product sales and includesroyalty expense of $2,889,000 and $1,277,000 for the years ended June 30, 2007and 2006, respectively.  All direct costsassociated with clofarabine sales were expensed in periods prior to the E.U.approval. **

**Research and development costs forthe years ended June 30, 2007 and 2006 were approximately $21,065,000 and $11,727,000,respectively, representing an increase of approximately $9,338,000.  Our research and development costs includecosts associated with the three products shown in the table below:**
|                               | ** ** | **June 30,** | ** ** | **June 30,** | ** ** | ** ** | ** ** |
|-------------------------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| **Product**                   | ** ** | **2007**          | ** ** | **2006**          | ** ** | **Change** | ** ** |
|                          |       |              |       |              |       |       |       |
| Evoltra®  (clofarabine)  |       | $                 | 18,943,000 |              | $          | 9,125,000  |       | $ | 9,818,000 |   |
|                          |       |              |       |              |       |       |       |
| Modrenal®  (trilostane)  |       | 2,085,000         |       | 2,283,000         |       | (198,000   | )          |
|                          |       |              |       |              |       |       |       |
| Suvus®  (methylene blue) |       | 37,000            |       | 319,000           |       | (282,000   | )          |
|                          |       |              |       |              |       |       |       |
| Total                         |       | $                 | 21,065,000 |              | $          | 11,727,000 |       | $ | 9,338,000 |   |

 

**Evoltra® research and developmentcosts for the years ended June 30, 2007 and 2006 were approximately $18,943,000and $9,125,000 respectively, representing an increase of approximately$9,818,000.   The increase is primarilydue to an increase in our development activities and clinical trials ofEvoltra® in Europe, including the process of filing for approval in our firstlabel extension for Evoltra®, the enrollment of patients in our Phase II trialin Europe for the treatment of adult AML in elderly patients unfit forintensive chemotherapy and amounts relating to financial support provided toCardiff University in connection with the AML-16 trials that are beingconducted in Europe partially offset by a reduced rate of enrollment in theEuropean Phase II BIOV-111 study of pediatric patients with refractory orrelapsed ALL. We also recorded approximately $4,000,000 of costs in connectionwith the acquisition of the Japanese and Southeast Asian rights to Evoltra®which occurred in September of 2006.  **

**Modrenal® research and developmentcosts for the years ended June 30, 2007 and 2006 were approximately $2,085,000and $2,283,000, respectively, representing a decrease of $198,000.  This decrease is due to a reduced rate ofpatient enrollment in the Phase II clinical trial in pre-menopausal breastcancer and Phase IV clinical trial in patients with post-menopausal breastcancer, which are each being conducted in the U.K. **

**Suvus® research and developmentcosts for the years ended June 30, 2007 and 2006 were approximately $37,000 and$319,000, respectively, representing a decrease of $282,000.  The decrease primarily reflects the costsassociated with the investigator sponsored Phase II clinical trial conducted inEgypt in the prior period.**

**There were no research anddevelopment costs for OLIGON® for the years ended June 30, 2007 and 2006 due toour entering into a licensing arrangement with Foster to license out exclusiverights to manufacture, market and distribute our proprietary anti-microbialOLIGON® technology in January 2007.  Noadditional costs are expected to be incurred by us in connection with futuredevelopment of OLIGON® by Foster.**

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**The clinical trials and developmentstrategy for Evoltra® and Modrenal®, in each case, is anticipated to costseveral million dollars and will continue for several years based on the numberof clinical indications within which we plan to develop these drugs.  Currently, management cannot estimate thetiming or costs associated with these projects because many of the variables,such as interaction with regulatory authorities and response rates in variousclinical trials, are not predictable. Total costs to date for each of our projects is as follows: (i) Evoltra®research and development costs have been approximately $42,384,000; (ii)Modrenal® research and development costs have been approximately $10,737,000;and (iii) Suvus® research and development costs have been approximately$545,000.**

**Selling, general and administrativeexpenses for the years ended June 30, 2007 and 2006 were approximately$27,702,000 and $16,563,000, respectively, representing an increase of$11,139,000.  This increase is primarilyrelating to the costs associated with the expanded sales and marketing team inEurope of approximately $8,079,000 and consulting fees associated with themerger agreement with Genzyme of $1,501,000. `Other factors include an increase in stock-based compensation expensedue to the issuance of common stock to one of our officers of the Companypursuant to the terms of his amended employment agreement and the granting ofstock options to one of our officers as inducement to serve our Chief FinancialOfficer as well as increased legal and financial advisor fees incurred inconnection with the**MergerAgreement with Genzyme Corporation. 

**Depreciation and amortizationexpense for years ended June 30, 2007 and 2006 was approximately $1,021,000 and$974,000, respectively, representing an increase of $47,000.**

Provision for baddebts for the years ended June 30, 2007 and 2006 were approximately $161,000and $25,000, respectively, representing an increase of approximately$136,000.  The increase is due to ourrecording a valuation allowance relating to the outstanding receivable from ashareholder relating to the statutorily required withholding taxes due to theUK tax regulatory authority which is partially offset by our right ofoffset.  

As aresult of the loss of certain aspects of patent protection, we re-evaluated thealternative future uses of methylene blue in human indications.  Methylene blue demonstrated effectiveness inthe treatment of hepatitis-C through an Investigator Sponsored Phase IIclinical trial conducted in the Middle East. In December of 2005, we submitted to the Ministry of Health a protocolfor an investigator sponsored clinical trial in Egypt for refractory genotypeIV hepatitis C.   Concurrent with thesubmission of the protocol, we filed a marketing authorization with theMinistry for the use of methylene blue in hepatitis C based on the Phase IIdata.  Our plan was to attain productapproval (then anticipated to be received by the end of calendar 2006) and thencommence with further investigator sponsored clinical trials in Egypt intowhich we would sell methylene blue at a price discounted to the currenttreatments available.  The trials wereintended to be performed whether marketing approval was received or not.  At June 30, 2006, we received an independentthird-party valuation of methylene blue which confirmed that such estimatedfuture cash flows continued to be worth more than the carrying value ofmethylene blue.  In September of 2006,the Ministry provided feedback on our filing and requested that, among otherthings, an Egyptian-based company be added to our distribution process.   We responded to the Ministry in January of2007.  In March of 2007, we receivedanother request from the Egyptian authorities relating again to themanufacturing process and we submitted our responses in April 2007.  Separately, in February of 2007, we hired athird party to assist us in performing a strategic review of our assetportfolio which was completed during the fourth quarter of 2007.  In conjunction with this analysis, our boardof directors determined that we would no longer devote any further resources tothe development of methylene blue, unless and until a secure revenue sourcecould be identified as a pre-condition to the use of methylene blue in aclinical trial.  As a result of ourinability to obtain a secure source to fund further development of methyleneblue,  along with the inability tocommence a clinical study into which we could sell the product, we re-evaluatedthe intangible asset at June 30, 2007. We recognized a non-cash impairment loss equal to its carrying value ofapproximately $3,311,000. 

We currently sellclofarabine to approximately 116 centers in Europe which are participatingin the AML-16 trials that have been initiated by the National CancerResearch Institute (NCRI).  Distribution of clofarabine to the studycenters is being coordinated by a single trial center, Cardiff University (“Cardiff”)which is located in the U.K. The AML-16 studies include the phase Ipilot intensive trial which commenced in December of 2005 and was completed inSeptember of 2006, the phase II AML-16 non-intensive trial which commenced inJuly of 2006 and is expected 

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to completerecruitment in 2008 and the phase III AML-16 intensive trial whichcommenced in August of 2006 and is expected to completerecruitment in 2009.  In order to facilitate distribution, invoicingand compiling of study reports, we have entered into research agreements withCardiff in connection with each of these trials that, among other things,provide for the sale of clofarabine, at current market prices, throughCardiff to the study sites.  During the years ended June 30, 2007 and2006, respectively, 40% and 27% of our total revenue was attributed to the saleof clofarabine to Cardiff.  During the three months ended September 30, 2006, December 31, 2006,March 31, 2007 and June 30, 2007, revenue attributable to Cardiff accounted for52%, 48%, 41% and 30% of total revenue, respectively. ****We anticipate that the percentage of ourtotal revenues derived from the sale of clofarabine into the AML-16trials will continue to decrease.  In connection with the researchagreements, we are obligated to provide financial support to Cardiff which isdependent on the completion of certain milestones which are due upon thereceipt of interim and final study reports.  For the years ended June 30,2007 and 2006, we recognized approximately $7,770,000 and $533,000,respectively, as research and development costs relating to the AML-16trials.  

**Year Ended June 30, 2006 Comparedto Year Ended June 30, 2005**

We reported revenues ofapproximately $5,309,000 and $4,651,000 for the years ended June 30, 2006 and2005, respectively, representing an increase of approximately $658,000.  This increase was primarily an increase inroyalties from US sales of clofarabine of approximately $773,000 and namedpatient reimbursements of approximately $2,044,000 for sales of Evoltra®.  This increase was partially offset by adecrease in research and development contract revenue of approximately$1,910,000 as we did not record revenue for the year ended June 30, 2006,related to the reimbursement from our co-development partner for certain of ourongoing research costs in the development of Evoltra® outside the United Statesbecause it determined that the criteria for recognizing such contract revenuehad not been met.  If and when wedetermine that collectibility is reasonably assured, we will record therevenue.

The cost of products sold for years ended June 30,2006 and June 30, 2005 was approximately $1,663,000 and $921,000, respectively,representing an increase of approximately $742,000.  The cost of products sold reflects the directcosts associated with our commercial sales and royalties due on the sale of ourlead products of approximately $1,277,000 and $525,000 for the years ended June30, 2006 and 2005, respectively.

Research and development costs for the years endedJune 30, 2006 and 2005 were approximately $11,727,000 and $10,895,000respectively, representing an increase of approximately $832,000.

Our research and development costs include costsassociated with the six projects shown in the table below, three of which wecurrently devote time and resources: 
|                | ** ** | **June 30,** | ** ** | **June 30,** | ** ** | ** ** | ** ** |
|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| **Product**    | ** ** | **2006**          | ** ** | **2005**          | ** ** | **Change** | ** ** |
|           |       |              |       |              |       |       |       |
| Evoltra®  |       | $                 | 9,125,000  |              | $          | 8,697,000  |       | $ | 428,000 |   |
|           |       |              |       |              |       |       |       |
| Modrenal® |       | 2,283,000         |       | 1,972,000         |       | 311,000    |       |
|           |       |              |       |              |       |       |       |
| Suvus®    |       | 319,000           |       | 131,000           |       | 188,000    |       |
|           |       |              |       |              |       |       |       |
| Velostan       |       | —            |       | 79,000            |       | (79,000    | )          |
|           |       |              |       |              |       |       |       |
| OLIGON®   |       | —            |       | 16,000            |       | (16,000    | )          |
|           |       |              |       |              |       |       |       |
| Gene Thearpy   |       | —            |       | —            |       | —     |       |
|           |       |              |       |              |       |       |       |
| Total          |       | $                 | 11,727,000 |              | $          | 10,895,000 |       | $ | 832,000 |   |

 

Evoltra® research and development costs for the yearsended June 30, 2006 and 2005 were approximately $9,125,000 and $8,697,000,respectively, representing an increase of approximately $428,000.  The increase primarily reflects costs whichare associated with our increased development activities and clinical trials ofEvoltra® 

37

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being conducted in Europe(which includes the filing process for EU approval) coupled with recordingstock-based compensation expense, relating to stock options granted toemployees that devote their time to clofarabine research and development.

Modrenal® research and development costs for the yearsended June 30, 2006 and 2005 were approximately $2,283,000 and $1,972,000,respectively, representing an increase of approximately $311,000.  This increase is due primarily to the costsassociated with our Phase II clinical trial in pre-menopausal cancer and PhaseIV clinical trial in patients with post-menopausal cancer, which are each beingconducted in the UK.

Suvus® research and development costs for the yearsended June 30, 2006 and 2005 were approximately $319,000 and $131,000,respectively, representing an increase of approximately $188,000.  The increase primarily reflects the costsassociated with the ongoing, multi-center investigator sponsored Phase IIclinical trial being conducted in Egypt during the twelve months ended June 30,2006 and costs associated with the preparation of an IND application to befiled with FDA.   

Velostan research and development costs for the yearsended June 30, 2006 and 2005 were approximately $0 and $79,000, respectively,representing a decrease of approximately $79,000.   There were no research and development costsassociated with Velostan for the year ended June 30, 2006 because our thirdparty vendors must develop a manufacturing process to create a raceamic form ofthe compound for use in our clinical development program in order for us tocontinue our development activities with this compound. No assurance can begiven that we will be able to create the L-form Velostan required for theclinical development program or, if we can, the timing of such development.

OLIGON® research and development costs for the yearsended June 30, 2006 and 2005 were $0 and $16,000, respectively, representing adecrease of $16,000.  Our continued lackof devoted resource to develop this compound reflects our continued emphasis onthe development of Evoltra® during this period.

The clinical trials and development strategy for theEvoltra® and Modrenal® projects, in each case, is anticipated to cost severalmillion dollars and will continue for several years based on the number ofclinical indications within which we plan to develop these drugs.  Currently, management cannot estimate thetiming or costs associated with these projects because many of the variables,such as interaction with regulatory authorities and response rates in variousclinical trials, are not predictable. Total costs to date for each of our projects is as follows: (i) Evoltra®research and development costs have been approximately $23,441,000; (ii)Modrenal® research and development costs have been approximately $8,652,000;(iii) Velostan research and development costs have been approximately $380,000;(iv) Suvus® research and development costs have been approximately $508,000;(v) OLIGON® research and development costs have been approximately $24,000; and(vi) Gene Therapy research and development costs have been approximately$451,000.

Selling, generaland administrative expenses for the years ended June 30, 2006 and 2005 wereapproximately $16,563,000 and $10,182,000, respectively, representing anincrease of approximately $6,381,000. This increase primarily is due to:

·      anincrease of approximately $3,450,000 in employee stock based compensationexpense (a non-cash item) primarily due to our adoption of SFAS 123 (R) on July1, 2005 and the extension of the exercise period of 1,500,000 vested optionsoriginally granted to one of our officers of the Company from five to ten years;

·      anincrease in sales and marketing costs of approximately $1,200,000 related to ourdevelopment of a sales and marketing force in Europe; 

·      anincrease in payroll due to the significant increase in employee headcount inboth New York and Edinburgh offices of approximately $540,000;

·      an increase of approximately$256,000 due to an increase in insurance premiums paid by us.

Depreciation andamortization expense for the years ended June 30, 2006 and 2005 wereapproximately $974,000 and $1,439,000, respectively, representing a decrease ofapproximately $465,000. The decrease is due to our recording of an impairmentcharge of approximately $5,276,000 at June 30, 2005, which decreased the costbasis of our methylene blue intangibles. 

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Provision for bad debts for the years ended June 30,2006 and 2005 were approximately $25,000 and $869,000, respectively,representing a decrease of approximately $844,000.  The decrease is due to our recording of avaluation allowance relating to certain of the outstanding receivable balancesfrom our co-development partner totaling $869,000 in the prior year.  

**Liquidity and Capital Resources**

We anticipate that we will continue to incursignificant operating losses for the foreseeable future.  There can be no assurance as to whether orwhen we will generate adequate revenue to support our cost structure orotherwise achieve profitable operations.

On April 5, 2007, we completed a secondary public offering in which we sold 8,000,000 common shares at $3.75 per share, with net proceeds to us of approximately $27,716,000, after deducting underwriting discounts and commissions and offering expenses.

On June 30, 2007, we hadcash and cash equivalents and short-term investments of approximately$49,171,000 and working capital of $47,811,000.   Management believes that we have sufficientcash and cash equivalents, short-term investments and working capital tocontinue currently planned operations through June 30, 2008.    

However, depending on theoutcome of the proposed Genzyme merger, we may need additional financing tocontinue to fund the research and development and marketing programs for ourproducts and to generally expand and grow our business.  Because, depending on the outcome of theGenzyme merger, we may be required to fund additional operating losses in theforeseeable future, our financial position may continue to deteriorate.  We cannot be sure that we will be able tofind financing in the future or, if found, such funding may not be on termsfavorable to us.  If adequate financingis not available, we may be required to delay, scale back, or eliminate some ofour research and development programs, to relinquish rights to certaintechnologies or products, or to license third parties to commercializetechnologies 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 continueour operations and implement our business plan.

Although we do notcurrently plan to acquire or obtain licenses for new technologies or additionalproducts, if any such opportunity arises and our board deems it to be in ourinterests to pursue such an opportunity, it is possible that additionalfinancing would be required for such a purpose.

For the fiscal yearsended June 30, 2007 and 2006, net cash used in operating activities wasapproximately $32,151,000 and $20,794,000, respectively, representing anincrease of approximately $11,357,000.  This increase is primarily due toincreased costs associated with (i) our expanded research and developmentactivity, (ii) selling general and administrative expenses, including anincrease in costs associated with our expanded sales and marketing andadministrative infrastructure and costs associated with our internal build out and(iii) cash paid for insurance premiums.  For the fiscal year ended June30, 2007 and 2006, net cash provided by (used in) investing activities wasapproximately $36,929,000 and $(7,464,000), respectively, representing anincrease of approximately $44,393,000.  This increase is primarily due tothe redemption of the certificate of deposits that had been funded with thecash received from the proceeds from our February 2005 secondaryoffering.  For the fiscal year ended June 30, 2007 and 2006, net cashprovided by financing activities was approximately $35,565,000 and $433,000representing an increase of $35,132,000.  This increase is primarily dueto the completion of the secondary public offering in April 2007, which yieldednet proceeds of approximately $27,716,000 as well as certain of our warrantholders exercising their warrants pursuant to which we received proceeds ofapproximately $8,146,000. 

For the fiscal yearsended June 30, 2006 and 2005, net cash used in operating activities wasapproximately $20,794,000 and $13,417,000, respectively, representing anincrease of approximately $7,377,000.  This increase is primarily due toincreased costs associated with (i) our expanded research and developmentactivity, (ii) selling general and administrative expenses, including anincrease in costs associated with the expanded sales and marketing andadministrative infrastructure and costs associated with our internal build out and(iii) cash paid for insurance premiums.  For the fiscal year ended June30, 2006 and 2005, net cash used in investing 

39

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activities was approximately $7,464,000 and$33,384,000, respectively, representing a decrease of approximately$25,920,000.  This decrease is primarily due to us investing the proceedsfrom our February 2005 secondary offering in short-term securities in thefiscal year ended June 30, 2005 in order to obtain a higher investmentyield.  For the fiscal year ended June 30, 2006 and 2005, net cashprovided by financing activities was approximately $433,000 and $59,296,000 respectivelyrepresenting a decrease of $58,863,000.  This decrease is primarily due tothe completion of the secondary public offering in February 2005 which yieldednet proceeds of approximately $55,747,000. 

The Company has the following commitments due over thenext five years:
| ** **               | ** ** | **Payments Due in Fiscal Year:** | ** ** |
|--------------------------|------------|------------------------------------------------------|------------|
| ** **               | ** ** | **2008**                                             | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** |
|                     |       |                                                 |       |   |   |   |   |   |   |   |   |
| Operating Leases         |       | $                                                    | 943,429    |   | $ | 373,988 |   | $ | 181,391 |   | $ | — |   | $ | — |   |
|                     |       |                                                 |       |   |   |   |   |   |   |   |   |
| Contractual  Obligations |       | 750,000                                              |       | 250,000 |   | 250,000 |   | 500,000 |   | 4,000,000 |   |
|                     |       |                                                 |       |   |   |   |   |   |   |   |   |
| Total                    |       | $                                                    | 1,693,429  |   | $ | 623,988 |   | $ | 431,391 |   | $ | 500,000 |   | $ | 4,000,000 |   |

 

The contractualobligations relate to minimum payments due under our license agreement withSRI.

***Off-balancesheet arrangements***

We have no off-balancesheet arrangements.

***Subsequent Events***

As disclosed in the our current report on Form 8-K, filed on July 16, 2007, On July 13, 2007, we announced that Dr. Andrew N. Schiff and Mr. Steven A. Elms resigned from the Board of Directors, effective as of July 13, 2007.  Their resignations as board members were not the result of any disputes or disagreements relating to the operations, policies or practices of Bioenvision.

As disclosed in our current report on Form 8-K, filed on July 27, 2007, effective as of July 27, 2007, the Company terminated the employment of David P. Luci, Bioenvision, Inc.’s Executive Vice President, General Counsel and Secretary effective as of July 27, 2007. 

As disclosed in ourcurrent report on Form 8-K, filed on August 16, 2007,  On August 16, 2007, we announced that, in connectionwith the status of our application to the EMEA to include a new indication forclofarabine for the treatment of adult AML in****elderly****patients who have one or more of the following: adversecytogenetics, secondary AML, > 70 years old or significantco-morbidities and who are therefore not considered suitable for intensivechemotherapy, the EMEA has agreed to accept supplemental information from us byNovember 16, 2007.  This timeframe will enable us to prepare a morecomprehensive response to the EMEA, including interim data from the ongoing,multicenter AML-16 trials that have been initiated by the National CancerResearch Institute (“NCRI”) in the U.K.  We currently anticipate that inDecember 2007 the EMEA will provide its assessment report and that in January2008 the EMEA will either provide us with an opinion on whether or not we willbe granted marketing authorization of clofarabine for this new indication orprovide us with a second RSI.  It shouldbe noted that the foregoing may be subject to change and the EMEA’s assessmentreport and opinion may require us to provide further data and/or to attend anoral explanation. The opinion of the EMEA is also required to be adopted by theEuropean Commission as a pre-condition to the grant of marketing authorizationof clofarabine for the treatment of adult AML.  In addition, inrelation to our variation application to include this new indication, the EMEAhas requested that data from the ongoing AML-16 trials be provided.  TheAML-16 trials, sponsored by the NCRI, randomize clofarabine against thestandard of care (low-dose cytarabine) for the treatment of elderly patientswith adult AML who are not considered suitable for intensive chemotherapy. We believe we will be able to make data from these trials available tothe EMEA by November 2007.  There can be no assurances, however, that thisdata will be made available to us for its application.  The AML-16 trialswill not be 

40

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fully enrolled at thetime of submission of our response to the EMEA and there can be no assurancesthat interim data will be satisfactory, or that the data itself will besupportive of our application.  Further, if the EMEA does not accept thisdata, we may have to run an additional randomized study.

As disclosedin our current report on Form 8-K, filed on August 16, 2007, onAugust 31, 2007, we announced that, on or about August 22, 2007, David P. Luci, our formerGeneral Counsel, filed an action in New York State Supreme Court, New YorkCounty purporting to assert claims against us, our Chief Financial Officer andcertain current and former Directors of Bioenvision. The Complaint purports toallege, among other things, that we breached contractual and other obligationsallegedly owed to him in connection with the termination of his employment withus, and purports to demand damages, in the aggregate, of $108,400,000. Webelieve that the action is without merit and intend to mount a vigorousdefense.

OnSeptember 7, 2007, we filed a definitive proxy statement onSchedule 14A, whereby we announced that a Special Meeting of our stockholdersis currently scheduled for October 4, 2007, to vote on the proposed mergerwith Genzyme.

***Recent Accounting Pronouncements***

In June 2007, theEmerging Issues Task Force (“EITF”) issued EITF 07-3, “Accounting forNonrefundable Advance Payments for Goods or Services to Be Used in FutureResearch and Development Activities” (“EITF 07-3”).  EITF 07-3 addressesthe diversity that exists with respect to the accounting for the non-refundableportion of a payment made by a research and development entity for futureresearch and development activities.  The EITF concluded that an entitymust defer and capitalize non-refundable advance payments made for research anddevelopment activities and expenses these amounts as the related goods aredelivered or the related services are performed.  EITF 07-3 is effective forinterim or annual reporting periods in fiscal years beginning after December15, 2007.  We are currently evaluating the impact of adopting EITF 07-03on its financial statements and results of operations. 

In February 2007,Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS) No. 159, “The Fair Value Option for FinancialAssets and Financial Liabilities- Including an amendment of FASB Statement No.115” (“SFAS 159”).  SFAS 159 expands theuse of fair value accounting but does not affect existing standards whichrequire assets and liabilities to be carried at fair value.  Under SFAS 159, a company may elect to usefair value to measure accounts and loans receivable, available-for- sale andheld-to-maturity securities, equity method investments, accounts payable,guarantees, issued debt and other eligible financial instruments.  SFAS 159 is effective for fiscal yearsbeginning after November 15, 2007 and we are currently evaluating its impact.

InDecember 2006, the FASB issued a FASB Staff Position (“FSP”) EmergingIssues Task Force (“EITF”) Issue No. 00-19-2 “Accounting for RegistrationPayment Arrangements” (“FSP 00-19-2”) which addresses an issuer’s accountingfor registration payment arrangements. FSP 00-19-2 specifies that the contingent obligation to make futurepayments or otherwise transfer consideration under a registration paymentarrangement, whether issued as a separate agreement or included as a provisionof a financial instrument or other agreement, should be separately recognizedand measured in accordance with FASB Statement No.5 “Accounting forContingencies”. The guidance in FSP 00-19-2 amends FASB StatementsNo. 133, “Accounting for Derivative Instruments and Hedging Activities”,and FASB Statement No.150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity”, and FASB InterpretationNo. 45, “Guarantor’s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness of Others” to includescope exceptions for registration payment arrangements.  FSP 00-19-2 is effective immediately forregistration payment arrangements and the financial instruments subject tothose arrangements that are entered into or modified subsequent to the date ofissue of this FSP 00-19-2. For registration payment arrangements and financialinstruments subject to those arrangements that were entered into prior to theissuance of FSP 00-19-2, this is effective for financial statements issued forfiscal years beginning after December 15, 2006, and interim periods withinthose fiscal years.   We have analyzedthe provisions of FSP 00-19-2 and determined that it will not have a materialeffect on our consolidated financial statements. 

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In September 2006,the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS157 defines fair value, establishes a framework for measuring fair value inaccordance with generally accepted accounting principles and expandsdisclosures about fair value measurements. The provisions of SFAS 157 areeffective for fiscal years beginning after November 15, 2007. We arecurrently evaluating the impact, if any, of the provisions of SFAS 157. 

In September 2006,the Securities and Exchange Commission (“SEC”) issued Staff AccountingBulleting No. 108 (“SAB 108”). SAB 108 provides interpretive guidance onhow the effects of the carryover or reversal of prior year misstatements shouldbe considered in quantifying a potential current year misstatement. Prior toSAB 108, companies might evaluate the materiality of financial statementmisstatements using either the income statement or balance sheet approach, withthe income statement approach focusing on new misstatements added in thecurrent year, and the balance sheet approach focusing on the cumulative amountof misstatement present in a company’s balance sheet. Misstatements that wouldbe material under one approach could be viewed as immaterial under anotherapproach, and not be corrected. SAB 108 now requires that companies viewfinancial statement misstatements as material if they are material according toeither the income statement or balance sheet approach. We have adopted SAB 108and determined that it did not have an impact on our reported results ofoperations or financial position.

In June 2006, theFASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes – an interpretation of FASB Statement No. 109” (“FIN 48”). ThisInterpretation clarifies the accounting for uncertainty in income taxesrecognized in an enterprise’s financial statements in accordance with FASBStatement No. 109, Accounting for Income Taxes. This Interpretation prescribes that a company should use a more likelythan not recognition threshold based on the technical merits of the taxposition taken.  Tax positions that meetthe more likely than not recognition threshold should be measured in order todetermine the tax benefit to be recognized in the financial statements. FIN 48is effective in fiscal years beginning after December 15, 2006.  We are currently evaluating the impact, ifany, of the provisions of FIN 48.

**Item7A.  Quantitative and QualitativeDisclosures About Market Risk**

Our excess cash is invested in money market accountsand Certificates of Deposit with various short-term maturities. We hold noderivative financial instruments and we do not currently engage in hedgingactivities.  As of June 30, 2007, we donot have any outstanding debt. Accordingly, due to the maturity and credit quality of our investments,we are not subjected to any substantial risk arising from changes in interestrates, currency exchange rates and commodity and equity prices.  However, we do have some exposure to foreigncurrency rate fluctuations arising from maintaining an office for our U.K.based, wholly-owned subsidiary which transacts business in the local functionalcurrency, as well some exposure to foreign currency rate fluctuations arisingfrom maintaining an office for our Japan based wholly-owned subsidiary whichtransacts business in the local currency. Management periodically reviews such foreign currency risk and to datehas not undertaken any foreign currency hedges through the use of forwardexchange contracts or options and does not foresee doing so in the near future.

**Item 8. Financial Statements and Supplementary Data**

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 9. Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure**

None

**Item 9A.  Controls and Procedures**

*Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures*

As of the end ofthe period covered by this annual report, we carried out an evaluation, underthe supervision and with the participation of our management, including ourChief Executive Officer and Chief 

42

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Financial Officer,of the effectiveness of the design and operation of our disclosure controls andprocedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)and 15d-15(e)). Based upon the foregoing evaluation, our Chief ExecutiveOfficer and Chief Financial Officer have concluded that our disclosure controlsand procedures are effective to ensure that information required to bedisclosed by us in the reports that we file or submit under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the rules and forms of the Securities and Exchange Commission.

*Management’sReport on Internal Control Over Financial Reporting*

Our management isresponsible for establishing and maintaining adequate internal control overfinancial reporting and for the assessment of the effectiveness of internalcontrol over financial reporting. As defined by the Securities and ExchangeCommission, internal control over financial reporting is a process designed by,or under the supervision of our principal executive and principal financialofficers and effected by our Board of Directors, management and otherpersonnel, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of the consolidated financialstatements in accordance with U.S. generally accepted accounting principles.

Our internalcontrol over financial reporting includes those policies and procedures that(1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect our transactions and dispositions of our assets;(2) provide reasonable assurance that transactions are recorded as necessary topermit preparation of the consolidated financial statements in accordance withgenerally accepted accounting principles, and that our receipts andexpenditures are being made only in accordance with authorizations of ourmanagement and directors; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use or dispositionof our assets that could have a material effect on the consolidated financialstatements.

Because of itsinherent limitations, internal control over financial reporting may not preventor detect misstatements. Also, projections of any evaluation of effectivenessto future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

In connection withthe preparation of our annual consolidated financial statements, management hasundertaken an assessment of the effectiveness of our internal control overfinancial reporting as of June 30, 2007, based on criteria established inInternal Control - Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission, or the COSO Framework. Management’sassessment included an evaluation of the design of our internal control overfinancial reporting and testing of the operational effectiveness of thosecontrols.

Based on thisevaluation, management has concluded that our internal control over financialreporting was effective as of June 30, 2007, in that they ensure thatinformation required to be disclosed by us in the reports that we file orsubmit under the Exchange Act is (1) recorded, processed, summarized andreported within the time periods specified in the Commission’s rules and forms,and (2) accumulated and communicated to our management, including ourchief executive officer and chief financial officer, as appropriate to allowtimely decisions regarding required disclosure.

J.H. Cohn LLP, theindependent registered public accounting firm that audited our consolidatedfinancial statements included elsewhere in our report on Form10-K, has issuedtheir report on management’s assessment of and the effectiveness of internalcontrol over financial reporting, a copy of which is included below.

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**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

The Board of Directors and Stockholders ofBioenvision, Inc.:

We have auditedmanagement’s assessment, included in the accompanying “Management’s Report onInternal Control Over Financial Reporting”, that Bioenvision, Inc. andSubsidiaries (“Bioenvision”) maintained effective internal control overfinancial reporting as of June 30, 2007, based on criteria established inInternal Control – Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). Bioenvision’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting. Our responsibility is to express an opinion on management’sassessment and an opinion on the effectiveness of Bioenvision’s internalcontrol over financial reporting based on our audit.

We conducted ouraudit in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether effectiveinternal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal controlover financial reporting, evaluating management’s assessment, testing andevaluating the design and operating effectiveness of internal control, andperforming such other procedures as we consider necessary in the circumstances.We believe that our audit provides a reasonable basis for our opinion.

A company’sinternal control over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withaccounting principles generally accepted in the United States of America. Acompany’s internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, in reasonabledetail, accurately and fairly reflect the transactions and dispositions of theassets of the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements inaccordance with accounting principles generally accepted in the United Statesof America, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use, or disposition of the company’sassets that could have a material effect on the financial statements.

Because of itsinherent limitations, internal control over financial reporting may not preventor detect misstatements. Also, projections of any evaluation of effectivenessto future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

In our opinion,management’s assessment that Bioenvision maintained effective internal controlover financial reporting as of June 30, 2007, is fairly stated, in all materialrespects, based on criteria established in Internal Control – IntegratedFramework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). Also in our opinion, Bioenvision maintained, in all materialrespects, effective internal control over financial reporting as of June 30,2007, based on criteria established in Internal Control – Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO).

We have alsoaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the June 30, 2007 consolidated balance sheetand related consolidated statements of operations, stockholders’ equity,comprehensive loss and cash flows of Bioenvision and our report dated August31, 2007 expressed an unqualified opinion on those statements.
| /s/ J.H. Cohn LLP    |
|----------------------|
|                 |
|                 |
| Roseland, New Jersey |
| August 31, 2007      |

 

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*Changesin Internal Controls*

There have not been any changes in our internal control over financial reporting during the fiscal quarter ended June 30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

**Item 9B.  Other Information.**

None.

**PART III**

**Item10.  Directors and Executive Officers ofthe Registrant**

Pursuant toParagraph G(3) of the General Instructions to Form 10-K, the informationrequired by Part III (Items 10, 11, 12 , 13 and 14) is being incorporated byreference herein from our definitive proxy statement (or an amendment to ourAnnual Report on Form 10-K) to be filed with the Securities and ExchangeCommission within 120 days of the end of the fiscal year ended June 30, 2007 inconnection with our 2007 Annual Meeting of Stockholders.

**Item11.  Executive Compensation**

See Item 10.

**Item 12.Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters**

See Item 10.

**Item13.  Certain Relationships and RelatedTransactions**

See Item 10.

**Item 14.Principal Accountant Fees and Services**

See Item 10.

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**PART IV**

**Item 15.Exhibits, Financial Statement Schedules**
|        |   | (a) The following documents are being filed as  part of this report:                                                       |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                            |
|   |   | Reference is made to  the Index to Consolidated Financial Statements of Bioenvision appearing on  page F-1 of this report. |

 
|        |   | *(2) Consolidated Financial  Statement Schedules*                                                                                                                                                                                                                                                                          |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                            |
|   |   | The following  consolidated financial statement schedule of Bioenvision for each of the  years ended June 30, 2007, 2006 and 2005, is filed as part of this  Annual Report on Form 10-K and should be read in conjunction with the  Consolidated Financial Statements, and the related notes thereto, of Bioenvision. |

 
|                                                                 | ** ** | **Page**   |
|-----------------------------------------------------------------|------------|------------|
|                                                            | ** ** | **Number** |
|                                                            |       |       |
| Schedule II — Valuation and Qualifying  Accounts |       | S-2        |

 
|  |   | *(3) Exhibits:* |
|--|--------|----------------------|

 
| 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.  (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.)           |
| 2.2              |       | 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. (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.)                                                     |
| 2.3              |       | Agreement and Plan of Merger, dated as of May 29,  2007, by and among Genzyme Corporation, a Massachusetts corporation, Wichita  Bio Corporation, a Delaware corporation, and Bioenvision, Inc., a Delaware  corporation. (Incorporated by reference and filed as an Exhibit to  Registrant’s Current Report on Form 8-K, filed with the SEC on May 29, 2007.) |
| 2.4              |       | Amendment #1 to Agreement and Plan of Merger, dated  as of August 8, 2007, by and among Genzyme Corporation, a Massachusetts  corporation, Wichita Bio Corporation, a Delaware corporation, and  Bioenvision, Inc., a Delaware corporation. (filed herewith.)                                                                                                       |
| 3.1              |       | Certificate of Incorporation of Registrant. (filed  herewith.)                                                                                                                                                                                                                                                                                                      |
| 3.1(a)           |       | Amendment to Certificate of Incorporation filed  January 29, 1999. (Incorporated by reference and filed as an Exhibit to  Registrant’s Form 10-KSB/A filed with the SEC on October 18, 1999.)                                                                                                                                                                  |
| 3.1(b)           |       | Certificate of Correction to the Certificate of  Incorporation, filed March 15, 2002. (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.)                                                                                                                                    |
| 3.1(c)           |       | Certificate of Amendment to the Certificate of Incorporation,  filed April 30, 2002. (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.)                                                                                                                                      |
| 3.1(d)           |       | Certificate of Designations, Preferences and Rights  of Series A Preferred. (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.)                                                                                                                                               |
| 3.1(e)           |       | Certificate of Amendment to the Certificate of  Incorporation, filed January 14, 2004. (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.)                                                                                                               |
| 3.2              |       | Amended and Restated By-Laws of the Registrant.  (Incorporated by reference and filed as an                                                                                                                                                                                                                                                                         |

 

46

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|      |   | Exhibit to Registrant’s Quarterly Report on Form  10-QSB for the three-month period ended December 31, 2002.)                                                                                                                                                                                                                                                                                         |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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. (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.)  |
| 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. (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.) |
| 4.3  |   | Form of Securities Purchase Agreement by and among  Bioenvision, Inc. and certain purchasers, dated as of May 7, 2002.  (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.)                                                                                                                                          |
| 4.4  |   | Form of Registration Rights Agreement by and among  Bioenvision, Inc. and certain purchasers, dated as of May 7, 2002.  (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.)                                                                                                                                          |
| 4.5  |   | Form of Warrant. (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.)                                                                                                                                                                                                                                                |
| 4.6  |   | Registration Rights Agreement, dated April 2, 2003,  by and between Bioenvision, Inc. and RRD International, LLC. (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.)                                                                                                                              |
| 4.7  |   | Warrant, dated April 2, 2003, made by Bioenvision,  Inc. in favor of RRD International, LLC. (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.)                                                                                                                                                   |
| 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. (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.)                                                                                                  |
| 4.9  |   | Registration Rights Agreement, dated March 22, 2004,  by and between Bioenvision, Inc. and the Investors set forth on Schedule I  thereto. (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.)                                                                                                                     |
| 4.10 |   | Form of Warrant. (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.)                                                                                                                                                                                                                                              |
| 4.11 |   | Bioenvision, Inc. 2003 Stock Incentive Plan.  (Registrant’s definitive proxy statement on Schedule 14-A, filed in  connection with the annual meeting held on January 14, 2004.)                                                                                                                                                                                                                      |
| 4.12 |   | Form of Tender and Voting Agreement, by and among  Genzyme Corporation, Wichita Bio Corporation and certain stockholders of  Bioenvision, Inc. (Incorporated by reference and filed as an Exhibit to  Registrant’s Current Report on Form 8-K, filed with the SEC on May 29, 2007.)                                                                                                                   |
| 10.1 |   | Pharmaceutical Development Agreement, dated as of  June 10, 2003, by and between Bioenvision, Inc. and Ferro Pfanstiehl  Laboratories, Inc. (Incorporated by reference and filed as an Exhibit to  Registrant’s Annual Report on Form 10-KSB for the fiscal year ended June 30,  2003.)                                                                                                               |
| 10.2 |   | Co-Development Agreement between Bioheal, Ltd. and  Christopher Wood dated May 19, 1998. (Incorporated by reference and filed as  an Exhibit to Registrant’s Form 10-KSB/A filed with the SEC on October 18,  1999.)                                                                                                                                                                                  |
| 10.3 |   | Master Services Agreement, dated May 14, 2003, by  and between PennDevelopment Pharmaceutical Services Limited and Bioenvision,  Inc. (Incorporated by reference and filed as an Exhibit to Registrant’s  Annual Report on Form 10-KSB for the fiscal year ended June 30, 2003.)                                                                                                                      |
| 10.4 |   | Co-Development Agreement between Stegram  Pharmaceuticals, Ltd. And Bioenvision, Inc. dated July 15, 1998.  (Incorporated by reference and filed as an Exhibit to Registrant’s Form  10-KSB/A filed with the SEC on October 18, 1999.)                                                                                                                                                                |
| 10.5 |   | Co-Development Agreement between Southern Research  Institute and Eurobiotech Group, Inc. dated August 31, 1998. (Incorporated by  reference and filed as an Exhibit to Registrant’s Form                                                                                                                                                                                                             |

 

47

----

 
|         |   | 10-KSB/A filed with the SEC on October 18, 1999.)                                                                                                                                                                                                                                                                 |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.5(a) |   | Agreement to Grant License from Southern Research  Institute to Eurobiotech Group, Inc. dated September 1, 1998. (Incorporated  by reference and filed as an Exhibit to Registrant’s Form 10-KSB/A filed with  the SEC on October 18, 1999.)                                                                 |
| 10.6    |   | License and Sub-License Agreement, dated as of May  13, 2003, by and between Bioenvision, Inc. and Dechra Pharmaceuticals, plc.  (Incorporated by reference and filed as an Exhibit to Registrant’s Annual  Report on Form 10-KSB for the fiscal year ended June 30, 2003.)                                  |
| 10.7    |   | Employment Agreement between Bioenvision, Inc. and  Christopher B. Wood, M.D., dated December 31, 2002. (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.)                                            |
| 10.8    |   | Employment Agreement between Bioenvision, Inc. and  David P. Luci, dated March 31, 2003. (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.)                                                              |
| 10.9    |   | Securities Purchase Agreement with Bioaccelerate Inc  dated March 24, 2000. (Incorporated by reference and filed as an Exhibit to  Registrant’s Form 10-KSB filed with the SEC on November 13, 2000.)                                                                                                        |
| 10.10   |   | Engagement Letter Agreement, dated as of November  16, 2001, by and between Bioenvision, Inc. and SCO Securities LLC.  (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.)                                               |
| 10.11   |   | Security Agreement, dated as of November 16, 2001,  by Bioenvision, Inc. in favor of SCO Capital Partners LLC. (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.)                                                      |
| 10.12   |   | Commitment Letter, dated November 16, 2001, by and  between SCO Capital Partners LLC and Bioenvision, Inc. (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.)                                                          |
| 10.13   |   | Senior Secured Grid Note, dated November 16, 2001,  by Bioenvision, Inc. in favor of SCO Capital Partners LLC. (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.)                                                      |
| 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. (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.) |
| 10.15   |   | License Agreement by and between Oklahoma Medical Research  Foundation and bridge Therapeutic Products, Inc., dated as of January 1,  1998. (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.)                            |
| 10.16   |   | Amendment No. 1 to License Agreement by and among  Oklahoma Medical Research Foundation, Bioenvision, Inc. and Pathagon, Inc.,  dated May 7, 2002. (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.)                    |
| 10.17   |   | Inter-Institutional Agreement between  Sloan-Kettering Institute for Cancer Research and Southern Research  Institute, dated as of August 31, 1998. (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.)                   |
| 10.18   |   | License Agreement between University College London  and Bioenvision, Inc., dated March 1, 1999. (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.)                                                                      |
| 10.19   |   | Research Agreement between Stegram Pharmaceuticals  Ltd., Queen Mary and Westfield College and Bioenvision, Inc., dated June 8,  1999. (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.)                                 |
| 10.20   |   | Research and License Agreement between Bioenvision,  Inc., Velindre NHS Trust and University College Cardiff Consultants, dated as  of January 9, 2001. (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.)               |
| 10.21   |   | Co-Development Agreement, between Bioenvision, Inc.  and ILEX Oncology, Inc., dated March 9, 2001. (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.)                                                                    |
| 10.22   |   | Amended and Restated Agreement and Plan of Merger,  dated as of February 1, 2002, among                                                                                                                                                                                                                           |

 

48

----

 
|       |   | Bioenvision, Inc., Bioenvision Acquisition Corp. and  Pathagon Inc. (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.)                                                                                                                    |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.23 |   | Master Services Agreement, dated as of April 2,  2003, by and between Bioenvision, Inc. and RRD International, LLC.  (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.)                                                    |
| 10.24 |   | Employment Agreement between Bioenvision Limited and  Hugh Griffith, effective as of October 23, 2002. (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.)                                                             |
| 10.25 |   | Employment Agreement between Bioenvision Limited and  Ian Abercrombie, effective as of January 6, 2003. (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.)                                                            |
| 10.26 |   | Amendment # 2 to the Co-Development Agreement  between Bioenvision and ILEX Oncology, Inc. dated December 30, 2003.  (Incorporated by reference and filed as an Exhibit to Registrant’s Annual  Report on Form 10-KSB, filed with the SEC on October 13, 2005.)                                                               |
| 10.27 |   | Amendment to the Co-Development Agreement between  Bioenvision, Inc. and SRI, dated as of March 12, 2001. (Incorporated by  reference and filed as an Exhibit to Registrant’s Annual Report on Form  10-KSB, filed with the SEC on October 13, 2005.)                                                                         |
| 10.28 |   | Letter Agreement For Co-Development Of An Oral  Clofarabine Formulation and First Amendment to Co-Development Agreement dated  March 12, 2001 between Bioenvision, Inc. and ILEX. (Incorporated by reference  and filed as an Exhibit to Registrant’s Annual Report on Form 10-KSB, filed  with the SEC on October 13, 2005.) |
| 10.29 |   | Joinder made by Bioenvision, Inc., dated February  26, 2004. (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, 2005.)                                                                                                       |
| 10.30 |   | Supply Agreement-Trilostane, by and among, Stegram  Pharmaceuticals, Bioenvision, Inc., Dechra Ltd. and Sterling SNIFF, dated as  of August 12, 2005. (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, 2005.)              |
| 10.31 |   | Supply Agreement-Trilostane, by and among, Stegram  Pharmaceuticals, Bioenvision, Inc., Dechra Ltd. and Steroid SpA, dated as of  August 12, 2005. (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, 2005.)                 |
| 10.32 |   | Amendment to Employment Agreement, by and between  Bioenvision and David P. Luci, dated February 6, 2006. (Incorporated by  reference and filed as an Exhibit to Registrant’s Current Report on Form 8-K,  filed with the SEC on February 10, 2006.)                                                                          |
| 10.33 |   | Clofarabine Marketing and Development Agreement, by  and between Bioenvision Inc. and Mayne Pharma Limited, dated March 24, 2006.  (Incorporated by reference and filed as an Exhibit to Registrant’s Quarterly  Report on Form 10-Q, for the three month period ended March 31, 2006.)                                       |
| 10.34 |   | License Agreement by and between Southern Research  Institute and Bioenvision, Inc., dated September 12, 2006. (Incorporated by  reference and filed as an Exhibit to Registrant’s Quarterly Report on Form 10-Q,  for the three month period ended September 30, 2006.)                                                      |
| 10.35 |   | Employment Agreement by and between the Company and  James S. Scibetta, dated November 27, 2006. (Incorporated by reference and  filed as an Exhibit to the Registrant’s Current Report on Form 8-K, filed  with the SEC on November 30, 2006.)                                                                               |
| 10.36 |   | Amendment to Clofarabine Marketing and Development  Agreement, by and between Bioenvision Inc. and Mayne Pharma Limited, dated  November 2, 2006. (Incorporated by reference and filed as an Exhibit to Registrant’s  Quarterly Report on Form 10-Q, for the three month period ended December 31,  2006.)                    |
| 10.37 |   | Entrustment Agreement, by and between Bioenvision  JapanCo Ltd. and Yoshimaru Yamamoto, dated January 31, 2007. (Incorporated by  reference and filed as an Exhibit to the Registrant’s Current Report on Form  8-K, filed with the SEC on February 6, 2007.)                                                                 |

 

49

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| 10.38  |   | Compromise Agreement by and between Bioenvision  Limited and Dr. Andrew Saunders, dated April 20, 2007. (Incorporated by reference  and filed as an Exhibit to the Registrant’s Current Report on Form 8-K, filed  with the SEC on April 26, 2007.)                                                                                                                  |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.39  |   | Second Amendment to Co-Development Agreement, dated  as of May 24, 2007, by and between the Company and Southern Research  Institute. (Incorporated by reference and filed as an Exhibit to the  Registrant’s Current Report on Form 8-K, filed with the SEC on May 25, 2007.)                                                                                       |
| 10.40  |   | Amendment No. 1 to Rights Agreement, dated as  of May 30, 2007, by and between American Stock Transfer & Trust Company,  a New York banking corporation, and Bioenvision, Inc., a Delaware  corporation. (Incorporated by reference and filed as an Exhibit to the  Registrant’s Current Report on Form 8-K, filed with the SEC on May 30, 2007.) |
| 10.41* |   | Research Agreement for Investigator Sponsored  Clinical Trial, dated as of July 12, 2006, by and between Bioenvision Limited  and Cardiff University. (filed herewith.)                                                                                                                                                                                                   |
| 10.42* |   | Research Agreement for Investigator Sponsored  Clinical Trial, dated as of August 11, 2006, by and between Bioenvision  Limited and Cardiff University. (filed herewith.)                                                                                                                                                                                                 |
| 14.1   |   | Bioenvision Inc.’s Code of Business Conduct and  Ethics. (Incorporated by reference and filed as an Exhibit to Registrant’s  Annual Report on Form 10-KSB for the year ended June 30, 2004.)                                                                                                                                                                    |
| 16.1   |   | Letter from Graf Repetti & Co., LLP to the  Securities and Exchange Commission, dated September 30, 1999. (Incorporated  by reference and filed as an Exhibit to the Registrant’s Current Report on  Form 8-K, filed with the SEC on October 1, 1999.)                                                                                                           |
| 16.2   |   | Letter from Ernst & Young LLP Letter from Ernst  & Young to the Securities and Exchange Commission, dated July 6, 2001.  (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.)                                                                                             |
| 16.3   |   | Letter from Ernst & Young LLP to the Securities  and Exchange Commission, dated August 16, 2001. (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.)                                                                                                                       |
| 16.4   |   | Letter from Grant Thornton LLP to the Securities and  Exchange Commission , dated April 7, 2005. (Incorporated by reference and  filed as an Exhibit to Registrant’s Current Report on Form 8-K, filed with  the SEC on April 7, 2005.)                                                                                                                              |
| 16.5   |   | Letter from Deloitte & Touche LLP to the  Securities and Exchange Commission, dated January19, 2006. (Incorporated by  reference and filed as an Exhibit to Registrant’s Current Report on Form 8-K,  filed with the SEC on January 20, 2006.)                                                                                                                   |
| 21.1   |   | Subsidiaries of the registrant (filed herewith.)                                                                                                                                                                                                                                                                                                                          |
| 23.1   |   | Consent of Independent Registered Public Accounting  Firm (filed herewith.)                                                                                                                                                                                                                                                                                               |
| 23.2   |   | Consent of Prior Independent Registered Public  Accounting Firm (filed herewith.)                                                                                                                                                                                                                                                                                         |
| 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. (filed herewith.)                                                                                                                                                                                                                  |
| 31.2   |   | Certification of James S.  Scibetta, Chief Accounting Officer, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. (filed herewith.)                                                                                                                                                                                                                   |
| 32.1   |   | Certification of Chief  Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith.)                                                                                                                                                                                                    |
| 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.                                                                                                                                                                                                                     |

 

----

* Portions of thisexhibit have been omitted and filed separately with the Securities and ExchangeCommission pursuant to a confidential treatment request under Rule 24b-2 of theSecurities and Exchange Act of 1934, as amended.

50

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SIGNATURESAND POWER OF ATTORNEY

In accordance with Section 13 or 15(d) ofthe Exchange Act, the registrant caused this report to be signed on its behalfby the undersigned on September 12, 2007, 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) |
|        |                   |  |  |  |

 

Each person whose signature appears belowhereby constitutes and appoints either Christopher B. Wood, or James S.Scibetta his true and lawful attorney-in-fact and agent, with full power ofsubstitution and resubstitution, for him and in his name, place and stead, in anyand all capacities, to sign any and all amendments to this report, and to filethe same, with exhibits thereto and other documents in connection therewith,with the Securities and Exchange Commission, hereby ratifying all that saidattorney-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 theExchange Act, this report has been signed by the following persons in thecapacities and on the dates indicated.
| Signature                            | ** ** | **Title**                      | ** **                            | **Date**   |
|--------------------------------------|------------|--------------------------------|---------------------------------------|------------|
| ** **                           | ** ** | ** **                     | ** **                            | ** ** |
|  /s/  Christopher B. Wood, M.D. |       |                           | Chairman, Chief Executive Officer and |       | September 12, 2007 |
| Christopher B. Wood, M.D.            |       | Director                       |                                  |       |
|                                 |       | (Principal Executive Officer)  |                                  |       |
|                                 |       |                           |                                  |       |
|  /s/ James S.  Scibetta         |       |                           | Chief Financial Officer               |       | September 12, 2007 |
| James S. Scibetta                    |       | (Principal Financial Officer)  |                                  |       |
|                                 |       |                           |                                  |       |
|  /s/ Lauren  Bullaro            |       |                           | Chief Accounting Officer              |       | September 12, 2007 |
| Lauren Bullaro                       |       | (Principal Accounting Officer) |                                  |       |
|                                 |       |                           |                                  |       |
|  /s/ Thomas S.  Nelson          |       |                           | Director                              |       | September 12, 2007 |
| Thomas S. Nelson, C.A.               |       |                           |                                  |       |
|                                 |       |                           |                                  |       |
| /s/ Michael Kauffman                 |       |                           |  Director                        |       | September 12, 2007 |
| Michael Kauffman                     |       |                           |                                  |       |
|                                 |       |                           |                                  |       |
|  /s/ Joseph  Cooper             |       |                           | Director                              |       | September 12, 2007 |
| Joseph Cooper                        |       |                           |                                  |       |
|                                      |            |                                |                                       |            |  |  |  |  |  |

 

51

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**INDEX TO CONSOLIDATED FINANCIALSTATEMENTS**
| Report of Independent  Registered Public Accounting Firm                                                 |   | F-2    |
|----------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                     |   |   |
| Report of  Prior Independent Registered Public Accounting Firm                                           |   | F-3    |
|                                                                                                     |   |   |
| Consolidated  Balance Sheets as of June 30, 2007 and 2006                                                |   | F-4    |
|                                                                                                     |   |   |
| Consolidated  Statements of Operations for the years ended June 30, 2007, 2006, and 2005                 |   | F-5    |
|                                                                                                     |   |   |
| Consolidated  Statements of Stockholders’ Equity for the years ended June 30, 2007, 2006,  and 2005 |   | F-6    |
|                                                                                                     |   |   |
| Consolidated  Statements of Comprehensive Loss for the years ended June 30, 2007, 2006, and  2005        |   | F-7    |
|                                                                                                     |   |   |
| Consolidated  Statements of Cash Flows for the years ended June 30, 2007, 2006, and 2005                 |   | F-8    |
|                                                                                                     |   |   |
| Notes to  Consolidated Financial Statements                                                              |   | F-9    |
|                                                                                                     |   |   |
| Report of  Independent Registered Public Accounting Firm                                                 |   | S-1    |
|                                                                                                     |   |   |
| Schedule II —  Valuation and Qualifying Accounts                                                    |   | S-2    |

 

F-1

----

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

The Board of Directorsand Stockholders of Bioenvision, Inc.:

We have audited theaccompanying consolidated balance sheets of Bioenvision, Inc. and Subsidiaries(the “Company”) as of June 30, 2007 and 2006, and the related consolidatedstatements of operations, comprehensive loss, stockholders’ equity and cashflows for the years then ended. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidatedfinancial statements referred to above present fairly, in all materialrespects, the financial position of Bioenvision, Inc. and Subsidiaries as ofJune 30, 2007 and 2006, and their results of operations and cash flows for theyears then ended, in conformity with accounting principles generally acceptedin the United States of America.

As discussed in Note 9,the Company is a party to multiple putative purported class action lawsuits inconnection with a proposed merger.

We also haveaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the effectiveness of the Company’s internalcontrol over financial reporting as of June 30, 2007 based on criteriaestablished in Internal Control – Integrated Framework issued by the Committeeof Sponsoring Organization of the Treadway Commission (COSO) and our reportdated August 31, 2007, expressed an unqualified opinion on management’sassessment of internal control over financial reporting and an unqualifiedopinion on the effectiveness of internal control over financial reporting.
| /s/ JH Cohn LLP      |
|----------------------|
| Roseland, New Jersey |
| August 31, 2007      |

 

F-2

----

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Stockholders of

Bioenvision, Inc.:

We have audited the accompanying consolidated statements of operations, stockholders’ equity, comprehensive loss and cash flows of Bioenvision, Inc. and subsidiaries (the “Company”) for the year ended June 30, 2005.  Our audit also included the consolidated financial statement schedule as it relates to the year ended June 30, 2005 listed in the Index at Item 15.  These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of Bioenvision, Inc. and subsidiaries for the year ended June 30, 2005, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, such financial statement schedule as it relates to the year ended June 30, 2005, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
| /s/ Deloitte & Touche LLP |
|-------------------------------|
| Parsippany, New Jersey        |
| October 12, 2005              |

 

F-3

----

**BIOENVISION, INC AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**
| ** **                                                                                                                                                                                                  | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                                                                                                                                                                                  | ** ** | **2007**          | ** ** | **2006**          | ** ** |
| ** **                                                                                                                                                                                                  | ** ** | ** **        | ** ** | ** **        | ** ** |
| *Assets*                                                                                                                                                                                                    | * *   | * *          | * *   | * *          | * *   |
| Cash and cash  equivalents                                                                                                                                                                                  |       | $                 | 43,682,624 |              | $          | 3,377,937 |   |
| Short-term  investments                                                                                                                                                                                     |       | 5,488,646         |       | 41,637,106        |       |
| Accounts  receivable, net of allowances of $863,079 and $898,714, respectively                                                                                                                              |       | 9,074,017         |       | 2,369,446         |       |
| Inventories                                                                                                                                                                                                 |       | 1,131,052         |       | 427,514           |       |
| Prepaids and  other current assets                                                                                                                                                                          |       | 1,663,004         |       | 844,810           |       |
| Total current  assets                                                                                                                                                                                       |       | 61,039,343        |       | 48,656,813        |       |
|                                                                                                                                                                                                        |       |              |       |              |       |
| Property and  equipment, net                                                                                                                                                                                |       | 320,274           |       | 273,632           |       |
| Intangible  assets, net                                                                                                                                                                                     |       | 3,355,992         |       | 7,549,520         |       |
| Goodwill                                                                                                                                                                                                    |       | 1,540,162         |       | 1,540,162         |       |
| Other assets                                                                                                                                                                                                |       | 255,281           |       | 706,840           |       |
| Deferred costs                                                                                                                                                                                              |       | 3,282,297         |       | 3,523,497         |       |
|                                                                                                                                                                                                        |       |              |       |              |       |
| Total assets                                                                                                                                                                                                |       | 69,793,349        |       | 62,250,464        |       |
|                                                                                                                                                                                                        |       |              |       |              |       |
| *Liabilities  and Stockholders’ Equity*                                                                                                                                                                | * *   | * *          | * *   | * *          | * *   |
| Liabilities:                                                                                                                                                                                                |       |              |       |              |       |
| Accounts payable                                                                                                                                                                                            |       | $                 | 227,198    |              | $          | 1,557,507 |   |
| Accrued expenses  and other current liabilities                                                                                                                                                             |       | 12,431,104        |       | 6,464,445         |       |
| Accrued dividend  payable                                                                                                                                                                                   |       | 56,404            |       | 56,404            |       |
| Deferred revenue                                                                                                                                                                                            |       | 513,662           |       | 513,662           |       |
|                                                                                                                                                                                                        |       |              |       |              |       |
| Total current  liabilities                                                                                                                                                                                  |       | 13,228,368        |       | 8,592,018         |       |
|                                                                                                                                                                                                        |       |              |       |              |       |
| Deferred revenue                                                                                                                                                                                            |       | 6,557,052         |       | 7,070,725         |       |
|                                                                                                                                                                                                        |       |              |       |              |       |
| Total liabilities                                                                                                                                                                                           |       | 19,785,420        |       | 15,662,743        |       |
|                                                                                                                                                                                                        |       |              |       |              |       |
| Commitments and  contingencies:                                                                                                                                                                             |       |              |       |              |       |
|                                                                                                                                                                                                        |       |              |       |              |       |
| Stockholders’ equity:                                                                                                                                                                                  | ** ** | ** **        | ** ** | ** **        | ** ** |
| Convertible  participating preferred stock - $0.001 par value; 20,000,000 shares  authorized; 2,250,000 issued and outstanding at June 30, 2007 and 2006,  respectively (liquidation preference $6,750,000) |       | $                 | 2,250      |              | 2,250      |   |
| Common stock -  $0.001 par value; 70,000,000 shares authorized; 55,035,739 and 41,456,616  shares issued and outstanding at June 30, 2007 and 2006, respectively                                            |       | 55,036            |       | 41,457            |       |
| Additional  paid-in capital                                                                                                                                                                                 |       | 173,022,341       |       | 133,604,996       |       |
| Accumulated  deficit                                                                                                                                                                                        |       | (122,809,349      | )          | (86,567,268       | )          |
| Receivable due  from shareholder                                                                                                                                                                            |       | —            |       | (340,606          | )          |
| Accumulated  other comprehensive loss                                                                                                                                                                       |       | (262,349          | )          | (153,108          | )          |
|                                                                                                                                                                                                        |       |              |       |              |       |
| Total  shareholders’ equity                                                                                                                                                                            |       | 50,007,929        |       | 46,587,721        |       |
|                                                                                                                                                                                                        |       |              |       |              |       |
| Total liabilities and  shareholders’ equity                                                                                                                                                            |       | $                 | 69,793,349 |              | $          | 62,250,464 |   |

 

*The accompanying notes are anintegral part of these consolidated financial statements.*

F-4

----

**BIOENVISION, INC AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFOPERATIONS**

**FOR THE YEARS ENDED JUNE 30, 2007, 2006 and 2005**
| ** **                                                                                               | ** ** | **2007**    | ** **  | **2006**    | ** ** | **2005**    | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| * *                                                                                                 | * *   | * *    | * *    | * *    | * *   | * *    | * *   |
| Revenue                                                                                                  |       |        |        |        |       |        |       |
| Product sales                                                                                            |       | $           | 15,429,189  |        | $          | 668,975     |       | $ | 611,346 |   |
| License and  royalty revenue                                                                             |       | 3,640,408   |        | 1,929,526   |       | 1,463,326   |       |
| Research and  development revenue                                                                        |       | —      |        | 2,710,571   |       | 2,576,502   |       |
|                                                                                                     |       |        |        |        |       |        |       |
| Total revenue                                                                                            |       | 19,069,597  |        | 5,309,072   |       | 4,651,174   |       |
|                                                                                                     |       |        |        |        |       |        |       |
| Costs and expenses                                                                                       |       |        |        |        |       |        |       |
| Cost of products  sold (including royalty expense of $2,889,000, $1,277,000 and $525,000,  respectively) |       | 3,450,279   |        | 1,662,975   |       | 921,262     |       |
| Research and  development                                                                                |       | 21,065,263  |        | 11,726,981  |       | 10,894,925  |       |
| Provision for  bad debts                                                                                 |       | 160,740     |        | 24,564      |       | 869,220     |       |
| Selling, general  and administrative                                                                     |       | 27,701,740  |        | 16,562,770  |       | 10,181,711  |       |
| Depreciation and  amortization                                                                           |       | 1,021,427   |        | 974,440     |       | 1,438,517   |       |
| Loss on  impairment                                                                                      |       | 3,310,905   |        | —      |       | 5,276,162   |       |
|                                                                                                     |       |        |        |        |       |        |       |
| Total costs and  expenses                                                                                |       | 56,710,354  |        | 30,951,730  |       | 29,581,797  |       |
| ** **                                                                                               | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
| Loss from operations                                                                                     |       | (37,640,757 | )           | (25,642,658 | )          | (24,930,623 | )          |
|                                                                                                     |       |        |        |        |       |        |       |
| Interest income  (expense)                                                                               |       |        |        |        |       |        |       |
| Interest and  finance charges                                                                            |       | 26,062      |        | (66,762     | )          | (79,484     | )          |
| Interest income                                                                                          |       | 1,710,114   |        | 1,810,657   |       | 747,322     |       |
|                                                                                                     |       |        |        |        |       |        |       |
| Net loss                                                                                                 |       | (35,904,581 | )           | (23,898,763 | )          | (24,262,785 | )          |
|                                                                                                     |       |        |        |        |       |        |       |
| Cumulative preferred  stock dividend                                                                     |       | (337,500    | )           | (337,500    | )          | (404,079    | )          |
|                                                                                                     |       |        |        |        |       |        |       |
| Loss applicable to  common stockholders                                                                  |       | $           | (36,242,081 | )           | $          | (24,236,263 | )          | $ | (24,666,864 | ) |
|                                                                                                     |       |        |        |        |       |        |       |
| Basic and diluted net  loss per share applicable to common stockholders                                  |       | $           | (0.80       | )           | $          | (0.59       | )          | $ | (0.72 | ) |
| Weighted-average shares used in computing basic and diluted net loss  per share of common stock          |       | 45,033,991  |        | 40,865,384  |       | 34,042,391  |       |

 

*The accompanying notes are anintegral part of these consolidated financial statements.*

F-5

----

**BIOENVISION, INC AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY**

**FOR THE YEARS ENDED JUNE 30, 2007, 2006 and 2005**
| ** **                                                                 | ** ** | **Convertible   Participating   Preferred Stock** | ** ** | **Common Stock** | ** ** | **Additional   Paid-in capital** | ** ** | **Deferred  Compen-  sation** | ** ** | **Accumulated  Deficit** | ** ** | **Receivable  from   Stockholder** | ** ** | **Accumulated  Other   Compre-  hensive   Income (Loss)** | ** ** | **Total   Stockholders’  Equity** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|-----------------------|------------|--------------------------------------------|------------|-------------------------------|------------|--------------------------|------------|-----------------------------------------|------------|--------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                 | ** ** | **Shares**                                                       | ** ** | ** **            | ** ** | **Shares**                                 | ** ** | ** **                    | ** ** | ** **               | ** ** | ** **                              | ** ** | ** **                                                               | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                 | ** ** | ** **                                                       | ** ** | ** **            | ** ** | ** **                                 | ** ** | ** **                    | ** ** | ** **               | ** ** | ** **                              | ** ** | ** **                                                               | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance at July 1, 2004                                                    |       | 3,341,666                                                        |       | $                     | 3,342      |                                       | 28,316,163 |                          | $          | 28,316                   |       | $                                       | 68,517,702 |                                                                     | $          | (223,990                                    | )          | $ | (37,664,141 | ) | $ | — |   | $ | 139,598 |   | $ | 30,800,827 |   |
| * *                                                                   | * *   | * *                                                         | * *   | * *              | * *   | * *                                   | * *   | * *                      | * *   | * *                 | * *   | * *                                | * *   | * *                                                                 | * *   | * *                                    | * *   | * * | * * | * * | * * |
| Net loss                                                                   |       |                                                             |       |                  |       |                                       |       |                          |       |                     |       |                                    |       | (24,262,785                                                              | )          |                                        |       |   |   | (24,262,785 | ) |
| Cumulative preferred  stock dividend                                       |       |                                                             |       |                  |       |                                       |       |                          |       |                     |       |                                    |       | (404,079                                                                 | )          |                                        |       |   |   | (404,079 | ) |
| Currency translation  adjustment                                           |       |                                                             |       |                  |       |                                       |       |                          |       |                     |       |                                    |       |                                                                     |       |                                        |       | (38,658 | ) | (38,658 | ) |
| Deferred compensation                                                      |       |                                                             |       |                  |       |                                       |       |                          |       |                     |       | 78,344                                  |       |                                                                     |       |                                        |       |   |   | 78,344 |   |
| Preferred stock  converted to common stock                                 |       | (1,091,666                                                       | )          | (1,092                | )          | 2,183,332                                  |       | 2,183                         |       | (1,092                   | )          |                                    |       |                                                                     |       |                                        |       |   |   | — |   |
| Income related to  re-pricing of options                                   |       |                                                             |       |                  |       |                                       |       |                          |       | (314,950                 | )          |                                    |       |                                                                     |       |                                        |       |   |   | (314,950 | ) |
| Warrants issued in  connection with services                               |       |                                                             |       |                  |       |                                       |       |                          |       | 524,928                  |       |                                    |       |                                                                     |       |                                        |       |   |   | 524,928 |   |
| Shares issued in  connection with services                                 |       |                                                             |       |                  |       | 62,500                                     |       | 63                            |       | 496,188                  |       |                                    |       |                                                                     |       |                                        |       |   |   | 496,250 |   |
| Warrants exercised for  common stock                                       |       |                                                             |       |                  |       | 1,811,120                                  |       | 1,811                         |       | 3,277,151                |       |                                    |       |                                                                     |       |                                        |       |   |   | 3,278,962 |   |
| Options exercised for  common stock                                        |       |                                                             |       |                  |       | 685,833                                    |       | 686                           |       | 707,638                  |       |                                    |       |                                                                     |       |                                        |       |   |   | 708,324 |   |
| Shares issued in  connection with public offering, net of related expenses |       |                                                             |       |                  |       | 7,500,000                                  |       | 7,500                         |       | 55,739,152               |       |                                    |       |                                                                     |       |                                        |       |   |   | 55,746,652 |   |
|                                                                       |       |                                                             |       |                  |       |                                       |       |                          |       |                     |       |                                    |       |                                                                     |       |                                        |       |   |   |   |   |
| Balance  at June 30, 2005                                                  |       | 2,250,000                                                        |       | 2,250                 |       | 40,558,948                                 |       | 40,559                        |       | 128,946,717              |       | (145,646                                | )          | (62,331,005                                                              | )          | —                                      |       | 100,940 |   | 66,613,815 |   |
|                                                                       |       |                                                             |       |                  |       |                                       |       |                          |       |                     |       |                                    |       |                                                                     |       |                                        |       |   |   |   |   |
| Net loss                                                                   |       |                                                             |       |                  |       |                                       |       |                          |       |                     |       |                                    |       | (23,898,763                                                              | )          |                                        |       |   |   | (23,898,763 | ) |
| Cumulative preferred  stock dividend                                       |       |                                                             |       |                  |       |                                       |       |                          |       |                     |       |                                    |       | (337,500                                                                 | )          |                                        |       |   |   | (337,500 | ) |
| Currency translation  adjustment                                           |       |                                                             |       |                  |       |                                       |       |                          |       |                     |       |                                    |       |                                                                     |       |                                        |       | (254,048 | ) | (254,048 | ) |
| Due from Stockholder                                                       |       |                                                             |       |                  |       |                                       |       |                          |       |                     |       |                                    |       |                                                                     |       | (340,606                                    | )          |   |   | (340,606 | ) |
| Employee and board of  director stock-based compensation                   |       |                                                             |       |                  |       |                                       |       |                          |       | 3,684,158                |       |                                    |       |                                                                     |       |                                        |       |   |   | 3,684,158 |   |
| Deferred compensation                                                      |       |                                                             |       |                  |       |                                       |       |                          |       | (136,457                 | )          | 145,646                                 |       |                                                                     |       |                                        |       |   |   | 9,189 |   |
| Options exercised for  common stock                                        |       |                                                             |       |                  |       | 491,196                                    |       | 491                           |       | 390,984                  |       |                                    |       |                                                                     |       |                                        |       |   |   | 391,475 |   |
| Warrants exercised for  common stock                                       |       |                                                             |       |                  |       | 406,472                                    |       | 407                           |       | 719,594                  |       |                                    |       |                                                                     |       |                                        |       |   |   | 720,001 |   |
|                                                                       |       |                                                             |       |                  |       |                                       |       |                          |       |                     |       |                                    |       |                                                                     |       |                                        |       |   |   |   |   |
| Balance at June 30, 2006                                                   |       | 2,250,000                                                        |       | 2,250                 |       | 41,456,616                                 |       | 41,457                        |       | 133,604,996              |       | —                                  |       | (86,567,268                                                              | )          | (340,606                                    | )          | (153,108 | ) | 46,587,721 |   |
|                                                                            |            |                                                                  |            |                       |            |                                            |            |                               |            |                          |            |                                         |            |                                                                          |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

F-6

----

 
| ** **                                                                 | ** ** | **Convertible  Participating  Preferred Stock** | ** ** | **Common Stock** | ** ** | **Additional  Paid-in capital** | ** ** | **Accumulated  Deficit** | ** ** | **Receivable  from   Stockholder** | ** ** | **Accumulated  Other  Compre-  hensive Loss** | ** **  | **Total   Stockholders’  Equity** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------|------------|--------------------------------------|------------|--------------------------|------------|-----------------------------------------|------------|----------------------------------------------------|-------------|---------------------------------------------|------------|
| ** **                                                                 | ** ** | **Shares**                                           | ** ** | ** **            | ** ** | **Shares**                           | ** ** | ** **               | ** ** | ** **                              | ** ** | ** **                                         | ** **  | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                       |       |                                                 |       |                  |       |                                 |       |                     |       |                                    |       |                                               |        |                                        |       |   |   |   |   |
| Net loss                                                                   |       |                                                 |       |                  |       |                                 |       |                     |       |                                    |       | (35,904,581                                        | )           |                                        |       |   |   | (35,904,581 | ) |
| Cumulative preferred  stock dividend                                       |       |                                                 |       |                  |       |                                 |       |                     |       |                                    |       | (337,500                                           | )           |                                        |       |   |   | (337,500 | ) |
| Currency translation  adjustment                                           |       |                                                 |       |                  |       |                                 |       |                     |       |                                    |       |                                               |        |                                        |       | (109,241 | ) | (109,241 | ) |
| Due from Stockholder                                                       |       |                                                 |       |                  |       |                                 |       |                     |       |                                    |       |                                               |        | 340,606                                     |       |   |   | 340,606 |   |
| Employee and board of  director stock-based compensation                   |       |                                                 |       |                  |       |                                 |       |                     |       | 3,415,931                               |       |                                               |        |                                        |       |   |   | 3,415,931 |   |
| Issuance of unrestricted  shares                                           |       |                                                 |       |                  |       | 31,100                               |       | 31                       |       | 153,447                                 |       |                                               |        |                                        |       |   |   | 153,478 |   |
| Warrants exercised for  common stock - cash                                |       |                                                 |       |                  |       | 4,310,999                            |       | 4,311                    |       | 8,141,520                               |       |                                               |        |                                        |       |   |   | 8,145,831 |   |
| Warrants exercised for  common stock - cashless                            |       |                                                 |       |                  |       | 1,237,024                            |       | 1,237                    |       | (1,237                                  | )          |                                               |        |                                        |       |   |   | — |   |
| Shares issued in  connection with public offering, net of related expenses |       |                                                 |       |                  |       | 8,000,000                            |       | 8,000                    |       | 27,707,684                              |       |                                               |        |                                        |       |   |   | 27,715,684 |   |
|                                                                       |       |                                                 |       |                  |       |                                 |       |                     |       |                                    |       |                                               |        |                                        |       |   |   |   |   |
| Balance at June 30, 2007                                                   |       | 2,250,000                                            |       | $                     | 2,250      |                                 | 55,035,739 |                     | $          | 55,036                                  |       | $                                                  | 173,022,341 |                                        | $          | (122,809,349 | ) | $ | — |   | $ | (262,349 | ) | $ | 50,007,929 |   |
|                                                                            |            |                                                      |            |                       |            |                                      |            |                          |            |                                         |            |                                                    |             |                                             |            |  |  |  |  |  |  |  |  |  |  |  |

 

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS**

**FOR THEYEARS ENDED JUNE 30, 2007, 2006 and 2005**

**BIOENVISION,INC AND SUBSIDIARIES**
| ** **                              | ** ** | **2007**   | ** **  | **2006**   | ** ** | **2005**    | ** ** |
|-----------------------------------------|------------|------------|-------------|------------|------------|-------------|------------|
| ** **                              | ** ** | ** ** | ** **  | ** ** | ** ** | ** **  | ** ** |
| Loss applicable to  common stockholders |       | $          | (36,242,081 | )          | $          | (24,236,263 | )          | $ | (24,666,864 | ) |
| Foreign currency  translation loss      |       | (109,241   | )           | (254,048   | )          | (38,658     | )          |
|                                    |       |       |        |       |       |        |       |
| Comprehensive Loss                      |       | $          | (36,351,322 | )          | $          | (24,490,311 | )          | $ | (24,705,522 | ) |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

F-7

----

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

**FOR THE YEARS ENDED JUNE 30,**
| ** **                                                                   | ** ** | **2007**    | ** **  | **2006**    | ** ** | **2005**    | ** ** |
|------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| * *                                                                     | * *   | * *    | * *    | * *    | * *   | * *    | * *   |
| Cash flows from  operating activities                                        |       |        |        |        |       |        |       |
| Net loss                                                                     |       | $           | (35,904,581 | )           | $          | (23,898,763 | )          | $ | (24,262,785 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |        |        |        |       |        |       |
| Depreciation and  amortization                                               |       | 1,021,427   |        | 974,440     |       | 1,438,517   |       |
| Provision for  bad debts                                                     |       | 160,740     |        | 24,564      |       | 869,220     |       |
| Stock-based  compensation                                                    |       | 3,569,409   |        | 3,693,347   |       | 793,761     |       |
| Loss on disposal                                                             |       | —      |        | 1,654       |       | —      |       |
| Loss on  impairment                                                          |       | 3,310,905   |        | —      |       | 5,276,162   |       |
| Changes in  operating assets and liabilities:                                |       |        |        |        |       |        |       |
| Accrued interest  on investments                                             |       | (904,374    | )           | (1,405,798  | )          | —      |       |
| Inventories                                                                  |       | (635,307    | )           | (143,383    | )          | (286,089    | )          |
| Prepaids and  other current assets                                           |       | (737,385    | )           | (484,937    | )          | (94,797     | )          |
| Accounts  receivable                                                         |       | (6,227,904  | )           | (574,610    | )          | (56,596     | )          |
| Other assets                                                                 |       | 489,380     |        | (482,026    | )          | (132,072    | )          |
| Deferred costs                                                               |       | 241,200     |        | 133,301     |       | 236,497     |       |
| Accounts  payable, accrued expenses and other current liabilities            |       | 3,979,653   |        | 1,720,017   |       | 3,325,964   |       |
| Deferred revenue                                                             |       | (513,673    | )           | (351,818    | )          | (525,220    | )          |
|                                                                         |       |        |        |        |       |        |       |
| Net cash used in  operating activities                                       |       | (32,150,510 | )           | (20,794,012 | )          | (13,417,438 | )          |
| ** **                                                                   | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
| Cash flows from  investing activities                                        |       |        |        |        |       |        |       |
| Purchase of  intangible assets                                               |       | —      |        | (166,926    | )          | (359,411    | )          |
| Capital  expenditures                                                        |       | (179,904    | )           | (102,535    | )          | (278,044    | )          |
| Release of  restricted cash                                                  |       | —      |        | 290,000     |       | —      |       |
| Redemption of  short-term investments                                        |       | 37,108,965  |        | 17,834,104  |       | —      |       |
| Purchase of  short-term investments                                          |       | —      |        | (25,318,463 | )          | (32,746,948 | )          |
|                                                                         |       |        |        |        |       |        |       |
| Net cash  provided by (used in) investing activities                         |       | 36,929,061  |        | (7,463,820  | )          | (33,384,403 | )          |
|                                                                         |       |        |        |        |       |        |       |
| Cash flows from financing  activities                                        |       |        |        |        |       |        |       |
| Proceeds from  issuance of common stock, net of related expenses             |       | 27,715,684  |        | —      |       | 55,746,652  |       |
| Due from  stockholder                                                        |       | 40,606      |        | (340,606    | )          | —      |       |
| Proceeds from  the exercise of options and warrants                          |       | 8,145,831   |        | 1,111,476   |       | 3,987,286   |       |
| Dividends paid                                                               |       | (337,500    | )           | (337,500    | )          | (437,816    | )          |
|                                                                         |       |        |        |        |       |        |       |
| Net cash  provided by financing activities                                   |       | 35,564,621  |        | 433,370     |       | 59,296,122  |       |
|                                                                         |       |        |        |        |       |        |       |
| Effect of exchange rate  changes on cash and cash equivalents                |       | (38,485     | )           | (205,134    | )          | 37,577      |       |
|                                                                         |       |        |        |        |       |        |       |
| Net increase (decrease)  in cash and cash equivalents                        |       | 40,304,687  |        | (28,029,596 | )          | 12,531,858  |       |
|                                                                         |       |        |        |        |       |        |       |
| Cash and cash  equivalents, beginning of year                                |       | 3,377,937   |        | 31,407,533  |       | 18,875,675  |       |
|                                                                         |       |        |        |        |       |        |       |
| Cash and cash equivalents, end of year                                       |       | $           | 43,682,624  |        | $          | 3,377,937   |       | $ | 31,407,533 |   |

 

*The accompanying notes are anintegral part of these consolidated financial statements.*

F-8

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**BIOENVISION, INC. ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**Note 1 – Description of Businessand Summary of Significant Accounting Policies**

(a) Description ofBusiness:

The Company is a product-orientated biopharmaceutical company primarily focused upon the acquisition, development, and marketing of compounds and technologies for the treatment of cancer. Its product pipeline includes Evoltra® (clofarabine) which has marketing approval in both the European Union (“E.U.”) and United States (“U.S.”) for the treatment of pediatric relapsed or refractory acute lymphoblastic leukemia, Modrenal® (trilostane), which has marketing approval in the United Kingdom (“U.K.”) for the treatment of post-menopausal breast cancer following relapse to initial hormone therapy, and other products.

On May 29, 2007, theCompany entered into an Agreement and Plan of Merger (the “Merger Agreement”)with Genzyme Corporation, our North American co-development partner for clofarabine(“Genzyme”).  We are holding a specialmeeting of our stockholders to vote on this proposed merger, ****which is currentlyscheduled for October 4, 2007****.  The merger is the second and final step inthe proposed acquisition of Bioenvision by Genzyme.  The first step wasthe tender offer for all of the outstanding common stock and all of theoutstanding preferred stock of Bioenvision, which expired on July 10,2007.  Following the tender offer and as of the date hereof, Genzymebecame a stockholder and related party of the Company.  If the merger is completed, our stockholderswill have the right to receive $5.60 in cash, without interest, for each shareof our common stock they own.

(b) Principles ofConsolidation and Use of Estimates:

The accompanyingconsolidated financial statements include the accounts of the Company and itswholly owned subsidiaries. Inter-company accounts and transactions have beeneliminated.  Certain reclassifications ofbalances previously reported have been made to conform to the current presentation.

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

(c) RevenueRecognition:

In accordance with SECStaff Accounting Bulletin No. 104 “Revenue Recognition”, or “SAB 104”, upfrontnonrefundable fees associated with research and development collaborationagreements in which the Company has continuing involvement in the agreement,are recorded as deferred revenue and recognized over the estimated research anddevelopment period using the straight-line method. If the estimated period issubsequently modified, the period over which the up-front fee is recognized ismodified accordingly on a prospective basis using the straight-linemethod.  Continuation of certaincontracts and grants are dependent upon the Company and/or its co-developmentpartners’ achieving specific contractual milestones; however, none of thepayments received to date are refundable regardless of the outcome of theproject.  Upfront nonrefundable feesassociated with licensing arrangements are recorded as deferred revenue andrecognized over the period of the licensing arrangement using the straight-linemethod, which approximates the life of the last to expire of the underlyingpatents.

Royalty revenue fromproduct licenses is recorded as earned.

F-9

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The Company currentlysells its products to hospitals, clinical trial centers and our co-developmentpartners.  Revenue from product sales isrecognized when the risk of loss is passed to the customer, the sales price isfixed and determinable, and collectibility is reasonably assured.  We record product sales net of any allowancesfor sales returns.  We estimate ourreturn reserves based on our experience of return rates on historicalsales.  Our allowance for sales returnreserves may increase or decrease in the future if our history of productreturns changes.

Research and developmentcontract revenue includes sales in our pre-commercial stage named patientprogram for Evoltra® as well as certain payments due from our co-developmentpartner relating to the reimbursement of 50% for certain of our ongoingresearch costs in the development of Evoltra® outside the United States.  Currently, the Company has billed but notrecorded approximately $4,600,000 of revenue relating to the reimbursement fromour co-development partner (Genzyme) for certain of our ongoing research costsin the development of Evoltra® outside the United States as well as anadditional $2,381,000 which we have not billed but believe is owed to us fromthis co-development partner.  If and whenthe Company has determined that collectibility is reasonably assured, theCompany will record the revenue.  Underthe co-development agreement, the Company offsets these amounts against anyroyalty which otherwise would be paid to Genzyme on our U.K. sales.  Genzyme is responsible for conducting allclinical trials and the filing and prosecution of applications with applicableregulatory authorities in the United States and Canada for certain cancerindications. The Company retains the right to handle those matters in allterritories outside the United States and Canada and retains the right to handlethese matters in the U.S. and Canada in all non-cancer indications.  The Company retained the exclusivemanufacturing and distribution rights in Europe and elsewhere worldwide, exceptfor the United States and Canada.  Underthe co-development agreement, Genzyme will have certain rights if it performsits development obligations in accordance with that agreement. Under thecircumstances, the Company is required to pay Genzyme a royalty on direct salesoutside the U.S., Canada, Japan and Southeast Asia. In turn, Genzyme, whichwould have U.S. and Canadian distribution rights in cancer indications, ispaying the Company a royalty on sales in the U.S. and Canada.  Under the terms of the co-developmentagreement, Genzyme also pays royalties to Southern Research Institute (“SRI”)based on certain milestones. The Company also is obligated to pay certainroyalties to SRI with respect to Evoltra®.

The Company follows theguidance of Emerging Issues Task Force 99-19, “Reporting Revenue Gross as aPrincipal versus Net as an Agent” in the presentation of revenue and directcosts of revenue. This guidance requires the Company to assess whether it actsas a principal in the transaction or as an agent acting on behalf of others.The Company records revenue transactions gross in its statements of operationsif it is deemed the principal in the transaction, which includes being theprimary obligor and having the risks and rewards of ownership.

(d) Research andDevelopment:

Research and developmentcosts are charged to expense as incurred. Research and development costs consist primarily of costs associatedwith determining feasibility, licensing and pre-clinical and clinical testingof our products, including salaries and related personnel costs, fees paid toconsultants and outside service providers for drug development, the cost ofEvoltra® sold prior to product approval through our named patient program andother expenses.  Also included inresearch and development costs is the financial support provided to Cardiff forthe AML 16 trials.  This financialsupport is tied to the number of patients enrolled on clofarabine.  We estimate our expense for the AML 16 trialseach reporting period based on data regarding patient enrollment received fromCardiff.

(e) Stock-based Compensation:

We account forstock-based compensation in accordance with SFAS No. 123 (revised 2004), “Share-BasedPayment” (“SFAS 123 (R)”) and utilize the Black-Scholes model to measure the value of anemployee option. The Black-Scholes model is a trading options-pricing modelthat neither considers the non-traded nature of employee stock options, nor therestrictions on such trading, the lack of transferability or the ability ofemployees to forfeit the

F-10

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options prior to expiry.If the model adequately permitted consideration of the unique characteristicsof employee stock options, the resulting estimate of the fair value of thestock options could be different.   Ourestimates of employee stock option values rely on estimates of factors we inputinto the Black-Scholes model. The key factors involve an estimate of futureuncertain events.  We determine expectedvolatility based on historical activity. We believe that these market-based inputs provide a better estimate ofour future stock price movements.  We usehistorical exercise patterns as our best estimate of the expected term of theoptions.  We utilize historical turnoverrates in estimating expected forfeitures separately for executives andnon-executives.  The risk-free rate isbased upon the U.S. Treasury yield curve in effect at the time of grant. Wehave incorporated the following assumptions into the Black Scholes model:
|                                            | ** ** | **June 30,** | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
|--------------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                 | ** ** | **2007**          | ** ** | **2006**          | ** ** | **2005**          | ** ** |
|                                       |       |              |       |              |       |              |       |
| Risk-free  interest rate                   |       | 4.43 – 4.84  | %          | 3.89 – 4.95  | %          | 2.93– 4.05   | %          |
| Expected  weighted-average term (in years) |       | 3.95              |       | 3.79              |       | 3.87              |       |
| Expected  weighted-average volatility      |       | 63                | %          | 66                | %          | 80                | %          |
| Expected  dividend yield                   |       | 0                 | %          | 0                 | %          | 0                 | %          |

 

The weighted average fairvalue per share for stock options granted to employees during years ended June30, 2007, 2006 and 2005 was $2.46, $3.63 and $4.75, respectively.

As required by SFAS 123(R), management made an estimate of expected forfeitures for all unvestedawards and is recognizing compensation costs only for those equity awardsexpected to vest.  The Company recorded,as a component of net loss, employee stock-based compensation (expense) incomeof approximately $(3,323,000), $(3,609,000) and $227,000 for the years endedJune 30, 2007, 2006 and 2005, respectively. As of June 30, 2007, the total compensation cost related to unvestedequity awards granted to employees but not yet recognized is approximately$3,568,000.  This cost will be amortized on a straight-line basis over theremaining weighted average vesting period of 1.73 years.

For the year ended June30, 2005, the Company accounted for stock-based compensation in accordance withAPB No. 25.  The following tablesummarizes the pro forma effect of stock-based compensation as if the fair valuemethod of accounting for stock options had been applied in measuringcompensation cost for the year ended June 30, 2005:
|                                                                                                                    | ** ** | **June 30,** | ** **  |
|--------------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|
| ** **                                                                                                         | ** ** | **2005**          | ** **  |
|                                                                                                               |       |              |        |
| Net loss  applicable to common stockholders, as reported                                                           |       | $                 | (24,666,864 | ) |
| Add: Stock-based  employee compensation (income) expense as reported                                               |       | (227,417          | )           |
| Deduct: Total  stock-based employee compensation expense as determined under the fair-value  method for all awards |       | (2,427,771        | )           |
|                                                                                                               |       |              |        |
| Pro forma net  loss applicable to common stockholders                                                              |       | $                 | (27,322,052 | ) |
| Loss per share                                                                                                     |       |              |        |
| Basic and  diluted – as reported                                                                              |       | $                 | (0.72       | ) |
|                                                                                                               |       |              |        |
| Basic and  diluted – pro forma                                                                                |       | $                 | (0.80       | ) |

 

F-11

----

The Company accounts forequity instruments issued to non-employees in accordance with the provisions ofSFAS 123 and EITF No. 96-18, “Accounting for Equity Instruments That Are Issuedto Other Than Employees for Acquiring, or in Conjunction with Selling Goods orServices.”  Under EITF No. 96-18, wherethe fair value of the equity instrument is more reliably measurable than thefair value of services received, such services will be valued based on the fairvalue of the equity instrument.  Weutilize the Black-Scholes model to measure the value of warrants issued toconsultants.

(f) Income Taxes:

The Company accounts forincome taxes under SFAS No. 109, “Accounting for Income Taxes”. Under SFAS 109,deferred tax assets and liabilities are determined based on the differencesbetween the financial reporting and tax basis of assets and liabilities and aremeasured using the enacted tax rates that will be in effect when thedifferences are expected to reverse.  TheCompany records a valuation allowance for certain temporary differences forwhich it is more likely than not that it will not receive future tax benefits.

(g) Net Loss per Share:

Basic net loss per shareis computed using the weighted average number of common shares outstandingduring the periods. Diluted net income per share is computed using the weightedaverage number of common shares and potentially dilutive common sharesoutstanding during the periods. All options and warrants to purchase 6,739,731,11,563,314 and 11,472,414 shares of common stock have not been included in thecalculation of net loss per share for the years ended June 30, 2007, 2006 and2005, respectively, as their effect would have been anti-dilutive.Additionally, convertible participating preferred shares that are convertibleinto 4,500,000 shares of common stock have not been included in the calculationof net loss per share for each of the years ended June 30, 2007, 2006 and 2005,respectively, as their effect would have been anti-dilutive.

(h) Comprehensive Loss:

Our comprehensive lossincludes loss applicable to common stockholders and unrealized gains (losses)from foreign currency translations to the US dollar, the reporting currency ofthe Company.

(i) Foreign CurrencyTranslation:

The reporting currency ofthe Company is the US dollar.  Thefunctional currency of Bioenvision Limited, the Company’s wholly-ownedsubsidiary, organized under the laws of the United Kingdom with offices inEdinburgh, Scotland, is the Pound Sterling. We translate assets and liabilities to their US dollar equivalents atrates in effect at the balance sheet date and record translation adjustments inaccumulated other comprehensive income (loss). We translate statement of operations accounts at average rates for theperiod.  We record adjustments relatingto our wholly-owned subsidiary, Bioenvision JapanCo., Ltd. (“JapanCo”), whosefunctional currency is the US Dollar, as transaction gains (losses) in thestatement of operations.   For the yearsended June 30, 2007, 2006 and 2005, the net foreign currency transaction gains(losses) included in selling, general and administrative expense wereapproximately $(145,000), $(2,300) and $27,000, respectively.

(j) Cash and CashEquivalents and Short-term Investments:

The Company considers allhighly-liquid financial instruments with a maturity of three months or lesswhen purchased to be cash equivalents. All funds invested in Certificates of Deposit with maturities greaterthan three months and less than one year are classified as short-termsecurities determined by management to be available-for-sale securities.

F-12

----

(k) Deferred Costs:

Deferred costs representpayments to SRI and to Stegram Pharmaceutical Ltd, which directly relate tomilestone payments received in connection with the Genzyme Co-DevelopmentAgreement, Mayne-Pharma Pharmaceutical and the Dechra Sub-LicenseAgreement.  These costs are beingamortized on a straight-line basis over the term of the contract and theamortization of these costs has been presented in research and development onthe consolidated statements of operations.

(l) AccountsReceivable and Significant Customers:

The Company’s accountsreceivable are primarily due from hospitals, clinical trial centers and ourco-development partners.  We maintain anallowance for doubtful accounts at an amount estimated to be sufficient toprovide adequate protection against losses resulting from collecting less thanthe full payment on our currently outstanding receivables. We make judgments asto our ability to collect receivables and provide allowances for the portion ofreceivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstandinginvoices.  In determining our allowances,we analyze our historical collection experience and current economictrends.  Our co-development partnercomprises approximately 15%, 33% and 62% of revenues earned for the years endedJune 30, 2007, 2006, and 2005.  Based onour evaluation of the collectibility of the accounts receivable from thiscustomer, we believe that the balance relating to research and developmentreimbursements for revenue recorded in December 2004 through March 2005 may notbe collectible. Under the terms of the co-development agreement, we haveexercised our right of offset against royalties which would otherwise be paidon our UK sales.  During the year endedJune 30, 2007, we have offset royalties due of $194,000 against the outstandingreceivable from the co-development partner and have maintained a reserve on theremaining balance of $675,000 at June 30, 2007.

The Company currentlysells clofarabine to various centers located throughout Europe which areparticipating in the AML-16 trials that have been initiated by theNational Cancer Research Institute (NCRI).  Distribution of clofarabine tothe study centers is being coordinated by a single trial center, Cardiff, whichis located in the U.K.  TheAML-16 studies include the phase I pilot intensive trial whichcommenced in December of 2005 and was completed in September of 2006, the phaseII AML-16 non-intensive trial which commenced in July of 2006 and is expectedto complete recruitment in 2008 and the phase III AML-16 intensive trialwhich commenced in August of 2006 and is expected to completerecruitment in 2009.  In order to facilitate distribution, invoicingand compiling of study reports, the Company has entered into researchagreements with Cardiff in connection with each of these trials that, amongother things, provide for the sale of clofarabine, at current marketprices, through Cardiff to the study sites.  During the years ended June30, 2007 and 2006, respectively, 40% and 27% of the Company’s revenue wasattributed to the sale of clofarabine to Cardiff.   In connection with the research agreements,the Company is obligated to provide financial support to Cardiff which isdependent on the completion of certain milestones which are due upon thereceipt of interim and final study reports.  For the years ended June 30,2007 and 2006, the Company recognized approximately $7,770,000 and $533,000,respectively, as research and development costs relating to the AML-16 trials.

 (m) Inventories:

Inventories are stated at the lower of cost or market, with cost being determined under the first-in, first-out method.  The Company only capitalizes inventory that is produced for commercial sale.  Manufacturing costs incurred to produce clofarabine prior to approval were recorded as research and development costs.  The Company periodically reviews inventory on hand.  Items considered outdated or obsolete are reduced to their estimated net realizable value.  Below is a break down of inventories at June 30, 2007 and 2006:

F-13

----

 
|                   | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
|-------------------|------------|-------------------|------------|-------------------|------------|
| ** **        | ** ** | **2007**          | ** ** | **2006**          | ** ** |
|              |       |              |       |              |       |
| Raw materials     | ** ** | **$**             | **—** |              | $          | 118,213 |   |
| Work-in-process   |       | 713,982           |       | 180,048           |       |
| Finished goods    |       | 417,070           |       | 129,253           |       |
|              |       |              |       |              |       |
| Total inventories |       | $                 | 1,131,052  |              | $          | 427,514 |   |

 

(n) Property andEquipment:

Property and equipmentare stated at cost, net of accumulated depreciation and amortization. Propertyand equipment are depreciated on a straight-line basis over their estimateduseful lives, which range from 3 to 7 years. The Company recorded depreciationexpense for the years ended June 30, 2007, 2006 and 2005 of approximately$139,000, $104,000 and $45,000, respectively.
|                                    | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
|------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                         | ** ** | **2007**          | ** ** | **2006**          | ** ** |
|                               |       |              |       |              |       |
| Computer  equipment and software   |       | $                 | 446,515    |              | $          | 390,044 |   |
| Furniture and  fixtures            |       | 121,382           |       | 54,503            |       |
| Leasehold  improvements            |       | 41,746            |       | —            |       |
|                               |       | 609,643           |       | 444,547           |       |
|                               |       |              |       |              |       |
| Less:  Accumulated depreciation    |       | (289,369          | )          | (170,915          | )          |
|                               |       |              |       |              |       |
| Total property and  equipment, net |       | $                 | 320,274    |              | $          | 273,632 |   |

 

(o) Fair Value ofFinancial Instruments:

The Company has estimatedthe fair value of financial instruments using available market information andother valuation methodologies in accordance with SFAS No. 107, “DisclosuresAbout Fair Value of Financial Instruments.” Management of the Company believesthat the fair value of financial instruments, consisting of cash, cashequivalents, short-term investments, accounts receivable and accounts payable,approximates carrying value due to the immediate or short-term maturityassociated with these instruments.

(p) Goodwill and OtherIntangible Assets:

Goodwill represents theexcess of costs over the fair value of identifiable net assets ofPathagon.  Intangible assets includepatents and licensing rights acquired in connection with the acquisition ofPathagon completed on February 1, 2002. The Company accounts for these assets in accordance with SFAS No. 142, “Goodwilland Other Intangible Assets.”  Goodwillis not amortized, but instead tested for impairment at least annually inaccordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable usefullives be amortized over their respective estimated useful lives to theirestimated residual values, and reviewed for impairment in accordance with SFASNo. 144, “Accounting for Impairment or Disposal of Long-Lived Assets.”  For goodwill, each year and wheneverimpairment indicators are present, we calculate the implied fair value of eachgoodwill amount and record an impairment loss for the excess of book value overthe implied fair value, if any.

F-14

----

In accordance with SFASNo. 144, we review for impairment our intangible assets that are subject toamortization whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable.  Recoverability of assets to be held and usedis measured by a comparison of the carrying amount of an asset to estimatedundiscounted future cash flows expected to be generated by the asset.  If the carrying amount of an asset exceedsits estimated future cash flows, an impairment charge is recognized by theamount by which the carrying amount of the asset exceeds the fair value of theasset (see Note 2).  We believe that theaccounting estimate relating to impairment of our intangible assets involves acritical accounting estimation methodology. The estimate is highly susceptible to change from period to periodbecause it requires management to make significant judgments and assumptionsabout future revenue, operating costs and development expenditures.  Some of the more significant estimates andassumptions inherent in the intangible asset impairment estimation processinclude: the timing and amount of projected future cash flows; the discountrate selected to measure the risks inherent in the future cash flows; and thecompetitive trends impacting the asset, including consideration of anytechnical, legal, regulatory, or economic barriers to entry as well as expectedchanges in standard of practice for indications addressed by the asset. Changesin events or circumstances  that mayaffect long-lived assets, particularly in the pharmaceutical industry, makesjudgments and assumptions with respect to the future cash flows highlysubjective and may include, but are not limited to, cancellations orterminations of license agreements or the risk of competition that could renderour products noncompetitive or obsolete.

(q) Accrued Expensesand Other Current Liabilities:

Below is a breakdown ofour accrued expenses and other current liabilities at June 30, 2007 and2006.  Accrued research and developmentexpenses include amounts relating to clinical trials, pre-clinical operatingcosts and amounts due on the license to develop, manufacture, market,distribute and sell Evoltra® in Japan and Southeast Asia.  Other accrued expenses include inventories,royalties due on product sales and other operating expense accruals.
|                                                       | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
|-------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                            | ** ** | **2007**          | ** ** | **2006**          | ** ** |
|                                                  |       |              |       |              |       |
| Accrued research  and development                     |       | $                 | 6,716,903  |              | $          | 4,389,951 |   |
| Accrued sales  and marketing                          |       | 2,717,273         |       | 199,615           |       |
| Accrued  professional fees                            |       | 698,016           |       | 493,924           |       |
| Accrued  compensation costs                           |       | 789,699           |       | 702,097           |       |
| Accrued other                                         |       | 1,509,213         |       | 678,858           |       |
|                                                  |       |              |       |              |       |
| Total accrued expenses  and other current liabilities |       | $                 | 12,431,104 |              | $          | 6,464,445 |   |

 

(r) Recent AccountingPronouncements:

In June 2007, theEmerging Issues Task Force (“EITF”) issued EITF 07-3, “Accounting forNonrefundable Advance Payments for Goods or Services to Be Used in FutureResearch and Development Activities” (“EITF 07-3”).  EITF 07-3 addresses thediversity that exists with respect to the accounting for the non-refundableportion of a payment made by a research and development entity for futureresearch and development activities.  The EITF concluded that an entitymust defer and capitalize non-refundable advance payments made for research anddevelopment activities and expenses these amounts as the related goods aredelivered or the related services are performed.  EITF 07-3 is effectivefor interim or annual reporting periods in fiscal years beginning afterDecember 15, 2007.  The Company is currently evaluating the impact ofadopting EITF 07-03 on its financial statements and results of operations.

F-15

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In February 2007,Financial Accounting Standards Board (“FASB”) issued Statement of Financial AccountingStandards (“SFAS) No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities- Including an amendment of FASB Statement No. 115” (“SFAS159”).  SFAS 159 expands the use of fairvalue accounting but does not affect existing standards which require assetsand liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value to measureaccounts and loans receivable, available-for- sale and held-to-maturity securities,equity method investments, accounts payable, guarantees, issued debt and othereligible financial instruments.  SFAS 159is effective for fiscal years beginning after November 15, 2007 and the Companyis currently evaluating its impact.

In December 2006,the FASB issued a FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”)Issue No. 00-19-2 “Accounting for Registration Payment Arrangements” (“FSP00-19-2”) which addresses an issuer’s accounting for registration paymentarrangements.  FSP 00-19-2 specifies thatthe contingent obligation to make future payments or otherwise transferconsideration under a registration payment arrangement, whether issued as aseparate agreement or included as a provision of a financial instrument orother agreement, should be separately recognized and measured in accordancewith FASB Statement No.5 “Accounting for Contingencies”. The guidance in FSP00-19-2 amends FASB Statements No. 133, “Accounting for DerivativeInstruments and Hedging Activities”, and FASB Statement No.150, “Accounting forCertain Financial Instruments with Characteristics of both Liabilities andEquity”, and FASB Interpretation No. 45, “Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others” to include scope exceptions for registration paymentarrangements.  FSP 00-19-2 is effectiveimmediately for registration payment arrangements and the financial instrumentssubject to those arrangements that are entered into or modified subsequent tothe date of issue of this FSP 00-19-2. For registration payment arrangementsand financial instruments subject to those arrangements that were entered intoprior to the issuance of FSP 00-19-2, this is effective for financialstatements issued for fiscal years beginning after December 15, 2006, andinterim periods within those fiscal years.  The Company has analyzed the provisions of FSP 00-19-2 and determinedthat it will not have a material effect on the Company’s consolidated financialstatements.

In September 2006, theFASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157defines fair value, establishes a framework for measuring fair value inaccordance with generally accepted accounting principles and expandsdisclosures about fair value measurements. The provisions of SFAS 157 areeffective for fiscal years beginning after November 15, 2007. The Companyis currently evaluating the impact, if any, of the provisions of SFAS 157.

In September 2006, theSecurities and Exchange Commission (“SEC”) issued Staff Accounting BulletingNo. 108 (“SAB 108”). SAB 108 provides interpretive guidance on how theeffects of the carryover or reversal of prior year misstatements should beconsidered in quantifying a potential current year misstatement. Prior to SAB108, companies might evaluate the materiality of financial statementmisstatements using either the income statement or balance sheet approach, withthe income statement approach focusing on new misstatements added in thecurrent year, and the balance sheet approach focusing on the cumulative amountof misstatement present in a company’s balance sheet. Misstatements that wouldbe material under one approach could be viewed as immaterial under anotherapproach, and not be corrected. SAB 108 now requires that companies viewfinancial statement misstatements as material if they are material according toeither the income statement or balance sheet approach. The Company has adoptedSAB 108 and determined that it did not have an impact on the reported resultsof operations or financial position of the Company.

In June 2006, the FASB ratified the consensus of EITFIssue No. 06-3, “How Taxes Collected from Customers and Remitted toGovernmental Authorities Should Be Presented in the Income Statement” (“EITF06-3”). EITF 06-3 indicates that the income statement presentation on either agross basis or a net basis of the taxes within the scope of the issue is anaccounting policy decision. The Company’s accounting policy is to present thetaxes within the scope of EITF 06-3 on a net basis. The adoption of EITF06-during the current period did not result in a change to the Company’saccounting policy and, accordingly, did not have any effect on the Company’sconsolidated financial

F-16

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statements.

In June 2006, the FASBissued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes –an interpretation of FASB Statement No. 109 (“FIN 48”). This Interpretationclarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with FASB Statement No. 109,Accounting for Income Taxes.  Thisinterpretation prescribes that a company should use a more likely than notrecognition threshold based on the technical merits of the tax positiontaken.  Tax positions that meet the morelikely than not recognition threshold should be measured in order to determinethe tax benefit to be recognized in the financial statements. FIN 48 iseffective in fiscal years beginning after December 15, 2006.  The Company is currently evaluating theimpact, if any, of the provisions of FIN 48.

**Note 2 – Intangible Assets**

Intangible assets at June30, 2007 and 2006 are as follows:
|                                 | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
|---------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                      | ** ** | **2007**          | ** ** | **2006**          | ** ** |
|                            |       |              |       |              |       |
| Patents and  licensing rights   |       | $                 | 5,218,953  |              | $          | 9,382,450 |   |
| Other intangible  assets        |       | 298,505           |       | 298,505           |       |
|                            |       | 5,517,458         |       | 9,680,955         |       |
|                            |       |              |       |              |       |
| Less:  Accumulated amortization |       | (2,161,466        | )          | (2,131,435        | )          |
|                            |       |              |       |              |       |
| Total intangible  assets, net   |       | $                 | 3,355,992  |              | $          | 7,549,520 |   |

 

Amortization of patents,licensing rights and other intangible assets amounted to approximately$883,000, $870,000 and $1,394,000 for the years ended June 30, 2007, 2006 and2005, respectively, and are amortized over periods generally ranging form 1-20years.  Amortization for each of the nextfive fiscal years will amount to approximately $260,000 annually.  The weighted average remaining life of ourintangibles at June 30, 2007 is approximately twelve years.

In connection with the Pathagon acquisition in February 2002, theCompany acquired patents and licensing rights of OLIGON® and methyleneblue.  Methylene blue is ananti-microbial agent used to cleanse fresh frozen plasma of viruses includinghepatitis-B, hepatitis-C and HIV.  At acquisition, it was approved inEurope for sterilizing fresh frozen plasma and is currently marketed and soldby several companies for anti-viral sterilizing of fresh frozen plasma. At acquisition, the Company planned to sublicense the product in certainEuropean Union countries for its use in cleansing plasma.  Prior to theloss of an intellectual patent in April of 2005, the Company had been indiscussion with the American Red Cross to bring the product into the U.S.market.  Since methylene blue is generally regarded as a safe drug, nofurther approval was needed to sell it for its intended use atacquisition.  However, we did plan on performing clinical trials tosupport to the American Red Cross the commercial viability of methylene blue insterilizing fresh frozen plasma.

At June 30, 2005, werecognized an impairment of approximately $5,276,000 relating to the methyleneblue intangible acquired in connection with the Pathagon acquisition.  Due to the loss of an intellectual propertypatent suit which occurred during the Company’s fourth quarter, relating to theinternational use of methylene blue in fresh frozen plasma, we re-evaluated theintangible asset relating to methylene blue at June 30, 2005.  At that date, we estimated that ourundiscounted future cash flows, relating solely and exclusively to approveduses of methylene blue, were less than the carrying value of our long-livedasset.  As a result, we recognized anon-cash impairment loss of approximately $5,276,000, equal to the differencebetween the estimated future cash flows for approved uses of methylene blue,discounted at an appropriate rate, and the carrying amount of the asset.

F-17

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As a result of the lossof certain aspects of patent protection, the Company re-evaluated thealternative future uses of methylene blue in human indications.  Methylene blue demonstrated effectiveness inthe treatment of hepatitis-C through an Investigator Sponsored Phase IIclinical trial conducted in the Middle East. In December of 2005, the Company submitted to the Egyptian Ministry ofHealth (“Ministry”) a protocol for an investigator sponsored clinical trial inEgypt for refractory genotype IV hepatitis C.  Concurrent with the submission of the protocol, the Company filed amarketing authorization with the Ministry for the use of methylene blue inhepatitis C based on the Phase II data. The Company’s plan was to attain product approval (then anticipated tobe received by the end of calendar 2006) and commence with further investigatorsponsored clinical trials in Egypt into which we would sell methylene blue at aprice discounted to the current treatments available.  The trials were intended to be performedwhether marketing approval was received or not.

At June 30, 2006,we completed an analysis of methylene blue which confirmed that such estimatedfuture cash flows continued to be worth more than the carrying value ofmethylene blue.  In September of 2006,the Ministry provided feedback on our filing and requested that, among otherthings, an Egyptian-based company be added to our distribution process.   We responded to the Ministry in January of2007.  In March of 2007, the Companyreceived another request from the Egyptian authorities relating again to themanufacturing process and we submitted our responses in April 2007.  Separately, in February of 2007, the Companyhired a third party to assist us in performing a strategic review of our assetportfolio which was completed during the fourth quarter of fiscal 2007.  In conjunction with this analysis, our boardof directors determined that the Company would no longer devote any furtherresources to the development of methylene blue, unless and until a securerevenue source could be identified as a pre-condition to the use of methyleneblue in a clinical trial.  As a result ofour inability to obtain a secure source to fund further development ofmethylene blue, along with the continual delays from the Ministry, the Companyre-evaluated the intangible asset at June 30, 2007.  We recognized a non-cash impairment lossequal to its carrying value of approximately $3,311,000.

The OLIGON® technology isa patented anti-microbial technology that can be incorporated into themanufacturing process of many implantable devices. The patented process,involving two dissimilar metals (silver and platinum) creates an electrochemicalreaction that releases silver ions that destroy bacteria, fungi and otherpathogens.  At the time of acquisition,OLIGON® had been approved by the FDA for its use as a coating of catheters orincorporation into catheter material for the avoidance of catheter relatedsepsis associated with central venous catheters, pulmonary catheters andurinary catheters.  By acquiring Pathagon, we inherited the sublicense ofthe OLIGON® technology to Edwards Lifescience for its use in short-term centralvenous catheters and pulmonary catheters.   In January 2007, theCompany entered into a licensing arrangement with Foster Corporation (“Foster”),a Connecticut-based compounder of biomedical materials, to license outexclusive rights to manufacture, market and distribute the Company’sproprietary anti-microbial OLIGON*®* technology.  Under the terms of thelicense agreement, Bioenvision will have a revenue sharing arrangement onfuture sublicenses and a royalty on all sales by Foster.  At June 30, 2007, we estimate that ourundiscounted cash flows relating to the OLIGON*®* technology are greater than the carrying valueof our long-lived asset, and therefore, no impairment was deemed necessary forOLIGON® related intangibles.

Making the determinationsof impairment and the amount of impairment requires significant judgment bymanagement and assumptions with respect to the future cash flows of theassets.  Changes in events orcircumstances that may affect long-lived assets makes judgments and assumptionswith respect to the future cash flows highly subjective.

*Clofarabine (Evoltra®)*

TheCompany has a license from SRI to develop, manufacture, market, distribute andsell a class of purine nucleoside analogs which, based on third-party studiesconducted to date, may be effective in the treatment of leukemia, lymphoma andcertain solid tumor cancers.  The leadcompound of these purine-based nucleosides is known as clofarabine (Evoltra®).The Company received regulatory approval for Evoltra® from the

F-18

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**Note 3**–**License and Co-Development Agreements**

European MedicinesAgency on May 31, 2006 under the centralized approval process for treatment ofacute lymphoblastic leukemia, or ALL, in pediatric patients who have relapsedor are refractory to at least two prior regimens of treatment.

Under the terms of theagreement with SRI, the Company was granted the exclusive worldwide license,excluding Japan and Southeast Asia, to make, use and sell products derived fromthe technology for a term expiring on the date of expiration of the last patentcovered by the license (subject to earlier termination under certaincircumstances), and to utilize technical information related to the technologyto obtain patent and other proprietary rights to products developed by theCompany and by SRI from the technology. Initially, the Company is developing Evoltra® for the treatment ofleukemia and lymphoma and studying its potential role in treatment ofmyelodysplastic syndrome (MDS) and solid tumors.

In March 2001, tofacilitate the development of Evoltra®, the Company entered into aco-development agreement with ILEX Oncology, Inc. our sub-licensor until it wasacquired by Genzyme on December 21, 2004, for the development of Evoltra® incancer indications. Under the terms of the co-development agreement, Genzyme isrequired to pay all development costs in the United States and Canada, and 50%of approved development costs worldwide outside the U.S. and Canada (excludingJapan and Southeast Asia), in each case, for the development of Evoltra® incancer indications.  Currently, theCompany has billed but not recorded as a receivable approximately $4,600,000 ofrevenue relating to the reimbursement from our co-development partner forcertain of our ongoing research costs in the development of Evoltra® outsidethe United States as well as an additional $2,381,000 which we have not billedbut believe is owed to us from this co-development partner.  If and when the Company has determined thatcollectibility is reasonably assured, the Company will record the revenue.  Under the co-development agreement, theCompany offsets these amounts against any royalty which otherwise would be paidto Genzyme on our U.K. sales.  Genzyme isresponsible for conducting all clinical trials and the filing and prosecutionof applications with applicable regulatory authorities in the United States andCanada for certain cancer indications. The Company retains the right to handlethose matters in all territories outside the United States and Canada andretains the right to handle these matters in the U.S. and Canada in allnon-cancer indications. The Company retained the exclusive manufacturing anddistribution rights in Europe and elsewhere worldwide, except for the UnitedStates and Canada. Under the co-development agreement, Genzyme will havecertain rights if it performs its development obligations in accordance withthat agreement. Under the circumstances, the Company is required to pay Genzymea royalty on direct sales outside the U.S., Canada, Japan and Southeast Asia.In turn, Genzyme, which would have U.S. and Canadian distribution rights incancer indications, is paying the Company a royalty on sales in the U.S. andCanada.  Under the terms of theco-development agreement, Genzyme also pays royalties to SRI based on certainmilestones. The Company also is obligated to pay certain royalties to SRI withrespect to Evoltra®.

The Company received anonrefundable upfront payment of $1,350,000 when it entered into theco-development agreement with Genzyme and received an additional $3,500,000 inDecember 2003 when it converted Genzyme’s option to market clofarabine in theU.S. into a sublicense.  Upon Genzyme’sfiling the New Drug Application for clofarabine with the FDA, the Companyreceived an additional (i) $2,000,000 in April 2004 and (ii) $2,000,000 inSeptember 2004.  The Company deferred theupfront payment and recognized revenues ratably, on a straight-line basis overthe related service period.  The Companyhas deferred the milestone payments received to date and recognizes revenuesratably, on a straight-line basis over the related service period, throughMarch 2021.  For each of the years endedJune 30, 2007, 2006 and 2005,the Company recognized revenues of approximately$438,000 in connection with the milestone payments received to date.

Deferred costs includeroyalty payments that became due and payable to SRI upon the Company’sexecution of the co-development agreement with Genzyme.  The Company defers all royalty payments madeto SRI and recognizes these costs ratably, on a straight-line basis over therelated service period, concurrent with the revenue that is recognized inconnection with these research and development costs through 2021.  The Company recognized expense ofapproximately $219,000 for each of the years ended June 30, 2007, 2006 and2005.

F-19

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In September 2006, theCompany obtained the exclusive license to develop, manufacture, market,distribute and sell Evoltra® in Japan and Southeast Asia.  We made an initial payment of $2,500,000 toSRI upon execution of this agreement and are obligated to pay SRI additionalmilestone payments and royalties during the term of this agreement.  Since taking on these rights, the Company hasorganized Bioenvision JapanCo., Ltd., a wholly-owned subsidiary of the Company(“JapanCo”) and established an office in Tokyo.

*Modrenal®*

The Company holdsan exclusive license, until the expiration of existing and new patents relatedto Modrenal®, to market Modrenal® in major international territories, and anagreement with a United Kingdom company to co-develop Modrenal® for othertherapeutic indications.  Managementbelieves that Modrenal® currently is manufactured by third-party contractors inaccordance with good manufacturing practices. The Company has no plans to establish its own manufacturing facility forModrenal®, but will continue to use third-party contractors.

The Company received anonrefundable upfront payment of $1,250,000 when it entered into the Licenseand Sublicense Agreement with Dechra Pharmaceuticals in May 2003.  The Company deferred the upfront payment andrecognizes revenues ratably, on a straight-line basis over the related serviceperiod, currently through September 2022. The Company recognized revenues of approximately $60,000, $60,000 and$87,000, respectively, in connection with the upfront payment from Dechra forthe years ended June 30, 2007, 2006 and 2005, respectively.

Deferred costs includeroyalty payments that became due and payable to Stegram Pharmaceuticals Ltd.upon the Company’s execution of the License and Sub-License Agreement withDechra in May 2003.  The Company defersall royalty payments made to Stegram and recognizes these costs ratably, on astraight-line basis concurrent with revenue that is recognized in connection withthe Dechra agreement.  Research anddevelopment costs related to this agreement include approximately $12,000 and$12,000 and $17,000 for the years ended June 30, 2007, 2006 and 2005,respectively.

*OLIGON®*

In January 2007, theCompany entered into a licensing arrangement with Foster, a Connecticut-basedcompounder of biomedical materials, to license out exclusive rights tomanufacture, market and distribute the Company’s proprietary anti-microbialOLIGON*®* technology.  Under the terms of thelicense agreement, Bioenvision will have a revenue sharing arrangement onfuture sublicenses and a royalty on all sales by Foster.  Foster isrequired to comply with annual minimum marketing and research and developmentexpenditures within the first five years of the term of the license.

**Note 4**–**Marketing and Distribution Agreements**

In March 2006, theCompany entered into a Marketing and Distribution Agreement with Mayne PharmaLimited, a public company in Australia, to develop, market and distributeEvoltra® in Australia and New Zealand in certain cancer indications.  The Company anticipates entering into similararrangements with other marketing and distribution partner(s) around the world(outside North America) to capitalize on the commercial potential of Evoltra®, witha fully integrated sales and marketing team being a primary focus for the salesand marketing partner(s) the Company may select at any time or from time totime.

**Note 5 – Income Taxes**

The domestic andforeign components of loss before income taxes for the years ended June 30,2007, 2006, and 2005 are as follows:

F-20

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|                                 | ** ** | **2007**    | ** **  | **2006**   | ** ** | **2005**    | ** ** |
|---------------------------------|------------|-------------|-------------|------------|------------|-------------|------------|
|                            | ** ** | ** **  | ** **  | ** ** | ** ** | ** **  |       |
| Domestic                        |       | $           | (24,850,000 | )          | $          | (19,333,000 | )          | $ | (22,601,000 | ) |
| Foreign                         |       | (11,055,000 | )           | (4,566,000 | )          | (1,662,000  | )          |
|                            |       |        |        |       |       |        |       |
| Loss before income tax  benefit |       | $           | (35,905,000 | )          | $          | (23,899,000 | )          | $ | (24,263,000 | ) |

 

The following is areconciliation of benefit for income taxes computed at the federal statutoryrates to the effective rates for the years ended June 30, 2007, 2006 and 2005:
|                                                     | ** ** | **June 30,** | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
|-----------------------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                          | ** ** | **2007**          | ** ** | **2006**          | ** ** | **2005**          | ** ** |
|                                                | ** ** | ** **        | ** ** | ** **        | ** ** | ** **        | ** ** |
| Consolidated tax  benefit at federal statutory rate |       | (34.0             | )%         | (34.0             | )%         | (34.0             | )%         |
| Other  non-deductible expenses                      |       | 0.9               | %          | 1.3               | %          | (0.3              | )%         |
| State income tax  benefit, net of federal provision |       | (4.4              | )%         | (5.1              | )%         | (6.1              | )%         |
| Valuation  allowance                                |       | 36.4              | %          | 36.9              | %          | 40.1              | %          |
| Foreign rate  differential                          |       | 1.2               | %          | 0.7               | %          | 0.3               | %          |
| Other, net                                          |       | (0.1              | )%         | 0.2               | %          | 0.0               | %          |
|                                                |       |              |       |              |       |              |       |
| Effective tax rate                                  |       | 0.0               | %          | 0.0               | %          | 0.0               | %          |

 

Significantcomponents of the Company’s deferred tax assets and liabilities at June 30,2007 and 2006 are as follows: 
|                                                      | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
|------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                           | ** ** | **2007**          | ** ** | **2006**          | ** ** |
| Deferred tax  liabilities                            | ** ** | ** **        |       |              |       |
| Acquired intangibles                                 |       | $                 | (1,119,000 | )                 | $          | (2,780,000 | ) |
| Deferred costs                                       |       | (1,329,000        | )          | (1,427,000        | )          |
| Amortization                                         |       | (169,000          | )          | (203,000          | )          |
| Depreciation                                         |       | (39,000           | )          | (16,000           | )          |
| Other                                                |       | (3,000            | )          | (3,000            | )          |
|                                                 |       |              |       |              |       |
| Total deferred  tax liabilities                      |       | (2,659,000        | )          | (4,429,000        | )          |
|                                                 |       |              |       |              |       |
| Deferred tax  assets                                 |       |              |       |              |       |
| Net operating loss                                   |       | 35,064,000        |       | 23,966,000        |       |
| Options, warrants and shares issued to non-employees |       | 273,000           |       | 273,000           |       |
| Options and shares issued to employees               |       | 2,586,000         |       | 1,081,000         |       |
| Deferred revenue                                     |       | 2,864,000         |       | 3,072,000         |       |
| Provision for bad debts                              |       | 474,000           |       | 352,000           |       |
| Accrued expenses                                     |       | 312,000           |       | 303,000           |       |
| Other                                                |       | 14,000            |       | 13,000            |       |
|                                                 |       |              |       |              |       |
| Total deferred  tax assets                           |       | 41,587,000        |       | 29,060,000        |       |
|                                                 |       |              |       |              |       |
| Valuation  allowance for deferred tax assets         |       | (38,928,000       | )          | (24,631,000       | )          |
|                                                 |       |              |       |              |       |
| Net deferred tax  assets                             |       | 2,659,000         |       | 4,429,000         |       |
|                                                 |       |              |       |              |       |
| Total deferred tax  assets, net                      |       | $                 | —     |              | $          | — |   |

 

F-21

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At June 30, 2007, theCompany had estimated $72,805,000 of net operating loss carryforwards for U.S.Federal and state income tax purposes, respectively that begin to expire infiscal year ending 2020, with a tax value of $29,486,000.  At June 30, 2007, the Company also hadestimated $18,592,000 of net operating loss carryforwards relating to foreignoperations, respectively, with no expiration date, with a tax value of$5,577,000.

At June 30, 2007and 2006, the Company has recorded a valuation allowance of approximately$38,928,000 and $24,631,000, respectively, relating to the net deferred taxasset due the uncertainty of both the foreign and domestic companies being morelikely than not to utilize these deferred tax assets.

Included in thetax net operating loss for the years ended June 30, 2007, 2006 and 2005 isapproximately $0 and $3,222,000 and $3,857,000, respectively related toexercise of non-qualified stock options or disqualifying dispositions of stockacquired with incentive stock options.  Avaluation allowance has been established against this loss.  If the valuation allowance is removed, thetax effected benefit of $0, $1,305,000 and $1,562,000, respectively, related tothis loss will be credited to equity.

The Tax Reform Actof 1986 enacted a complex set of rules (Internal Revenue Code Section 382)limiting the utilization of net operating losses to offset future taxableincome following a corporate “ownership change.”  Generally, this occurs when there is agreater than 50 percentage point change in ownership.  Accordingly, such changes, if any, couldlimit the amount of net operating losses available in a given year, which couldultimately cause net operating losses to expire prior to utilization.

**Note 6 –Stockholders’ Transactions**

*ConvertibleParticipating Preferred Stock*:

On May 7, 2002 theCompany authorized the issuance and sale of up to 5,920,000 shares of Series AConvertible Participating Preferred Stock, par value $0.001 per share.  Series A Convertible Participating PreferredStock may be converted into two shares of common stock at an initial conversionprice of $1.50 per share of common stock, subject to adjustment for stocksplits, stock dividends, mergers, issuances of cheap stock and other similartransactions.  The Company received grossproceeds of $17,700,000 from the placement. Holders of Series A Convertible Participating Preferred Stock alsoreceived, in respect of each share of Series A Convertible ParticipatingPreferred Stock purchased in the May 2002 Private Placement by the Company, onewarrant to purchase one share of the Company’s common stock at an initialexercise price of $2.00, subject to adjustment. The purchasers of Series A Convertible Participating Preferred Stockalso received certain registration rights. The preferred stock generally carries rights to vote with the holders ofcommon stock as one class on a two-for-one basis. The preferred stock isconvertible into the Company’s common stock, at the holder’s option, on atwo-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) thedate at any time after the one year anniversary of the issuance date upon whichboth (x) the average of the market price for a share of common stock for thirtyconsecutive trading days exceeds $10.00 per share, subject to certainadjustments, and (y) the average of the trading volume for the Company’s commonstock during such period exceeds 150,000, subject to certain adjustments.  In the event of a voluntary or involuntaryliquidation or dissolution of the Company, before any distribution of assetsshall be made to the holders of the Company’s securities which are junior tothe preferred stock (such as the common stock), holders of the preferred stockshall be paid out of the assets of the Company legally available fordistribution to the Company’s stockholders an amount per share equal to theinitial original issue price ($3.00) subject to certain adjustments plus allaccrued but unpaid dividends on such preferred stock.

The Company isrequired to accrue for and pay a dividend of 5%, subject to certainadjustments, on its cumulative Series A Convertible Participating PreferredStock.  The Company has paid the dividendin cash to holders of its cumulative Series A Convertible ParticipatingPreferred Stock through July 30, 2007.

F-22

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*Common Stock:*

On April 5, 2007,the Company completed a direct public offering in which it sold 8,000,000common shares at $3.75 per share, with net proceeds to the Company ofapproximately $27,716,000, after deducting underwriting discounts andcommissions and offering expenses.

On November 27,2006, the Company issued 31,100 shares of common stock to a former officer ofthe Company pursuant to the terms of his amended employment agreement datedJanuary 6, 2006.  The former officer wasentitled to receive 50,000 shares upon the appointment of a new chief financialofficer, of which 18,900 shares were withheld to satisfy the former officer’stax liability.  In connection with suchissuance we recognized approximately $247,000 as compensation expense.

On February 8,2005, the Company completed a secondary public offering in which it sold7,500,000 common shares at $8.00 per share, with net proceeds to the Company ofapproximately $55,747,000, after deducting underwriting discounts andcommissions and offering expenses.

On December 18,2004, the Company issued 62,500 shares of its common stock to a consultant tothe Company for services rendered to the Company.  The Company recorded compensation expense ofapproximately $497,000 for the year ended June 30, 2005 in connection with suchissuance.

*StockOptions*:

The Board ofDirectors adopted, and the stockholders approved, the 2003 Stock Incentive Planat the Annual Meeting held in January 2004.** **The plan was adopted to recognize the contributionsmade by the Company’s employees, officers, consultants, and directors, toprovide those individuals with additional incentive to devote themselves to ourfuture success and to improve the Company’s ability to attract, retain andmotivate individuals upon whom the Company’s growth and financial successdepends.  Under the plan, stock optionsmay be granted as approved by the Board of Directors or the CompensationCommittee.  There are 6,750,000 shares reserved for grants of options under the planand, at June 30, 2007, options to purchase 5,301,000 shares of common stock hadbeen issued.   The Company’s policy is toissue new shares for option exercises. Stock options vest pursuant to individual stock option agreements.  No options granted under the plan areexercisable after the expiration of ten years (or lesser at the discretion ofthe Board of Directors or the Compensation Committee) from the date of thegrant. The plan will continue in effect until terminated or amended bythe Board of Directors or until expiration of the plan on November 17, 2013.

In June 2002, theCompany granted options to an officer of the Company to purchase 380,000 sharesof common stock at an exercise price of $1.95 per share, which equaled the fairvalue on the date of grant.  Of thisamount 50,000 options vested on June 28, 2002 and the remaining 330,000 optionsvest ratably over a three-year period on each anniversary date.  On March 31, 2003, the Company entered intoan Employment Agreement with such officer of the Company, pursuant to which,among other things, the exercise price for all of the 380,000 options werechanged to $0.735 per share, which equaled the stock price on that date.  In addition, the Company issued an additional120,000 options at an exercise price of $0.735 per share which vestedimmediately.   As a result of theadoption of SFAS 123 (R) on July 1, 2005, the Company no longer re-measures theintrinsic value of the 380,000 re-priced options.  The Company determined the fair value of themodified award in accordance with SFAS 123, the guidance then in effect, andhas recognized expense of $36,000 for the year ended June 30, 2006 relating tothe portion of the options that were unvested on July 1, 2005.

F-23

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For the year endedJune 30, 2005, the Company recorded compensation expense of approximately$88,000 as a result of 505,000 options granted to certain employees at anexercise price below the grant date trading price.  Upon adoption of SFAS 123 (R), beginning July1, 2005, the Company reversed the unrecognized deferred compensation costs ofapproximately $136,000, associated with these options, with a correspondingreduction to the Company’s additional paid-in capital and is recognizing thefair value estimated in accordance with the original provisions of SFAS 123 forthe unvested options.  In December 2005,the Company cancelled a total of 251,667 options relating to the unexercisedoptions issued to three of the employees that were originally issued below fairmarket value with a strike price of $4.05. The Company reissued these options at the fair market value on January20, 2004 (original grant date) with a strike price of $4.55 and provided cashbonuses to the employees in return for the increase in the strike price.  The original vesting terms and remainingexercise period of the original grant on date of modification was utilized inthe amended grant.  The Company hasrecorded additional compensation expense equal to the amount of the cash bonusespaid of $125,000.  The Company hasrecorded the compensation expense for the fair value of the stock options overthe remaining vesting term.

On March 30, 2006,the Company extended the exercise period of 1,500,000 vested options originallygranted to an officer of the Company from five to ten years.  Theextension of the exercise period was treated as a modification of an awardunder SFAS 123 (R) and resulted in the immediate recognition of incrementalcompensation expense of approximately $591,000.

During the yearended June 30, 2007, options to purchase 81,250 of the Company’s common stockat a weighted average exercise price of $4.94 per share were granted to membersserving on the Board of Directors, in which the Company recognized $57,000 ofexpense relating to said options.  Totalexpense for options granted to members of the Board of Directors was $93,000,$75,000 and $60,000, respectively, for the years ended June 30, 2007, 2006 and2005.

Options granted toemployees for the year ended June 30, 2007 totaled 1,256,500.  Total compensation (expense) income foroptions granted to employees was ($3,323,000), ($3,609,000) and $227,000 forthe years ended June 30, 2007, 2006 and 2005, respectively.

There were nooptions exercised during the year ended June 30, 2007.  During the years ended June 30, 2006 and2005, certain option holders of the Company exercised with cash their optionsto acquire 300,000 and 685,833, shares of the Company’s common stock,respectively.   The Company receivedproceeds of approximately $391,000 and $708,000, respectively, from theexercise of these options.  During theyears ended June 30, 2006 and 2005, certain non-employee holders of optionsexercised pursuant to the cashless exercise feature available to such optionholders and the Company issued 191,196 and 212,709 shares of its common stockin connection therewith, respectively.

A summary of theCompany’s stock option activity for options issued to employees and membersserving on the Board of Directors and related information follows:

F-24

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|                               | ** ** | **Number of  Shares** | ** ** | **Weighted-average  Exercise Price** | ** ** | **Weighted-average  Remaining  Contractual Term** | ** ** | **Aggregate  Intrinsic Value(a)** | ** ** |
|-------------------------------|------------|----------------------------|------------|-------------------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------|------------|
| * *                      | ** ** | ** **                 |       |                                      |       |                                                   |       |                                   |       |
| Balance at July  1, 2004      |       | 4,270,000                  |       | $                                         | 1.87       |                                                   |       |                                   |       |   |
|                          |       |                       |       |                                      |       |                                                   |       |                                   |       |
| Granted                       |       | 784,000                    |       | 7.99                                      |       |                                                   |       |                                   |       |
| Exercised                     |       | (885,500                   | )          | 1.08                                      |       |                                                   |       |                                   |       |
| Cancelled                     |       | —                     |       | —                                    |       |                                                   |       |                                   |       |
| Forfeited                     |       | (12,500                    | )          | 3.53                                      |       |                                                   |       |                                   |       |
|                          |       |                       |       |                                      |       |                                                   |       |                                   |       |
| Balance at June  30, 2005     |       | 4,156,000                  |       | $                                         | 3.18       |                                                   | 5.30       |                                   | $          | 20,306,755 |   |
|                          |       |                       |       |                                      |       |                                                   |       |                                   |       |
| Granted                       |       | 1,287,000                  |       | 6.49                                      |       |                                                   |       |                                   |       |
| Exercised                     |       | (525,000                   | )          | 1.28                                      |       |                                                   |       |                                   |       |
| Cancelled                     |       | (252,000                   | )          | 4.05                                      |       |                                                   |       |                                   |       |
| Forfeited                     |       | (25,000                    | )          | 8.22                                      |       |                                                   |       |                                   |       |
|                          |       |                       |       |                                      |       |                                                   |       |                                   |       |
| Balance at June  30, 2006     |       | 4,641,000                  |       | $                                         | 4.24       |                                                   | 4.44       |                                   | $          | 8,916,283 |   |
|                          |       |                       |       |                                      |       |                                                   |       |                                   |       |
| Granted                       |       | 1,257,000                  |       | 4.78                                      |       |                                                   |       |                                   |       |
| Exercised                     |       | —                     |       | —                                    |       |                                                   |       |                                   |       |
| Cancelled                     |       | (4,000                     | )          | 7.14                                      |       |                                                   |       |                                   |       |
| Forfeited                     |       | (80,000                    | )          | 6.56                                      |       |                                                   |       |                                   |       |
|                          |       |                       |       |                                      |       |                                                   |       |                                   |       |
| Balance at June  30, 2007     |       | 5,814,000                  |       | $                                         | 4.32       |                                                   | 6.83       |                                   | $          | 11,433,207 |   |
|                          |       |                       |       |                                      |       |                                                   |       |                                   |       |
| Exercisable at  June 30, 2007 |       | 4,199,000                  |       | $                                         | 3.75       |                                                   | 6.00       |                                   | $          | 10,558,445 |   |

 

----

(a) The intrinsic value is the amount by which themarket price at the end of the period of the underlying share of stock exceedsthe exercise price of the stock option.

No options wereexercised by employees during the year ended June 30, 2007.  Options exercised by employees during theyears ended June 30, 2006 and 2005 had an intrinsic value of approximately$1,323,000, and $5,866,000, respectively.

A summary of theCompany’s non-vested employee options at June 30, 2007 and changes during theyear ended June 30, 2007 is presented below:
|                           | ** ** | **Non-vested Number of Options** | ** ** | **Weighted-average  Fair Value at  Grant Date** | ** ** |
|---------------------------|------------|-------------------------------------------------|------------|----------------------------------------------------------------|------------|
| * *                  | ** ** | ** **                                      |       |                                                           |       |
| Balance at July  1, 2006  |       | 1,391,000                                       |       | $                                                              | 3.79       |   |
|                      |       |                                            |       |                                                           |       |
| Granted                   |       | 1,257,000                                       |       | 2.46                                                           |       |
| Vested                    |       | (953,000                                        | )          | 3.30                                                           |       |
| Cancelled                 |       | —                                          |       | —                                                         |       |
| Forfeited                 |       | (80,000                                         | )          | 3.41                                                           |       |
|                      |       |                                            |       |                                                           |       |
| Balance at June 30,  2007 |       | 1,615,000                                       |       | $                                                              | 3.07       |   |

 

F-25

----

*Warrants*:

On August 9, 2004,the Company issued two warrants to a consultant pursuant to which saidconsultant has the right to purchase 45,000 shares of the Company’s commonstock at a price of $6.10 per share.  TheCompany recognized approximately $0, $9,000 and $138,000 as consulting expensefor years ended June 30, 2007, 2006 and 2005, respectively, as all milestoneswere met as of June 30, 2006 related to said warrants.

OnAugust 4, 2004, the Company issued a warrant to a consultant pursuant to whichsaid consultant has the right to purchase 40,000 shares of the Company’s commonstock at a price of $7.22 per share upon satisfaction of certain milestonesincluded in the warrant.  The Companyrecognized approximately $75,000 as consulting expense for the year ended June30, 2005, relating to said warrants.  Noadditional milestones were met during the years ended June 30, 2007 and 2006.

On June 22, 2004, the Company entered into aconsulting agreement pursuant to which consultant would provide certain investorrelation services on behalf of the Company. In connection therewith, the Company issued a warrant to said consultantpursuant to which said consultant has the right to purchase 50,000 shares ofCompany’s common stock at a price of $8.25 per share upon the completion ofcertain milestones, as set forth in such agreement.   All milestones were met as of June 30, 2005and the Company recognized approximately $243,000 as consulting expense for theyear then ended.

During the yearended June 30, 2007, certain warrant holders of the Company exercised theirwarrants to acquire 4,310,999 shares of the Company’s common stock, in whichthe Company received proceeds of approximately $8,146,000.  During the year ended June 30, 2006, certainwarrant holders of the Company exercised their warrants to acquire 406,472shares of the Company’s common stock, in which the Company received proceeds ofapproximately $720,000 from the exercise of such warrants.   During the year ended June 30, 2005, certainwarrant holders of the Company exercised their warrants to acquire 1,598,411shares of the Company’s common stock in which the Company received proceeds ofapproximately $3,279,000 from the exercise of such warrants.

*Receivablefrom Stockholder*:

Subsequent to theexercise of an option by a former member of management on September 27, 2005,the Company became aware of the statutorily required withholding taxes due tothe UK tax regulatory authority.  Inorder to maintain compliance with the UK tax regulatory authority, the Companyremitted the taxes due on behalf of the former employee in January 2006 and, inreturn, received a promissory note from the former member of management datedNovember 28, 2005 for $340,606, of which $40,606 has been collected.  The payment of these taxes was not part ofthe option agreement.  The Companyclassified such note as a shareholder receivable in the equity section of theconsolidated balance sheets.  In December2006, the Company reserved for the remaining balance outstanding.

**Note 7 –Geographic Information**

We have oneoperating segment and define geographical regions as countries in which weoperate. Our corporate headquarters in the United States collects licensing,royalties and research & development contract revenue from our arrangementswith external customers and our co-development partners.  Our wholly-owned subsidiary, BioenvisionLimited, is located in the United Kingdom and currently manages our productsales in Europe.  Our wholly-ownedsubsidiary, Bioenvision JapanCo., Ltd, is located in Tokyo and is focused onproduct development in Japan and Southeast Asia.  Currently, there is no sales activity inJapan.  The following table reconcilesour revenues by geographic region to the consolidated total:

F-26

----

 

|               | ** ** | **June 30,** | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
|---------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| ** **    | ** ** | **2007**          | ** ** | **2006**          | ** ** | **2005**          | ** ** |
| United States |       | $                 | 3,640,408  |              | $          | 1,929,527         |       | $ | 3,373,547 |   |
| Europe        |       | 15,234,700        |       | 3,379,545         |       | 1,277,627         |       |
| Other         |       | 194,489           |       | —            |       | —            |       |
|          |       |              |       |              |       |              |       |
| Total Revenue |       | $                 | 19,069,597 |              | $          | 5,309,072         |       | $ | 4,651,174 |   |

 

**Note 8 –Liquidity and Capital Resources**

In August 2006, the Companyborrowed $1,500,000 in conjunction with a promissory note signed with a financialinstitution.  In September 2006, the Company borrowed an additional$3,500,000.  All amounts drawn were fully repaid as of September30, 2006.

On June 30, 2007, the Company had cash and cashequivalents and short-term investments of approximately $49,171,000 and workingcapital of $47,811,000.   Managementbelieves the Company has sufficient cash and cash equivalents, short-terminvestments and working capital to continue currently planned operationsthrough June 30, 2008.  However,depending on the outcome of the proposed Genzyme merger, we may need additionalfinancing to continue to fund the research and development and marketingprograms for our products and to generally expand and grow our business.  Because, depending on the outcome of theGenzyme merger, we may be required to fund additional operating losses in theforeseeable future, our financial position may continue to deteriorate.  We cannot be sure that we will be able tofind financing in the future or, if found, such funding may not be on termsfavorable to us.  If adequate financingis not available, we may be required to delay, scale back, or eliminate some ofour research and development programs, to relinquish rights to certaintechnologies or products, or to license third parties to commercializetechnologies 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 continueour operations and implement our business plan.

**Note 9 –Commitments and Contingencies**

*Commitments*:

The Company leasesoffice space for its New York, New York headquarters under a non-cancelableoperating lease expiring on December 29, 2009 and office space in Edinburgh,Scotland under a lease agreement for its subsidiary Bioenvision Ltd. whichexpires February 29, 2008.  Also, we rent office space in Tokyo, Japan,under a lease that expires in February 2008.   Rent expense for all three facilities in the aggregate for the yearsended June 30, 2007, 2006 and 2005 was approximately $848,000, $680,000 and$421,000, respectively.  Further, the Company leases three vehicles underleases which expire November 29, 2008 and one which expires January 6,2009.  Lease expense was approximately $55,000, $49,000 and $24,000 forthe years ended June 30, 2007, 2006 and 2005, respectively.  At June 30,2007, total minimum rentals under operating leases with initial or remainingnon-cancelable lease terms of more than one year as well as contractualobligations under our license agreement with SRI were approximately:

F-27

----

 
|            | ** ** | **For the Year Ended** | ** ** |
|------------|------------|---------------------------------------|------------|
| ** ** | ** ** | **June 30,**                     | ** ** |
|       | ** ** | ** **                            | ** ** |
| 2008       |       | $                                     | 1,693,429  |   |
| 2009       |       | 623,988                               |       |
| 2010       |       | 431,391                               |       |
| 2011       |       | 500,000                               |       |
| 2012       |       | 4,000,000                             |       |
| Thereafter |       | —                                |       |
|       |       |                                  |       |
| Total      |       | $                                     | 7,248,808  |   |

 

*Litigation*:

The Company is adefendant in multiple putative class action lawsuits that have been filed inconnection with the proposed merger with Genzyme against the Company and itsdirectors.  Among other things, thelawsuits seek to enjoin the completion of the merger. While it is not feasibleto predict the outcome of these lawsuits, their ultimate resolution could havean adverse effect upon our business, financial condition, results of operationsor reputation.  We have contacted theplaintiff’s counsel to determine whether a settlement can be reached. If anacceptable settlement cannot be reached, we expect to contest the plaintiff’sclaims vigorously.

**Note 10 – Quarterly FinancialData (Unaudited)**
|                                                                         | ** ** | **Quarter ended**       | ** ** | **Quarter ended**      | ** ** | **Quarter ended**   | ** ** | **Quarter ended**  | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|--------------------------|------------|-------------------------|------------|
| ** **                                                              | ** ** | **September 30,  2006** | ** ** | **December 31,  2006** | ** ** | **March 31,  2007** | ** ** | **June 30,  2007** | ** ** |
| * *                                                                | ** ** | ** **                   | ** ** | ** **                  | ** ** | ** **               |       |                    |       |
| **2007**                                                                |       |                         |       |                        |       |                     |       |                    |       |
|                                                                    |       |                         |       |                        |       |                     |       |                    |       |
| Revenue                                                                 |       | $                            | 2,864,572  |                        | $          | 4,496,640                |       | $                       | 4,957,496  |   | $ | 6,750,889 |   |
|                                                                    |       |                         |       |                        |       |                     |       |                    |       |
| Cost of products  sold (1)                                              |       | 422,728                      |       | 897,593                     |       | 985,197                  |       | 1,144,761               |       |
|                                                                    |       |                         |       |                        |       |                     |       |                    |       |
| Loss from  operations (2)                                               |       | (12,538,329                  | )          | (7,278,088                  | )          | (7,956,019               | )          | (9,868,321              | )          |
|                                                                    |       |                         |       |                        |       |                     |       |                    |       |
| Net loss                                                                |       | (12,125,694                  | )          | (6,912,408                  | )          | (7,698,334               | )          | (9,168,145              | )          |
|                                                                    |       |                         |       |                        |       |                     |       |                    |       |
| Net loss  applicable to common stockholders                             |       | (12,210,762                  | )          | (6,997,477                  | )          | $                        | (7,781,552 | )                       | (9,252,290 | ) |
|                                                                    |       |                         |       |                        |       |                     |       |                    |       |
| Basic and diluted net  loss applicable to common stockholders per share |       | $                            | (0.29      | )                           | $          | (0.16                    | )          | $                       | (0.18      | ) | $ | (0.17 | ) |

 

----

(1)  The Company records royalty expense as acomponent of cost of products sold.  Forthe three months ended September 30, 2006, December 31, 2006, March 31, 2007and June 30, 2007, the Company recorded royalty expense of $361,469, $758,596,$854,028, and $914,606, respectively as a component of cost of products sold.

(2)  For the three months ended June 30, 2007, theCompany recorded an impairment charge on certain acquired intangible assets of$3,310,905, which is included in Loss from operations.

F-28

----

 
|                                                                         | ** ** | **September 30,  2005** | ** ** | **December 31,  2005** | ** ** | **March 31,  2006** | ** ** | **June 30,  2006** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|--------------------------|------------|-------------------------|------------|
|                                                                    |       |                         |       |                        |       |                     |       |                    |       |
| **2006**                                                                |       |                         |       |                        |       |                     |       |                    |       |
|                                                                    |       |                         |       |                        |       |                     |       |                    |       |
| Revenue                                                                 |       | $                            | 670,218    |                        | $          | 1,091,307                |       | $                       | 1,741,095  |   | $ | 1,806,452 |   |
|                                                                    |       |                         |       |                        |       |                     |       |                    |       |
| Cost of products  sold (1)                                              |       | 328,292                      |       | 438,018                     |       | 386,818                  |       | 509,847                 |       |
|                                                                    |       |                         |       |                        |       |                     |       |                    |       |
| Loss from  operations                                                   |       | (5,200,736                   | )          | (4,197,037                  | )          | (8,591,790               | )          | (7,653,095              | )          |
|                                                                    |       |                         |       |                        |       |                     |       |                    |       |
| Net loss                                                                |       | (4,804,592                   | )          | (3,793,862                  | )          | (8,138,302               | )          | (7,162,007              | )          |
|                                                                    |       |                         |       |                        |       |                     |       |                    |       |
| Net loss  applicable to common stockholders                             |       | $                            | (4,889,660 | )                           | $          | (3,878,931               | )          | $                       | (8,221,521 | ) | $ | (7,246,151 | ) |
|                                                                    |       |                         |       |                        |       |                     |       |                    |       |
| Basic and diluted net  loss applicable to common stockholders per share |       | $                            | (0.12      | )                           | $          | (0.10                    | )          | $                       | (0.20      | ) | $ | (0.18 | ) |

 

----

(1)  The Company records royalty expense as acomponent of cost of products sold.  Forthe three months ended September 30, 2005, December 31, 2005, March 31, 2006and June 30, 2006, the Company recorded royalty expense of $201,177, $330,410,$315,537, and $430,287, respectively as a component of cost of products sold.

The quarterly netloss per share applicable to common stockholders amounts are rounded to thenearest cent.  Annual net loss per shareapplicable to common stockholders may vary depending on the effect of suchrounding.

**Note 11 –Subsequent Events**

On or about August 22, 2007, David P. Luci, theCompany’s former General Counsel, filed an action in New York State SupremeCourt, New York County purporting to assert claims against the Company, itsChief Financial Officer and certain current and former Directors of theCompany. The Complaint purports to allege, among other things, that the Companybreached contractual and other obligations allegedly owed to him in connectionwith the termination of his employment with the Company, and purports to demanddamages, in the aggregate, of $108,400,000. The Company believes that theaction is without merit and intends to mount a vigorous defense.

F-29

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

The Board of Directors and Stockholders ofBioenvision, Inc.:

In connection with our audit of the consolidatedfinancial statements of Bioenvision, Inc as of and for the years ended June 30,2007 and 2006, we also audited the 2007 and 2006 consolidated financialstatement Schedule II. In our opinion, the 2007 and 2006 financial statementschedule, when considered in relation to the basic consolidated financialstatements taken as a whole, presents fairly, in all material respects, theinformation required to be included therein.
| /s/ J.H. Cohn LLP    |
|----------------------|
|                 |
| Roseland, New Jersey |
| August 31, 2007      |

 

S-1

----

**SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS**

**Years Ended June 30, 2007, 2006 and, 2005**
| ** **                                  | ** ** | **Balance at  Beginning of  Period** | ** ** | **Charged to  Cost and  Expense** | ** ** | **Write-offs  and  Recoveries** | ** ** | **Loss on  Foreign  Exchange** | ** ** | **Balance at End  of Period** | ** ** |
|---------------------------------------------|------------|------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------|------------|-------------------------------------|------------|----------------------------------------------|------------|
|                                        |       |                                           |       |                                        |       |                            |       |                                |       |                                         |       |
| **Allowance  for doubtful accounts**        | ** ** | ** **                                     | ** ** | ** **                                  | ** ** | ** **                      | ** ** | ** **                          | ** ** | ** **                                   | ** ** |
|                                        |       |                                           |       |                                        |       |                            |       |                                |       |                                         |       |
| June 30, 2007                               |       | $                                              | 898,714    |                                        | $          | 160,740                         |       | $                                   | (205,455   | )(1)                                         | $          | 9,080 |   | $ | 863,079 |   |
|                                        |       |                                           |       |                                        |       |                            |       |                                |       |                                         |       |
| June 30, 2006                               |       | $                                              | 869,220    |                                        | $          | 25,564                          |       | $                                   | —     |                                         | $          | 3,930 |   | $ | 898,714 |   |
|                                        |       |                                           |       |                                        |       |                            |       |                                |       |                                         |       |
| June 30, 2005                               |       | $                                              | —     |                                        | $          | 869,220                         |       | $                                   | —     |                                         | $          | — |   | $ | 869,220 |   |
|                                        |       |                                           |       |                                        |       |                            |       |                                |       |                                         |       |
| **Deferred  tax asset valuation allowance** | ** ** | ** **                                     | ** ** | ** **                                  | ** ** | ** **                      | ** ** | ** **                          | ** ** | ** **                                   | ** ** |
|                                        |       |                                           |       |                                        |       |                            |       |                                |       |                                         |       |
| June 30, 2007                               |       | $                                              | 24,631,266 |                                        | $          | 14,295,910                      | (2)        | $                                   | —     |                                         | $          | — |   | $ | 38,927,176 |   |
|                                        |       |                                           |       |                                        |       |                            |       |                                |       |                                         |       |
| June 30, 2006                               |       | $                                              | 14,178,975 |                                        | $          | 10,452,291                      | (2)        | $                                   | —     |                                         | $          | — |   | $ | 24,631,266 |   |
|                                        |       |                                           |       |                                        |       |                            |       |                                |       |                                         |       |
| June 30, 2005                               |       | $                                              | 2,893,873  |                                        | $          | 11,285,102                      | (2)        | $                                   | —     |                                         | $          | — |   | $ | 14,178,975 |   |

 

----

(1) Includes$194,241 relating to****our right ofoffset against royalties due from our co-development partner which has beenoffset against the fully reserved receivable balance due from theco-development partner.

(2) Reflects theincrease in the valuation allowance associated with net operating losses of theCompany.

S-2

----