<PAGE>



                     U.S. Securities and Exchange Commission
                             Washington, D.C. 20549
                                   Form 10-KSB

 X       ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
---      OF 1934 for the fiscal year ended September 30, 2002

         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 0-11480

                           BIOVEST INTERNATIONAL, INC.
                           ---------------------------
                 (Name of small business issuer in its charter)

          Delaware                                    41-1412084
-------------------------------------                 ----------
    (State or other jurisdiction       (I.R.S. Employer Identification Number)
of incorporation or organization)

                   8500 Evergreen Blvd., Minneapolis, MN 55433
                   -------------------------------------------
               (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number: (201) 816-8900

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of
the Exchange Act:                             Common Stock, $.01 par value
                                             ------------------------------
                                                      (Title of class)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ x ] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]


State issuer's revenues for its most recent fiscal year: $11,279,000


The aggregate market value of voting common stock held by nonaffiliates of the
registrant as of December 27, 2002 was approximately $ N/A (Cannot be determined
because the common stock has not begun trading since the Company's
reorganization effective July 30, 1999.) The number of shares of common stock
held by non-affiliates is 4,632,853

The number of shares outstanding of each of the registrant's classes of common
stock, as of December 27, 2002 was: Common Stock, $.01 par value: 9,816,363
shares

Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ x ] No [ ]

Transitional Small Business Disclosure format (check one) Yes [ ] No [ x ]

                                       1

<PAGE>



                           FORWARD-LOOKING STATEMENTS

In order to keep the Company's stockholders and investors informed of the
Company's future plans, this Report and, from time to time, other reports and
oral or written statements issued by the Company or on its behalf by its
officers contain forward-looking statements concerning, among other things, the
Company's future plans and objectives that are or may be deemed to be
"forward-looking statements." The Company's ability to do this has been fostered
by the Private Securities Litigation Reform Act of 1995 which provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information so long as those statements are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those discussed in the statement. The
Company believes that it is in the best interests of its stockholders and
potential investors to take advantage of the "safe harbor" provisions of that
Act. Such forward-looking statements are subject to a number of known and
unknown risks and uncertainties that could cause the Company's actual results,
performance or achievements to differ materially from those described or implied
in the forward-looking statements. These factors include, but are not limited
to, general economic and business conditions, including the regulatory
environment applicable to the pharmaceutical industry; competition (see
"Competition"); potential technological changes (see "Research and
Development"), including the Company's ability to timely develop new products
and adapt its existing products to technological changes (see "Products" and
"Research and Development"); loss or disruption of sales to major customers as a
result of, among other things, third party labor disputes, the Company's ability
to market its existing, recently developed and new products (see "Marketing and
Sales"); the risks inherent in new product introductions, such as start-up
delays and uncertainty of customer acceptance; dependence on third parties for
certain of its products and product components; the Company's ability to attract
and retain technologically qualified personnel (see "Employees"); the Company's
ability to fulfill its growth strategies (see "Future Strategy"); the
availability of financing on satisfactory terms to support the Company's growth
(see "Management's Discussion and Analysis or Plan of Operations-Liquidity and
Capital Resources"); and other factors discussed elsewhere in this Report and in
other Company reports hereafter filed with the Securities and Exchange
Commission.

                                       2
<PAGE>




                                     PART I.


ITEM 1. DESCRIPTION OF BUSINESS


GENERAL

         Our company, Biovest International, Inc. is a biotechnology company
focused on the production and contract manufacturing of biologic drugs and
products from small through commercial scale. Biovest utilizes its patented
biological production process, which it continues to further develop. Our first
biologic product, a personalized immunotherapeutic for the most common and
fastest-growing form of hematologic cancer, known as Non-Hodgkin's B-cell
lymphoma, is currently in a Phase III FDA-approved licensing trial. The
Company's capabilities in hollow fiber perfusion technology have resulted in our
selection by the National Cancer Institute as the preferred producer on this
initial Phase III trial. Our Company may also be involved in the production and
commercial development of other products in the NCI's personalized cancer
vaccine program. It is anticipated that personalized vaccine products for deadly
diseases such as cancer and AIDS will develop as a clear trend in therapeutic
biologic drugs, and the Company's ability to produce these drugs in scalable
quantities increases our likelihood of involvement in this rapidly-expanding
market. The Company is currently involved in negotiations for the production and
potential ownership interest of other personalized immunotherapeutics for
various cancers and other serious diseases. At the same time, the Company is
continuing its contract production business, a field that is forecasted to
expand with the expected increase of new biologic drugs making their way through
the FDA approval pipeline, and maintaining and modernizing its line of patented,
proprietary hollow fiber perfusion instruments.

         In 1998, Biovest LLC invested in our Company so as to apply and further
the use of hollow fiber technology in the field of biologic therapeutics.
Recognizing the need to enhance current therapeutic models, particularly in the
areas of cancer and AIDS, new management saw biologics as the key to the next
significant advancement in drug discovery, diagnostics and therapeutics.


         By 2000, biologics such as monoclonal antibodies were demonstrating
significant value in disease therapeutics and had emerged on the commercial
pharmaceutical market as only eleven monoclonal antibodies approved for
commercial distribution represented approximately $2 billion in revenues. Since
these pioneer drugs emerged, many more have gained licensure and there are
currently thousands in the pipeline. These biologics are unique in many ways,
including their precise specificity to diseases on the molecular level. Further,
there has been the emergence of even more specific and effective biologics. With
the mapping of the human genome recently released, new management also
recognized this trend and the potential value of patient specific therapeutics.


         New management believed that the time was right to leverage our core
production competency and technological superiority to obtain increased market
share in production of biological drugs. In 2000, the NCI sought a production
house with the technology to commercially produce an immunotherapeutic for
Non-Hodgkin's lymphoma that was made from a patient's own tumors. We applied to
the NCI to discuss involvement in this project. Already familiar with our hollow
fiber instrumentation and our production capabilities, the NCI accepted our bid
to produce the cancer immunotherapeutic. We were awarded a contract in June of
2000 for the production of the patient-specific supernatant immunotherapeutic
for an FDA-approved Phase III clinical trial.

         On November 14, 2000, we were notified by the NCI that we had been
selected to exclusively negotiate a Cooperative Research and Development
Agreement for the development of an immunotherapeutic for the treatment of
B-cell lymphomas and on September 4, 2001, we were officially awarded the CRADA
with the NCI.

                                       3
<PAGE>

         If approved by the FDA, it is anticipated that this cancer
immunotherapeutic will be produced at commercial production levels utilizing our
proprietary cell culture production system. Because of the difficulties involved
in receiving FDA clearance we may not receive FDA approval for any products and
if we do receive FDA approval, we may not be able to produce the
immunotherapeutic at commercial production levels. We expect that our production
system will be utilized to satisfy all immunotherapeutic production requirements
during the Phase III trials. In addition, as mentioned earlier, we are exploring
and negotiating with various entities to apply our proprietary technology and
instruments to the production and commercialization of other emerging biologic
therapeutic drugs, including other personalized vaccines for cancers and other
diseases.

         It is our strategy to continue to pursue additional rights to
proprietary therapeutics by leveraging our production system as an essential
element of the commercial production of any such product. We intend to continue
to expand our mammalian cell culture and contract cell production service
businesses while exploring additional uses for and greater acceptance of our
perfusion-based bioreactor cell culture technology.

         The Company originated in 1981 as a Minnesota-based corporation,
furnishing hollow fiber perfusion cell culture instrumentation and biologic
contract production services to researchers, biopharmaceuticals, and government
agencies. Hollow fiber technology, we believe is the best-suited for many types
of biologic production because it simulates human capillaries and provides an
environment conducive to cell replication at high densities with advantages in
processing, lead times and cost.

         We furthered our production capabilities in May of 2000 by acquiring
the assets of Massachusetts-based Unisyn Technologies, Inc. Formerly a
competitor of our Company, Unisyn provided clean room production capabilities in
current Good Manufacturing Practices space utilizing isolation suites that are
ideal for the therapeutic biologic manufacturing protocols. Unisyn further
provided patented whole cell production technologies and, through its San Diego
assembly plant, hollow fiber bioreactor and flow path production capabilities to
support expanded cell production operations

         In 2000, the National Institutes of Health renewed its grant to us to
manage and house the National Cell Culture Center, which provides cell culture
production services to leading researchers and academic institutions throughout
the United States. This five-year grant, originally placed with M.I.T. in the
1980's, has now been awarded to us three times in succession via a peer-reviewed
competitive process.

         Originally, the Company was incorporated under the laws of the State of
Minnesota but recently we reincorporated in the State of Delaware. We have
corporate headquarters located in Englewood Cliffs, New Jersey with research and
development, manufacturing and contract cell culture production operations
located in Minneapolis, Minnesota. With the acquisition of the assets of Unisyn
Technologies, Inc. we added research and development, manufacturing and contract
cell culture production operations located in Hopkinton and Worcester,
Massachusetts and San Diego, California.

         During fiscal years 2002 and 2001 we incurred net losses of $4,200,000
and $5,832,000, respectively, and used $297,000 and $2,070,000 of cash in
operating activities. At September 30, 2002 we had a deficit in working capital
of $1,055,000. During fiscal 2002, we met our cash requirements through the use
of cash on hand, the sale of common stock and short-term borrowings, primarily
from affiliates.

         In September 2001 we successfully entered into a definitive CRADA with
the NCI for the development and ultimate commercialization of patient-specific
vaccines for the treatment of non-Hodgkin's low-grade follicular lymphoma. The
terms of the CRADA include, among other things, a requirement for us to pay
$530,000 quarterly to NCI for expenses incurred in connection with the ongoing
Phase III clinical trials. The Company made the first payment in the quarter
ended September 30, 2001.



                                       4


<PAGE>




         On May 8, 2002 the Company and the NCI executed an amendment to the
CRADA, which requires a single payment of $350,000, due on September 30, 2002,
in lieu of the quarterly payments of the original agreement. Under the
amendment, quarterly payments of $530,000 will resume on October 1, 2002. On
October 15, 2002 a new amendment to the CRADA was executed under which the
Company is not required to make the $350,000 payment due to the NCI on September
30, 2002 nor the $530,000 payment due on October 1, 2002. The next payment due
from the Company is $530,000 within 30 days of the April 1, 2003 due date.
Failure to remit this payment will constitute the Company's unilateral
termination of the CRADA and we will lose the rights to commercialize the
results of our research with the NCI. Successful development of the vaccine, if
approved by the FDA, from Phase III clinical trials through commercialization
will commit us to several years of significant expenditures before revenues will
be realized, if ever.

         Our ability to continue our present operations and meet our obligations
under the CRADA is dependent upon our ability to obtain significant additional
funding. Such additional financing could be sought from a number of sources,
including the sale of equity or debt securities, strategic collaborations or
recognized research funding programs. We are currently in the process of
exploring various financing alternatives to meet our cash needs, including
additional short-term loans from shareholders and others and the sale of equity
securities. We believe we will be able to raise the necessary funds to continue
operations in the near term.

         We may not be able to obtain the additional funds that we require on
terms acceptable or favorable to us, if at all. The net losses we have incurred
and the need for additional funding raise substantial doubt about our ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


EVENTS LEADING TO REORGANIZATION

         In 1998 Biovest LLC became the debtor-in-possession of Cellex
Biosciences, Inc., the Predecessor Company.

         Due in part to the underdeveloped nature of the market it served, the
Predecessor Company incurred significant operating losses. The Predecessor
Company obtained capital from various sources including term loans, lines of
credit, corporate partners and equity financings consisting of public offerings
and numerous private placement financings. However, these financings were not
sufficient to bring the Predecessor Company to a positive working capital
position.

         On October 10, 1997, the Predecessor Company entered into an agreement
with Unisyn, a hollow fiber perfusion technology systems company and a
competitor, to form a combined new company. The Predecessor Company initiated a
$3.8 million debt financing to serve as the bridge to the completion of the
merger and a post-merger equity financing. Unisyn unilaterally terminated the
merger on February 27, 1998.

         The termination had a significant negative impact on the Predecessor
Company's results of operations for fiscal year 1998. Beyond the financial
burden that already existed, the Predecessor Company was then saddled with
bridge financing of $3,800,000 and was forced to write-off over $400,000 in
merger costs.

         On October 6, 1998, three participants in the Predecessor Company's
bridge financing to the Unisyn merger filed an involuntary Chapter 11
Bankruptcy. New investors were identified and provided the necessary capital to
fund the Predecessor Company's recapitalization and on-going operations. On
December 8, 1998, the Predecessor Company filed a Consent to Order for Relief
with the U.S. Bankruptcy Court and began operating as a debtor-in-possession.

                                       5
<PAGE>

         During that period, Biovest LLC, a biotechnology investment group,
agreed to provide debtor-in-possession financing and fund a consensual plan of
reorganization in exchange for equity control of our company. On July 7, 1999,
the United States Bankruptcy Court, District of Minnesota, Third Division,
confirmed our company's Modified First Amended Plan of Reorganization dated June
28, 1999, which became effective July 30, 1999. For financial reporting
purposes, the effective date of the Plan is considered to be July 31, 1999, the
Effective Date. See Note 4 in the notes to our Financial Statements.

OUR CURRENT BUSINESS


         INDUSTRY Worldwide R&D spending by pharmaceutical and biotechnology
companies was estimated to be over $50 billion in 2001. Growth has accelerated
in recent years and is expected to continue growing between 9-11% per year in
the near term based on pending patent expirations and the need for novel
therapies (source: Parexel's Pharmaceutical R&D Statistical Sourcebook 2000).
The 4-year compounded annual growth rate of outsourced biologics manufacturing
in the U.S. is estimated at over 30% (source: Arthur D. Little, Industry
Sources, and RBC Dain Rauscher, Inc.).


         BIOLOGIC DRUG PREEMINENCE Historically, diagnostic and therapeutic
health care products have been, and continue to be, predominantly developed and
manufactured by pharmaceutical companies using chemical transmutation techniques
or bacteria, fungi and yeast cell cultures processed in a stirred tank or
fermentation system. During the 1980s, in connection with the advent of genetic
engineering, a variety of additional and, for some purposes, more effective cell
production technologies were also developed. The hollow fiber perfusion
technology employed by our cell culture systems are examples of these newer cell
culture technologies.

         The biotechnology industry has grown rapidly and produced many diverse
companies focusing on and developing a variety of diagnostic and therapeutic
health care products. These new biotechnology products (genetically expressed
proteins) are potentially far more potent and result in less harmful side
effects than their chemical and bacterial derived forerunners. These products
are being introduced to the commercial market in steadily growing numbers and
with expanding market potential.

         From the outset, attempts to produce more complex genetically
engineered proteins from traditional bacteria, fungi and yeast cells proved
disappointing. These cells were found to be incapable of expressing structurally
competent proteins which result in the desired therapeutic or diagnostic effect.
Scientists have since identified mammalian cells as the best source for
production of functional or physiologically competent genetically expressed
proteins. However, mammalian cells typically are more complex and less cost
effective for use as a production methodology for recombinant protein.
Consequently, we believe that the successful commercialization of many
bioproducts will be dependent on the availability of manufacturing processes and
facilities that produce mammalian cell proteins economically and efficiently.

         Currently, most biotechnology and pharmaceutical companies manufacture
mammalian cell proteins using traditional fermentation and stirred tank cell
culture technologies; however, no one cell culture technology is suitable for
the production of every mammalian cell or mammalian cell-derived bioproduct.
Each type of mammalian cell is unique and its economical production is highly
dependent on the cell culture technology used. For example, traditional
fermentation technologies, while quite effective for the production of some
mammalian cells and bioproducts, encounter technical difficulties in the
production of others, such as many of the monoclonal antibodies. As a result,
perfusion technologies, such as our hollow fiber technology have emerged within
the last decade as preferable alternative to traditional fermentation approach.


         PERSONALIZED CANCER IMMUNOTHERAPEUTIC FOR B-CELL FOLLICULAR LYMPHOMA
The Company is engaged in a clinical trial in association with the NCI and has
embarked upon a project for the potential



                                       6


<PAGE>


licensing, commercialization and further development of a cancer
immunotherapeutic for B-cell lymphoma. The specific cancer targeted in the
current FDA-approved Phase III trial is Non-Hodgkin's lymphoma and more
specifically, the low-grade follicular form of Non-Hodgkin's lymphoma (FL).


         UNDERSTANDING THE DISEASE Non-Hodgkin's lymphoma is a cancer of the
immune system. The immune system is composed, in part, of specialized cells,
which include both B-cell and T-cell lymphocytes. These cells play an integral
role in recognizing, destroying and ultimately eliminating disease-causing
foreign substances, virally infected cells and malignant cells that might be
present in the human body. B-cells and T-cells have diverse functions that are
predicated by receptors, which exist on their surfaces. These receptors react
specifically to foreign substances and infected or malignant cells and thereby
serve to eradicate them from the body.

         A cancer of the immune system such as a B-cell lymphoma is a breakdown
of this process leaving the patient susceptible to life-threatening conditions
as a result of the inability of the B-cells and T-cells to properly function. It
is the restoration of their proper function that will ultimately halt the
disease process. It is accepted in the scientific and medical community that
up-regulating the immune system is a key component in the treatment of cancer.

         The NCI for many years has been attempting to establish protocols to
boost the immune system of cancer patients. We believe Non-Hodgkin's lymphoma
currently afflicts, at any given time, more than 300,000 patients in the United
States. It is a cancer that afflicts 56,200 new patients per year in the United
States; general B-cell lymphoma afflicts many more. Hodgkin's disease, as an
example, afflicts nearly 10,000 new Americans per year.


         Currently, Non-Hodgkin's lymphoma is the most commonly occurring
hematological cancer with 85% of all Non-Hodgkin's lymphomas being B-cell
lymphomas. It is the fifth-leading cause of cancer death in the United States
and is the second fastest growing cancer in the United States in terms of
mortality rate. This data was most recently presented at the Hematology/Oncology
CME Circle, sponsored by the University of Washington School of Medicine in
"Medscape"(3/30/01).

         There are many clinical sub-types of Non-Hodgkin's lymphoma, which
include small lymphocytic, also known as CLL Mantel Cell Follicular Marginal
Zone (MALT-type) diffuse large cell, B-cell primary media-stinal (thymic,
B-cell) Burkets lymphoblastic, T-cell, peripheral T-cell and anaplastic large
cell, T/MULL-CELL. Patients diagnosed with indolent or low-grade follicular
Non-Hodgkin's lymphoma, as published in the Journal of the National Cancer
Institute, have not experienced an improvement in the survival rate of patients
with follicular (otherwise known as indolent) lymphoma over the last three
decades.


         The median survival remains unchanged in these patients, even if the
natural history of the disease has been altered by either alkylating agents or
radiation therapy. That is, patients have a median survival rate of 7 to 10
years and there is no and has been no curative plateau whatsoever.


         TREATMENT OPTIONS The treatment options for this disease have included
a "watch and wait" approach, a single-agent chemo-therapeutic approach,
anthrocycline-containing combination chemotherapy, purine analogue containing
chemotherapy, total nodal irradiation, autologous or allogenic transplantation
and antibody therapy.


         Most recently, antibodies have gained their acceptance in the treatment
of Non-Hodgkin's lymphoma and are often utilized as the primary treatment. These
biologicals have slowly become the standard of care for this disease. Included
in this group is Rituximab(TM), which is an antibody to the CD-20 receptor that
exists on the surface of both normal and malignant B-cells.

                                       7
<PAGE>

         In data taken from the pivotal trial of Rituximab(TM), which included
151 evaluable patients from a total 166 intended to treat, there were 6 patients
who displayed complete clinical responses and 42 patients who were in partial
remission. In this pivotal licensing trial, published in the Journal of Clinical
Oncology in 1998 by McLoughlin et al., the median time to onset of response was
50 days and the median duration of response was 11.6 months with a range of 1.9
to 36.7 months. The median time to progression of disease was 13.2 months. The
drug was approved on the basis of this trial, which included a 48% response rate
with only 6 complete responses in the 166 patients tested.


         In addition, a French paper presented in December 2000, at the annual
meeting of the American Society of Hematology ("ASH"), involved 50 patients who
were hand-picked, with low tumor burden and no symptoms including normal LDH
(liver enzymes) and betal-2 micro-globulin. As a result, excellent results were
published where a complete remission rate of 41% was noted with an overall
response rate of almost 70%.


         Because Rituximab(TM) is a new therapy, dosing is still being worked
out. A study by John Byrd evaluated the half-life of the drug and noted that it
was variable among patients. This study had 33 evaluable patients who received
Rituximab(TM) three times a week at costs ranging from $12,000 to $36,000, and
Byrd demonstrated a complete response rate of 3%, an overall response rate of
45% which last a median of 10 months.

         In addition, radioactive isotopes have been used to join with
Rituximab(TM) to produce a drug called Zevalin(TM). It was found that
Zevalin(TM) had a higher overall response rate, which was 80% versus 56%
observed with Rituximab(TM). The complete remission rate of Zevalin(TM) was 30%
versus 16%, and there was no difference in the duration of responses.

         There have also been additional studies utilizing a drug entitled
Bexxar(TM), which is another compound formed with a radioactive isotope that
utilizes a slightly different radiological agent. In the original Phase I/II
studies performed with Bexxar(TM) patients who entered had low-grade,
transformal grade and intermediate grade lymphoma, and they were enrolled if
they had relapsed after chemotherapy. The surprising result was a high response
rate, which was 83% with almost a 50% complete response rate. Interestingly, in
that trial the intermediate grade lymphoma was also responsive but no complete
remissions were obtained. In another Bexxar(TM) clinical trial for patients with
transformed low-grade Non-Hodgkin's lymphoma, the overall response rate was 53%
with a complete response rate of 29% and the median duration of response in 11
months in the first group and 20 months in the second group.

         Another form of treatment that has been utilized is total body
irradiation with radioactive isotope implants as well as stem cell
transplantation. The main issue is the limited dose of radiolabeled anti-body
that can be used in order to avoid serious bone marrow damage, which is a
dose-limiting toxicity.

         BIOVEST'S ROLE; THE IMMUNOTHERAPEUTIC APPROACH As stated earlier, there
is no significant overall change in the treatment for this deadly, lethal
disease, which historically has a 99% mortality rate. The NCI and Biovest use an
immunotherapeutic model, which utilizes a specific marker that exists only on
these cancerous cells. The cancerous cells are removed and a therapeutic
monoclonal anti-body that reacts only with the specific cancer, creates a
personalized cancer immunotherapeutic that can stimulate the patients' immune
system to turn against and destroy this very cancer cell. Data from a Phase-II
trial was initially published in Nature Medicine, with statistics that
demonstrated nearly 90% of the patients had complete clinical responses 4 1/4
years after their vaccination. The immunotherapeutic demonstrated a 95% response
rate, and both the B-cell and T-cell arm of the immune system were proved to be
activated. These patients were initially placed on a chemotherapeutic protocol
and those achieving remission were then vaccinated with a therapeutic anti-body,
which was produced specifically for each patient. The results, as stated, were
significant and highly encouraging. This in turn prompted a Phase-III licensing
trial, which required the NCI to locate and identify a company capable of
manufacturing a




                                       8

<PAGE>



significant amount of patient-specific anti-body for the large number of
patients that would be required in this nationwide trial.

         In June of 2000, the NCI awarded Biovest a contract for the production
of the patient-specific immunotherapeutic for an FDA-approved Phase III clinical
trial. On November 14, 2000, we were notified by the NCI that we were invited to
negotiate a CRADA for the development of this immunotherapeutic for the
treatment of B-cell lymphomas and in September 2001, we entered into a
definitive CRADA with the NCI.

         Under the terms of the original CRADA, we had certain financial and
staffing obligations. We were required to make certain payments to the NCI
including a payment of $530,000 each quarter for expenses incurred by the NCI
and an initial payment of $100,000 for costs associated with the NCI's
sponsorship. We made the first payment in the quarter ended September 30, 2001.
On May 8, 2002 we executed an amendment to the CRADA, which requires a single
payment of $350,000, due on September 30, 2002, in lieu of the quarterly
payments of the original agreement. On October 15, 2002 a new amendment to the
CRADA was executed under which the Company is not required to make the $350,000
payment due to the NCI on September 30, 2002 nor the $530,000 payment due on
October 1, 2002. The next payment due from the Company is $530,000 within 30
days of the April 1, 2003 due date. Failure to remit this payment will
constitute the Company's unilateral termination of the CRADA and we will lose
the rights to commercialize the results of our research with the NCI. In
consideration for our financial and staffing commitments, we are granted an
exclusive option to negotiate with the NCI for a license to commercialize
certain intellectual property resulting from the research conducted pursuant to
the CRADA. Because of the difficulties involved in research of this type we may
not be successful or, we are successful in our research, we may not be able to
negotiate a license on favorable terms, if at all. In addition, we may not be
able to derive any revenue from a license for a number of years, if at all.

         Biovest has a patented biological production process, which we are
utilizing for the manufacture of these immunotherapeutics and many of the other
involved processes are also proprietary to us. In addition, we will maintain the
exclusive commercialization and intellectual property rights for the material
going forward in the trial.

         We are establishing satellite facilities in major universities to
enable collection of lymph nodes from these patients, which is not especially
invasive since the lymph node is initially required for the diagnosis. It is
from this lymph node that the malignant B-cells are collected and from this the
immunotherapeutic is manufactured.

         This trial is now ongoing in six locations, which include Duke
University, Northwestern University, The University of South Florida - The
Moffitt Cancer Center, The University of Pennsylvania, N.Y.U Medical Center and
the NCI.

         We have been able to demonstrate an increase in the scalability and
manufacturing of this immunotherapeutic, problems with which in the past have
plagued this approach. We have been able to do this in a manner acceptable to
the NCI, thus setting the stage for our selection for this process. Biovest
along with its scientific team believes in the application of this technology
and process to many other cancers and other diseases.

         COMMERCIALIZING THIS IMMUNOTHERAPEUTIC We have evaluated the market in
which we seek to ultimately commercialize this drug and is considering a
co-marketing arrangement. The crux of the marketing plan will be to direct
information regarding the immunotherapeutic and the prescribing of the
immunotherapeutic to the specific specialized physicians who are involved with
and treat these types of patients, namely the hematological oncologists
specializing in lymphoma.

                                       9
<PAGE>

         The cost of treatment of this disease is expensive. In the New York
City metropolitan area it is estimated that the average treatment cost with
current treatment methodology ranges between $300,000 and $500,000 per patient.
Chemotherapeutic treatment programs typically cost approximately $90,000 per
treatment cycle and very often multiple cycles are required. Bone marrow
transplant, which very often is required in those patients who remain refractory
to treatment can be in excess of $200,000. This of course does not include many
other complications, which often afflict such patients.


         Biovest has plans to make the entire cost of treatment with our
immunotherapeutic less than the cost of chemotherapeutic regimen. It is
important to note that Biovest's treatment approach does not replace
chemotherapy. It works in conjunction with the chemotherapy.


         The current clinical trial is ongoing and requires a total accumulation
of 563 patients; we are approximately at the 100-patient mark as of June 30,
2002.

         There are many risks and costs involved in clinical trials, and it
should be noted that, in accordance with a statistic quoted from U.B.S. Warburg,
just 60% of biological monoclonal anti-bodies in Phase-III ultimately gain
commercialization rights. We can make no assurances that we will be able to
commercialize and license this immunotherapeutic.



         MARKET OVERVIEW As noted in Biospace News (May 11, 1999), outsourcing
of bio-pharmaceutical manufacturing is increasing in popularity, and the market
has now exceeded $1 billion in annual sales and approaches $2 billion. Our
management has recognized the growth potential in the biologic cell production
segment of the biotechnology market. The Jackson Laboratories study predicts
that 50% of biological production will be dedicated to patient-specific medicine
in the year 2020. These projections increase to nearly 100% by the year 2040.
The present shortage of production capacity for biologics in general will
increase as this market segment rapidly expands.


         We believe that our patented and proprietary technology is well suited
to satisfy this need for production capacity and have positioned ourselves to
benefit from the anticipated increase in demand. The release of the mapping of
the human genome, stimulating further research and development of biologic
drugs, will serve only to increase demand for production services.


         Non-Hodgkin's lymphoma is the most commonly occurring hematological
cancer with 85% of all Non-Hodgkin's lymphomas B-cell lymphomas. It is the
fifth-leading cause of cancer death in the United States and is the
second-fastest growing cancer in the United States in terms of mortality rate.
There are an estimated 500,000 persons afflicted with Non-Hodgkins lymphoma
worldwide at any given time. As such, the potential market for our
immunotherapeutic is significant, and the provision of a new and effective
treatment method will make a significant impact on the market.

         Future growth in the biotechnology industry, and specifically in the
contract cell production services market, is expected to be driven by
biotechnology-based development in the pharmaceutical industry.
Biopharmaceuticals are tied to large scale production of mammalian cells.


FUTURE STRATEGY

         Our management has adopted a strategy which utilizes the strengths of
the Predecessor Company and augments those historical strong points with a focus
on the field of biologic therapeutic production.


         The strategy begins with a commitment to maintain and grow our core
business of contract production and further the technology. We have expanded our
technology and applied it to GMP production of clinical-grade material in the
clean-room and GMP production space acquired in the Unisyn asset purchase. With
the ability to design, manufacture and supply our own patented flowpaths and



                                       10



<PAGE>



bioreactors for use in our contract production business, we are positioned to
take advantage of the anticipated rise in demand for production services in the
next five years. With the outlook in the biotech press predicting that
production capability is lacking in the industry, we have taken steps to address
this demand and to provide a strong and growing contract production capability.

         In light of the emerging trend within the biotechnology industry toward
the development of patient-specific biologics for the treatment of many
diseases, we see an opportunity to leverage our core competency in cell culture
technology and biologic production to exploit the emerging trend toward
outsourcing of production and to explore the promising field of patient-specific
medicine. Utilizing our existing expertise in cell culture, contract production
and instrument development, management seeks to apply these capabilities in the
emerging patient-specific biologic market. All indicators point to many
patient-specific protocols. We have already been successful in winning the
production contract for the NCI-sponsored non-Hodgkin's lymphoma
immunotherapeutic, and we have finalized a definitive CRADA with the NCI to take
that immunotherapeutic through Phase III trials. Our management believes that we
can compete for a share of the contract production business in this emerging
field, and for equity ownership of selected patient-specific drugs that show
potential for commercial success.


         This drug and process ownership role is part of the final portion of
our new strategy for success in the biotech market. Through participation in the
NCCC and early-stage research we will explore opportunities in larger-scale
biologic production. Our Scientific Advisory Committee will observe and evaluate
emerging drugs and allow us to make informed decisions as to drugs with which we
should seek to become more involved. Using our platform technologies and our
innovative approach to the patient-specific biologic field, we plan to obtain
proprietary ownership interests in selected biological drugs over the next
several years to allow our Company to stay at the forefront in the production
and commercialization of new biological drugs.

OUR CORE TECHNOLOGY

         Mammalian Cell Culture Technology. We have developed considerable
expertise with in vitro (outside the living body) simulation of in vivo (in the
living body) physiological environments for a wide variety of mammalian cells.
Mammalian cells are very complicated and dynamic, with constantly changing
needs. The human body has evolved very elaborate control mechanisms to maintain
cells in their proper environment. We employ mechanical, electrical,
biochemical, and software engineers in addition to cell culture scientists and
other cell culture professionals who collaborate with outside medical
professionals to simulate and automate these control mechanisms. We have
received patents for our perfusion cell culture technology.

         Hollow-Fiber Technology. Hollow fibers are hair-like fibers with hollow
centers, or a lumen, made of plastic polymers. We use hollow fibers to simulate
human capillaries. Thousands of these fibers are inserted in a cartridge to make
a bioreactor for the growth and maintenance of mammalian cells. In the
bioreactor, the cells are grown on the outside of the hollow fibers while
nutrient media is delivered through the lumen of the fibers. The fiber walls
have extremely small pores, allowing nutrients to pass from the lumen to the
cells. All re-created products (biologicals) are continuously harvested from the
bioreactor for an extended period of time (months).

         Hollow-fiber bioreactors provide significant advantages for large-scale
production of mammalian cell products. The hollow-fiber bioreactors simulate the
in vivo environment, enabling cells to grow to high densities which approach the
density of cells in body tissue. The fibers act as filters and yield
concentrated secreted products. The cells are immobilized in the bioreactor so
that a pump can harvest the concentrated product from the bioreactor. This
permits harvests with high purities, thereby reducing the cost of further
purification. The hollow-fiber bioreactors also reduce the amount of costly
serum and growth factors that are required for cell growth.


                                       11
<PAGE>

OUR PRODUCTS AND SERVICES

         We applied our mammalian cell culture expertise and hollow-fiber and
ceramic core technologies to contract cell culture production services for
mammalian cell-derived products and to the design and development of a line of
perfusion cell culture systems to facilitate the research and production of
mammalian cells and cell-derived products.


         Cell Production Services - In addition to our instrument and services
businesses, an integral part of our strategy is the business of providing
contract production services to our customers who preferred to outsource the
business rather than purchase hardware. This service allows the customer to
realize the benefits of our proprietary perfusion technology without a large
initial investment in hardware, people, facility and training. The benefit to us
is that this business strategy allows access to smaller customers and to larger
companies that prefer to outsource production.


         During 1991, our previous management began providing contract services
for production of mammalian cell derived monoclonal antibodies for diagnostic
applications in accordance with the FDA's cGMP guidelines. Currently, we produce
whole cells, monoclonal antibodies and recombinant proteins for research,
diagnostic and clinical therapeutic products.

         NCCC Production Services - In September 1990, the NIH awarded us a five
year grant to establish and operate the NCCC at our facility in Minneapolis,
Minnesota. Subsequently the NIH awarded two successive renewals of this grant to
us, the latest of which continues the NCCC through the year 2005.

         Since establishment, the NCCC has provided services to research
laboratories within major universities and non-profit research institutions in
the United States, including Harvard Medical School, Scripps Research Institute,
Dana Farber Institute, Yale Medical School, Stanford Medical School, University
of California at Berkeley and the University of Chicago.

         The NCCC provides customized, large scale cell culture services to
basic biomedical research investigators. More specifically, the NCCC provides
academic scientists with subsidized access to professional cell culture services
for large scale production of their individual cell lines. Services include
specialized production of whole cells, conditioned media, and cell secreted
protein, i.e. monoclonal antibodies or recombinant proteins. These services
allow scientists to focus on discovery without the distraction of process
development for large scale culture of unique cell lines.

         The NCCC continues to provide large scale cell culture services to
basic research investigators throughout the United States. Since the first year
of operation, the number of annual requests has increased by 10 fold, with over
700 cell shipments delivered in 2001. Growth rate of this facility steadily
increases and as a result, NIH has recently encouraged the NCCC to begin
providing these services to academic investigators world-wide. Growth is further
evidenced by requests from over 125 new laboratories requesting cell culture
support for the first time, each of the past four years. To date, the NCCC has
received 847 cell lines from 986 individual laboratories. The vast majority of
these laboratories are actively funded by the NIH to support current or cutting
edge biomedical research in the United States.

         Production Cell Culture Systems - Our production cell culture systems
are known by the acronym ACUSYST which stands for automated cell culture system.
We added the CellPharm line of instruments as a result of the Unisyn asset
purchase. We applied our mammalian cell culture expertise and hollow-fiber
technologies to the design and development of a line of perfusion cell culture
systems to facilitate the research and production of mammalian cells and
cell-derived products and contract cell culture production services for
mammalian cell-derived products.

                                       12
<PAGE>

         Consumables and Supplies - We offer consumable products required for
use with our systems, including hollow fiber bioreactors, cultureware, tubing
sets and other cell growth chambers. Because of the nature of cell culture,
these products can normally be used only once for a culture period of weeks to
several months. Typically, a cell culture system will utilize three to four sets
of consumables each year. All cultureware is supplied pre-assembled and
sterilized for convenient operation.


CUSTOMERS

         We market our products and services through internal and external
resources to biopharmaceutical and biotech companies as well as to medical
schools, universities, research institutes, hospitals, private laboratories and
laboratories of the federal government.


RESEARCH AND DEVELOPMENT


         We seek to be a leader in serving the outsourcing needs of the
biotechnology market through further scale-up of our systems' production
capabilities, developing or acquiring new, more cost effective cell culturing
technologies and processes and broadening the uses of our cell culture
technology. Research and development expenditures for fiscal year 2002 were
$2,260,000, and $2,673,000 for the fiscal year ended September 30, 2001.
Research and development expenditures associated with the CRADA were $1,547,000
for fiscal year 2002 versus $2,508,000 for fiscal 2001.



COMPETITION

         We compete with other companies that provide hollow fiber contract
production services such as BioInvent and Goodwin Labs. In addition, our
technology competes with alternative manufacturing processes, such as stirred
tank fermentation. Companies utilizing these alternative production technologies
compete with us in three differing segments of the market: commercial scale
therapeutic cGMP, diagnostic and clinical phase therapeutics, and research
non-GMP. The commercial scale production segment presents competition from
companies such as Covance Inc., DSM Biologics, and Lonza Ltd, and is dominated
by stirred tank fermentor technology. Companies such as BioReliance, Primedica,
and Chiron Corp. ~represent the diagnostic and clinical phase therapeutic
segment competition, while the research non-GMP market is spread out through
numerous small organizations. These latter two segments represent the current
focus of our manufacturing services.

         In the field of cancer treatments, our immunotherapeutic is used
together with chemotherapy. We are not, therefore, in competition with the big
pharmaceutical companies which produce the various chemotherapy agents. To our
knowledge, no other company has been able to show data comparable to that
demonstrated by our FL vaccine. Nonetheless, there are many emerging
technologies in the pharmaceutical business, including small molecule
technology, and all of these emerging technologies pose potential competition as
therapeutic agents. This makes time to market a crucial factor.

         We believe that our ability to compete is dependent in large part upon
our ability to continually enhance and improve our manufacturing processes and
technologies. In order to do so, we must effectively utilize and expand our
research and development capabilities and, once developed, expeditiously convert
new technology processes. Competition is based primarily on scientific and
technological superiority, technical support, availability of patent protection,
access to adequate capital, the ability to develop, acquire and market contract
manufacturing processes successfully, the ability to obtain governmental
approvals and the ability to serve the particular needs of commercial customers.
Factors such as cost, on-time delivery, flexibility, and technical expertise are
important customer

                                       13

<PAGE>



considerations in selecting contract-manufacturing services. Corporations and
institutions with greater resources than us may, therefore, have a significant
competitive advantage.

PATENTS, TRADEMARKS AND PROTECTION OF PROPRIETARY TECHNOLOGY

         We have applied for and received patents on certain aspects of each of
our hollow fiber bioreactor technology, instrumentation, cellular engineering
technology, proprietary cell culturing methods and certain aspects of our
immunotherapy technology. Currently, we have fifteen (15) issued United States
patents and ten (10) foreign counterparts. The expiration dates of our presently
issued United States patents range from April 2003 to December 2016, and the
expiration dates of our presently issued foreign patents range from October 2005
to October 2007.

         We consider our current patents to be of primary importance. To the
extent possible, we also intend to seek patent protection for any new products
or product enhancements that we develop or acquire. To date, no consistent
policy has emerged regarding the breadth of claims covered in biotechnology
patents therefore our patents may be circumvented or invalidated. In addition,
companies which have or obtain patents relating to such products or processes
could bring legal actions against us (and any entities that may license
technology from us) claiming damages and seeking to enjoin us from producing or
marketing such products and processes. Such proceedings could cause delays in
our product and process market introductions or could prevent us from
developing, producing or selling certain products. Insofar as we rely on
agreements with employees and consultants, trade secrets and unpatented
technology and to maintain our competitive position, there is a possibility that
others may independently develop similar technology or that trade secrets,
confidentiality and non-disclosure agreements will be breached. In addition,
other private and public entities, including universities and the federal
government, have filed for, or have been issued, patents which, if valid, may
require us to obtain licenses. We may not be able to obtain such licenses on
reasonable commercial terms, if at all.

         We consider all trademarks to be of primary importance to our business.
We also hold the trademarks relating to Acusyst and CellPharm in the United
States.


GOVERNMENT REGULATION

         Food and Drug Administration. The FDA has extensive regulatory
authority over biopharmaceutical products (drugs and biological products),
manufacturing protocols and procedures and the facilities in which mammalian
proteins will be manufactured. Any new bioproduct intended for use in humans
(including, to a somewhat lesser degree, in vivo biodiagnostic products), is
subject to rigorous testing requirements imposed by the FDA with respect to
product efficacy and safety, possible toxicity and side effects. FDA approval
for the use of new bioproducts (which can never be assured) requires several
rounds of extensive preclinical testing and clinical investigations conducted by
the sponsoring pharmaceutical company prior to sale and use of the product. At
each stage, the approvals granted by the FDA include the manufacturing process
utilized to produce the product. Accordingly, our cell culture systems used for
the production of therapeutic or biotherapeutic products are subject to
significant regulation by the FDA under the Federal Food, Drug and Cosmetic Act,
as amended (the "FD&C Act").

         Our cell culture systems used to produce cells for diagnostic uses are
regulated under the FD&C Act as Class I medical devices. Medical devices are
classified by the FDA into three classes (Class I, Class II and Class III) based
upon the potential risk to the consumer posed by the medical device (Class I
devices pose the least amount of risk, while Class III devices and "new" devices
are presumed to inherently pose the greatest amount of risk). As Class I
devices, our systems must be manufactured in accordance with GMP guidelines.
Sales of such systems to customers using them to manufacture materials for
clinical studies and licensure do not require prior FDA approval.

                                       14
<PAGE>

         The process of complying with FDA regulations and obtaining approvals
from the FDA of applications to market biopharmaceutical products is costly,
time consuming and subject to unanticipated delays. There is no assurance that
our customers will be able to obtain FDA approval for bioproducts produced with
our systems, and failure to receive such approvals may adversely affect the
demand for our instruments.

         Under the FD&C Act, our customers must establish and validate Standard
Operating Procedures ("SOPs") utilizing our cell culture technologies in their
Drug Master Files. We provide assistance in operational, validation, calibration
and preventive maintenance SOPs to customers, as needed, to support their
product development and commercialization processes. For example, we will
typically provide existing and prospective customers who are utilizing our
contract production services or constructing production facilities based on our
cell culture technologies with information to enable such customers to comply
with the FDA's GMP requirements for facility layout and design. This information
may be provided either in a drug/biologic Master File which we give permission
to customers to cross reference in their submission to the FDA or provided to
customers to include in their FDA submissions.


         We have established the capability, at our facilities, to provide
contract production services of cell-secreted products in compliance with the
FDA's GMP requirements for biodiagnostic products and with the somewhat more
stringent GMP requirements for investigational biotherapeutic products. We filed
a Type I Drug Master File with the FDA in December 1992 describing the
procedures, equipment and facilities that we have in place to support the
production of investigational biotherapeutic products for human clinical
studies.


         In addition, our cell culture systems must comply with a variety of
safety regulations to be sold in Europe including but not limited to the
directives commonly referred to as "CE" (Communite' Europe).

         Environmental Protection Agency. The handling of potentially hazardous
materials, wastes and chemicals is regulated by municipal, state and federal
statutes. The EPA is concerned with disposal of materials such as cells and
their secreted waste products and hazardous chemical waste. We are required to
conform our procedures and processes to the standards set by the EPA, as well as
by local pollution authorities; however, because the volume of biological waste
products and hazardous chemical waste produced by us is quite small, the costs
of complying with federal, state and local environmental laws has not
historically been material to our operations.


INSURANCE

         We may be exposed to potential product liability claims by users of our
products. We presently maintain product liability insurance coverage in
connection with our systems and other products and services, including our
contract production services in the amount of $1 million per occurrence up to $2
million per year and general liability coverage in the amount of $2 million per
year. In addition, we maintain umbrella coverage in the amount of $3 million.
Although we believe that our current level of coverage is adequate to protect
our business from foreseeable product liability claims, we may seek to increase
our insurance coverage in the future in the event that we significantly increase
our level of contract production services. There can be no assurance, however,
that we will be able to maintain our existing coverage or obtain additional
coverage on acceptable terms, or that such insurance will provide adequate
coverage against all potential claims to which we may be exposed. A successful
partially or completely uninsured claim against us could have a material adverse
effect on our operations.

         Our production services also expose us to an inherent risk of liability
in the event the proteins or other substances manufactured by us, at the request
and to the specifications of our customers, cause adverse effects. We believe,
however, that customers that contract with us for the production of protein or




                                       15


<PAGE>


other substances will be primarily responsible for any possible adverse effects
resulting from the sale of their end products. Therefore, we obtain agreements
from contract production customers indemnifying us from any potential liability
resulting therefrom. There can be no assurance, however, that we will be
successful in obtaining such agreements or that any indemnification agreements
obtained will adequately protect us against potential claims relating to such
contract production services.

         The terms and conditions of our sales and instruments include
provisions which are intended to limit our liability for indirect, special,
incidental or consequential damages.


EMPLOYEES

         As of September 30, 2002, we had 72 full-time employees, including 11
in research and product development, 21 in manufacturing and quality control, 21
in contract production services, 6 in marketing, sales and technical services
and 13 in management, administrative or clerical positions. We supplement our
staff with temporary employees and consultants as required. We believe that our
relations with employees are satisfactory.

         Our ability to continue to develop and improve marketable products and
to establish and maintain our competitive position in light of technological
developments will depend, in part, upon our ability to attract and retain
qualified technical personnel.

CAUTIONARY STATEMENTS


         You should carefully consider the risks described below. The risks and
uncertainties described below are not the only ones facing our Company.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial also may impair our business operations. If any of the
following risks actually occur, our business could be harmed. In such case, the
trading price, if any, of our common stock could decline, and you may lose all
or part of your investment.

WE HAVE A HISTORY OF OPERATING LOSSES AND EXPECT TO INCUR FURTHER LOSSES AND WE
MAY BE UNABLE TO CONTINUE AS A GOING CONCERN

         The Predecessor Company incurred significant losses and cash flow
deficits in each year since our reorganization in 1988 resulting in an
accumulated deficit of $40,323,000 immediately preceding our reorganization as
of July 30, 1999. Subsequent to the reorganization in 1999, we have accumulated
a deficit of $12,113,000. We incurred a net loss of $197,000 for the two months
ended September 30, 1999, a net loss of $1,884,000 for the fiscal year ended
September 30, 2000, a net loss of $5,832,000 for the fiscal year ended September
30, 2001and a net loss of $4,200,000 for the fiscal year ended September 30,
2002. Although core operations are improving, we estimate operations will
continue to show losses for the next few years, particularly with the
anticipated expenses associated with the CRADA. There is no assurance that the
additional required funds can be obtained on terms acceptable or favorable to
the Company, if at all. The net losses incurred and the need for additional
funding raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.


WE WILL NEED ADDITIONAL FINANCING

         We have incurred significant losses and cash flow deficits in previous
years. During fiscal 2001 we met our cash requirements through the use of cash
on hand, the sale of common stock, and short-term loans from affiliates.

         Our ability to continue our present operations and meet our obligations
under the CRADA, is dependent upon our ability to obtain significant additional
funding. Such additional financing could be




                                       16


<PAGE>


sought from a number of sources, including the sale of equity or debt
securities, strategic collaborations or recognized research funding programs. We
are currently in the process of exploring various financing alternatives to meet
our cash needs, including additional short-term loans from our stockholders and
the sale of equity securities; however, no assurance can be given that we would
be able to obtain such additional funds on terms acceptable or favorable to us,
if at all. Substantial delays in obtaining such financing would have an adverse
effect on our ability to perform under the CRADA.

BECAUSE OUR PRODUCT DEVELOPMENT EFFORTS DEPEND ON NEW TECHNOLOGIES, AND BECAUSE
CERTAIN OF OUR PRODUCT CANDIDATES ARE IN AN EARLY STAGE OF DEVELOPMENT, THERE IS
A HIGH RISK OF FAILURE

         We are pursuing novel and unproven technologies and products in both
the therapeutic and diagnostic areas. To date, companies have developed and
commercialized relatively few products based on patient-specific vaccines. Many
of our product candidates are in early stages of development, and
commercialization of these products involves the risks of failure inherent in
developing products based on new technologies and, with respect to our perfusion
technology business, the risks associated with drug development generally. These
risks include the possibility that:

         o     these technologies or all or any of the products based on these
               technologies will be ineffective or toxic, or otherwise fail to
               receive necessary regulatory approvals;
         o     the products will be difficult to manufacture on a large scale or
               uneconomical to market;
         o     proprietary rights of third parties will prevent us or our
               collaborators from marketing products;
         o     third parties will market superior or equivalent products; and
         o     the products will not attain market acceptance.

         Our products and product candidates fall into two categories:
unregulated research products and regulated diagnostic and therapeutic products.
Our regulated products, including all of our cell culture systems and services,
must receive regulatory approval before being marketed and, in connection
therewith, must satisfy rigorous standards of safety and efficacy before they
can be approved by the FDA and international regulatory authorities for
commercial use. In many cases, we will need to conduct significant additional
research and pre-clinical testing and clinical trials before we can file
applications with the FDA for product approval. Clinical trials are expensive
and have a high risk of failure. We cannot assure you that later stage results
will be consistent with pre-clinical or earlier clinical results. Based on
results at any stage of development, including later-stage clinical trials, we
may decide to discontinue development of one or more products.


WE MIGHT BE UNABLE TO MANUFACTURE PRODUCTS ON A COMMERCIAL SCALE

         Manufacturing, supply and quality control problems could arise as we,
either alone or with subcontractors, attempt to scale-up manufacturing
capabilities for products under development. We might be unable to scale-up in a
timely manner or at a commercially reasonable cost. Problems could lead to
delays or pose a threat to the ultimate commercialization of our products and
cause us to fail.

         We or any of our contract manufacturers could encounter manufacturing
difficulties relating to, among other things:

         o        the ability to scale up manufacturing capacity;
         o        production yields;
         o        quality control and assurance; or
         o        shortages of components or qualified personnel.

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<PAGE>

         Our manufacturing facilities and those of our contract manufacturers
are or will be subject to periodic regulatory inspections by the FDA and other
federal and state regulatory agencies and these facilities are subject to
Quality System Regulation, or QSR, requirements of the FDA. If we or our
third-party manufacturers fail to maintain facilities in accordance with QSR
regulations, other international quality standards, or other regulatory
requirements, then the manufacture process could be suspended or terminated,
which would harm us.

WE DEPEND ON SUPPLIERS FOR MATERIALS, WHICH COULD IMPAIR OUR ABILITY TO
MANUFACTURE OUR PRODUCTS

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

BECAUSE CLINICAL TRIALS FOR OUR PRODUCTS WILL BE EXPENSIVE AND THEIR OUTCOME IS
UNCERTAIN, WE MUST INCUR SUBSTANTIAL EXPENSES THAT MIGHT NOT RESULT IN ANY
VIABLE PRODUCTS

         Conducting clinical trials is a lengthy, time-consuming and expensive
process. Before obtaining regulatory approvals for the commercial sale of any
regulated products, we must demonstrate through pre-clinical testing and
clinical trials that our product candidates are safe and effective for use in
humans. We will incur substantial expense for, and devote a significant amount
of time to, pre-clinical testing and clinical trials.

         Historically, the results from pre-clinical testing and early clinical
trials often have not been predictive of results obtained in later clinical
trials. A number of new drugs have shown promising results in clinical trials,
but subsequently failed to establish sufficient safety and efficacy data to
obtain necessary regulatory approvals. Data obtained from pre-clinical and
clinical activities are susceptible to varying interpretations, which could
delay, limit or prevent regulatory approval. In addition, regulatory delays or
rejections could be encountered as a result of many factors, including changes
in regulatory policy during the period of product development.

         Clinical trials conducted by us or by third parties on our behalf might
not demonstrate sufficient safety and efficacy to obtain the requisite
regulatory approval for our products. Regulatory authorities might not permit us
to undertake any additional clinical trials for our product candidates.

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

         o     inability to manufacture sufficient quantities of materials for
               use in clinical trials;
         o     slower than expected rate of patient recruitment or variability
               in the number and types of patients in a study;
         o     inability to adequately follow patients after treatment;
         o     unforeseen safety issues or side effects;
         o     lack of efficacy during the clinical trials; or
         o     government or regulatory delays.

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<PAGE>

BECAUSE WE HAVE LIMITED EXPERIENCE IN DEVELOPING PRODUCTS, WE MIGHT BE
UNSUCCESSFUL IN OUR EFFORTS TO DEVELOP PRODUCTS

         The extent to which we develop and commercialize patient-specific
vaccines and cell culture systems and, in the future, other products to which we
have retained commercial rights, will depend on our ability to:

         o        develop products internally;
         o        complete laboratory testing;
         o        obtain necessary regulatory approval;
         o        deploy sales and marketing resources effectively; and
         o        enter into arrangements with third parties to provide these
                  functions.

         Although we have started clinical trials with respect to potential
products, we have limited experience with these activities and might not be
successful in developing or commercializing these or other products.

COMPETING TECHNOLOGIES MAY ADVERSELY AFFECT US

         Biotechnology and perfusion technology have undergone, and are expected
to continue to undergo, rapid and significant technological change. New
developments in biotechnological processes are expected to continue at a rapid
pace in both industry and academia, and these developments are likely to result
in commercial applications competitive with our current products and products
under development. We expect to encounter intense competition from a number of
companies that offer products in our targeted application areas. We anticipate
that our competitors in these areas will consist of both well-established and
development-stage companies and will include:

         o        health care companies;
         o        chemical and biotechnology companies;
         o        biopharmaceutical companies; and
         o        companies developing drug discovery technologies.

         The perfusion technology business is also intensely competitive and is
in many areas dominated by large service providers. In many instances, our
competitors have substantially greater financial, technical, research and other
resources and larger, more established marketing, sales, distribution and
service organizations than us. Moreover, these competitors may offer broader
product lines and have greater name recognition than us and may offer discounts
as a competitive tactic.

         Our competitors might succeed in developing, marketing, or obtaining
FDA approval for technologies, products, or services that are more effective or
commercially attractive than those we offer or are developing, or that render
our products or services obsolete. As these companies develop their
technologies, they might develop proprietary positions, which might prevent us
from successfully commercializing products. Also, we might not have the
financial resources, technical expertise or marketing, distribution or support
capabilities to compete successfully in the future.

THE UNCERTAINTY OF PATENT AND PROPRIETARY TECHNOLOGY PROTECTION AND OUR
POTENTIAL INABILITY TO LICENSE TECHNOLOGY FROM THIRD PARTIES MAY ADVERSELY
AFFECT US

         Our success will depend in part on obtaining and maintaining meaningful
patent protection on our inventions, technologies and discoveries. Our ability
to compete effectively will depend on our ability to develop and maintain
proprietary aspects of our technology, as well as to operate without infringing,
or, if necessary, to obtain rights to, the proprietary rights of others. Our
pending patent applications might not result in the issuance of patents. Our
patent applications might not have priority over others' applications

                                       19
<PAGE>

and, even if issued, our patents might not offer protection against competitors
with similar technologies. Any patents issued to us might be challenged,
invalidated or circumvented and the rights created thereunder may not afford us
a competitive advantage.

         Our commercial success also depends in part on our neither infringing
patents or proprietary rights of third parties nor breaching any licenses we
have obtained from third parties permitting us to incorporate technology into
our products. It is possible that we might infringe these patents or other
patents or proprietary rights of third parties. In the future we might receive
notices claiming infringement from third parties. Any legal action against us or
our collaborative partners claiming infringement and damages or seeking to
enjoin commercial activities relating to our products and processes may require
us or our collaborative partners to obtain licenses in order to continue to
manufacture or market the affected products and processes. In addition, these
actions may subject us to potential liability for damages. We or our
collaborative partners might not prevail in an action, and any license required
under a patent might not be made available on commercially acceptable terms, or
at all.

         There are many U.S. and foreign patents and patent applications held by
third parties in our areas of interest, and we believe that there may be
significant litigation in the industry regarding patent and other intellectual
property rights. Potential future litigation could result in substantial costs
and the diversion of management's efforts regardless of the merits or result of
the litigation. Additionally, from time to time we are engaged in the defense
and prosecution of interference proceedings before the U.S. Patent and Trademark
Office, or USPTO, and related administrative proceedings that can result in our
patent position being limited or in substantial expense to us and significant
diversion of effort by our technical and management personnel. In addition, laws
of some foreign countries do not protect intellectual property to the same
extent as do laws in the United States, which could subject us to additional
difficulties in protecting our intellectual property in those countries.

         We also rely on trade secrets, technical know-how and continuing
inventions to develop and maintain our competitive position. Others might
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets or disclose our
technology, and we may not be able to protect our rights to our trade secrets.
We seek to protect our technology and patents, in part, by confidentiality
agreements with our employees and contractors. Our employees might breach their
existing proprietary information, inventions and dispute resolution agreements.
Accordingly, these agreements may not protect our intellectual property, and our
employees' breaches of those agreements could have a material adverse effect on
us.

OUR OPERATING RESULTS MAY FLUCTUATE WIDELY BETWEEN REPORTING PERIODS

         Our operating results may vary significantly from quarter to quarter or
year to year, depending on factors such as timing of biopharmaceutical
development and commercialization of products by our customers, the timing of
increased research and development and sales and marketing expenditures, the
timing and size of contracts and whether we introduce to the market new products
or processes. Consequently, revenues, profits or losses may vary significantly
from quarter to quarter or year to year, and revenue or profits in any period
will not necessarily be indicative of results in subsequent periods. These
period-to-period fluctuations in financial results may have a significant impact
on the market price, if any, of our securities.

OUR CONTRACT CELL PRODUCTION SERVICES ARE SUBJECT TO PRODUCT LIABILITY CLAIMS

         The contract production services for therapeutic products that we offer
expose us to an inherent risk of liability as the proteins or other substances
manufactured by us, at the request and to the specifications of our customers,
could foreseeably cause adverse effects. We obtain agreements from our contract
production customers indemnifying and defending us from any potential liability
arising from such risk. There can be no assurance, however, that we will be
successful in obtaining such agreements in




                                       20



<PAGE>




the future or that such indemnification agreements will adequately protect us
against potential claims relating to such contract production services. We may
also be exposed to potential product liability claims by users of our products.
We may seek to increase our insurance coverage in the future in the event of any
significant increases in our level of contract production services. There can be
no assurance that we will be able to maintain our existing coverage or obtain
additional coverage on commercially reasonable terms, or at all, or that such
insurance will provide adequate coverage against all potential claims to which
we might be exposed. A successful partially or completely uninsured claim
against us would have a material adverse effect on our operations.

IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, OUR EFFORTS WOULD BE HINDERED AND WE MIGHT BE UNABLE TO DEVELOP OUR
OWN PRODUCTS OR PURSUE COLLABORATIONS

         Our success will depend on our ability to attract and retain key
employees and scientific advisors. Competition among biotechnology and
biopharmaceutical companies, as well as among other organizations and companies,
academic institutions and government entities, for highly skilled scientific and
management personnel is intense. There is no guarantee that we will be
successful in retaining our existing personnel or advisors, or in attracting
additional qualified employees. If we fail to acquire personnel or if we lose
existing personnel, our business could be seriously interrupted.


WE DO NOT EXPECT TO PAY ANY DIVIDENDS

         We have not declared or paid cash dividends since our inception. We
currently intend to retain all of our earnings to finance future growth and
therefore do not expect to declare or pay cash dividends in the foreseeable
future.

OUR TAX-LOSS CARRYFORWARDS ARE SUBJECT TO RESTRICTIONS

         At September 30, 2002, we had net operating loss carryforwards ("NOLS")
for federal income tax purposes of approximately $47,000,000 available to offset
future taxable income. Under Section 382 of the Internal Revenue Code of 1986,
as amended, utilization of prior NOLS is limited after an ownership change, as
defined in Section 392, to an annual amount equal to the value of the loss
corporation's outstanding stock immediately before the date of the ownership
change multiplied by the federal long-term exempt tax rate. Due to the various
changes in our ownership, and as a result of our Chapter 11 bankruptcy
proceeding, a significant portion of these carryforwards are subject to
significant restrictions with respect to our ability to use those amounts to
offset future taxable income. Use of our NOLS may be further limited as a result
of future equity transactions.

OUR CERTIFICATE OF INCORPORATION AND BYLAWS CONTAIN PROVISIONS THAT COULD
DISCOURAGE A TAKEOVER

         The anti-takeover provisions in our certificate of incorporation and
our bylaws could make it more difficult for a third party to acquire us without
approval of our board of directors. These provisions could delay, discourage or
prevent a takeover attempt or third party acquisition that our stockholders
consider to be in their best interests, including a takeover attempt that
results in a premium over the market price for the shares held by our
stockholders.

WE ARE SUBJECT TO VARIOUS GOVERNMENT REGULATION

         The cell culture systems and services that we sell are subject to
significant regulation by the FDA under the FD&C Act. Our cell culture
bioprocessing systems are regulated as Class I medical devices and must be
manufactured in accordance with the FDA's cGMP requirements. Our cell culture
instruments must comply with a variety of safety regulations to be sold in
Europe, including, but not limited, to CE.



                                       21


<PAGE>


Our customers who use these cell culture bioprocessing systems must also comply
with more extensive and rigorous FDA regulation. The process of complying with
FDA regulations and obtaining approvals from the FDA is costly and time
consuming. The process from investigational stage until approval to market can
take a minimum of seven and up to as many as ten to twelve years currently and
is subject to unanticipated delays. Furthermore, there is no assurance that our
customers will be able to obtain FDA approval for bioproducts produced with
their systems.

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

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


NO PUBLIC MARKET FOR OUR COMMON STOCK

         There is currently no public market for our common stock. We cannot be
certain that an active trading market will develop or, if developed, sustained.
We also cannot be certain that purchasers of our common stock will be able to
resell their common stock at prices equal to or greater than their purchase
price. The development of a public market having the desirable characteristics
of depth, liquidity and orderliness depends upon the presence in the marketplace
of a sufficient number of willing buyers and sellers at any given time. We do
not have any control whether there will be sufficient numbers of buyers and
sellers. Accordingly, we cannot be certain that an established and liquid market
for our common stock will develop or be maintained. The market price of the
common stock could experience significant fluctuations in response to our
operating results and other factors. In addition, the stock market in recent
years has experienced extreme price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of individual
companies. These fluctuations, and general economic and market conditions, may
hurt the market price of our common stock.

         In addition, if our common stock is quoted on the OTC Bulletin Board,
an investor might find it more difficult than it would be on a national exchange
to dispose of, or to obtain accurate quotations as to the market value of, our
securities. We are also subject to a Securities and Exchange Commission rule
that, if we fail to meet certain criteria set forth in such rule, the rule
imposes various sales practice requirements on broker-dealers who sell
securities governed by the rule to persons other than established customers and
accredited investors. For these types of transactions, the broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently, the
rule may have an adverse effect on the ability of broker-dealers to sell our
securities and may affect the ability of our stockholders to buy and sell our
securities in the secondary market. The Commission has adopted rules that define
a "penny stock." In the event the




                                       22

<PAGE>

common stock were subsequently to become characterized as a penny stock,
broker-dealers dealing in our securities would be subject to the disclosure
rules for transactions involving penny stocks. The additional burdens imposed
upon broker-dealers may discourage broker-dealers from effecting transactions in
penny stocks, which could reduce the liquidity of the common stock and have a
material adverse effect on the trading market for our securities.

THE MARKET PRICE OF OUR COMMON STOCK COULD BE AFFECTED BY SHARES ELIGIBLE FOR
SALE AND SALES OF SHARES UNDERLYING OPTIONS AND WARRANTS.

            As of September 30, 2002, we had approximately 9.8 million shares of
common stock outstanding. In September 2001 we filed a registration statement
with Securities and Exchange Commission and in November 2001 the SEC declared
the registration statement effective. The registration statement registered the
resale by certain of our security holders of 9,379,693 shares of our common
stock currently outstanding and 5,268,772 shares issuable upon exercise of
options and warrants and upon conversion of certain convertible notes. The sale,
or availability for sale, of substantial amounts of common stock in the public
market could adversely affect the prevailing market price, if any, of our common
stock.

THE PRICE OF OUR STOCK, IF EVER TRADED, MAY BE HIGHLY VOLATILE

         The market price for our common stock, if it is ever publicly traded,
is likely to fluctuate along with the highly volatile market prices of
securities of biotechnology companies. You may not be able to resell shares of
our common stock following periods of volatility. In addition, you may not be
able to resell shares at or above your purchase price.

         Our stock price will be affected by the following factors, many of
which are outside of our control:

         o     actual or anticipated variations in quarterly operating results;
         o     announcements of technological innovations or new products or
               services by us or our competitors;
         o     changes in financial estimates by securities analysts;
         o     conditions or trends in the biotechnology industry;
         o     changes in the economic performance or market valuations of other
               biotechnology companies.


ITEM 2.  DESCRIPTION OF PROPERTY

         We leased approximately 2,000 square feet of executive headquarters
office space on the second floor of an office building in Englewood Cliffs, New
Jersey. The lease expired on March 31, 2001 and has been renewed on a
month-to-month basis. Rent expense was $36,000 for the year ended September 30,
2001 and $36,000 for the year ended September 30, 2002. In December, 2002 this
office was closed and the headquarters was relocated to our Minneapolis,
Minnesota facility.

         In addition, we lease a two-story building of approximately 33,000
square feet in Minneapolis, Minnesota. This building contains laboratory,
manufacturing, office and warehousing areas to support the production of
perfusion cell culture systems and contract cell culture services. Total rent
expense, for the Minneapolis, Minnesota facility for the years ended September
30, 2001 and September 30, 2002 was $242,000 and 223,000, respectively.

         We lease approximately 12,000 square feet of floor area of a 53,000
square foot building in Hopkinton, Massachusetts. This building provides space
for office and non-GMP contract services. The lease expired on May 31, 2001, and
rent expense was $33,000 for the period from May 25, 2000 through


                                       23


<PAGE>



September 30, 2000 and $113,000 for the year ended September 30, 2001. We
entered into an oral agreement to lease the premises on a month-to-month basis
until the end of the calendar year at $12,500 per month. On January 3, 2002, we
executed a one year lease at a rental of $15,253 per month.

         We lease approximately 7,000 square feet of floor are on the first
floor of a building in San Diego, California. This facility provides space for
office, clean room and light manufacturing. The lease expires on December 31,
2002. Rent expense was $65,000 for the year ended September 30, 2001 and $74,000
for the year ended September 30, 2002 .

         We lease approximately 14,000 square feet on the first floor of a
four-story building in a 93,000 square foot biotech park in Worcester,
Massachusetts. This facility houses approximately 8,000 square feet for cGMP
cell production, 1,000 square feet for administration, and an additional 4,000
square feet for future expansion. The lease expires on February 28, 2006. Rent
expense was $376,000 for the years ended September 30, 2001 and 2002.


ITEM 3. LEGAL PROCEEDINGS

         As of the date of this report, we are not a party to any legal
proceedings that will have a material adverse effect on our operations or
financial condition. However, from time to time we are a party to legal matters
arising in the general conduct of business.

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

         No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended September 30, 2002.

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Pursuant to our Plan of Reorganization (the "Plan"), all equity
securities of the Predecessor Company were canceled and 1,000,003 shares of new
common stock were deemed issued, of which 520,000 shares (52%) were issued to
Biovest LLC and 250,003 shares (25%) were issued to our unsecured creditors.
Until March 15, 2000, the remaining 230,000 (23%) shares were being held in
escrow to be released to Biovest LLC or the Schuster Group, our secured
creditors, pursuant to an agreement, which was incorporated into the Plan.
Biovest LLC was successful in paying and obtaining the release of direct claims
and indirect guarantee claims of the Schuster Group in the approximate amount of
$2,300,000, and the escrowed shares were issued to Biovest LLC.

         In addition, pursuant to our reorganization, an additional 26,836
shares of our new common stock were issued to employees and former officers of
the Predecessor Company.

         As of September 30, 2002, there were 507 stockholders of record.

         The Board approved the grant of 140,000 stock options to an outside
advisor for services rendered at the market price at the time our stockholders
approved our 2000 Stock Option Plan. Compensation expense for services rendered
was recognized in the amount of $64,000 based upon the estimated fair value of
the options.

         During the year ended September 30, 2001, we issued 123,000 shares of
common stock as compensation to several employees and 30,000 shares to pay for
services rendered by an outside consultant. The shares were valued at $1.25 per
share, which resulted in approximately $154,000 and $38,000 of expense.

         On June 6, 2001, our Board of Directors approved the granting of
688,100 options to employees, 607,500 options to non-employees and 1,200,000
options to two officers of the Company. All options are priced at $1.25 per
share except those granted to two of our officers which are priced at $1.375 per
share. All options are exercisable over 10 years with vesting for the options to
non-employees at one-third on the date of grant, one-third on the first
anniversary of the date of grant and one-third on the second




                                       24


<PAGE>


anniversary of the date of grant. Options granted to employees and officers vest
one-third each year beginning on the first anniversary date of the grant and for
each of the next two years thereafter. Compensation expense for services
rendered for the 607,500 options granted to non-employees was recognized in the
amount of $523,000 based upon the estimated fair value of the options at that
date.

         In August 2001, our Board of Directors approved issuing 10,000 options
to an employee at $3.00 per share and 10,000 options to a consultant at $3.00
per share. All options are exercisable over 10 years with vesting for the
options to non-employees at one-third on the date of grant, one-third on the
first anniversary of the date of grant and one-third on the second anniversary
of the date of grant. Options granted to employees and officers vest one-third
each year beginning on the first anniversary date of the grant and for each of
the next two years thereafter.

         During 2001, the Company sold 170,000 units at $3.00 per unit,
consisting of 170,000 shares of the Company's common stock and 510,000 warrants
for $510,000. The warrants have an exercise price of $5.00 per share, are
exercisable immediately and have a term of ten years.

         In September 2001, we issued 196,281 shares of common stock to Biovest
LLC in exchange for discharging our obligation to Biovest LLC in the amount of
$245,000. In addition, in September 2001 we issued 4,672,749 shares of common
stock to Biovests Corp. in return for an equal number of shares held by Biovests
Corp. as part of an Agreement and Plan of Reorganization in connection with the
liquidation of Biovests Corp.

         During October 2001 the Company granted 100,000 stock options to an
outside director for consulting services rendered during fiscal 2001. The
options have an exercise price of $1.50 per share and have a five year term;
half are exercisable six months from the date of grant and the remaining options
are exercisable one year from the date of grant.
..
In December 2001, the Company issued 10,000 shares of common stock as employee
compensation. The shares were valued at $1.25 per share, which resulted in
approximately $13,000 of expense.

         In May 2002, a stockholder agreed to purchase 166,667 shares of common
stock, together with 166,667 warrants to purchase shares of common stock at
$3.00 per share, for $500,000. An initial payment of $300,000 was made in May
2002 and the remaining $200,000 in August 2002. The warrants are exercisable
immediately and have a term of five years.

In June 2002, the Company issued 20,000 shares of common stock as employee
compensation. The shares were valued at $3.00 per share, which resulted in
$60,000 of expense.

During the three months ended December 31, 2001 the Company granted 2,084,000
stock options to certain executive officers and employees. The options have an
exercise price of $1.50 per share and a five year term. With respect to the
options granted to certain executive officers, half are exercisable six months
from the date of grant and the remaining options are exercisable one year from
the date of the grant. Those granted to other employees are exercisable over a
ten year term and vest one- third each year, on the anniversary of the grant,
after the first year.

During October 2001, the Company granted 100,000 stock options to an outside
director for consulting services rendered during fiscal 2001. The options have
an exercise price of $1.50 per share and a five year term; half are exercisable
six months from the date of grant and the remaining options are exercisable one
year from the date of grant.

         During December 2001, the Company's Board of Directors approved the
issuance of warrants to purchase 50,000 shares of its common stock at $2.50 per
share to a shareholder for consulting services to the Company. The warrants are
exercisable immediately and have a term of five years.

                                       25
<PAGE>

         In March 2002 the Company issued 250,000 warrants in connection with
various notes payable.

         During February 2002, the Company granted a total of 100,000 stock
options to purchase common stock to 21 employees. The options have an exercise
price of $2.25 per share and a ten year term; one third are exercisable each
year on the anniversary date of the grant. Distribution of these option grants
will be delayed until the Company receives stockholder approval for an increase
in the number of shares authorized under the 2000 Stock Option Plan.

         In May 2002, the stockholder, who purchased additional common stock
(See below), was hired as a consultant. He will receive $30,000 per year in cash
compensation and a sign-on bonus of 250,000 warrants to purchase common stock at
an exercise price of $1.50 per share. The warrants are exercisable immediately
and have a term of five years.

         In May 2002, the Company granted 95,000 stock options to two employees.
The Options have exercise prices of $1.50 to $2.75 per share, have a ten-year
term and are exercisable one-third each year on the anniversary of the grant
date. Since the exercise prices are below the presumed market price of $3.00 per
share there is potential compensation expense to the employees. However, since
distribution of these option grants will be delayed until the Company receives
stockholder approval for an increase in the number of shares authorized under
the 2000 Stock Option Plan, any compensation expense will be determined by the
market price of the common stock at time of distribution of the grants.

         In August 2001, the Company's Board of Directors approved the granting
of 10,000 options to an employee at $3.00 per share and 10,000 options to an
outside consultant, for services to be provided, at $3.00 per share. Both
options are exercisable over 10 years with vesting for the options to the
consultant at one-third on the date of grant, one-third on the first anniversary
of the date of grant and one-third on the second anniversary of the date of
grant. Options granted to the employee vests one-third each year beginning on
the first anniversary date of the grant and for each of the next two years
thereafter.

         The Company's stock is not currently traded on any exchange.

         We have never declared or paid any cash dividends on our common stock
and do not anticipate paying cash dividends in the foreseeable future. We
currently anticipate that we will retain all of our future earnings for use in
the development and expansion of our business and for general corporate
purposes. Any determination to pay dividends in the future will be at the
discretion of our board of directors and will depend upon our financial
condition, operating results and other factors as the board of directors, in its
discretion, deems relevant.


                                       26
<PAGE>




ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

OVERVIEW

     On July 31, 1999, we emerged from Chapter 11 Bankruptcy Reorganization with
new management, officers and directors.


     As of July 31, 1999, we adopted fresh start reporting in accordance with
the American Institute of Certified Public Accountants' Statement of Position
90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" ("SOP 90-7").

     Fresh-start reporting resulted in material changes to our balance sheet,
including valuation of assets at fair value in accordance with principles of the
purchase method of accounting, valuation of liabilities pursuant to provisions
of the Plan and valuation of equity based on the reorganization value of the
ongoing business.

     In September 2001 we successfully entered into the CRADA with the NCI for
the development and ultimate commercialization of patient-specific vaccines for
the treatment of non-Hodgkin's low-grade follicular lymphoma. The terms of the
CRADA include, among other things, a requirement for us to pay $530,000
quarterly to the NCI for expenses incurred in connection with the ongoing Phase
III clinical trials. Successful development of the vaccine, if approved by the
FDA, from Phase III clinical trials through commercialization will commit us to
several years of significant expenditures before revenues will be realized, if
ever.

     Our ability to continue our present operations and meet our obligations
under the CRADA is dependent upon our ability to obtain significant additional
funding. We are currently in the process of exploring various financing
alternatives to meet our cash needs, including additional short-term loans from
shareholders and others and the sale of equity securities. Our management
believes we will be able to raise the necessary funds to continue operations in
the near term.

     There is no assurance that the additional required funds can be obtained on
terms acceptable or favorable to the Company, if at all. In addition we have
incurred significant net losses. The net losses we have incurred and the need
for additional funding raise substantial doubt about our ability to continue as
a going concern. Our financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     Our financial statements have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires the Company to make significant estimates and
judgments that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosure of contingent assets and liabilities. The
Company evaluates its estimates, including those related to bad debts,
inventories, intangible assets, contingencies and litigation on an ongoing
basis. The Company bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.

     The Company believes the following critical accounting policies, among
others, involve the more significant judgments and estimates used in the
preparation of our consolidated financial statements:

                                       27

<PAGE>

     The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.

     Inventories are recorded at the lower of cost or market. Write-downs of
inventories to market value are based upon contractual provisions and
obsolescence, as well as assumptions about future demand and market conditions.
If assumptions about future demand change and/or actual market conditions are
less favorable than those projected by management, additional write-downs of
inventories may be required.

     In assessing the recoverability of the Company's amounts recorded as
reorganization value in excess of amounts allocable to identifiable assets,
significant assumptions regarding the estimated future cash flows and other
factors to determine the fair value of the respective assets must be made, as
well as the related estimated useful lives. If these estimates or their related
assumptions change in the future as a result of changes in strategy and/or
market conditions, the Company may be required to record impairment charges for
these assets.

INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

         This report includes forward-looking statements that are subject to
certain risks and uncertainties which could cause actual results or facts to
differ materially from such statements for a variety of reasons, including, but
not limited to: industry conditions, changes in product supply, pricing and
consumer demand, competition, other uncertainties in the markets for
biotechnology products and changes in relationships with key suppliers.
Shareholders and other readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date on which they
are made. The Company undertakes no obligation to update publicly or revise any
forward-looking statements.


RESULTS OF OPERATIONS

     REVENUES. Sales for the fiscal year ended September 30, 2002 were
$11,279,000 or 12% higher than fiscal year 2001. Contract cell culture sales
increased by approximately 2%. Consumable sales increased by 43% and system
sales increased 23%. Contract cell culture sales were adversely effected by a
$598,000 write down of sales due to a contamination discovered in a customer's
product.

     GROSS MARGIN. The overall gross margin for the fiscal year ended September
30, 2002 decreased to approximately 23% from 27%, due to the contamination
referred to above and certain facility rearrangements, partially offset by
improved margins in other product lines due to increases in volume.

     OPERATING EXPENSES. Research and development expenses for fiscal year 2002
compared to fiscal year 2001 decreased 15% primarily due to decreased spending
for the CRADA. CRADA expenses for fiscal year ended September 30, 2002 amounted
to $1,547,000 versus $2,508,000 in the prior fiscal year. Research and
development expenses, associated primarily with the CRADA, could nearly double
in the current fiscal year, if our plan is realized. Marketing, general and
administrative expenses during the fiscal year ended September 30, 2002
decreased by $1,501,000 or 26% over fiscal year 2001 primarily due to decreased
professional services, from $945,000 in fiscal 2001 to $618,000 in fiscal 2002,
decreased consulting fees, from $1,259,000 in fiscal 2001 to $366,000 in fiscal
2002.

     OTHER EXPENSE, NET. Other expense, net includes $175,000 income from the
sale of a trademark which was part of the LSL Biolafitte, Inc. sale in our third
fiscal quarter. Other expense consists of interest expense on our short-term
loans from affiliates. Total interest related to affiliate debt was $568,000
versus $165,000 in fiscal 2001. The remaining interest expense relates primarily
to the Company's long-term debt which was assumed pursuant to our
reorganization; the long-term debt was



                                       28

<PAGE>

$158,000 at September 30, 2002 of which $28,000 was current. As of September 30,
2001 this long-term debt was $478,000 of which $139,000 was current.

LIQUIDITY AND CAPITAL RESOURCES

     On September 30, 2002, we had a deficit in working capital of $1,055,000
compared to a deficit in working capital of $126,000 at September 30, 2001.
During the year ended September 30, 2002 we used $297,000 in cash in operating
activities, due to net losses we incurred.

     During the years ended September 30, 2002 and September 30, 2001, we
utilized $375,000 and $400,000 of cash for capital expenditures.

     We have incurred significant losses and cash flow deficits in previous
years. During fiscal year 2002 and 2001 we incurred losses of $4,200,000 and
$5,832,000. During fiscal year 2002 and 2001, we used $297,000 and $2,070,000 of
cash flow for operations. During fiscal 2002 we met our cash requirements
through the use of cash on hand, the sale of common stock and short-term
borrowings, primarily from affiliates.

     During the year ended September 30, 2001, seven individuals each loaned the
Company $100,000. In September 2001, four of these seven loans were renewed with
new loans bearing interest at 10% due on September 1, 2002 and convertible into
shares of common stock at $3.00 per share at the holder's option. In connection
with the renewals, we issued each party warrants to purchase 25,000 shares of
common stock with an exercise price of $5.00 per share, exercisable from
September 1, 2001 through September 30, 2006. In September 2002, two of four
existing loans were renewed with new loans bearing interest at 10%, due on
September 1, 2004, one loan was renewed at the same rate with a due date of
September 1, 2003 and the other note was redeemed. All three remaining loans are
convertible into shares of the Company's common stock at $1.00 per share at the
holder's option versus the previous price of $3.00 per share. In connection with
the two renewals for a term of two years, the Company issued each party
additional warrants to purchase 25,000 shares of the Company's common stock with
an exercise price of $1.25 per share, exercisable from September 1, 2002 through
September 30, 2007. The aggregate value of the warrants using the Black-Scholes
pricing model, assuming zero dividend yield; a risk-free rate of 3.28%; expected
volatility of 92.92%; and term of five years, was estimated to be $25,000 and is
being amortized over the life of the loans which results in a higher effective
interest rate.

     In December 2001, an individual loaned the Company $150,000, under a note
payable that bears interest at 7.5% per annum, is due December 19, 2003 and is
convertible into shares of the Company's common stock at $3.00 per share at the
holder's option, if the Company wishes to pay amounts under the loan before
maturity. In connection with the note, the Company issued warrants to purchase
50,000 shares of the Company's common stock at $5.00 per share. The warrants are
exercisable immediately and have a term of five years.

     During 2001, the Company sold 170,000 units at $3.00 per unit, consisting
of 170,000 shares of the Company's common stock and 510,000 warrants for
$510,000. The warrants have an exercise price of $5.00 per share, are
exercisable immediately and have a term of ten years.

     In August 2002, a shareholder renewed a $1,000,000 loan to the Company due
on August 19, 2004, with interest at 7.5% per annum. This renewed loan is also
convertible, at the holder's option, into shares of common stock at $1.00 per
share if we wish to pay amounts under the loan before August 19, 2004. In
connection with the issuance of the original debt, we issued 100,000 warrants
with an exercise price of $5.00 per share and 100,000 warrants with an exercise
price of $10.00 per share, exercisable on or before August 1, 2006.

                                       29
<PAGE>

       During the fiscal year ended September 30, 2002, the Company obtained
additional loans, with a term of one year, aggregating approximately $1,100,000;
these loans bear interest at 7.5% per annum, and mature on various dates through
January 31, 2003. These notes are also convertible into shares of the Company's
common stock at $3.00 per share, at the holder's option, if the Company wishes
to pay amounts under the loans before maturity. The Company issued 100,000
warrants with an exercise price of $2.50 per share and 100,000 warrants with an
exercise price of $5.00 per share to a third party who assisted in obtaining
this financing. The warrants are exercisable immediately and have a term of five
years.

     In May 2002, a stockholder agreed to purchase 166,667 shares of common
stock, together with 166,667 warrants to purchase shares of common stock at
$3.00 per share, for $500,000. An initial payment of $300,000 was made in May
2002 and the remaining $200,000 prior to the issuance of these financial
statements. The warrants are exercisable immediately and have a term of five
years.

     In September 2001 we successfully entered into a definitive CRADA with the
NCI for the development and ultimate commercialization of patient-specific
vaccines for the treatment of non-Hodgkin's low-grade follicular lymphoma. The
terms of the CRADA include, among other things, a requirement for us to pay
$530,000 quarterly to NCI for expenses incurred in connection with the ongoing
Phase III clinical trials. The Company made the first payment in the quarter
ended September 30, 2001. On May 8, 2002 the Company and the NCI executed an
amendment to the CRADA, which required a single payment of $350,000, due on
September 30, 2002, in lieu of the quarterly payments of the original agreement.
Under the amendment, quarterly payments of $530,000 will resume on October 1,
2002. On October 15, 2002 a new amendment to the CRADA was executed under which
the Company is not required to make the $350,000 payment due to the NCI on
September 30, 2002 nor the $530,000 payment due on October 1, 2002. The next
payment due from the Company is $530,000 within 30 days of the April 1, 2003 due
date. Failure to remit this payment will constitute the Company's unilateral
termination of the CRADA and we will lose the rights to commercialize the
results of our research with the NCI. Successful development of the vaccine, if
approved by the FDA, from Phase III clinical trials through commercialization
will commit us to several years of significant expenditures before revenues will
be realized, if ever.

     Our ability to continue our present operations and meet our obligations
under the CRADA, is dependent upon our ability to obtain significant additional
funding. Such additional financing could be sought from a number of sources,
including the sale of equity or debt securities, strategic collaborations or
recognized research funding programs. Management is currently in the process of
exploring various financing alternatives to meet our cash needs, including
additional short-term loans from our shareholders and others and the sale of
equity securities. We believe that we will be able to raise the necessary funds
to continue operations in the near term.

     There is no assurance that the additional funds, which are required, can be
obtained on terms acceptable or favorable to us, if at all. Substantial delays
in obtaining such financing would have an adverse effect on our ability to
perform under the CRADA.

FLUCTUATIONS IN OPERATING RESULTS

     Our operating results may vary significantly from quarter to quarter or
year to year, depending on factors such as timing of biopharmaceutical
development and commercialization of products by our customers, the timing of
increased research and development and sales and marketing expenditures, the
timing and size of orders and the introduction of new products or processes by
us. Consequently, revenues, profits or losses may vary significantly from
quarter to quarter or year to year, and revenue or profits or losses in any
period will not necessarily be indicative of results in subsequent periods.

IMPACT OF FOREIGN SALES

                                       30
<PAGE>

     A significant amount of our operating revenue has been and is expected to
continue to be derived from export sales. Our export sales were 46% of total
revenue for fiscal year ended September 30, 2002 and 41% for the year ended
September 30, 2001. While we invoice our customers in U.S. dollars, we will be
subject to risks associated with foreign sales, including the difficulty of
maintaining cross-cultural distribution relationships, economic or political
instability, shipping delays, fluctuations in foreign currency exchange ratios
and foreign patent infringement claims, all of which could have a significant
impact on our ability to deliver products on a timely and competitive basis. In
addition, future imposition of, or significant increases in, the level of
customs duties, export quotas or other trade restrictions could have an adverse
effect on our business.

TAX LOSS CARRYFORWARDS

       At September 30, 2002, we had net operating loss carryforwards of
approximately $47,000,000 (expiring 2003 to 2020) and a capital loss
carryforward of approximately $14,000,000 (expiring in 2003). Due to various
changes in ownership of the Company, a significant portion of these
carryforwards are subject to significant restrictions with respect to the
ability of the Company to use these amounts to offset future taxable income. Use
of the Company's net operating loss carryforwards may be further limited as a
result of future equity transactions. The Company has fully offset deferred tax
assets resulting from differences in accounting between income tax and financial
statement treatment with a valuation allowance. These differences consist almost
entirely of net operating and capital loss carryforwards.

EVALUATION OF  DISCLOSURE CONTROLS AND PROCEDURES

         Evaluation of disclosure controls and procedures. Our chief executive
officer and our chief financial officer, after evaluating the effectiveness of
the Company's "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the
"Evaluation Date") within 90 days before the filing date of this quarterly
report, have concluded that as of the Evaluation Date, our disclosure controls
and procedures were adequate and designed to ensure that material information
relating to us and our consolidated subsidiaries would be made known to them by
others within those entities.

         Changes in internal controls. There were no significant changes in our
internal controls or to our knowledge, in other factors that could significantly
affect our disclosure controls and procedures subsequent to the Evaluation Date.

RECENT ACCOUNTING PRONOUNCEMENTS

         On October 3, 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets ("SFAS 144"), that is applicable to financial statements issued for
fiscal years beginning after December 15, 2001. The FASB's new rules on asset
impairment supersede SFAS 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and portions of Accounting
Principles Board Opinion 30, Reporting the Results of Operations. This Standard
provides a single accounting model for long-lived assets to be disposed of and
significantly changes the criteria that would have to be met to classify an
asset held-for-sale. Classification as held-for-sale is an important distinction
since such assets are not depreciated and are stated at the lower of fair value
and carrying amount. This Standard also requires expected future operating
losses from discontinued operations to be displayed in the period(s) in which
the losses are incurred, rather than as of the measurement date as presently
required. The adoption of SFAS 144 will have no impact on the Company's
operating results or financial position.

         On July 30, 2002, the FASB issued Statement of financial Accounting
Standards No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" ("SFAS 146"), that is applicable to exit or disposal activities
initiated after December 31, 2002. This standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. This standard does
not apply where SFAS 144 is applicable.

         On December 31, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure" ("SFAS 148"), that is applicable to financial statements issued for
fiscal years ending after December 15, 2002. In addition, interim disclosure
provisions are applicable for financial statements issued for interim periods
beginning after December 15, 2002. This standard amends SFAS 123 and provides
guidance to companies electing to voluntarily change to the fair value method of
accounting for stock-based compensation. In addition, this standard amends SFAS
123 to require more prominent and more frequent disclosures in financial
statements regarding the effects of stock-based compensation.

                                       31
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

         Financial Statements: See "Index to Financial Statements" on Page F-1
immediately following the signature page of this report.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         In March 2002, the Company changed independent accounting firms from
Grant Thornton LLP to Lazar Levine and Felix LLP.

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE OFFICERS

         The following individuals are our directors and executive officers:

<TABLE>
<CAPTION>
                      Name                                 Age                             Position
<S>                                                      <C>              <C>
Dr. Christopher Kyriakides                                  41            Chairman of the Board, Chief Executive
                                                                          Officer and Director
Othon Mourkakos                                             44            President, Chief Operating Officer and Director
David DeFouw, Ph.D.                                         57            Director
Mark Hirschel, Ph.D.                                        50            Chief Scientific Officer
Thomas F. Belleau                                           59            Chief Financial Officer
</TABLE>

         We plan to add two outside directors to the Board during 2002. Such
directors will comprise the Compensation Committee and Audit Committee.

         The following provides some biographical information regarding our
directors, officers, key employees and affiliates:

         DR. CHRISTOPHER KYRIAKIDES has been our Chairman of the Board since
July 31, 1999 and our Chief Executive Officer since September 20, 1999. He has
also been Chief Executive Officer and Chairman of the Board of Biovest, LLC
since its inception in January 1999. For the last six years, Dr. Kyriakides has
also served as President and Medical Director of Sports Medicine and Orthopedic
Rehabilitation, P.C., a private enterprise of which he is a founder.

         OTHON MOURKAKOS has been a director of our company since July 31, 1999
and has served as our President and Chief Operating Officer since September 20,
1999 and Chief Financial Officer from September 20, 1999 to June 2000. Since
August 1993, he has served as President of Health East Medical Management of New
York.

         DAVID DEFOUW, PH.D. has been a director of our company since July 31,
1999 and Chief Scientific Officer from September 1999 until August 2001. Since
1992, Dr. DeFouw has served as the Vice Chairman and Professor of Anatomy, Cell
Biology and Injury Sciences at the University of Medicine & Dentistry of New
Jersey.

         MARK HIRSCHEL, PH.D. has been Chief Scientific Officer since September
2001. From August 1999 until September 2001, he was our Senior Vice President.
Dr. Hirschel has served as the Principal Investigator of the National Cell
Culture Center and is a recognized leader in cell culture production. Dr.



                                       32


<PAGE>

Hirschel has authored numerous scientific publications and has received several
grants and served on several NIH committees. Dr. Hirschel holds a BA in biology
from Southwest State University (MN), an MS in Animal Physiology, and a Ph.D. in
Reproductive Physiology from the University of Minnesota.

         THOMAS F. BELLEAU has been our Chief Financial Officer since June of
2000. He has over 30 years experience in the field of finance and holds a BA in
Economics from Notre Dame University and an MBA in Finance from New York
University's Stern School of Business. He has earned a CPA designation. For the
last six years he has worked as a consultant to companies primarily in the
biotechnology field, orchestrating significant financial turnarounds through
company restructuring and improving efficiency of operations.

         Our board of directors is divided into three classes such that the
directors of each class serves a three-year term, and the term of one class
expires each year such that only one class of directors stands for election each
year. Accordingly, at each annual meeting directors of the class whose terms
expire at such annual meeting will be elected to hold office until the third
annual meeting following the annual meeting at which they were elected and until
their respective successors have been duly elected and qualified. Thus,
stockholders elect only one-third of the directors at each Annual Meeting of
Stockholders. Each director who is not an officer of our company or an officer
or director of an affiliate of our company is paid $1,000 for each Board of
Directors meeting that he or she attends.

         Officers are appointed by the Board of Directors and serve at the
discretion of the Board.

         Our bylaws provide for us to indemnify our directors and officers to
the extent permitted by law, with respect to actions taken by them on our
behalf. Because of the prohibitive cost of acquiring directors' and officers'
liability insurance and our recent reorganization, we have not purchased such
insurance.


SCIENTIFIC ADVISORY BOARD

         We established a Scientific Advisory Board to assist in the management
of the NCCC. The Scientific Advisory Board is an overseeing body that reviews
and prioritizes NCCC project applications based on their scientific merit and
meets annually with the NIH Program Administrator to review the progress and
plans of the NCCC. The members of the Scientific Advisory Board are as follows:

David DeFouw, Ph.D.
(Chairman), Director, Professor
University of Medicine and Dentistry of
New Jersey.


Mark Hirschel, Ph.D.
Chief Scientific Officer
Biovest International, Inc.


Robert Pfeffer, MD.
Clinical Asst. Professor
New York University Medical Center

Michael Gramer, Ph.D.
New Product Development Manager
Biovest International, Inc.


         We are seeking to establish an independent Scientific Advisory Board
whose members will be defined and identified as the personalized vaccine aspects
of our business further evolves.


SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

                                       33
<PAGE>

         Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own 10% or more of the
Common Stock to file reports of ownership and changes in ownership concerning
the Common Stock with the SEC and to furnish the Company with copies of all
Section 16(a) forms they file. The Company is required to identify any person
subject to this requirement who failed to file any such report on a timely
basis. Based on the Company's review of the reports it has received, the Company
believes all filings required to be made under Section 16(a) during fiscal year
2002 were made on a timely basis.

ITEM 10. EXECUTIVE COMPENSATION

         The following table sets forth the aggregate compensation paid or
accrued by us for services rendered to the Company by each person who served as
the Chief Executive Officer during fiscal year 2001 and each other employee
whose total salary and bonus exceeded $100,000 during fiscal year 2001, as well
as the aggregate compensation for such persons during the last three fiscal
years.

                                                   SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                            Long-Term
                                                                                          Compensation
                                                                                             Awards
                                                                 Annual Compensation         Shares
                  Name and                    Fiscal             -------------------       Underlying     All Other
             Principal Position               Year            Salary ($)     Bonus ($)       Options     Compensation
<S>                                          <C>             <C>            <C>           <C>            <C>
Dr. Christopher Kyriakides                    2002           $330,000(4)         -          1,000,000         -
Chairman of the Board of Directors            2001           $305,000(3)         -            600,000         -
and Chief Executive Officer(1)                2000            $80,000(2)    $110,000(5)     1,000,000         -

Othon Mourkakos                               2002           $330,000(4)         -          1,000,000         -
President, Secretary and                      2001           $305,000(3)         -            600,000         -
Chief Operating Officer(6)                    2000            $80,000(2)    $110,000(5)     1,000,000         -

Thomas F. Belleau                             2002           $ 94,000(7)     $73,000(9)          -            -
Chief Financial Officer                       2001           $120,000        $50,000(8)       100,000         -

Mark Hirschel, Ph.D.                          2002           $175,000            -             50,000         -
Chief Scientific Officer
</TABLE>

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


(1)      Dr. Kyriakides was appointed Chairman of the Board on July 31, 1999 and
         was appointed Chief Executive Officer of our company on September 20,
         1999.

(2)      Includes $40,000 of accrued but unpaid salary payable for services
         rendered to us and 32,000 shares of common stock valued at $1.25 per
         share for an aggregate value of $40,000.

(3)      Includes $265,000 accrued but unpaid salary for services rendered to us
         for fiscal 2001 and $40,000 accrued but unpaid salary for services
         rendered to us for fiscal 2000.

(4)      Includes $330,000 accrued but unpaid salary for services rendered to us
         for fiscal 2002.

(5)      Consists of 87,999 shares of common stock valued at $1.25 per share for
         an aggregate value of $110,000, which were paid as a bonus.

(6)      On September 20, 1999, Mr. Mourkakos was appointed as our President and
         Chief Operating Officer.

(7)      Mr. Belleau has been serving as Chief Financial Officer on a part-time
         basis since March 2002.


                                       34

<PAGE>

(8)      Consists of 40,000 shares of common stock valued at $1.25 per share for
         an aggregate value of $50,000, which were paid as a bonus.

(9)      Consists of 10,000 shares of common stock valued at $1.25 per share for
         an aggregate value of $13,000, and 20,000 shares of common stock valued
         at $3.00 per share for an aggregate value of $60,000, which were paid
         as a bonus.


EMPLOYMENT AGREEMENTS

         As of September 30, 2002, we had no written employment agreements with
any of our employees, officers or directors.


OPTION RIGHTS

         OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES

         The following tables set forth information concerning the grant of
stock options during fiscal year 2002 to each of the persons described in the
Summary Compensation Table and the number and value of unexercised options held
by them at the fiscal year-end.


                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                  Potential Realizable
                                                                                                         Value
                                  Number of       Percent of      Exercise                      At Assumed Annual Rates
                                  Securities    Total Options/     or Base                           of Stock Price
                                  Underlying     SARs Granted       Price                             Appreciation
                                 Options/SARs    To Employees                                     for Option Term (3)
             Name                  Granted      In Fiscal Year     ($/Sh)     Expiration Date     5% ($)       10%($)
             ----                  -------      --------------     ------     ---------------     ------       ------
<S>                              <C>            <C>              <C>         <C>               <C>            <C>
Christopher Kyriakides (1)        1,000,000          42.0           1.50      Oct.   1, 2006         -            -
Othon Mourkakos (1)               1,000,000          42.0           1.50      Oct.   1, 2006         -            -
Thomas F. Belleau                     -                -             -               -               -            -
Mark Hirschel, Ph.D.(2)              50,000           2.1           1.50      Dec. 18, 2011          -            -
</TABLE>

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

(1)      On October 1, 2001, the Board of Directors granted to such person
         options to purchase an aggregate of 1,000,000 shares of our common
         stock at an exercise price of $1.50 per share. Options to purchase
         500,000 shares are exercisable at any time on and after April 1, 2002,
         and options to purchase 500,000 shares are exercisable on and after
         October 1, 2002. The foregoing options expire on October 1, 2006.

(2)      On December 18, 2001, the Board of Directors granted to such person
         options to purchase an aggregate of 50,000 shares of our common stock
         at an exercise price of $1.50 per share. Options to purchase 16,667
         shares are exercisable at any time on and after December 18, 2002,
         options to purchase 16,667 shares are exercisable on and after December
         18, 2003 and options to purchase 16,667 shares are exercisable on and
         after December 18, 2004. The foregoing options expire on December 18,
         2011.

(3)      Our common stock is not publicly traded and there is no public market
         for such common stock.

                                       35
<PAGE>

               AGGREGATE OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
                          AND FY-END OPTIONS/SAR VALUES


<TABLE>
<CAPTION>
                                                                                              Potential Realizable Value
                                                                                                At Assumed Annual Rates
                                                                  Number of Unexercised       of Stock Price Appreciation
                                                                  Option/SARs at FY-End           for Option Term (1)
            Name              SHARES ACQUIRED       VALUE
                                ON EXERCISE     REALIZED ($)
                                                               Exercisable  Unexercisable   Exercisable    Unexercisable
                                                               -----------  -------------   -----------    -------------
<S>                          <C>                <C>            <C>          <C>             <C>            <C>
Dr. Christopher Kyriakides          --               --         1,700,000        900,000        --              --
Othon Mourkakos                     --               --         1,700,000        900,000        --              --
Thomas F. Belleau                   --               --            58,333         41,667        --              --
Mark Hirschel, Ph.D.                --               --            33,333        116,667        --              --
</TABLE>
-------------

(1)      Our common stock is not publicly traded and there is no public market
         for such common stock.


DIRECTOR COMPENSATION

         Directors who also are employees of our company do not receive any cash
compensation for their services as members of the board of directors, although
they are reimbursed for certain expenses incurred in connection with attendance
at board and committee meetings. Directors who are not employees of our company
or any of our affiliates are paid $1,000 for each meeting of the Board of
Directors attended.


BOARD COMMITTEES

         The Board of Directors intends to establish an Audit Committee and a
Compensation Committee. The Board of Directors currently administers our 2000
Stock Option Plan. The Board of Directors currently reviews the work and reports
of our independent accountants and our internal accounting procedures.



                                       36




<PAGE>





ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth the number and percentage of shares of
common stock owned as of September 30, 2002 by (i) each of our directors, (ii)
all persons who, to our knowledge, are the beneficial owners of more than 5% of
the outstanding shares of common stock, (iii) each of the executive officers,
and (iv) all of our directors and executive officers, as a group. Each person
named in this table has sole investment power and sole voting power with respect
to the shares of common stock set forth opposite such person's name, except as
otherwise indicated.

<TABLE>
<CAPTION>
                                              AGGREGATE NUMBER OF SHARES                 PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER (1)         BENEFICIALLY OWNED (2)                   BENEFICIALLY OWNED
<S>                                            <C>                                       <C>
Dr. Christopher Kyriakides                           3,040,882(4)                                25.3%

Othon Mourkakos                                      2,669,999(4)                                22.2

David DeFouw, Ph.D.                                    472,632(5)                                 4.6

Mark Hirschel, Ph.D.                                    83,996(6)                                   *

Thomas F. Belleau                                      120,839(7)                                 1.2

Peter J. Pappas                                      2,713,334(8)                                22.3
135 West 18th Street (2nd Fl)
New York, NY 10011

Bridge Partners III, LLC                               820,000(9)                                7.9
120 East 34th Street, Suite 14D
New York, NY 10016

Dr. Robert D. Pfeffer                                  677,169(10)                               6.6

All directors and executive officers                 6,038,348(11)                              40.9
as a group (5 persons)
</TABLE>

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

*        Less than one percent.

(1)      Unless otherwise indicated, the address of each person listed is 540
         Sylvan Avenue, Englewood Cliffs, New Jersey 07632.

(2)      A person is deemed to be the beneficial owner of securities that can be
         acquired by such person within 60 days from the date of this filing
         upon the exercise of warrants and options and the conversion of
         convertible securities. Each beneficial owner's percentage ownership is
         determined by assuming that options, warrants, and convertible
         securities held by such person (but not those held by any other person)
         and which are exercisable or convertible within 60 days from the date
         of this filing have been exercised or converted. Unless otherwise
         noted, we believe that all persons named in the table have sole voting
         and investment power with respect to all shares of common stock
         beneficially owned by them.

(3)      Calculated on the basis of 9,816,363 shares of common stock outstanding
         as of September 30, 2002.

                                       37
<PAGE>

(4)      Includes 2,000,000 shares of common stock issuable upon the exercise of
         an option, at an exercise price of $1.50 per share and 200,000 shares
         of common stock issuable upon exercise of an option at an exercise
         price of $1.375 per share.

(5)      Includes 250,000 shares of common stock issuable upon the exercise of
         an option, at an exercise price of $1.50 per share, 25,000 shares of
         common stock issuable upon the exercise of an option , at an exercise
         price of $1.25 per share, 100,000 shares of common stock issuable upon
         conversion of a loan to us, 25,000 shares of common stock issuable upon
         exercise of warrants at $2.50 per share and 50,000 shares of common
         stock issuable upon exercise of warrants at $5.00 per share. The
         warrants expire on March 1, 2006 and September 30, 2006.

(6)      Includes 33,333 shares of common stock issuable upon the exercise of an
         option, at an exercise price of $1.25 per share.

(7)      Includes 70,839 shares of common stock issuable upon the exercise of an
         option, at an exercise price of $1.25 per share.

(8)      Includes 1,000,000 shares of common stock issuable upon conversion of a
         loan to us, 250,000 shares of common stock issuable upon exercise of a
         warrant, which are exercisable at a price of $1.25 per share, expiring
         in August 2002, 250,000 shares of common stock issuable upon exercise
         of a warrant, which are exercisable at a price of $1.50 per share,
         expiring on May 16, 2007, 200,000 shares of common stock issuable upon
         exercise of warrants at $2.50 per share, expiring on August 1, 2006,
         166,667 shares of common stock issuable upon exercise of warrants at
         $3.00 per share, expiring on May 16, 2007, and 510,000 shares of common
         stock issuable upon the exercise of a warrant, which are exercisable at
         a price of $5.00 per share, expiring in June 2011.

(9)      Includes 570,000 shares of common stock issuable upon exercise of a
         warrant, of which 320,000 shares of common stock are exercisable at a
         price of $1.25 per share and 250,000 shares of common stock are
         exercisable at a price of $2.00 per share. The warrant expires on
         January 5, 2006.

(10)     Includes 333,333 shares of common stock issuable upon the exercise of
         an option, at an exercise price of $1.25 per share, 100,000 shares of
         common stock issuable upon conversion of a loan to us, 25,000 shares of
         common stock issuable upon exercise of warrants at $2.50 per share and
         50,000 shares of common stock issuable upon exercise of warrants at
         $5.00 per share. The warrants expire on March 1, 2006 and September 30,
         2006.

(11)     Includes 2,250,000 shares of common stock issuable upon the exercise of
         options, at an exercise price of $1.50 per share, 200,000 shares of
         common stock issuable upon exercise of options, at an exercise price of
         $1.375 per share, 129,172 shares of common stock issuable upon exercise
         of options, at $1.25 per share, 100,000 shares of common stock issuable
         upon conversion of a loan to us, 25,000 shares of common stock issuable
         upon exercise of warrants at $2.50 per share and 50,000 shares of
         common stock issuable upon exercise of warrants at $5.00 per share. The
         warrants expire on March 1, 2006 and September 30, 2006.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


         Several transactions described in this section involve inherent
conflicts of interest because they were with an officer, director, significant
stockholder, promoter or other person with a material business or professional
relationship with us.

         Pursuant to our reorganization effective July 31, 1999, 520,000 shares
(approximately 52% of our new common stock issued at that time) were issued to
Biovest LLC, whose President is also our President and whose Chief Executive
Officer is also our Chairman of the Board and Chief Executive Officer. Also
pursuant to the reorganization, upon the occurrence of certain events, effective
March 15, 2000, 1,434,401


                                       38

<PAGE>

additional shares were issued to Biovest LLC pursuant to our company's Plan of
Reorganization, including 230,000 shares which were held in escrow since July
31, 1999.

         During 1999, Biovest LLC purchased the debt held by our secured lender
in the amount of approximately $676,000 and made advances to us in the amount of
$185,000. During 2000, Biovest LLC made working capital advances to us in the
amount of $255,000 of which $150,000 were repaid by us. In addition, Biovest LLC
paid some of our general and administrative expenses, our expenses in connection
with our private placement offering, and deferred acquisition costs and other
expenses on our behalf in the aggregate amount of approximately $377,000. During
2000, Biovest LLC paid down our debt in the approximate aggregate amount of
$1,745,000 and $48,000 was applied to accrued interest on such debt. During
2000, Biovest LLC received 2,508,952 shares of our common stock in exchange for
cancellation of $3,136,000 in liabilities payable by us to Biovest LLC

         During fiscal year 2000, Biovest LLC made working capital advances to
us in the amount of $105,000.

         In September 2001, we issued 196,281 shares of common stock to Biovest
LLC in exchange for discharging our obligation to Biovest LLC in the amount of
$245,000.

         In August 2001, Biovest LLC transferred all of its shares of our common
stock to Biovest Corp., a New York corporation, and in September 2001, Biovest
Corp. reincorporated in Delaware under the name Biovests Corp., sold all of its
assets consisting of 4,672,749 shares of common stock to us and we issued an
equal number of shares of common stock to Biovests Corp., which then liquidated
all of its assets by distributing the shares to its shareholders.



ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
         Exhibits
Exhibit
Number           Description
------           -----------
<S>              <C>
     3.1         Certificate of Incorporation of the Company (1)

     3.2         Bylaws of the Company (1)

    10.1         Asset Purchase Agreement between the Company and Unisyn Technologies, Inc. (2)

    10.2         Settlement Agreement between the Company and Hambrecht & Quist Guaranty Finance, LLC (2)

    10.3         Settlement Agreement between the Company and Latham & Watkins (2)

    10.4         Agreement between the Company and Bridge Partners III, LLC (3)

    10.5         Biovest International, Inc. 2000 Stock Option Plan. (4)

    24.1         Power of Attorney (contained on the signature page to this Annual Report)
</TABLE>

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

         (1)      Incorporated by reference to the Company's Quarterly Report on
                  Form 10-QSB for the period ended June 30, 2001, which was
                  filed on August 20, 2001.

                                       39
<PAGE>

         (2)      Incorporated by reference to the Company's Current Report on
                  Form 8-K dated July 7, 2000.

         (3)      Incorporated by reference to the Company's Annual Report on
                  Form 10-KSB for the period ended September 30, 2000, which was
                  filed on January 16, 2001.

         (4)      Incorporated by reference to the Company's Quarterly Report on
                  Form 10-QSB for the period ended March 31, 2001, which was
                  filed on May 21, 2001.


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

         Reports on Form 8-K

                  Report on Form 8-K filed on April 3, 2002 regarding change in
         Registrant's certifying accountant.

                  Report on Form 8-K filed on November 1, 2002 regarding
         rescission of certain employment contracts.

                                       40

<PAGE>



                                   SIGNATURES

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

Date:    January 13, 2003
         ----------------

                       By:           /s/ Dr. Christopher Kyriakides
                                -----------------------------------
                                Dr. Christopher Kyriakides
                                Chief Executive Officer and Director


                       By:          /s/ Thomas F. Belleau
                                -----------------------------------
                                Thomas F. Belleau
                                Chief Financial Officer
                                Principal Financial and Accounting
                                Officer

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

Each person whose signature appears below constitutes and appoints Dr.
Christopher Kyriakides and Othon Mourkakos as his/her true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution for such person and in his/her name, place and stead, in any
and all capacities, to sign any or all amendments to the registrant's Annual
Report on Form 10-KSB for the year ended September 30, 2002 and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he/she might or
could do in person, hereby ratifying and confirming all said attorneys-in-fact
and agents, each acting alone, or his/her substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.

<TABLE>
<CAPTION>
                 Signature                                            Title                                   Date
                 ---------                                            -----                                   ----
<S>                                               <C>                                                      <C>
  /s/ Dr. Christopher Kyriakides                  Chief Executive Officer (Principal Executive
-------------------------------------             Officer) and Director
Dr. Christopher Kyriakides                                                                                   01/13/03
                                                                                                             --------

  /s/ Othon Mourkakos                              President, Secretary and Director                         01/13/03
-------------------------------------                                                                        --------
Othon Mourkakos

  /s/ Dr. David DeFouw                            Director                                                    01/13/03
----------------------------------------                                                                      --------
Dr. David DeFouw
</TABLE>
                                       41
<PAGE>



      I, Christopher Kyriakides, certify that:

      1. I have reviewed this annual report on Form 10-KSB of Biovest
International, Inc.;

      2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

      4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

            a) designed such disclosure controls and procedures to ensure that
      material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;

            b) evaluated the effectiveness of the registrant's disclosure
      controls and procedures as of a date within 90 days prior to the filing
      date of this annual report (the "Evaluation Date"); and

            c) presented in this annual report our conclusions about the
      effectiveness of the disclosure controls and procedures based on our
      evaluation as of the Evaluation Date;

      5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

            a) all significant deficiencies in the design or operation of
      internal controls which could adversely affect the registrant's ability to
      record, process, summarize and report financial data and have identified
      for the registrant's auditors any material weaknesses in internal
      controls; and

            b) any fraud, whether or not material, that involves management or
      other employees who have a significant role in the registrant's internal
      controls; and

      6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Dated: January 13, 2003                   By:     /s/ Christopher Kyriakides
                                                  ===========================
                                                  Christopher Kyriakides
                                                  Chief Executive Officer



                                       42
<PAGE>

      I, Thomas F. Belleau, certify that:

      1. I have reviewed this annual report on Form 10-KSB of Biovest
International, Inc.;

      2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

      4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

            a) designed such disclosure controls and procedures to ensure that
      material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;

            b) evaluated the effectiveness of the registrant's disclosure
      controls and procedures as of a date within 90 days prior to the filing
      date of this annual report (the "Evaluation Date"); and

            c) presented in this annual report our conclusions about the
      effectiveness of the disclosure controls and procedures based on our
      evaluation as of the Evaluation Date;

      5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

            a) all significant deficiencies in the design or operation of
      internal controls which could adversely affect the registrant's ability to
      record, process, summarize and report financial data and have identified
      for the registrant's auditors any material weaknesses in internal
      controls; and

            b) any fraud, whether or not material, that involves management or
      other employees who have a significant role in the registrant's internal
      controls; and

      6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Dated: January 13, 2003                   By:     /s/ Thomas F. Belleau
                                                  ============================
                                                  Thomas F. Belleau
                                                  Chief Financial Officer



                                       43

<PAGE>


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Annual Report of Biovest International, Inc. (the
"Company") on Form 10-KSB for the period ending September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Christopher Kyriakides, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:

         (1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

         (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.



                                   /s/Christopher Kyriakides
                                   --------------------------
                                   Christopher Kyriakides
                                   Chief Executive Officer
                                   January 13, 2003





                                       44



<PAGE>



                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Annual Report of Biovest International, Inc. (the
"Company") on Form 10-KSB for the period ending September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Thomas F. Belleau, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. ss. 1350, as adopted pursuanT to ss. 906 of the Sarbanes-Oxley Act of
2002, that:

         (1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

         (2) The information contained in the Report fairly presents, in all
     material respects, the financial condition and result of operations of the
     Company.



                                  /s/Thomas F. Belleau
                                  --------------------
                                  Thomas F. Belleau
                                  Chief Financial Officer
                                  January 13, 2003




                                       45


<PAGE>


                          INDEX TO FINANCIAL STATEMENTS

                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)

<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                            ----
<S>                                                                                                         <C>
Report of Independent Certified Public Accountants-Current.................................................. F-2

Report of Independent Certified Public Accountants-Predecessor.............................................. F-3

Balance Sheet as of September 30, 2002...................................................................... F-4

Statements of Operations for the years ended September 30, 2002 and 2001.................................... F-5

Statements of Cash Flows for the years ended September 30, 2002 and 2001.................................... F-6

Statements of Shareholders' Equity for the years ended September 30, 2002
 and 2001................................................................................................... F-7

Notes to Financial Statements............................................................................... F-8
</TABLE>

                                      F-1

<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
Biovest International, Inc.

We have audited the accompanying balance sheet Biovest International, Inc. as of
September 30, 2002 and the related statements of operations, changes in
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Biovest International, Inc. as
of September 30, 2002 and its results of operations and cash flows for the year
then ended in conformity accounting principles generally accepted in the United
States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company incurred significant losses and used cash in
operating activities during the year ended September 30, 2002, and had a deficit
in working capital at September 30, 2002. These factors, among others, as
discussed in Note 3 to the financial statements, raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regards to these matters are also described in Note 3. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.


                                            /s/ LAZAR LEVINE & FELIX, LLP
                                            -----------------------------------
                                            LAZAR LEVINE & FELIX, LLP

New York, New York
November 22, 2002(except for Note 13,
                    as to which the date is December 19, 2002)


                                      F-2

<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors and Shareholders
Biovest International, Inc.

         We have audited the accompanying statements of operations,
shareholders' equity, and cash flows of Biovest International, Inc. (the
Company, formerly Cellex Biosciences, Inc.) for the year ended September 30,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of its operations and cash flows
of Biovest International, Inc. for the year ended September 30, 2001 in
conformity with accounting principles generally accepted in the United States of
America.

         The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company incurred significant losses and used cash in
operating activities during the year ended September 30, 2001, and had a deficit
in working capital at September 30, 2001. These factors, among others, as
discussed in Note 3 to the financial statements, raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regards to these matters are also described in Note 3. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

                                                             GRANT THORNTON LLP

Minneapolis, Minnesota
December 3, 2001 (except for Note 13,
                    as to which the date is December 19, 2001)


                                      F-3

<PAGE>



                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                                  BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                                     September 30,
                                          ASSETS                                                         2002
                                                                                                    ------------
<S>                                                                                                 <C>
Current assets
   Cash.................................................................................            $    494,000
   Accounts receivable, net of $120,000 allowance for doubtful accounts.................               1,292,000
   Costs and estimated earnings in excess of billings on uncompleted contracts..........                  28,000
   Inventories..........................................................................               1,069,000
   Other................................................................................                 203,000
                                                                                                     -----------
         Total current assets...........................................................               3,086,000
Property, plant and equipment, net......................................................               1,181,000
Other assets
   Inventories..........................................................................                 245,000
   Patents and trademarks, net..........................................................                 757,000
   Reorganization value in excess of amounts allocable to identifiable assets, net......               2,131,000
                                                                                                      ----------
                                                                                                     $ 7,400,000
                                                                                                      ==========

                           LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
   Current portion of notes payable.....................................................          $      210,000
   Current portion of long-term debt....................................................                  28,000
   Accounts payable.....................................................................               1,128,000
   Customer deposits....................................................................                 177,000
   Accrued liabilities:
      Compensation and related taxes....................................................               1,756,000
      Other.............................................................................                 555,000
   Billings in excess of costs and estimated earnings on uncompleted contracts..........                 287,000
                                                                                                   -------------
         Total current liabilities......................................................               4,141,000
Long term notes payable ................................................................               2,513,000
Long-term debt..........................................................................                 136,000
                                                                                                     -----------
         Total liabilities..............................................................               6,790,000
Commitments and contingencies                                                                                  -
Shareholders' equity
   Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued
     and outstanding....................................................................                       -
   Common stock, $.01 par value, 50,000,000 shares authorized; 9,816,363
     shares issued and outstanding......................................................                  98,000
   Additional paid-in capital...........................................................              12,875,000
   Accumulated deficit (accumulated since July 31, 1999, the effective date of the
     Company's Amended Plan of Reorganization)..........................................             (12,113,000)
   Stock subscription receivable........................................................                (250,000)
                                                                                                     -----------
         Total shareholders' equity.....................................................                 610,000
                                                                                                        --------
                                                                                                     $ 7,400,000
                                                                                                      ==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

                                      F-4
<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                Year ended September 30,
                                                            ---------------------------------

                                                                2002                 2001
                                                            ------------         -----------
<S>                                                        <C>                   <C>
Revenues
   Contract production services    ................        $   6,578,000         $ 6,424,000
   Consumable sales.................................           2,537,000           1,777,000
   System sales.....................................           1,760,000           1,430,000
   Other............................................             404,000             465,000
                                                            ------------         -----------
         Total revenues.............................          11,279,000          10,096,000
Operating costs and expenses
   Cost of sales....................................           8,691,000           7,384,000
   Research and development.........................           2,260,000           2,673,000
   Marketing, general and administrative............           4,166,000           5,667,000
                                                            ------------          ----------
         Total operating costs and expenses.........          15,117,000          15,724,000
                                                            ------------          ----------
Loss from operations................................          (3,838,000)         (5,628,000)
Other income (expense)
   Interest expense.................................            (491,000)           (205,000)
   Other income, net................................             129,000               1,000
                                                            ------------          ----------
                                                                (362,000)           (204,000)
                                                            ------------          ----------

Net loss............................................       $  (4,200,000)        $(5,832,000)
                                                            ============          ==========

Net loss per common share - basic and diluted.......       $      (0.43)         $     (0.63)
                                                            ============          ==========


Weighted average number of common shares outstanding
   - basic and diluted..............................           9,684,892           9,250,307
                                                               =========          ==========
</TABLE>




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

                                      F-5
<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                  Year ended September 30,
                                                          -------------------------------------

                                                                2002                2001
                                                            ------------          ----------
<S>                                                         <C>                 <C>
Cash flows from operating activities
   Net loss.........................................        $(4,200,000)        $(5,832,000)
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Depreciation.................................            208,000             154,000
       Amortization.................................            249,000             241,000
       Issuance of common stock, options and
         warrants for services .....................            790,000           1,170,000
           Stock issued in payment of expenses......                  -             245,000
           Gain on sale of subsidiary assets........           (321,000)                  -
           Amortization of warrants related to
             affiliate debt.........................            274,000             120,000
   Changes in current operating items
       Accounts receivable..........................            299,000              78,000
       Costs and estimated earnings in excess of
         billings on uncompleted contracts..........            560,000             (49,000)
       Inventories..................................            732,000             409,000
       Other........................................            298,000            (279,000)
       Accounts payable and accrued liabilities.....            540,000           1,615,000
       Customer deposits............................            131,000             (23,000)
       Billings in excess of costs and estimated
         earnings on uncompleted contracts..........            170,000              81,000
                                                             ----------          ----------
Net cash used in operating activities...............           (297,000)         (2,070,000)
                                                             ----------          ----------
Cash flow from investing activities
     Purchases of property, plant and equipment.....           (375,000)           (400,000)
                                                             ----------          ----------
Net cash used in investing activities...............           (375,000)           (400,000)
                                                             ----------          ----------
Cash flow from financing activities
   Repayment of short-term borrowings...............           (300,000)           (100,000)
   Proceeds from short-term borrowings..............          1,250,000           1,700,000
   Net proceeds from sale of common stock and
     warrants.......................................            500,000             510,000
   Principal payments on long-term debt.............           (314,000)           (136,000)
   Financing costs..................................             30,000                   -
   Stock subscription...............................                  -             (52,000)
                                                             ----------          ----------
Net cash provided by financing activities...........          1,166,000           1,922,000
                                                             ----------          ----------
Net increase(decrease) in cash......................            494,000            (548,000)
Cash at beginning of year...........................               -                548,000
                                                             ----------          ----------
Cash at end of year.................................       $    494,000         $         -
                                                             ==========          ==========

Cash paid for interest during the year..............       $     45,000         $    62,000
                                                             ==========          ==========
</TABLE>




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

                                      F-6
<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                       STATEMENTS OF SHAREHOLDERS' EQUITY
                     YEARS ENDED SEPTEMBER 30, 2001AND 2002

<TABLE>
<CAPTION>
                                                 COMMON STOCK         ADDITIONAL                       STOCK
                                              ---------------------     PAID-IN       ACCUMULATED   SUBSCRIPTION   SHAREHOLDERS'
                                                SHARES      AMOUNT      CAPITAL        DEFICIT      RECEIVABLE       EQUITY
                                              ----------   --------   -----------     -----------   ----------   -------------
<S>                                          <C>           <C>        <C>            <C>            <C>          <C>
Balance at September 30, 2000............     9,100,390      91,000     9,968,000     (2,081,000)    (198,000)      7,780,000
   Net proceeds from sale of common
     stock and warrants..................       170,000       2,000       508,000              -            -         510,000
   Stock issued for services rendered....       153,000       1,000       191,000              -            -         192,000
   Stock issued in payment of expenses...       196,281       2,000       243,000              -            -         245,000
   Stock options issued for services
     rendered............................             -           -       676,000              -            -         676,000
   Stock warrants issued with notes
     payable.............................             -           -       254,000              -            -         254,000
   Other.................................            25           -             -              -      (52,000)        (52,000)
   Net loss for the year.................             -           -             -     (5,832,000)           -      (5,832,000)
                                              ---------     -------    ----------    -----------    ---------      ----------
Balance at September 30, 2001............     9,619,696      96,000    11,840,000     (7,913,000)    (250,000)      3,773,000
   Net proceeds from sale of common
     stock and warrants..................       166,667       2,000       498,000              -            -         500,000
   Stock issued for services rendered....        30,000           -        73,000              -            -          73,000
   Stock warrants issued in repricing
     of equity...........................             -           -        66,000              -            -          66,000
   Stock warrants issued for services
     rendered............................             -           -       168,000              -            -         168,000
   Stock warrants issued with notes
     payable.............................             -           -       230,000              -            -         230,000
   Net loss for the year.................             -           -            -      (4,200,000)           -      (4,200,000)
                                              ---------     -------    ----------    -----------    ---------      ----------
Balance at September 30, 2002............     9,816,363     $98,000   $12,875,000   $(12,113,000)   $(250,000)  $     610,000
                                              =========     =======    ==========    ===========    =========      ==========
</TABLE>

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

                                      F-7


<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS


1.      DESCRIPTION OF THE COMPANY

       Except as indicated otherwise, the term the "Company" refers to Biovest
International, Inc.

       The Company is a biotechnology company focused on production and contract
manufacturing of biologic drugs and products from small through commercial
scale. It has historically developed, manufactured and marketed patented cell
culture systems and equipment to pharmaceutical, diagnostic and biotechnology
companies, as well as leading research institutions worldwide, and has provided
contract cell production services to those institutions. While continuing this
business, management has chosen to re-orient the Company's focus, assets and
operations to increase contract cell production and biologic drug development
and ownership. The Company's first drug product, a personalized vaccine for the
most common and fastest-growing form of hematologic cancer, known as B-cell
Non-Hodgkin's lymphoma, is currently in a Phase III FDA-approved pivotal
licensing trial.

       Effective on May 15, 2001 the Company changed its name from Cellex
Biosciences, Inc. to Biovest International, Inc., as permitted under the
Company's Modified First Amended Plan of Reorganization dated June 28, 1999
("Plan"). At a Special Meeting of Stockholders held on June 28, 2001, the
stockholders approved the Company's merger into Biovest International, Inc., a
Delaware corporation, to reincorporate the Company from a Minnesota corporation
to a Delaware corporation.

2.     SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation

         As of July 31, 1999, the Company adopted fresh start reporting in
accordance with the American Institute of Certified Public Accountants'
Statement of Position 90-7, Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code ("SOP 90-7").

     Fresh-start reporting resulted in material changes to the Company's balance
sheet, including valuation of assets at fair value in accordance with principles
of the purchase method of accounting, valuation of liabilities pursuant to
provisions of the Plan and valuation of equity based on the reorganization value
of the ongoing business.

       Use of Estimates in the Preparation of Financial Statements

       The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures about contingent assets and liabilities
at the date of the financial statements




                                      F-8



<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS



and the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.

       Property and Equipment

       Property and equipment are recorded at the net book value, which
approximated fair value, at July 31, 1999 and at cost for additions subsequent
to July 31, 1999. Depreciation for property and equipment is computed using the
straight-line method over the estimated useful lives of three to seven years.

       Major replacements and improvements are capitalized. Repair and
maintenance costs are charged to expense as incurred. Any gains or losses on the
disposal of property and equipment are charged to operations.

       Inventories

       Inventories are recorded at the lower of cost or market with cost
determined using the first-in, first-out ("FIFO") method.

       Recent Accounting Pronouncement

       On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 142, Goodwill and Intangible
Assets. SFAS 142 is effective for fiscal years beginning after December 15,
2001, though earlier adoption is permitted. Under the new pronouncement, among
other provisions, goodwill, including reorganization value in excess of amounts
allocable to identifiable assets, and intangible assets with indefinite lives
will no longer be amortized and will be tested for impairment annually and
whenever there is an impairment indicator.

       The Company has tested for impairment and determined that no adjustment
to the carrying value of the asset, "Reorganization value in excess of amounts
allocable to identifiable assets,net", is necessary at this time. As of October
1, 2002, amortization will no longer be recognized. By the end of the year of
implementation the Company will have completed a transitional fair value based
impairment test of goodwill. Impairment losses, if any, resulting from the
transitional testing will be recognized as a cumulative effect of a change in
accounting principle.

         On October 3, 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets ("SFAS 144"), that is applicable to financial statements issued for
fiscal years beginning after December 15, 2001. The FASB's new rules on asset
impairment supersede SFAS 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and portions of Accounting
Principles Board Opinion 30, Reporting the Results of Operations. This Standard
provides a single accounting model for long-lived assets to be disposed of and
significantly changes the criteria that would have to be met to classify an
asset held-for-sale. Classification as held-for-sale is an important distinction
since such assets are not depreciated and are stated at the lower of fair value
and carrying amount. This Standard also requires expected future operating
losses from discontinued operations to be displayed in the period(s) in which
the losses are incurred, rather than as of the measurement date as presently
required. The adoption of SFAS 144 will have no impact on the Company's
operating results or financial position.

       On July 30, 2002, the FASB issued Statement of financial Accounting
Standards No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" ("SFAS 146"), that is applicable to exit or disposal activities
initiated after December 31, 2002. This standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. This standard does
not apply where SFAS 144 is applicable.

                                      F-9

<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS



       On December 31, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure" ("SFAS 148"), that is applicable to financial statements issued for
fiscal years ending after December 15, 2002. In addition, interim disclosure
provisions are applicable for financial statements issued for interim periods
beginning after December 15, 2002. This standard amends SFAS 123 and provides
guidance to companies electing to voluntarily change to the fair value method of
accounting for stock-based compensation. In addition, this standard amends SFAS
123 to require more prominent and more frequent disclosures in financial
statements regarding the effects of stock-based compensation.


       Patents and Trademarks

       Costs incurred in relation to patent applications are capitalized as
deferred patent costs. If and when a patent is issued, the related patent
application costs are transferred to the patent account and amortized over the
legal life of the patent. If it is determined that a patent will not be issued,
the related patent application costs are charged to expense at the time such
determination is made.

       Patent and trademark costs were recorded at fair value at July 31, 1999
and at cost for additions subsequent to July 31, 1999. Patent and trademark
costs were being amortized using the straight-line method over six years for
patents and twenty years for trademarks. Accumulated amortization was $385,000
at September 30, 2002.

       Reorganization Value in Excess of Amounts Allocable to Identifiable
Assets

       As of July 31,1999, the Company accounted for the reorganization using
fresh-start reporting. Accordingly, all assets and liabilities were restated to
reflect their reorganization value which approximated the fair value at July
31,1999. The portion of the reorganization value which could not be attributed
to specific tangible and identified intangible assets of the Reorganized Company
in the amount of $2,532,000 was recognized as "Reorganization Value in Excess of
Amounts Allocable to Identifiable Assets".

       Reorganization value in excess of amounts allocable to identifiable
assets was being amortized on a straight-line basis over twenty years. SFAS 142
precludes further amortization of reorganization value in excess of amounts
allocable to identifiable assets effective October 1, 2002. Accumulated
amortization was $401,000 at September 30, 2002.

       Carrying Value of Long-Lived Assets

                                      F-10

<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS


       On an ongoing basis, the Company evaluates the carrying value of the
reorganization value in excess of amounts allocable to identifiable assets based
upon a market value approach that considers the value of its equity securities.

       The carrying values of the Company's other long-lived assets are
evaluated based upon management's experience in the industry, historical and
projected sales, current backlog and expectations of undiscounted future cash
flows. On an ongoing basis, the Company reviews the valuation and amortization
of those long-lived assets to determine possible impairment by comparing the
carrying value to projected undiscounted future cash flows of the related
assets.

       Stock Options

       The Company's employee stock option plan is accounted for under the
intrinsic value method. Under this method, compensation expense is only
recognized for the amount by which the market price of the common stock on the
date of grant exceeds the exercise price of the option.

       Stock options issued to non-employees and outside consultants are
accounted for under the fair value method.

       Revenue Recognition

       System and consumable sales are recognized in the period in which the
applicable products are shipped. The Company does not provide its customers with
a right of return, however, deposits made by customers must be returned to
customers in the event of non-performance by the Company. Revenues from contract
cell production services are recognized using the percentage-of-completion
method, measured by the percentage of contract costs incurred to date to
estimated total contract costs for each contract.

       Contract costs include all direct material, subcontract and labor costs
and those indirect costs related to contract performance, such as indirect
labor, insurance, supplies and tools. General and administrative costs are
charged to operations as incurred. Provisions for estimated losses on
uncompleted contracts are made in the year in which such losses are determined.
Changes in job performance, job conditions, estimated profitability and final
contract settlements may result in revisions to revenues, costs and profits and
are recognized in the year such revisions are determined.

       The asset "costs and estimated earnings in excess of billings on
uncompleted contracts" represents revenues recognized in excess of amounts
billed. Such revenues are expected to be billed and collected within one year on
uncompleted contracts. The liability "billings in excess of costs and estimated
earnings on uncompleted contracts" represents billings in excess of revenue
recognized.

       Research and Development Expenses


                                      F-11

<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS


       The Company expenses research and development expenditures as incurred.
In the fiscal years ended September 30, 2002 and 2001 the Company incurred total
research and development expenses of $2,260,000 and $2,673,000, respectively.
Expenses for the CRADA amounted to $1,547,000 and $2,508,000, respectively.

       Net Loss Per Common Share

 Basic net income (loss) per share of common stock is computed by dividing net
income (loss) by the weighted average number of outstanding common shares.
Diluted net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of outstanding common shares and common
share equivalents relating to stock options and warrants, when dilutive. For the
fiscal year ended September 30, 2002 and 2001 no common share equivalents would
have been included in the computation of diluted net income per share had net
income been achieved. Options and warrants to purchase approximately 9,802,000
and 4,930,000 shares of common stock with a weighted average exercise price of
$1.88 and $2.51 were outstanding at September 30, 2002 and 2001, and were not
included in the computation of common stock equivalents because their exercise
price was higher than the estimated fair market value of the common shares
during the reporting period. In addition, diluted earnings per share does not
include 1,783,333 and 466,667 shares issuable upon the conversion of notes
payable to common stock at September 30, 2002 and 2001 because the effect would
have been antidilutive.

3.     GOING CONCERN

       During fiscal years 2002 and 2001 the Company incurred net losses of
$4,200,000 and $5,832,000 and used $297,000 and $2,070,000 of cash in operating
activities, respectively. At September 30, 2002 the Company had a deficit in
working capital of $1,055,000. During fiscal 2002 the Company met its cash
requirements through the use of cash on hand, the sale of common stock and
short-term borrowings, primarily from affiliates.

       In September 2001 the Company successfully entered into a definitive
Cooperative Research and Development Agreement ("CRADA") with the National
Cancer Institute ("NCI") for the development and ultimate commercialization of
patient-specific vaccines for the treatment of non-Hodgkin's low-grade
follicular lymphoma. The terms of the CRADA include, among other things, a
requirement for us to pay $530,000 quarterly to NCI for expenses incurred in
connection with the ongoing Phase III clinical trials. The Company made the
first payment in the quarter ended September 30, 2001. On May 8, 2002 the
Company and the NCI executed an amendment to the CRADA, which requires a single
payment of $350,000, due on September 30, 2002, in lieu of the quarterly
payments of the original agreement. Under the amendment, quarterly payments of
$530,000 will resume on October 1, 2002. On October 15, 2002 a new amendment to
the CRADA was executed under which the Company is not required to make the
$350,000 payment due to the NCI on September 30, 2002 nor the $530,000 payment


                                      F-12

<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS



due on October 1, 2002. The next payment due from the Company is $530,000 within
30 days of the April 1, 2003 due date. Failure to remit this payment will
constitute the Company's unilateral termination of the CRADA and we will lose
the rights to commercialize the results of our research with the NCI. Successful
development of the vaccine, if approved by the FDA, from Phase III clinical
trials through commercialization will commit the Company to several years of
significant expenditures before revenues will be realized, if ever.

       The Company's ability to continue its present operations and meet its
obligations under the CRADA is dependent upon its ability to obtain significant
additional funding. Such additional financing could be sought from a number of
sources, including the sale of equity or debt securities, strategic
collaborations or recognized research funding programs. Management is currently
in the process of exploring various financing alternatives to meet the Company's
cash needs, including additional short-term loans from shareholders and others
and the sale of equity securities. Management believes they will be able to
raise the necessary funds to continue operations in the near term.

       There is no assurance that the additional required funds can be obtained
on terms acceptable or favorable to the Company, if at all. The net losses
incurred and the need for additional funding raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.


4.     DETAILS TO BALANCE SHEET

       Inventories

       Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                                               September 30,
                                                                                                   2002
                                                                                                ----------
<S>                                                                                            <C>
         Finished goods...........................................................               $ 246,000
         Work-in-process..........................................................                  73,000
         Raw materials............................................................                 995,000
                                                                                                   -------
                                                                                                 1,314,000
         Less non-current portion.................................................                 245,000
                                                                                                  --------
                                                                                                $1,069,000
                                                                                                ==========
</TABLE>

       The Company has inventory quantities in excess of anticipated sales
requirements for the twelve months subsequent to September 30, 2002.
Accordingly, a portion of the Company's inventory balance is classified as a
non-current asset as of the balance sheet date.

       Property and Equipment

                                      F-13

<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS


       Property and equipment consist of the following:
<TABLE>
<CAPTION>
                                                                                             September 30,
                                                                                                 2002
                                                                                              ----------
<S>                                                                                            <C>
         Furniture and fixtures.................................................               $  56,000
         Leasehold improvements.................................................                 265,000
         Machinery and equipment................................................               1,070,000
                                                                                              ----------
                                                                                               1,391,000
         Less accumulated depreciation and
            amortization........................................................                 210,000
                                                                                                --------

                                                                                              $1,181,000
                                                                                              ==========
</TABLE>

       Concentration of Credit Risk

       The Company grants credit to customers in the normal course of business,
but generally does not require collateral or any other security to support
amounts due. Management performs on-going credit evaluations of its customers.

        During the fiscal year ended September 30, 2002 two customers accounted
for 11% and 10% of revenues. During the fiscal year ended September 30, 2001 one
customer accounted for approximately 20% of total revenues. Three customers
accounted for 15%, 13% and 11% of the Company's accounts receivable balance at
September 30, 2002.

       A significant amount of the Company's revenue has been derived from
export sales. The Company's export sales, principally to European customers,
were 46% and 41% of total revenues for the fiscal years ended September 30, 2002
and 2001, respectively.

       Fair Value of Financial Instruments

       The carrying amounts of current assets and current liabilities such as
cash, accounts receivable, accounts payable, customer deposits and accrued
liabilities approximate fair value because of the short maturity of these items.
The fair value of the Company's borrowings, if recalculated based on current
interest rates, would not significantly differ from the recorded amounts.


5.     NOTES PAYABLE

       During September 2002, two of the four existing loans, that remained from
the original seven loans entered into in fiscal 2000, were renewed with new
loans bearing interest at 10%, due on September 1, 2004, one loan was renewed at
the same rate with a due date of September 1, 2003 and the other note was
redeemed. All three remaining loans are convertible into shares of the Company's
common stock at $1.00 per share at the holder's option versus the original price
of $3.00 per share. In connection with the two renewals for a term of two years,
the Company issued each party additional warrants


                                      F-14

<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS



to purchase 25,000 shares of the Company's common stock with an exercise price
of $1.25 per share, exercisable from September 1, 2002 through September 30,
2007. The aggregate value of the warrants using the Black-Scholes pricing model,
assuming zero dividend yield; a risk-free rate of 3.28%; expected volatility of
92.92%; and term of five years, was estimated to be $25,000 and is being
amortized over the life of the loans which results in a higher effective
interest rate.

       During the fiscal year ended September 30, 2002, the Company obtained
additional loans, with a term of one year, aggregating approximately $1,100,000;
these loans bear interest at 7.5% per annum, and mature on various dates through
January 31, 2003. These notes are also convertible into shares of the Company's
common stock at $3.00 per share, at the holder's option, if the Company wishes
to pay amounts under the loans before maturity. The Company issued 100,000
warrants with an exercise price of $2.50 per share and 100,000 warrants with an
exercise price of $5.00 per share to a third party who assisted in obtaining
this financing. The warrants are exercisable immediately and have a term of five
years. The aggregate value of the warrants using the Black-Scholes pricing
model, assuming zero dividend yield; risk-free interest rates ranging from 3.47%
to 4.38%; expected volatility of 100%; and term of five years, was estimated to
be $154,000. The Company also paid a commission of $30,000 to the third party
who assisted with the financing. The value of the warrants and commission are
being amortized over the life of the loans which results in a higher effective
interest rate.

       In December 2001, an individual loaned the Company $150,000, under a note
payable that bears interest at 7.5% per annum, which is due December 19, 2003
and is convertible into shares of the Company's common stock at $3.00 per share
at the holder's option, if the Company wishes to pay amounts under the loan
before maturity. In connection with the note, the Company issued warrants to
purchase 50,000 shares of the Company's common stock at $5.00 per share. The
warrants are exercisable immediately and have a term of five years. The
aggregate value of the warrants using the Black-Scholes pricing model, assuming
zero dividend yield; a risk-free interest rate of 4.45%; expected volatility of
100%; and a term of five years, was estimated to be $35,000 and is being
amortized over the life of the loans which results in a higher effective
interest rate.

       In August 2002, a $1,000,000 loan matured and was renewed until August
20, 2004, with interest at 7.5% per annum. This loan is also convertible, at the
holder's option, into shares of the Company's common stock at $1.00 per share if
the Company wishes to pay amounts under the loan before maturity. In connection
with the issuance of the debt, the Company issued 250,000 warrants with an
exercise price of $1.25 per share, exercisable on or before August 1, 2006. The
aggregate value of the warrants using the Black-Scholes pricing model, assuming
zero dividend yield; a risk-free rate of 4.55%; expected volatility of 84%; and
term of five years, was estimated to be $92,000 and is being amortized over the
life of the loan which results in a higher effective interest rate.

6.   LONG-TERM DEBT-OTHER

                                      F-15
<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS



         Long-term debt was entered into pursuant to the Company's
reorganization and consists of the following:

<TABLE>
<CAPTION>
                                                                                                  September 30, 2002
<S>                                                                                               <C>
       Capital lease obligation ........................................................                   6,000
       Promissory note payable to State of Minnesota, with interest of 8% per
         annum, payable in monthly installments of $2,700, including
         interest through February 1, 2005..............................................                  70,000
       Amounts payable to regulatory agencies (i).......................................                  87,000
                                                                                                       ---------
                                                                                                         163,000
       Less current portion of long-term debt...........................................                  27,000
                                                                                                          ------

                                                                                                        $136,000
                                                                                                         =======
</TABLE>

       (i) Pursuant to the Plan, the Company is obligated to repay certain
regulatory agencies an aggregate amount of $95,000 in equal monthly installments
for six years from the date of assessment with interest at the rate of 8% per
annum. As of September 30, 2002, the Company was assessed $8,000, which was paid
in full, but promissory notes with the other agencies have not been signed.

       At September 30, 2002, the aggregate maturities of long-term debt for the
fiscal periods are as follows: 2003 - $27,000; 2004 - $30,000; 2005 - $13,000;
and subsequent years - $87,000.

7.     SALE OF ASSETS

       During the quarter ended June 30, 2002 the Company consummated a sale of
assets in an unconsolidated subsidiary, LSL Biolafitte, Inc., for $342,000.
Since the reorganization the Company has sought to sell the assets of the
subsidiary, but because of the foreign origin of the subsidiary's parent and the
bankruptcy laws of that country, Biovest's title to the assets was unclear and
in doubt. Given those circumstances, Biovest elected not to consolidate the
operations and assets and liabilities of the subsidiary into their consolidated
financial statements for fiscal year end 2000.

       When the ownership issues were finally resolved in early fiscal 2001, the
Company entered into negotiations to sell the assets. Since the Company had a
non-binding letter of intent, that was not finalized, the Company deemed control
of the subsidiary temporary and operations of the subsidiary to be immaterial
and did not consolidate it into the Company's financial statements for fiscal
year end 2001.

       Final agreements were reached and the transaction was closed in June
2002. Clear title to a trademark sold as part of the assets could not be given
until the lien on assets by the Internal Revenue Service (See Note 6) was paid
in full. Part of the proceeds of this transaction were paid directly to the IRS.
The proceeds received and recorded values of the assets sold are as follows:

                                      F-16
<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS

Cash in LSL Biolafitte, Inc.                                        $ 4,000
Cash paid to Biovest                                                 84,000
Cash paid to IRS                                                    226,000
Accounts Receivable                                                  28,000
                                                       ---------------------

      Total Purchase Consideration                                 $342,000
                                                       =====================

Sale of Trademark                                                  $175,000
Receivable from LSL                                                 167,000
                                                       ---------------------

      Assets Sold                                                  $342,000
                                                       =====================


       A gain on sale of $321,000 was recorded in the quarter ended June 30,
2002; $175,000 from the sale of a trademark, which is reflected as "Other
income" on the accompanying financial statements; $146,000 as a reversal of a
previously recorded reserve for amounts owed to the Company by Biolafitte.

8.     SHAREHOLDERS' EQUITY

       Common Stock Purchase

       In May 2002, a stockholder agreed to purchase 166,667 shares of common
stock, together with 166,667 warrants to purchase shares of common stock at
$3.00 per share, for $500,000. An initial payment of $300,000 was made in May
2002 and the remaining $200,000 in August 2002. The warrants are exercisable
immediately and have a term of five years. The warrants were valued using the
Black-Scholes pricing model with the following assumptions: zero dividend yield;
risk-free interest rate of 4.52%; expected volatility of 75.9%; and expected
life of four years. Based upon the fair value of the warrants, the Company
recorded $66,000 of expense in conjunction with this transaction.


       Common Stock Issued for Services

       In December 2001, the Company issued 10,000 shares of common stock as
employee compensation. The shares were valued at $1.25 per share, which resulted
in approximately $13,000 of expense.

       In June 2002, the Company issued 20,000 shares of common stock as
employee compensation. The shares were valued at $3.00 per share, which resulted
in $60,000 of expense.

                                      F-17
<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS


       During the fiscal year ended September 30, 2001, the Company issued
123,000 and 30,000 shares of common stock as compensation for several employees
and payment for services rendered by an outside consultant. The shares were
valued at $1.25 per share, which resulted in approximately $154,000 and $38,000
of expense.

       Common Stock Issued for Payment of Expenses

       During 2001 the Company issued 196,281 shares of its common stock at
$1.25 per share in payment of $245,000 of expenses paid on behalf of the Company
by Biovest LLC prior to the approval of the Company's plan of reorganization.
The Company recorded this amount as expense during 2001.

       Stock Options

       In December   , 2001 the Company granted 2,084,000 stock options to
certain executive officers and employees. The options have an exercise price of
$1.50 per share and a five year term. With respect to the options granted to
certain executive officers, half are exercisable six months from the date of
grant and the remaining options are exercisable one year from the date of the
grant. Those granted to other employees are exercisable over a ten year term and
vest one-third each year, on the anniversary of the grant, after the first
year.

       During October 2001, the Company granted 100,000 stock options to an
outside director for consulting services rendered during fiscal 2001. The
options have an exercise price of $1.50 per share and a five year term; half are
exercisable six months from the date of grant and the remaining options are
exercisable one year from the date of grant. Compensation expense for services
rendered was recognized in the amount of $82,000 during the year ended September
30, 2001 based upon the estimated fair value of the options. The options were
valued using the Black-Scholes pricing model with the following assumptions:
zero dividend yield; risk-free interest rate of 3.94%; expected volatility of
84%; and expected life of five years.

       During December 2001, the Company's Board of Directors approved the
issuance of warrants to purchase 50,000 shares of its common stock at $2.50 per
share to a shareholder for consulting services to the Company. The warrants are
exercisable immediately and have a term of five years. The warrants were valued
using the Black-Scholes pricing model with the following assumptions: zero
dividend yield; risk-free interest rate of 4.49%; expected volatility of 100%;
and expected life of five years. Based upon the fair value of the warrants, the
Company recorded $42,000 of expense as the total value of services rendered. The
Board of Directors also approved entering into an agreement with the consultant
whereby the consultant would be issued additional warrants if certain events
occur.

       In March 2002 the Company issued 250,000 warrants in connection with
various notes payable - see Note 5.

                                      F-18
<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS


       During February 2002, the Company granted a total of 100,000 stock
options to purchase common stock to 21 employees. The options have an exercise
price of $2.25 per share and a ten year term; one third are exercisable each
year on the anniversary date of the grant. Distribution of these option grants
will be delayed until the Company receives stockholder approval for an increase
in the number of shares authorized under the 2000 Stock Option Plan.

       In May 2002, the stockholder, who purchased additional common stock (See
below), was hired as a consultant. He will receive $30,000 per year in cash
compensation and a sign-on bonus of 250,000 warrants to purchase common stock at
an exercise price of $1.50 per share. The warrants are exercisable immediately
and have a term of five years. The warrants were valued using the Black-Scholes
pricing model with the following assumptions: zero dividend yield; risk-free
interest rate of 4.52%; expected volatility of 75.9%; and expected life of three
years. Based upon the fair value of the warrants, the Company recorded $119,000
of expense as the total value of the warrants.

       In May 2002, the Board of Directors voted to reprice warrants which were
issued in connection with a one year, $1,000,000 loan made in August 2001. The
original warrants were exercisable immediately over five years and were priced;
100,000 warrants at $5.00 per share and 100,000 at $10.00 per share. All other
provisions of the warrant remain the same, but the exercise price in both
tranches was reduced to $2.50 per share. The repricing of the warrants generates
an additional expense which was calculated based upon the fair value of the new
warrants as compared to the fair value of the original warrants on the date of
the repricing. Accordingly, the Company recorded $42,000 of expense as the total
additional value of the warrants.

       In May 2002, the Company granted 95,000 stock options to two employees.
The Options have exercise prices of $1.50 to $2.75 per share, have a ten-year
term and are exercisable one-third each year on the anniversary of the grant
date. Since the exercise prices are below the presumed market price of $3.00 per
share there is potential compensation expense to the employees. However, since
distribution of these option grants will be delayed until the Company receives
stockholder approval for an increase in the number of shares authorized under
the 2000 Stock Option Plan, any compensation expense will be determined by the
market price of the common stock at time of distribution of the grants.

       In August 2001, the Company's Board of Directors approved the granting of
10,000 options to an employee at $3.00 per share and 10,000 options to an
outside consultant, for services to be provided, at $3.00 per share. Both
options are exercisable over 10 years with vesting for the options to the
consultant at one-third on the date of grant, one-third on the first anniversary
of the date of grant and one-third on the second anniversary of the date of
grant. Options granted to the employee vests one-third each year beginning on
the first anniversary date of the grant and for each of the next two years
thereafter.

                                      F-19
<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS


On June 6, 2001, the Company's Board of Directors approved the granting of
688,000 options to employees, 607,500 options to non-employees and 1,200,000
options to two officers of the Company. All options are priced at $1.25 per
share except those granted to two officers of the Company which are priced at
$1.375 per share. All options are exercisable over 10 years with vesting for the
options to non-employees at one-third on the date of grant, one-third on the
first anniversary of the date of grant and one-third on the second anniversary
of the date of grant. Options granted to employees and officers
 vest one-third each year beginning on the first anniversary date of the grant
and for each of the next two years thereafter. Compensation expense for services
rendered for the 607,500 options granted to non-employees was recognized in the
amount of $523,000 based upon the estimated fair value of the options at that
date. The options were valued using the Black-Scholes pricing model with the
following assumptions: zero dividend yield, risk free interest rate of 4.38%,
expected volatility of 84% and expected life of five years.

       The Board also approved the issuance of 140,000 stock options to an
outside advisor for services rendered at the market price at the time of
stockholder approval of an option plan for the Company. The stock option plan
was approved by the Company's stockholders on March 13, 2001. Compensation
expense for services rendered was recognized in the amount of $64,000 for the
year ended September 30, 2001 based upon the estimated fair value of the
options. The options were valued using the Black-Scholes pricing model with the
following assumptions: zero dividend yield; risk-free interest rate of 4.49%;
expected volatility of 48%; and expected life of three years.

       Stock option activity for the years ended September 30, 2002 and 2001 is
as follows:

<TABLE>
<CAPTION>
                                                               Years ended September 30
                                             -------------------------------------------------------------
                                                         2002                            2001
                                             -----------------------------    ----------------------------
                                                              Weighted                         Weighted
                                                               Average                         Average
                                             Number of        Exercise         Number of       Exercise
                                               Shares           Price           Shares           Price
                                             -----------    --------------    ------------     -----------
<S>                                          <C>            <C>               <C>              <C>
Outstanding-beginning of year                 4,844,350            $1.40        2,200,000          $1.50
     Granted                                  2,379,000             1.50        2,655,600           1.31
     Exercised                                        -                -                -              -
     Cancelled                                 (118,250)            1.53          (11,250)          1.25
                                             -----------                      ------------
Outstanding-end of year                       7,105,100             1.45        4,844,350           1.40
                                             ===========                      ============
Exercisable-end of year                       4,376,700             1.45       2,545,833            1.47
</TABLE>

<TABLE>
<CAPTION>
                               Options Outstanding
------------------------------------------------------------------------------------------------------------------------
                                                         Weighted Average
          Range of                   Number                  Remaining                 Weighted Average
      Exercise Prices              Outstanding           Contractual Life               Exercise Price
-----------------------------    ----------------    --------------------------    --------------------------
<S>                             <C>                  <C>                           <C>
         $1.25-1.50                    4,824,350               6.85                         $ 1.40
            3.00                          20,000               9.83                            3.00
</TABLE>


                                      F-20
<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                             Options Exercisable
-------------------------------------------------------------------------------

          Range of                   Number              Weighted Average
      Exercise Prices              Outstanding            Exercise Price
-----------------------------    ----------------    --------------------------
<S>                              <C>                 <C>
         $1.25-1.50                    2,542,500               $ 1.40
            3.00                          33,333                 3.00
</TABLE>



The weighted average fair value of options granted in 2002 and 2001 was $0.40
and $0.85 per share. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 2002 and 2001: no dividend
yield; risk-free interest rate of return of 3.18% and 4.25%; volatility of
92.92% and 84%; and an average term of 5 years. The Company's 2002 and 2001 pro
forma net loss and basic and diluted net loss per share would have been
$10,642,000 and $7,064,000 or $0.32 and $0.76 per share had the fair value
method been used for valuing options granted during 2002 and 2001. These effects
may not be representative of the future effects of applying the fair value
method.

Stock Warrants

       Stock warrants outstanding at September 30, 2002 are summarized as
follows:

<TABLE>
<CAPTION>
                                           Warrants Outstanding
-------------------------------------------------------------------------------------------------------------
                                                         Weighted Average
          Range of                   Number                 Remaining                  Weighted Average
      Exercise Prices             Outstanding            Contractual Life               Exercise Price
-----------------------------    ---------------    ---------------------------    --------------------------
<S>                              <C>                <C>                            <C>
        $1.25-1.50                     800,000                 3.68                          $ 1.33
         2.00-3.00                     951,667                 3.97                            2.46
         4.00-7.50                     945,000                 4.03                            4.99
</TABLE>

<TABLE>
<CAPTION>
                             Warrants Exercisable
-------------------------------------------------------------------------------

          Range of                   Number              Weighted Average
      Exercise Prices              Outstanding            Exercise Price
-----------------------------    ----------------    --------------------------
<S>                              <C>                 <C>
        $1.25-1.50                   800,000                    1.33
         2.00-3.00                   941,667                    2.46
         4.00-7.50                   935,000                    5.00
</TABLE>

9.     INCOME TAXES

       No provision for income taxes has been recorded for the fiscal years
ended September 30, 2002 and 2001 due to losses incurred during the periods. At
September 30, 2002, the Company has net operating loss carryforwards of
approximately $47,000,000 (expiring 2003 to 2020) and a capital loss
carryforward of approximately



                                      F-21

<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS


$14,000,000 (expiring in 2003). Due to various changes in ownership of the
Company, a significant portion of these carryforwards are subject to significant
restrictions with respect to the ability of the Company to use these amounts to
offset future taxable income. Use of the Company's net operating loss
carryforwards may be further limited as a result of future equity transactions.
The Company has fully offset deferred tax assets resulting from differences in
accounting between income tax and financial statement treatment with a valuation
allowance. These differences consist almost entirely of net operating and
capital loss carryforwards.

       A reconciliation of the U.S. Federal statutory rate to the effective rate
is as follows:

<TABLE>
<CAPTION>
                                                             Year ended September 30,
                                                   ----------------------------------------------
                                                          2002                     2001
                                                   --------------------    ----------------------
<S>                                                <C>                     <C>

              Federal statutory rate.............              (34)%                   (34)%
              State taxes........................               (2)                     (2)
              Effect of valuation allowance......               36                      36
                                                              -----                   -----
              Net actual effective rate..........                -  %                    -  %
                                                              =====                   =====
</TABLE>


10.    RETIREMENT PLANS

       The Company has a retirement savings plan covering all employees eligible
to participate in the plan. Employees of the Company scheduled to provide at
least 1,000 hours of service during their first year of employment are eligible
as of a date no later than six months after employment and employees scheduled
to provide less than 1,000 hours of service become eligible after completing a
year of service. Eligible employees may make annual earnings reduction
contributions of up to the maximum percentage allowable by Code Sections 401(k),
404 and 415, presently 16% of compensation, limited to $12,500 for 2002, on a
pre-tax basis to their plan accounts. The Company may also make discretionary
contributions to this plan, subject to approval by the Board of Directors, which
are allocated to the accounts of the participants in proportion to each
participant's annual compensation from the Company. The Company has made no
discretionary contributions pursuant to the plan.

11.    COMMITMENTS AND CONTINGENCIES

       Leases

       The Company leases office and manufacturing space pursuant to several
non-cancelable operating leases. Rent expense pertaining to these leases was
$907,000 and $839,000, for fiscal years ended September 30, 2002 and 2001. At
September 30, 2002, the following is a schedule of future minimum rental
payments required pursuant to these leases for the fiscal periods ended
September 30:

                2003..................      $557,000

                                      F-22
<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS


                2004..................       332,000
                2005..................       296,000
                2006..................       123,000

       Cooperative Research and Development Agreement

       In September 2001 the Company successfully entered into a definitive
CRADA with the NCI for the development and ultimate commercialization of
patient-specific vaccines for the treatment of non-Hodgkin's low-grade
follicular lymphoma. The terms of the CRADA include, among other things, a
requirement for us to pay $530,000 quarterly to NCI for expenses incurred in
connection with the ongoing Phase III clinical trials. The Company made the
first payment in the quarter ended September 30, 2001. On May 8, 2002 the
Company and the NCI executed an amendment to the CRADA, which requires a single
payment of $350,000, due on September 30, 2002, in lieu of the quarterly
payments of the original agreement. Under the amendment, quarterly payments of
$530,000 will resume on October 1, 2002. On October 15, 2002 a new amendment to
the CRADA was executed under which the Company is not required to make the
$350,000 payment due to the NCI on September 30, 2002 nor the $530,000 payment
due on October 1, 2002. The next payment due from the Company is $530,000 within
30 days of the April 1, 2003 due date. Failure to remit this payment will
constitute the Company's unilateral termination of the CRADA and we will lose
the rights to commercialize the results of our research with the NCI. Successful
development of the vaccine, if approved by the FDA, from Phase III clinical
trials through commercialization will commit the Company to several years of
significant expenditures before revenues will be realized, if ever.

       The terms of the CRADA provide for the Company to be granted an exclusive
option to negotiate with the NCI for a license to commercialize certain
intellectual property resulting from the research conducted pursuant to the
CRADA. There can be no assurance that research under the CRADA will be
successful or, if it is successful, that the Company will be able to negotiate a
license on favorable terms. In addition, the Company may not be able to derive
any revenue from a license for a number of years.

       The agreement expires in September 2009, but may be unilaterally
terminated by either party by giving thirty days written notice. Certain
termination costs, as defined in the CRADA, will be the Company's responsibility
if the CRADA is terminated.

       Food and Drug Administration.

       The FDA has extensive regulatory authority over biopharmaceutical
products (drugs and biological products), manufacturing protocols and procedures
and the facilities in which mammalian proteins will be manufactured. Any new
bioproduct intended for use in humans (including, to a somewhat lesser degree,
in vivo biodiagnostic products), is subject to rigorous testing requirements
imposed by the FDA with respect to product efficacy and safety, possible
toxicity and side effects. FDA approval for the use of new bioproducts (which
can never be assured) requires several rounds of extensive preclinical testing
and clinical investigations




                                      F-23

<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS


conducted by the sponsoring pharmaceutical company prior to sale and use of the
product. At each stage, the approvals granted by the FDA include the
manufacturing process utilized to produce the product. Accordingly, our cell
culture systems used for the production of therapeutic or biotherapeutic
products are subject to significant regulation by the FDA under the Federal
Food, Drug and Cosmetic Act, as amended (the "FD&C Act").

       Product Liability

       The contract production services for therapeutic products that we offer
expose us to an inherent risk of liability as the proteins or other substances
manufactured by us, at the request and to the specifications of our customers,
could foreseeably cause adverse effects. We obtain agreements from our contract
production customers indemnifying and defending us from any potential liability
arising from such risk. There can be no assurance, however, that we will be
successful in obtaining such agreements in the future or that such
indemnification agreements will adequately protect us against potential claims
relating to such contract production services. We may also be exposed to
potential product liability claims by users of our products. A successful
partially or completely uninsured claim against us would have a material adverse
effect on our operations.

       Legal Proceedings

       During fiscal 2001 the Company entered into a settlement agreement in
connection with a patent infringement matter. The terms of the settlement
agreement provide for the Company and another plaintiff to be jointly paid an
aggregate principal amount of $1,000,000 plus interest at prime. The principal
amount is to be paid in increments of $50,000, $100,000 and $200,000 payable on
various dates beginning July 2001 and ending June 2004, when all interest
accrued on the principal shall be due and payable.

       The payments received from the defendant are to be shared by the Company
and the other plaintiff pursuant to a separate agreement, which provides for the
other plaintiff to receive up to $350,000 in the aggregate.

       During fiscal 2001 the Company received one payment of $50,000, which was
recorded as other income in the statement of operations. The Company also
recorded $50,000 of other expense related to professional fees that were
contingent upon a settlement being negotiated and paid.

       During fiscal 2002 the Company received one payment of $100,000, which
was recorded as other income in the statement of operations. The Company also
recorded $80,000 of other expense related to professional fees.

       The Company and the defendant also entered into a royalty agreement
whereby the defendant is to pay a royalty to the Company of three percent of its
product sales up to an aggregate of $3,000,000 in total royalty payments.

                                      F-24
<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS


       The Company is uncertain about future collections and is not able to
assess the defendant's ability to perform under the settlement agreement. As a
result, the Company will record additional payments as income when received.

        From time to time the Company is subject to various legal proceedings in
the normal course of business. Management believes that these proceedings will
not have a material adverse effect on the financial statements.

12.    RELATED PARTY TRANSACTIONS

       Pursuant to the Company's reorganization effective July 31, 1999, 520,000
shares (approximately 52%) of the Company's new common stock was issued to
Biovest LLC, of which the Company's Chairman of the Board and Chief Executive
Officer is also Chairman and Chief Executive Officer and of which the Company's
President is also President. Also pursuant to the reorganization, upon the
occurrence of certain events, effective March 15, 2000, 1,434,401 additional
shares were issued to Biovest LLC pursuant to the Company's Plan of
Reorganization, comprised of 230,000 shares, which were held in escrow since
July 31, 1999 and 1,204,401 shares issued on March 15, 2000.

       During 1999, Biovest LLC purchased the debt held by the Company's secured
lender in the amount of approximately $676,000 and made advances to the Company
of $185,000. During 2000, Biovest LLC made working capital advances to the
Company in the amount of $255,000 of which $150,000 was repaid by the Company.
In addition, Biovest LLC paid general and administrative expenses, expenses of
the private placement offering, deferred acquisition costs and other expenses on
behalf of the Company in the aggregate amount of approximately $377,000. During
2000, Biovest LLC paid approximately $1,745,000 to settle debt and accrued
interest on the Company's behalf. Accrued interest on the outstanding debt
totaled $48,000. During 2000, Biovest LLC received 2,508,952 shares of the
Company's common stock in exchange for cancellation of $3,136,000 in liabilities
payable by the Company to Biovest LLC. During 2001, the Company issued 196,281
shares of common stock to Biovest LLC in exchange for discharging its obligation
to Biovest LLC in the amount of $245,000.

       At September 30, 2000, Biovest LLC held 4,463,354 shares of the Company's
common stock or 49% of the Company's outstanding common stock. In August 2001,
Biovest LLC transferred all of its shares of the Company's common stock to
Biovest Corp., a New York corporation, and in September 2001, Biovest Corp.
reincorporated in Delaware under the name Biovests Corp., sold all of its assets
consisting of 4,672,749 shares of common stock to the Company and the Company
issued an equal number of shares of common stock to Biovests Corp., which then
liquidated all of its assets by distributing the shares to its shareholders.

13.    SUBSEQUENT EVENTS

       During the period from October 1, 2002 through December 19, 2002 the
Company negotiated extensions on 13 individual loans maturing at various times
within the first




                                      F-25

<PAGE>


                           BIOVEST INTERNATIONAL, INC.
                       (FORMERLY CELLEX BIOSCIENCES, INC.)
                          NOTES TO FINANCIAL STATEMENTS



four months of fiscal 2003 aggregating $1,100,000. These loans bear interest at
7.5% and are also convertible into shares of the Company's common stock at $1.00
per share, at the holder's option, if the Company wishes to pay amounts under
the loan before maturity. Nine of the loans aggregating $950,000 were extended
for two additional years. Two of these loans increased the amount loaned by
$25,000 each. In so doing they also become a secured creditor with respect to
the new loan, will receive interest on the increment at 7% and warrants
exercisable at $1.25 for five years in an amount equal to 25% of the number of
shares into which their total investment is convertible.

The remaining four notes payable aggregating $150,000 were extended for one
year, bear interest at 7.5%, and are convertible into shares of the Company's
common stock at $1.00 per share, at the holder's option, if the Company wishes
to pay amounts under the loan before maturity. One of these loans, amounting to
$50,000, includes the provision that the Company will begin repaying the
principal at the rate of $2000 per month beginning December, 16 2002 and each
month thereafter until the maturity date when the remaining principal and
accrued interest will be payable. In the event the Company should realize
proceeds from any source in the amount of at least $200,000, the Company shall
repay the balance of the note then outstanding within 15 days of receipt of the
proceeds. Further, in the event of any closing of a financing of capital
proceeds in an amount of $25,000 or more, the Company agrees to repay the loan
in the amount of 25% of the amount of the financing or the amount owed whichever
is smaller, within 15 days of the closing of the financing. Any event of default
in payments or other terms and conditions of this loan shall constitute a
material default in this loan and an affiliated loan for $50,000 due on October
11, 2003. Both loans would then be accelerated and subject to such remedies as a
money judgment and enforced collection of all remaining principal and accrued
interest owing at that time.

For assistance with the negotiations of the above extensions, the Company
repriced the 100,000 warrants previously issued with an exercise price of $2.50
per share and 100,000 warrants previously issued with an exercise price of $5.00
per share to a third party to $1.25 and $1.50 per share, respectively. The
warrants are exercisable immediately and have a term of five years.

                                      F-26